AMETEK, Inc. — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing; fourth-quarter results are also summarized below. AMETEK manufactures electronic instruments and electromechanical products through its Electronic Instruments Group (EIG) and Electromechanical Group (EMG), serving diverse industrial, process, aerospace, power, and consumer-related markets.
Financial performance
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Net sales | $2,098.4 million | $2,531.1 million |
| Operating income | $366.1 million; 17.4% margin | $432.7 million; 17.1% margin |
| Net income | $205.8 million | $247.0 million |
| Diluted EPS | $1.91 | $2.30 |
| Cash from operations | $364.7 million | $247.3 million |
| Capital expenditures | $33.1 million | $44.2 million |
| Free cash flow | $331.6 million | $203.1 million |
| Total debt at year-end | $1,041.7 million | $1,111.7 million |
| Cash and cash equivalents at year-end | $246.4 million | $87.0 million |
- Sales declined 17.1%; management attributed the fall mainly to recession-driven lower orders. Internal sales fell about 21%, with acquisitions partly offsetting the decline.
- Segment operating income was $399.5 million, down 17.1%; segment margin held at 19.0%. EIG sales fell 18.3% and operating margin declined to 20.3% from 21.9%. EMG sales fell 15.7%, while operating margin improved to 17.5% from 15.5%.
- International sales were $1,031.7 million, down 15.8%, and represented 49.2% of consolidated sales.
- Operating cash flow increased 47.5%, principally reflecting lower working-capital levels, a tax refund, and lower pension contributions. Pension contributions were $21.1 million versus $79.9 million in 2008; these factors boosted cash flow despite lower earnings.
- Debt-to-capital fell to 39.9% from 46.3%; net debt-to-capital fell to 33.7% from 44.3%. No revolver borrowings were outstanding at year-end, and $532.2 million of capacity was available. The $100 million receivables securitization facility was not renewed.
Fourth-quarter results
Fourth-quarter 2009 sales were $523.5 million, down 16.1% from $623.7 million. Operating income was $89.2 million versus $82.2 million; net income was $51.9 million versus $43.8 million; diluted EPS was $0.48 versus $0.41. The year-over-year profit and EPS comparison benefited from $40.0 million of pretax restructuring and asset write-down charges recorded in Q4 2008, which reduced that quarter’s net income by $27.3 million, or $0.25 per diluted share.
Changes, outlook, and notable items
- Management said order rates stabilized in Q3 and began increasing in Q4 2009; backlog ended the year at $648.4 million, down 9.8% from 2008. About 82% was expected to ship during 2010.
- Management expected moderate operating improvement in 2010, supported by the full-year contribution of 2009 acquisitions and Operational Excellence initiatives. It also expected lower defined-benefit pension expense. Capital expenditures were projected at approximately 2.0% of sales; anticipated defined-benefit pension contributions were approximately $2–5 million (another disclosure estimates $3–5 million).
- Operational Excellence and restructuring initiatives generated reported cost savings of $135 million in 2009. The 2008 restructuring program had charged $40.0 million pretax, including $30.1 million severance for more than 10% of the workforce and $7.4 million in asset write-downs.
- Three 2009 acquisitions—High Standard Aviation, two Indian distribution/service businesses, and Ameron Global—cost approximately $72.9 million net of acquired cash. The provisional purchase-price allocation included $36.1 million of intangibles and $17.4 million of goodwill; valuations remained subject to finalization.
- After year-end, the board authorized an additional $75 million for repurchases. The company subsequently repurchased 1,128,200 shares for approximately $41.8 million, leaving $101.7 million authorized at filing.
Risks, contingencies, and other considerations
- Key risks include prolonged economic weakness and cyclical downturns in aerospace and defense, process instrumentation, and motor markets; acquisition integration and financing; competition; international, currency, export-control, and regulatory exposure; raw-material availability and prices; and access to liquidity.
- Goodwill and other intangible assets totaled $1,799.2 million, or 55% of total assets. Annual impairment testing found no impairment in 2009, but future performance or market changes could lead to a charge.
- Environmental reserves were $27.0 million at year-end, including obligations at owned and non-owned sites. Management considered reserves adequate and did not expect known matters to materially affect results, but actual remediation costs may differ.
- The company was named in asbestos-related litigation; no judgments had been entered, and it stated it intended to defend the claims. Some claims depend on indemnifying parties, one of which entered bankruptcy liquidation.
- Senior debt agreements include financial covenants; AMETEK reported compliance at year-end. The company stated available cash, credit, and capital resources were sufficient for foreseeable needs.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether the reported Q4 order improvement continued into 2010, and how sales, orders, and backlog developed after year-end.
- How much of the 2009 operating cash-flow increase reflects sustainable working-capital performance versus the tax refund and reduced pension contributions.
- Whether the $135 million of cost savings is recurring, and whether margins remain resilient as demand recovers.
- Final acquisition valuations, acquired-business performance, and integration costs, particularly for the 2009 acquisitions.
- Debt maturities, interest costs, covenant headroom, and the effect of post-year-end share repurchases on liquidity and leverage.
- Potential changes in environmental and tax exposures, pension assumptions, or goodwill and intangible-asset impairment assessments.