Form 10-K
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Table of Contents
     
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-K
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
For the fiscal year ended December 31, 2019
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
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
1100 Cassatt Road
Berwyn, Pennsylvania
 
19312-1177
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
 
Registrant’s telephone number, including area code: (610)
 647-2121
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 Par Value (voting)
 
AME
 
New York Stock Exchange
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  
    No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  
    No  
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  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
 S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
 12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
 12b-2
of the Act).    Yes  
    No  
The aggregate market value of the voting stock held by
non-affiliates
of the registrant was approximately $20.7 billion as of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter.
The number of shares of the registrant’s Common Stock outstanding as of January 31, 2020 was 229,124,099.
Documents Incorporated by Reference
Part III incorporates information by reference from the Proxy Statement for the Annual Meeting of Stockholders on May 6, 2020.
 
     
 
 

Table of Contents
AMETEK, Inc.
2019 Form
10-K
Annual Report
Table of Contents
             
 
 
Page
 
PART I
 
 
 
Item 1.
     
2
 
Item 1A.
     
11
 
Item 1B.
     
17
 
Item 2.
     
18
 
Item 3.
     
18
 
Item 4.
     
18
 
         
PART II
 
 
 
             
Item 5.
     
19
 
Item 6.
     
22
 
Item 7.
     
24
 
Item 7A.
     
34
 
Item 8.
     
35
 
Item 9.
     
86
 
Item 9A.
     
86
 
Item 9B.
     
86
 
         
PART III
 
 
 
             
Item 10.
     
86
 
Item 11.
     
87
 
Item 12.
     
87
 
Item 13.
     
87
 
Item 14.
     
87
 
         
PART IV
 
 
 
             
Item 15.
     
88
 
Item 16.
     
90
 
   
91
 
1

Table of Contents
PART I
Item 1.
Business
General Development of Business
AMETEK, Inc. (“AMETEK” or the “Company”) is incorporated in Delaware. Its predecessor was originally incorporated in Delaware in 1930 under the name American Machine and Metals, Inc. AMETEK is a leading global manufacturer of electronic instruments and electromechanical devices with operations in North America, Europe, Asia and South America. AMETEK maintains its principal executive offices in suburban Philadelphia at 1100 Cassatt Road, Berwyn, Pennsylvania, 19312. Listed on the New York Stock Exchange (symbol: AME), the common stock of AMETEK is a component of the Standard and Poor’s 500 and the Russell 1000 Indices.
Available Information
AMETEK’s annual report on Form
 10-K,
quarterly reports on Form
 10-Q,
current reports on Form
 8-K
and all amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 are made available free of charge on the Company’s website at
www.ametek.com
in the “Investors – Financial Information” section as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission. All reports filed with the Securities Exchange Commission can also be viewed on their website at
www.sec.gov
. AMETEK has posted in the “Investors – Governance” section of its website its corporate governance guidelines, Board committee charters and codes of ethics. Those documents also are available free of charge in published form to any stockholder who requests them by writing to the Investor Relations Department at AMETEK, Inc., 1100 Cassatt Road, Berwyn, Pennsylvania, 19312.
Products and Services
AMETEK’s products are marketed and sold worldwide through two operating groups: Electronic Instruments (“EIG”) and Electromechanical (“EMG”). Electronic Instruments is a leader in the design and manufacture of advanced instruments for the process, power and industrial, and aerospace markets. Electromechanical is a differentiated supplier of precision motion control solutions, thermal management systems, specialty metals and electrical interconnects. Its end markets include aerospace and defense, medical, automation and other industrial markets.
Competitive Strengths
Management believes AMETEK has significant competitive advantages that help strengthen and sustain its market positions. Those advantages include:
Significant Market Share
.    AMETEK maintains significant market share in a number of targeted niche markets through its ability to produce and deliver high-quality products at competitive prices. EIG has significant market positions in niche segments of the process, power and industrial, and aerospace markets. EMG holds significant positions in niche segments of the aerospace and defense, automation and medical markets.
Technological and Development Capabilities
.    AMETEK believes it has certain technological advantages over its competitors that allow it to maintain its leading market positions. Historically, it has demonstrated an ability to develop innovative new products and solutions that anticipate customer needs. It has consistently added to its investment in research, development and engineering, and improved its new product development efforts with the adoption of Design for Six Sigma and Value Analysis/Value Engineering methodologies. These have improved the pace and quality of product innovation and resulted in the introduction of a steady stream of new products across all of AMETEK’s lines of business.
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Efficient and Low-Cost Manufacturing Operations.
    Through its Operational Excellence initiatives, AMETEK has established a lean manufacturing platform for its businesses. In its effort to achieve best-cost manufacturing, AMETEK had plants, as of December 31, 2019, in Brazil, China, the Czech Republic, Malaysia, Mexico, and Serbia. These plants offer proximity to customers and provide opportunities for increasing international sales. Acquisitions also have allowed AMETEK to reduce costs and achieve operating synergies by consolidating operations, product lines and distribution channels, benefitting both of AMETEK’s operating groups.
Experienced Management Team
.    Another component of AMETEK’s success is the strength of its management team and that team’s commitment to improving Company performance. AMETEK senior management has extensive industry experience and an average of approximately 27 years of AMETEK service. The management team is focused on delivering strong, consistent and profitable growth, and growing shareholder value. Individual performance is tied to financial results through Company-established stock ownership guidelines and equity incentive programs.
Business Strategy
AMETEK is committed to achieving earnings growth through the successful implementation of the AMETEK Growth Model. The goal of that model is double-digit annual percentage growth in sales and earnings per share over the business cycle and a superior return on total capital. In addition, other financial initiatives have been or may be undertaken, including public and private debt or equity issuance, bank debt refinancing, local financing in certain foreign countries and share repurchases.
AMETEK’s Growth Model integrates the four growth strategies of Operational Excellence, Strategic Acquisitions, Global and Market Expansion, and New Product Development with a focus on cash generation and capital deployment.
Operational Excellence.
    Operational Excellence is AMETEK’s cornerstone strategy for accelerating growth, improving profit margins and strengthening its competitive position across its businesses. Operational Excellence focuses on initiatives to drive increased organic sales growth, improvements in operating efficiencies and sustainable practices. It emphasizes team building and a participative management culture. AMETEK’s Operational Excellence strategies include lean manufacturing, global sourcing, Design for Six Sigma, Value Engineering/Value Analysis and growth kaizens. Each plays an important role in improving efficiency, enhancing the pace and quality of innovation and driving profitable sales growth. Operational Excellence initiatives have yielded lower operating and administrative costs, shortened manufacturing cycle times, resulted in higher cash flow from operations and increased customer satisfaction. They also have played a key role in achieving synergies from newly acquired companies.
Strategic Acquisitions
.    Acquisitions are a key to achieving the goals of the AMETEK Growth Model. Since the beginning of 2015 through December 31, 2019, AMETEK has completed 18 acquisitions with annualized sales totaling more than $1.1 billion, including two acquisitions in 2019 (see “Recent Acquisitions”). AMETEK targets companies that offer compelling strategic, technical and cultural fit. It seeks to acquire businesses in adjacent markets with complementary products and technologies. It also looks for businesses that provide attractive growth opportunities, often in new and emerging markets. Through these and prior acquisitions, AMETEK’s management team has developed considerable skill in identifying, acquiring and integrating new businesses. As it has executed its acquisition strategy, AMETEK’s mix of businesses has shifted toward those that are more highly differentiated and, therefore, offer better opportunities for growth and profitability.
Global & Market Expansion
.    AMETEK has experienced strong growth outside the United States, reflecting an expanding international customer base, investments in its global infrastructure and the attractive growth potential of its businesses in overseas markets. While Europe remains its largest overseas
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market, AMETEK has pursued growth opportunities worldwide, especially in key emerging markets. It has grown sales in Latin America and Asia by strategically building, acquiring and expanding manufacturing facilities. AMETEK also has expanded its sales and service capabilities in China and enhanced its sales presence and engineering capabilities in India. Elsewhere in Asia and the Middle East, it has expanded sales, service and technical support. Recently acquired businesses have further added to AMETEK’s international presence.
New Products
.    New products are essential to AMETEK’s long-term growth. As a result, AMETEK has maintained a consistent investment in new product development and engineering. In 2019, AMETEK added to its highly differentiated product portfolio with a range of new products across many of its businesses. They included:
  AMETEK Programmable Power launched the RX0424, a rugged accelerometer instrument for measuring acceleration forces in extreme environmental conditions
  AMETEK SMP added two new titanium strip grades to expand their product portfolio for medical application that will ultimately help in the treatment of Parkinson’s disease, sleep apnea and chronic pain without the use of opioids
  Barben Analytical introduced the second generation OXYvisor
®
, a trace to percent level, optical process oxygen analyzer to help prevent the corrosion of capital equipment and ensure product quality
  The SPECTROGREEN is the latest inductively coupled plasma optical emission spectrometer from SPECTRO Analytical Instruments that features revolutionary Dual
Side-On
Interface plasma viewing technology
  Vision Research launched several new cameras, including the Phantom
®
S640 and VEO 440 high-speed cameras as well as the Phantom Miro C320J and C320 for automotive crash testing
  AMETEK Land launched two new continuous emission monitoring systems, the
4650-PM
and
4750-PM,
to accurately and reliably measure particulate matter from the industrial combustion processes
  Creaform launched two new handheld scanners, the HandySCAN BLACK and the Go!SCAN SPARK, both of which are third-generation versions of the company’s patented 3D scanning technology
  To better detect leaks in Modified Atmosphere Packaging, AMETEK MOCON developed the Dansensor LeakPointer 3 and LeakPointer 3+ for the food industry, where micro leaks in packaging can drastically affect product integrity
  Adding to their legacy of innovation, Haydon Kerk Pittman launched the EC042B IDEA Motor Series, a brushless motor with integrated drive optimized for specialized motion applications
  AMETEK Grabner Instruments launched the MINIFLASH FP Vision, which determines the flashpoint of flammable liquid mixtures with faster cooling cycles and sample turnaround times thanks to advanced Peltier technology
  The
EIKOS-UV,
a new atom probe microscope from AMETEK CAMECA, delivers nanoscale structural information to help develop products across industrial applications
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  AMETEK EDAX, a leader in
X-ray
microanalysis and electron diffraction instrumentation, launched the OIM Matrix
software package, Elite T Ultra EDS System and the Velocity
Super EBSD Camera, which was developed in partnership with the Vision Research team.
Cash Flow Generation and Disciplined Capital Deployment
.    AMETEK generates strong cash flow given its asset-light business model and strong operational execution. This cash flow supports AMETEK’s capital deployment strategy with its primary focus on strategic, value-enhancing acquisitions. We are committed to paying a modest quarterly dividend.
2019 OVERVIEW
Operating Performance
In 2019, the Company posted record sales, operating income, net income, diluted earnings per share, orders, backlog and operating cash flow. The Company achieved these results from organic sales growth in both EIG and EMG, contributions from recent acquisitions, as well as from the Company’s Operational Excellence initiatives. See “Results of Operations” in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.
In 2019, AMETEK achieved sales of $5,158.6 million, an increase of 6.5% from 2018 due to 2% organic sales growth, a 5% increase from the 2019 and 2018 acquisitions, partially offset by unfavorable foreign currency translation. Diluted earnings per share for 2019 were $3.75, an increase of $0.41 or 12.3%, compared with $3.34 per diluted share in 2018.
Recent Acquisitions
AMETEK spent $1,061.9 million in cash, net of cash acquired, to acquire two businesses in 2019.
In September 2019, AMETEK acquired Pacific Design Technologies, Inc. (“PDT”), a provider of advanced, mission-critical thermal management solutions. PDT is part of EMG.
In October 2019, AMETEK acquired Gatan, a provider of instrumentation and software used to enhance and extend the operation and performance of electron microscopes. Gatan is part of EIG.
Financing
In the fourth quarter of 2019, the Company paid in full, at maturity, $100 million in aggregate principal amount of 6.30% private placement senior notes.
In December 2018, the Company completed a private placement agreement to sell $575 million and 75 million Euros in senior notes to a group of institutional investors (the “2018 Private Placement”) utilizing two funding dates. The first funding occurred in December 2018 for $475 million and 75 million Euros ($85.1 million). The second funding was in January 2019 for $100 million. The proceeds from the fundings of the 2018 Private Placement were used to pay down domestic borrowings under the Company’s revolving credit facility. See Note 10 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form
 10-K
for further details
Recent Accounting Pronouncements
Effective January 1, 2019, the Company adopted the requirements of Financial Accounting Standards Board Accounting Standards Update (“ASU”) No.
 2016-02
(ASC 842),
Leases
, using the effective date transition method. Also, effective January 1, 2019, the Company adopted ASU No.
 2018-02,
Income Statement – Reporting
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Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. Upon adoption, the Company did not elect to reclassify the stranded income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings. See Note 2 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form
 10-K
for further details.
Financial Information About Reportable Segments, Foreign Operations and Export Sales
Information with respect to reportable segments and geographic areas is set forth in Note 3 and Note 15 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form
 10-K.
AMETEK’s international sales increased 1.1% to $2,474.9 million in 2019. International sales represented 48.0% of consolidated net sales in 2019 compared with 50.5% in 2018.
Description of Business
Described below are the products and markets of each reportable segment:
EIG
EIG is a leader in the design and manufacture of advanced analytical, test and measurement instruments for the process, aerospace, medical, research, power and industrial markets. Its growth is based on the strategies outlined in the AMETEK Growth Model. In many instances, its products differ from or are technologically superior to its competitors’ products. It has achieved competitive advantage through continued investment in research, development and engineering to develop market-leading products and solutions that serve niche markets. It also has expanded its sales and service capabilities globally to serve its customers.
EIG is a leader in many of the specialized markets it serves. Products supplied to these markets include process control instruments for the oil and gas, petrochemical, pharmaceutical, semiconductor, automation, and food and beverage industries. It provides a growing range of instruments to the research and laboratory equipment, ultraprecision manufacturing, medical, and test and measurement markets. It is a leader in power quality monitoring and metering, uninterruptible power systems, programmable power equipment, electromagnetic compatibility (“EMC”) test equipment, sensors for gas turbines, dashboard instruments for heavy trucks, and instrumentation and controls for the food and beverage industries. It supplies the aerospace industry with aircraft and engine sensors, monitoring systems, power supplies, fuel and fluid measurement systems, and data acquisition systems.
In 2019, 49% of EIG’s net sales were to customers outside the United States. At December 31, 2019, EIG employed approximately 10,300 people, of whom approximately 900 were covered by collective bargaining agreements. At December 31, 2019, EIG had operating facilities in the United States, the United Kingdom, Germany, Canada, China, Denmark, Finland, France, Switzerland, Argentina, Austria and Mexico. EIG also shares operating facilities with EMG in Brazil, China and Mexico.
Process and Analytical Instrumentation Markets and Products
Process and analytical instrumentation sales represented 72% of EIG’s 2019 net sales. These businesses include process analyzers, emission monitors and spectrometers; elemental and surface analysis instruments; level, pressure and temperature sensors and transmitters; radiation measurement devices; level measurement devices; precision manufacturing systems; materials- and force-testing instruments; contact and
non-contact
metrology products; and clinical and educational communication solutions. Among the industries it serves are oil, gas and petrochemical refining; power generation; pharmaceutical manufacturing; medical and healthcare; water and waste treatment; natural gas distribution; and semiconductor manufacturing. Its instruments are used for precision measurement in a number of applications, including radiation detection, trace element and materials analysis, nanotechnology research, ultraprecise manufacturing, and test and measurement.
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Acquired in October 2019, Gatan is a leading manufacturer of instrumentation and software used to enhance and extend the operation and performance of electron microscopes. Gatan’s differentiated technology solutions, premier brand and leadership positions in growth markets complements the Company’s existing portfolio of specialized offerings in
high-end
analytical instrumentation.
Acquired in November 2018, Spectro Scientific is a provider of machine condition monitoring solutions for critical assets in high-value industrial applications. Spectro Scientific’s differentiated solutions serve an increasing need for predictive maintenance in a broad and growing set of end markets, including military and defense, process, power generation and transportation. Spectro Scientific expands the Company’s strategy to integrate instrumentation data with cloud-based software and analytics.
Acquired in October 2018, Telular is a provider of communication solutions for logistics management, tank monitoring and security applications. Telular’s
end-to-end
solutions include purpose-built hardware, proprietary software and wireless connectivity services to enhance the efficiency and safety of critical assets. The combination of Telular’s IoT capabilities and the Company’s highly differentiated measurement technology provides additional growth opportunities for its businesses.
Acquired in October 2018, Forza Silicon Corporation (“Forza”) is a leader in the design and production of high-performance imaging sensors used in medical, defense and industrial applications. Forza provides the Vision Research business with custom sensor design and production capability, allowing for accelerated development of next-generation sensor technology for use across the Company’s market-leading, high-speed cameras.
Acquired in April 2018, SoundCom Systems (“SoundCom”) is a provider of design, integration, installation and support of clinical workflow and communication systems for healthcare facilities, educational institutions and corporations. SoundCom expands Rauland’s presence in the healthcare and education markets in the Midwest while providing customers with expanded value-added solutions and services.
Aerospace and Power Instrumentation Markets and Products
Aerospace and Power Instrumentation sales represented 28% of EIG’s 2019 net sales. These businesses produce a wide array of instrumentation, systems and sensors for applications in the aerospace, power and industrial markets.
These businesses produce power monitoring and metering instruments, uninterruptible power supply systems and programmable power supplies used in a wide range of industrial settings. It is a leader in the design and manufacture of power measurement, quality monitoring and event recorders for use in power generation, transmission and distribution. It provides uninterruptible power supply systems, multifunction electric meters, annunciators, alarm monitoring systems and highly specialized communications equipment for smart grid applications. It also offers precision power supplies and power conditioning products, and electrical immunity and EMC test equipment, sensors for gas turbines, dashboard instruments for heavy trucks and other vehicles, and instrumentation and controls for the food and beverage industries.
AMETEK’s aerospace products are designed to customer specifications and manufactured to stringent operational and reliability requirements. These products include airborne data systems, turbine engine temperature measurement products, vibration-monitoring systems, cockpit instruments and displays, fuel and fluid measurement products, and sensors and switches. AMETEK serves all segments of the commercial and military aerospace market, including commercial airliners, business jets, regional aircraft and helicopters.
AMETEK operates in highly specialized aerospace market segments in which it has proven technological or manufacturing advantages versus its competition. Among its more significant competitive advantages is its
70-year-plus
reputation as an established aerospace supplier. It has long-standing relationships with the world’s
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leading commercial and military aircraft, jet engine and original equipment manufacturers and aerospace system integrators. AMETEK also is a leading provider of spare part sales, repairs and overhaul services to commercial aerospace.
Acquired in June 2018, Motec is a provider of integrated vision systems serving the high-growth mobile machine vision market. Motec’s ruggedized vision products and integrated software solutions provide customers with improved operational efficiency and enhanced safety across a variety of critical mobile machine applications in transportation, agriculture, logistics and construction which complement the Company’s existing instrumentation businesses by expanding its portfolio of solutions to its customers.
Customers
EIG is not dependent on any single customer such that the loss of that customer would have a material adverse effect on EIG’s operations. Approximately 8% of EIG’s 2019 net sales were made to its five largest customers. No single customer comprises more than 5% of net sales.
EMG
EMG is a differentiated supplier of automation solutions, thermal management systems, specialty metals and electrical interconnects. EMG is a leader in many of the niche markets in which it competes. Products supplied to these markets include its advanced precision motion control solutions, which are used in a wide range of automation applications across the medical, semiconductor, aerospace, defense, and food and beverage industries, as well as its highly engineered electrical connectors and electronics packaging used in aerospace and defense, medical, and industrial applications.
EMG supplies high-purity powdered metals, strip and foil, specialty clad metals and metal matrix composites. Its blowers and heat exchangers provide electronic cooling and environmental control for the aerospace and defense industries. Its motors are widely used in commercial appliances, fitness equipment, food and beverage machines, hydraulic pumps and industrial blowers. Additionally, it operates a global network of aviation maintenance, repair and overhaul (“MRO”) facilities.
EMG designs and manufactures products that, in many instances, are significantly different from or technologically superior to competitors’ products. It has achieved competitive advantage through continued investment in research, development and engineering, efficiency improvements from operational excellence, acquisition synergies and improved supply chain management.
In 2019, 46% of EMG’s net sales were to customers outside the United States. At December 31, 2019, EMG employed approximately 7,500 people, of whom approximately 1,600 were covered by collective bargaining agreements. At December 31, 2019, EMG had operating facilities in the United States, the United Kingdom, China, Germany, France, Italy, Mexico, Serbia, Brazil, the Czech Republic, Malaysia and Taiwan.
Automation and Engineered Solutions Markets and Products
Automation and Engineered Solution sales represented 73% of EMG’s 2019 net sales. These businesses produce precision motion control solutions, brushless motors, blowers and pumps, heat exchangers and other electromechanical systems. These products are used in a wide variety of automation applications, semiconductor equipment, medical equipment and power industries among others. Additionally, these businesses produce specialty motors which are used in a wide range of products, such as household, commercial and personal care appliances, fitness equipment, food and beverage machines, hydraulic pumps and industrial blowers.
AMETEK is a leader in highly engineered electrical connectors and electronics packaging used to protect sensitive devices and
mission-critical
electronics. Its electrical connectors, terminals, headers and packaging are
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designed specifically for harsh environments and highly customized applications. In addition, AMETEK is an innovator and market leader in specialized metal powder, strip, wire and bonded products used in medical, aerospace and defense, telecommunications, automotive and general industrial applications.
Aerospace Markets and Products
Aerospace sales represented 27% of EMG’s 2019 net sales. These businesses produce motor-blower systems and heat exchangers used in thermal management and other applications on a variety of military and commercial aircraft and military ground vehicles. In addition, these businesses provide the commercial and military aerospace industry with third-party MRO services on a global basis with facilities in the United States, Europe and Asia.
Acquired in September 2019, PDT designs and manufactures a complete range of custom-engineered, liquid cooling systems and components used in a broad set of current and next-generation commercial aerospace, defense and space platforms. PDT enhances the Company’s position in the aerospace and defense sectors with its innovative technology and differentiated solutions in thermal management systems.
Acquired in January 2018, FMH Aerospace (“FMH”) is a provider of complex, highly engineered solutions for the aerospace, defense and space industries. FMH’s products and solutions further broaden the Company’s differentiated product offerings in the aerospace and defense markets.
Customers
EMG is not dependent on any single customer such that the loss of that customer would have a material adverse effect on EMG’s operations. Approximately 13% of EMG’s 2019 net sales were made to its five largest customers. No single customer comprises greater than 5% of net sales.
Marketing
AMETEK’s marketing efforts generally are organized and carried out at the business level. EIG makes use of distributors and sales representatives to market its products along with a direct sales force for its technically sophisticated products. Within aerospace, the specialized customer base of aircraft and jet engine manufacturers is served primarily by direct sales engineers. Given the technical nature of its many products, as well as its significant worldwide market share, EMG conducts much of its domestic and international marketing activities through a direct sales force and makes some use of sales representatives and distributors, both in the United States and in other countries.
Competition
In general, AMETEK’s markets are highly competitive with competition based on technology, performance, quality, service and price.
In EIG’s markets, AMETEK believes it ranks as a leader in certain analytical measurement and control instruments, and power and industrial markets. It also is a major instrument and sensor supplier to commercial aviation. In process and analytical instruments, numerous companies compete in each market on the basis of product quality, performance and innovation. In power and industrial and in aerospace, AMETEK competes with a number of companies depending on the specific market segment.
EMG’s businesses compete with a number of companies in each of its markets. Competition is generally based on product innovation, performance and price. There also is competition from alternative materials and processes.
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Availability of Raw Materials
AMETEK’s reportable segments obtain raw materials and supplies from a variety of sources and generally from more than one supplier. For EMG, however, certain items, including various base metals and certain steel components, are available from only a limited number of suppliers. AMETEK believes its sources and supplies of raw materials are adequate for its needs.
Backlog and Seasonal Variations of Business
AMETEK’s backlog of unfilled orders by reportable segment was as follows at December 31:
                         
 
2019
 
 
2018
 
 
2017
 
 
(In millions)
 
                         
Electronic Instruments
 
$
842.5
 
  $
765.5
    $
718.1
 
                         
Electromechanical
 
 
875.4
 
   
836.6
     
678.0
 
                         
                         
Total
 
$
1,717.9
 
  $
1,602.1
    $
1,396.1
 
                         
Of the total backlog of unfilled orders at December 31, 2019, approximately 86% is expected to be shipped by December 31, 2020. The Company believes that neither its business, nor either of its reportable segments, is subject to significant seasonal variations, although certain individual operations experience some seasonal variability.
Research, Development and Engineering
AMETEK is committed to, and has consistently invested in, research, development and engineering activities. These investments support AMETEK’s efforts in designing and developing new and improved products and solutions for our customers. Research, development and engineering costs before customer reimbursement were $260.3 million in 2019, $230.2 million in 2018 and $221.2 million in 2017, respectively. Customer reimbursements in 2019, 2018 and 2017 were $3.2 million, $5.2 million and $5.4 million, respectively. These amounts included research and development expenses of $161.9 million, $141.0 million and $130.4 million in 2019, 2018 and 2017, respectively. All such expenditures were directed toward the development of new products and solutions and the improvement of existing products and solutions.
Environmental Matters
Information with respect to environmental matters is set forth in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations section entitled “Environmental Matters” and in Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form
 10-K.
Patents, Licenses and Trademarks
AMETEK owns numerous unexpired U.S. and foreign patents, including counterparts of its more important U.S. patents, in the major industrial countries of the world. It is a licensor or licensee under patent agreements of various types, and its products are marketed under various registered and unregistered U.S. and foreign trademarks and trade names. AMETEK, however, does not consider any single patent or trademark, or any group of them, essential either to its business as a whole or to either one of its reportable segments. The annual royalties received or paid under license agreements are not significant to either of its reportable segments or to AMETEK’s overall operations.
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Employees
At December 31, 2019, AMETEK employed approximately 18,100 people at its EIG, EMG and corporate operations, of whom approximately 2,500 employees were covered by collective bargaining agreements. AMETEK has three collective bargaining agreements that expire in 2020, which cover fewer than 100 employees. It expects no material adverse effects from these pending labor contract negotiations.
Working Capital Practices
AMETEK does not have extraordinary working capital requirements in either of its reportable segments. Its customers generally are billed at normal trade terms that may include extended payment provisions. Inventories are closely controlled and maintained at levels related to production cycles and normal delivery requirements of customers.
Item 1A. Risk Factors
You should consider carefully the following risk factors and all other information contained in this Annual Report on Form
 10-K
and the documents we incorporate by reference in this Annual Report on Form
 10-K.
Any of the following risks could materially and adversely affect our business, financial condition, results of operations and cash flows.
A downturn in the economy generally or in the markets we serve could adversely affect our business.
A number of the industries in which we operate are cyclical in nature and therefore are affected by factors beyond our control. A downturn in the U.S. or global economy, and, in particular, in the aerospace and defense, oil and gas, process instrumentation or power markets could have an adverse effect on our business, financial condition and results of operations.
Our growth could suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.
Our growth depends in part on the growth of the markets which we serve. Visibility into the future performance of certain of our markets is limited (particularly for markets into which we sell through distribution). Our quarterly sales and profits depend substantially on the volume and timing of orders received during the fiscal quarter, which are difficult to forecast. Any decline or lower than expected growth in our served markets could diminish demand for our products and services, which would adversely affect our financial statements. A number of our businesses operate in industries that may experience periodic, cyclical downturns. In addition, in certain of our businesses, demand depends on customers’ capital spending budgets, as well as government funding policies. Matters of public policy and government budget dynamics, as well as product and economic cycles, can affect the spending decisions of these customers. Demand for our products and services is also sensitive to changes in customer order patterns, which may be affected by announced price changes, changes in incentive programs, new product introductions and customer inventory levels. Any of these factors could adversely affect our growth and results of operations in any given period.
Our growth strategy includes strategic acquisitions. We may not be able to consummate future acquisitions or successfully integrate recent and future acquisitions.
A portion of our growth has been attributed to acquisitions of strategic businesses. Since the beginning of 2015, through December 31, 2019, we have completed 18 acquisitions. We plan to continue making strategic acquisitions to enhance our global market position and broaden our product offerings. Although we have been successful with our acquisition strategy in the past, our ability to successfully effectuate acquisitions will be dependent upon a number of factors, including:
  Our ability to identify acceptable acquisition candidates;
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  The impact of increased competition for acquisitions, which may increase acquisition costs, affect our ability to consummate acquisitions on favorable terms, and result in us assuming a greater portion of the seller’s liabilities;
  Successfully integrating acquired businesses, including integrating the management, technological and operational processes, procedures and controls of the acquired businesses with those of our existing operations;
  Adequate financing for acquisitions being available on terms acceptable to us;
  Unexpected losses of key employees, customers and suppliers of acquired businesses;
  Mitigating assumed, contingent and unknown liabilities; and
  Challenges in managing the increased scope, geographic diversity and complexity of our operations.
The process of integrating acquired businesses into our existing operations may result in unforeseen operating difficulties and may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations. Furthermore, even if successfully integrated, the acquired business may not achieve the results we expected or produce expected benefits in the time frame planned. Failure to continue with our acquisition strategy and the successful integration of acquired businesses could have an adverse effect on our business, financial condition, results of operations and cash flows.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the company before we acquired it. In most of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our financial statements.
We may not properly execute, or realize anticipated cost savings or benefits from, our Operational Excellence initiatives.
Our success is partly dependent upon properly executing and realizing cost savings or other benefits from our ongoing production and procurement initiatives. These initiatives are primarily designed to make the Company more efficient, which is necessary in the Company’s highly competitive industries. These initiatives are often complex, and a failure to implement them properly may, in addition to not meeting projected cost savings or benefits, adversely affect our business and operations.
Foreign and domestic economic, political, legal, compliance and business factors could negatively affect our international sales and operations.
International sales for 2019 and 2018 represented 48.0% and 50.5% of our consolidated net sales, respectively. As a result of our growth strategy, we anticipate that the percentage of sales outside the United States will increase in the future. As of December 31, 2019, we have manufacturing operations in 17 countries outside the United States, with significant operations in China, the Czech Republic, Germany, Mexico, Serbia and the United Kingdom. A disruption of our ability to obtain a supply of goods from these countries or a change
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in the cost to purchase, manufacture, or distribute these products could have an adverse effect on our sales and operations. International sales and operations are subject to the customary risks of operating in an international environment, including:
  Imposition of trade or foreign exchange restrictions, including in the United States;
  Overlap of different tax structures;
  Unexpected changes in regulatory requirements, including in the United States;
  Trade protection measures, such as the imposition of or increase in tariffs and other trade barriers, including in the United States;
  The difficulty and/or costs of designing and implementing an effective control environment across diverse regions and employee bases;
  Restrictions on currency repatriation;
  General economic conditions;
  Unstable political situations;
  Nationalization of assets; and
  Compliance with a wide variety of international and U.S. laws and regulatory requirements.
Furthermore, fluctuations in foreign currency exchange rates, including changes in the relative value of currencies in the countries where we operate, subject us to exchange rate exposure and may adversely affect our financial statements. For example, increased strength in the U.S. dollar will increase the effective price of our products sold overseas, which may adversely affect sales or require us to lower our prices. In addition, our consolidated financial statements are presented in U.S. dollars, and we must translate our assets, liabilities, sales and expenses into U.S. dollars for external reporting purposes. As a result, changes in the value of the U.S. dollar due to fluctuations in currency exchange rates or currency exchange controls may materially and negatively affect the value of these items in our consolidated financial statements, even if their value has not changed in their local currency.
Our international sales and operations may be adversely impacted by compliance with export laws.
We are required to comply with various import, export, export control and economic sanctions laws, which may affect our transactions with certain customers, business partners and other persons, including in certain cases dealings with or between our employees and subsidiaries. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies and in other circumstances, we may be required to obtain an export license before exporting a controlled item. In addition, failure to comply with any of these regulations could result in civil and criminal, monetary and
non-monetary
penalties, disruptions to our business, limitations on our ability to import and export products and services and damage to our reputation.
Our reputation, ability to do business and financial statements may be impaired by improper conduct by any of our employees, agents or business partners.
We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with)
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that would violate U.S. and/or
non-U.S.
laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering and data privacy. In particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced governmental corruption to some degree. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the U.S. and in other jurisdictions and related shareholder lawsuits could lead to substantial civil and criminal, monetary and
non-monetary
penalties and could cause us to incur significant legal and investigatory fees. In addition, we rely on our suppliers to adhere to our supplier standards of conduct and violations of such standards of conduct could occur that could have a material effect on our financial statements.
Any inability to hire, train and retain a sufficient number of skilled officers and other employees could impede our ability to compete successfully.
If we cannot hire, train and retain a sufficient number of qualified employees, we may not be able to effectively integrate acquired businesses and realize anticipated results from those businesses, manage our expanding international operations and otherwise profitably grow our business. Even if we do hire and retain a sufficient number of employees, the expense necessary to attract and motivate these officers and employees may adversely affect our results of operations.
If we are unable to develop new products on a timely basis, it could adversely affect our business and prospects.
We believe that our future success depends, in part, on our ability to develop, on a timely basis, technologically advanced products that meet or exceed appropriate industry standards. Maintaining our existing technological advantages will require us to continue investing in research and development and sales and marketing. There can be no assurance that we will have sufficient resources to make such investments, that we will be able to make the technological advances necessary to maintain such competitive advantages or that we can recover major research and development expenses. We are not currently aware of any emerging standards or new products which could render our existing products obsolete, although there can be no assurance that this will not occur or that we will be able to develop and successfully market new products.
Our technology is important to our success and our failure to protect this technology could put us at a competitive disadvantage.
Many of our products rely on proprietary technology; therefore, we endeavor to protect our intellectual property rights through patents, copyrights, trade secrets, trademarks, confidentiality agreements and other contractual provisions. Despite our efforts to protect proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. In addition, our ability to protect and enforce our intellectual property rights may be limited in certain countries outside the U.S. Actions to enforce our rights may result in substantial costs and diversion of resources and we make no assurances that any such actions will be successful.
A disruption in, shortage of, or price increases for, supply of our components and raw materials may adversely impact our operations.
While we manufacture certain parts and components used in our products, we require substantial amounts of raw materials and purchase some parts and components from suppliers. The availability and prices for raw materials, parts and components may be subject to curtailment or change due to, among other things, supplier’s allocation to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing
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price levels. In addition, our facilities, supply chains, distribution systems, and products may be impacted by natural or
man-made
disruptions, including armed conflict, damaging weather or other acts of nature, pandemics or other public health crises. A shutdown of, or inability to utilize, one or more of our facilities, our supply chain, or our distribution system could significantly disrupt our operations, delay production and shipments, our relationships and reputation with customers, suppliers, employees, stockholders and others, result in lost sales, result in the misappropriation or corruption of data, or result in legal exposure and large remediation or other expenses. Furthermore, certain items, including base metals and certain steel components, are available only from a limited number of suppliers and are subject to commodity market fluctuations. Shortages in raw materials or price increases therefore could affect the prices we charge, our operating costs and our competitive position, which could adversely affect our business, financial condition, results of operations and cash flows.
Certain environmental risks may cause us to be liable for costs associated with hazardous or toxic substance
clean-up
which may adversely affect our financial condition.
Our businesses, operations and facilities are subject to a number of federal, state, local and foreign environmental and occupational health and safety laws and regulations concerning, among other things, air emissions, discharges to waters and the use, manufacturing, generation, handling, storage, transportation and disposal of hazardous substances and wastes. Environmental risks are inherent in many of our manufacturing operations. Certain laws provide that a current or previous owner or operator of property may be liable for the costs of investigating, removing and remediating hazardous materials at such property, regardless of whether the owner or operator knew of, or was responsible for, the presence of such hazardous materials. In addition, the Comprehensive Environmental Response, Compensation and Liability Act generally imposes joint and several liability for
clean-up
costs, without regard to fault, on parties contributing hazardous substances to sites designated for
clean-up
under the Act. We have been named a potentially responsible party at several sites, which are the subject of government-mandated
clean-ups.
As the result of our ownership and operation of facilities that use, manufacture, store, handle and dispose of various hazardous materials, we may incur substantial costs for investigation, removal, remediation and capital expenditures related to compliance with environmental laws. While it is not possible to precisely quantify the potential financial impact of pending environmental matters, based on our experience to date, we believe that the outcome of these matters is not likely to have a material adverse effect on our financial position or future results of operations. In addition, new laws and regulations, new classification of hazardous materials, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new
clean-up
requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that future environmental liabilities will not occur or that environmental damages due to prior or present practices will not result in future liabilities.
We are subject to numerous governmental regulations, which may be burdensome or lead to significant costs.
Our operations are subject to numerous federal, state, local and foreign governmental laws and regulations. In addition, existing laws and regulations may be revised or reinterpreted and new laws and regulations, including with respect to privacy legislation and climate change, may be adopted or become applicable to us or customers for our products. For example, we are subject to federal, state and international privacy laws relating to the collection, use, retention, security and transfer of personally identifiable information. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between the Company and its subsidiaries, and among the Company, its subsidiaries and other parties with which the Company has commercial relations. Several jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause the Company to incur substantial costs or require the Company to change its business practices. We cannot predict the form any such new laws or regulations will take or the impact any of these laws and regulations will have on our business or operations.
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We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements.
We are subject to a variety of litigation and other legal and regulatory proceedings incidental to our business (or the business operations of previously owned entities), including claims for damages arising out of the use of products or services and claims relating to intellectual property matters, employment matters, tax matters, commercial disputes, competition and sales and trading practices, environmental matters, personal injury, insurance coverage and acquisition-related matters, as well as regulatory investigations or enforcement. These lawsuits may include claims for compensatory damages, punitive and consequential damages and/or injunctive relief. The defense of these lawsuits may divert our management’s attention, we may incur significant expenses in defending these lawsuits, and we may be required to pay damage awards or settlements or become subject to equitable remedies that could adversely affect our operations and financial statements. Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against such losses. In addition, developments in proceedings in any given period may require us to adjust the loss contingency estimates that we have recorded in our financial statements, record estimates for liabilities or assets previously not susceptible of reasonable estimates or pay cash settlements or judgments. Any of these developments could adversely affect our financial statements in any particular period. We cannot assure you that our liabilities in connection with litigation and other legal and regulatory proceedings will not exceed our estimates or adversely affect our financial statements and reputation. However, based on our experience, current information and applicable law, we do not believe that any amounts we may be required to pay in connection with litigation and other legal and regulatory proceedings in excess of our reserves as of the date of this information statement will have a material effect on our financial statements.
We operate in highly competitive industries, which may adversely affect our results of operations or ability to expand our business.
Our markets are highly competitive. We compete, domestically and internationally, with individual producers, as well as with vertically integrated manufacturers, some of which have resources greater than we do. The principal elements of competition for our products are product technology, quality, service, distribution and price. Although we believe EIG is a market leader, competition is strong and could intensify in the markets served by EIG. In the aerospace markets served by EIG, a limited number of companies compete on the basis of product quality, performance and innovation. EMG’s competition in specialty metal products stems from alternative materials and processes. Our competitors may develop new or improve existing products that are superior to our products or may adapt more readily to new technologies or changing requirements of our customers. There can be no assurance that our business will not be adversely affected by increased competition in the markets in which it operates or that our products will be able to compete successfully with those of our competitors.
Restrictions contained in our revolving credit facility and other debt agreements may limit our ability to incur additional indebtedness.
Our existing revolving credit facility and other debt agreements (each a “Debt Facility” and collectively, “Debt Facilities”) contain restrictive covenants, including restrictions on our ability to incur indebtedness. These restrictions could limit our ability to effectuate future acquisitions, limit our ability to pay dividends, limit our ability to make capital expenditures or restrict our financial flexibility. Our Debt Facilities contain covenants requiring us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to meet the financial covenants or requirements in our Debt Facilities may be affected by events beyond our control, and we may not be able to satisfy such covenants and requirements. A breach of these covenants or our inability to comply with the financial ratios, tests or other restrictions contained in a Debt Facility could result in an event of default under one or more of our other Debt Facilities. Upon the occurrence of an event of default under a Debt Facility, and the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under one or more of our other Debt Facilities, together with accrued interest, to be immediately due and payable. If this were to occur, our assets may not be sufficient to fully repay the amounts due under our Debt Facilities or our other indebtedness.
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Our business and financial performance could be adversely impacted by a significant disruption in, or breach in security of, our information technology systems.
We rely on information technology systems, some of which are managed by third-parties, to process, transmit and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers, other business partners and patients), and to manage or support a variety of critical business processes and activities (such as receiving and fulfilling orders, billing, collecting and making payments, shipping products, providing services and support to customers and fulfilling contractual obligations). These systems, products and services may be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, ransomware, human error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events. In any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. Attacks may also target hardware, software and information installed, stored or transmitted in our products after such products have been purchased and incorporated into third-party products, facilities or infrastructure. Like most multinational corporations, our information technology systems have been subject to computer viruses, malicious codes, unauthorized access and other cyber-attacks and we expect the sophistication and frequency of such attacks to continue to increase. Any of the attacks, breaches or other disruptions or damage described above could interrupt our operations or the operations of our customers and partners, delay production and shipments, result in theft of intellectual property and trade secrets, damage customer and business partner relationships and our reputation or result in defective products or services, legal claims and proceedings, liability and penalties under privacy laws and increased costs for security and remediation, each of which could adversely affect our business, reputation and financial statements. Although we maintain cyber risk insurance, damages and claims arising from such incidents may not be covered or may exceed the amount of any insurance available.
Our goodwill and other intangible assets represent a substantial proportion of our total assets and the impairment of such substantial goodwill and intangible assets could have a negative impact on our financial condition and results of operations.
Our total assets include substantial amounts of intangible assets, primarily goodwill. At December 31, 2019, goodwill and other intangible assets, net of accumulated amortization, totaled $6,810.4 million or 69% of our total assets. The goodwill results from our acquisitions, representing the excess of cost over the fair value of the net tangible and other identifiable intangible assets we have acquired. At a minimum, we assess annually whether there has been impairment in the value of our intangible assets. If future operating performance at one or more of our reporting units were to fall significantly below current levels, we could record, under current applicable accounting rules, a
non-cash
charge to operating income for goodwill or other intangible asset impairment. Any determination requiring the impairment of a significant portion of goodwill or other intangible assets would negatively affect our financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
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Item 2.
Properties
At December 31, 2019, the Company conducted business from office and operating facilities at owned and leased locations throughout the United States and select global markets. The Company’s leases a facility in Berwyn, Pennsylvania for its corporate headquarters.
The Company believes that all facilities have been adequately maintained, are in good operating condition, and are suitable for our current needs.
Item 3.
Legal Proceedings
Please refer to “Environmental Matters” in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 13 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form
 10-K
for information regarding certain litigation matters.
The Company is subject to a variety of litigation and other legal and regulatory proceedings incidental to its business (or the business operations of previously owned entities), including claims for damages arising out of the use of the Company’s products or services and claims relating to intellectual property matters, employment matters, tax matters, commercial disputes, competition and sales and trading practices, environmental matters, personal injury, insurance coverage and acquisition-related matters, as well as regulatory investigations or enforcement. Based upon the Company’s experience, the Company does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or cash flows.
Item 4.
Mine Safety Disclosures
Not Applicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market on which the Company’s common stock is traded is the New York Stock Exchange and it is traded under the symbol “AME.” On January 31, 2020, there were approximately 1,800 holders of record of the Company’s common stock.
Market price and dividend information with respect to the Company’s common stock is set forth below. Future dividend payments by the Company will be dependent on future earnings, financial requirements, contractual provisions of debt agreements and other relevant factors.
Under its share repurchase program, the Company repurchased approximately 133,000 shares of its common stock for $11.9 million in 2019 and approximately 5,079,000 shares of its common stock for $367.7 million in 2018.
Issuer Purchases of Equity Securities
The following table reflects purchases of AMETEK, Inc. common stock by the Company during the three months ended December 31, 2019:
                                 
Period
 
Total Number
of Shares
Purchased (1)(2)
 
 
Average Price
Paid per Share
 
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan (2)
 
 
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Plan
 
                                 
October 1, 2019 to October 31, 2019
   
—  
    $
—  
     
—  
    $
494,436,704
 
                                 
November 1, 2019 to November 30, 2019
   
55,211
     
96.20
     
55,211
     
489,125,278
 
                                 
December 1, 2019 to December 31, 2019
   
—  
     
—  
     
—  
     
489,125,278
 
                                 
                                 
Total
   
55,211
     
96.20
     
55,211
     
 
                                 
 
(1) Represents shares surrendered to the Company to satisfy tax withholding obligations in connection with employees’ share-based compensation awards.
(2) Consists of the number of shares purchased pursuant to the Company’s Board of Directors $500 million authorization for the repurchase of its common stock announced in February 2019. Such purchases may be effected from time to time in the open market or in private transactions, subject to market conditions and at management’s discretion.
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Securities Authorized for Issuance Under Equity Compensation Plan Information
The following table sets forth information as of December 31, 2019 regarding all of the Company’s existing compensation plans pursuant to which equity securities are authorized for issuance to employees and nonemployee directors:
                         
Plan category
 
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
 
 
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
 
 
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
 
                         
Equity compensation plans approved by security holders
   
4,302,540
    $
62.50
     
4,579,533
 
                         
Equity compensation plans not approved by security holders
   
     
     
 
                         
                         
Total
   
4,302,540
     
62.50
     
4,579,533
 
                         
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Stock Performance Graph
The following graph and accompanying table compare the cumulative total stockholder return for AMETEK over the last five years ended December 31, 2019 with total returns for the same period for the Standard and Poor’s (“S&P”) 500 Index and S&P Industrials. AMETEK’s stock price is a component of both indices. The performance graph and table assume a $100 investment made on December 31, 2014 and reinvestment of all dividends. The stock performance shown on the graph below is based on historical data and is not necessarily indicative of future stock price performance.
 
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
 
                                                 
 
December 31,
 
 
2014
 
 
2015
 
 
2016
 
 
2017
 
 
2018
 
 
2019
 
                                                 
AMETEK, Inc.
  $
100.00
    $
102.51
    $
93.66
    $
140.48
    $
132.20
    $
196.00
 
                                                 
S&P 500 Index
   
100.00
     
101.38
     
113.51
     
138.29
     
132.23
     
173.86
 
                                                 
S&P Industrials
   
100.00
     
97.47
     
115.85
     
140.22
     
121.58
     
157.29
 
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Item 6.
Selected Financial Data
The following financial information for the five years ended December 31, 2019, has been derived from the Company’s consolidated financial statements. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form
 10-K.
                                         
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(In millions, except per share amounts)
 
                                         
Consolidated Operating Results
(Year Ended December 31):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
Net sales
 
$
5,158.6
 
  $
4,845.9
    $
4,300.2
    $
3,840.1
    $
3,974.3
 
                                         
Operating income
(1)
 
$
1,177.4
 
  $
1,075.5
    $
903.6
    $
791.0
    $
907.7
 
Interest expense
 
$
88.5
 
  $
82.2
    $
98.0
    $
94.3
    $
91.8
 
Net income
 
$
861.3
 
  $
777.9
    $
681.5
    $
512.2
    $
590.9
 
                                         
Earnings per share:
 
 
 
   
     
     
     
 
                                         
Basic
 
$
3.78
 
  $
3.37
    $
2.96
    $
2.20
    $
2.46
 
                                         
Diluted
 
$
3.75
 
  $
3.34
    $
2.94
    $
2.19
    $
2.45
 
                                         
Dividends declared and paid per share
 
$
0.56
 
  $
0.56
    $
0.36
    $
0.36
    $
0.36
 
                                         
Weighted average common shares outstanding:
   
     
     
     
     
 
                                         
Basic
 
 
227.8
 
   
230.8
     
230.2
     
232.6
     
239.9
 
                                         
Diluted
 
 
229.4
 
   
232.7
     
231.8
     
233.7
     
241.6
 
                                         
Performance Measures and Other Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                         
Operating income — Return on net sales
(1)
 
 
22.8
%
   
22.2
%    
21.0
%    
20.6
%    
22.8
%
                                         
  — Return on average total assets
(1)
 
 
12.7
%
   
13.1
%    
12.1
%    
11.5
%    
13.9
%
Net income — Return on average total capital
 
 
11.7
%
   
11.9
%    
11.6
%    
9.5
%    
11.6
%
 — Return on average stockholders’ equity
 
 
18.4
%
   
18.8
%    
18.7
%    
15.7
%    
18.2
%
EBITDA
(2)
 
$
1,388.3
 
  $
1,267.7
    $
1,076.0
    $
966.0
    $
1,046.9
 
Ratio of EBITDA to interest expense
(2)
 
 
15.7x
 
   
15.4x
     
11.0x
     
10.2x
     
11.4x
 
Depreciation and amortization
 
$
234.0
 
  $
199.5
    $
183.2
    $
179.7
    $
149.5
 
Capital expenditures
 
$
102.3
 
  $
82.1
    $
75.1
    $
63.3
    $
69.1
 
Cash provided by operating activities
 
$
1,114.4
 
  $
925.5
    $
833.3
    $
756.8
    $
672.5
 
Free cash flow
(3)
 
$
1,012.1
 
  $
843.4
    $
758.2
    $
693.5
    $
603.4
 
                                         
Consolidated Financial Position
(At December 31):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
2,025.8
 
  $
1,836.1
    $
1,934.7
    $
1,928.2
    $
1,618.8
 
                                         
Current liabilities
 
$
1,425.9
 
  $
1,258.7
    $
1,138.7
    $
924.4
    $
1,024.0
 
Property, plant and equipment, net
 
$
548.9
 
  $
554.1
    $
493.3
    $
473.2
    $
484.5
 
Total assets
 
$
9,844.6
 
  $
8,662.3
    $
7,796.1
    $
7,100.7
    $
6,660.5
 
Long-term debt, net
 
$
2,271.3
 
  $
2,273.8
    $
1,866.2
    $
2,062.6
    $
1,553.1
 
Total debt, net
 
$
2,768.7
 
  $
2,632.7
    $
2,174.3
    $
2,341.6
    $
1,938.0
 
Stockholders’ equity
 
$
5,115.5
 
  $
4,241.9
    $
4,027.6
    $
3,256.5
    $
3,254.6
 
Stockholders’ equity per share
 
$
22.33
 
  $
18.68
    $
17.42
    $
14.20
    $
13.82
 
Total debt as a percentage of capitalization
 
 
35.1
%
   
38.3
%    
35.1
%    
41.8
%    
37.3
%
Net debt as a percentage of capitalization
(4)
 
 
31.7
%
   
34.9
%    
27.5
%    
33.3
%    
32.4
%
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Notes to Selected Financial Data
 
(1) Amounts prior to 2016 do not reflect the adoption of ASU No.
 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
(“ASU
 2017-07”).
(2) EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. It should not be considered, however, as an alternative to operating income as an indicator of the Company’s operating performance or as an alternative to cash flows as a measure of the Company’s overall liquidity as presented in the Company’s consolidated financial statements. Furthermore, EBITDA measures shown for the Company may not be comparable to similarly titled measures used by other companies. The following table presents the reconciliation of net income reported in accordance with U.S. generally accepted accounting principles (“GAAP”) to EBITDA:
                                         
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(In millions)
 
                                         
Net income
 
$
861.3
 
  $
777.9
    $
681.5
    $
512.2
    $
590.9
 
                                         
                               
Add (deduct):
 
     
     
     
 
                                         
Interest expense
 
 
88.5
 
   
82.2
     
98.0
     
94.3
     
91.8
 
                                         
Interest income
 
 
(4.0
)
   
(1.7
)    
(2.0
)    
(1.1
)    
(0.8
)
                                         
Income taxes
 
 
208.5
 
   
209.8
     
115.3
     
180.9
     
215.5
 
                                         
Depreciation
 
 
101.4
 
   
85.4
     
82.0
     
74.8
     
68.7
 
                                         
Amortization
 
 
132.6
 
   
114.1
     
101.2
     
104.9
     
80.8
 
                                         
                                         
Total adjustments
 
 
527.0
 
   
489.8
     
394.5
     
453.8
     
456.0
 
                                         
                                         
EBITDA
 
$
1,388.3
 
  $
1,267.7
    $
1,076.0
    $
966.0
    $
1,046.9
 
                                         
(3) Free cash flow represents cash flow from operating activities less capital expenditures. Free cash flow is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. The following table presents the reconciliation of cash flow from operating activities reported in accordance with U.S. GAAP to free cash flow:
                                         
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(In millions)
 
                                         
Cash provided by operating activities
 
$
1,114.4
 
  $
925.5
    $
833.3
    $
756.8
    $
672.5
 
                                         
Deduct: Capital expenditures
 
 
(102.3
)
   
(82.1
)    
(75.1
)    
(63.3
)    
(69.1
)
                                         
                                         
Free cash flow
 
$
1,012.1
 
  $
843.4
    $
758.2
    $
693.5
    $
603.4
 
                                         
(4) Net debt represents total debt, net minus cash and cash equivalents. Net debt is presented because the Company is aware that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. The following table presents the reconciliation of total debt, net reported in accordance with U.S. GAAP to net debt:
                                         
 
December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(In millions)
 
                                         
Total debt, net
 
$
2,768.7
 
  $
2,632.7
    $
2,174.3
    $
2,341.6
    $
1,938.0
 
                                         
Less: Cash and cash equivalents
 
 
(393.0
)
   
(354.0
)    
(646.3
)    
(717.3
)    
(381.0
)
                                         
                                         
Net debt
 
 
2,375.7
 
   
2,278.7
     
1,528.0
     
1,624.3
     
1,557.0
 
                                         
Stockholders’ equity
 
 
5,115.5
 
   
4,241.9
     
4,027.6
     
3,256.5
     
3,254.6
 
                                         
                                         
Capitalization (net debt plus stockholders’ equity)
 
$
7,491.2
 
  $
6,520.6
    $
5,555.6
    $
4,880.8
    $
4,811.6
 
                                         
                                         
Net debt as a percentage of capitalization
 
 
31.7
%
   
34.9
%    
27.5
%    
33.3
%    
32.4
%
                                         
23

Table of Contents
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report includes forward-looking statements based on the Company’s current assumptions, expectations and projections about future events. When used in this report, the words “believes,” “anticipates,” “may,” “expect,” “intend,” “estimate,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. In this report, the Company discloses important factors that could cause actual results to differ materially from management’s expectations. For more information on these and other factors, see “Forward-Looking Information” herein.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with “Item 1A. Risk Factors,” “Item 6. Selected Financial Data” and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form
 10-K.
Business Overview
AMETEK’s operations are affected by global, regional and industry economic factors. However, the Company’s strategic geographic and industry diversification, and its mix of products and services, have helped to mitigate the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results. In 2019, the Company posted record backlog, orders, sales, operating income, net income, diluted earnings per share and operating cash flow. The Company’s record backlog, contributions from recent acquisitions, and continued focus on and implementation of Operational Excellence initiatives, had a positive impact on 2019 results. The Company also benefited from its strategic initiatives under AMETEK’s four key strategies: Operational Excellence, Strategic Acquisitions, Global & Market Expansion and New Products.
Highlights of 2019 were:
  Orders for 2019 were $5,274.3 million, an increase of $222.5 million or 4.4%, compared with $5,051.8 million in 2018. As a result, the Company’s backlog of unfilled orders at December 31, 2019 was $1,717.9 million.
  Net sales for 2019 were $5,158.6 million, an increase of $312.7 million or 6.5%, compared with $4,845.9 million in 2018. The increase in net sales for 2019 was due to 2% organic sales growth, a 5% increase from the 2019 and 2018 acquisitions, partially offset by unfavorable foreign currency translation.
  Net income for 2019 was $861.3 million, an increase of $83.4 million or 10.7%, compared with $777.9 million in 2018.
  Diluted earnings per share for 2019 were $3.75, an increase of $0.41 or 12.3%, compared with $3.34 per diluted share in 2018.
  Cash flow provided by operating activities for 2019 was $1,114.4 million, an increase of $188.9 million or 20.4%, compared with $925.5 million in 2018.
  During 2019, the Company spent $1,061.9 million in cash, net of cash acquired, to acquire two businesses:
  In September 2019, AMETEK acquired Pacific Design Technologies, Inc. (“PDT”), a provider of advanced, mission-critical thermal management solutions; and
  In October 2019, AMETEK acquired Gatan, a provider of instrumentation and software used to enhance and extend the operation and performance of electron telescopes.
24

Table of Contents
  In the fourth quarter of 2019, the Company paid in full, at maturity, $100 million in aggregate principal amount of 6.30% private placement senior notes.
  A $100 million second funding of the December 2018 Private Placement occurred in January 2019.
  In 2019, the Company repurchased approximately 133,000 shares of its common stock for $11.9 million.
  The Company continued its emphasis on investment in research, development and engineering, spending $260.3 million in 2019 before customer reimbursement of $3.2 million.
Results of Operations
The following table sets forth net sales and income by reportable segment and on a consolidated basis:
                         
 
Year Ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
(In thousands)
 
                         
Net sales:
 
 
 
 
 
 
 
 
 
                         
Electronic Instruments
 
$
3,322,881
 
  $
3,028,959
    $
2,690,554
 
                         
Electromechanical
 
 
1,835,676
 
   
1,816,913
     
1,609,616
 
                         
Consolidated net sales
 
$
5,158,557
 
  $
4,845,872
    $
4,300,170
 
                         
                         
Operating income and income before income taxes:
 
 
 
 
 
 
 
 
 
                         
Segment operating income:
 
 
 
   
     
 
                         
Electronic Instruments
 
$
865,307
 
  $
782,144