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SCHEDULE 14A INFORMATION
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Notice of 2009
Annual Meeting
Proxy Statement
Annual Financial Information
and Review of Operations
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 21, 2009
3:00 p.m. Eastern Daylight Time
The New York Helmsley
212 East 42nd Street
Sutton Place Meeting Room
New York, NY 10017
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2009 Annual
Meeting of Stockholders of AMETEK, Inc. At the Annual Meeting, you will be asked to:
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Elect three Directors for a term of three years; |
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Ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for 2009; and |
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Transact any other business properly brought before the Annual Meeting. |
Only stockholders of record at the close of business on March 6, 2009 will be entitled to vote at
the Annual Meeting. Your vote is important. You can vote in one of four ways: (1) via the
Internet, (2) by telephone using a toll-free number, (3) by marking, signing and dating your proxy
card, and returning it promptly in the enclosed envelope, or (4) by casting your vote in person at
the Annual Meeting. Directions to the New York Helmsley are located on the back cover of the Proxy
Statement. Please refer to your proxy card for specific proxy voting instructions.
We have included the annual financial information relating to our business and operations in
Appendix A to the Proxy Statement. We also have enclosed a Summary Annual Report.
We hope that you take advantage of the convenience and cost savings of voting by computer or by
telephone. A sizable electronic response would significantly reduce return-postage fees.
Whether you expect to attend the meeting or not, we urge you to vote your shares via the Internet,
by telephone or by mailing your proxy as soon as possible. Submitting your proxy now will not
prevent you from voting your stock at the Annual Meeting if you want to, as your proxy is revocable
at your option. We appreciate your interest in AMETEK.
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Sincerely, |
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Frank S. Hermance |
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Chairman of the Board |
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and Chief Executive Officer |
Paoli, Pennsylvania
Dated: March 13, 2009
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2009
The proxy statement and 2008 annual report of AMETEK, Inc. are available at:
http://phx.corporate-ir.net/phoenix.zhtml?c=104638&p=irol-reportsAnnual
Principal executive offices
37 North Valley Road Building 4
P.O. Box 1764
Paoli, Pennsylvania 19301-0801
PROXY STATEMENT
We are mailing this Proxy Statement and proxy card to our stockholders of record as of March 6,
2009 on or about March 13, 2009. The Board of Directors is soliciting proxies in connection with
the election of Directors and other actions to be taken at the Annual Meeting of Stockholders and
at any adjournment or postponement of that Meeting. The Board of Directors encourages you to read
the Proxy Statement and to vote on the matters to be considered at the Annual Meeting.
TABLE OF CONTENTS
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Voting Procedures |
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Corporate Governance |
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Advance Notice Procedures |
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Stockholder Proposals for the 2010 Proxy Statement |
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Report of the Audit Committee |
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Election of Directors (Proposal 1 on Proxy Card) |
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Ratification of Appointment of Independent Registered Public Accounting Firm
(Proposal 2 on Proxy Card) |
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The Board of Directors |
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Executive Officers |
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Executive Compensation: |
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Compensation Discussion and Analysis |
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Report of the Compensation Committee |
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Compensation Tables |
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Potential Payments upon Termination or Change of Control |
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Stock Ownership of Executive Officers and Directors |
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Beneficial Ownership of Principal Stockholders |
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Compliance with Section 16(a) of the Securities Exchange Act of 1934 |
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Other Business |
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Multiple Stockholders Sharing the Same Address |
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Electronic Distribution of Proxy Statements and Annual Reports |
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Appendix: |
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Index to Annual Financial Information and Review of Operations |
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A-1 |
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VOTING PROCEDURES
Your vote is very important. It is important that your views be represented whether or not you
attend the Annual Meeting.
Who can vote? Stockholders of record as of the close of business on March 6, 2009 are entitled to
vote. On that
date 106,767,630 shares of our Common Stock were issued and outstanding and
eligible to vote. Each share is entitled to one vote on each matter presented at the Annual
Meeting.
How do I vote? You can vote your shares at the Annual Meeting if you are present in person or
represented by proxy. You can designate the individuals named on the enclosed proxy card as your
proxies by mailing a properly executed proxy card, via the Internet or by telephone. You may
revoke your proxy at any time before the Annual Meeting by delivering written notice to the
Corporate Secretary, by submitting a proxy card bearing a later date or by appearing in person and
casting a ballot at the Annual Meeting.
To submit your proxy by mail, indicate your voting choices, sign and date your proxy card and
return it in the postage-paid envelope provided. You may vote via the Internet or by telephone by
following the instructions on your proxy card. Your Internet or telephone vote authorizes the
persons named on the proxy card to vote your shares in the same manner as if you marked, signed and
returned the proxy card to us.
If you hold your shares through a broker, bank or other nominee, that institution will send you
separate instructions describing the procedure for voting your shares.
What shares are represented by the proxy card? The proxy card represents all the shares registered
in your name. If you participate in the AMETEK, Inc. Investors Choice Dividend Reinvestment &
Direct Stock Purchase and Sale Plan, the card also represents any full shares held in your account.
If you are an employee who owns AMETEK shares through an AMETEK employee savings plan and also
hold shares in your own name, you will receive a single proxy card for the plan shares, which are
attributable to the units that you hold in the plan, and the shares registered in your name. Your
proxy card or proxy submitted through the Internet or by telephone will serve as voting
instructions to the plan trustee.
How are shares voted? If you return a properly executed proxy card or submit voting instructions
via the Internet or by telephone before voting at the Annual Meeting is closed, the individuals
named as proxies on the enclosed proxy card will vote in accordance with the directions you
provide. If you return a signed and dated proxy card but do not indicate how the shares are to be
voted, those shares will be voted as recommended by the Board of Directors. A valid proxy card or
a vote via the Internet or by telephone also authorizes the individuals named as proxies to vote
your shares in their discretion on any other matters which, although not described in the Proxy
Statement, are properly presented for action at the Annual Meeting.
If your shares are held by a broker, bank or other holder of record, please refer to the
instructions it provides for voting your shares. If you want to vote those shares in person at the
Annual Meeting, you must bring a signed proxy from the broker, bank or other holder of record
giving you the right to vote the shares.
If you are an employee who owns AMETEK shares through an AMETEK employee savings plan and you do
not return a proxy card or otherwise give voting instructions for the plan shares, the trustee will
vote those shares in the same proportion as the shares for which the trustee receives voting
instructions from other participants in that plan. Your proxy voting instructions must be received
by April 16, 2009 to enable the savings plan trustee to tabulate the vote of the plan shares prior
to the Annual Meeting.
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How many votes are required? A majority of the shares of our outstanding Common Stock entitled to
vote at the Meeting must be represented in person or by proxy in order to have a quorum present at
the Annual Meeting. Abstentions and broker non-votes are counted as present and entitled to vote
for purposes of determining a quorum. A broker non-vote occurs when a bank, broker or other
holder of record holding shares for a beneficial owner does not vote on a particular proposal
because that holder does not have discretionary voting power for the particular proposal and has
not received instructions from the beneficial owner. If a quorum is not present, the Annual Meeting
will be rescheduled for a later date.
Directors are elected by a plurality of the votes cast. This means that the three candidates for
election as Directors receiving the highest number of votes will be elected to serve until the
Annual Meeting in 2012. The ratification of the appointment of Ernst & Young LLP requires the
affirmative vote of the holders of a majority of eligible shares present at the Annual Meeting, in
person or by proxy, and voting on the matter. Abstentions and broker non-votes are not counted as
votes for or against this proposal.
Who will tabulate the vote? Our transfer agent, American Stock Transfer & Trust Company, will
tally the vote, which will be certified by independent inspectors of election.
Is my vote confidential? It is our policy to maintain the confidentiality of proxy cards, ballots
and voting tabulations that identify individual stockholders, except where disclosure is mandated
by law and in other limited circumstances.
Who is the proxy solicitor? We have retained Georgeson, Inc. to assist in the distribution of
proxy materials and solicitation of votes. We will pay Georgeson, Inc. a fee of $7,500, plus
reimbursement of reasonable out-of-pocket expenses.
CORPORATE GOVERNANCE
In accordance with the Delaware General Corporation Law and our Certificate of Incorporation and
Bylaws, our business and affairs are managed under the direction of the Board of Directors. We
provide information to the Directors about our business through, among other things, operating,
financial and other reports, as well as other documents presented at meetings of the Board of
Directors and Committees of the Board.
Our Board of Directors currently consists of eight members. They are Sheldon S. Gordon, Frank S.
Hermance, Charles D. Klein, Steven W. Kohlhagen, James R. Malone, David P. Steinmann, Elizabeth R.
Varet and Dennis K. Williams. The biographies of the continuing Directors and Director nominees
appear on page 11. The Board is divided into three classes with staggered terms of three years
each, so that the term of one class expires at each Annual Meeting of Stockholders. The Board has
nominated the three current Class III Directors, Mr. Malone, Ms. Varet and Mr. Williams, to serve
as Class III Directors until the 2012 Annual Meeting.
Corporate Governance Guidelines and Codes of Ethics. The Board of Directors has adopted Corporate
Governance Guidelines that address the practices of the Board and specify criteria to assist the
Board in determining Director independence. These criteria supplement the listing standards of the
New York Stock Exchange and the regulations of the Securities and Exchange Commission. Our Code of
Ethics and Business Conduct sets forth rules of conduct that apply to all of our Directors,
officers and employees. We also have adopted a separate Code of Ethical Conduct for our Chief
Executive Officer and senior financial officers. The Guidelines and Codes are available on our Web
site at www.ametek.com/investors as well as in printed form, free of charge to any stockholder who
requests them, by writing or telephoning the Investor Relations Department, AMETEK, Inc., 37 North
Valley Road
Building 4, P.O. Box 1764, Paoli, PA 19301-0801 (Telephone Number: 1-800-473-1286). The Board of
Directors and our management do not intend to grant any waivers of the provisions of either Code.
In the unlikely event a waiver for a Director or an executive officer occurs, the action will be
disclosed promptly at our Web site address provided above. If the Guidelines or the Codes are
amended, the revised versions also will be posted on our Web site.
2
Meetings of the Board. Our Board of Directors has five regularly scheduled meetings each year.
Special meetings are held as necessary. In addition, management and the Directors frequently
communicate informally on a variety of topics, including suggestions for Board or Committee agenda
items, recent developments and other matters of interest to the Directors.
The independent Directors meet in executive session at least once a year outside of the presence of
any management Directors and other members of our management. The presiding Director at the
executive sessions rotates annually among the chairpersons of the Corporate Governance/Nominating
Committee, the Compensation Committee and the Audit Committee. The presiding Director at the
executive sessions for 2009 is Mr. Klein, the chairperson of the Compensation Committee. During
executive sessions, the Directors may consider such matters as they deem appropriate. Following
each executive session, the results of the deliberations and any recommendations are communicated
to the full Board of Directors.
Directors are expected to attend all meetings of the Board and each Committee on which they serve
and are expected to attend the Annual Meeting of Stockholders. Our Board met in person a total of
four times and one time by telephone in 2008. Each of the Directors attended at least 75% of the
meetings of the Board and the Committees to which the Director was assigned. Six of the eight
Directors attended the 2008 Annual Meeting of Stockholders.
Independence. The Board of Directors has affirmatively determined that each of the current
Non-Management Directors, Sheldon S. Gordon, Charles D. Klein, Steven W. Kohlhagen, James R.
Malone, David P. Steinmann, Elizabeth R. Varet and Dennis K. Williams, has no material relationship
with us (either directly or as a partner, stockholder or officer of an organization that has a
relationship with us) and, therefore, is an independent Director within the meaning of the New York
Stock Exchange rules. The Board has further determined that each member of the Audit, Compensation
and Corporate Governance/Nominating Committees is independent within the meaning of the New York
Stock Exchange rules. The members of the Audit Committee also satisfy Securities and Exchange
Commission regulatory independence requirements for audit committee members.
The Board has established the following standards to assist it in determining Director
independence: A Director will not be deemed independent if: (i) within the previous three years
or currently, (a) the Director has been employed by us; (b) someone in the Directors immediate
family has been employed by us as an executive officer; or (c) the Director or someone in her/his
immediate family has been employed as an executive officer of another entity that concurrently has
or had as a member of its compensation committee of the board of directors any of our present
executive officers; (ii) (a) the director is a current partner or employee of a firm that is the
Companys internal or external auditor; (b) someone in the directors immediate family is a current
partner of such a firm; (c) someone in the directors immediate family is a current employee of
such a firm and personally works on the Companys audit; or (d) the director or someone in the
directors immediate family is a former partner or employee of such a firm and personally worked on
the Companys audit within the last three years; (iii) the Director received, or someone in the
Directors immediate family received, during any twelve-month period within the last three years,
more than $120,000 in direct compensation from us, other than Director and committee fees and
pension or other forms of deferred compensation for prior service (provided such compensation is
not contingent in any way on continued service) and, in the case of an immediate family member,
other than compensation for service as our employee (other than an executive officer). The
following commercial or charitable relationships will not be considered material relationships:
(i) if the Director is a current employee or holder of more than ten percent of the equity of, or
someone in her/his immediate family is a current executive officer or holder of more than
ten percent of the equity of, another company that has made payments to, or received payments from
us for property or services in an amount which, in any of the last three fiscal years of the other
company, does not exceed $1 million or two percent of the other companys consolidated gross
revenues, whichever is greater, or (ii) if the Director is a current executive officer of a
charitable organization, and we made charitable contributions to the charitable organization in any
of the charitable organizations last three fiscal years that do not exceed $1 million or two
percent of the charitable organizations consolidated gross revenues, whichever is greater. For
the purposes of these categorical standards, the terms immediate family member and executive
officer have the meanings set forth in the New York Stock Exchanges corporate governance rules.
All independent Directors satisfied these categorical standards.
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In considering the independence of the Non-Management Directors, the Board considered some
relationships that it concluded did not impair the Directors independence. The Board considered
that Mr. Klein, Mr. Steinmann and Ms. Varet may be deemed to have a relationship with an entity
that purchases motors from us.
Communication with Non-Management Directors and Audit Committee. Stockholders and other parties
who wish to communicate with the Non-Management Directors may do so by calling 1-877-263-8357 (in
the United States and Canada) or 1-610-889-5271. If you prefer to communicate in writing, address
your correspondence to the Corporate Secretary Department, Attention: Non-Management Directors,
AMETEK, Inc., 37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801.
You may address complaints regarding accounting, internal accounting controls or auditing matters
to the Audit Committee by calling
1-866-531-3079 (Domestic English only) or 1-866-551-8006
(International Other Languages).
Committees of the Board. Our Board Committees include Audit, Compensation, Corporate
Governance/Nominating, Pension Investment and Executive. The charters of the Audit, Compensation
and Corporate Governance/Nominating Committees are available on our Web site at
www.ametek.com/investors as well as in printed form, free of charge to any stockholder who requests
them, by writing or telephoning the Investor Relations Department, AMETEK, Inc., 37 North Valley
Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801 (Telephone Number: 1-800-473-1286). Each
of the Audit, Compensation and Corporate Governance/Nominating Committees conducts an annual
assessment to assist it in evaluating whether, among other things, it has sufficient information,
resources and time to fulfill its obligations and whether it is performing its obligations
effectively. Each Committee may retain advisors to assist it in carrying out its responsibilities.
The Audit Committee has the sole authority to retain, compensate, terminate, oversee and evaluate
our independent auditors. In addition, the Audit Committee is responsible for:
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review and approval in advance of all audit and lawfully permitted non-audit services
performed by the independent auditors; |
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review and discussion with management and the independent auditors regarding the annual
audited financial statements and quarterly financial statements included in our Securities
and Exchange Commission filings and quarterly sales and earnings announcements; |
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oversight of our compliance with legal and regulatory requirements; |
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review of the performance of our internal audit function; |
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meeting separately with the independent auditors and our internal auditors as often as
deemed necessary or appropriate by the Committee; and |
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review of major issues regarding accounting principles, financial statement presentation
and the adequacy of internal controls. |
The Committee met eight times during 2008. The Board of Directors has determined that Sheldon S.
Gordon is an audit committee financial expert within the meaning of the Securities and Exchange
Commissions regulations. The members of the Committee are Sheldon S. Gordon Chairperson, Steven
W. Kohlhagen and James R. Malone. Mr. Kohlhagen currently serves on the audit committees of boards
of directors of ten related, publicly traded Merrill Lynch closed-end investment companies (all of
which have identical board compositions and committee structures). After its review and
consideration of Mr. Kohlhagens simultaneous service on the audit committees of the Merrill Lynch
closed-end investment companies, the Board has determined that Mr. Kohlhagens simultaneous service
on those audit committees does not impair his ability to serve effectively on our Audit Committee.
4
The Compensation Committee is responsible for, among other things:
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establishment and periodic review of our compensation philosophy and the adequacy of the
compensation plans for our officers and other employees; |
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establishment of compensation arrangements and incentive goals for officers and
administration of compensation plans; |
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review of the performance of officers, award of incentive compensation and adjustment of
compensation arrangements as appropriate based on performance; |
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review and monitoring of management development and succession plans; and |
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periodic review of the compensation of non-employee Directors. |
The Committee met six times during 2008. The members of the Committee are Charles D. Klein
Chairperson, James R. Malone and Elizabeth R. Varet. In carrying out its duties, the Compensation
Committee makes compensation decisions for approximately 40 officers, including all executive
officers. The Compensation Committee charter does not provide for delegation of the Committees
duties and responsibilities. The charter provides that, in setting compensation for the Chief
Executive Officer, the Committee will review and evaluate the Chief Executive Officers performance
and leadership, taking into account the views of other members of the Board. The charter further
provides that, with the participation of the Chief Executive Officer, the Committee evaluates the
performance of other officers and determines compensation for these officers. In this regard,
Compensation Committee meetings are regularly attended by the Chief Executive Officer. The Chief
Executive Officer does not participate in the determination of his compensation. The Compensation
Committee has authority under the charter to retain and set compensation for compensation
consultants and other advisors.
Towers Perrin is engaged by our management to serve as our compensation consultant. We ask Towers
Perrin to provide comparative data regarding compensation levels for seasoned managers who have job
functions and responsibilities that are similar to those of our senior managers. Specifically, we
ask Towers Perrin to compare our senior managers compensation to the 50th percentile of
compensation for similarly positioned senior managers in a general industry group (consisting of
over 350 companies that have chosen to participate in a Towers Perrin survey). Based on this data,
our human resources department develops summaries for the Compensation Committee, indicating
competitive compensation levels for our senior managers that would correspond to the 50th
percentile, thereby assisting the Compensation Committee in its evaluation of our most senior
managers compensation. See Compensation Discussion and Analysis 2008 Compensation
Determination of Competitive Compensation for further information. In addition, Towers Perrin
provides companywide benefits consulting.
The Corporate Governance/Nominating Committee is responsible for, among other things:
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selection of nominees for election as Directors, subject to ratification by the Board; |
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recommendation of a Director to serve as Chairperson of the Board; |
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recommendation to the Board of the responsibilities of Board Committees and each
Committees membership; |
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oversight of the annual evaluation of the Board and the Audit and Compensation
Committees; and |
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review and assessment of the adequacy of our Corporate Governance Guidelines. |
The Committee met four times during 2008. The members of the Committee are James R. Malone
Chairperson, Charles D. Klein, David P. Steinmann and Dennis K. Williams.
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The Pension Investment Committee reviews the administration of our retirement plans, including
compliance, investment manager and trustee performance, and the results of independent audits of
the plans. The Committee met five times during 2008. The members of the Committee are Steven W.
Kohlhagen Chairperson, Sheldon S. Gordon and David P. Steinmann.
The Executive Committee has limited powers to act on behalf of the Board whenever the Board is not
in session. The Committee met two times during 2008. The members of the Committee are Frank S.
Hermance Chairperson, Charles D. Klein, Elizabeth R. Varet and Dennis K. Williams.
Consideration of Director Candidates. The Corporate Governance/Nominating Committee considers
candidates for Board membership. The charter of the Corporate Governance/Nominating Committee
requires that the Committee consider and recommend to the Board the appropriate size, function and
composition of the Board, so that the Board as a whole collectively possesses a broad range of
skills, industry and other knowledge, and business and other experience useful for the effective
oversight of our business. The Board also seeks members from diverse backgrounds who have a
reputation for integrity. In addition, Directors should have experience in positions with a high
degree of responsibility, be leaders in the companies or institutions with which they are
affiliated, and be selected based upon contributions that they can make to the Company. The
Committee considers all of these qualities when nominating candidates for Director.
Stockholders can recommend qualified candidates for Director by writing to the Corporate Secretary,
AMETEK, Inc., 37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801. Stockholder
submissions must include the following information: (1) the name of the candidate and the
information about the individual that would be required to be included in a proxy statement under
the rules of the Securities and Exchange Commission; (2) information about the relationship between
the candidate and the recommending shareholder; (3) the consent of the candidate to serve as a
Director; and (4) proof of the number of shares of our Common Stock that the recommending
stockholder owns and the length of time that the shares have been owned. To enable consideration
of a candidate in connection with the 2010 Annual Meeting, a stockholder must submit materials
relating to the recommended candidate no later than November 13, 2009. In considering any
candidate proposed by a stockholder, the Corporate Governance/Nominating Committee will reach a
conclusion based on the criteria described above in the same manner as for other candidates. The
Corporate Governance/Nominating Committee also may seek additional information regarding the
candidate. After full consideration by the Corporate Governance/Nominating Committee, the
stockholder proponent will be notified of the decision of the Committee.
Director Compensation. Standard compensation arrangements for Directors in 2008 are described
below.
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Fees Non-employee Directors received an annual fee of $45,000, except for the
Chairmen of the Compensation, Corporate Governance/Nominating and Pension Investment
Committees, who received an annual fee of $50,000, and the Chairman of the Audit
Committee, who received an annual fee of $65,000. In addition, non-employee Directors
received $3,750 for each of the four in person meetings of the Board of Directors they
attended. There were no additional fees for attendance at the Board meeting held by
telephone or Committee meetings. |
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Restricted Stock On April 23, 2008, under our 2002 Stock Incentive Plan, each
non-employee Director received a restricted stock award of 1,000 shares of our Common
Stock. These restricted shares vest on the earliest to occur of: |
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the closing price of our Common Stock on any five consecutive
trading days equaling or exceeding $97.20, |
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the death or disability of the Director, |
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the Directors termination of service as a member of AMETEKs Board of
Directors in connection with a change of control, |
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the fourth anniversary of the date of grant, namely April 23, 2012, provided
the Director has served continuously through that date, or |
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the Directors retirement from service as a member of the Board of Directors
at or after age 55 and the completion of at least 10 years of service with us,
in which case only a pro rata portion of the shares becomes non-forfeitable and
transferable, based upon the time that has elapsed since the date of grant. |
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Options On April 23, 2008, under our 2002 Stock Incentive Plan, each non-employee
Director received an option to purchase 3,630 shares of our Common Stock, at an exercise
price equal to the closing price of AMETEKs Common Stock, as reported on the New York
Stock Exchange consolidated tape on that date. Stock options become exercisable as to the
underlying shares in four equal annual installments beginning one year after the date of
grant. |
The following table provides information regarding Director compensation in 2008, which reflects
the standard compensation described above and certain other payments. The table does not include
compensation for reimbursement of travel expenses related to attending Board, Committee and AMETEK
business meetings, and approved educational seminars. In addition, the table does not address
compensation for Mr. Hermance, which is addressed under Executive Compensation beginning on page
13. Mr. Hermance does not receive additional compensation for serving as a Director.
DIRECTOR COMPENSATION 2008
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Change in |
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Pension Value |
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and |
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Nonqualified |
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Fees Earned |
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Non-Equity |
|
Deferred |
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|
or Paid in |
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Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
Name |
|
Cash |
|
Awards (1) |
|
Awards (2) |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Sheldon S. Gordon |
|
$ |
80,000 |
|
|
$ |
41,852 |
|
|
$ |
34,775 |
|
|
|
|
|
|
$ |
127,400 |
|
|
|
|
|
|
$ |
284,027 |
|
Charles D. Klein |
|
|
65,000 |
|
|
|
41,852 |
|
|
|
34,775 |
|
|
|
|
|
|
|
138,600 |
|
|
|
|
|
|
|
280,227 |
|
Steven W. Kohlhagen |
|
|
65,000 |
|
|
|
29,327 |
|
|
|
24,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,153 |
|
James R. Malone |
|
|
65,000 |
|
|
|
41,852 |
|
|
|
34,775 |
|
|
|
|
|
|
|
148,600 |
|
|
|
|
|
|
|
290,227 |
|
David P. Steinmann |
|
|
60,000 |
|
|
|
41,852 |
|
|
|
34,775 |
|
|
|
|
|
|
|
156,600 |
|
|
|
|
|
|
|
293,227 |
|
Elizabeth R. Varet |
|
|
60,000 |
|
|
|
41,852 |
|
|
|
34,775 |
|
|
|
|
|
|
|
153,000 |
|
|
|
|
|
|
|
289,627 |
|
Dennis K. Williams |
|
|
60,000 |
|
|
|
29,327 |
|
|
|
27,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,625 |
|
|
|
|
(1) |
|
The amounts shown for stock awards relate to restricted shares granted under our 2002 Stock
Incentive Plan. These amounts are equal to the dollar amounts recognized in 2008 with respect
to the Directors stock awards for financial reporting purposes, in accordance with Statement
of Financial Accounting Standards No. 123(R), which we refer to below as SFAS 123(R), but
without giving effect to estimated forfeitures. The grant date fair value of stock awards
granted to each Director in 2008, computed in accordance with SFAS 123(R), was $48,600. The
assumptions used in determining the amounts in this column are set forth in note 9 to our
consolidated financial statements on page 41 of Appendix A to this proxy statement. At
December 31, 2008, Messrs. Gordon, Klein, Kohlhagen, Malone, Steinmann and Williams and Ms.
Varet each held 3,430 restricted shares. |
|
|
|
On May 16, 2008, the price-related event for accelerated vesting of the restricted stock granted
on April 27, 2005 occurred. The total value realized on vesting is equal to (1) the closing
price per share of our Common Stock on May 16, 2008 ($52.98) multiplied by the number of shares
acquired on vesting, minus the par value per share paid by the Director, (2) the dividends
accrued since the date of award, and (3) the interest accrued on these dividends. |
7
|
|
|
(2) |
|
The amounts shown for option awards relate to stock options granted under our 2002 Stock
Incentive Plan. These amounts are equal to the dollar amounts recognized in 2008 with respect
to the Directors option awards for financial reporting purposes, computed in accordance with
SFAS 123(R), but without giving effect to estimated forfeitures. The assumptions used in
determining the amounts in this column are set forth in note 9 to our consolidated financial
statements on page 41 of Appendix A to this proxy statement. The grant date fair value of
option awards granted to each Director in 2008, computed in accordance with SFAS 123(R), was
$34,775. At December 31, 2008, Messrs. Gordon, Klein and Malone and Ms. Varet each held
options to purchase 20,665 shares of our Common Stock, Mr. Steinmann held options to purchase
13,803 shares of our Common Stock and Messrs. Kohlhagen and Williams each held options to
purchase 11,515 shares of our Common Stock. |
Directors who first became members of the Board of Directors prior to January 1, 1997 participate
in a retirement plan for Directors. Under this plan, each non-employee Director who has provided
at least three years of service to us as a Director receives an annual retirement benefit equal to
100% of that Directors highest annual rate of cash compensation during the Directors service with
the Board. Mr. Steinmann and Ms. Varet have accrued an annual retirement benefit of $60,000.
Messrs. Klein and Malone have accrued an annual retirement benefit of $65,000. Mr. Gordon has
accrued an annual retirement benefit of $80,000.
Directors who first became members of the Board of Directors prior to July 22, 2004 participate in
our Death Benefit Program for Directors. Messrs. Gordon, Klein, Malone and Steinmann and Ms. Varet
participate in this program. Under this program, each non-employee Director has an individual
agreement that pays the Director (or the Directors beneficiary in the event of the Directors
death) an annual amount equal to 100% of that Directors highest annual rate of cash compensation
during the Directors service with the Board. The payments are made for 10 years beginning at the
earlier of (a) the Directors being retired and having attained age 70 or (b) the Directors death.
The program is funded by individual life insurance policies that we purchased on the lives of the
Directors. In addition, non-employee Directors who first became members of the Board of Directors
prior to July 27, 2005 have a group term life insurance benefit of $50,000. We retain the right to
terminate any of the individual agreements under certain circumstances.
Mandatory Retirement. The retirement policy for our Board of Directors prohibits a Director from
standing for re-election following his or her 75th birthday.
Certain Relationships and Related Transactions. Mr. Hermances son is employed by us in a
non-executive officer capacity as a Divisional Vice President and received total compensation, as
such amount is calculated for the named executive officers in the Summary Compensation Table on
page 21, of approximately $250,000 in 2008.
Under our written Related Party Transactions Policy, transactions that would require disclosure
under SEC regulations must be approved in advance by the Audit Committee. Applicable SEC
regulations generally require disclosure of all transactions since the beginning of a corporations
last fiscal year, or any currently proposed transaction, exceeding $120,000 in which the
corporation or any of its subsidiaries is participating and in which any of the following related
persons had, or will have, a direct or indirect material interest: (1) any of the corporations
directors, director nominees, or executive officers, (2) any beneficial owner of more than 5% of
the corporations common stock and (3) any member of the immediate family of any of the foregoing
persons. The term immediate family includes a persons spouse, parents, stepparents, children,
stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and
sisters-in-law, and any person (other than a tenant or employee) sharing the same household as the
person.
Prior to entering into a transaction covered by the policy, the person proposing to enter into the
transaction must provide a notice to our Vice President Corporate Compliance and Auditing, who
must promptly forward the notice to the Chairman of the Audit Committee. Following such inquiry as
the Audit Committee deems appropriate, the transaction is permissible if the Audit Committee finds
that, notwithstanding the involvement of a related person, there is an appropriate business reason
to approve the transaction.
The transaction described above was ratified by the Audit Committee under the policy.
8
ADVANCE NOTICE PROCEDURES
In accordance with our By-Laws, stockholders must give us notice relating to nominations for
Director or proposed business to be considered at our 2010 Annual Meeting of Stockholders no
earlier than January 20, 2010 nor later than February 19, 2010. These requirements do not affect
the deadline for submitting stockholder proposals for inclusion in the proxy statement or for
recommending candidates for consideration by the Corporate Governance/Nominating Committee, nor do
they apply to questions a stockholder may wish to ask at the Annual Meeting. Stockholders may
request a copy of the By-Law provisions discussed above from the Corporate Secretary, AMETEK, Inc.,
37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801.
STOCKHOLDER PROPOSALS FOR THE 2010 PROXY STATEMENT
To be considered for inclusion in the proxy statement for the 2010 Annual Meeting of Stockholders,
stockholder proposals must be received at our executive offices no later than November 13, 2009.
REPORT OF THE AUDIT COMMITTEE
The responsibilities of the Audit Committee are set forth in its charter, which is accessible on
AMETEKs Web site at www.ametek.com/investors. Among other things, the charter charges the
Committee with the responsibility for reviewing AMETEKs audited financial statements and the
financial reporting process. In fulfilling its oversight responsibilities, the Committee reviewed
with management and Ernst & Young LLP, AMETEKs independent registered public accounting firm, the
audited financial statements contained in AMETEKs 2008 Annual Report on Form 10-K and included in
Appendix A to this Proxy Statement. The Committee discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended.
In addition, the Committee received the written disclosures and letter from Ernst & Young LLP
required by the Public Company Accounting Oversight Board Rule 3526, Communication with Audit
Committees Concerning Independence, and has discussed with Ernst & Young LLP its independence.
The Committee discussed with AMETEKs internal auditors and Ernst & Young LLP the overall scope and
plans for their respective audits. The Committee met with the internal auditors and Ernst & Young
LLP, with and without management present, to discuss the results of their examinations, their
evaluations of AMETEKs disclosure control process and internal control over financial reporting,
and the overall quality of AMETEKs financial reporting. The Committee held eight meetings during
the fiscal year ended December 31, 2008, which included telephone meetings prior to quarterly
earnings announcements.
Based on the reviews and discussions referred to above, the Committee recommended to the Board of
Directors, and the Board approved, the inclusion of the audited financial statements in AMETEKs
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, for filing with the
Securities and Exchange Commission.
Respectfully submitted,
The Audit Committee:
Sheldon S. Gordon, Chairperson
Steven W. Kohlhagen
James R. Malone
Dated: March 13, 2009
9
ELECTION OF DIRECTORS
(Proposal 1 on Proxy Card)
The nominees for election at this years Annual Meeting are James R. Malone, Elizabeth R. Varet and
Dennis K. Williams. Messrs. Malone and Williams and Ms. Varet have been nominated to serve as
Class III Directors and, if elected, will serve until the Annual Meeting in 2012.
All proxies received will be voted for the election of the nominees unless the stockholder
submitting the proxy gives other instructions. Nominees will be elected by holders of a plurality
of shares represented either in person or by proxy at the Annual Meeting and entitled to vote. If
any nominee is unable to serve, the shares represented by all valid proxies will be voted for the
election of such other person as the Board may nominate, unless the Board determines to reduce the
number of Directors.
The Directors biographies are set forth on page 11.
Your Board of Directors Recommends a Vote FOR Each of the Nominees.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 2 on Proxy Card)
The Audit Committee has appointed the firm of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2009. Ernst & Young LLP and its
predecessor has served continuously as our independent auditors since our incorporation in 1930.
Although action by stockholders on this matter is not required, the Audit Committee believes that
it is appropriate to seek stockholder ratification of this appointment, and the Audit Committee may
reconsider the appointment if the stockholders do not ratify it.
Fees billed to us by Ernst & Young LLP for services rendered in 2008 and 2007 totaled $4,887,000
and $4,562,000 respectively, and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Audit fees |
|
$ |
4,764,000 |
|
|
$ |
4,451,000 |
|
Audit-related fees |
|
|
62,000 |
|
|
|
80,000 |
|
Tax fees |
|
|
59,000 |
|
|
|
24,000 |
|
All other fees |
|
|
2,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
4,887,000 |
|
|
$ |
4,562,000 |
|
Audit fees includes amounts for statutory audits and attestation services related to our internal
control over financial reporting for compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
The amounts shown for Audit-related fees include fees for audits of employee benefit plans.
The amounts shown for Tax fees relate to federal and state tax advice, acquisition tax planning,
assistance with international tax compliance and international tax consulting.
The amounts shown for All other fees primarily relate to online accounting research
subscriptions.
The affirmative vote of the holders of a majority of eligible shares present at the Annual Meeting,
in person or by proxy, and voting on the matter is required to ratify the appointment of Ernst &
Young LLP.
Representatives of Ernst & Young LLP will be present at the Annual Meeting. They will have an
opportunity to make a statement if they desire and will be available to respond to appropriate
questions.
Your Board of Directors Recommends a Vote FOR Ratification.
10
THE BOARD OF DIRECTORS
Unless we indicate otherwise, each Director has maintained the principal occupation described below
for more than five years.
|
|
|
Class III: Nominees for election at this Annual Meeting for terms expiring in 2012: |
|
|
|
JAMES R. MALONE
Director since 1994
|
|
Founder and Managing Partner of Qorval LLC. President and Chief
Executive Officer (from June 2005 to September 2005) and
Chairman (from August 2005 to September 2005) of Cenveo, Inc. A
Director of Regions Financial Corporation. Age 66. |
|
|
|
ELIZABETH R. VARET
Director since 1987
|
|
A Managing Director of American Securities Management L.P. and
chairman of the corporate general partner of several affiliated
entities. Age 65. |
|
|
|
DENNIS K. WILLIAMS
Director since 2006
|
|
Retired. President and Chief Executive Officer (from May 2000
to March 2005) and Chairman of the Board (from May 2000 to April
2006) of IDEX Corporation. A Director of Owens-Illinois, Inc.
and Actuant Corporation. Age 63. |
|
|
|
Class I: Directors whose terms continue until 2010: |
|
|
|
CHARLES D. KLEIN
Director since 1980
|
|
A Managing Director of American Securities Capital Partners, LLC
and an executive officer of several affiliated entities. Age 70. |
|
|
|
STEVEN W. KOHLHAGEN
Director since 2006
|
|
Retired financial executive. A Director of the IQ Investment
Advisors family of Merrill Lynch funds. Age 61. |
|
|
|
Class II: Directors whose terms continue until 2011: |
|
|
|
SHELDON S. GORDON
Director since 1989
|
|
Chairman of Union Bancaire Privée International Holdings, Inc.
and affiliated entities. A Director of Union Bancaire Privée
and Gulfmark Offshore, Inc. Age 73. |
|
|
|
FRANK S. HERMANCE
Director since 1999
|
|
Chairman of the Board and Chief Executive Officer of AMETEK. A
Director of IDEX Corporation. Age 60. |
|
|
|
DAVID P. STEINMANN
Director since 1993
|
|
A Managing Director of American Securities Management L.P. and
an executive officer of several affiliated entities. Age 67. |
11
EXECUTIVE OFFICERS
Officers are appointed by the Board of Directors to serve for the ensuing year and until their
successors have been elected and qualified. Information about our executive officers as of March
6, 2009 is shown below:
|
|
|
|
|
|
|
Name |
|
Age |
|
Present Position with AMETEK |
Frank S. Hermance
|
|
|
60 |
|
|
Chairman of the Board and Chief Executive Officer |
John J. Molinelli
|
|
|
62 |
|
|
Executive Vice PresidentChief Financial Officer |
Timothy N. Jones
|
|
|
52 |
|
|
PresidentElectromechanical Group |
John W. Hardin
|
|
|
44 |
|
|
PresidentElectronic Instruments |
David A. Zapico
|
|
|
44 |
|
|
PresidentElectronic Instruments |
Robert R. Mandos, Jr.
|
|
|
50 |
|
|
Senior Vice President and Comptroller |
Frank S. Hermances employment history with us and the other directorship that he currently holds
are described under the section The Board of Directors on page 11. Mr. Hermance has 18 years of
service with us.
John J. Molinelli was elected Executive Vice PresidentChief Financial Officer effective April 22,
1998.
Mr. Molinelli has 40 years of service with us.
Timothy N. Jones was elected PresidentElectromechanical Group effective February 1, 2006.
Previously he served as Vice President and General Manager of our Process and Analytical
Instruments Division from October 1999 to January 2006. Mr. Jones has 29 years of service with us.
John W. Hardin was elected PresidentElectronic Instruments effective July 23, 2008. Previously
he served as Senior Vice President and General Manager of the Aerospace and Defense Division from
October 2004 to July 2008. He served as Vice President and General Manager of the Aerospace and
Defense Division from October 2003 to October 2004. Mr. Hardin has 10 years of service with us.
Mr. Hardin succeeded Robert W. Chlebek who retired on December 31, 2008.
David A. Zapico was elected PresidentElectronic Instruments effective October 1, 2003.
Previously he served as Vice President and General Manager of our Aerospace and Defense Division
from July 1999 to October 2003. Mr. Zapico has 19 years of service with us.
Robert R. Mandos, Jr. was elected Senior Vice President effective October 1, 2004. Previously he
served as Vice President from April 1998 until September 2004. He has served as our Comptroller
since April 1996. Mr. Mandos has 27 years of service with us.
12
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In this Compensation Discussion and Analysis, we address the compensation paid or awarded to our
executive officers listed in the Summary Compensation Table that immediately follows this
discussion. We refer to these executive officers as our named executive officers.
2008 Compensation
Compensation Objectives
The compensation paid or awarded to our named executive officers for 2008 was designed to meet the
following objectives:
|
|
Provide compensation that is competitive with compensation for other companies executive
officers who provide comparable services, taking into account the size of our company or
operating group, as applicable. We refer to this objective as competitive compensation. |
|
|
|
Create a compensation structure under which a meaningful portion of total compensation is
based on achievement of performance goals. We refer to this objective as performance
incentives. |
|
|
|
Encourage the aggregation and maintenance of meaningful equity ownership, and alignment of
executive and stockholder interests. We refer to this objective as stakeholder incentives. |
|
|
|
Provide an incentive for long-term continued employment with us. We refer to this
objective as retention incentives. |
We fashioned various components of our 2008 compensation payments and awards to meet these
objectives as follows:
|
|
|
Type of Compensation |
|
Objectives Addressed |
Salary
|
|
Competitive Compensation |
|
|
|
Short-Term Incentive Awards,
|
|
Competitive Compensation, |
Restricted Stock Awards and
|
|
Performance Incentives, |
Stock Option Grants
|
|
Stakeholder Incentives and
Retention Incentives |
Determination of Competitive Compensation
In assessing competitive compensation, we referenced data provided to us by our independent
compensation consultant, Towers Perrin. We use the 50th percentile of the Towers Perrin
general industry group (a collection of over 350 companies who have chosen to participate in the
Towers Perrin survey) as a reference point. Our approach provides us reference information,
allowing us to compete effectively in the marketplace for top talent, while providing us the
flexibility to respond to our changing business conditions and the performance of each individual.
We used the following process to determine a reference point for the compensation for each named
executive officer in 2008:
|
|
We provided to the compensation consultant a detailed description of the responsibilities
for each named executive officer. |
|
|
|
The compensation consultant employed its standard methodology to provide reference
compensation levels for comparable executives. Comparable executives are seasoned executives
having similar responsibilities. The competitive compensation information was based on general
industry data derived principally from the compensation consultants executive compensation
database. The data was size-adjusted to reflect the estimated revenues of our company and the
relevant operating groups. The compensation consultant advised us that it used general
industry data rather than data relating only to electronics and electronic component companies
because general industry data provides a much larger sampling of companies. |
13
In considering the data provided by the compensation consultant, we believe that compensation is
competitive if it is within a range of 20 percent above or 20 percent below the compensation
reference points at the 50th percentile for comparable executives. We believe that
variations within or outside this range typically occur due to differences in experience,
responsibilities and performance.
Salaries
The salary amounts set forth in the Summary Compensation Table for 2008 reflect salary decisions
made by the Compensation Committee of our Board of Directors in 2007 and 2008. Salary adjustments
for Messrs. Hermance, Chlebek and Jones were effective on January 1, so that salary determinations
made in 2007 affected their salaries for all of 2008. Salary adjustments for Messrs. Molinelli,
Zapico and Hardin were effective on July 1, so that Compensation Committee determinations in 2007
and 2008 affected their salaries for the annual periods beginning on July 1, 2007 and July 1, 2008,
respectively.
As a result of the salary adjustments approved in 2008, all named executive officers salaries were
within the competitive compensation guideline of 20 percent above or below salaries for comparable
executives at the 50th percentile. The process utilized in 2007 to establish salaries
for the named executive officers was similar to the process used in 2008, but was based on earlier
data prepared by the compensation consultant.
Short-Term Incentive Program
The principal objective of our short-term incentive program is to provide a performance incentive.
We set performance targets such that total cash compensation will be within 20 percent above or
below the total cash compensation guideline at the 50th percentile for comparable
executives. However, larger variations, both positive and negative, may result based on actual
performance.
Under our short-term incentive program, we selected performance measures that, in some instances,
differed among the named executive officers. These differences reflect the differing
responsibilities of the executives. We also established targets for each performance measure.
The target goal for each non-discretionary measure in 2008 was derived from our 2008 budget.
Consistent with past practice, the Compensation Committee can make adjustments on a case-by-case
basis, such as for EPS and group operating income, as described below.
|
|
Diluted earnings per share (EPS) We believe that the paramount objective of a principal
executive officer is to increase stockholder return significantly, and that for a large, well
established industrial corporation, EPS is typically a key metric affecting share price.
Therefore, we believe EPS is an excellent measure of our executive officers performance. EPS
results were adjusted to exclude the accelerated vesting that occurred in May of this year and
the restructuring charge taken in the fourth quarter. |
|
|
|
Internal sales growth This measure is applied either on a companywide basis, or, for our
group presidents, with regard to their respective operating groups. We define internal sales
growth as the year-to-year increase in revenues without giving effect to (i) increases in
revenues from businesses that we have acquired but that have not had four full quarters of
operations subsequent to the acquisition and (ii) foreign currency adjustments. We utilize
the measure because we believe that we achieve a greater economic return from internal growth
than through acquisitions. |
|
|
|
Group operating income This measure applies to our group presidents with regard to their
respective operating groups, and reflects adjustments deemed appropriate by the Compensation
Committee. We believe this measure is a reliable indicator of operating group performance.
Results were adjusted to exclude the restructuring charge that was taken in the fourth
quarter. Other adjustments to operating unit income in 2008 were the elimination of specified
expenditures for research and development and expenditures for projects to reduce our ongoing
operating costs, and the inclusion of specified financing costs related to acquisitions. We
eliminated research and development expenditures in connection with a project to support
high-potential new development projects. These expenditures were not initially in the
operating unit budgets, and we did not want to penalize the operating unit for pursuing what
we believe to be an important company initiative. We eliminated expenditures for projects to
reduce our ongoing operating costs because the expenditures were not in the operating unit
budgets and we wanted to encourage support for these programs. We reduced operating unit
income by the estimated amount of interest |
14
|
|
cost we incur on funds borrowed to finance an acquisition where the results of operations of the
acquired business are included in the units operating results. We believe that reducing the
operating unit income derived from an acquired business by these interest costs better reflects
the contribution of the acquisition to the operating units performance. |
|
|
Group operating working capital This measure represents inventory plus accounts
receivable less accounts payable as a percentage of sales. We use this measure to encourage
our group presidents to manage our working capital in a manner that increases cash available
for investment. A lower working capital percentage is an indicator of a group presidents
success in increasing our cash resources. |
|
|
|
Discretionary A small portion of each executives award is based on discretionary
factors that are deemed appropriate by the Compensation Committee. In the case of the group
presidents, these factors take into account acquisition activity of their respective operating
groups. |
The weighting of performance measures for each named executive officer is set forth in the table
below. The target award is payable upon achievement of 100 percent of a designated goal. Payment
amounts increase from 0 percent to 200 percent of the target award in proportion to the increase
from 80 percent to 120 percent of the goal with regard to each measure other than group internal
growth and group operating working capital. Payment amounts with respect to those measures
increase from 80 percent to 120 percent of the target award in proportion to the increase from 97
percent to 103 percent of the group internal growth goal and from 90 percent to 110 percent of the
group operating working capital goal. The discretionary portions of the award opportunities are
not subject to any specified formula.
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Performance |
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Measure as a |
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Actual Award as |
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Percentage of |
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Percentage of Target |
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Total Target |
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Award Opportunity |
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|
|
Designated |
|
Actual |
|
Award |
|
Actual |
|
for the Performance |
Name |
|
Performance Measure |
|
Goal |
|
Results |
|
Opportunity |
|
Award |
|
Measure |
Frank S. Hermance |
|
Diluted Earnings Per Share |
|
$ |
2.42 |
|
|
$ |
2.60 |
|
|
|
80 |
% |
|
$ |
878,016 |
|
|
|
137 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
20 |
% |
|
$ |
320,984 |
|
|
|
200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
Diluted Earnings Per Share |
|
$ |
2.42 |
|
|
$ |
2.60 |
|
|
|
70 |
% |
|
$ |
255,928 |
|
|
|
137 |
% |
|
|
Internal Sales Growth |
|
$ |
2,424,592,000 |
|
|
$ |
2,364,869,463 |
|
|
|
10 |
% |
|
$ |
4,769 |
|
|
|
18 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
20 |
% |
|
$ |
107,303 |
|
|
|
200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
Diluted Earnings Per Share |
|
$ |
2.42 |
|
|
$ |
2.60 |
|
|
|
35 |
% |
|
$ |
102,995 |
|
|
|
137 |
% |
|
|
Group Internal Sales Growth |
|
$ |
756,696,000 |
|
|
$ |
743,164,816 |
|
|
|
10 |
% |
|
$ |
8,664 |
|
|
|
40 |
% |
|
|
Group Operating Income |
|
$ |
192,773,000 |
|
|
$ |
202,579,713 |
|
|
|
35 |
% |
|
$ |
94,171 |
|
|
|
125 |
% |
|
|
Group Working Capital |
|
|
25.60 |
% |
|
|
26.50 |
% |
|
|
10 |
% |
|
$ |
13,909 |
|
|
|
65 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
10 |
% |
|
$ |
43,261 |
|
|
|
200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
Diluted Earnings Per Share |
|
$ |
2.42 |
|
|
$ |
2.60 |
|
|
|
35 |
% |
|
$ |
109,238 |
|
|
|
137 |
% |
|
|
Group Internal Sales Growth |
|
$ |
888,968,000 |
|
|
$ |
880,340,384 |
|
|
|
10 |
% |
|
$ |
15,390 |
|
|
|
68 |
% |
|
|
Group Operating Income |
|
$ |
186,826,000 |
|
|
$ |
205,564,846 |
|
|
|
35 |
% |
|
$ |
119,557 |
|
|
|
150 |
% |
|
|
Group Working Capital |
|
|
19.30 |
% |
|
|
20.00 |
% |
|
|
10 |
% |
|
$ |
14,499 |
|
|
|
64 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
187.60 |
% |
|
|
10 |
% |
|
$ |
43,316 |
|
|
|
188 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
Diluted Earnings Per Share |
|
$ |
2.42 |
|
|
$ |
2.60 |
|
|
|
35 |
% |
|
$ |
93,632 |
|
|
|
137 |
% |
|
|
Group Internal Sales Growth |
|
$ |
778,927,000 |
|
|
$ |
742,651,858 |
|
|
|
10 |
% |
|
|
|
|
|
|
0 |
% |
|
|
Group Operating Income |
|
$ |
128,523,000 |
|
|
$ |
117,664,293 |
|
|
|
35 |
% |
|
$ |
39,596 |
|
|
|
58 |
% |
|
|
Group Working Capital |
|
|
21.90 |
% |
|
|
23.40 |
% |
|
|
10 |
% |
|
$ |
6,144 |
|
|
|
32 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
10 |
% |
|
$ |
39,628 |
|
|
|
200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Hardin |
|
Diluted Earnings Per Share |
|
$ |
2.42 |
|
|
$ |
2.60 |
|
|
|
28.9 |
% |
|
$ |
65,492 |
|
|
|
137 |
% |
|
|
Group Internal Sales Growth |
|
$ |
756,696,000 |
|
|
$ |
743,164,816 |
|
|
|
6 |
% |
|
$ |
3,960 |
|
|
|
40 |
% |
|
|
Group Operating Income |
|
$ |
192,773,000 |
|
|
$ |
202,579,713 |
|
|
|
20.9 |
% |
|
$ |
43,039 |
|
|
|
125 |
% |
|
|
Group Working Capital |
|
|
25.60 |
% |
|
|
26.50 |
% |
|
|
6 |
% |
|
$ |
6,357 |
|
|
|
65 |
% |
|
|
Division Internal Sales Growth |
|
$ |
501,767,000 |
|
|
$ |
496,977,360 |
|
|
|
4 |
% |
|
$ |
4,577 |
|
|
|
68 |
% |
|
|
Division Operating Income |
|
$ |
146,962,000 |
|
|
$ |
146,504,125 |
|
|
|
16.2 |
% |
|
$ |
26,434 |
|
|
|
98 |
% |
|
|
Division Working Capital |
|
|
26.50 |
% |
|
|
28.80 |
% |
|
|
4 |
% |
|
$ |
887 |
|
|
|
13 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
14 |
% |
|
$ |
47,454 |
|
|
|
200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of our actual outcomes with respect to the performance measures and the Committees
determinations with respect to the discretionary component, the award payments and the percentage
of the aggregate target award represented by the award payments are as follows: Mr. Hermance,
$1,199,000 (150%); Mr. Molinelli, $368,000 (138%); Mr. Chlebek, $263,000 (122%); Mr. Zapico,
$302,000 (132%); Mr. Jones, $179,000 (91%) and
15
Mr. Hardin, $198,200 (119%). In accordance with SEC regulations, the award payments are reflected
in two separate columns of the Summary Compensation Table. The discretionary awards for the named
executive officers appear in the Bonus column. The other awards are reflected in the Non-Equity
Incentive Plan Compensation column.
The actual total cash compensation for the named executive officers, as a percentage of the dollar
amount of total cash compensation at the 50th percentile reference point for comparable
executives, ranged from 90% to 120%.
In providing a discretionary award to Mr. Hermance, the Compensation Committee considered our
success with respect to our four growth strategies:
|
|
|
Operational Excellence Our operating income margin increased to 18.7
percent in 2008 from 18.1 percent in 2007, excluding the impact of the
restructuring charge taken in the fourth quarter of 2008. |
|
|
|
|
Global and market expansion We increased international sales by 16
percent in 2008 as compared to 2007. |
|
|
|
|
Strategic acquisitions We completed seven acquisitions in 2008 that
added approximately $290 million in annualized revenue. |
|
|
|
|
New products We introduced a number of new products that contributed
to our revenue and profitability. |
In addition, the Compensation Committee recognized Mr. Hermances role in the upgrading of our
leadership talent. In the case of Mr. Molinelli, the Compensation Committee considered the same
factors as those considered for Mr. Hermance, as well as improvement in our accounts receivable.
The group presidents discretionary awards reflected the Committees assessment of acquisition
activities for their respective operating groups.
Equity-Based Compensation
Our equity-based compensation in 2008 included awards of stock options and restricted stock. We
used data provided by the compensation consultant in 2008 to establish target levels of
equity-based compensation. These levels were based on a Black-Scholes model, with regard to
long-term incentives at the 50th percentile for comparable executives, taking into account the
scope of the named executives responsibilities. In considering the data provided by the
compensation consultant, we believe that an equity-based award is competitive if it is within 20
percent above or below the 50th percentile for comparable executives.
The Compensation Committee has the discretion to modify the actual award for each named executive
from the target levels. In exercising its discretion, the Compensation Committee considered each
executives contribution to the success of the four growth strategies described above and the
upgrading of our leadership talent in 2007. In April 2008, the Compensation Committee made awards
to the named executive officers that were within the range of 20 percent above or below the targets
described above, except for the award to Mr. Zapico. The Compensation Committee increased
Mr. Zapicos award to 22% above the target in recognition of the outstanding performance in 2007 of
the businesses under his supervision, including the businesses excellent performance with respect
to our four growth strategies.
We granted 50 percent of the long-term incentive award in the form of stock options, and 50 percent
in the form of restricted stock. To determine the award size, we applied a Black-Scholes
methodology. As a result, we awarded options and restricted stock to the named executive officers
as set forth in the Grants of Plan-Based Awards table on page 23 under the column headings, All
Other Option Awards: Number of Securities Underlying Options and All Other Stock Awards: Number
of Shares of Stock or Units respectively.
The dollar amounts shown in the Summary Compensation Table under Option Awards and Stock Awards
generally reflect the dollar amounts recognized for financial statement purposes in accordance with
SFAS 123(R). Therefore, it includes amounts with respect to only a portion of the options and
restricted stock granted in 2008, while also including amounts from earlier grants. See the
footnotes to the Summary Compensation Table for further information.
16
Our options generally vest in equal annual increments on the first four anniversaries of the date
of grant. We believe that these vesting terms provide to our executives a meaningful incentive for
continued employment. For additional information regarding stock option terms, see the narrative
accompanying the Grants of Plan-Based Awards table.
We believe that the vesting provisions of our restricted stock also serve as an incentive for
continued employment. However, to encourage performance that ultimately enhances stockholder
value, we provide for immediate vesting of a restricted stock award if the closing price of our
Common Stock during any five consecutive trading days reaches 200 percent of the price of our
Common Stock on the date of grant.
Stock-Based Award Grant Practices
In October 2006, we adopted practices for the grant of stock-based awards. Among other things,
these practices encompass the following principles:
|
|
The majority of stock-based awards are approved annually by the Compensation Committee on a
pre-scheduled date, which occurs in close proximity to the date of our Annual Meeting of
Stockholders. |
|
|
|
The annual stock-based awards will not be made when the Compensation Committee is aware
that executive officers or non-employee Directors are in possession of material, non-public
information, or during quarterly or other specified blackout periods. |
|
|
|
While stock-based awards other than annual awards may be granted to address, among other
things, the recruiting or hiring of new employees and promotions, such awards will not be made
to executive officers if the Committee is aware that the executive officers are in possession
of material, non-public information, or during quarterly or other specified blackout
periods. |
|
|
|
The Compensation Committee has established that stock options are granted only on the date
the Compensation Committee approves the grant and with an exercise price equal to the fair
market value on the date of grant. |
|
|
|
Backdating of stock options is prohibited. |
Stock Ownership Guidelines
We believe that by encouraging our executives to maintain a meaningful equity interest in our
company, we will align the interests of our executives with those of our stockholders. Mr.
Hermance is required to hold a multiple of five times his base salary in our stock. The multiple
for Messrs. Molinelli, Chlebek, Zapico, Jones and Hardin is three times base salary. Under our
guidelines, an executive is expected to reach his or her stock ownership requirement within five
years of being promoted to his or her position. As of December 31, 2008, each of our named
executive officers, with the exception of Mr. Hardin, met his stock ownership guideline. Mr.
Hardins stock ownership guideline increased when he was promoted, and he is on track to meet his
stock ownership requirement within the required timeframe.
17
Ongoing and Post-employment Agreements
We have several plans and agreements addressing compensation for our named executive officers that
accrue value as the executive continues to work for us, provide special benefits upon certain types
of termination events and provide retirement benefits. These plans and agreements were adopted
and, in some cases, amended at various times over the past 25 years, and were designed to be a part
of a competitive compensation package. Not all plans apply to each named executive officer, and
the participants are indicated in the discussion below.
|
|
The Employees Retirement Plan This plan is a tax-qualified defined benefit plan
available to all U.S.-based salaried employees who commenced employment with us prior to
January 1, 1997. The plan pays annual benefits based on final average plan compensation and
years of credited service. The amount of compensation that can be taken into account is
subject to limits imposed by the Internal Revenue Code ($230,000 in 2008), and the maximum
annual benefits payable under the plan also are subject to Internal Revenue Code limits
($185,000 in 2008). Messrs. Hermance, Molinelli, Zapico and Jones participate in The
Employees Retirement Plan. See the Pension Benefits table and accompanying narrative for
additional information. |
|
|
|
The Retirement and Savings Plan This is a tax-qualified defined contribution plan under
which our participating employees may contribute a percentage of specified compensation on a
pretax basis. In the case of highly compensated employees, including the named executive
officers, contributions of up to ten percent of eligible compensation can be made, subject to
a limit mandated by the Internal Revenue Code, which was $15,500 for 2008, or, if the
participant was at least 50 years old, $20,500. We provide a matching contribution equal to
one-third of the first six percent of compensation contributed, subject to a maximum of
$1,200. A participant may invest the participants contributions and matching contributions
in one or more of a number of investment alternatives, including our Common Stock, and the
value of a participants account will be determined by the investment performance of the
participants account. No more than 25 percent of a participants contributions can be
invested in our Common Stock. All of the named executive officers participate in The
Retirement and Savings Plan. Our matching contributions are included in the All Other
Compensation column of the Summary Compensation Table. |
|
|
|
Retirement Feature of The Retirement and Savings Plan The Retirement Feature is available
to participants in The Retirement and Savings Plan who meet specified criteria, including
ineligibility to participate in any of our defined benefit plans. Messrs. Chlebek and Hardin
participate in the Retirement Feature. We make retirement contributions based on the total of
a participants age plus years of service. For Messrs. Chlebek and Hardin, we contributed an
amount equal to five percent of their compensation subject to Social Security taxes and
seven percent of their additional compensation. We also make an employer incentive retirement
contribution equal to one percent of a participants eligible compensation if the participant
is contributing at least six percent of his or her compensation under the Retirement and
Savings Plan. See the notes to the All Other Compensation column of the Summary
Compensation Table for further information regarding our contributions to the Retirement
Feature for the accounts of Messrs. Chlebek and Hardin. |
|
|
|
Supplemental Executive Retirement Plan (SERP) This plan is a non-qualified deferred
compensation plan that provides benefits for executives to the extent that their compensation
cannot be taken into account under our tax-qualified plans because the compensation exceeds
limits imposed by the Internal Revenue Code. We refer to the compensation that exceeds these
limits as excess compensation. For 2008, compensation in excess of $230,000 constitutes
excess compensation. Under the SERP, each year we credit to the account of a participant an
amount equal to 13% of the executives excess compensation, which is then deemed to be
invested in our Common Stock. Payout of an executives account, which is subject to tax
liability, occurs upon termination of the executives employment and is made in shares of our
Common Stock. Therefore, the ultimate value of the shares paid out under the SERP will depend
on the performance of our Common Stock during the period an executive participates in the
SERP. All of the named executive officers participate in the SERP. See the Non-qualified
Deferred Compensation table and accompanying narrative for additional information. |
18
|
|
Deferred Compensation Plan This plan provides an opportunity for executives to defer
payment of their short-term incentive award to the extent that such award, together with other
relevant compensation, constitutes excess compensation. In advance of the year in which the
short-term incentive award will be paid, an executive may elect to defer all or part of his
eligible incentive award into a notional investment in our Common Stock, in an
interest-bearing account or in both. A participant generally may elect to have the value of
his or her account distributed following retirement, either in a lump sum or in up to five
annual installments, or in the form of an in-service distribution, payable either in a lump
sum or in up to four annual installments commencing on a date specified by the participant in
his or her distribution election. Payments may commence sooner upon the participants earlier
separation from service, upon the death of the participant, in the event of an unforeseeable
financial emergency or upon a change of control. Payments from the notional Common Stock fund
are made in shares of our Common Stock, while payments from the interest-bearing account are
paid in cash. Messrs. Hermance, Molinelli and Chlebek participate in the Deferred
Compensation Plan. See the Non-qualified Deferred Compensation table and accompanying
narrative for additional information. |
|
|
|
Supplemental Senior Executive Death Benefit Program Under this program, Messrs. Hermance
and Molinelli have entered into agreements that require us to pay death benefits to their
designated beneficiaries and to pay benefits to them under certain circumstances during their
lifetimes. If a covered executive dies before retirement or before age 65 while on disability
retirement, the executives beneficiary will receive monthly payments of up to $8,333 from the
date of the executives death until the date he or she would have attained age 80. If a
covered executive retires, or reaches age 65 while on disability retirement, the Program
provides for a maximum benefit of $100,000 per year for a period of 10 years. We have
purchased insurance policies on the lives of Messrs. Hermance and Molinelli to fund our
obligations under the program. See the Pension Benefits table and accompanying narrative for
additional information. |
|
|
|
2004 Executive Death Benefit Plan This plan provides for retirement benefits or, if the
executive dies before retirement, a death benefit. Generally, if the executive dies before
retirement, the executives beneficiary will receive a monthly payment of $8,333 until the
participant would have reached age 80. If the executive retires (either at age 65 or after
attaining age 55 with at least five years of service) the executive will be entitled to
receive a distribution based on the value of his account in the plan, which is determined by
gains or losses on, and death benefits received under, a pool of insurance policies that we
own covering the lives of participants. Messrs. Chlebek, Zapico, Jones and Hardin participate
in this plan. See the Non-qualified Deferred Compensation table and accompanying narrative
for further information. |
|
|
|
Change of Control Agreements We have change of control agreements with each of our
executive officers, which are described under Potential Payments Upon Termination or Change
of Control. We entered into these change of control agreements so that our executives can
focus their attention and energies on our business during periods of uncertainty that may
occur due to a potential change of control. In addition, we want our executives to support a
corporate transaction involving a change of control that is in the best interests of our
stockholders, even though the transaction may have an effect on the executives continued
employment with us. We believe these arrangements provide an important incentive for our
executives to remain with us. Our agreement with each executive other than Mr. Hermance
provides for payments and other benefits to the executive if we terminate the executives
employment without cause or if the executive terminates employment for good reason within
two years following a change of control. Mr. Hermances change of control agreement differs
from those of the other named executive officers with respect to the amount of the payment and
the scope of the benefits upon the change of control events and does not have the two-year
limit applicable to the other executives following the change of control. Given the critical
nature of his role as Chief Executive, his tenure with us, and our interest in retaining his
services, we believe that it is appropriate to provide Mr. Hermance with this protection so
that he is free to focus all of his attention on the growth and future of the Company, even in
a period following a change of control. We believe that the incentive provided by these
additional benefits is well worth any potential cost. For these same reasons, we also have
agreed to provide payments and other benefits to Mr. Hermance if, outside of the context of a
change of control, we terminate his employment without cause or he terminates his employment
for good reason. In addition, Mr. Hermances agreement differs from the other agreements with
respect to payments that exceed the limitations under Section 280G of the Internal Revenue
Code. The other executives agreements limit the payments made upon a change of control to
the maximum amount that may be paid without an excise tax and loss of corporate tax deduction
under Sections 4999 and 280G of the Internal Revenue Code. Mr. Hermances agreement does not
contain this limitation and instead provides that if the total payments to Mr. Hermance under |
19
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|
the terms of the agreement are subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code, we will make an additional payment to Mr. Hermance. This payment is designed so
that, after payment of all excise taxes and any other taxes payable in respect of the additional
payment, Mr. Hermance will retain the same amount as if no excise tax had been imposed. See
Tax Considerations below for further information regarding the excise tax reimbursement. |
Tax Considerations
Under Section 162(m) of the Internal Revenue Code, a publicly held corporation may not deduct more
than $1 million in a taxable year for certain forms of compensation made to the chief executive
officer and other officers listed on the Summary Compensation Table. Our policy is generally to
preserve the federal income tax deductibility of compensation paid to our executives, and certain
of our equity awards have been structured to preserve deductibility under Section 162(m).
Nevertheless, we retain the flexibility to authorize compensation that may not be deductible if we
believe it is in the best interests of our company. The compensation paid to our executives in
2008 was deductible, except for the portion resulting from vested shares. Though not deductible,
the vesting of shares under the provisions of our stock award program aligns our executives
interests with the interests of our stockholders, and serves as a retention incentive.
As noted above, under Mr. Hermances change of control agreement, our payments to Mr. Hermance will
not be subject to limitations under Section 280G of the Internal Revenue Code, and therefore a
portion of the payments will not be deductible. In addition, we will make an additional payment to
Mr. Hermance if payments to him resulting from a change of control are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code. We did not wish to have the provisions of
Mr. Hermances agreement serve as a disincentive to his pursuit of a change of control that
otherwise might be in the best interests of our company and its stockholders. Accordingly, we
determined to provide a payment to reimburse Mr. Hermance for any excise taxes payable in
connection with the change-of-control payment, as well as any taxes that accrue as a result of our
reimbursement. We believe that, in light of Mr. Hermances outstanding record in enhancing value
for our stockholders, this determination is appropriate.
Role of Executive Officers in Determining Executive Compensation For Named Executive Officers
In connection with 2008 compensation, Mr. Hermance, aided by our human resources department,
provided statistical data and recommendations to the Compensation Committee to assist it in
determining compensation levels. Mr. Hermance did not make recommendations as to his own
compensation. While the Compensation Committee utilized this information, and valued
Mr. Hermances observations with regard to other executive officers, the ultimate decisions
regarding executive compensation were made by the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee reviewed and discussed with management the Compensation Discussion and
Analysis required by Securities and Exchange Commission regulations. Based on its review and
discussions, the Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this Proxy Statement.
Respectfully submitted,
The Compensation Committee:
Charles D. Klein, Chairperson
James R. Malone
Elizabeth R. Varet
Dated: March 13, 2009
20
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE 2008
The following table provides information regarding the compensation of our Chief Executive Officer,
Chief Financial Officer and other four most highly compensated executive officers.
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Change in |
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|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
and |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
Non-Equity |
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
Incentive Plan |
|
Earnings |
|
All Other |
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
Awards |
|
Compensation |
|
(Losses) |
|
Compensation |
|
|
Principal Position |
|
Year |
|
Salary |
|
Bonus |
|
(1) |
|
(2) |
|
(3) |
|
(4) |
|
(5) |
|
Total |
Frank S. Hermance |
|
|
2008 |
|
|
$ |
800,000 |
|
|
$ |
320,984 |
|
|
$ |
8,658,008 |
|
|
$ |
1,226,110 |
|
|
$ |
878,016 |
|
|
$ |
79,223 |
|
|
$ |
297,082 |
|
|
$ |
12,259,423 |
|
Chairman of the Board |
|
|
2007 |
|
|
|
740,000 |
|
|
|
296,000 |
|
|
|
3,683,817 |
|
|
|
1,236,216 |
|
|
|
851,000 |
|
|
|
92,024 |
|
|
|
417,117 |
|
|
|
7,316,174 |
|
and Chief Executive |
|
|
2006 |
|
|
|
700,000 |
|
|
|
280,000 |
|
|
|
3,119,931 |
|
|
|
1,291,890 |
|
|
|
952,000 |
|
|
|
84,247 |
|
|
|
383,942 |
|
|
|
6,812,010 |
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
2008 |
|
|
|
390,000 |
|
|
|
107,303 |
|
|
|
317,062 |
|
|
|
312,415 |
|
|
|
260,697 |
|
|
|
121,235 |
|
|
|
78,828 |
|
|
|
1,587,540 |
|
Executive Vice President |
|
|
2007 |
|
|
|
355,000 |
|
|
|
97,000 |
|
|
|
391,942 |
|
|
|
304,350 |
|
|
|
277,000 |
|
|
|
75,213 |
|
|
|
74,396 |
|
|
|
1,574,901 |
|
Chief Financial Officer |
|
|
2006 |
|
|
|
330,000 |
|
|
|
89,000 |
|
|
|
237,695 |
|
|
|
330,469 |
|
|
|
308,000 |
|
|
|
107,293 |
|
|
|
87,815 |
|
|
|
1,490,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
2008 |
|
|
|
330,000 |
|
|
|
43,261 |
|
|
|
228,258 |
|
|
|
468,882 |
|
|
|
219,739 |
|
|
|
(284,603 |
) |
|
|
81,493 |
|
|
|
1,087,030 |
|
PresidentElectronic |
|
|
2007 |
|
|
|
310,000 |
|
|
|
41,000 |
|
|
|
301,166 |
|
|
|
273,327 |
|
|
|
232,000 |
|
|
|
186,846 |
|
|
|
80,032 |
|
|
|
1,424,371 |
|
Instruments |
|
|
2006 |
|
|
|
300,000 |
|
|
|
19,600 |
|
|
|
189,323 |
|
|
|
276,087 |
|
|
|
250,400 |
|
|
|
133,889 |
|
|
|
69,833 |
|
|
|
1,239,132 |
|
(Retired 12/31/08) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
2008 |
|
|
|
337,500 |
|
|
|
43,316 |
|
|
|
251,961 |
|
|
|
241,297 |
|
|
|
258,684 |
|
|
|
(38,133 |
) |
|
|
72,529 |
|
|
|
1,167,154 |
|
PresidentElectronic |
|
|
2007 |
|
|
|
310,000 |
|
|
|
41,000 |
|
|
|
309,247 |
|
|
|
230,712 |
|
|
|
296,000 |
|
|
|
35,318 |
|
|
|
74,518 |
|
|
|
1,296,795 |
|
Instruments |
|
|
2006 |
|
|
|
285,000 |
|
|
|
19,700 |
|
|
|
186,411 |
|
|
|
201,292 |
|
|
|
323,300 |
|
|
|
26,117 |
|
|
|
71,183 |
|
|
|
1,113,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
2008 |
|
|
|
300,000 |
|
|
|
39,628 |
|
|
|
186,925 |
|
|
|
180,829 |
|
|
|
139,372 |
|
|
|
(60,899 |
) |
|
|
41,869 |
|
|
|
827,724 |
|
President |
|
|
2007 |
|
|
|
277,000 |
|
|
|
32,900 |
|
|
|
209,992 |
|
|
|
161,785 |
|
|
|
192,100 |
|
|
|
65,612 |
|
|
|
43,799 |
|
|
|
983,188 |
|
Electromechanical Group |
|
|
2006 |
|
|
|
247,527 |
|
|
|
21,400 |
|
|
|
118,078 |
|
|
|
141,703 |
|
|
|
222,600 |
|
|
|
42,084 |
|
|
|
44,954 |
|
|
|
838,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Hardin |
|
|
2008 |
|
|
|
277,250 |
|
|
|
47,454 |
|
|
|
138,506 |
|
|
|
125,448 |
|
|
|
150,746 |
|
|
|
(37,021 |
) |
|
|
194,863 |
|
|
|
897,246 |
|
PresidentElectronic
Instruments
(Elected 7/23/08) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown for stock awards relate to restricted shares granted under our 1999 and
2002 Stock Incentive Plans. These amounts are equal to the dollar amounts recognized with
respect to the stock awards for financial statement purposes, computed in accordance with
SFAS 123(R), but without giving effect to estimated forfeitures related to service-based
vesting conditions. For information regarding the number of shares subject to 2008 awards,
other features of the awards and the grant date fair value of the awards, see the Grants of
Plan-Based Awards table on page 23. |
|
(2) |
|
The amounts shown for option awards relate to shares granted under our 1999 and 2002 Stock
Incentive Plans. These amounts are equal to the dollar amounts recognized with respect to the
option awards for financial statement purposes, computed in accordance with SFAS 123(R), but
without giving effect to estimated forfeitures related to service-based vesting conditions.
The assumptions used in determining the amounts in this column are set forth in note 9 to our
consolidated financial statements on page 41 of Appendix A to this proxy statement. For
information regarding the number of shares subject to 2008 awards, other features of those
awards, and the grant date fair value of the awards, see the Grants of Plan-Based Awards table
on page 23. |
(Footnotes continue on following page.)
21
|
|
|
(3) |
|
Represents payments under our short-term incentive program based on achievement of
companywide or operating group performance measures. See Compensation Discussion and
Analysis 2008 Compensation Short-Term Incentive Program. |
|
(4) |
|
Includes, for 2008, the aggregate change in actuarial present value of the accumulated
benefit under defined benefit plans as follows: Mr. Hermance, $72,900; Mr. Molinelli,
$120,200; Mr. Zapico, $8,900; and Mr. Jones, $21,300. Also includes earnings (losses) on
non-qualified deferred compensation plans, to the extent required to be disclosed under SEC
regulations, as follows: Mr. Hermance, $6,323; Mr. Molinelli, $1,035; Mr. Chlebek,
$(284,603); Mr. Zapico, $(47,033); Mr. Jones, $(82,199); and Mr. Hardin, $(37,021). |
|
(5) |
|
Included in All Other Compensation for 2008 are the following items that exceeded $10,000: |
|
|
|
our contributions under our defined contribution plans, including our Supplemental
Executive Retirement Plan, as follows: Mr. Hermance, $231,170; Mr. Molinelli, $69,840;
Mr. Chlebek, $63,750; Mr. Zapico, $54,435; Mr. Jones, $33,570; and Mr. Hardin, $39,458. |
|
|
|
|
dividends on restricted stock and the interest on the dividend balance, which
totaled $26,194 for Mr. Hermance, and are subject to forfeiture if the related
restricted stock does not vest. |
|
|
|
|
perquisites, which totaled $38,365 for Mr. Hermance; $11,872 for Mr. Chlebek;
$12,809 for Mr. Zapico; and $152,433 for Mr. Hardin. Perquisites included automobile
allowances for all of the named executive officers, country club dues for Mr. Hermance,
and relocation expense reimbursement for Mr. Hardin (in the amount of $145,386). |
22
GRANTS OF PLAN-BASED AWARDS 2008
The following table provides details regarding plan-based awards granted to the named executive
officers in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Number of |
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
Estimated Possible Payouts Under |
|
Number of |
|
Securities |
|
Exercise or |
|
Fair Value of |
|
|
|
|
|
|
Non-Equity Incentive Plan |
|
Shares of |
|
Underlying |
|
Base Price |
|
Stock and |
|
|
Grant |
|
Awards(1) |
|
Stock or |
|
Options |
|
of Option |
|
Option |
Name |
|
Date |
|
Threshold |
|
Target |
|
Maximum |
|
Units |
|
(4) |
|
Awards |
|
Awards (5) |
Frank S. |
|
|
2/22/08 |
|
|
|
|
|
|
$ |
640,000 |
|
|
$ |
1,280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Hermance |
|
|
4/23/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,610 |
(2) |
|
|
129,490 |
|
|
$ |
48.60 |
|
|
$ |
2,971,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
2/22/08 |
|
|
|
|
|
|
|
213,600 |
|
|
|
427,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Molinelli |
|
|
4/23/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,590 |
(2) |
|
|
34,870 |
|
|
|
48.60 |
|
|
|
800,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
2/22/08 |
|
|
|
|
|
|
|
193,500 |
|
|
|
387,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Chlebek |
|
|
4/23/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,480 |
(2) |
|
|
19,930 |
|
|
|
48.60 |
|
|
|
457,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
2/22/08 |
|
|
|
|
|
|
|
205,200 |
|
|
|
410,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Zapico |
|
|
4/23/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,850 |
(2) |
|
|
24,910 |
|
|
|
48.60 |
|
|
|
571,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
2/22/08 |
|
|
|
|
|
|
|
175,500 |
|
|
|
351,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Jones |
|
|
4/23/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,480 |
(2) |
|
|
19,930 |
|
|
|
48.60 |
|
|
|
457,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. |
|
|
4/23/08 |
|
|
|
|
|
|
|
53,760 |
|
|
|
107,520 |
|
|
|
2,671 |
(2) |
|
|
9,712 |
|
|
|
48.60 |
|
|
|
222,852 |
|
Hardin |
|
|
7/23/08 |
|
|
|
|
|
|
|
89,100 |
|
|
|
178,200 |
|
|
|
4,000 |
(3) |
|
|
|
|
|
|
|
|
|
|
198,680 |
|
|
|
|
(1) |
|
These targets were established under our short-term incentive program. See Compensation
Discussion and Analysis 2008 Compensation Short-Term Incentive Program for information
regarding the criteria applied in determining the amounts payable under the awards. There
were no threshold amounts payable under the short-term incentive program. The actual amounts
paid with respect to these awards are included in the Bonus and Non-Equity Incentive Plan
Compensation columns in the Summary Compensation Table on page 21. Targets reflect the
October 1, 2008 salary for each individual, as required by the program. |
|
(2) |
|
The stock awards constitute restricted shares granted under our 2002 Stock Incentive Plan.
These shares become vested on the earliest to occur of (a) the closing price of our Common
Stock on any five consecutive days equaling or exceeding $97.20 per share, (b) the death or
permanent disability of the grantee, (c) the termination of the grantees employment with us
in connection with a change of control, (d) the fourth anniversary of the date of grant,
namely April 23, 2012, provided the grantee has been employed by us continuously through that
date, or (e) the grantees retirement from employment with us at or after age 55 and the
completion of at least ten years of employment with us, in which case only a pro rata portion
of the shares will become nonforfeitable and transferable based upon the time that has elapsed
since the date of grant. Cash dividends are earned on the restricted shares but are not paid
until the restricted shares vest. Until the restricted stock vests, the dividends accrue
interest at the 5-year Treasury note rate plus .5%, compounded quarterly. |
|
(3) |
|
The stock award constitutes restricted shares granted under our 2002 Stock Incentive Plan.
These shares become vested on the earliest to occur of (a) the closing price of our Common
Stock on any five consecutive days equaling or exceeding $99.34 per share, (b) the death or
permanent disability of the grantee, (c) the termination of the grantees employment with us
in connection with a change of control, (d) the fourth anniversary of the date of grant,
namely July 23, 2012, provided the grantee has been employed by us continuously through that
date, or (e) the grantees retirement from employment with us at or after age 55 and the
completion of at least ten years of employment with us, in which case only a pro rata portion
of the shares will become nonforfeitable and transferable based upon the time that has elapsed
since the date of grant. Cash dividends are earned on the restricted shares but are not paid
until the restricted shares vest. Until the restricted stock vests, the dividends accrue
interest at the 5-year Treasury note rate plus .5%, compounded quarterly. |
(Footnotes continue on following page.)
23
|
|
|
(4) |
|
The option awards constitute stock options granted under our 1999 and 2002 Stock Incentive
Plans. Stock options become exercisable as to 25% of the underlying shares on each of the
first four anniversaries of the date of grant. Options generally become fully exercisable in
the event of the grantees death or permanent disability, normal retirement or termination of
employment in connection with a change of control. |
|
(5) |
|
The grant date fair value is computed in accordance with SFAS 123(R), but without giving
effect to estimated forfeitures related to service-based vesting conditions. The assumptions
used in determining the grant date fair value of option awards in this column are set forth in
note 9 to our consolidated financial statements on page 41 of Appendix A to this proxy
statement. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2008
The following table provides details regarding outstanding equity awards for the named executive
officers at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
Stock Awards (2) |
|
|
|
|
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
Market |
|
|
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
Value of |
|
|
|
|
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
Shares or |
|
|
|
|
|
|
Unexercised |
|
Unexercised |
|
Option |
|
Option |
|
Stock That |
|
Units of Stock That |
|
|
Option |
|
Options |
|
Options |
|
Exercise |
|
Expiration |
|
Have Not |
|
Have Not |
Name |
|
Grant Date |
|
Exercisable |
|
Unexercisable |
|
Price |
|
Date |
|
Vested |
|
Vested (3) |
Frank S. |
|
|
5/22/2002 |
|
|
|
210,000 |
|
|
|
|
|
|
$ |
12.54667 |
|
|
|
5/21/2009 |
|
|
|
113,450 |
|
|
$ |
3,427,325 |
|
Hermance |
|
|
5/20/2003 |
|
|
|
240,000 |
|
|
|
|
|
|
|
12.04167 |
|
|
|
5/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
5/18/2004 |
|
|
|
178,995 |
|
|
|
|
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
9/22/2004 |
|
|
|
84,127 |
|
|
|
|
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
97,931 |
|
|
|
32,644 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
63,307 |
|
|
|
63,308 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
31,887 |
|
|
|
95,663 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
4/23/2008 |
|
|
|
|
|
|
|
129,490 |
|
|
|
48.60000 |
|
|
|
4/22/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
5/20/2003 |
|
|
|
90,000 |
|
|
|
|
|
|
|
12.04167 |
|
|
|
5/19/2010 |
|
|
|
27,615 |
|
|
|
834,249 |
|
Molinelli |
|
|
5/18/2004 |
|
|
|
39,375 |
|
|
|
|
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
9/22/2004 |
|
|
|
37,020 |
|
|
|
|
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
20,902 |
|
|
|
6,968 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
13,995 |
|
|
|
13,995 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
7,687 |
|
|
|
23,063 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
4/23/2008 |
|
|
|
|
|
|
|
34,870 |
|
|
|
48.60000 |
|
|
|
4/22/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
9/22/2004 |
|
|
|
7,050 |
|
|
|
|
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
18,470 |
|
|
|
557,979 |
|
Chlebek |
|
|
4/27/2005 |
|
|
|
|
|
|
|
6,034 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
|
|
|
|
11,243 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
15,000 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
4/23/2008 |
|
|
|
|
|
|
|
19,930 |
|
|
|
48.60000 |
|
|
|
4/22/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
5/18/2004 |
|
|
|
7,500 |
|
|
|
|
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
21,650 |
|
|
|
654,047 |
|
Zapico |
|
|
9/22/2004 |
|
|
|
18,200 |
|
|
|
|
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
17,111 |
|
|
|
5,704 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
11,242 |
|
|
|
11,243 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
6,430 |
|
|
|
19,290 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
4/23/2008 |
|
|
|
|
|
|
|
24,910 |
|
|
|
48.60000 |
|
|
|
4/22/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
5/18/2004 |
|
|
|
8,170 |
|
|
|
|
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
18,470 |
|
|
|
557,979 |
|
Jones |
|
|
9/22/2004 |
|
|
|
20,565 |
|
|
|
|
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
7,560 |
|
|
|
2,520 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
11,242 |
|
|
|
11,243 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
5,000 |
|
|
|
15,000 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
4/23/2008 |
|
|
|
|
|
|
|
19,930 |
|
|
|
48.60000 |
|
|
|
4/22/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. |
|
|
9/22/2004 |
|
|
|
5,876 |
|
|
|
|
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
13,410 |
|
|
|
405,116 |
|
Hardin |
|
|
4/27/2005 |
|
|
|
|
|
|
|
3,203 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
|
|
|
|
6,099 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
7,415 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
4/23/2008 |
|
|
|
|
|
|
|
9,712 |
|
|
|
48.60000 |
|
|
|
4/22/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All option grants become exercisable as to 25% of the underlying shares on each of the first
four anniversaries of the dates of grant. |
24
|
|
|
(2) |
|
The following table sets forth grant and vesting information for the outstanding restricted
stock awards for all named executive officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares or |
|
|
|
|
|
Price-Related Event |
|
|
|
|
|
|
Units of Stock That |
|
|
|
|
|
for Accelerated |
Name |
|
Grant Date |
|
Have Not Vested |
|
Vesting Date |
|
Vesting* |
Frank S. Hermance |
|
|
4/26/2006 |
|
|
|
37,500 |
|
|
|
4/26/2010 |
|
|
$ |
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
40,340 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
4/23/2008 |
|
|
|
35,610 |
|
|
|
4/23/2012 |
|
|
|
97.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
4/26/2006 |
|
|
|
8,295 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
9,730 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
4/23/2008 |
|
|
|
9,590 |
|
|
|
4/23/2012 |
|
|
|
97.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
6,330 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
4/23/2008 |
|
|
|
5,480 |
|
|
|
4/23/2012 |
|
|
|
97.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
8,140 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
4/23/2008 |
|
|
|
6,850 |
|
|
|
4/23/2012 |
|
|
|
97.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
6,330 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
4/23/2008 |
|
|
|
5,480 |
|
|
|
4/23/2012 |
|
|
|
97.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Hardin |
|
|
4/26/2006 |
|
|
|
3,612 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
3,127 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
4/23/2008 |
|
|
|
2,671 |
|
|
|
4/23/2012 |
|
|
|
97.20 |
|
|
|
|
7/23/2008 |
|
|
|
4,000 |
|
|
|
7/23/2012 |
|
|
|
99.34 |
|
|
|
|
* |
|
The price-related event for accelerated vesting of the restricted stock awards will occur
if the closing price per share of our Common Stock for five consecutive trading days is
equal to at least two times the closing price per share on the date of grant. |
|
(3) |
|
The dollar values are based on the closing price of our Common Stock on December 31, 2008
($30.21). Cash dividends will be earned but will not be paid until the restricted shares
vest. The dividends will be payable at the same rate as dividends to holders of our
outstanding Common Stock. Until the restricted stock vests, the dividends accrue interest at
the 5-year Treasury note rate plus .5%, compounded quarterly. |
OPTION EXERCISES AND STOCK VESTED 2008
The following table provides information regarding option exercises and vesting of restricted
stock awards for the named executive officers in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
Shares Acquired |
|
Value Realized |
|
Shares Acquired on |
|
Value Realized |
Name |
|
on Exercise |
|
on Exercise (1) |
|
Vesting |
|
on Vesting (2) |
Frank S. Hermance |
|
|
|
|
|
|
|
|
|
|
571,080 |
|
|
$ |
30,616,037 |
|
John J. Molinelli |
|
|
82,500 |
|
|
$ |
3,041,111 |
|
|
|
9,840 |
|
|
|
527,530 |
|
Robert W. Chlebek |
|
|
48,893 |
|
|
|
1,054,089 |
|
|
|
8,520 |
|
|
|
456,764 |
|
David A. Zapico |
|
|
32,500 |
|
|
|
1,029,879 |
|
|
|
8,055 |
|
|
|
431,835 |
|
Timothy N. Jones |
|
|
6,750 |
|
|
|
212,344 |
|
|
|
3,570 |
|
|
|
191,390 |
|
John W. Hardin |
|
|
22,148 |
|
|
|
516,704 |
|
|
|
4,530 |
|
|
|
242,857 |
|
|
|
|
(1) |
|
The value realized on exercise is equal to the difference between the market price of the
shares acquired upon exercise and the option exercise price for the acquired shares. |
|
(2) |
|
On May 16, 2008, the price-related event for accelerated vesting of the restricted stock
granted on April 27, 2005 occurred. The total value realized on vesting is equal to (1) the
closing price per share of our Common Stock on May 16, 2008 ($52.98) multiplied by the number
of shares acquired on vesting, minus the par value per share paid by the named executive, (2)
the dividends accrued since the date of award, and (3) the interest accrued on these dividends. |
25
PENSION BENEFITS 2008
We have the following defined benefit plans in which some or all of our named executive officers
participate:
|
|
|
The Employees Retirement Plan This plan is a qualified defined benefit pension plan
that provides retirement benefits to our U.S.-based salaried employees who commenced
employment with us prior to January 1, 1997. The plan pays benefits based upon eligible
final average plan compensation and years of credited service. Compensation in excess of a
specified amount prescribed by the Department of the Treasury ($230,000 for 2008) is not
taken into account under the Retirement Plan. Messrs. Chlebek and Hardin, who joined us
after January 1, 1997, are not eligible to participate in The Employees Retirement Plan,
but instead are eligible to participate in the Retirement Feature of the AMETEK Retirement
and Savings Plan, a defined contribution plan. |
|
|
|
|
Annual benefits earned under The Employees Retirement Plan are computed using the
following formula: |
(A + B) x C x 1.02
where:
|
|
|
A = 32.0% of eligible compensation not in excess of Social Security
covered compensation plus 40.0% of eligible compensation in excess of
Social Security covered compensation, times credited service at the
normal retirement date (maximum of 15 years) divided by 15; |
|
|
|
|
B = 0.5% of eligible plan compensation times credited service at the
normal retirement date in excess of 15 years (maximum of ten years);
and |
|
|
|
|
C = current credited service divided by credited service at the
normal retirement date. |
Participants may retire as early as age 55 with 10 years of service. Unreduced benefits
are available when a participant attains age 65 with 5 years of service. Otherwise,
benefits are reduced 6.67% for each year by which pension commencement precedes the
attainment of age 65. Pension benefits earned are distributed in the form of a lifetime
annuity. Messrs. Hermance and Molinelli are eligible for early retirement under the plan.
|
|
|
Supplemental Senior Executive Death Benefit Program Under this program, we have
entered into individual agreements with Messrs. Hermance and Molinelli that require us to
pay death benefits to their designated beneficiaries and to pay lifetime benefits to them
under specified circumstances. If a covered executive dies before retirement or before age
65 while on disability retirement, the executives beneficiary will receive monthly
payments of up to $8,333 from the date of the executives death until the date he would
have attained age 80. If a covered executive retires, or reaches age 65 while on
disability retirement, the program provides for an annual benefit of up to a maximum of
$100,000 per year, or an aggregate of $1,000,000. The benefit is payable monthly over a
period of ten years to the executive or the executives beneficiary. The payments will
commence for retirees at age 70 or death, whichever is earlier. However, if the executive
retires after age 70, the payments commence on retirement. To fund benefits under the
Program, we have purchased individual life insurance policies on the lives of certain of
the covered executives. We retain the right to terminate all of the Program agreements
under designated circumstances. |
26
The following table provides details regarding the present value of accumulated benefits under the
plans described above for the named executive officers in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present |
|
|
|
|
|
|
|
|
|
|
Number of Years |
|
Value of |
|
|
|
|
|
|
|
|
|
|
Credited Service |
|
Accumulated |
|
Payments During |
|
|
|
|
Name |
|
Plan Name |
|
at December 31, 2008 |
|
Benefit (1) |
|
2008 |
|
|
|
|
Frank S. Hermance |
|
The Employees Retirement Plan |
|
17 |
|
$593,100 |
|
|
|
|
|
|
|
|
Supplemental Senior Executive Death Benefit Plan |
|
12 |
|
394,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
The Employees Retirement Plan |
|
39 |
|
934,500 |
|
|
|
|
|
|
|
|
Supplemental Senior Executive Death Benefit Plan |
|
12 |
|
316,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
The Employees Retirement Plan |
|
19 |
|
123,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
The Employees Retirement Plan |
|
29 |
|
295,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Hardin |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown in the Pension Benefit Table above are actuarial present values of the
benefits accumulated through December 31, 2008. We used the following assumptions in
quantifying the present value of the accumulated benefit: discount rate 6.50%; limitation
on eligible annual compensation under the Internal Revenue Code $230,000; limitation on
eligible annual benefits under the Internal Revenue Code $185,000; retirement age 65;
termination and disability rates none; form of payment single life annuity; RP-2000
mortality table, as adjusted. |
27
NON-QUALIFIED DEFERRED COMPENSATION 2008
We have the following non-qualified deferred compensation plans in which our named executive
officers participate:
|
|
|
Supplemental Executive Retirement Plan (SERP) This plan provides benefits for
executives to the extent that their compensation cannot be taken into account under our
tax-qualified plans because the compensation exceeds limits imposed by the Department of
the Treasury ($230,000 in 2008). Under the SERP, each year we credit to the account of a
participant an amount equal to 13% of the executives compensation that exceeds the
Department of the Treasury limits, which is then deemed to be invested in our Common Stock.
Payout of an executives account occurs upon termination of the executives employment and
is made in shares of our Common Stock. Therefore, the ultimate value of the shares paid
out under the SERP will depend on the performance of our Common Stock during the period an
executive participates in the SERP. |
|
|
|
|
Deferred Compensation Plan This plan provides an opportunity for executives to defer
payment of their short-term incentive award to the extent that such award, together with
other relevant compensation, exceeds limits imposed by the Department of the Treasury
($230,000 in 2008). In advance of the year in which the short-term incentive award will be
paid, an executive may elect to defer all or part of his eligible incentive award. The
monies are invested in one of two notional accounts, a Common Stock fund and an
interest-bearing fund. A participant generally may elect to have the value of his or her
account distributed following retirement, or while in service, as specified by the
participant in his or her deferral election. Payments may commence earlier upon the
participants earlier separation from service, upon the death of the participant, in the
event of an unforeseeable financial emergency or upon a change of control, as defined in
the plan. Payments from the notional Common Stock fund are made in shares of our Common
Stock, while payments from the interest-bearing account are paid in cash. |
|
|
|
|
2004 Executive Death Benefit Plan Under this plan, we provide a retirement benefit to
Messrs. Chlebek, Zapico, Jones and Hardin. The retirement benefit under this plan is
designed to provide the lump sum necessary to deliver 20% of the executives final
projected annual salary paid annually for 10 years, on a present value basis at age 70.
However, the actual benefit will vary based on the gains and losses from the underlying
investments in a pool of insurance policies that we own covering the lives of the
participants; and on death benefits received from these same policies. The maximum salary
on which the benefit can be based is $500,000. If the covered executive dies while
actively employed or while disabled and before age 65, the executives beneficiaries will
receive monthly payments from the date of the executives death until the executive would
have attained age 80. |
The following table provides details regarding non-qualified deferred compensation for the named
executive officers in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Registrant |
|
Aggregate |
|
Aggregate |
|
|
|
|
Contributions in |
|
Contributions in |
|
Earnings (Losses) in |
|
Withdrawals/ |
|
Aggregate Balance at |
Name |
|
Last Fiscal Year |
|
Last Fiscal Year (1) |
|
Last Fiscal Year (2) |
|
Distributions |
|
Last Fiscal Year-End (3) |
Frank S. Hermance |
|
$ |
1,130,369 |
|
|
$ |
229,970 |
|
|
$ |
(1,655,436 |
) |
|
|
|
|
|
$ |
12,960,210 |
|
John J. Molinelli |
|
|
184,289 |
|
|
|
68,640 |
|
|
|
(690,548 |
) |
|
|
|
|
|
|
2,929,359 |
|
Robert W. Chlebek |
|
|
180,258 |
|
|
|
48,490 |
|
|
|
(658,467 |
) |
|
|
|
|
|
|
1,697,918 |
|
David A. Zapico |
|
|
|
|
|
|
53,235 |
|
|
|
(220,199 |
) |
|
|
|
|
|
|
379,809 |
|
Timothy N. Jones |
|
|
|
|
|
|
32,370 |
|
|
|
(172,629 |
) |
|
|
|
|
|
|
205,737 |
|
John W. Hardin |
|
|
|
|
|
|
26,498 |
|
|
|
(74,502 |
) |
|
|
|
|
|
|
94,541 |
|
28
|
|
|
(1) |
|
Includes for each named executive officer the following amounts that are also reported in the
Summary Compensation Table on page 21: Mr. Hermance, $229,970; Mr. Molinelli, $68,640; Mr.
Chlebek, $48,490; Mr. Zapico, $53,235; Mr. Jones, $32,370; and Mr. Hardin, $26,498. |
|
(2) |
|
Includes for each named executive officer the following amounts that are also reported in the
Summary Compensation Table on page 21: Mr. Hermance, $6,323; Mr. Molinelli, $1,035; Mr.
Chlebek, $(284,603); Mr. Zapico, $(47,033); Mr. Jones, $(82,199); and Mr. Hardin, $(37,021). |
|
(3) |
|
Includes for each named executive officer the following amounts that were reported as
compensation in the Summary Compensation Table in previous years: Mr. Hermance, $8,670,272;
Mr. Molinelli, $1,668,486; Mr. Chlebek, $1,395,804; Mr. Zapico, $264,307; and Mr. Jones,
$160,851. |
29
POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE OF CONTROL
In this section, we describe payments that may be made to our named executive officers upon several
events of termination, including termination in connection with a change of control. The
information in this section does not include information relating to the following:
|
|
distributions under The Employees Retirement Plan and distributions, other than death
benefits, under the Supplemental Senior Executive Death Benefit Plan see Pension Benefits
2008 for information regarding these plans, |
|
|
distributions under the Supplemental Executive Retirement Plan and the Deferred
Compensation Plan and distributions, other than death benefits, under the 2004 Executive Death
Benefit Plan see Nonqualified Deferred Compensation 2008 for information regarding
these plans, |
|
|
other payments and benefits provided on a nondiscriminatory basis to salaried employees
generally upon termination of employment, including tax-qualified defined contribution plans,
and |
|
|
short-term incentive payments that would not be increased due to the termination event. |
The following items are reflected in the summary table on page 32. The payment amounts reflect the
payments that would have been due to the named executive officers had the termination or change of
control event occurred on December 31, 2008.
Change of Control Agreements. Under our change of control agreements with our named executive
officers other than Mr. Hermance, in the event that a named executive officers employment is
terminated by us without cause or by the named executive officer for good reason within two years
beginning on the effective date of a change of control, the executive officer will receive: (1)
2.99 times the sum of (a) the executive officers base salary in effect on the last day of the
fiscal year immediately preceding the effective date of the change of control and (b) the greater
of the target bonus for the fiscal year in which the change of control occurred or the average of
the bonus received for the two previous fiscal years; all cash payments will be paid when permitted
under Section 409A of the Code, namely, on the first day of the seventh month following the
termination date; and (2) continuation of health benefits until the earliest to occur of Medicare
eligibility, coverage under another group health plan without a pre-existing condition limitation,
the expiration of ten years, or the executive officers death. Payments to executive officers
other than Mr. Hermance under the change of control agreements will be reduced, if necessary, to
prevent them from being subject to the limitation on deductions under Section 280G of the Internal
Revenue Code. The Compensation Committee selected the 2.99 times multiple of salary and bonus to
reflect competitive market levels for such agreements and, except in the case of Mr. Hermance, the
amount payable is subject to limitations designed to minimize the payment of any excise taxes by
us.
Generally, a change of control is deemed to occur under the change of control agreements if: (1)
any person or more than one person acting as a group acquires ownership of stock which constitutes
more than 50 percent of the total fair market value or total voting power of our stock; (2) any
person or more than one person acting as a group acquires (during the 12-month period ending on the
date of the most recent acquisition) ownership of stock possessing 30 percent or more of the total
fair market value or total voting power of our stock; (3) a majority of Board members are replaced
during any 12-month period by directors whose election is not endorsed by a majority of the members
of the Board; or (4) any person or more than one person acting as a group acquires assets from us
having a total fair market value of not less than 40 percent of the total fair market value of all
of our assets immediately prior to the acquisition.
A termination for good reason generally means a termination initiated by the executive officer in
the event of: (1) our noncompliance with the change of control agreement; (2) any involuntary
reduction in the executive officers authority, duties or responsibilities that were in effect
immediately prior to the change of control; (3) any involuntary reduction in the executive
officers total compensation that was in effect immediately prior to the change of control; or (4)
any transfer of the executive officer without the executive officers consent of more than 50 miles
from the executive officers principal place of business immediately prior to the change of control
other than on a temporary basis (less than 6 months).
30
A termination for cause would result from misappropriation of funds, habitual insobriety or
substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the
performance of duties that has a material adverse effect on our business, operations, assets,
properties or financial condition.
Under our change of control agreement with Mr. Hermance, in the event that his employment is
terminated by us without cause or by Mr. Hermance for good reason in anticipation of, or following,
a change of control, he will receive: (1) a lump sum payment equal to the sum of (a) 2.99 times
the sum of Mr. Hermances base salary for the year prior to the year in which his termination
occurs and (b) his targeted bonus for the year in which he is terminated or, if the amount of the
targeted bonus is not known, the average of his bonuses for the two years preceding the year in
which his termination occurs; all cash payments will be paid when permitted under Section 409A of
the Code, namely, on the first day of the seventh month following the termination date; (2)
continuation of health benefits, disability insurance and death benefits until the earliest of (a)
the end of the tenth year following the year of the separation from service; (b) Medicare
eligibility; (c) commencement of new employment where Mr. Hermance can participate in similar plans
or programs without a pre-existing condition limitation; or (d) death; and (3) use of an automobile
and reimbursement of reasonable operating expenses, and continued reimbursement of country club
dues, in each case until the second anniversary of his termination or, if earlier, his death.
In addition, upon a change of control, or upon Mr. Hermances termination without cause or
resignation for good reason in anticipation of a change of control, (1) all of his restricted stock
awards and stock options immediately vest; (2) all stock options, other than incentive stock
options, will be exercisable for one year following his termination, or, if earlier, the stated
expiration date of the stock option; and (3) if Mr. Hermance becomes subject to excise taxes under
Section 4999 of the Internal Revenue Code because our change of control payments to him are subject
to the limitations on deductions under Section 280G of the Internal Revenue Code, he will be
reimbursed for those excise taxes and any additional taxes payable by him as a result of the
reimbursement.
Generally, a change of control is deemed to occur under Mr. Hermances change of control agreement
upon: (1) the acquisition by any person or group of 20 percent or more of our total voting stock;
(2) the acquisition by us, any executive benefit plan, or any entity we establish under the plan,
acting separately or in combination with each other or with other persons, of 50 percent or more of
our voting stock, if after such acquisition our Common Stock is no longer publicly traded; (3) the
death, resignation or removal of our Directors within a two-year period, as a result of which the
Directors serving at the beginning of the period and Directors elected with the advance approval of
two-thirds of the Directors serving at the beginning of the period constitute less than a majority
of the Board; (4) the approval by the shareholders of (a) a merger in which the shareholders no
longer own or control at least 50 percent of the value of our outstanding equity or the combined
voting power of our then outstanding voting securities, or (b) a sale or other disposition of all
or substantially all of the Companys assets. A termination is deemed to be in anticipation of a
change of control if it occurs during the 90 days preceding the change of control and the
substantial possibility of a change of control was known to Mr. Hermance and a majority of the
Directors.
Good reason and cause are defined in Mr. Hermances agreement in substantially the same
manner as in the other executive officers change of control agreements.
Payments and other benefits under the change of control agreements would have been in the following
amounts if the event requiring payment occurred on December 31, 2008: Lump sum payments Mr.
Hermance, $4,604,600; Mr. Molinelli, $2,215,590; Mr. Chlebek, $1,728,220; Mr. Zapico, $1,927,055;
Mr. Jones, $1,432,210; Mr. Hardin, $1,291,381. Health and disability benefits Mr. Hermance,
$106,556; Mr. Molinelli, $67,400; Mr. Zapico, $64,500; Mr. Jones, $154,500; Mr. Hardin, $186,000.
Perquisites Mr. Hermance, $81,383 (including use of an automobile and operating expenses in the
amount of $59,691; and country club fees). The benefits Mr. Hermance receives upon acceleration of
his equity grants in connection with a change of control are quantified below under Acceleration
of Vesting Provisions Pertaining to Stock Options and Restricted Stock.
In addition, Mr. Hermances change of control agreement generally provides that in the event his
employment is terminated by us without cause or by Mr. Hermance for good reason, in either case
prior to and other than in anticipation of or following a change of control, he would receive the
same benefits as he would receive in connection with a change of control, as described above,
except: (1) the portion of the lump sum payment based on a multiple of salary will be equal to two
times, rather than 2.99 times, base salary and (2) the continuation of health benefits, disability
benefits and death benefits cannot exceed a maximum of two years from the termination of his
employment, rather than ten years.
31
Payments and other benefits to Mr. Hermance under this provision include the following: Lump sum
payments, $3,080,000; stock option grant vesting acceleration, $160,717; restricted stock award
vesting acceleration, $3,475,633; health and disability insurance benefits, $42,938; perquisites,
$81,383 (including use of an automobile and operating expenses in the amount of $59,691; and
country club fees).
Acceleration of Vesting Provisions Pertaining to Stock Options and Restricted Stock. Under our
stock incentive plans, outstanding stock options generally will vest immediately upon the
occurrence of any of the following events: (1) the holders retirement after age 65, following two
years of service with us; (2) the death of the holder; or (3) the holders termination of
employment following a change of control. Benefits relating to accelerated vesting of stock
options in connection with termination following a change of control (or, in the case of Mr.
Hermance, in anticipation of, or upon a change of control), or upon normal retirement or death is
as follows: Mr. Hermance, $160,717; Mr. Molinelli, $34,306; Mr. Chlebek, $29,707; Mr. Zapico,
$28,083; Mr. Jones, $12,407; Mr. Hardin, $15,769. The value of the accelerated vesting benefit
equals the number of shares as to which the stock options would vest on an accelerated basis upon
the occurrence of the specified termination or change of control event, multiplied by the
difference between the closing price per share of our Common Stock on December 31, 2008 and the
exercise price per share for the affected options.
Outstanding restricted stock generally will vest immediately upon the occurrence of either of the
following events: (1) the holders death or disability; or (2) the holders termination of
employment following a change of control. Benefits relating to accelerated vesting of restricted
stock in connection with termination following a change of control (or, in the case of Mr.
Hermance, in anticipation of, or upon a change of control), or upon disability or death are as
follows: Mr. Hermance, $3,475,633; Mr. Molinelli, $845,595; Mr. Chlebek, $566,044; Mr. Zapico,
$663,143; Mr. Jones, $566,044; Mr. Hardin, $409,786. Benefits in connection with other events of
termination addressed in the table below are as follows: Mr. Hermance, $1,466,941; Mr. Molinelli,
$343,465; Mr. Chlebek, $245,599; Mr. Zapico (normal retirement only), $275,648; Mr. Jones (normal
retirement only), $245,599; Mr. Hardin (normal retirement only), $140,404. The value of the
accelerated vesting benefit equals the number of shares of restricted stock that would vest on an
accelerated basis on the occurrence of the specified termination or change of control event times
the closing price per share of our Common Stock on December 31, 2008.
Our incentive plans define change of control in substantially the same manner as the change of
control agreements relating to our executives other than Mr. Hermance.
Death Benefits. Death benefits are payable to Messrs. Hermance and Molinelli under our
Supplemental Senior Executive Death Benefit Plan, as described under Pension Benefits 2008.
Death benefits are payable to Messrs. Chlebek, Zapico, Jones and Hardin under our 2004 Executive
Death Benefit Plan, as described under Nonqualified Deferred Compensation 2008.
The amount of death benefits payable to each of the named executive officers in the event of his
death would have been as follows on December 31, 2008: Mr. Hermance, $1,134,300; Mr. Molinelli,
$748,000; Mr. Chlebek, $964,700; Mr. Zapico, $1,414,400; Mr. Jones, $1,307,900; Mr. Hardin,
$1,420,500.
Summary Table. The following table summarizes the amounts payable to each of the named executive
officers based on the items described above with respect to each of the events set forth in the
table. As used in the table below, change of control refers to payment or other benefit events
occurring upon a change of control or in connection with a termination related to a change of
control, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination/Early |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement/ |
|
|
|
|
|
Involuntary |
|
|
|
|
|
|
|
|
Termination |
|
Normal |
|
Not For Cause |
|
Change of |
|
|
|
|
Name |
|
For Cause |
|
Retirement |
|
Termination |
|
Control |
|
Disability |
|
Death |
Frank S. Hermance |
|
$ |
1,466,941 |
|
|
$ |
1,627,658 |
|
|
$ |
6,840,671 |
|
|
$ |
8,428,889 |
|
|
$ |
3,475,633 |
|
|
$ |
4,770,650 |
|
John J. Molinelli |
|
|
343,465 |
|
|
|
377,771 |
|
|
|
343,465 |
|
|
|
3,162,891 |
|
|
|
845,595 |
|
|
|
1,627,901 |
|
Robert W. Chlebek |
|
|
245,599 |
|
|
|
275,306 |
|
|
|
245,599 |
|
|
|
2,323,972 |
|
|
|
566,044 |
|
|
|
1,560,452 |
|
David A. Zapico |
|
|
|
|
|
|
303,730 |
|
|
|
|
|
|
|
2,682,781 |
|
|
|
663,143 |
|
|
|
2,105,626 |
|
Timothy N. Jones |
|
|
|
|
|
|
258,006 |
|
|
|
|
|
|
|
2,165,161 |
|
|
|
566,044 |
|
|
|
1,886,351 |
|
John W. Hardin |
|
|
|
|
|
|
156,174 |
|
|
|
|
|
|
|
1,902,936 |
|
|
|
409,786 |
|
|
|
1,846,055 |
|
32
STOCK OWNERSHIP OF
EXECUTIVE OFFICERS AND DIRECTORS
The Compensation Committee of the Board of Directors approved stock ownership guidelines for all
executive officers, and reviews stock ownership on an annual basis. See Compensation Discussion
and Analysis Stock Ownership Guidelines on page 17 for a discussion of stock ownership
guidelines for our named executive officers.
The Board of Directors established stock ownership guidelines for non-employee Directors in order
to more closely link their interests with those of stockholders. Under the guidelines, each
non-employee Director is expected to own, by the end of a five-year period, shares of our Common
Stock having a value equal to at least five times the Directors annual cash retainer. Each
non-employee Director other than Mr. Williams, who was first elected to the Board of Directors in
2006, has exceeded his or her required stock ownership level of five times his or her annual
retainer.
The following table shows the number of shares of Common Stock that the Directors and all executive
officers as a group beneficially owned, and the number of deemed shares held for the account of the
executive officers under the Supplemental Executive Retirement Plan (SERP) as of February 2,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares and |
|
|
Nature of Ownership (1) |
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Right to |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Beneficial |
|
|
Beneficially |
|
Acquire |
|
|
|
|
|
Percent of |
|
|
|
|
|
and SERP |
Name |
|
Owned |
|
(2) |
|
Total |
|
Class |
|
SERP |
|
Ownership |
Sheldon S. Gordon |
|
|
126,805 |
|
|
|
11,057 |
|
|
|
137,862 |
|
|
|
* |
|
|
|
|
|
|
|
137,862 |
|
John W. Hardin |
|
|
22,428 |
|
|
|
5,876 |
|
|
|
28,304 |
|
|
|
* |
|
|
|
3,129 |
|
|
|
31,433 |
|
Frank S. Hermance |
|
|
1,000,452 |
|
|
|
906,247 |
|
|
|
1,906,699 |
|
|
|
1.8 |
% |
|
|
135,646 |
|
|
|
2,042,345 |
|
Timothy N. Jones |
|
|
53,157 |
|
|
|
52,537 |
|
|
|
105,694 |
|
|
|
* |
|
|
|
6,567 |
|
|
|
112,261 |
|
Charles D. Klein (3) |
|
|
148,005 |
|
|
|
11,057 |
|
|
|
159,062 |
|
|
|
* |
|
|
|
|
|
|
|
159,062 |
|
Steven W. Kohlhagen |
|
|
18,430 |
|
|
|
2,882 |
|
|
|
21,312 |
|
|
|
* |
|
|
|
|
|
|
|
21,312 |
|
James R. Malone |
|
|
58,805 |
|
|
|
11,057 |
|
|
|
69,862 |
|
|
|
* |
|
|
|
|
|
|
|
69,862 |
|
John J. Molinelli |
|
|
258,061 |
|
|
|
208,979 |
|
|
|
467,040 |
|
|
|
* |
|
|
|
48,959 |
|
|
|
515,999 |
|
David P. Steinmann (4) |
|
|
223,741 |
|
|
|
4,195 |
|
|
|
227,936 |
|
|
|
* |
|
|
|
|
|
|
|
227,936 |
|
Elizabeth R. Varet (5) |
|
|
633,266 |
|
|
|
11,057 |
|
|
|
644,323 |
|
|
|
* |
|
|
|
|
|
|
|
644,323 |
|
Dennis K. Williams |
|
|
3,430 |
|
|
|
2,882 |
|
|
|
6,312 |
|
|
|
* |
|
|
|
|
|
|
|
6,312 |
|
David A. Zapico |
|
|
69,400 |
|
|
|
60,483 |
|
|
|
129,883 |
|
|
|
* |
|
|
|
12,302 |
|
|
|
142,185 |
|
Directors and
Executive Officers as
a Group (13 persons)
including individuals
named above |
|
|
2,545,084 |
|
|
|
1,347,898 |
|
|
|
3,892,982 |
|
|
|
3.6 |
% |
|
|
211,949 |
|
|
|
4,104,931 |
|
|
|
|
* |
|
Represents less than 1% of the outstanding shares of our Common Stock. |
|
(1) |
|
Under Rule 13d-3 of the Securities Exchange Act of 1934, as amended, beneficial ownership of
a security consists of sole or shared voting power (including the power to vote or direct the
vote) and/or sole or shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract, arrangement, understanding,
relationship or otherwise. |
|
(2) |
|
Shares the Director or executive officer has a right to acquire through stock option
exercises within 60 days of February 2, 2009. |
(Footnotes continue on following page.)
33
|
|
|
(3) |
|
Includes 3,000 shares owned by one of Mr. Kleins adult children through a trust for which
Mr. Kleins wife is the trustee and as to which Mr. Klein disclaims any beneficial ownership.
Includes 5,000 shares held by a charitable foundation of which Mr. Klein is a director. |
|
(4) |
|
Includes 15,600 shares owned by Mr. Steinmanns wife, as to which Mr. Steinmann disclaims any
beneficial ownership. Mr. Steinmann has shared voting and investment power with respect to
181,311 shares, as to 111,309 of which such power is shared with Ms. Varet and others. |
|
(5) |
|
Includes 36,600 shares, of which 30,000 shares are owned by a trust of which Ms. Varets
husband is a beneficiary, 1,800 shares are owned by one of Ms. Varets adult children, and
4,800 shares are owned by two trusts of which Ms. Varets husband is the trustee, as to which
Ms. Varet disclaims any beneficial ownership. Ms. Varet has shared voting and investment power
with respect to 513,961 shares, as to 111,309 shares of which such power is shared with Mr.
Steinmann and others. |
34
BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table provides information regarding the only entities known to us to be beneficial
owners of more than five percent of the outstanding shares of our Common Stock as of March 6, 2009.
|
|
|
|
|
|
|
|
|
|
|
Name and Address of |
|
|
|
|
|
|
|
Percent |
Beneficial Owner |
|
Nature of Beneficial Ownership |
|
Number of Shares |
|
of Class |
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202
|
|
Sole voting power for
1,747,150 shares and sole
dispositive power (1)
|
|
|
7,915,600 |
|
|
|
7.4 |
% |
Columbia Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, IL 60606
|
|
Sole voting power for
7,265,000 shares and sole
dispositive power (2)
|
|
|
7,574,800 |
|
|
|
7.1 |
% |
|
|
|
(1) |
|
Based on Schedule 13G filed on February 11, 2009. These securities are owned by various
individual and institutional investors including the T. Rowe Price Mid-Cap Growth Fund, Inc.
(which owns 5,700,000 shares, representing 5.3% percent of the shares outstanding, for which
T. Rowe Price Associates, Inc. (Price Associates) serves as investment adviser with power to
direct investments and/or sole power to vote the securities). For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly disclaims that it is,
in fact, the beneficial owner of such securities. |
|
(2) |
|
Based on Schedule 13G filed on February 5, 2009. |
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and
officers to file with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of our Common Stock. Copies of all such Section 16(a) reports are
required to be furnished to us. These filing requirements also apply to holders of more than 10%
of our Common Stock, but we do not know of any person that holds more than 10% of our Common Stock.
To our knowledge, based solely on a review of the copies of Section 16(a) reports furnished to us
and written representations that no other reports were required, during the fiscal year ended
December 31, 2008, all of our officers and Directors made all required filings on a timely basis
except for one Form 4 report that was filed late by Mr. Malone reporting one transaction.
35
OTHER BUSINESS
We are not aware of any other matters that will be presented at the Annual Meeting. If other
matters are properly introduced, the individuals named on the enclosed proxy card will vote the
shares it represents in accordance with their judgment.
By Order of the Board of Directors
Kathryn E. Sena
Corporate Secretary
Dated: March 13, 2009
MULTIPLE STOCKHOLDERS SHARING THE SAME ADDRESS
Registered and street-name stockholders who reside at a single address receive only one annual
report and proxy statement at that address unless a stockholder provides contrary instructions.
This practice is known as householding and is designed to reduce duplicate printing and postage
costs. However, if a stockholder wishes in the future to receive a separate annual report or proxy
statement, he or she may contact our transfer agent, American Stock Transfer & Trust Company,
toll-free at 1-800-937-5449, or in writing at American Stock Transfer & Trust Company, Stockholder
Services, 59 Maiden Lane, New York, NY 10038. Stockholders can request householding if they
receive multiple copies of the annual report and proxy statement by contacting American Stock
Transfer & Trust Company at the address above.
ELECTRONIC DISTRIBUTION OF PROXY STATEMENTS
AND ANNUAL REPORTS
To receive future AMETEK, Inc. proxy statements and annual reports electronically, please visit
www.amstock.com. Click on Shareholder Account Access to enroll. After logging in, select Receive
Company Mailings via E-mail. Once enrolled, stockholders will no longer receive a printed copy of
proxy materials, unless they request one. Each year they will receive an e-mail explaining how to
access the Annual Report and Proxy Statement online as well as how to vote their shares online.
They may suspend electronic distribution at any time by contacting American Stock Transfer & Trust
Company.
36
APPENDIX A
AMETEK, Inc.
ANNUAL FINANCIAL INFORMATION AND REVIEW OF OPERATIONS
Index
Page
|
|
|
|
|
Information Relating to AMETEK Common Stock |
|
|
A-2 |
|
|
|
|
|
|
Selected Financial Data |
|
|
A-3 |
|
|
|
|
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations |
|
|
A-5 |
|
|
|
|
|
|
Reports of Management |
|
|
A-21 |
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting |
|
|
A-22 |
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Financial Statements |
|
|
A-23 |
|
|
|
|
|
|
Consolidated Statement of Income |
|
|
A-24 |
|
|
|
|
|
|
Consolidated Balance Sheet |
|
|
A-25 |
|
|
|
|
|
|
Consolidated Statement of Stockholders Equity |
|
|
A-26 |
|
|
|
|
|
|
Consolidated Statement of Cash Flows |
|
|
A-27 |
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
A-28 |
|
A-1
INFORMATION
RELATING TO AMETEK COMMON STOCK
The principal market on which the Companys common stock is
traded is the New York Stock Exchange and it is traded under the
symbol AME.
Market price and dividend information with respect to the
Companys 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.
Market
Price and Dividends Per Share
The high and low sales prices of the Companys common stock
on the New York Stock Exchange composite tape and the quarterly
dividends per share paid on the common stock were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Common stock trading range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
46.95
|
|
|
$
|
53.12
|
|
|
$
|
52.50
|
|
|
$
|
41.24
|
|
Low
|
|
$
|
37.09
|
|
|
$
|
43.80
|
|
|
$
|
37.74
|
|
|
$
|
27.32
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Common stock trading range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
35.91
|
|
|
$
|
40.94
|
|
|
$
|
43.79
|
|
|
$
|
48.45
|
|
Low
|
|
$
|
30.67
|
|
|
$
|
33.51
|
|
|
$
|
36.38
|
|
|
$
|
42.00
|
|
Stock
Performance Graph
The following graph and accompanying table compare the
cumulative total shareholder return for AMETEK, Inc. over the
last five years ended December 31, 2008 with total returns
for the same period for the Russell 1000 Index and the Dow Jones
U.S. Electronic Equipment Index. The performance graph and
table assume a $100 investment made on December 31, 2003
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
AMETEK, Inc.
|
|
$
|
100.00
|
|
|
$
|
149.08
|
|
|
$
|
178.84
|
|
|
$
|
201.99
|
|
|
$
|
298.97
|
|
|
$
|
193.94
|
|
Russell 1000 Index*
|
|
|
100.00
|
|
|
|
111.40
|
|
|
|
118.38
|
|
|
|
136.69
|
|
|
|
144.58
|
|
|
|
90.22
|
|
Dow Jones U.S. Electronic Equipment Index*
|
|
|
100.00
|
|
|
|
108.49
|
|
|
|
116.80
|
|
|
|
134.72
|
|
|
|
158.08
|
|
|
|
92.80
|
|
A-2
AMETEK,
INC.
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars and shares in millions, except per share amounts)
|
|
|
Consolidated Operating Results (Year Ended
December 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,531.1
|
|
|
$
|
2,136.9
|
|
|
$
|
1,819.3
|
|
|
$
|
1,434.5
|
|
|
$
|
1,232.3
|
|
Operating income(1)
|
|
$
|
432.7
|
|
|
$
|
386.6
|
|
|
$
|
309.0
|
|
|
$
|
233.5
|
|
|
$
|
191.2
|
|
Interest expense
|
|
$
|
(63.7
|
)
|
|
$
|
(46.9
|
)
|
|
$
|
(42.2
|
)
|
|
$
|
(32.9
|
)
|
|
$
|
(28.3
|
)
|
Net income(1)
|
|
$
|
247.0
|
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
Earnings per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.33
|
|
|
$
|
2.15
|
|
|
$
|
1.74
|
|
|
$
|
1.31
|
|
|
$
|
1.07
|
|
Diluted
|
|
$
|
2.30
|
|
|
$
|
2.12
|
|
|
$
|
1.71
|
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
Dividends declared and paid per share
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106.1
|
|
|
|
105.8
|
|
|
|
104.8
|
|
|
|
103.7
|
|
|
|
101.7
|
|
Diluted
|
|
|
107.4
|
|
|
|
107.6
|
|
|
|
106.6
|
|
|
|
105.6
|
|
|
|
103.1
|
|
Performance Measures and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income Return on sales(1)
|
|
|
17.1
|
%
|
|
|
18.1
|
%
|
|
|
17.0
|
%
|
|
|
16.3
|
%
|
|
|
15.5
|
%
|
Return on average total assets(1)
|
|
|
14.9
|
%
|
|
|
15.9
|
%
|
|
|
15.8
|
%
|
|
|
14.6
|
%
|
|
|
14.5
|
%
|
Net income Return on average total capital(1)(5)
|
|
|
10.9
|
%
|
|
|
12.0
|
%
|
|
|
11.8
|
%
|
|
|
10.7
|
%
|
|
|
10.5
|
%
|
Return on average stockholders
equity(1)(5)
|
|
|
19.5
|
%
|
|
|
20.7
|
%
|
|
|
20.5
|
%
|
|
|
18.5
|
%
|
|
|
18.2
|
%
|
EBITDA(1)(2)
|
|
$
|
489.4
|
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
Ratio of EBITDA to interest expense(1)(2)
|
|
|
7.7
|
x
|
|
|
9.3
|
x
|
|
|
8.3
|
x
|
|
|
8.2
|
x
|
|
|
8.1
|
x
|
Depreciation and amortization
|
|
$
|
63.3
|
|
|
$
|
52.7
|
|
|
$
|
45.9
|
|
|
$
|
39.4
|
|
|
$
|
39.9
|
|
Capital expenditures
|
|
$
|
44.2
|
|
|
$
|
37.6
|
|
|
$
|
29.2
|
|
|
$
|
23.3
|
|
|
$
|
21.0
|
|
Cash provided by operating activities
|
|
$
|
247.3
|
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
Free cash flow(3)
|
|
$
|
203.1
|
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
Ratio of earnings to fixed charges(6)
|
|
|
6.1
|
x
|
|
|
7.3
|
x
|
|
|
6.6
|
x
|
|
|
6.2
|
x
|
|
|
6.0
|
x
|
Consolidated Financial Position
(At December 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
954.6
|
|
|
$
|
952.2
|
|
|
$
|
684.1
|
|
|
$
|
556.3
|
|
|
$
|
461.9
|
|
Current liabilities
|
|
$
|
447.5
|
|
|
$
|
640.8
|
|
|
$
|
480.9
|
|
|
$
|
405.8
|
|
|
$
|
272.8
|
|
Property, plant and equipment, net
|
|
$
|
307.9
|
|
|
$
|
293.1
|
|
|
$
|
258.0
|
|
|
$
|
228.5
|
|
|
$
|
207.5
|
|
Total assets
|
|
$
|
3,055.5
|
|
|
$
|
2,745.7
|
|
|
$
|
2,130.9
|
|
|
$
|
1,780.6
|
|
|
$
|
1,420.4
|
|
Long-term debt
|
|
$
|
1,093.2
|
|
|
$
|
667.0
|
|
|
$
|
518.3
|
|
|
$
|
475.3
|
|
|
$
|
400.2
|
|
Total debt
|
|
$
|
1,111.7
|
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
Stockholders equity(5)
|
|
$
|
1,287.8
|
|
|
$
|
1,240.7
|
|
|
$
|
966.7
|
|
|
$
|
809.5
|
|
|
$
|
663.3
|
|
Stockholders equity per share(5)
|
|
$
|
12.07
|
|
|
$
|
11.56
|
|
|
$
|
9.11
|
|
|
$
|
7.66
|
|
|
$
|
6.44
|
|
Total debt as a percentage of capitalization(5)
|
|
|
46.3
|
%
|
|
|
42.1
|
%
|
|
|
41.4
|
%
|
|
|
43.8
|
%
|
|
|
40.4
|
%
|
Net debt as a percentage of capitalization(4)(5)
|
|
|
44.3
|
%
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
42.4
|
%
|
|
|
38.3
|
%
|
See Notes to Selected Financial Data on page A-4.
A-3
Notes to
Selected Financial Data
|
|
|
(1)
|
|
Amounts for years prior to 2006
reflect the retrospective application of Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment (SFAS 123R) to
expense stock options. The adoption of SFAS 123R reduced
operating income, net income and diluted earnings per share by
the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of Amounts Originally Reported:
|
|
|
|
|
|
|
|
|
|
Diluted Earnings
|
|
Impact of Adopting SFAS 123R
|
|
Operating Income
|
|
|
Net Income
|
|
|
Per Share
|
|
|
|
(In millions, except per share amounts)
|
|
|
2005
|
|
$
|
5.9
|
|
|
$
|
4.3
|
|
|
$
|
0.04
|
|
2004
|
|
$
|
5.1
|
|
|
$
|
3.7
|
|
|
$
|
0.04
|
|
|
|
|
(2)
|
|
EBITDA represents income 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
Companys operating performance or as an alternative to
cash flows as a measure of the Companys overall liquidity
as presented in the Companys 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
247.0
|
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
63.7
|
|
|
|
46.9
|
|
|
|
42.2
|
|
|
|
32.9
|
|
|
|
28.3
|
|
Interest income
|
|
|
(3.9
|
)
|
|
|
(2.1
|
)
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
Income taxes
|
|
|
119.3
|
|
|
|
108.4
|
|
|
|
81.8
|
|
|
|
61.9
|
|
|
|
51.7
|
|
Depreciation
|
|
|
45.8
|
|
|
|
42.3
|
|
|
|
38.9
|
|
|
|
35.0
|
|
|
|
36.8
|
|
Amortization
|
|
|
17.5
|
|
|
|
10.4
|
|
|
|
7.0
|
|
|
|
4.4
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
242.4
|
|
|
|
205.9
|
|
|
|
169.5
|
|
|
|
133.5
|
|
|
|
119.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
489.4
|
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. (Also see note 2 above).
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Cash provided by operating activities (U.S. GAAP basis)
|
|
$
|
247.3
|
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
Deduct: Capital expenditures
|
|
|
(44.2
|
)
|
|
|
(37.6
|
)
|
|
|
(29.2
|
)
|
|
|
(23.3
|
)
|
|
|
(21.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
203.1
|
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
Net debt represents total debt
minus cash and cash equivalents. Net debt is presented because
the Company is aware that it is used by securities analysts,
investors and other parties in evaluating the Company. (Also see
note 2 above). The following table presents the
reconciliation of total debt in accordance with U.S. GAAP to net
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Total debt
|
|
$
|
1,111.7
|
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
Less: Cash and cash equivalents
|
|
|
(87.0
|
)
|
|
|
(170.1
|
)
|
|
|
(49.1
|
)
|
|
|
(35.5
|
)
|
|
|
(37.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
1,024.7
|
|
|
|
732.9
|
|
|
|
632.8
|
|
|
|
595.9
|
|
|
|
412.5
|
|
Stockholders equity
|
|
|
1,287.8
|
|
|
|
1,240.7
|
|
|
|
966.7
|
|
|
|
809.5
|
|
|
|
663.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization (net debt plus stockholders equity)
|
|
$
|
2,312.5
|
|
|
$
|
1,973.6
|
|
|
$
|
1,599.5
|
|
|
$
|
1,405.4
|
|
|
$
|
1,075.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt as a percentage of capitalization
|
|
|
44.3
|
%
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
42.4
|
%
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
The adoption of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and
132(R), for our defined benefit pension plans, which was
effective December 31, 2006, resulted in a reduction of
$32.7 million to stockholders equity. The adoption of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, as of
January 1, 2007, resulted in a $5.9 million charge to
the opening balance of stockholders equity.
|
|
(6)
|
|
Penalties and interest accrued
related to unrecognized tax benefits are recognized in income
tax expense.
|
A-4
AMETEK,
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report includes forward-looking statements based on the
Companys 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. For more
information concerning risks and other factors, that could have
a material adverse effect on our business, or could cause actual
results to differ materially from managements
expectations, see Forward-Looking Information on
page A-20.
The following discussion and analysis of the Companys
results of operations and financial condition should be read in
conjunction with Selected Financial Data and the
consolidated financial statements of the Company and the related
notes included elsewhere in this Appendix. We begin with an
overview of our business and operations.
Business
Overview
As a global business, AMETEKs operations are affected by
global, regional and industry economic factors. However, the
Companys strategic geographic and industry
diversification, and its mix of products and services, have
helped to limit the potential adverse impact of any unfavorable
developments in any one industry or the economy of any single
country on its consolidated operating results. For most of 2008,
the Company continued to experience strong market conditions in
many of its businesses. However, beginning in the fourth quarter
of 2008, the Company experienced lower order rates as a result
of the current financial and economic crisis. For the full year
2008, contributions from recent acquisitions and internal
growth, combined with successful Operational Excellence
initiatives, enabled the Company to post another year of record
sales, operating income, net income and diluted earnings per
share. In addition to achieving its financial objectives, the
Company also benefited from its strategic initiatives under
AMETEKs four growth strategies: Operational Excellence,
New Product Development, Global and Market Expansion and
Strategic Acquisitions and Alliances. Highlights of 2008 were:
|
|
|
|
|
In 2008, sales were $2.5 billion, an increase of
$394.2 million or 18% from 2007, on internal growth of
approximately 5% in the Electronic Instruments Group
(EIG) and 2% in the Electromechanical Group
(EMG) excluding the effect of foreign currency
translation, and contributions from the 2007 and 2008
acquisitions. During 2008, the Company completed the following
acquisitions:
|
|
|
|
|
|
In February 2008, the Company acquired Drake Air
(Drake). Drake is a provider of heat-transfer repair
services to the commercial aerospace industry.
|
|
|
|
In February 2008, the Company acquired Motion Control Group
(MCG). MCG is a leading global manufacturer of
highly customized motors and motion control solutions for the
medical, life sciences, industrial automation, semiconductor and
aviation markets.
|
|
|
|
In April 2008, the Company acquired Reading Alloys. Reading
Alloys is a global leader in specialty titanium master alloys
and highly engineered metal powders used in the aerospace,
medical implant, military and electronics markets.
|
|
|
|
In June 2008, the Company acquired Vision Research, Inc. Vision
Research is a leading manufacturer of high-speed digital imaging
systems used for motion capture and analysis in numerous test
and measurement applications.
|
|
|
|
In August 2008, the Company acquired the programmable power
business of Xantrex Technology, Inc. (Xantrex
Programmable). Xantrex Programmable is a leader in
alternating current and direct current programmable power
supplies used to test electrical and electronic products.
|
|
|
|
In November 2008, the Company acquired UK-based Muirhead
Aerospace Limited (Muirhead). Muirhead is a leading
manufacturer of motion technology products and a provider of
avionics repair and overhaul services for the aerospace and
defense markets.
|
A-5
|
|
|
|
|
As the Company grows globally, it continues to achieve an
increasing level of international sales. International sales,
including U.S. export sales, were $1,225.5 million of
consolidated sales in 2008, compared with $1,053.7 million
of consolidated sales in 2007.
|
|
|
|
The Company continued its emphasis on investment in research,
development and engineering, spending $115.9 million in
2008 before customer reimbursement of $6.1 million, an
increase of 12.6% over 2007. Sales from products introduced in
the last three years increased $71.5 million or 18.3% in
2008 to $462.8 million.
|
|
|
|
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of 6.59% senior notes due
September 2015 and $160 million in aggregate principal
amount of 7.08% senior notes due September 2018. The second
funding date occurred in December 2008 for $100 million,
consisting of $35 million in aggregate principal amount of
6.69% senior notes due December 2015 and $65 million
in aggregate principal amount of 7.18% senior notes due
December 2018. The proceeds from the senior notes were used to
pay down a portion of the Companys revolving credit
facility.
|
|
|
|
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using proceeds from
borrowings under its existing revolving credit facility.
|
|
|
|
In the fourth quarter of 2008, the Company recorded pre-tax
charges totaling $40.0 million, which had the effect of
reducing net income by $27.3 million ($0.25 per diluted
share). These charges include restructuring costs for employee
reductions and facility closures ($32.6 million), as well
as asset write-downs ($7.4 million) as a result of the
global economic recession and financial crisis.
|
|
|
|
In 2008, the Company made $79.9 million in contributions to
its defined benefit pension plans in the U.S. and the
United Kingdom. $74.0 million in contributions were made in
the fourth quarter of 2008, which had the effect of eliminating
or significantly reducing the amount of unfunded pension
obligations associated with the Companys pension plans.
|
Results
of Operations
The following table sets forth net sales and income by
reportable segment and on a consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net sales(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
1,402,653
|
|
|
$
|
1,199,757
|
|
|
$
|
1,016,503
|
|
Electromechanical
|
|
|
1,128,482
|
|
|
|
937,093
|
|
|
|
802,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
2,531,135
|
|
|
$
|
2,136,850
|
|
|
$
|
1,819,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
306,764
|
|
|
$
|
260,338
|
|
|
$
|
203,430
|
|
Electromechanical
|
|
|
175,181
|
|
|
|
167,166
|
|
|
|
139,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
481,945
|
|
|
|
427,504
|
|
|
|
343,356
|
|
Corporate administrative and other expenses
|
|
|
(49,291
|
)
|
|
|
(40,930
|
)
|
|
|
(34,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
432,654
|
|
|
|
386,574
|
|
|
|
308,994
|
|
Interest and other expenses, net
|
|
|
(66,438
|
)
|
|
|
(50,130
|
)
|
|
|
(45,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
$
|
366,216
|
|
|
$
|
336,444
|
|
|
$
|
263,686
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(1) |
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After elimination of intra- and intersegment sales, which are
not significant in amount. |
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(2) |
|
Segment operating income represents sales less all direct costs
and expenses (including certain administrative and other
expenses) applicable to each segment, but does not include
interest expense. |
A-6
Year
Ended December 31, 2008 Compared with Year Ended
December 31, 2007
Results
of Operations
In 2008, the Company posted record sales, operating income, net
income and diluted earnings per share. The Company achieved
these results from contributions from acquisitions completed in
2008 and 2007, as well as internal growth in both EIG and EMG.
Operating income increased, driven by the record sales and a
continued focus on cost reduction programs under our Operational
Excellence initiatives. The Company expects the current
financial and economic crisis, to have a negative impact on
operating results in 2009. The full year impact of the 2008
acquisitions and our Operational Excellence capabilities will
have a positive impact on our 2009 results.
Net sales for 2008 were $2,531.1 million, an increase of
$394.2 million or 18.4% when compared with net sales of
$2,136.9 million in 2007. Net sales for EIG were
$1,402.7 million in 2008, an increase of 16.9% from sales
of $1,199.8 million in 2007. Net sales for EMG were
$1,128.5 million in 2008, an increase of 20.4% from sales
of $937.1 million in 2007. The Companys internal
sales growth was approximately 4% in 2008, which excludes a 1%
favorable effect of foreign currency translation, driven by
strength in its differentiated businesses. The acquisitions
mentioned above contributed the remainder of the net sales
increase.
Total international sales for 2008 were $1,225.5 million or
48.4% of consolidated net sales, an increase of
$171.8 million or 16.3% when compared with international
sales of $1,053.7 million or 49.3% of consolidated net
sales in 2007. The increase in international sales resulted from
increased international sales from base businesses of
$29.3 million or 17.0% of the increase, which includes the
effect of foreign currency translation, as well as the
acquisitions completed in 2008 and 2007, most notably Cameca SAS
(Cameca), the Repair & Overhaul Division
of Umeco plc (Umeco R&O), Reading Alloys,
California Instruments Corporation (California
Instruments) and Vision Research. Increased international
sales came primarily from sales to Europe and Asia by both
reportable segments. Export shipments from the United States,
which are included in total international sales, were
$478.5 million in 2008, an increase of $84.1 million
or 21.3% compared with $394.4 million in 2007. Export
shipments improved primarily due to increased exports from the
base businesses and the acquisitions noted above.
New orders for 2008 were a record at $2,561.5 million, an
increase of $273.2 million or 11.9% when compared with
$2,288.3 million in 2007. The increase in new orders was
primarily due to the recent acquisitions noted above. As a
result, the Companys backlog of unfilled orders at
December 31, 2008 was $718.6 million, an increase of
$30.4 million or 4.4% when compared with
$688.2 million at December 31, 2007. The increase in
backlog was primarily due to the acquired backlog of the recent
acquisitions noted above. Beginning in the fourth quarter of
2008 through the filing date of this
Form 10-K,
the Company has experienced lower order rates as a result of the
current financial and economic crisis.
The year ended December 31, 2008 results include fourth
quarter pre-tax charges totaling $40.0 million, which had
the effect of reducing net income by $27.3 million ($0.25
per diluted share). These charges include restructuring costs
for employee reductions and facility closures
($32.6 million), as well as asset write-downs
($7.4 million). Of the $40.0 million in charges,
$32.9 million of the restructuring charges and asset
write-downs were recorded in cost of sales and $7.1 million
of the restructuring charges and asset write-downs were recorded
in Selling, general and administrative (SG&A)
expenses. The restructuring charges and asset write-downs were
reported in segment operating income as follows:
$20.4 million in EIG, $19.4 million in EMG and
$0.2 million in Corporate administrative and other
expenses. The restructuring costs for employee reductions and
facility closures relate to plans established by the Company as
part of cost reduction initiatives to be broadly implemented
across the Companys various businesses during fiscal 2009.
The restructuring costs include the consolidation of
manufacturing facilities, the migration of production to low
cost locales and a general reduction in workforce in response to
lower levels of expected sales volumes in certain of the
Companys businesses. The Company recorded pre-tax charges
of $30.1 million for severance costs for slightly more than
10% of the Companys workforce. The Company also recorded
pre-tax charges of $1.5 million for lease termination costs
associated with the closure of certain facilities in 2009.
Substantially all of the payments for employee severance and
lease termination costs are expected to be made in 2009.
Segment operating income for 2008 was $481.9 million, an
increase of $54.4 million or 12.7% when compared with
segment operating income of $427.5 million in 2007. Segment
operating income, as a percentage of sales,
A-7
decreased to 19.0% for 2008 from 20.0% in 2007. The increase in
segment operating income resulted primarily from strength in the
Companys differentiated businesses and profit
contributions made by the acquisitions, partially offset by the
fourth quarter pre-tax restructuring charges and asset
write-downs described above. The decrease in segment operating
margins resulted primarily from the restructuring charges and
asset write-downs, which negatively impacted segment operating
margins by 160 basis points.
SG&A expenses for 2008 were $322.6 million, an
increase of $59.1 million or 22.4% when compared with
$263.5 million in 2007. As a percentage of sales, SG&A
expenses were 12.7% for 2008, compared with 12.3% in 2007. The
increase in SG&A expenses was the result of higher sales,
as well as a $7.1 million charge representing a
0.3% increase in SG&A expenses recorded in
corporate administrative expenses related to the accelerated
vesting of an April 2005 restricted stock grant in the second
quarter of 2008 and $7.1 million of SG&A expense
related to the fourth quarter of 2008 restructuring charges and
asset write-downs described above. Additionally, the
Companys acquisition strategy generally is to acquire
differentiated businesses, which because of their distribution
channels and higher marketing costs tend to have a higher
content of selling expenses. Base business selling expenses
increased approximately 7.9%. Excluding the impact of the fourth
quarter restructuring charges and asset write-downs on selling
expense of $6.9 million, a 3.2% impact, and foreign
currency translation, the increase in 2008 base business selling
expenses was in line with internal sales growth. Selling
expenses, as a percentage of sales, increased to 10.8% for 2008,
compared with 10.4% in 2007.
Corporate administrative expenses for 2008 were
$49.2 million, an increase of $8.4 million or 20.6%
when compared with $40.8 million in 2007. As a percentage
of sales, corporate administrative expenses were 1.9%, in both
2008 and 2007. The increase in corporate administrative expenses
was primarily the result of equity-based compensation associated
with the accelerated vesting of restricted stock in the second
quarter of 2008, noted above, as well as other expenses
necessary to grow the Company, partially offset by equity-based
compensation associated with the accelerated vesting of
restricted stock in the first and third quarters of 2007.
Consolidated operating income was $432.7 million or 17.1%
of sales for 2008, an increase of $46.1 million or 11.9%
when compared with $386.6 million or 18.1% of sales in 2007.
Interest expense was $63.7 million for 2008, an increase of
$16.8 million or 35.8% when compared with
$46.9 million in 2007. The increase was due to the impact
of the funding of the private placement senior notes in the
fourth quarter of 2007 and the third and fourth quarters of
2008, higher average borrowings to fund the recent acquisitions
and the repurchase of 1.3 million shares of the
Companys common stock in 2008.
The effective tax rate for 2008 was 32.6% compared with 32.2% in
2007. The higher effective tax rate for 2008 primarily reflects
an increase in state and foreign income taxes and the impact of
accelerated vesting of non-deductible restricted stock
amortization, offset by the impact of settlements of various
income tax issues with U.S. taxing authorities and a
favorable agreement in the United Kingdom related to deductible
interest expense for which previously unrecognized tax benefits
were recognized. The lower effective tax rate in 2007 primarily
reflects an enacted decrease in certain foreign corporate tax
rates in the second half of 2007, partially offset by the
elimination of the Foreign Sales Corporation/Extraterritorial
Income (FSC/ETI) tax benefit. See Note 11 of
the notes to consolidated financial statements included in this
Appendix for further details.
Net income for 2008 was $247.0 million, an increase of
$19.0 million or 8.3% when compared with
$228.0 million in 2007. Diluted earnings per share for 2008
was $2.30, an increase of $0.18 or 8.5% when compared with $2.12
per diluted share in 2007. Diluted earnings per share for 2008
includes the impact of the fourth quarter of 2008 restructuring
charges and asset write-downs, which negatively impacted
earnings by $0.25 per diluted share.
Segment
Results
EIGs sales totaled $1,402.7 million for 2008,
an increase of $202.9 million or 16.9% when compared with
$1,199.8 million in 2007. The sales increase was due to
internal growth of approximately 5%, excluding a favorable 1%
effect of foreign currency translation, driven primarily by
EIGs aerospace, power, and process and analytical
instrument businesses. The acquisitions of Advanced Industries,
Inc. (Advanced), B&S Aircraft Parts and
Accessories (B&S), Cameca, California
Instruments, Vision Research, Inc. and Xantrex Programmable
accounted for the remainder of the sales increase.
A-8
EIGs operating income was $306.8 million for 2008, an
increase of $46.5 million or 17.9% when compared with
$260.3 million in 2007. The increases in segment operating
income were due to the contribution from the higher sales by
EIGs aerospace, power and process and analytical
businesses, which includes the acquisitions mentioned above,
partially offset by the fourth quarter of 2008 restructuring
charges and asset write-downs of $20.4 million. EIGs
operating margins were 21.9% of sales for 2008 compared with
21.7% of sales in 2007. The increase in operating margins was
driven by operational excellence initiatives throughout the
group. The fourth quarter of 2008 restructuring charges and
asset write-downs had a negative impact on EIGs operating
margins of 140 basis points.
EMGs sales totaled $1,128.5 million for 2008,
an increase of $191.4 million or 20.4% from
$937.1 million in 2007. The sales increase was due to
internal growth of approximately 2%, excluding a favorable 1%
effect of foreign currency translation, driven primarily by
EMGs differentiated businesses. The acquisitions of Seacon
Phoenix, subsequently renamed AMETEK SCP, Inc.
(SCP), Hamilton Precision Metals
(Hamilton), Umeco R&O, Drake Air, MCG,
Reading Alloys and Muirhead accounted for the remainder of the
sales increase.
EMGs operating income was $175.2 million for 2008, an
increase of $8.0 million or 4.8% when compared with
$167.2 million in 2007. EMGs increase in operating
income was primarily due to higher sales from the groups
differentiated businesses, which include the acquisitions
mentioned above, partially offset by the fourth quarter of 2008
restructuring charges and asset write-downs of
$19.4 million. EMGs operating margins were 15.5% of
sales for 2008 compared with 17.8% of sales in 2007. The
decrease in operating margins was primarily driven by the fourth
quarter of 2008 restructuring charges and asset write-downs,
which had a negative impact on operating margins of
170 basis points. The remainder of the decrease was the
dilutive impact of recent acquisitions.
Fourth
Quarter Results
Net sales for the fourth quarter of 2008 were
$623.7 million, an increase of $40.4 million or 6.9%
when compared with net sales of $583.3 million for the
fourth quarter of 2007. Net sales for EIG were
$361.6 million in 2008, an increase of 7.6% from sales of
$336.1 million in 2007. Net sales for EMG were
$262.1 million in 2008, an increase of 6.1% from sales of
$247.1 million in 2007. The Companys internal sales
growth was approximately negative 2%, which excludes a 4%
unfavorable effect of foreign currency translation. The
acquisitions mentioned above made up the net sales increase.
The three months ended December 31, 2008 results include
pre-tax charges totaling $40.0 million, which had the
effect of reducing net income by $27.3 million ($0.25 per
diluted share). These charges include restructuring costs for
employee reductions and facility closures ($32.6 million),
as well as asset write-downs ($7.4 million). Of the
$40.0 million in charges, $32.9 million of the
restructuring charges and asset write-downs were recorded in
cost of sales and $7.1 million of the restructuring charges
and asset write-downs were recorded in SG&A expenses. The
restructuring charges and asset write-downs were reported in
segment operating income as follows: $20.4 million in EIG,
$19.4 million in EMG and $0.2 million in Corporate
administrative and other expenses. The restructuring costs for
employee reductions and facility closures relate to plans
established by the Company as part of cost reduction initiatives
to be broadly implemented across the Companys various
businesses during fiscal 2009. The restructuring costs include
the consolidation of manufacturing facilities, the migration of
production to low cost locales and a general reduction in
workforce in response to lower levels of expected sales volumes
in certain of the Companys businesses. The Company
recorded pre-tax charges of $30.1 million for severance
costs for slightly more than 10% of the Companys
workforce. The Company also recorded pre-tax charges of
$1.5 million for lease termination costs associated with
the closure of certain facilities in 2009. Substantially all of
the payments for employee severance and lease termination costs
are expected to be made in 2009.
Net income for the fourth quarter of 2008 was
$43.8 million, a decrease of $18.1 million or 29.2%
when compared with $61.9 million for the fourth quarter of
2007. Diluted earnings per share in the fourth quarter of 2008
was $0.41, a decrease of $0.16 or 28.1% when compared with $0.57
per diluted share in the fourth quarter of 2007. Diluted
earnings per share includes the impact of the fourth quarter of
2008 restructuring charges and asset write-downs, which
negatively impacted earnings by $0.25 per diluted share.
A-9
Year
Ended December 31, 2007 Compared with Year Ended
December 31, 2006
Results
of Operations
In 2007, the Company posted record sales, operating income, net
income, diluted earnings per share and cash flow from
operations. The Company achieved these results from strong
internal growth in both EIG and EMG, as well as contributions
from acquisitions in 2007 and 2006. Operating income increased,
driven by the record sales and a continued focus on cost
reduction programs under our Operational Excellence initiatives.
Net sales for 2007 were $2,136.9 million, an increase of
$317.6 million or 17.5% when compared with net sales of
$1,819.3 million in 2006. Net sales for EIG were
$1,199.8 million in 2007, an increase of 18.0% from sales
of $1,016.5 million in 2006. Net sales for EMG were
$937.1 million in 2007, an increase of 16.7% from sales of
$802.8 million in 2006. The Companys internal sales
growth was approximately 7% in 2007, which excludes a 2%
favorable effect of foreign currency translation, driven by
strength in its differentiated businesses. The acquisitions
mentioned above contributed the remainder of the net sales
increase.
Total international sales for 2007 were $1,053.7 million or
49.3% of consolidated net sales, an increase of
$187.7 million or 21.7% when compared with international
sales of $866.0 million or 47.6% of consolidated net sales
in 2006. The increase in international sales primarily resulted
from increased international sales from base businesses of
$74.9 million or 39.9% of the increase, which includes the
effect of foreign currency translation. The acquisitions of
Cameca, SCP, Hamilton and Umeco R&O in 2007 and Land
Instruments International Limited (Land
Instruments), PennEngineering Motion Technologies, Inc.
(Pittman), Precitech and Southern Aeroparts, Inc.
(SAI) in 2006 contributed the remainder of the
increase. Increased international sales came primarily from
sales to Europe by both reportable segments. Export shipments
from the United States, which are included in total
international sales, were $394.4 million in 2007, an
increase of $50.6 million or 14.7% compared with
$343.8 million in 2006. Export shipments improved primarily
due to increased exports from the base businesses and
acquisitions noted above.
New orders for 2007 were $2,288.3 million, an increase of
$372.9 million or 19.5% when compared with
$1,915.4 million in 2006. The increase in new orders was
driven by the Companys base differentiated businesses,
which contributed $167.2 million or 44.8% of the increase,
led by the Companys aerospace and engineered materials,
interconnects and packaging businesses. The acquisitions
mentioned above contributed the remainder of the increase. As a
result, the Companys backlog of unfilled orders at
December 31, 2007 was $688.2 million, an increase of
$151.4 million or 28.2% when compared with
$536.8 million at December 31, 2006. The increase in
backlog was due to higher order levels in base differentiated
businesses and the 2007 acquisitions noted above.
Segment operating income for 2007 was $427.5 million, an
increase of $84.1 million or 24.5% when compared with
segment operating income of $343.4 million in 2006. Segment
operating income, as a percentage of sales, increased to 20.0%
for 2007 from 18.9% in 2006. The increase in segment operating
income resulted from strength in the differentiated businesses
of each group, which includes the profit contributions made by
the acquisitions. The margin improvement came from the
Companys differentiated businesses.
SG&A expenses for 2007 were $263.5 million, an
increase of $44.0 million or 20.1% when compared with
$219.5 million in 2006. As a percentage of sales, SG&A
expenses were higher in 2007 at 12.3% compared to 12.1% in 2006.
Selling expenses, as a percentage of sales, were 10.4% in 2007,
slightly higher than the 10.2% in 2006. The selling expense
increase and the corresponding increase in selling expenses as a
percentage of sales were due primarily to business acquisitions.
The Companys acquisition strategy generally is to acquire
differentiated businesses, which because of their distribution
channels and higher marketing costs tend to have a higher
content of selling expenses. Base business selling expenses
increased 9.7% for 2007, compared to 2006, which was in line
with internal sales growth including the impact of foreign
currency translation.
Corporate administrative expenses for 2007 were
$40.8 million, an increase of $6.6 million or 19.4%
when compared with $34.2 million in 2006. The increase in
corporate expenses was the result of higher compensation,
including equity-based compensation associated with accelerated
vesting of restricted stock grants in 2007 and other costs
necessary to grow the Company. As a percentage of sales,
corporate administrative expenses were 1.9% in both 2007 and
2006.
A-10
Consolidated operating income was $386.6 million or 18.1%
of sales for 2007, an increase of $77.6 million or 25.1%
when compared with $309.0 million or 17.0% of sales in 2006.
Interest expense was $46.9 million for 2007, an increase of
$4.7 million or 11.1% when compared with $42.2 million
in 2006. The increase was due to higher average borrowings to
fund the 2007 acquisitions, higher average interest rates and
the impact of the fourth quarter of 2007 funding of the private
placement senior notes.
The effective tax rate for 2007 was 32.2% compared with 31.0% in
2006. The 2007 effective tax rate primarily reflects the
elimination of the FSC/ETI tax benefit in 2007, an increase in
state income taxes and an increase in interest and penalties on
uncertain tax positions, partially offset by an enacted decrease
in certain foreign corporate tax rates in the second half of
2007 and the recognition of tax benefits from our international
tax planning initiatives. The 2006 effective tax rate benefited
primarily from the reversal of a valuation allowance for foreign
tax credit carryforwards of $3.2 million, offset somewhat
by higher nondeductible equity-based compensation.
Net income for 2007 was $228.0 million, an increase of
$46.1 million or 25.3% when compared with
$181.9 million in 2006. Diluted earnings per share for 2007
was $2.12, an increase of $0.41 or 24.0% when compared with
$1.71 per diluted share in 2006.
Segment
Results
EIGs sales totaled $1,199.8 million for 2007,
an increase of $183.3 million or 18.0% when compared with
$1,016.5 million in 2006. The sales increase was due to
internal growth of approximately 9%, excluding a favorable 2%
effect of foreign currency translation. The internal growth was
driven by sales increases in EIGs process and analytical,
aerospace and power businesses. The acquisitions of Cameca, Land
Instruments, Precitech, Advanced and B&S accounted for the
remainder of the sales increase.
EIGs operating income was $260.3 million for 2007, an
increase of $56.9 million or 28.0% when compared with
$203.4 million in 2006. EIGs operating margins were
21.7% of sales for 2007 compared with 20.0% of sales in 2006.
The increase in operating income and margins came from the
groups base differentiated businesses, which include the
acquisitions mentioned above.
EMGs sales totaled $937.1 million for 2007, an
increase of $134.3 million or 16.7% from
$802.8 million in 2006. The sales increase was due to
internal growth of approximately 6%, excluding a favorable 2%
effect of foreign currency translation, driven primarily by
EMGs differentiated businesses. The acquisitions of
Pittman, SAI, SCP, Umeco R&O and Hamilton accounted for the
remainder of the sales increase.
EMGs operating income was $167.2 million for 2007, an
increase of $27.3 million or 19.5% when compared with
$139.9 million in 2006. EMGs increase in operating
income was due to strength in the groups differentiated
businesses, which includes the acquisitions mentioned above.
EMGs operating margins were 17.8% of sales for 2007
compared with 17.4% of sales in 2006. The increase in operating
margins was primarily due to an increased contribution from the
groups differentiated businesses.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$247.3 million in 2008, a decrease of $31.2 million or
11.2% when compared with $278.5 million in 2007. The
decrease in operating cash flow was primarily the result of
higher defined benefit pension plan contributions of
$79.9 million in 2008, a $74.7 million increase over
the $5.2 million contributed in 2007. The 2008
contributions had the effect of eliminating or significantly
reducing the amount of unfunded pension obligations associated
with the Companys pension plans. Also impacting operating
cash flow are higher overall operating working capital levels
necessary to grow the Company, partially offset by higher
earnings. Free cash flow (operating cash flow less capital
spending) was $203.1 million in 2008, compared to
$240.9 million in 2007. EBITDA (earnings before interest,
income taxes, depreciation and amortization) was
$489.4 million in 2008, which includes the fourth quarter
of 2008 pre-tax restructuring charges and asset write-downs of
$40.0 million, compared with $433.9 million in 2007, a
12.8% improvement. Free cash flow and EBITDA are presented
because the Company is aware that they are measures used by
third parties in evaluating the Company. (See tables on page A-4
for a reconciliation of U.S. generally accepted accounting
principles (GAAP) measures to comparable non-GAAP
measures).
A-11
Cash used for investing activities totaled $496.6 million
in 2008, compared with $334.7 million in 2007. In 2008, the
Company paid $463.0 million for six business acquisitions
and one technology line acquisition, net of cash received,
compared with $300.6 million paid for seven business
acquisitions and one technology line, net of cash received in
2007. Additions to property, plant and equipment totaled
$44.2 million in 2008, compared with $37.6 million in
2007.
Cash provided by financing activities totaled
$173.5 million in 2008, compared with $174.1 million
in 2007. In 2008, net total borrowings increased by
$266.9 million, compared with a net total increase of
$180.9 million in 2007. Short-term borrowings increased
$69.7 million in 2008, compared with a decrease of
$162.6 million in 2007. Long-term borrowings increased
$197.2 million in 2008, compared to an increase of
$343.4 million in 2007.
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using the proceeds from
borrowings under its existing revolving credit facility.
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of 6.59% senior notes due
September 2015 and $160 million in aggregate principal
amount of 7.08% senior notes due September 2018. The second
funding date occurred in December 2008 for $100 million,
consisting of $35 million in aggregate principal amount of
6.69% senior notes due December 2015 and $65 million
in aggregate principal amount of 7.18% senior notes due
December 2018. The senior notes carry a weighted average
interest rate of 6.93%. The senior notes are subject to certain
customary covenants, including financial covenants that, among
other things, require the Company to maintain certain
debt-to-EBITDA and interest coverage ratios. The proceeds from
the senior notes were used to pay down a portion of the
borrowings outstanding under the Companys revolving credit
facility.
In May 2008, the accounts receivable securitization facility was
amended and restated, extending the expiration date from May
2008 to May 2009, and bringing the borrowing capacity to
$100 million from $110 million previously. There were
no borrowings under this facility at December 31, 2008.
In the third quarter of 2007, the Company completed a private
placement agreement to sell $450 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in December
2007 for $370 million, consisting of $270 million in
aggregate principal amount of 6.20% senior notes due
December 2017 and $100 million in aggregate principal
amount of 6.30% senior notes due December 2019. The second
funding occurred in July 2008 for $80 million in aggregate
principal amount of 6.35% senior notes due July 2018. The
notes carry a weighted average interest rate of 6.25%. The
proceeds from the first funding of the notes were used to pay
down borrowings outstanding under the Companys revolving
credit facility, which included a foreign portion related to the
2007 acquisition of Cameca and the 2006 acquisition of Land
Instruments, as well as borrowings outstanding under the
Companys accounts receivable securitization program.
Additionally, the proceeds from the private placement were used
to purchase California Instruments in December 2007. The
proceeds from the second funding of the notes were used to pay
down a portion of the borrowings outstanding under the
Companys revolving credit facility.
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012. At December 31, 2008, the
Company had $468.9 million available under its revolving
credit facility, including the $100 million accordion
feature.
At December 31, 2008, total debt outstanding was
$1,111.7 million, compared with $903.0 million at
December 31, 2007. The debt-to-capital ratio was 46.3% at
December 31, 2008, compared with 42.1% at December 31,
2007. The net debt-to-capital ratio (total debt less cash and
cash equivalents divided by the sum of net debt and
stockholders equity) was 44.3% at December 31, 2008,
compared with 37.1% at December 31, 2007. The net
debt-to-capital ratio is presented because the Company is aware
that this measure is used by third
A-12
parties in evaluating the Company. (See table on page A-4 for a
reconciliation of U.S. GAAP measures to comparable non-GAAP
measures).
Additional financing activities for 2008 include the receipt of
net cash proceeds from the exercise of employee stock options of
$7.5 million compared with $17.2 million in 2007. Cash
dividends paid were $25.7 million in both 2008 and 2007. In
2008, the Company repaid $21.4 million in life insurance
policy loans.
Repurchases of 1.3 million shares of the Companys
common stock in 2008 totaled $57.4 million, compared with a
total of $5.4 million paid for approximately
144,000 shares repurchased in 2007. On January 24,
2008, the Board of Directors approved an increase of
$50 million in the authorization for the repurchase of the
Companys common stock, adding to the $25.9 million
that remained available at December 31, 2007 from an
existing $50 million authorization approved in March 2003
for a total of $75.9 million. On July 23, 2008, the
Board of Directors approved another increase of $50 million
in the authorization for the repurchase of the Companys
common stock, adding to the $18.5 million that remained
available at June 30, 2008 from the existing
$50 million authorization approved in January 2008 for a
total of $68.5 million. At December 31, 2008,
$68.5 million was available under the current Board
authorization for future share repurchases.
The following table summarizes AMETEKs contractual cash
obligations and the effect such obligations are expected to have
on the Companys liquidity and cash flows in future years
at December 31, 2008.
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|
|
|
|
|
|
|
|
|
|
Payments Due
|
|
|
|
|
|
|
Less
|
|
|
One to
|
|
|
Four to
|
|
|
After
|
|
|
|
|
|
|
Than
|
|
|
Three
|
|
|
Five
|
|
|
Five
|
|
Contractual Obligations(4)
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In millions)
|
|
|
Long-term debt(1)
|
|
$
|
1,017.6
|
|
|
$
|
1.1
|
|
|
$
|
88.3
|
|
|
$
|
|
|
|
$
|
928.2
|
|
Revolving credit loans
|
|
|
65.6
|
|
|
|
7.2
|
|
|
|
|
|
|
|
58.4
|
|
|
|
|
|
Capital lease(2)
|
|
|
14.5
|
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
10.0
|
|
Other indebtedness
|
|
|
14.0
|
|
|
|
9.2
|
|
|
|
1.2
|
|
|
|
3.0
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,111.7
|
|
|
|
18.4
|
|
|
|
91.3
|
|
|
|
63.2
|
|
|
|
938.8
|
|
Interest on long-term fixed-rate debt
|
|
|
539.4
|
|
|
|
63.9
|
|
|
|
122.0
|
|
|
|
118.6
|
|
|
|
234.9
|
|
Noncancellable operating leases
|
|
|
74.1
|
|
|
|
15.3
|
|
|
|
19.9
|
|
|
|
11.3
|
|
|
|
27.6
|
|
Purchase obligations(3)
|
|
|
219.9
|
|
|
|
199.7
|
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
Employee severance and other
|
|
|
46.9
|
|
|
|
46.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,992.0
|
|
|
$
|
344.2
|
|
|
$
|
253.4
|
|
|
$
|
193.1
|
|
|
$
|
1,201.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the $450 million private placement completed in
2007 and the $350 million private placement completed in
2008. |
|
(2) |
|
Represents a capital lease for a building and land associated
with the Cameca acquisition. The lease has a term of twelve
years, which began July 2006, and is payable quarterly. |
|
(3) |
|
Purchase obligations primarily consist of contractual
commitments to purchase certain inventories at fixed prices. |
|
(4) |
|
The liability for uncertain tax positions was not included in
the table of contractual obligations as of December 31,
2008 because the timing of the settlements of these uncertain
tax positions cannot be reasonably estimated at this time. See
Note 11 to the consolidated financial statements for
further details. |
Other
Commitments
The Company has standby letters of credit and surety bonds of
$16.4 million related to performance and payment guarantees
at December 31, 2008. Based on experience with these
arrangements, the Company believes that any obligations that may
arise will not be material to its financial position.
The Company may, from time to time, repurchase its long-term
debt in privately negotiated transactions, depending upon
availability, market conditions and other factors.
A-13
As a result of all of the Companys cash flow activities in
2008, cash and cash equivalents at December 31, 2008
totaled $87.0 million, compared with $170.1 million at
December 31, 2007. The Companys liquidity has not
been impacted by the recent financial crisis nor do we expect
liquidity to be impacted in the near future. Additionally, the
Company is in compliance with all of its debt covenants, which
includes its financial covenants, for all of its debt
agreements. The Company believes it has sufficient
cash-generating capabilities from domestic and unrestricted
foreign sources, available credit facilities and access to
long-term capital funds to enable it to meet its operating needs
and contractual obligations in the foreseeable future.
Critical
Accounting Policies
The Company has identified its critical accounting policies as
those accounting policies that can have a significant impact on
the presentation of the Companys financial condition and
results of operations and that require the use of complex and
subjective estimates based upon past experience and
managements judgment. Because of the uncertainty inherent
in such estimates, actual results may differ materially from the
estimates used. The consolidated financial statements and
related notes contain information that is pertinent to the
Companys accounting policies and to managements
discussion and analysis. The information that follows represents
additional specific disclosures about the Companys
accounting policies regarding risks, estimates, subjective
decisions or assessments whereby materially different results of
operations and financial condition could have been reported had
different assumptions been used or different conditions existed.
Primary disclosure of the Companys significant accounting
policies is in Note 1 to the consolidated financial
statements.
|
|
|
|
|
Revenue Recognition. The Company recognizes
revenue on product sales in the period when the sales process is
complete. This generally occurs when products are shipped to the
customer in accordance with terms of an agreement of sale, under
which title and risk of loss have been transferred,
collectibility is reasonably assured and pricing is fixed or
determinable. For a small percentage of sales where title and
risk of loss passes at point of delivery, the Company recognizes
revenue upon delivery to the customer, assuming all other
criteria for revenue recognition are met. The policy with
respect to sales returns and allowances generally provides that
the customer may not return products or be given allowances,
except at the Companys option. The Company has agreements
with distributors that do not provide expanded rights of return
for unsold products. The distributor purchases the product from
the Company, at which time title and risk of loss transfers to
the distributor. The Company does not offer substantial sales
incentives and credits to its distributors other than volume
discounts. The Company accounts for the sales incentive as a
reduction of revenues when the sale is recognized. Accruals for
sales returns, other allowances and estimated warranty costs are
provided at the time revenue is recognized based upon past
experience. At December 31, 2008, 2007 and 2006, the
accrual for future warranty obligations was $16.1 million,
$14.4 million and $10.9 million, respectively. The
Companys expense for warranty obligations was
$12.2 million, $11.3 million and $7.6 million in
2008, 2007 and 2006, respectively. 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. If actual future sales returns and
allowances and warranty amounts are higher than past experience,
additional accruals may be required.
|
|
|
|
Accounts Receivable. The Company maintains
allowances for estimated losses resulting from the inability of
specific customers to meet their financial obligations to the
Company. A specific reserve for bad debts is recorded against
the amount due from these customers. For all other customers,
the Company recognizes reserves for bad debts based on the
length of time specific receivables are past due based on its
historical experience. If the financial condition of the
Companys customers were to deteriorate, resulting in their
inability to make payments, additional allowances may be
required. The allowance for possible losses on receivables was
$8.5 million and $6.4 million at December 31,
2008 and 2007, respectively.
|
|
|
|
Inventories. The Company uses the
first-in,
first-out (FIFO) method of accounting, which
approximates current replacement cost, for approximately 62% of
its inventories at December 31, 2008. The
last-in,
first-out (LIFO) method of accounting is used to
determine cost for the remaining 38% of its inventory at
December 31, 2008. For inventories where cost is determined
by the LIFO method, the FIFO value would have been
$30.8 million and $35.6 million higher than the LIFO
value reported in the consolidated balance
|
A-14
|
|
|
|
|
sheet at December 31, 2008 and 2007, respectively. The
Company provides estimated inventory reserves for slow-moving
and obsolete inventory based on current assessments about future
demand, market conditions, customers who may be experiencing
financial difficulties and related management initiatives. If
these factors are less favorable than those projected by
management, additional inventory reserves may be required.
|
|
|
|
|
|
Goodwill and Other Intangibles Assets. The
Company accounts for goodwill and other intangible assets under
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142). Under SFAS 142, purchased
goodwill and other intangible assets with indefinite lives,
primarily trademarks and trade names, are not amortized; rather,
they are tested for impairment at least annually. These
impairment tests include the projection and discounting of cash
flows, estimates of future operating performance of the
reporting unit being valued and estimates of the fair value of
the intangible assets being tested. SFAS 142 requires a
two-step impairment test for goodwill. The first step is to
compare the carrying amount of the reporting units net
assets to the fair value of the reporting unit. If the fair
value exceeds the carrying value, no further evaluation is
required and no impairment loss is recognized. If the carrying
amount exceeds the fair value, then the second step must be
completed, which involves allocating the fair value of the
reporting unit to each asset and liability, with the excess
being implied goodwill. An impairment loss occurs if the amount
of the recorded goodwill exceeds the implied goodwill. The
Company would be required to record such impairment losses.
Indefinite-lived intangibles other than goodwill are tested by
estimating the fair values of those assets as of the
Companys measurement date, with such fair values based on
expected future operating performance and discount rates
determined by management. Changes in interest rates and market
conditions, among other factors, may have an impact on these
estimates. These estimates will likely change over time. The
Companys acquisitions have generally included a large
goodwill component and the Company expects to continue to make
acquisitions. At December 31, 2008, goodwill and other
indefinite-lived intangible assets totaled
$1,681.8 million, or 55.0% of the Companys total
assets. The Company performed its required annual impairment
test in the fourth quarter of 2008 and determined that the
Companys goodwill and indefinite-lived intangibles were
not impaired. There can be no assurance that goodwill or
indefinite-lived intangibles impairment will not occur in the
future.
|
|
|
|
Pensions. The Company has U.S. and
foreign defined benefit and defined contribution pension plans.
The Company accounts for all of its defined benefit pension
plans in accordance with SFAS No. 87,
Employers Accounting for Pensions
(SFAS 87) and SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of Financial Accounting
Standards Board (FASB) Statements No. 87, 88,
106, and 132(R) (SFAS 158) for balance
sheet recognition of the overfunded or underfunded status of
pension and postretirement benefit plans, as well as the income
statement recognition of the costs related to these plans.
SFAS 87 and SFAS 158 require that amounts recognized
in the financial statements be determined on an actuarial basis.
The most significant elements in determining the Companys
pension income or expense are the assumed pension liability
discount rate and the expected return on plan assets. The
pension discount rate reflects the current interest rate at
which the pension liabilities could be settled at the valuation
date. At the end of each year, the Company determines the
assumed discount rate to be used to discount plan liabilities.
In estimating this rate for 2008, the Company considered rates
of return on high-quality, fixed-income investments. The
discount rate used in determining the 2008 pension cost was
6.25% for U.S. defined benefit pension plans and 5.89% for
foreign plans. The discount rate used for determining the funded
status of the plans at December 31, 2008 and determining
the 2009 defined benefit pension cost is 6.50% for
U.S. plans and 6.09% for foreign plans. In estimating the
U.S. and foreign discount rates, the Companys
actuaries developed a customized discount rate appropriate to
the plans projected benefit cash flow based on yields
derived from a database of long-term bonds at consistent
maturity dates. The Company used an expected long-term rate of
return on plan assets for 2008 of 8.25% for U.S. defined
benefit pension plans and 7.0% for foreign plans. The Company
will continue to use these rates for 2009 for the U.S. and
foreign plans, respectively. The Company determines the expected
long-term rate of return based primarily on its expectation of
future returns for the pension plans investments.
Additionally, the Company considers historical returns on
comparable fixed-income investments and equity investments and
adjusts its estimate as deemed appropriate. The rate of
compensation increase used in
|
A-15
|
|
|
|
|
determining the 2008 pension expense for the U.S. plans was
3.75% and will remain unchanged in 2009. For foreign plans, the
rate of compensation increase will be decreased from 3.86% in
2008 to 2.98% in 2009. For the year ended December 31,
2008, the Company recognized consolidated pre-tax pension income
of $6.8 million from its U.S. and foreign defined
benefit pension plans as compared with pre-tax pension income of
$3.8 million recognized for these plans in 2007. The
Company estimates its 2009 U.S. and foreign defined benefit
pension plans pre-tax expense to be $15.4 million.
|
The Company follows the balance sheet recognition requirements
of SFAS 158. Under SFAS 158, all unrecognized prior
service costs, remaining transition obligations or assets and
actuarial gains and losses have been recognized, net of tax
effects, as a charge to accumulated other comprehensive income
(AOCI) in stockholders equity and will be
amortized as a component of net periodic pension cost. In
addition, effective for fiscal years beginning after
December 15, 2008, the measurement date (the date at which
plan assets and benefit obligation are measured) is required to
be the Companys fiscal year end. The Company uses a
December 31 measurement date for its U.S. and foreign
defined benefit plans as required by SFAS 158.
To fund the plans, the Company made cash contributions to its
defined benefit pension plans during 2008 which totaled
$79.9 million, compared with $5.2 million in 2007. The
Company anticipates making approximately $19 million to
$24 million in cash contributions to its defined benefit
pension plans in 2009.
|
|
|
|
|
Income Taxes. The process of providing for
income taxes and determining the related balance sheet accounts
requires management to assess uncertainties, make judgments
regarding outcomes and utilize estimates. The Company conducts a
broad range of operations around the world and is therefore
subject to complex tax regulations in numerous international
taxing jurisdictions, resulting at times in tax audits, disputes
and potential litigation, the outcome of which is uncertain.
Management must make judgments currently about such
uncertainties and determine estimates of the Companys tax
assets and liabilities. To the extent the final outcome differs,
future adjustments to the Companys tax assets and
liabilities may be necessary.
|
The Company assesses the realizability of its deferred tax
assets, taking into consideration the Companys forecast of
future taxable income, available net operating loss
carryforwards and available tax planning strategies that could
be implemented to realize the deferred tax assets. Based on this
assessment, management must evaluate the need for, and the
amount of, valuation allowances against the Companys
deferred tax assets. To the extent facts and circumstances
change in the future, adjustments to the valuation allowances
may be required.
Effective January 1, 2007, the Company adopted the
provisions of FIN 48, Accounting for Uncertainty in
Income Taxes. In accordance with FIN 48, the Company is
required to assess the uncertainty in its tax positions, by
applying a minimum recognition threshold a tax position is
required to meet before a tax benefit is recognized in the
financial statements. Once the minimum threshold is met, using a
more likely than not standard, a series of probability estimates
is made for each item to properly measure and record a tax
benefit. The tax benefit recorded is generally equal to the
highest probable outcome that is more than 50% likely to be
realized after full disclosure and resolution of a tax
examination. The underlying probabilities are determined based
on the best available objective evidence such as recent tax
audit outcomes, published guidance, external expert opinion, or
by analogy to the outcome of similar issues in the past. There
can be no assurance that these estimates will ultimately be
realized given continuous changes in tax policy, legislation and
audit practice.
As a result of the adoption of Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48), the Company recorded a
$4.7 million increase in liabilities associated with
unrecognized tax benefits, including interest and penalties of
$2.4 million, a decrease of $1.2 million in goodwill
related to a previous business combination and a
$5.9 million charge to the January 1, 2007 opening
balance of retained earnings. The Company recognizes interest
and penalties accrued related to uncertain tax positions in
income tax expense.
A-16
Recently
Issued Financial Accounting Standards
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS 157). In February 2008, the FASB
issued FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, which
provides a one year deferral of the effective date of
SFAS 157 for fair value measurements of nonfinancial assets
and nonfinancial liabilities, except for items recognized or
disclosed at fair value on a non-recurring basis (at least
annually). The deferral applies to fair value in goodwill
impairment testing, indefinite-lived intangible assets measured
at fair value for impairment testing, asset retirement
obligations initially measured at fair value, and nonfinancial
assets and nonfinancial liabilities initially measured at fair
value in a business combination. Therefore, the Company has
adopted the provisions of SFAS 157 with respect to its
financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value
under U.S. GAAP and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 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.
SFAS 157 establishes a valuation hierarchy for disclosure
of the inputs to the valuation 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.
At December 31, 2008, $0.3 million of the
Companys cash and cash equivalents and $4.2 million
of marketable securities are valued as level 1 investments.
The Company held $8.5 million valued as level 2
investments in the investments and other assets line of the
consolidated balance sheet. For the year ended December 31,
2008, gains and losses on the investments noted above were not
material.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141R). This
statement significantly changes the financial accounting and
reporting of business combination transactions in the
Companys consolidated financial statements. SFAS 141R
is effective for fiscal years beginning after December 15,
2008 and prohibits early adoption. Upon adoption, SFAS 141R
will not have a significant impact on the Companys
consolidated results of operations, financial position or cash
flows. However, depending on the nature of an acquisition or the
quantity of acquisitions entered into after the adoption,
SFAS 141R may significantly impact the Companys
consolidated results of operations, financial position or cash
flows when compared to acquisitions accounted for under existing
U.S. GAAP and result in more earnings volatility and
generally lower earnings due to, among other items, the
expensing of deal costs and restructuring costs of acquired
companies.
In November 2008, the FASB ratified the consensus reached in
Emerging Issues Task Force (EITF) Issue
No. 08-7,
Accounting for Defensive Intangible Assets
(EITF 08-7).
EITF 08-7
clarifies how to account for acquired defensive intangible
assets subsequent to initial measurement under SFAS 141R
that the Company does not intend to actively use but does intend
to hold to prevent others from obtaining access to the asset.
EITF 08-7
is effective for fiscal years beginning after December 15,
2008, along with SFAS 141R. The Company has evaluated
EITF 08-7
and does not expect the adoption of
EITF 08-7
to have a material impact on its consolidated results of
operations, financial position or cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 significantly
changes the accounting for and reporting of noncontrolling
(minority) interests in the Companys consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning after December 15, 2008 and prohibits early
adoption. The Company does not expect the adoption of
SFAS 160 to have an impact on its consolidated results of
operations, financial position or cash flows.
In April 2008, the FASB issued FASB Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
A-17
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. FSP
FAS 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS 141R, and other U.S. GAAP. FSP
FAS 142-3
applies to all intangible assets and is effective for financial
statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. The Company has evaluated FSP
FAS 142-3
and does not expect the adoption of FSP
FAS 142-3
to have a material impact on its consolidated results of
operations, financial position or cash flows.
Internal
Reinvestment
Capital
Expenditures
Capital expenditures were $44.2 million or 1.7% of sales in
2008, compared with $37.6 million or 1.8% of sales in 2007.
54% of the expenditures in 2008 were for improvements to
existing equipment or additional equipment to increase
productivity and expand capacity. The Companys 2008
capital expenditures increased due to a continuing emphasis on
spending to improve productivity and expand manufacturing
capabilities. The 2009 capital expenditures are expected to
approximate 2.0% of sales, with a continued emphasis on spending
to improve productivity.
Product
Development and Engineering
The Company is committed to research, product development and
engineering activities that are designed to identify and develop
potential new and improved products or enhance existing
products. Research, product development and engineering costs
before customer reimbursement were $115.9 million,
$102.9 million and $87.6 million in 2008, 2007 and
2006, respectively. Customer reimbursements in 2008, 2007 and
2006 were $6.1 million, $7.1 million and
$6.4 million, respectively. These amounts included net
Company-funded research and development expenses of
$57.5 million, $52.9 million and $42.0 million,
respectively. All such expenditures were directed toward the
development of new products and processes and the improvement of
existing products and processes.
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. While these
waste products were handled in compliance with regulations
existing at that time, at December 31, 2008, the Company is
named a Potentially Responsible Party (PRP) at 16
non-AMETEK-owned
former waste disposal or treatment sites (the
non-owned sites). The Company is identified as a
de minimis party in 14 of these sites based on the
low volume of waste attributed to the Company relative to the
amounts attributed to other named PRPs. In 10 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. In the two remaining sites 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 established sufficient to satisfy the Companys
expected obligation. 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
A-18
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 December 31, 2008 and 2007
were $28.4 million and $25.3 million, respectively,
for non-owned and owned sites. In 2008, the Company provided
$7.3 million of additional reserves, including
$5.6 million for existing sites and $1.7 million
related to recent acquisitions. Additionally, the Company spent
$4.2 million on environmental matters in 2008. The
Companys reserves for environmental liabilities at
December 31, 2008 and 2007 include reserves of
$17.9 million and $18.0 million, respectively, for an
owned site acquired in connection with the fiscal 2005
acquisition of HCC Industries (HCC). The Company is
solely liable for the performance of remedial activities for one
of several operating units making up a large 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 December 31, 2008, the Company has
$12.4 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 up to
$19.0 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; however, one of these companies filed for
bankruptcy liquidation in 2007, as discussed further in the
following paragraph.
In October 2008, the Company received a Notice of Administrative
Civil Liability from the San Diego Regional Water Quality
Control Board seeking certain penalties. The Notice claims that
a former subsidiary of AMETEK, which became a separate company
in 1988 and filed for bankruptcy liquidation in 2007, failed to
adequately produce a delineation report and feasibility study
within specified time frames. We believe we have good and valid
defenses to this claim and intend to vigorously defend
against it.
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 financial
position, results of operations or cash flows of the Company.
Market
Risk
The Companys primary exposures to market risk are
fluctuations in interest rates, foreign currency exchange rates
and commodity prices, which could impact its results of
operations and financial condition. The Company addresses its
exposure to these risks through its normal operating and
financing activities. The Companys differentiated and
global business activities help to reduce the impact that any
particular market risk may have on its operating earnings as a
whole.
The Companys short-term debt carries variable interest
rates and generally its long-term debt carries fixed rates.
These financial instruments are more fully described in the
notes to the consolidated financial statements.
The foreign currencies to which the Company has the most
significant exchange rate exposure are the Euro, the British
pound, the Japanese yen, the Chinese renminbi and the Mexican
peso. Exposure to foreign currency rate fluctuation is
monitored, and when possible, mitigated through the occasional
use of local borrowings and derivative financial instruments in
the foreign country affected. The effect of translating foreign
subsidiaries balance sheets into U.S. dollars is
included in other comprehensive income within stockholders
equity. Foreign currency transactions have not had a significant
effect on the operating results reported by the Company because
revenues and costs associated with the revenues are generally
transacted in the same foreign currencies.
The primary commodities to which the Company has market exposure
are raw material purchases of nickel, aluminum, copper, steel,
titanium and gold. Exposure to price changes in these
commodities is generally mitigated
A-19
through adjustments in selling prices of the ultimate product
and purchase order pricing arrangements, although forward
contracts are sometimes used to manage some of those exposures.
Based on a hypothetical ten percent adverse movement in interest
rates, commodity prices or foreign currency exchange rates, the
Companys best estimate is that the potential losses in
future earnings, fair value of risk-sensitive financial
instruments and cash flows are not material, although the actual
effects may differ materially from the hypothetical analysis.
Forward-Looking
Information
Certain matters discussed in this Appendix are
forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 (PSLRA),
which involve risk and uncertainties that exist in the
Companys operations and business environment and can be
affected by inaccurate assumptions, or by known or unknown risks
and uncertainties. Many such factors will be important in
determining the Companys actual future results. The
Company wishes to take advantage of the safe harbor
provisions of the PSLRA by cautioning readers that numerous
important factors, in some cases have caused, and in the future
could cause, the Companys actual results to differ
materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Additional
information concerning risk and other factors that could have a
material adverse effect on our business, or cause actual results
to differ from projections is contained in the Companys
Form 10-K
for the year ended December 31, 2008, filed with the
Securities and Exchange Commission. The Company undertakes no
obligation to publicly update any forward-looking statements,
whether as a result of new information, subsequent events or
otherwise, unless required by the securities laws to do so.
A-20
Managements
Responsibility for Financial Statements
Management has prepared and is responsible for the integrity of
the consolidated financial statements and related information.
The statements are prepared in conformity with
U.S. generally accepted accounting principles consistently
applied and include certain amounts based on managements
best estimates and judgments. Historical financial information
elsewhere in this report is consistent with that in the
financial statements.
In meeting its responsibility for the reliability of the
financial information, management maintains a system of internal
accounting and disclosure controls, including an internal audit
program. The system of controls provides for appropriate
division of responsibility and the application of written
policies and procedures. That system, which undergoes continual
reevaluation, is designed to provide reasonable assurance that
assets are safeguarded and records are adequate for the
preparation of reliable financial data.
Management is responsible for establishing and maintaining
adequate controls over financial reporting. We maintain a system
of internal controls that is designed to provide reasonable
assurance as to the fair and reliable preparation and
presentation of the consolidated financial statements; however,
there are inherent limitations in the effectiveness of any
system of internal controls.
Management recognizes its responsibility for conducting the
Companys activities according to the highest standards of
personal and corporate conduct. That responsibility is
characterized and reflected in a code of business conduct for
all employees, and in a financial code of ethics for the Chief
Executive Officer and Senior Financial Officers, as well as in
other key policy statements publicized throughout the Company.
The Audit Committee of the Board of Directors, which is composed
solely of independent directors who are not employees of the
Company, meets with the independent registered public accounting
firm, the internal auditors and management to satisfy itself
that each is properly discharging its responsibilities. The
report of the Audit Committee is included in the Proxy Statement
of the Company for its 2009 Annual Meeting. Both the independent
registered public accounting firm and the internal auditors have
direct access to the Audit Committee.
The Companys independent registered public accounting
firm, Ernst & Young LLP, is engaged to render an
opinion as to whether managements financial statements
present fairly, in all material respects, the Companys
financial position and operating results. This report is
included on page A-23.
Managements
Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in the Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 based on the
framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that
evaluation, our management concluded that the Companys
internal control over financial reporting was effective as of
December 31, 2008.
The Companys internal control over financial reporting as
of December 31, 2008 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which appears on page A-22.
|
|
|
|
|
|
Frank S. Hermance
|
|
John J. Molinelli
|
Chairman and Chief Executive Officer
|
|
Executive Vice President Chief Financial Officer
|
|
|
|
February 25, 2009
|
|
|
A-21
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders of AMETEK, Inc.:
We have audited AMETEK, Inc.s internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). AMETEK, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, AMETEK, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of AMETEK, Inc. as of
December 31, 2008 and 2007, and the related consolidated
statements of income, cash flows, and stockholders equity
for each of the three years in the period ended
December 31, 2008, and our report dated February 25,
2009 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 25, 2009
A-22
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of AMETEK, Inc.:
We have audited the accompanying consolidated balance sheets of
AMETEK, Inc. as of December 31, 2008 and 2007, and the
related consolidated statements of income, cash flows, and
stockholders equity for each of the three years in the
period ended December 31, 2008. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AMETEK, Inc. at December 31, 2008 and
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles.
As discussed in Notes 1 and 11, the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, effective January 1, 2007. Also, as
discussed in Note 12, the Company adopted in 2006 the
balance sheet recognition and disclosure requirements and in
2008 the measurement date provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
AMETEK, Inc.s internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 25, 2009 expressed an
unqualified opinion thereon.
Philadelphia, Pennsylvania
February 25, 2009
A-23
AMETEK,
Inc.
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
2,531,135
|
|
|
$
|
2,136,850
|
|
|
$
|
1,819,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation
|
|
|
1,730,086
|
|
|
|
1,444,514
|
|
|
|
1,251,920
|
|
Selling, general and administrative
|
|
|
322,552
|
|
|
|
263,472
|
|
|
|
219,454
|
|
Depreciation
|
|
|
45,843
|
|
|
|
42,290
|
|
|
|
38,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,098,481
|
|
|
|
1,750,276
|
|
|
|
1,510,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
432,654
|
|
|
|
386,574
|
|
|
|
308,994
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(63,652
|
)
|
|
|
(46,866
|
)
|
|
|
(42,167
|
)
|
Other, net
|
|
|
(2,786
|
)
|
|
|
(3,264
|
)
|
|
|
(3,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
366,216
|
|
|
|
336,444
|
|
|
|
263,686
|
|
Provision for income taxes
|
|
|
119,264
|
|
|
|
108,424
|
|
|
|
81,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
246,952
|
|
|
$
|
228,020
|
|
|
$
|
181,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.33
|
|
|
$
|
2.15
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.30
|
|
|
$
|
2.12
|
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
106,148
|
|
|
|
105,832
|
|
|
|
104,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
107,443
|
|
|
|
107,580
|
|
|
|
106,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-24
AMETEK,
Inc.
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,980
|
|
|
$
|
170,139
|
|
Marketable securities
|
|
|
4,230
|
|
|
|
10,842
|
|
Receivables, less allowance for possible losses
|
|
|
406,012
|
|
|
|
395,631
|
|
Inventories
|
|
|
349,509
|
|
|
|
301,679
|
|
Deferred income taxes
|
|
|
30,919
|
|
|
|
23,294
|
|
Other current assets
|
|
|
76,936
|
|
|
|
50,619
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
954,586
|
|
|
|
952,204
|
|
Property, plant and equipment, net
|
|
|
307,908
|
|
|
|
293,107
|
|
Goodwill
|
|
|
1,240,052
|
|
|
|
1,045,733
|
|
Other intangibles, net of accumulated amortization
|
|
|
441,785
|
|
|
|
312,349
|
|
Investments and other assets
|
|
|
111,211
|
|
|
|
142,307
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,055,542
|
|
|
$
|
2,745,700
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$
|
18,438
|
|
|
$
|
236,005
|
|
Accounts payable
|
|
|
203,742
|
|
|
|
206,170
|
|
Income taxes payable
|
|
|
31,649
|
|
|
|
28,437
|
|
Accrued liabilities
|
|
|
193,684
|
|
|
|
170,138
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
447,513
|
|
|
|
640,750
|
|
Long-term debt
|
|
|
1,093,243
|
|
|
|
666,953
|
|
Deferred income taxes
|
|
|
144,941
|
|
|
|
116,568
|
|
Other long-term liabilities
|
|
|
82,073
|
|
|
|
80,722
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,767,770
|
|
|
|
1,504,993
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; authorized:
5,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized:
400,000,000 shares;
|
|
|
|
|
|
|
|
|
issued: 2008 110,188,937 shares;
2007 109,749,985 shares
|
|
|
1,102
|
|
|
|
1,097
|
|
Capital in excess of par value
|
|
|
203,000
|
|
|
|
174,450
|
|
Retained earnings
|
|
|
1,320,470
|
|
|
|
1,099,111
|
|
Accumulated other comprehensive (loss) income
|
|
|
(144,767
|
)
|
|
|
5,370
|
|
Less: Treasury stock: 2008 3,461,541 shares;
2007 2,381,778 shares
|
|
|
(92,033
|
)
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,287,772
|
|
|
|
1,240,707
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,055,542
|
|
|
$
|
2,745,700
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-25
AMETEK,
Inc.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
Capital Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,097
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,075
|
|
Shares issued
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,102
|
|
|
|
|
|
|
|
1,097
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
174,450
|
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
107,086
|
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
3,474
|
|
|
|
|
|
|
|
15,455
|
|
|
|
|
|
|
|
9,768
|
|
Share-based compensation costs
|
|
|
|
|
|
|
20,186
|
|
|
|
|
|
|
|
15,530
|
|
|
|
|
|
|
|
12,441
|
|
Excess tax benefits from exercise of stock options
|
|
|
|
|
|
|
4,890
|
|
|
|
|
|
|
|
9,464
|
|
|
|
|
|
|
|
4,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
203,000
|
|
|
|
|
|
|
|
174,450
|
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,099,111
|
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
739,522
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,901
|
)
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
246,952
|
|
|
|
246,952
|
|
|
$
|
228,020
|
|
|
|
228,020
|
|
|
$
|
181,934
|
|
|
|
181,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
(25,685
|
)
|
|
|
|
|
|
|
(25,748
|
)
|
|
|
|
|
|
|
(18,832
|
)
|
Other
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
361
|
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,320,470
|
|
|
|
|
|
|
|
1,099,111
|
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
(17,838
|
)
|
Translation adjustments, net of tax of $-, $- and ($85) in 2008,
2007 and 2006, respectively
|
|
|
(46,784
|
)
|
|
|
|
|
|
|
6,056
|
|
|
|
|
|
|
|
8,542
|
|
|
|
|
|
(Loss) gain on net investment hedges, net of tax benefit
(expense) of $6,058, ($1,298) and ($1,374) in 2008, 2007 and
2006, respectively
|
|
|
(11,253
|
)
|
|
|
|
|
|
|
2,412
|
|
|
|
|
|
|
|
8,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,037
|
)
|
|
|
(58,037
|
)
|
|
|
8,468
|
|
|
|
8,468
|
|
|
|
16,701
|
|
|
|
16,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(50,706
|
)
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
(3,380
|
)
|
Adjustments during the year, net of tax of ($1,536)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,852
|
|
|
|
2,852
|
|
Change in pension plans, net of tax benefit (expense) of $56,344
and ($14,141) in 2008 and 2007
|
|
|
(90,320
|
)
|
|
|
(90,320
|
)
|
|
|
30,173
|
|
|
|
30,173
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS No. 158, net of tax of $17,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(93,360
|
)
|
|
|
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
302
|
|
(Decrease) increase during the year, net of tax benefit
(expense) of ($958), $151 and $430 in 2008, 2007 and 2006,
respectively
|
|
|
(1,780
|
)
|
|
|
(1,780
|
)
|
|
|
281
|
|
|
|
281
|
|
|
|
496
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(701
|
)
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income for the year
|
|
|
(150,137
|
)
|
|
|
|
|
|
|
38,922
|
|
|
|
|
|
|
|
20,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
$
|
96,815
|
|
|
|
|
|
|
$
|
266,942
|
|
|
|
|
|
|
$
|
201,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at the end of the
year
|
|
|
|
|
|
|
(144,767
|
)
|
|
|
|
|
|
|
5,370
|
|
|
|
|
|
|
|
(33,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
(17,247
|
)
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
4,732
|
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
1,081
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(57,444
|
)
|
|
|
|
|
|
|
(5,437
|
)
|
|
|
|
|
|
|
(21,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(92,033
|
)
|
|
|
|
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
|
|
|
$
|
1,287,772
|
|
|
|
|
|
|
$
|
1,240,707
|
|
|
|
|
|
|
$
|
966,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-26
AMETEK,
Inc.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
246,952
|
|
|
$
|
228,020
|
|
|
$
|
181,934
|
|
Adjustments to reconcile net income to total operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
63,261
|
|
|
|
52,665
|
|
|
|
45,929
|
|
Deferred income tax expense (benefit)
|
|
|
29,742
|
|
|
|
4,769
|
|
|
|
(524
|
)
|
Share-based compensation expense
|
|
|
20,186
|
|
|
|
15,530
|
|
|
|
12,441
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables
|
|
|
6,636
|
|
|
|
(26,944
|
)
|
|
|
(26,042
|
)
|
(Increase) decrease in inventories and other current assets
|
|
|
(35,180
|
)
|
|
|
194
|
|
|
|
(6,225
|
)
|
Increase in payables, accruals and income taxes
|
|
|
3,161
|
|
|
|
13,421
|
|
|
|
29,751
|
|
Decrease in other long-term liabilities
|
|
|
(1,907
|
)
|
|
|
(7,153
|
)
|
|
|
(1,819
|
)
|
Pension contribution
|
|
|
(79,905
|
)
|
|
|
(5,162
|
)
|
|
|
(13,721
|
)
|
Other
|
|
|
(5,681
|
)
|
|
|
3,183
|
|
|
|
4,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
247,265
|
|
|
|
278,523
|
|
|
|
225,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(44,215
|
)
|
|
|
(37,620
|
)
|
|
|
(29,156
|
)
|
Purchases of businesses, net of cash acquired
|
|
|
(463,012
|
)
|
|
|
(300,569
|
)
|
|
|
(177,639
|
)
|
Decrease (increase) in marketable securities
|
|
|
6,323
|
|
|
|
(1,700
|
)
|
|
|
(871
|
)
|
Other
|
|
|
4,282
|
|
|
|
5,228
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(496,622
|
)
|
|
|
(334,661
|
)
|
|
|
(206,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
69,693
|
|
|
|
(162,589
|
)
|
|
|
4,048
|
|
Additional long-term borrowings
|
|
|
430,000
|
|
|
|
370,000
|
|
|
|
29,507
|
|
Reduction in long-term borrowings
|
|
|
(232,835
|
)
|
|
|
(26,553
|
)
|
|
|
(18,186
|
)
|
Repayment of life insurance policy loans
|
|
|
(21,394
|
)
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(57,444
|
)
|
|
|
(5,437
|
)
|
|
|
(21,075
|
)
|
Cash dividends paid
|
|
|
(25,685
|
)
|
|
|
(25,748
|
)
|
|
|
(18,832
|
)
|
Excess tax benefits from share-based payments
|
|
|
4,890
|
|
|
|
9,464
|
|
|
|
4,706
|
|
Proceeds from employee stock plans and other
|
|
|
6,238
|
|
|
|
14,961
|
|
|
|
9,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
173,463
|
|
|
|
174,098
|
|
|
|
(9,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(7,265
|
)
|
|
|
3,088
|
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(83,159
|
)
|
|
|
121,048
|
|
|
|
13,546
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
170,139
|
|
|
|
49,091
|
|
|
|
35,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
86,980
|
|
|
$
|
170,139
|
|
|
$
|
49,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-27
AMETEK,
Inc.
|
|
1.
|
Significant
Accounting Policies
|
Basis of
Consolidation
The accompanying consolidated financial statements reflect the
operations, financial position and cash flows of AMETEK, Inc.
(the Company), and include the accounts of the
Company and subsidiaries, after elimination of all intercompany
transactions in the consolidation. The Companys
investments in 50% or less owned joint ventures are accounted
for by the equity method of accounting. Such investments are not
significant to the Companys consolidated results of
operations, financial position or cash flows.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Cash
Equivalents, Securities and Other Investments
All highly liquid investments with maturities of three months or
less when purchased are considered cash equivalents. At
December 31, 2008 and 2007, all of the Companys
equity securities and fixed-income securities (primarily those
of a captive insurance subsidiary) are classified as
available-for-sale, although the Company may hold
fixed-income securities until their maturity dates. Fixed-income
securities generally mature within three years. The aggregate
market value of equity and fixed-income securities at
December 31, 2008 and 2007 was $11.9 million
($12.9 million amortized cost) and $17.9 million
($16.3 million amortized cost), respectively. The temporary
unrealized gain or loss on such securities is recorded as a
separate component of accumulated other comprehensive income (in
stockholders equity), and is not material. The Company had
$0.2 million of other-than-temporary impairment losses in
2008 and no other-than-temporary impairment losses in 2007.
Certain of the Companys other investments, which are not
significant, are also accounted for by the equity method of
accounting as discussed above.
Accounts
Receivable
The Company maintains allowances for estimated losses resulting
from the inability of specific customers to meet their financial
obligations to the Company. A specific reserve for doubtful
receivables is recorded against the amount due from these
customers. For all other customers, the Company recognizes
reserves for doubtful receivables based on the length of time
specific receivables are past due based on past experience. The
allowance for possible losses on receivables was
$8.5 million and $6.4 million at December 31,
2008 and 2007, respectively. See Note 6.
Inventories
The Company uses the
first-in,
first-out (FIFO) method of accounting, which
approximates current replacement cost, for 62% of its
inventories at December 31, 2008. The
last-in,
first-out (LIFO) method of accounting is used to
determine cost for the remaining 38% of the Companys
inventory at December 31, 2008. For inventories where cost
is determined by the LIFO method, the excess of the FIFO value
over the LIFO value was $30.8 million and
$35.6 million at December 31, 2008 and 2007,
respectively. The Company provides estimated inventory reserves
for slow-moving and obsolete inventory based on current
assessments about future demand, market conditions, customers
who may be experiencing financial difficulties and related
management initiatives.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures
for additions to plant facilities, or that extend their useful
lives, are capitalized. The cost of minor tools, jigs and dies,
and maintenance and repairs is charged to
A-28
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations as incurred. Depreciation of plant and equipment is
calculated principally on a straight-line basis over the
estimated useful lives of the related assets. The range of lives
for depreciable assets is generally three to 10 years for
machinery and equipment, five to 27 years for leasehold
improvements and 25 to 50 years for buildings.
Revenue
Recognition
The Company recognizes revenue on product sales in the period
when the sales process is complete. This generally occurs when
products are shipped to the customer in accordance with terms of
an agreement of sale, under which title and risk of loss have
been transferred, collectability is reasonably assured and
pricing is fixed or determinable. For a small percentage of
sales where title and risk of loss passes at point of delivery,
the Company recognizes revenue upon delivery to the customer,
assuming all other criteria for revenue recognition are met. The
policy, with respect to sales returns and allowances, generally
provides that the customer may not return products or be given
allowances, except at the Companys option. The Company has
agreements with distributors that do not provide expanded rights
of return for unsold products. The distributor purchases the
product from the Company, at which time title and risk of loss
transfers to the distributor. The Company does not offer
substantial sales incentives and credits to its distributors
other than volume discounts. The Company accounts for these
sales incentives as a reduction of revenues when the sale is
recognized in the income statement. Accruals for sales returns,
other allowances and estimated warranty costs are provided at
the time revenue is recognized based upon past experience. At
December 31, 2008, 2007 and 2006, the accrual for future
warranty obligations was $16.1 million, $14.4 million
and $10.9 million, respectively. The Companys expense
for warranty obligations was $12.2 million in 2008,
$11.3 million in 2007 and $7.6 million in 2006. 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.
Research
and Development
Company-funded research and development costs are charged to
operations as incurred and were $57.5 million in 2008,
$52.9 million in 2007 and $42.0 million in 2006.
Shipping
and Handling Costs
Shipping and handling costs are included in cost of sales and
were $34.0 million in 2008, $27.5 million in 2007 and
$23.5 million in 2006.
Earnings
Per Share
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 common 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 were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Weighted average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
106,148
|
|
|
|
105,832
|
|
|
|
104,841
|
|
Stock option and awards plans
|
|
|
1,295
|
|
|
|
1,748
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
107,443
|
|
|
|
107,580
|
|
|
|
106,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-29
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Instruments and Foreign Currency Translation
Assets and liabilities of foreign operations are translated
using exchange rates in effect at the balance sheet date and
their results of operations are translated using average
exchange rates for the year. Certain transactions of the Company
and its subsidiaries are made in currencies other than their
functional currency. Exchange gains and losses from those
transactions are included in operating results for the year.
The Company makes infrequent use of derivative financial
instruments. Forward contracts are entered into from time to
time to hedge specific firm commitments for certain inventory
purchases or export sales, thereby minimizing the Companys
exposure to raw material commodity price or foreign currency
fluctuation. No forward contracts were outstanding at
December 31, 2008. During 2008, the Company was party to
certain commodity price forward contracts pertaining to raw
materials, which were not significant. These forward contracts
were acquired as a part of a 2008 acquisition. At
December 31, 2007, the Company was party to certain foreign
currency forward contracts, which were not significant. These
forward contracts were acquired as a part of a 2007 acquisition.
In instances where transactions are designated as hedges of an
underlying item, the gains and losses on those transactions are
included in accumulated other comprehensive income
(AOCI) within stockholders equity to the
extent they are effective as hedges. The Company has designated
certain foreign-currency-denominated long-term debt as hedges of
the net investment in certain foreign operations. These net
investment hedges are the Companys
British-pound-denominated long-term debt and Euro-denominated
long-term debt, pertaining to certain European acquisitions
whose functional currencies are either the British pound or the
Euro. These acquisitions were financed by
foreign-currency-denominated borrowings under the Companys
revolving credit facility and all but 40 million British
pounds ($58.4 million) at December 31, 2008 was
subsequently refinanced with long-term private placement debt.
These borrowings were designed to create net investment hedges
in each of the foreign subsidiaries on their respective dates of
acquisition. Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), permits hedging the foreign
currency exposure of a net investment in a foreign operation. In
accordance with SFAS 133, on the respective dates of
acquisition, the Company designated the British pound- and
Euro-denominated loans referred to above as hedging instruments
to offset foreign exchange gains or losses on the net investment
in the acquired business due to changes in the British pound and
Euro exchange rates. These net investment hedges were evidenced
by managements documentation supporting the
contemporaneous hedge designation on the acquisition dates. As
required by SFAS 133, any gain or loss on the hedging
instrument following hedge designation (the debt), is reported
in AOCI 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. As of December 31, 2008 and
2007, all net investment hedges were effective. At
December 31, 2008, the translation losses on the net
carrying value of the foreign-currency-denominated investments
exceeded the translation gains on the carrying value of the
underlying debt and the difference is included in AOCI. At
December 31, 2007, the translation gains on the net
carrying value of the foreign-currency-denominated investments
exceeded the translation losses on the carrying value of the
underlying debt and the difference is included in AOCI. An
evaluation of hedge effectiveness is performed by the Company on
an ongoing basis and any changes in the hedge are made as
appropriate.
At December 31, 2008 and 2007, the Company had
$189.7 million and $178.8 million, respectively, of
British pound-denominated loans, which are designated as a hedge
against the net investment in foreign subsidiaries acquired in
2008, 2004 and 2003. At December 31, 2008 and 2007, the
Company had $69.8 million and $73.0 million,
respectively, of Euro-denominated loans, which were designated
as a hedge against the net investment in a foreign subsidiary
acquired in 2005. As a result of these British pound- and
Euro-denominated loans being designated and effective as net
investment hedges, $55.6 million of currency gains and
$9.6 million of currency losses have been included in the
foreign currency translation component of other comprehensive
income at December 31, 2008 and 2007, respectively.
A-30
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
The Company accounts for share-based payments in accordance with
SFAS No. 123(R), Share-Based Payment
(SFAS 123R). Accordingly, the Company
expenses the fair value of awards made under its share-based
plans. That cost is recognized in the consolidated financial
statements over the requisite service period of the grants. See
Note 9.
Goodwill
and Other Intangible Assets
The Company accounts for purchased goodwill and other intangible
assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142).
Under SFAS 142, purchased goodwill and intangible assets
with indefinite lives, primarily trademarks and trade names, are
not amortized; rather, they are tested for impairment at least
annually.
Intangible assets, other than goodwill, with definite lives are
amortized over their estimated useful lives. Patents are being
amortized over useful lives of four to 20 years. Customer
relationships are being amortized over a period of two to
20 years. Miscellaneous other intangible assets are being
amortized over a period of 13 to 20 years. The Company
periodically evaluates the reasonableness of the estimated
useful lives of these intangible assets.
In order to test goodwill and intangible assets with indefinite
lives for impairment under SFAS 142, a determination of the
fair value of the Companys reporting units and its other
intangible assets with indefinite lives is required and is based
upon, among other things, estimates of future operating
performance. Changes in market conditions, among other factors,
may have an impact on these estimates. The Company completed its
required annual impairment tests in the fourth quarter of 2008,
2007 and 2006 and determined that the carrying values of
goodwill and other intangible assets with indefinite lives were
not impaired.
Income
Taxes
The Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. As a result
of the adoption of FIN 48, the Company recorded a
$4.7 million increase in liabilities associated with
unrecognized tax benefits, including interest and penalties of
$2.4 million, a decrease of $1.2 million in goodwill
related to a previous business combination and a
$5.9 million charge to the January 1, 2007, opening
balance of retained earnings. The Company recognizes interest
and penalties accrued related to uncertain tax positions in
income tax expense.
The Companys annual provision for income taxes and
determination of the related balance sheet accounts requires
management to assess uncertainties, make judgments regarding
outcomes and utilize estimates. The Company conducts a broad
range of operations around the world and is therefore subject to
complex tax regulations in numerous international taxing
jurisdictions, resulting at times in tax audits, disputes and
potential litigation, the outcome of which is uncertain.
Management must make judgments currently about such
uncertainties and determine estimates of the Companys tax
assets and liabilities. To the extent the final outcome differs,
future adjustments to the Companys tax assets and
liabilities may be necessary.
The Company also is required to assess the realizability of its
deferred tax assets, taking into consideration the
Companys forecast of future taxable income, available net
operating loss carryforwards and available tax planning
strategies that could be implemented to realize the deferred tax
assets. Based on this assessment, management must evaluate the
need for, and amount of, valuation allowances against the
Companys deferred tax assets. To the extent facts and
circumstances change in the future, adjustments to the valuation
allowances may be required.
|
|
2.
|
Recently
Issued Financial Accounting Standards
|
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS 157). In February 2008, the FASB
issued FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, which
A-31
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides a one year deferral of the effective date of
SFAS 157 for fair value measurements of nonfinancial assets
and nonfinancial liabilities, except for items recognized or
disclosed at fair value on a non-recurring basis (at least
annually). The deferral applies to fair value in goodwill
impairment testing, indefinite-lived intangible assets measured
at fair value for impairment testing, asset retirement
obligations initially measured at fair value, and nonfinancial
assets and nonfinancial liabilities initially measured at fair
value in a business combination. Therefore, the Company has
adopted the provisions of SFAS 157 with respect to its
financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value
under U.S. GAAP and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 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.
SFAS 157 establishes a valuation hierarchy for disclosure
of the inputs to the valuation 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.
At December 31, 2008, $0.3 million of the
Companys cash and cash equivalents and $4.2 million
of marketable securities are valued as level 1 investments.
The Company held $8.5 million valued as level 2
investments in the investments and other assets line of the
consolidated balance sheet. For the year ended December 31,
2008, gains and losses on the investments noted above were not
material.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141R). This
statement significantly changes the financial accounting and
reporting of business combination transactions in the
Companys consolidated financial statements. SFAS 141R
is effective for fiscal years beginning after December 15,
2008 and prohibits early adoption. Upon adoption, SFAS 141R
will not have a significant impact on the Companys
consolidated results of operations, financial position or cash
flows. However, depending on the nature of an acquisition or the
quantity of acquisitions entered into after the adoption,
SFAS 141R may significantly impact the Companys
consolidated results of operations, financial position or cash
flows when compared to acquisitions accounted for under existing
U.S. GAAP and result in more earnings volatility and
generally lower earnings due to, among other items, the
expensing of deal costs and restructuring costs of acquired
companies.
In November 2008, the FASB ratified the consensus reached in
Emerging Issues Task Force (EITF) Issue
No. 08-7,
Accounting for Defensive Intangible Assets
(EITF 08-7).
EITF 08-7
clarifies how to account for acquired defensive intangible
assets subsequent to initial measurement under SFAS 141R
that the Company does not intend to actively use but does intend
to hold to prevent others from obtaining access to the asset.
EITF 08-7
is effective for fiscal years beginning after December 15,
2008, along with SFAS 141R. The Company has evaluated
EITF 08-7
and does not expect the adoption of
EITF 08-7
to have a material impact on its consolidated results of
operations, financial position or cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 significantly
changes the accounting for and reporting of noncontrolling
(minority) interests in the Companys consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning after December 15, 2008 and prohibits early
adoption. The Company does not expect the adoption of
SFAS 160 to have an impact on its consolidated results of
operations, financial position or cash flows.
In April 2008, the FASB issued FASB Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
A-32
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. FSP
FAS 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS 141R, and other U.S. GAAP. FSP
FAS 142-3
applies to all intangible assets and is effective for financial
statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. The Company has evaluated FSP
FAS 142-3
and does not expect the adoption of FSP
FAS 142-3
to have a material impact on its consolidated results of
operations, financial position or cash flows.
3. Fourth
Quarter of 2008 Restructuring Charges and Asset
Write-Downs
During the fourth quarter of 2008, the Company recorded pre-tax
charges totaling $40.0 million, which had the effect of
reducing net income by $27.3 million ($0.25 per diluted
share). These charges include restructuring costs for employee
reductions and facility closures ($32.6 million), as well
as asset write-downs ($7.4 million). Of the
$40.0 million in charges, $32.9 million of the
restructuring charges and asset write-downs were recorded in
cost of sales and $7.1 million of the restructuring charges
and asset write-downs were recorded in Selling, general and
administrative expenses. The restructuring charges and asset
write-downs were reported in segment operating income as
follows: $20.4 million in EIG, $19.4 million in EMG
and $0.2 million in Corporate administrative and other
expenses. The restructuring costs for employee reductions and
facility closures relate to plans established by the Company in
2008 as part of cost reduction initiatives to be broadly
implemented across the Companys various businesses during
fiscal 2009. The restructuring costs resulted from the
consolidation of manufacturing facilities, the migration of
production to low cost locales and a general reduction in
workforce in response to lower levels of expected sales volumes
in certain for the Companys businesses. The Company
recorded pre-tax charges of $30.1 million for severance
costs for slightly more than 10% of the Companys
workforce. The Company also recorded pre-tax charges of
$1.5 million for lease termination costs associated with
the closure of certain facilities in 2009. Substantially all of
the payments for employee severance and lease termination costs
are expected to made in 2009.
The following table provides a rollforward of the accruals
established in the fourth quarter of 2008 for restructuring
charges and asset write-downs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
Asset
|
|
|
|
|
|
|
Severance
|
|
|
Closures
|
|
|
Write-Downs
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Restructuring accruals at December 31, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pre-tax charges
|
|
|
30.1
|
|
|
|
2.5
|
|
|
|
7.4
|
|
|
|
40.0
|
|
Utilization
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
(7.4
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring accruals at December 31, 2008
|
|
$
|
30.1
|
|
|
$
|
1.5
|
|
|
$
|
|
|
|
$
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fourth quarter of 2008 severance charge was recorded in
accordance with SFAS No. 112, Employers
Accounting for Postemployment Benefits
(SFAS 112). SFAS 112 is applicable to
all types of postemployment benefits, which constitute an
ongoing benefit arrangement, including, but not limited to,
salary continuation, supplemental unemployment benefits,
severance benefits, job training, counseling and continuation of
benefits such as health care benefits and life insurance
coverage. Under SFAS 112, costs associated with such
ongoing benefit arrangements are recorded no later than the
period when it becomes probable that the costs will be incurred
and the costs are reasonably estimable.
The Company spent a total of approximately $463.0 million
in cash, net of cash acquired, for six acquisitions and one
small technology line in 2008. The acquisitions include Drake
Air (Drake) and Motion Control Group
(MCG) in February 2008, Reading Alloys in April
2008, Vision Research, Inc. in June 2008, the programmable
A-33
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
power business of Xantrex Technology, Inc. (Xantrex
Programmable) in August 2008 and Muirhead Aerospace
Limited (Muirhead) in November 2008. Drake is a
provider of heat-transfer repair services to the commercial
aerospace industry and further expands the Companys
presence in the global aerospace maintenance, repair and
overhaul (MRO) services industry. MCG is a leading
global manufacturer of highly customized motors and motion
control solutions for the medical, life sciences, industrial
automation, semiconductor and aviation markets. MCG enhances the
Companys capability in providing precision motion
technology solutions. Reading Alloys is a global leader in
specialty titanium master alloys and highly engineered metal
powders used in the aerospace, medical implant, military and
electronics markets. Vision Research is a leading manufacturer
of high-speed digital imaging systems used for motion capture
and analysis in numerous test and measurement applications.
Xantrex Programmable is a leader in alternating current and
direct current programmable power supplies used to test
electrical and electronic products. Muirhead is a leading
manufacturer of motion technology products and a provider of
avionics repair and overhaul services for the aerospace and
defense markets. Drake, MCG, Reading Alloys and Muirhead are
part of the Companys Electromechanical Group
(EMG) and Vision Research and Xantrex Programmable
are part of the Companys Electronic Instruments Group
(EIG). The six businesses acquired have annualized
sales of approximately $290 million.
The acquisitions have been accounted for using the purchase
method in accordance with SFAS No. 141, Business
Combinations. Accordingly, the operating results of the
above acquisitions have been included in the Companys
consolidated results from the respective dates of acquisition.
The following table represents the tentative allocation of the
aggregate purchase price for the net assets of the above
acquisitions based on their estimated fair value:
|
|
|
|
|
|
|
(In millions)
|
|
|
Property, plant and equipment
|
|
$
|
26.2
|
|
Goodwill
|
|
|
271.1
|
|
Other intangible assets
|
|
|
136.7
|
|
Net working capital and other
|
|
|
29.0
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
463.0
|
|
|
|
|
|
|
The amount allocated to goodwill is reflective of the benefits
the Company expects to realize from the acquisitions as follows:
The Drake acquisition further expands the Companys
position in the third-party aerospace MRO market. The MCG
acquisition is a strategic fit with the Companys highly
differentiated technical motors business, sharing common
markets, customers, distribution channels and motor platforms.
The Reading Alloys acquisition expands the Companys
position in customized titanium products, adding to its
capabilities in strip and foil products used in medical devices,
electronic components and aerospace instruments. In addition,
Reading Alloys metal powder production techniques
complement the Companys existing gas and water atomization
capabilities. The Vision Research acquisition provides
opportunities for growth in high-speed digital imaging and
serves a number of the Companys markets, including
aerospace and defense, general industrial, and research and
development. The Xantrex Programmable acquisition significantly
expands the Companys position in the niche market for
programmable power sources and provides the Company with further
opportunities for growth in the electronic test and measurement
equipment market. The Muirhead acquisition expands the
Companys penetration in motion control products for the
aerospace and defense markets, including actuators and other
specialized linear motors, complementing our existing technical
motor capabilities. No goodwill recorded as a part of the 2008
acquisitions will be deductible in future years for tax purposes.
The Company is in the process of conducting third-party
valuations of certain tangible and intangible assets acquired,
as well as finalizing restructuring plans for certain
acquisitions. Adjustments to the allocation of purchase price
will be recorded when this information is finalized. Therefore,
the allocation of the purchase price is subject to revision.
A-34
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The valuations for the $136.7 million preliminarily
assigned to other intangible assets, related to the 2008
acquisitions, currently are being finalized by third-party
appraisers. In connection with the finalization of the 2007
acquisitions, $109.1 million was assigned to intangible
assets, which consisted primarily of patents, technology,
customer relationships and trade names with estimated lives
ranging from six to 20 years.
In 2007, the Company spent $300.6 million in cash, net of
cash acquired, for seven acquisitions and one small technology
line. The acquisitions include Seacon Phoenix, subsequently
renamed AMETEK SCP, Inc. (SCP), in April 2007,
Advanced Industries, Inc. (Advanced), B&S
Aircraft Parts and Accessories (B&S) and
Hamilton Precision Metals (Hamilton) in June 2007,
Cameca SAS (Cameca) in August 2007, the
Repair & Overhaul Division of Umeco plc (Umeco
R&O) in November 2007 and California Instruments
Corporation (California Instruments) in December
2007. SCP provides undersea electrical interconnect subsystems
to the global submarine market. Advanced manufactures starter
generators, brush and brushless motors, vane-axial centrifugal
blowers for cabin ventilation and linear actuators for the
business jet, light jet and helicopter markets. B&S
provides third-party MRO services, primarily for starter
generators and hydraulic and fuel system components, for a
variety of business aircraft and helicopter applications.
Hamilton produces highly differentiated niche specialty metals
used in medical implant devices and surgical instruments,
electronic components and measurement devices for aerospace and
other industrial markets. Cameca is a manufacturer of high-end
elemental analysis systems used in advanced laboratory research,
semiconductor and nanotechnology applications. Umeco R&O
provides third-party MRO services for a variety of helicopters
and commercial and regional aircraft throughout Europe.
California Instruments is a leader in the niche market for
programmable alternating current (AC) power sources
used to test electrical and electronic products, with an
especially strong position in the high-power segment. Advanced,
B&S, Cameca and California Instruments are part of EIG and
SCP, Hamilton and Umeco R&O are part of EMG.
Had the 2008 acquisitions been made at the beginning of 2008,
unaudited pro forma net sales, net income and diluted earnings
per share for the year ended December 31, 2008 would not
have been materially different than the amounts reported.
Had the 2008 acquisitions and the 2007 acquisitions been made at
the beginning of 2007, unaudited pro forma net sales, net income
and diluted earnings per share would have been as follows:
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
(In millions, except per share amount)
|
|
|
Net sales
|
|
$
|
2,571.0
|
|
Net income
|
|
$
|
245.7
|
|
Diluted earnings per share
|
|
$
|
2.28
|
|
Pro forma results are not necessarily indicative of the results
that would have occurred if the acquisitions had been completed
at the beginning of 2007.
In 2006, the Company spent $177.6 million, net of cash
acquired, for five new businesses and two small technology
lines. The businesses acquired included Pulsar Technologies,
Inc. (Pulsar) in February 2006, PennEngineering
Motion Technologies, Inc. (Pittman) in May 2006,
Land Instruments International Limited (Land
Instruments) in June 2006, Precitech in November 2006 and
Southern Aeroparts, Inc. (SAI) in December 2006.
Pulsar is a leading designer and manufacturer of specialized
communications equipment for the electric utility market.
Pittman is a leading designer and manufacturer of highly
engineered motors. Land Instruments is a global supplier of
high-end analytical instrumentation. Precitech is a leading
manufacturer of ultraprecision machining systems for a variety
of markets, including nanotechnology, military, defense and
ophthalmic. SAI is a provider of third-party maintenance, repair
and overhaul services to the commercial aerospace industry.
Pittman and SAI are part of EMG and Pulsar, Land Instruments and
Precitech are part of EIG.
A-35
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Acquisitions
Subsequent to Year End
On January 20, 2009, the Company announced the acquisition
of High Standard Aviation, a provider of electrical and
electromechanical, hydraulic and pneumatic repair services to
the aerospace industry. High Standard Aviation broadens the
global footprint of AMETEKs aerospace MRO business. High
Standard Aviation, with annual sales of approximately
$31 million, will be part of AMETEKs
Electromechanical Group.
|
|
5.
|
Goodwill
and Other Intangible Assets
|
The changes in the carrying amounts of goodwill by segment were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIG
|
|
|
EMG
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at December 31, 2006
|
|
$
|
531.7
|
|
|
$
|
349.7
|
|
|
$
|
881.4
|
|
Goodwill acquired during the year
|
|
|
84.2
|
|
|
|
86.3
|
|
|
|
170.5
|
|
Purchase price allocation adjustments and other*
|
|
|
(9.2
|
)
|
|
|
(12.8
|
)
|
|
|
(22.0
|
)
|
Foreign currency translation adjustments
|
|
|
15.3
|
|
|
|
0.5
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
622.0
|
|
|
|
423.7
|
|
|
|
1,045.7
|
|
Goodwill acquired during the year
|
|
|
164.6
|
|
|
|
106.5
|
|
|
|
271.1
|
|
Purchase price allocation adjustments and other*
|
|
|
(4.1
|
)
|
|
|
(2.0
|
)
|
|
|
(6.1
|
)
|
Foreign currency translation adjustments
|
|
|
(45.3
|
)
|
|
|
(25.3
|
)
|
|
|
(70.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
737.2
|
|
|
$
|
502.9
|
|
|
$
|
1,240.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Purchase price allocation adjustments reflect final purchase
price allocations and revisions to certain preliminary
allocations for recent acquisitions, which include
reclassifications between goodwill and other intangible assets. |
Other intangible assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Definite-lived intangible assets (subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
51,021
|
|
|
$
|
37,037
|
|
Purchased technology
|
|
|
69,041
|
|
|
|
34,865
|
|
Customer lists
|
|
|
203,335
|
|
|
|
118,047
|
|
Other acquired intangibles
|
|
|
38,441
|
|
|
|
55,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
361,838
|
|
|
|
245,002
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(25,250
|
)
|
|
|
(24,220
|
)
|
Purchased technology
|
|
|
(22,870
|
)
|
|
|
(21,717
|
)
|
Customer lists
|
|
|
(23,331
|
)
|
|
|
(12,361
|
)
|
Other acquired intangibles
|
|
|
(26,468
|
)
|
|
|
(26,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,919
|
)
|
|
|
(84,903
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to amortization
|
|
|
263,919
|
|
|
|
160,099
|
|
Indefinite-lived intangible assets (not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
177,866
|
|
|
|
152,250
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
441,785
|
|
|
$
|
312,349
|
|
|
|
|
|
|
|
|
|
|
A-36
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense was $17.5 million, $10.4 million
and $7.0 million for the years ended December 31,
2008, 2007 and 2006, respectively. Amortization expense for each
of the next five years is expected to approximate
$20.8 million per year, not considering the impact of
potential future acquisitions.
|
|
6.
|
Other
Consolidated Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
66,416
|
|
|
$
|
52,206
|
|
Work in process
|
|
|
81,282
|
|
|
|
86,858
|
|
Raw materials and purchased parts
|
|
|
201,811
|
|
|
|
162,615
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
349,509
|
|
|
$
|
301,679
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
27,342
|
|
|
$
|
28,720
|
|
Buildings
|
|
|
199,696
|
|
|
|
195,888
|
|
Machinery and equipment
|
|
|
612,474
|
|
|
|
592,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
839,512
|
|
|
|
817,558
|
|
Less: Accumulated depreciation
|
|
|
(531,604
|
)
|
|
|
(524,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
307,908
|
|
|
$
|
293,107
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued employee compensation and benefits
|
|
$
|
59,915
|
|
|
$
|
56,171
|
|
Severance and lease termination accruals
|
|
|
46,863
|
|
|
|
17,606
|
|
Other
|
|
|
86,906
|
|
|
|
96,361
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193,684
|
|
|
$
|
170,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS AND
NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
$
|
6,393
|
|
|
$
|
7,387
|
|
|
$
|
7,581
|
|
Additions charged to expense
|
|
|
5,648
|
|
|
|
663
|
|
|
|
1,511
|
|
Recoveries credited to allowance
|
|
|
10
|
|
|
|
22
|
|
|
|
182
|
|
Write-offs
|
|
|
(2,878
|
)
|
|
|
(2,122
|
)
|
|
|
(501
|
)
|
Currency translation adjustments and other
|
|
|
(684
|
)
|
|
|
443
|
|
|
|
(1,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
8,489
|
|
|
$
|
6,393
|
|
|
$
|
7,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-37
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
U.S. dollar 7.20% senior notes due July 2008
|
|
$
|
|
|
|
$
|
225,000
|
|
U.S. dollar 6.59% senior notes due September 2015
|
|
|
90,000
|
|
|
|
|
|
U.S. dollar 6.69% senior notes due December 2015
|
|
|
35,000
|
|
|
|
|
|
U.S. dollar 6.20% senior notes due December 2017
|
|
|
270,000
|
|
|
|
270,000
|
|
U.S. dollar 6.35% senior notes due July 2018
|
|
|
80,000
|
|
|
|
|
|
U.S. dollar 7.08% senior notes due September 2018
|
|
|
160,000
|
|
|
|
|
|
U.S. dollar 7.18% senior notes due December 2018
|
|
|
65,000
|
|
|
|
|
|
U.S. dollar 6.30% senior notes due December 2019
|
|
|
100,000
|
|
|
|
100,000
|
|
British pound 5.96% senior note due September 2010
|
|
|
72,960
|
|
|
|
99,340
|
|
British pound floating-rate term note due through December 2010
(3.52% at December 31, 2008)
|
|
|
16,416
|
|
|
|
24,339
|
|
Euro 3.94% senior note due August 2015
|
|
|
69,842
|
|
|
|
72,993
|
|
British pound 5.99% senior note due November 2016
|
|
|
58,369
|
|
|
|
79,480
|
|
Revolving credit loan
|
|
|
65,569
|
|
|
|
|
|
Other, principally foreign
|
|
|
28,525
|
|
|
|
31,806
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,111,681
|
|
|
|
902,958
|
|
Less: Current portion
|
|
|
(18,438
|
)
|
|
|
(236,005
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,093,243
|
|
|
$
|
666,953
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt outstanding at December 31,
2008 were as follows: $89.9 million in 2010;
$1.4 million in 2011; $61.3 million in 2012;
$1.9 million in 2013; $1.2 million in 2014; and
$937.6 million in 2015 and thereafter.
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using the proceeds from
borrowings under its existing revolving credit facility.
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of 6.59% senior notes due
September 2015 and $160 million in aggregate principal
amount of 7.08% senior notes due September 2018. The second
funding date occurred in December 2008 for $100 million,
consisting of $35 million in aggregate principal amount of
6.69% senior notes due December 2015 and $65 million
in aggregate principal amount of 7.18% senior notes due
December 2018. The senior notes carry a weighted average
interest rate of 6.93%. The proceeds from the senior notes were
used to pay down a portion of the Companys revolving
credit facility.
In the third quarter of 2007, the Company completed a private
placement agreement to sell $450 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in December
2007 for $370 million, consisting of $270 million in
aggregate principal amount of 6.20% senior notes due
December 2017 and $100 million in aggregate principal
amount of 6.30% senior notes due December 2019. The second
funding occurred in July 2008 for $80 million in aggregate
principal amount of 6.35% senior notes due July 2018. The
notes carry a weighted average interest rate of 6.25%. The
proceeds from the first funding of the notes were used to pay
down the Companys revolving credit facility, which
included a foreign
A-38
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
portion related to the 2007 acquisition of Cameca and the 2006
acquisition of Land Instruments, as well as borrowings
outstanding under the Companys accounts receivable
securitization program. Additionally, the proceeds from the
private placement were used to purchase California Instruments
in December 2007. The proceeds from the second funding of the
notes were used to pay down a portion of the Companys
revolving credit facility.
At December 31, 2008, the Company has an outstanding
11.3 million British pound ($16.4 million at
December 31, 2008) 3.52% (London Interbank Offered
Rate (LIBOR) plus 0.69%) floating-rate term loan
with annual installment payments due through December 2010. In
September 2005, the Company issued a 50 million Euro
($69.8 million at December 31,
2008) 3.94% senior note due August 2015. In November
2004, the Company issued a 40 million British pound
($58.4 million at December 31,
2008) 5.99% senior note due in November 2016. In
September 2003, the Company issued a 50 million British
pound ($73.0 million at December 31,
2008) 5.96% senior note due in September 2010.
The Company has an accounts receivable securitization facility
agreement with a wholly owned, special-purpose subsidiary and
the special-purpose subsidiary has a receivables sale agreement
with a bank, whereby it can sell to a third party up to
$100.0 million of its trade accounts receivable on a
revolving basis. The securitization facility is a financing
vehicle utilized by the Company because it can offer attractive
rates relative to other financing sources. When borrowings are
outstanding under the facility, all securitized accounts
receivable and related debt are reflected on the Companys
consolidated balance sheet.
The special-purpose subsidiary is the servicer of the accounts
receivable under the securitization facility. The accounts
receivable securitization facility was amended and restated in
May 2008, extending the expiration date from May 2008 to May
2009, and bringing the borrowing capacity to $100 million,
from $110 million previously. The Company intends to renew
the securitization facility on an annual basis. Interest rates
on amounts drawn down are based on prevailing market rates for
short-term commercial paper plus a program fee. The Company also
pays a commitment fee on any unused commitments under the
securitization facility. The Companys accounts receivable
securitization is accounted for as a secured borrowing under
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.
At December 31, 2008 and 2007, the Company had no
borrowings outstanding on the accounts receivable
securitization. Interest expense under this facility is not
significant. The weighted average interest rate when borrowings
were outstanding under the accounts receivable securitization
during 2008 and 2007 was 3.6% and 5.7%, respectively.
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012.
The revolving credit facility places certain restrictions on
allowable additional indebtedness. At December 31, 2008,
the Company had available borrowing capacity of
$468.9 million under its $550 million revolving bank
credit facility, which includes an accordion feature allowing
$100 million of additional borrowing capacity.
Interest rates on outstanding loans under the revolving credit
facility are at the applicable LIBOR rate plus a negotiated
spread, or at the U.S. prime rate. At December 31,
2008, the Company had $65.6 million borrowings outstanding
under the revolving credit facility, of which $58.4 million
related to 40 million of British pounds borrowings under
the revolver. At December 31, 2007, the Company had no
borrowings outstanding under the revolving credit facility. The
weighted average interest rate on the revolving credit facility
for the years ended December 31, 2008 and 2007 was 2.81%
and 5.82%, respectively. The Company had outstanding letters of
credit totaling $15.5 million and $24.7 million at
December 31, 2008 and 2007, respectively.
A-39
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The private placement, the floating-rate term loan, the senior
notes, the revolving credit facility and the accounts receivable
securitization are subject to certain customary covenants,
including financial covenants that, among other things, require
the Company to maintain certain
debt-to-EBITDA
and interest coverage ratios.
Foreign subsidiaries of the Company had available credit
facilities with local foreign lenders of $51.0 million at
December 31, 2008. Foreign subsidiaries had debt
outstanding at December 31, 2008 totaling
$44.9 million, including $33.7 million reported in
long-term debt.
The weighted average interest rate on total debt outstanding at
December 31, 2008 and 2007 was 6.2% and 6.3%, respectively.
On both January 24, 2008 and July 23, 2008, the Board
of Directors authorized increases of $50 million for the
repurchase of common stock for a total of $100 million in
2008. These increases were added to the $25.9 million that
remained available at December 31, 2007 from an existing
$50 million authorization approved in March 2003. In 2008,
the Company repurchased approximately 1,263,000 shares of
common stock for $57.4 million in cash under its current
share repurchase authorization. In 2007, the Company used cash
of $5.4 million for the repurchase of approximately
144,000 shares of common stock. At December 31, 2008,
$68.5 million of the current share repurchase authorization
remained available. At December 31, 2008, the Company held
3.5 million shares in its treasury at a cost of
$92.0 million, compared with 2.4 million shares at a
cost of $39.3 million at December 31, 2007. The number
of shares outstanding at December 31, 2008 was
106.7 million shares, compared with 107.4 million
shares at December 31, 2007.
The Company has a Shareholder Rights Plan, under which the
Companys Board of Directors declared a dividend of one
Right for each share of Company common stock owned at the close
of business on June 2, 2007, and has authorized the
issuance of one Right for each share of Common Stock of the
Company issued between the Record Date and the Distribution
Date. The Plan provides, under certain conditions involving
acquisition of the Companys common stock, that holders of
Rights, except for the acquiring entity, would be entitled
(i) to purchase shares of preferred stock at a specified
exercise price, or (ii) to purchase shares of common stock
of the Company, or the acquiring company, having a value of
twice the Rights exercise price. The Rights under the Plan
expire in June 2017.
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9.
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Share-Based
Compensation
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Under the terms of the Companys stockholder-approved
share-based plans, incentive and non-qualified stock options and
restricted stock awards have been, and may be, issued to the
Companys officers, management-level employees and members
of its Board of Directors. In 2007, the Board of Directors and
the Companys stockholders approved the 2007 Omnibus
Incentive Compensation Plan, which permits the issuance of up to
3.5 million shares of Company common stock. Employee and
non-employee director stock options generally vest at a rate of
25% per year, beginning one year from the date of the grant, and
restricted stock awards generally have a four-year cliff
vesting. Options primarily have a maximum contractual term of
seven years. At December 31, 2008, 8.0 million shares
of Company common stock were reserved for issuance under the
Companys share-based plans, including 4.0 million
shares for stock options outstanding.
The Company issues previously unissued shares when options are
exercised and shares are issued from treasury stock upon the
award of restricted stock.
The Company follows the provisions of SFAS 123R.
SFAS 123R requires companies to measure and record
compensation expense related to all stock awards by recognizing
the grant date fair value of the awards over their requisite
service periods in the financial statements. For grants under
any of the Companys plans that are subject to graded
vesting over a service period, the Company recognizes expense on
a straight-line basis over the requisite service period for the
entire award.
A-40
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option grant is estimated on the date of
grant using a Black-Scholes-Merton option pricing model. The
following weighted average assumptions were used in the
Black-Scholes-Merton model to estimate the fair values of
options granted during the years indicated:
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2008
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2007
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|
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2006
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|
|
Expected stock volatility
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|
18.4
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%
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|
|
22.4
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%
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|
|
24.4
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%
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Expected life of the options (years)
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|
4.7
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4.7
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4.8
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Risk-free interest rate
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|
2.60
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%
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|
|
4.53
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%
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|
|
4.71
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%
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Expected dividend yield
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|
|
0.49
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%
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|
|
0.66
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%
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|
|
0.50
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%
|
Black-Scholes-Merton fair value per option granted
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|
$
|
9.58
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$
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9.58
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$
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9.55
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Expected stock volatility is based on the historical volatility
of the Companys stock. The Company used historical
exercise data to estimate the options expected life, which
represents the period of time that the options granted are
expected to be outstanding. Management anticipates that the
future option holding periods will be similar to the historical
option holding periods. The risk-free interest rate for periods
within the contractual life of the option is based on the
U.S. Treasury yield curve at the time of grant.
Compensation expense recognized for all share-based awards is
net of estimated forfeitures. The Companys estimated
forfeiture rates are based on its historical experience.
Total share-based compensation expense recognized under
SFAS 123R was as follows for the years ended December 31:
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2008
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2007
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2006
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(In thousands)
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Stock option expense
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|
$
|
6,300
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|
|
$
|
5,884
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|
|
$
|
5,541
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|
Restricted stock expense
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|
|
13,886
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|
|
|
9,646
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|
|
|
6,900
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|
|
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Total pre-tax expense
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|
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20,186
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|
|
15,530
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|
12,441
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Related tax benefit
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|
|
(3,990
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)
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|
|
(4,180
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)
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|
|
(3,116
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)
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Reduction of net income
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|
$
|
16,196
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|
|
$
|
11,350
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|
|
$
|
9,325
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|
|
|
|
|
|
|
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Reduction of earnings per share:
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|
|
|
|
|
|
|
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Basic
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|
$
|
0.15
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|
|
$
|
0.11
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|
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$
|
0.09
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Diluted
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|
$
|
0.15
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|
$
|
0.11
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