AMETEK, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. This annual filing also provides unaudited fourth-quarter results. AMETEK makes electronic instruments and electromechanical products through its Electronic Instruments Group (EIG) and Electromechanical Group (EMG).
Financial performance
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net sales | $3,334.2 million | $2,989.9 million | +11.5% |
| Operating income | $745.9 million | $635.9 million | +17.3% |
| Operating margin | 22.4% | 21.3% | +1.1 percentage points |
| Net income | $459.1 million | $384.5 million | +19.4% |
| Diluted EPS | $1.88 | $1.58 | +19.0% |
| Cash from operating activities | $612.5 million | $508.6 million | +20.4% |
| Free cash flow | $555.1 million | $457.8 million | +21.3% |
| Total debt | $1,453.8 million | $1,263.9 million | +$189.9 million |
Sales growth reflected acquisitions and higher orders; management reported approximately 1% internal sales growth, excluding a 1% unfavorable foreign-currency effect. Operating margin gains were attributed principally to Operational Excellence and cost reductions. EBITDA, a non-GAAP measure, was $842.7 million; capital expenditures were $57.4 million.
Segments: EIG sales rose 13.7% to $1,872.6 million, with operating income of $497.1 million and a 26.5% margin. EMG sales rose 8.9% to $1,461.7 million, with operating income of $292.2 million and a 20.0% margin.
Fourth quarter: Sales were $841.8 million versus $762.8 million; operating income was $190.0 million versus $167.4 million; net income was $119.9 million versus $101.9 million; diluted EPS was $0.49 versus $0.42.
Cash, liquidity and capital allocation
- Cash and cash equivalents were $158.0 million at year-end, down from $170.4 million. Current assets were $1,164.7 million and current liabilities were $880.0 million.
- Net debt was $1,295.8 million; net debt to capitalization was 33.8%, compared with 34.8% in 2011. The company reported compliance with debt covenants.
- The $700 million revolving credit facility included an accordion feature of up to $200 million; reported available capacity, including the accordion, was $557.6 million. Revolver borrowings were $312.9 million and classified as current.
- Investing cash outflow was $803.7 million, including $747.7 million for seven acquisitions. Financing cash inflow was $174.5 million, including increased borrowings. Dividends paid totaled $53.1 million; the quarterly rate was raised 50% to $0.06 per share on a post-split basis.
Material changes, outlook and notable items
- Orders increased 15.1% to a record $3,535.1 million; year-end backlog rose 22.0% to $1,112.3 million. Approximately 87% of backlog was expected to ship in 2013.
- International sales reached $1,707.6 million, or 51.2% of sales, compared with 50.2% in 2011.
- Seven 2012 acquisitions expanded instrumentation, motion-control and aviation maintenance, repair and overhaul offerings. The 2012 acquisitions had an immaterial impact on reported 2012 sales, net income and diluted EPS. AMETEK said the full-year impact of these acquisitions and ongoing efficiency initiatives was expected to benefit 2013 results.
- Management’s stated strategy targets double-digit annual EPS growth over the business cycle; this is a strategic objective, not specific 2013 earnings guidance. 2013 capital expenditures were expected to be about 1.8% of sales. The filing does not provide a clear formal full-year 2013 sales or EPS forecast.
- The company completed a three-for-two stock split in June 2012; reported share and per-share data reflect the split. Annual dividends declared and paid were $0.22 per share.
- Goodwill and other intangible assets totaled $3,518.0 million, about 68% of total assets. Annual impairment testing found no impairment; management reported reporting-unit fair values remained above carrying values under a hypothetical 10% fair-value decline.
Risks and contingencies
- Risks include cyclical downturns in aerospace and defense, process instrumentation and power markets; acquisition execution and integration; international, currency and export-compliance exposures; competition; raw-material availability and pricing; and retaining skilled employees.
- Environmental reserves were $23.6 million at year-end, down from $28.0 million. AMETEK was a potentially responsible party at 14 non-owned waste sites; management did not expect known environmental matters to materially affect consolidated results or financial position.
- Gross unrecognized tax benefits were $36.2 million, including $33.6 million that would affect the effective tax rate if recognized. The IRS was examining U.S. returns for 2006–2009.
- Defined-benefit pension plans had a reported funded-status liability of $24.2 million, versus an asset of $19.5 million in 2011. Lower year-end discount rates contributed to higher obligations. Management estimated 2013 pension contributions of $2 million to $5 million.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective at year-end.
Investor facts to verify
- How much of sales, order and backlog growth reflects acquired businesses versus continuing organic demand, especially given reported internal sales growth of about 1%.
- Whether the 2012 acquisitions deliver the expected 2013 contribution and integration benefits, and how acquisition spending is financed.
- Revolver renewal or repayment plans and the impact of its current classification on near-term liquidity; also monitor total debt growth and interest costs.
- Progress on environmental remediation, tax audits and uncertain tax positions, and any changes in related reserves or liabilities.
- Assumptions supporting goodwill and intangible-asset valuations, pension funding and management’s business-cycle EPS objective.