def14a
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY
STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant x
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)) |
|
x |
|
Definitive Proxy Statement |
|
o |
|
Definitive Additional Materials |
|
o |
|
Soliciting Material Pursuant to Section
240.14a-11(c) or Section 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):
x |
|
No fee required. |
|
o |
|
Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11
|
|
(1) |
|
Title of each class of securities to which
transaction applies:
|
|
|
(2) |
|
Aggregate number of securities to which
transaction applies:
|
|
|
(3) |
|
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 state how it was
determined):
|
|
|
(4) |
|
Proposed maximum aggregate value of
transaction:
|
|
|
(5) |
|
Total fee paid:
|
o |
|
Fee paid previously by written preliminary
materials. |
|
o |
|
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 fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of
its filing.
|
|
|
|
|
|
|
|
|
(1) |
Amount Previously
Paid: |
|
|
|
|
|
|
|
(2) |
Form Schedule or
Registration Statement No.: |
|
|
|
|
|
(3) |
Filing Party: |
|
|
|
|
|
|
|
|
|
(4) |
Date Filed: |
|
|
|
|
|
|
|
Notice of 2007
Annual Meeting
Proxy Statement
Annual Financial Information
and Review of Operations
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 24, 2007
2:00 p.m. Eastern Daylight Time
J. P. Morgan Chase & Co.
1 Chase Manhattan Plaza
28th Floor
New York, NY 10005
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2007 Annual
Meeting of Stockholders of AMETEK, Inc. At the Annual Meeting, you will be asked to:
|
1. |
|
Elect two Directors for a term of three years; |
|
|
2. |
|
Approve a proposed amendment to the Certificate of Incorporation increasing
authorized shares of Common Stock from 200,000,000 to 400,000,000; |
|
|
3. |
|
Approve the AMETEK, Inc. 2007 Omnibus Incentive Compensation Plan; |
|
|
4. |
|
Ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for 2007; and |
|
|
5. |
|
Transact any other business properly brought before the Annual Meeting. |
Only stockholders of record at the close of business on March 9, 2007 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.
We have included the annual financial information relating to our business and operations in
Appendix B to the Proxy Statement. We also have enclosed a Summary Annual Report.
We hope that you take advantage of the convenience and cost savings of voting by computer or by
telephone. A sizable electronic turnout would significantly reduce return-postage fees.
We urge you to vote your shares either by computer, telephone or mailing your proxy as soon as
possible, or in person at the Annual Meeting. We appreciate your interest in AMETEK.
Sincerely,
/s/ Frank S. Hermance
Frank S. Hermance
Chairman of the Board
and Chief Executive Officer
Paoli, Pennsylvania
Dated: March 16, 2007
Principal executive offices
37 North Valley Road Building 4
P.O. Box 1764
Paoli, Pennsylvania 19301-0801
PROXY STATEMENT
We are mailing this Proxy Statement and proxy card to its stockholders of record as of March
9, 2007 on or about March 16, 2007. 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
|
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
Voting Procedures |
|
|
1 |
|
Corporate Governance |
|
|
2 |
|
Advance Notice Procedures |
|
|
9 |
|
Stockholder Proposals for the 2008 Proxy Statement |
|
|
9 |
|
Report of the Audit Committee |
|
|
10 |
|
Election of Directors (Proposal 1 on Proxy Card) |
|
|
11 |
|
Approval of an Amendment to the Certificate of Incorporation increasing authorized shares of
Common Stock (Proposal 2 on Proxy Card) |
|
|
11 |
|
Approval of the AMETEK, Inc. 2007 Omnibus Incentive Compensation Plan (Proposal 3 on Proxy
Card)
Ratification of Appointment of Independent Registered Public Accounting Firm
(Proposal 4 on Proxy Card) |
|
|
12 20 |
|
The Board of Directors |
|
|
21 |
|
Executive Officers |
|
|
22 |
|
Executive Compensation: |
|
|
|
|
Compensation Discussion and Analysis |
|
|
23 |
|
Report of the Compensation Committee |
|
|
31 |
|
Compensation Tables |
|
|
32 |
|
Potential Payments upon Termination or Change of Control |
|
|
42 |
|
Stock Ownership of Executive Officers and Directors |
|
|
45 |
|
Beneficial Ownership of Principal Stockholders
Compliance with Section 16(a) of the Securities Exchange Act of 1934 |
|
|
47 47 |
|
Other Business |
|
|
48 |
|
Multiple Stockholders Sharing the Same Address |
|
|
48 |
|
Electronic Distribution of Proxy Statements and Annual Reports |
|
|
48 |
|
Appendix: |
|
|
|
|
AMETEK, Inc. 2007 Omnibus Incentive Compensation Plan |
|
|
A-1 |
|
Index to Annual Financial Information and Review of Operations |
|
|
B-1 |
|
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 9, 2007 are
entitled to vote. On that date, 106,240,916 shares of our Common Stock were issued and
outstanding and eligible to vote. Each share is entitled to one vote on each matter presented at
the Annual Meeting.
How do I vote? You can vote your shares at the Annual Meeting if you are present in
person or represented by proxy. You can designate the individuals named on the enclosed proxy card
as your proxies by mailing a properly executed proxy card 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 submit your proxy by mail, indicate your voting choices, sign and date your proxy card and
return it in the postage-paid envelope provided. You may vote by the Internet or telephone by
following the instructions on your proxy card. Your Internet or telephone vote authorizes the
persons named on the proxy card to vote your shares in the same manner as if you marked, signed and
returned the proxy card to us.
If you hold your shares through a broker, bank or other nominee, that institution will send to 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 or submit voting
instructions by the Internet or telephone before voting at the Annual Meeting is closed, the
individuals named as proxies on the enclosed proxy card will vote in accordance with the directions
you provide. If you return a signed and dated proxy card but do not indicate how the shares are to
be voted, those shares will be voted as recommended by the Board of Directors. A valid proxy card
or a vote by the Internet or telephone also authorizes the individuals named as proxies to vote
your shares in their discretion on any other matters which, although not described in the Proxy
Statement, are properly presented for action at the Annual Meeting.
If your shares are held by a broker, bank or other holder of record, please refer to the
instructions 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. Your proxy voting instructions must be received by April 19, 2007
to enable the savings plan trustee to tabulate the vote of the plan shares prior to the Annual
Meeting.
1
How many votes are required? A majority of the shares of our outstanding Common Stock
entitled to vote at the Meeting must be represented in person or by proxy in order to have a quorum
present at the Annual Meeting. Abstentions and broker non-votes are counted as present and
entitled to vote for purposes of determining a quorum. A broker non-vote occurs when a bank,
broker or other holder of record holding shares for a beneficial owner does not vote on a
particular proposal because that holder does not have discretionary voting power for the particular
proposal and has not received instructions from the beneficial owner. If a quorum is not present,
the Annual Meeting will be rescheduled for a later date.
Directors are elected by a plurality of the votes cast. This means that the two candidates for
election as Directors receiving the highest number of votes will be elected to serve until the
Annual Meeting in 2010. The approval of the proposed amendment to the Certificate of Incorporation
increasing the number of authorized shares of Common Stock requires the affirmative vote of the
holders of a majority of all outstanding shares of Common Stock of AMETEK entitled to vote at the
Annual Meeting. As a result, abstentions and broker non-votes will have the same effect as a vote
against this proposal. The approval of the 2007 Omnibus Incentive Compensation Plan and the
ratification of the appointment of Ernst & Young LLP require 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 these
proposals.
Who will tabulate the vote? Our transfer agent, American Stock Transfer & Trust Company,
will tally the vote, which will be certified by independent inspectors of election.
Is my vote confidential? It is our policy to maintain the confidentiality of proxy
cards, ballots and voting tabulations that identify individual stockholders, except where
disclosure is mandated by law and in other limited circumstances.
Who is the proxy solicitor? We have retained Georgeson Shareholder Communications, Inc.
to assist in the distribution of proxy materials and solicitation of votes. We will pay Georgeson
Shareholder Communications, Inc. a fee of $8,000, plus reimbursement of reasonable out-of-pocket
expenses.
CORPORATE GOVERNANCE
In accordance with the Delaware General Corporation Law and our Certificate of Incorporation
and Bylaws, our business and affairs are managed under the direction of the Board of Directors. We
provide information to the Directors about our business through, among other things, operating,
financial and other reports, as well as other documents presented at meetings of the Board of
Directors and Committees of the Board.
Our Board of Directors currently consists of nine members. They are Lewis G. Cole, Sheldon S.
Gordon, Frank S. Hermance, Steven W. Kohlhagen, Charles D. Klein, James R. Malone, David P.
Steinmann, Elizabeth R. Varet and Dennis K. Williams. The biographies of the continuing Directors
and Director nominees appear on page 21. The Board is divided into three classes with staggered
terms of three years each, so that the term of one class expires at each Annual Meeting of
Stockholders. In accordance with our Director retirement policy, Mr. Cole will not stand for
re-election at this years Annual Meeting of Stockholders. The Board has nominated the other two
current Class I Directors, Messrs. Kohlhagen and Klein, to serve as Class I Directors until the
2010 Annual Meeting. In addition, in accordance with our Certificate of Incorporation and By-Laws,
the Board decreased the number of Class I Directors from three to two, thereby decreasing the size
of the Board from nine to eight Directors. Mr. Helmut N. Friedlaender, who served as a Director
from 1955 to 2006, currently serves as a Director Emeritus.
Corporate Governance Guidelines and Codes of Ethics. The Board of Directors has adopted
Corporate Governance Guidelines that address the practices of the Board and specify criteria to
assist the Board in determining Director independence. These criteria supplement the listing
standards of the New York Stock Exchange and the regulations of the Securities and Exchange
Commission. Our Code of Ethics and Business Conduct sets forth rules of conduct that apply to all
of our Directors, officers and employees. We also have adopted a separate Code of Ethical Conduct
for our Chief Executive Officer and senior financial officers. The Guidelines and Codes of Ethics
are
2
available on our Web site at www.ametek.com/investors as well as in printed form, free of charge to
any stockholder who requests them, by writing or telephoning the Investor Relations Department,
AMETEK, Inc., 37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801 (Telephone
Number: 1-800-473-1286). The Board of Directors and our management do not intend to grant any
waivers of the provisions of either Code. In the unlikely event a waiver for a Director or an
executive officer occurs, the action will be disclosed promptly at the Web site address noted
above. If the Guidelines or the Codes are amended, the revised versions also will be posted on the
Web site.
Meetings of the Board. Our 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 our 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. Our Board met in person a total of
four times in 2006. Each of the Directors attended at least 75% of the meetings of the Board and
the Committees to which the Director was assigned. All nine Directors attended the 2006 Annual
Meeting of Stockholders.
Independence . The Board of Directors has affirmatively determined that each of the
current Non-Management Directors, Lewis G. Cole, Sheldon S. Gordon, Steven W. Kohlhagen, Charles D.
Klein, James R. Malone, David P. Steinmann, Elizabeth R. Varet and Dennis K. Williams, has no
material relationship with us (either directly or as a partner, stockholder or officer of an
organization that has a relationship with us) and, therefore, is an independent Director within the
meaning of the New York Stock Exchange rules. The Board has further determined that each member of
the Audit, Compensation and Corporate Governance/Nominating Committees is independent within the
meaning of the New York Stock Exchange rules. The members of the Audit Committee also satisfy
Securities and Exchange Commission regulatory independence requirements for audit committee
members.
The Board has established the following standards to assist it in determining Director
independence: A Director will not be deemed independent if: (i) within the previous three years
or currently, (a) the Director has been employed by us; (b) someone in the Directors immediate
family has been employed by us as an executive officer; or (c) the Director or someone in her/his
immediate family has been employed as an executive officer of another entity that concurrently has
or had as a member of its compensation committee of the board of directors any of our present
executive officers; (ii) (a) the Director or someone in the Directors immediate family is a
current partner of a firm that is our 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 our 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 us, other than
Director and committee fees and pension or other forms of deferred compensation for prior service
(provided such compensation is not contingent in any way on continued service) and, in the case of
an immediate family member, other than compensation for service as our employee (other than an
executive officer). The following commercial or charitable relationships will not be considered
material relationships: (i) if the Director is a current employee or holder of more than ten
percent of the equity of, or someone in her/his immediate family is a current executive officer or
holder of more than ten percent of the equity of, another company that has made payments to, or
received payments from, us for property or services in an amount which, in any of the last three
fiscal years of the other company, does not exceed $1 million or two percent of the other companys
consolidated gross revenues, whichever is greater, or (ii) if the Director is a current executive
officer of a charitable organization, and we made charitable contributions to the charitable
organization in
3
any of the charitable organizations last three fiscal years that do not exceed $1 million or two
percent of the charitable organizations consolidated gross revenues, whichever is greater. For
the purposes of these categorical standards, the terms immediate family member and executive
officer have the meanings set forth in the New York Stock Exchanges corporate governance rules.
All independent Directors satisfied these categorical standards.
In considering the independence of the Non-Management Directors, the Board considered some
relationships that it concluded did not impair the Directors independence. In addition to the
relationships described below under Certain Relationships and Related Transactions, the Board
considered that Mr. Klein, Mr. Steinmann and Ms. Varet may be deemed to have a relationship with an
entity that purchases motors from us. In addition, the Board considered Mr. Coles position as of
counsel to a law firm that rendered services to us in 2006.
Communication with Non-Management Directors and Audit Committee . Stockholders and other
parties who wish to communicate with the Non-Management Directors may do so by calling
1-877-263-8357 (in the United States and Canada) or 1-610-889-5271. If you prefer to communicate
in writing, address your correspondence to the Corporate Secretary Department, Attention:
Non-Management Directors, AMETEK, Inc., 37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA
19301-0801.
You may address complaints regarding accounting, internal accounting controls or auditing matters
to the Audit Committee by calling 1-866-531-3079 (Domestic English only) or 1-866-551-8006
(International Foreign Languages).
Committees of the Board. Our Board Committees include Audit, Compensation, Corporate
Governance/Nominating, Pension Investment and Executive. The Charters of the Audit, Compensation
and Corporate Governance/Nominating Committees are available on our Web site at
www.ametek.com/investors as well as in printed form, free of charge to any stockholder who requests
them, by writing or telephoning the Investor Relations Department, AMETEK, Inc., 37 North Valley
Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801 (Telephone Number: 1-800-473-1286). Each
of the Audit, Compensation and Corporate Governance/Nominating Committees conducts an annual
assessment to assist it in evaluating whether, among other things, it has sufficient information,
resources and time to fulfill its obligations and whether it is performing its obligations
effectively. Each Committee may retain advisors to assist it in carrying out its responsibilities.
The Audit Committee has the sole authority to retain, compensate, terminate, oversee and
evaluate our independent auditors. In addition, the Audit Committee is responsible for:
|
|
|
review and approval in advance of all audit and lawfully permitted non-audit services
performed by the independent auditors; |
|
|
|
|
review and discussion with management and the independent auditors regarding the annual
audited financial statements and quarterly financial statements included in our Securities
and Exchange Commission filings and quarterly sales and earnings announcements; |
|
|
|
|
oversight of our compliance with legal and regulatory requirements; |
|
|
|
|
review of the performance of our internal audit function; |
|
|
|
|
meeting separately with the independent auditors and our internal auditors as often as
deemed necessary or appropriate by the Committee; and |
|
|
|
|
review of major issues regarding accounting principles, financial statement presentation
and the adequacy of internal controls. |
4
The Committee met eight times during 2006. The Board of Directors has determined that Sheldon S.
Gordon is an audit committee financial expert within the meaning of the Securities and Exchange
Commissions regulations. The members of the Committee are Sheldon S. Gordon Chairperson, Steven
W. Kohlhagen and James R. Malone. Mr. Kohlhagen currently serves on the audit committees of boards
of directors of seven related Merrill Lynch closed-end investment companies (all of which have
identical board compositions and committee structures), which funds are publicly traded. After its
review and consideration of Mr. Kohlhagens simultaneous service on the audit committees of the
Merrill Lynch closed-end investment companies, the Board has determined that Mr. Kohlhagens
simultaneous service on those audit committees does not impair his ability to serve effectively on
our Audit Committee.
The Compensation Committee is responsible for, among other things:
|
|
|
establishment and periodic review of our compensation philosophy and the adequacy of the
compensation plans for our officers and other employees; |
|
|
|
|
establishment of compensation arrangements and incentive goals for officers and
administration of compensation plans; |
|
|
|
|
review of the performance of officers, award of incentive compensation and adjustment of
compensation arrangements as appropriate based on performance; |
|
|
|
|
review and monitoring of management development and succession plans; and |
|
|
|
|
periodic review of the compensation of non-employee Directors. |
The Committee met five times during 2006. The members of the Committee are Charles D. Klein
Chairperson, James R. Malone and Elizabeth R. Varet. In carrying out its duties, the Compensation
Committee makes compensation decisions for approximately 30 officers, including all executive
officers. The Compensation Committee charter does not provide for delegation of the Committees
duties and responsibilities. The charter provides that, in setting compensation for the Chief
Executive Officer, the Committee will review and evaluate the Chief Executive Officers performance
and leadership, taking into account the views of other members of the Board. The charter further
provides that, with the participation of the Chief Executive Officer, the Committee evaluates the
performance of other officers and determines compensation for these officers. In this regard,
Compensation Committee meetings are regularly attended by the Chief Executive Officer. The Chief
Executive Officer does not participate in determinations of his compensation. The Compensation
Committee has authority under the charter to retain and set compensation for compensation
consultants and other advisors. The Committee has engaged Towers Perrin to provide advice and
data. Towers Perrin provides other consulting services to us.
The Corporate Governance/Nominating Committee is responsible for, among other things:
|
|
|
selection of nominees for election as Directors, subject to ratification by the Board; |
|
|
|
|
recommendation of a Director to serve as Chairperson of the Board; |
|
|
|
|
recommendation to the Board of the responsibilities of Board Committees and each
Committees membership; |
|
|
|
|
oversight of the annual evaluation of the Board and the Audit and Compensation Committees; and |
|
|
|
|
review and assessment of the adequacy of our Corporate Governance Guidelines. |
The Committee met four times during 2006. The members of the Committee are James R. Malone
Chairperson, Charles D. Klein, David P. Steinmann and Dennis K. Williams.
5
The Pension Investment Committee reviews the administration of our retirement plans, including
compliance, investment manager and trustee performance, and the results of independent audits of
the plans. The Committee met four times during 2006. The members of the Committee are Lewis G.
Cole Chairperson, Sheldon S. Gordon, Steven W. Kohlhagen 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 did not meet during 2006. The members of the Committee are Frank S.
Hermance Chairperson, Charles D. Klein, Elizabeth R. Varet and Dennis K. Williams.
Consideration of Director Candidates. The Corporate Governance/Nominating Committee
considers candidates for Board membership. The Charter of the Corporate Governance/Nominating
Committee requires that the Committee consider and recommend to the Board the appropriate size,
function and composition of the Board, so that the Board as a whole collectively possesses a broad
range of skills, industry and other knowledge, and business and other experience useful for the
effective oversight of our business. The Board also seeks members from diverse backgrounds who
have a reputation for integrity. In addition, Directors should have experience in positions with a
high degree of responsibility, be leaders in the companies or institutions with which they are
affiliated, and be selected based upon contributions that they can make to our company. The
Committee considers all of these qualities when nominating candidates for Director.
Stockholders can recommend qualified candidates for Director by writing to the Corporate Secretary,
AMETEK, Inc., 37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801. Stockholder
submissions must include the following information: (1) the name of the candidate and the
information about the individual that would be required to be included in a proxy statement under
the rules of the Securities and Exchange Commission; (2) information about the relationship between
the candidate and the nominating shareholder; (3) the consent of the candidate to serve as a
director; and (4) proof of the number of shares of our Common Stock that the recommending
stockholder owns and the length of time that the shares have been owned. To enable consideration
of a candidate in connection with the 2008 Annual Meeting, a stockholder must submit materials
relating to the suggested candidate no later than November 17, 2007. In considering any candidate
proposed by a stockholder, the Corporate Governance/Nominating Committee will reach a conclusion
based on the criteria described above in the same manner as for other candidates. The Corporate
Governance/Nominating Committee also may seek additional information regarding the candidate.
After full consideration by the Corporate Governance/Nominating Committee, the stockholder
proponent will be notified of the decision of the Committee.
Director Compensation. Standard compensation arrangements for Directors in 2006 are
described below. All information regarding restricted stock and stock options has been adjusted to
reflect the three-for-two stock split paid to stockholders on November 27, 2006.
|
|
|
Fees Non-employee Directors received an annual fee of $35,000, except for the
Chairmen of the Compensation, Corporate Governance/Nominating and Pension Investment
Committees, who received an annual fee of $40,000, and the Chairman of the Audit
Committee, who received an annual fee of $45,000. In addition, non-employee Directors
received $3,750 for each of the four regular meetings of the Board of Directors they
attended. There were no additional fees for attendance at Committee meetings. |
|
|
|
|
Restricted Stock On April 26, 2006, under our 2002 Stock Incentive Plan, each
non-employee Director received a restricted stock award of 1,080 shares of our Common
Stock. These restricted shares vest on the earliest to occur of: |
|
|
|
the closing price of our Common Stock on any five consecutive
trading days equaling or exceeding $66.14, |
|
|
|
|
the death or disability of the Director, |
6
|
|
|
the Directors termination of service as a member of AMETEKs Board of
Directors in connection with a change of control, |
|
|
|
|
the fourth anniversary of the date of grant, namely April 26, 2010, or |
|
|
|
|
the Directors retirement from service as a member of the Board of Directors
at or after age 55 and the completion of at least 10 years of service with us,
in which case only a pro rata portion of the shares becomes non-forfeitable and
transferable, based upon the time that has elapsed since the date of grant. |
|
|
|
Options On April 26, 2006, under our Stock Incentive Plan, each non-employee Director
received an option to purchase 3,645 shares of our Common Stock, at an exercise price equal
to the average of the highest and lowest quoted selling prices of AMETEKs Common Stock on
the New York Stock Exchange composite tape 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. |
The following table provides information regarding Director compensation in 2006, which reflects
the standard compensation described above and certain other payments. The table does not include
compensation for reimbursement of travel expenses related to attending Board, Committee and AMETEK
business meetings, and approved educational seminars. In addition, the table does not address
compensation for Mr. Hermance, which is addressed under Executive Compensation below. Mr.
Hermance does not receive additional compensation for serving as a Director.
DIRECTOR COMPENSATION 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
|
or Paid in |
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
Name |
|
Cash |
|
|
Awards (1) |
|
|
Awards (2) |
|
|
Compensation |
|
Earnings |
|
Compensation (3) |
|
Total |
|
Lewis G. Cole |
|
$ |
55,000 |
|
|
$ |
25,256 |
|
|
$ |
34,956 |
|
|
|
|
|
|
|
|
$ |
115,212 |
|
Sheldon S. Gordon |
|
|
60,000 |
|
|
|
25,256 |
|
|
|
34,956 |
|
|
|
|
|
|
|
|
|
120,212 |
|
Charles D. Klein |
|
|
55,000 |
|
|
|
25,256 |
|
|
|
34,956 |
|
|
|
|
|
|
|
|
|
115,212 |
|
Steven W. Kohlhagen |
|
|
37,500 |
|
|
|
5,953 |
|
|
|
5,826 |
|
|
|
|
|
|
$5,000 |
|
|
54,279 |
|
James R. Malone |
|
|
55,000 |
|
|
|
25,256 |
|
|
|
34,956 |
|
|
|
|
|
|
|
|
|
115,212 |
|
David P. Steinmann |
|
|
50,000 |
|
|
|
25,256 |
|
|
|
34,956 |
|
|
|
|
|
|
|
|
|
110,212 |
|
Elizabeth R. Varet |
|
|
50,000 |
|
|
|
25,256 |
|
|
|
34,956 |
|
|
|
|
|
|
|
|
|
110,212 |
|
Dennis K. Williams |
|
|
37,500 |
|
|
|
5,953 |
|
|
|
5,826 |
|
|
|
|
|
|
|
|
|
49,279 |
|
|
|
|
(1) |
|
The amounts shown for stock awards relate to restricted shares granted under our 2002
Stock Incentive Plan. These amounts are equal to the dollar amounts recognized in 2006 with
respect to the Directors stock awards for financial reporting purposes, in accordance with
Statement of Financial Accounting Standards No. 123(R), which we refer to below as SFAS
123(R), but without giving effect to estimated forfeitures. The grant date fair value of
stock awards granted to each Director in 2006, computed in accordance with SFAS 123(R), was
$35,712. The assumptions used in determining the amounts in this column are set forth in note
9 to our consolidated financial statements on page 37 of Appendix B to this proxy statement.
At December 31, 2006, Messrs. Cole, Gordon, Klein, Malone and Steinmann and Ms. Varet each
held 4,455 restricted shares and Messrs. Kohlhagen and Williams each held 1,080 restricted
shares. |
7
|
|
|
(2) |
|
The amounts shown for option awards relate to stock options granted under our 2002 Stock
Incentive Plan. These amounts are equal to the dollar amounts recognized in 2006 with respect
to the Directors option awards for financial reporting purposes, computed in accordance with
SFAS 123(R), but without giving effect to estimated forfeitures. The assumptions used in
determining the amounts in this column are set forth in note 9 to our consolidated financial
statements on page 37 of Appendix B to this proxy statement. The grant date fair value of
option awards granted to each Director in 2006, computed in accordance with SFAS 123(R), was
$34,968. At December 31, 2006, Messrs. Cole, Gordon, Klein, Malone and Steinmann and Ms.
Varet each held options to purchase 12,795 shares of our Common Stock and Messrs. Kohlhagen
and Williams each held options to purchase 3,645 shares of our Common Stock. |
|
(3) |
|
Represents fees for consulting services performed prior to Mr. Kohlhagens election as a
non-employee Director in April 2006. |
Directors who first became members of the Board of Directors prior to January 1, 1997 participate
in a retirement plan for Directors. Under this plan, each non-employee Director who has provided
at least three years of service to us as a Director receives an annual retirement benefit equal to
100% of that Directors highest annual rate of cash compensation during the Directors service with
the Board. Mr. Steinmann and Ms. Varet have accrued an annual retirement benefit of $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.
Directors who first became members of the Board of Directors prior to July 22, 2004 participate in
our Death Benefit Program for Directors. Under this program, each non-employee Director has an
individual agreement that pays the Director (or the Directors beneficiary in the event of the
Directors death) an annual amount equal to 100% of that Directors highest annual rate of cash
compensation during the Directors service with the Board. The payments are made for 10 years
beginning at the earlier of (a) the Directors being retired and having attained age 70 or (b) the
Directors death. Directors elected after January 1, 1989 must complete five years of service as a
Director in order to receive benefits under this program. The program is funded by individual life
insurance policies that we purchased on the lives of the Directors. In addition, non-employee
Directors who first became members of the Board of Directors prior to July 27, 2005 have a group
term life insurance benefit of $50,000. We retain the right to terminate any of the individual
agreements under certain circumstances.
Mandatory Retirement. The retirement policy for our Board of Directors prohibits a
Director from standing for re-election following his or her 75th birthday.
Certain Relationships and Related Transactions. Mr. Kohlhagens brother-in-law is
employed by us in a non-executive officer capacity and received compensation in excess of $120,000
in 2006. Mr. Hermances son is employed by us in a non-executive officer capacity and received
compensation in excess of $120,000 in 2006.
Under our written Related Party Transactions Policy, transactions that would require disclosure
under SEC regulations must be approved in advance by the Audit Committee. The relationships
described above were ratified by the Audit Committee under the policy.
8
ADVANCE NOTICE PROCEDURES
In accordance with our By-Laws, stockholders must give us notice relating to nominations for
Director or proposed business to be considered at our 2008 Annual Meeting of Stockholders no
earlier than January 23, 2008 nor later than February 22, 2008. 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 2008 PROXY STATEMENT
To be considered for inclusion in the proxy statement for the 2008 Annual Meeting of
Stockholders, stockholder proposals must be received at our executive offices no later than
November 17, 2007.
9
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 2006 Annual Report on Form 10-K and included in
Appendix B to this Proxy Statement. The Committee discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended.
In addition, the Committee received the written disclosures and letter from Ernst & Young LLP
required by Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, and has discussed with Ernst & Young LLP its independence.
The Committee discussed with AMETEKs internal auditors and Ernst & Young LLP the overall scope and
plans for their respective audits. The Committee met with the internal auditors and Ernst & Young
LLP, with and without management present, to discuss the results of their examinations, their
evaluations of AMETEKs disclosure control process and internal control over financial reporting,
and the overall quality of AMETEKs financial reporting. The Committee held eight meetings during
the fiscal year ended December 31, 2006, which included telephone meetings prior to quarterly
earnings announcements.
Based on the reviews and discussions referred to above, the Committee recommended to the Board of
Directors, and the Board approved, the inclusion of the audited financial statements in AMETEKs
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the
Securities and Exchange Commission.
Respectfully submitted,
The Audit Committee:
Sheldon S. Gordon, Chairperson
Steven W. Kohlhagen
James R. Malone
Dated: March 16, 2007
10
ELECTION OF DIRECTORS
(Proposal 1 on Proxy Card)
The nominees for election at this years Annual Meeting are Charles D. Klein and Steven W.
Kohlhagen. Messrs. Klein and Kohlhagen have been nominated to serve as Class I Directors and, if
elected, will serve until the Annual Meeting in 2010.
All proxies received will be voted for the election of the nominees unless the stockholder
submitting the proxy gives other directions. Nominees will be elected by holders of a plurality of
shares represented either in person or by proxy at the Annual Meeting and entitled to vote. If any
nominee is unable to serve, the shares represented by all valid proxies will be voted for the
election of such other person as the Board may nominate, unless the Board determines to reduce the
number of Directors.
The Directors biographies are set forth on page 21.
Your Board of Directors Recommends a Vote FOR Each of the Nominees.
APPROVAL OF AN AMENDMENT TO THE
CERTIFICATE OF INCORPORATION INCREASING
AUTHORIZED SHARES OF COMMON STOCK
(Proposal 2 on Proxy Card)
Under Article FOURTH, Section 1 of our Amended and Restated Certificate of Incorporation, as
amended, we presently are authorized to issue 200,000,000 shares of Common Stock with a par value
of $.01 per share. On November 27, 2006, we effected a three-for-two stock split of our Common
Stock but did not at that time increase the authorized number of shares of Common Stock.
Accordingly, we are proposing to amend Section 1 of Article FOURTH of our Certificate of
Incorporation to increase the number of shares of Common Stock that we are authorized to issue from
200,000,000 to 400,000,000 shares. The proposed amendment reads as follows:
FOURTH. Section 1. Authorized Capital Stock. The Company is authorized to
issue two classes of capital stock, designated Common Stock and Preferred
Stock. The total number of shares of capital stock that the Company is
authorized to issue is 405,000,000 shares, consisting of 400,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share.
At
February 28, 2007, there were 106,240,082 shares of Common Stock issued and outstanding and
6,358,854 shares
were reserved for issuance under our stock incentive plans. No shares of
preferred stock are outstanding, and the proposed amendment will not affect the number of
authorized shares of preferred stock.
The Board of Directors believes that it is in the best interests of our company and our
stockholders to increase the number of authorized shares of Common Stock. The increase in
authorized shares will provide flexibility with respect to future transactions, including
acquisitions of other businesses, because we will have the ability to use our Common Stock (or
securities convertible into or exercisable for Common Stock) as consideration for such
transactions. We also may use such additional shares for financing transactions, stock splits and
other corporate purposes. The additional shares will enable us to avoid the time-consuming and
costly need to hold a special meeting of stockholders each time we determine to use Common Stock
for these purposes. Moreover, occasions may arise when the time required to obtain stockholder
approval might delay our ability to enter into a desirable transaction.
11
If the proposal is approved, the Board of Directors will have the sole discretion to issue the
additional authorized shares of Common Stock on such terms and for such consideration as it may
determine, and no further approval by stockholders would be necessary, except as may be required by
law or applicable New York Stock Exchange rules. In some cases, generally relating to the number
of shares to be issued and the identity of the recipient, the rules of the New York Stock Exchange
require stockholder authorization before we can issue Common Stock.
Stockholders will not have any preemptive rights with respect to the additional shares being
authorized. The issuance of any additional shares of Common Stock may have the effect of diluting
the percentage of stock ownership of our present stockholders.
The affirmative vote of holders of a majority of all outstanding shares of Common Stock entitled to
vote on this proposal at the Annual Meeting is required in order for the proposed amendment to the
Certificate of Incorporation to be adopted.
Your Board of Directors recommends a Vote FOR this Proposal.
APPROVAL OF THE AMETEK, INC. 2007
OMNIBUS INCENTIVE COMPENSATION PLAN
(Proposal 3 on Proxy Card)
On February 23, 2007, the Board of Directors adopted the AMETEK, Inc. 2007 Omnibus Incentive
Compensation Plan (the Plan), subject to stockholder approval. The Board of Directors has
directed that the proposal to approve the Plan be submitted to our stockholders for their approval
at the Annual Meeting.
We believe that the Plan will enhance our ability to attract, retain and motivate top quality
employees and encourage them to contribute to our growth. We also believe that the Plan will
enable us to continue to align the interests of our employees and directors with those of our
stockholders through the grant to employees and directors of stock options, stock units, stock
awards or stock appreciation rights under the Plan.
The Plan is intended to enable the Compensation Committee of the Board of Directors to make annual
bonus awards to executives based on achievement of objective performance goals, in accordance with
the requirements for qualified performance-based compensation under Section 162(m) of the Code.
The Committee also may grant to executives other bonuses as the Committee deems appropriate, which
may be based on such criteria as the Committee determines. Decisions with respect to these bonuses
will be made separate and apart from the bonus awards intended to qualify under Section 162(m).
We intend to continue to grant stock options and other equity awards under our existing equity
plans, from the shares reserved for issuance under those plans.
If approved by the stockholders, the Plan will become effective on February 23, 2007. Any grant or
annual bonus award made under the Plan prior to the Annual Meeting will be subject to stockholder
approval of the Plan at the Annual Meeting. If for any reason the stockholders do not approve the
Plan at the Annual Meeting, the Plan will immediately terminate and no grants or bonus awards will
be made under the Plan.
The material terms of the Plan are summarized below. A copy of the full text of the Plan is
attached to this Proxy Statement as Appendix A. This summary of the Plan is not intended to be a
complete description of the Plan and is qualified in its entirety by the actual text of the Plan to
which reference is made.
12
Material Features of the Plan
General. The Plan provides that grants and awards may be made in any of the following forms:
|
|
|
Incentive stock options |
|
|
|
|
Nonqualified stock options |
|
|
|
|
Stock units |
|
|
|
|
Stock awards |
|
|
|
|
Stock appreciation rights |
|
|
|
|
Performance-based cash bonus awards |
The Plan authorizes up to 3,500,000 shares of Common Stock for issuance. Within this limit, the
maximum aggregate number of shares of Common Stock with respect to which stock awards and stock
units may be issued during the term of the Plan is 1,050,000 shares. The last reported sale price
of our Common Stock on February 28, 2007, was
$34.16 per share.
If and to the extent options and stock appreciation rights granted under the Plan terminate, or are
cancelled or exchanged without being exercised, or if any stock units or stock awards are forfeited
or terminated, or otherwise not paid in full, the shares subject to such grants will become
available again for purposes of the Plan. Shares of Common Stock surrendered in payment of the
exercise price of an option, and shares withheld or surrendered for payment of taxes, will not be
available for reissuance under the Plan. If stock appreciation rights are exercised, the full
number of shares subject to the stock appreciation rights will be considered issued under the Plan,
without regard to the number of shares issued upon exercise of the stock appreciation rights and
without regard to any cash settlement of the stock appreciation rights. A grant of stock units
that is designated in the grant agreement to be paid in cash, rather than in shares of Common
Stock, will not count against the foregoing share limits.
The Plan provides that the maximum aggregate number of shares of Common Stock with respect to which
grants may be made to any individual during any calendar year is 1,225,000 shares. All grants
under the Plan will be expressed in shares of Common Stock.
All share limits described above are subject to adjustment in certain circumstances as described
below.
Administration. The Plan will be administered and interpreted by the Compensation Committee, or
such other committee of non-employee Directors as may be appointed by the Board to administer the
Plan (the Committee). The Committee may appoint an administrative committee comprised of our
employees to perform ministerial functions under the Plan.
The Committee has the authority to (i) determine the individuals to whom grants or bonus awards
will be made under the Plan, (ii) determine the type, size, terms and conditions of the grants or
bonus awards, (iii) determine when grants or bonus awards will be made, subject to our stock-based
award grant practices, (iv) establish any performance goals for grants or bonus awards, (v)
determine the duration of any applicable exercise or restriction period, including the criteria for
exercisability or vesting and any acceleration of exercisability or vesting, (vi) amend the terms
and conditions of any previously issued grant or bonus award, subject to the limitations described
below, and (vii) deal with any other matters arising under the Plan.
Eligibility for Participation. All of our employees and non-employee Directors are eligible to
receive grants under the Plan. As of March 31, 2007, we estimate that approximately 300 employees
and eight non-employee Directors will be designated to receive grants under the Plan. Only
executives are eligible to receive bonus awards under the Plan.
13
Types of Awards.
Stock Options
We may grant options that are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code (ISOs) or nonqualified stock options that are not intended to so
qualify (NQSOs). Anyone eligible to participate in the Plan may receive a grant of NQSOs. Only
employees may receive a grant of ISOs.
The Committee will fix the exercise price per share and term of each option on the date of grant.
The exercise price must be equal to or greater than the last reported sale price of the underlying
shares of Common Stock on the date of grant, and the term of each option may not exceed seven
years. The Committee will determine under what circumstances, if any, and during what time periods
a participant may exercise an option after termination of employment or service.
An ISO may not be granted to an employee who holds more than 10% of the total combined voting power
of all classes of outstanding stock. To the extent that the aggregate fair market value of shares
of Common Stock, determined on the date of grant, with respect to which ISOs become exercisable for
the first time by a participant during any calendar year exceeds $100,000, such ISOs will be
treated as NQSOs.
A participant may pay the exercise price and any withholding taxes for an option: (i) in cash; (ii)
if the Committee permits, by delivering shares of Common Stock already owned by the participant and
having a fair market value on the date of exercise equal to the exercise price or by attestation to
ownership of shares of Common Stock having an aggregate fair market value on the date of exercise
equal to the exercise price; (iii) by payment through a broker in accordance with the procedures
permitted by Regulation T of the Federal Reserve Board; or (iv) by such other method as the
Committee may approve.
Stock Units
The Committee may grant stock units, which provide the participants with the right to receive, at a
future date, a share of Common Stock or an amount based on the value of a share of Common Stock.
The Committee will determine the terms and conditions of the stock units, including (i) whether
stock units will become payable based on achievement of performance goals or other conditions, (ii)
and whether stock units will be paid at the end of a specified period or deferred to a date
authorized by the Committee. The Committee will determine in the grant agreement under what
circumstances, if any, a participant may retain stock units after termination of employment or
service. If a stock unit becomes distributable, it will be paid to the participant in cash, in
shares of Common Stock, or in a combination of cash and shares of Common Stock, as determined by
the Committee.
The Committee may grant dividend equivalents in connection with stock units on such terms and
conditions as it determines. Dividend equivalents will be payable in cash or shares of Common
Stock and may be paid currently or may be deferred.
Stock Awards
The Committee may grant stock awards having such terms and conditions, including vesting
conditions, as the Committee determines. However, all stock awards must have a vesting period of
at least three years, except upon the occurrence of such circumstance or event as, in the opinion
of the Committee, merits special consideration. The Committee will determine in the grant
agreement under what circumstances, if any, a participant may retain unvested stock awards after
termination of employment or service.
The Committee will determine to what extent and under what conditions participants will have the
right to vote shares of Common Stock subject to stock awards and to receive dividends paid on such
shares during the restriction period. The Committee may determine that a participants entitlement
to dividends with respect to stock awards will be subject to the achievement of performance goals
or other conditions. Accumulated dividends may be paid in cash or in such other form as the
Committee determines.
14
Stock Appreciation Rights
The Committee may grant stock appreciation rights to anyone eligible to participate in the Plan.
Stock appreciation rights may be granted in connection with, or independently of, any option
granted under the Plan. Upon exercise of a stock appreciation right, the participant will receive
an amount equal to the excess of the fair market value of the Common Stock on the date of exercise
over the base amount for the stock appreciation right. Payment will be made in cash, shares of
Common Stock, or a combination of the two.
The Committee will fix the base amount and term of each stock appreciation right on the date of
grant. The base amount of each stock appreciation right will be not less than the last reported
sale price of a share of Common Stock on the date of grant, and the term of each stock appreciation
right may not exceed seven years. The Committee will determine the terms and conditions of stock
appreciation rights, including when they become exercisable. Except as provided in the grant
agreement, stock appreciation rights may be exercised only while the participant is employed by or
providing service to us and our subsidiaries. The Committee will determine under what
circumstances, if any, and during what time periods a participant may exercise a stock appreciation
right after termination of employment or service.
Qualified Performance-Based Compensation
The Plan permits the Committee to impose objective performance goals that must be met with respect
to grants of stock units, stock awards, dividend equivalents or dividends granted to employees
under the Plan, in order for the grants to be considered qualified performance-based compensation
for purposes of Section 162(m) of the Code (see Federal Income Tax Consequences below). If the
Committee determines to utilize performance goals, the Committee will establish in writing the
performance goals that must be met, the applicable performance period, the amounts to be paid if
the performance goals are met, and any other conditions. The Committee may provide in the grant
agreement that qualified performance-based grants will be payable or restrictions on such grants
will lapse, in whole or part, in the event of the participants death or disability during the
performance period, a change of control, or under other circumstances consistent with Department of
Treasury regulations.
The performance goals, to the extent designed to meet the requirements of Section 162(m) of the
Code for preserving deductibility of award payouts, will be based on one or more of the following
measures: stock price, earnings per share, diluted earnings per share, price-earnings multiples,
net income, operating income, revenues, working capital, operating working capital, number of days
sales outstanding in accounts receivable, inventory turnover, productivity, operating income
margin, EBITDA (earnings before interest, taxes, depreciation and amortization), net capital
employed, return on assets, stockholder return, return on equity, return on capital employed,
growth in assets, unit volume, sales, sales growth, return on sales, internal sales growth,
operating cash flow, free cash flow, market share, relative performance to a comparison group
designated by the Committee, or strategic business criteria consisting of one or more objectives
based on meeting specified revenue goals, market penetration goals, customer growth, geographic
business expansion goals, cost targets or goals relating to acquisitions or divestitures. The
performance goals may relate to one or more business units or the performance of our company and
subsidiaries as a whole, or any combination of the foregoing.
The Committee will not have the discretion to increase the amount of compensation that is payable,
but may reduce the amount of compensation that is payable under grants it designates as qualified
performance-based compensation. At the end of the performance period, the Committee will certify
the performance results for the performance period, and determine the amount, if any, to be paid
under each grant based on the achievement of the performance goals and the satisfaction of all
other terms of the grant agreement.
If dividend equivalents or dividends are granted as qualified performance-based compensation under
Section 162(m) of the Code, the participant may not accrue more than $500,000 of such dividend
equivalents or dividends during any calendar year.
15
Bonus Awards
In addition to the foregoing, the Committee may grant annual bonus awards under the Plan to
executives, upon such terms and conditions as the Committee deems appropriate. The annual bonus
awards are intended to meet the requirements of qualified performance-based compensation under
Section 162(m) of the Code. Prior to, or soon after the beginning of, the performance period, the
Committee will select the executives who will be eligible for bonus awards, specify the annual
performance period and establish in writing the target bonus awards and performance goals for the
performance period. A participants target bonus award may provide for differing amounts to be
paid based on differing thresholds of performance. The performance goals will be based on one or
more of the measures described above under Qualified Performance-Based Compensation.
The Committee will not have the discretion to increase the amount of compensation that is payable
based on achievement of the performance goals, but may reduce the amount of compensation based upon
its assessment of personal performance or other factors. After the performance period ends, the
Committee will certify the performance results for the performance period, and determine the
amount, if any, to be paid under the bonus award, based on the achievement of the performance
goals, the Committees exercise of its discretion to reduce bonus awards and the satisfaction of
all other terms of the bonus award. If a change of control occurs prior to the end of a
performance period, the Committee may determine that each participant who is then an employee and
was awarded a target bonus award for the performance period may receive a bonus award for the
performance period, in such amount and at such time as the Committee determines.
The maximum bonus award designated as Section 162(m) qualified performance-based compensation
that may be payable to any participant under the Plan for an annual performance period is
$5,000,000.
In addition to bonus awards that are designated as Section 162(m) qualified performance-based
compensation, as described above, the Committee may grant to executives other bonuses that the
Committee deems appropriate, which may be based on individual performance, our companys
performance or such other criteria as the Committee determines. Decisions with respect to such
bonuses shall be made separate and apart from the bonus awards described above.
Deferrals. The Committee may permit or require participants to defer receipt of the payment of
cash or the delivery of shares of Common Stock that would otherwise be due to the participant in
connection with any grant or bonus award under the Plan. The Committee will establish the rules
and procedures applicable to any such deferrals.
Adjustment Provisions. In the event of a stock dividend, extraordinary dividend, spinoff,
recapitalization, stock split, combination or exchange of shares, merger, reorganization,
consolidation or similar event, the number of shares of Common Stock available for grants, the
various share limits described above, and the price per share or the applicable market value of
such grants will be equitably adjusted by the Committee in order to preclude, to the extent
practicable, the enlargement or dilution of the rights and benefits under such grants. Any
adjustment to outstanding grants will be consistent with specified provisions of the Code, to the
extent applicable.
Change of Control. In the event of a change of control, the Committee may take any of the
following actions with respect to any or all outstanding grants under the Plan: (i) determine that
all outstanding options and stock appreciation rights will become fully exercisable, the
restrictions on all outstanding stock awards will lapse, and accumulated dividends will be paid, as
of the date of the change of control or at such other time as the Committee determines; (ii)
require that participants surrender their options and stock appreciation rights in exchange for
payment by us, in cash or shares of Common Stock as determined by the Committee in an amount equal
to the amount, if any, by which the then fair market value of the shares subject to the
participants unexercised options and stock appreciation rights exceeds the exercise price of the
options or the base amount of the stock appreciation rights, as applicable; (iii) after giving
participants the opportunity to exercise their options and stock appreciation rights, terminate any
or all unexercised options and stock appreciation rights at such time as the Committee determines
appropriate; (iv) determine that participants holding stock units will receive one or more payments
in settlement of such stock units and accumulated dividend equivalents, in such amount and form and
on such terms as
16
the Committee determines; or (v) determine that any grants that remain outstanding after the change
of control will be converted to similar grants of the surviving corporation.
For purposes of the Plan, a change of control will be deemed to have occurred if one of the
following events occurs:
|
|
|
Any person becomes the beneficial owner of securities representing 20% or more of the
voting power of our securities, provided that a change of control will not occur as a
result of a transaction in which we become a subsidiary of another corporation and in which
our stockholders, immediately prior to the transaction, will own shares representing more
than 50% of the parent corporation. |
|
|
|
|
Consummation of a merger or consolidation whereby our stockholders immediately before
the transaction do not own securities representing more than 50% of the voting power of the
securities of the surviving company. |
|
|
|
|
A sale or other disposition of all or substantially all of our assets. |
|
|
|
|
A plan of liquidation or dissolution of our company. |
Transferability of Grants. Only the participant may exercise rights under a grant during the
participants lifetime. A participant may not transfer those rights except by will or the laws of
descent and distribution. The Committee may provide, in a grant agreement, that a participant may
transfer NQSOs to his or her family members, or one or more trusts or other entities for the
benefit of or owned by such family members, consistent with applicable securities laws, according
to such terms as the Committee may determine.
Bonus awards are not transferable. If a participant dies, any amounts payable after the
participants death under a bonus award will be paid to the personal representative or other person
entitled to succeed to the participants rights.
Participants Outside the United States. If any individual who receives a grant under the Plan is
subject to taxation in a country other than the United States, the Committee may make the grant on
such terms and conditions as the Committee determines appropriate to comply with the laws of the
applicable country.
No Repricing of Options or Stock Appreciation Rights. Neither the Board of Directors nor the
Committee can amend the Plan or options or stock appreciation rights previously granted under the
Plan to permit a repricing of options or stock appreciation rights, without prior stockholder
approval.
Amendment and Termination of the Plan. The Board of Directors may amend or terminate the Plan at
any time, subject to stockholder approval if such approval is required under any applicable laws or
stock exchange requirements. The Plan will terminate on February 22, 2017, unless the Plan is
terminated earlier by the Board or is extended by the Board with stockholder approval.
Shareholder Approval for Qualified Performance-Based Compensation. The Plan must be re-approved by
the our stockholders no later than the first stockholders meeting that occurs in the fifth year
following the year in which the stockholders previously approved the Plan, if grants or bonus
awards designated as qualified performance-based compensation are to be made in the future.
Grants and Bonus Awards Under the Plan. No equity grants have been made under the Plan. Grants
under the Plan are discretionary, so it currently is not possible to predict the number of shares
of Common Stock that will be granted or who will receive grants under the Plan after the Annual
Meeting.
17
New Plan Benefits
The following table shows the maximum dollar value of outstanding performance-based cash award
opportunities that would have been granted under the Plan had it been in effect in 2006. These
amounts represent the maximum dollar value of performance-based award opportunities that could have
been paid to each of the executives identified in the table below for the annual performance period
that commenced on January 1, 2006. The actual amounts paid to these executives are described in
note 1 to the Summary Compensation Table. As of the date of this proxy statement, we have not yet
established the maximum dollar value of performance-based cash award opportunities for executives
under the plan for the annual performance period commencing on January 1, 2007. We anticipate that
these awards will be granted only to the executives identified in the table below:
|
|
|
|
|
|
|
Aggregate Maximum Dollar Value of |
Name and Position |
|
Outstanding Award Opportunities |
Frank S. Hermance, Chairman of the Board and Chief Executive Officer
|
|
$ |
1,120,000 |
|
John J. Molinelli, Executive Vice President Chief Financial Officer
|
|
|
353,600 |
|
Robert W. Chlebek, President Electronic Instruments
|
|
|
364,000 |
|
David A. Zapico, President Electronic Instruments
|
|
|
357,933 |
|
Timothy N. Jones, President- Electromechanical Group
|
|
|
294,467 |
|
Federal Income Tax Consequences
The federal income tax consequences of grants under the Plan will depend on the type of grant. The
following is only a general description of the application of federal income tax laws to grants and
bonus awards under the Plan. This discussion is intended for the information of stockholders
considering how to vote at the Annual Meeting; it is not intended to provide tax guidance to
participants, as the consequences may vary with the types of grants or bonus awards made, the
identity of the participants and the method of payment or settlement. In addition, the discussion
relates to federal income tax laws as in effect on the date of this proxy statement, and these laws
are subject to change. The summary does not address the effects of other federal taxes (including
possible golden parachute excise taxes) or taxes imposed under state, local, or foreign tax laws.
From the participants standpoint, as a general rule, ordinary income will be recognized at the
time of delivery of shares of Common Stock or payment of cash under the Plan. Future appreciation
on shares of Common Stock held beyond the ordinary income recognition event will be taxable as
capital gain when the shares of Common Stock are sold. The tax rate applicable to capital gain
will depend upon how long the participant holds the shares. Exceptions to these general rules
arise under the following circumstances:
(i) If shares of Common Stock, when delivered, are subject to a substantial risk of forfeiture
by reason of any employment or performance-related condition, ordinary income taxation and our tax
deduction will be delayed until the risk of forfeiture lapses, unless the participant makes a
special election to accelerate taxation under Section 83(b) of the Code.
(ii) If an employee exercises a stock option that qualifies as an ISO, no ordinary income will
be recognized, and we will not be entitled to any tax deduction, if shares of Common Stock acquired
upon exercise of the stock option are held until the later of (A) one year from the date of
exercise and (B) two years from the date of grant. However, if the employee disposes of the shares
acquired upon exercise of an ISO before satisfying both holding period requirements, the employee
will recognize ordinary income to the extent of the difference between the fair market value of the
shares on the date of exercise (or the amount realized on the disposition, if less) and the
exercise price, and we will be entitled to a tax deduction in that amount. The gain, if any, in
excess of the amount recognized as ordinary income will be long-term or short-term capital gain,
depending upon the length of time the employee held the shares before the disposition.
(iii) A grant may be subject to a 20% tax, in addition to ordinary income tax, at the time the
grant becomes vested, plus interest, if the grant constitutes deferred compensation under Section
409A of the Code and the requirements of Section 409A of the Code are not satisfied.
18
We, as a general rule, will be entitled to a tax deduction that corresponds in time and amount to
the ordinary income recognized by the participant, and we will not be entitled to any tax deduction
with respect to capital gain income recognized by the participant.
Section 162(m) of the Code generally disallows a publicly held corporations tax deduction for
compensation paid to its chief executive officer or any of its four other most highly compensated
officers in excess of $1 million in any year. Qualified performance-based compensation is excluded
from the $1 million deductibility limit, and therefore remains fully deductible by the corporation
that pays it. The terms of the Plan are designed to qualify options and stock appreciation rights
granted under the Plan as qualified performance-based compensation. Stock units, stock awards,
dividend equivalents, dividends and bonus awards granted under the Plan may qualify as qualified
performance-based compensation if the Committee conditions such grants on the achievement of
specific performance goals in accordance with the requirements of Section 162(m) of the Code.
We have the right to require that participants pay to us an amount necessary for us to satisfy our
federal, state or local tax withholding obligations with respect to grants and bonus awards. We
may withhold from other amounts payable to a participant an amount necessary to satisfy these
obligations. The Committee may permit a participant to satisfy our withholding obligation with
respect to grants paid in Common Stock by having shares withheld, at the time the grants become
taxable, provided that the number of shares withheld does not exceed the individuals minimum
applicable withholding tax rate for federal, state and local tax liabilities.
Vote Required for Approval
The affirmative vote of the holders of a majority of the shares present at the Annual Meeting, in
person or by proxy and voting on the matter is required to approve the Plan.
Your Board of Directors Recommends a Vote FOR Approval of the Plan.
19
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 4 on Proxy Card)
The Audit Committee has appointed the firm of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2007. Ernst & Young LLP and its
predecessor has served continuously as our independent auditors since our incorporation in 1930.
Although action by stockholders on this matter is not required, the Audit Committee believes that
it is appropriate to seek stockholder ratification of this appointment, and the Audit Committee may
reconsider the appointment if the stockholders do not ratify it.
Fees billed to us by Ernst & Young LLP for services rendered in 2006 and 2005 totaled $3,605,000
and $3,409,000 respectively, and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Audit fees |
|
$ |
3,472,000 |
|
|
$ |
3,246,000 |
|
Audit-related fees |
|
|
50,000 |
|
|
|
41,000 |
|
Tax fees |
|
|
76,000 |
|
|
|
113,000 |
|
All other fees |
|
|
7,000 |
|
|
|
9,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,605,000 |
|
|
$ |
3,409,000 |
|
Audit fees includes amounts for statutory audits and attestation services related to our internal
control over financial reporting for compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
The amounts shown for Audit-related fees include fees for audits of employee benefit plans.
The amounts shown for Tax fees relate to federal and state tax advice, acquisition tax planning,
assistance with international tax compliance and international tax consulting.
The amounts shown for All other fees primarily relate to online accounting research
subscriptions.
The affirmative vote of the holders of a majority of eligible shares present at the Annual Meeting,
in person or by proxy, and voting on the matter is required to ratify the appointment of Ernst &
Young LLP.
Representatives of Ernst & Young LLP will be present at the Annual Meeting. They will have an
opportunity to make a statement if they desire and will be available to respond to appropriate
questions.
Your Board of Directors Recommends a Vote FOR Ratification.
20
THE BOARD OF DIRECTORS
Unless we indicate otherwise, each Director has maintained the principal occupation described
below for more than five years.
|
|
|
Class I: Nominees for election at this Annual Meeting for terms expiring in 2010: |
|
|
|
CHARLES D. KLEIN
Director since 1980
|
|
A Managing Director of American Securities Capital Partners, LLC
and an executive officer of several affiliated entities. Age 68. |
|
|
|
STEVEN W. KOHLHAGEN
Director since 2006
|
|
Retired. A Managing Director of First Union National Bank,
predecessor to the current Wachovia National Bank, from December
1992 to August 2002. A Director of the IQ Investment Advisors
family of Merrill Lynch funds. Age 59. |
|
|
|
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 71. |
|
|
|
FRANK S. HERMANCE
Director since 1999
|
|
Chairman of the Board and Chief Executive Officer of AMETEK. A
Director of IDEX Corporation. Age 58. |
|
|
|
DAVID P. STEINMANN
Director since 1993
|
|
A Managing Director of American Securities, L.P. and an
executive officer of several affiliated entities. Age 65. |
|
|
|
Class III: Directors whose terms continue until 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 Regions Financial Corporation. Age 64. |
|
|
|
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 63. |
|
|
|
DENNIS K. WILLIAMS
Director since 2006
|
|
Retired. President and Chief Executive Officer (from May 2000
to March 2005) and Chairman of the Board (from May 2000 to April
2006) of IDEX Corporation. A Director of Washington Group
International, Inc., Owens-Illinois, Inc. and Actuant
Corporation. Age 61. |
21
EXECUTIVE OFFICERS
Officers are appointed by the Board of Directors to serve for the ensuing year and until their
successors have been elected and qualified. Information about our executive officers is shown
below:
|
|
|
|
|
|
|
Name |
|
Age |
|
Present Position with AMETEK |
Frank S. Hermance
|
|
|
58 |
|
|
Chairman of the Board and Chief Executive Officer |
|
|
|
|
|
|
|
John J. Molinelli
|
|
|
60 |
|
|
Executive Vice PresidentChief Financial Officer |
|
|
|
|
|
|
|
Timothy N. Jones
|
|
|
50 |
|
|
PresidentElectromechanical Group |
|
|
|
|
|
|
|
Robert W. Chlebek
|
|
|
63 |
|
|
PresidentElectronic Instruments |
|
|
|
|
|
|
|
David A. Zapico
|
|
|
42 |
|
|
PresidentElectronic Instruments |
|
|
|
|
|
|
|
Robert R. Mandos, Jr.
|
|
|
48 |
|
|
Senior Vice President and Comptroller |
Frank S. Hermances employment history with us and the other Directorship that he currently holds
are described under the section The Board of Directors on
page 21. Mr. Hermance has 16 years of
service with us.
John J. Molinelli was elected Executive Vice PresidentChief Financial Officer effective April 22,
1998.
Mr. Molinelli has 38 years of service with us.
Timothy N. Jones was elected PresidentElectromechanical Group effective February 1, 2006.
Previously he served as Vice President and General Manager of our Process & Analytical Instruments
Division from October 1999 to January 2006. Mr. Jones has 27 years of service with us.
Robert W. Chlebek was elected PresidentElectronic Instruments effective March 1, 1997. Mr.
Chlebek has 10 years of service with us.
David A. Zapico was elected PresidentElectronic Instruments effective October 1, 2003.
Previously he served as Vice President and General Manager of our Aerospace and Power Instruments
Division from July 1999 to October 2003. Mr. Zapico has 17 years of service with us.
Robert R. Mandos, Jr. was elected Senior Vice President effective October 1, 2004. Previously he
served as Vice President from April 1998 until September 2004. He has served as our Comptroller
since April 1996. Mr. Mandos has 25 years of service with us.
22
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In this Compensation Discussion and Analysis, we address the compensation paid or awarded to our
executive officers listed in the Summary Compensation Table that immediately follows this
discussion. We refer to these executive officers as our named executive officers.
2006 Compensation
Compensation Objectives
The compensation paid or awarded to our named executive officers for 2006 was designed to meet the
following objectives:
|
|
|
Provide compensation that is competitive with compensation for executive officers
providing comparable services, taking into account the size of our company or operating
group, as applicable. We refer to this objective as competitive compensation. |
|
|
|
|
Create a compensation structure under which a meaningful portion of total compensation
is based on achievement of performance goals. We refer to this objective as performance
incentives. |
|
|
|
|
Encourage the aggregation and maintenance of meaningful equity ownership, and alignment
of executive and stockholder interests. We refer to this objective as stakeholder
incentives. |
|
|
|
|
Provide an incentive for long-term continued employment with us. We refer to this
objective as retention incentives. |
We fashioned various components of our 2006 compensation payments and awards to meet these
objectives as follows:
|
|
|
Type of Compensation |
|
Objectives Addressed |
Salary
|
|
Competitive Compensation |
|
|
|
Short-Term Incentive Awards,
|
|
Competitive Compensation, |
Restricted Stock Awards and
|
|
Performance Incentives, |
Stock Option Grants
|
|
Stakeholder Incentives and
Retention Incentives |
Determination of Competitive Compensation
In assessing competitive compensation, we relied on data provided to us by our independent
compensation consultant, Towers Perrin. Our executive compensation levels are designed to be
generally aligned with the 50th percentile of competitive market levels.
We used the following process to determine the competitive level for each named executive officer
in 2006:
|
|
|
We provided to the compensation consultant a detailed description of the
responsibilities for each named executive officer. |
23
|
|
|
The compensation consultant employed its standard methodology to develop competitive
compensation levels for seasoned executives having similar responsibilities. The
competitive compensation information was based on general industry data derived principally
from the compensation consultants executive compensation database. The data was size
adjusted to reflect the estimated 2005 revenues of our company and the relevant operating
groups. |
In considering the data provided by the compensation consultant, we concurred with the compensation
consultants view that compensation is competitive if it is within a range of 15 percent above or
15 percent below compensation amounts at the 50th percentile for comparable executives.
We believe that variations within this range typically occur due to differences in experience, as
well as variations in responsibilities, performance and ability.
Salaries
The salary amounts set forth in the Summary Compensation Table reflect salary decisions made by the
Compensation Committee of our Board of Directors in 2005 and 2006. Salary adjustments for Messrs.
Hermance, Chlebek and Jones were effective on January 1, so that salary determinations made in 2005
and 2006 affected their salaries for all of 2006 and 2007, respectively. Salary adjustments for
Messrs. Molinelli and Zapico were effective on July 1, so that Compensation Committee
determinations in 2005 and 2006 affected their salaries for the annual periods beginning on July 1,
2005 and July 1, 2006, respectively.
As a result of the salary adjustments approved in 2006, all named executive officers salaries were
within the competitive compensation guideline range of 15 percent above or below salaries for
comparable executives at the 50th percentile. The process utilized in 2005 to establish
salaries for the named executive officers was similar to the process used in 2006, but was based on
earlier data prepared by the compensation consultant.
Short-Term Incentive Program
The principal objective of our short-term incentive program is to provide a performance incentive.
We set performance targets such that total cash compensation will be within 15 percent above or
below the total cash compensation at the 50th percentile for comparable executives.
However, larger variations, both positive and negative, may result based on actual performance.
Under our short-term incentive program, we established targets for each selected performance
measure. In some instances, the performance measures differed among the named executive officers.
These differences reflect the differing responsibilities of the executives.
The awards criteria utilized in 2006 were the following:
|
|
|
Diluted earnings per share (EPS) We believe that the paramount objective of a
principal executive officer is to increase stockholder return significantly, and that for a
large, well established industrial corporation, EPS is typically a key metric affecting
share price. Therefore, we believe EPS is an excellent measure of our executive officers
performance. |
|
|
|
|
Internal sales growth This measure is applied either on a company-wide basis, or, for
our group presidents, with respect to their respective operating groups. Internal sales
growth is based on 2006 revenues, and reflects adjustments deemed appropriate by the
Compensation Committee. We utilize the measure because we believe that we achieve a
greater economic return from internal growth than through acquisitions. |
|
|
|
|
Group operating income This measure applies to our group presidents with regard to
their respective operating groups, and reflects adjustments deemed appropriate by the
Compensation Committee. We believe this measure is a reliable indicator of operating group
performance. |
24
|
|
|
Group operating working capital This measure represents inventory plus accounts
receivable less accounts payable. We use this measure to encourage increased efficiency by
our group presidents in the utilization of operating working capital. |
|
|
|
|
|
|
|
Discretionary A small portion of each executives award is based on discretionary
factors that are deemed appropriate by the Compensation Committee. In the case of the
group presidents, these factors are tied to acquisition activity of their respective
operating groups. |
The weighting of performance measures for each named executive officer is set forth in the table
below. In most cases, the payment increases from 0 percent to 200 percent of the target award in
proportion to the increase in achievement of the goal from 80 percent to 120 percent. With respect
to group internal growth, the minimum and maximum payouts are based on achievement of 97 percent
and 103 percent of the goal, respectively. With respect to group operating working capital, the
minimum and maximum payouts are based on achievement of 90 percent and 110 percent of the goal,
respectively. The discretionary portions of the award opportunities are not subject to any
specified formula.
At the time the several goals for payment of target awards to our executives were established, we
believed that the goals were achievable. Nevertheless, at that time, we believed the achievement
of the goals was substantially uncertain.
As a result of our actual outcomes with respect to the performance measures and the Committees
determinations with respect to the discretionary component, the award payments and the percentage
of the aggregate target award represented by the award payments are as follows: Mr. Hermance,
$1,232,000 (176%); Mr. Molinelli, $397,000 (180%); Mr. Chlebek, $270,000 (138%); Mr. Zapico,
$343,000 (179%); and Mr. Jones, $244,000 (154%). The actual payments reflect the following payout
components, expressed as a percentage of the respective target award opportunity: EPS, 170
percent; internal growth, 200 percent; group operating income, 115-192 percent; group internal
growth, 184-200 percent; group operating working capital, 14-154 percent; discretionary factors,
151-200 percent. In accordance with SEC regulations, the award payments are reflected in two
separate columns of the Summary Compensation Table. The discretionary awards for the named
executive officers appear in the Bonus column. The other awards are reflected in the Non-Equity
Incentive Plan Compensation column.
In providing a discretionary award to Mr. Hermance, the Compensation Committee considered our
success with respect to our four growth strategies:
|
|
|
Operational Excellence Our operating income margins increased from
16.3 percent in 2005 to 17 percent in 2006. |
|
|
|
|
Global and market expansion We increased international sales by 33
percent in 2006 as compared to 2005. |
|
|
|
|
Strategic acquisitions We completed six acquisitions that added
approximately $150 million in annualized revenue. |
|
|
|
|
New products We introduced a number of new products that contributed
to our revenue and profitability. |
In addition, the Compensation Committee recognized Mr. Hermances role in the upgrading of our
leadership talent. In the case of Mr. Molinelli, the Compensation Committee considered the same
factors as those considered for Mr. Hermance, as well as our generation of record cash flow from
operations of $226 million, a 45 percent increase from $166 million in 2005. The group presidents
discretionary awards reflected the Committees assessment of acquisition activities for their
respective operating groups.
25
Equity-Based Compensation
All price per share information in this section has been adjusted to reflect the 3-for-2 stock
split paid to stockholders on November 27, 2006.
Our equity-based compensation in 2006 included awards of stock options and restricted stock. We
used the most recent data provided by our compensation consultant that was based on a Black-Scholes
model. This data provided information as to the dollar amount of long-term incentive opportunities
at the 50th percentile for comparable executives. This amount was subject to our
adjustment based on differences in the scope of the named executives responsibilities, performance
and ability. Nevertheless, after these adjustments the long-term incentive opportunity for each
named executive officer was within the competitive compensation guideline range of 15 percent above
or below the long-term incentive opportunity at the 50th percentile for comparable
executives.
The long-term incentive opportunity for each of the named executive officers in 2006, provided all
vesting conditions are satisfied, is shown in the table below:
|
|
|
|
|
|
|
Long-Term |
Name |
|
Incentive Opportunity |
Frank S. Hermance
|
|
$ |
1,816,400 |
|
John J. Molinelli
|
|
|
401,500 |
|
Robert W. Chlebek
|
|
|
322,400 |
|
David A. Zapico
|
|
|
322,400 |
|
Timothy N. Jones
|
|
|
322,400 |
|
We applied 50 percent of the amount of the long-term incentive opportunity to stock options,
and 50 percent to restricted stock. Our stock options were valued at $7.17 per underlying share,
based on a Black-Scholes methodology. As a result, we awarded options to the named executive
officers for the respective numbers of shares set forth below in the Grants of Plan Based Awards
table under the column heading, All Other Option Awards: Number of Securities Underlying
Options. The dollar amount shown in the Summary Compensation Table generally reflects the dollar
amount recognized for financial statement purposes in accordance with SFAS 123R. Therefore, it
includes amounts with respect to only a portion of the options granted in 2006, while also
including amounts from earlier option grants. See the footnotes to the Summary Compensation Table
for further information.
Our options generally vest in equal annual increments on the first four anniversaries of the date
of grant. We believe that these vesting terms provide to our executives a meaningful incentive for
continued employment. For additional information regarding stock option terms, see the narrative
accompanying the Grants of Plan-Based Awards table.
We applied the remaining 50 percent of the long-term incentive opportunity to restricted shares.
Because restricted share awards generally do not vest until the fourth anniversary of the grant
date, we discounted the share value from $27.36 to $24.23, reflecting a forfeiture assumption of 3
percent per annum. The resulting number of restricted shares awarded to the respective named
executive officers is set forth below in the Grants of Plan-Based Awards Table under the column
heading, All Other Stock Awards: Number of Shares of Stock or Units. See the narrative
accompanying the Grants of Plan-Based Awards table for additional information regarding vesting of
restricted stock.
We believe that the vesting provisions of our restricted stock also serve as an incentive for
continued employment. However, to encourage performance that ultimately enhances stockholder
value, we provide for immediate vesting of a restricted stock award if the closing price of our
Common Stock during any five consecutive trading days reaches 200 percent of the price of our
Common Stock on the date of grant.
26
Stock-Based Award Grant Practices
In October 2006, we adopted practices for the grant of stock-based awards. Among other things,
these practices encompass the following principles:
|
|
|
The majority of stock-based awards are approved annually by the Compensation Committee
on a pre-scheduled date, which occurs in close proximity to the date of our Annual Meeting
of Stockholders. |
|
|
|
|
The annual stock-based awards will not be made when the Compensation Committee is aware
that executive officers or non-employee Directors are in possession of material, non-public
information, or during quarterly or other specified blackout periods. |
|
|
|
|
While stock-based awards other than annual awards may be granted to address, among other
things, the recruiting or hiring of new employees and promotions, such awards will not be
made to executive officers if the Committee is aware that the executive officers are in
possession of material, non-public information, or during quarterly or other specified
blackout periods. |
|
|
|
|
The Compensation Committee has established that stock options are granted only on the
date the Compensation Committee approves the grant and with an exercise price equal to the
fair market value on the date of grant. |
|
|
|
|
Backdating of stock options is prohibited. |
Stock Ownership Guidelines
We seek to underscore stockholder incentives through our stock ownership guidelines. We believe
that by encouraging our executives to maintain a meaningful equity interest in our company, we will
enhance the link between our executives and our stockholders. Our stock ownership guidelines for
our named executive officers are as follows:
|
|
|
|
|
|
|
Multiple of Base Salary Required To Be |
|
Is Ownership |
Name |
|
Held In AMETEK Stock |
|
Requirement Met? |
Frank S. Hermance
|
|
5x
|
|
YES |
John J. Molinelli
|
|
3x
|
|
YES |
Robert W. Chlebek
|
|
3x
|
|
YES |
David A. Zapico
|
|
3x
|
|
YES |
Timothy N. Jones
|
|
3x
|
|
YES |
Ongoing and Post-Employment Agreements
We have several plans and agreements addressing compensation for our named executive officers that
accrue value as the executive continues to work for us, provide special benefits upon certain types
of termination events and provide retirement benefits. These plans and agreements were adopted
and, in some cases, amended at various times over the past 25 years, and were designed to be a part
of a competitive compensation package. Not all plans apply to each named executive officer, and
the participants are indicated in the discussion below.
|
|
|
The Employees Retirement Plan This plan is a tax-qualified defined benefit plan
available to all U.S.-based salaried employees who commenced employment with us prior to
January 1, 1997. The plan pays annual benefits based on final average plan compensation
and years of credited service. The amount of compensation that can be taken into account
is subject to limits imposed by the Internal Revenue Code ($220,000 in 2006), and the
maximum annual benefits payable under the plan also are subject to Internal Revenue Code
limits ($175,000 in 2006). Messrs. Hermance, Molinelli, Zapico and Jones participate in
The Employees Retirement Plan. See the Pension Benefits table and accompanying narrative
for additional information. |
27
|
|
|
The Retirement and Savings Plan This is a tax-qualified defined contribution plan
under which our participating employees may contribute a percentage of specified
compensation on a pretax basis. In the case of highly compensated employees, including the
named executive officers, contributions of up to ten percent of eligible compensation can
be made, subject to a limit mandated by the Internal Revenue Code, which was $15,000 for
2006, or, if the participant was at least 50 years old, $20,000. We provide a matching
contribution equal to one-third of the first six percent of compensation contributed,
subject to a maximum of $1,500. A participant may invest the participants contributions
and matching contributions in one or more of a number of investment alternatives, including
our Common Stock, and the value of a participants account will be determined by the
investment performance of the participants account. No more than 25 percent of a
participants contributions can be invested in our Common Stock. All of the named
executive officers participate in The Retirement and Savings Plan. Our matching
contributions are included in the All Other Compensation column of the Summary
Compensation Table. |
|
|
|
|
Retirement Feature of The Retirement and Savings Plan The Retirement Feature is
available to participants in The Retirement and Savings Plan who meet specified criteria,
including ineligibility to participate in any of our defined benefit plans. Mr. Chlebek
participates in the Retirement Feature. We make retirement contributions based on the
total of a participants age plus years of service. For Mr. Chlebek, we contributed an
amount equal to five percent of his compensation subject to Social Security taxes and seven
percent of his additional compensation. We also make an employer incentive retirement
contribution equal to one percent of a participants eligible compensation if the
participant is contributing at least six percent of his or her compensation under the
Retirement and Savings Plan. See the notes to the All Other Compensation column of the
Summary Compensation Table for further information regarding our contributions to the
Retirement Feature for the account of Mr. Chlebek. |
|
|
|
|
Supplemental Executive Retirement Plan (SERP) This plan is a nonqualified deferred
compensation plan that provides benefits for executives to the extent that their
compensation cannot be taken into account under our tax qualified plans because the
compensation exceeds limits imposed by the Internal Revenue Code. We refer to the
compensation that exceeds these limits as excess compensation. For 2006, compensation in
excess of $220,000 constitutes excess compensation. Under the SERP, each year we credit to
the account of a participant an amount equal to 13% of the executives excess compensation,
which is then deemed to be invested in our Common Stock. Payout of an executives account,
which is subject to tax liability, occurs upon termination of the executives employment
and is made in shares of our Common Stock. Therefore, the ultimate value of the shares
paid out under the SERP will depend on the performance of our Common Stock during the
period an executive participates in the SERP. All of the named executive officers
participate in the SERP. See the Deferred Compensation table and accompanying narrative
for additional information. |
|
|
|
|
Deferred Compensation Plan. This plan provides an opportunity for executives to defer
payment of their short-term incentive bonus to the extent that such bonus, together with
other relevant compensation, constitutes excess compensation. In advance of the year in
which the short-term incentive bonus will be paid, an executive may elect to defer all or
part of his eligible incentive bonus into a notional investment in our Common Stock, in an
interest-bearing account or in both. A participant generally may elect to have the value
of his or her account distributed following retirement, either in a lump sum or in up to
five annual installments, or in the form of an in-service distribution, payable either in a
lump sum or in up to four annual installments commencing on a date specified by the
participant in his or her distribution election. Payments may commence sooner upon the
participants earlier separation from service, upon death of the participant, in the event
of an unforeseeable financial emergency or upon a change in control. Payments from the
notional Common Stock fund are made in shares of our Common Stock, while payments from the
interest-bearing account are paid in cash. Messrs. Hermance, Molinelli and Chlebek
participate in the Deferred Compensation Plan. See the Deferred Compensation table and
accompanying narrative for additional information. |
28
|
|
|
Supplemental Senior Executive Death Benefit Program. Under this program, Messrs.
Hermance and Molinelli have entered into agreements that require us to pay death benefits
to their designated beneficiaries and to pay benefits to them under certain circumstances
during their lifetimes. If a covered executive dies before retirement or before age 65
while on disability retirement, the executives beneficiary will receive monthly payments
of up to $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 a maximum benefit of $100,000 per year for a period of
10 years. We have purchased insurance policies on the lives of Messrs. Hermance and
Molinelli to fund our obligations under the program. See the Pension Benefits table and
accompanying narrative for additional information. |
|
|
|
|
2004 Executive Death Benefit Plan This plan, which replaced our split dollar life
insurance program, provides for retirement benefits or, if the executive dies before
retirement, a death benefit. Generally, if the executive dies before retirement, the
executives beneficiary will receive a monthly payment of $4,167 until the participant
would have reached age 80. If the executive retires (either at age 65 or after attaining
age 55 with at least five years of service) the executive will be entitled to receive a
distribution based on the value of his account in the plan, which is determined by gains or
losses on, and death benefits received under, a pool of insurance policies that we own
covering the lives of participants. Messrs. Chlebek, Jones and Zapico participate in this
plan. See the Deferred Compensation table and accompanying narrative for further
information. |
|
|
|
|
Change of Control Agreements We have change of control agreements with respect to
each of our executive officers, which are described under Potential Payments Upon
Termination or Change of Control. Our agreement with each executive other than Mr.
Hermance provides for payments and other benefits to the executive if we terminate the
executives employment without cause or if the executive terminates employment for good
reason within two years following a change of control. Mr. Hermances change of control
agreement differs from the other named executive officers with respect to the amount of the
payment and scope of benefits upon the change of control events and does not have the two
year limit applicable to the other executives following the change in control. We also
have agreed to provide payments and other benefits to Mr. Hermance if, outside of the
context of a change of control, we terminate his employment without cause or he terminates
employment for good reason. In addition, Mr. Hermances agreement differs from the other
agreements with respect to payments that exceed the limitations under Section 280G of the
Internal Revenue Code. The other executives agreements limit the payments made upon a
change of control to the maximum amount that may be paid without an excise tax and loss of
corporate tax deduction under Sections 4999 and 280G of the Internal Revenue Code. Mr.
Hermances agreement does not contain this limitation and instead provides that if the
total payments to Mr. Hermance under the terms of the agreement are subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code, we will make an additional
payment to Mr. Hermance. This payment is designed so that, after payment of all excise
taxes and any other taxes payable in respect of the additional payment, Mr. Hermance will
retain the same amount as if no excise tax had been imposed. See Tax Considerations
below for further information regarding the excise tax reimbursement. |
Tax Considerations
Under Section 162(m) of the Internal Revenue Code, a publicly-held corporation may not deduct more
than $1 million in a taxable year for certain forms of compensation made to the chief executive
officer and other officers listed on the Summary Compensation Table. Our policy is generally to
preserve the federal income tax deductibility of compensation paid to our executives, and certain
of our equity awards have been structured to preserve deductibility under Section 162(m).
Nevertheless, we retain the flexibility to authorize compensation that may not be deductible if we
believe it is in the best interests of our company. While we believe that all compensation paid to
our executives in 2006 was deductible, it is possible that some portion of compensation paid in
future years will be non-deductible, particularly in those years in which restricted stock awards
vest.
As noted above, under Mr. Hermances change of control agreement, our payments to Mr. Hermance will
not be subject to limitations under Section 280G of the Internal Revenue Code, and therefore a
portion of the payments will
29
not be deductible. In addition, we will make an additional payment to Mr. Hermance if payments to
Mr. Hermance resulting from a change of control are subject to the excise tax imposed by Section
4999 of the Internal Revenue Code. We included this provision in Mr. Hermances change of control
agreement to address the grant of 525,000 shares of restricted Common Stock made to Mr. Hermance on
April 27, 2005 (adjusted to give effect to the 3-for-2 stock split paid to stockholders on November
27, 2006), as disclosed in our proxy statement for last years annual meeting of stockholders. In
the event of a change of control, the restricted stock will immediately vest, and, largely as a
result, the payment of the excise tax required under Section 4999 may be required. The restricted
stock award was made, among other things, to motivate Mr. Hermance to further increase shareholder
value while remaining employed by us. We believe that these incentives would be compromised by the
possible imposition of the Section 280G limit requirement or need for Mr. Hermance to pay the
excise tax. Moreover, we did not wish to have the provisions of Mr. Hermances agreement serve as
a disincentive to his pursuit of a change of control that otherwise might be in the best interests
of our company and its stockholders. Accordingly, we determined to provide a payment to reimburse
Mr. Hermance for any excise taxes payable in connection with the change-in-control payment, as well
as any taxes that accrue as a result of our reimbursement. We believe that, in light of Mr.
Hermances outstanding record in enhancing value for our stockholders, this determination is
appropriate.
Role of Executive Officers in Determining Executive Compensation For Named Executive Officers
In connection with 2006 compensation, Mr. Hermance, aided by our human resources department,
provided statistical data and recommendations to the Compensation Committee to assist it in
determining compensation levels. Mr. Hermance did not make recommendations as to his own
compensation. While the Compensation Committee utilized this information, and valued Mr.
Hermances observations with regard to other executive officers, the ultimate decisions regarding
executive compensation were made by the Compensation Committee.
30
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee reviewed and discussed with management the Compensation Discussion
and Analysis required by Securities and Exchange Commission regulations. Based on its review and
discussions, the Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this Proxy Statement.
Respectfully submitted,
The Compensation Committee:
Charles D. Klein, Chairperson
James R. Malone
Elizabeth R. Varet
Dated: March 16, 2007
31
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE 2006
The following table provides information regarding the compensation of our Chief Executive
Officer, Chief Financial Officer and other three most highly compensated executive officers for
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Compensation |
|
|
All Other |
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
|
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
(1) |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
|
Total |
|
Frank S. Hermance
|
|
|
2006 |
|
|
$ |
700,000 |
|
|
$ |
280,000 |
|
|
$ |
3,119,931 |
|
|
$ |
1,291,890 |
|
|
$ |
952,000 |
|
|
$ |
501,331 |
|
|
$ |
383,942 |
|
|
$ |
7,229,094 |
|
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
2006 |
|
|
|
330,000 |
|
|
|
89,000 |
|
|
|
237,695 |
|
|
|
330,469 |
|
|
|
308,000 |
|
|
|
262,197 |
|
|
|
87,815 |
|
|
|
1,645,176 |
|
Executive Vice President
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
2006 |
|
|
|
300,000 |
|
|
|
19,600 |
|
|
|
189,323 |
|
|
|
276,087 |
|
|
|
250,400 |
|
|
|
216,663 |
|
|
|
69,833 |
|
|
|
1,321,906 |
|
PresidentElectronic
Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
2006 |
|
|
|
285,000 |
|
|
|
19,700 |
|
|
|
186,411 |
|
|
|
201,292 |
|
|
|
323,300 |
|
|
|
53,512 |
|
|
|
71,183 |
|
|
|
1,140,398 |
|
PresidentElectronic
Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
2006 |
|
|
|
247,527 |
|
|
|
21,400 |
|
|
|
118,078 |
|
|
|
141,703 |
|
|
|
222,600 |
|
|
|
54,890 |
|
|
|
44,954 |
|
|
|
851,152 |
|
President
Electromechanical Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown for stock awards relate to restricted shares granted under our 1999 and
2002 Stock Incentive Plans. These amounts are equal to the dollar amounts recognized in 2006
with respect to the stock awards for financial statement purposes, computed in accordance with
SFAS 123(R), but without giving effect to estimated forfeitures. The assumptions used in
determining the amounts in this column are set forth in note 9 to our consolidated financial
statements on page 37 of Appendix B to this proxy statement. For information regarding the
number of shares subject to 2006 awards, other features of the awards and the grant date fair
value of the awards, see the Grants of Plan-Based Awards Table on
p. 34. |
|
(2) |
|
The amounts shown for option awards relate to shares granted under our 2002 Stock Incentive
Plan. These amounts are equal to the dollar amounts recognized in 2006 with respect to the
option awards for financial statement purposes, computed in accordance with SFAS 123(R), but
without giving effect to estimated forfeitures. The assumptions used in determining the
amounts in this column are set forth in note 9 to our consolidated financial statements on
page 37 of Appendix B to this proxy statement. For information regarding the number of shares
subject to 2006 awards, other features of those awards, and the grant date fair value of the
awards, see the Grants of Plan-Based Awards Table on p. 34. |
|
(3) |
|
Represents payments under our short-term incentive program based on achievement of
company-wide or operating group performance measures. See Compensation Discussion and
Analysis Short Term Incentive Program. |
32
|
|
|
(4) |
|
Includes the aggregate change in actuarial present value of the accumulated benefit under
defined benefit plans as follows: Mr. Hermance, $64,000; Mr. Molinelli, $103,900; Mr. Zapico,
$9,700; Mr. Jones, $22,000. Also includes earnings on nonqualified deferred compensation
plans, including our Supplemental Executive Retirement Plan, required to be disclosed under
SEC regulations, as follows: Mr. Hermance, $437,331; Mr. Molinelli, $158,297; Mr. Chlebek,
$216,663; Mr. Zapico, $43,812; Mr. Jones, $32,890. |
|
(5) |
|
Included in All Other Compensation are the following items that exceeded $10,000: |
|
|
|
our contributions under our defined contribution plans, including our Supplemental
Executive Retirement Plan, as follows: Mr. Hermance, $223,760; Mr. Molinelli,
$67,110; Mr. Chlebek, $53,196; Mr. Zapico, $54,240; Mr. Jones, $36,498. |
|
|
|
|
dividends on restricted stock, which totaled $132,421 for Mr. Hermance, and are
subject to forfeiture if the related restricted stock does not vest. |
|
|
|
|
perquisites, which totaled $26,679 for Mr. Hermance; $10,907 for Mr. Molinelli; and
$10,055 for Mr. Zapico. Perquisites included automobile allowances for all of the
named executive officers, golf and country club dues for Mr. Hermance, and tax return
services for Mr. Hermance. |
33
GRANTS OF PLAN-BASED AWARDS 2006
The following table provides details regarding plan-based awards granted to the named executive
officers in 2006, adjusted to reflect the three-for-two stock split paid to stockholders on
November 27, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under |
|
|
Shares of |
|
|
Securities |
|
|
Fair Value of |
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan |
|
|
Stock or |
|
|
Underlying |
|
|
Stock and |
|
|
|
Grant |
|
|
Approval |
|
|
Awards(2) |
|
|
Units |
|
|
Options |
|
|
Option |
|
Name |
|
Date (1) |
|
|
Date (1) |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
(3) |
|
|
(4) |
|
|
Awards (5) |
|
Frank S. |
|
|
4/26/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,500 |
|
|
|
126,615 |
|
|
$ |
2,454,363 |
|
Hermance |
|
|
4/25/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
$ |
560,000 |
|
|
$ |
1,120,000 |
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
4/26/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,295 |
|
|
|
27,990 |
|
|
|
542,740 |
|
Molinelli |
|
|
4/25/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
176,800 |
|
|
|
353,600 |
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
4/26/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,660 |
|
|
|
22,485 |
|
|
|
435,877 |
|
Chlebek |
|
|
4/25/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
182,000 |
|
|
|
364,000 |
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
4/26/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,660 |
|
|
|
22,485 |
|
|
|
435,877 |
|
Zapico |
|
|
4/25/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
178,967 |
|
|
|
357,933 |
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
4/26/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,660 |
|
|
|
22,485 |
|
|
|
435,877 |
|
Jones |
|
|
4/25/06 |
|
|
|
4/25/06 |
|
|
|
|
|
|
|
147,233 |
|
|
|
294,467 |
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
(1) |
|
The Compensation Committee approved the annual awards of stock options and restricted
stock to the named executive officers on April 25, 2006. The grant date for the awards to the
named executive officers was designated by the Committee as April 26, 2006 to correspond with
the grant date for the non-employee Directors, whose awards were granted and approved on April
26, 2006. |
|
(2) |
|
These awards were made under our Short-Term Incentive Program. See Compensation Discussion
and Analysis 2006 Compensation Short-Term Incentive Program for information regarding
the criteria applied in determining the amounts payable under the awards. There were no
threshold amounts payable under the Plan. The actual amounts paid with respect to these
awards are included in the Non-Equity Incentive Plan Compensation column in the Summary
Compensation Table on p. 32. |
|
(3) |
|
The Stock Awards constitute restricted shares granted under our 1999 and 2002 Stock Incentive
Plans. These shares become vested on the earliest to occur of (a) the closing price of our
Common Stock on any five consecutive days equaling or exceeding $66.14 per share, (b) death or
permanent disability of the grantee, (c) termination of the grantees employment with us in
connection with a change of control, (d) the fourth anniversary of the date of grant, namely
April 26, 2010, provided the grantee has been employed by us continuously through that date,
or (e) the grantees retirement from employment with us at or after age 55 and the completion
of at least ten years of employment with us, in which case only a pro rata portion of the
shares shall become nonforfeitable and transferable based upon the time that has elapsed since
the date of grant. Cash dividends are earned on the restricted shares but are not paid until
the restricted shares vest. |
|
(4) |
|
The Option Awards constitute stock options granted under our 2002 Stock Incentive Plan.
Stock options become exercisable as to 25% of the underlying shares on each of the first four
anniversaries of the date of grant. Options generally become fully exercisable in the event
of the grantees death, normal retirement or termination of employment in connection with a
change of control. |
|
(5) |
|
The grant date fair value is computed in accordance with SFAS 123(R). |
34
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006
The following table provides details regarding outstanding equity awards for the named executive
officers at December 31, 2006, adjusted to reflect the three-for-two stock split paid to
stockholders on November 27, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Value of |
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Shares or |
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Units of Stock |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
|
Stock That |
|
|
That |
|
|
|
Options |
|
|
Options |
|
|
Exercise |
|
|
Expiration |
|
|
Have Not |
|
|
Have Not |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Price |
|
|
Date |
|
|
Vested (2) |
|
|
Vested (1) |
|
Frank S. |
|
|
240,000 |
|
|
|
|
|
|
$ |
8.14667 |
|
|
|
12/14/2007 |
|
|
|
703,305 |
|
|
$ |
22,393,231 |
|
Hermance |
|
|
210,000 |
|
|
|
|
|
|
|
12.54667 |
|
|
|
05/21/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
180,000 |
|
|
|
60,000 |
|
|
|
12.04167 |
|
|
|
05/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
89,497 |
|
|
|
89,498 |
|
|
|
17.45000 |
|
|
|
05/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
42,063 |
|
|
|
42,064 |
|
|
|
20.27000 |
|
|
|
09/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
32,643 |
|
|
|
97,932 |
|
|
|
25.28667 |
|
|
|
04/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,615 |
|
|
|
33.26667 |
|
|
|
04/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
97,500 |
|
|
|
|
|
|
|
8.76167 |
|
|
|
05/21/2008 |
|
|
|
45,930 |
|
|
|
1,462,411 |
|
Molinelli |
|
|
82,500 |
|
|
|
|
|
|
|
12.54667 |
|
|
|
05/21/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
67,500 |
|
|
|
22,500 |
|
|
|
12.04167 |
|
|
|
05/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
19,687 |
|
|
|
19,688 |
|
|
|
17.45000 |
|
|
|
05/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
18,510 |
|
|
|
18,510 |
|
|
|
20.27000 |
|
|
|
09/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
6,967 |
|
|
|
20,903 |
|
|
|
25.28667 |
|
|
|
04/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,990 |
|
|
|
33.26667 |
|
|
|
04/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
9,375 |
|
|
|
|
|
|
|
8.76167 |
|
|
|
05/21/2008 |
|
|
|
36,345 |
|
|
|
1,157,225 |
|
Chlebek |
|
|
8,437 |
|
|
|
|
|
|
|
12.54667 |
|
|
|
05/21/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
8,438 |
|
|
|
16,874 |
|
|
|
12.04167 |
|
|
|
05/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
3,750 |
|
|
|
15,000 |
|
|
|
17.45000 |
|
|
|
05/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
14,100 |
|
|
|
14,100 |
|
|
|
20.27000 |
|
|
|
09/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
6,033 |
|
|
|
18,102 |
|
|
|
25.28667 |
|
|
|
04/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,485 |
|
|
|
33.26667 |
|
|
|
04/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
15,000 |
|
|
|
12,000 |
|
|
|
12.04167 |
|
|
|
05/19/2010 |
|
|
|
35,880 |
|
|
|
1,142,419 |
|
Zapico |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
17.45000 |
|
|
|
05/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
14,100 |
|
|
|
14,100 |
|
|
|
20.27000 |
|
|
|
09/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
5,703 |
|
|
|
17,112 |
|
|
|
25.28667 |
|
|
|
04/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,485 |
|
|
|
33.26667 |
|
|
|
04/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
13,500 |
|
|
|
|
|
|
|
12.54667 |
|
|
|
05/21/2009 |
|
|
|
22,575 |
|
|
|
718,788 |
|
Jones |
|
|
13,500 |
|
|
|
6,750 |
|
|
|
12.04167 |
|
|
|
05/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
6,570 |
|
|
|
6,570 |
|
|
|
17.45000 |
|
|
|
05/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
10,282 |
|
|
|
10,283 |
|
|
|
20.27000 |
|
|
|
09/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
2,520 |
|
|
|
7,560 |
|
|
|
25.28667 |
|
|
|
04/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,485 |
|
|
|
33.26667 |
|
|
|
04/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The dollar values are based on the closing price of our Common Stock on December 29, 2006
($31.84), the last business day of 2006. Cash dividends will be earned but will not be paid
until the restricted shares vest. The dividends will be payable at the same rate as dividends
to holders of our outstanding Common Stock. |
(Footnotes
continue on following page)
35
|
|
|
(2) |
|
The following table sets forth grant and vesting information for the outstanding restricted
stock awards for all named executive officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
Price-Related |
|
|
|
|
|
|
|
or Units of Stock |
|
|
|
|
|
|
Event for |
|
|
|
|
|
|
|
That Have Not |
|
|
|
|
|
|
Accelerated |
|
Name |
|
Grant Date |
|
|
Vested |
|
|
Vesting Date |
|
|
Vesting (3) |
|
Frank S. Hermance |
|
|
5/18/2004 |
|
|
|
63,180 |
|
|
|
5/18/2008 |
|
|
$ |
34.62 |
|
|
|
|
9/22/2004 |
|
|
|
31,545 |
|
|
|
9/22/2008 |
|
|
|
40.42 |
|
|
|
|
4/27/2005 |
|
|
|
46,080 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/27/2005 |
|
|
|
525,000 |
|
|
|
4/27/2011 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
37,500 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
5/18/2004 |
|
|
|
13,905 |
|
|
|
5/18/2008 |
|
|
|
34.62 |
|
|
|
|
9/22/2004 |
|
|
|
13,890 |
|
|
|
9/22/2008 |
|
|
|
40.42 |
|
|
|
|
4/27/2005 |
|
|
|
9,840 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
8,295 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
5/18/2004 |
|
|
|
10,590 |
|
|
|
5/18/2008 |
|
|
|
34.62 |
|
|
|
|
9/22/2004 |
|
|
|
10,575 |
|
|
|
9/22/2008 |
|
|
|
40.42 |
|
|
|
|
4/27/2005 |
|
|
|
8,520 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
5/18/2004 |
|
|
|
10,590 |
|
|
|
5/18/2008 |
|
|
|
34.62 |
|
|
|
|
9/22/2004 |
|
|
|
10,575 |
|
|
|
9/22/2008 |
|
|
|
40.42 |
|
|
|
|
4/27/2005 |
|
|
|
8,055 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
5/18/2004 |
|
|
|
4,635 |
|
|
|
5/18/2008 |
|
|
|
34.62 |
|
|
|
|
9/22/2004 |
|
|
|
7,710 |
|
|
|
9/22/2008 |
|
|
|
40.42 |
|
|
|
|
4/27/2005 |
|
|
|
3,570 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
(3) |
|
The price-related event for accelerated vesting of the restricted stock awards will occur if
the closing price per share of our Common Stock for five consecutive trading days is equal to
at least two times the closing price per share on the date of grant. On February 20, 2007,
the price-related event for accelerated vesting of restricted stock granted on May 18, 2004
occurred. |
36
OPTION EXERCISES AND STOCK VESTED 2006
The following table provides information regarding option exercises by the named executive officers
in 2006, adjusted to reflect the three-for-two stock split paid to stockholders on November 27,
2006. No stock awards vested in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares Acquired |
|
|
Value Realized |
|
|
Shares Acquired |
|
|
Value Realized |
|
Name |
|
on Exercise |
|
|
on Exercise (1) |
|
|
on Vesting |
|
|
on Vesting |
|
Frank S. Hermance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
97,500 |
|
|
$ |
2,402,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
41,250 |
|
|
|
723,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
46,500 |
|
|
|
888,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value realized on exercise is equal to the difference between the market price of the
shares acquired upon exercise and the option exercise price for the acquired shares. |
37
PENSION BENEFITS 2006
We have the following defined benefit plans in which some or all of our named executive officers
participate:
|
|
|
The Employees Retirement Plan This plan is a qualified defined benefit
pension plan that provides retirement benefits to our U.S.-based salaried employees who
commenced employment with us prior to January 1, 1997. The plan pays benefits based upon
eligible final average plan compensation and years of credited service. Compensation in
excess of a specified amount prescribed by the Department of the Treasury ($220,000 for
2006) is not taken into account under the Retirement Plan. Mr. Chlebek, who joined us
after January 1, 1997, is not eligible to participate in The Employees Retirement Plan,
but instead is eligible to participate in the Retirement Feature of the AMETEK Retirement
and Savings Plan, a defined contribution plan. |
|
|
|
|
Annual Benefits earned under The Employees Retirement Plan are computed using the
following formula: |
(A + B) x C x 1.02
|
|
|
A = 32.0% of eligible compensation not in excess of
Social Security covered compensation plus 40.0% of eligible
compensation in excess of Social Security covered compensation, times
credited service at the normal retirement date (maximum of 15 years)
divided by 15; |
|
|
|
|
B = 0.5% of eligible plan compensation times credited
service at the normal retirement date in excess of 15 years (maximum
of ten years); and |
|
|
|
|
C = current credited service divided by credited service
at the normal retirement date. |
|
|
|
Participants may retire as early as age 55 with 10 years of service. Unreduced benefits
are available when a participant attains age 65 with 5 years of service. Otherwise,
benefits are reduced 6.67% for each year by which retirement precedes the attainment of
age 65. Pension benefits earned are distributed in the form of a lifetime annuity.
Messrs. Hermance and Molinelli are eligible for early retirement under the plan. |
|
|
|
|
Supplemental Senior Executive Death Benefit Program Under this program, we
have entered into individual agreements with Messrs. Hermance and Molinelli that require
us to pay death benefits to their designated beneficiaries and to pay
lifetime benefits to them under 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 would have attained age 80. If a covered executive
retires, or reaches age 65 while on disability retirement, the program provides for an
annual benefit of up to a maximum of $100,000 per year, or an aggregate of $1,000,000.
The benefit is payable monthly over a period of ten years to the executive or the
executives beneficiary. The payments will commence for retirees at age 70 or death,
whichever is earlier. However, if the executive retires after age 70, the payments
commence on retirement. To fund benefits under the Program, we have purchased individual
life insurance policies on the lives of certain of the covered executives. We retain the
right to terminate all of the Program agreements under designated circumstances. |
38
The following table provides details regarding the present value of accumulated benefits under the
plans described above for the named executive officers in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present |
|
|
|
|
|
|
|
Number of Years |
|
Value of |
|
|
|
|
|
|
|
Credited Service |
|
Accumulated |
|
|
Payments During |
Name |
|
Plan Name |
|
at December 31, 2006 |
|
Benefit (1) |
|
|
2006 |
Frank S. |
|
The Employees Retirement Plan |
|
15 |
|
$ |
484,300 |
|
|
|
Hermance |
|
Supplemental Senior Executive Death Benefit Plan |
|
10 |
|
|
383,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
The Employees Retirement Plan |
|
37 |
|
|
780,700 |
|
|
|
Molinelli |
|
Supplemental Senior Executive Death Benefit Plan |
|
10 |
|
|
282,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
N/A |
|
N/A |
|
|
N/A |
|
|
N/A |
Chlebek |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
The Employees Retirement Plan |
|
17 |
|
|
109,300 |
|
|
|
Zapico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
The Employees Retirement Plan |
|
27 |
|
|
261,100 |
|
|
|
Jones |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown in the Pension Benefit Table above are actuarial present values of the
benefits accumulated through December 31, 2006. We used the following assumptions in
quantifying the present value of the accumulated benefit: discount rate 5.90%; limitation on
eligible annual compensation under the Internal Revenue Code $220,000; limitation on
eligible annual benefits under the Internal Revenue Code $170,000; retirement age 65;
termination and disability rates none; form of payment single life annuity; RP-2000
mortality table, as adjusted. |
39
NONQUALIFIED DEFERRED COMPENSATION 2006
We have the following nonqualified deferred compensation plans in which our named executive
officers participate:
|
|
|
Supplemental Executive Retirement Plan (SERP) This plan provides
benefits for executives to the extent that their compensation cannot be taken into account
under our tax-qualified plans because the compensation exceeds limits imposed by the
Department of the Treasury ($220,000 in 2006). Under the SERP, each year we credit to the
account of a participant an amount equal to 13% of the executives compensation that
exceeds the Department of the Treasury limits, which is then deemed to be invested in our
Common Stock. Payout of an executives account occurs upon termination of the executives
employment and is made in shares of our Common Stock. Therefore, the ultimate value of
the shares paid out under the SERP will depend on the performance of our Common Stock
during the period an executive participates in the SERP. |
|
|
|
|
Deferred Compensation Plan. This plan provides an opportunity for executives
to defer payment of their short-term incentive bonus to the extent that such bonus,
together with other relevant compensation, exceeds limits imposed by the Department of the
Treasury ($220,000 in 2006). In advance of the year in which the short-term incentive
bonus will be paid, an executive may elect to defer all or part of his eligible incentive
bonus. The monies are invested in one of two notional accounts, a Common Stock fund and
an interest-bearing fund. A participant generally may elect to have the value of his or
her account distributed following retirement, or while in-service, as specified by the
participant in his or her deferral election. Payments may commence earlier upon the
participants earlier separation from service, upon death of the participant, in the event
of an unforeseeable financial emergency or upon a change in control, as defined in the
plan. Payments from the notional Common Stock fund are made in shares of our Common
Stock, while payments from the interest-bearing account are paid in cash. |
|
|
|
|
2004 Executive Death Benefit Plan. Under this plan, we provide a retirement
benefit to Messrs. Chlebek, Jones and Zapico. The retirement benefit under this plan is
designed to provide the lump sum necessary to deliver 20% of the executives final
projected annual salary paid annually for 10 years, on a present value basis at age 70.
However, the actual value of the benefit will vary based on the gains or losses on, and
death benefits received under, a pool of insurance policies that we own covering the lives
of the participants. The maximum salary on which the benefit can be based is $500,000.
If the covered executive dies while actively employed or while disabled and before age 65,
the executives beneficiaries will receive monthly payments from the date of the
executives death until the executive would have attained age 80. |
The following table provides details regarding nonqualified deferred compensation for the named
executive officers in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Contributions |
|
|
Registrant Contributions |
|
|
Aggregate Earnings in |
|
|
Aggregate Withdrawals/ |
|
|
Aggregate Balance at last |
|
Name |
|
in last fiscal year |
|
|
in last fiscal year (1) |
|
|
last fiscal year (2) |
|
|
Distributions |
|
|
fiscal year end |
|
Frank S. |
|
$ |
936,225 |
|
|
$ |
222,560 |
|
|
$ |
737,781 |
|
|
|
|
|
|
$ |
9,554,660 |
|
Hermance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
144,869 |
|
|
|
65,910 |
|
|
|
207,779 |
|
|
|
|
|
|
|
2,356,280 |
|
Molinelli |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
106,434 |
|
|
|
38,480 |
|
|
|
105,144 |
|
|
|
|
|
|
|
1,174,617 |
|
Chlebek |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
|
|
|
|
53,040 |
|
|
|
27,395 |
|
|
|
|
|
|
|
295,131 |
|
Zapico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
|
|
|
|
35,298 |
|
|
|
12,806 |
|
|
|
|
|
|
|
148,931 |
|
Jones |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
(1) |
|
Includes for each named executive officer the following amounts that are also reported in
the Summary Compensation Table on page 32: Mr. Hermance, $222,560; Mr. Molinelli, $65,910;
Mr. Chlebek, $38,480; Mr. Zapico, $53,040; Mr. Jones, $35,298. |
|
(2) |
|
Includes for each named executive officer the following amounts that are also reported in the
Summary Compensation Table on page 32: Mr. Hermance, $437,331; Mr. Molinelli, $158,297; Mr.
Chlebek, $83,951; Mr. Zapico, $27,395; Mr. Jones, $12,806. |
|
(3) |
|
Includes for four of the named executive officers the
following amounts that were reported as compensation in the Summary
Compensation Table in previous years: Mr. Hermance, $1,210,457; Mr. Molinelli, $400,773; Mr. Chlebek, $250,804; Mr. Zapico, $101,236. |
41
POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE OF CONTROL
In this section, we describe payments that may be made to our named executive officers upon several
events of termination, including termination in connection with a change of control. The
information in this section does not include information relating to the following:
|
|
|
distributions under The Employees Retirement Plan and distributions, other than death
benefits, under the Supplemental Senior Executive Death Benefit Plan see Pension
Benefits 2006 for information regarding these plans, |
|
|
|
|
distributions under the Supplemental Executive Retirement Plan and the Deferred
Compensation Plan and distributions, other than death benefits, under the 2004 Executive
Death Benefit Plan see Nonqualified Deferred Compensation 2006 for information
regarding these plans, |
|
|
|
|
other payments and benefits provided on a nondiscriminatory basis to salaried employees
generally upon termination of employment, including tax-qualified defined contribution
plans, and |
|
|
|
|
short-term incentive payments that would not be increased due to the termination event. |
The following items are reflected in the table below. The payment amounts reflect the payments
that would have been due to the named executive officers had the termination or change of control
event occurred on December 31, 2006.
Change of Control Agreements. Under our change of control agreements with our named executive
officers other than Mr. Hermance, in the event that a named executive officers employment is
terminated without cause or by the named executive officer for good reason within two years after
a change of control, the executive officer will receive: (1) three times the sum of (a) the
executive officers base salary for the year prior to the year in which the change of control
occurred and (b) the greater of the bonus for the year in which the change of control occurred or
the average of the bonus for the two previous years; and (2) continuation of health benefits until
the earliest to occur of Medicare eligibility, coverage under another group health plan, the
expiration of ten years, or the executive officers death. Payments to executive officers other
than Mr. Hermance under the change of control agreements will be reduced, if necessary, to prevent
them from being subject to the limitation on deductions under Section 280G of the Internal Revenue
Code.
Generally, a change of control is deemed to occur under the change of control agreements if: (1)
any person becomes the beneficial owner of 20 percent or more of the value of our outstanding
equity or combined voting power of our voting securities; (2) our stockholders approve a merger or
consolidation as a result of which our stockholders do not own at least 50 percent of the value of
our outstanding equity or combined voting power of our voting securities; (3) a sale of all or
substantially all of our assets occurs; or (4) a plan of liquidation is approved.
A termination for good reason generally means a termination initiated by the executive officer in
the event of: (1) our noncompliance with the change of control agreement; (2) any involuntary
reduction in the executive officers authority, duties and responsibilities that were in effect
immediately prior to the change of control; (3) any involuntary reduction in the executive
officers total compensation that was in effect immediately prior to the change of control; or (4)
any transfer of the executive officer without the executive officers consent of more than 50 miles
from the executive officers principal place of business immediately prior to the change of
control.
A termination for cause would result from misappropriation of funds, habitual insobriety or
substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the
performance of duties that has a material adverse affect on our business, operations, assets,
properties or financial condition.
42
Under our change of control agreement with Mr. Hermance, in the event that his employment is
terminated by us without cause or by Mr. Hermance for good reason in anticipation of, or following,
a change of control, he will receive: (1) a lump sum payment equal to the sum of (a) 2.99 times
the sum of Mr. Hermances base salary for the year prior to the year in which his termination
occurs and (b) his targeted bonus for the year in which he is terminated or, if the amount of the
targeted bonus is not known, the average of his bonuses for the two years preceding the year in
which his termination occurs; (2) continuation of health benefits, disability benefits and death
benefits until the earliest of (a) the end of the tenth year following termination of employment;
(b) Medicare eligibility; (c) commencement of new employment where Mr. Hermance can participate in
similar plans or programs without a pre-existing condition limitation; and (d) death; and (3) use
of an automobile and reimbursement of reasonable operating expenses, and continued reimbursement of
golf and country club dues, in each case until the second anniversary of his termination or, if
earlier, his death.
In addition, upon a change of control, or upon Mr. Hermances termination without cause or
resignation for good reason in anticipation of a change in control, (1) all of his restricted stock
awards and stock options will vest; (2) all stock options, other than incentive stock options, will
be exercisable for one year following his termination, or, if earlier, the stated expiration date
of the stock option; and (3) if Mr. Hermance becomes subject to excise taxes under Section 4999 of
the Internal Revenue Code because our change of control payments to him are subject to the
limitations on deductions under Section 280G of the Internal Revenue Code, he will be reimbursed
for those excise taxes and any additional taxes payable by him as a result of the reimbursement.
Generally, a change of control is deemed to occur under Mr. Hermances change of control agreement
under the same circumstances as apply under the other executive officers change of control
agreements. In addition, a change of control will be deemed to occur under Mr. Hermances
agreement if, as a result of the death, resignation or removal of our Directors within a two-year
period, the Directors serving at the beginning of the period and Directors elected with the advance
approval of two-thirds of the Directors serving at the beginning of the period constitute less than
a majority of the Board. A termination is deemed to be in anticipation of a change of control if
it occurs during the 90 days preceding the change of control and the substantial possibility of a
change of control was known to Mr. Hermance and a majority of the Directors.
Good reason and cause are defined in Mr. Hermances agreement in substantially the same manner
as in the other executive officers change of control agreements.
Payments and other benefits under the change of control agreements would have been in the following
amounts if the event requiring payment occurred on December 31, 2006: Lump sum payments Mr.
Hermance, $4,186,000; Mr. Molinelli, $2,211,000; Mr. Chlebek, $1,710,000; Mr. Zapico, $1,914,000;
Mr. Jones, $1,487,580. Health and disability benefits Mr. Hermance, $142,600; Mr. Molinelli,
$108,100; Mr. Chlebek, $55,100; Mr. Zapico, $56,700; Mr. Jones, $202,600. Section 4999 excise tax
and additional tax reimbursement Mr. Hermance, $6,774,594. Perquisites Mr. Hermance, $54,068
(including use of an automobile and operating expenses ($41,046) and golf and country club fees).
The benefits Mr. Hermance receives upon acceleration of his equity grants are quantified below
under Acceleration of Vesting Provisions Pertaining to Stock Options and Restricted Stock.
In addition, Mr. Hermances change of control agreement generally provides that in the event his
employment is terminated by us without cause or by Mr. Hermance for good reason, in either case
prior to and other than in anticipation of or following a change of control, he would receive the
same benefits as he would receive in connection with a change of control, as described above,
except: (1) the portion of the lump sum payment based on a multiple of salary will be equal to two
times, rather than 2.99 times, base salary (2) the continuation of health benefits, disability
benefits and death benefits cannot exceed a maximum of two years from the termination of his
employment, rather than ten years.
Payments and other benefits to Mr. Hermance under this provision include the following: Lump sum
payments, $2,800,000; stock option grant vesting acceleration, $3,604,237; restricted stock award
vesting acceleration, $22,619,660; health and disability insurance benefits, $40,800; perquisites,
$54,068 (including use of an automobile and operating expenses ($41,046) and golf and country club
fees).
43
Acceleration of Vesting Provisions Pertaining to Stock Options and Restricted Stock. Under our
incentive compensation plans, outstanding stock options generally will vest immediately upon the
occurrence of any of the following events: (1) the holders retirement after age 65, following two
years of service with us; (2) the death of the holder; and (3) the holders termination of
employment following a change of control. Benefits relating to accelerated vesting of stock
options in connection with termination following a change of control (or, in the case of Mr.
Hermance in anticipation of, or upon a change of control), or upon normal retirement or death is as
follows: Mr. Hermance, $3,604,237; Mr. Molinelli, $1,079,918; Mr. Chlebek, $831,692; Mr. Zapico,
$728,708; Mr. Jones, $396,699. The value of the accelerated vesting benefit equals the number of
shares as to which the stock options would vest on an accelerated basis upon the occurrence of the
specified termination or change of control event, multiplied by the difference between the closing
price per share of our Common Stock on December 31, 2006 and the exercise price per share for the
affected options.
Outstanding restricted stock generally will vest immediately upon the occurrence of any of the
following events: (1) the holders death or disability; or (2) the holders termination of
employment following a change of control. Benefits relating to accelerated vesting of restricted
stock in connection with termination following a change of control (or, in the case of Mr.
Hermance, in anticipation of, or upon a change of control), or upon disability or death are as
follows: Mr. Hermance, $22,619,660; Mr. Molinelli, $1,478,977; Mr. Chlebek, $1,170,207; Mr.
Zapico, $1,155,257; Mr. Jones, $726,180. Benefits in connection with other events of termination
addressed in the table below are as follows: Mr. Hermance, $2,708,349; Mr. Molinelli, $718,238;
Mr. Chlebek, $562,512; Mr. Zapico (normal retirement only), $556,283; Mr. Jones (normal retirement
only), $319,913. The value of the accelerated vesting benefit equals the number of shares of
restricted stock that would vest on an accelerated basis on the occurrence of the specified
termination or change of control event times the closing price per share of our Common Stock on
December 31, 2006.
Our incentive plans define change of control in substantially the same manner as the change of
control agreements relating to our executives other than Mr. Hermance.
Death Benefits. Death benefits are payable to Messrs. Hermance and Molinelli under our
Supplemental Senior Executive Death Benefit Plan, as described under Pension Benefits 2006.
Death benefits are payable to Messrs. Chlebek, Zapico and Jones under our 2004 Executive Death
Benefit Plan, as described under Nonqualified Deferred Compensation 2006.
The amount of death benefits payable to each of the named executive officers in the event of his
death on December 31, 2006 is as follows: Mr. Hermance, $877,200; Mr. Molinelli, $831,300; Mr.
Chlebek, $632,500; Mr. Zapico, $542,800; Mr. Jones, $715,000.
Summary Table. The following table summarizes the amounts payable to each of the named executive
officers based on the items described above with respect to each of the events set forth in the
table. As used in the table below, change of control refers to payment or other benefit events
occurring upon a change of control or in connection with a termination related to a change of
control, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination/Early |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement/ |
|
|
|
|
|
Involuntary |
|
|
|
|
|
|
|
|
Termination |
|
Normal |
|
Not For Cause |
|
Change of |
|
|
|
|
Name |
|
For Cause |
|
Retirement |
|
Termination |
|
Control |
|
Disability |
|
Death |
Frank S. Hermance |
|
$ |
2,708,349 |
|
|
$ |
6,312,586 |
|
|
$ |
29,118,765 |
|
|
$ |
37,381,159 |
|
|
$ |
22,619,660 |
|
|
$ |
27,101,097 |
|
John J. Molinelli |
|
|
718,238 |
|
|
|
1,798,156 |
|
|
|
718,238 |
|
|
|
4,877,995 |
|
|
|
1,478,977 |
|
|
|
3,390,195 |
|
Robert W. Chlebek |
|
|
562,512 |
|
|
|
1,394,204 |
|
|
|
562,512 |
|
|
|
3,766,999 |
|
|
|
1,170,207 |
|
|
|
2,634,399 |
|
David A. Zapico |
|
|
|
|
|
|
1,284,991 |
|
|
|
|
|
|
|
3,854,665 |
|
|
|
1,155,257 |
|
|
|
2,426,765 |
|
Timothy N. Jones |
|
|
|
|
|
|
716,612 |
|
|
|
|
|
|
|
2,813,059 |
|
|
|
726,180 |
|
|
|
1,837,879 |
|
44
STOCK OWNERSHIP OF
EXECUTIVE OFFICERS AND DIRECTORS
The Compensation Committee of the Board of Directors approved stock ownership guidelines for all
executive officers, and reviews stock ownership on an annual basis. See Compensation Discussion
and Analysis Stock Ownership Guidelines on page 27 for a discussion of stock ownership
guidelines for our named executive officers.
The Board of Directors established stock ownership guidelines for non-employee Directors in order
to more closely link their interests with those of stockholders. Under the guidelines, each
non-employee Director is expected to own, by the end of a five-year period, shares of our Common
Stock having a value equal to at least five times the Directors annual cash retainer. Each
non-employee Director other than Mr. Williams has exceeded his or her required stock ownership
level of five times his or her annual retainer.
The following table shows the number of shares of Common Stock that the Directors, the executive
officers listed on the Summary Compensation Table on page 32, 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 5, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares and |
|
|
|
|
|
|
|
|
|
|
Nature of Ownership (1) |
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Right to |
|
|
|
|
|
|
|
|
|
|
|
|
Total Beneficial |
|
|
|
Beneficially |
|
|
Acquire |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
and SERP |
|
Name |
|
Owned |
|
|
(2) |
|
|
Total |
|
|
Class |
|
SERP |
|
|
Ownership |
|
Robert W. Chlebek |
|
|
36,345 |
|
|
|
50,133 |
|
|
|
86,478 |
|
|
* |
|
|
24,011 |
|
|
|
110,489 |
|
Lewis G. Cole |
|
|
49,455 |
|
|
|
3,600 |
|
|
|
53,055 |
|
|
* |
|
|
|
|
|
|
53,055 |
|
Sheldon S. Gordon |
|
|
124,455 |
|
|
|
3,600 |
|
|
|
128,055 |
|
|
* |
|
|
|
|
|
|
128,055 |
|
Frank S. Hermance |
|
|
1,183,968 |
|
|
|
794,203 |
|
|
|
1,978,171 |
|
|
1.9% |
|
|
121,931 |
|
|
|
2,100,102 |
|
Timothy N. Jones |
|
|
50,100 |
|
|
|
14,402 |
|
|
|
64,502 |
|
|
* |
|
|
4,677 |
|
|
|
69,179 |
|
Charles D. Klein (3) |
|
|
163,155 |
|
|
|
3,600 |
|
|
|
166,755 |
|
|
* |
|
|
|
|
|
|
166,755 |
|
Steven W. Kohlhagen |
|
|
16,080 |
|
|
|
|
|
|
|
16,080 |
|
|
* |
|
|
|
|
|
|
16,080 |
|
James R. Malone |
|
|
64,455 |
|
|
|
3,600 |
|
|
|
68,055 |
|
|
* |
|
|
|
|
|
|
68,055 |
|
John J. Molinelli |
|
|
250,508 |
|
|
|
292,664 |
|
|
|
543,172 |
|
|
* |
|
|
44,735 |
|
|
|
587,907 |
|
David P. Steinmann (4) |
|
|
272,766 |
|
|
|
3,600 |
|
|
|
276,366 |
|
|
* |
|
|
|
|
|
|
276,366 |
|
Elizabeth R. Varet (5) |
|
|
845,916 |
|
|
|
3,600 |
|
|
|
849,516 |
|
|
* |
|
|
|
|
|
|
849,516 |
|
Dennis K. Williams |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
77,958 |
|
|
|
49,803 |
|
|
|
127,761 |
|
|
* |
|
|
9,269 |
|
|
|
137,030 |
|
Directors and Executive Officers as a |
|
|
3,066,633 |
|
|
|
1,292,224 |
|
|
|
4,358,857 |
|
|
4.1% |
|
|
208,701 |
|
|
|
4,567,558 |
|
Group (14
persons) including
individuals named above |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents less than 1% of the outstanding shares of our Common Stock. |
|
(1) |
|
Under Rule 13d-3 of the Securities Exchange Act of 1934, as amended, beneficial ownership
of a security consists of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract, arrangement, understanding,
relationship or otherwise. |
|
(2) |
|
Shares the Director or executive officer has a right to acquire through stock option
exercises within 60 days of February 5, 2007. |
(Footnotes
continue on following page)
45
|
|
|
(3) |
|
Includes 6,000 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.
Includes 7,500 shares held by a charitable foundation of which Mr. Klein is a director. |
|
(4) |
|
Includes 15,600 shares owned by Mr. Steinmanns wife, as to which Mr. Steinmann disclaims any
beneficial ownership. Mr. Steinmann has shared voting and investment power with respect to
181,311 shares, as to 111,309 of which such power is shared with Ms. Varet. |
|
(5) |
|
Includes 36,600 shares of which 30,000 shares are owned by a trust of which Ms. Varets
husband is a beneficiary, 1,800 shares are owned by one of Ms. Varets adult children, and
4,800 shares are owned by an estate of which Ms. Varets husband is an executor, as to which
Ms. Varet disclaims any beneficial ownership. Ms. Varet has shared voting and investment power
with respect to 728,961 shares, as to 111,039 shares of which such power is shared with Mr.
Steinmann and others. |
46
BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table provides information regarding the only entities known to us to be beneficial
owners of more than five percent of the outstanding shares of our Common Stock as of March 9, 2007.
|
|
|
|
|
|
|
|
|
|
|
Name and Address of |
|
|
|
|
|
|
|
Percent |
|
Beneficial Owner |
|
Nature of Beneficial Ownership |
|
Number of Shares |
|
|
of Class |
|
T. Rowe Price Associates, Inc. |
|
Sole voting power for 1,770,125 shares |
|
|
|
|
|
|
|
|
100 E. Pratt Street |
|
and sole dispositive power.........(1) |
|
|
|
|
|
|
|
|
Baltimore, MD 21202 |
|
|
|
|
8,286,875 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Columbia Wanger Asset Management, L.P. |
|
Sole voting power for 6,600,100 shares |
|
|
|
|
|
|
|
|
227 West Monroe Street, Suite 3000 |
|
and sole dispositive power........(2) |
|
|
|
|
|
|
|
|
Chicago, IL 60606 |
|
|
|
|
7,095,100 |
|
|
|
6.7 |
% |
|
|
|
(1) |
|
Based on Schedule 13G filed on February 13, 2007. These securities are owned by various
individual and institutional investors including the T. Rowe Price Mid-Cap Growth Fund, Inc.
(which owns 5,750,000 shares, representing 5.4 percent of the shares outstanding, for which T.
Rowe Price Associates, Inc. (Price Associates) serves as investment adviser with power to
direct investments and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly disclaims that it is,
in fact, the beneficial owner of such securities. |
|
(2) |
|
Based on Schedule 13G filed on January 11, 2007. |
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors and officers to
file with the Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of our Common Stock. Copies of all such Section 16(a) reports are required to
be furnished to us. These filing requirements also apply to holders of more than 10% of our Common
Stock, but we do not know of any person that holds more than 10% of our Common Stock. To our
knowledge, based solely on a review of the copies of Section 16(a) reports furnished to us and
written representations that no other reports were required, during the fiscal year ended December
31, 2006, our officers and Directors were in compliance with all Section 16(a) filing requirements.
47
OTHER BUSINESS
We are not aware of any other matters that will be presented at the Annual Meeting. If other
matters are properly introduced, the individuals named on the enclosed proxy card will vote the
shares it represents in accordance with their judgment.
By Order of the Board of Directors
/s/
Kathryn E. Sena
Kathryn E. Sena
Corporate Secretary
Dated: March 16, 2007
MULTIPLE STOCKHOLDERS SHARING THE SAME ADDRESS
Registered and street-name stockholders who reside at a single address receive only one annual
report and proxy statement at that address unless a stockholder provides contrary instructions.
This practice is known as householding and is designed to reduce duplicate printing and postage
costs. However, if a stockholder wishes in the future to receive a separate annual report or proxy
statement, he or she may contact our transfer agent, American Stock Transfer & Trust Company,
toll-free at 1-800-937-5449, or in writing at American Stock Transfer & Trust Company, Stockholder
Services, 59 Maiden Lane, New York, NY 10038. Stockholders can request householding if they
receive multiple copies of the annual report and proxy statement by contacting American Stock
Transfer & Trust Company at the address above.
ELECTRONIC DISTRIBUTION OF PROXY STATEMENTS
AND ANNUAL REPORTS
To receive future AMETEK, Inc. proxy statements and annual reports electronically, please
visit www.amstock.com. Click on Shareholder Account Access to enroll. After logging in, select
Receive Company Mailings via E-mail. Once enrolled, stockholders will no longer receive a printed
copy of proxy materials, unless they request one. Each year they will receive an e-mail explaining
how to access the Annual Report and Proxy Statement online as well as how to vote their shares
online. They may suspend electronic distribution at any time by contacting American Stock
Transfer & Trust Company.
48
APPENDIX A
AMETEK, INC.
2007 OMNIBUS INCENTIVE COMPENSATION PLAN
1. Purpose
The purpose of the AMETEK, Inc. 2007 Omnibus Incentive Compensation Plan (the Plan) is (i)
to provide designated employees of AMETEK, Inc. (the Company) and its subsidiaries and
non-employee members of the board of directors of the Company with the opportunity to receive
grants of stock options, stock units, stock awards and stock appreciation rights and (ii) to
provide selected executive employees with the opportunity to receive annual bonus awards that are
considered qualified performance-based compensation under section 162(m) of the Internal
Revenue Code. The Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Companys stockholders, and will
align the economic interests of the participants with those of the stockholders. The Plan shall
be effective as of February 23, 2007, subject to approval by the stockholders of the Company at
the 2007 annual stockholders meeting. Any Grant or Bonus Award (as defined below) made under
the Plan prior to the 2007 annual stockholders meeting shall be subject to stockholder approval
of the Plan at the 2007 annual stockholders meeting. If for any reason the stockholders of the
Company do not approve the Plan at the 2007 annual stockholders meeting, the Plan shall
immediately terminate and no Grants or Bonus Awards shall be made under the Plan.
2. Definitions
Whenever used in this Plan, the following terms will have the respective meanings set forth
below:
(a) Board means the Companys Board of Directors.
(b) Bonus Award means an annual bonus awarded under the Plan that is designated as
qualified performance-based compensation under section 162(m) of the Code, as described in
Section 13.
(c) Change of Control shall be deemed to have occurred if:
(i) Any person (as such term is used in sections 13(d) and 14(d) of the Exchange
Act) becomes a beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the voting power of the then
outstanding securities of the Company; provided that a Change of Control shall not be deemed to
occur as a result of a transaction in which the Company becomes a subsidiary of another corporation
and in which the shareholders of the Company, immediately prior to the transaction, will
beneficially own, immediately after the transaction, shares entitling such shareholders to more
than 50% of all votes to which all shareholders of the parent corporation would be entitled in the
election of directors; or
(ii) The consummation of (i) a merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all shareholders of the
surviving corporation would be entitled in the election of directors, (ii) a sale or other
disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company.
A-1
(d) Code means the Internal Revenue Code of 1986, as amended.
(e) Committee means the Compensation Committee of the Board or another committee
appointed by the Board to administer the Plan. With respect to Bonus Awards and Grants that are
intended to be qualified performance-based compensation under section 162(m) of the Code, the
Committee shall consist of two or more persons appointed by the Board, all of whom shall be
outside directors as defined under section 162(m) of the Code. The Committee shall also consist
of directors who are non-employee directors as defined under Rule 16b-3 promulgated under the
Exchange Act.
(f) Company means AMETEK, Inc. and any successor corporation.
(g) Company Stock means the common stock of the Company.
(h) "Dividend means a dividend paid on shares of Company Stock subject to a Stock
Award while the Stock Award is subject to restrictions. If interest is credited on accumulated
dividends, the term Dividend shall include the accrued interest.
(i) Dividend Equivalent means an amount calculated with respect to a Stock Unit,
which is determined by multiplying the number of shares of Company Stock subject to the Stock Unit
by the per-share cash dividend, or the per-share fair market value (as determined by the Committee)
of any dividend in consideration other than cash, paid by the Company on its Company Stock. If
interest is credited on accumulated dividend equivalents, the term Dividend Equivalent shall
include the accrued interest.
(j) "Effective Date of the Plan means February 23, 2007, subject to approval of the
Plan by the stockholders of the Company.
(k) Employee means an employee of the Employer (including an officer or director
who is also an employee), but excluding any person who is classified by the Employer as a
contractor or consultant, no matter how characterized by the Internal Revenue Service, other
governmental agency or a court. Any change of characterization of an individual by the Internal
Revenue Service or any court or government agency shall have no effect upon the classification of
an individual as an Employee for purposes of this Plan, unless the Committee determines otherwise.
(l) Employer means the Company and its subsidiaries.
(m) Exchange Act means the Securities Exchange Act of 1934, as amended.
(n) Exercise Price means the per share price at which shares of Company Stock may
be purchased under an Option, as designated by the Committee.
(o) Fair Market Value of Company Stock means, unless the Committee determines
otherwise with respect to a particular Grant, (i) if the principal trading market for the Company
Stock is a national securities exchange, the last reported sale price of Company Stock on the
relevant date (if applicable, as reported on the Consolidated Tape) or (if there were no trades on
that date) the latest preceding date upon which a sale was reported, (ii) if the Company Stock is
not principally traded on such exchange, the mean between the last reported bid and asked
prices of Company Stock on the relevant date, as reported on the OTC Bulletin Board, or (iii) if
the Company Stock is not publicly traded or, if publicly traded, is not so reported, the Fair
Market Value per share shall be as determined by the Committee.
(p) Grant means an Option, Stock Unit, Stock Award or SAR granted under the Plan.
A-2
(q) Grant Agreement means the written instrument that sets forth the terms and
conditions of a Grant or Bonus Award, including all amendments thereto.
(r) Incentive Stock Option means an Option that is intended to meet the
requirements of an incentive stock option under section 422 of the Code.
(s) Non-Employee Director means a member of the Board who is not an employee of
the Employer.
(t) Nonqualified Stock Option means an Option that is not intended to be taxed as
an incentive stock option under section 422 of the Code.
(u) Option means an option to purchase shares of Company Stock, as described in
Section 7.
(v) Participant means an Employee or Non-Employee Director designated by the
Committee to participate in the Plan.
(w) Plan means this AMETEK, Inc. 2007 Omnibus Incentive Compensation Plan, as in
effect from time to time.
(x) SAR means a stock appreciation right as described in Section 10.
(y) "Securities Act means the Securities Act of 1933, as amended.
(z) Stock Award means an award of Company Stock as described in Section 9.
(aa) Stock Unit means an award of a phantom unit representing a share of Company
Stock, as described in Section 8.
3. Administration
(a) Committee. The Plan shall be administered and interpreted by the
Committee. Ministerial functions may be performed by an administrative committee comprised of
Company employees appointed by the Committee.
(b) Committee Authority. The Committee shall have the sole authority to (i)
determine the Participants to whom Grants or Bonus Awards shall be made under the Plan, (ii)
determine the type, size and terms and conditions of the Grants or Bonus Awards to be made to each
such Participant, (iii) determine the time when the Grants or Bonus Awards will be made (iv)
establish any performance goals for Grants and Bonus Awards, (v) determine the duration of any
applicable exercise or restriction period, including the criteria for exercisability or vesting and
any acceleration of exercisability or vesting, (vi) amend the terms and conditions of any
previously issued Grant or Bonus Award, subject to the provisions of Section 18 below, and (vii)
deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
express discretionary authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary or advisable, in
its sole discretion. The Committees interpretations of the Plan and all determinations made by
the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all
persons having any interest in the Plan or in any awards granted hereunder. All powers of the
A-3
Committee shall be executed in its sole discretion, in the best interest of the Company, not
as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to
similarly situated Participants.
4. Grants and Bonus Awards
(a) Grants under the Plan may consist of Options as described in Section 7, Stock
Units as described in Section 8, Stock Awards as described in Section 9, and SARs as described in
Section 10. Bonus Awards may be granted as described in Section 13. All Grants and Bonus Awards
shall be subject to such terms and conditions as the Committee deems appropriate and as are
specified in writing by the Committee to the Participant in the Grant Agreement.
(b) All Grants and Bonus Awards shall be made conditional upon the Participants
acknowledgement, in writing or by acceptance of the Grant or Bonus Award, that all decisions and
determinations of the Committee shall be final and binding on the Participant, his or her
beneficiaries and any other person having or claiming an interest under such Grant or Bonus Award.
Grants and Bonus Awards need not be uniform as among the Participants.
5. Shares Subject to the Plan
(a) Shares Authorized. The total aggregate number of shares of Company
Stock that may be issued under the Plan is 3,500,000 shares, subject to adjustment as described in
subsection (e) below.
(b) Limit on Stock Awards and Stock Units. Within the aggregate limit
described in subsection (a), the maximum number of shares of Company Stock that may be issued under
the Plan pursuant to Stock Awards and Stock Units during the term of the Plan is 1,050,000 shares,
subject to adjustment as described in subsection (e) below.
(c) Source of Shares; Share Counting. Shares issued under the Plan may be authorized
but unissued shares of Company Stock or reacquired shares of Company Stock, including shares
purchased by the Company on the open market for purposes of the Plan. If and to the extent Options
or SARs granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or
surrendered without having been exercised, and if and to the extent that any Stock Awards or Stock
Units are forfeited or terminated, or otherwise are not paid in full, the shares reserved for such
Grants shall again be available for purposes of the Plan. Shares of Stock surrendered in payment
of the Exercise Price of an Option, and shares withheld or surrendered for payment of taxes, shall
not be available for re-issuance under the Plan. If SARs are exercised, the full number of shares
subject to the SARs shall be considered issued under the Plan, without regard to the number of
shares issued upon exercise of the SARs and without regard to any cash settlement of the SARs. To
the extent that a Grant of Stock Units is designated in the Grant Agreement to be paid in cash, and
not in shares of Company Stock, such Grants shall not count against the share limits in subsection
(a).
(d) Individual Limits. All Grants under the Plan shall be expressed in
shares of Company Stock. The maximum aggregate number of shares of Company Stock with respect to
which all Grants may be made under the Plan to any individual during any calendar year shall be
1,225,000 shares, subject to adjustment as described in subsection (e) below. The foregoing limit
of this subsection (d) shall apply without regard to whether the Grants are to be paid in Company
Stock or cash. All cash payments with respect to Grants (other than with respect to Dividend
Equivalents, Dividends or Bonus Awards) shall equal the Fair Market Value of the shares of Company
Stock to which the cash payments relate. A Participant may not accrue Dividend Equivalents and
Dividends on performance-based Grants described in Section 11 during any calendar year in excess of
$500,000.
(e) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock
split, or combination or exchange
A-4
of shares, (ii) by reason of a merger, reorganization or
consolidation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Companys receipt of consideration, or if the
value of outstanding shares of Company Stock is substantially reduced as a result of a spinoff or
the Companys payment of an extraordinary dividend or distribution, the maximum number of shares of
Company Stock available for issuance under the Plan, the maximum number of shares of Company Stock
for which any individual may receive Grants in any year, the kind and number of shares covered by
outstanding Grants, the kind and number of shares issued and to be issued under the Plan, and the
price per share or the applicable market value of such Grants shall be equitably adjusted by the
Committee to reflect any increase or decrease in the number of, or change in the kind or value of,
the issued shares of Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under the Plan and such outstanding Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated. In the event of a Change
in Control of the Company, the provisions of Section 12 of the Plan shall apply. Any adjustments
to outstanding Grants shall be consistent with section 409A or 424 of the Code, to the extent
applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.
6. Eligibility for Participation
All Employees, including Employees who are officers or members of the Board, and all
Non-Employee Directors shall be eligible to participate in the Plan. The Committee shall select
the Employees and Non-Employee Directors to receive Grants and shall determine the number of shares
of Company Stock subject to each Grant.
7. Options
(a) General Requirements. The Committee may grant Options to an Employee or
Non-Employee Director upon such terms and conditions as the Committee deems appropriate under this
Section 7. The Committee shall determine the number of shares of Company Stock that will be
subject to each Grant of Options to Employees and Non-Employee Directors.
(b) Type of Option, Price and Term.
(i) The Committee may grant Incentive Stock Options or Nonqualified Stock Options or
any combination of the two, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees of the Company or its parents or
subsidiaries, as defined in section 424 of the Code. Nonqualified Stock Options may be granted to
Employees or Non-Employee Directors.
(ii) The Exercise Price of Company Stock subject to an Option shall be determined by
the Committee and shall be equal to or greater than the Fair Market Value of a share of Company
Stock on the date the Option is granted. An Incentive Stock Option may not be granted to an
Employee who, at the time of grant, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary, as defined in
section 424 of the Code.
(iii) The Committee shall determine the term of each Option, which shall not exceed
seven years from the date of grant.
(c) Exercisability
of Options.
(i) Options shall become exercisable in accordance with such terms and conditions as
may be determined by the Committee and specified in the Grant Agreement. The Committee may grant
options that are subject to achievement of performance goals or other conditions.
A-5
(ii) Options granted to persons who are non-exempt employees under the Fair Labor
Standards Act of 1938, as amended, may not be exercisable for at least six months after the date of
grant (except that such Options may become exercisable, as determined by the Committee, upon the
Participants death, disability or retirement, or upon a Change of Control or other circumstances
permitted by applicable regulations).
(d) Termination of Employment or Service. Except as provided in the Grant
Agreement, an Option may only be exercised while the Participant is employed by the Employer, or
providing service as a Non-Employee Director. The Committee shall determine in the Grant Agreement
under what circumstances, if any, and during what time periods a Participant may exercise an Option
after termination of employment or service.
(e) Exercise of Options. A Participant may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to the Company. The
Participant shall pay the Exercise Price for the Option (i) in cash, (ii) if permitted by the
Committee, by delivering shares of Company Stock owned by the Participant and having a Fair Market
Value on the date of exercise equal to the Exercise Price or by attestation to ownership of shares
of Company Stock having an aggregate Fair Market Value on the date of exercise equal to the
Exercise Price, (iii) by payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board, or (iv) by such other method as the Committee may
approve. Shares of Company Stock used to exercise an Option shall have been held by the
Participant for the requisite period of time to avoid adverse accounting consequences to the
Company with respect to the Option. Payment of the Exercise Price for the shares pursuant to the
Option, and any required withholding taxes, must be received by the time specified by the Committee
depending on the type of payment being made, but in all cases simultaneously with or prior to the
issuance of the Company Stock.
(f) Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of the grant with respect
to which Incentive Stock Options are exercisable for the first time by a Participant during any
calendar year, under the Plan or any other stock option plan of the Company or a parent or
subsidiary, as defined in section 424 of the Code, exceeds $100,000, then the Option, as to the
excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be
granted to any person who is not an Employee of the Company or a parent or subsidiary, as defined
in section 424 of the Code.
8. Stock Units
(a) General Requirements. The Committee may grant Stock Units to an
Employee or Non-Employee Director, upon such terms and conditions as the Committee deems
appropriate under this Section 8. Each Stock Unit shall represent the right of the Participant to
receive a share of Company Stock or an amount based on the value of a share of Company Stock. All
Stock Units shall be credited to bookkeeping accounts on the Companys records for purposes of the
Plan.
(b) Terms of Stock Units. The Committee may grant Stock Units that are
payable on terms and conditions determined by the Committee, which may include payment based on
achievement of performance goals. Stock Units may be paid at the end of a specified vesting or
performance period, or payment may be deferred to a date authorized by the Committee. The
Committee shall determine the number of Stock Units to be granted and the requirements applicable
to such Stock Units.
(c) Payment With Respect to Stock Units. Payment with respect to Stock
Units shall be made in cash, in Company Stock, or in a combination of the two, as determined by the
Committee. The Grant Agreement shall specify the maximum number of shares that can be issued under
the Stock Units.
A-6
(d) Requirement of Employment or Service. Except as provided in the Grant
Agreement, a Stock Unit may only be paid while the Participant is employed by the Employer, or
providing service as a Non-
Employee Director. The Committee shall determine in the Grant Agreement under what
circumstances, if any, a Participant may retain Stock Units after termination of the Participants
employment or service, and the circumstances under which Stock Units may be forfeited.
(e) Dividend Equivalents. The Committee may grant Dividend Equivalents in
connection with Stock Units, under such terms and conditions as the Committee deems appropriate.
Dividend Equivalents may be paid to Participants currently or may be deferred. All Dividend
Equivalents that are not paid currently shall be credited to bookkeeping accounts on the Companys
records for purposes of the Plan. Dividend Equivalents may be accrued as a cash obligation, or may
be converted to additional Stock Units for the Participant, and deferred Dividend Equivalents may
accrue interest, all as determined by the Committee. The Committee may provide that Dividend
Equivalents shall be payable based on the achievement of specific performance goals. Dividend
Equivalents may be payable in cash or shares of Company Stock or in a combination of the two, as
determined by the Committee.
9. Stock Awards
(a) General Requirements. The Committee may issue shares of Company Stock to
an Employee or Non-Employee Director under a Stock Award, upon such terms and conditions as the
Committee deems appropriate under this Section 9. Shares of Company Stock issued pursuant to Stock
Awards may be issued for cash consideration or for no cash consideration, and subject to
restrictions or no restrictions, as determined by the Committee; provided that no Stock Awards
shall have a vesting period of less than three years except upon the occurrence of such special
circumstance or event as, in the opinion of the Committee, merits special consideration. The
Committee may establish conditions under which restrictions on Stock Awards shall lapse over a
period of time or according to such other criteria as the Committee deems appropriate, including
restrictions based upon the achievement of specific performance goals. The Committee shall
determine the number of shares of Company Stock to be issued pursuant to a Stock Award.
(b) Requirement of Employment or Service. Except as otherwise provided in
the Grant Agreement, shares of Company Stock pursuant to a Stock Award may only be issued while the
Participant is employed by the Employer, or providing service as a Non-Employee Director. The
Committee shall determine in the Grant Agreement under what circumstances, if any, a Participant
may retain Stock Awards after termination of the Participants employment or service, and the
circumstances under which Stock Awards may be forfeited.
(c) Restrictions on Transfer. While Stock Awards are subject to
restrictions, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the
shares of a Stock Award except upon death as described in Section 16(a).
(d) Right to Vote and to Receive Dividends. The Committee shall determine
to what extent, and under what conditions, the Participant shall have the right to vote shares of
Stock Awards and to receive any Dividends paid on such shares during the restriction period. The
Committee may determine that Dividends on Stock Awards shall be withheld while the Stock Awards are
subject to restrictions and that the Dividends shall be payable only upon the lapse of the
restrictions on the Stock Awards, or on such other terms as the Committee determines. Dividends
that are not paid currently shall be credited to bookkeeping accounts on the Companys records for
purposes of the Plan. Accumulated Dividends may accrue interest, as determined by the Committee,
and shall be paid in cash or in such other form as the Committee determines.
A-7
10. Stock Appreciation Rights
(a) General Requirements. The Committee may grant SARs to an Employee or
Non-Employee Director separately or in tandem with an Option. The Committee shall establish the
number of shares, the term and the base amount of the SAR at the time the SAR is granted. The base
amount of each SAR shall be not less than the Fair Market Value of a share of Company Stock on the date of Grant of the SAR. The
term of each SAR shall not exceed seven years from the date of grant.
(b) Tandem SARs. The Committee may grant tandem SARs either at the time the
Option is granted or at any time thereafter while the Option remains outstanding; provided,
however, that, in the case of an Incentive Stock Option, SARs may be granted only at the date of
the grant of the Incentive Stock Option. In the case of tandem SARs, the number of SARs granted to
a Participant that shall be exercisable during a specified period shall not exceed the number of
shares of Company Stock that the Participant may purchase upon the exercise of the related Option
during such period. Upon the exercise of an Option, the SARs relating to the Company Stock covered
by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to
the extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall become exercisable in accordance with such
terms and conditions as may be determined by Committee in the Grant Agreement. The Committee may
grant SARs that are subject to achievement of performance goals or other conditions. Except as
provided in the Grant Agreement, an SAR may only be exercised while the Participant is employed by
the Employer, or providing service as a Non-Employee Director. The Committee shall determine in
the Grant Agreement under what circumstances, if any, and during what periods a Participant may
exercise an SAR after termination of employment or service. A tandem SAR shall be exercisable only
while the Option to which it is related is exercisable.
(d) Grants to Non-Exempt Employees. SARs granted to persons who are
non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable
for at least six months after the date of grant (except that such SARs may become exercisable, as
determined by the Committee, upon the Participants death, disability or retirement, or upon a
Change of Control or other circumstances permitted by applicable regulations).
(e) Exercise of SARs. When a Participant exercises SARs, the Participant
shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for
the number of SARs exercised. The stock appreciation for an SAR is the amount by which the Fair
Market Value of the underlying Company Stock on the date of exercise of the SAR exceeds the base
amount of the SAR as specified in the Grant Agreement. The Committee shall determine whether the
stock appreciation for an SAR shall be paid in the form of shares of Company Stock, cash or a
combination of the two. For purposes of calculating the number of shares of Company Stock to be
received, shares of Company Stock shall be valued at their Fair Market Value on the date of
exercise of the SAR.
11. Qualified Performance-Based Compensation
(a) Designation as Qualified Performance-Based Compensation. The Committee
may determine that Stock Units, Stock Awards, Dividend Equivalents or Dividends granted to an
executive Employee shall be considered qualified performance-based compensation under section
162(m) of the Code, in which case the provisions of this Section 11 shall apply.
(b) Performance Goals. When Grants are made under this Section 11, the
Committee shall establish in writing (i) the objective performance goals that must be met, (ii) the
period during which performance will be measured, (iii) the maximum amounts that may be paid if the
performance goals are met, and (iv) any other conditions that the Committee deems appropriate and
consistent with the requirements of
A-8
section 162(m) of the Code for qualified performance-based
compensation. The performance goals shall satisfy the requirements for qualified
performance-based compensation, including the requirement that the achievement of the goals be
substantially uncertain at the time they are established and that the performance goals be
established in such a way that a third party with knowledge of the relevant facts could determine
whether and to what extent the performance goals have been met. The Committee shall not have
discretion to increase the amount of compensation that is payable, but may reduce the amount of compensation
that is payable, pursuant to Grants identified by the Committee as qualified performance-based
compensation.
(c) Criteria Used for Objective Performance Goals. The Committee shall use
objectively determinable performance goals based on one or more of the following criteria: stock
price, earnings per share, diluted earnings per share, price-earnings multiples, net income,
operating income, revenues, working capital, operating working capital, number of days sales
outstanding in accounts receivable, inventory turnover, productivity, operating income margin,
EBITDA (earnings before interest, taxes, depreciation and amortization), net capital employed,
return on assets, stockholder return, return on equity, return on capital employed, growth in
assets, unit volume, sales, sales growth, return on sales, internal sales growth, operating cash
flow, free cash flow, market share, relative performance to a comparison group designated by the
Committee, or strategic business criteria consisting of one or more objectives based on meeting
specified revenue goals, market penetration goals, customer growth, geographic business expansion
goals, cost targets or goals relating to acquisitions or divestitures. The performance goals may
relate to one or more business units or the performance of the Company and its subsidiaries as a
whole, or any combination of the foregoing. Performance goals need not be uniform among
Participants.
(d) Timing of Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the performance period or during a
period ending no later than the earlier of (i) 90 days after the beginning of the performance
period or (ii) the date on which 25% of the performance period has been completed, or such other
date as may be required or permitted under applicable regulations under section 162(m) of the Code.
(e) Certification of Results. The Committee shall certify the performance
results for the performance period specified in the Grant Agreement after the performance period
ends. The Committee shall determine the amount, if any, to be paid pursuant to each Grant based on
the achievement of the performance goals and the satisfaction of all other terms of the Grant
Agreement.
(f) Death, Disability or Other Circumstances. The Committee may provide in
the Grant Agreement that Grants under this Section 11 shall be payable, in whole or in part, in the
event of the Participants death or disability, a Change of Control or under other circumstances
consistent with the Treasury regulations and rulings under section 162(m) of the Code.
12. Consequences of a Change of Control
(a) Alternatives upon a Change of Control. In the event of a Change of
Control, the Committee may take any one or more of the following actions with respect to any or all
outstanding Grants, without the consent of any Participant: (i) the Committee may determine that
outstanding Options and SARs shall be fully exercisable, and restrictions on outstanding Stock
Awards shall lapse and accumulated Dividends shall be paid, as of the date of the Change of Control
or at such other time as the Committee determines, (ii) the Committee may require that Participants
surrender their outstanding Options and SARs in exchange for one or more payments by the Company,
in cash or Company Stock as determined by the Committee, in an amount equal to the amount, if any,
by which the then Fair Market Value of the shares of Company Stock subject to the Participants
unexercised Options and SARs exceeds the Exercise Price, and on such terms as the Committee
determines, (iii) after giving Participants an opportunity to exercise their outstanding Options
and SARs, the Committee may terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate, (iv) with respect to Participants holding Stock Units, the Committee
may determine that such Participants shall receive one or more payments in settlement of such Stock
Units and accumulated Dividend
A-9
Equivalents, in such amount and form and on such terms as may be
determined by the Committee, or (v) the Committee may determine that any Grants that remain
outstanding after the Change of Control shall be converted to similar grants of the surviving
corporation (or a parent or subsidiary of the surviving corporation). Such acceleration,
surrender, termination, settlement or conversion shall take place as of the date of the Change of
Control or such other date as the Committee may specify.
(b) Other Transactions. The Committee may provide in a Grant Agreement that
a sale or other transaction involving a subsidiary or other business unit of the Company shall be
considered a Change of Control for purposes of a Grant, or the Committee may establish other
provisions that shall be applicable in the event of a specified transaction.
13. Annual Bonus Awards
(a) General Requirements. The Committee may grant annual Bonus Awards that
shall be considered qualified performance-based compensation under section 162(m) of the Code to
Employees who are executive Employees, upon such terms and conditions as the Committee deems
appropriate under this Section 13.
(b) Target Bonus Awards and Performance Goals. When the Committee decides
to make Bonus Awards under this Section 13, the Committee shall select the executive Employees who
will be eligible for Bonus Awards, specify the annual performance period and establish target Bonus
Awards and performance goals for the performance period. The performance period shall be the
Companys fiscal year or such other period (of not more than 12 months) as the Committee
determines. The Committee shall determine each Participants target Bonus Award based on the
Participants responsibility level, position or such other criteria as the Committee shall
determine. A Participants target Bonus Award may provide for differing amounts to be paid based
on differing thresholds of performance. The Committee shall establish in writing (i) the objective
performance goals that must be met in order for the Bonus Awards to be paid for the performance
period, (ii) the maximum amounts that may be paid if the performance goals are met, (iii) any
threshold levels of performance that must be met in order for Bonus Awards to be paid, and (iv) any
other conditions that the Committee deems appropriate and consistent with the requirements of
section 162(m) of the Code for qualified performance-based compensation. The performance goals
shall satisfy the requirements for qualified performance-based compensation, including the
requirement that the achievement of the goals be substantially uncertain at the time they are
established and that the performance goals be established in such a way that a third party with
knowledge of the relevant facts could determine whether and to what extent the performance goals
have been met. The Company shall notify each Participant of the Participants target Bonus Award
and the applicable performance goals for the performance period.
(c) Criteria Used for Objective Performance Goals. The Committee shall use
objectively determinable performance goals based on one or more of the criteria described in
Section 11(c) above. The performance goals may relate to one or more business units or the
performance of the Company and its subsidiaries as a whole, or any combination of the foregoing.
Performance goals need not be uniform among Participants.
(d) Timing of Establishment of Target Bonus Awards and Goals. The Committee
shall establish each Participants target Bonus Award and performance goals in writing either
before the beginning of the performance period or during a period ending no later than the earlier
of (i) 90 days after the beginning of the performance period or (ii) the date on which 25% of the
performance period has been completed, or such other date as may be required or permitted under
applicable regulations under section 162(m) of the Code.
(e) Maximum Bonus Award Amount. The maximum Bonus Award (designated as
qualified performance-based compensation under section 162(m) of the Code) that may be payable to
any Participant under this Section 13 for an annual performance period is $5,000,000.
A-10
(f) Section 162(m) Requirements. A target Bonus Award that is designated as
qualified performance-based compensation under section 162(m) of the Code may not be awarded as
an alternative to any other award that is not designated as qualified performance-based
compensation, but instead must be separate and apart from all other awards made. The Committee
shall not have discretion to increase the amount of compensation that
is payable based on achievement
of the performance goals, but the Committee may reduce the amount of compensation that is payable
based upon the Committees assessment of personal performance or
other factors. Any reduction of a Participants Bonus Award shall not result in an increase
in any other Participants Bonus Award.
(g) Certification of Results. The Committee shall certify the performance
results for the performance period after the performance period ends. The Committee shall
determine the amount, if any, to be paid pursuant to each Bonus Award based on the achievement of
the performance goals, the Committees exercise of its discretion to reduce Bonus Awards and the
satisfaction of all other terms of the Bonus Awards. Subject to the provisions of Section 13(j)
and Section 14, payment of the Bonus Awards certified by the Committee shall be made in a single
lump sum cash payment as soon as practicable following the close of the performance period, but in
any event within 2-1/2 months after the close of the performance period.
(h) Limitations on Rights to Payment of Bonus Awards. No Participant shall
have any right to receive payment of a Bonus Award under the Plan for a performance period unless
the Participant remains in the employ of the Employer through the last day of the performance
period; provided, however, that the Committee may determine that if a Participants employment with
the Company terminates prior to the end of the performance period, the Participant may be eligible
to receive all or a prorated portion of any Bonus Award that would otherwise have been earned for
the performance period, under such circumstances as the Committee deems appropriate.
(i) Change of Control. If a Change of Control occurs prior to the end of a
performance period, the Committee may determine that each Participant who is then an Employee and
was awarded a target Bonus Award for the performance period may receive a Bonus Award for the
performance period, in such amount and at such time as the Committee determines.
(j) Discretionary and Other Bonuses. In addition to Bonus Awards that are
designated qualified performance-based compensation under section 162(m) of the Code, as
described above, the Committee may grant to executive Employees such other bonuses as the Committee
deems appropriate, which may be based on individual performance, Company performance or such other
criteria as the Committee determines. Decisions with respect to such bonuses shall be made
separate and apart from the Bonus Awards described in this Section 13.
14. Deferrals
The Committee may permit or require a Participant to defer receipt of the payment of cash or
the delivery of shares that would otherwise be due to the Participant in connection with any
Grant or Bonus Award. The Committee shall establish rules and procedures for any such deferrals,
consistent with applicable requirements of section 409A of the Code.
15. Withholding of Taxes
(a) Required Withholding. All Grants and Bonus Awards under the Plan shall
be subject to applicable federal (including FICA), state and local tax withholding requirements.
The Company may require that the Participant or other person receiving Grants or Bonus Awards or
exercising Grants pay to the Company the amount of any federal, state or local taxes that the
Company is required to withhold with respect to such Grants or Bonus Awards, or the Company may
deduct from other wages paid by the Company the amount of any withholding taxes due with respect to
such Grants or Bonus Awards.
A-11
(b) Election to Withhold Shares. If the Committee so permits, shares of
Company Stock may be withheld to satisfy the Companys tax withholding obligation with respect to
Grants paid in Company Stock, at the time such Grants become taxable, up to an amount that does not
exceed the minimum applicable withholding tax rate for federal (including FICA), state and local
tax liabilities.
16. Transferability of Grants and Bonus Awards
(a) Restrictions on Transfer. Except as described in subsection (b) below,
only the Participant may exercise rights under a Grant during the Participants lifetime, and a
Participant may not transfer those rights except by will or by the laws of descent and
distribution. When a Participant dies, the personal representative or other person entitled to
succeed to the rights of the Participant may exercise such rights. Any such successor must furnish
proof satisfactory to the Company of his or her right to receive the Grant under the Participants
will or under the applicable laws of descent and distribution. Bonus Awards are not transferable.
If a Participant dies, any amounts payable after his death pursuant to a Bonus Award shall be paid
to the personal representative or other person entitled to succeed to the rights of the
Participant.
(b) Transfer of Nonqualified Stock Options to or for Family Members.
Notwithstanding the foregoing, the Committee may provide, in a Grant Agreement, that a Participant
may transfer Nonqualified Stock Options to family members, or one or more trusts or other entities
for the benefit of or owned by family members, consistent with the applicable securities laws,
according to such terms as the Committee may determine; provided that the Participant receives no
consideration for the transfer of an Option and the transferred Option shall continue to be subject
to the same terms and conditions as were applicable to the Option immediately before the transfer.
17. Requirements for Issuance of Shares
No Company Stock shall be issued in connection with any Grant hereunder unless and until all
legal requirements applicable to the issuance of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition any Grant made to
any Participant hereunder on such Participants undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company Stock as the Committee
shall deem necessary or advisable, and certificates representing such shares may be legended to
reflect any such restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may be required by
applicable laws, regulations and interpretations, including any requirement that a legend be placed
thereon. No Participant shall have any right as a stockholder with respect to Company Stock
covered by a Grant until shares have been issued to the Participant.
18. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that if stockholder approval of an amendment is required in order to comply with
the Code or applicable laws, or to comply with applicable stock exchange requirements, then such
amendment must be approved by the Companys stockholders. No amendment or termination of this Plan
shall, without the consent of the Participant, materially impair any rights or obligations under
any Grant or Bonus Award previously made to the Participant under the Plan, unless such right has
been reserved in the Plan or the Grant Agreement, or except as provided in Section 19(b) below.
Notwithstanding anything in the Plan to the contrary, the Board may amend the Plan in such manner
as it deems appropriate in the event of a change in applicable law or regulations.
(b) No Repricing Without Stockholder Approval. Notwithstanding anything in
the Plan to the contrary, the Committee may not reprice Options or SARs, nor may the Board amend
the Plan to permit repricing of Options or SARs, unless the stockholders of the Company provide
prior approval for such repricing. The term repricing shall have the meaning given that term in
Section 303A(8) of the New York Stock Exchange Listed Company Manual, as in effect from time to
time, or any successor provision.
A-12
(c) Stockholder Approval for Qualified Performance-Based Compensation.
Notwithstanding any provision of the Plan to the contrary, all Grants and Bonus Awards shall be
made contingent upon, and subject to, stockholder approval of the Plan at the 2007 annual
stockholders meeting. If Grants are made under Section 11 above, or if Bonus Awards are made
under Section 13 above, the Plan must be reapproved by the Companys stockholders no later than the first stockholders meeting that occurs in the fifth
year following the year in which the stockholders previously approved the provisions of Sections 11
and 13, if additional Grants are to be made under Section 11 or if additional Bonus Awards are made
under Section 13 and if required by section 162(m) of the Code or the regulations thereunder.
(d) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its Effective Date, unless the Plan is terminated earlier by the
Board or is extended by the Board with the approval of the stockholders. The termination of the
Plan shall not impair the power and authority of the Committee with respect to an outstanding
Grant.
19. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise. Nothing
contained in this Plan shall be construed to (i) limit the right of the Committee to make Grants
under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or
otherwise, of the business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees, or for other proper corporate purposes, or (ii) limit the
right of the Company to grant stock options or make other stock-based awards outside of this Plan.
Without limiting the foregoing, the Committee may make a Grant to an employee of another
corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of
stock or property, reorganization or liquidation involving the Company in substitution for a grant
made by such corporation. The terms and conditions of the Grants may vary from the terms and
conditions required by the Plan and from those of the substituted stock incentives, as determined
by the Committee.
(b) Compliance with Law. The Plan, the exercise of Options and SARs and the
obligations of the Company to issue or transfer shares of Company Stock under Grants shall be
subject to all applicable laws and to approvals by any governmental or regulatory agency as may be
required. With respect to persons subject to section 16 of the Exchange Act, it is the intent of
the Company that the Plan and all transactions under the Plan comply with all applicable provisions
of Rule 16b-3 or its successors under the Exchange Act as are necessary to enable the transactions
to be exempt from Section 16(b) of the Exchange Act. In addition, it is the intent of the Company
that Incentive Stock Options comply with the applicable provisions of section 422 of the Code, that
Grants of qualified performance-based compensation and Bonus Awards comply with the applicable
provisions of section 162(m) of the Code and that, to the extent applicable, Grants and Bonus
Awards comply with the requirements of section 409A of the Code or an exception from such
requirements. To the extent that any legal requirement or condition of section 16 of the Exchange
Act or section 422, 162(m) or 409A of the Code as set forth in the Plan ceases to be required under
section 16 of the Exchange Act or section 422, 162(m) or 409A of the Code, that Plan provision
shall cease to apply. The Committee may revoke any Grant or Bonus Award if it is contrary to law
or modify a Grant or Bonus Awards to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the withholding of taxes on
payments to Participants. The Committee may, in its sole discretion, agree to limit its authority
under this Section.
(c) Enforceability. The Plan shall be binding upon and enforceable against
the Company and its successors and assigns.
(d) Funding of the Plan; Limitation on Rights. This Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants or Bonus Awards under this Plan. Nothing
contained in the Plan and no action taken pursuant hereto shall create or be construed to create a
fiduciary relationship between the Company and any Participant or any other person. No Participant
or any other person shall under any circumstances acquire any
A-13
property interest in any specific
assets of the Company. To the extent that any person acquires a right to receive payment from the
Company hereunder, such right shall be no greater than the right of any unsecured general creditor
of the Company.
(e) Rights of Participants. Nothing in this Plan shall entitle any
Employee, Non-Employee Director or other person to any claim or right to receive a Grant or Bonus
Award under this Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employment or service of the Employer.
(f) No Fractional Shares. No fractional shares of Company Stock shall be
issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(g) Employees Subject to Taxation Outside the United States. With respect
to Participants who are subject to taxation in countries other than the United States, the
Committee may make Grants on such terms and conditions as the Committee deems appropriate to comply
with the laws of the applicable countries, and the Committee may create such procedures, addenda
and subplans and make such modifications as may be necessary or advisable to comply with such laws.
(h) Governing Law. The validity, construction, interpretation and effect of
the Plan and Grant Agreements issued under the Plan shall be governed and construed by and
determined in accordance with the laws of the state of Delaware, without giving effect to the
conflict of laws provisions thereof.
A-14
AMETEK,
Inc.
ANNUAL
FINANCIAL INFORMATION AND REVIEW OF OPERATIONS
(Appendix
B to Proxy Statement)
Index
|
|
|
|
|
|
|
Page
|
|
Information Relating to AMETEK
Common Stock
|
|
|
B-2
|
|
Selected Financial Data
|
|
|
B-4
|
|
Managements Discussion and
Analysis of Financial Condition and Results of Operations
|
|
|
B-6
|
|
Reports of Management
|
|
|
B-19
|
|
Report of Independent Registered
Public Accounting Firm on Internal Control over Financial
Reporting
|
|
|
B-20
|
|
Report of Independent Registered
Public Accounting Firm on Financial Statements
|
|
|
B-21
|
|
Consolidated Statement of Income
|
|
|
B-22
|
|
Consolidated Balance Sheet
|
|
|
B-23
|
|
Consolidated Statement of
Stockholders Equity
|
|
|
B-24
|
|
Consolidated Statement of Cash
Flows
|
|
|
B-25
|
|
Notes to Consolidated Financial
Statements
|
|
|
B-26
|
|
B-1
INFORMATION
RELATING TO AMETEK COMMON STOCK
The principal market on which the Companys common stock is
traded is the New York Stock Exchange and it is traded under the
symbol AME.
Market
Price and Dividends Per Share
The high and low sales prices of the Companys common stock
on the New York Stock Exchange composite tape and the quarterly
dividends per share paid on the common stock were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
Common stock trading
range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
30.09
|
|
|
$
|
33.54
|
|
|
$
|
31.62
|
|
|
$
|
32.77
|
|
Low
|
|
$
|
26.97
|
|
|
$
|
27.65
|
|
|
$
|
26.70
|
|
|
$
|
28.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
Common stock trading range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
27.87
|
|
|
$
|
28.24
|
|
|
$
|
28.93
|
|
|
$
|
29.91
|
|
Low
|
|
$
|
22.56
|
|
|
$
|
24.23
|
|
|
$
|
25.32
|
|
|
$
|
26.23
|
|
B-2
Stock
Performance Graph
The following graph and accompanying table compare the
cumulative total shareholder return for AMETEK, Inc. over the
last five years ended December 31, 2006 with total returns
for the same period for the Russell 1000 Index and the Dow Jones
U.S. Electronic Equipment Index. The performance graph and
table assume a $100 investment made on December 31, 2001
and reinvestment of all dividends. The stock performance shown
on the graph below is based on historical data and is not
necessarily indicative of future price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/01
|
|
|
12/31/02
|
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
AMETEK, Inc.
|
|
$
|
100.00
|
|
|
$
|
121.50
|
|
|
$
|
153.27
|
|
|
$
|
228.49
|
|
|
$
|
274.11
|
|
|
$
|
309.59
|
|
Russell 1000*
|
|
|
100.00
|
|
|
|
78.35
|
|
|
|
101.77
|
|
|
|
113.37
|
|
|
|
120.48
|
|
|
|
139.10
|
|
Dow Jones U.S. Electronic
Equipment*
|
|
|
100.00
|
|
|
|
68.92
|
|
|
|
103.59
|
|
|
|
112.39
|
|
|
|
121.00
|
|
|
|
139.56
|
|
B-3
AMETEK,
Inc.
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars and shares in millions, except per share amounts)
|
|
|
Consolidated Operating Results
(Years Ended December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,819.3
|
|
|
$
|
1,434.5
|
|
|
$
|
1,232.3
|
|
|
$
|
1,091.6
|
|
|
$
|
1,040.5
|
|
Operating income(1)
|
|
$
|
309.0
|
|
|
$
|
233.5
|
|
|
$
|
191.2
|
|
|
$
|
151.8
|
|
|
$
|
144.2
|
|
Interest expense
|
|
$
|
(42.2
|
)
|
|
$
|
(32.9
|
)
|
|
$
|
(28.3
|
)
|
|
$
|
(26.0
|
)
|
|
$
|
(25.2
|
)
|
Net income(1)
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
|
$
|
84.2
|
|
|
$
|
80.4
|
|
Earnings per share:(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.74
|
|
|
$
|
1.31
|
|
|
$
|
1.07
|
|
|
$
|
0.85
|
|
|
$
|
0.81
|
|
Diluted
|
|
$
|
1.71
|
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
|
$
|
0.84
|
|
|
$
|
0.81
|
|
Dividends declared and paid per
share(2)
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Weighted average common shares
outstanding:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
104.8
|
|
|
|
103.7
|
|
|
|
101.7
|
|
|
|
99.4
|
|
|
|
98.8
|
|
Diluted(1)
|
|
|
106.6
|
|
|
|
105.6
|
|
|
|
103.1
|
|
|
|
100.4
|
|
|
|
99.8
|
|
Performance Measures and Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
Return on sales(1)
|
|
|
17.0
|
%
|
|
|
16.3
|
%
|
|
|
15.5
|
%
|
|
|
13.9
|
%
|
|
|
13.9
|
%
|
Return on
average total assets(1)
|
|
|
15.8
|
%
|
|
|
14.6
|
%
|
|
|
14.5
|
%
|
|
|
13.5
|
%
|
|
|
13.9
|
%
|
Net income Return on
average total capital(1)(5)
|
|
|
11.8
|
%
|
|
|
10.7
|
%
|
|
|
10.5
|
%
|
|
|
9.5
|
%
|
|
|
9.9
|
%
|
Return on average stockholders equity(1)(5)
|
|
|
20.5
|
%
|
|
|
18.5
|
%
|
|
|
18.2
|
%
|
|
|
17.6
|
%
|
|
|
21.1
|
%
|
EBITDA(1)(3)
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
|
$
|
186.2
|
|
|
$
|
175.9
|
|
Ratio of EBITDA to interest
expense(1)(3)
|
|
|
8.3
|
x
|
|
|
8.2
|
x
|
|
|
8.1
|
x
|
|
|
7.2
|
x
|
|
|
7.0
|
x
|
Depreciation and amortization
|
|
$
|
45.9
|
|
|
$
|
39.4
|
|
|
$
|
39.9
|
|
|
$
|
35.5
|
|
|
$
|
33.0
|
|
Capital expenditures
|
|
$
|
29.2
|
|
|
$
|
23.3
|
|
|
$
|
21.0
|
|
|
$
|
21.3
|
|
|
$
|
17.4
|
|
Cash provided by operating
activities(1)(4)
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
|
$
|
155.9
|
|
|
$
|
105.8
|
|
Free cash flow(1)(4)
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
|
$
|
134.6
|
|
|
$
|
88.4
|
|
Ratio of earnings to fixed charges
|
|
|
6.6
|
x
|
|
|
6.2
|
x
|
|
|
6.0
|
x
|
|
|
5.3
|
x
|
|
|
5.2
|
x
|
Consolidated Financial Position
(at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
684.1
|
|
|
$
|
556.3
|
|
|
$
|
461.9
|
|
|
$
|
378.6
|
|
|
$
|
350.6
|
|
Current liabilities(1)
|
|
$
|
480.9
|
|
|
$
|
405.8
|
|
|
$
|
272.8
|
|
|
$
|
289.2
|
|
|
$
|
261.4
|
|
Property, plant, and equipment
|
|
$
|
258.0
|
|
|
$
|
228.5
|
|
|
$
|
207.5
|
|
|
$
|
213.6
|
|
|
$
|
204.3
|
|
Total assets
|
|
$
|
2,130.9
|
|
|
$
|
1,780.6
|
|
|
$
|
1,420.4
|
|
|
$
|
1,217.1
|
|
|
$
|
1,030.0
|
|
Long-term debt
|
|
$
|
518.3
|
|
|
$
|
475.3
|
|
|
$
|
400.2
|
|
|
$
|
317.7
|
|
|
$
|
279.6
|
|
Total debt
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
|
$
|
424.4
|
|
|
$
|
390.1
|
|
Stockholders equity(1)(5)
|
|
$
|
966.7
|
|
|
$
|
809.5
|
|
|
$
|
663.3
|
|
|
$
|
532.9
|
|
|
$
|
423.6
|
|
Stockholders equity per
share(1)(2)(5)
|
|
$
|
9.11
|
|
|
$
|
7.66
|
|
|
$
|
6.44
|
|
|
$
|
5.30
|
|
|
$
|
4.27
|
|
Total debt as a percentage of
capitalization(1)(5)
|
|
|
41.4
|
%
|
|
|
43.8
|
%
|
|
|
40.4
|
%
|
|
|
44.3
|
%
|
|
|
47.9
|
%
|
See notes to Selected Financial Data on page B-5.
B-4
Notes to
Selected Financial Data
|
|
|
(1) |
|
Amounts for years prior to 2006 reflect the retrospective
application of SFAS 123R to expense stock options effective
January 1, 2006. The adoption of SFAS 123R reduced
operating income, net income and diluted earnings per share by
the following amounts (In millions, except per share amounts): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of:
|
|
Diluted Earnings
|
Impact of Adopting SFAS 123R
|
|
Operating Income
|
|
Net Income
|
|
Per Share
|
|
2005
|
|
$
|
5.9
|
|
|
$
|
4.3
|
|
|
$
|
0.04
|
|
2004
|
|
$
|
5.1
|
|
|
$
|
3.7
|
|
|
$
|
0.04
|
|
2003
|
|
$
|
4.9
|
|
|
$
|
3.6
|
|
|
$
|
0.04
|
|
2002
|
|
$
|
4.5
|
|
|
$
|
3.3
|
|
|
$
|
0.03
|
|
|
|
|
(2) |
|
Earnings per share, dividends declared and paid per share, and
the weighted average common shares outstanding were adjusted to
reflect a
three-for-two
stock split paid to shareholders on November 27, 2006. |
|
(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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
|
$
|
84.2
|
|
|
$
|
80.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
42.2
|
|
|
|
32.9
|
|
|
|
28.3
|
|
|
|
26.0
|
|
|
|
25.2
|
|
Interest income
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
Income taxes
|
|
|
81.8
|
|
|
|
61.9
|
|
|
|
51.7
|
|
|
|
41.0
|
|
|
|
38.0
|
|
Depreciation
|
|
|
38.9
|
|
|
|
35.0
|
|
|
|
36.8
|
|
|
|
34.2
|
|
|
|
32.5
|
|
Amortization
|
|
|
7.0
|
|
|
|
4.4
|
|
|
|
3.1
|
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
169.5
|
|
|
|
133.5
|
|
|
|
119.3
|
|
|
|
102.0
|
|
|
|
95.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
|
$
|
186.2
|
|
|
$
|
175.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Free cash flow represents cash flow from operating activities,
less capital expenditures. Free cash flow is presented because
the Company is aware that it is used by rating agencies,
securities analysts, investors and other parties in evaluating
the Company. (Also see note 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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In millions)
|
|
|
Cash provided by operating
activities (U.S. GAAP basis)
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
|
$
|
155.9
|
|
|
$
|
105.8
|
|
Deduct: Capital expenditures
|
|
|
(29.2
|
)
|
|
|
(23.3
|
)
|
|
|
(21.0
|
)
|
|
|
(21.3
|
)
|
|
|
(17.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
|
$
|
134.6
|
|
|
$
|
88.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
The adoption of SFAS 158 for our defined benefit pension
plans, which was effective December 31, 2006, resulted in a
reduction of $32.7 million to Stockholders equity.
(See Notes 3 and 12 to the Consolidated Financial
Statements). |
B-5
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 B-18.
The following discussion and analysis of the Companys
results of operations and financial condition should be read in
conjunction with Selected Financial Data and the
consolidated financial statements of the Company and the related
notes included elsewhere in this Appendix. We begin with an
overview of our business and operations.
Business
Overview
As a 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 2006, the
Company experienced improved market conditions in most of its
businesses. Strong internal growth and the contribution from
recent acquisitions, combined with successful Operational
Excellence initiatives, enabled the Company to post another year
of record sales, operating income, net income, diluted earnings
per share, and cash flow from operating activities in 2006. 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,
New Product Development, Global and Market Expansion, and
Strategic Acquisitions and Alliances. Highlights of 2006 were:
|
|
|
|
|
Sales were $1.8 billion, an increase of $384.8 million
or 26.8% from 2005 on solid internal growth of 9% in each of the
Companys reportable segments, the Electronic Instruments
Group (EIG) and the Electromechanical Group (EMG), and
contributions from the following acquisitions completed during
the year:
|
|
|
|
|
|
In February 2006, the Company acquired Pulsar, which has
expanded both the Companys product offerings in the
electric power market and the Companys relationships with
customers in that segment.
|
|
|
|
In May 2006, the Company acquired Pittman, which has broadened
the geographical reach of the Companys technical motors
business. The acquisition adds to the Companys technical
motors capabilities in the data storage, medical, electronic
equipment, factory automation, and aviation markets.
|
|
|
|
In June 2006, the Company acquired Land Instruments a global
supplier of high-end analytical instrumentation. Land
Instruments adds to the Companys high-end process and
analytical instruments business with its full range of on-line
optical temperature measurement instrumentation for industrial
applications.
|
|
|
|
In November 2006, the Company acquired Precitech, a leading
manufacturer of ultra-precision machining systems for a variety
of markets. Its acquisition broadens the Companys product
offering for nanotechnology applications.
|
|
|
|
In December 2006, the Company acquired SAI, which is a Tulsa,
Oklahoma-based provider of third-party maintenance, repair and
overhaul services to the commercial aerospace industry.
|
|
|
|
|
|
In October 2006, the Companys Board of Directors approved
a
three-for-two
split of its common stock, paid on November 27, 2006 to
stockholders of record on November 13, 2006. Additionally,
the Board of Directors approved a 50% increase in the quarterly
cash dividend rate on the Companys common stock to
$0.06 per common share from $0.04 per common share on
a post-split basis.
|
B-6
|
|
|
|
|
As the Company grows globally, it continues to achieve an
increasing level of international sales. International sales,
including U.S. export sales, represented 47.6% of
consolidated sales in 2006, compared with 45.7% of sales in 2005.
|
|
|
|
The Companys Operational Excellence strategy is directed
toward lowering its overall cost structure, and includes the
ongoing transition of a portion of its motor and instrument
production to low-cost manufacturing facilities in Mexico, China
and the Czech Republic. This strategy had a positive impact on
our operating results in 2006 and contributed to improved
segment operating margins which were 18.9% of sales in 2006, up
from 18.4% of sales in 2005.
|
|
|
|
Higher earnings resulted in record cash flow from operating
activities that totaled $226.0 million, a
$70.3 million or 45.2% increase from 2005. At year-end
2006, our
debt-to-capital
ratio was 41.4%, compared with 43.8% at the end of 2005.
|
|
|
|
The Company continued its emphasis on investment in research,
development and engineering, spending $87.6 million in 2006
before customer reimbursement of $6.4 million, an increase
of 15.4% over 2005. Sales from products introduced in the last
three years increased $137.0 million or 59.6% in 2006 over
2005 to $366.9 million.
|
Results
of Operations
The following table sets forth net sales and income of the
Company by reportable segment and on a consolidated basis for
the years ended December 31, 2006, 2005, and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net Sales(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
1,016,503
|
|
|
$
|
808,493
|
|
|
$
|
667,418
|
|
Electromechanical
|
|
|
802,787
|
|
|
|
625,964
|
|
|
|
564,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,819,290
|
|
|
$
|
1,434,457
|
|
|
$
|
1,232,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
203,430
|
|
|
$
|
164,248
|
|
|
$
|
124,611
|
|
Electromechanical
|
|
|
139,926
|
|
|
|
99,244
|
|
|
|
93,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
343,356
|
|
|
|
263,492
|
|
|
|
217,900
|
|
Corporate administrative and other
expenses
|
|
|
(34,362
|
)
|
|
|
(30,004
|
)
|
|
|
(26,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income(3)
|
|
|
308,994
|
|
|
|
233,488
|
|
|
|
191,174
|
|
Interest and other expenses, net
|
|
|
(45,308
|
)
|
|
|
(35,201
|
)
|
|
|
(30,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income
taxes
|
|
$
|
263,686
|
|
|
$
|
198,287
|
|
|
$
|
160,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(3) |
|
Results for 2005 and 2004 have been adjusted to reflect the
retrospective application of SFAS 123R to expense stock
options, which was adopted January 1, 2006. The
retrospective application of SFAS 123R reduced operating
income by $5.9 million and $5.1 million in 2005 and
2004, respectively. (See Note 9). |
B-7
Year
Ended December 31, 2006, Compared with Year Ended
December 31, 2005
Results
of Operations
In 2006, the Company posted record sales, operating income, net
income, diluted earnings per share and cash flow from
operations. The Company achieved these results from strong
internal growth in both its EIG and EMG Groups, as well as
contributions from acquisitions in 2006 and 2005. Operating
income increased, driven by the record sales and a continued
focus on cost reduction programs under our Operational
Excellence initiatives. Based on current market conditions, the
Company expects continued strength in most of its businesses in
2007.
The Company reported sales for 2006 of $1,819.3 million, an
increase of $384.8 million or 26.8% from sales of
$1,434.5 million in 2005. Net sales for EIG were
$1,016.5 million in 2006, an increase of 25.7% from sales
of $808.5 million in 2005. EIGs internal sales growth
was 9% in 2006, driven by strength in its process, aerospace and
power businesses. The acquisitions of SPECTRO in June 2005,
Solartron in September 2005, Pulsar in February 2006 and Land
Instruments in June 2006 also contributed to the sales growth.
Net sales for EMG were $802.8 million in 2006, an increase
of 28.2% from sales of $626.0 million in 2005. EMGs
internal sales growth was also 9% in 2006 driven by the
Groups differentiated businesses. The acquisitions of HCC
in October 2005 and Pittman in May 2006 also contributed to the
sales growth.
Total international sales for 2006 increased to
$866.0 million and represented 47.6% of consolidated sales,
an increase of $210.1 million, or 32.0% when compared with
international sales of $655.9 million or 45.7% of
consolidated sales in 2005. The increase in international sales
resulted from the recent acquisitions of SPECTRO, Solartron and
HCC in 2005 and the Land Instruments acquisition in 2006, as
well as increased international sales from base businesses.
Increased international sales came mainly from sales to Asia and
Europe by both Groups. Export shipments from the United
States, which are included in total international sales, were
$343.8 million in 2006, an increase of $76.5 million
or 28.6% compared with $267.3 million in 2005. Export
shipments improved primarily due to increased exports from base
businesses.
New orders for 2006 were $1,915.4 million, compared with
$1,534.3 million for 2005, an increase of
$381.1 million or 24.8%. The increase in orders was driven
by demand in the Companys differentiated businesses, led
by the Companys process businesses as well as the recent
acquisitions mentioned above. The order backlog at
December 31, 2006 was $536.8 million, compared with
$440.7 million at December 31, 2005, an increase of
$96.1 million or 21.8%. The increase in backlog was due to
higher order levels in base differentiated businesses as well as
the 2006 acquisitions.
Segment operating income was $343.4 million for 2006, an
increase of $79.9 million, or 30.3%, compared with segment
operating income of $263.5 million for 2005. Segment
operating margins in 2006 were 18.9% of sales, an increase from
18.4% of sales in 2005. The increase in segment operating income
resulted from strength in the differentiated businesses of each
group, which includes the profit contributions made by the
acquisitions. The margin improvement came from the
Companys differentiated businesses.
Selling, general, and administrative (SG&A) expenses were
$219.5 million in 2006, compared with $174.2 million
in 2005, an increase of $45.2 million or 26.0%. However, as
a percentage of sales, SG&A expenses in 2006 were flat with
2005 at 12.1% of sales. Selling expenses, as a percentage of
sales, were 10.2% in 2006, essentially unchanged from 2005. Most
of the increase in selling expenses was due to the acquired
businesses. The Companys acquisition strategy generally is
to acquire differentiated businesses, which because of their
distribution channels and higher marketing costs tend to have a
higher content of selling expenses. Base business selling
expenses increased 4.9% which is significantly lower than the
Companys 9% internal sales growth rate for 2006.
Corporate administrative expenses were $34.2 million in
2006, an increase of $4.5 million or 15.3%, when compared
with 2005. The increase in corporate expenses is the result of
higher compensation costs, including equity-based compensation.
As a percentage of sales, corporate administrative expenses were
1.9% in 2006, a decline from 2.1% of sales in 2005.
Consolidated operating income was $309.0 million in 2006,
an increase of $75.5 million or 32.3% when compared with
$233.5 million in 2005. This represents an operating margin
of 17.0% of sales for 2006 compared with 16.3% of sales in 2005.
B-8
Interest expense was $42.2 million in 2006, an increase of
28.1% compared with $32.9 million in 2005. The increase was
due to higher average borrowings necessary to fund the 2005 and
2006 acquisitions, primarily related to the euro long-term debt
incurred for the 2005 acquisition of SPECTRO and short-term debt
incurred for the late 2005 acquisition of HCC.
The effective tax rate for 2006 was 31.0% compared with 31.2% in
2005. The 2006 effective tax rate benefited primarily from the
reversal of a valuation allowance for foreign tax credit
carryforwards of $3.2 million, offset somewhat by higher
nondeductible equity-based compensation. The 2006 and 2005
effective tax rates benefited from the realization of tax
benefits stemming from the Companys worldwide tax planning
activities and other adjustments.
Net income for 2006 was $181.9 million, an increase of
$45.5 million, or 33.4% from $136.4 million in 2005.
Diluted earnings per share increased 32.6% to $1.71 per
share, an increase of $0.42 when compared with $1.29 per
diluted share in 2005.
Operating
Segment Results
EIGs sales were $1,016.5 million in 2006, an
increase of $208.0 million or 25.7% from 2005 sales of
$808.5 million. The sales increase was due to internal
growth in EIGs process, aerospace and power businesses,
and the acquisitions of SPECTRO and Solartron in 2005 and Pulsar
and Land Instruments in 2006. Included in the 25.7% increase in
sales is internal growth of approximately 9%. The acquisitions
accounted for the remainder of the sales increase. The foreign
currency translation effect on sales for 2006 was nominal.
EIGs operating income for 2006 increased to
$203.4 million from $164.2 million in 2005, an
increase of $39.2 million, or 23.9%. The increase in
operating income was driven by the higher sales, which includes
the acquisitions. Operating margins of EIG were 20.0% of sales
for 2006 compared with operating margins of 20.3% of sales in
2005. The decrease in operating margins was due to the inclusion
of a $4.3 million gain from the sale of a facility in 2005.
EMGs sales for 2006 were $802.8 million, an
increase of $176.8 million or 28.2%, compared with sales of
$626.0 million in 2005. The sales increase was due in part
to internal growth, particularly in EMGs differentiated
businesses, which accounted for approximately 9% of the 28.2%
sales increase. The acquisitions of HCC in October 2005 and
Pittman in May 2006 accounted for the remainder of the sales
increase. The foreign currency translation effect on sales for
2006 was nominal.
EMGs operating income for 2006 increased to
$139.9 million from $99.2 million in 2005, an increase
of $40.7 million or 41.0%. The operating income increase
was significantly due to higher sales from the Groups
differentiated businesses, which includes the recent
acquisitions mentioned above. EMGs operating margins were
17.4% of sales in 2006 compared with operating margins of 15.9%
of sales in 2005. The increase in operating margin was primarily
due to a higher profit yield on the sales contribution of
EMGs differentiated businesses.
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
differentiated 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, the heavy-vehicle 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
B-9
businesses, partially offset by weak 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.
Total international sales for 2005 increased to
$655.9 million and represented 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 $263.5 million for 2005, an
increase of $45.6 million, or 20.9%, compared with segment
operating income of $217.9 million for 2004. Segment
operating margins in 2005 were 18.4% of sales, an increase from
17.7% 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 2005 acquisitions. The margin improvement
came entirely from the Companys base differentiated
businesses.
Selling, general, and administrative (SG&A) expenses were
$174.2 million in 2005, compared with $137.8 million
in 2004, an increase of $36.4 million or 26.4%. As a
percentage of sales, SG&A expenses were 12.1% in 2005,
compared with 11.2% 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 $30.0 million in
2005, an increase of $3.3 million or 12.4%, when compared
with 2004. The increase in corporate expenses is the result of
higher restricted stock amortization expense related to the
Companys change in its long-term incentive compensation
program and higher personnel costs necessary to grow the
Company. As a percentage of sales, corporate administrative
expenses were 2.1% in 2005, which was slightly lower than 2004.
Consolidated operating income was $233.5 million in 2005,
an increase of $42.3 million or 22.1% when compared with
$191.2 million in 2004. This represented an operating
margin of 16.3% of sales for 2005 compared with 15.5% 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 due to the 2005
acquisitions, and higher average interest rates.
The effective tax rate for 2005 was 31.2% compared with 32.2% 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 $136.4 million, an increase of
$27.4 million, or 25.1%, from $109.0 million in 2004.
Diluted earnings per share rose 21.7% to $1.29 per share,
an increase of $0.23, when compared with $1.06 per diluted
share in 2004.
Operating
Segment Results
EIGs sales were $808.5 million in 2005, an
increase of $141.1 million 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
B-10
in 2005. Internal growth accounted for 4.6% of the 21.1%
increase. The acquisitions accounted for the remainder of the
sales increase.
EIGs operating income for 2005 increased to
$164.2 million from $124.6 million in 2004, an
increase of $39.6 million, or 31.8%. The increase in
operating income was due to higher sales. Approximately half of
the increase in operating income was from the 2005 acquisitions
mentioned above. Both years included nonrecurring 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
settlement of an insurance claim. Operating margins of EIG
improved to 20.3% of sales for 2005 compared with operating
margins of 18.7% of sales in 2004 due to production efficiencies
in the Companys 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
$99.2 million from $93.3 million in 2004, an increase
of $5.9 million or 6.3%. EMGs increase in operating
income was primarily due to higher sales from its differentiated
businesses, which included the 2005 acquisitions mentioned
above. Operating margins of EMG were 15.9% of sales in 2005
compared with operating margins of 16.5% of sales in 2004. The
decrease in operating margin was the result of unfavorable
changes in product mix within the Groups cost-driven motor
businesses.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$226.0 million for 2006, compared with $155.7 million
in 2005, an increase of $70.3 million, or 45.2%. The
increase in operating cash flow was primarily the result of
higher earnings and lower overall operating working capital
requirements. In 2006, the Company contributed
$13.7 million to its defined benefit pension plans compared
to $11.3 million contributed in 2005. Free cash flow
(operating cash flow less capital spending) was
$196.8 million in 2006, compared to $132.4 million in
2005. EBITDA (earnings before interest, income taxes,
depreciation and amortization) was $351.4 million in 2006,
compared with $269.9 million in 2005, a 30.2% 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 B-5 for a
reconciliation of generally accepted accounting principles
(GAAP) measures to comparable non-GAAP measures).
Cash used for investing activities was $206.0 million for
2006, compared with $361.8 million in 2005. In 2006, the
Company paid $177.6 million for five businesses and two
small technology lines, net of cash received. In 2005, the
Company paid $340.7 million for three acquisitions and two
small technology lines, net of cash received. Additions to
property, plant and equipment totaled $29.2 million in
2006, compared with $23.3 million in 2005.
Cash used for financing activities totaled $10.0 million in
2006, compared with cash provided of $207.0 million in
2005. In 2006, total borrowings, net of repayments, increased by
$15.4 million, compared with a net increase of
$197.5 million in 2005. The net increase in long-term
borrowings was $11.3 million in 2006 compared with a net
increase of $91.8 million in 2005. Short-term borrowings
increased $4.0 million in 2006, compared with an increase
of $105.7 million in 2005. At December 31, 2006 the
Company had available borrowing capacity of $276.1 million
under its $400 million revolving bank credit facility,
which includes an accordion feature allowing $100 million
of additional borrowing capacity, and had fully utilized its
$75.0 million accounts receivable securitization facility.
The accounts receivable securitization facility was amended in
October 2006 only to extend its expiration date from December
2006 to March 2007. The revolving bank credit facility was also
amended in October 2006 to extend its expiration date from June
2010 to October 2011. This amendment also lowers the
Companys cost of capital and provides the Company with
increased financing flexibility to support its growth plans. The
Companys debt agreements contain various covenants
including limitations on indebtedness and dividend payments, and
maintenance of certain financial ratios. At December 31,
2006 and 2005, the Company was in compliance with the debt
covenants.
B-11
At December 31, 2006, total debt outstanding was
$681.9 million compared with $631.4 million at
December 31, 2005. The
debt-to-capital
ratio was 41.4% at December 31, 2006, compared with 43.8%
at December 31, 2005.
In 2006, net cash proceeds from the exercise of employee stock
options were $9.9 million, compared with $16.2 million
in 2005. Cash dividends paid were $18.8 million in 2006 and
$16.8 million in 2005. In October 2006, the Board of
Directors approved a 50% increase in the quarterly cash dividend
rate on the Companys common stock to $0.06 per common
share from $0.04 per common share on a post stock split
basis.
In 2006, the Company used cash of $21.1 million for the
repurchase of 750,000 shares of its common stock to offset
the dilutive effect of shares granted under the Companys
stock incentive plans. There were no repurchases of the
Companys common stock in 2005. As of December 31,
2006, $31.4 million was available, under the current Board
authorization, for future share repurchases.
The following table summarizes AMETEKs contractual cash
obligations at December 31, 2006, 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
|
|
$
|
505.3
|
|
|
$
|
3.4
|
|
|
$
|
237.4
|
|
|
$
|
118.7
|
|
|
$
|
145.8
|
|
Revolving credit loans(a)
|
|
|
96.7
|
|
|
|
80.3
|
|
|
|
|
|
|
|
16.4
|
|
|
|
|
|
Other indebtedness(b)
|
|
|
79.9
|
|
|
|
79.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
681.9
|
|
|
|
163.6
|
|
|
|
237.4
|
|
|
|
135.1
|
|
|
|
145.8
|
|
Interest on long-term fixed- rate
debt
|
|
|
113.5
|
|
|
|
28.0
|
|
|
|
31.7
|
|
|
|
17.3
|
|
|
|
36.5
|
|
Noncancellable operating leases
|
|
|
55.2
|
|
|
|
10.5
|
|
|
|
13.6
|
|
|
|
6.3
|
|
|
|
24.8
|
|
Purchase obligations(c)
|
|
|
179.9
|
|
|
|
161.4
|
|
|
|
15.8
|
|
|
|
2.7
|
|
|
|
|
|
Employee severance and other
|
|
|
19.1
|
|
|
|
19.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,049.6
|
|
|
$
|
382.6
|
|
|
$
|
298.5
|
|
|
$
|
161.4
|
|
|
$
|
207.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Although not contractually obligated, the Company expects to
have the capability to repay the U.S. portion of this
obligation within one year as permitted in the credit agreement.
Accordingly, $80.3 million is classified as short-term debt
at December 31, 2006. The foreign portion of the obligation
is related to a foreign acquisition and creates a natural
hedging instrument to offset foreign exchange gains or losses on
the net investment in the acquired business due to changes in
the British pound. Accordingly, $16.4 million is classified
as long-term debt at December 31, 2006. |
|
(b) |
|
Amount includes $75 million under the accounts receivable
securitization program, which is classified as short-term
borrowings at December 31, 2006. |
|
(c) |
|
Purchase obligations primarily consist of contractual
commitments to purchase certain inventories at fixed prices. |
Other
Commitments
The Company has standby letters of credit and surety bonds of
approximately $27.9 million related to performance and
payment guarantees at December 31, 2006. 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
2006, cash and cash equivalents at December 31, 2006
totaled $49.1 million, compared with $35.5 million at
December 31, 2005. The Company believes it has
B-12
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 of counsel
to the law firm of Stroock & Stroock & Lavan
LLP, with which the Company has a business relationship. In
2006, Stroock & Stroock & Lavan LLP billed
fees to the Company in the aggregate for services rendered,
primarily services related to a business acquisition, of
$706,000. An immediate family member of AMETEKs Chairman
and Chief Executive Officer and an immediate family member of a
member of AMETEKs Board of Directors are employed at
operating units of the Company and each has an annual salary in
excess of $120,000.
Critical
Accounting Policies
The Company has identified its critical accounting policies as
those accounting policies that can have a significant impact on
the presentation of the Companys financial condition and
results of operations, and that require the use of complex and
subjective estimates based upon past experience and
managements judgment. Because of the uncertainty inherent
in such estimates, actual results may differ materially from the
estimates used. The consolidated financial statements and
related notes contain information that is pertinent to the
Companys accounting policies and to managements
discussion and analysis. The information that follows represents
additional specific disclosures about the Companys
accounting policies regarding risks, estimates, subjective
decisions, or assessments whereby materially different results
of operations and financial condition could have been reported
had different assumptions been used or different conditions
existed. Primary disclosure of the Companys significant
accounting policies is in Note 1 of the Notes to
Consolidated Financial Statements, included elsewhere in
this report.
|
|
|
|
|
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, 2006, 2005 and 2004, the accrual for future
warranty obligations was $10.9 million, $9.4 million
and $7.3 million, respectively. The Companys expense
for warranty obligations approximated $7.6 million,
$7.2 million and $5.0 million in 2006, 2005 and 2004,
respectively. The warranty periods for products sold vary widely
among the Companys operations, but for the most part do
not exceed one year. The Company calculates its warranty expense
provision based on past warranty experience, and adjustments are
made periodically to reflect actual warranty expenses. If actual
future sales returns, allowances and warranty amounts are higher
than past experience, additional accruals may be required.
|
|
|
|
Accounts Receivable. The Company maintains
allowances for estimated losses resulting from the inability of
specific customers to meet their financial obligations to the
Company. A specific reserve for bad debts is recorded against
the amount due from these customers. For all other customers,
the Company recognizes reserves for bad debts based on the
length of time specific receivables are past due based on its
historical experience. If the financial condition of the
Companys customers were to deteriorate, resulting in their
inability to make payments, additional allowances may be
required. The allowance for possible losses on receivables was
$7.4 million and $7.6 million at December 31,
2006 and 2005, respectively.
|
B-13
|
|
|
|
|
Inventories. The Company uses the
first-in,
first-out (FIFO) method of accounting, which approximates
current replacement cost, for approximately 55% of its
inventories. The
last-in,
first-out (LIFO) method of accounting is used to determine cost
for the remaining 45% of its inventory. For inventories where
cost is determined by the LIFO method, the excess of the FIFO
value over the LIFO value would have been approximately
$34.1 million and $28.4 million higher than the amount
reported in the balance sheet at December 31, 2006 and
2005, respectively. The Company provides estimated
inventory reserves for slow-moving and obsolete inventory based
on current assessments about future demand, market conditions,
customers who may be experiencing financial difficulties, and
related management initiatives. If these factors are less
favorable than those projected by management, additional
inventory reserves may be required.
|
|
|
|
Goodwill and Other Intangibles Assets. The
Company accounts for goodwill and other intangible assets under
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets. Under
SFAS 142, purchased goodwill and other intangible assets
with indefinite lives, primarily trademarks and trade names, are
not amortized; rather, they are tested for impairment at least
annually. These impairment tests require the projection
and discounting of cash flows, estimates of future operating
performance of the reporting unit being valued and estimates of
the fair value of the intangible assets being tested.
SFAS 142 requires a two-step impairment test for goodwill.
The first step is to compare the carrying amount of the
reporting units net assets to the fair value of the
reporting unit. If the fair value exceeds the carrying value, no
further evaluation is required and no impairment loss is
recognized. If the carrying amount exceeds the fair value, then
the second step must be completed, which involves allocating the
fair value of the reporting unit to each asset and liability,
with the excess being implied goodwill. An impairment loss
occurs if the amount of the recorded goodwill exceeds the
implied goodwill. The Company would be required to record such
impairment losses. Changes in interest rates and market
conditions, among other factors, may have an impact on these
estimates. These estimates will likely change over time. The
Companys acquisitions have generally included a large
goodwill component and the Company expects to continue to make
acquisitions. At December 31, 2006, goodwill and other
intangible assets totaled approximately $1,081.2 million,
or 50.7% of the Companys total assets. The Company
performed its required annual impairment test in the fourth
quarter of 2006 and determined that the Companys goodwill
and indefinite-lived intangibles were not impaired. There can be
no assurance that goodwill or indefinite-lived intangibles
impairment will not occur in the future.
|
|
|
|
Pensions. The Company has U.S. and foreign
defined benefit and defined contribution pension plans. AMETEK
accounts for all of its defined benefit pension plans in
accordance with SFAS 87, Employers Accounting for
Pensions, and effective December 31, 2006,
SFAS 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R). SFAS 158
requires balance sheet recognition of the overfunded or
underfunded status of pension and postretirement benefit plans.
SFAS 87 and SFAS 158 require that amounts recognized
in the financial statements be determined on an actuarial basis.
The most significant elements in determining the Companys
pension income or expense are the assumed pension liability
discount rate and the expected return on plan assets. The
pension discount rate reflects the current interest rate at
which the pension liabilities could be settled at the valuation
date. At the end of each year, the Company determines the
assumed discount rate to be used to discount plan liabilities.
In estimating this rate for 2006, the Company considered rates
of return on high-quality, fixed-income investments. The
discount rate used in determining the 2006 pension cost was
5.65% for U.S. defined benefit pension plans and 5.00% for
foreign plans. The discount rate used for determining the funded
status of the plans at December 31, 2006, and determining
the 2007 defined benefit pension cost is 5.90% for
U.S. plans and 5.00% for foreign plans. In estimating the
U.S. discount 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 2006 of 8.25% for U.S. defined benefit pension plans
and 7.00% for foreign plans. We will continue to use these rates
for 2007 for U.S. and foreign plans, respectively. The Company
determines the expected long-term rate of return based primarily
on its expectation of future returns for the pension plans
investments. Additionally, the Company considers historical
returns on comparable fixed-income investments and equity
investments, and adjusts its estimate
|
B-14
|
|
|
|
|
as deemed appropriate. The rate of compensation increase used in
determining the 2006 pension expense for the U.S. plans was
3.5% and will be 3.75% in 2007. For foreign plans, the rate of
compensation increase will be increased from 3.4% in 2006 to
3.61% in 2007. For the year ended December 31, 2006, the
Company recognized consolidated pretax pension expense of
$2.5 million from its U.S. and foreign defined benefit
pension plans, including $0.8 million for pension
curtailments. This compares with pretax pension expense of
$2.1 million recognized for these plans in 2005.
|
As discussed above, effective December 31, 2006, we have
adopted the balance sheet recognition requirements of
SFAS 158. Under SFAS 158 all unrecognized prior
service costs, remaining transition obligations or assets, and
actuarial gains and losses have been recognized net of tax
effects as a charge to accumulated other comprehensive income
(AOCI) in stockholders equity and will be
amortized as a component of net periodic pension cost. In
addition, effective for fiscal years beginning after
December 15, 2008, the measurement date, (the date at which
plan assets and benefit obligation are measured) is required to
be the Companys fiscal year-end. Presently we use a
December 31 measurement date for all of our
U.S. defined benefit plans, and an October 1
measurement date for our foreign plans. However, we plan to
early adopt the measurement date provision of SFAS 158 for
our foreign plans in 2007. The effect of adopting SFAS 158
as of December 31, 2006 resulted in a decrease in total
assets of $43.1 million, a decrease in total liabilities of
$10.4 million, and a reduction of total stockholders
equity of $32.7 million, net of tax. The adoption of
SFAS 158 did not affect our operations.
To fund the plans, the Company made cash contributions to its
defined benefit pension plans during 2006 which totaled
$13.7 million, compared with $11.3 million in 2005.
The Company anticipates making cash contributions to its defined
benefit pension plans in 2007.
|
|
|
|
|
Income Taxes. Our annual provision for income
taxes and determination of the related balance sheet accounts
requires management to assess uncertainties, make judgments
regarding outcomes and utilize estimates. We conduct a broad
range of operations around the world, subjecting us to complex
tax regulations in numerous international taxing jurisdictions,
resulting at times in tax audits, disputes and potential
litigation, the outcome of which is uncertain. Management must
make judgments currently about such uncertainties and determine
estimates of our tax assets and liabilities. To the extent the
final outcome differs, future adjustments to our tax assets and
liabilities may be necessary. We also are required to assess the
realizability of our deferred tax assets, taking into
consideration our forecast of future taxable income, available
net operating loss carryforwards and available tax planning
strategies that could be implemented to realize the deferred tax
assets. Based on this assessment, we must evaluate the need for,
and amount of, valuation allowances against our deferred tax
assets. To the extent facts and circumstances change in the
future, adjustments to the valuation allowances may be required.
|
Recently
Issued Financial Accounting Standards
In September 2006, the Financial Accounting Standards Board
issued SFAS 158, which requires an employer to recognize
the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of
financial position at year-end and to recognize changes in the
funded status in the year in which the changes occur through
AOCI in stockholders equity. SFAS 158 was effective
for the Company as of December 31, 2006. The effect of
adopting SFAS 158 resulted in a decrease in total assets of
$43.1 million, a decrease in total liabilities of
$10.4 million, and a reduction of total stockholders
equity of $32.7 million, net of tax, as a charge to AOCI.
(See Note 12).
In September 2006, the Financial Accounting Standards Board
issued SFAS No. 157, Fair Value Measurements.
SFAS 157 defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair
value measurements. This Statement applies under other
accounting pronouncements that require or permit fair value
measurements. SFAS 157 does not require any new fair value
measurements and is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company does not
expect the adoption of SFAS 157 will have an effect on the
Companys consolidated results of operations, financial
position or cash flows.
B-15
In June 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No. 109,
Accounting for Income Taxes (FIN 48). FIN 48 creates a
single model to address accounting for uncertainty in tax
positions, by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006 and the Company will adopt
FIN 48 as of January 1, 2007, as required. The
cumulative effect of adopting FIN 48 will be recorded in
retained earnings. The Company is continuing to evaluate the
potential impact of adopting FIN 48.
Effective January 1, 2006, the Company adopted
SFAS 123R, Share-Based Payment, using the modified
retrospective method. SFAS 123R requires the Company to
expense the fair value of equity awards made under its
share-based plans. That cost is now recognized in the financial
statements over the requisite service period of the grants. See
Note 9.
In September 2006, the Emerging Issues Task Force (EITF) issued
EITF Issue
No. 06-5,
Accounting for Purchases of Life Insurance
Determining the Amount That Could Be Realized in Accordance with
FASB Technical
Bulletin No. 85-4
(EITF 06-5).
EITF 06-5
provides guidance in determining the amount to be realized under
certain insurance contracts and the related disclosures. EITF
06-5 is
effective for fiscal periods beginning after December 15,
2006 and should be adopted as a change in accounting principle,
as a cumulative-effect adjustment to retained earnings or as a
retrospective adjustment to all prior periods. The Company is
currently evaluating the impact of adoption of EITF
06-5 on our
financial statements.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108), which
documents the SEC staffs views regarding the process of
quantifying financial statement misstatements. Under
SAB 108, an evaluation of the materiality of an identified
unadjusted error must consider the impact of both the
current-year error and the cumulative error, if applicable. This
also means that both the impact on the current-period income
statement and the period-end balance sheet must be considered.
SAB 108 is effective for fiscal years ending after
November 15, 2006. Any cumulative adjustments required to
be recorded as a result of adopting SAB 108 would be
recorded as a cumulative effect adjustment to the opening
balance of retained earnings. Adoption of SAB 108 did not
have an effect on the Companys consolidated results of
operations, financial position and cash flows.
Internal
Reinvestment
Capital
Expenditures
Capital expenditures were $29.2 million, or 1.6% of sales
in 2006, compared with $23.3 million, or 1.6% of sales in
2005. Approximately 53% of the expenditures in 2006 were for the
maintenance of, or additional, equipment to increase
productivity and expand capacity. The Companys 2006
capital expenditures increased due to a continuing emphasis on
spending to improve productivity and expand manufacturing
capabilities. For 2007, capital expenditures are expected to
approximate $40 million, with a continuing emphasis on
spending to improve productivity and expand production capacity
of its low-cost manufacturing facilities. The 2007 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
$87.6 million in 2006, an increase from $75.9 million
in 2005, and $66.0 million in 2004. Customer reimbursements
were $6.4 million, $8.9 million, and $6.2 million
in 2006, 2005 and 2004, respectively. Included in the amounts
above are net expenses for research and development of
$42.0 million for 2006, $34.8 million for 2005, and
$25.5 million for 2004.
Environmental
Matters
Certain historic processes in the manufacture of products have
resulted in environmentally hazardous waste by-products as
defined by federal and state laws and regulations. While these
waste products were handled in
B-16
compliance with regulations existing at that time, at
December 31, 2006 the Company is named a Potentially
Responsible Party (PRP) at 16
non-AMETEK-owned
former waste disposal or treatment sites. The Company is
identified as a de minimis party in 13 of these
sites based on the low volume of waste attributed to the Company
relative to the amounts attributed to other named PRPs. In 11 of
these sites, the Company has reached a tentative agreement on
the cost of the de minimis settlement to satisfy its obligation
and is awaiting executed agreements. The agreed-to settlement
amounts are fully reserved. In the other two sites, the Company
is continuing to investigate the accuracy of the alleged volume
attributed to the Company as estimated by the parties primarily
responsible for remedial activity at the sites to establish an
appropriate settlement amount. In the three 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
former waste disposal or treatment sites, the Company has an
ongoing practice of providing reserves for probable remediation
activities at certain of its current or previously owned
manufacturing locations. For claims and proceedings against the
Company with respect to other environmental matters, reserves
are established once the Company has determined that a loss is
probable and estimable. This estimate is refined as the Company
moves through the various stages of investigation, risk
assessment, feasibility study and corrective action processes.
In certain instances, the Company has developed a range of
estimates for such costs and has recorded a liability based on
the low-end of the range. It is reasonably possible that the
actual cost of remediation of the individual sites could vary
from the current estimates, and the amounts accrued in the
financial statements; however, the amounts of such variances are
not expected to result in a material change to the financial
statements. In estimating our liability for remediation, we also
consider our likely proportionate share of the anticipated
remediation expense and the ability of the other PRPs to fulfill
their obligations. Total environmental reserves at
December 31, 2006 and 2005 were $28.7 million and
$6.8 million, respectively. In 2006, the Company provided
$23.0 million of additional reserves, including
$0.8 million for existing sites and $22.2 million
related to the recent acquisitions of HCC ($21.2 million)
and Land Instruments ($1.0 million). The additional
reserves related to the recent acquisitions were recorded
through purchase accounting and did not affect the
Companys income statement. The Company spent
$1.1 million and $1.0 million, respectively, on such
environmental matters in 2006 and 2005. The Company also has
agreements with former owners of certain of its acquired
businesses, including HCC, 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. In the case of HCC, the Company has
assumed the liability for the performance of all required
remedial activities at the site and has obtained
indemnifications and other financial assurances from the former
owners of HCC related to the costs for the required remedial
activities. The Company has recorded a total of
$15.8 million of receivables in its balance sheet related
to the HCC matter for probable recoveries from third party
escrow funds and other committed third party funds to support
the required remediation as well as a deferred tax benefit of
$2.8 million. In addition, the Company is indemnified by
HCCs former owners for up to $19.0 million of
additional costs. The Company and some of the other parties also
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.
In the opinion of management, based upon presently available
information and past experience related to such matters, an
adequate provision for probable costs has been made, and the
ultimate cost resulting from these actions is not expected to
materially affect the consolidated financial position, results
of operations, or cash flows of the Company.
Market
Risk
The Companys primary exposures to market risk are
fluctuations in interest rates on its short-term and long-term
debt, foreign currency exchange rates and commodity prices for
certain raw material purchases.
The Companys short-term debt carries variable interest
rates and generally its long-term debt carries fixed rates.
These financial instruments are more fully described in the
notes to the financial statements.
The foreign currencies to which the Company has the most
significant exchange rate exposure are the euro, the British
pound, the Japanese yen, Chinese renminbi and the Mexican peso.
Exposure to foreign currency rate
B-17
fluctuation is monitored, and when possible, mitigated through
the occasional use of local borrowings and the occasional use of
derivative financial instruments in the foreign country
affected. The effect of translating foreign subsidiaries
balance sheets into U.S. dollars is included in other
comprehensive income, within stockholders equity. Foreign
currency transactions have not had a significant effect on the
operating results reported by the Company because revenues and
costs associated with the revenues are generally transacted in
the same foreign currencies.
The primary commodities to which the Company has market exposure
are raw material purchases of nickel, copper, steel and gold.
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, commodity prices, or foreign currency exchange rates, our
best estimate is that the potential losses in future earnings,
fair value of risk-sensitive financial instruments, and cash
flows are not material, although the actual effects may differ
materially from the hypothetical analysis.
Forward-Looking
Information
Certain matters discussed in this Appendix are
forward-looking statements as defined in the Private
Securities Litigation Reform Act (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, 2006, filed
with the Securities and Exchange Commission. We undertake no
obligation to publicly update any forward-looking statements,
whether as a result of new information, subsequent events or
otherwise, unless required by the securities laws to do so.
B-18
Managements
Responsibility for Financial Statements
Management has prepared and is responsible for the integrity of
the consolidated financial statements and related information.
The statements are prepared in conformity with
U.S. generally accepted accounting principles consistently
applied and include certain amounts based on managements
best estimates and judgments. Historical financial information
elsewhere in this report is consistent with that in the
financial statements.
In meeting its responsibility for the reliability of the
financial information, management maintains a system of internal
accounting and disclosure controls, including an internal audit
program. The system of controls provides for appropriate
division of responsibility and the application of written
policies and procedures. That system, which undergoes continual
reevaluation, is designed to provide reasonable assurance that
assets are safeguarded and records are adequate for the
preparation of reliable financial data.
Management is responsible for establishing and maintaining
adequate controls over financial reporting. We maintain a system
of internal controls that is designed to provide reasonable
assurance as to the fair and reliable preparation and
presentation of the consolidated financial statements; however,
there are inherent limitations in the effectiveness of any
system of internal controls.
Management recognizes its responsibility for conducting the
Companys activities according to the highest standards of
personal and corporate conduct. That responsibility is
characterized and reflected in a code of business conduct for
all employees, and in a financial code of ethics for the Chief
Executive Officer and Senior Financial Officers, as well as in
other key policy statements publicized throughout the Company.
The Audit Committee of the Board of Directors, which is composed
solely of independent directors who are not employees of the
Company, meets with the independent registered public accounting
firm, the internal auditors and management to satisfy itself
that each is properly discharging its responsibilities. The
report of the Audit Committee is included in the Proxy Statement
of the Company for its 2007 Annual Meeting. Both the independent
registered public accounting firm and the internal auditors have
direct access to the Audit Committee.
The Companys independent registered public accounting
firm, Ernst & Young LLP, is engaged to render an
opinion as to whether managements financial statements
present fairly, in all material respects, the Companys
financial position and operating results. This report is
included on page B-21.
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, 2006 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, 2006.
Our managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2006 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which appears on page B-20.
|
|
|
/s/ Frank
S. Hermance
Frank
S. Hermance
Chairman and Chief Executive Officer
|
|
/s/ John
J. Molinelli
John
J. Molinelli
Executive Vice President-Chief Financial Officer
|
February 26, 2007
B-19
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To 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, that AMETEK, Inc. maintained
effective internal control over financial reporting as of
December 31, 2006, 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, 2006, 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, 2006, 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, 2006 and 2005, and the related consolidated
statements of income, cash flows and stockholders equity
for each of the three years in the period ended
December 31, 2006, and our report dated February 26,
2007 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 26, 2007
B-20
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, 2006 and 2005, and the
related consolidated statements of income, cash flows, and
stockholders equity for each of the three years in the
period ended December 31, 2006. 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, 2006 and
2005, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally
accepted accounting principles.
As discussed in Notes 1 and 9, the accompanying
financial statements have been retroactively adjusted for the
adoption of Statement of Financial Accounting Standards (SFAS)
No. 123(R), Share-based Payment using the
modified retrospective method.
As discussed in Notes 3 and 12, the Company adopted
the balance sheet recognition and disclosure requirements of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans as
of December 31, 2006.
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, 2006, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 26,
2007 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 26, 2007
B-21
AMETEK,
Inc.
Consolidated Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
1,819,290
|
|
|
$
|
1,434,457
|
|
|
$
|
1,232,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding
depreciation)
|
|
|
1,251,920
|
|
|
|
991,788
|
|
|
|
866,549
|
|
Selling, general and administrative
|
|
|
219,454
|
|
|
|
174,218
|
|
|
|
137,832
|
|
Depreciation
|
|
|
38,922
|
|
|
|
34,963
|
|
|
|
36,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,510,296
|
|
|
|
1,200,969
|
|
|
|
1,041,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
308,994
|
|
|
|
233,488
|
|
|
|
191,174
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(42,167
|
)
|
|
|
(32,913
|
)
|
|
|
(28,343
|
)
|
Other, net
|
|
|
(3,141
|
)
|
|
|
(2,288
|
)
|
|
|
(2,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
263,686
|
|
|
|
198,287
|
|
|
|
160,719
|
|
Provision for income taxes
|
|
|
81,752
|
|
|
|
61,930
|
|
|
|
51,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
181,934
|
|
|
$
|
136,357
|
|
|
$
|
108,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.74
|
|
|
$
|
1.31
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
$
|
1.71
|
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
104,841
|
|
|
|
103,726
|
|
|
|
101,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
106,608
|
|
|
|
105,578
|
|
|
|
103,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
B-22
AMETEK,
Inc.
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,091
|
|
|
$
|
35,545
|
|
Marketable securities
|
|
|
9,129
|
|
|
|
8,243
|
|
Receivables, less allowance for
possible losses
|
|
|
328,762
|
|
|
|
269,395
|
|
Inventories
|
|
|
236,783
|
|
|
|
193,099
|
|
Deferred income taxes
|
|
|
26,523
|
|
|
|
21,154
|
|
Other current assets
|
|
|
33,775
|
|
|
|
28,871
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
684,063
|
|
|
|
556,307
|
|
Property, plant and equipment, net
|
|
|
258,008
|
|
|
|
228,450
|
|
Goodwill
|
|
|
881,433
|
|
|
|
785,185
|
|
Other intangibles, net of
accumulated amortization
|
|
|
199,728
|
|
|
|
117,948
|
|
Investments and other assets
|
|
|
107,644
|
|
|
|
92,710
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,130,876
|
|
|
$
|
1,780,600
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
portion of long-term debt
|
|
$
|
163,608
|
|
|
$
|
156,130
|
|
Accounts payable
|
|
|
160,614
|
|
|
|
132,506
|
|
Income taxes payable
|
|
|
14,618
|
|
|
|
|
|
Accrued liabilities
|
|
|
142,060
|
|
|
|
117,156
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
480,900
|
|
|
|
405,792
|
|
Long-term debt
|
|
|
518,267
|
|
|
|
475,309
|
|
Deferred income taxes
|
|
|
65,081
|
|
|
|
50,942
|
|
Other long-term liabilities
|
|
|
99,956
|
|
|
|
39,037
|
|
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:
2006 108,479,995 shares; 2005
107,544,033 shares
|
|
|
1,085
|
|
|
|
1,075
|
|
Capital in excess of par value
|
|
|
134,001
|
|
|
|
107,086
|
|
Retained earnings
|
|
|
902,379
|
|
|
|
739,522
|
|
Accumulated other comprehensive
losses
|
|
|
(33,552
|
)
|
|
|
(20,916
|
)
|
Less: Cost of shares held in
treasury: 2006 2,421,193 shares;
2005 1,829,481 shares
|
|
|
(37,241
|
)
|
|
|
(17,247
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
966,672
|
|
|
|
809,520
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,130,876
|
|
|
$
|
1,780,600
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
B-23
AMETEK,
Inc.
Consolidated Statement of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
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
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
1,036
|
|
Shares issued
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
107,086
|
|
|
|
|
|
|
|
76,451
|
|
|
|
|
|
|
|
53,423
|
|
Issuance of common stock under
employee stock plans
|
|
|
|
|
|
|
16,671
|
|
|
|
|
|
|
|
14,093
|
|
|
|
|
|
|
|
12,767
|
|
Share-based compensation costs
|
|
|
|
|
|
|
5,538
|
|
|
|
|
|
|
|
6,339
|
|
|
|
|
|
|
|
4,739
|
|
Excess tax benefits from exercise
of stock options
|
|
|
|
|
|
|
4,706
|
|
|
|
|
|
|
|
10,203
|
|
|
|
|
|
|
|
5,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
107,086
|
|
|
|
|
|
|
|
76,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
739,522
|
|
|
|
|
|
|
|
619,979
|
|
|
|
|
|
|
|
527,265
|
|
Net income(1)
|
|
$
|
181,934
|
|
|
|
181,934
|
|
|
$
|
136,357
|
|
|
|
136,357
|
|
|
$
|
108,991
|
|
|
|
108,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
(18,832
|
)
|
|
|
|
|
|
|
(16,814
|
)
|
|
|
|
|
|
|
(16,277
|
)
|
Other
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
739,522
|
|
|
|
|
|
|
|
619,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(17,838
|
)
|
|
|
|
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
(12,927
|
)
|
Translation adjustments, net of tax
of ($85), $195 and $0 in 2006, 2005, and 2004, respectively
|
|
|
8,542
|
|
|
|
|
|
|
|
(11,731
|
)
|
|
|
|
|
|
|
9,032
|
|
|
|
|
|
Gain (loss) on net investment
hedges, net of tax of $(1,374) , $1,975, and $0 in 2006, 2005,
and 2004, respectively
|
|
|
8,159
|
|
|
|
|
|
|
|
(3,669
|
)
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,701
|
|
|
|
16,701
|
|
|
|
(15,400
|
)
|
|
|
(15,400
|
)
|
|
|
10,489
|
|
|
|
10,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
(17,838
|
)
|
|
|
|
|
|
|
(2,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(3,380
|
)
|
|
|
|
|
|
|
(8,450
|
)
|
|
|
|
|
|
|
(7,670
|
)
|
Adjustments during the year, net of
tax of (1,536), $1,820 and $4,552 in 2006, 2005 and 2004,
respectively
|
|
|
2,852
|
|
|
|
2,852
|
|
|
|
5,070
|
|
|
|
5,070
|
|
|
|
(780
|
)
|
|
|
(780
|
)
|
Adoption of SFAS 158, net of
tax of $17,179
|
|
|
|
|
|
|
(32,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
(3,380
|
)
|
|
|
|
|
|
|
(8,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
1,245
|
|
|
|
|
|
|
|
1,401
|
|
Decrease (increase) during the
year, net of tax benefit of $430, $162, and $670 in 2006, 2005,
and 2004, respectively
|
|
|
496
|
|
|
|
496
|
|
|
|
(943
|
)
|
|
|
(943
|
)
|
|
|
(156
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
for the year
|
|
|
20,049
|
|
|
|
|
|
|
|
(11,273
|
)
|
|
|
|
|
|
|
9,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the
year
|
|
$
|
201,983
|
|
|
|
|
|
|
$
|
125,084
|
|
|
|
|
|
|
$
|
118,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
loss at the end of the year
|
|
|
|
|
|
|
(33,552
|
)
|
|
|
|
|
|
|
(20,916
|
)
|
|
|
|
|
|
|
(9,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(17,247
|
)
|
|
|
|
|
|
|
(24,517
|
)
|
|
|
|
|
|
|
(29,635
|
)
|
Issuance of common stock under
employee stock plans
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
7,270
|
|
|
|
|
|
|
|
5,118
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(21,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
(17,247
|
)
|
|
|
|
|
|
|
(24,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
|
|
|
$
|
966,672
|
|
|
|
|
|
|
$
|
809,520
|
|
|
|
|
|
|
$
|
663,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Net Income has been reduced by the
effects of the modified retrospective adoption of SFAS 123R
as of January 1, 2006. Such amounts were $4,029, $4,285,
$3,720 in 2006, 2005 and 2004, respectively.
|
See accompanying notes.
B-24
AMETEK,
Inc.
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash provided by (used
for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
181,934
|
|
|
$
|
136,357
|
|
|
$
|
108,991
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
45,929
|
|
|
|
39,428
|
|
|
|
39,909
|
|
Deferred income taxes
|
|
|
(524
|
)
|
|
|
9,133
|
|
|
|
6,178
|
|
Stock-based compensation expense
|
|
|
12,441
|
|
|
|
10,581
|
|
|
|
6,137
|
|
Changes in assets and liabilities
(net of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in receivables
|
|
|
(26,042
|
)
|
|
|
(22,007
|
)
|
|
|
(9,616
|
)
|
Increase in inventories and other
current assets
|
|
|
(6,225
|
)
|
|
|
(871
|
)
|
|
|
(14,954
|
)
|
Increase (decrease) in payables,
accruals, and income taxes
|
|
|
29,751
|
|
|
|
(12,279
|
)
|
|
|
18,222
|
|
(Decrease) increase in other
long-term liabilities
|
|
|
(1,819
|
)
|
|
|
3,887
|
|
|
|
2,914
|
|
Pension contribution
|
|
|
(13,721
|
)
|
|
|
(11,307
|
)
|
|
|
(6,114
|
)
|
Other
|
|
|
4,243
|
|
|
|
2,739
|
|
|
|
4,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
225,967
|
|
|
|
155,661
|
|
|
|
155,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(29,156
|
)
|
|
|
(23,261
|
)
|
|
|
(21,025
|
)
|
Purchase of businesses, net of
cash acquired
|
|
|
(177,639
|
)
|
|
|
(340,672
|
)
|
|
|
(143,535
|
)
|
Other
|
|
|
770
|
|
|
|
2,142
|
|
|
|
10,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(206,025
|
)
|
|
|
(361,791
|
)
|
|
|
(154,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
4,048
|
|
|
|
105,708
|
|
|
|
(55,603
|
)
|
Additional long-term borrowings
|
|
|
29,507
|
|
|
|
177,790
|
|
|
|
97,356
|
|
Reduction in long-term borrowings
|
|
|
(18,186
|
)
|
|
|
(86,029
|
)
|
|
|
(26,217
|
)
|
Repurchases of common stock
|
|
|
(21,075
|
)
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(18,832
|
)
|
|
|
(16,814
|
)
|
|
|
(16,277
|
)
|
Excess tax benefits from
share-based payments
|
|
|
4,706
|
|
|
|
10,203
|
|
|
|
5,522
|
|
Proceeds from employee stock plans
and other
|
|
|
9,878
|
|
|
|
16,158
|
|
|
|
16,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
(9,954
|
)
|
|
|
207,016
|
|
|
|
21,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
3,558
|
|
|
|
(2,923
|
)
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
13,546
|
|
|
|
(2,037
|
)
|
|
|
23,269
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
35,545
|
|
|
|
37,582
|
|
|
|
14,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
49,091
|
|
|
$
|
35,545
|
|
|
$
|
37,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
B-25
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, 2006 and 2005, 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, 2006 and 2005 was: 2006
$16.9 million ($15.7 million amortized cost) and
2005 $15.7 million ($15.2 million
amortized cost). The temporary unrealized gain or loss on such
securities is recorded as a separate component of accumulated
other comprehensive income (in stockholders equity), and
is not material. The Company had no
other-than-temporary
impairment losses in 2006 or 2005. Certain of the Companys
other investments, which are not significant, are accounted for
by the equity method of accounting as discussed above.
Accounts
Receivable
The Company maintains allowances for estimated losses resulting
from the inability of specific customers to meet their financial
obligations to the Company. A specific reserve for doubtful
receivables is recorded against the amount due from these
customers. For all other customers, the Company recognizes
reserves for doubtful receivables based on the length of time
specific receivables are past due based on past experience. The
allowance for possible losses on receivables was
$7.4 million and $7.6 million at December 31,
2006 and 2005, respectively. See Note 6.
Inventories
The Company uses the
first-in,
first-out (FIFO) method of accounting, which approximates
current replacement cost for approximately 55% of its
inventories. The
last-in,
first-out (LIFO) method of accounting is used to determine cost
for the remaining 45% of our inventory. For inventories where
cost is determined by the LIFO method, the excess of the FIFO
value over the LIFO value was approximately $34.1 million
and $28.4 million at December 31, 2006 and 2005,
respectively. The Company provides estimated inventory reserves
for slow-moving and obsolete inventory based on current
assessments about future demand, market conditions, customers
who may be experiencing financial difficulties, and related
management initiatives.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures
for additions to plant facilities, or that extend their useful
lives, are capitalized. The cost of minor tools, jigs and dies,
and maintenance and repairs is charged to operations as
incurred. Depreciation of plant and equipment is calculated
principally on a straight-line basis over
B-26
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the estimated useful lives of the related assets. The range of
lives for depreciable assets is generally 3 to 10 years for
machinery and equipment, 5 to 27 years for leasehold
improvements and 25 to 50 years for buildings.
Revenue
Recognition
The Company recognizes revenue on product sales in the period
when the sales process is complete. This generally occurs when
products are shipped to the customer in accordance with terms of
an agreement of sale, under which title and risk of loss have
been transferred, 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 sales incentives as a
reduction of revenues when the sale is recognized in the income
statement. Accruals for sales returns, other allowances, and
estimated warranty costs are provided at the time of shipment
based upon past experience. At December 31, 2006, 2005 and
2004, the accrual for future warranty obligations was
$10.9 million, $9.4 million and $7.3 million,
respectively. The Companys expense for warranty
obligations approximated $7.6 million in 2006,
$7.2 million in 2005 and $5.0 million in 2004. The
warranty periods for products sold vary widely among the
Companys operations, but for the most part do not exceed
one year. The Company calculates its warranty expense provision
based on past warranty experience, and adjustments are made
periodically to reflect actual warranty expenses.
Research
and Development
Company-funded research and development costs are charged to
operations as incurred and during the past three years were:
2006-$42.0 million, 2005-$34.8 million and
2004-$25.5 million.
Shipping
and Handling Costs
Shipping and handling costs are included in cost of sales, and
were: 2006 $23.5 million, 2005
$20.0 million, and 2004 $16.5 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average shares (in
thousands)(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
104,841
|
|
|
|
103,726
|
|
|
|
101,747
|
|
Stock option and awards plans
|
|
|
1,767
|
|
|
|
1,852
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
106,608
|
|
|
|
105,578
|
|
|
|
103,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Adjusted to reflect a
three-for-two
stock split paid to shareholders on November 27, 2006 (See
Note 2). |
B-27
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, 2006 or
2005. In instances where transactions are designated as hedges
of an underlying item, the gains and losses on those
transactions are included in Accumulated Other Comprehensive
Income (AOCI) within stockholders equity to the extent
they are effective as hedges. The Company has designated certain
foreign-currency-denominated long-term debt as hedges of the net
investment in certain foreign operations. These net investment
hedges relate to the Companys British-pound-denominated
long-term debt and euro-denominated long-term debt pertaining to
the Companys acquisition of Land Instruments in June 2006,
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 Germany-based business. These acquisitions were financed by
borrowings under AMETEKs revolving credit facility and all
except Land Instruments were subsequently refinanced in the form
of long-term private placement debt. These borrowings were
designed to create natural net investment hedges in each of the
foreign subsidiaries mentioned on their respective dates of
acquisition. Statement of Financial Accounting Standards
(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. These net investment hedges were evidenced
by managements documentation supporting the
contemporaneous hedge designation on the acquisition dates. As
required by SFAS 133, any gain or loss on the hedging
instrument following hedge designation (the debt), is reported
in AOCI in the same manner as the translation adjustment on the
investment based on changes in the spot rate, which is used to
measure hedge effectiveness. As of December 31, 2006 and
2005, all net investment hedges were effective. At
December 31, 2006, 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 AOCI. An evaluation of hedge
effectiveness is performed by the Company on an ongoing basis
and any desirable changes in the hedge are made as appropriate.
At December 31, 2006 and 2005, the Company had
$227.9 million and $191.8 million, respectively, of
British pound-denominated loans, which are designated as a hedge
against the net investment in foreign subsidiaries acquired in
2006, 2005, 2004 and 2003. At December 31, 2006 and 2005,
the Company had $66.0 million and $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 $29.1 million of currency losses and
$20.5 million of currency gains have been included in the
translation adjustment in other comprehensive income at
December 31, 2006 and 2005, respectively.
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted
SFAS 123R, Share-Based
Payment. Accordingly, the Company expenses the
fair value of awards made under its share-based plans. That cost
is now recognized in the financial statements over the requisite
service period of the grants. The impact of adopting
SFAS 123R is discussed in Notes 3 and 9.
B-28
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Other Intangible Assets
The Company accounts for purchased goodwill and other intangible
assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets. Under SFAS 142, purchased
goodwill and 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 4 to 20 years.
Customer relationships are being amortized over a period of 2 to
20 years. Miscellaneous other intangible assets are being
amortized over a period of 13 to 20 years. The Company
periodically evaluates the reasonableness of the useful lives of
these intangible assets.
In order to test goodwill and intangible assets with indefinite
lives for impairment under SFAS 142, a determination of the
fair value of the Companys reporting units and its other
intangible assets with indefinite lives is required and is based
upon, among other things, estimates of future operating
performance. Changes in market conditions, among other factors,
may have an impact on these estimates. The Company completed its
required annual impairment tests in the fourth quarter of 2006,
2005 and 2004 and determined that the carrying values of
goodwill and other intangible assets with indefinite lives were
not impaired.
Income
Taxes
Our annual provision for income taxes and determination of the
related balance sheet accounts require management to assess
uncertainties, make judgments regarding outcomes and utilize
estimates. We conduct a broad range of operations around the
world, subjecting us to complex tax regulations in numerous
international taxing jurisdictions, resulting at times in tax
audits, disputes and potential litigation, the outcome of which
is uncertain. Management must make judgments currently about
such uncertainties and determine estimates of our tax assets and
liabilities. To the extent the final outcome differs, future
adjustments to our tax assets and liabilities may be necessary.
We also are required to assess the realizability of our deferred
tax assets, taking into consideration our forecast of future
taxable income, available net operating loss carryforwards and
available tax planning strategies that could be implemented to
realize the deferred tax assets. Based on this assessment,
management must evaluate the need for, and amount of, valuation
allowances against our deferred tax assets. To the extent facts
and circumstances change in the future, adjustments to the
valuation allowances may be required.
On October 25, 2006, the Companys Board of Directors
declared a
three-for-two
split of the Companys common stock. The stock split
resulted in the issuance of one additional share for every two
shares owned. The stock split was distributed on
November 27, 2006, to shareholders of record at the close
of business on November 13, 2006. Additionally, the Board
of Directors approved a 50% increase in the quarterly cash
dividend rate on the Companys common stock to
$0.06 per common share from $0.04 per common share on
a post-split basis. All share and per share information included
in this report has been retroactively adjusted to reflect the
impact of the stock split.
|
|
3.
|
Recently
Issued Financial Accounting Standards
|
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans. SFAS 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of
financial position at year-end and to recognize changes in the
funded status in the year in which the changes occur through
AOCI in stockholders equity. SFAS 158 was effective
for the Company as of December 31, 2006. The effect of
adopting SFAS 158 resulted in a decrease in total assets of
$43.1 million, a decrease in total
B-29
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities of $10.4 million, and a reduction of total
stockholders equity of $32.7 million, net of tax, as
a charge to AOCI. (See Note 12).
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes
a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands
disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit
fair value measurements. SFAS 157 does not require any new
fair value measurements and is effective for financial
statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company does not expect the adoption of SFAS 157
will have an effect on the Companys consolidated results
of operations, financial position or cash flows.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS No. 109, Accounting for
Income Taxes (FIN 48). FIN 48 creates
a single model to address accounting for uncertainty in tax
positions, by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006 and the Company will adopt
FIN 48 as of January 1, 2007, as required. The
cumulative effect of adopting FIN 48 will be recorded to
retained earnings. The Company is continuing to evaluate the
potential impact of adopting FIN 48.
Effective January 1, 2006, the Company adopted
SFAS 123R, Share-Based Payment, using the modified
retrospective method. SFAS 123R requires the Company to
expense the fair value of equity awards made under its
share-based plans. That cost is now recognized in the financial
statements over the requisite service period of the grants. See
Note 9.
In September 2006, the Emerging Issues Task Force (EITF) issued
EITF Issue
No. 06-5,
Accounting for Purchases of Life Insurance- Determining the
Amount That Could Be Realized in Accordance with FASB Technical
Bulletin No. 85-4
(EITF 06-5).
EITF 06-5
provides guidance in determining the amount to be realized under
certain insurance contracts and the related disclosures. EITF
06-5 is
effective for fiscal periods beginning after December 15,
2006 and should be adopted as a change in accounting principle,
as a cumulative-effect adjustment to retained earnings or as a
retrospective adjustment to all prior periods. The Company is
currently evaluating the impact of adoption of EITF
06-5 on our
financial statements.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108), which
documents the SEC staffs views regarding the process of
quantifying financial statement misstatements. Under
SAB 108, an evaluation of the materiality of an identified
unadjusted error must consider the impact of both the
current-year error and the cumulative error, if applicable. This
also means that both the impact on the current-period income
statement and the period-end balance sheet must be considered.
SAB 108 is effective for fiscal years ending after
November 15, 2006. Any cumulative adjustments required to
be recorded as a result of adopting SAB 108 would be
recorded as a cumulative effect adjustment to the opening
balance of retained earnings. Adoption of SAB 108 did not
have an effect on the Companys consolidated results of
operations, financial position or cash flows.
The Company spent $177.6 million, net of cash received, for
five new businesses and two small technology lines in 2006. The
businesses acquired include Pulsar Technologies, Inc.
(Pulsar) in February 2006, PennEngineering Motion
Technologies, Inc. (Pittman) in May 2006, Land
Instruments International Limited (Land Instruments)
in June 2006, Precitech in November 2006 and Southern Aeroparts,
Inc. (SAI) in December 2006. Pulsar is a leading
designer and manufacturer of specialized communications
equipment for the electric utility market. Pulsar is part of the
Companys Electronic Instruments Group (EIG).
Pittman is a leading designer and manufacturer of highly
engineered motors. Pittman is part of the Companys
Electromechanical Group (EMG). Land Instruments is a
B-30
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
global supplier of high-end analytical instrumentation. Land
Instruments is part of EIG. Precitech is a leading manufacturer
of ultraprecision machining systems for a variety of markets,
including nanotechnology, military, defense and ophthalmic.
Precitech is part of EIG. SAI is a provider of third-party
maintenance, repair and overhaul services to the commercial
aerospace industry. SAI is part of EMG. The five businesses
acquired have annualized sales of approximately
$142 million.
The acquisitions have been accounted for using the purchase
method in accordance with SFAS 141, Business
Combinations. Accordingly, the operating results of the
above acquisitions are included in the Companys
consolidated results from the dates of acquisition.
The following table presents the tentative allocation of the
aggregate purchase price for the 2006 acquisitions based on
their estimated fair values:
|
|
|
|
|
|
|
In millions
|
|
|
Property, plant and equipment
|
|
$
|
16.5
|
|
Goodwill
|
|
|
112.4
|
|
Other intangible assets
|
|
|
22.1
|
|
Net working capital and other
|
|
|
26.6
|
|
|
|
|
|
|
Total net assets
|
|
$
|
177.6
|
|
|
|
|
|
|
The amount allocated to goodwill is reflective of the benefits
the Company expects to realize from the acquisitions as follows:
The Pulsar acquisition broadens the Companys product
offerings in the electric utility market and complements the
Companys existing Power Instruments business. The Pittman
acquisition is a strategic fit with the Companys highly
differentiated technical motor business and shares common
markets, distribution channels and motor platforms. The Land
Instruments acquisition broadens the Companys high-end
process and analytical instruments business through its
extensive range of infrared temperature measurement, combustion
efficiency and emissions monitoring instruments. The Precitech
acquisition broadens the Companys high-end analytical
instrument platform for its rapidly growing nanotechnology
applications. The SAI acquisition expands the Companys
capabilities and enables the Company to offer the commercial
aerospace industry a wide array of third-party maintenance,
repair and overhaul services. The Company expects approximately
$61 million of the goodwill recorded on the 2006
acquisitions will be deductible in future years for tax purposes.
The Company is in the process of completing third-party
valuations of certain tangible and intangible assets acquired,
as well as finalizing restructuring plans for certain
acquisitions. Adjustments to the allocation of purchase price
will be recorded within the purchase price allocation period of
up to twelve months subsequent to the period of acquisition.
Therefore, the allocation of the purchase price is subject to
revision.
The $22.1 million assigned to other intangible assets,
related to the 2006 acquisitions, is currently being valued by
third-party appraisers. In connection with the finalization of
the 2005 acquisitions, $96.2 million was assigned to
intangible assets, which consisted primarily of patents,
technology, customer relationships and trade names with
estimated lives ranging from two to 20 years.
In 2005, the Company made three acquisitions. In October 2005,
the company acquired HCC Industries (HCC) for
approximately $162 million in cash, net of cash received.
HCC is a leading designer and manufacturer of highly engineered
hermetic connectors, terminals, headers and microelectronics
packages for sophisticated electronic applications in the
aerospace, defense, industrial and petrochemical markets. HCC is
part of EMG. 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. Solartron is part of EIG. 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
B-31
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. SPECTRO is a part of
EIG. In the second and third quarters of 2005, the Company also
purchased two small technology lines for cash. The technologies
acquired are related to the Companys brushless DC motor
and precision pumping system businesses in its EMG and EIG,
respectively.
Had the 2006 acquisitions been made at the beginning of 2006,
unaudited pro forma net sales, net income, and diluted earnings
per share for the year ended December 31, 2006 would not
have been materially different than the amounts reported.
Had the 2006 acquisitions and the acquisitions of SPECTRO,
Solartron, and HCC, which were acquired in June, September, and
October 2005, respectively, been made at the beginning of 2005,
pro forma net sales, net income, and diluted earnings per share
for the year ended December 31, 2005 would have been as
follows (in millions, except per share amount):
|
|
|
|
|
|
|
Unaudited Pro Forma Results of
|
|
|
|
Operations
|
|
|
|
Year Ended
|
|
|
|
December 31, 2005
|
|
|
Net sales
|
|
$
|
1,730.6
|
|
Net income
|
|
$
|
146.1
|
|
Diluted earnings per share
|
|
$
|
1.38
|
|
Pro forma results are not necessarily indicative of the results
that would have occurred if the acquisitions had been completed
at the beginning of 2005.
In 2004, the Company made two acquisitions. In June 2004, the
Company acquired Taylor Hobson Holdings Limited (Taylor
Hobson) (recently renamed AMETEK Ultra Precision
Technologies) 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 EIG. 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 EMG.
5. Goodwill
and Other Intangible Assets
The changes in the carrying amounts of goodwill by segment for
the years ended December 31, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIG
|
|
|
EMG
|
|
|
Total
|
|
|
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
|
|
Goodwill acquired during the year
|
|
|
33.4
|
|
|
|
79.0
|
|
|
|
112.4
|
|
Purchase price allocation
adjustments and other *
|
|
|
(9.4
|
)
|
|
|
(39.7
|
)
|
|
|
(49.1
|
)
|
Foreign currency translation
adjustments
|
|
|
25.6
|
|
|
|
7.3
|
|
|
|
32.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2006
|
|
$
|
531.7
|
|
|
$
|
349.7
|
|
|
$
|
881.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Purchase price allocation adjustments reflect final purchase
price allocations and revisions to certain preliminary
allocations for recent acquisitions, which include
reclassifications between goodwill and other intangible assets. |
B-32
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Definite-lived intangible assets
(subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
36,371
|
|
|
$
|
64,301
|
|
Purchased technology
|
|
|
33,997
|
|
|
|
19,194
|
|
Customer lists
|
|
|
79,976
|
|
|
|
33,976
|
|
Other acquired intangibles
|
|
|
28,459
|
|
|
|
26,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,803
|
|
|
|
143,807
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(23,517
|
)
|
|
|
(22,148
|
)
|
Purchased technology
|
|
|
(19,886
|
)
|
|
|
(19,194
|
)
|
Customer lists
|
|
|
(9,550
|
)
|
|
|
(5,054
|
)
|
Other acquired intangibles
|
|
|
(24,201
|
)
|
|
|
(20,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,154
|
)
|
|
|
(66,422
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to
amortization
|
|
|
101,649
|
|
|
|
77,385
|
|
Indefinite-lived intangible assets
(not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
98,079
|
|
|
|
40,563
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199,728
|
|
|
$
|
117,948
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $7.0 million, $4.5 million,
and $3.1 million for the years ended December 31,
2006, 2005, and 2004, respectively. Amortization expense for
each of the next five years is expected to approximate
$7.4 million per year which does not consider the impact of
potential future acquisitions.
B-33
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Other
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
46,148
|
|
|
$
|
40,092
|
|
Work in process
|
|
|
56,502
|
|
|
|
45,819
|
|
Raw materials and purchased parts
|
|
|
134,133
|
|
|
|
107,188
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
236,783
|
|
|
$
|
193,099
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
23,812
|
|
|
$
|
17,217
|
|
Buildings
|
|
|
165,599
|
|
|
|
144,558
|
|
Machinery and equipment
|
|
|
560,411
|
|
|
|
520,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
749,822
|
|
|
|
682,260
|
|
Less accumulated depreciation
|
|
|
(491,814
|
)
|
|
|
(453,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
258,008
|
|
|
$
|
228,450
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued employee compensation and
benefits
|
|
$
|
41,039
|
|
|
$
|
34,824
|
|
Other
|
|
|
101,021
|
|
|
|
82,332
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,060
|
|
|
$
|
117,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON
ACCOUNTS AND NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
7,581
|
|
|
$
|
7,628
|
|
|
$
|
7,856
|
|
Additions charged to expense
|
|
|
1,511
|
|
|
|
581
|
|
|
|
617
|
|
Recoveries credited to allowance
|
|
|
182
|
|
|
|
10
|
|
|
|
63
|
|
Write-offs
|
|
|
(501
|
)
|
|
|
(400
|
)
|
|
|
(1,097
|
)
|
Currency translation adjustment
and other
|
|
|
(1,386
|
)
|
|
|
(238
|
)
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
7,387
|
|
|
$
|
7,581
|
|
|
$
|
7,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-34
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2006 and 2005, long-term debt consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
U.S. dollar 7.20% senior
note due 2008
|
|
$
|
225,000
|
|
|
$
|
225,000
|
|
British pound 5.96% senior
note due 2010
|
|
|
97,905
|
|
|
|
86,025
|
|
British pound floating-rate term
note due through 2010 (5.96% at December 31, 2006)
|
|
|
35,246
|
|
|
|
36,992
|
|
Euro 3.94% senior note due
2015
|
|
|
66,007
|
|
|
|
59,200
|
|
British pound 5.99% senior
note due 2016
|
|
|
78,324
|
|
|
|
68,827
|
|
Accounts receivable securitization
due 2007
|
|
|
75,000
|
|
|
|
75,000
|
|
Revolving credit loan
|
|
|
96,748
|
|
|
|
71,200
|
|
Other, principally foreign
|
|
|
7,645
|
|
|
|
9,195
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
681,875
|
|
|
$
|
631,439
|
|
Less: current portion
|
|
|
(163,608
|
)
|
|
|
(156,130
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
518,267
|
|
|
$
|
475,309
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt outstanding at December 31,
2006 are as follows: $231.2 million in 2008;
$6.2 million in 2009; $118.3 million in 2010;
$16.8 million in 2011; $0.4 million in 2012; and
$145.4 million in 2013 and thereafter.
At December 2006, the Company has outstanding an
18.0 million British pound ($35.2 million) 5.96%
(London Interbank Offered Rate (LIBOR) plus .69%) floating-rate
term loan with annual installment payments due through 2010. In
September 2005, the Company issued a 50 million euro
($66.0 million at December 31,
2006) 3.94% senior note due through 2015. In November
2004, the Company issued a 40 million British pound
($78.3 million at December 31, 2006) 5.99% senior
note due in 2016. In September 2003, the Company issued a
50 million British pound ($97.9 million at
December 31, 2006) 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 accounts
receivable securitization facility was amended in October 2006
to extend its expiration date to March 2007. 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 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.
At December 31, 2006 and 2005, securitized accounts
receivable and the corresponding debt on the consolidated
balance sheet were $75.0 million. Interest expense under
this facility is not significant. The weighted average interest
rate on the amount outstanding under the accounts receivable
securitization at December 31, 2006 and 2005 was 5.4% and
4.3%, respectively.
B-35
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has an unsecured $300 million Revolving Credit
Facility, which was amended in October 2006 to extend its
expiration date from June 2010 to October 2011. The amendment
also lowers the Companys cost of capital and provides the
Company with increased financing flexibility to support its
growth plans.
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, 2006 and 2005, the Company had outstanding
revolving credit loans of $96.7 million and
$71.2 million, respectively. The outstanding balance at
December 31, 2006 includes an 8.4 million British
pound ($16.5 million) borrowing related to the 2006
acquisition of Land Instruments. It is the Companys intent
to use this 8.4 million British pound borrowing as a net
investment hedge. The Company had outstanding letters of credit
totaling $27.2 million and $26.9 million at
December 31, 2006 and 2005, respectively.
The Revolving Credit Facility places certain restrictions on
allowable additional indebtedness, which include the pro forma
effect of potential acquisitions above a specified dollar amount
in certain debt covenant compliance calculations. At
December 31, 2006 the Company had available borrowing
capacity of $276.1 million under its $400 million
revolving bank credit facility, which includes an accordion
feature allowing $100 million of additional borrowing
capacity. The Revolving Credit Facility also places restrictions
on certain cash payments, including the payment of dividends. At
December 31, 2006, retained earnings of approximately
$49.0 million were not subject to the dividend limitation.
Foreign subsidiaries of the Company had available credit
facilities with local foreign lenders of approximately
$86.8 million at December 31, 2006. Foreign
subsidiaries had debt outstanding at December 31, 2006
totaling $42.9 million, including $34.6 million
reported in long-term debt.
The approximate weighted average interest rate on total debt
outstanding at December 31, 2006 and 2005 was 6.3% and
6.4%, respectively.
In 2006, the Company repurchased 750,000 shares of its
common stock for $21.1 million in cash under its current
share repurchase authorization. In 2005, the Company did not
repurchase any shares of its common stock under its current
share repurchase authorization. At December 31, 2006,
approximately $31.4 million of the current share repurchase
authorization was unexpended. At December 31, 2006, the
Company held approximately 2.4 million shares in its
treasury at a cost of $37.2 million, compared with
approximately 1.8 million shares at a cost of
$17.2 million at the end of 2005. The number of shares
outstanding at December 31, 2006 was 106.1 million
shares, compared with 105.7 million shares at
December 31, 2005.
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 June 2007.
|
|
9.
|
Share-Based
Compensation
|
Under the terms of the Companys stockholder-approved
share-based plans, incentive and nonqualified stock options and
restricted stock awards have been, and may be, issued to the
Companys officers, management-level employees and its
Board of Directors. Employee and nonemployee Director stock
options and restricted stock awards generally have a four-year
cliff vesting. Options primarily have a maximum contractual ter