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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
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to § 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):
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$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. |
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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. |
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Notice of 2008
Annual Meeting
Proxy Statement
Annual Financial Information
and Review of Operations
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 22, 2008
3:00 p.m. Eastern Daylight Time
The Grand Hyatt New York
109 East 42nd Street
Chrysler Boardroom
New York, NY 10017
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2008 Annual
Meeting of Stockholders of AMETEK, Inc. At the Annual Meeting, you will be asked to:
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Elect three Directors for a term of three years; |
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Ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for 2008; and |
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Transact any other business properly brought before the Annual Meeting. |
Only stockholders of record at the close of business on March 7, 2008 will be entitled to vote at
the Annual Meeting. Your vote is important. You can vote in one of four ways: (1) via the
Internet, (2) by telephone using a toll-free number, (3) by marking, signing and dating your proxy
card, and returning it promptly in the enclosed envelope, or (4) by casting your vote in person at
the Annual Meeting. Directions to the Grand Hyatt New York are located on the back cover of the
Proxy Statement. Please refer to your proxy card for specific proxy voting instructions.
We have included the annual financial information relating to our business and operations in
Appendix A to the Proxy Statement. We also have enclosed a Summary Annual Report.
We hope that you take advantage of the convenience and cost savings of voting by computer or by
telephone. A sizable electronic response would significantly reduce return-postage fees.
Whether you expect to attend the meeting or not, we urge you to vote your shares via the Internet,
by telephone or by mailing your proxy as soon as possible. Submitting your proxy now will not
prevent you from voting your stock at the Annual Meeting if you want to, as your proxy is revocable
at your option. We appreciate your interest in AMETEK.
Sincerely,
Frank S. Hermance
Chairman of the Board
and Chief Executive Officer
Paoli, Pennsylvania
Dated: March 14, 2008
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 22, 2008
The proxy statement and 2007 annual report of AMETEK, Inc. are available at:
http://phx.corporate-ir.net/phoenix.zhtml?c=104638&p=irol-reportsAnnual
Principal executive offices
37 North Valley Road Building 4
P.O. Box 1764
Paoli, Pennsylvania 19301-0801
PROXY STATEMENT
We are mailing this Proxy Statement and proxy card to our stockholders of record as of March 7,
2008 on or about March 14, 2008. The Board of Directors is soliciting proxies in connection with
the election of Directors and other actions to be taken at the Annual Meeting of Stockholders and
at any adjournment or postponement of that Meeting. The Board of Directors encourages you to read
the Proxy Statement and to vote on the matters to be considered at the Annual Meeting.
TABLE OF CONTENTS
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Voting Procedures |
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Corporate Governance |
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Advance Notice Procedures |
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Stockholder Proposals for the 2009 Proxy Statement |
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Report of the Audit Committee |
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Election of Directors (Proposal 1 on Proxy Card) |
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Ratification of Appointment of Independent Registered Public Accounting Firm
(Proposal 2 on Proxy Card) |
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The Board of Directors |
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Executive Officers |
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Executive Compensation: |
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Compensation Discussion and Analysis |
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Report of the Compensation Committee |
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Compensation Tables |
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Potential Payments upon Termination or Change of Control |
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Stock Ownership of Executive Officers and Directors |
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Beneficial Ownership of Principal Stockholders |
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Compliance with Section 16(a) of the Securities Exchange Act of 1934 |
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Other Business |
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Multiple Stockholders Sharing the Same Address |
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Electronic Distribution of Proxy Statements and Annual Reports |
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Appendix: |
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Index to Annual Financial Information and Review of Operations |
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A-1 |
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VOTING PROCEDURES
Your vote is very important. It is important that your views be represented whether or not you
attend the Annual Meeting.
Who can vote? Stockholders of record as of the close of business on March 7, 2008 are entitled to
vote. On that date, 106,452,169 shares of our Common Stock were issued and outstanding and
eligible to vote. Each share is entitled to one vote on each matter presented at the Annual
Meeting.
How do I vote? You can vote your shares at the Annual Meeting if you are present in person or
represented by proxy. You can designate the individuals named on the enclosed proxy card as your
proxies by mailing a properly executed proxy card, via the Internet or by telephone. You may
revoke your proxy at any time before the Annual Meeting by delivering written notice to the
Corporate Secretary, by submitting a proxy card bearing a later date or by appearing in person and
casting a ballot at the Annual Meeting.
To submit your proxy by mail, indicate your voting choices, sign and date your proxy card and
return it in the postage-paid envelope provided. You may vote via the Internet or by telephone by
following the instructions on your proxy card. Your Internet or telephone vote authorizes the
persons named on the proxy card to vote your shares in the same manner as if you marked, signed and
returned the proxy card to us.
If you hold your shares through a broker, bank or other nominee, that institution will send you
separate instructions describing the procedure for voting your shares.
What shares are represented by the proxy card? The proxy card represents all the shares registered
in your name. If you participate in the AMETEK, Inc. Investors Choice Dividend Reinvestment &
Direct Stock Purchase and Sale Plan, the card also represents any full shares held in your account.
If you are an employee who owns AMETEK shares through an AMETEK employee savings plan and also
hold shares in your own name, you will receive a single proxy card for the plan shares, which are
attributable to the units that you hold in the plan, and the shares registered in your name. Your
proxy card or proxy submitted through the Internet or by telephone will serve as voting
instructions to the plan trustee.
How are shares voted? If you return a properly executed proxy card or submit voting instructions
via the Internet or by telephone before voting at the Annual Meeting is closed, the individuals
named as proxies on the enclosed proxy card will vote in accordance with the directions you
provide. If you return a signed and dated proxy card but do not indicate how the shares are to be
voted, those shares will be voted as recommended by the Board of Directors. A valid proxy card or
a vote via the Internet or by telephone also authorizes the individuals named as proxies to vote
your shares in their discretion on any other matters which, although not described in the Proxy
Statement, are properly presented for action at the Annual Meeting.
If your shares are held by a broker, bank or other holder of record, please refer to the
instructions it provides for voting your shares. If you want to vote those shares in person at the
Annual Meeting, you must bring a signed proxy from the broker, bank or other holder of record
giving you the right to vote the shares.
If you are an employee who owns AMETEK shares through an AMETEK employee savings plan and you do
not return a proxy card or otherwise give voting instructions for the plan shares, the trustee will
vote those shares in the same proportion as the shares for which the trustee receives voting
instructions from other participants in that plan. Your proxy voting instructions must be received
by April 17, 2008 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 three candidates for
election as Directors receiving the highest number of votes will be elected to serve until the
Annual Meeting in 2011. The ratification of the appointment of Ernst & Young LLP requires the
affirmative vote of the holders of a majority of eligible shares present at the Annual Meeting, in
person or by proxy, and voting on the matter. Abstentions and broker non-votes are not counted as
votes for or against this proposal.
Who will tabulate the vote? Our transfer agent, American Stock Transfer & Trust Company, will
tally the vote, which will be certified by independent inspectors of election.
Is my vote confidential? It is our policy to maintain the confidentiality of proxy cards, ballots
and voting tabulations that identify individual stockholders, except where disclosure is mandated
by law and in other limited circumstances.
Who is the proxy solicitor? We have retained Georgeson, Inc. to assist in the distribution of
proxy materials and solicitation of votes. We will pay Georgeson, Inc. a fee of $7,500, plus
reimbursement of reasonable out-of-pocket expenses.
CORPORATE GOVERNANCE
In accordance with the Delaware General Corporation Law and our Certificate of Incorporation and
Bylaws, our business and affairs are managed under the direction of the Board of Directors. We
provide information to the Directors about our business through, among other things, operating,
financial and other reports, as well as other documents presented at meetings of the Board of
Directors and Committees of the Board.
Our Board of Directors currently consists of eight members. They are Sheldon S. Gordon, Frank S.
Hermance, Charles D. Klein, Steven W. Kohlhagen, James R. Malone, David P. Steinmann, Elizabeth R.
Varet and Dennis K. Williams. The biographies of the continuing Directors and Director nominees
appear on page 11. The Board is divided into three classes with staggered terms of three years
each, so that the term of one class expires at each Annual Meeting of Stockholders. The Board has
nominated the three current Class II Directors, Messrs. Gordon, Hermance and Steinmann, to serve as
Class II Directors until the 2011 Annual Meeting. 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 are available on our Web
site at www.ametek.com/investors as well as in printed form, free of charge to any stockholder who
requests them, by writing or telephoning the Investor Relations Department, AMETEK, Inc., 37 North
Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801 (Telephone Number: 1-800-473-1286). The Board of
Directors and our management do not intend to grant any waivers of the provisions of either Code.
In the unlikely event a waiver for a Director or an executive officer occurs, the action will be
disclosed promptly at our Web site address provided above. If the Guidelines or the Codes are
amended, the revised versions also will be posted on our Web site.
2
Meetings of the Board. Our Board of Directors has 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 annually among the chairpersons of the Corporate Governance/Nominating
Committee, the Compensation Committee and the Audit Committee. The presiding Director at the
executive sessions for 2008 is Mr. Malone, the chairperson of the Corporate Governance/Nominating
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 2007. Each of the Directors attended at least 75% of the meetings of the Board and
the Committees to which the Director was assigned. All eight Directors attended the 2007 Annual
Meeting of Stockholders.
Independence. The Board of Directors has affirmatively determined that each of the current
Non-Management Directors, Sheldon S. Gordon, Charles D. Klein, Steven W. Kohlhagen, James R.
Malone, David P. Steinmann, Elizabeth R. Varet and Dennis K. Williams, has no material relationship
with us (either directly or as a partner, stockholder or officer of an organization that has a
relationship with us) and, therefore, is an independent Director within the meaning of the New York
Stock Exchange rules. The Board has further determined that each member of the Audit, Compensation
and Corporate Governance/Nominating Committees is independent within the meaning of the New York
Stock Exchange rules. The members of the Audit Committee also satisfy Securities and Exchange
Commission regulatory independence requirements for audit committee members.
The Board has established the following standards to assist it in determining Director
independence: A Director will not be deemed independent if: (i) within the previous three years
or currently, (a) the Director has been employed by us; (b) someone in the Directors immediate
family has been employed by us as an executive officer; or (c) the Director or someone in her/his
immediate family has been employed as an executive officer of another entity that concurrently has
or had as a member of its compensation committee of the board of directors any of our present
executive officers; (ii) (a) the Director 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 any of the charitable organizations last three fiscal years that do not exceed
$1 million or two percent of the charitable organizations consolidated gross revenues, whichever
is greater. For the purposes of these categorical standards, the terms immediate family member
and executive officer have the meanings set forth in the New York Stock Exchanges corporate
governance rules.
All independent Directors satisfied these categorical standards.
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In considering the independence of the Non-Management Directors, the Board considered some
relationships that it concluded did not impair the Directors independence. The Board considered
that Mr. Klein, Mr. Steinmann and Ms. Varet may be deemed to have a relationship with an entity
that purchases motors from us.
Communication with Non-Management Directors and Audit Committee. Stockholders and other parties
who wish to communicate with the Non-Management Directors may do so by calling 1-877-263-8357 (in
the United States and Canada) or 1-610-889-5271. If you prefer to communicate in writing, address
your correspondence to the Corporate Secretary Department, Attention: Non-Management Directors,
AMETEK, Inc., 37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801.
You may address complaints regarding accounting, internal accounting controls or auditing matters
to the Audit Committee by calling 1-866-531-3079 (Domestic English only) or 1-866-551-8006
(International 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:
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review and approval in advance of all audit and lawfully permitted non-audit services
performed by the independent auditors; |
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review and discussion with management and the independent auditors regarding the annual
audited financial statements and quarterly financial statements included in our Securities
and Exchange Commission filings and quarterly sales and earnings announcements; |
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oversight of our compliance with legal and regulatory requirements; |
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review of the performance of our internal audit function; |
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meeting separately with the independent auditors and our internal auditors as often as
deemed necessary or appropriate by the Committee; and |
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review of major issues regarding accounting principles, financial statement presentation
and the adequacy of internal controls. |
The Committee met nine times during 2007. The Board of Directors has determined that Sheldon S.
Gordon is an audit committee financial expert within the meaning of the Securities and Exchange
Commissions regulations. The members of the Committee are Sheldon S. Gordon Chairperson, Steven
W. Kohlhagen and James R. Malone. Mr. Kohlhagen currently serves on the audit committees of boards
of directors of ten related, publicly traded Merrill Lynch closed-end investment companies (all of
which have identical board compositions and committee structures). After its review and
consideration of Mr. Kohlhagens simultaneous service on the audit committees of the Merrill Lynch
closed-end investment companies, the Board has determined that Mr. Kohlhagens simultaneous service
on those audit committees does not impair his ability to serve effectively on our Audit Committee.
4
The Compensation Committee is responsible for, among other things:
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establishment and periodic review of our compensation philosophy and the adequacy of the
compensation plans for our officers and other employees; |
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establishment of compensation arrangements and incentive goals for officers and
administration of compensation plans; |
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review of the performance of officers, award of incentive compensation and adjustment of
compensation arrangements as appropriate based on performance; |
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review and monitoring of management development and succession plans; and |
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periodic review of the compensation of non-employee Directors. |
The Committee met seven times during 2007. The members of the Committee are Charles D. Klein -
Chairperson, James R. Malone and Elizabeth R. Varet. In carrying out its duties, the Compensation
Committee makes compensation decisions for approximately 40 officers, including all executive
officers. The Compensation Committee charter does not provide for delegation of the Committees
duties and responsibilities. The charter provides that, in setting compensation for the Chief
Executive Officer, the Committee will review and evaluate the Chief Executive Officers performance
and leadership, taking into account the views of other members of the Board. The charter further
provides that, with the participation of the Chief Executive Officer, the Committee evaluates the
performance of other officers and determines compensation for these officers. In this regard,
Compensation Committee meetings are regularly attended by the Chief Executive Officer. The Chief
Executive Officer does not participate in the determination of his compensation. The Compensation
Committee has authority under the charter to retain and set compensation for compensation
consultants and other advisors.
Towers Perrin is engaged by our management to serve as our compensation consultant. We ask Towers
Perrin to provide comparative data regarding compensation levels for seasoned managers who have job
functions and responsibilities that are similar to those of our senior managers. Specifically, we
ask Towers Perrin to compare our senior managers compensation to the 50th percentile of
compensation for similarly positioned senior managers in a general industry group (consisting of
over 500 companies that have chosen to participate in a Towers Perrin survey). Based on this data,
our human resources department develops summaries for the Compensation Committee, indicating
competitive compensation levels for our senior managers that would correspond to the 50th
percentile, thereby assisting the Compensation Committee in its evaluation of our most senior
managers compensation. See Compensation Discussion and Analysis 2007 Compensation -
Determination of Competitive Compensation for further information. In addition, Towers Perrin
provides companywide benefits consulting.
The Corporate Governance/Nominating Committee is responsible for, among other things:
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selection of nominees for election as Directors, subject to ratification by the Board; |
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recommendation of a Director to serve as Chairperson of the Board; |
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recommendation to the Board of the responsibilities of Board Committees and each
Committees membership; |
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oversight of the annual evaluation of the Board and the Audit and Compensation
Committees; and |
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review and assessment of the adequacy of our Corporate Governance Guidelines. |
The Committee met four times during 2007. 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 2007. The members of the Committee are Steven W.
Kohlhagen Chairperson, Sheldon S. Gordon and David P. Steinmann.
The Executive Committee has limited powers to act on behalf of the Board whenever the Board is not
in session. The Committee met one time during 2007. 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 recommending shareholder; (3) the consent of the candidate to serve as a
director; and (4) proof of the number of shares of our Common Stock that the recommending
stockholder owns and the length of time that the shares have been owned. To enable consideration
of a candidate in connection with the 2009 Annual Meeting, a stockholder must submit materials
relating to the recommended candidate no later than November 14, 2008. 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 2007 are described
below.
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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, before April 25, 2007, received an annual fee of $45,000. On April 25,
2007, the Board approved an increase in the annual fee for the Chairman of the Audit
Committee to $55,000. 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. |
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Restricted Stock On April 24, 2007, under our 2002 Stock Incentive Plan, each
non-employee Director received a restricted stock award of 1,350 shares of our Common
Stock. These restricted shares vest on the earliest to occur of: |
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the closing price of our Common Stock on any five consecutive
trading days equaling or exceeding $72.88, |
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the death or disability of the Director, |
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the Directors termination of service as a member of AMETEKs Board of
Directors in connection with a change of control, |
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the fourth anniversary of the date of grant, namely April 24, 2011, or |
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the Directors retirement from service as a member of the Board of Directors
at or after age 55 and the completion of at least 10 years of service with us,
in which case only a pro rata portion of the shares becomes non-forfeitable and
transferable, based upon the time that has elapsed since the date of grant. |
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Options On April 24, 2007, under our Stock Incentive Plan, each non-employee Director
received an option to purchase 4,240 shares of our Common Stock, at an exercise price equal
to the closing price of AMETEKs Common Stock, as reported on the New York Stock Exchange
consolidated tape on that date. Stock options become exercisable as
to the underlying shares in four equal annual installments beginning one year after the date of grant. |
The following table provides information regarding Director compensation in 2007, 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 2007
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Change in |
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Pension Value |
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and |
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Nonqualified |
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Fees Earned |
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Non-Equity |
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Deferred |
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or Paid in |
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Stock |
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Option |
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Incentive Plan |
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Compensation |
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All Other |
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Name |
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Cash |
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Awards (1) |
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Awards (2) |
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Compensation |
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Earnings |
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Compensation |
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Total |
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Sheldon S. Gordon |
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$ |
67,500 |
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$ |
42,211 |
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$ |
40,407 |
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$58,700 |
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$208,818 |
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Charles D. Klein |
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55,000 |
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42,211 |
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40,407 |
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137,618 |
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Steven W. Kohlhagen |
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53,750 |
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17,128 |
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15,667 |
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86,545 |
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James R. Malone |
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51,250 |
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42,211 |
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40,407 |
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133,868 |
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David P. Steinmann |
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50,000 |
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42,211 |
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40,407 |
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132,618 |
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Elizabeth R. Varet |
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50,000 |
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42,211 |
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40,407 |
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132,618 |
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Dennis K. Williams |
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50,000 |
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17,128 |
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15,667 |
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82,795 |
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(1) |
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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 2007 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 2007, computed in accordance with SFAS 123(R), was $49,194. The
assumptions used in determining the amounts in this column are set forth in note 8 to our
consolidated financial statements on page 38 of Appendix A to this proxy statement. At
December 31, 2007, Messrs. Gordon, Klein, Malone and Steinmann and Ms. Varet each held 3,930
restricted shares and Messrs. Kohlhagen and Williams each held 2,430 restricted shares. |
On October 2, 2007, the price-related event for accelerated vesting of the restricted stock
granted on July 22, 2004 occurred. The total value realized on vesting is equal to (1) the
closing price per share of our Common Stock on October 2, 2007 ($44.03) multiplied by the number
of shares acquired on vesting, minus the par value paid by the named executive, (2) the
dividends accrued since the date of award, and (3) the interest accrued on these dividends.
7
(2) |
|
The amounts shown for option awards relate to stock options granted under our 2002 Stock
Incentive Plan. These amounts are equal to the dollar amounts recognized in 2007 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 8 to our consolidated financial
statements on page 38 of Appendix A to this proxy statement. The grant date fair value of
option awards granted to each Director in 2007, computed in accordance with SFAS 123(R), was
$40,407. At December 31, 2007, Messrs. Gordon, Klein, Malone and Steinmann and Ms. Varet each
held options to purchase 17,035 shares of our Common Stock and Messrs. Kohlhagen and Williams
each held options to purchase 7,885 shares of our Common Stock. |
Directors who first became members of the Board of Directors prior to January 1, 1997 participate
in a retirement plan for Directors. Under this plan, each non-employee Director who has provided
at least three years of service to us as a Director receives an annual retirement benefit equal to
100% of that Directors highest annual rate of cash compensation during the Directors service with
the Board. Mr. Steinmann and Ms. Varet have accrued an annual retirement benefit of $50,000.
Messrs. Klein and Malone have accrued an annual retirement benefit of $55,000. Mr. Gordon has
accrued an annual retirement benefit of $67,500.
Directors who first became members of the Board of Directors prior to July 22, 2004 participate in
our Death Benefit Program for Directors. Messrs. Gordon, Klein, Malone and Steinmann and Ms. Varet
participate in this program. Under this program, each non-employee Director has an individual
agreement that pays the Director (or the Directors beneficiary in the event of the Directors
death) an annual amount equal to 100% of that Directors highest annual rate of cash compensation
during the Directors service with the Board. The payments are made for 10 years beginning at the
earlier of (a) the Directors being retired and having attained age 70 or (b) the Directors death.
The program is funded by individual life insurance policies that we purchased on the lives of the
Directors. In addition, non-employee Directors who first became members of the Board of Directors
prior to July 27, 2005 have a group term life insurance benefit of $50,000. We retain the right to
terminate any of the individual agreements under certain circumstances.
Mandatory Retirement. The retirement policy for our Board of Directors prohibits a Director from
standing for re-election following his or her 75th birthday.
Certain Relationships and Related Transactions. Mr. Hermances son is employed by us in a
non-executive officer capacity as a Divisional Vice President and received total compensation, as
such amount is calculated for the named executive officers in the Summary Compensation Table
below, of approximately $225,000 in 2007.
Under our written Related Party Transactions Policy, transactions that would require disclosure
under SEC regulations must be approved in advance by the Audit Committee. Applicable SEC
regulations generally require disclosure of all transactions since the beginning of a corporations
last fiscal year, or any currently proposed transaction, exceeding $120,000 in which the
corporation or any of its subsidiaries is participating and in which any of the following related
persons had, or will have, a direct or indirect material interest: (1) any of the corporations
directors, director nominees, or executive officers, (2) any beneficial owner of more than 5% of
the corporations common stock and (3) any member of the immediate family of any of the foregoing
persons. The term immediate family includes a persons spouse, parents, stepparents, children,
stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and
sisters-in-law, and any person (other than a tenant or employee) sharing the same household as the
person.
Prior to entering into a transaction covered by the policy, the person proposing to enter into the
transaction must provide a notice to our Vice President Corporate Compliance and Auditing, who
must promptly forward the notice to the Chairman of the Audit Committee. Following such inquiry as
the Audit Committee deems appropriate, the transaction is permissible if the Audit Committee finds
that, notwithstanding the involvement of a related person, there is an appropriate business reason
to approve the transaction.
The transaction described above was ratified by the Audit Committee under the policy.
8
ADVANCE NOTICE PROCEDURES
In accordance with our By-Laws, stockholders must give us notice relating to nominations for
Director or proposed business to be considered at our 2009 Annual Meeting of Stockholders no
earlier than January 21, 2009 nor later than February 20, 2009. These requirements do not affect
the deadline for submitting stockholder proposals for inclusion in the proxy statement or for
recommending candidates for consideration by the Corporate Governance/Nominating Committee, nor do
they apply to questions a stockholder may wish to ask at the Annual Meeting. Stockholders may
request a copy of the By-Law provisions discussed above from the Corporate Secretary, AMETEK, Inc.,
37 North Valley Road Building 4, P.O. Box 1764, Paoli, PA 19301-0801.
STOCKHOLDER PROPOSALS FOR THE 2009 PROXY STATEMENT
To be considered for inclusion in the proxy statement for the 2009 Annual Meeting of Stockholders,
stockholder proposals must be received at our executive offices no later than November 14, 2008.
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 2007 Annual Report on Form 10-K and included in
Appendix A to this Proxy Statement. The Committee discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended.
In addition, the Committee received the written disclosures and letter from Ernst & Young LLP
required by Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, 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 nine meetings during
the fiscal year ended December 31, 2007, 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, 2007, 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 14, 2008
9
ELECTION OF DIRECTORS
(Proposal 1 on Proxy Card)
The nominees for election at this years Annual Meeting are Sheldon S. Gordon, Frank S. Hermance
and David P. Steinmann. Messrs. Gordon, Hermance and Steinmann have been nominated to serve as
Class II Directors and, if elected, will serve until the Annual Meeting in 2011.
All proxies received will be voted for the election of the nominees unless the stockholder
submitting the proxy gives other instructions. Nominees will be elected by holders of a plurality
of shares represented either in person or by proxy at the Annual Meeting and entitled to vote. If
any nominee is unable to serve, the shares represented by all valid proxies will be voted for the
election of such other person as the Board may nominate, unless the Board determines to reduce the
number of Directors.
The Directors biographies are set forth on page 11.
Your Board of Directors Recommends a Vote FOR Each of the Nominees.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 2 on Proxy Card)
The Audit Committee has appointed the firm of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2008. 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 2007 and 2006 totaled $4,562,000
and $3,605,000 respectively, and consisted of the following:
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2007 |
|
|
2006 |
|
Audit fees |
|
$ |
4,451,000 |
|
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$ |
3,472,000 |
|
Audit-related fees |
|
|
80,000 |
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50,000 |
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Tax fees |
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24,000 |
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76,000 |
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All other fees |
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7,000 |
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7,000 |
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Total |
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$ |
4,562,000 |
|
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$ |
3,605,000 |
|
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.
10
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.
THE BOARD OF DIRECTORS
Unless we indicate otherwise, each Director has maintained the principal occupation described below
for more than five years.
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Class II: Nominees for election at this Annual Meeting for terms expiring in 2011: |
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SHELDON S. GORDON
Director since 1989
|
|
Chairman of Union Bancaire Privée International Holdings, Inc.
and affiliated entities. A Director of Union Bancaire Privée
and Gulfmark Offshore, Inc. Age 72. |
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|
FRANK S. HERMANCE
Director since 1999
|
|
Chairman of the Board and Chief Executive Officer of AMETEK. A
Director of IDEX Corporation. Age 59. |
|
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DAVID P. STEINMANN
Director since 1993
|
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A Managing Director of American Securities, L.P. and an
executive officer of several affiliated entities. Age 66. |
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|
Class III: Directors whose terms continue until 2009: |
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JAMES R. MALONE
Director since 1994
|
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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. A Director of Regions
Financial Corporation. Age 65. |
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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 64. |
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DENNIS K. WILLIAMS
Director since 2006
|
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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 62. |
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|
Class I: Directors whose terms continue until 2010: |
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CHARLES D. KLEIN
Director since 1980
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A Managing Director of American Securities Capital Partners, LLC
and an executive officer of several affiliated entities. Age 69. |
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STEVEN W. KOHLHAGEN
Director since 2006
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Retired financial executive. A Director of the IQ Investment
Advisors family of Merrill Lynch funds. Age 60. |
11
EXECUTIVE OFFICERS
Officers are appointed by the Board of Directors to serve for the ensuing year and until their
successors have been elected and qualified. Information about our executive officers is shown
below:
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Name |
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Age |
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Present Position with AMETEK |
Frank S. Hermance
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59 |
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Chairman of the Board and Chief Executive Officer |
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John J. Molinelli
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61 |
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Executive Vice PresidentChief Financial Officer |
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Timothy N. Jones
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51 |
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PresidentElectromechanical Group |
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Robert W. Chlebek
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64 |
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PresidentElectronic Instruments |
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David A. Zapico
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43 |
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PresidentElectronic Instruments |
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Robert R. Mandos, Jr.
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49 |
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Senior Vice President and Comptroller |
Frank S. Hermances employment history with us and the other directorship that he currently holds
are described under the section The Board of Directors on page 11. Mr. Hermance has 17 years of
service with us.
John J. Molinelli was elected Executive Vice PresidentChief Financial Officer effective April 22,
1998.
Mr. Molinelli has 39 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 28 years of service with us.
Robert W. Chlebek was elected PresidentElectronic Instruments effective March 1, 1997.
Mr. Chlebek has 11 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 18 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 26 years of service with us.
12
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In this Compensation Discussion and Analysis, we address the compensation paid or awarded to our
executive officers listed in the Summary Compensation Table that immediately follows this
discussion. We refer to these executive officers as our named executive officers.
2007 Compensation
Compensation Objectives
The compensation paid or awarded to our named executive officers for 2007 was designed to meet the
following objectives:
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Provide compensation that is competitive with compensation for other companies
executive officers who provide comparable services, taking into account the size of our
company or operating group, as applicable. We refer to this objective as competitive
compensation. |
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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. |
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Encourage the aggregation and maintenance of meaningful equity ownership, and alignment
of executive and stockholder interests. We refer to this objective as stakeholder
incentives. |
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Provide an incentive for long-term continued employment with us. We refer to this
objective as retention incentives. |
We fashioned various components of our 2007 compensation payments and awards to meet these
objectives as follows:
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Type of Compensation |
|
Objectives Addressed |
Salary
|
|
Competitive Compensation |
|
|
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Short-Term Incentive Awards,
|
|
Competitive Compensation, |
Restricted Stock Awards and
|
|
Performance Incentives, |
Stock Option Grants
|
|
Stakeholder Incentives and |
|
|
Retention Incentives |
Determination of Competitive Compensation
In assessing competitive compensation, we referenced data provided to us by our independent
compensation consultant, Towers Perrin. We use the 50th percentile of the Towers Perrin
general industry group (a collection of over 500 companies who have chosen to participate in the
Towers Perrin survey) as a reference point. Our approach provides us reference information,
allowing us to compete effectively in the marketplace for top talent, while providing us the
flexibility to respond to our changing business conditions and the performance of each individual.
We used the following process to determine a reference point for the compensation for each named
executive officer in 2007:
|
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|
We provided to the compensation consultant a detailed description of the
responsibilities for each named executive officer. |
13
|
|
|
The compensation consultant employed its standard methodology to provide reference
compensation levels for comparable executives. Comparable executives are seasoned
executives having similar responsibilities. The competitive compensation information was
based on general industry data derived principally from the compensation consultants
executive compensation database. The data was size-adjusted to reflect the estimated
revenues of our company and the relevant operating groups. The compensation consultant
advised us that it used general industry data rather than data relating only to electronics
and electronic component companies because general industry data provides a much larger
sampling of companies. |
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 the compensation reference points at the 50th percentile for comparable
executives. We believe that variations within this range typically occur due to differences in
experience, responsibilities and performance.
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 2006 and 2007. Salary adjustments for
Messrs. Hermance, Chlebek and Jones were effective on January 1, so that salary determinations made
in 2006 and 2007 affected their salaries for all of 2007 and 2008, respectively. Salary
adjustments for Messrs. Molinelli and Zapico were effective on July 1, so that Compensation
Committee determinations in 2006 and 2007 affected their salaries for the annual periods beginning
on July 1, 2006 and July 1, 2007, respectively.
As a result of the salary adjustments approved in 2007, 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 2006 to establish
salaries for the named executive officers was similar to the process used in 2007, 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 guideline at the 50th percentile for comparable
executives. However, larger variations, both positive and negative, may result based on actual
performance.
Under our short-term incentive program, we selected performance measures that, in some instances,
differed among the named executive officers. These differences reflect the differing
responsibilities of the executives. We also established targets for each performance measure.
The target goal for each non-discretionary measure in 2007 was derived from our 2007 budget,
subject, in the case of group operating income, to adjustments as described below.
|
|
|
Diluted earnings per share (EPS) We believe that the paramount objective of a
principal executive officer is to increase stockholder return significantly, and that for a
large, well established industrial corporation, EPS is typically a key metric affecting
share price. Therefore, we believe EPS is an excellent measure of our executive officers
performance. |
|
|
|
|
Internal sales growth This measure is applied either on a companywide basis, or, for
our group presidents, with respect to their respective operating groups. We define
internal sales growth as the year-to-year increase in revenues without giving effect to (i)
increases in revenues from businesses that we have acquired but that have not had four full
quarters of operations subsequent to the acquisition and (ii) foreign currency adjustments.
We utilize the measure because we believe that we achieve a greater economic return from
internal growth than through acquisitions. |
14
|
|
|
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. The adjustments to operating unit income in 2007 were the elimination of
specified expenditures for research and development and expenditures for projects to reduce
our ongoing operating costs, and the inclusion of specified financing costs related to
acquisitions. We eliminated research and development expenditures in connection with a
project to support high-potential new development projects. These expenditures were not
initially in the operating unit budgets, and we did not want to penalize the operating unit
for pursuing what we believe to be an important company initiative. We eliminated
expenditures for projects to reduce our ongoing operating costs because the expenditures
were not in the operating unit budgets and we wanted to encourage support for these
programs. We reduced operating unit income by the estimated amount of interest cost we
incur on funds borrowed to finance an acquisition where the results of operations of the
acquired business are included in the units operating results. We believe that reducing
the operating unit income derived from an acquired business by these interest costs better
reflects the contribution of the acquisition to the operating units performance. |
|
|
|
|
Group operating working capital This measure represents inventory plus accounts
receivable less accounts payable as a percentage of sales. We use this measure to
encourage our group presidents to manage our working capital in a manner that increases
cash available for investment. A lower working capital percentage is an indicator of a
group presidents success in increasing our cash resources. |
|
|
|
|
Discretionary A small portion of each executives award is based on discretionary
factors that are deemed appropriate by the Compensation Committee. In the case of the
group presidents, these factors take into account acquisition activity of their respective
operating groups. |
The weighting of performance measures for each named executive officer is set forth in the table
below. The target award is payable upon achievement of 100 percent of a designated goal. Payment
amounts increase from 0 percent to 200 percent of the target award in proportion to the increase
from 80 percent to 120 percent of the goal with regard to each measure other than group internal
growth and group operating working capital. Payment amounts with respect to those measures
increase from 80 percent to 120 percent of the target award in proportion to the increase from 97
percent to 103 percent of the group internal growth goal and from 90 percent to 110 percent of the
group operating working capital goal. The discretionary portions of the award opportunities are
not subject to any specified formula.
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Performance |
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|
Actual Award as |
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Measure as a |
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Percentage of |
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Percentage of Total |
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Target Award |
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|
Designated |
|
Actual |
|
Target Award |
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Actual |
|
Opportunity for the |
Name |
|
Performance Measure |
|
Goal |
|
Results |
|
Opportunity |
|
Award |
|
Performance Measure |
|
Frank S. Hermance |
|
Diluted Earnings Per Share |
|
$ |
1.95 |
|
|
$ |
2.12 |
|
|
|
80 |
% |
|
$ |
851,000 |
|
|
|
144 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
20 |
% |
|
|
296,000 |
|
|
|
200 |
% |
|
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|
|
|
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|
|
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|
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|
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|
|
|
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|
John J. Molinelli |
|
Diluted Earnings Per Share |
|
$ |
1.95 |
|
|
$ |
2.12 |
|
|
|
70 |
% |
|
|
242,000 |
|
|
|
144 |
% |
|
|
Internal Sales Growth |
|
$ |
1,998,354,000 |
|
|
$ |
2,023,824,122 |
|
|
|
10 |
% |
|
|
35,000 |
|
|
|
143 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
20 |
% |
|
|
97,000 |
|
|
|
200 |
% |
|
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|
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|
|
Robert W. Chlebek |
|
Diluted Earnings Per Share |
|
$ |
1.95 |
|
|
$ |
2.12 |
|
|
|
35 |
% |
|
|
102,000 |
|
|
|
144 |
% |
|
|
Group Internal Sales Growth |
|
$ |
584,869,000 |
|
|
$ |
593,995,599 |
|
|
|
10 |
% |
|
|
31,000 |
|
|
|
152 |
% |
|
|
Group Operating Income |
|
$ |
149,193,000 |
|
|
$ |
161,075,244 |
|
|
|
35 |
% |
|
|
99,000 |
|
|
|
140 |
% |
|
|
Group Working Capital |
|
|
23.80 |
% |
|
|
27.40 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
Discretionary |
|
|
100 |
% |
|
|
200 |
% |
|
|
10 |
% |
|
|
41,000 |
|
|
|
200 |
% |
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
Diluted Earnings Per Share |
|
$ |
1.95 |
|
|
$ |
2.12 |
|
|
|
35 |
% |
|
|
107,000 |
|
|
|
144 |
% |
|
|
Group Internal Sales Growth |
|
$ |
718,124,000 |
|
|
$ |
746,194,928 |
|
|
|
10 |
% |
|
|
43,000 |
|
|
|
200 |
% |
|
|
Group Operating Income |
|
$ |
145,114,000 |
|
|
$ |
163,185,777 |
|
|
|
35 |
% |
|
|
120,000 |
|
|
|
162 |
% |
|
|
Group Working Capital |
|
|
20.80 |
% |
|
|
20.60 |
% |
|
|
10 |
% |
|
|
26,000 |
|
|
|
124 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
193 |
% |
|
|
10 |
% |
|
|
41,000 |
|
|
|
193 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
Diluted Earnings Per Share |
|
$ |
1.95 |
|
|
$ |
2.12 |
|
|
|
35 |
% |
|
|
91,000 |
|
|
|
144 |
% |
|
|
Group Internal Sales Growth |
|
$ |
695,361,000 |
|
|
$ |
683,633,596 |
|
|
|
10 |
% |
|
|
8,000 |
|
|
|
44 |
% |
|
|
Group Operating Income |
|
$ |
103,840,000 |
|
|
$ |
109,509,440 |
|
|
|
35 |
% |
|
|
81,000 |
|
|
|
127 |
% |
|
|
Group Working Capital |
|
|
21.00 |
% |
|
|
22.40 |
% |
|
|
10 |
% |
|
|
12,100 |
|
|
|
67 |
% |
|
|
Discretionary |
|
|
100 |
% |
|
|
181 |
% |
|
|
10 |
% |
|
|
32,900 |
|
|
|
181 |
% |
15
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,
$1,147,000 (155%); Mr. Molinelli, $374,000 (155%); Mr. Chlebek, $273,000 (135%); Mr. Zapico,
$337,000 (159%); and Mr. Jones, $225,000 (124%). In accordance with SEC regulations, the award
payments are reflected in two separate columns of the Summary Compensation Table. The
discretionary awards for the named executive officers appear in the Bonus column. The other
awards are reflected in the Non-Equity Incentive Plan Compensation column.
The actual total cash compensation for the named executive officers, as a percentage of the dollar
amount of total cash compensation at the 50th percentile reference point for comparable
executives, ranged from 102% to 130%.
In providing a discretionary award to Mr. Hermance, the Compensation Committee considered our
success with respect to our four growth strategies:
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|
|
Operational Excellence Our operating income margin increased to 18.1
percent in 2007 from 17 percent in 2006. |
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|
|
Global and market expansion We increased international sales by 22
percent in 2007 as compared to 2006. |
|
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|
Strategic acquisitions We completed seven acquisitions in 2007 that
added approximately $230 million in annualized revenue. |
|
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|
|
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 and the 47% increase in our stock price in 2007. 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 $279 million, a 23 percent increase
from $226 million in 2006. The group presidents discretionary awards reflected the Committees
assessment of acquisition activities for their respective operating groups.
16
Equity-Based Compensation
Our equity-based compensation in 2007 included awards of stock options and restricted stock. We
used data provided by the compensation consultant in 2007 to establish target levels of
equity-based compensation. These levels were based on a Black-Scholes model, with regard to
long-term incentives at the 50th percentile for comparable executives, taking into account the
scope of the named executives responsibilities. In considering the data provided by the
compensation consultant, we concurred with the compensation consultants view that an equity-based
award is competitive if it is within 15% above or below the 50th percentile for
comparable executives.
The Compensation Committee has the discretion to modify the actual award for each named executive
from the target levels. In exercising its discretion, the Compensation Committee considers each
executives contribution to the success of the four growth strategies described on page 16 and the
upgrading of our leadership talent in 2006. In April 2007, the Compensation Committee made awards
to the named executive officers that were within the range of 15 percent above or below the
targets described above, except for the award to Mr. Zapico. The Compensation Committee increased
Mr. Zapicos award to 118% of target in recognition of the outstanding performance in 2006 of the
businesses under his supervision, including the businesses excellent performance with respect to
our four growth strategies. As a result of these Compensation Committee decisions, the total
amount of long-term incentive awards available to the named executive officers, provided all
vesting conditions are satisfied, is shown in the following table:
|
|
|
|
|
|
|
Actual |
Name |
|
Award |
Frank S. Hermance |
|
$ |
2,232,270 |
|
John J. Molinelli |
|
|
538,292 |
|
Robert W. Chlebek |
|
|
350,151 |
|
David A. Zapico |
|
|
450,284 |
|
Timothy N. Jones |
|
|
350,151 |
|
We applied 50 percent of the amount of the long-term incentive award to stock options, and 50
percent to restricted stock. Our stock options were valued at $8.75 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 under Option Awards generally reflects the dollar
amount recognized for financial statement purposes in accordance with SFAS 123(R). Therefore, it
includes amounts with respect to only a portion of the options granted in 2007, 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 award 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 $31.25 to $27.67, reflecting a forfeiture assumption of
three 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.
17
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 ($225,000 in 2007), and the maximum
annual benefits payable under the plan also are subject to Internal Revenue Code limits
($180,000 in 2007). Messrs. Hermance, Molinelli, Zapico and Jones participate in The
Employees Retirement Plan. See the Pension Benefits table and accompanying narrative for
additional information. |
18
|
|
|
The Retirement and Savings Plan This is a tax-qualified defined contribution plan
under which our participating employees may contribute a percentage of specified
compensation on a pretax basis. In the case of highly compensated employees, including the
named executive officers, contributions of up to ten percent of eligible compensation can
be made, subject to a limit mandated by the Internal Revenue Code, which was $15,500 for
2007, or, if the participant was at least 50 years old, $20,500. We provide a matching
contribution equal to one-third of the first six percent of compensation contributed,
subject to a maximum of $1,200. A participant may invest the participants contributions
and matching contributions in one or more of a number of investment alternatives, including
our Common Stock, and the value of a participants account will be determined by the
investment performance of the participants account. No more than 25 percent of a
participants contributions can be invested in our Common Stock. All of the named executive
officers participate in The Retirement and Savings Plan. Our matching contributions are
included in the All Other Compensation column of the Summary Compensation Table. |
|
|
|
|
Retirement Feature of The Retirement and Savings Plan The Retirement Feature is
available to participants in The Retirement and Savings Plan who meet specified criteria,
including ineligibility to participate in any of our defined benefit plans. 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 2007, compensation in
excess of $225,000 constitutes excess compensation. Under the SERP, each year we credit to
the account of a participant an amount equal to 13% of the executives excess compensation,
which is then deemed to be invested in our Common Stock. Payout of an executives account,
which is subject to tax liability, occurs upon termination of the executives employment
and is made in shares of our Common Stock. Therefore, the ultimate value of the shares paid
out under the SERP will depend on the performance of our Common Stock during the period an
executive participates in the SERP. All of the named executive officers participate in the
SERP. See the Non-qualified Deferred Compensation table and accompanying narrative for
additional information. |
|
|
|
|
Deferred Compensation Plan This plan provides an opportunity for executives to defer
payment of their short-term incentive award to the extent that such award, together with
other relevant compensation, constitutes excess compensation. In advance of the year in
which the short-term incentive award will be paid, an executive may elect to defer all or
part of his eligible incentive award into a notional investment in our Common Stock, in an
interest-bearing account or in both. A participant generally may elect to have the value of
his or her account distributed following retirement, either in a lump sum or in up to five
annual installments, or in the form of an in-service distribution, payable either in a lump
sum or in up to four annual installments commencing on a date specified by the participant
in his or her distribution election. Payments may commence sooner upon the participants
earlier separation from service, upon the death of the participant, in the event of an
unforeseeable financial emergency or upon a change of control. Payments from the notional
Common Stock fund are made in shares of our Common Stock, while payments from the
interest-bearing account are paid in cash. Messrs. Hermance, Molinelli and Chlebek
participate in the Deferred Compensation Plan. See the Non-qualified Deferred Compensation
table and accompanying narrative for additional information. |
19
|
|
|
Supplemental Senior Executive Death Benefit Program Under this program, Messrs.
Hermance and Molinelli have entered into agreements that require us to pay death benefits
to their designated beneficiaries and to pay benefits to them under certain circumstances
during their lifetimes. If a covered executive dies before retirement or before age 65
while on disability retirement, the executives beneficiary will receive monthly payments
of up to $8,333 from the date of the executives death until the date he or she would have
attained age 80. If a covered executive retires, or reaches age 65 while on disability
retirement, the Program provides for a maximum benefit of $100,000 per year for a period of
10 years. We have purchased insurance policies on the lives of Messrs. Hermance and
Molinelli to fund our obligations under the program. See the Pension Benefits table and
accompanying narrative for additional information. |
|
|
|
|
2004 Executive Death Benefit Plan This plan, 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 $8,333 until the participant
would have reached age 80. If the executive retires (either at age 65 or after attaining
age 55 with at least five years of service) the executive will be entitled to receive a
distribution based on the value of his account in the plan, which is determined by gains or
losses on, and death benefits received under, a pool of insurance policies that we own
covering the lives of participants. Messrs. Chlebek, Jones and Zapico participate in this
plan. See the Non-qualified Deferred Compensation table and accompanying narrative for
further information. |
|
|
|
|
Change of Control Agreements We have change of control agreements with each of our
executive officers, which are described under Potential Payments Upon Termination or
Change of Control. We entered into these change of control agreements so that our
executives can focus their attention and energies on our business during periods of
uncertainty that may occur due to a potential change of control. In addition, we want our
executives to support a corporate transaction involving a change of control that is in the
best interests of our stockholders, even though the transaction may have an effect on the
executives continued employment with us. We believe these arrangements provide an
important incentive for our executives to remain with us. Our agreement with each executive
other than Mr. Hermance provides for payments and other benefits to the executive if we
terminate the executives employment without cause or if the executive terminates
employment for good reason within two years following a change of control. Mr. Hermances
change of control agreement differs from those of the other named executive officers with
respect to the amount of the payment and the scope of the benefits upon the change of
control events and does not have the two-year limit applicable to the other executives
following the change of control. Given the critical nature of his role as Chief Executive,
his tenure with us, and our interest in retaining his services, we believe that it is
appropriate to provide Mr. Hermance with this protection so that he is free to focus all of
his attention on the growth and future of the company, even in a period following a change
of control. We believe that the incentive provided by these additional benefits is well
worth any potential cost. For these same reasons, we also have agreed to provide payments
and other benefits to Mr. Hermance if, outside of the context of a change of control, we
terminate his employment without cause or he terminates his employment for good reason. In
addition, Mr. Hermances agreement differs from the other agreements with respect to
payments that exceed the limitations under Section 280G of the Internal Revenue Code. The
other executives agreements limit the payments made upon a change of control to the
maximum amount that may be paid without an excise tax and loss of corporate tax deduction
under Sections 4999 and 280G of the Internal Revenue Code. Mr. Hermances agreement does
not contain this limitation and instead provides that if the total payments to Mr. Hermance
under 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. |
20
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 2007 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 not be deductible. In addition, we will make an additional payment to
Mr. Hermance if payments to him resulting from a change of control are subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code. We 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, as disclosed in our proxy statement for the 2006 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 the 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-of-control payment, as well as any taxes that accrue as a result of our reimbursement. We
believe that, in light of Mr. Hermances outstanding record in enhancing value for our
stockholders, this determination is appropriate.
Role of Executive Officers in Determining Executive Compensation For Named Executive Officers
In connection with 2007 compensation, Mr. Hermance, aided by our human resources department,
provided statistical data and recommendations to the Compensation Committee to assist it in
determining compensation levels. Mr. Hermance did not make recommendations as to his own
compensation. While the Compensation Committee utilized this information, and valued Mr. Hermances
observations with regard to other executive officers, the ultimate decisions regarding executive
compensation were made by the Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee reviewed and discussed with management the Compensation Discussion and
Analysis required by Securities and Exchange Commission regulations. Based on its review and
discussions, the Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this Proxy Statement.
Respectfully submitted,
The Compensation Committee:
Charles D. Klein, Chairperson
James R. Malone
Elizabeth R. Varet
Dated: March 14, 2008
21
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE 2007
The following table provides information regarding the compensation of our Chief Executive Officer,
Chief Financial Officer and other three most highly compensated executive officers.
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|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Deferred |
|
|
All Other |
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation Earnings |
|
|
Compensation |
|
|
|
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
(1) |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
|
Total |
|
Frank S. Hermance |
|
|
2007 |
|
|
$ |
740,000 |
|
|
$ |
296,000 |
|
|
$ |
3,683,817 |
|
|
$ |
1,236,216 |
|
|
$ |
851,000 |
|
|
$ |
92,024 |
|
|
$ |
417,117 |
|
|
$ |
7,316,244 |
|
Chairman of the Board and Chief Executive Officer |
|
|
2006 |
|
|
|
700,000 |
|
|
|
280,000 |
|
|
|
3,119,931 |
|
|
|
1,291,890 |
|
|
|
952,000 |
|
|
|
84,247 |
|
|
|
383,942 |
|
|
|
6,812,009 |
|
John J. Molinelli |
|
|
2007 |
|
|
|
355,000 |
|
|
|
97,000 |
|
|
|
391,942 |
|
|
|
304,350 |
|
|
|
277,000 |
|
|
|
75,213 |
|
|
|
74,396 |
|
|
|
1,574,901 |
|
Executive Vice President Chief Financial
Officer |
|
|
2006 |
|
|
|
330,000 |
|
|
|
89,000 |
|
|
|
237,695 |
|
|
|
330,469 |
|
|
|
308,000 |
|
|
|
107,293 |
|
|
|
87,815 |
|
|
|
1,490,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
2007 |
|
|
|
310,000 |
|
|
|
41,000 |
|
|
|
301,166 |
|
|
|
273,327 |
|
|
|
232,000 |
|
|
|
186,846 |
|
|
|
80,032 |
|
|
|
1,424,371 |
|
PresidentElectronic Instruments |
|
|
2006 |
|
|
|
300,000 |
|
|
|
19,600 |
|
|
|
189,323 |
|
|
|
276,087 |
|
|
|
250,400 |
|
|
|
133,889 |
|
|
|
69,833 |
|
|
|
1,239,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
2007 |
|
|
|
310,000 |
|
|
|
41,000 |
|
|
|
309,247 |
|
|
|
230,712 |
|
|
|
296,000 |
|
|
|
35,318 |
|
|
|
74,518 |
|
|
|
1,296,795 |
|
PresidentElectronic Instruments |
|
|
2006 |
|
|
|
285,000 |
|
|
|
19,700 |
|
|
|
186,411 |
|
|
|
201,292 |
|
|
|
323,300 |
|
|
|
26,117 |
|
|
|
71,183 |
|
|
|
1,113,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
2007 |
|
|
|
277,000 |
|
|
|
32,900 |
|
|
|
209,992 |
|
|
|
161,785 |
|
|
|
192,100 |
|
|
|
65,612 |
|
|
|
43,799 |
|
|
|
983,188 |
|
President Electromechanical Group |
|
|
2006 |
|
|
|
247,527 |
|
|
|
21,400 |
|
|
|
118,078 |
|
|
|
141,703 |
|
|
|
222,600 |
|
|
|
42,084 |
|
|
|
44,954 |
|
|
|
838,346 |
|
|
|
|
(1) |
|
The amounts shown for stock awards relate to restricted shares granted under our 1999 and
2002 Stock Incentive Plans. These amounts are equal to the dollar amounts recognized with
respect to the stock awards for financial statement purposes, computed in accordance with SFAS
123(R), but without giving effect to estimated forfeitures related to service-based vesting
conditions. The assumptions used in determining the amounts in this column are set forth in
note 8 to our consolidated financial statements on page 38 of Appendix A to this proxy
statement. For information regarding the number of shares subject to 2007 awards, other
features of the awards and the grant date fair value of the awards, see the Grants of
Plan-Based Awards table on page 24. |
|
(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 with respect to the option
awards for financial statement purposes, computed in accordance with SFAS 123(R), but without
giving effect to estimated forfeitures related to service-based vesting conditions. The
assumptions used in determining the amounts in this column are set forth in note 8 to our
consolidated financial statements on page 38 of Appendix A to this proxy statement. For
information regarding the number of shares subject to 2007 awards, other features of those
awards, and the grant date fair value of the awards, see the Grants of Plan-Based Awards table
on page 24. |
|
(3) |
|
Represents payments under our short-term incentive program based on achievement of
companywide or operating group performance measures. See Compensation Discussion and Analysis
2007 Compensation Short-Term Incentive Program. |
22
|
|
|
(4) |
|
Includes, for 2007, the aggregate change in actuarial present value of the accumulated
benefit under defined benefit plans as follows: Mr. Hermance, $46,800; Mr. Molinelli, $67,800;
Mr. Zapico, $5,100; Mr. Jones, $12,800. Also includes earnings on non-qualified deferred
compensation plans, to the extent required to be disclosed under SEC regulations, as follows:
Mr. Hermance, $45,224; Mr. Molinelli, $7,413; Mr. Chlebek, $186,846; Mr. Zapico, $30,218; Mr.
Jones, $52,812. In the Summary Compensation Table included in last years proxy statement, we
included earnings on non-qualified deferred compensation based on an increase in the value of
participants notional investment in AMETEK Common Stock. However, we believe these amounts
should not have been included because they reflected only the actual market appreciation in
AMETEK Common Stock and did not provide an above-market return. Therefore, these amounts are
no longer reflected in the 2006 figure. |
|
(5) |
|
Included in All Other Compensation for 2007 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, $217,260; Mr. Molinelli, $66,720;
Mr. Chlebek, $63,400; Mr. Zapico, $56,060; Mr. Jones, $37,210. |
|
|
|
|
dividends on restricted stock and the interest on the dividend balance, which
totaled $165,062 for Mr. Hermance, and are subject to forfeiture if the related
restricted stock does not vest. |
|
|
|
|
perquisites, which totaled $33,712 for Mr. Hermance; $10,329 for Mr. Chlebek; and
$12,976 for Mr. Zapico. Perquisites included automobile allowances for all of the named
executive officers and golf and country club dues for Mr. Hermance. |
23
GRANTS OF PLAN-BASED AWARDS 2007
The following table provides details regarding plan-based awards granted to the named executive
officers in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
Estimated Possible Payouts Under |
|
|
Shares of |
|
|
Securities |
|
|
Exercise or |
|
|
Fair Value of |
|
|
|
|
|
|
|
Non-Equity Incentive Plan |
|
|
Stock or |
|
|
Underlying |
|
|
Base Price |
|
|
Stock and |
|
|
|
Grant |
|
|
Awards(1) |
|
|
Units |
|
|
Options |
|
|
of Option |
|
|
Option |
|
Name |
|
Date |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
(2) |
|
|
(3) |
|
|
Awards |
|
|
Awards
(4) |
|
Frank S. |
|
|
3/06/07 |
|
|
|
|
|
|
|
$ 740,000 |
|
|
|
$ 1,480,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Hermance |
|
|
4/24/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,340 |
|
|
|
127,550 |
|
|
|
$ 36.44 |
|
|
|
$ 2,685,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
3/06/07 |
|
|
|
|
|
|
|
241,000 |
|
|
|
482,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Molinelli |
|
|
4/24/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,730 |
|
|
|
30,750 |
|
|
|
36.44 |
|
|
|
647,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
3/06/07 |
|
|
|
|
|
|
|
202,000 |
|
|
|
404,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Chlebek |
|
|
4/24/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,330 |
|
|
|
20,000 |
|
|
|
36.44 |
|
|
|
421,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
3/06/07 |
|
|
|
|
|
|
|
212,000 |
|
|
|
424,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Zapico |
|
|
4/24/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,140 |
|
|
|
25,720 |
|
|
|
36.44 |
|
|
|
541,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
3/06/07 |
|
|
|
|
|
|
|
181,000 |
|
|
|
362,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
Jones |
|
|
4/24/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,330 |
|
|
|
20,000 |
|
|
|
36.44 |
|
|
|
421,265 |
|
|
|
|
(1) |
|
These awards were made under our short-term incentive program. See Compensation Discussion
and Analysis 2007 Compensation Short-Term Incentive Program for information regarding
the criteria applied in determining the amounts payable under the awards. There were no
threshold amounts payable under the short-term incentive program. The actual amounts paid with
respect to these awards are included in the Non-Equity Incentive Plan Compensation column in
the Summary Compensation Table on page 22. Targets reflect the July 1, 2007 salary for each
individual, as required by the program. |
|
(2) |
|
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 $72.88 per share, (b) the
death or permanent disability of the grantee, (c) the termination of the grantees employment
with us in connection with a change of control, (d) the fourth anniversary of the date of
grant, namely April 24, 2011, provided the grantee has been employed by us continuously
through that date, or (e) the grantees retirement from employment with us at or after age 55
and the completion of at least ten years of employment with us, in which case only a pro rata
portion of the shares will become nonforfeitable and transferable based upon the time that has
elapsed since the date of grant. Cash dividends are earned on the restricted shares but are
not paid until the restricted shares vest. Until the restricted stock vests, the dividends
accrue interest at the 5-year Treasury note rate plus .5%, compounded quarterly. |
|
(3) |
|
The 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 or permanent disability, normal retirement or termination of employment in
connection with a change of control. |
|
(4) |
|
The grant date fair value is computed in accordance with SFAS 123(R). |
24
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2007
The following table provides details regarding outstanding equity awards for the named executive
officers at December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
|
Stock Awards (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
Option |
|
|
Options |
|
|
Options |
|
|
Exercise |
|
|
Expiration |
|
|
Have Not |
|
|
Have Not |
|
Name |
|
Grant Date |
|
|
Exercisable |
|
|
Unexercisable |
|
|
Price |
|
|
Date |
|
|
Vested |
|
|
Vested (3) |
|
Frank S. |
|
|
5/22/2002 |
|
|
|
210,000 |
|
|
|
|
|
|
|
12.54667 |
|
|
|
5/21/2009 |
|
|
|
648,920 |
|
|
$ |
30,395,413 |
|
Hermance |
|
|
5/20/2003 |
|
|
|
240,000 |
|
|
|
|
|
|
|
12.04167 |
|
|
|
5/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
5/18/2004 |
|
|
|
134,246 |
|
|
|
44,749 |
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
9/22/2004 |
|
|
|
63,095 |
|
|
|
21,032 |
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
65,287 |
|
|
|
65,288 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
31,653 |
|
|
|
94,962 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
127,550 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
|
5/22/2002 |
|
|
|
82,500 |
|
|
|
|
|
|
|
12.54667 |
|
|
|
5/21/2009 |
|
|
|
27,865 |
|
|
|
1,305,197 |
|
Molinelli |
|
|
5/20/2003 |
|
|
|
90,000 |
|
|
|
|
|
|
|
12.04167 |
|
|
|
5/19/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
5/18/2004 |
|
|
|
29,531 |
|
|
|
9,844 |
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
9/22/2004 |
|
|
|
27,765 |
|
|
|
9,255 |
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
13,935 |
|
|
|
13,935 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
6,997 |
|
|
|
20,993 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
30,750 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
|
5/18/2004 |
|
|
|
|
|
|
|
7,500 |
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
21,510 |
|
|
|
1,007,528 |
|
Chlebek |
|
|
9/22/2004 |
|
|
|
7,050 |
|
|
|
7,050 |
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
12,067 |
|
|
|
12,068 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
5,621 |
|
|
|
16,864 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
20,000 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
|
5/18/2004 |
|
|
|
22,500 |
|
|
|
7,500 |
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
22,855 |
|
|
|
1,070,528 |
|
Zapico |
|
|
9/22/2004 |
|
|
|
21,150 |
|
|
|
7,050 |
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
11,407 |
|
|
|
11,408 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
5,621 |
|
|
|
16,864 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
25,720 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
|
5/20/2003 |
|
|
|
6,750 |
|
|
|
|
|
|
|
12.04167 |
|
|
|
5/19/2010 |
|
|
|
16,560 |
|
|
|
775,670 |
|
Jones |
|
|
5/18/2004 |
|
|
|
4,885 |
|
|
|
3,285 |
|
|
|
17.45000 |
|
|
|
5/17/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
9/22/2004 |
|
|
|
15,423 |
|
|
|
5,142 |
|
|
|
20.27000 |
|
|
|
9/21/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
4/27/2005 |
|
|
|
5,040 |
|
|
|
5,040 |
|
|
|
25.28667 |
|
|
|
4/26/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
4/26/2006 |
|
|
|
5,621 |
|
|
|
16,864 |
|
|
|
33.26667 |
|
|
|
4/25/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2007 |
|
|
|
|
|
|
|
20,000 |
|
|
|
36.44000 |
|
|
|
4/23/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All option grants become exercisable as to 25% of the underlying shares on each of the first
four anniversaries of the dates of grant. |
(Footnotes continue on following page.)
25
(2) |
|
The following table sets forth grant and vesting information for the outstanding restricted
stock awards for all named executive officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares or |
|
|
|
|
|
|
Price-Related Event |
|
|
|
|
|
|
|
Units of Stock That |
|
|
|
|
|
|
for Accelerated |
|
Name |
|
Grant Date |
|
|
Have Not Vested |
|
|
Vesting Date |
|
|
Vesting* |
|
Frank S. Hermance |
|
|
4/27/2005 |
|
|
|
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 |
|
|
|
|
4/24/2007 |
|
|
|
40,340 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
4/27/2005 |
|
|
|
9,840 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
8,295 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
9,730 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
4/27/2005 |
|
|
|
8,520 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
6,330 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
4/27/2005 |
|
|
|
8,055 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
8,140 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
4/27/2005 |
|
|
|
3,570 |
|
|
|
4/27/2009 |
|
|
|
50.10 |
|
|
|
|
4/26/2006 |
|
|
|
6,660 |
|
|
|
4/26/2010 |
|
|
|
66.14 |
|
|
|
|
4/24/2007 |
|
|
|
6,330 |
|
|
|
4/24/2011 |
|
|
|
72.88 |
|
|
|
|
|
|
* The price-related event for accelerated vesting of the restricted stock awards will occur
if the closing price per share of our Common Stock for five consecutive trading days is
equal to at least two times the closing price per share on the date of grant. |
|
(3) |
|
The dollar values are based on the closing price of our Common Stock on December 31, 2007
($46.84). Cash dividends will be earned but will not be paid until the restricted shares vest.
The dividends will be payable at the same rate as dividends to holders of our outstanding
Common Stock. Until the restricted stock vests, the dividends accrue interest at the 5-year
Treasury note rate plus .5%, compounded quarterly. |
26
OPTION EXERCISES AND STOCK VESTED 2007
|
|
The following table provides information regarding option exercises and vesting of restricted
stock awards for the named executive officers in 2007. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (2) |
|
Frank S. Hermance |
|
|
240,000 |
|
|
$ |
6,693,746 |
|
|
|
94,725 |
|
|
|
$3,577,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
97,500 |
|
|
|
3,377,891 |
|
|
|
27,795 |
|
|
|
1,076,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
68,474 |
|
|
|
1,749,682 |
|
|
|
21,165 |
|
|
|
819,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
27,000 |
|
|
|
766,941 |
|
|
|
21,165 |
|
|
|
819,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
31,970 |
|
|
|
700,281 |
|
|
|
12,345 |
|
|
|
487,057 |
|
|
|
|
(1) |
|
The value realized on exercise is equal to the difference between the market price of the
shares acquired upon exercise and the option exercise price for the acquired shares. |
|
(2) |
|
On February 20, 2007, the price-related event for accelerated vesting of the restricted stock
granted on May 18, 2004 occurred. The total value realized on vesting is equal to (1) the
closing price per share of our Common Stock on February 20, 2007 ($35.36) multiplied by the
number of shares acquired on vesting, minus the $0.01 par value per share paid by the named
executive, (2) the dividends accrued since the date of award, and (3) the interest accrued on
these dividends. |
|
|
|
In addition, on July 9, 2007, the price-related event for accelerated vesting of the restricted
stock granted on September 22, 2004 occurred. The total value realized on vesting is equal to
(1) the closing price per share of our Common Stock on July 9, 2007 ($41.01) multiplied by the
number of shares acquired on vesting, minus the $0.01 par value per share paid by the named
executive, (2) the dividends accrued since the date of award, and (3) the interest accrued on
these dividends. |
27
PENSION BENEFITS 2007
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 ($225,000 for 2007) 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
where:
|
|
|
A = 32.0% of eligible compensation not in excess of Social Security
covered compensation plus 40.0% of eligible compensation in excess of
Social Security covered compensation, times credited service at the
normal retirement date (maximum of 15 years) divided by 15; |
|
|
|
|
B = 0.5% of eligible plan compensation times credited service at the
normal retirement date in excess of 15 years (maximum of ten years);
and |
|
|
|
|
C = current credited service divided by credited service at the
normal retirement date. |
Participants may retire as early as age 55 with 10 years of service. Unreduced benefits
are available when a participant attains age 65 with 5 years of service. Otherwise,
benefits are reduced 6.67% for each year by which pension commencement precedes the
attainment of age 65. Pension benefits earned are distributed in the form of a lifetime
annuity. Messrs. Hermance and Molinelli are eligible for early retirement under the plan.
|
|
|
Supplemental Senior Executive Death Benefit Program Under this program, we have
entered into individual agreements with Messrs. Hermance and Molinelli that require us to
pay death benefits to their designated beneficiaries and to pay lifetime benefits to them
under specified circumstances. If a covered executive dies before retirement or before age
65 while on disability retirement, the executives beneficiary will receive monthly
payments of up to $8,333 from the date of the executives death until the date he would
have attained age 80. If a covered executive retires, or reaches age 65 while on
disability retirement, the program provides for an annual benefit of up to a maximum of
$100,000 per year, or an aggregate of $1,000,000. The benefit is payable monthly over a
period of ten years to the executive or the executives beneficiary. The payments will
commence for retirees at age 70 or death, whichever is earlier. However, if the executive
retires after age 70, the payments commence on retirement. To fund benefits under the
Program, we have purchased individual life insurance policies on the lives of certain of
the covered executives. We retain the right to terminate all of the Program agreements
under designated circumstances. |
28
The following table provides details regarding the present value of accumulated benefits under the
plans described above for the named executive officers in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present |
|
|
|
|
|
|
Number of Years |
|
Value of |
|
|
|
|
|
|
Credited Service |
|
Accumulated |
|
Payments During |
Name |
|
Plan Name |
|
at December 31, 2007 |
|
Benefit (1) |
|
2007 |
Frank S. |
|
The Employees Retirement Plan |
|
|
16 |
|
|
$ |
530,600 |
|
|
|
|
Hermance |
|
Supplemental Senior Executive Death Benefit Plan |
|
|
11 |
|
|
|
384,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. |
|
The Employees Retirement Plan |
|
|
38 |
|
|
|
846,100 |
|
|
|
|
Molinelli |
|
Supplemental Senior Executive Death Benefit Plan |
|
|
11 |
|
|
|
284,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. |
|
N/A |
|
|
N/A |
|
|
|
N/A |
|
|
N/A |
|
Chlebek |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. |
|
The Employees Retirement Plan |
|
|
18 |
|
|
|
114,400 |
|
|
|
|
Zapico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. |
|
The Employees Retirement Plan |
|
|
28 |
|
|
|
273,900 |
|
|
|
|
Jones |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown in the Pension Benefit Table above are actuarial present values of the
benefits accumulated through December 31, 2007. We used the following assumptions in
quantifying the present value of the accumulated benefit: discount rate 6.25%; limitation on
eligible annual compensation under the Internal Revenue Code $225,000; limitation on
eligible annual benefits under the Internal Revenue Code $180,000; retirement age 65;
termination and disability rates none; form of payment single life annuity; RP-2000
mortality table, as adjusted. |
29
NON-QUALIFIED DEFERRED COMPENSATION 2007
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 ($225,000 in 2007). Under the SERP, each year we credit to the account of a
participant an amount equal to 13% of the executives compensation that exceeds the
Department of the Treasury limits, which is then deemed to be invested in our Common Stock.
Payout of an executives account occurs upon termination of the executives employment and
is made in shares of our Common Stock. Therefore, the ultimate value of the shares paid
out under the SERP will depend on the performance of our Common Stock during the period an
executive participates in the SERP. |
|
|
|
|
Deferred Compensation Plan This plan provides an opportunity for executives to defer
payment of their short-term incentive award to the extent that such award, together with
other relevant compensation, exceeds limits imposed by the Department of the Treasury
($225,000 in 2007). In advance of the year in which the short-term incentive award will be
paid, an executive may elect to defer all or part of his eligible incentive award. The
monies are invested in one of two notional accounts, a Common Stock fund and an
interest-bearing fund. A participant generally may elect to have the value of his or her
account distributed following retirement, or while in service, as specified by the
participant in his or her deferral election. Payments may commence earlier upon the
participants earlier separation from service, upon the death of the participant, in the
event of an unforeseeable financial emergency or upon a change of control, as defined in
the plan. Payments from the notional Common Stock fund are made in shares of our Common
Stock, while payments from the interest-bearing account are paid in cash. |
|
|
|
|
2004 Executive Death Benefit Plan Under this plan, we provide a retirement benefit to
Messrs. Chlebek, 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 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (3) |
|
Frank S. Hermance |
|
$ |
1,214,136 |
|
|
$ |
216,060 |
|
|
$ |
2,270,452 |
|
|
|
|
|
|
$ |
13,255,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Molinelli |
|
|
195,622 |
|
|
|
65,520 |
|
|
|
749,557 |
|
|
|
|
|
|
|
3,366,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Chlebek |
|
|
172,955 |
|
|
|
46,150 |
|
|
|
582,626 |
|
|
|
|
|
|
|
2,127,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Zapico |
|
|
|
|
|
|
54,860 |
|
|
|
171,830 |
|
|
|
|
|
|
|
546,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy N. Jones |
|
|
|
|
|
|
36,010 |
|
|
|
124,324 |
|
|
|
|
|
|
|
345,996 |
|
30
|
|
|
(1) |
|
Includes for each named executive officer the following amounts that are also reported in the
Summary Compensation Table on page 22: Mr. Hermance, $216,060; Mr. Molinelli, $65,520;
Mr. Chlebek, $46,150; Mr. Zapico, $54,860; Mr. Jones, $36,010. |
|
(2) |
|
Includes for each named executive officer the following amounts that are also reported in the
Summary Compensation Table on page 22: Mr. Hermance, $45,224; Mr. Molinelli, $7,413;
Mr. Chlebek, $186,846; Mr. Zapico, $30,218; Mr. Jones, $52,812. |
|
(3) |
|
Includes for five of the named executive officers the following amounts that were reported as
compensation in the Summary Compensation Table in previous years: Mr. Hermance, $7,323,843;
Mr. Molinelli, $1,418,677; Mr. Chlebek, $985,456; Mr. Zapico, $179,229; Mr. Jones, $72,029. |
31
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 2007 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 2007 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, 2007.
Change of Control Agreements. Under our change of control agreements with our named executive
officers other than Mr. Hermance, in the event that a named executive officers employment is
terminated by us without cause or by the named executive officer for good reason within two years
beginning on the effective date of a change of control, the executive officer will receive: (1)
2.99 times the sum of (a) the executive officers base salary in effect on the last day of the
fiscal year immediately preceding the effective date of the change of control and (b) the greater
of the target bonus for the fiscal year in which the change of control occurred or the average of
the bonus received for the two previous fiscal years; all cash payments will be paid when permitted
under Section 409A of the Code, namely, on the first day of the seventh month following the
termination date; and (2) continuation of health benefits until the earliest to occur of Medicare
eligibility, coverage under another group health plan without a pre-existing condition limitation,
the expiration of ten years, or the executive officers death. Payments to executive officers
other than Mr. Hermance under the change of control agreements will be reduced, if necessary, to
prevent them from being subject to the limitation on deductions under Section 280G of the Internal
Revenue Code. The Compensation Committee selected the 2.99 times multiple of salary and bonus to
reflect competitive market levels for such agreements and, except in the case of Mr. Hermance, the
amount payable is subject to limitations designed to minimize the payment of any excise taxes by
us.
Generally, a change of control is deemed to occur under the change of control agreements if: (1)
any person or more than one person acting as a group acquires ownership of stock which constitutes
more than 50 percent of the total fair market value or total voting power of our stock; (2) any
person or more than one person acting as a group acquires (during the 12-month period ending on the
date of the most recent acquisition) ownership of stock possessing 30 percent or more of the total
fair market value or total voting power of our stock; (3) a majority of Board members are replaced
during any 12-month period by directors whose election is not endorsed by a majority of the members
of the Board; (4) any person or more than one person acting as a group acquires assets from us
having a total fair market value of not less than 40 percent of the total fair market value of all
of our assets immediately prior to the acquisition.
A termination for good reason generally means a termination initiated by the executive officer in
the event of: (1) our noncompliance with the change of control agreement; (2) any involuntary
reduction in the executive officers authority, duties or responsibilities that were in effect
immediately prior to the change of control; (3) any involuntary reduction in the executive
officers total compensation that was in effect immediately prior to the change of control; or (4)
any transfer of the executive officer without the executive officers consent of more than 50 miles
from the executive officers principal place of business immediately prior to the change of control
other than on a temporary basis (less than 6 months).
32
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.
Under our change of control agreement with Mr. Hermance, in the event that his employment is
terminated by us without cause or by Mr. Hermance for good reason in anticipation of, or following,
a change of control, he will receive: (1) a lump sum payment equal to the sum of (a) 2.99 times
the sum of Mr. Hermances base salary for the year prior to the year in which his termination
occurs and (b) his targeted bonus for the year in which he is terminated or, if the amount of the
targeted bonus is not known, the average of his bonuses for the two years preceding the year in
which his termination occurs; all cash payments will be paid when permitted under Section 409A of
the Code, namely, on the first day of the seventh month following the termination date; (2)
continuation of health benefits, disability insurance and death benefits until the earliest of (a)
the end of the tenth year following the year of the separation from service; (b) Medicare
eligibility; (c) commencement of new employment where Mr. Hermance can participate in similar plans
or programs without a preexisting condition limitation; or (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 immediately vest; (2) all stock options, other than incentive stock
options, will be exercisable for one year following his termination, or, if earlier, the stated
expiration date of the stock option; and (3) if Mr. Hermance becomes subject to excise taxes under
Section 4999 of the Internal Revenue Code because our change of control payments to him are subject
to the limitations on deductions under Section 280G of the Internal Revenue Code, he will be
reimbursed for those excise taxes and any additional taxes payable by him as a result of the
reimbursement.
Generally, a change of control is deemed to occur under Mr. Hermances change of control agreement
upon: (1) the acquisition by any person or group of 20 percent or more of our total voting stock;
(2) the acquisition by us, any executive benefit plan, or any entity we establish under the plan,
acting separately or in combination with each other or with other persons, of 50 percent or more of
our voting stock, if after such acquisition our common stock is no longer publicly traded; (3) the
death, resignation or removal of our Directors within a two-year period, as a result of which the
Directors serving at the beginning of the period and Directors elected with the advance approval of
two-thirds of the Directors serving at the beginning of the period constitute less than a majority
of the Board; (4) the approval by the shareholders of (a) a merger in which the shareholders no
longer own or control at least 50 percent of the value of our outstanding equity or the combined
voting power of our then outstanding voting securities, or (b) a sale or other disposition of all
or substantially all of the Companys assets. A termination is deemed to be in anticipation of a
change of control if it occurs during the 90 days preceding the change of control and the
substantial possibility of a change of control was known to Mr. Hermance and a majority of the
Directors.
Good reason and cause are defined in Mr. Hermances agreement in substantially the same
manner as in the other executive officers change of control agreements.
Payments and other benefits under the change of control agreements would have been in the following
amounts if the event requiring payment occurred on December 31, 2007: Lump sum payments
Mr. Hermance, $4,305,600; Mr. Molinelli, $1,989,845; Mr. Chlebek, $1,623,570; Mr. Zapico,
$1,807,455; Mr. Jones, $1,294,251. Health and disability benefits Mr. Hermance, $128,115;
Mr. Molinelli, $89,500; Mr. Chlebek, $28,800; Mr. Zapico, $58,700; Mr. Jones, $209,200.
Section 4999 excise tax and additional tax reimbursement Mr. Hermance, $7,251,758. Perquisites
Mr. Hermance, $72,668 (including use of an automobile and operating expenses ($60,108) and golf and
country club fees). The benefits Mr. Hermance receives upon acceleration of his equity grants in
connection with a change of control are quantified below under Acceleration of Vesting Provisions
Pertaining to Stock Options and Restricted Stock.
In addition, Mr. Hermances change of control agreement generally provides that in the event his
employment is terminated by us without cause or by Mr. Hermance for good reason, in either case
prior to and other than in anticipation of or following a change of control, he would receive the
same benefits as he would receive in connection with a change of control, as described above,
except: (1) the portion of the lump sum payment based on a multiple of salary will be equal to two
times, rather than 2.99 times, base salary (2) the continuation of health
33
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, $3,692,600; stock option grant vesting acceleration, $5,896,638; restricted stock award
vesting acceleration, $30,578,414; health and disability insurance benefits, $42,601; perquisites,
$72,668 (including use of an automobile and operating expenses ($60,108) and golf and country club
fees).
Acceleration of Vesting Provisions Pertaining to Stock Options and Restricted Stock. Under our
stock incentive plans, outstanding stock options generally will vest immediately upon the
occurrence of any of the following events: (1) the holders retirement after age 65, following two
years of service with us; (2) the death of the holder; 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, $5,896,638; Mr. Molinelli, $1,440,311; Mr. Chlebek, $1,104,750;
Mr. Zapico, $1,150,013; Mr. Jones, $778,699. 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, 2007 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, $30,743,476; Mr. Molinelli, $1,315,844; Mr. Chlebek, $1,016,161;
Mr. Zapico, $1,079,225; Mr. Jones, $781,478. Benefits in connection with other events of
termination addressed in the table below are as follows: Mr. Hermance, $2,510,620; Mr. Molinelli,
$550,518; Mr. Chlebek, $449,973; Mr. Zapico (normal retirement only), $449,461; Mr. Jones (normal
retirement only), $293,517. 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, 2007.
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 2007.
Death benefits are payable to Messrs. Chlebek, Zapico and Jones under our 2004 Executive Death
Benefit Plan, as described under Nonqualified Deferred Compensation 2007.
The amount of death benefits payable to each of the named executive officers in the event of his
death would have been as follows on December 31, 2007: Mr. Hermance, $829,300; Mr. Molinelli,
$787,700; Mr. Chlebek, $510,800; Mr. Zapico, $735,400; Mr. Jones, $680,900.
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 |
|
$ |
2,510,620 |
|
|
$ |
8,407,258 |
|
|
$ |
39,555,383 |
|
|
$ |
48,398,255 |
|
|
$ |
32,069,996 |
|
|
$ |
37,469,414 |
|
John J. Molinelli |
|
|
550,518 |
|
|
|
1,990,829 |
|
|
|
550,518 |
|
|
|
4,835,500 |
|
|
|
1,635,644 |
|
|
|
3,543,855 |
|
Robert W. Chlebek |
|
|
449,973 |
|
|
|
1,554,723 |
|
|
|
449,973 |
|
|
|
3,773,281 |
|
|
|
1,224,161 |
|
|
|
2,631,711 |
|
David A. Zapico |
|
|
|
|
|
|
1,599,474 |
|
|
|
|
|
|
|
4,095,393 |
|
|
|
1,346,713 |
|
|
|
2,964,638 |
|
Timothy N. Jones |
|
|
|
|
|
|
1,072,216 |
|
|
|
|
|
|
|
3,063,628 |
|
|
|
989,478 |
|
|
|
2,241,077 |
|
34
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 18 for a discussion of stock ownership
guidelines for our named executive officers.
The Board of Directors established stock ownership guidelines for non-employee Directors in order
to more closely link their interests with those of stockholders. Under the guidelines, each
non-employee Director is expected to own, by the end of a five-year period, shares of our Common
Stock having a value equal to at least five times the Directors annual cash retainer. Each
non-employee Director other than Mr. Williams, who was first elected to the Board of Directors in
2006, has exceeded his or her required stock ownership level of five times his or her annual
retainer.
The following table shows the number of shares of Common Stock that the Directors, the executive
officers listed on the Summary Compensation Table on page 22, 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 4, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
21,510 |
|
|
|
24,738 |
|
|
|
46,248 |
|
* |
|
|
|
25,126 |
|
|
|
71,374 |
|
Sheldon S. Gordon |
|
|
125,805 |
|
|
|
6,798 |
|
|
|
132,603 |
|
* |
|
|
|
|
|
|
|
132,603 |
|
Frank S. Hermance |
|
|
1,188,983 |
|
|
|
744,281 |
|
|
|
1,933,264 |
|
|
1.8% |
|
|
|
|
127,201 |
|
|
|
2,060,465 |
|
Timothy N. Jones |
|
|
51,733 |
|
|
|
37,719 |
|
|
|
89,452 |
|
* |
|
|
|
5,475 |
|
|
|
94,927 |
|
Charles D. Klein (3) |
|
|
149,005 |
|
|
|
6,798 |
|
|
|
155,803 |
|
* |
|
|
|
|
|
|
|
155,803 |
|
Steven W. Kohlhagen |
|
|
17,430 |
|
|
|
911 |
|
|
|
18,341 |
|
* |
|
|
|
|
|
|
|
18,341 |
|
James R. Malone |
|
|
57,805 |
|
|
|
6,798 |
|
|
|
64,603 |
|
* |
|
|
|
|
|
|
|
64,603 |
|
John J. Molinelli |
|
|
251,381 |
|
|
|
250,728 |
|
|
|
502,109 |
|
* |
|
|
|
46,373 |
|
|
|
548,482 |
|
David P. Steinmann (4) |
|
|
244,116 |
|
|
|
6,798 |
|
|
|
250,914 |
|
* |
|
|
|
|
|
|
|
250,914 |
|
Elizabeth R. Varet (5) |
|
|
647,266 |
|
|
|
6,798 |
|
|
|
654,064 |
|
* |
|
|
|
|
|
|
|
654,064 |
|
Dennis K. Williams |
|
|
2,430 |
|
|
|
911 |
|
|
|
3,341 |
|
* |
|
|
|
|
|
|
|
3,341 |
|
David A. Zapico |
|
|
64,933 |
|
|
|
60,678 |
|
|
|
125,611 |
|
* |
|
|
|
10,495 |
|
|
|
136,106 |
|
Directors and
Executive Officers as
a Group (13 persons)
including individuals
named above |
|
|
2,749,709 |
|
|
|
1,212,246 |
|
|
|
3,961,955 |
|
|
3.7% |
|
|
|
|
219,227 |
|
|
|
4,181,182 |
|
|
|
|
* |
|
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 4, 2008. |
(Footnotes continue on following page.)
35
(3) |
|
Includes 3,000 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 5,000 shares held by a charitable foundation of which Mr. Klein is a director. |
|
(4) |
|
Includes 15,600 shares owned by Mr. Steinmanns wife, as to which Mr. Steinmann disclaims any
beneficial ownership. Mr. Steinmann has shared voting and investment power with respect to
181,311 shares, as to 111,309 of which such power is shared with Ms. Varet. |
|
(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 528,961 shares, as to 111,309 shares of which such power is shared with
Mr. Steinmann and others. |
36
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 7, 2008.
|
|
|
|
|
|
|
|
|
|
|
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 1,619,950 shares |
|
|
|
|
|
|
|
|
100 E. Pratt Street |
|
and sole dispositive power..........(1) |
|
|
7,881,650 |
|
|
|
7.3 |
% |
Baltimore, MD 21202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Wanger Asset Management, L.P. |
|
Sole voting power for 6,753,000 shares |
|
|
|
|
|
|
|
|
227 West Monroe Street, Suite 3000 |
|
and sole dispositive power..........(2) |
|
|
7,283,000 |
|
|
|
6.8 |
% |
Chicago, IL 60606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on Schedule 13G filed on February 12, 2008. 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 5.3 percent of the shares outstanding, for which T.
Rowe Price Associates, Inc. (Price Associates) serves as investment adviser with power to
direct investments and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly disclaims that it is,
in fact, the beneficial owner of such securities. |
|
(2) |
|
Based on Schedule 13G filed on January 24, 2008. |
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, 2007, our officers and Directors were in compliance with all Section 16(a) filing requirements.
37
OTHER BUSINESS
We are not aware of any other matters that will be presented at the Annual Meeting. If other
matters are properly introduced, the individuals named on the enclosed proxy card will vote the
shares it represents in accordance with their judgment.
By Order of the Board of Directors
Kathryn E. Sena
Corporate Secretary
Dated: March 14, 2008
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.
38
AMETEK,
Inc.
ANNUAL
FINANCIAL INFORMATION AND REVIEW OF OPERATIONS
(Appendix
A to Proxy Statement)
Index
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|
|
|
|
|
|
Page
|
|
Information Relating to AMETEK Common Stock
|
|
|
A-2
|
|
Selected Financial Data
|
|
|
A-3
|
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations
|
|
|
A-5
|
|
Reports of Management
|
|
|
A-19
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
|
|
|
A-20
|
|
Report of Independent Registered Public Accounting Firm on
Financial Statements
|
|
|
A-21
|
|
Consolidated Statement of Income
|
|
|
A-22
|
|
Consolidated Balance Sheet
|
|
|
A-23
|
|
Consolidated Statement of Stockholders Equity
|
|
|
A-24
|
|
Consolidated Statement of Cash Flows
|
|
|
A-25
|
|
Notes to Consolidated Financial Statements
|
|
|
A-26
|
|
A-1
INFORMATION
RELATING TO AMETEK COMMON STOCK
The principal market on which the Companys common stock is
traded is the New York Stock Exchange and it is traded under the
symbol AME.
Market
Price and 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:
|
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|
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|
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|
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First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Common stock trading range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
35.91
|
|
|
$
|
40.94
|
|
|
$
|
43.79
|
|
|
$
|
48.45
|
|
Low
|
|
$
|
30.67
|
|
|
$
|
33.51
|
|
|
$
|
36.38
|
|
|
$
|
42.00
|
|
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
|
|
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, 2007 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, 2002
and reinvestment of all dividends. The stock performance shown
on the graph below is based on historical data and is not
necessarily indicative of future stock price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/02
|
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
AMETEK, Inc.
|
|
$
|
100.00
|
|
|
$
|
126.15
|
|
|
$
|
188.06
|
|
|
$
|
225.61
|
|
|
$
|
254.81
|
|
|
$
|
377.14
|
|
Russell 1000*
|
|
|
100.00
|
|
|
|
129.89
|
|
|
|
144.70
|
|
|
|
153.77
|
|
|
|
177.55
|
|
|
|
187.80
|
|
Dow Jones US Electronic Equipment*
|
|
|
100.00
|
|
|
|
150.31
|
|
|
|
163.07
|
|
|
|
175.56
|
|
|
|
202.49
|
|
|
|
237.61
|
|
A-2
AMETEK,
INC.
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars and shares in millions, except per share amounts)
|
|
|
Consolidated Operating Results (Years Ended December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,136.9
|
|
|
$
|
1,819.3
|
|
|
$
|
1,434.5
|
|
|
$
|
1,232.3
|
|
|
$
|
1,091.6
|
|
Operating income(1)
|
|
$
|
386.6
|
|
|
$
|
309.0
|
|
|
$
|
233.5
|
|
|
$
|
191.2
|
|
|
$
|
151.8
|
|
Interest expense
|
|
$
|
(46.9
|
)
|
|
$
|
(42.2
|
)
|
|
$
|
(32.9
|
)
|
|
$
|
(28.3
|
)
|
|
$
|
(26.0
|
)
|
Net income(1)
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
|
$
|
84.2
|
|
Earnings per share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.15
|
|
|
$
|
1.74
|
|
|
$
|
1.31
|
|
|
$
|
1.07
|
|
|
$
|
0.85
|
|
Diluted
|
|
$
|
2.12
|
|
|
$
|
1.71
|
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
|
$
|
0.84
|
|
Dividends declared and paid per share
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
105.8
|
|
|
|
104.8
|
|
|
|
103.7
|
|
|
|
101.7
|
|
|
|
99.4
|
|
Diluted
|
|
|
107.6
|
|
|
|
106.6
|
|
|
|
105.6
|
|
|
|
103.1
|
|
|
|
100.4
|
|
Performance Measures and Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income Return on sales(1)
|
|
|
18.1
|
%
|
|
|
17.0
|
%
|
|
|
16.3
|
%
|
|
|
15.5
|
%
|
|
|
13.9
|
%
|
Return on average total assets(1)
|
|
|
15.9
|
%
|
|
|
15.8
|
%
|
|
|
14.6
|
%
|
|
|
14.5
|
%
|
|
|
13.5
|
%
|
Net income Return on average total capital(1)(5)
|
|
|
12.0
|
%
|
|
|
11.8
|
%
|
|
|
10.7
|
%
|
|
|
10.5
|
%
|
|
|
9.5
|
%
|
Return on average stockholders equity(1)(5)
|
|
|
20.7
|
%
|
|
|
20.5
|
%
|
|
|
18.5
|
%
|
|
|
18.2
|
%
|
|
|
17.6
|
%
|
EBITDA(1)(2)
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
|
$
|
186.2
|
|
Ratio of EBITDA to interest expense(1)(2)
|
|
|
9.3
|
x
|
|
|
8.3
|
x
|
|
|
8.2
|
x
|
|
|
8.1
|
x
|
|
|
7.2
|
x
|
Depreciation and amortization
|
|
$
|
52.7
|
|
|
$
|
45.9
|
|
|
$
|
39.4
|
|
|
$
|
39.9
|
|
|
$
|
35.5
|
|
Capital expenditures
|
|
$
|
37.6
|
|
|
$
|
29.2
|
|
|
$
|
23.3
|
|
|
$
|
21.0
|
|
|
$
|
21.3
|
|
Cash provided by operating activities(1)
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
|
$
|
155.9
|
|
Free cash flow(1)(3)
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
|
$
|
134.6
|
|
Ratio of earnings to fixed charges(6)
|
|
|
7.3
|
x
|
|
|
6.6
|
x
|
|
|
6.2
|
x
|
|
|
6.0
|
x
|
|
|
5.3x
|
|
Consolidated Financial Position (at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
952.2
|
|
|
$
|
684.1
|
|
|
$
|
556.3
|
|
|
$
|
461.9
|
|
|
$
|
378.6
|
|
Current liabilities
|
|
$
|
640.8
|
|
|
$
|
480.9
|
|
|
$
|
405.8
|
|
|
$
|
272.8
|
|
|
$
|
289.2
|
|
Property, plant, and equipment
|
|
$
|
293.1
|
|
|
$
|
258.0
|
|
|
$
|
228.5
|
|
|
$
|
207.5
|
|
|
$
|
213.6
|
|
Total assets
|
|
$
|
2,745.7
|
|
|
$
|
2,130.9
|
|
|
$
|
1,780.6
|
|
|
$
|
1,420.4
|
|
|
$
|
1,217.1
|
|
Long-term debt
|
|
$
|
667.0
|
|
|
$
|
518.3
|
|
|
$
|
475.3
|
|
|
$
|
400.2
|
|
|
$
|
317.7
|
|
Total debt
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
|
$
|
424.4
|
|
Stockholders equity(5)
|
|
$
|
1,240.7
|
|
|
$
|
966.7
|
|
|
$
|
809.5
|
|
|
$
|
663.3
|
|
|
$
|
532.9
|
|
Stockholders equity per share(5)
|
|
$
|
11.56
|
|
|
$
|
9.11
|
|
|
$
|
7.66
|
|
|
$
|
6.44
|
|
|
$
|
5.30
|
|
Total debt as a percentage of capitalization(5)
|
|
|
42.1
|
%
|
|
|
41.4
|
%
|
|
|
43.8
|
%
|
|
|
40.4
|
%
|
|
|
44.3
|
%
|
Net debt as a percentage of capitalization(4)(5)
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
42.4
|
%
|
|
|
38.3
|
%
|
|
|
43.5
|
%
|
See Notes to Selected Financial Data on page A-4.
A-3
Notes to
Selected Financial Data
|
|
|
(1)
|
|
Amounts for years prior to 2006
reflect the retrospective application of SFAS 123R to
expense stock options. The adoption of SFAS 123R reduced
operating income, net income and diluted earnings per share by
the following amounts (In millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of Amounts Originally Reported:
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
(2)
|
|
EBITDA represents income before
interest, income taxes, depreciation and amortization. EBITDA is
presented because the Company is aware that it is used by rating
agencies, securities analysts, investors and other parties in
evaluating the Company. It should not be considered, however, as
an alternative to operating income as an indicator of the
Companys operating performance, or as an alternative to
cash flows as a measure of the Companys overall liquidity
as presented in the Companys 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
|
$
|
84.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
46.9
|
|
|
|
42.2
|
|
|
|
32.9
|
|
|
|
28.3
|
|
|
|
26.0
|
|
Interest income
|
|
|
(2.1
|
)
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
Income taxes
|
|
|
108.4
|
|
|
|
81.8
|
|
|
|
61.9
|
|
|
|
51.7
|
|
|
|
41.0
|
|
Depreciation
|
|
|
42.3
|
|
|
|
38.9
|
|
|
|
35.0
|
|
|
|
36.8
|
|
|
|
34.2
|
|
Amortization
|
|
|
10.4
|
|
|
|
7.0
|
|
|
|
4.4
|
|
|
|
3.1
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
205.9
|
|
|
|
169.5
|
|
|
|
133.5
|
|
|
|
119.3
|
|
|
|
102.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
|
$
|
186.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Free cash flow represents cash flow
from operating activities, less capital expenditures. Free cash
flow is presented because the Company is aware that it is used
by rating agencies, securities analysts, investors and other
parties in evaluating the Company. (Also see note 2 above).
The 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In millions)
|
|
|
Cash provided by operating activities (U.S. GAAP basis)
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
|
$
|
155.9
|
|
Deduct: Capital expenditures
|
|
|
(37.6
|
)
|
|
|
(29.2
|
)
|
|
|
(23.3
|
)
|
|
|
(21.0
|
)
|
|
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
|
$
|
134.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
Net debt represents total debt
minus cash and cash equivalents. Net debt is presented because
the Company is aware that it is used by securities analysts,
investors and other parties in evaluating the Company. (Also see
note 2 above). The table below presents the reconciliation
of debt in accordance with U.S. GAAP to net debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In millions)
|
|
|
Total debt
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
|
$
|
424.4
|
|
Less: Cash and cash equivalents
|
|
|
(170.1
|
)
|
|
|
(49.1
|
)
|
|
|
(35.5
|
)
|
|
|
(37.6
|
)
|
|
|
(14.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
732.9
|
|
|
|
632.8
|
|
|
|
595.9
|
|
|
|
412.5
|
|
|
|
410.1
|
|
Stockholders equity
|
|
|
1,240.7
|
|
|
|
966.7
|
|
|
|
809.5
|
|
|
|
663.3
|
|
|
|
532.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization (net debt plus stockholders equity)
|
|
$
|
1,973.6
|
|
|
$
|
1,599.5
|
|
|
$
|
1,405.4
|
|
|
$
|
1,075.8
|
|
|
$
|
943.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt as a percentage of capitalization
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
42.4
|
%
|
|
|
38.3
|
%
|
|
|
43.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. The adoption of
FIN 48 as of January 1, 2007 resulted in a
$5.9 million charge to the opening balance of
stockholders equity.
|
|
(6)
|
|
Penalities and interest accrued
related to unrecognized tax benefits are recognized in income
tax expense. Refer to Exhibit 12 for calculation of the
ratio of earnings to fixed charges.
|
A-4
AMETEK,
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report includes forward-looking statements based on the
Companys current assumptions, expectations and projections
about future events. When used in this report, the words
believes, anticipates, may,
expect, intend, estimate,
project, and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain such words. For more
information concerning risks and other factors, that could have
a material adverse effect on our business, or could cause
actual results to differ materially from managements
expectations, see Forward-Looking Information on
page A-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 global business, AMETEKs operations are affected by
global, regional and industry economic factors. However, the
Companys strategic geographic and industry
diversification, and its mix of products and services, have
helped to limit the potential adverse impact of any unfavorable
developments in any one industry or the economy of any single
country on its consolidated operating results. In 2007, the
Company continued to experience strong market conditions in many
of its businesses. Strong internal growth and the contributions
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 2007. In
addition to achieving its financial objectives, the Company also
benefited from its strategic initiatives under AMETEKs
four growth strategies: Operational Excellence, New Product
Development, Global and Market Expansion, and Strategic
Acquisitions and Alliances. Highlights of 2007 were:
|
|
|
|
|
Sales were $2.1 billion, an increase of $318 million
or 17% from 2006 on solid internal growth of approximately 9% in
the Electronic Instruments Group (EIG) and 6% in the
Electromechanical Group (EMG), and contributions from the
following acquisitions completed during the year:
|
|
|
|
|
|
In April 2007, the Company acquired Seacon Phoenix, subsequently
renamed Sea Connect Products (SCP), a provider of
undersea electrical interconnect subsystems. The SCP acquisition
is an excellent strategic fit with the Companys engineered
materials, interconnects and packaging business and extends the
Companys reach into new defense markets.
|
|
|
|
In June 2007, the Company acquired Hamilton Precision Metals,
Inc. (Hamilton), a niche specialty metals producer.
The Hamilton acquisition is a strategic fit with our engineered
materials, interconnects and packaging business and has strong
positions in growing specialty metals niche markets within the
aerospace and other industrial markets.
|
|
|
|
In June 2007, the Company acquired two aerospace businesses;
B&S Aircraft Parts & Accessories
(B&S) and Advanced Industries, Inc.
(Advanced) that serve the business jet, regional jet
and helicopter markets. These businesses strengthen the
Companys position in the aircraft power management and
third-party maintenance, repair and overhaul (MRO) markets.
|
|
|
|
In August 2007, the Company acquired CAMECA SAS
(Cameca), a manufacturer of high-end elemental
analysis systems used in advanced laboratory research,
semiconductor and nanotechnology applications. The Cameca
acquisition broadens the Companys technical capabilities
in high-end elemental analysis systems.
|
|
|
|
In November 2007, the Company acquired the Repair &
Overhaul Division of Umeco plc (Umeco), a leading
independent provider of MRO services in the aviation industry in
Europe. The Umeco acquisition provides third-party MRO services
for a variety of helicopters and commercial and regional
aircraft throughout Europe.
|
A-5
|
|
|
|
|
In December 2007, the Company acquired California Instruments
Corporation, a leader in programmable alternating current (AC)
power sources used to test electrical and electronic products,
with an especially strong position in the high-power segment of
the market.
|
|
|
|
|
|
As the Company grows globally, it continues to achieve an
increasing level of international sales. International sales,
including U.S. export sales, represented 49.3% of
consolidated sales in 2007, compared with 47.6% of consolidated
sales in 2006.
|
|
|
|
Higher earnings resulted in record cash flow from operating
activities that totaled $278.5 million, a
$52.5 million or 23.2% increase from 2006. At year-end
2007, our total debt-to-capital ratio was 42.1% compared with
41.4%, at the end of 2006.
|
|
|
|
The Company continued its emphasis on investment in research,
development and engineering, spending $102.9 million in
2007 before customer reimbursement of $7.1 million, an
increase of 17.5% over 2006. Sales from products introduced in
the last three years increased $24.4 million or 6.6% in
2007 to $391.3 million.
|
|
|
|
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012. At December 31, 2007, the
Company had $525.3 million available under its revolving
credit facility, including the $100 million accordion
feature.
|
|
|
|
In the third quarter of 2007, the Company completed a private
placement to sell $450 million in senior notes to a group
of institutional investors. There are two funding dates for the
senior notes. The first funding occurred in December 2007 for
$370 million, consisting of $270 million in aggregate
principal amount of 6.20% senior notes due December 2017
and $100 million in aggregate principal amount of
6.30% senior notes due December 2019. The second funding
date will be in July 2008 for $80 million in aggregate
principal amount of 6.35% senior notes due July 2018.
|
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, 2007, 2006, and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net Sales(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
1,199,757
|
|
|
$
|
1,016,503
|
|
|
$
|
808,493
|
|
Electromechanical
|
|
|
937,093
|
|
|
|
802,787
|
|
|
|
625,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,136,850
|
|
|
$
|
1,819,290
|
|
|
$
|
1,434,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
260,338
|
|
|
$
|
203,430
|
|
|
$
|
164,248
|
|
Electromechanical
|
|
|
167,166
|
|
|
|
139,926
|
|
|
|
99,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
427,504
|
|
|
|
343,356
|
|
|
|
263,492
|
|
Corporate administrative and other expenses
|
|
|
(40,930
|
)
|
|
|
(34,362
|
)
|
|
|
(30,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
386,574
|
|
|
|
308,994
|
|
|
|
233,488
|
|
Interest and other expenses, net
|
|
|
(50,130
|
)
|
|
|
(45,308
|
)
|
|
|
(35,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
$
|
336,444
|
|
|
$
|
263,686
|
|
|
$
|
198,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
A-6
Year
Ended December 31, 2007, Compared with Year Ended
December 31, 2006
Results
of Operations
In 2007, the Company posted record sales, operating income, net
income, diluted earnings per share and cash flow from
operations. The Company achieved these results from strong
internal growth in both its EIG and EMG groups, as well as
contributions from acquisitions in 2007 and 2006. Operating
income increased, driven by the record sales and a continued
focus on cost reduction programs under our Operational
Excellence initiatives. Based on strength in the Companys
long-cycle businesses, our global customer base, the full-year
impact of 2007 acquisitions, and our Operational Excellence
capabilities, the Company expects continued strength in
operating results in 2008.
The Company reported sales for 2007 of $2,136.9 million, an
increase of $317.6 million or 17.5% from sales of
$1,819.3 million in 2006. Net sales for EIG were
$1,199.8 million in 2007, an increase of 18.0% from sales
of $1,016.5 million in 2006. Net sales for EMG were
$937.1 million in 2007, an increase of 16.7% from sales of
$802.8 million in 2006. The Companys internal sales
growth was approximately 7% in 2007, which excludes a 2%
favorable effect of foreign currency translation, driven by
strength in its differentiated businesses. The acquisitions
mentioned above contributed the remainder of the net sales
increase.
Total international sales for 2007 increased to
$1,053.7 million and represented 49.3% of consolidated
sales, an increase of $187.7 million, or 21.7% when
compared with international sales of $866.0 million or
47.6% of consolidated sales in 2006. The increase in
international sales resulted from increased international sales
from base businesses of $74.9 million, or 39.9% of the
increase, which includes the effect of foreign currency
translation. The recent acquisitions of Cameca, SCP, Hamilton
and Umeco in 2007 and Land Instruments, Pittman, Precitech and
Southern Aeroparts in 2006 contributed the remainder of the
increase. Increased international sales came mainly from sales
to Europe by both reportable groups. Export shipments from the
United States, which are included in total international sales,
were $394.4 million in 2007, an increase of
$50.6 million or 14.7% compared with $343.8 million in
2006. Export shipments improved primarily due to increased
exports from the base businesses and acquisitions noted above.
New orders for 2007 were $2,288.3 million, compared with
$1,915.4 million for 2006, an increase of
$372.9 million or 19.5%. The increase in orders was driven
by the Companys base differentiated businesses, which
contributed $167.2 million, or 44.8% of the increase, led
by the Companys aerospace and engineered materials,
interconnects and packaging businesses. The recent acquisitions
mentioned above contributed the remainder of the increase. As a
result, the Companys backlog of unfilled orders at
December 31, 2007 was $688.2 million, compared with
$536.8 million at December 31, 2006, which is an
increase of $151.4 million or 28.2%. The increase in
backlog was due to higher order levels in base differentiated
businesses and the 2007 acquisitions, noted above.
Segment operating income was $427.5 million for 2007, an
increase of $84.1 million, or 24.5%, compared with segment
operating income of $343.4 million for 2006. Segment
operating margins in 2007 were 20.0% of sales, an increase from
18.9% of sales in 2006. The increase in segment operating income
resulted from strength in the differentiated businesses of each
group, which includes the profit contributions made by the
acquisitions. The margin improvement came from the
Companys differentiated businesses.
Selling, general, and administrative (SG&A) expenses were
$263.5 million in 2007, compared with $219.5 million
in 2006, an increase of $44.0 million or 20.1%. As a
percentage of sales, SG&A expenses were higher in 2007 at
12.3% of sales compared to 12.1% of sales in 2006. Selling
expenses, as a percentage of sales, were 10.4% in 2007, slightly
higher than the 10.2% in 2006. The selling expense increase and
the corresponding increase in selling expenses as a percentage
of sales were due primarily to business acquisitions. The
Companys acquisition strategy generally is to acquire
differentiated businesses, which because of their distribution
channels and higher marketing costs tend to have a higher
content of selling expenses. Base business selling expenses
increased 9.7% for 2007, compared to 2006, which was in line
with internal sales growth including the impact of foreign
currency translation.
Corporate administrative expenses were $40.8 million in
2007, an increase of $6.6 million or 19.4%, when compared
with 2006. The increase in corporate expenses is the result of
higher compensation, including equity-based compensation
associated with accelerated vesting of restricted stock grants
in 2007 and other costs necessary
A-7
to grow the Company. As a percentage of sales, corporate
administrative expenses were 1.9% in both 2007 and 2006.
Consolidated operating income was $386.6 million in 2007,
an increase of $77.6 million or 25.1% when compared with
$309.0 million in 2006. This represents an operating margin
of 18.1% of sales for 2007 compared with 17.0% of sales in 2006.
Interest expense was $46.9 million in 2007, an increase of
11.1% compared with $42.2 million in 2006. The increase was
due to higher average borrowings to fund the 2007 acquisitions,
higher average interest rates and the impact of the initial
funding of the private placement senior notes.
The effective tax rate for 2007 was 32.2% compared with 31.0% in
2006. The 2007 effective tax rate primarily reflects the
elimination of the Foreign Sales Corporation/Extraterritorial
Income (FSC/ETI) tax benefit in 2007, an increase in state
income taxes, and an increase in interest and penalties on
uncertain tax positions, partially offset by an enacted decrease
in certain foreign corporate tax rates in the second half of
2007 and the recognition of tax benefits from our international
tax planning initiatives. The 2006 effective tax rate benefited
primarily from the reversal of a valuation allowance for foreign
tax credit carry forwards of $3.2 million, offset somewhat
by higher nondeductible equity-based compensation.
Net income for 2007 was $228.0 million, an increase of
$46.1 million, or 25.3% from $181.9 million in 2006.
Diluted earnings per share increased 24.0% to $2.12 per share,
an increase of $0.41 when compared with $1.71 per diluted share
in 2006.
Operating
Segment Results
EIGs sales were $1,199.8 million in 2007, an
increase of $183.3 million or 18.0% from 2006 sales of
$1,016.5 million. The sales increase was primarily due to
internal growth of approximately 9%, excluding a favorable 2%
effect of foreign currency translation. The internal growth was
driven by sales increases in EIGs process and analytical,
aerospace and power businesses. The acquisitions of Cameca, Land
Instruments, Precitech, Advanced and B&S accounted for the
remainder of the sales increase.
EIGs operating income for 2007 increased to
$260.3 million from $203.4 million in 2006, an
increase of $56.9 million, or 28.0%. Operating margins of
EIG were 21.7% of sales for 2007 compared with operating margins
of 20.0% of sales in 2006. The increase in segment operating
income and margins came from the Groups base
differentiated businesses, which include the acquisitions
mentioned above.
EMGs sales for 2007 were $937.1 million, an
increase of $134.3 million or 16.7%, compared with sales of
$802.8 million in 2006. The sales increase was due in part
to internal growth, particularly in EMGs differentiated
businesses, which accounted for approximately 6%, excluding a
favorable 2% effect of foreign currency translation. The
acquisitions of Pittman, Southern Aeroparts, SCP, Umeco and
Hamilton accounted for the remainder of the sales increase.
EMGs operating income for 2007 increased to
$167.2 million from $139.9 million in 2006, an
increase of $27.3 million or 19.5%. The operating income
increase was due to strength in the Groups differentiated
businesses, which includes the recent acquisitions mentioned
above. EMGs operating margins were 17.8% of sales in 2007
compared with 17.4% of sales in 2006. The increase in operating
margin was primarily due to an increased contribution from the
Groups differentiated businesses.
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.
A-8
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 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 reportable 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
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.
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
A-9
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 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.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$278.5 million for 2007, compared with $226.0 million
in 2006, an increase of $52.5 million, or 23.2%. The
increase in operating cash flow was primarily the result of
higher earnings and lower pension contributions, partially
offset by higher overall operating working capital investments
necessary to grow the business. In 2007, the Company contributed
$5.2 million to its defined benefit pension plans compared
to $13.7 million contributed in 2006. Free cash flow
(operating cash flow less capital spending) was
$240.9 million in 2007, compared to $196.8 million in
2006. EBITDA (earnings before interest, income taxes,
depreciation and amortization) was $433.9 million in 2007,
compared with $351.4 million in 2006, a 23.5% improvement.
Free cash flow and EBITDA are presented because the Company is
aware that there are measures that are used by third parties in
evaluating the Company. (See table on page A-4 for a
reconciliation of generally accepted accounting principles
(GAAP) measures to comparable non-GAAP measures).
Cash used for investing activities was $334.7 million for
2007, compared with $206.0 million in 2006. In 2007, the
Company paid $300.6 million for seven businesses and one
technology line, net of cash received and also assumed
$24.9 million of debt and long-term liabilities. In 2006,
the Company paid $177.6 million for five acquisitions and
two small technology lines, net of cash received. Additions to
property, plant and equipment totaled $37.6 million in
2007, compared with $29.2 million in 2006.
Cash provided from financing activities totaled
$174.1 million in 2007, compared with cash used of
$10.0 million in 2006. In 2007, total borrowings, net of
repayments, increased by $180.9 million, compared with a
net increase of $15.4 million in 2006. Short-term
borrowings decreased $162.6 million in 2007, compared with
an increase of $4.0 million in 2006. Long-term borrowings
increased $343.4 million in 2007, compared to an increase
of $11.3 million in 2006.
A-10
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012. At December 31, 2007, the
Company had $525.3 million available under its revolving
credit facility, including the $100 million accordion
feature.
The accounts receivable securitization facility was amended and
restated in May 2007 to increase the Companys available
borrowing capacity from $75 million to $110 million as
well as extend the expiration date from May 2007 to May 2008.
There were no borrowings under this facility at
December 31, 2007.
In the third quarter of 2007, the Company completed a private
placement agreement to sell $450 million in senior notes to
a group of institutional investors. There are two funding dates
for the senior notes. The first funding occurred in December
2007 for $370 million, consisting of $270 million in
aggregate principal amount of 6.20% senior notes due
December 2017 and $100 million in aggregate principal
amount of 6.30% senior notes due December 2019. The second
funding date will be in July 2008 for $80 million in
aggregate principal amount of 6.35% senior notes due July
2018. The Notes will carry a weighted average interest rate of
approximately 6.25%. The proceeds from the first funding of the
notes were used to pay down the Companys revolving credit
facility, which included a foreign portion related to the 2007
acquisition of Cameca SAS and the 2006 acquisition of Land
Instruments, as well as borrowings outstanding under the
Companys accounts receivable securitization program.
Additionally, the proceeds from the private placement were used
to purchase California Instruments in December 2007. The
residual cash balance ($86.6 million) at year-end 2007 is
invested in short-term cash equivalent money market funds. The
Company has a $225 million 7.20% senior note due July
2008. It is the Companys current intention to repay the
7.20% senior note in July 2008 with the remaining proceeds
from the $450 million private placement and borrowings
under the Companys revolving credit facility.
At December 31, 2007, total debt outstanding was
$903.0 million compared with $681.9 million at
December 31, 2006. The total debt-to-capital ratio was
42.1% at December 31, 2007, compared with 41.4% at
December 31, 2006. The net debt-to-capital ratio (total
debt less cash and cash equivalents divided by the sum of net
debt and stockholders equity) was 37.1% at
December 31, 2007, compared with 39.6% at December 31,
2006. The net debt-to-capital ratio is presented because the
Company is aware that this measure is used by third parties in
evaluating the Company. (See page A-4 for reconciliation of
GAAP measures to comparable non-GAAP measures).
In 2007, net cash proceeds from the exercise of employee stock
options were $17.2 million, compared with $9.9 million
in 2006. Cash dividends paid were $25.7 million in 2007 and
$18.8 million in 2006. The increase in dividends paid was a
result of a Board of Directors-approved 50% increase in the
quarterly dividend rate on the Companys common stock in
the fourth quarter of 2006.
In 2007, the Company used cash of $5.4 million for the
repurchase of 144,000 shares of its common stock. In 2006,
the Company used cash of $21.1 million for the repurchase
of 750,000 shares of its common stock. As of
December 31, 2007, $25.9 million was available, under
the then current Board authorization, for future share
repurchases. On January 24, 2008, the Board of Directors
authorized an increase of $50 million in the authorization
for the repurchase of its common stock. This increase will be
added to the $25.9 million that remained available from an
existing $50 million authorization approved in March 2003,
for a total of $75.9 million available for repurchases of
the Companys common stock. Subsequent to December 31,
2007, the Company has repurchased an additional
1,000,057 shares of its common stock for approximately
$43.5 million. Therefore, the remaining balance available
for repurchases of the Companys common stock is
$32.4 million as of the filing of the Companys
Form 10-K
for the year ended December 31, 2007.
A-11
The following table summarizes AMETEKs contractual cash
obligations at December 31, 2007, and the effect such
obligations are expected to have on the Companys liquidity
and cash flows in future years.
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Payments Due
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Less
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One to
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Four to
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After
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Than
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Three
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Five
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Five
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Contractual Obligations(d)
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Total
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One Year
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Years
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Years
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Years
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(In millions)
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Long-term debt(a)
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$
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871.2
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$
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225.0
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$
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123.7
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$
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$
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522.5
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Revolving credit loans(a)
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Capital lease(b)
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16.0
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0.9
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1.9
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2.1
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11.1
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Other indebtedness
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15.8
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10.1
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1.5
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3.0
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1.2
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Total debt
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903.0
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236.0
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127.1
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5.1
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534.8
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Interest on long-term fixed- rate debt
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338.0
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45.7
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73.5
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62.9
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155.9
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Noncancellable operating leases
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76.8
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14.3
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19.7
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9.8
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33.0
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Purchase obligations(c)
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189.2
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175.4
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12.8
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1.0
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Employee severance and other
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18.4
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18.4
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Total
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$
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1,525.4
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$
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489.8
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$
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233.1
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$
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78.8
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$
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723.7
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(a) |
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Includes the first funding ($370 million) of the
$450 million private placement. The $370 million
funding consisted of $270 million in aggregate principal
amount of 6.20% senior notes due December 2017 and
$100 million in aggregate principal amount of
6.30% senior notes due December 2019. The proceeds from the
first funding of the private placement were used to repay
borrowings under the Companys revolving credit facility,
including the euro and British pound portions, and borrowings
outstanding under the Companys accounts receivable
securitization program. |
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(b) |
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Represents a capital lease for a building and land associated
with the Cameca acquisition. The lease has a term of twelve
years, which began July 2006, and is payable quarterly. |
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(c) |
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Purchase obligations primarily consist of contractual
commitments to purchase certain inventories at fixed prices. |
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(d) |
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The liability for uncertain tax positions was not included in
the table of contractual obligations as of December 31,
2007 because the timing of the settlements of these uncertain
tax positions cannot be reasonably estimated at this time. See
income tax footnote for further details (See Note 10). |
Other
Commitments
The Company has standby letters of credit and surety bonds of
approximately $26.3 million related to performance and
payment guarantees at December 31, 2007. Based on
experience with these arrangements, the Company believes that
any obligations that may arise will not be material to its
financial position.
The Company may, from time to time, 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
2007, cash and cash equivalents at December 31, 2007
totaled $170.1 million, compared with $49.1 million at
December 31, 2006. The Company believes it has sufficient
cash-generating capabilities from domestic and unrestricted
foreign sources, available credit facilities, and access to
long-term capital funds to enable it to meet operating needs and
contractual commitments in the foreseeable future.
Critical
Accounting Policies
The Company has identified its critical accounting policies as
those accounting policies that can have a significant impact on
the presentation of the Companys financial condition and
results of operations, and that require the use of complex and
subjective estimates based upon past experience and
managements judgment. Because of the uncertainty inherent
in such estimates, actual results may differ materially from the
estimates used. The consolidated
A-12
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 Appendix.
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Revenue Recognition. The Company recognizes
revenue on product sales in the period when the sales process is
complete. This generally occurs when products are shipped to the
customer in accordance with terms of an agreement of sale, under
which title and risk of loss have been transferred,
collectibility is reasonably assured and pricing is fixed or
determinable. For a small percentage of sales where title and
risk of loss passes at point of delivery, we recognize revenue
upon delivery to the customer, assuming all other criteria for
revenue recognition are met. The policy with respect to sales
returns and allowances generally provides that the customer may
not return products or be given allowances, except at the
Companys option. We have agreements with distributors that
do not provide expanded rights of return for unsold products.
The distributor purchases the product from the Company, at which
time title and risk of loss transfers to the distributor. The
Company does not offer substantial sales incentives and credits
to its distributors other than volume discounts. The Company
accounts for the sales incentive as a reduction of revenues when
the sale is recognized. Accruals for sales returns, other
allowances, and estimated warranty costs are provided at the
time revenue is recognized based upon past experience. At
December 31, 2007, 2006 and 2005, the accrual for future
warranty obligations was $14.4 million, $10.9 million
and $9.4 million, respectively. The Companys expense
for warranty obligations approximated $11.3 million,
$7.6 million and $7.2 million in 2007, 2006 and 2005,
respectively. The warranty periods for products sold vary widely
among the Companys operations, but for the most part do
not exceed one year. The Company calculates its warranty expense
provision based on past warranty experience, and adjustments are
made periodically to reflect actual warranty expenses. If actual
future sales returns and allowances and warranty amounts are
higher than past experience, additional accruals may be required.
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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
$6.4 million and $7.4 million at December 31,
2007 and 2006, respectively.
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Inventories. The Company uses the
first-in,
first-out (FIFO) method of accounting, which approximates
current replacement cost, for approximately 62% of its
inventories. The
last-in,
first-out (LIFO) method of accounting is used to determine cost
for the remaining 38% of its inventory. For inventories where
cost is determined by the LIFO method, the FIFO value would have
been approximately $35.6 million and $34.1 million
higher than the LIFO value reported in the balance sheet at
December 31, 2007 and 2006, 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.
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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 include the projection and
discounting of cash flows, estimates of future operating
performance of the reporting unit being valued and estimates of
the fair value of the intangible assets being tested.
SFAS 142 requires a two-step impairment test for goodwill.
The first step is to compare the carrying amount of the
reporting units net assets to the fair value of the
reporting unit. If the fair value exceeds the carrying value, no
further evaluation is required and no impairment loss is
recognized. If the
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A-13
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carrying amount exceeds the fair value, then the second step
must be completed, which involves allocating the fair value of
the reporting unit to each asset and liability, with the excess
being implied goodwill. An impairment loss occurs if the amount
of the recorded goodwill exceeds the implied goodwill. The
Company would be required to record such impairment losses.
Indefinite-lived intangibles other than goodwill are tested by
estimating the fair values of those assets as of the
Companys measurement date, with such fair values based on
expected future operating performance and discount rates
determined by management. Changes in interest rates and market
conditions, among other factors, may have an impact on these
estimates. These estimates will likely change over time. The
Companys acquisitions have generally included a large
goodwill component and the Company expects to continue to make
acquisitions. At December 31, 2007, goodwill and other
indefinite-lived intangible assets totaled
$1,358.1 million, or 49.4% of the Companys total
assets. The Company performed its required annual impairment
test in the fourth quarter of 2007 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.
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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 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), for balance sheet recognition of the
overfunded or underfunded status of pension and postretirement
benefit plans, as well as the income statement recognition of
the costs related to these plans. SFAS 87 and SFAS 158
require that amounts recognized in the financial statements be
determined on an actuarial basis. The most significant elements
in determining the Companys pension income or expense are
the assumed pension liability discount rate and the expected
return on plan assets. The pension discount rate reflects the
current interest rate at which the pension liabilities could be
settled at the valuation date. At the end of each year, the
Company determines the assumed discount rate to be used to
discount plan liabilities. In estimating this rate for 2007, the
Company considered rates of return on high-quality, fixed-income
investments. The discount rate used in determining the 2007
pension cost was 5.9% for U.S. defined benefit pension
plans and 5.0% for foreign plans. The discount rate used for
determining the funded status of the plans at December 31,
2007, and determining the 2008 defined benefit pension cost is
6.25% for U.S. plans and 5.89% 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. In estimating the foreign plans discount rate,
the Company looks to rates of return on high-quality,
fixed-income investments with maturities consistent with the
projected benefit cash flows of the foreign plans. The Company
used an expected long-term rate of return on plan assets for
2007 of 8.25% for U.S. defined benefit pension plans and
7.00% for foreign plans. We will continue to use these rates for
2008 for the U.S. and foreign plans, respectively. The
Company determines the expected long-term rate of return based
primarily on its expectation of future returns for the pension
plans investments. Additionally, the Company considers
historical returns on comparable fixed-income investments and
equity investments, and adjusts its estimate as deemed
appropriate. The rate of compensation increase used in
determining the 2007 pension expense for the U.S. plans was
3.75% and will remain unchanged in 2008. For foreign plans, the
rate of compensation increase will be increased from 3.61% in
2007 to 3.86% in 2008. For the year ended December 31,
2007, the Company recognized consolidated pretax pension income
of $3.8 million from its U.S. and foreign defined
benefit pension plans. This compares with pretax pension expense
of $2.5 million recognized for these plans in 2006, which
included $0.8 million for pension curtailments.
|
The Company follows the balance sheet recognition requirements
of SFAS 158. Under SFAS 158, all unrecognized prior service
costs, remaining transition obligations or assets, and actuarial
gains and losses have been recognized net of tax effects as a
charge to accumulated other comprehensive income
(AOCI) in stockholders equity and will be
amortized as a component of net periodic pension cost. In
addition, effective for fiscal years beginning after
December 15, 2008, the measurement date (the date at which
plan assets and benefit obligation are measured) is required to
be the Companys fiscal year-end. The Company uses a
December 31 measurement date for all of our U.S. defined
benefit plans, and as required by SFAS 158,
A-14
will adopt a December 31 measurement date for our foreign plans
in 2008, changing from the October 1 measurement date currently
used for such plans.
To fund the plans, the Company made cash contributions to its
defined benefit pension plans during 2007 which totaled
$5.2 million, compared with $13.7 million in 2006. The
Company anticipates making cash contributions to its defined
benefit pension plans in 2008 at a level similar to those made
in 2007.
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Income Taxes. The process of providing for
income taxes and determining the related balance sheet accounts
requires management to assess uncertainties, make judgments
regarding outcomes and utilize estimates. 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.
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We 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 the 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.
Effective January 1, 2007, the Company adopted the
provisions of FIN 48, Accounting for Uncertainty in Income
Taxes. In accordance with FIN 48, we are required to assess
the uncertainty in our tax positions, by applying a minimum
recognition threshold a tax position is required to meet before
a tax benefit is recognized in the financial statements. Once
the minimum threshold is met, using a more likely than not
standard, a series of probability estimates is made for each
item to properly measure and record a tax benefit. The tax
benefit recorded is generally equal to the highest probable
outcome that is more than 50% likely to be realized after full
disclosure and resolution of a tax examination. The underlying
probabilities are determined based on the best available
objective evidence such as recent tax audit outcomes, published
guidance, external expert opinion, or by analogy to the outcome
of similar issues in the past. There can be no assurance that
these estimates will ultimately be realized given continuous
changes in tax policy, legislation and audit practice.
As a result of the adoption of FIN 48, the company
recognized a $4.7 million increase in liabilities
associated with unrecognized tax benefits (UTB), including
interest and penalties of $2.4 million and a decrease of
$1.2 million in goodwill related to a previous business
combination, and a $5.9 million charge to the
January 1, 2007 opening balance of retained earnings.
Recently
Issued Financial Accounting Standards
Effective January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in 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. The cumulative
effect of adopting FIN 48 resulted in a noncash reduction
of $5.9 million to the January 1, 2007 opening balance
of retained earnings (See Note 10).
Effective January 1, 2007, the Company adopted Emerging
Issues Task Force (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.
Adoption of
EITF 06-5
did not have any effect on the Companys consolidated
results of operations, financial position or cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair
Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 applies under
A-15
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.
In February 2008, the FASB issued a Staff Position
No. 157-2,
which delays the effective date of SFAS 157 for non
financial assets and non financial liabilities that are not
currently recognized or disclosed at fair value on a recurring
basis until fiscal years beginning after November 15, 2008.
The Company is currently evaluating the impact of adopting
SFAS 157 on our consolidated results of operations,
financial position or cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS 159) which is effective
for fiscal years beginning after November 15, 2007. This
statement permits an entity to elect to measure certain assets
and liabilities at fair value at specified election dates. The
Company does not expect the adoption of SFAS 159 to have an
effect on the Companys consolidated results of operations,
financial position or cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141R). This
statement significantly changes the financial accounting and
reporting of business combination transactions in the
Companys consolidated financial statements. SFAS 141R
is effective for fiscal years beginning after December 15,
2008 and prohibits early adoption. The Company is currently
evaluating the impact of adopting SFAS 141R on our
consolidated results of operations, financial position and cash
flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). This statement significantly
changes the accounting for and reporting of noncontrolling
(minority) interests in the Companys consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning after December 15, 2008 and prohibits early
adoption. The Company is currently evaluating the impact of
adopting SFAS 160 on our consolidated results of
operations, financial position and cash flows.
Internal
Reinvestment
Capital
Expenditures
Capital expenditures were $37.6 million or 1.8% of sales in
2007, compared with $29.2 million, or 1.6% of sales in
2006. Approximately 56% of the expenditures in 2007 were for
improvements to existing equipment or additional equipment to
increase productivity and expand capacity. The Companys
2007 capital expenditures increased due to a continuing emphasis
on spending to improve productivity and expand manufacturing
capabilities. For 2008, capital expenditures are expected to
approximate $48 million, with a continued emphasis on
spending to improve productivity. The 2008 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
$102.9 million in 2007, an increase from $87.6 million
in 2006, and $75.9 million in 2005. Customer reimbursements
were $7.1 million, $6.4 million, and $8.9 million
in 2007, 2006 and 2005, respectively. Included in the amounts
above are net expenses for research and development of
$52.9 million for 2007, $42.0 million for 2006, and
$34.8 million for 2005.
Environmental
Matters
Certain historic processes in the manufacture of products have
resulted in environmentally hazardous waste by-products as
defined by federal and state laws and regulations. While these
waste products were handled in compliance with regulations
existing at that time, at December 31, 2007 the Company is
named a Potentially Responsible Party (PRP) at 15
non-AMETEK-owned
former waste disposal or treatment sites (the
non-owned sites). The Company is identified as a
de minimis party in 12 of these sites based on
the low volume of waste attributed to the Company relative to
the amounts attributed to other named PRPs. In 10 of these
sites, the Company has reached a tentative agreement on the cost
of the de minimis settlement to satisfy its obligation and is
awaiting executed agreements. The tentatively agreed-to
settlement amounts are fully reserved. In the other two sites,
the
A-16
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-owned sites,
the Company has an ongoing practice of providing reserves for
probable remediation activities at certain of its current or
previously owned manufacturing locations (the owned
sites). For claims and proceedings against the Company with
respect to other environmental matters, reserves are established
once the Company has determined that a loss is probable and
estimable. This estimate is refined as the Company moves through
the various stages of investigation, risk assessment,
feasibility study and corrective action processes. In certain
instances, the Company has developed a range of estimates for
such costs and has recorded a liability based on the low end of
the range. It is reasonably possible that the actual cost of
remediation of the individual sites could vary from the current
estimates, and the amounts accrued in the 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, 2007 and 2006
were $25.3 million and $28.7 million, respectively for
non-owned and owned sites. In 2007, the Company provided
$1.5 million of additional reserves for environmental
liabilities. The Companys reserves for environmental
liabilities at December 31, 2007 and 2006 include reserves
of $18.0 million and $21.2 million, respectively, for
an owned site acquired in connection with the fiscal 2005
acquisition of HCC Industries (HCC). The Company is
solely liable for the performance of remedial activities for one
of several operating units making up a large Superfund site in
the San Gabriel Valley of California. The Company has
obtained indemnifications and other financial assurances from
the former owners of HCC related to the costs of the required
remedial activities. At December 31, 2007, the Company has
$12.6 million in receivables related to HCC for probable
recoveries from third-party escrow funds and other committed
third-party funds to support the required remediation. In
addition, the Company is indemnified by HCCs former owners
for up to $19.0 million of additional costs.
The Company also has agreements with other former owners of
certain of its acquired businesses, as well as new owners of
previously owned businesses. Under certain of the agreements,
the former or new owners retained, or assumed and agreed to
indemnify the Company against, certain environmental and other
liabilities under certain circumstances. The Company and some of
these other parties also carry insurance coverage for some
environmental matters. To date, these parties have met their
obligations in all material respects; however, one of these
companies recently filed for bankruptcy liquidation. AMETEK has
established reserves which are sufficient to perform all known
responsibilities under existing claims and consent orders. The
Company has no reason to believe that other third parties would
fail to perform their obligations in the future. In the opinion
of management, based upon presently available information and
past experience related to such matters, an adequate provision
for probable costs has been made, and the ultimate cost
resulting from these actions is not expected to materially
affect the consolidated financial position, results of
operations, or cash flows of the Company.
Market
Risk
The Companys primary exposures to market risk are
fluctuations in interest rates, foreign currency exchange rates
and commodity prices, which could impact its results of
operations and financial condition. The Company addresses its
exposure to these risks through its normal operating and
financing activities. The Companys differentiated and
global business activities help to reduce the impact that any
particular market risk may have on its operating earnings as a
whole.
The Companys short-term debt carries variable interest
rates and generally its long-term debt carries fixed rates.
These financial instruments are more fully described in the
notes to the financial statements.
The foreign currencies to which the Company has the most
significant exchange rate exposure are the euro, the British
pound, the Japanese yen, the Chinese renminbi and the Mexican
peso. Exposure to foreign currency rate
A-17
fluctuation is monitored, and when possible, mitigated through
the occasional use of local borrowings and derivative financial
instruments in the foreign country affected. The effect of
translating foreign subsidiaries balance sheets into
U.S. dollars is included in other comprehensive income,
within stockholders equity. Foreign currency transactions
have not had a significant effect on the operating results
reported by the Company because revenues and costs associated
with the revenues are generally transacted in the same foreign
currencies.
The primary commodities to which the Company has market exposure
are raw material purchases of nickel, 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
Form 10-K
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, 2007, 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.
A-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 2008 Annual Meeting. Both the independent
registered public accounting firm and the internal auditors have
direct access to the Audit Committee.
The Companys independent registered public accounting
firm, Ernst & Young LLP, is engaged to render an
opinion as to whether managements financial statements
present fairly, in all material respects, the Companys
financial position and operating results. This report is
included on page A-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, 2007 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, 2007.
The Companys internal control over financial reporting as
of December 31, 2007 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which appears on page A-20.
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Frank S. Hermance
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John J. Molinelli
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Chairman and Chief Executive Officer
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Executive Vice President Chief Financial Officer
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February 27, 2008
A-19
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of AMETEK, Inc.
We have audited AMETEK, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). AMETEK, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, AMETEK, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, 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, 2007 and 2006, and the related consolidated
statements of income, cash flows, and stockholders equity
for each of the three years in the period ended
December 31, 2007, and our report dated February 27,
2008 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 27, 2008
A-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, 2007 and 2006, and the
related consolidated statements of income, cash flows, and
stockholders equity for each of the three years in the
period ended December 31, 2007. 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, 2007 and
2006, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Notes 1 and 10, the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, effective January 1, 2007. Also, as
discussed in Note 11, 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),
AMETEK, Inc.s internal control over financial reporting as
of December 31, 2007, 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 27, 2008 expressed
an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 27, 2008
A-21
AMETEK,
Inc.
Consolidated Statement of Income
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Year Ended December 31,
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2007
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|
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2006
|
|
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2005
|
|
|
|
(In thousands, except per share amounts)
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|
|
Net sales
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|
$
|
2,136,850
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|
|
$
|
1,819,290
|
|
|
$
|
1,434,457
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|
|
|
|
|
|
|
|
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|
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Operating expenses:
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|
|
|
|
|
|
|
|
|
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Cost of sales (excluding depreciation)
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|
|
1,444,514
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|
|
|
1,251,920
|
|
|
|
991,788
|
|
Selling, general and administrative
|
|
|
263,472
|
|
|
|
219,454
|
|
|
|
174,218
|
|
Depreciation
|
|
|
42,290
|
|
|
|
38,922
|
|
|
|
34,963
|
|
|
|
|
|
|
|
|
|
|
|
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Total operating expenses
|
|
|
1,750,276
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|
|
|
1,510,296
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|
|
|
1,200,969
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating income
|
|
|
386,574
|
|
|
|
308,994
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|
|
|
233,488
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|
Other expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
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|
|
(46,866
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)
|
|
|
(42,167
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)
|
|
|
(32,913
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)
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Other, net
|
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|
(3,264
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)
|
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|
(3,141
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)
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|
(2,288
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)
|
|
|
|
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|
|
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|
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Income before income taxes
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|
336,444
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|
|
|
263,686
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|
|
|
198,287
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Provision for income taxes
|
|
|
108,424
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|
|
|
81,752
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|
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61,930
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Net income
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$
|
228,020
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|
|
$
|
181,934
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|
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$
|
136,357
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Basic earnings per share
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$
|
2.15
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|
|
$
|
1.74
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|
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$
|
1.31
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Diluted earnings per share
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$
|
2.12
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|
|
$
|
1.71
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|
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$
|
1.29
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|
|
|
|
|
|
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|
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Weighted average common shares outstanding:
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|
|
|
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|
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|
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Basic shares
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|
|
105,832
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|
|
|
104,841
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|
|
|
103,726
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|
|
|
|
|
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|
|
|
|
|
|
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|
Diluted shares
|
|
|
107,580
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|
|
|
106,608
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|
|
|
105,578
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|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes.
A-22
AMETEK,
Inc.
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|
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December 31,
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|
|
2007
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|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
170,139
|
|
|
$
|
49,091
|
|
Marketable securities
|
|
|
10,842
|
|
|
|
9,129
|
|
Receivables, less allowance for possible losses
|
|
|
395,631
|
|
|
|
328,762
|
|
Inventories
|
|
|
301,679
|
|
|
|
236,783
|
|
Deferred income taxes
|
|
|
23,294
|
|
|
|
26,523
|
|
Other current assets
|
|
|
50,619
|
|
|
|
33,775
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
952,204
|
|
|
|
684,063
|
|
Property, plant and equipment, net
|
|
|
293,107
|
|
|
|
258,008
|
|
Goodwill
|
|
|
1,045,733
|
|
|
|
881,433
|
|
Other intangibles, net of accumulated amortization
|
|
|
312,349
|
|
|
|
199,728
|
|
Investments and other assets
|
|
|
142,307
|
|
|
|
107,644
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,745,700
|
|
|
$
|
2,130,876
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$
|
236,005
|
|
|
$
|
163,608
|
|
Accounts payable
|
|
|
206,170
|
|
|
|
160,614
|
|
Income taxes payable
|
|
|
28,437
|
|
|
|
14,618
|
|
Accrued liabilities
|
|
|
170,138
|
|
|
|
142,060
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
640,750
|
|
|
|
480,900
|
|
Long-term debt
|
|
|
666,953
|
|
|
|
518,267
|
|
Deferred income taxes
|
|
|
116,568
|
|
|
|
65,081
|
|
Other long-term liabilities
|
|
|
80,722
|
|
|
|
99,956
|
|
Stockholders equity :
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; authorized:
5,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized:
400,000,000 shares; issued: 2007
109,749,985 shares; 2006 108,479,995 shares
|
|
|
1,097
|
|
|
|
1,085
|
|
Capital in excess of par value
|
|
|
174,450
|
|
|
|
134,001
|
|
Retained earnings
|
|
|
1,099,111
|
|
|
|
902,379
|
|
Accumulated other comprehensive income (loss)
|
|
|
5,370
|
|
|
|
(33,552
|
)
|
Less: Cost of shares held in treasury: 2007
2,381,778 shares; 2006 2,421,193 shares
|
|
|
(39,321
|
)
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,240,707
|
|
|
|
966,672
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,745,700
|
|
|
$
|
2,130,876
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-23
AMETEK,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
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
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
1,056
|
|
Shares issued
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,097
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
107,086
|
|
|
|
|
|
|
|
76,451
|
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
23,884
|
|
|
|
|
|
|
|
16,671
|
|
|
|
|
|
|
|
14,093
|
|
Share-based compensation costs
|
|
|
|
|
|
|
7,101
|
|
|
|
|
|
|
|
5,538
|
|
|
|
|
|
|
|
6,339
|
|
Excess tax benefits from exercise of stock options
|
|
|
|
|
|
|
9,464
|
|
|
|
|
|
|
|
4,706
|
|
|
|
|
|
|
|
10,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
174,450
|
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
107,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year(1)
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
739,522
|
|
|
|
|
|
|
|
619,979
|
|
Adoption of FASB Interpretation No. 48
|
|
|
|
|
|
|
(5,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
228,020
|
|
|
|
228,020
|
|
|
$
|
181,934
|
|
|
|
181,934
|
|
|
$
|
136,357
|
|
|
|
136,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
(25,748
|
)
|
|
|
|
|
|
|
(18,832
|
)
|
|
|
|
|
|
|
(16,814
|
)
|
Other
|
|
|
|
|
|
|
361
|
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,099,111
|
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
739,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
(17,838
|
)
|
|
|
|
|
|
|
(2,438
|
)
|
Translation adjustments, net of tax of $-, ($85) and $195 in
2007, 2006, and 2005, respectively
|
|
|
6,056
|
|
|
|
|
|
|
|
8,542
|
|
|
|
|
|
|
|
(11,731
|
)
|
|
|
|
|
Gain (loss) on net investment hedges, net of tax of ($1,298),
($1,374), and $1,975 in 2007, 2006, and 2005, respectively
|
|
|
2,412
|
|
|
|
|
|
|
|
8,159
|
|
|
|
|
|
|
|
(3,669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,468
|
|
|
|
8,468
|
|
|
|
16,701
|
|
|
|
16,701
|
|
|
|
(15,400
|
)
|
|
|
(15,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
(17,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
(3,380
|
)
|
|
|
|
|
|
|
(8,450
|
)
|
Adjustments during the year, net of tax of ($1,536) and $1,820
in 2006 and 2005, respectively
|
|
|
|
|
|
|
|
|
|
|
2,852
|
|
|
|
2,852
|
|
|
|
5,070
|
|
|
|
5,070
|
|
Change in pension plans, net of tax of ($14,141)
|
|
|
30,173
|
|
|
|
30,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS No. 158, net of taxes of $17,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
(3,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale
securities:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
1,245
|
|
Increase (decrease) during the year, net of tax expense
(benefit) of $151, $430, and ($162) in 2007, 2006, and 2005,
respectively
|
|
|
281
|
|
|
|
281
|
|
|
|
496
|
|
|
|
496
|
|
|
|
(943
|
)
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income for the year
|
|
|
38,922
|
|
|
|
|
|
|
|
20,049
|
|
|
|
|
|
|
|
(11,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
$
|
266,942
|
|
|
|
|
|
|
$
|
201,983
|
|
|
|
|
|
|
$
|
125,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at the end of the
year
|
|
|
|
|
|
|
5,370
|
|
|
|
|
|
|
|
(33,552
|
)
|
|
|
|
|
|
|
(20,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
(17,247
|
)
|
|
|
|
|
|
|
(24,517
|
)
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
7,270
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(5,437
|
)
|
|
|
|
|
|
|
(21,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
(17,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
|
|
|
$
|
1,240,707
|
|
|
|
|
|
|
$
|
966,672
|
|
|
|
|
|
|
$
|
809,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Retained earnings have been reduced
by the effects of the modified retrospective adoption of
FAS 123R as of January 1, 2006. Such amount was $4,285
in 2005.
|
|
(2)
|
|
Amounts presented are net of tax
based on an average tax rate of 35%.
|
See accompanying notes.
A-24
AMETEK,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
228,020
|
|
|
$
|
181,934
|
|
|
$
|
136,357
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
52,665
|
|
|
|
45,929
|
|
|
|
39,428
|
|
Deferred income tax expense (benefit)
|
|
|
4,769
|
|
|
|
(524
|
)
|
|
|
9,133
|
|
Stock-based compensation expense
|
|
|
15,530
|
|
|
|
12,441
|
|
|
|
10,581
|
|
Changes in assets and liabilities (net of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in receivables
|
|
|
(26,944
|
)
|
|
|
(26,042
|
)
|
|
|
(22,007
|
)
|
Decrease (increase) in inventories and other current assets
|
|
|
194
|
|
|
|
(6,225
|
)
|
|
|
(871
|
)
|
Increase (decrease) in payables, accruals, and income taxes
|
|
|
13,421
|
|
|
|
29,751
|
|
|
|
(12,279
|
)
|
(Decrease) increase in other long-term liabilities
|
|
|
(7,153
|
)
|
|
|
(1,819
|
)
|
|
|
3,887
|
|
Pension contribution
|
|
|
(5,162
|
)
|
|
|
(13,721
|
)
|
|
|
(11,307
|
)
|
Other
|
|
|
3,183
|
|
|
|
4,243
|
|
|
|
2,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
278,523
|
|
|
|
225,967
|
|
|
|
155,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(37,620
|
)
|
|
|
(29,156
|
)
|
|
|
(23,261
|
)
|
Purchase of businesses, net of cash acquired
|
|
|
(300,569
|
)
|
|
|
(177,639
|
)
|
|
|
(340,672
|
)
|
Other
|
|
|
3,528
|
|
|
|
770
|
|
|
|
2,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(334,661
|
)
|
|
|
(206,025
|
)
|
|
|
(361,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
(162,589
|
)
|
|
|
4,048
|
|
|
|
105,708
|
|
Additional long-term borrowings
|
|
|
370,000
|
|
|
|
29,507
|
|
|
|
177,790
|
|
Reduction in long-term borrowings
|
|
|
(26,553
|
)
|
|
|
(18,186
|
)
|
|
|
(86,029
|
)
|
Repurchases of common stock
|
|
|
(5,437
|
)
|
|
|
(21,075
|
)
|
|
|
|
|
Cash dividends paid
|
|
|
(25,748
|
)
|
|
|
(18,832
|
)
|
|
|
(16,814
|
)
|
Excess tax benefits from share-based payments
|
|
|
9,464
|
|
|
|
4,706
|
|
|
|
10,203
|
|
Proceeds from employee stock plans and other
|
|
|
14,961
|
|
|
|
9,878
|
|
|
|
16,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
174,098
|
|
|
|
(9,954
|
)
|
|
|
207,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
3,088
|
|
|
|
3,558
|
|
|
|
(2,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
121,048
|
|
|
|
13,546
|
|
|
|
(2,037
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
49,091
|
|
|
|
35,545
|
|
|
|
37,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
170,139
|
|
|
$
|
49,091
|
|
|
$
|
35,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-25
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Significant
Accounting Policies
|
Basis of
Consolidation
The accompanying consolidated financial statements reflect the
operations, financial position and cash flows of AMETEK, Inc.
(the Company), and include the accounts of the
Company and subsidiaries, after elimination of all intercompany
transactions in the consolidation. The Companys
investments in 50% or less owned joint ventures are accounted
for by the equity method of accounting. Such investments are not
significant to the Companys consolidated results of
operations, financial position or cash flows.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles 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, 2007 and 2006, 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, 2007 and 2006 was: 2007
$17.9 million ($16.3 million amortized cost) and
2006 $16.9 million ($15.7 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 2007 or 2006. 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
$6.4 million and $7.4 million at December 31,
2007 and 2006, respectively. See Note 5.
Inventories
The Company uses the
first-in,
first-out (FIFO) method of accounting, which approximates
current replacement cost, for approximately 62% of its
inventories. The
last-in,
first-out (LIFO) method of accounting is used to determine cost
for the remaining 38% 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 $35.6 million
and $34.1 million at December 31, 2007 and 2006,
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
A-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, collectability is reasonably assured and
pricing is fixed or determinable. For a small percentage of
sales where title and risk of loss passes at point of delivery,
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 these sales incentives as a
reduction of revenues when the sale is recognized in the income
statement. Accruals for sales returns, other allowances, and
estimated warranty costs are provided at the time revenue is
recognized based upon past experience. At December 31,
2007, 2006 and 2005, the accrual for future warranty obligations
was $14.4 million, $10.9 million and
$9.4 million, respectively. The Companys expense for
warranty obligations approximated $11.3 million in 2007,
$7.6 million in 2006 and $7.2 million in 2005. 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:
2007-$52.9 million, 2006-$42.0 million and
2005-$34.8 million.
Shipping
and Handling Costs
Shipping and handling costs are included in cost of sales, and
were: 2007 $27.5 million, 2006
$23.5 million, and 2005 $20.0 million.
Earnings
per Share
The calculation of basic earnings per share is based on the
average number of common shares considered outstanding during
the periods. The calculation of diluted earnings per share
reflects the effect of all potentially dilutive securities
(principally outstanding common stock options and restricted
stock grants). The following table presents the number of shares
used in the calculation of basic earnings per share and diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted average shares (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
105,832
|
|
|
|
104,841
|
|
|
|
103,726
|
|
Stock option and awards plans
|
|
|
1,748
|
|
|
|
1,767
|
|
|
|
1,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
107,580
|
|
|
|
106,608
|
|
|
|
105,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
A-27
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company and its subsidiaries are made in currencies other
than their functional currency. Exchange gains and losses from
those transactions are included in operating results for the
year.
The Company makes infrequent use of derivative financial
instruments. 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. At
December 31, 2007, the Company was a party to certain
foreign currency forward contracts, which were not significant.
These forward contracts were acquired as a part of a 2007
acquisition. The last of these forward contracts is expected to
settle as of January 31, 2008. No forward contracts were
outstanding at December 31, 2006. In instances where
transactions are designated as hedges of an underlying item, the
gains and losses on those transactions are included in
Accumulated Other Comprehensive Income (AOCI) within
stockholders equity to the extent they are effective as
hedges. The Company has designated certain
foreign-currency-denominated long-term debt as hedges of the net
investment in certain foreign operations. These net investment
hedges are the Companys British-pound-denominated
long-term debt and euro-denominated long-term debt, pertaining
to certain European acquisitions whose functional currencies are
either the British pound or the euro. These acquisitions were
financed by foreign-currency-denominated borrowings under
AMETEKs revolving credit facility and were subsequently
refinanced with long-term private placement debt. These
borrowings were designed to create net investment hedges in each
of the foreign subsidiaries on their respective dates of
acquisition. Statement of Financial Accounting Standards
(SFAS) 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, 2007 and
2006, all net investment hedges were effective. At
December 31, 2007, the translation gains on the net
carrying value of the foreign-currency-denominated investments
exceeded the translation losses on the carrying value of the
underlying debt and are included in AOCI. An evaluation of hedge
effectiveness is performed by the Company on an ongoing basis
and any changes in the hedge are made as appropriate.
At December 31, 2007 and 2006, the Company had
$203.2 million and $227.9 million, respectively, of
British pound-denominated loans, which are designated as a hedge
against the net investment in foreign subsidiaries acquired in
2006, 2004 and 2003. At December 31, 2007 and 2006, the
Company had $73.0 million and $66.0 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 $9.6 million and $29.1 million of
currency losses have been included in the foreign currency
translation component of other comprehensive income at
December 31, 2007 and 2006, respectively.
Stock-Based
Compensation
The Company accounts for share-based payments in accordance with
Statement of Financial Accounting Standards (SFAS)
123R. Accordingly, the Company expenses the fair value of awards
made under its share-based plans. That cost is recognized in the
financial statements over the requisite service period of the
grants. See Note 8.
Goodwill
and Other Intangible Assets
The Company accounts for purchased goodwill and other intangible
assets in accordance with SFAS 142, Goodwill and Other
Intangible Assets. Under SFAS 142, purchased goodwill
and intangible assets with indefinite
A-28
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
lives, primarily trademarks and trade names, are not amortized;
rather, they are tested for impairment at least annually.
Intangible assets, other than goodwill, with definite lives are
amortized over their estimated useful lives. Patents are being
amortized over useful lives of 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 estimated
useful lives of these intangible assets.
In order to test goodwill and intangible assets with indefinite
lives for impairment under SFAS 142, a determination of the
fair value of the Companys reporting units and its other
intangible assets with indefinite lives is required and is based
upon, among other things, estimates of future operating
performance. Changes in market conditions, among other factors,
may have an impact on these estimates. The Company completed its
required annual impairment tests in the fourth quarter of 2007,
2006 and 2005 and determined that the carrying values of
goodwill and other intangible assets with indefinite lives were
not impaired.
Income
Taxes
The Company adopted the provisions of FIN 48, Accounting
for Uncertainty in Income Taxes, as of January 1, 2007.
As a result of the adoption of FIN 48, the Company
recognized a $4.7 million increase in liabilities
associated with uncertain tax positions, including interest and
penalties of $2.4 million, a decrease of $1.2 million
in goodwill related to a previous business combination, and a
$5.9 million charge to the January 1, 2007, opening
balance of retained earnings. The Company recognizes interest
and penalties accrued related to uncertain tax positions in
income tax expense.
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,
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.
|
|
2.
|
Recently
Issued Financial Accounting Standards
|
Effective January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in 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. The cumulative
effect of adopting FIN 48 resulted in a noncash reduction
of $5.9 million to the January 1, 2007 opening balance
of retained earnings (See Note 10).
Effective January 1, 2007, the Company adopted Emerging
Issues Task Force (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.
Adoption of
EITF 06-5
did not have any effect on the Companys consolidated
results of operations, financial position or cash flows.
A-29
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair
Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, 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. In
February 2008, the FASB issued a Staff Position
No. 157-2,
which delays the effective date of SFAS 157 for
nonfinancial assets and nonfinancial liabilities that are not
currently recognized or disclosed at fair value on a recurring
basis until fiscal years beginning after November 15, 2008.
The Company is currently evaluating the impact of adopting
SFAS 157 on our consolidated results of operations,
financial position or cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS 159) which is effective
for fiscal years beginning after November 15, 2007. This
statement permits an entity to elect to measure certain assets
and liabilities at fair value at specified election dates. The
Company does not expect the adoption of SFAS 159 will have
an effect on the Companys consolidated results of
operations, financial position or cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141R). This
statement significantly changes the financial accounting and
reporting of business combination transactions in the
Companys consolidated financial statements. SFAS 141R
is effective for fiscal years beginning after December 15,
2008 and prohibits early adoption. The Company is currently
evaluating the impact of adopting SFAS 141R on our
consolidated results of operations, financial position and cash
flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). This statement significantly
changes the accounting for and reporting of noncontrolling
(minority) interests in the Companys consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning after December 15, 2008 and prohibits early
adoption. The Company is currently evaluating the impact of
adopting SFAS 160 on our consolidated results of
operations, financial position and cash flows.
The Company spent $300.6 million in cash, net of cash
acquired and assumed $24.9 million in debt and other long
term liabilities (including a capital lease obligation) for
seven acquisitions and one small technology line. The
acquisitions include Seacon Phoenix (SCP) in April
2007, Advanced Industries, Inc. (Advanced), B&S
Aircraft Parts and Accessories (B&S) and
Hamilton Precision Metals (Hamilton) in June 2007,
Cameca SAS (Cameca) in August 2007, the
Repair & Overhaul Division of Umeco plc (Umeco
R&O) in November 2007, and California Instruments
Corporation (California Instruments) in December
2007. SCP provides undersea electrical interconnect subsystems
to the global submarine market. Advanced manufactures starter
generators, brush and brushless motors, vane-axial centrifugal
blowers for cabin ventilation, and linear actuators for the
business jet, light jet, and helicopter markets. B&S
provides third-party maintenance, repair and overhaul (MRO)
services, primarily for starter generators and hydraulic and
fuel system components, for a variety of business aircraft and
helicopter applications. Hamilton produces highly differentiated
niche specialty metals used in medical implant devices and
surgical instruments, electronic components and measurement
devices for aerospace and other industrial markets. Cameca is a
manufacturer of high-end elemental analysis systems used in
advanced laboratory research, semiconductor and nanotechnology
applications. Umeco R&O provides third-party MRO services
for a variety of helicopters and commercial and regional
aircraft throughout Europe. California Instruments is a leader
in the niche market for programmable alternating current (AC)
power sources used to test electrical and electronic products,
with an especially strong position in the high-power segment.
Advanced, B&S, Cameca, and California Instruments are part
of the Companys Electronic Instruments Group
(EIG). SCP, Hamilton and Umeco R&O are
A-30
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
part of the Companys Electromechanical Group
(EMG). The seven businesses acquired have annualized
sales of approximately $230 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 have been included in the Companys
consolidated results from the respective dates of acquisition.
The following table represents the tentative allocation of the
aggregate purchase price for the net assets of the above 2007
acquisitions based on their estimated fair value:
|
|
|
|
|
|
|
In millions
|
|
|
Property, plant and equipment
|
|
$
|
34.4
|
|
Goodwill
|
|
|
170.5
|
|
Other intangible assets
|
|
|
81.7
|
|
Net working capital and other (a)
|
|
|
14.0
|
|
|
|
|
|
|
Allocation of purchase price
|
|
$
|
300.6
|
|
|
|
|
|
|
|
|
|
(a) |
|
This amount includes $24.9 million in debt and other
long-term liabilities. |
The amount allocated to goodwill is reflective of the benefits
the Company expects to realize from the acquisitions as follows:
The SCP acquisition is an excellent strategic fit with the
Companys engineered materials, interconnects and packaging
business and extends the Companys reach into new defense
markets. The Advanced acquisition complements the Companys
AMPHION product line of power management products for the
aerospace industry and broadens our product offering in the
power management subsystem market. The B&S acquisition
further expands the Companys position in the third-party
aerospace MRO market. The Hamilton acquisition is a strategic
fit with our engineered materials, interconnects and packaging
business and has strong positions in growing specialty metals
niche markets within the aerospace and other industrial markets.
The Cameca acquisition broadens the Companys technical
capabilities in high-end elemental analysis systems used in
advanced laboratory research, semiconductor and nanotechnology
applications. The Umeco R&O acquisition broadens the
Companys presence in the European aerospace MRO market,
greatly expanding the range of products and airframe platforms
that the Company supports. The California Instruments
acquisition broadens the scope of our Power Instruments
business, which produces power quality monitoring and metering
instrumentation, and further expands our presence in the
attractive electronic test and measurement equipment market. The
Company expects approximately $23.5 million of the goodwill
recorded on the 2007 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,
updating its assessment of an acquired contingent liability
associated with a product liability claim pertaining to Cameca,
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 valuations for the $81.7 million preliminarily assigned
to other intangible assets, related to the 2007 acquisitions,
are currently being finalized by third-party appraisers. In
connection with the finalization of the 2006 acquisitions,
$56.4 million was assigned to intangible assets, which
consisted primarily of patents, technology, customer
relationships and trade names with estimated lives ranging from
five to 20 years.
In 2006, the Company spent $177.6 million, net of cash
received, for five new businesses and two small technology
lines. The businesses acquired included Pulsar Technologies,
Inc. (Pulsar) in February 2006, PennEngineering
Motion Technologies, Inc. (Pittman) in May 2006,
Land Instruments International Limited (Land
Instruments) in June 2006, Precitech in November 2006 and
Southern Aeroparts, Inc. (SAI) in December 2006.
Pulsar is a leading designer and manufacturer of specialized
communications equipment for the electric utility market and is
part of EIG. Pittman is a leading designer and manufacturer of
highly engineered motors and is
A-31
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
part of EMG. Land Instruments is a global supplier of high-end
analytical instrumentation and is part of EIG. Precitech is a
leading manufacturer of ultraprecision machining systems for a
variety of markets, including nanotechnology, military, defense
and ophthalmic and is part of EIG. SAI is a provider of
third-party maintenance, repair and overhaul services to the
commercial aerospace industry and is part of EMG.
Had the 2007 acquisitions been made at the beginning of 2007,
unaudited pro forma net sales, net income, and diluted earnings
per share for the year ended December 31, 2007 would not
have been materially different than the amounts reported.
Had the 2007 acquisitions and the 2006 acquisitions been made at
the beginning of 2006, pro forma net sales, net income, and
diluted earnings per share for the year ended December 31,
2006 would have been as follows (in millions, except per share
amount):
|
|
|
|
|
|
|
Unaudited Pro Forma Results of
|
|
|
|
Operations
|
|
|
|
Year Ended
|
|
|
|
December 31, 2006
|
|
|
Net sales
|
|
$
|
2,057.8
|
|
Net income
|
|
$
|
187.4
|
|
Diluted earnings per share
|
|
$
|
1.76
|
|
Pro forma results are not necessarily indicative of the results
that would have occurred if the acquisitions had been completed
at the beginning of 2006.
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 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
EMG and EIG, respectively.
Acquisitions
Subsequent to Year-end
The Company spent a total of approximately $77 million in
cash to acquire Motion Control Group (MCG), Drake
Air (Drake) and Newage Testing Instruments
(Newage) in February 2008. MCG is a leading global
manufacturer of highly customized motors and motion control
solutions for the medical, life sciences, industrial automation,
semiconductor and aviation markets. MCG greatly enhances our
capability in providing precision motion technology solutions.
Drake is a provider of heat-transfer repair services to the
commercial aerospace industry and further expands our presence
in the global aerospace maintenance, repair and overhaul (MRO)
services industry. Newage is a manufacturer of hardness testing
equipment used by the automotive, aerospace, oil exploration and
defense industries. The Newage acquisition complements our Lloyd
Instruments universal materials testing machines and broadens
the range of materials testing solutions we can provide. MCG and
Drake are part of the Companys Electromechanical Group and
Newage is a part of the Companys Electronic Instruments
Group.
A-32
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Goodwill
and Other Intangible Assets
|
The changes in the carrying amounts of goodwill by segment for
the years ended December 31, 2007 and 2006 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIG
|
|
|
EMG
|
|
|
Total
|
|
|
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
|
|
Goodwill acquired during the year
|
|
|
84.2
|
|
|
|
86.3
|
|
|
|
170.5
|
|
Purchase price allocation adjustments and other*
|
|
|
(9.2
|
)
|
|
|
(12.8
|
)
|
|
|
(22.0
|
)
|
Foreign currency translation adjustments
|
|
|
15.3
|
|
|
|
0.5
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
622.0
|
|
|
$
|
423.7
|
|
|
$
|
1,045.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Purchase price allocation adjustments reflect final purchase
price allocations and revisions to certain preliminary
allocations for recent acquisitions, which include
reclassifications between goodwill and other intangible assets. |
Other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Definite-lived intangible assets (subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
37,037
|
|
|
$
|
36,371
|
|
Purchased technology
|
|
|
34,865
|
|
|
|
33,997
|
|
Customer lists
|
|
|
118,047
|
|
|
|
79,976
|
|
Other acquired intangibles
|
|
|
55,053
|
|
|
|
28,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,002
|
|
|
|
178,803
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(24,220
|
)
|
|
|
(23,517
|
)
|
Purchased technology
|
|
|
(21,717
|
)
|
|
|
(19,886
|
)
|
Customer lists
|
|
|
(12,361
|
)
|
|
|
(9,550
|
)
|
Other acquired intangibles
|
|
|
(26,605
|
)
|
|
|
(24,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,903
|
)
|
|
|
(77,154
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to amortization
|
|
|
160,099
|
|
|
|
101,649
|
|
Indefinite-lived intangible assets (not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
152,250
|
|
|
|
98,079
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
312,349
|
|
|
$
|
199,728
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $10.4 million, $7.0 million,
and $4.5 million for the years ended December 31,
2007, 2006, and 2005, respectively. Amortization expense for
each of the next five years is expected to approximate
$14.6 million per year, not considering the impact of
potential future acquisitions.
A-33
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Other
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
52,206
|
|
|
$
|
46,148
|
|
Work in process
|
|
|
86,858
|
|
|
|
56,502
|
|
Raw materials and purchased parts
|
|
|
162,615
|
|
|
|
134,133
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
301,679
|
|
|
$
|
236,783
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
28,720
|
|
|
$
|
23,812
|
|
Buildings
|
|
|
195,888
|
|
|
|
165,599
|
|
Machinery and equipment
|
|
|
592,950
|
|
|
|
560,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817,558
|
|
|
|
749,822
|
|
Less accumulated depreciation
|
|
|
(524,451
|
)
|
|
|
(491,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
293,107
|
|
|
$
|
258,008
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued employee compensation and benefits
|
|
$
|
56,171
|
|
|
$
|
41,039
|
|
Other
|
|
|
113,967
|
|
|
|
101,021
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,138
|
|
|
$
|
142,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS AND
NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
7,387
|
|
|
$
|
7,581
|
|
|
$
|
7,628
|
|
Additions charged to expense
|
|
|
663
|
|
|
|
1,511
|
|
|
|
581
|
|
Recoveries credited to allowance
|
|
|
22
|
|
|
|
182
|
|
|
|
10
|
|
Write-offs
|
|
|
(2,122
|
)
|
|
|
(501
|
)
|
|
|
(400
|
)
|
Currency translation adjustment and other
|
|
|
443
|
|
|
|
(1,386
|
)
|
|
|
(238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
6,393
|
|
|
$
|
7,387
|
|
|
$
|
7,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-34
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2007 and 2006, long-term debt consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
U.S. dollar 7.20% senior notes due 2008
|
|
$
|
225,000
|
|
|
$
|
225,000
|
|
U.S. dollar 6.20% senior notes due 2017
|
|
|
270,000
|
|
|
|
|
|
U.S. dollar 6.30% senior notes due 2019
|
|
|
100,000
|
|
|
|
|
|
British pound 5.96% senior note due 2010
|
|
|
99,340
|
|
|
|
97,905
|
|
British pound floating-rate term note due through 2010 (6.82% at
December 31, 2007)
|
|
|
24,339
|
|
|
|
35,246
|
|
Euro 3.94% senior note due 2015
|
|
|
72,993
|
|
|
|
66,007
|
|
British pound 5.99% senior note due 2016
|
|
|
79,480
|
|
|
|
78,324
|
|
Accounts receivable securitization due 2008
|
|
|
|
|
|
|
75,000
|
|
Revolving credit loan
|
|
|
|
|
|
|
96,748
|
|
Other, principally foreign
|
|
|
31,806
|
|
|
|
7,645
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
902,958
|
|
|
$
|
681,875
|
|
Less: current portion
|
|
|
(236,005
|
)
|
|
|
(163,608
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
666,953
|
|
|
$
|
518,267
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt outstanding at December 31,
2007 are as follows: $5.5 million in 2009;
$121.6 million in 2010; $1.5 million in 2011;
$3.6 million in 2012; $1.5 million in 2013; and
$533.3 million in 2014 and thereafter.
In the third quarter of 2007, the Company completed a private
placement agreement to sell $450 million in senior notes to
a group of institutional investors. There are two funding dates
for the senior notes. The first funding occurred in December
2007 for $370 million, consisting of $270 million in
aggregate principal amount of 6.20% senior notes due
December 2017 and $100 million in aggregate principal
amount of 6.30% senior notes due December 2019. The second
funding date will be in July 2008 for $80 million in
aggregate principal amount of 6.35% senior notes due July
2018. The notes will carry a weighted average interest rate of
approximately 6.25%. The proceeds from the first funding of the
notes were used to pay down the Companys revolving credit
facility, which included a foreign portion related to the 2007
acquisition of Cameca SAS and the 2006 acquisition of Land
Instruments, as well as borrowings outstanding under the
Companys accounts receivable securitization program.
Additionally, the proceeds from the private placement were used
to purchase California Instruments in December 2007, with the
remaining proceeds held in cash equivalent money market funds at
December 31, 2007.
At December 31, 2007, the Company has an outstanding
12.3 million British pound ($24.3 million at
December 31, 2007) 6.82% (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 ($73.0 million at
December 31, 2007) 3.94% senior note due 2015. In
November 2004, the Company issued a 40 million British
pound ($79.5 million at December 31,
2007) 5.99% senior note due in 2016. In September
2003, the Company issued a 50 million British pound
($99.3 million at December 31,
2007) 5.96% senior note due in 2010.
The Company has an accounts receivable securitization facility
agreement with a wholly owned, special-purpose subsidiary, and
the special-purpose subsidiary has a receivables sale agreement
with two banks, whereby it can sell to a third party up to
$110.0 million of its trade accounts receivable on a
revolving basis. The securitization facility is a financing
vehicle utilized by the Company because it generally offers
attractive rates relative to other
A-35
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financing sources. When borrowings are outstanding under the
facility, all securitized accounts receivable and related debt
are reflected on the Companys consolidated balance sheet.
The special-purpose subsidiary is the servicer of the accounts
receivable under the securitization facility. The accounts
receivable securitization facility was amended and restated in
May 2007 to increase the Companys available borrowing
capacity from $75 million to $110 million as well as
extend the expiration date from May 2007 to May 2008. 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, 2007 the Company had no borrowings
outstanding on the accounts receivable securitization. At
December 31, 2006, the securitized accounts receivable and
the corresponding debt on the consolidated balance sheet was
$75.0 million. Interest expense under this facility is not
significant. The weighted average interest rate when borrowings
were outstanding under the accounts receivable securitization
during 2007 and 2006 was 5.7% and 5.4%, respectively.
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012.
Interest rates on outstanding loans under the revolving credit
facility are either at LIBOR or Euribor plus a negotiated
spread, or at the U.S. prime rate. At December 31,
2007 the Company had no borrowings outstanding under the
revolving credit facility. At December 31, 2006, the
Company had outstanding revolving credit loans of
$96.7 million. The weighted average interest rate on the
revolving credit facility for the periods ended
December 31, 2007 and 2006 was 5.82% and 5.54%,
respectively. The Company had outstanding letters of credit
totaling $24.7 million and $27.2 million at
December 31, 2007 and 2006, respectively.
The revolving credit facility places certain restrictions on
allowable additional indebtedness. At December 31, 2007 the
Company had available borrowing capacity of $525.3 million
under its $550 million revolving bank credit facility,
which includes an accordion feature allowing $100 million
of additional borrowing capacity.
The private placement, floating-rate term loan, the senior
notes, the revolving credit facility and the accounts receivable
securitization are subject to certain customary covenants,
including financial covenants that, among other things, require
the Company to maintain certain debt to EBITDA and interest
coverage ratios.
Foreign subsidiaries of the Company had available credit
facilities with local foreign lenders of approximately
$81.9 million at December 31, 2007. Foreign
subsidiaries had debt outstanding at December 31, 2007
totaling $56.1 million, including $45.1 million
reported in long-term debt.
The approximate weighted average interest rate on total debt
outstanding at December 31, 2007 and 2006 was 6.3%.
In 2007, the Company repurchased 144,000 shares of its
common stock for $5.4 million in cash under its current
share repurchase authorization. In 2006, the Company used cash
of $21.1 million for the repurchase of 750,000 shares
of its common stock. At December 31, 2007, approximately
$25.9 million of the then current share repurchase
authorization was unexpended. On January 24, 2008, the
Board of Directors authorized an increase of $50 million in
the authorization for the repurchase of its common stock. This
increase will be added to the $25.9 million that remained
available from an existing $50 million authorization
approved in March 2003, for a
A-36
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
total of $75.9 million available for repurchases of the
Companys common stock. Subsequent to December 31,
2007, the Company has repurchased an additional
1,000,057 shares of its common stock for approximately
$43.5 million. Therefore, the remaining balance available
for repurchases of the Companys common stock is
$32.4 million as of the filing of the Companys
Form 10-K for the year ended December 31, 2007. At
December 31, 2007, the Company held approximately
2.4 million shares in its treasury at a cost of
$39.3 million, compared with approximately 2.4 million
shares at a cost of $37.2 million at the end of 2006. The
number of shares outstanding at December 31, 2007 was
107.4 million shares, compared with 106.1 million
shares at December 31, 2006.
The Company has a Shareholder Rights Plan, under which the
Companys Board of Directors declared a dividend of one
Right for each share of Company common stock owned at the close
of business on June 2, 2007, and has authorized the
issuance of one Right for each share of Common Stock of the
Company issued between the Record Date and the Distribution
Date. The Plan provides, under certain conditions involving
acquisition of the Companys common stock, that holders of
Rights, except for the acquiring entity, would be entitled
(i) to purchase shares of preferred stock at a specified
exercise price, or (ii) to purchase shares of common stock
of the Company, or the acquiring company, having a value of
twice the Rights exercise price. The Rights under the Plan
expire in June 2017.
|
|
8.
|
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 members
of its Board of Directors. In 2007, the Board of Directors and
the Companys stockholders approved the 2007 Omnibus
Incentive Compensation Plan, which permits the issuance of up to
3.5 million shares of Company common stock. Employee and
nonemployee Director stock options generally vest at a rate of
25% per year, beginning one year from the date of the grant and
restricted stock awards generally have a four-year cliff
vesting. Options primarily have a maximum contractual term of
seven years. At December 31, 2007, 8.7 million shares
of Company common stock were reserved for issuance under the
Companys share-based plans, including 3.8 million
shares for stock options outstanding.
The Company issues previously unissued shares when options are
exercised, and shares are issued from treasury stock upon the
award of restricted stock.
Effective January 1, 2006, the Company adopted the
provisions of SFAS 123R using the modified retrospective
transition method. Among other things, SFAS 123R supersedes
APB 25 and the intrinsic value method of accounting, and
requires companies to measure and record compensation expense
related to all stock awards by recognizing the unamortized grant
date fair value of the awards over their requisite service
periods in the financial statements. For grants under any of the
Companys plans that are subject to graded vesting over a
service period, the Company recognizes expense on a
straight-line basis over the requisite service period for the
entire award.
Under the modified retrospective method, compensation cost is
recognized in the financial statements as if the recognition
provisions of SFAS 123, Accounting for Stock-Based
Compensation, had been applied to all share-based payments
granted subsequent to the original effective date of
SFAS 123 (January 1, 1995). As such, operating results
for periods prior to 2006 have been retrospectively adjusted
utilizing the fair value of stock options originally determined
for the purpose of providing the pro forma disclosures in the
Companys prior financial statements.
A-37
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option grant is estimated on the date of
grant using a Black-Scholes-Merton option pricing model. The
following weighted average assumptions were used in the
Black-Scholes-Merton model to estimate the fair values of
options granted during the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected stock volatility
|
|
|
22.4
|
%
|
|
|
24.4
|
%
|
|
|
26.1
|
%
|
Expected life of the options (years)
|
|
|
4.7
|
|
|
|
4.8
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
4.53
|
%
|
|
|
4.71
|
%
|
|
|
4.00
|
%
|
Expected dividend yield
|
|
|
0.66
|
%
|
|
|
0.50
|
%
|
|
|
0.63
|
%
|
Expected volatility is based on the historical volatility of the
Companys stock. The Company used historical exercise data
to estimate the options expected life, which represents
the period of time that the options granted are expected to be
outstanding. Management anticipates that the future option
holding periods will be similar to the historical option holding
periods. The risk-free rate for periods within the contractual
life of the option is based on the U.S. Treasury yield
curve at the time of grant. Compensation expense recognized for
all share-based awards is net of estimated forfeitures. The
Companys estimated forfeiture rates are based on its
historical experience.
Total share-based compensation expense recognized under
SFAS 123R for the years ended December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Stock option expense
|
|
$
|
5,884
|
|
|
$
|
5,541
|
|
|
$
|
5,920
|
|
Restricted stock expense
|
|
|
9,646
|
|
|
|
6,900
|
|
|
|
4,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax expense
|
|
|
15,530
|
|
|
|
12,441
|
|
|
|
10,581
|
|
Related tax benefit
|
|
|
(4,180
|
)
|
|
|
(3,116
|
)
|
|
|
(2,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income
|
|
$
|
11,350
|
|
|
$
|
9,325
|
|
|
$
|
7,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax share-based compensation expense is included in either
cost of sales, or selling, general and administrative expenses,
depending on where the recipients cash compensation is
reported.
A summary of the Companys stock option activity and
related information as of and for the year ended
December 31, 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining Contractual
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life (Years)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
4,511
|
|
|
$
|
18.28
|
|
|
|
|
|
Granted
|
|
|
687
|
|
|
|
36.68
|
|
|
|
|
|
Exercised
|
|
|
(1,270
|
)
|
|
|
13.07
|
|
|
|
|
|
Forfeited
|
|
|
(122
|
)
|
|
|
27.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
3,806
|
|
|
$
|
23.05
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
2,128
|
|
|
$
|
16.94
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-38
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate intrinsic value of options exercised during 2007,
2006 and 2005 was $32.2 million, $17.6 million and
$34.6 million, respectively. The total fair value of the
stock options vested during 2007, 2006 and 2005 was
$5.7 million, $5.7 million and $5.9 million,
respectively. The aggregate intrinsic value of the stock options
outstanding at December 31, 2007 was $90.5 million.
The aggregate intrinsic value of the stock options exercisable
at December 31, 2007 was $63.6 million. The weighted
average Black-Scholes-Merton fair value of stock options granted
per share was $9.58 for 2007, $9.55 for 2006 and $7.25 for 2005.
A summary of the status of the Companys nonvested options
outstanding as of and changes for the year ended
December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested options outstanding at beginning of year
|
|
|
2,063
|
|
|
$
|
6.99
|
|
Granted
|
|
|
687
|
|
|
|
9.58
|
|
Vested
|
|
|
(950
|
)
|
|
|
6.01
|
|
Forfeited
|
|
|
(122
|
)
|
|
|
7.81
|
|
|
|
|
|
|
|
|
|
|
Nonvested options outstanding at end of year
|
|
|
1,678
|
|
|
$
|
8.37
|
|
|
|
|
|
|
|
|
|
|
Expected future pretax compensation expense relating to the
1.7 million nonvested options outstanding as of
December 31, 2007 is $10.2 million, which is expected
to be recognized over a weighted-average period of approximately
two years.
The fair value of restricted shares under the Companys
restricted stock arrangement is determined by the product of the
number of shares granted and the grant date market price of the
Companys common stock. Upon the grant of restricted stock,
the fair value of the restricted shares (unearned compensation)
at the date of grant is charged as a reduction of capital in
excess of par value in the Companys consolidated balance
sheet and is amortized to expense on a straight-line basis over
the vesting period, which is the same as the calculated derived
service period as determined on the grant date. Restricted stock
awards are also subject to accelerated vesting due to certain
events, including doubling of the grant price of the
Companys common stock as of the close of business during
any five consecutive trading days. On February 20, 2007,
July 9, 2007, and October 2, 2007 an aggregate of
472,612 shares of restricted stock vested under the
accelerated vesting provision. The charge to income due to the
accelerated vesting of these shares did not have a material
impact on our earnings for the year ended December 31, 2007.
A summary of the status of the Companys nonvested
restricted stock outstanding as of and for the year ended
December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested restricted stock outstanding at beginning of year
|
|
|
1,439
|
|
|
$
|
23.99
|
|
Granted
|
|
|
237
|
|
|
|
36.89
|
|
Exercised
|
|
|
(498
|
)
|
|
|
18.87
|
|
Forfeited
|
|
|
(45
|
)
|
|
|
28.42
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock outstanding at end of year
|
|
|
1,133
|
|
|
$
|
28.77
|
|
|
|
|
|
|
|
|
|
|
The total fair value of the restricted stock that vested during
2007, 2006 and 2005 was not material. The weighted average fair
value of restricted stock granted per share during 2007 and 2006
was $36.89 and $32.98, respectively. Expected future pretax
compensation expense related to the 1.1 million nonvested
restricted shares outstanding as of December 31, 2007 is
$19.6 million, which is expected to be recognized over a
weighted-average period of approximately three years.
A-39
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under a Supplemental Executive Retirement Plan
(SERP) in 2007, the Company reserved
15,207 shares of common stock. Reductions for retirements
and terminations were 5,865 shares in 2007. The total
number of shares of common stock reserved under the SERP was
255,115 as of December 31, 2007. Charges to expense under
the SERP are not significant in amount, and are considered
pension expense with the offsetting credit reflected in capital
in excess of par value.
|
|
9.
|
Leases
and Other Commitments
|
Minimum aggregate rental commitments under noncancellable leases
in effect at December 31, 2007 (principally for production
and administrative facilities and equipment) amounted to
$76.8 million, consisting of payments of $14.3 million
in 2008, $11.2 million in 2009, $8.5 million in 2010,
$5.2 million in 2011, $4.6 million in 2012, and
$33.0 million in 2013 and thereafter. Rental expense was
$19.1 million in 2007, $15.2 million in 2006 and
$14.5 million in 2005. The leases expire over a range of
years from 2008 to 2040, with renewal or purchase options,
subject to various terms and conditions, contained in most of
the leases.
The Company acquired a capital lease obligation in 2007 for land
and a building. The lease has a term of twelve years, which
began July 2006, and is payable quarterly. Property, plant and
equipment as of December 31, 2007 includes a building of
$15.1 million, net of $0.7 million of accumulated
depreciation and land of $2.2 million. Amortization of the
leased assets of $0.3 million is included in 2007
depreciation expense. Future minimum lease payments are
estimated to be $0.9 million in 2008, $0.9 million in
2009, $1.0 million in 2010, $1.0 million in 2011,
$1.1 million in 2012, and $11.1 million thereafter,
for total minimum lease payments of $16.0 million, net of
interest.
As of December 31, 2007 and 2006, the Company had
$189.2 million and $179.9 million, respectively, in
purchase obligations outstanding, which primarily consisted of
contractual commitments to purchase certain inventories at fixed
prices.
The components of income before income taxes and the details of
the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
244,550
|
|
|
$
|
197,718
|
|
|
$
|
150,733
|
|
Foreign
|
|
|
91,894
|
|
|
|
65,968
|
|
|
|
47,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
336,444
|
|
|
$
|
263,686
|
|
|
$
|
198,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
66,386
|
|
|
$
|
49,571
|
|
|
$
|
30,907
|
|
Foreign
|
|
|
28,929
|
|
|
|
26,632
|
|
|
|
18,641
|
|
State
|
|
|
8,340
|
|
|
|
6,073
|
|
|
|
3,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
103,655
|
|
|
|
82,276
|
|
|
|
52,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,751
|
|
|
|
(705
|
)
|
|
|
8,857
|
|
Foreign
|
|
|
(2,036
|
)
|
|
|
(259
|
)
|
|
|
(598
|
)
|
State
|
|
|
2,054
|
|
|
|
440
|
|
&nbs |