AMETEK INC/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12981
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AMETEK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 14-1682544
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

37 NORTH VALLEY ROAD, PAOLI, PA 19301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(610) 647-2121

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [ ] NO

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12b-2 OF THE ACT). [X] YES [ ] NO

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 2003, was $1,065,748,567.

The number of shares of common stock outstanding as of February 28, 2003,
was 33,096,514.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the Proxy Statement for
the Annual Meeting of Stockholders to be held on May 20, 2003.
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AMETEK, INC.

2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

1

PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

AMETEK, Inc. ("AMETEK" or the "Company") is incorporated in Delaware. Its
predecessor was originally incorporated in Delaware in 1930 under the name of
American Machine and Metals, Inc. The Company maintains its principal executive
offices in suburban Philadelphia, PA at 37 North Valley Road, Paoli, PA 19301.
AMETEK is a leading global manufacturer of electronic instruments and electric
motors with operations in North America, Europe, Asia, and South America. The
Company is listed on the New York Stock Exchange (symbol: AME). AMETEK is a
component of the S&P MidCap 400 and the Russell 2000 indices. More than
one-third of 2002 sales were to international markets.

The Company's annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports filed or
furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 are
made available free of charge on the Company's Internet website at
www.ametek.com as soon as practicable after such material is electronically
filed with or furnished to the Securities and Exchange Commission.

PRODUCTS AND SERVICES

The Company markets its products worldwide through two operating groups,
the Electronic Instruments Group ("EIG") and the Electromechanical Group
("EMG"). EIG builds technologically advanced monitoring, testing, and
calibration instruments and display devices for the process, power, aerospace
and industrial markets. The Company believes that EMG is the world's largest
manufacturer of air-moving electric motors for vacuum cleaners and other floor
care products and is a prominent producer of brushless air-moving motors for
aerospace, mass-transit, medical and office product markets. EMG also produces
specialty metals for automotive, consumer, electronics, telecommunications and
other markets and offers switches for motive and stationary power systems. The
Company continues to grow through acquisitions primarily focused on niche
markets in instrumentation, technical motors and specialty metals.

COMPETITIVE STRENGTHS

Management believes that the Company has several significant competitive
advantages that assist it in sustaining and enhancing its market positions. Its
principal strengths include:

Significant Market Share. AMETEK maintains significant share in many of
its targeted niche markets because of its ability to produce and deliver
high-quality products at competitive prices. In EIG, the Company maintains
significant market positions in many niche segments within the aerospace, power,
process and industrial instrumentation markets. In EMG, the Company believes it
is the largest manufacturer of air-moving electric motors for the global floor
care market. It also believes that its significant market share along with its
new and expanded low-cost motor manufacturing plants allows it to capitalize on
new market opportunities and expand its electromechanical product lines.

Technological and Development Capabilities. AMETEK believes it has certain
technological advantages over its competitors that allow it to develop
innovative products and maintain leading market positions. Historically, the
Company has grown by extending its technical expertise into the manufacture of
customized products for its customers as well as through acquisitions. EIG
competes primarily on the basis of product innovation in several highly
specialized instrumentation markets, including process measurement, heavy-
vehicle dashboard and aerospace instruments. An example of EIG's ability to take
a technical innovation developed for one market into a related market was the
leveraging of its core competency in jet engine temperature sensors in
developing similar products for power generation applications, particularly
land-based gas turbines. AMETEK's established reputation for technological
innovation, service and reliability also has led to several successful strategic
alliances. EMG focuses on low-cost design and manufacturing, while enhancing
motor-blower performance through advances in power, efficiency, lighter weight
and quieter

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operation. The Company believes that EMG's leadership in motor technology has
allowed it to develop a range of product features for its motors and
motor-blowers that continues to create new market opportunities for its
products.

Efficient and Low-Cost Manufacturing Operations. The Company's strong
competitive position provides it with a significant advantage in growing the
global market share of many of its businesses. AMETEK has motor manufacturing
plants in China, the Czech Republic, Mexico and Brazil to lower costs and
achieve strategic proximity to its customers, furthering its ability to increase
international sales and market share. Certain of the Company's electronic
instrument businesses are also relocating manufacturing operations to low-cost
locales. Furthermore, strategic acquisitions and joint ventures in Europe, North
America and Asia have resulted in additional cost savings and synergies through
the consolidation of operations, product lines and distribution channels that
benefit both operating groups.

Experienced Management Team. Another key component of AMETEK's success is
the strength of its management team and its commitment to the performance of the
Company. AMETEK's senior management has extensive experience averaging more than
20 years with the Company, and is financially committed to the Company's success
through Company-established stock ownership guidelines based on a set of salary
multiples.

BUSINESS STRATEGY

AMETEK's objectives are to increase the Company's earnings growth and
financial returns through a combination of operational and financial strategies.
Those operational strategies include business acquisitions and cost-reduction
programs designed to achieve double-digit annual percentage growth in earnings
per share and a superior return on total capital. To support those operational
objectives, financial initiatives have been, or may be, undertaken, including
public debt or equity issuance, bank debt refinancing, local-source financing in
certain foreign countries, accounts receivable securitization and share
repurchases. AMETEK's commitment to earnings growth is reflected in its
continued implementation of cost-reduction programs designed to offset the
impact of a difficult economic environment and achieve the Company's long-term
best-cost objectives.

AMETEK's Corporate Growth Plan consists of four key strategies:

Strategic Acquisitions and Alliances. The Company continues to pursue
strategic acquisitions, both domestically and internationally, to expand and
strengthen its product lines, improve its market share positions and increase
earnings through sales growth and operational efficiencies at the acquired
businesses. Since the beginning of 2000, to the date of this report, the Company
has completed seven acquisitions with annualized sales totaling nearly $350
million (see "Recent Acquisitions"). Those acquisitions have enhanced AMETEK's
position in analytical instrumentation, technical motors, electromechanical
products and electrical power instruments and systems. Through these and prior
acquisitions, the Company's management team has gained considerable experience
in successfully acquiring and integrating new businesses. The Company intends to
continue to pursue strategic acquisitions, both domestically and
internationally, to expand and strengthen its product lines, improve its market
share positions and increase earnings through sales growth and operational
efficiencies at the acquired companies.

Global and Market Expansion. AMETEK's largest international presence is in
Europe, where it has operations in Denmark, Italy, Germany, the Czech Republic,
the United Kingdom, France and the Netherlands. These operations provide design
and engineering capability, product line breadth, enhanced European distribution
channels, and low-cost production for both electronic instruments and
electromechanical devices. AMETEK has a leading market position in European
floor care motors and a significant presence in many of its instrument
businesses. It has grown sales in Latin America and Asia by building and
expanding low-cost electric motor and instrument plants in Reynosa, Mexico, and
motor manufacturing plants in Sao Paulo, Brazil and Shanghai, China. It also
continues to achieve geographic expansion and increased market expansion in Asia
through joint ventures in China, Taiwan, Japan and Korea and a direct sales and
marketing presence in Singapore, Japan, China and Hong Kong.

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New Product Development. Through its new product development efforts,
AMETEK seeks to improve its existing market positions and enter complementary
markets. In EIG, it applies concurrent engineering to develop specialized
products for the markets in which it competes. In 2002, EIG was selected by a
major customer to provide an engine sensor suite for the new jet engine that
powers the Airbus A380 super jumbo airliner, which is expected to be the largest
and most advanced commercial aircraft when it enters service in 2006.

Among the new products launched by EIG in 2002 is the ProLine(TM)Series of
process mass spectrometers -- compact, affordable bench-top instruments that
provide real-time process monitoring and control. The ProLine(TM)mass
spectrometer is ideal for a wide range of process gas analysis applications in
the semiconductor, pharmaceutical, food, bulk gas and other process industries.
EIG also launched the Next Generation Instrumentation (NGI(TM)) dashboard system
for heavy trucks, construction/agricultural equipment and other vehicles. The
NGI(TM) system of fully digital, multiplexed, heavy-duty dashboard gauges
provides a reliable, expandable and cost-effective alternative to traditional
analog instruments. The NGI-based system already has been selected by Daimler
Chrysler for the dashboard on the Freightliner 2004 Century Class ST -- its most
technologically advanced truck line.

EMG achieved and maintains its position as a leader in air-moving motor
technology by continually introducing new motors and motor-blowers that set
industry standards for efficiency and performance. In 2002, EMG broadened its
global floor care product line by offering additional INFIN-A-TEK(TM)blowers
that combine the performance of a series universal motor with certain advantages
of a brushless motor. It also offered new low-noise, higher-efficiency ACUSTEK
Plus(TM) commercial and ADVANTEK(TM)household vacuum motors. In advanced
brushless DC motors and motor-blowers, it introduced an expanded line of
MINIJAMMER(R) blowers that incorporate an integrated digital pressure sensor. In
specialty metals, it offered new stainless steel flake for protective paints and
coatings and high-purity alloy strip for superconductor applications.

Operational Excellence. Operational Excellence is AMETEK's keystone
strategy for improving profit margins and strengthening the Company's
competitive position across its businesses. Through its Operational Excellence
strategy, the Company seeks to reduce production costs and improve its market
positions. The strategy has played a key role in achieving synergies from newly
acquired companies. AMETEK believes that Operational Excellence's focus on flow
manufacturing and its emphasis on team building and a participative management
culture have enabled the Company to improve operating efficiencies and product
quality, increase customer satisfaction and yield higher cash flow from
operations, while significantly lowering operating and administrative costs and
shortening manufacturing cycle times.

2002 OVERVIEW

Operating Performance

In 2002, AMETEK generated sales of approximately $1 billion, and increased
income by 27% despite a difficult economic environment. The Company achieved its
ninth consecutive year of growth in income and earnings per share from
continuing operations, before unusual items. In addition, in 2002 it set records
for sales, operating income, net income and diluted earnings per share. This
strong performance was driven primarily by the Company's continuing
cost-reduction initiatives, the contribution of recently acquired businesses,
and the non-amortization of goodwill.

AMETEK generated cash flow from operations during 2002 that totaled $104
million, a 3% increase from 2001. The primary contributors to that growth in
cash flow were increased earnings, coupled with a continued focus on reducing
operating working capital, partially offset by significant contributions to the
Company's defined benefit pension plans.

Share Repurchase Program

Under the Company's 1998 share repurchase authorization, approximately $8.3
million was available for share repurchases as of December 31, 2002. During
2002, the Company repurchased 236,900 shares of its

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common stock for $7.3 million. Subsequent to December 31, 2002, the Company
repurchased an additional 190,000 shares of its common stock for approximately
$5.8 million.

On March 12, 2003, the Company's Board of Directors authorized a new $50
million share repurchase program, adding to the $2.5 million remaining balance
from the September 1998 $50 million program. Under the 1998 program, $47.5
million was used for share repurchases. As of March 12, 2003, $52.5 million was
approved for future share repurchases.

Financing

The Company has a shelf registration statement that became effective in
2002. It provides for up to $300 million in additional financing through various
means, such as the potential issuance of common or preferred stock, debt
securities or warrants. Preferred stock and debt security issuances may be fixed
and/or convertible.

Recent Acquisitions

In January 2003, the Company acquired Airtechnology Holdings Limited
("Airtechnology") from Candover Partners Limited for approximately 50 million
British pounds sterling or $80 million in cash. Airtechnology is a leading
supplier of motors, fans and environmental control systems for aerospace and
defense markets. It has estimated annual sales of 29 million British pounds
sterling, or approximately $46 million. The acquired business is now part of the
EMG operating group.

Effective as of February 28, 2003, AMETEK purchased Solidstate Controls,
Inc. ("Solidstate Controls") from the Marmon Industrial Companies LLC for
approximately $36 million in cash. Solidstate Controls is a leading supplier of
Uninterruptible Power Supply systems for the process and power generation
industries. Solidstate Controls is headquartered in Columbus, Ohio, and has
estimated 2003 sales of $45 million. The acquired business joins AMETEK as part
of the EIG operating group.

FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, FOREIGN OPERATIONS, AND EXPORT
SALES

Reportable segment and geographic information are shown on pages 52-54 of
this report.

The Company's Global and Market Expansion growth strategy is subject to
certain risks that are inherent in conducting business outside the United
States. Those include fluctuations in currency exchange rates and controls,
restrictions on the movement of funds, import and export controls, and other
economic, political and regulatory policies of the countries in which business
is conducted.

The Company's high level of foreign sales has resulted from a combination
of export sales of products manufactured in the United States, sales from
overseas operations and sales resulting from strategic alliances.

DESCRIPTION OF BUSINESS

The products and markets of each operating segment are described below:

EIG

EIG applies its specialized market focus and superior technology to produce
testing, monitoring and calibration instruments for the aerospace, power,
process, and industrial markets. EIG's growth is based on the four strategies
outlined in AMETEK's Corporate Growth Plan. EIG designs products that are
significantly different from, or technologically better than, competing
products. It has reduced costs by implementing operational improvements,
achieving acquisition synergies, improving supply chain management, moving
production to low cost locales and reducing headcount. EIG is among the leaders
in many of the specialized markets it serves, including aerospace engine
sensors, heavy-vehicle instrument panels, analytical instrumentation, level
measurement products, power instruments and pressure gauges. It also has joint
venture manufacturing operations in Japan, China and Taiwan. Approximately 35%
of EIG's 2002 sales were to markets outside the United States.

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EIG employs approximately 3,400 people, of whom approximately 700 are
covered by collective bargaining agreements. It has 27 manufacturing facilities:
23 in the United States, 3 in Europe and 1 in Canada.

Aerospace and Power Instruments Markets and Products

Approximately 37% of EIG revenues are from the sale of aerospace and power
products. AMETEK Aerospace products are designed to customer specifications and
are manufactured to stringent operational and reliability requirements. Its
aerospace business operates in specialized markets, where its products have a
technological and/or cost advantage. Acquisitions have complemented and expanded
EIG's core sensor and transducer product line, used in a wide range of
industrial and aerospace applications.

Aerospace products include airborne data systems, turbine engine
temperature measurement products, vibration-monitoring systems, indicators and
displays, fuel and fluid measurement products, sensors, switches, cable
harnesses and transducers. EIG serves all segments of commercial aerospace,
including helicopters, business jets, commuter aircraft, and commercial
airliners, as well as the military market.

Among its significant competitive advantages are EIG's 50-plus years of
experience as an aerospace supplier and its long-standing customer relationships
with global commercial aircraft OEMs. Its customers are the leading producers of
airframes and jet engines. It also serves the commercial aerospace aftermarket
with spare part sales and repair and overhaul services.

EIG is a leader in the development and manufacture of sensor systems for
gas turbine engines and for boilers and burners used by the utility,
petrochemical, process, and marine industries worldwide. That core technology
initially was developed for aerospace but was adapted by AMETEK for land-based
gas turbines. With its 2000 acquisition of Rochester Instrument Systems, EIG
also became a leader in the design and manufacture of power measurement and
recording instrumentation used by the electric power and manufacturing
industries. Those products include power transducers and meters, event and
transient recorders, annunciators and alarm monitoring systems used to measure,
monitor and record variables in the transmission and distribution of electric
power.

Process Instruments Markets and Products

Approximately 39% of EIG sales are from instruments for process measurement
and analysis. These include pressure gauges and transducers; oxygen, moisture,
combustion and liquid analyzers; emission monitors; mass spectrometers;
electronic pressure sensors and transmitters; and level measurement devices.
EIG's focus is on process industries, including oil, gas and petrochemical
refining, power generation, specialty gas production, water and waste treatment,
natural gas distribution and semiconductor manufacture. AMETEK is the world
leader in the analysis of tail gas in sulfur recovery processes.

In 2001, AMETEK acquired two businesses, EDAX and IRAS, which significantly
expanded its position in laboratory instrumentation. EDAX manufactures and
markets energy dispersive X-ray microanalysis instrumentation used in electron
microscope systems to identify and quantify the elemental composition and
structure of solid materials. The IRAS acquisition has greatly extended AMETEK's
capabilities in the measurement of physical properties with instruments that are
used in environmental monitoring, detection of nuclear and chemical weapons, and
laboratory research. IRAS also produces instrumentation for electronic signal
processing and electrochemical applications. As part of the IRAS acquisition,
AMETEK acquired a 49% ownership position in Seiko EG&G Co., Ltd., a joint
venture that serves as the exclusive distributor of IRAS's Ortec(R) product line
in Japan.

EIG is among the leading North American manufacturers of pressure gauges, a
market that has been adversely affected by low-cost products manufactured
offshore. EIG has addressed this issue by participating in a 50%-owned joint
venture that manufactures low-cost pressure gauges in China and Taiwan, where
the venture also markets the products, and refocusing its domestic manufacturing
on more advanced pressure measurement products.

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Industrial Instrumentation Markets and Products

Approximately 24% of EIG sales are to the industrial instrumentation
market. Its Test & Calibration Instruments (T&CI) business manufactures a
comprehensive line of force-measurement and materials testing devices in the
United States and Europe. These include hand-held force measurement gauges and
test stands. T&CI also provides analytical software and support services. T&CI's
products are marketed worldwide under the Chatillon, Lloyd, Erichsen, Jofra, and
Davenport brand names through a global network of distributors, sales
representatives, and direct sales.

The acquisition of Solidstate Controls, as of the end of February 2003,
brings to AMETEK a line of Uninterruptible Power Supply systems for the process
and power generation industries.

EIG's Dixson business is a leading North American manufacturer of dashboard
instruments for heavy trucks, and is also a major supplier of similar products
for agricultural, construction, and off-road vehicles. It has a strong product
development capability in solid-state instruments that primarily monitor
engine-operating parameters.

Through its NCC business, EIG has a leading position in the market for food
service instrumentation and is a primary source for stand-alone and integrated
timing controls for the food service industry.

The Chemical Products division produces silica-, phenolic resin-, and
fluoropolymer-based products for high-temperature and highly corrosive
applications, including protective welding curtains and products for the
filtering of molten metal and heat exchangers. EIG also is a custom compounder
of engineered thermoplastic resins that offer enhanced strength, temperature
resistance and other properties for automotive parts, consumer appliances and
electronics, and telecommunications.

Customers

EIG is not dependent on any single customer such that the loss of that
customer would have a material adverse effect on EIG's operations. Approximately
23% of EIG's 2002 sales were made to its five largest customers.

EMG

The Company believes EMG is the world's largest producer of high-speed,
air-moving electric motors for OEMs of floor care products. It designs and
manufactures small vacuum motors with fans that rotate at high speeds and
require advanced manufacturing technology. EMG addresses complex motor-blower
dynamics, including heat, noise, vibration and wear in designing its customized
products. EMG also is a world leader in the production of brushless DC motors
and motor-blowers and a leading producer of specialty metal products used in
automotive, electronics, telecommunications, consumer and other markets. EMG
holds a leading market share for its electric motors in North America and
Western Europe and is focused on expanding its share in a growing Asian market.
It has expanded its operations worldwide by leveraging manufacturing and
technological expertise developed over many years.

EMG uses its technical expertise in the manufacture of high-speed,
air-moving electric motors to penetrate a variety of targeted markets, including
floor care and small appliances. It has formed alliances with OEM customers to
design and manufacture cost-effective products for numerous floor care
applications and is using its technical and marketing skills to further
penetrate other markets, such as outdoor power equipment and personal care
products.

To achieve greater global penetration and further reduce costs, EMG is
building on its market leadership in North American and European floor care by
expanding its electric motor production operations in China, Mexico, the Czech
Republic and Brazil. Approximately 33% of EMG's 2002 sales were to customers
outside the United States.

EMG employs approximately 4,200 people, of whom approximately 2,300 are
covered by collective bargaining agreements (including some which are covered by
local unions). It has 21 manufacturing facilities: 12 in the United States, 2 in
Italy, 2 in the United Kingdom, 2 in Mexico, 1 in China, 1 in the Czech
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Republic, and 1 in Brazil. As part of its ongoing efforts to relocate production
to low-cost facilities, EMG closed its Hudson, WI motor plant in 2002 and
relocated its production to the Reynosa, Mexico facility.

EMG's flexible production lines are designed for low-cost, high-volume
operations. Advanced technological capability allowed EMG to provide its
customers with custom-designed products and the Group produced approximately 28
million motors in 2002.

Floor Care Markets and Products

Approximately 39% of EMG sales are to floor care markets, where it has the
leading share, through its sales of air-moving electric motors to most of the
world's major floor care OEMs, including vertically integrated OEMs that produce
some of their own motors. EMG produces motor-blowers for a full range of floor
care products, ranging from hand-held, canister, and upright vacuums to central
vacuums for residential use. High-performance vacuum motors also are marketed
for commercial and industrial applications.

EMG has been successful in directing a portion of its global floor care
marketing to vertically integrated vacuum cleaner manufacturers, who seek to
outsource all or part of their motor production. By purchasing their motors from
EMG, these customers are able to realize economic and operational advantages by
reducing or discontinuing their own motor production and avoiding the capital
investment required to keep their motor manufacturing current with changing
technologies and market demands.

EMG has focused its new product development efforts on minimizing costs and
enhancing motor-blower performance through advances in power, efficiency, size,
weight, and quieter operation. Among its latest advances are the ADVANTEK(TM)
series of universal vacuum motors that incorporate design and construction
techniques that lower cost while improving operating efficiency and reliability;
the Air-Watt(TM) Series of commercial motor-blowers, whose advanced design
translates directly into higher performance and energy savings for end users;
and ACUSTEK Plus(TM) low-noise commercial vacuum motors.

EMG has a significant position in the European floor care market with
manufacturing operations in Italy and the Czech Republic. The electric motors
produced in Italy and the Czech Republic are similar to those produced in North
America.

Technical Motor Markets and Products

EMG's technical motors are used in aerospace applications, business
machines and computer equipment, military and mass transit vehicles, and medical
equipment. These electronically commutated (brushless) motors, blowers and pumps
offer long life, reliability and near maintenance-free operation. They are used
increasingly in medical and other applications, in which their long life, and
spark-free and reliable operation are key. They also can be found in gasoline
vapor recovery systems, and provide cooling and ventilation for electronic
devices, military and mass transit vehicles and a wide range of aircraft. In the
emerging fuel cell market, AMETEK is working closely with many of the leading
developers of fuel cell technology, with blowers and pumps specifically
developed for these applications. The acquisition of Airtechnology in January
2003 significantly expands AMETEK's presence in high-end technical motors and
strengthens EMG's relationship with large European-based aerospace and defense
companies.

Specialty Motor Markets and Products

Approximately 22% of EMG sales are to specialty motor markets, where it
manufactures a variety of specialty motors used in a wide range of products,
including outdoor power equipment, such as electric chain saws, leaf blowers,
string trimmers and power washers; household and personal care appliances;
fitness equipment; electric materials handling vehicles; and sewing machines.
The 2001 acquisition of GS Electric added to AMETEK's presence in permanent
magnet motors, allowing it to participate in a variety of new niche markets that
have higher growth rates than floor care, and further leverage the Company's
low-cost motor manufacturing infrastructure.

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Specialty Metals Markets and Products

AMETEK is an innovator and market leader in metal powder, strip, wire, and
bonded products. It produces stainless steel and nickel clad alloys, stainless
steel, cobalt, and nickel alloy powders; metal strip; specialty shaped and
electronic wire; and advanced metal matrix composites used in electronic thermal
management. Its products are used in automotive, appliance, telecommunications,
marine and general industrial applications. Its niche market focus is based upon
proprietary manufacturing technology and strong customer relationships.

Power and Switch Markets and Products

The August 2000 acquisition of the Prestolite switch and industrial battery
charger businesses greatly expanded AMETEK's electromechanical product
offerings. The switch business produces solenoids, and other electromechanical
devices for the motive and stationary power markets. The battery charger
business manufactures high-quality industrial battery chargers for use in the
materials handling market. Both the switch and battery charger businesses have
strong market positions, superior technologies, and enjoy a reputation for high
quality and service.

Customers

EMG is not dependent on any single customer such that the loss of that
customer would have a material adverse effect on EMG's operations. Approximately
14% of EMG's sales for 2002 were made to its five largest customers.

MARKETING

The Company's marketing efforts generally are organized and carried out at
the group and division levels. EIG makes significant use of distributors and
sales representatives in marketing its products. Within aerospace, its
specialized customer base of aircraft and jet engine manufacturers are served
primarily by direct sales engineers. Given the similarity and technical nature
of its many products as well as its significant worldwide market share, EMG
conducts most of its domestic and international marketing activities through a
direct sales force and makes some use of sales representatives and distributors
both in the United States and other countries.

COMPETITION

In general, most of the Company's markets are highly competitive. The
principal elements of competition for the Company's products are price, product
technology, distribution, quality, and service.

In the markets served by EIG, the Company believes that it ranks among the
leading U.S. producers of certain measuring and control instruments. It also is
a leader in the U.S. heavy-vehicle instrumentation and power instruments markets
and one of the leading instrument and sensor suppliers to the commercial
aviation market. Competition remains strong and can intensify for certain EIG
products, especially its pressure gauge and heavy-vehicle instrumentation. Both
of these businesses have several strong competitors. In the process and
analytical instruments markets, numerous companies in each specialized market
compete on the basis of product quality, performance and innovation. The
aerospace and power instruments businesses have a number of diversified
competitors, which vary depending on the specific market niche.

EMG has limited domestic competition in the U.S. floor care market from
independent manufacturers. Competition is increasing from Asian motor
manufacturers that serve the U.S. floor care market. There is potential
competition from vertically integrated manufacturers of floor care products that
produce their own motor-blowers. Many of these manufacturers would also be
potential EMG customers if they decided to outsource their motor production. In
Europe, competition comes from a small group of large international competitors,
vertically integrated manufacturers, and numerous small competitors. EMG's
businesses have competition from a limited number of companies in each of their
markets. Competition is generally based on

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product innovation, performance and price. EMG's specialty metal products
business has several specialized product lines that have few competitors. The
primary competition is from alternative materials and processes.

BACKLOG AND SEASONAL VARIATIONS OF BUSINESS

The Company's approximate backlog of unfilled orders by business segment at
the dates specified below was as follows:

The decline in backlog from December 31, 2001 was primarily in the
Company's aerospace, power and technical motor businesses.

Of the total backlog of unfilled orders at December 31, 2002, approximately
95% is expected to be shipped by December 31, 2003. The Company believes that
neither its business as a whole, nor either of its operating segments, is
subject to significant seasonal variations, although certain individual
operations experience some seasonal variability.

RAW MATERIALS

The Company's business segments obtain raw materials and supplies from a
variety of sources, and generally from more than one supplier. However, for EMG,
certain items, including various base metals and certain steel components, are
available only from a limited number of suppliers. The Company believes its
sources and supplies of raw materials are adequate for its needs.

RESEARCH, PRODUCT DEVELOPMENT AND ENGINEERING

The Company is committed to research, product development, and engineering
activities that are designed to identify and develop potential new and improved
products or enhance existing products. Research, product development, and
engineering costs were $46.8 million, $45.2 million and $45.9 million, in 2002,
2001, and 2000 respectively. These amounts included net Company-funded research
and development expenses of $23.7 million, $22.6 million and $23.8 million,
respectively. Such expenditures were directed toward the development of new
products and processes, and the improvement of existing products and processes.

ENVIRONMENTAL COMPLIANCE

Information with respect to environmental matters of the Company is set
forth on pages 27 and 28 of this report in the section of Management's
Discussion and Analysis of Financial Condition and Results of Operations
entitled "Environmental Matters".

PATENTS, LICENSES, AND TRADEMARKS

The Company owns numerous unexpired U.S. patents, and foreign patents,
including counterparts of its more important U.S. patents, in the major
industrial countries of the world. The Company is a licensor or licensee under
patent agreements of various types, and its products are marketed under various
registered and unregistered U.S. and foreign trademarks and trade names.
However, the Company does not consider any single patent or trademark, or any
group thereof, essential either to its business as a whole or to either of its
business segments. The annual royalties received or paid under license
agreements are not significant to either of its business segments or to the
Company's overall operations.

10

EMPLOYEES

At December 31, 2002, the Company employed approximately 7,700 people in
its EMG, EIG and corporate operations, of whom approximately 3,000 were covered
by collective bargaining agreements.

WORKING CAPITAL PRACTICES

The Company does not have extraordinary working capital requirements in
either of its business segments. Customers generally are billed at normal trade
terms, which may include extended payment provisions. Inventories are closely
controlled and maintained at levels related to production cycles, and are
responsive to the normal delivery requirements of customers.

ITEM 2. PROPERTIES

The Company has 48 operating plant facilities in 17 states and 9 foreign
countries. Of these facilities, 33 are owned by the Company and 15 are leased.
The properties owned by the Company consist of approximately 552 acres, of which
approximately 3.9 million square feet are under roof. Under lease is a total of
approximately 791,000 square feet. The leases expire over a range of years from
2003 to 2015, with renewal options for varying terms contained in most of the
leases. Production facilities in Taiwan, China, Japan and Korea provide the
Company with additional production capacity through the Company's investment in
50% or less owned joint ventures. The Company also has one idle production
facility available for sale. The Company's executive offices in Paoli, PA,
occupy approximately 34,000 square feet under a lease that will expire in 2007.

The Company's machinery, plants, and offices are in satisfactory operating
condition and are adequate for the uses to which they are put. The operating
facilities of the Company by business segment are summarized in the following
table:

ITEM 3. LEGAL PROCEEDINGS

There recently has been a significant increase in certain asbestos-related
claims against numerous industrial companies in certain states. AMETEK, or its
subsidiaries, have been named defendants in some such cases. No significant
resources have been required by the Company to respond to these cases, no
judgments have been made against AMETEK, and no payments have been made to
plaintiffs to settle such asbestos-related claims. The Company believes it has
strong defenses to such claims, and it also is indemnified against certain of
these claims. If required, the Company intends to defend itself vigorously in
these matters.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders,
through the solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended December 31, 2002.

11

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The principal market on which the Company's common stock is traded is the
New York Stock Exchange. The Company's common stock is also listed on the
Pacific Exchange, Inc. On February 28, 2003, there were approximately 2,400
holders of record of the Company's common stock.

Market price and dividend information with respect to the Company's common
stock are set forth on page 55 in the section of the Notes to the Consolidated
Financial Statements entitled "Quarterly Financial Data (Unaudited)." Future
dividend payments by the Company will be dependent on future earnings, financial
requirements, contractual provisions of debt agreements, and other relevant
factors.

12

ITEM 6. SELECTED FINANCIAL DATA

13

- ---------------

(1) 2001 includes unusual pretax charges totaling $23.3 million, $15.3 million
after tax ($0.46 per diluted share). The charges were for employee
reductions, facility closures and asset writedowns. The year 2001 also
included a tax benefit and related interest income of $10.5 million after
tax ($0.32 per diluted share) resulting from the closure of a number of tax
years. The amounts in 1998 include a nonrecurring pretax charge for cost
reduction initiatives totaling $8.0 million, ($4.8 million after-tax or
$0.14 per diluted share).

(2) The amounts in 2001 and the preceding years include the amortization of
goodwill. Effective January 1, 2002, the Company adopted Financial
Accounting Standards Board Statement No. 142, "Goodwill and Other Intangible
Assets", which no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Had the Company not amortized goodwill,
net income and diluted earnings per share would have been higher by $10.2
million ($0.30 per diluted share), $9.2 million ($0.28 per diluted share),
$6.7 million ($0.20 per diluted share) and $4.9 million ($0.15 per diluted
share) in 2001, 2000, 1999 and 1998, respectively.

(3) Amounts in 1998 include a pretax loss on the early repayment of debt of
$13.8 million, $8.7 million, aftertax ($0.26 per diluted share). Prior to
the issuance of FASB Statement No. 145 ("Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections,") in April 2002, such a transaction was reported as an
extraordinary item in accordance with FASB Statement No. 4. The issuance of
Statement No. 145 rescinds Statement No. 4 and requires retroactive
reclassification of prior period items that do not meet specified criteria
for classification as an extraordinary item.

(4) See description of unusual and nonrecurring charge in Note 1 above. The
table below presents the reconciliation of operating income reported in
accordance with GAAP to operating income before unusual and nonrecurring
items.

14

(5) EBITDA represents income before income taxes, interest, depreciation and
amortization, amortization of deferred financing costs, and nonrecurring
items. EBITDA is presented because the Company is aware that it is used by
rating agencies, securities analysts, investors and other parties in
evaluating the Company. It should not be considered, however, as an
alternative to operating income as an indicator of the Company's operating
performance, or as an alternative to cash flows as a measure of the
Company's overall liquidity as presented in the Company's financial
statements. Furthermore, EBITDA measures shown for the Company may not be
comparable to similarly titled measures used by other companies. The table
below presents the reconciliation of net income reported in accordance with
U.S. GAAP to EBITDA.

(6) Before the effects of an accounts receivable securitization program.

(7) Free cash flow represents net income, plus depreciation and amortization,
less capital expenditures and dividends. Free cash flow is presented because
the Company is aware that it is used by rating agencies, securities
analysts, investors and other parties in evaluating the Company. (Also see
note 5 above). The table below presents the reconciliation of net income
reported in accordance with U.S. GAAP to Free Cash Flow.

(8) At December 31, 2002 and 2001, debt includes borrowings under the accounts
receivable securitization program, referred to in note 6 above. At December
31, 2000 and 1999, such amounts were excluded from the balance sheet. Had
these amounts been included in the balance sheet, total debt and total debt
as a percentage of capitalization would have been $406.2 million and $375.4
million and 59.1% and 63.6%, respectively, at December 31, 2000 and 1999.

15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This report includes forward-looking statements based on the Company's
current assumptions, expectations and projections about future events. When used
in this report, the words "believes," "anticipates," "may," "expect," "intend,"
"estimate," "project," and similar expressions are intended to identify forward-
looking statements, although not all forward-looking statements contain such
words. In this report, we disclose important factors that could cause actual
results to differ materially from management's expectations. For more
information on these and other factors see "Forward-Looking Information" on
pages 28 and 29.

The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with "Item 6.
Selected Financial Data" and the consolidated financial statements of the
Company and the related notes included elsewhere in this Form 10-K.

BUSINESS OVERVIEW

AMETEK performed well in 2002 in what remains a difficult economic
environment. In 2002, the Company posted record sales, operating income, net
income, and diluted earnings per share. The Company benefited from its 2001
acquisitions, the aggressive management of its cost structure and a substantial
reduction in its operating working capital. AMETEK is continuing to take the
appropriate steps to size its business to the current economic environment. The
Company also continues to achieve several major objectives under its four growth
strategies: Strategic Acquisitions and Alliances, Global and Market Expansion,
New Products, and Operational Excellence. Significant 2002 and recent events
were:

- Sales were $1.04 billion in 2002, an increase of 2.1% from 2001 despite
weak economic conditions both domestically and internationally.

- Continuing with the Company's global plan to lower its cost structure,
Operational Excellence initiatives in 2002 included the ongoing
transition of a portion of the Company's motor and instrument production
to low-cost manufacturing facilities in Mexico as well as in China and
the Czech Republic. The Company produced 17% of its products in low-cost
locales in 2002.

- A successful program to reduce operating working capital in 2002 resulted
in strong cash flow from operations that totaled $104 million, a 3%
increase from 2001. Inventories were lowered by $23.1 million, or 15%,
since December 31, 2001. The major use of the Company's increased
operating cash flow in 2002 was an $82.8 million reduction of debt. The
reduction in debt continues to provide the Company with additional
financing capability to, among other things, purchase new businesses.

- The Company's shelf registration statement became effective in the fourth
quarter of 2002, allowing for up to $300 million in additional financing
through the potential issuance of a variety of debt and/or equity
securities.

- In a difficult economic environment, the Company continued its emphasis
on investment in research, development and engineering, spending $46.8
million in 2002, an increase of 3.7% over 2001. Benefiting from its
previous investment in research and development, new product sales
increased 6.8% over 2001 to $111.9 million.

- In mid January 2003, the Company completed the acquisition of
Airtechnology Holdings Limited, significantly expanding its presence in
high-end technical motors.

- As of the end of February 2003, the Company acquired Solidstate Controls,
Inc., adding complementary products for the process and power generation
industries.

- In mid March 2003, a new $50 million share repurchase program was
authorized.

16

RESULTS OF OPERATIONS

The following table sets forth net sales and income of the Company by
business segment and on a consolidated basis for the years ended December 31,
2002, 2001, and 2000:

- ---------------

(1) After elimination of intra- and intersegment sales, which are not
significant in amount.

(2) The amounts in 2001 include unusual charges of $23.3 million for cost
realignment initiatives and asset writedowns.

(3) Segment operating income represents sales less all direct costs and expenses
(including certain administrative and other expenses) applicable to each
segment, but does not include interest expense.

(4) 2002 excludes goodwill amortization (see "Operating Segment Results").

YEAR ENDED DECEMBER 31, 2002, COMPARED WITH YEAR ENDED DECEMBER 31, 2001.

Results of Operations

The Company reported sales for 2002 of $1,040.5 million, an increase of
2.1% from sales of $1,019.3 million in 2001, despite the difficult global
economic environment, which continued to impact many of the Company's
businesses. Net sales for the Electronic Instruments Group (EIG) were $539.4
million in 2002, an increase of 8.0% from sales of $499.5 million in 2001. The
sales increase for EIG was due mainly to the 2001 acquisitions of Instruments
for Research and Applied Science (IRAS) and EDAX, Inc., as well as strength in
the Company's heavy-vehicle instruments business. These increases were partially
offset by a continued decline in demand from most of the Group's other
businesses, primarily aerospace and power instruments. Net sales for the
Electromechanical Group (EMG) were $501.1 million in 2002, a decrease of 3.6%
from sales of $519.8 million in 2001, due to continued weakness in the United
States and European floor care markets, partially offset by the 2001 acquisition
of GS Electric and currency translation gains from international businesses.
Without the impact of the 2001 acquisitions, consolidated sales for 2002 would
have been lower by 6.3% when compared with 2001. Total consolidated
international sales were $353.4 million in 2002, an increase of 10.0% from sales
of $321.2 million in 2001. Export shipments from the United States in 2002 were
$192.0 million, an increase of 12.9% compared with $170.0 million in 2001.

New orders for 2002 were $1,004.8 million, compared with $1,039.5 million
for 2001, a decrease of $34.7 million or 3.3%, due to declines primarily in the
aerospace and power instrument businesses resulting from softness in these
markets, as well as the overall economic slowdown. The decline in orders was
partially

17

offset by orders from the 2001 acquisitions. The order backlog at December 31,
2002 was $240.9 million, compared with $276.6 million at December 31, 2001, a
decrease of $35.7 million or 12.9% primarily in the aerospace, power instrument,
and technical motor businesses.

Total segment operating income increased to $167.7 million for 2002, an
increase of 31.4%, compared with segment operating income of $127.7 million for
2001. Segment operating margins in 2002 were 16.1% of sales, an increase from
12.5% of sales in 2001. The higher operating income was primarily driven by the
2001 acquisitions and the non-amortization of goodwill, effective at the
beginning of 2002. This increase was reduced somewhat by higher net pension
costs resulting primarily from lower pension income from the Company's U.S.
defined benefit pension plans. In 2003, the Company expects an increase in total
pension expense of approximately $7.0 million pretax, due primarily to the
recent decline in the market value of pension plan investments caused by the
poor performance of the equity markets, as well as changes in actuarial
assumptions at year-end 2002. In 2002, the Company continued to benefit from its
aggressive cost reduction initiatives, which began in the second half of 2000.
These initiatives include the continued migration of production to low-cost
locales in Mexico, China and the Czech Republic and the lowering of its overall
cost structure. Segment operating income in 2001 included a fourth-quarter
unusual pretax charge to operations of $23 million ($15 million after tax, or
$0.46 per diluted share). Before the 2001 fourth-quarter unusual charge, segment
operating income was $150.7 million, and margins were 14.8% of sales.

Selling, general, and administrative (SG&A) expenses were $104.8 million in
2002, compared with $98.7 million in 2001, an increase of $6.1 million or 6.2%.
As a percentage of net sales, SG&A expenses were 10.1% in 2002, compared to 9.7%
in 2001. The selling expense component, as a percentage of sales, increased to
8.3% in 2002, compared with 7.9% in 2001. The higher selling expense in 2002 was
due to the 2001 acquisitions in EIG, which have a different overall cost
structure than AMETEK's base businesses. Selling expense of base businesses
decreased as a percentage of sales during 2002, reflecting the Company's
continual focus on cost reduction initiatives.

Corporate and other expenses were $19.0 million, or 1.8% of sales in 2002,
an increase of $0.9 million or 5.0%, when compared with $18.1 million in 2001,
but were unchanged as a percentage of sales. Higher insurance expense, pension
costs, and professional fees in 2002 accounted for the increase in corporate
expenses in 2002.

After deducting corporate expenses, consolidated operating income was
$148.7 million or 14.3% of sales, an increase of $39.1 million when compared
with 2001 operating income of $109.6 million or 10.7% of sales. Before unusual
charges in 2001, operating income was $132.8 million, or 13.0% of sales.

Interest expense was $25.2 million in 2002, a decrease of 9.8% compared
with $27.9 million in 2001. A lower average interest rate was the primary reason
for the decrease in interest expense. Other expenses were $0.6 million for 2002,
compared with other income of $2.7 million for 2001. The $3.3 million change
resulted primarily from lower investment income from the Company's captive
insurance subsidiary in 2002. The prior year also included interest income
related to the tax benefits recognized in the fourth quarter of 2001.

The effective tax rate for 2002 was 31.9% compared with 21.6% in 2001. The
effective tax rate in 2002 was favorably impacted by the effect of not
amortizing goodwill due to the adoption of SFAS No. 142, and the Company's tax
planning initiatives. The lower tax rate in 2001 was primarily due to the
recognition of $10.5 million in tax benefits resulting from the closure of a
number of tax years by U.S. federal and state tax authorities. Before unusual
charges and tax benefits, the 2001 effective tax rate was 33.2%.

Net income for 2002 was $83.7 million, or $2.49 per diluted share, compared
with net income for 2001 of $66.1 million, or $1.98 per diluted share, a 26.6%
increase in net income. Net income in 2001 included goodwill amortization of
$10.2 million after tax, or $0.30 per diluted share, and the net effect of the
unusual items, previously mentioned.

Operating Segment Results

The ELECTRONIC INSTRUMENTS GROUP (EIG) sales were $539.4 million in 2002,
an increase of 8.0% from 2001 sales of $499.5 million. The sales increase was
primarily from the IRAS and EDAX acquisitions, as well
18

as strength in the heavy-vehicle business. The Company believes the increase in
heavy-vehicle instrument sales was due mainly to truck purchases in advance of
more stringent federal emission standards that became effective October 1, 2002
and is considered to be an isolated event. Conditions remain weak in many of
EIG's markets, especially in the aerospace, power instruments and heavy-vehicle
markets. Without the recent acquisitions, EIG's 2002 sales would have decreased
by 5.5% when compared with 2001.

EIG's operating income for 2002 increased to $87.5 million from $57.0
million in 2001, an increase of $30.5 million, or 53.4%. The increase is the
result of unusual charges recorded in the fourth quarter of 2001 resulting from
headcount reductions, shifting production to low-cost locales and other expense
reduction initiatives. EIG also benefited from the non-amortization of goodwill
in 2002. EIG's pretax goodwill amortization in 2001 was $6.7 million. The
Group's operating margins for 2002 improved to 16.2% from 11.4% in 2001. Without
the 2001 unusual expenses, and goodwill amortization, the Group's operating
income for 2002 would have shown an increase of $11.2 million, or 14.7% when
compared with 2001.

ELECTROMECHANICAL GROUP (EMG) sales were $501.1 million in 2002, a decrease
of 3.6% from 2001 sales of $519.8 million. The sales decrease reflects the
continued overall weakness in the Group's markets, led by continued softness in
the floor care market. The 2001 acquisition of GS Electric and currency
translation gains from international businesses partially offset the sales
decline. Without the recent acquisition, EMG's sales would have decreased by
7.1%.

EMG's operating income for 2002 increased to $80.2 million from $70.6
million in 2001, an increase of 13.6%. The increase is the result of unusual
charges recorded in the fourth quarter of 2001, and improved operating margins
resulting from headcount reductions, shifting production to low-cost locales and
other expense reduction initiatives. EMG also benefited from the
non-amortization of goodwill in 2002. EMG's pretax goodwill amortization in 2001
was $5.2 million. Group operating margins were 16.0% of sales in 2002, up from
13.6% of sales in 2001. Without the 2001 unusual expenses, and goodwill
amortization, the Group's operating income would have decreased by $6.3 million,
or 7.8%.

Fourth Quarter Results

Sales for the fourth quarter of 2002 were $252.6 million, compared with
$237.3 million in the fourth quarter of 2001, an increase of $15.3 million, or
6.4%. The increase in sales was primarily driven by the IRAS acquisition,
although the difficult global economic environment continued to impact many of
the Company's businesses. Without the acquisition, 2002 sales increased
slightly.

Operating income for the fourth quarter of 2002 was $36.5 million, compared
with $5.3 million for the fourth quarter of 2001, an increase of $31.2 million.
Operating income was lower in the fourth quarter of 2001 primarily due to the
recording of unusual expenses that totaled $23.3 million, of which $12.4 million
was related to the costs of employee reductions, facility closures, and the
continued migration of production to low-cost locales, and $10.9 million was
related to asset writedowns. In the fourth quarter of 2002, the Company
continued to benefit from the aggressive management of its cost structure, which
began in the fourth quarter of 2000. The contribution from the acquisition of
IRAS and the non-amortization of goodwill, which started at the beginning of
2002 also benefited the 2002 fourth quarter. Without the effect of unusual
expenses in the fourth quarter of 2001, segment operating income for 2001 would
have been $28.6 million.

Selling, general and administrative expenses were $23.9 million in the
fourth quarter of 2002, a decrease of $3.7 million or 13.4%, when compared with
the fourth quarter of 2001. Selling expenses, as a percentage of sales,
decreased to 7.6% in the fourth quarter of 2002, compared with 9.8% for the same
period in 2001, which reflects the Company's continual focus on cost reduction
initiatives, and the unusual charges in 2001. This decrease was partially offset
by selling expenses related to the IRAS acquisition, acquired in December 2001.
The 2001 fourth quarter included selling, general and administrative expenses of
$2.7 million related to unusual charges.

Corporate and other expenses for the fourth quarter of 2002 were $4.8
million, or 1.9% of sales, compared to $4.3 million, or 1.8% of sales in the
fourth quarter of 2001. After deducting corporate expenses, consolidated
operating income totaled $36.5 million or 14.4% of sales for the fourth quarter
of 2002, compared with

19

$5.3 million, or 2.2% of sales for the fourth quarter of 2001. Before unusual
charges, operating income in the fourth quarter of 2001 was $28.6 million, or
12.1% of sales.

Interest expense was $5.7 million in the fourth quarter of 2002, compared
with $6.6 million for the same quarter of 2001. The decrease of $0.9 million, or
13.6%, resulted from lower interest rates and debt levels.

The fourth quarter 2002 provision for income taxes was $9.5 million
compared to a tax benefit of $10.8 million in the fourth quarter of 2001. The
2001 fourth quarter results include a tax benefit of $10.5 million, from the
closure of a number of tax years by U.S. federal and state tax authorities.

Net income for the fourth quarter of 2002 totaled $21.3 million, or $0.63
per diluted share, an increase of $9.8 million, or 86.1% from the fourth quarter
of 2001, when net income was $11.5 million, or $0.34 per diluted share. Before
the unusual items, fourth quarter 2001 earnings were $16.2 million, or $0.48 per
diluted share. Net income for the fourth quarter of 2001 included goodwill
amortization of $2.7 million after tax, or $0.08 per diluted share.

YEAR ENDED DECEMBER 31, 2001, COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Results of Operations

The Company reported sales for 2001 of $1,019.3 million, a decrease of 0.5%
from sales of $1,024.7 million in 2000, caused by weak economic conditions which
impacted most of the Company's businesses. Significantly offsetting the weak
economic conditions were the contributions from the Company's 2001 and 2000
business acquisitions and strength in its aerospace and power instruments
businesses. Without the acquisitions, sales for 2001 would have been 10% lower.
EIG segment sales were $499.5 million in 2001, a decrease of 2.0% from sales of
$509.5 million in 2000. Sales for EIG were lower largely due to a decline in
demand from most of its businesses. Acquisitions and continued strength in the
aerospace and power instruments businesses offset most of the Group's sales
decline. EMG segment sales were $519.8 million in 2001, an increase of 0.9% from
sales of $515.2 million in 2000 due to the sales contribution from acquisitions.
The Group's sales increase was offset by adverse economic conditions and other
competitive factors in the United States and European floor care markets. Total
consolidated international sales were $321.2 million in 2001, a decrease of 1.1%
from sales of $324.9 million in 2000. Export shipments from the United States in
2001 were $170.0 million, a decrease of 5.1% compared with $179.1 million in
2000.

New orders for 2001 were $1,039.5 million, essentially unchanged from
$1,037.6 million for 2000. The order backlog at December 31, 2001 was $276.6
million, compared with $256.4 million at December 31, 2000. New orders from
acquisitions made by the Company during 2001 and increased orders from the
aerospace and power instrument businesses were the primary reasons for the
increase.

Total segment operating income declined to $127.7 million for 2001, a
decrease of 18.3%, compared with segment operating income of $156.3 million for
2000. Segment operating margins in 2001 were 12.5% of sales, a decrease from
15.3% of sales in 2000. The overall reduction in segment operating margins in
2001 was primarily due to fourth quarter unusual pretax charges to operations of
$23 million ($15 million after tax, or $0.46 per diluted share). Partially
offsetting the lower segment operating margins in 2001, was lower pension
expense due primarily to use of the assumed return on pension investment assets.
Before the unusual charge, segment operating margins for 2001 were 14.8%. These
unusual charges are more fully discussed below under the "Fourth Quarter
Results".

Selling, general, and administrative (SG&A) expenses were $98.7 million in
2001, compared with $95.1 million in 2000, a $3.6 million increase due mainly to
increased selling expenses from acquisitions completed in 2001. As a percentage
of net sales, SG&A expenses were 9.7% in 2001, compared to 9.3% in 2000.
Corporate administrative expenses decreased to $18.1 million in 2001, compared
with $20.4 million in 2000, a decrease of $2.3 million, or 11.3%. The decrease
in corporate expenses reflected the impact of corporate cost reduction
activities primarily resulting from reduced information technology, consulting,
and travel expenses. Corporate expenses for 2001 were 1.8% percent of sales,
compared with 2.0% of sales for 2000.

20

After deducting corporate administrative expenses, consolidated operating
income was $109.6 million or 10.7% of sales, a decrease of $26.3 million when
compared with 2000 operating income of $135.9 million or 13.3% of sales. Before
unusual charges, operating income was $132.8 million, or 13.1% of sales.

Interest expense was $27.9 million in 2001, a decrease of 4.4% compared
with $29.2 million in 2000. Lower average interest rates, partially offset by
higher average debt levels to finance acquisitions, were the primary reasons for
the decrease in interest expense. Other income was $2.7 million for 2001,
compared with other expense of $0.5 million for 2000. The improvement resulted
primarily from interest income related to tax benefits recognized in the fourth
quarter of 2001 and from increased gains on sales of marketable securities held
by the Company's captive insurance subsidiary.

The effective tax rate for 2001 was 21.6% compared with 35.4% in 2000. The
lower tax rate in 2001 reflected the fourth quarter recognition of $10.5 million
in tax benefits ($0.32 per diluted share) resulting from the closure of a number
of open tax years by U.S. federal and state tax authorities, as well as higher
tax credits associated with export sales. Before unusual charges and the tax
benefits, the 2001 effective tax rate was 33.2%.

Net income for 2001 was $66.1 million, or $1.98 per diluted share, compared
with net income for 2000 of $68.5 million, or $2.11 per diluted share. The 3.5%
decrease in net income was due primarily to the fourth quarter net effect of the
unusual items, previously mentioned. Before the unusual items, earnings for 2001
were up 3.3% to $70.8 million, or $2.12 per diluted share.

Fourth Quarter Results

Sales for the fourth quarter of 2001 were $237.3 million, compared with
$258.2 million in the fourth quarter of 2000, a decrease of $20.9 million, or
8.1%. The decrease in fourth quarter sales was the result of significantly
weaker economic conditions, which impacted most of the Company's businesses.
Without the acquisitions, sales for the fourth quarter of 2001 would have been
17% lower.

Operating income for the fourth quarter of 2001 was $5.3 million, compared
with $34.1 million for the fourth quarter of 2000, a decrease of $28.8 million
or 84.4%. In response to weak economic conditions, in the fourth quarter of
2001, the Company recorded unusual expenses totaling $23.3 million of which
$12.4 million is related to the costs of employee reductions, facility closures,
the continued migration of production to low-cost locales, and $10.9 million
related to asset writedowns. The asset writedowns related to receivables ($3.3
million), inventory ($6.1 million) and equipment ($1.5 million). The asset
writedowns are primarily the result of the difficulties the economic environment
has had on a number of the Company's customers. The annualized cost savings
resulting from the severance and related actions are expected to be
approximately $25 million. These cost reduction initiatives were a continuation
of cost reduction programs that began in the fourth quarter of 2000, for which
the Company recorded a $3.4 million pretax charge in that quarter, and continued
during 2001.

Also, the fourth quarter 2001 results included a tax benefit of $10.5
million ($0.32 per diluted share), resulting from the closure of a number of tax
years by U.S. federal and state tax authorities. The tax benefits consisted of
cash of $4.4 million and a non-cash benefit of $6.1 million. As a result of the
tax benefit relating to the unusual charges, and the tax benefits discussed
here, the Company reported a total income tax benefit of $10.8 million in the
fourth quarter of 2001 compared with a tax provision of $9.2 million in the same
period of 2000.

Net income for the fourth quarter of 2001 totaled $11.5 million, or $0.34
per diluted share, a decrease of $5.8 million, or 33.5% from the fourth quarter
of 2000 net income of $17.2 million, or $0.53 per diluted share. Before the
unusual items, fourth quarter 2001 earnings were $16.2 million, or $0.48 per
diluted share.

Operating Segment Results

EIG sales were $499.5 million in 2001, a decrease of 2.0% from 2000 sales
of $509.5 million. The continued economic slowdown impacted most of the EIG
Group's businesses and was partially offset by the

21

sales contribution of the Company's 2001 and 2000 acquisitions and the strength
of the aerospace and power instruments businesses.

EIG's operating income for 2001 decreased to $57.0 million from $78.7
million in 2000, a decrease of $21.7 million, or 27.6%. Lower base business
sales caused by weak economic conditions, and significant unusual charges for
inventory writedowns, receivable losses related to a bankrupt customer, cost
realignment and employee severance related activities in the fourth quarter of
2001 drove the lower operating income. The Group's operating margins for 2001
declined to 11.4% from 15.5% in 2000. Without the unusual expenses, the Group's
operating income for 2001 would have been $69.5 million, a decrease of $9.3
million, or 13.9% of sales, compared with 2000.

EMG's sales for 2001 were $519.8 million, an increase of 0.9%, from sales
of $515.2 million in 2000. The 2001 and 2000 acquisitions drove the year-to-year
increase in sales. Weakness in the North American and European floor care
markets, along with lower sales of specialty metal products offset most of the
sales increase from acquisitions.

EMG's operating income for 2001 decreased to $70.6 million from $77.6
million in 2000, an 8.9% decrease. Lower profits were the result of significant
unusual expenses associated with cost reduction activities in the fourth quarter
of 2001 related primarily to employee severance activities, inventory
writedowns, losses on receivables due to customer bankruptcies, and the
writedown of certain machinery and equipment. Group operating margins were 13.6%
of sales in 2001 down from 15.1% of sales in 2000. Without the unusual expenses,
the Group's operating income would have increased to $81.3 million, an increase
of $3.7 million, or 15.6% of sales.

LIQUIDITY AND CAPITAL RESOURCES

In 2002, cash provided by operating activities totaled $103.7 million,
compared with $101.1 million (before accounts receivable securitization
transactions) for 2001, an increase of $2.6 million. The $2.6 million increase
in operating cash flow was the result of higher earnings and a strong focus on
reducing operating working capital. At December 31, 2002, inventories were lower
by $23.1 million, or 15.1% and receivables were lower by $5.8 million or 3.2%
compared with December 31, 2001. The 2001 inventory balance included a build-up
of inventories to protect customers during the Company's movement of certain
production to low-cost manufacturing facilities. Those movements are continuing,
and some inventory build-up at certain locations remain in place. Strong
operating cash flow during 2002 allowed the Company to repay $82.8 million in
debt and to contribute $30.3 million to its U.S. defined benefit pension plans,
including a $19.6 million contribution late in the fourth quarter of 2002. The
Company's after-tax cash expenditures for 2002, relating to its fourth quarter
2001 accrual for cost reduction initiatives, were $4.1 million. The remaining
$2.9 million in after-tax cash expenditures is expected to be expended for the
intended programs by the first half of 2004. Free cash flow (net income, plus
depreciation and amortization, less capital spending and dividends) was $91.4
million in 2002, compared with $75.3 million in 2001. Free cash flow and EBITDA
(presented elsewhere in this report) are presented because the Company is aware
that they are important measures that are used by third parties in evaluating
the Company.

In connection with its accounts receivable securitization program in 2001,
the Company recorded $45.0 million of securitized accounts receivable and
short-term borrowings of a special-purpose subsidiary. After deducting this
item, cash generated by operating activities in 2001 totaled $56.1 million.

Cash used for investing activities was $19.7 million for 2002, compared
with $152.5 million of cash used in 2001. In 2001, the Company purchased three
businesses for $131.8 million. The Company acquired GS Electric in May 2001,
EDAX in July 2001 and IRAS in December 2001. Additions to property, plant and
equipment totaled $17.4 million in 2002, compared with $29.4 million in 2001.

Cash used for financing activities totaled $84.6 million in 2002, compared
with cash provided of $103.3 million in 2001. In 2002 net short-term borrowings
decreased by $59.0 million, and long-term borrowings decreased $23.8 million.
These decreases reflect the partial use of the strong operating cash inflows for
2002 to pay down debt outstanding under the revolving credit facility. In 2001,
short-term borrowings

22

increased $37.7 million and long-term debt had a net increase of $72.6 million.
The 2001 increases were for borrowings to fund the 2001 acquisitions and the
accounts receivable securitization transaction discussed above.

Repurchases of the Company's common stock in 2002 totaled $7.3 million for
236,900 shares, compared with $11.6 million for 440,000 shares acquired in 2001.
Subsequent to December 31, 2002, the Company repurchased an additional 190,000
shares of its common stock for approximately $5.8 million. The share repurchases
were made under a 1998 $50 million share repurchase program. On March 12, 2003,
the Company's Board of Directors authorized a new $50 million share repurchase
program, adding to the $2.5 million remaining balance from the 1998 program.
Under the 1998 program, $47.5 million was used for share repurchases. As of
March 12, 2003, $52.5 million was approved for future share repurchases. Net
cash proceeds from the exercise of employee stock options and other items, net,
totaled $13.4 million in 2002, compared with $12.5 million in 2001.

At December 31, 2002, total debt outstanding was $390.1 million compared
with $470.8 million at December 31, 2001. The Company's debt agreements contain
various covenants including limitations on indebtedness, dividend payments and
maintenance of certain financial ratios. At December 31, 2002 and 2001, the
Company was within the allowable limits of the financial ratios. Debt as a
percentage of capitalization decreased to 48.1% at December 31, 2002 from 58.4%
at December 31, 2001. EBITDA (income before income taxes, interest expense,
interest income, depreciation and amortization) in 2002 was $180.4 million,
compared with $178.0 million for 2001 before unusual items. The Company's
debt-to-EBITDA ratio (computed in accordance with the credit agreement), was 2.2
to 1 at December 31, 2002, compared with 2.4 to 1 at the prior year-end, and
EBITDA covered interest expense 7.2 times in 2002 compared with 6.4 times in
2001.

Contractual Cash Obligations

The following table summarizes AMETEK's contractual cash obligations at
December 31, 2002 and the effect such obligations are expected to have on its
liquidity and cash flows in future periods.

- ---------------

(a) Although not contractually obligated, the Company expects to have the
capability to repay this obligation in less than four years as permitted in
the credit agreement. Accordingly, $38 million is classified as short-term
borrowings and the remaining $50 million is considered long-term debt at
December 31, 2002.

(b) Amount includes $65 million under the accounts receivable securitization
program, which is classified as short-term borrowings at December 31, 2002.

23

Other Commitments

The Company has standby letters of credit of approximately $21.4 million
related to performance and payment guarantees. Based on experience with these
arrangements, the Company believes that any obligations that may arise will not
be material.

The Company may, from time to time, redeem, tender for, or repurchase its
long-term debt in the open market or in privately negotiated transactions
depending upon availability, market conditions and other factors.

As a result of all of the Company's cash flow activities, cash and cash
equivalents decreased $0.6 million in 2002 to $13.5 million at year-end,
compared with $14.1 million at December 31, 2001. The Company also had available
borrowing capacity of $190.6 million under its $300 million revolving bank
credit facility at December 31, 2002, and $10.0 million under its accounts
receivable securitization agreement. The Company believes it has sufficient
cash-generating capability and available financing alternatives to enable it to
meet its needs for the foreseeable future. The Company's shelf registration
statement, filed with the Securities and Exchange Commission, became effective
in October 2002 and allows for up to $300 million in additional equity or debt
financing.

TRANSACTIONS WITH RELATED PARTIES

The Company has a business relationship with the law firm of Stroock &
Stroock & Lavan LLP. A partner of this firm is a member of the Company's Board
of Directors. The investment banking firm of American Securities, L.P. rendered
financial advisory, investment management, and other services to the Company.
Three managing directors of American Securities, L.P. are members of the
Company's Board of Directors.

In 2002, Stroock & Stroock & Lavan LLP, and American Securities, L.P., and
its affiliates billed fees to the Company in the aggregate for services rendered
of $200,000 and $270,000, respectively. Beginning in 2003, the Company will no
longer utilize the services of American Securities, L.P. and its affiliates.

CRITICAL ACCOUNTING POLICIES

The Company has identified its most critical accounting policies as those
accounting policies that can have a significant impact on the presentation of
the Company's financial condition and results of operations, and require the use
of complex and subjective estimates based upon past experience and management's
judgment. Because of the uncertainty inherent in such estimates, actual results
may differ materially from these estimates. The consolidated financial
statements and related notes contain information that is pertinent to the
Company's accounting policies and to management's discussion and analysis. The
information that follows represents additional specific disclosures about the
Company's accounting policies regarding risks, estimates, subjective decisions,
or assessments where materially different results of operations and financial
condition could have been reported had different assumptions been used or
different conditions existed. Disclosure of the Company's significant accounting
policies can be found in Note 1 of "Notes to Consolidated Financial Statements,"
included elsewhere in this report.

- Revenue Recognition. The Company recognizes revenues in accordance with
invoice terms, generally when products are shipped and services are
rendered. The policy with respect to sales returns and allowances
generally provides that the customer may not return products or be given
allowances, except at the Company's option. Accruals for sales returns,
other allowances, and estimated warranty costs are provided at the time
of shipment based upon past experience. At December 31, 2002 and 2001,
the accrual for future warranty obligations was $6.4 million and $7.7
million, respectively. If actual future sales returns, allowances and
warranty amounts are higher than past experience, additional amounts may
be required.

- Inventories. The Company uses the last-in, first-out (LIFO) method of
accounting for most inventories. Inventories reported on the Company's
balance sheet are conservatively valued. The Company provides estimated
inventory reserves for slow-moving and obsolete inventory based on
24

current assessments about future demand, market conditions, customers who may be
experiencing financial difficulties, and related management initiatives. If
these factors are less favorable than those projected by management, additional
inventory reserves may be required. If the Company had used the first-in,
first-out (FIFO) method of inventory valuation, which approximates current
replacement cost, inventories would have been approximately $27.0 million
and $29.1 million higher than the amount reported in the balance sheet at
December 31, 2002 and 2001, respectively.

- Goodwill and Intangible Assets. The Company adopted SFAS No. 142
"Goodwill and Other Intangible Assets" as of January 1, 2002. Under SFAS
No. 142, goodwill and intangible assets with indefinite lives are not
amortized; rather, they are tested for impairment on at least an annual
basis. Accordingly, the Company ceased amortization of all goodwill and
intangible assets with indefinite lives as of January 1, 2002. Intangible
assets with finite lives will continue to be amortized over their useful
lives.

SFAS No. 142 requires a two-step impairment test for goodwill. The
first step is to compare the carrying amount of the reporting unit's net
assets to the fair value of the reporting unit. If the fair value exceeds
the carrying value, no further evaluation is required and no impairment
loss is recognized. If the carrying amount exceeds the fair value then the
second step is required to be completed, which involves allocating the
fair value of the reporting unit to each asset and liability, with the
excess being implied goodwill. An impairment loss occurs if the amount of
the recorded goodwill exceeds the implied goodwill. The determination of
the fair value of the Company's reporting units is based, among other
things, on estimates of future operating performance of the reporting unit
being valued. The Company is required to complete the impairment test for
goodwill and record any resulting impairment losses annually. Changes in
market interest rates and other conditions may have an impact on these
estimates. The Company's acquisitions have generally included a large
goodwill component and the Company expects to continue to make
acquisitions. At December 31, 2002, goodwill totaled $391.9 million or 38%
of the Company's total assets. The Company's transitional impairment test
that resulted from adoption of SFAS 142 early in 2002, and the required
annual impairment test in the fourth quarter of 2002, determined that the
Company's goodwill was not impaired.

- Pensions. The Company accounts for its defined benefit pension plans in
accordance with SFAS No. 87, "Employers' Accounting for Pensions", which
requires that amounts recognized in financial statements be determined on
an actuarial basis. The most significant elements in determining the
Company's pension income or expense are pension liability discount rates
and the expected return on plan assets. The pension discount rate
reflects the current interest rate at which the pension liabilities could
be settled at the year-end valuation date. At the end of each year, the
Company determines the discount rate to be used to discount plan
liabilities. In estimating this rate, the Company looks to rates of
return on high-quality, fixed-income investments. The discount rate used
in determining the 2002 pension cost was 7.25% for U.S. defined benefit
pension plans. The discount rate used for determining the funded status
of the plans at December 31, 2002, and determining the 2003 U.S. defined
benefit pension plan cost is 6.75%. The Company has assumed that the
expected long-term rate of return on plan assets for the 2003 pension
expense will be 8.90%, down from 9.25% used for 2002. The rate of
compensation increase used in determining the 2002 pension cost was 4.0%
for U.S. defined benefit pension plans and 3.5% for the 2003 pension cost
for U.S. defined benefit plans. The net effect of changes in the discount
rate, as well as the effect of differences between the expected return
and the actual return on plan assets which have been deferred and are
subject to amortization totaled $74.9 million at December 31, 2002, and
will ultimately affect future pension costs. For the year ended December
31, 2002, the Company recognized consolidated pretax pension income of
$1.2 million from its defined benefit pension plans, compared with
pension income of $4.7 million from these plans in 2001. Due primarily to
the continued depressed equity security markets in 2002 and changes in
the assumed discount rate and long-term rate of return, the Company
anticipates significantly higher pension expense by approximately $7
million in 2003. The Company contributed a total of $30.3 million to its
U.S. defined benefit pension plans during 2002, including a $19.6 million
cash contribution

25

late in the fourth quarter of 2002. Based on information available to the
Company at December 31, 2002, the Company does not expect a significant
pension contribution in 2003.

- Accounts Receivable. The Company maintains allowances for estimated
losses resulting from the inability of specific customers to meet their
financial obligations to the Company. A specific reserve for bad debts is
recorded against the amount due from these customers. For all other
customers, the Company recognizes reserves for bad debts based on the
length of time specific receivables are past due based on its past
experience. If the financial condition of the Company's customers were to
deteriorate, resulting in their inability to make payments, additional
allowances may be required. The allowance for possible losses on
receivables at December 31, 2002 was $7.2 million, compared with $7.6
million at December 31, 2001.

NEW ACCOUNTING STANDARDS

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." Goodwill and intangible assets with indefinite lives
are not amortized; rather, they are tested for impairment on at least an annual
basis. Had the Company not amortized goodwill during the years 2001 and 2000,
net income for 2001 and 2000 would have been approximately $10.2 million and
$9.2 million higher respectively, than the reported amounts. Diluted earnings
per share would have been $0.30 and $0.28 higher in 2001 and 2000, respectively.
Pursuant to SFAS No. 142, the Company was required to complete a transitional
impairment test of goodwill in the initial year of adopting the standard, with
any impairment charges recorded as a cumulative effect of a change in accounting
principle. Additionally, the Company completed its annual impairment test in the
fourth quarter of 2002. Both tests determined that no impairment existed.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This statement addresses
financial accounting and reporting for legal obligations associated with the
retirement of tangible long-lived assets that result from the acquisition,
construction, development and normal operation of a long-lived asset. SFAS No.
143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset and
subsequently allocated to expense over the asset's useful life. Statement No.
143 is effective January 1, 2003 for the Company. The Company is currently
evaluating the impact, if any, the adoption of SFAS No. 143 will have on its
consolidated results of operations, financial position, or cash flows.

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 requires an impairment loss to be recognized only if the
carrying amounts of long-lived assets to be held and used are not recoverable
from their expected undiscounted future cash flows. Adoption of SFAS No. 144 had
no effect on the Company's consolidated results of operations, financial
position, or cash flows.

In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds SFAS
No. 4, which required that all gains and losses from extinguishment of debt be
reported as an extraordinary item. The provisions of SFAS No. 145 related to the
rescission of SFAS No. 4 must be applied in fiscal years beginning after May 15,
2002 (January 1, 2003 for the Company). The Company has early adopted this
statement for the year ended December 31, 2002. In 1998, the Company recorded a
loss on the early extinguishment of debt that was previously classified as an
extraordinary item in its 5-year Selected Financial Data table on page 13. As of
December 31, 2002, such loss has been reclassified to interest expense in the
5-year table previously mentioned. The adoption of this Statement will have no
effect on the Company's consolidated results of operations, financial position,
or cash flows.

In July 2002, the Financial Accounting Standards Board issued Statement No.
146, "Accounting for Costs Associated with Exit or Disposal Activities".
Statement No. 146 replaces EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
26

(including Certain Costs Incurred in a Restructuring)." Among other things,
Statement No. 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred instead of at
the date of an entity's commitment to an exit plan, as under EITF Issue No.
94-3. Statement No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption of this statement to have a significant
effect on the Company's consolidated results of operations, financial position,
or cash flows.

In December 2002, the Financial Accounting Standards Board issued Statement
No. 148 "Accounting for Stock-Based Compensation -- Transition and Disclosures",
which amended FASB Statement No. 123, "Accounting for Stock-Based Compensation".
Statement No. 148 provides alternative methods of transition for a voluntary
change to the fair-value-based method of accounting for stock-based employee
compensation. Statement No. 148 amends the disclosure requirements of Statement
No. 123 to require more prominent and more frequent disclosure in the financial
statements about the effects of stock-based compensation. Statement No. 148 is
effective for fiscal years ended after December 15, 2002. Accordingly, the
Company has adopted the annual disclosure provisions of Statement No. 148 in its
financial statements for the year ended December 31, 2002. The Company will
implement Statement No. 148 effective January 1, 2003 regarding disclosure
requirements for condensed financial statements for interim periods. As provided
by Statements No. 123 and 148, the Company has chosen to continue use of the
accounting method under APB 25 and the related interpretations to account for
the Company's stock compensation plans. As adoption of Statement No. 148 only
involves disclosures by the Company, there is no impact from its adoption on the
Company's results of operations, financial position, or liquidity.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34" (FIN No. 45). The
interpretation requires that upon issuance of a guarantee, the entity must
recognize a liability for the fair value of the obligation it assumes under that
obligation. This interpretation is intended to improve the comparability of
financial reporting, by requiring identical accounting for guarantees issued
with separately identified consideration and guarantees issued without
separately identified consideration. The disclosure provisions of FIN No. 45 are
effective for the Company as of December 31, 2002. The Company has guarantees
and claims arising during the course of its business operations. The Company
accrues for losses under these arrangements when they become probable and
estimable. The initial recognition and measurement provisions of FIN No. 45 are
applicable to guarantees issued or modified after December 31, 2002. The Company
is currently evaluating what impact, if any, adoption of FIN No. 45 will have on
its consolidated results of operations, financial position, or cash flows.

INTERNAL REINVESTMENT

Capital Expenditures

Capital expenditures were $17.4 million for 2002, compared with $29.4
million for 2001. Approximately 61% of the expenditures in 2002 were for
equipment to increase productivity and expand capacity. The Company's 2003
capital expenditures are expected to increase when compared with 2002 levels,
with a continuing emphasis on spending to improve productivity and expand
low-cost manufacturing facilities.

Product Development and Engineering

Product development and engineering expenses are directed toward the
development and improvement of new and existing products and processes. Such
expenses were $46.8 million in 2002, an increase from $45.2 million in 2001, and
$45.9 million in 2000. Included in the amounts above are net expenses for
research and development of $23.7 million for 2002, $22.6 million for 2001, and
$23.8 million for 2000.

Environmental Matters

Certain historic processes in the manufacture of previous AMETEK products
have resulted in environmentally hazardous waste by-products as defined by
federal and state laws and regulations. While these waste

27

products were handled in compliance with regulations existing at that time, the
Company has been named a Potentially Responsible Party (PRP) regarding waste
remediation at several non-AMETEK sites that are the subject of
government-mandated cleanups. In addition to these non-AMETEK sites, the Company
has an ongoing practice of providing reserves for probable remediation
activities at certain of its manufacturing locations and for claims and
proceedings against the Company with respect to other environmental matters once
the Company has determined that a loss is probable and estimable. Total
environmental reserves at December 31, 2002 and 2001 were approximately $7
million and $9 million, respectively. In 2002, the Company spent approximately
$2 million on such environmental matters, compared with approximately $1 million
in 2001. The Company also has agreements with former owners of certain of its
acquired businesses as well as new owners of previously owned businesses under
which the Company and former owners have retained or assumed and agreed to
indemnify the other party against certain environmental and other liabilities
under certain circumstances. The Company and some of the other parties carry
insurance coverage for some environmental matters. To date, those parties have
met their obligation in all material respects. The Company has no reason to
believe that such third parties would fail to perform their obligation in the
future. However, if the Company were required to record a liability with respect
to all, or a portion of, such matters on its balance sheet, the amount of the
liability would not be significant. In the opinion of management, based upon
presently available information and past experience related to such matters,
either adequate provision for probable costs has been made, or the ultimate cost
resulting from these actions are not expected to materially affect the
consolidated financial position, results of operations, or cash flow of the
Company.

IMPACT OF INFLATION

The Company attempts to minimize the impact of inflation through cost
reduction programs and by improving productivity. In addition, the Company uses
the last-in, first-out (LIFO) method of accounting for most inventories (whereby
the cost of products sold approximates current costs), and therefore, the impact
of inflation is substantially reflected in operating costs. In general, the
Company believes programs are in place that are designed to monitor the impact
of inflation and to take necessary steps to minimize inflation's effect on
operations.

MARKET RISK

The Company's primary exposures to market risk are fluctuations in interest
rates on its short-term debt, and in foreign currency exchange rates.

The Company's long-term debt is fixed-rate debt and its short-term debt is
variable-rate debt. These financial instruments are more fully described in the
notes to the financial statements.

The foreign currencies to which the Company has the most significant
exchange rate exposure include the euro, the Japanese yen, and the British pound
sterling. Exposure to foreign currency rate fluctuation is monitored, and when
possible, mitigated through the use of local borrowings in the foreign country
affected. The effect of translating foreign subsidiaries' balance sheets into
U.S. dollars is included in