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Vtf&i m |H980ftNNUAL<REP 'll PERATING AND FI lAL^HIGHLIGHTS liar amounts hi thousands, ej:ctipffe>er share figures) -\wsaFor the year **Per Share ij rAt yearend '21980 . :;;i979 2^1978 400,180 *21,665 < 23.02 21,923 ti1u0,,r7a59 It; 11..000 .,, ^ ^,^^'$$ *.3*39922,8,87733 '-**-=$$3"^332200,,77001 .^.,^3 2222,4,44422 ..-^^*39,94,40022 1 \/>X^k%"*?3S2adi_.R855 ' 4^-20320 ^^1,736 - c/,M%91839 ` H^8,667 - '''^J92% -'* r>32% deri' Equity 0,787,939 PLAINTIFFS EXHIBIT HAV-20 3AMETEK, a diversified industrial ^manufacturer, produces both /capital goods and components ^for consumer products, which ^tnakes possible the Company's ^/participation in both the capital ^equipment and consumer goods markets. AMETEK serves these markets through four ^operating groups: Precision - Instruments, Process -- /i^quipment. Electro-mechanical /rand Industrial Materials.The ^Company employs approximately /,700 people at thirty plants in s. ' --the United States. : AS000723 .'if*. REPORT TO AMETEK'S SHAREHOLDERS Although 1980 was a good year for AMETEK, with a very strong first and fourth quarter, results did not match the all-time record reported for 1979. We believe that the Company performed very well in the difficult economic environment of 1980, having achieved the following: COVER SCORPIO undersea work vehicles, developed by AMETEK's Straza division, are now in service in many of the world's off-shore oil fields. These unmanned submersibles can work to depths of three thousand feet for unlimited periods, controlled by operators on a surface ship above the work-site. * A continuous run of yard-wide SILTEMP- silica fabric billows up and back down through a two-story high luminous- wall furnace in a final purification process for this Haveg material which is used as a replace ment tor asbestos in high temperature insulation. Sales topped $400 million for the first time in AMETEK's history. Earnings per share were $2.02 compared with 1979's all-time record of $2.11 per share. The year ended on a strong note, with new orders received in the fourth quarter up more than 12 per cent over 1979's fourth quarter, producing a record backlog at year end of more than $194 million. Two seven-week strikes at major plants were settled during the second and third quarters with new threeyear labor agreements in each case. AMETEK invested a record $21.9 million in new plants and equipment, completing four of the five major plant expansions commenced in 1979 and began work on two new plants. Research and development expenditures expanded to a record $8.1 million and significant advances were achieved in AMETEK's solar photovoltaic and solid state instrumentation work. AMETEK purchased a sizable industrial plastics com pany during the fourth quarter of 1980. At year-end AMETEK's total assets, stockholders' equity and dividend payments to stockholders had in creased over 1979 totals by ten percent or more. Funds generated from operations were a record $34 million. AS000724 i REPORT TO AMETEK'S SHAREHOLDERS (continued) OPERATIONS The sluggish economy of 1980 and the higher costs ex perienced during the' year had a slight effect on AMETEK's overall results. While the Electro mechanical Group, led by a strong performance from the Lamb Electric and Straza divisions, showed solid growth, the Precision Instruments, Process Equipment and Industrial Materials Groups produced lower operating profits. Same strength in heat exchangers, filters and centrifuges benefited the Process Equip ment Group but this was more than counterbalanced by the effect of a seven-week strike on our Valley Foundry division's winery equipment sales. The In dustrial Materials Group, despite a minor increase in volume--mainly due to the addition of a new in dustrial plastics business in the fourth quarter--had a decrease in operating profits reflecting both the sevenweek strike at Pacific Extrusion's Watsonville, California plant which was settled late in the second quarter, and the reduced demand for construction components reflecting the slow-down in the building industry. AMETEK's group results are detailed on pages 19 and 20 of the enclosed financial report. New order rates, which lagged in the spring, strengthened significantly in the fourth quarter, en abling AMETEK to end the year with a record $194 million backlog of unfilled orders. Your Company is providing increased capacity to meet this demand by adding manufacturing facilities for an instrument plant in Florida, plastics plants in Pennsylvania and Wisconsin and electric motor plants in North Carolina and Wisconsin. As part of AMETEK's record 1980 capital expansion program, new equipment systems were added to improve productivity throughout our manufacturing locations. Your Company has invested $88 million in its manufacturing facilities since the beginning of 1975. In early October your Company purchased the Haveg Industries plastics business in Marshallton, Delaware, for approximately $5.4 million in cash from a subsidiary of Hercules, Incorporated. This purchase included Haveg's 240,000 square foot plant where approximately 250 employees produce three well-established industrial plastics product lines with .annual sales in the $14 million range. Haveg's opera tions have been included in AMETEK's results since the October 8th purchase. Your management's knowledge of this business should help expand Haveg sales and profitability;-your president and chairman managed Haveg Industries during an 11-year period of rapid growth in the late '50's and early '60's and. after Hercules purchased Haveg in 1964, continued the association before coming to AMETEK. We are delighted with the opportunity to work with the fine people at Haveg again, and welcome them to AMETEK. RESEARCH AND DEVELOPMENT The Company's record $8.1 million investment in research and development programs during 1980 con tinued to produce valuable results. Our silicon-based development.in microelectronic circuitry for in struments has been incorporated into new products marketed by AMETEK's Controls and U.S. Gauge divisions, where the technology will affect the next several generations of measuring devices. AMETEK is one of the few instrument manufacturers with in tegrated silicon production, and the interchange of theoretical and practical experience between our Microelectronics and Silicon Material specialists on the West Coast and instrument engineering groups on the East Coast helps to assure the Company's con tinued leadership in this field. Two solar energy research programs have also been productive. Continued development of AMETEK's flat plate solar collector panels and their excellent perfor mance in domestic hot water systems have enabled us to plan for increased commercial production. Continued and significant progress in AMETEK's solar photovoltaic (electric) program was made during the year. Patent applications have been filed covering these developments. The laboratory results produced to date have been very encouraging. Your manage ment's expectations for the potential of this develop ment continue to increase. It is hoped to move the photovoltaic process from the laboratory to the pilot production stage later this year. FINANCIAL AMETEK's financial strength has provided the means to maintain the Company's growth even in a difficult year such as 1980. Assets grew 13 percent to $254 million and equity increased 11 percent to $127 million in 1980, a year in which the Company improv ed business slightly and increased cash reserves. Annual dividend payments were increased to $1.00 per share, providing the Company's stockholders with a yield over the past five years that has grown at a 13.5" percent compound rater In* prior-years your Company has repurchased its own stock and may from time to time do so again. OUTLOOK Forecasted major economic trends should have a favorable effect on AMETEK over the next five years. Ksooo^5 2 Energy concerns are primary, and conservation of ex isting fuels is expected to provide growth in measuring and control instruments. Plans for large scale refinery conversion work should also benefit instrument sales, as well as AMETEK's heat exchanger, bellows and associated capital equipment lines, as would im plementation of the syn-fuel program. Beginning in 1981 your Company expects to par ticipate significantly in alternate energy programs, especially in tbe market for solar energy equipment. Our current position in plastics, aluminum and in struments assures that your Company will continue to participate in the development of lighter, more effi cient vehicles of ail types, and a number of new pro ducts in. the measurement and purification of water supplies offer AMETEK opportunities to meet this growing national concern. ORGANIZATIONAL - We are pleased to announce that Raymond C.Roloff, general manager of the Process Equipment division, and Stanley A. Walker, who has managed the Straza operations for five years, were both elected Vice President to head their respective divisions. Over the past ten years a dozen new plants were added through both internal growth and acquisitions. Your management team has remained intact during this period, with the scope and demands of individual responsibilities significantly increasing as these ex ecutives created the growth in AMETEK during the decade. We are grateful for their continued commit ment, and for the efforts of employees at every level of the corporation and to our customers, suppliers and shareholders for their contributions. We look for ward to the challenge of 1981 and the coming years. Robert L. Noland President Dr. John H. Lux Chairman and Chief Executive Officer AS000726 RESEARCH AND DEVELOPMENT PROGRAMS POWER SYSTEMS GROUP APPLIED MATERIALS Much of AMETEK's research and development work relates to expansion or technological advancement of existing product lines. The Company's solar energy programs, begun in 1973, are an exception; they reflect corporate decisions to follow-up on technical opportunities which suggested that more efficient use of solar energy was possible. AMETEK's initial investment was moderate--a few hundred thousand dollars led to the development of a high efficiency flat plate solar collector panel capable of producing hot water temperatures well in excess of 200F. In 1975 a patent was granted by the U.S. Pa tent Office covering this panel's selective coating which provides high solar heat absorption with very low re-radiation. The investment grew into the multi-million dollar range as AMETEK's industrial engineering groups con tributed to a panel package design capable of withstanding long-term exposure to the elements. Hundreds of these panels were supplied to computermonitored test installations in various locations across the country and performance data were used to upgrade the design further. The technical staff noted that certain materials had photovoltaic properties, producing minute amounts of electricity in response to the sun's energy, and a group of physicists was assembled at the Applied Materials laboratory to follow-up on this discovery. Focusing on a very low cost fabrication technique with similar materials led to a promising thin-film photovoltaic device and, by the end of 1980, this work had produced a patentable low cost solar cell. Solar Collector Panels In mid-1979 AMETEK's Power Systems group began commercial production and marketing of the Sunjammer hot water panel from a new- plant in Penn sylvania. These 26 square foot flat plate collectors, performance proven in large scale solar installations and home hot water solar systems across the country, have been rated as the most efficient equipment on the market in several state, federal and independent testing programs. Resistance to the relatively high price--$400 plus per panel--was gradually overcome as distributors and installers recognized design and performance advantages of AMETEK panels. In 1980 the continually increasing cost of energy and a new federal tax credit for solar energy equip ment (deduction of forty percent of cost to a max imum of $4,000) gave further impetus to sales. A growing network of more reliable distributors and in stallers chose AMETEK equipment for the typical twopanel solar-assisted residential hot water system. By year-end Power Systems had introduced a lower cost panel for applications where high performance is not required, and a large national retailer had begun tak ing quantity shipments of panels for a test-marketing program in Hawaii and Southern California. AS000727 4 Solar Electric Cells In 1979 AMETEK filed patent applications on its en tirely proprietary, company-funded development of a very low cost photovoltaic cell, based on electro deposition (a process comparable to electroplating) of a thin film consisting of common semiconductive materials. The basic patent covered the photovoltaic cell; a second patent application, describing methods for producing the cell, was subsequently filed. This program is still at a laboratory "bench-top" ex perimental stage; AMETEK expects to begin a pilot production program later in 1981. . Cost is the primary advantage to AMETEK's discovery; material costs right now appear to be con siderably less than the cost of silicon, the common photovoltaic material available today. The potential market for an inexpensive photovoltaic cell is difficult to define: the availability of economical photovoltaic systems would have a major impact on undeveloped areas, residential use may be significant, and public utilities themselves may purchase this equipment in view of the environmental and financial risks involved in other power sources. The Department of Energy projects a multi-billion dollar market for solar photovoltaic products based on material that com bines ten percent efficiency and costs of 70 cents per peak watt of power generated. PRECISION INSTRUMENTS GROUP U-S. GAUGE U.S. Gauge division maintained its position as the world's largest pressure gauge producer despite a dif ficult economy in 1980. The millions of instruments manufactured by U.S. Gauge appear in every sector of the economy, including instruments on residential heating and water systems, computers and advanced medical equipment, farm equipment and jet aircraft. There is also a significant replacement market for all of these products. As an indication of the breadth of U.S. Gauge's markets, the division serves more than five hundred customers and its five largest customers account for less than 18 percent of total sales. To structure this extensive business efficiently, the divi sion operates through four marketing groups. Aerospace ' The Aerospace Group set new records again in 1980, with the strongest growth in business aircraft and helicopter instruments and in export sales. U.S. Gauge now supplies airspeed, pressure and temperature sen sors and instrument displays for most of the top-of- the-line business aircraft and helicopters built in this country, a market which is growing at an annual rate of nearly twenty percent, and for a growing number of European aircraft. Instrument orders for commercial jet passenger air craft, strong at the beginning of 1980, leveled off by mid-year as aircraft manufacturers responded to economic factors affecting their airline customers or adjusted schedules to begin production of new fuel- efficient designs. A number of new contracts, and many advanced new products combining liquid crystal and other digital displays with microprocessor and semiconductor-based circuitry, assure that U.S. Gauge will continue as a major supplier to the aircraft in dustry. Automotive U.S. Gauge has become a leading instrument supplier to every major truck and construction machinery manufacturer in the United States in the seven years since its automotive marketing group was formed in 1973. Sales had increased dramatically as this market adopted these high quality, advanced design in struments, but economic factors halted this growth in 1980 and are expected to restrict sales in 1981 as well. New model trucks, construction and farm equip ment products scheduled for introduction in mid-tolate 1981 will incorporate some very innovative instru ment systems from U.S. Gauge engineering. New con tracts based on complete pre-wired panels with pushin, snap-out gauges, will make installation and servic ing much less expensive. Gauge now offers a complete line of electrical instruments, utilizing electric meter movements produced by AMETEK's Controls division, for this market. Solid-state sensors, along with more advanced instrument displays, are being introduced to mesh with on-board microprocessor systems which will first appear in farm and construction equipment. Original Equipment Manufacturers This group supplies pressure and temperature in struments to manufacturers of compressed gas and welding equipment, boilers, fire extinguishers, machine tools, pumps and compressors, medical equipment, hydraulic and refrigeration systems. The sluggish 1980 economy reduced demand for these in- 6 stniments as customers extended delivery schedules and reduced inventories. While domestic sales lagged, export sales increased substantially during the year and order input strengthened by year-end. Joining hundreds of established standard in struments marketed by this group, a number of new products achieved acceptance in 1980. A reliable medical gauge incorporating adjustable high and low pressure alarm switches was designed for kidney dialysis machines, complementing U.S. Gauge's in struments used in respirators and other medical equip ment. A new pressure/temperature indicator for residential heating systems was introduced, well-timed to meet the unusual number of conversions to less ex pensive fuel systems during 1980. Distributor Many of the general equipment gauges mentioned above are also supplied through the U.S. Gauge distributor organization, considered to be the country's strongest instrument distribution network, for the replacement market. In addition, special pur pose instruments are developed specifically for distributor sales, especially for oil and gas production and transmission systems, chemical process and refinery plants, and other major customers who prefer to buy through local distributors rather than stock a large inventory. Distributor sales have recorded steady uninterrupted growth for more than ten years and 1980 was no exception, with increases in domestic and export shipments, especially in process and energyrelated instruments. AMETEK CONTROLS_____________________ _________ Controls division is becoming known as one of the more innovative manufacturers of pneumatic, elec tronic and force measuring instrumentation primarily for the process control industry. This market, ranked as the fourth fastest growing U.S. industry in Depart ment of Commerce figures, is responding to techno logical developments and moving from mechanical and pneumatic hardware into electronically controlled solid-state systems. For several years the Controls division has maintained a growth rate somewhat bet ter than the industries it serves. In 1980 sales and new orders increased- better than-twenty percent-and the division closed the year with a record backlog of orders. New products played a significant part in this growth. Controls engineering has been able to take advanced electronic concepts and AMETEK's solid- state transducer technology and translate them into practical, cost-efficient products for its own marketing or for inclusion in U.S. Gauge or Hunter Spring divi sions' product lines. In these products, the semi conductor technology is used to measure, control and transmit pressure, temperature and flow data by translating this data into electrical signals. Recently introduced products include a twenty-channel pressure to current "P/I" converter and a five channel digital display monitor for this system, which has found a ready market in the oil and petrochemical markets. A solid state differential pressure transmitter which handles flow or pressure data was introduced for the same market, complemented by Controls' very com pact portable electronic calibrator for differential pressure transmitters. Among the many applications for these products, one of the most interesting and potentially the largest, involves the need to measure the water level in the many deep wells that supply drinking and irrigation water for many Mid- and South-West communities. New water management regulations require con tinuous accurate measurement of the number of feet of water in each well, and Controls designed a "down-hole" transducer system to provide this data. Controls has begun to staff and equip a major new department in its Pennsylvania plant for production, trimming, testing and assembling of solid-state transducers. These functions, previously perfected by AMETEK's Microelectronics group on the West Coast where the semiconductor sensing chip was developed, is being expanded at Controls. Procedures have now advanced from developmental status to pilot produc tion. RODAN Rodan achieved a modest sales gain in 1980, and was invited to quote on a number of interesting new ap plications for its product. Rodan is a leading producer of thermistors, a small solid-state electronic device that causes electrical current to vary precisely as temperature changes. Thermistors are incorporated into electric motors, precision power supplies and electronic equipment as a. protective device which Rodan markets as its Surge Gard current limiting product line. A growing use of thermistors as a reliable means to measure solar heating panel temperatures has put Rodan in the in strumentation/control market of this new industry. AS000730 7 MICROELECTRONICS AMETEK began its Microelectronics development pro gram in 1974 in an effort to develop a low-cost semiconductor pressure sensor for the Company's in strument products. At that time such devices, developed for the space program, cost hundreds of dollars each. Today, through the work, of this development group in Los Angeles and the two engineering groups at U.S. Gauge and Controls, AMETEK is approaching its goal of producing a competitively priced solid-state sensor package. To achieve this, it was necessary for Microelectronics to develop a completely integrated silicon chip-based capability to produce industrial quality instrument sensor packages. By 1979, this development program had produced marketable pro ducts for U.S. Gauge and Controls divisions; by the end of 1980 procedures had become so standardized that it was possible to begin transforming certain testing and assembly functions from Microelectronics to a new solid state sensor production department at the Controls division. Microelectronics' design work for new special pur pose sensors will continue during 1981, and this facili ty will also provide the circuits and sensing chips in the quantities required for the many new products created by this development. MANSFIELD AND GREEN Mansfield and Green builds two types of instrumentrelated equipment which is marketed by U.S. Gauge's Original Equipment and Distributor sales groups. In 1980 M & G maintained its history of steady sales growth which has made this division the leading pro ducer of deadweight testers used to assure accuracy or to calibrate pressure instruments and pressure ac tivated equipment used throughout industry. These highly accurate calibrators, available in laboratory bench-top designs or portable field models, enjoy steady sales in every area where accurate pressure measurement is important. With energy costs increas ing, M & G's new RK pneumatic pressure calibrator, introduced last year, saw a substantial sales increase especially in the natural, gas transmission industry. Other major customers include instrument manufac turers, petroleum-related plants and other process plants. M & G is a developer and leading producer of diaphragm seals used as a protective device for in struments which must be separated from the fluids which they are monitoring to avoid contamination or instrument failure. In 1980 a new seal-protected in strument unit was developed and successfully marketed for use in specialized medical equipment. Other major markets for diaphragm seals include dairy and food processing, water and waste treatment systems, chemical and petrochemical plants and other instrument manufacturers. THERMOX INSTRUMENTS Thermox recorded the highest sales in its history dur ing 1980, its first full year as an AMETEK division. As one of the country's leading developers of technology to measure oxygen and combustibles in industrial fur naces and boilers, Thermox sales have responded to the increase in fuel costs rather than the strength of the economy. The primary market for these instru ment packages are the larger installations among the 65,000 industrial furnaces and boilers, units which now consume $5,000 or more in fuel per month. Thermox's sophisticated instruments, and their ac cessory equipment which automatically balances a fur nace's fuel-air mixture, can reduce oil, gas or coal consumption by five to 15 percent. For example, an electronic controls manufacturer credits Thermox's WDG IIIC oxygen/combustibles analyzers installed on five of its boilers with savings of more than $65,000 in fuel costs, in the first six months. The WDG IIIC analyzer, introduced in 1980, is a relatively inexpensive system which typically provides first year fuel savings far in excess of the cost of the equipment in large installations. In this market, Ther mox designs are recognized as the most versatile and adaptable for nearly any process, with a history of low maintenance and simple servicing requirements. The sales growth indicates that initial purchases for testing quickly develop into a conversion program for all of that customer's furnaces and boilers. A new market for this equipment has recently developed with boilers used for steam generation in the tertiary recovery of crude oil. In mid-1981 Thermox will move to a new 50,000 square-foot plant which AMETEK is building near the .division's,original .Pittsburgh, Pennsylvania location. Design of this modem facility demonstrates Thermox's dedication to energy conservation, as the plant uses solar-assisted water heating powered by AMETEK solar collectors. AS000731 8 McCROMETER This leading manufacturer of propeller and turbinetype flow measuring instruments recorded strong sales growth in 1980 as water control regulations for irriga tion and well use required more accurate measurement throughout the Mid-west and western states. McCrometeris basic product is a versatile, modular designed propeSer-type flow meter which is widely us ed in irrigation systems and municipal water treatment plants. These attractively finished products display and record flow data in a variety of measurement units. McCrometer has built a reputation for high quality, reliability and accuracy in these markets. New products, including remote reading electronic meters, flow controlling meter systems and high temperature units, have been developed for establish ed markets and McCrometer is also introducing these products into industrial markets through an expanding system of manufacturers' representatives. The exten sion of computer support to engineering, materials control and manufacturing, plus expansion of in house production capabilities during 1980, should strengthen this division's future performance. HUNTER SPRING Hunter Spring division manufactures mechanical and electronic force gages, precision wire springs, constant force springs, spring motors and spring powered retractor reels. Hunter is the original developer of the flat, ribbon like constant force springs, and 1980 sales showed that new applications for these unique constant force designs are still being found. An encapsulated SPIR'ATOR designed for automatic fly Ashing reels had strong first year sales, and constant force NEG'ATOR designs were also successfully developed as a counterbalance for new energy-saving residential windows which are being marketed nationally. Other flat spring applications, including automotive seat belt retractors, typewriter and photocopier return mechanisms and appliance subassemblies, did moderately well during the year. Hunter's fastest-growing products are retractor reels and a full line of hand-held force gages. The retractor reel line, including spring and cable assemblies used to retract fuel hoses to gas pumps or as grounding devices to prevent static sparks in aircraft refueling systems, was expanded by the addition of ROTA*REELTM spring powered electric cord reels, a premium quality product for lighting and tool connec tions in shops and assembly areas. Following a large investment in engineering and new tooling during 1980, Hunter is introducing a number of less expen sive cord retractor reel models for commercial and consumer use. Hunter's force gage product line, providing hand held instruments used throughout industry to measure the strength of a connection or bond, or the force re quired to operate a switch, has also expanded to in clude digital electronic gages. The AccuForce digital gage is based on load cell technology developed by Controls division, and provides three digit accuracy in a range of standard force measurement scales. These products have shown steady growth, maintaining Hunter Spring's leadership in the force gage instru ment market. AS000732 9 ELECTRO-MECHANICAL GROUP LAMB ELECTRIC The Lamb Electric division, with five plants produc ing specialty fractional horsepower electric motors, had a banner year in 1980 with sales at record levels. With 96 new motor models released for production from its Kent, Ohio engineering center during 1980, Lamb also built major manufacturing additions for two of the division's five motor plants. Programs in cluded 40,000 square feet added to the Racine, Wisconsin commercial motor plant and a 98,000 square foot addition nearing completion at year-end which will double the size of the Graham, North Carolina appliance and business machine motor plant, providing additional capacity to meet the growing de mand for these products. Export sales, predominantly to Common Market manufacturers, increased to record levels in 1980. The majority of the million-plus motors exported during the year were vacuum appliance units, but an increas ing volume was for computer and business machine use. This parallels Lamb's business development here in the United States, as the division has been the leader in motors for domestic vacuum cleaners since that industry began, but in the last decade has built a large business in industrial and commercial motors and air-moving products for computer peripheral equipment, photocopiers, other business machines and appliances. These markets were generally strong in 1980; vacuum appliance motor sales held up well, while Lamb's WINDJAMMER air moving products and per manent magnet motors for computers and business machines set new sales and profit records. With the most extensive product development and engineering group in the electric motor industry producing a record number of innovative new motor designs each year, Lamb should continue its leadership in each of these markets. Several years ago. Lamb developed a line of perma nent magnet motors, primarily for computer applica tions, which are now being adapted for use in outdoor appliances including lawn mowers and weed trimmers. Initial orders from lawn equipment manufacturers are typically quite large, and additional applications in this market for permanent magnet and wound field motors are providing important new domestic and ex port business for Lamb as manufacturers of outdoor appliances add electric models to their gasolinepowered product lines. For years Lamb designs have been supplied to Canadian customers through licensee-manufactured vacuum motors. Late in 1980, Lamb resumed the direct sales of motors to the total Canadian market, providing customer service and engineering from the division's United States plants. STRAZA An especially strong market for Straza's marine elec tronic systems and aerospace products helped to pro duce the highest sales and operating profit in the divi sion's history, with new order rate and backlog of orders at year-end also at record high levels. Both of these markets should continue to grow. Straza's aerospace business is primarily in aircraft engine subassemblies and systems to handle cryogenic (ultra-cold) gases. Straza builds large, complex assemblies for jet turbine engines, using exotic metals and requiring sophisticated fabrication techniques. These engines are designed into most commercial jet aircraft built in the United States and Europe, and are also specified on the next generation of wide body jets. Demand for jet turbine assemblies was strong in 1980, and Straza produced components for engines used on 13 different aircraft models. The Space Shuttle program continues to provide growth for Straza, backed by the division's twenty years of experience and performance in building fuel handling systems for earlier NASA programs. Straza . .AS000733 10 has contracted to produce four sets of fuel lines for Space Shuttle vehicles, with an ongoing contract to provide at least two additional systems plus related equipment. As the Space Shuttle "Columbia" reaches testing and launch stages in 1981, additional cryogenic fuel handling systems may be required. Straza's marine electronics also had an outstanding year in 1980, with strongest sales growth in energyrelated markets where offshore oil activity has increas ed world-wide. Sales of rts doppler-type sonar naviga tional system and speed log, providing increased safe ty and economy in the operation of large ocean-going ships, gained impetus in 1980 as major tanker fleet operators continued to retrofit Straza's systems as part of their regular vessel modernization program. Straza is also the acknowledged leader in developing Continuous Transmission--Frequency Modulated sonar, a high-accuracy sonar system especially for commercial and military submarine vessels. With this established position in marine electronics, Straza began a program to develop practical unmann ed submersible work vehicles several years ago. To date, Straza has sold twenty self-contained work vehi cle systems, including six SCORPIO systems delivered in 1980; six more were under construction at year-end. The SCORPIO vehicle is a three-quarter million dollar, technically advanced product that can assist or replace divers in the most dangerous undersea work. While divers are limited by time and depth, the unmanned SCORPIO can work down to three thousand feet underwater for unlimited periods, controlled by an operator on a surface ship above the work-site. Seven SCORPIO vehicle systems are now operating successfully in the North Sea oil area, considered to be the harshest test of equipment among the world's offshore oil fields. At year-end Straza introduced its new high-performance SCORPI, a smaller, less expen sive television equipped vehicle designed for observa tion and inspection work which will be ready for delivery in April, 1981. OFFSHORE RESEARCH AND ENGINEERING The Offshore division, a design and engineering ser vices group, was formed several years ago to develop -opportunities and practical experience-for Straza's marine electronic equipment, especially the unmanned work vehicle systems. As this equipment gained market acceptance. Offshore Research focused its ef forts on other high technology offshore and undersea developments. In 1980, the scope of activity expanded under a variety of commercial and government spon sors. New high technology concepts and designs were originated and developed for a shipyard handling system for propellers, shafts and rudders with weights up to 100 tons, a complete shipboard prototype for underwater operation of an experimental very longrange sonar system, and a robot device for remote handling of large anchor cables with up to one quarter million pounds of tension. U. S. BELLOWS U. S. Bellows division posted a solid performance in 1980 and closed the year with new orders running substantially ahead of the previous year's rate. U. S. Bellows fabricates precision metal or elastomer fabric and metal assemblies which compensate for expansion and contraction of large diameter round and rec tangular pipelines and ducting systems handling high temperature fluids and fumes. These bellows or ex pansion joints typically connect heat exchangers, fume handling or pollution control equipment to a high temperature industrial process system. Sales of these products are related to the rate of industrial construc tion, especially construction of new refineries, process and power plants. During 1980 U. S. Bellows experienced a heavy volume of requests for quotes on equipment for energy-related systems. This appears to be the first phase of a multi-billion dollar industry-wide refinery construction program plus the beginning of the syn thetic fuel program, both of which are expected to af fect this business favorably over the next five years. The division works very closely with major engineering and construction firms handling power plant and refinery projects. To solidify its position as a leading designer of industrial expansion joints, U. S. Bellows has organized engineering seminars-- twenty were conducted in 1980--for these customers and sales representatives across the country. LOS ANGELES DIE CASTING Los Angeles Die Casting, a high volume producer of custom zinc and aluminum die cast components for commercial and industrial products, saw steadily in creasing demand for aluminum components while zinc die casting sales were relatively stable in 1980. Major customers include manufacturers of electrical and construction components and automotive after market products. Los Angeles Die Casting has also enjoyed a growing business in precision optical and electronic equipment, business and credit card machine components and close tolerance assemblies for television and electronic transmission systems. /vSOOO'734 ii PROCESS EQUIPMENT GROUP VALLEY FOUNDRY As the country's leading manufacturer of winery equipment. Valley Foundry maintained its market position in a rather slow year for the winery industry, during which the division's performance was curtailed by a seven-week strike. Production workers returned to their jobs under a new three-year agreement in the second week of August, and Valley Foundry conclud ed 1980 with sales and operating profit considerably below 1979's all-time record results. There were a number of bright spots in the year. Export sales improved, as Valley's large scale equip ment and production technology gained recognition, especially in Mexico, Central and South America. A number of major projects, including construction of several new wineries in Chile and Mexico, are under way and Valley expects to design and supply equip ment systems for these projects. During the last decade, the division provided design and construction services for the majority of wineries built in the United States. During 1980 Valley's supply department--a distrib utorship for many leading industrial products--was not affected by the work stoppage and operated at record levels. Management is gratified to see that hydraulic equipment, which Valley introduced in the wine industry several years ago, has become the largest single contributor to the growing sales of this department. In the previous year. Valley developed a new con tinuous 1000 millimeter press utilizing hydraulics, and installed the first prototype for testing at a leading California winery. During 1980 this press out performed all other models of wine presses used in the industry, with higher production and a higher quality product. Valley has begun taking orders for its new press as the top-of-the-line model complementing the full range of crushers and presses offered for nearly every commercial-sized winery operation. Per capita wine consumption in the United States has doubled in the past decade, yet only equals about ten percent of the average European per capita con sumption. As the recognized winery design expert in the field, Valley provides planning, plant layout and cost data for any size and type of operation as part of its long-range marketing program for the growing number of smaller wineries which have begun opera tions throughout the United States in the last ten years. With domestic wine consumption growing at eight to ten percent per year. Valley Foundry believes that many new and smaller wineries will become ma jor customers in the years to come. PROCESS EQUIPMENT In 1980, the Process Equipment division had its best year since AMETEK moved this business to a modern 200,000 square foot plant in Southern California three years ago. Sales of centrifuges, filters and other liquidsolid separation equipment to customers processing food, pharmaceuticals, fine chemicals, ore and indus trial waste materials, increased more than 15 percent. Several new products were introduced under the century-old Tolhurst name, including a quick dismantling centrifuge to speed cleaning or product changeover, and a machine for centrifuging the con tents of test tubes for larger scale pharmaceutical pro duction. The "vial" centrifuge will handle more than a thousand test tubes at one time. The Filtration Fabrics department also introduced a new snap-in concept for filter media used in centrifuges. AS000735 SCHUTTE & KOERTING Sales and backlog of orders for Schutte & Koerting's process equipment increased in 1980 as food, chemical, petrochemical and fertilizer manufacturers showed a steady increase in new plant construction. S & K manufactures jet ejector and jet vacuum pump systems used in process product transfer and handl ing, and venturi fume scrubbers which can be found in many air pollution control systems. This wet scrub ber product line has a very broad application and showed signs of strong growth during 1980. S & K's flow measuring instrument products, found in many chemical process systems, had steady sales in 1980, and backlog of orders was up substantially by year-end. Foreign sales of these products have im proved markedly over the past several years, with 1980 totals showing increased volume in Mexico, Cen tral and South America and Africa. Power equipment manufactured by S & K includes specialty valves marketed to the power generation in dustry plus desuperheaters--equipment designed to permit the re-use of steam in high temperature pro cesses--especially in the utility, chemical and food processing industries. Valve sales were strong in 1980, and S & K is developing new valve designs to over come high material and manufacturing costs which have restricted the profitability of this product line. S & K will terminate its business of manufacturing heat exchangers for the nuclear power generation market in 1981, while continuing to build and market heat exchangers for special industrial applications as a part of its process equipment line. GRAND PRAIRIE AMETEK's Grand Prairie, Texas heat transfer equip ment plant produces standard designs of shell and tube-type heat exchangers from two inches to 48 in ches in diameter in various steel and stainless steel plus copper and copper-based alloys. These cylindrical devices, from small off-the-shelf units to special order exchangers weighing up to twenty tons, function much like an automobile radiator as they transfer heat from one fluid to another m a broad range of industrial, .. electronic-and. solar energy equipment.and in process systems. The primary users of these heat exchangers include machine tool, compressor and power equipment manufacturers, where these units are specified as lubricating oil coolers for engines and transmissions. Oil, gas and pipeline transmission operations, power plant constructors and solar heating equipment manufacturers have provided growing new markets for heat exchangers, which are expected to have an important part in programs for refinery and synthetic fuel plant construction. AMETEK has become a qualified supplier to the major plant engineering and construction firms in the United States. A new line of refrigerant condensers achieved im mediate customer acceptance and provided entry into a new market for AMETEK heat transfer equipment. Another emerging market for this equipment has developed in liquid cooling systems for large scale computers where electronic components produce heat which must be dissipated. AMETEK heat exchangers are setting the standard in this field as the leading computer manufacturer has specified these units in its newest liquid cooled systems. TEXAS FLANGE Sales and backlog of orders increased steadily for Texas Flange, a manufacturer of forged steel pipe flanges for fabricating and construction companies serving the chemical, petrochemical, oil field and refining industries. Metalloy, purchased by AMETEK in mid-1979, produces forged and welded stainless and alloy steel fittings for high pressure piping used in refineries, petrochemical and power plants. Stock products are distributed nationally through supply houses as well as directly to larger OEM customers along with specially designed flanges and fittings for specific equipment systems. Customer ser vice has been a key to Texas Flange growth, where a large inventory of finished goods is maintained for quick response to customer needs. A similar program was implemented for the Metalloy product line during the year, with the production of standard items for in ventory and off-the-shelf delivery to improve customer service. Oil field sales were strong, and shipments of these products to distributors and wellhead equipment manufacturers showed considerable growth. Pipeline component sales were relatively stable as a number of major- projects have just been, completed while con tracts for construction of several new pipeline systems were recently awarded for start-up in 1981. AS000736 13 INDUSTRIAL MATERIALS GROUP PACIFIC AND ALUMINUM EXTRUSION AMETEK's Aluminum operations did an outstanding job in maintaining profitability, although not at the high level of 1979, in a year in which their major market--construction--was depressed by soaring mortgage interest rates. A seven week strike at Pacific Extrusion's Watsonville, California, plant, resolved when a new three year contract was approved in May, also curtailed the division's 1980 shipments which were nearly thirty percent below 1979's record. The combined capacity of these two California plants makes AMETEK the largest independent aluminum extruder supplying the 13-state Western market. The current outlook for this market is favorable, with a steady improvement forecast for new construction and more stable pricing for raw material. AMETEK's aluminum operations augment their long-term supply agreements with prime aluminum producers through an in-house recycling facility that provides about one-third of their aluminum requirements. These plants provide complete finishing services-- clear, bright, gold or bronze anodizing or painted finishes, plus machining and assembly services--for their extrusion customers. This capability, which has been developed through AMETEK's large capital in vestment in anodizing and painting systems at both plants, permits handling of smaller contracts more profitably, and has attracted many new customers in industries unrelated to the construction materials market. During 1980, AMETEK Aluminum achieved national distribution for its architectural products by designing a new lightweight exterior door and frame for a large national building products manufacturer. AMETEK previously helped to develop a movable office panel wall system for the same customer. Both products are generating important new business. Additional markets have opened up in related fields: AMETEK's aluminum division has become the leading producer of frames and enclosures for solar panels in California, supplying AMETEK as well as several other large manufacturers of solar heating systems. Volume is becoming substantial and most customers request partial fabrication of the solar panel enclosure components, requiring the aluminum division to expand fabricating facilities. Other heating/cooling opportunities are under considera tion, sparked by solar panel growth and the im pressive orders generated for a new heat sink design for electronic and cryogenic systems. PLYMOUTH PRODUCTS Through development of both new and improved pro ducts, Plymouth achieved another all-time record year with order input up strongly. Production at Plymouth's Sheboygan, Wisconsin plant is structured into three groups: Utility, Consumer/Commercial Filtration and Industrial Filtration. The Utility products group offers a wide range of proprietary underground enclosures to the water and gas utilities and to the irrigation industry. These durable, light-weight thermoplastic units provide ac cess to underground meter valves, piping junctions, and other sites requiring periodic attention or maintenance. Filtration products continued in 1980 as the fastest growing segment of Plymouth's business with the con sumer/commercial sector showing the strongest gains. Plymouth produces a range of injection molded filter housings and a choice of replaceable filter cartridges AS000737 14 fabricated of paper, activated charcoal, charcoal im pregnated paper, or charcoal bed designs to improve the taste, appearance and odor of drinking water. With the introduction of a new clear plastic filter housing, Plymouth rounded out its complete line of filtration systems for home, recreation vehicle and light commercial use. Among the industrial markets which Plymouth serves are the paint, plating, beverage, and chemical fields. Custom tailored filter housings and cartridges are supplied to an OEM market which provided significant volume growth during the past year. In 1980 filtration products* sales increased 23 percent and continuing improvements are expected as water quality remains a priority of industry. WESTCHESTER PLASTICS Westchester's 1980 program of capital improvements included expansion of the Nesquehoning, Pennsylvania plant by 100,000 square feet which was completed during the year, and installation of new equipment capable of producing an additional 50 million pounds of plastics compounds. Two modern automated pro duction lines were installed in this facility in 1980, and a third line will be added to the Wapakoneta, Ohio plant in the coming year. Westchester is one of the nation's largest indepen dent plastics compounders, with established leadership in markets requiring command of the complex tech nology of engineering plastics and custom color for mulations. The division compounds thermoplastics, color concentrates and both glass and mineral filled polymeric materials to supply manufacturers of automotive components, appliances, packaging and outerwear. Growth in these markets is expected to ex pand as weight and cost reducing engineering plastics are used in a greater diversity of applications in the years to come. Westchester's research and development programs are adding to that list of new applications. The divi sion is exploring innovative means to produce rein forced compounds useful in automotive and appliance products because they afford greater strength with less weight than the metals which they replace. SPECIAL FILAMENTS Special Filaments achieved a number of significant operational improvements in 1980. Production of standard lines--monofilament Saran, nylon, polyolefin, and polyester filaments used by recrea tional and outdoor equipment manufacturers as well as in the production of automotive, agricultural and flame retardant fabrics--benefited from improved production technology and quality control. A number of new products, including monofilaments used in the manufacture of products ranging from wall coverings to women's apparel, have been evaluated and approv ed by customers. Special Filaments' technical leadership in the pro duction of monofilaments for the premium paint brush market, one of the largest consumers of special ty synthetic filaments, was extended in 1980. With a goal of achieving lighter weight and better performing paint brushes, this division has developed products such as Amalon, a low cost hollow filament, and a variety of polyester non-tapered filaments which pro vide both greater paint holding capacity and desirable flexibility characteristics, equal or superior to the materials they replace. Greater penetration of export markets is expected as overseas brush producers con vert from animal bristle to synthetic filaments. HAVEG In October of J980 AMETEK acquired the Marshallton, Delaware operation of Haveg Industries, one of the best known names in process equipment and synthetic silica fibers. For more than fifty years the Haveg symbol has been synonymous with corrosion resistance in chemical process equipment and the stan - dard of- construction- for-the-maintenance-free handl ing of many acids, solvents, alkalis, and other cor rosive chemicals. Haveg produces a complete line of thermosetting pipes, fittings, tanks, towers, agitators and other pro cess equipment utilizing different grades of the unique Haveg material. These are not simply a coating or lin- AS000738 f 15 ing applied to standard metal vessels, but are a com bination of various synthetic resins blended with rein forcing materials which provides maximum chemical resistance and high structural strength throughout the mass of the finished equipment. Because of its exper tise in this field, the division also provides process design and engineering services for chemical process equipment such as heat exchangers, absorption towers, ami gas coolers as well as complete process systems. The recent expansion of the SILTEMP family of products, now gaining wide acceptance in industry, also augurs well for Haveg. These are thermal barrier fabrics composed of refractory silica fibers capable of withstanding temperatures of molten steel and other processes up to 3,000 F. SILTEMP products are meeting a ready market as a much needed substitute for asbestos by combining the necessary high temperature characteristics with environmental safety. SILTEMP was originally developed for the aerospace industry, where it was widely used as an ablative heat shielding in rockets and space vehicles and in other high temperature fabric applications. With the resurgent emphasis in aerospace programs, AMETEK has begun to increase the production capaci ty of the Haveg plant by more than fifty percent. SILICON MATERIAL Silicon Material completed its first full year as an AMETEK division with substantial improvements, although it operated at a loss in 1980. Production dif ficulties, not unusual in this highly complex manufac turing technology, encountered in the early part of the year penalized 1980 results. With the resolution of these problems and the increase in production record ed in the second half of the year, Silicon Material reported a significant increase in sales for the full year. A proprietary process of reclaiming silicon wafers, a custom service for producers of solid-state chips, comprised 60 percent of 1980 sales. This service removes defective circuits and purifies the silicon wafer substrate to permit re-use of the wafers. With the installation and start-up of the sophisticated crystal growing equipment in 1980, the division also expanded its line to include production of mono crystalline silicon ingots and virgin wafers. A fullyintegrated production facility is now in operation in the Sunnyvale, California plant, and growth in this division is expected to continue in the coming year. AS000739 16 FINANCIAL REVIEW Sales and EMidngs Sales is 1980 woe $400.2 million, up slightly from the record set in 1979 of$392.9 million. Net income in 1980 was S21.7 million, down 3.5% from 1979 which was S22.4 million. Earnings per share were S2.02, down 4.3% compared to the S2.ll earned in 1979. For the five year period beginning 1976, AMETEK has a compound earnings growth of 12-4% on a compound annual volume growth off 13.7%. Backlog Order backlog at December 31,1980 totaled $194.2 mil lion, an increase of $14.3 million or 7.9% over the prior year end. Order input was strong during the first quarter of 1980, declined during the second and third quarters, and recovered in the fourth quarter. External Growth - During the fourth quarter of 1980, AMETEK purchased the Haveg Industries plastics business in Marshallton, Delaware from Hercules, Inc. Haveg is a manufacturer of corrosion-resistant plastic products serving the chem ical industry, shipyards, and the electric utility and aero space industries. Haveg also produces a flexible textile material widely used as an insulation or shield in high temperature operations. In the same quarter certain rights and inventories associated with the ATM line of centrifuges were purchased from Alfa-Laval, Inc. of New Jersey. Production of these products was added to the existing filtration and separation equipment product lines of the Process Equipment division in Temecula, California. Stockholders' Equity At the end of 1980, stockholders' equity was S126.7 mil lion, an increase of 10.9% during the year. Per share equity increased 9.6% to SI 1.74. Return on stockhold ers' beginning equity was 19.0% and has averaged 21.3% during the last five years. The Company's equity capital increased through the issuance of 129,047 shares of common stock to employees upon exercise of stock options during 1980. . Dividends Cash dividends of 310.8 million were paid m 1980, a 9.4% increase over the S9.8 million paid in 1979. Cash dividends have been paid every year since 1941 and have been increased every year for the last 31 years with the exception of 1971 when an increment was precluded by government regulations. Based on the current annual dividend rate of $1.00 per share, AMETEK's dividends have increased at a 13.5% five year compound growth rate. Research and Development Expenses totaled S8.1 million in 1980, a 3% increase over the $7.8 million spent in 1979. Research work con tinues in the program to produce electricity from sun light. AMETEK expects that the basic patent on its solar photovoltaic cell will be granted in the near future. Development work continues in electronics instrumen tation with potential applications in aircraft, farm equipment, water conservation and other diverse fields. Additional development work is being carried on in con nection with an expanded line of solar collector panels. Long-Term Debt At December 31, 1980, debt, including the current por tion, amounted to $58.1 million or 29.5% of the Com pany's total capitalization. Additional borrowings in 1980 were made under Industrial Revenue Bond financ ing agreements for a total of $5 million at 7Vi % for the construction of new plant facilities in Allegheny Coun ty, Pennsylvania and Pinellas County, Florida. Interest costs under existing debt obligations average 8.2%. Dividends Per Share On dollars) AS000740 17 AMETEK, tnc. Effects of Inflation Inflation has a sprificant effect on the Company's operations. The mcrrasmg costs of replacing plant and equipment and inventories and supporting the Com pany's research and development projects must be re covered through higher prices for the Company's goods and/or more efficient ways of producing its products to maintain its financial strength. Since the Company follows the conservative accounting practice of costing its inventories on a 11FO basis, the effect of which is to charge against earnings the latest costs incurred, the cur rent impact of inflation on operating costs is substan tially reflected in the Company's historical financial statements. Other adjustments to reflect an allocation of costs which may result from inflation are reflected in the current cost basis financial statements shown on pages 33 and 34. During 1980 the Company was not able to fully recover in its prices the rapidly rising costs experienced. Accordingly, margins on a number of product lines were lower in 1980. Although some difficulty was en countered during 1980, management believes that it will be successful in recovering future cost increases through price increases and productivity improvements. The Company deals with the effects of inflation in a number of different ways. The Company has made sub stantial capital improvements in the last few years to provide for future growth and productivity improve ments. Such capital expansion funded primarily through internal sources has resulted in a steadily in creasing cash flow from operations. Prospective capital additions are measured by management in terms of ability to generate a satisfactory "real" return on in vestment. Product pricing is carefully monitored versus current production costs. Financial Results by Quarter Sales, profits and per share results by quarter for 1980 and 1979, are presented in Note 8 to the financial statements. The second and third quarters of 1980 were lower than comparable amounts for the prior year, the first time this has occurred since the fourth quarter of 1970. Earnings comparisons were affected by lower sales volume primarily attributable to two strikes and the weakened economy. Common Stock Trading Range The quarterly trading range of AMETEK common stock listed on the New York Stock Exchange is shown below: First Second Third Fourth Quarters19801979 28%-18% 24%-19% 27%-21 35%-26% 17%. -14'%. 18% -15% 21%. -16% 24'%.-18%. 18 Earnings Per Share by Quarter (In dollars) *2.20 1976 1977 1978 1979 1960 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Stockholders' Equity Per Share (In dollars) *16 ------------------------------------------------------- 1976 1977 1978 1979 1980 AS000741 AMETEK, Inc. INFORMATION BY BUSINESS SEGMENTS The Company classifies its operations into four business segments: Electro-mechanical, Process Equipment, Precision Instruments and Industrial Materials. THE ELECTRO-MECHANICAL GROUP produces fractional horsepower electric motors for floor care, computer and business machines and other consumer and industrial products, jet engine and airplane parts, undersea work vehicle and marine electronic systems, die castings, expansion ducting and other components for aerospace and industrial applications. THE PROCESS EQUIPMENT GROUP manufac tures centrifuges, filters and other separation and drying equipment, pipe flanges and fittings for high pressure piping, winery process and storage systems, parts for laundry and drycleaning equipment, flow measuring in struments and valves, and heat transfer equipment for the chemical process market. THE PRECISION INSTRUMENTS GROUP manu factures pressure gauges, measuring and recording devices, automotive, aircraft and industrial in struments, testing equipment, calibration instruments, springs, thermistors, propeller flowmeters, semiconduc tor components and combustion analyzing instruments. THE INDUSTRIAL MATERIALS GROUP produces aluminum extrusions, custom-finish aluminum and plastic components, thermoplastic compounds, color concentrates, corrosion-resistant tanks and pipes, in sulating parts and heat resistant fabrics, synthetic monofilaments, molded thermoplastics and monocrys talline silicon for a wide variety of industrial, agricul tural and consumer products. Aluminum products represent approximately 9% in 1980, (10% in 1979; 11% in 1978) of the Company's consolidated sales. FINANCIAL INFORMATION BY SEGMENTS (in thousands) 1980 1979 Identifiable Assets (Used by each segment at December 31): Electro-mechanical Process Equipment Precision Instruments Industrial Materials Total segments Corporate (Principally cash and equivalents) Total consolidated Additions to Property, Plant and Equipment an Electro-mechanical Process Equipment Precision Instruments Industrial Materials Total segments Corporate . Total consolidated $ 49,697 32,749 57,485 58,384 198,315 55,690 $254,005 $ 6,409 1,095 6,840 10,151 24,495 18 $ 24,513 $ 48,387 32,090 55,362 46,659 182,498 42,735 $225,233 9 $ 5,340 1,790 6,313 9,122 22,565 25 $ 22,590 .DeprecJatlon and Amortization: Electro-mechanical Process Equipment Precision Instruments Industrial Materials Total segments Corporate Total consolidated crWY742 A.SUW' $ 2,158 1,083 2,129 3,402 8,772 60 $ 8,832 $ 1,784 972 1,716 2,952 7,424 60 $ 7,484 di Includes S2.590.000, $2^70,000 and $1,962,000 In connection with businesses acquired in 1980,1979 and 1978, respectively. 1978 $ 42,313 32,347 43,420 36,296 154,376 26,042 $180,418 $ 2,516 1,917 5,475 3,641 13,549 149 $ 13,698 $ 1,527 800 1,160 2,296 5,783 25 $ 5,808 19 AMETEK, Inc. FINANCIAL INFORMATION BY SEGMENTS (continued) (in thousands) - Net Sales Electro-mechanical Process Equipment Precision Instruments Industrial Materials Total consolidated n> 1980 $137,885 70,742 108,076 83,477 $400,180 1979 $126,415 76,312 107,696 82,450 $392,873 1978 $107,607 58,375 85,740 68,979 $320,701 Operating Profit Electro-mechanical Process Equipment Precision Instruments Industrial Materials Total consolidated m Corporate, administrative, research and net interest expenses Income before taxes $ 23,258 7,232 17,378 7,526 55,394 (13,135) $ 42,259 $ 19,097 9,605 18,246 9,020 55,968 (12,472) $ 43,496 $ 15,279 6,330 17,869 9,980 49,458 (10,146) $ 39,312 Export Sales by Geographic Area (Included above): Europe Canada Other $ 32,880 6,891 12,687 $ 22,020 6,503 5,815 $ 15,789 4,712 4,066 $ 52,458 $ 34,338 $ 24,567 (1) After elimination of inter-segment sales, not significant in amount. (2) Represents sales less all direct costs and expenses (including certain administrative and research expenses) applicable to each segment. Sales by Segments Pn million*) $420. Operating Profit by Segments (in million*) $60 1978 1979 I960 AS000743 20 1978 1979 I960 AMETEK, Inc. MANAGEMENTS ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity The Company considers its financial condition to be qaite strong. Its debt represents 29.57o of total capitali zation. Scheduled debt repayments in each of the next two years represent less than 6% of the Company's funds generated by operations. At the end of 1980, working capital amounted to S95 million, a slight decrease from 1979. The ratio of current assets to cur rent liabilities at December 31,1980 was 2.61 to 1 and, at year end for the past five years, has averaged 2.74 to 1. Cash balances in excess of normal operating re quirements are invested primarily in U. S. Government securities. Cash and such securities at year end totaled $43.4 million compared to $38.8 million for the prior year. Receivables and inventories totaled $106 million at December 31, 1980 and 1979, although the inventory turnover rate improved to 7.4 in 1980 from 7.0 in 1979. The Company's liquidity requirements are supple mented by a revolving credit agreement made in Novem ber 1979 with a group of banks which provides for the availability of up to $60 million, none of which was used at year-end. Interest rates on borrowings under the agreement range from the prime rate to !4 percent above prime. In 1980, AMETEK generated funds from operations of $34.2 million compared to requirements of $29.7 million for additions to property, plant and equipment, dividend payments, debt reduction and working capital needs. Capital Resources Additions to property, plant and equipment totaled $21.9 million in 1980, up slightly from the $20.3 million in 1979. This level was nearly double the average capital expenditures for the five preceding years, and represents AMETEK's commitment to provide additional capacity for the 1980's that will enable it to maintain or improve its market position. In 1980, four major plant expan sions were completed. These were the Racine, Wiscon sin plant for the Lamb Electric division, Bartow, Florida plant for the U. S. Gauge division, the Nesquehoning, Pennsylvania plant for the Westchester Plastics division and the new facilities for the Plymouth Products division in Sheboygan, Wisconsin. Funds for these expansions were provided from oper ations and long-term borrowings of $20 million in 1979 under a private placement of 8H 7o notes. In 1980, funds for two new plants were secured under Industrial Development Revenue Bond financing at 7%%. The unexpended amounts for these plants in Pennsylvania and Florida are held in escrow under the Industrial Rev enue Bond agreements and are temporarily invested in U. S. Government securities. Capital expenditures in 1981 are expected to be somewhat lower than 1980 ex penditures due to fewer planned major plant expan sions. The 1981 expenditures will be primarily for equip ment to improve productivity and to extend the vertical integration of certain manufacturing operations. It is anticipated that all of 1981's capital expenditures will be financed by funds generated from the Company's oper ations and from the remaining proceeds of the revenue bond financing. Additional commitments for solar and photovoltaic production may be required, depending on developments in these areas. Results of Operations Data on business segments are shown on pages 19 and 20. Sales in 1980 of $400.2 million exceeded the record level set in 1979 by 1.9%. Operating profit of business seg ments decreased 1% and net income declined by 3.5%. Continued strong sales growth was achieved by the Electro-mechanical Group due to increased domestic and foreign demand for electric motors and improved volume for aerospace products and marine electronics. Related operating profit increased $4.2 million or 21.8% due to the volume growth and improved margins. Process Equipment Group sales were 7.3% lower than 1979 because of a decline in winery equipment sales from the record level experienced in 1979. This volume decrease, a plant strike and certain contract rework costs resulted in the $2.4 million decrease in operating profit for 1980. Sales of the Precision Instruments Group remained level with 1979 but operating profit declined by 4.8%, primarily a result of an unfavorable change in product mix, reduced margins and plant relocation costs. Industrial Materials Group sales were up slightly from 1979. Sales of this group, in 1980, were significantly affected by a decline in aluminum extru sion volume, resulting from a plant strike and lower product demand due to the slow down of industrial and residential construction. Sales of a business acquired during the fourth quarter and other product volume im provements offset the aluminum shortfall. Operating profit in 1980 decreased by 16.6% due to an un favorable change In product mix, the decrease in aluminum extrusion volume and higher operating costs. Corporate, administrative, research and interest ex penses were up over 1979 by 5.3% due primarily to in flationary cost increases, offset by a slight decrease in net interest expense. In relation to sales these expenses were substantially unchanged from 1979. AS000744 21 AMFTPK Inr MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Depredation expense increased by $1.4 million or 20.2% over 1979 due to the Company's major capital investment program to expand manufacturing capadty. Pension expenses increased by $.7 million because of in creased benefit levels and the inclusion of three new plans. Research and development expenses were $8.1 million, op 3.4% from 1979. The effective income tax rate for 1980 was 48.7% compared to 48.4% in 1979. Net income Affined in 1980 compared to the prior year for the reasons described above. A discussion regarding the impact of inflation on the results of opera tions and finandal position of the Company are presented on pages 32 to 34 of this Annual Report. 1979 Operations Compared with 1978 Sales in 1979 increased S72.2 million or 22.5% over 1978. All four operating groups contributed to the volume increase. The strongest growth was achieved by Precision Instruments. The Electro-mechanical and Process Equipment groups showed improvements due to increased demand for electric motors and winery equipment. Cost of sales increased S62 million over 1978, due primarily to the increase in sales volume. However, cost of sales as.a percentage of sales increased from 77.7% of sales in 1978 to 79.2% of sales in 1979 primarily due to inflationary cost increases in 1979, higher research and development expenses, and absorption of start-up costs assodated with new operations and plants. Selling, general and administrative expenses increased S5.3 million or 20.9% over 1978 due to the higher sales volume. The ratio of such expenses to sales was substan tially unchanged from the prior year. Depreciation expense increased SI.5 million or 25.6% over 1978 due to the Company's major capital invest ment program. Research and development expenses in creased 36.7% over 1978 and reflect continued emphasis on product improvement and programs unrelated to our existing businesses. Pension expenses increased $800,000 because of increased benefit levels, increase in employees, inclusion of plans covering employees of ac quired businesses, and a shortened vesting period for employees covered by one of our major pension plans. Other income (deductions) in 1979 was $762,000 4ower than in 1978 due to gains on the sale of assets ofa " discontinued product line.'partiaUyoffset by increased net interest cost. The effective income tax rate was 48.4% in 1979 com pared to 50.6% in 1978. The decline was primarily due to the reduction in federal income tax rates applicable in 1979. Net income in 1979 increased 15.7% over the prior year primarily because of the increased sales volume and the lower effective income tax rate, offset by lower operating margins. Operating profits of the Electro-mechanical and Pro cess Equipment segments showed substantial improve ment over 1978. The improvement in both groups is at tributable to increased demand for the products in these groups with higher profit margins. The Electro mechanical group also benefited from gains on the sale of assets of a discontinued product line in 1979. The Precision Instruments segment showed a modest in crease in operating profit in 1979, while operating pro fits of the Industrial Materials group were lower than in 1978. Both groups suffered from the absorption of start up costs associated with new operations and plants, while Precision Instruments was also affected by higher research and development expenses. AS000745 Capital Expenditures and Depreciation (In millions) S2S---------------------------------------------------------------------------- III Capital Expenditures 1976 1977 1978 1979 I960 Depreciation 22 AMETEK, Inc. CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS Net sales Expenses: Cost of sales, excluding depreciation Selling, general and administrative Depreciation Operating profit Other income (deductions): Interest expense Other, net Income before taxes Provision for income taxes, including deferred taxes (Note 6) Net Income Retained earnings at beginning of year Cash dividends paid Retained earnings at end of year Average shares outstanding Net income per share Cash dividends paid per share See accompanying notes. Years ended December 31, 1980 $400,179,564 1979 $392,872,657 1978 $320,701,403 313,056,333 35,344,001 8,568,593 356,968,927 43,210,637 (4,447,730) 3,495,977 42,258,884 20,594,000 21,664,884 100,632,108 122,296,992 10,758,808 $111,538,184 10,747,383 $2.02 $1.00 311,278,543 30,709,477 7,128,823 349,116,843 43,755,814 249,292,655 25,400,967 5,673,987 280,367,609 40,333,794 (3,683,932) 3,424,474 43,496,356 (2,512,849) 1,491,204 39,312,149 21,054,000 22,442,356 19,910,000 19,402,149 88,028,620 110,470,976 9,838,868 $100,632,108 10,625,494 $2.11 $.92% 77,294,054 96,696,203 8,667,583 $ 88,028,620 10,496,466 $1.85 $.82% Distribution of Income (In millions) S44 AS000746 1976 1977 1978 1979 1980 Annual Income Retained Dividends Income Taxes 23 AMETEK. Inc. CONSOLIDATED BALANCE SHEET ASSETS Current assets: Cash (including $38,528,816 in 1980 and $33,168,918 in 1979 of marketable securities-primarily U. S. Government securities) Receivables, less allowance for possible losses Inventories (Note 1): Finished goods and parts Work in process Raw materials Total inventories Deposits and prepaid expenses Total current assets ' Property, plant and equipment, at cost: Land - Buildings Machinery and equipment Less accumulated depreciation Net property, plant and equipment Other assets (Note 3) December 31, 1980 1979 $ 43,411,473 58,232^38 17,615,706 14,763,567 15,381,356 47,760,631 4,636,712 154,041,054 $ 38,768,255 51,011,719 17,784,955 17,552,212 19,438,947 54,776,114 1,416,404 145,972,492 4,057,094 46,247,219 93,218,057 143,522,370 55,879,679 87,642,691 12,320,905 $254,004,650 3,048,246 38,056,944 80,711,016 121,816,206 49,453,726 72,362,480 6,898,373 $225,233,345 AS0Q0747 24 AMETEK, Inc. LIABILITIES AND STOCKHOLDERS' EQUITY Cunent Habifities; Accounts payable income taxes Accrued employee compensation and benefits Other accrued liabilities Current portion of long-term debt Total current liabilities Long-term debt (Note 3) Deferred federal income taxes and credits (Note 6) Stockholders' equity (Note 4): Preferred stock, $1.00 par value, authorized 1,000,000 shares; none issued Common stock, $1.00 par value, authorized 35,000,000 shares; issued: 1980--10,995,773 shares; 1979--10,866,726 shares Capital in excess of par value Retained earnings Less cost of 207,834 shares held in treasury Total stockholders' equity See accompanying notes. Capitalization (In millions) December 31, 1980 1979 $ 25,825,403 6,795,701 14,435,266 9,985,774 2,018,000 59,060,144 56,119,372 12,155,000 $ 23,556,949 4,510,424 12,107,371 7,304,996 2,011,000 49,490,740 53,139,524 8,432,000 10,995,773 5,356,657 111,538,184 127,890,614 1,220,480 126,670,134 $254,004,650 10,866,726 3,892,727 100,632,108 115,391,561 1,220,480 114,171,081 $225,233,345 AS000748 25 AMETEK. Inc. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION Source of funds: Operations: Net income Depreciation and amortization Deferred federal income taxes and credits Total from operations Additional long-term debt Proceeds from exercise of stock options Net book value of property, plant and equipment sold or retired Years ended December 31, 1980 1979 1978 $21,664,884 6,832,169 3,723,000 34,220,053 5,000,000 1,419,696 664,234 41,303,983 $22,442,356 7,484,464 2,064,000 31,990,820 20,374,000 1,050,537 1,538,396 54,953,753 $19,402,149 5,808,354 1,733,000 26,943,503 9,082,828 721,812 95,270 36,843,413 Application of funds: Additions to property, plant and equipment Noncurrent assets of purchased companies Dividends Reduction in long-term debt Other (Decrease) increase in working capital 21,923,180 2,685,858 10,758,808 2,020,152 5,416,827 42,804,825 $(1,500,842) 20,320,328 5,464,472 9,838,868 2,095,836 373,100 38,092,604 $16,861,149 11,736,202 2,607,336 8,667,583 1,789,694 (1,120,982) 23,679,833 $13,163,580 Changes in components of working capital: Increase (decrease) in current assets: Cash (including securities) Receivables Inventories Deposits and prepaid expenses Increase (decrease) in current liabilities: Accounts payable and accrued liabilities Income taxes Current portion of long-term debt (Decrease) increase in working capital See accompanying notes. $ 4,643,218 7,220,519 (7,015,483) 3^20,308 8,068,562 $16,772,463 2,853,002 8,040,972 (76,065) 27,590,372 $(1,034,157) 9,792,120 1,495,132 4,930 10,258,025 7,277,127 2,285,277 7,000 9,569,404 $(1,500,842) 8,658,131 1,809,092 262,000 10,729,223 $16,861,149 (2,878,078) (1,377,767) 1,350,290 (2,905,555) $13,163,580 $40. Funds Generated from Operations (In million*) A.S000349 1976 1977 1978 1979 1980 26 AMETEK, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies Prindpfcs of Consolidation The soosofidated financial statements include the ac counts ofthe Company and subsidiaries. A wholly own ed insurance subsidiary is accounted for by the equity method. Marketable Securities Marketable securities are carried at cost plus accrued interest which approximates market. Inventories Inventories are stated at the lower of cost or market, cost being determined principally by the last-in, first-out method (LIFO), and market on the basis of lower of re placement cost or estimated net proceeds from sales. The excess of the first-in, first-out (FIFO) method of in ventory valuation over the LIFO value was $31,272,000 and $28,061,000 at December 31,1980 and 1979, respec tively. Costs relating to long-term contracts and programs are relieved from inventory on a unit of delivery basis. Progress payments (principally related to long-term contracts and programs) of $12,408,000 at December 31, 1980 ($9,999,000--1979) have been netted against inventories. Property, Plant and Equipment Expenditures for additions to plant facilities or which extend the useful life of the properties are capitalized. The cost of tools, jigs and dies, and maintenance and repairs are charged to operations as incurred. Deprecia tion of plant and equipment is determined principally on a straight-line basis over the estimated useful lives of the assets. Effective January 1, 1980 the Company began to capitalize interest costs associated with the construction of major plant and equipment to comply with new accounting rules. Interest costs capitalized in 1980 increased net income by an insignificant amount. Research and Development Company funded research and development costs are charged to operations as incurred. Such costs during the past three years were: 1980--$8,100,000, 1979-- $7,800,000 and 1978--$5,700,000. Net Income Per Share Net income per share is based on the average number of common shares outstanding during the period. No material dilution of net income per share would result for'the periods' if it were assumed'that all outstanding stock options were exercised. 2. Acquisitions In October 1980 the Company acquired certain assets of Haveg Industries, Inc. and Alfa-Laval, Inc. for $6.3 million in cash. During 1979 the Company acquired the assets of Sili con Material, Inc., Thermox Instruments, Inc., Metalloy, Inc., The Benjamin Reel Products Company and certain assets of ICT Instruments Company for approxi mately $6 million in cash and assumed certain of their liabilities. In 1978 the Company acquired all of the out standing capital stock of McCrometer Corporation for $1 million in cash and $3.2 million in 8V^Vo installment notes due annually to 1984. These acquisitions have been accounted for by the purchase method and accordingly, the results of their operations are included from the dates of acquisition. Had these acquisitions been made at the beginning of the year prior to their acquisition, there would be no significant impact on sales or earnings for 1978,1979 or 1980. 3. Long-Term Debt At December 31, 1980 and 1979 long-term debt con sisted of: 1980 1979 Notes payable: 5%%, due 1982 and 1983 8V4%, due 1984 to 1992 8V*%, due 1982 to 1984 Obligations under 5.1% to 7.75% industrial revenue bonds, due 1982 to 1994 Various notes, mortgage loans and capitalized lease obligations at interest rates from 67.% to 10%, due 1982 to 1997 $ 2,465,000 40,000,000 1,600,000 9,815,000 2,239,372 $ 3,284,000 40,000,000 2,134,000 5,085,000 2,636,524 $56,119,372 $53,139,524 The annual payments required by the terms of the long-term debt for the following years are: 1982-- $1,925,000; 1983--$2,739,000; 1984--$4,084,000; 1985--$5,485,000. Unexpended proceeds of 1980 borrowings under in dustrial revenue bonds of $3,863,000 at December 31, 1980, are held in escrow and reflected in other assets. The Company's revolving credit agreement with a group of banks, entered into in 1979, provides for up to $60,000,000 with an option to convert into four-year term loans. Interest rates on borrowings under the .agreement range^from .the.prime rate.to. 'AVo.ahove prime. No borrowings are outstanding under the agree ment. A fee of Vih per annum is payable on any un used portion of commitments to December 31, 1986. The terms of the Company's loan agreements place certain restrictions on working capital and the payment of cash dividends. At December 31, 1980 consolidated working capital was $22,300,000 in excess of the requir ed minimum and retained earnings of $49,600,000 were not subject to the dividend limitation. AS000750 27 AMETEK. Inc. 4. Capital Stock At December 31, 1980, 832,693 (963,740--1979) shares of common stock were reserved under the Com pany's qualified and non-qualified stock option plans. These plans provide that options are exercisable at prices not less than market value on, and in equal in stallments over a five year period from, dates of grant. Information on options for 1980 follows: Price Range Outstanding at beginning of year Granted Cancelled Exercised $ 7.91-S19.56 23l56- 31.63 8l28- 23.56 7.91- 23.56 Outstanding at end of year Shares 468,340 211,000 16,290 129,047 534,003 Exercisable at end of year 193,633 Options exercised in 1979 and 1978 were 128,464 and 49,721 shares, respectively. The Company also has outstanding 278,850 stock ap preciation rights exercisable for cash and/or shares of the Company's common stock when the related option is exercised. Subject to certain limitations, each right relates to the excess of market value of the Company's stock over the exercise price of the related option, for which a charge to income is made (not significant in amount). Changes in capital in excess of par value during 1980 resulted from the excess of proceeds over par value of common stock issued upon exercise of stock options of $1,290,649 ($985,455 in 1979 and $672,091 in 1978), tax benefits relating to employee stock options totaling $173,281 in 1980 ($90,366 in 1979 and $143,276 in 1978), and the transfer, in 1979, of $5,432,513 to com mon stock in connection with the December 1979 twofor-one stock split. 5. Leases Minimum aggregate rental commitments under non- cancellable leases in effect at December 31,1980 (princi pally for real property, office space and computers) amounted to $6,300,000 consisting of annual payments of $1,700,000 due in 1981, $1,400,000 in 1982, and decreasing amounts thereafter. Rental expense of $3,400,000, $3,100,000 and $2,800,000 was charged to income in 1980, 1979 and 1978, respectively. L Income Taxes The provisions for income taxes consist of ($000): 1980 1979 1978 Current: Federal* State Deferred $15,972 3,404 1,218 $16,018 3,116 1,920 $15,642 2,956 1,312 $20,594 $21,054 $19,910 `Includes insignificant amount of foreign taxes; the foreign component of income before taxes is not significant. Investment tax credits are reflected in income over the estimated useful lives of the related assets. Investment tax credits deferred to future periods were $3,400,000 and $2,700,000 at December 31,1980 and 1979, respec tively. Federal income taxes are deferred or prepaid as a result of differences in timing of earnings determined for income tax and financial reporting purposes. These differences and the related tax effects are: ($000) 1980 1979 1978 Accelerated depreciation Unremitted earnings of a Domestic International Sales Corporation Plant relocation costs Reserves and other expenses deductible in future periods Net interest expense Other $ 924 $1,097 $ 838 608 (400) 443 104 341 675 (383) 571 (102) (252) 47 481 (126) -- (416) $1,218 $1,920 $1,312 Balances related to current items are included in cur rent prepaid expenses; non-current balances are shown separately. The effective rate of the provisions for income taxes reconciles to the statutory rate as follows: 1980 1979 1978 Statutory rate State income taxes, net of federal income tax benefit Other 46.0% 46.0% 48.0% 4.3 3.9 3.9 (1-6) (1.5) (1.3) 48.7% 48.4% 50.6% 7. Retirement and Pension Plans The Company maintains retirement and pension plans under which benefits for eligible salaried and hourly-rated employees are currently being funded through trusts established under the plans. The cost of this program together with contributions to multi employer pension plans, is charged to income and amounted to $5,500,000, $4,800,000 and $4,000,000 in 1980,1979 and 1978. These amounts included amortiza tion of prior service costs over periods of thirty to forty years. The actuarial present value of accumulated benefits under Company sponsored plans, for employees' ser vices already provided, and the plans' net assets available"fot those benefits as of 'the most recent ac tuarial valuation (various dates in 1980) is as follows: Actuarial present value of accumulated plan benefits: ($000) Vested Nonvested $45,000 6,000 $51,000 Net assets available for benefits $40,232 AS000751 28 AMETEK, Inc. The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 7'/i Vo. 8. Other Information Information as to the Company's business segments is shown on pages 19 and 20. Unaudited quarterly results for the years ended December 31, 1980 and 1979 are (in thousands except per share amounts): 1980 First Quarter Second Quarter Third Quarter Fourth Quarter Total Net Sales $104,893 99,713 95,852 99,722 $400,180 Operating Profit $11,289 11,732 10,251 9,939 $43,211 Net Income $ 5,622 5,908 5,303 4,832 $21,665 Earnings Per Share $ .53 JSS .49 .45 $2.02 Dividends Per Share $ .25 .25 .25 .25 $1.00 1979 First Quarter . Second Quarter Third Quarter Fourth Quarter Total $ 88,087 102,377 106,293 96,116 $392,873 $10,370 12,784 11,663 8,939 $43,756 $ 5,266 6,380 6,146 4,650 $22,442 $ .50 .60 .57 .44 $2.11 $ .225 .225 225 .250 $ .925 STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS Management has prepared and is responsible for the in tegrity and objectivity of the consolidated financial statements and related financial information in this An nual Report. The statements are prepared in conformity with generally accepted accounting principles consis tently applied and include certain amounts based on management's best estimates and judgments. Management maintains a system of internal account ing control, including an internal audit program. This system which undergoes continual reevaluation is de signed to provide reasonable assurance that assets are safeguarded and records are adequate for the prepara tion of reliable financial data. Management uses its best judgment in balancing the benefits of this system with its cost. Arthur Young & Company, independent auditors, are engaged to render an opinion as to whether manage ment's financial statements present fairly AMETEK's financial condition and operating results. Their report is included below. The Audit Committee of the Board of Directors meets with the independent auditors, internal auditors and management to satisfy itself that they are properly discharging their responsibilities. Both the independent and the internal auditors have direct access to the Audit Committee. February 2,1981 AMETEK, Inc. REPORT OF CERTIFIED PUBLIC ACCOUNTANTS We have examined the accompanying consolidated balance sheets of AMETEK, Inc. at December 31, 1980 and 1979, and the related consolidated statements of in come and retained earnings and changes in financial position for each of the three years in the period ended December 31,1980. Our examinations were made in ac cordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we con sidered necessary in the circumstances. In our opinion, the statements mentioned above pre sent fairly the consolidated financial position of AMETEK, Inc. at December 31, 1980 and 1979, and the consolidated results of operations and changes in con solidated financial position for each of the three years in the period ended December 31,1980, in conformity with generally accepted accounting principles applied on a consistent basis during the period. Philadelphia, Pa. February 2, 1981 Arthur Young & Company AS000752 * 29 AMETEK, Inc. TEN YEAR SELECTED FINANCIAL DATATM CONDENSED CONSOLIDATED STATEMENT OF INCOME Years ended December 31 1980 1979 Net sales Costs and expenses Operating profit Other (deductions) income--net Income before taxes Provision for income taxes Net income $400,180 356,969 43,211 (952) 42,259 20,594 $ 21,665 $392,873 349,117 43,756 (260) 43,496 21,054 $ 22,442 Net income per share $ 2.02 $ 2.11 Dividends declared and paid: Per share $ 1.00 $ .92 Vi Amount $ 10,759 $ 9,839 - ~ 1978 $320,701 280,367 40,334 (1,022) 39,312 19,910 $ 19,402 $ 1.85* $ .82Vi* $ 8,667 1977 $298,651 262,139 36,512 (677) 35,835 18,620 $ 17,215 $ 1.66* $ .72W $ 7,523 1976 $241,061 212,733 28,328 104 28,432 14,152 $ 14,280 $ 1.42* $ .60* $ 6,043 CONSOLIDATED FINANCIAL POSITION At December 31 Current assets Current liabilities Working capital Property, plant and equipment--net Other assets Total Long-term debt due after one year Deferred federal income taxes and credits Stockholders' equity $154,041 59,060 94,981 87,642 12,321 194,944 56,119 12,155 $126,670 $145,973 49,491 96,482 72,363 6,898 175,743 53,140 8,432 $114,171 $118,382 38,761 79,621 58,439 3,596 141,656 34,861 6,368 $100,427 $108,124 41,667 66,457 50,510 3,937 120,904 27,568 4,509 $ 88,827 $ 93,033 36,923 56,110 37,319 1,279 94,708 15,305 2,534 $ 76,869 ADDITIONAL TEN YEAR FINANCIAL DATA At December 31 Number of shares outstanding Stockholders' equity per share Total debt as a percent of capitalization Total assets Number of stockholders of record Number of employees Years ended December 31 10,788 6 11.74 29.5% $254,005 9,779 6,700 10,659 $ 10.71 31.0% $225,233 8,948 7,300 10,530* $ 9.54* 25.5% $180,418 8,952 6,600 10,430* $ 8.52* 23.1% $162,571 9,195 6,100 10,164* $ 7.56* 18.2% $131,631 9,341 5,700 Capital expenditures Depreciation and amortization $ 21,923 $ 8,832 $ 20,320 $ 7,484 . Return on .beginning-- Capital Stockholders' equity 13.5% 19.0% 17.0% 22.3% Return on net sales 5.4% 5.7% Sales per averaged employee $ 59.6 $ 54.3 Common Stock trading range: High 35% Low 18% (1) Dollars and shans in thousands, axcapt par sharp amounts. (2) Ellactlva January 1, 1974. the Company adopted the UFO inventory accounting method. `Adjusted to reflect two-for-ona stock split in 1879. 24"/,* 14'%. 30 $ 11,736 $ 5,808 $ 12,207 $ 5,237 17.0% 21.8% 18.7% 22.2% 6.0% 5.8% $ 49.1 $ 48.0 18V 13V 17V 13V AS000753 $ 5,725 "$ 4,156 16.8% 21.3% 5.9% $ 43.4 14'i6* 9V AMETEK, Inc. 1975 $224,084 198,030 26,054 (683) 25371 12367 $ 12,704 S 1.27* $ J5XT $ 4383 1974 $227,550 203,300 24,250 (2.133) 22,117 11,035 $ 11,082 $ 1.10* $ .42%* $ 4,268 1973 $191,794 173,382 18,412 (258) 18,154 8379 $ 9,175 $ .90* $ .38%* $ 3,911 1972 $160,558 146,351 14307 (752) 13,455 6,837 $ 6,618 $ .64* $ 36V4* $ 3,736 1971 $134,509 124,289 10320 (849) 9,371 4,690 $ 4,681 $ .46* $ .35* $ 3,554 $ 84,554 34,450 50,104 35,908 500 86,512 17,438 1,909 $ 67,165 $ 78,482 36,188 42,294 34,996 3,013 80,303 19,584 1,454 $ 59365 $ 70,115 29,037 41,078 29,743 1,814 . 72,635 17,677 1,674 $ 53,284 $ 62,466 27,041 35,425 28,256 1,088 64,769 13,654 1,416 $ 49,699 $ 56,793 23,731 33,062 28,697 1,397 63,156 14,849 1,541 $ 46,766 9,998* $ 6.72* 22.1% $120,962 9,161 5,400 9,978* $ 5.94* 26.3% $116,491 8,908 5,900 10,119* $ 5.27* 25.6% $101,672 8,738 6,000 10,301* $ 4.82* 22.6% $ 91,810 8,357 5,500 10,249* $ 4.56* 24.4% $ 86,887 8,707 5,300 $ 4,991 $ 3,732 $ 9,370 $ 3,397 $ 6,557 $ 3,397 $ 3,844 $ 3,541 $ 2,814 $ 3,435 16.4% 21.4% 16.4% 20.8% 14.8% 18.5% 11.1% 14.2% 8.5% 10.5% 5.7% 4.9% 4.8% 4.1% 3.5% $ 41.0 $ 37.5 $ 32.9 $ 29.5 $ 27.6 10%* 5%.* 7%.* 4*4* 9%.* 5*4* 11* 8"/i.* 9'/..* 7%* * 31 AS000754 AMETEK, Inc. SUPPLEMENTARY FINANCIAL INFORMATION ADJUSTED FOR EFFECTS OF INFLATION (Unaudited) General The following supplemental information is intended to provide certain measurements of the effects of inflation on the Company's operations and financial position. There is no universally accepted method for measuring the effects of inflation. In 1979, the Financial Account ing Standards Board prescribed two measurement methods, current cost and constant dollar, and both were used in calculating this information. These methods inherently involve the use of numerous as sumptions and estimates; therefore, the results should be viewed in that context and not as precise indicators of the effects of inflation. The LIFO inventory accounting method results in charging the latest costs incurred to operations. Thus a major element of the inflationary ef fect on Company operations is already deducted in the primary financial statements. The accompanying infla tion adjusted data reflects certain other adjustments, but not necessarily all inflation adjustments which could be made. Using these methods this information high lights that effective tax burdens are often greater than the statutory rate, which reduces funds that would otherwise be available. A brief explanation follows of the current cost and constant dollar methods as well as a discussion of the computations utilized in deriving the information. Current Cost The objective of the current cost method is to present the Company's earnings and certain of its assets on the basis which would result if productive facilities as well as goods and services utilized were all acquired current ly. For 1980, it is assumed that such items were acquired in average 1980 dollars; for 1979, average 1979 dollars were assumed. This method measures the assumed cur rent costs of the Company's existing assets in their cur rent condition. They do not include efficiencies that could be derived by replacing existing assets with technologically improved assets. To this extent the method differs from replacement cost information (previously disclosed under SEC requirements) which measured costs that would be incurred to replace pro ductive capacity, including technological im provements. The current cost of property, plant 'and equipment was developed'by using independent appraisals and'in dices applied to engineering estimates, vendor quota tions and historical costs. Depreciation expense has been calculated using identical depreciation techniques and asset lives as used in the historical financial statements. The increase in depreciation expense results from the adjustment of plant and equipment. The estimated current cost of inventories was deter mined based on year-end raw material prices and pro duction costs, including an adjustment for the differ ence between historical and current cost depreciation ex pense. Cost of goods sold, exclusive of depreciation and an adjustment for the change in inventory quantities in 1980, is not adjusted from historical cost since the Com pany values its inventories on a LIFO basis, the effect of which is to reflect in cost of goods sold the latest costs incurred. Constant Dollar The objective of the constant dollar method is to present the Company's earnings and certain of its assets in dollars of equivalent purchasing power, so that the financial data reported is stated in a common unit of measure, for example, average 1980 dollars. This is ac complished by adjusting the data by the Consumer Price Index for all Urban Consumers (CPI). This method takes no account of differences in the actual inflation being experienced by the Company versus the general rate of inflation measured by the CPI. The constant dollar amount of property, plant and equipment was determined by aging the assets and ap plying the appropriate Consumer Price Index to the his torical cost amounts. The same depreciation techniques and lives were used as included in the calculation of depreciation expense in the historical financial state ments. The increase in depreciation expense results from the adjustment of plant and equipment. The LIFO cost of inventory is restated so that base levels of inventory and subsequent incremental layers are each stated in average 1980 dollars. Constant dollar cost of goods sold, exclusive of de preciation and an adjustment for the change in inven tory quantities in 1980, is not adjusted from the amount included in the historical financial statements since the Company values its inventories on a LIFO basis. Review of Data Presented Net income in the accompanying tables reflects adjust ments for depredation and cost of sales as described earlier. No tax adjustments are included since United States tax policy does not currently take into consideratknrtbe effects-of inflation other than "through LIFO. Thus, the net income on the current cost method reflects an effective income tax rate of 59% and 53% in 1980 and 1979 versus the 49% and 48% rates in the primary finanrial statements. Accordingly, the Company ap pears to have a lower proportion of its current cost or constant dollar earnings available for reinvestment in AS000755 32 AMETEK, Inc. the business or for distribution to its stockholders. Three additional inflation-oriented measurements have been calculated. The first measures the gain from decline in the purchasing power of average monetary liabilities in excess of average monetary assets. Mone tary liabilities are primarily payables and borrowings. Monetary assets include cash, receivables and long-term contract inventories not subject to price escalation. The reported gam. represents the inflationary impact on the net amounts owed during the year. The Company may benefit from satisfying its liabilities with dollars which have declined in value. However, such gains are unreal ized by the Company. This favorable impact or gain is included: as an increase to stockholders' equity. The second measurement is the excess of the increase in the general price level (constant dollar) costs of inven tories and property, plant and equipment over increases in the specific prices (current costs) of those items. This excess indicates that the general rate of inflation, in 1980, exceeded the measurable rate of inflation the Company experienced. The third measurement is ending stockholders' equity adjusted to average 1980 dollars. This adjustment restates inventory and property, plant and equipment and includes the purchasing power gain as explained herein and other non-monetary assets and liabilities at amounts used in the historical financial statements. The five-year table of selected financial data restates all amounts into average 1980 dollars using the CPI. The Company believes that a more realistic portrayal of AMETEK's five-year data would result if the Gross Na tional Product (GNP) Price Deflator were used instead of the CPI, since the latter is based on retail prices. SUPPLEMENTARY STATEMENT OF INCOME ADJUSTED FOR EFFECTS OF INFLATION (In thousands, except per share amounts) Net sales Historical Cost As Reported $400,180 Years ended December 31, 1980 Adjusted For General Inflation (Constant Dollars) Adjusted For Specific Prices (Current Costs)* $400,180 $400,180 1979 Adjusted For Specific Prices (Current Costs)* $392,873 Cost of sales, excluding depreciation Selling, general and administrative expenses Depreciation Other deductions, net Income before taxes Provision for income taxes Net income Net income per share 313,056 35,344 8,569 952 42,259 20,594 $ 21,665 $ 2.02 315,819 35,344 11,900 952 36,165 20,594 $ 15,571 $ 1.45 315,798 35,344 12,960 952 35,126 20,594 $ 14,532 $ 1.35 311,432 30,709 10,512 260 39,960 21,054 $ 18,906 $ 1.78 Purchasing power gain on net monetary liabilities held during Ihe year $ 1,532 $ 1,532 $ 1,542 Increase in general inflation (constant - dollar) on inventories and net property, plant and equipment held during the year Effect of increase in specific prices (current cost)** Increase in general inflation over increase in specific prices AS000756 *ln nominal dollars. . "At December 31,1980 and 1979 the current costs of inventory were $81,143 and $86,552, and the current costs of net property, plant and equipment were $139,929 and $117,313, respectively. 33 $ 21,191 16,032 $ 5,159 # $ 21,772 20,029 $ 1,743 AMETEK, Inc. Supplementary five-year comparison of selected financial data ADJUSTED FOR EFFECTS OF INFLATION on average i960 dollars) (Dollars In thousands, except per share amounts) Net sales--as reported --In constant dollars 1980 $400,180 400,180 Years ended December 31, 1979 1978 1977 $392,873 $320,701 $298,651 445,798 405,061 406,100 1976 $241,061 348,938 Net income--as reported --in constant dollars --in current cost $ 21,665 $ 22,442 $ 19,402 $ 17,215 $ 14,280 15,571 22,657 14,532 21,453 . Net income per share--as reported --in constant dollars --in current cost $ 2.02 $ 2.11 $ 1.85 $ 1.66 $ 1.42 1.45 2.13 * 1.35 2.02 * * Stockholders' equity--as reported --in constant dollars --in current cost $126,670 $114,171 $100,427 $ 88,827 $ 76,869 181,577 174,969 200,102 201,561 Purchasing power gain on net monetary liabilities held during the year--in constant dollars $ 1,532 $ 1,749 $ *$ *$ * Increase in the general price level over increase in specific prices $ 5,159 $ 1,978 $ *$ *$ * Cash dividends paid per share--as reported --in constant dollars $ 1.00 $ .92Vi $ .82Vi $ .72 Vi $ .60 99 1.04 1.03 Vi .98 .86% Market price per share at year end--as reported --in constant dollars $ 31.38 $ 24.00 $ 15.13 $ 16.00 $ 14.38 29.97 25.76 18.40 21.22 20.35 Average Consumer Price Index** 246.8 `Not computed "Represents the U. S. Department of Labor Consumer Price Index for All Urban Consumers (1967 = 100). 217.5 195.4 181.5 170.5 Limitations to the use of inflation adjusted data: 1. Comprehensive restatement of all financial state ment items was not attempted since not required. Ac cordingly, stockholders' equity as adjusted includes items presented in historical dollars as well as in con stant dollars or current cost dollars. 2. The .constant dollar measurement assumes that the ConsumerPrice-Indexis -an -effective measure of infla tion as it affects the Company and its shareholders. The Company believes that the Gross National Product (GNP) Price Deflator is a more appropriate measure ment for a manufacturing company. 3. The depreciation of property, plant and equipment determined on a current cost and constant dollar basis may understate earnings since no consideration is given to the way these assets may be replaced and the produc tivity improvements therein. 4. The higher amounts shown for inventories, property, plant and equipment and stockholders' equity do not necessarily represent additional book values nor do they indicate that the Company's assets could be sold for such amounts. -5. The Company does not believe that-LIFO inventor}' restated on a constant dollar basis and included in stockholders' equity is meaningful. The LIFO account ing convention is utilized to flow current costs through the income statement, but tends to substantially understate the carrying value of the inventory itself. Ap plying indices to these understated amounts does not result in useful information. AS000757 34 AMETEK, Inc, OFFICERS OF THE COMPANY CORPORATE OFFICERS Dr. John H. Lux, Chairman of the Board and ChiefExecutive Officer Robert L. Noland, President John P. Dandalides, Senior Vice President Midwestern Operations Robert F. Lane, Senior Vice President Eastern Operations Russell R. Menard, Senior Vice President, Finance Wallace E. Cowan, Secretary, Partner, Stroock A Stroock & Lavan, Attorneys Robert J. Coffman, Treasurer and Assistant Secretary Allan Komfeld, Comptroller Murray ^'Luftglass, Vice President--Corporate Development Robert A. Russell, Vice President--Marketing Dr. Ferenc Schmidt, Vice President--Technical Director Neal R. Stark, Vice President OPERATING OFFICERS Walter E. Blankley, Group Vice President Aluminum and Pacific Extrusion Los Angeles Die Casting Process Equipment Silicon Material - Texas Flange Roger K. Derr, Group Vice President Lamb Electric--Kent A Cambridge, Ohio Racine, Wisconsin Graham A Carrboro, North Carolina Gerald G. Loehr, Group Vice President Straza Offshore Research A Engineering Rodan U. S. Bellows Charles E. Rausch, Group Vice President U. S. Gauge Mansfield and Green William E. Kell, Vice President Texas Flange Robert R. Kobak, Vice President Westchester Plastics G. Paul Lynam, Vice President Schutte and Koerting Leon S. Peters, Vice President Valley Foundry Raymond C. Roloff, Vice President Process Equipment Henry Schladen, Jr., Vice President Aluminum Extrusion Pacific Extrusion ' William H. Spencer, Vice President Hunter Spring Stanley A. Walker, Vice President Straza John M. Ward, Vice President Special Filaments AS000758 'board of directors Halbert S. Aldrich, Retired. Vice: Chairman, Chemical Bank Helmut N. Friedkender, Financial Advisor to Mr. William Rosenwald. Chairman of the Board of American Securities Corporation, and hisfamily Samuel Hoffman, Parmer,, Stroock A Stroock A Lavan, Attorneys Charles D. Klein, Financial Advisor to Mr. William Rosenwald, Chairman of the Board of American Securities Corporation, and hisfamily Peter I. B. Lavan, Counsel, Stroock A Stroock A Lavan, Attorneys - John H. Lux, Chairman of the Board and ChiefExecutive Officer of the Company Robert L. Noland, President of the Company Leon S. Peters, Vice President of the Company and Chief Executive Officer ofAMETEK Valley Foundry Anthony A. Sima, III, Director of American Securities Corporation Executive Offices 21st Floor, 410 Park Avenue New York, NY 10022 (212) 935-8640 Operations Headquarters Station Square Two Paoli, PA 19301 (215) 647-2121 AS000759 STOCKHOLDER information General Counsel____________ Stroock & Stroock & Lavan 61 Broadway New York, NY 10006 Auditors___________________ Arthur Young & Company 7 Penn Center Plaza Philadelphia, PA 19103 Stock Transfer Agent The Chase Manhattan Bank, N.A. One New York Plaza New York, NY 10015 Stock Registrar Chemical Bank 20 Pine Street New York, NY 10006 Stock Listing New York Stock Exchange Stock Symbol: AME Form 10-K Report For a copy of AMETEK's Form 10-K Report as filed with the Securities and Exchange Commission, write to Investor Information, AMETEK, Inc. Station Square Two Paoli, PA 19301 Executive Offices 21st Floor, 410 Park Avenue New York, NY 10022 (212) 935-8640 Operations Headquarters Station Square Two Paoli, PA 19301 (215)-647-2121 Annual Meeting of Stockholders: 2:00 p.m. April 28, 1981 Corporate Trust Office 100 West 10th Street Wilmington, DE 19801 r -- AS000760