What changed in this filing

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Item 1. Financial Statements

2023-11-01 compared with 2023-08-02 · 109 added, 112 removed, 576 unchanged (28% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Second Quarter Ended Six Months Ended

(Thousands, except per share amounts) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Third Quarter Ended Nine Months Ended

(Thousands, except per share amounts) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Net sales $ 403,067 $ 428,191 $ 1,244,144 $ 1,322,531

21 unchanged sentences

Consolidated Statements of Comprehensive Income

Second Quarter Ended Six Months Ended

June 30, July 1, June 30, July 1,

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(Thousands) 2023 2022 2023 2022

4 unchanged sentences

Pension and post-employment benefit adjustment, net of tax ( 145 ) 8 ( 466 ) ( 216 )

Other comprehensive income (loss) 2,183 ( 4,433 ) 2,466 ( 4,450 )

Other comprehensive loss ( 1,385 ) ( 1,961 ) 1,081 ( 6,411 )

Comprehensive income $ 25,179 $ 17,991 $ 77,315 $ 50,815

2 unchanged sentences

Consolidated Balance Sheets

June 30, Dec.

September 29, December 31,

(Thousands) 2023 2022

35 unchanged sentences

Common stock (no par value;

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

60,000 authorized shares, issued shares of 27,148 at both September 29 th and December 31 st )

306,593 288,100

8 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended

June 30, July 1,

Nine Months Ended

September 29, September 30,

(Thousands) 2023 2022

30 unchanged sentences

Payments of withholding taxes for stock-based compensation awards ( 5,101 ) ( 3,056 )

Net cash (used in)/provided by financing activities ( 3,835 ) 38,418

Net cash provided by financing activities 13,735 31,349

Effects of exchange rate changes ( 780 ) ( 2,953 )

11 unchanged sentences

Comprehensive

Balance at March 31, 2023 20,609 ( 6,539 ) $ 297,802 $ 792,421 $ ( 231,906 ) $ ( 41,626 ) $ 5,303 $ 821,994

Balance at June 30, 2023 20,637 ( 6,511 ) $ 303,390 $ 813,793 $ ( 236,423 ) $ ( 39,443 ) $ 5,806 $ 847,123

Net income — — — $ 26,564 — — — 26,564

5 unchanged sentences

Directors’ deferred compensation — — 29 — ( 45 ) — 58 42

Balance at June 30, 2023 20,637 ( 6,511 ) $ 303,390 $ 813,793 $ ( 236,423 ) $ ( 39,443 ) $ 5,806 $ 847,123

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

Balance at September 29, 2023 20,642 ( 6,506 ) $ 306,593 $ 837,598 $ ( 237,259 ) $ ( 40,828 ) $ 5,864 $ 871,968

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 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

Common Shares Shareholders' Equity

12 unchanged sentences

Directors’ deferred compensation 1 1 77 — ( 573 ) — 619 123

Balance at June 30, 2023 20,637 ( 6,511 ) $ 303,390 $ 813,793 $ ( 236,423 ) $ ( 39,443 ) $ 5,806 $ 847,123

Balance at September 29, 2023 20,642 ( 6,506 ) $ 306,593 $ 837,598 $ ( 237,259 ) $ ( 40,828 ) $ 5,864 $ 871,968

Balance at December 31, 2021 20,448 ( 6,700 ) $ 271,978 $ 693,756 $ ( 209,920 ) $ ( 40,169 ) $ 4,795 $ 720,440

6 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

See notes to these consolidated financial statements.

25 unchanged sentences

The primary measurement used by management to measure the financial performance of each segment is earnings before interest, taxes, depreciation and amortization (EBITDA).

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 and first six months of 2023 and 2022:

The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for the third quarter and first nine months of 2023 and 2022:

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Thousands) Second Quarter 2023 Second Quarter 2022 First Six Months Ended 2023 First Six Months Ended 2022

(Thousands) Third Quarter 2023 Third Quarter 2022 First Nine Months 2023 First Nine Months 2022

Performance Materials (1)

15 unchanged sentences

Net income $ 26,564 $ 19,952 $ 76,234 $ 57,226

(1) Excludes inter-segment sales of $ 1.0 million for the second quarter of 2023 and $ 4.1 million for the first six months of 2023 for Electronic Materials.

(1) Excludes inter-segment sales of $ 3.2 million for the third quarter of 2023 and $ 7.3 million for the first nine months of 2023 for Electronic Materials.

There were no material inter-segment sales for Performance Materials in 2023.

Additionally, 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.

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.

The following table disaggregates revenue for each segment by end market for the second quarter and first six months of 2023 and 2022:

The following table disaggregates revenue for each segment by end market for the third quarter and first nine months of 2023 and 2022:

Materion Corporation and Subsidiaries

1 unchanged sentence

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

Second Quarter 2023

Third Quarter 2023

Semiconductor $ 2,712 $ 151,388 $ 624 $ — $ 154,724

7 unchanged sentences

Total $ 184,642 $ 192,305 $ 26,120 $ — $ 403,067

Second Quarter 2022

Third Quarter 2022

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

10 unchanged sentences

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

First Six Months 2023

First Nine Months 2023

Semiconductor $ 9,713 $ 487,361 $ 2,279 $ — $ 499,353

7 unchanged sentences

Total $ 554,427 $ 611,855 $ 77,862 $ — $ 1,244,144

First Six Months 2022

First Nine Months 2022

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

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 June 30, 2023.

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 June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 64.1 million.

After considering the practical expedient at September 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 55.9 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) June 30, 2023

(Thousands) September 29, 2023

December 31, 2022

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 2023.

Impairment losses (bad debt) incurred related to our receivables were immaterial during the third quarter of 2023.

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 $ 11.7 million of the December 31, 2022 unearned amounts as revenue during the first six months of 2023.

The Company recognized approximately $ 11.6 million of the December 31, 2022 unearned amounts as revenue during the first nine months of 2023.

As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component because the period between the transfer of a product or service to a customer and when the customer pays for that product or service will be one year or less.

The Company does not include extended payment terms in its contracts with customers.

Note D — Other-net

Other-net for the second quarter and first six months of 2023 and 2022 is summarized as follows:

Second Quarter Ended Six Months Ended

June 30, July 1, June 30, July 1,

Note D — Restructuring

Over the first nine months of 2023, the Company implemented various restructuring initiatives across the Performance Materials, Electronic Materials and Precision Optics segments to improve operational efficiency.

This resulted in severance and related costs of approximately $ 1.1 million and $ 3.2 million during the three months and nine months ended September 29, 2023, respectively.

Approximately $ 1.9 million of those severance costs were paid as of September 29, 2023.

In the first nine months of 2022, the Company recorded a combined total of $ 1.6 million of restructuring charges in our Precision Optics, Electronic Materials and Other segments as a result of cost reduction actions taken in order to reduce our fixed cost structure.

Note E — Other-net

Other-net for the third quarter and first nine months of 2023 and 2022 is summarized as follows:

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(Thousands) 2023 2022 2023 2022

4 unchanged sentences

Total $ 6,211 $ 6,774 $ 18,178 $ 18,575

Note E — Restructuring

During 2023, the Company implemented various restructuring initiatives across the Performance Materials, Electronic Materials and Precision Optics segments to improve operational efficiency.

This resulted in severance and related costs of approximately $ 1.5 million and $ 2.1 million during the three months and six months ended June 30, 2023, respectively.

In the first six months of 2022, Company recorded a combined total of $ 1.1 million of restructuring charges in our Precision Optics, Electronic Materials and Other segments as a result of cost reduction actions taken in order to reduce our fixed cost structure.

Note F — Income Taxes

The Company's effective tax rate for the second quarter of 2023 and 2022 was 15.3 % and 17.9 %, respectively, and 15.2 % and 17.8 % in the first six months of 2023 and 2022, respectively.

The effective tax rate for 2023 was lower than the statutory

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

tax rate primarily due to the impact of percentage depletion, research and development and production credits and the foreign derived intangible income deduction.

Note F — Income Taxes

The Company's effective tax rate for the third quarter of 2023 and 2022 was 10.0 % and 18.2 %, respectively, and 13.5 % and 18.0 % in the first nine months of 2023 and 2022, respectively.

The effective tax rate for 2023 was lower than the statutory tax rate primarily due to the impact of the foreign derived intangible income deduction, percentage depletion, research and development and production credits.

The effective tax rate for 2022 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 2023 included a net discrete income tax benefit of $ 1.0 million, primarily related to excess tax benefits from stock-based compensation awards.

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 nine months of 2023 included a net discrete income tax benefit of $ 3.4 million, primarily related to an optimization of our foreign-derived intangible income deduction benefit, excess tax benefits from stock-based compensation awards and return to provision adjustments .

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

Government Tax Credits

4 unchanged sentences

and sold by a taxpayer during the year.

The IRA affords the Company eligibility to a production credit beginning in 2023, for which the Company expects to recognize cash savings of at least $ 8 million for the year ending December 31, 2023.

The IRA affords the Company eligibility to a production credit beginning in 2023, for which the Company expects to recognize cash savings of approximately $ 10 million for the year ending December 31, 2023.

The issuance of guidance and interpretation as to the eligibility for, calculation of, and methods for claiming the production credit remain pending.

6 unchanged sentences

We recognize the benefit of tax credits accounted for by applying IAS 20 in pretax income on a systematic basis in line with its recognition of the expenses that the grant is intended to compensate.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note G — Earnings Per Share (EPS)

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

Second Quarter Ended Six Months Ended

June 30, July 1, June 30, July 1,

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(Thousands, except per share amounts) 2023 2022 2023 2022

12 unchanged sentences

Diluted EPS $ 1.27 $ 0.96 $ 3.65 $ 2.76

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 47,084 and 119,744 for the quarters ended June 30, 2023 and July 1, 2022, respectively, and totaling 69,716 and 79,949 for the six months ended June 30, 2023 and July 1, 2022, 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 stock and were excluded from the dilution calculation as the effect would have been anti-dilutive.

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 47,250 and 45,016 for the quarters ended September 29, 2023 and September 30, 2022, respectively, and 36,927 and 54,680 for the nine months ended September 29, 2023 and September 30, 2022, 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.

Note H — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:

June 30, December 31,

September 29, December 31,

(Thousands) 2023 2022

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 $ 321.3 million and $ 373.1 million as of June 30, 2023 and December 31, 2022, respectively.

The notional value of off-balance sheet precious metals and copper was $ 344.8 million and $ 373.1 million as of September 29, 2023 and December 31, 2022, respectively.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note I — Customer Prepayments

4 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 June 30, 2023, the Company has received approximately $ 37.0 million in prepayments under the terms of this amended agreement, of which $ 15.1 million was received during the first six months of 2023.

As of June 30, 2023 and December 31, 2022, $ 91.4 million and $ 85.9 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets.

During 2023, the Company has received approximately $ 16.7 million in prepayments under the terms of this amended agreement.

As of September 29, 2023 and December 31, 2022, $ 90.0 million and $ 85.9 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 June 30, 2023 $ 6.7 million of the prepayments are classified as Unearned revenue.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

As of September 29, 2023 $ 5.8 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 June 30, 2023 and July 1, 2022, 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 29, 2023 and September 30, 2022, 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

June 30, July 1, June 30, July 1,

Third Quarter Ended Third Quarter Ended

September 29, September 30, September 29, September 30,

(Thousands) 2023 2022 2023 2022

7 unchanged sentences

Pension Benefits Other Benefits

Six Months Ended Six Months Ended

June 30, July 1, June 30, July 1,

Nine Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

(Thousands) 2023 2022 2023 2022

6 unchanged sentences

Net periodic benefit (credit) cost $ ( 1,027 ) $ ( 1,425 ) $ ( 459 ) $ ( 1,146 )

The Company did no t make any contributions to its domestic defined benefit plan in the second quarter or first six months of 2023 or 2022.

The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit cost in Other non-operating (income) expense.

Note K — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the second quarter and first six months of 2023 and 2022 are as follows:

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The Company did no t make any contributions to its domestic defined benefit plan in the third quarter or first nine months of 2023 or 2022.

Note K — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 2023 and 2022 are as follows:

Gains and Losses on Cash Flow Hedges

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

Balance at March 31, 2023

Balance at June 30, 2023

$ 1,290 $ 7,069 $ ( 443 ) $ 7,916 $ ( 40,549 ) $ ( 6,810 ) $ ( 39,443 )

4 unchanged sentences

Net current period other comprehensive (loss) income after tax 590 969 460 2,019 ( 145 ) ( 3,259 ) ( 1,385 )

Balance at June 30, 2023

Balance at September 29, 2023

$ 1,880 $ 8,038 $ 17 $ 9,935 $ ( 40,694 ) $ ( 10,069 ) $ ( 40,828 )

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 )

10 unchanged sentences

Net current period other comprehensive (loss) income after tax 637 1,983 240 2,860 ( 466 ) ( 1,313 ) 1,081

Balance at June 30, 2023

Balance at September 29, 2023

$ 1,880 $ 8,038 $ 17 $ 9,935 $ ( 40,694 ) $ ( 10,069 ) $ ( 40,828 )

6 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 )

8 unchanged sentences

Note L — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.8 million and $ 5.2 million in the second quarter and first six months of 2023, respectively, compared to $ 2.0 million and $ 3.8 million, respectively, in the same periods of 2022.

The Company granted 47,084 stock appreciation rights (SARs) to certain employees during the first six months of 2023.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the six months ended June 30, 2023 were $ 113.28 and $ 42.27 , respectively.

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.6 million and $ 7.8 million in the third quarter and first nine months of 2023, respectively, compared to $ 2.2 million and $ 6.0 million, respectively, in the same periods of 2022.

The Company granted 47,084 stock appreciation rights (SARs) to certain employees during the first nine months of 2023.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the nine months ended September 29, 2023 were $ 113.28 and $ 42.27 , 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) 4.5

The Company granted 53,906 stock-settled restricted stock units (RSUs) to certain employees during the first six months of 2023.

The Company granted 54,788 stock-settled restricted stock units (RSUs) to certain employees during the first nine months of 2023.

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 $ 112.61 for stock-settled RSUs granted to employees during the six months ended June 30, 2023.

The weighted-average fair value per share was $ 112.53 for stock-settled RSUs granted to employees during the nine months ended September 29, 2023.

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 2023.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first nine months of 2023.

The weighted-average fair value of the stock-settled PRSUs was $ 154.97 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 June 30, 2023, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 20.7 million, and is expected to be recognized over the remaining vesting period of the respective grants.

At September 29, 2023, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 17.0 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note M — Fair Value of Financial Instruments

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Notes to Consolidated Financial Statements

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022:

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of September 29, 2023 and December 31, 2022:

(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 June 30, 2023 and December 31, 2022.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of September 29, 2023 and December 31, 2022.

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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On March 4, 2022, the Company entered into a $ 100.0 million interest rate swap to hedge the interest rate risk on the Credit Agreement described in Note P.

The swap hedges the change in 1-month Secured Overnight Financial Rate (SOFR) from March 4, 2022 to November 2, 2026.

The swap hedges the change in 1-month LIBOR from March 4, 2022 to November 2, 2026.

On March 21, 2023, the Company entered into two $ 50.0 million interest rate swaps to hedge the interest rate risk on the Credit Agreement described in Note P.

The swaps hedge the change in 1-month USD-SOFR.

The purpose of these hedges is to manage the risk of changes in the monthly interest payments attributable to changes in the benchmark interest rate.

The purpose of this hedge is to manage the risk of changes in the monthly interest payments attributable to changes in the benchmark interest rate.

Foreign Currency.

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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 June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

September 29, 2023 December 31, 2022

(Thousands) Notional

4 unchanged sentences

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

Other-net included $ 0.2 million and $ 0.4 million of foreign currency losses in the second quarter and first six months of 2023, respectively, compared to less than $ 0.1 million of foreign currency losses and $ 0.7 million of foreign currency gains in the second quarter and first six months of 2022, respectively.

Other-net included less than $ 0.1 million of foreign currency losses in the third quarter and $ 0.4 million of foreign currency losses related to derivatives in the first nine months of 2023, compared to less than $ 0.1 million of foreign currency losses and $ 0.7 million of foreign currency gains in the third quarter and first nine months of 2022, respectively.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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 June 30, 2023 and December 31, 2022:

June 30, 2023

September 29, 2023

(Thousands) Notional

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We expect to reclassify $ 5.6 million of net gains into earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions.

At June 30, 2023, the maximum term of derivative instruments that hedge forecasted transactions was approximately four years .

At September 29, 2023, 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 2023 and 2022:

Second Quarter Ended

(Thousands) June 30, 2023 July 1, 2022

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 2023 and 2022:

Third Quarter Ended

(Thousands) September 29, 2023 September 30, 2022

Hedging relationship Line item

5 unchanged sentences

Notes to Consolidated Financial Statements

Six Months Ended

(Thousands) June 30, 2023 July 1, 2022

Nine Months Ended

(Thousands) September 29, 2023 September 30, 2022

Hedging relationship Line item

6 unchanged sentences

For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims, refer to Note S "Contingencies and Commitments" in the Company's 2022 Annual Report on Form 10-K.

One beryllium case was outstanding as of June 30, 2023;

however, the Company has entered into a confidential settlement agreement with plaintiffs, pursuant to which all remaining claims in the case are to be dismissed with prejudice, subject to court approval.

The resolution of this matter will not have a material impact on the consolidated financial statements.

There were no pending beryllium cases as of September 29, 2023.

One beryllium case that was settled in the second quarter of 2023 was dismissed with prejudice during the third quarter of 2023 after receiving court approval.

Other Litigation.

4 unchanged sentences

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

Materion Brush Inc., et.

, case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc.

Materion Brush Inc.

al., case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc.

(collectively, the Company).

2 unchanged sentences

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.

In November 2022, the parties reached a settlement for an immaterial amount.

The Court preliminarily approved the settlement on March 30, 2023 and a final approval hearing was held on July 6, 2023.

There were no objections to the settlement and the court entered an order approving the final settlement on July 7, 2023.

The final settlement amount approximated the amount previously reserved for related to this matter.

There were no objections to the settlement and the Court entered an order approving the final settlement on July 7, 2023, and the settlement amount was subsequently paid out prior to the end of the third quarter.

Environmental Proceedings.

2 unchanged sentences

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

The undiscounted reserve balance was $ 4.4 million and $ 4.5 million at June 30, 2023 and December 31, 2022, 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 $ 4.4 million and $ 4.5 million at September 29, 2023 and December 31, 2022, 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.

2 unchanged sentences

Note P — Debt

(Thousands) June 30, 2023 December 31, 2022

(Thousands) September 29, 2023 December 31, 2022

Borrowings under Credit Agreement $ 176,750 $ 143,250

7 unchanged sentences

Long-term debt $ 422,361 $ 410,876

As of June 30, 2023 and December 31, 2022, the Company had $ 159.8 million outstanding at an average interest rate of 6.71 % and $ 143.3 million outstanding at an average interest rate of 6.08 %, respectively, under its revolving credit facility.

The available borrowing capacity under the revolving credit facility as of June 30, 2023 was $ 168.9 million.

As of September 29, 2023 and December 31, 2022, the Company had $ 176.8 million outstanding at an average interest rate of 6.92 % and $ 143.3 million outstanding at an average interest rate of 6.08 %, respectively, under its revolving credit facility.

The available borrowing capacity under the revolving credit facility as of September 29, 2023 was $ 151.0 million.

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

In connection with the revolving credit facility, the administrative agent provides the Company with an overdraft sweep facility that the Company uses on a daily basis for short-term cash needs.

As of June 30, 2023, the overdraft sweep facility had a balance of $ 0.5 million.

The amended and restated credit agreement governing the revolving credit facility and the term loan 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 June 30, 2023.

The balance outstanding on the term loan facility as of June 30, 2023 and December 31, 2022 wa s $ 277.5 million and $ 285.0 million, respectively.

At June 30, 2023 and December 31, 2022, there was $ 46.3 million and $ 46.5 million, respectively, outstanding against the letters of credit sub-facility.

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 September 29, 2023.

The balance outstanding on the term loan facility as of September 29, 2023 and December 31, 2022 was $ 273.8 million and $ 285.0 million, respectively.

At September 29, 2023 and December 31, 2022, there was $ 47.3 million and $ 46.5 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