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, 2003
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
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(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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). 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, 2003 was 32,922,278 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 Months Ended March 31, 2003 and 2002......................... 3
Consolidated Balance Sheet as of
March 31, 2003 and December 31, 2002................................... 4
Condensed Consolidated Statement of Cash Flows for
the Three Months Ended March 31, 2003 and 2002......................... 5
Notes to Consolidated Financial Statements .............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 12
Item 4. Controls and Procedures..................................................... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 17
SIGNATURES............................................................................... 18
CERTIFICATIONS .......................................................................... 19
2
AMETEK, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31,
-----------------------------
2003 2002
------------ ------------
Net sales $ 267,531 $ 263,558
------------ ------------
Expenses:
Cost of sales, excluding depreciation 195,064 191,786
Selling, general and administrative 27,315 27,775
Depreciation 8,475 7,563
------------ ------------
Total expenses 230,854 227,124
------------ ------------
Operating income 36,677 36,434
Other income (expenses):
Interest expense (6,632) (6,894)
Other, net (887) (196)
------------ ------------
Income before income taxes 29,158 29,344
Provision for income taxes 9,440 9,679
------------ ------------
Net Income $ 19,718 $ 19,665
============ ============
Basic earnings per share $ 0.60 $ 0.60
============ ============
Diluted earnings per share $ 0.59 $ 0.59
============ ============
Average common shares outstanding:
Basic shares 32,982 32,799
============ ============
Diluted shares 33,646 33,506
============ ============
Dividends paid per share $ 0.06 $ 0.06
============ ============
See accompanying notes.
3
AMETEK, Inc.
CONSOLIDATED BALANCE SHEET
(In thousands)
March 31, December 31,
2003 2002
------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21,270 $ 13,483
Marketable securities 7,325 8,320
Receivables, less allowance for possible losses 197,573 175,230
Inventories 142,285 129,451
Deferred income taxes 10,171 10,005
Other current assets 16,758 14,080
------------- -------------
Total current assets 395,382 350,569
------------- -------------
Property, plant and equipment, at cost 602,438 587,331
Less accumulated depreciation (393,320) (383,002)
------------- -------------
209,118 204,329
------------- -------------
Goodwill, net of accumulated amortization 484,653 391,947
Investments and other assets 89,454 83,161
------------- -------------
Total assets $ 1,178,607 $ 1,030,006
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 137,361 $ 110,422
Accounts payable 90,183 81,108
Accruals 84,991 69,890
------------- -------------
Total current liabilities 312,535 261,420
Long-term debt 358,288 279,636
Deferred income taxes 46,348 41,233
Other long-term liabilities 28,020 27,536
Stockholders' equity :
Common stock 339 339
Capital in excess of par value 14,971 14,045
Retained earnings 482,484 464,731
Accumulated other comprehensive losses (34,442) (34,719)
Treasury stock (29,936) (24,215)
------------- -------------
433,416 420,181
------------- -------------
Total liabilities and stockholders' equity $ 1,178,607 $ 1,030,006
============= =============
See accompanying notes.
4
AMETEK, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Three months ended
March 31,
---------------------------
2003 2002
----------- -----------
Cash provided by (used for):
Operating activities:
Net income $ 19,718 $ 19,665
Adjustments to reconcile net income to total operating activities:
Depreciation and amortization 8,586 7,932
Deferred income taxes 5,707 1,735
Net change in assets and liabilities (6,151) (18,443)
Other (1,911) (1,934)
----------- -----------
Total operating activities 25,949 8,955
----------- -----------
Investing activities:
Additions to property, plant and equipment (3,491) (4,052)
Purchase of businesses (114,259) -
Other 995 (1,224)
----------- -----------
Total investing activities (116,755) (5,276)
----------- -----------
Financing activities:
Net change in short-term borrowings 26,909 (7,492)
Additional long-term borrowings 78,682 207
Repurchases of common stock (5,848) -
Cash dividends paid (1,966) (1,967)
Proceeds from stock options 816 3,794
----------- -----------
Total financing activities 98,593 (5,458)
----------- -----------
Increase (decrease) in cash and cash equivalents 7,787 (1,779)
Cash and cash equivalents:
As of January 1 13,483 14,139
----------- -----------
As of March 31 $ 21,270 $ 12,360
=========== ===========
See accompanying notes.
5
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(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, 2003, and the consolidated results of its
operations and cash flows for the three-month periods ended March 31, 2003 and
2002 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 annual report on Form 10-K for the year ended December 31, 2002
as filed with the Securities and Exchange Commission.
Note 2 - Recent Accounting Pronouncements
Effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
legal obligations associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and normal operation
of a long-lived asset. SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred, if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as a part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the asset's useful
life. The adoption of SFAS No. 143 had no effect on the Company's consolidated
results of operations, financial position, or cash flows.
Effective January 1, 2003, the Company adopted SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146
replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Among other things, SFAS 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. The adoption of SFAS
No. 146 had no effect on the Company's consolidated results of operations,
financial position, or cash flows in the quarter.
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," ("FIN No. 45"). FIN No. 45 requires that upon issuance of a guarantee,
the entity must recognize a liability for the fair value of the obligation it
assumes under that guarantee. This interpretation is intended to improve the
comparability of financial reporting, by requiring identical accounting for
guarantees issued with separately identified consideration and guarantees issued
without separately identified consideration. The disclosure required by FIN No.
45, are included in Note 10, "Guarantees." The Company adopted the recognition
and measurement provisions of
6
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
FIN No. 45 effective January 1, 2003 for guarantees issued or modified after
December 31, 2002. The Company does not provide significant guarantees on a
routine basis. As a result, the adoption of FIN No. 45 did not have an impact on
the Company's financial statements.
Note 3 - Earnings Per Share
The calculation of basic earnings per share for the three-month periods
ended March 31, 2003 and 2002 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)
--------------------------------------
Three months ended March 31,
----------------------------
2003 2002
------ ------
Basic shares 32,982 32,799
Stock option and award plans 664 707
------ ------
Diluted shares 33,646 33,506
====== ======
Note 4 - Acquisitions
On January 13, 2003, the Company acquired Airtechnology Holdings
Limited (Airtechnology) from Candover Partners Limited, for approximately 50.0
million British pounds sterling, or $79.8 million in cash, subject to
adjustment. Airtechnology is a supplier of motors, fans and environmental
control systems for the aerospace and defense markets. Airtechnology generated
sales of approximately 29.0 million British pounds sterling, or $46.0 million in
2002. Airtechnology is a part of the Company's Electromechanical Group.
On February 28, 2003, the Company acquired Solidstate Controls, Inc.
(SCI) from the Marmon Industrial Companies LLC for approximately $34.5 million
in cash, subject to adjustment. SCI is a leading supplier of uninterruptible
power supply systems for the process and power generation industries. SCI
generated sales of approximately $45.0 million in 2002. SCI is a part of the
Company's Electronic Instruments Group.
The operating results of the above acquisitions are included in the
Company's consolidated results from their respective dates of acquisition.
7
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
The acquisitions have been accounted for using the purchase method in
accordance with SFAS No. 141, "Business Combinations." Accordingly, the total
purchase price has been preliminarily allocated to the assets acquired and
liabilities assumed based on their estimated fair values at acquisition, as
follows:
In millions
-----------
Net working capital $ 8.4
Property, plant and equipment 8.6
Goodwill 92.1
Other assets 5.2
-----------
Total net assets $ 114.3
===========
The amount allocated to goodwill is reflective of the benefit the
Company expects to realize from expanding its presence in high-end technical
motors through Airtechnology and the process and power generation industries
through SCI.
Of the $5.2 million in other assets, $5.0 million was assigned to
intangibles, other than goodwill, with estimated remaining lives of periods up
to 10 years.
The Company is in the process of obtaining third party valuations of
certain tangible and intangible assets acquired with the new businesses.
Therefore, the allocation of purchase price to these acquisitions is subject to
revision.
Had the acquisitions been made at the beginning of 2002, pro forma net
sales for the first quarter of 2002 would have been $283.3 million. Pro forma
net income and diluted earnings per share for the first quarter of 2002 would
not have been materially different than the amounts reported.
Note 5 - Goodwill
The balance of goodwill as of March 31, 2003 and December 31, 2002 was
$484.7 million and $391.9 million, respectively. Goodwill by segment at the
respective dates were (in millions):
March 31, 2003 December 31, 2002
-------------- -----------------
Electronic Instruments Group $ 273.9 $ 244.1
Electromechanical Group 210.8 147.8
-------------- --------------
Total $ 484.7 $ 391.9
============== ==============
The increase in goodwill relates primarily to the two acquisitions
previously discussed, and the translation effect of changes in foreign currency
exchange rates during the period.
8
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
Note 6 - Inventories
The estimated components of inventory stated at lower of LIFO cost or
market are:
(In thousands)
-----------------------------
March 31, December 31,
2003 2002
------------ ------------
Finished goods and parts $ 31,778 $ 26,819
Work in process 36,185 33,054
Raw materials and purchased parts 74,322 69,578
------------ ------------
$ 142,285 $ 129,451
============ ============
Inventory increased $12.8 million from December 31, 2002 to March 31,
2003. Inventory acquired with the two new businesses, previously discussed, was
the primary reason for the increase.
Note 7 - 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-month periods ended March 31, 2003 and 2002:
(In thousands)
----------------------------
Three months ended March 31,
----------------------------
2003 2002
------------ ------------
Net income $ 19,718 $ 19,665
Foreign currency translation adjustment 263 (1,833)
Unrealized gain on marketable securities 14 68
------------ ------------
Total comprehensive income $ 19,995 $ 17,900
============ ============
Note 8 - 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, 2003, there were no significant changes in identifiable
assets of reportable segments from the amounts disclosed at December 31, 2002,
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, 2003 and 2002 can
be found in the table on page 12 in the Management's Discussion & Analysis
section of this Report.
Note 9 - Pro Forma Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock option
plans, which recognizes expense based on the intrinsic value at the date of
grant. Since stock options have been issued with the exercise price per share
equal to the fair market value per share at the date of grant, no compensation
expense has resulted. Had the
9
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
Company accounted for stock options in accordance with the fair value method
prescribed by SFAS No. 123 "Accounting for Stock-Based Compensation," the
Company would have reported the following results for the quarter ended March
31, 2003 and 2002:
(In thousands, except per share data)
Three months ended March 31,
----------------------------
2003 2002
---- ----
Net income, as reported $ 19,718 $ 19,665
Deduct total stock-based compensation
expense, determined under the fair
value method of SFAS 123, net of tax (736) (643)
------------ ------------
Pro forma net income $ 18,982 $ 19,022
============ ============
Net income per share
Basic:
As reported $ 0.60 $ 0.60
Pro forma $ 0.58 $ 0.58
Diluted:
As reported $ 0.59 $ 0.59
Pro forma $ 0.57 $ 0.57
Note 10 - Guarantees
The Company does not provide significant guarantees on a routine basis.
The Company primarily issues guarantees, stand-by letters of credit and surety
bonds in the ordinary course of its business to provide financial or performance
assurance to third parties on behalf of its consolidated subsidiaries to support
or enhance the subsidiary's stand-alone creditworthiness. The amounts subject to
certain of these agreements vary depending on the covered contracts actually
outstanding at any particularly point in time. The maximum amount of future
payment obligation relative to these various guarantees was approximately $32
million, and the outstanding liabilities under those guarantees was
approximately $22 million, which is recorded in the accompanying balance sheet
at March 31, 2003. These guarantees expire in 2003 through 2006.
Indemnifications
In conjunction with certain acquisition and divestiture transactions,
the Company may agree to make payments to compensate or indemnify other parties
for possible future unfavorable financial consequences resulting from specified
events (e.g., retention of previously existing environmental, tax or employee
liabilities) whose terms range in duration and often are not explicitly defined.
Where appropriate, the obligation for such indemnifications is recorded as a
liability. Because the amount of these types of indemnifications generally are
not specifically stated, the overall maximum amount of the
10
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(Unaudited)
obligation under such indemnifications cannot be reasonably estimated. Further
the Company indemnifies its directors and officers who are or were serving at
the Company's request in such capacities. Historically, the costs incurred to
settle claims related to these indemnifications have not been material to the
Company. The Company believes that future payments, if any, under all existing
indemnification agreements would not have a material impact on its results of
operations, financial position, or cash flows.
Product Warranties
The Company provides limited warranties in connection with the sale of
its products. The original warranty period for products sold varies widely among
the Company's operations, but for the most part does not exceed one year. The
Company calculates its warranty expense provision based on past warranty
experience and adjustments are made periodically to reflect actual warranty
expenses.
The change in the carrying amount of the Company's accrued product
warranty obligation from December 31, 2002 to March 31, 2003 was as follows (in
thousands):
Balance as of December 31, 2002 $ 6,432
Accruals for warranties issued during the period 1,294
Settlements made during the period (1,236)
Changes in liability for pre-existing warranties,
including expirations during the period (389)
Warranty accruals acquired with 2003 acquisitions 1,227
----------
Balance as of March 31, 2003 $ 7,328
==========
11
AMETEK, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth reportable segment operating
results, consolidated operating income, and income before income taxes:
Three months ended March 31,
----------------------------
2003 2002
----------- -----------
(Dollars in thousands)
Net sales
Electronic Instruments $ 133,601 $ 136,801
Electromechanical 133,930 126,757
----------- -----------
Consolidated net sales $ 267,531 $ 263,558
=========== ===========
Operating income and income before income taxes
Electronic Instruments $ 19,982 $ 20,959
Electromechanical 21,801 20,573
----------- -----------
Total segment operating income 41,783 41,532
Corporate and other (5,106) (5,098)
----------- -----------
Consolidated operating income 36,677 36,434
Interest and other expenses, net (7,519) (7,090)
----------- -----------
Consolidated income before income taxes $ 29,158 $ 29,344
=========== ===========
Operations for the first quarter of 2003 compared with the first
quarter of 2002
Net sales for the first quarter of 2003 were $267.5 million,
an increase of $4.0 million or 1.5%, compared with sales of $263.6
million in the first quarter of 2002. Net sales for the Electronic
Instruments Group (EIG) decreased $3.2 million or 2.3% in the first
quarter of 2003, primarily due to weak market conditions in the
aerospace and power markets, partially offset by the February 2003
acquisition of Solidstate Controls (SCI), and strength in the Group's
high-end analytical instrumentation businesses. Net sales for the
Electromechanical Group (EMG) were up $7.2 million or 5.7% in the first
quarter of 2003. The January 2003 acquisition of Airtechnology
accounted for the improved performance, which was partially offset by
continued adverse market conditions in the domestic floor care markets.
Without these acquisitions, consolidated sales for the first quarter of
2003 would have been 3.2% lower than the first quarter of 2002.
International sales were $107.1 million in the first quarter of 2003,
or 40% of consolidated sales.
New orders for the first quarter of 2003, were $327.4 million,
up $63.8 million or 24.2% when compared with the same quarter in 2002.
The Company's backlog of unfilled orders at March 31, 2003 was $300.8
million, an increase of $59.9 million from December 31, 2002. The
increase in orders and backlog were primarily the result of the two
recent acquisitions previously mentioned.
12
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Segment operating income for the first quarter 2003 was $41.8
million, essentially unchanged from $41.5 million in the first quarter
2002. Segment operating income as a percentage of sales was 15.6% of
sales in the current quarter compared with 15.8% of sales in the first
quarter of 2002. Pension costs, general business insurance and medical
expenses were approximately $2 million higher in the first quarter of
2003 when compared with the first quarter of 2002. A higher level of
these costs is expected to continue throughout 2003. Partially
offsetting the higher expenses was the positive effect of the Company's
operational excellence initiatives, including continued movement of
manufacturing to low-cost locales and cost reduction programs, as well
as the profit contribution from the two acquisitions.
Selling, general and administrative expenses were $27.3
million in the first quarter of 2003, a decrease of $0.5 million or
1.7% when compared with the first quarter of 2002. Selling expenses as
a percentage of sales decreased to 8.3% of sales in the first quarter
of 2003 compared with 8.7% of sales in the first quarter of 2002. The
selling expense of base businesses declined as a result of continued
focus on cost reduction initiatives, which was partially offset by
higher selling expense due to the Company's 2003 acquisitions.
Corporate and other expenses for the first quarter in 2003
were $5.1 million, essentially unchanged when compared with same period
in 2002. Higher pension costs and business insurance expenses,
mentioned previously, were offset by the Company's continued cost
reduction initiatives. After deducting corporate expenses, consolidated
operating income totaled $36.7 million, or 13.7% of sales, compared
with $36.4 million, or 13.8% of sales for the first quarter of 2002, an
increase of $0.2 million, or 0.7%.
Interest expense was $6.6 million in the first quarter 2003,
compared with $6.9 million for the same quarter of 2002. The $0.3
million improvement in the first quarter of 2003 was due to lower
interest rates partially offset by higher debt levels to fund the
acquisitions in the first quarter of 2003, compared with the first
quarter of 2002. Other expenses were $0.9 million in the first quarter
of 2003, compared to $0.2 million for the same period in 2002, a $0.7
million increase. The increase in other expenses was primarily the
result of a writedown in marketable securities owned by the Company's
insurance subsidiary, which were deemed to be other-than-temporarily
impaired.
The effective tax rate for the first quarter of 2003 was 32.4%
compared with 33.0% in the first quarter of 2002. The lower rate
reflects a lower effective tax rate from foreign operations and the
continued implementation of favorable tax planning initiatives.
Net income for the first quarter 2003 totaled $19.7 million,
essentially unchanged from the first quarter of 2002. Diluted earnings
per share were $0.59 per share, equaling the earning per share results
for the first quarter of 2002.
13
AMETEK, Inc.
RESULTS OF OPERATIONS (CONTINUED)
Segment Results
Electronic Instruments Group ("EIG") sales were $133.6 million
in the first quarter 2003, a decrease of $3.2 million or 2.3% from the
same quarter of 2002. The sales decrease was due to weak market
conditions in the aerospace and power markets, partially offset by the
recent acquisition of SCI, strength in the Company's high-end
analytical instrumentation businesses as well as a favorable foreign
currency translation impact. Without the SCI acquisition, EIG's sales
for the first quarter of 2003 would have been 5.2% lower than the first
quarter of 2002.
EIG's operating income for the first quarter of 2003 decreased
by $1.0 million or 4.7% to $20.0 million when compared with the same
quarter of 2002. The decline in operating income was due to lower sales
as well as increased pension costs and insurance expense, which
increased approximately $1.4 million, partially offset by the profit
contributions from the SCI acquisition and cost reduction initiatives.
Operating margins were 15.0% of sales in the first quarter of 2003
compared with operating margins of 15.3% of sales in the first quarter
of 2002.
Electromechanical Group (EMG) sales totaled $133.9 million in
the first quarter of 2003, an increase of $7.2 million or 5.7% from the
same quarter of 2002. The sales increase was primarily due to the
recent acquisition of Airtechnology as well as favorable foreign
currency translation impacts, partially offset by the weak conditions
in the domestic floor care markets. Without the Airtechnology
acquisition, EMG's sales for the first quarter of 2003 would have been
1.0% lower than the first quarter of 2002.
Operating income of EMG was $21.8 million for the first
quarter 2003, an increase of $1.2 million or 6.0% from the first
quarter of 2002. The profit increase was mainly due to the
Airtechnology acquisition, the effect of cost reduction initiatives and
the continued movement of manufacturing to low-cost locales. Negatively
impacting operating income, to a lesser degree than EIG, were increased
pension costs and insurance expense. Operating margins were 16.3% of
sales in the first quarter of 2003, compared with operating margins of
16.2% of sales in the first quarter of 2002.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided by operating activities totaled $25.9 million
for the first quarter of 2003, compared to cash provided of $9.0
million in the first quarter 2002. The $16.9 million increase in
operating cash flow was primarily the result of a continued emphasis on
working capital management and lower required tax payments in the first
quarter of 2003. The Company's after-tax cash expenditures in the first
quarter of 2003, relating to a prior period accrual for cost reduction
initiatives, were $0.4 million. The remaining $2.5 million in after-tax
cash expenditures related to these actions is expected to be expended
for the intended programs by the first half of 2004.
14
AMETEK, Inc.
FINANCIAL CONDITION (CONTINUED)
Cash used for investing activities totaled $116.8 million in
the first quarter 2003, compared with $5.3 million used in the same
quarter of 2002. In the first quarter of 2003, the Company acquired
Airtechnology Holdings Limited (Airtechnology) and Solidstate Controls,
Inc. (SCI) for $114.3 million in cash. Additions to property, plant and
equipment in the first quarter 2003 totaled $3.5 million, compared with
$4.1 million in the same quarter of 2002.
Cash provided by financing activities in the first quarter of
2003 totaled $98.6 million, compared with cash used by financing
activities of $5.5 million in the same quarter of 2002. The first
quarter of 2003 source of cash was primarily from borrowings under the
Company's revolving credit agreement to finance the two acquisitions
mentioned above. Also, in the first quarter of 2003, the Company
repurchased 190,000 shares of the Company's common stock at a cost of
$5.8 million.
On March 12, 2003, the Company's Board of Directors authorized
a new $50 million share repurchase program, adding to the $2.5 million
remaining balance from the 1998 program. Under the 1998 program, $47.5
million was used for share repurchases. As of March 31, 2003, $52.5
million was approved for future share repurchases.
As a result of the activities discussed above, the Company's
cash and cash equivalents at March 31, 2003 totaled $21.3 million,
compared with $13.5 million at December 31, 2002. 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 2002 Form 10-K
as filed with the Securities and Exchange Commission.
15
AMETEK, Inc.
ITEM 4. CONTROLS AND PROCEDURES
(a) During 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. There were no
significant deficiencies or material weaknesses identified in the
evaluation and, therefore, no corrective actions were taken.
16
AMETEK, Inc.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit
Number Description
- ------ -----------
10.1 Restatement of the AMETEK, Inc. 401(k) Plan for Acquired Businesses
effective January 1, 2002.
10.2 Restatement of the Employees' Retirement Plan of AMETEK, Inc.,
effective Jan. 1, 2002.
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 March 31, 2003, the
Company filed a Current Report on Form 8-K dated January 31, 2003, under Item 5.
Other Events, to report the issuance of the Company's 2002 full-year and fourth
quarter sales and earnings press release. On March 10, 2003, the Company filed a
Current Report on Form 8-K, under Item 5., to announce the acquisition of
Solidstate Controls, Inc.
17
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 9, 2003
18
CERTIFICATIONS
I, Frank S. Hermance, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMETEK, Inc.
(the "registrant");
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: May 9, 2003
/s/ Frank S. Hermance
------------------------------------
Frank S. Hermance
Chairman and Chief Executive Officer
19
CERTIFICATIONS
I, John J. Molinelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMETEK, Inc.
(the "registrant");
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: May 9, 2002
/s/ John J. Molinelli
----------------------------------
John J. Molinelli
Executive Vice President and
Chief Financial Officer
20