filings.toolsItem 1. Financial Statements
68K characters. Original on sec.gov · Markdown
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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net sales | $ | 1,622,837 | $ | 1,551,786 | $ | 4,866,065 | $ | 4,524,863 | |||||||||||||||
| Cost of sales | 1,020,920 | 1,004,596 | 3,096,635 | 2,941,604 | |||||||||||||||||||
| Selling, general and administrative | 163,782 | 162,670 | 506,963 | 480,657 | |||||||||||||||||||
| Total operating expenses | 1,184,702 | 1,167,266 | 3,603,598 | 3,422,261 | |||||||||||||||||||
| Operating income | 438,135 | 384,520 | 1,262,467 | 1,102,602 | |||||||||||||||||||
| Interest expense | (18,386) | (20,245) | (57,678) | (60,165) | |||||||||||||||||||
| Other (expense) income, net | (6,256) | 3,227 | (15,313) | 7,752 | |||||||||||||||||||
| Income before income taxes | 413,493 | 367,502 | 1,189,476 | 1,050,189 | |||||||||||||||||||
| Provision for income taxes | 73,123 | 69,861 | 219,152 | 197,728 | |||||||||||||||||||
| Net income | $ | 340,370 | $ | 297,641 | $ | 970,324 | $ | 852,461 | |||||||||||||||
| Basic earnings per share | $ | 1.48 | $ | 1.30 | $ | 4.21 | $ | 3.70 | |||||||||||||||
| Diluted earnings per share | $ | 1.47 | $ | 1.29 | $ | 4.19 | $ | 3.68 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic shares | 230,691 | 229,500 | 230,431 | 230,360 | |||||||||||||||||||
| Diluted shares | 231,751 | 230,714 | 231,414 | 231,675 | |||||||||||||||||||
| Dividends declared and paid per share | $ | 0.25 | $ | 0.22 | $ | 0.75 | $ | 0.66 |
See accompanying notes.
AMETEK, Inc.
Condensed Consolidated Statement of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Total comprehensive income | $ | 294,757 | $ | 215,568 | $ | 977,660 | $ | 694,902 |
See accompanying notes.
AMETEK, Inc.
Consolidated Balance Sheet
(In thousands)
| September 30, 2023 | December 31, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 841,901 | $ | 345,386 | |||||||
| Receivables, net | 936,803 | 919,335 | |||||||||
| Inventories, net | 1,087,584 | 1,044,284 | |||||||||
| Other current assets | 252,407 | 219,053 | |||||||||
| Total current assets | 3,118,695 | 2,528,058 | |||||||||
| Property, plant and equipment, net | 631,692 | 635,641 | |||||||||
| Right of use assets, net | 165,450 | 170,295 | |||||||||
| Goodwill | 5,479,025 | 5,372,562 | |||||||||
| Other intangibles, net | 3,283,846 | 3,342,085 | |||||||||
| Investments and other assets | 414,668 | 382,479 | |||||||||
| Total assets | $ | 13,093,376 | $ | 12,431,120 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term borrowings and current portion of long-term debt, net | $ | 304,480 | $ | 226,079 | |||||||
| Accounts payable | 486,581 | 497,134 | |||||||||
| Customer advanced payments | 362,985 | 357,674 | |||||||||
| Income taxes payable | 61,800 | 48,171 | |||||||||
| Accrued liabilities and other | 457,874 | 435,144 | |||||||||
| Total current liabilities | 1,673,720 | 1,564,202 | |||||||||
| Long-term debt, net | 1,856,129 | 2,158,928 | |||||||||
| Deferred income taxes | 629,590 | 694,267 | |||||||||
| Other long-term liabilities | 591,428 | 537,211 | |||||||||
| Total liabilities | 4,750,867 | 4,954,608 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | 2,708 | 2,700 | |||||||||
| Capital in excess of par value | 1,148,107 | 1,094,236 | |||||||||
| Retained earnings | 9,655,114 | 8,857,485 | |||||||||
| Accumulated other comprehensive loss | (567,609) | (574,945) | |||||||||
| Treasury stock | (1,895,811) | (1,902,964) | |||||||||
| Total stockholders’ equity | 8,342,509 | 7,476,512 | |||||||||
| Total liabilities and stockholders’ equity | $ | 13,093,376 | $ | 12,431,120 |
See accompanying notes.
AMETEK, Inc.
Consolidated Statement of Stockholders’ Equity
(In thousands)
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Capital stock | |||||||||||||||||||||||
| Common stock, $0.01 par value | |||||||||||||||||||||||
| Balance at the beginning of the period | $ | 2,707 | $ | 2,695 | $ | 2,700 | $ | 2,689 | |||||||||||||||
| Shares issued | 1 | — | 8 | 6 | |||||||||||||||||||
| Balance at the end of the period | 2,708 | 2,695 | 2,708 | 2,695 | |||||||||||||||||||
| Capital in excess of par value | |||||||||||||||||||||||
| Balance at the beginning of the period | 1,123,920 | 1,040,951 | 1,094,236 | 1,012,526 | |||||||||||||||||||
| Issuance of common stock under employee stock plans | 11,274 | 6,068 | 18,098 | 11,966 | |||||||||||||||||||
| Share-based compensation expense | 12,913 | 12,060 | 35,773 | 34,587 | |||||||||||||||||||
| Balance at the end of the period | 1,148,107 | 1,059,079 | 1,148,107 | 1,059,079 | |||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||
| Balance at the beginning of the period | 9,372,368 | 8,353,735 | 8,857,485 | 7,900,113 | |||||||||||||||||||
| Net income | 340,370 | 297,641 | 970,324 | 852,461 | |||||||||||||||||||
| Cash dividends paid | (57,622) | (50,438) | (172,693) | (151,635) | |||||||||||||||||||
| Other | (2) | — | (2) | (1) | |||||||||||||||||||
| Balance at the end of the period | 9,655,114 | 8,600,938 | 9,655,114 | 8,600,938 | |||||||||||||||||||
| Accumulated other comprehensive (loss) income | |||||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Balance at the beginning of the period | (318,359) | (352,851) | (368,124) | (275,365) | |||||||||||||||||||
| Translation adjustments | (62,092) | (110,524) | 568 | (225,100) | |||||||||||||||||||
| Change in long-term intercompany notes | (6,994) | (17,393) | (1,091) | (40,512) | |||||||||||||||||||
| Net investment hedge instruments gain (loss), net of tax of $(7,126) and $(14,604) for the quarter ended September 30, 2023 and 2022 and $(1,004) and $(34,212) for the nine months ended September 30, 2023 and 2022, respectively | 21,881 | 44,844 | 3,083 | 105,053 | |||||||||||||||||||
| Balance at the end of the period | (365,564) | (435,924) | (365,564) | (435,924) | |||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
| Balance at the beginning of the period | (203,637) | (193,079) | (206,821) | (195,079) | |||||||||||||||||||
| Amortization of net actuarial loss and other, net of tax of $(518) and $(326) for the quarter ended September 30, 2023 and 2022 and $(1,554) and $(977) for the nine months ended September 30, 2023 and 2022, respectively | 1,592 | 1,000 | 4,776 | 3,000 | |||||||||||||||||||
| Balance at the end of the period | (202,045) | (192,079) | (202,045) | (192,079) | |||||||||||||||||||
| Accumulated other comprehensive loss at the end of the period | (567,609) | (628,003) | (567,609) | (628,003) | |||||||||||||||||||
| Treasury stock | |||||||||||||||||||||||
| Balance at the beginning of the period | (1,895,628) | (1,901,360) | (1,902,964) | (1,573,000) | |||||||||||||||||||
| Issuance of common stock under employee stock plans | (129) | (632) | 13,731 | 2,387 | |||||||||||||||||||
| Purchase of treasury stock | (54) | (45) | (6,578) | (331,424) | |||||||||||||||||||
| Balance at the end of the period | (1,895,811) | (1,902,037) | (1,895,811) | (1,902,037) | |||||||||||||||||||
| Total stockholders’ equity | $ | 8,342,509 | $ | 7,132,672 | $ | 8,342,509 | $ | 7,132,672 |
See accompanying notes.
AMETEK, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
| Nine months ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash provided by (used for): | |||||||||||
| Operating activities: | |||||||||||
| Net income | $ | 970,324 | $ | 852,461 | |||||||
| Adjustments to reconcile net income to total operating activities: | |||||||||||
| Depreciation and amortization | 245,713 | 230,968 | |||||||||
| Deferred income taxes | (67,525) | (32,889) | |||||||||
| Share-based compensation expense | 35,773 | 34,587 | |||||||||
| Gain on sale of business/investment | — | (3,584) | |||||||||
| Gain on sale of facilities | — | (7,054) | |||||||||
| Net change in assets and liabilities, net of acquisitions | 27,266 | (299,311) | |||||||||
| Pension contributions | (3,927) | (5,244) | |||||||||
| Other, net | (12,985) | (5,576) | |||||||||
| Total operating activities | 1,194,639 | 764,358 | |||||||||
| Investing activities: | |||||||||||
| Additions to property, plant and equipment | (76,506) | (80,829) | |||||||||
| Purchases of businesses, net of cash acquired | (246,656) | (190,321) | |||||||||
| Proceeds from sale of business/investment | — | 3,734 | |||||||||
| Proceeds from sale of facilities | — | 11,754 | |||||||||
| Other, net | (3,149) | 124 | |||||||||
| Total investing activities | (326,311) | (255,538) | |||||||||
| Financing activities: | |||||||||||
| Net change in short-term borrowings | (220,555) | (26,315) | |||||||||
| Repurchases of common stock | (6,578) | (331,424) | |||||||||
| Cash dividends paid | (172,693) | (151,635) | |||||||||
| Proceeds from stock option exercises | 40,120 | 23,241 | |||||||||
| Other, net | (5,068) | (15,056) | |||||||||
| Total financing activities | (364,774) | (501,189) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (7,039) | (44,459) | |||||||||
| Increase in cash and cash equivalents | 496,515 | (36,828) | |||||||||
| Cash and cash equivalents: | |||||||||||
| Beginning of period | 345,386 | 346,772 | |||||||||
| End of period | $ | 841,901 | $ | 309,944 |
See accompanying notes.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(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, 2023, the consolidated results of its operations for the three and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022 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, 2022 as filed with the U.S. Securities and Exchange Commission.
2. Revenues
The outstanding contract asset and liability accounts were as follows:
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Contract assets—January 1 | $ | 119,741 | $ | 95,274 | |||||||
| Contract assets – September 30 | 139,771 | 111,687 | |||||||||
| Change in contract assets – increase (decrease) | 20,030 | 16,413 | |||||||||
| Contract liabilities – January 1 | 398,692 | 328,816 | |||||||||
| Contract liabilities – September 30 | 422,415 | 371,411 | |||||||||
| Change in contract liabilities – (increase) decrease | (23,723) | (42,595) | |||||||||
| Net change | $ | (3,693) | $ | (26,182) |
The net change for the nine months ended September 30, 2023 was primarily driven by contract liabilities, specifically growth in advance payments from customers. For the nine months ended September 30, 2023 and 2022, the Company recognized revenue of $297.7 million and $252.4 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, 2023 and December 31, 2022, $59.4 million and $41.0 million of Customer advanced payments (contract liabilities), respectively, were recorded in Other long-term liabilities in the consolidated balance sheets.
The remaining performance obligations not expected to be completed within one year as of September 30, 2023 and December 31, 2022 were $570.7 million and $526.0 million, respectively. 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, 2023
(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, 2023 | Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| United States | $ | 616,988 | $ | 274,146 | $ | 891,134 | $ | 1,754,165 | $ | 805,876 | $ | 2,560,041 | |||||||||||||||||||||||
| International(1): | |||||||||||||||||||||||||||||||||||
| United Kingdom | 23,327 | 30,348 | 53,675 | 74,515 | 89,812 | 164,327 | |||||||||||||||||||||||||||||
| European Union countries | 115,026 | 99,931 | 214,957 | 381,495 | 327,614 | 709,109 | |||||||||||||||||||||||||||||
| Asia | 271,922 | 47,699 | 319,621 | 846,450 | 151,357 | 997,807 | |||||||||||||||||||||||||||||
| Other foreign countries | 108,867 | 34,583 | 143,450 | 331,398 | 103,383 | 434,781 | |||||||||||||||||||||||||||||
| Total international | 519,142 | 212,561 | 731,703 | 1,633,858 | 672,166 | 2,306,024 | |||||||||||||||||||||||||||||
| Consolidated net sales | $ | 1,136,130 | $ | 486,707 | $ | 1,622,837 | $ | 3,388,023 | $ | 1,478,042 | $ | 4,866,065 |
(1) Includes U.S. export sales of $391.7 million and $1,265.0 million for the three and nine months ended September 30, 2023, respectively.
| Three months ended September 30, 2022 | Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| United States | $ | 554,048 | $ | 265,549 | $ | 819,597 | $ | 1,589,641 | $ | 736,626 | $ | 2,326,267 | |||||||||||||||||||||||
| International(1): | |||||||||||||||||||||||||||||||||||
| United Kingdom | 18,409 | 28,694 | 47,103 | 65,414 | 89,071 | 154,485 | |||||||||||||||||||||||||||||
| European Union countries | 113,935 | 100,427 | 214,362 | 344,074 | 322,607 | 666,681 | |||||||||||||||||||||||||||||
| Asia | 264,432 | 70,375 | 334,807 | 776,084 | 204,006 | 980,090 | |||||||||||||||||||||||||||||
| Other foreign countries | 103,300 | 32,617 | 135,917 | 294,918 | 102,422 | 397,340 | |||||||||||||||||||||||||||||
| Total international | 500,076 | 232,113 | 732,189 | 1,480,490 | 718,106 | 2,198,596 | |||||||||||||||||||||||||||||
| Consolidated net sales | $ | 1,054,124 | $ | 497,662 | $ | 1,551,786 | $ | 3,070,131 | $ | 1,454,732 | $ | 4,524,863 |
(1) Includes U.S. export sales of $415.4 million and $1,217.2 million for the three and nine months ended September 30, 2022, respectively.
Major Products and Services
The Company’s major products and services in the reportable segments were as follows:
| Three months ended September 30, 2023 | Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Process and analytical instrumentation | $ | 801,027 | $ | — | $ | 801,027 | $ | 2,394,127 | $ | — | $ | 2,394,127 | |||||||||||||||||||||||
| Aerospace and power | 335,103 | 146,843 | 481,946 | 993,896 | 439,685 | 1,433,581 | |||||||||||||||||||||||||||||
| Automation and engineered solutions | — | 339,864 | 339,864 | — | 1,038,357 | 1,038,357 | |||||||||||||||||||||||||||||
| Consolidated net sales | $ | 1,136,130 | $ | 486,707 | $ | 1,622,837 | $ | 3,388,023 | $ | 1,478,042 | $ | 4,866,065 |
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
| Three months ended September 30, 2022 | Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Process and analytical instrumentation | $ | 758,868 | $ | — | $ | 758,868 | $ | 2,219,821 | $ | — | $ | 2,219,821 | |||||||||||||||||||||||
| Aerospace and power | 295,256 | 143,689 | 438,945 | 850,310 | 407,771 | 1,258,081 | |||||||||||||||||||||||||||||
| Automation and engineered solutions | — | 353,973 | 353,973 | — | 1,046,961 | 1,046,961 | |||||||||||||||||||||||||||||
| Consolidated net sales | $ | 1,054,124 | $ | 497,662 | $ | 1,551,786 | $ | 3,070,131 | $ | 1,454,732 | $ | 4,524,863 |
Timing of Revenue Recognition
| Three months ended September 30, 2023 | Nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Products transferred at a point in time | $ | 937,382 | $ | 437,542 | $ | 1,374,924 | $ | 2,809,624 | $ | 1,314,761 | $ | 4,124,385 | |||||||||||||||||||||||
| Products and services transferred over time | 198,748 | 49,165 | 247,913 | 578,399 | 163,281 | 741,680 | |||||||||||||||||||||||||||||
| Consolidated net sales | $ | 1,136,130 | $ | 486,707 | $ | 1,622,837 | $ | 3,388,023 | $ | 1,478,042 | $ | 4,866,065 |
| Three months ended September 30, 2022 | Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Products transferred at a point in time | $ | 869,455 | $ | 436,222 | $ | 1,305,677 | $ | 2,522,351 | $ | 1,272,382 | $ | 3,794,733 | |||||||||||||||||||||||
| Products and services transferred over time | 184,669 | 61,440 | 246,109 | 547,780 | 182,350 | 730,130 | |||||||||||||||||||||||||||||
| Consolidated net sales | $ | 1,054,124 | $ | 497,662 | $ | 1,551,786 | $ | 3,070,131 | $ | 1,454,732 | $ | 4,524,863 |
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, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Balance at the beginning of the period | $ | 26,487 | $ | 27,478 | |||||||
| Accruals for warranties issued during the period | 15,711 | 8,530 | |||||||||
| Settlements made during the period | (10,868) | (8,769) | |||||||||
| Warranty accruals related to acquired businesses and other during the period | 21 | (1,080) | |||||||||
| Balance at the end of the period | $ | 31,351 | $ | 26,159 |
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.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
At September 30, 2023, the Company had $936.8 million of accounts receivable, net of allowances of $13.9 million. Changes in the allowance were not material for the three and nine months ended September 30, 2023.
3. 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). 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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Weighted average shares: | |||||||||||||||||||||||
| Basic shares | 230,691 | 229,500 | 230,431 | 230,360 | |||||||||||||||||||
| Equity-based compensation plans | 1,060 | 1,214 | 983 | 1,315 | |||||||||||||||||||
| Diluted shares | 231,751 | 230,714 | 231,414 | 231,675 |
4. 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, 2023 and December 31, 2022:
| September 30, 2023 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Mutual fund investments | $ | 10,981 | $ | 10,981 | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts | (2,616) | — | (2,616) | — |
| December 31, 2022 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Mutual fund investments | $ | 9,856 | $ | 9,856 | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts | 3,032 | — | 3,032 | — |
The fair value of mutual fund investments is 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, 2023 and 2022, 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, 2023 and 2022.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
Foreign Currency
At September 30, 2023, the Company had a Euro forward contract for a total notional value of 40.0 million Euros. The foreign currency forward contract is valued as a level 2 liability as it is corroborated by foreign currency exchange rates and shown as a component of other current liabilities on the consolidated balance sheet. For the nine months ended September 30, 2023, realized and unrealized gains and losses on the foreign currency forward contracts were not significant.
Financial Instruments
Cash, cash equivalents and mutual fund investments are recorded at fair value at September 30, 2023 and December 31, 2022 in the accompanying consolidated balance sheet.
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, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Recorded Amount | Fair Value | Recorded Amount | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Long-term debt (including current portion) | $ | (2,158,388) | $ | (1,989,002) | $ | (2,161,643) | $ | (2,010,867) |
The fair value of net short-term borrowings approximates the carrying value. 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.
5. 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, 2023, 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 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, 2023, the Company had $274.8 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, 2023, the Company had $562.1 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, $4.1 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, 2023.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
6. Inventories, net
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Finished goods and parts | $ | 116,143 | $ | 130,989 | |||||||
| Work in process | 150,317 | 138,043 | |||||||||
| Raw materials and purchased parts | 821,124 | 775,252 | |||||||||
| Total inventories, net | $ | 1,087,584 | $ | 1,044,284 |
7. 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, 2023 and 2022. The Company's leases have a weighted average remaining lease term of approximately 5 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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Operating lease cost | $ | 15,901 | $ | 16,407 | $ | 46,483 | $ | 47,131 | |||||||||||||||
| Variable lease cost | 2,501 | 2,479 | 8,447 | 7,131 | |||||||||||||||||||
| Total lease cost | $ | 18,402 | $ | 18,886 | $ | 54,930 | $ | 54,262 |
Supplemental balance sheet information related to leases was as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Right of use assets, net | $ | 165,450 | $ | 170,295 | |||||||
| Lease liabilities included in Accrued Liabilities and other | 44,932 | 46,366 | |||||||||
| Lease liabilities included in Other long-term liabilities | 124,462 | 129,227 | |||||||||
| Total lease liabilities | $ | 169,394 | $ | 175,593 |
Maturities of lease liabilities as of September 30, 2023 were as follows:
| Lease Liability Maturity Analysis | Operating Leases | ||||
| (In thousands) | |||||
| Remaining 2023 | $ | 12,834 | |||
| 2024 | 47,997 | ||||
| 2025 | 38,110 | ||||
| 2026 | 29,112 | ||||
| 2027 | 19,317 | ||||
| Thereafter | 40,340 | ||||
| Total lease payments | 187,710 | ||||
| Less: imputed interest | 18,316 | ||||
| $ | 169,394 |
The Company does not have any significant leases that have not yet commenced.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
8. Acquisitions
Acquisitions
The Company spent $246.7 million in cash, net of cash acquired, to acquire Bison Gear & Engineering Corp. ("Bison") in March 2023 and United Electronic Industries ("UEI") in August 2023. Bison is a leading manufacturer of highly engineered motion control solutions serving diverse markets and applications. Bison is part of EMG. UEI is a leading provider of data acquisition and control solutions for the aerospace, defense, energy and semiconductor industries. UEI is part of EIG.
The following table represents the allocation of the purchase price for the net assets of the 2023 acquisitions based on the estimated fair values at acquisition (in millions):
| Property, plant and equipment | $ | 13.4 | |||||||||||||||
| Goodwill | 82.6 | ||||||||||||||||
| Other intangible assets | 124.0 | ||||||||||||||||
| Net working capital and other(1) | 26.7 | ||||||||||||||||
| Total cash paid | $ | 246.7 |
(1)Includes $12.9 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 acquisitions. Bison's engineering expertise and broad product portfolio complement the Company's existing motion control and automation solutions business. UEI's innovative solutions complement the Company's existing testing and data acquisition expertise. The Company expects approximately $73.5 million of the goodwill relating to the acquisitions will be tax deductible in future years.
At September 30, 2023, the purchase price allocated to other intangible assets of $124.0 million consists of $23.8 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $100.2 million of other intangible assets consists of $75.8 million of customer relationships, which are being amortized over a period of 20 years, and $24.4 million of purchased technology, which is being amortized over a period of 10 to 20 years. Amortization expense for each of the next five years for the 2023 acquisition is expected to approximate $5 million per year.
The Company finalized its measurements of certain tangible and intangible assets and liabilities for its September 2022 acquisition of Navitar, Inc. and its October 2022 acquisition of RTDS Technologies, which had no material impact to the consolidated statement of income and balance sheet. The Company has substantially completed its purchase accounting, however it is in the process of finalizing the accounting for income taxes, for its acquisition of Bison. The Company is in the process of finalizing the measurement of the intangible assets and tangible assets and liabilities for its acquisition of UEI.
The acquisitions had an immaterial impact on reported net sales, net income, and diluted earnings per share for the three and nine months ended September 30, 2023. Had the acquisitions been made at the beginning of 2023 or 2022, pro forma net sales, net income, and diluted earnings per share for the three and nine months ended September 30, 2023 and 2022, would not have been materially different than the amounts reported.
Acquisitions Subsequent to September 30, 2023
In October 2023, the Company acquired Amplifier Research Corp., for approximately $105 million in cash. Amplifier Research has estimated annual sales of approximately $60 million. Amplifier Research is a leading manufacturer of radio frequency and microwave amplifiers and electromagnetic compatibility testing equipment. Amplifier Research has joined EIG.
In October 2023, the Company entered into a definitive agreement to acquire Paragon Medical, for approximately $1.9 billion in cash. Paragon Medical has estimated annual sales of approximately $500 million. Paragon Medical is a leading provider of medical components and instruments. Paragon Medical serves a wide range of specialty applications including orthopedics, minimally invasive surgery, robotic surgery, and drug delivery. Paragon's product portfolio includes single-use and consumable surgical instruments and implantable components sold to a diverse blue-chip customer base of leading medical
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
device manufacturers. The transaction is subject to customary closing conditions, including applicable regulatory approvals. Paragon Medical will join EMG.
9. Goodwill
The changes in the carrying amounts of goodwill by segment were as follows:
| EIG | EMG | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance at December 31, 2022 | $ | 4,236.1 | $ | 1,136.5 | $ | 5,372.6 | |||||||||||
| Goodwill acquired from 2023 acquisitions | 57.1 | 25.5 | 82.6 | ||||||||||||||
| Purchase price allocation adjustments and other | 25.4 | — | 25.4 | ||||||||||||||
| Foreign currency translation adjustments | (1.6) | — | (1.6) | ||||||||||||||
| Balance at September 30, 2023 | $ | 4,317.0 | $ | 1,162.0 | $ | 5,479.0 |
10. Income Taxes
At September 30, 2023, the Company had gross uncertain tax benefits of $207.4 million, of which $153.9 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, 2022 | $ | 174.7 | |||
| Additions for tax positions | 33.5 | ||||
| Reductions for tax positions | (0.8) | ||||
| Balance at September 30, 2023 | $ | 207.4 |
The additions above primarily reflect the tax positions for 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, 2023 and 2022 were not significant.
The effective tax rate for the three months ended September 30, 2023 was 17.7%, compared with 19.0% for the three months ended September 30, 2022. The lower effective tax rate in the third quarter of 2023 primarily reflects greater utilization of research and development credits.
11. 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, 2022.
Share Based Compensation Expense
Total share-based compensation expense was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Stock option expense | $ | 3,560 | $ | 3,043 | $ | 10,740 | $ | 9,866 | |||||||||||||||
| Restricted stock expense | 5,578 | 4,800 | 15,875 | 14,831 | |||||||||||||||||||
| Performance restricted stock unit expense | 3,775 | 4,217 | 9,158 | 9,890 | |||||||||||||||||||
| Total pre-tax expense | $ | 12,913 | $ | 12,060 | $ | 35,773 | $ | 34,587 |
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
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, 2023 | Year Ended December 31, 2022 | ||||||||||
| Expected volatility | 26.0 | % | 24.5 | % | |||||||
| Expected term (years) | 5.0 | 5.0 | |||||||||
| Risk-free interest rate | 3.54 | % | 2.33 | % | |||||||
| Expected dividend yield | 0.72 | % | 0.65 | % | |||||||
| Black-Scholes-Merton fair value per stock option granted | $ | 38.11 | $ | 32.54 |
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, 2022 | 3,060 | $ | 79.46 | ||||||||||||||||||||
| Granted | 453 | 138.46 | |||||||||||||||||||||
| Exercised | (551) | 71.78 | |||||||||||||||||||||
| Forfeited | (65) | 124.38 | |||||||||||||||||||||
| Outstanding at September 30, 2023 | 2,897 | $ | 99.97 | 6.7 | $ | 138.4 | |||||||||||||||||
| Exercisable at September 30, 2023 | 1,976 | $ | 83.88 | 5.7 | $ | 126.3 |
The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2023 was $42.5 million. The total fair value of stock options vested during the nine months ended September 30, 2023 was $12.8 million. As of September 30, 2023, there was approximately $21.9 million of expected future pre-tax compensation expense related to the 0.9 million non-vested stock options outstanding, which is expected to be recognized over a weighted average period of approximately two years.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
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, 2022 | 356 | $ | 117.18 | ||||||||
| Granted | 154 | 138.63 | |||||||||
| Vested | (156) | 104.30 | |||||||||
| Forfeited | (26) | 127.00 | |||||||||
| Non-vested restricted stock outstanding at September 30, 2023 | 328 | $ | 132.61 |
The total fair value of restricted stock vested during the nine months ended September 30, 2023 was $16.3 million. As of September 30, 2023, there was approximately $28.8 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 approximately two years.
Performance Restricted Stock Units
In March 2023, 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.
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, 2022 | 275 | $ | 101.98 | ||||||||
| Granted | 79 | 138.46 | |||||||||
| Performance assumption change 1 | 48 | 63.37 | |||||||||
| Vested | (161) | 63.37 | |||||||||
| Forfeited | (2) | 131.76 | |||||||||
| Non-vested performance restricted stock outstanding at September 30, 2023 | 239 | $ | 131.90 |
1 Reflects the number of PRSUs above target levels based on performance metrics.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
As of September 30, 2023, there was approximately $7.6 million of expected future pre-tax compensation expense related to the 0.2 million non-vested restricted shares outstanding, which is expected to be recognized over a weighted average period of approximately one year.
12. 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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||
| Service cost | $ | 751 | $ | 1,290 | $ | 2,240 | $ | 3,995 | |||||||||||||||
| Interest cost | 7,588 | 4,949 | 22,655 | 15,101 | |||||||||||||||||||
| Expected return on plan assets | (13,100) | (14,812) | (39,167) | (45,113) | |||||||||||||||||||
| Amortization of net actuarial loss and other | 2,851 | 2,074 | 8,514 | 6,371 | |||||||||||||||||||
| Pension income | (1,910) | (6,499) | (5,758) | (19,646) | |||||||||||||||||||
| Other plans: | |||||||||||||||||||||||
| Defined contribution plans | 9,908 | 9,217 | 33,936 | 32,289 | |||||||||||||||||||
| Foreign plans and other | 2,011 | 2,027 | 6,581 | 6,422 | |||||||||||||||||||
| Total other plans | 11,919 | 11,244 | 40,517 | 38,711 | |||||||||||||||||||
| Total net pension expense | $ | 10,009 | $ | 4,745 | $ | 34,759 | $ | 19,065 |
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, 2023 and 2022, contributions to the Company’s defined benefit pension plans were $3.9 million and $5.2 million, respectively. The Company’s current estimate of 2023 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, 2022.
13. 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.
AMETEK, Inc.
Notes to Consolidated Financial Statements
September 30, 2023
(Unaudited)
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, 2023, 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, 2023 and December 31, 2022 were $39.7 million and $41.1 million, respectively, for both non-owned and owned sites. For the nine months ended September 30, 2023, the Company recorded $4.7 million in reserves. Additionally, the Company spent $6.1 million on environmental matters for the nine months ended September 30, 2023.
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.
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. In the opinion of management, based on presently 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.
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