UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number 1-12981
_________________________
(Exact name of registrant as specified in its charter)
_________________________
(State or other jurisdiction of
incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer
Identification No.)
(Zip Code)
Registrant’s telephone number, including area code: (610 ) 647-2121
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
_________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
The number of shares of the registrant’s common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at July 29, 2022 was 229,578,316 shares.
AMETEK, Inc.
Form 10-Q
Table of Contents
| Page | |||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMETEK, Inc.
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic shares | |||||||||||||||||||||||
| Diluted shares | |||||||||||||||||||||||
| Dividends declared and paid per share | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
3
AMETEK, Inc.
Condensed Consolidated Statement of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
4
AMETEK, Inc.
Consolidated Balance Sheet
(In thousands)
| June 30, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Right of use assets, net | |||||||||||
| Goodwill | |||||||||||
| Other intangibles, net | |||||||||||
| Investments and other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term borrowings and current portion of long-term debt, net | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Customer advanced payments | |||||||||||
| Income taxes payable | |||||||||||
| Accrued liabilities and other | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Treasury stock | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes.
5
AMETEK, Inc.
Consolidated Statement of Stockholders’ Equity
(In thousands)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Capital stock | |||||||||||||||||||||||
Common stock, $ | |||||||||||||||||||||||
| Balance at the beginning of the period | $ | $ | $ | $ | |||||||||||||||||||
| Shares issued | |||||||||||||||||||||||
| Balance at the end of the period | |||||||||||||||||||||||
| Capital in excess of par value | |||||||||||||||||||||||
| Balance at the beginning of the period | |||||||||||||||||||||||
| Issuance of common stock under employee stock plans | |||||||||||||||||||||||
| Share-based compensation expense | |||||||||||||||||||||||
| Balance at the end of the period | |||||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||
| Balance at the beginning of the period | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Cash dividends paid | ( | ( | ( | ( | |||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Balance at the end of the period | |||||||||||||||||||||||
| Accumulated other comprehensive (loss) income | |||||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Balance at the beginning of the period | ( | ( | ( | ( | |||||||||||||||||||
| Translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Change in long-term intercompany notes | ( | ( | ( | ||||||||||||||||||||
Net investment hedge instruments gain (loss), net of tax of $( | ( | ||||||||||||||||||||||
| Balance at the end of the period | ( | ( | ( | ( | |||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
| Balance at the beginning of the period | ( | ( | ( | ( | |||||||||||||||||||
Amortization of net actuarial loss and other, net of tax of $( | |||||||||||||||||||||||
| Balance at the end of the period | ( | ( | ( | ( | |||||||||||||||||||
| Accumulated other comprehensive loss at the end of the period | ( | ( | ( | ( | |||||||||||||||||||
| Treasury stock | |||||||||||||||||||||||
| Balance at the beginning of the period | ( | ( | ( | ( | |||||||||||||||||||
| Issuance of common stock under employee stock plans | ( | ( | |||||||||||||||||||||
| Purchase of treasury stock | ( | ( | ( | ( | |||||||||||||||||||
| Balance at the end of the period | ( | ( | ( | ( | |||||||||||||||||||
| Total stockholders’ equity | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
6
AMETEK, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
| Six months ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash provided by (used for): | |||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to total operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Share-based compensation expense | |||||||||||
| Gain on sale of facilities | ( | ||||||||||
| Net change in assets and liabilities, net of acquisitions | ( | ( | |||||||||
| Pension contributions | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Total operating activities | |||||||||||
| Investing activities: | |||||||||||
| Additions to property, plant and equipment | ( | ( | |||||||||
| Purchases of businesses, net of cash acquired | ( | ||||||||||
| Proceeds from sale of facilities | |||||||||||
| Other, net | ( | ( | |||||||||
| Total investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Net change in short-term borrowings | |||||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Other, net | ( | ( | |||||||||
| Total financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents: | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
See accompanying notes.
7
1. Basis of Presentation
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncement
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which provides a single comprehensive accounting model for the acquisition of contract balances under ASC 805. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company early adopted the ASU on January 1, 2022, and the amendments in this ASU were applied on a prospective basis to all periods presented. The adoption of ASU 2021-08 did not impact the Company's consolidated results of operations, financial position, cash flows, or financial statement disclosures.
3. Revenues
The outstanding contract asset and liability accounts were as follows:
| 2022 | 2021 | ||||||||||
(In thousands) | |||||||||||
| Contract assets—January 1 | $ | $ | |||||||||
| Contract assets – June 30 | |||||||||||
| Change in contract assets – increase (decrease) | |||||||||||
| Contract liabilities – January 1 | |||||||||||
| Contract liabilities – June 30 | |||||||||||
| Change in contract liabilities – (increase) decrease | ( | ( | |||||||||
| Net change | $ | ( | $ | ( | |||||||
The net change for the six months ended June 30, 2022 was primarily driven by contract liabilities, specifically broad-based growth in advance payments from customers. For the six months ended June 30, 2022 and 2021, the Company recognized revenue of $219.3 million and $145.2 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 June 30, 2022 and December 31, 2021, $42.4 million and $30.1 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 June 30, 2022 and December 31, 2021 were $422.1 million and $342.5 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 to three years .
8
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 six months ended June 30:
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||
EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
International(1): | |||||||||||||||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||||||||||||||
| European Union countries | |||||||||||||||||||||||||||||||||||
| Asia | |||||||||||||||||||||||||||||||||||
| Other foreign countries | |||||||||||||||||||||||||||||||||||
| Total international | |||||||||||||||||||||||||||||||||||
| Consolidated net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
________________
(1) Includes U.S. export sales of $394.7 million and $801.2 million for the three and six months ended June 30, 2022.
| Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
International(1): | |||||||||||||||||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||||||||||||||
| European Union countries | |||||||||||||||||||||||||||||||||||
| Asia | |||||||||||||||||||||||||||||||||||
| Other foreign countries | |||||||||||||||||||||||||||||||||||
| Total international | |||||||||||||||||||||||||||||||||||
| Consolidated net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
______________
(1) Includes U.S. export sales of $365.5 million and $696.4 million for the three and six months ended June 30, 2021.
9
Major Products and Services
The Company’s major products and services in the reportable segments were as follows:
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Process and analytical instrumentation | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Aerospace and power | |||||||||||||||||||||||||||||||||||
| Automation and engineered solutions | |||||||||||||||||||||||||||||||||||
| Consolidated net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Process and analytical instrumentation | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Aerospace and power | |||||||||||||||||||||||||||||||||||
| Automation and engineered solutions | |||||||||||||||||||||||||||||||||||
| Consolidated net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Timing of Revenue Recognition
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||
EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Products and services transferred over time | |||||||||||||||||||||||||||||||||||
| Consolidated net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
EIG | EMG | Total | EIG | EMG | Total | ||||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Products and services transferred over time | |||||||||||||||||||||||||||||||||||
| Consolidated net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
10
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:
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
(In thousands) | |||||||||||
| Balance at the beginning of the period | $ | $ | |||||||||
| Accruals for warranties issued during the period | |||||||||||
| Settlements made during the period | ( | ( | |||||||||
| Warranty accruals related to acquired businesses and other during the period | ( | ||||||||||
| Balance at the end of the period | $ | $ | |||||||||
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 June 30, 2022, the Company had $885.1 million of accounts receivable, net of allowances of $11.2 million. Changes in the allowance were not material for the three and six months ended June 30, 2022.
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Weighted average shares: | |||||||||||||||||||||||
| Basic shares | |||||||||||||||||||||||
| Equity-based compensation plans | |||||||||||||||||||||||
| Diluted shares | |||||||||||||||||||||||
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
11
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 June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | ||||||||||
Fair Value | Fair Value | ||||||||||
(In thousands) | |||||||||||
| Mutual fund investments | $ | $ | |||||||||
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 six months ended June 30, 2022 and 2021, gains and losses on the investments noted above were not significant. No
Financial Instruments
Cash, cash equivalents and mutual fund investments are recorded at fair value at June 30, 2022 and December 31, 2021 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 June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
Recorded Amount | Fair Value | Recorded Amount | Fair Value | ||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
| Long-term debt (including current portion) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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
6. Hedging Activities
12
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 June 30, 2022, the Company had $273.6 million of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At June 30, 2022, the Company had $559.9 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, $79.8 million of pre-tax currency remeasurement gains have been included in the foreign currency translation component of other comprehensive income for the six months ended June 30, 2022.
7. Inventories, net
| June 30, 2022 | December 31, 2021 | ||||||||||
(In thousands) | |||||||||||
| Finished goods and parts | $ | $ | |||||||||
| Work in process | |||||||||||
| Raw materials and purchased parts | |||||||||||
| Total inventories, net | $ | $ | |||||||||
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 six months ended June 30, 2022 and 2021. The Company's leases have initial lease terms ranging from four months to 16 years. Certain lease agreements contain provisions for future rent increases.
The components of lease expense were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | |||||||||||||||||||
Supplemental balance sheet information related to leases was as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
(In thousands) | |||||||||||
| Right of use assets, net | $ | $ | |||||||||
| Total lease liabilities | $ | $ | |||||||||
13
Maturities of lease liabilities as of June 30, 2022 were as follows:
Lease Liability Maturity Analysis | Operating Leases | ||||
(In thousands) | |||||
| Remaining 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | |||||
| $ | |||||
The Company does not have any significant leases that have not yet commenced.
9. Goodwill
The changes in the carrying amounts of goodwill by segment were as follows:
| EIG | EMG | Total | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ||||||||||||||
| Purchase price allocation adjustments and other | |||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ||||||||||||||
The Company finalized its measurements of certain tangible and intangible assets and liabilities for its November 2021 acquisition of Alphasense, which had no material impact to the consolidated statement of income and balance sheet.
10. Income Taxes
At June 30, 2022, the Company had gross uncertain tax benefits of $161.2 million, of which $118.7 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, 2021 | $ | ||||
| Additions for tax positions | |||||
| Reductions for tax positions | ( | ||||
| Balance at June 30, 2022 | $ | ||||
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 six months ended June 30, 2022 and 2021 were not significant.
14
11. Debt
12. 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, 2021.
Share Based Compensation Expense
Total share-based compensation expense was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Stock option expense | $ | $ | $ | $ | |||||||||||||||||||
| Restricted stock expense | |||||||||||||||||||||||
| Performance restricted stock unit expense | |||||||||||||||||||||||
| Total pre-tax expense | $ | $ | $ | $ | |||||||||||||||||||
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:
| Six Months Ended June 30, 2022 | Year Ended December 31, 2021 | ||||||||||
| Expected volatility | % | % | |||||||||
| Expected term (years) | |||||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected dividend yield | % | % | |||||||||
| Black-Scholes-Merton fair value per stock option granted | $ | $ | |||||||||
15
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, 2021 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Outstanding at June 30, 2022 | $ | $ | |||||||||||||||||||||
| Exercisable at June 30, 2022 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2022 was $18.3 million. The total fair value of stock options vested during the six months ended June 30, 2022 was $11.2 million. As of June 30, 2022, there was approximately $24.3 million of expected future pre-tax compensation expense related to the 1.2 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, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Non-vested restricted stock outstanding at June 30, 2022 | $ | ||||||||||
The total fair value of restricted stock vested during the six months ended June 30, 2022 was $13.3 million. As of June 30, 2022, there was approximately $37.9 million of expected future pre-tax compensation expense related to the 0.4 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 2022, 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.
16
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, 2021 | $ | ||||||||||
| Granted | |||||||||||
Performance assumption change 1 | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Non-vested performance restricted stock outstanding at June 30, 2022 | $ | ||||||||||
_________________________________________
1 Reflects the number of PRSUs above target levels based on performance metrics.
As of June 30, 2022, there was approximately $13.2 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 .
13. Retirement and Pension Plans
The components of net periodic pension benefit expense (income) were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of net actuarial loss and other | |||||||||||||||||||||||
| Pension income | ( | ( | ( | ( | |||||||||||||||||||
| Other plans: | |||||||||||||||||||||||
| Defined contribution plans | |||||||||||||||||||||||
| Foreign plans and other | |||||||||||||||||||||||
| Total other plans | |||||||||||||||||||||||
| Total net pension expense | $ | $ | $ | $ | |||||||||||||||||||
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 six months ended June 30, 2022 and 2021, contributions to the Company’s defined benefit pension plans were $3.9 million and $4.1 million, respectively. The Company’s current estimate of 2022 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, 2021.
17
14. 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 June 30, 2022, 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 June 30, 2022 and December 31, 2021 were $37.6 million and $37.2 million, respectively, for both non-owned and owned sites. For the six months ended June 30, 2022, the Company recorded $4.5 million in reserves. Additionally, the Company spent $4.1 million on environmental matters for the six months ended June 30, 2022.
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.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following table sets forth net sales and income by reportable segment and on a consolidated basis:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Electronic Instruments | $ | 1,028,248 | $ | 933,934 | $ | 2,016,007 | $ | 1,724,858 | |||||||||||||||
| Electromechanical | 486,304 | 452,412 | 957,070 | 877,230 | |||||||||||||||||||
| Consolidated net sales | $ | 1,514,552 | $ | 1,386,346 | $ | 2,973,077 | $ | 2,602,088 | |||||||||||||||
| Operating income and income before income taxes: | |||||||||||||||||||||||
| Segment operating income: | |||||||||||||||||||||||
| Electronic Instruments | $ | 265,115 | $ | 226,637 | $ | 509,889 | $ | 433,534 | |||||||||||||||
| Electromechanical | 124,371 | 112,434 | 252,580 | 217,467 | |||||||||||||||||||
| Total segment operating income | 389,486 | 339,071 | 762,469 | 651,001 | |||||||||||||||||||
| Corporate administrative expenses | (24,644) | (22,460) | (44,387) | (41,045) | |||||||||||||||||||
| Consolidated operating income | 364,842 | 316,611 | 718,082 | 609,956 | |||||||||||||||||||
| Interest expense | (20,350) | (20,442) | (39,920) | (39,389) | |||||||||||||||||||
| Other income (expense), net | 1,973 | (4,414) | 4,525 | (6,356) | |||||||||||||||||||
| Consolidated income before income taxes | $ | 346,465 | $ | 291,755 | $ | 682,687 | $ | 564,211 | |||||||||||||||
Recent Events and Market Conditions
Recent events and market conditions impacting our business include the COVID-19 pandemic, increased material and transportation cost inflation, supply chain constraints, and the ongoing conflict in Ukraine. As a result of these events and conditions, we anticipate a challenging global economic environment for the remainder of 2022. There still remains uncertainty around the COVID-19 pandemic, its effect on labor, government mandated lockdowns and other restrictive measures, and the pandemic's ultimate duration. The recent lockdowns in China limited our ability to access customer sites, operate certain facilities, and placed additional constraints on our supply chain during the second quarter. Depending on the course of the pandemic, additional lockdowns in China or elsewhere could impact our operations and results of operations. Beginning in 2021, we experienced heightened levels of inflation in material and transportation costs and we expect elevated levels of cost inflation to persist throughout 2022. We have taken steps to mitigate the impacts of inflation by implementing pricing actions. We experienced additional pressure in our supply chain due to component shortages and strained transportation capacity, as well as the impact of continued elevated customer demand. In response to these supply chain pressures, we have taken actions to build inventory and seek alternative sources of supply to support sales and backlog growth. The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. Russia and Ukraine represent an insignificant portion of our business, but a significant expansion of the conflict's current scope could further complicate the economic environment. While the ultimate impact of these events remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, and results of operations.
Results of operations for the second quarter of 2022 compared with the second quarter of 2021
For the quarter ended June 30, 2022, the Company posted record sales, operating income, and backlog as well as strong orders. The Company achieved these results from organic sales growth in both EIG and EMG, as well as the Company's Operational Excellence initiatives.
Net sales for the second quarter of 2022 were a record $1,514.6 million, an increase of $128.3 million or 9.2%, compared with net sales of $1,386.3 million for the second quarter of 2021. The increase in net sales for the second quarter of 2022 was due to a 12% increase in organic sales, a 1% increase from acquisitions, partially offset by an unfavorable 3% effect of foreign currency translation.
Total international sales for the second quarter of 2022 were $721.4 million or 47.6% of net sales, an increase of $55.7 million or 8.4%, compared with international sales of $665.7 million or 48.0% of net sales for the second quarter of 2021. The increase in international sales was primarily driven by strong demand in Asia during the quarter as well as contributions from recent acquisitions.
19
Orders for the second quarter of 2022 were $1,644.5 million, a decrease of $269.2 million or 14.1%, compared with $1,913.7 million for the second quarter of 2021. The decrease in orders for the second quarter of 2022 was due to a 20% decrease from $371 million of acquired backlog from the 2021 acquisitions, an unfavorable 5% effect of foreign currency translation, partially offset by an 11% increase in organic orders. As a result, the Company's backlog of unfilled orders at June 30, 2022 was a record $3,104.4 million, an increase of $374.3 million or 13.7% compared with $2,730.1 million at December 31, 2021.
Segment operating income for the second quarter of 2022 was $389.5 million, an increase of $50.4 million or 14.9%, compared with segment operating income of $339.1 million for the second quarter of 2021. Segment operating income was positively impacted in 2022 by the increase in sales discussed above. Segment operating margins, as a percentage of net sales, increased to 25.7% for the second quarter of 2022, compared with 24.5% for the second quarter of 2021. Excluding the dilutive impact of the 2021 acquisitions, segment operating margins for the core businesses increased 130 basis points compared to the second quarter of 2021, due to benefits from the Company's Operational Excellence initiatives.
Cost of sales for the second quarter of 2022 was $988.2 million or 65.2% of net sales, an increase of $75.5 million or 8.3%, compared with $912.7 million or 65.8% of net sales for the second quarter of 2021. The cost of sales increase was primarily due to the net sales increase discussed above.
Selling, general and administrative expenses for the second quarter of 2022 were $161.5 million or 10.7% of net sales, an increase of $4.5 million or 2.9%, compared with $157.0 million or 11.3% of net sales for the second quarter of 2021.
Consolidated operating income was a record $364.8 million or 24.1% of net sales for the second quarter of 2022, an increase of $48.2 million or 15.2%, compared with $316.6 million or 22.8% of net sales for the second quarter of 2021.
Other income, net was $2.0 million for the second quarter of 2022, compared with $4.4 million of other expense, net for the second quarter of 2021, a change of $6.4 million. The second quarter of 2022 includes higher pension income of $2.5 million and lower due diligence expense compared to the second quarter of 2021.
The effective tax rate for the second quarter of 2022 was 18.5%, compared with 20.6% for the second quarter of 2021. The lower effective tax rate in the second quarter of 2022 is primarily due to improved foreign-derived intangible income ("FDII") benefits on exported products and favorable foreign deferred taxes.
Net income for the second quarter of 2022 was a record $282.4 million, an increase of $50.7 million or 21.9%, compared with $231.7 million for the second quarter of 2021.
Diluted earnings per share for the second quarter of 2022 were $1.22, an increase of $0.22 or 22.0%, compared with $1.00 per diluted share for the second quarter of 2021.
Segment Results
EIG’s net sales totaled $1,028.2 million for the second quarter of 2022, an increase of $94.3 million or 10.1%, compared with $933.9 million for the second quarter of 2021. The net sales increase was due to a 12% increase in organic sales, a 1% increase from acquisitions, partially offset by an unfavorable 3% effect of foreign currency translation.
EIG’s operating income was $265.1 million for the second quarter of 2022, an increase of $38.5 million or 17.0%, compared with $226.6 million for the second quarter of 2021. EIG’s operating margins were 25.8% of net sales for the second quarter of 2022, compared with 24.3% for the second quarter of 2021. Excluding the dilutive impact of recent acquisitions, EIG operating margins for the core business increased 170 basis points compared to the second quarter of 2021, due to benefits from the Company's Operational Excellence initiatives.
EMG’s net sales totaled $486.3 million for the second quarter of 2022, an increase of $33.9 million or 7.5%, compared with $452.4 million for the second quarter of 2021. The net sales increase was due to an 11% organic sales increase, partially offset by an unfavorable 3% effect of foreign currency translation.
EMG’s operating income was $124.4 million for the second quarter of 2022, an increase of $12.0 million or 10.6%, compared with $112.4 million for the second quarter of 2021. EMG’s operating margins were 25.6% of net sales for the second quarter of 2022, compared with 24.9% for the second quarter of 2021. EMG operating margins increased compared to the second quarter of 2021 due to benefits from the Company's Operational Excellence initiatives.
20
Results of operations for the first six months of 2022 compared with the first six months of 2021
Net sales for the first six months of 2022 were $2,973.1 million, an increase of $371.0 million or 14.3%, compared with net sales of $2,602.1 million for the first six months of 2021. The increase in net sales for the first six months of 2022 was due to a 13% organic sales increase, a 3% increase from acquisitions, partially offset by an unfavorable 2% effect of foreign currency translation.
Total international sales for the first six months of 2022 were $1,465.7 million or 49.3% of net sales, an increase of $183.6 million or 14.3%, compared with international sales of $1,282.1 million or 49.3% of net sales for the first six months of 2021. The increase in international sales was primarily driven by strong demand in Europe and Asia as well as contributions from recent acquisitions.
Orders for the first six months of 2022 were $3,347.4 million, an increase of $36.0 million or 1.1%, compared with $3,311.4 million for the first six months of 2021. The increase in orders for the first six months of 2022 was due to a 14% organic order increase, partially offset by a 10% decrease from acquisitions, as well as a 3% unfavorable effect of foreign currency translation.
Segment operating income for the first six months of 2022 was $762.5 million, an increase of $111.5 million or 17.1%, compared with segment operating income of $651.0 million for the first six months of 2021. Segment operating income was positively impacted in 2022 by the increase in sales discussed above, as well as a $7.1 million gain on the sale of a facility. Segment operating margins, as a percentage of net sales, increased to 25.6% for the first six months of 2022, compared with 25.0% for the first six months of 2021. Segment operating margins for the first six months of 2022 were negatively impacted by the dilutive impact of recent acquisitions. Excluding the dilutive impact of recent acquisitions and the gain on the sale of a facility, segment operating margins for the core businesses increased 140 basis points compared to the first six months of 2021, due to the Company's Operational Excellence initiatives.
Cost of sales for the first six months of 2022 was $1,937.0 million or 65.2% of net sales, an increase of $234.9 million or 13.8%, compared with $1,702.1 million or 65.4% of net sales for the first six months of 2021. The cost of sales increase was primarily due to the net sales increase discussed above.
Selling, general and administrative expenses for the first six months of 2022 were $318.0 million or 10.7% of net sales, an increase of $28.0 million or 9.6%, compared with $290.0 million or 11.1% of net sales for the first six months of 2021. Selling, general and administrative expenses increased primarily due to the net sales increase discussed above.
Consolidated operating income was $718.1 million or 24.2% of net sales for the first six months of 2022, an increase of $108.1 million or 17.7%, compared with $610.0 million or 23.4% of net sales for the first six months of 2021. The consolidated operating income and operating income margins for the first six months of 2022 were positively impacted by the increase in net sales discussed above as well as the benefits of the Company's Operational Excellence initiatives.
Other income, net was $4.5 million for the first six months of 2022, compared with $6.4 million of other expense, net for the first six months of 2021, a change of $10.9 million. The first six months of 2022 includes higher pension income of $5.0 million and lower acquisition-related due diligence expense compared to the first six months of 2021.
The effective tax rate for the first six months of 2022 was 18.7%, compared with 20.1% for the first six months of 2021. The lower effective tax rate in 2022 is primarily due to improved FDII benefits and a favorable foreign tax rate differential.
Net income for the first six months of 2022 was $554.8 million, an increase of $103.9 million or 23.0%, compared with $450.9 million for the first six months of 2021.
Diluted earnings per share for the first six months of 2022 were $2.39, an increase of $0.45 or 23.2%, compared with $1.94 per diluted share for the first six months of 2021.
21
Segment Results
EIG’s net sales totaled $2,016.0 million for the first six months of 2022, an increase of $291.1 million or 16.9%, compared with $1,724.9 million for the first six months of 2021. The net sales increase was due to a 14% organic sales increase, a 5% increase from acquisitions, partially offset by an unfavorable 2% effect of foreign currency translation.
EIG’s operating income was $509.9 million for the first six months of 2022, an increase of $76.4 million or 17.6%, compared with $433.5 million for the first six months of 2021. EIG’s operating margins were 25.3% of net sales for the first six months of 2022, compared with 25.1% for the first six months of 2021. EIG's operating margins in the first six months of 2022 were negatively impacted by the dilutive impact of the 2021 acquisitions. Excluding the dilutive impact of recent acquisitions, EIG operating margins increased 160 basis points compared to the first six months of 2021, due to benefits from the Company's Operational Excellence initiatives.
EMG’s net sales totaled $957.1 million for the first six months of 2022, an increase of $79.9 million or 9.1%, compared with $877.2 million for the first six months of 2021. The net sales increase was due to an 11% organic sales increase, partially offset by an unfavorable 2% effect of foreign currency translation.
EMG’s operating income was $252.6 million for the first six months of 2022, an increase of $35.1 million or 16.1%, compared with $217.5 million for the first six months of 2021. EMG's operating income included a $7.1 million gain on the sale of a facility during the first six months of 2022. EMG’s operating margins were 26.4% of net sales for the first six months of 2022, compared with 24.8% for the first six months of 2021. Excluding the gain on the sale of a facility, EMG operating margins increased 90 basis points compared to the first six months of 2021, due to the Company's Operational Excellence initiatives.
Financial Condition
Liquidity and Capital Resources
Cash provided by operating activities totaled $437.2 million for the first six months of 2022, a decrease of $134.2 million or 23.5%, compared with $571.4 million for the first six months of 2021. The decrease in cash provided by operating activities for the first six months of 2022 was primarily due to higher investments in inventory to support sales and backlog growth, and to mitigate inventory supply chain constraints, partially offset by higher net income.
Free cash flow (cash flow provided by operating activities less capital expenditures) was $384.7 million for the first six months of 2022, compared with $530.4 million for the first six months of 2021. EBITDA (earnings before interest, income taxes, depreciation and amortization) was $877.2 million for the first six months of 2022, compared with $742.5 million for the first six months of 2021. Free cash flow and EBITDA are presented because the Company is aware that they are measures used by third parties in evaluating the Company.
Cash used by investing activities totaled $41.0 million for the first six months of 2022, compared with cash used by investing activities of $1,882.1 million for the first six months of 2021. For the first six months of 2022, the Company received proceeds of $11.8 million from the sale of a facility. For the first six months of 2021, the Company paid $1,840.8 million, net of cash acquired, to purchase Abaco Systems, Magnetrol International, NSI-MI Technologies, Crank Software, and EGS Automation. Additions to property, plant and equipment totaled $52.5 million for the first six months of 2022, compared with $41.0 million for the first six months of 2021.
Cash used by financing activities totaled $370.4 million for the first six months of 2022, compared with cash provided by financing activities of $491.6 million for the first six months of 2021. At June 30, 2022, total debt, net was $2,502.2 million, compared with $2,544.2 million at December 31, 2021. For the first six months of 2022, total borrowings increased by $56.5 million compared with a $569.9 million increase for the first six months of 2021. At June 30, 2022, the Company had available borrowing capacity of $2,600.1 million under its revolving credit facility, including the $700 million accordion feature.
On May 12, 2022, 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 increase the size from $1.5 billion to $2.3 billion and terminates the $800 million term loan. The credit agreement places certain restrictions on allowable additional
22
indebtedness. At June 30, 2022, the Company had $360.0 million outstanding on the revolver with a maturity date of May 2027.
The debt-to-capital ratio was 26.5% at June 30, 2022, compared with 27.0% at December 31, 2021. The net debt-to-capital ratio (total debt, net less cash and cash equivalents divided by the sum of net debt and stockholders’ equity) was 23.7% at June 30, 2022, compared with 24.2% at December 31, 2021. The net debt-to-capital ratio is presented because the Company is aware that this measure is used by third parties in evaluating the Company.
Additional financing activities for the first six months of 2022 included cash dividends paid of $101.2 million, compared with $92.2 million for the first six months of 2021. Effective February 9, 2022, the Company’s Board of Directors approved a 10% increase in the quarterly cash dividend on the Company’s common stock to $0.22 per common share from $0.20 per common share. The Company repurchased $331.4 million of its common stock for the first six months of 2022, compared with $12.9 million for the first six months of 2021. Effective May 5, 2022, the Company's Board of Directors approved a $1 billion share repurchase authorization. This authorization replaces an earlier $500 million share repurchase authorization approved by the Board in February 2019. Proceeds from stock option exercises were $17.8 million for the first six months of 2022, compared with $31.1 million for the first six months of 2021.
As a result of all of the Company’s cash flow activities for the first six months of 2022, cash and cash equivalents at June 30, 2022 totaled $348.7 million, compared with $346.8 million at December 31, 2021. At June 30, 2022, the Company had $326.8 million in cash outside the United States, compared with $334.0 million at December 31, 2021. The Company utilizes this cash to fund its international operations, as well as to acquire international businesses. The Company is in compliance with all covenants, including financial covenants, for all of its debt agreements. The Company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources, available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future.
Critical Accounting Policies
The Company’s critical accounting policies are detailed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition of its Annual Report on Form 10-K for the year ended December 31, 2021. Primary disclosure of the Company’s significant accounting policies is also included in Note 1 to the Consolidated Financial Statements included in Part II, Item 8 of its Annual Report on Form 10-K.
Forward-Looking Information
Information contained in this discussion, other than historical information, is considered “forward-looking statements” and is subject to various factors and uncertainties that may cause actual results to differ significantly from expectations. These factors and uncertainties include risks related to the COVID-19 pandemic and its potential impact on AMETEK’s operations, supply chain, and demand across key end markets; general economic conditions affecting the industries the Company serves; changes in the competitive environment or the effects of competition in the Company’s markets; risks associated with international sales and operations; the Company’s ability to consummate and successfully integrate future acquisitions; the Company’s ability to successfully develop new products, open new facilities or transfer product lines; the price and availability of raw materials; compliance with government regulations, including environmental regulations; and the ability to maintain adequate liquidity and financing sources. A detailed discussion of these and other factors that may affect the Company’s future results is contained in AMETEK’s filings with the U.S. Securities and Exchange Commission, including its most recent reports on Form 10-K, 10-Q, and 8-K. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements, unless required by the securities laws to do so.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management in a timely manner. Under the supervision and with the participation of our management, including the Company’s principal executive officer and principal financial officer, we have evaluated the effectiveness of our system of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of June 30, 2022. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
Such evaluation did not identify any change in the Company’s internal control over financial reporting during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
23
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchase of equity securities by the issuer and affiliated purchasers.
The following table reflects purchases of AMETEK, Inc. common stock by the Company during the three months ended June 30, 2022:
Period | Total Number of Shares Purchased (1)(2) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan (2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan | |||||||||||||||||||
| April 1, 2022 to April 30, 2022 | — | $ | — | — | $ | 313,006,100 | |||||||||||||||||
| May 1, 2022 to May 31, 2022 | 1,444,565 | 120.91 | 1,444,565 | 825,344,405 | |||||||||||||||||||
| June 1, 2022 to June 30, 2022 | — | — | — | 825,344,405 | |||||||||||||||||||
| Total | 1,444,565 | $ | 120.91 | 1,444,565 | |||||||||||||||||||
________________
(1) Includes 14,945 shares surrendered to the Company to satisfy tax withholding obligations in connection with employees’ share-based compensation awards.
(2) Consists of the number of shares purchased pursuant to the Company’s Board of Directors $1 billion authorization for the repurchase of its common stock announced in May 2022, which replaces the previous $500 million authorization for the repurchase of its common stock announced in February 2019. Such purchases may be effected from time to time in the open market or in private transactions, subject to market conditions and at management’s discretion.
24
Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 101.INS* | XBRL Instance Document. | |||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | |||||||
________________
* Filed electronically herewith.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMETEK, Inc. | ||||||||
| By: | /s/ WILLIAM J. BURKE | |||||||
| William J. Burke | ||||||||
| Executive Vice President – Chief Financial Officer | ||||||||
| August 2, 2022 | ||||||||
26
Exhibit 31.1
CERTIFICATIONS
I, David A. Zapico, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of AMETEK, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 2, 2022
/s/ DAVID A. ZAPICO | |||||
| David A. Zapico | |||||
| Chairman of the Board and Chief Executive Officer | |||||
Exhibit 31.2
CERTIFICATIONS
I, William J. Burke, certify that:
1.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
2.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
3.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
b)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 2, 2022
| /s/ WILLIAM J. BURKE | |||||
| William J. Burke | |||||
| Executive Vice President – Chief Financial Officer | |||||
Exhibit 32.1
AMETEK, Inc.
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of AMETEK, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Zapico, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ DAVID A. ZAPICO | |||||
| David A. Zapico | |||||
| Chairman of the Board and Chief Executive Officer | |||||
Date: August 2, 2022
A signed original of this written statement required by Section 906 has been provided to AMETEK, Inc. and will be retained by AMETEK, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
AMETEK, Inc.
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of AMETEK, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William J. Burke, Executive Vice President – Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(a)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ WILLIAM J. BURKE | |||||
| William J. Burke | |||||
| Executive Vice President – Chief Financial Officer | |||||
Date: August 2, 2022
A signed original of this written statement required by Section 906 has been provided to AMETEK, Inc. and will be retained by AMETEK, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.