Item 1. Financial Statements

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Item 1. Financial Statements

AMETEK, Inc.

Consolidated Statement of Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales	$	1,440,681	$	1,126,942	$	4,042,769	$	3,341,082
Cost of sales	949,402		732,705		2,651,506		2,226,547
Selling, general and administrative	153,716		123,496		443,744		384,764
Total operating expenses	1,103,118		856,201		3,095,250		2,611,311
Operating income	337,563		270,741		947,519		729,771
Interest expense	(20,476)		(21,187)		(59,865)		(66,597)
Other income (expense), net	2,581		(1,479)		(3,775)		142,428
Income before income taxes	319,668		248,075		883,879		805,602
Provision for income taxes	62,208		43,494		175,507		154,188
Net income	$	257,460	$	204,581	$	708,372	$	651,414
Basic earnings per share	$	1.11	$	0.89	$	3.07	$	2.84
Diluted earnings per share	$	1.10	$	0.88	$	3.04	$	2.82
Weighted average common shares outstanding:
Basic shares	231,171		229,576		230,811		229,254
Diluted shares	233,000		231,460		232,712		230,904
Dividends declared and paid per share	$	0.20	$	0.18	$	0.60	$	0.54

See accompanying notes.

AMETEK, Inc.

Condensed Consolidated Statement of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total comprehensive income	$	240,076	$	229,713	$	688,575	$	650,908

See accompanying notes.

AMETEK, Inc.

Consolidated Balance Sheet

(In thousands)


	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	358,676	$	1,212,822
Receivables, net	768,386		597,472
Inventories, net	738,688		559,171
Other current assets	196,065		153,005
Total current assets	2,061,815		2,522,470
Property, plant and equipment, net	597,488		526,530
Right of use assets, net	169,075		167,233
Goodwill	5,180,999		4,224,906
Other intangibles, net	3,344,855		2,623,719
Investments and other assets	325,463		292,625
Total assets	$	11,679,695	$	10,357,483

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt, net	$	415,667	$	132,284
Accounts payable	446,409		360,370
Customer advanced payments	287,404		194,633
Income taxes payable	66,017		38,896
Accrued liabilities and other	418,329		349,732
Total current liabilities	1,633,826		1,075,915
Long-term debt, net	2,238,920		2,281,441
Deferred income taxes	697,688		533,478
Other long-term liabilities	550,865		517,303
Total liabilities	5,121,299		4,408,137
Stockholders’ equity:
Common stock	2,686		2,676
Capital in excess of par value	986,317		921,752
Retained earnings	7,664,682		7,094,656
Accumulated other comprehensive loss	(524,265)		(504,468)
Treasury stock	(1,571,024)		(1,565,270)
Total stockholders’ equity	6,558,396		5,949,346
Total liabilities and stockholders’ equity	$	11,679,695	$	10,357,483

See accompanying notes.

AMETEK, Inc.

Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Capital stock

Common stock, $0.01 par value
Balance at the beginning of the period	$	2,684	$	2,668	$	2,676	$	2,662
Shares issued	2		3		10		9
Balance at the end of the period	2,686		2,671		2,686		2,671
Capital in excess of par value
Balance at the beginning of the period	964,791		860,771		921,752		832,821
Issuance of common stock under employee stock plans	10,098		18,989		29,544		27,886
Share-based compensation expense	11,428		10,825		35,021		29,878
Balance at the end of the period	986,317		890,585		986,317		890,585
Retained earnings
Balance at the beginning of the period	7,453,401		6,751,686		7,094,656		6,387,612
Net income	257,460		204,581		708,372		651,414
Cash dividends paid	(46,178)		(41,291)		(138,345)		(123,690)
Adoption of ASU 2016-13	—		—		—		(360)
Other	(1)		—		(1)		—
Balance at the end of the period	7,664,682		6,914,976		7,664,682		6,914,976
Accumulated other comprehensive (loss) income
Foreign currency translation:
Balance at the beginning of the period	(256,421)		(315,252)		(250,748)		(286,248)
Translation adjustments	(31,207)		46,922		(45,160)		(2,103)
Change in long-term intercompany notes	(5,475)		9,003		(11,041)		7,979
Net investment hedge instruments gain (loss), net of tax of $(5,715) and $10,459 for the quarter ended September 30, 2021 and 2020, and $(10,194) and $3,681 for the nine months ended September 30, 2021 and 2020, respectively	17,668		(32,476)		31,514		(11,431)
Balance at the end of the period	(275,435)		(291,803)		(275,435)		(291,803)
Defined benefit pension plans:
Balance at the beginning of the period	(250,460)		(243,525)		(253,720)		(246,891)
Amortization of net actuarial loss and other, net of tax of $(527) and $(531) for the quarter ended September 30, 2021 and 2020, and $(1,581) and $(1,593) for the nine months ended September 30, 2021 and 2020, respectively	1,630		1,683		4,890		5,049
Balance at the end of the period	(248,830)		(241,842)		(248,830)		(241,842)
Accumulated other comprehensive loss at the end of the period	(524,265)		(533,645)		(524,265)		(533,645)
Treasury stock
Balance at the beginning of the period	(1,570,696)		(1,569,908)		(1,565,270)		(1,574,464)
Issuance of common stock under employee stock plans	(143)		(414)		7,309		8,638
Purchase of treasury stock	(185)		(73)		(13,063)		(4,569)
Balance at the end of the period	(1,571,024)		(1,570,395)		(1,571,024)		(1,570,395)
Total stockholders’ equity	$	6,558,396	$	5,704,192	$	6,558,396	$	5,704,192

See accompanying notes.

AMETEK, Inc.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)


	Nine months ended September 30,
	2021		2020
Cash provided by (used for):
Operating activities:
Net income	$	708,372	$	651,414
Adjustments to reconcile net income to total operating activities:
Depreciation and amortization	214,494		190,398
Deferred income taxes	(7,209)		(4,532)
Share-based compensation expense	35,021		29,878
Gain on sale of business	(6,349)		(141,020)
Gain on sale of facilities	—		(7,523)
Net change in assets and liabilities, net of acquisitions	(60,947)		176,743
Pension contributions	(6,414)		(5,110)
Other, net	1,592		4,850
Total operating activities	878,560		895,098
Investing activities:
Additions to property, plant and equipment	(67,229)		(37,164)
Purchases of businesses, net of cash acquired	(1,839,664)		(116,509)
Proceeds from sale of business	12,000		245,311
Proceeds from sale of facilities	—		9,508
Other, net	(291)		(2,457)
Total investing activities	(1,895,184)		98,689
Financing activities:
Net change in short-term borrowings	286,126		109,997


Repayments of long-term borrowings	—		(102,947)
Repurchases of common stock	(13,063)		(4,569)
Cash dividends paid	(138,345)		(123,690)
Proceeds from stock option exercises	42,301		39,880
Other, net	(5,818)		(3,389)
Total financing activities	171,201		(84,718)
Effect of exchange rate changes on cash and cash equivalents	(8,723)		2,739
(Decrease) Increase in cash and cash equivalents	(854,146)		911,808
Cash and cash equivalents:
Beginning of period	1,212,822		393,030
End of period	$	358,676	$	1,304,838

See accompanying notes.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements are unaudited. AMETEK, Inc. (the “Company”) believes that all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at September 30, 2021, the consolidated results of its operations for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the U.S. Securities and Exchange Commission.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncement

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740. The Company prospectively adopted ASU 2019-12, effective January 1, 2021, and the adoption did not have a significant impact on the Company’s consolidated results of operations, financial position, cash flows and financial statement disclosures.

3. Revenues

The outstanding contract asset and liability accounts were as follows:


	2021		2020
	(In thousands)
Contract assets—January 1	$	68,971	$	73,039
Contract assets – September 30	82,986		68,157
Change in contract assets – increase (decrease)	14,015		(4,882)
Contract liabilities – January 1	215,093		167,306
Contract liabilities – September 30	311,674		198,660
Change in contract liabilities – increase	(96,581)		(31,354)
Net change	$	(82,566)	$	(36,236)

The net change for the nine months ended September 30, 2021 was primarily driven by contract liabilities from the 2021 acquisitions' advance payments from customers. For the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $179.1 million and $120.6 million, respectively, that was previously included in the beginning balance of contract liabilities.

Contract assets are reported as a component of Other current assets in the consolidated balance sheet. At September 30, 2021 and December 31, 2020, $24.3 million and $20.5 million of Customer advanced payments (contract liabilities), respectively, were recorded in Other long-term liabilities in the consolidated balance sheets.

The remaining performance obligations exceeding one year as of September 30, 2021 and December 31, 2020 were $545.3 million and $300.8 million, respectively. The increase was primarily driven by the 2021 acquisitions. Remaining performance obligations represent the transaction price of firm, non-cancelable orders, with expected delivery dates to customers greater than one year from the balance sheet date, for which the performance obligation is unsatisfied or partially unsatisfied. These performance obligations will be substantially satisfied within two to three years.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

Geographic Areas

Net sales were attributed to geographic areas based on the location of the customer. Information about the Company’s operations in different geographic areas was as follows for the three and nine months ended September 30:


	Three months ended September 30, 2021						Nine months ended September 30, 2021
	EIG		EMG		Total		EIG		EMG		Total
	(In thousands)
United States	$	509,075	$	230,524	$	739,599	$	1,393,015	$	666,618	$	2,059,633
International(1):
United Kingdom	25,358		32,846		58,204		67,954		91,465		159,419
European Union countries	117,035		102,069		219,104		338,556		300,970		639,526
Asia	242,063		65,624		307,687		657,478		192,267		849,745
Other foreign countries	88,284		27,803		116,087		249,670		84,776		334,446
Total international	472,740		228,342		701,082		1,313,658		669,478		1,983,136
Consolidated net sales	$	981,815	$	458,866	$	1,440,681	$	2,706,673	$	1,336,096	$	4,042,769

(1) Includes U.S. export sales of $391.0 million and $1,087.3 million for the three and nine months ended September 30, 2021, respectively.


	Three months ended September 30, 2020						Nine months ended September 30, 2020
	EIG		EMG		Total		EIG		EMG		Total
	(In thousands)
United States	$	379,744	$	198,440	$	578,184	$	1,125,046	$	622,498	$	1,747,544
International(1):
United Kingdom	11,488		28,657		40,145		39,708		84,547		124,255
European Union countries	97,028		78,851		175,879		282,605		246,944		529,549
Asia	188,254		47,496		235,750		514,189		138,862		653,051
Other foreign countries	71,858		25,126		96,984		208,931		77,752		286,683
Total international	368,628		180,130		548,758		1,045,433		548,105		1,593,538
Consolidated net sales	$	748,372	$	378,570	$	1,126,942	$	2,170,479	$	1,170,603	$	3,341,082

(1) Includes U.S. export sales of $303.2 million and $866.3 million for the three and nine months ended September 30, 2020, respectively.

Major Products and Services

The Company’s major products and services in the reportable segments were as follows:


	Three months ended September 30, 2021						Nine months ended September 30, 2021
	EIG		EMG		Total		EIG		EMG		Total
	(In thousands)
Process and analytical instrumentation	$	661,243	$	—	$	661,243	$	1,881,923	$	—	$	1,881,923
Aerospace and power	320,572		130,671		451,243		824,750		379,310		1,204,060
Automation and engineered solutions	—		328,195		328,195		—		956,786		956,786
Consolidated net sales	$	981,815	$	458,866	$	1,440,681	$	2,706,673	$	1,336,096	$	4,042,769

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)


	Three months ended September 30, 2020						Nine months ended September 30, 2020
	EIG		EMG		Total		EIG		EMG		Total
	(In thousands)
Process and analytical instrumentation	$	557,570	$	—	$	557,570	$	1,589,550	$	—	$	1,589,550
Aerospace and power	190,802		116,126		306,928		580,929		347,510		928,439
Automation and engineered solutions	—		262,444		262,444		—		823,093		823,093
Consolidated net sales	$	748,372	$	378,570	$	1,126,942	$	2,170,479	$	1,170,603	$	3,341,082

Timing of Revenue Recognition


	Three months ended September 30, 2021						Nine months ended September 30, 2021
	EIG		EMG		Total		EIG		EMG		Total
	(In thousands)
Products transferred at a point in time	$	791,486	$	413,062	$	1,204,548	$	2,206,252	$	1,204,662	$	3,410,914
Products and services transferred over time	190,329		45,804		236,133		500,421		131,434		631,855
Consolidated net sales	$	981,815	$	458,866	$	1,440,681	$	2,706,673	$	1,336,096	$	4,042,769


	Three months ended September 30, 2020						Nine months ended September 30, 2020
	EIG		EMG		Total		EIG		EMG		Total
	(In thousands)
Products transferred at a point in time	$	603,602	$	346,237	$	949,839	$	1,762,310	$	1,049,798	$	2,812,108
Products and services transferred over time	144,770		32,333		177,103		408,169		120,805		528,974
Consolidated net sales	$	748,372	$	378,570	$	1,126,942	$	2,170,479	$	1,170,603	$	3,341,082

Product Warranties

The Company provides limited warranties in connection with the sale of its products. The warranty periods for products sold vary among the Company’s operations, but the majority do not exceed one year. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses. Product warranty obligations are reported as a component of Accrued liabilities and other in the consolidated balance sheet.

Changes in the accrued product warranty obligation were as follows:


	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Balance at the beginning of the period	$	27,839	$	27,611
Accruals for warranties issued during the period	8,379		9,766
Settlements made during the period	(9,112)		(11,513)
Warranty accruals related to acquired businesses and other during the period	2,227		2,594
Balance at the end of the period	$	29,333	$	28,458

Accounts Receivable

The Company maintains allowances for estimated losses resulting from the inability of customers to meet their financial obligations to the Company. The Company recognizes an allowance for credit losses, on all accounts receivable and contract assets, which considers risk of future credit losses based on factors such as historical experience, contract terms, as well as general and market business conditions, country, and political risk. Balances are written off when determined to be uncollectible.

At September 30, 2021, the Company had $768.4 million of accounts receivable, net of allowances of $12.1 million. Changes in the allowance were not material for the three and nine months ended September 30, 2021.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

4. Earnings Per Share

The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants). Securities that are anti-dilutive have been excluded and are not significant. The number of weighted average shares used in the calculation of basic earnings per share and diluted earnings per share was as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
	(In thousands)
Weighted average shares:
Basic shares	231,171	229,576	230,811	229,254
Equity-based compensation plans	1,829	1,884	1,901	1,650
Diluted shares	233,000	231,460	232,712	230,904

5. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the Company’s assets that are measured at fair value on a recurring basis, consistent with the fair value hierarchy, at September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020
	Fair Value		Fair Value
	(In thousands)
Mutual fund investments	$	10,456	$	8,969

The fair value of mutual fund investments, which are valued as level 1 investments, was based on quoted market prices. The mutual fund investments are shown as a component of investments and other assets on the consolidated balance sheet.

For the nine months ended September 30, 2021 and 2020, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the nine months ended September 30, 2021 and 2020.

Financial Instruments

Cash, cash equivalents and mutual fund investments are recorded at fair value at September 30, 2021 and December 31, 2020 in the accompanying consolidated balance sheet.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

The following table provides the estimated fair values of the Company’s financial instrument liabilities, for which fair value is measured for disclosure purposes only, compared to the recorded amounts at September 30, 2021 and December 31, 2020:


	September 30, 2021				December 31, 2020
	Recorded Amount		Fair Value		Recorded Amount		Fair Value
	(In thousands)
Long-term debt, net (including current portion)	$	(2,302,585)	$	(2,467,313)	$	(2,347,587)	$	(2,550,956)

The fair value of net short-term borrowings approximates the carrying value. Net short-term borrowings are valued as level 2 liabilities as they are corroborated by observable market data. The Company’s net long-term debt is all privately held with no public market for this debt, therefore, the fair value of net long-term debt was computed based on comparable current market data for similar debt instruments and is considered a level 3 liability.

Foreign Currency

At September 30, 2021, the Company had no foreign currency forward contracts outstanding. For the nine months ended September 30, 2021, the Company had no realized or unrealized gains or losses on foreign currency forward contracts. At September 30, 2020, the Company had a Canadian dollar forward contract for a total notional value of 24.0 million Canadian dollars and an immaterial unrealized gain outstanding. For the nine months ended September 30, 2020 realized and unrealized gains and losses on foreign currency forward contracts were not significant. The Company does not typically designate its foreign currency forward contracts as hedges.

6. Hedging Activities

The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. As of September 30, 2021, these net investment hedges included British-pound-and Euro-denominated long-term debt. These borrowings were designed to create net investment hedges in certain designated foreign subsidiaries. The Company designated the British-pound- and Euro-denominated loans referred to above as hedging instruments to offset translation gains or losses on the net investment due to changes in the British pound and Euro exchange rates. These net investment hedges are evidenced by management’s contemporaneous documentation supporting the hedge designation. Any gain or loss on the hedging instruments (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the translation adjustment on the hedged investment based on changes in the spot rate, which is used to measure hedge effectiveness.

At September 30, 2021, the Company had $303.0 million of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At September 30, 2021, the Company had $665.7 million in Euro-denominated loans, which were designated as a hedge against the net investment in Euro functional currency foreign subsidiaries. As a result of the British-pound- and Euro-denominated loans designated and 100% effective as net investment hedges, $41.7 million of pre-tax currency remeasurement gains have been included in the foreign currency translation component of other comprehensive income for the nine months ended September 30, 2021.

7. Inventories, net


	September 30, 2021		December 31, 2020
	(In thousands)
Finished goods and parts	$	87,370	$	81,619
Work in process	137,283		102,945
Raw materials and purchased parts	514,035		374,607
Total inventories, net	$	738,688	$	559,171

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

8. Leases

The Company has commitments under operating leases for certain facilities, vehicles and equipment used in its operations. Cash used in operations for operating leases was not materially different from operating lease expense for the nine months ended September 30, 2021 and 2020. The Company's leases have initial lease terms ranging from one month to 16 years. Certain lease agreements contain provisions for future rent increases.

The components of lease expense were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease cost	$	13,560	$	10,715	$	37,083	$	31,704
Variable lease cost	1,737		1,611		4,609		3,701
Total lease cost	$	15,297	$	12,326	$	41,692	$	35,405

Supplemental balance sheet information related to leases was as follows:


	September 30, 2021		December 31, 2020
	(In thousands)
Right of use assets, net	$	169,075	$	167,233
Lease liabilities included in Accrued Liabilities and other	47,803		44,948
Lease liabilities included in Other long-term liabilities	126,695		128,173
Total lease liabilities	$	174,498	$	173,121

Maturities of lease liabilities as of September 30, 2021 were as follows:


Lease Liability Maturity Analysis	Operating Leases
	(In thousands)
Remaining 2021	$	13,886
2022	50,802
2023	41,065
2024	29,023
2025	21,312
Thereafter	40,161
Total lease payments	196,249
Less: imputed interest	21,751
	$	174,498

The Company does not have any significant leases that have not yet commenced.

9. Acquisitions and Divestiture

Acquisitions

The Company spent $1,839.7 million in cash, net of cash acquired, to acquire Magnetrol International ("Magnetrol"), Crank Software, and EGS Automation ("EGS") in March 2021, and NSI-MI Technologies ("NSI-MI") and Abaco Systems, Inc. ("Abaco") in April 2021. Magnetrol is a leading provider of level and flow control solutions for challenging process applications across a diverse set of end markets including medical, pharmaceutical, oil and gas, food and beverage, and general industrial. Crank Software is a leading provider of embedded graphical user interface software and services. EGS is an automation solutions provider that designs and manufactures highly engineered, customized robotic solutions used in critical applications for the medical, food and beverage, and general industrial markets. NSI-MI is a leading provider of radio

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

frequency and microwave test and measurement systems for niche applications across the aerospace, defense, automotive, wireless communications, and research markets. Abaco specializes in open-architecture computing and electronic systems for aerospace, defense, and specialized industrial markets and is a leading provider of mission critical embedded computing systems. Magnetrol, Crank Software, NSI-MI, and Abaco are part of EIG. EGS is part of EMG.

The following table represents the allocation of the purchase price for the net assets of the acquisitions based on the estimated fair values at acquisition (in millions):


	Abaco		Other Acquisitions		Total
	(in millions)
Property, plant and equipment	$	56.2	$	39.2	$	95.4
Goodwill	737.9		244.7		982.6
Other intangible assets	616.9		252.8		869.7
Deferred income taxes	(122.2)		(30.5)		(152.7)
Net working capital and other(1)	57.1		(12.4)		44.7
Total cash paid	$	1,345.9	$	493.8	$	1,839.7

(1)Includes $66.2 million in accounts receivable, whose fair value, contractual cash flows and expected cash flows are approximately equal.

The amount allocated to goodwill is reflective of the benefits the Company expects to realize from the 2021 acquisitions. Abaco's computing and electronic solutions expand and complement the Company's existing aerospace and defense businesses. NSI-MI strengthens the Company's test and measurement platform. Magnetrol's solutions combined with the Company’s existing Sensors, Test and Calibration business, becomes an industry leading differentiated sensor platform with a broad range of level and flow measurement solutions. Crank Software expands the Company's growing portfolio of software solutions. EGS complements the Company's existing Dunkermotoren business providing highly customizable engineering design and automation capabilities. The Company expects approximately $108 million of the goodwill relating to the 2021 acquisitions will be tax deductible in future years.

At September 30, 2021, the purchase price allocated to other intangible assets of $869.7 million consists of $116.1 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $753.6 million of other intangible assets consists of $569.9 million of customer relationships, which are being amortized over a period of 15 to 20 years, and $183.7 million of purchased technology, which is being amortized over a period of 11 to 20 years. Amortization expense for each of the next five years for the 2021 acquisitions is expected to approximate $41 million per year.

At September 30, 2021, the Company finalized the measurements of certain tangible and intangible assets and liabilities for its 2021 acquisitions of EGS and Crank Software, which had no material impact to the consolidated statement of income. The Company is in the process of finalizing the measurement of the intangible assets and certain tangible assets and liabilities, as well as accounting for income taxes, for its 2021 acquisitions of Abaco, Magnetrol, and NSI-MI.

The acquisitions had an immaterial impact on reported net income and diluted earnings per share for the three and nine months ended September 30, 2021. The acquisitions increased net sales by approximately 11% and 6% for the three and nine months ended September 30, 2021, respectively. Had the acquisitions been made at the beginning of 2021 or 2020, pro forma net income and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020, would not have been materially different than the amounts reported. Pro forma net sales would not have been materially different than the amounts reported for the three and nine months ended September 30, 2021 and would have been approximately 10% higher than the reported amounts for the three and nine months ended September 30, 2020.

Divestiture

The Company completed its sale of Reading Alloys to Kymera International in March 2020 for net cash proceeds of $245.3 million. The sale resulted in a pretax gain of $141.0 million, recorded in Other income, net in the Consolidated

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

Statement of Income, and income tax expense of approximately $31.4 million in connection with the sale. Reading Alloys revenue and costs were reported within the EMG segment through the date of sale.

10. Goodwill

The changes in the carrying amounts of goodwill by segment were as follows:


	EIG		EMG		Total
	(In millions)
Balance at December 31, 2020	$	3,050.3	$	1,174.6	$	4,224.9
Goodwill acquired from 2021 acquisitions	976.7		5.9		982.6
Purchase price allocation adjustments and other	1.9		—		1.9
Foreign currency translation adjustments	(15.9)		(12.5)		(28.4)
Balance at September 30, 2021	$	4,013.0	$	1,168.0	$	5,181.0

11. Income Taxes

At September 30, 2021, the Company had gross uncertain tax benefits of $156.6 million, of which $103.7 million, if recognized, would impact the effective tax rate.

The following is a reconciliation of the liability for uncertain tax positions (in millions):


Balance at December 31, 2020	$	100.7
Additions for tax positions	56.7
Reductions for tax positions	(0.8)
Balance at September 30, 2021	$	156.6

The additions above primarily reflect the tax positions included as a component of goodwill for businesses recently acquired and foreign tax planning initiatives. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense. The amounts recognized in income tax expense for interest and penalties during the three and nine months ended September 30, 2021 and 2020 were not significant.

The effective tax rate for the three months ended September 30, 2021 was 19.5%, compared with 17.5% for the three months ended September 30, 2020. The higher effective tax rate in 2021 is primarily due to an increase in the foreign rate differential related to the mix of earnings generated in higher taxed jurisdictions.

12. Debt

On April 26, 2021, the Company along with certain of its foreign subsidiaries amended and restated its credit agreement dated as of September 22, 2011, as amended and restated as of March 10, 2016 and as further amended and restated as of October 30, 2018, with the lenders, JPMorgan Chase Bank, N.A., as Administrative Agent and Bank of America, N.A., PNC Bank, National Association, Trust Bank and Wells Fargo Bank, National Association, as Co-Syndication Agents. The credit agreement amends and restates the Company’s existing revolving credit facility to add a new five-year, delayed draw, term loan for up to $800 million. The credit agreement places certain restrictions on allowable additional indebtedness. At September 30, 2021, the Company had $150.0 million outstanding on the term loan.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

13. Share-Based Compensation

The Company's share-based compensation plans are described in Note 11, Share-Based Compensation, to the consolidated financial statements in Part II, Item 8, filed on the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Share Based Compensation Expense

Total share-based compensation expense was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Stock option expense	$	2,768	$	3,331	$	10,017	$	10,330
Restricted stock expense	4,848		4,537		16,765		12,665
Performance restricted stock unit expense	3,812		2,957		8,239		6,883
Total pre-tax expense	$	11,428	$	10,825	$	35,021	$	29,878

Pre-tax share-based compensation expense is included in the consolidated statement of income in either Cost of sales or Selling, general and administrative expenses, depending on where the recipient’s cash compensation is reported.

Stock Options

The fair value of each stock option grant is estimated on the grant date using a Black-Scholes-Merton option pricing model. The following weighted average assumptions were used in the Black-Scholes-Merton model to estimate the fair values of stock options granted during the periods indicated:


	Nine Months Ended September 30, 2021			Year Ended December 31, 2020
Expected volatility	24.2		%	22.2		%
Expected term (years)	5.0			5.0
Risk-free interest rate	0.85		%	0.52		%
Expected dividend yield	0.66		%	1.14		%
Black-Scholes-Merton fair value per stock option granted	$	25.63		$	11.01

The following is a summary of the Company’s stock option activity and related information:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(In thousands)			(Years)	(In millions)
Outstanding at December 31, 2020	3,950	$	65.16
Granted	552	121.91
Exercised	(675)	60.32
Forfeited	(96)	84.03
Outstanding at September 30, 2021	3,731	$	73.95	6.1	$	186.8
Exercisable at September 30, 2021	2,410	$	65.00	4.6	$	142.2

The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2021 was $40.7 million. The total fair value of stock options vested during the nine months ended September 30, 2021 was $13.7 million. As of

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

September 30, 2021, there was approximately $16.4 million of expected future pre-tax compensation expense related to the 1.3 million non-vested stock options outstanding, which is expected to be recognized over a weighted average period of approximately two years.

Restricted Stock

The following is a summary of the Company’s non-vested restricted stock activity and related information:


	Shares	Weighted Average Grant Date Fair Value
	(In thousands)
Non-vested restricted stock outstanding at December 31, 2020	701	$	76.86
Granted	153	122.51
Vested	(353)	68.29
Forfeited	(37)	93.97
Non-vested restricted stock outstanding at September 30, 2021	464	$	97.07

The total fair value of restricted stock vested during the nine months ended September 30, 2021 was $24.1 million. As of September 30, 2021, there was approximately $32.6 million of expected future pre-tax compensation expense related to the 0.5 million non-vested restricted shares outstanding, which is expected to be recognized over a weighted average period of approximately two years.

Performance Restricted Stock Units

In March 2021, the Company granted performance restricted stock units ("PRSU") to officers and certain key management-level employees. The PRSUs vest over a period up to three years from the grant date based on continuous service, with the number of shares earned (0% to 200% of the target award) depending upon the extent to which the Company achieves certain financial and market performance targets measured over the period from January 1 of the year of grant to December 31 of the third year. Half of the PRSUs were valued in a manner similar to restricted stock as the financial targets are based on the Company’s operating results, which represents a performance condition. The grant date fair value of these PRSUs are recognized as compensation expense over the vesting period based on the probable number of awards to vest at each reporting date.

The other half of the PRSUs were valued using a Monte Carlo model as the performance target is related to the Company’s total shareholder return compared to a group of peer companies, which represents a market condition. The Company recognizes the grant date fair value of these awards as compensation expense ratably over the vesting period.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

The following is a summary of the Company’s non-vested performance restricted stock activity and related information:


	Shares	Weighted Average Grant Date Fair Value
	(In thousands)
Non-vested performance restricted stock outstanding at December 31, 2020	264	$	72.90
Granted	81	121.91
Performance assumption change 1	39	78.20
Vested	(88)	78.20
Forfeited	(5)	91.58
Non-vested performance restricted stock outstanding at September 30, 2021	291	$	85.29

1 Reflects the number of PRSUs above target levels based on performance metrics.

As of September 30, 2021, there was approximately $7.3 million of expected future pre-tax compensation expense related to the 0.3 million non-vested restricted shares outstanding, which is expected to be recognized over a weighted average period of less than one year.

14. Retirement and Pension Plans

The components of net periodic pension benefit expense (income) were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Defined benefit plans:
Service cost	$	2,009	$	1,979	$	6,060	$	5,858
Interest cost	4,563		5,657		13,711		16,893
Expected return on plan assets	(14,172)		(13,681)		(42,567)		(40,889)
Amortization of net actuarial loss and other	7,550		4,008		16,282		11,915
Pension income	(50)		(2,037)		(6,514)		(6,223)
Other plans:
Defined contribution plans	7,792		7,068		24,208		23,975
Foreign plans and other	2,074		1,934		6,431		5,807
Total other plans	9,866		9,002		30,639		29,782
Total net pension expense	$	9,816	$	6,965	$	24,125	$	23,559

For defined benefit plans, the net periodic benefit income, other than the service cost component, is included in “Other (expense) income, net” in the consolidated statement of income.

For the nine months ended September 30, 2021 and 2020, contributions to the Company’s defined benefit pension plans were $6.4 million and $5.1 million, respectively. The Company’s current estimate of 2021 contributions to its worldwide defined benefit pension plans is in line with the range disclosed in Note 12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

15. Contingencies

Asbestos Litigation

The Company (including its subsidiaries) has been named as a defendant in a number of asbestos-related lawsuits. Certain of these lawsuits relate to a business which was acquired by the Company and do not involve products which were manufactured or sold by the Company. In connection with these lawsuits, the seller of such business has agreed to indemnify the Company against these claims (the “Indemnified Claims”). The Indemnified Claims have been tendered to, and are being defended by, such seller. The seller has met its obligations, in all respects, and the Company does not have any reason to believe such party would fail to fulfill its obligations in the future. To date, no judgments have been rendered against the Company as a result of any asbestos-related lawsuit. The Company believes that it has good and valid defenses to each of these claims and intends to defend them vigorously.

Environmental Matters

Certain historic processes in the manufacture of products have resulted in environmentally hazardous waste by-products as defined by federal and state laws and regulations. At September 30, 2021, the Company is named a Potentially Responsible Party (“PRP”) at 13 non-AMETEK-owned former waste disposal or treatment sites (the “non-owned” sites). The Company is identified as a “de minimis” party in 12 of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In eight of these sites, the Company has reached a tentative agreement on the cost of the de minimis settlement to satisfy its obligation and is awaiting executed agreements. The tentatively agreed-to settlement amounts are fully reserved. In the other four sites, the Company is continuing to investigate the accuracy of the alleged volume attributed to the Company as estimated by the parties primarily responsible for remedial activity at the sites to establish an appropriate settlement amount. At the remaining site where the Company is a non-de minimis PRP, the Company is participating in the investigation and/or related required remediation as part of a PRP Group and reserves have been established to satisfy the Company’s expected obligations. The Company historically has resolved these issues within established reserve levels and reasonably expects this result will continue. In addition to these non-owned sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its current or previously owned manufacturing locations (the “owned” sites). For claims and proceedings against the Company with respect to other environmental matters, reserves are established once the Company has determined that a loss is probable and estimable. This estimate is refined as the Company moves through the various stages of investigation, risk assessment, feasibility study and corrective action processes. In certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the best estimate. It is reasonably possible that the actual cost of remediation of the individual sites could vary from the current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to result in a material change to the consolidated financial statements. In estimating the Company’s liability for remediation, the Company also considers the likely proportionate share of the anticipated remediation expense and the ability of the other PRPs to fulfill their obligations.

Total environmental reserves at September 30, 2021 and December 31, 2020 were $33.8 million and $32.4 million, respectively, for both non-owned and owned sites. For the nine months ended September 30, 2021, the Company recorded $7.3 million in reserves. Additionally, the Company spent $5.9 million on environmental matters for the nine months ended September 30, 2021. The Company’s reserves for environmental liabilities at September 30, 2021 and December 31, 2020 included reserves of $4.8 million and $7.4 million, respectively, for an owned site acquired in connection with the 2005 acquisition of HCC Industries (“HCC”). The Company is the designated performing party for the performance of remedial activities for one of several operating units making up a Superfund site in the San Gabriel Valley of California.

The Company has agreements with other former owners of certain of its acquired businesses, as well as new owners of previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other liabilities under certain circumstances. The Company and some of these other parties also carry insurance coverage for some environmental matters. To date, these parties have met their obligations in all material respects.

The Company believes it has established reserves for the environmental matters described above, which are sufficient to perform all known responsibilities under existing claims and consent orders. The Company has no reason to believe that other third parties would fail to perform their obligations in the future. In the opinion of management, based on presently

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

available information and the Company’s historical experience related to such matters, an adequate provision for probable costs has been made and the ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position or cash flows of the Company.

The Company has been remediating groundwater contamination for several contaminants, including trichloroethylene (“TCE”), at a formerly owned site in El Cajon, California. Several lawsuits have been filed against the Company alleging damages resulting from the groundwater contamination, including property damages and funds for medical monitoring to detect causally related personal injury, and seeking compensatory and punitive damages. After extensive negotiations, the Company finalized and paid in April 2021 a global settlement of these lawsuits for an aggregate amount of $6.8 million, for which the Company had previously established reserves sufficient to cover this settlement.

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