Materion Annual Report 2010
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BRUSH ENGINEERED MATERIALS INC. ACADEMY CORPORATION BARR ASSOCIATES, INC. COMPANY BRUSH CERAMIC PRODUCTS INC. BRUSH WELLMAN ALLOY PRODUCTS BRUSH WELLMAN BERYLLIUM PRODUCTS CERAC, INCORPORATED TECHNI-MET, LLC TECHNICAL MATERIALS, INC. THIN FILM TECHNOLOGY, INC. WILLIAMS ADVANCED MATERIALS INC. 2010 ANNUAL REPORT ONE ABOUT THE COMPANY Materion Corporation is the new name for Our common stock (new ticker symbol: MTRN) Brush Engineered Materials Inc., effective March 8, is listed on the New York Stock Exchange. 2011. Materion is a leading global producer of All of our businesses now go to market under advanced materials and services providing enabling the Materion master brand name. The businesses technology solutions for customers in the fastest- are organized in four reportable segments: growing segments of long-term global growth markets Advanced Material Technologies manufactures including consumer electronics, defense and science, and sells precious, non-precious, specialty metals; industrial components and commercial aerospace, inorganic materials; specialty coatings and energy, automotive electronics, telecommunications electronic packaging infrastructure, medical and appliance. Performance Alloys manufactures and sells bulk Founded in 1931, the Company today serves and strip form products and beryllium hydroxide customers in more than 50 countries. We have Beryllium and Composites manufactures and sells operating, service center and major office locations beryllium and beryllia ceramic products throughout North America, Europe and Asia, and Technical Mater ials manufactures and sells specialty employ approximately 2,500 people worldwide. strip metal products FINANCIAL HIGHLIGHTS (Dollars in millions except per share amounts) 2010 2009 2008 Sales . $ 1,302.3 $ 715.2 $ 909.7 Net income (loss) . 46.4 (12.4) 18.4 Net income (loss) per share (diluted) . 2.25 (0.61) 0.89 CONTENTS About the Company, Financial Highlights . Inside front Introduction to Materion . 1 Letter to Shareholders . 6 One Company: Financial Data and Markets . 10 One Name: Our New Name and Unified Brand . 12 One Goal: New Collaboration and Synergies . 14 One Focus: Fast-growing Market Niches . 16 Operating Summary and Shareholder Returns . 18 2010 Form 10-K. 19 Directors, Officers and Facilities . 122 Corporate Data . 123 ON THE COVER The front cover lists many of the different names under which the Company operated prior to Materion. ONE NAME One Company. One Name. Transformative initiatives, organic growth and strategic acquisitions dramatically broadened our product portfolio and worldwide footprint. Yet with many loosely connected brands we lacked the strong brand recognition appropriate for our size and scale. Many customers were served by more than one of our businesses without realizing it. Others didn’t fully perceive all the ways we might help them. Today, rebranded and unified, we bring those issues to a close. One company. One name. Materion. ONE GOAL One Goal… To be our customers’ first choice. And why not? We form deep bonds with our customers by helping them conceive and design technical and performance advantages. Our advanced materials solutions make products higher performing: Lighter. Stronger. Smaller. Thinner. Exceptionally precise. Optically superior. Remarkably resistant to vibration, corrosion or temperature extremes. It’s no wonder customers choose Materion, we help achieve goals. And our goal – to be their first choice – is now more broadly achievable since expected synergies from unifying our businesses will facilitate additionally comprehensive solutions. ONE FOCUS One Focus… Just imagine; a company founded eight decades ago remains a leader today in fast-growing segments of fast-growing global markets. In fact, that’s the case. Materion’s relentless focus – on long-term growth markets with compelling demand drivers, strong margins and differentiated technologies – largely explains our success. That focus also explains our optimism for the future. As the world demands ever-more advanced technologies in markets like consumer electronics, defense and science, commercial aerospace, telecommunications infrastructure, medical and energy, Materion stands ready – on our customers’ behalf – to continue innovating for the future. ONE To Our Shareholders: Today, it is our great pleasure to introduce you to Materion. We hope you come to know the name well. Investors have known us for many years as Brush Engineered Materials. Customers, on the other hand, have known us by one or more of many different names and brands built and acquired over eight decades in business. Those who have followed the Company’s transformation from a specialty metals business to an advanced materials COMPANY company will certainly recognize why a unified name and brand structure is the next logical step in our evolution. To increase global awareness and leverage worldwide capabilities, facilitate synergies, efficiencies and cross-selling opportunities, our businesses are now unified under one name and one brand – Materion. What a Difference a Year Makes While our new name and structure provide a solid platform for future growth, you likely are more interested in hearing about our financial performance in 2010. As is often said, what a difference a year makes! Like so many companies at this time last year, Materion was responding to the profoundly adverse effects from tough economic conditions around the world. In 2010, however, we more than over- came those challenges. Coming out of recessionary challenges, we posted record sales, strong margins and important gains in market penetration. Driving Sales to a Record $1.3 Billion For the first time in Company history, revenues in 2010 exceeded $1 billion. Sales climbed 82% from 2009 to $1.3 billion. Revenue gains were driven first and fore- most by healthy, broad-based increases in demand across most of our key markets, ONE beginning with robust restored demand in consumer per share, an extraordinary turnaround from a 2009 loss electronics early in the year. Following this, we saw demand of $12.4 million, or $0.61 per share. Reported operating return in the telecommunications infrastructure market. margins showed substantial improvement, particularly in As the year progressed, we experienced stronger demand view of the dilutive effect of higher pass-through metal from customers in industrial and commercial aerospace, pricing and higher precious metal volumes in our sales mix. energy (especially oil and gas) and in high performance In addition to viewing our margins on a GAAP basis, we optical applications. Demand was also strong in defense also measure margins internally on a “value-added” basis; and automotive electronics. that is, with metal costs excluded from revenues, because “Coming out of recessionary challenges, we posted record sales, strong margins and important gains in market penetration.” In addition to strong organic growth, our two most we believe that provides a better measure of our operating recent acquisitions – Barr Associates (October 2009) and performance. On this basis, our 2010 gross profit margin Academy Corporation (January 2010) – added approxi- is above 40%, compared to the reported 17%. Similarly, mately $233 million to sales and were accretive to earnings operating margin is in the mid-teens as opposed to the by approximately $0.30 per share. Metal price increases reported 6%. These value-added-basis margins improved passed along to customers accounted for approximately substantially in 2010. $103 million of sales growth. The precious metal content of Improved profitability benefited from ongoing strategic our sales has increased significantly due to growth, acquisi- initiatives to both broaden and diversify our market base tions and metal price increases. Sales growth net of metal and to shift our mix toward faster-growing, higher-value price inflation was approximately 68% in 2010, and excluding materials and less cyclical market sectors. Expanded well acquisitions, our organic growth was 35% for the year. beyond integrated and specialty metals, our product portfolio and distinctive competencies encompass precision optical Higher Value Mix Yields Profitability Gains filters, specialty inorganic chemical powders and evaporative Profitability improved notably throughout the year. materials, precious metals refining and management, large We posted near-record earnings of $46.4 million, or $2.25 Total Sales Average Sales per Employee Gross Margin (in millions) (in thousands) (in millions) $763 $956 $910 $715 $1,302 $349 $434 $407 $326 $524 $162 $197 $152 $91 $223 $1,400 $600 $250 $1,200 $200 $1,000 $400 $800 $150 $600 $100 $200 $400 $50 $200 $0 $0 $0 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 7 and small area thin film deposition, electronic packaging $70 million at year end. Our ratio of debt-to-debt-plus- materials, and engineered clad and plated metal systems. equity was approximately 18% at year end. A healthy With this unmatched offering of related materials and balance sheet, coupled with ongoing positive cash flows capabilities, we focus on the fastest-growing, technology- from operations, gives us the financial flexibility to make driven segments of sustainable global growth markets. important investments in the business and to continue to Today, we primarily produce high-value, innovative evaluate complementary acquisitions or other strategic and technologically advanced materials that customers growth initiatives. “We look ahead with confidence and optimism. Our Company’s