Item 7. 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, energy, consumer electronics, and life sciences.
RESULTS OF OPERATIONS
(Thousands except per share data)
Net sales
Value-added sales
Gross margin
Gross margin as a % of Net sales
Gross margin as a % of Value-added sales
Selling, general, and administrative (SG&A) expense
SG&A expense as a % of Net sales
SG&A expense as a % of Value-added sales
Research and development (R&D) expense
R&D expense as a % of Net sales
R&D expense as a % of Value-added sales
Restructuring expense
Goodwill impairment
Long-lived asset impairment
Loss on asset disposal
Other — net
Operating profit
Other non-operating income — net
Interest expense — net
Income before income taxes
Income tax expense
Net income
Diluted earnings per share
2025 Compared to 2024
Net sales of $1,786.6 million in 2025 increased $101.9 million from $1,684.7 million in 2024. An increase in net sales in the Electronic Materials and Precision Optics segments was partially offset by decreased net sales in the Performance Materials segment. The increase in the Electronic Materials segment was primarily due to higher precious metal pass-through costs, increasing net sales by approximately $208.2 million when compared to the prior year, partially offset by a decrease in precious metal sales of $35.3 million. The decrease in precious metal sales was primarily due to the impact of the divestiture of the target business in Albuquerque, New Mexico that occurred in the fourth quarter of 2024, which resulted in $23.1 million of lower sales in 2025 compared to 2024.
At the Company level, volume increased in the semiconductor (21%), telecom and data center (24%) and energy (12%) end markets. Additionally, sales of raw material beryllium hydroxide increased by $6.3 million compared to the prior year. The increase was partially offset by a volume decrease in the consumer electronics (30%) end market due to a quality issue with a large precision clad strip customer within Performance Materials segment, causing the Company to temporarily idle production facilities, which limited sales in the fourth quarter. The Company closely collaborated with our customer, implementing targeted modifications to our processes and procedures and enhancing quality control measures designed to reduce the risk of future occurrences. We resumed shipping product from our facilities in December 2025 and continue to ramp production.
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 $1,046.2 million in 2025 decreased $51.4 million compared to $1,097.6 million in 2024. At the Company level, volume increases in the semiconductor (7%), telecom and data center (14%) and energy (19%) end markets was partially offset by a volume decrease in the consumer electronics (33%) end market. Additionally, the decrease in value-added sales was impacted by a $7.0 million decrease in sales in 2025 compared to 2024 due to the divestiture of the target business in Albuquerque, New Mexico in the fourth quarter of 2024.
Gross margin was $308.6 million in 2025, representing a 5% decrease from $326.0 million in 2024. Gross margin expressed as a percentage of net sales was 17% in 2025 and 19% in 2024. Gross margin expressed as a percentage of value-added sales was 29% in 2025 and 30% in 2024. Gross margin decreased from the prior year primarily related to lower sales volumes and $25.7 million of charges in the Performance Materials segment related to the quality issue described above. Gross margin in 2024 was unfavorably impacted by higher costs associated with the production ramp of the precision clad strip facility.
SG&A expense totaled $143.1 million in 2025 as compared to $145.6 million in 2024. The decrease in SG&A expense was primarily due to lower incentive compensation accruals as a result of year-to-date performance. Expressed as a percentage of net sales, SG&A expense was 8% and 9% in 2025 and 2024, respectively. Expressed as a percentage of value-added sales, SG&A expense was 14% and 13% in 2025 and 2024, respectively.
R&D expense consists primarily of direct personnel and material costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 1% and 2% of net sales in 2025 and 2024, respectively. R&D expense accounted for 2% and 3% of value-added sales in 2025 and 2024, respectively.
Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In 2025, we recorded a combined total of $3.2 million of restructuring charges in our Electronic Materials, Precision Optics, Performance Materials and Other segments. In 2024, we recorded a combined total of $6.8 million of restructuring charges primarily in our Precision Optics, Electronic Materials, Performance Materials and Other segments. Refer to Note E to the Consolidated Financial Statements for details.
Other-net totaled expense of $26.7 million and $17.7 million in 2025 and 2024, respectively. The increase in Other-net was primarily driven by an increase in metal consignment fees. Refer to Note F to the Consolidated Financial Statements for the major components within Other-net.
Other non-operating income-net includes components of pension and post-retirement income other than service costs. Refer to Note P of the Consolidated Financial Statements for details of the components of net periodic benefit costs.
Interest expense - net was $30.7 million in 2025 and $34.8 million in 2024. The decrease in interest expense in 2025 compared to 2024 is primarily due to a decrease in interest rates and borrowings compared to the prior year.
Income tax expense for 2025 was $6.7 million of expense compared to $9.0 million of expense in 2024. The Company's effective tax rate for 2025 and 2024 was 8.2% and 60.5%, respectively. The effective tax rate for 2025 is lower than the statutory tax rate primarily due to percentage depletion, nontaxable credits and the foreign-derived intangible income deduction. The effective tax rate for 2024 was higher than the statutory tax rate primarily due to the impairment of non-deducible goodwill in the Precision Optics reporting unit. See Note H to the Consolidated Financial Statements for additional discussion.
See the Management Discussion and Analysis section of our Annual Rep ort on Form 10-K for the year ended December 31, 2024 for a discussion of our results for 2024 compared to 2023.
Segment Disclosures
The Company has four reportable segments: Performance Materials, Electronic Materials, Precision Optics, and Other. The Other reportable segment includes unallocated corporate costs.
Performance Materials
(Thousands)
Net sales
Value-added sales
EBITDA
2025 Compared to 2024
Net sales from the Performance Materials segment of $675.9 million in 2025 decreased 9% compared to 2024. The decrease in sales was due to lower sales volumes in th e consumer electronics (34%) and ae rospace and defense (9%) end markets. These decreases were partially offset by increased volumes in the energy (35%) end market, along with a $6.3 million year over year increase in the volume of raw material beryllium hydroxide . The decrease in the consumer electronics end market reflects the impact of a quality issue with a large precision clad strip customer within the Performance Materials segment, causing the Company to temporarily idle production facilities, which limited sales in the fourth quarter. The Company closely collaborated with our customer, implementing targeted modifications to our processes and procedures and enhancing quality control measures designed to reduce the risk of future occurrences. We resumed shipping product from our facilities in December 2025 and continue to ramp production.
Value-added sales of $618.1 million in 2025 decreased 10% compared to $688.0 million in 2024, consistent with the decrease in net sales. The decrease in value-added sales was driven by the same factors driving the decrease in net sales.
EBITDA for the Performance Materials segment was $127.2 million in 2025 compared to $169.3 million in 2024. The unfavorable impacts of lower sales volumes and $27.3 million of additional costs incurred related to the quality issue described above, which consisted of a quality claim, material scrap expenses, and temporary plant idling costs, were partially offset by manufacturing efficiencies and improved margins along with lower incentive compensation expense in 2025 compared to 2024. Additionally, there were higher costs associated with the production ramp of the precision clad strip facility in 2024 that did not recur in 2025, offsetting the decrease in EBITDA.
Electronic Materials
(Thousands)
Net sales
Value-added sales
EBITDA
2025 Compared to 2024
Net sales from the Electronic Materials segment of $1,010.0 million in 2025 was 19% higher than net sales of $845.7 million in 2024. The increase was primarily due to higher precious metal pass-through costs, increasing net sales by approximately $208.2 million compared to the prior year, partially offset by a decrease in precious metal sales volumes of $35.3 million. The decrease in precious metal sales was primarily due to the impact of the divestiture of the target business in Albuquerque, New Mexico that occurred in the fourth quarter of 2024, which resulted in lower sales of $23.1 million in 2025 compared to 2024 . Excluding sales from the Albuquerque target business, net sales would have been 23% higher in 2025 compared to 2024. Additionally, there were higher sales volumes in the semiconductor (21%) end market.
Value-added sales of $327.6 million increased 4% compared to value-added sales of $315.3 million in 2024. Value-added sales were negatively impacted by an $11.2 million decrease due to the divestiture of the target business in Albuquerque, New Mexico in the fourth quarter of 2024. Excluding value-added sales from the Albuquerque target business, sales would have been 8% higher in 2025 compared to 2024.
EBITDA for the Electronic Materials segment was $71.1 million in 2025 compared to $47.4 million in 2024. EBITDA was impacted by favorable price/mix and production efficiencies in 2025, compared to 2024.
Precision Optics
(Thousands)
Net sales
Value-added sales
EBITDA
2025 Compared to 2024
Net sales from the Precision Optics segment were $100.7 million in 2025, an increase of 7% compared to net sales of $94.5 million in 2024. The increase was primarily due to higher sales volumes in the aerospace and defense (35%) end market.
Value-added sales of $100.5 million in 2025 increased 7% compared to value-added sales of $94.3 million in 2024. The increase in value-added sales was due to the same factors driving the increase in net sales.
EBITDA for the Precision Optics segment was $7.7 million in 2025 compared to a loss of $73.3 million in 2024. The increase in EBITDA was primarily driven by impairments recorded in 2024 for the Precision Optics reporting unit in Malaysia of $73.2 million. EBITDA was also favorably impacted by increased sales volumes and overall business performance.
Other
(Thousands)
Net sales
Value-added sales
EBITDA
2025 Compared to 2024
The Other reportable segment includes unallocated corporate costs. Corporate costs of $24.7 million in 2025 decreased from $25.1 million in 2024 primarily due to lower incentive compensation as a result of year-to-date performance. Corporate costs were 2% of total Company value-added sales in 2025 and 2024.
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 Company in total for 2025, 2024, and 2023 is as follows:
(Thousands)
Net sales
Performance Materials
Electronic Materials
Precision Optics
Other
Total
Less: pass-through metal costs
Performance Materials
Electronic Materials
Precision Optics
Other
Total
Value-added sales
Performance Materials
Electronic Materials
Precision Optics
Other
Total
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 market cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations. Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability.
Our net sales are also affected by changes in the use of customer-supplied metal. When we manufacture a precious metal product, the customer may purchase metal from us or may elect to provide its own metal, in which case we process the metal on a toll basis, and the metal value does not flow through net sales or cost of sales. In either case, we generally earn our margin based upon our fabrication efforts. The relationship of this margin to net sales can change depending upon whether or not the product was made from our metal or the customer’s metal. The use of value-added sales removes the potential distortion in the comparison of net sales caused by changes in the level of customer-supplied metal.
By presenting information on net sales and value-added sales, it is our intention to allow users of our financial statements to review our net sales with and without the impact of the pass-through metals.
FINANCIAL POSITION
Cash Flow
A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows:
(Thousands)
Net cash provided by operating activities
Net cash (used in) investing activities
Net cash (used in) financing activities
Effects of exchange rate changes
Net change in cash and cash equivalents
Net cash provided by operating activities totaled $103.2 million in 2025 versus $87.8 million in 2024. The increase of $15.4 million was primarily driven by a $33.5 million increase in accounts payable and accrued expenses, compared to a $15.8 million decrease in the prior year, resulting in a favorable cash inflow impact of $49.3 million. This improvement was mainly due to the timing of year-end payments and ongoing working capital management initiatives. This increase was partially offset by higher inventory levels, which increased by $13.3 million compared to the prior year, reflecting operational and quality challenges experienced in the fourth quarter of 2025. Additionally, accounts receivable increased by $22.1 million relative to the prior year, driven by timing differences in collections and reduced accounts receivable factoring in the current year.
Net cash used in investing activities was $98.1 million in 2025 compared to $79.6 million in 2024. The increase in cash used in investing activities is due to the business acquisition and mine development costs, offset by decreased capital expenditures.
Net cash used in financing activities increased $5.6 million from 2024. The increase in 2025 compared to 2024 is a result of a repurchase of common stock and deferred financing costs, offset by lower withholding taxes for stock-based compensation awards.
Dividends per common share increased 4% to $0.555 per share in 2025. Total dividend payments to common shareholders were $11.5 million in 2025 and $11.1 million in 2024. In May 2025, the Board of Directors declared an increase in our quarterly dividend from $0.135 to $0.14 per share. We intend to pay a quarterly dividend on an ongoing basis, subject to a continuing strong capital structure and a determination that the dividend remains in the best interest of our shareholders.
Liquidity
We believe that cash flow from operations plus available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend and selective share repurchases, environmental remediation projects, and strategic acquisitions for at least the next 12 months and the foreseeable future thereafter. At December 31, 2025, cash and cash equivalents held by our foreign operations totaled $13.0 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 the results of operations for the foreseeable future.
A summary of key data relative to our liquidity, including the outstanding debt, cash balances, and available borrowing capacity, as of December 31, 2025 and December 31, 2024 is as follows:
December 31,
(Thousands)
Cash and cash equivalents
Total outstanding debt
Net (debt) cash
Available borrowing capacity
Net debt 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, depletion and amortization, and other adjustments.
In June 2025, the Company entered into a Fifth Amended and Restated Credit Agreement (Credit Agreement). The Credit Agreement refinanced the revolving credit facility and term loan facility provided under Materion's previous Fourth Amended and Restated Credit Agreement, dated October 27, 2021 (as amended). Among other things, the Credit Agreement provides for a $450 million senior secured revolving credit facility (Revolving Credit Facility) and a $225 million senior secured term loan facility (Term Loan Facility and, together with the Revolving Credit Facility, Credit Facilities). The Term Loan Facility was fully drawn on June 26, 2025. The Credit Facilities mature on June 26, 2030.
The Credit Agreement also provides for an uncommitted incremental facility whereby, subject to the satisfaction of certain conditions, the Company may be able to borrow additional term loans in an aggregate amount not to exceed $250 million. The Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment of precious metals, copper, nickel and tantalum, 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, precious metal and certain other assets.
The Credit Agreement allows the Company to borrow money at a premium over SOFR or prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions stipulated in the credit 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 that limit the Company to a maximum leverage ratio and a minimum interest coverage ratio. We were in compliance with all of our debt covenants as of December 31, 2025 and December 31, 2024. Cash on hand up to $35.0 million can benefit the covenants and may benefit the borrowing capacity under the Credit Agreement.
Portions of our business utilize off-balance sheet consignment arrangements allowing us to use metal owned by precious metal consignors as we manufacture product for our customers. Metal is purchased from the precious metal consignor and sold to our customer at the time of product shipment. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In August 2025, we entered into a precious metals consignment agreement, maturing on August 31, 2028, which replaced the consignment agreements that would have matured on August 31, 2025. The available and unused capacity under the metal consignment agreements expiring in August 2028 totaled approximately $88.4 million as of December 31, 2025, compared to $233.4 million as of December 31, 2024. The availability is determined by Board approved levels and actual capacity.
In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. We repurchased 100,000 shares under this program in the second quarter of 2025, for a total cost of $7.8 million. Since the approval of the repurchase plan, we have purchased 1,354,264 shares at a total cost of $49.5 million. In October 2025, we announced that our Board of Directors had approved a new plan to repurchase up to $50.0 million of our common stock, replacing the plan approved in 2014. 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.
Material Future Cash Obligations
The following table summarizes our material future obligations with respect to debt and associated interest as of December 31, 2025. In addition to the amounts below, the Company anticipates incurring costs related to its finance lease obligations and non-cancelable lease payments for operating leases with an initial lease term in excess of one year. These obligations are further detailed in Note M to the Consolidated Financial Statements.
(Millions)
There-
after
Total
Debt (1)
Interest payments on debt (2)
Total
(1) Refer to Note O to the Consolidated Financial Statements.
(2) These amounts represent future interest payments related to our total debt, excluding any interest payments to be made on borrowings under our Credit Agreement.
Off-balance Sheet Obligations
We maintain the majority of the precious metals and 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. Refer to Item 7A “Quantitative and Qualitative Disclosures about Market Risk.” The notional value of off-balance sheet precious metals and c opper was $526.2 million as of December 31, 2025 versus $381.6 million as of December 31, 2024. We were in complia nce with all of the covenants contained in the consignment agreements as of December 31, 2025 and December 31, 2024. Refer to Note J for additional information.
ORE RESERVES
The following information concerning our mining properties has been prepared in accordance with the requirements of subpart 1300 of Regulation S-K.
As used in this Form 10-K, the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource,” “inferred mineral resource,” “mineral reserve,” “proven mineral reserve” and “probable mineral reserve” are defined and used in accordance with subpart 1300 of Regulation S-K. Under subpart 1300 of Regulation S-K, mineral resources may not be classified as “mineral reserves” unless the determination has been made by a qualified person that the mineral resources can be the basis of an economically viable project. You are specifically cautioned not to assume that any part or all of the mineral resources in these categories will ever be converted into mineral reserves, as defined by the SEC. We rely on estimates of our ore resources and recoverable reserves, which estimation is complex due to geological characteristics of the properties and the number of assumptions made.
You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have to demonstrate economic value. Inferred mineral resources are estimates based on limited geological evidence and sampling and have a too high of a degree of uncertainty as to their existence to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Estimates of inferred mineral resources may not be converted to a mineral reserve. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. A significant amount of additional work must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be the basis of an economically viable project, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted to mineral reserves.
The information that follows relating to the Spor Mountain Mine is derived, for the most part, from the TRS, which was prepared in compliance with Item 601(b)(96) and subpart 1300 of Regulation S-K. Portions of the following information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the TRS, which was filed as Exhibit 96 to our Annual Report on Form 10-K for the year ended December 31, 2025, and is incorporated by reference herein.
Mineral Resources
A mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed justifiable technical and economic conditions, is likely to, in whole or part, become economically extractable.
The term "measured mineral resource" is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling.
The term “indicated resources” means resources for which quantity and grade or quality can be estimated on the basis of adequate geological evidence and sampling.
The term “inferred resources” means resources for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling.
The following represents our indicated and inferred ore mineral resources, exclusive of mineral reserves, as of December 31, 2025 and December 31, 2024:
Indicated
Inferred
As of December 31, 2025
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
As of December 31, 2024
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
Mineral Reserves
A mineral reserve is an estimate of tonnage and grade, or quality, of indicated and measured mineral resources that, in the opinion of a qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or Indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.
Proven mineral reserves are the economically mineable part of a measured mineral resource and can only result from conversion of a measured mineral resource. Probable mineral reserves are the economically mineable part of an indicated and, in some cases, a measured mineral resource. All mineral reserves are classified as proven or probable and are supported by life-of-mine plans. All mineral reserve estimates were reviewed and validated by the Qualified Persons.
The following represents our ore mineral reserves:
Proven
Probable
Total
As of December 31, 2025
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
As of December 31, 2024
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
Internal Controls Disclosure
Under subpart 1305 of Regulation S-K, management has included information regarding the internal controls that the Company used in determining the mineral resource and reserve estimation efforts. There is no disclosure required regarding exploration procedures as the Company completed development drilling on all areas at the Spor Mountain Mine in 2000, and no future exploration is planned at this time. As it relates to estimating mineral resources and reserves, the Company incorporates the following items into the control process:
a. All samples are tested with a berylometer.
b. The berylometer calibration procedures are verified through comparison with the beryllium production from the mill for the same ores.
c. The lab and field berylometers are calibrated on site each shift.
d. Materion follows industry standard procedures for calibrating its field and laboratory berylometers each shift that they are utilized.
e. Resource models are reconciled to production data regularly.
f. Materion has been producing ore at the Spor Mountain Mine for over 45 years and has mined and processed materials from a range of pits from the property. It is considered that Materion has adequate data to support its milling practices.
The Qualified Persons have assessed that the Company’s control procedures, including redundant testing at various operational points, the quality control and quality assurance measures, the calibration measures, the extensive cataloging of sample duplicates, and the reconciliation with recovered beryllium, are sufficient.
Based upon average production levels in recent years and our near-term production forecasts, proven reserves would last a minimum of seventy-five years. The table below details our production of beryllium at our Utah location.
(Thousands of Pounds of Beryllium)
Domestic ore
Non-domestic ore
Unyielded total
Annual yield
Beryllium produced
% of mill capacity
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. The following policies are considered by management to be critical because adherence to these policies relies significantly upon our judgment.
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. We recognize revenue, in an amount that reflects the consideration to which the Company expects to be entitled, when we satisfy a performance obligation by transferring control of a product to the customer. The core principle of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606 is supported by five steps which are outlined below with management's judgment in applying each.
1) Identify the contract with a customer
A contract with a customer exists when the Company enters into an enforceable contract with a customer that identifies each party’s rights regarding the products to be transferred or services to be rendered and the related payment terms, the contract has commercial substance, and the Company determines that collection of substantially all consideration for products that are transferred is probable based on the customer’s intent and ability to pay.
Management exercises judgment in its assessment that it is probable that the Company will collect substantially all of the payments attributed to products or services that will be transferred to our customers. We regularly review the creditworthiness of our customers considering such factors as the macroeconomic environment, current market conditions, geographic considerations, historical collection experience, a customer’s current credit standing, and the age of outstanding accounts receivable balances that may affect a customer’s ability to pay. If, after we have recognized revenue, the collectability of an account receivable becomes doubtful, we establish appropriate allowances and reserves against accounts receivable with respect to the previously recognized revenue that remains uncollected. Allowances and reserves against accounts receivable are maintained for estimated probable losses and are sufficient enough to ensure that accounts receivable are stated at amounts that are considered collectible.
If management forms a judgment that a particular customer’s financial condition has deteriorated but decides to deliver products or services to the customer, we will defer recognizing revenue relating to products sold to that customer until it is probable that we will collect substantially all of the consideration to which we are entitled, which typically coincides with the collection of cash.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product is separately identifiable from other promises in the contract.
When contracts with customers contain multiple performance obligations, management utilizes judgment to determine the appropriate accounting, including whether multiple promised products or services in a contract should be accounted for separately or as a group, how the consideration should be allocated among the performance obligations, and when to recognize revenue upon satisfaction of the performance obligations.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The vast majority of our contracts contain fixed consideration terms. However, the Company also has contracts with customers that include variable consideration. Volume discounts and rebates are offered as an incentive to encourage additional purchases and customer loyalty. Volume discounts and rebates typically require a customer to purchase a specified quantity of products, after which the price of additional products decreases. These contracts include variable consideration because the total amount to be paid by the customer is not known at contract inception and is affected by the quantity of products ultimately purchased. As a result, management applies judgment to estimate the volume discounts based on experience with similar contracts, customers, and current sales forecasts. Also, the Company has contracts, primarily relating to its precious metal products, where the transaction price includes variable consideration at contract inception because it is calculated based on a commodity index at a specified date. Management exercises judgment to determine the minimum amount to be included in the transaction price. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on the relative standalone selling price. The Company typically determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, management uses judgment to estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
5) Recognize revenue when or as the Company satisfies a performance obligation
Management applies the principle of control to determine whether the customer obtains control of a product as it is created and if revenue should be recognized over time. The vast majority of the Company's performance obligations are satisfied at a point in time when control of the product transfers to the customer. Control of 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 the customer has accepted the product.
However, for certain contracts, particularly relating to the U.S. government and relating to specialized products with no alternative use, we generally recognize revenue over time as we procure the product because of continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by a termination for convenience clause in the contract that allows the customer to unilaterally terminate the contract, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process. We generally use the cost-to-cost measure of progress for these contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on the related contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Therefore, revenue is recognized proportionally as costs are incurred for these contracts.
The Company recognizes revenue net of reserves for price adjustments, returns, and prompt payment discounts. Management generally estimates these amounts using the expected value method. The Company has sufficient historical experience with our customers that provides predictive value to support that the reserves recorded are appropriate.
Other considerations
We receive payment from customers equal to the invoice price for most of our sales transactions.
Returned products are generally not accepted unless the customer notifies the Company in writing, and we authorize the product return by the customer.
Unearned revenue is recorded cash consideration from customers in advance of the shipment of the goods, which is a liability on our Consolidated Balance Sheets. This contract liability is subsequently reversed and the revenue, cost of sales, and gross margin are recorded when the Company has transferred control of the product to the customer. The related inventory also remains on our balance sheet until the revenue recognition criteria are met. Advanced billings are typically made in association with products with long manufacturing times and/or products relating to contracts with the government. Billings in advance of the shipments allow us to collect cash earlier than billing at the time of the shipment and, therefore, the collected cash can be used to reduce our investment in working capital. Refer to Note D of the Consolidated Financial Statements for additional details on our contract balances.
Precious Metal Physical Inventory Counts
We take and record the results of a physical inventory count of our precious metals on a periodic basis. Our precious metal operations include a refinery that processes precious metal-containing scrap and other materials from our customers, as well as
our own internally generated scrap. We also outsource portions of our refining requirements to other vendors, particularly for those materials with longer processing times. The precious metal content within these various refine streams may be in solutions, sludges, and other non-homogeneous forms and can vary over time based upon the input materials, yield rates, and other process parameters. The determination of the weight of the precious metal content within the refine streams as part of a physical inventory count requires the use of estimates and calculations based upon assumed recovery percentages developed from actual historical data and other analyses, the total estimated volumes of solutions and other materials within the refinery, and other factors. The resulting calculated weight of the precious metals in our refine operations may differ, in either direction, from what our records indicate that we should have on hand, which would then result in an adjustment to our pre-tax income in the period when the physical inventory was taken, and the related estimates were made.
Goodwill and Other Intangible Assets
We use the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed are recognized as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, revenue growth rates, discount rates, customer attrition rates, royalty rates, asset lives, contributory asset charges, and market multiples, among other items. We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors.
Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of the Company’s intent to do so. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination and is reviewed annually for impairment or more frequently if impairment indicators arise. Finite-lived intangible assets are reviewed for impairment if facts and circumstances warrant. There were no indicators during interim periods that required the performance of an interim impairment assessment.
Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment. Goodwill within the Electronic Materials segment totaled $221.4 million as of December 31, 2025. Within the Precision Optics segment, goodwill totaled $33.1 million. The remaining $26.2 million is related to the Performance Materials segment.
The Company conducted its annual impairment assessment as of the first day of the fourth quarter. For the purpose of the annual goodwill impairment assessment, we have the option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill is necessary. In performing step zero for our impairment test, we are required to make assumptions and judgments including, but not limited to, macroeconomic conditions as related to our business, current and future financial performance of our reporting units, industry and market considerations, and cost factors such as changes in raw materials, labor, or other costs. If the step zero analysis indicates that it is more likely than not that the fair value of a reporting unit is less than its respective carrying value including goodwill, then we would perform an additional quantitative analysis. The next step compares the fair value of the reporting unit to its carrying value, including goodwill. An impairment charge is recognized for the amount the carrying value of the reporting unit exceeds its fair value.
Due to historical results combined with the partial impairment charge recognized in 2024 for the Precision Optics reporting unit, the Company elected to perform a quantitative annual impairment assessment for the Precision Optics reporting unit's goodwill as of October 1, 2025 and a qualitative impairment test for the Electronic Materials and Performance Materials reporting units.
The quantitative analysis compares estimated fair value of the reporting unit, using an income approach (a discounted cash flow model), as well as a market approach, with its carrying value. The income approach and market approach are weighted in arriving at fair value based on the relative merits of the methods used and the quantity and quality of collected data to arrive at the indicated fair value.
The income approach requires several assumptions including future sales growth, EBITDA margins and capital expenditures. The Company’s reporting units each provide their forecast of results for the next five years. These forecasts form the basis for the information used in the discounted cash flow model. The discounted cash flow model also requires the use of a discount rate and a terminal revenue growth rate (the revenue growth rate for the period beyond the five years forecast by the reporting units), as well as projections of future operating margins (for the period beyond the forecast five years). The Company used a discount rate in the mid-teens and a terminal growth rate of low single digits.
The market approach requires several assumptions including sales and EBITDA multiples for comparable companies that operate in the same markets as the reporting unit. During the fourth quarter of 2025, the Company considered sales multiples in the low single digits and EBITDA multiples in the range high-single digits to mid-double digits.
As of October 1, 2025, based on the quantitative assessments for the Precision Optics reporting unit, the estimated fair value exceeded the carrying value by greater than 10%, which managements believes is a sufficient amount to support no indicators of impairment. Additionally, for the Electronic Materials and Performance Materials reporting units, there were no indicators of impairment based on the qualitative analysis performed.
Management believes the future sales growth and EBITDA margins in the long-range plan, and the discount rate used in the valuations requires significant use of judgment. If any of our reporting units do not meet our long range plan estimates or our discount rate increase significantly, we could be required to perform an interim goodwill impairment analysis or recognize charges in future periods. Any impairment charges that the Company may take in the future could be material to its consolidated results of operations and financial condition.
We also compared our market capitalization as of October 1, 2025 to the carrying value of our equity and considering an implied control premium, we noted no other impairment indicators or triggering events.
