阿美特克 (AME) 2003 Q3 法說會逐字稿

Good day everyone and welcome to the Ametek Incorporated’s third-quarter conference call.

This call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Mr. Bill Burke, Vice President of Investor Relations.

Thank you, Greg.

Good morning and welcome to Ametek third-quarter conference call.

Joining me this morning are Frank Romance, Chairman and Chief Executive Officer; and John Molinelli, Executive Vice President and Chief Financial Officer.

Ametek's third-quarter results were released after the market closed yesterday and have been distributed to everyone on our list.

These results are also available electronically on your market systems and on our website, Ametek.com/investors.

A tape of today's conference call may be accessed until to November 3 by calling 888-203-1112 and entering the confirmation code number 316027.

This conference call is also webcast at Ametek.com and at @streetevents.com.

The conference call will also be archived on both of these website.

I will remind you that any statements made by Ametek during the calls 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 a reconciliation of any non-GAAP financial measures used during this conference call.

We will begin today with some prepared remarks and then will take your questions.

I will now turn the meeting over to Frank.

Ametek had an excellent third-quarter, establishing records for operating income and net income.

Operating income was up 4 percent.

Net income was $21.9 million and diluted earnings per share of 65 cents were each up two percent over the third quarter of 2002.

Sales were up 4 percent to $267.8 million, setting a third-quarter revenue record.

This year's third-quarter results include a onetime non-cash expense of 2.1 million or six cents per diluted share to reflect the accelerated recognition of deferred compensation expense related to divesting of restricted stock.

Excluding this expense, operating income would have increased 9 percent for the quarter.

Similarly net income would have increased 12 percent to $24 million and diluted earnings per share would have been 71 cents per share, an 11 percent increase over the prior period.

Cash flow from operations was excellent, once again demonstrating Ametek's cash generating capabilities.

For the third-quarter, cash flow from operations totaled $31.8 million and for the first nine months of 2003, cash flow from operations was $108.1 million, each up 35 percent over the same period of 2002.

We are very pleased with these results in what continues to be a challenging economic environment for manufacturers.

Our strategy of acquiring differentiated businesses and our focus operational excellent have driven this strong performance.

In addition to achieving our financial objectives we continue to make progress our strategic initiatives.

In the third quarter we acquired (technical difficulty) Chandler Instruments, a highly differentiated instrumentation manufacturer with annual revenues of $30 million.

I will speak more on Chandler later in the remarks.

The integration of air technology and Solidstate Controls, both acquired earlier in 2003, are preceding to plan and the businesses are achieving the revenue and profitability levels we anticipated.

Solidstate Controls has won a $1 million plus contract to provide an uninterruptible power supply system to Chevron, for an offshore oil platform.

While we provided these systems in the past to Chevron, this sale is noticeable because it utilizes pulse with modulation technology or PWM.

By successfully deploying PWM on a major platform project, Ametek is now the only industrial UPS supplier to offer both of the major technologies for this market, a huge competitive advantage.

Our Dixson heavy vehicle business has been awarded the Caterpillar Gen II sealed instrument cluster program that will be used on several of their large bulldozer, with pilot production beginning in the first quarter of 2004.

This was another great win for us at this key customer in the construction market.

Our Rotron Technical Motor business was recently awarded a $1.2 million order from Raytheon for cooling modules for the joint tactical terminal, a family of special application UHF tactical intelligence terminals which provide our military with the capability to disseminate time-sensitive command and control information to the battlefield.

And lastly, aerospace won a $1 million order from Astrion (ph) , the space division of the European aeronautical defense and space company for pressures transducers to be used on a variety of space vehicle and satellite programs.

Turning our attention to the individual operating groups, for the electronic instruments group, sales were up three percent for the quarter.

The Solidstate Controls and Chandler Instrument acquisitions drove the revenue increase.

EIG's operating income was up 9 percent for the quarter and operating margins increased to 17.9 percent from 16.9 percent last year.

Margins expanded as a result of improved profitability of our aerospace and power businesses, as well as the impact of operational excellent activities throughout the group.

For the Electromechanical Group, revenues were up 5 percent, driven by Airtechnology which was acquired in January.

Our European floor care motor businesses were strong, while our domestic floor care and specialty motors businesses were week.

Operating income for the quarter was up 11 percent and operating margins were 16.8 percent, up from 16 percent in last year's third-quarter.

Strength in our differentiated technical motor platform, which includes our Rotron and air technology businesses, drove the operating margin performance.

Turning to the outlook for 2003, many macroeconomic indicators point to an improving economy, however, those indications have not yet translated into increased business levels for us.

While we are poised to capitalize on an economic recovery when it occurs, we continue to closely manage our cost structure.

We expect our full year revenue to be up mid single digits with diluted earnings per share of approximately $2.60 per share, in line with consensus estimates and an increase of 4 percent over 2002.

Excluding higher pension and restricted stock costs, earnings in 2003 would have been up 12 percent.

I would like to spend a few moments talking about Ametek's acquisition strategy and Chandler Instruments, our latest acquisition.

As many of you know, we expect one-half to two-thirds of our revenue growth to come from acquisitions.

We are focused on acquiring differentiated businesses with revenues between 30 and $100 million that fit with either our instrument or motor platforms.

We also look for acquisitions that would increased Ametek's exposure to global markets.

Ametek is a disciplined acquirer with strict financial metrics, a thorough due diligence process and a strong focus on integrating acquired businesses rapidly.

Chandler meets all of these acquisitions criteria and we are very happy to have them as part of our company.

Chandler Instruments, with annual sales of approximately $30 million, is a highly differentiated manufacturer of measurement instrumentation for the oil and gas industry, an industry where Ametek is already well represented.

This acquisition expands our high-end analytic instrumentation platform to close to $180 million in revenue.

These businesses have higher growth and better profitability then the rest of Ametek as a whole.

The acquisition is a good fit for us as it broadens our exposure to upstream instrumentation for drilling and production while broadening our product and technology offerings in the downstream markets.

Chandler is composed of really two operating businesses, Chandler Engineering and Grabner Instruments.

Chandler Engineering competes in the upstream drilling and completion markets.

Chandler Instruments are utilized in laboratory environments to determine the properties of cement that is used in the drilling process.

Chandler enjoys strong market share greater than 60 percent in this niche.

Customers include the large integrated oil companies and oil services firms like Slumberger and Halibert (ph).

Chandler's second business, Grabner Instruments, produces instruments for the downstream petroleum refining market.

Products in the pressure measurement instruments, flashpoint analyzers, distillation analyzers, and spectrometers.

Besides the refiners, Grabner sells to the U.S.

Navy and the fragrance and flavors market.

Chandler Instruments generates approximately two-thirds of its revenue internationally, with significant revenues generated in Russia, China, and Brazil.

While Chandler has only recently joined Ametek, the integration is going well and I'm confident that Chandler will be another great acquisition for us.

With Chandler and are acquisitions earlier this year of Airtechnology and Solidstate Controls, we have acquired approximately $120 million in annualized revenue.

The acquisition pipeline remains good and we continue to look to make additional acquisitions in line with our stated strategy.

In summary, we are very pleased with our performance in the third quarter of 2003.

We exceeded our expectations and look forward to building our track record of success over the balance of the year and 2004.

We are managing the Company to perform well in these difficult economic times, while positioning ourselves for continued growth in the future.

We feel we have lost between 100 and $150 million of revenue as a result of the manufacturing sector downturn.

We believe this volume will return as the economy improves.

The average contribution margin of our company is about 40 percent, which will result in significant bottom-line leverage as this volume returns.

We remain confident that our four growth strategies will continue to create value for our shareholders.

John will now cover some of the financial details and then we would be glad to answer your questions.

Thank you, Frank.

I would like to cover some key metrics up front in then elaborate on other important themes.

Total debt was $463 million at September 30, with long-term debt of $310 million and stockholders equity of $491 million.

The debt to capitalization ratio was 48.5 percent, down slightly from 49 percent last quarter.

Accounts receivable were $191 million, flat with the second quarter and down $4 million when this quarter's acquisition of Chandler's Instruments is excluded.

Inventories were $145 million, up $5 million in the quarter but down $1 million when Chandler is excluded.

Accounts Payable were $89 million, down $5 million in the quarter and down $7 million when Chandler is excluded.

Capital spending was $6 million for the quarter and $14 million year-to-date.

Depreciation and amortization were $8 million in the quarter and $26 million year-to-date.

The effective tax rate was 33.9 percent for the quarter.

Excluding the impact of the vesting of the restricted stock, the effective tax rate was 31.9 percent.

The cash flow for the Company continues to be superb.

We generated $31.8 million in cash from operations in the quarter and $108.1 million year-to-date, a 35 percent increase for both the quarter and the nine months of 2003 over the same periods of 2002.

Our focus on operating working capital management continues to yield positive results.

Our inventory turnover metric improved by 9 percent from a year ago and our collection cycle improved by four days from last year.

The inventory improvements were made while we continue to move production to low-cost manufacturing sites.

This very strong cash flow resulted in total debt decreasing by only $10 million in the quarter despite paying $50 million for the Chandler Instruments acquisition.

Our debt-to-capital ratio at September 30 was 48.5 percent, essentially unchanged from the ratio we started the year with despite spending $164 million for the three businesses we acquired this year.

Ametek continues to manage its cost structure and manage balance sheet effectively, generating excellent cash flow and positioning itself for future growth.

Frank has outlined the solid operating results for the company.

These were accomplished despite pension, medical and other purchased insurance cost increases.

These additional costs totaled 6 cents per share in the third quarter, and estimated to be 22 cents per share for the full year.

These additional costs reduced operating margins by 110 basis points.

We have been very active in managing the cost structure to offset these uncontrollable cost increases, as evidenced by our continued operational excellence, initiatives and moves to low-cost manufacturing areas.

At the end of September, we had $194 million available under our existing credit lines.

That plus a strong cash flow of the company gives us substantial financial resources to continue to fund our builds.

In summary, we continue to manage through these rough economic times.

Our cost structure is lean.

We are generating cash and look to continue to grow the business.

That concludes our prepared remarks and now we will be happy to take your questions.

(OPERATOR INSTRUCTIONS) Jim Lucas with Janney Montgomery Scott.

A couple of housekeeping questions first off.

Could you break down the organic revenue growth or loss by segment and for the total company in the quarter?

Jim, the total internal growth was down about 5 percent.

EMG was down 5 and EIG was down a little bit more, about 5.5 to 6 percent.

Okay, and for the tax rate for the full year, are you still expecting around a 32 percent tax rate?

Yes, Jim.

When you isolate the impact of the vesting of restricted stock, it would be around 32 percent.

And would you expect that same rate next year?

We haven't gotten into next year's planning yet.

So I think it's premature.

I don't think anything tremendously different will change next year but we haven't got that far yet.

And Frank, the one thing that really stood out was EIG's margin in the quarter.

Could you talk about the sustainability?

Clearly you've been making acquisitions that are adding more differentiated businesses which I assume carry higher margins, but could you talk about the sustainability there?

First let me talk a little bit about what happened and then I will talk about the sustainability.

We had obviously an excellent quarter and there were several factors that contributed to that.

One was obviously the fact that we have more differentiated businesses in that particular part of Ametek which we're very pleased with.

And the second is we have been very aggressive with realigning our aerospace and power instrument businesses, which you may recall in the first quarter we thought those businesses were going to be down a little further than we had originally anticipated going into the year, so we took some additional cost reduction measures in those businesses and the results are showing through.

And in terms of the sustainability, absolutely.

As a matter-of-fact as we go into the fourth quarter for EIG we think we are actually going to see margin expansion from the third quarter and we think we're going to be running at that kind of rate as we go into next year.

Okay.

And final question.

Historically you have given us a breakdown of your various end markets.

Can you provide a little color on what you're seeing out there given the headlines are a lot more optimistic than what we are actually hearing from companies such as yourself?

Absolutely.

Right now, Jim, probably the best word to describe us is still bouncing along the bottom.

I am not seeing anything that I could say is a sustained uptick in our business.

If I am looking for an encouraging sign the most encouraging thing we have seen is that September was an extremely strong month.

We had excellent order intake, excellent shipments in September, and it was very encouraging to see that performance in September, but one month does not a trend make.

If I look at it by the various segments, basically the instrument group businesses, all four of the major part to the instruments group are pretty much flat.

We have not seen substantial improvement, the acquisitions.

So the acquisitions have obviously added revenue and helped our profitability and we're going to see that increase as we go forward.

But in terms of the base markets and the base businesses we really haven't seen anything of an uptick.

In the EMG businesses, pretty much the same thing.

The floor care businesses have weakened a little bit further going from the second quarter to the third quarter.

And the differentiated businesses have maybe strengthened a little bit, but nothing significant in the either direction.

And we don't really feel that trend is going to have any substantial change unless this September order intake is a trend.

We're going to wait to really make that call as we see what happens in next few months.

Any early read on October?

First two weeks have been okay.

Great, thank you.

Wendy Caplan of Wachovia Securities.

On the last call, you talked about the sequential movement in the quarter in terms of April being better than March, May being better than April, etc.

You mentioned the strong September.

Was the pattern the same this quarter in terms of August being better than July and September being better than August?

Actually if you look at those two months it was pretty flat between July and August and the major uptake occurred in September and it was substantially different, substantially different in September.

Is there a number that helps us understand what's substantial means?

Yes.

I can tell you that the order intake in September for the entire company was $102 million.

And in August?

82.

So that is substantial.

Thank you for quantifying that.

When I looked at the incremental margin in the two segments last night, it was striking to me that EIG incremental margin was 48 percent.

Was that surprising to you as well, and where do you think about that in terms of where it could go if we were seeing some improvement in there, specifically in the end market?

It was not surprising to us.

It really, Wendy, is in line with our stated strategy that added differentiated businesses to our portfolio and as you are aware, many of those differentiated businesses end up in the instruments side and typically the margins in those differentiated businesses support the kind of levels that you're talking about.

So we have talked about the adverse contribution margin of Ametek being about 40 percent with the contribution margin in EIG of 48 as you indicated and about 32 on the motor side.

And we think those kind of contribution margins are sustainable and we think the bottom line leverage is going to be very, very significant, when our market return.

One of the positive things, as I mentioned before in the third quarter was the performance of aerospace and power doing extremely well in a very steep market decline.

When those businesses come back, and they will, they'll rebound; the incremental effect on the bottom line is going to be very substantial.

We're not going to have to add a lot of infrastructure to support the growth of those businesses.

Maybe a tiny bit but not a substantial amount, so most of the contribution margin is going to end up directly on the bottom line.

I just wish it was happening a little sooner.

And finally, looking at the acquisitions that you have done so far this year, can you say something about your expectation relative to cash flow on an annualized basis for those businesses?

And specifically the payback period for them?

I don't have a number for the cash flow of just the acquired businesses.

But the financial metrics that we look at when we do these acquisitions is typically a 15 percent IOR, accretive in the first year, and it will very between different companies as to exactly what the payback is and I don't have an average payback in my thought process.

John, do you want to add something?

When we do these, Wendy, we have lots of financial metrics we use, one of which is to not assume a big hockey stick in terms of the payback of the business, 3, 4, 5 years out before we get the top.

We look for the annual effect of each year and to that affect one of our metrics is to employ a cost to capital to the money we put up and it is rare when on each year we don't see a positive effect of cost to capital employed to acquire that business.

So I think that will give you a flavor of the cash flow for each of our businesses.

Each year should be positive from our expectations.

Thanks very much.

Matt Summerville of McDonald Investments.

A couple questions.

First, Frank, can you talk a little bit more about the pressure that you're seeing in your domestic households floor care business and a what that relates to?

Is it pricing?

Is it reduced customer demand?

And also just update -- I thought in the back half of 2003 you had a fairly sizable new household floor care motor program ramping up.

Can you give an update on that as well?

Absolutely.

If you look at the entire floor care business, there is no question that the domestic business is suffering.

It is down in the quarter, on a quarter-over-quarter basis it was down about five -- actually the whole business worldwide was down about 5 percent.

And the U.S. was down on the order of 15 percent.

So a pretty sizable reduction in the US.

And that is pretty much in line with the market as we see in the U.S.

The pricing change is not that significant, but the mix change is.

That is a major factor in what is occurring in the business because as the economy has a weakened, the mix shift has gone down the portfolio, if you will, where it just constrains margins.

And I think the really positive thing here is that you can see EMGs margins actually expanded in the quarter and expanded by a sizable amount, which essentially means that we're ahead of that cost curve.

We are able to take cost out faster than that mix is impacting us.

In terms of -- and I know you didn't ask the question about the European core business, but basically we are seeing very positive results there.

They are actually gaining market share.

They are doing a great job of moving production to our low-cost plant in that part of the world, which is in the Czech Republic.

And they have also seen good margin improvement and much more solid business results.

So when you sum the two, the floor care business although down is not down all that much.

And what was the last part of your question?

I just want to get a sense -- I thought you had and new program ramping up in the last half of 2003 with one of your major domestic OEMs.

Yes.

There is.

We're ramping up with one of the larger OEMs.

That is going to add probably this year on the order of 5 to $7 million and that is happening as we speak and more of it will happen in the fourth quarter than the third quarter.

And then a follow-up question.

In terms of the organic growth outlook for EIG and EMG in the fourth quarter, are there numbers you can talk about there, Frank?

I do not want a talk about them specifically but I will you that the trend is up.

We're going to start to see some improvements in the overall company and in particular in the EIG.

We actually had a bad or difficult comparison in the third quarter in the EIG.

You may recall that in our industrial businesses and in particularly the heavy vehicle business last year in the third quarter, they had this abnormal buildup due to the EPA guidelines, so we had a very strong third-quarter last year in that business, which we are not seeing obviously this year and so the comparison was a difficult one.

So we should start to see some incremental improvement in the internal growth rate of the company as we go into the fourth quarter and as we go into next year.

And one of the businesses, I didn't hear you mention that you referred to at least over the last couple quarters as being one of the bright spots for Ametek is your high-end process businesses and I was just hoping to get an update on what you're seeing there?

Absolutely.

The high-end process businesses are doing fine.

We saw reasonable performance in the third quarter.

We expect the fourth quarter to be strong.

The margin and profit generation in those businesses has been nothing short of great, so we are very pleased with what is happening there.

And again that is in line with our stated strategy to move more towards those kind of high-end businesses and it is a key ingredient in why the overall margins of the company keep increasing.

Great, thank you.

Scott Graham of Bear Stearns.

Just a couple of quickies.

On the answer to James question about the internal growth of minus 5 and minus 6 for the businesses, is that ExFX?

That is without FX.

FX wasn't as significant in the third-quarter.

It was for the company was about 1.5 percent's and it was about a percent in EIG and a little over 2 percent for EMG.

Okay.

And the fourth quarter of organic growth, Frank, you think that is a period where if you hit that fourth quarter up growth that that is something we can sustain from there?

What is the question again, Scott?

Fourth quarter organic growth, is fourth-quarter going to be up in fact?

Is that something you think we can sustain into 2004?

I think we're going to start to see incremental improvement in the internal growth of the company.

Great, thank you.

Steven Colbert of JMP Securities.

I was also looking at the impressive margin performance and was wondering if the pricing out there was a positive impact.

I think you mentioned in your last quarter conference call that you were starting to see some firming pricing in several of your markets.

We're seeing a fairly firm pricing environment on our very high-end businesses.

We are able to give slight increases and on our lower end businesses, slight to maybe a little bit larger decreases, so net we're probably flat to slightly down for the company.

So it is not the pricing is not really the most significant issue that we're faced with.

It is more that mix change that I was talking about before on the low-end businesses, which we don't see on the high-end businesses.

And at this point for third-quarter, do you have a number that you can share with us in terms of the percent of production that is in low-cost manufacturing locations versus where the year started out?

Yes, the number is about 16.5 percent in that low-cost manufacturing areas around the world, but we're expecting to do is have about just under $200 million of revenue produced in those locations this year.

And the number last year was $170 million last year.

So that gives you a flavor of the increase.

Okay and to the markets, that sound like they have come back or in maybe just the comps are much easier, but that have been major drags in the first half with a power and the aerospace markets.

What has changed in the last quarter that these markets that make these markets sound like they are doing somewhat better?

Well, the aerospace market is doing somewhat better on a comparative basis.

We are seeing on the OEM side that flattened out some and we're seeing a little bit of positive performance on the aftermarket side.

But the power business is still not doing well.

It is on a quarter-over-quarter basis, the power business in the third-quarter was down about 25 percent.

So it continues to go down and I think we are either going to see some further erosion in that as we go into next year.

But that is a much smaller part of our business than obviously the aerospace.

So it is good news that is flattening out on that part of it.

Some utilities are talking about raising maybe their CAPEX budget somewhat in 2004.

For that to have an impact on Ametek, what parts of your budgets or your spending have to turn for your revenues to improve?

Well, speaking specifically of the utilities, if they go up, that will have a positive impact on the part of the power business that is transmission and distribution.

And we do expect good performance on that part of the power business and we had good performance in the third-quarter and we think that will continue.

Where we don't think that will have as substantial an impact is on the generation side of power, the generation side is for us is driven largely by GE and GE is continuing to reduce their production of land gas turbines, and that will expand next year.

Utility uptick will also help the process businesses because some of the process businesses focus on the utilities and as that CAPEX comes back, we would expect to see some improvement in the process part of the company.

Just one last question.

The contract with Caterpillar that Dixson received, any range of revenue parameters that might contribute to 2004?

They are each about $1 million.

And that was a contract that you did not have in the past or is it a replacement for a contract that you had in the past?

It is a new contract on a new platform, but obviously we have had substantial business with that customer as we are just gaining more and more of their business as they are used to and see what our product capability is, so we have got substantial additional opportunity at Cat, as we get further ingrained with them.

So it is a very positive situation for us.

Gary Goldstein of Guilford Securities.

Congratulations on another great quarter.

Just a couple -- most of my questions were answered.

If you can just walk us through the military components in aerospace and if you can give us an update on total assets?

All right, total assets were $1.218 billion and in terms of the military part of the business, it continues to be very, very strong.

As right now the military part of Ametek is approximately 12 percent of our sales and that has gone up for us for really two reasons.

One, obviously the strength in that market in the instrument side last year we saw about a 50 percent increase in the business over the previous year.

And that is maintained at those levels, and in addition we did the Airtechnology acquisition earlier this year which had about 80 percent of its business in this particular sector.

So it has been a great opportunity for us to really diversify our business and take advantage of the world situation and it is really in line with our stated strategy of acquiring high-end differentiated high margin types of businesses.

So we expect that to remain strong and we're actually looking at adding to our portfolio in those areas.

So we could continue to see things moving that way.

Whoever is taking notes next to the microphone, it is really coming through good.

And on total assets, where do total assets stand now?

$1.218 billion.

Thank you very much.

Godfrey Birckhead of SBK Brooks.

John, the depreciation for this year as a whole, please?

Depreciation and amortization should be around 35 million, Godfrey.

And CAPEX?

CAPEX, we started the year out thinking we would be around 25 to 28.

We're down around 20, 21 million, I'm guessing for the year.

Okay.

Will the pension costs next year be another 22 cents?

We haven't gotten into that yet.

The dynamics there, the variables there are multiple and are very complicated and we do that calculation as of December 31 of this year.

Right now things are looking a lot better than they did a year ago, but we have to wait and we get to that point before we can --

Obviously, the earnings estimates would change dramatically depending on whether how that would go, right?

It could have an impact but stock market performance, interest rates, all of those things have a major bearing and what things look like at the December 31 is a real driver, Godfrey.

Okay.

How is your metal powder business doing?

Metal powder business performed well in terms of margins in the quarter.

It is suffering from the general economy and there is an impact on nickel prices on that particular business.

But they are one of our best management teams in terms of managing when the top line is not as strong as we would like and they are doing a great job (multiple speakers)

Better profits, is that the way to at this?

The volume was up just about flat in the quarter and profitability was just fine.

What is the size of that business now, Frank?

About $70 million.

Okay.

Great.

The chemical activity?

The last time we were talking about chemical and I mentioned that it was a leading indicator and I watch it was showing some upticks and it has kind of flattened out now.

So it is sort hard to get a trend anyplace in this economy, so it is hard for me to put a finger on it and say everything is starting to turn around, and that is just another factor in why I feel that way.

That leads to my next question because in listening to these conference calls, there are a couple of other companies that came out and said that they had experienced the best in entirely different businesses than yours, the best months that they had in a hell of a long time.

One company actually said they had the best months ahead in five years and I just wondered how many months in a row would you have to have before you said Uncle and said okay, there is a turn?

You are looking into my conscience.

I probably would say I'd want a quarter.

I would want to see three solid months that I can say are above the norm and then I would start to feel pretty confident that things are turning up.

As I mentioned before, our month of September was superb, but in my mind one month does not a trend make.

I think that is very, very smart.

I appreciate that attitude.

But my last question is did you say sequentially the floor care market was down 5 percent or was it year-over-year?

That was year-over-year.

Thank you so much.

One other question, excuse me.

What about the other net -- went from a $600,000 loss to $200,000 profit?

That was essentially strong performance on our investments in our insurance captive down in Bermuda, strong investment performance down there with some absence of expenses from consultants last year.

Thanks very much.

Richard Eastman of Robert W. Baird.

I just wanted to explore a couple things on the EIG side of the business.

If you look at the four pieces of the business, process, aerospace, industrial and power, can you give us a sense, Frank, of which those businesses were down more than the 5 percent number?

I know you said they were all flat, but I am looking at 5 percent down internal growth year-over-year and I'm wondering -- presumably its power and aerospace?

Actually the quarter is a little bit different than what the trends have been and what actually I expect them to be in the fourth-quarter.

In the quarter itself, as I mentioned before, the industrial business was down quite dramatically and that is because of that tough comparison I mentioned, the heavy vehicle business.

Power was down significantly on the order of 25 percent.

Aerospace was actually not so bad.

It actually improved from the second quarter and process was fine, so the negative growth was really driven by industrial and by the power parts of the business and more in power than industrial.

And when you look forward into the fourth quarter, does the power and the aerospace businesses in terms of dollars, are they running flat and have they been for a few quarters?

Did you say power and process?

Power and aerospace.

Power and aerospace are going to be relatively flat and the other two are going to be up in the fourth-quarter.

So we can potentially get some positive organic growth year-over-year in the fourth quarter?

I was talking trends now from the --

You made the comment earlier that the fourth quarter would see positive organic growth (multiple speakers)

I think either I misspoke or you misheard me.

I was saying is the trend we're talking about in the third-quarter of negative 5 percent growth in the entire company and what I was saying is that is going to improve.

It is not going to go positive.

It is just might be better than negative 5 percent.

I understand, but that would be my take.

I wanted to just ask you on the floor care business another point I wanted to make was year-over-year there's a couple things going on there.

I think Maytag threw some numbers out.

They talked about the third-quarter of this year.

Volume was actually up in the double-digit range and with the new wins at Hoover adding some revenue year-over-year, it almost suggests that your mix is costing you thirty percent year-over-year in terms of your ASP?

In that business, domestic floor care, could that be right?

Something doesn't line up therewith Maytag.

Are they saying the market is up that amount?

Is that what you are saying?

Yes.

That just is not true.

All the data we have for the domestic floor care market would not support any growth in that business in terms of volumes, nonetheless this kind of growth that you're talking about.

And is that number that you mentioned on the incremental Hoover business, they obviously have had a tough time holding their share and probably have lost some.

No question.

So that number is lower from what you initially anticipated with that win?

That is absolutely right.

We have anticipated that was going to be higher.

Jim Foung with Gabelli and Company.

Earlier you talked about your acquisition strategy.

As you get bigger is there any pressure -- are you thinking about changing your strategy all?

Do you have to make bigger acquisitions to make an impact on the top line?

We're pretty comfortable with the strategy of the company right now and we see no issue with growing this company up to several billion dollars, 2 to $3 billion, acquiring companies in the $50 million, $75 million range that we have been focused on.

And as I think you know, Jim, we prefer to do multiple smaller acquisitions rather then one or two larger acquisitions simply to diversify risk.

Obviously as the company gets up to the 3 and $4 billion region, we will obviously have to do much larger acquisitions but we don't see that happening in the short-term and we're basically executing to the strategy that I have outlined and we intend to do that for the foreseeable future.

So this strategy actual control your risks?

It's much more manageable to observe some of these smaller companies.

And the other factors is if you can keep the companies smaller that you acquire, the amount of synergies that you can get from those companies is typically better because you can integrate them into Ametek and consolidate plans to an easier degree then if you acquire larger companies.

Now the converse to this is if you get too small then the acquisitions are not going to have a substantial impact on our overall performance.

So that is why we target this 30 to $100 million range.

And in terms of the acquisition market, how does the pricing look in terms of multiples and in terms of what is up for sale?

The pipeline remains very good.

We started a number of years ago, really at John's influence, to put some focus in having our operating managers get more involved in actually selecting candidates, working with people they know in the industry and as a result of that as well as a result that simply more companies are generally available, our pipeline remains very good and we expect to make more acquisitions and we are working and spending a lot of time on them as we speak.

What kind of multiple to EBITAs are these companies are sellers asking for you?

We're typically paying into seven times EBITA kind of level and obviously with our multiple where it is now, that is very attractive.

Good price in this kind of market.

You also talked about the European motor business.

Could you just talk about the outsourcing opportunities in the '04?

You had some outsourcing for integrated producers this year.

Is that going to grow in the '04?

Could you quantify the type of outsourcing you can get?

I think actually you have hit on a bright spot.

I think the outsourcing possibilities are larger in Europe than they are in the U.S. and that is simply because our share isn't quite large in Europe as it is in the US.

So they have done a great job this year of not only finding new customers but also increasing their sales with existing customers because of that as I mentioned before, the movement of some of this business to our low-cost plant in the Czech Republic, which has allowed us to basically lower our cost and get some of that volume improvements.

So I think there are opportunities as we go into next year and as I said, I think they are higher in Europe than they probably are in the U.S.

And as we go through the budgeting process in the next month or two, we will get a much better read on exactly what that possibility is.

I don't have nor am I -- want to give any numbers a because I am just not firm on what those possibilities are.

Okay, great.

(OPERATOR INSTRUCTIONS) Jim Lucas.

One quick question following up on what was a very well articulated acquisition strategy.

Can you talk a little about where you stand right now in terms of management capability, of how much, how many more acquisitions you could take on at one given time or is this something that will have to be spread out evenly throughout the year?

What we basically do, Jim, is we are staffed to handle two relatively good sized acquisitions simultaneously and when I mean, is actively in due diligence, actively acquiring those companies.

We have been able to do three by pulling resources from other parts of the company, but that probably is the bounds on our capability right now.

But of course, one thing that we're getting much better at is doing these much faster and on some of the acquisitions we have just recently closed instead of 8 week period time to close these acquisitions, we're now doing it in five weeks.

So you look at it on that basis and we're not going to be constrained by that level.

Where we would be constrained is if all of a sudden there's three or four good ones that hit us exactly the same time.

Then we would be constrained.

And by cutting three weeks out of the closing times, what have you been able to change or is it just a couple of things that add up?

If I had to pick one fundamental, it's the team of people working together and have done enough of these now that we sort of know what we need to do.

We don't have to sit around and say well, we've got to go look at this.

We need consultants.

We know who they are.

They know us.

We've got the pricing terms already set up with any consultants that we use.

Our legal people have done enough with us now that they can just turn out the agreements, so if I had to pick one thing I would say it is just a very strong team of people working together.

John, I think you might have something?

Something we have learned to do upfront through experiences is to identify the 2, 3, 4, 5 most important things about that deal and really, really focus on those things and make sure get that part right.

If it's a synergy driven acquisition, if its technology driven, if there are issues in the marketplace, if there are some contingent liabilities we're concerned with, we start every meeting.

We have weekly meetings and we start every meeting with what happened on those five things, or four things, or three things and we don't move past that until we have nailed those.

And some of the other stuff that is more extraneous we will not spend our effort on that until we get past the really, really core issues around that acquisition.

Great, thank you very much.

Godfrey Birckhead.

A couple things.

Total assets, John?

I think we gave that. $1,218,000,000.

I'm sorry I missed that.

Thank you.

And the second question is Frank, you mentioned that the low-cost areas will produce $200 million in sales this year versus 173 million last year.

Is there a numbers goal for '04?

We haven't established that goal.

That will come out of the budgeting process.

I stated that and I firmly believe that on longer-term we can double this amount and get up to a number like $400 million.

But that clearly is not going to all happen in 2004.

Thank you.

Steven Colbert.

I was wondering if your stock option. (technical difficulty)

Greg, I think we lost Steve.

Mr. Colbert, your line is open.

Your stock opened up this morning down about 5 percent and I think there was maybe some confusion about the guidance 260 that you offered in the release.

I assume that 260 includes the six cent charge in the quarter and it does not reflect any change in your outlook going forward.

Is that correct, or am I wrong on that?

You are absolutely correct, Steve.

And after we announced the restricted stock vesting in right around August 20 or so, that really reset our range from the 265 to 270, to 259 to 264 with the consensus coming into this call at 260.

And what we essentially did was reaffirm our guidance that was previously given so there really is no change from that perspective.

I think you are right on.

If it is causing some confusion, we will keep working that issue to make sure nobody misunderstands that.

I just wanted to make sure.

Thank you.

There are no further questions at this time.

We will turn it over to Bill Burke for any concluding remarks.

I would 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 316027.

It will all be available on the internet at Ametek.com and at streetevents.com.

Thanks for joining the call.

This does conclude today's conference.

Thank you all for participating.