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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 September 30, 2002
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)
DELAWARE 14-1682544
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
October 31, 2002 was 33,030,994 shares.
AMETEK, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for
the Three and Nine Months Ended September 30, 2002 and 2001.................... 3
Consolidated Balance Sheet as of
September 30, 2002 and December 31, 2001....................................... 4
Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 2002 and 2001.............................. 5
Notes to Consolidated Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 9
PART II. OTHER INFORMATION
Item 4. Controls and Procedures........................................................ 16
Item 6. Exhibits and Reports on Form 8-K............................................... 16
SIGNATURES................................................................................... 17
CERTIFICATIONS .............................................................................. 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMETEK, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(Dollars and shares in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 256,995 $ 256,533 $ 787,979 $ 782,026
---------- ---------- ---------- ----------
Expenses:
Cost of sales, excluding depreciation 184,550 191,760 570,756 582,632
Selling, general and administrative 26,123 23,745 80,907 71,069
Depreciation 8,262 8,062 24,118 24,082
---------- ---------- ---------- ----------
Total expenses 218,935 223,567 675,781 677,783
---------- ---------- ---------- ----------
Operating income 38,060 32,966 112,198 104,243
Other income (expenses):
Interest expense (6,175) (6,456) (19,452) (21,274)
Other, net (591) 422 (701) 781
---------- ---------- ---------- ----------
Income before income taxes 31,294 26,932 92,045 83,750
Provision for income taxes 9,913 9,205 29,674 29,098
---------- ---------- ---------- ----------
Net income $ 21,381 $ 17,727 $ 62,371 $ 54,652
========== ========== ========== ==========
Basic earnings per share $ 0.65 $ 0.54 $ 1.90 $ 1.66
========== ========== ========== ==========
Diluted earnings per share $ 0.64 $ 0.53 $ 1.86 $ 1.63
========== ========== ========== ==========
Average common shares outstanding:
Basic shares 32,926 33,063 32,906 32,873
========== ========== ========== ==========
Diluted shares 33,566 33,701 33,623 33,512
========== ========== ========== ==========
Dividends per share $ 0.06 $ 0.06 $ 0.18 $ 0.18
========== ========== ========== ==========
See accompanying notes.
3
AMETEK, Inc.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,269 $ 14,139
Marketable securities 5,832 8,215
Receivables, less allowance for possible losses 181,415 181,031
Inventories 135,420 152,525
Deferred income taxes 9,886 10,096
Other current assets 15,447 13,341
------------ ------------
Total current assets 366,269 379,347
------------ ------------
Property, plant and equipment, at cost 583,601 561,753
Less accumulated depreciation (376,718) (347,259)
------------ ------------
206,883 214,494
------------ ------------
Goodwill, net of accumulated amortization 390,696 387,420
Investments and other assets 52,346 48,028
------------ ------------
Total assets $ 1,016,194 $ 1,029,289
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 136,553 $ 167,399
Accounts payable 80,601 86,707
Accruals 83,924 82,044
------------ ------------
Total current liabilities 301,078 336,150
Long-term debt 279,787 303,434
Deferred income taxes 34,166 33,496
Other long-term liabilities 3,978 21,151
Stockholders' equity:
Common stock 338 334
Capital in excess of par value 9,431 683
Retained earnings 445,378 388,929
Accumulated other comprehensive losses (33,566) (37,023)
Treasury stock (24,396) (17,865)
------------ ------------
397,185 335,058
------------ ------------
Total liabilities and stockholders' equity $ 1,016,194 $ 1,029,289
============ ============
See accompanying notes.
4
AMETEK, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine months ended
September 30,
---------------------
2002 2001
-------- --------
Cash provided by (used for):
Operating activities:
Net income $ 62,371 $ 54,652
Adjustments to reconcile net income to total operating activities:
Depreciation and amortization 24,542 33,298
Deferred income taxes 738 3,639
Net change in assets and liabilities (1,911) (34,851)
Other (5,444) (8,207)
-------- --------
Total operating activities (before receivable securitization transactions) 80,296 48,531
Decrease in accounts receivable sold -- (45,000)
-------- --------
Total operating activities 80,296 3,531
-------- --------
Investing activities:
Additions to property, plant and equipment (12,700) (21,376)
Purchase of businesses -- (68,102)
Other (3,355) 5,504
-------- --------
Total investing activities (16,055) (83,974)
-------- --------
Financing activities:
Net change in short-term borrowings (31,976) 13,817
Additional long-term borrowings -- 73,321
Reduction of long-term debt (23,723) (721)
Repurchases of common stock (7,346) (11,628)
Cash dividends paid (5,922) (5,918)
Proceeds from stock options and other 8,856 12,328
-------- --------
Total financing activities (60,111) 81,199
-------- --------
Increase in cash and cash equivalents 4,130 756
Cash and cash equivalents:
As of January 1 14,139 7,187
-------- --------
As of September 30 $ 18,269 $ 7,943
======== ========
See accompanying notes.
5
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(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 September 30, 2002 and the consolidated results of
its operations for the three and nine-month periods ended September 30, 2002 and
2001 and cash flows for the nine months ended September 30, 2002 and 2001 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 2001 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 and nine-month
periods ended September 30, 2002 and 2001 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:
Weighted average shares (in thousands) (Unaudited)
----------------------------------------------------------
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Basic Shares 32,926 33,063 32,906 32,873
Stock option and award plans 640 638 717 639
------ ------ ------ ------
Diluted Shares 33,566 33,701 33,623 33,512
====== ====== ====== ======
Note 3 - Inventories
The estimated components of inventory stated at lower of LIFO cost or
market are:
(In thousands)
--------------------------------
September 30, December 31,
2002 2001
--------- ---------
(Unaudited)
Finished goods and parts $ 29,499 $ 31,313
Work in process 33,691 36,925
Raw materials and purchased parts 72,230 84,287
--------- ---------
$ 135,420 $ 152,525
========= =========
6
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
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 comprehensive income for the three
and nine-month periods ended September 30, 2002 and 2001:
In thousands (Unaudited)
------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $21,381 $17,727 $62,371 $54,652
Foreign currency translation adjustment (105) 42 4,870 (4,464)
Unrealized loss on marketable securities and other (1,550) (1,578) (1,413) (848)
------- ------- ------- -------
Total comprehensive income $19,726 $16,191 $65,828 $49,340
======= ======= ======= =======
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 September 30, 2002, there were no significant changes in identifiable
assets of reportable segments from the amounts disclosed at December 31, 2001,
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 and nine-month periods ended September 30,
2002 and 2001 can be found in the table on page 9 in the Management's Discussion
and Analysis of Financial Condition and Results of Operations section of this
Report.
Note 6 - New Accounting Pronouncements
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be tested for impairment at least
annually in accordance with the provisions of the Statement. As of January 1,
2002, the Company no longer amortizes goodwill.
7
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(UNAUDITED)
The Company's net income and earnings per share for the three and
nine-month periods ended September 30, 2002 and 2001 adjusted to exclude
goodwill amortization were as follows (in thousands, except per share amounts):
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Reported net income $ 21,381 $ 17,727 $ 62,371 $ 54,652
Add back goodwill amortization, net of tax -- 2,644 -- 7,462
---------- ---------- ---------- ----------
Adjusted net income $ 21,381 $ 20,371 $ 62,371 $ 62,114
========== ========== ========== ==========
Basic Earnings per Share as Reported $ 0.65 $ 0.54 $ 1.90 $ 1.66
Goodwill amortization, net of tax -- 0.08 -- 0.22
---------- ---------- ---------- ----------
Adjusted basic earnings per share $ 0.65 $ 0.62 $ 1.90 $ 1.88
========== ========== ========== ==========
Diluted Earnings per Share as Reported $ 0.64 $ 0.53 $ 1.86 $ 1.63
Goodwill amortization, net of tax -- 0.08 -- 0.22
---------- ---------- ---------- ----------
Adjusted diluted earnings per share $ 0.64 $ 0.61 $ 1.86 $ 1.85
========== ========== ========== ==========
The Company has completed the transitional impairment test of its
goodwill. As a result of the valuation performed, the Company found no
indications of goodwill impairment. During the nine months ended September 30,
2002, changes to goodwill primarily resulted from purchase accounting
adjustments related to recent acquisitions. As of September 30, 2002, goodwill
by segment was: Electronic Instrument Group (EIG) - $243.1 million;
Electromechanical Group (EMG) - $147.6 million.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Impairment or Disposal of Long-lived
Assets". SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of", and provides a
single accounting model for long-lived assets to be disposed of. The adoption of
this Statement had no effect on the Company's consolidated results of
operations, financial position, or cash flows.
In July 2002, the Financial Accounting Standards Board issued Statement
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".
Statement No. 146 nullifies EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit and Activity
(including Certain Costs Incurred in a Restructuring)." Among other things,
Statement No. 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred instead of at
the date of an entity's commitment to an exit plan as under EITF Issue No. 94-3.
Statement No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company is studying the future effects of
adopting this Statement, but the Company does not believe that its adoption will
have a material effect on the Company's consolidated results of operations,
financial position, or cash flows.
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 income by reportable segment, and
consolidated operating income and pretax income:
Three months ended Sept. 30, Nine months ended Sept. 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Dollars in thousands)
Net sales
Electronic Instruments $ 134,726 $ 126,619 $ 406,835 $ 375,466
Electromechanical 122,269 129,914 381,144 406,560
---------- ---------- ---------- ----------
Consolidated net sales $ 256,995 $ 256,533 $ 787,979 $ 782,026
========== ========== ========== ==========
Operating income and income before income taxes
Electronic Instruments $ 22,826 $ 18,174 $ 64,442 $ 55,547
Electromechanical 19,549 19,138 61,986 62,548
---------- ---------- ---------- ----------
Total segment operating income 42,375 37,312 126,428 118,095
Corporate and other (4,315) (4,346) (14,230) (13,852)
---------- ---------- ---------- ----------
Consolidated operating income 38,060 32,966 112,198 104,243
Interest and other expenses, net (6,766) (6,034) (20,153) (20,493)
---------- ---------- ---------- ----------
Consolidated income before income taxes $ 31,294 $ 26,932 $ 92,045 $ 83,750
========== ========== ========== ==========
Operations for the third quarter of 2002 compared with the third quarter of 2001
Although the difficult global economic environment continued to impact many of
the Company's businesses, the Company performed well in the third quarter of
2002. Net sales for the third quarter of 2002 were flat at $257.0 million,
compared with the third quarter of 2001. Net sales for the Electronic
Instruments Group (EIG) increased $8.1 million or 6.4% for the current third
quarter, primarily due to the December 2001 acquisition of Instruments for
Research and Applied Science (IRAS), as well as strength in the Company's
high-end analytical instruments and heavy-vehicle businesses. Net Sales for the
Electromechanical Group (EMG) were down $7.6 million or 5.9% in the third
quarter of 2002. Adverse market conditions affecting the floor care markets
continued to impact the sales of EMG in the third quarter of 2002, despite a
strong performance in Asia. Without the IRAS acquisition, consolidated sales for
the third quarter of 2002 would have shown a 4.6% reduction when compared with
the same quarter in 2001.
Segment operating income for the third quarter of 2002 was $42.4 million, an
increase of $5.1 million or 13.6% from $37.3 million in the third quarter of
2001. Segment operating income, as a percentage of sales, increased to 16.5% of
sales in the current third quarter from 14.5% of sales in the third quarter of
2001. The benefits from aggressive management of the Company's cost structure
over the past two years, the contributions from the IRAS acquisition, and the
non-amortization of goodwill drove the higher third quarter of 2002 operating
income.
9
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses were $26.1 million in the third
quarter of 2002, an increase of $2.4 million or 10.1%, when compared with the
third quarter of 2001. Selling expenses, as a percentage of sales, increased to
10.2% in the third quarter of 2002, compared with 9.3% for the same period in
2001. Increased selling expense in the third quarter of 2002 was due to the IRAS
acquisition which was acquired in December 2001, and has a higher content of
selling expenses.
Corporate expenses for the third quarter of 2002 were $4.3 million or 1.7% of
sales. These totals essentially were unchanged when compared to the same quarter
in 2001. After deducting corporate expenses, consolidated operating income
totaled $38.1 million, or 14.8% of sales for the third quarter of 2002, compared
with $33.0 million, or 12.9% of sales for the third quarter of 2001.
Interest expense was $6.2 million in the third quarter of 2002, compared with
$6.5 million for the same quarter of 2001. The decrease of $0.3 million, or
4.4%, resulted from lower interest rates and debt levels compared to the third
quarter of 2001. Other expenses, net were $0.6 million in the third quarter of
2002, compared with other income of $0.4 million in the third quarter of 2001.
This $1.0 million change resulted primarily from lower investment income in the
current third quarter.
The effective tax rate for the third quarter of 2002 was 31.7% compared with
34.2% for the third quarter of 2001. The lower tax rate in 2002 results
primarily from the tax effect of not amortizing goodwill due to the adoption of
SFAS No. 142, and favorable tax planning initiatives.
Net income for the third quarter of 2002 totaled $21.4 million, up 20.6% from
$17.7 million in the third quarter of 2001. Diluted earnings per share rose
20.8% to $0.64 per share, compared with $0.53 per share for the same quarter of
2001. Net income for the third quarter of 2001 included goodwill amortization of
$2.6 million after tax, or $0.08 per diluted share.
Segment Results
Electronic Instruments Group (EIG) net sales totaled $134.7 million in the third
quarter of 2002, an increase of $8.1 million or 6.4% from the same quarter of
2001. The Group's sales increase in the third quarter of 2002 was due to the
acquisition of IRAS, as well as strength in the high-end analytical instruments
and heavy-vehicle businesses. The Company believes the increase in heavy-vehicle
instruments sales was due mainly to truck purchases in advance of more stringent
federal emission standards, that were due to become effective October 1, 2002.
However, conditions remain weak in many of EIG's markets. The ongoing slowdown
in the general aerospace, and power instruments markets has been offset somewhat
by strength in the military aerospace market. Without the IRAS acquisition,
EIG's sales for the third quarter of 2002 would have been lower than the same
period in 2001.
10
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Operating income of EIG was $22.8 million for the third quarter of 2002, an
increase of $4.7 million or 25.6% when compared with the third quarter of 2001.
The increase in operating income was due to the sales increase noted above, as
well as improved operating margins resulting from reducing the Group's cost
structure through headcount reductions, shifting production to low-cost locales
and other expense reductions. The non-amortization of goodwill in 2002 also
benefited EIG. EIG's pretax goodwill amortization in the third quarter of 2001
was $1.7 million. Group operating margins were 16.9% of sales in the third
quarter of 2002 compared with operating margins of 14.4% of sales in the third
quarter of 2001.
Electromechanical Group (EMG) net sales totaled $122.3 million in the third
quarter 2002, a decrease of $7.6 million or 5.9% from the same quarter in 2001.
The sales decrease reflects the continued overall weakness in the Group's
markets, led by softness in the floor-care market.
Operating income of EMG was $19.5 million for the third quarter of 2002, an
increase of $0.4 million or 2.1% compared with the third quarter of 2001. The
higher operating income was due to the non-amortization of goodwill in 2002.
EMG's pretax goodwill amortization in the third quarter of 2001 was $1.4
million. Also, the Group's low-cost manufacturing initiatives and other expense
reductions benefited EMG, although the sales decline mentioned above adversely
affected profits. Group operating income as a percentage of sales for the third
quarter of 2002 was 16.0%, compared with operating margins of 14.7% in the third
quarter of 2001.
Operations for the first nine months of 2002 compared with the first nine months
of 2001
In the first nine months of 2002, the difficult economic environment
continued to impact many of the Company's businesses. Net sales for the first
nine months of 2002 were $788.0 million, an increase of $6.0 million or 0.8%,
compared with net sales of $782.0 million reported for the first nine months of
2001. EIG's net sales increased by 8.4% for the comparative periods due mainly
to the 2001 acquisitions of IRAS and EDAX, Inc. EMG's net sales decreased 6.3%
for the first nine months of 2002 due to continued weakness in the floor-care
market, partially offset by the 2001 acquisition of GS Electric. Without the
2001 acquisitions, consolidated sales for the first nine months of 2002 would
have shown an 8.4% reduction when compared with the same period in 2001.
New orders for the nine months ended September 30, 2002 were $757.7 million,
compared with $791.7 million for the same period in 2001, a decrease of $34.0
million, or 4.3%. Orders in the first nine months of 2002 declined primarily in
the aerospace and power instrument businesses whose orders were unusually strong
through the first nine months of 2001. The decline in order input was partially
offset by orders received from the 2001 acquisitions. The Company's backlog of
unfilled orders at September 30, 2002 was $246.3 million, compared with $276.6
million at December 31, 2001, a decrease of $30.3 million or 11.0%, due to the
reasons mentioned above, as well as the overall economic slowdown.
11
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Segment operating income for the first nine months of 2002 was $126.4 million,
an increase of $8.3 million or 7.1% compared with the same period in 2001. As a
percentage of sales, 2002 segment operating income rose to 16.0% from 15.1% for
the comparable period in 2001. The higher operating income was primarily driven
by the 2001 acquisitions and the non-amortization of goodwill, effective at the
beginning of 2002. The Company continues to benefit from its aggressive cost
reduction initiatives, which began in the second half of 2000. These initiatives
include the migration of production to low-cost locales in Mexico, China and the
Czech Republic and the lowering of its overall cost structure.
Selling, general and administrative expenses were $80.9 million for the first
nine months of 2002, an increase of $9.8 million or 13.8%, when compared with
the first nine months of 2001. Selling expenses, as a percentage of sales,
increased to 8.5% for the first nine months of 2002, compared with 7.3% for the
same period in 2001. The higher content of selling expenses was due to the 2001
acquisitions. Selling expenses by base businesses decreased as a percentage of
sales during the period, reflecting the Company's continual focus on cost
reduction initiatives.
Corporate expenses were $14.2 million or 1.8% of sales for the first nine months
of 2002, an increase of $0.3 million or 2.7% when compared with the same period
in 2001, but were flat as a percentage of sales. Higher insurance and pension
costs in the nine months ended September 30, 2002 accounted for the increase in
corporate expenses.
Consolidated operating income was $112.2 million, an increase of $8.0 million or
7.7%, when compared with the same period in 2001. This represents an operating
margin of 14.2% for the first nine months of 2002 compared with 13.3% for the
same period in 2001.
Interest expense was $19.5 million for the first nine months of 2002, a decrease
of $1.8 million or 8.6% when compared with the first nine months of 2001.
Interest expense decreased primarily due to lower overall interest rates
partially offset by higher average debt levels. Other expenses, net were $0.7
million for the first nine months of 2002, compared to other income of $0.8
million for the comparable period in 2001. This $1.5 million change resulted
primarily from lower investment income in the first nine months of 2002,
compared to the same period in 2001.
The effective tax rate for the first nine months of 2002 was 32.2% compared with
34.7% for the second quarter of 2001. The lower tax rate in 2002 results
primarily from the tax effect of not amortizing goodwill due to the adoption of
SFAS No. 142, and favorable tax planning initiatives.
Net income for the first nine months of 2002 was $62.4 million, or $1.86 per
share on a diluted basis, compared with net income of $54.7 million, or $1.63
per diluted share for the first nine months of 2001. Net income for the first
nine months in 2001 included goodwill amortization of $7.5 million after tax, or
$0.22 per diluted share.
12
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Segment Results
Electronic Instruments Group (EIG), net sales were $406.8 million for the first
nine months of 2002, an increase of $31.4 million or 8.4% compared with the same
period of 2001. The Group's sales increase in 2002 was due to the 2001
acquisitions of IRAS and EDAX, Inc., as well as strength in its heavy-vehicle
business. However, conditions have remained weak in many of EIG's markets.
Without the acquisitions, EIG's sales for the first nine months of 2002 would
have been 5.9% lower than the same period of 2001.
EIG's operating income for the first nine months of 2002 totaled $64.4 million,
an increase of $8.9 million or 16.0% compared with the same period in 2001. The
increase in operating income was due to the sales increase, as well as improved
operating margins resulting from the cost reduction initiatives, discussed
above. The non-amortization of goodwill in 2002 also benefited EIG. EIG's pretax
goodwill amortization in the first nine months of 2001 was $4.9 million. Group
operating margins were 15.8% of sales in the first nine months of 2002, compared
with operating margins of 14.8% of sales in the comparable period in 2001.
In the Electromechanical Group (EMG) net sales totaled $381.1 million for the
first nine months of 2002, a decrease of $25.4 million or 6.3% compared with the
same period in 2001. The Group's sales decrease reflects the continued overall
weakness in many of the Group's markets, led by softness in the floor-care
market. The sales decline was partially offset by the 2001 GS Electric
acquisition. Without the acquisition, EMG sales would have decreased by 10.7%
from the comparable period in 2001.
EMG's operating income for the first nine months of 2002 was $62.0 million, a
decrease of $0.6 million or 0.9% when compared with the same period in 2001. The
lower operating income was mainly due to the sales decrease, partially offset by
profit margin improvement, which was the result of the cost reduction
initiatives, previously mentioned. The Group's operating income in 2002
benefited from the 2001 acquisition of GS Electric and from the non-amortization
of goodwill. EMG's pretax goodwill amortization in the first nine months of 2001
was $3.8 million. Group operating margins were 16.3% of sales in the first nine
months of 2002, compared with operating margins of 15.4% of sales in the
comparable period in 2001.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided by operating activities totaled $80.3 million in the first nine
months of 2002, compared with $48.5 million (before accounts receivable
securitization transactions), for the same period in 2001, an increase of $31.8
million, or 66.0%. The significant increase in operating cash flow was the
result of higher earnings and a stronger focus on working capital management in
the
13
AMETEK, Inc.
FINANCIAL CONDITION (continued)
first nine months of 2002, with particular emphasis on reducing inventories.
Inventories are lower by $17.1 million, or 11.2%, since December 31, 2001. The
2001 year included a build-up in inventories to protect customers during the
Company's movement of certain products to low-cost manufacturing facilities.
Those moves are continuing and some inventory build-up at certain locations
remains in place.
In the third quarter of 2002, the Company made a contribution to its pension
plans, and funded payables and accruals during the first nine months of 2002.
The Company's after tax cash expenditures for the first nine months of 2002
related to its fourth quarter 2001 accrual for cost reduction initiatives were
$3.3 million. Most of the remaining $3.7 million in after tax cash expenditures
is expected to be expended by early 2003. Cash generated from operating
activities before accounts receivable securitization transactions totaled $80.3
million in the first nine months of 2002, compared with $48.5 million in the
same period of 2001, an increase of 66%.
In connection with its accounts receivable securitization program, on April 1,
2001, the Company recorded $45.0 million of securitized accounts receivable and
short-term borrowings of a special purpose subsidiary. This amount had
previously been given off-balance sheet treatment. After deducting this item,
cash generated by operating activities in the first nine months of 2001 totaled
$3.5 million.
Cash used for investing activities totaled $16.1 million in the first nine
months of 2002, compared with $84.0 million of cash used in the same period of
2001. The 2001 period included the purchase of two businesses for $68.1 million,
GS Electric was acquired in May 2001 and EDAX Inc. was acquired in July 2001.
Additions to property, plant and equipment in the first nine months of 2002
totaled $12.7 million, compared with $21.4 million in the same period of 2001.
Cash used for financing activities in the first nine months of 2002 totaled
$60.1 million, compared with cash provided by financing activities of $81.2
million in the same period of 2001. In the first nine months of 2002, net
short-term borrowings decreased by $32.0 million, and long-term borrowings
decreased $23.7 million. These decreases reflect the partial use of the strong
operating cash inflows for the first nine months of 2002. For the 2001
nine-month period, short-term borrowings increased $13.8 million and $73.3
million in additional long-term borrowings were incurred, related to the
accounts receivable securitization transaction and acquisitions discussed above.
Repurchases of Company common stock as of September 30, 2002 totaled $7.3
million for 236,900 shares acquired in the third quarter of 2002, compared with
$11.6 million for 440,000 shares acquired in the comparable nine months of 2001.
Net cash proceeds from the exercise of employee stock options and other totaled
$8.9 million in the first nine months of 2002, compared with $12.3 million for
the first nine months in 2001.
14
AMETEK, Inc.
FINANCIAL CONDITION (continued)
As a result of the activities discussed above, the Company's cash and cash
equivalents at September 30, 2002 totaled $18.3 million, compared with $14.1
million at December 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.
The Company's shelf registration statement filed with the Securities and
Exchange Commission in December 2001, which provides for up to $300 million in
additional financing, became effective in October 2002.
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
2001 Form 10-K as filed with the Securities and Exchange Commission.
15
AMETEK, Inc.
PART II. OTHER INFORMATION
Item 4. Controls and Procedures
(a) Within the 90 days prior to the date of filing this quarterly
report, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including
the Company's Chairman and Chief Executive Officer, and Executive
Vice President - Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures pursuant to Rules 13a-15 of the Securities Exchange Act
of 1934 (as amended) (the "Exchange Act"). Based upon that
evaluation, the Company's Chairman and Chief Executive Officer, and
Executive Vice President - Chief Financial Officer, have concluded
that the Company's disclosure controls and procedures were effective
in timely alerting them to material information required to be
included in the Company's filings under the Exchange Act.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit
Number Description
------ -----------
10.1 Amendment No. 4 to the 1997 Stock Incentive Plan of AMETEK, Inc.
10.2 Amendment No. 4 to the 1999 Stock Incentive Plan of AMETEK, Inc.
10.3 Amendment No. 1 to the 2002 Stock Incentive Plan of AMETEK, Inc.
99.1 Certification of Chief Executive Officer, Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer, Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K: During the quarter ended September 30, 2002, no
reports were filed on Form 8-K.
16
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)
November 11, 2002
17
CERTIFICATIONS
I, Frank S. Hermance, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMETEK, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 11, 2002
/s/ Frank S. Hermance
------------------------------------
Frank S. Hermance
Chairman and Chief Executive Officer
18
CERTIFICATIONS (CONTINUED)
I, John J. Molinelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMETEK, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 11, 2002
/s/ John J. Molinelli
------------------------------------
John J. Molinelli
Executive Vice President -
Chief Financial Officer
19
AMETEK, Inc.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 Amendment No. 4 to the 1997 Stock Incentive Plan of AMETEK, Inc.
10.2 Amendment No. 4 to the 1999 Stock Incentive Plan of AMETEK, Inc.
10.3 Amendment No. 1 to the 2002 Stock Incentive Plan of AMETEK, Inc.
99.1 Certification of Chief Executive Officer, Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer, Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.