e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-12981
AMETEK, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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14-1682544
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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37 North Valley Road, Building 4
P.O. Box 1764
Paoli, Pennsylvania
(Address of principal executive
offices)
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19301-0801
(Zip Code)
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Registrants
telephone number, including area code:
(610) 647-2121
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 Par Value (voting)
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated filer o
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Non-accelerated
filer o
(Do not check if a
smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant was $5,037,380,113 as of
June 30, 2008, the last business day of the
registrants most recently completed second fiscal quarter.
The number of shares of the registrants Common Stock
outstanding as of January 30, 2009 was 106,756,785.
Documents
Incorporated by Reference
Part III incorporates information by reference from the
Proxy Statement for the Annual Meeting of Stockholders on
April 21, 2009.
AMETEK,
Inc.
2008
Form 10-K
Annual Report
Table of
Contents
1
PART I
General
Development of Business
AMETEK, Inc. (AMETEK or the Company) is
incorporated in Delaware. Its predecessor was originally
incorporated in Delaware in 1930 under the name American Machine
and Metals, Inc. The Company maintains its principal executive
offices in suburban Philadelphia, Pennsylvania at 37 North
Valley Road, Building 4, Paoli, Pennsylvania 19301. AMETEK is a
leading global manufacturer of electronic instruments and
electromechanical devices with operations in North America,
Europe, Asia and South America. The Company is listed on the New
York Stock Exchange (symbol: AME). The common stock of AMETEK is
a component of the S&P MidCap 400 and the Russell 1000
Indices.
Website
Access to Information
The Companys annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports filed or furnished pursuant
to Section 13(a) of the Securities Exchange Act of 1934 are
made available free of charge on the Companys website at
www.ametek.com (in the Investors
Financial News and Information section), as soon as
reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange
Commission. The Company has posted, free of charge, to the
investor information portion of its website, its corporate
governance guidelines, Board committee charters and codes of
ethics. Such documents are also available in published form,
free of charge, to any stockholder who requests them by writing
to the Investor Relations Department at AMETEK, Inc., 37 North
Valley Road, Building 4, Paoli, Pennsylvania 19301.
Products
and Services
The Company markets its products worldwide through two operating
groups, the Electronic Instruments Group (EIG) and
the Electromechanical Group (EMG). EIG builds
monitoring, testing, calibration and display devices for the
process, aerospace, industrial and power markets. EMG is a
supplier of electromechanical devices. EMG produces highly
engineered electromechanical connectors for hermetic
(moisture-proof) applications, specialty metals for niche
markets and brushless air-moving motors, blowers and heat
exchangers. End markets include aerospace, defense, mass
transit, medical, office products and other industrial markets.
The Company believes that EMG is the worlds largest
manufacturer of air-moving electric motors for vacuum cleaners
and is a prominent producer of motors for other floor care
products. The Company continues to grow through strategic
acquisitions focused on differentiated niche markets in
instrumentation and electromechanical devices.
Competitive
Strengths
Management believes that the Company has several significant
competitive advantages that assist it in sustaining and
enhancing its market positions. Its principal strengths include:
Significant Market Share. AMETEK maintains a
significant share in many of its targeted niche markets because
of its ability to produce and deliver high-quality products at
competitive prices. In EIG, the Company maintains significant
market positions in many niche segments within the process,
aerospace, industrial and power instrumentation markets. In EMG,
the Company maintains significant market positions in many niche
segments including aerospace, defense, mass transit, medical,
office products and air-moving motors for the floor care market.
Technological and Development
Capabilities. AMETEK believes it has certain
technological advantages over its competitors that allow it to
develop innovative products and maintain leading market
positions. Historically, the Company has grown by extending its
technical expertise into the manufacture of customized products
for its customers, as well as through strategic acquisitions.
EIG competes primarily on the basis of product innovation in
several highly specialized instrumentation markets, including
process measurement, aerospace, power and heavy-vehicle
dashboard instrumentation. EMGs differentiated businesses
focus on
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developing customized products for specialized applications in
aerospace and defense, medical, business machines and other
industrial applications. In its cost-driven motor business, EMG
focuses on low-cost design and manufacturing, while enhancing
motor-blower performance through advances in power, efficiency,
lighter weight and quieter operation.
Efficient and Low-Cost Manufacturing
Operations. EMG has motor manufacturing plants in
China, the Czech Republic, Mexico and Brazil to lower its costs
and achieve strategic proximity to its customers, providing the
opportunity to increase international sales and market share.
Certain of the Companys electronic instrument businesses
are also relocating manufacturing operations to low-cost
locales. Furthermore, strategic acquisitions and joint ventures
in Europe, North America and Asia have resulted in additional
cost savings and synergies through the consolidation of
operations, product lines and distribution channels, which
benefits both operating groups.
Experienced Management Team. Another key
component of AMETEKs success is the strength of its
management team and its commitment to the performance of the
Company. AMETEKs senior management has extensive
experience, averaging approximately 23 years with the
Company, and is financially committed to the Companys
success through Company-established stock ownership guidelines
and equity incentive programs.
Business
Strategy
AMETEKs objectives are to increase the Companys
earnings and financial returns through a combination of
operational and financial strategies. Those operational
strategies include business acquisitions, new product
development, global and market expansion and Operational
Excellence programs designed to achieve double-digit annual
percentage growth in earnings per share over the business cycle
and a superior return on total capital. To support those
operational objectives, financial initiatives have been, or may
be, undertaken, including public and private debt or equity
issuance, bank debt refinancing, local financing in certain
foreign countries, accounts receivable securitization and share
repurchases. AMETEKs commitment to earnings growth is
reflected in its continued implementation of cost-reduction
programs designed to achieve the Companys long-term
best-cost objectives.
AMETEKs Corporate Growth Plan consists of four key
strategies:
Operational Excellence. Operational Excellence
is AMETEKs cornerstone strategy for improving profit
margins and strengthening the Companys competitive
position across its businesses. Through its Operational
Excellence strategy, the Company seeks to reduce production
costs and improve its market positions. The strategy has played
a key role in achieving synergies from newly acquired companies.
AMETEK believes that Operational Excellence, which focuses on
Six Sigma process improvements, global sourcing and lean
manufacturing and also emphasizes team building and a
participative management culture, has enabled the Company to
improve operating efficiencies and product quality, increase
customer satisfaction and yield higher cash flow from
operations, while lowering operating and administrative costs
and shortening manufacturing cycle times.
New Product Development. One of AMETEKs
greatest strengths is the ability to develop innovative new
products and bring them to market successfully. Recent product
introductions include:
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CAMECA®
Shallow Probe LexFab 300 utilizes a unique surface probing
technology to improve throughput and yield in semiconductor
manufacturing facilities;
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Chatillon®
TCD225 Series advanced force testing system incorporates the
latest design and control features in an innovative, tabletop
force measurement instrument used for a broad range of quality
control applications;
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EDAX®
Orbis micro-analytical system sets a new standard in compact
tabletop systems for elemental analysis by incorporating
advanced X-ray fluorescence and optics technology;
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ORTEC®
Micro-Detective lightweight, high-resolution detector is the
latest addition to the highly successful Detective family of
advanced radiation identifiers used for nuclear material
detection, surveillance and monitoring;
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Hamilton Precision Metals latest ultra-smooth stainless steel
strips find application in thin-film solar cells;
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PITTMAN®
slotless brushless DC servo motors provide smooth and quiet
operation and extended service life for data storage,
medical/biotech, semiconductor processing and motion control
applications;
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Solartrontm
SST ultra-deepwater pressure and temperature transmitters are
used by leading oil and gas exploration companies in the most
demanding and hostile subsea environments;
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SPECTROtm
x-SORT, i-SORT and SPECTROTEST spectrometers round out a full
line of high-performance mobile analyzers for onsite metal
analysis;
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Talyrondtm
395 surface analysis system represents a significant advancement
in nanometric surface measurement offering unmatched performance
and flexibility for ultra-precise manufacturing applications;
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Western
Research®
Model 9000 RM is a compact, rugged multi-gas analyzer designed
specifically for highly demanding Continuous Emissions
Monitoring applications; and
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AMETEK®
8.4-inch diameter motor-blower achieves higher output, greater
efficiency and lower noise in the same footprint as a 7.4-inch
diameter blower for a wide range of vacuum and blower
applications.
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Global and Market Expansion. AMETEKs
largest presence outside the United States is in Europe, where
it has operations in the United Kingdom, Germany, Denmark,
Italy, the Czech Republic, Romania, France, Austria and the
Netherlands. These operations provide design and engineering
capability, product-line breadth, enhanced European distribution
channels and low-cost production. AMETEK has a leading market
position in European floor care motors and a significant
presence in many of its instrument businesses. It has grown
sales in Latin America and Asia by building and expanding
low-cost electric motor and instrument plants in Reynosa, Mexico
and motor manufacturing plants near Sao Paulo, Brazil and in
Shanghai, China. It also continues to achieve geographic
expansion and market expansion in Asia through joint ventures in
China, Taiwan and Japan and a direct sales and marketing
presence in Singapore, Japan, China, Taiwan, Hong Kong, South
Korea, the Middle East and Russia.
Strategic Acquisitions and Alliances. The
Company continues to pursue strategic acquisitions, both
domestically and internationally, to expand and strengthen its
product lines, improve its market share positions and increase
earnings through sales growth and operational efficiencies at
the acquired businesses. Since the beginning of 2004, through
December 31, 2008, the Company has completed 23
acquisitions with annualized sales totaling approximately
$1.0 billion, including 6 acquisitions in 2008 representing
approximately $290 million in annualized sales (see
Recent Acquisitions). Those acquisitions have
enhanced AMETEKs position in analytical instrumentation,
aerospace, and electrical interconnects and packaging. Through
these and prior acquisitions, the Companys management team
has gained considerable experience in successfully acquiring and
integrating new businesses. The Company intends to continue to
pursue this acquisition strategy.
2008
Overview
Operating
Performance
In 2008, AMETEK generated sales of $2.5 billion, an
increase of 18% from 2007, and increased net income by 8%. The
Company set records for sales, operating income, net income and
diluted earnings per share. This strong performance was driven
by strong internal growth in each of the Companys two
reportable segments, the contribution of recently acquired
businesses and the Companys continuing cost reduction
initiatives.
Financing
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of
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6.59% senior notes due September 2015 and $160 million
in aggregate principal amount of 7.08% senior notes due
September 2018. The second funding date occurred in December
2008 for $100 million, consisting of $35 million in
aggregate principal amount of 6.69% senior notes due
December 2015 and $65 million in aggregate principal amount
of 7.18% senior notes due December 2018. The senior notes
carry a weighted average interest rate of 6.93%. The proceeds
from the senior notes were used to pay down a portion of the
borrowings outstanding under the Companys revolving credit
facility.
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using the proceeds from
borrowings under its existing revolving credit facility. Also in
July 2008, the Company obtained the second funding of
$80 million in aggregate principal amount of
6.35% senior notes due July 2018 under the 2007 private
placement agreement, which completed the sale of
$450 million in senior notes to a group of institutional
investors. The first funding of the 2007 private placement
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 accounts receivable securitization facility was amended and
restated in May 2008, extending the expiration date from May
2008 to May 2009, and bringing the borrowing capacity to
$100 million, from $110 million previously.
Recent
Acquisitions
The Company spent $463.0 million for six business
acquisitions and one technology line acquisition in 2008. The
six businesses acquired have annualized sales of approximately
$290 million.
In February 2008, the Company acquired Drake Air
(Drake). Drake is a provider of heat-transfer repair
services to the commercial aerospace industry. Drake is a part
of EMG.
In February 2008, the Company acquired Motion Control Group
(MCG). MCG is a leading global manufacturer of
highly customized motors and motion control solutions for the
medical, life sciences, industrial automation, semiconductor and
aviation markets. MCG is a part of EMG.
In April 2008, the Company acquired Reading Alloys. Reading
Alloys is a global leader in specialty titanium master alloys
and highly engineered metal powders used in the aerospace,
medical implant, military and electronics markets. Reading
Alloys is a part of EMG.
In June 2008, the Company acquired Vision Research, Inc. Vision
Research is a leading manufacturer of high-speed digital imaging
systems used for motion capture and analysis in numerous test
and measurement applications. Vision Research is a part of EIG.
In August 2008, the Company acquired the programmable power
business of Xantrex Technology, Inc. (Xantrex
Programmable). Xantrex Programmable is a leader in
alternating current (AC) and direct current
(DC) programmable power supplies used to test
electrical and electronic products. Xantrex Programmable is a
part of EIG.
In November 2008, the Company acquired UK-based Muirhead
Aerospace Limited (Muirhead). Muirhead is a leading
manufacturer of motion technology products and a provider of
avionics repair and overhaul services for the aerospace and
defense markets. Muirhead is a part of EMG.
Financial
Information About Reportable Segments, Foreign Operations and
Export Sales
Information with respect to reportable segments and geographic
areas is set forth in Note 15 to the Consolidated Financial
Statements.
The Companys international sales increased 16% to
$1,225.5 million in 2008. The increase was driven by both
internal growth and acquisitions. The Company increased export
sales of products manufactured in the United States, as well as
sales from overseas operations. International sales represented
48% of consolidated net sales in 2008 compared with 49% in 2007.
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Description
of Business
The products and markets of each reportable segment are
described below:
EIG
EIG is comprised of a group of differentiated businesses. EIG
applies its specialized market focus and technology to
manufacture instruments used for testing, monitoring,
calibration and display for the process, aerospace, industrial
and power markets. EIGs growth is based on the four
strategies outlined in AMETEKs Corporate Growth Plan. EIG
designs products that, in many instances, are significantly
different from, or technologically better than, competing
products. It has reduced costs by implementing operational
improvements, achieving acquisition synergies, improving supply
chain management, moving production to low-cost locales and
reducing headcount. EIG is among the leaders in many of the
specialized markets it serves, including aerospace engine
sensors, heavy-vehicle instrument panels, analytical
instrumentation, level measurement products, power instruments
and pressure gauges. It has joint venture operations in Japan,
China and Taiwan. 53% of EIGs 2008 sales were to markets
outside the United States.
At December 31, 2008, EIG employed approximately
5,700 people, of whom approximately 900 were covered by
collective bargaining agreements. EIG had 48 manufacturing
facilities: 33 in the United States, seven in the United
Kingdom, three in Germany and one each in France, Austria,
Denmark, Argentina and Canada at December 31, 2008. EIG
also shares manufacturing facilities with EMG in Mexico.
Process
and Analytical Instrumentation Markets and Products
65% of EIGs 2008 sales were from instruments for
process and analytical measurement and analysis. These include:
oxygen, moisture, combustion and liquid analyzers; emission
monitors; spectrometers; mechanical and electronic pressure
sensors and transmitters; radiation measurement devices; level
measurement devices; precision pumping systems; and
force-measurement and materials testing instrumentation.
EIGs focus is on the process industries, including oil,
gas and petrochemical refining, power generation, specialty gas
production, water and waste treatment, natural gas distribution
and semiconductor manufacturing. AMETEKs analytical
instruments are also used for precision measurement in a number
of other applications including radiation detection for Homeland
Security, materials analysis, nanotechnology research and other
test and measurement applications.
Vision Research, acquired in June 2008, is a global leader and
innovator in high-speed digital imaging technology. Its highly
differentiated products include a broad array of high-speed
digital cameras for capturing data in product characterization
and motion analysis applications, including a high-speed digital
camera, the
Phantom®
v12, capable of capturing one million pictures per second.
Cameca SAS (Cameca), acquired in August 2007,
manufactures high-end elemental analysis systems used in
advanced laboratory research, semiconductor and nanotechnology
applications. Camecas instruments measure the elemental
and isotopic composition of micro- or nanovolumes at the surface
or below the surface of a solid object. This extremely sensitive
technology can measure atoms down to the
part-per-billion
level. The customer base, which is very diverse, includes
semiconductor labs, semiconductor manufacturers and academic,
governmental and industrial labs engaged in advanced research in
nanotechnology, metals and nuclear science.
Power and
Industrial Instrumentation Markets and Products
19% of EIGs 2008 sales were to the power and
industrial instrumentation markets.
AMETEKs Power businesses provide analytical instruments,
uninterruptible power supply systems and programmable power
supplies used in a wide variety of industrial settings.
EIG is a leader in the design and manufacture of power
measurement and recording instrumentation used by the electric
power and manufacturing industries. Those products include power
transducers and meters, event and transient recorders,
annunciators and alarm monitoring systems used to measure,
monitor and record variables in the transmission and
distribution of electric power.
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EIGs Solidstate Controls designs and manufactures
uninterruptible power supply systems for the process and power
generation industries. EIG also manufactures sensor systems for
land-based gas turbines and for boilers and burners used by the
utility, petrochemical, process and marine industries worldwide.
EIGs programmable power business is a leader in
programmable AC and DC power sources and pursues growth
opportunities in the highly attractive electronic test and
measurement equipment market.
Xantrex Programmable, acquired in July 2008, is a leader in
programmable AC and DC power sources used to test electrical and
electronic products by simulating various input voltages,
frequencies and potentially harmful line transients. Its
products are used in design verification testing, manufacturing,
quality assurance and regulatory compliance by its customers in
a wide range of industries, including aviation, military, and
general electronics.
California Instruments Corporation, acquired in December 2007,
is a leader in programmable AC power sources used to test
electrical and electronic products.
EIGs Instrumentation and Specialty Controls business is a
leading North American manufacturer of dashboard instruments for
heavy trucks and is also among the major suppliers of similar
products for construction vehicles. It has strong product
development capability in solid-state instruments that primarily
monitor and display engine operating parameters. Through its NCC
business, EIG has a leading position in the food service
instrumentation market and is a primary source for stand-alone
and integrated timing controls for the food service industry.
Aerospace
Instrumentation Markets and Products
16% of EIGs 2008 sales were from aerospace products.
AMETEKs aerospace products are designed to customer
specifications and are manufactured to stringent operational and
reliability requirements. Its aerospace business operates in
specialized markets, where its products have a technological
and/or cost
advantage. Acquisitions have complemented and expanded
EIGs core sensor and transducer product line, used in a
wide range of aerospace applications.
Aerospace products include: airborne data systems; turbine
engine temperature measurement products; vibration-monitoring
systems; indicators; displays; fuel and fluid measurement
products; sensors; switches; cable harnesses; and transducers.
EIG serves all segments of commercial aerospace, including
helicopters, business jets, commuter aircraft and commercial
airliners, as well as the military market.
Among its more significant competitive advantages are EIGs
50-plus years of experience as an aerospace supplier and its
long-standing customer relationships with global commercial
aircraft Original Equipment Manufacturers (OEMs).
Its customers are the leading producers of airframes and jet
engines. It also serves the commercial aerospace aftermarket
with spare part sales and repair and overhaul services.
Advanced Industries, Inc., acquired in June 2007, manufactures
starter generators, brush and brushless motors, vane-axial and
centrifugal blowers, and linear actuators for the business jet,
light jet and helicopter markets. These differentiated products
complement the Companys AMPHION product line of power
management products for the aerospace industry and have
broadened the Companys product offering in the power
management subsystem market.
B&S Aircraft Parts & Accessories, also acquired
in June 2007, 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.
Customers
EIG is not dependent on any single customer such that the loss
of that customer would have a material adverse effect on
EIGs operations. 11% of EIGs 2008 sales were made to
its five largest customers and no one customer accounted for 10%
or more of 2008 consolidated net sales.
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EMG
EMG is among the leaders in many of the specialized markets it
serves, including highly engineered motors, blowers, fans, heat
exchangers, connectors, and other electromechanical products or
systems for commercial and military aerospace applications,
defense, medical equipment, business machines, computers and
other power or industrial applications. In its cost-driven motor
business, the Company believes that EMG is the worlds
largest producer of high-speed, air-moving electric motors for
OEMs of floor care products. EMG designs products that, in many
instances, are significantly different from, or technologically
better than, competing products. It has reduced costs by
implementing operational improvements, achieving acquisition
synergies, improving supply chain management, moving production
to low-cost locales and reducing headcount. 43% of EMGs
2008 sales were to customers outside the United States.
At December 31, 2008, EMG employed approximately
5,600 people, of whom approximately 2,300 were covered by
collective bargaining agreements (including some that are
covered by local unions). EMG had 51 manufacturing facilities:
28 in the United States, 12 in the United Kingdom, three in
France, two each in Italy, Mexico and the Czech Republic and one
each in China and Brazil at December 31, 2008.
Differentiated
Businesses
Differentiated businesses account for an increasing proportion
of EMGs overall sales base. Differentiated businesses
represented 73% of EMGs sales in 2008 and are comprised of
the technical motors and systems businesses and the engineered
materials, interconnects and packaging businesses.
Technical
Motors and Systems Markets and Products
Technical motors and systems, representing 40% of EMGs
2008 sales, consist of brushless motors, blowers and pumps, as
well as other electromechanical systems. These products are used
in aerospace and defense, business machines, computer equipment,
mass transit vehicles, medical equipment, power, and industrial
applications.
EMG produces electronically commutated (brushless) motors,
blowers and pumps that offer long life, reliability and near
maintenance-free operation. These motor-blower systems and heat
exchangers are used for thermal management and other
applications on a wide variety of military and commercial
aircraft and military ground vehicles, and are used increasingly
in medical and other applications, in which their long life, and
spark-free and reliable operation is very important. These
motors provide cooling and ventilation for business machines,
computers and mass transit vehicles.
EMGs Prestolite switch business produces solenoids and
other electromechanical devices for the motive and stationary
power markets. The Prestolite battery charger business
manufactures high-quality industrial battery chargers for use in
the materials handling market. Both the switch and battery
charger businesses have strong market positions and enjoy a
reputation for high quality and service.
Muirhead, acquired in November 2008, is a leading manufacturer
of motion technology products and a provider of avionics repair
and overhaul services for the aerospace and defense markets.
MCG, acquired in February 2008, is a leading global manufacturer
of highly customized motors and motion control solutions for the
medical, life sciences, industrial automation, semiconductor and
aviation markets. This acquisition enhances our capability in
providing precision motion technology solutions.
Drake, also acquired in February 2008, provides heat-transfer
repair services to the commercial aerospace industry and
represents a further expansion of AMETEKs growing presence
in the global aerospace MRO industry.
The Repair & Overhaul Division of Umeco plc
(Umeco R&O), acquired in November 2007,
provides an extensive array of MRO services for electrical and
electronic equipment, fluid power devices, hydraulic components,
actuation systems, landing gear, wheels and brakes and safety
equipment. Umeco R&O operates from multiple locations in
the United Kingdom and Toulouse and Paris, France.
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Engineered
Materials, Interconnects and Packaging Markets and
Products
33% of EMGs 2008 sales are engineered materials,
interconnects and packaging products. AMETEK is an innovator and
market leader in specialized metal powder, strip, wire and
bonded products. It produces stainless steel and nickel clad
alloys; stainless steel, cobalt and nickel alloy powders; metal
strip; specialty shaped and electronic wire; and advanced metal
matrix composites used in electronic thermal management. Its
products are used in automotive, appliance, medical and
surgical, aerospace, telecommunications, marine and general
industrial applications. Its niche market focus is based upon
proprietary manufacturing technology and strong customer
relationships.
Reading Alloys, acquired in April 2008, is a niche specialty
metals producer. It produces titanium master alloys and expands
our position in customized titanium products. Reading Alloys
adds to our capabilities in strip and foil products used in
medical devices, electronic components and aerospace
instruments. Its metal powder production techniques complement
our existing gas and water atomization capabilities.
Hamilton Precision Metals, Inc., acquired in June 2007, produces
precision metal strip and foil for niche markets such as metals
used in medical implant devices and surgical instruments,
electronic components and measurement devices for aerospace and
other industrial markets.
Seacon Phoenix, subsequently renamed AMETEK SCP, Inc., acquired
in April 2007, produces undersea electrical interconnect
subsystems for the global submarine market. It added to the
Companys position in highly engineered hermetically sealed
electrical interconnects and microelectronics packaging used to
protect sophisticated electronics in aerospace, defense,
telecommunications and industrial applications.
Floor
Care and Specialty Motor Markets and Products
27% of EMGs 2008 sales are to floor care and
specialty motor markets, where it has the leading share, through
its sales of air-moving electric motors to most of the
worlds major floor care OEMs, including vertically
integrated OEMs that produce some of their own motors. EMG
produces motor-blowers for a full range of floor care products,
ranging from hand-held, canister and upright vacuums to central
vacuums for residential use. High-performance vacuum motors also
are marketed for commercial and industrial applications.
The Company also manufactures a variety of specialty motors used
in a wide range of products, such as household and personal care
appliances; fitness equipment; electric materials handling
vehicles; and sewing machines. Additionally, its products are
used in outdoor power equipment, such as electric chain saws,
leaf blowers, string trimmers and power washers.
EMG has been successful in directing a portion of its global
floor care marketing at vertically integrated vacuum cleaner
manufacturers, who seek to outsource all or part of their motor
production. By purchasing their motors from EMG, these customers
are able to realize economic and operational advantages by
reducing or discontinuing their own motor production and
avoiding the capital investment required to keep their motor
manufacturing current with changing technologies and market
demands.
New
Product Development
EMG focuses its new product development on reducing costs and
achieving performance enhancements for its advanced motors and
blowers, electrical connectors and microelectronics packaging;
motion control products; industrial battery chargers and heat
exchangers; and specialty metal alloys and powders. These
include the latest versions of its
Glassealtm
and Sealtron
tm
electrical connectors;
Pittman®
and
MCGtm
motors and motion control components;
INFIN-A-TEK®
and
FLO-TEKtm
high-performance vacuum motors; and
HPM®
metal strip and Reading
Alloys®
high-purity titanium alloys and powders.
Customers
EMG is not dependent on any single customer such that the loss
of that customer would have a material adverse effect on
EMGs operations. 14% of EMGs 2008 sales were made to
its five largest customers and no one customer accounted for 10%
or more of 2008 consolidated net sales.
9
Marketing
The Companys marketing efforts generally are organized and
carried out at the division level. EIG makes significant use of
distributors and sales representatives in marketing its
products, as well as direct sales in some of its more
technically sophisticated products. Within aerospace, its
specialized customer base of aircraft and jet engine
manufacturers is served primarily by direct sales engineers.
Given the technical nature of many of its products, as well as
its significant worldwide market share, EMG conducts much of its
domestic and international marketing activities through a direct
sales force and makes some use of sales representatives and
distributors both in the United States and in other countries.
Competition
In general, most of the Companys markets are highly
competitive. The principal elements of competition for the
Companys products are price, product technology,
distribution, quality and service.
In the markets served by EIG, the Company believes that it ranks
among the leading U.S. producers of certain measuring and
control instruments. It also is a leader in the
U.S. heavy-vehicle instrumentation and power instrument
markets and one of the leading instrument and sensor suppliers
to the commercial aviation market. Competition remains strong
and can intensify for certain EIG products, especially its
pressure gauge and heavy-vehicle instrumentation products. Both
of these businesses have several strong competitors. In the
process and analytical instruments market, numerous companies in
each specialized market compete on the basis of product quality,
performance and innovation. The aerospace and power instrument
businesses have a number of diversified competitors, which vary
depending on the specific market niche.
EMGs differentiated businesses have competition from a
limited number of companies in each of their markets.
Competition is generally based on product innovation,
performance and price. There also is competition from
alternative materials and processes. In its cost-driven
businesses, EMG has limited domestic competition in the
U.S. floor care market from independent manufacturers.
Competition is increasing from Asian motor manufacturers that
serve both the U.S. and the European floor care markets.
Increasingly, global vacuum motor production is being shifted to
Asia where AMETEK has a smaller but growing market position.
There is potential competition from vertically integrated
manufacturers of floor care products that produce their own
motor-blowers. Many of these manufacturers would also be
potential EMG customers if they decided to outsource their motor
production.
Backlog
and Seasonal Variations of Business
The Companys backlog of unfilled orders by business
segment was as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Electronic Instruments
|
|
$
|
324.8
|
|
|
$
|
314.1
|
|
|
$
|
248.2
|
|
Electromechanical
|
|
|
393.8
|
|
|
|
374.1
|
|
|
|
288.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
718.6
|
|
|
$
|
688.2
|
|
|
$
|
536.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The higher backlog at December 31, 2008 was primarily due
to the six businesses acquired in 2008, partially offset by the
negative impact of a strengthening U.S. dollar when
compared to the British pound and Euro.
Of the total backlog of unfilled orders at December 31,
2008, approximately 84% is expected to be shipped by
December 31, 2009. The Company believes that neither its
business as a whole, nor either of its reportable segments, is
subject to significant seasonal variations, although certain
individual operations experience some seasonal variability.
Availability
of Raw Materials
The Companys reportable segments obtain raw materials and
supplies from a variety of sources and generally from more than
one supplier. However, for EMG, certain items, including various
base metals and certain steel
10
components, are available only from a limited number of
suppliers. The Company believes its sources and supplies of raw
materials are adequate for its needs.
Research,
Product Development and Engineering
The Company is committed to research, product development and
engineering activities that are designed to identify and develop
potential new and improved products or enhance existing
products. Research, product development and engineering costs
before customer reimbursement were $115.9 million,
$102.9 million and $87.6 million in 2008, 2007 and
2006, respectively. Customer reimbursements in 2008, 2007 and
2006 were $6.1 million, $7.1 million and
$6.4 million, respectively. These amounts included
net Company-funded
research and development expenses of $57.5 million,
$52.9 million and $42.0 million, respectively. All
such expenditures were directed toward the development of new
products and processes and the improvement of existing products
and processes.
Environmental
Matters
Information with respect to environmental matters is set forth
in the section of Managements Discussion and Analysis of
Financial Condition and Results of Operations entitled
Environmental Matters and in Note 17 to the
Consolidated Financial Statements.
Patents,
Licenses and Trademarks
The Company owns numerous unexpired U.S. patents and
foreign patents, including counterparts of its more important
U.S. patents, in the major industrial countries of the
world. The Company is a licensor or licensee under patent
agreements of various types and its products are marketed under
various registered and unregistered U.S. and foreign
trademarks and trade names. However, the Company does not
consider any single patent or trademark, or any group thereof,
essential either to its business as a whole or to either of its
business segments. The annual royalties received or paid under
license agreements are not significant to either of its
reportable segments or to the Companys overall operations.
Employees
At December 31, 2008, the Company employed approximately
11,700 people in its EMG, EIG and corporate operations, of
whom approximately 3,200 employees were covered by
collective bargaining agreements. The Company has one collective
bargaining agreement that will expire in 2009, which covers less
than 20 employees. The Company expects no material adverse
effects from the pending labor contract negotiation.
Working
Capital Practices
The Company does not have extraordinary working capital
requirements in either of its reportable segments. Customers
generally are billed at normal trade terms, which may include
extended payment provisions. Inventories are closely controlled
and maintained at levels related to production cycles and are
responsive to the normal delivery requirements of customers.
You should consider carefully the following risk factors and all
other information contained in this Annual Report on
Form 10-K
and the documents we incorporate by reference in this Annual
Report on
Form 10-K.
Any of the following risks could materially and adversely affect
our business, results of operations, liquidity and financial
condition.
Current
economic conditions and uncertain economic outlook could
adversely affect our results of operations and financial
condition.
The global economy is currently undergoing a period of
unprecedented volatility and distress in financial markets, as
well as a general slowdown in demand, including in many of the
end markets we serve. A prolonged
11
period of economic decline could have a material adverse effect
on our results of operations and financial condition and
exacerbate the other risk factors we have described below. These
economic developments affect businesses such as ours in a number
of ways. Our global business is adversely affected by decreases
in the general level of economic activity, such as decreases in
business and consumer spending, capital spending, air travel,
industrial production and government procurement. Any economic
slowdown results in a decrease in or cancellation of orders for
our products and services and negatively impacts the ability of
our customers to make timely payments. In addition, the
potential for one or more of our customers or suppliers to
experience financial distress or bankruptcy is increased.
Furthermore, a disparate impact on, or government actions
affecting, one of the major economies could produce volatility
in the rate of exchange for the U.S. dollar against certain
major currencies, adversely affecting our results. We are unable
to predict the likely duration and severity of the current
disruption in financial markets and adverse economic conditions
in the U.S. and other countries.
A
prolonged downturn in the aerospace and defense, process
instrumentation or electric motor businesses could adversely
affect our business.
Several of the industries in which we operate are cyclical in
nature and therefore are affected by factors beyond our control.
A prolonged downturn in the aerospace and defense, process
instrumentation or electric motor businesses could have an
adverse effect on our business, financial condition and results
of operations.
Our
growth strategy includes strategic acquisitions. We may not be
able to consummate future acquisitions or successfully integrate
recent and future acquisitions.
A portion of our growth has been attributed to acquisitions of
strategic businesses. Since the beginning of 2004, through
December 31, 2008, we have completed 23 acquisitions. We
plan to continue making strategic acquisitions to enhance our
global market position and broaden our product offerings.
Although we have been successful with our acquisition strategies
in the past, our ability to successfully effectuate acquisitions
will be dependent upon a number of factors, including:
|
|
|
|
|
Our ability to identify acceptable acquisition candidates;
|
|
|
|
The impact of increased competition for acquisitions, which may
increase acquisition costs and affect our ability to consummate
acquisitions on favorable terms and may result in us assuming a
greater portion of the sellers liabilities;
|
|
|
|
Successfully integrating acquired businesses, including
integrating the financial, technological and management
processes, procedures and controls of the acquired businesses
with those of our existing operations;
|
|
|
|
Adequate financing for acquisitions being available on terms
acceptable to us;
|
|
|
|
U.S. and foreign competition laws and regulations affecting
our ability to make certain acquisitions;
|
|
|
|
Unexpected losses of key employees, customers and suppliers of
acquired businesses;
|
|
|
|
Mitigating assumed, contingent and unknown liabilities; and
|
|
|
|
Challenges in managing the increased scope, geographic diversity
and complexity of our operations.
|
The process of integrating acquired businesses into our existing
operations may result in unforeseen operating difficulties and
may require additional financial resources and attention from
management that would otherwise be available for the ongoing
development or expansion of our existing operations.
Furthermore, even if successfully integrated, the acquired
business may not achieve the results we expected or produce
expected benefits in the time frame planned. Failure to continue
with our acquisition strategy and the successful integration of
acquired businesses could have a material adverse effect on our
business, results of operations, liquidity and financial
condition.
12
We may
experience unanticipated
start-up
expenses and production delays in opening new facilities or
product line transfers.
Certain of our businesses are relocating or have recently
relocated manufacturing operations to low-cost locales.
Unanticipated
start-up
expenses and production delays in opening new facilities or
completing product line transfers, as well as possible
underutilization of our existing facilities, could result in
production inefficiencies, which would adversely affect our
business and operations.
Our
substantial international sales and operations are subject to
customary risks associated with international
operations.
International sales for 2008 and 2007 represented 48% and 49% of
our consolidated net sales, respectively. As a result of our
growth strategy, we anticipate that the percentage of sales
outside the United States will increase in the future.
International operations are subject to the customary risks of
operating in an international environment, including:
|
|
|
|
|
Potential imposition of trade or foreign exchange restrictions;
|
|
|
|
Overlap of different tax structures;
|
|
|
|
Unexpected changes in regulatory requirements;
|
|
|
|
Changes in tariffs and trade barriers;
|
|
|
|
Fluctuations in foreign currency exchange rates, including
changes in the relative value of currencies in the countries
where we operate, subjecting us to exchange rate exposures;
|
|
|
|
Restrictions on currency repatriation;
|
|
|
|
General economic conditions;
|
|
|
|
Unstable political situations;
|
|
|
|
Nationalization of assets; and
|
|
|
|
Compliance with a wide variety of international and
U.S. laws and regulatory requirements.
|
Our
international sales and operations may be adversely impacted by
compliance with export laws.
We are required to comply with various import, export, export
control and economic sanctions laws, which may affect our
transactions with certain customers, business partners and other
persons, including in certain cases dealings with or between our
employees and subsidiaries. In certain circumstances, export
control and economic sanctions regulations may prohibit the
export of certain products, services and technologies and in
other circumstances, we may be required to obtain an export
license before exporting a controlled item. In addition, failure
to comply with any of these regulations could result in civil
and criminal, monetary and non-monetary penalties, disruptions
to our business, limitations on our ability to import and export
products and services and damage to our reputation.
Any
inability to hire, train and retain a sufficient number of
skilled officers and other employees could impede our ability to
compete successfully.
If we cannot hire, train and retain a sufficient number of
qualified employees, we may not be able to effectively integrate
acquired businesses and realize anticipated performance results
from those businesses, manage our expanding international
operations and otherwise profitably grow our business. Even if
we do hire and retain a sufficient number of employees, the
expense necessary to attract and motivate these officers and
employees may adversely affect our results of operations.
13
If we
are unable to develop new products on a timely basis, it could
adversely affect our business and prospects.
We believe that our future success depends, in part, on our
ability to develop, on a timely basis, technologically advanced
products that meet or exceed appropriate industry standards.
Although we believe we have certain technological and other
advantages over our competitors, maintaining such advantages
will require us to continue investing in research and
development and sales and marketing. There can be no assurance
that we will have sufficient resources to make such investments,
that we will be able to make the technological advances
necessary to maintain such competitive advantages or that we can
recover major research and development expenses. We are not
currently aware of any emerging standards or new products, which
could render our existing products obsolete, although there can
be no assurance that this will not occur or that we will be able
to develop and successfully market new products.
A
shortage of or price increases in our raw materials could
increase our operating costs.
We have multiple sources of supplies for our major raw material
requirements and we are not dependent on any one supplier;
however, certain items, including base metals and certain steel
components, are available only from a limited number of
suppliers and are subject to commodity market fluctuations.
Shortages in raw materials or price increases therefore could
affect the prices we charge, our operating costs and our
competitive position, which could adversely affect our business,
results of operations, liquidity and financial condition.
Certain
environmental risks may cause us to be liable for costs
associated with hazardous or toxic substance
clean-up
which may adversely affect our financial
condition.
Our businesses, operations and facilities are subject to a
number of federal, state, local and foreign environmental and
occupational health and safety laws and regulations concerning,
among other things, air emissions, discharges to waters and the
use, manufacturing, generation, handling, storage,
transportation and disposal of hazardous substances and wastes.
Environmental risks are inherent in many of our manufacturing
operations. Certain laws provide that a current or previous
owner or operator of property may be liable for the costs of
investigating, removing and remediating hazardous materials at
such property, regardless of whether the owner or operator knew
of, or was responsible for, the presence of such hazardous
materials. In addition, the Comprehensive Environmental
Response, Compensation and Liability Act generally imposes joint
and several liability for
clean-up
costs, without regard to fault, on parties contributing
hazardous substances to sites designated for
clean-up
under the Act. We have been named a potentially responsible
party at several sites, which are the subject of
government-mandated
clean-ups.
As the result of our ownership and operation of facilities that
use, manufacture, store, handle and dispose of various hazardous
materials, we may incur substantial costs for investigation,
removal, remediation and capital expenditures related to
compliance with environmental laws. While it is not possible to
precisely quantify the potential financial impact of pending
environmental matters, based on our experience to date, we
believe that the outcome of these matters is not likely to have
a material adverse effect on our financial position or future
results of operations. In addition, new laws and regulations,
new classification of hazardous materials, stricter enforcement
of existing laws and regulations, the discovery of previously
unknown contamination or the imposition of new
clean-up
requirements could require us to incur costs or become the basis
for new or increased liabilities that could have a material
adverse effect on our business, financial condition and results
of operations. There can be no assurance that future
environmental liabilities will not occur or that environmental
damages due to prior or present practices will not result in
future liabilities.
We are
subject to numerous governmental regulations, which may be
burdensome or lead to significant costs.
Our operations are subject to numerous federal, state, local and
foreign governmental laws and regulations. In addition, existing
laws and regulations may be revised or reinterpreted and new
laws and regulations may be adopted or become applicable to us.
We cannot predict the impact any of these laws and regulations
will have on our business or operations.
14
We may
be required to defend lawsuits or pay damages in connection with
alleged or actual harm caused by our products.
We face an inherent business risk of exposure to product
liability claims in the event that the use of our products is
alleged to have resulted in harm to others or to property. For
example, our operations expose us to potential liabilities for
personal injury or death as a result of the failure of, for
instance, an aircraft component that has been designed,
manufactured or serviced by us. We may incur significant
liability if product liability lawsuits against us are
successful. While we believe our current general liability and
product liability insurance is adequate to protect us from
future claims, we cannot assure that coverage will be adequate
to cover all claims that may arise. Additionally, we may not be
able to maintain insurance coverage in the future at an
acceptable cost. Any liability not covered by insurance or for
which third-party indemnification is not available could have a
material adverse effect on our business, financial condition and
results of operations.
We
operate in highly competitive industries, which may adversely
affect our results of operations or ability to expand our
business.
Our markets are highly competitive. We compete, domestically and
internationally, with individual producers, as well as with
vertically integrated manufacturers, some of which have
resources greater than we do. The principal elements of
competition for our products are price, product technology,
distribution, quality and service. EMGs competition in
specialty metal products stems from alternative materials and
processes. In the markets served by EIG, although we believe EIG
is a market leader, competition is strong and could intensify.
In the pressure gauge, aerospace and heavy-vehicle markets
served by EIG, a limited number of companies compete on the
basis of product quality, performance and innovation. Our
competitors may develop new or improve existing products that
are superior to our products or may adapt more readily to new
technologies or changing requirements of our customers. There
can be no assurance that our business will not be adversely
affected by increased competition in the markets in which it
operates or that our products will be able to compete
successfully with those of our competitors.
Our
access to sources of liquidity may be limited by market
conditions and restrictions in our revolving credit facility and
other agreements.
In recent months, the financial markets have experienced a
significant liquidity shortfall as a result of diverse
conditions that have caused the failure and near failure of a
number of large financial services companies. If the
availability of funds remains limited, we could incur increased
costs associated with our receivables securitization facility,
any renewal of our credit facility
and/or other
debt instruments. In addition, it is possible that our ability
to access the credit market may be limited by these or other
factors, at a time when we would like, or need, to do so, which
could have an impact on our ability to refinance maturing debt
and/or react
to changing economic and business conditions. Notwithstanding
the foregoing, at this time, we believe that available
short-term and long-term capital resources are sufficient to
fund our working capital requirements, scheduled debt payments,
interest payments, capital expenditures, benefit plan
contributions, income tax obligations, dividends to our
shareholders, any contemplated acquisitions and share
repurchases for the foreseeable future.
We are
subject to possible insolvency of financial
counterparties.
We engage in numerous financial transactions and contracts
including insurance policies, letters of credit, credit
facilities, financial derivatives and investment management
agreements involving various counterparties. We are subject to
the risk that one or more of these counterparties may become
insolvent and, therefore, be unable to discharge its obligations
under such contracts.
Our
goodwill and other intangible assets represent a substantial
amount of our total assets and write-off of such substantial
goodwill and intangible assets could have a negative impact on
our financial condition and results of operations.
Our total assets include substantial amounts of intangible
assets, primarily goodwill. At December 31, 2008, goodwill
and other intangible assets, net of accumulated amortization,
totaled $1,681.8 million or 55% of our total assets. The
goodwill results from our acquisitions, representing the excess
of cost over the fair value of the net tangible and other
identifiable intangible assets we have acquired. At a minimum,
we assess annually whether there
15
has been impairment in the value of our intangible assets. If
future operating performance at one or more of our business
units were to fall significantly below current levels, we could
reflect, under current applicable accounting rules, a non-cash
charge to operating earnings for goodwill or other intangible
asset impairment. Any determination requiring the write-off of a
significant portion of goodwill or other intangible assets would
negatively affect our financial condition and results of
operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
The Company has 99 operating plant facilities in 22 states
and 12 foreign countries. Of these facilities, 53 are owned by
the Company and 46 are leased. The properties owned by the
Company consist of approximately 654 acres, of which
approximately 4.7 million square feet are under roof. Under
lease is a total of approximately 1.6 million square feet.
The leases expire over a range of years from 2009 to 2082, with
renewal options for varying terms contained in many of the
leases. Production facilities in Taiwan, China and Japan provide
the Company with additional production capacity through the
Companys investment in 50% or less owned joint ventures.
The Companys executive offices in Paoli, Pennsylvania,
occupy approximately 34,000 square feet under a lease that
expires in September 2010.
The Companys machinery and equipment, plants and offices
are in satisfactory operating condition and are adequate for the
uses to which they are put. The operating facilities of the
Company by business segment are summarized in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
Plant Facilities
|
|
|
Square Feet Under Roof
|
|
|
|
Owned
|
|
|
Leased
|
|
|
Owned
|
|
|
Leased
|
|
|
Electronic Instruments
|
|
|
24
|
|
|
|
24
|
|
|
|
2,126,000
|
|
|
|
995,000
|
|
Electromechanical
|
|
|
29
|
|
|
|
22
|
|
|
|
2,621,000
|
|
|
|
612,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
53
|
|
|
|
46
|
|
|
|
4,747,000
|
|
|
|
1,607,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Item 3.
|
Legal
Proceedings
|
The Company
and/or its
subsidiaries have been named as defendants, along with many
other companies, in a number of asbestos-related lawsuits. To
date, no judgments have been entered against the Company. The
Company believes it has strong defenses to the claims and
intends to continue to defend itself vigorously in these
matters. Other companies are also indemnifying the Company
against certain of these claims. To date, these parties have met
their obligations in all material respects; however, one of
these companies filed for bankruptcy liquidation in 2007.
In October 2008, the Company received a Notice of Administrative
Civil Liability from the San Diego Regional Water Quality
Control Board seeking certain penalties. The Notice claims that
a former subsidiary of AMETEK, which became a separate company
in 1988 and filed for bankruptcy liquidation in 2007, failed to
adequately produce a delineation report and feasibility study
within specified time frames. We believe we have good and valid
defenses to this claim and intend to vigorously defend against
it. (Also see Environmental Matters in
Managements Discussion and Analysis of Financial Condition
and Results of Operations and Note 17 to the Consolidated
Financial Statements.)
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of the Companys
security holders, through the solicitation of proxies or
otherwise, during the last quarter of the fiscal year ended
December 31, 2008.
17
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
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. On January 30, 2009, there were
approximately 2,294 holders of record of the Companys
common stock.
Market price and dividend information with respect to the
Companys common stock is set forth below. Future dividend
payments by the Company will be dependent on future earnings,
financial requirements, contractual provisions of debt
agreements and other relevant factors.
The Company repurchased, under its share repurchase program,
approximately 1,263,000 shares of common stock for
$57.4 million and approximately 144,000 shares of
common stock for $5.4 million in 2008 and 2007,
respectively, to offset the dilutive effect of shares granted as
equity-based compensation.
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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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Common stock trading range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
46.95
|
|
|
$
|
53.12
|
|
|
$
|
52.50
|
|
|
$
|
41.24
|
|
Low
|
|
$
|
37.09
|
|
|
$
|
43.80
|
|
|
$
|
37.74
|
|
|
$
|
27.32
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
Common stock trading range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
35.91
|
|
|
$
|
40.94
|
|
|
$
|
43.79
|
|
|
$
|
48.45
|
|
Low
|
|
$
|
30.67
|
|
|
$
|
33.51
|
|
|
$
|
36.38
|
|
|
$
|
42.00
|
|
Securities Authorized for Issuance Under Equity Compensation
Plan Information
The following table sets forth information as of
December 31, 2008 regarding all of the Companys
existing compensation plans pursuant to which equity securities
are authorized for issuance to employees and nonemployee
directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
Number of securities
|
|
|
|
|
|
remaining available
|
|
|
|
to be issued
|
|
|
Weighted average
|
|
|
for future issuance
|
|
|
|
upon exercise of
|
|
|
exercise price of
|
|
|
under equity
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
compensation plans
|
|
|
|
warrants
|
|
|
warrants
|
|
|
(excluding securities
|
|
|
|
and rights
|
|
|
and rights
|
|
|
reflected in column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,034,783
|
|
|
$
|
28.01
|
|
|
|
3,995,411
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,034,783
|
|
|
$
|
28.01
|
|
|
|
3,995,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Stock
Performance Graph
The following stock performance graph and related information
shall not be deemed soliciting material or to be
filed with the Securities and Exchange Commission,
nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that
the Company specifically incorporates it by reference into such
filing.
The following graph and accompanying table compare the
cumulative total shareholder return for AMETEK, Inc. over the
last five years ended December 31, 2008 with total returns
for the same period for the Russell 1000 Index and the Dow Jones
U.S. Electronic Equipment Index. The performance graph and
table assume a $100 investment made on December 31, 2003
and reinvestment of all dividends. The stock performance shown
on the graph below is based on historical data and is not
necessarily indicative of future stock price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
AMETEK, Inc.
|
|
$
|
100.00
|
|
|
$
|
149.08
|
|
|
$
|
178.84
|
|
|
$
|
201.99
|
|
|
$
|
298.97
|
|
|
$
|
193.94
|
|
Russell 1000 Index*
|
|
|
100.00
|
|
|
|
111.40
|
|
|
|
118.38
|
|
|
|
136.69
|
|
|
|
144.58
|
|
|
|
90.22
|
|
Dow Jones U.S. Electronic Equipment Index*
|
|
|
100.00
|
|
|
|
108.49
|
|
|
|
116.80
|
|
|
|
134.72
|
|
|
|
158.08
|
|
|
|
92.80
|
|
19
|
|
Item 6.
|
Selected
Financial Data
|
The following financial information for the five years ended
December 31, 2008, has been derived from the Companys
consolidated financial statements. This information should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and
the consolidated financial statements and related notes thereto
included elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions, except per share amounts)
|
|
|
Consolidated Operating Results
(Year Ended
December 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,531.1
|
|
|
$
|
2,136.9
|
|
|
$
|
1,819.3
|
|
|
$
|
1,434.5
|
|
|
$
|
1,232.3
|
|
Operating income(1)
|
|
$
|
432.7
|
|
|
$
|
386.6
|
|
|
$
|
309.0
|
|
|
$
|
233.5
|
|
|
$
|
191.2
|
|
Interest expense
|
|
$
|
(63.7
|
)
|
|
$
|
(46.9
|
)
|
|
$
|
(42.2
|
)
|
|
$
|
(32.9
|
)
|
|
$
|
(28.3
|
)
|
Net income(1)
|
|
$
|
247.0
|
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
Earnings per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.33
|
|
|
$
|
2.15
|
|
|
$
|
1.74
|
|
|
$
|
1.31
|
|
|
$
|
1.07
|
|
Diluted
|
|
$
|
2.30
|
|
|
$
|
2.12
|
|
|
$
|
1.71
|
|
|
$
|
1.29
|
|
|
$
|
1.06
|
|
Dividends declared and paid per share
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106.1
|
|
|
|
105.8
|
|
|
|
104.8
|
|
|
|
103.7
|
|
|
|
101.7
|
|
Diluted
|
|
|
107.4
|
|
|
|
107.6
|
|
|
|
106.6
|
|
|
|
105.6
|
|
|
|
103.1
|
|
Performance Measures and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income Return on sales(1)
|
|
|
17.1
|
%
|
|
|
18.1
|
%
|
|
|
17.0
|
%
|
|
|
16.3
|
%
|
|
|
15.5
|
%
|
Return on average total assets(1)
|
|
|
14.9
|
%
|
|
|
15.9
|
%
|
|
|
15.8
|
%
|
|
|
14.6
|
%
|
|
|
14.5
|
%
|
Net income Return on average total capital(1)(5)
|
|
|
10.9
|
%
|
|
|
12.0
|
%
|
|
|
11.8
|
%
|
|
|
10.7
|
%
|
|
|
10.5
|
%
|
Return on average stockholders
equity(1)(5)
|
|
|
19.5
|
%
|
|
|
20.7
|
%
|
|
|
20.5
|
%
|
|
|
18.5
|
%
|
|
|
18.2
|
%
|
EBITDA(1)(2)
|
|
$
|
489.4
|
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
Ratio of EBITDA to interest expense(1)(2)
|
|
|
7.7
|
x
|
|
|
9.3
|
x
|
|
|
8.3
|
x
|
|
|
8.2
|
x
|
|
|
8.1
|
x
|
Depreciation and amortization
|
|
$
|
63.3
|
|
|
$
|
52.7
|
|
|
$
|
45.9
|
|
|
$
|
39.4
|
|
|
$
|
39.9
|
|
Capital expenditures
|
|
$
|
44.2
|
|
|
$
|
37.6
|
|
|
$
|
29.2
|
|
|
$
|
23.3
|
|
|
$
|
21.0
|
|
Cash provided by operating activities
|
|
$
|
247.3
|
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
Free cash flow(3)
|
|
$
|
203.1
|
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
Ratio of earnings to fixed charges(6)
|
|
|
6.1
|
x
|
|
|
7.3
|
x
|
|
|
6.6
|
x
|
|
|
6.2
|
x
|
|
|
6.0
|
x
|
Consolidated Financial Position
(At December 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
954.6
|
|
|
$
|
952.2
|
|
|
$
|
684.1
|
|
|
$
|
556.3
|
|
|
$
|
461.9
|
|
Current liabilities
|
|
$
|
447.5
|
|
|
$
|
640.8
|
|
|
$
|
480.9
|
|
|
$
|
405.8
|
|
|
$
|
272.8
|
|
Property, plant and equipment, net
|
|
$
|
307.9
|
|
|
$
|
293.1
|
|
|
$
|
258.0
|
|
|
$
|
228.5
|
|
|
$
|
207.5
|
|
Total assets
|
|
$
|
3,055.5
|
|
|
$
|
2,745.7
|
|
|
$
|
2,130.9
|
|
|
$
|
1,780.6
|
|
|
$
|
1,420.4
|
|
Long-term debt
|
|
$
|
1,093.2
|
|
|
$
|
667.0
|
|
|
$
|
518.3
|
|
|
$
|
475.3
|
|
|
$
|
400.2
|
|
Total debt
|
|
$
|
1,111.7
|
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
Stockholders equity(5)
|
|
$
|
1,287.8
|
|
|
$
|
1,240.7
|
|
|
$
|
966.7
|
|
|
$
|
809.5
|
|
|
$
|
663.3
|
|
Stockholders equity per share(5)
|
|
$
|
12.07
|
|
|
$
|
11.56
|
|
|
$
|
9.11
|
|
|
$
|
7.66
|
|
|
$
|
6.44
|
|
Total debt as a percentage of capitalization(5)
|
|
|
46.3
|
%
|
|
|
42.1
|
%
|
|
|
41.4
|
%
|
|
|
43.8
|
%
|
|
|
40.4
|
%
|
Net debt as a percentage of capitalization(4)(5)
|
|
|
44.3
|
%
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
42.4
|
%
|
|
|
38.3
|
%
|
See Notes to Selected Financial Data on page 21.
20
Notes to
Selected Financial Data
|
|
|
(1)
|
|
Amounts for years prior to 2006
reflect the retrospective application of Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment (SFAS 123R) to
expense stock options. The adoption of SFAS 123R reduced
operating income, net income and diluted earnings per share by
the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of Amounts Originally Reported:
|
|
|
|
|
|
|
|
|
|
Diluted Earnings
|
|
Impact of Adopting SFAS 123R
|
|
Operating Income
|
|
|
Net Income
|
|
|
Per Share
|
|
|
|
(In millions, except per share amounts)
|
|
|
2005
|
|
$
|
5.9
|
|
|
$
|
4.3
|
|
|
$
|
0.04
|
|
2004
|
|
$
|
5.1
|
|
|
$
|
3.7
|
|
|
$
|
0.04
|
|
|
|
|
(2)
|
|
EBITDA represents income before
interest, income taxes, depreciation and amortization. EBITDA is
presented because the Company is aware that it is used by rating
agencies, securities analysts, investors and other parties in
evaluating the Company. It should not be considered, however, as
an alternative to operating income as an indicator of the
Companys operating performance or as an alternative to
cash flows as a measure of the Companys overall liquidity
as presented in the Companys consolidated financial
statements. Furthermore, EBITDA measures shown for the Company
may not be comparable to similarly titled measures used by other
companies. The following table presents the reconciliation of
net income reported in accordance with U.S. generally accepted
accounting principles (GAAP) to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
247.0
|
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
$
|
136.4
|
|
|
$
|
109.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
63.7
|
|
|
|
46.9
|
|
|
|
42.2
|
|
|
|
32.9
|
|
|
|
28.3
|
|
Interest income
|
|
|
(3.9
|
)
|
|
|
(2.1
|
)
|
|
|
(0.4
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
Income taxes
|
|
|
119.3
|
|
|
|
108.4
|
|
|
|
81.8
|
|
|
|
61.9
|
|
|
|
51.7
|
|
Depreciation
|
|
|
45.8
|
|
|
|
42.3
|
|
|
|
38.9
|
|
|
|
35.0
|
|
|
|
36.8
|
|
Amortization
|
|
|
17.5
|
|
|
|
10.4
|
|
|
|
7.0
|
|
|
|
4.4
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
242.4
|
|
|
|
205.9
|
|
|
|
169.5
|
|
|
|
133.5
|
|
|
|
119.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
489.4
|
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
$
|
269.9
|
|
|
$
|
228.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Free cash flow represents cash flow
from operating activities less capital expenditures. Free cash
flow is presented because the Company is aware that it is used
by rating agencies, securities analysts, investors and other
parties in evaluating the Company. (Also see note 2 above).
The following table presents the reconciliation of cash flow
from operating activities reported in accordance with U.S. GAAP
to free cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Cash provided by operating activities (U.S. GAAP basis)
|
|
$
|
247.3
|
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
|
$
|
155.7
|
|
|
$
|
155.8
|
|
Deduct: Capital expenditures
|
|
|
(44.2
|
)
|
|
|
(37.6
|
)
|
|
|
(29.2
|
)
|
|
|
(23.3
|
)
|
|
|
(21.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
203.1
|
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
$
|
132.4
|
|
|
$
|
134.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
Net debt represents total debt
minus cash and cash equivalents. Net debt is presented because
the Company is aware that it is used by securities analysts,
investors and other parties in evaluating the Company. (Also see
note 2 above). The following table presents the
reconciliation of total debt in accordance with U.S. GAAP to net
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Total debt
|
|
$
|
1,111.7
|
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
|
$
|
631.4
|
|
|
$
|
450.1
|
|
Less: Cash and cash equivalents
|
|
|
(87.0
|
)
|
|
|
(170.1
|
)
|
|
|
(49.1
|
)
|
|
|
(35.5
|
)
|
|
|
(37.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
1,024.7
|
|
|
|
732.9
|
|
|
|
632.8
|
|
|
|
595.9
|
|
|
|
412.5
|
|
Stockholders equity
|
|
|
1,287.8
|
|
|
|
1,240.7
|
|
|
|
966.7
|
|
|
|
809.5
|
|
|
|
663.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization (net debt plus stockholders equity)
|
|
$
|
2,312.5
|
|
|
$
|
1,973.6
|
|
|
$
|
1,599.5
|
|
|
$
|
1,405.4
|
|
|
$
|
1,075.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt as a percentage of capitalization
|
|
|
44.3
|
%
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
42.4
|
%
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
The adoption of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and
132(R), for our defined benefit pension plans, which was
effective December 31, 2006, resulted in a reduction of
$32.7 million to stockholders equity. The adoption of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, as of
January 1, 2007, resulted in a $5.9 million charge to
the opening balance of stockholders equity.
|
|
(6)
|
|
Penalties and interest accrued
related to unrecognized tax benefits are recognized in income
tax expense. Refer to Exhibit 12 for the calculation of the
ratio of earnings to fixed charges.
|
21
|
|
Item 7.
|
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. In this report,
the Company discloses important factors that could cause actual
results to differ materially from managements
expectations. For more information on these and other factors,
see Forward-Looking Information herein.
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) should be read in conjunction with
Item 1A. Risk Factors, Item 6.
Selected Financial Data and the consolidated financial
statements and related notes included elsewhere in this
Form 10-K.
Business
Overview
As a global business, AMETEKs operations are affected by
global, regional and industry economic factors. However, the
Companys strategic geographic and industry
diversification, and its mix of products and services, have
helped to limit the potential adverse impact of any unfavorable
developments in any one industry or the economy of any single
country on its consolidated operating results. For most of 2008,
the Company continued to experience strong market conditions in
many of its businesses. However, beginning in the fourth quarter
of 2008, the Company experienced lower order rates as a result
of the current financial and economic crisis. For the full year
2008, contributions from recent acquisitions and internal
growth, combined with successful Operational Excellence
initiatives, enabled the Company to post another year of record
sales, operating income, net income and diluted earnings per
share. In addition to achieving its financial objectives, the
Company also benefited from its strategic initiatives under
AMETEKs four growth strategies: Operational Excellence,
New Product Development, Global and Market Expansion and
Strategic Acquisitions and Alliances. Highlights of 2008 were:
|
|
|
|
|
In 2008, sales were $2.5 billion, an increase of
$394.2 million or 18% from 2007, on internal growth of
approximately 5% in the Electronic Instruments Group
(EIG) and 2% in the Electromechanical Group
(EMG) excluding the effect of foreign currency
translation, and contributions from the 2007 and 2008
acquisitions. During 2008, the Company completed the following
acquisitions:
|
|
|
|
|
|
In February 2008, the Company acquired Drake Air
(Drake). Drake is a provider of heat-transfer repair
services to the commercial aerospace industry.
|
|
|
|
In February 2008, the Company acquired Motion Control Group
(MCG). MCG is a leading global manufacturer of
highly customized motors and motion control solutions for the
medical, life sciences, industrial automation, semiconductor and
aviation markets.
|
|
|
|
In April 2008, the Company acquired Reading Alloys. Reading
Alloys is a global leader in specialty titanium master alloys
and highly engineered metal powders used in the aerospace,
medical implant, military and electronics markets.
|
|
|
|
In June 2008, the Company acquired Vision Research, Inc. Vision
Research is a leading manufacturer of high-speed digital imaging
systems used for motion capture and analysis in numerous test
and measurement applications.
|
|
|
|
In August 2008, the Company acquired the programmable power
business of Xantrex Technology, Inc. (Xantrex
Programmable). Xantrex Programmable is a leader in
alternating current and direct current programmable power
supplies used to test electrical and electronic products.
|
|
|
|
In November 2008, the Company acquired UK-based Muirhead
Aerospace Limited (Muirhead). Muirhead is a leading
manufacturer of motion technology products and a provider of
avionics repair and overhaul services for the aerospace and
defense markets.
|
|
|
|
As the Company grows globally, it continues to achieve an
increasing level of international sales. International sales,
including U.S. export sales, were $1,225.5 million of
consolidated sales in 2008, compared with $1,053.7 million
of consolidated sales in 2007.
|
22
|
|
|
|
|
The Company continued its emphasis on investment in research,
development and engineering, spending $115.9 million in
2008 before customer reimbursement of $6.1 million, an
increase of 12.6% over 2007. Sales from products introduced in
the last three years increased $71.5 million or 18.3% in
2008 to $462.8 million.
|
|
|
|
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of 6.59% senior notes due
September 2015 and $160 million in aggregate principal
amount of 7.08% senior notes due September 2018. The second
funding date occurred in December 2008 for $100 million,
consisting of $35 million in aggregate principal amount of
6.69% senior notes due December 2015 and $65 million
in aggregate principal amount of 7.18% senior notes due
December 2018. The proceeds from the senior notes were used to
pay down a portion of the Companys revolving credit
facility.
|
|
|
|
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using proceeds from
borrowings under its existing revolving credit facility.
|
|
|
|
In the fourth quarter of 2008, the Company recorded pre-tax
charges totaling $40.0 million, which had the effect of
reducing net income by $27.3 million ($0.25 per diluted
share). These charges include restructuring costs for employee
reductions and facility closures ($32.6 million), as well
as asset write-downs ($7.4 million) as a result of the
global economic recession and financial crisis.
|
|
|
|
In 2008, the Company made $79.9 million in contributions to
its defined benefit pension plans in the U.S. and the
United Kingdom. $74.0 million in contributions were made in
the fourth quarter of 2008, which had the effect of eliminating
or significantly reducing the amount of unfunded pension
obligations associated with the Companys pension plans.
|
Results
of Operations
The following table sets forth net sales and income by
reportable segment and on a consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net sales(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
1,402,653
|
|
|
$
|
1,199,757
|
|
|
$
|
1,016,503
|
|
Electromechanical
|
|
|
1,128,482
|
|
|
|
937,093
|
|
|
|
802,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
2,531,135
|
|
|
$
|
2,136,850
|
|
|
$
|
1,819,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
306,764
|
|
|
$
|
260,338
|
|
|
$
|
203,430
|
|
Electromechanical
|
|
|
175,181
|
|
|
|
167,166
|
|
|
|
139,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
481,945
|
|
|
|
427,504
|
|
|
|
343,356
|
|
Corporate administrative and other expenses
|
|
|
(49,291
|
)
|
|
|
(40,930
|
)
|
|
|
(34,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
432,654
|
|
|
|
386,574
|
|
|
|
308,994
|
|
Interest and other expenses, net
|
|
|
(66,438
|
)
|
|
|
(50,130
|
)
|
|
|
(45,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
$
|
366,216
|
|
|
$
|
336,444
|
|
|
$
|
263,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
23
Year
Ended December 31, 2008 Compared with Year Ended
December 31, 2007
Results
of Operations
In 2008, the Company posted record sales, operating income, net
income and diluted earnings per share. The Company achieved
these results from contributions from acquisitions completed in
2008 and 2007, as well as internal growth in both EIG and EMG.
Operating income increased, driven by the record sales and a
continued focus on cost reduction programs under our Operational
Excellence initiatives. The Company expects the current
financial and economic crisis, to have a negative impact on
operating results in 2009. The full year impact of the 2008
acquisitions and our Operational Excellence capabilities will
have a positive impact on our 2009 results.
Net sales for 2008 were $2,531.1 million, an increase of
$394.2 million or 18.4% when compared with net sales of
$2,136.9 million in 2007. Net sales for EIG were
$1,402.7 million in 2008, an increase of 16.9% from sales
of $1,199.8 million in 2007. Net sales for EMG were
$1,128.5 million in 2008, an increase of 20.4% from sales
of $937.1 million in 2007. The Companys internal
sales growth was approximately 4% in 2008, which excludes a 1%
favorable effect of foreign currency translation, driven by
strength in its differentiated businesses. The acquisitions
mentioned above contributed the remainder of the net sales
increase.
Total international sales for 2008 were $1,225.5 million or
48.4% of consolidated net sales, an increase of
$171.8 million or 16.3% when compared with international
sales of $1,053.7 million or 49.3% of consolidated net
sales in 2007. The increase in international sales resulted from
increased international sales from base businesses of
$29.3 million or 17.0% of the increase, which includes the
effect of foreign currency translation, as well as the
acquisitions completed in 2008 and 2007, most notably Cameca SAS
(Cameca), the Repair & Overhaul Division
of Umeco plc (Umeco R&O), Reading Alloys,
California Instruments Corporation (California
Instruments) and Vision Research. Increased international
sales came primarily from sales to Europe and Asia by both
reportable segments. Export shipments from the United States,
which are included in total international sales, were
$478.5 million in 2008, an increase of $84.1 million
or 21.3% compared with $394.4 million in 2007. Export
shipments improved primarily due to increased exports from the
base businesses and the acquisitions noted above.
New orders for 2008 were a record at $2,561.5 million, an
increase of $273.2 million or 11.9% when compared with
$2,288.3 million in 2007. The increase in new orders was
primarily due to the recent acquisitions noted above. As a
result, the Companys backlog of unfilled orders at
December 31, 2008 was $718.6 million, an increase of
$30.4 million or 4.4% when compared with
$688.2 million at December 31, 2007. The increase in
backlog was primarily due to the acquired backlog of the recent
acquisitions noted above. Beginning in the fourth quarter of
2008 through the filing date of this
Form 10-K,
the Company has experienced lower order rates as a result of the
current financial and economic crisis.
The year ended December 31, 2008 results include fourth
quarter pre-tax charges totaling $40.0 million, which had
the effect of reducing net income by $27.3 million ($0.25
per diluted share). These charges include restructuring costs
for employee reductions and facility closures
($32.6 million), as well as asset write-downs
($7.4 million). Of the $40.0 million in charges,
$32.9 million of the restructuring charges and asset
write-downs were recorded in cost of sales and $7.1 million
of the restructuring charges and asset write-downs were recorded
in Selling, general and administrative (SG&A)
expenses. The restructuring charges and asset write-downs were
reported in segment operating income as follows:
$20.4 million in EIG, $19.4 million in EMG and
$0.2 million in Corporate administrative and other
expenses. The restructuring costs for employee reductions and
facility closures relate to plans established by the Company as
part of cost reduction initiatives to be broadly implemented
across the Companys various businesses during fiscal 2009.
The restructuring costs include the consolidation of
manufacturing facilities, the migration of production to low
cost locales and a general reduction in workforce in response to
lower levels of expected sales volumes in certain of the
Companys businesses. The Company recorded pre-tax charges
of $30.1 million for severance costs for slightly more than
10% of the Companys workforce. The Company also recorded
pre-tax charges of $1.5 million for lease termination costs
associated with the closure of certain facilities in 2009.
Substantially all of the payments for employee severance and
lease termination costs are expected to be made in 2009.
Segment operating income for 2008 was $481.9 million, an
increase of $54.4 million or 12.7% when compared with
segment operating income of $427.5 million in 2007. Segment
operating income, as a percentage of sales,
24
decreased to 19.0% for 2008 from 20.0% in 2007. The increase in
segment operating income resulted primarily from strength in the
Companys differentiated businesses and profit
contributions made by the acquisitions, partially offset by the
fourth quarter pre-tax restructuring charges and asset
write-downs described above. The decrease in segment operating
margins resulted primarily from the restructuring charges and
asset write-downs, which negatively impacted segment operating
margins by 160 basis points.
SG&A expenses for 2008 were $322.6 million, an
increase of $59.1 million or 22.4% when compared with
$263.5 million in 2007. As a percentage of sales, SG&A
expenses were 12.7% for 2008, compared with 12.3% in 2007. The
increase in SG&A expenses was the result of higher sales,
as well as a $7.1 million charge representing a
0.3% increase in SG&A expenses recorded in
corporate administrative expenses related to the accelerated
vesting of an April 2005 restricted stock grant in the second
quarter of 2008 and $7.1 million of SG&A expense
related to the fourth quarter of 2008 restructuring charges and
asset write-downs described above. Additionally, the
Companys acquisition strategy generally is to acquire
differentiated businesses, which because of their distribution
channels and higher marketing costs tend to have a higher
content of selling expenses. Base business selling expenses
increased approximately 7.9%. Excluding the impact of the fourth
quarter restructuring charges and asset write-downs on selling
expense of $6.9 million, a 3.2% impact, and foreign
currency translation, the increase in 2008 base business selling
expenses was in line with internal sales growth. Selling
expenses, as a percentage of sales, increased to 10.8% for 2008,
compared with 10.4% in 2007.
Corporate administrative expenses for 2008 were
$49.2 million, an increase of $8.4 million or 20.6%
when compared with $40.8 million in 2007. As a percentage
of sales, corporate administrative expenses were 1.9%, in both
2008 and 2007. The increase in corporate administrative expenses
was primarily the result of equity-based compensation associated
with the accelerated vesting of restricted stock in the second
quarter of 2008, noted above, as well as other expenses
necessary to grow the Company, partially offset by equity-based
compensation associated with the accelerated vesting of
restricted stock in the first and third quarters of 2007.
Consolidated operating income was $432.7 million or 17.1%
of sales for 2008, an increase of $46.1 million or 11.9%
when compared with $386.6 million or 18.1% of sales in 2007.
Interest expense was $63.7 million for 2008, an increase of
$16.8 million or 35.8% when compared with
$46.9 million in 2007. The increase was due to the impact
of the funding of the private placement senior notes in the
fourth quarter of 2007 and the third and fourth quarters of
2008, higher average borrowings to fund the recent acquisitions
and the repurchase of 1.3 million shares of the
Companys common stock in 2008.
The effective tax rate for 2008 was 32.6% compared with 32.2% in
2007. The higher effective tax rate for 2008 primarily reflects
an increase in state and foreign income taxes and the impact of
accelerated vesting of non-deductible restricted stock
amortization, offset by the impact of settlements of various
income tax issues with U.S. taxing authorities and a
favorable agreement in the United Kingdom related to deductible
interest expense for which previously unrecognized tax benefits
were recognized. The lower effective tax rate in 2007 primarily
reflects an enacted decrease in certain foreign corporate tax
rates in the second half of 2007, partially offset by the
elimination of the Foreign Sales Corporation/Extraterritorial
Income (FSC/ETI) tax benefit. See Note 11 of
the notes to consolidated financial statements included in this
Form 10-K
for further details.
Net income for 2008 was $247.0 million, an increase of
$19.0 million or 8.3% when compared with
$228.0 million in 2007. Diluted earnings per share for 2008
was $2.30, an increase of $0.18 or 8.5% when compared with $2.12
per diluted share in 2007. Diluted earnings per share for 2008
includes the impact of the fourth quarter of 2008 restructuring
charges and asset write-downs, which negatively impacted
earnings by $0.25 per diluted share.
Segment
Results
EIGs sales totaled $1,402.7 million for 2008,
an increase of $202.9 million or 16.9% when compared with
$1,199.8 million in 2007. The sales increase was due to
internal growth of approximately 5%, excluding a favorable 1%
effect of foreign currency translation, driven primarily by
EIGs aerospace, power, and process and analytical
instrument businesses. The acquisitions of Advanced Industries,
Inc. (Advanced), B&S Aircraft Parts and
Accessories (B&S), Cameca, California
Instruments, Vision Research, Inc. and Xantrex Programmable
accounted for the remainder of the sales increase.
25
EIGs operating income was $306.8 million for 2008, an
increase of $46.5 million or 17.9% when compared with
$260.3 million in 2007. The increases in segment operating
income were due to the contribution from the higher sales by
EIGs aerospace, power and process and analytical
businesses, which includes the acquisitions mentioned above,
partially offset by the fourth quarter of 2008 restructuring
charges and asset write-downs of $20.4 million. EIGs
operating margins were 21.9% of sales for 2008 compared with
21.7% of sales in 2007. The increase in operating margins was
driven by operational excellence initiatives throughout the
group. The fourth quarter of 2008 restructuring charges and
asset write-downs had a negative impact on EIGs operating
margins of 140 basis points.
EMGs sales totaled $1,128.5 million for 2008,
an increase of $191.4 million or 20.4% from
$937.1 million in 2007. The sales increase was due to
internal growth of approximately 2%, excluding a favorable 1%
effect of foreign currency translation, driven primarily by
EMGs differentiated businesses. The acquisitions of Seacon
Phoenix, subsequently renamed AMETEK SCP, Inc.
(SCP), Hamilton Precision Metals
(Hamilton), Umeco R&O, Drake Air, MCG,
Reading Alloys and Muirhead accounted for the remainder of the
sales increase.
EMGs operating income was $175.2 million for 2008, an
increase of $8.0 million or 4.8% when compared with
$167.2 million in 2007. EMGs increase in operating
income was primarily due to higher sales from the groups
differentiated businesses, which include the acquisitions
mentioned above, partially offset by the fourth quarter of 2008
restructuring charges and asset write-downs of
$19.4 million. EMGs operating margins were 15.5% of
sales for 2008 compared with 17.8% of sales in 2007. The
decrease in operating margins was primarily driven by the fourth
quarter of 2008 restructuring charges and asset write-downs,
which had a negative impact on operating margins of
170 basis points. The remainder of the decrease was the
dilutive impact of recent acquisitions.
Fourth
Quarter Results
Net sales for the fourth quarter of 2008 were
$623.7 million, an increase of $40.4 million or 6.9%
when compared with net sales of $583.3 million for the
fourth quarter of 2007. Net sales for EIG were
$361.6 million in 2008, an increase of 7.6% from sales of
$336.1 million in 2007. Net sales for EMG were
$262.1 million in 2008, an increase of 6.1% from sales of
$247.1 million in 2007. The Companys internal sales
growth was approximately negative 2%, which excludes a 4%
unfavorable effect of foreign currency translation. The
acquisitions mentioned above made up the net sales increase.
The three months ended December 31, 2008 results include
pre-tax charges totaling $40.0 million, which had the
effect of reducing net income by $27.3 million ($0.25 per
diluted share). These charges include restructuring costs for
employee reductions and facility closures ($32.6 million),
as well as asset write-downs ($7.4 million). Of the
$40.0 million in charges, $32.9 million of the
restructuring charges and asset write-downs were recorded in
cost of sales and $7.1 million of the restructuring charges
and asset write-downs were recorded in SG&A expenses. The
restructuring charges and asset write-downs were reported in
segment operating income as follows: $20.4 million in EIG,
$19.4 million in EMG and $0.2 million in Corporate
administrative and other expenses. The restructuring costs for
employee reductions and facility closures relate to plans
established by the Company as part of cost reduction initiatives
to be broadly implemented across the Companys various
businesses during fiscal 2009. The restructuring costs include
the consolidation of manufacturing facilities, the migration of
production to low cost locales and a general reduction in
workforce in response to lower levels of expected sales volumes
in certain of the Companys businesses. The Company
recorded pre-tax charges of $30.1 million for severance
costs for slightly more than 10% of the Companys
workforce. The Company also recorded pre-tax charges of
$1.5 million for lease termination costs associated with
the closure of certain facilities in 2009. Substantially all of
the payments for employee severance and lease termination costs
are expected to be made in 2009.
Net income for the fourth quarter of 2008 was
$43.8 million, a decrease of $18.1 million or 29.2%
when compared with $61.9 million for the fourth quarter of
2007. Diluted earnings per share in the fourth quarter of 2008
was $0.41, a decrease of $0.16 or 28.1% when compared with $0.57
per diluted share in the fourth quarter of 2007. Diluted
earnings per share includes the impact of the fourth quarter of
2008 restructuring charges and asset write-downs, which
negatively impacted earnings by $0.25 per diluted share.
26
Year
Ended December 31, 2007 Compared with Year Ended
December 31, 2006
Results
of Operations
In 2007, the Company posted record sales, operating income, net
income, diluted earnings per share and cash flow from
operations. The Company achieved these results from strong
internal growth in both EIG and EMG, as well as contributions
from acquisitions in 2007 and 2006. Operating income increased,
driven by the record sales and a continued focus on cost
reduction programs under our Operational Excellence initiatives.
Net sales for 2007 were $2,136.9 million, an increase of
$317.6 million or 17.5% when compared with net sales of
$1,819.3 million in 2006. Net sales for EIG were
$1,199.8 million in 2007, an increase of 18.0% from sales
of $1,016.5 million in 2006. Net sales for EMG were
$937.1 million in 2007, an increase of 16.7% from sales of
$802.8 million in 2006. The Companys internal sales
growth was approximately 7% in 2007, which excludes a 2%
favorable effect of foreign currency translation, driven by
strength in its differentiated businesses. The acquisitions
mentioned above contributed the remainder of the net sales
increase.
Total international sales for 2007 were $1,053.7 million or
49.3% of consolidated net sales, an increase of
$187.7 million or 21.7% when compared with international
sales of $866.0 million or 47.6% of consolidated net sales
in 2006. The increase in international sales primarily resulted
from increased international sales from base businesses of
$74.9 million or 39.9% of the increase, which includes the
effect of foreign currency translation. The acquisitions of
Cameca, SCP, Hamilton and Umeco R&O in 2007 and Land
Instruments International Limited (Land
Instruments), PennEngineering Motion Technologies, Inc.
(Pittman), Precitech and Southern Aeroparts, Inc.
(SAI) in 2006 contributed the remainder of the
increase. Increased international sales came primarily from
sales to Europe by both reportable segments. Export shipments
from the United States, which are included in total
international sales, were $394.4 million in 2007, an
increase of $50.6 million or 14.7% compared with
$343.8 million in 2006. Export shipments improved primarily
due to increased exports from the base businesses and
acquisitions noted above.
New orders for 2007 were $2,288.3 million, an increase of
$372.9 million or 19.5% when compared with
$1,915.4 million in 2006. The increase in new orders was
driven by the Companys base differentiated businesses,
which contributed $167.2 million or 44.8% of the increase,
led by the Companys aerospace and engineered materials,
interconnects and packaging businesses. The acquisitions
mentioned above contributed the remainder of the increase. As a
result, the Companys backlog of unfilled orders at
December 31, 2007 was $688.2 million, an increase of
$151.4 million or 28.2% when compared with
$536.8 million at December 31, 2006. The increase in
backlog was due to higher order levels in base differentiated
businesses and the 2007 acquisitions noted above.
Segment operating income for 2007 was $427.5 million, an
increase of $84.1 million or 24.5% when compared with
segment operating income of $343.4 million in 2006. Segment
operating income, as a percentage of sales, increased to 20.0%
for 2007 from 18.9% in 2006. The increase in segment operating
income resulted from strength in the differentiated businesses
of each group, which includes the profit contributions made by
the acquisitions. The margin improvement came from the
Companys differentiated businesses.
SG&A expenses for 2007 were $263.5 million, an
increase of $44.0 million or 20.1% when compared with
$219.5 million in 2006. As a percentage of sales, SG&A
expenses were higher in 2007 at 12.3% compared to 12.1% in 2006.
Selling expenses, as a percentage of sales, were 10.4% in 2007,
slightly higher than the 10.2% in 2006. The selling expense
increase and the corresponding increase in selling expenses as a
percentage of sales were due primarily to business acquisitions.
The Companys acquisition strategy generally is to acquire
differentiated businesses, which because of their distribution
channels and higher marketing costs tend to have a higher
content of selling expenses. Base business selling expenses
increased 9.7% for 2007, compared to 2006, which was in line
with internal sales growth including the impact of foreign
currency translation.
Corporate administrative expenses for 2007 were
$40.8 million, an increase of $6.6 million or 19.4%
when compared with $34.2 million in 2006. The increase in
corporate expenses was the result of higher compensation,
including equity-based compensation associated with accelerated
vesting of restricted stock grants in 2007 and other costs
necessary to grow the Company. As a percentage of sales,
corporate administrative expenses were 1.9% in both 2007 and
2006.
27
Consolidated operating income was $386.6 million or 18.1%
of sales for 2007, an increase of $77.6 million or 25.1%
when compared with $309.0 million or 17.0% of sales in 2006.
Interest expense was $46.9 million for 2007, an increase of
$4.7 million or 11.1% when compared with $42.2 million
in 2006. The increase was due to higher average borrowings to
fund the 2007 acquisitions, higher average interest rates and
the impact of the fourth quarter of 2007 funding of the private
placement senior notes.
The effective tax rate for 2007 was 32.2% compared with 31.0% in
2006. The 2007 effective tax rate primarily reflects the
elimination of the FSC/ETI tax benefit in 2007, an increase in
state income taxes and an increase in interest and penalties on
uncertain tax positions, partially offset by an enacted decrease
in certain foreign corporate tax rates in the second half of
2007 and the recognition of tax benefits from our international
tax planning initiatives. The 2006 effective tax rate benefited
primarily from the reversal of a valuation allowance for foreign
tax credit carryforwards of $3.2 million, offset somewhat
by higher nondeductible equity-based compensation.
Net income for 2007 was $228.0 million, an increase of
$46.1 million or 25.3% when compared with
$181.9 million in 2006. Diluted earnings per share for 2007
was $2.12, an increase of $0.41 or 24.0% when compared with
$1.71 per diluted share in 2006.
Segment
Results
EIGs sales totaled $1,199.8 million for 2007,
an increase of $183.3 million or 18.0% when compared with
$1,016.5 million in 2006. The sales increase was due to
internal growth of approximately 9%, excluding a favorable 2%
effect of foreign currency translation. The internal growth was
driven by sales increases in EIGs process and analytical,
aerospace and power businesses. The acquisitions of Cameca, Land
Instruments, Precitech, Advanced and B&S accounted for the
remainder of the sales increase.
EIGs operating income was $260.3 million for 2007, an
increase of $56.9 million or 28.0% when compared with
$203.4 million in 2006. EIGs operating margins were
21.7% of sales for 2007 compared with 20.0% of sales in 2006.
The increase in operating income and margins came from the
groups base differentiated businesses, which include the
acquisitions mentioned above.
EMGs sales totaled $937.1 million for 2007, an
increase of $134.3 million or 16.7% from
$802.8 million in 2006. The sales increase was due to
internal growth of approximately 6%, excluding a favorable 2%
effect of foreign currency translation, driven primarily by
EMGs differentiated businesses. The acquisitions of
Pittman, SAI, SCP, Umeco R&O and Hamilton accounted for the
remainder of the sales increase.
EMGs operating income was $167.2 million for 2007, an
increase of $27.3 million or 19.5% when compared with
$139.9 million in 2006. EMGs increase in operating
income was due to strength in the groups differentiated
businesses, which includes the acquisitions mentioned above.
EMGs operating margins were 17.8% of sales for 2007
compared with 17.4% of sales in 2006. The increase in operating
margins was primarily due to an increased contribution from the
groups differentiated businesses.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$247.3 million in 2008, a decrease of $31.2 million or
11.2% when compared with $278.5 million in 2007. The
decrease in operating cash flow was primarily the result of
higher defined benefit pension plan contributions of
$79.9 million in 2008, a $74.7 million increase over
the $5.2 million contributed in 2007. The 2008
contributions had the effect of eliminating or significantly
reducing the amount of unfunded pension obligations associated
with the Companys pension plans. Also impacting operating
cash flow are higher overall operating working capital levels
necessary to grow the Company, partially offset by higher
earnings. Free cash flow (operating cash flow less capital
spending) was $203.1 million in 2008, compared to
$240.9 million in 2007. EBITDA (earnings before interest,
income taxes, depreciation and amortization) was
$489.4 million in 2008, which includes the fourth quarter
of 2008 pre-tax restructuring charges and asset write-downs of
$40.0 million, compared with $433.9 million in 2007, a
12.8% improvement. Free cash flow and EBITDA are presented
because the Company is aware that they are measures used by
third parties in evaluating the Company. (See the Notes to
Selected Financial Data included in Item 6 for a
reconciliation of U.S. generally accepted accounting
principles (GAAP) measures to comparable non-GAAP
measures).
28
Cash used for investing activities totaled $496.6 million
in 2008, compared with $334.7 million in 2007. In 2008, the
Company paid $463.0 million for six business acquisitions
and one technology line acquisition, net of cash received,
compared with $300.6 million paid for seven business
acquisitions and one technology line, net of cash received in
2007. Additions to property, plant and equipment totaled
$44.2 million in 2008, compared with $37.6 million in
2007.
Cash provided by financing activities totaled
$173.5 million in 2008, compared with $174.1 million
in 2007. In 2008, net total borrowings increased by
$266.9 million, compared with a net total increase of
$180.9 million in 2007. Short-term borrowings increased
$69.7 million in 2008, compared with a decrease of
$162.6 million in 2007. Long-term borrowings increased
$197.2 million in 2008, compared to an increase of
$343.4 million in 2007.
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using the proceeds from
borrowings under its existing revolving credit facility.
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of 6.59% senior notes due
September 2015 and $160 million in aggregate principal
amount of 7.08% senior notes due September 2018. The second
funding date occurred in December 2008 for $100 million,
consisting of $35 million in aggregate principal amount of
6.69% senior notes due December 2015 and $65 million
in aggregate principal amount of 7.18% senior notes due
December 2018. The senior notes carry a weighted average
interest rate of 6.93%. The senior notes are subject to certain
customary covenants, including financial covenants that, among
other things, require the Company to maintain certain
debt-to-EBITDA and interest coverage ratios. The proceeds from
the senior notes were used to pay down a portion of the
borrowings outstanding under the Companys revolving credit
facility.
In May 2008, the accounts receivable securitization facility was
amended and restated, extending the expiration date from May
2008 to May 2009, and bringing the borrowing capacity to
$100 million from $110 million previously. There were
no borrowings under this facility at December 31, 2008.
In the third quarter of 2007, the Company completed a private
placement agreement to sell $450 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in December
2007 for $370 million, consisting of $270 million in
aggregate principal amount of 6.20% senior notes due
December 2017 and $100 million in aggregate principal
amount of 6.30% senior notes due December 2019. The second
funding occurred in July 2008 for $80 million in aggregate
principal amount of 6.35% senior notes due July 2018. The
notes carry a weighted average interest rate of 6.25%. The
proceeds from the first funding of the notes were used to pay
down borrowings outstanding under the Companys revolving
credit facility, which included a foreign portion related to the
2007 acquisition of Cameca and the 2006 acquisition of Land
Instruments, as well as borrowings outstanding under the
Companys accounts receivable securitization program.
Additionally, the proceeds from the private placement were used
to purchase California Instruments in December 2007. The
proceeds from the second funding of the notes were used to pay
down a portion of the borrowings outstanding under the
Companys revolving credit facility.
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012. At December 31, 2008, the
Company had $468.9 million available under its revolving
credit facility, including the $100 million accordion
feature.
At December 31, 2008, total debt outstanding was
$1,111.7 million, compared with $903.0 million at
December 31, 2007. The debt-to-capital ratio was 46.3% at
December 31, 2008, compared with 42.1% at December 31,
2007. The net debt-to-capital ratio (total debt less cash and
cash equivalents divided by the sum of net debt and
stockholders equity) was 44.3% at December 31, 2008,
compared with 37.1% at December 31, 2007. The net
debt-to-capital ratio is presented because the Company is aware
that this measure is used by third
29
parties in evaluating the Company. (See the Notes to
Selected Financial Data included in Item 6 for a
reconciliation of U.S. GAAP measures to comparable non-GAAP
measures).
Additional financing activities for 2008 include the receipt of
net cash proceeds from the exercise of employee stock options of
$7.5 million compared with $17.2 million in 2007. Cash
dividends paid were $25.7 million in both 2008 and 2007. In
2008, the Company repaid $21.4 million in life insurance
policy loans.
Repurchases of 1.3 million shares of the Companys
common stock in 2008 totaled $57.4 million, compared with a
total of $5.4 million paid for approximately
144,000 shares repurchased in 2007. On January 24,
2008, the Board of Directors approved an increase of
$50 million in the authorization for the repurchase of the
Companys common stock, adding to the $25.9 million
that remained available at December 31, 2007 from an
existing $50 million authorization approved in March 2003
for a total of $75.9 million. On July 23, 2008, the
Board of Directors approved another increase of $50 million
in the authorization for the repurchase of the Companys
common stock, adding to the $18.5 million that remained
available at June 30, 2008 from the existing
$50 million authorization approved in January 2008 for a
total of $68.5 million. At December 31, 2008,
$68.5 million was available under the current Board
authorization for future share repurchases.
The following table summarizes AMETEKs contractual cash
obligations and the effect such obligations are expected to have
on the Companys liquidity and cash flows in future years
at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due
|
|
|
|
|
|
|
Less
|
|
|
One to
|
|
|
Four to
|
|
|
After
|
|
|
|
|
|
|
Than
|
|
|
Three
|
|
|
Five
|
|
|
Five
|
|
Contractual Obligations(4)
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In millions)
|
|
|
Long-term debt(1)
|
|
$
|
1,017.6
|
|
|
$
|
1.1
|
|
|
$
|
88.3
|
|
|
$
|
|
|
|
$
|
928.2
|
|
Revolving credit loans
|
|
|
65.6
|
|
|
|
7.2
|
|
|
|
|
|
|
|
58.4
|
|
|
|
|
|
Capital lease(2)
|
|
|
14.5
|
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
10.0
|
|
Other indebtedness
|
|
|
14.0
|
|
|
|
9.2
|
|
|
|
1.2
|
|
|
|
3.0
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,111.7
|
|
|
|
18.4
|
|
|
|
91.3
|
|
|
|
63.2
|
|
|
|
938.8
|
|
Interest on long-term fixed-rate debt
|
|
|
539.4
|
|
|
|
63.9
|
|
|
|
122.0
|
|
|
|
118.6
|
|
|
|
234.9
|
|
Noncancellable operating leases
|
|
|
74.1
|
|
|
|
15.3
|
|
|
|
19.9
|
|
|
|
11.3
|
|
|
|
27.6
|
|
Purchase obligations(3)
|
|
|
219.9
|
|
|
|
199.7
|
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
Employee severance and other
|
|
|
46.9
|
|
|
|
46.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,992.0
|
|
|
$
|
344.2
|
|
|
$
|
253.4
|
|
|
$
|
193.1
|
|
|
$
|
1,201.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the $450 million private placement completed in
2007 and the $350 million private placement completed in
2008. |
|
(2) |
|
Represents a capital lease for a building and land associated
with the Cameca acquisition. The lease has a term of twelve
years, which began July 2006, and is payable quarterly. |
|
(3) |
|
Purchase obligations primarily consist of contractual
commitments to purchase certain inventories at fixed prices. |
|
(4) |
|
The liability for uncertain tax positions was not included in
the table of contractual obligations as of December 31,
2008 because the timing of the settlements of these uncertain
tax positions cannot be reasonably estimated at this time. See
Note 11 to the consolidated financial statements for
further details. |
Other
Commitments
The Company has standby letters of credit and surety bonds of
$16.4 million related to performance and payment guarantees
at December 31, 2008. Based on experience with these
arrangements, the Company believes that any obligations that may
arise will not be material to its financial position.
The Company may, from time to time, repurchase its long-term
debt in privately negotiated transactions, depending upon
availability, market conditions and other factors.
30
As a result of all of the Companys cash flow activities in
2008, cash and cash equivalents at December 31, 2008
totaled $87.0 million, compared with $170.1 million at
December 31, 2007. The Companys liquidity has not
been impacted by the recent financial crisis nor do we expect
liquidity to be impacted in the near future. Additionally, the
Company is in compliance with all of its debt covenants, which
includes its financial covenants, for all of its debt
agreements. The Company believes it has sufficient
cash-generating capabilities from domestic and unrestricted
foreign sources, available credit facilities and access to
long-term capital funds to enable it to meet its operating needs
and contractual obligations in the foreseeable future.
Critical
Accounting Policies
The Company has identified its critical accounting policies as
those accounting policies that can have a significant impact on
the presentation of the Companys financial condition and
results of operations and that require the use of complex and
subjective estimates based upon past experience and
managements judgment. Because of the uncertainty inherent
in such estimates, actual results may differ materially from the
estimates used. The consolidated financial statements and
related notes contain information that is pertinent to the
Companys accounting policies and to managements
discussion and analysis. The information that follows represents
additional specific disclosures about the Companys
accounting policies regarding risks, estimates, subjective
decisions or assessments whereby materially different results of
operations and financial condition could have been reported had
different assumptions been used or different conditions existed.
Primary disclosure of the Companys significant accounting
policies is in Note 1 to the consolidated financial
statements.
|
|
|
|
|
Revenue Recognition. The Company recognizes
revenue on product sales in the period when the sales process is
complete. This generally occurs when products are shipped to the
customer in accordance with terms of an agreement of sale, under
which title and risk of loss have been transferred,
collectibility is reasonably assured and pricing is fixed or
determinable. For a small percentage of sales where title and
risk of loss passes at point of delivery, the Company recognizes
revenue upon delivery to the customer, assuming all other
criteria for revenue recognition are met. The policy with
respect to sales returns and allowances generally provides that
the customer may not return products or be given allowances,
except at the Companys option. The Company has agreements
with distributors that do not provide expanded rights of return
for unsold products. The distributor purchases the product from
the Company, at which time title and risk of loss transfers to
the distributor. The Company does not offer substantial sales
incentives and credits to its distributors other than volume
discounts. The Company accounts for the sales incentive as a
reduction of revenues when the sale is recognized. Accruals for
sales returns, other allowances and estimated warranty costs are
provided at the time revenue is recognized based upon past
experience. At December 31, 2008, 2007 and 2006, the
accrual for future warranty obligations was $16.1 million,
$14.4 million and $10.9 million, respectively. The
Companys expense for warranty obligations was
$12.2 million, $11.3 million and $7.6 million in
2008, 2007 and 2006, respectively. The warranty periods for
products sold vary widely among the Companys operations,
but for the most part do not exceed one year. The Company
calculates its warranty expense provision based on past warranty
experience and adjustments are made periodically to reflect
actual warranty expenses. If actual future sales returns and
allowances and warranty amounts are higher than past experience,
additional accruals may be required.
|
|
|
|
Accounts Receivable. The Company maintains
allowances for estimated losses resulting from the inability of
specific customers to meet their financial obligations to the
Company. A specific reserve for bad debts is recorded against
the amount due from these customers. For all other customers,
the Company recognizes reserves for bad debts based on the
length of time specific receivables are past due based on its
historical experience. If the financial condition of the
Companys customers were to deteriorate, resulting in their
inability to make payments, additional allowances may be
required. The allowance for possible losses on receivables was
$8.5 million and $6.4 million at December 31,
2008 and 2007, respectively.
|
|
|
|
Inventories. The Company uses the
first-in,
first-out (FIFO) method of accounting, which
approximates current replacement cost, for approximately 62% of
its inventories at December 31, 2008. The
last-in,
first-out (LIFO) method of accounting is used to
determine cost for the remaining 38% of its inventory at
December 31, 2008. For inventories where cost is determined
by the LIFO method, the FIFO value would have been
$30.8 million and $35.6 million higher than the LIFO
value reported in the consolidated balance
|
31
|
|
|
|
|
sheet at December 31, 2008 and 2007, respectively. The
Company provides estimated inventory reserves for slow-moving
and obsolete inventory based on current assessments about future
demand, market conditions, customers who may be experiencing
financial difficulties and related management initiatives. If
these factors are less favorable than those projected by
management, additional inventory reserves may be required.
|
|
|
|
|
|
Goodwill and Other Intangibles Assets. The
Company accounts for goodwill and other intangible assets under
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142). Under SFAS 142, purchased
goodwill and other intangible assets with indefinite lives,
primarily trademarks and trade names, are not amortized; rather,
they are tested for impairment at least annually. These
impairment tests include the projection and discounting of cash
flows, estimates of future operating performance of the
reporting unit being valued and estimates of the fair value of
the intangible assets being tested. SFAS 142 requires a
two-step impairment test for goodwill. The first step is to
compare the carrying amount of the reporting units net
assets to the fair value of the reporting unit. If the fair
value exceeds the carrying value, no further evaluation is
required and no impairment loss is recognized. If the carrying
amount exceeds the fair value, then the second step must be
completed, which involves allocating the fair value of the
reporting unit to each asset and liability, with the excess
being implied goodwill. An impairment loss occurs if the amount
of the recorded goodwill exceeds the implied goodwill. The
Company would be required to record such impairment losses.
Indefinite-lived intangibles other than goodwill are tested by
estimating the fair values of those assets as of the
Companys measurement date, with such fair values based on
expected future operating performance and discount rates
determined by management. Changes in interest rates and market
conditions, among other factors, may have an impact on these
estimates. These estimates will likely change over time. The
Companys acquisitions have generally included a large
goodwill component and the Company expects to continue to make
acquisitions. At December 31, 2008, goodwill and other
indefinite-lived intangible assets totaled
$1,681.8 million, or 55.0% of the Companys total
assets. The Company performed its required annual impairment
test in the fourth quarter of 2008 and determined that the
Companys goodwill and indefinite-lived intangibles were
not impaired. There can be no assurance that goodwill or
indefinite-lived intangibles impairment will not occur in the
future.
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Pensions. The Company has U.S. and
foreign defined benefit and defined contribution pension plans.
The Company accounts for all of its defined benefit pension
plans in accordance with SFAS No. 87,
Employers Accounting for Pensions
(SFAS 87) and SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of Financial Accounting
Standards Board (FASB) Statements No. 87, 88,
106, and 132(R) (SFAS 158) for balance
sheet recognition of the overfunded or underfunded status of
pension and postretirement benefit plans, as well as the income
statement recognition of the costs related to these plans.
SFAS 87 and SFAS 158 require that amounts recognized
in the financial statements be determined on an actuarial basis.
The most significant elements in determining the Companys
pension income or expense are the assumed pension liability
discount rate and the expected return on plan assets. The
pension discount rate reflects the current interest rate at
which the pension liabilities could be settled at the valuation
date. At the end of each year, the Company determines the
assumed discount rate to be used to discount plan liabilities.
In estimating this rate for 2008, the Company considered rates
of return on high-quality, fixed-income investments. The
discount rate used in determining the 2008 pension cost was
6.25% for U.S. defined benefit pension plans and 5.89% for
foreign plans. The discount rate used for determining the funded
status of the plans at December 31, 2008 and determining
the 2009 defined benefit pension cost is 6.50% for
U.S. plans and 6.09% for foreign plans. In estimating the
U.S. and foreign discount rates, the Companys
actuaries developed a customized discount rate appropriate to
the plans projected benefit cash flow based on yields
derived from a database of long-term bonds at consistent
maturity dates. The Company used an expected long-term rate of
return on plan assets for 2008 of 8.25% for U.S. defined
benefit pension plans and 7.0% for foreign plans. The Company
will continue to use these rates for 2009 for the U.S. and
foreign plans, respectively. The Company determines the expected
long-term rate of return based primarily on its expectation of
future returns for the pension plans investments.
Additionally, the Company considers historical returns on
comparable fixed-income investments and equity investments and
adjusts its estimate as deemed appropriate. The rate of
compensation increase used in
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determining the 2008 pension expense for the U.S. plans was
3.75% and will remain unchanged in 2009. For foreign plans, the
rate of compensation increase will be decreased from 3.86% in
2008 to 2.98% in 2009. For the year ended December 31,
2008, the Company recognized consolidated pre-tax pension income
of $6.8 million from its U.S. and foreign defined
benefit pension plans as compared with pre-tax pension income of
$3.8 million recognized for these plans in 2007. The
Company estimates its 2009 U.S. and foreign defined benefit
pension plans pre-tax expense to be $15.4 million.
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The Company follows the balance sheet recognition requirements
of SFAS 158. Under SFAS 158, all unrecognized prior
service costs, remaining transition obligations or assets and
actuarial gains and losses have been recognized, net of tax
effects, as a charge to accumulated other comprehensive income
(AOCI) in stockholders equity and will be
amortized as a component of net periodic pension cost. In
addition, effective for fiscal years beginning after
December 15, 2008, the measurement date (the date at which
plan assets and benefit obligation are measured) is required to
be the Companys fiscal year end. The Company uses a
December 31 measurement date for its U.S. and foreign
defined benefit plans as required by SFAS 158.
To fund the plans, the Company made cash contributions to its
defined benefit pension plans during 2008 which totaled
$79.9 million, compared with $5.2 million in 2007. The
Company anticipates making approximately $19 million to
$24 million in cash contributions to its defined benefit
pension plans in 2009.
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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. The Company conducts a
broad range of operations around the world and is therefore
subject to complex tax regulations in numerous international
taxing jurisdictions, resulting at times in tax audits, disputes
and potential litigation, the outcome of which is uncertain.
Management must make judgments currently about such
uncertainties and determine estimates of the Companys tax
assets and liabilities. To the extent the final outcome differs,
future adjustments to the Companys tax assets and
liabilities may be necessary.
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The Company assesses the realizability of its deferred tax
assets, taking into consideration the Companys forecast of
future taxable income, available net operating loss
carryforwards and available tax planning strategies that could
be implemented to realize the deferred tax assets. Based on this
assessment, management must evaluate the need for, and the
amount of, valuation allowances against the Companys
deferred tax assets. To the extent facts and circumstances
change in the future, adjustments to the valuation allowances
may be required.
Effective January 1, 2007, the Company adopted the
provisions of FIN 48, Accounting for Uncertainty in
Income Taxes. In accordance with FIN 48, the Company is
required to assess the uncertainty in its tax positions, by
applying a minimum recognition threshold a tax position is
required to meet before a tax benefit is recognized in the
financial statements. Once the minimum threshold is met, using a
more likely than not standard, a series of probability estimates
is made for each item to properly measure and record a tax
benefit. The tax benefit recorded is generally equal to the
highest probable outcome that is more than 50% likely to be
realized after full disclosure and resolution of a tax
examination. The underlying probabilities are determined based
on the best available objective evidence such as recent tax
audit outcomes, published guidance, external expert opinion, or
by analogy to the outcome of similar issues in the past. There
can be no assurance that these estimates will ultimately be
realized given continuous changes in tax policy, legislation and
audit practice.
As a result of the adoption of Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48), the Company recorded a
$4.7 million increase in liabilities associated with
unrecognized tax benefits, including interest and penalties of
$2.4 million, a decrease of $1.2 million in goodwill
related to a previous business combination and a
$5.9 million charge to the January 1, 2007 opening
balance of retained earnings. The Company recognizes interest
and penalties accrued related to uncertain tax positions in
income tax expense.
33
Recently
Issued Financial Accounting Standards
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS 157). In February 2008, the FASB
issued FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, which
provides a one year deferral of the effective date of
SFAS 157 for fair value measurements of nonfinancial assets
and nonfinancial liabilities, except for items recognized or
disclosed at fair value on a non-recurring basis (at least
annually). The deferral applies to fair value in goodwill
impairment testing, indefinite-lived intangible assets measured
at fair value for impairment testing, asset retirement
obligations initially measured at fair value, and nonfinancial
assets and nonfinancial liabilities initially measured at fair
value in a business combination. Therefore, the Company has
adopted the provisions of SFAS 157 with respect to its
financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value
under U.S. GAAP and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
SFAS 157 establishes a valuation hierarchy for disclosure
of the inputs to the valuation used to measure fair value. This
hierarchy prioritizes the inputs into three broad levels as
follows. Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on
the Companys own assumptions used to measure assets and
liabilities at fair value. A financial asset or liabilitys
classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
At December 31, 2008, $0.3 million of the
Companys cash and cash equivalents and $4.2 million
of marketable securities are valued as level 1 investments.
The Company held $8.5 million valued as level 2
investments in the investments and other assets line of the
consolidated balance sheet. For the year ended December 31,
2008, gains and losses on the investments noted above were not
material.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141R). This
statement significantly changes the financial accounting and
reporting of business combination transactions in the
Companys consolidated financial statements. SFAS 141R
is effective for fiscal years beginning after December 15,
2008 and prohibits early adoption. Upon adoption, SFAS 141R
will not have a significant impact on the Companys
consolidated results of operations, financial position or cash
flows. However, depending on the nature of an acquisition or the
quantity of acquisitions entered into after the adoption,
SFAS 141R may significantly impact the Companys
consolidated results of operations, financial position or cash
flows when compared to acquisitions accounted for under existing
U.S. GAAP and result in more earnings volatility and
generally lower earnings due to, among other items, the
expensing of deal costs and restructuring costs of acquired
companies.
In November 2008, the FASB ratified the consensus reached in
Emerging Issues Task Force (EITF) Issue
No. 08-7,
Accounting for Defensive Intangible Assets
(EITF 08-7).
EITF 08-7
clarifies how to account for acquired defensive intangible
assets subsequent to initial measurement under SFAS 141R
that the Company does not intend to actively use but does intend
to hold to prevent others from obtaining access to the asset.
EITF 08-7
is effective for fiscal years beginning after December 15,
2008, along with SFAS 141R. The Company has evaluated
EITF 08-7
and does not expect the adoption of
EITF 08-7
to have a material impact on its consolidated results of
operations, financial position or cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 significantly
changes the accounting for and reporting of noncontrolling
(minority) interests in the Companys consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning after December 15, 2008 and prohibits early
adoption. The Company does not expect the adoption of
SFAS 160 to have an impact on its consolidated results of
operations, financial position or cash flows.
34
In April 2008, the FASB issued FASB Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. FSP
FAS 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS 141R, and other U.S. GAAP. FSP
FAS 142-3
applies to all intangible assets and is effective for financial
statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. The Company has evaluated FSP
FAS 142-3
and does not expect the adoption of FSP
FAS 142-3
to have a material impact on its consolidated results of
operations, financial position or cash flows.
Internal
Reinvestment
Capital
Expenditures
Capital expenditures were $44.2 million or 1.7% of sales in
2008, compared with $37.6 million or 1.8% of sales in 2007.
54% of the expenditures in 2008 were for improvements to
existing equipment or additional equipment to increase
productivity and expand capacity. The Companys 2008
capital expenditures increased due to a continuing emphasis on
spending to improve productivity and expand manufacturing
capabilities. The 2009 capital expenditures are expected to
approximate 2.0% of sales, with a continued emphasis on spending
to improve productivity.
Product
Development and Engineering
The Company is committed to research, product development and
engineering activities that are designed to identify and develop
potential new and improved products or enhance existing
products. Research, product development and engineering costs
before customer reimbursement were $115.9 million,
$102.9 million and $87.6 million in 2008, 2007 and
2006, respectively. Customer reimbursements in 2008, 2007 and
2006 were $6.1 million, $7.1 million and
$6.4 million, respectively. These amounts included net
Company-funded research and development expenses of
$57.5 million, $52.9 million and $42.0 million,
respectively. All such expenditures were directed toward the
development of new products and processes and the improvement of
existing products and processes.
Environmental
Matters
Certain historic processes in the manufacture of products have
resulted in environmentally hazardous waste by-products as
defined by federal and state laws and regulations. While these
waste products were handled in compliance with regulations
existing at that time, at December 31, 2008, the Company is
named a Potentially Responsible Party (PRP) at 16
non-AMETEK-owned
former waste disposal or treatment sites (the
non-owned sites). The Company is identified as a
de minimis party in 14 of these sites based on the
low volume of waste attributed to the Company relative to the
amounts attributed to other named PRPs. In 10 of these sites,
the Company has reached a tentative agreement on the cost of the
de minimis settlement to satisfy its obligation and is awaiting
executed agreements. The tentatively agreed-to settlement
amounts are fully reserved. In the other four sites, the Company
is continuing to investigate the accuracy of the alleged volume
attributed to the Company as estimated by the parties primarily
responsible for remedial activity at the sites to establish an
appropriate settlement amount. In the two remaining sites where
the Company is a non-de minimis PRP, the Company is
participating in the investigation
and/or
related required remediation as part of a PRP Group and reserves
have been established sufficient to satisfy the Companys
expected obligation. The Company historically has resolved these
issues within established reserve levels and reasonably expects
this result will continue. In addition to these non-owned sites,
the Company has an ongoing practice of providing reserves for
probable remediation activities at certain of its current or
previously owned manufacturing locations (the owned
sites). For claims and proceedings against the Company with
respect to other environmental matters, reserves are established
once the Company has determined that a loss is probable and
estimable. This estimate is refined as the Company moves through
the various stages of investigation, risk assessment,
feasibility study and corrective action processes. In certain
instances, the Company has developed a range of estimates for
such costs and has recorded a liability based on the low end of
the range. It is reasonably possible that the actual cost of
remediation of the individual sites could vary from the current
estimates and the
35
amounts accrued in the consolidated financial statements;
however, the amounts of such variances are not expected to
result in a material change to the consolidated financial
statements. In estimating the Companys liability for
remediation, the Company also considers the likely proportionate
share of the anticipated remediation expense and the ability of
the other PRPs to fulfill their obligations.
Total environmental reserves at December 31, 2008 and 2007
were $28.4 million and $25.3 million, respectively,
for non-owned and owned sites. In 2008, the Company provided
$7.3 million of additional reserves, including
$5.6 million for existing sites and $1.7 million
related to recent acquisitions. Additionally, the Company spent
$4.2 million on environmental matters in 2008. The
Companys reserves for environmental liabilities at
December 31, 2008 and 2007 include reserves of
$17.9 million and $18.0 million, respectively, for an
owned site acquired in connection with the fiscal 2005
acquisition of HCC Industries (HCC). The Company is
solely liable for the performance of remedial activities for one
of several operating units making up a large Superfund site in
the San Gabriel Valley of California. The Company has
obtained indemnifications and other financial assurances from
the former owners of HCC related to the costs of the required
remedial activities. At December 31, 2008, the Company has
$12.4 million in receivables related to HCC for probable
recoveries from third-party escrow funds and other committed
third-party funds to support the required remediation. Also, the
Company is indemnified by HCCs former owners for up to
$19.0 million of additional costs.
The Company has agreements with other former owners of certain
of its acquired businesses, as well as new owners of previously
owned businesses. Under certain of the agreements, the former or
new owners retained, or assumed and agreed to indemnify the
Company against, certain environmental and other liabilities
under certain circumstances. The Company and some of these other
parties also carry insurance coverage for some environmental
matters. To date, these parties have met their obligations in
all material respects; however, one of these companies filed for
bankruptcy liquidation in 2007, as discussed further in the
following paragraph.
In October 2008, the Company received a Notice of Administrative
Civil Liability from the San Diego Regional Water Quality
Control Board seeking certain penalties. The Notice claims that
a former subsidiary of AMETEK, which became a separate company
in 1988 and filed for bankruptcy liquidation in 2007, failed to
adequately produce a delineation report and feasibility study
within specified time frames. We believe we have good and valid
defenses to this claim and intend to vigorously defend
against it.
The Company believes it has established reserves which are
sufficient to perform all known responsibilities under existing
claims and consent orders. The Company has no reason to believe
that other third parties would fail to perform their obligations
in the future. In the opinion of management, based upon
presently available information and past experience related to
such matters, an adequate provision for probable costs has been
made and the ultimate cost resulting from these actions is not
expected to materially affect the consolidated financial
position, results of operations or cash flows of the Company.
Market
Risk
The Companys primary exposures to market risk are
fluctuations in interest rates, foreign currency exchange rates
and commodity prices, which could impact its results of
operations and financial condition. The Company addresses its
exposure to these risks through its normal operating and
financing activities. The Companys differentiated and
global business activities help to reduce the impact that any
particular market risk may have on its operating earnings as a
whole.
The Companys short-term debt carries variable interest
rates and generally its long-term debt carries fixed rates.
These financial instruments are more fully described in the
notes to the consolidated financial statements.
The foreign currencies to which the Company has the most
significant exchange rate exposure are the Euro, the British
pound, the Japanese yen, the Chinese renminbi and the Mexican
peso. Exposure to foreign currency rate fluctuation is
monitored, and when possible, mitigated through the occasional
use of local borrowings and derivative financial instruments in
the foreign country affected. The effect of translating foreign
subsidiaries balance sheets into U.S. dollars is
included in other comprehensive income within stockholders
equity. Foreign currency transactions have not had a significant
effect on the operating results reported by the Company because
revenues and costs associated with the revenues are generally
transacted in the same foreign currencies.
36
The primary commodities to which the Company has market exposure
are raw material purchases of nickel, aluminum, copper, steel,
titanium and gold. Exposure to price changes in these
commodities is generally mitigated through adjustments in
selling prices of the ultimate product and purchase order
pricing arrangements, although forward contracts are sometimes
used to manage some of those exposures.
Based on a hypothetical ten percent adverse movement in interest
rates, commodity prices or foreign currency exchange rates, the
Companys best estimate is that the potential losses in
future earnings, fair value of risk-sensitive financial
instruments and cash flows are not material, although the actual
effects may differ materially from the hypothetical analysis.
Forward-Looking
Information
Certain matters discussed in this
Form 10-K
are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995
(PSLRA), which involve risk and uncertainties that
exist in the Companys operations and business environment
and can be affected by inaccurate assumptions, or by known or
unknown risks and uncertainties. Many such factors will be
important in determining the Companys actual future
results. The Company wishes to take advantage of the safe
harbor provisions of the PSLRA by cautioning readers that
numerous important factors, in some cases have caused, and in
the future could cause, the Companys actual results to
differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Some, but not
all, of the factors or uncertainties that could cause actual
results to differ from present expectations are set forth above
and under Item 1A. Risk Factors. The Company undertakes no
obligation to publicly update any forward-looking statements,
whether as a result of new information, subsequent events or
otherwise, unless required by the securities laws to do so.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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Information concerning market risk is set forth under the
heading Market Risk in Managements Discussion
and Analysis of Financial Condition and Results of Operations
herein.
37
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Item 8.
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Financial
Statements and Supplementary Data
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Page
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Index to Financial Statements (Item 15(a) 1)
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40
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42
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43
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44
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45
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46
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Financial
Statement Schedules (Item 15(a) 2)
Financial statement schedules have been omitted because either
they are not applicable or the required information is included
in the financial statements or the notes thereto.
38
Managements
Responsibility for Financial Statements
Management has prepared and is responsible for the integrity of
the consolidated financial statements and related information.
The statements are prepared in conformity with
U.S. generally accepted accounting principles consistently
applied and include certain amounts based on managements
best estimates and judgments. Historical financial information
elsewhere in this report is consistent with that in the
financial statements.
In meeting its responsibility for the reliability of the
financial information, management maintains a system of internal
accounting and disclosure controls, including an internal audit
program. The system of controls provides for appropriate
division of responsibility and the application of written
policies and procedures. That system, which undergoes continual
reevaluation, is designed to provide reasonable assurance that
assets are safeguarded and records are adequate for the
preparation of reliable financial data.
Management is responsible for establishing and maintaining
adequate controls over financial reporting. We maintain a system
of internal controls that is designed to provide reasonable
assurance as to the fair and reliable preparation and
presentation of the consolidated financial statements; however,
there are inherent limitations in the effectiveness of any
system of internal controls.
Management recognizes its responsibility for conducting the
Companys activities according to the highest standards of
personal and corporate conduct. That responsibility is
characterized and reflected in a code of business conduct for
all employees, and in a financial code of ethics for the Chief
Executive Officer and Senior Financial Officers, as well as in
other key policy statements publicized throughout the Company.
The Audit Committee of the Board of Directors, which is composed
solely of independent directors who are not employees of the
Company, meets with the independent registered public accounting
firm, the internal auditors and management to satisfy itself
that each is properly discharging its responsibilities. The
report of the Audit Committee is included in the Proxy Statement
of the Company for its 2009 Annual Meeting. Both the independent
registered public accounting firm and the internal auditors have
direct access to the Audit Committee.
The Companys independent registered public accounting
firm, Ernst & Young LLP, is engaged to render an
opinion as to whether managements financial statements
present fairly, in all material respects, the Companys
financial position and operating results. This report is
included on page 41.
Managements
Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in the Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2008 based on the
framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that
evaluation, our management concluded that the Companys
internal control over financial reporting was effective as of
December 31, 2008.
The Companys internal control over financial reporting as
of December 31, 2008 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which appears on page 40.
/s/ AMETEK, Inc.
February 25, 2009
39
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders of AMETEK, Inc.:
We have audited AMETEK, Inc.s internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). AMETEK, Inc.s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, AMETEK, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of AMETEK, Inc. as of
December 31, 2008 and 2007, and the related consolidated
statements of income, cash flows, and stockholders equity
for each of the three years in the period ended
December 31, 2008, and our report dated February 25,
2009 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 25, 2009
40
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of AMETEK, Inc.:
We have audited the accompanying consolidated balance sheets of
AMETEK, Inc. as of December 31, 2008 and 2007, and the
related consolidated statements of income, cash flows, and
stockholders equity for each of the three years in the
period ended December 31, 2008. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AMETEK, Inc. at December 31, 2008 and
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles.
As discussed in Notes 1 and 11, the Company adopted FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, effective January 1, 2007. Also, as
discussed in Note 12, the Company adopted in 2006 the
balance sheet recognition and disclosure requirements and in
2008 the measurement date provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
AMETEK, Inc.s internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 25, 2009 expressed an
unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 25, 2009
41
AMETEK,
Inc.
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
2,531,135
|
|
|
$
|
2,136,850
|
|
|
$
|
1,819,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation
|
|
|
1,730,086
|
|
|
|
1,444,514
|
|
|
|
1,251,920
|
|
Selling, general and administrative
|
|
|
322,552
|
|
|
|
263,472
|
|
|
|
219,454
|
|
Depreciation
|
|
|
45,843
|
|
|
|
42,290
|
|
|
|
38,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,098,481
|
|
|
|
1,750,276
|
|
|
|
1,510,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
432,654
|
|
|
|
386,574
|
|
|
|
308,994
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(63,652
|
)
|
|
|
(46,866
|
)
|
|
|
(42,167
|
)
|
Other, net
|
|
|
(2,786
|
)
|
|
|
(3,264
|
)
|
|
|
(3,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
366,216
|
|
|
|
336,444
|
|
|
|
263,686
|
|
Provision for income taxes
|
|
|
119,264
|
|
|
|
108,424
|
|
|
|
81,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
246,952
|
|
|
$
|
228,020
|
|
|
$
|
181,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.33
|
|
|
$
|
2.15
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.30
|
|
|
$
|
2.12
|
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
106,148
|
|
|
|
105,832
|
|
|
|
104,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
107,443
|
|
|
|
107,580
|
|
|
|
106,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
42
AMETEK,
Inc.
(In thousands, except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,980
|
|
|
$
|
170,139
|
|
Marketable securities
|
|
|
4,230
|
|
|
|
10,842
|
|
Receivables, less allowance for possible losses
|
|
|
406,012
|
|
|
|
395,631
|
|
Inventories
|
|
|
349,509
|
|
|
|
301,679
|
|
Deferred income taxes
|
|
|
30,919
|
|
|
|
23,294
|
|
Other current assets
|
|
|
76,936
|
|
|
|
50,619
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
954,586
|
|
|
|
952,204
|
|
Property, plant and equipment, net
|
|
|
307,908
|
|
|
|
293,107
|
|
Goodwill
|
|
|
1,240,052
|
|
|
|
1,045,733
|
|
Other intangibles, net of accumulated amortization
|
|
|
441,785
|
|
|
|
312,349
|
|
Investments and other assets
|
|
|
111,211
|
|
|
|
142,307
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,055,542
|
|
|
$
|
2,745,700
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$
|
18,438
|
|
|
$
|
236,005
|
|
Accounts payable
|
|
|
203,742
|
|
|
|
206,170
|
|
Income taxes payable
|
|
|
31,649
|
|
|
|
28,437
|
|
Accrued liabilities
|
|
|
193,684
|
|
|
|
170,138
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
447,513
|
|
|
|
640,750
|
|
Long-term debt
|
|
|
1,093,243
|
|
|
|
666,953
|
|
Deferred income taxes
|
|
|
144,941
|
|
|
|
116,568
|
|
Other long-term liabilities
|
|
|
82,073
|
|
|
|
80,722
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,767,770
|
|
|
|
1,504,993
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; authorized:
5,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized:
400,000,000 shares;
|
|
|
|
|
|
|
|
|
issued: 2008 110,188,937 shares;
2007 109,749,985 shares
|
|
|
1,102
|
|
|
|
1,097
|
|
Capital in excess of par value
|
|
|
203,000
|
|
|
|
174,450
|
|
Retained earnings
|
|
|
1,320,470
|
|
|
|
1,099,111
|
|
Accumulated other comprehensive (loss) income
|
|
|
(144,767
|
)
|
|
|
5,370
|
|
Less: Treasury stock: 2008 3,461,541 shares;
2007 2,381,778 shares
|
|
|
(92,033
|
)
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,287,772
|
|
|
|
1,240,707
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,055,542
|
|
|
$
|
2,745,700
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
43
AMETEK,
Inc.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
Income
|
|
|
Equity
|
|
|
Capital Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,097
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
1,075
|
|
Shares issued
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,102
|
|
|
|
|
|
|
|
1,097
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
174,450
|
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
107,086
|
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
3,474
|
|
|
|
|
|
|
|
15,455
|
|
|
|
|
|
|
|
9,768
|
|
Share-based compensation costs
|
|
|
|
|
|
|
20,186
|
|
|
|
|
|
|
|
15,530
|
|
|
|
|
|
|
|
12,441
|
|
Excess tax benefits from exercise of stock options
|
|
|
|
|
|
|
4,890
|
|
|
|
|
|
|
|
9,464
|
|
|
|
|
|
|
|
4,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
203,000
|
|
|
|
|
|
|
|
174,450
|
|
|
|
|
|
|
|
134,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,099,111
|
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
739,522
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,901
|
)
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
246,952
|
|
|
|
246,952
|
|
|
$
|
228,020
|
|
|
|
228,020
|
|
|
$
|
181,934
|
|
|
|
181,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
(25,685
|
)
|
|
|
|
|
|
|
(25,748
|
)
|
|
|
|
|
|
|
(18,832
|
)
|
Other
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
361
|
|
|
|
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,320,470
|
|
|
|
|
|
|
|
1,099,111
|
|
|
|
|
|
|
|
902,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
(17,838
|
)
|
Translation adjustments, net of tax of $-, $- and ($85) in 2008,
2007 and 2006, respectively
|
|
|
(46,784
|
)
|
|
|
|
|
|
|
6,056
|
|
|
|
|
|
|
|
8,542
|
|
|
|
|
|
(Loss) gain on net investment hedges, net of tax benefit
(expense) of $6,058, ($1,298) and ($1,374) in 2008, 2007 and
2006, respectively
|
|
|
(11,253
|
)
|
|
|
|
|
|
|
2,412
|
|
|
|
|
|
|
|
8,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,037
|
)
|
|
|
(58,037
|
)
|
|
|
8,468
|
|
|
|
8,468
|
|
|
|
16,701
|
|
|
|
16,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(50,706
|
)
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
|
|
(1,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
(3,380
|
)
|
Adjustments during the year, net of tax of ($1,536)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,852
|
|
|
|
2,852
|
|
Change in pension plans, net of tax benefit (expense) of $56,344
and ($14,141) in 2008 and 2007
|
|
|
(90,320
|
)
|
|
|
(90,320
|
)
|
|
|
30,173
|
|
|
|
30,173
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS No. 158, net of tax of $17,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(93,360
|
)
|
|
|
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
(33,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
302
|
|
(Decrease) increase during the year, net of tax benefit
(expense) of ($958), $151 and $430 in 2008, 2007 and 2006,
respectively
|
|
|
(1,780
|
)
|
|
|
(1,780
|
)
|
|
|
281
|
|
|
|
281
|
|
|
|
496
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(701
|
)
|
|
|
|
|
|
|
1,079
|
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income for the year
|
|
|
(150,137
|
)
|
|
|
|
|
|
|
38,922
|
|
|
|
|
|
|
|
20,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
$
|
96,815
|
|
|
|
|
|
|
$
|
266,942
|
|
|
|
|
|
|
$
|
201,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) at the end of the
year
|
|
|
|
|
|
|
(144,767
|
)
|
|
|
|
|
|
|
5,370
|
|
|
|
|
|
|
|
(33,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
(17,247
|
)
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
4,732
|
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
1,081
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(57,444
|
)
|
|
|
|
|
|
|
(5,437
|
)
|
|
|
|
|
|
|
(21,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(92,033
|
)
|
|
|
|
|
|
|
(39,321
|
)
|
|
|
|
|
|
|
(37,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
|
|
|
$
|
1,287,772
|
|
|
|
|
|
|
$
|
1,240,707
|
|
|
|
|
|
|
$
|
966,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
44
AMETEK,
Inc.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
246,952
|
|
|
$
|
228,020
|
|
|
$
|
181,934
|
|
Adjustments to reconcile net income to total operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
63,261
|
|
|
|
52,665
|
|
|
|
45,929
|
|
Deferred income tax expense (benefit)
|
|
|
29,742
|
|
|
|
4,769
|
|
|
|
(524
|
)
|
Share-based compensation expense
|
|
|
20,186
|
|
|
|
15,530
|
|
|
|
12,441
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables
|
|
|
6,636
|
|
|
|
(26,944
|
)
|
|
|
(26,042
|
)
|
(Increase) decrease in inventories and other current assets
|
|
|
(35,180
|
)
|
|
|
194
|
|
|
|
(6,225
|
)
|
Increase in payables, accruals and income taxes
|
|
|
3,161
|
|
|
|
13,421
|
|
|
|
29,751
|
|
Decrease in other long-term liabilities
|
|
|
(1,907
|
)
|
|
|
(7,153
|
)
|
|
|
(1,819
|
)
|
Pension contribution
|
|
|
(79,905
|
)
|
|
|
(5,162
|
)
|
|
|
(13,721
|
)
|
Other
|
|
|
(5,681
|
)
|
|
|
3,183
|
|
|
|
4,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
247,265
|
|
|
|
278,523
|
|
|
|
225,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(44,215
|
)
|
|
|
(37,620
|
)
|
|
|
(29,156
|
)
|
Purchases of businesses, net of cash acquired
|
|
|
(463,012
|
)
|
|
|
(300,569
|
)
|
|
|
(177,639
|
)
|
Decrease (increase) in marketable securities
|
|
|
6,323
|
|
|
|
(1,700
|
)
|
|
|
(871
|
)
|
Other
|
|
|
4,282
|
|
|
|
5,228
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(496,622
|
)
|
|
|
(334,661
|
)
|
|
|
(206,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
69,693
|
|
|
|
(162,589
|
)
|
|
|
4,048
|
|
Additional long-term borrowings
|
|
|
430,000
|
|
|
|
370,000
|
|
|
|
29,507
|
|
Reduction in long-term borrowings
|
|
|
(232,835
|
)
|
|
|
(26,553
|
)
|
|
|
(18,186
|
)
|
Repayment of life insurance policy loans
|
|
|
(21,394
|
)
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(57,444
|
)
|
|
|
(5,437
|
)
|
|
|
(21,075
|
)
|
Cash dividends paid
|
|
|
(25,685
|
)
|
|
|
(25,748
|
)
|
|
|
(18,832
|
)
|
Excess tax benefits from share-based payments
|
|
|
4,890
|
|
|
|
9,464
|
|
|
|
4,706
|
|
Proceeds from employee stock plans and other
|
|
|
6,238
|
|
|
|
14,961
|
|
|
|
9,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
173,463
|
|
|
|
174,098
|
|
|
|
(9,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(7,265
|
)
|
|
|
3,088
|
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(83,159
|
)
|
|
|
121,048
|
|
|
|
13,546
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
170,139
|
|
|
|
49,091
|
|
|
|
35,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
86,980
|
|
|
$
|
170,139
|
|
|
$
|
49,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
45
AMETEK,
Inc.
|
|
1.
|
Significant
Accounting Policies
|
Basis of
Consolidation
The accompanying consolidated financial statements reflect the
operations, financial position and cash flows of AMETEK, Inc.
(the Company), and include the accounts of the
Company and subsidiaries, after elimination of all intercompany
transactions in the consolidation. The Companys
investments in 50% or less owned joint ventures are accounted
for by the equity method of accounting. Such investments are not
significant to the Companys consolidated results of
operations, financial position or cash flows.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Cash
Equivalents, Securities and Other Investments
All highly liquid investments with maturities of three months or
less when purchased are considered cash equivalents. At
December 31, 2008 and 2007, all of the Companys
equity securities and fixed-income securities (primarily those
of a captive insurance subsidiary) are classified as
available-for-sale, although the Company may hold
fixed-income securities until their maturity dates. Fixed-income
securities generally mature within three years. The aggregate
market value of equity and fixed-income securities at
December 31, 2008 and 2007 was $11.9 million
($12.9 million amortized cost) and $17.9 million
($16.3 million amortized cost), respectively. The temporary
unrealized gain or loss on such securities is recorded as a
separate component of accumulated other comprehensive income (in
stockholders equity), and is not material. The Company had
$0.2 million of other-than-temporary impairment losses in
2008 and no other-than-temporary impairment losses in 2007.
Certain of the Companys other investments, which are not
significant, are also accounted for by the equity method of
accounting as discussed above.
Accounts
Receivable
The Company maintains allowances for estimated losses resulting
from the inability of specific customers to meet their financial
obligations to the Company. A specific reserve for doubtful
receivables is recorded against the amount due from these
customers. For all other customers, the Company recognizes
reserves for doubtful receivables based on the length of time
specific receivables are past due based on past experience. The
allowance for possible losses on receivables was
$8.5 million and $6.4 million at December 31,
2008 and 2007, respectively. See Note 6.
Inventories
The Company uses the
first-in,
first-out (FIFO) method of accounting, which
approximates current replacement cost, for 62% of its
inventories at December 31, 2008. The
last-in,
first-out (LIFO) method of accounting is used to
determine cost for the remaining 38% of the Companys
inventory at December 31, 2008. For inventories where cost
is determined by the LIFO method, the excess of the FIFO value
over the LIFO value was $30.8 million and
$35.6 million at December 31, 2008 and 2007,
respectively. The Company provides estimated inventory reserves
for slow-moving and obsolete inventory based on current
assessments about future demand, market conditions, customers
who may be experiencing financial difficulties and related
management initiatives.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures
for additions to plant facilities, or that extend their useful
lives, are capitalized. The cost of minor tools, jigs and dies,
and maintenance and repairs is charged to
46
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations as incurred. Depreciation of plant and equipment is
calculated principally on a straight-line basis over the
estimated useful lives of the related assets. The range of lives
for depreciable assets is generally three to 10 years for
machinery and equipment, five to 27 years for leasehold
improvements and 25 to 50 years for buildings.
Revenue
Recognition
The Company recognizes revenue on product sales in the period
when the sales process is complete. This generally occurs when
products are shipped to the customer in accordance with terms of
an agreement of sale, under which title and risk of loss have
been transferred, collectability is reasonably assured and
pricing is fixed or determinable. For a small percentage of
sales where title and risk of loss passes at point of delivery,
the Company recognizes revenue upon delivery to the customer,
assuming all other criteria for revenue recognition are met. The
policy, with respect to sales returns and allowances, generally
provides that the customer may not return products or be given
allowances, except at the Companys option. The Company has
agreements with distributors that do not provide expanded rights
of return for unsold products. The distributor purchases the
product from the Company, at which time title and risk of loss
transfers to the distributor. The Company does not offer
substantial sales incentives and credits to its distributors
other than volume discounts. The Company accounts for these
sales incentives as a reduction of revenues when the sale is
recognized in the income statement. Accruals for sales returns,
other allowances and estimated warranty costs are provided at
the time revenue is recognized based upon past experience. At
December 31, 2008, 2007 and 2006, the accrual for future
warranty obligations was $16.1 million, $14.4 million
and $10.9 million, respectively. The Companys expense
for warranty obligations was $12.2 million in 2008,
$11.3 million in 2007 and $7.6 million in 2006. The
warranty periods for products sold vary widely among the
Companys operations, but for the most part do not exceed
one year. The Company calculates its warranty expense provision
based on past warranty experience and adjustments are made
periodically to reflect actual warranty expenses.
Research
and Development
Company-funded research and development costs are charged to
operations as incurred and were $57.5 million in 2008,
$52.9 million in 2007 and $42.0 million in 2006.
Shipping
and Handling Costs
Shipping and handling costs are included in cost of sales and
were $34.0 million in 2008, $27.5 million in 2007 and
$23.5 million in 2006.
Earnings
Per Share
The calculation of basic earnings per share is based on the
weighted average number of common shares considered outstanding
during the periods. The calculation of diluted earnings per
share reflects the effect of all potentially dilutive securities
(principally outstanding common stock options and restricted
stock grants). The number of weighted average shares used in the
calculation of basic earnings per share and diluted earnings per
share were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Weighted average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
106,148
|
|
|
|
105,832
|
|
|
|
104,841
|
|
Stock option and awards plans
|
|
|
1,295
|
|
|
|
1,748
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
107,443
|
|
|
|
107,580
|
|
|
|
106,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Instruments and Foreign Currency Translation
Assets and liabilities of foreign operations are translated
using exchange rates in effect at the balance sheet date and
their results of operations are translated using average
exchange rates for the year. Certain transactions of the Company
and its subsidiaries are made in currencies other than their
functional currency. Exchange gains and losses from those
transactions are included in operating results for the year.
The Company makes infrequent use of derivative financial
instruments. Forward contracts are entered into from time to
time to hedge specific firm commitments for certain inventory
purchases or export sales, thereby minimizing the Companys
exposure to raw material commodity price or foreign currency
fluctuation. No forward contracts were outstanding at
December 31, 2008. During 2008, the Company was party to
certain commodity price forward contracts pertaining to raw
materials, which were not significant. These forward contracts
were acquired as a part of a 2008 acquisition. At
December 31, 2007, the Company was party to certain foreign
currency forward contracts, which were not significant. These
forward contracts were acquired as a part of a 2007 acquisition.
In instances where transactions are designated as hedges of an
underlying item, the gains and losses on those transactions are
included in accumulated other comprehensive income
(AOCI) within stockholders equity to the
extent they are effective as hedges. The Company has designated
certain foreign-currency-denominated long-term debt as hedges of
the net investment in certain foreign operations. These net
investment hedges are the Companys
British-pound-denominated long-term debt and Euro-denominated
long-term debt, pertaining to certain European acquisitions
whose functional currencies are either the British pound or the
Euro. These acquisitions were financed by
foreign-currency-denominated borrowings under the Companys
revolving credit facility and all but 40 million British
pounds ($58.4 million) at December 31, 2008 was
subsequently refinanced with long-term private placement debt.
These borrowings were designed to create net investment hedges
in each of the foreign subsidiaries on their respective dates of
acquisition. Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), permits hedging the foreign
currency exposure of a net investment in a foreign operation. In
accordance with SFAS 133, on the respective dates of
acquisition, the Company designated the British pound- and
Euro-denominated loans referred to above as hedging instruments
to offset foreign exchange gains or losses on the net investment
in the acquired business due to changes in the British pound and
Euro exchange rates. These net investment hedges were evidenced
by managements documentation supporting the
contemporaneous hedge designation on the acquisition dates. As
required by SFAS 133, any gain or loss on the hedging
instrument following hedge designation (the debt), is reported
in AOCI in the same manner as the translation adjustment on the
investment based on changes in the spot rate, which is used to
measure hedge effectiveness. As of December 31, 2008 and
2007, all net investment hedges were effective. At
December 31, 2008, the translation losses on the net
carrying value of the foreign-currency-denominated investments
exceeded the translation gains on the carrying value of the
underlying debt and the difference is included in AOCI. At
December 31, 2007, the translation gains on the net
carrying value of the foreign-currency-denominated investments
exceeded the translation losses on the carrying value of the
underlying debt and the difference is included in AOCI. An
evaluation of hedge effectiveness is performed by the Company on
an ongoing basis and any changes in the hedge are made as
appropriate.
At December 31, 2008 and 2007, the Company had
$189.7 million and $178.8 million, respectively, of
British pound-denominated loans, which are designated as a hedge
against the net investment in foreign subsidiaries acquired in
2008, 2004 and 2003. At December 31, 2008 and 2007, the
Company had $69.8 million and $73.0 million,
respectively, of Euro-denominated loans, which were designated
as a hedge against the net investment in a foreign subsidiary
acquired in 2005. As a result of these British pound- and
Euro-denominated loans being designated and effective as net
investment hedges, $55.6 million of currency gains and
$9.6 million of currency losses have been included in the
foreign currency translation component of other comprehensive
income at December 31, 2008 and 2007, respectively.
48
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
The Company accounts for share-based payments in accordance with
SFAS No. 123(R), Share-Based Payment
(SFAS 123R). Accordingly, the Company
expenses the fair value of awards made under its share-based
plans. That cost is recognized in the consolidated financial
statements over the requisite service period of the grants. See
Note 9.
Goodwill
and Other Intangible Assets
The Company accounts for purchased goodwill and other intangible
assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets (SFAS 142).
Under SFAS 142, purchased goodwill and intangible assets
with indefinite lives, primarily trademarks and trade names, are
not amortized; rather, they are tested for impairment at least
annually.
Intangible assets, other than goodwill, with definite lives are
amortized over their estimated useful lives. Patents are being
amortized over useful lives of four to 20 years. Customer
relationships are being amortized over a period of two to
20 years. Miscellaneous other intangible assets are being
amortized over a period of 13 to 20 years. The Company
periodically evaluates the reasonableness of the estimated
useful lives of these intangible assets.
In order to test goodwill and intangible assets with indefinite
lives for impairment under SFAS 142, a determination of the
fair value of the Companys reporting units and its other
intangible assets with indefinite lives is required and is based
upon, among other things, estimates of future operating
performance. Changes in market conditions, among other factors,
may have an impact on these estimates. The Company completed its
required annual impairment tests in the fourth quarter of 2008,
2007 and 2006 and determined that the carrying values of
goodwill and other intangible assets with indefinite lives were
not impaired.
Income
Taxes
The Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. As a result
of the adoption of FIN 48, the Company recorded a
$4.7 million increase in liabilities associated with
unrecognized tax benefits, including interest and penalties of
$2.4 million, a decrease of $1.2 million in goodwill
related to a previous business combination and a
$5.9 million charge to the January 1, 2007, opening
balance of retained earnings. The Company recognizes interest
and penalties accrued related to uncertain tax positions in
income tax expense.
The Companys annual provision for income taxes and
determination of the related balance sheet accounts requires
management to assess uncertainties, make judgments regarding
outcomes and utilize estimates. The Company conducts a broad
range of operations around the world and is therefore subject to
complex tax regulations in numerous international taxing
jurisdictions, resulting at times in tax audits, disputes and
potential litigation, the outcome of which is uncertain.
Management must make judgments currently about such
uncertainties and determine estimates of the Companys tax
assets and liabilities. To the extent the final outcome differs,
future adjustments to the Companys tax assets and
liabilities may be necessary.
The Company also is required to assess the realizability of its
deferred tax assets, taking into consideration the
Companys forecast of future taxable income, available net
operating loss carryforwards and available tax planning
strategies that could be implemented to realize the deferred tax
assets. Based on this assessment, management must evaluate the
need for, and amount of, valuation allowances against the
Companys deferred tax assets. To the extent facts and
circumstances change in the future, adjustments to the valuation
allowances may be required.
|
|
2.
|
Recently
Issued Financial Accounting Standards
|
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS 157). In February 2008, the FASB
issued FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, which
49
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides a one year deferral of the effective date of
SFAS 157 for fair value measurements of nonfinancial assets
and nonfinancial liabilities, except for items recognized or
disclosed at fair value on a non-recurring basis (at least
annually). The deferral applies to fair value in goodwill
impairment testing, indefinite-lived intangible assets measured
at fair value for impairment testing, asset retirement
obligations initially measured at fair value, and nonfinancial
assets and nonfinancial liabilities initially measured at fair
value in a business combination. Therefore, the Company has
adopted the provisions of SFAS 157 with respect to its
financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value
under U.S. GAAP and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
SFAS 157 establishes a valuation hierarchy for disclosure
of the inputs to the valuation used to measure fair value. This
hierarchy prioritizes the inputs into three broad levels as
follows. Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on
the Companys own assumptions used to measure assets and
liabilities at fair value. A financial asset or liabilitys
classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
At December 31, 2008, $0.3 million of the
Companys cash and cash equivalents and $4.2 million
of marketable securities are valued as level 1 investments.
The Company held $8.5 million valued as level 2
investments in the investments and other assets line of the
consolidated balance sheet. For the year ended December 31,
2008, gains and losses on the investments noted above were not
material.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141R). This
statement significantly changes the financial accounting and
reporting of business combination transactions in the
Companys consolidated financial statements. SFAS 141R
is effective for fiscal years beginning after December 15,
2008 and prohibits early adoption. Upon adoption, SFAS 141R
will not have a significant impact on the Companys
consolidated results of operations, financial position or cash
flows. However, depending on the nature of an acquisition or the
quantity of acquisitions entered into after the adoption,
SFAS 141R may significantly impact the Companys
consolidated results of operations, financial position or cash
flows when compared to acquisitions accounted for under existing
U.S. GAAP and result in more earnings volatility and
generally lower earnings due to, among other items, the
expensing of deal costs and restructuring costs of acquired
companies.
In November 2008, the FASB ratified the consensus reached in
Emerging Issues Task Force (EITF) Issue
No. 08-7,
Accounting for Defensive Intangible Assets
(EITF 08-7).
EITF 08-7
clarifies how to account for acquired defensive intangible
assets subsequent to initial measurement under SFAS 141R
that the Company does not intend to actively use but does intend
to hold to prevent others from obtaining access to the asset.
EITF 08-7
is effective for fiscal years beginning after December 15,
2008, along with SFAS 141R. The Company has evaluated
EITF 08-7
and does not expect the adoption of
EITF 08-7
to have a material impact on its consolidated results of
operations, financial position or cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 significantly
changes the accounting for and reporting of noncontrolling
(minority) interests in the Companys consolidated
financial statements. SFAS 160 is effective for fiscal
years beginning after December 15, 2008 and prohibits early
adoption. The Company does not expect the adoption of
SFAS 160 to have an impact on its consolidated results of
operations, financial position or cash flows.
50
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2008, the FASB issued FASB Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. FSP
FAS 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of
the asset under SFAS 141R, and other U.S. GAAP. FSP
FAS 142-3
applies to all intangible assets and is effective for financial
statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. The Company has evaluated FSP
FAS 142-3
and does not expect the adoption of FSP
FAS 142-3
to have a material impact on its consolidated results of
operations, financial position or cash flows.
3. Fourth
Quarter of 2008 Restructuring Charges and Asset
Write-Downs
During the fourth quarter of 2008, the Company recorded pre-tax
charges totaling $40.0 million, which had the effect of
reducing net income by $27.3 million ($0.25 per diluted
share). These charges include restructuring costs for employee
reductions and facility closures ($32.6 million), as well
as asset write-downs ($7.4 million). Of the
$40.0 million in charges, $32.9 million of the
restructuring charges and asset write-downs were recorded in
cost of sales and $7.1 million of the restructuring charges
and asset write-downs were recorded in Selling, general and
administrative expenses. The restructuring charges and asset
write-downs were reported in segment operating income as
follows: $20.4 million in EIG, $19.4 million in EMG
and $0.2 million in Corporate administrative and other
expenses. The restructuring costs for employee reductions and
facility closures relate to plans established by the Company in
2008 as part of cost reduction initiatives to be broadly
implemented across the Companys various businesses during
fiscal 2009. The restructuring costs resulted from the
consolidation of manufacturing facilities, the migration of
production to low cost locales and a general reduction in
workforce in response to lower levels of expected sales volumes
in certain for the Companys businesses. The Company
recorded pre-tax charges of $30.1 million for severance
costs for slightly more than 10% of the Companys
workforce. The Company also recorded pre-tax charges of
$1.5 million for lease termination costs associated with
the closure of certain facilities in 2009. Substantially all of
the payments for employee severance and lease termination costs
are expected to made in 2009.
The following table provides a rollforward of the accruals
established in the fourth quarter of 2008 for restructuring
charges and asset write-downs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
Asset
|
|
|
|
|
|
|
Severance
|
|
|
Closures
|
|
|
Write-Downs
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Restructuring accruals at December 31, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pre-tax charges
|
|
|
30.1
|
|
|
|
2.5
|
|
|
|
7.4
|
|
|
|
40.0
|
|
Utilization
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
(7.4
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring accruals at December 31, 2008
|
|
$
|
30.1
|
|
|
$
|
1.5
|
|
|
$
|
|
|
|
$
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fourth quarter of 2008 severance charge was recorded in
accordance with SFAS No. 112, Employers
Accounting for Postemployment Benefits
(SFAS 112). SFAS 112 is applicable to
all types of postemployment benefits, which constitute an
ongoing benefit arrangement, including, but not limited to,
salary continuation, supplemental unemployment benefits,
severance benefits, job training, counseling and continuation of
benefits such as health care benefits and life insurance
coverage. Under SFAS 112, costs associated with such
ongoing benefit arrangements are recorded no later than the
period when it becomes probable that the costs will be incurred
and the costs are reasonably estimable.
51
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company spent a total of approximately $463.0 million
in cash, net of cash acquired, for six acquisitions and one
small technology line in 2008. The acquisitions include Drake
Air (Drake) and Motion Control Group
(MCG) in February 2008, Reading Alloys in April
2008, Vision Research, Inc. in June 2008, the programmable power
business of Xantrex Technology, Inc. (Xantrex
Programmable) in August 2008 and Muirhead Aerospace
Limited (Muirhead) in November 2008. Drake is a
provider of heat-transfer repair services to the commercial
aerospace industry and further expands the Companys
presence in the global aerospace maintenance, repair and
overhaul (MRO) services industry. MCG is a leading
global manufacturer of highly customized motors and motion
control solutions for the medical, life sciences, industrial
automation, semiconductor and aviation markets. MCG enhances the
Companys capability in providing precision motion
technology solutions. Reading Alloys is a global leader in
specialty titanium master alloys and highly engineered metal
powders used in the aerospace, medical implant, military and
electronics markets. Vision Research is a leading manufacturer
of high-speed digital imaging systems used for motion capture
and analysis in numerous test and measurement applications.
Xantrex Programmable is a leader in alternating current and
direct current programmable power supplies used to test
electrical and electronic products. Muirhead is a leading
manufacturer of motion technology products and a provider of
avionics repair and overhaul services for the aerospace and
defense markets. Drake, MCG, Reading Alloys and Muirhead are
part of the Companys Electromechanical Group
(EMG) and Vision Research and Xantrex Programmable
are part of the Companys Electronic Instruments Group
(EIG). The six businesses acquired have annualized
sales of approximately $290 million.
The acquisitions have been accounted for using the purchase
method in accordance with SFAS No. 141, Business
Combinations. Accordingly, the operating results of the
above acquisitions have been included in the Companys
consolidated results from the respective dates of acquisition.
The following table represents the tentative allocation of the
aggregate purchase price for the net assets of the above
acquisitions based on their estimated fair value:
|
|
|
|
|
|
|
(In millions)
|
|
|
Property, plant and equipment
|
|
$
|
26.2
|
|
Goodwill
|
|
|
271.1
|
|
Other intangible assets
|
|
|
136.7
|
|
Net working capital and other
|
|
|
29.0
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
463.0
|
|
|
|
|
|
|
The amount allocated to goodwill is reflective of the benefits
the Company expects to realize from the acquisitions as follows:
The Drake acquisition further expands the Companys
position in the third-party aerospace MRO market. The MCG
acquisition is a strategic fit with the Companys highly
differentiated technical motors business, sharing common
markets, customers, distribution channels and motor platforms.
The Reading Alloys acquisition expands the Companys
position in customized titanium products, adding to its
capabilities in strip and foil products used in medical devices,
electronic components and aerospace instruments. In addition,
Reading Alloys metal powder production techniques
complement the Companys existing gas and water atomization
capabilities. The Vision Research acquisition provides
opportunities for growth in high-speed digital imaging and
serves a number of the Companys markets, including
aerospace and defense, general industrial, and research and
development. The Xantrex Programmable acquisition significantly
expands the Companys position in the niche market for
programmable power sources and provides the Company with further
opportunities for growth in the electronic test and measurement
equipment market. The Muirhead acquisition expands the
Companys penetration in motion control products for the
aerospace and defense markets, including actuators and other
specialized linear motors, complementing our existing technical
motor capabilities. No goodwill recorded as a part of the 2008
acquisitions will be deductible in future years for tax purposes.
52
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is in the process of conducting third-party
valuations of certain tangible and intangible assets acquired,
as well as finalizing restructuring plans for certain
acquisitions. Adjustments to the allocation of purchase price
will be recorded when this information is finalized. Therefore,
the allocation of the purchase price is subject to revision.
The valuations for the $136.7 million preliminarily
assigned to other intangible assets, related to the 2008
acquisitions, currently are being finalized by third-party
appraisers. In connection with the finalization of the 2007
acquisitions, $109.1 million was assigned to intangible
assets, which consisted primarily of patents, technology,
customer relationships and trade names with estimated lives
ranging from six to 20 years.
In 2007, the Company spent $300.6 million in cash, net of
cash acquired, for seven acquisitions and one small technology
line. The acquisitions include Seacon Phoenix, subsequently
renamed AMETEK SCP, Inc. (SCP), in April 2007,
Advanced Industries, Inc. (Advanced), B&S
Aircraft Parts and Accessories (B&S) and
Hamilton Precision Metals (Hamilton) in June 2007,
Cameca SAS (Cameca) in August 2007, the
Repair & Overhaul Division of Umeco plc (Umeco
R&O) in November 2007 and California Instruments
Corporation (California Instruments) in December
2007. SCP provides undersea electrical interconnect subsystems
to the global submarine market. Advanced manufactures starter
generators, brush and brushless motors, vane-axial centrifugal
blowers for cabin ventilation and linear actuators for the
business jet, light jet and helicopter markets. B&S
provides third-party MRO services, primarily for starter
generators and hydraulic and fuel system components, for a
variety of business aircraft and helicopter applications.
Hamilton produces highly differentiated niche specialty metals
used in medical implant devices and surgical instruments,
electronic components and measurement devices for aerospace and
other industrial markets. Cameca is a manufacturer of high-end
elemental analysis systems used in advanced laboratory research,
semiconductor and nanotechnology applications. Umeco R&O
provides third-party MRO services for a variety of helicopters
and commercial and regional aircraft throughout Europe.
California Instruments is a leader in the niche market for
programmable alternating current (AC) power sources
used to test electrical and electronic products, with an
especially strong position in the high-power segment. Advanced,
B&S, Cameca and California Instruments are part of EIG and
SCP, Hamilton and Umeco R&O are part of EMG.
Had the 2008 acquisitions been made at the beginning of 2008,
unaudited pro forma net sales, net income and diluted earnings
per share for the year ended December 31, 2008 would not
have been materially different than the amounts reported.
Had the 2008 acquisitions and the 2007 acquisitions been made at
the beginning of 2007, unaudited pro forma net sales, net income
and diluted earnings per share would have been as follows:
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
(In millions, except per share amount)
|
|
|
Net sales
|
|
$
|
2,571.0
|
|
Net income
|
|
$
|
245.7
|
|
Diluted earnings per share
|
|
$
|
2.28
|
|
Pro forma results are not necessarily indicative of the results
that would have occurred if the acquisitions had been completed
at the beginning of 2007.
In 2006, the Company spent $177.6 million, net of cash
acquired, for five new businesses and two small technology
lines. The businesses acquired included Pulsar Technologies,
Inc. (Pulsar) in February 2006, PennEngineering
Motion Technologies, Inc. (Pittman) in May 2006,
Land Instruments International Limited (Land
Instruments) in June 2006, Precitech in November 2006 and
Southern Aeroparts, Inc. (SAI) in December 2006.
Pulsar is a leading designer and manufacturer of specialized
communications equipment for the electric utility market.
Pittman is a leading designer and manufacturer of highly
engineered motors. Land Instruments is a global supplier of
high-end analytical instrumentation. Precitech is a leading
manufacturer of ultraprecision machining systems for a variety
of markets, including nanotechnology, military, defense and
ophthalmic. SAI is a provider of third-party
53
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
maintenance, repair and overhaul services to the commercial
aerospace industry. Pittman and SAI are part of EMG and Pulsar,
Land Instruments and Precitech are part of EIG.
Acquisitions
Subsequent to Year End
On January 20, 2009, the Company announced the acquisition
of High Standard Aviation, a provider of electrical and
electromechanical, hydraulic and pneumatic repair services to
the aerospace industry. High Standard Aviation broadens the
global footprint of AMETEKs aerospace MRO business. High
Standard Aviation, with annual sales of approximately
$31 million, will be part of AMETEKs
Electromechanical Group.
|
|
5.
|
Goodwill
and Other Intangible Assets
|
The changes in the carrying amounts of goodwill by segment were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIG
|
|
|
EMG
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at December 31, 2006
|
|
$
|
531.7
|
|
|
$
|
349.7
|
|
|
$
|
881.4
|
|
Goodwill acquired during the year
|
|
|
84.2
|
|
|
|
86.3
|
|
|
|
170.5
|
|
Purchase price allocation adjustments and other*
|
|
|
(9.2
|
)
|
|
|
(12.8
|
)
|
|
|
(22.0
|
)
|
Foreign currency translation adjustments
|
|
|
15.3
|
|
|
|
0.5
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
622.0
|
|
|
|
423.7
|
|
|
|
1,045.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during the year
|
|
|
164.6
|
|
|
|
106.5
|
|
|
|
271.1
|
|
Purchase price allocation adjustments and other*
|
|
|
(4.1
|
)
|
|
|
(2.0
|
)
|
|
|
(6.1
|
)
|
Foreign currency translation adjustments
|
|
|
(45.3
|
)
|
|
|
(25.3
|
)
|
|
|
(70.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
737.2
|
|
|
$
|
502.9
|
|
|
$
|
1,240.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Purchase price allocation adjustments reflect final purchase
price allocations and revisions to certain preliminary
allocations for recent acquisitions, which include
reclassifications between goodwill and other intangible assets. |
54
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other intangible assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Definite-lived intangible assets (subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
51,021
|
|
|
$
|
37,037
|
|
Purchased technology
|
|
|
69,041
|
|
|
|
34,865
|
|
Customer lists
|
|
|
203,335
|
|
|
|
118,047
|
|
Other acquired intangibles
|
|
|
38,441
|
|
|
|
55,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
361,838
|
|
|
|
245,002
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(25,250
|
)
|
|
|
(24,220
|
)
|
Purchased technology
|
|
|
(22,870
|
)
|
|
|
(21,717
|
)
|
Customer lists
|
|
|
(23,331
|
)
|
|
|
(12,361
|
)
|
Other acquired intangibles
|
|
|
(26,468
|
)
|
|
|
(26,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,919
|
)
|
|
|
(84,903
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to amortization
|
|
|
263,919
|
|
|
|
160,099
|
|
Indefinite-lived intangible assets (not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
177,866
|
|
|
|
152,250
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
441,785
|
|
|
$
|
312,349
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $17.5 million, $10.4 million
and $7.0 million for the years ended December 31,
2008, 2007 and 2006, respectively. Amortization expense for each
of the next five years is expected to approximate
$20.8 million per year, not considering the impact of
potential future acquisitions.
55
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Other
Consolidated Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
66,416
|
|
|
$
|
52,206
|
|
Work in process
|
|
|
81,282
|
|
|
|
86,858
|
|
Raw materials and purchased parts
|
|
|
201,811
|
|
|
|
162,615
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
349,509
|
|
|
$
|
301,679
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
27,342
|
|
|
$
|
28,720
|
|
Buildings
|
|
|
199,696
|
|
|
|
195,888
|
|
Machinery and equipment
|
|
|
612,474
|
|
|
|
592,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
839,512
|
|
|
|
817,558
|
|
Less: Accumulated depreciation
|
|
|
(531,604
|
)
|
|
|
(524,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
307,908
|
|
|
$
|
293,107
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Accrued employee compensation and benefits
|
|
$
|
59,915
|
|
|
$
|
56,171
|
|
Severance and lease termination accruals
|
|
|
46,863
|
|
|
|
17,606
|
|
Other
|
|
|
86,906
|
|
|
|
96,361
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193,684
|
|
|
$
|
170,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS AND
NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
$
|
6,393
|
|
|
$
|
7,387
|
|
|
$
|
7,581
|
|
Additions charged to expense
|
|
|
5,648
|
|
|
|
663
|
|
|
|
1,511
|
|
Recoveries credited to allowance
|
|
|
10
|
|
|
|
22
|
|
|
|
182
|
|
Write-offs
|
|
|
(2,878
|
)
|
|
|
(2,122
|
)
|
|
|
(501
|
)
|
Currency translation adjustments and other
|
|
|
(684
|
)
|
|
|
443
|
|
|
|
(1,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
8,489
|
|
|
$
|
6,393
|
|
|
$
|
7,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
U.S. dollar 7.20% senior notes due July 2008
|
|
$
|
|
|
|
$
|
225,000
|
|
U.S. dollar 6.59% senior notes due September 2015
|
|
|
90,000
|
|
|
|
|
|
U.S. dollar 6.69% senior notes due December 2015
|
|
|
35,000
|
|
|
|
|
|
U.S. dollar 6.20% senior notes due December 2017
|
|
|
270,000
|
|
|
|
270,000
|
|
U.S. dollar 6.35% senior notes due July 2018
|
|
|
80,000
|
|
|
|
|
|
U.S. dollar 7.08% senior notes due September 2018
|
|
|
160,000
|
|
|
|
|
|
U.S. dollar 7.18% senior notes due December 2018
|
|
|
65,000
|
|
|
|
|
|
U.S. dollar 6.30% senior notes due December 2019
|
|
|
100,000
|
|
|
|
100,000
|
|
British pound 5.96% senior note due September 2010
|
|
|
72,960
|
|
|
|
99,340
|
|
British pound floating-rate term note due through December 2010
(3.52% at December 31, 2008)
|
|
|
16,416
|
|
|
|
24,339
|
|
Euro 3.94% senior note due August 2015
|
|
|
69,842
|
|
|
|
72,993
|
|
British pound 5.99% senior note due November 2016
|
|
|
58,369
|
|
|
|
79,480
|
|
Revolving credit loan
|
|
|
65,569
|
|
|
|
|
|
Other, principally foreign
|
|
|
28,525
|
|
|
|
31,806
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,111,681
|
|
|
|
902,958
|
|
Less: Current portion
|
|
|
(18,438
|
)
|
|
|
(236,005
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,093,243
|
|
|
$
|
666,953
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt outstanding at December 31,
2008 were as follows: $89.9 million in 2010;
$1.4 million in 2011; $61.3 million in 2012;
$1.9 million in 2013; $1.2 million in 2014; and
$937.6 million in 2015 and thereafter.
In July 2008, the Company repaid the $225 million
7.20% senior notes due July 2008 using the proceeds from
borrowings under its existing revolving credit facility.
In the third quarter of 2008, the Company completed a private
placement agreement to sell $350 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in September
2008 for $250 million, consisting of $90 million in
aggregate principal amount of 6.59% senior notes due
September 2015 and $160 million in aggregate principal
amount of 7.08% senior notes due September 2018. The second
funding date occurred in December 2008 for $100 million,
consisting of $35 million in aggregate principal amount of
6.69% senior notes due December 2015 and $65 million
in aggregate principal amount of 7.18% senior notes due
December 2018. The senior notes carry a weighted average
interest rate of 6.93%. The proceeds from the senior notes were
used to pay down a portion of the Companys revolving
credit facility.
In the third quarter of 2007, the Company completed a private
placement agreement to sell $450 million in senior notes to
a group of institutional investors. There were two funding dates
for the senior notes. The first funding occurred in December
2007 for $370 million, consisting of $270 million in
aggregate principal amount of 6.20% senior notes due
December 2017 and $100 million in aggregate principal
amount of 6.30% senior notes due December 2019. The second
funding occurred in July 2008 for $80 million in aggregate
principal amount of 6.35% senior notes due July 2018. The
notes carry a weighted average interest rate of 6.25%. The
proceeds from the first funding of the notes were used to pay
down the Companys revolving credit facility, which
included a foreign
57
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
portion related to the 2007 acquisition of Cameca and the 2006
acquisition of Land Instruments, as well as borrowings
outstanding under the Companys accounts receivable
securitization program. Additionally, the proceeds from the
private placement were used to purchase California Instruments
in December 2007. The proceeds from the second funding of the
notes were used to pay down a portion of the Companys
revolving credit facility.
At December 31, 2008, the Company has an outstanding
11.3 million British pound ($16.4 million at
December 31, 2008) 3.52% (London Interbank Offered
Rate (LIBOR) plus 0.69%) floating-rate term loan
with annual installment payments due through December 2010. In
September 2005, the Company issued a 50 million Euro
($69.8 million at December 31,
2008) 3.94% senior note due August 2015. In November
2004, the Company issued a 40 million British pound
($58.4 million at December 31,
2008) 5.99% senior note due in November 2016. In
September 2003, the Company issued a 50 million British
pound ($73.0 million at December 31,
2008) 5.96% senior note due in September 2010.
The Company has an accounts receivable securitization facility
agreement with a wholly owned, special-purpose subsidiary and
the special-purpose subsidiary has a receivables sale agreement
with a bank, whereby it can sell to a third party up to
$100.0 million of its trade accounts receivable on a
revolving basis. The securitization facility is a financing
vehicle utilized by the Company because it can offer attractive
rates relative to other financing sources. When borrowings are
outstanding under the facility, all securitized accounts
receivable and related debt are reflected on the Companys
consolidated balance sheet.
The special-purpose subsidiary is the servicer of the accounts
receivable under the securitization facility. The accounts
receivable securitization facility was amended and restated in
May 2008, extending the expiration date from May 2008 to May
2009, and bringing the borrowing capacity to $100 million,
from $110 million previously. The Company intends to renew
the securitization facility on an annual basis. Interest rates
on amounts drawn down are based on prevailing market rates for
short-term commercial paper plus a program fee. The Company also
pays a commitment fee on any unused commitments under the
securitization facility. The Companys accounts receivable
securitization is accounted for as a secured borrowing under
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.
At December 31, 2008 and 2007, the Company had no
borrowings outstanding on the accounts receivable
securitization. Interest expense under this facility is not
significant. The weighted average interest rate when borrowings
were outstanding under the accounts receivable securitization
during 2008 and 2007 was 3.6% and 5.7%, respectively.
In June 2007, the Company amended its revolving credit facility,
increasing the total borrowing capacity from $400 million
to $550 million, which includes an accordion feature that
permits the Company to request up to an additional
$100 million in revolving credit commitments at any time
during the life of the revolving credit agreement under certain
conditions. The amendment also extended the term of the facility
from October 2011 to June 2012.
The revolving credit facility places certain restrictions on
allowable additional indebtedness. At December 31, 2008,
the Company had available borrowing capacity of
$468.9 million under its $550 million revolving bank
credit facility, which includes an accordion feature allowing
$100 million of additional borrowing capacity.
Interest rates on outstanding loans under the revolving credit
facility are at the applicable LIBOR rate plus a negotiated
spread, or at the U.S. prime rate. At December 31,
2008, the Company had $65.6 million borrowings outstanding
under the revolving credit facility, of which $58.4 million
related to 40 million of British pounds borrowings under
the revolver. At December 31, 2007, the Company had no
borrowings outstanding under the revolving credit facility. The
weighted average interest rate on the revolving credit facility
for the years ended December 31, 2008 and 2007 was 2.81%
and 5.82%, respectively. The Company had outstanding letters of
credit totaling $15.5 million and $24.7 million at
December 31, 2008 and 2007, respectively.
58
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The private placement, the floating-rate term loan, the senior
notes, the revolving credit facility and the accounts receivable
securitization are subject to certain customary covenants,
including financial covenants that, among other things, require
the Company to maintain certain
debt-to-EBITDA
and interest coverage ratios.
Foreign subsidiaries of the Company had available credit
facilities with local foreign lenders of $51.0 million at
December 31, 2008. Foreign subsidiaries had debt
outstanding at December 31, 2008 totaling
$44.9 million, including $33.7 million reported in
long-term debt.
The weighted average interest rate on total debt outstanding at
December 31, 2008 and 2007 was 6.2% and 6.3%, respectively.
On both January 24, 2008 and July 23, 2008, the Board
of Directors authorized increases of $50 million for the
repurchase of common stock for a total of $100 million in
2008. These increases were added to the $25.9 million that
remained available at December 31, 2007 from an existing
$50 million authorization approved in March 2003. In 2008,
the Company repurchased approximately 1,263,000 shares of
common stock for $57.4 million in cash under its current
share repurchase authorization. In 2007, the Company used cash
of $5.4 million for the repurchase of approximately
144,000 shares of common stock. At December 31, 2008,
$68.5 million of the current share repurchase authorization
remained available. At December 31, 2008, the Company held
3.5 million shares in its treasury at a cost of
$92.0 million, compared with 2.4 million shares at a
cost of $39.3 million at December 31, 2007. The number
of shares outstanding at December 31, 2008 was
106.7 million shares, compared with 107.4 million
shares at December 31, 2007.
The Company has a Shareholder Rights Plan, under which the
Companys Board of Directors declared a dividend of one
Right for each share of Company common stock owned at the close
of business on June 2, 2007, and has authorized the
issuance of one Right for each share of Common Stock of the
Company issued between the Record Date and the Distribution
Date. The Plan provides, under certain conditions involving
acquisition of the Companys common stock, that holders of
Rights, except for the acquiring entity, would be entitled
(i) to purchase shares of preferred stock at a specified
exercise price, or (ii) to purchase shares of common stock
of the Company, or the acquiring company, having a value of
twice the Rights exercise price. The Rights under the Plan
expire in June 2017.
|
|
9.
|
Share-Based
Compensation
|
Under the terms of the Companys stockholder-approved
share-based plans, incentive and non-qualified stock options and
restricted stock awards have been, and may be, issued to the
Companys officers, management-level employees and members
of its Board of Directors. In 2007, the Board of Directors and
the Companys stockholders approved the 2007 Omnibus
Incentive Compensation Plan, which permits the issuance of up to
3.5 million shares of Company common stock. Employee and
non-employee director stock options generally vest at a rate of
25% per year, beginning one year from the date of the grant, and
restricted stock awards generally have a four-year cliff
vesting. Options primarily have a maximum contractual term of
seven years. At December 31, 2008, 8.0 million shares
of Company common stock were reserved for issuance under the
Companys share-based plans, including 4.0 million
shares for stock options outstanding.
The Company issues previously unissued shares when options are
exercised and shares are issued from treasury stock upon the
award of restricted stock.
The Company follows the provisions of SFAS 123R.
SFAS 123R requires companies to measure and record
compensation expense related to all stock awards by recognizing
the grant date fair value of the awards over their requisite
service periods in the financial statements. For grants under
any of the Companys plans that are subject to graded
vesting over a service period, the Company recognizes expense on
a straight-line basis over the requisite service period for the
entire award.
59
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected stock volatility
|
|
|
18.4
|
%
|
|
|
22.4
|
%
|
|
|
24.4
|
%
|
Expected life of the options (years)
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
4.8
|
|
Risk-free interest rate
|
|
|
2.60
|
%
|
|
|
4.53
|
%
|
|
|
4.71
|
%
|
Expected dividend yield
|
|
|
0.49
|
%
|
|
|
0.66
|
%
|
|
|
0.50
|
%
|
Black-Scholes-Merton fair value per option granted
|
|
$
|
9.58
|
|
|
$
|
9.58
|
|
|
$
|
9.55
|
|
Expected stock volatility is based on the historical volatility
of the Companys stock. The Company used historical
exercise data to estimate the options expected life, which
represents the period of time that the options granted are
expected to be outstanding. Management anticipates that the
future option holding periods will be similar to the historical
option holding periods. The risk-free interest rate for periods
within the contractual life of the option is based on the
U.S. Treasury yield curve at the time of grant.
Compensation expense recognized for all share-based awards is
net of estimated forfeitures. The Companys estimated
forfeiture rates are based on its historical experience.
Total share-based compensation expense recognized under
SFAS 123R was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Stock option expense
|
|
$
|
6,300
|
|
|
$
|
5,884
|
|
|
$
|
5,541
|
|
Restricted stock expense
|
|
|
13,886
|
|
|
|
9,646
|
|
|
|
6,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax expense
|
|
|
20,186
|
|
|
|
15,530
|
|
|
|
12,441
|
|
Related tax benefit
|
|
|
(3,990
|
)
|
|
|
(4,180
|
)
|
|
|
(3,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income
|
|
$
|
16,196
|
|
|
$
|
11,350
|
|
|
$
|
9,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax 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.
60
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the Companys stock option
activity and related information for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Intrinsic Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(Years)
|
|
|
(In millions)
|
|
|
Outstanding at the beginning of the year
|
|
|
3,806
|
|
|
$
|
23.05
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
713
|
|
|
|
48.60
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(439
|
)
|
|
|
17.57
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(45
|
)
|
|
|
36.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
4,035
|
|
|
$
|
28.01
|
|
|
|
3.6
|
|
|
$
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
2,423
|
|
|
$
|
19.80
|
|
|
|
2.4
|
|
|
$
|
26.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options exercised during 2008,
2007 and 2006 was $13.3 million, $32.2 million and
$17.6 million, respectively. The total fair value of the
stock options vested during 2008, 2007 and 2006 was
$5.6 million, $5.7 million and $5.7 million,
respectively.
The following is a summary of the status of the Companys
nonvested options outstanding for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested options outstanding at the beginning of the year
|
|
|
1,678
|
|
|
$
|
8.37
|
|
Granted
|
|
|
713
|
|
|
|
9.58
|
|
Vested
|
|
|
(734
|
)
|
|
|
7.57
|
|
Forfeited
|
|
|
(45
|
)
|
|
|
6.97
|
|
|
|
|
|
|
|
|
|
|
Nonvested options outstanding at the end of the year
|
|
|
1,612
|
|
|
$
|
9.39
|
|
|
|
|
|
|
|
|
|
|
Expected future pre-tax compensation expense relating to the
1.6 million nonvested options outstanding as of
December 31, 2008 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 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 May 19, 2008, the
April 27, 2005 grant of 706,605 shares of restricted
stock vested under this accelerated vesting provision. The
pre-tax charge to income due to the accelerated vesting of these
shares was $7.8 million ($7.3 million net after-tax
charge) for the year ended December 31, 2008. On
February 20, 2007, July 9, 2007 and October 2,
2007, an aggregate of 472,612 shares of restricted stock
vested under this accelerated vesting provision. The charge to
income due to the accelerated vesting of these shares did not
have a material impact on the Companys earnings for the
year ended December 31, 2007.
61
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the status of the Companys
nonvested restricted stock outstanding for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested restricted stock outstanding at the beginning of the
year
|
|
|
1,133
|
|
|
$
|
28.77
|
|
Granted
|
|
|
204
|
|
|
|
48.38
|
|
Vested
|
|
|
(710
|
)
|
|
|
25.09
|
|
Forfeited
|
|
|
(19
|
)
|
|
|
38.65
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock outstanding at the end of the year
|
|
|
608
|
|
|
$
|
39.34
|
|
|
|
|
|
|
|
|
|
|
The total fair value of the restricted stock that vested during
2008 was $17.8 million and 2007 and 2006 were not material.
The weighted average fair value of restricted stock granted per
share during 2008 and 2007 was $48.38 and $36.89, respectively.
Expected future pre-tax compensation expense related to the
0.6 million nonvested restricted shares outstanding as of
December 31, 2008 is $14.5 million, which is expected
to be recognized over a weighted average period of approximately
three years.
Under a Supplemental Executive Retirement Plan
(SERP) in 2008, the Company reserved
27,154 shares of common stock. Reductions for retirements
and terminations were 137 shares in 2008. The total number
of shares of common stock reserved under the SERP was 282,132 as
of December 31, 2008. 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.
|
|
10.
|
Leases
and Other Commitments
|
Minimum aggregate rental commitments under noncancellable leases
in effect at December 31, 2008 (principally for production
and administrative facilities and equipment) amounted to
$74.1 million, consisting of payments of $15.3 million
in 2009, $11.8 million in 2010, $8.1 million in 2011,
$6.7 million in 2012, $4.6 million in 2013 and
$27.6 million thereafter. Rental expense was
$22.7 million in 2008, $19.1 million in 2007 and
$15.2 million in 2006. The leases expire over a range of
years from 2009 to 2082, 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 12 years, which
began July 2006, and is payable quarterly. Property, plant and
equipment as of December 31, 2008 includes a building of
$13.5 million, net of $1.6 million of accumulated
depreciation and land of $2.1 million related to this
capital lease. Amortization of the leased assets of
$0.7 million is included in 2008 depreciation expense.
Future minimum lease payments are estimated to be
$0.9 million in each of the years 2009 through 2013 and
$10.0 million thereafter, for total minimum lease payments
of $14.5 million, net of interest.
As of December 31, 2008 and 2007, the Company had
$219.9 million and $189.2 million, respectively, in
purchase obligations outstanding, which primarily consisted of
contractual commitments to purchase certain inventories at fixed
prices.
62
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income before income taxes and the details of
the provision for income taxes were as follows for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
260,464
|
|
|
$
|
244,550
|
|
|
$
|
197,718
|
|
Foreign
|
|
|
105,752
|
|
|
|
91,894
|
|
|
|
65,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
366,216
|
|
|
$
|
336,444
|
|
|
$
|
263,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
52,581
|
|
|
$
|
66,386
|
|
|
$
|
49,571
|
|
Foreign
|
|
|
29,889
|
|
|
|
28,929
|
|
|
|
26,632
|
|
State
|
|
|
7,052
|
|
|
|
8,340
|
|
|
|
6,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
89,522
|
|
|
|
103,655
|
|
|
|
82,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
28,920
|
|
|
|
4,751
|
|
|
|
(705
|
)
|
Foreign
|
|
|
(1,378
|
)
|
|
|
(2,036
|
)
|
|
|
(259
|
)
|
State
|
|
|
2,200
|
|
|
|
2,054
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
29,742
|
|
|
|
4,769
|
|
|
|
(524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
119,264
|
|
|
$
|
108,424
|
|
|
$
|
81,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of deferred tax (asset) liability were as
follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current deferred tax (asset) liability:
|
|
|
|
|
|
|
|
|
Reserves not currently deductible
|
|
$
|
(20,885
|
)
|
|
$
|
(19,056
|
)
|
Share-based compensation
|
|
|
(1,984
|
)
|
|
|
(1,223
|
)
|
Net operating loss carryforwards
|
|
|
(1,107
|
)
|
|
|
(107
|
)
|
Foreign tax credit carryforwards
|
|
|
(3,360
|
)
|
|
|
(3,106
|
)
|
Other
|
|
|
(3,583
|
)
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
(30,919
|
)
|
|
$
|
(23,294
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (asset) liability:
|
|
|
|
|
|
|
|
|
Differences in basis of property and accelerated depreciation
|
|
$
|
24,442
|
|
|
$
|
18,802
|
|
Reserves not currently deductible
|
|
|
(17,815
|
)
|
|
|
(18,066
|
)
|
Pensions
|
|
|
7,454
|
|
|
|
24,505
|
|
Differences in basis of intangible assets and accelerated
amortization
|
|
|
136,417
|
|
|
|
91,508
|
|
Net operating loss carryforwards
|
|
|
(11,950
|
)
|
|
|
(4,917
|
)
|
Share-based compensation
|
|
|
(9,084
|
)
|
|
|
(4,182
|
)
|
Other
|
|
|
4,268
|
|
|
|
4,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,732
|
|
|
|
112,033
|
|
Less: Valuation allowance
|
|
|
11,209
|
|
|
|
4,535
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax liability
|
|
|
144,941
|
|
|
|
116,568
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
114,022
|
|
|
$
|
93,274
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate of the provision for
income taxes reconciles to the U.S. Federal statutory rate
as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
1.5
|
|
|
|
1.9
|
|
|
|
1.6
|
|
Tax benefits from qualified export sales
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
Foreign operations, net*
|
|
|
(3.0
|
)
|
|
|
(4.6
|
)
|
|
|
(0.5
|
)
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Other
|
|
|
(0.9
|
)
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective tax rate
|
|
|
32.6
|
%
|
|
|
32.2
|
%
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes the effects of statutory tax rate reductions in Italy,
the United Kingdom and Germany during 2007. |
As of December 31, 2008, the Company had no provision for
U.S. deferred income taxes on the undistributed earnings of
its foreign subsidiaries, which total approximately
$295 million. If the Company were to distribute those
earnings to the United States, the Company would be subject to
U.S. income taxes based on the excess of the
U.S. statutory rate over statutory rates in the foreign
jurisdiction and withholding taxes payable to the various
foreign countries. Determination of the amount of the
unrecognized deferred income tax liability on these
undistributed earnings is not practicable.
64
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2008, the Company had tax benefits of
$13.1 million related to net operating loss carryforwards,
which will be available to offset future income taxes payable,
subject to certain annual or other limitations based on foreign
and U.S. tax laws. This amount includes net operating loss
carryforwards of $9.2 million for federal income tax
purposes with a valuation allowance of $8.4 million,
$2.7 million for state income tax purposes with a valuation
allowance of $1.6 million, and $1.2 million for
foreign locations with a full valuation allowance. These net
operating loss carryforwards, if not used, will expire between
2010 and 2031. As of December 31, 2008, the Company had
$3.4 million of U.S. foreign tax credit carryforwards.
The Company maintains a valuation allowance to reduce certain
deferred tax assets to amounts that are more likely than not to
be realized. This allowance primarily relates to the deferred
tax assets established for net operating loss carryforwards. In
2008, the Company recorded a net reduction in goodwill of
$0.7 million related to the utilization of net operating
loss carryforwards. The increase of $6.7 million in the
valuation allowance primarily relates to the impact of acquired
net operating losses.
As disclosed in Note 1, the Company adopted the provisions
of FIN 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2007. As a result of the adoption
of FIN 48, the Company recorded a $4.7 million
increase in liabilities associated with unrecognized tax
benefits, including interest and penalties of $2.4 million,
a decrease of $1.2 million in goodwill related to a
previous business combination and a $5.9 million charge to
the January 1, 2007, opening balance of retained earnings.
At December 31, 2008, the Company had gross unrecognized
tax benefits of $18.6 million, all of which would impact
the effective tax rate if recognized. At December 31, 2007,
the Company had gross unrecognized tax benefits of
$22.7 million, of which $21.6 million, if recognized,
would impact the effective tax rate.
The Company recognizes interest and penalties accrued related to
uncertain tax positions in income tax expense. At
December 31, 2008 and 2007, the Company reported
$2.3 million and $3.0 million, respectively, in the
aggregate related to interest and penalty exposure as accrued
income tax expense in the consolidated balance sheet. During
2008 and 2007, the Company recognized $0.8 million of
income and $1.5 million of expense, respectively, of
interest and penalties in the income statement.
The most significant tax jurisdiction for the Company is the
United States. The Company files income tax returns in various
state and foreign tax jurisdictions, in some cases for multiple
legal entities per jurisdiction. Generally, the Company has open
tax years subject to tax audit on average of between three and
six years in these jurisdictions. In 2008, the Internal Revenue
Service (IRS) completed the audit of the
Companys U.S. income tax returns for
1999-2004
and is currently examining the Companys U.S. income
tax returns for
2005-2007.
We are also under exam in Germany for
2004-2006.
The Company has not materially extended any other statutes of
limitation for any significant location and has reviewed and
accrued for, where necessary, tax liabilities for open periods.
Tax years in certain state and foreign jurisdictions remain
subject to examination; however the uncertain tax positions
related to these jurisdictions are not considered material. In
addition to the IRS and German audits, the Company is also
pursuing voluntary disclosure agreements (VDAs)
related to state tax issues which, if settled, could have a
material impact on tax expense during 2009. Unrecognized tax
benefits in total related to the audits and VDAs is
$10.6 million at December 31, 2008. There can be no
assurance that any portion of the unrecognized tax benefits will
be favorably resolved.
During 2008, the Company added $11.6 million of tax,
interest and penalties related to 2008 activity for identified
uncertain tax positions and reversed $16.5 million of tax
and interest related to statute expirations and settlement of
prior uncertain positions. During 2007, the Company added
$1.9 million of tax, interest and penalties related to 2007
activity for identified uncertain tax positions and reversed
$3.9 million of tax and interest related to statute
expirations and settlement of prior uncertain positions.
65
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of the liability for uncertain
tax positions at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance at the beginning of the year
|
|
$
|
22.7
|
|
|
$
|
24.9
|
|
Additions for tax positions related to the current year
|
|
|
0.9
|
|
|
|
1.3
|
|
Additions for tax positions of prior years
|
|
|
10.1
|
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
(4.2
|
)
|
|
|
(3.2
|
)
|
Reductions related to settlements with taxing authorities
|
|
|
(10.8
|
)
|
|
|
|
|
Reductions due to statute expirations
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
18.6
|
|
|
$
|
22.7
|
|
|
|
|
|
|
|
|
|
|
The additions above primarily reflect the increase in tax
liabilities for uncertain tax positions related to certain
foreign activities and for acquired businesses, while the
reductions above reflect the favorable agreement in the European
Union related to deductible interest expense and the settlement
of an IRS audit. The net decrease in uncertain tax positions for
the year ending December 31, 2008 resulted in a decrease to
income tax expense of $12 million.
|
|
12.
|
Retirement
Plans and Other Postretirement Benefits
|
Retirement
and Pension Plans
The Company sponsors several retirement and pension plans
covering eligible salaried and hourly employees. The plans
generally provide benefits based on participants years of
service
and/or
compensation. The following is a brief description of the
Companys retirement and pension plans.
The Company maintains contributory and noncontributory defined
benefit pension plans. Benefits for eligible salaried and hourly
employees under all defined benefit plans are funded through
trusts established in conjunction with the plans. The
Companys funding policy with respect to its defined
benefit plans is to contribute amounts that provide for benefits
based on actuarial calculations and the applicable requirements
of U.S. federal and local foreign laws. The Company
estimates that it will make cash contributions of approximately
$19 million to $24 million to its worldwide defined
benefit pension plans in 2009.
The Company uses a measurement date of December 31 (its fiscal
year end) for its U.S. and foreign defined benefit pension
plans as required by SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R) (SFAS 158). Prior to 2008, the Company
used an October 1 measurement date for its three United
Kingdom-based defined benefit pension plans. The effect of the
elimination of the early measurement date for the three United
Kingdom-based defined benefit pension plans was not significant.
The recognition and disclosure requirements of SFAS 158
were adopted in 2006.
The Company sponsors a 401(k) retirement and savings plan for
eligible U.S. employees. Participants in the savings plan
may contribute a portion of their compensation on a before-tax
basis. The Company matches employee contributions on a
dollar-for-dollar
basis up to six percent of eligible compensation or a maximum of
$1,200 per participant.
The Companys retirement and savings plan has a defined
contribution retirement feature principally to cover
U.S. salaried employees joining the Company after
December 31, 1996. Under the retirement feature, the
Company makes contributions for eligible employees based on a
pre-established percentage of the covered employees salary
subject to pre-established vesting. Employees of certain of the
Companys foreign operations participate in various local
defined contribution plans.
66
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company also has a defined contribution retirement plan for
certain of its U.S. acquired businesses for the benefit of
eligible employees. Company contributions are made for each
participant up to a specified percentage, not to exceed six
percent of the participants base compensation.
The Company has nonqualified unfunded retirement plans for its
Directors and certain retired employees. It also provides
supplemental retirement benefits, through contractual
arrangements
and/or a
SERP covering certain current and former executives of the
Company. These supplemental benefits are designed to compensate
the executive for retirement benefits that would have been
provided under the Companys primary retirement plan,
except for statutory limitations on compensation that must be
taken into account under those plans. The projected benefit
obligations of the SERP and the contracts will primarily be
funded by a grant of shares of the Companys common stock
upon retirement or termination of the executive. The Company is
providing for these obligations by charges to earnings over the
applicable periods.
The following tables set forth the changes in net projected
benefit obligation and the fair value of plan assets for the
funded and unfunded defined benefit plans for the years ended
December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in projected benefit obligation (PBO):
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the beginning of the year
|
|
$
|
356,107
|
|
|
$
|
363,941
|
|
Service cost
|
|
|
3,783
|
|
|
|
4,052
|
|
Interest cost
|
|
|
21,724
|
|
|
|
21,119
|
|
Acquisitions
|
|
|
|
|
|
|
1,567
|
|
Actuarial (gains) losses
|
|
|
(10,459
|
)
|
|
|
(12,208
|
)
|
Gross benefits paid
|
|
|
(22,793
|
)
|
|
|
(22,364
|
)
|
Plan amendments and other
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the end of the year
|
|
$
|
348,475
|
|
|
$
|
356,107
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
418,317
|
|
|
$
|
396,333
|
|
Actual return on plan assets
|
|
|
(111,558
|
)
|
|
|
42,414
|
|
Acquisitions
|
|
|
|
|
|
|
1,450
|
|
Employer contributions
|
|
|
70,885
|
|
|
|
484
|
|
Gross benefits paid
|
|
|
(22,793
|
)
|
|
|
(22,364
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
354,851
|
|
|
$
|
418,317
|
|
|
|
|
|
|
|
|
|
|
67
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the beginning of the year
|
|
$
|
129,044
|
|
|
$
|
131,160
|
|
Service cost
|
|
|
2,044
|
|
|
|
2,875
|
|
Interest cost
|
|
|
6,825
|
|
|
|
6,631
|
|
Acquisitions
|
|
|
|
|
|
|
1,199
|
|
Foreign currency translation adjustment
|
|
|
(40,004
|
)
|
|
|
6,357
|
|
Employee contributions
|
|
|
600
|
|
|
|
910
|
|
Actuarial (gains) losses
|
|
|
(17,201
|
)
|
|
|
(17,296
|
)
|
Gross benefits paid
|
|
|
(3,682
|
)
|
|
|
(2,792
|
)
|
Effect of elimination of early measurement date
|
|
|
1,309
|
|
|
|
|
|
Other
|
|
|
9,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the end of the year
|
|
$
|
88,166
|
|
|
$
|
129,044
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
125,213
|
|
|
$
|
103,433
|
|
Actual return on plan assets
|
|
|
(20,126
|
)
|
|
|
13,006
|
|
Acquisitions
|
|
|
|
|
|
|
929
|
|
Employer contributions
|
|
|
9,021
|
|
|
|
4,873
|
|
Employee contributions
|
|
|
600
|
|
|
|
910
|
|
Foreign currency translation adjustment
|
|
|
(38,633
|
)
|
|
|
4,854
|
|
Gross benefits paid
|
|
|
(3,682
|
)
|
|
|
(2,792
|
)
|
Effect of elimination of early measurement date
|
|
|
3,193
|
|
|
|
|
|
Other
|
|
|
9,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
84,817
|
|
|
$
|
125,213
|
|
|
|
|
|
|
|
|
|
|
The amounts included in the Effect of elimination of early
measurement date in the preceding tables reflect the impact of
the change in measurement date for the three United
Kingdom-based defined benefit pension plans.
The accumulated benefit obligation (ABO) consisted
of the following at December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Funded plans
|
|
$
|
333,468
|
|
|
$
|
339,488
|
|
Unfunded plans
|
|
|
4,746
|
|
|
|
4,851
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
338,214
|
|
|
$
|
344,339
|
|
|
|
|
|
|
|
|
|
|
68
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Funded plans
|
|
$
|
80,149
|
|
|
$
|
124,386
|
|
Unfunded plans
|
|
|
1,179
|
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,328
|
|
|
$
|
125,574
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine benefit
obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.50
|
%
|
|
|
6.25
|
%
|
Rate of compensation increase (where applicable)
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.09
|
%
|
|
|
5.89
|
%
|
Rate of compensation increase (where applicable)
|
|
|
2.98
|
%
|
|
|
3.86
|
%
|
For the Companys U.S. defined benefit pension plans,
the asset allocation percentages at December 31, 2008 and
2007 and the target allocation percentages for 2009, by asset
category, are as follows:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Plan Assets
|
|
|
|
Target Allocation
|
|
|
at December 31,
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Equity securities
|
|
|
50%-70%
|
|
|
|
58
|
%
|
|
|
61
|
%
|
Debt securities
|
|
|
20%-40%
|
|
|
|
31
|
|
|
|
28
|
|
Other*
|
|
|
0%-15%
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amounts in 2008 and 2007 include cash and cash equivalents and
an approximate 10% investment in alternative assets consisting
of hedge funds. |
The fair value of plan assets for U.S. plans was
$354.9 million and $418.3 million at December 31,
2008 and 2007, respectively. The expected long-term rate of
return on these plan assets was 8.25% in 2008 and 2007. Equity
securities included 679,200 shares of AMETEK, Inc. common
stock with a market value of $20.5 million (5.8% of total
plan investment assets) at December 31, 2008 and
679,200 shares of AMETEK, Inc. common stock with a market
value of $31.8 million (7.6% of total plan investment
assets) at December 31, 2007.
The objectives of the AMETEK, Inc. U.S. defined benefit
plans investment strategy are to maximize the plans
funded status and minimize Company contributions and plan
expense. Because the goal is to optimize returns over the long
term, an investment policy that favors equity holdings has been
established. Since there may be periods of time where both
equity and fixed-income markets provide poor returns, an
allocation to alternative assets may be made to improve the
overall portfolios diversification and return potential.
The Company periodically reviews its asset allocation, taking
into consideration plan liabilities, plan benefit payment
streams and the investment strategy of the pension plans. The
actual asset allocation is monitored frequently relative to the
established targets and ranges and is rebalanced when necessary.
69
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The equity portfolio is diversified by market capitalization and
style. The equity portfolio also includes an international
component.
The objective of the fixed-income portion of the pension assets
is to provide interest rate sensitivity for a portion of the
assets and to provide diversification. The fixed-income
portfolio is diversified within certain quality and maturity
guidelines in an attempt to minimize the adverse effects of
interest rate fluctuations.
Other than for investments in alternative assets, described in
the footnote to the table above, certain investments are
prohibited. Prohibited investments include venture capital,
private placements, unregistered or restricted stock, margin
trading, commodities, limited partnerships, short selling and
rights and warrants. Foreign currency futures, options and
forward contracts may be used to manage foreign currency
exposure.
For the Companys foreign defined benefit pension plans,
the asset allocation percentages at December 31, 2008 and
2007 and the target allocation percentages for 2009, by asset
category, are as follows:
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Plan Assets
|
|
|
|
Target Allocation
|
|
|
at December 31,
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Equity securities
|
|
|
70%-90%
|
|
|
|
79
|
%
|
|
|
82
|
%
|
Debt securities
|
|
|
5%-15%
|
|
|
|
15
|
|
|
|
11
|
|
Real estate
|
|
|
0%-5%
|
|
|
|
|
|
|
|
3
|
|
Other*
|
|
|
|
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Primarily cash, cash equivalents and insurance contracts. |
The objective of AMETEK, Inc.s foreign defined benefit
plans investment strategy is to maximize the long-term
rate of return on plan investments, subject to a reasonable
level of risk. Liability studies are also performed on a regular
basis to provide guidance in setting investment goals with an
objective to balance risks against the current and future needs
of the plans. The trustees consider the risk associated with the
different asset classes, relative to the plans liabilities
and how this can be affected by diversification, and the
relative returns available on equities, fixed-income
investments, real estate and cash. Also, the likely volatility
of those returns and the cash flow requirements of the plans are
considered. It is expected that equities will outperform
fixed-income investments over the long term. However, the
trustees recognize the fact that fixed-income investments may
better match the liabilities for pensioners. Because of the
relatively young active employee group covered by the plans and
the immature nature of the plans, the trustees have chosen to
adopt an asset allocation strategy more heavily weighted toward
equity investments. This asset allocation strategy will be
reviewed, from time to time, in view of changes in market
conditions and in the plans liability profile.
The assumption for the expected return on plan assets was
developed based on a review of historical investment returns for
the investment categories for the defined benefit pension
assets. This review also considered current capital market
conditions and expectations of projected future investment
returns. The estimates of future capital market returns by asset
category are lower than the actual long-term historical returns.
The current low interest rate environment also influences this
outlook. Therefore, the assumed rate of return for U.S. and
foreign plans remains at 8.25% and 7.00%, respectively, for 2009.
70
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with a projected
benefit obligation in excess of plan assets and pension plans
with an accumulated benefit obligation in excess of plan assets
were as follows at December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
|
|
|
Accumulated Benefit
|
|
|
|
Obligation Exceeds
|
|
|
Obligation Exceeds
|
|
|
|
Fair Value of Assets
|
|
|
Fair Value of Assets
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Projected benefit obligation
|
|
$
|
4,746
|
|
|
$
|
5,659
|
|
|
$
|
4,746
|
|
|
$
|
5,659
|
|
Accumulated benefit obligation
|
|
|
4,746
|
|
|
|
5,659
|
|
|
|
4,746
|
|
|
|
5,659
|
|
Fair value of plan assets
|
|
|
|
|
|
|
758
|
|
|
|
|
|
|
|
758
|
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
|
|
|
Accumulated Benefit
|
|
|
|
Obligation Exceeds
|
|
|
Obligation Exceeds
|
|
|
|
Fair Value of Assets
|
|
|
Fair Value of Assets
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Projected benefit obligation
|
|
$
|
40,755
|
|
|
$
|
89,499
|
|
|
$
|
1,555
|
|
|
$
|
88,445
|
|
Accumulated benefit obligation
|
|
|
36,677
|
|
|
|
86,028
|
|
|
|
1,467
|
|
|
|
85,141
|
|
Fair value of plan assets
|
|
|
35,898
|
|
|
|
82,874
|
|
|
|
197
|
|
|
|
81,917
|
|
The following table provides the amounts recognized in the
consolidated balance sheet at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Funded status asset (liability):
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
439,668
|
|
|
$
|
543,530
|
|
Projected benefit obligation
|
|
|
(436,641
|
)
|
|
|
(485,151
|
)
|
|
|
|
|
|
|
|
|
|
Funded status at the end of the year
|
|
$
|
3,027
|
|
|
$
|
58,379
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consisted
of:
|
|
|
|
|
|
|
|
|
Noncurrent asset for pension benefits (other assets)
|
|
$
|
12,630
|
|
|
$
|
69,904
|
|
Current liabilities for pension benefits
|
|
|
(321
|
)
|
|
|
(372
|
)
|
Noncurrent liability for pension benefits
|
|
|
(9,282
|
)
|
|
|
(11,153
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized at the end of the year
|
|
$
|
3,027
|
|
|
$
|
58,379
|
|
|
|
|
|
|
|
|
|
|
The following table provides the amounts recognized in
accumulated other comprehensive income, net of taxes, at
December 31:
|
|
|
|
|
|
|
|
|
Net Amounts Recognized:
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net actuarial loss
|
|
$
|
92,800
|
|
|
$
|
2,423
|
|
Prior service costs
|
|
|
604
|
|
|
|
621
|
|
Transition asset
|
|
|
(44
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total recognized
|
|
$
|
93,360
|
|
|
$
|
3,040
|
|
|
|
|
|
|
|
|
|
|
71
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Other changes in pension plan assets and benefit
obligations
|
|
|
|
recognized in other comprehensive income, net of taxes:
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net actuarial loss
|
|
$
|
90,580
|
|
Curtailment effects
|
|
|
(227
|
)
|
Amortization of net actuarial gain
|
|
|
74
|
|
Current year prior service cost
|
|
|
78
|
|
Amortization of prior service costs
|
|
|
(200
|
)
|
Amortization of transition asset
|
|
|
15
|
|
|