AMETEK(AME) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides AMETEK's unaudited consolidated financial statements and management's analysis for Q2 and 6M 2023 Item 1. Financial Statements This section presents AMETEK's unaudited consolidated financial statements and detailed notes for Q2 and 6M 2023 and 2022 Consolidated Statement of Income This statement details AMETEK's net sales, operating income, net income, and earnings per share for Q2 and 6M 2023 and 2022 Consolidated Statement of Income Highlights (In thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:----------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net sales | $1,646,111 | $1,514,552 | $3,243,228 | $2,973,077 | | Operating income | $418,791 | $364,842 | $824,332 | $718,082 | | Income before income taxes | $396,384 | $346,465 | $775,983 | $682,687 | | Net income | $324,242 | $282,373 | $629,954 | $554,820 | | Basic earnings per share | $1.41 | $1.23 | $2.74 | $2.40 | | Diluted earnings per share | $1.40 | $1.22 | $2.72 | $2.39 | | Dividends declared per share| $0.25 | $0.22 | $0.50 | $0.44 | Condensed Consolidated Statement of Comprehensive Income This statement presents AMETEK's total comprehensive income for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statement of Comprehensive Income (In thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:---------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total comprehensive income | $350,692 | $222,033 | $682,903 | $479,334 | Consolidated Balance Sheet This statement provides AMETEK's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (In thousands) | Asset/Liability/Equity | June 30, 2023 (Unaudited) | December 31, 2022 | |:-----------------------------------|:--------------------------|:------------------| | ASSETS | | | | Cash and cash equivalents | $605,587 | $345,386 | | Total current assets | $2,899,555 | $2,528,058 | | Goodwill | $5,449,590 | $5,372,562 | | Total assets | $12,839,851 | $12,431,120 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $1,341,190 | $1,564,202 | | Long-term debt, net | $2,186,299 | $2,158,928 | | Total liabilities | $4,758,480 | $4,954,608 | | Total stockholders' equity | $8,081,371 | $7,476,512 | Consolidated Statement of Stockholders' Equity This statement details changes in AMETEK's stockholders' equity for the six months ended June 30, 2023 and 2022 Consolidated Statement of Stockholders' Equity Highlights (In thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:--------------------------------------|:-------------------------------|:-------------------------------| | Common stock, end of period | $2,707 | $2,695 | | Capital in excess of par value, end of period | $1,123,920 | $1,040,951 | | Retained earnings, end of period | $9,372,368 | $8,353,735 | | Accumulated other comprehensive loss, end of period | $(521,996) | $(545,930) | | Treasury stock, end of period | $(1,895,628) | $(1,901,360) | | Total stockholders' equity, end of period | $8,081,371 | $6,950,091 | Condensed Consolidated Statement of Cash Flows This statement outlines AMETEK's cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statement of Cash Flows Highlights (In thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:----------------------------------|:-------------------------------|:-------------------------------| | Cash provided by operating activities | $721,783 | $437,237 | | Cash used for investing activities | $(149,987) | $(41,033) |\n| Cash used for financing activities | $(317,091) | $(370,393) | | Increase in cash and cash equivalents | $260,201 | $1,881 | | Cash and cash equivalents, end of period | $605,587 | $348,653 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. Basis of Presentation This note describes the accounting principles and assumptions used in preparing the unaudited interim financial statements - The unaudited consolidated financial statements include all necessary adjustments for fair presentation, with quarterly results not indicative of full-year performance[21] 2. Revenues This note details AMETEK's revenue recognition policies, contract assets and liabilities, and sales by geographic area and product Contract Assets and Liabilities (In thousands) | Metric | June 30, 2023 | January 1, 2023 | |:-----------------------------|:--------------|:----------------| | Contract assets – June 30 | $137,444 | $119,741 | | Contract liabilities – June 30 | $443,768 | $398,692 | | Net change | $(27,373) | $(28,482) | - Net change in contract liabilities for 6M 2023 was driven by advance payments, with $268.0 million revenue recognized from beginning contract liabilities[23] - Remaining performance obligations increased to $573.0 million at June 30, 2023, expected to be satisfied within two to three years[24] Consolidated Net Sales by Geographic Area (In thousands) | Geographic Area | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:---------------------------|:---------------------------------|:-------------------------------| | United States | $859,892 | $1,668,907 | | Total International Sales | $786,219 | $1,574,321 | | Consolidated Net Sales | $1,646,111 | $3,243,228 | Consolidated Net Sales by Major Products and Services (In thousands) | Product/Service | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:-----------------------------------|:---------------------------------|:-------------------------------| | Process and analytical instrumentation | $798,667 | $1,593,100 | | Aerospace and power | $485,771 | $951,635 | | Automation and engineered solutions| $361,673 | $698,493 | | Consolidated Net Sales | $1,646,111 | $3,243,228 | Timing of Revenue Recognition (In thousands) | Timing of Recognition | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:----------------------------------|:---------------------------------|:-------------------------------| | Products transferred at a point in time | $1,400,552 | $2,749,461 | | Products and services transferred over time | $245,559 | $493,767 | | Consolidated Net Sales | $1,646,111 | $3,243,228 | Changes in Accrued Product Warranty Obligation (In thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:-------------------------------------------|:-------------------------------|:-------------------------------| | Balance at the beginning of the period | $26,487 | $27,478 | | Accruals for warranties issued | $9,397 | $5,143 | | Settlements made | $(7,289) | $(6,023) | | Warranty accruals related to acquired businesses and other | $244 | $(632) | | Balance at the end of the period | $28,839 | $25,966 | - Accounts receivable, net of allowances, totaled $936.9 million at June 30, 2023, with immaterial changes in credit loss allowance[37] 3. Earnings Per Share This note provides the calculation of basic and diluted earnings per share, including weighted average shares outstanding Weighted Average Shares for EPS Calculation (In thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |:----------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Basic shares | 230,478 | 230,100 | 230,302 | 230,790 | | Equity-based compensation plans | 783 | 1,147 | 943 | 1,366 | | Diluted shares | 231,261 | 231,247 | 231,245 | 232,156 | 4. Fair Value Measurements This note describes the Company's fair value hierarchy and measurements for financial assets and liabilities - The Company employs a three-level valuation hierarchy for fair value measurements, categorizing inputs as Level 1, 2, or 3[41] Fair Value Hierarchy (In thousands) | Asset/Liability | June 30, 2023 Total | June 30, 2023 Level 1 | June 30, 2023 Level 2 | June 30, 2023 Level 3 | |:---------------------------------|:--------------------|:----------------------|:----------------------|:----------------------| | Mutual fund investments | $10,539 | $10,539 | — | — | | Foreign currency forward contracts | $(476) | — | $(476) | — | | Long-term debt (including current portion) | $(2,033,991) | — | — | $(2,033,991) | - Long-term debt is a Level 3 liability, valued using comparable market data due to its private nature and lack of public market[47] 5. Hedging Activities This note explains the Company's use of long-term borrowings as net investment hedges to mitigate foreign currency risks - British-pound and Euro-denominated long-term borrowings totaling $260.5 million and $584.1 million respectively, serve as net investment hedges[48][49] - Pre-tax currency remeasurement losses of $24.9 million from hedges were included in other comprehensive income for 6M 2023[49] 6. Inventories, net This note provides a breakdown of AMETEK's inventory components, including finished goods, work in process, and raw materials Inventories, Net (In thousands) | Category | June 30, 2023 | December 31, 2022 | |:--------------------------|:--------------|:------------------| | Finished goods and parts | $124,959 | $130,989 | | Work in process | $151,875 | $138,043 | | Raw materials and purchased parts | $830,990 | $775,252 | | Total inventories, net| $1,107,824| $1,044,284 | 7. Leases This note outlines the Company's operating lease commitments for facilities, vehicles, and equipment, and related costs - Operating lease commitments for facilities, vehicles, and equipment have a weighted average remaining term of approximately 5 years[52] Total Lease Cost (In thousands) | Lease Cost Component | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:---------------------|:---------------------------------|:-------------------------------| | Operating lease cost | $15,905 | $30,582 | | Variable lease cost | $2,716 | $5,946 | | Total lease cost | $18,621 | $36,528 | Lease Liabilities (In thousands) | Lease Liability Category | June 30, 2023 | December 31, 2022 | |:-------------------------|:--------------|:------------------| | Right of use assets, net | $171,616 | $170,295 | | Total lease liabilities | $175,715 | $175,593 | 8. Acquisitions This note details the acquisition of Bison Gear & Engineering Corp. and its impact on the Company's financial statements - AMETEK acquired Bison Gear & Engineering Corp. for $99.3 million in March 2023, integrating it into the EMG segment[56] Bison Acquisition Purchase Price Allocation (In millions) | Asset Category | Allocated Amount | |:--------------------------------|:-----------------| | Property, plant and equipment | $10.1 | | Goodwill | $23.5 | | Other intangible assets | $52.8 | | Net working capital and other | $12.9 | | Total cash paid | $99.3 | - Bison acquisition goodwill of $23.5 million is tax deductible, with $52.8 million in other intangible assets, including $8.8 million in trade names[59][60] - The Bison acquisition had an immaterial impact on net sales, net income, and diluted EPS for Q2 and 6M 2023[61] 9. Goodwill This note outlines changes in goodwill by segment, including acquisitions, purchase price adjustments, and currency translation Changes in Goodwill by Segment (In millions) | Segment/Adjustment | EIG | EMG | Total | |:----------------------------------|:--------|:--------|:--------| | Balance at December 31, 2022 | $4,236.1| $1,136.5| $5,372.6| | Goodwill acquired from 2023 acquisitions | — | $23.5 | $23.5 | | Purchase price allocation adjustments and other | $25.4 | — | $25.4 | | Foreign currency translation adjustments | $16.9 | $11.2 | $28.1 | | Balance at June 30, 2023 | $4,278.4| $1,171.2| $5,449.6| 10. Income Taxes This note discusses the Company's income tax provisions, uncertain tax benefits, and effective tax rate - Gross uncertain tax benefits totaled $191.1 million at June 30, 2023, with $140.3 million potentially impacting the effective tax rate[66] Reconciliation of Liability for Uncertain Tax Positions (In millions) | Metric | Amount | |:---------------------------------|:-------| | Balance at December 31, 2022 | $174.7 | | Additions for tax positions | $16.4 | | Reductions for tax positions | — | | Balance at June 30, 2023 | $191.1 | - The effective tax rate for Q2 2023 was 18.2%, a decrease from 18.5% in Q2 2022, due to foreign tax credit utilization[68] 11. Share-Based Compensation This note details the Company's share-based compensation plans, including stock options, restricted stock, and PRSUs Total Pre-Tax Share-Based Compensation Expense (In thousands) | Compensation Type | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:----------------------------------|:---------------------------------|:-------------------------------| | Stock option expense | $3,596 | $7,180 | | Restricted stock expense | $5,257 | $10,297 | | Performance restricted stock unit expense | $3,728 | $5,383 | | Total pre-tax expense | $12,581 | $22,860 | Stock Option Activity Summary (In thousands, except price and years) | Metric | Shares | Weighted Average Exercise Price | |:-------------------------------------|:-------|:--------------------------------| | Outstanding at December 31, 2022 | 3,060 | $79.46 | | Granted | 453 | $138.46 | | Exercised | (457) | $70.55 | | Forfeited | (51) | $122.05 | | Outstanding at June 30, 2023 | 3,005| $99.43 | | Exercisable at June 30, 2023 | 2,070 | $83.59 | - Expected future pre-tax compensation expense for non-vested stock options was $25.6 million at June 30, 2023, over two years[75] Non-Vested Restricted Stock Activity Summary (In thousands, except value) | Metric | Shares | Weighted Average Grant Date Fair Value | |:-------------------------------------------|:-------|:---------------------------------------| | Non-vested restricted stock outstanding at December 31, 2022 | 356 | $117.18 | | Granted | 154 | $138.60 | | Vested | (155) | $104.06 | | Forfeited | (21) | $125.89 | | Non-vested restricted stock outstanding at June 30, 2023 | 334 | $132.59 | - Expected future pre-tax compensation expense for non-vested restricted shares was $34.7 million at June 30, 2023, over two years[77] - PRSUs granted in March 2023 vest over three years, valued based on financial targets and a Monte Carlo model for market conditions[79][80] Non-Vested Performance Restricted Stock Activity Summary (In thousands, except value) | Metric | Shares | Grant Date Fair Value | |:-------------------------------------------|:-------|:----------------------| | Non-vested performance restricted stock outstanding at December 31, 2022 | 275 | $101.98 | | Granted | 79 | $138.46 | | Performance assumption change | 48 | $63.37 | | Vested | (161) | $63.37 | | Forfeited | (2) | $131.67 | | Non-vested performance restricted stock outstanding at June 30, 2023 | 239 | $131.90 | - Expected future pre-tax compensation expense for non-vested PRSUs was $11.4 million at June 30, 2023, over approximately one year[81] 12. Retirement and Pension Plans This note details the Company's defined benefit and defined contribution pension plans and related expenses Net Periodic Pension Benefit Expense (Income) (In thousands) | Component | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |:--------------------------------|:---------------------------------|:-------------------------------| | Defined benefit plans: | | | | Service cost | $749 | $1,489 | | Interest cost | $7,566 | $15,067 | | Expected return on plan assets | $(13,071) | $(26,067) | | Amortization of net actuarial loss and other | $2,842 | $5,663 | | Pension income | $(1,914) | $(3,848) | | Other plans: | | | | Defined contribution plans | $10,512 | $24,028 | | Foreign plans and other | $1,999 | $4,570 | | Total net pension expense | $10,597 | $24,750 | - Contributions to defined benefit pension plans for 6M 2023 were $2.9 million, consistent with 2023 estimates[86] 13. Contingencies This note addresses potential liabilities from legal proceedings, environmental matters, and other contingent events - The Company faces asbestos-related lawsuits, with strong defenses and indemnification for some cases, and no judgments rendered[87] - Environmental reserves totaled $41.1 million at June 30, 2023, with $3.5 million recorded and $4.1 million spent in 6M 2023[91] - Management believes existing environmental reserves are sufficient and will not materially affect consolidated financial statements[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses AMETEK's financial performance, liquidity, and condition for Q2 and 6M 2023, highlighting record results and operational drivers Results of Operations This section analyzes AMETEK's consolidated and segment-level financial performance, including sales, income, and margins - AMETEK achieved record Q2 2023 sales, operating income, margins, net income, diluted EPS, and backlog, driven by 5% organic growth[96][97] - International sales increased 9.0% to $786.2 million in Q2 2023, driven by European demand and 2022 acquisitions[97] - Q2 2023 orders increased 0.6% to $1,654.4 million, with record backlog of $3,441.9 million at June 30, 2023[98] Consolidated Financial Performance Highlights (In thousands, except EPS) | Metric | Q2 2023 | Q2 2022 | YoY Change (%) | 6M 2023 | 6M 2022 | YoY Change (%) | |:----------------------------|:-------------|:-------------|:---------------|:-------------|:-------------|:---------------| | Net sales | $1,646,111 | $1,514,552 | 8.7% | $3,243,228 | $2,973,077 | 9.1% | | Consolidated operating income | $418,791 | $364,842 | 14.8% | $824,332 | $718,082 | 14.8% | | Operating margin | 25.4% | 24.1% | 1.3 pp | 25.4% | 24.2% | 1.2 pp | | Net income | $324,242 | $282,373 | 14.8% | $629,954 | $554,820 | 13.5% | | Diluted EPS | $1.40 | $1.22 | 14.8% | $2.72 | $2.39 | 13.8% | | Effective tax rate | 18.2% | 18.5% | (0.3 pp) | 18.8% | 18.7% | 0.1 pp | - Segment operating margins increased to 26.9% in Q2 2023 and 6M 2023, driven by increased sales and Operational Excellence[98][99][107] - Cost of sales as a percentage of net sales decreased to 64.0% in both Q2 and 6M 2023[99][108] - SG&A expenses as a percentage of net sales decreased to 10.6% in both Q2 and 6M 2023[100][108] - Other expense, net was $3.7 million in Q2 2023 and $9.1 million in 6M 2023, primarily due to lower pension income[100][109] Segment Performance Highlights (In thousands) | Segment/Metric | Q2 2023 Net Sales | Q2 2022 Net Sales | YoY Change (%) | Q2 2023 Op Income | Q2 2022 Op Income | YoY Change (%) | Q2 2023 Op Margin | Q2 2022 Op Margin | |:----------------------------|:------------------|:------------------|:---------------|:------------------|:------------------|:---------------|:------------------|:------------------| | Electronic Instruments (EIG)| $1,134,646 | $1,028,248 | 10.3% | $307,052 | $265,115 | 15.8% | 27.1% | 25.8% | | Electromechanical (EMG) | $511,465 | $486,304 | 5.2% | $136,215 | $124,371 | 9.5% | 26.6% | 25.6% | | | | | | | | | | | | Segment/Metric | 6M 2023 Net Sales | 6M 2022 Net Sales | YoY Change (%) | 6M 2023 Op Income | 6M 2022 Op Income | YoY Change (%) | 6M 2023 Op Margin | 6M 2022 Op Margin | |:----------------------------|:------------------|:------------------|:---------------|:------------------|:------------------|:---------------|:------------------|:------------------| | Electronic Instruments (EIG)| $2,251,893 | $2,016,007 | 11.7% | $616,799 | $509,889 | 21.0% | 27.4% | 25.3% | | Electromechanical (EMG) | $991,335 | $957,070 | 3.6% | $256,719 | $252,580 | 1.6% | 25.9% | 26.4% | - EIG's Q2 2023 net sales increased 10.3% with operating income up 15.8% and margins at 27.1%; 6M sales rose 11.7% with income up 21.0%[102][110] - EMG's Q2 2023 net sales increased 5.2% with operating income up 9.5%; 6M sales rose 3.6% with income up 1.6%, with margin expansion excluding acquisition impacts[103][104][111][112] Financial Condition This section assesses AMETEK's liquidity, capital resources, and cash flow generation for the reporting periods - Cash provided by operating activities increased 65.1% to $721.8 million for 6M 2023, driven by working capital and net income improvements[113] Liquidity and Capital Resources Highlights (In millions) | Metric | 6M 2023 | 6M 2022 | YoY Change (%) | |:-------------------------------------|:-------------|:-------------|:---------------| | Cash provided by operating activities| $721.8 | $437.2 | 65.1% | | Free cash flow | $673.9 | $384.7 | 75.2% | | EBITDA | $977.3 | $877.2 | 11.4% | | Cash used by investing activities | $150.0 | $41.0 | 265.9% | | Cash used by financing activities | $317.1 | $370.4 | (14.4%) | | Total debt, net (period end) | $2,191.7 | N/A | N/A | | Debt-to-capital ratio (period end) | 21.3% | N/A | N/A | | Net debt-to-capital ratio (period end)| 16.4% | N/A | N/A | | Cash dividends paid | $115.1 | $101.2 | 13.7% | | Repurchases of common stock | $6.5 | $331.4 | (98.0%) | | Proceeds from stock option exercises | $29.1 | $17.8 | 63.5% | | Cash and cash equivalents (period end)| $605.6 | $345.4 | 75.3% | - Investing activities for 6M 2023 included $99.3 million for the Bison acquisition and $47.8 million in capital expenditures[114][115] - Debt-to-capital ratio improved to 21.3% and net debt-to-capital ratio to 16.4% at June 30, 2023[116] - Quarterly cash dividend increased 14% to $0.25 per share, while stock repurchases decreased significantly to $6.5 million in 6M 2023[117] - Cash and cash equivalents totaled $605.6 million at June 30, 2023, with sufficient liquidity for future obligations[118] Critical Accounting Policies This section refers to the Company's critical accounting policies detailed in its most recent Annual Report on Form 10-K - Critical accounting policies are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[119] Forward-Looking Information This section cautions that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to various risks, including acquisitions, international operations, and economic conditions, with no obligation to update[120] Item 4. Controls and Procedures Management concluded AMETEK's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control - Disclosure controls and procedures were evaluated as effective at a reasonable assurance level as of June 30, 2023[121] - No material changes in internal control over financial reporting occurred during Q2 2023[121] PART II. OTHER INFORMATION This section includes information on equity security sales, other disclosures, and exhibits filed with the Form 10-Q Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock purchases for tax withholding related to employee share-based compensation during Q2 2023 Purchases of Equity Securities (Three Months Ended June 30, 2023) | Period | Total Number of Shares Purchased | Average Price per Share | |:----------------------------|:---------------------------------|:------------------------| | April 1, 2023 to April 30, 2023 | — | — | | May 1, 2023 to May 31, 2023 | 152 | $145.02 | | June 1, 2023 to June 30, 2023 | — | — | | Total | 152 | $145.02 | - Shares purchased satisfied tax withholding for employee share-based compensation under a $1 billion repurchase authorization[124][125] - Approximately $817.4 million remained available under the share repurchase plan as of June 30, 2023[124] Item 5. Other Information This section confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers in Q2 2023 - No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023[126] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL taxonomy documents - Exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[128] - XBRL documents are provided for interactive data filing, including Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[128] SIGNATURES This section provides the official signing of the report by the Company's principal accounting officer - The report was signed by Thomas M. Montgomery, Senior Vice President – Comptroller, on August 1, 2023[130]