NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements reflect the results of operations, financial position and cash flows of AMETEK, Inc. (the “Company”), and include the accounts of the Company and subsidiaries, after elimination of all intercompany transactions in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.
Cash Equivalents, Securities and Other Investments
All highly liquid investments with maturities of three months or less when purchased are considered cash equivalents.
Accounts Receivable
The Company maintains allowances for estimated credit 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 considered uncollectible. Bad debt expense was $1.2 million in 2021, $3.6 million in 2020 and $2.8 million in 2019. At December 31, 2021 and 2020, the allowance for estimated credit losses was $11.2 million and $12.7 million, respectively.
Inventories
The Company uses the first-in, first-out (“FIFO”) method of accounting, which approximates current replacement cost, for approximately 89% of its inventories at December 31, 2021. The last-in, first-out (“LIFO”) method of accounting is used to determine cost for the remaining 11% of the Company’s inventory at December 31, 2021. For inventories where cost is determined by the LIFO method, the FIFO value would have been $29.8 million and $22.8 million higher than the LIFO value reported in the consolidated balance sheet at December 31, 2021 and 2020, respectively. The Company provides estimated inventory reserves for slow-moving and obsolete inventory based on current assessments about future demand, market conditions, customers who may be experiencing financial difficulties and related management initiatives.
Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for additions to plant facilities, or that extend their useful lives, are capitalized. The cost of minor tools, jigs and dies, and maintenance and repairs is charged to expense as incurred. Depreciation of plant and equipment is calculated principally on a straight-line basis over the estimated useful lives of the related assets. The range of lives for depreciable assets is generally three to 10 years for machinery and equipment, five to 27 years for leasehold improvements and 25 to 50 years for buildings. Depreciation expense was $108.5 million, $101.3 million and $101.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite lives, primarily trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually.
The Company identifies its reporting units at the component level, which is one level below its operating segments. Generally, goodwill arises from acquisitions of specific operating companies and is assigned to the reporting unit in which the operating company resides. The Company’s reporting units are divisions that are one level below its operating segments and for which discrete financial information is prepared and regularly reviewed by segment management.
The Company principally relies on a discounted cash flow analysis to estimate the fair value of each reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The Company believes that market participants would use a discounted cash flow analysis to determine the fair value of its reporting units in a sale transaction. The annual goodwill impairment test requires the Company to make several assumptions and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization and working capital requirements, which are based on the Company’s long-range plan and are considered level 3 inputs. The Company’s long-range plan is updated as part of its annual planning process and is reviewed and approved by management. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.
The impairment test for indefinite-lived intangibles other than goodwill (primarily trademarks and trade names) consists of a comparison of the estimated fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company estimates the fair value of its indefinite-lived intangibles using the relief from royalty method using level 3 inputs for revenue growth rates and royalty rates. The fair value derived from the relief from royalty method is measured as the discounted cash flow savings realized from owning such trademarks and trade names and not having to pay a royalty for their use.
The Company completed its required annual impairment tests in the fourth quarter of 2021, 2020 and 2019 and determined that the carrying values of the Company’s goodwill were not impaired. The Company completed its required annual impairment tests in the fourth quarter of 2021, 2020 and 2019 and determined that the carrying values of the Company’s other intangible assets with indefinite lives were not impaired.
Other intangible assets with finite lives are evaluated for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of other intangible assets with finite lives is considered impaired when the total projected undiscounted cash flows from the asset group are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of those assets. Fair value is determined primarily using present value techniques based on projected cash flows from the asset group.
Intangible assets, other than goodwill, with definite lives are amortized over their estimated useful lives. Patents and technology are being amortized over useful lives of nine to 20 years, with a weighted average life of 14
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
years. Customer relationships are being amortized over a period of ten to 20 years, with a weighted average life of 19 years. On a quarterly basis, the Company evaluates the reasonableness of the estimated useful lives of these intangible assets.
Financial Instruments and Foreign Currency Translation
Assets and liabilities of foreign operations are translated using exchange rates in effect at the balance sheet date and their results of operations are translated using average exchange rates for the year. Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Exchange gains and losses from those transactions are included in operating results for the year.
The Company makes infrequent use of derivative financial instruments. Forward contracts are entered into from time to time to hedge certain inventory purchases, export sales, debt or foreign currency transactions, thereby minimizing the Company’s exposure to raw material commodity price or foreign currency fluctuation.
In instances where transactions are designated as hedges of an underlying item, the gains and losses on those transactions are included in accumulated other comprehensive income within stockholders’ equity to the extent they are effective as hedges. An evaluation of hedge effectiveness is performed by the Company on an ongoing basis and any changes in the hedge are made as appropriate.
Revenue Recognition
Revenue is derived from sales of products and services. The Company’s products and services are marketed and sold worldwide through two operating groups: EIG and EMG. See Note 15 Descriptive Information about Reportable Segments.
The majority of the Company’s revenues on product sales were recognized at a point in time when the customer obtains control of the product. The transfer in control of the product to the customer was typically evidenced by one or more of the following: the customer having legal title to the product, the Company’s present right to payment, the customer’s physical possession of the product, the customer accepting the product, or the customer having the benefits of ownership or risk of loss. For a small percentage of sales where title and risk of loss transfers at the point of delivery, the Company recognized revenue upon delivery to the customer, which is the point that control transferred, assuming all other criteria for revenue recognition were met.
Research and Development
Research and development costs are included in Cost of sales as incurred and were $194.2 million in 2021, $158.9 million in 2020 and $161.9 million in 2019.
Shipping and Handling Costs
Shipping and handling costs are included in Cost of sales and were $86.1 million in 2021, $56.8 million in 2020 and $66.7 million in 2019.
Share-Based Compensation
The Company expenses the fair value of share-based awards made under its share-based plans in the consolidated financial statements over their requisite service period of the grants.
Income Taxes
The Company’s process of providing for income taxes and determining the related balance sheet accounts requires management to assess uncertainties, make judgments regarding outcomes and utilize estimates. The Company conducts a broad range of operations around the world and is therefore subject to complex tax regulations in numerous international taxing jurisdictions, resulting at times in tax audits, disputes and potential litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
estimates of the Company’s tax assets and liabilities. To the extent the final outcome differs, future adjustments to the Company’s tax assets and liabilities may be necessary. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense.
The Company assesses the realizability of its deferred tax assets, taking into consideration the Company’s forecast of future taxable income, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and amount of, valuation allowances against the Company’s deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.
The Company assesses the uncertainty in its tax positions, by applying a minimum recognition threshold which a tax position is required to meet before a tax benefit is recognized in the financial statements. Once the minimum threshold is met, using a more likely than not standard, a series of probability estimates is made for each item to properly measure and record a tax benefit. The tax benefit recorded is generally equal to the highest probable outcome that is more than 50% likely to be realized after full disclosure and resolution of a tax examination. The underlying probabilities are determined based on the best available objective evidence such as recent tax audit outcomes, published guidance, external expert opinion, or by analogy to the outcome of similar issues in the past. There can be no assurance that these estimates will ultimately be realized given continuous changes in tax policy, legislation and audit practice. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense.
Pensions
The Company has U.S. and foreign defined benefit and defined contribution pension plans. The most significant assumptions in determining the Company’s pension income or expense are the assumed pension liability discount rate and the expected return on plan assets. All unrecognized prior service costs, remaining transition obligations or assets and actuarial gains and losses have been recognized, net of tax effects, as a charge to accumulated other comprehensive income in stockholders’ equity and will be amortized as a component of net periodic pension cost. The Company uses a measurement date of December 31 (its fiscal year end) for its U.S. and foreign defined benefit plans.
Earnings Per Share
The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants). The number of weighted average shares used in the calculation of basic earnings per share and diluted earnings per share was as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Weighted average shares: | | | | | |
Basic shares | 230,955 | | | 229,435 | | | 227,759 | |
Equity-based compensation plans | 1,858 | | | 1,715 | | | 1,636 | |
Diluted shares | 232,813 | | | 231,150 | | | 229,395 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncement
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740. The Company prospectively adopted ASU 2019-12, effective January 1, 2021, and the adoption did not have a significant impact on the Company’s consolidated results of operations, financial position, cash flows and financial statement disclosures.
Recent Accounting Pronouncement
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 8050): 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 will adopt the ASU on January 1, 2022, and the amendments in this ASU will be applied on a prospective basis to all periods presented. The adoption of ASU 2021-08 is not expected to impact the Company’s consolidated results of operations, financial position, cash flows or financial statement disclosures.
3. Revenues
The majority of the Company’s revenues on product sales are recognized at a point in time when the customer obtains control of the product. The Company determined that revenues from certain of its customer contracts met the criteria of satisfying its performance obligations over time, primarily in the areas of the manufacture of custom-made equipment and for service repairs of customer-owned equipment. Recognizing revenue over time for custom-manufactured equipment is based on the Company’s judgment that, in certain contracts, the product does not have an alternative use and the Company has an enforceable right to payment for performance completed to date.
The Company recognizes incremental cost of obtaining contracts as an expense when incurred if the amortization period of the contract cost assets that the Company would have otherwise recognized is one year or less. These costs are included in Selling, general and administrative expenses in the consolidated statement of income.
The determination of the revenue to be recognized in each period for performance obligations satisfied over time is based on the input method. The Company recognizes revenue over time as it performs on these contracts because the transfer of control to the customer occurs over time. Revenue is recognized based on the extent of progress towards completion of the performance obligation. The Company generally uses the total cost-to-cost input method of progress because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under the cost-to-cost method, the extent of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. On certain contracts, labor hours are used as the measure of progress when it is determined to be a better depiction of the transfer of control to the customer due to the timing and pattern of labor hours incurred.
Performance obligations also include post-delivery service, installation and training. Post-delivery service revenues are recognized over the contract term. Installation and training revenues are recognized over the period the service is provided. Warranty terms in customer contracts can also be considered separate performance obligations if the warranty provides services beyond assurance that a product complies with agreed-upon specification or if a warranty can be purchased separately. The Company does not incur significant obligations for customer returns and refunds.
The Company has certain contracts with variable consideration in the form of volume discounts, rebates and early payment options, which may affect the transaction price used as the basis for revenue recognition. In these contracts, the amount of the variable consideration is allocated among the various performance obligations in the
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
customer contract based on the relative standalone selling price of each performance obligation to the total standalone value of all the performance obligations.
Payment terms generally begin upon shipment of the product. The Company does have contracts with multiple billing terms that are all due within one year from when the product is delivered. No significant financing component exists. Payment terms are generally 30-60 days from the time of shipment or customer acceptance, but terms can be shorter or longer, not exceeding one year. For customer contracts that have revenue recognized over time, revenue is generally recognized prior to a payment being due from the customer. In such cases, the Company recognizes a contract asset at the time the revenue is recognized. When payment becomes due based on the contract terms, the Company reduces the contract asset and records a receivable. In contracts with billing milestones or in other instances with a long production cycle or concerns about credit, customer advance payments are received. The Company may receive a payment in excess of revenue recognized to that date. In these circumstances, a contract liability is recorded. Contract liabilities are derecognized when the performance obligations are satisfied, and revenue is recognized.
The outstanding contract asset and liability accounts were as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Contract assets – January 1 | $ | 68,971 | | | $ | 73,039 | |
Contract assets – December 31 | 95,274 | | | 68,971 | |
Change in contract assets – (decrease) increase | 26,303 | | | (4,068) | |
Contract liabilities – January 1 | 215,093 | | | 167,306 | |
Contract liabilities – December 31 | 328,816 | | | 215,093 | |
Change in contract liabilities – increase | (113,723) | | | (47,787) | |
Net change | $ | (87,420) | | | $ | (51,855) | |
The net change in 2021 and 2020 was primarily driven by the receipt of advance payments from customers significantly exceeding the recognition of revenue and customer advance payments from acquired businesses. For the years ended December 31, 2021 and 2020, the Company recognized revenue of $184 million and $133 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 December 31, 2021 and 2020, $30.1 million and $20.5 million, respectively, of Customer advanced payments (contract liabilities) were recorded in Other long-term liabilities in the consolidated balance sheet.
The remaining performance obligations exceeding one year as of December 31, 2021 and 2020 were $342.5 million and $300.8 million, respectively. Remaining performance obligations represent the transaction price of firm, non-cancelable orders, with expected delivery dates to customers greater than one year from the balance sheet date, for which the performance obligation is unsatisfied or partially unsatisfied. These performance obligations will be substantially satisfied within two to three years.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 year ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 |
| EIG | | EMG | | Total |
| (In thousands) |
United States | $ | 1,910,203 | | | $ | 890,737 | | | $ | 2,800,940 | |
International(1): | | | | | |
United Kingdom | 96,206 | | | 121,290 | | | 217,496 | |
European Union countries | 482,426 | | | 403,890 | | | 886,316 | |
Asia | 927,027 | | | 254,370 | | | 1,181,397 | |
Other foreign countries | 347,896 | | | 112,469 | | | 460,365 | |
Total international | 1,853,555 | | | 892,019 | | | 2,745,574 | |
Consolidated net sales | $ | 3,763,758 | | | $ | 1,782,756 | | | $ | 5,546,514 | |
_________________
(1)Includes U.S. export sales of $1,475.6 million.
| | | | | | | | | | | | | | | | | |
| 2020 |
| EIG | | EMG | | Total |
| (In thousands) |
United States | $ | 1,513,967 | | | $ | 816,159 | | | $ | 2,330,126 | |
International(1): | | | | | |
United Kingdom | 54,158 | | | 117,469 | | | 171,627 | |
European Union countries | 371,884 | | | 324,203 | | | 696,087 | |
Asia | 769,532 | | | 189,987 | | | 959,519 | |
Other foreign countries | 280,387 | | | 102,283 | | | 382,670 | |
Total international | 1,475,961 | | | 733,942 | | | 2,209,903 | |
Consolidated net sales | $ | 2,989,928 | | | $ | 1,550,101 | | | $ | 4,540,029 | |
_________________
(1)Includes U.S. export sales of $1,196.4 million.
| | | | | | | | | | | | | | | | | |
| 2019 |
| EIG | | EMG | | Total |
| (In thousands) |
United States | $ | 1,685,369 | | | $ | 998,317 | | | $ | 2,683,686 | |
International(1): | | | | | |
United Kingdom | 64,423 | | | 132,485 | | | 196,908 | |
European Union countries | 434,072 | | | 392,283 | | | 826,355 | |
Asia | 773,034 | | | 186,535 | | | 959,569 | |
Other foreign countries | 365,983 | | | 126,056 | | | 492,039 | |
Total international | 1,637,512 | | | 837,359 | | | 2,474,871 | |
Consolidated net sales | $ | 3,322,881 | | | $ | 1,835,676 | | | $ | 5,158,557 | |
_________________
(1)Includes U.S. export sales of $1,306.2 million
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Major Products and Services
The Company’s major products and services in the reportable segments were as follows for the year ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 |
| EIG | | EMG | | Total |
| (In thousands) |
Process and analytical instrumentation | $ | 2,627,476 | | | $ | — | | | $ | 2,627,476 | |
Aerospace and power | 1,136,282 | | | 506,925 | | | 1,643,207 | |
Automation and engineered solutions | — | | | 1,275,831 | | | 1,275,831 | |
Consolidated net sales | $ | 3,763,758 | | | $ | 1,782,756 | | | $ | 5,546,514 | |
| | | | | | | | | | | | | | | | | |
| 2020 |
| EIG | | EMG | | Total |
| (In thousands) |
Process and analytical instrumentation | $ | 2,199,167 | | | $ | — | | | $ | 2,199,167 | |
Aerospace and power | 790,761 | | | 466,343 | | | 1,257,104 | |
Automation and engineered solutions | — | | | 1,083,758 | | | 1,083,758 | |
Consolidated net sales | $ | 2,989,928 | | | $ | 1,550,101 | | | $ | 4,540,029 | |
| | | | | | | | | | | | | | | | | |
| 2019 |
| EIG | | EMG | | Total |
| (In thousands) |
Process and analytical instrumentation | $ | 2,393,587 | | | $ | — | | | $ | 2,393,587 | |
Aerospace and power | 929,294 | | | 491,171 | | | 1,420,465 | |
Automation and engineered solutions | — | | | 1,344,505 | | | 1,344,505 | |
Consolidated net sales | $ | 3,322,881 | | | $ | 1,835,676 | | | $ | 5,158,557 | |
Timing of Revenue Recognition
The Company’s timing of revenue recognition was as follows for the year ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 |
| EIG | | EMG | | Total |
| (In thousands) |
Products transferred at a point in time | $ | 3,048,819 | | | $ | 1,596,911 | | | $ | 4,645,730 | |
Products and services transferred over time | 714,939 | | | 185,845 | | | 900,784 | |
Consolidated net sales | $ | 3,763,758 | | | $ | 1,782,756 | | | $ | 5,546,514 | |
| | | | | | | | | | | | | | | | | |
| 2020 |
| EIG | | EMG | | Total |
| (In thousands) |
Products transferred at a point in time | $ | 2,427,254 | | | $ | 1,390,574 | | | $ | 3,817,828 | |
Products and services transferred over time | 562,674 | | | 159,527 | | | 722,201 | |
Consolidated net sales | $ | 2,989,928 | | | $ | 1,550,101 | | | $ | 4,540,029 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | | | | | | | |
| 2019 |
| EIG | | EMG | | Total |
| (In thousands) |
Products transferred at a point in time | $ | 2,680,296 | | | $ | 1,670,448 | | | $ | 4,350,744 | |
Products and services transferred over time | 642,585 | | | 165,228 | | | 807,813 | |
Consolidated net sales | $ | 3,322,881 | | | $ | 1,835,676 | | | $ | 5,158,557 | |
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:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Balance at the beginning of the year | $ | 27,839 | | | $ | 27,611 | | | $ | 23,482 | |
Accruals for warranties issued during the year | 11,518 | | | 12,000 | | | 21,145 | |
Settlements made during the year | (13,669) | | | (14,602) | | | (19,637) | |
Warranty accruals related to acquired businesses and other during the year | 1,790 | | | 2,830 | | | 2,621 | |
Balance at the end of the year | $ | 27,478 | | | $ | 27,839 | | | $ | 27,611 | |
4. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the Company’s assets that are measured at fair value on a recurring basis, consistent with the fair value hierarchy, at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Fair Value | | Fair Value |
| (In thousands) |
Mutual fund investments | $ | 10,703 | | | $ | 8,969 | |
The fair value of mutual fund investments, which are valued as level 1 investments, was based on quoted market prices. The mutual fund investments are shown as a component of long-term assets in the consolidated balance sheet.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For the years ended December 31, 2021 and 2020, gains and losses on the investments detailed above were not significant.
Financial Instruments
Cash, cash equivalents and mutual fund investments are recorded at fair value at December 31, 2021 and 2020 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 December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| Recorded Amount | | Fair Value | | Recorded Amount | | Fair Value |
| (In thousands) |
Long-term debt (including current portion) | $ | (2,233,705) | | | $ | (2,378,930) | | | $ | (2,347,587) | | | $ | (2,550,956) | |
The fair value of short-term borrowings, net approximates the carrying value. Short-term borrowings, net are valued as level 2 liabilities as they are corroborated by observable market data. The Company’s long-term debt, net is all privately held with no public market for this debt, therefore, the fair value of long-term debt, net was computed based on comparable current market data for similar debt instruments and is considered to be a level 3 liability. See Note 10 for long-term debt principal amounts, interest rates and maturities.
Foreign Currency
At December 31, 2021 and 2020, the Company had no foreign currency forward contracts outstanding. At December 31, 2019, the Company had a Canadian dollar forward contract for a total notional value of 14.0 million Canadian dollars ($0.1 million fair value unrealized loss at December 31, 2019). For the year ended December 31, 2021 and 2020, realized gains and losses on foreign currency forward contracts were not significant. The Company does not typically designate its foreign currency forward contracts as accounting hedges.
5. Hedging Activities
The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. As of December 31, 2021, and 2020, these net investment hedges included British-pound and Euro-denominated long-term debt. These borrowings were designed to create net investment hedges in each of the designated foreign subsidiaries. The Company designated the British-pound- and Euro-denominated loans referred to above as hedging instruments to offset translation gains or losses on the net investment due to changes in the British pound and Euro exchange rates. These net investment hedges are evidenced by management’s contemporaneous documentation supporting the hedge designation. Any gain or loss on the hedging instruments (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the translation adjustment on the hedged investment based on changes in the spot rate, which is used to measure hedge effectiveness.
At December 31, 2021 and 2020, the Company had $304.6 million and $307.3 million, respectively, of British-pound denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At December 31, 2021 and 2020, the Company had $654.1 million and $699.7 million, respectively, 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 being designated and 100% effective as net investment hedges, $51.7 million of pre-tax currency remeasurement losses and $60.5 million of pre-tax currency remeasurement losses have been included in the foreign currency translation component of other comprehensive income for the years ended December 31, 2021 and 2020, respectively.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. Acquisitions and Divestiture
Acquisitions
The Company spent $1,959.2 million in cash, net of cash acquired, to acquire Magnetrol International ("Magnetrol"), Crank Software, and EGS Automation ("EGS") in March 2021, and NSI-MI Technologies ("NSI-MI"), Abaco Systems, Inc. ("Abaco") in April 2021, and Alphasense in November 2021. Magnetrol is a leading provider of level and flow control solutions for challenging process applications across a diverse set of end markets including medical, pharmaceutical, oil and gas, food and beverage, and general industrial. Crank Software is a leading provider of embedded graphical user interface software and services. EGS is an automation solutions provider that designs and manufactures highly engineered, customized robotic solutions used in critical applications for the medical, food and beverage, and general industrial markets. NSI-MI is a leading provider of radio frequency and microwave test and measurement systems for niche applications across the aerospace, defense, automotive, wireless communications, and research markets. Abaco specializes in open-architecture computing and electronic systems for aerospace, defense, and specialized industrial markets and is a leading provider of mission critical embedded computing systems. Alphasense is a leading provider of gas and particulate sensors for use in environmental, health and safety, and air quality applications. Magnetrol, Crank Software, NSI-MI, Abaco, and Alphasense are part of EIG. EGS is part of EMG.
The following table represents the allocation of the purchase price for the net assets of the acquisitions based on the estimated fair values at acquisition (in millions):
| | | | | | | | | | | | | | | | | |
| Abaco | | Other Acquisitions | | Total |
| (in millions) |
Property, plant and equipment | $ | 56.2 | | | $ | 45.5 | | | $ | 101.7 | |
Goodwill | 739.3 | | | 304.5 | | | 1,043.8 | |
Other intangible assets | 620.8 | | | 319.9 | | | 940.7 | |
Deferred income taxes | (123.3) | | | (51.1) | | | (174.4) | |
| | | | | |
Net working capital and other(1) | 51.5 | | | (4.1) | | | 47.4 | |
Total cash paid | $ | 1,344.5 | | | $ | 614.7 | | | $ | 1,959.2 | |
______________________
(1)Includes $70.6 million in accounts receivable, whose fair value, contractual cash flows and expected cash flows are approximately equal as well as $71.6 million of customer advance payments.
The amounts allocated to goodwill are reflective of the benefits the Company expects to realize from the 2021 acquisitions. Abaco's computing and electronic solutions expand and complement the Company's existing aerospace and defense businesses. NSI-MI strengthens the Company's test and measurement platform. Magnetrol's solutions combined with the Company’s existing Sensors, Test and Calibration business, becomes an industry leading differentiated sensor platform with a broad range of level and flow measurement solutions. Alphasense complements the Company's existing sensor business expanding the Company's presence in the environmental health and safety market. Crank Software expands the Company's growing portfolio of software solutions. EGS complements the Company's existing Dunkermotoren business providing highly customizable engineering design and automation capabilities. The Company expects approximately $123.2 million of the goodwill relating to the 2021 acquisitions will be tax deductible in future years.
At December 31, 2021, the purchase price allocated to other intangible assets of $940.7 million consists of $126.2 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $814.5 million of other intangible assets consists of $614.6 million of customer relationships, which are being amortized over a period of 15 to 20 years and $199.9 million of purchased technology, which is being amortized over a period of 11 to 20 years. Amortization expense for each of the next five years for the 2021 acquisitions is expected to be $45.1 million per year.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company finalized the measurements of its tangible and intangible assets and liabilities for its 2021 acquisitions of EGS, Crank Software, Abaco, and NSI-MI, excluding the accounting for income taxes for Abaco, Magnetrol, and NSI-MI, which had no material impact to the consolidated statement of income and balance sheet. The Company is in the process of finalizing its measurements of certain tangible and intangible assets and liabilities for its November 2021 acquisition of Alphasense.
The acquisitions had an immaterial impact on reported sales, net income, and diluted earnings per share for the year ended December 31, 2021. Had the acquisitions been made at the beginning of 2021 or 2020, pro forma net income and diluted earnings per share for the year ended December 31, 2021 and 2020, would not have been materially different than the amounts reported. Pro forma net sales would not have been materially different than the amounts reported for the year ended December 31, 2021 and would have been approximately 12% higher than the reported amounts for the year ended December 31, 2020.
In 2020, the Company spent $116.5 million in cash, net of cash acquired, to acquire IntelliPower in January 2020. IntelliPower designs and manufactures a broad portfolio of ruggedized solutions including uninterruptible power systems, external battery packs, power distribution units and power conditioners. IntelliPower was privately held and is headquartered in Orange, California. IntelliPower is part of EIG.
In 2019, the Company spent $1,061.9 million in cash, net of cash acquired, to acquire Pacific Design Technologies, Inc. (“PDT”) in September 2019 and Gatan in October 2019. PDT designs and manufactures a complete range of custom-engineered, liquid cooling systems and components used in a broad set of current and next-generation commercial aerospace, defense and space platforms. Gatan is a leading manufacturer of instrumentation and software used to enhance and extend the operation and performance of electron microscopes. PDT is part of EMG and Gatan is part of EIG.
Divestiture
The Company completed its sale of Reading Alloys to Kymera International in March 2020 for net cash proceeds of $245.3 million. The transaction resulted in a pre-tax gain of $141.0 million, recorded in Other Income (expense) in the Consolidated Statement of Income, and income tax expense of $31.4 million in connection with the sale. Reading Alloys revenue and costs were reported within the EMG segment through the date of sale.
7. Goodwill and Other Intangible Assets
The changes in the carrying amounts of goodwill by segment were as follows:
| | | | | | | | | | | | | | | | | |
| EIG | | EMG | | Total |
| (In millions) |
Balance at December 31, 2019 | $ | 2,892.2 | | | $ | 1,155.3 | | | $ | 4,047.5 | |
Goodwill acquired | 57.3 | | | — | | | 57.3 | |
Purchase price allocation adjustments and other | 74.6 | | | — | | | 74.6 | |
Foreign currency translation adjustments | 26.2 | | | 19.3 | | | 45.5 | |
Balance at December 31, 2020 | 3,050.3 | | | 1,174.6 | | | 4,224.9 | |
Goodwill acquired | 1,037.9 | | | 5.9 | | | 1,043.8 | |
Purchase price allocation adjustments and other | 1.9 | | | — | | | 1.9 | |
Foreign currency translation adjustments | (16.3) | | | (15.6) | | | (31.9) | |
Balance at December 31, 2021 | $ | 4,073.8 | | | $ | 1,164.9 | | | $ | 5,238.7 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other intangible assets were as follows at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Definite-lived intangible assets (subject to amortization): | | | |
Patents | $ | 48,071 | | | $ | 49,396 | |
Purchased technology | 677,896 | | | 487,517 | |
Customer lists | 2,930,120 | | | 2,326,934 | |
| 3,656,087 | | | 2,863,847 | |
Accumulated amortization: | | | |
Patents | (37,713) | | | (37,858) | |
Purchased technology | (235,989) | | | (209,308) | |
Customer lists | (888,092) | | | (745,945) | |
| (1,161,794) | | | (993,111) | |
Net intangible assets subject to amortization | 2,494,293 | | | 1,870,736 | |
Indefinite-lived intangible assets (not subject to amortization): | | | |
Trademarks and trade names | 874,336 | | | 752,983 | |
| $ | 3,368,629 | | | $ | 2,623,719 | |
Amortization expense was $183.6 million, $154.0 million and $132.6 for the years ended December 31, 2021, 2020 and 2019, respectively. Amortization expense for each of the next five years is expected to approximate $198 million per year, not considering the impact of potential future acquisitions.
8. Other Consolidated Balance Sheet Information
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
INVENTORIES, NET | | | |
Finished goods and parts | $ | 89,985 | | | $ | 81,619 | |
Work in process | 122,356 | | | 102,945 | |
Raw materials and purchased parts | 556,834 | | | 374,607 | |
| $ | 769,175 | | | $ | 559,171 | |
PROPERTY, PLANT AND EQUIPMENT, NET | | | |
Land | $ | 41,709 | | | $ | 33,382 | |
Buildings | 343,996 | | | 302,158 | |
Machinery and equipment | 1,149,316 | | | 1,119,419 | |
| 1,535,021 | | | 1,454,959 | |
Less: Accumulated depreciation | (917,883) | | | (928,429) | |
| $ | 617,138 | | | $ | 526,530 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
ACCRUED LIABILITIES AND OTHER | | | |
Employee compensation and benefits | $ | 205,994 | | | $ | 124,347 | |
Product warranty obligation | 27,478 | | | 27,839 | |
Realignment | 30,476 | | | 32,904 | |
Short term lease liability | 47,353 | | | 44,948 | |
| | | |
| | | |
Other | 132,036 | | | 119,694 | |
| $ | 443,337 | | | $ | 349,732 | |
9. Income Taxes
The components of income before income taxes and the details of the provision for income taxes were as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Income before income taxes: | | | | | |
Domestic | $ | 958,206 | | | $ | 810,844 | | | $ | 766,436 | |
Foreign | 264,964 | | | 271,465 | | | 303,312 | |
Total | $ | 1,223,170 | | | $ | 1,082,309 | | | $ | 1,069,748 | |
Provision for income taxes: | | | | | |
Current: | | | | | |
Federal | $ | 99,706 | | | $ | 126,427 | | | $ | 88,526 | |
Foreign | 146,890 | | | 61,672 | | | 81,452 | |
State | 16,282 | | | 19,932 | | | 19,093 | |
Total current | 262,878 | | | 208,031 | | | 189,071 | |
Deferred: | | | | | |
Federal | 23,538 | | | (1,254) | | | 18,005 | |
Foreign | (56,572) | | | (4,072) | | | (29) | |
State | 3,273 | | | 7,165 | | | 1,404 | |
Total deferred | (29,761) | | | 1,839 | | | 19,380 | |
Total provision | $ | 233,117 | | | $ | 209,870 | | | $ | 208,451 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Significant components of the deferred tax (asset) liability were as follows at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Non-current deferred tax (asset) liability: | | | |
Differences in basis of property and accelerated depreciation (1) | $ | 44,199 | | | $ | 46,023 | |
Reserves not currently deductible | (113,392) | | | (61,872) | |
Pensions | 63,329 | | | 39,256 | |
Differences in basis of intangible assets and accelerated amortization | 768,542 | | | 565,661 | |
Net operating loss carryforwards | (44,164) | | | (26,767) | |
Share-based compensation | (12,728) | | | (13,780) | |
Foreign Tax Credit Carryforwards | (2,291) | | | (261) | |
Unremitted earnings | 11,361 | | | 10,657 | |
Other | (33,529) | | | (43,507) | |
| 681,327 | | | 515,410 | |
Less: Valuation allowance | 11,349 | | | 5,965 | |
| 692,676 | | | 521,375 | |
Portion included in non-current assets | 26,999 | | | 12,103 | |
Gross non-current deferred tax liability | $ | 719,675 | | | $ | 533,478 | |
______________________
(1)Presented net of deferred tax asset of approximately $33.3 million and $32.4 million at December 31, 2021 and 2020, respectively, resulting from lease obligations.
The Company’s effective tax rate reconciles to the U.S. Federal statutory rate as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
U.S. Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income taxes, net of federal income tax benefit | 1.5 | | | 2.3 | | | 1.8 | |
Foreign operations, net | (0.4) | | | (1.4) | | | (0.9) | |
U.S. Benefits for Manufacturing, Export and credits | (2.6) | | | (1.9) | | | (2.0) | |
Uncertain Tax Items | (0.1) | | | (1.3) | | | (1.0) | |
Stock compensation | (1.7) | | | (1.0) | | | (1.5) | |
U.S. Tax on Foreign Earnings | 3.9 | | | 2.2 | | | 2.6 | |
U.S. General Basket FTC | (2.9) | | | (0.1) | | | (0.3) | |
Other | 0.3 | | | (0.5) | | | (0.3) | |
Consolidated effective tax rate | 19.1 | % | | 19.4 | % | | 19.5 | % |
The Company elected to pay the cash tax cost of the one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries over an eight-year period. As of December 31, 2021, the Company has a remaining cash tax obligation of $35.9 million, all of which is classified as non-current.
The Company has evaluated the impact of the global intangible low-taxed income (“GILTI”) section of the Tax Act and has made a tax accounting policy election to record the annual tax cost of GILTI as a current period expense when incurred and, as such, will not be measuring an impact of GILTI in its determination of deferred taxes.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As a result of the one-time mandatory deemed repatriation and the taxable inclusions under the GILTI provisions of the Tax Act, the Company has approximately $714.6 million in previously taxed income (“PTI”) as of December 31, 2021 which can be repatriated without incremental U.S. Federal tax. The Company intends to reinvest its earnings indefinitely in operations outside the United States except to the extent of the PTI. There has been no provision for U.S. deferred income taxes for the undistributed earnings over PTI of approximately $186.4 million and $411.0 million at December 31, 2021 and 2020 respectively because determination of the amount of the unrecognized deferred income tax liability on these undistributed earnings is not practicable.
As of December 31, 2021, and 2020, the Company recorded deferred income taxes totaling $11.4 million and $10.7 million respectively in state income and foreign withholding taxes expected to be incurred when the cash amounts related to the mandatory tax are ultimately repatriated to the U.S.
The Company is acquisitive and at times acquires entities with tax attributes (net operating losses or tax credits) that carry over to post-acquisition tax periods of the Company. At December 31, 2021, the Company had tax effected benefits, net of uncertain tax positions of $44.1 million related to net operating loss carryforwards, which will be available to offset future income taxes payable, subject to certain annual or other limitations based on foreign and U.S. tax laws. This amount includes net operating loss carryforwards of $11.7 million for federal income tax purposes with no valuation allowance for the U.S. consolidated group, $12.0 million for state income tax purposes with a valuation allowance of $2.9 million, and $20.4 million for foreign income tax purposes with a valuation allowance of $1.4 million. These net operating loss carryforwards, if not used, will expire between 2022 and 2041.
At December 31, 2021, the Company had tax effected benefits of $11.8 million related to tax credit carryforwards, which will be available to offset future income taxes payable, subject to certain annual or other limitations based on foreign and U.S. tax laws. This amount includes tax credit carryforwards of $5.4 million for federal income tax purposes with a valuation allowance of $3.3 million, $6.4 million for state income tax purposes with a valuation allowance of $2.4 million, and no remaining credit carryforwards for foreign income tax purposes. These tax credit carryforwards, if not used, will expire between 2022 and 2041.
The Company maintains a valuation allowance (VA) to reduce certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to deferred tax assets established for state non-deductible interest expense, federal and state credits and state net operating loss carryforwards. In 2021, the Company recorded an increase of $5.4 million in the valuation allowance of which $2.1 million mostly relates to foreign tax credit carryforwards and $3.3 million relates to state net operating losses and credits that are not expected to be utilized.
At December 31, 2021, the Company had gross unrecognized tax benefits of $147.0 million, of which $110.0 million, if recognized, would impact the effective tax rate. At December 31, 2020, the Company had gross unrecognized tax benefits of $100.7 million, of which $60.6 million, if recognized, would impact the effective tax rate.
At December 31, 2021 and 2020, the Company reported $9.1 million and $11.6 million, respectively, related to interest and penalty exposure as accrued income tax expense in the consolidated balance sheet. During 2021, and 2020, the Company recognized a net benefit of $2.5 million, and $2.6 million respectively for interest and penalties related to uncertain tax positions in the consolidated statement of income as a component of income tax expense.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Approximately 62% of the Company’s overall tax liability is incurred in the United States. The Company files income tax returns in various other state and foreign tax jurisdictions, in some cases for multiple legal entities per jurisdiction. Generally, the Company has open tax years subject to tax audit on average of between three and six years in these jurisdictions. At December 31, 2021, the Company was notified by the Internal Revenue Service ("IRS") that the U.S. consolidated tax group and a separate company filer was selected for audit for the 2019 tax year. A preliminary meeting with the IRS and company representative has been scheduled. The Company has not materially extended any other statutes of limitation for any significant location and has reviewed and accrued for, where necessary, tax liabilities for open periods including state and foreign jurisdictions that remain subject to examination. There have been no penalties asserted or imposed by the IRS related to substantial understatement of income, gross valuation misstatement or failure to disclose a listed or reportable transaction.
During 2021, the Company added $58.6 million of tax, interest and penalties related to identified uncertain tax positions and reversed $35.2 million of tax and interest related to statute expirations and settlement of prior uncertain positions. During 2020, the Company added $24.3 million of tax, interest and penalties related to identified uncertain tax positions and reversed $35.3 million of tax and interest related to statute expirations and settlement of prior uncertain positions.
The following is a reconciliation of the liability for uncertain tax positions at December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In millions) |
Balance at the beginning of the year | $ | 100.7 | | | $ | 109.1 | | | $ | 119.3 | |
Additions for tax positions related to the current year | 41.4 | | | 15.6 | | | 17.5 | |
Additions for tax positions of prior years | 34.9 | | | 6.2 | | | 2.8 | |
Reductions for tax positions of prior years | (1.5) | | | (0.3) | | | (1.3) | |
Reductions related to settlements with taxing authorities | (0.1) | | | (0.5) | | | (0.9) | |
Reductions due to statute expirations | (28.4) | | | (29.4) | | | (28.3) | |
Balance at the end of the year | $ | 147.0 | | | $ | 100.7 | | | $ | 109.1 | |
In 2021, the additions above primarily reflect the increase in tax liabilities for uncertain tax positions related to certain higher transfer pricing risks. The reductions above primarily relate to statute expirations. The net increase of $46.3 million in uncertain tax positions resulted in an increase of $18.9 million to income tax expense and the remainder primarily in goodwill. At December 31, 2021, tax, interest and penalties of $134.2 million were classified as a non-current liability and $22.0 million was reflected as a reduction against deferred tax assets.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. Debt
Long-term debt, net consisted of the following at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
U.S. dollar 3.73% senior notes due September 2024 | $ | 300,000 | | | $ | 300,000 | |
U.S. dollar 3.91% senior notes due June 2025 | 50,000 | | | 50,000 | |
U.S. dollar 3.96% senior notes due August 2025 | 100,000 | | | 100,000 | |
U.S. dollar 4.18% senior notes due December 2025 | 275,000 | | | 275,000 | |
U.S. dollar 3.83% senior notes due September 2026 | 100,000 | | | 100,000 | |
U.S. dollar 4.32% senior notes due December 2027 | 250,000 | | | 250,000 | |
U.S. dollar 4.37% senior notes due December 2028 | 50,000 | | | 50,000 | |
U.S. dollar 3.98% senior notes due September 2029 | 100,000 | | | 100,000 | |
U.S. dollar 4.45% senior notes due August 2035 | 50,000 | | | 50,000 | |
| | | |
British pound 2.59% senior note due November 2028 | 203,046 | | | 204,880 | |
British pound 2.70% senior note due November 2031 | 101,510 | | | 102,433 | |
Euro 1.34% senior notes due October 2026 | 341,284 | | | 366,806 | |
Euro 1.71% senior notes due December 2027 | 85,323 | | | 91,706 | |
Euro 1.53% senior notes due October 2028 | 227,541 | | | 244,572 | |
Swiss franc 2.44% senior note due December 2021 | — | | | 62,190 | |
Revolving credit facility borrowings | 314,480 | | | 72,145 | |
Other, principally foreign | 1,976 | | | — | |
Less: Debt issuance costs | (5,919) | | | (6,007) | |
Total debt, net | 2,544,241 | | | 2,413,725 | |
Less: Current portion, net | (315,093) | | | (132,284) | |
Total long-term debt, net | $ | 2,229,148 | | | $ | 2,281,441 | |
Maturities of long-term debt borrowings outstanding at December 31, 2021 were as follows: none in 2023; $300.0 million in 2024; $425.0 million in 2025; $441.3 million in 2026; $335.3 million in 2027; and $732.1 million in 2028 and thereafter.
In the fourth quarter of 2021, the Company paid in full, at maturity, a 55 million Swiss franc ($59.7 million) in aggregate principal amount of 2.44% senior note.
In the third quarter of 2020, the Company paid in full, at maturity, an 80 million British pound ($102.9 million) in aggregate principal amount of 4.68% senior note.
In December 2018, the Company completed a private placement agreement to sell $575 million and 75 million Euros in senior notes to a group of institutional investors (the “2018 Private Placement”) utilizing two funding dates. The first funding occurred in December 2018 for $475 million and 75 million Euros ($85.3 million at December 31, 2021). The second funding was in January 2019 for $100 million. The 2018 Private Placement senior notes carry a weighted average interest rate of 3.93% and are subject to certain customary covenants, including financial covenants that, among other things, require the Company to maintain certain debt-to-EBITDA (earnings before interest, income taxes, depreciation and amortization) and interest coverage ratios.
In September 2014, the Company issued $300 million in aggregate principal amount of 3.73% senior notes due September 2024, $100 million in aggregate principal amount of 3.83% senior notes due September 2026 and $100 million in aggregate principal amount of 3.98% senior notes due September 2029. In June 2015, the Company issued $50 million in aggregate principal amount of 3.91% senior notes due June 2025. In August 2015, the
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Company issued $100 million in aggregate principal amount of 3.96% senior notes due August 2025 and $50 million in aggregate principal amount of 4.45% senior notes due August 2035.
In September 2010, the Company issued an 80 million British pound 4.68% senior note due September 2020 (paid in full, at maturity, as previously noted). In December 2011, the Company issued a 55 million Swiss franc (paid in full, at maturity, as previously noted) 2.44% senior note due December 2021. In October 2016, the Company issued 300 million Euros ($341.3 million at December 31, 2021) in aggregate principal amount of 1.34% senior notes due October 2026 and 200 million Euros ($227.5 million at December 31, 2021) in aggregate principal amount of 1.53% senior notes due October 2028. In November 2016, the Company issued 150 million British pounds ($203.0 million at December 31, 2021) in aggregate principal amount of 2.59% senior notes due November 2028 and 75 million British pounds ($101.5 million at December 31, 2021) in aggregate principal amount of 2.70% senior notes due November 2031.
In April 2021, the Company along with certain of its foreign subsidiaries amended 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 (the “Credit Agreement”). The Credit Agreement amends the Company’s existing revolving credit facility to add a new five-year, delayed draw, term loan for up to $800.0 million. The Credit Agreement consists of a five-year revolving credit facility in an aggregate principal amount of $1.5 billion with a final maturity date in October 2023. The revolving credit facility total borrowing capacity excludes an accordion feature that permits the Company to request up to an additional $500 million in revolving credit commitments at any time during the life of the Credit Agreement under certain conditions. The credit agreement places certain restrictions on allowable additional indebtedness. In November 2021, the Company further amended the Credit Agreement to address the cessation of LIBOR on certain currencies. At December 31, 2021, the Company had available borrowing capacity of $2,447.5 million under its revolving credit facility and term loan, including the $500 million accordion feature. At December 31, 2021, the Company had $150.0 million outstanding on the term loan with a maturity date of June 2026. The proceeds from the term loan were used to fund the Company's 2021 acquisitions.
Interest rates on outstanding borrowings under the revolving credit facility are at the applicable benchmark rate plus a negotiated spread or at the U.S. prime rate. At December 31, 2021 and 2020 the Company had $314.5 million and $72.1 million of borrowings outstanding under the revolving credit facility, respectively. The weighted average interest rate on the revolving credit facility for the years ended December 31, 2021 and 2020 was 1.34% and 1.84%, respectively. The Company had outstanding letters of credit primarily under the revolving credit facility totaling $38.0 million and $30.2 million at December 31, 2021 and 2020, respectively.
The private placements, the senior notes and the revolving credit facility are subject to certain customary covenants, including financial covenants that, among other things, require the Company to maintain certain debt-to-EBITDA and interest coverage ratios. The Company was in compliance with all provisions of the debt arrangements at December 31, 2021.
Foreign subsidiaries of the Company had available credit facilities with local foreign lenders of $56.8 million and $53.0 million at December 31, 2021 and 2020, respectively. At December 31, 2021, foreign subsidiaries had $2.0 million in debt borrowings outstanding, which was reported in short-term borrowings. At December 31, 2020, foreign subsidiaries had no debt borrowings outstanding.
The weighted average interest rate on total debt borrowings outstanding at December 31, 2021 and 2020 was 3.1% and 3.0%, respectively.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. Share-Based Compensation
Under the terms of the Company’s stockholder-approved share-based plans, performance restricted stock units (“PRSUs”), incentive and non-qualified stock options and restricted stock have been, and may be, issued to the Company’s officers, management-level employees and members of its Board of Directors. Stock options granted prior to 2018 generally vest at a rate of one-fourth on each of the first four anniversaries of the grant date and have a maximum contractual term of seven years. Beginning in 2018, stock options granted generally vest at a rate of one-third on each of the first three anniversaries of the grant date and have a maximum contractual term of ten years. Restricted stock granted to employees prior to 2018 generally vests four years after the grant date (cliff vesting) and is subject to accelerated vesting due to certain events, including doubling of the grant price of the Company’s common stock as of the close of business during any five consecutive trading days. Beginning in 2018, restricted stock granted to employees generally vests one-third on each of the first three anniversaries of the grant date. Restricted stock granted to non-employee directors generally vests two years after the grant date (cliff vesting) and is subject to accelerated vesting due to certain events, including doubling of the grant price of the Company’s common stock as of the close of business during any five consecutive trading days.
Share Based Compensation Expense
The Company measures and records compensation expense related to all stock awards by recognizing the grant date fair value of the awards over their requisite service periods in the financial statements. For grants under any of the Company’s plans that are subject to graded vesting based on a service condition, the Company recognizes expense on a straight-line basis over the requisite service period for the entire award.
Total share-based compensation expense was as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Stock option expense | $ | 12,733 | | | $ | 13,695 | | | $ | 12,810 | |
Restricted stock expense | 21,393 | | | 17,997 | | | 16,169 | |
PRSU expense | 11,977 | | | 9,873 | | | 11,415 | |
Total pre-tax expense | $ | 46,103 | | | $ | 41,565 | | | $ | 40,394 | |
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 date of grant 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 years indicated:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Expected volatility | 24.2 | % | | 22.2 | % | | 19.1 | % |
Expected term (years) | 5.0 | | 5.0 | | 5.0 |
Risk-free interest rate | 0.85 | % | | 0.52 | % | | 2.25 | % |
Expected dividend yield | 0.66 | % | | 1.14 | % | | 0.66 | % |
Black-Scholes-Merton fair value per stock option granted | $ | 25.63 | | | $ | 11.01 | | | $ | 16.85 | |
Expected volatility is based on the historical volatility of the Company’s stock over the stock options’ expected term. The Company used historical exercise data to estimate the stock options’ expected term, which represents the period of time that the stock options granted are expected to be outstanding. Management anticipates that the future stock option holding periods will be similar to the historical stock option holding periods. The risk-free interest rate for periods within the expected term of the stock option is based on the U.S. Treasury yield curve at
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the time of grant. The expected dividend yield is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the Company’s closing common stock price on the grant date. Compensation expense recognized for all share-based awards is net of estimated forfeitures. The Company’s estimated forfeiture rates are based on its historical experience.
The following is a summary of the Company’s stock option activity and related information for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| (In thousands) | | | | (Years) | | (In millions) |
Outstanding at the beginning of the year | 3,950 | | | $ | 65.16 | | | | | |
Granted | 552 | | | 121.91 | | | | | |
Exercised | (1,025) | | | 57.60 | | | | | |
Forfeited | (123) | | | 85.52 | | | | | |
Expired | (2) | | | 59.79 | | | | | |
Outstanding at the end of the year | 3,352 | | | $ | 76.08 | | | 6.2 | | $ | 237.9 | |
Exercisable at the end of the year | 2,060 | | | $ | 67.15 | | | 4.7 | | $ | 164.6 | |
The aggregate intrinsic value of stock options exercised during 2021, 2020 and 2019 was $59.1 million, $63.7 million and $88.2 million, respectively. The total fair value of stock options vested during 2021, 2020 and 2019 was $13.7 million, $12.9 million and $11.8 million, respectively.
The following is a summary of the Company’s non-vested stock option activity and related information for the year ended December 31, 2021:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
| (In thousands) | | |
Non-vested stock options outstanding at the beginning of the year | 1,906 | | | $ | 13.34 | |
Granted | 552 | | | 25.63 | |
Vested | (1,043) | | | 13.18 | |
Forfeited | (123) | | | 16.61 | |
Non-vested stock options outstanding at the end of the year | 1,292 | | | $ | 18.41 | |
As of December 31, 2021, there was approximately $14 million of expected future pre-tax compensation expense related to the 1.3 million non-vested stock options outstanding, which is expected to be recognized over a weighted average period of less than two years.
Restricted Stock
The fair value of restricted shares under the Company’s restricted stock arrangement is determined by the product of the number of shares granted and the Company’s closing common stock price on the grant date. Upon the grant of restricted stock, the fair value of the restricted shares (unearned compensation) at the grant date is charged as a reduction of capital in excess of par value in the Company’s consolidated balance sheet and is amortized to expense on a straight-line basis over the vesting period, which is the same as the calculated derived service period as determined on the grant date.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of the Company’s non-vested restricted stock activity and related information for the year ended December 31, 2021:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
| (In thousands) | | |
Non-vested restricted stock outstanding at the beginning of the year | 701 | | | $ | 76.86 | |
Granted | 153 | | | 122.60 | |
Vested | (395) | | | 72.45 | |
Forfeited | (46) | | | 94.80 | |
Non-vested restricted stock outstanding at the end of the year | 413 | | | $ | 96.07 | |
The total fair value of restricted stock vested during 2021, 2020 and 2019 was $28.6 million, $14.4 million and $25.2 million, respectively. The weighted average fair value of restricted stock granted per share during 2021 and 2020 was $122.60 and $80.27, respectively. As of December 31, 2021, there was approximately $28 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 less than two years.
Performance Restricted Stock Units
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 through December 31 of the third year. Half of the PRSUs are valued in a manner similar to restricted stock as the financial targets are based on the Company’s operating results. The grant date fair value of these PRSUs are recognized as compensation expense over the vesting period based on the number of awards expected to vest at each reporting date. The other half of the PRSUs were valued using a Monte Carlo model as the performance target is related to the Company’s total shareholder return compared to a group of peer companies, which represents a market condition. The Company recognizes the grant date fair value of these awards as compensation expense ratably over the vesting period.
The following is a summary of the Company’s non-vested performance restricted stock activity and related information for the year ended December 31, 2021:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant Date Fair Value |
| (In thousands) | | |
Non-vested performance restricted stock outstanding at the beginning of the year | 264 | | | $ | 72.90 | |
Granted | 81 | | | 121.91 | |
Performance assumption change 1 | 39 | | | 78.20 | |
Vested | (88) | | | 78.20 | |
Forfeited | (7) | | | 89.83 | |
Non-vested performance restricted stock outstanding at the end of the year | 289 | | | $ | 85.29 | |
_________________________________________
1 Reflects the number of PRSUs above target levels based on performance metrics.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2021, there was approximately $4 million of expected future pre-tax compensation expense related to the 0.3 million non-vested performance restricted shares outstanding, which is expected to be recognized over a weighted average period of less than one year.
The Company issues previously unissued shares when stock options are exercised, and shares are issued from treasury stock upon the award of restricted stock.
12. Retirement Plans and Other Postretirement Benefits
Retirement and Pension Plans
The Company sponsors several retirement and pension plans covering eligible salaried and hourly employees. The plans generally provide benefits based on participants’ years of service and/or compensation. The following is a brief description of the Company’s retirement and pension plans.
The Company maintains contributory and non-contributory defined benefit pension plans. Benefits for eligible salaried and hourly employees under all defined benefit plans are funded through trusts established in conjunction with the plans. The Company’s funding policy with respect to its defined benefit plans is to contribute amounts that provide for benefits based on actuarial calculations and the applicable requirements of U.S. federal and local foreign laws. The Company estimates that it will make both required and discretionary cash contributions of approximately $8 million to $12 million to its worldwide defined benefit pension plans in 2022.
The Company uses a measurement date of December 31 (its fiscal year end) for its U.S. and foreign defined benefit pension plans.
The Company sponsors a 401(k) retirement and savings plan for eligible U.S. employees. Participants in the retirement and savings plan may contribute a specified portion of their compensation on a pre-tax basis, which varies by location. The Company matches employee contributions ranging from 20% to 100%, up to a maximum percentage ranging from 1% to 8% of eligible compensation or up to a maximum of $1,200 per participant in some locations.
The Company’s retirement and savings plan has a defined contribution retirement feature principally to cover U.S. salaried employees joining the Company after December 31, 1996. Under the retirement feature, the Company makes contributions for eligible employees based on a pre-established percentage of the covered employee’s salary subject to pre-established vesting. Employees of certain of the Company’s foreign operations participate in various local defined contribution plans.
The Company has non-qualified unfunded retirement plans for certain Directors and retired employees. It also provides supplemental retirement benefits, through contractual arrangements and/or a Supplemental Executive Retirement Plan (“SERP”) covering certain current and former executives of the Company. These supplemental benefits are designed to compensate the executive for retirement benefits that would have been provided under the Company’s primary retirement plan, except for statutory limitations on compensation that must be taken into account under those plans. The projected benefit obligations of the SERP and the contracts will primarily be funded by a grant of shares of the Company’s common stock upon retirement or termination of the executive. The Company is providing for these obligations by charges to earnings over the applicable periods.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables set forth the changes in net projected benefit obligation and the fair value of plan assets for the funded and unfunded defined benefit plans for the years ended December 31:
U.S. Defined Benefit Pension Plans:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Change in projected benefit obligation: | | | |
Net projected benefit obligation at the beginning of the year | $ | 532,357 | | | $ | 510,514 | |
Service cost | 2,767 | | | 3,015 | |
Interest cost | 14,074 | | | 17,235 | |
Actuarial (gains) losses | (12,593) | | | 32,963 | |
Gross benefits paid | (31,832) | | | (31,370) | |
| | | |
Net projected benefit obligation at the end of the year | $ | 504,773 | | | $ | 532,357 | |
Change in plan assets: | | | |
Fair value of plan assets at the beginning of the year | $ | 662,298 | | | $ | 621,632 | |
Actual return on plan assets | 70,540 | | | 71,281 | |
Employer contributions | 621 | | | 755 | |
Gross benefits paid | (31,832) | | | (31,370) | |
| | | |
Fair value of plan assets at the end of the year | $ | 701,627 | | | $ | 662,298 | |
Foreign Defined Benefit Pension Plans:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Change in projected benefit obligation: | | | |
Net projected benefit obligation at the beginning of the year | $ | 351,584 | | | $ | 311,783 | |
Service cost | 4,218 | | | 4,246 | |
Interest cost | 4,458 | | | 5,376 | |
Foreign currency translation adjustments | (6,580) | | | 13,955 | |
Employee contributions | 76 | | | 92 | |
Actuarial (gains) losses | (10,199) | | | 27,055 | |
Expenses paid from assets | (1,121) | | | (838) | |
Gross benefits paid | (10,426) | | | (10,615) | |
| | | |
Curtailments | 412 | | | — | |
Plan amendments | — | | | 530 | |
Net projected benefit obligation at the end of the year | $ | 332,422 | | | $ | 351,584 | |
Change in plan assets: | | | |
Fair value of plan assets at the beginning of the year | $ | 250,735 | | | $ | 224,347 | |
Actual return on plan assets | 20,184 | | | 20,966 | |
Employer contributions | 9,656 | | | 8,772 | |
Employee contributions | 76 | | | 92 | |
Foreign currency translation adjustments | (2,816) | | | 8,011 | |
Expenses paid from assets | (1,121) | | | (838) | |
| | | |
Gross benefits paid | (10,426) | | | (10,615) | |
Fair value of plan assets at the end of the year | $ | 266,288 | | | $ | 250,735 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The projected benefit obligation assumptions impacting net actuarial losses (gains) consist of changes in discount and mortality rates, as well as changes in plan experience. A significant component of the decrease in actuarial losses in 2020 for both the U.S. and Foreign Defined Benefit Plans was the change in discount rates.
The accumulated benefit obligation consisted of the following at December 31:
U.S. Defined Benefit Pension Plans:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Funded plans | $ | 492,957 | | | $ | 515,667 | |
Unfunded plans | 3,913 | | | 4,494 | |
Total | $ | 496,870 | | | $ | 520,161 | |
Foreign Defined Benefit Pension Plans:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Funded plans | $ | 284,013 | | | $ | 295,998 | |
Unfunded plans | 47,761 | | | 53,090 | |
Total | $ | 331,774 | | | $ | 349,088 | |
Weighted average assumptions used to determine benefit obligations at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
U.S. Defined Benefit Pension Plans: | | | |
Discount rate | 3.02 | % | | 2.69 | % |
Rate of compensation increase (where applicable) | 3.75 | % | | 3.75 | % |
| | | |
Foreign Defined Benefit Pension Plans: | | | |
Discount rate | 1.78 | % | | 1.27 | % |
Rate of compensation increase (where applicable) | 2.50 | % | | 2.50 | % |
The following is a summary of the fair value of plan assets for U.S. plans at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
Asset Class | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
| (In thousands) |
Corporate debt instruments | $ | 4,053 | | | $ | — | | | $ | 4,053 | | | $ | 3,442 | | | $ | — | | | $ | 3,442 | |
Corporate debt instruments – Preferred | 11,265 | | | — | | | 11,265 | | | 12,196 | | | — | | | 12,196 | |
Corporate stocks – Common | 67,975 | | | 67,975 | | | — | | | 62,897 | | | 62,897 | | | — | |
Municipal bonds | 676 | | | — | | | 676 | | | 876 | | | — | | | 876 | |
Registered investment companies | 150,535 | | | 150,535 | | | — | | | 236,530 | | | 236,530 | | | — | |
U.S. Government securities | 663 | | | — | | | 663 | | | 526 | | | — | | | 526 | |
Total investments | 235,167 | | | 218,510 | | | 16,657 | | | 316,467 | | | 299,427 | | | 17,040 | |
Investments measured at net asset value | 466,460 | | | — | | | — | | | 345,831 | | | — | | | — | |
Total investments | $ | 701,627 | | | $ | 218,510 | | | $ | 16,657 | | | $ | 662,298 | | | $ | 299,427 | | | $ | 17,040 | |
U.S. equity securities and global equity securities categorized as level 1 are traded on national and international exchanges and are valued at their closing prices on the last trading day of the year. For U.S. equity
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
securities and global equity securities not traded on an active exchange, or if the closing price is not available, the trustee obtains indicative quotes from a pricing vendor, broker or investment manager. These securities are categorized as level 2 if the custodian obtains corroborated quotes from a pricing vendor. Additionally, some U.S. equity securities and global equity securities are public investment vehicles valued using the Net Asset Value (“NAV”) provided by the fund manager. The NAV is the total value of the fund divided by the number of shares outstanding.
Fixed income securities categorized as level 1 are traded on national and international exchanges and are valued at their closing prices on the last trading day of the year and categorized as level 2 if valued by the trustee using pricing models that use verifiable observable market data, bids provided by brokers or dealers or quoted prices of securities with similar characteristics.
The expected long-term rate of return on these plan assets was 6.75% in 2021 and 7.00% in 2020. Equity securities included 384,788 shares of AMETEK, Inc. common stock with a market value of $56.6 million (8.1% of total plan investment assets) at December 31, 2021 and 384,788 shares of AMETEK, Inc. common stock with a market value of $46.5 million (7.0% of total plan investment assets) at December 31, 2020.
The objectives of the Company’s U.S. defined benefit plans’ investment strategy are to maximize the plans’ funded status and minimize Company contributions and plan expense. Because the goal is to optimize returns over the long term, an investment policy that favors equity holdings has been established. Since there may be periods of time where both equity and mutual fund markets provide poor returns, an allocation to alternative assets may be made to improve the overall portfolio’s diversification and return potential. The Company periodically reviews its asset allocation, taking into consideration plan liabilities, plan benefit payment streams and the investment strategy of the pension plans. The actual asset allocation is monitored frequently relative to the established targets and ranges and is re-balanced when necessary. The target allocations for the U.S. defined benefits plans are approximately 50% equity securities, 20% fixed income securities and 30% other securities and/or cash.
The equity portfolio is diversified by market capitalization and style. The equity portfolio also includes international components.
The objective of the mutual fund portion of the pension assets is to provide interest rate sensitivity for a portion of the assets and to provide diversification. The mutual fund portfolio is diversified within certain quality and maturity guidelines to minimize the adverse effects of interest rate fluctuations.
Certain investments are prohibited and include venture capital, private placements, unregistered or restricted stock, margin trading, commodities, short selling and rights and warrants. Foreign currency futures, options and forward contracts may be used to manage foreign currency exposure.
The following is a summary of the fair value of plan assets for foreign defined benefit pension plans at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
Asset Class | Total | | Level 3 | | Total | | Level 3 |
| (In thousands) |
Life insurance | $ | 18,806 | | | $ | 18,806 | | | $ | 20,908 | | | $ | 20,908 | |
Total investments | 18,806 | | | 18,806 | | | 20,908 | | | 20,908 | |
Investments measured at net asset value | 247,482 | | | — | | | 229,827 | | | — | |
Total investments | $ | 266,288 | | | $ | 18,806 | | | $ | 250,735 | | | $ | 20,908 | |
Life insurance assets are considered level 3 investments as their values are determined by the sponsor using unobservable market data.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Life insurance assets categorized as level 3 are valued based on unobservable inputs and cannot be corroborated using verifiable observable market data. Investments in level 3 funds are redeemable, however, cash reimbursement may be delayed, or a portion held back until asset finalization.
The following is a summary of the changes in the fair value of the foreign plans’ level 3 investments (fair value determined using significant unobservable inputs):
| | | | | |
| Life Insurance |
| (In thousands) |
Balance, December 31, 2019 | $ | 19,298 | |
Actual return on assets: | |
Unrealized losses relating to instruments still held at the end of the year | $ | 1,610 | |
Realized gains (losses) relating to assets sold during the year | $ | — | |
Purchases, sales, issuances and settlements, net | $ | — | |
Balance, December 31, 2020 | $ | 20,908 | |
Actual return on assets: | |
Unrealized gains (losses) relating to instruments still held at the end of the year | $ | (2,102) | |
Realized gains (losses) relating to assets sold during the year | $ | — | |
Purchases, sales, issuances and settlements, net | $ | — | |
Balance, December 31, 2021 | $ | 18,806 | |
The objective of the Company’s foreign defined benefit plans’ investment strategy is to maximize the long-term rate of return on plan investments, subject to a reasonable level of risk. Liability studies are also performed on a regular basis to provide guidance in setting investment goals with an objective to balance risks against the current and future needs of the plans. The trustees consider the risk associated with the different asset classes, relative to the plans’ liabilities and how this can be affected by diversification, and the relative returns available on equities, mutual fund investments, real estate and cash. Also, the likely volatility of those returns and the cash flow requirements of the plans are considered. It is expected that equities will outperform mutual fund investments over the long term. However, the trustees recognize the fact that mutual fund investments may better match the liabilities for pensioners. Because of the relatively young active employee group covered by the plans and the immature nature of the plans, the trustees have chosen to adopt an asset allocation strategy more heavily weighted toward equity investments. This asset allocation strategy will be reviewed, from time to time, in view of changes in market conditions and in the plans’ liability profile. The target allocations for the foreign defined benefit plans are approximately 22% equity securities, 21% fixed income securities, 51% multi-asset funds and 6% other securities, insurance or cash.
The assumption for the expected return on plan assets was developed based on a review of historical investment returns for the investment categories for the defined benefit pension assets. This review also considered current capital market conditions and projected future investment returns. The estimates of future capital market returns by asset class are lower than the actual long-term historical returns. The current low interest rate environment influences this outlook. Therefore, the assumed rate of return for U.S. plans is 6.75% and 5.85% for foreign plans in 2022.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and pension plans with an accumulated benefit obligation in excess of plan assets were as follows at December 31:
U.S. Defined Benefit Pension Plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Projected Benefit Obligation Exceeds Fair Value of Assets | | Accumulated Benefit Obligation Exceeds Fair Value of Assets |
| 2021 | | 2020 | | 2021 | | 2020 |
| (In thousands) |
Benefit obligation | $ | 6,234 | | | $ | 6,842 | | | $ | 6,234 | | | $ | 6,842 | |
Fair value of plan assets | 1,239 | | | 1,155 | | | 1,239 | | | 1,155 | |
Foreign Defined Benefit Pension Plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Projected Benefit Obligation Exceeds Fair Value of Assets | | Accumulated Benefit Obligation Exceeds Fair Value of Assets |
| 2021 | | 2020 | | 2021 | | 2020 |
| (In thousands) |
Benefit obligation | $ | 272,245 | | | $ | 349,762 | | | $ | 271,596 | | | $ | 347,267 | |
Fair value of plan assets | 200,862 | | | 248,914 | | | 200,862 | | | 248,914 | |
The following table provides the amounts recognized in the consolidated balance sheet at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Funded status asset (liability): | | | |
Fair value of plan assets | $ | 967,915 | | | $ | 913,034 | |
Projected benefit obligation | (837,195) | | | (883,940) | |
Funded status at the end of the year | $ | 130,720 | | | $ | 29,094 | |
Amounts recognized in the consolidated balance sheet consisted of: | | | |
Non-current asset for pension benefits (other assets) | $ | 207,099 | | | $ | 135,628 | |
Current liabilities for pension benefits | (2,133) | | | (2,174) | |
Non-current liability for pension benefits | (74,246) | | | (104,360) | |
Net amount recognized at the end of the year | $ | 130,720 | | | $ | 29,094 | |
The following table provides the amounts recognized in accumulated other comprehensive income, net of taxes, at December 31:
| | | | | | | | | | | |
Net amounts recognized: | 2021 | | 2020 |
| (In thousands) |
Net actuarial loss | $ | 193,220 | | | $ | 249,468 | |
Prior service costs | 1,855 | | | 4,247 | |
Transition asset | 4 | | | 5 | |
Total recognized | $ | 195,079 | | | $ | 253,720 | |
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table provides the components of net periodic pension benefit expense (income) for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Defined benefit plans: | | | | | |
Service cost | $ | 6,985 | | | $ | 7,261 | | | $ | 6,556 | |
Interest cost | 18,532 | | | 22,611 | | | 26,979 | |
Expected return on plan assets | (56,752) | | | (54,629) | | | (52,402) | |
Curtailment | 3,151 | | | — | | | — | |
Settlement | — | | | — | | | 739 | |
Amortization of: | | | | | |
Net actuarial loss | 16,353 | | | 15,479 | | | 15,685 | |
Prior service costs | 456 | | | 486 | | | 484 | |
Transition asset | 1 | | | 1 | | | 1 | |
Total net periodic benefit income | (11,274) | | | (8,791) | | | (1,958) | |
| | | | | |
Other plans: | | | | | |
Defined contribution plans | 31,149 | | | 30,829 | | | 32,508 | |
Foreign plans and other | 8,454 | | | 7,902 | | | 9,406 | |
Total other plans | 39,603 | | | 38,731 | | | 41,914 | |
Total net pension expense | $ | 28,329 | | | $ | 29,940 | | | $ | 39,956 | |
The total net periodic benefit expense (income) is included in Cost of sales, General and administrative expense and Other income and expense in the consolidated statement of income.
The following weighted average assumptions were used to determine the above net periodic pension benefit income for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
U.S. Defined Benefit Pension Plans: | | | | | |
Discount rate | 2.69 | % | | 3.45 | % | | 4.40 | % |
Expected return on plan assets | 6.75 | % | | 7.00 | % | | 7.50 | % |
Rate of compensation increase (where applicable) | 3.75 | % | | 3.75 | % | | 3.75 | % |
| | | | | |
Foreign Defined Benefit Pension Plans: | | | | | |
Discount rate | 1.27 | % | | 1.83 | % | | 2.59 | % |
Expected return on plan assets | 5.47 | % | | 5.97 | % | | 6.52 | % |
Rate of compensation increase (where applicable) | 2.50 | % | | 2.50 | % | | 2.50 | % |
Estimated Future Benefit Payments
The estimated future benefit payments for U.S. and foreign plans are as follows: 2022 – $42.4 million; 2023 – $43.7 million; 2024 – $44.2 million; 2025 – $43.7 million; 2026 – $43.8 million; 2026 to 2030 - $216.1 million. Future benefit payments primarily represent amounts to be paid from pension trust assets. Amounts included that are to be paid from the Company’s assets are not significant in any individual year.
Postretirement Plans and Post-employment Benefits
The Company provides limited postretirement benefits other than pensions for certain retirees and a small number of former employees. Benefits under these arrangements are not funded and are not significant.
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company also provides limited post-employment benefits for certain former or inactive employees after employment but before retirement. Those benefits are not significant in amount.
The Company has a deferred compensation plan, which allows employees whose compensation exceeds the statutory IRS limit for retirement benefits to defer a portion of earned bonus compensation. The plan permits deferred amounts to be deemed invested in either, or a combination of, (a) an interest-bearing account, benefits from which are payable out of the general assets of the Company, or (b) the equivalent of a fund which invests in shares of the Company’s common stock on behalf of the employee. The amount deferred under the plan, including income earned, was $28.4 million and $25.1 million at December 31, 2021 and 2020, respectively. Administrative expense for the deferred compensation plan is borne by the Company and is not significant.
13. Contingencies
Indemnifications
In conjunction with certain acquisition and divestiture transactions, the Company may agree to make payments to compensate or indemnify other parties for possible future unfavorable financial consequences resulting from specified events (e.g., breaches of contract obligations or retention of previously existing environmental, tax or employee liabilities) whose terms range in duration and often are not explicitly defined. Where appropriate, the obligation for such indemnifications is recorded as a liability. Because the amount of these types of indemnifications generally is not specifically stated, the overall maximum amount of the obligation under such indemnifications cannot be reasonably estimated. Further, the Company indemnifies its directors and officers for claims against them in connection with their positions with the Company. Historically, any such costs incurred to settle claims related to these indemnifications have been minimal for the Company. The Company believes that future payments, if any, under all existing indemnification agreements would not have a material impact on its consolidated results of operations, financial position or cash flows.
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 December 31, 2021, the Company is named a Potentially Responsible Party (“PRP”) at 13 non-AMETEK-owned former waste disposal or treatment sites (the “non-owned”sites). The Company is identified as a “de minimis” party in 12 of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In eight of these sites, the Company has reached a tentative agreement on the cost of the de minimis settlement to satisfy its obligation and is awaiting executed agreements. The tentatively agreed-to settlement amounts are fully accrued. 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 sufficient 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 December 31, 2021 and 2020 were $37.2 million and $32.4 million, respectively, for both non-owned and owned sites. In 2021, the Company recorded $12.1 million in reserves. Additionally, in 2021 the Company spent $7.3 million on environmental matters.
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.
14. Leases and Other Commitments
Leases
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.
Operating leases are included in right-of-use ("ROU") assets, accrued liabilities and other, and other long-term liabilities on our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company has no finance leases. The Company primarily leases buildings (real estate) and automobiles which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in our leases, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met. In a small number of the Company’s leases, the options for
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
renewals have been included in the lease term as the reasonably certain threshold is met due to the Company having significant economic incentive for extending the lease.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on an index or rate and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the events, activities, or circumstances in the lease agreement on which those payments are assessed are probable. Variable lease payments are presented as operating expense in the Company’s income statement in the same line item as expense arising from fixed lease payments. Cash used in operations for operating leases is not materially different than total lease costs.
The Company has commitments under operating leases for certain facilities, vehicles and equipment used in its operations. Our leases have initial lease terms ranging from 1 month to 16 years, with the exception of a single land lease with 62 years remaining. Certain lease agreements contain provisions for future rent increases.
The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Operating lease cost | $ | 61,680 | | | $ | 44,498 | | | $ | 45,438 | |
Variable lease cost | 7,724 | | | 4,526 | | | 7,813 | |
Total lease cost | $ | 69,404 | | | $ | 49,024 | | | $ | 53,251 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (In thousands) |
Right of use assets, net | $ | 169,924 | | | $ | 167,233 | |
Lease liabilities included in Accrued liabilities and other | 47,353 | | | 44,948 | |
Lease liabilities included in Other long-term liabilities | 129,101 | | | 128,173 | |
Total lease liabilities | $ | 176,454 | | | $ | 173,121 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Supplemental cash flow information and other information related to leases was as follows for the year ended December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
| | | |
Right-of-use assets obtained in exchange for new operating liabilities | $ | 64,653 | | | $ | 35,923 | |
Weighted-average remaining lease terms – operating leases (years) | 5.36 | | 5.44 |
Weighted-average discount rate – operating leases | 2.91 | % | | 3.40 | % |
Maturities of lease liabilities as of December 31, 2021 were as follows:
| | | | | |
Lease Liability Maturity Analysis | Operating Leases |
| (In thousands) |
2022 | $ | 50,854 | |
2023 | 41,993 | |
2024 | 30,070 | |
2025 | 22,186 | |
2026 | 15,638 | |
Thereafter | 30,839 | |
Total lease payments | 191,580 | |
Less: imputed interest | 15,126 | |
| $ | 176,454 | |
The Company does not have any significant leases that have not yet commenced.
Other Commitments
As of December 31, 2021, and 2020, the Company had $890.9 million and $494.1 million, respectively, in purchase obligations outstanding, which primarily consisted of contractual commitments to purchase certain inventories at fixed prices.
The Company does not provide significant guarantees on a routine basis. The Company primarily issues guarantees, stand-by letters of credit and surety bonds in the ordinary course of its business to provide financial or performance assurance to third parties on behalf of its consolidated subsidiaries to support or enhance the subsidiary’s stand-alone creditworthiness. The amounts subject to certain of these agreements vary depending on the covered contracts outstanding at any particular point in time. At December 31, 2021, the maximum amount of future payment obligations relative to these various guarantees was $107.9 million and the outstanding liability under certain of those guarantees was $1.0 million.
15. Reportable Segments and Geographic Areas Information
Descriptive Information about Reportable Segments
The Company has two reportable segments, EIG and EMG. The Company’s operating segments are identified based on the existence of segment managers. Certain of the Company’s operating segments have been aggregated for segment reporting purposes primarily on the basis of product type, production processes, distribution methods and similarity of economic characteristics.
EIG manufactures advanced instruments for the process, power and industrial, and aerospace markets. It provides process and analytical instruments for the oil and gas, petrochemical, pharmaceutical, semiconductor, automation, and food and beverage industries. EIG also provides instruments to the laboratory equipment, ultra-precision manufacturing, medical, and test and measurement markets. It makes power quality monitoring and metering devices, uninterruptible power supplies, programmable power equipment, electromagnetic compatibility
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
test equipment and gas turbines sensors. EIG also provides dashboard instruments for heavy trucks and other vehicles, as well as instrumentation and controls for the food and beverage industries. It supplies the aerospace industry with aircraft and engine sensors, monitoring systems, power supplies, fuel and fluid measurement systems, and data acquisition systems.
EMG is a differentiated supplier of automation solutions, thermal management systems, specialty metals and electrical interconnects. It manufactures highly engineered electrical connectors and electronic packaging used to protect sensitive electronic devices. EMG also makes precision motion control products for data storage, medical devices, business equipment, automation and other applications. It supplies high-purity powdered metals, strip and foil, specialty clad metals and metal matrix composites. EMG also manufactures motors used in commercial appliances, fitness equipment, food and beverage machines, hydraulic pumps and industrial blowers. It produces motor-blower systems and heat exchangers used in thermal management and other applications on a variety of military and commercial aircraft and military ground vehicles. EMG also operates a global network of aviation maintenance, repair and overhaul facilities.
Measurement of Segment Results
Segment operating income represents net sales less all direct costs and expenses (including certain administrative and other expenses) applicable to each segment but does not include interest expense. Net sales by segment are reported after elimination of intra- and inter-segment sales and profits, which are insignificant in amount. Reported segment assets include allocations directly related to the segment’s operations. Corporate assets consist primarily of investments, prepaid pensions, insurance deposits and deferred taxes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Reportable Segment Financial Information
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| (In thousands) |
Operating income and income before income taxes: | | | | | |
Segment operating income: | | | | | |
Electronic Instruments | $ | 958,183 | | | $ | 770,620 | | | $ | 865,307 | |
Electromechanical | 437,378 | | | 324,962 | | | 387,931 | |
Total segment operating income | 1,395,561 | | | 1,095,582 | | | 1,253,238 | |
Corporate administrative expenses | (86,891) | | | (67,698) | | | (75,858) | |
Consolidated operating income | 1,308,670 | | | 1,027,884 | | | 1,177,380 | |
Interest and other income (expenses), net | (85,500) | | | 54,425 | | | (107,632) | |
Consolidated income before income taxes | $ | 1,223,170 | | | $ | 1,082,309 | | | $ | 1,069,748 | |
| | | | | |
Assets: | | | | | |
Electronic Instruments | $ | 8,672,711 | | | $ | 6,554,414 | | | |
Electromechanical | 2,638,773 | | | 2,646,985 | | | |
Total segment assets | 11,311,484 | | | 9,201,399 | | | |
Corporate | 586,703 | | | 1,156,084 | | | |
Consolidated assets | $ | 11,898,187 | | | $ | 10,357,483 | | | |
| | | | | |
Additions to property, plant and equipment(1): | | | | | |
Electronic Instruments | $ | 168,267 | | | $ | 48,638 | | | $ | 74,994 | |
Electromechanical | 34,586 | | | 26,381 | | | 42,924 | |
Total segment additions to property, plant and equipment | 202,853 | | | 75,019 | | | 117,918 | |
Corporate | 10,417 | | | 1,007 | | | 4,770 | |
Consolidated additions to property, plant and equipment | $ | 213,270 | | | $ | 76,026 | | | $ | 122,688 | |
| | | | | |
Depreciation and amortization: | | | | | |
Electronic Instruments | $ | 210,118 | | | $ | 174,494 | | | $ | 153,111 | |
Electromechanical | 79,497 | | | 78,297 | | | 78,664 | |
Total segment depreciation and amortization | 289,615 | | | 252,791 | | | 231,775 | |
Corporate | 2,497 | | | 2,484 | | | 2,267 | |
Consolidated depreciation and amortization | $ | 292,112 | | | $ | 255,275 | | | $ | 234,042 | |
___________________
(1)Includes $102.6 million in 2021, $1.8 million in 2020 and $20.3 million in 2019 from acquired businesses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Geographic Areas
Information about the Company’s operations in different geographic areas for the years ended December 31, 2021 and 2020 is shown below.
| | | | | | | | | | | |
| 2021 | | 2020 |
| (In thousands) |
Long-lived assets from continuing operations (excluding intangible assets): | | | |
United States | $ | 416,323 | | | $ | 344,535 | |
International(1): | | | |
United Kingdom | 74,525 | | | 55,519 | |
European Union countries | 87,117 | | | 82,256 | |
Asia | 11,971 | | | 14,066 | |
Other foreign countries | 27,202 | | | 30,154 | |
Total international | 200,815 | | | 181,995 | |
Total consolidated | $ | 617,138 | | | $ | 526,530 | |
_________________
(1)Represents long-lived assets of foreign-based operations only.
16. Additional Consolidated Income Statement and Cash Flow Information
Included in other income (expense), net are interest and other investment income of $2.0 million, $2.7 million and $4.6 million for 2021, 2020 and 2019, respectively. Income taxes paid in 2021, 2020 and 2019 were $245.5 million, $210.4 million and $221.6 million, respectively. Cash paid for interest was $78.7 million, $86.2 million and $84.9 million in 2021, 2020 and 2019, respectively.
17. Stockholders’ Equity
In 2020, the Company repurchased approximately 55,000 shares of its common stock for $4.7 million in cash under its share repurchase authorization. In 2021, the Company repurchased approximately 113,000 shares of its common stock for $14.7 million in cash under its share repurchase authorization. At December 31, 2021, $469.7 million was available under the Company’s Board of Directors authorization for future share repurchases.
Effective February 11, 2021, the Company’s Board of Directors approved an 11% increase in the quarterly cash dividend on the Company’s common stock to $0.20 per common share from $0.18 per common share.
At December 31, 2021, the Company held 36,137,864 shares in its treasury at a cost of $1,573.0 million, compared with 36,227,061 shares at a cost of $1,565.3 million at December 31, 2020. The number of shares outstanding at December 31, 2021 was 231.7 million shares, compared with 230.5 million shares at December 31, 2020.
Subsequent Event
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.