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 June 30, 2002
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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 July 31, 2002 was 32,954,597
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 Six Months Ended June 30, 2002 and 2001....... 3
Consolidated Balance Sheet as of
June 30, 2002 and December 31, 2001......................... 4
Condensed Consolidated Statement of Cash Flows for
the Six Months Ended June 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. Submission of Matters to a Vote of Security Holders............ 15
Item 5. Other Information.............................................. 15
Item 6. Exhibits and Reports on Form 8-K............................... 16
SIGNATURES................................................................. 17
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 Six months ended
June 30, June 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $267,426 $261,422 $530,984 $525,493
Expenses:
Cost of sales, excluding depreciation 194,420 194,948 386,206 390,872
Selling, general and administrative 27,009 23,180 54,784 47,324
Depreciation 8,293 7,720 15,856 16,020
-------- -------- -------- --------
Total expenses 229,722 225,848 456,846 454,216
-------- -------- -------- --------
Operating income 37,704 35,574 74,138 71,277
Other income (expenses):
Interest expense (6,383) (7,158) (13,277) (14,818)
Other, net 86 104 (110) 359
-------- -------- -------- --------
Income before income taxes 31,407 28,520 60,751 56,818
Provision for income taxes 10,082 9,867 19,761 19,893
-------- -------- -------- --------
Net Income $ 21,325 $ 18,653 $ 40,990 $ 36,925
======== ======== ======== ========
Basic earnings per share $ 0.65 $ 0.57 $ 1.25 $ 1.13
======== ======== ======== ========
Diluted earnings per share $ 0.63 $ 0.56 $ 1.22 $ 1.11
======== ======== ======== ========
Average common shares outstanding:
Basic shares 32,991 32,934 32,894 32,779
======== ======== ======== ========
Diluted shares 33,797 33,502 33,700 33,348
======== ======== ======== ========
Dividends per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
======== ======== ======== ========
See accompanying notes.
3
AMETEK, Inc.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
June 30, December 31,
2002 2001
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,422 $ 14,139
Marketable securities 8,578 8,215
Receivables, less allowance for possible losses 197,070 181,031
Inventories 142,064 152,525
Deferred income taxes 9,886 10,096
Other current assets 13,512 13,341
------------ ------------
Total current assets 386,532 379,347
------------ ------------
Property, plant and equipment, at cost 578,656 561,753
Less accumulated depreciation (369,174) (347,259)
------------ ------------
209,482 214,494
------------ ------------
Goodwill, net of accumulated amortization 390,569 387,420
Investments and other assets 56,329 48,028
------------ ------------
Total assets $ 1,042,912 $ 1,029,289
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 123,744 $ 167,399
Accounts payable 91,154 86,707
Accruals 88,741 82,044
------------ ------------
Total current liabilities 303,639 336,150
Long-term debt 303,855 303,434
Deferred income taxes 34,776 33,496
Other long-term liabilities 16,026 21,151
Stockholders' equity:
Common stock 337 334
Capital in excess of par value 7,599 683
Retained earnings 425,973 388,929
Accumulated other comprehensive losses (31,911) (37,023)
Treasury stock (17,382) (17,865)
------------ ------------
384,616 335,058
------------ ------------
Total liabilities and stockholders' equity $ 1,042,912 $ 1,029,289
============ ============
See accompanying notes.
4
AMETEK, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six months ended
June 30,
----------------------
2002 2001
-------- --------
Cash provided by (used for):
Operating activities:
Net income $ 40,990 $ 36,925
Adjustments to reconcile net income to total operating activities:
Depreciation and amortization 16,268 22,022
Net change in assets and liabilities 6,011 (36,243)
Other (6,535) (4,594)
-------- --------
Total operating activities (before receivable securitization transactions) 56,734 18,110
-------- --------
Decrease in accounts receivable sold -- (45,000)
-------- --------
Total operating activities 56,734 (26,890)
-------- --------
Investing activities:
Additions to property, plant and equipment (7,937) (14,075)
Purchase of businesses -- (32,250)
Other (5,999) 5,901
-------- --------
Total investing activities (13,936) (40,424)
-------- --------
Financing activities:
Net change in short-term borrowings (44,708) 61,945
Cash dividends paid (3,947) (3,940)
Proceeds from stock options and other 7,140 9,928
-------- --------
Total financing activities (41,515) 67,933
-------- --------
Increase in cash and cash equivalents 1,283 619
Cash and cash equivalents:
As of January 1 14,139 7,187
-------- --------
As of June 30 $ 15,422 $ 7,806
======== ========
See accompanying notes.
5
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2002 and the consolidated results of its
operations for the three and six-month periods ended June 30, 2002 and 2001 and
cash flows for the six months ended June 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 six-month
periods ended June 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 June 30, Six months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Basic Shares 32,991 32,934 32,894 32,779
Stock option and award plans 806 568 806 569
-------- -------- -------- --------
Diluted Shares 33,797 33,502 33,700 33,348
======== ======== ======== ========
Note 3 - Inventories
The estimated components of inventory stated at lower of LIFO cost or
market are:
(In thousands)
---------------------------
June 30, December 31,
2002 2001
---------- ------------
(Unaudited)
Finished goods and parts $ 33,208 $ 31,313
Work in process 33,904 36,925
Raw materials and purchased parts 74,952 84,287
---------- ----------
$ 142,064 $ 152,525
========== ==========
6
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six-month periods ended June 30, 2002 and 2001:
In thousands (Unaudited)
----------------------------------------------------------
Three months ended June 30, Six months ended June 30,
-------------------------- ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income $ 21,325 $ 18,653 $ 40,990 $ 36,925
Foreign currency translation adjustment 6,808 (756) 4,975 (4,506)
Unrealized gain on marketable
securities and other 69 203 137 730
---------- ---------- ---------- ----------
Total comprehensive income $ 28,202 $ 18,100 $ 46,102 $ 33,149
========== ========== ========== ==========
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 June 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 six-month periods ended June 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
June 30, 2002
(Unaudited)
The Company's net income and earnings per share for the three and
six-month periods ended June 30, 2002 and 2001 adjusted to exclude goodwill
amortization were as follows (in thousands, except per share amounts):
Three months ended June 30, Six months ended June 30,
-------------------------- ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
(Unaudited) (Unaudited)
Reported net income $ 21,325 $ 18,653 $ 40,990 $ 36,925
Add back goodwill amortization,
net of tax -- 2,503 -- 4,818
-------- -------- -------- --------
Adjusted net income $ 21,325 $ 21,156 $ 40,990 $ 41,743
======== ======== ======== ========
Basic earnings per share
as reported $ 0.65 $ 0.57 $ 1.25 $ 1.13
Goodwill amortization, net of tax -- 0.07 -- 0.14
-------- -------- -------- --------
Adjusted basic earnings per share $ 0.65 $ 0.64 $ 1.25 $ 1.27
======== ======== ======== ========
Diluted earnings per share
as reported $ 0.63 $ 0.56 $ 1.22 $ 1.11
Goodwill amortization, net of tax -- 0.07 -- 0.14
-------- -------- -------- --------
Adjusted diluted earnings per share $ 0.63 $ 0.63 $ 1.22 $ 1.25
======== ======== ======== ========
In the second quarter of 2002, the Company 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 six months ended
June 30, 2002, changes to goodwill primarily resulted from purchase accounting
adjustments related to recent acquisitions. As of June 30, 2002, goodwill by
segment was: Electronic Instrument Group (EIG) - $243.0 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, with early application encouraged. The
Company is currently studying the future effects of adopting this Statement.
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 June 30, Six months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(Dollars in thousands)
Net sales
Electronic Instruments $ 135,308 $ 122,819 $ 272,109 $ 248,847
Electromechanical 132,118 138,603 258,875 276,646
---------- ---------- ---------- ----------
Consolidated net sales $ 267,426 $ 261,422 $ 530,984 $ 525,493
========== ========== ========== ==========
Operating income and income before income taxes
Electronic Instruments $ 20,657 $ 18,529 $ 41,616 $ 37,373
Electromechanical 21,864 21,519 42,437 43,410
---------- ---------- ---------- ----------
Total segment operating income 42,521 40,048 84,053 80,783
Corporate and other (4,817) (4,474) (9,915) (9,506)
---------- ---------- ---------- ----------
Consolidated operating income 37,704 35,574 74,138 71,277
Interest and other expenses, net (6,297) (7,054) (13,387) (14,459)
---------- ---------- ---------- ----------
Consolidated income before
income taxes $ 31,407 $ 28,520 $ 60,751 $ 56,818
========== ========== ========== ==========
Operations for the second quarter of 2002 compared with the second quarter of
2001
In the second quarter of 2002, the economic slowdown continued to impact many of
the Company's businesses. Net sales for the second quarter of 2002 were $267.4
million, an increase of $6.0 million or 2.3%, compared with the second quarter
2001 net sales of $261.4 million. Net sales for the Electronic Instruments Group
(EIG) increased $12.5 million or 10.2% for the second quarter, primarily due to
the 2001 acquisitions of Instruments for Research and Applied Science (IRAS) and
EDAX, Inc. Net Sales for the Electromechanical Group (EMG) were down $6.5
million or 4.7% in the second quarter of 2002. Continued adverse market
conditions in the worldwide global floor care markets were partially offset by
the May 2001 acquisition of GS Electric. Without the 2001 acquisitions,
consolidated sales for the second quarter of 2002 would have shown a 7.4%
reduction when compared with the same period in 2001.
Segment operating income for the second quarter of 2002 was $42.5 million, an
increase of $2.5 million or 6.2% from $40.0 million in the second quarter of
2001. Segment operating income, as a percentage of sales, increased to 15.9% of
sales in the current second quarter from 15.3% of sales in the second quarter of
2001. The 2001 acquisitions and the non-amortization of goodwill drove the
higher second quarter of 2002 operating income. The Company also continues to
benefit from its 2001 cost reduction initiatives.
9
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses were $27.0 million in the second
quarter of 2002, an increase of $3.8 million or 16.5%, when compared with the
second quarter of 2001. Selling expenses, as a percentage of sales, increased to
8.3% in the second quarter of 2002, compared with 7.2% 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 cost reduction initiatives.
Corporate expenses for the second quarter of 2002 were $4.8 million, an increase
of $0.3 million from $4.5 million in the second quarter of 2001. Corporate
expenses represent 1.8% of sales for second quarter of 2002, essentially the
same as the second quarter of 2001. Higher insurance and pension costs in the
second quarter of 2002 accounted for the higher corporate expenses. After
deducting corporate expenses, consolidated operating income totaled $37.7
million, or 14.1% of sales for the second quarter of 2002, compared with $35.6
million, or 13.6% of sales for the 2001 second quarter.
Interest expense was $6.4 million in the second quarter of 2002, compared with
$7.2 million for the same quarter of 2001. The decrease of $0.8 million in the
second quarter of 2002 was a result of lower interest rates partially offset by
higher average debt levels compared to the second quarter of 2001.
The effective tax rate for the second quarter of 2002 was 32.1% compared with
34.6% for the second quarter of 2001. The lower tax rate in 2002 reflects the
tax effect of not amortizing goodwill due to the adoption of SFAS No. 142, and
higher tax credits associated with export sales.
Net income for the second quarter of 2002 totaled $21.3 million, up 14.3% from
$18.7 million in the second quarter of 2001. Diluted earnings per share rose
12.5% to $0.63 per share, compared with $0.56 per share for the same quarter of
2001. The second quarter of 2001 included goodwill amortization of $2.5 million
after tax, or $0.07 per diluted share.
Segment Results
Electronic Instruments Group (EIG) net sales totaled $135.3 million in the
second quarter of 2002, an increase of $12.5 million or 10.2% from the same
quarter of 2001. Net sales increased in the second quarter of 2002 due to the
2001 acquisitions of IRAS and EDAX, Inc. Without these acquisitions, EIG's sales
for the second quarter of 2002 would have been 6.3% lower than the same period
in 2001 due to general economic weakness throughout the segment, although the
high-end analytical instruments and heavy-vehicle businesses performed well.
10
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Operating income of EIG was $20.6 million for the second quarter of 2002, an
increase of $2.1 million or 11.5% when compared with the second quarter of 2001.
The increase in operating income was due to the sales increase and the
non-amortization of goodwill in 2002, as well as improved operating margins
resulting from the 2001 cost reduction initiatives, previously mentioned. EIG's
pretax goodwill amortization in the second quarter of 2001 was $1.7 million.
Operating margins were 15.3% of sales in the second quarter of 2002 compared
with operating margins of 15.1% of sales in the second quarter of 2001.
Electromechanical Group (EMG) net sales totaled $132.1 million in the second
quarter 2002, a decrease of $6.5 million or 4.7% from the same quarter in 2001.
The sales decrease was primarily caused by continued overall weakness in the
Group's markets, led by softness in the worldwide floor-care market. The sales
decline was partially offset by the May 2001 GS Electric acquisition. Without
the acquisition, EMG sales would have been 8.3% lower than the comparable
quarter of 2001.
Operating income of EMG was $21.9 million for the second quarter of 2002, an
increase of $0.3 million or 1.6% compared with the second quarter of 2001.
Although the sales decline adversely affected profits, the higher operating
income was primarily due to contributions from the May 2001 acquisition and the
non-amortization of goodwill in 2002, as well as profit margin improvements,
which were the result of the 2001 cost reduction initiatives. EMG's pretax
goodwill amortization in the second quarter of 2001 was $1.2 million. Group
operating income as a percentage of sales for the second quarter of 2002 was
16.5%, compared with operating margins of 15.5% in the second quarter of 2001.
Operations for the first six months of 2002 compared with the first six months
of 2001.
In the first six months of 2002, the economic slowdown continued to
impact many of the Company's businesses. Net sales for the first six months of
2002 were $531.0 million, an increase of $5.5 million, compared with net sales
of $525.5 million reported for the first six months of 2001. EIG's net sales
increased by 9.3% for the comparative periods due to the 2001 acquisitions of
IRAS and EDAX, Inc. EMG's net sales decreased 6.4% for the first six months of
2002 due to continued weakness in the worldwide floor-care market, partially
offset by the May 2001 GS Electric acquisition. Without the 2001 acquisitions,
consolidated sales for the first six months of 2002 would have shown a 10.2%
reduction when compared with the same period in 2001.
New orders for the six months ended June 30, 2002 were $515.7 million, compared
with $526.3 million for the same period in 2001, a decrease of $10.6 million, or
2.1%. Orders in the first six months of 2002 declined primarily in the aerospace
and power instrument businesses whose orders were unusually strong in the first
six months of 2001. The decline in order input was partially
11
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
offset by orders received from the 2001 acquisitions. The Company's backlog of
unfilled orders at June 30, 2002 was $261.3 million, compared with $276.6
million at December 31, 2001, a decrease of $15.4 million or 5.7%, due to the
reasons mentioned above.
Segment operating income for the first six months of 2002 was $84.1 million, an
increase of $3.3 million or 4.0% compared with the same period in 2001. As a
percentage of sales, 2002 segment operating income rose to 15.8% from 15.4% 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 2001 cost reduction
initiatives, which includes the migration of production to low-cost locales in
Reynosa, Mexico, China and the Czech Republic.
Selling, general and administrative expenses were $54.8 million for the first
six months of 2002, an increase of $7.5 million or 15.8%, when compared with the
second quarter of 2001. Selling expenses, as a percentage of sales, increased to
8.5% for the first six months of 2002, compared with 7.2% 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 cost reduction initiatives.
Corporate expenses were $9.9 million for the first six months of 2002, an
increase of $0.4 million or 4.3% when compared with the same period in 2001, but
were unchanged as a percentage of sales. Higher insurance and pension costs in
the six months ended June 30, 2002 accounted for the higher corporate expenses.
Operating income was $74.1 million, an increase of $2.8 million or 4.0% when
compared with the same period in 2001. This represents an operating margin of
14.0% for the first six months of 2002 compared with 13.6% for the same period
in 2001.
Interest expense was $13.3 million for the first six months of 2002, a decrease
of $1.5 million or 10.4% when compared with the first six months of 2001.
Interest expense decreased primarily due to lower interest rates partially
offset by higher average debt levels when compared with same period in 2001.
The effective tax rate for the first six months of 2002 was 32.5% compared with
35.0% for the second quarter of 2001. The lower tax rate in 2002 reflects the
tax effect of not amortizing goodwill due to the adoption of SFAS No. 142, and
higher tax credits associated with export sales.
Net income for the first six months of 2002 was $41.0 million, or $1.22 per
share on a diluted basis, compared with net income of $36.9 million, or $1.11
per diluted share for the first six months of 2001. The first six months in 2001
included goodwill amortization of $4.8 million after tax, or $0.14 per diluted
share.
12
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Segment Results
Electronic Instruments Group (EIG), net sales were $272.1 million for the first
half of 2002, an increase of $23.3 million or 9.3% compared with the same period
of 2001. The sales increase in 2002 was due to the 2001 acquisitions of IRAS and
EDAX, Inc. Without these acquisitions, EIG's sales for the first six months of
2002 would have been 7.1% lower than the same period of 2001, due to general
economic weakness across most of the Group's businesses.
EIG's operating income for the first half of 2002 totaled $41.6 million, an
increase of $4.2 million or 11.4% compared with the first half of 2001. The
increase in operating income was due to the non-amortization of goodwill in
2002, and the sales increase, as well as improved operating margins resulting
from the 2001 cost reduction initiatives. EIG's pretax goodwill amortization in
the first six months of 2001 was $3.2 million. Operating margins were 15.3% of
sales in the first six months of 2002 compared with operating margins of 15.0%
of sales in the comparable period in 2001.
In the Electromechanical Group (EMG) net sales totaled $258.9 million for the
first six months of 2002, a decrease of $17.7 million or 6.4% compared with the
same period in 2001. The sales decrease was mainly caused by continued weakness
in many of the Group's markets, led by softness in the worldwide floor-care
market. The sales decline was partially offset by the May 2001 GS Electric
acquisition. Without the acquisition, EMG sales would have decreased by 13.0%
from the comparable period in 2001.
EMG's operating income for the first six months of 2002 was $42.4 million, a
decrease of $1.0 million or 2.2% 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. Operating income in 2002 benefited from the non-amortization of
goodwill. EMG's pretax goodwill amortization in the first six months of 2001 was
$2.4 million. Operating margins for the first six months of 2002 was 16.4%,
compared with operating margins of 15.7% margin for the comparable period in
2001.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided by operating activities totaled $56.7 million in the first half of
2002, compared with $18.1 million (before accounts receivable securitization
transactions) for the same period in 2001, a significant increase of $38.6
million. The $38.6 million increase in operating cash flow was the result of
strong working capital management in the first half of 2002, including lower
inventories. The first half of 2001 included a build-up in inventories
associated with the Company's movement of certain products to low-cost
manufacturing facilities. After tax cash expenditures in the first half of 2002
related to the Company's fourth quarter 2001 accrual for cost reduction
initiatives were
13
AMETEK, Inc.
FINANCIAL CONDITION (CONTINUED)
$2.4 million. The Company expects to make total after tax cash expenditures on
these initiatives of approximately $7.0 million in 2002. 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, which amount had previously been
given off-balance sheet treatment. As a result of the above items, cash
generated by operating activities totaled $56.7 million in the first six months
of 2002, compared with cash used of $26.9 million in the same period of 2001.
Cash used for investing activities totaled $13.9 million in the first six months
of 2002, compared with $40.4 million used in the same period of 2001. The 2001
period included the purchase of GS Electric in May 2001 for $32.3 million.
Additions to property, plant and equipment in the first six months of 2002
totaled $7.9 million, compared with $14.1 million in the same period of 2001.
Cash used for financing activities in the first six months of 2002 totaled $41.5
million, compared with cash provided by financing activities of $67.9 million in
the same period of 2001. In the first six months of 2002, net short-term
borrowings decreased by $44.7 million, reflecting the use of operating cash
inflows, compared with an increase of $61.9 million in 2001 due to the effect of
the accounts receivable securitization transaction, noted above. Net cash
proceeds from the exercise of employee stock options totaled $7.4 million in the
first six months of 2002, compared with $9.9 million for the first six months in
2001.
As a result of the activities discussed above, the Company's cash and cash
equivalents at June 30, 2002 totaled $15.4 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.
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.
14
AMETEK, Inc.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of AMETEK, Inc. (the "Company") was held on
May 21, 2002. The following matters were voted on at the Annual Meeting and
received the number of votes indicated:
1) Election of Directors. The following nominees were elected to the
Board of Directors for the terms expiring in 2005:
Number of Shares
-----------------------------
Voted against
Nominee Voted for or withheld
------------------ ---------- -------------
Sheldon S. Gordon 27,782,538 286,844
Frank S. Hermance 27,780,991 288,391
David P. Steinmann 27,787,378 282,004
Of the remaining five Board members, three will stand for election
in the year 2003, and two Board members will stand for election in
the year 2004.
2) Approval of 2002 Stock Incentive Plan. The Shareholders voted in
favor of the 2002 Stock Incentive Plan of AMETEK, Inc. which was
adopted and approved by the Board of Directors on March 13, 2002.
There were 21,798,164 shares voted for approval; 2,559,165 shares
voted against, and 3,712,053 abstentions.
3) Appointment of Independent Auditors. The Shareholders approved the
appointment of Ernst & Young LLP as independent auditors for the
Company for the year 2002. There were 27,097,854 shares voted for
approval, 871,061 shares voted against, and 100,467 abstentions.
Item 5. Other Information
The Company is submitting herewith for filing the certifications of its Chief
Executive Officer and its Chief Financial Officer regarding the compliance of
its report on Form 10-Q as required pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, which was enacted on July 30, 2002. Such officer
certifications are included as Exhibit 99 under Item 6 Exhibits, hereof.
15
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit
Number Description
------- -----------
10.1 Amendment No. 3 to the 1999 Stock Incentive Plan of AMETEK,
Inc.
10.2 Second Amendment to the Receivables Purchase Agreement
dated as of June 3, 2002.
10.3 Third Amendment to the Receivables Purchase Agreement dated
as of June 28, 2002.
10.4 Seventh Amendment to the Receivables Sale Agreement dated
as of June 3, 2002.
10.5 Eighth Amendment to the Receivables Sale Agreement dated as
of June 28, 2002.
99.1 Certification of Periodic Financial Report by Chief
Executive Officer
99.2 Certification of Periodic Financial Report by Chief
Financial Officer
b) Reports on Form 8-K: During the quarter ended June 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)
August 9, 2002
17