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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
OR
     
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to          
 
Commission File Number 1-12981
 
AMETEK, Inc.
(Exact name of registrant as specified in its charter)
     
Delaware   14-1682544
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
1100 Cassatt Road
P.O. Box 1764
Berwyn, Pennsylvania
(Address of principal executive offices)
  19312-1177
(Zip Code)
 
Registrant’s telephone number, including area code: (610) 647-2121
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of each class   Name of each exchange on which registered
 
Common Stock, $0.01 Par Value (voting)
  New York Stock Exchange
 
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 registrant’s 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.
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a
smaller reporting company)
   
 
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 registrant’s most recently completed second fiscal quarter.
 
The number of shares of the registrant’s 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
 
                 
        Page
 
PART I
  Item 1.     Business     2  
  Item 1A.     Risk Factors     11  
  Item 1B.     Unresolved Staff Comments     15  
  Item 2.     Properties     16  
  Item 3.     Legal Proceedings     16  
  Item 4.     (Removed and Reserved)     16  
 
PART II
  Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     17  
  Item 6.     Selected Financial Data     19  
  Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     21  
  Item 7A.     Quantitative and Qualitative Disclosures About Market Risk     35  
  Item 8.     Financial Statements and Supplementary Data     36  
  Item 9.     Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     79  
  Item 9A.     Controls and Procedures     79  
  Item 9B.     Other Information     79  
 
PART III
  Item 10.     Directors, Executive Officers and Corporate Governance     79  
  Item 11.     Executive Compensation     80  
  Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     80  
  Item 13.     Certain Relationships and Related Transactions, and Director Independence     80  
  Item 14.     Principal Accounting Fees and Services     80  
 
PART IV
  Item 15.     Exhibits and Financial Statement Schedules     81  
SIGNATURES     82  
Index to Exhibits     83  
 EX-12
 EX-21
 EX-23
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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PART I
 
Item 1.   Business
 
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 Company’s 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 Company’s 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. EMG’s 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 Company’s 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 AMETEK’s success is the strength of its management team and its commitment to the performance of the Company. AMETEK’s senior management has extensive experience, averaging approximately 25 years with the Company, and is financially committed to the Company’s success through Company-established stock ownership guidelines and equity incentive programs.
 
Business Strategy
 
AMETEK’s objectives are to increase the Company’s 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. AMETEK’s commitment to earnings growth is reflected in its continued implementation of cost-reduction programs designed to achieve the Company’s long-term best-cost objectives.
 
AMETEK’s Corporate Growth Plan consists of four key strategies:
 
Operational Excellence.  Operational Excellence is AMETEK’s cornerstone strategy for improving profit margins and strengthening the Company’s 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:
 
  •  SPECTRO MStm fully simultaneous measuring mass spectrometer is widely considered one of the most innovative new laboratory analyzers introduced in recent years;
 
  •  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;
 
  •  LANDtm LSP-HD infrared line scanner combines high-speed scanning and high-resolution optics to set a new benchmark for industrial process imaging;
 
  •  Talysurftm CCI SunStar interferometer merges world-leading non-contact dimensional measurement with advanced film thickness technology for highly demanding photovoltaic and semiconductor film analysis;
 
  •  AMETEK SERNET sequence of events recorder is the latest advance in web-based alarm management for electric power utilities and industrial electric power users;
 
  •  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;
 
  •  Vision Research Phantom® v341 high-speed, high-resolution digital camera was developed specifically for military, scientific and research applications;
 
  •  PITTMAN® compact brush and brushless DC motors can be custom-tailored for a wide range of medical, biotech, data storage and automation applications;
 
  •  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;
 
  •  Grabner® MINIDIS ADXpert establishes a new standard for accuracy and reliability in the distillation testing of petroleum, biofuels, chemicals and other liquids;
 
  •  UIP-S Universal Instrument Panel-Specialized is the latest addition to AMETEK’s NGI® Next Generation Instrument system for the dashboard instrument panels aboard heavy trucks and other vehicles;
 
  •  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.
 
Global and Market Expansion.  AMETEK’s 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 Company’s 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 Company’s two reportable segments, as well as contributions from recent acquisitions.
 
On November 2, 2010, the Company’s Board of Directors declared a three-for-two split of the Company’s 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 Company’s 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 Reliance’s 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 world’s 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 Company’s 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. EIG’s growth is based on the four strategies outlined in AMETEK’s 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 EIG’s 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 EIG’s 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. EIG’s 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. AMETEK’s 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 AMETEK’s 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 EIG’s 2010 sales were to the power and industrial instrumentation markets.
 
AMETEK’s 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.
 
EIG’s 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.
 
EIG’s 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.
 
EIG’s 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 EIG’s 2010 sales were from aerospace products. AMETEK’s 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 EIG’s 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 EIG’s 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 EIG’s operations. Approximately 9% of EIG’s 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 world’s 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 EMG’s 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 EMG’s overall sales base. Differentiated businesses represented 78% of EMG’s 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 EMG’s 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 Company’s 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 EMG’s 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 Company’s 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 EMG’s 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 world’s 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 EMG’s operations. Approximately 10% of EMG’s 2010 sales were made to its five largest customers.
 
Marketing
 
The Company’s 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 Company’s markets are highly competitive. The principal elements of competition for the Company’s products are product technology, distribution, quality, service and price.


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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.
 
EMG’s 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 Company’s 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 Company’s 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.


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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 Management’s 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 Company’s 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.
 
Item 1A.   Risk Factors
 
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


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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 seller’s 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;


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  •  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.


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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. EMG’s competition in specialty metal products stems from alternative materials and processes. In the markets served by


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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.


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Item 2.   Properties
 
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 Company’s investment in 50% or less owned joint ventures. The Company’s executive offices in Berwyn, Pennsylvania, occupy approximately 43,000 square feet under a lease that expires in September 2023.
 
The Company’s 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 Management’s 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 Company’s 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 Company’s 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)


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PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The principal market on which the Company’s 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 Company’s common stock.
 
Market price and dividend information with respect to the Company’s 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 Company’s 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 Company’s 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  
                         


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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.
 
(PERFORMANCE GRAPH)
 
                                                 
    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  
 
 
* Includes AMETEK, Inc.


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Item 6.   Selected Financial Data
 
The following financial information for the five years ended December 31, 2010, has been derived from the Company’s consolidated financial statements. This information should be read in conjunction with Management’s 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.


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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 Company’s operating performance or as an alternative to cash flows as a measure of the Company’s overall liquidity as presented in the Company’s 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.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This report includes forward-looking statements based on the Company’s 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 management’s expectations. For more information on these and other factors, see “Forward-Looking Information” herein.
 
The following Management’s 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, AMETEK’s operations are affected by global, regional and industry economic factors. However, the Company’s 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 AMETEK’s 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 Reliance’s 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 world’s 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.


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  •  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 Company’s 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 Company’s Board of Directors declared a three-for-two split of the Company’s 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 Company’s 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.


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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 Company’s differentiated and cost-driven businesses, with the acquisitions mentioned above accounting for the remainder of the increase. As a result, the Company’s 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 Company’s net sales increase noted above, as well as the benefits of the Company’s 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 Company’s 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%.


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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
 
EIG’s 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 EIG’s process, power and industrial businesses. The acquisition of Atlas primarily accounted for the remainder of the sales increase.
 
EIG’s 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. EIG’s 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 Group’s increase in sales noted above, as well as the benefit of the Group’s lower cost structure through Operational Excellence initiatives.
 
EMG’s 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.
 
EMG’s 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. EMG’s operating margins were 18.3% of sales for 2010 compared with 17.5% of sales in 2009. EMG’s increase in operating income and operating margins was primarily due to the leveraged impact of the Group’s higher sales, which includes the acquisitions mentioned above.


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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.


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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 Company’s 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
 
EIG’s 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 EIG’s process and industrial products businesses. Partially offsetting the sales decrease were the 2008 acquisitions of Vision Research, Inc. and Xantrex Programmable.
 
EIG’s 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. EIG’s 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 EIG’s operating margins of 140 basis points.
 
EMG’s 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.
 
EMG’s 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. EMG’s decrease in operating income was driven by the decrease in sales noted above,


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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. EMG’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s businesses. The Company recorded pre-tax charges of $30.1 million for severance costs for more than 10% of the Company’s 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 Company’s 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).


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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 Company’s 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 Company’s 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 Company’s revolving credit facility’s 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 Company’s 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.


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The following table summarizes AMETEK’s contractual cash obligations and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future years at December 31, 2010.
 
                                         
    Payments Due  
          Less
    One to
    Four to
    After
 
          Than
    Three
    Five
    Five
 
Contractual Obligations(1)   Total     One Year     Years     Years     Years  
    (In millions)  
 
Long-term debt(2)
  $ 1,054.1     $     $     $ 191.8     $ 862.3  
Revolving credit loans(3)
    92.0       92.0                    
Capital lease(4)
    12.1       0.9       1.8       1.8       7.6  
Other indebtedness
    10.3       4.3       4.6       1.4        
                                         
Total debt
    1,168.5       97.2       6.4       195.0       869.9  
Interest on long-term fixed-rate debt
    407.2       59.5       118.8       115.8       113.1  
Noncancellable operating leases
    97.1       19.6       27.1       14.7       35.7  
Purchase obligations(5)
    222.0       208.7       13.0       0.3        
Employee severance and other
    18.1       18.1                    
                                         
Total
  $ 1,912.9     $ 403.1     $ 165.3     $ 325.8     $ 1,018.7  
                                         
 
 
(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 Company’s financial condition and results of operations and that require the use of complex and subjective estimates based upon past experience and management’s 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 Company’s accounting policies and to Management’s Discussion and Analysis. The information that follows represents additional specific disclosures about the Company’s accounting policies regarding risks, estimates, subjective decisions or assessments whereby


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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 Company’s 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.
 
  •  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 Company’s 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 Company’s 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 Company’s operations, but for the most part do not exceed one year. The Company calculates its warranty expense provision based on past warranty experience and adjustments are made periodically to reflect actual warranty expenses. If actual future sales returns and allowances and warranty amounts are higher than past experience, additional accruals may be required.
 
  •  Accounts Receivable.  The Company maintains allowances for estimated losses resulting from the inability of specific customers to meet their financial obligations to the Company. A specific reserve for bad debts is recorded against the amount due from these customers. For all other customers, the Company recognizes reserves for bad debts based on the length of time specific receivables are past due based on its historical experience. If the financial condition of the Company’s 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.
 
  •  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.
 
  •  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 unit’s 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.


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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 Company’s long-range plan. The Company’s 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 Company’s 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 Company’s reporting units still exceeded their respective carrying values by 26% to 406% for each of the Company’s 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 Company’s 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 Company’s total assets. The Company performed its required annual impairment tests in the fourth quarter of 2010 and determined that the Company’s 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.
 
  •  Pensions.  The Company has U.S. and foreign defined benefit and defined contribution pension plans. The most significant elements in determining the Company’s 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


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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 Company’s 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.
 
  •  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 Company’s tax assets and liabilities. To the extent the final outcome differs, future adjustments to the Company’s tax assets and liabilities may be necessary.
 
The Company assesses the realizability of its deferred tax assets, taking into consideration the Company’s 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 Company’s 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.


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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 Company’s 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 Company’s 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.


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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 Company’s 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 Company’s 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 Company’s 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 HCC’s 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


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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.


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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.


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Management’s 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 management’s 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 Company’s 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 Company’s independent registered public accounting firm, Ernst & Young LLP, is engaged to render an opinion as to whether management’s financial statements present fairly, in all material respects, the Company’s financial position and operating results. This report is included on page 39.
 
Management’s 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 Company’s 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 Company’s internal control over financial reporting was effective as of December 31, 2010.
 
The Company’s 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


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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 Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s 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 company’s 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 company’s 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 company’s 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


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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 Company’s 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


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AMETEK, Inc.
 
Consolidated Statement of Income
(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.


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AMETEK, Inc.
 
Consolidated Balance Sheet
(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.


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AMETEK, Inc.
 
Consolidated Statement of Stockholders’ Equity
(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.


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AMETEK, Inc.
 
Consolidated Statement of Cash Flows
(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.


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AMETEK, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.     Significant Accounting Policies
 
 
Basis of Consolidation
 
The accompanying consolidated financial statements reflect the operations, financial position and cash flows of AMETEK, Inc. (the “Company”), and include the accounts of the Company and subsidiaries, after elimination of all intercompany transactions in the consolidation. The Company’s investments in 50% or less owned joint ventures are accounted for by the equity method of accounting. Such investments are not significant to the Company’s 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 Company’s 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 Company’s 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 Company’s 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.


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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 Company’s 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 Company’s 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 Company’s 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.


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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 Company’s 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 Company’s 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 Company’s 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 management’s 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.


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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 Company’s long-range plan. The Company’s 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.


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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 Company’s 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 Company’s tax assets and liabilities. To the extent the final outcome differs, future adjustments to the Company’s 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 Company’s 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 Company’s deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.
 
2.    Stock Split
 
On November 2, 2010, the Company’s Board of Directors declared a three-for-two split of the Company’s 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 Company’s 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.


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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 Company’s 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 company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s 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 Company’s 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 Company’s ownership interests in the fund’s 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 Company’s ability to redeem these equity and fixed-income securities investments.


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AMETEK, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
5.    Hedging Activities
 
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 Company’s 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 Company’s 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 management’s 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 Company’s 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 Company’s 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 Company’s businesses.


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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  
                         
 
7.    Acquisitions
 
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 Reliance’s 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 world’s 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 Company’s 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 Company’s 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 Company’s 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


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AMETEK, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
growth platform in the materials testing equipment market and broadens AMETEK’s 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 Company’s 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 Company’s 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


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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.


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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  
                         


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AMETEK, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
10.    Debt
 
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.


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AMETEK, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company’s revolving credit facility’s 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.
 
11.    Stockholders’ Equity
 
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 Company’s 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 Company’s 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 Company’s 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.


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AMETEK, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
12.   Share-Based Compensation
 
Under the terms of the Company’s stockholder-approved share-based plans, incentive and non-qualified stock options and restricted stock awards have been, and may be, issued to the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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  
                         


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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 recipient’s cash compensation is reported.
 
The following is a summary of the Company’s 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 Company’s 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 Company’s restricted stock arrangement is determined by the product of the number of shares granted and the grant date market price of the Company’s 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 Company’s 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.


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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 Company’s 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 Company’s 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.


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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.
 
14.   Income Taxes
 
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  
                         


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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 Company’s 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


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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 Company’s 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.


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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 Company’s 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 Company’s 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 Company’s 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 employee’s salary subject to pre-established vesting. Employees of certain of the Company’s foreign operations participate in various local defined contribution plans.


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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 participant’s 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 Company’s 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 Company’s 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  
                 


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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  
                 


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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.


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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 portfolio’s 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.


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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


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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