Ladies and gentlemen, thank you for standing by. Welcome to the AMETEK second quarter 2012 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Mr. Kevin Coleman, vice president of investor relations. Please go ahead, sir.

Good morning, and welcome to AMETEK's second quarter earnings conference call. Joining me this morning are Frank Hermance, chairman and chief executive officer, and Bob Mandos, executive vice president and chief financial officer. AMETEK's second quarter results were released earlier this morning. These results are available electronically on market systems and on our website at the Investors section of www.ametek.com. A tape of today's conference call may be accessed until August 7 by calling (800) 633-8284 and entering the confirmation code number 21597870. This conference call is also webcasted. It can be accessed at www.ametek.com and at www.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 risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the Securities and Exchange Commission. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. I will also refer you to the Investors section of www.ametek.com for a reconciliation of any non-GAAP financial measures used during the conference call. We will begin today with prepared remarks by Frank and Bob, and then we will take your questions. With that, I will turn the meeting over to Frank.

Thank you, Kevin, and good morning, everyone. In the quarter, we established records for orders, operating income, operating margins, net income, and diluted earnings per share. Orders in the second quarter were a record at $916 million, up 15% from the prior year. The book-to-bill ratio in the quarter was 1.11. Sales in the second quarter were up 9% to $825.9 million. Internal growth was flat due to a weak international environment, while acquisitions added 10% and currency was a 1% headwind. Excluding the cost-driven motor business, which was impacted by weakness in Europe and the impact of a very difficult comparison in Asia, our internal growth was 3% in the quarter. Operating income for the second quarter was superb. It increased 18% to a record $185 million from $157 million last year, reflecting the impact from our operational excellence activities and our longer cycle, higher-margin businesses. Operating income margin in the quarter was a record at 22.4%, a 170 basis point improvement over the second quarter of 2011. Net income was up 21% to $113.7 million, and diluted earnings per share of $0.47 were up 21% over last year’s second quarter and above the top end of our prior guidance of $0.45. Both net income and diluted earnings per share were records. Backlog at the end of the second quarter was over $1 billion, an all-time record high. Working capital management was excellent, operating working capital was 17.7% of sales. Turning our attention to the individual operating groups, the electronic instruments group had a solid second quarter. Sales were up 11% to $452.1 million on strength in our aerospace, oil and gas, and power instruments businesses in addition to the contributions from the acquisitions of O’Brien, TMC, EM Test, and Reichert Technologies. Internal growth was 1% while acquisitions added…

Thanks, Frank. As Frank noted, we had a strong second quarter, with excellent financial performance and a high quality of earnings. I will provide some further details. Growth in selling expenses was in line with growth in sales. General and administrative expenses were 1.4% of sales, below last year’s second quarter level of 1.8% of sales, driven by the accelerated stock vesting in last year’s second quarter and lower consulting spend this quarter. The effective tax rate for the quarter was 30.8%, down from last year’s second quarter rate of 31.4%. We anticipate a tax rate of between 30% and 31% for the full year of 2012. As we have said before, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year rate. On the balance sheet, working capital, defined as receivables plus inventory less payables, was 17.7% of sales in the second quarter, essentially in line with last year’s second quarter, reflecting the continued efforts of our teams to reduce our investment here. Strong working capital management will remain a key priority. Capital spending was $12 million for the quarter. Full year 2012 capital expenditures are expected to be approximately $60 million. Depreciation and amortization was $26 million for the quarter. 2012 depreciation and amortization is estimated to be approximately $108 million. In the quarter, operating cash flow was $116 million, and free cash flow was $104 million. Operating cash flow in the first half of 2012 was $257 million, up 17% from the first half of 2011, and free cash flow was $236 million for the first half of 2012, representing 105% of net income. For the full year, we anticipate free cash flow to be approximately 115% of net income. Our strong cash flow was deployed to support our acquisition strategy, where we expended approximately $500 million in the first half of 2012. Total debt was $1.51 billion at June 30, up $248 million from year end. Offsetting this debt is cash and cash equivalents of $164 million, resulting in a net debt to capital ratio at June 30 of 37%, up from 35% at the end of 2011. At June 30, we had approximately $655 million of cash and existing credit facilities to fund our growth initiatives. Our highest priority for capital deployment remains acquisitions. In summary, we had a solid second quarter, establishing records for essentially all the key operating metrics. We are well-positioned for further growth, both organically and through acquisitions, with a strong balance sheet and cash flows.

Great, thank you Bob. That concludes our prepared remarks. We’ll now open it up for questions.

[Operator instructions.] Our first question comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question.

Frank, you talked about aerospace being strong for you, but we’re certainly hearing concerns about the aftermarket on the commercial side. Could you give any color around that, and what you’re seeing there specifically?

Yes, actually our aftermarket business is doing quite well. We had very strong performance in the second quarter, and we actually are expecting that to continue. I know that some other companies have been talking about, in particular in Europe, their aftermarket business being weak. So I took an extra special look at that, and in fact our business is good. We are gaining share in that part of the world, and as a result even though the economy is a little bit weaker, it looks pretty good. So we’re forecasting for this entire year it’s going to be up high single-digits organically for the year or so. We feel pretty good about it.

Great. And then obviously margins have been spectacular, and you’ve been outpacing what you sort of guided to at the beginning of the year. In addition, more cost savings coming out. How should we be thinking about margins as we head to the back of the year here for you guys?

In the last conference call we had raised guidance up to 40 basis points for the full year and we’re conservatively now saying up 60 basis points. So the margins have just been spectacular in the company and our operating people are doing just a first class job in terms of managing their P&L. So we’re very pleased with that, and we’re pleased that we’re able to raise that guidance.

Our next question comes from the line of R. Scott Graham with Jefferies & Company. Please proceed with your question. R. Scott Graham - Jefferies & Company : The question I just had for you, Frank, is the typical synopsis across both segments, really, just kind of by market, how you typically do that.

Let’s start with aerospace. Our overall aerospace continued to performance very well in the second quarter. We had double digit organic sales growth, essentially on broad-based strength across all parts of our aerospace business. We expect to see continued solid growth for aerospace in 2012 as trend in order rates, OEM build rates, revenue passenger miles, and our program wins really support strong commercial third-party MRO and also business and regional jet sales. Surprisingly, our military business also performed well in the second quarter and that’s two quarters now in a row where it essentially has outperformed. So if we look for all of 2012, we are expecting our commercial and third-party MRO businesses to be up high single-digits. We expect our business in regional jets to be up low double-digits. And our military business is now expected to be up low single digits. So for overall aerospace, we should be up organically in that mid to high single-digits, and we’re obviously trending more toward the higher single digits now. Moving on to our process businesses, our process businesses performed well in the second quarter, with sales up low double-digits. Our oil and gas business continued to show sizable strength while our advanced measurement technology division was also very strong. Overall growth benefited from the Reichert Technologies, TMC, and O’Brien acquisitions while organic growth was flat in the quarter due to weak international performance. Business remains solid in the U.S. for our process businesses. And for all of 2012, we expect this business to grow low double-digits on a percentage basis overall with low to mid single digit organic growth. In particular we expect continued strong performance from our later cycle oil and gas business. Moving to the power and industrial part of EIG, overall second quarter sales were up…

Our next question is from the line of Christopher Glynn with Oppenheimer. Please proceed with your question.

I had a question about the organic growth. It looks like you’re looking for a pickup versus the Q2 rates. I’m just wondering how the comps play there. It sounded like you had a little bit of a lumpy comp in the second quarter. And maybe by segment, same question.

Definitely we had a somewhat difficult comp in the second quarter. It was predominantly in Asia on the comp. We had very strong sales last year to multiple semiconductor customers and also the Fukushima situation last year caused us to have high sales in the particular quarter. Some of that will spill over into the third quarter, but we expect the third quarter to be essentially low single digits in terms of organic growth and we expect the fourth quarter to be mid-single digits. And there is an easier comparison in the fourth quarter. So that’s why we feel the second half organics will be about the same as the first half organics.

And then nice to see the pickup in the vitality index to 23%. Some companies, lower specification than you, cite a little bit higher rate there. Maybe they define it differently, obviously, but just wondering if maybe you think you use a stricter budgeting process for returns on new products?

Right. It’s a great question, and when we first instituted this vitality index, we tried to come up with a common definition of what a new product is across the company. And it was extremely difficult to do, because we have such a variety of different businesses, some very short cycle, some very long cycle. So what we ended up doing is saying to each of our operating entities, you decide on the definition, but you can’t change it. So therefore, I would rely more on the relevance change in our vitality index versus the absolute level of it. And I can tell you, we’ve kept this definition over the last 10 years, and when we started measuring it, it was at a 10% level. This 23% level, I believe, is a record high. Bob is shaking his head yes. I don’t recall one this high. And the key point is it was up from 21% in last year’s second quarter. So we’re definitely getting a lot more productivity out of the engineering dollar that we’re spending. We feel we’re spending the right amount in terms of percent of sales, and so we’re really focused on the productivity of that dollar, which this vitality index is an indicator of.

So it sounds like, given the margin upside, you’re not intent on liberalizing the budget?

You mean going with more in terms of new product development expense? Is that what you mean?

Yes.

My guess is we will see that inch up as the year goes on. And we’ll see how the third quarter feels, and we probably will inch that up some.

And just lastly, with the softer environment, seeing any impact on the pace of individual deal negotiations?

This is the first time I can say - or maybe I said it in the last conference call - for a number of quarters prior to this, I had not been feeling that pricing was showing a downward trend. And I’m starting to feel that now. I’m feeling deals are more reasonable. We did close the Dunkermotoren deal at 8x trailing in the second quarter. The O’Brien deal in the first quarter was 9x trailing. So I think there is some reaction to the slowing. I probably don’t have enough data points to fully quantify it, but it just feels a bit better now than what it has.

Our next question comes from the line of Jamie Sullivan with RBC Capital Markets. Please proceed with your question.

Frank, maybe you can just kind of walk us through the geographies - U.S., Europe, Asia, BRIC countries - and sort of what you observed in organic growth this quarter?

It’s an interesting picture. The U.S. was fine. It was up in the 2-3% kind of region. The European organic growth was actually flat, but there’s a difference between the various parts of the business, where on the EMG side of the business, Europe was - the floor care motor business, as I mentioned in some of my opening remarks - very, very weak. And that drove the organic growth of EMG down. For the company, in Asia it was actually our weakest performance. That was down 5%. But that was due to the factors that I mentioned in terms of the very tough comparisons to last year. So as I said, I think those organic growths will show an improving trend through the second half. But actually Asia was the worst, which is I think the first time I can remember Asia having the worst organic growth rate in the company in a long, long time. So there’s definitely some softening going on there, but more so than that, it was a tough comparison.

And then how about the rest of the BRIC regions? How did those perform?

They performed okay. China, obviously, is the largest part of our BRIC region. Russia was strong. Brazil was okay. They were fine. China is the driver here.

And I think you mentioned some international process softness as well. Is that speaking to the Asian observation there that you mentioned?

Yes, that is correct.

And then maybe you can just talk a little bit in more detail on kind of what the initiatives are on the cost containment side that are getting you that extra $15 million this year?

Basically, we have increased substantially the amount of savings we’re going to get in the procurement activities that we have. So we’re going to go up another, say, half of that $15 million is the result of sourcing activities. The remaining half is a combination of some targeted reduction in forces, and some belt-tightening across the company. We’re reacting in a manner that’s consistent with a sort of slowing of the top line. We’re not feeling that we’re going to have some major issue on the top line, but we just decided - and I think you know our culture quite well here - that we tend to react as soon as we see softening, so we decided to react and put these in place. And we’re going to watch the business. If things soften more, then we will take some more significant actions to ensure the profitability of the company.

Our next question comes from the line of D. Mark Douglass with Longbow Research. Please proceed.

What is the payables number?

$300 million.

Frank, you were talking about the M&A environment and prices coming down, but with that, are you also taking down what you’re willing to pay for deals as well? Is there still kind of a disconnect, or not?

No, I’m feeling relatively comfortable with the multiples, where they are now. And what we were doing when I felt some of the deals were a bit higher than we wanted to pay is we were parsing the deals to acquire those companies where we had more than the norm of cost synergies in those businesses. So we always keep the same return type of metrics, irrespective of what the pricing is. So the fact that they’re lower now, a little bit, in terms of the sales price, we’ll probably get better returns on those deals.

And then you said the book-to-bill was 1.11?

Yes.

That’s pretty strong. How were those orders splitting, say, between Q3 and Q4? Is a lot of that baked into Q4? Some longer cycle businesses?

Yeah. I mean, a good part of that increase was due to backlog that we acquired from Dunkermotoren. Because that was a fairly large deal. And obviously when you acquire the backlog, it goes into the order number. So there was a sizable piece due to that deal. And that will ship in Q3 and in Q4, with stronger sales in Q4 than in Q3.

So can you back out what was the organic book to bill?

It was roughly the same as sales. It was roughly flat for the same reasons we talked about.

Our next question comes from the line of Matt Summerville with KeyBanc. Please proceed.

Frank, I was wondering if you could spend a couple additional moments talking about some of the other end markets outside of oil and gas and semiconductor in the process group of businesses, what you’re seeing domestic, internationally. You typically parse it into maybe four or five buckets. Can you do that?

Are you talking about the process businesses in particular?

Yes, the process piece only, really.

Well, if you look at the breakdown of that business, about a third is in oil and gas, about 25% is in instrumentation related to metals, about 20% is in research and sort of development kinds of applications, and then the remaining whatever it is, 22%, is just in a varied number of industries. And obviously the third that was oil and gas remained very, very strong in the quarter. If you look at the number of worldwide rigs it’s around 3,500, which is near an all-time high. We’re impervious to whether it’s oil or gas rigs, as long as people are drilling. So we think that segment is going to continue to do fine. The part of the business that’s linked to metals has a very large portion of their business in international and as a result it was weaker. And it went in the opposite direction from an organic viewpoint to the oil and gas business. And the research environment was mixed. We had some parts that were very, very strong, some parts that weren’t. But the key driver to the process business is the fact that 70% of those businesses are outside the U.S., and that’s where we’re seeing the weakness, and that’s also where we have the tough comparison.

As you progressed through the quarter, did your organic book-to-bill change much from month to month? I guess I’m trying to get a feel for where your rate entering the quarter would have been versus exiting.

Actually, it’s going to be a little contrary to what you’re probably expecting the answer to this question to be, in that it actually increased during the quarter. It was the lowest in the first month and it went up for the second two months, and was about the same in the second and the third month in the quarter.

[Operator instructions.] And our next question comes from the line of Richard C. Eastman with Robert W. Baird. Please proceed.

Frank, just to do the quick math on the core orders growth rate, it looks like it was up maybe 3% or 4%. Is that the right math?

It was a little weaker than that. It wasn’t up quite 3-4%.

And when you look at that book-to-bill, just in general, excluding Dunker, does your backlog also favor the fourth quarter? Is that how we get that kind of mid single digit four?

It definitely favors the fourth quarter. In particular, our fourth quarter in aerospace is always our strongest quarter, and as you know the backlog in aerospace has the longest cycle to it. So there’s definitely a preponderance, or a larger percentage, of that backlog that will ship in the fourth quarter. And as I said before, in fairness on the organic side, the fourth quarter also has some lower comps on, in particular, the floor care motor business.

And then also, is price, just generally speaking, holding up? I know when we entered this year, we felt that we could be fairly aggressive on price given our growth assumptions or our outlook at that time. Is price at least holding up? Or are there any of the businesses starting to require you to price a little more aggressively for the volumes?

Pricing is okay. It was up in that 1-2 point region. So price is still okay. We’re not seeing any substantial change in the pricing environment. That could change over the next couple quarters, but right now it looks okay.

And there are no further questions at this time. Please continue with your presentation or closing remarks.

Great. Thanks everyone for joining our conference call. As a reminder, a replay of this call may be accessed on the internet at www.ametek.com and at streetevents.com. As always, if there are any further questions, please feel free to call me at 610-889-5247. Thank you so much.