Edgar Filing: AMETEK INC/

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	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

AMETEK, Inc.

(Exact name of registrant as specified in its charter)


Delaware		14-1682544
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Cassatt Road P.O. Box 1764 Berwyn, Pennsylvania		19312-1177
(Address of principal executive offices)		(Zip Code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at October 27, 2011 was 160,102,235 shares.

AMETEK, Inc.

Form 10-Q

Table of Contents


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
Consolidated Statement of Income for the three and nine months ended September 30, 2011 and 2010			3
Consolidated Balance Sheet at September 30, 2011 and December 31, 2010			4
Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2011 and 2010			5
Notes to Consolidated Financial Statements			6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 4.	Controls and Procedures		23

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		24

Item 6.	Exhibits		25

SIGNATURES			26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMETEK, Inc.

Consolidated Statement of Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net sales	$	750,546		$	644,374		$	2,227,163		$	1,792,977

Operating expenses:
Cost of sales, excluding depreciation		493,266			429,075			1,466,026			1,200,298
Selling, general and administrative		86,019			75,869			257,196			213,261
Depreciation		11,675			10,837			35,380			32,784

Total operating expenses		590,960			515,781			1,758,602			1,446,343


Operating income		159,586			128,593			468,561			346,634
Other expenses:
Interest expense		(17,256	)		(17,057	)		(51,745	)		(50,541	)
Other, net		(3,287	)		(2,721	)		(7,153	)		(4,857	)

Income before income taxes		139,043			108,815			409,663			291,236
Provision for income taxes		41,065			31,458			127,106			88,543


Net income	$	97,978		$	77,357		$	282,557		$	202,693


Basic earnings per share	$	0.61		$	0.49		$	1.76		$	1.27

Diluted earnings per share	$	0.60		$	0.48		$	1.74		$	1.26


Weighted average common shares outstanding:
Basic shares		160,924			158,645			160,353			159,024

Diluted shares		162,514			160,723			162,305			160,694


Dividends declared and paid per share	$	0.06		$	0.04		$	0.18		$	0.12

See accompanying notes.

AMETEK, Inc.

Consolidated Balance Sheet

(In thousands)


	September 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	218,274		$	163,208
Marketable securities		5,490			5,645
Receivables, less allowance for possible losses		425,011			399,913
Inventories		363,838			335,253
Deferred income taxes		33,247			27,106
Other current assets		34,677			43,367

Total current assets		1,080,537			974,492

Property, plant and equipment, net		318,636			318,126
Goodwill		1,677,319			1,573,645
Other intangibles, net of accumulated amortization		836,572			761,556
Investments and other assets		203,237			191,096

Total assets	$	4,116,301		$	3,818,915


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	40,635		$	97,152
Accounts payable		263,143			236,600
Income taxes payable		34,094			39,026
Accrued liabilities		180,335			178,081

Total current liabilities		518,207			550,859

Long-term debt		1,070,540			1,071,360
Deferred income taxes		361,791			311,466
Other long-term liabilities		117,903			110,026

Total liabilities		2,068,441			2,043,711


Stockholders’ equity:
Common stock		1,689			1,681
Capital in excess of par value		310,342			263,290
Retained earnings		2,009,321			1,755,742
Accumulated other comprehensive loss		(101,911	)		(91,958	)
Treasury stock		(171,581	)		(153,551	)

Total stockholders’ equity		2,047,860			1,775,204

Total liabilities and stockholders’ equity	$	4,116,301		$	3,818,915

See accompanying notes.

AMETEK, Inc.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2011			2010
Cash provided by (used for):
Operating activities:
Net income	$	282,557		$	202,693
Adjustments to reconcile net income to total operating activities:
Depreciation and amortization		62,527			52,113
Deferred income tax (benefit) expense		(134	)		4,436
Share-based compensation expense		18,356			12,347
Net change in assets and liabilities, net of acquisitions		(5,593	)		25,140
Pension contribution and other		(1,874	)		(2,055	)

Total operating activities		355,839			294,674


Investing activities:
Additions to property, plant and equipment		(32,410	)		(22,446	)
Purchases of businesses, net of cash acquired		(182,506	)		(373,653	)
Other		(2,150	)		3,766

Total investing activities		(217,066	)		(392,333	)


Financing activities:
Net change in short-term borrowings		(56,517	)		27,059
Additional long-term borrowings		—			125,120
Reduction in long-term borrowings		(781	)		(78,200	)
Repurchases of common stock		(16,384	)		(78,609	)
Cash dividends paid		(28,800	)		(19,003	)
Excess tax benefits from share-based payments		11,654			3,549
Proceeds from employee stock plans and other		12,615			8,287

Total financing activities		(78,213	)		(11,797	)


Effect of exchange rate changes on cash and cash equivalents		(5,494	)		(1,883	)


Increase (decrease) in cash and cash equivalents		55,066			(111,339	)

Cash and cash equivalents:
As of January 1		163,208			246,356

As of September 30	$	218,274		$	135,017

See accompanying notes.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

1.	Basis of Presentation

The accompanying consolidated financial statements are unaudited. AMETEK, Inc. (the “Company”) believes that all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at September 30, 2011, the consolidated results of its operations for the three and nine months ended September 30, 2011 and 2010 and its cash flows for the nine months ended September 30, 2011 and 2010 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, 2010 as filed with the Securities and Exchange Commission.

2.	Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”). ASU 2010-06 provides amendments that clarify existing disclosures and require new disclosures related to fair value measurements, providing greater disaggregated information on each class of assets and liabilities and more robust disclosures on transfers between levels 1 and 2, and activity in level 3 fair value measurements. The Company adopted the applicable provisions within ASU 2010-06 effective January 1, 2010. The Company adopted the level 3 disclosure requirements of ASU 2010-06 that are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years as of January 1, 2011. The adoption of ASU 2010-06 did not have a significant impact on the Company’s fair value disclosures.

In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition – Milestone Method (“ASU 2010-17”). ASU 2010-17 establishes criteria for a milestone to be considered substantive and allows revenue recognition when the milestone is achieved in research or development arrangements. In addition, it requires disclosure of certain information with respect to arrangements that contain milestones. ASU 2010-17 was effective on January 1, 2011 for the Company and the adoption did not have a significant impact on the Company’s consolidated results of operations, financial position or cash flows.

In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (“ASU 2010-29”). ASU 2010-29 addresses diversity in practice about the interpretation of the pro forma disclosure requirement for business combinations. ASU 2010-29 requires disclosure of pro forma revenue and earnings for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period for both the current and any comparable periods reported. The Company adopted the disclosure requirements of ASU 2010-29 effective January 1, 2011. See Note 8.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 amendments result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). The Company is currently evaluating the impact of adopting the disclosure requirements of ASU 2011-04 that are effective for fiscal years beginning after December 15, 2011.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. These amendments do not change the items that must be reported in other comprehensive income. The Company is currently evaluating the impact of adopting ASU 2011-05 that is effective for fiscal years beginning after December 15, 2011.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in FASB Accounting Standards Codification Topic 350, Intangibles – Goodwill and Other. The Company is currently evaluating the impacts of ASU 2011-08 which will be effective for fiscal years beginning after December 15, 2011, with early adoption permitted.

3.	Earnings Per Share

The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants). The number of weighted average shares used in the calculation of basic earnings per share and diluted earnings per share was as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2011

2010

2011

2010

(In thousands)

Weighted average shares:

Basic shares

160,924

158,645

160,353

159,024

Equity-based compensation plans

1,590

2,078

1,952

1,670

Diluted shares

162,514

160,723

162,305

160,694

4.	Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period except those resulting from investments by and distributions to stockholders. The components of comprehensive income were as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2011			2010		2011			2010
	(In thousands)
Net income	$	97,978		$	77,357	$	282,557		$	202,693
Foreign currency translation adjustment		(30,182	)		29,432		(9,152	)		(26,508	)
Foreign currency net investment hedge*		(4,625	)		5,100		(278	)		(2,446	)
Other		(561	)		308		(523	)		177

Total comprehensive income	$	62,610		$	112,197	$	272,604		$	173,916

Represents the net gains and losses on the Company’s investment in certain foreign operations in excess of the net gains and losses from the non-derivative foreign-currency-denominated long-term debt. These debt instruments were designated as hedging instruments to offset foreign exchange gains or losses on the net investment in certain foreign operations.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

5.	Fair Value Measurements

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

At September 30, 2011, $1.6 million of the Company’s marketable securities are valued as level 1 investments. In addition, the Company held $3.9 million of marketable securities in an institutional diversified equity securities mutual fund. These securities are valued as level 2 investments. The marketable securities are shown as a separate line on the consolidated balance sheet. For the nine months ended September 30, 2011, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the nine months ended September 30, 2011.

Fair value of the institutional equity securities mutual fund was estimated using the net asset value of the Company’s ownership interests in the fund’s capital. The mutual fund seeks to provide long-term growth of capital by investing primarily in equity securities traded on U.S. exchanges and issued by large, established companies across many business sectors. There are no restrictions on the Company’s ability to redeem these equity securities investments.

6.	Hedging Activities

The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. These net investment hedges are the Company’s British-pound-denominated long-term debt and Euro-denominated long-term debt, pertaining to certain European acquisitions whose functional currencies are either the British pound or the Euro. These acquisitions were financed by foreign-currency-denominated borrowings under the Company’s revolving credit facility and subsequently refinanced with long-term private placement debt. These borrowings were designed to create net investment hedges in each of the foreign subsidiaries on their respective dates of acquisition. On the respective dates of acquisition, the Company designated the British pound- and Euro-denominated loans referred to above as hedging instruments to offset foreign exchange gains or losses on the net investment in the acquired business due to changes in the British pound and Euro exchange rates. These net investment hedges were evidenced by management’s documentation supporting the contemporaneous hedge designation on the acquisition dates. Any gain or loss on the hedging instrument (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the translation adjustment on the investment based on changes in the spot rate, which is used to measure hedge effectiveness.

At September 30, 2011, the Company had $187.0 million of British-pound-denominated loans, which are designated as a hedge against the net investment in foreign subsidiaries acquired in 2008, 2006, 2004 and 2003. At September 30, 2011, the Company had $66.9 million of Euro-denominated loans, which were designated as a hedge against the net investment in a foreign subsidiary acquired in 2005. As a result of these British-pound- and Euro-denominated loans being designated and effective as net investment hedges, $0.1 million of currency remeasurement gains have been included in the foreign currency translation component of other comprehensive income at September 30, 2011.

7.	Inventories


	September 30, 2011		December 31, 2010
	(In thousands)
Finished goods and parts	$	61,098	$	46,953
Work in process		75,571		73,556
Raw materials and purchased parts		227,169		214,744

Total inventories	$	363,838	$	335,253

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

8.	Acquisitions

The Company spent $183.0 million in cash, net of cash acquired, to acquire Avicenna Technology, Inc. (“Avicenna”) in April 2011 and Coining Holding Company (“Coining”) May 2011. Avicenna is a supplier of custom, fine-featured components used in the medical device industry. Coining is a leading supplier of custom-shaped metal preforms, microstampings and bonding wire solutions for interconnect applications in microelectronics packaging and assembly. Avicenna and Coining are part of AMETEK’s Electromechanical Group.

The operating results of the above acquisitions have been included in the Company’s consolidated results from the respective dates of acquisitions.

The following table represents the allocation of the aggregate purchase price for the net assets of the above acquisitions based on their estimated fair value at September 30, 2011 (in millions):


Property, plant and equipment	$	8.2
Goodwill		102.4
Other intangible assets		101.1
Deferred income taxes		(45.5	)
Net working capital and other		16.8

Total purchase price	$	183.0

The amount allocated to goodwill is reflective of the benefits the Company expects to realize from the acquisitions as follows: Avicenna provides the Company with additional expertise in producing fine-featured catheter and other medical components for leads, guide wires and custom medical assemblies. Avicenna complements the Company’s medical device market businesses and is an excellent fit with its Technical Services for Electronics (“TSE”) business, which was acquired in 2010. The combination of these two businesses positions AMETEK as the only medical interconnects provider with integrated capabilities for the catheter, cardiac and neurostimulation markets. Coining is a global leader in custom-shaped preforms, microstampings and wire used for joining electronic circuitry, packaging microelectronics and providing thermal protection and electric conductivity for a wide range of electronic devices. Coining’s products are used in highly engineered applications for the RF/microwave, photonics, medical, aerospace and defense, and general electronics industries. Coining is an excellent fit with the engineered materials, interconnects and packaging businesses. The Company expects approximately $17.4 million of the goodwill recorded in connection with 2011 acquisitions will be tax deductible in future years.

At September 30, 2011, purchase price allocated to other intangible assets of $101.1 million consists of $22.4 million of indefinite-lived intangible trademarks and trade names, which are not subject to amortization. The remaining $78.7 million of other intangible assets consist of $71.9 million of customer relationships, which are being amortized over a period of 20 years and $6.8 million of purchased technology, which are being amortized over a period of 15 years. Amortization expense for each of the next five years for the 2011 acquisitions listed above is expected to approximate $4.0 million per year.

The 2011 acquisitions noted above had an immaterial impact on reported net sales, net income and diluted earnings per share for the three and nine months ended September 30, 2011. Had the 2011 acquisitions been made at the beginning of 2011 or 2010, unaudited pro forma net sales, net income and diluted earnings per share for the three and nine months ended September 30, 2011 and 2010, respectively, would not have been materially different than the amounts reported. Pro forma results are not necessarily indicative of the results that would have occurred if the acquisitions had been completed at the beginning of 2011 or 2010.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

Acquisitions Subsequent to September 30, 2011

In October 2011, the Company acquired Reichert Technologies, a privately held manufacturer of analytical instruments and diagnostic devices for the eye care market. Reichert Technologies was acquired for $150 million and has estimated annual sales of $55 million. Reichert Technologies is a leader and innovator in high-technology instruments used by ophthalmologists, optometrists, and opticians for vision correction and the screening and diagnosis of eye diseases such as glaucoma and macular degeneration. Reichert Technologies expands AMETEK’s business in the medical market and will join AMETEK’s Electronic Instruments Group.

In October 2011, the Company acquired EM Test (Switzerland) GmbH, a privately held manufacturer of electronic test and measurement equipment. EM Test was acquired for 83 million Swiss franc ($93 million) and has estimated annual sales of 37 million Swiss franc ($41 million). EM Test is a global leader in equipment used to perform electrical immunity and electromagnetic compatibility testing. EM Test will join AMETEK’s Electronic Instruments Group.

9.	Goodwill

The changes in the carrying amounts of goodwill by segment were as follows:


	Electronic Instruments Group			Electro- mechanical Group			Total
	(In millions)
Balance at December 31, 2010	$	864.4		$	709.2		$	1,573.6
Goodwill acquired		—			102.4			102.4
Purchase price allocation adjustments and other		2.3			(0.7	)		1.6
Foreign currency translation adjustments		(0.1	)		(0.2	)		(0.3	)

Balance at September 30, 2011	$	866.6		$	810.7		$	1,677.3

10.

Income Taxes

At September 30, 2011, the Company had gross unrecognized tax benefits of $26.3 million, of which $23.7 million, if recognized, would impact the effective tax rate.

The following is a reconciliation of the liability for uncertain tax positions (in millions):


Balance at December 31, 2010	$	22.8
Additions for tax positions		5.5
Reductions for tax positions		(2.0	)

Balance at September 30, 2011	$	26.3

The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense. The amounts recognized in income tax expense for interest and penalties during the three and nine months ended September 30, 2011 and 2010 were not significant.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

11.

Debt

In September 2011, AMETEK completed a new five-year revolving credit facility with a total borrowing capacity of $700 million, which excludes an accordion feature that permits the Company to request up to an additional $200 million in revolving credit commitments at any time during the life of the revolving credit agreement under certain conditions. The revolving credit facility places certain restrictions on allowable additional indebtedness. Interest rates on outstanding loans under the revolving credit facility are at the applicable London Interbank Offered Rate (“LIBOR”) plus a negotiated spread, or at the U.S. prime rate. The new revolving credit facility replaced a $450 million total borrowing capacity revolving credit facility, which excluded a $100 million accordion feature, due to expire in June 2012. At September 30, 2011, the Company had available borrowing capacity of $644.9 million under its revolving credit facility.

12.

Financial Instruments

The estimated fair values of the Company’s financial instruments are compared below to the recorded amounts at September 30, 2011 and December 31, 2010. Cash, cash equivalents and marketable securities are recorded at fair value at September 30, 2011 and December 31, 2010 in the accompanying consolidated balance sheet.


	Asset (Liability)
	September 30, 2011						December 31, 2010
	Recorded Amount			Fair Value			Recorded Amount			Fair Value
	(In thousands)
Short-term borrowings	$	(34,400	)	$	(34,400	)	$	(95,904	)	$	(95,904	)
Long-term debt (including current portion)		(1,076,775	)		(1,225,163	)		(1,072,608	)		(1,176,399	)

The fair value of short-term borrowings approximates the carrying value. The Company’s long-term debt is all privately held with no public market for this debt, therefore, the fair value of long-term debt was computed based on comparable current market data for similar debt instruments.

13.

Share-Based Compensation

The fair value of each stock option grant is estimated on the date of grant using a Black-Scholes-Merton option pricing model. The following weighted average assumptions were used in the Black-Scholes-Merton model to estimate the fair values of options granted during the periods indicated:


	Nine Months Ended September 30, 2011			Year Ended December 31, 2010
Expected volatility		26.4	%		25.6	%
Expected term (years)		5.0			5.0
Risk-free interest rate		1.96	%		2.48	%
Expected dividend yield		0.54	%		0.54	%
Black-Scholes-Merton fair value per stock option granted	$	11.34		$	7.56

Expected volatility is based on the historical volatility of the Company’s stock. The Company used historical exercise data to estimate the stock options’ expected term, which represents the period of time that the stock options granted are expected to be outstanding. Management anticipates that the future stock option holding periods will be similar to the historical stock option holding periods. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve at the time of grant. Compensation expense recognized for all share-based awards is net of estimated forfeitures. The Company’s estimated forfeiture rates are based on its historical experience.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

Total share-based compensation expense was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(In thousands)
Stock option expense	$	2,095		$	1,869		$	6,160		$	5,722
Restricted stock expense		1,986			2,482			12,196			6,625

Total pre-tax expense		4,081			4,351			18,356			12,347
Related tax benefit		(1,333	)		(1,315	)		(5,872	)		(3,636	)

Reduction of net income	$	2,748		$	3,036		$	12,484		$	8,711

Pre-tax share-based compensation expense is included in either cost of sales, or selling, general and administrative expenses, depending on where the recipient’s cash compensation is reported.

The following is a summary of the Company’s stock option activity and related information:

Shares

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual Life

Aggregate
Intrinsic Value

(In thousands)

(Years)

(In millions)

Outstanding at December 31, 2010

6,119

24.25

Granted

660

44.70

Exercised

(880

)

19.14

Forfeited

(88

)

27.28

Expired

—

Outstanding at September 30, 2011

5,811

27.30

4.1

40.6

Exercisable at September 30, 2011

3,206

24.34

3.0

27.7

The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2011 was $21.8 million. The total fair value of stock options vested during the nine months ended September 30, 2011 was $7.5 million. As of September 30, 2011, there was approximately $14.8 million of expected future pre-tax compensation expense related to the 2.6 million nonvested stock options outstanding, which is expected to be recognized over a weighted average period of less than two years.

Restricted stock is subject to accelerated vesting due to certain events, including doubling of the grant price of the Company’s common stock as of the close of business during any five consecutive trading days. On April 6, 2011, 509,709 shares of restricted stock, which were granted on April 23, 2009, vested under this accelerated vesting provision. The pre-tax charge to income due to the accelerated vesting of these shares was $5.2 million ($3.6 million net after-tax charge) for the nine months ended September 30, 2011.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

The following is a summary of the Company’s nonvested restricted stock activity and related information:


	Shares			Weighted Average Grant Date Fair Value
	(In thousands)
Nonvested restricted stock outstanding at December 31, 2010		1,532		$	26.23
Granted		261			44.55
Vested		(802	)		22.88
Forfeited		(33	)		31.14

Nonvested restricted stock outstanding at September 30, 2011		958		$	33.87

The total fair value of restricted stock vested during the nine months ended September 30, 2011 was $18.3 million. As of September 30, 2011, there was approximately $19.0 million of expected future pre-tax compensation expense related to the 1.0 million nonvested restricted shares outstanding, which is expected to be recognized over a weighted average period of approximately two years.

14.

Retirement and Pension Plans

The components of net periodic pension benefit expense were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(In thousands)
Defined benefit plans:
Service cost	$	1,094		$	568		$	3,278		$	2,911
Interest cost		7,252			7,157			21,424			20,817
Expected return on plan assets		(11,259	)		(11,147	)		(33,831	)		(31,444	)
Amortization of net actuarial loss and other		1,310			1,302			3,585			5,289

Pension income		(1,603	)		(2,120	)		(5,544	)		(2,427	)


Other plans:
Defined contribution plans		3,470			3,122			10,987			9,273
Foreign plans and other		1,537			1,035			3,938			3,140

Total other plans		5,007			4,157			14,925			12,413


Total net pension expense	$	3,404		$	2,037		$	9,381		$	9,986

For the nine months ended September 30, 2011 and 2010, contributions to our defined benefit pension plans were not significant.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

15.

Product Warranties

The Company provides limited warranties in connection with the sale of its products. The warranty periods for products sold vary 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 accrued product warranty obligation were as follows:


	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Balance at the beginning of the period	$	18,347		$	16,035
Accruals for warranties issued during the period		9,450			8,227
Settlements made during the period		(7,472	)		(6,984	)
Warranty accruals related to new businesses and other		674			400

Balance at the end of the period	$	20,999		$	17,678

Certain settlements of warranties made during the period were for specific nonrecurring warranty obligations. Product warranty obligations are reported as current liabilities in the consolidated balance sheet.

16.

Contingencies

Environmental Matters

Certain historic processes in the manufacture of products have resulted in environmentally hazardous waste by-products as defined by federal and state laws and regulations. At September 30, 2011, the Company is named a Potentially Responsible Party (“PRP”) at 16 non-AMETEK-owned former waste disposal or treatment sites (the “non-owned” sites). The Company is identified as a “de minimis” party in 15 of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In 11 of these sites, the Company has reached a tentative agreement on the cost of the de minimis settlement to satisfy its obligation and is awaiting executed agreements. The tentatively agreed-to settlement amounts are fully reserved. In the other four sites, the Company is continuing to investigate the accuracy of the alleged volume attributed to the Company as estimated by the parties primarily responsible for remedial activity at the sites to establish an appropriate settlement amount. At the remaining site where the Company is a non-de minimis PRP, the Company is participating in the investigation and/or related required remediation as part of a PRP Group and reserves have been established sufficient to satisfy the Company’s expected obligations. The Company historically has resolved these issues within established reserve levels and reasonably expects this result will continue. In addition to these non-owned sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its current or previously owned manufacturing locations (the “owned” sites). For claims and proceedings against the Company with respect to other environmental matters, reserves are established once the Company has determined that a loss is probable and estimable. This estimate is refined as the Company moves through the various stages of investigation, risk assessment, feasibility study and corrective action processes. In certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the low end of the range. It is reasonably possible that the actual cost of remediation of the individual sites could vary from the current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to result in a material change to the consolidated financial statements. In estimating the Company’s liability for remediation, the Company also considers the likely proportionate share of the anticipated remediation expense and the ability of the other PRPs to fulfill their obligations.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

Total environmental reserves at September 30, 2011 and December 31, 2010 were $29.6 million and $31.3 million, respectively, for both non-owned and owned sites. For the nine months ended September 30, 2011, the Company recorded $1.2 million in reserves. Additionally, the Company spent $2.9 million on environmental matters for the nine months ended September 30, 2011. The Company’s reserves for environmental liabilities at September 30, 2011 and December 31, 2010 include reserves of $18.7 million and $18.9 million, respectively, for an owned site acquired in connection with the 2005 acquisition of HCC Industries (“HCC”). The Company is the designated performing party for the performance of remedial activities for one of several operating units making up a large Superfund site in the San Gabriel Valley of California. The Company has obtained indemnifications and other financial assurances from the former owners of HCC related to the costs of the required remedial activities. At September 30, 2011, the Company had $14.3 million in receivables related to HCC for probable recoveries from third-party escrow funds and other committed third-party funds to support the required remediation. Also, the Company is indemnified by HCC’s former owners for approximately $19.0 million of additional costs.

The Company has agreements with other former owners of certain of its acquired businesses, as well as new owners of previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other liabilities under certain circumstances. The Company and some of these other parties also carry insurance coverage for some environmental matters. To date, these parties have met their obligations in all material respects.

The Company believes it has established reserves which are sufficient to perform all known responsibilities under existing claims and consent orders. The Company has no reason to believe that other third parties would fail to perform their obligations in the future. In the opinion of management, based upon presently available information and past experience related to such matters, an adequate provision for probable costs has been made and the ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position or cash flows of the Company.

17.

Reportable Segments

The Company has two reportable segments, Electronic Instruments Group (“EIG”) and Electromechanical Group (“EMG”). The Company manages, evaluates and aggregates its operating segments for segment reporting purposes primarily on the basis of product type, production processes, distribution methods and management organizations.

At September 30, 2011, there were no significant changes in identifiable assets of reportable segments from the amounts disclosed at December 31, 2010, nor were there any significant 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 months ended September 30, 2011 and 2010 can be found in the table included in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.

18.

Stockholders’ Equity

For the first nine months of 2011, the Company repurchased 0.4 million shares of its common stock for $16.4 million. At September 30, 2011, $48.5 million was available under the current Board authorization for future share repurchases. In October 2011, the Company repurchased an additional 1.3 million shares of its common stock for $43.0 million. On November 2, 2011, the Board of Directors approved an increase of $100 million in the authorization for the repurchase of the Company’s common stock. This increase was added to the $5.5 million that remained available at October 31, 2011 from existing authorizations approved in 2010. As of the filing date of this Quarterly Report on Form 10-Q, $105.5 million was available under the current Board authorization for future share repurchases.

AMETEK, Inc.

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

19.

Fourth Quarter of 2008 Restructuring Charges and Asset Write-Downs

During the fourth quarter of 2008, the Company recorded pre-tax charges totaling $40.0 million, which had the effect of reducing net income by $27.3 million ($0.17 per diluted share). These charges included restructuring costs for employee reductions and facility closures ($32.6 million), as well as asset write-downs ($7.4 million). The charges included $30.1 million for severance costs for more than 10% of the Company’s workforce and $1.5 million for lease termination costs associated with the closure of certain facilities. Of the $40.0 million in charges, $32.9 million of the restructuring charges and asset write-downs were recorded in cost of sales and $7.1 million of the restructuring charges and asset write-downs were recorded in Selling, general and administrative expenses. The restructuring charges and asset write-downs were reported in 2008 segment operating income as follows: $20.4 million in EIG, $19.4 million in EMG and $0.2 million in Corporate administrative and other expenses. The restructuring costs for employee reductions and facility closures relate to plans established by the Company in 2008 as part of cost reduction initiatives that were broadly implemented across the Company’s various businesses during fiscal 2009. The restructuring costs resulted from the consolidation of manufacturing facilities, the migration of production to low-cost locales and a general reduction in workforce in response to lower levels of expected sales volumes in certain of the Company’s businesses.

The following table provides a rollforward of the remaining accruals established in the fourth quarter of 2008 for restructuring charges and asset write-downs:


	Restructuring
	Severance			Facility Closures			Total
	(In millions)
Restructuring accruals at December 31, 2010	$	6.6		$	0.3		$	6.9
Utilization		(3.0	)		(0.1	)		(3.1	)
Foreign currency translation and other		0.1			—			0.1

Restructuring accruals at September 30, 2011	$	3.7		$	0.2		$	3.9

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

Results of Operations

The following table sets forth net sales and income by reportable segment and on a consolidated basis:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(In thousands)
Net sales(1):
Electronic Instruments	$	409,516		$	337,715		$	1,205,740		$	946,274
Electromechanical		341,030			306,659			1,021,423			846,703

Consolidated net sales	$	750,546		$	644,374		$	2,227,163		$	1,792,977


Operating income and income before income taxes:
Segment operating income(2):
Electronic Instruments	$	102,438		$	83,004		$	303,879		$	225,790
Electromechanical		68,363			55,849			200,445			151,475

Total segment operating income		170,801			138,853			504,324			377,265
Corporate administrative and other expenses		(11,215	)		(10,260	)		(35,763	)		(30,631	)

Consolidated operating income		159,586			128,593			468,561			346,634
Interest and other expenses, net		(20,543	)		(19,778	)		(58,898	)		(55,398	)

Consolidated income before income taxes	$	139,043		$	108,815		$	409,663		$	291,236

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

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

Results of operations for the third quarter of 2011 compared with the third quarter of 2010

For the quarter ended September 30, 2011, the Company established records for operating income, operating income margins, net income, diluted earnings per share and operating cash flow. The Company achieved these results from strong internal growth, as well as contributions from the acquisitions of Coining Holding Company (“Coining”) in May 2011, Avicenna Technology, Inc. (“Avicenna”) in April 2011 and Atlas Material Testing Technology LLC (“Atlas”) in November 2010. The Company expects operating results throughout the remainder of 2011 to show continued strength compared with 2010.

Net sales for the third quarter of 2011 were $750.5 million, an increase of $106.1 million or 16.5% when compared with net sales of $644.4 million for the third quarter of 2010. The increase in net sales was primarily attributable to higher order rates, as well as the impact of the acquisitions mentioned above. The net sales increase for the third quarter of 2011 was driven by strong internal sales growth of approximately 8%, which excludes a 1% favorable effect of foreign currency translation. The acquisitions mentioned above contributed the remainder of the net sales increase.

Total international sales for the third quarter of 2011 were $373.0 million or 49.7% of net sales, an increase of $71.8 million or 23.8% when compared with international sales of $301.2 million or 46.7% of net sales for the third quarter of 2010. The $71.8 million increase in international sales resulted from higher sales growth noted above, driven by continued strong expansion into Asia, as well as growth in Europe, and includes the effect of foreign currency translation. Both reportable segments of the Company maintain a strong international sales presence in Europe and Asia.

Results of Operations (continued)

Segment operating income for the third quarter of 2011 was $170.8 million, an increase of $31.9 million or 23.0% when compared with segment operating income of $138.9 million for the third quarter of 2010. Segment operating income, as a percentage of net sales, increased to 22.8% for the third quarter of 2011 from 21.5% for the third quarter of 2010. The increase in segment operating income and segment operating margins resulted primarily from the leveraged impact of the Company’s net sales increase noted above, as well as the benefits of the Company’s lower cost structure through Operational Excellence initiatives.

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2011 were $86.0 million, an increase of $10.1 million or 13.3% when compared with $75.9 million for the third quarter of 2010. As a percentage of net sales, SG&A expenses were 11.5% for the third quarter of 2011, compared with 11.8% for the third quarter of 2010. Selling expense increased $9.2 million or 13.9% for the third quarter of 2011 driven by the increase in net sales noted above. Selling expenses, as a percentage of net sales, decreased to 10.0% for the third quarter of 2011, compared with 10.2% for the third quarter of 2010. Base business selling expense increased approximately 9% for the third quarter of 2011, which was in line with internal sales growth.

Corporate administrative expenses for the third quarter of 2011 were $11.2 million, an increase of $1.0 million or 9.8% when compared with $10.2 million for the third quarter of 2010. As a percentage of net sales, corporate administrative expenses were 1.5% for both the third quarter of 2011 and 2010. The increase in corporate administrative expenses was primarily driven by higher compensation related expenses, as well as other costs necessary to grow the business.

Consolidated operating income was $159.6 million or 21.3% of net sales for the third quarter of 2011, an increase of $31.0 million or 24.1% when compared with $128.6 million or 20.0% of net sales for the third quarter of 2010.

The effective tax rate for the third quarter of 2011 was 29.5% compared with 28.9% for the third quarter of 2010. The effective tax rates for the third quarter of 2011 and 2010 reflect the impact of lower European tax rates in addition to the ongoing benefits obtained from international tax planning initiatives.

Net income for the third quarter of 2011 was $98.0 million, an increase of $20.6 million or 26.6% when compared with $77.4 million for the third quarter of 2010. Diluted earnings per share for the third quarter of 2011 were $0.60, an increase of $0.12 or 25.0% when compared with $0.48 per diluted share for the third quarter of 2010.

Results of Operations (continued)

Segment Results

Electronic Instruments Group’s (“EIG”) net sales totaled $409.5 million for the third quarter of 2011, an increase of $71.8 million or 21.3% when compared with $337.7 million for the third quarter of 2010. The net sales increase was due to internal growth of approximately 12%, excluding a favorable 2% effect of foreign currency translation, and was driven primarily by increases in EIG’s process, power and industrial businesses. The acquisition of Atlas primarily accounted for the remainder of the net sales increase.

EIG’s operating income was $102.4 million for the third quarter of 2011, an increase of $19.4 million or 23.4% when compared with $83.0 million for the third quarter of 2010. EIG’s operating margins were 25.0% of net sales for the third quarter of 2011 compared with 24.6% of net sales for the third quarter of 2010. The increase in segment operating income and operating margins was driven by the leveraged impact of the Group’s increase in net sales noted above, as well as the benefit of the Group’s lower cost structure through Operational Excellence initiatives.

Electromechanical Group’s (“EMG”) net sales totaled $341.0 million for the third quarter of 2011, an increase of $34.3 million or 11.2% when compared with $306.7 million for the third quarter of 2010. The net sales increase was due to internal growth of approximately 3%, excluding a favorable 1% effect of foreign currency translation, and was driven by increases in EMG’s differentiated businesses. The acquisitions of Coining and Avicenna accounted for the remainder of the net sales increase.

EMG’s operating income was $68.4 million for the third quarter of 2011, an increase of $12.6 million or 22.6% when compared with $55.8 million for the third quarter of 2010. EMG’s operating margins were 20.0% of net sales for the third quarter of 2011 compared with 18.2% of net sales for the third quarter of 2010. EMG’s increase in operating income and operating margins was primarily due to the leveraged impact of the Group’s increase in net sales noted above, as well as the benefit of the Group’s lower cost structure through Operational Excellence initiatives.

Results of Operations (continued)

Results of operations for the first nine months of 2011 compared with the first nine months of 2010

Net sales for the first nine months of 2011 were $2,227.2 million, an increase of $434.2 million or 24.2% when compared with net sales of $1,793.0 million for the first nine months of 2010. The increase in net sales was primarily attributable to higher order rates, as well as the impact of the acquisitions of Coining in May 2011, Avicenna in April 2011, Atlas in November 2010, Haydon Enterprises in July 2010 and Technical Services for Electronics (“TSE”) in June 2010. The net sales increase for the first nine months of 2011 was driven by strong internal sales growth of approximately 13%, which excludes a 1% favorable effect of foreign currency translation. The acquisitions mentioned above contributed the remainder of the net sales increase.

Total international sales for the first nine months of 2011 were $1,120.1 million or 50.3% of net sales, an increase of $248.6 million or 28.5% when compared with international sales of $871.5 million or 48.6% of net sales for the first nine months of 2010. The $248.6 million increase in international sales resulted from higher sales growth noted above, driven by continued strong expansion into Asia, as well as growth in Europe, and includes the effect of foreign currency translation. Both reportable segments of the Company maintain a strong international sales presence in Europe and Asia.

New orders for the first nine months of 2011 were $2,324.0 million, an increase of $393.5 million or 20.4% when compared with $1,930.5 million for the first nine months of 2010. For the first nine months of 2011, internal order growth was approximately 11%, excluding a 2% favorable effect of foreign currency translation, driven by the differentiated businesses of both EIG and EMG, with the acquisitions mentioned above accounting for the remainder of the increase. As a result, the Company’s backlog of unfilled orders at September 30, 2011 was $925.7 million, an increase of $96.9 million or 11.7% when compared with $828.8 million at December 31, 2010.

Segment operating income for the first nine months of 2011 was $504.3 million, an increase of $127.0 million or 33.7% when compared with segment operating income of $377.3 million for the first nine months of 2010. Segment operating income, as a percentage of net sales, increased to 22.6% for the first nine months of 2011 from 21.0% for the first nine months of 2010. The increase in segment operating income and segment operating margins resulted primarily from the leveraged impact of the Company’s net sales increase noted above, as well as the benefits of the Company’s lower cost structure through Operational Excellence initiatives.

SG&A expenses for the first nine months of 2011 were $257.2 million, an increase of $43.9 million or 20.6% when compared with $213.3 million for the first nine months of 2010. As a percentage of net sales, SG&A expenses were 11.5% for the first nine months of 2011, compared with 11.9% for the first nine months of 2010. A portion of the increase in SG&A expenses was the result of a $2.1 million charge recorded in corporate administrative expenses related to the accelerated vesting of an April 2009 restricted stock grant in the second quarter of 2011. Selling expense increased $38.8 million or 21.2% for the first nine months of 2011 driven by the increase in net sales noted above. Selling expenses, as a percentage of net sales, decreased to 10.0% for the first nine months of 2011, compared with 10.2% for the first nine months of 2010. Base business selling expense increased approximately 13% for the first nine months of 2011, which was in line with internal sales growth.

Corporate administrative expenses for the first nine months of 2011 were $35.5 million, an increase of $5.1 million or 16.8% when compared with $30.4 million for the first nine months of 2010. As a percentage of net sales, corporate administrative expenses were 1.6% for the first nine months of 2011, compared with 1.7% for the first nine months of 2010. The increase in corporate administrative expenses was primarily the result of equity-based compensation associated with the accelerated vesting of restricted stock in the second quarter of 2011, noted above, as well as higher compensation related expenses.

Consolidated operating income was $468.6 million or 21.0% of net sales for the first nine months of 2011, an increase of $122.0 million or 35.2% when compared with $346.6 million or 19.3% of net sales for the first nine months of 2010.

Results of Operations (continued)

Interest expense was $51.7 million for the first nine months of 2011, an increase of $1.2 million or 2.4% when compared with $50.5 million for the first nine months of 2010. The increase was primarily due to the impact of the issuance of an 80 million British pound senior note in the third quarter of 2010, partially offset by the repayment of a 50 million British pound senior note in the third quarter of 2010.

Other expenses, net were $7.2 million for the first nine months of 2011, an increase of $2.3 million when compared with $4.9 million for the first nine months of 2010. The increase was primarily driven by higher acquisition-related expenses and an unfavorable impact from foreign currency.

The effective tax rate for the first nine months of 2011 was 31.0% compared with 30.4% for the first nine months of 2010. The effective tax rate for the first nine months of 2011 included the impact of the accelerated vesting of non-deductible restricted stock amortization. The effective tax rate for the first nine months of 2010 included the favorable results from certain audit settlements.

Net income for the first nine months of 2011 was $282.6 million, an increase of $79.9 million or 39.4% when compared with $202.7 million for the first nine months of 2010. Diluted earnings per share for the first nine months of 2011 were $1.74, an increase of $0.48 or 38.1% when compared with $1.26 per diluted share for the first nine months of 2010.

Segment Results

EIG’s net sales totaled $1,205.7 million for the first nine months of 2011, an increase of $259.4 million or 27.4% when compared with $946.3 million for the first nine months of 2010. The net sales increase was due to internal growth of approximately 18%, excluding a favorable 2% effect of foreign currency translation, and was driven primarily by increases in EIG’s process, power and industrial businesses. The acquisition of Atlas primarily accounted for the remainder of the net sales increase.

EIG’s operating income was $303.9 million for the first nine months of 2011, an increase of $78.1 million or 34.6% when compared with $225.8 million for the first nine months of 2010. EIG’s operating margins were 25.2% of net sales for the first nine months of 2011 compared with 23.9% of net sales for the first nine months of 2010. The increase in segment operating income and operating margins was driven by the leveraged impact of the Group’s increase in net sales noted above, as well as the benefit of the Group’s lower cost structure through Operational Excellence initiatives.

EMG’s net sales totaled $1,021.4 million for the first nine months of 2011, an increase of $174.7 million or 20.6% when compared with $846.7 million for the first nine months of 2010. The net sales increase was due to internal growth of approximately 7%, excluding a favorable 1% effect of foreign currency translation, and was driven by increases in EMG’s differentiated businesses. The acquisitions of Coining, Avicenna, Haydon Enterprises and TSE accounted for the remainder of the net sales increase.

EMG’s operating income was $200.4 million for the first nine months of 2011, an increase of $48.9 million or 32.3% when compared with $151.5 million for the first nine months of 2010. EMG’s operating margins were 19.6% of net sales for the first nine months of 2011 compared with 17.9% of net sales for the first nine months of 2010. EMG’s increase in operating income and operating margins was primarily due to the leveraged impact of the Group’s increase in net sales noted above, as well as the benefit of the Group’s lower cost structure through Operational Excellence initiatives.

Financial Condition

Liquidity and Capital Resources

Cash provided by operating activities totaled $355.8 million for the first nine months of 2011, an increase of $61.1 million or 20.7% when compared with $294.7 million for the first nine months of 2010. The increase in cash provided by operating activities was primarily due to the $79.9 million increase in net income, partially offset by higher overall operating working capital levels necessary to grow the Company’s businesses. Free cash flow (cash flow provided by operating activities less capital expenditures) was $323.4 million for the first nine months of 2011, compared with $272.2 million for the first nine months of 2010. EBITDA (earnings before interest, income taxes, depreciation and amortization) was $523.4 million for the first nine months of 2011, compared with $393.3 million for the first nine months of 2010. Free cash flow and EBITDA are presented because the Company is aware that they are measures used by third parties in evaluating the Company.

Cash used for investing activities totaled $217.1 million for the first nine months of 2011, compared with $392.3 million for the first nine months of 2010. For the first nine months of 2011, the Company paid $183.0 million for two business acquisitions, net of cash received, compared with $373.7 million paid for five business acquisitions, net of cash received, for the first nine months of 2010. Additions to property, plant and equipment totaled $32.4 million for the first nine months of 2011, compared with $22.4 million for the first nine months of 2010.

Cash used for financing activities totaled $78.2 million for the first nine months of 2011, compared with $11.8 million for the first nine months of 2010. For the first nine months of 2011, net total borrowings decreased by $57.3 million, compared with a net total borrowings increase of $74.0 million for the first nine months of 2010. For the first nine months of 2011, the Company repurchased 0.4 million shares of the its common stock for $16.4 million, compared with $78.6 million used for repurchases of 3.1 million shares of the Company’s common stock for the first nine months of 2010. At September 30, 2011, $48.5 million was available under the current Board authorization for future share repurchases.

In October 2011, the Company repurchased an additional 1.3 million shares of its common stock for $43.0 million. On November 2, 2011, the Board of Directors approved an increase of $100 million in the authorization for the repurchase of the Company’s common stock. This increase was added to the $5.5 million that remained available at October 31, 2011 from existing authorizations approved in 2010. As of the filing date of this Quarterly Report on Form 10-Q, $105.5 million was available under the current Board authorization for future share repurchases.

In September 2011, AMETEK completed a new five-year revolving credit facility with a total borrowing capacity of $700 million, which excludes an accordion feature that permits the Company to request up to an additional $200 million in revolving credit commitments at any time during the life of the revolving credit agreement under certain conditions. Interest rates on outstanding loans under the revolving credit facility are at the applicable London Interbank Offered Rate (“LIBOR”) plus a negotiated spread, or at the U.S. prime rate. The new revolving credit facility replaced a $450 million total borrowing capacity revolving credit facility, which excluded a $100 million accordion feature, due to expire in June 2012. The new revolving credit facility provides the Company with additional financial flexibility to support its growth plans, including its successful acquisition strategy. At September 30, 2011, the Company had available borrowing capacity of $644.9 million under its revolving credit facility.

In the third quarter of 2010, the Company paid in full an expiring 50 million British pound ($78.2 million) 5.96% senior note. Also in the third quarter of 2010, the Company issued an 80 million British pound ($124.7 million at September 30, 2011) 4.68% senior note due in September 2020.

Financial Condition (continued)

At September 30, 2011, total debt outstanding was $1,111.2 million, compared with $1,168.5 million at December 31, 2010, with no significant maturities until 2015. The debt-to-capital ratio was 35.2% at September 30, 2011, compared with 39.7% at December 31, 2010. The net debt-to-capital ratio (total debt less cash and cash equivalents divided by the sum of net debt and stockholders’ equity) was 30.4% at September 30, 2011, compared with 36.2% at December 31, 2010. The net debt-to-capital ratio is presented because the Company is aware that this measure is used by third parties in evaluating the Company.

As a result of all of the Company’s cash flow activities for the first nine months of 2011, cash and cash equivalents at September 30, 2011 totaled $218.3 million, compared with $163.2 million at December 31, 2010. The Company is in compliance with all covenants, including financial covenants, for all of its debt agreements. The Company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources, available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future.

Forward-Looking Information

Information contained in this discussion, other than historical information, is considered “forward-looking statements” and is subject to various factors and uncertainties that may cause actual results to differ significantly from expectations. These factors and uncertainties include general economic conditions affecting the industries the Company serves; changes in the competitive environment or the effects of competition in the Company’s markets; risks associated with international sales and operations; the Company’s ability to consummate and successfully integrate future acquisitions; the Company’s ability to successfully develop new products, open new facilities or transfer product lines; the price and availability of raw materials; compliance with government regulations, including environmental regulations; and the ability to maintain adequate liquidity and financing sources. A detailed discussion of these and other factors that may affect the Company’s future results is contained in AMETEK’s filings with the Securities and Exchange Commission, including its most recent reports on Form 10-K, 10-Q and 8-K. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements, unless required by the securities laws to do so.

Item 4. Controls and Procedures

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management in a timely manner. The Company’s principal executive officer and principal financial officer evaluated the effectiveness of the system of disclosure controls and procedures as of September 30, 2011. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in all material respects as of September 30, 2011.

Such evaluation did not identify any change in the Company’s internal control over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table reflects purchases of AMETEK, Inc. common stock by the Company during the three months ended September 30, 2011:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
July 1, 2011 to July 31, 2011		—	$	—		—	$	53,517,827
August 1, 2011 to August 31, 2011		—		—		—		53,517,827
September 1, 2011 to September 30, 2011		147,000		34.26		—		48,478,124

Total		147,000		—		—

(1)

Consists of the number of shares purchased pursuant to the Company’s Board of Directors $75 million authorization for the repurchase of its common stock announced on January 28, 2010. Such purchases may be affected from time to time in the open market or in private transactions, subject to market conditions and at management’s discretion.

Item 6. Exhibits


Exhibit Number		Description

31.1		Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


AMETEK, Inc.
(Registrant)

By:		/s/ Robert R. Mandos, Jr.
		Robert R. Mandos, Jr.
		Senior Vice President and Comptroller
		(Principal Accounting Officer)

November 3, 2011