UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2006

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

For the transition period from                      to                     

AMETEK, Inc.

Delaware		14-1682544
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
37 North Valley Road, Paoli, PA		19301
(Address of principal executive offices)		(Zip Code)

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

Title of each class		Name of each exchange on which registered
Common Stock, $0.01 Par Value (voting)		New York Stock Exchange

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ     No  o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o     No  þ

     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  þ     No  o

     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.  þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  þ     Accelerated filer  o          Non-accelerated filer  o

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

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2006 was $3,356,198,119 the last business day of registrant’s most recently completed second fiscal quarter.

     The number of shares of common stock outstanding as of February 12, 2007, was 106,195,799.

     Part III incorporates information by reference from the Proxy Statement for the Annual Meeting of Stockholders on April 24, 2007.

 

 

AMETEK, Inc.

2006 Form 10-K Annual Report
Table of Contents

						Page(s)
				Part I
Item 1.				Business			2
Item 1A.				Risk Factors			10
Item 1B.				Unresolved Staff Comments			13
Item 2.				Properties			13
Item 3.				Legal Proceedings			13
Item 4.				Submission of Matters to a Vote of Security Holders			13
				Part II
Item 5.				Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
Item 6.				Selected Financial Data			17
Item 7.				Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 7A.				Quantitative and Qualitative Disclosures About Market Risk			31
Item 8.				Financial Statements and Supplementary Data			31
Item 9.				Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			66
Item 9A.				Controls and Procedures			66
Item 9B.				Other Information			66
				Part III
Item 10.				Directors, Executive Officers and Corporate Governance			66
Item 11.				Executive Compensation			67
Item 12.				Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			67
Item 13.				Certain Relationships and Related Transactions, and Independence			67
Item 14.				Principal Accounting Fees and Services			67
				Part IV
Item 15.				Exhibits and Financial Statement Schedules			67
Signatures							68
Index to Exhibits							69
SIXTEENTH AMENDMENT TO THE RECEIVABLES SALE AGREEMENT
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SUBSIDIARIES OF AMETEK, INC.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906

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 American Machine and Metals, Inc. The Company maintains its principal executive offices in suburban Philadelphia, PA at 37 North Valley Road, Building 4, Paoli, PA 19301. AMETEK is a leading global manufacturer of electronic instruments and electromechanical devices 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 Russell 1000 and the S&P MidCap 400 indices.

     WEBSITE ACCESS TO INFORMATION

     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 website at www.ametek.com (in the “Investors – Financial News and Information” section), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The Company has posted, free of charge, to the investor information portion of its website, its corporate governance guidelines, board committee charters and codes of ethics. Such documents are also available in published form, free of charge to any stockholder who requests them by writing to the Investor Relations Department at AMETEK, Inc., 37 North Valley Road, Building 4, Paoli, PA 19301.

     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 monitoring, testing, calibration and display devices for the process, aerospace, industrial and power markets. EMG is a supplier of electromechanical devices. EMG produces highly engineered electromechanical connectors for hermetic (moisture-proof) applications, specialty metals for niche markets, and brushless air-moving motors, blowers, and heat exchangers. End markets include aerospace, defense, mass-transit, medical and office products. The Company believes that EMG is the world’s largest manufacturer of air-moving electric motors for vacuum cleaners, and is a prominent producer of motors of other floor care products. The Company continues to grow through strategic acquisitions focused on differentiated niche markets in instrumentation and electromechanical devices.

     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 a 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 process, aerospace, industrial, and power instrumentation markets. In EMG, the Company maintains significant market positions in many niche segments including aerospace, defense, mass transit, medical, office products, and air-moving motors for the floor care market.

     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 strategic acquisitions. EIG competes primarily on the basis of product innovation in several highly specialized instrumentation markets, including process measurement, aerospace, power, and heavy-vehicle dashboard instrumentation. EMG’s differentiated businesses focus on developing customized products for specialized applications in aerospace and defense, medical, business machines and other industrial applications. In its cost-driven motor business, EMG focuses on low-cost design and manufacturing, while enhancing motor-blower performance through advances in power, efficiency, lighter weight and quieter operation.

     Efficient and Low-Cost Manufacturing Operations. EMG has motor manufacturing plants in China, the Czech Republic, Mexico and Brazil to lower its costs and achieve strategic proximity to its customers, providing the opportunity 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 22 years with the Company, and is financially committed to the Company’s success through Company-established stock ownership guidelines, and equity incentive programs.

     BUSINESS STRATEGY

     AMETEK’s objectives are to increase the Company’s earnings and financial returns through a combination of operational and financial strategies. Those operational strategies include business acquisitions, new product development, global and market expansion, and Operational Excellence 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 and private debt or equity issuance, bank debt refinancing, local 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 achieve the Company’s long-term best-cost objectives.

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

     Operational Excellence. Operational Excellence is AMETEK’s cornerstone 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, which focuses on Six Sigma process improvements and lean manufacturing, and also emphasizes 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 lowering operating and administrative costs and shortening manufacturing cycle times.

     New Product Development. AMETEK’s new product development pipeline is filled with promising and innovative instruments and differentiated electromechanical devices. Recent introductions include:

The Detective™ EX-100, the latest addition to the Detective family of portable radiation identifiers for Homeland Security, which is based on high-purity germanium that allows for faster identification of nuclear material without any loss in accuracy;

A Total Air Probe, an innovative new aircraft instrument that combines multiple air sensors into a single unit and saves both weight and installation costs, while increasing accuracy and reliability;

The Model 5100-NCM tunable diode laser analyzer that offers natural gas producers, pipeline operators and service companies a highly reliable and cost-effective method for quickly and accurately measuring water vapor in natural gas;

The Phoenix II XRF spectrometer, a compact, low-cost bench-top elemental analyzer that is designed for use in both the rugged environment of production processes as well as in the laboratory;

The Solartron SST 3000 DP, a top-performing deep-water differential pressure transmitter available for offshore oil and gas production, which is able to operate in depths up to 10,000 feet and pressures up to 10,000 pounds per square inch;

The Solidstate Controls ACTS 2000 and ACTS 2002 Series cathodic protection rectifiers which are the most advanced systems available for protecting essential energy pipelines and structures from costly corrosion-related problems ;

The JOFRA™ASM Series advanced signal multi-scanner which calibrates multiple temperature sensors simultaneously for applications where temperature calibration is critical and traceable calibration documents are needed;

The Light Bar Message Center, the latest addition to AMETEK’s modular Next Generation Instrumentation (NGI^®) system for heavy-duty and commercial vehicles, which displays messages from a range of vehicle data buses, sensors and switches; and

The GEN II INFIN-A-TEK, the next generation in switch-reluctance motor-blower technology, which incorporates the latest advancements in electronic digital control, electronic circuit design and material enhancements.

     Global and Market Expansion. AMETEK’s largest international presence is in Europe, where it has operations in the United Kingdom, Germany, Denmark, Italy, the Czech Republic, France, Austria and the Netherlands. These operations provide design and engineering capability, product-line breadth, enhanced European distribution channels, and low-cost production. 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 near Sao Paulo, Brazil and in Shanghai, China. It also continues to achieve geographic expansion and market expansion in Asia through joint ventures in China, Taiwan, Japan and South Korea and a direct sales and marketing presence in Singapore, Japan, China, Taiwan, Hong Kong, the Middle East and Russia.

     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 2003, to the date of this report, the Company has completed 13 acquisitions with annualized sales totaling approximately $622 million, including five acquisitions in 2006 representing approximately $142 million in annualized revenues (see “Recent Acquisitions”). Those acquisitions have enhanced AMETEK’s position in analytical instrumentation, technical motors, and power systems and instrumentation. 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 this acquisition strategy.

2006 OVERVIEW

     OPERATING PERFORMANCE

     In 2006, AMETEK generated sales of $1.8 billion, an increase of 27% from 2005, and increased net income by 33%. The Company set records for sales, operating income, net income and diluted earnings per share. This strong performance was driven by an improving economy, internal growth in each of the Company’s two reportable segments, the contribution of recently acquired businesses and the Company’s continuing cost reduction initiatives. Additionally, AMETEK generated record cash flow from operating activities during 2006 that totaled approximately $226 million, a 45% increase from 2005.

     On October 25, 2006, the Company’s Board of Directors declared a three-for-two split of the Company’s common stock. The stock split resulted in the issuance of one additional share for every two shares owned. The stock split was distributed on November 27, 2006, to shareholders of record at the close of business on November 13, 2006. Additionally, the Board of Directors approved a 50% increase in the quarterly cash dividend rate on the Company’s common stock to $0.06 per common share from $0.04 per common share on a post-split basis. All share and per share information included in this report reflect the impact of the stock split.

     In 2006 the Company repurchased 750,000 shares of its common stock for $21.1 million in cash under its current share purchase authorization. In 2005, the Company did not repurchase any shares of its common stock. At December 31, 2006, approximately $31.4 million of the current share purchase authorization was unexpended.

     RECENT ACQUISITIONS

          In February 2006, the Company acquired Pulsar Technologies, Inc. (“Pulsar”), from private equity firm Hyde Park Capital Advisors, LLC for $12.6 million in cash. Pulsar is a leading supplier of power line carrier systems for relay communications equipment and fully integrated multiplexer systems for general power and telecommunication applications. Headquartered in Coral Springs, FL, Pulsar has annual sales of approximately $10 million and is part of the Company’s Electronic Instruments Group.

          In May 2006, the Company acquired PennEngineering Motion Technologies (“Pittman”) a unit of Penn Engineering & Manufacturing Corp. for approximately $63 million in cash. Pittman is a leading designer and manufacturer of highly engineered motors for niche applications in the data storage, medical, electronic equipment, factory automation and aviation markets. Pittman has annual sales of approximately $55 million and is part of the Company’s Electromechanical Group.

          In June 2006, the Company acquired Land Instruments International Limited (“Land Instruments”) from an investor group led by 3i plc for $35.1 million in cash. Land Instruments is a global supplier of high-end analytical instrumentation headquartered in Dronfield, United Kingdom with annual sales of approximately $41 million and is part of the Company’s Electronic Instruments Group.

     In November 2006, the Company acquired Precitech from a shareholder group led by American Capital Strategies Ltd. for approximately $13 million in cash. Precitech is a leading manufacturer of ultra-precision machining systems for a variety of markets, including nanotechnology, military, defense and ophthalmic. Headquartered in Keene, NH, Precitech has annual sales of approximately $19 million and is part of the Company’s Electronic Instruments Group.

     In December 2006, the Company acquired Southern Aeroparts, Inc. (SAI) for approximately $39 million in cash. SAI is a Tulsa, Oklahoma-based provider of third-party maintenance, repair and overhaul services to the commercial aerospace industry. SAI has annual sales of approximately $17 million and is part of the Company’s Electromechanical Group.

     In the first and third quarters of 2006, the Company also purchased two small technology lines for cash. One of the lines acquired is related to the Company’s HCC business, which was acquired in October 2005. It is a leading designer and manufacturer of highly engineered hermetic connectors, terminals, headers and microelectronic packages for sophisticated electronic applications and is part of the Company’s Electromechanical Group. The other technology line is related to the Company’s motors business.

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

     Geographic information and reportable segments are shown on pages 60-62 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, tax and regulatory policies of the countries in which business is conducted. (Also see Item 1A. Risk Factors).

     The Company’s international sales increased 32% to $866 million, representing 48% of total sales in 2006 compared with 46% in 2005. This increase was driven by both internal growth and acquisitions. The Company increased export sales of products manufactured in the United States as well as sales from overseas operations.

     DESCRIPTION OF BUSINESS

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

     EIG

     EIG is comprised of a group of differentiated businesses. EIG applies its specialized market focus and technology to manufacture instruments used for testing, monitoring and calibration for the process, aerospace, industrial and power markets. EIG’s growth is based on the four strategies outlined in AMETEK’s Corporate Growth Plan. EIG designs products that, in many instances, 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 operations in Japan, China and Taiwan. Approximately 53% of EIG’s 2006 sales were to markets outside the United States.

     EIG employs approximately 4,900 people, of whom approximately 800 are covered by collective bargaining agreements. EIG has 40 manufacturing facilities: 27 in the United States, 11 in Europe, one in South America and one in Canada. EIG also shares manufacturing facilities with EMG in Mexico.

     Process and Analytical Instrumentation Markets and Products

     Approximately 64% of EIG sales are from instruments for process and analytical measurement and analysis. These include: oxygen, moisture, combustion and liquid analyzers; emission monitors; spectrometers; mechanical and electronic pressure sensors and transmitters; radiation measurement devices; level measurement devices; precision pumping systems; and force-measurement and materials testing instrumentation. EIG’s focus is on the process industries, including oil, gas and petrochemical refining, power generation, specialty gas production, water and waste treatment, natural gas distribution, and semiconductor manufacturing. AMETEK’s analytical instruments are also used for precision measurement in a number of other applications including radiation detection for Homeland Security, materials analysis and nanotechnology research.

        SPECTRO Analytical Instruments, acquired in June 2005, designs, manufactures, and services a broad array of atomic spectroscopic instrumentation used to analyze the elemental composition of solids and liquids. Using optical emission or energy dispersive x-ray fluorescence (ED-XRF) measurement techniques, SPECTRO’s instruments address the analysis requirements of a variety of end markets, including metal production and processing, environmental testing, hydrocarbon processing, the aerospace industry, food processing, and the pharmaceutical industry.

     Solartron, acquired in September 2005, is composed of three businesses: Solartron Analytical, Solartron Metrology and Solartron ISA. Solartron Analytical produces high-precision analytical measurement instrumentation and software for the characterization of materials. Solartron Metrology is a leading manufacturer of digital and analog gauging probes, displacement transducers and associated instrumentation used primarily to measure the size and form of machined or fabricated parts. Solartron ISA designs and manufactures flow measurement devices for the oil and gas industry.

     Land Instruments, acquired in June 2006, offers a full range of on-line optical temperature measurement instrumentation for industrial applications, including spot thermometers, line scanners and thermal imagers. These instruments, which measure temperatures up to 3000 degrees Celsius, are widely used by the metal, glass and mineral processing industries. The addition of Land Instruments’ high temperature monitoring and control systems expands AMETEK’s on-line process monitoring capabilities, adding to our existing strengths in on-line composition and moisture analysis.

     Precitech, acquired in November 2006, designs and manufactures ultra-precise single-point and multi-axis diamond turning machining systems for applications requiring nanometric levels of accuracy. Its acquisition broadens our product offering for rapidly growing nanotechnology applications. Its products complement Taylor Hobson, which is a leading manufacturer of ultra-precision measurement instrumentation.

     Power and Industrial Instrumentation Markets and Products

     Approximately 19% of EIG sales are to the power and industrial instrumentation markets.

     EIG is 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. EIG’s Solidstate Controls designs and manufactures uninterruptible power supply systems for the process and power generation industries. EIG also manufactures sensor systems for land-based gas turbines and for boilers and burners used by the utility, petrochemical, process, and marine industries worldwide.

     EIG’s Dixson business is a leading North American manufacturer of dashboard instruments for heavy trucks, and is also among the major suppliers of similar products for construction vehicles. It has 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 food service instrumentation market and is a primary source for stand-alone and integrated timing controls for the food service industry.

     In February 2006, EIG acquired Pulsar. Pulsar is a supplier of power line carrier systems for relay communications equipment and fully integrated multiplexer systems for general power and telecommunication applications. This equipment provides communications between power substations for the protective relays on electric power lines to facilitate their operation and provide critical feedback on the faults and functioning of the electric transmission grid.

     Aerospace Instrumentation Markets and Products

     Approximately 17% of EIG sales are from aerospace products. AMETEK’s 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 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 more 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 Original Equipment Manufacturers (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.

     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 13% of EIG’s 2006 sales were made to its five largest customers, and no one customer accounted for 10% or more of 2006 consolidated sales.

     EMG

     EMG is among the leaders in many of the specialized markets it serves, including highly engineered motors, blowers, fans, heat exchangers, connectors, and other electromechanical products or systems for commercial and military aerospace applications, defense, medical equipment, business machines and computers and other power or industrial applications. In its cost-driven motor business, the Company believes that EMG is the world’s largest producer of high-speed, air-moving electric motors for OEMs of floor care products. EMG designs products that, in many instances, 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. Approximately 40% of EMG’s 2006 sales were to customers outside the United States.

     EMG employs approximately 5,300 people, of whom approximately 2,200 are covered by collective bargaining agreements (including some that are covered by local unions). It has 31 manufacturing facilities: 21 in the United States, three in the United Kingdom, two in Italy, two in Mexico, one in China, one in the Czech Republic, and one in Brazil.

     Differentiated Businesses

     Differentiated businesses account for an increasing proportion of EMG’s overall sales base. Differentiated businesses represented 65% of EMG’s sales in 2006 and are comprised of the materials, interconnects and microelectronics packaging businesses and the technical motors and systems businesses. Cost-driven businesses account for 35% of EMG’s overall sales and consist of the floor care and specialty motors businesses.

     Materials, Interconnects and Packaging Markets and Products

     Approximately 27% of EMG sales are materials, interconnects and packaging products. AMETEK is an innovator and market leader in specialized 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.

     With the acquisition of HCC in October 2005, EMG added a significant new product line. HCC designs and manufactures high-precision glass-to-metal and ceramic-to-metal seals. These seals protect sensitive electronics from the environment as well as provide thermal management capabilities. HCC’s products fall into three categories: connectors, terminals and headers, and microcircuit packaging. Connectors facilitate the passage of electrical current between two devices and allow them to be mechanically coupled and decoupled. Terminals and headers are interconnect devices that isolate electrical signals. Microcircuit packaging protects semiconductor circuitry from the environment. Key markets for HCC’s products are aerospace and defense, industrial and petrochemical.

     Technical Motors and Systems Markets and Products

     Technical motors and systems, representing 38% of EMG’s 2006 sales, consist of brushless motors, blowers and pumps as well as other electromechanical systems. Their products are used in aerospace, business machines, computer equipment, defense, mass transit vehicles, medical equipment applications, power, and industrial applications.

     EMG produces electronically commutated (brushless) motors, blowers and pumps that offer long life, reliability and near maintenance-free operation. These motor-blower systems and heat exchangers are used for thermal management and other

applications on a wide variety of military and commercial aircraft and military ground vehicles, and are used increasingly in medical and other applications, in which their long life and spark-free and reliable operation is very important. These motors provide cooling and ventilation for business machines, computers, and mass transit vehicles. In the emerging fuel cell market, AMETEK is working closely with many of the leading developers of fuel cell technology to produce blowers and pumps specifically developed for these applications.

     PennEngineering Motion Technologies, acquired in May 2006, is a leading designer and manufacturer of highly engineered motors for niche applications in the data storage, medical, electronic equipment, factory automation and aviation markets.

     EMG’s Prestolite switch business produces solenoids and other electromechanical devices for the motive and stationary power markets. The Prestolite 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 and enjoy a reputation for high quality and service.

     Floor Care and Specialty Motor Markets and Products

     Approximately 35% of EMG sales are to floor care and specialty motor 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.

     The Company also manufactures a variety of specialty motors used in a wide range of products, such as household and personal care appliances; fitness equipment; electric materials handling vehicles; and sewing machines. Additionally, its products are used in outdoor power equipment, such as electric chain saws, leaf blowers, string trimmers and power washers.

     EMG has been successful in directing a portion of its global floor care marketing at 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™ series of universal vacuum motors that incorporate design and construction techniques that lower cost while improving operating efficiency and reliability; the Air-Watt™ Series of commercial motor-blowers, whose advanced design translates directly into higher performance and energy savings for end users; and ACUSTEK PlusÔ low-noise commercial vacuum motors.

     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 7% of EMG’s sales for 2006 were made to its five largest customers.

     MARKETING

     The Company’s marketing efforts generally are organized and carried out at the division level. EIG makes significant use of distributors and sales representatives in marketing its products, as well as direct sales in some of its more technically sophisticated products. Within aerospace, its specialized customer base of aircraft and jet engine manufacturers is served primarily by direct sales engineers. Given the technical nature of many of its 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 in 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 instrument 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 products. Both of these businesses have several strong competitors. In the process and analytical instruments market, numerous companies in each specialized market compete on the basis of product quality, performance and innovation. The aerospace and power instrument businesses have a number of diversified competitors, which vary depending on the specific market niche.

     EMG’s differentiated businesses have competition from a limited number of companies in each of their markets. Competition is generally based on product innovation, performance and price. There also is competition from alternative materials and processes. In its cost-driven businesses, EMG has limited domestic competition in the U.S. floor care market from independent manufacturers. Competition is increasing from Asian motor manufacturers that serve both the U.S. and the European floor care markets. Increasingly, global vacuum motor production is being shifted to Asia where AMETEK has a growing but smaller market position. 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.

     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:

		December 31,
		2006				2005				2004
						(In millions)
Electronic Instruments		$	248.2			$	216.0			$	155.9
Electromechanical			288.6				224.7				185.0
Total		$	536.8			$	440.7			$	340.9

     The higher backlog at December 31, 2006 was primarily due to the five businesses acquired in 2006, as well as increased order rates, primarily in the Company’s differentiated businesses.

     Of the total backlog of unfilled orders at December 31, 2006, approximately 86% is expected to be shipped by December 31, 2007. The Company believes that neither its business as a whole, nor either of its reportable segments, is subject to significant seasonal variations, although certain individual operations experience some seasonal variability.

     AVAILABILITY OF RAW MATERIALS

     The Company’s reportable 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 before customer reimbursement were $87.6 million, $75.9 million and $66.0 million, in 2006, 2005 and 2004, respectively. Customer reimbursements in 2006, 2005 and 2004 were $6.4 million, $8.9 million and $6.2 million, respectively. These amounts included net Company-funded research and development expenses of $42.0 million, $34.8 million and $25.5 million, respectively. All such expenditures were directed toward the development of new products and processes, and the improvement of existing products and processes.

     ENVIRONMENTAL MATTERS

     Information with respect to environmental matters is set forth on pages 29-30 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 reportable segments or to the Company’s overall operations.

     EMPLOYEES

     At December 31, 2006, the Company employed approximately 10,400 people in its EMG, EIG and corporate operations, of whom approximately 3,000 employees were covered by collective bargaining agreements. The Company has two collective bargaining agreements that will expire in 2007, which cover less than 200 employees. The Company expects no material adverse effects from the pending labor contract negotiations.

     WORKING CAPITAL PRACTICES

     The Company does not have extraordinary working capital requirements in either of its reportable 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 1A. RISK FACTORS

     You should consider carefully the following risk factors and all other information contained in this Annual Report on Form 10-K and the documents we incorporate by reference in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, results of operations, liquidity and financial condition.

Our growth strategy includes strategic acquisitions. We may not be able to consummate future acquisitions, successfully integrate recent and future acquisitions or finance future acquisitions.

     A portion of our growth has been attributed to acquisitions of strategic businesses. Since the beginning of 2003, we have completed thirteen acquisitions. We plan to continue making strategic acquisitions to enhance our global market position and broaden our product offerings. Although we have been successful with our acquisition strategies in the past, our ability to successfully effectuate acquisitions will be dependent upon a number of factors, including:

	•		Our ability to identify acceptable acquisition candidates;
	•		The impact of increased competition for acquisitions, which may increase acquisition costs and affect our ability to consummate acquisitions on favorable terms and may result in us assuming a greater portion of the seller’s liabilities;
	•		Successfully integrating acquired businesses, including integrating the financial, technological and management processes, procedures and controls of the acquired businesses with those of our existing operations;
	•		Financing for acquisitions not being available on terms acceptable to us, or at all;
	•		U.S. and foreign competition laws and regulations affecting our ability to make certain acquisitions;
	•		Unexpected losses of key employees, customers and suppliers of acquired businesses;
	•		Mitigating assumed, contingent and unknown liabilities; and
	•		Challenges in managing the increased scope, geographic diversity and complexity of our operations.

     The process of integrating acquired businesses into our existing operations may result in unforeseen operating difficulties and may require additional financial resources and attention from management that would otherwise be available for the ongoing development or expansion of our existing operations. Failure to continue with our acquisition strategy and the successful integration of acquired businesses could have a material adverse effect on our business, results of operations, liquidity and financial condition.

We may experience unanticipated start-up expenses and production delays in opening new facilities or product line transfers.

          Certain of our businesses are relocating, or have recently relocated manufacturing operations to low-cost locales. Unanticipated start-up expenses and production delays in opening new facilities or completing product line transfers, as well as possible underutilization of our existing facilities, could result in product inefficiencies, which would adversely affect our business and operations.

Our substantial international sales and operations are subject to customary risks associated with international operations.

     International sales for 2006 and 2005 represented approximately 48% and 46% of our total net sales, respectively. As a result of our growth strategy, we anticipate that the percentage of sales outside the United States will continue to increase in the future. International operations are subject to the customary risks of operating in an international environment, including:

	•		Potential imposition of trade or foreign exchange restrictions;
	•		Overlap of different tax structures;
	•		Unexpected changes in regulatory requirements;
	•		Changes in tariffs and trade barriers;
	•		Fluctuations in foreign currency exchange rates, including changes in the relative value of currencies in the countries where we operate, subjecting us to exchange rate exposures;
	•		Restrictions on currency repatriation;
	•		General economic conditions;
	•		Unstable political situations;
	•		Nationalization of assets; and
	•		Compliance with a wide variety of international and U.S. export laws and regulatory requirements.

If we are unable to develop new products on a timely basis, it could adversely affect our business and prospects.

     We believe that our future success depends, in part, on our ability to develop on a timely basis technologically advanced products that meet or exceed appropriate industry standards. Although we believe we have certain technological and other advantages over our competitors, maintaining such advantages will require us to continue investing in research and development and sales and marketing. There can be no assurance that we will have sufficient resources to make such investments, that we will be able to make the technological advances necessary to maintain such competitive advantages, or that we can recover major research and development expenses. We are not currently aware of any emerging standards or new products, which could render our existing products obsolete, although there can be no assurance that this will not occur or that we will be able to develop and successfully market new products.

A shortage of or price increases in our raw materials could increase our operating costs.

     We have multiple sources of supplies for our major raw material requirements and we are not dependent on any one supplier; however, certain items, including base metals and certain steel components, are available only from a limited number of suppliers and are subject to commodity market fluctuations. Shortages in raw materials or price increases therefore could affect the prices we charge, our operating costs and our competitive position, which could adversely affect our business, results of operations, liquidity and financial condition.

Certain environmental risks may cause us to be liable for costs associated with hazardous or toxic substance clean-up which may adversely affect our financial condition.

     Our businesses, operations and facilities are subject to a number of federal, state, local and foreign environmental and occupational health and safety laws and regulations concerning, among other things, air emissions, discharges to waters and the use, manufacturing, generation, handling, storage, transportation and disposal of hazardous substances and wastes. Environmental risks are inherent in many of our manufacturing operations. Certain laws provide that a current or previous owner or operator of property may be liable for the costs of investigating, removing and remediating hazardous materials at such property, regardless of whether

the owner or operator knew of, or was responsible for, the presence of such hazardous materials. In addition, the Comprehensive Environmental Response, Compensation and Liability Act generally imposes joint and several liability for clean-up costs, without regard to fault, on parties contributing hazardous substances to sites designated for clean-up under the Act. We have been named a potentially responsible party at several sites, which are the subject of government-mandated clean-ups. As the result of our ownership and operation of facilities that use, manufacture, store, handle and dispose of various hazardous materials, we may incur substantial costs for investigation, removal, remediation and capital expenditures related to compliance with environmental laws. While it is not possible to precisely quantify the potential financial impact of pending environmental matters, based on our experience to date, we believe that the outcome of these matters is not likely to have a material adverse effect on our financial position or future results of operations. In addition, new laws and regulations, new classification of hazardous materials, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that future environmental liabilities will not occur or that environmental damages due to prior or present practices will not result in future liabilities.

We are subject to numerous governmental regulations, which may be burdensome or lead to significant costs.

     Our operations are subject to numerous federal, state, local and foreign governmental laws and regulations. In addition, existing laws and regulations may be revised or reinterpreted, and new laws and regulations may be adopted or become applicable to us. We cannot predict the impact any of these will have on our business or operations.

We may be required to defend lawsuits or pay damages in connection with alleged or actual harm caused by our products.

     We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in harm to others or to property. For example, our operations expose us to potential liabilities for personal injury or death as a result of the failure of, for example, an aircraft component that has been designed, manufactured or serviced by us. We may incur significant liability if product liability lawsuits against us are successful. While we believe our current general liability and product liability insurance is adequate to protect us from future claims, we cannot assure that coverage will be adequate to cover all claims that may arise. Additionally, we may not be able to maintain insurance coverage in the future at an acceptable cost. Any liability not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our business, financial condition and results of operations.

We operate in highly competitive industries, which may adversely affect our results of operations or ability to expand our business.

     Our markets are highly competitive. We compete, domestically and internationally, with individual producers as well as with vertically integrated manufacturers, some of which have resources greater than we do. The principal elements of competition for our products are price, product technology, distribution, quality and service. EMG’s competition in specialty metal products stems from alternative materials and processes. In the markets served by EIG, although we believe EIG is a market leader, competition is strong and could intensify. In the pressure gauge, aerospace and heavy-vehicle markets served by EIG, a limited number of companies compete on the basis of product quality, performance and innovation. Our competitors may develop new, or improve existing products that are superior to our products or may adapt more readily to new technologies or changing requirements of our customers. There can be no assurance that our business will not be adversely affected by increased competition in the markets in which it operates or that our products will be able to compete successfully with those of our competitors.

A prolonged downturn in the aerospace and defense, process instrumentation or electric motor businesses could adversely affect our business.

     Several of the industries in which we operate are cyclical in nature and therefore are affected by factors beyond our control. A prolonged downturn in the aerospace and defense, process instrumentation or electric motor businesses could have an adverse effect on our business, financial condition and results of operations.

Restrictions contained in our revolving credit facility and other debt agreements may limit our ability to incur additional indebtedness.

     Our existing revolving credit facility and other debt agreements contain restrictive covenants, including restrictions on our ability to incur indebtedness. These restrictions could limit our ability to effectuate future acquisitions or restrict our financial flexibility.

Our goodwill and other intangible assets represent a substantial amount of our total assets and write-off of such substantial goodwill and intangible assets could have a negative impact on our financial condition and results of operations.

     Our total assets reflect substantial intangible assets, primarily goodwill. At December 31, 2006, goodwill and other intangible assets totaled approximately $1,081 million, or about 51% of our total assets. The goodwill results from our acquisitions, representing the excess of cost over the fair value of the net tangible and other identifiable intangible assets we have acquired. At a minimum, we assess annually whether there has been an impairment in the value of our intangible assets. If future operating performance at one or more of our business units were to fall significantly below current levels, we could reflect, under current applicable accounting rules, a non-cash charge to operating earnings for goodwill or other intangible asset impairment. Any determination requiring the write-off of a significant portion of goodwill or other intangible assets would negatively affect our financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     The Company has 71 operating plant facilities in 19 states and 10 foreign countries. Of these facilities, 48 are owned by the Company and 23 are leased. The properties owned by the Company consist of approximately 664 acres, of which approximately 5.9 million square feet are under roof. Under lease is a total of approximately 994,000 square feet. The leases expire over a range of years from 2007 to 2040, with renewal options for varying terms contained in most of the leases. Production facilities in Taiwan, China, Japan and South Korea provide the Company with additional production capacity through the Company’s investment in 50% or less owned joint ventures. The Company’s executive offices in Paoli, PA, occupy approximately 34,000 square feet under a lease that expires in 2007.

     The Company’s machinery and equipment, 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:

		Number of Operating Plant Facilities								Square Feet Under Roof
		Owned				Leased				Owned				Leased
Electronic Instruments			27				13				2,659,000				695,000
Electromechanical			21				10				2,200,000				299,000
Total			48				23				4,859,000				994,000

ITEM 3. LEGAL PROCEEDINGS

     The Company and/or its subsidiaries have been named as defendants, along with many other companies, in a number of asbestos-related lawsuits. To date, no judgments have been entered against the Company. The Company believes it has strong defenses to the claims, and intends to continue to defend itself vigorously in these matters. Other companies are also indemnifying the Company against certain of these claims. (Also see Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Note 17 to the Consolidated Financial Statements.)

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, 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     The principal market on which the Company’s common stock is traded is the New York Stock Exchange and it is traded under the symbol “AME”. On February 12, 2007, there were approximately 1,917 holders of record of the Company’s common stock.

     Market price and dividend information with respect to the Company’s common stock is set forth below. Future dividend payments by the Company will be dependent on future earnings, financial requirements, contractual provisions of debt agreements, and other relevant factors.

     In 2006, the Company repurchased, under its share repurchase program, 750,000 shares of its common stock for $21.1 million to offset the dilutive effect of shares granted under the Company’s benefits plans. There were no repurchases of its common stock in 2005.

     The high and low sales prices of the Company’s common stock on the New York Stock Exchange composite tape and the quarterly dividends per share paid on the common stock were:

		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
2006
Dividends paid per share		$	0.04			$	0.04			$	0.04			$	0.06
Common stock trading range:
High		$	30.09			$	33.54			$	31.62			$	32.77
Low		$	26.97			$	27.65			$	26.70			$	28.71
2005
Dividends paid per share		$	0.04			$	0.04			$	0.04			$	0.04
Common stock trading range:
High		$	27.87			$	28.24			$	28.93			$	29.91
Low		$	22.56			$	24.23			$	25.32			$	26.23

Securities Authorized for Issuance Under Equity Compensation Plan Information

     The following table sets forth information as of December 31, 2006 regarding all of the Company’s existing compensation plans pursuant to which equity securities are authorized for issuance to employees and nonemployee directors:

Number of securities

Number of securities

remaining available

to be issued

Weighted-average

for future issuance

upon exercise of

exercise price of

under equity

outstanding options,

outstanding options,

compensation plans

warrants

warrants

(excluding securities

and rights

and rights

reflected in column(a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

4,511,472

$

18.28

2,111,632

Equity compensation plans not approved by security holders

—

—

—

Total

4,511,472

$

18.28

2,111,632

Stock Performance Graph

     The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

     The following graph and accompanying table compare the cumulative total shareholder return for AMETEK, Inc. over the last five years ended December 31, 2006 with total returns for the same period for the Russell 1000 Index and the Dow Jones U.S. Electronic Equipment Index. The performance graph and table assume a $100 investment made on December 31, 2001 and reinvestment of all dividends. The stock performance shown on the graph below is based on historical data and is not necessarily indicative of future price performance.

		12/31/01				12/31/02				12/31/03				12/31/04				12/31/05				12/31/06
AMETEK, Inc.		$	100.00			$	121.50			$	153.27			$	228.49			$	274.11			$	309.59
Russell 1000*			100.00				78.35				101.77				113.37				120.48				139.10
Dow Jones U.S. Electronic Equipment*			100.00				68.92				103.59				112.39				121.00				139.56

ITEM 6. SELECTED FINANCIAL DATA

     The following financial information for the five years ended December 31, 2006, has been derived from the Company’s consolidated financial statements. This information should be read in conjunction with the MD&A and the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K.

		2006				2005				2004				2003				2002
	(Dollars and shares in millions, except per share amounts)
Consolidated Operating Results (Years Ended December 31)
Net sales		$	1,819.3			$	1,434.5			$	1,232.3			$	1,091.6			$	1,040.5
Operating income (1)		$	309.0			$	233.5			$	191.2			$	151.8			$	144.2
Interest expense		($	42.2	)		($	32.9	)		($	28.3	)		($	26.0	)		($	25.2	)
Net income (1)		$	181.9			$	136.4			$	109.0			$	84.2			$	80.4
Earnings per share: (1)(2)
Basic		$	1.74			$	1.31			$	1.07			$	0.85			$	0.81
Diluted		$	1.71			$	1.29			$	1.06			$	0.84			$	0.81
Dividends declared and paid per share (2)		$	0.18			$	0.16			$	0.16			$	0.08			$	0.08
Weighted average common shares outstanding: (2)
Basic			104.8				103.7				101.7				99.4				98.8
Diluted (1)			106.6				105.6				103.1				100.4				99.8
Performance Measures and Other Data
Operating income — Return on sales (1)			17.0	%			16.3	%			15.5	%			13.9	%			13.9	%
- Return on average total assets (1)			15.8	%			14.6	%			14.5	%			13.5	%			13.9	%
Net income — Return on average total capital (1)(5)			11.8	%			10.7	%			10.5	%			9.5	%			9.9	%
- Return on average stockholders’ equity (1)(5)			20.5	%			18.5	%			18.2	%			17.6	%			21.1	%
EBITDA (1)(3)		$	351.4			$	269.9			$	228.3			$	186.2			$	175.9
Ratio of EBITDA to interest expense (1)(3)			8.3	x			8.2	x			8.1	x			7.2	x			7.0	x
Depreciation and amortization		$	45.9			$	39.4			$	39.9			$	35.5			$	33.0
Capital expenditures		$	29.2			$	23.3			$	21.0			$	21.3			$	17.4
Cash provided by operating activities (1)(4)		$	226.0			$	155.7			$	155.8			$	155.9			$	105.8
Free cash flow (1)(4)		$	196.8			$	132.4			$	134.8			$	134.6			$	88.4
Ratio of earnings to fixed charges			6.6	x			6.2	x			6.0	x			5.3	x			5.2	x
Consolidated Financial Position (at December 31)
Current assets		$	684.1			$	556.3			$	461.9			$	378.6			$	350.6
Current liabilities (1)		$	480.9			$	405.8			$	272.8			$	289.2			$	261.4
Property, plant, and equipment		$	258.0			$	228.5			$	207.5			$	213.6			$	204.3
Total assets		$	2,130.9			$	1,780.6			$	1,420.4			$	1,217.1			$	1,030.0
Long-term debt		$	518.3			$	475.3			$	400.2			$	317.7			$	279.6
Total debt		$	681.9			$	631.4			$	450.1			$	424.4			$	390.1
Stockholders’ equity (1)(5)		$	966.7			$	809.5			$	663.3			$	532.9			$	423.6
Stockholders’ equity per share (1)(2)(5)		$	9.11			$	7.66			$	6.44			$	5.30			$	4.27
Total debt as a percentage of capitalization (1)(5)			41.4	%			43.8	%			40.4	%			44.3	%			47.9	%

See notes to Selected Financial Data on page 18.

Notes to Selected Financial Data

(1)

Amounts for years prior to 2006 reflect the retrospective application of SFAS 123R to expense stock options effective January 1, 2006. The adoption of SFAS 123R reduced operating income, net income and diluted earnings per share by the following amounts (In millions, except per share amounts):

						Reduction of:
Impact of Adopting SFAS 123R		Operating Income				Net Income				Diluted Earnings Per Share
2005		$	5.9			$	4.3			$	0.04
2004		$	5.1			$	3.7			$	0.04
2003		$	4.9			$	3.6			$	0.04
2002		$	4.5			$	3.3			$	0.03

(2)		Earnings per share, dividends declared and paid per share, and the weighted average common shares outstanding were adjusted to reflect a three-for-two stock split paid to shareholders on November 27, 2006.
(3)		EBITDA represents income before interest, income taxes, depreciation and amortization. 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.

		Year Ended December 31,
		2006				2005				2004				2003				2002
		(In millions)
Net income		$	181.9			$	136.4			$	109.0			$	84.2			$	80.4
Add (deduct):
Interest expense			42.2				32.9				28.3				26.0				25.2
Interest income			(0.4	)			(0.7	)			(0.6	)			(0.5	)			(0.7	)
Income taxes			81.8				61.9				51.7				41.0				38.0
Depreciation			38.9				35.0				36.8				34.2				32.5
Amortization			7.0				4.4				3.1				1.3				0.5
Total adjustments			169.5				133.5				119.3				102.0				95.5
EBITDA		$	351.4			$	269.9			$	228.3			$	186.2			$	175.9

(4)

Free cash flow represents cash flow from operating activities, less capital expenditures. 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 3 above). The table below presents the reconciliation of cash flow from operating activities reported in accordance with U.S. GAAP to free cash flow.

		Year Ended December 31,
		2006				2005				2004				2003				2002
		(In millions)
Cash provided by operating activities (U.S. GAAP basis)		$	226.0			$	155.7			$	155.8			$	155.9			$	105.8
Deduct: Capital expenditures			(29.2	)			(23.3	)			(21.0	)			(21.3	)			(17.4	)
Free cash flow		$	196.8			$	132.4			$	134.8			$	134.6			$	88.4

(5)

The adoption of SFAS 158 for our defined benefit pension plans, which was effective December 31, 2006, resulted in a reduction of $32.7 million to Stockholders’ equity. (See Notes 3 and 12 to the Consolidated Financial Statements).

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 page 31.

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with “Item 1A. Risk Factors” and “Item 6. Selected Financial Data” and the consolidated financial statements of the Company and the related notes included elsewhere in this Form 10-K. We begin our MD&A with an overview of our business and operations.

     Business Overview

     As a multinational business, AMETEK’s operations are affected by global, regional and industry economic factors. However, the Company’s strategic geographic and industry diversification, and its mix of products and services, have helped to limit the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results. In 2006, the Company experienced improved market conditions in most of its businesses. Strong internal growth and the contribution from recent acquisitions, combined with successful Operational Excellence initiatives, enabled the Company to post another year of record sales, operating income, net income, diluted earnings per share, and cash flow from operating activities in 2006. In addition to achieving its financial objectives, the Company also continued to make progress on its strategic initiatives under AMETEK’s four growth strategies: Operational Excellence, New Product Development, Global and Market Expansion, and Strategic Acquisitions and Alliances. Highlights of 2006 were:

•

Sales were $1.8 billion, an increase of $384.8 million or 26.8% from 2005 on solid internal growth of 9% in each of the Company’s reportable segments, the Electronic Instruments Group (EIG) and the Electromechanical Group (EMG), and contributions from the following acquisitions completed during the year:

	-		In February 2006, the Company acquired Pulsar, which has expanded both the Company’s product offerings in the electric power market and the Company’s relationships with customers in that segment.
	-		In May 2006, the Company acquired Pittman, which has broadened the geographical reach of the Company’s technical motors business. The acquisition adds to the Company’s technical motors capabilities in the data storage, medical, electronic equipment, factory automation, and aviation markets.
	-		In June 2006, the Company acquired Land Instruments a global supplier of high-end analytical instrumentation. Land Instruments adds to the Company’s high-end process and analytical instruments business with its full range of on-line optical temperature measurement instrumentation for industrial applications.
	-		In November 2006, the Company acquired Precitech, a leading manufacturer of ultra-precision machining systems for a variety of markets. Its acquisition broadens the Company’s product offering for nanotechnology applications.
	-		In December 2006, the Company acquired SAI, which is a Tulsa, Oklahoma-based provider of third-party maintenance, repair and overhaul services to the commercial aerospace industry.

•

In October 2006, the Company’s Board of Directors approved a three-for-two split of its common stock, paid on November 27, 2006 to stockholders of record on November 13, 2006. Additionally, the Board of Directors approved a 50% increase in the quarterly cash dividend rate on the Company’s common stock to $0.06 per common share from $0.04 per common share on a post-split basis.

	•		As the Company grows globally, it continues to achieve an increasing level of international sales. International sales, including U.S. export sales, represented 47.6% of consolidated sales in 2006, compared with 45.7% of sales in 2005.
	•		The Company’s Operational Excellence strategy is directed toward lowering its overall cost structure, and includes the ongoing transition of a portion of its motor and instrument production to low-cost manufacturing facilities in Mexico, China and the Czech Republic. This strategy had a positive impact on our operating results in 2006 and contributed to improved segment operating margins which were 18.9% of sales in 2006, up from 18.4% of sales in 2005.
	•		Higher earnings resulted in record cash flow from operating activities that totaled $226.0 million, a $70.3 million or 45.2% increase from 2005. At year-end 2006, our debt-to-capital ratio was 41.4%, compared with 43.8% at the end of 2005.
	•		The Company continued its emphasis on investment in research, development and engineering, spending $87.6 million in 2006 before customer reimbursement of $6.4 million, an increase of 15.4% over 2005. Sales from products introduced in the last three years increased $137.0 million or 59.6% in 2006 over 2005 to $366.9 million.

     Results of Operations

     The following table sets forth net sales and income of the Company by reportable segment and on a consolidated basis for the years ended December 31, 2006, 2005, and 2004:

		Year Ended December 31,
		2006				2005				2004
		(In thousands)
Net Sales (1):
Electronic Instruments		$	1,016,503			$	808,493			$	667,418
Electromechanical			802,787				625,964				564,900
Total net sales		$	1,819,290			$	1,434,457			$	1,232,318
Income:
Segment operating income (2):
Electronic Instruments		$	203,430			$	164,248			$	124,611
Electromechanical			139,926				99,244				93,289
Total segment operating income			343,356				263,492				217,900
Corporate administrative and other expenses			(34,362	)			(30,004	)			(26,726	)
Consolidated operating income (3)			308,994				233,488				191,174
Interest and other expenses, net			(45,308	)			(35,201	)			(30,455	)
Consolidated income before income taxes		$	263,686			$	198,287			$	160,719

Year Ended December 31, 2006, Compared with Year Ended December 31, 2005

     Results of Operations

     In 2006, the Company posted record sales, operating income, net income, diluted earnings per share and cash flow from operations. The Company achieved these results from strong internal growth in both its EIG and EMG Groups, as well as contributions from acquisitions in 2006 and 2005. Operating income increased, driven by the record sales and a continued focus on cost reduction programs under our Operational Excellence initiatives. Based on current market conditions, the Company expects continued strength in most of its businesses in 2007.

     The Company reported sales for 2006 of $1,819.3 million, an increase of $384.8 million or 26.8% from sales of $1,434.5 million in 2005. Net sales for EIG were $1,016.5 million in 2006, an increase of 25.7% from sales of $808.5 million in 2005. EIG’s internal sales growth was 9% in 2006, driven by strength in its process, aerospace and power businesses. The acquisitions of SPECTRO in June 2005, Solartron in September 2005, Pulsar in February 2006 and Land Instruments in June 2006 also contributed to the sales growth. Net sales for EMG were $802.8 million in 2006, an increase of 28.2% from sales of $626.0 million in 2005. EMG’s internal sales growth was also 9% in 2006 driven by the Group’s differentiated businesses. The acquisitions of HCC in October 2005 and Pittman in May 2006 also contributed to the sales growth.

     Total international sales for 2006 increased to $866.0 million and represented 47.6% of consolidated sales, an increase of $210.1 million, or 32.0% when compared with international sales of $655.9 million or 45.7% of consolidated sales in 2005. The increase in international sales resulted from the recent acquisitions of SPECTRO, Solartron and HCC in 2005 and the Land Instruments acquisition in 2006, as well as increased international sales from base businesses. Increased international sales came mainly from sales to Asia and Europe by both Group’s. Export shipments from the United States, which are included in total international sales, were $343.8 million in 2006, an increase of $76.5 million or 28.6% compared with $267.3 million in 2005. Export shipments improved primarily due to increased exports from base businesses.

     New orders for 2006 were $1,915.4 million, compared with $1,534.3 million for 2005, an increase of $381.1 million or 24.8%. The increase in orders was driven by demand in the Company’s differentiated businesses, led by the Company’s process businesses as well as the recent acquisitions mentioned above. The order backlog at December 31, 2006 was $536.8 million, compared with $440.7 million at December 31, 2005, an increase of $96.1 million or 21.8%. The increase in backlog was due to higher order levels in base differentiated businesses as well as the 2006 acquisitions.

     Segment operating income was $343.4 million for 2006, an increase of $79.9 million, or 30.3%, compared with segment operating income of $263.5 million for 2005. Segment operating margins in 2006 were 18.9% of sales, an increase from 18.4% of sales in 2005. The increase in segment operating income resulted from strength in the differentiated businesses of each group, which includes the profit contributions made by the acquisitions. The margin improvement came from the Company’s differentiated businesses.

     Selling, general, and administrative (SG&A) expenses were $219.5 million in 2006, compared with $174.2 million in 2005, an increase of $45.2 million or 26.0%. However, as a percentage of sales, SG&A expenses in 2006 were flat with 2005 at 12.1% of sales. Selling expenses, as a percentage of sales, were 10.2% in 2006, essentially unchanged from 2005. Most of the increase in selling expenses was due to the acquired businesses. The Company’s acquisition strategy generally is to acquire differentiated businesses, which because of their distribution channels and higher marketing costs tend to have a higher content of selling expenses. Base business selling expenses increased 4.9% which is significantly lower than the Company’s 9% internal sales growth rate for 2006.

     Corporate administrative expenses were $34.2 million in 2006, an increase of $4.5 million or 15.3%, when compared with 2005. The increase in corporate expenses is the result of higher compensation costs, including equity-based compensation. As a percentage of sales, corporate administrative expenses were 1.9% in 2006, a decline from 2.1% of sales in 2005.

     Consolidated operating income was $309.0 million in 2006, an increase of $75.5 million or 32.3% when compared with $233.5 million in 2005. This represents an operating margin of 17.0% of sales for 2006 compared with 16.3% of sales in 2005.

     Interest expense was $42.2 million in 2006, an increase of 28.1% compared with $32.9 million in 2005. The increase was due to higher average borrowings necessary to fund the 2005 and 2006 acquisitions, primarily related to the euro long-term debt incurred for the 2005 acquisition of SPECTRO and short-term debt incurred for the late 2005 acquisition of HCC.

     The effective tax rate for 2006 was 31.0% compared with 31.2% in 2005. The 2006 effective tax rate benefited primarily from the reversal of a valuation allowance for foreign tax credit carryforwards of $3.2 million, offset somewhat by higher nondeductible equity-based compensation. The 2006 and 2005 effective tax rates benefited from the realization of tax benefits stemming from the Company’s worldwide tax planning activities and other adjustments.

     Net income for 2006 was $181.9 million, an increase of $45.5 million, or 33.4% from $136.4 million in 2005. Diluted earnings per share increased 32.6% to $1.71 per share, an increase of $0.42 when compared with $1.29 per diluted share in 2005.

Operating Segment Results

     EIG’s sales were $1,016.5 million in 2006, an increase of $208.0 million or 25.7% from 2005 sales of $808.5 million. The sales increase was due to internal growth in EIG’s process, aerospace and power businesses, and the acquisitions of SPECTRO and Solartron in 2005 and Pulsar and Land Instruments in 2006. Included in the 25.7% increase in sales is internal growth of approximately 9%. The acquisitions accounted for the remainder of the sales increase. The foreign currency translation effect on sales for 2006 was nominal.

     EIG’s operating income for 2006 increased to $203.4 million from $164.2 million in 2005, an increase of $39.2 million, or 23.9%. The increase in operating income was driven by the higher sales, which includes the acquisitions. Operating margins of EIG were 20.0% of sales for 2006 compared with operating margins of 20.3% of sales in 2005. The decrease in operating margins was due to the inclusion of a $4.3 million gain from the sale of a facility in 2005.

     EMG’s sales for 2006 were $802.8 million, an increase of $176.8 million or 28.2%, compared with sales of $626.0 million in 2005. The sales increase was due in part to internal growth, particularly in EMG’s differentiated businesses, which accounted for approximately 9% of the 28.2% sales increase. The acquisitions of HCC in October 2005 and Pittman in May 2006 accounted for the remainder of the sales increase. The foreign currency translation effect on sales for 2006 was nominal.

     EMG’s operating income for 2006 increased to $139.9 million from $99.2 million in 2005, an increase of $40.7 million or 41.0%. The operating income increase was significantly due to higher sales from the Group’s differentiated businesses, which includes the recent acquisitions mentioned above. EMG’s operating margins were 17.4% of sales in 2006 compared with operating margins of 15.9% of sales in 2005. The increase in operating margin was primarily due to a higher profit yield on the sales contribution of EMG’s differentiated businesses.

Year Ended December 31, 2005, Compared with Year Ended December 31, 2004

     Results of Operations

     In 2005, the Company posted record sales, operating income, net income, and diluted earnings per share. The Company achieved these results from acquisitions, internal growth in both its EIG and EMG groups, and cost reduction programs. The Company experienced improved market conditions in most of its differentiated businesses in 2005.

     The Company reported sales for 2005 of $1,434.5 million, an increase of $202.1 million or 16.4% from sales of $1,232.3 million in 2004. Net sales for EIG were $808.5 million in 2005, an increase of 21.1% from sales of $667.4 million in 2004. EIG’s internal sales growth was 4.6% in 2005, driven by strength in its high-end analytical instruments business, the heavy-vehicle instruments business, and the aerospace and power businesses. The acquisitions of SPECTRO in June 2005, Solartron in September 2005, and Taylor Hobson in June 2004 also contributed to the sales growth. Net sales for EMG were $626.0 million in 2005, an increase of 10.8% from sales of $564.9 million in 2004. EMG’s internal sales growth was 4.2% in 2005 driven by the Group’s differentiated businesses, partially offset by weak market conditions within the Group’s cost-driven businesses. The acquisitions of HCC in October 2005 and Hughes-Treitler in July 2004 also contributed to the sales increase.

     Total international sales for 2005 increased to $655.9 million and represented 45.7% of consolidated sales, an increase of $119.3 million, or 22.2% when compared with international sales of $536.6 million or 43.5% of consolidated sales in 2004. The increase in international sales resulted from the acquisitions previously mentioned as well as increased international sales from base businesses. Increased international sales came mainly from sales to Europe and Asia by both operating groups. Export shipments from the United States, which are included in total international sales, were $267.3 million in 2005, an increase of 15.2% compared with $232.0 million in 2004.

     New orders for 2005 were $1,534.3 million, compared with $1,287.0 million for 2004, an increase of $247.3 million or 19.2%. Most of the increase in orders was driven by demand in the Company’s differentiated businesses, led by the Company’s aerospace and process businesses as well as the 2005 acquisitions mentioned above. The order backlog at December 31, 2005 was $440.7 million, compared with $340.9 million at December 31, 2004, an increase of $99.8 million or 29.3%. The increase in backlog was due mainly to the 2005 acquisitions. Backlog increases were also reported by many of the Company’s base differentiated businesses.

     Segment operating income was $263.5 million for 2005, an increase of $45.6 million, or 20.9%, compared with segment operating income of $217.9 million for 2004. Segment operating margins in 2005 were 18.4% of sales, an increase from 17.7% of sales in 2004. The increase in segment operating income was due to higher sales from the Company’s differentiated businesses. Approximately half of the increase in operating income was from the 2005 acquisitions. The margin improvement came entirely from the Company’s base differentiated businesses.

     Selling, general, and administrative (SG&A) expenses were $174.2 million in 2005, compared with $137.8 million in 2004, an increase of $36.4 million or 26.4%. As a percentage of sales, SG&A expenses were 12.1% in 2005, compared with 11.2% in 2004. Selling expenses, as a percentage of sales, increased to 10.1% in 2005, compared with 9.1% in 2004. The selling expense increase and the corresponding increase in selling expenses as a percentage of sales were due primarily to business acquisitions. The Company’s acquisition strategy generally is to acquire differentiated businesses, which, because of their distribution channels and higher marketing costs, tend to have a higher rate of selling expenses. Base business selling expenses increased 5.0%, which approximates internal sales growth for 2005.

     Corporate administrative expenses were $30.0 million in 2005, an increase of $3.3 million or 12.4%, when compared with 2004. The increase in corporate expenses is the result of higher restricted stock amortization expense related to the Company’s change in its long-term incentive compensation program and higher personnel costs necessary to grow the Company. As a percentage of sales, corporate administrative expenses were 2.1% in 2005, which was slightly lower than 2004.

     Consolidated operating income was $233.5 million in 2005, an increase of $42.3 million or 22.1% when compared with $191.2 million in 2004. This represented an operating margin of 16.3% of sales for 2005 compared with 15.5% of sales in 2004.

     Interest expense was $32.9 million in 2005, an increase of 16.1% compared with $28.3 million in 2004. The increase was due to higher average borrowing levels due to the 2005 acquisitions, and higher average interest rates.

     The effective tax rate for 2005 was 31.2% compared with 32.2% in 2004. The reduction in the effective tax rate was primarily due to the realization of tax benefits stemming from the Company’s worldwide tax planning activities, and other adjustments.

     Net income for 2005 was $136.4 million, an increase of $27.4 million, or 25.1%, from $109.0 million in 2004. Diluted earnings per share rose 21.7% to $1.29 per share, an increase of $0.23, when compared with $1.06 per diluted share in 2004.

Operating Segment Results

     EIG’s sales were $808.5 million in 2005, an increase of $141.1 million or 21.1% from 2004 sales of $667.4 million. The sales increase was due to internal growth in EIG’s aerospace, process and analytical instruments, and industrial markets and the acquisitions of Taylor Hobson in 2004, and SPECTRO and Solartron in 2005. Internal growth accounted for 4.6% of the 21.1% increase. The acquisitions accounted for the remainder of the sales increase.

     EIG’s operating income for 2005 increased to $164.2 million from $124.6 million in 2004, an increase of $39.6 million, or 31.8%. The increase in operating income was due to higher sales. Approximately half of the increase in operating income was from the 2005 acquisitions mentioned above. Both years included nonrecurring pretax gains; 2005 included a gain of $4.3 million from the sale of a facility, and 2004 included a gain of $5.3 million from settlement of an insurance claim. Operating margins of EIG improved to 20.3% of sales for 2005 compared with operating margins of 18.7% of sales in 2004 due to production efficiencies in the Company’s base businesses.

     EMG’s sales for 2005 were $626.0 million, an increase of $61.1 million or 10.8%, compared with sales of $564.9 million in 2004. The sales increase was due in part to internal growth, particularly in the Group’s differentiated businesses, which accounted for 4.2% of the 10.8% sales increase. The acquisitions of Hughes-Treitler in 2004 and HCC in October 2005 as well as $2.3 million of favorable foreign currency translation effects accounted for the remainder of the sales increase.

     EMG’s operating income for 2005 increased to $99.2 million from $93.3 million in 2004, an increase of $5.9 million or 6.3%. EMG’s increase in operating income was primarily due to higher sales from its differentiated businesses, which included the 2005 acquisitions mentioned above. Operating margins of EMG were 15.9% of sales in 2005 compared with operating margins of 16.5% of sales in 2004. The decrease in operating margin was the result of unfavorable changes in product mix within the Group’s cost-driven motor businesses.

Liquidity and Capital Resources

     Cash provided by operating activities totaled $226.0 million for 2006, compared with $155.7 million in 2005, an increase of $70.3 million, or 45.2%. The increase in operating cash flow was primarily the result of higher earnings and lower overall operating working capital requirements. In 2006, the Company contributed $13.7 million to its defined benefit pension plans compared to $11.3 million contributed in 2005. Free cash flow (operating cash flow less capital spending) was $196.8 million in 2006, compared to $132.4 million in 2005. EBITDA (earnings before interest, income taxes, depreciation and amortization) was $351.4 million in 2006, compared with $269.9 million in 2005, a 30.2% improvement. Free cash flow and EBITDA are presented because the Company is aware that they are measures that are used by third parties in evaluating the Company. (See table on page 18 for a reconciliation of generally accepted accounting principles (“GAAP”) measures to comparable non-GAAP measures).

     Cash used for investing activities was $206.0 million for 2006, compared with $361.8 million in 2005. In 2006, the Company paid $177.6 million for five businesses and two small technology lines, net of cash received. In 2005, the Company paid $340.7 million for three acquisitions and two small technology lines, net of cash received. Additions to property, plant and equipment totaled $29.2 million in 2006, compared with $23.3 million in 2005.

     Cash used for financing activities totaled $10.0 million in 2006, compared with cash provided of $207.0 million in 2005. In 2006, total borrowings, net of repayments, increased by $15.4 million, compared with a net increase of $197.5 million in 2005. The net increase in long-term borrowings was $11.3 million in 2006 compared with a net increase of $91.8 million in 2005. Short-term borrowings increased $4.0 million in 2006, compared with an increase of $105.7 million in 2005. At December 31, 2006 the Company had available borrowing capacity of $276.1 million under its $400 million revolving bank credit facility, which includes an accordion feature allowing $100 million of additional borrowing capacity, and had fully utilized its $75.0 million accounts receivable securitization facility. The accounts receivable securitization facility was amended in October 2006 only to extend its expiration date from December 2006 to March 2007. The revolving bank credit facility was also amended in October 2006 to extend its expiration date from June 2010 to October 2011. This amendment also lowers the Company’s cost of capital and provides the Company with increased financing flexibility to support its growth plans. The Company’s debt agreements contain various covenants including limitations on indebtedness and dividend payments, and maintenance of certain financial ratios. At December 31, 2006 and 2005, the Company was in compliance with the debt covenants.

     At December 31, 2006, total debt outstanding was $681.9 million compared with $631.4 million at December 31, 2005. The debt-to-capital ratio was 41.4% at December 31, 2006, compared with 43.8% at December 31, 2005.

     In 2006, net cash proceeds from the exercise of employee stock options were $9.9 million, compared with $16.2 million in 2005. Cash dividends paid were $18.8 million in 2006 and $16.8 million in 2005. In October 2006, the Board of Directors approved a 50% increase in the quarterly cash dividend rate on the Company’s common stock to $0.06 per common share from $0.04 per common share on a post stock split basis.

     In 2006, the Company used cash of $21.1 million for the repurchase of 750,000 shares of its common stock to offset the dilutive effect of shares granted under the Company’s stock incentive plans. There were no repurchases of the Company’s common stock in 2005. As of December 31, 2006, $31.4 million was available, under the current Board authorization, for future share repurchases.

     The following table summarizes AMETEK’s contractual cash obligations at December 31, 2006, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future years.

		Payments Due
						Less				One to				Four to				After
						Than				Three				Five				Five
Contractual Obligations		Total				One Year				Years				Years				Years
		(In millions)
Long-term debt		$	505.3			$	3.4			$	237.4			$	118.7			$	145.8
Revolving credit loans (a)			96.7				80.3				—				16.4				—
Other indebtedness (b)			79.9				79.9				—				—				—
Total debt			681.9				163.6				237.4				135.1				145.8
Interest on long-term fixed- rate debt			113.5				28.0				31.7				17.3				36.5
Noncancellable operating leases			55.2				10.5				13.6				6.3				24.8
Purchase obligations (c)			179.9				161.4				15.8				2.7				—
Employee severance and other			19.1				19.1				—				—				—
Total		$	1,049.6			$	382.6			$	298.5			$	161.4			$	207.1

Other Commitments

     The Company has standby letters of credit and surety bonds of approximately $27.9 million related to performance and payment guarantees at December 31, 2006. Based on experience with these arrangements, the Company believes that any obligations that may arise will not be material to its financial position.

     Although it has not done so in recent years, 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 in 2006, cash and cash equivalents at December 31, 2006 totaled $49.1 million, compared with $35.5 million at December 31, 2005. The Company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources, and available financing alternatives, to enable it to meet operating needs and contractual commitments.

Transactions with Related Parties

     A member of the Company’s Board of Directors is of counsel to the law firm of Stroock & Stroock & Lavan LLP, with which the Company has a business relationship. In 2006, Stroock & Stroock & Lavan LLP billed fees to the Company in the aggregate for services rendered, primarily services related to a business acquisition, of $706,000. An immediate family member of AMETEK’s Chairman and Chief Executive Officer and an immediate family member of a member of AMETEK’s Board of Directors are employed at operating units of the Company and each has an annual salary in excess of $120,000.

Critical Accounting Policies

     The Company has identified its 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 that 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 the estimates used. 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 whereby materially different results of operations and financial condition could have been reported had different assumptions been used or different conditions existed. Primary disclosure of the Company’s significant accounting policies is in Note 1 of the “Notes to Consolidated Financial Statements,” included elsewhere in this report.

	•		Revenue Recognition. The Company recognizes revenue on product sales in the period when the sales process is complete. This generally occurs when products are shipped to the customer in accordance with terms of an agreement of sale, under which title and risk of loss have been transferred, collectibility is reasonably assured and pricing is fixed or determinable. For a small percentage of sales where title and risk of loss passes at point of delivery, we recognize revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met. 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. We have agreements with distributors that do not provide expanded rights of return for unsold products. The distributor purchases the product from the Company at which time title and risk of loss transfers to the distributor. The Company does not offer substantial sales incentives and credits to its distributors other than volume discounts. The Company accounts for the sales incentive as a reduction of revenues when the sale is recognized in the statement of income. Accruals for sales returns, other allowances, and estimated warranty costs are provided at the time of shipment based upon past experience. At December 31, 2006, 2005 and 2004, the accrual for future warranty obligations was $10.9 million, $9.4 million and $7.3 million, respectively. The Company’s expense for warranty obligations approximated $7.6 million, $7.2 million and $5.0 million in 2006, 2005 and 2004, respectively. 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. If actual future sales returns, allowances and warranty amounts are higher than past experience, additional accruals may be required.
	•		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 historical 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 was $7.4 million and $7.6 million at December 31, 2006 and 2005, respectively.
	•		Inventories. The Company uses the first-in, first-out (FIFO) method of accounting, which approximates current replacement cost, for approximately 55% of its inventories. The last-in, first-out (LIFO) method of accounting is used to determine cost for the remaining 45% of its inventory. For inventories where cost is determined by the LIFO method, the excess of the FIFO value over the LIFO value would have been approximately $34.1 million and $28.4 million higher than the amount reported in the balance sheet at

			December 31, 2006 and 2005, respectively. The Company provides estimated inventory reserves for slow-moving and obsolete inventory based on 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.
	•		Goodwill and Other Intangibles Assets. The Company accounts for goodwill and other intangible assets under Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. Under SFAS 142, purchased goodwill and other intangible assets with indefinite lives, primarily trademarks and trade names, are not amortized; rather, they are tested for impairment at least annually. These impairment tests require the projection and discounting of cash flows, estimates of future operating performance of the reporting unit being valued and estimates of the fair value of the intangible assets being tested. SFAS 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 must 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 Company would be required to record such impairment losses. Changes in interest rates and market conditions, among other factors, may have an impact on these estimates. These estimates will likely change over time. The Company’s acquisitions have generally included a large goodwill component and the Company expects to continue to make acquisitions. At December 31, 2006, goodwill and other intangible assets totaled approximately $1,081.2 million, or 50.7% of the Company's total assets. The Company performed its required annual impairment test in the fourth quarter of 2006 and determined that the Company’s goodwill and indefinite-lived intangibles were not impaired. There can be no assurance that goodwill or indefinite-lived intangibles impairment will not occur in the future.
	•		Pensions. The Company has U.S. and foreign defined benefit and defined contribution pension plans. AMETEK accounts for all of its defined benefit pension plans in accordance with SFAS 87, Employers’ Accounting for Pensions, and effective December 31, 2006, SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158 requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. SFAS 87 and SFAS 158 require that amounts recognized in the financial statements be determined on an actuarial basis. The most significant elements in determining the Company’s pension income or expense are the assumed pension liability discount rate 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 valuation date. At the end of each year, the Company determines the assumed discount rate to be used to discount plan liabilities. In estimating this rate for 2006, the Company considered rates of return on high-quality, fixed-income investments. The discount rate used in determining the 2006 pension cost was 5.65% for U.S. defined benefit pension plans and 5.00% for foreign plans. The discount rate used for determining the funded status of the plans at December 31, 2006, and determining the 2007 defined benefit pension cost is 5.90% for U.S. plans and 5.00% for foreign plans. In estimating the U.S. discount rate, the Company’s actuaries developed a customized discount rate appropriate to the Plans’ projected benefit cash flow based on yields derived from a database of long-term bonds at consistent maturity dates. The Company used an expected long-term rate of return on plan assets for 2006 of 8.25% for U.S. defined benefit pension plans and 7.00% for foreign plans. We will continue to use these rates for 2007 for U.S. and foreign plans, respectively. The Company determines the expected long-term rate of return based primarily on its expectation of future returns for the pension plans’ investments. Additionally, the Company considers historical returns on comparable fixed-income investments and equity investments, and adjusts its estimate as deemed appropriate. The rate of compensation increase used in determining the 2006 pension expense for the U.S. plans was 3.5% and will be 3.75% in 2007. For foreign plans, the rate of compensation increase will be increased from 3.4% in 2006 to 3.61% in 2007. For the year ended December 31, 2006, the Company recognized consolidated pretax pension expense of $2.5 million from its U.S. and foreign defined benefit pension plans, including $0.8 million for pension curtailments. This compares with pretax pension expense of $2.1 million recognized for these plans in 2005.

			As discussed above, effective December 31, 2006, we have adopted the balance sheet recognition requirements of SFAS 158. Under SFAS 158 all unrecognized prior service costs, remaining transition obligations or assets, and actuarial gains and losses have been recognized net of tax effects as a charge to accumulated other comprehensive income (“AOCI”) in stockholders’ equity and will be amortized as a component of net periodic pension cost. In addition, effective for fiscal years beginning after December 15, 2008, the measurement date, (the date at which plan assets and benefit obligation are measured) is required to be the Company’s fiscal year-end. Presently we use a December 31 measurement date for all of our U.S. defined benefit plans, and an October 1 measurement date for our foreign plans. However, we plan to early adopt the measurement date provision of SFAS 158 for our foreign plans in 2007. The effect of adopting SFAS 158 as of December 31, 2006 resulted in a decrease in total assets of $43.1 million, a decrease in total liabilities of $10.4 million, and a reduction of total stockholders’ equity of $32.7 million, net of tax. The adoption of SFAS 158 did not affect our operations.
			To fund the plans, the Company made cash contributions to its defined benefit pension plans during 2006 which totaled $13.7 million, compared with $11.3 million in 2005. The Company anticipates making cash contributions to its defined benefit pension plans in 2007.
	•		Income Taxes. Our annual provision for income taxes and determination of the related balance sheet accounts requires management to assess uncertainties, make judgments regarding outcomes and utilize estimates. We conduct a broad range of operations around the world, subjecting us to complex tax regulations in numerous international taxing jurisdictions, resulting at times in tax audits, disputes and potential litigation, the outcome of which is uncertain. Management must make judgments currently about such uncertainties and determine estimates of our tax assets and liabilities. To the extent the final outcome differs, future adjustments to our tax assets and liabilities may be necessary. We also are required to assess the realizability of our deferred tax assets, taking into consideration our forecast of future taxable income, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, we must evaluate the need for, and amount of, valuation allowances against our deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.

Recently Issued Financial Accounting Standards

     In September 2006, the Financial Accounting Standards Board issued SFAS 158, which requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position at year-end and to recognize changes in the funded status in the year in which the changes occur through AOCI in stockholders’ equity. SFAS 158 was effective for the Company as of December 31, 2006. The effect of adopting SFAS 158 resulted in a decrease in total assets of $43.1 million, a decrease in total liabilities of $10.4 million, and a reduction of total stockholders’ equity of $32.7 million, net of tax, as a charge to AOCI. (See Note 12).

     In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 does not require any new fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect the adoption of SFAS 157 will have an effect on the Company’s consolidated results of operations, financial position or cash flows.

     In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes (FIN 48). FIN 48 creates a single model to address accounting for uncertainty in tax positions, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on

derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the Company will adopt FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings. The Company is continuing to evaluate the potential impact of adopting FIN 48.

     Effective January 1, 2006, the Company adopted SFAS 123R, Share-Based Payment, using the modified retrospective method. SFAS 123R requires the Company to expense the fair value of equity awards made under its share-based plans. That cost is now recognized in the financial statements over the requisite service period of the grants. See Note 9.

     In September 2006, the Emerging Issues Task Force (EITF) issued EITF Issue No. 06-5, Accounting for Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (EITF 06-5). EITF 06-5 provides guidance in determining the amount to be realized under certain insurance contracts and the related disclosures. EITF 06-5 is effective for fiscal periods beginning after December 15, 2006 and should be adopted as a change in accounting principle, as a cumulative-effect adjustment to retained earnings or as a retrospective adjustment to all prior periods. The Company is currently evaluating the impact of adoption of EITF 06-5 on our financial statements.

     In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), which documents the SEC staff’s views regarding the process of quantifying financial statement misstatements. Under SAB 108, an evaluation of the materiality of an identified unadjusted error must consider the impact of both the current-year error and the cumulative error, if applicable. This also means that both the impact on the current-period income statement and the period-end balance sheet must be considered. SAB 108 is effective for fiscal years ending after November 15, 2006. Any cumulative adjustments required to be recorded as a result of adopting SAB 108 would be recorded as a cumulative effect adjustment to the opening balance of retained earnings. Adoption of SAB 108 did not have an effect on the Company’s consolidated results of operations, financial position and cash flows.

Internal Reinvestment

Capital Expenditures

     Capital expenditures were $29.2 million, or 1.6% of sales in 2006, compared with $23.3 million, or 1.6% of sales in 2005. Approximately 53% of the expenditures in 2006 were for the maintenance of, or additional, equipment to increase productivity and expand capacity. The Company’s 2006 capital expenditures increased due to a continuing emphasis on spending to improve productivity and expand manufacturing capabilities. For 2007, capital expenditures are expected to approximate $40 million, with a continuing emphasis on spending to improve productivity and expand production capacity of its low-cost manufacturing facilities. The 2007 capital expenditures are expected to approximate 2% of sales.

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 before customer reimbursement were $87.6 million in 2006, an increase from $75.9 million in 2005, and $66.0 million in 2004. Customer reimbursements were $6.4 million, $8.9 million, and $6.2 million in 2006, 2005 and 2004, respectively. Included in the amounts above are net expenses for research and development of $42.0 million for 2006, $34.8 million for 2005, and $25.5 million for 2004.

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. While these waste products were handled in compliance with regulations existing at that time, at December 31, 2006 the Company is named a Potentially Responsible Party (PRP) at 16 non-AMETEK-owned former waste disposal or treatment sites. The Company is identified as a “de minimis” party in 13 of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. In 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 agreed-to settlement amounts are fully reserved. In the other two 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. In the three remaining sites where the Company is a non-de minimis PRP, the Company is participating in the investigation and/or related required remediation as part of a PRP Group and reserves have been established sufficient to satisfy the Company’s expected obligation. The Company historically has resolved these issues within established reserve levels and reasonably expects this result will continue. In addition to these non-AMETEK-owned former waste disposal or treatment sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its current or previously owned manufacturing locations. 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 financial statements; however, the amounts of such variances are not expected to result in a material change to the financial statements. In estimating our liability for remediation, we also consider our likely proportionate share of the anticipated remediation expense and the ability of the other PRPs to fulfill their obligations. Total environmental reserves at December 31, 2006 and 2005 were $28.7 million and $6.8 million, respectively. In 2006, the Company provided $23.0 million of additional reserves, including $0.8 million for existing sites and $22.2 million related to the recent acquisitions of HCC ($21.2 million) and Land Instruments ($1.0 million). The additional reserves related to the recent acquisitions were recorded through purchase accounting and did not affect the Company’s income statement. The Company spent $1.1 million and $1.0 million, respectively, on such environmental matters in 2006 and 2005. The Company also has agreements with former owners of certain of its acquired businesses, including HCC, 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. In the case of HCC, the Company has assumed the liability for the performance of all required remedial activities at the site and has obtained indemnifications and other financial assurances from the former owners of HCC related to the costs for the required remedial activities. The Company has recorded a total of $15.8 million of receivables in its balance sheet related to the HCC matter for probable recoveries from third party escrow funds and other committed third party funds to support the required remediation as well as a deferred tax benefit of $2.8 million. In addition, the Company is indemnified by HCC’s former owners for up to $19.0 million of additional costs. The Company and some of the other parties also carry insurance coverage for some environmental matters. To date, those parties have met their obligations in all material respects. The Company has no reason to believe that such 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 financial position, results of operations, or cash flows of the Company.

Market Risk

     The Company’s primary exposures to market risk are fluctuations in interest rates on its short-term and long-term debt, foreign currency exchange rates and commodity prices for certain raw material purchases.

     The Company’s short-term debt carries variable interest rates and generally its long-term debt carries fixed rates. 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 are the euro, the British pound, the Japanese yen, Chinese renminbi and the Mexican peso. Exposure to foreign currency rate fluctuation is monitored, and when possible, mitigated through the occasional use of local borrowings and the occasional use of derivative financial instruments in the foreign country affected. The effect of translating foreign subsidiaries’ balance sheets into U.S. dollars is included in other comprehensive income, within stockholders’ equity. Foreign currency transactions have not had a significant effect on the operating results reported by the Company because revenues and costs associated with the revenues are generally transacted in the same foreign currencies.

     The primary commodities to which the Company has market exposure are raw material purchases of nickel, copper, steel and gold. Exposure to price changes in these commodities is generally mitigated through adjustments in selling prices of the ultimate product, and purchase order pricing arrangements, although forward contracts are sometimes used to manage some of those exposures.

     Based on a hypothetical ten percent adverse movement in interest rates, commodity prices, or foreign currency exchange rates, our best estimate is that the potential losses in future earnings, fair value of risk-sensitive financial instruments, and cash flows are not material, although the actual effects may differ materially from the hypothetical analysis.

Forward-Looking Information

     Certain matters discussed in this Form 10-K are “forward-looking statements” as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995, which involve risk and uncertainties that exist in the Company’s operations and business environment, and can be affected by inaccurate assumptions, or by known or unknown risks and uncertainties. Many such factors will be important in determining the Company’s actual future results. The Company wishes to take advantage of the “safe harbor” provisions of the PSLRA by cautioning readers that numerous important factors, in some cases have caused, and in the future could cause, the Company’s actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Some, but not all, of the factors or uncertainties that could cause actual results to differ from present expectations are set forth above and under Item 1A-Risk Factors. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, subsequent events or otherwise, unless required by the securities laws to do so.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     Information concerning market risk is set forth under the heading “Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 30 herein.

Item 8. Financial Statements and Supplementary Data:

		Page
Index to Financial Statements (Item 15(a) 1)
Report of Management			32
Reports of Independent Registered Public Accounting Firm			33
Consolidated Statement of Income for the years ended December 31, 2006, 2005, and 2004			35
Consolidated Balance Sheet at December 31, 2006 and 2005			36
Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2006, 2005, and 2004			37
Consolidated Statement of Cash Flows for the years ended December 31, 2006, 2005, and 2004			38
Notes to Consolidated Financial Statements			39
Financial Statement Schedules (Item 15(a) 2)

     Financial statement schedules have been omitted because either they are not applicable or the required information is included in the financial statements or the notes thereto.

Management’s Responsibility for Financial Statements

     Management has prepared and is responsible for the integrity of the consolidated financial statements and related information. The statements are prepared in conformity with U.S. generally accepted accounting principles consistently applied and include certain amounts based on management’s best estimates and judgments. Historical financial information elsewhere in this report is consistent with that in the financial statements.

     In meeting its responsibility for the reliability of the financial information, management maintains a system of internal accounting and disclosure controls, including an internal audit program. The system of controls provides for appropriate division of responsibility and the application of written policies and procedures. That system, which undergoes continual reevaluation, is designed to provide reasonable assurance that assets are safeguarded and records are adequate for the preparation of reliable financial data.

     Management is responsible for establishing and maintaining adequate controls over financial reporting. We maintain a system of internal controls that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the consolidated financial statements; however, there are inherent limitations in the effectiveness of any system of internal controls.

     Management recognizes its responsibility for conducting the Company’s activities according to the highest standards of personal and corporate conduct. That responsibility is characterized and reflected in a code of business conduct for all employees, and in a financial code of ethics for the Chief Executive Officer and Senior Financial Officers, as well as in other key policy statements publicized throughout the Company.

     The Audit Committee of the Board of Directors, which is composed solely of independent directors who are not employees of the Company, meets with the independent registered public accounting firm, the internal auditors and management to satisfy itself that each is properly discharging its responsibilities. The report of the Audit Committee is included in the Proxy Statement of the Company for its 2007 Annual Meeting. Both the independent registered public accounting firm and the internal auditors have direct access to the Audit Committee.

     The Company’s independent registered public accounting firm, Ernst & Young LLP, is engaged to render an opinion as to whether management’s financial statements present fairly, in all material respects, the Company’s financial position and operating results. This report is included on page 34.

Management’s Report on Internal Control over Financial Reporting

     Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2006.

     Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which appears on page 33.

AMETEK, Inc.

February 26, 2007

Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting

To the Board of Directors and Shareholders of AMETEK, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that AMETEK, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AMETEK, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that AMETEK, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, AMETEK, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of AMETEK, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2006, and our report dated February 26, 2007 expressed an unqualified opinion thereon.

Philadelphia, Pennsylvania
February 26, 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of AMETEK, Inc.

We have audited the accompanying consolidated balance sheets of AMETEK, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of income, cash flows, and stockholders’ equity for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMETEK, Inc. at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 1 and 9, the accompanying financial statements have been retroactively adjusted for the adoption of Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-based Payment” using the modified retrospective method.

As discussed in Notes 3 and 12, the Company adopted the balance sheet recognition and disclosure requirements of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” as of December 31, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AMETEK, Inc.’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2007 expressed an unqualified opinion thereon.

Philadelphia, Pennsylvania
February 26, 2007

AMETEK, Inc.

Consolidated Statement of Income

		Year Ended December 31,
		2006				2005				2004
		(In thousands, except per share amounts)
Net sales		$	1,819,290			$	1,434,457			$	1,232,318
Operating expenses:
Cost of sales (excluding depreciation)			1,251,920				991,788				866,549
Selling, general and administrative			219,454				174,218				137,832
Depreciation			38,922				34,963				36,763
Total operating expenses			1,510,296				1,200,969				1,041,144
Operating income			308,994				233,488				191,174
Other expenses:
Interest expense			(42,167	)			(32,913	)			(28,343	)
Other, net			(3,141	)			(2,288	)			(2,112	)
Income before income taxes			263,686				198,287				160,719
Provision for income taxes			81,752				61,930				51,728
Net income		$	181,934			$	136,357			$	108,991
Basic earnings per share		$	1.74			$	1.31			$	1.07
Diluted earnings per share		$	1.71			$	1.29			$	1.06
Weighted average common shares outstanding:
Basic shares			104,841				103,726				101,747
Diluted shares			106,608				105,578				103,064

See accompanying notes.

AMETEK, Inc.

Consolidated Balance Sheet

		December 31,
		2006				2005
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	49,091			$	35,545
Marketable securities			9,129				8,243
Receivables, less allowance for possible losses			328,762				269,395
Inventories			236,783				193,099
Deferred income taxes			26,523				21,154
Other current assets			33,775				28,871
Total current assets			684,063				556,307
Property, plant and equipment, net			258,008				228,450
Goodwill			881,433				785,185
Other intangibles, net of accumulated amortization			199,728				117,948
Investments and other assets			107,644				92,710
Total assets		$	2,130,876			$	1,780,600
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt		$	163,608			$	156,130
Accounts payable			160,614				132,506
Income taxes payable			14,618				—
Accrued liabilities			142,060				117,156
Total current liabilities			480,900				405,792
Long-term debt			518,267				475,309
Deferred income taxes			65,081				50,942
Other long-term liabilities			99,956				39,037
Stockholders’ equity:
Preferred stock, $0.01 par value; authorized: 5,000,000 shares; none issued			—				—
Common stock, $0.01 par value; authorized: 200,000,000 shares; issued: 2006 — 108,479,995 shares; 2005—107,544,033 shares			1,085				1,075
Capital in excess of par value			134,001				107,086
Retained earnings			902,379				739,522
Accumulated other comprehensive losses			(33,552	)			(20,916	)
Less: Cost of shares held in treasury: 2006—2,421,193 shares; 2005—1,829,481 shares			(37,241	)			(17,247	)
Total stockholders’ equity			966,672				809,520
Total liabilities and stockholders’ equity		$	2,130,876			$	1,780,600

See accompanying notes.

AMETEK, Inc.

Consolidated Statement of Stockholders’ Equity

		Year Ended December 31,
		2006								2005								2004
		Comprehensive				Stockholders’				Comprehensive				Stockholders’				Comprehensive				Stockholders’
		Income				Equity				Income				Equity				Income				Equity
		(In thousands)
Capital Stock
Preferred Stock, $.01 par value						$	—							$	—							$	—
Common Stock, $.01 par value
Balance at the beginning of the year							1,075								1,056								1,036
Shares issued							10								19								20
Balance at the end of the year							1,085								1,075								1,056
Capital in Excess of Par Value
Balance at the beginning of the year							107,086								76,451								53,423
Issuance of common stock under employee stock plans							16,671								14,093								12,767
Share-based compensation costs							5,538								6,339								4,739
Excess tax benefits from exercise of stock options							4,706								10,203								5,522
Balance at the end of the year							134,001								107,086								76,451
Retained Earnings
Balance at the beginning of the year							739,522								619,979								527,265
Net income (1)		$	181,934				181,934			$	136,357				136,357			$	108,991				108,991
Cash dividends paid							(18,832	)							(16,814	)							(16,277	)
Other							(245	)							—								—
Balance at the end of the year							902,379								739,522								619,979
Accumulated Other Comprehensive Income (2)
Foreign currency translation:
Balance at the beginning of the year							(17,838	)							(2,438	)							(12,927	)
Translation adjustments, net of tax of ($85), $195 and $0 in 2006, 2005, and 2004, respectively			8,542								(11,731	)							9,032
Gain (loss) on net investment hedges, net of tax of $(1,374), $1,975, and $0 in 2006, 2005, and 2004, respectively			8,159								(3,669	)							1,457
			16,701				16,701				(15,400	)			(15,400	)			10,489				10,489
Balance at the end of the year							(1,137	)							(17,838	)							(2,438	)
Defined benefit pension plans: (2)
Balance at the beginning of the year							(3,380	)							(8,450	)							(7,670	)
Adjustments during the year, net of tax of (1,536), $1,820 and $4,552 in 2006, 2005 and 2004, respectively			2,852				2,852				5,070				5,070				(780	)			(780	)
Adoption of SFAS 158, net of tax of $17,179							(32,685	)							—								—
Balance at the end of the year							(33,213	)							(3,380	)							(8,450	)
Unrealized holding gain (loss) on available-for-sale securities: (2)
Balance at the beginning of the year							302								1,245								1,401
Decrease (increase) during the year, net of tax benefit of $430, $162, and $670 in 2006, 2005, and 2004, respectively			496				496				(943	)			(943	)			(156	)			(156	)
Balance at the end of the year							798								302								1,245
Total other comprehensive income for the year			20,049								(11,273	)							9,553
Total comprehensive income for the year		$	201,983							$	125,084							$	118,544
Accumulated other comprehensive loss at the end of the year							(33,552	)							(20,916	)							(9,643	)
Treasury Stock
Balance at the beginning of the year							(17,247	)							(24,517	)							(29,635	)
Issuance of common stock under employee stock plans							1,081								7,270								5,118
Purchase of treasury stock							(21,075	)							—								—
Balance at the end of the year							(37,241	)							(17,247	)							(24,517	)
Total Stockholders’ Equity						$	966,672							$	809,520							$	663,326

(1) Net Income has been reduced by the effects of the modified retrospective adoption of SFAS 123R as of January 1, 2006. Such amounts were $4,029, $4,285, $3,720 in 2006, 2005 and 2004, respectively.

(2) Amounts presented are net of tax based on an average tax rate of 35%.

See accompanying notes.

AMETEK, Inc.

Consolidated Statement of Cash Flows

		Year Ended December 31,
		2006				2005				2004
		(In thousands)
Cash provided by (used for):
Operating activities:
Net income		$	181,934			$	136,357			$	108,991
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			45,929				39,428				39,909
Deferred income taxes			(524)				9,133				6,178
Stock-based compensation expense			12,441				10,581				6,137
Changes in assets and liabilities (net of acquisitions):
Increase in receivables			(26,042	)			(22,007	)			(9,616	)
Increase in inventories and other current assets			(6,225	)			(871	)			(14,954	)
Increase (decrease) in payables, accruals, and income taxes			29,751				(12,279	)			18,222
(Decrease) increase in other long-term liabilities			(1,819	)			3,887				2,914
Pension contribution			(13,721	)			(11,307	)			(6,114	)
Other			4,243				2,739				4,091
Total operating activities			225,967				155,661				155,758
Investing activities:
Additions to property, plant and equipment			(29,156	)			(23,261	)			(21,025	)
Purchase of businesses, net of cash acquired			(177,639	)			(340,672	)			(143,535	)
Other			770				2,142				10,098
Total investing activities			(206,025	)			(361,791	)			(154,462	)
Financing activities:
Net change in short-term borrowings			4,048				105,708				(55,603	)
Additional long-term borrowings			29,507				177,790				97,356
Reduction in long-term borrowings			(18,186	)			(86,029	)			(26,217	)
Repurchases of common stock			(21,075	)			—				—
Cash dividends paid			(18,832	)			(16,814	)			(16,277	)
Excess tax benefits from share-based payments			4,706				10,203				5,522
Proceeds from employee stock plans and other			9,878				16,158				16,286
Total financing activities			(9,954	)			207,016				21,067
Effect of exchange rate changes on cash and cash equivalents			3,558				(2,923	)			906
Increase (decrease) in cash and cash equivalents			13,546				(2,037	)			23,269
Cash and cash equivalents:
Beginning of year			35,545				37,582				14,313
End of year		$	49,091			$	35,545			$	37,582