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, 2010
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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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1100 Cassatt Road
P.O. Box 1764
Berwyn, Pennsylvania
(Address of principal executive
offices)
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19312-1177
(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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). 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. þ
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.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a
smaller reporting company)
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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 approximately
$4.3 billion as of June 30, 2010, 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 31, 2011 was 160,780,060.
Documents
Incorporated by Reference
Part III incorporates information by reference from the
Proxy Statement for the Annual Meeting of Stockholders on
May 3, 2011.
AMETEK,
Inc.
2010
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 1100 Cassatt
Road, Berwyn, Pennsylvania, 19312. 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., 1100
Cassatt Road, Berwyn, Pennsylvania 19312.
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 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 floorcare 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
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product innovation in several highly specialized instrumentation
markets, including process measurement, aerospace, power and
heavy-vehicle dashboard instrumentation. EMGs
differentiated businesses focus on developing customized
products for specialized applications in aerospace and defense,
medical, business machines and other industrial applications. In
its floorcare and specialty 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
have relocated 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 25 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. AMETEK enjoys an
excellent reputation for product innovation, technical know-how
and new product development. Among its most recent product
introductions:
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SPECTRO
MStm
fully simultaneous measuring mass spectrometer is widely
considered one of the most innovative new laboratory analyzers
introduced in recent years;
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ModuLab
MTStm
Materials Testing System is a modular fully integrated research
system for testing the electrical characterization of materials
from insulators to superconductors;
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Drexelbrook
Impulsetm
Series guided wave radar level measurement transmitter employs
field-proven Time Domain Reflectrometry for highly accurate
level, distance and volumetric measurements;
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LANDtm
LSP-HD infrared line scanner combines high-speed scanning and
high-resolution optics to set a new benchmark for industrial
process imaging;
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Talysurftm
CCI SunStar interferometer merges world-leading non-contact
dimensional measurement with advanced film thickness technology
for highly demanding photovoltaic and semiconductor film
analysis;
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AMETEK
SERNET
sequence of events recorder is the latest advance in web-based
alarm management for electric power utilities and industrial
electric power users;
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Elgartm
brand TerraSAS solar array simulator offers a fully integrated
solution for testing inverters and micro-inverters used for
domestic and industrial solar energy systems;
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Vision Research
Phantom®
v341 high-speed, high-resolution digital camera was developed
specifically for military, scientific and research applications;
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PITTMAN®
compact brush and brushless DC motors can be custom-tailored for
a wide range of medical, biotech, data storage and automation
applications;
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Quizixtm
QX precision, pulse-free metering pump is designed for critical
fluid flow and extraction applications such as research labs,
lab-scale micro plants, pilot plant and other highly precise
fluid flow applications;
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Grabner®
MINIDIS ADXpert establishes a new standard for accuracy and
reliability in the distillation testing of petroleum, biofuels,
chemicals and other liquids;
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UIP-S Universal Instrument Panel-Specialized is the latest
addition to AMETEKs
NGI®
Next Generation Instrument system for the dashboard instrument
panels aboard heavy trucks and other vehicles;
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AMETEK®
8.4-inch-diameter high-efficiency motor-blower achieves
significantly greater efficiency and life expectancy by
incorporating
state-of-the-art
fan design and patented bearing protection.
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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, engineering and
manufacturing capability, product-line breadth, enhanced
European distribution channels and low-cost production. AMETEK
has a leading market position in European floorcare 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, India, 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 2006, through
December 31, 2010, the Company has completed 27
acquisitions with annualized sales totaling approximately
$935 million, including 6 acquisitions in 2010 (see
Recent Acquisitions). 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.
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2010
OVERVIEW
Operating
Performance
In 2010, AMETEK generated sales of $2.5 billion, an
increase of 18% from 2009 and established records for operating
income, operating income margins, net income, diluted earnings
per share and operating cash flow. The Company achieved these
results from strong internal growth in each of the
Companys two reportable segments, as well as contributions
from recent acquisitions.
On November 2, 2010, the Companys Board of Directors
declared a
three-for-two
split of the Companys common stock. The stock split
resulted in the issuance of one additional share for every two
shares owned. The stock split was paid on December 21,
2010, to stockholders of record at the close of business on
December 10, 2010. Additionally, the Board of Directors
approved a 50% increase in the quarterly cash dividend rate on
the Companys common stock to $0.06 per common share from
$0.04 per common share on a post-split basis. All share and per
share information included in this report reflects the impact of
the stock split. See Note 2 to the Consolidated Financial
Statements included in Part II, Item 8 of this Annual
Report on
Form 10-K.
In 2010, the Company repurchased 3.1 million shares of its
common stock for $78.6 million in cash under its current
share purchase authorization. In 2009, the Company did not
repurchase any shares of its common stock. At December 31,
2010, $64.9 million was available under the current Board
authorization for future share repurchases.
Financing
In the third quarter of 2010, the Company paid in full an
expiring 50 million British pound ($78.2 million)
5.96% senior note. In the third quarter of 2010, the
Company issued an 80 million British pound
($124.8 million at December 31,
2010) 4.68% senior note due in September 2020.
Recent
Acquisitions
The Company spent $538.6 million in cash, net of cash
acquired, for six business acquisitions in 2010.
In January 2010, the Company acquired Sterling Ultra Precision,
a privately held reseller of machine tools for the ophthalmic
lens market. Sterling Ultra Precision is a part of EIG.
In April 2010, the Company acquired Imago Scientific
Instruments, a privately held manufacturer of 3D atom probes.
Imago Scientific Instruments is a part of EIG.
In June 2010, the Company acquired Technical Services for
Electronics (TSE), a manufacturer of engineered
interconnect solutions for the medical device industry. TSE is a
part of EMG.
In July 2010, the Company acquired Haydon Enterprises, a leader
in linear actuators and lead screw assemblies for the medical,
industrial equipment, aerospace, analytical instrument, computer
peripheral and semiconductor industries. Haydon Enterprises is a
part of EMG.
In August 2010, the Company acquired American Reliances
Power Division (AMREL Power), a provider of highly
differentiated direct current (DC) power supplies
and electronic loads for the automated test equipment market.
AMREL Power is a part of EIG.
In November 2010, the Company acquired Atlas Material Testing
Technology LLC (Atlas), the worlds leading
provider of weathering test instruments and related testing and
consulting services. Atlas is a part of EIG.
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Financial
Information About Reportable Segments, Foreign Operations and
Export Sales
Information with respect to reportable segments and geographic
areas is set forth in Note 18 to the Consolidated Financial
Statements included in Part II, Item 8 of this Annual
Report on
Form 10-K.
The Companys international sales increased 17% to
$1,211.3 million in 2010. The increase in international
sales resulted from higher sales growth noted above, as well as
continued expansion into Asia and includes the effect of foreign
currency translation. The Company experienced increases in
export sales of products manufactured in the United States, as
well as increased sales from overseas operations. International
sales represented 49.0% of consolidated net sales in 2010
compared with 49.2% in 2009.
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 China,
Taiwan and Japan. 53% of EIGs 2010 sales were to customers
outside the United States.
At December 31, 2010, EIG employed approximately
5,500 people, of whom approximately 800 were covered by
collective bargaining agreements. EIG had 53 manufacturing
facilities: 34 in the United States, seven in the United
Kingdom, five in Germany, three in France and one each in
Argentina, Austria, Canada and Denmark at December 31,
2010. EIG also shares manufacturing facilities with EMG in China
and Mexico.
Process
and Analytical Instrumentation Markets and Products
63% of EIGs 2010 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 the
U.S. Department of Homeland Security, materials analysis,
nanotechnology research and other test and measurement
applications.
Atlas, acquired in November 2010, has products which include
weather exposure test systems, corrosion-testing instruments,
specialty lighting systems, and large-scale weathering test
chambers. In addition, Atlas offers indoor laboratory and
outdoor testing services, photovoltaic and solar testing and
consulting. Atlas provides the Company with another growth
platform in the materials testing equipment market and broadens
AMETEKs presence in the fast-growing photovoltaic testing
market.
Unispec Marketing Pvt. Ltd. and Thelsha Technical Services Pvt.
Ltd., acquired in September 2009, provide an established sales,
distribution and service network in India serving the quality
control and analytical
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instrumentation market. These acquisitions strengthen our
presence in India through AMETEK Instruments India Private
Limited (AIIPL), established in early 2009. AIIPL
provides a full range of pre- and post-sales support to
customers from a facility in Whitefield, Bangalore.
Power and
Industrial Instrumentation Markets and Products
25% of EIGs 2010 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.
EIGs Solidstate Controls business 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.
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. 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
12% of EIGs 2010 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 and other aerospace system integrators. It also serves
the commercial aerospace aftermarket with spare part sales and
repair and overhaul services.
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. Approximately 9% of EIGs 2010 sales
were made to its five largest customers.
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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 floorcare and
specialty motor business, the Company believes that EMG is the
worlds largest producer of high-speed, air-moving electric
motors for OEMs of floorcare 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. 45% of
EMGs 2010 sales were to customers outside the United
States.
At December 31, 2010, EMG employed approximately
5,900 people, of whom approximately 1,500 were covered by
collective bargaining agreements (including some that are
covered by local unions). EMG had 57 manufacturing
facilities: 34 in the United States, ten in the United Kingdom,
three in France, two each in China, Czech Republic, Italy and
Mexico and one each in Brazil and Taiwan at December 31,
2010.
Differentiated
Businesses
Differentiated businesses account for an increasing proportion
of EMGs overall sales base. Differentiated businesses
represented 78% of EMGs sales in 2010 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 47% of EMGs
2010 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.
Haydon Enterprises, acquired in July 2010, has a product line
which complements the Companys highly differentiated
technical motor business, which shares common markets, customers
and distribution channels, and places AMETEK in a unique
position as the premier industry provider of high-end linear and
rotary motion control solutions.
EMG also serves the commercial and military aerospace
third-party maintenance, repair and overhaul (MRO)
market. These businesses provide these services on a global
basis with facilities in the United States, Europe and Singapore.
Ameron Global, acquired in December 2009, is a manufacturer of
highly engineered pressurized gas components and systems for
commercial and aerospace customers and is a leader in MRO of
fire suppression and oxygen supply systems.
High Standard Aviation, acquired in January 2009, is a provider
of electrical and electromechanical, hydraulic and pneumatic
repair services to the aerospace industry.
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Engineered
Materials, Interconnects and Packaging Markets and
Products
31% of EMGs 2010 sales were 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.
TSE, acquired in June 2010, expands the Companys position
in the medical device market and is an excellent fit with the
HCC Industries division, which manufactures highly engineered
electronic interconnects and microelectronics packaging for
sophisticated electronic applications.
Floorcare
and Specialty Motor Markets and Products
22% of EMGs 2010 sales were to floorcare and
specialty motor markets, where it has the leading share, through
its sales of air-moving electric motors to most of the
worlds major floorcare OEMs, including vertically
integrated OEMs that produce some of their own motors. EMG
produces motor-blowers for a full range of floorcare 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
floorcare 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.
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. Approximately 10% of EMGs 2010
sales were made to its five largest customers.
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 product technology, distribution,
quality, service and price.
9
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 floorcare and
specialty motor businesses, EMG has limited domestic competition
in the U.S. floorcare market from independent
manufacturers. Competition is increasing from Asian motor
manufacturers that serve both the U.S. and the European
floorcare 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 floorcare 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Electronic Instruments
|
|
$
|
370.2
|
|
|
$
|
284.3
|
|
|
$
|
324.8
|
|
Electromechanical
|
|
|
458.6
|
|
|
|
364.1
|
|
|
|
393.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
828.8
|
|
|
$
|
648.4
|
|
|
$
|
718.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The higher backlog at December 31, 2010 was due to higher
order levels and the acquired backlog of 2010 acquisitions.
Of the total backlog of unfilled orders at December 31,
2010, approximately 83% is expected to be shipped by
December 31, 2011. 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 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 $112.1 million,
$101.4 million and $115.9 million in 2010, 2009 and
2008, respectively. Customer reimbursements in 2010, 2009 and
2008 were $6.4 million, $5.5 million and
$6.1 million, respectively. These amounts included net
Company-funded research and development expenses of
$56.8 million, $50.5 million and $57.5 million in
2010, 2009 and 2008, respectively.
10
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 20 to the
Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on
Form 10-K.
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, 2010, the Company employed approximately
11,600 people in its EMG, EIG and corporate operations, of
whom approximately 2,300 employees were covered by
collective bargaining agreements. The Company has two collective
bargaining agreements that will expire in 2011, which cover less
than 100 employees. The Company expects no material adverse
effects from the pending labor contract negotiations.
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.
A
prolonged downturn in the aerospace and defense, process
instrumentation or electric motor markets 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 markets 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 2006, through
December 31, 2010, we have completed 27 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
11
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.
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 2010 and 2009 represented 49.0% and
49.2% 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;
|
12
|
|
|
|
|
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 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.
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 supply 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.
13
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, including with respect to climate change,
may be adopted or become applicable to us or customers for our
products. We cannot predict the form any such new laws or
regulations will take or the impact any of these laws and
regulations will have on our business or operations.
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 a 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
14
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.
Restrictions
contained in our revolving credit facility and other debt
agreements may limit our ability to incur additional
indebtedness.
Our existing revolving credit facility and other debt agreements
contain restrictive covenants, including restrictions on our
ability to incur indebtedness. These restrictions could limit
our ability to effectuate future acquisitions or restrict our
financial flexibility.
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, 2010, goodwill
and other intangible assets, net of accumulated amortization,
totaled $2,335.2 million or 61% 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 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 record, 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.
15
The Company has 110 operating plant facilities in 23 states
and 13 foreign countries. Of these facilities, 54 are owned by
the Company and 56 are leased. The properties owned by the
Company consist of approximately 674 acres, of which
approximately 4.3 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 2011 to 2082, with
renewal options for varying terms contained in many of the
leases. Production facilities in China, Taiwan 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 Berwyn, Pennsylvania,
occupy approximately 43,000 square feet under a lease that
expires in September 2023.
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 were as follows at December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
Plant Facilities
|
|
|
Square Feet Under Roof
|
|
|
|
Owned
|
|
|
Leased
|
|
|
Owned
|
|
|
Leased
|
|
|
Electronic Instruments
|
|
|
26
|
|
|
|
27
|
|
|
|
2,000,000
|
|
|
|
931,000
|
|
Electromechanical
|
|
|
28
|
|
|
|
29
|
|
|
|
2,349,000
|
|
|
|
716,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54
|
|
|
|
56
|
|
|
|
4,349,000
|
|
|
|
1,647,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
Legal
Proceedings
|
Please refer to Environmental Matters in
Managements Discussion and Analysis of Financial Condition
and Results of Operations and Note 20 to the Consolidated
Financial Statements in this Annual Report on
Form 10-K
for information regarding certain litigation matters.
In addition to those litigation matters described above, the
Company is, from time to time, subject to a variety of
litigation and similar proceedings incidental to its business.
These lawsuits may involve claims for damages arising out of the
use of the Companys products and services, personal
injury, employment matters, tax matters, commercial disputes and
intellectual property matters. The Company may also become
subject to lawsuits as a result of past or future acquisitions.
Based upon the Companys experience, the Company does not
believe that these proceedings and claims will have a material
adverse effect on its results of operations, financial position
or cash flows.
|
|
Item 4.
|
(Removed
and Reserved)
|
16
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 31, 2011, there were
approximately 2,200 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.
Under its share repurchase program, the Company repurchased
3.1 million shares of common stock for $78.6 million
in 2010 to offset the dilutive effect of shares granted as
equity-based compensation. The Company did not repurchase shares
in 2009.
The high and low sales prices of the Companys common stock
on the New York Stock Exchange composite tape and the quarterly
dividends per share paid on the common stock were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share*
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
Common stock trading range*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
27.89
|
|
|
$
|
29.59
|
|
|
$
|
32.41
|
|
|
$
|
41.34
|
|
Low
|
|
$
|
23.76
|
|
|
$
|
25.33
|
|
|
$
|
26.46
|
|
|
$
|
31.55
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share*
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
Common stock trading range*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
22.24
|
|
|
$
|
23.85
|
|
|
$
|
25.75
|
|
|
$
|
26.53
|
|
Low
|
|
$
|
16.36
|
|
|
$
|
19.61
|
|
|
$
|
20.17
|
|
|
$
|
22.17
|
|
|
|
|
* |
|
Adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2 to the Consolidated Financial Statements included in
Part II, Item 8 of this Annual Report on
Form 10-K. |
Securities Authorized for Issuance Under Equity Compensation
Plan Information
The following table sets forth information as of
December 31, 2010 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
|
|
|
6,119,087
|
|
|
$
|
24.25
|
|
|
|
2,188,322
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,119,087
|
|
|
$
|
24.25
|
|
|
|
2,188,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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 stockholder return for AMETEK, Inc. over the
last five years ended December 31, 2010 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, 2005
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,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
AMETEK, Inc.
|
|
$
|
100.00
|
|
|
$
|
112.94
|
|
|
$
|
167.17
|
|
|
$
|
108.44
|
|
|
$
|
138.24
|
|
|
$
|
214.07
|
|
Russell 1000 Index*
|
|
|
100.00
|
|
|
|
115.46
|
|
|
|
122.13
|
|
|
|
76.21
|
|
|
|
97.88
|
|
|
|
113.64
|
|
Dow Jones U.S. Electronic Equipment Index*
|
|
|
100.00
|
|
|
|
115.34
|
|
|
|
135.34
|
|
|
|
79.45
|
|
|
|
114.25
|
|
|
|
153.64
|
|
18
|
|
Item 6.
|
Selected
Financial Data
|
The following financial information for the five years ended
December 31, 2010, 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 Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions, except per share amounts)
|
|
|
Consolidated Operating Results
(Year Ended December 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,471.0
|
|
|
$
|
2,098.4
|
|
|
$
|
2,531.1
|
|
|
$
|
2,136.9
|
|
|
$
|
1,819.3
|
|
Operating income
|
|
$
|
482.2
|
|
|
$
|
366.1
|
|
|
$
|
432.7
|
|
|
$
|
386.6
|
|
|
$
|
309.0
|
|
Interest expense
|
|
$
|
(67.5
|
)
|
|
$
|
(68.8
|
)
|
|
$
|
(63.7
|
)
|
|
$
|
(46.9
|
)
|
|
$
|
(42.2
|
)
|
Net income
|
|
$
|
283.9
|
|
|
$
|
205.8
|
|
|
$
|
247.0
|
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
Earnings per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.79
|
|
|
$
|
1.28
|
|
|
$
|
1.55
|
|
|
$
|
1.44
|
|
|
$
|
1.16
|
|
Diluted
|
|
$
|
1.76
|
|
|
$
|
1.27
|
|
|
$
|
1.53
|
|
|
$
|
1.41
|
|
|
$
|
1.14
|
|
Dividends declared and paid per share(1)
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.12
|
|
Weighted average common shares outstanding(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
159.1
|
|
|
|
160.2
|
|
|
|
159.2
|
|
|
|
158.7
|
|
|
|
157.3
|
|
Diluted
|
|
|
160.9
|
|
|
|
161.8
|
|
|
|
161.2
|
|
|
|
161.4
|
|
|
|
159.9
|
|
Performance Measures and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income Return on sales
|
|
|
19.5
|
%
|
|
|
17.4
|
%
|
|
|
17.1
|
%
|
|
|
18.1
|
%
|
|
|
17.0
|
%
|
Return on average total assets
|
|
|
13.6
|
%
|
|
|
11.6
|
%
|
|
|
14.9
|
%
|
|
|
15.9
|
%
|
|
|
15.8
|
%
|
Net income Return on average total capital(5)
|
|
|
10.2
|
%
|
|
|
8.2
|
%
|
|
|
10.9
|
%
|
|
|
12.0
|
%
|
|
|
11.8
|
%
|
Return on average stockholders equity(5)
|
|
|
17.0
|
%
|
|
|
14.4
|
%
|
|
|
19.5
|
%
|
|
|
20.7
|
%
|
|
|
20.5
|
%
|
EBITDA(2)
|
|
$
|
545.9
|
|
|
$
|
428.0
|
|
|
$
|
489.4
|
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
Ratio of EBITDA to interest expense(2)
|
|
|
8.2
|
x
|
|
|
6.3
|
x
|
|
|
7.7
|
x
|
|
|
9.3
|
x
|
|
|
8.3
|
x
|
Depreciation and amortization
|
|
$
|
72.9
|
|
|
$
|
65.5
|
|
|
$
|
63.3
|
|
|
$
|
52.7
|
|
|
$
|
45.9
|
|
Capital expenditures
|
|
$
|
39.2
|
|
|
$
|
33.1
|
|
|
$
|
44.2
|
|
|
$
|
37.6
|
|
|
$
|
29.2
|
|
Cash provided by operating activities
|
|
$
|
423.0
|
|
|
$
|
364.7
|
|
|
$
|
247.3
|
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
Free cash flow(3)
|
|
$
|
383.8
|
|
|
$
|
331.6
|
|
|
$
|
203.1
|
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
Ratio of earnings to fixed charges(6)
|
|
|
6.4
|
x
|
|
|
4.8
|
x
|
|
|
6.1
|
x
|
|
|
7.3
|
x
|
|
|
6.6
|
x
|
Consolidated Financial Position
(At December 31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
974.5
|
|
|
$
|
969.4
|
|
|
$
|
954.6
|
|
|
$
|
952.2
|
|
|
$
|
684.1
|
|
Current liabilities
|
|
$
|
550.9
|
|
|
$
|
424.3
|
|
|
$
|
447.5
|
|
|
$
|
640.8
|
|
|
$
|
480.9
|
|
Property, plant and equipment, net
|
|
$
|
318.1
|
|
|
$
|
310.1
|
|
|
$
|
307.9
|
|
|
$
|
293.1
|
|
|
$
|
258.0
|
|
Total assets
|
|
$
|
3,818.9
|
|
|
$
|
3,246.0
|
|
|
$
|
3,055.5
|
|
|
$
|
2,745.7
|
|
|
$
|
2,130.9
|
|
Long-term debt
|
|
$
|
1,071.4
|
|
|
$
|
955.9
|
|
|
$
|
1,093.2
|
|
|
$
|
667.0
|
|
|
$
|
518.3
|
|
Total debt
|
|
$
|
1,168.5
|
|
|
$
|
1,041.7
|
|
|
$
|
1,111.7
|
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
Stockholders equity(5)
|
|
$
|
1,775.2
|
|
|
$
|
1,567.0
|
|
|
$
|
1,287.8
|
|
|
$
|
1,240.7
|
|
|
$
|
966.7
|
|
Stockholders equity per share(1)(5)
|
|
$
|
11.05
|
|
|
$
|
9.68
|
|
|
$
|
8.04
|
|
|
$
|
7.70
|
|
|
$
|
6.08
|
|
Total debt as a percentage of capitalization(5)
|
|
|
39.7
|
%
|
|
|
39.9
|
%
|
|
|
46.3
|
%
|
|
|
42.1
|
%
|
|
|
41.4
|
%
|
Net debt as a percentage of capitalization(4)(5)
|
|
|
36.2
|
%
|
|
|
33.7
|
%
|
|
|
44.3
|
%
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
See Notes to Selected Financial Data on page 20.
19
Notes to
Selected Financial Data
|
|
|
(1)
|
|
Earnings per share, dividends
declared and paid per share, weighted average common shares
outstanding and stockholders equity per share have been
adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2 to the Consolidated Financial Statements included in
Part II, Item 8 of this Annual Report on
Form 10-K.
|
|
(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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net income
|
|
$
|
283.9
|
|
|
$
|
205.8
|
|
|
$
|
247.0
|
|
|
$
|
228.0
|
|
|
$
|
181.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
67.5
|
|
|
|
68.8
|
|
|
|
63.7
|
|
|
|
46.9
|
|
|
|
42.2
|
|
Interest income
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
|
|
(3.9
|
)
|
|
|
(2.1
|
)
|
|
|
(0.4
|
)
|
Income taxes
|
|
|
122.3
|
|
|
|
88.9
|
|
|
|
119.3
|
|
|
|
108.4
|
|
|
|
81.8
|
|
Depreciation
|
|
|
45.4
|
|
|
|
42.2
|
|
|
|
45.8
|
|
|
|
42.3
|
|
|
|
38.9
|
|
Amortization
|
|
|
27.5
|
|
|
|
23.3
|
|
|
|
17.5
|
|
|
|
10.4
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
262.0
|
|
|
|
222.2
|
|
|
|
242.4
|
|
|
|
205.9
|
|
|
|
169.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
545.9
|
|
|
$
|
428.0
|
|
|
$
|
489.4
|
|
|
$
|
433.9
|
|
|
$
|
351.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Cash provided by operating activities
|
|
$
|
423.0
|
|
|
$
|
364.7
|
|
|
$
|
247.3
|
|
|
$
|
278.5
|
|
|
$
|
226.0
|
|
Deduct: Capital expenditures
|
|
|
(39.2
|
)
|
|
|
(33.1
|
)
|
|
|
(44.2
|
)
|
|
|
(37.6
|
)
|
|
|
(29.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
383.8
|
|
|
$
|
331.6
|
|
|
$
|
203.1
|
|
|
$
|
240.9
|
|
|
$
|
196.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Total debt
|
|
$
|
1,168.5
|
|
|
$
|
1,041.7
|
|
|
$
|
1,111.7
|
|
|
$
|
903.0
|
|
|
$
|
681.9
|
|
Less: Cash and cash equivalents
|
|
|
(163.2
|
)
|
|
|
(246.4
|
)
|
|
|
(87.0
|
)
|
|
|
(170.1
|
)
|
|
|
(49.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
1,005.3
|
|
|
|
795.3
|
|
|
|
1,024.7
|
|
|
|
732.9
|
|
|
|
632.8
|
|
Stockholders equity
|
|
|
1,775.2
|
|
|
|
1,567.0
|
|
|
|
1,287.8
|
|
|
|
1,240.7
|
|
|
|
966.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization (net debt plus stockholders equity)
|
|
$
|
2,780.5
|
|
|
$
|
2,362.3
|
|
|
$
|
2,312.5
|
|
|
$
|
1,973.6
|
|
|
$
|
1,599.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt as a percentage of capitalization
|
|
|
36.2
|
%
|
|
|
33.7
|
%
|
|
|
44.3
|
%
|
|
|
37.1
|
%
|
|
|
39.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
The adoption of certain provisions
in Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 715,
Compensation Retirement Benefits for our
defined benefit pension plans, which were effective
December 31, 2006, resulted in a reduction of
$32.7 million to stockholders equity. The adoption of
provisions in FASB ASC Topic 740, 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 to this Annual Report on
Form 10-K
for the calculation of the ratio of earnings to fixed charges.
|
20
|
|
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 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 Annual Report on
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. In 2010, the
Company posted strong sales and established records for
operating income, operating income margins, net income, diluted
earnings per share and operating cash flow. The impact of
contributions from recent acquisitions, combined with successful
Operational Excellence initiatives, had a positive impact on
2010 results. 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 2010 were:
|
|
|
|
|
In 2010, sales were $2.47 billion, an increase of
$372.6 million or 18% from 2009, on internal growth of
approximately 15% in the Electronic Instruments Group
(EIG) and 12% in the Electromechanical Group
(EMG) excluding the effect of foreign currency
translation, and contributions from the 2009 and 2010
acquisitions.
|
|
|
|
|
|
Net income for 2010 was $283.9 million, an increase of
$78.1 million or 37.9% when compared with
$205.8 million in 2009.
|
|
|
|
|
|
During 2010, the Company completed the following acquisitions:
|
|
|
|
|
|
In January 2010, the Company acquired Sterling Ultra Precision,
a privately held reseller of machine tools for the ophthalmic
lens market.
|
|
|
|
|
In April 2010, the Company acquired Imago Scientific
Instruments, a privately held manufacturer of 3D atom probes.
|
|
|
|
|
In June 2010, the Company acquired Technical Services for
Electronics (TSE), a manufacturer of engineered
interconnect solutions for the medical device industry.
|
|
|
|
|
In July 2010, the Company acquired Haydon Enterprises, a leader
in linear actuators and lead screw assemblies for the medical,
industrial equipment, aerospace, analytical instrument, computer
peripheral and semiconductor industries.
|
|
|
|
|
In August 2010, the Company acquired American Reliances
Power Division (AMREL Power), a provider of highly
differentiated direct current power supplies and electronic
loads for the automated test equipment market.
|
|
|
|
|
In November 2010, the Company acquired Atlas Material Testing
Technology LLC (Atlas), the worlds leading
provider of weathering test instruments and related testing and
consulting services.
|
|
|
|
|
|
Higher earnings resulted in record cash flow provided by
operating activities that totaled $423.0 million, a
$58.3 million or 16.0% increase from 2009.
|
21
|
|
|
|
|
The Company continues to maintain a strong international sales
presence. International sales, including U.S. export sales,
were $1,211.3 million or 49.0% of consolidated sales in
2010, compared with $1,031.7 million or 49.2% of
consolidated sales in 2009.
|
|
|
|
|
New orders for 2010 were $2,651.3 million, an increase of
$623.2 million or 30.7% when compared with
$2,028.1 million in 2009. As a result, the Companys
backlog of unfilled orders at December 31, 2010 was a
record at $828.8 million.
|
|
|
|
|
The Company continued its emphasis on investment in research,
development and engineering, spending $112.1 million in
2010 before customer reimbursement of $6.4 million. Sales
from products introduced in the last three years were
$473.2 million or 19.2% of sales.
|
|
|
|
|
In the third quarter of 2010, the Company paid in full an
expiring 50 million British pound ($78.2 million)
5.96% senior note. In the third quarter of 2010, the
Company issued an 80 million British pound
($124.8 million at December 31,
2010) 4.68% senior note due in September 2020.
|
|
|
|
|
On November 2, 2010, the Companys Board of Directors
declared a
three-for-two
split of the Companys common stock. The stock split
resulted in the issuance of one additional share for every two
shares owned. The stock split was paid on December 21,
2010, to stockholders of record at the close of business on
December 10, 2010. Additionally, the Board of Directors
approved a 50% increase in the quarterly cash dividend rate on
the Companys common stock to $0.06 per common share from
$0.04 per common share on a post-split basis. See Note 2 to
the Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on
Form 10-K.
|
Results
of Operations
The following table sets forth net sales and income by
reportable segment and on a consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net sales(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
1,324,113
|
|
|
$
|
1,146,578
|
|
|
$
|
1,402,653
|
|
Electromechanical
|
|
|
1,146,839
|
|
|
|
951,777
|
|
|
|
1,128,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
2,470,952
|
|
|
$
|
2,098,355
|
|
|
$
|
2,531,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
316,184
|
|
|
$
|
232,875
|
|
|
$
|
306,764
|
|
Electromechanical
|
|
|
210,397
|
|
|
|
166,582
|
|
|
|
175,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
526,581
|
|
|
|
399,457
|
|
|
|
481,945
|
|
Corporate administrative and other expenses
|
|
|
(44,423
|
)
|
|
|
(33,407
|
)
|
|
|
(49,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
482,158
|
|
|
|
366,050
|
|
|
|
432,654
|
|
Interest and other expenses, net
|
|
|
(75,908
|
)
|
|
|
(71,417
|
)
|
|
|
(66,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
$
|
406,250
|
|
|
$
|
294,633
|
|
|
$
|
366,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After elimination of intra- and inter-segment 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. |
22
Year
Ended December 31, 2010 Compared with Year Ended
December 31, 2009
Results
of Operations
In 2010, the Company posted strong sales and established records
for operating income, operating income margins, net income,
diluted earnings per share and operating cash flow. The Company
achieved these results from strong internal growth in both EIG
and EMG, as well as contributions from acquisitions completed in
2010 and the acquisitions of High Standard Aviation in January
2009 and Ameron Global in December 2009. In the fourth quarter
of 2009, the Company began to experience increased order rates
which continued through 2010. The full year impact of the 2010
acquisitions and our Operational Excellence capabilities should
have a positive impact on our 2011 results.
Net sales for 2010 were $2,471.0 million, an increase of
$372.6 million or 17.8% when compared with net sales of
$2,098.4 million in 2009. Net sales for EIG were
$1,324.1 million in 2010, an increase of 15.5% from sales
of $1,146.6 million in 2009. Net sales for EMG were
$1,146.8 million in 2010, an increase of 20.5% from sales
of $951.8 million in 2009. The increase in net sales was
primarily attributable to higher order rates, as well as the
impact of the acquisitions mentioned above. The net sales
increase for 2010 was driven by strong internal sales growth of
approximately 13%, with no impact from foreign currency
translation. The acquisitions mentioned above contributed the
remainder of the net sales increase.
Total international sales for 2010 were $1,211.3 million or
49.0% of consolidated net sales, an increase of
$179.6 million or 17.4% when compared with international
sales of $1,031.7 million or 49.2% of consolidated net
sales in 2009. The $179.6 million increase in international
sales resulted from higher sales growth noted above, as well as
continued expansion into Asia, and includes the effect of
foreign currency translation. Both reportable segments of the
Company maintain a strong international sales presence in Europe
and Asia. Export shipments from the United States, which are
included in total international sales, were $564.5 million
in 2010, an increase of $150.4 million or 36.3% compared
with $414.1 million in 2009. Export shipments improved due
to increased exports from both the base businesses and the
acquisitions noted above.
New orders for 2010 were $2,651.3 million, an increase of
$623.2 million or 30.7% when compared with
$2,028.1 million in 2009. Throughout most of 2009, the
Company experienced lower order rates primarily as a result of
the global economic recession, which began in late 2008 and
continued through most of 2009. However, order rates stabilized
in the third quarter of 2009 and began to increase in the fourth
quarter of 2009. For 2010, internal order growth was
approximately 23%, excluding a 1% unfavorable effect of foreign
currency translation, driven by both the Companys
differentiated and cost-driven businesses, with the acquisitions
mentioned above accounting for the remainder of the increase. As
a result, the Companys backlog of unfilled orders at
December 31, 2010 was $828.8 million, an increase of
$180.4 million or 27.8% when compared with
$648.4 million at December 31, 2009.
Segment operating income for 2010 was $526.6 million, an
increase of $127.1 million or 31.8% when compared with
segment operating income of $399.5 million in 2009. Segment
operating income, as a percentage of sales, increased to 21.3%
in 2010 from 19.0% in 2009. The increase in segment operating
income and segment operating margins resulted primarily from the
leveraged impact of the Companys net sales increase noted
above, as well as the benefits of the Companys lower cost
structure through Operational Excellence initiatives, which
includes the impact of the 2008 restructuring.
Selling, general and administrative (SG&A)
expenses for 2010 were $296.5 million, an increase of
$42.4 million or 16.7% when compared with
$254.1 million in 2009. As a percentage of sales, SG&A
expenses were 12.0% for 2010, compared with 12.1% in 2009.
Selling expense increased $32.4 million or 14.7% for 2010,
which is in line with internal sales growth. Selling expenses,
as a percentage of sales, decreased to 10.3% for 2010, compared
with 10.5% for 2009. 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
11.1%.
23
Corporate administrative expenses for 2010 were
$43.1 million, an increase of $9.9 million or 29.8%
when compared with $33.2 million in 2009. As a percentage
of sales, corporate administrative expenses were 1.7% for 2010,
compared with 1.6% in 2009. The increase in corporate
administrative expenses was primarily driven by higher
compensation related expenses, as well as other costs necessary
to grow the business.
Consolidated operating income was $482.2 million or 19.5%
of sales for 2010, an increase of $116.1 million or 31.7%
when compared with $366.1 million or 17.4% of sales in 2009.
Interest expense was $67.5 million for 2010, a decrease of
$1.3 million or 1.9% when compared with $68.8 million
in 2009. The decrease was primarily due to the impact of the
repayment of 40 million British-pound-denominated debt
under the revolving credit facility in the second quarter of
2009 and 50 million British-pound-denominated senior note
in the third quarter of 2010, partially offset by the issuance
of an 80 million British-pound-denominated senior note in
the third quarter of 2010.
Other expenses, net were $8.4 million for 2010, an increase
of $5.7 million when compared with $2.7 million in
2009. The increase was primarily driven by acquisition related
expenses.
The effective tax rate for 2010 was 30.1% compared with 30.2% in
2009. The effective tax rate for 2010 primarily reflects the
impact of settlements of income tax examinations and the
benefits obtained from international and state income tax
planning initiatives. See Note 14 to the Consolidated
Financial Statements included in Part II, Item 8 of
this Annual Report on
Form 10-K
for further details.
Net income for 2010 was $283.9 million, an increase of
$78.1 million or 37.9% when compared with
$205.8 million in 2009. Diluted earnings per share for 2010
was $1.76, an increase of $0.49 or 38.6% when compared with
$1.27 per diluted share in 2009.
Segment
Results
EIGs sales totaled $1,324.1 million for 2010,
an increase of $177.5 million or 15.5% when compared with
$1,146.6 million in 2009. The sales increase was due to
internal growth of approximately 15%, with no impact from
foreign currency translation, driven primarily by EIGs
process, power and industrial businesses. The acquisition of
Atlas primarily accounted for the remainder of the sales
increase.
EIGs operating income was $316.2 million for 2010, an
increase of $83.3 million or 35.8% when compared with
$232.9 million in 2009. EIGs operating margins were
23.9% of sales for 2010 compared with 20.3% of sales in 2009.
The increase in segment operating income and operating margins
was driven by the leveraged impact of the Groups increase
in sales noted above, as well as the benefit of the Groups
lower cost structure through Operational Excellence initiatives.
EMGs sales totaled $1,146.8 million for 2010,
an increase of $195.0 million or 20.5% from
$951.8 million in 2009. The sales increase was due to
internal growth of approximately 12%, with no impact from
foreign currency translation. The acquisitions of Ameron Global,
TSE and Haydon Enterprises primarily accounted for the remainder
of the sales increase.
EMGs operating income was $210.4 million for 2010, an
increase of $43.8 million or 26.3% when compared with
$166.6 million in 2009. EMGs operating margins were
18.3% of sales for 2010 compared with 17.5% of sales in 2009.
EMGs increase in operating income and operating margins
was primarily due to the leveraged impact of the Groups
higher sales, which includes the acquisitions mentioned above.
24
Year
Ended December 31, 2009 Compared with Year Ended
December 31, 2008
Results
of Operations
In 2009, the Company posted solid sales, operating income, net
income, diluted earnings per share and cash flow given the
global economic recession. The Companys results include
contributions from acquisitions completed in 2009 and the
acquisitions of Motion Control Group (MCG), Drake
Air (Drake) and Newage Testing Instruments 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. The impact of the global economic recession
stabilized in the third quarter of 2009, with improved operating
results in the fourth quarter of 2009 in most of the
Companys markets when compared to the previous quarters of
2009.
Net sales for 2009 were $2,098.4 million, a decrease of
$432.7 million or 17.1% when compared with net sales of
$2,531.1 million in 2008. Net sales for EIG were
$1,146.6 million in 2009, a decrease of 18.3% from sales of
$1,402.7 million in 2008. Net sales for EMG were
$951.8 million in 2009, a decrease of 15.7% from sales of
$1,128.5 million in 2008. The decline in net sales was
primarily attributable to lower order rates as a result of the
global economic recession, partially offset by the impact of the
acquisitions mentioned above. The Companys internal sales
declined approximately 21% in 2009, which excludes a 2%
unfavorable effect of foreign currency translation. The
acquisitions mentioned above offset approximately 6% of the
Companys internal sales decline.
Total international sales for 2009 were $1,031.7 million or
49.2% of consolidated net sales, a decrease of
$193.8 million or 15.8% when compared with international
sales of $1,225.5 million or 48.4% of consolidated net
sales in 2008. The decline in international sales resulted from
decreased international sales from base businesses of
$272.5 million, which includes the effect of foreign
currency translation, partially offset by the impact of the
acquisitions completed in 2009 and 2008. The Company maintains a
strong international sales presence in Europe and Asia by both
reportable segments. Export shipments from the United States,
which are included in total international sales, were
$400.6 million in 2009, a decrease of $77.9 million or
16.3% compared with $478.5 million in 2008. Export
shipments declined primarily due to decreased exports from the
base businesses, partially offset by the acquisitions noted
above.
New orders for 2009 were $2,028.1 million, a decrease of
$533.4 million or 20.8% when compared with
$2,561.5 million in 2008. Throughout most of 2009, the
Company experienced lower order rates as a result of the global
economic recession. However, order rates stabilized in the third
quarter of 2009 and began to increase in the fourth quarter of
2009. As a result, the Companys backlog of unfilled orders
at December 31, 2009 was $648.4 million, a decrease of
$70.2 million or 9.8% when compared with
$718.6 million at December 31, 2008.
Segment operating income for 2009 was $399.5 million, a
decrease of $82.4 million or 17.1% when compared with
segment operating income of $481.9 million in 2008. Segment
operating income, as a percentage of sales, was 19.0% in both
2009 and 2008. The decrease in segment operating income resulted
primarily from the decrease in sales noted above and higher
defined benefit pension expense, partially offset by profit
contributions made by the acquisitions and cost reduction
initiatives, including $135 million of cost savings
achieved in 2009 primarily from the restructuring activities
related to the fourth quarter of 2008 restructuring charges.
SG&A expenses for 2009 were $254.1 million, a decrease
of $68.5 million or 21.2% when compared with
$322.6 million in 2008. As a percentage of sales, SG&A
expenses were 12.1% for 2009, compared with 12.7% in 2008. The
decrease in SG&A expenses was primarily the result of lower
sales and the Companys cost savings initiatives.
Additionally, 2008 SG&A expenses include both a
$7.1 million charge, 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 fourth quarter
of 2008 restructuring charges and asset write-downs. Base
business selling expenses decreased approximately 22%, which was
in line with the Companys 2009 sales decline. Selling
expenses, as a percentage of sales, decreased to 10.5% for 2009,
compared with 10.8% in 2008 due to the previously mentioned cost
savings initiatives.
25
Corporate administrative expenses for 2009 were
$33.2 million, a decrease of $16.0 million or 32.5%
when compared with $49.2 million in 2008. As a percentage
of sales, corporate administrative expenses were 1.6% for 2009,
compared with 1.9% in 2008. The decrease in corporate
administrative expenses was driven by the equity-based
compensation associated with the accelerated vesting of
restricted stock in the second quarter of 2008, lower short-term
incentive compensation in 2009 and the Companys cost
saving initiatives, including the restructuring activities,
noted above.
Consolidated operating income was $366.1 million or 17.4%
of sales for 2009, a decrease of $66.6 million or 15.4%
when compared with $432.7 million or 17.1% of sales in 2008.
Interest expense was $68.8 million for 2009, an increase of
$5.1 million or 8.0% when compared with $63.7 million
in 2008. The increase was due to the full-year impact of the
funding of the long-term private placement senior notes in the
third and fourth quarters of 2008, partially offset by the
repayment of 40 million British-pound-denominated debt
under the revolving credit facility in the second quarter of
2009.
The effective tax rate for 2009 was 30.2% compared with 32.6% in
2008. The lower effective tax rate for 2009 primarily reflects
the impact of settlements of income tax examinations and the
benefits obtained from state and international income tax
planning initiatives. 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. See Note 14 to
the Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on
Form 10-K
for further details.
Net income for 2009 was $205.8 million, a decrease of
$41.2 million or 16.7% when compared with
$247.0 million in 2008. Diluted earnings per share for 2009
was $1.27, a decrease of $0.26 or 17.0% when compared with $1.53
per diluted share in 2008. 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 $0.17 per diluted share.
Segment
Results
EIGs sales totaled $1,146.6 million for 2009,
a decrease of $256.1 million or 18.3% when compared with
$1,402.7 million in 2008. The sales decrease was due to an
internal sales decline of approximately 20%, excluding an
unfavorable 2% effect of foreign currency translation, driven
primarily by EIGs process and industrial products
businesses. Partially offsetting the sales decrease were the
2008 acquisitions of Vision Research, Inc. and Xantrex
Programmable.
EIGs operating income was $232.9 million for 2009, a
decrease of $73.9 million or 24.1% when compared with
$306.8 million in 2008. EIGs operating margins were
20.3% of sales for 2009 compared with 21.9% of sales in 2008.
The decrease in segment operating income and operating margins
was driven by the decrease in sales noted above, predominantly
by weakness in the aerospace aftermarket, process and industrial
businesses and higher defined benefit pension expense, which was
partially offset by the cost savings achieved from the
restructuring activities related to the fourth quarter of 2008
restructuring charges. The fourth quarter of 2008 restructuring
charges and asset write-downs of $20.4 million had a
negative impact on EIGs operating margins of
140 basis points.
EMGs sales totaled $951.8 million for 2009, a
decrease of $176.7 million or 15.7% from
$1,128.5 million in 2008. The sales decrease was due to an
internal sales decline of approximately 21%, excluding an
unfavorable 3% effect of foreign currency translation, driven
primarily by the engineered materials, interconnects and
packaging (EMIP) and cost-driven motors businesses.
Partially offsetting the sales decrease were the 2009
acquisition of High Standard Aviation and the 2008 acquisitions
of Drake, MCG, Reading Alloys and Muirhead.
EMGs operating income was $166.6 million for 2009, a
decrease of $8.6 million or 4.9% when compared with
$175.2 million in 2008. EMGs decrease in operating
income was driven by the decrease in sales noted above,
26
predominantly by weakness in the EMIP businesses, which was
partially offset by profit contributions made by the
acquisitions mentioned above and the fourth quarter of 2008
restructuring charges and asset write-downs of
$19.4 million. EMGs operating margins were 17.5% of
sales for 2009 compared with 15.5% of sales in 2008. The
increase in operating margins was primarily driven by
Operational Excellence capabilities and cost reduction
initiatives throughout the Group, including the cost savings
achieved from the restructuring activities related to the fourth
quarter of 2008 restructuring charges and asset write-downs. The
fourth quarter of 2008 restructuring charges and asset
write-downs of $19.4 million had a negative impact on
operating margins of 170 basis points.
Fourth
Quarter Results
Net sales for the fourth quarter of 2009 were
$523.5 million, a decrease of $100.2 million or 16.1%
when compared with net sales of $623.7 million for the
fourth quarter of 2008. Net sales for EIG were
$286.0 million in 2009, a decrease of 20.9% from sales of
$361.6 million in 2008. Net sales for EMG were
$237.5 million in 2009, a decrease of 9.4% from sales of
$262.1 million in 2008. The Companys internal sales
decline was approximately 20%, which excludes a 2% favorable
effect of foreign currency translation. The acquisitions
mentioned above offset approximately 2% of the Companys
internal sales decline.
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 ($0.17 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
that were 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 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. See Note 6 to the Consolidated
Financial Statements included in Part II, Item 8 of
this Annual Report on
Form 10-K
for further details.
Net income for the fourth quarter of 2009 was
$51.9 million, an increase of $8.1 million or 18.5%
when compared with $43.8 million for the fourth quarter of
2008. Diluted earnings per share in the fourth quarter of 2009
was $0.32, an increase of $0.05 or 17.1% when compared with
$0.27 per diluted share in the fourth quarter of 2008. Diluted
earnings per share includes the impact of the fourth quarter of
2008 restructuring charges and asset write-downs, which
negatively impacted earnings by $0.17 per diluted share.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$423.0 million in 2010, an increase of $58.3 million
or 16.0% when compared with $364.7 million in 2009. The
increase in cash provided by operating activities was primarily
due to the $78.2 million increase in net income and a
$17.6 million reduction in defined benefit pension
contributions paid. The increase in cash provided by operating
activities was partially offset by higher overall operating
working capital levels necessary to grow the Companys
businesses. Free cash flow (cash flow provided by operating
activities less capital expenditures) was $383.8 million in
2010, compared to $331.6 million in 2009. EBITDA (earnings
before interest, income taxes, depreciation and amortization)
was $545.9 million in 2010, compared with
$428.0 million in 2009. 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 in this Annual Report on
Form 10-K
for a reconciliation of U.S. generally accepted accounting
principles (GAAP) measures to comparable non-GAAP
measures).
27
Cash used for investing activities totaled $566.8 million
in 2010, compared with $106.3 million in 2009. In 2010, the
Company paid $538.6 million for six business acquisitions,
net of cash received, compared with $72.9 million paid for
three business acquisitions, net of cash received, in 2009.
Additions to property, plant and equipment totaled
$39.2 million in 2010, compared with $33.1 million in
2009.
Cash provided by financing activities totaled $62.6 million
in 2010, compared with $102.5 million of cash used for
financing activities in 2009. The change in financing cash flow
was primarily the result of the net total borrowings increase
described further below, partially offset by $78.6 million
used for repurchases of 3.1 million shares of the
Companys common stock in 2010. No shares were repurchased
in 2009. In January 2010, the Board of Directors approved an
increase of $75 million in the authorization for the
repurchase of its common stock. This increase was added to the
$68.5 million that remained available at December 31,
2009 from existing authorizations approved in 2008, for a total
of $143.5 million available for repurchases of the
Companys common stock. At December 31, 2010,
$64.9 million was available under the current Board
authorization for future share repurchases.
In 2010, net total borrowings increased by $139.3 million,
compared with a net total borrowings decrease of
$92.4 million in 2009. In the third quarter of 2010, the
Company paid in full an expiring 50 million British pound
($78.2 million) 5.96% senior note. In the third
quarter of 2010, the Company issued an 80 million British
pound ($124.8 million at December 31,
2010) 4.68% senior note due in September 2020. In the
second quarter of 2009, the Company paid in full a
40 million British pound ($62.0 million) borrowing
under the revolving credit facility. In the fourth quarter of
2009, the Company paid in full a 10.5 million British pound
($16.9 million) floating-rate term note.
The Companys revolving credit facilitys total
borrowing capacity is $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 facility expires in June 2012. At
December 31, 2010, the Company had $437.3 million
available under its revolving credit facility, including the
$100 million accordion feature. At December 31, 2010,
$92.0 million was drawn under the revolving credit facility.
At December 31, 2010, total debt outstanding was
$1,168.5 million, compared with $1,041.7 million at
December 31, 2009, with no significant maturities until
2012. The
debt-to-capital
ratio was 39.7% at December 31, 2010, compared with 39.9%
at December 31, 2009. The net
debt-to-capital
ratio (total debt less cash and cash equivalents divided by the
sum of net debt and stockholders equity) was 36.2% at
December 31, 2010, compared with 33.7% at December 31,
2009. The net
debt-to-capital
ratio is presented because the Company is aware that this
measure is used by third parties in evaluating the Company. (See
the Notes to Selected Financial Data included in
Item 6 in this Annual Report on
Form 10-K
for a reconciliation of U.S. GAAP measures to comparable
non-GAAP measures).
Additional financing activities for 2010 include the receipt of
net cash proceeds from the exercise of employee stock options of
$21.5 million compared with $11.6 million in 2009.
Cash dividends paid were $28.6 million in 2010, compared
with $25.6 million in 2009.
As a result of all of the Companys cash flow activities in
2010, cash and cash equivalents at December 31, 2010
totaled $163.2 million, compared with $246.4 million
at December 31, 2009. The Company is in compliance with all
covenants, including 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.
28
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, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Payments Due
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|
|
|
|
|
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Less
|
|
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One to
|
|
|
Four to
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|
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After
|
|
|
|
|
|
|
Than
|
|
|
Three
|
|
|
Five
|
|
|
Five
|
|
Contractual Obligations(1)
|
|
Total
|
|
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One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
(In millions)
|
|
|
Long-term debt(2)
|
|
$
|
1,054.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
191.8
|
|
|
$
|
862.3
|
|
Revolving credit loans(3)
|
|
|
92.0
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|
|
|
92.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease(4)
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|
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12.1
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|
|
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0.9
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|
|
|
1.8
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|
|
|
1.8
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|
|
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7.6
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Other indebtedness
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10.3
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|
|
|
4.3
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|
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4.6
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1.4
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
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|
1,168.5
|
|
|
|
97.2
|
|
|
|
6.4
|
|
|
|
195.0
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|
|
|
869.9
|
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Interest on long-term fixed-rate debt
|
|
|
407.2
|
|
|
|
59.5
|
|
|
|
118.8
|
|
|
|
115.8
|
|
|
|
113.1
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Noncancellable operating leases
|
|
|
97.1
|
|
|
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19.6
|
|
|
|
27.1
|
|
|
|
14.7
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|
|
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35.7
|
|
Purchase obligations(5)
|
|
|
222.0
|
|
|
|
208.7
|
|
|
|
13.0
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|
|
|
0.3
|
|
|
|
|
|
Employee severance and other
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|
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18.1
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|
|
|
18.1
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Total
|
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$
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1,912.9
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|
|
$
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403.1
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|
|
$
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165.3
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|
|
$
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325.8
|
|
|
$
|
1,018.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
(1) |
|
The liability for uncertain tax positions is not included in the
table of contractual obligations as of December 31, 2010
because the timing of the settlements of these uncertain tax
positions cannot be reasonably estimated at this time. See
Note 14 to the Consolidated Financial Statements included
in Part II, Item 8 of this Annual Report on
Form 10-K
for further details. |
|
(2) |
|
Includes the $450 million private placement completed in
2007 and the $350 million private placement completed in
2008. |
|
(3) |
|
Although not contractually obligated, the Company expects to
have the capability to repay the revolving credit loan within
one year as permitted in the credit agreement. Accordingly,
$92.0 million is classified as short-term debt at
December 31, 2010. |
|
(4) |
|
Represents a capital lease for a building and land associated
with the Cameca SAS acquisition. The lease has a term of twelve
years, which began in July 2006, and is payable quarterly. |
|
(5) |
|
Purchase obligations primarily consist of contractual
commitments to purchase certain inventories at fixed prices. |
Other
Commitments
The Company has standby letters of credit and surety bonds of
$23.2 million related to performance and payment guarantees
at December 31, 2010. 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.
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
29
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 included in
Part II, Item 8 of this Annual Report on
Form 10-K.
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Revenue Recognition. The Company recognizes
revenue on product sales in the period when the sales process is
complete. This generally occurs when products are shipped to the
customer in accordance with terms of an agreement of sale, under
which title and risk of loss have been transferred,
collectibility is reasonably assured and pricing is fixed or
determinable. For a small percentage of sales where title and
risk of loss passes at point of delivery, 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, 2010, 2009 and 2008, the
accrual for future warranty obligations was $18.3 million,
$16.0 million and $16.1 million, respectively. The
Companys expense for warranty obligations was
$10.6 million, $8.2 million and $12.2 million in
2010, 2009 and 2008, respectively. The warranty periods for
products sold vary widely among the Companys operations,
but for the most part do not exceed one year. The Company
calculates its warranty expense provision based on past warranty
experience and adjustments are made periodically to reflect
actual warranty expenses. If actual future sales returns and
allowances and warranty amounts are higher than past experience,
additional accruals may be required.
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Accounts Receivable. The Company maintains
allowances for estimated losses resulting from the inability of
specific customers to meet their financial obligations to the
Company. A specific reserve for bad debts is recorded against
the amount due from these customers. For all other customers,
the Company recognizes reserves for bad debts based on the
length of time specific receivables are past due based on its
historical experience. If the financial condition of the
Companys customers were to deteriorate, resulting in their
inability to make payments, additional allowances may be
required. The allowance for possible losses on receivables was
$6.0 million and $5.8 million at December 31,
2010 and 2009, respectively.
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Inventories. The Company uses the
first-in,
first-out (FIFO) method of accounting, which
approximates current replacement cost, for approximately 69% of
its inventories at December 31, 2010. The
last-in,
first-out (LIFO) method of accounting is used to
determine cost for the remaining 31% of its inventory at
December 31, 2010. For inventories where cost is determined
by the LIFO method, the FIFO value would have been
$23.9 million and $20.8 million higher than the LIFO
value reported in the consolidated balance sheet at
December 31, 2010 and 2009, respectively. The Company
provides estimated inventory reserves for slow-moving and
obsolete inventory based on current assessments about future
demand, market conditions, customers who may be experiencing
financial difficulties and related management initiatives. If
these factors are less favorable than those projected by
management, additional inventory reserves may be required.
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Goodwill and Other Intangible Assets. 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. The impairment test for
goodwill requires a two-step process. 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 any such impairment losses.
|
30
The Company identifies its reporting units at the component
level, which is one level below our operating segments.
Generally, goodwill arises from acquisitions of specific
operating companies and is assigned to the reporting unit in
which a particular operating company resides. Our reporting
units are composed of the business units one level below our
operating segment at which discrete financial information is
prepared and regularly reviewed by segment management.
The Company principally relies on a discounted cash flow
analysis to determine the fair value of each reporting unit,
which considers forecasted cash flows discounted at an
appropriate discount rate. The Company believes that market
participants would use a discounted cash flow analysis to
determine the fair value of its reporting units in a sale
transaction. The annual goodwill impairment test requires the
Company to make a number of assumptions and estimates concerning
future levels of revenue growth, operating margins,
depreciation, amortization and working capital requirements,
which are based upon the Companys long-range plan. The
Companys long-range plan is updated as part of its annual
planning process and is reviewed and approved by management. The
discount rate is an estimate of the overall after-tax rate of
return required by a market participant whose weighted average
cost of capital includes both equity and debt, including a risk
premium. While the Company uses the best available information
to prepare its cash flow and discount rate assumptions, actual
future cash flows or market conditions could differ
significantly resulting in future impairment charges related to
recorded goodwill balances. While there are always changes in
assumptions to reflect changing business and market conditions,
the Companys overall methodology and the population of
assumptions used have remained unchanged. In order to evaluate
the sensitivity of the goodwill impairment test to changes in
the fair value calculations, the Company applied a hypothetical
10% decrease in fair values of each reporting unit. The results
(expressed as a percentage of carrying value for the respective
reporting unit) showed that, despite the hypothetical 10%
decrease in fair value, the fair values of the Companys
reporting units still exceeded their respective carrying values
by 26% to 406% for each of the Companys reporting units.
The impairment test for indefinite-lived intangibles other than
goodwill (primarily trademarks and trade names) consists of a
comparison of the fair value of the indefinite-lived intangible
asset to the carrying value of the asset as of the impairment
testing date. The Company estimates the fair value of its
indefinite-lived intangibles using the relief from royalty
method. The Company believes the relief from royalty method is a
widely used valuation technique for such assets. The fair value
derived from the relief from royalty method is measured as the
discounted cash flow savings realized from owning such
trademarks and trade names and not having to pay a royalty for
their use.
The Companys acquisitions have generally included a
significant goodwill component and the Company expects to
continue to make acquisitions. At December 31, 2010,
goodwill and other indefinite-lived intangible assets totaled
$1,818.3 million or 47.6% of the Companys total
assets. The Company performed its required annual impairment
tests in the fourth quarter of 2010 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.
Other intangible assets with finite lives are evaluated for
impairment when events or changes in circumstances indicate the
carrying value may not be recoverable. The carrying value of
other intangible assets with finite lives is considered impaired
when the total projected undiscounted cash flows from those
assets are less than the carrying value. In that event, a loss
is recognized based on the amount by which the carrying value
exceeds the fair market value of those assets. Fair market value
is determined primarily using present value techniques based on
projected cash flows from the asset group.
|
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|
Pensions. The Company has U.S. and
foreign defined benefit and defined contribution pension plans.
The most significant elements in determining the Companys
pension income or expense are the assumed pension liability
discount rate and the expected return on plan assets. The
pension discount rate reflects the current interest rate at
which the pension liabilities could be settled at the 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 2010, the Company considered rates
of return on high-quality, fixed-income investments that have
maturities consistent
|
31
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|
with the anticipated funding requirements of the plan. The
discount rate used in determining the 2010 pension cost was
5.90% for U.S. defined benefit pension plans and 5.98% for
foreign plans. The discount rate used for determining the funded
status of the plans at December 31, 2010 and determining
the 2011 defined benefit pension cost is 5.6% for
U.S. plans and 5.71% 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 2010 of 8.25% for U.S. defined
benefit pension plans and 6.97% for foreign plans. The Company
will use 6.96% for the foreign plans in 2011 and expects to
lower the U.S. plans rate to 8.0% in 2011. The
Company determines the expected long-term rate of return based
primarily on its expectation of future returns for the pension
plans investments. Additionally, the Company considers
historical returns on comparable fixed-income investments and
equity investments and adjusts its estimate as deemed
appropriate. The rate of compensation increase used in
determining the 2010 pension expense for the U.S. plans was
3.75% and was 2.98% for the foreign plans. The U.S. rate of
compensation increase will remain unchanged in 2011. The foreign
plans rates of compensation increase will decrease
slightly to 2.97% in 2011. For the year ended December 31,
2010, the Company recognized consolidated pre-tax pension income
of $3.2 million from its U.S. and foreign defined
benefit pension plans as compared with pre-tax pension expense
of $10.3 million recognized for these plans in 2009. The
Company estimates its 2011 U.S. and foreign defined benefit
pension pre-tax income to be approximately $7.9 million.
|
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 in stockholders equity and will be
amortized as a component of net periodic pension cost. The
Company uses a December 31 measurement date (the date at which
plan assets and benefit obligations are measured) for its
U.S. and foreign defined benefit plans.
To fund the plans, the Company made cash contributions to its
defined benefit pension plans during 2010 which totaled
$3.6 million, compared with $21.1 million in 2009. The
Company anticipates making approximately $3.0 million to
$5.0 million in cash contributions to its defined benefit
pension plans in 2011.
|
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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.
|
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.
The Company assesses the uncertainty in its tax positions, by
applying a minimum recognition threshold which 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. The Company recognizes interest and penalties
accrued related to uncertain tax positions in income tax expense.
32
Recently
Issued Financial Accounting Standards
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (ASU
2010-06).
ASU 2010-06
provides amendments that clarify existing disclosures and
require new disclosures related to fair value measurements,
providing greater disaggregated information on each class of
assets and liabilities and more robust disclosures on transfers
between levels 1 and 2, and activity in level 3 fair
value measurements. The Company adopted the applicable
provisions within ASU
2010-06
effective January 1, 2010. See Note 4 to the
Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on
Form 10-K
for further details. The Company is currently evaluating the
impact of adopting the level 3 disclosures of ASU
2010-06 that
are effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years.
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (ASU
2010-09).
ASU 2010-09
removes the requirement for an SEC filer to disclose a date in
both the issued and revised financial statements for which the
Company evaluated events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. ASU
2010-09 was
effective as of February 2010.
In April 2010, the FASB issued ASU
No. 2010-17,
Revenue Recognition Milestone Method
(ASU
2010-17).
ASU 2010-17
establishes criteria for a milestone to be considered
substantive and allows revenue recognition when the milestone is
achieved in research or development arrangements. In addition,
it requires disclosure of certain information with respect to
arrangements that contain milestones. ASU
2010-17 is
effective for the Company prospectively beginning
January 1, 2011. The Company has evaluated ASU
2010-17 and
does not expect its adoption will have a significant impact on
the Companys consolidated results of operations, financial
position or cash flows.
In December 2010, the FASB issued ASU
No. 2010-29,
Business Combinations (ASU
2010-29).
ASU 2010-29
addresses diversity in practice about the interpretation of the
pro forma disclosure requirement for business combinations. ASU
2010-29
requires disclosure of pro forma revenue and earnings for the
current reporting period as though the acquisition date for all
business combinations that occurred during the year had been as
of the beginning of the annual reporting period for both the
current and any comparable periods reported. The Company is
currently evaluating the impact of adopting the disclosure
requirements of ASU
2010-29 that
are effective for fiscal years beginning after December 15,
2010.
Internal
Reinvestment
Capital
Expenditures
Capital expenditures were $39.2 million or 1.6% of sales in
2010, compared with $33.1 million or 1.6% of sales in 2009.
52% of the expenditures in 2010 were for improvements to
existing equipment or additional equipment to increase
productivity and expand capacity. The Companys 2010
capital expenditures increased due to a continuing emphasis on
spending to improve productivity and expand manufacturing
capabilities. The 2011 capital expenditures are expected to
approximate 1.6% 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 $112.1 million,
$101.4 million and $115.9 million in 2010, 2009 and
2008, respectively. Customer reimbursements in 2010, 2009 and
2008 were $6.4 million, $5.5 million and
$6.1 million, respectively. These amounts included net
Company-funded research and development expenses of
$56.8 million, $50.5 million and $57.5 million,
respectively. All such expenditures were directed toward the
development of new products and processes and the improvement of
existing products and processes.
33
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. The Company
believes these waste products were handled in compliance with
regulations existing at that time. At December 31, 2010,
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 ten 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 obligations. The Company historically has resolved
these issues within established reserve levels and reasonably
expects this result will continue. In addition to these
non-owned sites, the Company has an ongoing practice of
providing reserves for probable remediation activities at
certain of its current or previously owned manufacturing
locations (the owned sites). For claims and
proceedings against the Company with respect to other
environmental matters, reserves are established once the Company
has determined that a loss is probable and estimable. This
estimate is refined as the Company moves through the various
stages of investigation, risk assessment, feasibility study and
corrective action processes. In certain instances, the Company
has developed a range of estimates for such costs and has
recorded a liability based on the low end of the range. It is
reasonably possible that the actual cost of remediation of the
individual sites could vary from the current estimates and the
amounts accrued in the consolidated financial statements;
however, the amounts of such variances are not expected to
result in a material change to the consolidated financial
statements. In estimating the Companys liability for
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, 2010 and 2009
were $31.3 million and $27.0 million, respectively,
for both non-owned and owned sites. In 2010, the Company
recorded $6.4 million in reserves, related primarily to a
2010 business acquisition. These reserves relate to the
estimated costs to remediate known environmental issues at an
owned site associated with the acquired business. Additionally,
the Company spent $2.1 million on environmental matters in
2010. The Companys reserves for environmental liabilities
at December 31, 2010 and 2009 include reserves of
$18.9 million and $19.2 million, respectively, for an
owned site acquired in connection with the 2005 acquisition of
HCC Industries (HCC). The Company is the designated
performing party 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, 2010, the Company had
$14.2 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
approximately $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 and, as a result, the Company is
performing investigation and remediation of a formerly owned
site under a Stipulation and Settlement Agreement.
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
34
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 results of operations, financial
position 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 included in
Part II, Item 8 of this Annual Report on
Form 10-K.
The foreign currencies to which the Company has the most
significant exchange rate exposure are the Chinese renminbi, the
Euro, the British pound, the Japanese yen and the Mexican peso.
Exposure to foreign currency rate fluctuation is monitored, and
when possible, mitigated through the occasional use of local
borrowings and derivative financial instruments in the foreign
country affected. The effect of translating foreign
subsidiaries balance sheets into U.S. dollars is
included in other comprehensive income within stockholders
equity. Foreign currency transactions have not had a significant
effect on the operating results reported by the Company because
revenues and costs associated with the revenues are generally
transacted in the same foreign currencies.
The primary commodities to which the Company has market exposure
are raw material purchases of nickel, aluminum, copper, steel,
titanium and gold. Exposure to price changes in these
commodities is generally mitigated 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.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
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.
35
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
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.
36
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 internal control 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 2011 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 39.
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, 2010 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, 2010.
The Companys internal control over financial reporting as
of December 31, 2010 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which appears on page 38.
AMETEK, Inc.
February 24, 2011
37
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, 2010, 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, 2010, 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, 2010 and 2009, and the related consolidated
statements of income, stockholders equity and cash flows
for each of the three years in the period ended
December 31, 2010, and our report dated February 24,
2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 24, 2011
38
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, 2010 and 2009, and the
related consolidated statements of income, stockholders
equity and cash flows for each of the three years in the period
ended December 31, 2010. 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, 2010 and
2009, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
AMETEK, Inc.s internal control over financial reporting as
of December 31, 2010, 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 24, 2011 expressed an
unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 24, 2011
39
AMETEK,
Inc.
(In thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
2,470,952
|
|
|
$
|
2,098,355
|
|
|
$
|
2,531,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation
|
|
|
1,646,892
|
|
|
|
1,435,953
|
|
|
|
1,730,086
|
|
Selling, general and administrative
|
|
|
296,482
|
|
|
|
254,143
|
|
|
|
322,552
|
|
Depreciation
|
|
|
45,420
|
|
|
|
42,209
|
|
|
|
45,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,988,794
|
|
|
|
1,732,305
|
|
|
|
2,098,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
482,158
|
|
|
|
366,050
|
|
|
|
432,654
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(67,522
|
)
|
|
|
(68,750
|
)
|
|
|
(63,652
|
)
|
Other, net
|
|
|
(8,386
|
)
|
|
|
(2,667
|
)
|
|
|
(2,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
406,250
|
|
|
|
294,633
|
|
|
|
366,216
|
|
Provision for income taxes
|
|
|
122,318
|
|
|
|
88,863
|
|
|
|
119,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
283,932
|
|
|
$
|
205,770
|
|
|
$
|
246,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.79
|
|
|
$
|
1.28
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.76
|
|
|
$
|
1.27
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
159,056
|
|
|
|
160,182
|
|
|
|
159,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
160,884
|
|
|
|
161,775
|
|
|
|
161,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
40
AMETEK,
Inc.
(In thousands, except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
163,208
|
|
|
$
|
246,356
|
|
Marketable securities
|
|
|
5,645
|
|
|
|
4,994
|
|
Receivables, less allowance for possible losses
|
|
|
399,913
|
|
|
|
331,383
|
|
Inventories
|
|
|
335,253
|
|
|
|
311,542
|
|
Deferred income taxes
|
|
|
27,106
|
|
|
|
30,669
|
|
Other current assets
|
|
|
43,367
|
|
|
|
44,486
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
974,492
|
|
|
|
969,430
|
|
Property, plant and equipment, net
|
|
|
318,126
|
|
|
|
310,053
|
|
Goodwill
|
|
|
1,573,645
|
|
|
|
1,277,291
|
|
Other intangibles, net of accumulated amortization
|
|
|
761,556
|
|
|
|
521,888
|
|
Investments and other assets
|
|
|
191,096
|
|
|
|
167,370
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,818,915
|
|
|
$
|
3,246,032
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$
|
97,152
|
|
|
$
|
85,801
|
|
Accounts payable
|
|
|
236,600
|
|
|
|
191,779
|
|
Income taxes payable
|
|
|
39,026
|
|
|
|
13,345
|
|
Accrued liabilities
|
|
|
178,081
|
|
|
|
133,357
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
550,859
|
|
|
|
424,282
|
|
Long-term debt
|
|
|
1,071,360
|
|
|
|
955,880
|
|
Deferred income taxes
|
|
|
311,466
|
|
|
|
206,354
|
|
Other long-term liabilities
|
|
|
110,026
|
|
|
|
92,492
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,043,711
|
|
|
|
1,679,008
|
|
|
|
|
|
|
|
|
|
|
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: 2010 168,050,869 shares;
2009 166,500,867 shares
|
|
|
1,681
|
|
|
|
1,665
|
|
Capital in excess of par value
|
|
|
263,290
|
|
|
|
223,502
|
|
Retained earnings
|
|
|
1,755,742
|
|
|
|
1,500,471
|
|
Accumulated other comprehensive loss
|
|
|
(91,958
|
)
|
|
|
(75,281
|
)
|
Treasury stock: 2010 7,341,520 shares;
2009 4,674,869 shares
|
|
|
(153,551
|
)
|
|
|
(83,333
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,775,204
|
|
|
|
1,567,024
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,818,915
|
|
|
$
|
3,246,032
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
41
AMETEK,
Inc.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
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
|
|
|
|
|
|
|
1,665
|
|
|
|
|
|
|
|
1,653
|
|
|
|
|
|
|
|
1,646
|
|
Shares issued
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,681
|
|
|
|
|
|
|
|
1,665
|
|
|
|
|
|
|
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
223,502
|
|
|
|
|
|
|
|
202,449
|
|
|
|
|
|
|
|
173,901
|
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
14,202
|
|
|
|
|
|
|
|
3,455
|
|
|
|
|
|
|
|
3,472
|
|
Share-based compensation costs
|
|
|
|
|
|
|
16,596
|
|
|
|
|
|
|
|
13,502
|
|
|
|
|
|
|
|
20,186
|
|
Excess tax benefits from exercise of stock options
|
|
|
|
|
|
|
8,990
|
|
|
|
|
|
|
|
4,096
|
|
|
|
|
|
|
|
4,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
263,290
|
|
|
|
|
|
|
|
223,502
|
|
|
|
|
|
|
|
202,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
1,500,471
|
|
|
|
|
|
|
|
1,320,470
|
|
|
|
|
|
|
|
1,099,111
|
|
Net income
|
|
$
|
283,932
|
|
|
|
283,932
|
|
|
$
|
205,770
|
|
|
|
205,770
|
|
|
$
|
246,952
|
|
|
|
246,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
(28,554
|
)
|
|
|
|
|
|
|
(25,579
|
)
|
|
|
|
|
|
|
(25,685
|
)
|
Other
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
(190
|
)
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
1,755,742
|
|
|
|
|
|
|
|
1,500,471
|
|
|
|
|
|
|
|
1,320,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(8,096
|
)
|
|
|
|
|
|
|
(50,706
|
)
|
|
|
|
|
|
|
7,331
|
|
Translation adjustments
|
|
|
(29,791
|
)
|
|
|
|
|
|
|
38,357
|
|
|
|
|
|
|
|
(46,784
|
)
|
|
|
|
|
(Loss) gain on net investment hedges, net of tax benefit
(expense) of $1,893, ($2,290) and $6,058 in 2010, 2009 and 2008,
respectively
|
|
|
(3,515
|
)
|
|
|
|
|
|
|
4,253
|
|
|
|
|
|
|
|
(11,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,306
|
)
|
|
|
(33,306
|
)
|
|
|
42,610
|
|
|
|
42,610
|
|
|
|
(58,037
|
)
|
|
|
(58,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(41,402
|
)
|
|
|
|
|
|
|
(8,096
|
)
|
|
|
|
|
|
|
(50,706
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(67,121
|
)
|
|
|
|
|
|
|
(93,360
|
)
|
|
|
|
|
|
|
(3,040
|
)
|
Change in pension plans, net of tax (expense) benefit of
($9,938), ($15,830) and $56,344 in 2010, 2009 and 2008,
respectively
|
|
|
16,323
|
|
|
|
16,323
|
|
|
|
26,239
|
|
|
|
26,239
|
|
|
|
(90,320
|
)
|
|
|
(90,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(50,798
|
)
|
|
|
|
|
|
|
(67,121
|
)
|
|
|
|
|
|
|
(93,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
(701
|
)
|
|
|
|
|
|
|
1,079
|
|
Increase (decrease) during the year, net of tax benefit
(expense) of $165, $343 and ($958) in 2010, 2009 and 2008,
respectively
|
|
|
306
|
|
|
|
306
|
|
|
|
637
|
|
|
|
637
|
|
|
|
(1,780
|
)
|
|
|
(1,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
242
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
(701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income for the year
|
|
|
(16,677
|
)
|
|
|
|
|
|
|
69,486
|
|
|
|
|
|
|
|
(150,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
$
|
267,255
|
|
|
|
|
|
|
$
|
275,256
|
|
|
|
|
|
|
$
|
96,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss at the end of the year
|
|
|
|
|
|
|
(91,958
|
)
|
|
|
|
|
|
|
(75,281
|
)
|
|
|
|
|
|
|
(144,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
|
|
|
|
(83,333
|
)
|
|
|
|
|
|
|
(92,033
|
)
|
|
|
|
|
|
|
(39,321
|
)
|
Issuance of common stock under employee stock plans
|
|
|
|
|
|
|
8,391
|
|
|
|
|
|
|
|
8,700
|
|
|
|
|
|
|
|
4,732
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(78,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
|
|
|
|
(153,551
|
)
|
|
|
|
|
|
|
(83,333
|
)
|
|
|
|
|
|
|
(92,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
|
|
|
$
|
1,775,204
|
|
|
|
|
|
|
$
|
1,567,024
|
|
|
|
|
|
|
$
|
1,287,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
42
AMETEK,
Inc.
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
283,932
|
|
|
$
|
205,770
|
|
|
$
|
246,952
|
|
Adjustments to reconcile net income to total operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
72,896
|
|
|
|
65,500
|
|
|
|
63,261
|
|
Deferred income tax expense
|
|
|
3,774
|
|
|
|
5,768
|
|
|
|
29,742
|
|
Share-based compensation expense
|
|
|
16,596
|
|
|
|
13,502
|
|
|
|
20,186
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(43,179
|
)
|
|
|
87,146
|
|
|
|
6,636
|
|
Decrease (increase) in inventories and other current assets
|
|
|
7,334
|
|
|
|
83,622
|
|
|
|
(35,180
|
)
|
Increase (decrease) in payables, accruals and income taxes
|
|
|
77,773
|
|
|
|
(91,622
|
)
|
|
|
3,161
|
|
Increase (decrease) in other long-term liabilities
|
|
|
6,382
|
|
|
|
3,345
|
|
|
|
(1,907
|
)
|
Pension contribution
|
|
|
(3,555
|
)
|
|
|
(21,127
|
)
|
|
|
(79,905
|
)
|
Other
|
|
|
1,060
|
|
|
|
12,767
|
|
|
|
(5,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
423,013
|
|
|
|
364,671
|
|
|
|
247,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(39,183
|
)
|
|
|
(33,062
|
)
|
|
|
(44,215
|
)
|
Purchases of businesses, net of cash acquired
|
|
|
(538,585
|
)
|
|
|
(72,919
|
)
|
|
|
(463,012
|
)
|
(Increase) decrease in marketable securities
|
|
|
(619
|
)
|
|
|
(638
|
)
|
|
|
6,323
|
|
Other
|
|
|
11,564
|
|
|
|
275
|
|
|
|
4,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(566,823
|
)
|
|
|
(106,344
|
)
|
|
|
(496,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
92,364
|
|
|
|
(13,013
|
)
|
|
|
69,693
|
|
Additional long-term borrowings
|
|
|
125,120
|
|
|
|
1,466
|
|
|
|
430,000
|
|
Reduction in long-term borrowings
|
|
|
(78,200
|
)
|
|
|
(80,817
|
)
|
|
|
(232,835
|
)
|
Repayment of life insurance policy loans
|
|
|
|
|
|
|
|
|
|
|
(21,394
|
)
|
Repurchases of common stock
|
|
|
(78,609
|
)
|
|
|
|
|
|
|
(57,444
|
)
|
Cash dividends paid
|
|
|
(28,554
|
)
|
|
|
(25,579
|
)
|
|
|
(25,685
|
)
|
Excess tax benefits from share-based payments
|
|
|
8,990
|
|
|
|
4,096
|
|
|
|
4,890
|
|
Proceeds from employee stock plans and other
|
|
|
21,518
|
|
|
|
11,328
|
|
|
|
6,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
62,629
|
|
|
|
(102,519
|
)
|
|
|
173,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,967
|
)
|
|
|
3,568
|
|
|
|
(7,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(83,148
|
)
|
|
|
159,376
|
|
|
|
(83,159
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
246,356
|
|
|
|
86,980
|
|
|
|
170,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
163,208
|
|
|
$
|
246,356
|
|
|
$
|
86,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
43
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, 2010 and 2009, 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, 2010 and 2009 was
$4.7 million ($4.5 million amortized cost) and
$13.2 million ($13.5 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 significant. 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
$6.0 million and $5.8 million at December 31,
2010 and 2009, respectively. See Note 9.
Inventories
The Company uses the
first-in,
first-out (FIFO) method of accounting, which
approximates current replacement cost, for 69% of its
inventories at December 31, 2010. The
last-in,
first-out (LIFO) method of accounting is used to
determine cost for the remaining 31% of the Companys
inventory at December 31, 2010. For inventories where cost
is determined by the LIFO method, the excess of the FIFO value
over the LIFO value was $23.9 million and
$20.8 million at December 31, 2010 and 2009,
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.
44
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures
for additions to plant facilities, or that extend their useful
lives, are capitalized. The cost of minor tools, jigs and dies,
and maintenance and repairs is charged to operations as
incurred. Depreciation of plant and equipment is calculated
principally on a straight-line basis over the estimated useful
lives of the related assets. The range of lives for depreciable
assets is generally three to ten 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, 2010, 2009 and 2008, the accrual for future
warranty obligations was $18.3 million, $16.0 million
and $16.1 million, respectively. The Companys expense
for warranty obligations was $10.6 million in 2010,
$8.2 million in 2009 and $12.2 million in 2008. 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 $56.8 million in 2010,
$50.5 million in 2009 and $57.5 million in 2008.
Shipping
and Handling Costs
Shipping and handling costs are included in cost of sales and
were $33.3 million in 2010, $24.6 million in 2009 and
$34.0 million in 2008.
45
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Weighted average shares*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
159,056
|
|
|
|
160,182
|
|
|
|
159,222
|
|
Stock option and award plans
|
|
|
1,828
|
|
|
|
1,593
|
|
|
|
1,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
160,884
|
|
|
|
161,775
|
|
|
|
161,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2. |
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, 2010 or 2009. 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 borrowings 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 were subsequently refinanced with
long-term private placement debt. These borrowings were designed
to create net investment hedges in each of the foreign
subsidiaries on their respective dates of acquisition. 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. Any gain or loss on the hedging instrument
(the debt) following hedge designation, 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, 2010 and 2009, all
net investment hedges were effective. At December 31, 2010,
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,
2009, 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. See
Note 5.
46
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
The Company accounts for share-based payments in accordance with
Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic 718,
Compensation Stock Compensation. 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 12.
Goodwill
and Other Intangible Assets
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.
The Company identifies its reporting units at the component
level, which is one level below our operating segments.
Generally, goodwill arises from acquisitions of specific
operating companies and is assigned to the reporting unit in
which a particular operating company resides. Our reporting
units are composed of the business units one level below our
operating segment at which discrete financial information is
prepared and regularly reviewed by segment management.
The Company principally relies on a discounted cash flow
analysis to determine the fair value of each reporting unit,
which considers forecasted cash flows discounted at an
appropriate discount rate. The Company believes that market
participants would use a discounted cash flow analysis to
determine the fair value of its reporting units in a sales
transaction. The annual goodwill impairment test requires the
Company to make a number of assumptions and estimates concerning
future levels of revenue growth, operating margins,
depreciation, amortization and working capital requirements,
which are based upon the Companys long-range plan. The
Companys long-range plan is updated as part of its annual
planning process and is reviewed and approved by management. The
discount rate is an estimate of the overall after-tax rate of
return required by a market participant whose weighted average
cost of capital includes both equity and debt, including a risk
premium. While the Company uses the best available information
to prepare its cash flow and discount rate assumptions, actual
future cash flows or market conditions could differ
significantly resulting in future impairment charges related to
recorded goodwill balances.
The impairment test for indefinite-lived intangibles other than
goodwill (primarily trademarks and trade names) consists of a
comparison of the fair value of the indefinite-lived intangible
asset to the carrying value of the asset as of the impairment
testing date. The Company estimates the fair value of its
indefinite-lived intangibles using the relief from royalty
method. The fair value derived from the relief from royalty
method is measured as the discounted cash flow savings realized
from owning such trademarks and trade names and not having to
pay a royalty for their use.
The Company completed its required annual impairment tests in
the fourth quarter of 2010, 2009 and 2008 and determined that
the carrying values of goodwill and other intangible assets with
indefinite lives were not impaired.
The Company evaluates impairment of its long-lived assets, other
than goodwill and indefinite-lived intangible assets when events
or changes in circumstances indicate the carrying value may not
be recoverable. The carrying value of a long-lived asset group
is considered impaired when the total projected undiscounted
cash flows from such asset group are separately identifiable and
are less than the carrying value. In that event, a loss is
recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset group.
Fair market value is determined primarily using present value
techniques based on projected cash flows from the asset group.
Losses on long-lived assets held for sale, other than goodwill
and indefinite-lived intangible assets, are determined in a
similar manner, except that fair market values are reduced for
disposal costs.
47
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 five to
20 years. Miscellaneous other intangible assets are being
amortized over a period of four to 20 years. The Company
periodically evaluates the reasonableness of the estimated
useful lives of these intangible assets.
Income
Taxes
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 recognizes interest
and penalties accrued related to uncertain tax positions in
income tax expense.
The Company also is required to assess the realizability of its
deferred tax assets, taking into consideration the
Companys forecast of future taxable income, the reversal
of other existing temporary differences, 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.
On November 2, 2010, the Companys Board of Directors
declared a
three-for-two
split of the Companys common stock. The stock split
resulted in the issuance of one additional share for every two
shares owned. The stock split was paid on December 21,
2010, to stockholders of record at the close of business on
December 10, 2010. Additionally, the Board of Directors
approved a 50% increase in the quarterly cash dividend rate on
the Companys common stock to $0.06 per common share from
$0.04 per common share on a post-split basis. All share and per
share information included in this report has been retroactively
adjusted to reflect the impact of the stock split.
|
|
3.
|
Recently
Issued Financial Accounting Standards
|
In January 2010, the FASB issued Accounting Standards Update
(ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (ASU
2010-06).
ASU 2010-06
provides amendments that clarify existing disclosures and
require new disclosures related to fair value measurements,
providing greater disaggregated information on each class of
assets and liabilities and more robust disclosures on transfers
between levels 1 and 2, and activity in level 3 fair
value measurements. The Company adopted the applicable
provisions within ASU
2010-06
effective January 1, 2010. See Note 4 to the
Consolidated Financial Statements for further details. The
Company is currently evaluating the impact of adopting the
level 3 disclosures of ASU
2010-06 that
are effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years.
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (ASU
2010-09).
ASU 2010-09
removes the requirement for an SEC filer to disclose a date in
both the issued and revised financial statements for which the
Company evaluated events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. ASU
2010-09 was
effective as of February 2010.
48
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2010, the FASB issued ASU
No. 2010-17,
Revenue Recognition Milestone Method
(ASU
2010-17).
ASU 2010-17
establishes criteria for a milestone to be considered
substantive and allows revenue recognition when the milestone is
achieved in research or development arrangements. In addition,
it requires disclosure of certain information with respect to
arrangements that contain milestones. ASU
2010-17 is
effective for the Company prospectively beginning
January 1, 2011. The Company has evaluated ASU
2010-17 and
does not expect its adoption will have a significant impact on
the Companys consolidated results of operations, financial
position or cash flows.
In December 2010, the FASB issued ASU
No. 2010-29,
Business Combinations (ASU
2010-29).
ASU 2010-29
addresses diversity in practice about the interpretation of the
pro forma disclosure requirement for business combinations. ASU
2010-29
requires disclosure of pro forma revenue and earnings for the
current reporting period as though the acquisition date for all
business combinations that occurred during the year had been as
of the beginning of the annual reporting period for both the
current and any comparable periods reported. The Company is
currently evaluating the impact of adopting the disclosure
requirements of ASU
2010-29 that
are effective for fiscal years beginning after December 15,
2010.
|
|
4.
|
Fair
Value Measurement
|
Fair value is defined 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.
The Company utilizes a valuation hierarchy for disclosure of the
inputs to the valuations 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, 2010, $3.6 million of the
Companys cash and cash equivalents and marketable
securities are valued as level 1 investments. In addition,
the Company held $4.7 million of marketable securities in
an institutional diversified equity securities mutual fund.
These securities are valued as level 2 investments. During
2010, the Company sold its level 2 investments in
fixed-income securities. The marketable securities are shown as
a separate line on the consolidated balance sheet. The
fixed-income securities are included in the investments and
other assets line of the consolidated balance sheet. For the
year ended December 31, 2010, gains and losses on the
investments noted above were not significant. No transfers
between level 1 and level 2 investments occurred
during the year ended December 31, 2010.
Fair value of the institutional equity securities mutual fund
was estimated using the net asset value of the Companys
ownership interests in the funds capital. The mutual fund
seeks to provide long-term growth of capital by investing
primarily in equity securities traded on U.S. exchanges and
issued by large, established companies across many business
sectors. Fair value of the fixed-income securities was estimated
using observable market inputs and the securities are primarily
corporate debt instruments and U.S. Government securities.
There are no restrictions on the Companys ability to
redeem these equity and fixed-income securities investments.
49
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has designated certain foreign-currency-denominated
long-term borrowings 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 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. 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. Any gain or loss on the hedging instrument
(the debt) following hedge designation, is reported in
accumulated other comprehensive income 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.
At December 31, 2010, the Company had $187.2 million
of British-pound-denominated loans, which are designated as a
hedge against the net investment in foreign subsidiaries
acquired in 2008, 2006, 2004 and 2003. At December 31,
2009, the Company had $145.5 million of
British-pound-denominated loans, which were designated as a
hedge against the net investment in foreign subsidiaries
acquired in 2004 and 2003. At December 31, 2010 and 2009,
the Company had $66.9 million and $71.6 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, $9.9 million of currency remeasurement
gains and $15.3 million of currency remeasurement losses
have been included in the foreign currency translation component
of other comprehensive income at December 31, 2010 and
2009, respectively.
|
|
6.
|
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 ($0.17 per diluted
share). These charges included restructuring costs for employee
reductions and facility closures ($32.6 million), as well
as asset write-downs ($7.4 million). The charges included
$30.1 million for severance costs for more than 10% of the
Companys workforce and $1.5 million for lease
termination costs associated with the closure of certain
facilities. 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
2008 segment operating income as follows: $20.4 million in
Electronic Instruments Group (EIG),
$19.4 million in Electromechanical Group (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 that were 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 of the Companys businesses.
50
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides a rollforward of the remaining
accruals established in the fourth quarter of 2008 for
restructuring charges and asset write-downs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
|
|
|
|
Severance
|
|
|
Closures
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Restructuring accruals at December 31, 2008
|
|
$
|
30.1
|
|
|
$
|
1.5
|
|
|
$
|
31.6
|
|
Utilization
|
|
|
(18.1
|
)
|
|
|
(0.2
|
)
|
|
|
(18.3
|
)
|
Foreign currency translation and other
|
|
|
0.2
|
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring accruals at December 31, 2009
|
|
|
12.2
|
|
|
|
1.0
|
|
|
|
13.2
|
|
Utilization
|
|
|
(4.6
|
)
|
|
|
(0.7
|
)
|
|
|
(5.3
|
)
|
Foreign currency translation and other
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring accruals at December 31, 2010
|
|
$
|
6.6
|
|
|
$
|
0.3
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company spent $538.6 million in cash, net of cash
acquired, to acquire Technical Services for Electronics
(TSE) in June 2010, Haydon Enterprises in July 2010,
Atlas Material Testing Technology LLC (Atlas) in
November 2010, as well as the small acquisitions of Sterling
Ultra Precision in January 2010, Imago Scientific Instruments in
April 2010 and American Reliances Power Division in August
2010. TSE is a manufacturer of engineered interconnect solutions
for the medical device industry. Haydon Enterprises is a leader
in linear actuators and lead screw assemblies for the medical,
industrial equipment, aerospace, analytical instrument, computer
peripheral and semiconductor industries. Atlas is the
worlds leading provider of weathering test instruments and
related testing and consulting services. Atlas is a part of EIG
and TSE and Haydon Enterprises are part of EMG.
The operating results of the above acquisitions have been
included in the Companys consolidated results from the
respective dates of acquisitions.
The following table represents the 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
|
|
$
|
23.3
|
|
Goodwill
|
|
|
313.5
|
|
Other intangible assets
|
|
|
276.3
|
|
Deferred income taxes
|
|
|
(80.6
|
)
|
Net working capital and other
|
|
|
6.1
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
538.6
|
|
|
|
|
|
|
The amount allocated to goodwill is reflective of the benefits
the Company expects to realize from the acquisitions as follows:
TSE expands the Companys position in the medical device
market and is an excellent fit with the HCC division, which
manufactures highly engineered electronic interconnects and
microelectronics packaging for sophisticated electronic
applications. Haydon Enterprises product line complements
the Companys highly differentiated technical motor
business, which shares common markets, customers and
distribution channels, and places AMETEK in a unique position as
the premier industry provider of high-end linear and rotary
motion control solutions. Atlas has products which include
weather exposure test systems, corrosion-testing instruments,
specialty lighting systems, and large-scale weathering test
chambers. In addition, Atlas offers indoor laboratory and
outdoor testing services, photovoltaic and solar testing and
consulting. Atlas provides the Company with another
51
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
growth platform in the materials testing equipment market and
broadens AMETEKs presence in the fast-growing photovoltaic
testing market. The Company expects approximately
$36.3 million of the goodwill recorded in connection with
2010 acquisitions will be tax deductible in future years.
The Company is in the process of conducting third-party
valuations of certain tangible and intangible assets acquired.
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.
At December 31, 2010, purchase price allocated to other
intangible assets of $276.3 million consists of
$80.6 million of indefinite-lived intangible trademarks and
trade names, which are not subject to amortization. The
remaining $195.7 million of other intangible assets consist
of $159.7 million of customer relationships, which are
being amortized over a period of 20 years and
$36.0 million of purchased technology, which are being
amortized over a period of 12 to 16 years.
In 2009, the Company spent $72.9 million in cash, net of
cash acquired, to acquire High Standard Aviation in January
2009, a small acquisition of two businesses in India, Unispec
Marketing Pvt. Ltd. and Thelsha Technical Services Pvt. Ltd., in
September 2009 and Ameron Global in December 2009. High Standard
Aviation is a provider of electrical and electromechanical,
hydraulic and pneumatic repair services to the aerospace
industry. Ameron Global is a manufacturer of highly engineered
pressurized gas components and systems for commercial and
aerospace customers and is also a leader in maintenance, repair
and overhaul of fire suppression and oxygen supply systems. High
Standard Aviation and Ameron Global are a part of EMG.
The 2010 acquisitions noted above had an immaterial impact on
reported net sales, net income and diluted earnings per share
for the year ended December 31, 2010. Had the 2010
acquisitions been made at the beginning of 2010, unaudited pro
forma net sales, net income and diluted earnings per share for
the year ended December 31, 2010 would not have been
materially different than the amounts reported.
Had the 2010 acquisitions and the 2009 acquisitions been made at
the beginning of 2009, unaudited pro forma net sales would have
been $2,290.8 million and net income and diluted earnings
per share would not have been materially different than the
amounts reported.
Pro forma results are not necessarily indicative of the results
that would have occurred if the acquisitions had been completed
at the beginning of 2009.
In 2008, the Company spent $463.0 million in cash, net of
cash acquired, for six acquisitions and one small technology
line. 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 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
52
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
services for the aerospace and defense markets. Drake, MCG,
Reading Alloys and Muirhead are part of EMG and Vision Research
and Xantrex Programmable are part of EIG.
|
|
8.
|
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, 2008
|
|
$
|
737.2
|
|
|
$
|
502.9
|
|
|
$
|
1,240.1
|
|
Goodwill acquired during the year
|
|
|
2.5
|
|
|
|
14.9
|
|
|
|
17.4
|
|
Purchase price allocation adjustments and other
|
|
|
(8.7
|
)
|
|
|
1.1
|
|
|
|
(7.6
|
)
|
Foreign currency translation adjustments
|
|
|
15.9
|
|
|
|
11.5
|
|
|
|
27.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
746.9
|
|
|
|
530.4
|
|
|
|
1,277.3
|
|
Goodwill acquired during the year
|
|
|
105.2
|
|
|
|
208.3
|
|
|
|
313.5
|
|
Purchase price allocation adjustments and other
|
|
|
25.8
|
|
|
|
(24.3
|
)
|
|
|
1.5
|
|
Foreign currency translation adjustments
|
|
|
(13.5
|
)
|
|
|
(5.2
|
)
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
864.4
|
|
|
$
|
709.2
|
|
|
$
|
1,573.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Definite-lived intangible assets (subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
52,403
|
|
|
$
|
54,150
|
|
Purchased technology
|
|
|
107,170
|
|
|
|
75,564
|
|
Customer lists
|
|
|
479,943
|
|
|
|
319,820
|
|
Other acquired intangibles
|
|
|
25,944
|
|
|
|
25,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
665,460
|
|
|
|
474,645
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(28,687
|
)
|
|
|
(27,099
|
)
|
Purchased technology
|
|
|
(28,026
|
)
|
|
|
(24,442
|
)
|
Customer lists
|
|
|
(70,982
|
)
|
|
|
(51,596
|
)
|
Other acquired intangibles
|
|
|
(20,825
|
)
|
|
|
(19,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(148,520
|
)
|
|
|
(122,909
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to amortization
|
|
|
516,940
|
|
|
|
351,736
|
|
Indefinite-lived intangible assets (not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
244,616
|
|
|
|
170,152
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
761,556
|
|
|
$
|
521,888
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $27.5 million, $23.3 million
and $17.5 million for the years ended December 31,
2010, 2009 and 2008, respectively. Amortization expense for each
of the next five years is expected to approximate
$33.5 million per year, not considering the impact of
potential future acquisitions.
53
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Other
Consolidated Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
46,953
|
|
|
$
|
46,777
|
|
Work in process
|
|
|
73,556
|
|
|
|
65,752
|
|
Raw materials and purchased parts
|
|
|
214,744
|
|
|
|
199,013
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
335,253
|
|
|
$
|
311,542
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
32,634
|
|
|
$
|
30,792
|
|
Buildings
|
|
|
209,019
|
|
|
|
204,447
|
|
Machinery and equipment
|
|
|
651,883
|
|
|
|
635,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893,536
|
|
|
|
870,702
|
|
Less: Accumulated depreciation
|
|
|
(575,410
|
)
|
|
|
(560,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
318,126
|
|
|
$
|
310,053
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
71,957
|
|
|
$
|
41,670
|
|
Severance and lease termination
|
|
|
18,143
|
|
|
|
23,129
|
|
Product warranty obligation
|
|
|
18,347
|
|
|
|
16,035
|
|
Other
|
|
|
69,634
|
|
|
|
52,523
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,081
|
|
|
$
|
133,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS AND
NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
$
|
5,788
|
|
|
$
|
8,489
|
|
|
$
|
6,393
|
|
Additions charged to expense
|
|
|
1,466
|
|
|
|
1,139
|
|
|
|
5,648
|
|
Recoveries credited to allowance
|
|
|
120
|
|
|
|
70
|
|
|
|
10
|
|
Write-offs
|
|
|
(1,036
|
)
|
|
|
(4,520
|
)
|
|
|
(2,878
|
)
|
Currency translation adjustments and other
|
|
|
(291
|
)
|
|
|
610
|
|
|
|
(684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
6,047
|
|
|
$
|
5,788
|
|
|
$
|
8,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
U.S. dollar 6.59% senior notes due September 2015
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
U.S. dollar 6.69% senior notes due December 2015
|
|
|
35,000
|
|
|
|
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
|
|
|
|
80,000
|
|
U.S. dollar 7.08% senior notes due September 2018
|
|
|
160,000
|
|
|
|
160,000
|
|
U.S. dollar 7.18% senior notes due December 2018
|
|
|
65,000
|
|
|
|
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
|
|
|
|
|
|
|
80,815
|
|
British pound 5.99% senior note due November 2016
|
|
|
62,396
|
|
|
|
64,652
|
|
British pound 4.68% senior note due September 2020
|
|
|
124,792
|
|
|
|
|
|
Euro 3.94% senior note due August 2015
|
|
|
66,850
|
|
|
|
71,582
|
|
Revolving credit loan
|
|
|
92,000
|
|
|
|
|
|
Other, principally foreign
|
|
|
22,474
|
|
|
|
24,632
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,168,512
|
|
|
|
1,041,681
|
|
Less: Current portion
|
|
|
(97,152
|
)
|
|
|
(85,801
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,071,360
|
|
|
$
|
955,880
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt outstanding at December 31,
2010 were as follows: $4.1 million in 2012;
$2.3 million in 2013; $1.7 million in 2014;
$193.3 million in 2015; $63.2 million in 2016; and
$806.7 million in 2017 and thereafter.
In the third quarter of 2010, the Company paid in full an
expiring 50 million British pound ($78.2 million)
5.96% senior note. In the fourth quarter of 2009, the
Company paid in full a 10.5 million British pound
($16.9 million) floating-rate term note. In the second
quarter of 2009, the Company paid in full a 40 million
British pound ($62.0 million) borrowing under the revolving
credit facility.
In December 2007, the Company issued $270 million in
aggregate principal amount of 6.20% private placement senior
notes due December 2017 and $100 million in aggregate
principal amount of 6.30% private placement senior notes due
December 2019. In July 2008, the Company issued $80 million
in aggregate principal amount of 6.35% private placement senior
notes due July 2018. In September 2008, the Company issued
$90 million in aggregate principal amount of 6.59% private
placement senior notes due September 2015 and $160 million
in aggregate principal amount of 7.08% private placement senior
notes due September 2018. In December 2008, the Company issued
$35 million in aggregate principal amount of 6.69% private
placement senior notes due December 2015 and $65 million in
aggregate principal amount of 7.18% private placement senior
notes due December 2018.
In September 2005, the Company issued a 50 million Euro
($66.9 million at December 31,
2010) 3.94% senior note due August 2015. In November
2004, the Company issued a 40 million British pound
($62.4 million at December 31,
2010) 5.99% senior note due in November 2016. In
September 2010, the Company issued an 80 million British
pound ($124.8 million at December 31,
2010) 4.68% senior note due in September 2020.
55
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys revolving credit facilitys total
borrowing capacity is $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 facility expires in June 2012. The
revolving credit facility places certain restrictions on
allowable additional indebtedness. At December 31, 2010,
the Company had available borrowing capacity of
$437.5 million under its revolving bank credit facility.
Interest rates on outstanding loans under the revolving credit
facility are at the applicable London Interbank Offered Rate
(LIBOR) plus a negotiated spread, or at the
U.S. prime rate. At December 31, 2010, the Company had
$92.0 million of borrowings outstanding under the revolving
credit facility. At December 31, 2009, 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, 2010 and 2009 was 0.82%
and 0.60%, respectively. The Company had outstanding letters of
credit totaling $22.6 million and $19.8 million at
December 31, 2010 and 2009, respectively.
The private placements, the senior notes and the revolving
credit facility 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 Company was in compliance with
all provisions of the debt arrangements at December 31,
2010.
Foreign subsidiaries of the Company had available credit
facilities with local foreign lenders of $54.5 million at
December 31, 2010. Foreign subsidiaries had debt
outstanding at December 31, 2010 totaling
$22.5 million, including $17.3 million reported in
long-term debt.
The weighted average interest rate on total debt outstanding at
December 31, 2010 and 2009 was 6.3% and 6.4%, respectively.
In January 2010, the Board of Directors approved an increase of
$75 million in the authorization for the repurchase of its
common stock. This increase was added to the $68.5 million
that remained available at December 31, 2009 from existing
authorizations approved in 2008, for a total of
$143.5 million available for repurchases of the
Companys common stock. In 2010, the Company repurchased
approximately 3,071,000 shares of common stock for
$78.6 million in cash under its current share repurchase
authorization. The Company did not repurchase shares in 2009. At
December 31, 2010, $64.9 million was available under
the current Board authorization for future share repurchases.
At December 31, 2010, the Company held 7.3 million
shares in its treasury at a cost of $153.6 million,
compared with 4.7 million shares at a cost of
$83.3 million at December 31, 2009. The number of
shares outstanding at December 31, 2010 was
160.7 million shares, compared with 161.8 million
shares at December 31, 2009.
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.
56
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
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. 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. Stock
options generally have a maximum contractual term of seven
years. At December 31, 2010, 8.3 million shares of
Company common stock were reserved for issuance under the
Companys share-based plans, including 6.1 million
shares for stock options outstanding.
The Company issues previously unissued shares when stock options
are exercised and shares are issued from treasury stock upon the
award of restricted stock.
The Company measures and records 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.
The fair value of each stock 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Expected stock volatility
|
|
|
25.6
|
%
|
|
|
25.8
|
%
|
|
|
18.4
|
%
|
Expected life of the options (years)
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
4.7
|
|
Risk-free interest rate
|
|
|
2.48
|
%
|
|
|
1.89
|
%
|
|
|
2.60
|
%
|
Expected dividend yield
|
|
|
0.54
|
%
|
|
|
0.73
|
%
|
|
|
0.49
|
%
|
Black-Scholes-Merton fair value per option granted*
|
|
$
|
7.56
|
|
|
$
|
5.20
|
|
|
$
|
6.39
|
|
|
|
|
* |
|
Adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2. |
Expected stock volatility is based on the historical volatility
of the Companys stock. The Company used historical
exercise data to estimate the stock options expected life,
which represents the period of time that the stock options
granted are expected to be outstanding. Management anticipates
that the future stock option holding periods will be similar to
the historical stock option holding periods. The risk-free
interest rate for periods within the contractual life of the
stock 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 was as follows for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Stock option expense
|
|
$
|
7,580
|
|
|
$
|
6,297
|
|
|
$
|
6,300
|
|
Restricted stock expense
|
|
|
9,016
|
|
|
|
7,205
|
|
|
|
13,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax expense
|
|
|
16,596
|
|
|
|
13,502
|
|
|
|
20,186
|
|
Related tax benefit
|
|
|
(5,459
|
)
|
|
|
(4,223
|
)
|
|
|
(3,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income
|
|
$
|
11,137
|
|
|
$
|
9,279
|
|
|
$
|
16,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The following is a summary of the Companys stock option
activity and related information for the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
6,608
|
|
|
$
|
21.04
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,214
|
|
|
|
29.38
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,550
|
)
|
|
|
14.42
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(135
|
)
|
|
|
25.05
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(18
|
)
|
|
|
31.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
6,119
|
|
|
$
|
24.25
|
|
|
|
4.2
|
|
|
$
|
91.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
2,883
|
|
|
$
|
21.99
|
|
|
|
2.8
|
|
|
$
|
49.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2. |
The aggregate intrinsic value of stock options exercised during
2010, 2009 and 2008 was $29.3 million, $15.5 million
and $13.3 million, respectively. The total fair value of
stock options vested during 2010, 2009 and 2008 was
$7.0 million, $5.4 million and $5.6 million,
respectively.
The following is a summary of the status of the Companys
nonvested stock options outstanding for the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares*
|
|
|
Fair Value*
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested stock options outstanding at the beginning of the year
|
|
|
3,339
|
|
|
$
|
5.69
|
|
Granted
|
|
|
1,214
|
|
|
|
7.56
|
|
Vested
|
|
|
(1,182
|
)
|
|
|
5.90
|
|
Forfeited
|
|
|
(135
|
)
|
|
|
5.69
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options outstanding at the end of the year
|
|
|
3,236
|
|
|
$
|
6.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2. |
As of December 31, 2010, there was approximately
$14.1 million of expected future pre-tax compensation
expense related to the 3.2 million nonvested stock options
outstanding, which is expected to be recognized over a weighted
average period of less than 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.
58
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 1,059,908 shares (as adjusted
to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2.) 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.
The following is a summary of the status of the Companys
nonvested restricted stock outstanding for the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares*
|
|
|
Fair Value*
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested restricted stock outstanding at the beginning of the
year
|
|
|
1,376
|
|
|
$
|
24.63
|
|
Granted
|
|
|
480
|
|
|
|
28.97
|
|
Vested
|
|
|
(256
|
)
|
|
|
22.33
|
|
Forfeited
|
|
|
(68
|
)
|
|
|
25.69
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock outstanding at the end of the year
|
|
|
1,532
|
|
|
$
|
26.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2. |
The total fair value of the restricted stock that vested was
$5.7 million and $17.8 million in 2010 and 2008,
respectively, and 2009 was not significant. The weighted average
fair value of restricted stock granted per share during 2010 and
2009 was $29.01 and $21.83 (as adjusted to reflect a
three-for-two
stock split paid to stockholders on December 21, 2010. See
Note 2.), respectively. As of December 31, 2010, there
was approximately $20.9 million of expected future pre-tax
compensation expense related to the 1.5 million nonvested
restricted shares outstanding, which is expected to be
recognized over a weighted average period of approximately two
years.
Under a Supplemental Executive Retirement Plan
(SERP) in 2010, the Company reserved
27,301 shares of common stock. Reductions for retirements
and terminations were 3,599 shares in 2010. The total
number of shares of common stock reserved under the SERP was
423,167 as of December 31, 2010. 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.
|
|
13.
|
Leases
and Other Commitments
|
Minimum aggregate rental commitments under noncancellable leases
in effect at December 31, 2010 (principally for production
and administrative facilities and equipment) amounted to
$97.1 million, consisting of payments of $19.6 million
in 2011, $15.6 million in 2012, $11.5 million in 2013,
$7.9 million in 2014, $6.8 million in 2015 and
$35.7 million thereafter. Rental expense was
$23.1 million in 2010, $22.8 million in 2009 and
$22.7 million in 2008. The leases expire over a range of
years from 2011 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, 2010 includes a building of
$11.9 million, net of $2.2 million of accumulated
depreciation, and land of $2.0 million related to this
capital lease. Amortization of the leased assets of
$0.6 million is included in 2010 depreciation expense.
Future minimum lease payments are estimated to be
$0.9 million in each of the years 2011 through 2015 and
$7.6 million thereafter, for total minimum lease payments
of $12.1 million, net of interest.
59
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2010 and 2009, the Company had
$222.0 million and $161.9 million, respectively, in
purchase obligations outstanding, which primarily consisted of
contractual commitments to purchase certain inventories at fixed
prices.
The components of income before income taxes and the details of
the provision for income taxes were as follows for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
266,783
|
|
|
$
|
207,831
|
|
|
$
|
260,464
|
|
Foreign
|
|
|
139,467
|
|
|
|
86,802
|
|
|
|
105,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
406,250
|
|
|
$
|
294,633
|
|
|
$
|
366,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
70,008
|
|
|
$
|
58,247
|
|
|
$
|
52,581
|
|
Foreign
|
|
|
37,514
|
|
|
|
22,123
|
|
|
|
29,889
|
|
State
|
|
|
11,022
|
|
|
|
2,725
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
118,544
|
|
|
|
83,095
|
|
|
|
89,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
7,071
|
|
|
|
7,024
|
|
|
|
28,920
|
|
Foreign
|
|
|
(3,105
|
)
|
|
|
(1,464
|
)
|
|
|
(1,378
|
)
|
State
|
|
|
(192
|
)
|
|
|
208
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
3,774
|
|
|
|
5,768
|
|
|
|
29,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
122,318
|
|
|
$
|
88,863
|
|
|
$
|
119,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the deferred tax (asset) liability
were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current deferred tax (asset) liability:
|
|
|
|
|
|
|
|
|
Reserves not currently deductible
|
|
$
|
(19,795
|
)
|
|
$
|
(19,437
|
)
|
Share-based compensation
|
|
|
(4,989
|
)
|
|
|
(3,870
|
)
|
Net operating loss carryforwards
|
|
|
(2,344
|
)
|
|
|
(2,829
|
)
|
Foreign tax credit carryforwards
|
|
|
(2,018
|
)
|
|
|
(3,360
|
)
|
Other
|
|
|
2,040
|
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
(27,106
|
)
|
|
$
|
(30,669
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (asset) liability:
|
|
|
|
|
|
|
|
|
Differences in basis of property and accelerated depreciation
|
|
$
|
28,697
|
|
|
$
|
22,285
|
|
Reserves not currently deductible
|
|
|
(21,953
|
)
|
|
|
(19,913
|
)
|
Pensions
|
|
|
31,927
|
|
|
|
31,453
|
|
Differences in basis of intangible assets and accelerated
amortization
|
|
|
287,645
|
|
|
|
188,045
|
|
Net operating loss carryforwards
|
|
|
(9,077
|
)
|
|
|
(6,513
|
)
|
Share-based compensation
|
|
|
(10,422
|
)
|
|
|
(9,893
|
)
|
Other
|
|
|
(494
|
)
|
|
|
(3,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
306,323
|
|
|
|
201,886
|
|
Less: Valuation allowance
|
|
|
5,143
|
|
|
|
4,468
|
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax liability
|
|
|
311,466
|
|
|
|
206,354
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
284,360
|
|
|
$
|
175,685
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate reconciles to the
U.S. Federal statutory rate as follows for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S. Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
1.9
|
|
|
|
0.4
|
|
|
|
1.5
|
|
Foreign operations, net
|
|
|
(3.4
|
)
|
|
|
(4.2
|
)
|
|
|
(3.0
|
)
|
Other
|
|
|
(3.4
|
)
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective tax rate
|
|
|
30.1
|
%
|
|
|
30.2
|
%
|
|
|
32.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, U.S. deferred income taxes
totaling $5.7 million were provided on undistributed
earnings of certain
non-U.S. subsidiaries
that are not expected to be permanently reinvested in such
companies. There has been no provision for U.S. deferred
income taxes for the undistributed earnings of certain other
subsidiaries, which total approximately $284.3 million at
December 31, 2010, because the Company intends to reinvest
these earnings indefinitely in operations outside the United
States. Upon distribution of those earnings to the United
States, the Company would be subject to U.S. income taxes
and withholding taxes payable to the various foreign countries.
At December 31, 2010, the Company had tax benefits of
$11.4 million related to net operating loss carryforwards,
which will be available to offset future income taxes payable,
subject to certain annual or other
61
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limitations based on foreign and U.S. tax laws. This amount
includes net operating loss carryforwards of $8.4 million
for federal income tax purposes with a valuation allowance of
$3.3 million, $2.7 million for state income tax
purposes with a valuation allowance of $0.3 million, and
$0.3 million for foreign income tax purposes with a
valuation allowance of $0.1 million. These net operating
loss carryforwards, if not used, will expire between 2011 and
2031. As of December 31, 2010, the Company had
$2.0 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
2010, the Company recorded an increase of $0.7 million in
the valuation allowance primarily related to state tax credits
that will not be utilized due to net operating loss
carryforwards.
At December 31, 2010, the Company had gross unrecognized
tax benefits of $22.8 million, of which $18.3 million,
if recognized, would impact the effective tax rate. At
December 31, 2009, the Company had gross unrecognized tax
benefits of $26.5 million, of which $25.6 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, 2010 and 2009, the Company reported
$6.1 million and $5.5 million, respectively, related
to interest and penalty exposure as accrued income tax expense
in the consolidated balance sheet. During 2010, 2009 and 2008,
the Company recognized $1.9 million of expense,
$0.7 million of income and $0.8 million of expense,
respectively, for 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 2010, the Internal Revenue
Service (IRS) completed the examination of the
Companys U.S. income tax returns for 2006 and 2007.
In 2009, the Company concluded an exam in Germany for the period
2004 through 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.
During 2010, the Company added $5.4 million of tax,
interest and penalties related to uncertain tax positions and
reversed $8.4 million of tax and interest related to
statute expirations and settlement of prior uncertain positions.
During 2009, the Company added $15.9 million of tax,
interest and penalties related to 2009 activity for identified
uncertain tax positions and reversed $4.8 million of tax
and interest related to statute expirations and settlement of
prior uncertain positions.
62
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of the liability for uncertain
tax positions at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance at the beginning of the year
|
|
$
|
26.5
|
|
|
$
|
18.6
|
|
|
$
|
22.7
|
|
Additions for tax positions related to the current year
|
|
|
1.2
|
|
|
|
8.8
|
|
|
|
0.9
|
|
Additions for tax positions of prior years
|
|
|
2.7
|
|
|
|
2.5
|
|
|
|
10.1
|
|
Reductions for tax positions of prior years
|
|
|
(3.5
|
)
|
|
|
(1.4
|
)
|
|
|
(4.2
|
)
|
Reductions related to settlements with taxing authorities
|
|
|
(4.1
|
)
|
|
|
(2.0
|
)
|
|
|
(10.8
|
)
|
Reductions due to statute expirations
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
22.8
|
|
|
$
|
26.5
|
|
|
$
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The additions above primarily reflect the increase in tax
liabilities for uncertain tax positions related to certain
foreign activities and for research and development credits,
while the reductions above reflect the settlement of an IRS
audit and amended filings. At December 31, 2010, tax,
interest and penalties of $19.9 million were classified as
a noncurrent liability. The net decrease in uncertain tax
positions for the year ended December 31, 2010 resulted in
a decrease to income tax expense of $4.1 million.
|
|
15.
|
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 both required and discretionary cash
contributions of approximately $3 million to
$5 million to its worldwide defined benefit pension plans
in 2011.
The Company uses a measurement date of December 31 (its fiscal
year end) for its U.S. and foreign defined benefit pension
plans.
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.
63
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:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Change in projected benefit obligation (PBO):
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the beginning of the year
|
|
$
|
376,907
|
|
|
$
|
348,475
|
|
Service cost
|
|
|
2,917
|
|
|
|
3,278
|
|
Interest cost
|
|
|
21,489
|
|
|
|
22,395
|
|
Actuarial losses
|
|
|
9,578
|
|
|
|
26,620
|
|
Gross benefits paid
|
|
|
(24,380
|
)
|
|
|
(23,861
|
)
|
Plan amendments and other
|
|
|
(1,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the end of the year
|
|
$
|
384,763
|
|
|
$
|
376,907
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
430,513
|
|
|
$
|
354,851
|
|
Actual return on plan assets
|
|
|
59,520
|
|
|
|
81,150
|
|
Employer contributions
|
|
|
250
|
|
|
|
18,373
|
|
Gross benefits paid
|
|
|
(24,380
|
)
|
|
|
(23,861
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
465,903
|
|
|
$
|
430,513
|
|
|
|
|
|
|
|
|
|
|
64
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the beginning of the year
|
|
$
|
110,607
|
|
|
$
|
88,166
|
|
Service cost
|
|
|
1,004
|
|
|
|
1,238
|
|
Interest cost
|
|
|
6,386
|
|
|
|
5,844
|
|
Acquisitions
|
|
|
9,633
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(4,370
|
)
|
|
|
9,371
|
|
Employee contributions
|
|
|
389
|
|
|
|
404
|
|
Actuarial losses
|
|
|
6,069
|
|
|
|
9,532
|
|
Gross benefits paid
|
|
|
(3,384
|
)
|
|
|
(3,473
|
)
|
Other
|
|
|
|
|
|
|
(475
|
)
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the end of the year
|
|
$
|
126,334
|
|
|
$
|
110,607
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
112,503
|
|
|
$
|
84,817
|
|
Actual return on plan assets
|
|
|
15,852
|
|
|
|
19,000
|
|
Employer contributions
|
|
|
3,305
|
|
|
|
2,754
|
|
Employee contributions
|
|
|
389
|
|
|
|
404
|
|
Foreign currency translation adjustment
|
|
|
(4,062
|
)
|
|
|
9,001
|
|
Gross benefits paid
|
|
|
(3,384
|
)
|
|
|
(3,473
|
)
|
Acquisitions
|
|
|
1,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
126,539
|
|
|
$
|
112,503
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation (ABO) consisted
of the following at December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Funded plans
|
|
$
|
370,610
|
|
|
$
|
359,516
|
|
Unfunded plans
|
|
|
4,757
|
|
|
|
4,802
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
375,367
|
|
|
$
|
364,318
|
|
|
|
|
|
|
|
|
|
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Funded plans
|
|
$
|
107,506
|
|
|
$
|
98,886
|
|
Unfunded plans
|
|
|
7,432
|
|
|
|
1,344
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,938
|
|
|
$
|
100,230
|
|
|
|
|
|
|
|
|
|
|
65
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Weighted average assumptions used to determine benefit
obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.60
|
%
|
|
|
5.90
|
%
|
Rate of compensation increase (where applicable)
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.71
|
%
|
|
|
5.98
|
%
|
Rate of compensation increase (where applicable)
|
|
|
2.97
|
%
|
|
|
2.98
|
%
|
The following is a summary of the fair value of plan assets for
U.S. plans at December 31, 2010 and 2009. Certain
reclassifications of prior year amounts have been made to
conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
Asset Class
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Cash and temporary investments
|
|
$
|
23,163
|
|
|
$
|
23,163
|
|
|
$
|
|
|
|
$
|
2,936
|
|
|
$
|
2,936
|
|
|
$
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMETEK common stock
|
|
|
33,822
|
|
|
|
33,822
|
|
|
|
|
|
|
|
25,973
|
|
|
|
25,973
|
|
|
|
|
|
U.S. Small cap common stocks
|
|
|
35,280
|
|
|
|
35,280
|
|
|
|
|
|
|
|
35,627
|
|
|
|
35,627
|
|
|
|
|
|
U.S. Large cap common stocks
|
|
|
71,898
|
|
|
|
46,461
|
|
|
|
25,437
|
|
|
|
57,225
|
|
|
|
33,340
|
|
|
|
23,885
|
|
Diversified common stocks U.S.
|
|
|
42,135
|
|
|
|
|
|
|
|
42,135
|
|
|
|
40,920
|
|
|
|
|
|
|
|
40,920
|
|
Diversified common stocks Global
|
|
|
67,575
|
|
|
|
|
|
|
|
67,575
|
|
|
|
63,554
|
|
|
|
42,984
|
|
|
|
20,570
|
|
Fixed-income securities and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Corporate and government
|
|
|
45,987
|
|
|
|
45,987
|
|
|
|
|
|
|
|
62,531
|
|
|
|
62,531
|
|
|
|
|
|
Global asset allocation*
|
|
|
99,058
|
|
|
|
60,226
|
|
|
|
38,832
|
|
|
|
81,229
|
|
|
|
50,153
|
|
|
|
31,076
|
|
Inflation related funds
|
|
|
46,985
|
|
|
|
17,349
|
|
|
|
29,636
|
|
|
|
41,560
|
|
|
|
16,317
|
|
|
|
25,243
|
|
Hedge funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
465,903
|
|
|
$
|
262,288
|
|
|
$
|
203,615
|
|
|
$
|
430,513
|
|
|
$
|
269,861
|
|
|
$
|
141,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
This asset class was invested in diversified companies in all
geographical regions. |
Level 1 investments are valued using unadjusted, observable
inputs from active markets. Equity funds and fixed income funds
that are valued by the vendor using observable market inputs are
considered level 2 investments. Hedge funds are considered
level 3 investments as their values are determined by the
sponsor using unobservable market data.
66
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the changes in the fair value of
the U.S. plans level 3 investments (fair value
using significant unobservable inputs):
|
|
|
|
|
|
|
Hedge Funds
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2009
|
|
$
|
17,410
|
|
Actual return on assets:
|
|
|
|
|
Unrealized gains relating to instruments still held at the end
of the year
|
|
|
1,548
|
|
Realized gains (losses) relating to assets sold during the year
|
|
|
|
|
Purchases, sales, issuances and settlements, net
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
18,958
|
|
|
|
|
|
|
Actual return on assets:
|
|
|
|
|
Unrealized gains relating to instruments still held at the end
of the year
|
|
|
|
|
Realized gains (losses) relating to assets sold during the year
|
|
|
755
|
|
Purchases, sales, issuances and settlements, net
|
|
|
(19,713
|
)
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
|
|
|
|
|
|
|
The expected long-term rate of return on these plan assets was
8.25% in 2010 and 2009. Equity securities included
861,300 shares of AMETEK, Inc. common stock with a market
value of $33.8 million (7.3% of total plan investment
assets) at December 31, 2010 and 1,018,800 shares of
AMETEK, Inc. common stock with a market value of
$26.0 million (6.0% of total plan investment assets) at
December 31, 2009.
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.
The target allocations for the U.S. defined benefits plans
are approximately 50% equity securities, 30% fixed-income
securities and 20% other securities
and/or cash.
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, short selling and rights and warrants.
Foreign currency futures, options and forward contracts may be
used to manage foreign currency exposure.
67
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the fair value of plan assets for
foreign defined benefit pension plans at December 31, 2010
and 2009. Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
Asset Class
|
|
Total
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 2
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
4,336
|
|
|
$
|
4,336
|
|
|
$
|
3,148
|
|
|
$
|
3,148
|
|
U.S. Mutual equity funds
|
|
|
10,141
|
|
|
|
10,141
|
|
|
|
7,758
|
|
|
|
7,758
|
|
Foreign mutual equity funds
|
|
|
77,260
|
|
|
|
77,260
|
|
|
|
72,513
|
|
|
|
72,513
|
|
Real estate
|
|
|
2,647
|
|
|
|
2,647
|
|
|
|
2,379
|
|
|
|
2,379
|
|
Mutual bond funds Global
|
|
|
18,782
|
|
|
|
18,782
|
|
|
|
16,958
|
|
|
|
16,958
|
|
Life insurance
|
|
|
13,373
|
|
|
|
|
|
|
|
9,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
126,539
|
|
|
$
|
113,166
|
|
|
$
|
112,503
|
|
|
$
|
102,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity funds, real estate funds and fixed income funds that are
valued by the vendor using observable market inputs are
considered level 2 investments. Life insurance assets are
considered level 3 investments as their values are
determined by the sponsor using unobservable market data.
The following is a summary of the changes in the fair value of
the foreign plans level 3 investments (fair value
determined using significant unobservable inputs):
|
|
|
|
|
|
|
Life Insurance
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2009
|
|
$
|
8,639
|
|
Actual return on assets:
|
|
|
|
|
Unrealized gains relating to instruments still held at the end
of the year
|
|
|
1,108
|
|
Realized gains (losses) relating to assets sold during the year
|
|
|
|
|
Purchases, sales, issuances and settlements, net
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
9,747
|
|
|
|
|
|
|
Actual return on assets:
|
|
|
|
|
Unrealized gains relating to instruments still held at the end
of the year
|
|
|
1,690
|
|
Realized gains (losses) relating to assets sold during the year
|
|
|
|
|
Acquisitions
|
|
|
1,936
|
|
Purchases, sales, issuances and settlements, net
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
13,373
|
|
|
|
|
|
|
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
68
AMETEK,
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 target allocations for
the foreign defined benefit plans are approximately 75% equity
securities, 10% fixed-income securities and 15% other
securities, insurance or cash.
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 projected future investment returns. The
estimates of future capital market returns by asset class are
lower than the actual long-term historical returns. The current
low interest rate environment influences this outlook.
Therefore, the assumed rate of return for U.S. plans was
reduced 25 basis points to 8.0% and foreign plans are 6.96%
for 2011.
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
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Projected benefit obligation
|
|
$
|
4,757
|
|
|
$
|
4,802
|
|
|
$
|
4,757
|
|
|
$
|
4,802
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
|
|
|
Accumulated Benefit
|
|
|
|
Obligation Exceeds
|
|
|
Obligation Exceeds
|
|
|
|
Fair Value of Assets
|
|
|
Fair Value of Assets
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Projected benefit obligation
|
|
$
|
59,966
|
|
|
$
|
49,561
|
|
|
$
|
9,612
|
|
|
$
|
1,911
|
|
Fair value of plan assets
|
|
|
51,040
|
|
|
|
46,049
|
|
|
|
2,057
|
|
|
|
406
|
|
The following table provides the amounts recognized in the
consolidated balance sheet at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Funded status asset (liability):
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
592,442
|
|
|
$
|
543,016
|
|
Projected benefit obligation
|
|
|
(511,097
|
)
|
|
|
(487,514
|
)
|
|
|
|
|
|
|
|
|
|
Funded status at the end of the year
|
|
$
|
81,345
|
|
|
$
|
55,502
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consisted
of:
|
|
|
|
|
|
|
|
|
Noncurrent asset for pension benefits (other assets)
|
|
$
|
95,029
|
|
|
|