Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
The accompanying consolidated financial statements are unaudited. AMETEK, Inc. (the Company) believes that
all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at June 30, 2014, and the consolidated results of its operations for the three and
six months ended June 30, 2014 and 2013 and its cash flows for the six months ended June 30, 2014 and 2013 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. The accompanying
consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes presented in the Companys Annual Report on
Form 10-K
for the year ended
December 31, 2013 as filed with the Securities and Exchange Commission.
2.
|
Recent Accounting Pronouncements
|
In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU)
No. 2013-05,
Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an
Investment in a Foreign Entity
(ASU 2013-05).
ASU 2013-05
provides guidance for the treatment of the cumulative translation adjustment when an
entity ceases to hold a controlling financial interest in a subsidiary or group of assets within a foreign entity. The Company adopted
ASU 2013-05
effective January 1, 2014 and the adoption did not
have a significant impact on the Companys consolidated results of operations, financial position or cash flows.
In July
2013, the FASB issued ASU
No. 2013-11
, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
(ASU 2013-11).
ASU 2013-11
provides guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward exists. The Company adopted
ASU 2013-11
effective January 1, 2014 and the adoption did not have a significant impact on the
Companys consolidated financial statement presentation.
In April 2014, the FASB issued ASU
No. 2014-08
, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
(ASU 2014-08).
ASU
2014-08
revised guidance to only allow disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment,
or other major parts of an entity) and that have a major effect on a reporting entitys operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial
statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation.
ASU 2014-08
is effective for interim
and annual reporting periods beginning after December 15, 2014. The Company does not expect the adoption of
ASU 2014-08
to have a significant impact on the Companys consolidated results of
operations, financial position or cash flows.
In May 2014, the FASB issued
ASU No. 2014-09,
Revenue from Contracts with Customers
. 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. In applying the new guidance, the Company must
(1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contracts performance obligations; and
(5) recognize revenue when the Company satisfies a performance obligation.
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, 2016 and can be adopted by the Company using either a full
retrospective or modified retrospective approach, with early adoption prohibited. The Company is currently evaluating
ASU 2014-09
and has not determined the impact it may have on the Companys
consolidated results of operations, financial position or cash flows nor decided upon the method of adoption.
6
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
245,201
|
|
|
|
243,666
|
|
|
|
245,056
|
|
|
|
243,475
|
|
Equity-based compensation plans
|
|
|
2,202
|
|
|
|
2,438
|
|
|
|
2,260
|
|
|
|
2,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
247,403
|
|
|
|
246,104
|
|
|
|
247,316
|
|
|
|
245,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Accumulated Other Comprehensive Income (Loss)
|
The components of accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
Foreign
Currency
Items
and Other
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
|
Foreign
Currency
Items and
Other
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the period
|
|
$
|
(2,128
|
)
|
|
$
|
(63,398
|
)
|
|
$
|
(65,526
|
)
|
|
$
|
(65,599
|
)
|
|
$
|
(117,620
|
)
|
|
$
|
(183,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
10,140
|
|
|
|
|
|
|
|
10,140
|
|
|
|
(318
|
)
|
|
|
|
|
|
|
(318
|
)
|
Change in long-term intercompany notes
|
|
|
(5,493
|
)
|
|
|
|
|
|
|
(5,493
|
)
|
|
|
5,937
|
|
|
|
|
|
|
|
5,937
|
|
Net investment hedges
|
|
|
3,305
|
|
|
|
|
|
|
|
3,305
|
|
|
|
864
|
|
|
|
|
|
|
|
864
|
|
Gross amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
1,031
|
|
|
|
1,031
|
|
|
|
|
|
|
|
3,411
|
|
|
|
3,411
|
|
Income tax benefit (expense)
|
|
|
(1,156
|
)
|
|
|
(361
|
)
|
|
|
(1,517
|
)
|
|
|
(302
|
)
|
|
|
(1,193
|
)
|
|
|
(1,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
6,796
|
|
|
|
670
|
|
|
|
7,466
|
|
|
|
6,181
|
|
|
|
2,218
|
|
|
|
8,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
4,668
|
|
|
$
|
(62,728
|
)
|
|
$
|
(58,060
|
)
|
|
$
|
(59,418
|
)
|
|
$
|
(115,402
|
)
|
|
$
|
(174,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
Foreign
Currency
Items
and Other
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
|
Foreign
Currency
Items and
Other
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the period
|
|
$
|
(1,171
|
)
|
|
$
|
(64,068
|
)
|
|
$
|
(65,239
|
)
|
|
$
|
(31,492
|
)
|
|
$
|
(119,838
|
)
|
|
$
|
(151,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
4,359
|
|
|
|
|
|
|
|
4,359
|
|
|
|
(21,367
|
)
|
|
|
|
|
|
|
(21,367
|
)
|
Change in long-term intercompany notes
|
|
|
(1,136
|
)
|
|
|
|
|
|
|
(1,136
|
)
|
|
|
(1,473
|
)
|
|
|
|
|
|
|
(1,473
|
)
|
Net investment hedges
|
|
|
4,024
|
|
|
|
|
|
|
|
4,024
|
|
|
|
(7,825
|
)
|
|
|
|
|
|
|
(7,825
|
)
|
Gross amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
2,062
|
|
|
|
2,062
|
|
|
|
|
|
|
|
6,822
|
|
|
|
6,822
|
|
Income tax benefit (expense)
|
|
|
(1,408
|
)
|
|
|
(722
|
)
|
|
|
(2,130
|
)
|
|
|
2,739
|
|
|
|
(2,386
|
)
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
5,839
|
|
|
|
1,340
|
|
|
|
7,179
|
|
|
|
(27,926
|
)
|
|
|
4,436
|
|
|
|
(23,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
4,668
|
|
|
$
|
(62,728
|
)
|
|
$
|
(58,060
|
)
|
|
$
|
(59,418
|
)
|
|
$
|
(115,402
|
)
|
|
$
|
(174,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications for the amortization of defined benefit pension plans are included in Cost of sales,
excluding depreciation in the consolidated statement of income. See Note 12 for further details.
7
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
5.
|
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.
The following table provides the Companys assets and liabilities that are measured at fair value on a recurring basis as of
June 30, 2014 and December 31, 2013, consistent with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Fixed-income investments
|
|
$
|
9,823
|
|
|
$
|
8,234
|
|
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 six months ended June 30, 2014, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the
six months ended June 30, 2014.
Financial Instruments
Cash, cash equivalents and fixed-income investments are recorded at fair value at June 30, 2014 and December 31, 2013 in the accompanying consolidated balance sheet.
The following table provides the estimated fair values of the Companys financial instruments, for which fair value is measured for
disclosure purposes only, compared to the recorded amounts at June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Recorded
Amount
|
|
|
Fair Value
|
|
|
Recorded
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Short-term borrowings
|
|
$
|
(453,337
|
)
|
|
$
|
(453,337
|
)
|
|
$
|
(268,764
|
)
|
|
$
|
(268,764
|
)
|
Long-term debt (including current portion)
|
|
|
(1,149,329
|
)
|
|
|
(1,316,580
|
)
|
|
|
(1,146,301
|
)
|
|
|
(1,290,466
|
)
|
The fair value of
short-term
borrowings approximates the carrying
value. Short-term borrowings are valued as level 2 investments as they are corroborated by observable market data. The Companys long-term debt is all privately held with no public market for this debt, therefore, the fair value of
long-term debt was computed based on comparable current market data for similar debt instruments and is considered to be a level 3 liability.
8
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
Forward Contracts
At June 30, 2014, the Company had no forward contracts outstanding. For the three and six months ended June 30, 2014, realized gains and losses on foreign currency forward contracts were not
significant. At December 31, 2013, the Company had two Euro forward contracts for a total of 21.7 million Euro ($28 thousand fair value unrealized loss at December 31, 2013) and one 61.0 million Swiss franc forward contract
($511 thousand fair value unrealized loss at December 31, 2013) outstanding. The Company has not designated its foreign currency forward contracts as hedges.
The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in
certain foreign operations. As of June 30, 2014, these net investment hedges included British-pound- and Euro-denominated long-term debt. These borrowings were designed to create net investment 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 instrument (the debt) following hedge designation is reported in accumulated other
comprehensive income in the same manner as the translation adjustment on the investment based on changes in the spot rate, which is used to measure hedge effectiveness.
At June 30, 2014, the Company had $205.2 million of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign
subsidiaries. At June 30, 2014, the Company had a $68.4 million Euro-denominated loan, which was designated as a hedge against the net investment in Euro functional currency foreign subsidiaries. As a result of these British-pound- and
Euro-denominated loans being designated and 100% effective as net investment hedges, $5.9 million of currency remeasurement losses have been included in the foreign currency translation component of other comprehensive income for the six months
ended June 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Finished goods and parts
|
|
$
|
121,166
|
|
|
$
|
76,086
|
|
Work in process
|
|
|
96,491
|
|
|
|
85,518
|
|
Raw materials and purchased parts
|
|
|
320,630
|
|
|
|
291,244
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
538,287
|
|
|
$
|
452,848
|
|
|
|
|
|
|
|
|
|
|
9
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
The Company spent $458.7 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 and Zygo Corporation in June 2014. Teseq is a manufacturer of test and measurement instrumentation for electromagnetic compatibility (EMC)
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. Teseq, VTI, Luphos and Zygo are part of AMETEKs Electronic Instruments Group.
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
|
|
$
|
58.4
|
|
Goodwill
|
|
|
194.3
|
|
Other intangible assets
|
|
|
219.3
|
|
Deferred income taxes
|
|
|
(63.0
|
)
|
Net working capital and other*
|
|
|
49.7
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
458.7
|
|
|
|
|
|
|
*
|
Includes $29.7 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: Teseq
manufactures a broad line of conducted and radiated EMC compliance testing systems and radio-frequency amplifiers for a wide range of industries, including aerospace, automotive, consumer electronics, medical equipment, telecommunications and
transportation. Teseq provides the Company with opportunities for accelerating product innovation and market expansion worldwide. VTI broadens the Companys capabilities in the high end test and measurement market and provides additional
technology differentiation. Luphos technology expands the Companys metrology capabilities across a broader range of surface finishes and profiles. Zygos position in non-contact optical metrology complements the Companys
position in contact metrology and enables the Company to offer its customers a full range of metrology solutions. The Company expects approximately $6.3 million of the goodwill recorded in connection with the 2014 acquisitions will be tax
deductible in future years.
The Company is in the process of finalizing the measurement of certain tangible and intangible
assets and liabilities for its 2014 acquisitions, as well as accounting for income taxes associated with its 2014 acquisitions and the 2013 acquisitions of Controls Southeast, Inc., Creaform, Inc. and Powervar, Inc.
At June 30, 2014, purchase price allocated to other intangible assets of $219.3 million consists of $46.6 million of
indefinite-lived intangible trademarks and trade names, which are not subject to amortization. The remaining $172.7 million of other intangible assets consist of $128.0 million of customer relationships, which are being amortized over a
period of five to 20 years, $0.8 million of trade names, which are being amortized over a period of ten years and $43.9 million of purchased technology, which is being amortized over a period of 15 to 17 years. Amortization
expense for each of the next five years for the 2014 acquisitions listed above is expected to approximate $9.7 million per year.
The 2014 acquisitions noted above had an immaterial impact on reported net sales, net income and diluted earnings per share for the three and six months ended June 30, 2014. Had the
2014 acquisitions been made at the beginning of 2014 or 2013, unaudited pro forma net sales, net income and diluted earnings per share for the three and six months ended June 30, 2014 and 2013, 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 2014 or 2013.
10
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
Acquisitions Subsequent to June 30, 2014
In August 2014, the Company acquired Amptek, Inc., a privately held manufacturer of instrumentation and detectors used to identify
composition of materials using x-ray fluorescence. Amptek was acquired for approximately $115 million and has estimated annual sales of approximately $30 million. Amptek broadens the Companys position in the process and analytical
instrumentations markets and will join AMETEKs Electronic Instruments Group.
The changes in the carrying amounts of goodwill by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
Instruments
Group
|
|
|
Electro-
mechanical
Group
|
|
|
Total
|
|
|
|
(In millions)
|
|
Balance at December 31, 2013
|
|
$
|
1,410.8
|
|
|
$
|
997.6
|
|
|
$
|
2,408.4
|
|
Goodwill acquired
|
|
|
194.3
|
|
|
|
|
|
|
|
194.3
|
|
Purchase price allocation adjustments and other
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Foreign currency translation adjustments
|
|
|
3.8
|
|
|
|
2.2
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
1,610.6
|
|
|
$
|
999.8
|
|
|
$
|
2,610.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2014, the Company had gross unrecognized tax benefits of $76.1 million, of which
$69.9 million, if recognized, would impact the effective tax rate.
The following is a reconciliation of the liability
for uncertain tax positions (in millions):
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
55.2
|
|
Additions for tax positions
|
|
|
21.7
|
|
Reductions for tax positions
|
|
|
(0.8
|
)
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
76.1
|
|
|
|
|
|
|
The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax
expense. The amounts recognized in income tax expense for interest and penalties during the three and six months ended June 30, 2014 and 2013 were not significant.
11
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
11.
|
Share-Based Compensation
|
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 periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Expected volatility
|
|
|
23.9
|
%
|
|
|
28.1
|
%
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.63
|
%
|
|
|
0.75
|
%
|
Expected dividend yield
|
|
|
0.45
|
%
|
|
|
0.57
|
%
|
Black-Scholes-Merton fair value per stock option granted
|
|
$
|
12.21
|
|
|
$
|
10.17
|
|
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 contractual life of the stock option is based on the U.S. Treasury yield curve at the time of grant. Compensation expense recognized for
all share-based awards is net of estimated forfeitures. The Companys estimated forfeiture rates are based on its historical experience.
Total share-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Stock option expense
|
|
$
|
3,506
|
|
|
$
|
2,884
|
|
|
$
|
5,340
|
|
|
$
|
5,059
|
|
Restricted stock expense
|
|
|
2,636
|
|
|
|
1,854
|
|
|
|
4,968
|
|
|
|
6,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax expense
|
|
|
6,142
|
|
|
|
4,738
|
|
|
|
10,308
|
|
|
|
11,508
|
|
Related tax benefit
|
|
|
(2,054
|
)
|
|
|
(1,576
|
)
|
|
|
(3,287
|
)
|
|
|
(3,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income
|
|
$
|
4,088
|
|
|
$
|
3,162
|
|
|
$
|
7,021
|
|
|
$
|
7,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense is included in the consolidated statement of income in either
Cost of sales, excluding depreciation or Selling, general and administrative expenses, depending on where the recipients cash compensation is reported.
The following is a summary of the Companys stock option activity and related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(Years)
|
|
|
(In millions)
|
|
Outstanding at December 31, 2013
|
|
|
6,394
|
|
|
$
|
27.13
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
973
|
|
|
|
53.13
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(512
|
)
|
|
|
21.46
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(83
|
)
|
|
|
36.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2014
|
|
|
6,772
|
|
|
$
|
31.18
|
|
|
|
4.1
|
|
|
$
|
143.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2014
|
|
|
4,135
|
|
|
$
|
23.46
|
|
|
|
2.9
|
|
|
$
|
119.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
The aggregate intrinsic value of stock options exercised during the six months ended
June 30, 2014 was $16.0 million. The total fair value of stock options vested during the six months ended June 30, 2014 was $8.8 million. As of June 30, 2014, there was approximately $20.2 million of expected future
pre-tax
compensation expense related to the 2.6 million nonvested stock options outstanding, which is expected to be recognized over a weighted average period of less than two years.
The following is a summary of the Companys nonvested restricted stock activity and related information:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
Nonvested restricted stock outstanding at December 31, 2013
|
|
|
987
|
|
|
$
|
36.12
|
|
Granted
|
|
|
307
|
|
|
|
52.83
|
|
Vested
|
|
|
(97
|
)
|
|
|
34.17
|
|
Forfeited
|
|
|
(35
|
)
|
|
|
36.95
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock outstanding at June 30, 2014
|
|
|
1,162
|
|
|
$
|
40.67
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock vested during the six months ended June 30, 2014 was
$3.3 million. As of June 30, 2014, there was approximately $32.7 million of expected future
pre-tax
compensation expense related to the 1.2 million nonvested restricted shares outstanding,
which is expected to be recognized over a weighted average period of approximately two years.
12.
|
Retirement and Pension Plans
|
The components of net periodic pension benefit expense (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Defined benefit plans:
|
|
|
|
|
Service cost
|
|
$
|
1,644
|
|
|
$
|
1,628
|
|
|
$
|
3,280
|
|
|
$
|
3,262
|
|
Interest cost
|
|
|
7,262
|
|
|
|
6,516
|
|
|
|
14,495
|
|
|
|
13,048
|
|
Expected return on plan assets
|
|
|
(12,607
|
)
|
|
|
(11,219
|
)
|
|
|
(25,167
|
)
|
|
|
(22,458
|
)
|
Amortization of net actuarial loss and other
|
|
|
1,031
|
|
|
|
3,411
|
|
|
|
2,062
|
|
|
|
6,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension (income) expense
|
|
|
(2,670
|
)
|
|
|
336
|
|
|
|
(5,330
|
)
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined contribution plans
|
|
|
4,987
|
|
|
|
4,495
|
|
|
|
10,725
|
|
|
|
9,562
|
|
Foreign plans and other
|
|
|
1,484
|
|
|
|
1,283
|
|
|
|
2,772
|
|
|
|
2,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other plans
|
|
|
6,471
|
|
|
|
5,778
|
|
|
|
13,497
|
|
|
|
12,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net pension expense
|
|
$
|
3,801
|
|
|
$
|
6,114
|
|
|
$
|
8,167
|
|
|
$
|
12,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2014 and 2013, contributions to the Companys defined benefit
pension plans were not significant.
13
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
The Company provides limited warranties in connection with the sale of its products. The warranty periods for products
sold vary widely among the Companys operations, but for the most part do not exceed one year. The Company calculates its warranty expense provision based on past warranty experience and adjustments are made periodically to reflect actual
warranty expenses.
Changes in the accrued product warranty obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(In thousands)
|
|
Balance at the beginning of the period
|
|
$
|
28,036
|
|
|
$
|
27,792
|
|
Accruals for warranties issued during the period
|
|
|
3,865
|
|
|
|
2,132
|
|
Settlements made during the period
|
|
|
(5,880
|
)
|
|
|
(4,979
|
)
|
Warranty accruals related to acquired businesses and other during the period
|
|
|
3,617
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
29,638
|
|
|
$
|
24,855
|
|
|
|
|
|
|
|
|
|
|
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, along with many other companies, in a number of asbestos-related lawsuits. Many of these lawsuits either relate to businesses which
were acquired by the Company and do not involve products which were manufactured or sold by the Company or relate to previously owned businesses of the Company which are under new ownership. In connection with many of these lawsuits, the sellers or
new owners of such businesses, as the case may be, have agreed to indemnify the Company against these claims (the Indemnified Claims). The Indemnified Claims have been tendered to, and are being defended by, such sellers and new owners.
These sellers and new owners have met their obligations, in all respects, and the Company does not have any reason to believe such parties would fail to fulfill their obligations in the future; however, one of these companies filed for bankruptcy
liquidation in 2007. 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 June 30, 2014, the
Company is named a Potentially Responsible Party (PRP) at 15 non-AMETEK-owned former waste disposal or treatment sites (the non-owned sites). The Company is identified as a de minimis party in 13 of these sites
based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In nine 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 two remaining sites where the Company is a non-de minimis PRP, the Company is participating in the investigation
and/or related required remediation as part of a PRP Group or investigating the PRP claim 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
14
AMETEK, Inc.
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
has determined that a loss is probable and estimable. This estimate is refined as the Company moves through the various stages of investigation, risk assessment, feasibility study and corrective
action processes. In certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the low end of the range. It is reasonably possible that the actual cost of remediation of the individual
sites could vary from the current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to result in a material change to the consolidated financial statements. In
estimating the 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 June 30, 2014 and December 31, 2013 were $21.4 million and $21.9 million,
respectively, for both non-owned and owned sites. For the six months ended June 30, 2014, the Company recorded $0.6 million in reserves. Additionally, the Company spent $1.1 million on environmental matters for the six months ended
June 30, 2014. The Companys reserves for environmental liabilities at June 30, 2014 and December 31, 2013 include reserves of $13.0 million and $13.3 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 June 30, 2014, the Company had $11.4 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 $19.0 million of
additional costs.
The Company has agreements with other former owners of certain of its acquired businesses, as well as new
owners of previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other liabilities under certain circumstances. The Company
and some of these other parties also carry insurance coverage for some environmental matters. To date, these parties have met their obligations in all material respects.
The Company believes it has established reserves which are sufficient to perform all known responsibilities under existing claims and consent orders. The Company has no reason to believe that other third
parties would fail to perform their obligations in the future. In the opinion of management, based upon presently available information and past experience related to such matters, an adequate provision for probable costs has been made and the
ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position or cash flows of the Company.
The Company has two reportable segments, Electronic Instruments Group (EIG) and Electromechanical Group
(EMG). The Company identifies its operating segments for segment reporting purposes primarily on the basis of product type, production processes, distribution methods and management organizations.
At June 30, 2014, there were no significant changes in identifiable assets of reportable segments from the amounts disclosed at
December 31, 2013, other than those described in the acquisitions footnote (Note 8), nor were there any significant changes in the basis of segmentation or in the measurement of segment operating results. Operating information relating to
the Companys reportable segments for the three and six months ended June 30, 2014 and 2013 can be found in the table included in Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations of this Quarterly Report on
Form 10-Q.
15