1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ------------------------------------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the transition period from to --------------------- ------------------------ Commission file number 1-12981 AMETEK, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) <TABLE> <S> <C> DELAWARE 14-1682544 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) </TABLE> 37 North Valley Road, Building 4, P.O. Box 1764, Paoli, Pennsylvania 19301-0801 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 610-647-2121 ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ The number of shares of the issuer's common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at April 30, 2001 was 32,975,276 shares.
2 AMETEK, INC. FORM 10-Q TABLE OF CONTENTS <TABLE> <CAPTION> PAGE NUMBER ----------- <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income for the Three Months Ended March 31, 2001 and 2000 ................. 3 Consolidated Balance Sheet as of March 31, 2001 and December 31, 2000 ........................... 4 Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2001 and 2000 ................. 5 Notes to Consolidated Financial Statements ....................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 8 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ............................. 12 SIGNATURES ................................................................. 13 </TABLE>
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMETEK, Inc. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Dollars and shares in thousands, except per share amounts) <TABLE> <CAPTION> Three months ended March 31, --------- 2001 2000 ---- ---- <S> <C> <C> Net sales $ 264,071 $ 255,812 Expenses: Cost of sales, excluding depreciation 195,924 189,967 Selling, general and administrative 24,144 23,832 Depreciation 8,300 8,126 --------- --------- Total expenses 228,368 221,925 --------- --------- Operating income 35,703 33,887 Other income (expenses): Interest expense (7,660) (7,029) Other, net 255 (679) --------- --------- Income before income taxes 28,298 26,179 Provision for income taxes 10,026 9,425 --------- --------- Net Income $ 18,272 $ 16,754 ========= ========= Basic earnings per share $ 0.56 $ 0.52 ========= ========= Diluted earnings per share $ 0.55 $ 0.52 ========= ========= Average common shares outstanding: Basic shares 32,624 32,005 ========= ========= Diluted shares 33,243 32,428 ========= ========= Dividends per share $ 0.06 $ 0.06 ========= ========= </TABLE> See accompanying notes. 3
4 AMETEK, Inc. CONSOLIDATED BALANCE SHEET (Dollars in thousands) <TABLE> <CAPTION> March 31, December 31, 2001 2000 ---- ---- (Unaudited) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 7,207 $ 7,187 Marketable securities 6,783 8,111 Receivables, less allowance for possible losses 145,546 139,568 Inventories 136,994 129,365 Deferred income taxes 10,592 10,516 Other current assets 10,783 8,353 --------- --------- Total current assets 317,905 303,100 --------- --------- Property, plant and equipment, at cost 527,930 528,521 Less accumulated depreciation (318,428) (314,566) --------- --------- 209,502 213,955 --------- --------- Goodwill, net of accumulated amortization 296,177 299,479 Investments and other assets 46,033 42,454 --------- --------- Total assets $ 869,617 $ 858,988 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 130,218 $ 127,601 Accounts payable 77,564 87,315 Accruals 83,355 82,739 --------- --------- Total current liabilities 291,137 297,655 Long-term debt 232,977 233,616 Deferred income taxes 34,182 33,166 Other long-term liabilities 11,406 13,713 Stockholders' equity : Common stock 334 334 Capital in excess of par value 163 2,248 Retained earnings 347,007 330,696 Accumulated other comprehensive losses (33,388) (30,165) Treasury stock (14,201) (22,275) --------- --------- 299,915 280,838 --------- --------- Total liabilities and stockholders' equity $ 869,617 $ 858,988 ========= ========= </TABLE> See accompanying notes 4
5 AMETEK, Inc. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> Three months ended March 31, --------- 2001 2000 ---- ---- <S> <C> <C> Cash provided by (used for): Operating activities: Net income $ 18,272 $ 16,754 Adjustments to reconcile net income to total operating activities: Depreciation and amortization 11,256 10,802 Net change in assets and liabilities (28,954) (23,623) Other (3,437) (2,021) -------- -------- Total operating activities (before sale of accounts receivable) (2,863) 1,912 -------- -------- Proceeds from sale of accounts receivable 2,000 6,000 -------- -------- Total operating activities (863) 7,912 -------- -------- Investing activities: Additions to property, plant and equipment (7,013) (5,558) Other 1,302 947 -------- -------- Total investing activities (5,711) (4,611) -------- -------- Financing activities: Net change in short-term borrowings 3,302 (2,977) Repurchases of common stock -- (1,611) Cash dividends paid (1,961) (1,916) Proceeds from stock options and other 5,253 (611) -------- -------- Total financing activities 6,594 (7,115) -------- -------- Increase (decrease) in cash and cash equivalents 20 (3,814) Cash and cash equivalents: As of January 1 7,187 8,636 -------- -------- As of March 31 $ 7,207 $ 4,822 ======== ======== </TABLE> See accompanying notes. 5
6 AMETEK, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) Note 1 - Financial Statement Presentation The accompanying consolidated financial statements are unaudited. The Company believes that all adjustments (which consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at March 31, 2001 and the consolidated results of its operations and cash flows for the three-month periods ended March 31, 2001 and 2000 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. Quarterly financial statements should be read in conjunction with the financial statements and related notes presented in the Company's 2000 Form 10-K as filed with the Securities and Exchange Commission. Note 2 - Earnings Per Share The calculation of basic earnings per share for the three-month periods ended March 31, 2001 and 2000 are based on the average number of common shares considered outstanding during the periods. Diluted earnings per share for such periods reflect the effect of all potentially dilutive securities (primarily outstanding common stock options). The following table presents the number of shares used in the calculation of basic earnings per share and diluted earnings per share for the periods: <TABLE> <CAPTION> Weighted average shares (In thousands) Three months ended March 31, 2001 2000 ------ ------ (Unaudited) <S> <C> <C> Basic 32,624 32,005 Stock option and award plans 619 423 ------ ------ Diluted 33,243 32,428 ====== ====== </TABLE> Note 3 - Inventories The estimated components of inventory stated at lower of LIFO cost or market are: <TABLE> <CAPTION> (In thousands) -------------- March 31, December 31, 2001 2000 ---- ---- (Unaudited) <S> <C> <C> Finished goods and parts $ 27,448 $ 22,879 Work in process 33,365 31,020 Raw materials and purchased parts 76,181 75,466 -------- -------- $136,994 $129,365 ======== ======== </TABLE> Note 4 - Comprehensive Income Comprehensive income includes all changes in stockholders' equity during a period except those resulting from investments by and distributions to stockholders. The following table presents 6
7 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) comprehensive income for the three-month periods ended March 31, 2001 and 2000: <TABLE> <CAPTION> (In thousands) Three months ended March 31, 2001 2000 ---- ---- (Unaudited) <S> <C> <C> Net income $ 18,272 $ 16,754 Foreign currency translation adjustment (3,750) (3,276) Unrealized gain on marketable securities 527 461 -------- -------- Total comprehensive income $ 15,049 $ 13,939 ======== ======== </TABLE> Note 5 - Segment Disclosure The Company has two reportable business segments, the Electronic Instruments Group and the Electromechanical Group. The Company organizes its businesses primarily on the basis of product type, production processes, distribution methods, and management organizations. At March 31, 2001, there were no significant changes in identifiable assets of reportable segments from the amounts disclosed at December 31, 2000, nor were there any changes in the basis of segmentation, or in the measurement of segment operating results. Operating information relating to the Company's reportable segments for the three month period ended March 31, 2001 and 2000 can be found in the table on page 8 in the Management's Discussion & Analysis section of this Report. Note 6 - New Accounting Pronouncements Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement requires recognition of all derivative instruments measured at fair value in the statement of financial position. Gains or losses resulting from changes in the value of derivatives would be accounted for depending on the intended use of the derivative and whether it qualifies for hedge accounting. Derivatives that are not hedges must be adjusted to fair value through earnings. Changes in the fair value of certain derivatives are recognized in comprehensive income until the hedged item is recognized in earnings. The Company makes limited use of derivative financial instruments, therefore, based on the Company's derivative position at January 1, 2001 and March 31, 2001, the effect of adopting Statement 133 and its effect during the first quarter of 2001 did not have a material effect on the Company's consolidated results of operations, financial position, or cash flows. FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", became effective on April 1, 2001. Although Statement No. 140 has changed many of the accounting rules regarding securitizations, it continues to require an entity to recognize in its financial statements, the financial assets it controls. It also requires an entity to derecognize financial assets (as sales to special-purpose entities) when control has been surrendered in accordance with the criteria provided in the Statement. After an extensive study of Statement No. 140, the Company has decided not to modify its existing accounts receivable securitization agreements to meet the new accounting requirements to continue sales treatment for financial assets transferred to its special purpose subsidiary after March 31, 2001. Therefore, disqualifying its special purpose subsidiary after March 31, 2001 under the new accounting rules. Accordingly, as of April 1, 2001, the Company will record the outstanding balance of the financial assets transferred to its special purpose subsidiary on the Company's balance sheet as collateralized secured borrowings. Such amount totaled $47 million in accounts receivable at March 31, 2001. This change in accounting will have no material effect on the Company's net income, or earnings per share. 7
8 AMETEK, Inc. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth sales and operating income by reportable segment, and consolidated operating and pretax income: <TABLE> <CAPTION> Three months ended March 31, 2001 2000 ---- ---- (Dollars in thousands) <S> <C> <C> Net sales Electronic Instruments $ 126,028 $ 130,814 Electromechanical 138,043 124,998 --------- --------- Consolidated net sales $ 264,071 $ 255,812 ========= ========= Operating income and income before income taxes Electronic Instruments $ 18,844 $ 19,641 Electromechanical 21,891 19,215 --------- --------- Total segment operating income 40,735 38,856 Corporate and other (5,032) (4,969) --------- --------- Consolidated operating income 35,703 33,887 Interest and other expenses, net (7,405) (7,708) --------- --------- Consolidated income before income taxes $ 28,298 $ 26,179 ========= ========= </TABLE> Operations for the first quarter of 2001 compared with the first quarter of 2000 Net sales for the first quarter 2001 were $264.1 million, an increase of $8.3 million or 3.2% compared with the first quarter of 2000. In the first quarter 2001, the Electromechanical Group (EMG) benefited from the 2000 acquisition of several businesses from Prestolite Electric Inc. (Prestolite). The European floor-care market was strong, compared to a weaker North American floor-care market. Revenue growth in Europe continues to be partially offset by the effect of translating European currencies into U.S. dollars in the current first quarter. The Electronic Instruments Group (EIG) sales were down due to a general slowdown in its process and industrial businesses, as well as a continued decline in demand for heavy-vehicle instruments. Strength in the aerospace and power instrument markets partially offset EIG's sales decrease. New orders for the first quarter of 2001 were $277.7 million, up 2.3% when compared with the same quarter in 2000. The Company's backlog of unfilled orders at March 31, 2001 was $270.1 million, up 5.3% from $256.4 million at December 31, 2000. 8
9 AMETEK, Inc. RESULTS OF OPERATIONS (CONTINUED) Segment operating income for the first quarter 2001 was $40.7 million, an increase of $1.9 million or 4.8% when compared with the first quarter 2000. Segment operating income as a percentage of sales increased to 15.4% of sales in the current first quarter from 15.2% of sales in the first quarter of 2000. Although the economy continued to weaken during the quarter, the Company continues to benefit from its cost reduction initiatives, which began in the fourth quarter of 2000. These actions include headcount reductions and the elimination of certain discretionary spending. The acquired businesses, along with strong aerospace and power instrument markets also contributed to the higher operating income. Consolidated operating income totaled $35.7 million, or 13.5% of sales, compared with $33.9 million, or 13.2% of sales for the first quarter of 2000, an increase of 5.4%. Interest and other expenses, net were $7.4 million in the first quarter 2001, compared with $7.7 million for the same quarter of 2000. Interest expense was higher in the 2001 quarter related to increased average debt levels partially offset by reduced interest rates compared to the first quarter of 2000. In the first quarter 2001, the Company had other income of $0.3 million compared with $0.7 million in other expenses in the first quarter of 2000. This change primarily resulted from gains from the sale of marketable securities in the first quarter of 2001, compared with losses from the sale of marketable securities in the first quarter of 2000. Net income for the first quarter 2001 totaled $18.3 million, up 9.1% from $16.8 million in the first quarter of 2000. Diluted earnings per share rose 5.8% to $0.55 per share, compared with $0.52 per share for the same quarter of 2000. Segment Results Electromechanical Group (EMG) sales totaled $138.0 million in the first quarter 2001, an increase of $13.0 million or 10.4% from the same quarter of 2000. The sales increase was primarily due to the Prestolite acquisition mentioned earlier. EMG's base businesses reported a moderate decline in first quarter sales. The European floor-care market was strong compared to a weak North American floor-care market. Local currency revenue growth from increased unit volume in Europe continues to be offset by the effect of translating European currencies into US dollars. Before the effect of currency translation, Group sales increased 11.9% from the first quarter of 2000. Operating income of EMG was $21.9 million for the first quarter 2001, an increase of $2.7 million or 13.9% from the first quarter of 2000. The higher profits were due to contributions from the acquisition, increased operating income from the European floor-care businesses and our specialty metals business. The profit margin improvement was the result of continued implementation of the Company's global "best-cost" strategy and cost reduction initiatives, noted above. Group operating income as a percentage of sales for the first quarter 2001 was 15.9%, compared with operating margins of 15.4% in the first quarter of 2000. 9
10 AMETEK, Inc. RESULTS OF OPERATIONS (CONTINUED) Electronic Instruments Group ("EIG") sales were $126.0 million in the first quarter 2001, a decrease of $4.8 million or 3.7% from the same quarter of 2000. The lower sales were due to a general weakness in the process and industrial markets, led by a sizable decline in the heavy-vehicle instruments market. These decreases were partially offset by the sales contributions of the September 2000 acquisition of Rochester Instrument Systems, and by strength in the aerospace and power instrument markets. EIG operating income for the first quarter of 2001 decreased by $0.8 million or 4.1% to $18.8 million when compared with the same quarter of 2000. The decrease in operating income was due primarily to the sales decrease noted above. Operating margins were 15.0% of sales, unchanged from the first quarter of 2000. Operating margins were maintained through continued operational excellence and cost reduction initiatives. FINANCIAL CONDITION Liquidity and Capital Resources Cash used by operating activities before proceeds from the sale of accounts receivable totaled $2.9 million in the first quarter 2001, compared with cash provided of $1.9 million for the same quarter of 2000. Higher working capital requirements were partially due to a build-up in inventories associated with the Company's movement of certain products to low-cost manufacturing facilities, and higher inventory levels in several businesses that experienced an economic downturn. Also, higher receivable levels due in part to increased sales resulted in the use of cash. Total net cash used by operating activities in the first quarter 2001, after proceeds from sales under an accounts receivable securitization agreement, was $0.9 million compared with cash provided of $7.9 million in the first quarter of 2000. Cash used for investing activities totaled $5.7 million in the first quarter 2001, compared with $4.6 million used in the same quarter of 2000. Additions to property, plant and equipment in the first quarter 2001 totaled $7.0 million, compared with $5.6 million in the same quarter of 2000. 10
11 AMETEK, Inc. FINANCIAL CONDITION (CONTINUED) Cash provided by financing activities in the first quarter of 2001 totaled $6.6 million, compared with cash used by financing activities of $7.1 million in the same quarter of 2000. In the first quarter 2001, net short-term borrowings increased by $3.3 million, compared with a decrease of $3.0 million in 2000. Net cash proceeds from the exercise of employee stock options totaled $5.7 million in the first quarter 2001, compared with $0.7 million in the first quarter of 2000. Cash paid for dividends of $2.0 million were essentially the same for the first quarters 2001 and 2000. In the first quarter of 2000, other financing activities included the repurchase of 83,500 shares of common stock for $1.6 million. As a result of all of the Company's cash flow activities, cash and cash equivalents at March 31, 2001 totaled $7.2 million, which was unchanged from December 31, 2000. The Company also had unused borrowing commitments of $77.6 million from its $195.0 million revolving credit facility available at March 31, 2001. The Company believes it has sufficient cash-generating capabilities and available credit facilities to enable it to meet its needs in the foreseeable future. FORWARD-LOOKING INFORMATION Information contained in this discussion, other than historical information, are considered "forward-looking statements" and may be subject to change based on various important factors and uncertainties. Some, but not all, of the factors and uncertainties that may cause actual results to differ significantly from those expected in any forward-looking statement are disclosed in the Company's 2000 Form 10-K as filed with the Securities and Exchange Commission. 11
12 AMETEK, Inc. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: <TABLE> <CAPTION> Exhibit Number Description ------ ----------- <S> <C> 10.1 First Amendment to the Receivables Purchase Agreement, dated as of March 31, 2001. 10.2 Fourth Amendment to the Receivables Sale Agreement, dated as of March 31, 2001. </TABLE> b) Reports on Form 8-K: During the quarter ended March 31, 2001, no reports were filed on Form 8-K. 12
13 AMETEK, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMETEK, Inc. ---------------------------------------------- (Registrant) By /s/ Robert R. Mandos, Jr. -------------------------------------------- Robert R. Mandos, Jr. Vice President & Comptroller (Principal Accounting Officer) May 10, 2001 13