MATERION Corp (Form: 10-Q, Received: 04/29/2021 12:47:36)

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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 April 2, 2021

☐ 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 April 2, 2021: 20,413,705.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Materion Corporation and Subsidiaries

Consolidated Statements of Income (Loss)

(Unaudited)


	First Quarter Ended
(Thousands, except per share amounts)	April 2, 2021		March 27, 2020*
Net sales	$	354,386	$	277,946
Cost of sales	287,590		233,376
Gross margin	66,796		44,570
Selling, general, and administrative expense	36,776		30,744
Research and development expense	6,206		4,185
Goodwill impairment charges	—		9,053
Asset impairment charges	—		1,713
Restructuring (income) expense	(378)		2,164
Other—net	4,474		2,279
Operating profit (loss)	19,718		(5,568)
Other non-operating income—net	(1,276)		(944)
Interest expense—net	761		246
Income (loss) before income taxes	20,233		(4,870)
Income tax expense (benefit)	3,466		(992)
Net income (loss)	$	16,767	$	(3,878)
Basic earnings per share:
Net income (loss) per share of common stock	$	0.82	$	(0.19)
Diluted earnings per share:
Net income (loss) per share of common stock	$	0.81	$	(0.19)
Weighted-average number of shares of common stock outstanding:
Basic	20,374		20,384
Diluted	20,628		20,384

*Amounts for the period ended March 27, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


	First Quarter Ended
	April 2,		March 27
(Thousands)	2021		2020*
Net income (loss)	$	16,767	$	(3,878)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(8,857)		(873)
Derivative and hedging activity, net of tax	1,245		(854)
Pension and post-employment benefit adjustment, net of tax	164		16
Other comprehensive loss	(7,448)		(1,711)
Comprehensive income (loss)	$	9,319	$	(5,589)

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Balance Sheets


	(Unaudited)
	April 2,		Dec. 31,
(Thousands)	2021		2020
Assets
Current assets
Cash and cash equivalents	$	18,934	$	25,878
Accounts receivable, net	180,544		166,447
Inventories, net	272,828		250,778
Prepaid and other current assets	22,449		20,896
Total current assets	494,755		463,999
Deferred income taxes	1,932		3,134
Property, plant, and equipment	1,021,174		998,312
Less allowances for depreciation, depletion, and amortization	(692,101)		(688,626)
Property, plant, and equipment, net	329,073		309,686
Operating lease, right-of-use assets	59,826		62,089
Intangible assets, net	51,503		54,672
Other assets	20,791		19,364
Goodwill	140,392		144,916
Total Assets	$	1,098,272	$	1,057,860
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	1,541	$	1,937
Accounts payable	72,489		55,640
Salaries and wages	22,803		18,809
Other liabilities and accrued items	36,927		40,887
Income taxes	5,102		1,898
Unearned revenue	8,573		7,713
Total current liabilities	147,435		126,884
Other long-term liabilities	17,777		17,002
Operating lease liabilities	54,593		56,761
Finance lease liabilities	18,937		20,539
Retirement and post-employment benefits	39,662		41,877
Unearned income	92,301		86,761
Deferred income taxes	14,824		15,864
Long-term debt	51,407		36,542
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 April 2 and December 31)	264,940		258,642
Retained earnings	645,468		631,058
Common stock in treasury	(206,845)		(199,187)
Accumulated other comprehensive loss	(46,087)		(38,639)
Other equity	3,860		3,756
Total shareholders' equity	661,336		655,630
Total Liabilities and Shareholders’ Equity	$	1,098,272	$	1,057,860

See the notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended
	April 2,		March 27
(Thousands)	2021		2020*
Cash flows from operating activities:
Net income (loss)	$	16,767	$	(3,878)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, and amortization	8,599		14,274
Amortization of deferred financing costs in interest expense	182		182
Stock-based compensation expense (non-cash)	1,473		1,492

Deferred income tax expense (benefit)	382		(1,457)
Impairment charges	—		10,766
Changes in assets and liabilities:
Accounts receivable	(15,697)		11,049
Inventory	(23,219)		(15,718)
Prepaid and other current assets	(2,107)		1,127
Accounts payable and accrued expenses	19,224		(13,002)
Unearned revenue	932		(938)
Interest and taxes payable	3,164		368
Unearned income due to customer prepayments	5,890		7,113
Other-net	(140)		(2,248)
Net cash provided by operating activities	15,450		9,130
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment	(31,250)		(14,789)
Proceeds from sale of property, plant, and equipment	575		10
Net cash used in investing activities	(30,675)		(14,779)
Cash flows from financing activities:


Proceeds from borrowings under revolving credit agreement, net	14,955		—
Repayment of long-term debt	(377)		(142)
Principal payments under finance lease obligations	(675)		(233)
Cash dividends paid	(2,338)		(2,245)
Repurchase of common stock	—		(6,766)
Payments of withholding taxes for stock-based compensation awards	(2,838)		(2,015)
Net cash provided by (used in) financing activities	8,727		(11,401)
Effects of exchange rate changes	(446)		(381)
Net change in cash and cash equivalents	(6,944)		(17,431)
Cash and cash equivalents at beginning of period	25,878		125,007
Cash and cash equivalents at end of period	$	18,934	$	107,576

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity

(Unaudited)


	Common Shares		Shareholders' Equity
(Thousands, except per share amounts)	Common Shares	Common Shares Held in Treasury	Common Stock		Retained Earnings*		Common Stock in Treasury		Accumulated Other Comprehensive Loss		Other Equity		Total*
Balance at December 31, 2020	20,328	(6,820)	$	258,642	$	631,058	$	(199,187)	$	(38,639)	$	3,756	$	655,630
Net income	—	—	—		16,767		—		—		—		16,767
Other comprehensive loss	—	—	—		—		—		(7,448)		—		(7,448)
Cash dividends declared ($0.115 per share)	—	—	—		(2,338)		—		—		—		(2,338)
Stock-based compensation activity	127	127	6,259		(19)		(4,767)		—		—		1,473
Payments of withholding taxes for stock-based compensation awards	(43)	(43)	—		—		(2,838)		—		—		(2,838)
Directors’ deferred compensation	2	2	39		—		(53)		—		104		90
Balance at April 2, 2021	20,414	(6,734)	$	264,940	$	645,468	$	(206,845)	$	(46,087)	$	3,860	$	661,336

Balance at December 31, 2019	20,404	(6,744)	$	249,674	$	624,954	$	(186,845)	$	(45,462)	$	3,422	$	645,743
Net loss	—	—	—		(3,878)		—		—		—		(3,878)
Other comprehensive loss	—	—	—		—		—		(1,711)		—		(1,711)
Cash dividends declared ($0.11 per share)	—	—	—		(2,245)		—		—		—		(2,245)
Stock-based compensation activity	99	99	4,262		(35)		(2,643)		—		—		1,584
Payments of withholding taxes for stock-based compensation awards	(36)	(36)	—		—		(2,015)		—		—		(2,015)
Repurchase of shares	(158)	(158)	—		—		(6,766)		—		—		(6,766)
Directors’ deferred compensation	1	1	31		—		(42)		—		68		57
Balance at March 27, 2020	20,310	(6,838)	$	253,967	$	618,796	$	(198,311)	$	(47,173)	$	3,490	$	630,769

See notes to these consolidated financial statements.

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 adjustments were of a normal and recurring nature. Certain amounts in prior periods have been reclassified to conform to the 2021 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 2020 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year.

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

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

Change in Accounting Principle: During the fourth quarter of 2020, the Company elected to change its method for valuing its inventories at locations that previously used the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The Company believes that the FIFO method is preferable as it improves comparability with its most similar peers, it more closely resembles the physical flow of its inventory (i.e., it provides better matching of revenues and expenses), and it results in uniformity across a significant majority of the Company’s inventory. The effects of the change in accounting principle from LIFO to FIFO were retrospectively applied. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheets as of March 27, 2020 and the consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for the three months ended March 27, 2020 were adjusted as necessary. For further information, refer to the Company's 2020 Annual Report on Form 10-K.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following tables reflect the impact to the financial statement line items as a result of the change in accounting principle for the prior periods presented in the accompanying financial statements:

Consolidated Statement of Income


(Thousands except per share amounts)
	First Quarter Ended
	March 27, 2020
Selected Items	As Reported		As Adjusted		Adjustment
Cost of sales	$	232,371	$	233,376	$	1,005
Gross margin	45,575		44,570		(1,005)
Operating loss	(4,563)		(5,568)		(1,005)
Loss before income taxes	(3,865)		(4,870)		(1,005)
Income tax (benefit)	(762)		(992)		(230)
Net loss	(3,103)		(3,878)		(775)
Basic earnings per share:
Net loss per share of common stock	$	(0.15)	$	(0.19)	$	(0.04)
Diluted earnings per share:
Net loss per share of common stock	$	(0.15)	$	(0.19)	$	(0.04)

Consolidated Statement of Comprehensive Income (Loss)


(Thousands)
	First Quarter Ended
	March 27, 2020
Selected Items	As Reported		As Adjusted		Adjustment
Net loss	$	(3,103)	$	(3,878)	$	(775)
Comprehensive loss	(4,814)		(5,589)		(775)

Consolidated Statement of Cash Flow


(Thousands)
	Three Months Ended
	March 27, 2020
Selected Items	As Reported		As Adjusted		Adjustment
Net loss	$	(3,103)	$	(3,878)	$	(775)
Deferred income tax benefit	(1,227)		(1,457)		(230)
Decrease (increase) in inventory	(16,723)		(15,718)		1,005

New Pronouncements Adopted: In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing various exceptions, such as the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments in this update also simplify the accounting for income taxes related to income-based franchise taxes and require that an entity reflect enacted tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted the standard on January 1, 2021. The adoption did not materially impact the Company's financial statements or disclosures.

New Accounting Guidance Issued and Not Yet Adopted: In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance is intended

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate, and will determine the timing for implementation of this guidance at the completion of that analysis.

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 — Acquisition

Business acquisitions have been accounted for using the acquisition method, with acquired assets and assumed liabilities recognized at their respective fair values as of the acquisition date. The cost in excess of the net assets of the business acquired is included in goodwill.

On July 17, 2020, the Company completed the acquisition of Optics Balzers AG (Optics Balzers), an industry leader in thin film optical coatings. The purchase price for Optics Balzers was $136.1 million, including the assumption of $22.5 million of debt. The transaction was funded with cash on hand. Based on the fair value of assets acquired and liabilities assumed, goodwill of $70.8 million and identifiable intangible assets of $49.3 million were recorded. Goodwill associated with this acquisition is not tax deductible. This acquisition is being reported in our Precision Optics segment and the results of Optics Balzers are not material to our Consolidated Financial Statements. No material measurement period adjustments have been recorded during the first quarter of 2021. As of April 2, 2021, the purchase price allocation remains preliminary as the Company completes its assessments of income taxes.

Note C — Segment Reporting

The Company has the following reportable segments: Performance Alloys and Composites, Advanced 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 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 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.


(Thousands)	Performance Alloys and Composites		Advanced Materials		Precision Optics		Other		Total
First Quarter 2021
Net sales	$	114,143	$	204,644	$	35,599	$	—	$	354,386
Intersegment sales	5		2,687		—		—		2,692
Operating profit (loss)	13,491		8,933		4,558		(7,264)		19,718
First Quarter 2020
Net sales	$	99,067	$	160,165	$	18,714	$	—	$	277,946
Intersegment sales	215		9,191		—		—		9,406
Operating profit (loss)	3,523		5,050		(9,592)		(4,549)		(5,568)

The following table disaggregates revenue for each segment by end market for the first quarter of 2021 and 2020:


(Thousands)	Performance Alloys and Composites		Advanced Materials		Precision Optics		Other		Total
First Quarter 2021
End Market
Semiconductor	$	997	$	155,061	$	471	$	—	$	156,529
Industrial	24,030		12,590		7,375		—		43,995
Aerospace and defense	21,842		1,398		6,576		—		29,816
Consumer electronics	10,044		165		9,460		—		19,669
Automotive	23,507		1,669		2,193		—		27,369
Energy	4,137		27,190		—		—		31,327
Telecom and data center	11,343		70		—		—		11,413
Other	18,243		6,501		9,524		—		34,268
Total	$	114,143	$	204,644	$	35,599	$	—	$	354,386

First Quarter 2020
End Market
Semiconductor	$	906	$	120,819	$	11	$	—	$	121,736
Industrial	23,340		8,362		3,097		—		34,799
Aerospace and defense	14,206		1,426		5,109		—		20,741
Consumer electronics	14,695		118		3,541		—		18,354
Automotive	18,163		2,080		17		—		20,260
Energy	5,429		23,468		—		—		28,897
Telecom and data center	9,989		871		—		—		10,860
Other	12,339		3,021		6,939		—		22,299
Total	$	99,067	$	160,165	$	18,714	$	—	$	277,946

Intersegment sales are eliminated in consolidation.

Note D — 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 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 April 2, 2021. 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 April 2, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $81.9 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)	April 2, 2021		December 31, 2020		$ change		% change
Accounts receivable, trade	$	166,411	$	156,821	$	9,590	6	%
Unbilled receivables	13,895		8,832		5,063		57	%
Unearned revenue	8,573		7,713		860		11	%

Accounts receivable, trade represents payments due from customers relating to the transfer of the Company’s products and services. The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded. Impairment losses (bad debt) incurred relating to our receivables were immaterial during the first quarter of 2021.

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 $2.4 million of the December 31, 2020 unearned amounts as revenue during the first three months of 2021.

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

Note E — Other-net

Other-net for the first quarter of 2021 and 2020 is summarized as follows:


	First Quarter Ended
	April 2,		March 27
(Thousands)	2021		2020
Metal consignment fees	$	2,150	$	2,229
Amortization of intangible assets	1,173		188
Foreign currency loss (gain)	1,249		(62)
Net (gain) loss on disposal of fixed assets	(388)		46
Other items	290		(122)
Total	$	4,474	$	2,279

Note F — Restructuring

During 2020, the Company determined it would close its Large Area Coatings (LAC) business (a reporting unit in the Precision Optics segment). The closure was substantially completed by the end of the first quarter of 2021. Income of $0.4 million was recorded in 2021 primarily related to lower than previously estimated facility closure costs that were recorded in 2020.

Remaining severance payments of $0.2 million are reflected in Salaries and wages in the Consolidated Balance Sheet as of April 2, 2021 and are expected to be substantially paid by the end of 2021. Any additional costs related to the closure of this business are expected to be immaterial.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

In addition, during 2020, the Company initiated a restructuring plan in its Performance Alloys and Composites 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 and $1.3 million of facility and other related costs. This plan was substantially complete by the end of 2020.

Remaining severance payments of $0.2 million and facility costs of $0.5 million related to these initiatives are reflected within Salaries and wages and Other liabilities and accrued items, respectively, in the Consolidated Balance Sheets and are expected to be substantially paid by the end of the second quarter of 2021.

Note G — Income Taxes

The Company's effective tax rate for the first quarter of 2021 and 2020 was 17.1% and 20.4%, respectively. The effective tax rate for the first quarter of 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion and research and development credits. The effective tax rate for the first three months of 2021 included a net discrete income tax benefit of $0.3 million, primarily related to excess tax benefits from stock-based compensation awards. The effective tax rate for the first quarter of 2020 included a net discrete income tax expense of $0.2 million, primarily related to an impairment of goodwill and excess tax benefits from stock-based compensation awards.

On March 11, 2021, President Biden signed the American Rescue Plan (the Plan) into law. The Plan, among other things, extends and enhances a number of current-law tax incentives for businesses. While the Company continues to examine the impacts the Plan may have on its business, it does not expect it will have a material impact to its consolidated financial statements.

Note H — Earnings Per Share (EPS)

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


	First Quarter Ended
	April 2,		March 27
(Thousands, except per share amounts)	2021		2020
Numerator for basic and diluted EPS:
Net income (loss)	$	16,767	$	(3,878)
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding	20,374		20,384
Effect of dilutive securities:
Stock appreciation rights	72		—
Restricted stock units	108		—
Performance-based restricted stock units	74		—
Diluted potential common shares	254		—
Denominator for diluted EPS:
Adjusted weighted-average shares outstanding	20,628		20,384
Basic EPS	$	0.82	$	(0.19)
Diluted EPS	$	0.81	$	(0.19)

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 63,627 and 302,573 for the quarters ended April 2, 2021 and March 27, 2020, respectively. These securities are primarily related to restricted stock units and stock appreciation rights with fair market values and exercise prices greater than the average market price of the Company's common shares and were excluded from the dilution calculation as the effect would have been anti-dilutive.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Additionally, adjusted weighted-average shares outstanding - diluted for the three months ended March 27, 2020 exclude the dilutive effect of approximately 239,000 shares, primarily related to restricted stock units and stock appreciation rights, as their inclusion would have been anti-dilutive due to the Company's net loss.

Note I — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:


	April 2,		December 31,
(Thousands)	2021		2020
Raw materials and supplies	$	59,384	$	42,905
Work in process	164,497		156,093
Finished goods	48,947		51,780
Inventories, net	$	272,828	$	250,778

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 price movements and to reduce its working capital investment. The notional value of off-balance sheet precious metals and copper was $411.9 million and $400.0 million as of April 2, 2021 and December 31, 2020, respectively. Amounts for the year ended December 31, 2020 have been revised to reflect a $44.6 million reclassification out of work in process and into finished goods inventory.

Note J — Customer Prepayments

The Company entered into investment and master supply agreements with a customer to procure equipment to manufacture product for the customer. The customer is providing prepayments to the Company in the amount of approximately $70 million in the aggregate to enable the Company to purchase and install certain equipment and make necessary infrastructure improvements to supply product to the customer. The Company will own the equipment and be responsible for operating and maintenance costs. The prepayment from the customer will be applied when commercial production of the product is sold and delivered to the customer in connection with a master supply agreement. Accordingly, as of April 2, 2021 and December 31, 2020, $64.7 million and $58.8 million, respectively, of prepayments are classified as Unearned Income in the Consolidated Balance Sheet, of which $5.9 million was received during the first quarter of 2021.

Note K — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the first quarter of 2021 and 2020 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
	First Quarter Ended				First Quarter Ended
	April 2,		March 27		April 2,		March 27
(Thousands)	2021		2020		2021		2020
Components of net periodic benefit (income) cost
Service cost	$	—	$	—	$	20	$	15
Interest cost	986		1,215		29		53
Expected return on plan assets	(2,234)		(2,205)		—		—
Amortization of prior service cost (benefit)	—		—		(374)		(374)
Amortization of net loss (gain)	418		284		(69)		(83)
Total net benefit (income) cost	$	(830)	$	(706)	$	(394)	$	(389)

The Company did not make any contributions to its domestic defined benefit plan in the first quarter of 2021 or 2020.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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.

In May 2019, the Company's Board of Directors approved changes to the U.S. defined benefit pension plan. The Company froze the pay and service amounts used to calculate pension benefits for active participants in the pension plan as of January 1, 2020.

Note L — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the first quarter of 2021 and 2020 are as follows:


	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, 2020	$	519	$	(170)	$	468	$	817	$	(43,473)	$	4,017	$	(38,639)
Other comprehensive income (loss) before reclassifications	1,085		741		1,291		3,117		—		(8,857)		(5,740)
Amounts reclassified from accumulated other comprehensive income (loss)	140		(104)		(1,534)		(1,498)		157		—		(1,341)
Net current period other comprehensive (loss) income before tax	1,225		637		(243)		1,619		157		(8,857)		(7,081)
Deferred taxes	282		147		(55)		374		(7)		—		367
Net current period other comprehensive (loss) income after tax	943		490		(188)		1,245		164		(8,857)		(7,448)
Balance at April 2, 2021	$	1,462	$	320	$	280	$	2,062	$	(43,309)	$	(4,840)	$	(46,087)

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 (loss)	(1)		318		321		638		(24)		—		614
Net current period other comprehensive (loss) income before tax	(143)		(505)		(457)		(1,105)		(24)		(873)		(2,002)
Deferred taxes	(33)		(116)		(102)		(251)		(40)		—		(291)
Net current period other comprehensive (loss) income after tax	(110)		(389)		(355)		(854)		16		(873)		(1,711)
Balance at March 27, 2020	$	1,214	$	(841)	$	(330)	$	43	$	(41,330)	$	(5,886)	$	(47,173)

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

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

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note M — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was $1.6 million and $1.0 million in the first quarter of 2021 and 2020, respectively.

The Company granted 52,709 stock appreciation rights (SARs) to certain employees during the first quarter of 2021. The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the three months ended April 2, 2021 were $68.82 and $20.66, 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	0.57	%
Dividend yield	0.7	%
Volatility	37.6	%
Expected term (in years)	4.6

The Company granted 53,199 stock-settled restricted stock units (RSUs) to certain employees during the first quarter of 2021. 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 $68.49 for stock-settled RSUs granted to employees during the three months ended April 2, 2021. RSUs are generally expensed over the vesting period of three years for employees.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first quarter of 2021. The weighted-average fair value of the stock-settled PRSUs was $83.78 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 its total return to shareholders over the vesting period relative to a peer group’s performance over the same period.

At April 2, 2021, unamortized compensation cost related to the unvested portion of all stock-based awards was approximately $13.8 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note N — Fair Value of Financial Instruments

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

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

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

Level 3 — Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect

those that a market participant would use.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of April 2, 2021 and December 31, 2020:



(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)
	2021		2020		2021		2020		2021		2020		2021		2020
Financial Assets
Deferred compensation investments	$	3,802	$	3,802	$	3,802	$	3,802	$	—	$	—	$	—	$	—
Foreign currency forward contracts	299		107		—		—		299		107		—		—
Precious metal swaps	418		127		—		—		418		127		—		—
Copper swaps	550		632		—		—		550		632		—		—
Total	$	5,069	$	4,668	$	3,802	$	3,802	$	1,267	$	866	$	—	$	—
Financial Liabilities
Deferred compensation liability	$	3,802	$	3,802	$	3,802	$	3,802	$	—	$	—	$	—	$	—
Foreign currency forward contracts	685		1,203		—		—		685		1,203		—		—
Precious metal swaps	3		349		—		—		3		349		—		—
Copper swaps	188		27		—		—		188		27		—		—
Total	$	4,678	$	5,381	$	3,802	$	3,802	$	876	$	1,579	$	—	$	—

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 April 2, 2021 and December 31, 2020. 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 O — 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 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

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

can be structured to be cash neutral. The Company will primarily hedge with forward contracts due to the relationship between the cash outlay and the level of risk.

The use of foreign currency derivative contracts is governed by policies approved by the Audit Committee of the Board of Directors. A team consisting of senior financial managers reviews the estimated exposure levels, as defined by budgets, forecasts, and other internal data, and determines the timing, amounts, and instruments to use to hedge exposures. Management analyzes the effective hedged rates and the actual and projected gains and losses on the hedging transactions against the program objectives, targeted rates, and levels of risk assumed. Foreign currency contracts are typically layered in at different times for a specified exposure period in order to minimize the impact of market rate movements.

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. The Company also uses copper in 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 the Company's price exposure to copper is generally in balance, there can be a lag between the change in the Company's cost and the pass-through to its customers, resulting in higher or lower margins in a given period. To mitigate this impact, 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 to maturity. The Company does not engage in derivative trading activities and does not use derivatives for speculative purposes. The Company only uses hedge contracts that are denominated in the same currency or metal as the underlying exposure.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives not designated as hedging instruments (on a gross basis) and balance sheet classification as of April 2, 2021 and December 31, 2020:


	April 2, 2021				December 31, 2020
(Thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign currency forward contracts
Prepaid expenses	$	4,261	$	45	$	62,012	$	107
Other liabilities and accrued items	63,062		509		7,695		55

These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net included $1.6 million and $0.6 million of foreign currency gains related to derivatives in the first quarter of 2021 and 2020, respectively.

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives designated as cash flow hedges (on a gross basis) and balance sheet classification as of April 2, 2021 and December 31, 2020:


	April 2, 2021				December 31, 2020
(Thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Prepaid expenses
Foreign currency forward contracts - yen	$	2,887	$	108	$	—	$	—
Foreign currency forward contracts - euro	12,818		129		—		—
Precious metal swaps	4,568		418		2,155		127
Copper swaps	6,533		550		6,225		632
Total	26,806		1,205		8,380		759

Other assets
Foreign currency forward contracts - yen	111		2		—		—
Foreign currency forward contracts - euro	1,202		15		—		—
Total	1,313		17		—		—

Other liabilities and accrued items
Foreign currency forward contracts - yen	—		—		2,668		59
Foreign currency forward contracts - euro	2,179		176		17,611		1,089
Precious metal swaps	515		3		4,964		349
Copper swaps	4,254		188		2,445		27
Total	6,948		367		27,688		1,524

Total	$	35,067	$	855	$	36,068	$	765

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 April 2, 2021 to the Consolidated Statements of Income within the next 15-month period. Refer to Note L 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 first quarter of 2021 and 2020:


		First Quarter Ended
(Thousands)		April 2, 2021		March 27, 2020
Hedging relationship	Line item
Foreign currency forward contracts	Net sales	$	140	$	(1)
Precious metal swaps	Cost of sales	(104)		318
Copper swaps	Cost of sales	(1,534)		321
Total		$	(1,498)	$	638

Note P — Contingencies

Legal Proceedings. For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims, refer to Note T ("Contingencies and Commitments") in the Company's 2020 Annual Report on Form 10-K.

Two beryllium cases were outstanding as of April 2, 2021. The Company does not expect the resolution of these matters 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.

On October 14, 2020, Garett Lucyk, et al. v. Materion Brush Inc., et. al., case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc. (collectively, the Company). Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility, alleges that he and other similarly situated employees nationwide are not paid for all time they spend donning and doffing personal protective equipment in violation of the Fair Labor Standards Act and Ohio law. Plaintiff also alleges the Company failed to include all remuneration he and others received for premium and bonus pay when computing overtime pay. The case is currently in the preliminary stages. The Company believes that it has substantive defenses and intends to vigorously defend this suit.

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 $5.4 million and $5.5 million at April 2, 2021 and December 31, 2020, respectively. Environmental projects tend to be long-term, and the final actual remediation costs may differ from the amounts currently recorded.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note Q — Debt


(Thousands)	April 2, 2021		December 31, 2020
Borrowings under Credit Agreement	$	48,955	$	34,000
Foreign debt	2,880		3,157
Fixed rate industrial development revenue bonds	1,113		1,322
Total debt outstanding	52,948		38,479
Current portion of long-term debt	(1,541)		(1,937)
Long-term debt	$	51,407	$	36,542

As of April 2, 2021 and December 31, 2020, the Company had $49.0 million and $34.0 million, respectively, outstanding against its revolving credit facility with average interest rates of 1.88% and 1.65% at April 2, 2021 and December 31, 2020, respectively. The remaining borrowing capacity under the revolving credit facility as of April 2, 2021 and December 31, 2020 was $250.4 million and $245.8 million, respectively. The Company has the option to repay or borrow additional funds under the revolving credit facility until the maturity date in 2024. 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 April 2, 2021.

At both April 2, 2021 and December 31, 2020, there was $48.1 million outstanding against the letters of credit sub-facility.


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

OVERVIEW

We are an integrated producer of high-performance advanced engineered materials used in a variety of electrical, electronic, thermal, and structural applications. Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, energy, and telecom and data center.

Coronavirus (COVID-19) First Quarter 2021 Update

The significant macroeconomic impact of the ongoing COVID-19 pandemic impacted several of our end markets throughout 2020 primarily in the first half of the year in the form of reduced demand, particularly in the consumer electronics, automotive, energy, aerospace and defense, and industrial end markets. During the first quarter of 2021, we began to see improvements in demand as global government-imposed restrictions continued to be lifted and many country vaccination programs gained momentum. However, the world continues to be impacted by the COVID-19 pandemic and the impact on our operations and the markets we serve is fluid and will depend largely on future developments, including the availability and effectiveness of vaccines globally, new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the pandemic or mitigate its economic, public health, and other impacts. These developments are constantly evolving and cannot be accurately predicted. We continue to invest in the business, people, and strategies necessary to achieve our long-term priorities as we focus on driving profitable growth. We have continued to operate during the course of the COVID-19 pandemic in all our production facilities, having taken the recommended public health measures to ensure worker and workplace safety.

RESULTS OF OPERATIONS

First Quarter


	First Quarter Ended
	April 2,			March 27			$		%
(Thousands, except per share data)	2021			2020			Change		Change
Net sales	$	354,386		$	277,946		$	76,440	28	%
Value-added sales	198,582			153,971			44,611		29	%
Gross margin	66,796			44,570			22,226		50	%
Gross margin as a % of value-added sales	34		%	29		%
Selling, general, and administrative (SG&A) expense	36,776			30,744			6,032		20	%
SG&A expense as a % of value-added sales	19		%	20		%
Research and development (R&D) expense	6,206			4,185			2,021		48	%
R&D expense as a % of value-added sales	3		%	3		%
Impairment charges	—			10,766			(10,766)		NM
Restructuring (income) expense	(378)			2,164			(2,542)		NM
Other—net	4,474			2,279			2,195		96	%
Operating profit (loss)	19,718			(5,568)			25,286		NM
Other non-operating (income)—net	(1,276)			(944)			(332)		35	%
Interest expense—net	761			246			515		209	%
Income (loss) before income taxes	20,233			(4,870)			25,103		NM
Income tax expense (benefit)	3,466			(992)			4,458		NM
Net income (loss)	$	16,767		$	(3,878)		$	20,645	NM

Diluted earnings per share	$	0.81		$	(0.19)		$	1.00	NM

NM = Not Meaningful

Net sales of $354.4 million in the first quarter of 2021 increased $76.5 million from $277.9 million in the first quarter of 2020. Net sales increased in all of our segments primarily due to increased volumes, as well as due to sales attributable to our Optics Balzers acquisition, which was completed during the third quarter of 2020. The change in precious metal and copper prices favorably impacted net sales during the first quarter of 2021 by $18.6 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 $198.6 million in the first quarter of 2021 increased $44.6 million, or 29%, compared to the first quarter of 2020. The increase is primarily driven by increased value-added sales into the semiconductor, aerospace and defense, and automotive end markets, as well as value-added sales from our Optics Balzers acquisition.

Gross margin in the first quarter of 2021 was $66.8 million, which was up 50% compared to the first quarter of 2020. Gross margin expressed as a percentage of value-added sales increased to 34% in the first quarter of 2021 from 29% in the first quarter of 2020. The increase was primarily driven by increased sales volumes in 2021. In addition, gross margin in the first quarter of 2020 included a $1.3 million charge to reserve for slow moving and excess inventory related to the oil and gas industry.

SG&A expense was $36.8 million in the first quarter of 2021, compared to $30.7 million in the first quarter of 2020. The increase in SG&A expense for the first quarter of 2021 was primarily driven by increased variable compensation expense. Expressed as a percentage of value-added sales, SG&A expense was 19% and 20% in the first quarter of 2021 and 2020, 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 accounted for 3% of value-added sales in the first quarter of both 2021 and 2020.

Impairment charges includes non-recurring charges relating to goodwill and other assets recorded in the first quarter of 2020 in our Precision Optics segment.

Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. During the first quarter of 2021, we substantially completed the closure of our LAC business and recorded $0.4 million of income related to lower than expected facility closure costs that were recorded in 2020.

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 F to the Consolidated Financial Statements for additional discussion.

Other-net was $4.5 million of expense in the first quarter of 2021, or a $2.2 million increase from the first quarter of 2020, which was primarily driven by $1.3 million of increased foreign exchange losses and $1.0 million of increased intangible asset amortization expense, related to the acquisition of Optics Balzers in July 2020. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

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

Interest expense-net was $0.8 million and $0.2 million in the first quarter of 2021 and 2020, respectively. The increase in interest expense is primarily due to reduced interest income from investments in money market accounts, as well as increased borrowings under our revolving credit facility.

Income tax expense (benefit) for the first quarter of 2021 was expense of $3.5 million, compared to a benefit of $1.0 million in the first quarter of 2020. The effective tax rate for the first quarter of 2021 and 2020 was 17.1% and 20.4%, respectively. The effective tax rate for the first quarter of 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion and research and development credits. See Note G to the Consolidated Financial Statements for additional discussion.

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 first quarter of 2021 and 2020 is as follows:


	First Quarter Ended
	April 2,		March 27
(Thousands)	2021		2020
Net sales
Performance Alloys and Composites	$	114,143	$	99,067
Advanced Materials	204,644		160,165
Precision Optics	35,599		18,714
Other	—		—
Total	$	354,386	$	277,946

Less: pass-through metal costs
Performance Alloys and Composites	$	13,311	$	15,352
Advanced Materials	141,695		105,672
Precision Optics	34		1,725
Other	764		1,226
Total	$	155,804	$	123,975

Value-added sales
Performance Alloys and Composites	$	100,832	$	83,715
Advanced Materials	62,949		54,493
Precision Optics	35,565		16,989
Other	(764)		(1,226)
Total	$	198,582	$	153,971

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.

The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile. Our pricing policy is to directly pass the cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations. Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability. During the first quarter of 2021, we added ruthenium, iridium, rhodium, rhenium, and osmium to our definition of value-added sales as the costs of these materials are treated as pass-through and the business use and price volatility of these materials has increased in recent periods. Prior period value-added sales amounts have been recast to reflect this change.

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 Optics, and Other. The Other reportable segment includes unallocated corporate costs.

Performance Alloys and Composites

First Quarter


	First Quarter Ended
	April 2,		March 27		$		%
(Thousands)	2021		2020		Change		Change
Net sales	$	114,143	$	99,067	$	15,076	15	%
Value-added sales	100,832		83,715		17,117		20	%
Operating profit	13,491		3,523		9,968		283	%

Net sales from the Performance Alloys and Composites segment of $114.1 million in the first quarter of 2021 increased 15% compared to net sales of $99.1 million in the first quarter of 2020. The increase was due to sales related to our new precision clad engineered strip project, as well as increased sales into the aerospace and defense and automotive end markets.

Value-added sales of $100.8 million in the first quarter of 2021 were 20% higher than value-added sales of $83.7 million in the first quarter of 2020. The increase in value-added sales was due to the same factors driving the increase in net sales.

Performance Alloys and Composites generated operating profit of $13.5 million in the first quarter of 2021 compared to $3.5 million in the first quarter of 2020. The increase in operating profit was primarily due to increased sales volumes. Operating profit for the first quarter of 2020 included restructuring charges of $2.2 million related to the closure of our Warren, Michigan and Fremont, California facilities, as well as a $1.3 million charge to reserve for slow moving and excess inventory related to the oil and gas industry.

Advanced Materials

First Quarter


	First Quarter Ended
	April 2,		March 27		$	%
(Thousands)	2021		2020		Change	Change
Net sales	$	204,644	$	160,165	44,479	28	%
Value-added sales	62,949		54,493		8,456	16	%
Operating profit	8,933		5,050		3,883	77	%

Net sales from the Advanced Materials segment of $204.6 million in the first quarter of 2021 were 28% higher than net sales of $160.2 million in the first quarter of 2020. The increase in net sales was primarily due to increased volumes, as well as the impact of higher pass-through metal prices of $19.7 million.

Value-added sales of $62.9 million in the first quarter of 2021 increased 16% compared to value-added sales of $54.5 million in the first quarter of 2020. The increase was primarily driven by increased value-added sales into the semiconductor end market.

The Advanced Materials segment generated operating profit of $8.9 million in the first quarter of 2021 compared to $5.1 million in the first quarter of 2020. The increase in operating profit is due to increased sales volumes partially offset by increased variable compensation expense.

Precision Optics

First Quarter


(Thousands)	First Quarter Ended
	April 2,		March 27		$	%
	2021		2020		Change	Change
Net sales	$	35,599	$	18,714	16,885	90	%
Value-added sales	35,565		16,989		18,576	109	%
Operating profit (loss)	4,558		(9,592)		14,150	NM

NM = Not Meaningful

Net sales from the Precision Optics segment of $35.6 million in the first quarter of 2021 increased 90% compared to net sales of $18.7 million in the first quarter of 2020. The increase was primarily due to sales attributable to our Optics Balzers acquisition, partially offset by lower sales related to our LAC reporting unit, whose closure was finalized in the first quarter of 2021, and projection display products.

Value-added sales of $35.6 million in the first quarter of 2021 increased 109% compared to value-added sales of $17.0 million in the first quarter of 2020. The increase in value-added sales was due to the same factors driving the increase in net sales.

The Precision Optics segment generated an operating profit of $4.6 million in the first quarter of 2021, compared to an operating loss of $9.6 million in the first quarter of 2020. The operating profit in the first quarter of 2021 was driven by increased sales volumes, as well as our Optics Balzers acquisition. The operating loss in the first quarter of 2020 included a goodwill impairment charge of $9.1 million and an other assets impairment charge of $1.7 million related to our LAC reporting unit.

Other

First Quarter


(Thousands)	First Quarter Ended
	April 2,		March 27		$	%
	2021		2020		Change	Change
Net sales	$	—	$	—	—	—	%
Value-added sales	(764)		(1,226)		462	(38)	%
Operating loss	(7,264)		(4,549)		(2,715)	60	%

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs were $7.3 million in the first quarter of 2021 compared to $4.5 million in the first quarter of 2020. Corporate costs accounted for 4% and 3% of Company-wide value-added sales in the first quarter of 2021 and 2020, respectively. The increase in corporate costs in the first quarter of 2021 compared to the first quarter of 2020 is primarily related to increased variable compensation expenses.

FINANCIAL POSITION

Cash Flow

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


	Three Months Ended
	April 2,		March 27		$
(Thousands)	2021		2020		Change
Net cash provided by operating activities	$	15,450	$	9,130	$	6,320
Net cash used in investing activities	(30,675)		(14,779)		(15,896)
Net cash provided by (used in) financing activities	8,727		(11,401)		20,128
Effects of exchange rate changes	(446)		(381)		(65)
Net change in cash and cash equivalents	$	(6,944)	$	(17,431)	$	10,487

Net cash provided by operating activities totaled $15.5 million in the first three months of 2021 versus $9.1 million in the prior-year period. The increase in operating cash flow was primarily due to increased net income of $20.6 million. In addition, working capital requirements used cash of $19.7 million and $17.7 million during the first three months of 2021 and 2020, respectively. Cash flows used in accounts receivable were $26.7 million higher than in the prior-year period. Three-month trailing days sales outstanding was approximately 43 days at April 2, 2021 and 41 days at December 31, 2020. Cash flows used for inventory were $23.2 million in the first quarter of 2021, compared to a use of $15.7 million of cash in the prior-year period. Cash flows provided by accounts payable and accrued expenses were $19.2 million compared to the prior-year period use of cash of $13.0 million.

Net cash used in investing activities was $31.3 million in the first quarter of 2021 compared to $14.8 million in the prior-year period due increased capital expenditures, primarily related to investments in new equipment funded by customer prepayments. See Note J 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 2021, the Company expects payments for property, plant, and equipment to be approximately $100.0 million.

Net cash provided by financing activities totaled $8.7 million in the first three months of 2021 versus $11.4 million used in financing activities in the comparable prior-year period. The increase is primarily due to increased net borrowings of $15.0 million under our revolving credit facility in the first quarter of 2021, partially offset by payments made for taxes withheld on stock-based compensation awards and dividends.

Liquidity

We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions. At April 2, 2021, cash and cash equivalents held by our foreign operations totaled $17.1 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 April 2, 2021 and December 31, 2020 is as follows:


	April 2,		December 31,
(Thousands)	2021		2020
Cash and cash equivalents	$	18,934	$	25,878
Total outstanding debt	52,960		38,506
Net debt	$	(34,026)	$	(12,628)
Available borrowing capacity	$	250,418	$	245,772

Net (debt) cash is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We

believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods.

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

In 2019, we amended and restated the agreement governing our $375.0 million revolving credit facility (Credit Agreement). The maturity date of the Credit Agreement was extended from 2020 to 2024, and the 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 the Company to borrow money at a premium over LIBOR or a 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 April 2, 2021. Cash on hand does not affect the covenants or the borrowing capacity under our debt agreements.

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 August 2022 totaled approximately $38.1 million as of April 2, 2021, compared to $50.0 million as of December 31, 2020. 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. We did not repurchase any shares under this program in the first quarter of 2021. Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million.

We paid cash dividends of $2.3 million on our common stock in the first quarter of 2021. 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 $411.9 million and $400.0 million as of April 2, 2021 and December 31, 2020, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of April 2, 2021. For additional information on our contractual obligations, refer to our 2020 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 2020 Annual Report on Form 10-K.

Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity; the global economy, including the impact of tariffs and trade agreements; 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; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses, including the integration of Optics Balzers; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions, including, without limitation, the acquisition of Optics Balzers being accretive in the expected timeframe or at all; 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; 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 the Company's 2020 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 2020 Annual Report on Form 10-K. There have been no material changes in our market risks since the inclusion of this discussion in our 2020 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 April 2, 2021 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 April 2, 2021.

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 April 2, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II OTHER INFORMATION


Item 1.			Legal Proceedings

Our subsidiaries and our holding company are subject, from time to time, to a variety of civil and administrative proceedings arising out of our normal operations, including, without limitation, product liability claims, health, safety, and environmental claims, and employment-related actions. Among such proceedings are cases alleging that plaintiffs have contracted, or have been placed at risk of contracting, beryllium sensitization or chronic beryllium disease or other lung conditions as a result of exposure to beryllium (beryllium cases). The plaintiffs in beryllium cases seek recovery under negligence and various other legal theories and demand compensatory and often punitive damages, in many cases of an unspecified sum. Spouses of some plaintiffs claim loss of consortium.

Beryllium Claims

As of April 2, 2021, our subsidiary, Materion Brush Inc., was a defendant in two beryllium cases. During 2020, one beryllium case was filed. In Richard Miller v. Dolphin, Inc. et al., case number CV2020-005163, filed in the Superior Court of Arizona, Maricopa County, the Company is one of six named defendants and 100 Doe defendants. The plaintiff alleges that he contracted beryllium disease from exposures to beryllium-containing products supplied to his employer, Karsten Manufacturing Corporation, where he was a production worker, and asserts claims for negligence, strict liability – failure to warn, strict liability – design defect, and fraudulent concealment. The plaintiff seeks general damages, medical expenses, loss of earnings, consequential damages, and punitive damages. A co-defendent, Dolphin, Inc., filed a cross-claim against the Company for indemnification. On August 12, 2020, the Company moved to dismiss the cross-claim for failure to state a claim upon which relief can be granted. The court denied the motion on October 23, 2020. On December 7, 2020, the Company filed a Petition for Special Action in the Court of Appeals seeking to appeal the motion to dismiss the cross-claim. The Court of Appeals declined to accept jurisdiction on December 30, 2020. The Company believes that it has substantive defenses and intends to vigorously defend this suit.

In 2019, one beryllium case was filed. In Ronald Dwayne Manning v. Arconic Inc. et al., case number 19CI000219, filed in the Superior Court of the State of California, Tehama County, and later removed to the United States District Court, Eastern District of California (Sacramento Division), case number 2:19-CV-02202-MCE-DMC, the Company is one of four named defendants and 120 Doe defendants. The plaintiff alleges that he contracted beryllium disease from exposures to beryllium-containing products during his employment as an auto mechanic, welder, sprinkler installer, and movie projector operator, and 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 respond, subject to an annual deductible.

Other Claims


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 April 2, 2021.


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 February 5, 2021	145	$	68.73	—	$	8,316,239
February 6 through March 5, 2021	42,543	66.48		—	8,316,239
March 6 through April 2, 2021	—	—		—	8,316,239
Total	42,688	$	66.49	—	$	8,316,239


(1)			Includes 145 and 42,543 shares surrendered to the Company in January and February, 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. During the three months ended April 2, 2021, we did not repurchase any shares under this program. As of April 2, 2021, $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 2021 Plan Year*
10.2						Form of 2021 Performance-Based Restricted Stock Units Agreement under the Materion Corporation 2006 Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2021*
10.3						Form of 2021 Appreciation Rights Agreement under the Materion Corporation 2006 Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2021*
10.4						Form of 2021 Restricted Stock Unit Agreement (Stock-Settled) under the Materion Corporation 2006 Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2021*
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 A p ril 2, 2021*
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.

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: April 29, 2021

/s/ Shelly M. Chadwick

Shelly M. Chadwick

Vice President, Finance and Chief Financial Officer

(Principal Financial and Accounting Officer)


Level	Financial Performance			Personal /Team Performance 2			Total Award Opportunity
	Min.	Target	Max.	Min.	Target	Max.	Min.	Target	Max.
A – C	25% of Target	Individualized 1	200% of Target	0%	10%	20%	Individualized 1
D		20% or					5.00%	30.00%	60 %
		15%					3.75%	25.00%	50 %
E		10% or					2.50%	20.00%	40 %
		5%					1.25%	15.00%	30 %
EE		5%		0%	5%	10%	1.25%	10.00%	20 %
1 Determined by Compensation Committee or executive staff
2 Excludes Named Executive Officers (NEOs)


Performance Level	Return on Invested Capital	ROIC PRSUs Earned
Below Threshold	Below __%	0%
Threshold	__%	50%
Target	__%	100%
Maximum	__% or greater	200%


Performance Level	Relative Total Shareholder Return	RTSR PRSUs Earned
Below Threshold	Ranked below __th percentile	0%
Threshold	Ranked at __th percentile	50%
Target	Ranked at __th percentile	100%
Maximum	Ranked at or above __th percentile	200%


(A)	Total number of alleged violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under Section 104 of the Mine Act for which Materion Natural Resources Inc. received a citation from MSHA	0
(B)	Total number of orders issued under Section 104(b) of the Mine Act	0
(C)	Total number of citations and orders for alleged unwarrantable failure by Materion Natural Resources Inc. to comply with mandatory health or safety standards under Section 104(d) of the Mine Act	0
(D)	Total number of alleged flagrant violations under Section 110(b)(2) of the Mine Act	0
(E)	Total number of imminent danger orders issued under Section 107(a) of the Mine Act	0
(F)	Total dollar value of proposed assessments from MSHA under the Mine Act	$0
(G)	Total number of mining-related fatalities	0
(H)	Received notice from MSHA of a pattern of violations under Section 104(e) of the Mine Act	No
(I)	Received notice from MSHA of the potential to have a pattern of violations under Section 104(e) of the Mine Act	No
(J)	Total number of Legal Actions pending as of the last day of the Reporting Period	0
(K)	Total number of Legal Actions instituted during the Reporting Period	0
(L)	Total number of Legal Actions resolved during the Reporting Period	0


1)			I have reviewed this quarterly report on Form 10-Q of Materion Corporation (the “registrant”);


2)			Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)			Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)			The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


			a)			designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


			b)			designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


			c)			evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


			d)			disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


			a)			all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


			b)			any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


1.			The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and


2.			The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.


/s/ Jugal K. Vijayvargiya
Jugal K. Vijayvargiya
President and Chief Executive Officer