NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 9, 2017
11:00 a.m. Eastern Daylight Time
JW Marriott Essex House New York
Tivoli Room
160
Central Park South
New York, NY 10019
Dear Fellow Stockholder
:
On behalf of the Board of Directors, it is my pleasure to invite
you to attend the 2017 Annual Meeting of Stockholders of AMETEK, Inc. At the Annual Meeting, you will be asked to:
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Elect four Directors for a term of three years;
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2.
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Cast an advisory vote to approve named executive officer compensation;
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3.
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Cast an advisory vote on the frequency of future advisory votes on executive compensation;
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4.
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Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017; and
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5.
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Transact any other business properly brought before the Annual Meeting.
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Only stockholders of record at the close of business on March 24, 2017 will be entitled to vote at the Annual Meeting. Your vote is important. You can vote in one of four ways: (1) via the
Internet, (2) by telephone using a toll-free number, (3) by marking, signing and dating your proxy card, and returning it promptly in the enclosed envelope, or (4) by casting your vote in person at the Annual Meeting. Please refer to
your proxy card for specific proxy voting instructions.
We have included the annual financial information relating to our business and
operations in Appendix A to the Proxy Statement. We also have enclosed a Summary Annual Report.
We hope that you take advantage of the
convenience and cost savings of voting by computer or by telephone. A sizable electronic response would significantly reduce return-postage fees.
Whether you expect to attend the meeting or not, we urge you to vote your shares via the Internet, by telephone or by mailing your proxy as soon as possible. Submitting your proxy now will not prevent you
from voting your stock at the Annual Meeting if you want to, as your proxy is revocable at your option. We appreciate your interest in AMETEK.
Sincerely,
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Frank S. Hermance
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David A. Zapico
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Executive Chairman
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Chief Executive Officer
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Berwyn, Pennsylvania
Dated: March 31, 2017
IMPORTANT NOTICE REGARDING THE
AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 9, 2017
Our Notice of 2017 Annual Meeting of Stockholders, Proxy Statement and Annual Report
are available at: http://www.ametek.com/2017proxy
Principal executive offices
1100 Cassatt Road
Berwyn, Pennsylvania 19312-1177
PROXY STATEMENT
We are
mailing this Proxy Statement and proxy card to our stockholders of record as of March 24, 2017 on or about March 31, 2017. The Board of Directors is soliciting proxies in connection with the election of Directors and other actions to be
taken at the Annual Meeting of Stockholders and at any adjournment or postponement of that Meeting. The Board of Directors encourages you to read the Proxy Statement and to vote on the matters to be considered at the Annual Meeting.
TABLE OF CONTENTS
VOTING PROCEDURES
Your vote is very important.
It is important that your views be represented whether or not you attend the Annual Meeting. Stockholders who hold
AMETEK shares through a broker, bank or other holder of record receive proxy materials and a Voting Instruction Form either electronically or by mail before each Annual Meeting. For your vote to be counted, you need to communicate your
voting decisions to your broker, bank or other holder of record before the date of the Annual Meeting.
Who can vote?
Stockholders of
record as of the close of business on March 24, 2017 are entitled to vote. On that date, 230,014,300 shares of our Common Stock were issued and outstanding and eligible to vote. Each share is entitled to one vote on each matter presented at the
Annual Meeting.
How do I vote?
You can vote your shares at the Annual Meeting if you are present in person or represented by proxy.
You can designate the individuals named on the enclosed proxy card as your proxies by mailing a properly executed proxy card, via the Internet or by telephone. You may revoke your proxy at any time before the Annual Meeting by delivering written
notice to the Corporate Secretary, by submitting a proxy card bearing a later date, or by appearing in person and casting a ballot at the Annual Meeting.
To submit your proxy by mail, indicate your voting choices, sign and date your proxy card and return it in the postage-paid envelope provided. You may vote via the Internet or by telephone by following
the instructions on your proxy card. Your Internet or telephone vote authorizes the persons named on the proxy card to vote your shares in the same manner as if you marked, signed and returned the proxy card to us.
If you hold your shares through a broker, bank or other holder of record, that institution will send you separate instructions describing the procedure
for voting your shares.
What shares are represented by the proxy card?
The proxy card represents all the shares registered in your
name. If you participate in the AMETEK, Inc. Investors Choice Dividend Reinvestment & Direct Stock Purchase and Sale Plan, the card also represents any full shares held in your account. If you are an employee who owns AMETEK shares
through an AMETEK employee savings plan and also hold shares in your own name, you will receive a single proxy card for the plan shares, which are attributable to the units that you hold in the plan, and the shares registered in your name. Your
proxy card or proxy submitted through the Internet or by telephone will serve as voting instructions to the plan trustee.
How are shares
voted?
If you return a properly executed proxy card or submit voting instructions via the Internet or by telephone before voting at the Annual Meeting is closed, the individuals named as proxies on the enclosed proxy card will vote in accordance
with the directions you provide. If you return a signed and dated proxy card but do not indicate how the shares are to be voted, those shares will be voted as recommended by the Board of Directors. A valid proxy card or a vote via the Internet or by
telephone also authorizes the individuals named as proxies to vote your shares in their discretion on any other matters which, although not described in the Proxy Statement, are properly presented for action at the Annual Meeting.
If your shares are held by a broker, bank or other holder of record, please refer to the instructions it provides for voting your shares. If you want to
vote those shares in person at the Annual Meeting, you must bring a signed proxy from the broker, bank or other holder of record giving you the right to vote the shares.
If you are an employee who owns AMETEK shares through an AMETEK employee savings plan and you do not return a proxy card or otherwise give voting instructions for the plan shares, the trustee will vote
those shares in the same proportion as the shares for which the trustee receives voting instructions from other participants in that plan. Your proxy voting instructions must be received by May 4, 2017 to enable the savings plan trustee to
tabulate the vote of the plan shares prior to the Annual Meeting.
How many votes are required?
A majority of the shares of our
outstanding Common Stock entitled to vote at the Meeting must be represented in person or by proxy in order to have a quorum present at the Annual Meeting. Abstentions and broker
non-votes
are
counted as present and entitled to vote for purposes of determining a quorum. A broker
non-vote
occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not
vote on a particular proposal because that holder does not have discretionary voting power for the particular proposal and has not received instructions from the beneficial owner. If a quorum is not present, the Annual Meeting will be rescheduled
for a later date.
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Directors will be elected by the vote of a majority of the votes cast at the meeting. This means that a
nominee will be elected if the number of votes cast for that nominee exceeds the number of votes against that nominee. Any shares not voted (whether by abstention, broker
non-votes
or
otherwise) will not be counted as votes cast and will have no effect on the vote. The advisory approval of the Companys executive compensation and the ratification of the appointment of Ernst & Young LLP require the affirmative
vote of the holders of a majority of eligible shares present at the Annual Meeting, in person or by proxy, and voting on the matter. Abstentions and broker
non-votes
are not counted as votes for or against
these proposals. For the vote on the frequency of an advisory vote on executive compensation, if none of the frequency options receive votes from a majority of the shares represented in person or by proxy and entitled to vote on the proposal (with
abstentions being included in the denominator of this calculation), the frequency option receiving the greatest number of votes cast in this advisory vote will be considered the frequency recommended by stockholders. In this situation, abstentions
will not affect the determination as to which frequency option is recommended by the stockholders. The advisory votes on executive compensation and the frequency of an advisory vote on executive compensation are not binding upon the Company.
However, the Board and Compensation Committee will take into account the outcome of these votes when considering future executive compensation arrangements and the frequency of the vote on executive compensation.
Who will tabulate the vote?
Our transfer agent, American Stock Transfer & Trust Company, LLC, will tally the vote, which will be
certified by independent inspectors of election.
Is my vote confidential?
It is our policy to maintain the confidentiality of proxy
cards, ballots and voting tabulations that identify individual stockholders, except where disclosure is mandated by law and in other limited circumstances.
Who is the proxy solicitor?
We have retained Georgeson LLC to assist in the distribution of proxy materials and solicitation of votes. We will pay Georgeson LLC a fee of $10,000, plus reimbursement
of reasonable
out-of-pocket
expenses.
CORPORATE GOVERNANCE
In accordance with the Delaware General Corporation Law and our Certificate of Incorporation and
By-laws,
our business and affairs are managed under the direction of the Board of Directors. We provide information to the Directors about our business through, among other things, operating, financial and other
reports, as well as other documents presented at meetings of the Board of Directors and Committees of the Board.
Our Board of Directors
currently consists of ten members. They are Thomas A. Amato, Ruby R. Chandy, Anthony J. Conti, Frank S. Hermance, Steven W. Kohlhagen, James R. Malone, Gretchen W. McClain, Elizabeth R. Varet, Dennis K. Williams, and David A. Zapico. The
biographies of the continuing Directors appear on pages 14 and 15. The Board is divided into three classes with staggered terms of three years each, so that the term of one class expires at each Annual Meeting of Stockholders. On
May 3, 2016, in accordance with the Companys Certificate of Incorporation and
By-Laws,
the Board increased the number of Class I Directors from two to three, thereby increasing the size of the
Board from eight to nine Directors. Mr. Zapico was elected to the Board effective May 5, 2016, to serve as a Class I Director until the 2019 Annual Meeting. Mr. Zapico was recommended for nomination by
Mr. Hermance. Then, on March 6, 2017, the Board increased the number of Class II Directors from three to four, thereby increasing the size of the Board from nine to ten Directors. Mr. Amato was elected to the Board
effective March 6, 2017, to serve as a Class II Director until the 2017 Annual Meeting. Mr. Amato was recommended for nomination by Mr. Zapico after a thorough recruitment search process using an outside director search
agency.
Corporate Governance Guidelines and Codes of Ethics.
The Board of Directors has adopted Corporate Governance Guidelines that
address the practices of the Board and specify criteria to assist the Board in determining Director independence. These criteria supplement the listing standards of the New York Stock Exchange and the regulations of the Securities and Exchange
Commission. Our Code of Ethics and Business Conduct sets forth rules of conduct that apply to all of our Directors, officers and employees. We also have adopted a separate Code of Ethical Conduct for our Chief Executive Officer and senior financial
officers. The Guidelines and Codes are available at the Investors section of www.ametek.com
as well as in printed form, free of charge to any stockholder who requests them, by writing or telephoning the Investor Relations Department, AMETEK,
Inc., 1100 Cassatt Road, Berwyn, PA 19312-1177 (Telephone Number:
1-800-473-1286).
The Board of Directors and our management do
not intend to grant any waivers of the provisions of either Code. In the unlikely event a waiver for a Director or an executive officer occurs, the action will be disclosed promptly at our website address provided above. If the Guidelines or the
Codes are amended, the revised versions also will be posted on our website.
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Meetings of the Board.
Our Board of Directors has five regularly scheduled meetings each year.
Special meetings are held as necessary. In addition, management and the Directors frequently communicate informally on a variety of topics, including suggestions for Board or Committee agenda items, recent developments and other matters of interest
to the Directors.
The independent Directors meet in executive session at least once a year outside of the presence of any management
Directors and other members of our management. The presiding Director at the executive sessions rotates annually among the chairpersons of the Corporate Governance/Nominating Committee, the Compensation Committee and the Audit Committee. The
presiding Director at the executive sessions for 2017 is Mr. Malone, the chairperson of the Corporate Governance/Nominating Committee. During executive sessions, the Directors may consider such matters as they deem appropriate. Following each
executive session, the results of the deliberations and any recommendations are communicated to the full Board of Directors.
Directors are
expected to attend all meetings of the Board and each Committee on which they serve and are expected to attend the Annual Meeting of Stockholders. Our Board met a total of ten times in 2016: five times in person and five times by telephone. Each of
the Directors attended at least 75% of the meetings of the Board and the Committees to which the Director was assigned. All the Directors attended the 2016 Annual Meeting of Stockholders.
Independence.
The Board of Directors has affirmatively determined that each of the current
non-management
Directors, Thomas A. Amato, Ruby R. Chandy, Anthony
J. Conti, Steven W. Kohlhagen, James R. Malone, Gretchen W. McClain, Elizabeth R. Varet and Dennis K. Williams, has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship
with us) and, therefore, is an independent Director within the meaning of the New York Stock Exchange rules. The Board has further determined that each member of the Audit, Compensation and Corporate Governance/Nominating Committees is independent
within the meaning of the New York Stock Exchange rules. The members of the Audit Committee also satisfy Securities and Exchange Commission regulatory independence requirements for audit committee members.
The Board has established the following standards to assist it in determining Director independence: A Director will not be deemed independent if:
(i) within the previous three years or currently, (a) the Director has been employed by us; (b) someone in the Directors immediate family has been employed by us as an executive officer; or (c) the Director or someone in
her/his immediate family has been employed as an executive officer of another entity that concurrently has or had as a member of its compensation committee of the board of directors any of our present executive officers; (ii) (a) the Director
is a current partner or employee of a firm that is the Companys internal or external auditor; (b) someone in the Directors immediate family is a current partner of such a firm; (c) someone in the Directors immediate
family is a current employee of such a firm and personally works on the Companys audit; or (d) the Director or someone in the Directors immediate family is a former partner or employee of such a firm and personally worked on the
Companys audit within the last three years; (iii) the Director received, or someone in the Directors immediate family received, during any twelve-month period within the last three years, more than $120,000 in direct compensation
from us, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) and, in the case of an immediate family member,
other than compensation for service as our employee (other than an executive officer). The following commercial or charitable relationships will not be considered material relationships: (i) if the Director is a current employee or holder of
more than ten percent of the equity of, or someone in her/his immediate family is a current executive officer or holder of more than ten percent of the equity of, another company that has made payments to, or received payments from us for
property or services in an amount which, in any of the last three fiscal years of the other company, does not exceed $1 million or two percent of the other companys consolidated gross revenues, whichever is greater, or (ii) if the
Director is a current executive officer of a charitable organization, and we made charitable contributions to the charitable organization in any of the charitable organizations last three fiscal years that do not exceed $1 million or two
percent of the charitable organizations consolidated gross revenues, whichever is greater. For the purposes of these categorical standards, the terms immediate family member and executive officer have the meanings set
forth in the New York Stock Exchanges corporate governance rules.
All independent Directors satisfied these categorical standards.
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Communication with
Non-Management
Directors and Audit
Committee
.
Stockholders and other parties who wish to communicate with the
non-management
Directors may do so by calling
1-877-263-8357
(in the United States and Canada) or
1-610-889-5271.
If you prefer
to communicate in writing, address your correspondence to the Corporate Secretary, Attention:
Non-Management
Directors, AMETEK, Inc., 1100 Cassatt Road, Berwyn, PA 19312-1177.
You may address complaints regarding accounting, internal accounting controls or auditing matters to the Audit Committee online at www.ametekhotline.com
or by calling
1-855-5AMETEK
(1-855-526-3835).
The
website provides the option to choose your language, as well as a list of international toll-free numbers by country.
Committees of the
Board.
Our Board Committees include Audit, Compensation, and Corporate Governance/ Nominating. The Executive Committee of the Board was dissolved as of May 4, 2016 and no meetings of the Executive Committee were held in 2016. The charters
of the Audit, Compensation and Corporate Governance/Nominating Committees are available at the Investors section of www.ametek.com as well as in printed form, free of charge to any stockholder who requests them, by writing or telephoning the
Investor Relations Department, AMETEK, Inc., 1100 Cassatt Road, Berwyn, PA 19312-1177 (Telephone Number:
1-800-473-1286).
Each of
the Audit, Compensation and Corporate Governance/Nominating Committees conducts an annual assessment to assist it in evaluating whether, among other things, it has sufficient information, resources and time to fulfill its obligations and whether it
is performing its obligations effectively. Each Committee may retain advisors to assist it in carrying out its responsibilities.
The Audit
Committee
has the sole authority to retain, compensate, terminate, oversee and evaluate our independent auditors. In addition, the Audit Committee is responsible for:
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review and approval in advance of all audit and lawfully permitted
non-audit
services performed by the
independent auditors;
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review and discussion with management and the independent auditors regarding the annual audited financial statements and quarterly financial statements
included in our Securities and Exchange Commission filings and quarterly sales and earnings announcements;
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oversight of our compliance with legal and regulatory requirements;
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review of the performance of our internal audit function;
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meeting separately with the independent auditors and our internal auditors as often as deemed necessary or appropriate by the Committee; and
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review of major issues regarding accounting principles, financial statement presentation and the adequacy of internal controls.
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The Committee met seven times during 2016. The members of the Committee are Anthony J. Conti Chairperson, Steven W.
Kohlhagen, James R. Malone and Gretchen W. McClain. The Board of Directors has determined that Mr. Conti is an audit committee financial expert within the meaning of the Securities and Exchange Commissions regulations.
The Compensation Committee
is responsible for, among other things:
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establishment and periodic review of our compensation philosophy and the adequacy of the compensation plans for our officers and other employees;
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establishment of compensation arrangements and incentive goals for officers at the Corporate Vice President level and above and administration of
compensation plans;
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review of the performance of officers at the Corporate Vice President level and above and award of incentive compensation, exercising discretion and
adjusting compensation arrangements as appropriate;
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review and monitoring of management development and succession plans; and
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periodic review of the compensation of
non-employee
Directors.
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The Committee met six times during 2016. The members of the Committee are Dennis K. Williams Chairperson, Ruby R. Chandy, James R. Malone, and
Elizabeth R. Varet. In carrying out its duties, the Compensation Committee made compensation decisions for 36 officers as of December 31, 2016, including all executive officers. The Committee, in setting compensation for the Executive Chairman
and the Chief Executive Officer, will review and
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evaluate the Executive Chairmans and the Chief Executive Officers performance and leadership, taking each of into account the views of other members of the Board. The Compensation
Committee charter provides that, with the participation of the Chief Executive Officer, the Committee is to evaluate the performance of other officers and determine compensation for these officers. In this regard, Compensation Committee meetings are
regularly attended by the Chief Executive Officer. The Executive Chairman and the Chief Executive Officer do not participate in the determination of their own compensation. The Compensation Committee has authority under the charter to retain and set
compensation for compensation consultants and other advisors that the Committee may engage. The Compensation Committee charter does not provide for delegation of the Committees duties and responsibilities other than to one or more members of
the Committee when appropriate.
Management engaged Pay Governance LLC to provide executive and Director compensation consulting services. Pay
Governance provided no other services for the Company. The Compensation Committee has assessed the independence of Pay Governance pursuant to Securities and Exchange Commission rules and concluded that Pay Governances work for the Committee
does not raise any conflict of interest issues.
We ask Pay Governance to provide comparative data regarding compensation
levels for seasoned managers who have job functions and responsibilities that are similar to those of our executives. Specifically, we ask Pay Governance to compare our executives compensation to the 50
th
percentile of compensation for similarly positioned executives in a
general industry group consisting of approximately 500 companies. Based on this data, our human resources department develops summaries for the Compensation Committee, indicating competitive compensation levels for our executives that would
correspond to the 50
th
percentile, thereby assisting the
Compensation Committee in its evaluation of our executives compensation. See Compensation Discussion and Analysis 2016 Compensation Determination of Competitive Compensation for further information.
The Corporate Governance/Nominating Committee
is responsible for, among other things:
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selection of nominees for election as Directors, subject to ratification by the Board;
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recommendation of a Director to serve as Chairperson of the Board;
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recommendation to the Board of the responsibilities of Board Committees and each Committees membership;
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oversight of the annual evaluation of the Board and the Audit and Compensation Committees; and
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review and assessment of the adequacy of our Corporate Governance Guidelines.
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The Committee met eight times during 2016. The members of the Committee are James R. Malone Chairperson, Gretchen W. McClain and Dennis K.
Williams.
Board Leadership Structure.
On May 5, 2016, the Company announced that as part of its planned succession of senior
executive leadership, Mr. Hermance transitioned to the role of Executive Chairman of the Board of Directors and Mr. Zapico was elected Chief Executive Officer and a member of the Board. We believe that this structure permits us to
leverage Mr. Hermances knowledge and experience while allowing Mr. Zapico to focus on the operations of the business during the transition period.
Our Board and Committee composition ensures independence and protects against too much power being placed with the Executive Chairman and the Chief Executive Officer. Currently, all of our Directors
(other than Messrs. Hermance and Zapico) and each member of the Audit, Corporate Governance/Nominating and Compensation Committees meet the independence requirements of the New York Stock Exchange and our Corporate Governance Guidelines
categorical standards for determining Director independence. Pursuant to our Corporate Governance Guidelines, each independent Director has the ability to raise questions directly with management and request that topics be placed on the Board agenda
for discussion. Currently, independent Directors directly oversee such critical matters as the integrity of the Companys financial statements, the compensation of executive management, the selection and evaluation of Directors and the
development and implementation of the Companys corporate governance policies and structures. Further, the Compensation Committee conducts an annual performance review of each of the Executive Chairman and the Chief Executive Officer and, based
upon this review, approves the Executive Chairmans and the Chief Executive Officers annual compensation, including salary, bonus, incentive and equity compensation.
We do not have a designated lead independent Director. It is our policy that independent Directors meet in executive session at least once a year outside of the presence of any management Directors or any
other members of our management. The presiding Director at the executive sessions rotates among the chairpersons of the Corporate
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Governance/Nominating Committee, the Compensation Committee and the Audit Committee. This policy provides for leadership at all meetings or executive sessions without making it necessary to
designate a lead Director who would be required to expend substantial extra time in order to perform these same duties.
Risk
Oversight.
In accordance with New York Stock Exchange rules and our Audit Committees charter, our Audit Committee has primary responsibility for overseeing risk management for the Company. Nevertheless, our entire Board of Directors, and
each other Committee of the Board, is actively involved in overseeing risk management. Our Board of Directors, and each of its Committees, regularly consider various potential risks at their meetings during discussion of the Companys
operations and consideration of matters for approval. In addition, the Company has an active risk management program. A committee composed of senior executives, including the Executive Chairman, the Chief Executive Officer, the Chief Financial
Officer, the Comptroller and the Group Presidents, reviews our internal risks, including those relating to our operations, strategy, financial condition, compliance and employees, and our external risks, including those relating to our markets,
geographic locations, cyber security, regulatory environment and economic outlook. The committee analyzes various potential risks for severity, likelihood and manageability, and develops action plans to address those risks. The committees
findings are presented to the Audit Committee of the Board on a quarterly basis and to the full Board of Directors annually.
Consideration
of Director Candidates.
The Corporate Governance/Nominating Committee seeks candidates for Director positions who help create a collective membership on the Board with varied backgrounds, experience, skills, knowledge and perspective. In
addition, Directors should have experience in positions with a high degree of responsibility, be leaders in the companies or institutions with which they are affiliated, and be selected based upon contributions that they can make to the Company. The
Committee also seeks a Board that reflects diversity, including but not limited to race, gender, ethnicity, age and experience. This is implemented by the Committee when it annually considers diversity in the composition of the Board prior to
recommending candidates for nomination as Directors. The Committee solicits input from Directors regarding their views on the sufficiency of Board diversity. This occurs through the annual self-assessment process. The Committee assesses the
effectiveness of Board diversity by considering the various skills, experiences, knowledge, backgrounds and perspectives of the members of the Board of Directors. The Committee then considers whether the Board possesses, in its judgment, a
sufficient diversity of those attributes.
Stockholders can recommend qualified candidates for Director by writing to the Corporate Secretary,
AMETEK, Inc., 1100 Cassatt Road, Berwyn, PA 19312-1177. Stockholder submissions must include the following information: (1) the name of the candidate and the information about the individual that would be required to be included in a proxy
statement under the rules of the Securities and Exchange Commission; (2) information about the relationship between the candidate and the recommending stockholder; (3) the consent of the candidate to serve as a Director; and (4) proof
of the number of shares of our Common Stock that the recommending stockholder owns and the length of time that the shares have been owned. To enable consideration of a candidate in connection with the 2018 Annual Meeting, a stockholder must submit
materials relating to the recommended candidate no later than November 30, 2017. In considering any candidate proposed by a stockholder, the Corporate Governance/Nominating Committee will reach a conclusion based on the criteria described above
in the same manner as for other candidates. The Corporate Governance/Nominating Committee also may seek additional information regarding the candidate. After full consideration by the Corporate Governance/Nominating Committee, the stockholder
proponent will be notified of the decision of the Committee.
In addition, we recently adopted proxy access, which, under certain
circumstances, allows a stockholder or group of up to twenty stockholders who have owned at least 3% of the Companys Common Stock for at least three years to submit director nominees (up to the greater of two Directors or 20% of the Board) for
inclusion in the Companys proxy materials if the stockholder(s) and the nominee(s) satisfy the requirements specified in the Companys
By-Laws.
Stockholders who wish to nominate directors for
inclusion in the Companys proxy materials or directly at an annual meeting of stockholders in accordance with the procedures in our
By-Laws
should follow the instructions under the Stockholder
Proposals and Director Nominations for the 2018 Annual Meeting section of this proxy statement.
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Director Compensation.
Standard compensation arrangements for Directors in 2016 are described below.
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Fees
Non-employee
Directors received an annual base cash retainer of $90,000. The Chairmen of the
Compensation and Corporate Governance/Nominating Committees received an additional retainer premium of $10,000, and the Chairman of the Audit Committee received an additional retainer premium of $20,000. There were no additional fees for attendance
at the Board or Committee meetings.
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Restricted Stock On May 4, 2016, under our 2011 Omnibus Incentive Compensation Plan, each
non-employee
Director received a restricted stock award of 1,260 shares of our Common Stock. These restricted shares vest on the earliest to occur of:
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the closing price of our Common Stock on any five consecutive trading days equaling or exceeding $93.92,
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the death or disability of the Director,
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the Directors termination of service as a member of AMETEKs Board of Directors in connection with a change of control, or
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the second anniversary of the date of grant, namely May 4, 2018, provided the Director has served continuously through that date.
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Restricted Stock Vestings On May 4, 2016, in accordance with the 2011 Omnibus Incentive Compensation Plan and the approval of the
Compensation Committee, the restrictions on 1,100 shares of restricted stock previously granted to Mr. Klein on May 8, 2014 were lifted upon his retirement and separation of service from the Company on May 4, 2016. This action allowed
Mr. Klein to realize the value of his unvested long-term incentive award that he would otherwise forfeit as a result of his retirement and rewarded him for his long and valued service to the Company. The total value realized on vesting is equal
to (1) the closing price per share of our Common Stock on May 4, 2016 ($46.96), multiplied by the number of shares acquired on vesting, (2) the dividends accrued since the date of award, and (3) the interest accrued on these
dividends.
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Also on May 9, 2016, the
2-year
cliff vesting of the
restricted stock granted on May 8, 2014 to Messrs. Conti, Kohlhagen, Malone and Williams, Ms. Chandy and Ms. Varet occurred. The total value realized on vesting is equal to (1) the closing price per share of our Common Stock on
May 9, 2016 ($46.31), multiplied by the number of shares acquired on vesting, (2) the dividends accrued since the date of award, and (3) the interest accrued on these dividends.
Also, on September 9, 2016, the
2-year
cliff vesting of the restricted stock granted on
September 9, 2014 to Ms. McClain occurred. The total value realized on vesting is equal to (1) the closing price per share of our Common Stock on September 9, 2016 ($47.78), multiplied by the number of shares acquired on vesting,
(2) the dividends accrued since the date of award, and (3) the interest accrued on these dividends.
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Options On May 4, 2016, under our 2011 Omnibus Incentive Compensation Plan, each
non-employee
Director received an option to purchase 5,440 shares of our Common Stock, at an exercise price equal to the closing price of AMETEKs Common Stock, as reported on the New York Stock Exchange consolidated tape on that date. Stock options become
exercisable as to the underlying shares in four equal annual installments beginning one year after the date of grant.
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The
following table provides information regarding Director compensation in 2016, which reflects the standard compensation described above and certain other payments. The table does not include compensation for reimbursement of travel expenses related
to attending Board, Committee and AMETEK business meetings, and approved educational seminars. In addition, the table does not address compensation for Messrs. Hermance and Zapico, which is addressed under Executive Compensation
beginning on page 17. Messrs. Hermance and Zapico do not receive additional compensation for serving as Directors.
7
ADVISORY APPROVAL OF THE COMPANYS EXECUTIVE COMPENSATION
(Proposal 2 on Proxy Card)
In accordance with the results of the last advisory vote on the appropriate frequency of our advisory vote on executive compensation at the
Companys 2011 Annual Meeting, our Board determined to implement an annual
non-binding
stockholder vote on our executive compensation (commonly referred to as
say-on-pay).
Our Board has had a long-standing commitment to good corporate governance and recognizes the interest that investors have in executive compensation. We also are committed to achieving
a high level of total return to our stockholders.
We encourage you to review the Compensation Discussion and Analysis beginning on page 17 of
this proxy statement, as well as the 2016 Summary Compensation table and related compensation tables and narrative, appearing on pages 25 through 37, which provide detailed information on the Companys compensation policies and practices and
the compensation of our named executive officers. We believe that our compensation program is designed to attract, motivate and retain the talent required to achieve the short- and long-term performance goals necessary to create stockholder value.
Our balanced approach to executive compensation through a combination of base pay, annual incentives and long-term incentives, with a mix of cash and
non-cash
awards, aligns with creating and sustaining
stockholder value. The result of our compensation program is reflected in the total return to our stockholders.
11
The Board strongly endorses the Companys executive compensation program and recommends that the
stockholders vote in favor of the following resolution:
RESOLVED, that the stockholders approve the compensation of the Companys
executives named in the Summary Compensation Table, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis and the accompanying
compensation tables and related material disclosed in this Proxy Statement).
The affirmative vote of the holders of a majority of
eligible shares present at the Annual Meeting, in person or by proxy, and voting on the matter is required to approve this proposal. Abstentions and broker
non-votes
will each be counted as present for
purposes of determining a quorum but will not have any effect on the outcome of the proposal.
Although the vote is
non-binding,
our Board and Compensation Committee will take into account the outcome of the vote when making future decisions about the Companys executive compensation policies and procedures.
Your Board of Directors Recommends a Vote FOR the Approval of the Companys Executive Compensation.
ADVISORY VOTE ON THE FREQUENCY OF AN
ADVISORY VOTE ON EXECUTIVE COMPENSATION
(Proposal 3 on Proxy Card)
The Dodd-Frank Wall Street Reform and Consumer Protection Act
added Section 14A to the Securities Exchange Act of 1934, which requires that we provide stockholders with the opportunity to vote, on a
non-binding,
advisory basis, for their preference as to how frequently
to vote on future advisory votes on the compensation of our named executive officers as disclosed in accordance with the compensation disclosure rules of the Securities and Exchange Commission.
Stockholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one, two, or three years.
Stockholders also may abstain from casting a vote on this proposal.
The Board of Directors has determined that an annual advisory vote on
executive compensation will permit our stockholders to provide input on the Companys executive compensation philosophy, policies and practices as disclosed in the proxy statement each year, which is consistent with our efforts to engage in an
ongoing dialogue with our stockholders on executive compensation and corporate governance matters.
You may cast your vote on your preferred
voting frequency by choosing the option of one year, two years, three years or abstain from voting when you vote in response to the resolution set forth below.
RESOLVED, that the option of once every one year, two years, or three years that receives the highest number of votes cast for this resolution will be determined to be the stockholders
preferred frequency with which the Company is to hold a stockholder vote to approve the compensation of the named executive officers, as disclosed pursuant to the Securities and Exchange Commissions compensation disclosure rules (which
disclosure shall include the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and disclosure).
Because this vote is advisory and not binding on the Board of Directors or the Company in any way, the Board may decide that it is in the best interests of our stockholders and us to hold an advisory vote
on executive compensation more or less frequently than the option selected by our stockholders.
Your Board of Directors Recommends a Vote
to Conduct an Advisory Vote on Executive Compensation
Once Every Year
.
12
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 4 on Proxy Card)
The Audit Committee is directly responsible for the
appointment, compensation, retention and oversight of the Companys independent registered public accounting firm. To execute this responsibility, the Audit Committee engages in a comprehensive annual evaluation of the independent registered
public accounting firms qualifications, performance and independence. Further, the Audit Committee evaluates whether the independent registered public accounting firm should be rotated, and considers the advisability and potential impact of
selecting a different independent registered public accounting firm.
The Audit Committee has selected, and the Board of Directors has
ratified the selection of, Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2017. The Audit Committee is responsible for the audit fee negotiations associated with
the Companys retention of Ernst & Young LLP. Further, in conjunction with the mandated rotation of the audit firms lead engagement partner, the Chairman and other members of the Audit Committee are directly involved in the
selection of Ernst & Young LLPs new lead engagement partner. Ernst & Young LLP and its predecessor have served continuously as our independent auditors since our incorporation in 1930.
The Audit Committee and the Board of Directors believe that the continued retention of Ernst & Young LLP as our independent registered public
accounting firm is in the best interest of the Company and our stockholders, and we are asking our stockholders to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for 2017. Although action by
stockholders on this matter is not required, the Audit Committee believes that it is appropriate to seek stockholder ratification of this appointment, and the Audit Committee may reconsider the appointment if the stockholders do not ratify it.
Fees billed to us by Ernst & Young LLP for services rendered in 2016 and 2015 totaled $8,279,000 and $7,332,000 respectively, and
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Audit fees
|
|
$
|
6,611,000
|
|
|
$
|
6,087,000
|
|
Audit-related fees
|
|
|
258,000
|
|
|
|
51,000
|
|
Tax fees
|
|
|
1,408,000
|
|
|
|
1,192,000
|
|
All other fees
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,279,000
|
|
|
$
|
7,332,000
|
|
Audit fees includes amounts for statutory audits and attestation services related to our internal control
over financial reporting for compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
The amounts shown for Audit-related
fees primarily include fees for audits of employee benefit plans and due diligence in connection with acquisitions.
The amounts shown
for Tax fees relate to federal and state tax advice, acquisition tax planning, assistance with international tax compliance and international tax consulting.
The amounts shown for All other fees relate to online accounting research subscriptions.
The affirmative vote of the holders of a majority of eligible shares present at the Annual Meeting, in person or by proxy, and voting on the matter is required to ratify the appointment of
Ernst & Young LLP.
Representatives of Ernst & Young LLP will be present at the Annual Meeting. They will have an
opportunity to make a statement if they desire and will be available to respond to appropriate questions.
Your Board of Directors
Recommends a Vote FOR Ratification.
13
THE BOARD OF DIRECTORS
As discussed under Consideration of Director Candidates, the Corporate Governance/Nominating Committee analyzes a number of factors when
considering Directors for selection to the Board. Each of our Directors has been selected based on their demonstrated leadership and significant experience in areas significant to our Company; ability to offer advice and guidance based upon that
experience and expertise; sound business judgment; and character and integrity that support the core values of the Company. The biographical information set forth below includes a description of each Directors background that supported the
Boards consideration of that Director for nomination. Unless we indicate otherwise, each Director has maintained the principal occupation and directorships described below for more than five years.
|
|
|
Class II: Nominees for election at this Annual Meeting for terms expiring in 2020:
|
|
|
THOMAS A. AMATO
Director since
2017
Age 53
|
|
Mr. Amato is Chief Executive Officer and President of TriMas Corporation. Previously, he was Chief Executive Officer and President of Metaldyne, LLC from October 2009 to
December 2015. From August 2014 to December 2015, Mr. Amato also served as
Co-President
and Chief Integration Officer of Metaldyne Performance Group Inc. Mr. Amato brings to the Board more than 25
years of broad industrial and international experience, having served in several leadership positions at global, multibillion-dollar businesses. He is currently a Director of TriMas Corporation. Mr. Amato was a Director of Asahi Tec Corporation
from June 2008 to May 2012.
|
|
|
ANTHONY J. CONTI
Director
since 2010
Age 68
|
|
Mr. Conti is retired from his position as a Partner at PricewaterhouseCoopers. Mr. Conti brings to the Board expertise in financial accounting, finance, strategy, risk
management and human resources management with his more than 35 years experience at a public accounting firm. He is currently a Director of BioTelemetry, Inc.
|
|
|
FRANK S. HERMANCE
Director
since 1999
Age 68
|
|
Mr. Hermance is the Executive Chairman of AMETEK. Previously, he was Chairman and Chief Executive Officer of AMETEK from January 2001 to May 2016. Mr. Hermance brings
to the Board extensive knowledge of our Company and the markets in which we operate through his more than 30 years experience in our industry. He is currently a Director of UGI Corporation. Mr. Hermance was a Director of IDEX Corporation
from January 2004 to April 2012.
|
|
|
GRETCHEN W. MCCLAIN
Director
since 2014
Age 54
|
|
Ms. McClain was the founding President and Chief Executive Officer of Xylem Inc. from October 2011 to September 2013. Ms. McClain brings to the Board her extensive
business, developmental, strategic and technical background from more than 25 years of global experience across multiple industries, including as CEO of a publicly traded industrial company and government agency leadership. She is currently a
Director of Booz Allen Hamilton Holding Corporation and Boart Longyear Limited. Ms. McClain was a Director of Xylem Inc. from October 2011 to September 2013. She was a Director of
Con-way,
Inc. from June
2015 to October 2015, when it was acquired by XPO Logistics, Inc.
|
|
Class III: Directors whose terms continue until 2018:
|
|
|
JAMES R. MALONE
Director since
1994
Age 74
|
|
Mr. Malone is founder and Managing Partner of Qorval LLC. Mr. Malone brings to the Board considerable experience and insight into issues facing large public companies
gained as CEO of four Fortune 500 companies, and as a director of a number of other public companies. He has extensive acquisition experience and knowledge specific to our markets with more than 30 years experience in our industry. He was a
Director of Regions Financial Corporation from August 1993 to May 2015.
|
|
|
ELIZABETH R. VARET
Director
since 1987
Age 73
|
|
Ms. Varet is a Managing Director of American Securities Management L.P. and chairman of the corporate general partner of several affiliated entities. Ms. Varet brings
to the Board expertise in finance and investment through her extensive management and investment experience at private equity and other investment firms.
|
|
|
DENNIS K. WILLIAMS
Director
since 2006
Age 71
|
|
Mr. Williams is retired from his position as President, Chief Executive Officer and Chairman of the Board of IDEX Corporation. Mr. Williams brings to the Board
considerable experience and insight into issues facing large public companies gained as CEO of IDEX Corporation. He has extensive acquisition experience and knowledge specific to our markets with more than 30 years experience in our industry.
Mr. Williams is currently a Director of Owens-Illinois, Inc. and Actuant Corporation.
|
14
|
|
|
Class I: Directors whose terms continue until 2019:
|
|
|
RUBY R. CHANDY
Director since
2013
Age 55
|
|
Ms. Chandy was the President of the Industrial Division of Pall Corporation from April 2012 to November 2015. Previously, she was Managing Director, Vice President of Dow
Plastics Additives, a unit of The Dow Chemical Company, from 2011 to April 2012. Ms. Chandy brings to the Board her executive management experience, marketing and strategy skills, relevant experience in life science and industrial companies,
and extensive engineering and management education. Ms. Chandy was a Director of IDEX Corporation from April 2006 until April 2013.
|
|
|
STEVEN W. KOHLHAGEN
Director
since 2006
Age 69
|
|
Mr. Kohlhagen is a retired financial executive. Mr. Kohlhagen brings to the Board expertise in financial accounting, finance and risk management through his extensive
experience in, and knowledge of, the financial, securities and foreign exchange markets. He is currently a Director of the Federal Home Loan Mortgage Corporation and GulfMark Offshore, Inc. Mr. Kohlhagen was a Director of Abtech Holdings, Inc.
from August 2012 to March 2014.
|
|
|
DAVID A. ZAPICO
Director since
2016
Age 52
|
|
Mr. Zapico is the Chief Executive Officer of AMETEK. Previously he was Executive Vice President and Chief Operating Officer from January 2013 to May 2016. From October 2003
to January 2013, Mr. Zapico served as PresidentElectronic Instruments. Mr. Zapico brings to the Board extensive knowledge of our Company and the markets in which we operate through his more than 25 years experience in our
industry.
|
15
EXECUTIVE OFFICERS
Officers are appointed by the Board of Directors to serve for the ensuing year and until their successors have been elected and qualified. Information
about our executive officers as of March 24, 2017 is shown below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Present Position with AMETEK
|
Frank S. Hermance
|
|
|
68
|
|
|
Executive Chairman
|
David A. Zapico
|
|
|
52
|
|
|
Chief Executive Officer
|
William J. Burke
|
|
|
55
|
|
|
Executive Vice PresidentChief Financial Officer & Treasurer
|
Ronald J. Oscher
|
|
|
49
|
|
|
Chief Administrative Officer
|
Tony J. Ciampitti
|
|
|
44
|
|
|
PresidentElectronic Instruments
|
John W. Hardin
|
|
|
52
|
|
|
PresidentElectronic Instruments
|
Thomas C. Marecic
|
|
|
55
|
|
|
PresidentElectronic Instruments
|
Timothy N. Jones
|
|
|
60
|
|
|
PresidentElectromechanical Group
|
Thomas M. Montgomery
|
|
|
54
|
|
|
Senior Vice
PresidentComptroller & Principal Accounting
Officer
|
Frank S. Hermances
employment history with us and other directorships held during the past five years are
described under the section The Board of Directors on page 14. Mr. Hermance has 26 years of service with us.
David A.
Zapicos
employment history with us and other directorships held during the past five years are described under the section The Board of Directors on page 15. Mr. Zapico has 27 years of service with us.
William J. Burke
was elected Executive Vice PresidentChief Financial Officer & Treasurer effective May 15, 2016. Previously he
served as Senior Vice PresidentComptroller & Treasurer from July 2012 to May 2016. From November 2011 to June 2012, Mr. Burke served as Vice PresidentTreasurer. Mr. Burke has 29 years of service with us.
Ronald J. Oscher
was elected Chief Administrative Officer effective May 5, 2016. Previously he served as PresidentElectronic
Instruments from November 2014 to December 2016. From March 2013 to November 2014, Mr. Oscher served as Senior Vice PresidentElectronic Instruments. From May 2010 to March 2013, Mr. Oscher served as Vice President and General
ManagerMaterials Analysis Division. Mr. Oscher has 6 years of service with us.
Tony J. Ciampitti
was elected
PresidentElectronic Instruments effective January 1, 2017. Previously he served as Vice President and General ManagerPower Systems and Instruments Division from July 2008 to January 2017. Mr. Ciampitti has 20 years of service
with us.
John W. Hardin
was elected PresidentElectronic Instruments effective July 23, 2008. Mr. Hardin has 18 years
of service with us.
Thomas C. Marecic
was elected PresidentElectronic Instruments effective November 5, 2014. Previously he
served as Senior Vice PresidentElectronic Instruments from March 2013 to November 2014. From February 2006 to March 2013, Mr. Marecic served as Vice President and General ManagerProcess & Analytical Instruments Division.
Mr. Marecic has 22 years of service with us.
Timothy N. Jones
was elected PresidentElectromechanical Group effective
February 1, 2006. Mr. Jones has 37 years of service with us.
Thomas M. Montgomery
was elected Senior Vice
PresidentComptroller & Principal Accounting Officer effective May 15, 2016. Previously he served as Vice PresidentPlanning & Analysis from July 2012 to May 2016. From August 2005 to July 2012, Mr. Montgomery
served as Director, Planning & Analysis. Mr. Montgomery has 33 years of service with us.
16
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In this Compensation Discussion and Analysis, we address the compensation
paid or awarded to our executive officers listed in the Summary Compensation Table that immediately follows this discussion. We refer to these executive officers as our named executive officers.
Each year, the Compensation Committee, in consultation with an independent compensation consultant as needed, carefully reviews our compensation policies
and procedures to determine if they are in the best interests of our stockholders and employees. The Compensation Committee conducted this review in the fall of 2016. In light of the strong level of stockholder approval of our executive compensation
that we received at our 2016 Annual Meeting of Stockholders (approximately 97% of the advisory vote), the Compensation Committee determined that it is in the best interests of our stockholders as well as our employees to maintain our compensation
policies and procedures which have been in effect for a number of years and which are described in this Compensation Discussion and Analysis.
2016 Compensation
Compensation
Objectives
The compensation paid or awarded to our named executive officers for 2016 was designed to meet the following objectives:
|
Provide compensation that is competitive with market levels of compensation provided to other companies executive officers who provide comparable services, taking
into account the size of our Company or operating group, as applicable. We refer to this objective as competitive compensation.
|
|
Create a compensation structure under which a meaningful portion of total compensation is based on achievement of performance goals. We refer to this objective as
performance incentives.
|
|
Encourage the aggregation and maintenance of meaningful equity ownership, and alignment of executive and stockholder interests. We refer to this objective as
stakeholder incentives.
|
|
Provide an incentive for long-term continued employment with us. We refer to this objective as retention incentives.
|
We fashioned various components of our 2016 compensation payments and awards to meet these objectives as follows:
|
|
|
|
|
Type of Compensation
|
|
|
|
Objectives Addressed
|
Salary
|
|
|
|
Competitive Compensation
|
|
|
|
Short-Term Incentive Awards,
Restricted Stock Awards and
Stock Option
Grants
|
|
|
|
Competitive Compensation,
Performance Incentives,
Stakeholder Incentives
and
Retention Incentives
|
Determination of Competitive Compensation
In assessing the competitiveness of our compensation levels, we review current-year compensation data provided to us by an
independent compensation consultant, Pay Governance LLC. The Company targets the 50
th
percentile of the general industry market (a collection of approximately 500 companies) as its primary reference point. Additional data at the 25
th
percentile and 75
th
percentile are also reviewed. We use the general industry market rather than a smaller industry peer group because we
draw talent from the broader industry. Our approach provides us reference information, allowing us to compete effectively in the marketplace for top talent, while providing us the flexibility to respond to our changing business conditions and the
performance of each individual.
We used the following process to determine a reference point for the compensation for each named executive
officer in 2016:
|
|
|
We provided to the compensation consultant a description of the responsibilities for each named executive officer.
|
17
|
|
|
The compensation consultant employed its standard methodology to provide market compensation levels for comparable executives. Comparable executives
are seasoned executives having similar responsibilities. The competitive compensation information was based on general industry data derived principally from Willis Towers Watsons Executive Compensation Database. The data was
size-adjusted
to reflect the estimated revenues of our Company and its relevant operating groups as appropriate. The compensation consultant advised us that it used general industry data rather than data relating
only to electronics and electronic component companies because general industry data provides a much larger sampling of companies, and does not differ meaningfully from the data produced by an electronics and electronic component subset.
|
In considering the data provided by the compensation consultant, we believe that compensation is
competitive if it is within a range of 20 percent above or 20 percent below the compensation reference points at the 50
th
percentile for comparable executives. We believe that variations within this range typically occur due to differences
in experience, responsibilities and performance.
Salaries
The salary amounts set forth in the Summary Compensation Table for 2016 reflect salary decisions made by the Compensation Committee
of our Board of Directors in 2015. All named executive officers salaries were within the competitive compensation guideline of 20 percent above or below salaries for comparable executives at the 50
th
percentile.
Short-Term Incentive Program
The principal objective of our short-term incentive program is to provide a performance-based incentive. We set target short-term incentive opportunities in order to provide target total cash compensation
that is within 20 percent above or below the total cash compensation guideline at the 50
th
percentile for comparable executives. However, larger variations from market, both positive and negative, may result based on actual performance.
For 2016, we set target bonus amounts, which are typically stated as a percentage of base salary, for the named executive officers as follows: Mr. Zapico, as Chief Operating Officer 80%;
Mr. Zapico, as Chief Executive Officer 100%; Mr. Hermance 110%; Mr. Burke, as Senior Vice President - Comptroller & Treasurer 55%; Mr. Burke, as Executive Vice President - Chief Financial
Officer & Treasurer 75%; Mr. Mandos 75%; Mr. Jones 65%; and Mr. Hardin 65%.
Under our
short-term incentive program, we selected performance measures that, in some instances, differed among the named executive officers. These differences reflect the differing responsibilities of the executives. We also established targets for each
performance measure.
The target goal for each
non-discretionary
measure in 2016 was derived from our
2016 budget. Consistent with past practice, the Compensation Committee can make adjustments on a
case-by-case
basis, such as for group operating income, as described
below.
|
|
Diluted earnings per share (EPS) We believe that the paramount objective of a principal executive officer is to increase stockholder return
significantly, and that for a large, well-established industrial corporation, EPS is typically a key metric affecting share price. Therefore, we believe EPS is an excellent measure of our executive officers performance. For 2016, we adjusted
diluted earnings per share to exclude realignment costs and impairment charges.
|
|
|
Organic revenue growth Revenue growth is key to the long-term vitality of a business and we believe this is an indicator of our executive
officers performance. This measure is applied either on a Companywide basis, or, for our group presidents, with regard to their respective operating groups. We define our organic revenue growth measure as actual revenue compared to prior-year
revenue without giving effect to (i) increases in revenues from businesses that we acquired during the year and (ii) foreign currency effects.
|
|
|
Operating income This measure applies to our group presidents with regard to their respective operating groups, and reflects adjustments deemed
appropriate by the Compensation Committee. We believe this measure is a reliable indicator of corporate and operating group performance. Adjustments to operating unit income in 2016 consisted of the inclusion of estimated tax benefits pertaining to
the disposal of excess and obsolete inventory, the inclusion of specified financing costs related to acquisitions, and the exclusion of realignment costs and impairment charges. We increased operating unit income by the estimated tax benefit
realized through the disposal of excess and obsolete inventory. This adjustment encourages our operating executives to dispose of
|
18
|
excess and obsolete inventory so stockholders benefit from the lower taxes. We reduced operating unit income by the estimated amount of interest cost we incur on funds borrowed to finance an
acquisition where the results of operations of the acquired business are included in the units operating results. We believe that reducing the operating unit income derived from an acquired business by these interest costs better reflects the
contribution of the acquisition to the operating units performance. By excluding realignment costs and impairment charges, we encourage our operating executives to take appropriate long-term actions for the business.
|
|
|
Operating working capital This measure represents inventory plus accounts receivable less accounts payable as a percentage of sales. We use this
measure to encourage our executives to manage our working capital in a manner that increases cash available for investment. Operating working capital is reported at the Corporate and Group level. A lower working capital percentage is an indicator of
the executives success in increasing our cash resources.
|
|
|
Discretionary A portion of each executives award, ranging from 10% to 20%, is based on discretionary factors that are deemed appropriate
by the Compensation Committee. In the case of the chief operating officer and group presidents, these factors take into account acquisition activity of the Company and their respective operating groups.
|
The weighting of performance measures for each named executive officer is set forth in the table below. The target award is payable upon achievement of
100 percent of a designated goal. Payment amounts increase from 0 percent to 200 percent of the target award in proportion to the increase from 80 percent (threshold) to 110 percent (maximum) of the goal attainment with
regard to each measure except for organic revenue growth and working capital. Payment amounts increase from 0 percent to 200 percent of the target award in proportion to the increase from 3 percentage points below target (threshold) to 3
percentage points above target (maximum) of the organic revenue growth goal and in proportion to the decrease from 110 percent (threshold) to 90 percent (maximum) of the working capital goal. The discretionary portions of the award
opportunities are not subject to any specified formula.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Performance Measure
|
|
Threshold
|
|
|
Designated
Goal
(Target)
|
|
|
Maximum
|
|
|
Actual
Results
|
|
|
Performance
Measure as
a Percentage
of
Total
Target
Award
Opportunity
|
|
Actual
Award
|
|
|
Actual
Award as
Percentage
of Target
Award
Opportunity
for
the
Performance
Measure
|
|
David A. Zapico
|
|
Diluted Earnings Per Share
Organic Revenue Growth
Discretionary
|
|
$
|
2.08
-4.30
0
|
%
%
|
|
$
|
2.60
-1.30
100
|
%
%
|
|
$
|
2.86
1.70
200
|
%
%
|
|
$
|
2.30
-6.47
168
|
%
%
|
|
70%
10%
20%
|
|
$
$
$
|
275,647
0
311,804
|
|
|
|
42
0
168
|
%
%
%
|
Frank S. Hermance
|
|
Diluted Earnings Per Share
Discretionary
|
|
$
|
2.08
0
|
%
|
|
$
|
2.60
100
|
%
|
|
$
|
2.86
200
|
%
|
|
$
|
2.30
200
|
%
|
|
80%
20%
|
|
$
$
|
484,000
572,000
|
|
|
|
42
200
|
%
%
|
William J. Burke
|
|
Diluted Earnings Per Share
Organic Revenue Growth
Corporate Working
Capital
Discretionary
|
|
$
|
2.08
-4.30
20.6
0
|
%
%
%
|
|
$
|
2.60
-1.30
18.7
100
|
%
%
%
|
|
$
|
2.86
1.70
16.8
200
|
%
%
%
|
|
$
|
2.30
-6.47
20.0
163
|
%
%
%
|
|
67%
10%
8%
15%
|
|
$
$
$
$
|
89,987
0
7,238
79,776
|
|
|
|
42
0
30
163
|
%
%
%
%
|
Robert R. Mandos
(Retired May 15, 2016)
|
|
Diluted Earnings Per Share
Organic Revenue Growth
Corporate Working
Capital
Discretionary
|
|
$
|
2.08
-4.30
20.6
0
|
%
%
%
|
|
$
|
2.60
-1.30
18.7
100
|
%
%
%
|
|
$
|
2.86
1.70
16.8
200
|
%
%
%
|
|
$
|
2.30
-6.47
20.0
100
|
%
%
%
|
|
70%
10%
10%
10%
|
|
$
$
$
$
|
46,207
0
4,681
15,604
|
|
|
|
42
0
30
100
|
%
%
%
%
|
Timothy N. Jones
|
|
Diluted Earnings Per Share
Organic Revenue Growth
Group Operating
Income
Group Working Capital
Discretionary
|
|
$
$
|
2.08
-1.70
211,862,817
19.5
0
|
%
%
%
|
|
$
$
|
2.60
1.30
264,828,521
17.7
100
|
%
%
%
|
|
$
$
|
2.86
4.30
291,311,373
15.9
200
|
%
%
%
|
|
$
$
|
2.30
-7.31
219,208,711
19.1
132
|
%
%
%
|
|
30%
10%
30%
10%
20%
|
|
$
$
$
$
$
|
38,911
0
12,756
6,374
81,199
|
|
|
|
42
0
14
21
132
|
%
%
%
%
%
|
John W. Hardin
|
|
Diluted Earnings Per Share
Organic Revenue Growth
Group Operating
Income
Group Working Capital
Discretionary
|
|
$
$
|
2.08
-4.0
264,769,242
24.8
0
|
%
%
%
|
|
$
$
|
2.60
-1.0
330,961,553
22.5
100
|
%
%
%
|
|
$
$
|
2.86
2.0
364,057,708
20.2
200
|
%
%
%
|
|
$
$
|
2.30
-5.46
301,381,631
23.7
138
|
%
%
%
|
|
30%
10%
30%
10%
20%
|
|
$
$
$
$
$
|
38,775
0
50,692
14,215
84,776
|
|
|
|
42
0
55
47
138
|
%
%
%
%
%
|
As a result of our actual outcomes with respect to the performance measures and the Committees determinations with
respect to the discretionary component, the award payments and the percentage of the aggregate target award represented by the award payments are as follows: Mr. Zapico, $587,451 (63%); Mr. Hermance, $1,056,000 (74%); Mr. Burke,
$177,001 (56%); Mr. Mandos, $66,492 (43%); Mr. Jones, $139,240 (45%); and Mr. Hardin, $188,458 (62%). In accordance with SEC regulations, the award payments are reflected in two separate columns of the Summary Compensation Table. The
discretionary awards for the named executive officers appear in the Bonus column. The other awards are reflected in the
Non-Equity
Incentive Plan Compensation column.
19
The actual total cash compensation for the named executive officers, as a percentage of
the dollar amount of target total cash compensation at the 50
th
percentile reference point for comparable executives ranged from 70% to 106%. The level of total cash compensation delivered to the named executive officers was primarily driven by the short-term
incentive payouts achieved based on performance.
In providing a discretionary award to Mr. Hermance, the Compensation Committee
considered our strong results given a weak global economy and effects of a continued strong U.S. dollar in the following areas:
|
|
|
Earnings We achieved diluted earnings per share of $2.30 in 2016.
|
|
|
|
Operational Excellence We achieved operating margins of 21.9% in 2016.
|
|
|
|
Strategic Acquisitions We deployed approximately $390 million for five acquisitions in 2016 and added approximately $140 million in
annualized revenue.
|
|
|
|
New Products We introduced a number of new products that contributed to our revenue and profitability. Sales from new products introduced over
the last three years was $930 million or 24% in 2016.
|
|
|
|
Cash Flow We achieved record cash flow provided by operating activities that totaled $757 million for 2016, an $84 million or 13%
increase from 2015. Free cash flow (cash flow provided by operating activities less capital expenditures) was $694 million in 2016, compared with $603 million in 2015.
|
In the case of Messrs. Zapico, Burke and Mandos, the Compensation Committee considered the same factors as those considered for Mr. Hermance. The
discretionary awards for Messrs. Zapico, Jones and Hardin reflected the Committees assessment of acquisition activities for their respective areas of responsibility as these executives were instrumental in the purchase and integration of the
acquired businesses.
Equity-Based Compensation
Our equity-based compensation in 2016 consisted of awards of stock options and restricted stock. We use the most recent year 50
th
percentile of the general industry group as a reference point for assessing and establishing our equity awards. Our
equity-based awards were within the competitive compensation guideline of 20 percent above or below equity-based awards for comparable executives at the 50
th
percentile.
We granted 50 percent of the long-term incentive award value in the form of stock options and 50 percent in the form of restricted stock. To
determine the option award size, we applied a Black-Scholes methodology and to determine the restricted stock award size, we divided the intended award value by the fair market value of a share of the Companys common stock. As a result, we
awarded options and restricted stock to the named executive officers as set forth in the Grants of Plan-Based Awards table on page 27 under the column headings, All Other Option Awards: Number of Securities Underlying Options and
All Other Stock Awards: Number of Shares of Stock or Units respectively.
The dollar amounts shown in the Summary Compensation
Table under Option Awards and Stock Awards generally reflect the grant date fair values computed in accordance with ASC 718. See the footnotes to the Summary Compensation Table for further information.
Our options generally vest in equal annual increments on the first four anniversaries of the date of grant. We believe that these vesting terms provide
to our executives a meaningful incentive for continued employment. For additional information regarding stock option terms, see the narrative accompanying the Grants of Plan-Based Awards table.
We believe that the vesting provisions of our equity awards also serve as an incentive for continued employment. However, to encourage performance that
ultimately enhances stockholder value, we provide for immediate vesting of a restricted stock award if the closing price of our Common Stock during any five consecutive trading days reaches 200 percent of the price of our Common Stock on the
date of grant. In the event that the performance criterion is met prior to the first anniversary of the date of grant, then the vesting is delayed until the first anniversary of the date of grant.
Stock-Based Award Grant Practices
Our
practices for the grant of stock-based awards encompass the following principles:
|
|
The majority of stock-based awards are approved annually by the Compensation Committee on a
pre-scheduled
date,
which occurs in close proximity to the date of our Annual Meeting of Stockholders.
|
20
|
|
The annual stock-based awards will not be made when the Compensation Committee is aware that executive officers or
non-employee
Directors are in possession of material,
non-public
information, or during quarterly or other specified blackout periods.
|
|
|
While stock-based awards other than annual awards may be granted to address, among other things, the recruiting or hiring of new employees and
promotions, such awards will not be made to executive officers if the Committee is aware that the executive officers are in possession of material,
non-public
information, or during quarterly or other
specified blackout periods.
|
|
|
The Compensation Committee has established that stock options are granted only on the date the Compensation Committee approves the grant and with an
exercise price equal to the fair market value on the date of grant, except in cases where international
sub-plans
require compliance with specific grant date criteria. In these cases, the Compensation
Committee may grant stock options at a specified future date with the exercise prices equal to the fair market value on the date of grant.
|
|
|
Backdating of stock options is prohibited.
|
|
|
Stockholder approval is required to reprice stock options and stock appreciation rights or for cash
buy-outs
of
underwater stock options and stock appreciation rights except in connection with a corporate transaction involving the Company including, without limitation, any stock dividend, distribution (whether in the form of cash, Company stock, other
securities or other property), stock split, extraordinary cash dividend, recapitalization, change of control, reorganization, merger, consolidation,
split-up,
spin-off,
combination, repurchase or exchange of Company stock or other securities, or similar transaction(s).
|
Stock Ownership
Guidelines
We believe that by encouraging our executives to maintain a meaningful equity interest in our Company, we will align the
interests of our executives with those of our stockholders. Messrs. Hermance and Zapico are required to hold a multiple of five times their base salaries in our stock. The multiple for Messrs. Burke, Jones and Hardin is three times base salary.
Under our guidelines, an executive is expected to reach his or her stock ownership requirement within five years of being promoted to his or her position. As of December 31, 2016, each of our named executive officers met his stock ownership
guideline.
Compensation Risk
The Company reviews the risks associated with employee compensation policies and practices as an element of the annual incentive compensation process. As
part of this process, we establish a pay mix of fixed pay, short-term incentives and long-term incentives designed to motivate behaviors and decisions that promote disciplined progress towards longer-term, sustainable goals. The multi-year vesting
of our equity-based compensation award program, along with our stock ownership guidelines, serves as a control mechanism to our longer-term risk horizon. The structural components of the short-term incentive compensation, including the quantitative
nature of our goals, the setting of capped payout targets with actual payouts based on a capped achievement scale, and the individual performance evaluation process, are designed to prevent excessive risk-taking that would potentially harm our value
or reward poor executive judgment. We reviewed our compensation policies and practices and concluded that they are not reasonably likely to have a material adverse effect on the Company.
Anti-Hedging and Anti-Pledging Policies
The Board of Directors and our executive officers
are prohibited from hedging their ownership of the Companys stock, including trading in publicly-traded options, puts, calls, or other derivative instruments related to the Companys stock. They are also prohibited from pledging Company
stock. This prohibition relates to any type of pledge arrangement, including margin accounts covering Company stock.
Clawback Policy
The Company reserves the right to recover, or claw back, from a current or former executive officer any wrongfully earned
performance-based compensation, including stock-based awards, upon the determination by the Compensation Committee of the following:
|
|
There has been restatement of Company financials, due to the material noncompliance with any financial reporting requirement (other than a restatement
caused by a change in applicable accounting rules or interpretations), and such executive officer engaged in fraud or intentional illegal conduct which materially contributed to the need for such restatement,
|
21
|
|
The cash incentive or equity compensation to be recouped was calculated on, or its realized value affected by, the financial results that were
subsequently restated,
|
|
|
The cash incentive or equity compensation would have been less valuable than what was actually awarded or paid based upon the application of the
correct financial results, and
|
|
|
The pay affected by the calculation was earned or awarded within three years of the determination of the necessary restatement.
|
Any recoupment under this policy may be in addition to any other remedies that may be available to the Company under
applicable law, including disciplinary actions up to and including termination of employment.
The Compensation Committee has exclusive
authority to modify, interpret and enforce this provision in compliance with all regulations.
Tax
Gross-Up
Provisions
The Company will not enter into any new agreements with an executive officer
that include excise tax
gross-up
provisions with respect to payments contingent upon a change of control of the Company. There is one legacy agreement which is not affected by this policy.
Ongoing and Post-employment Agreements
We have several plans and agreements addressing compensation for our named executive officers that accrue value as the executive continues to work for
us, provide special benefits upon certain types of termination events and provide retirement benefits. These plans and agreements were adopted and, in some cases, amended at various times over the past 25 years, and were designed to be a part of a
competitive compensation package. Not all plans apply to each named executive officer, and the participants are indicated in the discussion below.
|
|
The Employees Retirement Plan This plan is a
tax-qualified
defined benefit plan available to all
U.S.-based salaried employees who commenced employment with us prior to January 1, 1997. The plan pays annual benefits based on final average plan compensation and years of credited service. The amount of compensation that can be taken into
account is subject to limits imposed by the Internal Revenue Code ($265,000 in 2016), and the maximum annual benefits payable under the plan also are subject to Internal Revenue Code limits ($210,000 in 2016). Messrs. Zapico, Hermance, Burke,
Mandos, and Jones participate in The Employees Retirement Plan. See the Pension Benefits table and accompanying narrative for additional information.
|
|
|
The Retirement and Savings Plan This is a
tax-qualified
defined contribution plan under which our
participating employees may contribute a percentage of specified compensation on a pretax basis. In the case of highly compensated employees, including the named executive officers, contributions of up to ten percent of eligible compensation can be
made, subject to a limit mandated by the Internal Revenue Code, which was $18,000 for 2016, or, if the participant was at least 50 years old, $24,000. We provide a matching contribution equal to
one-third
of
the first six percent of compensation contributed, subject to a maximum of $1,200. A participant may invest the participants contributions and matching contributions in one or more of a number of investment alternatives, including our Common
Stock, and the value of a participants account will be determined by the investment performance of the participants account. No more than 25 percent of a participants contributions can be invested in our Common Stock. All of
the named executive officers participate in The Retirement and Savings Plan. Our matching contributions are included in the All Other Compensation column of the Summary Compensation Table.
|
|
|
Retirement Feature of The Retirement and Savings Plan The Retirement Feature is available to participants in The Retirement and Savings Plan who
meet specified criteria, including ineligibility to participate in any of our defined benefit plans. Mr. Hardin participates in the Retirement Feature. We make retirement contributions based on the total of a participants age plus years
of service. For Mr. Hardin, we contributed an amount equal to five percent of his compensation subject to Social Security taxes and seven percent of his additional compensation. We also make an employer incentive retirement contribution equal
to one percent of a participants eligible compensation if the participant is contributing at least six percent of his or her compensation under The Retirement and Savings Plan. See the notes to the All Other Compensation column of
the Summary Compensation Table for further information regarding our contributions to the Retirement Feature for the account of Mr. Hardin.
|
22
|
|
Supplemental Executive Retirement Plan (SERP) This plan is a
non-qualified
deferred
compensation plan that provides benefits for executives to the extent that their compensation cannot be taken into account under our
tax-qualified
plans because the compensation exceeds limits imposed by the
Internal Revenue Code. We refer to the compensation that exceeds these limits as excess compensation. For 2016, compensation in excess of $265,000 constitutes excess compensation. Under the SERP, each year we credit to the account of a
participant an amount equal to 13% of the executives excess compensation, which is then deemed to be invested in our Common Stock. Payout of an executives account, which is subject to tax liability, occurs upon termination of the
executives employment and is made in shares of our Common Stock. Therefore, the ultimate value of the shares paid out under the SERP will depend on the performance of our Common Stock during the period an executive participates in the SERP.
All of the named executive officers participate in the SERP. See the
Non-qualified
Deferred Compensation table and accompanying narrative for additional information.
|
|
|
Deferred Compensation Plan This plan provides an opportunity for executives to defer payment of their short-term incentive award to the extent
that such award, together with other relevant compensation, constitutes excess compensation. In advance of the year in which the short-term incentive award will be paid, an executive may elect to defer all or part of his or her eligible incentive
award into a notional investment in our Common Stock, in an interest-bearing account or in both. A participant generally may elect to have the value of his or her account distributed following retirement, either in a lump sum or in up to five annual
installments, or in the form of an
in-service
distribution, payable either in a lump sum or in up to four annual installments commencing on a date specified by the participant in his or her distribution
election. Payments may commence sooner upon the participants earlier separation from service, upon the death of the participant, in the event of an unforeseeable financial emergency or upon a change of control. Payments from the notional
Common Stock fund are made in shares of our Common Stock, while payments from the interest-bearing account are paid in cash. Messrs. Burke, Hermance and Mandos participate in the Deferred Compensation Plan. See the
Non-qualified
Deferred Compensation table and accompanying narrative for additional information.
|
|
|
Supplemental Senior Executive Death Benefit Program Under this program, Mr. Hermance has entered into an agreement that requires us to pay
death benefits to his designated beneficiaries and to pay benefits to him under certain circumstances during his lifetime. If a covered executive dies before retirement or before age 65 while on disability retirement, the executives
beneficiary will receive monthly payments of up to $8,333 from the date of the executives death until the date he or she would have attained age 80. If a covered executive retires, or reaches age 65 while on disability retirement, the Program
provides for a maximum benefit of $100,000 per year for a period of 10 years. We have purchased an insurance policy on the life of Mr. Hermance to fund our obligations under the Program. See the Pension Benefits table and accompanying narrative
for additional information.
|
|
|
2004 Executive Death Benefit Plan This plan provides for retirement benefits or, if the executive dies before retirement, a death benefit.
Generally, if the executive dies before retirement, the executives beneficiary will receive a monthly payment of $8,333 until the participant would have reached age 80. If the executive retires (either at age 65 or after attaining age 55 with
at least five years of service) the executive will be entitled to receive a distribution based on the value of his account in the plan, which is determined by gains or losses on, and death benefits received under, a pool of insurance policies that
we own covering the lives of participants. Messrs. Zapico, Burke, Jones, and Hardin participate in this plan. See the
Non-qualified
Deferred Compensation table and accompanying narrative for further
information.
|
|
|
Change of Control Agreements We have change of control agreements with each of our executive officers, which are described under Potential
Payments Upon Termination or Change of Control. We entered into these change of control agreements so that our executives can focus their attention and energies on our business during periods of uncertainty that may occur due to a potential
change of control. In addition, we want our executives to support a corporate transaction involving a change of control that is in the best interests of our stockholders, even though the transaction may have an effect on the executives
continued employment with us. We believe these arrangements provide an important incentive for our executives to remain with us. Our agreement with each executive other than Mr. Hermance provides for payments and other benefits to the executive
if we terminate the executives employment without cause or if the executive terminates employment for good reason within two years following a change of control. Mr. Hermances change of control agreement differs from
those of the other named executive officers with respect to the amount of the payment and the scope of the benefits upon the change
|
23
|
of control events and does not have the
two-year
limit applicable to the other executives following the change of control. Given the critical nature of his
role as Chief Executive, his tenure with us, and our interest in retaining his services, we believe that it is appropriate to provide Mr. Hermance with this protection so that he is free to focus all of his attention on the growth and future of
the Company, even in a period following a change of control. We believe that the incentive provided by these additional benefits is well worth any potential cost. For these same reasons, we also have agreed to provide payments and other benefits to
Mr. Hermance if, outside of the context of a change of control, we terminate his employment without cause or he terminates his employment for good reason. In addition, Mr. Hermances agreement differs from the other agreements with
respect to payments that exceed the limitations under Section 280G of the Internal Revenue Code. The other executives agreements limit the payments made upon a change of control to the maximum amount that may be paid without an excise tax
and loss of corporate tax deduction under Sections 4999 and 280G of the Internal Revenue Code. Mr. Hermances agreement does not contain this limitation as discussed under Tax Considerations below.
|
Tax Considerations
Under Section 162(m) of the Internal Revenue Code, a publicly held corporation may not deduct more than $1 million in a taxable year for certain forms of compensation made to the chief executive
officer and any of the three most highly compensated executive officers, other than the chief financial officer. Our policy is generally to preserve the federal income tax deductibility of compensation paid to our executives, and certain of our
equity awards have been structured to preserve deductibility under Section 162(m). Nevertheless, we retain the flexibility to authorize compensation that may not be deductible if we believe it is in the best interests of our Company. In 2016,
the vesting of restricted stock resulted in compensation paid to our named executive officers that is
non-deductible
under Section 162(m).
Under Mr. Hermances change of control agreement, our payments to Mr. Hermance may exceed the limitations under Section 280G of the Internal Revenue Code, and therefore a portion of
the payments may not be deductible. In addition, we will make an additional payment to Mr. Hermance if payments to him resulting from a change of control are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code.
We did not wish to have the provisions of Mr. Hermances agreement serve as a disincentive to his pursuit of a change of control that otherwise might be in the best interests of our Company and its stockholders. Accordingly, we determined
to provide a payment to reimburse Mr. Hermance for any excise taxes payable in connection with the
change-of-control
payment, as well as any taxes that accrue as a
result of our reimbursement. We believe that, in light of Mr. Hermances outstanding record in enhancing value for our stockholders, this determination is appropriate.
Role of Executive Officers in Determining Executive Compensation For Named Executive Officers
In connection with 2016 compensation, Mr. Hermance, aided by our human resources department, provided statistical data and recommendations to the Compensation Committee to assist it in determining
compensation levels. Mr. Hermance did not make recommendations as to his own compensation. While the Compensation Committee utilized this information, and valued Mr. Hermances observations with regard to other executive officers, the
ultimate decisions regarding executive compensation were made by the Compensation Committee.
Stock Performance Graph
The following graph and accompanying table compare the cumulative total stockholder return for AMETEK over the last five years ended December 31, 2016 with total returns for the same period for the
Standard and Poors (S&P) 500 Index and Russell 1000 Index. AMETEKs stock price is a component of both indices. The performance graph and table assume a $100 investment made on December 31, 2011 and
reinvestment of all dividends. The stock performance shown on the graph below is based on historical data and is not necessarily indicative of future stock price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
AMETEK, Inc.
|
|
$
|
100.00
|
|
|
$
|
134.71
|
|
|
$
|
189.86
|
|
|
$
|
190.91
|
|
|
$
|
195.70
|
|
|
$
|
178.82
|
|
S&P 500 Index*
|
|
|
100.00
|
|
|
|
116.00
|
|
|
|
153.58
|
|
|
|
174.60
|
|
|
|
177.01
|
|
|
|
198.18
|
|
Russell 1000 Index*
|
|
|
100.00
|
|
|
|
116.42
|
|
|
|
154.97
|
|
|
|
175.49
|
|
|
|
177.10
|
|
|
|
198.44
|
|
A-2
AMETEK, INC.
SELECTED FINANCIAL DATA
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions, except per share amounts)
|
|
Consolidated Operating Results
(Year Ended December
31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,840.1
|
|
|
$
|
3,974.3
|
|
|
$
|
4,022.0
|
|
|
$
|
3,594.1
|
|
|
$
|
3,334.2
|
|
Operating income
|
|
$
|
801.9
|
|
|
$
|
907.7
|
|
|
$
|
898.6
|
|
|
$
|
815.1
|
|
|
$
|
745.9
|
|
Interest expense
|
|
$
|
94.3
|
|
|
$
|
91.8
|
|
|
$
|
79.9
|
|
|
$
|
73.6
|
|
|
$
|
75.5
|
|
Net income
|
|
$
|
512.2
|
|
|
$
|
590.9
|
|
|
$
|
584.5
|
|
|
$
|
517.0
|
|
|
$
|
459.1
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.20
|
|
|
$
|
2.46
|
|
|
$
|
2.39
|
|
|
$
|
2.12
|
|
|
$
|
1.90
|
|
Diluted
|
|
$
|
2.19
|
|
|
$
|
2.45
|
|
|
$
|
2.37
|
|
|
$
|
2.10
|
|
|
$
|
1.88
|
|
Dividends declared and paid per share
|
|
$
|
0.36
|
|
|
$
|
0.36
|
|
|
$
|
0.33
|
|
|
$
|
0.24
|
|
|
$
|
0.22
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
232.6
|
|
|
|
239.9
|
|
|
|
244.9
|
|
|
|
243.9
|
|
|
|
241.5
|
|
Diluted
|
|
|
233.7
|
|
|
|
241.6
|
|
|
|
247.1
|
|
|
|
246.1
|
|
|
|
244.0
|
|
Performance Measures and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income Return on net sales
|
|
|
20.9
|
%
|
|
|
22.8
|
%
|
|
|
22.3
|
%
|
|
|
22.7
|
%
|
|
|
22.4
|
%
|
Return on average total assets
|
|
|
11.7
|
%
|
|
|
13.9
|
%
|
|
|
14.6
|
%
|
|
|
14.7
|
%
|
|
|
15.7
|
%
|
Net income Return on average total capital
|
|
|
9.5
|
%
|
|
|
11.6
|
%
|
|
|
12.3
|
%
|
|
|
12.1
|
%
|
|
|
12.6
|
%
|
Return on
average stockholders equity
|
|
|
15.7
|
%
|
|
|
18.2
|
%
|
|
|
18.3
|
%
|
|
|
18.2
|
%
|
|
|
20.0
|
%
|
EBITDA
(1)
|
|
$
|
966.0
|
|
|
$
|
1,046.9
|
|
|
$
|
1,022.6
|
|
|
$
|
916.3
|
|
|
$
|
842.7
|
|
Ratio of EBITDA to interest expense
(1)
|
|
|
10.2x
|
|
|
|
11.4x
|
|
|
|
12.8x
|
|
|
|
12.4x
|
|
|
|
11.2x
|
|
Depreciation and amortization
|
|
$
|
179.7
|
|
|
$
|
149.5
|
|
|
$
|
138.6
|
|
|
$
|
118.7
|
|
|
$
|
105.5
|
|
Capital expenditures
|
|
$
|
63.3
|
|
|
$
|
69.1
|
|
|
$
|
71.3
|
|
|
$
|
63.3
|
|
|
$
|
57.4
|
|
Cash provided by operating activities
|
|
$
|
756.8
|
|
|
$
|
672.5
|
|
|
$
|
726.0
|
|
|
$
|
660.7
|
|
|
$
|
612.5
|
|
Free cash flow
(2)
|
|
$
|
693.5
|
|
|
$
|
603.4
|
|
|
$
|
654.7
|
|
|
$
|
597.4
|
|
|
$
|
555.1
|
|
Consolidated Financial Position
(At December
31):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
1,928.2
|
|
|
$
|
1,618.8
|
|
|
$
|
1,577.6
|
|
|
$
|
1,368.3
|
|
|
$
|
1,163.9
|
|
Current liabilities
|
|
$
|
924.4
|
|
|
$
|
1,024.0
|
|
|
$
|
934.5
|
|
|
$
|
872.7
|
|
|
$
|
878.5
|
|
Property, plant and equipment, net
|
|
$
|
473.2
|
|
|
$
|
484.5
|
|
|
$
|
448.4
|
|
|
$
|
402.8
|
|
|
$
|
383.5
|
|
Total assets
|
|
$
|
7,100.7
|
|
|
$
|
6,660.5
|
|
|
$
|
6,415.9
|
|
|
$
|
5,874.4
|
|
|
$
|
5,186.5
|
|
Long-term debt, net
|
|
$
|
2,062.6
|
|
|
$
|
1,553.1
|
|
|
$
|
1,424.4
|
|
|
$
|
1,140.1
|
|
|
$
|
1,131.0
|
|
Total debt, net
|
|
$
|
2,341.6
|
|
|
$
|
1,938.0
|
|
|
$
|
1,709.0
|
|
|
$
|
1,411.5
|
|
|
$
|
1,450.2
|
|
Stockholders equity
|
|
$
|
3,256.5
|
|
|
$
|
3,254.6
|
|
|
$
|
3,239.6
|
|
|
$
|
3,136.1
|
|
|
$
|
2,535.2
|
|
Stockholders equity per share
|
|
$
|
14.20
|
|
|
$
|
13.82
|
|
|
$
|
13.42
|
|
|
$
|
12.80
|
|
|
$
|
10.42
|
|
Total debt as a percentage of capitalization
|
|
|
41.8
|
%
|
|
|
37.3
|
%
|
|
|
34.5
|
%
|
|
|
31.0
|
%
|
|
|
36.4
|
%
|
Net debt as a percentage of capitalization
(3)
|
|
|
33.3
|
%
|
|
|
32.4
|
%
|
|
|
29.1
|
%
|
|
|
26.3
|
%
|
|
|
33.8
|
%
|
See Notes to Selected Financial Data on the following page.
A-3
Notes to Selected Financial Data
(1)
|
EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is presented because the Company is aware that it is
used by rating agencies, securities analysts, investors and other parties in evaluating the Company. It should not be considered, however, as an alternative to operating income as an indicator of the Companys operating performance or as an
alternative to cash flows as a measure of the Companys overall liquidity as presented in the Companys consolidated financial statements. Furthermore, EBITDA measures shown for the Company may not be comparable to similarly titled
measures used by other companies. The following table presents the reconciliation of net income reported in accordance with U.S. generally accepted accounting principles (GAAP) to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
Net income
|
|
$
|
512.2
|
|
|
$
|
590.9
|
|
|
$
|
584.5
|
|
|
$
|
517.0
|
|
|
$
|
459.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
94.3
|
|
|
|
91.8
|
|
|
|
79.9
|
|
|
|
73.6
|
|
|
|
75.5
|
|
Interest income
|
|
|
(1.1
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.7
|
)
|
Income taxes
|
|
|
180.9
|
|
|
|
215.5
|
|
|
|
220.4
|
|
|
|
207.8
|
|
|
|
203.3
|
|
Depreciation
|
|
|
74.8
|
|
|
|
68.7
|
|
|
|
63.7
|
|
|
|
57.2
|
|
|
|
53.7
|
|
Amortization
|
|
|
104.9
|
|
|
|
80.8
|
|
|
|
74.9
|
|
|
|
61.5
|
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
453.8
|
|
|
|
456.0
|
|
|
|
438.1
|
|
|
|
399.3
|
|
|
|
383.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
966.0
|
|
|
$
|
1,046.9
|
|
|
$
|
1,022.6
|
|
|
$
|
916.3
|
|
|
$
|
842.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Free cash flow represents cash flow from operating activities less capital expenditures. Free cash flow is presented because the Company is aware
that it is used by rating agencies, securities analysts, investors and other parties in evaluating the Company. (Also see note 1 above). The following table presents the reconciliation of cash flow from operating activities reported in
accordance with U.S. GAAP to free cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
Cash provided by operating activities
|
|
$
|
756.8
|
|
|
$
|
672.5
|
|
|
$
|
726.0
|
|
|
$
|
660.7
|
|
|
$
|
612.5
|
|
Deduct: Capital expenditures
|
|
|
(63.3
|
)
|
|
|
(69.1
|
)
|
|
|
(71.3
|
)
|
|
|
(63.3
|
)
|
|
|
(57.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
693.5
|
|
|
$
|
603.4
|
|
|
$
|
654.7
|
|
|
$
|
597.4
|
|
|
$
|
555.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Net debt represents total debt, net minus cash and cash equivalents. Net debt is presented because the Company is aware that it is used by rating
agencies, securities analysts, investors and other parties in evaluating the Company. (Also see note 1 above). The following table presents the reconciliation of total debt, net reported in accordance with U.S. GAAP to net debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(In millions)
|
|
Total debt, net
|
|
$
|
2,341.6
|
|
|
$
|
1,938.0
|
|
|
$
|
1,709.0
|
|
|
$
|
1,411.5
|
|
|
$
|
1,450.2
|
|
Less: Cash and cash equivalents
|
|
|
(717.3
|
)
|
|
|
(381.0
|
)
|
|
|
(377.6
|
)
|
|
|
(295.2
|
)
|
|
|
(158.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
1,624.3
|
|
|
|
1,557.0
|
|
|
|
1,331.4
|
|
|
|
1,116.3
|
|
|
|
1,292.2
|
|
Stockholders equity
|
|
|
3,256.5
|
|
|
|
3,254.6
|
|
|
|
3,239.6
|
|
|
|
3,136.1
|
|
|
|
2,535.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization (net debt plus stockholders equity)
|
|
$
|
4,880.8
|
|
|
$
|
4,811.6
|
|
|
$
|
4,571.0
|
|
|
$
|
4,252.4
|
|
|
$
|
3,827.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt as a percentage of capitalization
|
|
|
33.3
|
%
|
|
|
32.4
|
%
|
|
|
29.1
|
%
|
|
|
26.3
|
%
|
|
|
33.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-4
AMETEK, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report includes forward-looking statements based on the Companys current assumptions, expectations and
projections about future events. When used in this report, the words believes, anticipates, may, expect, intend, estimate, project and similar expressions are
intended to identify forward-looking statements, although not all forward-looking statements contain such words. For more information concerning risks and other factors that could have a material adverse effect on our business or could cause actual
results to differ materially from managements expectations, see Forward-Looking Information on page A-27.
The following discussion and analysis of the Companys results of operations and financial condition should be read in conjunction with Selected Financial Data and the consolidated
financial statements of the Company and the related notes included elsewhere in this Appendix. We begin with an overview of our business and operations.
Business Overview
AMETEKs operations are affected
by global, regional and industry economic factors. However, the Companys strategic geographic and industry diversification, and its mix of products and services, have helped to mitigate the potential adverse impact of any unfavorable
developments in any one industry or the economy of any single country on its consolidated operating results. In 2016, the Company was impacted by a weak global economy and the effects of a continued strong U.S. dollar. Specifically, the Company
experienced lower sales in its process businesses that have exposure to oil and gas markets and in its engineered materials, interconnects and packaging businesses that have exposure to metals markets. Contributions from recent acquisitions,
combined with successful Operational Excellence initiatives, helped to partially offset the oil and gas and metals markets weakness. The Company also benefited from its strategic initiatives under AMETEKs four key strategies: Operational
Excellence, Strategic Acquisitions, Global & Market Expansion and New Products. Items of note in 2016 were:
|
|
|
During 2016, the Company recorded pre-tax realignment costs totaling $25.6 million. The realignment costs had the effect of reducing net income
for 2016 by $17.0 million ($0.07 per diluted share). See below for further discussion.
|
|
|
|
During 2016, the Company recorded a $13.9 million non-cash impairment charge related to certain of the Companys trade names. The
impairment charge had the effect of reducing net income for 2016 by $8.6 million ($0.04 per diluted share). See below for further discussion.
|
|
|
|
During 2016, the Company spent $391.4 million in cash, net of cash acquired, to acquire five businesses:
|
|
|
|
In January 2016, AMETEK acquired Brookfield Engineering Laboratories (Brookfield), a manufacturer of viscometers and rheometers, as
well as instrumentation to analyze texture and powder flow;
|
|
|
|
In January 2016, AMETEK acquired ESP/SurgeX, a manufacturer of energy intelligence and power protection, monitoring and diagnostic solutions;
|
|
|
|
In July 2016, AMETEK acquired HS Foils, a developer and manufacturer of key components used in radiation detectors including ultra-thin
radiation windows, silicon drift detectors and
x-ray
filters;
|
|
|
|
In July 2016, AMETEK acquired Nu Instruments, a provider of magnetic sector mass spectrometers used for elemental and isotope analysis;
and
|
|
|
|
In October 2016, AMETEK acquired Laserage Technology Corporation (Laserage), a provider of laser fabrication services for the
medical device market.
|
|
|
|
During 2016, the Company established record cash flow provided by operating activities that totaled $756.8 million for 2016, an
$84.3 million or 12.5% increase from 2015.
|
A-5
|
|
|
The Company continued its emphasis on investment in research, development and engineering, spending $200.8 million in 2016 before customer
reimbursement of $7.2 million. Sales from products introduced in the past three years were $929.6 million or 24.2% of net sales.
|
|
|
|
In March 2016, the Company along with certain of its foreign subsidiaries amended and restated its credit agreement dated as of
September 22, 2011 (the Credit Agreement). The Credit Agreement amends and restates the Companys existing $700 million revolving credit facility, which was due to expire in December 2018. The Credit Agreement
consists of a five-year revolving credit facility in an aggregate principal amount of $850 million with a final maturity date in March 2021. The revolving credit facility total borrowing capacity excludes an accordion feature that permits
the Company to request up to an additional $300 million in revolving credit commitments at any time during the life of the Credit Agreement under certain conditions. The revolving credit facility provides the Company with additional financial
flexibility to support its growth plans, including its acquisition strategy.
|
|
|
|
In October 2016, the Company completed a private placement agreement to sell 500 million Euros and 225 million British pounds in
senior notes to a group of institutional investors (the 2016 Private Placement). There were two funding dates under the 2016 Private Placement. The first funding occurred in October 2016 for 500 million Euros
($546.8 million) and the second funding occurred in November 2016 for 225 million British pounds ($274.1 million). The proceeds from the first funding of the 2016 Private Placement were used to pay down domestic borrowings under
the Companys revolving credit facility. The proceeds from the second funding of the 2016 Private Placement were used to pay down, at maturity, a 40 million British pound ($48.7 million) 5.99% senior note in November 2016 and
provides the Company with additional financial flexibility to support its growth plans, including its acquisition strategy. See Liquidity and Capital Resources section for further discussion.
|
Results of Operations
The following table sets forth net sales and income by reportable segment and on a consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Net
sales
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
2,360,285
|
|
|
$
|
2,417,192
|
|
|
$
|
2,421,638
|
|
Electromechanical
|
|
|
1,479,802
|
|
|
|
1,557,103
|
|
|
|
1,600,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
3,840,087
|
|
|
$
|
3,974,295
|
|
|
$
|
4,021,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
577,717
|
|
|
$
|
639,399
|
|
|
$
|
612,992
|
|
Electromechanical
|
|
|
277,873
|
|
|
|
318,098
|
|
|
|
335,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
855,590
|
|
|
|
957,497
|
|
|
|
948,038
|
|
Corporate administrative and other expenses
|
|
|
(53,693
|
)
|
|
|
(49,781
|
)
|
|
|
(49,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
801,897
|
|
|
|
907,716
|
|
|
|
898,586
|
|
Interest and other expenses, net
|
|
|
(108,794
|
)
|
|
|
(101,336
|
)
|
|
|
(93,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
$
|
693,103
|
|
|
$
|
806,380
|
|
|
$
|
804,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
After elimination of intra- and intersegment sales, which are not significant in amount.
|
(2)
|
Segment operating income represents net sales less all direct costs and expenses (including certain administrative and other expenses) applicable to
each segment, but does not include interest expense.
|
A-6
Results of Operations for the year ended December 31, 2016 compared with the year ended December 31,
2015
In 2016, the Company was impacted by a weak global economy and the effects of a continued strong
U.S. dollar. Specifically, the Company experienced lower sales in its process businesses that have exposure to oil and gas markets and in its engineered materials, interconnects and packaging businesses that have exposure to metals markets.
Contributions from the acquisitions completed in 2016 and the acquisitions of Surface Vision in
July 2015 and Global Tubes in May 2015, as well as the Companys Operational Excellence initiatives had a positive impact on 2016 results. The full year impact of the 2016 acquisitions and continued focus on and
implementation of Operational Excellence initiatives, including the 2016 realignment actions (described further throughout the results of operations for the fourth quarter and year ended December 31, 2016), are expected to have a positive
impact on the Companys 2017 results. In the second half of 2016, the Company noted stabilization in the markets mentioned above compared to 2015; however, the Company still expects the challenging global economic environment to continue
to impact its markets and geographies into the first half of 2017.
Net sales for 2016 were
$3,840.1 million, a decrease of $134.2 million or 3.4%, compared with net sales of $3,974.3 million in 2015. Electronic Instruments Group (EIG) net sales were $2,360.3 million in 2016, a decrease of 2.4%, compared
with $2,417.2 million in 2015. Electromechanical Group (EMG) net sales were $1,479.8 million in 2016, a decrease of 5.0%, compared with $1,557.1 million in 2015. The decrease in net sales for 2016 was due to a 7% organic
sales decline and an unfavorable 1% effect of foreign currency translation, partially offset by a 4% increase from acquisitions.
Total international sales for 2016 were $2,010.7 million or 52.4% of net sales, a decrease of $44.0 million or 2.1%, compared with international sales of $2,054.7 million or 51.7% of net sales
in 2015. The $44.0 million decrease in international sales was primarily driven by a weak global economy, as well as the foreign currency translation headwind noted above. Both reportable segments of the Company maintain strong international
sales presences in Europe and Asia. Export shipments from the United States, which are included in total international sales, were $1,036.0 million in 2016, a decrease of $54.7 million or 5.0%, compared with $1,090.7 million in 2015.
Export shipments decreased primarily due to a weak global economy, as well as the competitive impacts of a strong U.S. dollar.
Orders for 2016 were $3,848.8 million, a decrease of $75.9 million or 1.9%, compared with $3,924.7 million in 2015. The decrease in orders for 2016 was due to a 5% organic order decline
resulting from a weak global economy noted above, partially offset by a 3% increase from acquisitions. As a result, the Companys backlog of unfilled orders at December 31, 2016 was $1,156.5 million, an increase of $8.7 million
or 0.8%, compared with $1,147.8 million at December 31, 2015.
The Company recorded 2016 realignment
costs totaling $25.6 million in the fourth quarter of 2016 (the 2016 realignment costs). The 2016 realignment costs primarily related to $19.3 million in severance costs for a reduction in workforce and $6.2 million of asset
write-downs in response to the impact of a weak global economy on certain of the Companys businesses, as well as the effects of a continued strong U.S. dollar. The Company recorded 2015 realignment costs totaling $36.6 million, with
$15.9 million recorded in the first quarter of 2015 and $20.7 million recorded in the fourth quarter of 2015 (the 2015 realignment costs). The 2015 realignment costs primarily related to reductions in workforce in response to
the impact of a weak global economy on certain of the Companys businesses, as well as the effects of a continued strong U.S. dollar. See Note 18 to the Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report on
Form 10-K
for further details.
A-7
The 2016 and 2015 realignment costs were reported in the consolidated
statement of income as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Three Months
Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
Three Months
Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
Cost of sales
|
|
$
|
24.0
|
|
|
$
|
24.0
|
|
|
$
|
15.8
|
|
|
$
|
20.0
|
|
|
$
|
35.8
|
|
Selling, general and administrative expenses
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25.6
|
|
|
$
|
25.6
|
|
|
$
|
15.9
|
|
|
$
|
20.7
|
|
|
$
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2016 and 2015 realignment costs were reported in segment operating income as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Three Months
Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
Three Months
Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
EIG
|
|
$
|
12.4
|
|
|
$
|
12.4
|
|
|
$
|
9.3
|
|
|
$
|
9.3
|
|
|
$
|
18.5
|
|
EMG
|
|
|
11.6
|
|
|
|
11.6
|
|
|
|
6.5
|
|
|
|
10.8
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24.0
|
|
|
$
|
24.0
|
|
|
$
|
15.8
|
|
|
$
|
20.0
|
|
|
$
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2016 and 2015 realignment costs negatively impacted segment operating margins as
follows (in basis points):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Three Months
Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
|
Three Months
Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
EIG
|
|
|
(200
|
)
|
|
|
(50
|
)
|
|
|
(150
|
)
|
|
|
(70
|
)
|
EMG
|
|
|
(330
|
)
|
|
|
(80
|
)
|
|
|
(300
|
)
|
|
|
(110
|
)
|
Total
|
|
|
(250
|
)
|
|
|
(60
|
)
|
|
|
(200
|
)
|
|
|
(90
|
)
|
The expected annualized cash savings from the 2016 realignment costs is expected to be
approximately $35 million, with approximately $15 million expected to be realized in 2017.
Segment
operating income for 2016 was $855.6 million, a decrease of $101.9 million or 10.6%, compared with segment operating income of $957.5 million in 2015. Segment operating income, as a percentage of net sales, decreased to 22.3% in 2016,
compared with 24.1% in 2015. The decrease in segment operating income and segment operating margins for 2016 resulted primarily from the decrease in net sales noted above and a $29.7 million increase in depreciation and amortization expense,
which included a $13.9 million non-cash impairment charge related to certain of the Companys trade names ($9.2 million impacted EIG and $4.7 million impacted EMG). The 2016 impairment charge negatively impacted segment operating
margins by approximately 40 basis points. Segment operating income and segment operating margins for 2016 and 2015 include the impact of the realignment costs detailed in the tables above.
Cost of sales for 2016 was $2,575.2 million or 67.1% of net sales, a decrease of $42.8 million or 1.6%,
compared with $2,618.0 million or 65.9% of net sales for 2015. The cost of sales decrease was primarily due to the net sales decrease noted above, partially offset by a $29.7 million increase in depreciation and amortization expense, which
included a $13.9 million impairment charge noted above. Cost of sales for 2016 and 2015 include the impact of the realignment costs detailed in the tables above.
A-8
Selling, general and administrative (SG&A) expenses for 2016
were $463.0 million, an increase of $14.4 million or 3.2%, compared with $448.6 million in 2015. As a percentage of net sales, SG&A expenses were 12.1% for 2016, compared with 11.3% in 2015. Selling expenses for 2016 were
$410.6 million, an increase of $11.1 million or 2.8%, compared with $399.5 million in 2015. The selling expenses increase was due primarily to business acquisitions. Selling expenses, as a percentage of net sales, increased to 10.7%
for 2016, compared with 10.1% in 2015.
Corporate administrative expenses for 2016 were $52.4 million, an
increase of $3.3 million or 6.7%, compared with $49.1 million in 2015. As a percentage of net sales, corporate administrative expenses were 1.4% for 2016, compared with 1.2% in 2015. For 2016 and 2015, corporate administrative expenses
include $1.6 million and $0.8 million, respectively, of realignment costs noted above.
Consolidated
operating income was $801.9 million or 20.9% of net sales for 2016, a decrease of $105.8 million or 11.7%, compared with $907.7 million or 22.8% of net sales in 2015.
Interest expense was $94.3 million for 2016, an increase of $2.5 million or 2.7%, compared with
$91.8 million in 2015. The increase was primarily due to higher average borrowings to fund acquisitions and share repurchases.
The effective tax rate for 2016 was 26.1%, compared with 26.7% in 2015. The effective tax rates for 2016 and 2015 reflect the impact of foreign earnings, which are taxed at lower rates. The 2016 effective
tax rate reflects tax benefits related to international and state tax planning initiatives and the release of uncertain tax position liabilities relating to certain statute expirations. The 2015 effective tax rate reflects the first quarter of 2015
release of uncertain tax position liabilities related to the conclusion of an advance thin capitalization agreement in the European Union, the second quarter of 2015 effective settlement of the U.S. research and development tax credit from the
completion of an Internal Revenue Service examination for 2010 and 2011, and the third quarter of 2015 $7.5 million of tax benefits related to the closure of an international subsidiary. See Note 8 to the consolidated financial statements
included in this Appendix for further details.
Net income for 2016 was $512.2 million, a decrease of
$78.7 million or 13.3%, compared with $590.9 million in 2015. The 2016 realignment costs and the 2016 impairment charge reduced 2016 net income by $17.0 million and $8.6 million, respectively. The 2015 realignment costs reduced
2015 net income by $24.7 million.
Diluted earnings per share for 2016 were $2.19, a decrease of $0.26 or
10.6%, compared with $2.45 per diluted share in 2015. The 2016 realignment costs and the 2016 impairment charge had the effect of reducing 2016 diluted earnings per share by $0.07 and $0.04, respectively. The 2015 realignment costs had the effect of
reducing 2015 diluted earnings per share by $0.10.
Segment Results
EIGs
net sales totaled $2,360.3 million for 2016, a decrease of $56.9 million or 2.4%, compared
with $2,417.2 million in 2015. The net sales decrease was due to a 7% organic sales decline, driven largely by the Companys process businesses that have exposure to oil and gas markets, partially offset by a 5% increase from the 2016
acquisitions of Nu Instruments, Brookfield and ESP/SurgeX and 2015 acquisition of Surface Vision.
EIGs operating income was $577.7 million for 2016, a decrease of $61.7 million or 9.6%, compared with
$639.4 million in 2015. EIGs operating margins were 24.5% of net sales for 2016, compared with 26.5% of net sales in 2015. The decrease in EIG segment operating income and segment operating margins for 2016 resulted primarily from the
decrease in net sales noted above and a $20.5 million increase in depreciation and amortization expense, which included a $9.2 million impairment charge. The 2016 impairment charge negatively
A-9
impacted EIG segment operating margins by approximately 40 basis points. EIG segment operating income and segment operating margins for 2016 and 2015 include the impact of the realignment
costs detailed in the tables above.
EMGs
net sales totaled $1,479.8 million for 2016, a
decrease of $77.3 million or 5.0%, compared with $1,557.1 million in 2015. The net sales decrease was due to a 6% organic sales decline, driven largely by weakness in the Companys engineered materials, interconnects and packaging
businesses, and an unfavorable 1% effect of foreign currency translation, partially offset by a 2% increase from the 2016 acquisition of Laserage and 2015 acquisition of Global Tubes.
EMGs operating income was $277.9 million for 2016, a decrease of $40.2 million or 12.6%, compared with
$318.1 million in 2015. EMGs operating margins were 18.8% of net sales for 2016, compared with 20.4% of net sales in 2015. The decrease in EMG segment operating income and segment operating margins for 2016 resulted primarily from the
decrease in net sales noted above and a $9.2 million increase in depreciation and amortization expense, which included a $4.7 million impairment charge. The 2016 impairment charge negatively impacted EMG segment operating margins by
approximately 30 basis points. EMG segment operating income and segment operating margins for 2016 and 2015 include the impact of the realignment costs detailed in the tables above.
Results of operations for the fourth quarter of 2016 compared with the fourth quarter of 2015
Net sales for the fourth quarter of 2016 were $973.0 million, a decrease of $15.0 million or 1.5%, compared with net sales of $988.0 million for the fourth quarter of 2015. The decrease in
net sales for the fourth quarter of 2016 was due to a 4% organic sales decline and an unfavorable 1% effect of foreign currency translation, partially offset by a 3% increase from acquisitions.
Segment operating income for the fourth quarter of 2016 was $187.8 million, a decrease of $34.0 million or
15.3%, compared with segment operating income of $221.8 million for the fourth quarter of 2015. Segment operating income, as a percentage of net sales, decreased to 19.3% for the fourth quarter of 2016, compared with 22.5% for the fourth
quarter of 2015. The decrease in segment operating income and segment operating margins for the fourth quarter of 2016 resulted primarily from the decrease in net sales noted above and a $17.2 million increase in depreciation and amortization
expense, which included a $13.9 million non-cash impairment charge related to certain of the Companys trade names ($9.2 million impacted EIG and $4.7 million impacted EMG). The fourth quarter of 2016 impairment charge negatively
impacted segment operating margins by approximately 140 basis points. Segment operating income and segment operating margins for the fourth quarter of 2016 and 2015 include the impact of the realignment costs detailed in the tables above.
Cost of sales for the fourth quarter of 2016 was $681.1 million or 70.0% of net sales, an increase of
$14.8 million or 2.2%, compared with $666.3 million or 67.4% of net sales for the fourth quarter of 2015. The cost of sales increase and the corresponding increase in cost of sales as a percentage of sales were primarily due to the net
sales decrease noted above and a $17.2 million increase in depreciation and amortization expense, which included the fourth quarter of 2016 impairment charge of $13.9 million noted above. Cost of sales for the fourth quarter of 2016 and
2015 include the impact of the realignment costs detailed in the tables above.
Net income for the fourth
quarter of 2016 was $109.1 million, a decrease of $27.7 million or 20.2%, compared with $136.8 million for the fourth quarter of 2015. The fourth quarter of 2016 realignment costs and fourth quarter of 2016 impairment charge reduced
the fourth quarter of 2016 net income by $17.0 million and $8.6 million, respectively. The fourth quarter of 2015 realignment costs reduced the fourth quarter of 2015 net income by $13.9 million.
Diluted earnings per share for the fourth quarter of 2016 were $0.47, a decrease of $0.10 or 17.5%, compared with $0.57
per diluted share for the fourth quarter of 2015. The fourth quarter of 2016 realignment
A-10
costs and fourth quarter of 2016 impairment charge had the effect of reducing the fourth quarter of 2016 diluted earnings per share by $0.07 and $0.04, respectively. The fourth quarter of 2015
realignment costs had the effect of reducing the fourth quarter of 2015 diluted earnings per share by $0.06.
Segment Results
EIGs
net sales totaled $616.0 million for the fourth quarter of 2016, a decrease of
$12.4 million or 2.0%, compared with $628.4 million for the fourth quarter of 2015. The net sales decrease was due to a 6% organic sales decline, driven largely by the Companys process businesses with exposure to oil and gas markets,
and an unfavorable 1% effect of foreign currency translation, partially offset by a 5% increase from the 2016 acquisitions of Nu Instruments, Brookfield and ESP/SurgeX.
EIGs operating income was $141.1 million for the fourth quarter of 2016, a decrease of $20.6 million or
12.7%, compared with $161.7 million for the fourth quarter of 2015. EIGs operating margins were 22.9% of net sales for the fourth quarter of 2016, compared with 25.7% of net sales for the fourth quarter of 2015. The decrease in EIG
segment operating income and segment operating margins for the fourth quarter of 2016 resulted primarily from the decrease in net sales noted above and an $11.0 million increase in depreciation and amortization expense, which included a
$9.2 million impairment charge. The fourth quarter of 2016 impairment charge negatively impacted EIG segment operating margins by approximately 150 basis points. EIG segment operating income and segment operating margins for the fourth
quarter of 2016 and 2015 include the impact of the realignment costs detailed in the tables above.
EMGs
net sales totaled $356.9 million for the fourth quarter of 2016, a decrease of $2.7 million
or 0.8%, compared with $359.6 million for the fourth quarter of 2015. The net sales decrease was due to an unfavorable 2% effect of foreign currency translation, partially offset by a 1% increase from the 2016 acquisition of Laserage. Organic
sales were flat quarter over quarter.
EMGs operating income was $46.7 million for the fourth
quarter of 2016, a decrease of $13.5 million or 22.4%, compared with $60.2 million for the fourth quarter of 2015. EMGs operating margins were 13.1% of net sales for the fourth quarter of 2016, compared with 16.7% of net sales for
the fourth quarter of 2015. The decrease in EMG segment operating income and segment operating margins for the fourth quarter of 2016 resulted primarily from the decrease in net sales noted above and a $6.2 million increase in depreciation and
amortization expense, which included a $4.7 million impairment charge. The fourth quarter of 2016 impairment charge negatively impacted EMG segment operating margins by approximately 130 basis points. EMG segment operating income and
segment operating margins for the fourth quarter of 2016 and 2015 include the impact of the realignment costs detailed in the tables above.
Results of Operations for the year ended December 31, 2015 compared with the year ended December 31, 2014
In 2015, the Company established records for operating income, operating income margins, net income and diluted earnings
per share. Contributions from the acquisitions completed in 2015 and the acquisitions of Amptek, Inc. in August 2014 and Zygo Corporation in June 2014, as well as the Companys Operational Excellence initiatives had a
positive impact on 2015 results.
Net sales for 2015 were $3,974.3 million, a decrease of
$47.7 million or 1.2%, compared with net sales of $4,022.0 million in 2014. EIG net sales were $2,417.2 million in 2015 or essentially flat on a percentage basis, compared with $2,421.6 million in 2014. EMG net sales were
$1,557.1 million in 2015, a decrease of 2.7%, compared with $1,600.3 million in 2014. The decrease in net sales for 2015 was due to an unfavorable 4% effect of foreign currency translation and 1% organic sales decline, partially offset by
a 4% increase from acquisitions.
Total international sales for 2015 were $2,054.7 million or 51.7% of
net sales, a decrease of $141.5 million or 6.4%, compared with international sales of $2,196.2 million or 54.6% of net sales in 2014. The $141.5 million decrease in international sales was primarily driven by a weak global economy, as well
as the foreign currency
A-11
translation headwind noted above. Both reportable segments of the Company maintain strong international sales presences in Europe and Asia. Export shipments from the United States, which are
included in total international sales, were $1,090.7 million in 2015, a decrease of $57.4 million or 5.0%, compared with $1,148.1 million in 2014. Export shipments decreased primarily due to a weak global economy, as well as the
competitive impacts of a strong U.S. dollar.
Orders for 2015 were $3,924.7 million, a decrease of
$154.6 million or 3.8%, compared with $4,079.3 million in 2014. The decrease in orders for 2015 was due to an unfavorable 4% effect of foreign currency translation and organic order decline of approximately 3% resulting from a weak global
economy, partially offset by a 3% increase from acquisitions. As a result, the Companys backlog of unfilled orders at December 31, 2015 was $1,147.8 million, a decrease of $49.5 million or 4.1%, compared with
$1,197.3 million at December 31, 2014.
The Company recorded 2015 realignment costs totaling
$36.6 million, with $15.9 million recorded in the first quarter of 2015 and $20.7 million recorded in the fourth quarter of 2015 (the 2015 realignment costs). The 2015 realignment costs primarily related to reductions in
workforce in response to the impact of a weak global economy on certain of the Companys businesses, as well as the effects of a continued strong U.S. dollar. See Note 18 to the Consolidated Financial Statements included in
Part II, Item 8 of this Annual Report on
Form 10-K
for further details.
The 2015 realignment costs were reported in the consolidated statement of income as follows:
|
|
|
$35.8 million in Cost of sales, with $15.8 million recorded in the first quarter of 2015 and $20.0 million recorded in the fourth
quarter of 2015; and
|
|
|
|
$0.8 million in Selling, general and administrative expenses, with $0.1 million recorded in the first quarter of 2015 and
$0.7 million recorded in the fourth quarter of 2015.
|
Total segment operating income
for 2015 included pre-tax realignment costs totaling $35.8 million, with $15.8 million recorded in the first quarter of 2015 and $20.0 million recorded in the fourth quarter of 2015. The 2015 realignment costs were reported as
follows:
|
|
|
$18.5 million in EIG operating income, with $9.3 million recorded in both the first and fourth quarters of 2015; and
|
|
|
|
$17.3 million in EMG operating income, with $6.5 million recorded in the first quarter of 2015 and $10.8 million recorded in the
fourth quarter of 2015.
|
Total segment operating margins for 2015 were negatively impacted
by approximately 90 basis points due to the 2015 realignment costs. The 2015 realignment costs impacted segment operating margins as follows:
|
|
|
Approximate 70 basis point negative impact on EIGs 2015 operating margins; and
|
|
|
|
Approximate 110 basis point negative impact on EMGs 2015 operating margins.
|
The expected annualized cash savings from the 2015 realignment costs is expected to be approximately $90 million,
with $40 million realized in 2015 and approximately $75 million expected to be realized in 2016.
Segment operating income for 2015 was $957.5 million, an increase of $9.5 million or 1.0%, compared with
segment operating income of $948.0 million in 2014. The increase in segment operating income resulted primarily from the acquisitions noted above, as well as the benefits of the Companys Operational Excellence initiatives, partially
offset by the 2015 realignment costs described above. Segment operating income for 2014 included $18.9 million in Zygo integration costs, comprised of $10.4 million in severance charges ($9.1 million recorded in the third
quarter of 2014 and $1.3 million recorded in the fourth quarter of 2014), a $4.5 million fair value inventory adjustment recorded in the third quarter of 2014 and $4.0 million in other
A-12
charges recorded in the fourth quarter of 2014, related to the Zygo acquisition. Segment operating income, as a percentage of net sales, increased to 24.1% in 2015, compared with 23.6% in 2014.
The increase in segment operating margins resulted primarily from the benefits of the Companys Operational Excellence initiatives, partially offset by the impact of the 2015 realignment costs noted above. Segment operating margins for 2014
were negatively impacted by approximately 40 basis points due to the Zygo integration costs noted above.
Cost of sales for 2015 was $2,618.0 million or 65.9% of net sales, a decrease of $42.7 million or 1.6%,
compared with $2,660.7 million or 66.2% of net sales for 2014. The cost of sales decrease and the corresponding decrease in cost of sales as a percentage of sales were primarily due to the net sales decrease noted above, the impact of foreign
currency translation, as well as cost containment initiatives, which offset the 2015 realignment costs described above. Cost of sales for 2014 included $18.9 million of Zygo integration costs described above.
SG&A expenses for 2015 were $448.6 million, a decrease of $14.0 million or 3.0%, compared with
$462.6 million in 2014. As a percentage of net sales, SG&A expenses were 11.3% for 2015, compared with 11.5% in 2014. Selling expenses for 2015 were $399.5 million, a decrease of $14.3 million or 3.5%, compared with
$413.8 million in 2014. Selling expenses, as a percentage of net sales, decreased to 10.1% for 2015, compared with 10.3% in 2014. The selling expenses decrease and the corresponding decrease in selling expenses as a percentage of sales were
primarily due to cost containment initiatives and the impact of foreign currency translation.
Corporate
administrative expenses for 2015 were $49.1 million or essentially flat, compared with $48.8 million in 2014. As a percentage of net sales, corporate administrative expenses were 1.2% for both 2015 and 2014.
Consolidated operating income was $907.7 million or 22.8% of net sales for 2015, an increase of $9.1 million or
1.0%, compared with $898.6 million or 22.3% of net sales in 2014.
Interest expense was
$91.8 million for 2015, an increase of $11.9 million or 14.9%, compared with $79.9 million in 2014. The increase was due to the impact of private placement senior notes funded in the second and third quarters of 2015 and the third
quarter of 2014.
Other expenses, net were $9.5 million for 2015, a decrease of $4.3 million,
compared with $13.8 million in 2014. Other expenses, net for 2015 benefited by lower acquisition-related expenses and the favorable impact from foreign currency translation. Other expenses, net for 2014 included an $8.0 million insurance
policy gain in the fourth quarter of 2014 and a $5.5 million reversal of an insurance policy receivable related to a specific uncertain tax position liability of an acquired entity in the third quarter of 2014.
The effective tax rate for 2015 was 26.7%, compared with 27.4% in 2014. The effective tax rates for 2015 and 2014 reflect
the impact of foreign earnings, which are taxed at lower rates. The 2015 effective tax rate reflects the first quarter of 2015 release of uncertain tax position liabilities related to the conclusion of an advance thin capitalization agreement in the
European Union, the second quarter of 2015 effective settlement of the U.S. research and development tax credit from the completion of an Internal Revenue Service examination for 2010 and 2011, and the third quarter of 2015 $7.5 million of tax
benefits related to the closure of an international subsidiary. The 2014 effective tax rate reflects a release of $12.9 million of uncertain tax position liabilities related to an acquired entity due to the final closure of a tax year and
foreign tax credit benefit on amounts repatriated during the year. See Note 8 to the consolidated financial statements included in this Appendix for further details.
Net income for 2015 was $590.9 million, an increase of $6.4 million or 1.1%, compared with $584.5 million
in 2014. The 2015 realignment costs reduced 2015 net income by $24.7 million. The Zygo integration costs reduced 2014 net income by $13.9 million.
A-13
Diluted earnings per share for 2015 were $2.45, an increase of $0.08 or
3.4%, compared with $2.37 per diluted share in 2014. The 2015 realignment costs had the effect of reducing 2015 diluted earnings per share by $0.10. The Zygo integration costs had the effect of reducing 2014 diluted earnings per share by $0.05.
Segment Results
EIGs
net sales totaled $2,417.2 million for 2015, a decrease of $4.4 million or essentially flat on a percentage basis, compared with $2,421.6 million in 2014. The net sales
decrease was due to an unfavorable 3% effect of foreign currency translation and 1% organic sales decline, offset by a 4% increase from the 2015 acquisition of Surface Vision and the 2014 acquisitions of Amptek and Zygo.
EIGs operating income was $639.4 million for 2015, an increase of $26.4 million or 4.3%, compared with
$613.0 million in 2014. EIGs increase in operating income was primarily due to the Groups Operational Excellence initiatives, partially offset by the 2015 realignment costs. EIGs 2014 operating income included
$18.9 million of Zygo integration costs. EIGs operating margins were 26.5% of net sales for 2015, compared with 25.3% of net sales in 2014. EIGs increase in operating margins resulted primarily from the benefits of the Groups
Operational Excellence initiatives, partially offset by the impact of the 2015 realignment costs noted above. EIGs 2014 operating margins were negatively impacted by approximately 80 basis points due to the Zygo integration costs noted
above.
EMGs
net sales totaled $1,557.1 million for 2015, a decrease of $43.2 million
or 2.7%, compared with $1,600.3 million in 2014. The net sales decrease was due to an unfavorable 4% effect of foreign currency translation and 2% organic sales decline, partially offset by a 4% increase from the 2015 acquisition of Global
Tubes.
EMGs operating income was $318.1 million for 2015, a decrease of $16.9 million or
5.0%, compared with $335.0 million in 2014. EMGs decrease in operating income was primarily due to the lower sales noted above and the 2015 realignment costs, partially offset by the benefits of the Groups Operational Excellence
initiatives. EMGs operating margins were 20.4% of net sales for 2015, compared with 20.9% of net sales in 2014. EMGs decrease in operating margins resulted primarily from the impact of the 2015 realignment costs noted above, partially
offset by the benefits of the Groups Operational Excellence initiatives.
Results of operations for the fourth quarter of 2015
compared with the fourth quarter of 2014
Net sales for the fourth quarter of 2015 were
$988.0 million, a decrease of $36.1 million or 3.5%, compared with net sales of $1,024.1 million for the fourth quarter of 2014. The decrease in net sales for the fourth quarter of 2015 was due to a 4% organic sales decline and an
unfavorable 3% effect of foreign currency translation, partially offset by a 3% increase from acquisitions.
Segment operating income for the fourth quarter of 2015 was $221.8 million, a decrease of $18.1 million or
7.5%, compared with segment operating income of $239.9 million for the fourth quarter of 2014. The decrease in segment operating income was primarily due to the lower sales noted above and included $20.0 million of fourth quarter of 2015
realignment costs, partially offset by the acquisitions noted above, as well as the benefits of the Groups Operational Excellence initiatives. Segment operating income for the fourth quarter of 2014 included $5.2 million in Zygo
integration costs, comprised of $1.3 million in severance charges and $4.0 million in other charges, related to the Zygo acquisition. Segment operating income, as a percentage of net sales, decreased to 22.5% for the fourth quarter
of 2015, compared with 23.4% for the fourth quarter of 2014. In the fourth quarter of 2015, the benefits of the Groups Operational Excellence initiatives, partially offset the approximate 200 basis point negative impact from the fourth
quarter of 2015 realignment costs noted above. Segment operating margins for the fourth quarter of 2014 were negatively impacted by approximately 50 basis points due to the fourth quarter of 2014 Zygo integration costs noted above.
A-14
Cost of sales for the fourth quarter of 2015 was $666.3 million or
67.4% of net sales, a decrease of $13.3 million or 2.0%, compared with $679.6 million or 66.4% of net sales for the fourth quarter of 2014. The cost of sales decrease was primarily due to the net sales decrease noted above, the impact of
foreign currency translation, as well as cost containment initiatives, which offset the fourth quarter of 2015 realignment costs described above. Cost of sales for the fourth quarter of 2014 included $5.2 million of Zygo integration costs
described above.
Net income for the fourth quarter of 2015 was $136.8 million, a decrease of
$15.2 million or 10.0%, compared with $152.0 million for the fourth quarter of 2014. The fourth quarter of 2015 realignment costs reduced the fourth quarter of 2015 net income by $13.9 million. The fourth quarter of 2014 Zygo
integration costs reduced the fourth quarter of 2014 net income by $3.2 million.
Diluted earnings per
share for the fourth quarter of 2015 were $0.57, a decrease of $0.05 or 8.1%, compared with $0.62 per diluted share for the fourth quarter of 2014. The fourth quarter of 2015 realignment costs had the effect of reducing the fourth quarter of 2015
diluted earnings per share by $0.06. The fourth quarter of 2014 Zygo integration costs had the effect of reducing the fourth quarter of 2014 diluted earnings per share by $0.01.
Segment Results
EIGs
net sales
totaled $628.4 million for the fourth quarter of 2015, a decrease of $16.0 million or 2.5%, compared with $644.4 million for the fourth quarter of 2014. The net sales decrease was due to an unfavorable 3% effect of foreign currency
translation and 2% organic sales decline, partially offset by a 2% increase from the 2015 acquisition of Surface Vision.
EIGs operating income was $161.7 million for the fourth quarter of 2015, a decrease of $1.2 million or 0.7%, compared with $162.9 million for the fourth quarter of 2014. EIGs
decrease in operating income was primarily due to the lower sales noted above and included $9.3 million of fourth quarter of 2015 realignment costs, partially offset by the benefits of the Groups Operational Excellence initiatives.
EIGs fourth quarter of 2014 operating income included $5.2 million of Zygo integration costs. EIGs operating margins were 25.7% of net sales for the fourth quarter of 2015, compared with 25.3% of net sales for the fourth quarter of
2014. EIGs increase in operating margins resulted primarily from the benefits of the Groups Operational Excellence initiatives, partially offset by the approximate 150 basis point negative impact from the fourth quarter of 2015
realignment costs noted above. EIGs fourth quarter of 2014 operating margins were negatively impacted by approximately 80 basis points due to the fourth quarter of 2014 Zygo integration costs noted above.
EMGs
net sales totaled $359.6 million for the fourth quarter of 2015, a decrease of $20.2 million
or 5.3%, compared with $379.8 million for the fourth quarter of 2014. The net sales decrease was due to an 8% organic sales decline and an unfavorable 3% effect of foreign currency translation, partially offset by a 5% increase from the 2015
acquisition of Global Tubes.
EMGs operating income was $60.2 million for the fourth quarter of
2015, a decrease of $16.8 million or 21.8%, compared with $77.0 million for the fourth quarter of 2014. EMGs decrease in operating income was primarily due to the lower sales noted above and included $10.8 million of fourth
quarter of 2015 realignment costs, partially offset by the benefits of the Groups Operational Excellence initiatives. EMGs operating margins were 16.7% of net sales for the fourth quarter of 2015, compared with 20.3% of net sales for the
fourth quarter of 2014. EMGs fourth quarter of 2015 operating margins were negatively impacted by approximately 300 basis points due to the fourth quarter of 2015 realignment costs noted above.
Liquidity and Capital Resources
Cash provided by operating activities totaled $756.8 million in 2016, an increase of $84.3 million or 12.5%, compared with $672.5 million in 2015. The increase in cash provided by operating
activities was primarily due to
A-15
the $48.4 million reduction in defined benefit pension plan contributions, driven by a $50.0 million contribution to the Companys U.S. defined benefit pension plans in the first
quarter of 2015, and lower overall operating working capital levels driven by the Companys continued focus on operating working capital management.
Free cash flow (cash flow provided by operating activities less capital expenditures) was $693.6 million in 2016, compared with $603.5 million in 2015. EBITDA (earnings before interest, income
taxes, depreciation and amortization) was $966.0 million in 2016, compared with $1,046.9 million in 2015. Free cash flow and EBITDA are presented because the Company is aware that they are measures used by third parties in evaluating the
Company. (See tables on page A-4 for a reconciliation of U.S. generally accepted accounting principles (GAAP) measures to comparable
non-GAAP
measures).
Cash used for investing activities totaled $452.4 million in 2016, compared with $425.6 million in 2015. In
2016, the Company paid $391.4 million, net of cash acquired, to acquire Laserage in October 2016, HS Foils and Nu Instruments in July 2016 and Brookfield and ESP/SurgeX in January 2016. In 2015, the Company paid
$356.5 million, net of cash acquired, to acquire Surface Vison in July 2015 and Global Tubes in May 2015. Additions to property, plant and equipment totaled $63.3 million in 2016, compared with $69.1 million in 2015.
Cash provided by financing activities totaled $57.1 million in 2016, compared with $217.0 million
of cash used for financing activities in 2015. At December 31, 2016, total debt, net was $2,341.6 million, compared with $1,938.0 million at December 31, 2015. In 2016, short-term borrowings decreased $315.7 million,
compared with an increase of $226.8 million in 2015. In 2016, long-term borrowings increased $772.2 million, compared with an increase of $18.0 million in 2015.
In October 2016, the Company completed a private placement agreement to sell 500 million Euros and
225 million British pounds in senior notes to a group of institutional investors (the 2016 Private Placement). There were two funding dates under the 2016 Private Placement. The first funding occurred in October 2016 for
500 million Euros ($546.8 million), consisting of 300 million Euros ($328.1 million) in aggregate principal amount of 1.34% senior notes due October 2026 and 200 million Euros ($218.7 million) in aggregate
principal amount of 1.53% senior notes due October 2028. The second funding occurred in November 2016 for 225 million British pounds ($274.1 million), consisting of 150 million British pounds ($182.7 million) in
aggregate principal amount of 2.59% senior notes due November 2028 and 75 million British pounds ($91.4 million) in aggregate principal amount of 2.70% senior notes due November 2031. The 2016 Private Placement senior notes carry
a weighted average interest rate of 1.82% and are subject to certain customary covenants, including financial covenants that, among other things, require the Company to maintain certain
debt-to-EBITDA
(earnings before interest, income taxes, depreciation and amortization) and interest coverage ratios. The proceeds from the first funding of the 2016
Private Placement were used to pay down domestic borrowings under the Companys revolving credit facility. The proceeds from the second funding of the 2016 Private Placement were used to pay down, at maturity, a 40 million British pound
($48.7 million) 5.99% senior note in November 2016 and provides the Company with additional financial flexibility to support its growth plans, including its acquisition strategy.
In March 2016, the Company along with certain of its foreign subsidiaries amended and restated its credit agreement
dated as of September 22, 2011 (the Credit Agreement). The Credit Agreement amends and restates the Companys existing $700 million revolving credit facility, which was due to expire in December 2018. The Credit
Agreement consists of a five-year revolving credit facility in an aggregate principal amount of $850 million with a final maturity date in March 2021. The revolving credit facility total borrowing capacity excludes an accordion feature
that permits the Company to request up to an additional $300 million in revolving credit commitments at any time during the life of the Credit Agreement under certain conditions. Interest rates on outstanding borrowings under the revolving
credit facility are at the applicable benchmark rate plus a negotiated spread or at the U.S. prime rate. The revolving credit facility provides the Company with additional financial flexibility to support its growth plans, including its
acquisition strategy. At December 31, 2016, the Company had available borrowing capacity of $1,117.3 million under its revolving credit facility, including the $300 million accordion feature.
A-16
In the fourth quarter of 2017, $270 million of 6.20% senior notes will
mature and become payable. The
debt-to-capital
ratio was 41.8% at December 31, 2016, compared with 37.3% at December 31, 2015. The net debt-to-capital ratio (total debt, net less cash and cash
equivalents divided by the sum of net debt and stockholders equity) was 33.3% at December 31, 2016, compared with 32.4% at December 31, 2015. The net debt-to-capital ratio is presented because the Company is aware that this measure
is used by third parties in evaluating the Company. (See table on page A-4 for a reconciliation of U.S. GAAP measures to comparable
non-GAAP
measures).
In 2016, the Company repurchased approximately 7,099,000 shares of its common stock for $336.1 million,
compared with $435.4 million used for repurchases of approximately 7,978,000 shares in 2015. On November 2, 2016, the Companys Board of Directors approved an increase of $400 million in the authorization for the repurchase
of the Companys common stock. At December 31, 2016, $375.6 million was available under the Companys Board of Directors authorization for future share repurchases.
Additional financing activities for 2016 include cash dividends paid of $83.3 million, compared with
$86.0 million in 2015. Proceeds from the exercise of employee stock options were $17.6 million in 2016, compared with $39.2 million in 2015.
As a result of all of the Companys cash flow activities in 2016, cash and cash equivalents at December 31, 2016 totaled $717.3 million, compared with $381.0 million at
December 31, 2015. At December 31, 2016, the Company had $481.6 million in cash outside the United States, compared with $357.2 million at December 31, 2015. The Company utilizes this cash to fund its international
operations, as well as to acquire international businesses. In July 2016, the Company acquired HS Foils and Nu Instruments for approximately $65 million utilizing cash outside the United States. The Company is in compliance with
all covenants, including financial covenants, for all of its debt agreements. The Company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources, available credit facilities and access to long-term
capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future.
Subsequent Events
In January 2017, the Company contributed $50.1 million to its defined benefit pension plans,
with $40.0 million contributed to U.S. defined benefit pension plans and $10.1 million contributed to foreign defined benefit pension plans.
In February 2017, the Company acquired
Rauland-Borg
for approximately $340 million in cash using available cash as well as borrowings under its revolving
credit facility, with a potential $30 million contingent payment due upon the achievement of certain milestones.
A-17
The following table summarizes AMETEKs contractual cash obligations
and the effect such obligations are expected to have on the Companys liquidity and cash flows in future years at December 31, 2016.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due
|
|
Contractual
Obligations
(1)
|
|
Total
|
|
|
Less Than
One Year
|
|
|
One to
Three
Years
|
|
|
Four to
Five
Years
|
|
|
After Five
Years
|
|
|
|
(In millions)
|
|
Long-term debt borrowings
(2)
|
|
$
|
2,333.2
|
|
|
$
|
270.0
|
|
|
$
|
405.0
|
|
|
$
|
152.9
|
|
|
$
|
1,505.3
|
|
Capital lease
(3)
|
|
|
4.7
|
|
|
|
0.9
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
Other indebtedness
|
|
|
9.9
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
(4)
|
|
|
2,347.8
|
|
|
|
280.8
|
|
|
|
408.8
|
|
|
|
152.9
|
|
|
|
1,505.3
|
|
Interest on long-term fixed-rate debt
|
|
|
503.8
|
|
|
|
90.0
|
|
|
|
118.9
|
|
|
|
85.1
|
|
|
|
209.8
|
|
Noncancellable operating leases
(5)
|
|
|
143.5
|
|
|
|
33.0
|
|
|
|
44.6
|
|
|
|
26.7
|
|
|
|
39.2
|
|
Purchase obligations
(6
)
|
|
|
289.1
|
|
|
|
273.7
|
|
|
|
14.8
|
|
|
|
0.4
|
|
|
|
0.2
|
|
Restructuring and other
|
|
|
29.9
|
|
|
|
26.0
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
|
|
$
|
3,314.1
|
|
|
$
|
703.5
|
|
|
$
|
591.0
|
|
|
$
|
265.1
|
|
|
$
|
1,754.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
The liability for uncertain tax positions was not included in the table of contractual obligations as of December 31, 2016 because the timing
of the settlements of these uncertain tax positions cannot be reasonably estimated at this time. See Note 8 to the consolidated financial statements included in this Appendix for further details.
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(2)
|
See Note 9 to the consolidated financial statements included in this Appendix for further details.
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(3)
|
Represents a capital lease for a building and land associated with the Cameca SAS acquisition. The lease has a term of 12 years, which
began in July 2006, and is payable quarterly.
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(4)
|
Excludes debt issuance costs of $6.3 million, of which $1.9 million is classified as current and $4.4 million is classified as long-term.
See Note 9 to the consolidated financial statements included in this Appendix for further details.
|
(5)
|
The leases expire over a range of years from 2017 to 2082 with renewal or purchase options, subject to various terms and conditions, contained in
most of the leases.
|
(6)
|
Purchase obligations primarily consist of contractual commitments to purchase certain inventories at fixed prices.
|
Other Commitments
The Company has standby letters of credit and surety bonds of $37.4 million related to performance and payment guarantees at December 31, 2016. Based on experience with these arrangements, the
Company believes that any obligations that may arise will not be material to its financial position.
Critical Accounting Policies
The Company has identified its critical accounting policies as those accounting policies that can have a
significant impact on the presentation of the Companys financial condition and results of operations and that require the use of complex and subjective estimates based on the Companys historical experience and managements judgment.
Because of the uncertainty inherent in such estimates, actual results may differ materially from the estimates used. The consolidated financial statements and related notes contain information that is pertinent to the Companys accounting
policies and to Managements Discussion and Analysis. The information that follows represents additional specific disclosures about the Companys accounting policies regarding risks, estimates, subjective decisions or assessments whereby
materially different financial condition
A-18
and results of operations could have been reported had different assumptions been used or different conditions existed. Primary disclosure of the Companys significant accounting policies is
in Note 1 to the consolidated financial statements in this Appendix.
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Revenue Recognition
. The Company recognizes revenue on product sales in the period when the sales process is complete.
This generally occurs when products are shipped to the customer in accordance with terms of an agreement of sale, under which title and risk of loss have been transferred, collectability is reasonably assured and pricing is fixed or determinable.
For a small percentage of sales where title and risk of loss passes at point of delivery, the Company recognizes revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met. The Companys policy with
respect to sales returns and allowances generally provides that the customer may not return products or be given allowances, except at the Companys option. The Company has agreements with distributors that do not provide expanded rights of
return for unsold products. The distributor purchases the product from the Company, at which time title and risk of loss transfers to the distributor. The Company does not offer substantial sales incentives and credits to its distributors other than
volume discounts. The Company accounts for these sales incentives as a reduction of revenues when the sale is recognized in the consolidated statement of income. Accruals for sales returns, other allowances and estimated warranty costs are provided
at the time revenue is recognized based on the Companys historical experience. At December 31, 2016 and 2015, the accrual for future warranty obligations was $22.0 million and $22.8 million, respectively. The Companys
expense for warranty obligations was $16.0 million, $14.8 million and $16.5 million in 2016, 2015 and 2014, respectively. The warranty periods for products sold vary among the Companys operations, but generally do not exceed one
year. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses. If actual future sales returns and allowances and warranty amounts are
higher than the Companys historical experience, additional accruals may be required.
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Accounts Receivable
. The Company maintains allowances for estimated losses resulting from the inability of specific
customers to meet their financial obligations to the Company. A specific allowance for doubtful accounts is recorded against the amount due from these customers. For all other customers, the Company recognizes allowance for doubtful accounts based
on the length of time specific receivables are past due based on its historical experience. If the financial condition of the Companys customers were to deteriorate, resulting in their inability to make payments, additional allowances may be
required. The allowance for doubtful accounts was $10.3 million and $8.6 million at December 31, 2016 and 2015, respectively.
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Inventories
. The Company uses the first-in, first-out (FIFO) method of accounting, which approximates
current replacement cost, for approximately 82% of its inventories at December 31, 2016. The last-in,
first-out
(LIFO) method of accounting is used to determine cost for the remaining 18% of
the Companys inventory at December 31, 2016. For inventories where cost is determined by the LIFO method, the FIFO value would have been $18.4 million and $19.4 million higher than the LIFO value reported in the consolidated
balance sheet at December 31, 2016 and 2015, respectively. The Company provides estimated inventory reserves for slow-moving and obsolete inventory based on current assessments about future demand, market conditions, customers who may be
experiencing financial difficulties and related management initiatives. If these factors are less favorable than those projected by management, additional inventory reserves may be required.
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Business Combinations
. The Company allocates the purchase price of an acquired company, including when applicable, the
fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. Third party
appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities
|
A-19
|
assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows and the economic lives of trade names,
technology, customer relationships, property, plant and equipment, as well as income taxes. These estimates are based on historical experience and information obtained from the management of the acquired companies, and are inherently uncertain.
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Goodwill and Other Intangible Assets
. Goodwill and other intangible assets with indefinite lives, primarily trademarks
and trade names, are not amortized; rather, they are tested for impairment at least annually. For the purpose of the goodwill impairment test, the Company can elect to perform a qualitative analysis to determine if it is more likely than not that
the fair values of its reporting units are less than the respective carrying values of those reporting units. The Company elected to bypass performing the qualitative screen and performed the first step quantitative analysis of the goodwill
impairment test in the current year. The Company may elect to perform the qualitative analysis in future periods. The first step in the quantitative process is to compare the carrying amount of the reporting units net assets to the fair value
of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. If the carrying amount exceeds the fair value, then the second step must be completed, which involves
allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss occurs and would be required to be recorded if the amount of the recorded goodwill exceeds the implied goodwill.
|
The Company identifies its reporting units at the component level, which is one level below
its operating segments. Generally, goodwill arises from acquisitions of specific operating companies and is assigned to the reporting unit in which a particular operating company resides. The Companys reporting units are composed of divisions
that are one level below its operating segments and for which discrete financial information is prepared and regularly reviewed by segment management.
The Company principally relies on a discounted cash flow analysis to determine the fair value of each reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The
Company believes that market participants would use a discounted cash flow analysis to determine the fair value of its reporting units in a sale transaction. The annual goodwill impairment test requires the Company to make a number of assumptions
and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization and working capital requirements, which are based on the Companys
long-range
plan and are
considered level 3 inputs. The Companys long-range plan is updated as part of its annual planning process and is reviewed and approved by management. The discount rate is an estimate of the overall after-tax rate of return required by a market
participant whose weighted average cost of capital includes both equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or
market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances. While there are always changes in assumptions to reflect changing business and market conditions, the Companys overall
methodology and the population of assumptions used have remained unchanged. In order to evaluate the sensitivity of the goodwill impairment test to changes in the fair value calculations, the Company applied a hypothetical 10% decrease in fair
values of each reporting unit. The 2016 results (expressed as a percentage of carrying value for the respective reporting unit) showed that, despite the hypothetical 10% decrease in fair value, the fair values of the Companys reporting units
still exceeded their respective carrying values by 32% to 707% for each of the Companys reporting units.
The impairment test for indefinite-lived intangibles other than goodwill (primarily trademarks and trade names) consists
of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The Company can elect to perform a qualitative analysis to determine if it is more likely than not that
the fair values of its indefinite-lived intangible assets are less than the respective carrying values of those assets. The Company elected to bypass performing the
A-20
qualitative screen. The Company may elect to perform the qualitative analysis in future periods. The Company estimates the fair value of its indefinite-lived intangibles using the relief from
royalty method using level 3 inputs. The Company believes the relief from royalty method is a widely used valuation technique for such assets. The fair value derived from the relief from royalty method is measured as the discounted cash flow savings
realized from owning such trademarks and trade names and not having to pay a royalty for their use.
The
Companys acquisitions have generally included a significant goodwill component and the Company expects to continue to make acquisitions. At December 31, 2016, goodwill and other indefinite-lived intangible assets totaled
$3,341.6 million or 47.1% of the Companys total assets. The Company completed its required annual impairment tests in the fourth quarter of 2016 and determined that the carrying values of the Companys goodwill were not impaired. The
Company completed its required annual impairment tests in the fourth quarter of 2016 and determined that the carrying values of certain of the Companys trademarks and trade names with indefinite lives were impaired. During 2016, the Company
recorded a $13.9 million non-cash impairment charge related to certain of the Companys trade names. There can be no assurance that goodwill or indefinite-lived intangibles impairment will not occur in the future.
Other intangible assets with finite lives are evaluated for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable. The carrying value of other intangible assets with finite lives is considered impaired when the total projected undiscounted cash flows from those assets are separately identifiable and are less than the
carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of those assets. Fair value is determined primarily using present value techniques based on projected cash flows from the
asset group.
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|
|
Pensions
.
The Company has U.S. and foreign defined benefit and defined contribution pension plans. The
most significant elements in determining the Companys pension income or expense are the assumed pension liability discount rate and the expected return on plan assets. The pension discount rate reflects the current interest rate at which the
pension liabilities could be settled at the valuation date. At the end of each year, the Company determines the assumed discount rate to be used to discount plan liabilities. In estimating this rate for 2016, the Company considered rates of return
on high-quality, fixed-income investments that have maturities consistent with the anticipated funding requirements of the plan. The discount rate used in determining the 2016 pension cost was 4.80% for U.S. defined benefit pension plans and
3.62% for foreign plans. The discount rate used for determining the funded status of the plans at December 31, 2016 and determining the 2017 defined benefit pension cost was 4.25% for U.S. plans and 2.56% for foreign plans. In estimating
the U.S. and foreign discount rates, the Companys actuaries developed a customized discount rate appropriate to the plans projected benefit cash flow based on yields derived from a database of long-term bonds at consistent maturity
dates. The Company used an expected long-term rate of return on plan assets for 2016 of 7.75% for U.S. defined benefit pension plans and 6.95% for foreign plans. In 2017, the Company will use 7.50% for the U.S. plans and 6.79% for the foreign
plans. The Company determines the expected long-term rate of return based primarily on its expectation of future returns for the pension plans investments. Additionally, the Company considers historical returns on comparable fixed-income and
equity investments, and adjusts its estimate as deemed appropriate. The rate of compensation increase used in determining the 2016 pension income for the U.S. plans was 3.75% and was 2.88% for the foreign plans. The U.S. plans rate of
compensation increase will remain unchanged in 2017. The foreign plans rate of compensation increase will be 2.5% in 2017. In 2016, the Company recognized consolidated pre-tax pension income of $4.3 million from its U.S. and foreign
defined benefit pension plans, compared with pre-tax pension income of $9.8 million recognized for these plans in 2015. The Company estimates its 2017 U.S. and foreign defined benefit pension pre-tax income to be approximately
$4.3 million.
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A-21
All unrecognized prior service costs, remaining transition obligations or
assets and actuarial gains and losses have been recognized, net of tax effects, as a charge to accumulated other comprehensive income in stockholders equity and will be amortized as a component of net periodic pension cost. The Company uses a
measurement date of December 31 (its fiscal year end) for its U.S. and foreign defined benefit plans.
To fund the plans, the Company made cash contributions to its defined benefit pension plans in 2016, which totaled
$6.8 million, compared with $55.2 million in 2015. The Company anticipates making approximately $52 million to $56 million in cash contributions to its defined benefit pension plans in 2017. The estimated cash contributions range
includes $50.1 million in cash contributions to its defined benefit pension plans in January 2017, with $40.0 million contributed to U.S. defined benefit pension plans and $10.1 million contributed to foreign defined benefit
pension plans.
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Income
Taxes.
The process of providing for income taxes and determining the related balance sheet accounts
requires management to assess uncertainties, make judgments regarding outcomes and utilize estimates. The Company conducts a broad range of operations around the world and is therefore subject to complex tax regulations in numerous international
taxing jurisdictions, resulting at times in tax audits, disputes and potential litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine estimates of the Companys tax assets
and liabilities. To the extent the final outcome differs, future adjustments to the Companys tax assets and liabilities may be necessary.
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The Company assesses the realizability of its deferred tax assets, taking into consideration the Companys forecast
of future taxable income, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and the amount
of, valuation allowances against the Companys deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.
The Company assesses the uncertainty in its tax positions, by applying a minimum recognition threshold which a tax
position is required to meet before a tax benefit is recognized in the financial statements. Once the minimum threshold is met, using a more likely than not standard, a series of probability estimates is made for each item to properly measure and
record a tax benefit. The tax benefit recorded is generally equal to the highest probable outcome that is more than 50% likely to be realized after full disclosure and resolution of a tax examination. The underlying probabilities are determined
based on the best available objective evidence such as recent tax audit outcomes, published guidance, external expert opinion, or by analogy to the outcome of similar issues in the past. There can be no assurance that these estimates will ultimately
be realized given continuous changes in tax policy, legislation and audit practice. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09,
Revenue from
Contracts with Customers
(ASU 2014-09)
and modified the standard thereafter. The objective of
ASU 2014-09
is to establish a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance. The core principle of
ASU 2014-09
is that an entity recognizes revenue at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
ASU 2014-09
applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.
A-22
ASU 2014-09 is effective for interim and annual reporting periods beginning
after December 15, 2017 and may be early adopted for interim and annual reporting periods beginning after December 15, 2016. The Company will adopt
ASU 2014-09
as of January 1, 2018. The
guidance permits adoption by retrospectively applying the guidance to each prior reporting period presented (full retrospective method) or prospectively applying the guidance and providing additional disclosures comparing results to previous
guidance, with the cumulative effect of initially applying the guidance recognized in beginning retained earnings at the date of initial application (modified retrospective method). The Company is in the process of determining its method of
adoption.
The Company has completed its initial assessment phase and is proceeding with its implementation
plan. The initial assessment consisted of reviewing a representative sample of contracts, discussions with key stakeholders and cataloging potential impacts on the Companys operations, accounting policies, financial control and financial
statements. The Companys initial assessment indicates the key changes in the standard that impact the Companys revenue recognition relate to the allocation of contract revenues between various products and services, the timing of when
those revenues are recognized and the deferral of incremental costs to obtain a contract. Given the diversity of its commercial arrangements, the Company is continuing to determine the impact
ASU 2014-09
may have on its consolidated results of operations, financial position, cash flows and financial statement disclosures.
In February 2015, the FASB issued
ASU No. 2015-02,
Amendments to the Consolidation Analysis
(ASU 2015-02).
ASU 2015-02
is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships,
limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).
ASU 2015-02
makes specific
amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the variable interest entities guidance. The Company adopted
ASU 2015-02
effective
January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
In April 2015, the FASB issued
ASU No. 2015-03,
Simplifying the
Presentation of Debt Issuance Costs
(ASU 2015-03).
ASU 2015-03
requires debt issuance costs to be presented in the balance sheet as a direct
deduction from the associated debt liability. The Company retrospectively adopted
ASU 2015-03
effective January 1, 2016 and the adoption did not have a significant impact on the Companys
consolidated results of operations, financial position or cash flows.
In April 2015, the FASB issued
ASU No. 2015-05
, Customers Accounting for Fees Paid in a Cloud Computing Arrangement
(ASU 2015-05).
ASU 2015-05
is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The guidance clarifies that customers should determine whether a cloud
computing arrangement includes the license of software by applying the same guidance cloud service providers use to make this determination. The Company prospectively adopted
ASU 2015-05
effective
January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
In July 2015, the FASB issued
ASU No. 2015-11,
Simplifying the
Measurement of Inventory
(ASU 2015-11),
which applies to inventory that is measured using first-in, first-out (FIFO) or average cost. As prescribed in this update, an entity
should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
Subsequent measurement is unchanged for inventory that is measured using last-in, first-out (LIFO).
ASU 2015-11
is effective for interim and annual periods beginning after December 15,
2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company does not expect the adoption of
ASU 2015-11
to have a
significant impact on the Companys consolidated results of operations, financial position or cash flows.
A-23
In November 2015, the FASB issued
ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
(ASU 2015-17).
ASU 2015-17
simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the consolidated balance sheet.
ASU 2015-17
is effective for interim and
annual reporting periods beginning after December 15, 2016.
ASU 2015-17
may be adopted prospectively or retrospectively and early adoption is permitted. The Company does not expect the adoption of
ASU 2015-17
to have a significant impact on the Companys consolidated results of operations, financial position or cash flows. The Company expects to prospectively adopt
ASU 2015-17.
In February 2016, the FASB issued
ASU No. 2016-02,
Leases
(ASU 2016-02).
The new standard establishes a right-of-use model that requires a lessee to record a right-of-use
asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
ASU 2016-02
is effective for interim and annual reporting periods beginning after December 15, 2018.
ASU 2016-02
is to be adopted using a modified
retrospective approach and early adoption is permitted. The Company has not determined the impact
ASU 2016-02
may have on the Companys consolidated results of operations, financial position, cash
flows and financial statement disclosures.
In March 2016, the FASB issued
ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09).
ASU 2016-09
includes changes to the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on
the statement of cash flows.
ASU 2016-09
is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company is unable to estimate the
impact of adoption as it is dependent upon future stock option exercises, which cannot be predicted. However, the Company does not expect the adoption of
ASU 2016-09
to have a significant impact on the
Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
In January 2017, the FASB issued ASU
No. 2017-01,
Clarifying the Definition of a Business
(ASU 2017-01).
ASU 2017-01
provides a more robust framework to use in determining when a set of assets and activities is a business.
ASU 2017-01
requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so,
the set of assets is not a business.
ASU 2017-01
requires that, to be a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the
ability to create outputs.
ASU 2017-01
is effective for interim and annual reporting periods beginning after December 15, 2017.
ASU 2017-01
will be
applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which the financial statements have not been issued or made available for issuance. The
Company has not determined the impact
ASU 2017-01
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
In January 2017, the FASB issued
ASU No. 2017-04,
Simplifying the
Test for Goodwill Impairment
(ASU 2017-04).
ASU 2017-04
eliminates the requirement to calculate the implied fair value of goodwill (second
step) to measure a goodwill impairment charge. Under the guidance, an impairment charge will be measured based on the excess of the reporting units carrying amount over its fair value (first step).
ASU 2017-04
is effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company has not determined the impact
ASU 2017-04
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
A-24
Internal Reinvestment
Capital Expenditures
Capital expenditures were
$63.3 million or 1.6% of net sales in 2016, compared with $69.1 million or 1.7% of net sales in 2015. In 2016, 55% of capital expenditures were for improvements to existing equipment or additional equipment to increase productivity and
expand capacity. Capital expenditures in 2017 are expected to approximate 2.0% of net sales, with a continued emphasis on spending to improve productivity.
Development and Engineering
The Company is committed to,
and has consistently invested in, research, development and engineering activities to design and develop new and improved products. Research, development and engineering costs before customer reimbursement were $200.8 million in both 2016 and
2015 and $208.3 million in 2014. Customer reimbursements in 2016, 2015 and 2014 were $7.2 million, $6.9 million and $8.9 million, respectively. These amounts included research and development expenses of $112.0 million,
$116.3 million and $119.3 million in 2016, 2015 and 2014, respectively. All such expenditures were directed toward the development of new products and processes and the improvement of existing products and processes.
Environmental Matters
Certain historic processes in the manufacture of products have resulted in environmentally hazardous waste by-products as defined by federal and state laws and regulations. The Company believes these
waste products were handled in compliance with regulations existing at that time. At December 31, 2016, the Company is named a Potentially Responsible Party (PRP) at 13 non-AMETEK-owned former waste disposal or treatment sites (the
non-owned sites). The Company is identified as a de minimis party in 12 of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In eight of these
sites, the Company has reached a tentative agreement on the cost of the de minimis settlement to satisfy its obligation and is awaiting executed agreements. The tentatively agreed-to settlement amounts are fully reserved. In the other four
sites, the Company is continuing to investigate the accuracy of the alleged volume attributed to the Company as estimated by the parties primarily responsible for remedial activity at the sites to establish an appropriate settlement amount. At the
remaining site where the Company is a non-de minimis PRP, the Company is participating in the investigation and/or related required remediation as part of a PRP Group and reserves have been established sufficient to satisfy the Companys
expected obligations. The Company historically has resolved these issues within established reserve levels and reasonably expects this result will continue. In addition to these non-owned sites, the Company has an ongoing practice of providing
reserves for probable remediation activities at certain of its current or previously owned manufacturing locations (the owned sites). For claims and proceedings against the Company with respect to other environmental matters, reserves
are established once the Company has determined that a loss is probable and estimable. This estimate is refined as the Company moves through the various stages of investigation, risk assessment, feasibility study and corrective action processes. In
certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the best estimate. It is reasonably possible that the actual cost of remediation of the individual sites could vary from the
current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to result in a material change to the consolidated financial statements. In estimating the Companys
liability for remediation, the Company also considers the likely proportionate share of the anticipated remediation expense and the ability of the other PRPs to fulfill their obligations.
Total environmental reserves at December 31, 2016 and 2015 were $28.4 million and $30.5 million,
respectively, for both non-owned and owned sites. In 2016, the Company recorded $4.1 million in reserves. Additionally, the Company spent $5.4 million on environmental matters and the reserve decreased $0.8 million due to foreign
currency translation in 2016. The Companys reserves for environmental liabilities at
A-25
December 31, 2016 and 2015 include reserves of $12.4 million and $11.5 million, respectively, for an owned site acquired in connection with the 2005 acquisition of HCC Industries
(HCC). The Company is the designated performing party for the performance of remedial activities for one of several operating units making up a Superfund site in the San Gabriel Valley of California. The Company has obtained
indemnifications and other financial assurances from the former owners of HCC related to the costs of the required remedial activities. At December 31, 2016, the Company had $11.9 million in receivables related to HCC for probable
recoveries from third-party escrow funds and other committed third-party funds to support the required remediation. Also, the Company is indemnified by HCCs former owners for approximately $19 million of additional costs.
The Company has agreements with other former owners of certain of its acquired businesses, as well as new owners of
previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other liabilities under certain circumstances. The Company and some of
these other parties also carry insurance coverage for some environmental matters. To date, these parties have met their obligations in all material respects.
The Company believes it has established reserves which are sufficient to perform all known responsibilities under existing claims and consent orders. The Company has no reason to believe that other third
parties would fail to perform their obligations in the future. In the opinion of management, based on presently available information and the Companys historical experience related to such matters, an adequate provision for probable costs has
been made and the ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position or cash flows of the Company.
Market Risk
The Companys primary exposures to
market risk are fluctuations in interest rates, foreign currency exchange rates and commodity prices, which could impact its financial condition and results of operations. The Company addresses its exposure to these risks through its normal
operating and financing activities. The Companys differentiated and global business activities help to reduce the impact that any particular market risk may have on its operating income as a whole.
The Companys short-term debt carries variable interest rates and generally its long-term debt carries fixed rates.
These financial instruments are more fully described in the Notes to the consolidated financial statements.
The foreign currencies to which the Company has the most significant exchange rate exposure are the Euro, the British
pound, the Japanese yen, the Chinese renminbi, the Canadian dollar, the Mexican peso and the Swiss franc. Exposure to foreign currency rate fluctuation is modest, monitored, and when possible, mitigated through the use of local borrowings and
occasional derivative financial instruments in the foreign currency affected. The effect of translating foreign subsidiaries balance sheets into U.S. dollars is included in other comprehensive income within stockholders equity.
Foreign currency transactions have not had a significant effect on the operating results reported by the Company because revenues and costs associated with the revenues are generally transacted in the same foreign currencies.
The primary commodities to which the Company has market exposure are raw material purchases of nickel, aluminum, copper,
steel, titanium and gold. Exposure to price changes in these commodities are generally mitigated through adjustments in selling prices of the ultimate product and purchase order pricing arrangements, although forward contracts are sometimes used to
manage some of those exposures.
Based on a hypothetical ten percent adverse movement in interest rates,
commodity prices or foreign currency exchange rates, the Companys best estimate is that the potential losses in future earnings, fair value of risk-sensitive financial instruments and cash flows are not material, although the actual effects
may differ materially from the hypothetical analysis.
A-26
Forward-Looking Information
Certain matters discussed in this Appendix are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 (PSLRA), which involve risk and uncertainties that exist in the Companys operations and business environment and can be affected by inaccurate assumptions, or by known or unknown risks and
uncertainties. Many such factors will be important in determining the Companys actual future results. The Company wishes to take advantage of the safe harbor provisions of the PSLRA by cautioning readers that numerous important
factors, in some cases have caused, and in the future could cause, the Companys actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Some, but not all, of the factors
or uncertainties that could cause actual results to differ from present expectations are contained in the Companys Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly update any forward-looking statements, whether as a result of new information, subsequent events or otherwise, unless required by the securities laws to do so.
A-27
Managements Responsibility for Financial Statements
Management has prepared and is responsible for the integrity of the consolidated financial statements and related
information. The statements are prepared in conformity with U.S. generally accepted accounting principles consistently applied and include certain amounts based on managements best estimates and judgments. Historical financial information
elsewhere in this report is consistent with that in the financial statements.
In meeting its responsibility
for the reliability of the financial information, management maintains a system of internal accounting and disclosure controls, including an internal audit program. The system of controls provides for appropriate division of responsibility and the
application of written policies and procedures. That system, which undergoes continual reevaluation, is designed to provide reasonable assurance that assets are safeguarded and records are adequate for the preparation of reliable financial data.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. AMETEK, Inc. maintains a system of internal controls that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the consolidated financial statements; however, there are inherent
limitations in the effectiveness of any system of internal controls.
Management recognizes its responsibility
for conducting the Companys activities according to the highest standards of personal and corporate conduct. That responsibility is characterized and reflected in a code of business conduct for all employees and in a financial code of ethics
for the Chief Executive Officer and Senior Financial Officers, as well as in other key policy statements publicized throughout the Company.
The Audit Committee of the Board of Directors, which is composed solely of independent directors who are not employees of the Company, meets with the independent registered public accounting firm, the
internal auditors and management to satisfy itself that each is properly discharging its responsibilities. The report of the Audit Committee is included in the Companys Proxy Statement for the 2017 Annual Meeting of Stockholders. Both the
independent registered public accounting firm and the internal auditors have direct access to the Audit Committee.
The Companys independent registered public accounting firm, Ernst & Young LLP, is engaged to render an opinion as to whether managements financial statements present fairly, in all
material respects, the Companys financial position and operating results. This report is included herein.
Managements Report
on Internal Control over Financial Reporting
Management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, AMETEK, Inc. conducted an evaluation of the effectiveness of the Companys internal control over financial reporting as of
December 31, 2016 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, our management concluded
that the Companys internal control over financial reporting was effective as of December 31, 2016.
The Company acquired Brookfield Engineering Laboratories (Brookfield) and ESP/SurgeX in January 2016,
HS Foils and Nu Instruments in July 2016 and Laserage Technology Corporation (Laserage) in October 2016. As permitted by the U.S. Securities and Exchange Commission staff interpretative guidance for newly
acquired businesses, the Company excluded Brookfield, ESP/SurgeX, HS Foils, Nu Instruments and Laserage from managements assessment of the effectiveness of the Companys internal control over financial reporting as of
December 31, 2016. In the aggregate, Brookfield, ESP/SurgeX, HS Foils, Nu Instruments and Laserage constituted 5.9% of total assets as of December 31, 2016 and 2.9% of net sales for the year then ended.
The Companys internal control over financial reporting as of December 31, 2016 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
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Chief Executive Officer
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Executive Vice President Chief Financial Officer & Treasurer
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February 23, 2017
A-28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders of AMETEK, Inc.:
We have audited AMETEK, Inc.s internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). AMETEK, Inc.s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting
. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As indicated in the accompanying
Managements Report on Internal Control Over Financial Reporting
, managements assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Brookfield,
ESP/SurgeX, HS Foils, Nu Instruments and Laserage
,
which are included in the 2016 consolidated financial statements of AMETEK, Inc. and constituted 5.9% of total assets as of December 31, 2016 and 2.9% of net sales for the
year then ended. Our audit of internal control over financial reporting of AMETEK, Inc. also did not include an evaluation of the internal control over financial reporting of Brookfield, ESP/SurgeX, HS Foils, Nu Instruments and
Laserage.
In our opinion, AMETEK, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AMETEK, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of income,
comprehensive income, stockholders equity and cash flows for each of the three years in the period ended December 31, 2016, and our report dated February 23, 2017 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 23, 2017
A-29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of AMETEK, Inc.:
We
have audited the accompanying consolidated balance sheets of AMETEK, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders equity and cash flows for each of the
three years in the period ended December 31, 2016. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial position of AMETEK, Inc. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AMETEK, Inc.s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2017 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania
February 23, 2017
A-30
AMETEK, Inc.
Consolidated Statement of Income
(In thousands, except per share amounts)
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Year Ended December 31,
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2016
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2015
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2014
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Net sales
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$
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3,840,087
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$
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3,974,295
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$
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4,021,964
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Operating expenses:
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Cost of sales
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2,575,220
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2,617,987
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2,660,741
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Selling, general and administrative
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462,970
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448,592
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462,637
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Total operating expenses
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3,038,190
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3,066,579
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3,123,378
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|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
801,897
|
|
|
|
907,716
|
|
|
|
898,586
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(94,304
|
)
|
|
|
(91,795
|
)
|
|
|
(79,928
|
)
|
Other, net
|
|
|
(14,490
|
)
|
|
|
(9,541
|
)
|
|
|
(13,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
693,103
|
|
|
|
806,380
|
|
|
|
804,832
|
|
Provision for income taxes
|
|
|
180,945
|
|
|
|
215,521
|
|
|
|
220,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
512,158
|
|
|
$
|
590,859
|
|
|
$
|
584,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.20
|
|
|
$
|
2.46
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.19
|
|
|
$
|
2.45
|
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
232,593
|
|
|
|
239,906
|
|
|
|
244,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
233,730
|
|
|
|
241,586
|
|
|
|
247,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-31
AMETEK, Inc.
Consolidated Statement of Comprehensive Income
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
512,158
|
|
|
$
|
590,859
|
|
|
$
|
584,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts arising during the period gains (losses), net of tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
(68,774
|
)
|
|
|
(67,245
|
)
|
|
|
(59,712
|
)
|
Change in long-term intercompany notes
|
|
|
(7,597
|
)
|
|
|
(51,235
|
)
|
|
|
(54,906
|
)
|
Net investment hedges, net of tax of $6,558, $3,432 and $4,961 in 2016, 2015 and 2014, respectively
|
|
|
(12,179
|
)
|
|
|
(6,374
|
)
|
|
|
(9,213
|
)
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss, net of tax of $17,450, $12,870 and $42,755 in 2016, 2015 and 2014, respectively
|
|
|
(55,259
|
)
|
|
|
(21,002
|
)
|
|
|
(83,040
|
)
|
Amortization of net actuarial loss, net of tax of ($2,090), ($3,247) and ($1,650) in 2016, 2015 and 2014,
respectively
|
|
|
6,618
|
|
|
|
6,137
|
|
|
|
2,834
|
|
Amortization of prior service costs, net of tax of $25, ($564) and ($753) in 2016, 2015 and 2014, respectively
|
|
|
(79
|
)
|
|
|
1,809
|
|
|
|
2,292
|
|
Unrealized holding gain (loss) on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss), net of tax of ($275), $445 and ($48) in 2016, 2015 and 2014, respectively
|
|
|
512
|
|
|
|
(827
|
)
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(136,758
|
)
|
|
|
(138,737
|
)
|
|
|
(201,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
375,400
|
|
|
$
|
452,122
|
|
|
$
|
382,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-32
AMETEK, Inc.
Consolidated Balance Sheet
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
717,259
|
|
|
$
|
381,005
|
|
Receivables, net
|
|
|
592,326
|
|
|
|
603,295
|
|
Inventories, net
|
|
|
492,104
|
|
|
|
514,451
|
|
Deferred income taxes
|
|
|
50,004
|
|
|
|
46,724
|
|
Other current assets
|
|
|
76,497
|
|
|
|
73,352
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,928,190
|
|
|
|
1,618,827
|
|
Property, plant and equipment, net
|
|
|
473,230
|
|
|
|
484,548
|
|
Goodwill
|
|
|
2,818,950
|
|
|
|
2,706,633
|
|
Other intangibles, net
|
|
|
1,734,021
|
|
|
|
1,672,961
|
|
Investments and other assets
|
|
|
146,283
|
|
|
|
177,481
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,100,674
|
|
|
$
|
6,660,450
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt, net
|
|
$
|
278,921
|
|
|
$
|
384,924
|
|
Accounts payable
|
|
|
369,537
|
|
|
|
365,355
|
|
Income taxes payable
|
|
|
29,913
|
|
|
|
32,738
|
|
Accrued liabilities
|
|
|
246,070
|
|
|
|
241,004
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
924,441
|
|
|
|
1,024,021
|
|
Long-term debt, net
|
|
|
2,062,644
|
|
|
|
1,553,116
|
|
Deferred income taxes
|
|
|
621,776
|
|
|
|
624,046
|
|
Other long-term liabilities
|
|
|
235,300
|
|
|
|
204,641
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,844,161
|
|
|
|
3,405,824
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; authorized 5,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized 800,000,000 shares;
issued: 2016 261,432,134 shares; 2015 260,718,769
shares
|
|
|
2,615
|
|
|
|
2,608
|
|
Capital in excess of par value
|
|
|
604,143
|
|
|
|
568,286
|
|
Retained earnings
|
|
|
4,403,683
|
|
|
|
3,974,793
|
|
Accumulated other comprehensive loss
|
|
|
(542,389
|
)
|
|
|
(405,631
|
)
|
Treasury stock: 2016 32,053,227 shares; 2015 25,203,699 shares
|
|
|
(1,211,539
|
)
|
|
|
(885,430
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,256,513
|
|
|
|
3,254,626
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,100,674
|
|
|
$
|
6,660,450
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-33
AMETEK, Inc.
Consolidated Statement of Stockholders Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Capital Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
2,608
|
|
|
|
2,589
|
|
|
|
2,581
|
|
Shares issued
|
|
|
7
|
|
|
|
19
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
2,615
|
|
|
|
2,608
|
|
|
|
2,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in Excess of Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
568,286
|
|
|
|
491,750
|
|
|
|
448,700
|
|
Issuance of common stock under employee stock plans
|
|
|
8,484
|
|
|
|
32,296
|
|
|
|
15,290
|
|
Share-based compensation costs
|
|
|
22,030
|
|
|
|
23,762
|
|
|
|
19,871
|
|
Excess tax benefits from exercise of stock options
|
|
|
5,343
|
|
|
|
20,478
|
|
|
|
7,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
604,143
|
|
|
|
568,286
|
|
|
|
491,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
3,974,793
|
|
|
|
3,469,923
|
|
|
|
2,966,015
|
|
Net income
|
|
|
512,158
|
|
|
|
590,859
|
|
|
|
584,460
|
|
Cash dividends paid
|
|
|
(83,267
|
)
|
|
|
(85,988
|
)
|
|
|
(80,551
|
)
|
Other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
4,403,683
|
|
|
|
3,974,793
|
|
|
|
3,469,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
(249,774
|
)
|
|
|
(124,920
|
)
|
|
|
(1,089
|
)
|
Translation adjustments
|
|
|
(68,774
|
)
|
|
|
(67,245
|
)
|
|
|
(59,712
|
)
|
Change in long-term intercompany notes
|
|
|
(7,597
|
)
|
|
|
(51,235
|
)
|
|
|
(54,906
|
)
|
Net investment hedges, net of tax of $6,658, $3,432 and $4,961 in 2016, 2015 and 2014, respectively
|
|
|
(12,179
|
)
|
|
|
(6,374
|
)
|
|
|
(9,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
(338,324
|
)
|
|
|
(249,774
|
)
|
|
|
(124,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
(155,038
|
)
|
|
|
(141,982
|
)
|
|
|
(64,068
|
)
|
Net actuarial loss, net of tax of $17,450, $12,870 and $42,755 in 2016, 2015 and 2014, respectively
|
|
|
(55,259
|
)
|
|
|
(21,002
|
)
|
|
|
(83,040
|
)
|
Amortization of net actuarial loss, net of tax of ($2,090), ($3,247) and ($1,650) in 2016, 2015 and 2014,
respectively
|
|
|
6,618
|
|
|
|
6,137
|
|
|
|
2,834
|
|
Amortization of prior service costs, net of tax of $25, ($564) and ($753) in 2016, 2015 and 2014, respectively
|
|
|
(79
|
)
|
|
|
1,809
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
(203,758
|
)
|
|
|
(155,038
|
)
|
|
|
(141,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
(819
|
)
|
|
|
8
|
|
|
|
(82
|
)
|
Increase (decrease) during the year, net of tax
|
|
|
512
|
|
|
|
(827
|
)
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
(307
|
)
|
|
|
(819
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss at the end of the year
|
|
|
(542,389
|
)
|
|
|
(405,631
|
)
|
|
|
(266,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
(885,430
|
)
|
|
|
(457,807
|
)
|
|
|
(215,936
|
)
|
Issuance of common stock under employee stock plans
|
|
|
10,031
|
|
|
|
7,777
|
|
|
|
3,412
|
|
Purchase of treasury stock
|
|
|
(336,140
|
)
|
|
|
(435,400
|
)
|
|
|
(245,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
(1,211,539
|
)
|
|
|
(885,430
|
)
|
|
|
(457,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
$
|
3,256,513
|
|
|
$
|
3,254,626
|
|
|
$
|
3,239,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-34
AMETEK, Inc.
Consolidated Statement of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
512,158
|
|
|
$
|
590,859
|
|
|
$
|
584,460
|
|
Adjustments to reconcile net income to total operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
179,716
|
|
|
|
149,460
|
|
|
|
138,584
|
|
Deferred income taxes
|
|
|
(5,632
|
)
|
|
|
6,458
|
|
|
|
20,579
|
|
Share-based compensation expense
|
|
|
22,030
|
|
|
|
23,762
|
|
|
|
19,871
|
|
Gain on sale of facilities
|
|
|
(743
|
)
|
|
|
|
|
|
|
(869
|
)
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables
|
|
|
14,773
|
|
|
|
(6,995
|
)
|
|
|
(35,258
|
)
|
Decrease (increase) in inventories and other current assets
|
|
|
38,666
|
|
|
|
(12,007
|
)
|
|
|
11,626
|
|
Increase (decrease) in payables, accruals and income taxes
|
|
|
2,657
|
|
|
|
(20,049
|
)
|
|
|
(18,653
|
)
|
(Decrease) increase in other long-term liabilities
|
|
|
(4,298
|
)
|
|
|
255
|
|
|
|
8,867
|
|
Pension contribution
|
|
|
(6,775
|
)
|
|
|
(55,215
|
)
|
|
|
(5,729
|
)
|
Other, net
|
|
|
4,283
|
|
|
|
(3,988
|
)
|
|
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating activities
|
|
|
756,835
|
|
|
|
672,540
|
|
|
|
725,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(63,280
|
)
|
|
|
(69,083
|
)
|
|
|
(71,327
|
)
|
Purchases of businesses, net of cash acquired
|
|
|
(391,419
|
)
|
|
|
(356,466
|
)
|
|
|
(573,647
|
)
|
Proceeds from sale of facilities
|
|
|
1,832
|
|
|
|
421
|
|
|
|
950
|
|
Other, net
|
|
|
500
|
|
|
|
(429
|
)
|
|
|
2,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities
|
|
|
(452,367
|
)
|
|
|
(425,557
|
)
|
|
|
(641,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings
|
|
|
(315,674
|
)
|
|
|
226,761
|
|
|
|
(172,495
|
)
|
Proceeds from long-term borrowings
|
|
|
820,900
|
|
|
|
200,000
|
|
|
|
500,000
|
|
Repayments of long-term borrowings
|
|
|
(48,724
|
)
|
|
|
(182,007
|
)
|
|
|
(914
|
)
|
Repurchases of common stock
|
|
|
(336,140
|
)
|
|
|
(435,400
|
)
|
|
|
(245,283
|
)
|
Cash dividends paid
|
|
|
(83,267
|
)
|
|
|
(85,988
|
)
|
|
|
(80,551
|
)
|
Excess tax benefits from share-based payments
|
|
|
5,343
|
|
|
|
20,478
|
|
|
|
7,889
|
|
Proceeds from employee stock plans and other, net
|
|
|
14,616
|
|
|
|
39,192
|
|
|
|
15,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities
|
|
|
57,054
|
|
|
|
(216,964
|
)
|
|
|
24,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(25,268
|
)
|
|
|
(26,629
|
)
|
|
|
(26,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
336,254
|
|
|
|
3,390
|
|
|
|
82,412
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
381,005
|
|
|
|
377,615
|
|
|
|
295,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
717,259
|
|
|
$
|
381,005
|
|
|
$
|
377,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
A-35
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Significant Accounting Policies
|
Basis of Consolidation
The accompanying consolidated
financial statements reflect the results of operations, financial position and cash flows of AMETEK, Inc. (the Company), and include the accounts of the Company and subsidiaries, after elimination of all intercompany transactions in the
consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Actual results could differ from those estimates 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, 2016 and 2015, the Companys investment in a fixed-income mutual fund (held by its captive insurance subsidiary) is classified as
available-for-sale. The aggregate fair value of the fixed-income mutual fund at December 31, 2016 and 2015 was $7.3 million ($8.0 million cost basis) and $8.5 million ($9.9 million cost basis), respectively. The
temporary unrealized gain or loss on the fixed-income mutual fund is recorded as a separate component of accumulated other comprehensive income (in stockholders equity), and is not significant. Certain of the Companys other investments,
which are not significant, are also accounted for by the equity method of accounting.
Accounts Receivable
The Company maintains allowances for estimated losses resulting from the inability of specific customers to meet their
financial obligations to the Company. A specific allowance for doubtful accounts is recorded against the amount due from these customers. For all other customers, the Company recognizes allowance for doubtful accounts based on the length of time
specific receivables are past due based on its historical experience. The allowance for doubtful accounts was $10.3 million and $8.6 million at December 31, 2016 and 2015, respectively. See Note 7.
Inventories
The Company uses the first-in, first-out (FIFO) method of accounting, which approximates current replacement cost, for approximately 82% of its inventories at December 31, 2016. The
last-in, first-out (LIFO) method of accounting is used to determine cost for the remaining 18% of the Companys inventory at December 31, 2016. For inventories where cost is determined by the LIFO method, the FIFO would have
been $18.4 million and $19.4 million higher than the LIFO value reported in the consolidated balance sheet at December 31, 2016 and 2015, respectively. The Company provides estimated inventory reserves for slow-moving and obsolete
inventory based on current assessments about future demand, market conditions, customers who may be experiencing financial difficulties and related management initiatives. See Note 7.
Business Combinations
The Company allocates the purchase
price of an acquired company, including when applicable, the fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from
A-36
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired business are included in the
Companys operating results from the date of acquisition. See Note 5.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for additions to plant facilities, or that extend their
useful lives, are capitalized. The cost of minor tools, jigs and dies, and maintenance and repairs is charged to expense as incurred. Depreciation of plant and equipment is calculated principally on a
straight-line
basis over the estimated useful lives of the related assets. The range of lives for depreciable assets is generally three to ten years for machinery and equipment, five to 27 years for
leasehold improvements and 25 to 50 years for buildings. Depreciation expense was $74.8 million, $68.7 million and $63.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. See Note 7.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite lives, primarily trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually.
The Company identifies its reporting units at the component level, which is one level below its operating segments.
Generally, goodwill arises from acquisitions of specific operating companies and is assigned to the reporting unit in which a particular operating company resides. The Companys reporting units are composed of divisions that are one level below
its operating segments and for which discrete financial information is prepared and regularly reviewed by segment management.
The Company principally relies on a discounted cash flow analysis to determine the fair value of each reporting unit, which considers forecasted cash flows discounted at an appropriate discount rate. The
Company believes that market participants would use a discounted cash flow analysis to determine the fair value of its reporting units in a sale transaction. The annual goodwill impairment test requires the Company to make a number of assumptions
and estimates concerning future levels of revenue growth, operating margins, depreciation, amortization and working capital requirements, which are based on the Companys long-range plan and are considered level 3 inputs. The Companys
long-range plan is updated as part of its annual planning process and is reviewed and approved by management. The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of
capital includes both equity and debt, including a risk premium. While the Company uses the best available information to prepare its cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly
resulting in future impairment charges related to recorded goodwill balances.
The impairment test for
indefinite-lived intangibles other than goodwill (primarily trademarks and trade names) consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. The
Company estimates the fair value of its indefinite-lived intangibles using the relief from royalty method using level 3 inputs. The fair value derived from the relief from royalty method is measured as the discounted cash flow savings realized from
owning such trademarks and trade names and not having to pay a royalty for their use.
The Company completed
its required annual impairment tests in the fourth quarter of 2016, 2015 and 2014 and determined that the carrying values of the Companys goodwill were not impaired. The Company completed its required annual impairment tests in the fourth
quarter of 2016 and determined that the carrying values of
A-37
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
certain of the Companys trademarks and trade names with indefinite lives were impaired. During 2016, the Company recorded a $13.9 million non-cash impairment charge related to certain
of the Companys trade names. The Company completed its required annual impairment tests in the fourth quarter of 2015 and 2014 and determined that the carrying values of the Companys other intangible assets with indefinite lives were not
impaired.
Other intangible assets with finite lives are evaluated for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. The carrying value of other intangible assets with finite lives is considered impaired when the total projected undiscounted cash flows from those assets are separately identifiable
and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of those assets. Fair value is determined primarily using present value techniques based on projected
cash flows from the asset group.
Intangible assets, other than goodwill, with definite lives are amortized
over their estimated useful lives. Patents and technology are being amortized over useful lives of five to 20 years, with a weighted average life of 16 years. Customer relationships are being amortized over a period of five to 20 years,
with a weighted average life of 19 years. Miscellaneous other intangible assets are being amortized over a period of two to 20 years. The Company periodically evaluates the reasonableness of the estimated useful lives of these intangible
assets. See Note 6.
Financial Instruments and Foreign Currency Translation
Assets and liabilities of foreign operations are translated using exchange rates in effect at the balance sheet date and
their results of operations are translated using average exchange rates for the year. Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Exchange gains and losses from those
transactions are included in operating results for the year.
The Company makes infrequent use of derivative
financial instruments. Forward contracts are entered into from time to time to hedge specific firm commitments for certain inventory purchases, export sales, debt or foreign currency transactions, thereby minimizing the Companys exposure to
raw material commodity price or foreign currency fluctuation.
In instances where transactions are designated
as hedges of an underlying item, the gains and losses on those transactions are included in accumulated other comprehensive income within stockholders equity to the extent they are effective as hedges. An evaluation of hedge effectiveness is
performed by the Company on an ongoing basis and any changes in the hedge are made as appropriate. See Note 4.
Revenue
Recognition
The Company recognizes revenue on product sales in the period when the sales process is
complete. This generally occurs when products are shipped to the customer in accordance with terms of an agreement of sale, under which title and risk of loss have been transferred, collectability is reasonably assured and pricing is fixed or
determinable. For a small percentage of sales where title and risk of loss passes at point of delivery, the Company recognizes revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met. The Companys
policy, with respect to sales returns and allowances, generally provides that the customer may not return products or be given allowances, except at the Companys option. The Company has agreements with distributors that do not provide expanded
rights of return for unsold products. The distributor purchases the product from the Company, at which time title and risk of loss transfers to the distributor. The
A-38
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company does not offer substantial sales incentives and credits to its distributors other than volume discounts. The Company accounts for these sales incentives as a reduction of revenues when
the sale is recognized in the consolidated statement of income. Accruals for sales returns, other allowances and estimated warranty costs are provided at the time revenue is recognized based on the Companys historical experience. At
December 31, 2016 and 2015, the accrual for future warranty obligations was $22.0 million and $22.8 million, respectively. The Companys expense for warranty obligations was $16.0 million in 2016, $14.8 million in 2015
and $16.5 million in 2014. The warranty periods for products sold vary among the Companys operations, but generally do not exceed one year. The Company calculates its warranty expense provision based on its historical warranty experience
and adjustments are made periodically to reflect actual warranty expenses. See Note 12.
Research and Development
Research and development costs are included in Cost of sales as incurred and were $112.0 million in 2016,
$116.3 million in 2015 and $119.3 million in 2014.
Shipping and Handling Costs
Shipping and handling costs are included in Cost of sales and were $47.9 million in 2016, $50.5 million in 2015
and $49.0 million in 2014.
Share-Based Compensation
The Company expenses the fair value of share-based awards made under its share-based plans in the consolidated financial
statements over their requisite service period of the grants. See Note 10.
Income Taxes
The Companys process of providing for income taxes and determining the related balance sheet accounts requires
management to assess uncertainties, make judgments regarding outcomes and utilize estimates. The Company conducts a broad range of operations around the world and is therefore subject to complex tax regulations in numerous international taxing
jurisdictions, resulting at times in tax audits, disputes and potential litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine estimates of the Companys tax assets and
liabilities. To the extent the final outcome differs, future adjustments to the Companys tax assets and liabilities may be necessary. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax
expense.
The Company assesses the realizability of its deferred tax assets, taking into consideration the
Companys forecast of future taxable income, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the
need for, and amount of, valuation allowances against the Companys deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required. See Note 8.
Pensions
The Company has U.S. and foreign defined benefit and defined contribution pension plans. The most significant
elements in determining the Companys pension income or expense are the assumed pension liability discount rate and the expected return on plan assets. All unrecognized prior service costs, remaining transition
A-39
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
obligations or assets and actuarial gains and losses have been recognized, net of tax effects, as a charge to accumulated other comprehensive income in stockholders equity and will be
amortized as a component of net periodic pension cost. The Company uses a measurement date of December 31 (its fiscal year end) for its U.S. and foreign defined benefit plans. See Note 11.
Earnings Per Share
The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the
effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants). The number of weighted average shares used in the calculation of basic earnings per share and diluted earnings per share was as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
232,593
|
|
|
|
239,906
|
|
|
|
244,885
|
|
Equity-based compensation plans
|
|
|
1,137
|
|
|
|
1,680
|
|
|
|
2,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
233,730
|
|
|
|
241,586
|
|
|
|
247,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
Recent Accounting Pronouncements
|
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09,
Revenue from
Contracts with Customers
(ASU 2014-09)
and modified the standard thereafter. The objective of
ASU 2014-09
is to establish a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance. The core principle of
ASU 2014-09
is that an entity recognizes revenue at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
ASU 2014-09
applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.
ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017 and may be early
adopted for interim and annual reporting periods beginning after December 15, 2016. The Company will adopt
ASU 2014-09
as of January 1, 2018. The guidance permits adoption by retrospectively
applying the guidance to each prior reporting period presented (full retrospective method) or prospectively applying the guidance and providing additional disclosures comparing results to previous guidance, with the cumulative effect of initially
applying the guidance recognized in beginning retained earnings at the date of initial application (modified retrospective method). The Company is in the process of determining its method of adoption.
The Company has completed its initial assessment phase and is proceeding with its implementation plan. The initial
assessment consisted of reviewing a representative sample of contracts, discussions with key stakeholders and cataloging potential impacts on the Companys operations, accounting policies, financial control and financial statements. The
Companys initial assessment indicates the key changes in the standard that impact the Companys revenue recognition relate to the allocation of contract revenues between various products and services, the timing of when those revenues are
recognized and the deferral of incremental costs to obtain a contract. Given the diversity of its commercial arrangements, the Company is continuing to determine the impact
ASU 2014-09
may have on its
consolidated results of operations, financial position, cash flows and financial statement disclosures.
A-40
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In February 2015, the FASB issued
ASU No. 2015-02,
Amendments to the Consolidation Analysis
(ASU 2015-02).
ASU 2015-02
is
intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and
mortgage-backed security transactions).
ASU 2015-02
makes specific amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the variable
interest entities guidance. The Company adopted
ASU 2015-02
effective January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of operations,
financial position or cash flows.
In April 2015, the FASB issued
ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
(ASU 2015-03).
ASU 2015-03
requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The Company retrospectively adopted
ASU 2015-03
effective January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
In April 2015, the FASB issued
ASU No. 2015-05
, Customers
Accounting for Fees Paid in a Cloud Computing Arrangement
(ASU 2015-05).
ASU 2015-05
is intended to help entities evaluate the accounting for
fees paid by a customer in a cloud computing arrangement. The guidance clarifies that customers should determine whether a cloud computing arrangement includes the license of software by applying the same guidance cloud service providers use to make
this determination. The Company prospectively adopted
ASU 2015-05
effective January 1, 2016 and the adoption did not have a significant impact on the Companys consolidated results of
operations, financial position or cash flows.
In July 2015, the FASB issued
ASU No. 2015-11,
Simplifying the Measurement of Inventory
(ASU 2015-11),
which applies to inventory that is measured using first-in,
first-out (FIFO) or average cost. As prescribed in this update, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out (LIFO).
ASU 2015-11
is effective for interim and annual periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual
reporting period. The Company does not expect the adoption of
ASU 2015-11
to have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
In November 2015, the FASB issued
ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
(ASU 2015-17).
ASU 2015-17
simplifies the presentation of deferred taxes by requiring
deferred tax assets and liabilities be classified as noncurrent on the consolidated balance sheet.
ASU 2015-17
is effective for interim and annual reporting periods beginning after December 15, 2016.
ASU 2015-17
may be adopted prospectively or retrospectively and early adoption is permitted. The Company does not expect the adoption of
ASU 2015-17
to have a
significant impact on the Companys consolidated results of operations, financial position or cash flows. The Company expects to prospectively adopt
ASU 2015-17.
In February 2016, the FASB issued
ASU No. 2016-02,
Leases
(ASU 2016-02).
The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer
than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
ASU 2016-02
is effective for interim
and annual reporting periods beginning after December 15, 2018.
ASU 2016-02
is to be adopted using a modified retrospective approach and early adoption is permitted. The Company has not determined
the impact
ASU 2016-02
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
A-41
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2016, the FASB issued
ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09).
ASU 2016-09
includes changes to the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on
the statement of cash flows.
ASU 2016-09
is effective for interim and annual reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company is unable to estimate the
impact of adoption as it is dependent upon future stock option exercises, which cannot be predicted. However, the Company does not expect the adoption of
ASU 2016-09
to have a significant impact on the
Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
In January 2017, the FASB issued ASU
No. 2017-01,
Clarifying the Definition of a Business
(ASU 2017-01).
ASU 2017-01
provides a more robust framework to use in determining when a set of assets and activities is a business.
ASU 2017-01
requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so,
the set of assets is not a business.
ASU 2017-01
requires that, to be a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the
ability to create outputs.
ASU 2017-01
is effective for interim and annual reporting periods beginning after December 15, 2017.
ASU 2017-01
will be
applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which the financial statements have not been issued or made available for issuance. The
Company has not determined the impact
ASU 2017-01
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
In January 2017, the FASB issued
ASU No. 2017-04,
Simplifying the
Test for Goodwill Impairment
(ASU 2017-04).
ASU 2017-04
eliminates the requirement to calculate the implied fair value of goodwill (second
step) to measure a goodwill impairment charge. Under the guidance, an impairment charge will be measured based on the excess of the reporting units carrying amount over its fair value (first step).
ASU 2017-04
is effective for interim and annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company has not determined the impact
ASU 2017-04
may have on the Companys consolidated results of operations, financial position, cash flows and financial statement disclosures.
3.
|
Fair Value Measurements
|
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation
hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets
or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the
full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Companys own assumptions used to measure assets and liabilities at fair value. A financial asset or liabilitys classification within the
hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
A-42
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides the Companys assets that are measured
at fair value on a recurring basis as of December 31, 2016 and 2015, consistent with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Fixed-income investments
|
|
$
|
7,317
|
|
|
$
|
8,482
|
|
The fair value of fixed-income investments, which are valued as level 1 investments,
was based on quoted market prices. The fixed-income investments are shown as a component of long-term assets on the consolidated balance sheet.
For the year ended December 31, 2016, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the year
ended December 31, 2016.
Financial Instruments
Cash, cash equivalents and fixed-income investments are recorded at fair value at December 31, 2016 and 2015 in the
accompanying consolidated balance sheet.
The following table provides the estimated fair values of the
Companys financial instrument liabilities, for which fair value is measured for disclosure purposes only, compared to the recorded amounts at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Recorded
Amount
|
|
|
Fair Value
|
|
|
Recorded
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Short-term borrowings, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(312,999
|
)
|
|
$
|
(312,999
|
)
|
Long-term debt, net (including current portion)
|
|
|
(2,341,565
|
)
|
|
|
(2,386,901
|
)
|
|
|
(1,625,041
|
)
|
|
|
(1,683,523
|
)
|
The fair value of
short-term
borrowings, net
approximates the carrying value. Short-term borrowings, net are valued as level 2 liabilities as they are corroborated by observable market data. The Companys long-term debt, net is all privately held with no public market for this debt,
therefore, the fair value of long-term debt, net was computed based on comparable current market data for similar debt instruments and is considered to be a level 3 liability. See Note 9 for long-term debt principal amounts, interest rates and
maturities.
Foreign Currency
At December 31, 2016 and 2015, the Company had no forward contracts outstanding. For the year ended December 31, 2016, realized gains and losses on foreign currency forward contracts were not
significant.
The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. As of December 31, 2016, these net investment
hedges included British-pound- and Euro-denominated long-term debt. As of December 31, 2015, these net investment hedges included British-pound-denominated long-term debt. These borrowings were designed to create net investment
A-43
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
hedges in each of the designated foreign subsidiaries. The Company designated the British-pound- and Euro-denominated loans referred to above as hedging instruments to offset translation gains or
losses on the net investment due to changes in the British pound and Euro exchange rates. These net investment hedges are evidenced by managements contemporaneous documentation supporting the hedge designation. Any gain or loss on the hedging
instruments (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the translation adjustment on the investment based on changes in the spot rate, which is used to measure hedge
effectiveness.
At December 31, 2016 and 2015, the Company had $376.3 million and
$177.1 million, respectively, of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At December 31, 2016, the Company had
$527.7 million in Euro-denominated loans, which were designated as a hedge against the net investment in Euro functional currency foreign subsidiaries. As a result of the British-pound- and Euro-denominated loans being designated and 100%
effective as net investment hedges, $50.0 million and $14.4 million of currency remeasurement gains have been included in the foreign currency translation component of other comprehensive income for the years ended December 31, 2016
and 2015, respectively.
The Company spent $391.4 million in cash, net of cash acquired, to acquire Brookfield Engineering Laboratories (Brookfield) and ESP/SurgeX in January 2016, HS Foils and
Nu Instruments in July 2016 and Laserage Technology Corporation (Laserage) in October 2016. Brookfield is a manufacturer of viscometers and rheometers, as well as instrumentation to analyze texture and powder flow.
ESP/SurgeX is a manufacturer of energy intelligence and power protection, monitoring and diagnostic solutions. HS Foils develops and manufactures key components used in radiation detectors including ultra-thin radiation windows, silicon drift
detectors and
x-ray
filters. Nu Instruments is a provider of magnetic sector mass spectrometers used for elemental and isotope analysis. Laserage is a provider of laser fabrication services for the
medical device market. Brookfield, ESP/SurgeX, HS Foils and Nu Instruments are part of AMETEKs Electronic Instruments Group (EIG) and Laserage is part of AMETEKs Electromechanical Group (EMG).
The following table represents the preliminary allocation of the aggregate purchase price for the net assets
of the above acquisitions based on their estimated fair values at acquisition (in millions):
|
|
|
|
|
Property, plant and equipment
|
|
$
|
23.1
|
|
Goodwill
|
|
|
171.3
|
|
Other intangible assets
|
|
|
192.2
|
|
Deferred income taxes, net
|
|
|
(18.8
|
)
|
Long-term liabilities
|
|
|
(2.4
|
)
|
Net working capital and other
(1
)
|
|
|
26.0
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
391.4
|
|
|
|
|
|
|
(1)
|
Includes $16.1 million in accounts receivable, whose fair value, contractual cash flows and expected cash flows are approximately equal.
|
The amount allocated to goodwill is reflective of the benefits the Company expects to
realize from the acquisitions as follows: Brookfields viscosity measurement instrumentation products and technologies complement the Companys existing laboratory instrumentation businesses and provides the Company with opportunities to
expand that business platform into a broader range of markets and applications. ESP/SurgeXs
A-44
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
patented technology is widely used by the business equipment, imaging, audio visual, information technology, gaming and vending industries and is a strategic fit with the Companys existing
power protection platform to accelerate product innovation and market expansion worldwide. HS Foils broadens the Companys product offering and technical capabilities with its approach of bringing advanced materials and fabrication methods
from micro- and nanofabrication to new application areas. Nu Instruments broadens the Companys product offering and technical capabilities in differentiated, high-end analytical instrumentation. Laserage offers precision tube fabrication
of minimally invasive surgical devices, stents and catheter-based delivery systems. The Company expects approximately $99 million of the goodwill recorded in connection with the 2016 acquisitions will be tax deductible in future years.
At December 31, 2016, the purchase price allocated to other intangible assets of $192.2 million
consists of $34.5 million of indefinite-lived intangible trade names, which are not subject to amortization. The remaining $157.7 million of other intangible assets consists of $124.8 million of customer relationships, which are being
amortized over a period of 18 to 20 years and $32.9 million of purchased technology, which is being amortized over a period of 10 to 18 years. Amortization expense for each of the next five years for the 2016 acquisitions listed
above is expected to approximate $9 million per year.
The Company is in the process of finalizing the
measurement of certain liabilities for its October 2016 acquisition of Laserage and July 2016 acquisition of Nu Instruments, including the accounting for income taxes.
The 2016 acquisitions noted above had an immaterial impact on reported net sales, net income and diluted earnings per
share for the year ended December 31, 2016. Had the 2016 acquisitions been made at the beginning of 2016 or 2015, unaudited pro forma net sales, net income and diluted earnings per share for the years ended December 31, 2016 and 2015,
respectively, would not have been materially different than the amounts reported. Pro forma results are not necessarily indicative of the results that would have occurred if the acquisitions had been completed at the beginning of 2016 or 2015.
In 2015, the Company spent $356.5 million in cash, net of cash acquired, to acquire Global Tubes in
May 2015 and Surface Vision in July 2015. Global Tubes is a manufacturer of high-precision, small-diameter metal tubing. Surface Vision develops and manufactures software-enabled vision systems used to inspect surfaces of continuously
processed materials for flaws and defects. Global Tubes is part of EMG and Surface Vision is part of EIG.
In
2014, the Company spent $573.6 million in cash, net of cash acquired, to acquire Teseq Group in January 2014, VTI Instruments (VTI) in February 2014, Luphos GmbH in May 2014, Zygo Corporation in
June 2014 and Amptek, Inc. in August 2014. Teseq is a manufacturer of test and measurement instrumentation for electromagnetic compatibility testing. VTI is a manufacturer of high-precision test and measurement instrumentation.
Luphos core technology is used in the measurement of complex aspheric optical surfaces and other surfaces through non-contact methods. Zygo is a provider of optical metrology solutions, high-precision optics and optical assemblies for use in a
wide range of scientific, industrial and medical applications. Amptek is a manufacturer of instruments and detectors used to identify composition of materials using x-ray fluorescence technology. Teseq, VTI, Luphos, Zygo and Amptek are part of EIG.
Acquisition Subsequent to December 31, 2016
In February 2017, the Company acquired
Rauland-Borg
for approximately
$340 million in cash, with a potential $30 million contingent payment due upon the achievement of certain milestones.
Rauland-Borg
has estimated annual sales of approximately $160 million.
Rauland-Borg
is a global provider of enterprise clinical and education communications solutions for hospitals, health systems and educational facilities.
Rauland-Borg
will
join EIG.
A-45
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.
|
Goodwill and Other Intangible Assets
|
The changes in the carrying amounts of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIG
|
|
|
EMG
|
|
|
Total
|
|
|
|
(In millions)
|
|
Balance at December 31, 2014
|
|
$
|
1,646.7
|
|
|
$
|
967.3
|
|
|
$
|
2,614.0
|
|
Goodwill acquired
|
|
|
64.0
|
|
|
|
89.5
|
|
|
|
153.5
|
|
Purchase price allocation adjustments and other
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
Foreign currency translation adjustments
|
|
|
(30.2
|
)
|
|
|
(28.4
|
)
|
|
|
(58.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
1,678.2
|
|
|
|
1,028.4
|
|
|
|
2,706.6
|
|
Goodwill acquired
|
|
|
165.0
|
|
|
|
6.3
|
|
|
|
171.3
|
|
Purchase price allocation adjustments and other
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
Foreign currency translation adjustments
|
|
|
(26.5
|
)
|
|
|
(32.6
|
)
|
|
|
(59.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
1,817.0
|
|
|
$
|
1,002.0
|
|
|
$
|
2,819.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Definite-lived intangible assets (subject to amortization):
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
49,755
|
|
|
$
|
51,059
|
|
Purchased technology
|
|
|
283,612
|
|
|
|
266,644
|
|
Customer lists
|
|
|
1,363,700
|
|
|
|
1,257,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,697,067
|
|
|
|
1,575,433
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
(34,927
|
)
|
|
|
(34,745
|
)
|
Purchased technology
|
|
|
(87,869
|
)
|
|
|
(73,809
|
)
|
Customer lists
|
|
|
(362,924
|
)
|
|
|
(306,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(485,720
|
)
|
|
|
(415,112
|
)
|
|
|
|
|
|
|
|
|
|
Net intangible assets subject to amortization
|
|
|
1,211,347
|
|
|
|
1,160,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets (not subject to amortization):
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
536,574
|
|
|
|
512,640
|
|
Impairment
|
|
|
(13,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522,674
|
|
|
|
512,640
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,734,021
|
|
|
$
|
1,672,961
|
|
|
|
|
|
|
|
|
|
|
The Company completed its required annual impairment tests in the fourth quarter of 2016
and determined that the carrying values of certain of the Companys trademarks and trade names with indefinite lives were
A-46
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
impaired. During 2016, the Company recorded, in Cost of sales, a $13.9 million non-cash impairment charge related to certain of the Companys trade names, of which $9.2 million
impacted EIG and $4.7 million impacted EMG. See Note 1 for further descriptions of the Companys impairment testing.
Amortization expense was $104.9 million (including impairment of $13.9 million), $80.8 million and $74.9 million for the years ended December 31, 2016, 2015 and 2014,
respectively. Amortization expense for each of the next five years is expected to approximate $91 million per year, not considering the impact of potential future acquisitions.
7.
|
Other Consolidated Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
INVENTORIES, NET
|
|
|
|
|
|
|
|
|
Finished goods and parts
|
|
$
|
75,827
|
|
|
$
|
83,229
|
|
Work in process
|
|
|
101,484
|
|
|
|
105,259
|
|
Raw materials and purchased parts
|
|
|
314,793
|
|
|
|
325,963
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
492,104
|
|
|
$
|
514,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
41,875
|
|
|
$
|
41,951
|
|
Buildings
|
|
|
281,847
|
|
|
|
293,002
|
|
Machinery and equipment
|
|
|
840,725
|
|
|
|
849,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,164,447
|
|
|
|
1,184,611
|
|
Less: Accumulated depreciation
|
|
|
(691,217
|
)
|
|
|
(700,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
473,230
|
|
|
$
|
484,548
|
|
|
|
|
|
|
|
|
|
|
ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
$
|
93,226
|
|
|
$
|
93,232
|
|
Product warranty obligation
|
|
|
22,007
|
|
|
|
22,761
|
|
Restructuring
|
|
|
29,951
|
|
|
|
29,203
|
|
Other
|
|
|
100,886
|
|
|
|
95,808
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,070
|
|
|
$
|
241,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the year
|
|
$
|
8,555
|
|
|
$
|
10,446
|
|
|
$
|
9,547
|
|
Additions charged to expense
|
|
|
4,124
|
|
|
|
630
|
|
|
|
2,974
|
|
Write-offs
|
|
|
(2,304
|
)
|
|
|
(1,872
|
)
|
|
|
(2,243
|
)
|
Foreign currency translation adjustments and other
|
|
|
(118
|
)
|
|
|
(649
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
10,257
|
|
|
$
|
8,555
|
|
|
$
|
10,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-47
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of income before income taxes and the details of the provision for income taxes were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
397,215
|
|
|
$
|
502,292
|
|
|
$
|
495,516
|
|
Foreign
|
|
|
295,888
|
|
|
|
304,088
|
|
|
|
309,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
693,103
|
|
|
$
|
806,380
|
|
|
$
|
804,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
116,898
|
|
|
$
|
130,996
|
|
|
$
|
128,635
|
|
Foreign
|
|
|
63,170
|
|
|
|
66,691
|
|
|
|
60,606
|
|
State
|
|
|
6,509
|
|
|
|
11,376
|
|
|
|
12,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
186,577
|
|
|
|
209,063
|
|
|
|
201,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,273
|
|
|
|
1,711
|
|
|
|
19,870
|
|
Foreign
|
|
|
(8,434
|
)
|
|
|
(3,611
|
)
|
|
|
1,552
|
|
State
|
|
|
(2,471
|
)
|
|
|
8,358
|
|
|
|
(2,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(5,632
|
)
|
|
|
6,458
|
|
|
|
18,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
180,945
|
|
|
$
|
215,521
|
|
|
$
|
220,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-48
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant components of the deferred tax (asset) liability were as
follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Current deferred tax (asset) liability:
|
|
|
|
|
|
|
|
|
Reserves not currently deductible
|
|
$
|
(39,509
|
)
|
|
$
|
(37,771
|
)
|
Share-based compensation
|
|
|
(7,022
|
)
|
|
|
(7,218
|
)
|
Net operating loss carryforwards
|
|
|
(2,072
|
)
|
|
|
(368
|
)
|
Other
|
|
|
(1,041
|
)
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,644
|
)
|
|
|
(45,004
|
)
|
Portion included in other current liabilities
|
|
|
(360
|
)
|
|
|
(1,720
|
)
|
|
|
|
|
|
|
|
|
|
Gross current deferred tax asset
|
|
|
(50,004
|
)
|
|
|
(46,724
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax (asset) liability:
|
|
|
|
|
|
|
|
|
Differences in basis of property and accelerated depreciation
|
|
|
54,243
|
|
|
|
57,581
|
|
Reserves not currently deductible
|
|
|
(28,808
|
)
|
|
|
(28,809
|
)
|
Pensions
|
|
|
8,714
|
|
|
|
6,736
|
|
Differences in basis of intangible assets and accelerated amortization
|
|
|
603,577
|
|
|
|
597,266
|
|
Net operating loss carryforwards
|
|
|
(8,399
|
)
|
|
|
(5,722
|
)
|
Share-based compensation
|
|
|
(13,707
|
)
|
|
|
(11,607
|
)
|
Foreign tax credit carryforwards
|
|
|
(3,441
|
)
|
|
|
|
|
Other
|
|
|
3,477
|
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615,656
|
|
|
|
616,856
|
|
Less: Valuation allowance
|
|
|
2,046
|
|
|
|
2,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617,702
|
|
|
|
619,696
|
|
Portion included in noncurrent assets
|
|
|
4,074
|
|
|
|
4,350
|
|
|
|
|
|
|
|
|
|
|
Gross noncurrent deferred tax liability
|
|
|
621,776
|
|
|
|
624,046
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
571,772
|
|
|
$
|
577,322
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate reconciles to the U.S. Federal statutory rate as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
0.4
|
|
|
|
1.2
|
|
|
|
0.9
|
|
Foreign operations, net
|
|
|
(7.1
|
)
|
|
|
(6.8
|
)
|
|
|
(6.1
|
)
|
U.S. Manufacturing deduction and credits
|
|
|
(2.6
|
)
|
|
|
(2.4
|
)
|
|
|
(2.2
|
)
|
Other
|
|
|
0.4
|
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective tax rate
|
|
|
26.1
|
%
|
|
|
26.7
|
%
|
|
|
27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 and 2015, U.S. and foreign deferred income taxes totaling
$4.5 million and $6.9 million were provided on undistributed earnings of certain non-U.S. subsidiaries that are not expected to be permanently reinvested in such subsidiaries. There has been no provision for U.S. deferred income
taxes for the
A-49
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
undistributed earnings of certain other subsidiaries, which total approximately $1,126.9 million and $1,075.0 million at December 31, 2016 and 2015, respectively, because the
Company intends to reinvest these earnings indefinitely in operations outside the United States. Upon distribution of those earnings to the United States, the Company would be subject to U.S. income taxes and withholding taxes payable to the
various foreign countries. Determination of the amount of the unrecognized deferred income tax liability on these undistributed earnings is not practicable.
At December 31, 2016, the Company had tax effected benefits of $10.4 million related to net operating loss carryforwards, which will be available to offset future income taxes payable, subject
to certain annual or other limitations based on foreign and U.S. tax laws. This amount includes net operating loss carryforwards of $4.6 million for federal income tax purposes with no valuation allowance, $4.5 million for state income tax
purposes with no valuation allowance and $1.3 million for foreign income tax purposes with a valuation allowance of $1.5 million. These net operating loss carryforwards, if not used, will expire between 2017 and 2036.
At December 31, 2016, the Company had tax effected benefits of $4.1 million related to tax credit
carryforwards, which will be available to offset future income taxes payable, subject to certain annual or other limitations based on foreign and U.S. tax laws. This amount includes tax credit carryforwards of $1.1 million for federal income
tax purposes with a valuation allowance of $0.5 million, $2.9 million for state income tax purposes with no valuation allowance and $0.1 million for foreign income tax purposes with no valuation allowance. These tax credit
carryforwards, if not used, will expire between 2017 and 2036.
The Company maintains a valuation allowance to
reduce certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to the deferred tax assets established for foreign net operating loss carryforwards and tax credits. In 2016, the Company
recorded a decrease of $0.8 million in the valuation allowance primarily related to federal tax credits that are not expected to be utilized.
At December 31, 2016, the Company had gross unrecognized tax benefits of $57.9 million, of which $48.5 million, if recognized, would impact the effective tax rate. At December 31,
2015, the Company had gross unrecognized tax benefits of $63.8 million, of which $52.9 million, if recognized, would impact the effective tax rate.
At December 31, 2016 and 2015, the Company reported $8.9 million and $10.7 million, respectively, related to interest and penalty exposure as accrued income tax expense in the consolidated
balance sheet. During 2016 and 2015, the Company recognized a net benefit of $1.8 million and $0.4 million, respectively, and during 2014, the Company recognized a net expense of $2.5 million, for interest and penalties related to
uncertain tax positions in the consolidated statement of income as a component of income tax expense.
The
most significant tax jurisdiction for the Company is the United States. The Company files income tax returns in various other state and foreign tax jurisdictions, in some cases for multiple legal entities per jurisdiction. Generally, the Company has
open tax years subject to tax audit on average of between three and six years in these jurisdictions. At December 31, 2016, there were no tax years currently under examination by the Internal Revenue Service (IRS). The Company
has not materially extended any other statutes of limitation for any significant location and has reviewed and accrued for, where necessary, tax liabilities for open periods including state and foreign jurisdictions that remain subject to
examination. There have been no penalties asserted or imposed by the IRS related to substantial understatement of income, gross valuation misstatement or failure to disclose a listed or reportable transaction.
During 2016, the Company added $8.6 million of tax, interest and penalties to identified uncertain tax positions and
reversed $16.3 million of tax and interest related to statute expirations and settlement of prior
A-50
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
uncertain positions. During 2015, the Company added $12.0 million of tax, interest and penalties related to identified uncertain tax positions and reversed $20.3 million of tax and
interest related to statute expirations and settlement of prior uncertain positions.
The following is a
reconciliation of the liability for uncertain tax positions at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In millions)
|
|
Balance at the beginning of the year
|
|
$
|
63.8
|
|
|
$
|
71.7
|
|
|
$
|
55.2
|
|
Additions for tax positions related to the current year
|
|
|
5.5
|
|
|
|
8.8
|
|
|
|
10.7
|
|
Additions for tax positions of prior years
|
|
|
1.5
|
|
|
|
1.3
|
|
|
|
16.8
|
|
Reductions for tax positions of prior years
|
|
|
(3.6
|
)
|
|
|
(7.1
|
)
|
|
|
(1.7
|
)
|
Reductions related to settlements with taxing authorities
|
|
|
(3.4
|
)
|
|
|
(8.3
|
)
|
|
|
(0.4
|
)
|
Reductions due to statute expirations
|
|
|
(5.9
|
)
|
|
|
(2.6
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
57.9
|
|
|
$
|
63.8
|
|
|
$
|
71.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2016, the additions above primarily reflect the increase in tax liabilities for
uncertain tax positions related to certain domestic and foreign issues, while the reductions above primarily relate to statute expirations and settlement of domestic and foreign issues. At December 31, 2016, tax, interest and penalties of
$65.2 million were classified as a noncurrent liability. The net change in uncertain tax positions for the year ended December 31, 2016 resulted in a decrease to income tax expense of $6.2 million.
A-51
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term debt, net consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
U.S. dollar 6.20% senior notes due December 2017
|
|
$
|
270,000
|
|
|
$
|
270,000
|
|
U.S. dollar 6.35% senior notes due July 2018
|
|
|
80,000
|
|
|
|
80,000
|
|
U.S. dollar 7.08% senior notes due September 2018
|
|
|
160,000
|
|
|
|
160,000
|
|
U.S. dollar 7.18% senior notes due December 2018
|
|
|
65,000
|
|
|
|
65,000
|
|
U.S. dollar 6.30% senior notes due December 2019
|
|
|
100,000
|
|
|
|
100,000
|
|
U.S. dollar 3.73% senior notes due September 2024
|
|
|
300,000
|
|
|
|
300,000
|
|
U.S. dollar 3.91% senior notes due June 2025
|
|
|
50,000
|
|
|
|
50,000
|
|
U.S. dollar 3.96% senior notes due August 2025
|
|
|
100,000
|
|
|
|
100,000
|
|
U.S. dollar 3.83% senior notes due September 2026
|
|
|
100,000
|
|
|
|
100,000
|
|
U.S. dollar 3.98% senior notes due September 2029
|
|
|
100,000
|
|
|
|
100,000
|
|
U.S. dollar 4.45% senior notes due August 2035
|
|
|
50,000
|
|
|
|
50,000
|
|
British pound 5.99% senior note due November 2016
|
|
|
|
|
|
|
59,049
|
|
British pound 4.68% senior note due September 2020
|
|
|
98,701
|
|
|
|
118,098
|
|
British pound 2.59% senior note due November 2028
|
|
|
185,067
|
|
|
|
|
|
British pound 2.70% senior note due November 2031
|
|
|
92,533
|
|
|
|
|
|
Euro 1.34% senior notes due October 2026
|
|
|
316,643
|
|
|
|
|
|
Euro 1.53% senior notes due October 2028
|
|
|
211,096
|
|
|
|
|
|
Swiss franc 2.44% senior note due December 2021
|
|
|
54,150
|
|
|
|
55,024
|
|
Revolving credit facility borrowings
|
|
|
|
|
|
|
314,100
|
|
Other, principally foreign
|
|
|
14,604
|
|
|
|
20,849
|
|
Less: Debt issuance costs
|
|
|
(6,229
|
)
|
|
|
(4,080
|
)
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
2,341,565
|
|
|
|
1,938,040
|
|
Less: Current portion, net
|
|
|
(278,921
|
)
|
|
|
(384,924
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net
|
|
$
|
2,062,644
|
|
|
$
|
1,553,116
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt borrowings outstanding at December 31, 2016 were as
follows: $308.8 million in 2018; $100.0 million in 2019; $98.7 million in 2020; $54.2 million in 2021; none in 2022; and $1,505.3 million in 2023 and thereafter.
In October 2016, the Company completed a private placement agreement to sell 500 million Euros and
225 million British pounds in senior notes to a group of institutional investors (the 2016 Private Placement). There were two funding dates under the 2016 Private Placement. The first funding occurred in October 2016 for
500 million Euros ($546.8 million), consisting of 300 million Euros ($328.1 million) in aggregate principal amount of 1.34% senior notes due October 2026 and 200 million Euros ($218.7 million) in aggregate
principal amount of 1.53% senior notes due October 2028. The second funding occurred in November 2016 for 225 million British pounds ($274.1 million), consisting of 150 million British pounds ($182.7 million) in
aggregate principal amount of 2.59% senior notes due November 2028 and 75 million British pounds ($91.4 million) in aggregate principal amount of 2.70% senior notes due November 2031. The 2016 Private
A-52
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Placement senior notes carry a weighted average interest rate of 1.82% and are subject to certain customary covenants, including financial covenants that, among other things, require the Company
to maintain certain
debt-to-EBITDA
(earnings before interest, income taxes, depreciation and amortization) and interest coverage ratios. The proceeds from the first
funding of the 2016 Private Placement were used to pay down domestic borrowings under the Companys revolving credit facility. The proceeds from the second funding of the 2016 Private Placement were used to pay down, at maturity, a
40 million British pound ($48.7 million) 5.99% senior note in November 2016 and provides the Company with additional financial flexibility to support its growth plans, including its acquisition strategy.
In December 2007, the Company issued $270 million in aggregate principal amount of 6.20% private placement senior
notes due December 2017 and $100 million in aggregate principal amount of 6.30% private placement senior notes due December 2019. In July 2008, the Company issued $80 million in aggregate principal amount of 6.35% private placement
senior notes due July 2018. In September 2008, the Company issued $160 million in aggregate principal amount of 7.08% private placement senior notes due September 2018. In December 2008, the Company issued $65 million in aggregate
principal amount of 7.18% private placement senior notes due December 2018. In September 2014, the Company issued $300 million in aggregate principal amount of 3.73% senior notes due September 2024, $100 million in aggregate
principal amount of 3.83% senior notes due September 2026 and $100 million in aggregate principal amount of 3.98% senior notes due September 2029. In June 2015, the Company issued $50 million in aggregate principal amount of
3.91% senior notes due June 2025. In August 2015, the Company issued $100 million in aggregate principal amount of 3.96% senior notes due August 2025 and $50 million in aggregate principal amount of 4.45% senior notes due
August 2035.
In November 2004, the Company issued a 40 million British pound 5.99% senior note due
November 2016 (paid in full, at maturity, as previously noted). In September 2010, the Company issued an 80 million British pound ($98.7 million at December 31, 2016) 4.68% senior note due September 2020. In December 2011,
the Company issued a 55 million Swiss franc ($54.2 million at December 31, 2016) 2.44% senior note due December 2021.
In March 2016, the Company along with certain of its foreign subsidiaries amended and restated its credit agreement dated as of September 22, 2011 (the Credit Agreement). The Credit
Agreement amends and restates the Companys existing $700 million revolving credit facility, which was due to expire in December 2018. The Credit Agreement consists of a five-year revolving credit facility in an aggregate principal
amount of $850 million with a final maturity date in March 2021. The revolving credit facility total borrowing capacity excludes an accordion feature that permits the Company to request up to an additional $300 million in revolving
credit commitments at any time during the life of the Credit Agreement under certain conditions. The Credit Agreement places certain restrictions on allowable additional indebtedness. At December 31, 2016, the Company had available borrowing
capacity of $1,117.3 million under its revolving credit facility, including the $300 million accordion feature.
Interest rates on outstanding borrowings under the revolving credit facility are at the applicable benchmark rate plus a negotiated spread or at the U.S. prime rate. At December 31, 2016, the Company
did not have any borrowings outstanding under the revolving credit facility. At December 31, 2015, the Company had $314.1 million of borrowings outstanding under the revolving credit facility. The weighted average interest rate on the
revolving credit facility for the years ended December 31, 2016 and 2015 was 1.72% and 1.37%, respectively. The Company had outstanding letters of credit primarily under the revolving credit facility totaling $33.2 million and
$36.9 million at December 31, 2016 and 2015, respectively.
A-53
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The private placements, the senior notes and the revolving credit
facility are subject to certain customary covenants, including financial covenants that, among other things, require the Company to maintain certain
debt-to-EBITDA
and
interest coverage ratios. The Company was in compliance with all provisions of the debt arrangements at December 31, 2016.
Foreign subsidiaries of the Company had available credit facilities with local foreign lenders of $43.7 million and $37.5 million at December 31, 2016 and 2015, respectively. Foreign
subsidiaries had debt borrowings outstanding totaling $14.6 million and $20.9 million, including $3.8 million and $7.9 million reported in long-term debt, net at December 31, 2016 and 2015, respectively.
The weighted average interest rate on total debt borrowings outstanding at December 31, 2016 and 2015 was 4.4% and
5.2%, respectively.
10.
|
Share-Based Compensation
|
Under the terms of the Companys stockholder-approved share-based plans, incentive and non-qualified stock options and restricted stock have been, and may be, issued to the Companys officers,
management-level employees and members of its Board of Directors. Employee and non-employee director stock options generally vest at a rate of 25% per year, beginning one year from the date of the grant, and restricted stock generally has a
four-year
cliff vesting. Stock options generally have a maximum contractual term of seven years. At December 31, 2016, 14.0 million shares of Company common stock were reserved for issuance under the
Companys share-based plans, including 6.0 million shares for stock options outstanding.
The
Company issues previously unissued shares when stock options are exercised and shares are issued from treasury stock upon the award of restricted stock.
The Company measures and records compensation expense related to all stock awards by recognizing the grant date fair value of the awards over their requisite service periods in the financial statements.
For grants under any of the Companys plans that are subject to graded vesting over a service period, the Company recognizes expense on a straight-line basis over the requisite service period for the entire award.
Total share-based compensation expense was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Stock option expense
|
|
$
|
9,984
|
|
|
$
|
10,955
|
|
|
$
|
9,130
|
|
Restricted stock expense
|
|
|
12,046
|
|
|
|
12,807
|
|
|
|
10,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax expense
|
|
|
22,030
|
|
|
|
23,762
|
|
|
|
19,871
|
|
Related tax benefit
|
|
|
(6,846
|
)
|
|
|
(7,623
|
)
|
|
|
(6,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income
|
|
$
|
15,184
|
|
|
$
|
16,139
|
|
|
$
|
13,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense is included in the consolidated statement of
income in either Cost of sales or Selling, general and administrative expenses, depending on where the recipients cash compensation is reported.
A-54
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of each stock option grant is estimated on the date of
grant using a
Black-Scholes-Merton
option pricing model. The following weighted average assumptions were used in the
Black-Scholes-Merton
model to estimate the fair values of stock options granted during the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected volatility
|
|
|
21.8
|
%
|
|
|
22.3
|
%
|
|
|
23.9
|
%
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.23
|
%
|
|
|
1.58
|
%
|
|
|
1.63
|
%
|
Expected dividend yield
|
|
|
0.77
|
%
|
|
|
0.69
|
%
|
|
|
0.45
|
%
|
Black-Scholes-Merton fair value per stock option granted
|
|
$
|
9.14
|
|
|
$
|
10.89
|
|
|
$
|
12.21
|
|
Expected volatility is based on the historical volatility of the Companys stock.
The Company used historical exercise data to estimate the stock options expected term, which represents the period of time that the stock options granted are expected to be outstanding. Management anticipates that the future stock option
holding periods will be similar to the historical stock option holding periods. The risk-free interest rate for periods within the expected term of the stock option is based on the U.S. Treasury yield curve at the time of grant. Compensation expense
recognized for all share-based awards is net of estimated forfeitures. The Companys estimated forfeiture rates are based on its historical experience.
The following is a summary of the Companys stock option activity and related information for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(Years)
|
|
|
(In millions)
|
|
Outstanding at the beginning of the year
|
|
|
5,659
|
|
|
$
|
39.49
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,471
|
|
|
|
46.97
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(713
|
)
|
|
|
25.72
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(329
|
)
|
|
|
49.40
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(77
|
)
|
|
|
52.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
6,011
|
|
|
$
|
42.25
|
|
|
|
3.9
|
|
|
$
|
45.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
3,209
|
|
|
$
|
36.39
|
|
|
|
2.5
|
|
|
$
|
42.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of stock options exercised during 2016, 2015 and 2014 was
$16.2 million, $62.3 million and $25.7 million, respectively. The total fair value of stock options vested during 2016, 2015 and 2014 was $10.8 million, $10.3 million and $8.9 million, respectively.
A-55
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of the Companys nonvested stock option
activity and related information for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
Nonvested stock options outstanding at the beginning of the year
|
|
|
2,717
|
|
|
$
|
10.85
|
|
Granted
|
|
|
1,471
|
|
|
|
9.14
|
|
Vested
|
|
|
(1,057
|
)
|
|
|
10.22
|
|
Forfeited
|
|
|
(329
|
)
|
|
|
10.54
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options outstanding at the end of the year
|
|
|
2,802
|
|
|
$
|
10.15
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was approximately $19 million of expected future
pre-tax
compensation expense related to the 2.8 million nonvested stock options outstanding, which is expected to be recognized over a weighted average period of approximately two years.
The fair value of restricted shares under the Companys restricted stock arrangement is determined by the product of
the number of shares granted and the grant date market price of the Companys common stock. Upon the grant of restricted stock, the fair value of the restricted shares (unearned compensation) at the date of grant is charged as a reduction of
capital in excess of par value in the Companys consolidated balance sheet and is amortized to expense on a straight-line basis over the vesting period, which is the same as the calculated derived service period as determined on the grant date.
Restricted stock grants are subject to accelerated vesting due to certain events, including doubling of the grant price of the Companys common stock as of the close of business during any five consecutive trading days.
The following is a summary of the Companys nonvested restricted stock activity and related information for the year
ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
Nonvested restricted stock outstanding at the beginning of the year
|
|
|
1,061
|
|
|
$
|
46.32
|
|
Granted
|
|
|
376
|
|
|
|
46.91
|
|
Vested
|
|
|
(292
|
)
|
|
|
38.13
|
|
Forfeited
|
|
|
(126
|
)
|
|
|
48.66
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock outstanding at the end of the year
|
|
|
1,019
|
|
|
$
|
48.59
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock vested was $11.1 million,
$10.6 million and $3.6 million in 2016, 2015 and 2014, respectively. The weighted average fair value of restricted stock granted per share during 2016 and 2015 was $46.91 and $52.31, respectively. As of December 31, 2016, there was
approximately $28 million of expected future
pre-tax
compensation expense related to the 1.0 million nonvested restricted shares outstanding, which is expected to be recognized over a weighted
average period of less than two years.
A-56
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.
|
Retirement Plans and Other Postretirement Benefits
|
Retirement and Pension Plans
The Company sponsors several
retirement and pension plans covering eligible salaried and hourly employees. The plans generally provide benefits based on participants years of service and/or compensation. The following is a brief description of the Companys
retirement and pension plans.
The Company maintains contributory and noncontributory defined benefit pension
plans. Benefits for eligible salaried and hourly employees under all defined benefit plans are funded through trusts established in conjunction with the plans. The Companys funding policy with respect to its defined benefit plans is to
contribute amounts that provide for benefits based on actuarial calculations and the applicable requirements of U.S. federal and local foreign laws. The Company estimates that it will make both required and discretionary cash contributions of
approximately $52 million to $56 million to its worldwide defined benefit pension plans in 2017. The estimated cash contributions range includes $50.1 million in cash contributions to its defined benefit pension plans in
January 2017, with $40.0 million contributed to U.S. defined benefit pension plans and $10.1 million contributed to foreign defined benefit pension plans.
The Company uses a measurement date of December 31 (its fiscal year end) for its U.S. and foreign defined benefit
pension plans.
The Company sponsors a 401(k) retirement and savings plan for eligible U.S. employees.
Participants in the retirement and savings plan may contribute a specified portion of their compensation on a
pre-tax
basis, which varies by location. The Company matches employee contributions ranging from
20% to 100%, up to a maximum percentage ranging from 1% to 8% of eligible compensation or up to a maximum of $1,200 per participant in some locations.
The Companys retirement and savings plan has a defined contribution retirement feature principally to cover U.S. salaried employees joining the Company after December 31, 1996. Under the
retirement feature, the Company makes contributions for eligible employees based on a pre-established percentage of the covered employees salary subject to
pre-established
vesting. Employees of certain
of the Companys foreign operations participate in various local defined contribution plans.
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 Supplemental Executive Retirement Plan (SERP)
covering certain current and former executives of the Company. These supplemental benefits are designed to compensate the executive for retirement benefits that would have been provided under the Companys primary retirement plan, except for
statutory limitations on compensation that must be taken into account under those plans. The projected benefit obligations of the SERP and the contracts will primarily be funded by a grant of shares of the Companys common stock upon retirement
or termination of the executive. The Company is providing for these obligations by charges to earnings over the applicable periods.
A-57
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables set forth the changes in net projected benefit
obligation and the fair value of plan assets for the funded and unfunded defined benefit plans for the years ended December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the beginning of the year
|
|
$
|
472,477
|
|
|
$
|
491,373
|
|
Service cost
|
|
|
3,488
|
|
|
|
3,924
|
|
Interest cost
|
|
|
22,153
|
|
|
|
20,761
|
|
Actuarial losses (gains)
|
|
|
29,681
|
|
|
|
(27,605
|
)
|
Gross benefits paid
|
|
|
(29,005
|
)
|
|
|
(27,930
|
)
|
Plan amendments
|
|
|
56
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
11,954
|
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the end of the year
|
|
$
|
498,850
|
|
|
$
|
472,477
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
508,775
|
|
|
$
|
498,923
|
|
Actual return on plan assets
|
|
|
36,414
|
|
|
|
(21,020
|
)
|
Employer contributions
|
|
|
889
|
|
|
|
50,726
|
|
Gross benefits paid
|
|
|
(29,005
|
)
|
|
|
(27,930
|
)
|
Acquisition
|
|
|
|
|
|
|
8,076
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
517,073
|
|
|
$
|
508,775
|
|
|
|
|
|
|
|
|
|
|
A-58
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the beginning of the year
|
|
$
|
243,924
|
|
|
$
|
197,671
|
|
Service cost
|
|
|
3,134
|
|
|
|
3,076
|
|
Interest cost
|
|
|
7,896
|
|
|
|
7,910
|
|
Foreign currency translation adjustments
|
|
|
(39,910
|
)
|
|
|
(14,337
|
)
|
Employee contributions
|
|
|
256
|
|
|
|
303
|
|
Actuarial losses (gains)
|
|
|
52,248
|
|
|
|
(6,892
|
)
|
Expenses paid from assets
|
|
|
(770
|
)
|
|
|
(610
|
)
|
Gross benefits paid
|
|
|
(8,475
|
)
|
|
|
(8,064
|
)
|
Plan amendments
|
|
|
(6
|
)
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
64,867
|
|
|
|
|
|
|
|
|
|
|
Net projected benefit obligation at the end of the year
|
|
$
|
258,297
|
|
|
$
|
243,924
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
213,296
|
|
|
$
|
159,907
|
|
Actual return on plan assets
|
|
|
14,346
|
|
|
|
7,471
|
|
Employer contributions
|
|
|
5,886
|
|
|
|
4,490
|
|
Employee contributions
|
|
|
256
|
|
|
|
303
|
|
Foreign currency translation adjustments
|
|
|
(35,604
|
)
|
|
|
(10,584
|
)
|
Expenses paid from assets
|
|
|
(770
|
)
|
|
|
(610
|
)
|
Gross benefits paid
|
|
|
(8,475
|
)
|
|
|
(8,064
|
)
|
Acquisition
|
|
|
|
|
|
|
60,383
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
188,935
|
|
|
$
|
213,296
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation consisted of the following at December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Funded plans
|
|
$
|
480,249
|
|
|
$
|
454,498
|
|
Unfunded plans
|
|
|
6,212
|
|
|
|
5,481
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
486,461
|
|
|
$
|
459,979
|
|
|
|
|
|
|
|
|
|
|
A-59
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Funded plans
|
|
$
|
213,877
|
|
|
$
|
203,229
|
|
Unfunded plans
|
|
|
33,924
|
|
|
|
30,327
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
247,801
|
|
|
$
|
233,556
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.25
|
%
|
|
|
4.80
|
%
|
Rate of compensation increase (where applicable)
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
2.56
|
%
|
|
|
3.62
|
%
|
Rate of compensation increase (where applicable)
|
|
|
2.50
|
%
|
|
|
2.88
|
%
|
The following is a summary of the fair value of plan assets for U.S. plans at
December 31, 2016 and 2015 in accordance with the retrospective adoption of ASU
No. 2015-07,
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent
)
(ASU 2015-07).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Asset Class
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
(In thousands)
|
|
Corporate debt instruments
|
|
$
|
2,662
|
|
|
$
|
|
|
|
$
|
2,662
|
|
|
$
|
5,617
|
|
|
$
|
|
|
|
$
|
5,617
|
|
Corporate debt instruments - Preferred
|
|
|
8,880
|
|
|
|
|
|
|
|
8,880
|
|
|
|
9,835
|
|
|
|
|
|
|
|
9,835
|
|
Corporate stocks - Common
|
|
|
109,881
|
|
|
|
109,881
|
|
|
|
|
|
|
|
118,673
|
|
|
|
118,673
|
|
|
|
|
|
Municipal bonds
|
|
|
777
|
|
|
|
|
|
|
|
777
|
|
|
|
1,003
|
|
|
|
|
|
|
|
1,003
|
|
Registered investment companies
|
|
|
251,054
|
|
|
|
251,054
|
|
|
|
|
|
|
|
202,522
|
|
|
|
202,522
|
|
|
|
|
|
U.S. Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
373,254
|
|
|
|
360,935
|
|
|
|
12,319
|
|
|
|
337,763
|
|
|
|
321,195
|
|
|
|
16,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset value
|
|
|
143,819
|
|
|
|
|
|
|
|
|
|
|
|
171,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
517,073
|
|
|
$
|
360,935
|
|
|
$
|
12,319
|
|
|
$
|
508,775
|
|
|
$
|
321,195
|
|
|
$
|
16,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities and global equity securities categorized as level 1 are
traded on national and international exchanges and are valued at their closing prices on the last trading day of the year. For U.S. equity securities and global equity securities not traded on an active exchange, or if the closing price is not
available, the trustee obtains indicative quotes from a pricing vendor, broker or investment manager. These securities are categorized as level 2 if the custodian obtains corroborated quotes from a pricing vendor. Additionally, some U.S. equity
securities and global equity securities are public investment vehicles valued using the Net Asset Value (NAV) provided by the fund manager. The NAV is the total value of the fund divided by the number of shares outstanding.
A-60
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fixed income securities categorized as level 1 are traded on
national and international exchanges and are valued at their closing prices on the last trading day of the year and categorized as level 2 if valued by the trustee using pricing models that use verifiable observable market data, bids provided
by brokers or dealers or quoted prices of securities with similar characteristics.
Alternative investments
categorized as level 3 are valued based on unobservable inputs and cannot be corroborated using verifiable observable market data. Investments in level 3 funds are redeemable, however, cash reimbursement may be delayed or a portion held back
until asset finalization.
The expected long-term rate of return on these plan assets was 7.75% in both 2016
and 2015. Equity securities included 512,565 shares of AMETEK, Inc. common stock with a market value of $24.9 million (4.8% of total plan investment assets) at December 31, 2016 and 512,565 shares of AMETEK, Inc. common stock
with a market value of $27.5 million (5.4% of total plan investment assets) at December 31, 2015.
The objectives of the AMETEK, Inc. U.S. defined benefit plans investment strategy are to maximize the plans
funded status and minimize Company contributions and plan expense. Because the goal is to optimize returns over the long term, an investment policy that favors equity holdings has been established. Since there may be periods of time where both
equity and fixed-income markets provide poor returns, an allocation to alternative assets may be made to improve the overall portfolios diversification and return potential. The Company periodically reviews its asset allocation, taking into
consideration plan liabilities, plan benefit payment streams and the investment strategy of the pension plans. The actual asset allocation is monitored frequently relative to the established targets and ranges and is rebalanced when necessary. The
target allocations for the U.S. defined benefits plans are approximately 50% equity securities, 20% fixed-income securities and 30% other securities and/or cash.
The equity portfolio is diversified by market capitalization and style. The equity portfolio also includes international
components.
The objective of the fixed-income portion of the pension assets is to provide interest rate
sensitivity for a portion of the assets and to provide diversification. The
fixed-income
portfolio is diversified within certain quality and maturity guidelines in an attempt to minimize the adverse effects of
interest rate fluctuations.
Other than for investments in alternative assets, certain investments are
prohibited. Prohibited investments include venture capital, private placements, unregistered or restricted stock, margin trading, commodities, short selling and rights and warrants. Foreign currency futures, options and forward contracts may be used
to manage foreign currency exposure.
The following is a summary of the fair value of plan assets for foreign
defined benefit pension plans at December 31, 2016 and 2015 in accordance with the retrospective adoption of
ASU 2015-07.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Asset Class
|
|
Total
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Life insurance
|
|
$
|
18,147
|
|
|
$
|
18,147
|
|
|
$
|
20,486
|
|
|
$
|
20,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
18,147
|
|
|
|
18,147
|
|
|
|
20,486
|
|
|
|
20,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset value
|
|
|
170,788
|
|
|
|
|
|
|
|
192,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
188,935
|
|
|
$
|
18,147
|
|
|
$
|
213,296
|
|
|
$
|
20,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-61
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Life insurance assets are considered level 3 investments as their
values are determined by the sponsor using unobservable market data.
The following is a summary of the
changes in the fair value of the foreign plans level 3 investments (fair value determined using significant unobservable inputs):
|
|
|
|
|
|
|
Life Insurance
|
|
|
|
(In thousands)
|
|
Balance, December 31, 2014
|
|
$
|
8,888
|
|
Actual return on assets:
|
|
|
|
|
Unrealized (losses) relating to instruments still held at the end of the year
|
|
|
(980
|
)
|
Realized gains (losses) relating to assets sold during the year
|
|
|
|
|
Purchases, sales, issuances and settlements, net
|
|
|
12,578
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
20,486
|
|
|
|
|
|
|
Actual return on assets:
|
|
|
|
|
Unrealized (losses) relating to instruments still held at the end of the year
|
|
|
(2,339
|
)
|
Realized gains (losses) relating to assets sold during the year
|
|
|
|
|
Purchases, sales, issuances and settlements, net
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
18,147
|
|
|
|
|
|
|
The objective of AMETEK, Inc.s foreign defined benefit plans investment
strategy is to maximize the long-term rate of return on plan investments, subject to a reasonable level of risk. Liability studies are also performed on a regular basis to provide guidance in setting investment goals with an objective to balance
risks against the current and future needs of the plans. The trustees consider the risk associated with the different asset classes, relative to the plans liabilities and how this can be affected by diversification, and the relative returns
available on equities, fixed-income investments, real estate and cash. Also, the likely volatility of those returns and the cash flow requirements of the plans are considered. It is expected that equities will outperform fixed-income investments
over the long term. However, the trustees recognize the fact that fixed-income investments may better match the liabilities for pensioners. Because of the relatively young active employee group covered by the plans and the immature nature of the
plans, the trustees have chosen to adopt an asset allocation strategy more heavily weighted toward equity investments. This asset allocation strategy will be reviewed, from time to time, in view of changes in market conditions and in the plans
liability profile. The target allocations for the foreign defined benefit plans are approximately 70% equity securities, 15% fixed-income securities and 15% other securities, insurance or cash.
The assumption for the expected return on plan assets was developed based on a review of historical investment returns
for the investment categories for the defined benefit pension assets. This review also considered current capital market conditions and projected future investment returns. The estimates of future capital market returns by asset class are lower than
the actual long-term historical returns. The current low interest rate environment influences this outlook. Therefore, the assumed rate of return for U.S. plans is 7.50% and 6.79% for foreign plans in 2017.
A-62
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and pension plans with an accumulated benefit obligation in excess of plan assets were as follows at December 31:
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
|
|
|
Accumulated Benefit
|
|
|
|
Obligation Exceeds Fair
|
|
|
Obligation Exceeds Fair
|
|
|
|
Value of Assets
|
|
|
Fair Value of Assets
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Benefit obligation
|
|
$
|
26,356
|
|
|
$
|
5,481
|
|
|
$
|
26,356
|
|
|
$
|
5,481
|
|
Fair value of plan assets
|
|
|
19,059
|
|
|
|
|
|
|
|
19,059
|
|
|
|
|
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
|
|
|
Accumulated Benefit
|
|
|
|
Obligation Exceeds
|
|
|
Obligation Exceeds
|
|
|
|
Fair Value of Assets
|
|
|
Fair Value of Assets
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Benefit obligation
|
|
$
|
215,893
|
|
|
$
|
161,711
|
|
|
$
|
209,377
|
|
|
$
|
155,169
|
|
Fair value of plan assets
|
|
|
146,480
|
|
|
|
119,045
|
|
|
|
146,480
|
|
|
|
119,045
|
|
The following table provides the amounts recognized in the consolidated balance sheet at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Funded status asset (liability):
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
706,008
|
|
|
$
|
722,071
|
|
Projected benefit obligation
|
|
|
(757,147
|
)
|
|
|
(716,401
|
)
|
|
|
|
|
|
|
|
|
|
Funded status at the end of the year
|
|
$
|
(51,139
|
)
|
|
$
|
5,670
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consisted of:
|
|
|
|
|
|
|
|
|
Noncurrent asset for pension benefits (other assets)
|
|
$
|
25,571
|
|
|
$
|
53,817
|
|
Current liabilities for pension benefits
|
|
|
(1,393
|
)
|
|
|
(1,001
|
)
|
Noncurrent liability for pension benefits
|
|
|
(75,317
|
)
|
|
|
(47,146
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized at the end of the year
|
|
$
|
(51,139
|
)
|
|
$
|
5,670
|
|
|
|
|
|
|
|
|
|
|
The following table provides the amounts recognized in accumulated other comprehensive
income, net of taxes, at December 31:
|
|
|
|
|
|
|
|
|
Net amounts recognized:
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Net actuarial loss
|
|
$
|
204,782
|
|
|
$
|
156,351
|
|
Prior service costs
|
|
|
(1,031
|
)
|
|
|
(1,321
|
)
|
Transition asset
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total recognized
|
|
$
|
203,758
|
|
|
$
|
155,038
|
|
|
|
|
|
|
|
|
|
|
A-63
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides the components of net periodic pension
benefit expense (income) for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
6,622
|
|
|
$
|
7,000
|
|
|
$
|
6,153
|
|
Interest cost
|
|
|
30,049
|
|
|
|
28,670
|
|
|
|
28,931
|
|
Expected return on plan assets
|
|
|
(51,140
|
)
|
|
|
(54,819
|
)
|
|
|
(50,196
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
10,224
|
|
|
|
9,383
|
|
|
|
4,483
|
|
Prior service costs
|
|
|
(52
|
)
|
|
|
(55
|
)
|
|
|
(51
|
)
|
Transition asset
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit (income) expense
|
|
|
(4,296
|
)
|
|
|
(9,820
|
)
|
|
|
(10,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution plans
|
|
|
23,881
|
|
|
|
22,750
|
|
|
|
20,714
|
|
Foreign plans and other
|
|
|
5,694
|
|
|
|
4,800
|
|
|
|
5,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other plans
|
|
|
29,575
|
|
|
|
27,550
|
|
|
|
26,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net pension expense
|
|
$
|
25,279
|
|
|
$
|
17,730
|
|
|
$
|
15,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total net periodic benefit expense (income) is included in Cost of sales in the
consolidated statement of income. The estimated amount that will be amortized from accumulated other comprehensive income into net periodic pension benefit expense in 2017 for the net actuarial losses and prior service costs is expected to be
$14.0 million.
The following weighted average assumptions were used to determine the above net periodic
pension benefit expense for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.80
|
%
|
|
|
4.20
|
%
|
|
|
5.00
|
%
|
Expected return on plan assets
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
Rate of compensation increase (where applicable)
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
Foreign Defined Benefit Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.62
|
%
|
|
|
3.44
|
%
|
|
|
4.38
|
%
|
Expected return on plan assets
|
|
|
6.95
|
%
|
|
|
6.92
|
%
|
|
|
6.93
|
%
|
Rate of compensation increase (where applicable)
|
|
|
2.88
|
%
|
|
|
2.88
|
%
|
|
|
2.92
|
%
|
Estimated Future Benefit Payments
The estimated future benefit payments for U.S. and foreign plans are as follows: 2017
- $37.3 million;
2018 - $38.5 million;
2019 - $39.4 million;
2020 - $40.5 million;
2021 - $41.2 million;
2022 to
2026 - $217.5 million.
Future benefit
payments primarily represent amounts to be paid from pension trust assets. Amounts included that are to be paid from the Companys assets are not significant in any individual year.
A-64
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Postretirement Plans and Postemployment Benefits
The Company provides limited postretirement benefits other than pensions for certain retirees and a small number of
former employees. Benefits under these arrangements are not funded and are not significant.
The Company also
provides limited postemployment benefits for certain former or inactive employees after employment but before retirement. Those benefits are not significant in amount.
The Company has a deferred compensation plan, which allows employees whose compensation exceeds the statutory IRS limit
for retirement benefits to defer a portion of earned bonus compensation. The plan permits deferred amounts to be deemed invested in either, or a combination of, (a) an interest-bearing account, benefits from which are payable out of the general
assets of the Company, or (b) the equivalent of a fund which invests in shares of the Companys common stock on behalf of the employee. The amount deferred under the plan, including income earned, was $25.2 million and $23.4 million
at December 31, 2016 and 2015, respectively. Administrative expense for the deferred compensation plan is borne by the Company and is not significant.
The Company does not provide significant guarantees on a routine basis. The Company primarily issues guarantees,
stand-by
letters of credit and surety bonds in the
ordinary course of its business to provide financial or performance assurance to third parties on behalf of its consolidated subsidiaries to support or enhance the subsidiarys stand-alone creditworthiness. The amounts subject to certain of
these agreements vary depending on the covered contracts actually outstanding at any particular point in time. At December 31, 2016, the maximum amount of future payment obligations relative to these various guarantees was $70.2 million
and the outstanding liability under certain of those guarantees was $9.9 million.
Indemnifications
In conjunction with certain acquisition and divestiture transactions, the Company may agree to make payments to
compensate or indemnify other parties for possible future unfavorable financial consequences resulting from specified events (e.g., breaches of contract obligations or retention of previously existing environmental, tax or employee liabilities)
whose terms range in duration and often are not explicitly defined. Where appropriate, the obligation for such indemnifications is recorded as a liability. Because the amount of these types of indemnifications generally is not specifically stated,
the overall maximum amount of the obligation under such indemnifications cannot be reasonably estimated. Further, the Company indemnifies its directors and officers for claims against them in connection with their positions with the Company.
Historically, any such costs incurred to settle claims related to these indemnifications have been minimal for the Company. The Company believes that future payments, if any, under all existing indemnification agreements would not have a material
impact on its consolidated results of operations, financial position or cash flows.
Product Warranties
The Company provides limited warranties in connection with the sale of its products. The warranty periods for products
sold vary among the Companys operations, but generally do not exceed one year. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty
expenses.
A-65
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in the accrued product warranty obligation were as follows at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the year
|
|
$
|
22,761
|
|
|
$
|
29,764
|
|
|
$
|
28,036
|
|
Accruals for warranties issued during the year
|
|
|
16,046
|
|
|
|
14,817
|
|
|
|
16,463
|
|
Settlements made during the year
|
|
|
(17,732
|
)
|
|
|
(19,905
|
)
|
|
|
(17,636
|
)
|
Warranty accruals related to acquired businesses and other during the year
|
|
|
932
|
|
|
|
(1,915
|
)
|
|
|
2,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
22,007
|
|
|
$
|
22,761
|
|
|
$
|
29,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain settlements of warranties made during the period were for specific nonrecurring
warranty obligations. Product warranty obligations are reported as current liabilities in the consolidated balance sheet.
Asbestos Litigation
The Company (including its subsidiaries) has been named as a defendant in a number of asbestos-related lawsuits. Certain of these lawsuits relate to a business which was acquired by the Company and do not
involve products which were manufactured or sold by the Company. In connection with these lawsuits, the seller of such business has agreed to indemnify the Company against these claims (the Indemnified Claims). The Indemnified Claims
have been tendered to, and are being defended by, such seller. The seller has met its obligations, in all respects, and the Company does not have any reason to believe such party would fail to fulfill its obligations in the future. To date, no
judgments have been rendered against the Company as a result of any asbestos-related lawsuit. The Company believes it has strong defenses to the claims being asserted and intends to continue to vigorously defend itself in these matters.
Environmental Matters
Certain historic processes in the manufacture of products have resulted in environmentally hazardous waste by-products as defined by federal and state laws and regulations. At December 31, 2016, the
Company is named a Potentially Responsible Party (PRP) at 13 non-AMETEK-owned former waste disposal or treatment sites (the non-owned sites). The Company is identified as a de minimis party in 12 of these sites
based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In eight of these sites, the Company has reached a tentative agreement on the cost of the de minimis settlement to satisfy its
obligation and is awaiting executed agreements. The tentatively agreed-to settlement amounts are fully reserved. In the other four sites, the Company is continuing to investigate the accuracy of the alleged volume attributed to the Company as
estimated by the parties primarily responsible for remedial activity at the sites to establish an appropriate settlement amount. At the remaining site where the Company is a non-de minimis PRP, the Company is participating in the investigation
and/or related required remediation as part of a PRP Group and reserves have been established sufficient to satisfy the Companys expected obligations. The Company historically has resolved these issues within established reserve levels and
reasonably expects this result will continue. In addition to these non-owned sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its current or previously owned manufacturing locations
(the owned sites). For claims and proceedings against the Company with respect to other environmental matters, reserves are established once the Company has determined that a loss is probable and estimable. This estimate is refined as
the Company moves through the various stages of investigation, risk assessment, feasibility study and corrective action processes. In
A-66
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the best estimate. It is reasonably possible that the actual cost of
remediation of the individual sites could vary from the current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to result in a material change to the consolidated
financial statements. In estimating the Companys liability for remediation, the Company also considers the likely proportionate share of the anticipated remediation expense and the ability of the other PRPs to fulfill their obligations.
Total environmental reserves at December 31, 2016 and 2015 were $28.4 million and
$30.5 million, respectively, for both non-owned and owned sites. In 2016, the Company recorded $4.1 million in reserves. Additionally, the Company spent $5.4 million on environmental matters and the reserve decreased $0.8 million
due to foreign currency translation in 2016. The Companys reserves for environmental liabilities at December 31, 2016 and 2015 include reserves of $12.4 million and $11.5 million, respectively, for an owned site acquired in
connection with the 2005 acquisition of HCC Industries (HCC). The Company is the designated performing party for the performance of remedial activities for one of several operating units making up a Superfund site in the San Gabriel
Valley of California. The Company has obtained indemnifications and other financial assurances from the former owners of HCC related to the costs of the required remedial activities. At December 31, 2016, the Company had $11.9 million in
receivables related to HCC for probable recoveries from third-party escrow funds and other committed third-party funds to support the required remediation. Also, the Company is indemnified by HCCs former owners for approximately
$19 million of additional costs.
The Company has agreements with other former owners of certain of its
acquired businesses, as well as new owners of previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other liabilities under
certain circumstances. The Company and some of these other parties also carry insurance coverage for some environmental matters. To date, these parties have met their obligations in all material respects.
The Company believes it has established reserves which are sufficient to perform all known responsibilities under
existing claims and consent orders. The Company has no reason to believe that other third parties would fail to perform their obligations in the future. In the opinion of management, based on presently available information and the Companys
historical experience related to such matters, an adequate provision for probable costs has been made and the ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position
or cash flows of the Company.
14.
|
Leases and Other Commitments
|
Minimum aggregate rental commitments under noncancellable leases in effect at December 31, 2016 (principally for production and administrative facilities and equipment) amounted to
$143.5 million, consisting of payments of $33.0 million in 2017, $25.2 million in 2018, $19.4 million in 2019, $14.5 million in 2020, $12.2 million in 2021 and $39.2 million thereafter. The leases expire over a
range of years from 2017 to 2082, with renewal or purchase options, subject to various terms and conditions, contained in most of the leases. Rental expense was $46.3 million in 2016, $43.6 million in 2015 and $44.6 million in 2014.
As of December 31, 2016 and 2015, the Company had $289.1 million and $321.7 million,
respectively, in purchase obligations outstanding, which primarily consisted of contractual commitments to purchase certain inventories at fixed prices.
A-67
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.
|
Reportable Segments and Geographic Areas Information
|
Descriptive Information about Reportable Segments
The
Company has two reportable segments, EIG and EMG. The Companys operating segments are identified based on the existence of segment managers. Certain of the Companys operating segments have been aggregated for segment reporting purposes
primarily on the basis of product type, production processes, distribution methods and similarity of economic characteristics.
EIG manufactures advanced instruments for the process, power and industrial, and aerospace markets. It provides process and analytical instruments for the oil, gas, petrochemical, pharmaceutical,
semiconductor and automation markets. It provides instruments for the laboratory equipment, ultraprecision manufacturing, medical, and test and measurement markets. It makes power quality monitoring and metering devices, industrial battery chargers
and uninterruptible power supplies, programmable power equipment, electrical test equipment and gas turbine sensors. It provides dashboard instruments for heavy trucks and other vehicles as well as timing controls and cooking computers for the food
service industry. It supplies the aerospace industry with aircraft and engine sensors, monitoring systems, power instruments, data acquisition units, and fuel and fluid measurement systems.
EMG is a differentiated supplier of precision motion control solutions, thermal management systems, specialty metals and
electrical interconnects. It makes precision motion control products for data storage, medical devices, business equipment, automation and other applications. It manufacturers highly engineered electrical connectors and packaging used to protect
sensitive electronic devices. It provides high-purity metals, metal strip, shaped wire and advanced composites for a wide range of industrial applications. It operates a global network of aviation maintenance, repair and overhaul facilities. It
manufactures motors used in commercial appliances, fitness equipment, food and beverage machines, hydraulic pumps, industrial blowers and vacuum cleaners.
Measurement of Segment Results
Segment operating income
represents net sales less all direct costs and expenses (including certain administrative and other expenses) applicable to each segment, but does not include interest expense. Net sales by segment are reported after elimination of intra- and
intersegment sales and profits, which are insignificant in amount. Reported segment assets include allocations directly related to the segments operations. Corporate assets consist primarily of investments, prepaid pensions, insurance deposits
and deferred taxes.
A-68
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reportable Segment Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Net sales
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
2,360,285
|
|
|
$
|
2,417,192
|
|
|
$
|
2,421,638
|
|
Electromechanical
|
|
|
1,479,802
|
|
|
|
1,557,103
|
|
|
|
1,600,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
3,840,087
|
|
|
$
|
3,974,295
|
|
|
$
|
4,021,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
577,717
|
|
|
$
|
639,399
|
|
|
$
|
612,992
|
|
Electromechanical
|
|
|
277,873
|
|
|
|
318,098
|
|
|
|
335,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
855,590
|
|
|
|
957,497
|
|
|
|
948,038
|
|
Corporate administrative and other expenses
|
|
|
(53,693
|
)
|
|
|
(49,781
|
)
|
|
|
(49,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
801,897
|
|
|
|
907,716
|
|
|
|
898,586
|
|
Interest and other expenses, net
|
|
|
(108,794
|
)
|
|
|
(101,336
|
)
|
|
|
(93,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
$
|
693,103
|
|
|
$
|
806,380
|
|
|
$
|
804,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
4,104,972
|
|
|
$
|
3,827,182
|
|
|
|
|
|
Electromechanical
|
|
|
2,446,180
|
|
|
|
2,541,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
6,551,152
|
|
|
|
6,368,435
|
|
|
|
|
|
Corporate
|
|
|
549,522
|
|
|
|
292,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
7,100,674
|
|
|
$
|
6,660,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
45,091
|
|
|
$
|
32,069
|
|
|
$
|
95,787
|
|
Electromechanical
|
|
|
39,340
|
|
|
|
88,369
|
|
|
|
35,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment additions to property, plant and equipment
|
|
|
84,431
|
|
|
|
120,438
|
|
|
|
131,191
|
|
Corporate
|
|
|
1,914
|
|
|
|
2,121
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated additions to property, plant and equipment
|
|
$
|
86,345
|
|
|
$
|
122,559
|
|
|
$
|
133,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Instruments
|
|
$
|
104,284
|
|
|
$
|
83,832
|
|
|
$
|
75,364
|
|
Electromechanical
|
|
|
73,767
|
|
|
|
64,539
|
|
|
|
61,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment depreciation and amortization
|
|
|
178,051
|
|
|
|
148,371
|
|
|
|
137,134
|
|
Corporate
|
|
|
1,665
|
|
|
|
1,089
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization
|
|
$
|
179,716
|
|
|
$
|
149,460
|
|
|
$
|
138,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
After elimination of intra- and intersegment sales, which are not significant in amount.
|
(2)
|
Segment operating income represents net sales less all direct costs and expenses (including certain administrative and other expenses) applicable to
each segment, but does not include interest expense.
|
(3)
|
Includes $23.1 million in 2016, $53.4 million in 2015 and $61.8 million in 2014 from acquired businesses.
|
A-69
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic Areas
Information about the Companys operations in different geographic areas for the years ended December 31, 2016,
2015 and 2014 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,829,341
|
|
|
$
|
1,919,611
|
|
|
$
|
1,825,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
188,700
|
|
|
|
201,192
|
|
|
|
220,877
|
|
European Union countries
|
|
|
619,138
|
|
|
|
615,956
|
|
|
|
674,608
|
|
Asia
|
|
|
785,868
|
|
|
|
789,435
|
|
|
|
806,926
|
|
Other foreign countries
|
|
|
417,040
|
|
|
|
448,101
|
|
|
|
493,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international
|
|
|
2,010,746
|
|
|
|
2,054,684
|
|
|
|
2,196,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,840,087
|
|
|
$
|
3,974,295
|
|
|
$
|
4,021,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets from
continuing operations (excluding intangible assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
322,743
|
|
|
$
|
313,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
59,208
|
|
|
|
68,396
|
|
|
|
|
|
European Union countries
|
|
|
58,368
|
|
|
|
66,635
|
|
|
|
|
|
Asia
|
|
|
12,204
|
|
|
|
13,928
|
|
|
|
|
|
Other foreign countries
|
|
|
20,707
|
|
|
|
21,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international
|
|
|
150,487
|
|
|
|
170,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
473,230
|
|
|
$
|
484,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes U.S. export sales of $1,036.0 million in 2016, $1,090.7 million in 2015 and $1,148.1 million in 2014.
|
(2)
|
Represents long-lived assets of foreign-based operations only.
|
16.
|
Additional Consolidated Income Statement and Cash Flow Information
|
Included in other income are interest and other investment income of $1.2 million, $0.7 million and
$1.1 million for 2016, 2015 and 2014, respectively. Income taxes paid in 2016, 2015 and 2014 were $180.8 million, $157.8 million and $211.6 million, respectively. Cash paid for interest was $91.8 million, $90.8 million
and $74.9 million in 2016, 2015 and 2014, respectively.
A-70
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 2015, the Company repurchased approximately 7,978,000 shares of its common stock for $435.4 million in cash under its share repurchase authorization. On both April 1 and November 4,
2015, the Companys Board of Directors approved an increase of $350 million in the authorization for the repurchase of Companys common stock. At December 31, 2015, $311.7 million was available under the Companys Board
of Directors authorization for future share repurchases. In 2016, the Company repurchased approximately 7,099,000 shares of its common stock for $336.1 million in cash under its share repurchase authorization. On November 2, 2016, the
Companys Board of Directors approved an increase of $400 million in the authorization for the repurchase of the Companys common stock. At December 31, 2016, $375.6 million was available under the Companys Board of
Directors authorization for future share repurchases.
At December 31, 2016, the Company held
32.1 million shares in its treasury at a cost of $1,211.5 million, compared with 25.2 million shares at a cost of $885.4 million at December 31, 2015. The number of shares outstanding at December 31, 2016 was
229.4 million shares, compared with 235.5 million shares at December 31, 2015.
The Company has
a Shareholder Rights Plan, under which the Companys Board of Directors declared a dividend of one Right for each share of Company common stock owned at the close of business on June 2, 2007, and has authorized the issuance of one Right
for each share of common stock of the Company issued between the Record Date and the Distribution Date. The Plan provides, under certain conditions involving acquisition of the Companys common stock, that holders of Rights, except for the
acquiring entity, would be entitled (i) to purchase shares of preferred stock at a specified exercise price, or (ii) to purchase shares of common stock of the Company, or the acquiring company, having a value of twice the Rights exercise price. The
Rights under the Plan expire in June 2017.
18.
|
2016 and 2015 Restructuring Charges
|
During the fourth quarter of 2016, the Company recorded pre-tax restructuring charges totaling $25.6 million, which
had the effect of reducing net income by $17.0 million ($0.07 per diluted share). The restructuring charges were reported in the consolidated statement of income as follows: $24.0 million in Cost of sales and $1.6 million in Selling,
general and administrative expenses. The restructuring charges were reported in segment operating income as follows: $12.4 million in EIG, $11.6 million in EMG and $1.6 million in corporate administrative expenses. The restructuring
actions primarily related to $19.3 million in severance costs for a reduction in workforce and $6.2 million of asset write-downs in response to the impact of a weak global economy on certain of the Companys businesses and the effects
of a continued strong U.S. dollar. The restructuring activities will be broadly implemented across the Companys various businesses through the end of 2017, with most actions expected to be completed in 2018.
During the fourth quarter of 2015, the Company recorded pre-tax restructuring charges totaling $20.7 million, which
had the effect of reducing net income by $13.9 million ($0.06 per diluted share). The restructuring charges were reported in the consolidated statement of income as follows: $20.0 million in Cost of sales and $0.7 million in Selling,
general and administrative expenses. The restructuring charges were reported in segment operating income as follows: $9.3 million in EIG, $10.8 million in EMG and $0.7 million in corporate administrative expenses. The restructuring
actions primarily related to a reduction in workforce in response to the impact of a weak global economy on certain of the Companys businesses and the effects of a continued strong U.S. dollar. The restructuring activities have been
broadly implemented across the Companys various businesses with all actions expected to be completed in the second half of 2017.
A-71
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the first quarter of 2015, the Company recorded pre-tax
restructuring charges totaling $15.9 million, which had the effect of reducing net income by $10.8 million ($0.04 per diluted share). The restructuring charges were reported in the consolidated statement of income as follows:
$15.8 million in Cost of sales and $0.1 million in Selling, general and administrative expenses. The restructuring charges were reported in segment operating income as follows: $9.3 million in EIG, $6.5 million in EMG and
$0.1 million in corporate administrative expenses. The restructuring actions primarily related to a reduction in workforce in response to the impact of a weak global economy on certain of the Companys businesses and the effects of a
continued strong U.S. dollar. The restructuring activities have been broadly implemented across the Companys various businesses with all actions completed in the second half of 2016.
Accrued liabilities in the Companys consolidated balance sheet included amounts related to the 2016 and 2015
restructuring charges as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
of
2016
Restructuring
|
|
|
Fourth Quarter
of
2015
Restructuring
|
|
|
First Quarter
of
2015
Restructuring
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pre-tax charges
|
|
|
|
|
|
|
20.7
|
|
|
|
15.9
|
|
|
|
36.6
|
|
Utilization
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(10.8
|
)
|
|
|
(12.2
|
)
|
Foreign currency translation adjustments and other
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
|
|
|
|
19.3
|
|
|
|
5.0
|
|
|
|
24.3
|
|
Pre-tax charges
|
|
|
25.6
|
|
|
|
|
|
|
|
|
|
|
|
25.6
|
|
Utilization
|
|
|
(6.4
|
)
|
|
|
(9.2
|
)
|
|
|
(3.4
|
)
|
|
|
(19.0
|
)
|
Foreign currency translation adjustments and other
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(0.1
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
19.2
|
|
|
$
|
9.2
|
|
|
$
|
1.5
|
|
|
$
|
29.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-72
AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19.
|
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total Year
|
|
|
|
(In thousands, except per share amounts)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
944,398
|
|
|
$
|
977,706
|
|
|
$
|
945,030
|
|
|
$
|
972,953
|
|
|
$
|
3,840,087
|
|
Operating income
(1)(2)
|
|
$
|
208,523
|
|
|
$
|
219,036
|
|
|
$
|
201,116
|
|
|
$
|
173,222
|
|
|
$
|
801,897
|
|
Net income
(1)(2)
|
|
$
|
134,170
|
|
|
$
|
138,193
|
|
|
$
|
130,687
|
|
|
$
|
109,108
|
|
|
$
|
512,158
|
|
Basic earnings per share
(1)(2)(3)
|
|
$
|
0.57
|
|
|
$
|
0.59
|
|
|
$
|
0.56
|
|
|
$
|
0.47
|
|
|
$
|
2.20
|
|
Diluted earnings per share
(1)(2)(3)
|
|
$
|
0.57
|
|
|
$
|
0.59
|
|
|
$
|
0.56
|
|
|
$
|
0.47
|
|
|
$
|
2.19
|
|
Dividends paid per share
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
984,059
|
|
|
$
|
1,003,726
|
|
|
$
|
998,527
|
|
|
$
|
987,983
|
|
|
$
|
3,974,295
|
|
Operating income
(4)
|
|
$
|
220,952
|
|
|
$
|
240,319
|
|
|
$
|
237,615
|
|
|
$
|
208,830
|
|
|
$
|
907,716
|
|
Net income
(4)
|
|
$
|
142,107
|
|
|
$
|
155,513
|
|
|
$
|
156,398
|
|
|
$
|
136,841
|
|
|
$
|
590,859
|
|
Basic earnings per share
(3)(4)
|
|
$
|
0.59
|
|
|
$
|
0.64
|
|
|
$
|
0.65
|
|
|
$
|
0.58
|
|
|
$
|
2.46
|
|
Diluted earnings per share
(3)(4)
|
|
$
|
0.59
|
|
|
$
|
0.64
|
|
|
$
|
0.65
|
|
|
$
|
0.57
|
|
|
$
|
2.45
|
|
Dividends paid per share
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.36
|
|
(1)
|
During 2016, the Company recorded pre-tax restructuring charges totaling $25.6 million, recorded in the fourth quarter of 2016. The
restructuring charges had the effect of reducing net income for 2016 by $17.0 million ($0.07 per diluted share). See Note 18.
|
(2)
|
During 2016, the Company recorded a $13.9 million non-cash impairment charge related to certain of the Companys trade names. The
impairment charge had the effect of reducing net income for 2016 by $8.6 million ($0.04 per diluted share). See Note 6.
|
(3)
|
The sum of quarterly earnings per share may not equal total year earnings per share due to rounding of earnings per share amounts, and differences
in weighted average shares and equivalent shares outstanding for each of the periods presented.
|
(4)
|
During 2015, the Company recorded pre-tax restructuring charges totaling $36.6 million, with $15.9 million recorded in the first quarter
of 2015 and $20.7 million recorded in the fourth quarter of 2015. The restructuring charges had the effect of reducing net income for 2015 by $24.7 million ($0.10 per diluted share), with $10.8 million net income reduction ($0.04 per
diluted share) in the first quarter of 2015 and $13.9 million net income reduction ($0.06 per diluted share) in the fourth quarter of 2015. See Note 18.
|
A-73
This document is printed on recycled paper, which contains at least 10% post consumer waste.
ANNUAL MEETING OF STOCKHOLDERS OF
AMETEK, Inc.
May 9, 2017
|
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PROXY VOTING INSTRUCTIONS
|
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|
|
INTERNET
-
Access
www.
voteproxy.com
and follow the on-screen instructions or
scan the QR code with your smartphone. Have your proxy card available when you access the web page.
TELEPHONE
-
Call toll-free
1-800-PROXIES
(1-800-776-9437) in the United States or
1-718-921-8500
from foreign countries from
any touch-tone telephone and follow the instructions. Have your proxy card available when you call.
Vote online/phone until 11:59 PM EDT the day before the meeting.
MAIL
-
Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON
-
You may vote your shares in person by
attending the Annual Meeting.
GO GREEN
-
e-Consent
makes it easy to go paperless. With
e-Consent,
you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via
www.astfinancial.com to enjoy online access.
|
|
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COMPANY NUMBER
|
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|
ACCOUNT NUMBER
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|
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL
: The Notice of Meeting, proxy statement and proxy card are available at
http://www.ametek.com/2017proxy
|
Please detach along perforated line and mail in the envelope provided
IF
you are not voting via telephone or the Internet.
|
|
|
00003333030403000000 2
|
|
050917
|
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 4, AND FOR 1 YEAR IN PROPOSAL 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
☒
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UNLESS
OTHERWISE SPECIFIED IN THE SPACES PROVIDED, THE UNDERSIGNEDS VOTE WILL BE CAST FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1, FOR PROPOSALS 2 AND 4, AND FOR 1 YEAR IN PROPOSAL 3 AS MORE FULLY DESCRIBED IN THE
ENCLOSED PROXY STATEMENT.
Annual Meeting of Stockholders
AMETEK, Inc.s Annual Meeting of Stockholders will be held at 11:00 a.m. Eastern Daylight Time on Tuesday, May 9, 2017, at the JW Marriott Essex
House New York, Tivoli Room, 160 Central Park South, New York, NY 10019.
ELECTRONIC ACCESS TO FUTURE DOCUMENTS
If you would
like to receive future shareholder communications over the Internet exclusively, and no longer receive any material by mail, please visit http://www.astfinancial.com. Click on Shareholder Account Access to enroll. Please enter your account number
and tax identification number to log in, then select
Receive Company Mailings via E-Mail
and provide your
e-mail
address.
|
|
|
|
|
|
1.
|
|
Election of Directors:
|
|
|
|
|
|
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|
|
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FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
|
|
|
|
|
|
Thomas A. Amato
|
|
|
|
☐
|
|
☐
|
|
☐
|
|
|
|
|
|
|
|
Anthony J. Conti
|
|
|
|
☐
|
|
☐
|
|
☐
|
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|
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|
Frank S. Hermance
|
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☐
|
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☐
|
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☐
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Gretchen W. McClain
|
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☐
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☐
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☐
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FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
|
|
|
|
2.
|
|
Approval, by non-binding advisory vote, of AMETEK, Inc. executive compensation.
|
|
☐
|
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☐
|
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☐
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1 year
|
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2 years
|
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3 years
|
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ABSTAIN
|
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3.
|
|
Advisory vote on the frequency of executive compensation advisory votes.
|
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☐
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☐
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☐
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☐
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FOR
|
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AGAINST
|
|
ABSTAIN
|
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|
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4.
|
|
Ratification of Ernst & Young LLP as independent registered public accounting firm.
|
|
☐
|
|
☐
|
|
☐
|
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|
At their discretion, the proxies are authorized to vote upon such other business as may properly come before the
meeting.
|
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Receipt of the notice of said meeting and of the Proxy Statement of AMETEK, Inc. accompanying the same is hereby
acknowledged.
|
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|
|
To change the address on your account, please check the box at
right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
|
|
☐
|
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Signature of Stockholder
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Date:
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Signature of Stockholder
|
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|
Date:
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|
Note:
|
|
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
|
|
|
ANNUAL MEETING OF STOCKHOLDERS OF
AMETEK, Inc.
May 9, 2017
|
|
|
|
|
|
|
GO GREEN
|
|
|
|
|
e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible
documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access.
|
|
|
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL
:
The Notice of Meeting, proxy statement and proxy card
are available at http://www.ametek.com/2017proxy
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
|
|
|
|
|
00003333030403000000 2
|
|
050917
|
|
|
|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 4, AND FOR 1 YEAR IN PROPOSAL 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
☒
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
UNLESS
OTHERWISE SPECIFIED IN THE SPACES PROVIDED, THE UNDERSIGNEDS VOTE WILL BE CAST FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1, FOR PROPOSALS 2 AND 4, AND FOR 1 YEAR IN PROPOSAL 3 AS MORE FULLY DESCRIBED IN THE
ENCLOSED PROXY STATEMENT.
Annual Meeting of Stockholders
AMETEK, Inc.s Annual Meeting of Stockholders will be held at 11:00 a.m. Eastern Daylight Time on Tuesday, May 9, 2017, at the JW Marriott Essex
House New York, Tivoli Room, 160 Central Park South, New York, NY 10019.
ELECTRONIC ACCESS TO FUTURE DOCUMENTS
If you would
like to receive future shareholder communications over the Internet exclusively, and no longer receive any material by mail, please visit http://www.astfinancial.com. Click on Shareholder Account Access to enroll. Please enter your account number
and tax identification number to log in, then select
Receive Company Mailings via E-Mail
and provide your e-mail address.
|
|
|
|
|
|
1.
|
|
Election of Directors:
|
|
|
|
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FOR
|
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AGAINST
|
|
ABSTAIN
|
|
|
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|
|
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|
Thomas A. Amato
|
|
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☐
|
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☐
|
|
☐
|
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|
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|
Anthony J. Conti
|
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☐
|
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☐
|
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☐
|
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Frank S. Hermance
|
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☐
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☐
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☐
|
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|
Gretchen W. McClain
|
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☐
|
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☐
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☐
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FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
|
|
|
|
2.
|
|
Approval, by non-binding advisory vote, of AMETEK, Inc. executive compensation.
|
|
☐
|
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☐
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☐
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1 year
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2 years
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3 years
|
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ABSTAIN
|
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3.
|
|
Advisory vote on the frequency of executive compensation advisory votes.
|
|
☐
|
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☐
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☐
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☐
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FOR
|
|
AGAINST
|
|
ABSTAIN
|
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4.
|
|
Ratification of Ernst & Young LLP as independent registered public accounting firm.
|
|
☐
|
|
☐
|
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☐
|
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At their discretion, the proxies are authorized to vote upon such other business as may properly come before the
meeting.
|
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Receipt of the notice of said meeting and of the Proxy Statement of AMETEK, Inc. accompanying the same is hereby
acknowledged.
|
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|
|
To change the address on your account, please check the box at
right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
|
|
☐
|
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Signature of Stockholder
|
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Date:
|
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Signature of Stockholder
|
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|
|
Date:
|
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|
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|
|
|
|
Note:
|
|
Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
|
|
|
0
AMETEK, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David A. Zapico, Robert S. Feit and Kathryn E. Sena or a majority of
those present and acting, or, if only one is present and acting, then that one, proxies, with full power of substitution, to vote all stock of AMETEK, Inc. which the undersigned is entitled to vote at AMETEKs Annual Meeting of Stockholders to
be held at the JW Marriott Essex House New York, Tivoli Room, 160 Central Park South, New York, NY 10019, on Tuesday, May 9, 2017, at 11:00 a.m. Eastern Daylight Time, and at any adjournment or postponement thereof, hereby ratifying all that said
proxies or their substitutes may do by virtue hereof, and the undersigned authorizes and instructs said proxies to vote as follows:
(TO BE SIGNED
ON REVERSE SIDE)
|
|
|
1.1
|
|
14475
|
Ametek (NYSE:AME)
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