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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] 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)
<Table>
DELAWARE 14-1682544
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
37 NORTH VALLEY ROAD, PAOLI, PA 19301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(610) 647-2121
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE (VOTING) NEW YORK STOCK EXCHANGE,
PACIFIC EXCHANGE, INC.
7.20% SENIOR NOTES DUE 2008 NONE
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(TITLE OF EACH CLASS)
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. [X] YES [ ] NO
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 2002, was $1,087,945,443.
The number of shares of common stock outstanding as of February 28, 2002,
was 32,883,187.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Proxy Statement for the
Annual Meeting of Stockholders on May 21, 2002.
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AMETEK, INC.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<Table>
<Caption>
PAGE(S)
-------
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 25
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 50
Item 11. Executive Compensation...................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 50
Item 13. Certain Relationships and Related Transactions.............. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 50
Signatures............................................................ 51
Index to Exhibits..................................................... 52
</Table>
1
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
AMETEK, Inc. ("AMETEK" or the "Company") is incorporated in Delaware and is
the successor to AMETEK, Inc., which was originally incorporated in Delaware in
1930 under the name of American Machine and Metals, Inc. The Company maintains
its principal executive offices in suburban Philadelphia at 37 North Valley
Road, Paoli, PA 19301. AMETEK is a leading global manufacturer of electronic
instruments and electric motors with operations in North America, Europe, Asia
and South America. The Company is listed on the New York Stock Exchange (symbol:
AME). AMETEK is a component of the S&P MidCap 400 and the Russell 2000 indices.
Approximately one-third of 2001 sales were to international markets.
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 technologically advanced monitoring, testing, and
calibration instruments, and display devices for the process, power generation,
aerospace and industrial markets. The Company believes that EMG is the world's
largest manufacturer of air-moving electric motors for vacuum cleaners and other
floor care products, and it is a preeminent producer of brushless air-moving
motors for aerospace, mass-transit, medical and office product markets. It also
produces specialty metals for the electronics, telecommunications, consumer,
automotive and other markets. EMG's expanded product offering includes switches
for motive and stationary power systems. The Company continues to grow through
acquisitions primarily focused on niche markets in instrumentation, technical
motors and specialty metals.
COMPETITIVE STRENGTHS
Management believes that the Company has several significant competitive
advantages, which assist it in sustaining and enhancing its market positions.
The Company's principal strengths include:
Significant Market Share. The Company maintains significant market share
in many of its targeted niche markets, because of its ability to produce and
deliver high-quality products at a low cost. In the EIG segment, the Company
maintains significant positions in many of its niche market segments within the
aerospace, power instrument, process, and industrial instrumentation markets. In
the EMG segment, the Company believes it is the largest manufacturer of
air-moving electric motors for the global floor care market. Management believes
that the Company's significant market share, along with its newest and expanded
motor plants, combining advanced technology and lower cost, play key roles in
expanding its electromechanical product lines and providing new market
opportunities.
Technological and Development Capabilities. AMETEK believes it has certain
technological advantages over its competitors that allow it to maintain leading
market positions by developing innovative products. Historically, the Company
has grown its business by extending its technical expertise into the manufacture
of customized products for its customers, and through acquisitions. EIG competes
in specialized instrumentation markets, including process measurement,
heavy-vehicle dashboard and aerospace instruments, primarily on the basis of
product innovation. An example of this innovation is the Company's leveraging of
its core competency in jet engine temperature sensors to design similar products
for a broad range of power generation applications including land-based gas
turbines. The Company has an established reputation for technological
innovation, service and reliability, which has led to successful strategic
alliances. EMG focuses on enhancing motor-blower performance and minimizing
cost, through advances in power, efficiency, weight and quieter operation. The
Company believes that EMG's technical leadership has helped to create a broad
range of product features that have opened new markets, such as the outdoor
power equipment market.
Efficient and Low-Cost Manufacturing Operations. The Company's competitive
cost position is a significant advantage in growing its cost-driven businesses
and its overall global market share. The Company
2
has established motor plants in China, the Czech Republic, Mexico and Brazil to
lower manufacturing costs and achieve strategic proximity to customers,
enhancing its ability to increase international sales and market share. Certain
of the Company's electronic instrument businesses are relocating their
manufacturing operations to low-cost locales. Furthermore, strategic
acquisitions and joint ventures in Europe, North America and Asia have resulted
in additional synergies and cost savings through the consolidation of
operations, new product lines and distribution channels, and low-cost
manufacturing operations, benefiting both operating groups.
Experienced Management Team. Another important component of the Company's
recent success has been the continued strength of its management team and its
commitment to the performance of the Company. In November 2000, the Board of
Directors of the Company announced that its President and Chief Executive
Officer had been elected as Chairman of the Board of Directors. The election
completed the Company's executive management transition, which commenced in
1996. AMETEK's senior management has extensive experience in its businesses and
is financially committed to the Company's success through established Company
stock ownership guidelines based on a set of salary multiples established by the
Company.
BUSINESS STRATEGY
AMETEK's objectives are to increase the Company's earnings growth and
financial returns through a combination of operating and financial strategies.
Operational strategies include business acquisitions and cost reduction programs
designed to achieve double-digit annual percentage growth in earnings per share
over the business cycle, and a superior return on total capital. In order to
achieve our operational objectives, financial initiatives have been, or may be,
undertaken which include public debt issuance, bank debt refinancing, local-
source financing in certain foreign countries, accounts receivable
securitization and share repurchases. AMETEK's strong commitment to continuing
earnings growth led the Company to continue its implementation of cost reduction
programs to offset the impacts of a slowing economic environment and to achieve
its best-cost objectives.
The Company's growth strategy consists of the following four elements:
Strategic Acquisitions and Alliances. In 2001, acquisitions played an
important role in driving the expansion of the Company. AMETEK completed three
strategic acquisitions in 2001. These businesses, with combined annualized sales
of approximately $150 million, extended AMETEK's technology base, market
channels and product offerings. In the past three years, the Company has
completed nine acquisitions with annualized sales totaling nearly $375 million.
Those acquisitions have enhanced AMETEK's position in aerospace and process
instruments, electromechanical products, electric power instruments and food
service controls. Through these and prior acquisitions, the Company's management
team has gained considerable experience in successfully acquiring and
integrating businesses. The Company intends to continue 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 companies (see
"Recent Acquisitions").
Global and Market Expansion. AMETEK's largest international presence is in
Europe, where it holds a leading market position in floor care motors. The
Company's operations in Denmark, Italy, Germany, the Czech Republic and the
United Kingdom provide design and engineering capability, product line breadth,
enhanced European distribution channels, and low-cost production, for both
electronic instruments and electromechanical devices. Growth in Latin America
and Asia has resulted from the opening and expansion of low-cost production
electric motor and instruments plants in Reynosa, Mexico, and motor
manufacturing plants in Shanghai, China and Sao Paulo, Brazil. Through joint
ventures in China, Taiwan, Japan and Korea, coupled with a direct sales and
marketing presence throughout Asia, AMETEK continues to broaden its geographic
market expansion and market penetration.
New Product Development. The Company seeks to improve its current market
position and enter complementary markets through its product development
programs. In the EIG segment, the Company applies concurrent engineering to
develop specialized products for the markets in which it competes. In 2001 EIG
was selected by a major customer to provide an engine sensor suite for the new
jet engine on the U.S.
3
military's Joint Strike Fighter (JSF). Development work will take place over the
next several years, with the JSF scheduled to enter military service in 2008.
EIG's new Intellipoint RF(TM) Point Level Switch is the first true
no-calibration point level instrument. Intellipoint RF(TM) utilizes Radio
Frequency (RF) technology and is ideal for tank measurement in a wide range of
process applications. EIG also introduced the APEX Power Quality Analyzer. This
is a compact, portable, high-end power quality analyzer that is able to diagnose
power problems quickly and accurately. The APEX analyzer reduces costly work
interruptions, minimizes equipment and communications failures, and lowers
processing and control errors that result from poor power quality. EMG has
expanded its line of MINIJAMMER(R) brushless DC blowers to meet specific needs
in the demanding medical and business machine markets. The new models have
higher speeds for greater air output; integrated on-board electronics; improved
efficiency; and lower noise levels. The MINIJAMMER(R) now serves medical OEM's
with a low-noise, cost-effective air delivery system in a very small package.
This brushless blower also is suitable for a variety of applications in the
dental, computer, and business machine markets. EMG also introduced the
ADVANTEK(TM) family of household vacuum motors and the Air-Watt(TM) Series of
high-performance commercial vacuum motors during 2001.
Operational Excellence. The Company seeks to further improve its current
market position and maintain its low-cost position through a continuation of its
Operational Excellence strategy. The Company believes its dedication to focusing
on flow manufacturing, a participative management culture, operating efficiency
and asset management increases the Company's product quality, return on
operating assets and customer satisfaction, while significantly shortening
production cycle times and lowering its operating and administrative costs. This
strategy has served to strengthen the Company's competitive position across its
business lines. Operational Excellence is the keystone strategy for improving
the Company's profit margins, and it has assisted in successfully achieving
synergies from the integration of acquired companies.
2001 OVERVIEW
Operating Performance.
In 2001, AMETEK had sales of approximately $1 billion in a difficult
economic environment. It also achieved its eighth consecutive year of growth in
income and earnings per share from continuing operations, before unusual items.
Cost reduction initiatives and the contribution from acquired companies were the
primary contributors to this strong performance.
The Company also set records for income and diluted earnings per share
before unusual items in 2001. To realign the Company's cost structure to the
realities of the economic environment, and to reflect the effect it has had on
the Company's customer base, the Company recognized pretax expenses totaling
$23.3 million ($15.3 million after tax, or $0.46 per diluted share) in the
fourth quarter of 2001. These expenses were for employee reductions, facility
closures, the continued movement of manufacturing capabilities to low-cost
locales, and asset writedowns. The annualized cost savings resulting from
certain of these actions is expected to be approximately $25 million. Partially
offsetting the expenses was a $10.5 million ($0.32 per diluted share) tax
benefit resulting from the closure of several open tax years.
Share Repurchase Program.
Under the Company's current $50 million share repurchase authorization,
approximately $16 million is presently available for share repurchases. During
2001, the Company repurchased 440,000 shares of its common stock for $11.6
million.
Financing.
On September 17, 2001, AMETEK completed a new $300 million five-year
Revolving Credit Facility. The new financing replaced a $195 million facility,
which was to expire in 2002. The new Revolving Credit Facility provides the
Company with additional financial flexibility to support its growth plans,
including its successful acquisition strategy.
4
On December 21, 2001, the Company filed a shelf registration statement with
the Securities and Exchange Commission (SEC) for up to $300 million in
additional financing through the potential issuance of common or preferred
stock, debt securities or warrants.
Recent Acquisitions.
In December 2001, the Company acquired Instruments for Research and Applied
Science (IRAS) from PerkinElmer, Inc. for $63 million in cash. IRAS is a leading
developer and manufacturer of advanced analytical instrumentation that is used
in a number of applications including nuclear spectroscopy, research
electrochemistry and electronic signal processing. The acquired business is now
part of the Company's Electronic Instruments Group.
In July 2001, the Company acquired EDAX, Inc. (EDAX) from Panta Electronics
for $37 million in cash. EDAX is a leading manufacturer of energy dispersive
X-ray microanalysis instrumentation, and complements the Company's existing
analytical instrumentation product lines. The acquired business is now part of
the Company's Electronic Instruments Group.
In May 2001, the Company acquired the assets of GS Electric from SPX
Corporation for approximately $32 million in cash. GS Electric is a leading U.S.
manufacturer of universal and permanent magnet motors for the global floor care
and other markets. The acquired business is now part of the Company's
Electromechanical Group.
Financial Information about Operating Segments, Foreign Operations, and Export
Sales
Reportable segment and geographic information is shown on pages 46-48 of
this report.
One of the Company's four growth strategies is global and market expansion,
which is subject to certain risks that are inherent in conducting business
outside the United States. Those include fluctuations in currency exchange rates
and controls, restrictions on the movement of funds, import and export controls,
and other economic, political and regulatory policies of the countries in which
business is conducted. The Company's high level of foreign sales has resulted
from a combination of export sales of products manufactured in the United
States, sales from overseas operations, and sales resulting from strategic
alliances.
Narrative Description of Business Products and Services
The products and markets of each operating segment are described below:
EIG
EIG applies its specialized market focus and superior technology to produce
testing, monitoring, and calibration instruments for the aerospace, power,
process, and industrial markets.
EIG's growth is based on the four corporate strategies. EIG designs
products which are significantly different from, or technologically ahead of
competing products. EIG has reduced costs by implementing operational
improvements, achieving acquisition synergies, improving supply chain
management, and work force reductions. EIG is among the leaders in many of the
specialized markets it serves, including aerospace fuel-flow meters,
heavy-vehicle instrument panels, oxygen analyzers, level measurement products,
power instruments, and pressure gauges. Approximately 30% of 2001 sales were to
markets outside the United States.
EIG employs approximately 3,800 people, of whom approximately 400 are
covered by collective bargaining agreements. It has 27 manufacturing facilities:
23 in the United States, three in Europe and one in Canada.
Aerospace and Power Instruments Market and Product Lines
Approximately 44% of EIG revenues are from the sale of aerospace and power
products. Aerospace products include airborne data systems, turbine engine
temperature measurement products, vibration-
5
monitoring systems, indicators and 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. It also serves the military market. EIG's
customers are the leading producers of airframes and jet engines. It also
participates in the aerospace aftermarket. Customer support includes parts
warehousing and maintenance programs. Aerospace products are designed to
customer specifications and are manufactured to stringent operational and
reliability requirements.
The aerospace business operates in specialized markets, where its products
have a technological and/or cost advantage. Its 50-plus years of experience as
an aerospace supplier and its long-standing customer relationships with global
commercial aircraft OEMs are significant competitive advantages. Recent
acquisitions have complemented and expanded EIG's core sensor and transducer
product line used in a wide range of industrial and aerospace applications.
The September 2000 acquisition of Rochester Instrument Systems complements
and expands EIG's position in electric power instruments, which includes a full
suite of instrumentation for gas turbines derived from core technology developed
by the Company for the aerospace industry. Rochester Instrument Systems products
include power transducers and meters, event and transient recorders,
annunciators, and alarm monitoring systems used to measure, monitor and record
variables in the generation and distribution of electric power.
Process Instruments Market and Product Lines
Approximately 30% of EIG sales are process measurement and analytical
instruments. These include pressure gauges and transducers; oxygen, moisture,
combustion and liquid analyzers; emission monitors; electronic pressure sensors
and transmitters; and level measurement devices. The focus is on the process
industry, which includes refinery and petrochemical plants, power generation,
specialty gas, water and waste treatment, natural gas distribution, and
semiconductor equipment. The products service the industrial process control and
air emissions monitoring markets, and are used for monitoring sulfur emissions,
where AMETEK is already a world leader.
AMETEK acquired two businesses in 2001 that significantly expands its
position in the laboratory instrumentation market. EDAX, acquired in July 2001,
manufactures and markets energy dispersive X-ray microanalysis instrumentation
used in electron microscope systems to identify and quantify the elemental
composition and structure of solid materials. IRAS, acquired in late December
2001, extends AMETEK's capabilities in the measurement of physical properties
with instrumentation that is used in the increasingly important areas of
environmental monitoring, detection of nuclear and chemical weapons, and
laboratory research. IRAS also produces instrumentation for electronic signal
processing and electrochemical applications. As part of the IRAS acquisition,
AMETEK also acquired a 49% ownership position in Seiko EG&G Co., Ltd., a joint
venture that serves as the exclusive distributor of IRAS products in Japan.
EIG is one of the leaders in the North American pressure gauge market,
which has been adversely affected by low-cost offshore products. EIG has
addressed this issue through its 50%-owned joint venture that manufactures
low-cost pressure gauges in China and Taiwan, where the joint venture also
markets those products. EIG is refocusing its domestic manufacturing on more
advanced pressure measurement products.
Industrial Instrumentation Market and Product Lines
Approximately 26% of EIG sales are to the industrial instrumentation
market. The Test & Calibration Instruments (T&CI) business manufactures a
comprehensive line of force-measurement and material testing devices in the
United States and Europe, including hand-held gauges, electronic instruments and
test stands. It also provides analytical software and support services. T&CI's
products are marketed worldwide under the Chatillon, Lloyd, Erichsen, Jofra, and
Davenport brand names through a global network of distributors, sales
representatives, and direct sales.
6
The Dixson business provides EIG with a strong position in the U.S.
heavy-vehicle instrument market, including heavy trucks, agricultural,
construction, and off-road vehicles. Dixson has strong product development
capability in solid-state instruments that primarily monitor engine-operating
parameters.
EIG also has a leading position in the food service instrumentation market
through its NCC business. NCC is a leading source for stand-alone and integrated
timing controls for the food service industry.
The Chemical Products division produces silicas, phenolic resins, Teflon(R)
(a registered trademark of DuPont) polymer products for high-temperature and
highly corrosive applications, and heat exchangers. Product applications include
protective welding curtains and products for the filtering of molten metal. EIG
also is a custom compounder of specialty resins and thermoplastics with enhanced
properties, such as fire retardance and improved adhesion. Markets include
electronics, automotive parts, appliances, and telecommunications.
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
20% of EIG's 2001 sales were made to its five largest customers.
EMG
EMG is the world's largest producer of high-speed, air-moving electric
motors for OEMs of floor care products. The design and manufacture of small
vacuum motors with fans rotating at high speeds requires advanced manufacturing
technology. EMG addresses complex motor-blower dynamics including heat, noise,
vibration, and wear, in designing its customized products. The Group's technical
motor division is a world leader in the brushless DC motor market. EMG also
produces specialty metal products used in the electronics, telecommunications,
consumer, automotive, and other markets. EMG has a leading market share for its
electric motors in North America and Western Europe and a growing share in the
Pacific Rim. It has expanded its operations worldwide by leveraging
manufacturing and technological expertise developed over many years.
EMG also has developed its business by extending its technological
expertise in manufacturing high-speed, air-moving electric motors to a variety
of targeted markets, with its primary focus currently on the floor care market
and small appliances. EMG has formed alliances with OEM customers to design and
manufacture cost-effective products for numerous floor care applications. EMG
also is using its technological and marketing expertise to further penetrate new
markets, such as the outdoor power equipment market, where it will establish
alliances with major customers.
To achieve further global penetration, EMG is building on its market
leadership in the floor care markets of North America and Europe. Through
expanded electric motor production operations in China, Mexico, the Czech
Republic and Brazil, EMG is focused on reducing costs and furthering AMETEK's
reach in global markets. Approximately 33% of EMG's 2001 sales were to customers
outside the United States.
EMG employs approximately 4,200 people, of whom approximately 1,900 are
covered by collective bargaining agreements. It has 22 manufacturing facilities:
13 in the United States, two each in Italy, the United Kingdom, and in Mexico,
and one each in China, the Czech Republic, and Brazil. In 2000, the Company
completed the consolidation of two of its Italian motor plants and the closure
of its Cambridge, OH plant, all of which served the floor care market. It also
expanded the operations of the Italian division to its existing motor plants in
the Czech Republic. In 2001, the Company expanded its Reynosa, Mexico
manufacturing facility and closed its Graham, N.C. motor plant. EMG's flexible
production lines are designed for low-cost, high-volume operations. Advanced
technological capability enable EMG to provide its customers with
custom-designed products. The Group produced approximately 26 million motors in
2001, aided by the acquisitions of GS Electric and Prestolite, and increased
production in Brazil.
7
Floor Care Market and Product Lines
Approximately 47% of EMG sales are to floor care markets, where it has the
leading share, through sales of air-moving electric motors to most of the
world's major floor care OEMs. Customers include vertically integrated OEMs that
produce some of their own motors. EMG produces motor-blowers for a full range of
floor care products, ranging from hand-held, canister, and upright vacuums to
central vacuums for residential use. High-performance vacuum motors also are
marketed for commercial and industrial applications.
Part of the sales initiatives in the global floor care business have been
directed toward marketing products to vertically integrated vacuum cleaner
manufacturers that decide to outsource all or part of their motor production to
realize the economic and operational advantages of reducing or discontinuing
their own motor-production. By purchasing motors from EMG, vacuum cleaner
manufacturers can reduce the otherwise substantial capital investment necessary
to manufacture motors for rapidly changing consumer demands.
EMG's new product development focuses on enhancing motor-blower performance
and minimizing costs, through advances in power, efficiency, size, weight, and
quieter operation. Among the latest advances are the ADVANTEK(TM) series of
universal vacuum motors, which incorporate design and construction techniques
that lower cost while improving operating efficiency and reliability, and the
Air-Watt(TM) Series of commercial motor-blowers, whose advanced design
translates directly into higher performance and energy savings for end users.
EMG has a significant position in the European floor-care market. The
electric motors it produces in Italy and the Czech Republic are similar to those
produced in North America.
Technical Motors Market and Product Lines
EMG's technical motors are used in military and aerospace applications,
computer equipment, business machines, and medical equipment. Brushless motors
produced by Rotron Technical Motors offer spark-free commutation and high
reliability. They are increasingly utilized in medical and other applications in
which long life and speed control are important. The Rotron motor business and
its integration with the technical motor division to form AMETEK Rotron, has
added to AMETEK's already strong core competency in brushless air-moving motors.
With Rotron, AMETEK has significant growth opportunities in the brushless motor
market. Continuing product developments include the use of brushless motors in
systems designed to assist patients with sleep breathing disorders, hospital air
mattresses, and gasoline fume-recovery systems used by gas stations, as well as
electronic power devices for the military, mass-transit, and aerospace markets.
Rotron has introduced a redesigned line of the MICRO-Jammer(TM) motor-blower and
an enhanced version of the MINIJAMMER(TM) brushless DC motor-blower for medical
devices, dental equipment, business machines and a variety of commercial
applications.
Specialty Motors Market and Product Lines
EMG manufactures specialty motors for a variety of end markets, including
the outdoor power equipment market, small household appliances, fitness
equipment and electric material handling vehicles. Outdoor power equipment
includes lawn and garden equipment, as well as electric chain saws,
high-pressure power washers, and low-pressure paint sprayers. EMG serves most of
the world's major producers of outdoor power equipment. The acquisition of GS
Electric in 2001 increased AMETEK's presence in the outdoor power equipment
market and brought critical mass in permanent magnet motor technology. The
combination of GS Electric with AMETEK's existing specialty motors business will
allow EMG to leverage its manufacturing infrastructure, technical expertise, and
global marketing strengths in these markets.
Specialty Metals Market and Product Lines
The specialty metals business manufactures high-purity, engineered metal
powders, high-purity strip and wire from metal powders, and clad products, with
specific metallurgical properties. Its niche market focus is based upon
proprietary manufacturing technology and strong customer relations. The Company
has expanded its product line of metal matrix composites, which are used in
thermal management applications for electronic
8
products, by acquiring an exclusive license to produce composites of
silicon-carbide aluminum in the United States. Other new product developments
include patented Ultra(TM) stainless steel metal powders and copper-based
Spinodal(TM) alloys. Markets served by the business include electronics,
telecommunications, automotive, consumer products, and energy production.
Prestolite Power and Switch Market and Product Lines
The 2000 acquisition of the Prestolite switch and industrial battery
charger businesses in 2000 expanded the products offered by EMG. The switch
business produces solenoids and other electromechanical devices for the motive
and stationary power market. The battery charger business designs and
manufactures high-quality industrial battery chargers for use in the
materials-handling market. These businesses have strong market positions,
superior technologies, and a reputation for quality and service.
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
16% of EMG's sales for 2001 were made to its five largest customers.
MARKETING
Generally, the Company's marketing efforts are organized and carried out at
the group and division levels. EIG makes significant use of distributors and
sales representatives in marketing its products. However, its specialized
customer base of aircraft and jet engine manufacturers are served primarily by
its direct sales engineers. Given the similarity and technical nature of its
many products as well as its significant worldwide market share, EMG conducts
most of its domestic and international marketing activities through a direct
sales force, and makes some use of sales representatives and distributors both
in the U.S. 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 price, product
technology, distribution, quality, and service.
In the markets served by EIG, the Company believes that it is one of the
world's largest pressure gauge manufacturers, ranks among the leading U.S.
producers of certain measuring and control instruments, and is a leading
manufacturer in the U.S. heavy vehicle instrumentation and power instruments
markets. It also is one of the leading instrument and sensor suppliers to the
commercial aviation market. Competition is strong and could intensify for
certain EIG products, especially in the Company's pressure gauge and
heavy-vehicle instrumentation businesses. Both of these businesses have several
strong competitors. In the process and analytical instruments markets, numerous
companies in each specialized market compete on the basis of product quality,
performance, and innovation. The Company's aerospace and power instruments
businesses have a number of diversified competitors, which vary depending on the
specific market niche.
EMG has several U.S.-based competitors in the U.S. floor care market.
Competition is increasing from Asian motor manufacturers who serve the U.S.
floor-care market. There is potential competition from vertically integrated
manufacturers of floor care products that produce their own motor-blowers. Many
of these manufacturers would also be potential EMG customers if they decided to
outsource their motor production. In Europe, competition comes from a small
group of large international competitors, vertically integrated manufacturers,
and numerous small competitors. EMG's businesses have competition from a limited
number of companies in each of their markets. Competition is generally based on
product innovation, performance and price. EMG's specialty metal products
business has several specialized product lines that have few competitors. The
primary competition is from alternative materials and processes.
9
BACKLOG AND SEASONAL VARIATIONS OF BUSINESS
The Company's approximate backlog of unfilled orders by business segment at
the dates specified was as follows:
<Table>
<Caption>
DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS)
Electronic Instruments...................................... $169.0 $135.3 $137.0
Electromechanical........................................... 107.6 121.1 106.5
------ ------ ------
Total............................................. $276.6 $256.4 $243.5
====== ====== ======
</Table>
Of the total backlog of unfilled orders at December 31, 2001, approximately
91% is expected to be shipped by December 31, 2002. The Company believes that
neither its business as a whole, nor either of its operating segments, is
subject to significant seasonal variations, although certain individual
operations experience some seasonal variability.
RAW MATERIALS
The Company's business 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 new and improved products
or enhance existing products. Research, product development, and engineering
costs during the past three years were $45.2 million, $45.9 million and $42.2
million, in 2001, 2000, and 1999 respectively. These amounts included net
Company-funded research and development expenses of $22.6 million, $23.8 million
and $21.6 million, respectively. Such expenditures were directed toward the
development of new products and processes, and the improvement of existing
products and processes.
ENVIRONMENTAL COMPLIANCE
Information with respect to environmental compliance by the Company is set
forth on page 22 of this report in the section of Management's Discussion and
Analysis of Financial Condition and Results of Operations entitled
"Environmental and Other Matters."
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 business segments or to the
Company's overall operations.
EMPLOYEES
At December 31, 2001, the Company employed approximately 8,100 individuals
in its EMG, EIG and corporate operations, of whom approximately 2,300 were
covered by collective bargaining agreements.
10
WORKING CAPITAL PRACTICES
The Company does not have extraordinary working capital requirements in
either of its business 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 2. PROPERTIES
The Company has 49 operating plant facilities in 17 states and 9 foreign
countries. Of these facilities, 33 are owned by the Company and 16 are leased.
The properties owned by the Company consist of approximately 555 acres, of which
approximately 3.9 million square feet are under roof. Under lease is a total of
approximately 895,000 square feet. The leases expire over a range of years from
2002 to 2015, with renewal options for varying terms contained in most of the
leases. Production facilities in Taiwan and China provide the Company with
additional production capacity through the Company's 50% ownership in a joint
venture. The Company also has two idle production facilities available for sale.
The Company's executive offices in Paoli, PA, occupy approximately 34,000 square
feet under a lease that will expire in 2007.
The Company's machinery, plants, and offices are in satisfactory operating
condition and are adequate for the uses to which they are put. The operating
facilities of the Company by business segment are summarized in the following
table:
<Table>
<Caption>
NUMBER OF
OPERATING PLANT
FACILITIES SQUARE FEET UNDER ROOF
---------------- -----------------------
OWNED LEASED OWNED LEASED
------ ------- ----------- ---------
Electronic Instruments................................... 20 7 2,283,000 468,000
Electromechanical........................................ 13 9 1,591,000 427,000
-- -- --------- -------
Total.......................................... 33 16 3,874,000 895,000
== == ========= =======
</Table>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders,
through the solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market on which the Company's common stock is traded is the
New York Stock Exchange. The Company's common stock is also listed on the
Pacific Exchange, Inc. On February 28, 2002, there were approximately 2,590
holders of record of the Company's common stock.
Market price and dividend information with respect to the Company's common
stock are set forth on page 49 in the section of the Notes to the Consolidated
Financial Statements entitled "Quarterly Financial Data (Unaudited)." Future
dividend payments by the Company will be dependent on future earnings, financial
requirements, contractual provisions of debt agreements, and other relevant
factors.
11
ITEM 6. SELECTED FINANCIAL DATA
<Table>
<Caption>
2001 2000 1999 1998 1997
----------- ----------- --------- --------- ---------
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED OPERATING RESULTS (YEARS ENDED
DECEMBER 31)
Net sales...................................... $1,019.3 $1,024.7 $924.8 $927.5 $847.8
Operating income(1)............................ $ 109.6 $ 135.9 $118.8 $ 96.4 $ 92.0
Interest expense............................... $ (27.9) $ (29.2) $(24.8) $(23.7) $(18.2)
Income from continuing operations(1)........... $ 66.1 $ 68.5 $ 60.8 $ 50.4 $ 50.3
Net income(1)(2)............................... $ 66.1 $ 68.5 $ 60.8 $ 41.7 $ 50.4
Basic earnings per share:
Income from continuing operations(1)......... $ 2.01 $ 2.13 $ 1.88 $ 1.55 $ 1.53
Net income(1)(2)............................. $ 2.01 $ 2.13 $ 1.88 $ 1.28 $ 1.53
Diluted earnings per share:
Income from continuing operations(1)......... $ 1.98 $ 2.11 $ 1.85 $ 1.50 $ 1.49
Net income(1)(2)............................. $ 1.98 $ 2.11 $ 1.85 $ 1.24 $ 1.49
Dividends declared and paid per share.......... $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24
Average common shares outstanding:
Basic shares................................. 32.8 32.1 32.3 32.7 32.9
Diluted shares............................... 33.4 32.5 32.9 33.7 33.9
PERFORMANCE MEASURES AND OTHER DATA
Operating data excluding unusual and
nonrecurring items(3):
Operating income............................. $ 132.8 $ 135.9 $118.8 $104.5 $ 92.0
Operating income -- Return on sales.......... 13.0% 13.3% 12.8% 11.3% 10.8%
Operating income -- Return on average total
assets.................................... 14.1% 16.7% 16.2% 16.6% 17.4%
EBITDA(4).................................... $ 178.0 $ 177.6 $158.1 $146.4 $128.0
Ratio of EBITDA to interest expense(4)....... 6.4X 6.1x 6.4x 6.2x 7.0x
Income from continuing operations............ $ 70.8 $ 68.5 $ 60.8 $ 55.3 $ 50.3
Diluted earnings per share................... $ 2.12 $ 2.11 $ 1.85 $ 1.64 $ 1.49
Depreciation and amortization.................. $ 46.5 $ 43.3 $ 39.6 $ 38.4 $ 32.9
Capital expenditures........................... $ 29.4 $ 29.6 $ 30.3 $ 49.8 $ 41.2
Cash provided by continuing operations(5)...... $ 101.1 $ 78.7 $ 86.6 $ 78.4 $ 71.2
Free Cash Flow(6).............................. $ 75.3 $ 74.5 $ 62.3 $ 31.1 $ 34.1
Ratio of earnings to fixed charges............. 3.7X 4.3x 4.4x 3.9x 4.8x
Net income -- Return on average total
capital............................. 8.9% 11.5% 11.8% 10.4% 15.8%
-- Return on average stockholders'
equity.............................. 21.5% 27.6% 31.2% 25.1% 34.9%
YEAR-END CONSOLIDATED FINANCIAL POSITION
Current assets................................. $ 379.3 $ 303.1 $256.1 $267.8 $248.5
Current liabilities............................ $ 336.2 $ 297.7 $262.7 $233.9 $178.7
Property, plant, and equipment................. $ 214.5 $ 214.0 $219.6 $214.4 $186.3
Total assets................................... $1,029.3 $ 859.0 $768.2 $699.8 $555.2
Long-term debt................................. $ 303.4 $ 233.6 $231.8 $227.0 $152.3
Stockholders' equity........................... $ 335.1 $ 280.8 $216.2 $174.0 $159.0
Stockholders' equity per share................. $ 10.21 $ 8.66 $ 6.76 $ 5.42 $ 4.82
Total debt as a percentage of
capitalization(7)............................ 58.4% 56.3% 60.5% 63.7% 51.0%
</Table>
12
- ---------------
(1) 2001 includes unusual pretax charges totaling $23.3 million, $15.3 million
after tax ($0.46 per diluted share). The charges were for employee
reductions, facility closures, and the continued migration to low-cost
locales ($12.4 million), as well as asset writedowns ($10.9 million). The
year also includes a tax benefit and related interest income (reported in
other income) of $10.5 million after tax ($0.32 per diluted share) resulting
from the closure of a number of open tax years. The amounts in 1998 include
a nonrecurring pretax charge for cost reduction initiatives totaling $8.0
million ($4.8 million after tax or $0.14 per diluted share).
(2) Amounts in 1998 include an extraordinary after-tax loss on the early
repayment of debt of $8.7 million ($0.26 per diluted share). Amounts in 1997
include discontinued operations of the former Water Filtration Business.
(3) See description of unusual and nonrecurring charges in Note 1 above. All
amounts are based on continuing operations.
(4) EBITDA represents income from continuing operations before interest, taxes,
depreciation and amortization, amortization of deferred financing costs,
unusual and nonrecurring items. 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 financial
statements. Furthermore, EBITDA measures shown for the Company may not be
comparable to similarly titled measures given by other companies.
(5) Before an accounts receivable securitization program.
(6) Free cash flow represents income from continuing operations, plus
depreciation and amortization, less capital expenditures and dividends.
(Also see note 4 above)
(7) At December 31, 2001, debt includes borrowings under the accounts receivable
securitization program, referred to in note 5 above. At December 31, 2000
and 1999, without considering the effect of the accounts receivable
securitization program, total debt and total debt as a percentage of
capitalization would have been $406.2 million and $375.4 million and 59.1%
and 63.6%, respectively.
13
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, we disclose 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" on
page 24.
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with "Item
6. Selected Financial Data" and the consolidated financial statements of the
Company and the related notes included elsewhere in this Form 10-K.
BUSINESS OVERVIEW
In a very difficult economic environment in 2001, the Company posted stable
sales, net income, and diluted earnings per share. For the full year, before
unusual items, the Company established records for income and diluted earnings
per share. The Company has taken the appropriate steps to size its business to
the current economic environment. The Company also continues to achieve several
major objectives under its four growth strategies: Strategic Acquisitions and
Alliances, Global and Market Expansion, New Products and Operational Excellence.
Significant events of 2001 were:
- Sales were $1.02 billion, essentially unchanged from 2000 despite weak
economic conditions both domestically and internationally.
- The completion of three acquisitions: the May acquisition of GS Electric,
a business that produces universal and permanent magnet motors for the
global floor-care and other specialty motor markets, which is included
within the Electromechanical Group (EMG), the July acquisition of EDAX,
Inc., a business that produces energy dispersive X-ray microanalysis
instrumentation and the December acquisition of IRAS, a business that
produces advanced analytical instrumentation, both of which are included
within the Electronic Instruments Group (EIG).
- Continuing with the Company's global plan to lower its cost structure,
Operational Excellence initiatives in 2001 included the ongoing
transition of a portion of the Company's motor and instruments production
to a low-cost manufacturing facility in Mexico as well as to China and
the Czech Republic.
- The completion of a new $300 million credit facility in September 2001,
which replaced a $195 million credit facility that was due to expire in
2002. The new credit facility has a five-year term, thereby extending the
Company's borrowing capacity at favorable interest rates.
- The filing of a shelf registration statement in December, which will
provide the Company with additional financing capability for up to $300
million from a selection of potential common or preferred stock, debt
securities, or warrant issuances.
- In the fourth quarter the Company recorded unusual expenses associated
with the realignment of its cost structure and asset writedowns. Charges
of $23.3 million, $15.3 million after tax, were recorded for these
actions. Also, in the fourth quarter the Company recorded a tax benefit
of $10.5 million, including interest, resulting from the closure of a
number of tax years by U.S. federal and state tax authorities.
14
RESULTS OF OPERATIONS
The following table sets forth net sales and income of the Company by
business segment and on a consolidated basis for the years ended December 31,
2001, 2000, and 1999:
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- ---------- --------
(IN THOUSANDS)
NET SALES(1):
Electronic Instruments.................................... $ 499,528 $ 509,504 $451,072
Electromechanical......................................... 519,761 515,156 473,725
---------- ---------- --------
Total net sales................................. $1,019,289 $1,024,660 $924,797
========== ========== ========
INCOME(2):
Segment operating income(3):
Electronic Instruments.................................. $ 57,035 $ 78,771 $ 69,965
Electromechanical....................................... 70,638 77,560 67,575
---------- ---------- --------
Total segment operating income.................. 127,673 156,331 137,540
Corporate administrative and other expenses............... (18,123) (20,441) (18,743)
---------- ---------- --------
Consolidated operating income............................. 109,550 135,890 118,797
Interest and other expenses, net.......................... (25,188) (29,752) (24,336)
---------- ---------- --------
Consolidated income before income taxes................... $ 84,362 $ 106,138 $ 94,461
========== ========== ========
</Table>
- ---------------
(1) After elimination of intra- and intersegment sales, which are not
significant in amount.
(2) 2001 and 2000 include unusual charges for cost realignment initiatives and
cost reduction programs.
(3) 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.
YEAR ENDED DECEMBER 31, 2001, COMPARED WITH YEAR ENDED DECEMBER 31, 2000.
Results of Operations
The Company had reported sales for 2001 of $1,019.3 million, a decrease of
0.5% from sales of $1,024.7 million in 2000, caused by weak economic conditions
which impacted most of the Company's businesses. Significantly offsetting the
weak economic conditions were the contributions from the Company's business
acquisitions and strength in our aerospace and power instruments businesses.
Without the recent acquisitions, sales for 2001 would have been 10% lower. EIG
segment sales were $499.5 million in 2001, a decrease of 2.0% from sales of
$509.5 million in 2000. Sales for EIG were lower largely due to a decline in
demand from most of its businesses. Recent acquisitions and continued strength
in the aerospace and power instruments businesses offset most of the Group's
sales decline. EMG segment sales were $519.8 million in 2001, an increase of
0.9% from sales of $515.2 million in 2000 due to the sales contribution from
acquisitions. The Group's sales increase was offset by adverse economic
conditions and other competitive factors in the United States and European floor
care markets. Total consolidated international sales were $321.2 million in
2001, a decrease of 1.1% from sales of $324.9 million in 2000. Export shipments
from the United States in 2001 were $170.0 million, a decrease of 5.1% compared
with $179.1 million in 2000.
New orders for 2001 were $1,039.5 million, essentially unchanged from
$1,037.6 million for 2000. The order backlog at December 31, 2001 was $276.6
million, compared with $256.4 million at December 31, 2000. New orders from
acquisitions made by the Company during 2001 and increased orders from the
aerospace and power instrument businesses were the primary reasons for the
increase.
Total segment operating income declined to $127.7 million for 2001, a
decrease of 18.3%, compared with segment operating income of $156.3 million for
2000. Segment operating margins in 2001 were 12.5% of sales,
15
a decrease from 15.3% of sales in 2000. The overall reduction in segment
operating margins in 2001 was primarily due to a fourth quarter unusual pretax
charge to operations of $23 million ($15 million after tax, or $0.46 per diluted
share). Partially offsetting the lower segment operating margins in 2001, was
lower pension expense due primarily to use of the assumed return on pension
investment assets. Before the unusual charge, segment operating margins for 2001
were 14.8%. These unusual charges are more fully discussed below under the
"Fourth Quarter Results".
Selling, general, and administrative (SG&A) expenses were $98.7 million in
2001, compared with $95.1 million in 2000, a $3.6 million increase due mainly to
increased selling expenses from acquisitions completed in 2001. As a percentage
of net sales, SG&A expenses were 9.7% in 2001, compared to 9.3% in 2000.
Corporate administrative expenses decreased to $18.1 million in 2001, compared
with $20.4 in 2000, a decrease of $2.3 million, or 11.3%. The decrease in
corporate expenses reflects the impact of corporate cost reduction activities
primarily resulting from reduced information technology, consulting, and travel
expenses. Corporate expenses for 2001 were 1.8% percent of sales, compared with
2.0% of sales for 2000.
After deducting corporate administrative expenses, consolidated operating
income was $109.6 million or 10.7% of sales, a decrease of $26.3 million when
compared with 2000 operating income of $135.9 million or 13.3 % of sales. Before
unusual charges, operating income was $132.8 million, or 13.1% of sales.
Interest expense was $27.9 million in 2001, a decrease of 4.4% compared
with $29.2 million in 2000. Lower average interest rates, partially offset by
higher average debt levels to finance acquisitions, were the primary reasons for
the decrease in interest expense. Other income was $2.7 million for 2001,
compared with other expense of $0.5 million for 2000. The improvement resulted
primarily from interest income related to tax benefits recognized in the fourth
quarter of 2001 and from increased gains on sales of marketable securities held
by the Company's captive insurance subsidiary.
The effective tax rate for 2001 was 21.6% compared with 35.4% in 2000. The
lower tax rate in 2001 reflects the fourth quarter recognition of $10.5 million
(after tax) in tax benefits ($0.32 per diluted share) resulting from the closure
of a number of open tax years by U.S. federal and state tax authorities, as well
as higher tax credits associated with export sales. Before unusual charges and
the tax benefits, the 2001 effective tax rate was 33.2%.
Net income for 2001 was $66.1 million, or $1.98 per diluted share, compared
with net income for 2000 of $68.5 million, or $2.11 per diluted share. The 3.5%
decrease in net income was due primarily to the fourth quarter net effect of the
unusual items, previously mentioned. Before the unusual items, earnings for 2001
were up 3.3% to $70.8 million, or $2.12 per diluted share.
Fourth Quarter Results
Sales for the fourth quarter of 2001 were $237.3 million, compared with
$258.2 million in the fourth quarter of 2000, a decrease of $20.9 million, or
8.1%. The decrease in fourth quarter sales was the result of significantly
weaker economic conditions, which impacted most of our businesses. Without the
recent acquisitions, sales for the fourth quarter of 2001 would have been 17%
lower.
Operating income for the fourth quarter of 2001 was $5.3 million, compared
with $34.1 million for the fourth quarter of 2000, a decrease of $28.8 million
or 84.4%. In response to weak economic conditions, in the fourth quarter of
2001, the Company recorded unusual expenses totaling $23.3 million (pretax) of
which $12.4 million is related to the costs of employee reductions, facility
closures, the continued migration of production to low-cost locales, and $10.9
million related to asset writedowns. The asset writedowns related to receivables
($3.3 million), inventory ($6.1 million) and equipment ($1.5 million). The asset
writedowns are primarily the result of the difficulties the economic environment
has had on a number of our customers. The annualized cost savings resulting from
the severance and related actions is expected to be approximately $25 million.
These cost reduction initiatives were a continuation of cost reduction programs,
that began in the fourth quarter of 2000 for which the Company recorded a $3.4
million pretax charge in that quarter, and continued during 2001.
16
Also, the fourth quarter 2001 results include a tax benefit of $10.5
million ($0.32 per diluted share), resulting from the closure of a number of tax
years by U.S. federal and state tax authorities. The tax benefits consisted of
cash of $4.4 million and a non-cash benefit of $6.1 million. As a result of the
tax benefit relating to the unusual charges, and the tax benefits discussed
here, the Company reported a total income tax benefit of $10.8 million in the
fourth quarter of 2001 compared with a tax provision of $9.2 million in the same
period of 2000.
Net income for the fourth quarter of 2001 totaled $11.5 million, or $0.34
per diluted share, a decrease of $5.8 million, or 33.5% from the fourth quarter
of 2000 net income of $17.2 million, or $0.53 per diluted share. Before the
unusual items, fourth quarter 2001 earnings were $16.2 million, or $0.48 per
diluted share.
Operating Segment Results
The Electronic Instruments Group (EIG) sales were $499.5 million in 2001, a
decrease of 2.0% from 2000 sales of $509.5 million. The continued economic
slowdown impacted most of the EIG Group's businesses and was partially offset by
the sales contribution of the Company's 2001 and 2000 acquisitions and the
strength of the aerospace and power instruments businesses.
EIG's operating income for 2001 decreased to $57.0 million from $78.7
million in 2000, a decrease of $21.7 million, or 27.6%. Lower base business
sales caused by weak economic conditions, and significant unusual charges for
inventory writedowns, receivable losses related to a bankrupt customer, cost
realignment and employee severance related activities in the fourth quarter of
2001 drove the lower operating income. The Group's operating margins for 2001
declined to 11.4% from 15.5% in 2000. Without the unusual expenses, the Group's
operating income for 2001 would have been $69.5 million, a decrease of $9.3
million, or 13.9% of sales compared with 2000.
The Electromechanical Group (EMG) sales for 2001 were $519.8 million, an
increase of 0.9%, from sales of $515.2 million in 2000. The 2001 and 2000
acquisitions drove the year-to-year increase in sales. Weakness in the North
American and European floor care markets, along with lower sales of specialty
metal products offset most of the sales increase.
EMG's operating income for 2001 decreased to $70.6 million from $77.6
million in 2000, an 8.9% decrease. Lower profits were the result of significant
unusual expenses associated with cost reduction activities in the fourth quarter
of 2001 related primarily to employee severance activities, inventory
writedowns, losses on receivables due to customer bankruptcies, and the
writedown of certain machinery and equipment. Group operating margins were 13.6%
of sales in 2001 down from 15.1% of sales in 2000. Without the unusual expenses,
the Group's operating income would have increased to $81.3 million, an increase
of $3.7 million, or 15.6% of sales.
YEAR ENDED DECEMBER 31, 2000, COMPARED WITH YEAR ENDED DECEMBER 31, 1999.
Results of Operations
The Company reported sales for 2000 of $1,024.7 million, an increase of
10.8% from sales of $924.8 million in 1999 driven by the contributions of the
Company's acquisitions and strength in several core markets. EIG's sales were
$509.5 million in 2000, an increase of 13.0% from sales of $451.1 million in
1999. Without recent acquisitions, sales for EIG would have been slightly lower
due largely to changes in the mix of sales and a decline in demand for
heavy-vehicle instruments. For the EMG segment, sales were $515.2 million in
2000, an increase of 8.7% from sales of $473.7 million in 1999 due to improved
conditions in specialty metal markets along with contributions from an
acquisition, reduced somewhat by continued competitive factors and adverse
currency translation effects from international businesses. International sales
reported, by both segments, totaled $324.9 million in 2000, an increase of $23.0
million or 7.6% from 1999. Export shipments from the United States in 2000 were
$179.1 million, compared with $158.5 million in 1999.
New orders for 2000 were $1,037.6 million, an increase of 9.9% from $944.5
million for 1999. The order backlog at December 31, 2000 was $256.4 million,
compared with $243.5 million at December 31, 1999. New orders from the
acquisitions made by the Company during 2000 were the primary reason for the
increase.
17
The Company's plan to lower its cost structure globally through Operational
Excellence initiatives continued to have a positive effect on segment operating
income and margins in 2000. Total segment operating income improved to $156.3
million for 2000, an increase of 13.7%, compared with segment operating income
of $137.5 million for 1999. Operating margins in 2000 were 15.3% of sales, an
increase from 14.9% in 1999. Improved operating margins were the result of
Operational Excellence initiatives, including increased motor production at the
Company's lower-cost facilities, improved supply chain management and flow
manufacturing expansion in EIG. The Company also benefited from lower overall
net pension costs resulting primarily from a higher return on pension investment
assets.
Selling, general, and administrative (SG&A) expenses were $95.1 million in
2000, compared with $79.4 million in 1999, a $15.7 million increase due mainly
to acquisitions completed in late 1999 and 2000. As a percentage of sales, SG&A
was 9.3% in 2000, compared with 8.6% in 1999. The acquisitions were the primary
contributors to the increase in selling expense. Corporate general and
administrative expenses increased slightly, but were flat year to year, as a
percentage of sales.
After deducting corporate administrative expenses, consolidated operating
income was $135.9 million or 13.3% of net sales, an increase of $17.1 million,
or 14.3%, compared with 1999 operating income of $118.8 million or 12.8% of net
sales.
Interest expense was $29.2 million in 2000, an increase of 17.9%, compared
with $24.8 million in 1999. Higher average debt levels to finance acquisitions
as well as higher average borrowing rates, were the primary reasons for the
increase.
Net income for 2000 was $68.5 million, or $2.11 per diluted share, compared
with net income for 1999 of $60.8 million, or $1.85 per diluted share. The
increase in net income was due primarily to the higher sales and operating
income discussed above.
Fourth Quarter Results
Sales for the fourth quarter of 2000 were $258.2 million, compared with
$236.0 million in the fourth quarter of 1999, an increase of $22.2 million, or
9.4%. The increase in sales was driven by acquisitions made in 2000 and late
1999.
Operating income for the fourth quarter of 2000 was $34.1 million, compared
with $29.5 million for the fourth quarter of 1999, an increase of $4.6 million
or 15.5%. The acquired businesses combined with continued productivity gains as
a result of the Company's operational excellence initiatives and cost reduction
programs were the primary reasons for the increase in operating income. As a
result of slowing U.S. economic growth, in the fourth quarter of 2000, the
Company accelerated certain cost realignment initiatives. These initiatives
include a more aggressive movement of certain production activities to low-cost
locations, and the resizing of several businesses. These actions resulted in a
fourth quarter 2000 pretax charge of $3.4 million. Also, fourth quarter 2000
results include a pretax gain of $3.6 million due to the resolution of a
contract issue with a major customer in the Electronic Instruments Group.
Net income for the fourth quarter of 2000 totaled $17.2 million, or $0.53
per diluted share, an increase of 14.8% from the fourth quarter of 1999 net
income of $15.0 million, or $0.46 per diluted share.
Operating Segment Results
The Electronic Instruments Group (EIG) sales were $509.5 million in 2000,
an increase of 13.0% from 1999 sales of $451.1 million. The 2000 acquisition of
a business, along with a business acquired in December 1999, drove the
year-to-year increase in sales. The heavy-vehicle instruments business reported
significantly lower sales in 2000 due to weak market conditions, which began in
the second quarter of 2000, compared to robust market conditions in 1999. EIG's
aerospace and power instruments businesses continue to grow mainly through
acquisitions, expanding the Company's technology, market scope and penetration.
Also, the process instruments business continued to rebound from weak market
conditions experienced during the first nine months of 1999.
18
EIG's operating income for 2000 increased to $78.7 million from $70.0
million in 1999, an increase of 12.6%. The acquisitions described above were the
primary reasons for the increase in operating income. Profit margins were flat
year to year at 15.5%. Improved operating performance, primarily by EIG's
aerospace and process businesses were reduced by margin declines on lower sales
of heavy-vehicle instruments.
The Electromechanical Group (EMG) sales for 2000 were $515.2 million, an
increase of 8.7%, from sales of $473.7 million in 1999. The 2000 acquisition of
businesses and improved market conditions within the specialty metals market,
drove the year-to-year increase in sales. Partially reducing the sales increase
were EMG's operations in Europe, where competitive pricing pressures and
currency translation changes continued to adversely affect EMG's motor sales.
EMG's operating income for 2000 increased to $77.6 million from $67.6
million in 1999, a 14.8% increase. The acquisition described above, along with
improved market conditions within the specialty metals market, were the primary
reasons for the increase in operating income. Partially offsetting the profit
improvement were lower profits at EMG's motor operations in Europe, due to the
adverse effects on sales noted above. Operating margins improved to 15.1% of
sales in 2000 from 14.3% in 1999 due to the higher sales, and lower operating
costs in EMG's worldwide motor operations, as a result of the operational
excellence and cost reduction initiatives.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities (before accounts receivable
securitization transactions) totaled $101.1 million for 2001, compared with
$78.7 million for 2000, an increase of $22.4 million. Our free cash flow (net
income, plus depreciation and amortization, less capital spending and dividends)
was $75.3 million in 2001, compared with $74.5 million in 2000. The $22.4
million increase in operating cash flow was the result of improved working
capital management due to higher collection of accounts receivable, and the
effect of the lower fourth quarter sales previously discussed. Without the 2001
acquisitions, accounts receivable decreased $25.1 million during the year.
Inventories, without the acquisitions, remained essentially flat during 2001,
but decreased $5.2 million in the fourth quarter primarily due to the fourth
quarter unusual charges to income. Income taxes payable decreased $10.4 million
in 2001 and reflects the previously noted tax benefits from the closure of
several tax years. Accounts payable and accrued liabilities increased $14.0
million during 2001 and include accruals (net of cash payments) for the expenses
associated with the cost realignment initiatives discussed earlier. Of the $15.3
million after tax fourth quarter unusual charge, $1.1 million required cash
outlays in 2001, $7.4 million will require the use of cash in 2002, and $6.8
million are non-cash charges, primarily for asset writedowns. In 2002, we will
continue to aggressively manage our working capital. For the year ended December
31, 2001, the Company had a net increase in accounts receivable pledged to
secure borrowings of $45 million, which was previously given off-balance sheet
treatment. This increase, resulting from the change in accounting treatment, had
no effect on cash. After reflecting the increase (decrease in 2000) from the
accounts receivable securitization program, cash provided by operating
activities in 2001 totaled $56.1 million compared with $79.7 million in 2000.
Cash used for investing activities was $152.5 million for 2001, compared
with $107.4 million for 2000. Cash outlays for new business acquisitions totaled
$131.8 million in 2001, compared with $81.0 million in 2000. Additions to
property, plant and equipment totaled $29.4 million in 2001, essentially the
same as in 2000.
Financing activities provided cash of $103.3 million in 2001, compared with
$26.2 million provided in 2000. Cash generated from financing activities in 2001
increased primarily due to higher borrowings under a new Revolving Credit
Facility. A new five-year $300 million credit facility was completed on
September 17, 2001, which replaced a $195 million credit facility that was due
to expire in 2002. The new credit facility provides the Company with financing
flexibility to support its future growth plans. Net borrowings in 2001,
primarily under the credit agreement, increased $111.0 million, compared with
$28.2 million of net borrowings in 2000. The 2001 increase consists of $37.7
million which is considered short-term borrowings and $73.3 million which is
considered long-term debt. Of the increase in 2001, $63 million was borrowed in
late
19
December to finance the year-end acquisition of the IRAS business and $45
million relates to the accounting change for the accounts receivable
securitization program mentioned above.
On December 21, 2001, the Company filed a shelf registration statement with
the Securities and Exchange Commission (SEC) for up to $300 million in
additional financing. Although the Company has no immediate plans to use this
shelf offering, it will provide the Company with the flexibility to act
expeditiously in responding to financing opportunities and alternatives.
At December 31, 2001, total debt outstanding was $470.8 million compared
with $406.2 million at December 31, 2000. Our debt agreements contain various
covenants including limitations on indebtedness, dividend payments and
maintenance of certain financial ratios. At December 31, 2001 and 2000, the
Company was well within the allowable limits of the financial ratios and
anticipates continued compliance in 2002. Debt as a percentage of capitalization
decreased to 58.4% at December 31, 2001 from 59.1% at December 31, 2000. EBITDA
(income before income taxes, interest expense, interest income, depreciation and
amortization) before unusual items in 2001 was $178.0 million compared with
$177.6 million in 2000. Our debt-to-EBITDA ratio (computed in accordance with
the credit agreement), was 2.4 to 1 at December 31, 2001, compared with 2.2 to 1
at the prior year-end, and EBITDA covered interest expense 6.4 times in 2001
compared with 6.1 times in 2000.
Repurchases of the Company's common stock in 2001 totaled $11.6 million for
440,000 shares, compared to $1.6 million for 83,500 shares acquired in 2000. Net
cash proceeds from the exercise of employee stock options and other items, net,
totaled $12.5 million in 2001, compared with $7.6 million in 2000.
The following table summarizes AMETEK's contractual cash obligations at
December 31, 2001 and the effect such obligations are expected to have on its
liquidity and cash flows in future periods.
<Table>
<Caption>
PAYMENTS DUE
---------------------------------------------
LESS ONE TO FOUR TO AFTER
THAN THREE FIVE FIVE
TOTAL ONE YEAR YEARS YEARS YEARS
------ -------- ------ ------- ------
(DOLLARS IN MILLIONS)
Debt:
Revolving credit loans (a)...................... $178.9 -- -- $178.9 --
7.2% Senior Notes............................... 225.0 -- -- -- $225.0
Other indebtedness.............................. 66.9 $14.8 $51.1 0.1 0.9
------ ----- ----- ------ ------
Total Debt...................................... 470.8 14.8 51.1 179.0 225.9
Non-cancellable operating leases.................. 26.6 5.5 8.1 6.0 7.0
Employee severance................................ 10.8 10.8 -- -- --
------ ----- ----- ------ ------
Total................................... $508.2 $31.1 $59.2 $185.0 $232.9
====== ===== ===== ====== ======
</Table>
- ---------------
(a) Although not contractually obligated, the Company expects to have the
capability to repay this obligation in less than five years as permitted in
the credit agreement, in the absence of future business acquisitions.
However, it is the expressed strategy of the Company to continue to pursue
strategic acquisitions, which could possibly result in higher levels of
future indebtedness.
Other Commitments
The Company has standby letters of credit of approximately $17.0 million
related to performance and payment guarantees. Based on experience with these
arrangements, the Company believes that any obligations that may arise will not
be material.
The Company may, from time to time, redeem, tender for, or repurchase its
long-term debt in the open market or in privately negotiated transactions
depending upon availability, market conditions and other factors.
20
As a result of all of the Company's cash flow activities, cash and cash
equivalents increased $6.9 million in 2001 to $14.1 million at year-end,
compared with $7.2 million at December 31, 2000. The Company also had available
borrowing capacity of $104.2 million under its new $300 million revolving bank
credit facility at December 31, 2001, and $28.0 million available under its
accounts receivable securitization agreement. The Company believes it has
sufficient cash-generating capabilities and available financing alternatives to
enable it to meet its needs for the foreseeable future.
TRANSACTIONS WITH RELATED PARTIES
The Company has a business relationship with the law firm of Stroock &
Stroock & Lavan LLP of which a Partner is also a member of the Company's Board
of Directors. The investment banking firm of American Securities, L.P. renders
financial advisory, investment management, and other services to the Company.
Three managing directors of American Securities, L.P. are also members of the
Company's Board of Directors.
In 2001, Stroock & Stroock & Lavan LLP, and American Securities, L.P. and
its affiliates billed fees to the Company in the aggregate for services rendered
of $457,000 and $270,000, respectively.
CRITICAL ACCOUNTING POLICIES
In response to SEC Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," the Company has identified its
most critical accounting policies that require significant management judgment
or involve complex estimates upon which its financial status depends. 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 describes additional other specific
disclosures about the Company's accounting policies regarding risks, estimates,
subjective decisions, or assessments that materially different results of
operations and financial condition could have been reported had different
assumptions been used or different conditions existed.
- Revenue Recognition. The Company recognizes revenues in accordance with
invoice terms, generally when products are shipped and services are
rendered. Accruals for sales returns, other allowances, and estimated
warranty costs are provided at the time of shipment based upon past
experience. If actual future returns, allowances and warranty amounts are
higher than past experience, additional amounts may be required.
- Inventories. The Company uses the last-in, first-out (LIFO) method of
accounting for most inventories, whereby, inventories reported on its
balance sheet are conservatively valued. The Company provides estimated
inventory reserves for slow-moving and obsolete inventory based on
assessments of future demands, 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.
- Pensions. The Company accounts for its defined benefit pension plans in
accordance with SFAS No. 87, "Employers' Accounting for Pensions", which
requires that amounts recognized in financial statements be determined
on an actuarial basis. The most significant elements in determining the
Company's pension income (expense) are pension liability discount rates
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 end of the year. At the end of each year, the
Company determines the discount rate to be used to discount plan
liabilities. In estimating this rate, the Company looks to rates of
return on high-quality, fixed-income investments. At December 31, 2001,
the Company determined this rate to be 7.25%. The Company has assumed
that the expected long-term rate of return on plan assets will be 9.25%.
This expected rate of return has been used by the Company for many
years. Although in the past two years pension plan assets have earned
substantially less than 9.25%, over the long-term, the Company's pension
plans have earned in excess of 11%. Therefore, the Company believes that
its return assumption of 9.25% is reasonable, based on its expectations
about future returns. Should the downward trend in return on pension
assets continue, future pension income would likely decline. The net
effect of changes in the discount rate, as well as the effect of
differences between the expected
21
return and the actual return on plan assets have been deferred and will
ultimately affect future pension income (expense). For the year ended
December 31, 2001, the Company recognized consolidated pretax pension
income of $4.7 million from its defined benefit plans, compared with
pension income of $1.9 million from these plans in 2000. Due primarily
to depressed equity security markets in 2001, the Company anticipates
significantly higher pension expense, in 2002. Additionally, the Company
expects increases in its level of required pension contributions in
2002.
- Tax Contingencies and Deferred Tax Assets. The Company occasionally
undergoes challenges from domestic and foreign tax authorities regarding
the final amount of taxes due for open tax years under examination. In
evaluating the Company's exposure associated with its various tax filing
positions, the Company records appropriate reserves for probable
exposure. Based on its evaluation of our tax positions, we believe that
we have adequately accrued for probable exposures. To the extent the
Company were to prevail in matters for which accruals have been
established or be required to pay amounts in excess of established
reserves, its effective tax rate in a given financial reporting period
may be materially impacted. As noted on page 17, in the fourth quarter of
2001, the Company recorded a tax benefit (and related interest income),
of $10.5 million ($0.32 per diluted share) resulting from the closure of
a number of open tax years by U.S. federal and state tax authorities.
As of December 31, 2001, the Company has deferred tax assets related
principally to the timing of recognition of certain expenses for book
versus tax purposes, and loss carryforwards that expire in 2004 through
2019. The realization of these assets is based upon estimates of future
taxable income, including various tax planning strategies. The Company
believes that the deferred tax assets included in its December 31, 2001
balance sheet are realizable.
- 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 past
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 at December 31, 2001 was $7.6 million, compared with $4.3
million at December 31, 2000. The major reason for the increase was due
to specific customer bankruptcies, for which the estimated loss was
recorded as a component of the fourth quarter 2001 unusual charges.
- Environmental and Other Matters. The Company is subject to federal,
state, local and foreign regulations and potential liabilities relating
to environmental laws and regulations, as well as stringent cleanup
requirements. The Company also has been named a potentially responsible
party at several sites that are the subject of government-mandated
cleanups. The Company accrues for environmental liabilities when a
determination can be made that they are probable and reasonably
estimable. Total environmental reserves at December 31, 2001 and 2000
were approximately $9.0 million. In 2001 and 2000, the Company spent
approximately $1.3 million and $0.7 million, respectively, on environment
related matters.
The Company has agreements with former owners of certain of its acquired
businesses under which the former owners retained, or assumed and agreed
to indemnify the Company against certain environmental and other
liabilities under certain circumstances. Also, the Company and certain of
the parties referred to above carry certain insurance coverages for
environmental matters. To date, those parties have performed their
obligation in all material respects. The Company has no reason to believe
that such third parties would fail to perform their obligations in the
future. However, if the Company were required to record a liability with
respect to all or a portion of such matters on its balance sheet, the
total liability could be significant.
It is not possible to accurately quantify the potential financial impact
of actions regarding environmental matters, but the Company believes,
based on past experience and current evaluations, that the outcome of
these actions is not likely to have a material adverse effect on the
future results of operations, financial position, or cash flows of the
Company.
22
NEW ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Impairment or Disposal of Long-lived Assets". Statement No. 144
supersedes Statement No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of", and provides a single
accounting model for long-lived assets to be disposed of. Statement No. 144 is
effective for the Company's financial statements beginning in January 2002. The
adoption of this Statement is not expected to have a material effect on the
Company's consolidated results of operations, financial position, or cash flows.
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Accounting for Business Combinations", and Statement No. 142, "Goodwill
and Other Intangible Assets". Statement No. 141 modifies accounting for business
combinations after June 30, 2001, and requires use of the purchase method of
accounting. It also establishes new criteria for determining whether intangible
assets should be recognized separately from goodwill. Statement No. 142 is
effective January 1, 2002, and requires that goodwill and intangibles with
indefinite useful lives no longer be amortized, (including goodwill that was
acquired in a business combination after June 30, 2001). Goodwill existing at
the date of adoption of Statement No. 142 will be tested for impairment at least
annually in accordance with the provisions of the Statement. Goodwill acquired
in business combinations completed before July 1, 2001 will not be amortized
after December 31, 2001. The Company is still assessing the full impact of
Statement No. 142 and its future effect on the Company's consolidated financial
statements. Application of the non-amortization provisions of Statement No. 142
will result in the elimination of approximately $12.1 million of goodwill
amortization expense annually, or $0.30 per diluted share after tax. Upon
initial adoption of Statement No. 142, the Company does not expect the
impairment provisions or other provisions of the Statement to have a material
effect on its results of operations or financial position.
FASB Statement No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities", became effective on April
1, 2001. In the second quarter of 2001, the Company decided not to modify its
existing accounts receivable securitization agreements to meet the new
accounting requirements to continue sales treatment for financial assets
transferred to its special purpose subsidiary. Accordingly, as of April 1, 2001,
the Company consolidated its special purpose subsidiary by recording the
outstanding balance of the financial assets transferred to its special purpose
subsidiary on the Company's consolidated balance sheet as collateralized secured
borrowings. Such amount totaled $47 million in accounts receivable on April 1,
2001. This change in accounting had no significant effect on the Company's net
income, or earnings per share. As of December 31, 2001, $47 million of the $75
million secured credit facility had been used.
The provisions of Statement No. 133 "Accounting for Derivative Instruments
and Hedging Activities" and related amendments and interpretations became
effective for the Company beginning January 1, 2001, including the interim
periods of that year. As a result of the Company's limited use of derivative
financial instruments, adoption of this Statement did not have a significant
effect on the Company's consolidated results of operations, financial position,
or cash flows.
INTERNAL REINVESTMENT
Capital Expenditures
Capital expenditures were $29.4 million for 2001, compared with $29.6
million for 2000. Approximately 78% of the expenditures in 2001 were for
equipment to increase productivity and expand capacity. The Company's 2002
capital expenditures are expected to decrease slightly when compared with 2001
levels, with a continuing emphasis on capital spending to improve productivity
and expand low-cost manufacturing facilities.
Product Development and Engineering
Product development and engineering expenses are directed toward the
development and improvement of new and existing products and processes. Such
expenses were $45.2 million in 2001, a decrease from
23
$45.9 million for 2000, and $42.2 million for 1999. Included in the amounts
above are net expenses for research and development of $22.6 million for 2001,
$23.8 million for 2000, and $21.6 million for 1999.
IMPACT OF INFLATION
The Company attempts to minimize the impact of inflation through cost
reduction programs and by improving productivity. In addition, the Company uses
the last-in, first-out (LIFO) method of accounting for most inventories (whereby
the cost of products sold approximates current costs), and therefore, the impact
of inflation is substantially reflected in operating costs. In general, the
Company believes programs are in place that are designed to monitor the impact
of inflation and to take necessary steps to minimize inflation's effect on
operations.
MARKET RISK
The Company's primary exposure to market risks are fluctuations in interest
rates on its short-term and long-term debt and in foreign currency exchange
rates.
The Company's long-term debt is fixed-rate and its short-term debt is
variable-rate. These financial instruments are more fully described in the notes
to the financial statements.
The foreign currencies to which the Company has exchange rate exposure
include the Euro, the Japanese Yen, and the British Pound Sterling. Exposure to
foreign currency rate fluctuation is monitored, and when possible, mitigated
through the use of natural hedges and local borrowings in the foreign country
affected. Translation of foreign financial statements into U.S. dollars have not
had a significant effect on the operating results reported by the Company.
Based on a hypothetical ten percent adverse movement in interest rates and
foreign currency exchange rates, the potential losses in future earnings, fair
value of risk-sensitive financial instruments, and cash flows are immaterial,
although the actual effects may differ materially from the hypothetical
analysis.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this Form 10-K are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act (PSLRA)
of 1995, which involve risk and uncertainties that exist in the Company's
operations and business environment, and are subject to change based on various
important factors. The Company wishes to take advantage of the "safe harbor"
provisions of the PSLRA by cautioning readers that numerous important factors
discussed below, among others, 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. The following include some, but not all, of the factors or
uncertainties that could cause actual results to differ from projections:
- An economic slowdown, or unforeseen price reductions in the Company's
global market segments, with adverse effects on profit margins.
- The Company's ability to continue achieving its cost reduction
objectives, due in part to varying prices and availability of certain raw
materials and semifinished materials and components.
- Underutilization of the Company's existing factories and plants, or plant
expansions or new plants, possibly resulting in production
inefficiencies. Higher than anticipated, or unanticipated start-up
expenses and production delays at new plants.
- The unanticipated expenses of divesting businesses, or of assimilating
newly acquired businesses into the Company's business structure, as well
as the impact of unusual expenses from business strategies, asset
valuations, acquisitions, divestitures and organizational structures.
Acquisition and divestiture strategies may face legal and regulatory
delays and other unforeseeable obstacles beyond the Company's control.
24
- The increased cost and the ability to obtain property and liability
insurance due to uncertainty in worldwide insurance and reinsurance
markets.
- Unpredictable delays or difficulties in the development of key new
product programs, and the risk of not recovering major research and
development expenses, and/or the risks of major technological shifts away
from the Company's technologies and core competencies.
- A prolonged slowing of the growth rate in the U.S. and Europe for
electric motor products, aerospace, heavy-vehicle and process
instrumentation, as well as a restriction in the ability of heavy-vehicle
manufacturers to secure components manufactured by outside suppliers.
- Rapid or unforeseen escalation of the cost of regulatory compliance
and/or litigation, including but not limited to, environmental
compliance, product-related liability, assertions related to intellectual
property rights and licenses, adoption of new, or changes in, accounting
policies and practices and the application of such policies and
practices.
- The effects, in the United States and abroad, of changes in trade
practices; monetary and fiscal policies; laws and regulations; other
activities of governments, agencies and similar organizations; and social
and economic conditions, such as trade restrictions or prohibitions;
unforeseen inflationary pressures and monetary fluctuation; import and
other charges or taxes; the ability or inability of the Company to
obtain, or hedge, foreign currencies, foreign currency exchange rates and
fluctuation in those rates. This would include extreme currency
fluctuations; protectionism and confiscation of assets; nationalizations
and unstable governments and legal systems, and intergovernmental
disputes.
- Variation in the level of orders booked, which can be affected by general
economic conditions, intensity of competition and continued marketplace
acceptance of products. The Company believes that it has the product
offerings, facilities, personnel and competitive and financial resources
for continued business success. However, future revenues, costs, margins,
product mix and profits are all influenced by a number of factors, as
discussed above.
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" on page 24 herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
<Table>
<Caption>
PAGE
----
INDEX TO FINANCIAL STATEMENTS (ITEM 14(A)1)
Report of Independent Auditors.............................. 26
Consolidated Statement of Income for the years ended
December 31, 2001, 2000, and 1999......................... 27
Consolidated Balance Sheet at December 31, 2001 and 2000.... 28
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 2001, 2000, and 1999................... 29
Consolidated Statement of Cash Flows for the years ended
December 31, 2001, 2000, and 1999......................... 30
Notes to Consolidated Financial Statements.................. 31
</Table>
FINANCIAL STATEMENT SCHEDULES (ITEM 14(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.
25
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of AMETEK, Inc.
We have audited the accompanying consolidated balance sheets of AMETEK,
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of income, cash flows, and stockholders' equity for each of the three years in
the period ended December 31, 2001. 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 auditing standards generally
accepted in the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AMETEK, Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Philadelphia, PA
January 29, 2002
26
AMETEK, INC.
CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------------- -------------- ------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
NET SALES................................................. $1,019,289 $1,024,660 $924,797
---------- ---------- --------
Expenses:
Cost of sales (excluding depreciation).................. 777,919 761,548 696,011
Selling, general and administrative..................... 98,655 95,147 79,351
Depreciation............................................ 33,165 32,075 30,638
---------- ---------- --------
Total expenses.................................. 909,739 888,770 806,000
---------- ---------- --------
OPERATING INCOME.......................................... 109,550 135,890 118,797
Other income (expenses):
Interest expense........................................ (27,913) (29,203) (24,776)
Other, net.............................................. 2,725 (549) 440
---------- ---------- --------
Income before income taxes................................ 84,362 106,138 94,461
Provision for income taxes................................ 18,251 37,606 33,693
---------- ---------- --------
Net income................................................ $ 66,111 $ 68,532 $ 60,768
========== ========== ========
Basic earnings per share.................................. $ 2.01 $ 2.13 $ 1.88
========== ========== ========
Diluted earnings per share................................ $ 1.98 $ 2.11 $ 1.85
========== ========== ========
Average common shares outstanding:
Basic shares............................................ 32,838 32,131 32,297
========== ========== ========
Diluted shares.......................................... 33,445 32,534 32,925
========== ========== ========
</Table>
See accompanying notes.
27
AMETEK, INC.
CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
----------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,139 $ 7,187
Marketable securities..................................... 8,215 8,111
Receivables, less allowance for possible losses........... 181,031 139,568
Inventories............................................... 152,525 129,365
Deferred income taxes..................................... 10,096 10,516
Other current assets...................................... 13,341 8,353
---------- --------
Total current assets.............................. 379,347 303,100
Property, plant and equipment, net.......................... 214,494 213,955
Goodwill, net of accumulated amortization................... 387,420 299,479
Investments and other assets................................ 48,028 42,454
---------- --------
Total assets...................................... $1,029,289 $858,988
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term
debt................................................... $ 167,399 $127,601
Accounts payable.......................................... 86,707 87,315
Income taxes payable...................................... 1,541 12,347
Accrued liabilities....................................... 80,503 70,392
---------- --------
Total current liabilities......................... 336,150 297,655
Long-term debt.............................................. 303,434 233,616
Deferred income taxes....................................... 33,496 33,166
Other long-term liabilities................................. 21,151 13,713
Stockholders' equity :
Preferred stock, $0.01 par value; authorized: 5,000,000
shares; none issued.................................... -- --
Common stock, $0.01 par value; authorized: 100,000,000
shares;
issued: 2001 -- 33,412,873 shares; 2000 -- 33,376,491
shares................................................. 334 334
Capital in excess of par value............................ 683 2,248
Retained earnings......................................... 388,929 330,696
Accumulated other comprehensive losses.................... (37,023) (30,165)
Less: Cost of shares held in treasury: 2001 -- 596,643
shares;
2000 -- 931,295 shares................................. (17,865) (22,275)
---------- --------
Total stockholders' equity........................ 335,058 280,838
---------- --------
Total liabilities and stockholders' equity........ $1,029,289 $858,988
========== ========
</Table>
See accompanying notes.
28
AMETEK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
2001 2000 1999
----------------------------- ----------------------------- -----------------------------
COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE STOCKHOLDERS'
INCOME EQUITY INCOME EQUITY INCOME EQUITY
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
CAPITAL STOCK
Preferred Stock, $.01 par value... $ -- $ -- $ --
-------- -------- --------
Common Stock, $.01 par value......
Balance at the beginning of the
year............................. 334 334 334
-------- -------- --------
Balance at the end of the year... 334 334 334
-------- -------- --------
CAPITAL IN EXCESS OF PAR VALUE
Balance at the beginning of the
year............................. 2,248 2,041 4,727
Employee stock option, savings and
award plans...................... (1,565) 207 (2,686)
-------- -------- --------
Balance at the end of the year... 683 2,248 2,041
-------- -------- --------
RETAINED EARNINGS
Balance at the beginning of the
year............................. 330,696 269,861 216,837
Net income........................ $66,111 66,111 $68,532 68,532 $ 60,768 60,768
------- ------- --------
Cash dividends paid............... (7,878) (7,697) (7,744)
-------- -------- --------
Balance at the end of the year... 388,929 330,696 269,861
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE
LOSSES(1)
Foreign currency translation:
Balance at the beginning of the
year............................. (30,467) (26,292) (16,277)
Translation adjustments........... (2,424) (2,424) (4,175) (4,175) (10,015) (10,015)
-------- -------- --------
Balance at the end of the year... (32,891) (30,467) (26,292)
-------- -------- --------
Minimum pension liability
adjustment:
Balance at the beginning of the
year............................. (169) (280) (4,012)
Adjustments during the year....... (4,511) (4,511) 111 111 3,732 3,732
-------- -------- --------
Balance at the end of the year... (4,680) (169) (280)
-------- -------- --------
Valuation adjustments for
marketable securities and other:
Balance at the beginning of the
year............................. 471 (823) (575)
Decrease (increase) in marketable
securities (2)................. 77 77 1,294 1,294 (248) (248)
------- -------- ------- -------- -------- --------
Balance at the end of the year... 548 471 (823)
-------- -------- --------
Total other comprehensive loss for
the year......................... (6,858) (2,770) (6,531)
------- ------- --------
Total comprehensive income for the
year............................. $59,253 $65,762 $ 54,237
======= ======= ========
Accumulated other comprehensive
loss at the end of the year...... (37,023) (30,165) (27,395)
======== ======== ========
TREASURY STOCK
Balance at the beginning of the
year............................. (22,275) (28,625) (26,985)
Employee stock option, savings and
award plans...................... 16,038 7,961 7,641
Purchase of treasury stock........ (11,628) (1,611) (9,281)
-------- -------- --------
Balance at the end of the year... (17,865) (22,275) (28,625)
-------- -------- --------
Total Stockholders' Equity....... $335,058 $280,838 $216,216
======== ======== ========
</Table>
- ---------------
(1) Amounts presented are net of tax based on an average effective tax rate of
35%, except for foreign currency translation adjustments, which are
presented on a pretax basis.
(2) Includes reclassification adjustment for gains included in net income for
2001, 2000, and 1999 of $0.6 million, $0.3 million, and $0.1 million,
respectively.
See accompanying notes.
29
AMETEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH PROVIDED BY (USED FOR):
Operating activities:
Net income.............................................. $ 66,111 $ 68,532 $ 60,768
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 46,450 43,257 39,624
Deferred income taxes................................ 3,681 6,430 5,118
Changes in assets and liabilities (net of
acquisitions):
Decrease (increase) in receivables................. 25,082 (16,782) (7,008)
Increase in inventories and other current assets... (6,139) (6,622) (68)
Decrease in payables, accruals, and income taxes... (24,422) (4,390) (6,861)
(Decrease) increase in other long-term
liabilities..................................... (6,537) (14,866) 1,568
Other................................................ (3,092) 3,165 (6,572)
--------- --------- ---------
Total operating activities (before receivable
securitization transactions)......................... 101,134 78,724 86,569
(Decrease) increase in accounts receivable
securitization....................................... (45,000) 1,000 44,000
--------- --------- ---------
Total operating activities................................ 56,134 79,724 130,569
--------- --------- ---------
Investing activities:
Additions to property, plant and equipment.............. (29,415) (29,554) (30,331)
Purchase of businesses.................................. (131,793) (81,017) (147,470)
Proceeds from sale of assets............................ -- 3,314 29,515
Other................................................... 8,684 (143) 255
--------- --------- ---------
Total investing activities................................ (152,524) (107,400) (148,031)
--------- --------- ---------
Financing activities:
Net change in short-term borrowings..................... 37,747 25,154 37,820
Additional long-term borrowings......................... 73,321 3,003 5,201
Reduction in long-term borrowings....................... (721) (271) (14,309)
Repurchases of common stock............................. (11,628) (1,611) (9,281)
Cash dividends paid..................................... (7,878) (7,697) (7,744)
Proceeds from stock options and other................... 12,501 7,649 4,643
--------- --------- ---------
Total financing activities................................ 103,342 26,227 16,330
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... 6,952 (1,449) (1,132)
Cash and cash equivalents:
Beginning of year....................................... 7,187 8,636 9,768
--------- --------- ---------
End of year............................................. $ 14,139 $ 7,187 $ 8,636
========= ========= =========
</Table>
See accompanying notes.
30
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
significant intercompany transactions in consolidation. The Company's investment
in 50% or less owned joint ventures are accounted for by the equity method of
accounting. Such investments are not significant.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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, 2001 and 2000, all of
the Company's equity securities and fixed-income securities (primarily those of
a captive insurance subsidiary) are considered available-for-sale. The aggregate
market value of such securities at December 31, 2001 and 2000 was: 2001 - $16.6
million ($16.3 million amortized cost) and 2000 - $16.4 million ($16.0 million
amortized cost). The Company's other investments are accounted for by the equity
method.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined principally by the last-in, first-out (LIFO) method of inventory
valuation, and market on the basis of the lower of replacement cost or estimated
net proceeds from sales. The excess of the first-in, first-out (FIFO) value over
the LIFO value at December 31, 2001 and 2000 was $29.1 million and $31.6
million, respectively.
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 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.
Revenue Recognition
The Company generally recognizes revenue when products are shipped and
services are rendered. The policy with respect to sales returns and allowances
generally provides that a customer may not return products, or be given
allowances, except at the Company's option. The aggregate provisions for
estimated warranty costs (not significant in amount) are recorded at the time of
sale and periodically adjusted to reflect actual experience.
Research and Development
Company-funded research and development costs are charged to operations as
incurred and during the past three years were: 2001 - $22.6 million,
2000 - $23.8 million, and 1999 - $21.6 million.
31
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
The calculation of basic earnings per share is based on the average number
of common shares outstanding during the period. The calculation of diluted
earnings per share includes the effect of all potentially dilutive securities
(primarily outstanding common stock options). The following table presents the
number of shares used in the calculation of basic earnings per share and diluted
earnings per share:
<Table>
<Caption>
2001 2000 1999
WEIGHTED AVERAGE SHARES (IN THOUSANDS): ------ ------ ------
Basic....................................................... 32,838 32,131 32,297
Stock option and award plans................................ 607 403 628
------ ------ ------
Diluted..................................................... 33,445 32,534 32,925
====== ====== ======
</Table>
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.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), encourages entities to record compensation
expense for stock-based employee compensation plans at fair value, but provides
the option of measuring compensation expense using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The Company accounts for stock-based compensation
in accordance with APB 25. Note 7 presents pro forma results of operations as if
SFAS 123 had been used to account for stock-based compensation plans.
Derivative Financial Instruments
The Company makes limited use of derivative financial instruments to manage
interest rate, foreign exchange, and forward contract exposure. The Company does
not hold or trade in derivatives for speculative purposes. Interest rate swap
and cap agreements are sometimes used to manage the interest rate
characteristics of certain outstanding revolving credit loans to a more
desirable fixed or variable rate basis, or to limit the Company's exposure to
rising interest rates. These swaps and caps are matched with the underlying
fixed or variable rate debt, and any periodic cash payments are accrued on a
settlement basis and accounted for as adjustments to interest costs. A realized
gain of $0.4 million was recorded in 2001 related to the settlement of an
interest rate swap. There are no interest rate swap or cap agreements in place
at December 31, 2001. Foreign currency option contracts, foreign currency
exchange contracts, and foreign currency swap agreements may be entered into to
mitigate the translation exposure from investments in certain foreign
subsidiaries. Realized and unrealized gains and losses from these instruments
are recognized when the underlying hedged instrument is settled. Foreign
currency forward contracts are entered into from time-to-time to hedge specific
firm commitments for certain export sales, thereby minimizing the Company's
exposure to foreign currency fluctuation. These contracts are entered into for
periods generally not to exceed one year. Unrealized gains and losses from these
contracts are deferred and are recognized in operations as the related sales and
purchases occur. Realized and unrealized changes in the fair value of
derivatives related to items that no longer exist, or that are no longer
probable of occurring are recorded as a component of the gain or loss arising
from the disposition of the designated item. There are no carrying amounts
related to the above derivative financial instruments in the consolidated
balance sheet and the Company had no derivatives outstanding at Decem-
32
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ber 31, 2001. At December 31, 2000, the interest rate swap agreement, referred
to above, was the only derivative outstanding.
Intangible Assets
The excess of cost over the fair value of net assets acquired (goodwill) is
being amortized on a straight-line basis primarily over a 30-year period for all
acquisitions made prior to July 1, 2001. The Company reviews the carrying value
of intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If such an event
occurred, the Company would prepare projections of future cash flows for the
applicable business. If such projections indicated that goodwill would not be
recoverable, the Company's carrying value of such asset would be reduced by the
estimated excess of such value over the projected discounted cash flows of the
underlying businesses. Patents are being amortized on a straight-line basis over
their estimated useful lives of 9 to 17 years. Other acquired intangibles are
being amortized on a straight-line basis over their estimated useful lives of 5
to 30 years. The goodwill and other intangible assets with indefinite useful
lives associated with acquisitions consummated after June 30, 2001 are not being
amortized in accordance with the transition provision of FASB Statement No. 142,
see note 2 for further discussion.
Reclassifications
Certain amounts appearing in the prior year's financial statements and
supporting footnote disclosures have been reclassified to conform to the current
year's presentation.
2. ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Impairment or Disposal of Long-lived Assets". Statement No. 144
supersedes Statement No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of", and provides a single
accounting model for long-lived assets to be disposed of. Statement No. 144 is
effective for the Company's financial statements beginning in January 2002. The
adoption of this Statement is not expected to have a material effect on the
Company's consolidated results of operations, financial position, or cash flows.
In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Accounting for Business Combinations", and Statement No. 142, "Goodwill
and Other Intangible Assets". Statement No. 141 modifies accounting for business
combinations after June 30, 2001, and requires use of the purchase method of
accounting. It also establishes new criteria for determining whether intangible
assets should be recognized separately from goodwill. Statement No. 142 is
effective January 1, 2002, and requires that goodwill and intangibles with
indefinite useful lives no longer be amortized (including goodwill that was
acquired in a business combination after June 30, 2001). Goodwill existing at
the date of adoption of Statement No. 142 will be tested for impairment at least
annually in accordance with the provisions of the Statement. Goodwill acquired
in business combinations completed before July 1, 2001 will not be amortized
after December 31, 2001. The Company is still assessing the full impact of
Statement No. 142 and its future effect on the Company's consolidated financial
statements. Application of the non-amortization provisions of Statement No. 142
will result in the elimination of approximately $12.1 million of goodwill
amortization expense annually, or $0.30 per diluted share. Upon initial adoption
of Statement No. 142, the Company does not expect the impairment provisions or
other provisions of the Statement to have a material effect on its results of
operations or financial position.
FASB Statement No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities", became effective on April
1, 2001. In the second quarter of 2001, the Company decided not to modify its
existing accounts receivable securitization agreements to meet the new
accounting requirements to continue sales treatment for financial assets
transferred to its special purpose subsidiary.
33
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, as of April 1, 2001, the Company consolidated its special purpose
subsidiary by recording the outstanding balance of the financial assets
transferred to its special purpose subsidiary on the Company's consolidated
balance sheet as collateralized secured borrowings. Such amount totaled $47
million in accounts receivable on April 1, 2001. This change in accounting had
no significant effect on the Company's net income, or earnings per share. As of
December 31, 2001, $47 million of the $75 million secured credit facility had
been used.
The provisions of Statement No. 133 ("Accounting for Derivative Instruments
and Hedging Activities") and related amendments and interpretations became
effective for the Company beginning January 1, 2001, including the interim
periods of that year. Based on the Company's limited use of derivative financial
instruments, adoption of this Statement did not have a significant effect on the
Company's consolidated results of operations, financial position, or cash flows.
3. ACQUISITIONS
In 2001, the Company made three acquisitions. In May 2001, the Company
acquired from SPX Corporation the assets of GS Electric, a leading U.S.
manufacturer of universal and permanent magnet motors for the global floor care
and other markets for approximately $32.0 million in cash. GS Electric is now
part of the Company's Electromechanical Group. In July 2001, the Company
acquired EDAX, Inc., a leading manufacturer of analytic instrumentation, which
complements the Company's process and analytical instruments product lines from
Panta Electronics for approximately $37.0 million in cash. In December 2001, the
Company acquired from PerkinElmer, Inc., Instruments for Research and Applied
Science "IRAS", a leading developer and manufacturer of advanced analytical
instrumentation that is used in a number of applications including nuclear
spectroscopy, research electrochemistry and electronic signal processing for
approximately $63.0 million. EDAX and IRAS are now part of the Company's
Electronic Instruments Group. Together with the EDAX acquisition, IRAS greatly
expands our presence in the laboratory and research markets. The aggregate
purchase price paid for the 2001 acquisitions is subject to adjustment for
finalization of the value of the net assets acquired.
As of July 1, 2001, The Company adopted FASB Statement No. 141 "Accounting
for Business Combinations," (see Note 2). Statement No. 141 is effective for
business combinations after June 30, 2001. The EDAX and IRAS acquisitions are
subject to the provisions of Statement No. 141. The following table summarizes
the preliminary allocation of the purchase price paid for EDAX and IRAS to the
assets acquired and liabilities assumed at the dates of acquisition:
<Table>
<Caption>
IN THOUSANDS
------------
Working capital............................................. $ 20,000
Property, plant and equipment............................... 4,000
Goodwill.................................................... 76,000
--------
Net assets acquired......................................... $100,000
========
</Table>
Among other things, the Company is in the process of obtaining third party
valuation of certain tangible and intangible assets acquired with EDAX and IRAS.
Therefore, the allocation of the purchase price to these acquisitions, as well
as the GS Electric acquisition, is subject to revision.
In 2000, the Company made two acquisitions. In August 2000, the Company
acquired the assets of certain businesses of Prestolite Electric Incorporated.
The acquired businesses consist of Prestolite's Switch Division, its Industrial
Battery Charger business, and its Direct-Current (DC) motor business, which is
now a part of the Electromechanical Group. Additionally, in September 2000, the
Company acquired the assets of Rochester Instrument Systems, a leading supplier
for the electric power generation market, which is now a
34
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
part of the Electronic Instruments Group. The aggregate purchase price paid for
the 2000 acquisitions was $81 million.
In 1999, the Company made four acquisitions, which operate as part of the
Electronic Instruments Group. In January 1999, the Company acquired all of the
outstanding shares of National Controls Corporation, a leading U.S. manufacturer
of electronic instruments and controls for food service equipment. In April
1999, the Company acquired substantially all of the assets of Gulton-Statham
Transducers, a leading manufacturer of high-accuracy electronic pressure
transmitters and transducers for the aerospace and industrial markets, from Mark
IV Industries, Inc. In July 1999, the Company acquired Patriot Sensors and
Controls Corporation, a leading manufacturer of position sensors, tank gauges
and aviation transducers, from First Atlantic Capital, Ltd. These products are
used in a wide range of industrial and aerospace applications. In December 1999,
the Company acquired Drexelbrook Engineering Company (Drexelbrook). Drexelbrook
designs and manufactures point level and continuous level measurement and
control devices and flow measurement instrumentation. These instruments are used
in a variety of end markets, including chemical, petrochemical, pharmaceutical,
food and beverage, pulp and paper, water and wastewater. The aggregate purchase
price paid for the 1999 acquisitions was $147.5 million.
As of the closing dates, the Company also recorded liabilities as a
component of the purchase price for estimated future pension obligations, and
for specific personnel-related costs associated with the relocation and
consolidation of certain operations of the acquired businesses.
All of the above acquisitions were accounted for by the purchase method,
and accordingly, the results of their operations are included in the Company's
consolidated results from their respective dates of acquisition. Drexelbrook was
consolidated with the Company's results for the first time beginning in January
2000. The estimated goodwill acquired with businesses purchased prior to July 1,
2001 has been amortized on a straight-line basis over thirty years. For
businesses acquired after June 30, 2001, estimated goodwill and intangibles
acquired with indefinite useful lives are not amortized, in accordance with the
transition provision of FASB Statement No. 142.
Had the 2001 and 2000 acquisitions been made at the beginning of 2000, pro
forma net sales for 2001 and 2000 would have been $1,106.3 million and $1,239.2
million. Pro forma net income and diluted earnings per share would not have been
materially different than those reported for the respective periods.
35
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER BALANCE SHEET INFORMATION
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
INVENTORIES
Finished goods and parts.................................. $ 31,313 $ 22,879
Work in process........................................... 36,925 31,020
Raw materials and purchased parts......................... 84,287 75,466
-------- --------
$152,525 $129,365
======== ========
PROPERTY, PLANT AND EQUIPMENT, at cost
Land...................................................... $ 8,902 $ 9,138
Buildings................................................. 112,837 105,335
Machinery and equipment................................... 440,014 414,048
-------- --------
561,753 528,521
Less accumulated depreciation............................. (347,259) (314,566)
-------- --------
$214,494 $213,955
======== ========
GOODWILL, at cost........................................... $426,575 $327,320
Less accumulated amortization............................... (39,155) (27,841)
-------- --------
$387,420 $299,479
======== ========
INVESTMENTS & OTHER ASSETS
Other intangibles, at cost:
Patents................................................ $ 21,474 $ 21,448
Other acquired intangibles............................. 47,708 47,513
Less accumulated amortization.......................... (65,484) (64,701)
-------- --------
Subtotal.......................................... 3,698 4,260
Investments............................................... 15,722 15,727
Other..................................................... 28,608 22,467
-------- --------
$ 48,028 $ 42,454
======== ========
ACCRUED LIABILITIES
Accrued employee compensation and benefits................ $ 24,910 $ 27,968
Other..................................................... 55,593 42,424
-------- --------
$ 80,503 $ 70,392
======== ========
</Table>
36
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS AND NOTES
RECEIVABLE
Balance at beginning of year................................ $4,318 $3,994 $4,580
Additions charged to expense................................ 4,135 264 43
Recoveries credited to allowance............................ 143 43 100
Write-offs.................................................. (1,264) (157) (1,119)
Allowance acquired with new businesses...................... 322 214 502
Currency translation adjustment and other................... (12) (40) (112)
------ ------ ------
Balance at end of year...................................... $7,642 $4,318 $3,994
====== ====== ======
</Table>
5. LONG-TERM DEBT
At December 31, 2001 and 2000, long-term debt consisted of the following:
<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
7.20% Senior Notes due 2008................................. $225,000 $225,000
Revolving credit loans...................................... 73,321 --
Other, principally foreign.................................. 6,367 9,938
-------- --------
304,688 234,938
Less: current portion....................................... (1,254) (1,322)
-------- --------
Total long-term debt........................................ $303,434 $233,616
======== ========
</Table>
Maturities of long-term debt outstanding at December 31, 2001 are as
follows: $2.1 million in 2003; $1.9 million in 2004; $0.1 million in 2005; $73.4
million in 2006; and $225.9 million in 2007 and thereafter.
On September 17, 2001, the Company completed a new $300 million Revolving
Credit Facility that matures in 2006. The new five-year Revolving Credit
Facility is unsecured and replaces a $195 million credit facility that would
have expired in 2002. Interest rates on outstanding loans under the Revolving
Credit Facility are either based on the London Interbank Offered Rate (LIBOR),
plus a negotiated spread over LIBOR, or at the U.S. prime rate. At December 31,
2001, the Company had $178.9 million in revolving credit loans outstanding at a
blended rate of 3.2%, of which $105.6 million is included in short-term
borrowings and $73.3 million is included in long-term debt.
The new Revolving Credit Facility places certain restrictions on allowable
foreign debt, and the measurement of the pro forma effect of potential
acquisitions in certain debt covenant compliance calculations. The Revolving
Credit Facility also places certain restrictions on certain cash payments,
including the payment of dividends. At December 31, 2001, retained earnings of
approximately $17.2 million were not subject to the dividend limitation.
Foreign subsidiaries of the Company had available credit facilities with
local foreign lenders of approximately $31.6 million, of which $19.2 million was
outstanding at December 31, 2001, including $4.4 million reported in long-term
debt. The weighted average interest rate on total debt outstanding at December
31, 2001 and 2000 was 5.2% and 7.3%, respectively. The Company also had
outstanding letters of credit totaling $17.0 million at December 31, 2001.
37
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable Financing
On November 30, 2001, the Company amended its accounts receivable financing
agreement with a bank whereby it can borrow up to $75 million against its trade
accounts receivable (previously $50 million). In April 2001, the Company decided
not to modify the structure of its accounts receivable securitizations which
would have continued its off-balance sheet treatment of the transferred accounts
receivable to its special purpose subsidiary to secure a like amount of
off-balance sheet debt. Accordingly, as of April 1, 2001, the Company recorded
on its balance sheet the outstanding balance of the accounts receivable and
related debt as collateralized secured borrowings. This amount was $47 million
in accounts receivable and related debt on April 1, 2001. At December 31, 2001
and 2000, $47.0 million and $45.0 million, respectively, was used under this
secured credit facility. Financing costs associated with the sale of accounts
receivable is included in interest expense.
6. STOCKHOLDERS' EQUITY
In 2001, the Company repurchased 440,000 shares of its common stock, under
its current share repurchase authorization, at a total cost of $11.6 million.
This compares with repurchases of 83,500 shares at a total cost of $1.6 million
in 2000. At December 31, 2001, approximately $16 million of the current $50
million authorization was unexpended. At December 31, 2001, the Company held
approximately 0.6 million shares in its treasury at a cost of $17.9 million
compared with approximately 0.9 million shares at a cost of $22.3 million at the
end of 2000. The number of shares outstanding at December 31, 2001 was 32.8
million shares, compared with 32.4 million shares at December 31, 2000.
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. 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 2007.
7. STOCK OPTION AND AWARD PLANS
The Company's 1999 Stock Incentive Plan provides for the grant of up to 2.0
million shares of common stock to eligible employees and non-employee directors
of the Company in the form of options, phantom stock awards, restricted stock
awards and stock rights. The Company's 1997 Stock Incentive Plan permits the
grant of up to 3.8 million shares of common stock. Stock options may be granted
as non-qualified stock options or as incentive stock options.
Restricted awards of the Company's common stock are made to eligible
employees and non-employee directors, at such cost to the grantee, as the stock
option committee of the Board of Directors may determine. Such shares are issued
subject to certain conditions with respect to transfer and other restrictions as
prescribed by the plan. Upon issuance of restricted stock, unearned
compensation, equivalent to the excess of the market price of the shares awarded
over the price paid by the grantee at the date of grant, is charged to
stockholders' equity and is amortized to expense over the periods until the
restrictions lapse. The unamortized balance of unearned compensation related to
restricted stock awards included in stockholders' equity at December 31, 2001
totaled $3.0 million. No restricted stock awards were granted in 2001. In
December 2000, the Company awarded 150,000 shares of restricted stock to its
Chairman and Chief Executive Officer. The expense related to restricted stock is
not significant. Under the terms of the existing Stock Incentive Plans, at
December 31, 2001, 207,064 additional restricted stock awards may be granted.
In 2001, the Company reserved 9,694 shares, net of share adjustments for
terminations, under a Supplemental Executive Retirement Plan ("SERP"), bringing
the total number of shares reserved to 103,805
38
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares. Charges to expense under the SERP, not significant in amount, are
considered pension expense (see Note 10), with the offsetting credit reflected
in stockholders' equity.
At December 31, 2001, 3,439,372 (4,259,584 in 2000) shares of common stock
were reserved for issuance (including stock options outstanding), under the 1999
and 1997 plans. The options are exercisable at prices not less than market
prices on dates of grant, and in installments over four-to-ten-year-periods from
dates of grant. The Company had no stock appreciation rights outstanding at
December 31, 2001 or 2000. Stock appreciation rights, if and when issued, are
exercisable for cash and/or shares of the Company's common stock when the
related option is exercised. A charge to income would be made for these rights
and the related options.
A summary of the Company's stock option activity and related information
for the years ended December 31 follows:
<Table>
<Caption>
2001 2000 1999
------------------------- ------------------------- -------------------------
SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE
--------- ------------- --------- ------------- --------- -------------
Outstanding at
beginning of
year............... 2,956,595 $11.60-$30.34 2,907,991 $10.92-$30.34 2,687,031 $10.92-$30.34
Granted.............. 505,650 $26.29-$30.64 566,150 $19.94-$24.44 717,400 $18.78-$24.84
Exercised............ (820,212) $11.60-$30.34 (433,174) $10.92-$20.00 (377,260) $11.60-$22.00
Canceled............. (88,425) $19.94-$29.09 (84,372) $14.15-$30.34 (119,180) $14.15-$30.34
--------- ------------- --------- ------------- --------- -------------
Outstanding at end of
year............... 2,553,608 $14.15-$30.64 2,956,595 $11.60-$30.34 2,907,991 $10.92-$30.34
========= ============= ========= ============= ========= =============
Exercisable at end of
year............... 1,237,876 $14.15-$30.34 1,634,903 $11.60-$30.34 1,628,799 $10.92-$30.34
========= ============= ========= ============= ========= =============
</Table>
The following table summarizes information pertaining to the Company's
stock options outstanding at December 31, 2001:
<Table>
<Caption>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING PRICE LIFE (YEARS) EXERCISABLE PRICE
- ------------------------ ----------- -------- ------------ ----------- --------
$14.15-$18.20..................... 484,377 $14.61 4.1 484,377 $14.61
$18.21-$24.27..................... 905,042 $20.26 4.8 335,088 $20.32
$24.28-$30.64..................... 1,164,189 $27.30 5.0 418,411 $28.68
--------- ------ --- --------- ------
2,553,608 $22.40 4.7 1,237,876 $20.91
========= ====== === ========= ======
</Table>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock option plans. Had
compensation expense for such plans been determined in accordance with Financial
Accounting Standards Board Statement No. 123, "Accounting for
39
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation" pro forma net income and related per share amounts for
the years ended December 31, 2001, 2000, and 1999 would have been as follows:
<Table>
<Caption>
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)}
Net income:
As reported............................................... $66,111 $68,532 $60,768
Pro forma................................................. 63,834 66,452 58,838
Net income per share:
Basic:
As reported............................................ $ 2.01 $ 2.13 $ 1.88
Pro forma.............................................. 1.94 2.07 1.82
Diluted:
As reported............................................ 1.98 2.11 1.85
Pro forma.............................................. 1.94 2.07 1.82
</Table>
The weighted average fair value of each option grant on the grant date was
$8.88 for 2001, $7.18 for 2000, and $6.65 for 1999. The fair value of each
option was estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions for options granted in each of the last
three years.
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Expected life (years)....................................... 5.0 5.0 5.0
Expected volatility......................................... 35.3% 30.8% 28.0%
Dividend yield.............................................. 0.85% 1.2% 1.2%
Risk-free interest rate..................................... 3.50% 6.61% 5.58%
</Table>
8. LEASES
Minimum aggregate rental commitments under non-cancelable leases in effect
at December 31, 2001 (principally for production and administrative facilities
and equipment) amounted to $26.6 million consisting of annual payments of $5.5
million in 2002, $4.4 million in 2003, $3.7 million in 2004, $3.1 million in
2005, $2.9 million in 2006 and $7.0 million in 2007 and thereafter. Rental
expense was $8.9 million in 2001, $8.1 million in 2000 and $6.9 million in 1999.
40
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of income from continuing operations before income taxes and
the details of the provision for income taxes are as follows:
<Table>
<Caption>
2001 2000 1999
------- -------- -------
(IN THOUSANDS)
Income before income taxes:
Domestic.................................................. $85,597 $ 97,302 $85,797
Foreign................................................... (1,235) 8,836 8,664
------- -------- -------
Total....................................................... $84,362 $106,138 $94,461
======= ======== =======
Provision for income taxes:
Current:
Federal................................................ $14,721 $ 26,995 $26,421
Foreign................................................ 2,519 2,390 5,899
State.................................................. (1,469) 1,541 (136)
------- -------- -------
Total current............................................... 15,771 30,926 32,184
------- -------- -------
Deferred:
Federal................................................ 3,373 4,733 2,477
Foreign................................................ (1,590) 1,230 (1,541)
State.................................................. 697 717 573
------- -------- -------
Total deferred.............................................. 2,480 6,680 1,509
------- -------- -------
Total provision............................................. $18,251 $ 37,606 $33,693
======= ======== =======
</Table>
Significant components of the Company's deferred tax (asset) liability as
of December 31 are as follows:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)}
Current deferred tax asset:
Reserves not currently deductible......................... $ (6,754) $ (7,101)
Other..................................................... (3,342) (3,415)
-------- --------
Net current deferred tax asset.............................. (10,096) (10,516)
-------- --------
Noncurrent deferred tax (asset) liability:
Differences in basis of property and accelerated
depreciation........................................... 21,020 18,709
Purchased tax benefits.................................... 3,232 5,434
Reserves not currently deductible......................... (5,483) (5,737)
Other..................................................... 14,727 14,760
-------- --------
Noncurrent deferred tax liability........................... 33,496 33,166
-------- --------
Net deferred tax liability.................................. $ 23,400 $ 22,650
======== ========
</Table>
41
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective rate of the provision for income taxes reconciles to the
statutory rate as follows:
<Table>
<Caption>
2001 2000 1999
----- ---- ----
Statutory rate.............................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit(a).... (0.9) 1.4 0.3
Foreign Sales Corporation (FSC) tax credit.................. (5.0) (3.3) (3.0)
Differences between U.S. and foreign tax rates.............. 2.1 1.0 1.8
Goodwill amortization....................................... 2.8 2.2 1.9
Settlement of prior years' tax audits(b).................... (11.6) 0.0 0.0
Other....................................................... (0.8) (0.9) (0.3)
----- ---- ----
21.6% 35.4% 35.7%
===== ==== ====
</Table>
- ---------------
(a) Includes the reversal of certain prior years' excess state income tax
accruals.
(b) At year-end 2001, U.S. tax authorities closed several open years for which
the Company's income tax returns were under examination. As a result, the
Company recognized a tax benefit of $10.5 million after tax. The benefit
consisted of tax refunds received of $4.4 million (including interest) and
the reversal of certain federal and state tax accruals totaling $6.1 million
associated with the closed years.
At December 31, 2001 and 2000, the Company had federal and foreign
available net operating loss carryforwards of approximately $4.5 million and
$2.5 million, respectively, to offset future taxable income. The federal
carryforwards, from a subsidiary acquired in 1999, will expire in 2018 and 2019.
The foreign carryforwards will expire in 2004 and 2006.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $48.7 million at December 31, 2001. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. deferred
taxes has been made. Upon distribution of those earnings to the United States,
the Company would be subject to U.S. income taxes (subject to a reduction for
foreign tax credits) and withholding taxes payable to the various foreign
countries. Determination of the amount of unrecognized deferred income tax
liability is not practicable.
10. RETIREMENT AND PENSION PLANS
The Company maintains noncontributory defined benefit pension plans.
Benefits for eligible U.S. salaried and hourly employees 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 in accordance with the funding requirements of federal law and
regulations. Assets of these plans are invested in a variety of equity and debt
instruments and in pooled temporary funds, as well as in the Company's common
stock, the investment in which is not material to total plan assets.
The Company also sponsors a 401(K) retirement and savings plan for eligible
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 6% 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 this retirement feature, the Company
makes contributions for eligible employees based on a pre-established percentage
of the covered employee's salary. Employees of certain of the Company's foreign
operations participate in various local plans that in the aggregate are not
significant.
42
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has a retirement plan for its acquired businesses for the
benefit of eligible employees. Company contributions are made for each
participant up to a specified percentage, not to exceed 6% 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 employees of the Company. These supplemental benefits are
designed to compensate the employee for retirement benefits the executive would
have been provided under the Company's primary retirement plan, except for
statutory limitations on compensation that may 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 employee. The Company is providing for these
obligations by charges to earnings over the applicable periods.
Effective December 31, 2001, the Company changed the measurement date for
pension amounts under its defined benefit plans from October 1 to December 31.
This change determined the pension assets and liabilities of the affected plans
as of the December 31 measurement date, but had no effect on pension income for
2001. Prior periods have not been restated for this change.
The following table provides a reconciliation of the changes in benefit
obligations and fair value of plan assets for the defined benefit plans for 2001
and 2000:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
Change in benefit obligation
Net benefit obligation at beginning of period............... $258,168 $253,672
Service cost................................................ 4,422 4,918
Interest cost............................................... 20,523 19,410
Plan amendments............................................. 704 1,241
Actuarial loss (gain)....................................... 23,925 (4,429)
Benefits paid............................................... (22,172) (16,644)
-------- --------
Net benefit obligation at end of period..................... $285,570 $258,168
======== ========
Change in plan assets
Fair value of plan assets at beginning of period............ $313,972 $291,158
Actual return on plan assets................................ (2,904) 38,162
Employer contributions...................................... 2,292 1,296
Benefits paid............................................... (22,172) (16,644)
-------- --------
Fair value of plan assets at end of period.................. $291,188 $313,972
======== ========
</Table>
The following table provides aggregate information for defined benefit
pension plans with accumulated benefits in excess of plan assets:
<Table>
<Caption>
2001 2000
------- ------
(IN THOUSANDS)}
Projected benefit obligation................................ $76,160 $4,071
Accumulated benefit obligation.............................. 73,781 4,071
Fair value of plan assets................................... 65,869 -0-
</Table>
43
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides the amounts recognized in the consolidated
balance sheets at December 31, 2001 and 2000:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Funded status asset (liability)
Funded status at December 31................................ $ 5,618 $55,805
Unrecognized net actuarial loss (gain)...................... 15,253 (40,942)
Unrecognized prior service cost............................. 3,447 3,611
Unrecognized net transition asset........................... (309) (908)
------- -------
Net amount recognized at December 31...................... $24,009 $17,566
======= =======
Balance sheet asset (liability)
Prepaid benefit cost........................................ $29,040 $22,402
Accrued benefit liability................................... (5,144) (4,836)
Additional minimum liability................................ (9,460) (397)
Intangible asset............................................ 2,270 137
Accumulated other comprehensive income (before deferred tax
benefit).................................................. 7,303 260
------- -------
Net amount recognized at December 31...................... $24,009 $17,566
======= =======
</Table>
The following table provides the components of net periodic pension
(income) expense for the last three years ended December 31:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Defined benefit plans:
Service cost for benefits earned during the period........ $ 4,422 $ 4,918 $ 5,810
Interest cost on projected benefit obligation............. 20,331 19,410 18,278
Expected return on plan assets............................ (28,257) (26,192) (23,875)
Net amortization.......................................... (1,172) (45) 323
-------- -------- --------
Net pension (income) expense................................ (4,676) (1,909) 536
Other plans:
Defined contribution plans................................ 5,390 5,227 5,178
Supplemental retirement plans............................. 416 492 312
Foreign plans and other................................... 2,009 1,709 1,920
-------- -------- --------
Total other plans........................................... 7,815 7,428 7,410
-------- -------- --------
Total net pension expense................................... $ 3,139 $ 5,519 $ 7,946
======== ======== ========
</Table>
Assumptions used in accounting for the defined benefit plans as of December
31 of each year were (based on a measurement date of December 31st for 2001 and
October 1st for 2000 and 1999):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Discount rate used in determining present values............ 7.25% 8.00% 7.75%
Annual rate of increase in future compensation levels....... 4.00% 4.75% 4.75%
Expected long-term rate of return on plan assets............ 9.25% 9.25% 9.25%
</Table>
44
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a deferred compensation plan which allows employees whose
compensation exceeds the statutory IRS limit for retirement benefits to defer a
portion of earned bonus compensation. The plan permits deferred amounts to be
deemed invested in either, or a combination of, (a) an interest bearing fund,
benefits from which are payable out of the general assets of the Company, or (b)
a fund which invests in shares of the Company's common stock on behalf of the
employee. The amount deferred under the plan, including income earned, was $2.1
million, at December 31, 2001. Initial employee deferrals began January 1, 2000.
Administrative expense for the plan is borne by the Company and is not
significant.
The Company provides limited postretirement benefits other than pensions
for certain retirees and a small number of employees. Benefits under these
arrangements are not significant. The Company also provides limited
postemployment benefits for certain former or inactive employees after
employment but before retirement. Those benefits, which are not significant in
amount, are accounted for on the accrual basis of accounting.
11. FINANCIAL INSTRUMENTS
The Company makes limited use of derivative financial instruments, and does
not use them for trading purposes. Such instruments are generally used to manage
well-defined interest rate risks and to hedge firm commitments related to
certain export sales denominated in a foreign currency.
Interest rate swap and cap agreements are used to reduce the potential
impact of increases in interest rates on the Company's borrowings. Accordingly,
the Company may enter into these agreements to effectively convert floating-rate
loans to fixed-rate loans and to cap certain interest rates that are indexed to
LIBOR rates to reduce the risk from rising interest rates. In 2001, the Company
did not enter into any such agreements and none are outstanding at December 31,
2001.
Cross-currency and interest rate agreements may be used to hedge a portion
of the Company's net investment in certain foreign subsidiaries. At December 31,
2001, no such agreements were outstanding. During 2001, the Company settled its
outstanding interest rate swap agreement, which totaled $3.8 million. The gain
on settlement of this agreement was $0.4 million.
Forward currency contracts may be entered into from time to time to hedge
certain firm export sales commitments denominated in foreign currencies. The
purpose of such hedging activities is to protect the Company from the risk that
the eventual net cash dollar inflows and outflows resulting from the sale of
products to foreign customers will be adversely affected by changes in exchange
rates. At December 31, 2001 and 2000, the Company was not party to any forward
currency contracts. The terms of the currency contracts are dependent on a firm
commitment and generally do not exceed one year. Deferred gains and losses on
such contracts, which are not significant, are recognized in operations as the
related sales and purchases occurred.
The estimated fair values of the Company's other financial instruments are
compared below to the recorded amounts at December 31, 2001 and 2000. Cash, cash
equivalents, and marketable securities are recorded at fair value at December
31, 2001 and 2000 in the accompanying balance sheet.
<Table>
<Caption>
ASSET (LIABILITY)
---------------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- ---------------------
RECORDED FAIR RECORDED FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
Fixed-income and equity investments............ $ 15,214 $ 15,214 $ 15,703 $ 15,703
Short-term borrowings.......................... $(166,145) $(166,145) $(126,279) $(126,279)
Long-term debt (including current portion)..... $(304,688) $(297,657) $(234,938) $(220,669)
</Table>
45
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair values of fixed-income investments are based on quoted market
prices. The fair value of equity investments are based on amounts reported by
the investee. The fair value of short-term borrowings is based on the carrying
value at year-end. The fair value of the Company's long-term debt, which
consists primarily of publicly traded notes, is based on the quoted market price
for such notes and borrowing rates currently available to the Company for loans
with similar terms and maturities.
12. ADDITIONAL INCOME STATEMENT AND CASH FLOW INFORMATION
Included in other income is interest and other investment income of $2.0
million, $1.5 million, and $2.6 million for 2001, 2000, and 1999, respectively.
Income taxes paid in 2001, 2000, and 1999 were $27.6 million, $33.6 million, and
$29.0 million, respectively. Cash paid for interest was $27.5 million, $30.2
million, and $24.3 million in 2001, 2000, and 1999, respectively.
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Descriptive Information About Reportable Segments
The Company has two reportable segments, the Electronic Instruments Group
and the Electromechanical Group. The Company organizes its businesses primarily
on the basis of product type, production processes, distribution methods, and
management organizations.
The Electronic Instruments Group produces instrumentation for various
electronic applications that service certain types of transportation industries,
including aircraft cockpit instruments and displays, airborne electronics
systems that monitor and record flight and engine data, and
pressure-temperature-flow and liquid-level sensors for commercial airlines and
aircraft and jet engine manufacturers. The Group also produces analytic
instrumentation for the laboratory and research markets, as well as instruments
for foodservice equipment, measurement and monitoring instrumentation for
various process industries and instruments and complete instrument panels for
heavy truck manufacturers and heavy construction and agricultural vehicles. The
Group also manufactures high-temperature-resistant and corrosion-resistant
materials, as well as thermoplastic compounds for automotive, appliance, and
telecommunications applications.
The Electromechanical Group produces air-moving electric motors and
motor-blower systems for manufacturers of floor care appliances and outdoor
power equipment, fractional horsepower and brushless air-moving motors for
aerospace, mass transit, medical equipment, computer and business machine
applications. The Group also produces high-purity metal powders and alloys in
powder, strip, and wire form for electronic components, aircraft and automotive
products. Sales of electric motors, blowers, and fans represented 44.1% in 2001,
42.2% in 2000, and 43.8% in 1999 of the Company's consolidated net sales.
Measurement of Segment Results
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 an allocation of interest expense. Net sales
by segment are reported after elimination of intra- and inter-segment sales,
which are insignificant in amount. Such sales are generally based on prevailing
market prices. Reported segment assets include allocations directly related to
the segment's operations. Corporate assets consist primarily of investments,
insurance deposits, and deferred taxes.
46
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REPORTABLE SEGMENT FINANCIAL INFORMATION
<Table>
<Caption>
2001 2000 1999
---------- ---------- --------
(IN THOUSANDS)
Net sales:
Electronic Instruments.................................. $ 499,528 $ 509,504 $451,072
Electromechanical....................................... 519,761 515,156 473,725
---------- ---------- --------
Total consolidated.............................. $1,019,289 $1,024,660 $924,797
========== ========== ========
Operating income and income before income taxes:
Operating income:
Electronic Instruments............................... $ 57,035 $ 78,771 $ 69,965
Electromechanical.................................... 70,638 77,560 67,575
---------- ---------- --------
Total segment operating income.................. 127,673 156,331 137,540
Corporate administrative and other expenses.......... (18,123) (20,441) (18,743)
---------- ---------- --------
Consolidated operating income........................... 109,550 135,890 118,797
Interest and other expenses, net........................ (25,188) (29,752) (24,336)
---------- ---------- --------
Consolidated income before income taxes................. $ 84,362 $ 106,138 $ 94,461
========== ========== ========
Assets:
Electronic Instruments.................................. $ 525,410 $ 417,573 $386,309
Electromechanical....................................... 437,802 387,983 332,493
---------- ---------- --------
Total segments.................................. 963,212 805,556 718,802
Corporate............................................... 66,077 53,432 49,348
---------- ---------- --------
Total consolidated...................................... $1,029,289 $ 858,988 $768,150
========== ========== ========
Additions to property, plant and equipment:(1)
Electronic Instruments.................................. $ 17,287 $ 10,883 $ 29,323
Electromechanical....................................... 16,229 19,292 17,531
---------- ---------- --------
Total segments.................................. 33,516 30,175 46,854
Corporate............................................... 1,888 3,557 2,398
---------- ---------- --------
Total consolidated.............................. $ 35,404 $ 33,732 $ 49,252
========== ========== ========
Depreciation and amortization:
Electronic Instruments.................................. $ 19,824 $ 18,939 $ 16,132
Electromechanical....................................... 26,435 24,028 22,980
---------- ---------- --------
Total segments.................................. 46,259 42,967 39,112
Corporate............................................... 191 290 512
---------- ---------- --------
Total consolidated.............................. $ 46,450 $ 43,257 $ 39,624
========== ========== ========
</Table>
- ---------------
(1) Includes $6.0 million in 2001, $4.2 million in 2000, and $18.9 million in
1999 from acquired businesses.
47
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC AREAS
Information about the Company's operations in different geographic areas
for the years ended December 31, 2001, 2000, and 1999 is shown below. Net sales
were attributed to geographic areas based on the location of the customer.
Accordingly, U.S. export sales are reported in international sales.
<Table>
<Caption>
2001 2000 1999
---------- ---------- --------
(IN THOUSANDS)
Net sales:
United States........................................... $ 698,044 $ 699,713 $622,832
---------- ---------- --------
International(a):
European Union countries............................. 118,964 118,934 123,116
Asia................................................. 74,197 68,409 57,451
Other foreign countries.............................. 128,084 137,604 121,398
---------- ---------- --------
Total international............................. 321,245 324,947 301,965
---------- ---------- --------
Total consolidated.............................. $1,019,289 $1,024,660 $924,797
========== ========== ========
Long-lived assets from continuing operations:
United States........................................... $ 532,740 $ 443,417 $390,749
---------- ---------- --------
International(b):
European Union countries............................. 46,975 53,229 65,111
Asia................................................. 4,914 4,710 4,424
Other foreign countries.............................. 28,097 20,827 19,811
---------- ---------- --------
Total international............................. 79,986 78,766 89,346
---------- ---------- --------
Total consolidated.............................. $ 612,726 $ 522,183 $480,095
========== ========== ========
</Table>
- ---------------
(a) Includes U.S. export sales of $170.0 million in 2001, $179.1 million in
2000, and $158.5 million in 1999.
(b) Represents long-lived assets of foreign-based operations only.
48
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)}
2001
NET SALES.............................. $264,071 $261,422 $256,533 $237,263 $1,019,289
OPERATING INCOME(A).................... $ 35,703 $ 35,574 $ 32,966 $ 5,307 $ 109,550
NET INCOME(A).......................... $ 18,272 $ 18,653 $ 17,727 $ 11,459 $ 66,111
BASIC EARNINGS PER SHARE(A)(B)......... $ 0.56 $ 0.57 $ 0.54 $ 0.35 $ 2.01
DILUTED EARNINGS PER SHARE(A)(B)....... $ 0.55 $ 0.56 $ 0.53 $ 0.34 $ 1.98
DIVIDENDS PAID PER SHARE............... $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.24
COMMON STOCK TRADING RANGE:(C)
HIGH................................... 28.74 31.12 34.00 32.35 34.00
LOW.................................... 23.65 25.35 21.37 25.55 21.37
2000
Net sales.............................. $255,812 $255,504 $255,098 $258,246 $1,024,660
Operating income....................... $ 33,887 $ 33,770 $ 34,106 $ 34,127 $ 135,890
Net income............................. $ 16,754 $ 17,223 $ 17,318 $ 17,237 $ 68,532
Basic earnings per share(b)............ $ 0.52 $ 0.54 $ 0.54 $ 0.53 $ 2.13
Diluted earnings per share(b).......... $ 0.52 $ 0.53 $ 0.53 $ 0.53 $ 2.11
Dividends paid per share............... $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.24
Common stock trading range:(c)
High................................... 22.13 21.56 22.88 26.94 26.94
Low.................................... 15.50 17.50 18.50 20.00 15.50
</Table>
- ---------------
(a) In the fourth quarter of 2001, the Company recorded unusual expenses
totaling $23.3 million (pretax) of which $12.4 million is related to the
cost of employee reductions, facility closures, the continued migration of
production to low-cost locales, and $10.9 million related to asset
writedowns. The asset writedowns were for receivables ($3.3 million),
inventory ($6.1 million) and equipment ($1.5 million). The asset writedowns
resulted primarily from the difficulties the economic environment has had on
a number of the Company's customers. The fourth quarter also includes a tax
benefit and related interest income of $10.5 million after tax ($0.32 per
diluted share) resulting from the closure of a number of open tax years by
U.S. federal and state tax authorities.
(b) The sum of quarterly earnings per share may not equal total year earnings
per share due to the effect of the Company purchasing shares of its
outstanding common stock.
(c) Trading ranges are based on the New York Stock Exchange composite tape.
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and Executive Officers of the
Company, and information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission (the "Commission") not later than 120 days after the close
of the fiscal year ended December 31, 2001, under the captions "Election of
Directors," "Executive Officers," and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934."
ITEMS 11, 12, AND 13.
The information required by Item 11, Executive Compensation, by Item 12,
Security Ownership of Certain Beneficial Owners and Management, and by Item 13,
Certain Relationships and Related Transactions, is incorporated herein by
reference to the Company's definitive Proxy Statement to be filed with the
Commission not later than 120 days after the close of the fiscal year ended
December 31, 2001, under the headings "Executive Compensation," "Stock
Ownership," "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits filed.
1. and 2.
Financial statements and schedules are shown in the index on page
25 of this report.
3. Exhibits
Exhibits are shown in the index on pages 52-57 of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 2001.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMETEK, Inc.
By /s/ FRANK S. HERMANCE
------------------------------------
Frank S. Hermance, Chairman of the
Board,
Chief Executive Officer and Director
Dated: March 13, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ FRANK S. HERMANCE Chairman of the Board, Chief March 13, 2002
- ----------------------------------------------------- Executive Officer and Director
Frank S. Hermance (Principal Executive Officer)
/s/ JOHN J. MOLINELLI Executive Vice President - March 13, 2002
- ----------------------------------------------------- Chief Financial Officer
John J. Molinelli (Principal Financial Officer)
/s/ ROBERT R. MANDOS, JR. Vice President & Comptroller March 13, 2002
- ----------------------------------------------------- (Principal Accounting Officer)
Robert R. Mandos, Jr.
/s/ LEWIS G. COLE Director March 13, 2002
- -----------------------------------------------------
Lewis G. Cole
/s/ HELMUT N. FRIEDLAENDER Director March 13, 2002
- -----------------------------------------------------
Helmut N. Friedlaender
/s/ SHELDON S. GORDON Director March 13, 2002
- -----------------------------------------------------
Sheldon S. Gordon
/s/ CHARLES D. KLEIN Director March 13, 2002
- -----------------------------------------------------
Charles D. Klein
/s/ JAMES R. MALONE Director March 13, 2002
- -----------------------------------------------------
James R. Malone
/s/ DAVID P. STEINMANN Director March 13, 2002
- -----------------------------------------------------
David P. Steinmann
/s/ ELIZABETH R. VARET Director March 13, 2002
- -----------------------------------------------------
Elizabeth R. Varet
</Table>
51
INDEX TO EXHIBITS
ITEM 14(A)3)
<Table>
<Caption>
FILED WITH
EXHIBIT ELECTRONIC
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION
- ------- ----------- ----------------------------------- ----------
2.1 Amended and Restated Agreement and Plan Exhibit 2 to Form 8-K dated August 7,
of Merger and Reorganization, dated as of 1997, SEC File No. 1-12981.
February 5, 1997, by and among Culligan
Water Technologies, Inc. ("Culligan"),
Culligan Water Company, Inc. ("Culligan
Merger Sub"), AMETEK, Inc. ("AMETEK") and
AMETEK Aerospace Products, Inc. ("AMETEK
Aerospace"), incorporated by reference to
Appendix A to the Joint Proxy
Statement/Prospectus included in
Culligan's Registration Statement on Form
S-4 (Commission File No. 333-26953).
2.2 Amended and Restated Contribution and Appendix B to Preliminary Proxy
Distribution Agreement, dated as of Statement dated May 12, 1997, SEC
February 5, 1997, by and between AMETEK File No. 1-168.
and AMETEK Aerospace.
2.3 Form of Tax Allocation Agreement among Appendix D to Preliminary Proxy
AMETEK, AMETEK Aerospace and Culligan. Statement dated May 12, 1997, SEC
File No. 1-168.
2.4 Form of Transition Services Agreement by Appendix B to Preliminary Proxy
and between Culligan Merger Sub and Statement dated May 12, 1997, SEC
AMETEK Aerospace. File No. 1-168.
2.5 Form of Indemnification Agreement among Appendix B to Preliminary Proxy
AMETEK, Culligan and AMETEK Aerospace. Statement dated May 12, 1997, SEC
File No. 1-168.
2.6 Form of Trademark Agreement between Appendix B to Preliminary Proxy
AMETEK and AMETEK Aerospace. Statement dated May 12, 1997, SEC
File No. 1-168.
3.1 Amended and Restated Certificate of Exhibit 3.1 to Form 8-K dated August
Incorporation of the Company. 7, 1997, SEC File No. 1-12981.
3.2 By-laws of the Company as amended to and Exhibit 3.2 to 1998 Form 10K SEC File
including November 18, 1998. No. 1-12981.
4.1 Rights Agreement, dated as of June 2, Exhibit 4.1 to Form 8-K dated August
1997, between the Company and American 7, 1997, SEC File No. 1-12981.
Stock Transfer & Trust Company.
4.2 Amendment No. 1 to Rights Agreement dated Exhibit 4 to Form 10-Q dated March
as of May 11, 1999, between AMETEK, Inc. 31, 1999 SEC File No. 1-12981.
and American Stock Transfer & Trust
Company.
4.3 Indenture, dated as of July 17, 1998, Exhibit 4.1 to Form 10-Q dated June
between AMETEK, Inc., as Issuer, and 30, 1998, SEC File No. 1-12981.
Chase Manhattan Trust Company, National
Association, as Trustee relating to the
Notes, dated July 17, 1998.
</Table>
52
<Table>
<Caption>
FILED WITH
EXHIBIT ELECTRONIC
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION
- ------- ----------- ----------------------------------- ----------
4.4 Purchase Agreement between AMETEK, Inc. Exhibit 4.3 to Form S-4 dated August
and Salomon Brothers Inc., BancAmerica 11, 1998 SEC File No. 1-12981.
Robertson Stephens and BT Alex. Brown
Incorporated, as initial purchasers,
dated July 14, 1998.
10.1 AMETEK, Inc. Retirement Plan for Exhibit 10.8 to 1997 Form 10-K SEC
Directors, as amended and restated to File No. 1-12981.
October 13, 1997.*
10.2 AMETEK, Inc. Death Benefit Program for Exhibit (10) (y) to 1987 Form 10-K
Directors, pursuant to which the Company SEC File No. 1-168.
has entered into agreements, restated
January 1, 1987, with certain directors
and one former director of the Company
(the "Directors Program").*
10.3 Amendment No. 1 to the Directors Exhibit (10) (z) to 1987 Form 10-K
Program.* SEC File No. 1-168.
10.4 The AMETEK Savings and Investment Plan, Exhibit 10.39 to 1996 Form 10-K SEC
as restated and amended to January 1, File No. 1-168.
1997 (the "Savings Plan").*
10.5 Amendment No. 1 to the Savings Plan.* Exhibit 10.12 to 1997 Form 10-K SEC
File No. 1-12981.
10.6 Amendment No. 2 to the Savings Plan.* Exhibit 10.13 to 1997 Form 10-K SEC
File No. 1-12981.
10.7 Amendment No. 3 to the Savings Plan.* Exhibit 10.14 to 1997 Form 10-K SEC
File No. 1-12981.
10.8 Amendment No. 4 to the Savings Plan.* Exhibit 10.8 to 1998 Form 10-K SEC
File No. 1-12981.
10.9 Amendment No. 5 to the Savings Plan.* Exhibit 10.9 to 1998 Form 10-K SEC
File No. 1-12981.
10.10 Amendment No. 6 to the Savings Plan.* Exhibit 10.10 to 1998 Form 10-K SEC
File No. 1-12981.
10.11 Amendment No. 7 to the Savings Plan.* Exhibit 10.11 to 1999 Form 10-K SEC
File No. 1-12981.
10.12 Amendment No. 8 to the Savings Plan.* Exhibit 10.12 to 1999 Form 10-K SEC
File No. 1-12981.
10.13 Amendment No. 9 to the Savings Plan.* Exhibit 10.13 to 1999 Form 10-K SEC
File No. 1-12981.
10.14 Amendment No. 10 to the Savings Plan.* Exhibit 10.14 to 1999 Form 10-K SEC
File No. 1-12981.
10.15 Amendment No. 11 to the Savings Plan.* Exhibit 10.3 to Form 10-Q dated June
30, 2000 SEC File No. 1-12981.
10.16 Amendment No. 12 to the Savings Plan.* Exhibit 10.4 to Form 10-Q dated June
30, 2000 SEC File No. 1-12981.
10.17 Amendment No. 13 to the Savings Plan.* Exhibit 10.17 to 2000 Form 10-K SEC
File No. 1-12981.
10.18 Amendment No. 14 to the Savings Plan.* Exhibit 10.2 to Form 10-Q dated
September 30, 2001 SEC File No.
1-12981.
</Table>
53
<Table>
<Caption>
FILED WITH
EXHIBIT ELECTRONIC
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION
- ------- ----------- ----------------------------------- ----------
10.19 Amendment No. 15 to the Savings Plan.* X
10.20 Reorganization and Distribution Agreement Exhibit (2) to Form 8-K dated
by and between the Company and Ketema, November 30, 1988, SEC File No.
Inc. (the "Reorganization and 1-168.
Distribution Agreement").
10.21 Agreements between the Company and Exhibit 10.56 to 1991 Form 10-K SEC
Ketema, Inc. amending certain provisions File No. 1-168.
of the Reorganization and Distribution
Agreement.
10.22 Benefits Agreement by and between the Exhibit (10)(ss) to 1988 Form 10-K
Company and Ketema, Inc. SEC File No. 1-168.
10.23 Tax Agreement by and between the Company Exhibit (10)(tt) to 1988 Form 10-K
and Ketema, Inc. SEC File No. 1-168.
10.24 Support Services Agreement by and between Exhibit (10)(uu) to 1988 Form 10-K
the Company and Ketema, Inc. SEC File No. 1-168.
10.25 Form of Severance Benefit Agreement Exhibit (10)(ww) to 1989 Form 10-K
between the Company and certain SEC File No. 1-168.
executives of the Company.*
10.26 Form of Supplemental Retirement Benefit Exhibit 10.61 to 1991 Form 10-K SEC
Agreement between the Company and certain File No. 1-168.
executives of the Company, dated as of
May 21, 1991.*
10.27 Supplemental Senior Executive Death Exhibit 10.41 to 1992 Form 10-K SEC
Benefit Plan, effective as of January 1, File No. 1-168.
1992 (the "Senior Executive Plan").*
10.28 Amendment No. 1 to the Senior Executive Exhibit 10.42 to 1992 Form 10-K SEC
Plan.* File No. 1-168.
10.29 Senior Executive Split Dollar Death Exhibit 10.43 to 1992 Form 10-K SEC
Benefit Plan, dated as of December 15, File No. 1-168.
1992.*
10.30 Credit Agreement dated August 2, 1995, Exhibit 4 to Form 10-Q dated
amended and restated as of September 12, September 30, 1996, SEC File No.
1996, among the Company, Various Lending 1-168.
Institutions, Bank of Montreal,
CoreStates Bank, N.A., and PNC Bank,
National Association, as Co-Agents, and
The Chase Manhattan Bank, N.A., as
Administrative Agent (the "Credit
Agreement").
10.31 First Amendment and Consent to the Credit Exhibit 10.1 to Form 8-K dated August
Agreement dated as of May 9, 1997. 7, 1997, SEC File
No. 1-12981.
10.32 Assumption Agreement, dated as of July Exhibit 10.2 to Form 8-K dated August
31, 1997, among the Company, AMETEK and 7, 1997, SEC File
The Chase Manhattan Bank. No. 1-12981.
10.33 Second Amendment to the Credit Agreement Exhibit 10.30 to 1997 Form 10-K SEC
dated as of December 4, 1997. File No. 1-12981.
10.34 Third Amendment to Credit Agreement, Exhibit 10 to Form 10-Q dated June
dated as of June 15, 1998. 30, 1998, SEC File
No. 1-12981.
10.35 Fourth Amendment and Consent to the Exhibit 10 to Form 10-Q dated March
Credit Agreement dated as of March 19, 31, 1999 SEC File No. 1-12981.
1999.
</Table>
54
<Table>
<Caption>
FILED WITH
EXHIBIT ELECTRONIC
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION
- ------- ----------- ----------------------------------- ----------
10.36 Fifth Amendment and Consent to the Credit Exhibit 10.2 to Form 10-Q dated June
Agreement dated as of July 14, 1999. 30, 1999 SEC File No. 1-12981.
10.37 Sixth Amendment and Consent to the Credit Exhibit 10.35 to 2000 Form 10-K SEC
Agreement dated as of September 22, 2000. File No. 1-12981.
10.38 The 1997 Stock Incentive Plan of AMETEK, Exhibit 10.31 to 1997 Form 10-K SEC
Inc. (the "1997 Plan").* File No. 1-12981.
10.39 Amendment No. 1 to the 1997 Plan.* Exhibit 10.35 to 1999 Form 10-K SEC
File No. 1-12981.
10.40 Amendment No. 2 to the 1997 Plan.* Exhibit 10.36 to 1999 Form 10-K SEC
File No. 1-12981.
10.41 Amendment No. 3 to the 1997 Plan.* Exhibit 10.2 to Form 10-Q dated March
31, 2000, SEC File No. 1-12981.
10.42 1999 Stock Incentive Plan of AMETEK, Inc. Exhibit 4.1 to Form S-8 dated June
(the "1999 Plan").* 11, 1999, SEC File No. 333-80449.
10.43 Amendment No. 1 to the 1999 Plan.* Exhibit 4.1 to Form S-8 dated June
11, 1999, SEC File No. 333-80449.
10.44 Amendment No. 2 to the 1999 Plan.* Exhibit 10.3 to Form 10-Q dated March
31, 2000, SEC File No. 1-12981.
10.45 Supplemental Executive Retirement Plan. Exhibit 10.3 to Form 8-K dated August
7, 1997, SEC File No. 1-12981.
10.46 Amendment No. 1 to the Supplemental Exhibit 10.40 to 1999 Form 10-K SEC
Executive Retirement Plan. File No. 1-12981.
10.47 Amendment No. 2 to the Supplemental Exhibit 10.1 to Form 10-Q dated March
Executive Retirement Plan. 31, 2000, SEC File No. 1-12981.
10.48 Stock Purchase Agreement by and between Exhibit 10 to Form 8-K dated January
EG&G Holdings, Inc. and AMETEK, Inc. 22, 1998, SEC File No. 1-12981.
dated as of December 26, 1997.
10.49 Employees' Retirement Plan of AMETEK, Exhibit 10.31 to 1998 Form 10-K SEC
Inc., as restated to January 1, 1998 (the File No. 1-12981.
"Retirement Plan").*
10.50 Amendment No. 1 to the Retirement Plan.* Exhibit 10.43 to 1999 Form 10-K SEC
File No. 1-12981.
10.51 Amendment No. 2 to the Retirement Plan.* Exhibit 10.44 to 1999 Form 10-K SEC
File No. 1-12981.
10.52 Amendment No. 3 to the Retirement Plan.* Exhibit 10.45 to 1999 Form 10-K SEC
File No. 1-12981.
10.53 Amendment No. 4 to the Retirement Plan.* Exhibit 10.46 to 1999 Form 10-K SEC
File No. 1-12981.
10.54 Amendment No. 5 to the Retirement Plan.* Exhibit 10.47 to 1999 Form 10-K SEC
File No. 1-12981.
</Table>
55
<Table>
<Caption>
FILED WITH
EXHIBIT ELECTRONIC
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION
- ------- ----------- ----------------------------------- ----------
10.55 Amendment No. 6 to the Retirement Plan.* Exhibit 10.48 to 1999 Form 10-K SEC
File No. 1-12981.
10.56 Amendment No. 7 to the Retirement Plan.* Exhibit 10.54 to 2000 Form 10-K SEC
File No. 1-12981.
10.57 AMETEK 401(K) Plan for Acquired Exhibit 10.1 to Form 10-Q dated June
Businesses, dated May 1, 1999.* 30, 1999, SEC File No. 1-12981.
10.58 Amendment No. 1 to the AMETEK 401(k) Plan Exhibit 10.50 to 1999 Form 10-K SEC
for Acquired Businesses. File No. 1-12981.
10.59 Amendment No. 2 to the AMETEK 401(k) Plan Exhibit 10.51 to 1999 Form 10-K SEC
for Acquired Businesses. File No. 1-12981.
10.60 Amendment No. 3 to the AMETEK 401(k) Plan Exhibit 10.1 to Form 10-Q dated June
for Acquired Businesses. 30, 2000, SEC File No. 1-12981.
10.61 Amendment No. 4 to the AMETEK 401(k) Plan Exhibit 10.2 to Form 10-Q dated June
for Acquired Businesses. 30, 2000, SEC File No. 1-12981.
10.62 Amendment No. 5 to the AMETEK 401(k) Plan Exhibit 10.1 to Form 10-Q dated
for Acquired Businesses. September 30, 2000, SEC File No.
1-12981.
10.63 Amendment No. 6 to the AMETEK 401(k) Plan Exhibit 10.2 to Form 10-Q dated
for Acquired Businesses. September 30, 2000, SEC File No.
1-12981.
10.64 Amendment No. 7 to the AMETEK 401(k) Plan Exhibit 10.1 to Form 10-Q dated June
for Acquired Businesses. 30, 2001 SEC File No. 1-12981.
10.65 Receivables Purchase Agreement dated as Exhibit 10.1 to Form 10-Q dated
of October 1, 1999 among AMETEK, Inc., September 30, 1999 SEC File No.
Rotron Incorporated and AMETEK 1-12981.
Receivables Corp.
10.66 First Amendment to the Receivables Exhibit 10.1 to Form 10-Q dated March
Purchase Agreement dated as of March 31, 31, 2001 SEC File No. 1-12981.
2001.
10.67 Receivables Sale Agreement dated as of Exhibit 10.2 to Form 10-Q dated
October 1, 1999 among AMETEK Receivables September 30, 1999 SEC File No.
Corp., AMETEK, Inc., ABN AMRO Bank N.V., 1-12981.
and Amsterdam Funding Corporation.
10.68 First Amendment to the Receivables Sale Exhibit 10.3 to Form 10-Q dated
Agreement dated as of September 29, 2000. September 30, 2000, SEC File No.
1-12981.
10.69 Second Amendment to the Receivables Sale Exhibit 10.65 to 2000 Form 10-K SEC
Agreement dated as of October 31, 2000. File No. 1-12981.
10.70 Third Amendment to the Receivables Sale Exhibit 10.66 to 2000 Form 10-K SEC
Agreement dated as of November 28, 2000. File No. 1-12981.
10.71 Fourth Amendment to the Receivables Sales Exhibit 10.2 to Form 10-Q dated March
Agreement dated as of March 31, 2001. 31, 2001 SEC File No. 1-12981.
10.72 Fifth Amendment to the Receivables Sale X
Agreement dated as of September 28, 2001.
</Table>
56
<Table>
<Caption>
FILED WITH
EXHIBIT ELECTRONIC
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION
- ------- ----------- ----------------------------------- ----------
10.73 Sixth Amendment to the Receivables Sales X
Agreement dated as of November 30, 2001.
10.74 AMETEK, Inc. Deferred Compensation Plan. Exhibit 10.3 to Form 10-Q dated
September 30, 1999 SEC File No.
1-12981.
10.75 1997 Stock Incentive Plan Restricted Exhibit 10.68 to 2000 Form 10-K SEC
Stock Agreement dated December 15, 2000. File No. 1-12981.
10.76 1999 Stock Incentive Plan Restricted Exhibit 10.69 to 2000 Form 10-K SEC
Stock Agreement dated December 15, 2000. File No. 1-12981.
10.77 Termination and Change of Control Exhibit 10.70 to 2000 Form 10-K SEC
Agreement between AMETEK, Inc. and a File No. 1-12981.
named executive dated December 15, 2000.
10.78 Employment agreement between AMETEK, Inc. Exhibit 10.71 to 2000 Form 10-K SEC
and a Former executive, dated January 1, File No. 1-12981.
2001.
10.79 Credit Agreement dated as of September Exhibit 10.1 to Form 10-Q dated
17, 2001, among the Company, Various September 30, 2001 SEC File No.
Lending Institutions, First Union 1-12981.
National Bank and PNC Bank N.A., as
Syndication Agents, Bankers Trust Company
as Document Agent, The Chase Manhattan
Bank, as Administrative Agent.
10.80 First Supplemental indenture to Credit X
Agreement dated as of September 17, 2001.
12 Statement regarding computation of ratio X
of earnings to fixed charges.
21 Subsidiaries of the Registrant. X
23 Consent of Independent Auditors. X
</Table>
- ---------------
* Management contract or compensatory plan required to be filed pursuant to Item
601 of Regulation S-K.
57