def14a
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to SS.240.14a-12
AMETEK, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required
o $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials |
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a)(2) and identify the filing for which the offsetting
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registration statement number, or the Form or Schedule and the date
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Form, Schedule or Registration Statement No.: |
Notice of 2006
Annual Meeting
Proxy Statement
Annual Financial Information
and Review of Operations
Principal executive offices
37 North Valley Road Building 4
P.O. Box 1764
Paoli, Pennsylvania 19301-0801
PROXY STATEMENT
AMETEK is mailing this Proxy Statement and proxy card to its stockholders of record as of
March 10, 2006 on or about March 17, 2006. 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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Appendix: |
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Index to Annual Financial Information and Review of Operations |
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A-1 |
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 25, 2006
2:00 p.m. Eastern Daylight Time
J. P. Morgan Chase & Co.
11th Floor Conference Center
270 Park Avenue
New York, NY 10017
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2006 Annual
Meeting of Stockholders of AMETEK, Inc. At the Annual Meeting, you will be asked to:
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Elect four Directors: Steven W. Kohlhagen for a term of one year and James R.
Malone, Elizabeth R. Varet and Dennis K. Williams, each for a term of three years; |
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Ratify the appointment of Ernst & Young LLP as independent registered public
accounting firm for 2006; |
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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 10, 2006 will be entitled to vote at
the Annual Meeting. Your vote is important. You can vote in one of four ways: (1) by computer
using 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
J. P. Morgan Chase & Co. are located on the back cover of the Proxy Statement. Please refer to
your proxy card for specific proxy voting instructions or visit AMETEKs Web site at
www.ametek.com/investors for general questions and answers about proxy voting.
We have included the detailed 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 the convenience and cost savings of voting by computer or by telephone will attract you. A
sizable electronic turnout would save AMETEK significant return-postage fees.
We urge you to vote your shares either in person at the Annual Meeting or by proxy as soon as
possible. 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 |
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Dated: March 17, 2006 |
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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 10, 2006 are
entitled to vote. On that date, 70,681,351 shares of AMETEKs 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 proxy by mailing a properly executed proxy card or by the Internet or 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 vote 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 by the Internet or telephone by following
the instructions on your proxy card.
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 participates in an AMETEK employee savings plan and
you 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 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 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 they provide 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 participates in 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. To allow sufficient time for the savings plan trustee to tabulate
the vote of the plan shares, your proxy voting instructions must be received by April 20, 2006.
How many votes are required? In order to have a quorum present at the Annual Meeting, a
majority of the shares of AMETEK Common Stock that are issued and outstanding and entitled to vote
at the Meeting must be represented in person or by proxy. 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.
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Directors must be elected by a plurality of the votes cast. This means that the three candidates
for election as Class III Directors receiving the highest number of votes will be elected to serve
until the Annual Meeting in 2009, and the candidate for election as a Class I Director receiving
the highest number of votes will be elected to serve until the Annual Meeting in 2007. Under
AMETEKs By-Laws, the ratification of the appointment of the independent registered public
accounting firm 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? AMETEKs 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 AMETEKs 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? Georgeson Shareholder Communications, Inc. has been retained
by AMETEK to assist in the distribution of proxy materials and solicitation of votes for a fee of
$7,500, plus reimbursement of reasonable out-of-pocket expenses.
STRUCTURE AND PRACTICES OF THE BOARD OF DIRECTORS
In accordance with the Delaware General Corporation Law and AMETEKs Certificate of
Incorporation and Bylaws, AMETEKs business and affairs are managed under the direction of the
Board of Directors. The Directors are regularly kept informed of AMETEKs business through, among
other things, written reports and documents and operating, financial and other reports presented at
meetings of the Board of Directors and Committees of the Board.
The AMETEK Board of Directors currently consists of eight members. They are Lewis G. Cole, Helmut
N. Friedlaender, Sheldon S. Gordon, Frank S. Hermance, Charles D. Klein, James R. Malone, David P.
Steinmann and Elizabeth R. Varet. The biographies of the continuing Directors and the nominees for
election as Directors appear on page 11. The Board is divided into three classes with staggered
terms, so that the term of one class expires at each Annual Meeting of Stockholders. In accordance
with AMETEKs Director retirement policy, Mr. Friedlaender will not stand for re-election at this
years Annual Meeting of Stockholders. Mr. Friedlaender will serve as Director Emeritus upon his
retirement from the Board. The other two current Class III Directors, Mr. Malone and Ms. Varet,
have been nominated, together with Dennis K. Williams, to serve as Class III Directors until the
2009 Annual Meeting. In addition, in accordance with AMETEKs Certificate of Incorporation and
By-Laws, the Board increased the number of Class I Directors from two to three, thereby increasing
the size of AMETEKs Board from eight to nine Directors. Steven W. Kohlhagen is being nominated
for election as a Class I Director, to serve until the 2007 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. AMETEKs Code of Ethics and Business Conduct sets forth rules of conduct that apply to
all members of the Board of Directors, officers and employees of AMETEK. AMETEK also has adopted a
separate Code of Ethical Conduct for its Chief Executive Officer and the senior financial officers
of AMETEK. The Guidelines and Codes of Ethics are available on AMETEKs 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 AMETEKs management do not intend to grant any waivers of the provisions
of either Code. In the unlikely event that circumstances justify a waiver for a Director or an
executive officer, the action
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will be disclosed promptly on AMETEKs Web site noted above. If the Guidelines or the Codes are
amended, the revised versions also will be posted on the Web site noted above.
Meetings of the Board. AMETEKs Board of Directors has four 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 AMETEKs management. The presiding Director at the
executive sessions rotates among the chairpersons of the Corporate Governance/Nominating Committee,
the Compensation Committee and the Audit 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. AMETEKs Board met a total of four
times in 2005. Each of the Directors attended at least 75% of the meetings of the Board and the
Committees to which the Director was assigned. All eight Directors attended the 2005 Annual
Meeting of Stockholders.
Independence. The Board of Directors has affirmatively determined that each of the
current Non-Management Directors, Lewis G. Cole, Helmut N. Friedlaender, Sheldon S. Gordon, Charles
D. Klein, James R. Malone, David P. Steinmann and Elizabeth R. Varet, as well as the two nominees
who previously have not served on AMETEKs Board, Steven W. Kohlhagen and Dennis K. Williams, have
no material relationship with AMETEK (either directly or as a partner, stockholder or officer of an
organization that has a relationship with AMETEK) and, therefore, are independent Directors, or, in
the case of Messrs. Kohlhagen and Williams, if elected, will be independent Directors, 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 the Company; (b) someone in the Directors
immediate family has been employed as an executive officer of the Company; 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 the Companys present executive officers; (ii) (a) the Director or someone in the Directors
immediate family is a current partner of a firm that is the Companys internal or external auditor;
(b) the Director is a current employee of the firm, or someone in the Directors immediate family
is a current employee of the firm who participates in the firms audit, assurance or tax compliance
(but not tax planning) practice; or (c) 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 $100,000 in direct
compensation from the Company, 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 an employee of the Company (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, the Company 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
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current executive officer of a charitable organization, and the Company 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 and the two nominees who previously have not served on the Board of
Directors satisfied these categorical standards.
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, correspondence should be addressed 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.
Complaints regarding accounting, internal accounting controls or auditing matters may be addressed
to the Audit Committee by calling 1-866-531-3079 (Domestic English only) or 1-866-551-8006
(International Foreign Languages).
Committees of the Board. The AMETEK 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 AMETEKs 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 experts to assist it in carrying out its responsibilities.
The Audit Committee has the sole authority to retain, compensate, terminate, oversee and
evaluate independent auditors. It reviews and approves in advance all audit and lawfully permitted
non-audit services performed by the independent auditors. In addition, the Audit Committee reviews
and discusses with management and the independent auditors the annual audited financial statements
and quarterly financial statements included in AMETEKs Securities and Exchange Commission filings.
It oversees AMETEKs compliance with legal and regulatory requirements; reviews the performance of
AMETEKs internal audit function; and meets separately with the independent auditors and AMETEKs
own internal auditors as often as deemed necessary or appropriate by the Committee. In this
regard, the Audit Committee discusses, where appropriate, AMETEKs critical accounting policies,
estimates and any significant changes in AMETEKs selection or application of accounting
principles. The Committee met eight times during 2005. 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, Helmut N. Friedlaender and James R. Malone.
The Compensation Committee is responsible for the establishment and periodic review of the
Companys compensation philosophy and the adequacy of the compensation plans for officers and other
Company employees; the establishment of compensation arrangements and incentive goals for officers
and the administration of compensation plans; the review of the performance of officers, the
awarding of incentive compensation and the adjustment of compensation arrangements as appropriate
based on performance; and the review and monitoring of management development and succession plans.
The Committee met six times during 2005. The members of the Committee are Charles D. Klein
Chairperson, Sheldon S. Gordon, James R. Malone and Elizabeth R. Varet.
The Corporate Governance/Nominating Committee selects, subject to ratification by the Board,
nominees for election as Directors, and recommends a Director to serve as Chairperson of the Board.
The Corporate Governance/Nominating Committee also recommends to the Board of Directors the
responsibilities of Board
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committees and each committees membership; oversees the annual evaluation of the Board and the
Audit and Compensation Committees; reviews and assesses the adequacy of AMETEKs Corporate
Governance Guidelines; recommends other corporate-governance-related matters for consideration by
the Board; and reviews periodically the compensation of Non-Employee Directors. The Committee met
four times during 2005. The members of the Committee are James R. Malone Chairperson, Helmut N.
Friedlaender and Charles D. Klein.
The Pension Investment Committee reviews the administration of AMETEKs retirement plans, including
compliance, investment manager and trustee performance, and the results of independent audits of
the plans. The Committee met four times during 2005. The members of the Committee are Lewis G.
Cole Chairperson, Sheldon S. Gordon, James R. Malone 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 2005. The members of the Committee are Frank S.
Hermance Chairperson, Sheldon S. Gordon, Charles D. Klein and Elizabeth R. Varet.
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 the Companys 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 AMETEK.
The Committee considers all of these qualities when nominating candidates for Director.
Stockholders can suggest 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 should include the name and qualifications of the candidate and any supporting material
that the stockholder feels is appropriate. To have a Board candidate considered in connection
with the 2007 Annual Meeting of Stockholders, a stockholder must submit materials relating to the
suggested candidate no later than November 17, 2006. 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. Mr. Hermance, AMETEKs only employee Director, receives no
additional compensation for serving on the Board or its Committees. Non-Employee Directors receive
$35,000 annually, except for the Chairmen of the Compensation, Corporate Governance/Nominating and
Pension Investment Committees, who receive $40,000 annually. The Audit Committee Chairman receives
$45,000 annually. In addition, Non-Employee Directors receive $3,750 for each of the four regular
meetings of the Board of Directors they attend. There is no additional compensation for attending
Committee meetings. The Non-Employee Directors are also reimbursed for travel expenses related to
attending Board, Committee and AMETEK business meetings, and approved educational seminars.
In April 2005, under the 2002 Stock Incentive Plan of AMETEK, Inc., each Non-Employee Director
received an option to purchase 2,600 shares of AMETEK Common Stock, based on the fair market value
on the date of grant. Stock options become exercisable as to the underlying shares in four equal
annual installments beginning one year after the date of grant. Each Non-Employee Director also
received a restricted stock award of 1,000 shares of AMETEK Common Stock. These restricted shares
vest on the earliest to occur of (a) the closing price of AMETEKs Common Stock on any five
consecutive trading days equaling or exceeding $75.16, (b) the death or disability of the Director,
(c) the Directors termination of service as a member of AMETEKs Board of Directors in connection
with a change of control, (d) the fourth anniversary of the date of grant, namely
April 27, 2009, or (e) the Directors retirement from service as a member of AMETEKs Board of
Directors at or after age 55 and the completion of at least 10 years of service with AMETEK, in
which case only a pro rata
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portion of the shares becomes non-forfeitable and transferable based upon the time that has elapsed
since the date of grant.
The following table provides information regarding Director compensation in 2005.
2005 Board of Directors Compensation (1)
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Shares of |
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Restricted |
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Annual |
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Attendance |
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Shares Underlying |
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Stock |
Director |
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Retainer |
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Fees (2) |
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Chair Fees |
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Total |
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Stock Options (3) |
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Awards (3) |
Lewis G. Cole |
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$ |
35,000 |
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$ |
15,000 |
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$ |
5,000 |
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$ |
55,000 |
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2,600 |
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1,000 |
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Helmut N.
Friedlaender |
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$ |
35,000 |
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$ |
15,000 |
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$ |
50,000 |
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2,600 |
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1,000 |
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Sheldon S. Gordon |
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$ |
35,000 |
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$ |
15,000 |
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$ |
10,000 |
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$ |
60,000 |
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2,600 |
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1,000 |
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Charles D. Klein |
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$ |
35,000 |
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$ |
15,000 |
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$ |
5,000 |
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$ |
55,000 |
|
|
|
2,600 |
|
|
|
1,000 |
|
Frank S. Hermance (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James R. Malone |
|
$ |
35,000 |
|
|
$ |
15,000 |
|
|
$ |
5,000 |
|
|
$ |
55,000 |
|
|
|
2,600 |
|
|
|
1,000 |
|
David P. Steinmann |
|
$ |
35,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
$ |
50,000 |
|
|
|
2,600 |
|
|
|
1,000 |
|
Elizabeth R. Varet |
|
$ |
35,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
$ |
50,000 |
|
|
|
2,600 |
|
|
|
1,000 |
|
|
|
|
(1) |
|
The table does not include compensation for reimbursement of travel expenses related to
attending Board, Committee and AMETEK business meetings, and approved educational seminars. |
|
(2) |
|
Non-Employee Directors receive $3,750 for each of the four regular meetings of the Board of
Directors they attend. There is no additional compensation for attending Committee meetings. |
|
(3) |
|
Reflects shares underlying stock options and restricted stock awards that were granted under
the 2002 Incentive Stock Plan of AMETEK, Inc., as described above. |
|
(4) |
|
Mr. Hermance does not receive additional compensation for serving on the Board or its
Committees. For information regarding Mr. Hermances compensation, see Executive
Compensation (beginning on page 13). |
With respect to persons who first became members of the Board of Directors prior to January 1,
1997, AMETEK sponsors a retirement plan for Directors, under which each Non-Employee Director who
has at least three years of service as a Director or officer of AMETEK and does not have a benefit
under AMETEKs retirement plan, receives an annual retirement benefit equal to 100% of that
Directors highest annual rate of cash compensation during the Directors service with the Board.
Retirement benefits are paid from AMETEKs general assets. Mr. Friedlaender, Mr. Steinmann and Ms.
Varet have accrued an annual retirement benefit of $50,000. Messrs. Cole, Klein and Malone have
accrued an annual retirement benefit of $55,000. Mr. Gordon has accrued an annual retirement
benefit of $60,000.
With respect to persons who first became members of the Board of Directors prior to July 22, 2004,
AMETEK sponsors a Death Benefit Program for Directors, under which 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. Directors appointed after January 1, 1989 must complete five years of service as
a Director in order for this benefit to be paid at retirement or age 70. The Death Benefit Program
is funded by individual life insurance policies purchased by AMETEK 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. AMETEK retains the right to
terminate any of the individual agreements under certain circumstances.
Mandatory Retirement. The retirement policy for AMETEKs Board of Directors prohibits a
Director from standing for re-election following his or her 75th birthday.
6
Certain Relationships and Related Transactions. The law firm of Stroock & Stroock &
Lavan LLP, to which Mr. Cole is of counsel, rendered during 2005 and continues to render legal
services for AMETEK and its subsidiaries.
An immediate family member of Mr. Hermance is employed at an operating unit of AMETEK and has
annual compensation in excess of $60,000.
ADVANCE NOTICE PROCEDURES
In accordance with AMETEKs By-Laws, stockholders must give AMETEK notice relating to
nominations for Director or proposed business to be considered at AMETEKs 2007 Annual Meeting of
Stockholders no earlier than January 25, 2007 nor later than February 24, 2007. These requirements
do not affect the deadline for submitting stockholder proposals for inclusion in the proxy
statement or for suggesting 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 2007 PROXY STATEMENT
If a stockholder intends to submit a proposal at AMETEKs 2007 Annual Meeting of Stockholders,
it must be received by AMETEK at its executive offices on or prior to November 17, 2006 to be
considered for inclusion in the proxy material to be used in connection with the 2007 Annual
Meeting.
7
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 2005 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 discussed with Ernst & Young LLP its independence from AMETEK and its
management, including the matters contained in written disclosures required by the Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees, and has considered
the compatibility of non-audit services with its independence.
The Committee discussed with AMETEKs internal auditors and independent registered public
accounting firm 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 controls, and the overall quality of AMETEKs financial reporting. The Committee held
eight meetings during the fiscal year ended December 31, 2005, which included telephone meetings
prior to quarterly earnings announcements.
In reliance 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, 2005, for filing with
the Securities and Exchange Commission.
Respectfully submitted,
The Audit Committee:
Sheldon S. Gordon, Chairperson
Helmut N. Friedlaender
James R. Malone
Dated: March 17, 2006
8
ELECTION OF DIRECTORS
(Proposal 1 on Proxy Card)
The nominees for election at this years Annual Meeting are Steven W. Kohlhagen, James R.
Malone, Elizabeth R. Varet and Dennis K. Williams. Mr. Malone, Ms. Varet and Mr. Williams have
been nominated to serve as Class III Directors and, if elected, will serve until the Annual Meeting in 2009. Mr. Kohlhagen
has been nominated to serve as a Class I Director, as a result of action by the Board of Directors
to increase the number of Class I Directors from two to three. If elected, Mr. Kohlhagen will serve
as a Director until the Annual Meeting in 2007.
Mr. Malone and Ms. Varet previously have been elected to the Board as Class III Directors by our
stockholders. Mr. Williams is being nominated for election to the Board as a Class III Director to
fill a vacancy left by the
retirement of Helmut N. Friedlaender. Mr. Williams was recommended for nomination by the Chief
Executive Officer. Mr. Kohlhagen was recommended for nomination by a Non-Management Director.
All proxies received will be voted for the election of the nominees unless directed otherwise by
the stockholder in the proxy. Nominees for each class of Director 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 in the relevant class.
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 AMETEKs independent
registered public accounting firm for the fiscal year ending December 31, 2006. Ernst & Young LLP
and its predecessor has served continuously as AMETEKs independent auditors since AMETEKs
incorporation in 1930, and the Audit Committee recommends ratification of such appointment by the
stockholders. 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 AMETEK by Ernst & Young LLP for services rendered in 2005 and 2004 totaled
$3,409,000 and $3,629,000, respectively, and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Audit fees |
|
$ |
3,246,000 |
|
|
$ |
3,459,000 |
|
Audit-related fees |
|
|
41,000 |
|
|
|
32,000 |
|
Tax fees |
|
|
113,000 |
|
|
|
132,000 |
|
All other fees |
|
|
9,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
$ |
3,409,000 |
|
|
$ |
3,629,000 |
|
|
|
|
|
|
|
|
Audit fees include amounts for attestation services related to AMETEKs 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 employee benefit plan audits.
9
The amounts shown for Tax fees were for 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
Except as indicated below, each Director has had the principal occupation described below for
at least the last five years.
|
|
|
Class III: Nominees for election at this Annual Meeting for terms expiring in 2009: |
|
|
|
JAMES R. MALONE
Director since 1994
|
|
Founder and Managing Partner of Qorval LLC since June 2003.
President and Chief Executive Officer (from June 2005 to
September 2005) and Chairman (from August 2005 to September
2005) of Cenveo, Inc. Chairman of the Board (from December 1996
to January 2004) and Chief Executive Officer (from May 1997 to
January 2004) of HMI Industries, Inc. Founder and Managing
Partner of Bridge Associates LLC from June 2000 to May 2002. A
Director of AmSouth Bancorporation. Age 63. |
|
|
|
ELIZABETH R. VARET
Director since 1987
|
|
A Managing Director of American Securities, L.P. and chairman of
the corporate general partner of several affiliated entities.
Age 62. |
|
|
|
DENNIS K. WILLIAMS
|
|
Chairman of the Board and, through March 2005, President and
Chief Executive Officer of IDEX Corporation. (Mr. Williams will
retire as Chairman of the Board on April 4, 2006.) A Director
of Washington Group International, Inc. and Owens-Illinois, Inc.
Age 60. |
|
|
|
Class I: Nominee for election at this Annual Meeting for a term expiring in 2007: |
|
|
|
STEVEN W. KOHLHAGEN
|
|
Consultant since August 2004. A Managing Director of First
Union National Bank, predecessor to the current Wachovia
National Bank, from December 1992 to August 2002. A Managing
Director of AIG Financial Products from May 1990 to December
1992. A Director of IQ Investment Advisors. Age 58. |
|
|
|
Class I: Directors whose terms continue until 2007: |
|
|
|
LEWIS G. COLE
Director since 1987
|
|
Of Counsel, Stroock & Stroock & Lavan LLP, Attorneys. Prior to
January 1, 2005, Partner, Stroock & Stroock & Lavan LLP. Age
75. |
|
|
|
CHARLES D. KLEIN
Director since 1980
|
|
A Managing Director of American Securities Capital Partners, LLC
and an executive officer of several affiliated entities. Age 67. |
|
|
|
Class II: Directors whose terms continue until 2008: |
|
|
|
SHELDON S. GORDON
Director since 1989
|
|
Chairman of Union Bancaire Privée International Holdings, Inc.
and affiliated entities. A Director of the Holland Balanced
Fund, Union Bancaire Privée and Gulfmark Offshore, Inc. Age 70. |
|
|
|
FRANK S. HERMANCE
Director since 1999
|
|
Chairman of the Board and Chief Executive Officer of AMETEK
since January 2001. A Director of IDEX Corporation. Age 57. |
|
|
|
DAVID P. STEINMANN
Director since 1993
|
|
A Managing Director of American Securities, L.P. and an
executive officer of several affiliated entities. Age 64. |
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 on executive officers of AMETEK is shown
below:
|
|
|
|
|
|
|
Name |
|
Age |
|
Present Position with AMETEK |
Frank S. Hermance
|
|
|
57 |
|
|
Chairman of the Board and Chief Executive Officer |
|
John J. Molinelli
|
|
|
59 |
|
|
Executive Vice PresidentChief Financial Officer |
|
Timothy N. Jones
|
|
|
49 |
|
|
PresidentElectromechanical Group |
|
Robert W. Chlebek
|
|
|
62 |
|
|
PresidentElectronic Instruments |
|
David A. Zapico
|
|
|
41 |
|
|
PresidentElectronic Instruments |
|
Robert R. Mandos, Jr.
|
|
|
47 |
|
|
Senior Vice President and Comptroller |
|
Deirdre D. Saunders
|
|
|
58 |
|
|
Vice President and Treasurer |
Frank S. Hermances employment history with AMETEK and other Directorships currently held are
included under the section The Board of Directors on page 11. Mr. Hermance has 15 years of
service with AMETEK.
John J. Molinelli was elected Executive Vice PresidentChief Financial Officer effective April 22,
1998.
Mr. Molinelli has 37 years of service with AMETEK.
Timothy N. Jones was elected PresidentElectromechanical Group effective February 1, 2006.
Previously he served as Vice President and General Manager of AMETEKs Process & Analytical
Instruments Division from October 1999 to January 2006. Mr. Jones has 26 years of service with
AMETEK.
Robert W. Chlebek was elected PresidentElectronic Instruments effective March 1, 1997. Mr.
Chlebek has 9 years of service with AMETEK.
David A. Zapico was elected PresidentElectronic Instruments effective October 1, 2003. Previously
he served as Vice President and General Manager of AMETEKs Aerospace and Power Instruments
Division from July 1999 to October 2003. Mr. Zapico has 16 years of service with AMETEK.
Robert R. Mandos, Jr. was elected Senior Vice President effective October 1, 2004. Previously he
served as Vice President since April 22, 1998. He has served as Comptroller of AMETEK since April
1996. Mr. Mandos has 24 years of service with AMETEK.
Deirdre D. Saunders was elected Vice President effective July 30, 1997. She has served as
Treasurer since April 1993. Ms. Saunders has 19 years of service with AMETEK.
12
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for establishing and
administering the policies and plans related to compensation and benefits for officers and other
AMETEK employees, including the executives listed in the Summary Compensation Table on page 16 of
this Proxy Statement. The individuals listed in that table are referred to as the named executive
officers.
This report provides information regarding policies and practices concerning compensation for the
Chairman of the Board and Chief Executive Officer and the other executive officers of AMETEK.
COMPENSATION OVERVIEW
The Compensation Committee of the Board of Directors is responsible for (a) the establishment and
periodic review of the Companys compensation philosophy and the adequacy of the compensation plans
for officers and other Company employees, (b) the establishment of compensation arrangements and
incentive goals for officers and the administration of compensation plans, (c) the review of the
performance of officers, the awarding of incentive compensation and the adjustment of compensation
arrangements as appropriate based on performance, and (d) the review and monitoring of management
development and succession plans.
The members of the Compensation Committee, Messrs. Gordon, Klein and Malone and Ms. Varet, are
independent Directors of AMETEK.
Executive compensation consists of three principal elements: (a) salary, (b) short-term incentive
awards and (c) long-term incentive awards. AMETEK provides additional retirement and other
benefits for executives similar to those provided by other major corporations.
To assess the competitiveness of its executive compensation levels, AMETEK utilizes published
compensation surveys conducted by an independent, third-party employee benefits consulting firm.
In analyzing the survey data, AMETEK looks particularly at compensation levels at comparable
organizations both within and outside of its industry.
Required Stock Ownership for Executives
The Compensation Committee believes that AMETEK should attract, retain, motivate and benefit from
the guidance and experience of talented and qualified executives who will advance AMETEKs
profitability and worldwide growth. AMETEK also believes that encouraging its executives to
acquire a larger equity interest in AMETEK links their efforts as executives to the interests of
the shareholders, providing additional incentives for the maximum success of AMETEK. Accordingly,
AMETEK has directed that executive officers and management of AMETEK acquire stock, within a
reasonable period of time, varying in value from one to five times their base salary. Mr. Hermance
has exceeded his required AMETEK stock ownership level of five times base salary, and Messrs.
Molinelli, Chlebek, Jones and Zapico have each exceeded their required AMETEK stock ownership level
of three times base salary. The other executive officers have also achieved their required stock
ownership levels.
Salary
The salary level for each AMETEK executive officer is based principally on the executives
responsibilities. Consideration also is given to factors such as the individuals experience and
performance and salaries paid to executive officers by comparable companies. When determining
adjustments to each executive officers salary, consideration also is given to prevailing economic
conditions and the adjustments being given to other employees within AMETEK. In determining
executive salaries, the Compensation Committee has targeted the median level of the compensation
range for each position at comparable companies.
13
Short-Term Incentive Awards
Short-term incentive awards, paid annually in cash, are for individual contributions to AMETEKs
performance. AMETEKs diluted earnings per share, the operating profit of the business unit an
executive is responsible for, and other goals, such as asset management improvement, as established
by the Compensation Committee after consultation with the Chairman and Chief Executive Officer, are
used in determining performance. Short-term incentive awards are leveraged, which means that
amounts paid for over- or underperformance to targets could be significantly higher or lower than
the targeted short-term incentive level, with a maximum payout of 200% of target. In determining
the short-term incentive award for the Chairman and Chief Executive Officer, the Compensation
Committee reviews the Chairman and Chief Executive Officers performance against established goals.
For the other executive officers, the Chairman and Chief Executive Officer reviews AMETEKs
performance and the individual contribution of each executive officer against established targets
and makes recommendations to the Compensation Committee with respect to the appropriate short-term
incentive amount to be awarded to each individual for that year. The Compensation Committee then
meets with the Chairman and Chief Executive Officer to consider such recommendations, makes any
appropriate changes, and then approves the short-term incentive awards.
In 2005, AMETEKs earnings per share performance exceeded the goal established by the Compensation
Committee.
Long-Term Incentive Awards
Long-term incentive awards are considered an important complement to the cash elements of AMETEKs
executive officers compensation because they align the executives interests with shareholders
interests. A principal factor influencing the market price of AMETEKs stock is AMETEKs
performance as reflected in its sales, earnings, cash flow and other results. By granting stock
options or restricted stock to AMETEKs executive officers, such individuals are encouraged to
achieve consistent improvements in AMETEKs performance. AMETEKs shareholders have approved the
plans under which such awards are made. The exercise price of options equals the mean market price
of AMETEKs stock on the grant date. Accordingly, options will only yield income to the executive
if the market price of AMETEKs stock is greater at the time of exercise than it was when the
option was granted. Awards of shares of restricted stock are subject to forfeiture restrictions,
which prohibit the recipient from selling such shares until all vesting conditions have been met.
Awards provide inducements to the executive officers to remain with AMETEK over the long term and
enhance corporate performance and, correspondingly, shareholder value. When determining whether to
make grants of stock options or awards of restricted stock, as well as the size of such awards, the
Compensation Committee considers AMETEKs performance and relative stockholder return, the value of
awards to officers at comparable companies referred to earlier, the awards given to the officers in
past years, and whether an officer is making adequate progress to achieving his or her required
stock ownership level. An executive not making adequate progress to achieving the required
ownership level will receive smaller long-term incentive awards than they would otherwise be
awarded.
Mr. Hermances Compensation
In determining the appropriate levels for Mr. Hermances 2005 base salary, the Compensation
Committee considered the same factors it considered when setting base compensation levels for
AMETEKs other executive officers.
The Compensation Committee uses a formula to determine Mr. Hermances short-term incentive award.
Under that formula, Mr. Hermances short-term incentive award is primarily based on performance
against AMETEKs diluted earnings per share target. The remaining portion is at the discretion of
the Compensation Committee based on the performance of AMETEK and the progress on strategic
initiatives as shown below.
The Compensation Committee considered the major initiatives and programs commenced or furthered
under Mr. Hermances leadership during 2005. Among the achievements in 2005 under Mr. Hermances
leadership:
14
(a) |
|
AMETEK achieved record operating performance. Sales increased 16% on strong internal growth
in each of AMETEKs two segments and the contributions from acquired businesses. AMETEKs net
income rose 25% to $141 million and diluted earnings per share rose 22% to $1.99, from $1.63
in 2004. |
(b) |
|
AMETEK generated record cash flow from operations of $166 million. |
(c) |
|
AMETEKs Four Growth Strategies Operational Excellence, Strategic Acquisitions &
Alliances, Global & Market Expansion and New Products continued to build long-term
shareholder value. |
|
|
|
AMETEKs Operational Excellence efforts yielded significant margin improvements in
2005. Group operating margins increased from 17.9% in 2004 to 18.6% in 2005. |
|
|
|
|
AMETEK continued to expand internationally, growing international sales by 22% in 2005
over 2004. International sales now account for 46% of AMETEKs revenue. |
|
|
|
|
AMETEK continued its focus on acquisitions as a key component of its growth plans.
During 2005, AMETEK completed three large acquisitions: SPECTRO Analytical Instruments,
Solartron, and HCC Industries. These highly differentiated businesses added approximately
$260 million in annualized revenue to AMETEK. |
|
|
|
|
A number of new products were introduced over the past year that contributed to
AMETEKs revenue and profitability. |
(d) |
|
AMETEKs total return to shareholders of 20% during the year reflects its excellent
performance. |
(e) |
|
AMETEK has substantially upgraded its leadership talent, positioning it to sustain growth. |
The Compensation Committee also evaluated data regarding CEO compensation practices of comparable
companies (which were referred to previously) so that Mr. Hermances total compensation would be in
line with that of CEOs of such other companies.
The Compensation Committee desired to motivate Mr. Hermance to further increase shareholder value
and to retain his services over the next six years. To achieve this goal, on April 27, 2005, Mr.
Hermance was awarded a long-term incentive through a grant of 350,000 shares of restricted Common
Stock. The vesting of this stock will occur if AMETEKs stock price reaches or exceeds $75.16, the
sixth anniversary of the date of grant, provided Mr. Hermance has been continuously employed by
AMETEK through that date, or upon such other conditions as detailed in the second paragraph of
footnote (1) on page 16.
Section 162(m)
Under Section 162(m) of the Internal Revenue Code, a publicly-held corporation may not deduct more
than $1 million in a taxable year for certain forms of compensation paid to the Chief Executive
Officer or any other executive officer whose compensation is required to be reported in the Summary
Compensation Table. AMETEKs policy is generally to preserve the federal income tax deductibility
of compensation paid to its executives. Accordingly, to the extent feasible, AMETEK takes action
to preserve the deductibility of certain stock-based incentive awards to its executive officers.
However, the Compensation Committee retains the flexibility to authorize compensation that may not
be deductible if it believes that it is in the best interests of AMETEK to do so. Payment of some
of the compensation referred to in the Summary Compensation Table (see page 16) was deferred. The
Compensation Committee believes that all compensation paid to its executives in 2005 was
deductible.
Respectfully submitted,
The Compensation Committee:
Charles D. Klein, Chairperson
Sheldon S. Gordon
James R. Malone
Elizabeth R. Varet
Dated: March 17, 2006
15
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation |
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Shares |
|
All Other |
|
|
|
|
|
|
|
Annual Compensation |
Stock |
|
Underlying |
|
Compensation |
Name and |
|
|
|
|
|
Salary |
|
Bonus |
|
Award(s) |
|
Options |
|
($) |
Principal Position |
|
Year |
|
($) |
|
($) |
|
($)(1) |
|
(#) |
|
(2) |
F.S. Hermance |
|
|
2005 |
|
|
|
675,000 |
|
|
|
950,000 |
|
|
|
14,303,650 |
|
|
|
87,050 |
|
|
|
186,192 |
|
Chairman of the Board and Chief |
|
|
2004 |
|
|
|
650,000 |
|
|
|
1,100,000 |
|
|
|
1,730,223 |
|
|
|
175,415 |
|
|
|
203,514 |
|
Executive Officer |
|
|
2003 |
|
|
|
625,000 |
|
|
|
700,000 |
|
|
|
|
|
|
|
160,000 |
|
|
|
148,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.J. Molinelli |
|
|
2005 |
|
|
|
313,500 |
|
|
|
294,000 |
|
|
|
246,459 |
|
|
|
18,580 |
|
|
|
53,917 |
|
Executive
Vice |
|
|
2004 |
|
|
|
301,000 |
|
|
|
319,000 |
|
|
|
521,135 |
|
|
|
50,930 |
|
|
|
56,614 |
|
President |
|
|
2003 |
|
|
|
289,250 |
|
|
|
200,000 |
|
|
|
|
|
|
|
60,000 |
|
|
|
40,267 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.J. Neupaver |
|
|
2005 |
|
|
|
315,000 |
|
|
|
198,000 |
|
|
|
213,398 |
|
|
|
16,090 |
|
|
|
41,200 |
|
President |
|
|
2004 |
|
|
|
305,000 |
|
|
|
282,000 |
|
|
|
496,385 |
|
|
|
48,500 |
|
|
|
51,676 |
|
Electromechanical Group (through |
|
|
2003 |
|
|
|
295,000 |
|
|
|
125,000 |
|
|
|
|
|
|
|
55,000 |
|
|
|
30,616 |
|
1/31/06) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.W. Chlebek |
|
|
2005 |
|
|
|
288,000 |
|
|
|
216,000 |
|
|
|
213,398 |
|
|
|
16,090 |
|
|
|
59,220 |
|
PresidentElectronic |
|
|
2004 |
|
|
|
278,000 |
|
|
|
269,000 |
|
|
|
396,822 |
|
|
|
38,800 |
|
|
|
50,412 |
|
Instruments |
|
|
2003 |
|
|
|
270,000 |
|
|
|
205,000 |
|
|
|
|
|
|
|
45,000 |
|
|
|
41,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.A. Zapico |
|
|
2005 |
|
|
|
265,000 |
|
|
|
276,000 |
|
|
|
201,751 |
|
|
|
15,210 |
|
|
|
44,501 |
|
PresidentElectronic |
|
|
2004 |
|
|
|
245,000 |
|
|
|
296,000 |
|
|
|
396,822 |
|
|
|
38,800 |
|
|
|
45,096 |
|
Instruments |
|
|
2003 |
|
|
|
210,737 |
|
|
|
101,000 |
|
|
|
|
|
|
|
32,000 |
|
|
|
15,942 |
|
(1) |
|
On April 27, 2005, Mr. Hermance received a grant of 30,720 shares of restricted Common
Stock, Mr. Molinelli received a grant of 6,560 shares of restricted Common Stock,
Mr. Neupaver received a grant of 5,680 shares of restricted Common Stock, Mr. Chlebek received
a grant of 5,680 shares of restricted Common Stock, and Mr. Zapico received a grant of 5,370
shares of restricted Common Stock. These shares become vested on the earliest to occur of (a)
the closing price of AMETEKs Common Stock on any five consecutive days equaling or exceeding
$75.16 per share, (b) death or permanent disability, (c) termination of employment with AMETEK
in connection with a change of control, (d) the fourth anniversary of the date of grant,
namely April 27, 2009, provided the grantee has been in the continuous employ of AMETEK
through that date, or (e) retirement from AMETEK at or after age 55 and the completion of at
least ten years of employment with AMETEK, in which case only a pro rata portion of the shares
shall become nonforfeitable and transferable based upon the time that has elapsed since the
date of grant. |
|
|
|
On April 27, 2005, Mr. Hermance also received a special grant of 350,000 shares of restricted
Common Stock. These shares become vested on the earliest to occur of (a) the closing price of
AMETEKs Common Stock on any five consecutive days equaling or exceeding $75.16 per share, (b)
death or permanent disability, (c) termination of employment with AMETEK in connection with a
change of control, (d) termination of employment by AMETEK without Cause or resignation for
Good Reason (as such terms are defined in an amendment to Mr. Hermances Termination and Change
of Control Agreement dated May 18, 2004), or (e) the sixth anniversary of the date of grant,
namely April 27, 2011, provided Mr. Hermance has been in the continuous employ of AMETEK
through that date. |
16
|
|
The dollar values shown (net of consideration paid by the named executive officers) are based
on the closing price of AMETEKs Common Stock on April 27, 2005 ($37.58). As of December 30,
2005, the aggregate number of shares of restricted Common Stock held by the named executive
officers, and the dollar value of such shares, was: Mr. Hermance, 443,870 shares
($18,882,230), Mr. Molinelli, 25,090 shares ($1,067,329), Mr. Neupaver, 23,330 shares
($992,458), Mr. Chlebek, 19,790 shares ($841,867), and Mr. Zapico, 19,480 shares ($828,679).
The dollar values are based on the closing price of AMETEKs Common Stock on December 30, 2005
($42.54). Cash dividends will be earned but will not be paid until the restricted stock vests. |
(2) |
|
The amounts reported represent AMETEKs contribution to the AMETEK Retirement and Savings
Plan for Messrs. Hermance, Molinelli, Neupaver and Zapico ($1,200 each), the amount
contributed for Mr. Chlebek under the Retirement Feature of the AMETEK Retirement and Savings
Plan ($12,900), the value of premiums paid by AMETEK with respect to term life insurance for
the benefit of each of the named executive officers (Mr. Hermance $1,042, Mr. Molinelli -
$1,042, Mr. Neupaver $610, Mr. Chlebek $1,210 and Mr. Zapico $271), and the value of
contributions under the Supplemental Executive Retirement Plan
(SERP) (Mr. Hermance
$183,950, Mr. Molinelli $51,675, Mr. Neupaver $39,390, Mr. Chlebek $45,110 and Mr.
Zapico $43,030) (described in more detail on page 19). |
|
(3) |
|
Mr. Neupaver resigned effective January 31, 2006. |
STOCK OPTION GRANTS IN 2005
The following table provides details regarding stock options granted to the named executive
officers in 2005. In addition, the table provides the hypothetical gains that would result for the
respective options based on assumed rates of annual compounded stock price appreciation of 5% and
10% from the dates the options were granted through their expiration dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants |
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
Total |
|
|
|
|
|
Potential Realizable Value |
|
|
Shares |
|
Options |
|
|
|
|
|
at Assumed Annual Rate of |
|
|
Underlying |
|
Granted to |
|
|
|
|
|
Stock Price Appreciation |
|
|
Options |
|
Employees in Fiscal |
|
Exercise |
|
Expiration |
|
for Option Term(1) |
Name |
|
Granted (2) |
|
Year |
|
Price ($/Sh) |
|
Date |
|
5% ($) |
|
10% ($) |
F.S. Hermance |
|
|
87,050 |
|
|
|
21.34 |
|
|
$ |
37.93 |
|
|
|
4/26/2012 |
|
|
|
1,344,167 |
|
|
|
3,132,480 |
|
J.J. Molinelli |
|
|
18,580 |
|
|
|
4.55 |
|
|
$ |
37.93 |
|
|
|
4/26/2012 |
|
|
|
286,900 |
|
|
|
668,598 |
|
A.J. Neupaver |
|
|
16,090 |
|
|
|
3.94 |
|
|
$ |
37.93 |
|
|
|
4/26/2012 |
|
|
|
248,451 |
|
|
|
578,996 |
|
R.W. Chlebek |
|
|
16,090 |
|
|
|
3.94 |
|
|
$ |
37.93 |
|
|
|
4/26/2012 |
|
|
|
248,451 |
|
|
|
578,996 |
|
D.A. Zapico |
|
|
15,210 |
|
|
|
3.73 |
|
|
$ |
37.93 |
|
|
|
4/26/2012 |
|
|
|
234,862 |
|
|
|
547,329 |
|
(1) |
|
The amounts represent certain assumed rates of appreciation. Actual gains, if any, on
stock option exercises are dependent on the future performance of AMETEK s Common Stock.
There can be no assurance that the rates of appreciation reflected in this table will be
achieved. |
|
(2) |
|
Except as noted in the following sentence, the options granted in 2005 become exercisable as
to 25% of the underlying shares on each of the first four anniversaries of the date of grant
(April 27, 2005). Options generally become fully exercisable in the event of the holders
death, normal retirement or termination of employment in connection with a change of control. |
17
AGGREGATE OPTION EXERCISES IN 2005
AND OPTION VALUES AT DECEMBER 31, 2005
The following table shows stock options exercised by the named executive officers during 2005 and
the aggregate amounts realized by each such officer. In addition, the table shows the aggregate
number of unexercised options that were exercisable and unexercisable as of December 31, 2005, and
the value of in-the-money stock options on December 31, 2005, which is based on the difference
between the market price of AMETEKs Common Stock at December 30, 2005 and the exercise price of
such options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Value of |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
Unexercised |
|
|
Shares |
|
|
|
|
|
Unexercised Options |
|
In-the-Money Options |
|
|
Acquired On |
|
Value |
|
at December 31, 2005 (#) |
|
at December 31, 2005 ($) |
Name |
|
Exercise (#) |
|
Realized ($) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
F.S. Hermance |
|
|
336,442 |
|
|
|
10,320,327 |
|
|
|
388,853 |
|
|
|
333,612 |
|
|
|
9,948,624 |
|
|
|
5,156,442 |
|
J.J. Molinelli |
|
|
106,702 |
|
|
|
3,346,755 |
|
|
|
213,982 |
|
|
|
100,528 |
|
|
|
5,917,654 |
|
|
|
1,690,429 |
|
A.J. Neupaver |
|
|
130,000 |
|
|
|
3,859,256 |
|
|
|
80,875 |
|
|
|
93,715 |
|
|
|
1,823,134 |
|
|
|
1,591,836 |
|
R.W. Chlebek |
|
|
55,000 |
|
|
|
1,095,623 |
|
|
|
24,700 |
|
|
|
78,940 |
|
|
|
552,175 |
|
|
|
1,306,374 |
|
D.A. Zapico |
|
|
36,000 |
|
|
|
833,290 |
|
|
|
34,700 |
|
|
|
68,310 |
|
|
|
743,112 |
|
|
|
1,066,389 |
|
18
RETIREMENT PLANS
The Employees Retirement Plan of AMETEK, Inc. (the Retirement Plan) is a non-contributory
defined benefit pension plan under which contributions are actuarially determined. The following
table sets forth the estimated annual benefits, expressed as a single life annuity, payable upon
retirement (assuming normal retirement at age 65) under the Retirement Plan for individuals with
the indicated years of service and at the indicated compensation levels:
PENSION PLAN TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Benefits Based On |
|
|
Years of Service at Normal Retirement Age (1) |
Average |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
15 |
|
20 |
|
25 |
|
30 |
|
35 or more |
$150,000 |
|
|
57,000 |
|
|
|
60,900 |
|
|
|
64,700 |
|
|
|
64,700 |
|
|
|
64,700 |
|
200,000 |
|
|
77,400 |
|
|
|
82,500 |
|
|
|
87,600 |
|
|
|
87,600 |
|
|
|
87,600 |
|
220,000 or more |
|
|
85,600 |
|
|
|
91,200 |
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
96,800 |
|
|
|
|
(1) |
|
Benefit amounts assume a participant reaches age 65 in 2006; for younger participants, the
benefit amounts are less than the amounts indicated above. |
At December 31, 2005, the executives named in the Summary Compensation Table had the following
years of credited service under the Retirement Plan: Mr. Hermance-15, Mr. Molinelli-36, Mr.
Neupaver-28, and Mr. Zapico-16. Persons joining AMETEK after January 1, 1997,
including Mr. Chlebek, are not eligible to participate in the Retirement Plan, but instead are
eligible to participate in the Retirement Feature of the AMETEK Retirement and Savings Plan, a
defined contribution plan. Participants receive an annual contribution of between 3% and 8% of
their compensation depending on their age and years of service with AMETEK.
The annual compensation taken into account for any plan year is generally equal to the
participants salary and any bonus accrued during the plan year as reported in the Summary
Compensation Table. Compensation in excess of a certain amount prescribed by the Secretary of the
Treasury ($210,000 for 2005) is not taken into account under the Retirement Plan or the Retirement
Feature of the AMETEK Retirement and Savings Plan. The individuals named in the Summary
Compensation Table are subject to this limitation.
Pursuant to the AMETEK, Inc. Supplemental Executive Retirement Plan (the SERP), AMETEK agreed,
beginning in 1997, to credit to the account of certain executives, including executives named in
the Summary Compensation Table, an amount equal to 13% of the executives compensation in excess
of the statutory restrictions for each plan year, in order to compensate them for the loss of
retirement income under the Retirement Plan or the Retirement Feature of the AMETEK Retirement and
Savings Plan resulting from those restrictions. The credited amounts are deemed to be invested in
AMETEK Common Stock and, upon termination of employment or retirement, shall be distributed in
kind. An executives right to a benefit under the SERP becomes non-forfeitable at the same time
as the executives right to an accrued benefit under the Retirement Plan or the Retirement Feature
of the AMETEK Retirement and Savings Plan becomes non-forfeitable. The five named executives are
vested in their SERP accounts.
19
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND
CHANGE OF CONTROL ARRANGEMENTS
AMETEK has in place Change of Control agreements with all of its executive officers other
than Mr. Hermance, who is covered by a separate arrangement described in the following paragraphs.
The purpose of the agreements is to assure the continued attention and dedication of key
executives when AMETEK is faced with a potential Change of Control by providing for some
continuation of the executives compensation and benefits. In the event that an executives
employment is terminated by AMETEK without cause or by the executive for good reason within two
years after a Change of Control, AMETEK will pay to each executive the sum of the executives
prior years salary, plus the greater of (a) the current years bonus, or (b) the average of the
two prior years bonuses (all as limited under Section 280G of the Internal Revenue Code (the
Code)) for a period of one or three years (as defined in each executives agreement). Health
benefits will be continued until Medicare eligibility, coverage under another group health plan,
the expiration of ten years or the executives death, whichever is earliest. For purposes of the
agreements, a Change of Control means the acquisition of 20% or more of the voting stock of AMETEK
by a party other than AMETEK (or its affiliates), a merger or consolidation after which the
stockholders of AMETEK do not own or control at least 50% of the voting stock of AMETEK or a
successor company, any sale or other disposition of all or substantially all of AMETEKs assets,
or an approved plan of liquidation. Each of the executive officers named in the Summary
Compensation Table on page 16 (other than Mr. Hermance) will be entitled to three times their
annual compensation in the event of a Change of Control.
As of May 18, 2004, AMETEK entered into a Termination and Change of Control Agreement with Mr.
Hermance to assure his continued dedication in the event of a Change of Control and to provide
security to Mr. Hermance in the event his employment is terminated by AMETEK or a successor without
cause or by Mr. Hermance for good reason. This Agreement was amended on April 27, 2005.
For the purposes of this Agreement, a Change of Control has substantially the same meaning as in
the Change of Control Agreements with other executive officers, as described above, but also
includes certain changes in the composition of the Board of Directors and certain other
acquisitions of AMETEK or its shares.
In the event Mr. Hermances employment is terminated by the Company without cause or by Mr.
Hermance for good reason prior to and not in anticipation of a Change of Control, he will receive a
severance payment in an amount equal to two times his annual base salary for the preceding year,
and two times (a) his current years targeted bonus, if established, or (b) if not established, the
average of his bonuses for the two preceding years. In addition, his health and disability
insurance and death benefits will be continued under the same terms as are provided for other
executives as described above, but only for a period of up to two years, and certain other
executive perquisites will be continued for up to two years.
If Mr. Hermances employment is terminated by the Company without cause or by Mr. Hermance for good
reason, in anticipation of, upon or at any time following a Change of Control, he will receive a
lump sum cash payment equal to 2.99 times the sum of (i) his annual base salary for the preceding
year, and (ii) his current years targeted bonus, if established, or, if not established, the
average of his bonuses for the two preceding years. In such an event, AMETEK will continue Mr.
Hermances health and disability insurance and death benefits in the same manner as are provided
for other executives as described above, and certain other executive perquisites will be continued
for up to two years.
In the event Mr. Hermances employment is terminated by the Company without cause or by Mr.
Hermance for good reason, or in the event of a Change of Control, whether or not Mr. Hermances
employment is terminated, all stock options awarded to Mr. Hermance will immediately become 100%
vested, the restrictions on all restricted shares will immediately lapse, and Mr. Hermance will
have one year to exercise any non-qualified stock options.
20
Further, should the total payments to Mr. Hermance under the terms of the Agreement be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code, AMETEK will make an additional
payment to Mr. Hermance such that after payment of all excise taxes and any other taxes payable in
respect to the additional payment, Mr. Hermance shall retain the same amount as if no excise tax
had been imposed.
Pursuant to a Supplemental Senior Executive Death Benefit Program (the Program), AMETEK has
entered into individual agreements with certain executives. The agreements require AMETEK to pay
death benefits to their designated beneficiaries and to pay lifetime benefits to the executives
under certain 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 $5,833 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 an annual benefit of one-tenth of the lesser of (a) twice the executives
average annual base salary for the last five full years of service, rounded off to the next
highest multiple of $50,000 or (b) a maximum amount specified in the agreement. The highest
maximum amount specified in the existing agreements is $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, AMETEK has purchased individual life insurance policies on
the lives of certain of the covered executives. AMETEK retains the right to terminate all of the
Program agreements under certain circumstances. Messrs. Hermance, Molinelli, and Neupaver are
participants in the Program.
Messrs. Chlebek, Jones and Zapico are among the executives covered by the 2004 Executive Death
Benefit Plan. The retirement benefit under this Plan is an account balance, which is based on a
targeted benefit. The benefit is targeted to be 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 value of the benefit will vary based on the performance of certain
investments selected by AMETEK. The maximum salary on which the benefit can be based is
$500,000. AMETEK is required to pay death benefits to the designated beneficiaries of the
covered executive. 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. If the covered executive
retires, or reaches age 65 while on disability, the Plan provides for a lump-sum payment at
retirement or a deferred lump-sum payment at or before age 70.
21
STOCK OWNERSHIP
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 page 13 for a
discussion of executive officers stock ownership guidelines.)
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,
Non-Employee Directors are expected to own, by the end of a five-year period, AMETEK shares having
a value equal to at least five times their annual retainer. Each Non-Employee Director has
exceeded his or her required AMETEK stock ownership level of five times his or her annual retainer.
The following table shows the number of shares of AMETEK Common Stock that the Directors, the
executive officers listed on the Summary Compensation Table on page 16, 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 6,
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares and |
|
|
|
Nature of Ownership (1) |
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Shares |
|
|
Right to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial |
|
|
|
Beneficially |
|
|
Acquire |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
and SERP |
|
Name |
|
Owned |
|
|
(2) |
|
|
Total |
|
|
of Class |
|
|
SERP |
|
|
Ownership |
|
R. W. Chlebek, Officer |
|
|
19,790 |
|
|
|
24,700 |
|
|
|
44,490 |
|
|
|
* |
|
|
|
15,122 |
|
|
|
59,612 |
|
L. G. Cole, Director |
|
|
32,250 |
|
|
|
875 |
|
|
|
33,125 |
|
|
|
* |
|
|
|
|
|
|
|
33,125 |
|
H. N. Friedlaender, Director |
|
|
85,034 |
|
|
|
875 |
|
|
|
85,909 |
|
|
|
* |
|
|
|
|
|
|
|
85,909 |
|
S. S. Gordon, Director |
|
|
82,250 |
|
|
|
875 |
|
|
|
83,125 |
|
|
|
* |
|
|
|
|
|
|
|
83,125 |
|
F. S. Hermance,
Director and Officer |
|
|
764,312 |
|
|
|
388,853 |
|
|
|
1,153,165 |
|
|
|
1.6 |
% |
|
|
76,226 |
|
|
|
1,229,391 |
|
C. D. Klein, Director (3) |
|
|
143,716 |
|
|
|
875 |
|
|
|
144,591 |
|
|
|
* |
|
|
|
|
|
|
|
144,591 |
|
S. W. Kohlhagen, Nominee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
J. R. Malone, Director |
|
|
42,250 |
|
|
|
875 |
|
|
|
43,125 |
|
|
|
* |
|
|
|
|
|
|
|
43,125 |
|
J. J. Molinelli, Officer |
|
|
161,474 |
|
|
|
213,982 |
|
|
|
375,456 |
|
|
|
* |
|
|
|
28,293 |
|
|
|
403,749 |
|
A.J. Neupaver, Officer
(resigned 1/31/06) |
|
|
87,813 |
|
|
|
80,875 |
|
|
|
168,688 |
|
|
|
* |
|
|
|
27,000 |
|
|
|
195,688 |
|
D. P. Steinmann, Director (4) |
|
|
222,838 |
|
|
|
875 |
|
|
|
223,713 |
|
|
|
* |
|
|
|
|
|
|
|
223,713 |
|
E. R. Varet, Director (5) |
|
|
565,624 |
|
|
|
875 |
|
|
|
566,499 |
|
|
|
* |
|
|
|
|
|
|
|
566,499 |
|
D. K. Williams, Nominee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
D. A. Zapico, Officer |
|
|
47,532 |
|
|
|
34,700 |
|
|
|
82,232 |
|
|
|
* |
|
|
|
5,047 |
|
|
|
87,279 |
|
Directors and Executive Officers
as a Group (17 persons)
including individuals named
above |
|
|
2,243,479 |
|
|
|
858,261 |
|
|
|
3,101,740 |
|
|
|
4.4 |
% |
|
|
158,696 |
|
|
|
3,260,436 |
|
|
|
|
* Represents less than 1% of the outstanding shares of Common Stock of AMETEK. |
22
(1) |
|
Pursuant to 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 6, 2006. |
(3) |
|
Includes 4,000 shares owned by 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. Mr.
Klein has shared voting and investment power with respect to 42,666 shares, as to 38,666
shares of which such power is shared with Mr. Steinmann and others. |
(4) |
|
Includes 14,848 shares of which 10,400 shares are owned by Mr. Steinmanns wife and 4,448
shares are owned by Mr. Steinmanns adult children and as to which Mr. Steinmann disclaims any
beneficial ownership. Mr. Steinmann has shared voting and investment power with respect to
162,588 shares, as to 74,206 shares of which such power is shared with Ms. Varet and others,
and as to 38,666 shares of which such power is shared with Mr. Klein and others. |
(5) |
|
Includes 26,800 shares of which 20,000 shares are owned by a trust of which Ms. Varets
husband is a beneficiary, 3,600 shares are owned by Ms. Varets adult children, and 3,200
shares are owned by an estate of which Ms. Varets husband is an executor, and as to which Ms.
Varet disclaims any beneficial ownership. Ms. Varet has shared voting and investment power
with respect to 488,374 shares, as to 74,206 shares of which such power is shared with Mr.
Steinmann and others. |
23
OTHER BENEFICIAL OWNERSHIP
The following table shows the only entities known to AMETEK to be beneficial owners of more
than five percent of the outstanding shares of AMETEK as of March 10, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address of |
|
Nature of Beneficial |
|
|
|
|
Beneficial Owner |
|
Ownership |
|
Number of Shares |
|
Percent of Class |
T. Rowe
Price Associates, Inc.
|
|
Sole voting power for |
|
|
|
|
|
|
|
|
100 E. Pratt Street
|
|
765,700 shares and sole |
|
|
|
|
|
|
|
|
Baltimore, MD 21202 |
|
dispositive
power (1) |
|
|
4,561,100 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gabelli Funds LLC |
|
Sole voting and |
|
|
|
|
|
|
|
|
One Corporate Center |
|
dispositive power
(2) |
|
|
|
|
|
|
|
|
Rye, NY 10580-1434 |
|
|
|
|
|
|
873,000 |
|
|
|
|
|
|
GAMCO Investors, Inc. |
|
Sole voting power for |
|
|
|
|
|
|
|
|
One Corporate Center |
|
2,941,531 shares, and |
|
|
|
|
|
|
|
|
Rye, NY 10580-1434 |
|
sole dispositive
power (2) |
|
|
3,076,331 |
|
|
|
|
|
|
|
TOTAL |
|
|
3,949,331 |
|
|
|
5.6 |
% |
|
|
|
(1) |
|
Based on Schedule 13G filed on February 13, 2006. These securities are owned by various
individual and institutional investors 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 and 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 13F filed on February 13, 2006. |
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires AMETEKs Directors and
officers to file with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of AMETEKs Common Stock. Copies of all such Section 16(a)
reports are required to be furnished to AMETEK. These filing requirements also apply to holders
of more than 10% of AMETEKs Common Stock; to AMETEKs knowledge, there currently are no holders
of more than 10% of AMETEKs Common Stock. To AMETEKs knowledge, based solely on a review of
the copies of Section 16(a) reports furnished to AMETEK and written representations that no other
reports were required, during the fiscal year ended December 31, 2005, AMETEKs officers and
Directors were in compliance with all Section 16(a) filing requirements.
24
STOCK PERFORMANCE GRAPH
The following graph and accompanying table compare the cumulative total shareholder return for
AMETEK, Inc. for the five years ended December 31, 2005 with the total returns for the same period
for the Russell 1000 Index and the Dow Jones U.S. Electrical Components and Equipment Group
(DJEE). The performance graph and table assume an initial investment of $100 on December 31,
2000, and the reinvestment of all dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/00 |
|
12/31/01 |
|
12/31/02 |
|
12/31/03 |
|
12/31/04 |
|
12/31/05 |
|
|
|
AMETEK, Inc. |
|
$ |
100.00 |
|
|
$ |
123.97 |
|
|
$ |
150.62 |
|
|
$ |
190.01 |
|
|
$ |
283.26 |
|
|
$ |
339.82 |
|
RUSSELL 1000* |
|
|
100.00 |
|
|
|
87.55 |
|
|
|
68.59 |
|
|
|
89.10 |
|
|
|
99.26 |
|
|
|
105.48 |
|
DJEE* |
|
|
100.00 |
|
|
|
70.58 |
|
|
|
42.09 |
|
|
|
69.21 |
|
|
|
64.19 |
|
|
|
65.88 |
|
25
OTHER BUSINESS
AMETEK is 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 17, 2006
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 contrary instructions have been received. This
practice is known as householding and is designed to reduce duplicate printing and postage costs.
However, if a stockholder residing at such an address 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.
26
AMETEK, Inc.
ANNUAL FINANCIAL INFORMATION AND REVIEW OF OPERATIONS
(Appendix A to Proxy Statement)
Index
|
|
|
|
|
|
|
|
Page |
|
Selected Financial Data |
|
|
A-2 |
|
|
|
|
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations |
|
|
A-4 |
|
|
|
|
|
|
Reports of Management |
|
|
A-16 |
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting |
|
|
A-17 |
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Financial Statements |
|
|
A-18 |
|
|
|
|
|
|
Consolidated Statement of Income |
|
|
A-19 |
|
|
|
|
|
|
Consolidated Balance Sheet |
|
|
A-20 |
|
|
|
|
|
|
Consolidated Statement of Stockholders Equity |
|
|
A-21 |
|
|
|
|
|
|
Consolidated Statement of Cash Flows |
|
|
A-22 |
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
A-23 |
|
A-1
AMETEK,
INC.
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(Dollars and shares in millions,
except per share amounts)
|
|
|
Consolidated Operating Results
(Years Ended December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,434.5
|
|
|
$
|
1,232.3
|
|
|
$
|
1,091.6
|
|
|
$
|
1,040.5
|
|
|
$
|
1,019.3
|
|
Operating income(1) (2)
|
|
$
|
239.4
|
|
|
$
|
196.2
|
|
|
$
|
156.8
|
|
|
$
|
148.7
|
|
|
$
|
109.6
|
|
Interest expense
|
|
$
|
(32.9
|
)
|
|
$
|
(28.3
|
)
|
|
$
|
(26.0
|
)
|
|
$
|
(25.2
|
)
|
|
$
|
(27.9
|
)
|
Net income(1) (2)
|
|
$
|
140.6
|
|
|
$
|
112.7
|
|
|
$
|
87.8
|
|
|
$
|
83.7
|
|
|
$
|
66.1
|
|
Earnings per share:(1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.03
|
|
|
$
|
1.66
|
|
|
$
|
1.32
|
|
|
$
|
1.27
|
|
|
$
|
1.01
|
|
Diluted
|
|
$
|
1.99
|
|
|
$
|
1.63
|
|
|
$
|
1.30
|
|
|
$
|
1.24
|
|
|
$
|
0.99
|
|
Dividends declared and paid per
share
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
69.2
|
|
|
|
67.8
|
|
|
|
66.3
|
|
|
|
65.8
|
|
|
|
65.7
|
|
Diluted
|
|
|
70.7
|
|
|
|
69.3
|
|
|
|
67.6
|
|
|
|
67.3
|
|
|
|
66.9
|
|
Performance Measures and Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income Return on sales
|
|
|
16.7
|
%
|
|
|
15.9
|
%
|
|
|
14.4
|
%
|
|
|
14.3
|
%
|
|
|
10.7
|
%
|
Return
on average total assets
|
|
|
15.0
|
%
|
|
|
14.9
|
%
|
|
|
14.0
|
%
|
|
|
14.4
|
%
|
|
|
11.6
|
%
|
Net income Return
on average total capital
|
|
|
11.0
|
%
|
|
|
10.9
|
%
|
|
|
10.0
|
%
|
|
|
10.4
|
%
|
|
|
8.9
|
%
|
Return
on average stockholders equity
|
|
|
19.2
|
%
|
|
|
19.0
|
%
|
|
|
18.5
|
%
|
|
|
22.2
|
%
|
|
|
21.5
|
%
|
EBITDA(3)
|
|
$
|
275.8
|
|
|
$
|
233.4
|
|
|
$
|
191.1
|
|
|
$
|
180.4
|
|
|
$
|
157.8
|
|
Ratio of EBITDA to interest
expense(3)
|
|
|
8.4x
|
|
|
|
8.2
|
x
|
|
|
7.4
|
x
|
|
|
7.2
|
x
|
|
|
5.7x
|
|
Depreciation and amortization
|
|
$
|
39.4
|
|
|
$
|
39.9
|
|
|
$
|
35.5
|
|
|
$
|
33.0
|
|
|
$
|
46.5
|
|
Capital expenditures
|
|
$
|
23.3
|
|
|
$
|
21.0
|
|
|
$
|
21.3
|
|
|
$
|
17.4
|
|
|
$
|
29.4
|
|
Cash provided by operating
activities(4)
|
|
$
|
165.9
|
|
|
$
|
161.3
|
|
|
$
|
159.3
|
|
|
$
|
103.7
|
|
|
$
|
101.1
|
|
Free cash flow(4)
|
|
$
|
142.6
|
|
|
$
|
140.3
|
|
|
$
|
138.0
|
|
|
$
|
86.3
|
|
|
$
|
71.7
|
|
Ratio of earnings to fixed charges
|
|
|
6.4x
|
|
|
|
6.2
|
x
|
|
|
5.5
|
x
|
|
|
5.3
|
x
|
|
|
3.7x
|
|
Consolidated Financial Position
(at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
556.3
|
|
|
$
|
461.9
|
|
|
$
|
378.6
|
|
|
$
|
350.6
|
|
|
$
|
379.3
|
|
Current liabilities
|
|
$
|
405.8
|
|
|
$
|
272.8
|
|
|
$
|
289.2
|
|
|
$
|
261.4
|
|
|
$
|
336.2
|
|
Property, plant, and equipment
|
|
$
|
228.5
|
|
|
$
|
207.5
|
|
|
$
|
213.6
|
|
|
$
|
204.3
|
|
|
$
|
214.5
|
|
Total assets
|
|
$
|
1,780.6
|
|
|
$
|
1,420.4
|
|
|
$
|
1,217.1
|
|
|
$
|
1,030.0
|
|
|
$
|
1,039.5
|
|
Long-term debt
|
|
$
|
475.3
|
|
|
$
|
400.2
|
|
|
$
|
317.7
|
|
|
$
|
279.6
|
|
|
$
|
303.4
|
|
Total debt
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
|
$
|
424.4
|
|
|
$
|
390.1
|
|
|
$
|
470.8
|
|
Stockholders equity
|
|
$
|
805.6
|
|
|
$
|
659.6
|
|
|
$
|
529.1
|
|
|
$
|
420.2
|
|
|
$
|
335.1
|
|
Stockholders equity per share
|
|
$
|
11.43
|
|
|
$
|
9.60
|
|
|
$
|
7.90
|
|
|
$
|
6.35
|
|
|
$
|
5.11
|
|
Total debt as a percentage of
capitalization
|
|
|
43.9
|
%
|
|
|
40.6
|
%
|
|
|
44.5
|
%
|
|
|
48.1
|
%
|
|
|
58.4
|
%
|
See notes to Selected Financial Data on
page A-3.
A-2
Notes to
Selected Financial Data
|
|
|
(1) |
|
Amounts in 2001 included unusual pretax charges totaling
$23.3 million, or $15.3 million after tax
($0.23 per diluted share). The charges were for employee
reductions, facility closures and asset writedowns. The year
2001 also included a tax benefit and related interest income of
$10.5 million on an after-tax basis ($0.16 per diluted
share) resulting from the closure of several tax years. |
|
(2) |
|
Amounts in 2001 included the amortization of goodwill. Beginning
in 2002, goodwill was no longer permitted to be amortized under
new accounting rules. Had the Company not amortized goodwill in
2001, net income and diluted earnings per share in 2001 would
have been higher by $10.2 million and $0.15 per
diluted share, respectively . |
|
(3) |
|
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 financial statements. Furthermore, EBITDA
measures shown for the Company may not be comparable to
similarly titled measures used by other companies. The table
below presents the reconciliation of net income reported in
accordance with U.S. GAAP to EBITDA. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
140.6
|
|
|
$
|
112.7
|
|
|
$
|
87.8
|
|
|
$
|
83.7
|
|
|
$
|
66.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
32.9
|
|
|
|
28.3
|
|
|
|
26.0
|
|
|
|
25.2
|
|
|
|
27.9
|
|
Interest income
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
Income taxes
|
|
|
63.6
|
|
|
|
53.1
|
|
|
|
42.3
|
|
|
|
39.2
|
|
|
|
18.3
|
|
Depreciation
|
|
|
35.0
|
|
|
|
36.8
|
|
|
|
34.2
|
|
|
|
32.5
|
|
|
|
33.2
|
|
Amortization
|
|
|
4.4
|
|
|
|
3.1
|
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
135.2
|
|
|
|
120.7
|
|
|
|
103.3
|
|
|
|
96.7
|
|
|
|
91.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
275.8
|
|
|
$
|
233.4
|
|
|
$
|
191.1
|
|
|
$
|
180.4
|
|
|
$
|
157.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Free cash flow represents cash flow from operating activities,
before the effects of an accounts receivable securitization
program, 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 3 above). The table below
presents the reconciliation of cash flow from operating
activities reported in accordance with U.S. GAAP to free
cash flow. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(In millions)
|
|
|
Cash provided by operating
activities (U.S. GAAP basis)
|
|
$
|
165.9
|
|
|
$
|
161.3
|
|
|
$
|
159.3
|
|
|
$
|
103.7
|
|
|
$
|
56.1
|
|
Add: Receivable securitization
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash from operating
activities (before receivable securitization transactions)
|
|
|
165.9
|
|
|
|
161.3
|
|
|
|
159.3
|
|
|
|
103.7
|
|
|
|
101.1
|
|
Deduct: Capital expenditures
|
|
|
(23.3
|
)
|
|
|
(21.0
|
)
|
|
|
(21.3
|
)
|
|
|
(17.4
|
)
|
|
|
(29.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
142.6
|
|
|
$
|
140.3
|
|
|
$
|
138.0
|
|
|
$
|
86.3
|
|
|
$
|
71.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-3
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-15.
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.
Business
Overview
As a multinational 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. In 2005, the
Company experienced improved market conditions in most of its
differentiated businesses. Strong internal growth and recent
acquisitions, 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 2005. In addition to achieving its financial
objectives, the Company also continued to make progress on its
strategic initiatives under AMETEKs four growth
strategies: Operational Excellence, Strategic Acquisitions and
Alliances, Global and Market Expansion, and New Products.
Highlights of 2005 follow:
|
|
|
|
|
Sales were $1.4 billion, an increase of 16.4% from 2004 on
solid internal growth in each of the Companys business
segments, the Electronic Instruments Group (EIG) and
the Electromechanical Group (EMG), and contributions
from the three acquisitions completed during the year:
|
|
|
|
|
|
In June 2005, the Company acquired SPECTRO, which has expanded
the Companys elemental analysis capabilities in metal
production and processing, environmental testing, hydrocarbon
processing, aerospace, food processing, and pharmaceutical
markets.
|
|
|
|
In September 2005, the Company acquired Solartron, which has
broadened the Companys analytical instrumentation product
offerings for the process, laboratory and other industrial
markets, expanding the Companys geographic reach and
capitalizing on significant synergies with the Companys
existing businesses.
|
|
|
|
In October 2005, the Company acquired HCC, which provides the
Company with a new platform for the Companys
Electromechanical Group in the rapid design and production of
hermetic (moisture-proof) connectors, terminals, headers and
microelectronic packages for customer-specific applications.
|
|
|
|
|
|
As the Company continues to grow globally, it continues to
achieve an increasing level of international sales. With this
increase in international sales comes the potential for more
exposure to foreign currency fluctuation. In 2005, foreign
currency translation had a minimal positive impact on sales and
a negligible impact on earnings. International sales, including
U.S. export sales, represented 45.7% of consolidated sales
in 2005, compared with 43.5% of sales in 2004.
|
|
|
|
The Companys Operational Excellence strategy is directed
toward lowering its overall cost structure, and includes the
ongoing transition of a portion of the Companys motor and
instrument production to low-cost manufacturing facilities in
Mexico, China and the Czech Republic. The Company believes this
strategy had a positive impact on its operating results in 2005.
Segment operating margins increased to 18.6% of sales in 2005,
from 17.9% of sales in 2004.
|
A-4
|
|
|
|
|
Higher earnings resulted in cash flow from operating activities
that totaled $165.9 million, a 2.9% increase from 2004. At
year-end 2005, the
debt-to-capital
ratio was 43.9%, compared with 40.6% at the end of 2004. The
modest increase in the
debt-to-capital
ratio in 2005 was a result of the Company increasing its
borrowings in the second half of the year to partially finance
$340.7 million spent on the 2005 acquisitions.
|
|
|
|
The Company continued its emphasis on investment in research,
development and engineering, spending $75.9 million in 2005
before customer reimbursement of $8.9 million, an increase
of 15.0% over 2004. Sales from products introduced in the last
three years increased 31.7% in 2005 over 2004 to
$229.9 million.
|
Results
of Operations
The following table sets forth net sales and income of the
Company by business segment and on a consolidated basis for the
years ended December 31, 2005, 2004, and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Net Sales(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
808,493
|
|
|
$
|
667,418
|
|
|
$
|
561,879
|
|
Electromechanical
|
|
|
625,964
|
|
|
|
564,900
|
|
|
|
529,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,434,457
|
|
|
$
|
1,232,318
|
|
|
$
|
1,091,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
166,423
|
|
|
$
|
126,372
|
|
|
$
|
94,976
|
|
Electromechanical
|
|
|
100,347
|
|
|
|
94,250
|
|
|
|
84,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
266,770
|
|
|
|
220,622
|
|
|
|
179,127
|
|
Corporate administrative and other
expenses
|
|
|
(27,361
|
)
|
|
|
(24,388
|
)
|
|
|
(22,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
239,409
|
|
|
|
196,234
|
|
|
|
156,761
|
|
Interest and other expenses, net
|
|
|
(35,201
|
)
|
|
|
(30,455
|
)
|
|
|
(26,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income
taxes
|
|
$
|
204,208
|
|
|
$
|
165,779
|
|
|
$
|
130,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After elimination of intra - and intersegment sales, which are
not significant in amount. |
|
(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. |
Year
Ended December 31, 2005, Compared with Year Ended
December 31, 2004
Results
of Operations
In 2005, the Company posted record sales, operating income, net
income, and diluted earnings per share. The Company achieved
these results from acquisitions, internal growth in both its EIG
and EMG groups, and cost reduction programs. The Company
experienced improved market conditions in most of its businesses
in 2005.
The Company reported sales for 2005 of $1,434.5 million, an
increase of $202.1 million or 16.4% from sales of
$1,232.3 million in 2004. Net sales for EIG were
$808.5 million in 2005, an increase of 21.1% from sales of
$667.4 million in 2004. EIGs internal sales growth
was 4.6% in 2005, driven by strength in its high-end analytical
instruments business and the aerospace and power businesses. The
acquisitions of SPECTRO in June 2005, Solartron in September
2005, and Taylor Hobson in June 2004 also contributed to the
sales growth. Net sales for EMG were $626.0 million in
2005, an increase of 10.8% from sales of $564.9 million in
2004. EMGs internal sales growth was 4.2% in 2005, driven
by the Groups differentiated businesses, partially offset
by flat market conditions within the Groups cost-driven
businesses. The acquisitions of HCC in October 2005 and
Hughes-Treitler in July 2004 also contributed to the sales
increase.
A-5
Total international sales for 2005 increased to
$655.9 million or 45.7% of consolidated sales, an increase
of $119.3 million or 22.2% when compared with international
sales of $536.6 million or 43.5% of consolidated sales in
2004. The increase in international sales resulted from the
acquisitions previously mentioned as well as increased
international sales from base businesses. Increased
international sales came mainly from sales to Europe and Asia by
both operating groups. Export shipments from the United States,
which are included in total international sales, were
$267.3 million in 2005, an increase of 15.2% compared with
$232.0 million in 2004.
New orders for 2005 were $1,534.3 million, compared with
$1,287.0 million for 2004, an increase of
$247.3 million or 19.2%. Most of the increase in orders was
driven by demand in the Companys differentiated
businesses, led by the Companys aerospace and process
businesses as well as the 2005 acquisitions mentioned above. The
order backlog at December 31, 2005 was $440.7 million,
compared with $340.9 million at December 31, 2004, an
increase of $99.8 million or 29.3%. The increase in backlog
was due mainly to the 2005 acquisitions. Backlog increases were
also reported by many of the Companys base differentiated
businesses.
Segment operating income was $266.8 million for 2005, an
increase of $46.2 million, or 20.9%, compared with segment
operating income of $220.6 million for 2004. Segment
operating margins in 2005 were 18.6% of sales, an increase from
17.9% of sales in 2004. The increase in segment operating income
was due to higher sales from the Companys differentiated
businesses. Approximately half of the increase in operating
income was from the recent acquisitions. The margin improvement
came entirely from the Companys base differentiated
businesses.
Selling, general, and administrative (SG&A) expenses were
$171.6 million in 2005, compared with $135.5 million
in 2004, an increase of $36.1 million or 26.6%. As a
percentage of sales, SG&A expenses were 12.0% in 2005,
compared with 11.0% in 2004. Selling expenses, as a percentage
of sales, increased to 10.1% in 2005, compared with 9.1% in
2004. 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 rate of selling
expenses. Base business selling expenses increased 5.0%, which
approximates internal sales growth for 2005.
Corporate administrative expenses were $27.4 million in
2005, an increase of $3.0 million or 12.3%, when compared
with 2004. The increase in corporate expenses is the result of
higher restricted stock amortization expense related to the
Companys 2004 change in its long-term incentive
compensation program, and higher personnel costs necessary to
grow the Company. The Company expects administrative expenses to
increase in 2006 due to expected continued growth in the
business. As a percentage of sales, corporate administrative
expenses were 1.9% in 2005, which is slightly lower than in 2004.
After deducting corporate administrative expenses, consolidated
operating income was $239.4 million in 2005, an increase of
$43.2 million or 22.0% when compared with
$196.2 million in 2004. This represents an operating margin
of 16.7% of sales for 2005 compared with 15.9% of sales in 2004.
Interest expense was $32.9 million in 2005, an increase of
16.1% compared with $28.3 million in 2004. The increase was
due to higher average borrowing levels to fund the 2005
acquisitions, and higher average interest rates.
The effective tax rate for 2005 was 31.1% compared with 32.0% in
2004. The reduction in the effective tax rate was primarily due
to the realization of tax benefits stemming from the
Companys worldwide tax planning activities and other
adjustments.
Net income for 2005 was $140.6 million, an increase of
$27.9 million, or 24.8%, from $112.7 million in 2004.
Diluted earnings per share rose 22.1% to $1.99 per share,
an increase of $0.36, when compared with $1.63 per diluted
share in 2004.
Operating
Segment Results
EIGs sales were $808.5 million in 2005, an
increase of $141.1 or 21.1% from 2004 sales of
$667.4 million. The sales increase was due to internal
growth in EIGs aerospace, process and analytical
instruments, and industrial markets and the acquisitions of
Taylor Hobson in 2004 and SPECTRO and Solartron in 2005.
Internal growth accounted for 4.6% of the 21.1% increase. The
acquisitions accounted for the remainder of the sales increase.
A-6
EIGs operating income for 2005 increased to
$166.4 million from $126.4 million in 2004, an
increase of $40.0 million, or 31.7%. The increase in
operating income was due to higher sales. Approximately half of
the increase in operating income was from the acquisitions
mentioned above. Both years included one-time pretax gains; 2005
included a gain of $4.3 million from the sale of a
facility, and 2004 included a gain of $5.3 million from the
settlement of an insurance claim. Operating margins of EIG
improved to 20.6% of sales for 2005 compared with operating
margins of 18.9% of sales in 2004 due to production efficiencies
in the Groups base businesses.
EMGs sales for 2005 were $626.0 million, an
increase of $61.1 million or 10.8%, compared with sales of
$564.9 million in 2004. The sales increase was due in part
to internal growth, particularly in the Groups
differentiated businesses, which accounted for 4.2% of the 10.8%
sales increase. The acquisitions of Hughes-Treitler in 2004 and
HCC in October 2005 as well as $2.3 million of favorable
foreign currency translation effects accounted for the remainder
of the sales increase.
EMGs operating income for 2005 increased to
$100.3 million from $94.3 million in 2004, an increase
of $6.0 million or 6.4%. EMGs increase in operating
income was due to higher sales from its differentiated
businesses, which include the recent acquisitions mentioned
above. Operating margins of EMG were 16.0% of sales in 2005
compared with operating margins of 16.7% of sales in 2004. The
decrease in operating margins was the result of unfavorable
changes in product mix within the Groups cost-driven motor
businesses.
Year
Ended December 31, 2004, Compared with Year Ended
December 31, 2003
Results
of Operations
In 2004, the Company posted record sales, operating income, net
income, and diluted earnings per share. The Company achieved
these results from an improving economy, internal growth in its
EIG and EMG groups, acquisitions and cost reduction programs.
The Company experienced improved market conditions in most of
its businesses in 2004. Sales and orders continued to benefit
from the broad-based economic improvement impacting the
Companys short-cycle businesses as well as improvement in
its long-cycle aerospace business. The Companys
cost-driven floor care and specialty motors businesses were
mainly flat in 2004.
The Company reported sales for 2004 of $1,232.3 million, an
increase of $140.7 million or 12.9% from sales of
$1,091.6 million in 2003. Net sales for EIG were
$667.4 million in 2004, an increase of 18.8% from sales of
$561.9 million in 2003. The 2004 sales increase for EIG was
driven by the acquisitions of Taylor Hobson in June 2004 and
Chandler Instruments in August 2003. Strength in the high-end
analytical instruments business, the heavy-vehicle instruments
business, and the aerospace and power businesses also
contributed to the increase. Net sales for EMG were
$564.9 million in 2004, an increase of 6.6% from sales of
$529.7 million in 2003 primarily driven by strength in its
differentiated businesses and the acquisition of Hughes-Treitler
in July 2004. The Groups cost-driven floor care and
specialty motors businesses were mainly flat in 2004.
Strengthening foreign currencies also contributed
$22.5 million to the overall sales increase, primarily from
the British pound and the euro. The noted acquisitions increased
2004 sales by $53.6 million or 4.3%.
Total international sales for 2004 increased to
$536.5 million or 43.5% of consolidated sales, an increase
of $100.8 million when compared with $435.7 million or
39.9% of sales in 2003. The increase in international sales
primarily resulted from the acquisitions previously mentioned as
well as increased international sales from base businesses.
Export shipments from the United States, which are included in
total international sales, were $232.0 million in 2004, an
increase of 15.5% compared with $200.8 million in 2003.
New orders for 2004 were $1,287.0 million, compared with
$1,136.9 million for 2003, an increase of
$150.1 million or 13.2%. The order backlog at
December 31, 2004 was $340.9 million, compared with
$286.2 million at December 31, 2003, an increase of
$54.7 million or 19.1%. The increase in orders and backlog
was due mainly to the two acquisitions completed in 2004 along
with increased order levels primarily in the Companys
differentiated businesses.
Segment operating income was $220.6 million for 2004, an
increase of 23.2%, compared with segment operating income of
$179.1 million for 2003. Segment operating margins in 2004
were 17.9% of sales, an increase from 16.4% of sales in 2003.
The increase in segment operating income resulted from higher
sales from the Companys differentiated businesses.
Approximately half of the increase in operating income was from
the recent
A-7
acquisitions. The increase in segment operating margins came
from improved performance by the Companys differentiated
businesses. Segment operating income for 2004 also included a
$5.3 million pretax gain from the settlement of a flood
insurance claim involving a manufacturing plant.
SG&A expenses were $135.5 million in 2004, compared
with $115.2 million in 2003, an increase of
$20.3 million or 17.6%. As a percentage of sales, SG&A
expenses were 11.0% in 2004, compared with 10.6% in 2003.
Selling expenses, as a percentage of sales, increased to 9.1% in
2004, compared to 8.5% in 2003. The selling expense increase,
and the corresponding increase as a percentage of sales, was due
primarily to the acquired businesses. The acquisitions added
1.2% to selling expense in 2004 as a percentage of sales. The
Companys acquisition strategy generally is to acquire
differentiated businesses, which because of their distribution
channels and higher marketing costs tend to have higher selling
expenses. Selling expense, as a percentage of sales by base
businesses was lower when compared with 2003, reflecting the
Companys focus on cost reduction initiatives as a part of
its Operational Excellence strategy.
Corporate administrative expenses were $24.4 million in
2004, an increase of $2.0 million or 9.0%, when compared
with 2003. As a percentage of sales, corporate administrative
expenses were 2.0% in 2004, which was unchanged from 2003. The
increase in 2004 corporate expenses was primarily the result of
higher legal, professional and consulting fees as well as higher
overall compensation expenses. The higher professional and
consulting fees were primarily the result of the Companys
Sarbanes-Oxley compliance initiatives associated with reporting
on the Companys internal controls for 2004. Corporate
administrative expenses in 2003 included a $2.1 million
one-time, noncash expense, from the accelerated cost recognition
due to the vesting of a restricted stock grant.
After deducting corporate administrative expenses, consolidated
operating income was $196.2 million, an increase of
$39.4 million or 25.2% when compared with
$156.8 million in 2003. This represented an operating
margin of 15.9% of sales for 2004 compared with 14.4% of sales
in 2003.
Interest expense was $28.3 million in 2004, an increase of
8.9% compared with $26.0 million in 2003. The increase was
due to higher average interest rates on British pound borrowings
incurred in connection with acquisitions in the United Kingdom
in 2004 and 2003. Other expenses increased by $1.5 million,
to $2.1 million in 2004 as a result of broad increases in
non-operating expenses, including bank fees and expenses
associated with acquisitions not consummated.
The effective tax rate for 2004 was 32.0% compared with 32.5% in
2003. The tax rate in 2004 reflected higher tax benefits in
connection with U.S. export sales. The 2003 tax rate
reflected the nondeductibility of the noncash expense from the
acceleration of restricted stock expense, mentioned earlier.
Net income for 2004 was $112.7 million, an increase of
$24.9 million, or 28.4%, from $87.8 million in 2003.
Diluted earnings per share rose 25.4% to $1.63 per share,
an increase of $0.33, when compared with $1.30 per diluted
share in 2003.
Operating
Segment Results
EIGs sales were $667.4 million in 2004, an
increase of 18.8% from 2003 sales of $561.9 million. The
sales increase was primarily from the 2004 Taylor Hobson
acquisition and the 2003 Chandler Instruments acquisition,
internal sales growth from strength in the Groups high-end
analytical instrumentation, heavy-vehicle, and aerospace
businesses as well as a favorable foreign currency translation
impact of $7.4 million. The acquisitions increased 2004
group sales by $62.5 million or 9.4%.
EIGs operating income for 2004 increased to
$126.4 million from $95.0 million in 2003, an increase
of $31.4 million, or 33.1%. The increase in operating
income was driven by higher sales. The recent acquisitions
accounted for approximately half of the operating income
increase. Operating income for EIG for 2004 also included a
$5.3 million pretax gain from the insurance settlement of a
flood claim at one of the Groups manufacturing plants. The
flood gain resulted from the finalization of the Companys
claim for damage to the building, its contents, and the
operating assets affected by the flood as well as settlement of
business interruption and other expenses. As a result of the
flood, the Company ceased operations at this site. Operating
margins of EIG improved to 18.9% of sales for 2004 compared with
operating margins of 16.9% of sales in 2003.
A-8
EMGs sales for 2004 were $564.9 million, an
increase of $35.2 million or 6.6%, compared with sales of
$529.7 million in 2003. The sales increase was a result of
the Hughes-Treitler acquisition and $15.1 million of
favorable foreign currency translation effects as well as
strength in the Groups differentiated businesses. The
Groups cost-driven floor care and specialty motors
businesses were mainly flat in 2004. The Hughes-Treitler
acquisition accounted for approximately 2.6% of the Groups
sales increase.
EMGs operating income for 2004 increased to
$94.3 million from $84.2 million in 2003, an increase
of $10.1 million or 12.0%. The increase in operating income
was the result of higher sales by the Groups
differentiated businesses, including the acquisition mentioned
above, which accounted for approximately one-third of the
increase. In the fourth quarter of 2004, the group incurred
$2.5 million of expense related to severance and the
acceleration of depreciation expense associated with the planned
movement of production to low-cost manufacturing locales. The
Groups operating margins for 2004 improved to 16.7% of
sales compared with operating margins of 15.9% of sales in 2003,
due to the strength in the Groups differentiated
businesses.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$165.9 million for 2005, compared with $161.3 million
in 2004, an increase of $4.6 million, or 2.9%. The increase
in operating cash flow was primarily the result of higher
earnings, partially offset by higher overall operating working
capital requirements, mainly driven by the growth of the
Companys business to meet the increased sales levels. In
2005, the Company contributed $10.8 million to its defined
benefit pension plans compared with $6.1 million
contributed in 2004. During 2004, the Companys operating
activities also included $13.8 million of net cash from
insurance proceeds and refunds from prior years tax
returns. Free cash flow (operating cash flow less capital
spending) was $142.6 million in 2005, slightly higher than
in 2004. EBITDA (earnings before interest, income taxes,
depreciation and amortization) was $275.8 million in 2005,
compared with $233.4 million in 2004, an 18.2% improvement.
Free cash flow and EBITDA are presented because the Company is
aware that they are measures that are used by third parties in
evaluating the Company. (See table on
page A-3
for a reconciliation of U.S. GAAP measures to comparable
non-GAAP measures).
Cash used for investing activities was $361.8 million for
2005, compared with $154.5 million in 2004. In 2005, the
Company acquired SPECTRO for $97.7 million in cash,
Solartron for $76.9 million in cash, and HCC for
$163.6 million in cash (each is net of cash received). In
addition, the Company acquired two small technology lines for
cash, bringing the total cash outlay for acquisitions in 2005 to
$340.7 million, including transaction costs, and net of
cash received with the acquisitions. In 2004, the Company
acquired Taylor Hobson and Hughes-Treitler for
$143.5 million of cash, net of cash received. Additions to
property, plant and equipment totaled $23.3 million in
2005, compared with $21.0 million in 2004.
Cash provided by financing activities totaled
$196.8 million in 2005, compared with $15.5 million in
2004. In 2005, total borrowings, net of repayments, increased by
$197.5 million, compared with a net increase of
$15.5 million in 2004. The net increase in long-term
borrowings was $91.8 million in 2005 compared with a net
increase of $71.1 million in 2004. Short-term borrowings
increased $105.7 million in 2005, compared with a decrease
of $55.6 million in 2004. In 2005, long-term borrowings
included a new 50 million euro ($59.2 million)
ten-year term loan, which was completed in the third quarter of
2005, to finance the acquisition of SPECTRO. Additionally,
21.5 million British pounds (approximately
$37.0 million) was outstanding at December 31, 2005
related to a floating term loan due in annual installments over
a 5-year
period to finance a portion of the price to purchase Solartron
in September 2005, along with $162.0 million borrowed under
the Companys $300 million revolving credit facility
and the accounts receivable securitization program to acquire
HCC in October 2005. The euro and British pound borrowings
provide natural hedges of the Companys investment in the
German-based SPECTRO business and the United Kingdom-based
Solartron business. The Company had available borrowing capacity
of $201.9 million under its $300 million revolving
bank credit facility, and had fully utilized its
$75.0 million accounts receivable securitization facility
at December 31, 2005. The revolving bank credit facility
was amended in June 2005 to extend its expiration date from
February 2009 to June 2010. The amendment also lowered the
Companys cost of capital, reduced the number of financial
covenants required, and eased or removed other financial
restrictions. It also added an accordion feature
that permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the term of the revolving credit
A-9
agreement. Extension of the credit facility provides the Company
with increased flexibility to support its growth plans.
At December 31, 2005, total debt outstanding was
$631.4 million compared with $450.1 million at
December 31, 2004. The
debt-to-capital
ratio was 43.9% at December 31, 2005, compared with 40.6%
at December 31, 2004. The increased
debt-to-capital
ratio was the result of the additional borrowing used to
partially finance the 2005 acquisitions. The Companys debt
agreements contain various covenants including limitations on
indebtedness and dividend payments, and maintenance of certain
financial ratios. At December 31, 2005 and 2004, the
Company was in compliance with the debt covenants.
In 2005, net cash proceeds from the exercise of employee stock
options were $16.2 million, essentially unchanged from
2004. Cash dividends paid in 2005 were $16.8 million,
comparable to the amount paid in 2004.
There were no repurchases of the Companys common stock in
2005 or 2004. As of December 31, 2005, $52.4 million
was available, under the current Board authorization, for future
share repurchases.
The following table summarizes AMETEKs contractual cash
obligations at December 31, 2005, and the effect such
obligations are expected to have on the Companys liquidity
and cash flows in future years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due
|
|
|
|
|
|
|
Less
|
|
|
One to
|
|
|
Four to
|
|
|
After
|
|
|
|
|
|
|
Than
|
|
|
Three
|
|
|
Five
|
|
|
Five
|
|
Contractual
Obligations
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In millions)
|
|
|
Long-term debt
|
|
$
|
475.3
|
|
|
$
|
|
|
|
$
|
236.0
|
|
|
$
|
109.9
|
|
|
$
|
129.4
|
|
Revolving credit loans(a)
|
|
|
71.2
|
|
|
|
71.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other indebtedness(b)
|
|
|
84.9
|
|
|
|
84.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
631.4
|
|
|
|
156.1
|
|
|
|
236.0
|
|
|
|
109.9
|
|
|
|
129.4
|
|
Interest on long-term fixed- rate
debt
|
|
|
133.2
|
|
|
|
27.8
|
|
|
|
48.2
|
|
|
|
21.9
|
|
|
|
35.3
|
|
Noncancelable operating leases
|
|
|
49.1
|
|
|
|
9.3
|
|
|
|
11.7
|
|
|
|
6.5
|
|
|
|
21.6
|
|
Purchase obligations(c)
|
|
|
129.4
|
|
|
|
119.7
|
|
|
|
8.7
|
|
|
|
1.0
|
|
|
|
|
|
Employee severance and other
|
|
|
11.5
|
|
|
|
10.4
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
954.6
|
|
|
$
|
323.3
|
|
|
$
|
305.7
|
|
|
$
|
139.3
|
|
|
$
|
186.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Although not contractually obligated, the Company expects to
have the capability to repay this obligation within one year as
permitted in the credit agreement. Accordingly,
$71.2 million is classified as short-term debt at
December 31, 2005. |
|
(b) |
|
Amount includes $75 million under the accounts receivable
securitization program, which is classified as short-term
borrowings at December 31, 2005. |
|
(c) |
|
Purchase obligations primarily consist of contractual
commitments to purchase certain inventories at fixed prices. |
The Company has standby letters of credit and surety bonds of
approximately $31.5 million related to performance and
payment guarantees. Based on experience with these arrangements,
the Company believes that any obligations that may arise will
not be material to its financial position.
Although it has not done so in recent years, the Company may,
from time to time, redeem, tender for, or repurchase its
long-term debt in the open market or in privately negotiated
transactions depending upon availability, market conditions and
other factors.
As a result of all of the Companys cash flow activities in
2005, cash and cash equivalents at December 31, 2005
totaled $35.5 million, compared with $37.6 million at
December 31, 2004. The Company believes it has
A-10
sufficient cash-generating capabilities from domestic and
unrestricted foreign sources, and available financing
alternatives, to enable it to meet operating needs and
contractual commitments.
Transactions
with Related Parties
A member of the Companys Board of Directors is also of
counsel to the law firm of Stroock & Stroock &
Lavan LLP, with which the Company has a business relationship.
In 2005, Stroock & Stroock & Lavan LLP billed
fees to the Company in the aggregate for services rendered,
primarily related to business acquisitions, of $1,438,000.
Critical
Accounting Policies
The Company has identified its most 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 of the Notes to
Consolidated Financial Statements, included elsewhere in
this report.
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|
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|
|
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, we recognize 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. We have 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 in the statement of income. Accruals for
sales returns, other allowances, and estimated warranty costs
are provided at the time of shipment based upon past experience.
At December 31, 2005, 2004 and 2003, the accrual for future
warranty obligations was $9.4 million, $7.3 million
and $6.9 million, respectively. Acquisitions primarily
accounted for the increase in 2005. The Companys expense
for warranty obligations approximated $7.2 million in 2005
and $5.0 million each year in 2004 and 2003. 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, allowances and warranty amounts are higher than past
experience, additional warranty 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
$7.6 million at December 31, 2005 and 2004.
|
A-11
|
|
|
|
|
Inventories. The Company uses the
last-in,
first-out (LIFO) method of accounting for approximately 50% of
its inventories. The
first-in,
first-out (FIFO) method, which approximates current replacement
cost, is used to determine cost for the remainder. For
inventories where cost is determined by the LIFO method, the
excess of the FIFO value over the LIFO value was approximately
$28.4 million and $28.8 million at December 31,
2005 and 2004, 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. The Company accounts for goodwill
under Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets. Under SFAS 142, goodwill is not
amortized; rather, it is tested for impairment at least annually.
|
SFAS 142 requires a two-step impairment test for goodwill.
The first step is to compare the carrying amount of the
Companys reporting units 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. The determination of the fair
value of the Companys reporting units is based, among
other things, on estimates of future operating performance of
the reporting unit being valued. Changes in interest rates and
market conditions, among other factors, may have an impact on
these estimates. The Companys acquisitions have generally
included a large goodwill component and the Company expects to
continue to make acquisitions. At December 31, 2005,
goodwill totaled $785.2 million or 44.1% of the
Companys total assets. The Company performed its required
annual impairment test in the fourth quarter of 2005 and
determined that the Companys goodwill was not impaired.
There can be no assurance that goodwill impairment will not
occur in the future.
U.S. Defined
Benefit Plans
The Company has defined benefit and defined contribution pension
plans. AMETEK accounts for its defined benefit pension plans in
accordance with SFAS 87, Employers Accounting for
Pensions, which requires that amounts recognized in the
financial statements be determined on an actuarial basis. The
accounting requirements have no effect on funding of the pension
plans. 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 year-end
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 2005, the Company
considered rates of return on high-quality, fixed-income
investments. The discount rate used in determining the 2005
pension cost was 5.75% for U.S. defined benefit pension
plans. The discount rate used for determining the funded status
of the plans at December 31, 2005, and determining the 2006
U.S. defined benefit pension plan cost is 5.65%. In
estimating this rate, 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 U.S. defined benefit pension plans for 2005 of 8.5% and
will use an expected long-term rate of 8.25% for 2006. The
Company determines its 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
determining the 2005 and 2006 pension expense for these plans
was 3.5%. The unrecognized pension loss, which results from the
net effect of changes in the assumed discount rate, the effect
of differences between the expected return and the actual return
on plan assets, and other changes in actuarial assumptions, has
been deferred and is subject to
A-12
amortization over the estimated service periods of the
participants. The unrecognized pension loss totaled
$77.5 million for U.S. defined benefit pension plans
at December 31, 2005, compared with $67.2 million at
December 31, 2004. Depending on the impact of potential
future changes in actuarial assumptions, the deferred loss could
possibly affect future pension expense under current accounting
rules.
U.S. and
Foreign Defined Benefit Plans
For the year ended December 31, 2005, the Company
recognized consolidated pretax pension expense under
SFAS 87 of $2.1 million from its U.S. and foreign
defined benefit pension plans. This compares with pretax pension
expense under SFAS 87 of $2.6 million recognized from
these plans in 2004.
To fund the plans, the Company made cash contributions to its
defined benefit pension plans during 2005 which totaled
$10.8 million, compared with $6.1 million in 2004. The
Company anticipates making cash contributions of approximately
$12 million to its defined benefit pension plans in 2006.
New
Accounting Standards
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based
Payment, a revision to SFAS No. 123, Accounting
for Stock Based Compensation and superseding Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees.
SFAS No. 123(R) requires the Company to expense the
fair value of grants made under its employee stock award plans.
That cost will be recognized over the required service period of
the grants. SFAS No. 123(R) permits companies to adopt
its requirements using either a modified prospective
method, or a modified retrospective method.
Following adoption of SFAS No. 123(R), amounts
previously disclosed on a pro forma basis under
SFAS No. 123 are to be recorded in the consolidated
statement of income. Prior to January 1, 2006, the Company
accounted for share-based payments to employees using the
intrinsic value method prescribed in APB Opinion No. 25.
The Company will adopt SFAS No. 123(R) effective
January 1, 2006, under the modified retrospective method
with retroactive restatement for all prior periods presented
using the pro forma amounts disclosed in note 10 of the
Notes to Consolidated Financial Statements. Had the Company
adopted SFAS 123R in prior years, the impact of its
adoption would have approximated the impact of SFAS 123, as
shown in the pro forma disclosure of net income and earnings per
share on
page A-35.
The adoption of SFAS No. 123(R) is expected to reduce
diluted earnings per share by approximately $0.05 for 2006 and
$0.05 per share on a restated basis for 2005.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 amends the
guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, handling costs and wasted material
(spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The Company will adopt
SFAS No. 151 effective January 1, 2006 and does
not expect that its adoption will have a material effect on the
Companys consolidated results of operations, financial
position or cash flows.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS No. 154 establishes retrospective
application as the required method for reporting voluntary
changes in accounting principle, unless it is impracticable, in
which case the changes should be applied to the earliest
practicable date presented. SFAS No. 154 also requires
that a correction of an error be reported as a prior period
adjustment by restating prior period financial statements.
SFAS No. 154 is effective for accounting changes and
corrections of errors, if any, beginning January 1, 2006.
Internal
Reinvestment
Capital expenditures were $23.3 million or 1.6% of sales in
2005, compared with $21.0 million or 1.7% of sales in 2004.
Approximately 54% of the expenditures in 2005 were for equipment
to increase productivity and expand capacity. The Companys
2006 capital expenditures are expected to increase when compared
with 2005
A-13
levels, with a continuing emphasis on spending to improve
productivity and expand low-cost manufacturing facilities. For
2006, capital expenditures are expected to approximate 2% of
sales.
|
|
|
Product
Development and Engineering
|
Product development and engineering expenses are directed toward
the development and improvement of new and existing products and
processes. Such expenses before customer reimbursement were
$75.9 million in 2005, an increase from $66.0 million
in 2004, and $56.1 million in 2003. Customer reimbursements
were $8.9 million, $6.2 million, and $6.2 million
in 2005, 2004 and 2003, respectively. Included in the amounts
above are net expenses for research and development of
$34.8 million for 2005, $25.5 million for 2004, and
$21.4 million for 2003.
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, the Company has been named a Potentially
Responsible Party (PRP) at 20
non-AMETEK
owned sites. The Company is identified as a
de-minimis party in 14 of these sites based on the
low volume of relative waste attributed to the Company. In 10 of
these sites, the Company has reached agreement on the cost of
the de-minimis settlement to satisfy its obligation and is
awaiting executed agreements. The 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 site to establish an
appropriate settlement amount. In the six 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-AMETEK
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 and for
claims and proceedings against the Company with respect to other
environmental matters once the Company has determined that a
loss is probable and estimable. Total environmental reserves at
December 31, 2005 and 2004 were $6.8 million and
$7.3 million, respectively. The Company spent
$1.0 million on such environmental matters in 2005 and
2004. The Company also has agreements with 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
the other parties carry insurance coverage for some
environmental matters. To date, those parties have met their
obligations in all material respects. The Company has no reason
to believe that such third parties would fail to perform their
obligations in the future. However, if the Company were required
to record a liability with respect to all, or a portion of, such
matters on its balance sheet, the effect on income and the
amount of the liability could be significant. In the opinion of
management, based upon presently available information and past
experience related to such matters, either adequate provision
for probable costs has been made, or 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 on its short-term and long-term
debt, foreign currency exchange rates and commodity prices for
certain raw material purchases.
Most of the Companys long-term debt carries fixed rates
and its short-term debt is variable-rate debt. These financial
instruments are more fully described in the notes to the
financial statements.
The foreign currencies to which the Company has the most
significant exchange rate exposure include the euro, the British
pound, the Mexican peso and the Japanese yen. Exposure to
foreign currency rate fluctuation is monitored, and when
possible, mitigated through the use of local borrowings and the
occasional use of derivative financial instruments. The effect
of translating foreign subsidiaries balance sheets into
U.S. dollars is included in
A-14
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 the manufacturing and selling costs associated with
those 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, copper and steel. Exposure
to price changes in these commodities is generally mitigated
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, foreign currency exchange rates, or commodity prices, 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 and Risk Factors
Certain matters discussed in this Appendix are
forward-looking statements as defined in the Private
Securities Litigation Reform Act (PSLRA) of 1995, 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, 2005, filed with the
Securities and Exchange Commission.
A-15
REPORTS
OF MANAGEMENT
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, although there are inherent limitations in
the effectiveness of any 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.
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 2006 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. That report appears on
page A-18.
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, 2005 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, 2005.
Our managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which appears on page A-17.
|
|
|
Frank S. Hermance
Chairman and Chief Executive Officer
|
|
John J. Molinelli
Executive Vice President Chief Financial
Officer
|
March 1, 2006
A-16
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of AMETEK, Inc.
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control
over Financial Reporting (which appears on
page A-16),
that AMETEK, Inc. maintained effective internal control over
financial reporting as of December 31, 2005, 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. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of 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, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, 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, managements assessment that AMETEK, Inc.
maintained effective internal control over financial reporting
as of December 31, 2005, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
AMETEK, Inc. maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2005, 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, 2005 and 2004, and the related consolidated
statements of income, cash flows and stockholders equity
for each of the three years in the period ended
December 31, 2005, and our report dated March 1, 2006
expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
March 1, 2006
A-17
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of AMETEK, Inc.
We have audited the accompanying consolidated balance sheets of
AMETEK, Inc. as of December 31, 2005 and 2004, and the
related consolidated statements of income, cash flows, and
stockholders equity for each of the three years in the
period ended December 31, 2005. 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, 2005 and
2004, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of AMETEK, Inc.s internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 1, 2006 expressed an unqualified
opinion thereon.
Philadelphia, Pennsylvania
March 1, 2006
A-18
AMETEK,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share
amounts)
|
|
|
Net sales
|
|
$
|
1,434,457
|
|
|
$
|
1,232,318
|
|
|
$
|
1,091,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding
depreciation)
|
|
|
988,508
|
|
|
|
863,827
|
|
|
|
785,441
|
|
Selling, general and administrative
|
|
|
171,577
|
|
|
|
135,494
|
|
|
|
115,186
|
|
Depreciation
|
|
|
34,963
|
|
|
|
36,763
|
|
|
|
34,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,195,048
|
|
|
|
1,036,084
|
|
|
|
934,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
239,409
|
|
|
|
196,234
|
|
|
|
156,761
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32,913
|
)
|
|
|
(28,343
|
)
|
|
|
(26,017
|
)
|
Other, net
|
|
|
(2,288
|
)
|
|
|
(2,112
|
)
|
|
|
(657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
204,208
|
|
|
|
165,779
|
|
|
|
130,087
|
|
Provision for income taxes
|
|
|
63,565
|
|
|
|
53,068
|
|
|
|
42,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
140,643
|
|
|
$
|
112,711
|
|
|
$
|
87,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.03
|
|
|
$
|
1.66
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
$
|
1.99
|
|
|
$
|
1.63
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
69,151
|
|
|
|
67,832
|
|
|
|
66,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
70,711
|
|
|
|
69,254
|
|
|
|
67,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
A-19
AMETEK,
Inc.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,545
|
|
|
$
|
37,582
|
|
Marketable securities
|
|
|
8,243
|
|
|
|
11,393
|
|
Receivables, less allowance for
possible losses
|
|
|
269,395
|
|
|
|
217,329
|
|
Inventories
|
|
|
193,099
|
|
|
|
168,523
|
|
Deferred income taxes
|
|
|
21,154
|
|
|
|
5,201
|
|
Other current assets
|
|
|
28,871
|
|
|
|
21,912
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
556,307
|
|
|
|
461,940
|
|
Property, plant and equipment, net
|
|
|
228,450
|
|
|
|
207,542
|
|
Goodwill
|
|
|
785,185
|
|
|
|
601,007
|
|
Other intangibles, net of
accumulated amortization
|
|
|
117,948
|
|
|
|
79,259
|
|
Investments and other assets
|
|
|
92,710
|
|
|
|
70,604
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,780,600
|
|
|
$
|
1,420,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
portion of long-term debt
|
|
$
|
156,130
|
|
|
$
|
49,943
|
|
Accounts payable
|
|
|
132,506
|
|
|
|
109,036
|
|
Income taxes payable
|
|
|
|
|
|
|
11,635
|
|
Accrued liabilities
|
|
|
117,156
|
|
|
|
102,224
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
405,792
|
|
|
|
272,838
|
|
Long-term debt
|
|
|
475,309
|
|
|
|
400,177
|
|
Deferred income taxes
|
|
|
54,910
|
|
|
|
49,441
|
|
Other long-term liabilities
|
|
|
39,037
|
|
|
|
38,314
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value; authorized: 5,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value; authorized: 200,000,000 shares; issued:
|
|
|
|
|
|
|
|
|
2005 71,696,022 shares;
2004 70,417,025 shares
|
|
|
717
|
|
|
|
704
|
|
Capital in excess of par value
|
|
|
78,313
|
|
|
|
52,182
|
|
Retained earnings
|
|
|
764,685
|
|
|
|
640,856
|
|
Accumulated other comprehensive
losses
|
|
|
(20,916
|
)
|
|
|
(9,643
|
)
|
Less: Cost of shares held in
treasury: 2005 1,219,654 shares;
|
|
|
|
|
|
|
|
|
2004 1,732,303 shares
|
|
|
(17,247
|
)
|
|
|
(24,517
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
805,552
|
|
|
|
659,582
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
1,780,600
|
|
|
$
|
1,420,352
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
A-20
AMETEK,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Capital Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $.01 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
704
|
|
|
|
|
|
|
|
690
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
Shares issued
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
717
|
|
|
|
|
|
|
|
704
|
|
|
|
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
52,182
|
|
|
|
|
|
|
|
32,849
|
|
|
|
|
|
|
|
13,706
|
|
|
|
|
|
Issuance of common stock under
employee stock plans
|
|
|
|
|
|
|
14,099
|
|
|
|
|
|
|
|
12,773
|
|
|
|
|
|
|
|
14,743
|
|
|
|
|
|
Tax benefits from exercise of stock
options
|
|
|
|
|
|
|
12,032
|
|
|
|
|
|
|
|
6,560
|
|
|
|
|
|
|
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
78,313
|
|
|
|
|
|
|
|
52,182
|
|
|
|
|
|
|
|
32,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
640,856
|
|
|
|
|
|
|
|
544,422
|
|
|
|
|
|
|
|
464,731
|
|
|
|
|
|
Net income
|
|
$
|
140,643
|
|
|
|
140,643
|
|
|
$
|
112,711
|
|
|
|
112,711
|
|
|
$
|
87,815
|
|
|
|
87,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
(16,814
|
)
|
|
|
|
|
|
|
(16,277
|
)
|
|
|
|
|
|
|
(8,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
764,685
|
|
|
|
|
|
|
|
640,856
|
|
|
|
|
|
|
|
544,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
(12,927
|
)
|
|
|
|
|
|
|
(22,429
|
)
|
|
|
|
|
Translation adjustments, net of tax
of $195 in 2005
|
|
|
(9,756
|
)
|
|
|
|
|
|
|
9,032
|
|
|
|
|
|
|
|
9,063
|
|
|
|
|
|
|
|
|
|
(Loss) gain on net investment
hedges, net of tax of $1,975 in 2005
|
|
|
(5,644
|
)
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,400
|
)
|
|
|
(15,400
|
)
|
|
|
10,489
|
|
|
|
10,489
|
|
|
|
9,502
|
|
|
|
9,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(17,838
|
)
|
|
|
|
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
(12,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(8,450
|
)
|
|
|
|
|
|
|
(7,670
|
)
|
|
|
|
|
|
|
(12,280
|
)
|
|
|
|
|
Adjustments during the year, net of
tax of $1,820, $4,552, and $4,130 in 2005, 2004, and 2003,
respectively
|
|
|
5,070
|
|
|
|
5,070
|
|
|
|
(780
|
)
|
|
|
(780
|
)
|
|
|
4,610
|
|
|
|
4,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(3,380
|
)
|
|
|
|
|
|
|
(8,450
|
)
|
|
|
|
|
|
|
(7,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,245
|
|
|
|
|
|
|
|
1,401
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
(Increase) decrease during the
year, net of tax benefit of $162, $670, and $754 in 2005, 2004,
and 2003, respectively
|
|
|
(943
|
)
|
|
|
(943
|
)
|
|
|
(156
|
)
|
|
|
(156
|
)
|
|
|
1,411
|
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
1,245
|
|
|
|
|
|
|
|
1,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
for the year
|
|
|
(11,273
|
)
|
|
|
|
|
|
|
9,553
|
|
|
|
|
|
|
|
15,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the
year
|
|
$
|
129,370
|
|
|
|
|
|
|
$
|
122,264
|
|
|
|
|
|
|
$
|
103,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
loss at the end of the year
|
|
|
|
|
|
|
(20,916
|
)
|
|
|
|
|
|
|
(9,643
|
)
|
|
|
|
|
|
|
(19,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(24,517
|
)
|
|
|
|
|
|
|
(29,635
|
)
|
|
|
|
|
|
|
(24,215
|
)
|
|
|
|
|
Issuance of common stock under
employee stock plans
|
|
|
|
|
|
|
7,270
|
|
|
|
|
|
|
|
5,118
|
|
|
|
|
|
|
|
428
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(17,247
|
)
|
|
|
|
|
|
|
(24,517
|
)
|
|
|
|
|
|
|
(29,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
|
|
|
$
|
805,552
|
|
|
|
|
|
|
$
|
659,582
|
|
|
|
|
|
|
$
|
529,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
A-21
AMETEK,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Cash provided by (used
for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
140,643
|
|
|
$
|
112,711
|
|
|
$
|
87,815
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
39,428
|
|
|
|
39,909
|
|
|
|
35,473
|
|
Deferred income taxes
|
|
|
10,768
|
|
|
|
7,518
|
|
|
|
12,286
|
|
Tax benefit from exercise of stock
options
|
|
|
12,032
|
|
|
|
6,560
|
|
|
|
4,400
|
|
Changes in assets and liabilities
(net of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(22,007
|
)
|
|
|
(9,616
|
)
|
|
|
11,739
|
|
(Increase) decrease in inventories
and other current assets
|
|
|
(871
|
)
|
|
|
(14,954
|
)
|
|
|
826
|
|
(Decrease) increase in payables,
accruals, and income taxes
|
|
|
(14,108
|
)
|
|
|
17,184
|
|
|
|
8,653
|
|
Increase (decrease) in other
long-term liabilities
|
|
|
4,112
|
|
|
|
2,895
|
|
|
|
(653
|
)
|
Pension contribution
|
|
|
(10,810
|
)
|
|
|
(6,114
|
)
|
|
|
(5,179
|
)
|
Other
|
|
|
6,677
|
|
|
|
5,187
|
|
|
|
3,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
165,864
|
|
|
|
161,280
|
|
|
|
159,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(23,261
|
)
|
|
|
(21,025
|
)
|
|
|
(21,326
|
)
|
Purchase of businesses, net of
cash acquired
|
|
|
(340,672
|
)
|
|
|
(143,535
|
)
|
|
|
(163,909
|
)
|
Other
|
|
|
2,142
|
|
|
|
10,098
|
|
|
|
4,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(361,791
|
)
|
|
|
(154,462
|
)
|
|
|
(181,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
105,708
|
|
|
|
(55,603
|
)
|
|
|
(3,467
|
)
|
Additional long-term borrowings
|
|
|
177,790
|
|
|
|
97,356
|
|
|
|
76,223
|
|
Reduction in long-term borrowings
|
|
|
(86,029
|
)
|
|
|
(26,217
|
)
|
|
|
(48,790
|
)
|
Repurchases of common stock
|
|
|
|
|
|
|
-
|
|
|
|
(5,848
|
)
|
Cash dividends paid
|
|
|
(16,814
|
)
|
|
|
(16,277
|
)
|
|
|
(8,124
|
)
|
Proceeds from employee stock plans
|
|
|
16,158
|
|
|
|
16,286
|
|
|
|
12,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
196,813
|
|
|
|
15,545
|
|
|
|
22,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
(2,923
|
)
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and
cash equivalents
|
|
|
(2,037
|
)
|
|
|
23,269
|
|
|
|
830
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
37,582
|
|
|
|
14,313
|
|
|
|
13,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
35,545
|
|
|
$
|
37,582
|
|
|
$
|
14,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
A-22
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 significant
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 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, 2005 and 2004, 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 four years. The aggregate
market value of equity and fixed-income securities at
December 31, 2005 and 2004 was $15.7 million
($15.2 million amortized cost), and $18.7 million
($16.8 million amortized cost), respectively. The temporary
unrealized gain or loss on such securities is recorded as a
separate component of other comprehensive income (in
stockholders equity), and is not material. The Company had
no
other-than-temporary
impairment losses in 2005 or 2004. The Company recognized
other-than-temporary
impairment losses against earnings of $0.7 million in 2003.
Certain of the Companys other investments are accounted
for by the equity method, and as discussed previously, are not
significant.
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 its past experience.
The allowance for possible losses on receivables at
December 31, 2005 and 2004 was $7.6 million. See
Note 6.
Inventories
The Company uses the
last-in,
first-out (LIFO) method of accounting for approximately 50% of
its inventories. The
first-in,
first-out (FIFO) method, which approximates current replacement
cost, is used to determine cost for the remaining 50% of the
inventories. For inventories where cost is determined by the
LIFO method, the excess of the FIFO value over the LIFO value
was approximately $28.4 million and $28.8 million at
December 31, 2005 and 2004, 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.
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-23
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 5 to 10 years for
machinery and equipment, and 25 to 40 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, 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,
we recognize 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. We have 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 in the income
statement. Accruals for sales returns, other allowances, and
estimated warranty costs are provided at the time of shipment
based upon past experience. At December 31, 2005, 2004 and
2003, the accrual for future warranty obligations was
$9.4 million, $7.3 million and $6.9 million,
respectively. The Companys expense for warranty
obligations approximated $7.2 million in 2005 and
$5.0 million each year in 2004 and 2003. 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, allowances and warranty amounts are higher than past
experience, additional warranty accruals may be required.
Research
and Development
Company-funded research and development costs are charged to
operations as incurred and during the past three years were:
2005-$34.8 million, 2004-$25.5 million and
2003-$21.4 million.
Shipping
and Handling Costs
Shipping and handling costs are included in cost of sales, and
were: 2005 - $20.0 million,
2004 - $16.5 million, and
2003 - $14.7 million.
Earnings
per Share
The calculation of basic earnings per share is based on the
average number of common shares outstanding during the period.
The calculation of diluted earnings per share includes the
effect of all potentially dilutive securities (primarily
outstanding common stock options and restricted stock). The
following table presents the number of shares used in the
calculation of basic earnings per share and diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Weighted average shares (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
69,151
|
|
|
|
67,832
|
|
|
|
66,294
|
|
Stock option and award plans
|
|
|
1,560
|
|
|
|
1,422
|
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
70,711
|
|
|
|
69,254
|
|
|
|
67,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-24
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 generally are included in operating results for the
year.
The Company makes infrequent use of derivative financial
instruments. Foreign currency 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 foreign currency fluctuation. No
forward contracts were outstanding at December 31, 2005.
One insignificant forward contract for the purchase of certain
inventories was outstanding at December 31, 2004. In
instances where transactions are designated as hedges of an
underlying item, the gains and losses on those transactions are
included in Other Comprehensive Income (OCI) (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 relate to the Companys British-pound-denominated
long-term debt and euro-denominated long-term debt pertaining to
the Companys acquisition of Solartron in September 2005,
Taylor Hobson in June 2004, and Airtechnology in January 2003,
which are U.K.-based businesses, and the SPECTRO business,
which was acquired in June 2005, and is a German-based business.
These acquisitions were financed by borrowings under
AMETEKs revolving credit facility and subsequently
refinanced in the form of long-term debt outside of the
revolving credit facility. These borrowings were designed to
create natural net investment hedges in each of the foreign
subsidiaries mentioned on their respective dates of acquisition.
SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, 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. As required by SFAS 133, any gain or
loss on the hedging instrument following hedge designation (the
debt), is reported in OCI 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, 2005 and 2004, all net investment hedges were
effective. At December 31, 2005, 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 are included in OCI. An
evaluation of hedge effectiveness is performed by the Company on
an ongoing basis.
At December 31, 2005 and 2004, the Company had
$191.8 million and $172.7 million, respectively, of
British pound-denominated loans, which are designated as a hedge
against the net investment in foreign subsidiaries acquired in
2005, 2004 and 2003. At December 31, 2005, the Company had
$59.2 million 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, approximately $20.5 million of currency
gains and $10.1 million of currency losses have been
included in the translation adjustment in OCI at
December 31, 2005 and 2004, respectively.
Stock-Based
Compensation
SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosures, which amends SFAS 123, encourage entities
to recognize compensation expense for stock-based employee
compensation plans at fair value, but provide the option of
measuring compensation expense using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25).
The Company accounts for stock-based compensation in accordance
with APB 25. The exercise price of stock options, set at
the time of the grant, is not less than the fair market value
per share at the date of the grant. Had the Company applied the
fair value recognition provisions of SFAS 123, pretax
stock-based compensation expense would have increased
$5.9 million, $5.1 million, and
A-25
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$4.9 million for 2005, 2004, and 2003, respectively.
Diluted earnings per share would have been lower by $0.05 for
2005, and $0.04 in 2004 and 2003. Options generally have a
four-year full vesting period from date of grant. Note 10
presents pro forma results of operations as if the fair value
recognition provisions of SFAS 123 had been used to account
for stock-based compensation plans.
Goodwill
and Other Intangible Assets
The Company accounts for purchased goodwill and intangible
assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets. Under SFAS 142, purchased
goodwill and other intangible assets with indefinite lives,
primarily trademarks and tradenames, are not amortized; rather,
they are tested for impairment at least annually.
Intangible assets, other than goodwill, with definite lives will
continue to be amortized over their useful lives. Patents are
being amortized over useful lives of 5 to 17 years.
Customer relationships are being amortized over a period of 15
to 20 years. Miscellaneous other intangible assets are
being amortized over a period of 10 to 20 years. The
Company periodically evaluates the reasonableness of the useful
lives of these intangible assets.
In order to test goodwill and other intangible assets with
indefinite lives for impairment under SFAS 142, a
determination of the fair value of the Companys reporting
units for its goodwill valuation, and its other intangible
assets with indefinite lives is required and is based upon,
among other things, estimates of future operating performance of
the reporting unit being valued. 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 2005, 2004 and 2003 and determined that the
carrying value of goodwill and other intangible assets with
indefinite lives was not impaired.
Reclassifications
Certain amounts appearing in the prior years financial
statements and supporting footnote disclosures have been
reclassified to conform to the current years presentation.
On January 27, 2004, the Companys Board of Directors
approved a
two-for-one
split of its common stock distributed on February 27, 2004,
to shareholders of record on February 13, 2004. All share
and per share amounts included in this report reflect the impact
of the stock split.
|
|
3.
|
Accounting
Pronouncements
|
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123(R),
Share-Based Payment, a revision to
SFAS No. 123, Accounting for Stock Based
Compensation and superseding Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees. SFAS No. 123(R)
requires the Company to expense the fair value of grants made
under its employee stock award plans. That cost will be
recognized over the required service period of the grants.
SFAS No. 123(R) permits companies to adopt its
requirements using either a modified prospective
method, or a modified retrospective method.
Following adoption of SFAS No. 123(R), amounts
previously disclosed on a pro forma basis under
SFAS No. 123 are to be recorded in the consolidated
statement of income. Prior to January 1, 2006, the Company
accounted for share-based payments to employees using the
intrinsic value method prescribed in APB Opinion No. 25.
The Company will adopt SFAS No. 123(R) effective
January 1, 2006, under the modified retrospective method
with retroactive restatement for all prior periods presented
using the pro forma amounts disclosed in Note 10 of the
Notes to Consolidated Financial Statements. Had the Company
adopted SFAS 123R in prior years, the impact of its
adoption would have approximated the impact of SFAS 123, as
shown in the pro forma disclosure of net
A-26
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income and earnings per share on page A-35. The adoption of
SFAS No. 123(R) is expected to reduce diluted earnings
per share by approximately $0.05 for 2006 and $0.05 per
share on a restated basis for 2005.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 amends the
guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, handling costs and wasted material
(spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The Company will adopt
SFAS No. 151 effective January 1, 2006 and does
not expect that its adoption will have a material effect on the
Companys consolidated results of operations, financial
position or cash flows.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS No. 154 establishes
retrospective application as the required method for reporting
voluntary changes in accounting principle, unless it is
impracticable, in which case the changes should be applied to
the earliest practicable date presented. SFAS No. 154
also requires that a correction of an error be reported as a
prior period adjustment by restating prior period financial
statements. SFAS No. 154 is effective for accounting
changes and corrections of errors, if any, beginning
January 1, 2006.
In October 2005, the Company acquired HCC Industries
(HCC) from an investor group led by Windward Capital
Partners and management for approximately $162 million in
cash, net of cash received. Additionally, with the acquisition
of HCC, the Company assumed specified contingent liabilities,
for which the Company believes it is fully indemnified, arising
out of certain previous business activities of HCC. HCC is a
leading designer and manufacturer of highly engineered hermetic
connectors, terminals, headers and microelectronic packages for
sophisticated electronic applications in the aerospace, defense,
industrial and petrochemical markets. Headquartered near Los
Angeles, CA, HCC has annual sales of approximately
$104 million. HCC is part of the Companys
Electromechanical Group.
In September 2005, the Company acquired the Solartron Group
(Solartron) from Roxboro Group PLC for approximately
42 million British pounds, or $75 million in cash, net
of cash received. United Kingdom-based Solartron is a leading
supplier of analytical instrumentation for the process,
laboratory, and other industrial markets, with annual sales of
approximately 27 million British pounds, or
$50 million. Solartron is part of the Companys
Electronic Instruments Group.
In June 2005, the Company acquired SPECTRO Beteiligungs GmbH
(SPECTRO), the holding company of SPECTRO Analytical
Instruments GmbH & Co. KG and its affiliates, from an
investor group led by German Equity Partners BV for
approximately 80 million euros, or $96.9 million in
cash, net of cash received. SPECTRO is a leading global supplier
of atomic spectroscopy analytical instrumentation. Headquartered
in Kleve, Germany, SPECTRO has annualized sales of
85 million euros, or $104 million. SPECTRO is a part
of the Companys Electronic Instruments Group.
The operating results of the HCC, Solartron and SPECTRO
acquisitions are included in the Companys consolidated
results from the dates of acquisition.
In the second and third quarters of 2005, the Company also
purchased two small technology lines for cash. The technologies
acquired are individually related to the Companys
brushless DC motor and precision pumping system businesses in
its Electromechanical and Electronic Instruments Groups,
respectively.
A-27
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The acquisitions have been accounted for using the purchase
method in accordance with SFAS No. 141, Business
Combinations. The following table represents the tentative
allocation of the aggregate purchase price for the above
acquisitions based on their estimated fair values:
|
|
|
|
|
|
|
In millions
|
|
|
Property, plant and equipment
|
|
$
|
40.9
|
|
Goodwill
|
|
|
221.4
|
|
Other intangible assets
|
|
|
40.0
|
|
Net working capital and other
|
|
|
38.4
|
|
|
|
|
|
|
Total net assets
|
|
$
|
340.7
|
|
|
|
|
|
|
The amount allocated to goodwill is reflective of the benefits
the Company expects to realize from the acquisitions as follows:
The HCC acquisition provides a new platform for the
Companys Electromechanical Group in the rapid design and
production of hermetic (moisture-proof) connectors, terminals,
headers and microelectronic packages for customer-specific
applications. The Solartron acquisition broadens the
Companys analytical instrumentation product offerings for
the process, laboratory and other industrial markets, expanding
its geographic reach and capitalizing on significant synergies
with the Companys existing businesses. The benefits the
Company expects to realize from the SPECTRO acquisition include
the expansion of its elemental analysis capabilities in metal
production and processing, environmental testing, hydrocarbon
processing, aerospace, food processing, and pharmaceutical
markets. The technology acquisitions provide additional avenues
for internal growth. The Company does not expect the majority of
the goodwill recorded on the 2005 acquisitions will be
deductible for tax purposes.
The $40.0 million assigned to other intangible assets
consists primarily of patents and technology with estimated
lives ranging from 6 to 15 years.
For the HCC, Solartron and SPECTRO acquisitions, the Company is
in the process of completing third party valuations of certain
tangible and intangible assets acquired and updating its
assessment of the acquired contingent liabilities of HCC.
Therefore, the allocation of the purchase price to the acquired
assets and liabilities of these businesses is subject to
revision.
In 2004, the Company made two acquisitions. In June 2004,
the Company acquired Taylor Hobson Holdings Limited (Taylor
Hobson) for approximately 51.0 million British pounds, or
$93.8 million in cash, net of cash received. Taylor Hobson
is a leading manufacturer of ultraprecise measurement
instrumentation for a variety of markets, including optics,
semiconductors, hard disk drives and nanotechnology research.
Taylor Hobson is a part of the Companys Electronic
Instruments Group. In July 2004, the Company acquired
substantially all of the assets of Hughes-Treitler Mfg. Corp.
(Hughes-Treitler) for approximately $48.0 million in cash.
Hughes-Treitler is a supplier of heat exchangers and thermal
management subsystems for the aerospace and defense markets.
Hughes-Treitler is a part of the Companys
Electromechanical Group.
Had the acquisitions of Taylor Hobson and Hughes-Treitler, which
were acquired in June and July of 2004, respectively, and HCC,
SPECTRO and Solartron, which were acquired in June, September
and October 2005, respectively, been made at the beginning of
2004, pro forma net sales, net income, and diluted earnings per
share for the years ended December 31, 2005 and 2004 would
have been as follows:
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Results of
Operations
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2005
|
|
|
December 31, 2004
|
|
|
|
(In millions, except per
share)
|
|
|
Net sales
|
|
$
|
1,596.7
|
|
|
$
|
1,531.0
|
|
Net income
|
|
$
|
146.9
|
|
|
$
|
120.2
|
|
Diluted earnings per share
|
|
$
|
2.08
|
|
|
$
|
1.74
|
|
A-28
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pro forma results are not necessarily indicative of the results
that would have occurred if the acquisitions had been completed
at the beginning of 2004.
In 2003, the Company made three acquisitions. In January 2003,
the Company acquired Airtechnology Holdings Limited
(Airtechnology) from Candover Partners Limited, for
approximately 50 million British pounds, or about
$80 million in cash. Airtechnology is a supplier of motors,
fans and environmental control systems for the aerospace and
defense markets. Airtechnology is a part of the Companys
Electromechanical Group. In February 2003, the Company acquired
Solidstate Controls, Inc. (SCI) from Marmon Industrial Companies
LLC for approximately $34 million in cash. SCI is a leading
supplier of uninterruptible power supply systems for the process
and power generation industries. SCI is a part of the
Companys Electronic Instruments Group. In August 2003, the
Company acquired Chandler Instruments Company, LLC (Chandler
Instruments), for approximately $49 million in cash.
Chandler Instruments is a leading manufacturer of high-quality
measurement instrumentation for the oil and gas industry.
Chandler Instruments is a part of the Companys Electronic
Instruments Group.
|
|
5.
|
Goodwill
and Other Intangible Assets
|
The changes in the carrying amounts of goodwill by segment for
the years ended December 31, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIG
|
|
|
EMG
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at December 31, 2003
|
|
$
|
309.1
|
|
|
$
|
197.9
|
|
|
$
|
507.0
|
|
Goodwill acquired during the year
|
|
|
62.6
|
|
|
|
32.5
|
|
|
|
95.1
|
|
Purchase price allocation
adjustments and other
|
|
|
(5.9
|
)
|
|
|
0.6
|
|
|
|
(5.3
|
)
|
Foreign currency translation
adjustments
|
|
|
0.8
|
|
|
|
3.4
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
366.6
|
|
|
|
234.4
|
|
|
|
601.0
|
|
Goodwill acquired during the year
|
|
|
129.9
|
|
|
|
91.5
|
|
|
|
221.4
|
|
Purchase price allocation
adjustments and other
|
|
|
(2.9
|
)
|
|
|
(16.8
|
)
|
|
|
(19.7
|
)
|
Foreign currency translation
adjustments
|
|
|
(11.5
|
)
|
|
|
(6.0
|
)
|
|
|
(17.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
482.1
|
|
|
$
|
303.1
|
|
|
$
|
785.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-29
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Definite-lived intangible assets
(subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
64,301
|
|
|
$
|
29,528
|
|
Purchased technology
|
|
|
19,194
|
|
|
|
19,264
|
|
Customer lists
|
|
|
33,976
|
|
|
|
34,695
|
|
Other acquired intangibles
|
|
|
26,336
|
|
|
|
22,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,807
|
|
|
|
106,078
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(22,148
|
)
|
|
|
(22,015
|
)
|
Purchased technology
|
|
|
(19,194
|
)
|
|
|
(19,264
|
)
|
Customer lists
|
|
|
(5,054
|
)
|
|
|
(3,296
|
)
|
Other acquired intangibles
|
|
|
(20,026
|
)
|
|
|
(20,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,422
|
)
|
|
|
(65,501
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to
amortization
|
|
|
77,385
|
|
|
|
40,577
|
|
Indefinite-lived intangible assets
(not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
40,563
|
|
|
|
38,682
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,948
|
|
|
$
|
79,259
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $4.5 million, $3.1 million,
and $1.2 million for the years ended December 31,
2005, 2004, and 2003, respectively. Amortization expense for
each of the next five years is expected to approximate
$6.0 million per year.
A-30
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Other
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
40,092
|
|
|
$
|
40,956
|
|
Work in process
|
|
|
45,819
|
|
|
|
40,203
|
|
Raw materials and purchased parts
|
|
|
107,188
|
|
|
|
87,364
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193,099
|
|
|
$
|
168,523
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
17,217
|
|
|
$
|
14,363
|
|
Buildings
|
|
|
144,558
|
|
|
|
133,006
|
|
Machinery and equipment
|
|
|
520,485
|
|
|
|
503,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
682,260
|
|
|
|
650,437
|
|
Less accumulated depreciation
|
|
|
(453,810
|
)
|
|
|
(442,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
228,450
|
|
|
$
|
207,542
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued employee compensation and
benefits
|
|
$
|
34,824
|
|
|
$
|
35,816
|
|
Other
|
|
|
82,332
|
|
|
|
66,408
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,156
|
|
|
$
|
102,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON
ACCOUNTS AND NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
7,628
|
|
|
$
|
7,856
|
|
|
$
|
7,248
|
|
Additions charged to expense
|
|
|
581
|
|
|
|
617
|
|
|
|
2,293
|
|
Recoveries credited to allowance
|
|
|
10
|
|
|
|
63
|
|
|
|
74
|
|
Write-offs
|
|
|
(400
|
)
|
|
|
(1,097
|
)
|
|
|
(2,591
|
)
|
Currency translation adjustment
and other
|
|
|
(238
|
)
|
|
|
189
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
7,581
|
|
|
$
|
7,628
|
|
|
$
|
7,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2004, the Company settled an insurance
claim in connection with a flood loss, which occurred at one of
its manufacturing plants in 2003. The Company received insurance
proceeds totaling $24.2 million in settlement of the damage
claim and loss of the related assets. The total pretax gain
recognized in 2004 from this insurance claim was
$5.3 million and is included in operating income in the
consolidated statement of income. As a result of the flood, the
Company has ceased operations at this location. Plant closure
costs of $3.6 million associated with this decision were
recognized in the fourth quarter of 2004, and were reflected in
the determination of the gain.
A-31
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2005 and 2004, long-term debt consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
U.S. dollar 7.20% senior
note due 2008
|
|
$
|
225,000
|
|
|
$
|
225,000
|
|
British pound 5.96% senior
note due 2010
|
|
|
86,025
|
|
|
|
95,925
|
|
British pound floating rate term
note due through 2010 (5.31% at December 31, 2005)
|
|
|
36,992
|
|
|
|
|
|
Euro 3.94% senior note due
2015
|
|
|
59,200
|
|
|
|
|
|
British pound 5.99% senior
note due 2016
|
|
|
68,827
|
|
|
|
76,753
|
|
Accounts receivable securitization
due 2006
|
|
|
75,000
|
|
|
|
38,000
|
|
Revolving credit loan
|
|
|
71,200
|
|
|
|
|
|
Other, principally foreign
|
|
|
9,195
|
|
|
|
14,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631,439
|
|
|
|
450,120
|
|
Less: current portion
|
|
|
(156,130
|
)
|
|
|
(49,943
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
475,309
|
|
|
$
|
400,177
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt outstanding at December 31,
2005 are as follows: $5.5 million in 2007;
$230.5 million in 2008; $5.5 million in 2009;
$104.4 million in 2010; $0.3 million in 2011; and
$129.1 million in 2012 and thereafter.
At December 2005, the Company had outstanding a
21.5 million British pound ($37.0 million) 5.31%
(London Interbank Offered Rate (LIBOR) plus .69%) floating term
loan with annual installment payments due through 2010. In
connection with the SPECTRO acquisition, the Company issued a
50 million euro ($59.2 million at December 31,
2005) 3.94% senior note due in 2015. In November 2004,
the Company issued a 40 million British pound
($68.8 million at December 31,
2005) 5.99% senior note due in 2016. In September
2003, the Company issued a 50 million British pound
($86.0 million at December 31,
2005) 5.96% senior note due in 2010.
The Company has an accounts receivable securitization facility
agreement through a wholly owned, special purpose subsidiary,
and the special purpose subsidiary has a receivables sale
agreement with a bank whereby it could sell to a third party up
to $75.0 million of its trade accounts receivable on a
revolving basis. The securitization facility is a financing
vehicle utilized by the Company because it offers attractive
rates relative to other financing sources. 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 securitization
facility expires in December 2006. 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, 2005 and 2004, securitized accounts
receivable and the corresponding debt on the consolidated
balance sheet were $75.0 million and $38.0 million,
respectively. Interest expense under this facility is not
significant. The weighted average interest rate on the amount
outstanding under the accounts receivable securitization during
2005 and 2004 was 4.3% and 2.0%, respectively.
A-32
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has an unsecured $300 million Revolving Credit
Facility that matures in June 2010. The credit facility has an
accordion feature that allows the Company to request up to an
additional $100 million in revolving credit commitments at
any time during the term of the revolving credit agreement.
Interest rates on outstanding loans under the Revolving Credit
Facility are either at LIBOR plus a negotiated spread over
LIBOR, or at the U.S. prime rate. At December 31,
2005, the Company had an outstanding revolving credit loan of
$71.2 million. At December 31, 2004, the Company had
no revolving credit loan outstanding. The Company had
outstanding letters of credit totaling $26.9 million and
$28.5 million at December 31, 2005 and 2004,
respectively. At December 31, 2005, $201.9 million was
unused and available under the Revolving Credit Facility.
The Revolving Credit Facility places certain restrictions on
allowable subsidiary debt. The Revolving Credit Facility also
places certain restrictions on certain cash payments, including
the payment of dividends. At December 31, 2005, retained
earnings of approximately $36.5 million were not subject to
the dividend limitation.
Foreign subsidiaries of the Company had available credit
facilities with local foreign lenders of approximately
$87.0 million at December 31, 2005. Foreign
subsidiaries had debt outstanding at December 31, 2005
totaling $46.2 million, of which $36.3 million is
reported as long-term.
The approximate weighted average interest rate on total debt
outstanding at December 31, 2005 and 2004 was 6.4% and
6.2%, respectively.
In 2005 and 2004, the Company did not repurchase any shares of
its common stock under its current share repurchase
authorization. At December 31, 2005, approximately
$52.4 million of the current share purchase authorization
was unexpended. At December 31, 2005, the Company held
approximately 1.2 million shares in its treasury at a cost
of $17.2 million, compared with approximately
1.7 million shares at a cost of $24.5 million at the
end of 2004. The number of shares outstanding at
December 31, 2005 was 70.5 million shares, compared
with 68.7 million shares at December 31, 2004.
The Company has a Shareholder Rights Plan, under which the
Companys Board of Directors declared a dividend of
one-half of a Right for each share of Company common stock owned
at the inception of the Plan. 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 2007.
|
|
10.
|
Stock
Option and Award Plans
|
The Companys 2002 Stock Incentive Plan permits the grant
of up to 4.0 million shares of common stock to eligible
employees and non-employee directors of the Company in the form
of options, phantom stock awards, restricted stock awards and
stock rights. The Companys 1999 Stock Incentive Plan
permits the grant of up to 4.0 million shares of common
stock in the same forms as under the 2002 Plan. The
Companys 1997 Stock Incentive Plan permits the grant of up
to 7.6 million shares of common stock in the same forms as
under the 2002 Plan. Stock options may be granted as
non-qualified stock options or as incentive stock options.
In 2004, the Company adopted a change in its long-term incentive
compensation program for officers and other senior managers to
grant approximately 50% of the value of its long-term incentive
awards as restricted stock and 50% as stock options, rather than
primarily stock options as it had previously. Restricted awards
of the Companys common stock are made to eligible
employees and non-employee directors at such cost to the grantee
as the compensation committee of the Board of Directors may
determine at the date such awards are granted. Such shares are
granted subject to certain conditions with respect to transfer
and other restrictions as prescribed by the plan. Upon grant of
restricted stock, unearned compensation, equivalent to the
excess of the market price of the shares awarded over the
exercise price at the date of grant, is charged as a reduction
of capital in excess of par value in the
A-33
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys consolidated balance sheet and is amortized to
expense over the period until the restrictions lapse, which is
also set at the date of the grant. In 2005 and 2004, 529,440 and
367,625 shares of restricted stock were granted at an
average market value of $37.78 and $27.96 per restricted
share, respectively. No restricted stock awards were granted in
2003. Compensation expense related to restricted stock
amortization was $4.7 million, $1.1 million, and
$2.4 million in 2005, 2004, and 2003, respectively.
Restricted stock compensation expense in 2003 included
$2.1 million in connection with the acceleration of vesting
of a restricted stock grant. There were 883,025 shares and
364,945 shares of restricted stock outstanding at
December 31, 2005 and 2004, respectively.
Under a Supplemental Executive Retirement Plan
(SERP), in 2005, the Company reserved
13,443 shares of common stock. Reductions for retirements
and terminations were minimal in 2005. The total number of
shares of common stock reserved under the SERP was 187,303 as of
December 31, 2005. Charges to expense under the SERP, not
significant in amount, are considered pension expense, with the
offsetting credit reflected in capital in excess of par value.
At December 31, 2005, 5,126,344 (6,919,840 in
2004) shares of common stock were reserved for issuance,
including stock options outstanding, under the 2002, 1999 and
1997 plans. The options are exercisable at prices not less than
market prices on dates of grant, and in installments over
four-to ten-year periods from dates of grant. Options vest on a
straight-line basis generally over a four-year period. The
Company had no stock appreciation rights outstanding at
December 31, 2005 or 2004. Stock appreciation rights, if
and when issued, are exercisable for cash
and/or
shares of the Companys common stock when the related
option is exercised. A charge to income would be made for these
rights and the related options under current accounting rules.
A summary of the Companys stock option activity and
related information for the years ended December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Shares
|
|
|
Price Range
|
|
|
Shares
|
|
|
Price Range
|
|
|
Shares
|
|
|
Price Range
|
|
|
Outstanding at beginning of year
|
|
|
4,287,173
|
|
|
$
|
7.07-$31.64
|
|
|
|
4,824,658
|
|
|
$
|
7.07-$18.82
|
|
|
|
5,128,948
|
|
|
$
|
7.07-$19.34
|
|
Granted
|
|
|
407,910
|
|
|
$
|
37.93-$37.93
|
|
|
|
994,800
|
|
|
$
|
26.18-$31.64
|
|
|
|
1,129,900
|
|
|
$
|
18.06-$18.06
|
|
Exercised
|
|
|
(1,278,997
|
)
|
|
$
|
7.07-$30.41
|
|
|
|
(1,328,433
|
)
|
|
$
|
7.07-$18.82
|
|
|
|
(1,322,234
|
)
|
|
$
|
7.07-$18.82
|
|
Canceled
|
|
|
(89,474
|
)
|
|
$
|
13.14-$37.93
|
|
|
|
(203,852
|
)
|
|
$
|
9.97-$26.18
|
|
|
|
(111,956
|
)
|
|
$
|
9.97-$19.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
3,326,612
|
|
|
$
|
7.98-$37.93
|
|
|
|
4,287,173
|
|
|
$
|
7.07-$31.64
|
|
|
|
4,824,658
|
|
|
$
|
7.07-$18.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,512,739
|
|
|
$
|
7.98-$31.64
|
|
|
|
1,898,347
|
|
|
$
|
7.07-$18.82
|
|
|
|
2,284,860
|
|
|
$
|
7.07-$18.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information pertaining to the
Companys stock options outstanding at December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Options
|
|
|
Exercise
|
|
Range of Exercise
Prices
|
|
Outstanding
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 7.98-$15.17
|
|
|
521,912
|
|
|
$
|
12.07
|
|
|
|
1.9
|
|
|
|
521,912
|
|
|
$
|
12.07
|
|
$15.18-$18.82
|
|
|
1,465,066
|
|
|
$
|
18.39
|
|
|
|
4.0
|
|
|
|
776,441
|
|
|
$
|
18.46
|
|
$18.83-$37.93
|
|
|
1,339,634
|
|
|
$
|
31.08
|
|
|
|
5.8
|
|
|
|
214,386
|
|
|
$
|
28.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,326,612
|
|
|
$
|
22.51
|
|
|
|
4.4
|
|
|
|
1,512,739
|
|
|
$
|
17.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-34
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company applies Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, in
accounting for its stock option and restricted stock awards,
which recognizes expense based on the intrinsic value of the
award at the date of grant. Since stock options have been issued
with the exercise price per share equal to the fair market value
per share at the date of grant, no compensation expense has
resulted related to these types of awards. Had the Company
accounted for stock awards in accordance with the fair value
method prescribed by SFAS No. 123, Accounting for
Stock-Based Compensation, the Company would have reported
the following pro forma results for the years ended
December 31, 2005, 2004, and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share
data)
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
140,643
|
|
|
$
|
112,711
|
|
|
$
|
87,815
|
|
Add: Stock-based employee
compensation expense included in reported net income
|
|
|
3,477
|
|
|
|
677
|
|
|
|
2,425
|
|
Deduct: Total stock-based
compensation expense determined under the
fair-value-based
method for all awards, net of tax
|
|
|
(7,762
|
)
|
|
|
(4,397
|
)
|
|
|
(6,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
136,358
|
|
|
$
|
108,991
|
|
|
$
|
84,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
2.03
|
|
|
$
|
1.66
|
|
|
$
|
1.32
|
|
Pro forma
|
|
|
1.97
|
|
|
|
1.61
|
|
|
|
1.27
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
1.99
|
|
|
|
1.63
|
|
|
|
1.30
|
|
Pro forma
|
|
|
1.94
|
|
|
|
1.59
|
|
|
|
1.26
|
|
The weighted average fair value of options on the grant date was
$10.88 for 2005, $8.40 for 2004, and $6.19 for 2003. The fair
value of each option was estimated using the Black-Scholes
option pricing model with the following weighted-average
assumptions for options granted in each of the last three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Expected life (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Expected volatility
|
|
|
26.1
|
%
|
|
|
29.7
|
%
|
|
|
37.0
|
%
|
Dividend yield
|
|
|
0.63
|
%
|
|
|
0.86
|
%
|
|
|
0.66
|
%
|
Risk-free interest rate
|
|
|
4.00
|
%
|
|
|
3.66
|
%
|
|
|
2.63
|
%
|
|
|
11.
|
Leases
and Other Commitments
|
Minimum aggregate rental commitments under noncancellable leases
in effect at December 31, 2005 (principally for production
and administrative facilities and equipment) amounted to
$49.1 million, consisting of annual payments of
$9.3 million in 2006, $6.5 million in 2007,
$5.2 million in 2008, $3.7 million in 2009,
$2.8 million in 2010, and $21.6 million in 2011 and
thereafter. Rental expense was $14.5 million in 2005,
$11.3 million in 2004 and $9.0 million in 2003. The
leases expire over a range of years from 2006 to 2031, with
renewal or purchase options, subject to various terms and
conditions, contained in most of the leases.
As of December 31, 2005 and 2004, the Company had
$129.4 million and $75.5 million, respectively, in
purchase obligations outstanding, which primarily consisted of
contractual commitments to purchase certain inventories at fixed
prices.
A-35
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income before income taxes and the details of
the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
156,654
|
|
|
$
|
137,713
|
|
|
$
|
100,116
|
|
Foreign
|
|
|
47,554
|
|
|
|
28,066
|
|
|
|
29,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
204,208
|
|
|
$
|
165,779
|
|
|
$
|
130,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
30,907
|
|
|
$
|
28,964
|
|
|
$
|
17,492
|
|
Foreign
|
|
|
18,641
|
|
|
|
11,143
|
|
|
|
11,105
|
|
State
|
|
|
3,249
|
|
|
|
5,443
|
|
|
|
1,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
52,797
|
|
|
|
45,550
|
|
|
|
30,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
10,492
|
|
|
|
7,104
|
|
|
|
12,393
|
|
Foreign
|
|
|
(598
|
)
|
|
|
24
|
|
|
|
(2,261
|
)
|
State
|
|
|
874
|
|
|
|
390
|
|
|
|
1,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
10,768
|
|
|
|
7,518
|
|
|
|
12,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
63,565
|
|
|
$
|
53,068
|
|
|
$
|
42,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-36
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys deferred tax
(asset) liability as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Current deferred tax asset:
|
|
|
|
|
|
|
|
|
Reserves not currently deductible
|
|
$
|
(14,701
|
)
|
|
$
|
(5,480
|
)
|
Net operating losses
|
|
|
(11,399
|
)
|
|
|
|
|
Other
|
|
|
(596
|
)
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,696
|
)
|
|
|
(5,201
|
)
|
Less: valuation allowance*
|
|
|
5,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
|
(21,154
|
)
|
|
|
(5,201
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (asset)
liability:
|
|
|
|
|
|
|
|
|
Differences in basis of property
and accelerated depreciation
|
|
$
|
21,365
|
|
|
$
|
24,557
|
|
Reserves not currently deductible
|
|
|
(16,400
|
)
|
|
|
(15,296
|
)
|
Pensions
|
|
|
23,748
|
|
|
|
11,453
|
|
Differences in basis and
amortization of intangible assets
|
|
|
30,267
|
|
|
|
26,638
|
|
Residual tax on unremitted earnings
|
|
|
3,621
|
|
|
|
1,555
|
|
Net operating loss carryforwards
of acquired businesses
|
|
|
(10,251
|
)
|
|
|
(3,968
|
)
|
Foreign tax credit carryforwards
|
|
|
(6,350
|
)
|
|
|
(2,442
|
)
|
Other
|
|
|
(503
|
)
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,497
|
|
|
|
43,031
|
|
Less: valuation allowance*
|
|
|
9,413
|
|
|
|
6,410
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liability
|
|
|
54,910
|
|
|
|
49,441
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
33,756
|
|
|
$
|
44,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The December 31, 2005 valuation allowance includes
$8.1 million related to business acquisitions that would
increase goodwill, if reversed. |
The effective rate of the provision for income taxes reconciles
to the statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal
income tax benefit
|
|
|
1.5
|
|
|
|
2.3
|
|
|
|
1.8
|
|
Tax benefits from qualified export
sales
|
|
|
(2.6
|
)
|
|
|
(4.4
|
)
|
|
|
(3.3
|
)
|
Foreign operations, net
|
|
|
(2.1
|
)
|
|
|
0.2
|
|
|
|
0.7
|
|
Closure of prior tax years
|
|
|
(0.4
|
)
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
Other
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
%
|
|
|
32.0
|
%
|
|
|
32.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2005, U.S. deferred income taxes totaling
$2.0 million were provided on undistributed earnings of
certain
non-U.S. subsidiaries
that are not expected to be permanently reinvested in such
companies. There has been no provision for U.S. deferred
income taxes for the undistributed earnings of certain other
subsidiaries, which total approximately $61.9 million at
December 31, 2005, because the Company intends to reinvest
these earnings indefinitely in operations outside the United
States. Upon distribution of those earnings to the United
States, the Company would be subject to U.S. income taxes
and withholding taxes payable to the various foreign countries.
A-37
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Determination of the amount of the unrecognized deferred income
tax liability on these undistributed earnings is not practicable.
As of December 31, 2005, the Company has net operating loss
carryforwards of approximately $21.6 million for tax
purposes, which will be available to offset future income taxes
payable subject to certain annual or other limitations based on
U.S. and foreign tax law. This amount includes net operating
loss carryforwards of $14.2 million for federal income tax
purposes with a valuation allowance of $5.8 million,
$4.9 million for foreign income tax purposes with a
valuation allowance of $0.3 million, and $2.5 million
for state income tax purposes with a full valuation allowance.
These net operating loss carryforwards are primarily related to
recent acquisitions, and if not used, will expire between 2007
and 2030. As of December 31, 2005, the Company has foreign
tax credits of approximately $6.3 million which will be
available to offset future income taxes payable subject to
certain limitations based on U.S. tax law. There is a full
valuation allowance on the foreign tax credits. If not used, the
credits will expire in 2014 and 2015. The Company maintains a
valuation allowance to reduce certain deferred tax assets to
amounts that are more likely than not to be realized. Any
reductions in the allowance resulting from the realization of
the loss carryforwards of acquired companies will result in a
reduction of goodwill.
|
|
13.
|
Retirement
Plans and Other Postretirement Benefits
|
Retirement
and Pension Plans
The Company sponsors several retirement and pension plans
covering eligible salaried and hourly employees. The plans
generally provide benefits based on participants years of
service
and/or
compensation. The following is a brief description of the
Companys retirement and pension plans.
The Company maintains contributory and noncontributory defined
benefit pension plans. Benefits for eligible salaried and hourly
employees under all defined benefit plans are funded through
trusts established in conjunction with the plans. The
Companys funding policy with respect to its defined
benefit plans is to contribute amounts that provide for benefits
based on actuarial calculations and the applicable requirements
of U.S. federal and local foreign laws. AMETEK estimates
that it will make cash contributions of approximately
$12 million to its worldwide defined benefit pension plans
in 2006.
The Company uses a measurement date of December 31 for its
U.S. defined benefit pension plans and an October 1
measurement date for its foreign defined benefit pension plans.
The Company sponsors a 401(k) retirement and savings plan for
eligible employees. Participants in the savings plan may
contribute a portion of their compensation on a before-tax
basis. The Company matches employee contributions on a
dollar-for-dollar
basis up to 6% of eligible compensation or a maximum of
$1,200 per participant.
The Companys retirement and savings plan has a defined
contribution retirement feature principally to cover
U.S. salaried employees joining the Company after
December 31, 1996. Under the retirement feature, the
Company makes contributions for eligible employees based on a
pre-established percentage of the covered employees salary
subject to pre-established vesting. Employees of certain of the
Companys foreign operations participate in various local
defined contribution plans.
The Company also has a defined contribution retirement plan for
certain of its U.S. acquired businesses for the benefit of
eligible employees. Company contributions are made for each
participant up to a specified percentage, not to exceed 6% of
the participants base compensation.
The Company has nonqualified unfunded retirement plans for its
Directors and certain retired executives. It also provides
supplemental retirement benefits, through contractual
arrangements
and/or a
Supplemental Executive Retirement Plan (SERP) covering certain
current and former executives of the Company. These supplemental
benefits are designed to compensate the executive for retirement
benefits that would have been provided under the Companys
primary retirement plan, except for statutory limitations on
compensation that must be taken into
A-38
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
account under those plans. The projected benefit obligations of
the SERP and the contracts will primarily be funded by a grant
of shares of the Companys common stock upon retirement or
termination of the executive. The Company is providing for these
obligations by charges to earnings over the applicable periods.
The following tables set forth the changes in benefit
obligations and the fair value of plan assets for the funded and
unfunded defined benefit plans for 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Change in projected benefit
obligation (PBO)
|
|
|
|
|
|
|
|
|
Net projected benefit obligation
at beginning of year
|
|
$
|
416,954
|
|
|
$
|
347,138
|
|
Service cost
|
|
|
6,605
|
|
|
|
5,898
|
|
Interest cost
|
|
|
23,541
|
|
|
|
22,256
|
|
Acquisitions
|
|
|
1,295
|
|
|
|
37,411
|
|
Foreign currency translation
adjustment
|
|
|
(7,400
|
)
|
|
|
3,483
|
|
Employee contributions
|
|
|
615
|
|
|
|
357
|
|
Actuarial losses
|
|
|
20,700
|
|
|
|
21,595
|
|
Gross benefits paid
|
|
|
(22,239
|
)
|
|
|
(21,184
|
)
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation
at end of year
|
|
$
|
440,071
|
|
|
$
|
416,954
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation (ABO) at the end
of 2005 and 2004 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Funded plans
|
|
$
|
404,466
|
|
|
$
|
382,469
|
|
Unfunded plans
|
|
|
5,976
|
|
|
|
5,940
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
410,442
|
|
|
$
|
388,409
|
|
|
|
|
|
|
|
|
|
|
Change in plan
assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year
|
|
$
|
385,210
|
|
|
$
|
330,957
|
|
Actual return on plan assets
|
|
|
36,960
|
|
|
|
41,408
|
|
Acquisitions
|
|
|
1,072
|
|
|
|
25,009
|
|
Employer contributions
|
|
|
11,307
|
|
|
|
6,325
|
|
Employee contributions
|
|
|
615
|
|
|
|
357
|
|
Foreign currency translation
adjustment
|
|
|
(5,184
|
)
|
|
|
2,338
|
|
Gross benefits paid
|
|
|
(22,239
|
)
|
|
|
(21,184
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
$
|
407,741
|
|
|
$
|
385,210
|
|
|
|
|
|
|
|
|
|
|
On an ABO basis, in the aggregate, the Companys funded
U.S. defined benefit pension plans were 101% funded at
December 31, 2005 and 2004. Foreign defined benefit pension
plans were 91% funded at December 31, 2005 and 2004. For a
presentation of the plans whose ABO exceeds the fair value of
the plan assets, see page A-42.
A-39
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Weighted-average
assumptions used to determine
end-of-year
benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
U.S. Defined Benefit
Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.65
|
%
|
|
|
5.75
|
%
|
Rate of compensation increase
(where applicable)
|
|
|
3.50
|
%
|
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
|
Foreign Defined Benefit Pension
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
5.50
|
%
|
Rate of compensation increase
(where applicable)
|
|
|
3.40
|
%
|
|
|
4.00
|
%
|
The asset allocation percentages for the Companys
U.S. defined benefit pension plans at December 31,
2005 and 2004, and the target allocation percentages for 2006 by
asset category, are as follows:
U.S. Defined
Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Plan Assets
|
|
|
Target Allocation
|
|
at Year-End
|
Asset Category
|
|
2006
|
|
2005
|
|
2004
|
|
Equity securities
|
|
50%-70%
|
|
|
61
|
%
|
|
|
62
|
%
|
Debt securities
|
|
20%-40%
|
|
|
28
|
%
|
|
|
28
|
%
|
Other(a)
|
|
5%-15%
|
|
|
11
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts in 2005 and 2004 include an approximate 10% investment
in alternative assets consisting of diversified hedge funds.
Amounts in 2005 and 2004 also include cash and cash equivalents. |
The fair value of plan assets for these plans was
$356.9 million and $341.5 million at December 31,
2005 and 2004, respectively. The expected long-term rate of
return on these plan assets was 8.5% in 2005 and 8.9% in 2004.
Equity securities included 452,800 shares of AMETEK, Inc.
common stock in the amount of $19.4 million (5.4% of total
plan investment assets) and 662,800 shares in the amount of
$23.6 million (6.9% of total plan investment assets) at
December 31, 2005 and 2004, respectively.
The objectives of the AMETEK, Inc. U.S. defined benefit
plans investment strategy are to maximize the plans
funded status and minimize Company contributions and plan
expense. Because the goal is to optimize returns over the long
term, an investment policy that favors equity holdings has been
established. Since there may be periods of time where both
equity and fixed-income markets provide poor returns, an
allocation to alternative assets may be made to improve the
overall portfolios diversification and return potential.
The Company periodically reviews its asset allocation, taking
into consideration plan liabilities, plan benefit payment
streams and the investment strategy of the pension plans. The
actual asset allocation is monitored frequently relative to the
established targets and ranges, and rebalanced when necessary.
The equity portfolio is diversified by market capitalization and
style. The equity portfolio also includes an international
component.
The objective of the fixed-income portion of the pension assets
is to provide interest rate sensitivity for a portion of the
assets and to provide diversification. The fixed-income
portfolio is diversified within certain quality and maturity
guidelines in an attempt to minimize the adverse effects of
interest rate fluctuations.
Other than for investments in alternative assets, described in
note (a) above, certain investments are prohibited.
Prohibited investments include venture capital, private
placements, unregistered or restricted stock, margin trading,
A-40
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commodities, limited partnerships, short selling, and rights and
warrants. Foreign currency futures, options, and forward
contracts may be used to manage foreign currency exposure.
For the Companys foreign defined benefit plans, the asset
allocation percentages at December 31, 2005 and 2004, and
the target allocation percentages for 2006, by asset category,
are as follows:
Foreign
Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Plan Assets
|
|
|
Target Allocation
|
|
at Year-End
|
Asset Category
|
|
2006
|
|
2005
|
|
2004
|
|
Equity securities
|
|
80%-90%
|
|
|
88
|
%
|
|
|
86
|
%
|
Debt securities
|
|
0%-10%
|
|
|
7
|
%
|
|
|
9
|
%
|
Real estate
|
|
|
|
|
3
|
%
|
|
|
3
|
%
|
Other (a)
|
|
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily cash and cash equivalents. |
The objective of AMETEK, Inc.s foreign defined benefit
plans investment strategy is to maximize the long-term
rate of return on plan investments, subject to a reasonable
level of risk. Liability studies are also performed on a regular
basis to provide guidance in setting investment goals with an
objective to balance risks against the current and future needs
of the plans. The trustees consider the risk associated with the
different asset classes, relative to the plans liabilities
and how this can be affected by diversification, and the
relative returns available on equities, fixed-income
investments, real estate and cash. Also, the likely volatility
of those returns and the cash flow requirements of the plans are
considered. It is expected that equities will outperform
fixed-income investments over the long term. However, the
trustees recognize the fact that fixed-income investments may
better match the liabilities for pensioners. Because of the
relatively young active employee group covered by the plans, and
the immature nature of the plans, the trustees have chosen to
adopt an asset allocation strategy more heavily weighted toward
equity investments. This asset allocation strategy will be
reviewed from time to time in view of changes in market
conditions and in the plans liability profile.
A-41
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides the amounts recognized in the
consolidated balance sheets at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Funded status asset
(liability):
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
407,741
|
|
|
$
|
385,210
|
|
Projected benefit obligation
|
|
|
(440,071
|
)
|
|
|
(416,954
|
)
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
(32,330
|
)
|
|
|
(31,744
|
)
|
Unrecognized net actuarial loss
|
|
|
79,747
|
|
|
|
67,413
|
|
Unrecognized prior service cost
|
|
|
2,238
|
|
|
|
2,231
|
|
Unrecognized net transition asset
|
|
|
(36
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized at end of
year
|
|
$
|
49,619
|
|
|
$
|
37,848
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the
statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
54,553
|
|
|
$
|
40,539
|
|
Accrued benefit cost
|
|
|
(4,636
|
)
|
|
|
(2,702
|
)
|
Additional minimum liability
|
|
|
(6,264
|
)
|
|
|
(13,638
|
)
|
Intangible asset
|
|
|
766
|
|
|
|
647
|
|
Accumulated other comprehensive
income (a)
|
|
|
3,380
|
|
|
|
8,450
|
|
Deferred tax benefit
on (a) above
|
|
|
1,820
|
|
|
|
4,552
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized at end of
year
|
|
$
|
49,619
|
|
|
$
|
37,848
|
|
|
|
|
|
|
|
|
|
|
At the end of 2005 and 2004, the projected benefit obligation,
accumulated benefit obligation, and fair value of plan assets
for pension plans with a projected benefit obligation in excess
of plan assets, and pension plans with an accumulated benefit
obligation in excess of plan assets, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
|
|
|
Accumulated Benefit
|
|
|
|
Obligation Exceeds Fair
|
|
|
Obligation Exceeds
|
|
|
|
Value of Assets
|
|
|
Fair Value of Assets
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
Projected benefit obligation
|
|
$
|
337,779
|
|
|
$
|
361,563
|
|
|
$
|
36,824
|
|
|
$
|
81,906
|
|
Accumulated benefit obligation
|
|
|
308,150
|
|
|
|
333,017
|
|
|
|
36,110
|
|
|
|
81,454
|
|
Fair value of plan assets
|
|
|
300,214
|
|
|
|
326,076
|
|
|
|
29,806
|
|
|
|
68,539
|
|
A-42
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides the components of net periodic
benefit expense (income) for the three years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Defined benefit
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
6,605
|
|
|
$
|
5,898
|
|
|
$
|
5,077
|
|
Interest cost
|
|
|
23,541
|
|
|
|
22,256
|
|
|
|
21,011
|
|
Expected return on plan assets
|
|
|
(31,607
|
)
|
|
|
(29,157
|
)
|
|
|
(24,633
|
)
|
Net amortization
|
|
|
3,548
|
|
|
|
3,264
|
|
|
|
4,957
|
|
SFAS No. 88 curtailment
charges
|
|
|
|
|
|
|
322
|
|
|
|
984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit expense
|
|
|
2,087
|
|
|
|
2,583
|
|
|
|
7,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution plans
|
|
|
7,687
|
|
|
|
7,640
|
|
|
|
6,721
|
|
Foreign plans and other
|
|
|
3,007
|
|
|
|
2,982
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other plans
|
|
|
10,694
|
|
|
|
10,622
|
|
|
|
8,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net pension expense
|
|
$
|
12,781
|
|
|
$
|
13,205
|
|
|
$
|
16,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to determine the above net periodic expense
(income) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
U.S. Defined Benefit
Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75%
|
|
|
|
6.25%
|
|
|
|
6.75%
|
|
Expected return on plan assets
|
|
|
8.50%
|
|
|
|
8.90%
|
|
|
|
8.90%
|
|
Rate of compensation increase
(where applicable)
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Defined Benefit Pension
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50%
|
|
|
|
5.50%
|
|
|
|
5.50%
|
|
Expected return on plan assets
|
|
|
7.20%
|
|
|
|
7.20%
|
|
|
|
7.20%
|
|
Rate of compensation increase
(where applicable)
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
|
4.25%
|
|
The assumption for the expected return on plan assets was
developed based on a review of historical investment returns for
the investment categories for the defined benefit pension
assets. This review also considered current capital market
conditions and expectations of projected future investment
returns. The estimates of future capital market returns by asset
category are lower than the actual long-term historical returns.
The current low interest rate environment also influences this
outlook. Therefore, the assumed rate of return for U.S. plans
was reduced from 8.50% to 8.25% for 2006. The expected return on
assets for the foreign plans for 2006 will be reduced from 7.20%
to 7.00%.
Estimated
future benefit payments
The estimated future benefit payments are as follows (in
thousands): 2006 - $23,204; 2007 - $24,118;
2008 - $24,888; 2009 - $25,392;
2010 - $26,113; 2011 to 2015 - $144,162.
Future benefit payments primarily represent amounts to be paid
from pension trust assets. Amounts included that are to be paid
from the Companys assets are not significant in any
individual year.
A-43
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Postretirement
Plans and Postemployment Benefits
The Company provides limited postretirement benefits other than
pensions for certain retirees and a small number of current and
former employees. Benefits under these arrangements are not
funded and are not significant. In connection with the flood
loss and closure of the plant described in Note 7, in the
fourth quarter of 2004, the Company accelerated the recognition
of deferred actuarial losses under the affected postretirement
benefit plan, resulting in a $1.0 million pretax charge
against earnings.
The Company also provides limited postemployment benefits for
certain former or inactive employees after employment but before
retirement. Those benefits are not significant in amount.
The Company has a deferred compensation plan, which allows
employees whose compensation exceeds the statutory IRS limit for
retirement benefits to defer a portion of earned bonus
compensation. The plan permits deferred amounts to be deemed
invested in either, or a combination of, (a) an
interest-bearing account, benefits from which are payable out of
the general assets of the Company, or (b) the equivalent of
a fund which invests in shares of the Companys common
stock on behalf of the employee. The amount deferred under the
plan, including income earned, was $7.3 million and
$5.4 million at December 31, 2005 and 2004,
respectively. Administrative expense for the plan is borne by
the Company and is not significant.
|
|
14.
|
Financial
Instruments
|
The estimated fair values of the Companys financial
instruments are compared below to the recorded amounts at
December 31, 2005 and 2004. Cash, cash equivalents, and
marketable securities are recorded at fair value at
December 31, 2005 and 2004 in the accompanying balance
sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
|
December 31, 2005
|
|
|
December 31, 2004
|
|
|
|
Recorded
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Fixed-income investments
|
|
$
|
7,323
|
|
|
$
|
7,323
|
|
|
$
|
6,582
|
|
|
$
|
6,582
|
|
Short-term borrowings
|
|
$
|
(152,678
|
)
|
|
$
|
(152,678
|
)
|
|
$
|
(49,725
|
)
|
|
$
|
(49,725
|
)
|
Long-term debt (including current
portion)
|
|
$
|
(478,761
|
)
|
|
$
|
(490,934
|
)
|
|
$
|
(400,395
|
)
|
|
$
|
(409,980
|
)
|
The fair value of fixed-income investments is based on quoted
market prices. The fair value of short-term borrowings
approximates the carrying value at year-end. The fair value of
the Companys long-term debt, which consists primarily of
publicly traded notes, is based on the quoted market price for
such notes and borrowing rates currently available to the
Company for loans with similar terms and maturities.
|
|
15.
|
Additional
Income Statement and Cash Flow Information
|
Included in other income are interest and other investment
income of $2.7 million, $2.0 million, and
$1.0 million for 2005, 2004, and 2003, respectively. Income
taxes paid in 2005, 2004, and 2003 were $49.8 million,
$45.7 million, and $25.1 million, respectively. Cash
paid for interest was $31.0 million, $27.0 million,
and $24.1 million in 2005, 2004, and 2003, respectively.
A-44
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Business
Segment and Geographic Information
|
Descriptive
Information about Reportable Segments
The Company has two reportable segments, the Electronic
Instruments Group and the Electromechanical Group. The Company
manages, evaluates and aggregates its operating segments for
segment reporting purposes primarily on the basis of product
type, production processes, distribution methods, and management
organizations.
The Electronic Instruments Group produces instrumentation for
various electronic applications used in transportation
industries, including aircraft cockpit instruments and displays,
airborne electronics systems that monitor and record flight and
engine data, and pressure, temperature, flow and liquid-level
sensors for commercial airlines and aircraft and jet engine
manufacturers. The Group also produces analytical
instrumentation for the laboratory and research markets, as well
as instruments for food service equipment, measurement and
monitoring instrumentation for various process industries and
instruments and complete instrument panels for heavy truck
manufacturers and heavy construction and agricultural vehicles.
The Group also manufactures ultraprecise measurement
instrumentation, as well as thermoplastic compounds for
automotive, appliance, and telecommunications applications.
The Electromechanical Group (EMG) produces brushless
air-moving motors for aerospace, mass transit, medical
equipment, computer and business machine applications. The Group
also produces high-purity metal powders and alloys in powder,
strip, and wire form for electronic components, aircraft and
automotive products, as well as heat exchangers and thermal
management subsystems. Additionally, EMG produces air-moving
electric motors and motor-blower systems for manufacturers of
floor care appliances and outdoor power equipment. EMG also
supplies hermetically sealed (moisture-proof) connectors,
terminals and headers. These electromechanical devices are used
in aerospace, defense, and other industrial applications. Sales
of floor care and specialty motors represented 19.2% in 2005,
22.1% in 2004, and 25.4% in 2003 of the Companys
consolidated net sales.
Measurement
of Segment Results
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 an
allocation of interest expense. Net sales by segment are
reported after elimination of intra- and inter-segment sales and
profits, which are insignificant in amount. Such sales are
generally based on prevailing market prices. Reported segment
assets include allocations directly related to the
segments operations. Corporate assets consist primarily of
investments, prepaid pensions, insurance deposits, and deferred
taxes.
A-45
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reportable
Segment Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
808,493
|
|
|
$
|
667,418
|
|
|
$
|
561,879
|
|
Electromechanical
|
|
|
625,964
|
|
|
|
564,900
|
|
|
|
529,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,434,457
|
|
|
$
|
1,232,318
|
|
|
$
|
1,091,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and income before
income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
166,423
|
|
|
$
|
126,372
|
|
|
$
|
94,976
|
|
Electromechanical
|
|
|
100,347
|
|
|
|
94,250
|
|
|
|
84,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
266,770
|
|
|
|
220,622
|
|
|
|
179,127
|
|
Corporate administrative and other
expenses
|
|
|
(27,361
|
)
|
|
|
(24,388
|
)
|
|
|
(22,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
239,409
|
|
|
|
196,234
|
|
|
|
156,761
|
|
Interest and other expenses, net
|
|
|
(35,201
|
)
|
|
|
(30,455
|
)
|
|
|
(26,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income
taxes
|
|
$
|
204,208
|
|
|
$
|
165,779
|
|
|
$
|
130,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
949,219
|
|
|
$
|
744,408
|
|
|
|
|
|
Electromechanical
|
|
|
727,296
|
|
|
|
585,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
1,676,515
|
|
|
|
1,330,327
|
|
|
|
|
|
Corporate
|
|
|
104,085
|
|
|
|
90,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,780,600
|
|
|
$
|
1,420,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
27,354
|
|
|
$
|
16,514
|
|
|
$
|
16,209
|
|
Electromechanical
|
|
|
34,816
|
|
|
|
10,808
|
|
|
|
18,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
62,170
|
|
|
|
27,322
|
|
|
|
34,262
|
|
Corporate
|
|
|
1,921
|
|
|
|
1,569
|
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
64,091
|
|
|
$
|
28,891
|
|
|
$
|
35,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
18,323
|
|
|
$
|
16,485
|
|
|
$
|
14,200
|
|
Electromechanical
|
|
|
20,897
|
|
|
|
23,049
|
|
|
|
21,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
39,220
|
|
|
|
39,534
|
|
|
|
35,213
|
|
Corporate
|
|
|
208
|
|
|
|
375
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
39,428
|
|
|
$
|
39,909
|
|
|
$
|
35,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $40.9 million in 2005, $7.9 million in 2004,
and $13.9 million in 2003 from acquired businesses. |
A-46
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Geographic
Areas
Information about the Companys operations in different
geographic areas for the years ended December 31, 2005,
2004, and 2003 is shown below. Net sales were attributed to
geographic areas based on the location of the customer.
Accordingly, U.S. export sales are reported in
international sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
778,594
|
|
|
$
|
695,867
|
|
|
$
|
655,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
86,258
|
|
|
|
77,387
|
|
|
|
66,068
|
|
European Union countries
|
|
|
212,047
|
|
|
|
174,087
|
|
|
|
160,424
|
|
Asia
|
|
|
198,231
|
|
|
|
135,886
|
|
|
|
96,256
|
|
Other foreign countries
|
|
|
159,327
|
|
|
|
149,091
|
|
|
|
112,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international
|
|
|
655,863
|
|
|
|
536,451
|
|
|
|
435,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,434,457
|
|
|
$
|
1,232,318
|
|
|
$
|
1,091,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets from continuing
operations (excluding intangible assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
145,724
|
|
|
$
|
127,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
20,902
|
|
|
|
16,775
|
|
|
|
|
|
European Union countries
|
|
|
42,442
|
|
|
|
45,276
|
|
|
|
|
|
Asia
|
|
|
8,297
|
|
|
|
8,213
|
|