SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Exchange Act Rule 14a-11 or 14a-12
AMETEK, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notice of 2002
Annual Meeting
Proxy Statement
Annual Financial Statements
and Review of Operations
[AMETEK LOGO]
TABLE OF CONTENTS
Page
----
Notice of Annual Meeting of Shareholders
Proxy Statement........................................................................................ 1
Solicitation of Proxies........................................................................... 1
Voting Rights..................................................................................... 1
Multiple Shareholders Sharing the Same Address.................................................... 2
Proposals to be Voted Upon........................................................................ 2
Election of Directors............................................................................. 10
Board Committees.................................................................................. 11
Audit Committee Report............................................................................ 12
Compensation of Directors......................................................................... 13
Stock Ownership................................................................................... 14
Other Beneficial Ownership........................................................................ 16
Executive Officers................................................................................ 17
Executive Compensation............................................................................ 18
Compensation Committee Report on Executive Compensation........................................... 19
Stock Options and Stock Appreciation Rights....................................................... 23
Defined Benefit and Actuarial Plans............................................................... 24
Stock Performance Graph........................................................................... 26
Compensation Committee Interlocks and Insider Participation....................................... 27
Certain Relationships and Related Transactions.................................................... 27
Compliance with Section 16(a) of the Securities Exchange Act of 1934.............................. 27
Employment Contracts and Termination, Severance and Change-of-Control Arrangements................ 27
Shareholder Proposals for the 2003 Proxy Statement................................................ 29
Appendix
2002 Stock Incentive Plan of AMETEK, Inc.......................................................... A-1
Index to Annual Financial Information and Review of Operations.................................... B-1
[AMETEK LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 21, 2002
3:00 p.m. Eastern Daylight Time
J. P. Morgan Chase & Co.
270 Park Avenue
11th Floor Conference Center
New York, NY 10017
Dear Fellow Shareholder:
It is my pleasure to invite you to attend the 2002 Annual Meeting of
Shareholders of AMETEK, Inc. The following items of business will be discussed
during the Annual Meeting:
1. Re-election of three directors: Sheldon S. Gordon, Frank S.
Hermance and David P. Steinmann, each for a term of three
years;
2. Approval of the adoption by AMETEK's Board of Directors of the
2002 Stock Incentive Plan of AMETEK, Inc.;
3. Ratification of the appointment of Ernst & Young LLP as
independent auditors for 2002;
4. Transaction of any other business properly brought before the
Annual Meeting.
Your vote is important. You can vote in one of four ways: (1) by computer using
the Internet, (2) by Touch-Tone telephone using a toll-free number, (3) by
marking, signing and dating your proxy card, and returning it promptly in the
enclosed envelope, or (4) by casting your vote in person at the Annual Meeting.
Directions to J. P. Morgan Chase & Co. are located on the back cover of the
attached Proxy Statement.
Please refer to your proxy card for specific proxy voting instructions or visit
our Web site at WWW.AMETEK.COM for general questions and answers about proxy
voting.
We have included the detailed annual financial information relating to our
business and operations in Appendix B to the Proxy Statement. We also have
prepared a Summary Annual Report, which is enclosed.
We hope the convenience and cost savings of voting by computer or by telephone
will attract you. A sizable electronic "turnout" would save your Company
significant return-postage fees.
On behalf of the management and directors of AMETEK, Inc., I thank you for your
continued support and confidence. I look forward to seeing you at the Annual
Meeting.
Sincerely,
Frank S. Hermance
Chairman of the Board
and Chief Executive Officer
Dated: Paoli, Pennsylvania
April 10, 2002
[AMETEK LOGO]
Principal executive offices
37 North Valley Road
Building 4
P.O. Box 1764
Paoli, Pennsylvania 19301-0801
PROXY STATEMENT
SOLICITATION OF PROXIES
The Board of Directors of AMETEK, Inc. (AMETEK) solicits the accompanying proxy
for use at the Annual Meeting of Shareholders to be held on May 21, 2002, and at
any and all adjournments thereof.
AMETEK has retained Georgeson Shareholder Communications Inc. to assist in the
solicitation of votes for a fee of $7,500, plus reasonable expenses. AMETEK will
reimburse brokerage houses and other custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses for forwarding proxy and solicitation
material to the owners of Common Stock. The above Notice of Annual Meeting, this
Proxy Statement, and the proxy card with voting instructions are being
distributed on or about April 10, 2002.
VOTING RIGHTS
Shareholders as of the close of business on March 29, 2002 (the Record Date) are
entitled to vote at the Annual Meeting. Each share of Common Stock is entitled
to one vote. As of the Record Date, 32,972,319 shares of AMETEK's Common Stock
were issued and outstanding. In addition, AMETEK held 584,641 issued shares in
its treasury, which, while so held, cannot be voted. A majority of the
outstanding shares of Common Stock, present or represented by proxy, constitutes
a quorum for the purpose of adopting proposals at the Annual Meeting. A
shareholder who is present or represented by proxy at the Annual Meeting and who
abstains from voting, and broker non-votes (shares held by a broker or nominee
who is present or represented at the meeting, but with respect to which the
broker or nominee is not empowered to vote on proposals) will be counted for
purposes of determining the quorum, but will not be counted as votes for or
against the proposals. A shareholder may revoke a proxy any time before the
Annual Meeting. If a proxy is properly submitted and is not revoked by the
shareholder, the shares it represents will be voted at the Annual Meeting in
accordance with the instructions of the shareholder. If the shareholder submits
the proxy without making selections, the proxy will be voted in favor of the
election as directors of the nominees listed on the following page and in favor
of the appointment of independent auditors.
You will receive two separate proxy mailings if you own shares independently and
also have shares credited to your account under the AMETEK Retirement and
Savings Plan or the AMETEK 401(k) Plan for Acquired Businesses, held in custody
by the trustee. Shares for which no instructions are received by the trustee
will be voted in the same proportion as the shares for which the trustee
receives instructions. In addition, you will receive more than one proxy card if
your shares are in more than one account or are not all under the same
registration in AMETEK stock records. To ensure that all your shares are
counted, please vote all proxies online, by telephone, by mail, or in person at
the Annual Meeting.
Representatives of American Stock Transfer & Trust Company will tabulate the
votes and act as inspectors of election.
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MULTIPLE SHAREHOLDERS SHARING THE SAME ADDRESS
Registered and street-name shareholders who reside at a single address are
receiving only one annual report and proxy statement at that address unless we
have received contrary instructions. This practice is known as "householding"
and is designed to reduce duplicate printing and postage costs. However, if a
shareholder residing at such an address wishes to receive a separate annual
report or proxy statement in the future, he or she may contact our transfer
agent, American Stock Transfer & Trust Company, toll-free at 1-877-777-0800, or
in writing at American Stock Transfer & Trust Company, Shareholder Services, 59
Maiden Lane, New York, NY 10038. Also, if you receive multiple copies of our
annual report and proxy statement, you can request householding by contacting
American Stock Transfer & Trust Company at the address above.
PROPOSALS TO BE VOTED UPON
1. ELECTION OF DIRECTORS
Nominees for re-election this year are Sheldon S. Gordon, Frank S. Hermance and
David P. Steinmann. Each has consented to serve a three-year term.
All proxies received will be voted for the re-election of the nominees unless
directed otherwise in the proxy. Each nominee needs the affirmative vote of a
plurality of shares represented either in person or by proxy at the Annual
Meeting and entitled to vote. While there is no reason to believe that it will
occur, if any director is unable to stand for re-election, shares represented by
proxies may be voted for a substitute director.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
2. APPROVAL OF THE 2002 STOCK INCENTIVE PLAN OF AMETEK, INC.
The Board of Directors adopted and approved the 2002 Stock Incentive Plan of
AMETEK, Inc. (the "2002 Plan") effective March 13, 2002, subject to its approval
by AMETEK's stockholders. In the event that the 2002 Plan is not approved by
AMETEK's stockholders, the 2002 Plan shall be void and of no force or effect.
Approval of the 2002 Plan requires the affirmative vote of a majority of the
votes cast at the Annual Meeting.
DESCRIPTION OF THE 2002 PLAN
The purpose of the 2002 Plan is to encourage key employees and directors to
acquire a larger proprietary interest in AMETEK and to provide incentives to
maximize the long-term growth of AMETEK. AMETEK anticipates that this 2002 Plan
will aid AMETEK in securing and retaining key employees.
A summary of the material features of the 2002 Plan appears below. The full text
of the 2002 Plan is set forth in Appendix A and should be referred to for a
complete description of its provisions.
ADMINISTRATION
The 2002 Plan is administered by a committee (the "Stock Option Committee"),
comprised of two or more directors of AMETEK who are not also employees of
AMETEK ("Non-Employee Directors"). The Stock Option Committee has full authority
to interpret the 2002 Plan and to establish rules for its administration.
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TYPES OF INCENTIVE AWARDS
The Stock Option Committee may grant awards under the 2002 Plan in the form of
options, rights, restricted stock awards and/or phantom stock awards. Options
may be granted as non-qualified stock options or as options qualifying as
incentive stock options under the Internal Revenue Code of 1986 (the "Code"), as
amended.
LIMITATIONS ON AWARDS
Under the 2002 Plan, the aggregate number of shares of Common Stock that may be
issued pursuant to stock options, restricted stock awards, phantom stock awards
(other than any phantom stock awards which are payable only in cash), or stock
appreciation rights may not exceed 2,000,000 shares. A maximum of 15% of the
aggregate number of shares, or 300,000 shares, may be awarded to any single
individual. A maximum of 10% of the aggregate number of shares, or 200,000
shares, may be awarded as restricted shares, stock appreciation rights, phantom
stock awards, and phantom stock units. A maximum of 3% of the aggregate number
of shares or 60,000 shares, may be awarded, in the aggregate, as restricted
stock awards with vesting periods of less than 3 years. A maximum of 10% of the
aggregate number of shares or 200,000 shares, may be awarded to Non-Employee
Directors during the duration of the 2002 Plan. In the event AMETEK adopts a
stock purchase plan for the benefit of its employees, the shares of Common Stock
awarded under that plan shall further reduce the aggregate number of shares
available under this Plan. Each award may also be subject to provisions to
assure that any exercise or disposition of shares of Common Stock will not
violate securities laws.
WHO MAY PARTICIPATE IN THE PLAN
Persons who may receive incentive awards under the Plan are selected by the
Stock Option Committee, in its discretion, from among the key employees
(including officers who are also directors) of AMETEK and its affiliates,
subject to the terms and conditions of the Plan. The current eligible group
consists of approximately 250 persons.
In determining the amount and form of an award, consideration is given to the
functions and responsibilities of the key employee, his or her potential
contributions to the success of AMETEK, and other factors deemed relevant by the
Stock Option Committee.
Under the 2002 Plan each Non-Employee Director whose initial election to the
Board is on or after the date of the adoption of the 2002 Plan (other than a
Director who is a member of the law firm retained as general outside counsel to
AMETEK) will be granted a non-qualified stock option of 20,000 shares. The
option shall expire seven years from the date of grant and shall be exercisable
by the Non-Employee Director after the first anniversary of the date of grant,
during each of the four succeeding twelve-month periods in the amount of 5,000
shares. In addition, the Committee in its sole discretion may grant to any
Non-Employee Director (other than a Director who is a member of the law firm
retained as general outside counsel to AMETEK) a Non-Qualified Stock Option to
purchase a number of shares determined by the Committee.
GRANT OF OPTIONS
The Stock Option Committee has the sole discretion to determine (i) the number
of options granted to any eligible person under the 2002 Plan, (ii) the number
of shares of Common Stock subject to the options, except as limited by the terms
of the 2002 Plan, (iii) whether to grant related rights, and (iv) whether to
grant the options as incentive stock options or non-qualified stock options. The
aggregate fair market value of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by a participant
during any calendar year (under all stock plans of AMETEK and it affiliates)
cannot exceed $100,000; to the extent this limit is exceeded, the options shall
be treated as non-qualified stock options.
OPTION EXERCISE PRICE
The purchase price of shares of Common Stock issuable upon the exercise of
incentive stock options or non-qualified stock options will be determined by the
Stock Option Committee at the time of grant; however, the purchase price may not
be less than 100% of the fair market value of the shares on the date of grant.
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EXERCISABILITY OF OPTIONS
Options may be exercisable as determined by the Stock Option Committee at the
time of grant but in no event after seven years from the date of grant.
PAYMENT OF OPTION EXERCISE PRICE AND ISSUANCE OF SHARES OF COMMON STOCK
The option's exercise price will be payable by any one or more of the following
methods: in cash, by check, by delivery to AMETEK of shares already owned by the
option holder for at least six months, or by such other methods as the Stock
Option Committee may permit from time to time.
TERMS AND CONDITIONS OF RIGHTS
Rights may be granted either independently of or in connection with options
(either at the time of grant or at any time during the term of the Option).
Rights granted in connection with options shall be exercisable or transferable
(a) only to the extent that the related option is exercisable or transferable
and (b) either in conjunction with, or as an alternative to, the exercise of the
related options. A "right" is the right to receive an amount equal to the excess
(or a portion of the excess, as determined by the Stock Option Committee at the
time of grant) of the fair market value of a share of Common Stock on the date
of exercise over (i) the fair market value of a share on the date of grant, in
the case of rights granted independently of any option, or (ii) the exercise
price of the related option, in the case of rights granted in connection with an
option.
The holder of conjunctive rights granted in connection with options will be
entitled to receive payment at the time, and to the extent that, related options
are exercised. The holder of alternative rights granted in connection with
options will be entitled to exercise the rights by surrendering the related
options, or any portion thereof to the extent not previously exercised, with
respect to the number of shares as to which the rights are exercised, and to
receive payment therefor. Such options, to the extent surrendered, shall be
deemed exercised and the number of shares with respect to which they were
surrendered shall not be available for future grants of incentive awards. Rights
granted independently of any related options shall be exercisable as determined
by the Stock Option Committee, but in no event after seven years from the date
of grant. The amount payable upon the exercise of conjunctive rights granted in
connection with options in no event shall exceed two times the exercise price
paid by the holder upon the exercise of the related options. In addition, the
Stock Option Committee, at the time of grant, otherwise may limit the amount
payable upon the exercise of any rights.
At the election of the holder, but subject to disapproval of the election by the
Stock Option Committee, distribution of the amount payable upon the exercise of
alternative rights granted in connection with an option or options may be made
in shares of Common Stock valued at their fair market value on the date of
exercise of the rights, or in cash, or in a combination of cash and shares.
Distribution of amounts payable upon the exercise of conjunctive rights or
rights granted without relationship to an option shall be made solely in cash.
TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
A "restricted stock award" is the grant by the Stock Option Committee of shares
of Common Stock, or the grant of the right to purchase shares of Common Stock at
a price determined by the Stock Option Committee at the time of grant. Such
shares, when and if issued, shall be subject to transfer restrictions determined
by the Stock Option Committee at the time of grant in its sole discretion, and
shall be subject to substantial risk of forfeiture unless and until specific
conditions established by the Stock Option Committee at the time of grant are
met. The conditions may be based on continuing employment or achieving
pre-established performance objectives, or both. The shares may not be sold,
transferred or otherwise alienated or hypothecated until the restrictions on
transfer thereof expire or are removed, and each certificate evidencing a
restricted stock award shall bear a legend making appropriate reference to the
restrictions imposed. No restricted shares shall have a vesting period of less
than three years except on the occurrence of such special circumstance or event
as, in the opinion of the Stock Option Committee, merits special consideration.
Moreover, the Stock Option Committee may impose such other conditions on the
restricted shares as it may deem advisable. Unless the holder of a restricted
stock award ceases to be an employee or director of AMETEK (for reasons other
than those described below under "Termination of Employment"), the transfer
restrictions imposed on restricted stock awards will lapse in accordance with a
schedule or such other conditions as shall be determined by the Stock Option
Committee at the time of grant.
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Certificates for the shares granted or purchased pursuant to restricted stock
awards will be issued in the names of the holders thereof, but the certificates
will be retained by AMETEK for the holders' accounts and will not be delivered
to the holders until the restrictions imposed on the transfer of the shares
shall have lapsed. The holder of a restricted stock award will have the right to
vote the shares registered in his or her name. Dividends and distributions
(including stock dividends and distributions in the event of a split-up,
conversion, exchange, reclassification or substitution) with respect to the
shares may be retained by AMETEK for the holder's account, to be distributed to
the holder at the time, and to the extent that, the restrictions imposed on the
transfer of the shares shall have lapsed.
TERMS AND CONDITIONS OF PHANTOM STOCK AWARDS
A "phantom stock award" is the grant by the Stock Option Committee of a right to
receive payment from AMETEK, upon the expiration of a vesting period, in an
amount equal to (i) the fair market value of a share of Common Stock on the date
of the expiration, multiplied by (ii) the number of units of phantom stock
credited to the holder pursuant to the award and as to which the vesting period
has expired. Payment of the amount may be made in the form of cash, or shares,
or a combination of cash and shares, pursuant to such terms and conditions as
are determined by the Stock Option Committee. Unless the holder of a phantom
stock award ceases to be an employee of AMETEK (for reasons other than those
described below under "Termination of Employment"), the vesting period generally
expires in accordance with a schedule or other conditions as are determined by
the Stock Option Committee at the time of grant.
The Stock Option Committee may impose such other conditions as it may deem
advisable on any shares which may be issued pursuant to a phantom stock award
under this 2002 Plan. The holder of a phantom stock award is credited with
amounts equal to the dividends payable with respect to the same number of shares
as the number of phantom stock units credited under the award; however, the
dividend-equivalent amounts may be retained by AMETEK for the holder's account,
to be distributed to the holder at the time, and to the extent that, the vesting
period with respect to the number of units shall have expired.
STOCK APPRECIATION RIGHTS ("SARS")
A stock appreciation right may be granted either independently or in connection
with a stock option (either at the time of grant or at any time during the term
of the stock option). A stock appreciation right granted in connection with a
stock option shall be exercisable or transferable (a) only to the extent that
the related stock option is exercisable or transferable and (b) either in
conjunction with, or as an alternative to, the exercise of the related option. A
stock appreciation right is the right to receive an amount equal to the excess
(or a portion of the excess, as determined by the Stock Option Committee), of
the fair market value of a share of Common Stock on the date of exercise over
(i) the fair market value of a share of Common Stock on the date of grant, in
the case of a stock appreciation right granted independently of any stock
option, or (ii) the exercise price of the related stock option, in the case of a
stock appreciation right granted in connection with a stock option. The holder
of a conjunctive stock appreciation right granted in connection with a stock
option is entitled to receive payment at the time, and to the extent that the
stock option is exercised. The holder of an alternative stock appreciation right
granted in connection with a stock option is entitled to exercise such right by
surrendering the stock option, or any portion thereof to the extent unexercised,
with respect to the number of shares as to which such stock appreciation right
is exercised, and to receive payment therefor. Such stock option, to the extent
surrendered, shall be deemed exercised and the number of shares with respect to
which it was surrendered shall not be available for future grants of awards
under the 2002 Plan. A stock appreciation right granted independently of any
related stock option is exercisable as determined by the Stock Option Committee,
but in no event after seven years from the date of grant. The amount payable
upon the exercise of a conjunctive stock appreciation right granted in
connection with a stock option in no event shall exceed two times the exercise
price paid by the holder upon the exercise of the option. In addition, the Stock
Option Committee otherwise may limit the amount payable upon the exercise of any
stock appreciation right. At the election of the holder, but subject to
disapproval of the election by the Stock Option Committee, distribution of the
amount payable upon the exercise of a stock appreciation right may be made in
shares of Common Stock, valued at their fair market value on the date of
exercise of the stock appreciation right, or in cash, or in a combination of
cash and shares.
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ADJUSTMENT
If there shall be declared and paid a stock dividend, or if the shares shall be
split-up, converted, exchanged, reclassified or in any way substituted for, an
appropriate and proportionate adjustment will be made in the price, number
and/or kind of security that is the subject of an outstanding incentive award,
without changing the aggregate purchase price or value of the outstanding
incentive awards. In other events involving a change in AMETEK's corporate
structure, the Stock Option Committee may make such equitable adjustments to
incentive awards as may be necessary to prevent dilution or enlargement of the
rights of the holders thereof.
ASSIGNABILITY
Incentive awards and all rights thereunder are non-assignable and
non-transferable except to the extent that the estate of a deceased holder is
entitled thereto. Non-qualified stock options may be transferred to family
members or other persons or entities pursuant to such terms as the Stock Option
Committee may provide for in the non-qualified stock option certificate.
TERMINATION OF EMPLOYMENT
Options and rights become immediately exercisable in full upon the retirement of
the holder after reaching the age of 65 (provided the holder has been in the
employ of AMETEK and/or its Affiliates for at least two years), upon the death
of the holder while in the employ of AMETEK, upon the holder's termination of
employment in connection with a Change in Control (as defined in the 2002 Plan),
or upon the occurrence of such special circumstances as in the opinion of the
Stock Option Committee merit special consideration.
Options and rights terminate following the holder's termination of employment
except that the holder shall have until the expiration of three months from the
cessation of the holder's employment with AMETEK and its Affiliates (without
regard to any period of severance) to exercise any unexercised Option and/or
rights the holder could have exercised on the day on which he left the employ of
AMETEK and Affiliates. The exercise period is extended to six months in the case
of the death of the holder, in which case the option and/or rights would be
exercisable by the holder's estate. The Stock Option Committee may, in its sole
discretion, provide, with respect to an option and/or rights granted to any
individual (and either at the time of grant of the option and/or rights or by an
amendment thereafter to any such outstanding option and/or rights), that the
post-termination or post-death exercise period of time specified by the
Committee be longer than the period which would otherwise be applicable, but in
no event beyond the expiration of the stated term of the option and/or rights.
All restrictions with respect to restricted stock awards will immediately cease
upon the death or disability of the holder, upon the holder's termination of
employment in connection with a Change in Control (as defined in the 2002 Plan),
or upon the occurrence of such special circumstances as in the opinion of the
Stock Option Committee merit special consideration.
The vesting period with respect to phantom stock awards will completely expire,
and all amounts will become payable, immediately upon the death or disability of
the holder, upon the holder's termination of employment in connection with a
Change in Control (as defined in the 2002 Plan) or upon the occurrence of such
special circumstances as in the opinion of the Stock Option Committee merit
special consideration.
COMPLIANCE WITH SECURITIES LAWS
Before issuing and delivering any shares to the holder of an incentive award,
AMETEK may, to the extent required to assure compliance with applicable
securities laws: (i) require the holder to give satisfactory assurances that the
shares are being purchased for investment and not with a view to resale or
distribution, and will not be transferred in violation of applicable securities
laws; (ii) restrict the transferability of the shares and require a legend to be
placed on all certificates representing the shares; and (iii) condition the
exercise of an incentive award or the issuance and delivery of shares pursuant
thereto upon the listing, registration or qualification of the shares covered by
the incentive award on a securities exchange or under applicable securities
laws.
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AMENDMENT AND TERMINATION OF THE 2002 PLAN
The Board of Directors or the Stock Option Committee at any time may withdraw or
amend the 2002 Plan and, with the consent of the affected holder of an
outstanding incentive award, at any time, may withdraw or amend the terms and
conditions of outstanding incentive awards. Any amendment which would increase
the number of shares issuable pursuant to incentive awards, reprice any
outstanding incentive award, or with respect to any individual, change the class
of employees or directors to whom incentive awards may be granted, or in any way
materially amend the 2002 Plan shall be subject to the approval of the
stockholders of AMETEK within one year of the amendment. A determination of the
Stock Option Committee as to any question which may arise with respect to the
interpretation of the provisions of the 2002 Plan and any incentive awards shall
be final. The Stock Option Committee may authorize and establish such rules,
regulations and revisions thereof, not inconsistent with the provisions of the
2002 Plan, as it may deem advisable to make the 2002 Plan and any incentive
awards effective or to provide for their administration, and may take such other
action with regard to the 2002 Plan and any incentive awards as it shall deem
desirable to effectuate their purpose.
The 2002 Plan does not have a termination date; however, no incentive stock
option may be granted under the 2002 Plan after March 12, 2012.
MARKET VALUE OF SHARES
The shares of AMETEK's Common Stock are listed on the New York Stock Exchange
and the Pacific Stock Exchange. The market price per share at the close of
business on March 28, 2002 was $37.21.
FEDERAL TAX CONSEQUENCES
Incentive Stock Options
The Federal income tax consequences to an employee who receives incentive stock
options, under current law, generally will be as follows:
An employee will not realize any income upon the grant or exercise of an
incentive stock option. If the employee disposes of the shares acquired upon the
exercise of an incentive stock option at least two years after the date the
option is granted and at least one year after the shares are transferred to him
or her, the employee will realize long-term capital gain in an amount equal to
the excess, if any, of his or her selling price for the shares over the option
exercise price. In such case, AMETEK will not be entitled to any tax deduction
resulting from the issuance or sale of the shares. If the employee disposes of
the shares acquired upon the exercise of an incentive stock option prior to the
expiration of two years from the date the option is granted, or one year from
the date the shares are transferred to him or her, any gain realized will be
taxable at that time as follows: (a) as ordinary income to the extent of the
difference between the option exercise price and the lesser of the fair market
value of the shares on the date the option was exercised or the amount realized
from the disposition, and (b) as capital gain to the extent of any excess, which
gain shall be treated as short-term or long-term capital gain depending upon the
holding period of the shares. In such case, AMETEK may claim an income tax
deduction (as compensation) for the amount taxable to the employee as ordinary
income.
In general, the difference between the fair market value of the shares at the
time the incentive stock option is exercised and the option exercise price will
constitute an item of adjustment for purposes of determining alternative minimum
taxable income and, under certain circumstances, may be subject, in the year in
which the option is exercised, to the alternative minimum tax.
If an employee uses shares which he or she already owns to pay, in whole or in
part, the exercise price for shares acquired pursuant to an incentive stock
option, (a) the holding period for the newly issued shares equal in value to the
old shares which were surrendered upon the exercise shall include the period
during which the old shares were held, (b) the employee's basis in the newly
issued shares will be the same as his or her basis in the old shares surrendered
and (c) no gain or loss will be recognized by the employee on the old shares
surrendered. However, if an employee uses shares previously acquired pursuant to
the exercise of an incentive stock option to pay all or part of the exercise
price under an incentive stock option, the tender will constitute a disposition
of the previously acquired shares for purposes of the one-year (or two-year)
holding period requirement applicable to the incentive stock option and the
tender may be treated as a taxable exchange.
7
Non-Qualified Stock Options
The Federal income tax consequences to an employee or director who receives
non-qualified stock options, under current law, generally will be as follows:
An individual will not realize any income at the time the option is granted. The
employee, if he or she is not a director, officer or beneficial owner of more
than 10% of the outstanding shares of AMETEK (hereinafter, a "director, officer
or principal stockholder"), will realize income, at the time he or she exercises
the option, in an amount equal to the amount by which the then fair market value
of the shares acquired pursuant to the exercise of the option exceeds the price
paid for the shares. If a director, officer or principal stockholder receives
shares pursuant to the exercise of such an option, he or she will realize
ordinary income only on the earlier of (i) six months after the date of
exercise, or (ii) the date on which he or she can sell the shares at a profit
without being subject to liability under Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), at which time he or she
will be subject to tax on the difference between the then fair market value of
the shares and the price paid for them. Alternatively, a director, officer or
principal stockholder who would not otherwise be subject to tax on the value of
his or her shares as of the date they were acquired can file a written election
with the Internal Revenue Service, no more than 30 days after the shares are
transferred to him or her, to be taxed as of the date of transfer. The employee
then will realize income in a total amount equal to the amount by which the fair
market value of the shares, as of the date he or she acquired them, exceeds the
price paid for the shares.
All income realized upon the exercise of a non-qualified stock option will be
taxed at ordinary income rates. AMETEK will be entitled to a tax deduction (as
compensation) for the amount taxable to an employee (including a director,
officer and principal stockholder) upon the exercise of a non-qualified stock
option, as described above, in the same year as those amounts are taxable to the
employee.
Shares issued pursuant to the exercise of a non-qualified stock option generally
will constitute a capital asset in the hands of an employee (including a
director, officer or principal stockholder) and will be eligible for capital
gain or loss treatment upon any subsequent disposition. The holding period of an
employee (including a director, officer or principal stockholder) will commence
upon the date he or she recognizes income with respect to the issuance of the
shares, as described above. The employee's basis in the shares will be equal to
the greater of their fair market value as of that date or the amount paid for
the shares. If, however, an employee uses shares which he or she already owns to
pay, in whole or in part, the exercise price for shares acquired pursuant to the
exercise of a non-qualified stock option, (a) the holding period for the newly
issued shares equal in value to the old shares which were surrendered upon the
exercise shall include the period during which the old shares were held, (b) the
employee's basis in the newly issued shares will be the same as his or her basis
in the surrendered shares, (c) no gain or loss will be realized by the employee
on the old shares surrendered, and (d) the employee will realize ordinary income
in an amount equal to the fair market value of the additional shares received
over and above the fair market value of the old shares surrendered.
Restricted Stock
The Federal income tax consequences to an employee or director who receives
restricted stock awards, under current law, generally will be as follows:
An employee or director will not realize any income when the right to acquire
shares subject to restricted stock awards ("Restricted Shares") is granted to
him or her, or when the certificates for the Restricted Shares themselves are
registered in his or her name. The employee or director will realize ordinary
income as and when the Restricted Shares are no longer subject to a substantial
risk of forfeiture (which risk of forfeiture includes the restrictions imposed
by Section 16(b) of the Exchange Act), in an amount equal to the difference
between the fair market value of the Restricted Shares as of such date and the
price, if any, he or she paid for the shares. Alternatively, the employee or
director can file a written election with the Internal Revenue Service, no more
than 30 days after the certificates for the Restricted Shares are issued, to be
taxed as of the date of issuance on the difference between the then fair market
value of the Restricted Shares and the price, if any, he or she paid for the
shares. Once the employee or director has realized ordinary income with respect
to the Restricted Shares, any subsequent increase in the value of the Restricted
Shares generally will be taxed when the shares are sold as long-term or
short-term capital gain, depending on how long the Restricted Shares are held.
The employee's or director's holding period with respect to the Restricted
Shares will begin on the date
8
he or she realizes ordinary income with respect to the Restricted Shares and the
basis in the shares will be equal to their then fair market value. AMETEK will
be entitled to a tax deduction when, and to the extent, ordinary income is
realized by the employee or director with respect to the shares. Any dividends
or other distributions paid on the Restricted Shares generally will be taxable
when distributed to the employee or director.
Rights and Phantom Stock Awards
An employee will be subject to tax, at ordinary income rates, on the amount of
cash and the fair market value of any property received by him or her upon the
exercise of any rights or phantom stock award. AMETEK is entitled to a deduction
for the amount includible in the employee's income.
Section 280G
In addition to the Federal income tax consequences discussed above, Section 280G
of the Code provides that if an officer, stockholder or highly compensated
individual receives a payment which is in the nature of compensation and which
is contingent upon a change in control of the employer, and such payment equals
or exceeds three times his or her "base salary" (as defined in Section 280G),
then any amount received in excess of base salary shall be considered an "excess
parachute payment." Under certain circumstances, incentive awards may give rise
to excess parachute payments. If so, then in addition to any income tax which
would otherwise be owed in connection with such payment, the individual will be
subject to an excise tax equal to 20% of such excess payment, and AMETEK will
not be entitled to any tax deduction to which it would have been entitled with
respect to such excess parachute payment.
Section 162(m)
For purposes of Section 162(m) of the Code, as described below in the
Compensation Committee Report on Executive Compensation, compensation which is
performance-based is not counted as subject to the deductibility limitations.
Stock options and stock appreciation rights having an exercise price or base
value equal to the fair market value of the Common Stock on the date of grant,
granted under the 2002 Plan, are intended to permit the full deduction by
AMETEK, by qualifying income pursuant to such stock options and stock
appreciation rights as performance-based compensation and, therefore, exempt
from the limitations of Section 162(m). Income pursuant to restricted stock
awards and phantom stock awards would be subject to the deductibility
limitations of Section 162(m).
THE FOREGOING SUMMARY WITH RESPECT TO FEDERAL INCOME TAXATION IS NOT INTENDED TO
BE COMPLETE AND DOES NOT TAKE INTO ACCOUNT STATE TAX IMPLICATIONS. REFERENCE IS
MADE TO THE APPLICABLE PROVISIONS OF THE CODE.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
3. APPOINTMENT OF INDEPENDENT AUDITORS
Acting on the recommendation of the audit committee, the Board of Directors has
approved the reappointment of the firm of Ernst & Young LLP as independent
auditors for the fiscal year 2002.
Representatives of Ernst & Young LLP will attend the Annual Meeting. They will
have an opportunity to make a statement, if they desire, and be available to
answer appropriate questions. The shareholders are requested to signify their
approval of the appointment.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
4. OTHER MATTERS
As of this date, the Board of Directors is not aware of any matters that may
come before the Annual Meeting other than those set forth above. However, your
proxy confers discretionary authority to the Board of Directors to vote on any
other business that may properly come before the Annual Meeting, and any
adjournments of the Annual Meeting.
9
ELECTION OF DIRECTORS
At the time of this Proxy Statement, the Board of Directors of AMETEK consists
of eight members, seven of whom are non-employee directors. The Board is divided
into three classes with staggered terms so that the term of one class expires at
each Annual Meeting of Shareholders.
CLASS II: NOMINEES FOR ELECTION AT THIS ANNUAL MEETING FOR TERMS EXPIRING IN
2005:
SHELDON S. GORDON Chairman of Union Bancaire Privee
Director since 1989 Holdings, Inc. and affiliated entities
since May 1996. Director of
Anangel-American Shipholdings Limited,
the Holland Balanced Fund, Union Bancaire
Privee and Gulfmark Offshore, Inc. Age
66.
FRANK S. HERMANCE Chairman of the Board and Chief Executive
Director since 1999 Officer of AMETEK since January 1, 2001.
President and Chief Executive Officer
from September 1999 to January 2001.
President and Chief Operating Officer
from November 1996 to September 1999.
Director of CTB International Corp. Age
53.
DAVID P. STEINMANN A Managing Director of American
Director since 1993 Securities, L.P. and an executive officer
in the corporate general partner of
several affiliated entities. Age 60.
CLASS III: DIRECTORS WHOSE TERMS CONTINUE UNTIL 2003:
HELMUT N. FRIEDLAENDER Private investor. Age 88.
Director since 1955
JAMES R. MALONE Founder and Managing Director of Bridge
Director since 1994 Associates LLC since June 2000. Chairman
of the Board since December 1996 and
Chief Executive Officer since May 1997 of
Health-Mor Industries. Chairman of the
Board of Anchor Resolution Corp.
(formerly Anchor Glass Container Corp.)
since January 1996. Partner and Managing
Director of Rhone Group LLC from July
1998 to August 1999. Chairman of the
Board of Intek Capital Corp. since
September 1990. Director of AmSouth Bank
N.A. Age 59.
ELIZABETH R. VARET A Managing Director of American
Director since 1987 Securities, L.P. and chairman of the
corporate general partner of several
affiliated entities. Age 58.
CLASS I: DIRECTORS WHOSE TERMS CONTINUE UNTIL 2004:
LEWIS G. COLE Partner, Stroock & Stroock & Lavan LLP,
Director since 1987 Attorneys. Age 71.
CHARLES D. KLEIN A Managing Director of American
Director since 1980 Securities, L.P. and an executive officer
in the corporate general partner of
several affiliated entities. Director of
CTB International Corp. Age 63.
10
BOARD COMMITTEES
AMETEK's Board has an Audit Committee, a Compensation Committee, a Stock Option
Committee, a Nominating Committee, and a Pension Investment Committee, all of
which are comprised of non-employee directors. In addition, AMETEK has an
Executive Committee, which consists of four directors and has limited powers to
act on behalf of the Board whenever the Board is not in session.
The Audit Committee reviews with independent auditors the plan for and results
of the audit engagement, reviews the scope and results of AMETEK's procedures
for internal auditing, reviews the independence of the auditors, considers the
range of audit and non-audit services, and reviews the adequacy of AMETEK's
system of internal accounting controls. Its report is included on page 12.
The Compensation Committee analyzes and makes recommendations regarding
management compensation, periodically reviews management compensation policies
and practices, and recommends incentive compensation programs and awards, and
officer salary adjustments to the Board of Directors.
The Stock Option Committee administers AMETEK's stock option plans.
The Nominating Committee determines the appropriate size and composition of the
Board of Directors, considers qualifications of prospective Board member
candidates, conducts research to identify and recommend nomination of suitable
candidates, and reviews the experience, background, interests, ability and
availability of prospective nominees to meet time requirements of Board of
Director and committee membership.
The Pension Investment Committee reviews administration of AMETEK's retirement
plans, including compliance, investment manager and trustee performance, and
results of independent audits of the plans.
Committee membership as of the Record Date was as follows:
AUDIT COMPENSATION STOCK OPTION
----- ------------ ------------
Sheldon S. Gordon, Chairman Charles D. Klein, Chairman Sheldon S. Gordon, Chairman
Lewis G. Cole Sheldon S. Gordon James R. Malone
Helmut N. Friedlaender James R. Malone
James R. Malone Elizabeth R. Varet
NOMINATING PENSION INVESTMENT EXECUTIVE
---------- ------------------ ---------
James R. Malone, Chairman Lewis G. Cole, Chairman Frank S. Hermance, Chairman
Helmut N. Friedlaender Sheldon S. Gordon Sheldon S. Gordon
Charles D. Klein James R. Malone Charles D. Klein
David P. Steinmann Elizabeth R. Varet
During 2001 there were six meetings of the Board of Directors, eight meetings of
the Audit Committee, five meetings of the Compensation Committee, two meetings
of the Stock Option Committee, two meetings of the Nominating Committee, three
meetings of the Pension Investment Committee, and six meetings of the Executive
Committee.
11
AUDIT COMMITTEE REPORT
The Audit Committee is composed of independent directors and acts under a
written charter first adopted and approved by the Board of Directors in May
2001.
The Audit Committee monitors and oversees AMETEK's financial reporting process
on behalf of the Board of Directors as required by The New York Stock Exchange,
Inc. Management has the primary responsibility for the financial statements and
the reporting process, including the systems of internal control. The
independent auditors are responsible for expressing an opinion on the conformity
of the audited financial statements with accounting principles generally
accepted in the United States. In fulfilling its responsibilities, the Audit
Committee has reviewed with management and the independent auditors the audited
financial statements contained in AMETEK's 2001 Annual Report on Form 10-K and
in Appendix B to this Proxy Statement. The Committee discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees.
In addition, the Committee has discussed with the independent auditors their
independence from management and AMETEK, including the matters in the written
disclosures required by the Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has considered the
compatibility of non-audit services with their independence.
The Committee discussed with AMETEK's internal and independent auditors the
overall scope and plans for their respective audits. The Committee meets with
the internal and independent auditors, with and without management present, to
discuss the results of their examinations, their evaluations of AMETEK's
internal controls, and the overall quality of AMETEK's financial reporting. The
Committee meets at least three times annually and holds telephone meetings prior
to quarterly earnings announcements, as well as special meetings as
circumstances warrant.
Audit fees billed by Ernst & Young LLP for the fiscal year 2001 were $526,000.
The aggregate fees billed for all other services rendered by Ernst & Young LLP
in the 2001 fiscal year were $454,000, including audit-related services of
$216,000 and non-audit services of $238,000. Audit-related services generally
include fees for employee benefit plan and statutory audits, due diligence
reviews pertaining to business acquisitions, consultation on accounting
standards, and consents and other matters related to SEC registration
statements. Non-audit services generally include consultation related to tax
planning and compliance, and other regulatory matters.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board approved) that the audited
financial statements be included in the Annual Report on Form 10-K, for the
fiscal year ended December 31, 2001, for filing with the Securities and Exchange
Commission. The Committee and the Board also recommended, subject to shareholder
approval, the selection of Ernst & Young LLP as AMETEK's independent auditors
for the 2002 fiscal year.
The Audit Committee:
Sheldon S. Gordon, Chairman
Lewis G. Cole
Helmut N. Friedlaender
James R. Malone
April 10, 2002
12
COMPENSATION OF DIRECTORS
Mr. Hermance, the only employee director of AMETEK, receives no additional
compensation for serving on the Board or its Committees. Non-employee directors
receive $35,000 annually and $2,500 for each of the six regular meetings of the
Board of Directors attended. There is no additional compensation for attending
Committee meetings.
AMETEK sponsors a retirement plan for directors, under which each non-employee
director who has at least three years of service as a director or officer of
AMETEK and does not have a benefit under AMETEK's retirement plan, will receive
an annual retirement benefit equal to 100% of the highest annual rate of Board
fees during the director's service with the Board. The benefit is reduced
proportionately if the director has less than five years of service. Retirement
benefits are paid from AMETEK's general assets. All non-employee directors have
accrued an annual retirement benefit of $50,000. This benefit is not available
to persons who first become members of the Board of Directors on or after
January 1, 1997.
AMETEK sponsors a Death Benefit Program for directors, under which each
non-employee director has an individual agreement that pays the director (or the
director's beneficiary in the event of the director's death) an annual amount
equal to 100% of the highest annual rate of compensation during the director's
service with the Board. The payments are made for ten years beginning at the
director's death or the later of retirement or age 70. Directors appointed after
January 1, 1989 must complete five years of service as a director before
becoming eligible for the benefit payable at the later of retirement or age 70.
The Death Benefit Program is funded by individual life insurance policies
purchased by AMETEK on the lives of the directors. In addition, non-employee
directors have a group term life insurance benefit of $50,000. AMETEK retains
the right to terminate any of the individual agreements under certain
circumstances.
13
STOCK OWNERSHIP
The following table shows the number of shares of AMETEK Common Stock the
officers and directors beneficially owned as of February 11, 2002.
Amount of Shares and
Nature of Ownership (1)
Sole Shared
Voting Voting Percent
and/or and/or Right to of Class
Investment Investment Acquire SERP Total
Name Power Power (4) (5)
(2) (3)
R. W. Chlebek, Officer 7,665 -- 37,500 5,331 50,496 *
L. G. Cole, Director (6) 15,000 563,318 -- -- 578,318 1.8%
H. N. Friedlaender, Director (7) 43,500 30,400 -- -- 73,900 *
S. S. Gordon, Director 40,000 -- -- -- 40,000 *
F. S. Hermance,
Director and Officer 184,085 40,000 288,721 25,508 538,314 1.6%
C. D. Klein, Director (8) 63,000 60,833 -- -- 123,833 *
J. R. Malone, Director 20,000 -- -- -- 20,000 *
T. F. Mangold, Jr., Officer 29,562 -- 45,034 4,108 78,704 *
J. J. Molinelli, Officer 60,063 -- 111,719 10,695 182,477 *
A. J. Neupaver, Officer 32,193 -- 110,711 10,605 153,509 *
D. P. Steinmann, Director (9) 39,700 264,744 -- -- 304,444 *
E. R. Varet, Director (10) 64,600 656,737 -- -- 721,337 2.2%
Directors and Executive 637,565 853,899 660,683 58,658 2,210,805 6.7%
Officers as a Group (15 persons)
including individuals named above
*Represents less than 1% of the outstanding shares of Common Stock of AMETEK.
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise.
14
(2) Shares held in the individual's name, individually or with others, or in
the name of a bank, broker or nominee for the individual's account, where
the officer or director has sole voting and/or investment power.
(3) Other shares where the officer or director has shared voting and/or
investment power.
(4) Shares the officers have a right to acquire through stock option exercises
within 60 days of February 11, 2002.
(5) Shares deemed held for the account of the individual under the
Supplemental Executive Retirement Plan (described in more detail on page
25).
(6) Mr. Cole has shared voting and investment power with respect to 563,318
shares, as to 505,184 shares of which such power is shared with Ms. Varet
and others, and as to 58,134 shares of which such power is shared with Mr.
Steinmann and others. Mr. Cole disclaims beneficial ownership of such
shares.
(7) Mr. Friedlaender has shared voting and investment power with respect to
30,400 shares. Of these, 15,200 shares are owned by a trust of which Mr.
Friedlaender is a trustee; Mr. Friedlaender disclaims beneficial ownership
of such shares.
(8) Includes 2,000 shares owned by Mr. Klein's children either through a trust
or a custodial relationship for which Mr. Klein's wife is the trustee
and/or custodian and as to which Mr. Klein disclaims any beneficial
ownership. Mr. Klein has shared voting and investment power with respect
to 60,833 shares, as to 58,833 shares of which such power is shared with
Mr. Steinmann and others.
(9) Includes 7,424 shares of which 5,200 shares are owned by Mr. Steinmann's
wife and 2,224 shares are owned by Mr. Steinmann's adult children and as
to which Mr. Steinmann disclaims any beneficial ownership. Mr. Steinmann
has shared voting and investment power with respect to 264,744 shares, as
to 140,353 shares of which such power is shared with Ms. Varet and others,
as to 58,833 shares of which such power is shared with Mr. Klein and
others, and as to 58,134 shares of which such power is shared with Mr.
Cole and others.
(10) Includes 11,200 shares of which 10,000 shares are owned by a trust of
which Ms. Varet's husband is a beneficiary and 1,200 shares are owned by
Ms. Varet's adult children and as to which Ms. Varet disclaims any
beneficial ownership. Ms. Varet has shared voting and investment power
with respect to 656,737 shares, as to 505,184 shares of which such power
is shared with Mr. Cole and others, and as to 140,353 shares of which such
power is shared with Mr. Steinmann and others.
15
OTHER BENEFICIAL OWNERSHIP
The following table shows the only entities known to AMETEK to be beneficial
owners of more than five percent of the outstanding shares of AMETEK as of March
29, 2002.
Name and Address of Nature of Beneficial Percent
Beneficial Owner Ownership Amount of Shares of Class
---------------- --------- ---------------- --------
Fidelity Management & Research Corp.
82 Devonshire Street
Boston, MA 02109-3614 Sole dispositive power.......... 932,330*
Fidelity Management Trust Co.
82 Devonshire Street Sole voting and dispositive
Boston, MA 02109-3614 power............................ 896,600
Fidelity International Limited
Pembroke Hall, 42 Crow Lane Sole voting and dispositive
Hamilton, Bermuda power............................ 28,300
===================================================================================================================
TOTAL (1)................ 1,857,230 5.67%
===================================================================================================================
Gabelli Funds LLC
One Corporate Center Sole voting and dispositive
Rye, NY 10580-1434 power......................(2) 605,300
GAMCO Investors, Inc. Sole voting power for
One Corporate Center 3,460,758 shares, and sole
Rye, NY 10580-1434 dispositive power........(2) 3,560,658
Gabelli & Company, Inc.
One Corporate Center Sole voting and dispositive
Rye, NY 10580-1434 power.....................(3) 100
===================================================================================================================
TOTAL.................... 4,166,058 12.70%
===================================================================================================================
* Voting power resides with Fidelity Funds' Board of Trustees.
(1) Based on Schedule 13(G/A) filed on February 13, 2002.
(2) Based on Schedule 13(F-HR) filed on February 14, 2002.
(3) Based on Schedule 13(D) filed on March 5, 2001.
16
EXECUTIVE OFFICERS
Officers are appointed by the Board of Directors to serve for the ensuing year
and until their successors have been elected and qualified. Information on
executive officers of AMETEK is shown below:
NAME AGE PRESENT POSITION WITH AMETEK
---- --- ----------------------------
Frank S. Hermance 53 Chairman of the Board and Chief Executive Officer
John J. Molinelli 55 Executive Vice President - Chief Financial Officer
Albert J. Neupaver 51 President - Electromechanical Group
Robert W. Chlebek 58 President - Electronic Instruments
Thomas F. Mangold, Jr. 56 President - Electronic Instruments
Robert R. Mandos, Jr. 43 Vice President and Comptroller
Deirdre D. Saunders 54 Vice President and Treasurer
Donna F. Winquist 52 Vice President and General Counsel
FRANK S. HERMANCE'S employment history with AMETEK and other directorships
currently held are included under the section "Election of Directors" on page
10.
JOHN J. MOLINELLI was elected Executive Vice President - Chief Financial Officer
on April 22, 1998. Previously he had served as Senior Vice President - Chief
Financial Officer since April 1994.
ALBERT J. NEUPAVER was elected President - Electromechanical Group on January
10, 1997, and was elected President of the former Industrial Materials Group on
September 23, 1994.
ROBERT W. CHLEBEK was elected President - Electronic Instruments on March 1,
1997. Prior to joining AMETEK, Mr. Chlebek had been President of Philips
Components North America, a subsidiary of Philips Electronics, N.V. since 1993.
THOMAS F. MANGOLD, JR. was elected President - Electronic Instruments on October
5, 1999. He served as General Manager of the Process and Analytical Instruments
Division from June 1986 to October 1999. Mr. Mangold was elected a Corporate
Vice President in 1988.
ROBERT R. MANDOS, JR. was elected Vice President and Comptroller of AMETEK on
April 22, 1998. He has served as Comptroller of AMETEK since April 1996.
DEIRDRE D. SAUNDERS was elected Vice President on July 30, 1997. She has served
as Treasurer since April 1993.
DONNA F. WINQUIST was elected Vice President and General Counsel on July 19,
2000. She has served as a Vice President since July 30, 1997 and was Corporate
Secretary from May 1, 1997 to July 19, 2000. Since December 1994, and prior to
her appointment as General Counsel, she served as Corporate Counsel.
17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Other Restricted Shares All Other
Name and Salary Bonus Annual Stock Underlying Compensation
Principal Position Year ($) ($) Compensation Award(s) Options/SARs ($)
($) ($) (#) (1)
- ------------------------------------------------------------------------------------------------------------------------------
F.S. Hermance 2001 540,000 345,500 -- -- -- 105,342
Chairman of the Board 2000 450,000 600,000 -- 3,675,000(2) 80,000 116,392
and Chief Executive Officer 1999 396,000 400,000 -- -- 150,000 87,009
J.J. Molinelli 2001 264,000 130,000 -- -- 32,500 37,006
Executive Vice 2000 252,500 200,000 -- -- 32,500 40,697
President - 1999 241,000 192,000 -- -- 30,000 40,143
Chief Financial Officer
A.J. Neupaver 2001 270,000 117,000 -- -- 32,500 35,306
President - 2000 258,000 200,000 -- -- 32,500 39,949
Electromechanical Group 1999 248,000 188,000 -- -- 30,000 39,767
R.W. Chlebek 2001 255,000 49,500 -- -- 25,000 45,582
President - 2000 246,500 165,000 -- -- 30,000 44,377
Electronic Instruments 1999 237,000 185,000 -- -- 22,500 23,395
T.F. Mangold, Jr. 2001 222,000 70,000 -- -- 22,500 19,594
President - 2000 210,000 130,000 -- -- -- 24,132
Electronic Instruments 1999 178,875 95,000 -- -- 37,000 17,081
(1) The amounts reported represent AMETEK's contribution ($1,200 each) to the
AMETEK Retirement and Savings Plan for each of the named executive
officers listed above, the value of premiums paid by AMETEK with respect
to term life insurance for the benefit of each of the named executive
officers, the amount contributed for Mr. Chlebek under the Retirement
Feature of the AMETEK Retirement and Savings Plan ($8,592), and the value
of contributions under the Supplemental Executive Retirement Plan ("SERP")
(described in more detail on page 25).
(2) On December 15, 2000, Mr. Hermance was granted 150,000 shares of
restricted Common Stock. These shares become vested on the earliest to
occur of (a) the closing price of AMETEK's Common Stock on any five
consecutive trading days equaling or exceeding $40 per share, (b) the
death or disability of Mr. Hermance, or (c) December 15, 2006 provided Mr.
Hermance has been in the continuous employ of AMETEK through that date.
The value of this restricted stock reported in the table was $24.50 per
share, the closing price of AMETEK's Common Stock on the date of grant.
The aggregate value on December 31, 2001 was $4,783,500, based on AMETEK's
year-end closing stock price of $31.89. Cash dividends will be earned but
will not be paid until the restricted stock vests. (See additional
discussion of Termination and Change-of-Control Agreement beginning on
page 27).
18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The following report, submitted by the Compensation Committee of the Board of
Directors, provides information regarding policies and practices concerning
compensation for the Chairman of the Board and Chief Executive Officer and the
other executive officers of AMETEK.
COMPENSATION OVERVIEW
The Compensation Committee recommends to the Board of Directors (a)
executive compensation arrangements for senior management and directors,
and (b) compensation plans in which officers and employees are eligible to
participate. The Stock Option Committee approves, and then submits for
ratification to the Board of Directors, grants of stock options and
restricted stock awards under AMETEK's stock plans.
The members of the Compensation Committee, Messrs. Gordon, Klein and
Malone and Ms.Varet, are non-employee directors of AMETEK. The members of
the Stock Option Committee, Messrs. Gordon and Malone, are directors and
have no other affiliation with AMETEK.
Executive compensation consists of three principal elements: (a) salary,
(b) annual incentive bonus and (c) grants of stock options and/or
restricted stock. AMETEK provides additional retirement and other benefits
for executives similar to those provided by other major corporations.
Information regarding similarly situated executive officers at comparable
companies was drawn from publicly available information for certain of the
companies included in the index of peer companies used in the Stock
Performance Graph set forth on page 26 and for certain other companies
identified by an independent employee benefits consulting firm engaged by
AMETEK.
REQUIRED STOCK OWNERSHIP FOR EXECUTIVES
The Compensation Committee and the Stock Option Committee believe that
AMETEK should attract, retain, motivate and benefit from the guidance and
experience of talented and qualified executives who will advance AMETEK's
profitability and worldwide growth. AMETEK also believes that encouraging
its executives to acquire a larger equity interest in AMETEK links their
efforts as executives to the interests of the shareholders, providing
additional incentives for the maximum success of AMETEK. Accordingly,
AMETEK has directed that executive officers and management of AMETEK
acquire stock, within a reasonable period of time, varying in value from
one to five times their base salary. Mr. Hermance has exceeded his
required AMETEK stock ownership level of five times base salary, and
Messrs. Molinelli, Neupaver and Mangold have each exceeded their required
AMETEK stock ownership level of three times base salary. The other
executive officers have either achieved their required stock ownership
level or continue to make progress towards this goal.
SALARY
The salary level for each AMETEK executive officer is based principally on
the executive's responsibilities. Consideration also is given to factors
such as the individual's experience and performance, salaries paid to
executive officers by comparable companies, and the cost of living in the
geographic area where the executive is located. When determining
adjustments to each executive officer's salary, consideration also is
given to prevailing economic conditions, the adjustments being given to
other employees within AMETEK, and achievement of performance objectives.
In determining executive salaries, the Compensation Committee has
generally targeted the median level of the compensation range for each
position at comparable companies.
19
ANNUAL INCENTIVE BONUS
Bonuses are viewed as incentive rewards for individual contributions to
AMETEK's performance, based not only on short-term results but also
investments made in the future growth of AMETEK's profits. In 2001 the
method of computation of the annual incentive bonus changed. AMETEK's
diluted earnings per share, the operating profit of the business unit an
executive is responsible for, and other goals, including asset management
improvement, as established by the Chief Executive Officer and the
Compensation Committee were used in determining performance. Bonuses are
leveraged, which means that amounts paid for over- or underperformance to
targets could be significantly higher or lower than the targeted bonus
level. The Chairman and Chief Executive Officer reviews AMETEK's
performance and the individual contribution of each executive officer
against established targets and makes recommendations to the Compensation
Committee with respect to the appropriate bonus amount to be awarded to
each individual for that year. The Compensation Committee then meets with
the Chairman and Chief Executive Officer to consider such recommendations,
makes any appropriate changes, and presents its recommendations to the
Board of Directors, which then discusses and votes upon the bonuses.
Since AMETEK did not achieve the goal established by the Compensation
Committee for diluted earnings per share and, in certain instances,
operating profit goals for individual business units, bonuses are down
significantly in 2001, versus 2000.
STOCK OPTIONS AND RESTRICTED STOCK AWARDS
Awards of stock options and/or shares of restricted stock are considered
an important complement to the cash elements of AMETEK's executive
officers' compensation because they align the executives' interests with
the shareholders' interests. A principal factor influencing the market
price of AMETEK's stock is AMETEK's performance as reflected in its sales,
earnings, cash flow and other results; thus, by granting stock options to
AMETEK's executive officers, such individuals are encouraged to achieve
consistent improvements in AMETEK's performance. The plans under which
such awards are made have been approved by AMETEK's shareholders. The
exercise price of options equals the mean market price of AMETEK's stock
on the grant date. Accordingly, options will only yield income to the
executive if the market price of AMETEK's stock is greater at the time of
exercise than it was when the option was granted. Awards of shares of
restricted stock are subject to forfeiture restrictions, which prohibit
the recipient from selling such shares for a specified period following
the date of the award. Awards provide inducements to the executive
officers to remain with AMETEK over the long term and enhance corporate
performance and, correspondingly, shareholder value. When considering
whether to make grants of stock options or awards of restricted stock, and
the size of such awards, the Stock Option Committee reviews practices of
other comparable companies as well as individual performance-related
criteria, and takes into consideration the effect such awards might have
on AMETEK's long-term performance and creation of shareholder value.
MR. HERMANCE'S COMPENSATION
In determining the appropriate levels for Mr. Hermance's 2001 base salary
and bonus, the Compensation Committee considered the same factors it
considered when setting compensation levels for AMETEK's other executive
officers. The Compensation Committee also considered the major initiatives
and programs commenced or furthered under Mr. Hermance's leadership during
2001. Among the achievements in 2001 under Mr. Hermance's leadership:
(a) AMETEK performed well in a very difficult economic environment.
Before unusual items, AMETEK's income rose 3% to $70.8 million and
diluted earnings per share were up slightly at $2.12 from $2.11 in
2000. AMETEK's performance confirms the soundness of the business
strategies developed and implemented under Mr. Hermance's guidance.
20
(b) AMETEK continued to enhance long-term shareholder value through its
Four Growth Strategies: Acquisitions & Alliances, Operational
Excellence, Global & Market Expansion, and New Products.
- AMETEK completed three strategic acquisitions during 2001: GS
Electric, EDAX and Instruments for Research and Applied
Science (IRAS), with combined annual revenues of nearly $150
million. These acquisitions extend AMETEK's served markets,
technology base, and product offering.
- AMETEK's focus on Operational Excellence was evidenced by
strong cost control and manufacturing process improvements.
Net margins increased from 6.7% in 2000 to 7.0% in 2001,
despite the global recession.
- AMETEK continued to expand internationally.
- In 2001, AMETEK shifted additional production to
low-cost locales. At the end of 2001, revenue generated
in low-cost locales was approximately 15% of total
revenue, up from less than 10% in 2000. During 2001,
AMETEK completed expansions at its facilities in Mexico
and the Czech Republic.
- The 2001 acquisitions of EDAX and IRAS also expanded
AMETEK's international presence through their
significant international operations.
- A number of new products were introduced over the past year
that contributed to AMETEK's growth in revenue and earnings.
Certain personal criteria also were reviewed in determining Mr. Hermance's
compensation, such as his 11 years of service with AMETEK, including
completion of his first year as Chairman of the Board, and his previous
service as an officer of AMETEK. The Compensation Committee also evaluated
data regarding CEO compensation practices of comparable companies (which
were referred to previously) so that Mr. Hermance's total compensation
would be in line with that of CEOs of such other companies. In addition,
in determining Mr. Hermance's bonus, the Compensation Committee considered
progress towards goals established for Mr. Hermance. That included AMETEK
not achieving in 2001 the goal established by the Compensation Committee
for diluted earnings per share.
21
SECTION 162(m)
Under Section 162(m) of the Internal Revenue Code, a publicly-held
corporation may not deduct more than $1 million in a taxable year for
certain forms of compensation paid to the Chief Executive Officer or any
other executive officer whose compensation is required to be reported in
the Summary Compensation Table. AMETEK's policy is generally to preserve
the federal income tax deductibility of compensation paid to its
executives. Accordingly, to the extent feasible, AMETEK has taken action
to preserve the deductibility of certain stock-based incentive awards to
its executive officers. However, the Compensation Committee retains the
flexibility to authorize compensation that may not be deductible if it
believes that it is in the interest of AMETEK to do so.
Compensation Committee of the Board:
Charles D. Klein, Chairman
Sheldon S. Gordon
James R. Malone
Elizabeth R. Varet
22
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table provides details regarding stock options granted to the
named executive officers in 2001. In addition, the table provides the
hypothetical gains or "option spreads" that would result for the respective
options based on assumed rates of annual compounded stock price appreciation of
5% and 10% from the date the options were granted through their expiration
dates.
STOCK OPTION/SAR GRANTS IN 2001
Potential
Realizable Value at
Assumed Annual
Rate of Stock
Price Appreciation
Individual Grants for Option Term(1)
Percent of
Number of Total
Shares Options/SARs
Underlying Granted to Exercise
Name Options/SARs Employees in Price Expiration
Granted(#)(2) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------
F.S. Hermance -- -- -- -- -- --
J.J. Molinelli 32,500 6.43 $26.285 5/21/2008 347,771 810,453
A.J. Neupaver 32,500 6.43 $26.285 5/21/2008 347,771 810,453
R.W. Chlebek 25,000 4.94 $26.285 5/21/2008 267,516 623,426
T.F. Mangold, Jr. 22,500 4.45 $26.285 5/21/2008 240,764 561,083
(1) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock option exercises are dependent on future performance of
AMETEK's Common Stock. There can be no assurance that the rates of
appreciation reflected in this table will be achieved.
(2) The options granted in 2001 are exercisable after the first anniversary of
the date of grant (May 22, 2001) during each of the four succeeding
12-month periods only to the extent of 25% of the total number of shares
optioned. Optioned shares, which may have been but were not purchased
during any one 12-month period, may be purchased during any one or more
succeeding 12-month periods up to the expiration date of the option.
Options generally become fully exercisable in the event of the holder's
death, normal retirement, or termination of employment in connection with
a change in control. No SARs were granted in 2001.
23
The following table shows stock options and stock appreciation rights exercised
by the named executive officers during 2001 and the aggregate amounts realized
by each such officer. In addition, the table shows the aggregate number of
unexercised options and stock appreciation rights that were exercisable and
unexercisable as of December 31, 2001, and the value of "in-the-money" stock
options on December 31, 2001, which represents the positive difference between
the market price of AMETEK's Common Stock and the exercise price of such
options.
AGGREGATE OPTION/SAR EXERCISES IN 2001
AND OPTION/SAR VALUES AT DECEMBER 31, 2001
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options Options
Acquired On Value at December 31, 2001 at December 31, 2001 ($)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
F.S. Hermance 29,439 435,469 288,721 147,500 3,788,445 1,319,225
J.J. Molinelli -- -- 111,719 79,375 1,466,495 668,611
A.J. Neupaver 31,068 458,881 110,711 79,375 1,402,246 668,611
R.W. Chlebek 28,043 249,128 37,500 65,000 254,835 556,708
T.F. Mangold, Jr. 23,026 362,691 45,034 43,500 557,343 344,567
DEFINED BENEFIT AND ACTUARIAL PLANS
The Employees' Retirement Plan of AMETEK, Inc. (the "Retirement Plan") is a
non-contributory defined benefit pension plan under which contributions are
actuarially determined. The following table sets forth the estimated annual
benefits, expressed as a single life annuity, payable upon retirement (assuming
normal retirement at age 65) under the Retirement Plan for individuals with the
indicated years of service and at the indicated compensation levels (without
taking into account statutory restrictions incorporated in the Retirement Plan
and described below):
PENSION PLAN TABLE
Annual Benefits Based On
Years of Service at Normal Retirement Age (1)
- -----------------------------------------------------------------------------------------------------------------
Average
Compensation 15 20 25 30 35
- -----------------------------------------------------------------------------------------------------------------
$150,000 58,000 61,800 65,600 65,600 65,600
200,000 78,400 83,500 88,600 88,600 88,600
250,000 98,800 105,100 111,500 111,500 111,500
300,000 119,200 126,800 134,500 134,500 134,500
350,000 139,600 148,500 157,400 157,400 157,400
400,000 160,000 170,200 180,400 180,400 180,400
450,000 180,400 191,800 203,300 203,300 203,300
500,000 200,800 213,500 226,300 226,300 226,300
550,000 221,200 235,200 249,200 249,200 249,200
600,000 241,600 256,900 272,200 272,200 272,200
650,000 262,000 278,500 295,100 295,100 295,100
700,000 282,400 300,200 318,100 318,100 318,100
(1) Benefit amounts assume a participant reaches age 65 in 2002; for younger
participants, the benefit amounts are less than the amounts indicated
above.
At December 31, 2001, the executives named in the Summary Compensation Table had
the following years of credited service under the Retirement Plan: Mr.
Hermance-11; Mr. Molinelli-32, Mr. Neupaver-24, and Mr.
24
Mangold-28. Persons joining AMETEK after January 1, 1997, including Mr. Chlebek,
are not eligible to participate in the Retirement Plan, but instead are eligible
to participate in the Retirement Feature of the AMETEK Retirement and Savings
Plan. Participants receive an annual contribution of between 3% and 8% of their
compensation depending on their age and service with AMETEK.
The annual compensation taken into account for any plan year is generally equal
to the participant's salary and any bonus accrued during the plan year as
reported in the Summary Compensation Table. Compensation in excess of certain
amounts prescribed by the Secretary of the Treasury ($170,000 for 2001) is not
taken into account under the Retirement Plan or the Retirement Feature of the
AMETEK Retirement and Savings Plan. The individuals named in the Summary
Compensation Table are subject to this limitation.
Pursuant to the AMETEK, Inc. Supplemental Executive Retirement Plan (the
"SERP"), AMETEK agreed, beginning in 1997, to credit to the account of certain
executives, including executives named in the Summary Compensation Table, an
amount equal to 13% of the executive's compensation in excess of the statutory
restrictions for each plan year, in order to compensate them for the loss of
retirement income under the Retirement Plan or the Retirement Feature of the
AMETEK Retirement and Savings Plan resulting from those restrictions. The
credited amounts are deemed to be invested in AMETEK Common Stock and, upon
termination of employment or retirement, shall be distributed in kind. An
executive's right to a benefit under the SERP becomes non-forfeitable at the
same time as the executive's right to an accrued benefit under the Retirement
Plan (or the Retirement Feature of the AMETEK Retirement and Savings Plan)
becomes non-forfeitable.
For retirements occurring in 2002, the maximum annual pension benefit payable at
normal retirement age is restricted by law to the greater of $160,000 or the
amount of such benefit determined under the Retirement Plan and prior existing
law as of December 31, 1982. The $160,000 limit is adjusted annually by the
Secretary of the Treasury to reflect increases in the cost of living.
25
STOCK PERFORMANCE GRAPH
The following graph and accompanying table compare the cumulative total
shareholder return for AMETEK for the five years ended December 31, 2001 to that
of the Russell 2000 Index and the Dow Jones Electrical Components and Equipment
Industry Group ("DJEE"). The performance graph and table assume the investment
of $100 on December 31, 1996 and the reinvestment of all dividends.
[LINE CHART]
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
AMETEK, Inc. $ 100.00 $ 147.42 $ 123.06 $ 106.37 $ 146.51 $ 181.61
RUSSELL 2000 100.00 122.36 119.25 144.60 140.23 143.71
Peer Group (DJEE)* 100.00 113.58 127.12 187.34 126.42 89.23
* Peer group includes AMETEK.
26
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Gordon, Klein, Malone and Ms. Varet comprise the Compensation Committee.
Mr. Klein and Ms. Varet are managing directors of American Securities, L.P., an
investment banking firm. The investment banking firm of American Securities,
L.P., and affiliates of American Securities, L.P., rendered during 2001 and
continue to render financial advisory, investment management and other services
to AMETEK. American Securities, L.P. is owned indirectly by Ms. Varet and
members of her family through family trusts of which Ms. Varet and Mr. Cole are
co-trustees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Stroock & Stroock & Lavan LLP, of which Mr. Cole is a member,
rendered during 2001 and continues to render legal services for AMETEK and its
subsidiaries.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires AMETEK's directors
and officers to file with the Securities and Exchange Commission and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of AMETEK's Common Stock. Copies of all such Section 16(a) reports are
required to be furnished to AMETEK. These filing requirements also apply to
holders of more than 10% of AMETEK's Common Stock; to AMETEK's knowledge, there
currently are no holders under Section 16(a) of more than 10% of AMETEK's Common
Stock. To AMETEK's knowledge, based solely on a review of the copies of Section
16(a) reports furnished to AMETEK and written representations that no other
reports were required, during the fiscal year ended December 31, 2001, AMETEK's
officers and directors were in compliance with all Section 16(a) filing
requirements.
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND
CHANGE-OF-CONTROL ARRANGEMENTS
AMETEK has in place change-of-control agreements with all of its executive
officers other than Mr. Hermance, who is covered by a separate arrangement
described in the following paragraphs. The purpose of the agreements is to
assure the continued attention and dedication of key executives when AMETEK is
faced with a potential change of control by providing for some continuation of
the executive's compensation and benefits. Under the agreements, the sum of the
executive's prior year's salary, plus the greater of (a) the current year's
bonus, or (b) the average of the two prior years' bonuses (all as limited under
Section 280G of the Code) will be continued for a period of one, two or three
years (as defined in each executive's agreement). Health benefits will be
continued until Medicare eligibility, coverage under another group health plan,
the expiration of ten years or the executive's death, whichever is earlier, or
in the event that the executive's employment is terminated by AMETEK without
cause or by the executive for good reason within two years after a Change of
Control. For purposes of the agreements, a Change of Control means the
acquisition of 20% or more of the voting stock of AMETEK by a party other than
AMETEK (or its affiliates), or a merger or consolidation, after which the
shareholders of AMETEK do not own or control at least 50% of the voting stock of
AMETEK, or any sale or other disposition of all or substantially all of AMETEK's
assets, or an approved plan of liquidation. Each of the executive officers named
in the Summary Compensation Table on page 18 (other than Mr. Hermance) would be
entitled to three times their compensation in the event of a Change of Control.
As of December 15, 2000, AMETEK entered into a Termination and Change-of-Control
Agreement with Mr. Hermance to assure his continued dedication in the event of a
Change of Control and to provide security to Mr. Hermance in the event his
employment is terminated by AMETEK or a successor without cause or by Mr.
Hermance for good reason.
27
For the purposes of this Agreement, Change of Control means substantially the
same as when applied to other executive officers, as described above, but also
includes certain changes in the composition of the Board of Directors and
certain additional acquisitions of AMETEK or its shares.
In the event of his termination, prior to and not in anticipation of a Change of
Control, Mr. Hermance will receive a severance payment in an amount equal to two
times his annual base salary for the preceding year, and two times (a) his
current year's targeted bonus (if established) or (b) the average of his bonuses
for the two preceding years. In addition, his health, disability insurance and
death benefits will be continued under the same terms as are provided for other
executives as described above, but for a period of two years only, and certain
other executive perquisites will be continued for up to two years.
If Mr. Hermance is employed by AMETEK at the date of a Change of Control, or has
been terminated without cause or resigned for good reason in anticipation of the
Change of Control, AMETEK will pay Mr. Hermance an amount equal to the fair
market value of any non-vested restricted stock (see page 18, footnote (2)).
That amount may be reduced to an amount which maximizes the aggregate net amount
available to Mr. Hermance from all "parachute payments," as defined in Section
280G of the Code, after reduction for all taxes. The shares of restricted stock
for which payment is made will then be forfeited. Mr. Hermance will retain any
remaining shares of restricted stock which will continue to vest in accordance
with their original terms.
If Mr. Hermance's employment is terminated by the Company without cause or by
Mr. Hermance for good reason, in anticipation of, upon or at any time following
a Change of Control, Mr. Hermance has agreed for a period of up to three years
not to compete, directly or indirectly, with any business then conducted by
AMETEK and not to solicit any AMETEK employee to become an employee of any other
entity, in exchange for which Mr. Hermance will be paid, with respect to the
period covered by the non-competition/non-solicitation agreement, an amount
equal to his estimated total compensation (salary, bonus and long-term incentive
compensation) for the period. In such event, AMETEK will continue Mr. Hermance's
health, disability insurance and death benefits, as well as certain executive
perquisites, in the same manner as provided above, except that health benefits
will continue for a period of up to ten years. In the circumstances described in
this paragraph, any restricted stock remaining unvested at the time Mr.
Hermance's employment terminates will be forfeited.
Pursuant to a Supplemental Senior Executive Death Benefit Program (the
"Program"), AMETEK has entered into individual agreements with certain
executives. The agreements require AMETEK to pay death benefits to their
designated beneficiaries and to pay lifetime benefits to the executives under
certain circumstances. If a covered executive dies before retirement or before
age 65 while on disability retirement, the executive's beneficiary will receive
monthly payments from the date of the executive's death until the date he or she
would have attained age 80. If a covered executive retires, or reaches age 65
while on disability retirement, the Program provides for an annual benefit of
one-tenth of the lesser of (a) twice the executive's average annual base salary
for the last five full years of service, rounded off to the next highest
multiple of $50,000 or (b) a maximum amount specified in the agreement. The
highest maximum amount specified in the existing agreements is $1,000,000. The
benefit is payable monthly over a period of ten years to the executive or the
executive's beneficiary. The payments will commence for retirees at age 70 or
death, whichever is earlier. However, if the executive retires after age 70, the
payments commence on retirement.
To fund benefits under the Program, AMETEK has purchased individual life
insurance policies on the lives of certain of the covered executives. AMETEK
retains the right to terminate all of the Program agreements under certain
circumstances. Messrs. Hermance, Molinelli, Neupaver, and Mangold are
participants.
Pre- and post-retirement life insurance coverage and supplemental retirement
income are provided to Mr. Chlebek under a Supplemental Senior Executive Split
Dollar Death Benefit Plan. To fund these benefits, AMETEK has purchased a
split-dollar life insurance policy. AMETEK pays the majority of the premium
costs with Mr. Chlebek paying approximately $500 per year. Pre-retirement death
benefits include a $490,000 lump sum payment to his beneficiary and an annual
payment of $70,000 commencing ten years after his death and ending on the date
Mr. Chlebek would have attained age 80. Upon Mr. Chlebek's attainment of age 65,
28
AMETEK will withdraw from the policy an amount equal to the amount of premiums
paid, and he will become the owner of the policy, which is targeted to have a
value of approximately $300,000 to $350,000 at age 65. In the event Mr. Chlebek
terminates employment prior to age 65, he can either purchase the policy from
AMETEK or terminate the agreement.
SHAREHOLDER PROPOSALS FOR THE 2003 PROXY STATEMENT
Proposals of shareholders intended to be presented at AMETEK's 2003 Annual
Meeting of Shareholders must be received by AMETEK at its executive offices on
or prior to December 21, 2002 to be eligible for inclusion in the proxy material
to be used in connection with the 2003 Annual Meeting.
By order of the Board of Directors
KATHRYN E. LONDRA
Corporate Secretary
Dated: Paoli, Pennsylvania
April 10, 2002
29
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2002 STOCK INCENTIVE PLAN
OF AMETEK, INC.
1. Purpose. The purpose of this Stock Incentive Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by key employees and
Directors of the Corporation and its Affiliates upon whose judgment and keen
interest the Corporation is largely dependent for the successful conduct of its
operations, and by providing such key employees and Directors with incentives to
maximize the success of the Corporation. It is anticipated that the acquisition
of such proprietary interest in the Corporation and such incentives will
strengthen the desire of such key employees and Directors to remain with the
Corporation as well as that such incentives and the opportunity to acquire such
a proprietary interest will enable the Corporation and its Affiliates to attract
desirable personnel and Directors.
2. Definitions. When used in this Plan, unless the context otherwise
requires:
(a) "Act" shall mean the Securities Exchange Act of 1934, as
amended.
(b) "Affiliate" shall mean a person or entity that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the
Corporation. For this purpose, 50% general voting power of an
incorporated entity, or 50% profits interest of an
unincorporated entity, as the case may be, shall constitute
control.
(c) "Board of Directors" shall mean the Board of Directors of the
Corporation as constituted at any time.
(d) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors of the
Corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Stock Option Committee, a
sub-committee of the Compensation Committee of the Board of
the Corporation and hereinafter described in Section 4.
(g) "Corporation" shall mean AMETEK, Inc.
(h) "Fair Market Value" shall mean the average of the high and low
sales prices on the stock exchange or market on which the
Shares are primarily traded on the date as of which such value
is being determined or, if there shall be no sale on that
date, then on the last previous day on which a sale was
reported.
(i) "Incentive Award" shall mean an Option, Phantom Stock Award,
Restricted Stock Award, or Rights granted pursuant to the
Plan.
(j) "Incentive Stock Option" shall mean an option as defined under
Section 422 of the Code and regulations promulgated
thereunder.
(k) "Mature Shares" shall mean shares that a holder has
beneficially owned for at least six months.
(l) "Non-Employee Director" shall mean a Director of the
Corporation and/or its Affiliates who is not also an employee
of the Corporation and/or its Affiliates.
A-1
(m) "Non-Qualified Stock Option" shall mean an Option other than
an Incentive Stock Option.
(n) "Options" shall mean the stock options granted pursuant to the
Plan, including Non-Qualified Stock Options and Incentive
Stock Options, which shall entitle the holder thereof to
purchase Shares from the Corporation for such price and at
such times as the Committee shall determine at the time the
Options are granted, subject to the terms and conditions of
the Plan.
(o) "Phantom Stock Award" shall mean an Award granted in
accordance with the provisions of Section 11 hereof, which
shall entitle the holder thereof to receive from the
Corporation cash or Shares, or a combination of cash and
Shares, based upon the Fair Market Value of Shares at the time
of the expiration of the vesting period under such Award,
subject to the terms and conditions of the Plan.
(p) "Phantom Stock Units" shall mean the units of Phantom stock
credited to the holder of a Phantom Stock Award, each of which
units shall be a fictitious share of common stock which is the
equivalent of one Share.
(q) "Plan" shall mean the 2002 Stock Incentive Plan of AMETEK,
Inc.
(r) "Restricted Shares" shall mean the Shares issued as a result
of a Restricted Stock Award.
(s) "Restricted Stock Award" shall mean a grant of Shares or of
the right to purchase Shares pursuant to Section 10 hereof.
Such Shares, when and if issued, shall be subject to such
transfer restrictions and risk of forfeiture as the Committee
shall determine at the time the Award is granted, or as
specified in subsection (a)(iv) of Section 10 hereof, until
such specific conditions are met. Such conditions may be based
on continuing employment (or services) or achievement of
pre-established performance objectives, or both.
(t) "Rights" shall mean stock appreciation rights granted pursuant
to the Plan, which shall entitle the holder thereof to receive
from the Corporation cash or Shares or a combination of cash
and Shares based upon the excess of the Fair Market Value of
Shares at the time of exercise over the purchase price of the
Shares subject to the related Option, or the Fair Market Value
of Shares on the date the Rights were granted, as the case may
be, subject to the terms and conditions of the Plan.
(u) "Share" shall mean a share of common stock of the Corporation.
3. Shares Subject to the Plan. Subject to the provisions of Section 16
hereof, the aggregate number of Shares that may be subject to Options, Phantom
Stock Awards (other than any Phantom Stock Awards which are payable only in
cash), Restricted Stock Awards and Rights shall not exceed 2,000,000, which
Shares may be either Treasury Shares or authorized but unissued Shares. A
maximum of 15% of the aggregate number of Shares, or 300,000 Shares, may be
awarded to any single individual during the duration of the Plan. A maximum of
10% of the aggregate number of Shares, or 200,000 Shares, may be awarded as
Restricted Shares, Rights, Phantom Stock Awards and Phantom Stock Units. A
maximum of 3% of the aggregate number of shares or 60,000 Shares, may be
awarded, in the aggregate, as Restricted Stock Awards with vesting periods of
less than 3 years. A maximum of 10% of the aggregate number of Shares, or
200,000 Shares, may be awarded to Non-Employee Directors during the duration of
the Plan. In the event the Corporation adopts a stock purchase plan for the
benefit of its employees, the shares of common stock awarded under that plan
shall further reduce the aggregate number of Shares available under this Plan.
If the Shares that would be issued or transferred pursuant to any such Incentive
Award are not issued or transferred and cease to be issuable or transferable for
any reason (including the extent to which payment pursuant to a Phantom Stock
Award is made
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in cash), or if Restricted Shares issued pursuant to a Restricted Stock Award
are forfeited, the number of Shares subject to such Incentive Award will no
longer be charged against the limitation provided for herein (even if the
holders had voting or dividend rights with regard to the Shares) and may again
be made subject to Incentive Awards; provided, however, that Shares as to which
an Option has been surrendered in connection with the exercise of a related
Right shall not again be available for the grant of any further Incentive
Awards. Notwithstanding the preceding, with respect to any Option or Right
granted to any person who is a "covered employee" as defined in Section 162(m)
of the Code that is canceled (other than with respect to the exercise of a
related Right or Option) or as to which the exercise price or base value is
reduced, the number of shares subject to such Option or Right shall continue to
be counted, in accordance with said Section 162(m) and regulations promulgated
thereunder, against the maximum number of Shares which may be the subject of
Incentive Awards granted to such person.
4. Committee. The Plan shall be administered by a Committee which shall
consist of at least two Directors, all of whom shall be "outside directors" as
defined under Section 162(m) of the Code and related Treasury regulations and
all of whom shall be "Non-Employee Directors" as defined under Rule 16b-3 under
the Act. The members of the Committee shall be selected by the Board of
Directors. If a member of the Committee, for any reason, shall cease to serve,
the vacancy may be filled by the Board of Directors. Any member of the Committee
may be removed at any time, with or without cause, by the Board of Directors.
The Chairman of the Committee shall be designated by the Board of Directors, and
meetings of the Committee may be called at any time by its Chairman or upon
written request of a majority of the members of the Committee, provided that
meetings may be held at any time without notice if all the members are present
or if at any time before or after the meeting those not present waive notice of
the meeting in writing. Subject to the preceding provision, at least one day's
notice of the meeting shall be given in person or by telephone, letter, fax,
telegram or cablegram. At all meetings of the Committee, a majority of the
members of the Committee at the time of such meeting shall be necessary to
constitute a quorum. Any act of a majority of the quorum present at a meeting
shall be the act of the Committee.
5. Participants. All key employees of the Corporation and its Affiliates
shall be eligible to receive Incentive Awards under the Plan. The persons to
whom Incentive Awards are to be offered under the Plan and the number of Shares
with respect to which Incentive Awards are to be granted to each such person
shall be determined by the Committee in its sole discretion subject, however, to
the terms and conditions of the Plan. Each Non-Employee Director whose initial
election to the Board of Directors is on or after the date of the adoption of
the Plan by the Board of Directors (other than any Non-Employee Director who is
a partner of the law firm then retained as general outside counsel to the
Corporation) shall be granted, as of the date such Director becomes a member of
the Board of Directors, a Non-Qualified Stock Option to purchase 20,000 Shares.
The Non-Qualified Stock Option shall expire seven (7) years from the date of
grant and shall be exercisable by such Non-Employee Director after the first
anniversary of the date of grant, during each of the four succeeding twelve
(12)-month periods only to the extent of 5,000 Shares. In addition, the
Committee in its sole discretion may grant to any Non-Employee Director (other
than any Non-Employee Director who is a partner of the law firm then retained as
general outside counsel to the Corporation) a Non-Qualified Stock Option to
purchase a number of Shares determined by the Committee. Subject to Section 13
hereof, optioned Shares which may have been but were not purchased during any
one twelve (12)-month period may be purchased during any one or more succeeding
twelve (12)-month periods until expiration. Payment for the stock purchased
pursuant to the exercise of the Option shall be made in full at the time of the
exercise of the Option by cash, by check payable to the order of the
Corporation, or by the delivery to the Corporation of Mature Shares which shall
be valued at their fair market value on the date of exercise of the Option.
6. Grant of Options. The number of Options to be granted to any eligible
person shall be determined by the Committee in its sole discretion. At the time
an Option is granted, the Committee may, in its sole discretion, designate
whether such Option (a) is to be considered as an Incentive Stock Option, or (b)
is to be treated as a Non-Qualified Stock Option for purposes of this Plan and
the Code, or (c) is in part to be considered as an Incentive Stock Option and in
part to be treated as a Non-Qualified Stock Option for purposes of this Plan and
the Code; provided, however, that no Incentive Stock Option may be granted after
March 12, 2012.
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Notwithstanding any other provision of this Plan to the contrary, to the extent
that the aggregate Fair Market Value (determined as of the date an Option is
granted) of the Shares with respect to which Options which are designated as
Incentive Stock Options (and any other incentive stock options granted to an
employee after 1986 under any other incentive stock option plan maintained by
the Corporation or any Affiliate that meets the requirements of Section 422 of
the Code) first become exercisable in any calendar year exceeds $100,000, such
Options shall be treated as Non-Qualified Stock Options. This paragraph shall be
applied by taking options into account in the order in which they are granted.
Nothing herein contained shall be construed to prohibit the granting of Options
at different times to the same person.
The form of Option shall be as determined from time to time by the Committee. A
certificate of Option signed by the Chairman of the Board or the President or a
Vice President, attested by the Treasurer or an Assistant Treasurer, or
Corporate Secretary or an Assistant Secretary of the Corporation having the seal
of the Corporation affixed thereto, shall be delivered to each person to whom an
Option is granted.
7. Grant of Rights. The Committee shall have the authority in its discretion
to grant to any eligible person Rights which may be granted separately or in
connection with an Option (either at the time of grant or at any time during the
term of the Option; provided, however, that in the case of an Incentive Stock
Option, Rights may be granted only at the time the Incentive Stock Option is
granted). Rights granted in connection with an Option, shall be granted with
respect to the same number of Shares then covered by the Option, subject to
adjustment pursuant to the provisions of Section 16 hereof, and may be exercised
as determined by the Committee in its discretion at the time of the grant of the
Rights, either in conjunction with, or as an alternative to, the exercise of the
related Option.
Conjunctive Rights granted in connection with an Option shall entitle the holder
thereof to receive payment from the Corporation, determined as hereinafter
provided, only if and to the extent that the related Option is exercisable and
is exercised. Upon any exercise of an Option in respect of which conjunctive
Rights shall have been granted, the holder of the Rights shall be entitled to
receive payment of an amount equal to the product obtained by multiplying (i)
the excess of the Fair Market Value of one Share on the date of such exercise
over the purchase price per Share payable upon exercise of the related Option
(the "Price Spread"), or a portion of the Price Spread determined by the
Committee at the time of grant, by (ii) the number of Shares in respect of which
the related Option shall have then been so exercised; provided, however, that
the amount of the payment which a holder of such Rights shall be entitled to
receive upon any exercise of the Rights shall in no event exceed two times the
aggregate purchase price payable by such holder for the Shares in respect of
which the related Option shall have then been so exercised.
Alternative Rights granted in connection with an Option shall entitle the holder
thereof to receive payment from the Corporation, determined as hereinafter
provided, only if and to the extent that the related Option is exercisable, by
surrendering the Option with respect to the number of Shares as to which such
Rights are then exercised. Such Option, to the extent surrendered, shall be
deemed exercised. Upon any exercise of alternative Rights, the holder thereof
shall be entitled to receive payment of an amount equal to the product obtained
by multiplying (i) the Price Spread, or a portion of the Price Spread determined
by the Committee at the time of grant, by (ii) the number of Shares in respect
of which the Rights shall have then been so exercised. Alternative Rights
granted in connection with an Incentive Stock Option shall not be exercisable
unless the Price Spread exceeds zero. Rights granted without relationship to an
Option shall be exercisable as determined by the Committee, but in no event
after seven (7) years from the date of grant. Such Rights shall entitle the
holder, upon the exercise thereof, to receive payment from the Corporation of an
amount equal to the product obtained by multiplying (i) the excess of the Fair
Market Value of one Share on the date of such exercise over the Fair Market
Value of one Share on the date the Rights were granted (the "Value Spread"), or
a portion of the Value Spread determined by the Committee at the time of grant,
by (ii) the number of Shares in respect of which the Rights shall have then been
so exercised.
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Notwithstanding anything contained herein, the Committee may, in its sole
discretion, limit the amount payable upon the exercise of Rights. Any such
limitation shall be determined as of the date of grant and noted on the
certificate evidencing the grant of the Rights.
Payment of the amount determined hereunder upon the exercise of conjunctive
Rights or Rights granted without relationship to an Option shall be made solely
in cash. At the holder's election, payment of the amount determined hereunder
upon the exercise of alternative Rights granted in connection with an Option may
be made solely in cash, or solely in Shares valued at their Fair Market Value on
the date of exercise of the Rights, or in a combination of cash and Shares.
Notwithstanding any other provision of the Plan or of any Option or Rights, upon
the exercise of such alternative Rights, the Committee shall have the power at
its discretion to disapprove the holder's election as to the form (i.e., cash or
Shares, or part in cash and part in Shares) in which payment of the Rights will
be made and to substitute therefor payment as it determines. If the Committee
does not disapprove an election made upon the exercise of Rights within 60 days
after such exercise or election then the Committee shall be deemed to have
approved such election. No fractional Shares shall be issued by the Corporation,
and settlement therefor shall be made in cash.
The form of Rights shall be as determined from time to time by the Committee. A
Certificate of Rights signed by the Chairman of the Board or the President or a
Vice President, attested by the Treasurer or an Assistant Treasurer, or
Corporate Secretary or an Assistant Secretary of the Corporation and having the
seal of the Corporation affixed thereto, shall be delivered to each person to
whom Rights are granted.
8. Duration of Option and Related Rights. The duration of any Option granted
under the Plan shall be fixed by the Committee in its sole discretion; provided,
however, that no Option shall remain in effect for a period of more than seven
(7) years from the date on which it is granted; and provided further that an
Incentive Stock Option that is granted to an employee of the Corporation or an
Affiliate who, at the time of grant, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation or any
Affiliate, may not have a term that exceeds five years from the date of grant.
The duration of any Rights granted in connection with any Option granted under
the Plan shall be coterminous with the duration of the related Option.
9. Exercise of Options and Rights. Except as otherwise provided hereunder, an
Option and Rights, after the grant thereof, shall be exercisable by the holder
at such rate and times as may be fixed by the Committee, in its sole discretion,
at the time the Option and Rights are granted. Notwithstanding the foregoing,
all or any part of any remaining unexercised Options or Rights granted to any
person may be exercised (a) subject to the provisions of Section 13 hereof, upon
the holder's retirement at or after age 65, provided the holder has completed at
least two full years of employment with the Corporation or any Affiliate, (b)
subject to the provisions of Section 13 hereof, upon the death of the holder,
(c) upon the holder's termination of employment in connection with a Change in
Control, or (d) upon the occurrence of such special circumstance or event as in
the opinion of the Committee merits special consideration.
As used in the Plan, a "Change in Control" shall be deemed to have occurred if
(i) Any person (except the Corporation, any subsidiary of the Corporation,
any employee benefit plan of the Corporation or of any subsidiary of the
Corporation, or any person or entity organized, appointed or established
by the Corporation for or pursuant to the terms of any such employee
benefit plan), together with all affiliates and associates of such person,
becomes the beneficial owner, directly or indirectly, in the aggregate of
20% or more of the value of the outstanding equity or combined voting
power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors; or
(ii) The shareholders of the Corporation approve a merger or consolidation
the result of which is that the shareholders of the Corporation do not own
or control at least 50% or more of the value of the outstanding equity or
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors, or
there occurs a sale or other
A-5
disposition of all or substantially all of the Corporation's assets or a
plan of liquidation is approved; provided, however, that an internal
reorganization shall not constitute a "Change in Control" if the
shareholders of the Corporation own or control, directly or indirectly, at
least 50% of the value of the outstanding equity or combined voting power
of the then outstanding voting securities of the new company entitled to
vote generally in the election of directors of that company.
An Option shall be exercised by the delivery of a duly signed notice in writing
to such effect, together with the Option certificate and the full purchase price
of the Shares purchased pursuant to the exercise of the Option to the Corporate
Secretary or an officer of the Corporation appointed by the Chairman of the
Board for the purpose of receiving the sum. Payment of the full purchase price
shall be made as follows: in cash or by check payable to the order of the
Corporation, or by delivery to the Corporation of Mature Shares which shall be
valued at their Fair Market Value on the date of exercise of the Option or by
such other methods as the Committee may permit from time to time, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Any Rights exercised in conjunction therewith
shall be exercised by the inclusion in such notice of a notice of exercise of
Rights, together with the Rights certificate.
Within a reasonable time after the exercise of an Option, the Corporation shall
cause to be issued and delivered, to the person entitled thereto, a certificate
for the Shares purchased pursuant to the exercise of the Option, and, if Rights
have been exercised in conjunction therewith, the amount of cash determined in
accordance with Section 7 hereof. If the Option and any conjunctive Rights shall
have been exercised with respect to less than all of the Shares subject to the
Option and Rights, the Corporation shall also cause to be delivered to the
person entitled thereto an Option certificate and a Rights certificate with
respect to the number of Shares equal to the difference between the number of
Shares of the Option certificate and Rights certificate surrendered at the time
of the exercise of the Option and Rights and the number of Shares with respect
to which the Option and Rights were so exercised, or the original Option
certificate and Rights certificate shall be endorsed to give effect to the
partial exercise thereof. If any Option is treated in part as an Incentive Stock
Option and in part as a Non-Qualified Stock Option, the Corporation shall
designate the Shares that are treated as purchased pursuant to the exercise of
an Incentive Stock Option by causing to be delivered a separate certificate
therefor.
Rights that are exercisable as an alternative to the exercise of a related
Option, or without any relationship to an Option, shall be exercised by the
delivery of a duly signed notice in writing to such effect, together with the
Rights certificate, and, in the case of alternative Rights, a specification of
the percentages of the Rights which the holder desires to receive in cash and in
Shares. Holders of alternative Rights shall also surrender the related Option
certificate. Within a reasonable time thereafter, the Corporation shall cause to
be delivered and/or issued to the person entitled thereto, the amount of cash
and/or a certificate for the number of Shares determined in accordance with
Section 7 hereof. Upon the exercise of alternative Rights, the number of Shares
subject to exercise under the related Option or portion thereof shall be reduced
by the number of Shares represented by the Option or portion thereof
surrendered. Shares subject to Options or portions thereof surrendered upon the
exercise of alternative Rights shall not be available for subsequent Incentive
Awards under the Plan. If the Rights shall have been exercised with respect to
less than all of the Shares subject thereto (or to the related Option, if any),
the Corporation shall also cause to be delivered to the person entitled thereto
a Rights certificate (and an Option certificate, in the case of alternative
Rights) with respect to the difference between the number of Shares of the
Rights certificate (and related Option certificate, if any) surrendered at the
time of the exercise of the Rights and the number of Shares with respect to
which the Rights were so exercised (and the related Option, if any, was so
surrendered), or the original Rights certificate (and related Option
certificate, if any) shall be endorsed to give effect to the partial exercise
(and surrender) thereof.
Notwithstanding any other provision of the Plan or of any Option or Rights, no
Option or Rights granted pursuant to the Plan may be exercised at any time when
the Option or Rights or the granting or exercise thereof violates any law or
governmental order or regulation.
A-6
10. Terms and Conditions of Restricted Stock Awards.
(a) All Restricted Shares granted to or purchased by an eligible
person pursuant to the Plan shall be subject to the following
conditions:
(i) the Restricted Shares may not be sold, transferred, or
otherwise alienated or hypothecated until the
restrictions are removed or expire;
(ii) each certificate representing Restricted Shares issued
pursuant to a Restricted Stock Award under this Plan
shall bear a legend making appropriate reference to the
restrictions imposed;
(iii) no Restricted Shares shall have a vesting period of less
than 3 years except upon the occurrence of such special
circumstance or event as, in the opinion of the
Committee, merits special consideration; and
(iv) the Committee may impose such other conditions as it may
deem advisable on any Restricted Shares granted to or
purchased by an eligible person pursuant to a Restricted
Stock Award under this Plan, including, without
limitation, restrictions under the requirements of any
stock exchange upon which such Shares or shares of the
same class are then listed, and under any securities law
applicable to such Shares.
(b) The restrictions imposed under subsection (a) hereof upon
Restricted Stock Awards shall lapse in accordance with a
schedule or other conditions as determined by the Committee,
subject to the provisions of Section 13 hereof.
(c) Prior to the expiration or lapse of all of the restrictions
and conditions imposed upon Restricted Shares, a stock
certificate or certificates representing such Restricted
Shares shall be registered in the holder's name but shall be
retained by the Corporation for the holder's account. The
holder shall have the right to vote such Restricted Shares and
shall have all other rights and privileges of a beneficial and
record owner with respect thereto, including, without
limitation, the right to receive dividends, distributions and
adjustments with respect thereto; provided, however, that such
dividends, distributions and adjustments may be retained by
the Corporation for the holder's account and for delivery to
the holder, together with the stock certificate or
certificates representing such Restricted Shares, as and when
said restrictions and conditions shall have expired or lapsed.
11. Terms and Conditions of Phantom Stock Awards. The Committee shall have the
authority in its discretion to grant to any eligible person Phantom Stock Awards
which shall be subject to the following conditions:
(a) The Phantom Stock Units credited to the holder of a Phantom
Stock Award shall be subject to a vesting period which shall
mean a period commencing on the date the Award is granted and
ending in accordance with a schedule or other conditions as
determined by the Committee, subject to the provisions of
Section 13 hereof. The Committee may provide for the
expiration of the vesting period in installments where deemed
appropriate.
(b) A Phantom Stock Award shall entitle the holder, upon the
expiration of the vesting period, to receive payment from the
Corporation of an amount equal to the product obtained by
multiplying (i) the Fair Market Value of one Share on the date
of such expiration by (ii) the number of Phantom Stock Units
in respect of which the vesting
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period shall have then expired. The payment of such amount may
be made solely in cash, or solely in Shares valued at their
Fair Market Value on the date of expiration of the vesting
period, or in a combination of cash and Shares, subject to
such terms and conditions as are determined by the Committee;
provided, however, that no fractional Shares shall be issued
by the Corporation, and settlement therefor shall be made in
cash.
(c) The Committee may impose such other conditions as it may deem
advisable on any Shares which may be issued pursuant to a
Phantom Stock Award under this Plan, including, without
limitation, restrictions under the requirements of any stock
exchange upon which such Shares or shares of the same class
are then listed, and under any securities law applicable to
such Shares.
(d) Prior to the expiration of the vesting period under a Phantom
Stock Award, amounts equal to the dividends payable with
respect to the same number of Shares as the number of Phantom
Stock Units as to which the vesting period has not expired
shall be credited to the holder's account under such Award;
provided, however, that such dividend-equivalent amounts may
be retained by the Corporation for the holder's account and
for delivery to the holder only as and when said vesting
period shall have expired.
12. Purchase Price. The purchase price per Share for Restricted Shares to be
purchased pursuant to Restricted Stock Awards, or for the Shares to be purchased
pursuant to the exercise of an Option, shall be fixed by the Committee at the
time of the grant of the Restricted Stock Award or Option; provided, however,
that the purchase price per Share for the Shares to be purchased pursuant to the
exercise of an Incentive Stock Option or Non-Qualified Stock Option shall not be
less than 100% of the Fair Market Value of a Share on the date such Incentive
Stock Option or Non-Qualified Stock Option is granted; and, provided further,
that an Incentive Stock Option that is granted to an employee of the Corporation
or an Affiliate who, at the time of grant, owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Corporation or
any Affiliate, must have a purchase price per Share equal to 110% of the Fair
Market Value of a Share on the date of grant.
13. Termination of Employment. If a holder of an Option and/or Rights shall
voluntarily or involuntarily leave the employ or service of the Corporation and
its Affiliates, the Option and Rights of such holder shall terminate forthwith,
except that the holder shall have until the expiration of 3 months from the
cessation of the holder's employment or service with the Corporation and its
Affiliates (without regard to any period of severance) to exercise any
unexercised Option and/or Rights the holder could have exercised on the day on
which he left the employ or service of the Corporation and Affiliates, including
those Options and/or Rights that become exercisable upon cessation of employment
pursuant to the provisions of the first paragraph of Section 9 hereof.
Notwithstanding the foregoing, if the cessation of employment or service is due
to retirement on or after attaining the age of sixty-five years, or to death,
the holder or the representatives of the estate of the holder shall have the
privilege of exercising the unexercised Options and/or Rights which the holder
or the deceased could have exercised at the time of his retirement or death,
provided that such exercise must be accomplished prior to the expiration of such
Options and Rights and either within three months of the holder's retirement or
within six months after the death of the holder, as the case may be. Moreover,
the Committee may, in its sole discretion, provide with respect to an Option or
Rights granted to any individual (and either at the time of grant of such Option
or Rights or by an amendment thereafter to any such outstanding Option or
Rights), that the post-termination or post-death exercise period shall be for a
period of time specified by the Committee which is longer than the period which
would otherwise apply pursuant to this Section 13, but in no event beyond the
expiration of the stated term of such Option or Rights. If the employment or
service of any holder with the Corporation or an Affiliate shall be terminated
because of the holder's violation of the duties of such employment or service
with the Corporation or its Affiliates, as he may from time to time have, the
existence of which violation shall be determined by the Committee in its sole
discretion and which determination by the Committee shall be conclusive, all
unexercised Options and Rights of such holder shall terminate immediately
A-8
upon the termination of the holder's employment or service with the Corporation
or an Affiliate, and a holder whose employment or service with the Corporation
or an Affiliate is so terminated shall have no right after such termination to
exercise any unexercised Option or Rights he might have exercised prior to the
termination of his employment or service with the Corporation or an Affiliate.
Except as hereinafter provided, if a holder of a Restricted Stock Award shall
voluntarily or involuntarily leave the employ [or service] of the Corporation
and its Affiliates, all such Restricted Shares subject to restrictions at the
time his employment [or service] terminates (and any dividends, distributions
and adjustments retained by the Corporation with respect thereto) shall be
forfeited and any consideration received therefor from the holder shall be
returned to the holder. Notwithstanding the foregoing, all restrictions to which
Restricted Stock Awards are subject shall lapse (a) upon the death or disability
(as defined in Section 22(e)(3) of the Code) of the holder, (b) upon the
holder's termination of employment [or cessation of service as a Director] in
connection with a Change in Control (as defined in Section 9 hereof), or (c)
upon the occurrence of such special circumstance or event as in the opinion of
the Committee merits special consideration.
Except as hereinafter provided, if a holder of a Phantom Stock Award shall
voluntarily or involuntarily leave the employ [or service] of the Corporation
and its Affiliates prior to the complete expiration of the vesting period, all
amounts theretofor remaining payable pursuant to such Award (including any
dividend equivalent amounts retained by the Corporation with respect thereto)
shall be forfeited. Notwithstanding the foregoing, the vesting period under a
Phantom Stock Award shall completely expire, and all amounts remaining payable
thereunder shall be payable (a) upon the death or disability (as defined in
Section 22(e)(3) of the Code) of the holder, (b) upon the holder's termination
of employment [or service] in connection with a Change in Control, or (c) upon
the occurrence of such special circumstance or event as in the opinion of the
Committee merits special consideration.
14. Transferability of Incentive Awards.
(a) Non-Transferability of Incentive Awards. Except as provided
below, Incentive Awards shall not be transferable by the
holder thereof otherwise than by will or the laws of descent
and distribution to the extent provided herein, and Incentive
Awards may be exercised or surrendered during the holder's
lifetime only by the holder thereof.
(b) Transfer of Non-Qualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Non-Qualified Stock
Option certificate, that the holder thereof may transfer the
Non-Qualified Stock Option to family members or other persons
or entities according to such terms as the Committee may
determine; provided that the holder thereof receives no
consideration for the transfer of a Non-Qualified Stock Option
and the transferred Option shall continue to be subject to the
same terms and conditions as were applicable to the Option
immediately before the transfer.
15. Tax Withholding. The Corporation or Affiliate will take such action as it
deems appropriate to ensure compliance with all federal, state or local income
tax withholding laws. In order to facilitate a Participant's payment of his
withholding obligations with respect to Incentive Awards, the Committee, in its
discretion, and subject to such additional terms and conditions as it may adopt,
may permit the Participant to elect to (a) deduct from any cash payment
otherwise due to the Participant, the appropriate withholding amount, (b) pay to
the Corporation in cash the appropriate withholding amount, (c) have the
Corporation withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse or restrictions relating to) such Incentive
Award, the fair market value of which is equal to the minimum statutory
withholding amount, or (d) deliver to the Corporation Mature Shares already
owned by the Participant, the fair market value of which is equal to the
appropriate withholding amount.
16. Adjustment Provision. If prior to the complete exercise of any Option, or
prior to the expiration or lapse of all of the restrictions and conditions
imposed pursuant to a Restricted Stock Award, there shall be
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declared and paid a stock dividend upon the Shares or if the Shares shall be
split up, converted, exchanged, reclassified, or in any way substituted for,
(a) in the case of an Option, then the Option, to the extent that
it has not been exercised, shall entitle the holder thereof
upon the future exercise of the Option to such number and kind
of securities or cash or other property subject to the terms
of the Option to which he would have been entitled had he
actually owned the Shares subject to the unexercised portion
of the Option at the time of the occurrence of such stock
dividend, split-up, conversion, exchange, reclassification or
substitution, and the aggregate purchase price upon the future
exercise of the Option shall be the same as if the originally
optioned Shares were purchased thereunder; and
(b) in the case of a Restricted Share issued pursuant to a
Restricted Stock Award, the holder of such Award shall
receive, subject to the same restrictions and other conditions
of such Award as determined pursuant to the provisions of
Section 10, the same securities or other property as are
received by the holders of the Corporation's Shares pursuant
to such stock dividend, split-up, conversion, exchange,
reclassification or substitution.
Any fractional shares or securities payable upon the exercise of the Option as a
result of such adjustment shall be payable in cash based upon the Fair Market
Value of such shares or securities at the time of such exercise. If any such
event should occur, the number of Shares with respect to which Incentive Awards
remain to be issued, or with respect to which Incentive Awards may be reissued,
shall be adjusted in a similar manner.
In addition to the adjustments provided for in the preceding paragraph, upon the
occurrence of any of the events referred to in said paragraph prior to the
complete exercise of any Rights, or prior to the complete expiration of the
vesting period under a Phantom Stock Award, the Committee, in its sole
discretion, shall determine the amount of cash and/or number of Shares or other
property to which the holder of the Rights shall be entitled upon their
exercise, or to which the holder of the Phantom Stock Award shall be entitled
upon the expiration of the vesting period, so that there shall be no increase or
dilution in the cash and/or value of the shares or other property to which the
holder of Rights or of a Phantom Stock Award shall be entitled by reason of such
events.
Notwithstanding any other provision of the Plan, in the event of a
recapitalization, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the corporate structure or
outstanding Shares, the Committee may make such equitable adjustments to the
number of Shares and the class of shares available hereunder or to any
outstanding Incentive Awards as it shall deem appropriate to prevent dilution or
enlargement of rights.
17. Issuance of Shares and Compliance with Securities Act. The Corporation may
postpone the issuance and delivery of Shares pursuant to the grant or exercise
of any Incentive Award until (a) the admission of such Shares to listing on any
stock exchange on which Shares of the Corporation of the same class are then
listed and (b) the completion of such registration or other qualification of
such Shares under any state or federal law, rule or regulation as the
Corporation shall determine to be necessary or advisable. As a condition
precedent to the issuance of Shares pursuant to the grant or exercise of an
Incentive Award, the Corporation may require the recipient thereof to make such
representations and furnish such information as may, in the opinion of counsel
for the Corporation, be appropriate to permit the Corporation, in light of the
then existence or non-existence with respect to such Shares of an effective
Registration Statement under the Securities Act of 1933, as from time to time
amended, to issue the Shares in compliance with the provisions of that or any
comparable act.
18. Administration and Amendment of the Plan. Except as hereinafter provided,
the Board of Directors or the Committee may at any time withdraw or from time to
time amend the Plan and the terms and conditions of any Incentive Award not
theretofor granted, and the Board of Directors or the Committee, with the
consent of the affected holder of an Incentive Award, may at any time withdraw
or from time to time amend the Plan and the terms and conditions of such
Incentive Awards as have been theretofor granted. Notwithstanding the foregoing,
neither the Board of Directors nor the Committee shall (a) amend the Plan
without the approval of
A-10
the stockholders, if such approval is required by Section 422 or 162(m) of the
Code, (b) materially amend the Plan without stockholder approval, or (c) without
stockholder approval reprice any outstanding Incentive Award by either amending
such Incentive Award to reduce the exercise price, purchase price or grant date
Fair Market Value per Share thereof or canceling such Incentive Award and
regranting or replacing such Incentive Award as or with an Incentive Award
having a lower exercise price, purchase price or grant date Fair Market Value
per Share.
The Committee shall have the sole authority to (i) determine the individuals to
whom Incentive Awards shall be made under the Plan, (ii) determine the type,
size and terms of the Incentive Awards to be made to each such individual, (iii)
determine the time when the Incentive Awards will be made and the duration of
any applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability and (iv) deal with any
other matters arising under the Plan.
The Committee shall have full power and authority to administer and interpret
the Plan, to make factual determinations and to adopt or amend such rules,
regulations, agreements and instruments for implementing the Plan and for the
conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interest in the Plan or in any
Incentive Awards granted hereunder. All powers of the Committee shall be
executed in its sole discretion, in the best interest of the Corporation, not as
a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
19. Governing Law. Except as required by Delaware corporate law, the Plan
shall be governed by and construed in accordance with the laws of the
state of New York, without giving effect to principles of conflict of laws.
20. Effective Date of Plan. This Plan is conditioned upon its approval by the
shareholders of the Corporation.
21. Governing Document. The Plan shall be the controlling document. No other
statements, representations, explanatory materials or examples, oral or written,
may amend the Plan in any manner. The Plan shall be binding upon and enforceable
against the Corporation and its successors and assigns.
22. Funding of the Plan. This Plan shall be unfunded. The Corporation shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Incentive Awards under this
Plan. In no event shall interest be paid or accrued on any Incentive Award,
including unpaid installments of Incentive Awards.
23. Rights of Participants. Nothing in this Plan shall entitle any employee or
other person to any claim or right to be granted an Incentive Award under this
Plan, [except as provided in Section 5 with respect to Non-Employee Directors].
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Corporation
or any Affiliate, or any other employment rights.
24. Headings. Section headings are for reference only. In the event of a
conflict between a title and the content of a Section, the content of the
Section shall control.
25. Miscellaneous
(a) Incentive Awards in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed
to (i) limit the right of the Committee to make Incentive
Awards under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association,
including Incentive Awards to employees thereof who become
employees of
A-11
the Corporation or an Affiliate, or for other proper corporate
purposes, or (ii) limit the right of the Corporation to grant
options or make other awards outside of this Plan. Without
limiting the foregoing, the Committee may make an Incentive
Award to an employee of another corporation who becomes an
employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or
liquidation involving the Corporation or any of its
subsidiaries in substitution for a stock option or restricted
stock grant made by such corporation. The terms and conditions
of the substitute grants may vary from the terms and
conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe
the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and
Rights and the obligations of the Corporation to issue or
transfer Shares under Incentive Awards shall be subject to all
applicable laws and to approvals by any governmental or
regulatory agency as may be required. With respect to persons
subject to Section 16 of the Act, it is the intent of the
Corporation that all transactions under the Plan comply with
all applicable provisions of Rule 16b-3 or its successors
under the Act. The Committee may revoke any Incentive Award if
it is contrary to law or modify an Incentive Award to bring it
into compliance with any valid and mandatory government
regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to holders of Incentive
Awards. The Committee may, in its sole discretion, agree to
limit its authority under this Section.
(c) Limitations on Actions Taken in Connection with a Change in
Control. Notwithstanding anything in the Plan to the contrary,
in the event of a Change in Control (as defined in Section 9
hereof), the Committee shall not have the right to take any
actions that would make the Change in Control ineligible for
desired tax treatment if, in the absence of such right, the
Change in Control would qualify for such treatment and the
Corporation intends to use such treatment with respect to the
Change in Control.
A-12
AMETEK, INC.
ANNUAL FINANCIAL INFORMATION AND REVIEW OF OPERATIONS
(APPENDIX TO PROXY STATEMENT)
INDEX
PAGE
----
Selected Financial Data................................................................... B-2
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................... B-4
Report of Management ..................................................................... B-16
Report of Independent Auditors ........................................................... B-17
Consolidated Statement of Income ......................................................... B-18
Consolidated Balance Sheet ............................................................... B-19
Consolidated Statement of Stockholders' Equity ........................................... B-20
Consolidated Statement of Cash Flows ..................................................... B-21
Notes to Consolidated Financial Statements ............................................... B-22
B-1
AMETEK, INC.
SELECTED FINANCIAL DATA
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%
B-2
- ----------
(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.
B-3
AMETEK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of the Company's financial condition
and results of operations set forth below should be read in conjunction with the
Selected Financial Data and the consolidated financial statements of the Company
and the related notes shown in the index on page B-1 of this report.
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.
B-4
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:
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
=========== =========== =========
- --------------
(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, 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
B-5
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.
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.
B-6
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.
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.
B-7
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.
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.
B-8
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. 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 the book balance of accounts receivable under its accounts
receivable securitization program 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. The Company's 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.
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 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),
B-9
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.
CONTRACTUAL COMMITMENTS
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.
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
====== ====== ====== ====== ======
(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.
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.
B-10
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 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
B-11
impacted. As noted on page B-6, 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.
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
B-12
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 $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.
B-13
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.
- - 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.
B-14
- - 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.
B-15
REPORT OF MANAGEMENT
Management has prepared and is responsible for the integrity of the
consolidated financial statements and related information included herein. The
statements are prepared in conformity with accounting principles generally
accepted in the United States consistently applied and include certain amounts
based on management's best estimates and judgments. Historical financial
information elsewhere in this report is consistent with that in the financial
statements.
In meeting its responsibility for the reliability of the financial
information, management maintains a system of internal accounting controls,
including an internal audit program. The system of controls provides for
appropriate division of responsibility and the application of written policies
and procedures. That system, which undergoes continual reevaluation, is designed
to provide reasonable assurance that assets are safeguarded and records are
adequate for the preparation of reliable financial data. Management uses its
best judgment in balancing the benefits of the system with its cost. Management
believes that the Company's system of internal control is effective and adequate
to accomplish the above-described objectives.
The Company's independent auditors, Ernst & Young LLP, are engaged to
render an opinion as to whether management's financial statements present
fairly, in all material respects, the Company's financial position and operating
results. Their report is included on the next page.
The Audit Committee of the Board of Directors, which is composed solely
of Directors who are not employees of the Company, meets with the independent
auditors, the internal auditors and management to satisfy itself that each is
properly discharging its responsibilities. The Report of the Audit Committee is
included in this proxy statement. Both the independent auditors and internal
auditors have direct access to the Audit Committee.
Management also recognizes its responsibility for conducting the
Company's activities according to the highest standards of personal and
corporate conduct. That responsibility is characterized and reflected in key
policy statements publicized throughout the Company.
/s/ John J. Molinelli
John J. Molinelli
Executive Vice President-
January 29, 2002 Chief Financial Officer
B-16
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
B-17
AMETEK, INC.
CONSOLIDATED STATEMENT OF INCOME
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
=========== =========== =========
See accompanying notes.
B-18
AMETEK, INC.
CONSOLIDATED BALANCE SHEET
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
=========== =========
See accompanying notes.
B-19
AMETEK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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, $0.01 par value.......... $ -- $ -- $ --
--------- -------- --------
Common Stock, $0.01 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) income
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 16,038 7,961 7,641
plans.....................................
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
========= ======== ========
- ----------
(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.
B-20
AMETEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
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
========= ========= =========
See accompanying notes.
B-21
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.
B-22
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
Weighted average shares (in thousands): 2001 2000 1999
---------------------------------------------------------------------------------------
Basic ................................. 32,838 32,131 32,297
Stock option and award plans .......... 607 403 628
------ ------ ------
Diluted ............................... 33,445 32,534 32,925
---------------------------------------------------------------------------------------
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
B-23
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
no carrying amounts related to the above derivative financial instruments in the
consolidated balance sheet and the Company had no derivatives outstanding at
December 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
B-24
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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:
In thousands
------------
Working capital $ 20,000
Property, plant and equipment 4,000
Goodwill 76,000
---------
Net assets acquired $ 100,000
=========
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 part of the Electronic
Instruments Group. The aggregate purchase price paid for the 2000 acquisitions
was $81 million.
B-25
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
B-26
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER BALANCE SHEET INFORMATION
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
========= =========
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
======= ======= =======
B-27
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
At December 31, 2001 and 2000, long-term debt consisted of the following:
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
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.
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.
B-28
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
B-29
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
2001 2000 1999
----------------------------------------------------------------------------------------
Price Price Price
Shares Range Shares Range Shares 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
========================================================================================
The following table summarizes information pertaining to the Company's
stock options outstanding at December 31, 2001:
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Options Exercise Contractual Options 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
========= ====== === ========== =======
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
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:
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
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.
B-30
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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%
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.
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:
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
======== ======== ========
B-31
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax (asset) liability as of
December 31 are as follows:
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
======== ========
The effective rate of the provision for income taxes reconciles to the statutory
rate as follows:
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%
==== ==== ====
(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, 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.
B-32
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
B-33
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
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
========= =========
The following table provides aggregate information for defined benefit
pension plans with accumulated benefits in excess of plan assets:
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-
B-34
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the amounts recognized in the consolidated
balance sheets at December 31, 2001 and 2000:
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
======== ========
The following table provides the components of net periodic pension
(income) expense for the last three years ended December 31:
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
======== ======== ========
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):
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%
B-35
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
B-36
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
ASSET (LIABILITY)
(IN THOUSANDS)
------------------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
RECORDED FAIR RECORDED FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
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)
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
B-37
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
B-38
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORTABLE SEGMENT FINANCIAL INFORMATION
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
========== ========== ========
(1) Includes $6.0 million in 2001, $4.2 million in 2000, and $18.9 million in
1999 from acquired businesses.
B-39
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
========== ========== ==========
(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.
B-40
AMETEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
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
(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.
B-41
DIRECTIONS TO
ANNUAL MEETING OF SHAREHOLDERS OF AMETEK, INC.
HELD AT
J. P. MORGAN CHASE & CO.
270 PARK AVENUE
11TH FLOOR CONFERENCE CENTER
NEW YORK, NY 10017
(212) 270-6000
J. P. Morgan Chase & Co.'s 270 Park Avenue location is in midtown Manhattan and
accessible by mass transportation from New York, New Jersey, Connecticut, Long
Island and elsewhere. Below are automobile directions:
DIRECTIONS FROM NEW JERSEY
Take Route 3 East to the Lincoln Tunnel. Upon exiting the Tunnel, turn right
onto 40th Street and proceed eastbound to Park Avenue. Turn left onto Park
Avenue and travel north to East 49th Street. Turn left at 49th Street and
proceed southbound on Park Avenue. J. P. Morgan Chase & Co. is located on Park
Avenue between 47th and 48th Streets.
Alternate route: From the George Washington Bridge, follow signs to Henry Hudson
Parkway South. Take the Parkway South to the 56th Street exit (a left lane
exit). At the end of the exit ramp, proceed straight onto 56th Street. Proceed
eastbound to Park Avenue. Turn right onto Park Avenue and proceed southbound. J.
P. Morgan Chase & Co. is located on Park Avenue between 47th and 48th Streets.
DIRECTIONS FROM CONNECTICUT
Take I-95 South to the Cross Bronx Expressway. Take the Cross Bronx Expressway
to the last exit in New York (stay to the right when approaching the George
Washington Bridge so as not to miss the exit). Follow signs for Henry Hudson
Parkway/181st Street. Take the Henry Hudson Parkway South to the 56th Street
exit (a left lane exit). At the end of the exit ramp, proceed straight onto 56th
Street. Proceed eastbound to Park Avenue. Turn right onto Park Avenue and
proceed southbound. J. P. Morgan Chase & Co. is located on Park Avenue between
47th and 48th Streets.
Alternate route: Take I-684 South or the Merrett Parkway onto the Hutchinson
River Parkway South to the Cross County Parkway. Proceed west on the Cross
County Parkway to the Saw Mill River Parkway South. The Saw Mill becomes the
Henry Hudson Parkway in New York City. Proceed south on the Parkway until the
56th Street exit (a left lane exit). At the end of the exit ramp, proceed
straight onto 56th Street. Proceed eastbound to Park Avenue. Turn right onto
Park Avenue and proceed southbound. J. P. Morgan Chase & Co. is located on Park
Avenue between 47th and 48th Streets.
DIRECTIONS FROM LONG ISLAND
Take the Long Island Expressway West (Route 495) to the Midtown Tunnel. Upon
exiting the Tunnel, turn left onto East 39th Street and proceed westbound to
Park Avenue. Turn right onto Park Avenue and travel north to East 49th Street.
Turn left at 49th Street and proceed southbound on Park Avenue. J. P. Morgan
Chase & Co. is located on Park Avenue between 47th and 48th Streets.
Alternate route: Take the Grand Central Parkway to the Triborough Bridge. Take
the exit to Manhattan and follow signs for the FDR Drive South. Exit at 63rd
Street and proceed to Park Avenue. Turn left and proceed southbound. J. P.
Morgan Chase & Co. is located on Park Avenue between 47th and 48th Streets.
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NOTIFICATION OF ELECTRONIC AVAILABILITY
IF YOU WOULD LIKE TO RECEIVE FUTURE NOTIFICATION OF THE AVAILABILITY
OF THE PROXY STATEMENT AND ANNUAL REPORT ELECTRONICALLY, PLEASE
VISIT www.investpower.com. CLICK ON "ENROLL TO RECEIVE MAILINGS VIA
E-MAIL" AND REFER TO THE COMPANY NUMBER AND ACCOUNT NUMBER ON TOP OF
THE REVERSE SIDE OF THIS CARD.
ANNUAL MEETING OF SHAREHOLDERS
AMETEK, INC.'s ANNUAL MEETING OF SHAREHOLDERS WILL BE HELD AT 3:00
P.M. ON TUESDAY, MAY 21, 2002, AT J. P. MORGAN CHASE & CO., 270 PARK
AVENUE, 11TH FLOOR CONFERENCE CENTER, NEW YORK, NEW YORK 10017.
PLEASE SEE YOUR PROXY STATEMENT FOR DIRECTIONS SHOULD YOU WISH TO
ATTEND THE MEETING.
AMETEK, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Frank S. Hermance, Donna F. Winquist
and Kathryn E. Londra or a majority of those present and acting, or, if
only one is present, then that one, proxies, with full power of
substitution, to vote all stock of AMETEK, Inc. which the undersigned is
entitled to vote at AMETEK's Annual Meeting of Shareholders to be held at
J. P. Morgan Chase & Co., 270 Park Avenue, 11th Floor Conference Center,
New York, New York 10017, on Tuesday, May 21, 2002, at 3:00 p.m. local
time, and at any adjournment or postponements thereof, hereby ratifying
all that said proxies or their substitutes may do by virtue hereof, and
the undersigned authorizes and instructs said proxies to vote as follows:
(TO BE SIGNED ON REVERSE SIDE) SEE
REVERSE
SIDE
ANNUAL MEETING OF SHAREHOLDERS OF
AMETEK, INC.
CO. # ____________ MAY 21, 2002 ACCT. # ___________________
---------------------------------
PROXY VOTING INSTRUCTIONS
---------------------------------
TO VOTE BY INTERNET
-------------------
PLEASE ACCESS THE WEB PAGE AT www.voteproxy.com AND FOLLOW THE ON-SCREEN
INSTRUCTIONS. HAVE YOUR CONTROL NUMBER AVAILABLE WHEN YOU ACCESS THE WEB
PAGE.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
--------------------------------------------
PLEASE CALL TOLL-FREE 1-800-PROXIES AND FOLLOW THE INSTRUCTIONS. HAVE YOUR
CONTROL NUMBER AND THE PROXY CARD AVAILABLE WHEN YOU CALL.
TO VOTE BY MAIL
---------------
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS
SOON AS POSSIBLE.
PLEASE VOTE
- --------------------------------------------------------------------------------
IF YOU VOTE BY INTERNET OR BY TELEPHONE, THERE IS NO NEED TO RETURN YOUR
PROXY CARD.
- --------------------------------------------------------------------------------
-----------------------------------------
| |
YOUR CONTROL NUMBER IS -----------> | |
-----------------------------------------
- Please Detach and Mail in the Envelope Provided -
- --------------------------------------------------------------------------------
PLEASE MARK YOUR
A [X] VOTES AS IN THIS
EXAMPLE.
FOR all nominees WITHHOLD
listed at right Authority to vote
(except as marked for all nominees
to the contrary) listed at right
1. ELECTION [ ] [ ] NOMINEES:
OF
DIRECTORS Sheldon S. Gordon
INSTRUCTION: To withhold authority to vote for Frank S. Hermance
any individual nominee, write the name of the
nominee(s) on the line below. David P. Steinmann
_____________________________________
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE THE 2002 STOCK [ ] [ ] [ ]
INCENTIVE PLAN OF AMETEK, INC.
3. PROPOSAL TO APPROVE THE APPOINTMENT [ ] [ ] [ ]
OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE YEAR 2002.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
Receipt of the notice of said meeting and of the Proxy Statement of AMETEK, Inc.
accompanying the same is hereby acknowledged.
UNLESS OTHERWISE SPECIFIED IN THE SPACES PROVIDED, THE UNDERSIGNED'S VOTE IS TO
BE CAST FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL (1),
AND FOR APPROVAL OF PROPOSALS (2) and (3), AS MORE FULLY DESCRIBED IN THE
ENCLOSED PROXY STATEMENT.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
________________________________________________ Date:___________________, 2002
SIGNATURE
________________________________________________ Date:___________________, 2002
SIGNATURE IF HELD JOINTLY
NOTE: Please sign exactly as your name appears on this card. Indicate your full
title if you are signing as an executor, administrator, trustee, etc. If
the signer is a corporation, an authorized officer should sign the full
corporate name. All owners must sign if shares are held in the name of
more than one person.
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
AMETEK, INC.
MAY 21, 2002
- Please Detach and Mail in the Envelope Provided -
- --------------------------------------------------------------------------------
PLEASE MARK YOUR
A [X] VOTES AS IN THIS
EXAMPLE.
FOR all nominees WITHHOLD
listed at right Authority to vote
(except as marked for all nominees
to the contrary) listed at right
1. ELECTION [ ] [ ] NOMINEES:
OF
DIRECTORS Sheldon S. Gordon
INSTRUCTION: To withhold authority to vote for Frank S. Hermance
any individual nominee, write the name of the
nominee(s) on the line below. David P. Steinmann
_____________________________________
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE THE 2002 STOCK [ ] [ ] [ ]
INCENTIVE PLAN OF AMETEK, INC.
3. PROPOSAL TO APPROVE THE APPOINTMENT [ ] [ ] [ ]
OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE YEAR 2002.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
Receipt of the notice of said meeting and of the Proxy Statement of AMETEK, Inc.
accompanying the same is hereby acknowledged.
UNLESS OTHERWISE SPECIFIED IN THE SPACES PROVIDED, THE UNDERSIGNED'S VOTE IS TO
BE CAST FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL (1),
AND FOR APPROVAL OF PROPOSALS (2) and (3), AS MORE FULLY DESCRIBED IN THE
ENCLOSED PROXY STATEMENT.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
________________________________________________ Date:___________________, 2002
SIGNATURE
________________________________________________ Date:___________________, 2002
SIGNATURE IF HELD JOINTLY
NOTE: Please sign exactly as your name appears on this card. Indicate your full
title if you are signing as an executor, administrator, trustee, etc. If
the signer is a corporation, an authorized officer should sign the full
corporate name. All owners must sign if shares are held in the name of
more than one person.