1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-12981 ----------------------------- AMETEK, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> DELAWARE 14-1682544 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 37 NORTH VALLEY ROAD, PAOLI, PA 19301 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) </TABLE> (610) 647-2121 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: <TABLE> <CAPTION> TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- <S> <C> COMMON STOCK, $.01 PAR VALUE (VOTING) NEW YORK STOCK EXCHANGE, PACIFIC EXCHANGE, INC. 7.20% SENIOR NOTES DUE 2008 NONE </TABLE> <TABLE> <S> <C> SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE (TITLE OF EACH CLASS) </TABLE> INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 2001, was $872,680,247. The number of shares of common stock outstanding as of February 28, 2001, was 32,783,926. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates information by reference from the Proxy Statement for the Annual Meeting of Stockholders on May 22, 2001. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 AMETEK, INC. 2000 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS <TABLE> <CAPTION> PAGE(S) ------- <S> <C> <C> PART I Item 1. Business.................................................... 2 Item 2. Properties.................................................. 10 Item 3. Legal Proceedings........................................... 11 Item 4. Submission of Matters to a Vote of Security Holders......... 11 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 11 Item 6. Selected Financial Data..................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 14 Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................................................ 22 Item 8. Financial Statements and Supplementary Data................. 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 46 PART III Item 10. Directors and Executive Officers of the Registrant.......... 46 Item 11. Executive Compensation...................................... 46 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 46 Item 13. Certain Relationships and Related Transactions.............. 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 46 Signatures............................................................ 47 Index to Exhibits..................................................... 48 </TABLE> 1
3 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS AMETEK, Inc. ("AMETEK" or the "Company") was incorporated in Delaware in 1986 and is the successor to AMETEK, Inc., which was originally incorporated in Delaware in 1930 under the name of American Machine and Metals, Inc. The Company maintains its principal executive offices in suburban Philadelphia at 37 North Valley Road, Paoli, PA 19301. AMETEK is a leading global manufacturer of electronic instruments and electric motors with operations in North America, Europe, Asia and South America. The Company is listed on the New York Stock Exchange (symbol: AME). AMETEK is a component of the S&P MidCap 400 and the Russell 2000 indices. For the year ended December 31, 2000, the Company achieved $1 billion in sales for the first time. Approximately one-third of 2000 sales were to international markets. PRODUCTS AND SERVICES The Company markets its products worldwide through two operating groups, the Electronic Instruments Group ("EIG") and the Electromechanical Group ("EMG"). EIG builds technologically advanced monitoring, testing, and calibration instruments, and display devices for the aerospace, power generation, process and industrial markets. The Company believes that EMG is the world's largest manufacturer of air-moving electric motors for vacuum cleaners and other floor-care products, and is a preeminent producer of brushless air-moving motors for aerospace, mass-transit, medical and computer markets. EMG also produces specialty metals for the electronics, telecommunications, consumer, automotive and other markets. The Company's recently expanded product offering includes switches for telecommunications, and it continues to grow through acquisitions focused on niche markets in instrumentation, technical motors and specialty metals. COMPETITIVE STRENGTHS Management believes that the Company has several significant competitive advantages, which assist it in sustaining and enhancing its market positions. The Company's principal strengths include: Significant Market Share. The Company maintains significant market shares in many of its targeted niche markets, because of its ability to produce and deliver high quality products at a low cost. In the EIG segment, the Company maintains significant positions in many of its niche market segments within the aerospace, power instrument, process, and industrial instrumentation markets. In the EMG segment, the Company is the largest manufacturer of air-moving electric motors for the global floor-care market. Management believes that the Company's significant market share, along with its newest and expanded motor plants, combining advanced technology and lower cost, play key roles in expanding its electromechanical product lines and providing new market opportunities. Technological and Development Capabilities. AMETEK believes it has certain technological advantages over its competitors, that allow it to maintain leading market positions by developing innovative products. The Company has historically grown its business by extending its technical expertise into the manufacture of customized products for its customers, and through acquisitions. EIG competes in specialized instrumentation markets, including process measurement, heavy-vehicle dashboard and aerospace instruments, primarily on the basis of product innovation. An example of this innovation has been demonstrated with the Company's leverage of its core competency in jet engine temperature sensors to design a flame-sensor system for a broad range of industrial and utility applications including land-based gas turbines. The Company has an established reputation for technological innovation, service and reliability, which has led to successful strategic alliances. EMG focuses on enhancing motor-blower cost-performance through advances in power, efficiency, weight and quieter operation. The Company believes that EMG's technical leadership has helped to create a broad range of product features that have opened new markets, such as outdoor power equipment. 2
4 Efficient and Low-Cost Manufacturing Operations. The Company's competitive cost position is a significant advantage in growing its businesses and its overall global market share. The Company has established motor plants in China, the Czech Republic, Mexico and Brazil to lower manufacturing costs and achieve strategic proximity to customers, enhancing its ability to increase international sales and market share. Additionally, several electronics instruments businesses are also locating a portion of their manufacturing operations in low cost locales. Furthermore, strategic acquisitions, joint ventures and alliances in Europe, North America and Asia have resulted in additional synergies and cost savings through the consolidation of operations, new product lines and distribution channels, and low-cost manufacturing operations benefiting both operating groups. Experienced Management Team. Another important component of the Company's recent success has been the continued strength of its management team and its commitment to the performance of the Company. In November 2000, the Board of Directors of the Company announced its President and Chief Executive Officer had been elected as Chairman of the Board of Directors. The election completes the Company's executive management transition, which commenced in 1996. Over the past several years, the Company has made considerable advances in its operational excellence initiatives, including self-directed work teams and expanded colleague participation. AMETEK's senior management has extensive experience in its businesses and is financially committed to the Company's success through Company stock ownership guidelines. BUSINESS STRATEGY AMETEK's objectives are to increase the Company's earnings growth and financial returns through a combination of operating and financial strategies. Operational strategies include business acquisitions and cost reduction programs designed to achieve double-digit annual percentage growth in earnings per share and a superior return on total capital. Financial strategies have included public debt issuance, bank debt refinancing, local source financing in certain foreign countries, accounts receivable securitization and share repurchases. AMETEK's strong commitment to continuing earnings growth led the Company to accelerate the implementation of certain cost reduction programs at the end of 1998 and again in the fourth quarter of 2000 to achieve its best-cost objectives. The Company's long-term growth strategy consists of the following four elements: Strategic Acquisitions and Alliances. In 2000, acquisitions played an important role in driving the growth of the Company. AMETEK completed two strategic acquisitions in 2000. These businesses, with combined annualized sales of $104 million, extended AMETEK's technology base, market channels and product offerings. In the past two years, the Company has completed six acquisitions with $225 million in annualized sales. Those acquisitions have enhanced AMETEK's position in aerospace and process instruments, electromechanical products, electric power generation instruments and food service controls. Through these and prior acquisitions, the Company's management team has gained considerable experience in successfully acquiring and integrating businesses. The Company intends to continue to pursue strategic acquisitions, both domestically and internationally, to expand and strengthen its product lines, improve its market share positions and increase earnings through sales growth (see Recent Acquisitions). Global and Market Expansion. AMETEK's largest international presence is in Europe where it holds a leading market position in floorcare motors. The Company's operations in Denmark, Italy, Germany, the Czech Republic and the United Kingdom provide design and engineering capability, product line breadth, enhanced European distribution channels, and lower cost production in Europe. Growth in Mexico, Asia, and South America has resulted from the opening and expansion of low-cost electric motor and instruments plant in Reynosa, Mexico, and motor manufacturing plants in Shanghai, China and near Sao Paulo, Brazil. Coupled with a direct sales and marketing presence in Singapore and the continuing success of AmeKai - the Company's joint venture in China and Taiwan that manufactures low-cost pressure gauges for world markets, AMETEK continues to broaden its geographic market expansion and market penetration. New Product Development. The Company seeks to improve its current market position and enter complementary markets through its product development programs. In the EIG segment, the Company applies concurrent engineering to develop specialized products for the markets in which it competes. In 2000 3
5 EIG was selected by a major customer to provide the engine sensor suite for a new jet engine. The new jet engine is undergoing detailed design using concurrent engineering. After testing in 2002, it is scheduled for certification by the U.S. Federal Aviation Administration in 2003. EIG's new Dycor(R) CG 1100-RTP oxygen analyzer was developed specifically for the semiconductor industry's latest rapid thermal processing (RTP) silicon wafer fabrication systems. The new Dycor analyzer improves process yields and maximizes RTP equipment throughput by detecting oxygen contamination at the parts-per-million level and allowing continued wafer production as soon as the oxygen content is at acceptable operating levels. EIG introduced a new hydrogen sulfide analyzer in 2000 completing a suite of advanced monitoring tools for the natural gas industry. The new analyzer offers an economical solution for identifying potentially costly off-spec gas and represents a significant advance over previous technologies. During 2000, EMG added to its INFIN-A-TEK(R) family of switched-reluctance vacuum motors with a new two-stage vacuum blower that complements the INFIN-A-TEK vacuum motor introduced in 1999. EMG now offers a family of INFIN-A-TEK motors for a range of floor-care equipment and other applications that currently use series universal vacuum motors, such as material handling devices. EMG also is one of the world's premier producers of advanced brushless direct-current (DC) motors and motor-blowers. EMG brushless motors are used in aerospace, military, business machine, mass-transit, and medical applications. During 2000, EMG extended its line of compact motors. Operational Excellence. The Company seeks to further improve its current market position and maintain its low cost position through a continuation of its operational excellence strategy. The Company believes its dedication to focusing on flow manufacturing, participative management culture, operating efficiency and asset management increases the Company's manufacturing quality, return on operating assets and customer satisfaction while significantly shortening production cycle times and lowering its operating and administrative costs. This strategy has served to strengthen the Company's competitive position across its business lines. Operational excellence is the keystone strategy for improving the Company's profit margins, and it has assisted in successfully achieving synergies from the integration of acquired companies. International alliances such as AmeKai in China and Taiwan have provided further low-cost international manufacturing sources. The Company's focus on team-based, demand flow manufacturing and participative management also enabled it to complete a motor production consolidation in Europe, plant expansions in Brazil, China, and Mexico, and other cost-reduction initiatives. 2000 OVERVIEW OPERATING PERFORMANCE In 2000, AMETEK achieved record sales in excess of $1 billion. It also achieved its seventh consecutive year of double-digit percentage growth in income and diluted earnings per share from continuing operations. Acquisitions, growth in certain key markets and cost reduction initiatives were the primary contributors to this strong performance. The Company set records for operating income, net income, and diluted earnings per share from continuing operations in 2000. SHARE REPURCHASE PROGRAM Under the Company's current $50 million share repurchase authorization, approximately $27 million is available for share repurchases. During 2000, the Company purchased 83,500 shares of its common stock. RECENT ACQUISITIONS In August 2000, the Company acquired the assets of certain businesses of Prestolite Electric Incorporated ("Prestolite") for approximately $61 million in cash. Prestolite manufactures switches, industrial battery chargers and direct-current (DC) motors. The acquisition is now part of EMG. In September 2000, the Company acquired the assets of Rochester Instruments Systems ("RiS") along with the power instrumentation product line of a related United Kingdom based company for approximately $20 million in cash. RiS is a leading supplier of measurement instruments for the electric power generation and distribution market. The acquisition is now part of EIG. 4
6 FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, FOREIGN OPERATIONS, AND EXPORT SALES Reportable segment and geographic information is shown on pages 41 through 43 this report. One of the Company's four growth strategies is global and market expansion, which is subject to certain risks that are inherent in conducting business outside the United States. Those include fluctuation in currency exchange rates and controls, restrictions on the movement of funds, import and export controls, and other economic, political and regulatory policies of the countries in which business is conducted. The Company's high level of foreign sales has resulted from a combination of export sales of products manufactured in the United States, sales from overseas operations, and sales resulting from strategic alliances. NARRATIVE DESCRIPTION OF BUSINESS PRODUCTS AND SERVICES The products and markets of each operating segment are described below: EIG EIG applies its specialized market focus and superior technology to produce monitoring, calibration, and display instruments for the aerospace, power, process, and industrial markets. EIG's growth is based on the four corporate strategies. EIG designs products for specific customer applications, which are significantly different from, or technologically ahead of competitive products. EIG has reduced costs by implementing operational improvements, achieving acquisition synergies, improving supply chain management, and workforce reductions. EIG is among the leaders in many of the specialized markets it serves, including aerospace fuel-flow meters, heavy-vehicle instrument panels, oxygen analyzers, level measurement products, power instruments, and pressure gauges. About 26% of the 2000 sales were to markets outside the United States. EIG employs approximately 3,800 people, of which approximately 500 are covered by collective bargaining agreements. It has 27 manufacturing facilities: 21 in the United States, 5 in Europe and one in Canada. Aerospace and Power Instruments Market and Product Lines Approximately 37% of EIG revenues are from the sale of aerospace and power instruments. Aerospace products include airborne data systems, turbine engine temperature measurement products, vibration-monitoring systems, indicators and displays, fuel and fluid measurement products and sensors, switches, cable harnesses and transducers. Its customers are the leading producers of airframes and jet engines for commercial airlines and aircraft operators. EIG serves all segments of commercial aerospace, including helicopters, business jets, commuter aircraft, and commercial airliners. It also serves, in a limited capacity, the aerospace aftermarket. Customer support includes parts warehousing and maintenance programs. Aerospace products are designed to customer specifications at design centers in Sellersville, PA, Wilmington, MA, and Costa Mesa, CA, and are manufactured to stringent operational and reliability requirements. Manufacturing operations are located in Binghamton, NY, Wilmington, MA, and Costa Mesa, CA. A repair and maintenance facility is located near Seattle, WA. The aerospace business operates in specialized markets, where its products have a technological and/or cost advantage. Its 50 plus years of experience as an aerospace supplier and its long-standing customer relationships with global commercial aircraft OEMs are significant competitive advantages. Among other aircraft, its newest products are in service on the Boeing 777 airliner, the Bombardier Global Express business jet and the Agusta 109 helicopter. Recent acquisitions have complemented and expanded EIG's core sensor and transducer product line used in a wide range of industrial and aerospace applications. The September 2000 acquisition of Rochester Instruments complements and expands EIG's position in electric power instruments, which includes a full suite of instrumentation for gas turbines derived from core technology and is being developed by the Company for the aerospace industry. Power instruments include 5
7 power transducers and meters, event and transient recorders, annunicators, and alarm monitoring systems to measure, monitor and record variables in the generation and distribution of electric power. Process Instruments Market and Product Lines Approximately 31% of EIG sales are process measurement, industrial, and analytical instruments. These include pressure gauges and transducers; oxygen, moisture, combustion and liquid analyzers, and emission monitors; electronic pressure sensors and transmitters. The focus is on the process industry, which includes refinery and petrochemical plants, power generation, specialty gas, water and waste treatment, natural gas distribution, and semiconductor fabrication, servicing the industrial process control and air emissions monitoring markets, as well as products providing for monitoring sulfur emissions, where AMETEK is already a world leader. The acquisition of Drexelbrook and Patriot Sensors in 1999 expands AMETEK's level measurement instrumentation business. Drexelbrook and Patriot Sensors operate as separate units of a new division within EIG - AMETEK Sensor Technology. EIG is one of the leaders in the North American pressure gauge market, which has been adversely affected by low-cost offshore products. EIG has addressed this issue through a 50%-owned joint venture that manufactures low-cost pressure gauges in China and Taiwan, where the joint venture also markets those products. EIG is refocusing its domestic manufacturing on more advanced pressure measurement products. Industrial Instrumentation Markets and Product Lines Approximately 32% of EIG sales are to the industrial instrumentation market. EIG's Mansfield & Green product line which was combined with the Chatillon and Lloyd Instruments product lines to form the Test and Calibration Instruments (T&CI) division, is well-positioned for global expansion in the $800 million force measurement market. T&CI manufactures a comprehensive line of force-measurement and material testing devices in the United States and Europe, including hand-held gauges, electronic instruments and test stands. It also provides analytical software and support services. T&CI's products are marketed worldwide under the Chatillon, Lloyd, Erichsen, and Davenport brand names through a global network of distributors, sales representatives, and direct sales. The Dixson business provides EIG with a strong position in the U.S. heavy-truck instrument market, including agricultural, construction, and off-road vehicles. Dixson has a market position in Europe, and product development capabilities in solid-state instruments that primarily monitor engine-operating parameters. EIG also has a leading position in the food service instrumentation business as a result of the 1999 acquisition of the NCC business. This business fits strategically with the custom electronic controls produced by Dixson for heavy-vehicle, foodservice, and industrial markets. NCC is a leading source for stand-alone and integrated timing controls for the foodservice industry. The Chemical Products division produces silicas, phenolic resins, and Teflon(R) (a registered trademark of DuPont) polymer products for high-temperature and highly corrosive applications and heat exchangers. Product applications include protective welding curtains and products for the filtering of molten metal. EIG also is a custom compounder of specialty resins and thermoplastics with enhanced properties, such as fire retardance and improved adhesion. Markets include electronics, automotive parts, appliances, and telecommunications. Customers EIG is not dependent on any single customer such that the loss of that customer would have a material adverse effect on EIG's operations. Approximately 20% of EIG's 2000 sales were made to its five largest customers. EMG EMG is the world's largest producer of high-speed, air-moving electric motors for OEMs of floor-care products. The design and manufacture of small vacuum motors with fans rotating at high speeds requires advanced manufacturing technology. EMG addresses complex motor-blower dynamics including heat, noise, 6
8 vibration, and wear, in designing its customized products. The Group's specialty motors business is the world leader in the brushless DC motor market. EMG also produces specialty metal products used in the electronics, telecommunications, consumer, automotive, and other markets. EMG has a leading market share for its electric motors in North America and Western Europe and a growing share in the Pacific Rim. It has expanded its operations worldwide by leveraging manufacturing and technological expertise developed over many years. EMG also has developed its business by extending its technological expertise in manufacturing high-speed, air-moving electric motors to a variety of targeted markets, with its primary focus currently on the floor-care market and small appliances. EMG has formed alliances with OEM customers to design and manufacture cost-effective products for numerous floor-care applications. EMG also is using its technological and marketing expertise to further penetrate new markets, such as the outdoor power equipment market, where it is establishing alliances with major customers. To achieve further global expansion, EMG is building on its market leadership in the floor-care markets of North America and Europe through initiatives in Eastern Europe, Latin America, and the Pacific Rim. Electric motor production operations in China, Mexico, the Czech Republic and Brazil, began contributing to production capacity late in 1999. Those expanding operations are focusing on reducing costs and expanding global markets. About 37% of EMG's 2000 sales were to customers outside the United States. EMG employs approximately 4,200 people, of whom approximately 1,800 are covered by collective bargaining agreements. It has 20 manufacturing facilities: 13 in the United States, 2 in Italy, and one each in China, the Czech Republic, Mexico, Brazil, and the United Kingdom. In 2000, the Company completed the previously announced consolidation of two of its Italian motor plants, serving the floor-care market. EMG also expanded the operations of its Italian motor division to an existing motor plant in the Czech Republic, and it completed the closure of the Group's Cambridge, Ohio plant. EMG's flexible production lines are designed for low-cost, high-volume operations. Advanced technological resources enable EMG to provide its customers with custom-designed products. The Group produced approximately 26 million motors in 2000, aided by the Prestolite acquisition in August 2000, and increased production in Brazil. This is compared with 22 million motors produced in 1999. Floor-Care Market and Product Line About 47% of EMG sales are to floor-care markets, where it has the leading share through sales of air-moving electric motors to most of the world's major floor-care OEMs. The customers include vertically integrated OEMs that produce some of their own motors. EMG produces motor-blowers for a full range of floor-care products, ranging from hand-held, canister, and upright vacuums to central vacuums for residential use. High-performance vacuum motors also are marketed for commercial and industrial applications. A portion of sales initiatives in the global floor-care business has been directed toward marketing products to vertically integrated vacuum cleaner manufacturers that decide to outsource all or part of their motor production to realize the economic and operational advantages of reducing or discontinuing their own motor production. By purchasing motors from EMG, vacuum cleaner manufacturers can reduce the otherwise substantial capital investment necessary to manufacture motors for rapidly changing consumer demands. The global consumer trend toward owning a variety of floor-care products increases the need for availability of these products by OEMs, which are striving to operate more cost-effectively and to be responsive to customer needs. EMG's new product development focuses on enhancing motor-blower cost-performance through advances in power, efficiency, size, weight, and quieter operation. EMG's INFIN-A-TEK motor-blower is the first switched reluctance electric motor-blower for the floor-care market. EMG has a significant position in the European floor-care market. The electric motors it produces in Italy and the Czech Republic are similar to those produced in the United States. 7
9 Brushless Motor Market and Product Line EMG's brushless motors are used in computer equipment, business machines, and medical equipment. Brushless motors offer spark-free commutation and high reliability. They are increasingly utilized in medical and other applications in which long life and speed control are important. The Rotron motor business and its integration with the technical motor division to form AMETEK Rotron, has added to AMETEK's already strong core competency in brushless air-moving motors. With Rotron, AMETEK now has significant growth opportunities in the expanding brushless motor market. Continuing product developments include the use of brushless motors in systems designed to assist patients with sleep breathing disorders, hospital air-mattresses, and gasoline fume-recovery systems used by gas stations, as well as electronic power devices for the military, mass-transit, and aerospace markets. In 1999 EMG's technical motor division launched its DurA-tek(TM) motor, a three-inch drop-in replacement for brush-type motors. It also introduced a redesigned line of the MICRO-Jammer(TM) motor-blower and an enhanced version of the MINIJAMMER(TM) brushless DC motor-blower for medical devices, dental equipment, business machines and a host of commercial applications. Outdoor Power Equipment Market and Product Line EMG manufactures motors for the outdoor power equipment market, including lawn and garden equipment, as well as electric chain saws, high-pressure power washers, and low-pressure paint sprayers. EMG is capitalizing on its manufacturing infrastructure, technical expertise, and global marketing strengths in air-moving electric motors to create growth opportunities in this market, such as expanding applications for the Group's World Lamination(TM) design motor and WorldLamb(TM) motor-blowers, originally designed for floor-care applications, to include the outdoor power equipment market. EMG now serves most of the world's major producers of outdoor power equipment. Specialty Metals Markets and Product Line The Specialty Metals business manufactures high-purity, engineered metal powders, high-purity strip and wire from metal powders, and clad products, with specific metallurgical properties. Its niche market focus is based upon proprietary manufacturing technology and strong customer relations. Its expanded product lines of nickel and copper-based wire alloys, have added to the Company's capabilities in the manufacturing of specialty wire for electronic, communication, and computer applications. The Company has also expanded its product line of metal matrix composites, which are used in thermal management applications for electronics products by acquiring an exclusive license to produce composites of silicon-carbide aluminum in the United States. Other new product developments include patented Ultra(TM) stainless steel metal powders and copper-based Spinodal(TM) alloys. Markets served by the business include electronics, telecommunications, automotive, consumer products, and energy production. Prestolite Switch, Industrial Battery Chargers and DC Motor Market and Product Lines The August 2000 acquisition of the Prestolite Electric switch, industrial battery charger, and direct-current (DC) motor businesses have greatly expanded the products offered by EMG. The switch business produces contactors, solenoids, and other electromechanical devices for the telecommunications and materials-handling markets. The battery charger business designs and manufactures high-quality industrial battery chargers for use in the materials-handling market. These businesses have strong market positions, superior technologies, and reputations for quality and service. They were combined into a new operating division, Prestolite Power and Switch, that will serve as a platform for additional acquisitions. The DC motor products were folded into AMETEK's global specialty motors business. Customers EMG is not dependent on any single customer such that the loss of that customer would have a material adverse effect on EMG's operations. Approximately 17% of EMG's sales for 2000 were made to its five largest customers. 8
10 MARKETING Generally, the Company's marketing efforts are organized and carried out at the group and division levels. EIG makes significant use of distributors and sales representatives in marketing its products. However, its specialized customer base of aircraft and jet engine manufacturers are served primarily by its direct sales engineers. Given the similarity and technical nature of its many products as well as its significant worldwide market share, EMG conducts most of its domestic and international marketing activities through a direct sales force, and makes some use of sales representatives and distributors both in the U.S. and in other countries. COMPETITION In general, most of the Company's markets are highly competitive. The principal elements of competition for the Company's products are price, product technology, distribution, quality, and service. In the markets served by EIG, the Company believes that it is one of the world's largest pressure gauge manufacturers, ranks among the leading U.S. producers of certain measuring and control instruments, and is a leading manufacturer in the U.S. heavy vehicle instrumentation and power instruments markets. It also is one of the leading instrument and sensor suppliers to commercial aviation. Competition is strong and could intensify for certain EIG products especially in the Company's pressure gauge and heavy vehicle instrumentation businesses. Both of these businesses have several strong competitors. In the process and analytical instruments markets, numerous companies in each specialized market compete on the basis of product quality, performance, and innovation. The Company's aerospace and power instruments businesses have a number of diversified competitors, which vary depending on the specific market niche. EMG has several U.S. based competitors in the U.S. floor-care market. Competition is increasing from Asian motor manufacturers who serve the U.S. floor-care market. There is potential competition from vertically integrated manufacturers of floor-care products that produce their own motor-blowers. Many of these manufacturers would also be potential EMG customers if they decided to outsource their motor production. In Europe, competition comes from a small group of large international competitors and numerous small competitors. EMG's Prestolite businesses have competition from a limited number of companies in each of their markets. Some competitors have greater financial and technical resources. Competition is generally based on product innovation, performance and price. EMG's specialty metal products business has several specialized product lines that have few competitors. The primary competition is from alternative materials and processes. BACKLOG AND SEASONAL VARIATIONS OF BUSINESS The Company's approximate backlog of unfilled orders by business segment at the dates specified was as follows: <TABLE> <CAPTION> DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ (IN MILLIONS) <S> <C> <C> <C> Electronic Instruments................................... $135.3 $137.0 $113.2 Electromechanical........................................ 121.1 106.5 110.6 ------ ------ ------ Total............................................... $256.4 $243.5 $223.8 ====== ====== ====== </TABLE> Of the total backlog of unfilled orders at December 31, 2000, approximately 93% is expected to be shipped by December 31, 2001. The Company believes that neither its business as a whole, nor either of its operating segments, is subject to significant seasonal variations, although certain individual operations experience some seasonal variability. RAW MATERIALS The Company's business segments obtain raw materials and supplies from a variety of sources, and generally from more than one supplier. However, for EMG, certain items, including various base metals and 9
11 certain steel components, are available only from a limited number of suppliers. The Company believes its sources and supplies of raw materials are adequate for its needs. RESEARCH, PRODUCT DEVELOPMENT AND ENGINEERING The Company is committed to research, product development, and engineering activities that are designed to identify and develop potential new and improved products or enhance existing products. Research, product development, and engineering costs during the past three years were $45.9 million, $42.2 million and $42.1 million, in 2000, 1999, and 1998 respectively. These amounts included net Company-funded research and development expenses of $23.8 million, $21.6 million and $23.4 million, respectively. Such expenditures were directed toward the development of new products and processes, and the improvement of existing products and processes. ENVIRONMENTAL COMPLIANCE Information with respect to environmental compliance by the Company is set forth on page 20 of this report in the section of Management's Discussion and Analysis of Financial Condition and Results of Operations entitled "Environmental Matters." PATENTS, LICENSES, AND TRADEMARKS The Company owns numerous unexpired U.S. patents, and foreign patents, including counterparts of its more important U.S. patents, in the major industrial countries of the world. The Company is a licensor or licensee under patent agreements of various types, and its products are marketed under various registered and unregistered U.S. and foreign trademarks and trade names. However, the Company does not consider any single patent or trademark, or any group thereof, essential either to its business as a whole or to either of its business segments. The annual royalties received or paid under license agreements are not significant to either of its business segments or to the Company's overall operations. EMPLOYEES At December 31, 2000, the Company employed approximately 8,100 individuals in its EMG, EIG and corporate operations, of which approximately 2,300 were covered by collective bargaining agreements. WORKING CAPITAL PRACTICES The Company does not have extraordinary working capital requirements in either of its business segments. Customers generally are billed at normal trade terms, which may include extended payment provisions. Inventories are closely controlled and maintained at levels related to production cycles and are responsive to the normal delivery requirements of customers. ITEM 2. PROPERTIES The Company has 47 operating plant facilities in 16 states and 10 foreign countries. Of these facilities, 32 are owned by the Company and 19 are leased. The properties owned by the Company consist of approximately 554 acres, of which approximately 3.8 million square feet are under roof. Under lease is a total of approximately 764,000 square feet. The leases expire over a range of years from 2001 to 2015, with renewal options for varying terms contained in most of the leases. Production facilities in Taiwan, China and Korea provide the Company with additional production capacity through the Company's 50% ownership in a joint venture. The Company also has one idle production facility available for sale. The Company's executive offices in Paoli, PA occupy approximately 34,000 square feet under a lease that will expire in 2002. 10
12 The Company's machinery, plants, and offices are in satisfactory operating condition and are adequate for the uses to which they are put. The operating facilities of the Company by business segment are summarized in the following table: <TABLE> <CAPTION> NUMBER OF PLANT FACILITIES SQUARE FEET UNDER ROOF --------------- ---------------------- OWNED LEASED OWNED LEASED ----- ------ ---------- -------- <S> <C> <C> <C> <C> Electronic Instruments........................ 20 7 2,219,000 365,000 Electromechanical............................. 12 8 1,607,000 399,000 -- -- --------- ------- Total.................................... 32 15 3,826,000 764,000 == == ========= ======= </TABLE> ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise, during the last quarter of the fiscal year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market on which the Company's common stock is traded is the New York Stock Exchange. The Company's common stock is also listed on the Pacific Exchange, Inc. On February 28, 2001, there were approximately 2,800 record holders of the Company's common stock. Market price and dividend information with respect to the Company's common stock are set forth on pages 43 and 44 in the section of the Notes to the Consolidated Financial Statements entitled "Quarterly Financial Data (Unaudited)." Future dividend payments by the Company will be dependent on future earnings, financial requirements, contractual provisions of debt agreements, and other relevant factors. 11
13 ITEM 6. SELECTED FINANCIAL DATA <TABLE> <CAPTION> 2000 1999 1998 1997 1996 ---------- -------- -------- -------- -------- (DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS) ---------------------------------------------------------- <S> <C> <C> <C> <C> <C> CONSOLIDATED OPERATING RESULTS (YEARS ENDED DECEMBER 31): Net sales.................................... $1,024.7 $924.8 $927.5 $847.8 $800.0 Operating income(1).......................... $ 135.9 $118.8 $ 96.4 $ 92.0 $ 82.8 Interest expense............................. $ (29.2) $(24.8) $(23.7) $(18.2) $(19.1) Income from continuing operations(1)......... $ 68.5 $ 60.8 $ 50.4 $ 50.3 $ 43.1 Net income(1)(2)............................. $ 68.5 $ 60.8 $ 41.7 $ 50.4 $ 51.2 Basic earnings per share: Income from continuing operations(1)....... $ 2.13 $ 1.88 $ 1.55 $ 1.53 $ 1.32 Net income(1)(2)........................... $ 2.13 $ 1.88 $ 1.28 $ 1.53 $ 1.57 Diluted earnings per share: Income from continuing operations(1)....... $ 2.11 $ 1.85 $ 1.50 $ 1.49 $ 1.30 Net income(1)(2)........................... $ 2.11 $ 1.85 $ 1.24 $ 1.49 $ 1.54 Dividends declared and paid per share........ $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.24 Average common shares outstanding: Basic...................................... 32.1 32.3 32.7 32.9 32.7 Diluted.................................... 32.5 32.9 33.7 33.9 33.3 PERFORMANCE MEASURES AND OTHER DATA: Operating Data excluding Nonrecurring Charge(3): Operating income........................... $ 135.9 $118.8 $104.5 $ 92.0 $ 82.8 Operating income-Return on sales........... 13.3% 12.8% 11.3% 10.8% 10.4% Operating income-Return on average total assets.................................. 16.7% 16.2% 16.6% 17.4% 16.8% EBITDA(4).................................. $ 177.6 $158.1 $146.4 $128.0 $116.9 Ratio of EBITDA to interest expense(4)..... 6.1x 6.4x 6.2x 7.0x 6.1x Income from continuing operations.......... $ 68.5 $ 60.8 $ 55.3 $ 50.3 $ 43.1 Diluted earnings per share................. $ 2.11 $ 1.85 $ 1.64 $ 1.49 $ 1.30 Depreciation and amortization................ $ 43.3 $ 39.6 $ 38.4 $ 32.9 $ 32.7 Capital expenditures......................... $ 29.6 $ 30.3 $ 49.8 $ 41.2 $ 39.1 Cash provided by continuing operations(5).... $ 78.7 $ 86.6 $ 78.4 $ 71.2 $ 64.7 Ratio of earnings to fixed charges........... 4.3x 4.4x 3.9x 4.8x 4.0x Net income -- Return on average total capital.................................... 11.5% 11.8% 10.4% 15.8% 16.9% -- Return on average stockholders' equity......... 27.6% 31.2% 25.1% 34.9% 47.3% YEAR-END CONSOLIDATED FINANCIAL POSITION: Current assets............................... $ 303.1 $256.1 $267.8 $248.5 $229.3 Current liabilities.......................... $ 297.7 $262.7 $233.9 $178.7 $178.9 Property, plant, and equipment............... $ 214.0 $219.6 $214.4 $186.3 $174.8 Total assets................................. $ 859.0 $768.2 $699.8 $555.2 $528.9 Long-term debt............................... $ 233.6 $231.8 $227.0 $152.3 $150.3 Stockholders' equity......................... $ 280.8 $216.2 $174.0 $159.0 $129.5 Stockholders' equity per share............... $ 8.66 $ 6.76 $ 5.42 $ 4.82 $ 3.96 Total debt as a percentage of capitalization(6).......................... 56.3% 60.5% 63.7% 51.0% 58.5% </TABLE> 12
14 - --------------- (1) 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 loss on the early repayment of debt of $8.7 million ($0.26 per diluted share). Amounts in 1997 and 1996 include discontinued operations of the former Water Filtration Business. (3) See description of nonrecurring charge 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, 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) Amount in 2000 and 1999 excludes $1 million and $44 million, respectively, of net cash proceeds received from an accounts receivable securitization program. (6) Without considering the effect of the accounts receivable securitization program referred to in note 5 above; total debt as a percentage of capitalization at December 31, 2000 and 1999 would have been 59.1% and 63.6%, respectively. 13
15 ITEM 7. 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 consolidated financial statements of the Company and the related notes shown in the index on page 22 of this report. Business Overview In 2000, the Company reported record sales, operating income, net income and diluted earnings per share that resulted in double-digit percentage growth when compared with 1999. The Company 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 2000 were: - Sales exceeded $1 billion for the first time in the Company's history. - The seventh consecutive year of double-digit percentage growth in earnings per share from continuing operations. - The completion of two new business acquisitions: The August acquisition of businesses that produce switches, industrial battery chargers, and direct-current (DC) motors for the telecommunications and material-handling markets, which is included within the Electromechanical Group (EMG), and the September acquisition of a business that produces power measurement instruments and is included within the Electronic Instruments Group (EIG). - Continuing with the Company's global plan to lower its cost structure, operational excellence initiatives, in 2000, included the shift of production to lower-cost facilities in Mexico, China, Brazil and the Czech Republic. This action along with the consolidation of the Company's European motor operations resulted in improved operating profit margins for both the EIG and the EMG business segments. - The Company continued its emphasis on investment in research, development and engineering, spending $45.9 million in 2000, an increase of 8.8% over 1999. - Benefiting from the investment in research and development, new product sales (from products introduced within the past three years) increased 17.3% over 1999 to $125.6 million. 14
16 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, 2000, 1999, and 1998: <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 ---------- -------- -------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> NET SALES(1): Electronic Instruments.............................. $ 509,504 $451,072 $414,202 Electromechanical................................... 515,156 473,725 513,272 ---------- -------- -------- Total net sales.................................. $1,024,660 $924,797 $927,474 ========== ======== ======== INCOME(2): Segment operating income(3) Electronic Instruments.............................. $ 78,771 $ 69,965 $ 55,703 Electromechanical................................... 77,560 67,575 62,511 ---------- -------- -------- Total segment operating income................... 156,331 137,540 118,214 Corporate administrative and other expenses........... (20,441) (18,743) (21,778) ---------- -------- -------- Consolidated operating income......................... 135,890 118,797 96,436 Interest and other expenses........................... (29,752) (24,336) (19,078) ---------- -------- -------- Consolidated income before income taxes.......... $ 106,138 $ 94,461 $ 77,358 ========== ======== ======== </TABLE> - --------------- (1) After elimination of intra-and intersegment sales, which are not significant in amount. (2) 2000 and 1998 includes charges for cost realignment initiatives and cost reduction initiatives. (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, 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 than in 1999 due largely to 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 the year were the primary reason for the increase. The Company's plan to lower its cost structure globally through operational excellence initiatives continues 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, primarily from the acquisitions and strength in core businesses. Operating margins in 2000 were 15.3% of sales, an increase from 14.9% in 1999. Improved operating margins were primarily 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 15
17 benefited from lower overall net pension costs resulting primarily from a higher return on pension investment assets. 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%, when compared with 1999 operating income of $118.8 million or 12.8 % of net sales. 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 an increase in selling expenses. Corporate general and administrative expenses increased slightly, but were flat year to year, as a percentage of 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 rose 12.8% and 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 instrument businesses continue to grow through acquisitions and core growth, expanding the Company's technology, market scope and penetration. Also, the process instruments business continues 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 was 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 16
18 EMG's operations in Europe, where competitive pricing pressures and currency translation changes continue to adversely affect EMG's sales. EMG's operating income for 2000 increased to $77.6 million from $67.6 million in 1999, a 14.8% increase. The acquisition described above, along with improved market conditions within the specialty metals market, were the primary reasons for the increase in operating income. Partially offsetting the profit improvement were lower profits at EMG's motor operations in Europe, due to the adverse effects on sales noted above. Operating margins improved to 15.1% of sales in 2000 from 14.3% in 1999 due to the higher sales, and lower operating costs in EMG's worldwide motor operations, as a result of the operational excellence and cost reduction initiatives. YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998 Results of Operations The Company reported sales for 1999 of $924.8 million, down slightly from sales of $927.5 million in 1998. EIG's sales increased by 8.9% to $451.1 million in 1999 from $414.2 million in 1998 because of the incremental sales generated by strategic acquisitions made during the year. Sales to heavy-vehicle manufacturers were strong along with an improving process instruments business. Without the acquisitions, sales for EIG would have been lower than in 1998 due largely to changes in the mix of sales and to slightly lower demand in process instruments and aerospace markets. Aerospace markets were down from peak levels in 1998. For the EMG group, competitive factors in international markets caused slightly lower unit shipments in 1999 when compared with 1998. The result was a decline in EMG reported sales to $473.7 million in 1999 from $513.3 million in 1998, a decrease of 7.7%. A change in the mix of U.S. sales also contributed to the EMG's sales decline. Sales by both segments to foreign markets totaled $302.0 million in 1999, a decrease of $43.0 million or 12.5% from 1998. Export shipments from the United States in 1999 were $158.5 million, compared with $162.6 million in 1998. New orders for 1999 were $944.5 million, an increase of 4.2% from $906.1 million for 1998. The order backlog at December 31, 1999 was $243.5 million, compared with $223.8 million at December 31, 1998. New orders from the strategic acquisitions made by the Company during the year were the primary reason for the increase. The Company's plan to lower its cost structure globally under the operational excellence initiatives, announced in the fourth quarter of 1998, had a positive effect on operating income and margins. Total segment operating income improved to $137.5 million for 1999 compared with operating income of $125.7 million for 1998, before a fourth quarter 1998 non-recurring charge, an increase of 9.3%. Operating margins improved to 14.9% from 13.6% for the comparable period. The operational excellence initiatives and the impact of new acquisitions, along with the transition of a portion of the Company's motor production to a lower cost facility in Reynosa, Mexico, the closing and consolidation of certain EMG motor plants in Europe, improved supply chain management and flow manufacturing expansion in EIG, along with related workforce reductions drove margins to higher levels. Consolidated operating income was $118.8 million or 12.8% of net sales, an increase of $14.3 million when compared with 1998 operating income of $104.5 million or 11.3 % of net sales, before the $8.0 million pretax nonrecurring charge. Selling, general and administrative expenses were $79.4 million in 1999, a $2.7 million decrease when compared with 1998 when SG&A totaled $82.1 million. As a percent of sales, SG&A was 8.6% in 1999, slightly lower than in 1998. The corporate cost reduction initiative was the driving force behind the reduction in general and administrative expense. Selling expense was flat year-to-year, as new EIG selling expense from acquisitions almost entirely offset reduced selling costs for the EMG group. Interest expense was $24.8 million in 1999 compared with $23.7 million in 1998, an increase of 4.7%. Higher average debt levels to finance acquisitions, was the primary reason for the increase in interest expense. Other income, net decreased to $0.4 million in 1999 from $4.6 million in 1998 primarily because of lower gains from the sale of securities and idle property. Net income for 1999 was $60.8 million, or $1.85 per diluted share, compared with net income for 1998 of $41.7 million, or $1.24 per diluted share. The 1998 net income includes an after-tax nonrecurring charge of 17
19 $4.8 million or $0.14 per diluted share, and an after-tax extraordinary charge for the early repayment of long-term debt of $8.7 million, or $0.26 per diluted share. Without the nonrecurring charge and the extraordinary item in 1998, net income would have been $55.3 million, or $1.64 per diluted share. The weighted average shares outstanding during 1999 were 32.3 million shares, compared with 32.7 million shares for 1998. The reduction reflects purchases by the Company through its share repurchase program. The Company repurchased 0.5 million shares in 1999. After accounting for the dilutive effect of issued stock options and other stock awards, the weighted average diluted shares outstanding were 32.9 million shares for 1999, compared with 33.7 million shares for 1998. Fourth Quarter Results Sales for the fourth quarter of 1999 were $236.0 million, compared with $206.8 million in the fourth quarter 1998. Operating income for the fourth quarter 1999 was $29.5 million, compared with $20.1 million for the fourth quarter 1998, before a nonrecurring pretax charge of $8.0 million. The 14% increase in sales was driven by the strategic acquisitions made by the Company during 1999, and a stronger worldwide motor market during the fourth quarter of 1999. The acquisitions, combined with productivity gains as a result of the Company's operational excellence initiatives and cost reduction programs were the primary reasons for a 46.8% gain in operating income. Net income for the fourth quarter of 1999 totaled $15.0 million, or $0.46 per diluted share, up 37% from the fourth quarter 1998 net income of $11.0 million or $0.33 per diluted share, excluding the after-tax effect of the nonrecurring charge of $4.8 million. The fourth quarter 1999 tax rate was 34.9%, a rate more normal than the 1998 fourth quarter tax rate of 21.4%. The 1998 fourth quarter benefited from a lower effective tax rate due to lower foreign pretax income, which would be taxed at higher rates than in the U.S., and favorable foreign tax adjustments relating to certain prior tax years. Operating Segment Results The ELECTRONIC INSTRUMENTS GROUP (EIG) sales were $451.1 million in 1999, an increase of 8.9% from 1998 sales of $414.2 million. The Company's 1999 acquisition of businesses, which produce electronic instruments and controls, transducers, sensors, and gauges, drove the year-to-year increase in sales. A business acquired in December 1999, which specializes in the design and manufacture of continuous level measurement and control devices has subsequently enhanced sales growth. The heavy-vehicle instruments business was strong in 1999 because of robust market conditions for heavy trucks. Also, the Company's process instruments business rebounded from weak market conditions during the first nine months of 1999. The aerospace business continues to grow because of the acquisitions described above, expanding the Company's aerospace technology and market breadth, despite aerospace markets being down slightly from peak levels in 1998. Group Operating income for 1999 increased to $70.0 million from $58.0 million in 1998, an increase of 20.6%. The acquisitions described above were the primary reasons for the large increase in operating income. Profit margins improved significantly to 15.5% from 14.0% for the same comparable period. The Group margins benefited from work force reductions directed toward improving productivity, and supply chain management savings. EIG's operating income for 1998 was $55.7 million, after a fourth quarter 1998 nonrecurring charge of $2.3 million for cost reduction activities. The ELECTROMECHANICAL GROUP (EMG) sales for 1999 were $473.7 million, a $39.5 million decrease from sales of $513.3 million in 1998. Weak market conditions in Europe and Asia, where major competitive pricing pressures affected EMG's motor operations, as well as lower demand were the primary reasons for the sales decline. Operating income for 1999 was essentially unchanged at $67.6 million. Improved profitability from the relocation of a portion of its U.S. motor production to lower cost facilities in Reynosa, Mexico was offset by lower profits at the Company's motor operations in Europe and Asia on lower unit volume shipped as a result of market and price competition. Operating margins, however, improved dramatically to 14.3% in 1999 from 13.2% in 1998. As of December 31, 1999, approximately 40% of EMG's North American motor production for floorcare applications and outdoor power equipment is produced in Mexico. Operations at the Company's 18
20 Cambridge, Ohio plant ceased in the first quarter of 2000. The plant relocation and rationalization activity in Europe stemming from the 1998 cost reduction initiatives is now complete. EMG's operating income in 1998 was $62.5 million, after a fourth quarter 1998 $5.2 million nonrecurring charge for the above mentioned cost reduction activities. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities before proceeds from the sale of accounts receivable totaled $78.7 million for 2000, compared with $86.6 million for 1999, a decrease of $7.9 million. The decrease was caused primarily by higher cash outflows to fund operating working capital requirements due in part to higher accounts receivable levels related to increased sales and to higher inventory levels partly associated with the Company's move of certain products to its low-cost manufacturing facilities. Other long-term liabilities decreased primarily because of the funding and settlement of a contract issue with a customer in the fourth quarter of 2000. Net proceeds received from sales of accounts receivables to a third party under an accounts receivable sales agreement provided cash of $1 million in 2000, compared with $44 million of cash provided in 1999. Total net cash provided by operating activities in 2000 was $79.7 million compared with $130.6 million in 1999. Under the accounts receivable sales agreement, entered into in 1999, the Company, through a wholly- owned, special purpose subsidiary, can sell up to $50 million of eligible accounts receivable. Cash used for investing activities was $107.4 million for 2000, compared with $148.0 million for 1999. Cash outlays for new business acquisitions totaled $81 million in 2000, compared with $147.5 million in 1999. Also, the prior year included proceeds received from the sale of investment assets of $29.5 million, compared with $3.3 million in 2000. Financing activities provided cash of $26.2 million in 2000, compared with $16.3 million provided in 1999. In 2000, net short-term borrowings increased $25.2 million, primarily to fund the 2000 acquisitions. During 1999, short-term borrowings increased $37.8 million and the Company made net payments on long- term debt of $9.1 million, which included the final repayment on its 9 3/4% Notes. Common stock repurchases totaled $1.6 million in 2000, compared with $9.3 million in 1999. As a result of all the Company's cash flow activities, cash and cash equivalents decreased $1.4 million since year-end 1999, to $7.2 million at December 31, 2000. The Company believes that it has sufficient cash generating capabilities and available financing facilities to enable it to meet its needs in the foreseeable future. NEW ACCOUNTING PRONOUNCEMENTS In the fourth quarter of 2000, the Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". The SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. The adoption of the Bulletin did not have a significant effect on the Company's consolidated results of operations, financial position, or cash flows. In September, 2000, the FASB issued Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- A Replacement of FASB Statement 125". The Statement requires extensive disclosures about securitizations entered into during the period and retained interests in securitized financial assets at the balance sheet date, accounting policies, sensitivity information relating to retained interests, and cash flows distributed to the transferor. The accounting requirements of Statement 140 are effective for transfers occurring after March 31, 2001. However, the expanded disclosures about securitizations and collateral are effective for fiscal years ending after December 15, 2000. The Company is continuing to study the future impact of adopting the accounting changes of this Statement. The Company adopted the disclosure requirement by the Statement, for fiscal year 2000, which are included in footnote 5 of the financial statements. On July 1, 2000, the Company adopted FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation". The Interpretation provides guidance on the application of APB 19
21 Opinion No. 25, "Accounting for Stock Issued to Employees". The adoption of this Interpretation did not have a material effect on the Company's consolidated results of operations, financial position, or cash flows. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement requires recognition of all derivative instruments measured at fair value in the statement of financial position. Gains or losses resulting from changes in the value of derivatives would be accounted for depending on the intended use of the derivative and whether it qualifies for hedge accounting. In June 1999, the FASB approved a one-year delay in the effective date of this Statement until January 2001. In June 2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". This Statement amends Statement No. 133 for certain impractical aspects of the original Statement which were incompatible with many common current hedging approaches. Statement No. 138 is effective simultaneously with Statement No. 133. The provisions of SFAS 133 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 these Statements 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 $29.6 million for 2000, compared with $30.3 million for 1999. Approximately 74% of the expenditures in 2000 were for equipment to increase productivity and expand capacity. The Company's 2001 capital expenditures are expected to increase when compared to 2000 levels, with a continuing emphasis on 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 $45.9 million in 2000, an increase from $42.2 million for 1999, and $42.1 million for 1998. Included in the amounts above are net expenses for research and development of $23.8 million for 2000, $21.6 million for 1999, and $23.4 million for 1998. ENVIRONMENTAL MATTERS The Company is subject to environmental laws and regulations as well as stringent cleanup requirements. It also has been named a potentially responsible party at several sites that are the subject of government-mandated cleanups. No amounts were charged to expense in 2000 for environmental cleanup. Amounts charged to expense for environmental cleanup were approximately, $0.9 million in 1999, and $0.3 million in 1998. 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. 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. 20
22 MARKET RISK DISCLOSURE The Company's primary exposure to market risks includes fluctuations in interest rates on its short-term and long-term debt and in foreign currency exchange rates. The Company's long-term debt is fixed rate and its short-term debt is variable rate. These financial instruments are more fully described in the notes to the financial statements. The foreign currencies to which the Company has the most significant exchange rate exposure is the Italian lira, and the European Euro currency. Exposure to foreign currency rate fluctuation is mitigated, when possible, through the use of natural hedges, whereby, purchases and sales in the same foreign currency and with similar maturities offset one another. 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 Except for historical information contained herein, 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 risks 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. - 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. 21
23 - The effects, in the United States and abroad, of changes in trade practices; monetary and fiscal policies; laws and regulations; other activities of governments, agencies and similar organizations; and social and economic conditions, such as trade restrictions or prohibitions; unforeseen inflationary pressures and monetary fluctuation; import and other charges or taxes; the ability or inability of the Company to obtain, or hedge foreign currencies, foreign currency exchange rates and fluctuation in those rates. This would include extreme currency fluctuations; protectionism and confiscation of assets; nationalizations and unstable governments and legal systems, and intergovernmental disputes. - Variation in the level of orders booked, which can be affected by general economic conditions, intensity of competition and continued marketplace acceptance of products. The Company believes that it has the product offerings, facilities, personnel and competitive and financial resources for continued business success. However, future revenues, costs, margins, product mix and profits are all influenced by a number of factors, as discussed above. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information concerning market risk is set forth under the heading "Market Risk Disclosure" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 21 herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA <TABLE> <CAPTION> PAGE ---- <S> <C> INDEX TO FINANCIAL STATEMENTS (ITEM 14(a) 1) Report of Independent Auditors.............................. 23 Consolidated Statement of Income for the years ended December 31, 2000, 1999, and 1998......................... 24 Consolidated Balance Sheet at December 31, 2000 and 1999.... 25 Consolidated Statement of Stockholders' Equity for the years ended December 31, 2000, 1999, and 1998................... 26 Consolidated Statement of Cash Flows for the years ended December 31, 2000, 1999, and 1998......................... 27 Notes to Consolidated Financial Statements.................. 28 FINANCIAL STATEMENT SCHEDULES (ITEM 14(a) 2) Financial statement schedules have been omitted because either they are not applicable or the required information is included in the financial statements or the notes thereto. </TABLE> 22
24 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, 2000 and 1999, and the related consolidated statements of income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Philadelphia, PA January 22, 2001 23
25 AMETEK, INC. CONSOLIDATED STATEMENT OF INCOME <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ---------------------------------------- 2000 1999 1998 ------------ ---------- ---------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> Net sales................................................. $1,024,660 $924,797 $927,474 ---------- -------- -------- Expenses: Cost of sales (excluding depreciation).................. 761,548 696,011 711,020 Selling, general and administrative..................... 95,147 79,351 82,089 Depreciation............................................ 32,075 30,638 29,909 Nonrecurring charge..................................... -- -- 8,020 ---------- -------- -------- Total expenses....................................... 888,770 806,000 831,038 ---------- -------- -------- Operating income.......................................... 135,890 118,797 96,436 Other income (expenses): Interest expense........................................ (29,203) (24,776) (23,659) Other, net.............................................. (549) 440 4,581 ---------- -------- -------- Income before income taxes................................ 106,138 94,461 77,358 Provision for income taxes................................ 37,606 33,693 26,909 ---------- -------- -------- Income before extraordinary item.......................... 68,532 60,768 50,449 Extraordinary loss on early extinguishment of debt, net of taxes................................................... -- -- (8,710) ---------- -------- -------- Net income................................................ $ 68,532 $ 60,768 $ 41,739 ========== ======== ======== Basic earnings (loss) per share: Income before extraordinary item........................ $ 2.13 $ 1.88 $ 1.55 Extraordinary loss on early extinguishment of debt...... -- -- (0.27) ---------- -------- -------- Net income.............................................. $ 2.13 $ 1.88 $ 1.28 ========== ======== ======== Diluted earnings (loss) per share: Income before extraordinary item........................ $ 2.11 $ 1.85 $ 1.50 Extraordinary loss on early extinguishment of debt...... -- -- (0.26) ---------- -------- -------- Net income.............................................. $ 2.11 $ 1.85 $ 1.24 ========== ======== ======== Average common shares outstanding: Basic shares............................................ 32,131 32,297 32,733 ========== ======== ======== Diluted shares.......................................... 32,534 32,925 33,741 ========== ======== ======== </TABLE> See accompanying notes. 24
26 AMETEK, INC. CONSOLIDATED BALANCE SHEET <TABLE> <CAPTION> DECEMBER 31, ---------------------- 2000 1999 --------- --------- (DOLLARS IN THOUSANDS) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents................................. $ 7,187 $ 8,636 Marketable securities..................................... 8,111 6,764 Receivables, less allowance for possible losses........... 139,568 112,756 Inventories............................................... 129,365 102,396 Deferred income taxes..................................... 10,516 12,001 Other current assets...................................... 8,353 13,548 -------- -------- Total current assets................................... 303,100 256,101 Property, plant and equipment, net.......................... 213,955 219,571 Goodwill, net of accumulated amortization................... 299,479 248,304 Investments and other assets................................ 42,454 44,174 -------- -------- Total assets........................................... $858,988 $768,150 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt................................................... $127,601 $ 99,674 Accounts payable.......................................... 87,315 73,377 Income taxes payable...................................... 12,347 17,979 Accrued liabilities....................................... 70,392 71,706 -------- -------- Total current liabilities.............................. 297,655 262,736 Long-term debt.............................................. 233,616 231,756 Deferred income taxes....................................... 33,166 27,781 Other long-term liabilities................................. 13,713 29,661 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: 2000 and 1999 -- 33,376,491 shares..... 334 334 Capital in excess of par value............................ 2,248 2,041 Retained earnings......................................... 330,696 269,861 Accumulated other comprehensive losses.................... (30,165) (27,395) Less: Cost of shares held in treasury: 2000 -- 931,295 shares; 1999 -- 1,413,502 shares....................... (22,275) (28,625) -------- -------- Total stockholders' equity............................. 280,838 216,216 -------- -------- Total liabilities and stockholders' equity............. $858,988 $768,150 ======== ======== </TABLE> See accompanying notes. 25
27 AMETEK, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------------------- ----------------------------- ----------------------------- COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE STOCKHOLDERS' INCOME EQUITY INCOME EQUITY INCOME EQUITY ------------- ------------- ------------- ------------- ------------- ------------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> CAPITAL STOCK Preferred Stock, $0.01 par value........................... $ -- $ -- $ -- -------- -------- -------- Common Stock, $0.01 par value Balance at the beginning of the year.......................... 334 334 332 Shares issued, net of common stock retirement.............. -- -- 2 -------- -------- -------- Balance at the end of the year........................ 334 334 334 -------- -------- -------- CAPITAL IN EXCESS OF PAR VALUE Balance at the beginning of the year.......................... 2,041 4,727 3,146 Employee stock option, savings and award plans............... 207 (2,686) 1,581 -------- -------- -------- Balance at the end of the year........................ 2,248 2,041 4,727 -------- -------- -------- RETAINED EARNINGS Balance at the beginning of the year.......................... 269,861 216,837 182,935 Net income...................... $68,532 68,532 $60,768 60,768 $41,739 41,739 ------- ------- ------- Cash dividends paid............. (7,697) (7,744) (7,837) -------- -------- -------- Balance at the end of the year........................ 330,696 269,861 216,837 -------- -------- -------- ACCUMULATED OTHER COMPREHENSIVE LOSSES(1) Foreign currency translation: Balance at the beginning of the year.......................... (26,292) (16,277) (20,246) Translation adjustments......... (4,175) (4,175) (10,015) (10,015) 3,969 3,969 -------- -------- -------- Balance at the end of the year........................ (30,467) (26,292) (16,277) -------- -------- -------- Minimum pension liability adjustment: Balance at the beginning of the year.......................... (280) (4,012) (1,909) Adjustments during the year..... 111 111 3,732 3,732 (2,103) (2,103) -------- -------- -------- Balance at the end of the year...................... (169) (280) (4,012) -------- -------- -------- Valuation adjustments for marketable securities and other: Balance at the beginning of the year.......................... (823) (575) 268 Increase (decrease) in marketable securities(2)...... 1,294 1,294 (248) (248) (1,018) (1,018) Other........................... -- -- -- -- 175 175 ------- ------- ------- Net change in marketable securities and other........ 1,294 (248) (843) ------- -------- ------- -------- ------- -------- Balance at the end of the year........................ 471 (823) (575) -------- -------- -------- Total other comprehensive (loss) income for the year........................ (2,770) (6,531) 1,023 ------- ------- ------- Total comprehensive income for the year.................... $65,762 $54,237 $42,762 ======= ======= ======= Accumulated other comprehensive loss at the end of the year... (30,165) (27,395) (20,864) -------- -------- -------- TREASURY STOCK Balance at the beginning of the year.......................... (28,625) (26,985) (5,479) Employee stock option, savings and award plans............... 7,961 7,641 6,493 Purchase of treasury stock...... (1,611) (9,281) (27,999) -------- -------- -------- Balance at the end of the year........................ (22,275) (28,625) (26,985) -------- -------- -------- Total Stockholders' Equity.................... $280,838 $216,216 $174,049 ======== ======== ======== </TABLE> (1) Amounts presented are net of tax based on an average effective tax rate of 35%, except for foreign currency translation adjustments, which are presented on a pretax basis. (2) Includes reclassification adjustment for gains included in net income for 2000, 1999, and 1998 of $0.3 million, $0.1 million, and $1.2 million, respectively. See accompanying notes. 26
28 AMETEK, INC. CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 --------- --------- --------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> CASH PROVIDED BY (USED FOR): Operating activities: Income before extraordinary item........................ $ 68,532 $ 60,768 $ 50,449 Adjustments to reconcile income before extraordinary item to net cash provided by operating activities: Depreciation and amortization........................ 43,257 39,624 38,369 Deferred income taxes................................ 6,430 5,118 (1,692) Changes in assets and liabilities (net of acquisitions): (Increase) decrease in receivables................. (16,782) (7,008) 10,953 (Increase) decrease in inventories and other current assets.................................. (6,622) (68) 3,085 (Decrease) increase in payables, accruals, and income taxes.................................... (4,390) (6,861) (20,657) (Decrease) increase in other long-term liabilities..................................... (14,866) 1,568 (3,340) Other................................................ 3,165 (6,572) 1,219 --------- --------- --------- Cash provided by operating activities before sale of accounts receivable................................ 78,724 86,569 78,386 Increase in accounts receivable sold................. 1,000 44,000 -- --------- --------- --------- Total operating activities........................... 79,724 130,569 78,386 --------- --------- --------- Investing activities: Additions to property, plant and equipment.............. (29,554) (30,331) (49,841) Purchase of businesses.................................. (81,017) (147,470) (115,380) Proceeds from sale of assets............................ 3,314 29,515 4,770 Increase in marketable securities and other............. (143) 255 (3,038) --------- --------- --------- Total investing activities........................... (107,400) (148,031) (163,489) --------- --------- --------- Financing activities: Net change in short-term borrowings..................... 25,154 37,820 51,023 Additional long-term borrowings......................... 3,003 5,201 225,000 Reduction in long-term borrowings....................... (271) (14,309) (136,948) Debt prepayment premium and new debt issuance costs..... -- -- (16,829) Repurchases of common stock............................. (1,611) (9,281) (27,999) Cash dividends paid..................................... (7,697) (7,744) (7,837) Proceeds from stock options............................. 7,649 4,541 4,793 Other................................................... -- 102 2,984 --------- --------- --------- Total financing activities........................... 26,227 16,330 94,187 --------- --------- --------- (Decrease) increase in cash and cash equivalents.......... (1,449) (1,132) 9,084 Cash and cash equivalents: Beginning of year....................................... 8,636 9,768 684 --------- --------- --------- End of year............................................. $ 7,187 $ 8,636 $ 9,768 ========= ========= ========= </TABLE> See accompanying notes. 27
29 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. 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 and assumptions. 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, 2000 and 1999, 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, 2000 and 1999 was: 2000 -- $16.4 million ($16.0 million amortized cost) and 1999 -- $14.5 million ($16.1 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, 2000 and 1999 was $31.6 million and $33.2 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: 2000-$23.8 million, 1999-$21.6 million, and 1998-$23.4 million. 28
30 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings Per Share The calculation of basic earnings per share is based on the average number of common shares outstanding during the period. Diluted earnings per share reflect the effect of all potentially dilutive securities (primarily outstanding common stock options). The following table presents the number of shares used in the calculation of basic earnings per share and diluted earnings per share: <TABLE> 2000 1999 1998 ------ ------ ------ (IN THOUSANDS) <S> <C> <C> <C> Weighted average shares: Basic.................................................. 32,131 32,297 32,733 Stock option and award plans........................... 403 628 1,008 ------ ------ ------ Diluted................................................ 32,534 32,925 33,741 ====== ====== ====== </TABLE> Foreign Currency Translation Assets and liabilities of foreign operations are translated by using exchange rates in effect at the balance sheet date, and their results of operations are translated by using average exchange rates for the year. Certain transactions of the Company and its subsidiaries are made in currencies other than their functional currency. Gains and losses from those transactions are included in operating results for the year. 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. No gains or losses are recorded. There were no interest rate swap or cap agreements in place during 2000. 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 to 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 fair value of derivatives designated with items that no longer exist, or are no longer probable of occurring are recorded as a component of the gain or loss arising from the disposition of the designated item. There are no carrying amounts related to the above derivative financial instruments in the consolidated balance sheet and the Company had no significant derivatives outstanding at December 31, 2000 and 1999. Intangible Assets The excess of cost over net assets acquired (goodwill) is being amortized on a straight-line basis primarily over a 30 year period. 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 projected discounted cash flow. Patents are being 29
31 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. NONRECURRING CHARGE Included in the 1998 results of operations is a pretax nonrecurring charge of $8.0 million ($4.8 million after-tax, or $0.14 per diluted share) incurred in the fourth quarter of 1998 for costs associated with initiatives the Company undertook to lower its cost structure. The initiatives included: the closure and consolidation of certain of the Company's Electromechanical Group's (EMG) motor plants in Europe ($2.7 million), the transition of some of EMG's U.S. motor production to a lower cost facility in Reynosa, Mexico ($1.5 million), selected workforce reductions, and other initiatives to maximize operating efficiencies, mostly within the Electronic Instruments Group (EIG) ($3.8 million). As of December 31, 2000, all actions under these initiatives were completed. 3. ACQUISITIONS 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 are 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 in cash, subject to adjustment for finalization of the value of the net assets acquired. In 1999, the Company made four acquisitions, which operate as part of the Electronic Instruments Group. On January 4, 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. On April 30, 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. On July 30, 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. Finally, on December 2, 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. In January 1998, the Company acquired Rotron, Inc., a manufacturer of electric motors, fans and motor-blowers, from EG&G Holdings, Inc. In April 1998, the Company acquired the Western Research business unit of BOVAR, Inc. Western Research is a manufacturer of gas analysis instrumentation for industrial process control and air emissions monitoring. In July 1998, the Company acquired the assets of Darmet Corporation, a manufacturer of specialty wire alloys for electrical and electronics-related applications. The aggregate purchase price of the 1998 acquisitions was $115.4 million in cash. 30
32 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of the closing dates, the Company also recorded liabilities for certain estimated future pension obligations, and for certain other 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. The estimated goodwill acquired with these businesses is being amortized on a straight-line basis over thirty years. Had the 2000 acquisitions been made at the beginning of 1999, proforma net sales for 2000 and 1999 would have been $1,085.4 million and $1,022.3 million. Proforma net income and diluted earnings per share for 2000 or 1999 would not have been materially different than those reported. 4. OTHER BALANCE SHEET INFORMATION <TABLE> <CAPTION> 2000 1999 -------- -------- (IN THOUSANDS) <S> <C> <C> INVENTORIES Finished goods and parts.................................. $ 22,879 $ 18,749 Work in process........................................... 31,020 26,904 Raw materials and purchased parts......................... 75,466 56,743 -------- -------- $129,365 $102,396 ======== ======== PROPERTY, PLANT AND EQUIPMENT, at cost Land...................................................... $ 9,138 $ 7,753 Buildings................................................. 105,335 103,405 Machinery and equipment................................... 414,048 405,622 -------- -------- 528,521 516,780 Less accumulated depreciation............................. (314,566) (297,209) -------- -------- $213,955 $219,571 ======== ======== GOODWILL, at cost........................................... $327,320 $266,377 Less accumulated amortization............................... (27,841) (18,073) -------- -------- $299,479 $248,304 ======== ======== INVESTMENTS & OTHER ASSETS Other intangibles, at cost: Patents................................................... $ 21,448 $ 21,448 Other acquired intangibles................................ 47,513 47,513 Less accumulated amortization............................. (64,701) (63,541) -------- -------- 4,260 5,420 Investments............................................... 15,727 16,035 Other..................................................... 22,467 22,719 -------- -------- $ 42,454 $ 44,174 ======== ======== </TABLE> 31
33 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) <TABLE> <CAPTION> 2000 1999 -------- -------- (IN THOUSANDS) <S> <C> <C> ACCRUED LIABILITIES Accrued employee compensation and benefits................ $ 27,968 $ 26,412 Other..................................................... 42,424 45,294 -------- -------- $ 70,392 $ 71,706 ======== ======== </TABLE> <TABLE> <CAPTION> 2000 1999 1998 ------ ------ ------ (IN THOUSANDS) <S> <C> <C> <C> ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS AND NOTES RECEIVABLE Balance at beginning of year.............................. $3,994 $4,580 $3,932 Additions charged to expense.............................. 264 43 429 Recoveries credited to allowance.......................... 43 100 51 Write-offs................................................ (157) (1,119) (85) Allowance acquired with new businesses.................... 214 502 210 Currency translation adjustment and other................. (40) (112) 43 ------ ------ ------ Balance at end of year.................................... $4,318 $3,994 $4,580 ====== ====== ====== </TABLE> 5. ACCOUNTS RECEIVABLE SALES On October 1, 1999, the Company entered into an accounts receivable sale agreement through a wholly-owned, special purpose subsidiary with a bank whereby it can sell to a third party up to $50 million of its trade accounts receivable. The Company's retained interest in the associated receivables, which represents its subordinated interest in the receivables sold to the special purpose subsidiary that have not subsequently been sold to the third party, is reflected as a component of accounts receivable in the Company's consolidated balance sheets. The balance of the retained interest was $29.6 million and $26.2 million at December 31, 2000 and 1999, respectively. Proceeds from the initial sale of accounts receivable in 1999 were used to reduce short-term borrowings outstanding under the Company's revolving bank credit agreement. The special purpose subsidiary uses collections on previously purchased interests to acquire additional interests in new eligible receivables from the Company. The Company remains responsible for servicing the underlying accounts receivable for which it receives an adequate service fee as compensation. The Company estimates the fair value of its retained interests by considering the present value of future cash flows from the retained interest and expected credit losses in both the pool of receivables making up the retained interest and the pool of receivables sold to the third party. Due to the short period of time over which cash flows from the retained interest are expected to be realized (based on an average collection cycle of 60 days), the cost basis of the underlying receivables approximates fair value, less an associated allowance for doubtful accounts. A hypothetical 10% or greater adverse change in either the discount rate used to calculate the present value of future cash flows or the collection cycle would not materially affect the fair value of the retained interest. During 2000, the Company sold to its special purpose subsidiary $541.7 million in net receivables throughout the year and made collections on these receivables, net of a servicing fee, of $537.3 million. Accounts receivable sold to third parties as of December 31, 2000 and 1999 were $45 million and $44 million, respectively. The costs associated with the sale of accounts receivable, which are included in interest expense, were $3 million in 2000 and $1 million in 1999. 32
34 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. LONG-TERM DEBT At December 31, 2000 and 1999, long-term debt consisted of the following: <TABLE> <CAPTION> DECEMBER 31, -------------------- 2000 1999 -------- -------- (IN THOUSANDS) <S> <C> <C> 7.20% Senior Notes due 2008................................. $225,000 $225,000 Other, Principally Foreign.................................. 9,938 6,872 -------- -------- 234,938 231,872 Less: current portion....................................... (1,322) (116) -------- -------- Total long-term debt................................... $233,616 $231,756 ======== ======== </TABLE> Maturities of long-term debt outstanding at December 31, 2000 are as follows: $3.0 million in 2002; $2.2 million in 2003; $1.9 million in 2004; and $226.5 million in 2005 and thereafter. On July 17, 1998 the Company issued, through a private placement, $225 million principal amount of 7.20% Senior Notes due July 15, 2008. The Senior Notes were priced at a discount to yield of 7.241% to maturity. In connection with the early retirement of $136.2 million of senior notes in 1998, an extraordinary after-tax charge of $8.7 million, or $0.26 per diluted share, was recorded net of tax benefits totaling $5.1 million. At, December 31, 2000, the Company had a $195 million revolving Bank Credit Agreement that matures in 2002. Interest rates on outstanding loans under the Bank Credit Agreement are based on the London Interbank Offered Rate (LIBOR), plus a negotiated spread over LIBOR, or at the U.S. prime rate. At December 31, 2000, the Company had $114 million in revolving credit loans outstanding at a blended rate of 7.40%, all of which are included in short-term borrowings at year-end. The Bank Credit Agreement was amended in 1999, to change restrictions on allowable foreign debt, and the measurement of the pro forma effect of potential acquisitions in certain debt covenant compliance calculations. The Bank Credit Agreement places certain restrictions on cash payments, including the payment of dividends. At December 31, 2000, retained earnings of approximately $18.2 million were not subject to the dividend limitation. Foreign subsidiaries of the Company had available credit facilities with local foreign lenders of approximately $37.7 million, of which $22.2 million was outstanding at December 31, 2000. The weighted average interest rate on total debt outstanding at December 31, 2000 was 7.31%. The Company also had outstanding letters of credit totaling $14.3 million at December 31, 2000. 7. STOCKHOLDERS' EQUITY In 2000, the Company repurchased 83,500 shares of its common stock, under its current share repurchase authorization at a total cost of $1.6 million. This compares with repurchases of 492,000 shares at a total cost of $9.3 million in 1999. At December 31, 2000, approximately $27 million of the current $50 million authorization was unexpended. 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 to (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. 33
35 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. STOCK OPTION AND AWARD PLANS In 1999, the Company adopted the 1999 Stock Incentive Plan ("the 1999 Plan"). The 1999 Plan provided for the grant of up to 2.0 million shares of common stock to eligible employees and nonemployee 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 permitted 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 under the Internal Revenue Code of 1986. Restricted stock awards of the Company's common stock are made to eligible employees and nonemployee directors at such cost to the recipient 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 recipient at the date of grant, is charged to stockholders' equity and is included in treasury stock. Unearned compensation is amortized to expense over the periods until the restrictions lapse. In December 2000, the Company awarded 150,000 shares of restricted stock. The expense related to the restricted stock award was immaterial in 2000. The Company did not grant any restricted stock in 1999 or 1998. In 2000, the Company reserved 14,600 shares, net of share adjustments for terminations, under a Supplemental Executive Retirement Plan ("SERP"), bringing the total number of shares reserved to 94,100 shares. Charges to expense under the SERP are considered pension expense (see Note 11), with the offsetting credit reflected in stockholders' equity. At December 31, 2000, 4,259,584 (4,842,758 in 1999) 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, 2000 or 1999. Stock appreciation rights, 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, not significant in amount, is made for these rights and certain related options. A summary of the Company's stock option activity and related information for the years ended December 31 follows: <TABLE> <CAPTION> 2000 1999 1998 --------------------------- --------------------------- --------------------------- PRICE PRICE PRICE SHARES RANGE SHARES RANGE SHARES RANGE --------- --------------- --------- --------------- --------- --------------- <S> <C> <C> <C> <C> <C> <C> Outstanding at beginning of year........................... 2,907,991 $10.92 - $30.34 2,687,031 $10.92 - $30.34 2,601,564 $ 9.73 - $23.78 Granted.......................... 566,150 $19.94 - $24.44 717,400 $18.78 - $24.84 593,600 $25.69 - $30.34 Exercised........................ (433,174) $10.92 - $20.00 (377,260) $11.60 - $22.00 (417,653) $ 9.73 - $18.10 Canceled......................... (84,372) $14.15 - $30.34 (119,180) $14.15 - $30.34 (90,480) $11.60 - $28.63 --------- --------------- --------- --------------- --------- --------------- Outstanding at end of year....... 2,956,595 $11.60 - $30.34 2,907,991 $10.92 - $30.34 2,687,031 $10.92 - $30.34 ========= =============== ========= =============== ========= =============== Exercisable at end of year....... 1,634,903 $11.60 - $30.34 1,628,799 $10.92 - $30.34 1,570,966 $10.92 - $23.78 ========= =============== ========= =============== ========= =============== </TABLE> 34
36 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information pertaining to the Company's stock options outstanding at December 31, 2000: <TABLE> <CAPTION> WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF AVERAGE REMAINING AVERAGE EXERCISE OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE - --------------- ----------- -------- ----------- ----------- -------- <S> <C> <C> <C> <C> <C> $11.60 - $18.20 1,222,645 $13.90 3.8 1,215,133 $13.87 $18.21 - $24.27 997,600 $20.26 5.8 131,050 $20.48 $24.28 - $30.34 736,350 $27.97 4.9 288,720 $28.88 --------- ------ --- --------- ------ 2,956,595 $19.55 4.7 1,634,903 $17.05 ========= ====== === ========= ====== </TABLE> The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its stock option plans. Had compensation expense for such plans been determined in accordance with Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" pro forma net income and related per share amounts for the years ended December 31, 2000, 1999, and 1998 would have been as follows: <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> Net income: As reported......................................... $68,532 $60,768 $41,739 Pro forma........................................... 66,452 58,838 40,120 Net income per share: Basic: As reported...................................... $ 2.13 $ 1.88 $ 1.28 Pro forma........................................ 2.07 1.82 1.23 Diluted: As reported...................................... 2.11 1.85 1.24 Pro forma........................................ 2.07 1.82 1.23 </TABLE> The weighted average fair value of each option grant on the grant date was $7.18 for 2000, $6.65 for 1999, and $8.41 for 1998. The fair value of each option was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions for options granted in each of the last three years. <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Expected life (years)....................................... 5.0 5.0 5.0 Expected volatility......................................... 30.8% 28.0% 24.5% Dividend yield.............................................. 1.2% 1.2% 0.8% Risk-free interest rate..................................... 6.61% 5.58% 4.79% </TABLE> 9. LEASES Minimum aggregate rental commitments under noncancelable leases in effect at December 31, 2000 (principally for production and administrative facilities and equipment) amounted to $19.1 million consisting of annual payments of $4.7 million in 2001, $3.2 million in 2002, $2.5 million in 2003, $2.0 million in 2004, $1.4 million in 2005 and $5.3 million in 2006 and thereafter. Rental expense was $8.1 million in 2000, $6.9 million in 1999 and $6.7 million in 1998. 35
37 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. INCOME TAXES The components of income before income taxes and the details of the provision for income taxes are as follows: <TABLE> <CAPTION> 2000 1999 1998 -------- ------- ------- (IN THOUSANDS) <S> <C> <C> <C> Income before income taxes: Domestic.................................................. $ 97,302 $85,797 $69,072 Foreign................................................... 8,836 8,664 8,286 -------- ------- ------- Total.................................................. $106,138 $94,461 $77,358 ======== ======= ======= Provision for income taxes: Current: Federal................................................ $ 26,995 $26,421 $23,965 Foreign................................................ 2,390 5,899 2,335 State.................................................. 1,541 (136) 3,849 -------- ------- ------- Total current........................................ 30,926 32,184 30,149 -------- ------- ------- Deferred: Federal................................................... 4,733 2,477 (2,148) Foreign................................................... 1,230 (1,541) (807) State..................................................... 717 573 (285) -------- ------- ------- Total deferred....................................... 6,680 1,509 (3,240) -------- ------- ------- Total provision...................................... $ 37,606 $33,693 $26,909 ======== ======= ======= </TABLE> Significant components of the Company's deferred tax (asset) liability as of December 31 are as follows: <TABLE> <CAPTION> 2000 1999 -------- -------- (IN THOUSANDS) <S> <C> <C> Current deferred tax asset: Reserves not currently deductible......................... $ (7,101) $ (7,587) Other..................................................... (3,415) (4,414) -------- -------- Net current deferred tax asset......................... (10,516) (12,001) -------- -------- Noncurrent deferred tax (asset) liability: Differences in basis of property and accelerated depreciation........................................... 18,709 15,774 Purchased tax benefits.................................... 5,434 7,102 Reserves not currently deductible......................... (5,737) (8,518) Other..................................................... 14,760 13,423 -------- -------- Noncurrent deferred tax liability...................... 33,166 27,781 -------- -------- Net deferred tax liability............................. $ 22,650 $ 15,780 ======== ======== </TABLE> 36
38 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effective rate of the provision for income taxes reconciles to the statutory rate as follows: <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Statutory rate.............................................. 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit(a).... 1.4 0.3 3.0 Foreign Sales Corporation (FSC) tax credit.................. (3.3) (3.0) (3.7) Differences between U.S. and foreign tax rates.............. 1.0 1.8 1.6 Goodwill amortization....................................... 2.2 1.9 1.4 Other(b).................................................... (0.9) (0.3) (2.5) ---- ---- ---- 35.4% 35.7% 34.8% ==== ==== ==== </TABLE> - --------------- (a) Years 2000 and 1999 include the reversal of certain prior years' excess state income tax accruals. (b) Years 1998 includes favorable foreign tax adjustments relating to prior years. At December 31, 2000, the Company had available net operating loss carryforwards of approximately $8.1 million to offset future taxable income. The carryforwards, from a subsidiary acquired in 1999, will expire in 2005 through 2019. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $50.8 million at December 31, 2000. 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. 11. 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 the Company's common stock, the investment in which is not material to total plan assets. 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. Effective May 1, 1999, the Company adopted a savings 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 37
39 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. The following table provides a reconciliation of the changes in benefit obligations and fair value of plan assets for the defined benefit plans for 2000 and 1999: <TABLE> <CAPTION> 2000 1999 -------- -------- (IN THOUSANDS) <S> <C> <C> Change in benefit obligation Net benefit obligation at beginning of period............... $253,672 $263,008 Service cost................................................ 4,918 5,810 Interest cost............................................... 19,410 18,279 Plan amendments............................................. 1,241 650 Actuarial gain.............................................. (4,429) (18,273) Benefits paid............................................... (16,644) (15,802) -------- -------- Net benefit obligation at end of period................... $258,168 $253,672 ======== ======== Change in plan assets Fair value of plan assets at beginning of period............ $291,158 $265,681 Actual return on plan assets................................ 38,162 40,587 Employer contributions...................................... 1,296 692 Benefits paid............................................... (16,644) (15,802) -------- -------- Fair value of plan assets at end of period................ $313,972 $291,158 ======== ======== </TABLE> The following table provides aggregate information for pension plans with accumulated benefits in excess of plan assets: <TABLE> <CAPTION> 2000 1999 ------ ------ (IN THOUSANDS) <S> <C> <C> Projected benefit obligation................................ $4,071 $7,961 Accumulated benefit obligation.............................. 4,071 7,961 Fair value of plan assets................................... -0- 3,633 </TABLE> 38
40 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides the amounts recognized in the consolidated balance sheets at December 31, 2000 and 1999: <TABLE> <CAPTION> 2000 1999 -------- -------- (IN THOUSANDS) <S> <C> <C> Funded status asset (liability) Funded status at December 31................................ $ 55,805 $ 37,486 Unrecognized net actuarial gain............................. (40,942) (24,659) Unrecognized prior service cost............................. 3,611 3,082 Unrecognized net transition asset........................... (908) (1,490) -------- -------- Net amount recognized at December 31...................... $ 17,566 $ 14,419 ======== ======== Balance sheet asset (liability) Prepaid benefit cost........................................ $ 22,402 $ 20,682 Accrued benefit liability................................... (4,836) (6,263) Additional minimum liability................................ (397) (919) Intangible asset............................................ 137 489 Accumulated other comprehensive income (before deferred tax benefit).................................................. 260 430 -------- -------- Net amount recognized at December 31...................... $ 17,566 $ 14,419 ======== ======== </TABLE> The following table provides the components of net periodic benefit cost charged to income for the three years ended December 31, 2000: <TABLE> <CAPTION> 2000 1999 1998 -------- -------- -------- (IN THOUSANDS) <S> <C> <C> <C> Defined benefit plans: Service cost for benefits earned during the period....... $ 4,918 $ 5,810 $ 6,498 Interest cost on projected benefit obligation............ 19,410 18,278 17,732 Expected return on plan assets........................... (26,192) (23,875) (24,288) Net amortization......................................... (45) 323 233 -------- -------- -------- Net pension (income) cost............................. (1,909) 536 175 Other plans: Defined contribution plans............................... 1,960 2,439 1,747 Supplemental retirement plans............................ 517 312 301 Foreign plans and other.................................. 801 728 1,234 -------- -------- -------- Total other plans..................................... 3,278 3,479 3,282 -------- -------- -------- Net pension cost.................................... $ 1,369 $ 4,015 $ 3,457 ======== ======== ======== </TABLE> Assumptions used in accounting for the defined benefit plans as of December 31 of each year (based on a measurement date of October 1) were: <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Discount rate used in determining present values............ 8.00% 7.75% 7.00% Annual rate of increase in future compensation levels....... 4.75% 4.75% 4.25% Expected long-term rate of return on plan assets............ 9.25% 9.25% 9.25% </TABLE> Effective October 1, 1999, the Company adopted a deferred compensation plan, which allows employees whose compensation exceeds the statutory IRS limit for retirement benefits to defer a portion of earned bonus 39
41 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 invest in shares of the Company's common stock on behalf of the employee. The amount deferred under the plan at December 31, 2000 is not significant. 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. 12. 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 2000, the Company did not enter into any such agreements and none are outstanding at December 31, 2000. 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, 2000 and 1999, the Company was party to one such agreement, whereby the Company agreed to swap British pounds for an equivalent amount of U.S. dollars totaling $3.8 million. The agreement provides for the Company to make a fixed interest rate payment while receiving interest at floating rates. The currency swap agreement was renewed on its August 1999 termination date and now terminates in August 2001. The fair value of this agreement at December 31, 2000 and 1999 was not significant. 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, 2000 and 1999, the Company was not party to any forward currency contracts. The terms of the currency contracts are linked to the firm commitment and generally do not exceed one year. Deferred gains and losses on such contracts, which are not significant, are recognized in operations as the related sales and purchases occurred. The estimated fair values of the Company's other financial instruments are compared below to the recorded amounts at December 31, 2000 and 1999. Cash, cash equivalents, and marketable securities are recorded at fair value at December 31, 2000 and 1999 in the accompanying balance sheet. <TABLE> <CAPTION> ASSET (LIABILITY) ------------------------------------------------ DECEMBER 31, 2000 DECEMBER 31, 1999 ---------------------- ---------------------- RECORDED FAIR RECORDED FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- (IN THOUSANDS) <S> <C> <C> <C> <C> Fixed income and equity investments......... $ 15,703 $ 15,703 $ 16,035 $ 16,035 Short-term borrowings....................... $(126,279) $(126,279) $ (99,558) $ (99,558) Long-term debt (including current portion).................................. $(234,938) $(220,669) $(231,872) $(206,391) </TABLE> 40
42 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair values of fixed income investments are based on quoted market prices. The fair value of equity investments are based on amounts reported by the investee. The fair value of short-term borrowings is based on the carrying value at year-end. The fair value of the Company's long-term debt, which consists primarily of publicly traded notes, is based on the quoted market price for such notes and borrowing rates currently available to the Company for loans with similar terms and maturities. The fair value of the currency swap agreement, which is not reflected in the financial statements, is based on quoted market prices for comparable instruments and is not significant. 13. ADDITIONAL INCOME STATEMENT AND CASH FLOW INFORMATION Included in other income is interest and other investment income of $1.5 million, $2.6 million, and $4.6 million for 2000, 1999, and 1998, respectively. Income taxes paid in 2000, 1999, and 1998 were $33.6 million, $29.0 million, and $25.6 million, respectively. Cash paid for interest was $30.2 million and $24.3 million in 2000 and 1999, respectively. Cash paid for interest in 1998 was $26.3 million, and included $6.6 million for unamortized debt issuance costs related to the Company's 7.20% Senior Notes due 2008. These unamortized costs are included as other assets and are being amortized to interest expense over the life of the 7.20% Senior Notes. 14. 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 instruments and complete instrument panels for heavy truck manufacturers and heavy construction and agricultural vehicles, as well as instruments for foodservice equipment, and measurement and monitoring instrumentation for various process industries. To a lesser degree, the Group also manufactures high-temperature-resistant and corrosion-resistant materials, as well as thermoplastic compounds for automotive, appliance, and telecommunications applications. The Electromechanical Group produces air-moving electric motors and motor-blower systems for manufacturers of floor-care appliances and outdoor power equipment, fractional horsepower and brushless air-moving motors for aerospace, mass transit, medical equipment, computer and business machine applications. The Group also produces high-purity metal powders and alloys in powder, strip, and wire form for electronic components, aircraft and automotive products. Sales of electric motors, blowers, and fans represented 42.2% in 2000, 43.8% in 1999, and 47.8% in 1998 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. 41
43 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REPORTABLE SEGMENT FINANCIAL INFORMATION <TABLE> <CAPTION> 2000 1999 1998 ---------- -------- -------- (IN THOUSANDS) <S> <C> <C> <C> Net sales: Electronic Instruments.......................... $ 509,504 $451,072 $414,202 Electromechanical............................... 515,156 473,725 513,272 ---------- -------- -------- Total Consolidated........................... $1,024,660 $924,797 $927,474 ========== ======== ======== Operating income and income before income taxes:(1) Operating income: Electronic Instruments....................... $ 78,771 $ 69,965 $ 55,703 Electromechanical............................ 77,560 67,575 62,511 ---------- -------- -------- Total segments operating income............ 156,331 137,540 118,214 Corporate administrative and other expenses................................... (20,441) (18,743) (21,778) ---------- -------- -------- Consolidated operating income................... 135,890 118,797 96,436 Interest and other expenses, net................ (29,752) (24,336) (19,078) ---------- -------- -------- Consolidated income before income taxes......... $ 106,138 $ 94,461 $ 77,358 ========== ======== ======== Assets: Electronic Instruments.......................... $ 426,317 $386,309 $244,509 Electromechanical............................... 387,983 332,493 375,985 ---------- -------- -------- Total segments............................. 814,300 718,802 620,494 Corporate....................................... 44,688 49,348 79,331 ---------- -------- -------- Total Consolidated......................... $ 858,988 $768,150 $699,825 ========== ======== ======== Additions to property, plant and equipment:(2) Electronic Instruments.......................... $ 10,883 $ 29,323 $ 11,580 Electromechanical............................... 19,292 17,531 40,198 ---------- -------- -------- Total segments............................. 30,175 46,854 51,778 Corporate....................................... 3,557 2,398 3,634 ---------- -------- -------- Total Consolidated......................... $ 33,732 $ 49,252 $ 55,412 ========== ======== ======== Depreciation and amortization: Electronic Instruments.......................... $ 18,939 $ 16,132 $ 15,188 Electromechanical............................... 24,028 22,980 22,761 ---------- -------- -------- Total segments............................. 42,967 39,112 37,949 Corporate....................................... 290 512 420 ---------- -------- -------- Total Consolidated......................... $ 43,257 $ 39,624 $ 38,369 ========== ======== ======== </TABLE> - --------------- (1) Amounts in 1998 include a non-recurring charge for cost reduction initiatives totaling $8.0 million pretax, consisting of $2.3 million in the Electronic Instruments segment, $5.2 million in the Electromechanical segment, and $0.5 million in Corporate. (2) Includes $4.2 million in 2000, $18.9 million in 1999, and $5.6 million in 1998 from acquired businesses. 42
44 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Geographic Areas Information about the Company's operations in different geographic areas for the years ended December 31, 2000, 1999, and 1998 is shown below. Net sales were attributed to geographic areas based on the location of the customer, accordingly, U.S. export sales are reported in international sales. <TABLE> <CAPTION> 2000 1999 1998 ---------- -------- -------- (IN THOUSANDS) <S> <C> <C> <C> Net sales: United States................................... $ 699,713 $622,832 $582,494 ---------- -------- -------- International(a): European Union countries..................... 118,934 123,116 147,300 Asia......................................... 68,409 57,451 60,693 Other foreign countries...................... 137,604 121,398 136,987 ---------- -------- -------- Total international........................ 324,947 301,965 344,980 ---------- -------- -------- Total Consolidated......................... $1,024,660 $924,797 $927,474 ========== ======== ======== Long-lived assets from continuing operations: United States................................... $ 443,417 $390,749 $283,161 ---------- -------- -------- International(b): European Union countries..................... 53,229 65,111 72,081 Asia......................................... 4,710 4,424 4,675 Other foreign countries...................... 20,827 19,811 17,791 ---------- -------- -------- Total international........................ 78,766 89,346 94,547 ---------- -------- -------- Total Consolidated......................... $ 522,183 $480,095 $377,708 ========== ======== ======== </TABLE> - --------------- (a) Includes U.S. export sales of $179.1 million in 2000, $158.5 million in 1999, and $162.6 million in 1998. (b) Represents long-lived assets of foreign-based operations only. 15. QUARTERLY FINANCIAL DATA (UNAUDITED) <TABLE> <CAPTION> FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR -------- -------- -------- -------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> 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:(a) Net income....................... $ 0.52 $ 0.54 $ 0.54 $ 0.53 $ 2.13 Diluted earnings per share:(a) Net income....................... $ 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:(b) High............................. 22 1/8 21 9/16 22 7/8 26 15/16 26 15/16 Low.............................. 15 1/2 17 1/2 18 1/2 20 15 1/2 </TABLE> 43
45 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) <TABLE> <CAPTION> FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR -------- -------- -------- -------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> 1999 Net sales.......................... $230,878 $231,640 $226,258 $236,021 $ 924,797 Operating income................... $ 29,149 $ 29,584 $ 30,518 $ 29,546 $ 118,797 Net income......................... $ 14,596 $ 15,564 $ 15,594 $ 15,014 $ 60,768 Basic earnings per share:(a) Net income....................... $ 0.45 $ 0.48 $ 0.48 $ 0.47 $ 1.88 Diluted earnings per share:(a) Net income....................... $ 0.45 $ 0.47 $ 0.47 $ 0.46 $ 1.85 Dividends paid per share........... $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.24 Common stock trading range:(b) High............................. 23 1/16 25 3/4 24 5/8 20 1/2 25 3/4 Low.............................. 16 1/2 17 1/2 19 1/4 18 16 1/2 </TABLE> - --------------- (a) The sum of quarterly earnings per share may not equal total year earnings per share due to the effect of the Company's purchasing shares of its outstanding common stock. (b) Trading ranges are based on the New York Stock Exchange composite tape. 16. NEW ACCOUNTING PRONOUNCEMENTS In the fourth quarter of 2000, the Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". The SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. The adoption of the Bulletin did not have a significant effect on the Company's consolidated results of operations, financial position, or cash flows. In September, 2000, the FASB issued Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- A Replacement of FASB Statement 125". The Statement requires extensive disclosures about securitizations entered into during the period and retained interests in securitized financial assets at the balance sheet date, accounting policies, sensitivity information relating to retained interests, and cash flows distributed to the transferor. The accounting requirements of Statement 140 are effective for transfers occurring after March 31, 2001. However, the expanded disclosures about securitizations and collateral are effective for fiscal years ending after December 15, 2000. The Company is continuing to study the future impact of adopting the accounting changes of this Statement. The Company adopted the disclosure requirement by the Statement, for fiscal year 2000, which are included in footnote 5 of the financial statements. On July 1, 2000, the Company adopted FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation". The Interpretation provides guidance on the application of APB Opinion No. 25, "Accounting for Stock Issued to Employees". The adoption of this Interpretation did not have a material effect on the Company's consolidated results of operations, financial position, or cash flows. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement requires recognition of all derivative instruments measured at fair value in the statement of financial position. Gains or losses resulting from changes in the value of derivatives would be accounted for depending on the intended use of the derivative and whether it qualifies for hedge accounting. In June 1999, the FASB approved a one-year delay in the effective date of this Statement until January 2001. 44
46 AMETEK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In June 2000, the FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". This Statement amends Statement No. 133 for certain impractical aspects of the original Statement which were incompatible with many common current hedging approaches. Statement No. 138 is effective simultaneously with Statement No. 133. The provisions of SFAS 133 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 these Statements did not have a significant effect on the Company's consolidated results of operations, financial position, or cash flows. 45
47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to Directors and Executive Officers of the Company, and information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Commission") not later than 120 days after the close of the fiscal year ended December 31, 2000, under the captions "Election of Directors," "Executive Officers," and "Compliance with Section 16(a) of the Securities Exchange Act of 1934." ITEMS 11, 12, AND 13 The information required by Item 11, Executive Compensation, by Item 12, Security Ownership of Certain Beneficial Owners and Management, and by Item 13, Certain Relationships and Related Transactions, is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Commission not later than 120 days after the close of the fiscal year ended December 31, 2000, under the headings "Executive Compensation," "Stock Ownership," and "Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits filed. 1. and 2. Financial statements and schedules are shown in the index on page 22 of this report. 3. Exhibits Exhibits are shown in the index on pages 48-53 of this report. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 2000. 46
48 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. AMETEK, INC. By /s/ FRANK S. HERMANCE ------------------------------------ FRANK S. HERMANCE, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND DIRECTOR Dated: March 14, 2001 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. <TABLE> <CAPTION> SIGNATURE TITLE DATE --------- ----- ---- <C> <S> <C> /s/ FRANK S. HERMANCE Chairman of the Board, Chief March 14, 2001 - --------------------------------------------------- Executive Officer and FRANK S. HERMANCE Director (Principal Executive Officer) /s/ JOHN J. MOLINELLI Executive Vice President -- March 14, 2001 - --------------------------------------------------- Chief Financial Officer JOHN J. MOLINELLI (Principal Financial Officer) /s/ ROBERT R. MANDOS, JR. Vice President & Comptroller March 14, 2001 - --------------------------------------------------- (Principal Accounting ROBERT R. MANDOS, JR. Officer) /s/ LEWIS G. COLE Director March 14, 2001 - --------------------------------------------------- LEWIS G. COLE /s/ HELMUT N. FRIEDLAENDER Director March 14, 2001 - --------------------------------------------------- HELMUT N. FRIEDLAENDER /s/ SHELDON S. GORDON Director March 14, 2001 - --------------------------------------------------- SHELDON S. GORDON /s/ CHARLES D. KLEIN Director March 14, 2001 - --------------------------------------------------- CHARLES D. KLEIN /s/ JAMES R. MALONE Director March 14, 2001 - --------------------------------------------------- JAMES R. MALONE /s/ DAVID P. STEINMANN Director March 14, 2001 - --------------------------------------------------- DAVID P. STEINMANN /s/ ELIZABETH R. VARET Director March 14, 2001 - --------------------------------------------------- ELIZABETH R. VARET </TABLE> 47
49 INDEX TO EXHIBITS ITEM 14(a)(3) <TABLE> <CAPTION> FILED WITH EXHIBIT ELECTRONIC NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION - ------- ----------- ----------------------------------- ---------- <C> <S> <C> <C> 2.1 Amended and Restated Agreement and Plan of Exhibit 2 to Form 8-K dated August 7, Merger and Reorganization, dated as of 1997, SEC File No. 1-12981. February 5, 1997, by and among Culligan Water Technologies, Inc. ("Culligan"), Culligan Water Company, Inc. ("Culligan Merger Sub"), AMETEK, Inc. ("AMETEK") and AMETEK Aerospace Products, Inc. ("AMETEK Aerospace"), incorporated by reference to Appendix A to the Joint Proxy Statement/ Prospectus included in Culligan's Registration Statement on Form S-4 (Commission File No. 333-26953). 2.2 Amended and Restated Contribution and Appendix B to Preliminary Proxy Distribution Agreement, dated as of Statement dated May 12, 1997, SEC February 5, 1997, by and between AMETEK File No. 1-168. and AMETEK Aerospace. 2.3 Form of Tax Allocation Agreement among Appendix D to Preliminary Proxy AMETEK, AMETEK Aerospace and Culligan. Statement dated May 12, 1997, SEC File No. 1-168. 2.4 Form of Transition Services Agreement by Appendix B to Preliminary Proxy and between Culligan Merger Sub and AMETEK Statement dated May 12, 1997, SEC Aerospace. File No. 1-168. 2.5 Form of Indemnification Agreement among Appendix B to Preliminary Proxy AMETEK, Culligan and AMETEK Aerospace. Statement dated May 12, 1997, SEC File No. 1-168. 2.6 Form of Trademark Agreement between AMETEK Appendix B to Preliminary Proxy and AMETEK Aerospace. Statement dated May 12, 1997, SEC File No. 1-168. 3.1 Amended and Restated Certificate of Exhibit 3.1 to Form 8-K dated August Incorporation of the Company. 7, 1997, SEC File No. 1-12981. 3.2 By-laws of the Company as amended to and Exhibit 3.2 to 1998 Form 10-K, SEC including November 18, 1998. File No. 1-12981. 4.1 Rights Agreement, dated as of June 2, Exhibit 4.1 to Form 8-K dated August 1997, between the Company and American 7, 1997, SEC File No. 1-12981. Stock Transfer & Trust Company. 4.2 Amendment No. 1 to Rights Agreement dated Exhibit 4 to Form 10-Q dated March as of May 11, 1999, between AMETEK, Inc. 31, 1999, SEC File No. 1-12981. and American Stock Transfer & Trust Company. 4.3 Indenture, dated as of July 17, 1998, Exhibit 4.1 to Form 10-Q dated June between AMETEK, Inc., as Issuer, and Chase 30, 1998, SEC File No. 1-12981. Manhattan Trust Company, National Association, as Trustee relating to the Notes, dated July 17, 1998. </TABLE> 48
50 <TABLE> <CAPTION> FILED WITH EXHIBIT ELECTRONIC NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION - ------- ----------- ----------------------------------- ---------- <C> <S> <C> <C> 4.4 Purchase Agreement between AMETEK, Inc. Exhibit 4.3 to Form S-4 dated August and Salomon Brothers Inc., BancAmerica 11, 1998, SEC File No. 1-12981. Robertson Stephens and BT Alex. Brown Incorporated, as initial purchasers, dated July 14, 1998. 10.1 AMETEK, Inc. Retirement Plan for Exhibit 10.8 to 1997 Form 10-K, SEC Directors, as amended and restated to File No. 1-12981. October 13, 1997.* 10.2 AMETEK, Inc. Death Benefit Program for Exhibit (10)(y) to 1987 Form 10-K, Directors, pursuant to which the Company SEC File No. 1-168. has entered into agreements, restated January 1, 1987, with certain directors and one former director of the Company (the "Directors Program").* 10.3 Amendment No. 1 to the Directors Program.* Exhibit (10)(z) to 1987 Form 10-K, SEC File No. 1-168. 10.4 The AMETEK Savings and Investment Plan, as Exhibit 10.39 to 1996 Form 10-K, SEC restated and amended to January 1, 1997 File No. 1-168. (the "Savings Plan").* 10.5 Amendment No. 1 to the Savings Plan.* Exhibit 10.12 to 1997 Form 10-K, SEC File No. 1-12981. 10.6 Amendment No. 2 to the Savings Plan.* Exhibit 10.13 to 1997 Form 10-K, SEC File No. 1-12981. 10.7 Amendment No. 3 to the Savings Plan.* Exhibit 10.14 to 1997 Form 10-K, SEC File No. 1-12981. 10.8 Amendment No. 4 to the Savings Plan.* Exhibit 10.8 to 1998 Form 10-K, SEC File No. 1-12981. 10.9 Amendment No. 5 to the Savings Plan.* Exhibit 10.9 to 1998 Form 10-K, SEC File No. 1-12981. 10.10 Amendment No. 6 to the Savings Plan.* Exhibit 10.10 to 1998 Form 10-K, SEC File No. 1-12981. 10.11 Amendment No. 7 to the Savings Plan.* Exhibit 10.11 to 1999 Form 10-K, SEC File No. 1-12981. 10.12 Amendment No. 8 to the Savings Plan.* Exhibit 10.12 to 1999 Form 10-K, SEC File No. 1-12981. 10.13 Amendment No. 9 to the Savings Plan.* Exhibit 10.13 to 1999 Form 10-K, SEC File No. 1-12981. 10.14 Amendment No. 10 to the Savings Plan.* Exhibit 10.14 to 1999 Form 10-K, SEC File No. 1-12981. 10.15 Amendment No. 11 to the Savings Plan.* Exhibit 10.3 to Form 10-Q dated June 30, 2000, SEC File No. 1-12981. 10.16 Amendment No. 12 to the Savings Plan.* Exhibit 10.4 to Form 10-Q dated June 30, 2000, SEC File No. 1-12981. 10.17 Amendment No. 13 to the Savings Plan.* X </TABLE> 49
51 <TABLE> <CAPTION> FILED WITH EXHIBIT ELECTRONIC NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION - ------- ----------- ----------------------------------- ---------- <C> <S> <C> <C> 10.18 Reorganization and Distribution Agreement Exhibit (2) to Form 8-K dated by and between the Company and Ketema, November 30, 1988, SEC File No. Inc. (the "Reorganization and Distribution 1-168. Agreement"). 10.19 Agreements between the Company and Ketema, Exhibit 10.56 to 1991 Form 10-K, SEC Inc. amending certain provisions of the File No. 1-168. Reorganization and Distribution Agreement. 10.20 Benefits Agreement by and between the Exhibit (10)(ss) to 1988 Form 10-K, Company and Ketema, Inc. SEC File No. 1-168. 10.21 Tax Agreement by and between the Company Exhibit (10)(tt) to 1988 Form 10-K, and Ketema, Inc. SEC File No. 1-168. 10.22 Support Services Agreement by and between Exhibit (10)(uu) to 1988 Form 10-K, the Company and Ketema, Inc. SEC File No. 1-168. 10.23 Form of Severance Benefit Agreement Exhibit (10)(ww) to 1989 Form 10-K, between the Company and certain executives SEC File No. 1-168. of the Company.* 10.24 Form of Supplemental Retirement Benefit Exhibit 10.61 to 1991 Form 10-K, SEC Agreement between the Company and certain File No. 1-168. executives of the Company, dated as of May 21, 1991.* 10.25 Supplemental Senior Executive Death Exhibit 10.41 to 1992 Form 10-K, SEC Benefit Plan, effective as of January 1, File No. 1-168. 1992 (the "Senior Executive Plan").* 10.26 Amendment No. 1 to the Senior Executive Exhibit 10.42 to 1992 Form 10-K, SEC Plan.* File No. 1-168. 10.27 Senior Executive Split Dollar Death Exhibit 10.43 to 1992 Form 10-K, SEC Benefit Plan, dated as of December 15, File No. 1-168. 1992.* 10.28 Credit Agreement dated August 2, 1995, Exhibit 4 to Form 10-Q dated amended and restated as of September 12, September 30, 1996, SEC File No. 1996, among the Company, Various Lending 1-168. Institutions, Bank of Montreal, CoreStates Bank, N.A., and PNC Bank, National Association, as Co-Agents, and The Chase Manhattan Bank, N.A., as Administrative Agent (the "Credit Agreement"). 10.29 First Amendment and Consent to the Credit Exhibit 10.1 to Form 8-K dated August Agreement dated as of May 9, 1997. 7, 1997, SEC File No. 1-12981. 10.30 Assumption Agreement, dated as of July 31, Exhibit 10.2 to Form 8-K dated August 1997, among the Company, AMETEK and The 7, 1997, SEC File No. 1-12981. Chase Manhattan Bank. 10.31 Second Amendment to the Credit Agreement Exhibit 10.30 to 1997 Form 10-K, SEC dated as of December 4, 1997. File No. 1-12981. 10.32 Third Amendment to the Credit Agreement, Exhibit 10 to 10-Q dated June 30, dated as of June 15, 1998. 1998, SEC File No. 1-12981. </TABLE> 50
52 <TABLE> <CAPTION> FILED WITH EXHIBIT ELECTRONIC NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION - ------- ----------- ----------------------------------- ---------- <C> <S> <C> <C> 10.33 Fourth Amendment and Consent to the Credit Exhibit 10 to Form 10-Q dated March Agreement dated as of March 19, 1999. 31, 1999, SEC File No. 1-12981. 10.34 Fifth Amendment and Consent to the Credit Exhibit 10.2 to Form 10-Q dated June Agreement dated as of July 14, 1999. 30, 1999, SEC File No. 1-12981. 10.35 Sixth Amendment and Consent to the Credit X Agreement dated as of September 22, 2000. 10.36 The 1997 Stock Incentive Plan of AMETEK, Exhibit 10.31 to 1997 Form 10-K, SEC Inc. (the "1997 Plan").* File No. 1-12981. 10.37 Amendment No. 1 to the 1997 Plan.* Exhibit 10.35 to 1999 Form 10-K, SEC File No. 1-12981. 10.38 Amendment No. 2 to the 1997 Plan.* Exhibit 10.36 to 1999 Form 10-K, SEC File No. 1-12981. 10.39 Amendment No. 3 to the 1997 Plan.* Exhibit 10.2 to Form 10-Q dated March 31, 2000, SEC File No. 1-12981. 10.40 1999 Stock Incentive Plan of AMETEK, Inc. Exhibit 4.1 to Form S-8 dated June (the "1999 Plan").* 11, 1999, SEC File No. 333-80449. 10.41 Amendment No. 1 to the 1999 Plan.* Exhibit 4.1 to Form S-8 dated June 11, 1999, SEC File No. 333-80449. 10.42 Amendment No. 2 to the 1999 Plan.* Exhibit 10.3 to Form 10-Q dated March 31, 2000, SEC File No. 1-12981. 10.43 Supplemental Executive Retirement Plan. Exhibit 10.3 to Form 8-K dated August 7, 1997, SEC File No. 1-12981. 10.44 Amendment No. 1 to the Supplemental Exhibit 10.40 to 1999 Form 10-K, SEC Executive Retirement Plan. File No. 1-12981 10.45 Amendment No. 2 to the Supplemental Exhibit 10.1 to Form 10-Q dated March Executive Retirement Plan. 31, 2000, SEC File No. 1-12981. 10.46 Stock Purchase Agreement by and between Exhibit 10 to Form 8-K dated January EG&G Holdings, Inc. and AMETEK, Inc. dated 22, 1998, SEC File No. 1-12981. as of December 26, 1997. 10.47 Employees' Retirement Plan of AMETEK, Exhibit 10.31 to 1998 Form 10-K, SEC Inc., as restated to January 1, 1998 (the File No. 1-12981. "Retirement Plan").* 10.48 Amendment No. 1 to the Retirement Plan.* Exhibit 10.43 to 1999 Form 10-K, SEC File No. 1-12981. 10.49 Amendment No. 2 to the Retirement Plan.* Exhibit 10.44 to 1999 Form 10-K, SEC File No. 1-12981. 10.50 Amendment No. 3 to the Retirement Plan.* Exhibit 10.45 to 1999 Form 10-K, SEC File No. 1-12981. </TABLE> 51
53 <TABLE> <CAPTION> FILED WITH EXHIBIT ELECTRONIC NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION - ------- ----------- ----------------------------------- ---------- <C> <S> <C> <C> 10.51 Amendment No. 4 to the Retirement Plan.* Exhibit 10.46 to 1999 Form 10-K, SEC File No. 1-12981. 10.52 Amendment No. 5 to the Retirement Plan.* Exhibit 10.47 to 1999 Form 10-K, SEC File No. 1-12981. 10.53 Amendment No. 6 to the Retirement Plan.* Exhibit 10.48 to 1999 Form 10-K, SEC File No. 1-12981. 10.54 Amendment No. 7 to the Retirement Plan.* X 10.55 AMETEK 401(k) Plan for Acquired Exhibit 10.1 to Form 10-Q dated June Businesses, dated May 1, 1999.* 30, 1999, SEC File No. 1-12981. 10.56 Amendment No. 1 to the AMETEK 401(k) Plan Exhibit 10.50 to 1999 Form 10-K, SEC for Acquired Businesses. File No. 1-12981. 10.57 Amendment No. 2 to the AMETEK 401(k) Plan Exhibit 10.51 to 1999 Form 10-K, SEC for Acquired Businesses. File No. 1-12981. 10.58 Amendment No. 3 to the AMETEK 401(k) Plan Exhibit 10.1 to Form 10-Q dated June for Acquired Businesses. 30, 2000, SEC File No. 1-12981. 10.59 Amendment No. 4 to the AMETEK 401(k) Plan Exhibit 10.2 to Form 10-Q dated June for Acquired Businesses. 30, 2000, SEC File No. 1-12981. 10.60 Amendment No. 5 to the AMETEK 401(k) Plan Exhibit 10.1 to Form 10-Q dated for Acquired Businesses. September 30, 2000, SEC File No. 1-12981. 10.61 Amendment No. 6 to the AMETEK 401(k) Plan Exhibit 10.2 to Form 10-Q dated for Acquired Businesses. September 30, 2000, SEC File No. 1-12981. 10.62 Receivables Purchase Agreement dated as of Exhibit 10.1 to Form 10-Q dated October 1, 1999 among AMETEK, Inc., Rotron September 30, 1999, SEC File No. Incorporated and AMETEK Receivables Corp. 1-12981. 10.63 Receivables Sale Agreement dated as of Exhibit 10.2 to Form 10-Q dated October 1, 1999 among AMETEK Receivables September 30, 1999, SEC File No. Corp., AMETEK, Inc., ABN AMRO Bank N.V., 1-12981. and Amsterdam Funding Corporation. 10.64 First Amendment to the Receivables Sale Exhibit 10.3 to Form 10-Q dated Agreement, dated as of September 29, 2000. September 30, 2000, SEC File No. 1-12981. 10.65 Second Amendment to the Receivables Sale X Agreement, dated as of October 31, 2000. 10.66 Third Amendment to the Receivables Sale X Agreement, dated as of November 30, 2000. 10.67 AMETEK, Inc. Deferred Compensation Plan. Exhibit 10.3 to Form 10-Q dated September 30, 1999, SEC File No. 1-12981. 10.68 1997 Stock Incentive Plan Restricted Stock X Agreement dated December 15, 2000. </TABLE> 52
54 <TABLE> <CAPTION> FILED WITH EXHIBIT ELECTRONIC NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO SUBMISSION - ------- ----------- ----------------------------------- ---------- <C> <S> <C> <C> 10.69 1999 Stock Incentive Plan Restricted Stock X Agreement dated December 15, 2000. 10.70 Termination and Change of Control X Agreement between AMETEK, Inc. and a named executive, dated December 15, 2000. 10.71 Employment agreement between AMETEK, Inc. X and a former executive, dated January 1, 2001. 12 Statement regarding computation of ratio X of earnings to fixed charges. 21 Subsidiaries of the Registrant. X 23 Consent of Independent Auditors. X </TABLE> - --------------- * Management contract or compensatory plan required to be filed pursuant to Item 601 of Regulation S-K. 53