Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
The accompanying consolidated financial statements are unaudited. AMETEK, Inc. (the Company) believes that
all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at March 31, 2016, and the consolidated results of its operations and its cash flows
for the three months ended March 31, 2016 and 2015 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. The accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes presented in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2015 as filed with the Securities and Exchange
Commission.
2.
|
Recent Accounting Pronouncements
|
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU)
No. 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09).
The objective of
ASU 2014-09
is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition
guidance. The core principle of
ASU 2014-09
is that an entity recognizes revenue at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In applying the new guidance, the Company must (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the contracts performance obligations; and (5) recognize revenue when the Company satisfies a performance obligation.
ASU 2014-09
applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.
ASU 2014-09
is effective for interim and annual reporting
periods beginning after December 15, 2017 and can be adopted by the Company using either a full retrospective or modified retrospective approach.
ASU 2014-09
may be early adopted for interim and
annual reporting periods beginning after December 15, 2016. The Company has developed an implementation plan, which is currently in the assessment phase. The Company is in the process of determining the impact
ASU 2014-09
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures, and has not decided upon the method of adoption.
In February 2015, the FASB issued
ASU No. 2015-02,
Amendments to the Consolidation
Analysis
(ASU 2015-02).
ASU 2015-02
is intended to improve targeted areas of consolidation guidance for legal entities such as limited
partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).
ASU 2015-02
makes
specific amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the variable interest entities guidance. The Company adopted
ASU 2015-02
effective January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
In April 2015, the FASB issued
ASU No. 2015-03,
Simplifying the Presentation of Debt
Issuance Costs
(ASU 2015-03).
ASU 2015-03
requires debt issuance costs to be presented in the balance sheet as a direct deduction from the
associated debt liability. The Company adopted
ASU 2015-03
effective January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of operations,
financial position or cash flows.
In April 2015, the FASB issued
ASU No. 2015-05
, Customers Accounting for Fees Paid in a Cloud Computing Arrangement
(ASU 2015-05).
ASU 2015-05
is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance clarifies that customers should determine whether a cloud computing
arrangement includes the license of software by applying the same guidance cloud service providers use to make this determination. The Company adopted
ASU 2015-05
effective January 1, 2016 and the
adoption did not have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
6
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
In July 2015, the FASB issued
ASU No. 2015-11,
Simplifying the Measurement of Inventory
(ASU 2015-11),
which applies to inventory that is measured using FIFO or
average cost. As prescribed in this update, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using LIFO.
ASU 2015-11
is effective for interim and annual periods beginning after
December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company has not determined the impact
ASU 2015-11
may have on the Companys consolidated results of operations, financial position or cash flows.
In November 2015, the FASB
issued
ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
(ASU 2015-17).
ASU 2015-17
simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the consolidated balance sheet.
ASU 2015-17
is effective for interim and annual reporting periods beginning after December 15, 2016.
ASU 2015-17
may be adopted prospectively or
retrospectively and early adoption is permitted. The Company has not determined the impact
ASU 2015-17
may have on the Companys consolidated results of operations, financial position or cash flows
and has not decided upon the method of adoption.
In February 2016, the FASB issued
ASU No. 2016-02,
Leases
(ASU 2016-02).
The new standard establishes a right-of-use model that requires a lessee to record a
right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the
income statement.
ASU 2016-02
is effective for interim and annual reporting periods beginning after December 15, 2018.
ASU 2016-02
is to be adopted using
a modified retrospective approach and early adoption is permitted. The Company has not determined the impact
ASU 2016-02
may have on the Companys consolidated results of operations, financial
position, cash flows and financial statement disclosures.
In March 2016, the FASB issued
ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09).
ASU 2016-09
includes changes to the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on
the statement of cash flows.
ASU 2016-09
is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company has not determined the
impact
ASU 2016-09
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding
during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants). The number of weighted average shares used in the
calculation of basic earnings per share and diluted earnings per share was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
234,983
|
|
|
|
240,947
|
|
Equity-based compensation plans
|
|
|
1,233
|
|
|
|
1,850
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
236,216
|
|
|
|
242,797
|
|
|
|
|
|
|
|
|
|
|
7
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
4.
|
Accumulated Other Comprehensive Income (Loss)
|
The components of accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
Foreign
Currency
Items
and Other
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
|
Foreign
Currency
Items
and Other
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the period
|
|
$
|
(250,593
|
)
|
|
$
|
(155,038
|
)
|
|
$
|
(405,631
|
)
|
|
$
|
(124,912
|
)
|
|
$
|
(141,982
|
)
|
|
$
|
(266,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
21,679
|
|
|
|
|
|
|
|
21,679
|
|
|
|
(34,370
|
)
|
|
|
|
|
|
|
(34,370
|
)
|
Change in long-term intercompany notes
|
|
|
13,703
|
|
|
|
|
|
|
|
13,703
|
|
|
|
(54,693
|
)
|
|
|
|
|
|
|
(54,693
|
)
|
Net investment hedges
|
|
|
(2,910
|
)
|
|
|
|
|
|
|
(2,910
|
)
|
|
|
(11,011
|
)
|
|
|
|
|
|
|
(11,011
|
)
|
Gross amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
2,484
|
|
|
|
2,484
|
|
|
|
|
|
|
|
2,160
|
|
|
|
2,160
|
|
Income tax benefit (expense)
|
|
|
1,019
|
|
|
|
(869
|
)
|
|
|
150
|
|
|
|
3,854
|
|
|
|
(742
|
)
|
|
|
3,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
33,491
|
|
|
|
1,615
|
|
|
|
35,106
|
|
|
|
(96,220
|
)
|
|
|
1,418
|
|
|
|
(94,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
(217,102
|
)
|
|
$
|
(153,423
|
)
|
|
$
|
(370,525
|
)
|
|
$
|
(221,132
|
)
|
|
$
|
(140,564
|
)
|
|
$
|
(361,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications for the amortization of defined benefit pension plans are included in Cost of sales,
excluding depreciation in the consolidated statement of income. See Note 13 for further details.
5.
|
Fair Value Measurements
|
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active
markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the
Companys own assumptions used to measure assets and liabilities at fair value. A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value
measurement.
The following table provides the Companys assets that are measured at fair value on a recurring basis as of
March 31, 2016 and December 31, 2015, consistent with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Fixed-income investments
|
|
$
|
8,745
|
|
|
$
|
8,482
|
|
The fair value of fixed-income investments, which are valued as level 1 investments, was based on quoted
market prices. The fixed-income investments are shown as a component of long-term assets on the consolidated balance sheet.
For the three
months ended March 31, 2016, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the three months ended March 31, 2016.
8
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
Financial Instruments
Cash, cash equivalents and fixed-income investments are recorded at fair value at March 31, 2016 and December 31, 2015 in the
accompanying consolidated balance sheet.
The following table provides the estimated fair values of the Companys financial
instrument liabilities, for which fair value is measured for disclosure purposes only, compared to the recorded amounts at March 31, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Recorded
Amount
|
|
|
Fair Value
|
|
|
Recorded
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Short-term borrowings, net
|
|
$
|
(600,917
|
)
|
|
$
|
(600,917
|
)
|
|
$
|
(312,999
|
)
|
|
$
|
(312,999
|
)
|
Long-term debt, net (including current portion)
|
|
|
(1,617,443
|
)
|
|
|
(1,709,042
|
)
|
|
|
(1,625,041
|
)
|
|
|
(1,683,523
|
)
|
The fair value of
short-term
borrowings, net approximates the carrying
value. Short-term borrowings, net are valued as level 2 investments as they are corroborated by observable market data. The Companys long-term debt, net is all privately held with no public market for this debt, therefore, the fair value
of long-term debt, net was computed based on comparable current market data for similar debt instruments and is considered to be a level 3 liability.
The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in
certain foreign operations. As of March 31, 2016, these net investment hedges included British-pound-denominated long-term debt. These borrowings were designed to create net investment hedges in each of the designated foreign subsidiaries. The
Company designated the British-pound-denominated loan referred to above as hedging instruments to offset translation gains or losses on the net investment due to changes in the British pound exchange rate. These net investment hedges are evidenced
by managements contemporaneous documentation supporting the hedge designation. Any gain or loss on the hedging instrument (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the
translation adjustment on the investment based on changes in the spot rate, which is used to measure hedge effectiveness.
At
March 31, 2016, the Company had $172.6 million of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. As a result of the
British-pound-denominated loans being designated and 100% effective as net investment hedges, $4.6 million of currency remeasurement gains have been included in the foreign currency translation component of other comprehensive income for the
three months ended March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Finished goods and parts
|
|
$
|
86,007
|
|
|
$
|
83,229
|
|
Work in process
|
|
|
119,438
|
|
|
|
105,259
|
|
Raw materials and purchased parts
|
|
|
343,332
|
|
|
|
325,963
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
548,777
|
|
|
$
|
514,451
|
|
|
|
|
|
|
|
|
|
|
9
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
The Company spent $294.6 million in cash, net of cash acquired, to acquire Brookfield Engineering Laboratories
(Brookfield) and ESP/SurgeX in January 2016. Brookfield is a manufacturer of viscometers and rheometers, as well as instrumentation to analyze texture and powder flow. ESP/SurgeX is a manufacturer of energy intelligence and power
protection, monitoring and diagnostic solutions. Brookfield and ESP/SurgeX are part of AMETEKs Electronic Instruments Group.
The
following table represents the preliminary allocation of the aggregate purchase price for the net assets of the above acquisitions based on their estimated fair values at acquisition (in millions):
|
|
|
|
|
Property, plant and equipment
|
|
$
|
8.9
|
|
Goodwill
|
|
|
139.6
|
|
Other intangible assets
|
|
|
145.1
|
|
Deferred income taxes, net
|
|
|
(13.5
|
)
|
Long-term liabilities
|
|
|
(2.4
|
)
|
Net working capital and other
(1)
|
|
|
16.9
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
294.6
|
|
|
|
|
|
|
(1)
|
Includes $10.4 million in accounts receivable, whose fair value, contractual cash flows and expected cash flows are approximately equal.
|
The amount allocated to goodwill is reflective of the benefits the Company expects to realize from the acquisitions as follows:
Brookfields viscosity measurement instrumentation products and technologies complement the Companys existing laboratory instrumentation businesses and provides the Company with opportunities to expand that business platform into a
broader range of markets and applications. ESP/SurgeXs patented technology is widely used by the business equipment, imaging, audio visual, information technology, gaming and vending industries and is a strategic fit with the Companys
existing power protection platform to accelerate product innovation and market expansion worldwide. The Company expects approximately $100 million of the goodwill recorded in connection with the 2016 acquisitions will be tax deductible in
future years.
At March 31, 2016, purchase price allocated to other intangible assets of $145.1 million consists of
$23.5 million of indefinite-lived intangible trademarks and trade names, which are not subject to amortization. The remaining $121.6 million of other intangible assets consists of $97.1 million of customer relationships, which are
being amortized over a period of 19 years and $24.5 million of purchased technology, which is being amortized over a period of 15 years. Amortization expense for each of the next five years for the 2016 acquisitions listed above
is expected to approximate $7 million per year.
The Company is in the process of finalizing the measurement of certain tangible and
intangible assets and liabilities for its 2016 acquisitions, including property, plant and equipment, goodwill, customer relationships, trade names, purchased technology and the accounting for income taxes.
The 2016 acquisitions noted above had an immaterial impact on reported net sales, net income and diluted earnings per share for the three
months ended March 31, 2016. Had the 2016 acquisitions been made at the beginning of 2016 or 2015, unaudited pro forma net sales, net income and diluted earnings per share for the three months ended March 31, 2016 and 2015, respectively,
would not have been materially different than the amounts reported. Pro forma results are not necessarily indicative of the results that would have occurred if the acquisitions had been completed at the beginning of 2016 or 2015.
10
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
The changes in the carrying amounts of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
Instruments
Group
|
|
|
Electro-
mechanical
Group
|
|
|
Total
|
|
|
|
(In millions)
|
|
Balance at December 31, 2015
|
|
$
|
1,678.2
|
|
|
$
|
1,028.4
|
|
|
$
|
2,706.6
|
|
Goodwill acquired
|
|
|
139.6
|
|
|
|
|
|
|
|
139.6
|
|
Purchase price allocation adjustments and other
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
Foreign currency translation adjustments
|
|
|
8.2
|
|
|
|
3.3
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
1,826.3
|
|
|
$
|
1,031.7
|
|
|
$
|
2,858.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2016, the Company had gross unrecognized tax benefits of $65.6 million, of which $54.6 million,
if recognized, would impact the effective tax rate.
The following is a reconciliation of the liability for uncertain tax positions (in
millions):
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
63.8
|
|
Additions for tax positions
|
|
|
2.0
|
|
Reductions for tax positions
|
|
|
(0.2
|
)
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
65.6
|
|
|
|
|
|
|
The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax
expense. The amounts recognized in income tax expense for interest and penalties during the three months ended March 31, 2016 and 2015 were not significant.
In March 2016, the Company along with certain of its foreign subsidiaries amended and restated its credit agreement
dated as of September 22, 2011 (the Credit Agreement). The Credit Agreement amends and restates the Companys existing $700 million revolving credit facility, which was due to expire in December 2018. The Credit
Agreement consists of a five-year revolving credit facility in an aggregate principal amount of $850 million with a final maturity date in March 2021. The revolving credit facility total borrowing capacity excludes an accordion feature
that permits the Company to request up to an additional $300 million in revolving credit commitments at any time during the life of the Credit Agreement under certain conditions. The Credit Agreement places certain restrictions on allowable
additional indebtedness. Interest rates on outstanding loans under the revolving credit facility are at the applicable benchmark rate plus a negotiated spread or at the U.S. prime rate. At March 31, 2016, the Company had available
borrowing capacity of $513.6 million under its revolving credit facility, including the $300 million accordion feature.
11
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
12.
|
Share-Based Compensation
|
Total share-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Stock option expense
|
|
$
|
2,099
|
|
|
$
|
1,895
|
|
Restricted stock expense
|
|
|
2,980
|
|
|
|
2,967
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax expense
|
|
|
5,079
|
|
|
|
4,862
|
|
Related tax benefit
|
|
|
(1,676
|
)
|
|
|
(1,578
|
)
|
|
|
|
|
|
|
|
|
|
Reduction of net income
|
|
$
|
3,403
|
|
|
$
|
3,284
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense is included in the consolidated statement of income in either Cost of
sales, excluding depreciation or Selling, general and administrative expenses, depending on where the recipients cash compensation is reported.
13.
|
Retirement and Pension Plans
|
The components of net periodic pension benefit expense (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,659
|
|
|
$
|
1,749
|
|
Interest cost
|
|
|
7,613
|
|
|
|
6,689
|
|
Expected return on plan assets
|
|
|
(12,969
|
)
|
|
|
(13,004
|
)
|
Amortization of net actuarial loss and other
|
|
|
2,484
|
|
|
|
2,160
|
|
|
|
|
|
|
|
|
|
|
Pension income
|
|
|
(1,213
|
)
|
|
|
(2,406
|
)
|
|
|
|
|
|
|
|
|
|
Other plans:
|
|
|
|
|
|
|
|
|
Defined contribution plans
|
|
|
7,042
|
|
|
|
6,494
|
|
Foreign plans and other
|
|
|
1,336
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
Total other plans
|
|
|
8,378
|
|
|
|
7,742
|
|
|
|
|
|
|
|
|
|
|
Total net pension expense
|
|
$
|
7,165
|
|
|
$
|
5,336
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2016 and 2015, contributions to the Companys defined benefit
pension plans were $1.2 million and $50.8 million, respectively. The Companys current estimate of 2016 contributions to its worldwide defined benefit pension plans is in line with the range disclosed in the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2015.
12
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
The Company provides limited warranties in connection with the sale of its products. The warranty periods for products sold
vary widely among the Companys operations, but for the most part do not exceed one year. The Company calculates its warranty expense provision based on past warranty experience and adjustments are made periodically to reflect actual warranty
expenses.
Within the product warranty table below, the three months ended March 31, 2015 has been adjusted to disclose gross
accruals for warranties issued during the period and gross settlements made during the period to conform to the current period presentation.
Changes in the accrued product warranty obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the period
|
|
$
|
22,761
|
|
|
$
|
29,764
|
|
Accruals for warranties issued during the period
|
|
|
3,104
|
|
|
|
4,127
|
|
Settlements made during the period
|
|
|
(4,010
|
)
|
|
|
(4,706
|
)
|
Warranty accruals related to acquired businesses and other during the period
|
|
|
729
|
|
|
|
(949
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
22,584
|
|
|
$
|
28,236
|
|
|
|
|
|
|
|
|
|
|
Certain settlements of warranties made during the period were for specific nonrecurring warranty obligations.
Product warranty obligations are reported as current liabilities in the consolidated balance sheet.
Asbestos Litigation
The Company (including its subsidiaries) has been named as a defendant, along with many other companies, in a number of asbestos-related
lawsuits. Many of these lawsuits either relate to businesses which were acquired by the Company and do not involve products which were manufactured or sold by the Company or relate to previously owned businesses of the Company which are under new
ownership. In connection with many of these lawsuits, the sellers or new owners of such businesses, as the case may be, have agreed to indemnify the Company against these claims (the Indemnified Claims). The Indemnified Claims have been
tendered to, and are being defended by, such sellers and new owners. These sellers and new owners have met their obligations, in all respects, and the Company does not have any reason to believe such parties would fail to fulfill their obligations
in the future; however, one of these companies filed for bankruptcy liquidation in 2007. To date, no judgments have been rendered against the Company as a result of any asbestos-related lawsuit. The Company believes it has strong defenses to the
claims being asserted and intends to continue to vigorously defend itself in these matters.
Environmental Matters
Certain historic processes in the manufacture of products have resulted in environmentally hazardous waste by-products as defined by federal
and state laws and regulations. At March 31, 2016, the Company is named a Potentially Responsible Party (PRP) at 14 non-AMETEK-owned former waste disposal or treatment sites (the non-owned sites). The Company is
identified as a de minimis party in 13 of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In nine of these sites, the Company has reached a tentative
agreement on the cost of the de minimis settlement to satisfy its obligation and is awaiting executed agreements. The tentatively agreed-to settlement amounts are fully reserved. In the other four sites, the Company is continuing to investigate
the accuracy of the alleged volume attributed to the Company as estimated by the parties primarily responsible for remedial activity at the sites to establish an appropriate settlement amount. At the remaining site where the Company is a non-de
minimis PRP, the Company is participating in the investigation and/or related required remediation as part of a PRP Group and reserves have been
13
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
established sufficient to satisfy the Companys expected obligations. The Company historically has resolved these issues within established reserve levels and reasonably expects this result
will continue. In addition to these non-owned sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its current or previously owned manufacturing locations (the owned sites).
For claims and proceedings against the Company with respect to other environmental matters, reserves are established once the Company has determined that a loss is probable and estimable. This estimate is refined as the Company moves through the
various stages of investigation, risk assessment, feasibility study and corrective action processes. In certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the low end of the range.
It is reasonably possible that the actual cost of remediation of the individual sites could vary from the current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to
result in a material change to the consolidated financial statements. In estimating the Companys liability for remediation, the Company also considers the likely proportionate share of the anticipated remediation expense and the ability of the
other PRPs to fulfill their obligations.
Total environmental reserves at March 31, 2016 and December 31, 2015 were
$30.1 million and $30.5 million, respectively, for both non-owned and owned sites. For the three months ended March 31, 2016, the Company recorded $1.4 million in reserves. Additionally, the Company spent $1.8 million on
environmental matters for the three months ended March 31, 2016. The Companys reserves for environmental liabilities at March 31, 2016 and December 31, 2015 include reserves of $12.9 million and $11.5 million,
respectively, for an owned site acquired in connection with the 2005 acquisition of HCC Industries (HCC). The Company is the designated performing party for the performance of remedial activities for one of several operating units
making up a Superfund site in the San Gabriel Valley of California. The Company has obtained indemnifications and other financial assurances from the former owners of HCC related to the costs of the required remedial activities. At
March 31, 2016, the Company had $11.6 million in receivables related to HCC for probable recoveries from third-party escrow funds and other committed third-party funds to support the required remediation. Also, the Company is indemnified
by HCCs former owners for approximately $19 million of additional costs.
The Company has agreements with other former owners
of certain of its acquired businesses, as well as new owners of previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other
liabilities under certain circumstances. The Company and some of these other parties also carry insurance coverage for some environmental matters. To date, these parties have met their obligations in all material respects.
The Company believes it has established reserves which are sufficient to perform all known responsibilities under existing claims and consent
orders. The Company has no reason to believe that other third parties would fail to perform their obligations in the future. In the opinion of management, based upon presently available information and past experience related to such matters, an
adequate provision for probable costs has been made and the ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position or cash flows of the Company.
The Company has two reportable segments, Electronic Instruments Group (EIG) and Electromechanical Group
(EMG). The Companys operating segments are identified based on the existence of segment managers. Certain of the Companys operating segments have been aggregated for segment reporting purposes primarily on the basis of
product type, production processes, distribution methods and similarity of economic characteristics.
At March 31, 2016, there were
no significant changes in identifiable assets of reportable segments from the amounts disclosed at December 31, 2015, other than those described in the acquisitions footnote (Note 8), nor were there any significant changes in the basis of
segmentation or in the measurement of segment operating results. Operating information relating to the Companys reportable segments for the three months ended March 31, 2016 and 2015 can be found in the table included in Part I,
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on
Form 10-Q.
14
AMETEK, Inc.
Notes to Consolidated Financial Statements
March 31, 2016
(Unaudited)
For the three months ended March 31, 2016, the Company repurchased approximately 2,406,000 shares of common stock
for $116.7 million in cash under its share repurchase authorization. At March 31, 2016, $195.1 million was available under the Companys Board of Directors authorization for future share repurchases.
18.
|
2015 Restructuring Charges
|
During the first quarter of 2015, the Company recorded pre-tax restructuring charges totaling $15.9 million, which had
the effect of reducing net income by $10.8 million ($0.04 per diluted share). The restructuring charges were reported in the consolidated statement of income as follows: $15.8 million in Cost of sales, excluding depreciation and
$0.1 million in Selling, general and administrative expenses. The restructuring charges were reported in segment operating income as follows: $9.3 million in EIG, $6.5 million in EMG and $0.1 million in corporate administrative
expenses. The restructuring actions primarily related to a reduction in workforce in response to the weak global economy on certain of the Companys businesses and the effects of a continued strong U.S. dollar. The restructuring activities
have been broadly implemented across the Companys various businesses with all actions expected to be completed in the first half of 2016.
During the fourth quarter of 2015, the Company recorded pre-tax restructuring charges totaling $20.7 million, which had the effect of
reducing net income by $13.9 million ($0.06 per diluted share). The restructuring charges were reported in the consolidated statement of income as follows: $20.0 million in Cost of sales, excluding depreciation and $0.7 million in
Selling, general and administrative expenses. The restructuring charges were reported in segment operating income as follows: $9.3 million in EIG, $10.8 million in EMG and $0.7 million in corporate administrative expenses. The
restructuring actions primarily related to a reduction in workforce in response to the weak global economy on certain of the Companys businesses and the effects of a continued strong U.S. dollar. The restructuring activities will be
broadly implemented across the Companys various businesses in the first half of 2016, with all actions expected to be completed in the second half of 2017.
Accrued liabilities in the Companys consolidated balance sheet included amounts related to the 2015 restructuring charges as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
of 2015
Restructuring
|
|
|
Fourth Quarter
of 2015
Restructuring
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
5.0
|
|
|
$
|
19.3
|
|
|
$
|
24.3
|
|
Pre-tax charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
(1.2
|
)
|
|
|
(2.5
|
)
|
|
|
(3.7
|
)
|
Foreign currency translation and other
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
3.9
|
|
|
$
|
16.6
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15