Good day, everyone and welcome to the AMETEK Incorporated Second Quarter Earnings Conference Call. This call is being recorded. For opening remarks and introductions, I would like to turn this call over to Mr. Bill Burke, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Jody. Good morning, everyone and welcome to AMETEK's second quarter earnings conference call. Joining me this morning are Frank Hermance, Chairman and Chief Executive Officer and John Molinelli, Executive Vice President and Chief Financial Officer. AMETEK's second quarter results were released earlier this morning and have been distributed to everyone on our lists. These results are also available electronically on your market systems and on our website at ametek.com/investors. A tape of today's conference call maybe accessed until August 6th by calling 888-203-11-12 and entering the confirmation code number 8654466. This conference call is also webcasted. It can be accessed at both ametek.com and at streetevents.com. The conference call will be archived on both of these websites. I will remind you that any statements made by AMETEK during the call that are not historical in nature are to be considered forward-looking statements. As such, these statements are subject to change based on various factors and uncertainties that may cause actual results to differ significantly from expectations. Those factors are contained in our SEC filings. I will also refer you to the Investor section of ametek.com for reconciliation of any non-GAAP financial measures used during this conference call. We will begin today with some prepared remarks and then we will take your questions. I will now turn the meeting over to Frank.

Thank you, Bill. AMETEK had an excellent second quarter. Sales were up 25% to $648.8 million on strong internal growth of 7% and the contributions from acquired businesses. If the effects of foreign currency are included, internal growth was 10%. Order growth was very strong as well, with total work orders up 24% in the quarter. Internal growth and orders was excellent at 6%. On May 19th, the company announced a performance-based accelerated vesting of a restricted stock award made in April of 2005. The accelerated vesting occurred as a result of the stock price doubling in the three years since the issuance of the grant, reflecting a significant value that has been created for AMETEK shareholders. In the quarter, the company recognized an after-tax non-cash charge of $7.3 million, or $0.07 per diluted share related to the performance vesting. Excluding this charge, operating income was up 26%, driven by the top line growth and operational excellence improvements, resulting in a 20 basis point improvement in operating income margin. Net income and diluted earnings per share were each up 26%. Cash flow from operations was excellent totaling $142 million on a year-to-date basis, up 18% over last year's first half. Overall, we're delighted with these results. Our markets are strong. Our strategy of acquiring differentiated businesses is working well and our focus on operational excellence continues to drive profitability. Turning our attention to the individual operating groups, the Electronic Instruments Group had an excellent quarter. Sales were up 22% on strong core growth of 9% and the contributions from the acquisitions of Cameca, California Instruments, Advanced Industries, B&S Aircraft Parts and Vision Research. If the effects of foreign currency are included, internal growth was 11%. EIGs operating income was up 26% for the quarter. Operating margins improved 70 basis points…

Thank you, Frank. The results we are reporting today demonstrate a high quality of earnings, strong margins, and a balance sheet well equipped to support our growth plans. As Frank has covered these, our results at a high level, I will focus on particular areas of interest. Selling expenses were up 28% in the second quarter. Excluding the effect of acquisitions, selling expense increased in line with our core growth. After excluding the charge related to the accelerated vesting of restricted stock, corporate G&A fell to 1.5% of sales, as compared to 1.8% of sales in last year's second quarter. On a similarly adjusted basis, we expect G&A spend for the full year 2008 to be about the same as last year in absolute dollars with 2008 decreasing to 1.6% of sales versus 1.9% of sales in 2007. Effective tax rate for the quarter was 32.7%. We expect the effective tax rate for the full year 2008 to be approximately 32.5% to 33%. As we've said before, this is a full year rate and actual quarterly rates can vary dramatically either positively or negatively from this full year rate. On the balance sheet, working capital defined as receivables plus inventory less payables, was 20.5% of sales for the second quarter, down from last year's second quarter level of 21.3%. We continue to see an opportunity to reduce our working capital investment. Our plans are to reduce this overall percentage in 2008. Capital spending was $11 million for the quarter and $20 million for the year-to-date. Depreciation and amortization was $16 million in the quarter, and up $30 million year-to-date. For the full year of 2008, we expect that capital expenditures will total approximately $50 million while depreciation and amortization is expected to be about $65 million. Operating cash flow in…

Thanks, John. Jody, that completes our prepared remarks. So we'll be happy to take questions now. Question And Answer

Thank you. [Operator Instructions]. We will take our first question from Jim Lucas of Janney Montgomery Scott.

Thanks. Good morning, guys.

Good morning Jim.

John, first housekeeping question. Accounts payable in the quarter?

Sure Jim. $253 million.

Alright, thank you. And Frank, two questions. First, on the aerospace and defense side, if you could just give us your quarterly update on what you are seeing in the markets, particularly on the commercial side. And secondly, you have been making a number of investments in China and Russia, now Dubai. Could you maybe just give us a little insight into the thought process of how you go about identifying where the geographies you want to make the investments and what we could expect to see going forward?

Sure Jim. Let me start with Aerospace and Defense. Those businesses are doing just great right now. The markets are very strong. There is a strength in all parts of the business. Boeing and Airbus are producing at high levels as is Cessna. The combined backlog for Boeing and Airbus is more than 7300 aircrafts and represents more than $750 billion. For 2008, Boeing deliveries will be up about 9% and Airbus up about 5%. Cessna's backlog is $16 billion, and it's up $3.4 billion since year-end and is sold out for the next three years. The Military business is very strong, especially given our focus on helicopters and electronics cooling. For the quarter, organic growth was up double-digits actually for our full aerospace business. And total growth with acquisitions was even a much higher number. And for 2008, we're very optimistic. We think there's going to be continued growth and the internal growth should be at least high single-digits and may be a little bit higher. Now there is two points that I want to comment on specifically addressing commercial aerospace, Jim. One is there has been concern expressed throughout the industry about capacity reductions, particularly in the U.S. We went back and looked at our commercial MRO business in the U.S. and it's less than $50 million. It's actually around $45 million. And the reductions that they're talking about... potential reductions in capacity, which wouldn't take effect until well into next year, are about 10%, which means the impact on us is sort of in the rounding of our aerospace business, it just isn't a major factor. And the other point is there also have been some press comments regarding backlog reductions at the large commercial OEMs, namely Airbus and Boeing. We've taken a look at that, and…

And to that point, are there any other of those geographies that you've identified where you are not participating today?

Yes. I would say the one area that we need and will over time incrementally invest is India. We have looked at the manufacturing infrastructure there and it's just not good at this point of time. It's hard to even travel from city to city in India, so we decided not to invest heavily in manufacturing in India at this point of time. But that will change over time, because they'll improve that and we'll see an opportunity to expand there. But we put it a little bit lower on the list. We are doing back office stuff in India, where we had distribution capability there as well, but we haven't taken the step to go a little bit further in that part of the world. So it's probably the next one that you will be hearing from our side.

Okay, great. Thank you very much.

Okay.

[Operator Instructions]. We'll go now to Amit Daryanani of RBC Capital Markets.

Thanks a lot. Good morning, guys.

Hi Amit.

Good morning, Amit.

Just a follow up on the commercial aviation MRO side of the business. I think the platform is about $100 million revenues for us. How much of that is U.S. centric versus international?

Yes, it's about 45% in the U.S. and 55% outside the U.S., that's how I got to that $45 million number that I mentioned to in response to Jim's question.

Got it.And so that's a part of this as we could potentially see a low belt softening as it takes some capacity out down the road.

Yes, it's possible. That's what I'm saying, there could be maybe a 10% shift in that business, which could be, on the order of $4 million or $5 million which is in the rounding of our aerospace business.

Right, fair enough. And then just on the inventory side, looks like you turned it up about 35%. How much of that was ex-acquisitions and FX?

You've got that, John?

I do. Just give me just a second to find out. The inventory grew in line with our core growth, Amit and I can give you the absolute dollars quickly. But we had a 7% growth in our core inventory... inventories associated with the core businesses. I think that's your point, you're looking for at.

Yes, again back into the realm... the dollar number.

The acquisition is over $29 million of that change.

Perfect.

Okay.

Alright. And then just finally, could you just talk about commodity inflation and how that's impacting you guys and on a net pricing basis, are we still positive?

Yes, no question, we're still positive. We looked at this very strongly in the second quarter and our pricing was very, very good in the second quarter. And it more than offset the commodity impacts on the input side. And there are some different forces happening on the commodity input side. The three key commodities that impact us are steel, and to a higher degree copper and nickel. And steel and copper did actually go up, but nickel went down quite significantly. So there was a counter balance in our commodity impacts in the quarter. And I just want to make the point that I made before that we are impervious to this because the way we manage the business, we simply are able to offset what occurs on the input side through other initiatives. As an example, in our specialty metals business, we actually clot and when we take an order, we use the spot price of the metal on the day we essentially take the order and then we buy forward on that material. We don't speculate. We have the order, it's in our backlog, but we buy forward and therefore the profit on that particular order is locked in. So we take the risk out of the equation and that's why, in general you've heard no issues from us as the commodities have swung all over the place in the last several years.

Fair enough. Thank you, guys.

You between, Amit.

We will go next to Ned Borland at Next Generation Equity Research.

Hi, good morning guys. Just one question on the EMG, operating margins of 100 basis points below last year. Can you give us some color on what's going on there?

Yes. I mean our thought process was going into this year, we're going to be very aggressive on acquisitions. We see an opportunity to significantly use the cash flow from the company to do more acquisitions than are norm and we've already met our target for the whole year in the first six months and we're surely not going to stop here. So, it's going to be a very, very good environment for acquisitions. One of the impacts when you do those acquisitions, especially with our stated philosophy where we like to buy companies that are 10% kind of pre-tax and we move them up to 20% number in very short order. One of the negatives is that, there is some dilution to the margins of the company. However, when you look at that on a return on invested capital view point, the return on invested capital is off the charts. So we believe that's the right economic equation to use and in fact that's what happened in EMG. We did a large number of acquisitions. It was unbalanced in terms of revenue in the second quarter with much higher amount of revenue in EMG than EIG and therefore, we basically had some margin dilution and that was the prime driver.

Okay so, because of the accelerated activity in EMG and acquisitions, it weighed down the margins, but that should lift over time?

It should lift overtime unless we continue to do more acquisitions in EMG of the magnitude that we have done on a sort of percent of sale basis.

Okay, great. Thanks.

You bet.

And we'll now go to John Baliotti of FTN Midwest Securities Corporation.

Hi, good morning. Frank, I was wondering if you could do your quarterly sub-segment discussion when you go through the sub pieces of the EIG/EMG, and when you do that could you also may be comment on some either by end market or by geography, if there's anything that changed as you entered versus exited the quarter? I think some companies with similar characteristics of yours; the market has been very positively surprised. I think they've expected these end markets to have changed so dramatically in three months. I am just curious to see what kind of color you have on that?

Right. Well, let me sort of address your second question first and then I'll come back as I walk through the company.

Thanks.

But I've seen no fundamental change in the end markets with potentially one... a somewhat minor exception in terms of the overall company. But I think it's worth mentioning and that's the heavy truck business. As you know, we have $20 million to $30 million of exposure to heavy trucks. And one of the dynamics that has happened there is that although for all of 2008 versus 2007, the markets... the market itself is going to be roughly flat up slightly. The dynamic was that the first quarter was down substantially in terms of truck production. It was down like 30% plus, which actually means on a quarter-over-quarter basis going forward; it's going to be much better. So we're seeing a better performance out of our business and you'll hear that in the numbers when I walk through each of the sub-segment, so if anything, the markets are little bit better than what they were.

Okay. Thank you.

Okay. So let me walk through, I'll start with the EIG. As I mentioned in my opening remarks, for EIG overall sales were up 22% in the quarter, organic growth was 9% with 11% if currency is included. I have already walked generally through Aerospace, so I won't spend any more time on it. It's obviously very-very good and we're expecting internal growth to be in the high single-digits for the year. The process businesses and if the markets are very strong, they are driven by the price of oil. Our material analysis Ultra Precision Metrology and measurement calibration instrument businesses were particularly strong in the quarter. The new products that you heard some of those in my opening comments are doing very well. Q2 internal growth was up high single-digits. Total growth with acquisitions was up more than 20%, and we expect the good growth to continue and obviously having oil where it is, is a very, very significant factor for this business. So for 2008, we're saying the internal growth should be up conservatively mid single-digits. I actually think there is a very, very good chance, it's going to be higher than that. For Power and Industrial in EIG, the Power and Industrial businesses continue to do very well. Q2 was up high single-digits organically. It was driven by strength in power and then the improved conditions that I talked to you about in terms of heavy trucks. In the first quarter, all of power and industrial was only up mid single-digits and now we are up in essence high single-digits because of that comparison item in the heavy truck market. So for all of 2008, we are expecting power and industrial to have high single-digit organic growth, so we are very, very positive on that business. Switching…

Great. Thanks, Frank.

You bet.

And we'll go next to Matt Summerville at KeyBanc.

Two questions. First, can you comment Frank on what you saw in terms of order tempo as we moved through the quarter and what you're seeing thus far in July across the company?

Sure. The order tempo was interesting. The first month was very strong. When we saw the May results, they were down a little bit and I was actually starting to get a little nervous that we started to see some of the slow down that AMETEK has been able to sort of circumvent and then June was gangbusters. This is no other way of saying, it was extremely strong. Now, part of that is also due to the number of days in each of the months as well. But... so when I sum all this up, orders were great, we're up 24% on orders. We had 6% organic growth on orders and it was across the board. We really did not have the sizable weaknesses anywhere and July has started off great. And I get weekly reports from each of our divisions, and I'm feeling optimism around the loop right now. So I'm feeling pretty good about it.

And then can you talk about a little more color in terms of what you're doing as far or what you have done or what you're going to do in terms of general belt tightening and how much you kind of ...how much is flow through the P&L with regards to that?

Yes, it's a very difficult question to answer because each one of our divisions has very extensive cost reduction activities that offset the investments and volume and our margin issues that are occurring in each business. But in general, at the end of last year, we just had concern as to how strong this year was going to be. So we went ahead and put in about $5 million of what I'll call incremental cost reductions, more than what was in essence in the initial budget. And we've watched that as the year has gone on, and we obviously, we added $3 million more with the sourcing activities that I just talked about. And we haven't really accumulated the rest of it that has been done through the year, because we really don't need to since our energy is really focused on growth because our business is growing so fast right now. So it's probably the best way I can answer your question, Matt.

Great. Thanks a lot, Frank.

You bet.

And we'll go now to Christopher Glynn at Oppenheimer.

Good morning. Thank you. Question on just looking ahead what commodities might do, take the case of a deflationary commodity cost environment and how would that be managed? What would be some of the possibilities around that and I guess related to that, can you estimate what you got from price in the quarter?

Yes. Let's handle the deflation issue first. We will get some uplift in terms of profitability for those contracts where we have fixed pricing in place, so that if in essence there is a deflationary impact, we will get some improvement on the bottom line from that. However, as I mentioned before, for many of our businesses, we actually have cost adjustments and/or we do hedging again not hedging in the sense of speculation, but hedging in the sense of buying forward on material where we have orders. So in essence, you'll see no positive impact in terms of the profit that comes out of that. You will see a positive impact on profit margin though. But you won't see it in terms of profit dollar. So the best way to think of AMETEK is, we're relatively immune to changes in commodity prices either up or down. In terms of the price escalators in the second quarter, it was roughly 2% in terms of price second quarter over second quarter, which we were pleased with.

Okay. And then just a bit on the third quarter EPS guidance. Typically, second quarter or third quarter, roughly in line and the comparable number this year would maybe the $0.68 adjusted for the second quarter and the $0.61 to $0.63 you did, below that. Could you just speak to that a little bit?

Yes. Our third quarter with such a large portion of our business in international particularly in Europe is a little bit weaker. So you have to be careful looking at the trend from second quarter to third quarter when you look at us over a number of years. So if you look at the second half, the $0.61 to $0.63 we think is a reasonable kind of number for the second quarter and obviously if you look at our year achievement in the third quarter, if you look at our year guidance, we are obviously expecting a very strong fourth quarter as we also had... had last year and I have never going to accused of being aggressive on our estimates either so.

Right. Okay, so no incremental activity or notable impact from acquisition integrations in the third quarter versus second?

No, that is exactly correct.

Okay, thanks a lot.

You bet.

And we'll go now to Rich Eastman of R. W. Baird. Richard Eastman - Robert W. Baird & Co., Inc.: Just two questions. Frank, could you just break down the geographic sales, maybe core LC growth first at 7% corporate number, how did that look in the second quartet?

No, I don't have that actually broken out, what I... the numbers that are have in my head are the total growth. And in international overall, it was up 21%, 22% and it was very strong in Europe. It was up about 24% in Europe, it was up about 23% in Asia. So overall, it was good. I don't have the core growth by region, not in my head. Richard Eastman - Robert W. Baird & Co., Inc.: Okay. And then secondly, we talked a little bit about price, we talked about the purchase price variance in the quarter. When you look at the gross margin line and you look at that year-over-year, how much do you think you nodded [ph] in price? Would you have sense for that?

percent, 1%.

We are guessing here to be honest, but -- Richard Eastman - Robert W. Baird & Co., Inc.: Just, okay --

John and I both came up with the same number, probably a percent. Richard Eastman - Robert W. Baird & Co., Inc.: About 1% in gross margin.

Yes, I mean it's not an analytic number, it's a number just from listening to our operations et cetera that's probably about half of that 2% kind of number. Richard Eastman - Robert W. Baird & Co., Inc.: Okay, very good. Thank you.

Ladies and gentlemen, at this time we do have one remaining question in the queue. [Operator Instructions]. We will go now to Wendy Caplan of Wachovia.

Thanks. Good morning.

Hi, Wendy.

A Couple of questions, just to give us a sense of the underlying business strength. Could you comment on the incremental margin, the core incremental margin?

Sure Wendy. Extremely good, it was up almost 40% in the quarter. So, the businesses that we have acquired have just substantially increased the contribution margins from the core business.

Okay. And I guess along those lines, John, have you drawn the exercise in terms of working capital percentage, excluding recent acquisitions?

Yes, there are little bit... I have it. Let's see, I have got it. The 20.5% that we gave you excludes the acquisitions this yea. So that's a core business Wendy.

Okay. Thanks.

That's the core business. There is a little drag on acquisitions we have done, but it's not material to the company.

Okay. And the... you said Frank that June well, it was gangbusters. For those of us who may not be sure what gangbusters mean, can you walk through April, May, June and kind of give us some sense of was it 2x of April or May or just that kind of comparison?

I will actually have to dig out the numbers here. Can you guys dig out those numbers? Let's just give her numbers. I don't have it in my head. Give us a second, Wendy. We've got too many piles of paper here. Make sure we get orders. Okay, actually Bill... that's just the end. Orders were April, 224; May, 206; June, 282.

Okay. That's great. And so far in July, would you say we're tracking gangbusters or --

We're doing well, Wendy.

Okay. Thank you very much.

Alright.

[Operator Instructions]. And it appears we have no further questions. Mr. Burke, I would like to turn the conference back to you for any additional or closing remarks.

I'd like to thank everyone for joining our call. As a reminder, a replay of this call can be heard by calling 888-203-1112 and entering the confirmation code number 8654466 or on the Internet at ametek.com and streetevents.com. Thank you.

This does conclude today's conference. I thank you for joining us today and hope that you will have a lovely rest of your day.