阿美特克 (AME) 2004 Q1 法說會逐字稿

Good day everyone and welcome to this AMETEK Inc. first 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.

Please go ahead, sir.

Thank you.

Good morning and welcome to AMETEK's first quarter 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 first quarter results were released before the market opened today and have been distributed to everyone on our list.

These results are also available electronically on your market systems and on our website at www.AMETEK.com/investors.

A tape of today's conference call may be accessed until May 4th by calling 888-203-1112 and entering the confirmation code number 464954.

The conference call is also webcasted.

It can be accessed at AMETEK.com and at streetevents.com.

This 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 a 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.

Thanks, Bill.

AMETEK had an excellent first quarter, establishing records for sales, operating income and net income.

These results reflect the broad-based economic recovery that is underway.

Our short cycle businesses were up substantially in the quarter and continue to trend positively.

Our long-cycle businesses are expected to rebound in 2005 and 2006, setting the stage for several years of strong topline growth.

Sales were up 9 percent to $291.4 million on better than anticipated internal growth in both our Electronic Instruments and Electromechanical Groups, as well as the contributions from Solidstate Controls and Chandler Instruments -- two businesses that we acquired in 2003.

Operating income was up 19 percent as we captured the leverage in our business model, significantly increasing our profitability.

Net income of $24.7 million and diluted earnings per share of 36 cents were up 25 percent over the first quarter of 2003.

Once again, we had superb cash flow generation during the quarter.

Cash flow from operations totaled $41 million, a 58 percent increase over the first quarter of 2003.

We are well on our way to another record year of operating cash flow.

Overall we are very pleased with these results.

AMETEK's consistent focus on our four growth strategies enabled us to increase earnings through a very difficult manufacturing environment over the last several years.

Now as we enter a period of economic growth, the strength of the model is apparent in the top-line and bottom-line growth we are reporting today.

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

Our Airtechnology business unit has been awarded a 1 million Pound contract to develop a regenerative nuclear biological and chemical filtration system for the Terrier armor combat vehicle.

The Terrier, expected to enter military service in 2008, is designed for operation in the most extreme climatic conditions.

Our filtration system will be critical to the Terrier achieving its specifications.

Securing this program will result in a large production order and provide an excellent reference for the integration of this advanced technology into the next generation of military vehicles.

During the quarter, we acquired electronic prior control technology from Honeywell.

This technology complements our other foodservice products, which include cooking and brewing controls.

The acquisition of this technology will broaden our product offering to the commercial appliance market segment and expand our relationships with key industry OEMs.

In the future, we intend to make more technology-focused acquisitions like this Honeywell deal.

These acquisitions will expand the technology base of the Company and open additional opportunities for internal growth.

In this quarter, we also shipped an analyzer system to Aramco in Saudi Arabia with a value in excess of $1 million.

This system including analyzers, shelters and sampling systems will be used in sulphur recovery operations.

We have been quite successful with analyzer system sales in the Middle East as end users prefer to deal with a single supplier versus several small vendors.

Our strong relationships with the engineering firms have enabled us to win additional business in this area, including a $1 million Katif (ph) natural gas project in the second quarter.

Also, we have now booked 20 orders at a value of $55,000 to $65,000 per order for our new detective product which can establish if radioactive material is fisile.

This product will be used at ports to establish the presence of material which can be used to produce a nuclear bomb and has received substantial attention from the Department of Homeland Security.

Turning our attention now to the operating groups.

The Electronic Instruments Group, sales were up 13 percent for the quarter to $150.6 million.

EIG's operating income was up 31 percent for the quarter, and operating margins increased to 17.3 percent from 15 percent last year.

Strong operating results are existing and newly acquired businesses drove EIG margins up an impressive 230 basis points.

The acquisition of Solidstate Controls and Chandler and strength in our process and industrial businesses drove the revenue increase.

Improvement in the process and industrial businesses was widespread with particular strength in heavy vehicle, foodservice, factory automation and laboratory instruments.

As expected, power instruments overall were weak on lower sales to the generation market, while our transmission and distribution business and our battery backup power supply business did quite well.

The Electromechanical Group first quarter revenues were up 5 percent to $140.8 million due to strength in our differentiated businesses.

Operating income for the quarter was up 7 percent.

Operating margins were 16.6 percent compared with 16.3 percent in last year's first quarter.

Turning our attention to 2004.

You may recall that as we entered 2004 we were cautious about the strength of the economic recovery and included that caution in our operating plans and the guidance we offered in our January conference call.

We definitely are seeing a broad-based economic rebound in many of the markets we serve, although certain markets such as aerospace and power will not see a major uptick this year.

We are raising our revenue and earnings estimates for the year as a result of this improved economic activity.

We expect our 2004 revenue to now be up mid to high single digits based on the full-year benefits of the Chandler and Solidstate Controls acquisition together with improved internal growth in each of the two segments.

Earnings are expected to be approximately $1.48 to $1.53 per diluted share, an increase of 14 to 18 percent over 2003.

For the second quarter, sales are expected to be up mid to high single digits from last year's second quarter.

Earnings are expected to be between 37 and 38 cents per diluted share, an increase of 16 to 19 percent over last year's second quarter.

I would like to take a few minutes to discuss the greater focus we are placing on internal growth.

Over the past several years, we placed a strong emphasis on operational excellence in acquisitions to deal with the effects of the economic downturn.

That focus was very successful.

Our operational excellence strategy helped ensure that our cost structure was appropriate for the economic environment.

Our acquisition strategy allowed us to more than offset the revenue loss from the economic downturn and add to our earnings.

Together these strategies allowed AMETEK to grow both the top and bottom lines through the recession and perform better than most of our peers and, in fact, side better than most industrial companies.

Now that the economic environment is improving, we are shifting our attention to our new product development strategy to enhance the internal growth rate of the Company.

Our officers meeting, which will be held in June, will focus on this very important topic.

We have expanded the list of attendees to include business unit, engineering and marketing managers throughout the Company with the objective to focus on and further enhance our internal growth rate.

We will also introduce design for Six Sigma or DFFS to the group.

This will become a key tool in leveraging the money we spend on engineering, as well as reducing our time to market.

So in summary, we are very pleased with our first quarter performance.

We grew the top line at a faster rate than expected with better internal growth as the driver.

We captured the leverage in our business model and brought the sales increase to the bottom-line.

We are very well on our way to another record year.

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

Thank you, Frank.

As we have included a balance sheet as part of the earnings release, I will not be covering the key balance sheet amounts but will instead focus on other important things.

Once again, the cash flow for the Company was excellent.

We generated approximately $41 million in cash from operations in the quarter.

We expect that 2004 cash flow from operations will be up mid to high single digits over last year's very good level of $155 million.

Working capital management continues to be an important part of the cash flow improvement.

Our operating working capital defined as inventory plus receivables less payables percent to sales ended the quarter at 20.9 percent, a very good level that ranks favorably to our peers.

Our end of the quarter collection cycle improved by five days from a year ago to 58 days as our operating units did a terrific job on collections.

While our inventory grew in proportion to the sales growth, our inventory turnover metric remained essentially unchanged at 4.9 times.

This very strong cash flow enabled us to decrease debt by $29 million in the quarter.

We continue to strengthen the balance sheet.

Our debt to capital ratio at March 31st was 41.8 percent, down from 44.5 percent at the beginning of the year and 53.3 percent one year ago.

Capital spending was $4.5 million for the quarter and is expected to total about $23 million for the year.

Depreciation and amortization were $9 million in the quarter and expected to be approximately $36 million for the year.

Selling, general and administrative expenses were up 13 percent in the quarter.

Selling expenses after removing the effective acquisitions increased 3 percent, which is roughly equivalent to our core sales growth.

The acquired businesses tend to have higher selling expenses as a percentage of sales than the base AMETEK businesses due to their undifferentiated nature.

Corporate G&A was up in the quarter due to onetime costs primarily related to litigation expenses and professional fees.

We expect corporate G&A to return to a more normalized level for the remaining quarters of the year and approximate last year's full-year amount.

The effective tax rate was 32.9 percent for the first quarter.

We expect the effective tax rate to be between 32 and 32.5 percent for the year.

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

In addition to the strong cash flow of the Company, we have substantial financial resources at our disposal to continue to fund our growth.

At the end of March, we had about $280 million available under our existing credit lines.

In summary, our businesses are running well and taking advantage of the economic upturn.

We continue to generate significant cash.

Together with our strong balance sheet, we look to deploy the cash to continue to grow the business.

Bill...

That concludes our prepared remarks.

Melinda will now be happy to take questions.

Jim Lucas, Janney Montgomery Scott.

First question, housekeeping.

Could you give us the revenue breakdown for the total Company and by segment, please?

You mean total revenue?

Organic acquisition and currency contribution.

Okay.

If we look at this by segment in the first quarter, the internal growth, and that includes foreign currency, was plus 3 percent for the Company, for the Electromechanical Group, it was plus 5 percent, and for the Electronic Instruments Group, it was plus 1 percent.

In terms of the foreign currency impacts, it was overall about $9 million of revenue increase due to foreign currency translation, and it was about $6 million in EMG and about $3 million in EIG.

Okay.

John, one quick housekeeping question on the balance sheet, which we are very appreciative of.

Could you give us the payables number for the quarter?

Payable dollars or days?

Dollars.

Dollars was about 103 million.

Okay.

Then if we switch to bigger picture, as you are shifting the focus to more on the new product side and the introduction of DFFS, is that going to -- are you bringing any outside consultants, or will this be internally driven?

What we have actually done, Jim, is several of our operating units started with DFFS about a year ago, and they have had very good results.

They did get external help in terms of sending some of our key black belts that have more of an engineering background to specific training sessions.

What we are going to do in our June officers meeting is have those people talk to the successes that they have had.

We are going to educate everyone on design for Six Sigma and then offer all of our divisions two courses of action here.

One is to have some internal training activity by having the black belts we already have trained train those other people and, secondly, provide external resources, and it will be up to our individual operating entities as to which approach they use.

My guess is in many cases they will use both.

Okay.

Finally, could you speak to what you are seeing in the acquisition environment just in terms of overall activity and specifically on the valuation side?

Sure, Jim.

I would say the acquisition activity remains very good.

We have got a strong backlog.

I am spending a fair amount of personal time looking at companies, etc., so I am feeling very bullish about the backlog and the potential for us to do a sizable number of acquisitions in the future.

Pricing, no question has gotten a little tougher as the economy has uplifted, but not to the point where it is a major problem.

But we are not finding companies as economical as they were, say, a year ago.

It is interesting I was just reading a number of other companies reports, and in a few of those, I picked up that some of those CEOs were starting to see a decline in the pricing.

I have not seen that yet at least in the deals that I have been associated with.

Great.

Good results in the quarter.

Thank you, Jim.

Good morning.

If you could give us a little bit more detail on the components of sales in each business?

Perhaps give a little bit more in terms of at least order of magnitude -- the industrial EIG businesses versus the aerospace and power and the same general business unit breakdowns that you guys typically present yourselves at?

Could you give us a little bit more -- a couple more parameters as far as which business grew even if you just, say, list them in order, that kind of thing?

I will be glad to do that, Scott.

It was actually an excellent quarter, and the results exceeded our expectations in essentially most of the businesses.

Why don't I start with EIG?

If I look at EIG, the process businesses grew by 15 percent in the quarter.

There was some acquisition component in the process businesses, and if you extract that, the internal growth in the process side was on the order of 3 to 4 percent.

The industrial part of the Electronic Instruments Group did extremely well.

It was up in the double-digit arena and driven by our Dixson division with a major, major rebound in the heavy vehicle business.

Industry reports are saying that the heavy vehicle business is going to be up about 36 percent this year, and we are tracking that.

We have now put that improved position into our forward-looking numbers that I gave to you.

What I told you at the end of the first quarter is that we are only putting about half of that market expected rate into our estimates.

Now that we are actually seeing it, I have let the entire thing flow.

So we are expecting a very very good year in the industrial side of the business.

Aerospace was about flat, and that was actually a little bit better than our expectations.

We thought that it was actually going to be down a little bit, so aerospace did well.

The good news there is that we are starting to see some uptick in the aftermarket part of the commercial aircraft business, and that is extremely important to us because the profit margins on that part of the aerospace business far exceed the OEM portion.

So it was nice to see that growth in aerospace, and we do expect that trend to continue as the year progresses.

The only weak part of the Instruments Group was Power.

We had anticipated this.

It was down on an internal basis about 14 percent, and that was driven predominantly by the generation market.

As you are aware, we do a lot of business with GE and their land gas turbine business is down substantially this year over last year.

At the end of last quarter, I had indicated that in 2003 GE shipped about 106 turbines, and they are expecting to ship about 50 turbines this year.

And what we are seeing now is that GE is starting to raise those estimates, so there could be actually some good news coming out of this as time as goes on.

But we surely did not see that in the first quarter.

We actually did well in Power overall because, as you may recall, we had an acquisition in this area.

So if you include the acquisition, our volume was actually up about 40 percent in the first quarter in Power because of that acquisition.

Switching to the other side of the Company, probably the best way to talk about this would be in terms of the cost-driven businesses and the differentiated businesses that are included within EMG.

The cost-driven businesses were up low single digits, which again was better than our expectations, and the differentiated businesses did fantastic.

They were actually in the double-digit arena.

So the differentiated businesses were also a very positive surprise to us.

So overall this is the best quarter we have had in a long long time.

And those numbers all include currency impacts?

They all include currency.

That is the way we typically talk about these numbers.

They all include currency.

So you have to extract the numbers I spoke of to Jim's question before if you wanted to exclude the currency impacts.

Just one follow-up to internal growth where your revenue guidance for the year is now mid to high single digits with internal growth in both segments, again could you go a little bit more granular with us on the mid to high singles includes what portion acquisition versus FX versus all the rest, the core stuff?

Yes.

Let's see if I can tackle that one.

Basically what I said in the conference call last quarter was that we expected the overall growth of the Company to be in the mid single digits and we expected low single digits in terms of internal growth, and that included the foreign currency impacts again, the way I typically talk about internal growth.

What we are now saying is we are taking the Company from mid single digits to mid to high single digits, and it will probably push more towards the higher end than the lower end of that spectrum.

That is being driven by the internal growth being essentially better than we thought.

If we look at the change I would say in internal growth from the last conference call to this conference call, we are looking at maybe four points or so of better internal growth than what we thought we were going to have.

In terms of the last part of your question on foreign currency, we are assuming about the same that it is going to be on the order of 2 to 3 percent in terms of the effects of foreign currency.

John, you have a point?

We are assuming the exchange rates in place at the end of the quarter, which would actually modulate the effect as the year passes from the $9 million down to a very low number by the fourth quarter.

So that is a diminishing effect throughout the year.

Matt Summerville, McDonald Investments.

A couple of questions.

First, Frank, with the initiatives you are putting into place in terms of developing a better internal growth profile for the Company, on a go-forward basis what sort of targets do you have for AMETEK?

On the new product development side, as a percent of revenue, are you also targeting some sort of mix of new products on an ongoing basis being a critical component of revenue?

Sure.

Let me speak to each of those questions, Matt.

Basically when I look at the model that we are using for the Company, we are basically looking at an organic growth rate of the Company, excluding foreign exchange, in the mid single digits.

That is the fundamental model we are using, and then adding to that the acquisitions which would bring another 5 to 10 percent in terms of growth, which gives the top line up to this 10 to 10 plus percent kind of region, which will give us the 15 percent kind of bottom line growth that we are driving.

So that is the objective.

That is what we are moving ourselves towards.

We think it is realistic.

As a matter-of-fact, we believe if we tried to grow internally in the markets that we are in at a rate, say, in the 10 percent region, it would not be an efficient use of capital.

So that is in essence the basic financial model that we are using.

The second part of your question was targets on the engineering projects as a percent of sales.

Yes, we are now running in the 10, 11 percent region on our metric, and that metric is when you look in a given year what percentage of sales comes from products that were introduced in the last three years.

We would like to move that up into the 15 to 17 percent kind of number.

We are not a company where that is going to get 25 percent.

It is not a realistic objective, nor the proper objective in my opinion.

So we are going to be looking to move that up over the course of the next few years, and we have a very strong engineering component in this company, and we are going to really focus on driving that over the course of the next few years.

What end markets do you view on the new product development side as key targets in really driving the improvement there?

Is it the oil and gas market?

Is it the nuclear detection piece of the business?

What are the real keys here for you?

That is a great question.

The first cut that we would take is we are going to obviously look at our differentiated businesses versus our cost-driven businesses.

That does not mean we are not going to do engineering in our cost-driven businesses, but the leverage and the top-line growth is predominantly going to come from the differentiated businesses.

Within the differentiated businesses, I have a particular focus on the analytic instrument side of the business, which would include all those businesses that service the process industries -- oil and gas etc.

The nuclear business is a great business, especially with the state of the world where it is today, so we will put focus on that.

So there will be a strong thrust on that high end of the Instruments Group, as well as the differentiated side of the Motors Group.

We have got some great businesses in the differentiated side of the Motor Group.

As I already mentioned, in the first quarter, their volume was up in the double-digit arena, and we have been investing well in those businesses.

We are going to continue to do that, but we are going to put more focus on the new products that are going to come out of those businesses in the hopes of again raising that internal growth rate of the Company.

Last question.

Based on where you sit today in terms of your top and bottom-line guidance for 2004, what has to happen for AMETEK to drive incremental upside to what you are talking about today?

Is there specific end markets that need to pick up for you?

Are there specific things that you need to execute on the cost side?

Can you talk about that a little bit?

Sure.

It is really both, and I do not think there is substantial risk in the numbers that we gave you.

There is probably more upside than downside, and the upside will really be based on how strong and how constant this recovery is.

If in fact the steam we are seeing and we have been seeing for the last three to six months continues, we are going to do very well.

And yes, there is a cost component to our overall focus as well.

You know, as you are aware, we do quite well in terms of controlling the costs in the Company and approving upon them, and we are continuing to move manufacturing to low-cost locales.

And actually I will take a little sidestep here and talk about the cost-driven businesses and moving to these low-cost locales.

We had an excellent quarter.

Actually about $52.5 million of revenue was actually done in our low-cost manufacturing sites during the quarter, which if you annualize that is a run-rate of about 210 million.

We did about 175 to 178 million last year in those low-cost locales.

So we are up some 32-35 million, and if you recall, I had forecasted about $40 million of revenue on an incremental basis that we would get.

So we are well on our way to doing that, and we have the opportunity to exceed that, which also could provide stronger results.

Another point I would just like to make that also links to your question is that we were extremely pleased with the contribution margin in the first quarter.

You may have heard me talk before about the fact that the average contribution margin in the Company is 40 percent with pretty vast differences between our businesses, with EIG being about 48 percent and EMG being about 32 percent and even substantial variance within those groups when you look at the specific businesses.

When you look at the first quarter and extract the acquisitions, because obviously you are not going to get the contribution margin on the acquired revenue, but if you extract that out, our contribution margin actually exceeded the 40 percent and exceeded it by a fair amount.

So we were delighted to see that for the first time, to get that type of leverage to the bottom line.

And that is going to prove very beneficial as we not only go into next year, but also as we go into 2005 and '06 when our aerospace, which is a very high contribution margin business, rebounds.

So I don't know if that answers your question.

Absolutely.

Thank you very much.

Wendy Caplan, Wachovia Securities.

Good morning.

Could you talk a little bit about input costs in terms of raw materials specifically and energy, and what that is looking like for you at this point, and how you are handling the higher input costs?

Yes.

Great question.

You may recall in our last conference call we had assumed and budgeted about $5 million of negative impact due to commodity price increases.

We felt at that time that we could offset about half of that through price increases, through better procurements, through aggressive management.

What has happened since that point in time is the commodity prices have continued to escalate above that level, and we just actually went through an analysis in the last couple of days.

We were very aggressive during the quarter working with our operating managers, but we did not actually know where we ended up.

After that analysis and talking with the key managers that are being affected most by the commodity price increases, what we have concluded, and is obvious in our results as well, is that even though the commodity pricing has gotten worse, we have been able to offset that.

We have been able to offset it through price increases.

We have been able to offset it through good procurement.

We have set up what we are calling a global sourcing organization in China.

We have hired people into that organization, and they are sort of the center of activity for all our U.S.-based operations to funnel their procurement activities through procurement out of essentially that part of the world.

And that has been very successful for us.

So the net net here is that we are still expecting about $2.5 million of net negative impact this year.

That is in our numbers, it was in our budgeting, and we believe obviously if things get worse, we will have to deal with that.

But I think the discipline is in the Company to properly handle the problem.

Thank you and one other question.

I have been trying to listen carefully to your assessment of '04 and what you expect currency to contribute and current acquisitions that haven't an anniversaried yet, which I guess would be going forward just Chandler.

It still appears to me that you are being particularly conservative relative to your industrial peers that we have heard thus far in reporting season.

Can you comment on that whether you are being somewhat conservative?

I heard you say that there maybe some upside.

Of course, our estimates exclude no additional acquisitions, which is never a good assumption for AMETEK.

Can you just say some more about your assumptions?

Yes.

I mean I think your point is valid that there is surely more upside than downside in the numbers that we provided to you.

We I think have our tradition of being somewhat on the conservative side.

We have only had one quarter here of really super results, and one quarter does not necessarily a trend make.

But I think the best way I can answer your question is that there is more upside than there is downside in the estimates that we have given you.

If in fact the economy continues to pick up steam, the contribution margin as I mentioned in the businesses is excellent, and you could expect further improvements in the bottom line.

Thank you.

Elana Hordon, Merrill Lynch.

I wondered if you could comment on order activity levels in the quarter and also what March looked like relative to February?

Yes.

Great question.

Our orders were 316 million for the quarter, and they basically improved during the quarter.

It was 100 million in January.

I think it was 101 million in February.

John, check me on that number.

And it was a 115 million in March.

Yes.

It was 101 million in February.

So January and February was sort of flat, and March was great.

The really good news in those orders is that if you look at it on a quarter-over-quarter basis and extract from the first quarter of last year the acquired backlog because we have obviously acquired two companies in the first quarter of last year and sort of get an apples-to-apples comparison, orders were up almost 20 percent.

Terrific.

My last question is, can you tell us how much pension and medical or healthcare costs were this quarter and what they were last year?

Let me see I will try to answer that question on a year basis and then go back to the quarter.

In terms of pension costs, we expected a positive for the year of about a nickel a share.

So that would mean we got essentially a penny of positive news in the first quarter from pension.

Medical, John?

That is probably offsetting that pension help by a slight amount, so we are net net in the hole on that.

(OPERATOR INSTRUCTIONS).

Richard Eastman, Robert W. Baird.

Good morning.

A couple of questions.

Could you just comment, you had said earlier that if we pull out the acquisitions that your incremental margin in the first quarter year-over-year was 45 percent on the base business?

I said it was above 40 percent.

Above 40 percent?

Yes, that is correct.

Are we net getting price increase?

Is it visible in the sales line?

Are we getting a point or half a point?

There is a little bit.

I do not have an exact number.

But I would say that a good part of the way we have offset the increase in commodity pricing has been through better sourcing than it has through price increases, although we have been successful with price increases.

So there is a little bit of that in there, but it is not a substantial number in the quarter.

The other question I had is, it seems like in the quarter perhaps the real surprise in terms of sales dollars came in the EMG business.

I am a little bit curious on the commodity side, the floor care side, especially motor side, up in the low single digits, how sustainable is that?

I am a little surprised that that surprised us.

Isn't that business usually pretty visible?

Can we sustain that kind of growth in that segment of the business?

I see no reason why that is not a sustainable number.

And in fact, our forecasts going forward assume that we are going to stay pretty much at the level that we are at, not more uptick for the year and also not more downtick.

So it is a pretty positive picture.

We saw some improvement in the U.S..

We saw a definite improvement in Asia.

So it is a better picture undoubtedly from what we thought it was going to be going into the year.

Godfrey Birckhead, SBK Brooks.

Just to beat a dead horse, Electronic Instruments sales were up 13 percent.

Without Solidstate and Chandler, how much would they have been up?

Let's see.

EIG would have been up low single digits.

Okay. 3 percent or something like that?

Yes.

Okay.

Thanks.

John, thank you for the balance sheet.

I appreciate that.

The SG&A expenses, John, would have been -- were 10.6 percent of sales versus 10.2 percent last year even though your pension costs you said earlier were somewhat lower.

Can you enlighten us on that, and are they expected to be up as a percentage of total sales for the year?

What is going on there?

Sure.

You have to break that down into its components.

The selling expense is running higher as a percent to sales due to the differentiated businesses and acquisitions that we have got that are taking up -- that are increasing their share of the Company.

They by their nature have a higher percent of sales through higher commissions, higher product support, etc..

So as those businesses grow within AMETEK, you will see that natural profile shift in that direction.

The corporate G&A number was higher in the first quarter due to some relatively onetime events, litigation and consulting fees, and the prediction for the year is the corporate G&A should drop down and end up the year roughly where we ended up last year.

Okay.

So if you are doing a model, look at 2003 and look it to be the same in 2004 then?

For the end of the year, that is correct.

Okay.

CapEx this year?

23 million.

How much?

23 million.

D&A?

9.

No, 36 for the year.

36 for the year?

Yes.

Okay.

What are you guys spending on R&D now?

Last year we spent about $50 million, and our budget this year calls for about a 7 percent increase in that number.

And 50 million last year?

That is correct.

How much in the EMG -- what percentage of their sales are in the differentiated businesses?

The cost-driven businesses are on the order of $300 million.

So the remaining volume would be in the differentiated businesses.

Thanks a lot, guys.

(OPERATOR INSTRUCTIONS).

Scott Graham, Bear Stearns.

Last year you called 2003 a terrific year for new product introductions.

How would you characterize 2004 and maybe give us some reasons why?

Yes.

I am feeling very very good about the product introductions that are going to come out in 2004.

Probably the most important metric I can give you is during this downturn where we were extremely aggressive on our cost structure with just some of the announced programs, we took out over $50 million in costs.

During that time, we actually increased our investment in new products, and the numbers I just gave Godfrey with last year being at 50 million, my recollection is that was up about the same number, about 5 to 6 percent from the previous year.

We are now increasing it more.

So we're putting muscle behind this.

It just isn't sort of idle talk.

We are really focused on this.

And the key thing in how you allocate those expenses is to put them in the businesses that have the best opportunity to grow, which tend to be a) our differentiated businesses and b) our more differentiated businesses.

So the focus on those dollars is going to be in our high-end analytic instrument businesses and our aerospace businesses and our high-end motor businesses that did extremely well in the first quarter.

There is a continual stream of new products that we are expecting this year.

As a matter-of-fact, I have a list of them down in my office, and of the ones that I look at, there is probably about 30 product introductions that are going to be coming out sequentially during the year quarter by quarter.

And our approach here is sort of a single and double approach, not a homerun approach that most of the product developments we do will add to the overall growth.

There is not a killer product that is going to give us in general $50 million worth of revenue.

So it is a single and double approach constant hitting the market with new products, so I feel pretty bullish.

I don't know if that answers your question?

It does.

Thanks, Frank.

Gentlemen, at this time, there are no further questions.

Mr. Burke, we will turn the conference back to you for any additional or closing remarks.

I would just like to thank everybody for joining us, and if you have any further questions, please feel free to give me a call.

That does conclude today's conference.

We do thank you for your participation.