AMETEK, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited results compared with Q1 2011. Dollar amounts below are in millions unless stated otherwise. Per-share amounts are pre-split.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales | $827.2 | $717.8 | +15.2% |
| Operating income | $182.8 | $152.0 | +20.3% |
| Operating margin | 22.1% | 21.2% | +0.9 percentage points |
| Net income | $110.2 | $90.4 | +21.9% |
| Diluted EPS | $0.68 | $0.56 | +21.4% |
| Operating cash flow | $140.9 | $103.6 | +36.0% |
| Free cash flow | $132.5 | $93.3 | — |
Sales growth reflected approximately 6% internal growth, including an approximately 1% unfavorable foreign-currency effect, with acquisitions contributing the remainder. Segment operating income rose 19.0% to $193.9 million, and segment margin improved to 23.4% from 22.7%. EIG sales increased 20.6% and its margin rose to 26.2% from 25.7%; EMG sales increased 8.9% and its margin rose to 19.8% from 19.1%. Management attributed margin gains to sales leverage and Operational Excellence cost initiatives. EBITDA was $205.4 million versus $170.2 million.
Liquidity, debt and balance sheet
Cash and cash equivalents were $219.3 million at March 31, 2012, up from $170.4 million at year-end; $214.7 million was held outside the United States. Current assets were $1,152.9 million and current liabilities were $750.1 million. Total debt was $1,360.3 million, up from $1,263.9 million at December 31, 2011. Debt-to-capital was 38.3% versus 38.1%; net debt-to-capital was 34.3% versus 34.8%.
Operating cash flow increased primarily with higher net income and lower overall operating working capital. Investing activities used $183.5 million, including $179.4 million net cash paid for O’Brien Corporation; capital expenditures were $8.4 million. Financing activities provided $87.2 million, principally reflecting increased borrowings. The company had $654.7 million of available capacity under its $700 million revolving credit facility, no significant debt maturities until 2015, and reported compliance with debt covenants. Management said available cash generation, credit facilities and access to capital should meet operating needs and contractual obligations in the foreseeable future.
Business developments and outlook
Orders increased 8.0% to $862.9 million; backlog at March 31 was $947.2 million, up 3.9% from December 31. International sales were $417.8 million, or 50.5% of total sales, up 15.6% year over year. Management reported quarterly records for orders, sales, operating income, operating margin, net income and diluted EPS. It said the full-year impact of recent acquisitions and Operational Excellence initiatives should positively affect 2012 results. The filing provides no specific full-year numerical guidance.
AMETEK acquired O’Brien Corporation in January for $179.4 million net of cash acquired. The acquisition’s Q1 effect on sales, net income and diluted EPS was immaterial; purchase-price allocation remained preliminary. In late April, the company agreed to acquire the parent of Dunkermotoren GmbH, subject to German government approval and customary closing conditions, with completion expected in Q2 2012. Its expected annual sales were approximately €155 million.
On May 1, the board declared a three-for-two stock split, payable June 29 to holders of record June 15, and approved a 50% increase in the quarterly dividend to $0.09 per share from $0.06 on a pre-split basis.
Risks, contingencies and other items
- Management cited economic conditions, competition, international operations, acquisition execution and integration, product development, raw-material availability, regulatory compliance, and liquidity and financing as factors that could cause actual results to differ from expectations.
- Environmental reserves were $25.8 million at March 31, including $15.5 million for an acquired site. Management considered reserves adequate and did not expect environmental matters to materially affect results, financial position or cash flows; actual remediation costs could vary.
- Gross unrecognized tax benefits were $29.7 million, of which $27.1 million would affect the effective tax rate if recognized. The Q1 effective tax rate was 31.9%, compared with 32.2%.
- Defined-benefit pension expense was $0.2 million, versus pension income of $2.0 million in Q1 2011; total net pension expense increased to $6.6 million from $3.3 million.
- Disclosure controls were concluded effective at the reasonable-assurance level. No material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether internal sales momentum and order growth persist, and how backlog converts into revenue.
- O’Brien’s final purchase-price allocation and the integration, financing and returns of recent and proposed acquisitions, including Dunkermotoren’s closing conditions.
- Debt growth, cash held outside the United States, revolving-credit availability and covenant compliance.
- Environmental remediation exposure, related reserves and expected third-party recoveries or indemnifications.
- The effect of the announced stock split and dividend increase on future per-share comparisons and cash distributions.