UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

For the transition period from                  to                   

Commission file number 1-12981

AMETEK, Inc.

37 North Valley Road, Building 4, P.O. Box 1764, Paoli, Pennsylvania 19301-0801

     Registrant’s telephone number, including area code 610-647-2121

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]  No [   ]

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]  No [   ]

     The number of shares of the issuer’s common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at October 22, 2004 was 68,517,512 shares.

AMETEK, Inc.
Form 10-Q
Table of Contents

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMETEK, Inc.

(a)  Amounts for 2003 have been restated to reflect a two-for-one stock split effective February 27, 2004.

See accompanying notes.

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AMETEK, Inc.

See accompanying notes.

4

AMETEK, Inc.

See accompanying notes.

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AMETEK, Inc.

Note 1 – Financial Statement Presentation

     The accompanying consolidated financial statements are unaudited. The Company believes that all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at September 30, 2004, and the consolidated results of its operations for the three- and nine-month periods ended September 30, 2004 and 2003, and its cash flows for the nine month period ended September 30, 2004 and 2003 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. The accompanying financial statements should be read in conjunction with the financial statements and related notes presented in the Company’s annual report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission.

Note 2 – Stock Split

     On January 27, 2004, the Company’s Board of Directors approved a two-for-one split of its common stock, distributed on February 27, 2004, to shareholders of record on February 13, 2004. All share and per share amounts included in this report reflect the stock split.

Note 3 – Recent Accounting Pronouncements

     In the first quarter of 2004, the Company adopted Financial Accounting Standards Board (“FASB”) Financial Interpretation No. 46-R (“FIN 46-R”), “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51”, which replaced FIN 46. FIN 46-R requires a company to consolidate a variable interest entity (“VIE”) if it is designated as a primary beneficiary of that entity even if the company does not have a majority voting interest in the entity. A VIE is generally defined as an entity in which equity investors do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entity to finance its own activities without additional financial support from other parties, or whose owners lack the risks and rewards of ownership. The disclosure requirements of FIN 46-R were effective for financial statements issued after December 31, 2003. The initial recognition provisions of FIN 46-R relating to VIE’s created or obtained prior to February 2003 were to be implemented no later than the end of the first reporting period that ends after March 15, 2004. Adoption of FIN 46-R had no effect on the Company’s consolidated results of operations, financial position, or cash flows.

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AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

Note 4 – Earnings Per Share

     The calculation of basic earnings per share for the three- and nine-month periods ended September 30, 2004 and 2003 is based on the average number of common shares considered outstanding during the periods. Diluted earnings per share for such periods reflect the effect of all potentially dilutive securities (primarily outstanding common stock options). The following table presents the number of shares used in the calculation of basic earnings per share and diluted earnings per share for the periods:

Note 5 – Acquisitions

     On July 16, 2004, the Company acquired substantially all of the assets of Hughes-Treitler Mfg. Corp. (Hughes-Treitler) for approximately $48.0 million in cash. Hughes-Treitler is a supplier of heat exchangers and thermal management subsystems for the aerospace and defense markets. Hughes-Treitler has expected annualized sales of approximately $32.0 million. Hughes-Treitler is a part of the Company’s Electromechanical Group.

     On June 18, 2004, the Company acquired Taylor Hobson Holdings Limited (Taylor Hobson) from funds advised by Permira, for approximately 51.0 million British pounds sterling, or $93.8 million in cash, net of cash received. Taylor Hobson is a leading manufacturer of ultra-precision measurement instrumentation for a variety of markets, including optics, semiconductors, hard disk drives and nanotechnology research. Taylor Hobson has expected 2004 full year sales of approximately 38.0 million British pounds sterling, or $70.0 million. Taylor Hobson is a part of the Company’s Electronic Instruments Group.

     The operating results of the above acquisitions are included in the Company’s consolidated results from their respective dates of acquisition.

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AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

     The acquisitions have been accounted for using the purchase method in accordance with SFAS No. 141, “Business Combinations.” The following table presents the tentative allocation of the aggregate purchase price for Taylor Hobson and Hughes-Treitler based on their estimated fair values:

     The amount allocated to goodwill is reflective of the benefit the Company expects to realize from expanding its measurement capabilities into ultra-precision applications through Taylor Hobson and thermal management systems for the aerospace markets through Hughes-Treitler.

     The $20.2 million in other assets was assigned to intangibles, other than goodwill, with estimated lives up to 10 years.

     The Company is obtaining third party valuations of certain tangible and intangible assets acquired with the Taylor Hobson and the Hughes-Treitler acquisitions. Therefore, the allocation of purchase price to these acquisitions is subject to revision.

     Had the acquisitions of Taylor Hobson and Hughes-Treitler been made at the beginning of 2004, net sales, net income and diluted earnings per share for the three- and nine- month periods ended September 30, 2004 would not have been materially different than the amounts reported. Had these acquisitions and the acquisition of the Chandler Instruments business, which was acquired in August 2003 been made at the beginning of 2003, pro forma net sales for the three- and nine- month periods ended September 30, 2003 would have been $293.3 million and $892.2 million, respectively. Net income and diluted earnings per share for the respective periods of 2003 would not have been materially different than the amounts reported.

Note 6 – Goodwill

     As of September 30, 2004 and December 31, 2003, goodwill was $608.7 million and $507.0 million, respectively. Goodwill by segment as of September 30, 2004 and December 31, 2003 was: Electronic Instrument Group (EIG) — $378.2 million and $309.0 million, respectively; Electromechanical Group (EMG) - $230.5 million and $197.9 million, respectively. The net increase in goodwill since December 31, 2003 is primarily due to the acquisitions of Taylor Hobson and Hughes-Treitler.

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AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

Note 7 – Inventories

     The components of inventory stated primarily at lower of last in, first out (LIFO), cost or market are:

     Inventory increased $24.3 million from December 31, 2003 to September 30, 2004. The increase in inventory is primarily the result of the acquisitions of Taylor Hobson and Hughes-Treitler and the build up of inventory to meet increased sales levels.

Note 8 – Comprehensive Income

     Comprehensive income includes all changes in stockholders’ equity during a period except those resulting from investments by and distributions to stockholders.

     The following table presents comprehensive income for the three- and nine-month periods ended September 30, 2004 and 2003:

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AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

Note 9 – Segment Disclosure

     The Company has two reportable business segments, the Electronic Instruments Group and the Electromechanical Group. The Company organizes its businesses primarily on the basis of product type, production process, distribution methods, and management organizations.

     At September 30, 2004, there were no significant changes in identifiable assets of reportable segments from the amounts disclosed at December 31, 2003 other than increases due to the current year acquisitions, nor were there any changes in the basis of segmentation, or in the measurement of segment operating results. Operating information relating to the Company’s reportable segments for the three and nine-month periods ended September 30, 2004 and 2003 can be found in the table on page 13 in the Management Discussion & Analysis section of this Report.

Note 10 – Pro Forma Stock-Based Compensation

     The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for its stock award plans, which recognizes expense based on the intrinsic value at the date of grant. Since stock options have been issued with the exercise price per share equal to the fair market value per share at the date of grant, no compensation expense has resulted. Had the Company accounted for stock options in accordance with the fair value method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-Based Compensation,” the Company would have reported the following pro forma results for the three and nine-month periods ended September 30, 2004 and 2003:

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AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

Note 11 – Retirement and Pension Plans

     The following table includes the components of net pension expense recognized under SFAS No. 87 for the three and nine-month periods ended September 30, 2004 and 2003 in accordance with the interim disclosure requirements of SFAS No. 132-R, “Employers’ Disclosures about Pension and Other Postretirement Benefits, an update of FASB Statements No. 87, 88, and 106”. The Company adopted SFAS No. 132-R as of December 31, 2003.

     In the third quarter of 2004 and for the nine-month year-to-date period the Company made a $3.4 million contribution to its U.S. defined benefit pension plans. For the full year 2004, the Company estimates that it will make employer contributions to its defined benefit pension plans of approximately $5 to $7 million.

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AMETEK, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

Note 12 – Product Warranties

     The Company provides limited warranties in connection with the sale of its products. The warranty periods for products sold varies widely among the Company’s operations, but for the most part do not exceed one year. The Company calculates its warranty expense provision based on past warranty experience and adjustments are made periodically to reflect actual warranty expenses.

     Changes in the Company’s accrued product warranty obligation for the nine months ended September 30, 2004 and 2003 were as follows:

     Product warranty obligations are reported as current liabilities in the consolidated balance sheet.

Note 13 – Flood Damage

     In September 2003, one of the Company’s manufacturing plants was significantly damaged by a flood. The flood resulted in damage to the building and the operating assets. During the last twelve months, the Company received insurance proceeds totaling $14.5 million related to the damage or loss of these assets. The portion of the claim relating to the building, its contents, and operating assets has been finalized in the third quarter of 2004 with the Company’s insurers resulting in the recognition of a pretax gain totaling $2.8 million in the quarter. The portion of the insurance claim with respect to business interruption and other expenses has not been finalized with the insurance companies as of September 30, 2004, and the Company has not received any proceeds related to these items. Settlement of these items could result in an additional gain. The Company has relocated certain of the product lines affected by the flood to another manufacturing facility of the Company.

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AMETEK, Inc.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

     The following table sets forth sales and income by reportable segment, and consolidated operating income and pretax income:

Oper