AMETEK(AME) - 2021 Q4 - Annual Report

PART I Business AMETEK is a global manufacturer of electronic instruments and electromechanical devices, achieving record sales of $5,550 million in 2021 through organic growth and strategic acquisitions - AMETEK operates through two main business segments: Electronic Instruments (EIG) and Electromechanical (EMG), serving diverse end markets including aerospace, defense, medical, and industrial automation[7] - The company's core business strategy, the AMETEK Growth Model, integrates four pillars: Operational Excellence, Strategic Acquisitions, Global & Market Expansion, and New Product Development, aiming for double-digit annual growth in sales and EPS[13] 2021 Financial Performance Highlights | Metric | 2021 Value | Change vs 2020 | | :--- | :--- | :--- | | Net Sales | $5,546.5 million | +22.2% | | Diluted EPS | $4.25 | +12.7% | | Orders | $6,474.4 million | +40.0% | - In 2021, AMETEK completed six strategic acquisitions for a total of $1,960 million, including Abaco Systems, Magnetrol International, and NSI-MI Technologies, enhancing its technological capabilities and market presence[23][24][25] Business Segments The Electronic Instruments Group (EIG) and Electromechanical Group (EMG) serve distinct markets, with international sales contributing significantly to both segments 2021 Sales Breakdown by Segment and Market | Segment | Market | % of Segment Sales | | :--- | :--- | :--- | | EIG | Process & Analytical Instrumentation | 70% | | | Aerospace & Power Instrumentation | 30% | | EMG | Automation & Engineered Solutions | 72% | | | Aerospace | 28% | - International sales are a significant part of the business, accounting for 49% of EIG's net sales and 50% of EMG's net sales in 2021[30][41] - Neither EIG nor EMG is dependent on a single customer, with the five largest customers accounting for approximately 5% of EIG's sales and 8% of EMG's sales[38][45] Environmental, Social, and Governance (ESG) and Human Capital Management AMETEK demonstrates commitment to ESG principles through environmental stewardship, diversity initiatives, and a strong focus on employee safety and talent development - The company's ESG strategy is guided by core values of Ethics, Respect, Diversity & Inclusion, Teamwork, and Social Responsibility[52] - AMETEK is focused on reducing its environmental impact by increasing operational efficiency and developing products that support customers' sustainability goals[53][55] - As of December 31, 2021, the company had approximately 18,500 employees, with 42% classified as diverse (global female employees plus diverse U.S. male employees)[61] - The company achieved its lowest-ever lost-time incident rate in 2021 for the second consecutive year, highlighting a strong focus on employee health and safety[61] Risk Factors The company faces diverse operational, financial, and strategic risks, including pandemic impacts, supply chain disruptions, international instability, and potential impairment of substantial intangible assets - The COVID-19 pandemic continues to pose risks to operations, financial condition, and demand, with potential impacts from supply chain disruptions, workforce availability, and economic downturns[66][67][68] - International operations, which accounted for 49.5% of 2021 net sales, are subject to risks such as trade restrictions, tariffs, currency fluctuations, and political instability[76] - The growth strategy relies on strategic acquisitions, which carry risks related to identification of suitable targets, successful integration, and realization of expected benefits[93][94] - A significant portion of total assets consists of goodwill and other intangible assets ($8,600 million, or 72% of total assets at year-end 2021), which are subject to impairment risk if future operating performance declines[102][103] - Disruptions in the supply of components and raw materials, including semiconductor chips and base metals, could adversely impact operations and financial results[84][85] Unresolved Staff Comments The company reports no unresolved staff comments - None[104] Properties As of December 31, 2021, AMETEK operates from owned and leased facilities across the United States and select global markets, with its corporate headquarters in Berwyn, Pennsylvania - The Company conducts business from owned and leased facilities globally, with its corporate headquarters located in a leased facility in Berwyn, Pennsylvania[104] Legal Proceedings The company is involved in various incidental legal and regulatory proceedings, which management does not expect to have a material adverse effect on its financial position - The Company is subject to various incidental litigation but does not believe these proceedings will have a material adverse effect on its financial results[106] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[107] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AMETEK's common stock trades on the NYSE under 'AME', with significant outperformance against market indices and $14.7 million in share repurchases in 2021 - The company's common stock (AME) is traded on the New York Stock Exchange[108] - In 2021, the Company repurchased approximately 113,000 shares of its common stock for $14.7 million[108] Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2021 | — | — | | Nov 2021 | 11,625 | $140.85 | | Dec 2021 | 74 | $147.04 | | Total Q4 | 11,699 | $140.89 | - AMETEK's five-year cumulative total return of 312.88% (assuming a $100 investment in 2016) substantially exceeded the S&P 500 Index (233.41%) and S&P Industrials (182.63%) for the same period[116][117] Management's Discussion and Analysis of Financial Condition and Results of Operations AMETEK achieved record financial performance in 2021, with $5,546.5 million in sales and $1,160.5 million in operating cash flow, driven by organic growth and strategic acquisitions, despite ongoing economic challenges 2021 vs 2020 Financial Highlights | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $5,546.5M | $4,540.0M | +22.2% | | Net Income | $990.1M | $872.4M | +13.5% | | Diluted EPS | $4.25 | $3.77 | +12.7% | | Orders | $6,474.4M | $4,624.4M | +40.0% | - The 22.2% increase in 2021 net sales was composed of a 15% organic sales increase, a 7% increase from acquisitions, and a 1% favorable foreign currency effect[132] - The company generated $1,160.5 million in cash from operating activities and $1,049.8 million in free cash flow in 2021[126][143] - The company continues to manage through economic challenges including material cost inflation, logistics issues, labor availability, and component shortages[127] Results of Operations Consolidated net sales increased 22.2% to $5,550 million in 2021, with operating income rising 27.3% to $1,310 million, driven by strong organic growth and operational excellence Net Sales by Segment (2021 vs. 2020) | Segment | 2021 Net Sales (in millions) | 2020 Net Sales (in millions) | % Change | | :--- | :--- | :--- | :--- | | Electronic Instruments (EIG) | $3,763.8 | $2,989.9 | +25.9% | | Electromechanical (EMG) | $1,782.8 | $1,550.1 | +15.0% | | Consolidated | $5,546.5 | $4,540.0 | +22.2% | Operating Income by Segment (2021 vs. 2020) | Segment | 2021 Operating Income (in millions) | 2020 Operating Income (in millions) | % Change | | :--- | :--- | :--- | :--- | | Electronic Instruments (EIG) | $958.2 | $770.6 | +24.3% | | Electromechanical (EMG) | $437.4 | $325.0 | +34.6% | | Total Segment | $1,395.6 | $1,095.6 | +27.4% | - Consolidated operating margin improved to a record 23.6% in 2021 from 22.6% in 2020, despite a 110 basis point dilution from 2021 acquisitions[137] Liquidity and Capital Resources Cash from operations decreased to $1,160 million in 2021 due to higher working capital, while $1,960 million was invested in acquisitions, resulting in $2,540 million net debt - Cash provided by operating activities decreased by 9.4% to $1,160.5 million in 2021, mainly due to higher working capital requirements[143] - The company used $1,959.2 million for six acquisitions and $110.7 million for capital expenditures[144] - Total debt, net, stood at $2,544.2 million at year-end 2021, with a debt-to-capital ratio of 27.0%, down from 28.9% at year-end 2020[145][146] - In April 2021, the company amended its credit facility to add a new five-year, $800 million delayed draw term loan to support its acquisition strategy[145] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant estimates for business combinations, goodwill impairment, pension assumptions, and income tax uncertainties, impacting financial reporting - Business combination accounting requires significant estimates for the fair value of acquired assets and liabilities, including intangible assets like customer relationships and technology[160] - Goodwill and indefinite-lived intangible assets, totaling $6,100 million (51.4% of total assets), are tested for impairment annually, with 2021 tests showing no impairment[162][164] - Pension expense is highly dependent on assumptions for the discount rate and the expected long-term rate of return on plan assets[165] - Accounting for income taxes involves complex judgments regarding the realizability of deferred tax assets and the resolution of uncertain tax positions across numerous jurisdictions[166][168] Quantitative and Qualitative Disclosures About Market Risk AMETEK manages market risks from interest rates, foreign currency exchange rates (Euro, GBP, JPY, CNY, CAD, MXN), and commodity prices (nickel, aluminum, copper, steel, titanium, gold) - The company is exposed to market risks from interest rates, foreign currency exchange rates, and commodity prices[172] - Significant foreign currency exposures include the Euro, British pound, Japanese yen, Chinese renminbi, Canadian dollar, and Mexican peso[173] - Primary commodity exposures are to nickel, aluminum, copper, steel, titanium, and gold, which are generally mitigated through selling price adjustments[174] Financial Statements and Supplementary Data This section presents AMETEK's consolidated financial statements for 2021, including income, balance sheet, and cash flow statements, along with management and auditor reports and detailed notes Reports of Management and Independent Auditors Management affirmed effective internal controls, and Ernst & Young LLP issued unqualified opinions on financial statements, highlighting the Abaco Systems acquisition and intangible asset impairment as critical audit matters - Management concluded that the Company's internal control over financial reporting was effective as of December 31, 2021[183] - The independent auditor, Ernst & Young LLP, provided an unqualified opinion on the consolidated financial statements, stating they are presented fairly in conformity with U.S. GAAP[193] - Critical Audit Matters identified by the auditor were the accounting for the acquisition of Abaco Systems, Inc. and the impairment assessment of indefinite-lived intangible assets (other than goodwill)[197][199][202] Consolidated Financial Statements The consolidated financial statements show 2021 net sales of $5,546.5 million, net income of $990.1 million, and total assets of $11,898.2 million, with $1,160.5 million in operating cash flow Key Financial Statement Data (Year Ended Dec 31, 2021) | Metric | Value (in millions) | | :--- | :--- | | Income Statement | | | Net Sales | $5,546.5 | | Operating Income | $1,308.7 | | Net Income | $990.1 | | Balance Sheet | | | Total Assets | $11,898.2 | | Goodwill & Intangibles, net | $8,607.4 | | Total Liabilities | $5,026.3 | | Total Stockholders' Equity | $6,871.9 | | Cash Flow Statement | | | Net Cash from Operating Activities | $1,160.5 | Notes to Consolidated Financial Statements Detailed notes disclose the $1,960 million acquisition purchase price allocation, $2,540 million total debt, $130.7 million pension asset, 19.1% effective tax rate, and $176.5 million lease liabilities - The company spent $1,959.2 million on six acquisitions in 2021, allocating $1,043.8 million to goodwill and $940.7 million to other intangible assets[278][280] - Total long-term debt, net, was $2,230 million at year-end 2021, with maturities extending to 2035[313][315] - The company's defined benefit pension plans had a combined funded status asset of $130.7 million at December 31, 2021, an improvement from a $29.1 million asset in 2020[369] - Total lease liabilities were $176.5 million as of December 31, 2021, with a weighted-average remaining lease term of 5.36 years[392][395] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[414] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021 - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures are effective at the reasonable assurance level as of December 31, 2021[414] Other Information The company reports no other information - None[416] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement, including the Code of Ethics for senior financial officers - Information for this section is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[418][419][420] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information for this section is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[425][426] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information for this section is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[427] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information for this section is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[428] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information for this section is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Stockholders[429] PART IV Exhibits and Financial Statement Schedules This section lists exhibits filed with the report, including governance documents, compensation plans, and credit agreements, with financial statements included in Item 8 - Financial statements are included in Part II, Item 8. Financial statement schedules have been omitted as they are not applicable or the information is included elsewhere[433] Form 10-K Summary The company reports no Form 10-K summary - None[448]