What changed in this filing

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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 105 added, 98 removed, 660 unchanged (24% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Second Quarter Ended Six Months Ended

(Thousands, except per share amounts) July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Third Quarter Ended Nine Months Ended

(Thousands, except per share amounts) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Net sales $ 428,191 $ 388,028 $ 1,322,531 $ 1,113,413

21 unchanged sentences

Consolidated Statements of Comprehensive Income

Second Quarter Ended Six Months Ended

July 1, July 2, July 1, July 2,

Third Quarter Ended Nine Months Ended

September 30, October 1, September 30, October 1,

(Thousands) 2022 2021 2022 2021

4 unchanged sentences

Pension and post-employment benefit adjustment, net of tax 8 121 ( 216 ) 368

Other comprehensive income (loss) ( 4,433 ) 3,003 ( 4,450 ) ( 4,445 )

Other comprehensive loss ( 1,961 ) ( 1,469 ) ( 6,411 ) ( 5,914 )

Comprehensive income $ 17,991 $ 16,687 $ 50,815 $ 46,877

2 unchanged sentences

Consolidated Balance Sheets

September 30, Dec.

(Thousands) 2022 2021

35 unchanged sentences

Common stock (no par value;

60,000 authorized shares, issued shares of 27,148 at both July 1 st and December 31 st )

60,000 authorized shares, issued shares of 27,148 at both September 30 th and December 31 st )

284,024 271,978

8 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended

July 1, July 2,

Nine Months Ended

September 30, October 1,

(Thousands) 2022 2021

21 unchanged sentences

Proceeds from sale of property, plant, and equipment 827 686

Payments for acquisition, net of cash acquired ( 2,971 ) —

Payments for acquisition ( 2,971 ) —

Net cash used in investing activities ( 56,380 ) ( 76,954 )

1 unchanged sentence

Proceeds from borrowings under revolving credit agreement, net 49,092 43,010

Proceeds from issuance of long-term debt 2,059 —

Proceeds from issuance of debt 6,643 —

Repayment of long-term debt ( 11,761 ) ( 1,803 )

16 unchanged sentences

Comprehensive

Balance at April 1, 2022 20,511 ( 6,637 ) $ 278,589 $ 705,255 $ ( 217,549 ) $ ( 40,186 ) $ 4,855 $ 730,964

Balance at July 1, 2022 20,523 ( 6,625 ) $ 281,296 $ 725,918 $ ( 218,356 ) $ ( 44,619 ) $ 4,915 $ 749,154

Net income — — — 19,952 — — — 19,952

5 unchanged sentences

Directors’ deferred compensation 1 1 33 — ( 227 ) — 254 60

Balance at September 30, 2022 20,528 ( 6,620 ) $ 284,024 $ 743,283 $ ( 219,219 ) $ ( 46,580 ) $ 5,169 $ 766,677

Balance at July 2, 2021 20,438 ( 6,710 ) $ 268,205 $ 660,851 $ ( 208,854 ) $ ( 43,084 ) $ 4,583 $ 681,701

Balance at April 2, 2021 20,414 ( 6,734 ) $ 264,940 $ 645,468 $ ( 206,845 ) $ ( 46,087 ) $ 3,860 $ 661,336

Net income — — — 18,156 — — — 18,156

5 unchanged sentences

Directors’ deferred compensation 1 1 53 — ( 68 ) — 107 92

Balance at July 2, 2021 20,438 ( 6,710 ) $ 268,205 $ 660,851 $ ( 208,854 ) $ ( 43,084 ) $ 4,583 $ 681,701

Balance at October 1, 2021 20,439 ( 6,709 ) $ 269,716 $ 676,527 $ ( 208,952 ) $ ( 44,553 ) $ 4,690 $ 697,428

Common Shares Shareholders' Equity

12 unchanged sentences

Directors’ deferred compensation 2 2 108 — ( 302 ) — 374 180

Balance at July 1, 2022 20,523 ( 6,625 ) $ 281,296 $ 725,918 $ ( 218,356 ) $ ( 44,619 ) $ 4,915 $ 749,154

Balance at September 30, 2022 20,528 ( 6,620 ) $ 284,024 $ 743,283 $ ( 219,219 ) $ ( 46,580 ) $ 5,169 $ 766,677

Balance at December 31, 2020 20,328 ( 6,820 ) $ 258,642 $ 631,058 $ ( 199,187 ) $ ( 38,639 ) $ 3,756 $ 655,630

6 unchanged sentences

Directors’ deferred compensation 4 4 $ 142 $ — $ ( 803 ) $ — $ 934 $ 273

Balance at July 2, 2021 20,438 ( 6,710 ) $ 268,205 $ 660,851 $ ( 208,854 ) $ ( 43,084 ) $ 4,583 $ 681,701

Balance at October 1, 2021 20,439 ( 6,709 ) $ 269,716 $ 676,527 $ ( 208,952 ) $ ( 44,553 ) $ 4,690 $ 697,428

See notes to these consolidated financial statements.

27 unchanged sentences

This new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021.

The Company is in the process of evaluating the impact of the guidance on its annual disclosures.

The Company is in the process of evaluating the impact of the guidance on its annual disclosures, but do not expect material impact to our disclosures at this time.

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.

4 unchanged sentences

Starck Group GmbH (HCS-Electronic Materials) for a cash purchase price of approximately $ 398.9 million, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism.

During the six months ended July 1, 2022, acquisition-related inventory step-up expense was $ 7.5 million and classified in Cost of Sales and transaction and integration costs were $ 2.6 million and classified in Selling, General and Administrative expenses in the accompanying consolidated statements of income.

During the nine months ended September 30, 2022, acquisition-related inventory step-up expense was $ 7.5 million and classified in Cost of Sales and transaction and integration costs were $ 3.3 million and classified in Selling, General and Administrative expenses in the accompanying consolidated statements of income.

The Company financed the purchase price for the HCS-Electronic Materials acquisition with a new $ 300 million five-year term loan pursuant to a delayed draw term loan facility executed in October 2021 and $ 103 million of borrowings under its amended revolving credit facility.

4 unchanged sentences

The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the HCS-Electronic Materials acquisition date).

The primary areas of accounting for the HCS Acquisition that are not yet finalized relate to the fair value of contingencies, income tax accruals, and the impact on residual goodwill.

The primary areas of accounting for the HCS-Electronic Materials Acquisition that are not yet finalized relate to the fair value of contingencies, income tax accruals, and the impact on residual goodwill.

The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, we will evaluate any additional information prior to finalization of the fair value.

During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the HCS Acquisition Date that, if known, would have resulted in revised values for these items as of that date.

During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the HCS-Electronic Materials acquisition date that, if known, would have resulted in revised values for these items as of that date.

The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.

33 unchanged sentences

As part of the acquisition, the Company recorded approximately $ 182.2 million of goodwill allocated between its Electronic Materials and Performance Materials segments based on the relative fair values.

Goodwill was calculated as the excess of the purchase price over the estimated fair values of the tangible net assets and intangible assets acquired and primarily attributable to the synergies expected to arise after the acquisition dates.

The goodwill is not expected to be deductible for U.S.

8 unchanged sentences

Total $ 107,800

The amounts of revenue and income (loss) before taxes of HCS-Electronic Materials in the second quarter of 2022 consolidated statements are $ 43.6 million and $ 7.6 million, respectively.

Full year revenue and income before taxes total $ 86.9 million and $ 6.0 million, respectively.

The amounts of revenue and income (loss) before taxes of HCS-Electronic Materials in the third quarter of 2022 consolidated statements are $ 49.2 million and $ 4.4 million, respectively.

For the nine months ended September 30, 2022, revenue and income before taxes total $ 135.7 million and $ 10.5 million, respectively.

Income before taxes includes the purchase accounting inventory step-up expense recorded in the first quarter of 2022.

Had the HCS-Electronic Materials acquisition occurred as of the beginning of fiscal 2020, the Company's sales and income (loss) before taxes would have been as follows:

Three months ended Six months ended

July 2, 2021 July 2, 2021

Three months ended Nine months ended

October 1, 2021 October 1, 2021

Net Sales $ 428,864 $ 1,223,450

Profit income (loss) before taxes $ 22,138 $ 41,135

Income before taxes $ 23,022 $ 65,926

The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments that assume the acquisition occurred on January 1, 2020.

2 unchanged sentences

Such adjustments are estimates and actual experience may differ from expectations.

The pro forma income (loss) before taxes for the second quarter ended and six months ended July 2, 2021 includes approximately $ 4.3 million and $ 7.2 million, respectively, of additional interest expense related to committed financing to fund the acquisition and acquisition-related intangible asset amortization expense of $ 2.0 million and $ 4.0 million, respectively, as if the acquisition occurred on January 1, 2020.

The pro forma income before taxes for the third quarter ended and nine months ended October 1, 2021 includes approximately $ 2.5 million and $ 8.1 million, respectively, of additional interest expense related to committed financing to fund the acquisition and acquisition-related intangible asset amortization expense of $ 2.0 million and $ 6.0 million, respectively, as if the acquisition occurred on January 1, 2020.

Note C — Segment Reporting

17 unchanged sentences

Although the Company uses EBITDA to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with U.S.

The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for the second quarter of 2022 and 2021:

(Thousands) Second Quarter 2022 Second Quarter 2021 First Six Months Ended 2022 First Six Months Ended 2021

The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for the third quarter of 2022 and 2021:

(Thousands) Third Quarter 2022 Third Quarter 2021 First Nine Months 2022 First Nine Months 2021

Performance Materials (1)

15 unchanged sentences

Net income $ 19,952 $ 18,156 $ 57,226 $ 52,791

(1) Excludes inter-segment sales of $ 0.2 million for the second quarter of 2022 and $ 0.5 million for the first six months of 2022 for Performance Materials and $ 2.7 million for the second quarter of 2022 and $ 8.2 million for the first six months of 2022 for Electronic Materials.

Also excludes inter-segment sales of $ 3.2 million for the second quarter of 2021 and $ 5.9 million for the first six months of 2021 for Electronic Materials.

(1) Excludes inter-segment sales of $ 0.2 million for the third quarter of 2022 and $ 0.6 million for the first nine months of 2022 for Performance Materials and $ 3.8 million for the third quarter of 2022 and $ 12.1 million for the first nine months of 2022 for Electronic Materials.

Inter-segment sales are eliminated in consolidation.

1 unchanged sentence

Notes to Consolidated Financial Statements

The following table disaggregates revenue for each segment by end market for the second quarter and first six months of 2022 and 2021:

The following table disaggregates revenue for each segment by end market for the third quarter and first nine months of 2022 and 2021:

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

Second Quarter 2022

Third Quarter 2022

Semiconductor $ 2,410 $ 185,223 $ 1,151 $ — $ 188,784

7 unchanged sentences

Total $ 169,357 $ 230,841 $ 27,993 $ — $ 428,191

Second Quarter 2021

Third Quarter 2021

Semiconductor $ 3,163 $ 173,689 $ 630 $ — $ 177,482

10 unchanged sentences

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

First Six Months 2022

First Nine Months 2022

Semiconductor $ 6,657 $ 613,887 $ 4,007 $ — $ 624,551

7 unchanged sentences

Total $ 473,876 $ 762,649 $ 86,006 $ — $ 1,322,531

First Six Months 2021

First Nine Months 2021

Semiconductor $ 5,966 $ 495,718 $ 1,664 $ — $ 503,348

13 unchanged sentences

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 July 1, 2022.

Remaining performance obligations include non-cancelable purchase orders and customer contracts.

1 unchanged sentence

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 July 1, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 76.3 million.

After considering the practical expedient at September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 69.4 million.

Materion Corporation and Subsidiaries

2 unchanged sentences

The timing of revenue recognition, billings, and cash collections resulted in the following contract assets and contract liabilities:

(Thousands) July 1, 2022

(Thousands) September 30, 2022

December 31, 2021

8 unchanged sentences

The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded.

Impairment losses (bad debt) incurred related to our receivables were immaterial during the second quarter of 2022.

Impairment losses (bad debt) incurred related to our receivables were immaterial during the third quarter of 2022.

Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed.

2 unchanged sentences

Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations.

The Company recognized approximately $ 5.6 million of the December 31, 2021 unearned amounts as revenue during the first six months of 2022.

The Company recognized approximately $ 7.2 million of the December 31, 2021 unearned amounts as revenue during the first nine months of 2022.

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.

1 unchanged sentence

Note E — Other-net

Other-net for the second quarter and first six months of 2022 and 2021 is summarized as follows:

Second Quarter Ended Six Months Ended

July 1, July 2, July 1, July 2,

Other-net for the third quarter and first nine months of 2022 and 2021 is summarized as follows:

Third Quarter Ended Nine Months Ended

September 30, October 1, September 30, October 1,

(Thousands) 2022 2021 2022 2021

6 unchanged sentences

Note F — Income Taxes

The Company's effective tax rate for the second quarter of 2022 and 2021 was 17.9 % and 15.5 %, respectively, and 17.8 % and 16.3 % in the first six months of 2022 and 2021, respectively.

The Company's effective tax rate for the third quarter of 2022 and 2021 was 18.2 % and 15.9 %, respectively, and 18.0 % and 16.1 % in the first nine months of 2022 and 2021, respectively.

The effective tax rate for each period in 2022 and 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction.

The effective tax rate for the first six months of 2022 included a net discrete income tax benefit of $ 0.4 million, primarily related to excess tax benefits from stock-based compensation awards.

The effective tax rate for the first six months of 2021 included a net discrete income tax benefit of $ 0.5 million, primarily related to excess tax benefits from stock-based compensation awards.

The effective tax rate for the first nine months of 2022 and 2021 included a net discrete income tax benefit of $ 0.9 million for each period, primarily related to excess tax benefits from stock-based compensation awards and return to provision adjustments recorded.

On August 9, 2022, President Biden signed the CHIPS and Science Act (the CHIPS Act) into law.

The CHIPS Act provides incentives, beginning in 2023, for manufacturing semiconductors and certain tooling equipment used in the semiconductor manufacturing process.

On August 16, 2022, President Biden also signed the Inflation Reduction Act of 2022 (IRA) into law.

The IRA, among other provisions, includes a new corporate alternative minimum tax on certain large corporations, an excise

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

tax on stock buybacks, and tax credits for certain critical minerals.

The Company does not expect to be an applicable corporation subject to the alternative minimum tax based on our reported GAAP earnings the past three years.

The Company does not expect the CHIPS Act or the IRA to have a material impact to our consolidated financial statements for the year ending December 31, 2022.

We continue to examine the impacts the CHIPS Act and the IRA may have on the Company in 2023 and subsequent years.

Note G — Earnings Per Share (EPS)

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

Second Quarter Ended Six Months Ended

July 1, July 2, July 1, July 2,

Third Quarter Ended Nine Months Ended

September 30, October 1, September 30, October 1,

(Thousands, except per share amounts) 2022 2021 2022 2021

12 unchanged sentences

Diluted EPS $ 0.96 $ 0.88 $ 2.76 $ 2.56

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 119,744 and 52,709 for the quarters ended July 1, 2022 and July 2, 2021, respectively, and 79,949 and 64,478 for the six months ended July 1, 2022 and July 2, 2021, respectively.

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 45,016 and 55,598 for the quarters ended September 30, 2022 and October 1, 2021, respectively, and 54,680 and 56,319 for the nine months ended September 30, 2022 and October 1, 2021, 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.

1 unchanged sentence

Inventories on the Consolidated Balance Sheets are summarized as follows:

July 1, December 31,

September 30, December 31,

(Thousands) 2022 2021

4 unchanged sentences

The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to reduce its exposure to metal market price movements and to reduce its working capital investment.

The notional value of off-balance sheet precious metals and copper was $ 415.0 million and $ 480.2 million as of July 1, 2022 and December 31, 2021, respectively.

The notional value of off-balance sheet precious metals and copper was $ 354.2 million and $ 480.2 million as of September 30, 2022 and December 31, 2021, respectively.

Materion Corporation and Subsidiaries

6 unchanged sentences

Additionally, during the second quarter of 2022, the Company entered into an amendment to the investment agreement with the same customer to procure additional equipment to manufacture product for the customer.

As of July 1, 2022, the Company has received approximately $ 13.1 million in prepayments under the terms of this agreement.

As of July 1, 2022 and December 31, 2021, $ 84.6 million and $ 72.6 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets.

As of September 30, 2022, the Company has received approximately $ 17.5 million in prepayments under the terms of this amended agreement.

As of September 30, 2022 and December 31, 2021, $ 88.2 million and $ 72.6 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets.

The prepayments will remain in Unearned income until commercial purchase orders are received for product serviced out of the equipment, at which time a portion of the purchase order value related to prepayments will be reclassified to Unearned revenue.

As of July 1, 2022 $ 1.0 million of the prepayments are classified as Unearned revenue.

As of September 30, 2022 $ 1.0 million of the prepayments are classified as Unearned revenue.

Note J — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the second quarter and first six months ended July 1, 2022 and July 2, 2021, respectively, for the pension plans as shown below.

The following is a summary of the net periodic benefit cost for the third quarter and first nine months ended September 30, 2022 and October 1, 2021, respectively, for the pension plans as shown below.

The Pension Benefits column aggregates defined benefit pension plans in the U.S., Germany, Liechtenstein, England, and the U.S.

2 unchanged sentences

Pension Benefits Other Benefits

Second Quarter Ended Second Quarter Ended

July 1, July 2, July 1, July 2,

Third Quarter Ended Third Quarter Ended

September 30, October 1, September 30, October 1,

(Thousands) 2022 2021 2022 2021

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Pension Benefits Other Benefits

Six Months Ended Six Months Ended

July 1, July 2, July 1, July 2,

Nine Months Ended Nine Months Ended

September 30, October 1, September 30, October 1,

(Thousands) 2022 2021 2022 2021

8 unchanged sentences

Total net benefit (credit) cost $ ( 1,425 ) $ ( 1,323 ) $ ( 1,146 ) $ ( 1,182 )

The Company did no t make any contributions to its domestic defined benefit plan in the second quarter or first six months of 2022 or 2021.

The Company did no t make any contributions to its domestic defined benefit plan in the third quarter or first nine months of 2022 or 2021.

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.

2 unchanged sentences

Note K — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the second quarter and first six months of 2022 and 2021 are as follows:

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 2022 and 2021 are as follows:

Gains and Losses on Cash Flow Hedges

(Thousands) Foreign Currency Interest Rate Precious Metals Copper Total Pension and Post-Employment Benefits Foreign Currency Translation Total

Balance at April 1, 2022

Balance at July 1, 2022

$ 3,226 $ 3,250 $ 108 $ — $ 6,584 $ ( 39,926 ) $ ( 11,277 ) $ ( 44,619 )

4 unchanged sentences

Net current period other comprehensive (loss) income after tax 613 3,269 243 — 4,125 8 ( 6,094 ) ( 1,961 )

Balance at July 1, 2022

Balance at September 30, 2022

$ 3,839 $ 6,519 $ 351 $ — $ 10,709 $ ( 39,918 ) $ ( 17,371 ) $ ( 46,580 )

Balance at April 2, 2021

Balance at July 2, 2021

$ 1,603 $ — $ 186 $ — $ 1,789 $ ( 43,226 ) $ ( 1,647 ) $ ( 43,084 )

4 unchanged sentences

Net current period other comprehensive (loss) income after tax 480 — ( 41 ) — 439 121 ( 2,029 ) ( 1,469 )

Balance at July 2, 2021

Balance at October 1, 2021

$ 2,083 $ — $ 145 $ — $ 2,228 $ ( 43,105 ) $ ( 3,676 ) $ ( 44,553 )

10 unchanged sentences

Net current period other comprehensive (loss) income after tax 1,491 6,519 279 — 8,289 ( 216 ) ( 14,484 ) ( 6,411 )

Balance at July 1, 2022

Balance at September 30, 2022

$ 3,839 $ 6,519 $ 351 $ — $ 10,709 $ ( 39,918 ) $ ( 17,371 ) $ ( 46,580 )

6 unchanged sentences

Net current period other comprehensive (loss) income after tax 1,564 — 315 ( 468 ) 1,411 368 ( 7,693 ) ( 5,914 )

Balance at July 2, 2021

Balance at October 1, 2021

$ 2,083 $ — $ 145 $ — $ 2,228 $ ( 43,105 ) $ ( 3,676 ) $ ( 44,553 )

10 unchanged sentences

Note L — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.0 million and $ 3.8 million in the second quarter and first six months of 2022, respectively, compared to $ 2.2 million and $ 3.8 million, respectively, in the same periods of 2021.

The Company granted 45,016 stock appreciation rights (SARs) to certain employees during the first six months of 2022.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the six months ended July 1, 2022 were $ 80.85 and $ 25.87 , respectively.

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.2 million and $ 6.0 million in the third quarter and first nine months of 2022, respectively, compared to $ 1.5 million and $ 5.3 million, respectively, in the same periods of 2021.

The Company granted 45,016 stock appreciation rights (SARs) to certain employees during the first nine months of 2022.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the nine months ended September 30, 2022 were $ 80.85 and $ 25.87 , respectively.

The Company estimated the fair value of the SARs using the following weighted-average assumptions in the Black-Scholes model:

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Expected term (in years) 4.4

The Company granted 59,599 stock-settled restricted stock units (RSUs) to certain employees during the first six months of 2022.

The Company granted 61,145 stock-settled restricted stock units (RSUs) to certain employees during the first nine months of 2022.

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 $ 80.87 for stock-settled RSUs granted to employees during the six months ended July 1, 2022.

The weighted-average fair value per share was $ 80.88 for stock-settled RSUs granted to employees during the nine months ended September, 2022.

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 six months of 2022.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first nine months of 2022.

The weighted-average fair value of the stock-settled PRSUs was $ 97.79 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 July 1, 2022, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 15.2 million, and is expected to be recognized over the remaining vesting period of the respective grants.

At September 30, 2022, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 13.0 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note M — Fair Value of Financial Instruments

8 unchanged sentences

Notes to Consolidated Financial Statements

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of July 1, 2022 and December 31, 2021:

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021:

(Thousands) Total Carrying Value in the Consolidated Balance Sheets Quoted Prices

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Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies, metals, and interest rates.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of July 1, 2022 and December 31, 2021.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of September 30, 2022 and December 31, 2021.

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.

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The derivative assets and liabilities are classified as short-term or long-term depending upon the contract maturity date.

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 the balance sheet classification as of July 1, 2022 and December 31, 2021:

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(Thousands) Notional

4 unchanged sentences

These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans.

Other-net included less than $ 0.1 million of foreign currency losses in the second quarter of 2022 and $ 0.7 million of foreign currency gains related to derivatives in the first six months of 2022, compared to $ 0.4 million of foreign currency losses and $ 1.2 million of foreign currency gains in the second quarter and first six months of 2021, 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 July 1, 2022 and December 31, 2021:

Other-net included less than $ 0.1 million of foreign currency losses in the third quarter of 2022 and $ 0.7 million of foreign currency gains related to derivatives in the first nine months of 2022, compared to $ 0.4 million of foreign currency losses and $ 2.7 million of foreign currency gains in the third quarter and first nine months of 2021, respectively.

September 30, 2022

(Thousands) Notional

15 unchanged sentences

We expect to reclassify $ 6.2 million of net gains into earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions.

At July 1, 2022, the maximum term of derivative instruments that hedge forecasted transactions was approximately four years.

At September 30, 2022, the maximum term of derivative instruments that hedge forecasted transactions was approximately four years .

Refer to Note K for further details related to OCI.

The following table summarizes the amounts reclassified from accumulated other comprehensive income relating to the Company’s outstanding derivatives designated as cash flow hedges and associated income statement classification as of the second quarter and first six months of 2022 and 2021:

Second Quarter Ended

(Thousands) July 1, 2022 July 2, 2021

The following table summarizes the amounts reclassified from accumulated other comprehensive income relating to the Company’s outstanding derivatives designated as cash flow hedges and associated income statement classification as of the third quarter and first nine months of 2022 and 2021:

Third Quarter Ended

(Thousands) September 30, 2022 October 1, 2021

Hedging relationship Line item

4 unchanged sentences

Total $ ( 282 ) $ ( 93 )

Six Months Ended

(Thousands) July 1, 2022 July 2, 2021

Nine Months Ended

(Thousands) September 30, 2022 October 1, 2021

Hedging relationship Line item

7 unchanged sentences

For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims, refer to Note T "Contingencies and Commitments" in the Company's 2021 Annual Report on Form 10-K.

One beryllium case was outstanding as of July 1, 2022.

One beryllium case was outstanding as of September 30, 2022.

The Company does not expect the resolution of this open matter to have a material impact on the consolidated financial statements.

As previously reported, a settlement agreement had been reached in one case, and the case was dismissed during the second quarter.

Other Litigation.

3 unchanged sentences

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.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

On October 14, 2020, Garett Lucyk, et al.

4 unchanged sentences

Plaintiff filed a motion for conditional certification, which the Company opposed.

The motion has been fully briefed, and the parties are awaiting a decision from the court.

On August 2, 2022, the Court conditionally certified a class of employees at the Company’s Elmore facility only and rejected certification of a class across the Company’s other facilities.

The Company believes that it has substantive defenses and intends to vigorously defend this suit, absent a negotiated resolution.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Environmental Proceedings.

2 unchanged sentences

The reserves may also be affected by rulings and negotiations with regulatory agencies.

The undiscounted reserve balance was $ 4.3 million and $ 4.8 million at July 1, 2022 and December 31, 2021, respectively, and is included in Other liabilities and accrued items and Other long-term liabilities on the Consolidated Balance Sheet.

The undiscounted reserve balance was $ 4.3 million and $ 4.8 million at September 30, 2022 and December 31, 2021, respectively, and is included in Other liabilities and accrued items and Other long-term liabilities on the Consolidated Balance Sheet.

Environmental projects tend to be long-term, and the final actual remediation costs may differ from the amounts currently recorded.

Note P — Debt

(Thousands) July 1, 2022 December 31, 2021

(Thousands) September 30, 2022 December 31, 2021

Borrowings under Credit Agreement $ 201,388 $ 152,296

6 unchanged sentences

Long-term debt $ 474,280 $ 434,388

As of July 1, 2022 and December 31, 2021, the Company had $ 205.1 million outstanding at an average interest rate of 3.56 % and $ 152.3 million outstanding at an average interest rate of 2.12 %, respectively, under its revolving credit facility.

The available borrowing capacity under the revolving credit facility as of July 1, 2022 was $ 124.0 million.

As of September 30, 2022 and December 31, 2021, the Company had $ 201.4 million outstanding at an average interest rate of 4.74 % and $ 152.3 million outstanding at an average interest rate of 2.12 %, respectively, under its revolving credit facility.

The available borrowing capacity under the revolving credit facility as of September 30, 2022 was $ 127.2 million.

The Company has the option to repay or borrow additional funds under the revolving credit facility until the maturity date in 2026.

The amended and restated credit agreement governing the revolving credit facility (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 July 1, 2022.

The balance outstanding on the term loan facility as of July 1, 2022 and December 31, 2021 wa s $ 292.5 million and $ 300.0 million, respectively.

At July 1, 2022 and December 31, 2021, there was $ 46.4 million and $ 46.3 million, respectively, outstanding against the letters of credit sub-facility.

We were in compliance with all of our debt covenants as of September 30, 2022.

The balance outstanding on the term loan facility as of September 30, 2022 and December 31, 2021 wa s $ 288.8 million and $ 300.0 million, respectively.

At September 30, 2022 and December 31, 2021, there was $ 46.4 million and $ 46.3 million, respectively, outstanding against the letters of credit sub-facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements