UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

For the quarterly period ended SeptemberJune 30, 20172018

OR

For the transition period from                    to                    

Commission File Number1-12981

AMETEK, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:(610) 647-2121

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the registrant’s common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at October 24, 2017July 25, 2018 was 231,117,205231,897,163 shares.

AMETEK, Inc.

Form10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

AMETEK, Inc.

Consolidated Statement of Income

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes.

AMETEK, Inc.

Consolidated Statement of Comprehensive Income

(In thousands)

(Unaudited)

See accompanying notes.

AMETEK, Inc.

Consolidated Balance Sheet

(In thousands)

See accompanying notes.

AMETEK, Inc.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes.

AMETEK, Inc.

Notes to Consolidated Financial Statements

SeptemberJune 30, 20172018

(Unaudited)

The accompanying consolidated financial statements are unaudited. AMETEK, Inc. (the “Company”) believes that all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at SeptemberJune 30, 2017,2018, the consolidated results of its operations for the three and ninesix months ended SeptemberJune 30, 20172018 and 20162017 and its cash flows for the ninesix months ended SeptemberJune 30, 20172018 and 20162017 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes presented in the Company’s Annual Report onForm 10-K for the year ended December 31, 20162017 as filed with the U.S. Securities and Exchange Commission.

As discussed below in Note 2, effective January 1, 2018, the Company adopted the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)No. 2014-09 (Topic 606),Revenue from Contracts with Customers(“ASU 2014-09”)using the modified retrospective method. Also, effective January 1, 2018, the Company retrospectively adoptedASU No. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU 2017-07”). All amounts and disclosures set forth in thisForm 10-Q reflect these changes.

In May 2014, the FinancialFASB issuedASU 2014-09 and modified the standard thereafter within Accounting Standards BoardCodification (“FASB”ASC”) issued Accounting Standards Update (“ASU”)No. 2014-09,Topic 606,Revenue from Contracts with Customers(“ASU 2014-09” (“ASC 606”) and modified the standard thereafter.. The objective ofASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersedesupersedes most of the existing revenue recognition guidance. The core principle ofCompany adoptedASU 2014-09 is that an entity recognizes revenue at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.

ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017 and may be early adopted for interim and annual reporting periods beginning after December 15, 2016. The Company will adoptASU 2014-09 as of January 1, 2018. The guidance permits adoption by retrospectively applying the guidance to each prior reporting period presented (full retrospective method) or prospectively applying the guidance and providing additional disclosures comparing results to previous guidance, with the cumulative effect of initially applying the guidance recognized in beginning retained earnings at the date of initial application (modified retrospective method). The Company expects to use2018 using the modified retrospective method of adoption.

ASU 2014-09 is primarily expected to impact the Company’s revenue recognition procedures by requiring recognition of certain revenues to move from upon shipment or delivery to over-time.method. The recording of certain revenues over-time is not expected to have a material impact on the Company’s consolidated results of operations or financial position. Also, the Company is developing the additional expanded disclosures required. The Company is in the process of implementing the appropriate changes to business processes and controls to support recognition and disclosure underASU 2014-09. The Company does not currently expect the adoption ofASU 2014-09 to have a material impact on its consolidated results of operations, financial position and cash flows.

In July 2015, the FASB issuedASU No. 2015-11,Simplifying the Measurement of Inventory(“ASU 2015-11”), which applies to inventory that is measured usingfirst-in,first-out (“FIFO”) or average cost. As prescribed in this update, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured usinglast-in,first-out (“LIFO”). The Company prospectively adoptedASU 2015-11 effective January 1, 2017 and the adoption did not have a significant impact on the Company’s consolidated results of operations, financial position orand cash flows.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(Unaudited)

In November 2015, the FASB issuedASU No. 2015-17,Balance Sheet Classification of Deferred Taxes(“ASU 2015-17”).ASU 2015-17 simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the consolidated balance sheet. The Company prospectively adoptedASU 2015-17 effective January 1, 2017 and the adoption did not have a significant impact on the Company’s consolidated results of operations, financial position or cash flows. The December 31, 2016 consolidated balance sheet was not adjusted for the adoption ofASU 2015-17. See Note 3.

In February 2016, the FASB issuedASU No. 2016-02,Leases(“ASU 2016-02”). The new standard establishes aright-of-use model that requires a lessee to record aright-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018.ASU 2016-02 is to be adopted using a modified retrospective approach2018 and early adoption is permitted.ASU 2016-02 includes transitional guidance, as currently issued, that calls for a modified retrospective approach. The FASB has recently proposed adding a transition option to the current guidance and it includes optional practical expedients for ease of transition. The Company has formed a steering committee and the Company’s implementation project has begun. The Company has not determined the impactASU 2016-02 may have on the Company’s consolidated results of operations, financial position, cash flows and financial statement disclosures.

In March 2016, the FASB issuedASU No. 2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU 2016-09”).ASU 2016-09 includes changesdisclosures, which could be significant to the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company prospectively adoptedASU 2016-09 effective January 1, 2017. For the three and nine months ended September 30, 2017, the Company recorded a tax benefit of $2.5 million and $11.4 million, respectively, within Provision for income taxes related to the tax effects of share-based payment transactions. Prior to adoption, this amount would have been recorded as a component of Capital in excess of par value. The adoption of this standard could create volatility in the Company’s effective tax rate going forward. The Company elected not to change its accounting policy with respect to the estimation of forfeitures. The Company no longer reclassifies the excess tax benefits from share-based payments from operating activities to financing activities in the consolidated statement of cash flows. For the three and nine months ended September 30, 2017, the Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of its diluted earnings per share and the related increase in the Company’s diluted weighted average common shares outstanding was not significant.financial position.

In January 2017, the FASB issued ASUNo. 2017-01,Clarifying the Definition of a Business(“ASU 2017-01”).ASU 2017-01 provides a more robust framework to use in determining when a set of assets and activities is a business.ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of assets is not a business.ASU 2017-01 requires that, to be a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The Company prospectively adoptedASU 2017-01 is effective for interim and annual reporting periods beginning after December 15, 2017.ASU 2017-01 will be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which the financial statements have not been issued or made available for issuance. The Company does not expect the adoption ofASU 2017-01 to have a significant impact on the Company’s consolidated results of operations, financial position, cash flows and financial statement disclosures.

In January 2017, the FASB issuedASU No. 2017-04,Simplifying the Test for Goodwill Impairment(“ASU 2017-04”).ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (second step) to measure a goodwill impairment charge. Under the guidance, an impairment charge will be measured based on the excess of the reporting unit’s carrying amount over its fair value (first step).ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company early adoptedASU 2017-04 effective January 1, 20172018 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.

AMETEK, Inc.

In March 2017, the FASB issuedASU No. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU 2017-07”), which changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement.ASU 2017-07 requires employers to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs. All other components of the net periodic benefit cost will be presented outside of operating income. The Company retrospectively adoptedASU 2017-07 is effective January 1, 2018. For the three and six months ended June 30, 2017, the consolidated statement of income was restated to increase Cost of sales by $2.5 million and $4.9 million, increase Selling, general and administrative expenses by $0.4 million and $0.8 million, and decrease Other expense, net by $2.8 million and $5.7 million, respectively, for interimnet periodic benefit income components other than service cost. For the three and annual reporting periods beginning after December 15,six months ended June 30, 2017, the $2.8 million and early$5.7 million, respectively, of net periodic benefit income components other than service cost were originally reported in operating income as follows: $1.5 million and $2.9 million in Electronic Instruments (“EIG”), $1.0 million and $2.0 million in Electromechanical (“EMG”), and $0.4 million and $0.8 million in Corporate administrative expense, respectively. The adoption is permitted. The Company has not determined the impactofASU 2017-07 maydid not have a significant impact on the Company’s consolidated results of operations, financial position, or cash flows.flows and financial statement disclosures.

In May 2017, the FASB issuedASU No. 2017-09,Scope of Modification Accounting(“ASU 2017-09”).ASU 2017-09 clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company prospectively adoptedASU 2017-09 is effective for interimJanuary 1, 2018 and annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company does not expect the adoption ofASU 2017-09 todid not have a significant impact on the Company’s consolidated results of operations, financial position or cash flows.

As discussed in Note 2, the Company adopted ASC 606 as of January 1, 2018 using the modified retrospective method. The cumulative adjustment made to the January 1, 2018 consolidated balance sheet for the adoption of ASC 606 was to increase Retained earnings by $4.2 million, increase Total assets by $7.9 million and increase Total liabilities by $3.7 million. For the three and six months ended June 30, 2018, the effect of the changes in all financial statement line items impacted by ASC 606 was immaterial from the amount that would have been reported under the previous guidance. Updated disclosure of the Company’s significant accounting policy regarding revenue recognition is included in Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report onForm 10-Q.

Revenue is derived from products and services. The Company’s products and services are marketed and sold worldwide through two operating groups: EIG and EMG.

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, ultraprecision manufacturing, medical, and test and measurement markets. It makes power quality monitoring and metering devices, uninterruptible power supplies, programmable power equipment, electromagnetic compatibility 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.

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 transfer in control of the product to the customer is 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 has benefit of ownership or risk of loss. Legal title transfers to the customer in accordance with the delivery terms of the order, usually upon shipment. For a small percentage of sales where title and risk of loss transfers at the point of delivery, the Company recognizes revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met.

Under ASC 606, 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. Prior to the adoption of the new standard, these revenues were recorded upon shipment or, in the case of those sales where title and risk of loss passes at the point of delivery, the Company recognized revenue upon delivery to the customer. 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. This change in revenue recognition accelerated the revenue recognition and costs on the impacted contracts.

Applying the practical expedient available under ASC 606, the Company recognizes incremental cost of obtaining contracts as an expense when incurred if the amortization period of the 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.

Revenues associated with repairs of customer-owned assets were previously recorded upon completion and shipment of the repaired equipment to the customer. Under ASC 606, if the Company’s performance enhances an asset that the customer controls as the asset is enhanced, revenue must be recognized over time. The revenue associated with the repair of a customer-owned asset meets this criterion.

The determination of the revenue to be recognized in a given 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 totalcost-to-cost input method of progress because it best depicts the transfer of control to the customer that occurs as costs are incurred. Under thecost-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 is 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 service contracts, installation and training. Service contracts are recognized over the contract life. 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.

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. As such, no significant financing component exists. Payment terms are generally30-60 days from the time of shipment or customer acceptance, but negotiated terms can be shorter or longer. 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.

The outstanding contract asset and (liability) accounts were as follows:

Unbilled revenues are reported as a component of Other current assets in the consolidated balance sheet. At June 30, 2018, $7.7 million of customer advanced payments were recorded in Other long-term liabilities in the consolidated balance sheet. In conjunction with the January 1, 2018 adoption of ASC 606, in the consolidated balance sheet, approximately $14 million was reclassified to unbilled revenues that was previously reported in Other current assets at December 31, 2017. Also, at January 1, 2018, in the consolidated balance sheet, approximately $114 million was reclassified to Customer advanced payments that was previously reported in Accounts payable of approximately $76 million, Accrued liabilities of approximately $26 million and other of approximately $12 million at December 31, 2017.

The Company applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original expected term of one year or less. Remaining performance obligations exceeding one year as of June 30, 2018 were $179.2 million. Remaining performance obligations represent the transaction price of firm, noncancelable orders, with expected delivery dates to customers greater than one year from June 30, 2018, for which work has not been performed.

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 not considered constrained and is allocated among the various performance obligations in the customer contract based on the relative standalone selling price of each performance obligation to the total standalone value of all the performance obligations.

Geographic Areas

Information about the Company’s operations in different geographic areas is shown below. Net sales were attributed to geographic areas based on the location of the customer.

Major Products and Services

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

Timing of Revenue Recognition

The Company’s timing of revenue recognition was as follows:

Reportable Segments

The Company’s EIG and EMG 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.

At June 30, 2018, there were no significant changes in identifiable assets of reportable segments from the amounts disclosed at December 31, 2017, other than those described in the acquisitions footnote (Note 9), nor were there any significant changes in the basis of segmentation or in the measurement of segment operating results. Operating information relating to the Company’s reportable segments for the three and six months ended June 30, 2018 and 2017 can be found in the table included in Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report onForm 10-Q.

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 generally 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 in the consolidated balance sheet.

Changes in the accrued product warranty obligation were as follows:

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:

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(Unaudited)

The components of accumulated other comprehensive income (loss) consisted of the following:

Reclassifications for the amortization of defined benefit pension plans are included in Cost of salesOther expense, net in the consolidated statement of income. See Note 1213 for further details.

AMETEK, Inc.

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. See Note 9 for discussion of acquisition date fair value of contingent payment liability.

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, as of September 30, 2017 and December 31, 2016, consistent with the fair value hierarchy:hierarchy, at June 30, 2018 and December 31, 2017:

The fair value of fixed-income investments, which are valued as level 1 investments, was based on quoted market prices. The fixed-income investments are shown as a component of long-term assets onin the consolidated balance sheet.

For the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.

Financial Instruments

Cash, cash equivalents and fixed-income investments are recorded at fair value at SeptemberJune 30, 20172018 and December 31, 20162017 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 SeptemberJune 30, 20172018 and December 31, 2016:2017:

The fair value ofshort-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.

AMETEK, Inc.Foreign Currency

Notes to Consolidated Financial StatementsAt June 30, 2018, the Company had no forward contracts outstanding. At December 31, 2017, the Company had a Canadian dollar forward contract for a total notional value of 83.0 million Canadian dollars ($1.5 million fair value unrealized gain at December 31, 2017) outstanding. For the three and six months ended June 30, 2018, realized gains and losses on foreign currency forward contracts were not significant. The Company does not typically designate its foreign currency forward contracts as hedges.

The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. As of SeptemberJune 30, 2017,2018, these net investment hedges includedBritish-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 SeptemberJune 30, 2017,2018, the Company had $408.7$402.5 million of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At SeptemberJune 30, 2017,2018, the Company had $590.7$583.8 million in Euro-denominated loans, which were designated as a hedge against the net investment in Euro functional currency foreign subsidiaries. As a result of theBritish-pound-and British-pound- and Euro-denominated loans being designated and 100% effective as net investment hedges, $95.3$27.2 million ofpre-tax currency remeasurement lossesgains have been included in the foreign currency translation component of other comprehensive income for the ninesix months ended SeptemberJune 30, 2017.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(Unaudited)

The Company spent $518.6$374.6 million in cash, net of cash acquired, to acquire FMH Aerospace (“FMH”) in January 2018, SoundCom Systems (“SoundCom”) in April 2018 and Motec GmbH in June 2018. FMH is a provider of complex, highly-engineered solutions for the aerospace, defense and space industries. SoundCom provides design, integration, installation and support of clinical workflow and communication systems for healthcare facilities, educational institutions and corporations. SoundCom also serves as a value-added reseller for Rauland-Borg Corporation (“Rauland”) in February 2017 and MOCON, Inc. in June 2017. The Rauland acquisition includes a potential $30 million contingent payment due upon the achievementMidwest portion of certain milestones as described further below. Rauland is a global provider of enterprise clinical and education communications solutions for hospitals, healthcare systems and educational facilities. MOCONthe United States. Motec is a provider of laboratoryintegrated vision systems serving the high growth mobile machine vision market. Motec’s ruggedized vision products and field gas analysis instrumentation to research laboratories, production facilitiesintegrated software solutions provide customers with improved operational efficiency and quality control departmentsenhanced safety across a variety of critical mobile machine applications in foodtransportation, agriculture, logistics and beverage, pharmaceuticalconstruction. FMH is part of EMG. SoundCom and industrial applications. Rauland and MOCONMotec are part of AMETEK’s Electronic Instruments Group.EIG.

The following table represents the preliminary allocation of the aggregate purchase price for the net assets of the 20172018 acquisitions based on their estimated fair values at acquisition (in millions):

The amount allocated to goodwill is reflective of the benefits the Company expects to realize from the 20172018 acquisitions as follows: Rauland provides the Company with attractive new growth opportunities within the medical technology market, strong growth opportunities in its core markets and incremental growth opportunities through acquisitions and international expansion. MOCON’sFMH’s products and technologiessolutions further broaden the Company’s differentiated product offerings in the aerospace and defense markets. SoundCom expands Rauland’s presence in the healthcare and education markets in the Midwest while providing customers with expanded value-added solutions and services. Motec’s vision systems complement the Company’s existing gas analysis instrumentation business and provides it with opportunitiesbusinesses by expanding its portfolio of solutions to expand into the growing food and pharmaceutical package testing market.its customers. The Company expects approximately $146$73 million of the goodwill recorded in connection withrelating to the 20172018 acquisitions will be tax deductible in future years.

At SeptemberJune 30, 2017,2018, the purchase price allocated to other intangible assets of $269.5$199.9 million consists of $53.6$35.9 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $215.9$164.0 million of other intangible assets consists of $162.0$127.7 million of customer relationships, which are being amortized over a period of 18 years, and $53.9$36.3 million of purchased technology, which is being amortized over a period of 18 years. Amortization expense for each of the next five years for the 20172018 acquisitions is expected to approximate $12$8 million per year.

The Company is in the process of finalizing the measurement of certain tangible and intangible assets and liabilities for its 20172018 acquisitions including inventory, property, plant and equipment, goodwill, trade names, customer relationships trade names,and purchased technology and the accounting for income taxes and certainlong-term liabilities.taxes.

The above mentioned2018 acquisitions had an immaterial impact on reported net sales, net income and diluted earnings per share for the three and six months ended June 30, 2018. Had the 2018 acquisitions been made at the beginning of 2018 or 2017, unaudited pro forma net sales, net income and diluted earnings per share for the three and six months ended June 30, 2018 and 2017, respectively, would not have been materially different than the amounts reported.

In February 2017, the Company acquired Rauland. The Rauland acquisition included a potential $30 million contingent payment is based ondue upon Rauland achieving a certain cumulative revenue target over the period October 1, 2016 to September 30, 2018. If Rauland achieves the target, the $30 million contingent payment will be made; however, if the target is not achieved, no payment will be made. At the acquisition date, the estimated fair value of the contingent payment liability was $25.5 million, which was based on a probabilistic approach using level 3 inputs. At SeptemberJune 30, 2017, there was no change to2018, the estimated fair value of the contingent payment liability.

The 2017 acquisitions had an immaterial impactliability was $30.0 million, which was based on reported net sales, net income and diluted earnings per share for the three and nine months ended September 30, 2017. HadCompany’s assessment of the 2017 acquisitions been made atprobability of Rauland achieving the beginning of 2017 or 2016, unaudited pro forma net sales, net income and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016, respectively, would not have been materially different than the amounts reported.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2017

(Unaudited)

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

At SeptemberJune 30, 2017,2018, the Company had gross unrecognized tax benefits of $58.5$65.3 million, of which $49.0$56.7 million, if recognized, would impact the effective tax rate.

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

The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense. The amounts recognized in income tax expense for interest and penalties during the three and ninesix months ended SeptemberJune 30, 20172018 and 20162017 were not significant.

The effective tax rate for the three months ended June 30, 2018 was 21.9%, compared with 26.0% for the three months ended June 30, 2017. The effective tax rate for the six months ended June 30, 2018 was 22.5%, compared with 26.7% for the six months ended June 30, 2017. The three and six months ended June 30, 2018 effective tax rates primarily reflect the impact of the recently enacted U.S. Tax Cuts and Jobs Act (the “Act”) including the reduction of the U.S. corporate income tax rate and the current impact of the global intangiblelow-taxed income (“GILTI”) and the foreign-derived intangible income (“FDII”) provisions.

In the fourth quarter of 2017, the Company recorded a net benefit of $91.6 million in the consolidated statement of income as a component of Provision for income taxes related to the impact of the Act. The $91.6 million net benefit consisted of a $185.8 million benefit resulting from the remeasurement of the Company’s net deferred tax liabilities in the U.S. based on the new lower corporate income tax rate and $94.2 million expense mostly relating to theone-time mandatory tax on previously deferred earnings of certainnon-U.S. subsidiaries that are owned either wholly or partially by a U.S. subsidiary of the Company as discussed further below.

Although the $91.6 million net benefit represents what the Company believes is a reasonable estimate of the impact of the income tax effects of the Act on the Company’s consolidated financial statements as of December 31, 2017, it should be considered provisional. As of June 30, 2018, the Company has not materially changed its estimate of the December 31, 2017 impact of the income tax effects of the Act. As additional guidance from the U.S. Department of Treasury is provided, the Company may need to adjust the provisional amounts after it finalizes the 2017 U.S. tax return and is able to conclude whether any further adjustments are required to its U.S. portion of net deferred tax liability of $390.4 million as of December 31, 2017, as well as to the liability associated with theone-time mandatory tax. The currently recorded amounts include a variety of estimates of taxable earnings and profits, estimated taxable foreign cash balances, differences between U.S. GAAP and U.S. tax principles and interpretations of many aspects of the Act that may, if changed, impact the final amounts. Any adjustments to these provisional amounts will be reported as a component of Provision for income taxes in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018. As of June 30, 2018, the Company is still evaluating the potential future impact of GILTI and has not provided any provisional deferred tax liability for it. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in the U.S. taxable income related to GILTI as a current period expense when incurred or to factor such amounts into the Company’s measurement of its deferred taxes. Due to the ongoing evaluation, the Company has not yet made the accounting policy decision as of June 30, 2018.

Under the terms of the Company’s stockholder-approved share-based plans, performance restricted stock units (“PRSUs”), incentive andnon-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 ofone-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 ofone-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 vestsone-third on each of the first three anniversaries of the grant date. Restricted stock granted tonon-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.

In March 2018, the Company granted PRSUs to officers and certain key management-level employees an aggregate target award of approximately 52,000 shares of its common stock. The PRSUs vest 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, 2018 through December 31, 2020. Half of the PRSUs were valued in a manner similar to restricted stock as the financial targets are based on the Company’s operating results. 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. The Company recognizes the grant date fair value of these awards as compensation expense ratably over the vesting period.

Total share-based compensation expense was as follows: