AMETEK, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing, not a standalone fourth-quarter report; quarterly figures below are unaudited. AMETEK manufactures electronic instruments and electromechanical products through its Electronic Instruments Group (EIG) and Electromechanical Group (EMG).
Financial performance and liquidity
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net sales | $2,989.9 million | $2,471.0 million | +21.0% |
| Operating income | $635.9 million | $482.2 million | +31.9% |
| Operating margin | 21.3% | 19.5% | +1.8 percentage points |
| Net income | $384.5 million | $283.9 million | +35.4% |
| Diluted EPS | $2.37 | $1.76 | +34.7% |
| Cash from operations | $508.6 million | $423.0 million | +20.2% |
| Free cash flow | $457.8 million | $383.8 million | +19.3% |
- Growth drivers: Management reported approximately 11% internal sales growth, excluding a 1% favorable foreign-exchange effect; acquisitions accounted for most of the remaining sales increase. EIG sales rose 24.4% to $1,647.2 million, and EMG sales rose 17.1% to $1,342.7 million.
- Segment margins: EIG operating margin was 25.5%, versus 23.9%; EMG was 19.6%, versus 18.3%. Consolidated improvement reflected sales growth and Operational Excellence cost initiatives.
- Fourth quarter: Sales were $762.8 million, operating income $167.4 million, net income $101.9 million, and diluted EPS $0.63. The comparable 2010 quarter reported sales of $678.0 million, operating income of $135.5 million, net income of $81.2 million, and diluted EPS of $0.50.
- Cash deployment: Capital expenditures were $50.8 million. The company spent $474.9 million, net of acquired cash, on five acquisitions; repurchased 1.7 million shares for $59.3 million; and paid $38.4 million in dividends.
- Liquidity and debt: Cash and equivalents were $170.4 million; current assets were $1,059.1 million and current liabilities $628.9 million. Total debt was $1,263.9 million, versus $1,168.5 million; net debt was $1,093.5 million. Debt-to-capital was 38.1%, and net debt-to-capital 34.8%. AMETEK reported $742.7 million of available revolver capacity, including the accordion feature, and compliance with debt covenants.
- Other measures: EBITDA, a non-GAAP measure, was $712.2 million, and the EBITDA-to-interest ratio was 10.2x. International sales were $1,501.1 million, or 50.2% of consolidated sales. Backlog reached a year-end record of $911.4 million, up 10.0%.
Material changes versus 2010
- Sales, operating income, operating margin, net income, diluted EPS, and operating cash flow all reached company records. Order growth was 15.9%; internal order growth was approximately 8%, excluding a 1% favorable foreign-exchange effect.
- Acquisition spending declined to $474.9 million from $538.6 million, while total debt increased by $95.4 million. The company completed five acquisitions in 2011: Avicenna, Coining, Reichert Technologies, EM Test, and TMC.
- R&D and engineering spending before customer reimbursement rose to $137.6 million from $112.1 million. SG&A increased 17.8% in dollars but declined to 11.7% of sales from 12.0%.
- Cash from operations increased, though management noted higher operating working-capital needs. Cash and equivalents rose modestly to $170.4 million from $163.2 million.
Outlook, risks, contingencies, and unusual items
- Outlook: No specific earnings or sales guidance is provided in the supplied filing text. Management expected the full-year impact of 2011 acquisitions and Operational Excellence initiatives to benefit 2012 results. 2012 capital expenditures were expected to be approximately 1.8% of sales. Management’s stated long-term objective is double-digit annual EPS growth over the business cycle, not a period-specific forecast.
- Subsequent acquisition: In January 2012, AMETEK acquired O’Brien Corporation for approximately $175 million; estimated annual sales were approximately $80 million.
- Acquisition accounting: 2011 acquisitions were not material to reported 2011 sales, net income, or diluted EPS. Purchase-price allocations included $238.1 million of goodwill and $260.0 million of other intangible assets; certain deferred taxes and TMC asset valuations remained subject to finalization.
- Key risks: Cyclicality in aerospace and defense, process instrumentation, and motor markets; acquisition execution and integration; international, foreign-exchange and export-compliance exposures; competition; raw-material price or supply changes; product liability; environmental regulation; debt covenants; and potential impairment of goodwill and intangibles. Goodwill and other intangible assets totaled $2,789.2 million, or 65% of assets. Annual impairment tests found no impairment in 2011.
- Contingencies: Environmental reserves were $28.0 million at year-end, compared with $31.3 million in 2010. AMETEK was a potentially responsible party at 15 non-owned sites; management said existing reserves were adequate and did not expect environmental matters to materially affect results, financial position, or cash flows. Standby letters of credit and surety bonds totaled $26.8 million in the MD&A disclosure; the guarantees note reports maximum future obligations of $64.7 million and an outstanding liability of $4.1 million.
- Unusual item: Accelerated vesting of restricted stock generated a reported $5.2 million pretax charge ($3.6 million after tax); the MD&A separately identifies $2.1 million of related corporate expense.
- Controls and audit: Management and Ernst & Young concluded internal control over financial reporting was effective; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of subsequent growth and margin performance depends on acquisitions versus organic demand, particularly given internal growth differences between EIG and EMG.
- Integration, final purchase accounting, and returns on the five 2011 acquisitions and the January 2012 O’Brien acquisition.
- Debt maturities, variable-rate revolver exposure, covenant headroom, and the company’s ability to fund acquisitions while maintaining shareholder returns.
- Whether the large goodwill and intangible-asset balance remains supportable under changes in business-unit forecasts and market assumptions.
- Environmental reserve adequacy and recoveries or indemnifications relating to the HCC site, as well as the status of uncertain tax positions.
- Fourth-quarter and annual results against subsequent filings and company disclosures, including the expected 2012 capital-spending level and any later-issued guidance.