AMETEK, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone quarterly report; fourth-quarter figures below are unaudited. AMETEK manufactures electronic instruments and electromechanical products through its Electronic Instruments Group (EIG) and Electromechanical Group (EMG).
Financial performance
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $3,594.1 million | $3,334.2 million | +7.8% |
| Operating income | $815.1 million | $745.9 million | +9.3% |
| Operating margin | 22.7% | 22.4% | +0.3 percentage points |
| Net income | $517.0 million | $459.1 million | +12.6% |
| Diluted EPS | $2.10 | $1.88 | +11.7% |
| Cash from operations | $660.7 million | $612.5 million | +7.9% |
| Free cash flow | $597.4 million | $555.1 million | +7.6% |
Reported annual sales growth included approximately 2% internal growth; acquisitions contributed materially, while currency translation was flat year over year. EIG sales rose 8.7% to $2,034.6 million and EMG sales rose 6.7% to $1,559.5 million. Segment operating margin increased to 24.0% from 23.7%; EIG margin improved to 27.1% from 26.5%, while EMG margin slipped to 19.8% from 20.0%.
Fourth-quarter 2013 sales were $942.5 million, operating income $210.5 million, net income $135.7 million and diluted EPS $0.55, compared with $841.8 million, $190.0 million, $119.9 million and $0.49, respectively, in fourth-quarter 2012.
Cash, debt and liquidity
- Cash and cash equivalents were $295.2 million at year-end, versus $158.0 million a year earlier; current assets were $1,369.1 million and current liabilities $874.5 million.
- Total debt was $1,415.1 million, down from $1,453.8 million; net debt was $1,119.9 million. Debt-to-capital declined to 31.1% from 36.4% and net debt-to-capital to 26.3% from 33.8%.
- The revolving credit facility was amended to expire in December 2018. Available borrowing capacity, including the accordion feature, was $587.0 million. The company reported compliance with debt covenants.
- Capital expenditures were $63.3 million. Dividends paid were $58.4 million, or $0.24 per share; share repurchases totaled $8.5 million.
Material changes, outlook and commentary
- AMETEK spent $414.3 million, net of cash acquired, on three 2013 EIG acquisitions: Controls Southeast, Creaform and Powervar. The 2013 acquisitions had an immaterial effect on reported 2013 sales, net income and EPS; management expected their full-year contribution to benefit 2014 results.
- Record orders were $3,621.9 million, up 2.5%; year-end backlog was $1,140.0 million, up 2.5%. Approximately 89% of backlog was expected to ship during 2014. The company attributed the higher 2013 backlog partly to acquired orders.
- Management’s strategy emphasizes operational excellence, product development, global and market expansion, and acquisitions. Its stated long-term objective is double-digit annual EPS growth over the business cycle; this is a strategic objective, not specific 2014 earnings guidance.
- 2014 capital expenditures were expected to approximate 1.8% of net sales. Company-funded R&D was $93.9 million in 2013; sales from products introduced in the prior three years were $768.4 million, or 21.4% of sales.
- Unusual items included an $11.6 million gain on sale of a facility, reflected in EIG results, and higher acquisition-related expenses and professional fees. The effective tax rate fell to 28.7% from 30.7%, reflecting a greater share of lower-tax foreign earnings, state tax planning benefits and the retroactive R&D credit.
Risks, contingencies and reporting
- Key risks include cyclical downturns in aerospace and defense, process instrumentation and power markets; acquisition execution and integration; international, currency and export-control exposure; competition, skilled-labor availability and raw-material costs; and restrictions under debt agreements.
- Goodwill and other intangible assets totaled $3,882.3 million, approximately 66% of total assets. Annual impairment testing found no impairment; management cautioned that weaker future business performance or changed assumptions could lead to impairment charges.
- Environmental reserves were $21.9 million at year-end. AMETEK was a potentially responsible party at 15 non-owned sites; management believed reserves were adequate and did not expect known matters to materially affect results, financial position or cash flows. The company also disclosed asbestos litigation, with no judgments against it reported.
- Gross unrecognized tax benefits were $55.2 million; $17.4 million of tax, interest and penalties was classified as current because certain audits or rulings could be settled within 12 months. Tax outcomes remain uncertain.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management concluded controls were effective as of December 31, 2013.
Most important facts for investors to verify
- How much of future growth and margin performance comes from underlying demand and operational improvements versus acquisitions, and whether acquired businesses meet expected returns.
- Whether backlog converts to sales as expected in 2014, including the timing and quality of orders.
- Cash generation and debt reduction after acquisition spending, including upcoming debt maturities and availability under the revolving facility.
- Assumptions supporting the substantial goodwill and intangible asset balances, as well as progress on the 2013 acquisitions’ purchase-price allocations.
- Developments in uncertain tax positions, environmental remediation and other contingencies that could change recorded liabilities or cash needs.