阿美特克 (AME) 2005 Q3 法說會逐字稿

[OPERATOR INSTRUCTIONS] For opening remarks and introductions, I would like to turn the conference over to Mr. Bill Burke, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Regina.

Good morning, and welcome to AMETEK's third quarter earnings conference call.

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

AMETEK's third 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 ametek.com/investors.

A tape of today's conference call may be accessed until November 2nd by calling (888)203-1112, and entering the confirmation code number 9070431.

This conference call is also webcasted.

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

The conference call will be archived on both of those 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'll now turn the meeting over to Frank.

Thank you Bill.

AMETEK had a very good third quarter, posting strong year over year increases in sales, operating income, net income, and diluted earnings per share.

Core growth, acquisitions and operational improvements all contributed to double-digit growth on the top and bottom line.

Sales were up 11% to $344.5 million, operating income was up 16% to $58.7 million, group operating margins expanded 80 basis points to 18.9%, record net income of 35.4 million was up 22% and diluted earnings-per-share of $0.50 were up 19% over the third quarter of 2004.

We had strong cash flow in the quarter.

Operating cash flow was $48 million, more than doubling the cash flow generated in last year's third quarter.

We experienced several unusual events in the quarter.

First, we recognized a pre-tax gain on the sale of a facility of approximately $4 million.

We also incurred higher than normal expenses of approximately $2 million to accelerate the movement of production to low cost locales, and income was adversely impacted by approximately $1 million from the effects of the gulf hurricanes.

These items effected operating income.

Finally, reflected in other expenses, is approximately $1 million of cost related to an acquisition that AMETEK chose not to complete.

Our markets remain very good.

Internal growth rate for orders for the entire company was 6%.

For the Electronic Instruments Group it was 7%, and for the Electromechanical Group it was 5%.

Orders were particularly strong in Power, signaling potential recovery in this market, as well as in Aerospace.

Organic sales growth in the quarter was 2%, and less than our forecast.

There were two drivers for this.

First, we experienced some rebalancing of customer requirements on our Aerospace and Defense business based on strong shipments in the first half of the year.

This is a temporal situation, and we expect strong sales in the fourth quarter based on our backlog and continued excellent order performance.

Secondly, the impact of the gulf coast hurricanes impeded our ability to ship to and service our customers in the region.

The impact here was primarily felt in our Power businesses, though there was some impact to the Process and Motor businesses as well.

Overall, we expect the impact from the hurricanes to be a net positive to our business over the next 6 to 9 months as product and service revenues are increased to rebuild the infrastructure in the region.

In the fourth quarter, we expect to have mid-single digit internal sales growth for the entire Company.

Turning our attention to the individual operating groups, the Electronic Instruments Group had another great quarter with sales up 19% to $205.5 million.

EIG's operating income was up 34% for the quarter and operating margins increased 21% -- to 21% from 18.6% last year.

The revenue increase was driven by internal growth and the contribution from the Spectro acquisition.

Operating income was up sharply, driven by the top line performance, the benefits of our operational excellence initiatives across the group and the gain on the sale of the facility.

The Electromechanical Group saw revenues increase 1% to $139 million, as strength in our differentiated businesses overcame a slight decline in our cost driven motor business.

Operating income was down 8% to 22.1 million.

Operating margins were 15.9% in the quarter, as compared with 17.4% in the third quarter of last year.

Higher than normal expenses associated with the acceleration of movement manufacturing to low cost locales of approximately $1.8 million drove that profit decline.

Without these costs, EMG's operating income would have been essentially unchanged.

These moves to low cost locales will result in annualized benefits of more than $4 million.

Turning to our outlook for 2005.

We expect revenue in the fourth quarter to be up over 20% on solid internal growth and the benefits from our acquisition program.

Earnings are expected to be $0.52 to $0.53 per diluted share in the quarter.

For 2005, we expect revenue to increase approximately 15%.

Based on continued strength in our markets, we are raising our 2005 earnings estimate to $1.98 to $1.99 per diluted share, an increase of 21% to 22% over last year.

I would like to change gears and spend a few moments talking about our most recent acquisitions.

This has been a very successful year for AMETEK in finding and closing acquisitions.

To recap, we have closed three acquisitions of sizable companies representing nearly $260 million in annual revenue.

They are HCC Industries and the Solartron Group, each of which was closed over the last several weeks, and Spectro Analytic Instruments, which we closed in June.

We paid 335 million for these businesses, representing an average multiple of approximately 8 times trailing EBITDA, very reasonable prices in today's MNA environment.

I spoke at length in the conference call last time about Spectro.

That integration is moving along well and we are pleased with our progress.

Over the last several weeks we closed the the HCC Industries and Solartron acquisitions.

These are 2 great companies that we are very please to have as part of AMETEK family.

I would like to spend a few minutes talking about each of these businesses.

HCC is a differentiated business that has focused on the design and manufacture of highly engineered hermetic, or moisture proof, connectors, terminals, headers and microelectronic packages.

HCC is a new platform for the Electromechanical Group.

The excellent internal growth of the business, coupled with our ability to add synergistic acquisitions, should enable this platform to become a major part of EMG.

The key market for HCC, representing more than two-thirds of sales, is Aerospace and Defense, a market we understand very well.

HCC has annual sales of approximately $104 million.

We paid $162 million for the business.

Profitability of the business is great with EBITDA margins comparable to AMETEK's.

We feel that there is still room to improve upon these margins.

Together with HCC's management team, which has joined AMETEK, we're developing and implementing plans to grow the top and bottom lines of the business.

One key area of synergy is with our specialty metals products division.

HCC uses special alloys in its microelectronic packaging products.

Our specialty metals business currently produces these alloys of [indiscernible] copper and tungsten copper.

We envision specialty metals supplying HCC, as well as working with them to develop new materials for HCC.

We also have a market synergy with HCC, since 70% of their business is in Aerospace and Defense.

Turning to Solartron.

We closed the acquisition of the Solartron Group from Roxboro PLC on September 26th.

AMETEK was really the perfect buyer for this business.

Solartron's 3 businesses match up very well with existing AMETEK businesses.

The first, Solartron Analytic produces high precision analytic measurement instrumentation for the characterization of materials.

Solartron Analytic's products are used for electrochemistry, corrosion analysis, and advanced material analysis and are sold to research, metals, and other industrial markets.

Together, with our Princeton Applied Research business unit, AMETEK will be the market leader for these types of instruments

The second part of this acquisition is Solartron Metrology.

They are a leading manufacturer of digital and analog gauging probes, displacement transducers and associated instrumentation used primarily to measure the size and form of machined or fabricated parts.

Its products are used in the aerospace, glass manufacturing, semiconductor and other industrial type markets.

Solartron Metrology complements AMETEK’s Taylor Hobson business, a leader in the ultra-precision metrology field.

The last part of this business is Solartron ISA.

They design and manufacture flow measurement devices for the oil and gas industry.

A rapidly growing market for ISA is Wet Gas metering.

Based on patented technology, ISA’s Dualstream® Wet Gas meters are able to differentiate between liquid and gas flows in on-line, real-time processes at the well head or on transmission lines.

ISA’s product line is an excellent addition to AMETEK’s existing oil and gas instrument businesses.

Solartron is a high profit margin business and we believe we can further enhance its profitability.

They have annual revenues of approximately $50 million.

With this acquisition our high end analytic instrument businesses total $425 million in revenue.

We also completed two small technology acquisitions this year.

Extreme Energy in the second quarter and Quizix in the third quarter.

These small technology acquisitions are designed to bring in new technologies which will open up additional avenues for internal growth.

Quizix is a manufacturer of precision pumping systems for the oil and gas industry.

Their products are used to replicate conditions at the bottom of an oil well, allowing customers to simulate reservoir conditions and more effectively manage oil and gas extraction.

I would like to just take a moment and discuss some rather late breaking news on the nuclear portal monitor market.

Our portal monitor system is presently being tested by the Department of Homeland Security.

Our key differentiator is the ability to detect true weapons grade material versus harmless radioactive type material.

Yesterday the Department of Homeland Security gave us an indication of the size of the U.S. market for portal monitors, which was much larger than our estimates.

They're targeting 1800 units over a 5 year period, which equates to a market size of hundreds of millions of dollars.

It should be noted, this does not include the international market for portal monitors or the worldwide market for our portable detective product.

Bottom line, the market size is much larger than even our most aggressive estimates.

While there is no assurance we will win some or all of this business, we believe our technology has an excellent chance of winning significant business.

We're going to aggressively pursue this opportunity.

So in summary, we're pleased with our third quarter.

And are optimistic about our future.

We continue to drive double digit top an bottom line growth through a combination of internal growth, acquisitions and operational improvements.

As we execute our acquisition strategy, which continue to shift AMETEK's mix of businesses towards more differentiated platforms with better growth and profitability characteristics.

Our cash flow and balance sheet are strong providing us with the resources to grow the Company.

John will now cover some of the financial details, and then we'll be very glad to take your questions.

Thank you Frank.

As Frank has covered our financial results at a high level, I will provide some additional details, starting first with the P&O.

Other expenses were $1.4 million in the quarter, an increase of nearly $800,000 from the prior year's third quarter, driven by costs associated with an acquisition we chose not to complete.

Selling expense, excluding acquisitions, increased 4% in line with our growth rate.

Corporate expenses were up $800,000 in the quarter driven primarily by restricted stock expense due to the change in our long term compensation philosophy.

We discussed in prior conference calls this year that we expect our 2005 full-year tax rate to be between 31 and 31.5% and that our historical pattern of having a higher tax rate in the first half of the year would repeat itself.

In line with those expectations, our tax rate in the third quarter dropped to 28.6% as a result of our tax planning efforts.

Our year to date effective tax rate is 31.5%, and we continue to expect our tax rate for the year to be between 31 and 31.5%.

On the balance sheet, excluding the quarter end Solartron acquisition, operating working capital, defined as inventory plus accounts receivable, less accounts payable, was 21.9% of sales, an improvement from 22.3% in last year's third quarter.

We expect that we should be able to drive this ratio down below 20% over the longer term.

Inventories of September 30th were $189 million, an increase of $21 million from year-end.

After excluding the inventory acquired with this year's Spectro and Solartron acquisition, inventories are up $4 million for the year while we grow the business.

Our inventory turns were 4.8 times unchanged from last year's third quarter.

Accounts receivable were $240 million, up $25 million from last year's third quarter.

After excluding the receivables of acquired companies, receivables were flat with last year.

Our collection cycle was 62 days, unchanged from last year's third quarter.

Operating cash flow in the quarter was very good at $48 million, and stands at $116 million year to date.

The year to date cash flow was 16% above the prior year's amount.

Total debt was $514 million at September 30th.

The increase of $22 million in the quarter includes the impact of paying $75 million for Solartron and the debt reduction of a strong cash flow.

Our debt to capital ratio at the end of the quarter was approximately 40%, down from 44% a year ago, despite the expenditures of approximately $173 million for the acquisitions of Solartron and SPECTRO.

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 September, we had $386 million available under our existing credit lines.

Subsequent to quarter end, we acquired HCC Industries for $162 million in cash, financed by our revolver.

At year-end, our debt to EBITDA ratio is expected to be about 2 times unchanged from December 31st 2004, and our debt to capital ratio should be roughly 43% compared to 41% at year-end 2004.

As you can see, our balance sheet has easily handled our increased acquisition activity this year.

Capital spending was $5.5 million for the quarter, and depreciation and amortization was $9.5 million in the quarter.

For 2005, we expect that capital expenditures will total approximately $27 million, while depreciation and amortization should be about $40 million including the effect of our recent acquisitions.

In summary, we continue to manage our cost structure and balance sheet effectively, generating excellent cash flow and positioning the company for future growth.

Bill.

Regina, that prepares -- concludes our prepared remarks.

And now we'll be happy to take some questions.

[OPERATOR INSTRUCTIONS] We'll go first to Jim Lucas with Janney Montgomery Scott.

Thanks.

Good morning.

Good morning Jim.

Two housekeeping questions first off.

John, accounts payable in the quarter?

$119 million.

All right.

Thank you forgiving us the core growth in the prepared remarks.

FX -- was that any material impact?

No impact in the quarter.

Okay, and then switching gears, bigger picture, you talked -- touched on Aerospace in your prepared remarks.

Could you give a little bit -- little bit more color on what you're seeing in the various served markets there?

Yes, our Aerospace market remains quite strong.

Driven by commercial in the quarter, our orders for all of Aerospace on the EIG side were up 14%.

So very strong order performance.

The business and regional aircraft was doing just fine, and military remains at very high levels so, overall the Aerospace business is doing just great.

We just had a temporal issue in the quarter, and we're our own worst enemy.

I think what was actually happening here is that our customers, basically in the first half of the year were ramping up, so they gave their suppliers very heavy orders.

We met our shipping commitments, and I think some other suppliers didn't.

And what they've done is basically did a little rebalancing in the third quarter, and -- but our backlog is great, and obviously order intake is good, and as we go into the fourth quarter we're expecting very solid performance.

And when you look at the after market versus OEM, specifically on the commercial side, what are you seeing there?

Good good.

Actually I get a graph that looks at the trend of this via quarter, and the third quarter was one of the highest quarters we've had in the last probably four years.

And is that the OE side or the after market or both?

After market, I'm sorry.

The after market side.

Okay.

Yes.

Okay, and finally, the acquisition that you walked away from in the quarter, could you, I know you can't really talk a whole lot about it, but could you talk about the reasonings why you decided to walk away?

Yeah, I think probably the best way to state it Jim is that we got heavily involved in this acquisition, did an extensive amount of due diligence, and basically concluded that it was not in the best interest of our shareholders to continue with that acquisition.

And was it valuation or was there more beyond that?

I really can't go any further than that.

Okay.

Fair enough.

Due to confidentiality reasons, Jim.

All right.

Thanks a lot.

Okay.

With Wachovia Securities we will hear from Wendy Caplan.

Miss Caplan, your line is open.

Please go ahead with your question.

Thank you.

Good morning.

Hi Wendy.

Well, the portal monitor information is very interesting and certainly so positive.

Can you talk about kind of what that means relative to any kind of capacity investment you'll be needing to make?

Well, obviously it will depend, Wendy, on how much business, if any, we win but obviously we're pretty optimistic about being able to win some appreciable business here.

But we feel that with very modest capital investments that we're going to be able to handle substantial increases in sales.

The -- we're probably looking at an investment level of 2 to $3 million at most in order to substantially ramp our production so it's not a major impediment to substantially increasing our shipment ability.

Okay.

That's good news and you're, when you talk about Homeland Security and the portal monitor, you mean the new piece of equipment that you can drive through, for example.

The competitors for that in terms of who would also benefit, are we just looking at the French company that you've spoken about before?

Well, there is actually about 10 people who have put portal monitors and they are exactly what you said.

These are for either trucks or other types of vehicles to move through at a rate of up to 5 miles an hour, and to be able to detect if there is radioactive material inside those trucks.

And, what the government has indicated is they're going to bring that down to a short list of about 3 people.

There's two basic technologies that are being looked at, sodium iodide and germanium.

We have germanium technology, which we believe is the superior technology because it can basically truly tell is the material fissionable and it will rule out normal types of radioactive material that are harmless.

And there is really only two suppliers of that technology, and that is us and the French company that you talked about.

Okay.

And if my math is right, and I didn't even, I did it in my head so I could be totally wrong.

If you assume -- if we were to assume that you get a third of those 1800 units and they're roughly $1 million a piece we're talking about $600 million.

Is that -- I mean, did I do that math right?

Well, you did it correct, but it's probably not the right way to assess the overall market size.

There is going to be basically different types and different levels of systems here depending on the particular application.

And I think the pricing on those systems is going to be very varied.

It's going to be maybe on the low end, a couple hundred thousand, up to the kind of number you mentioned, $1 million, on the high end.

And it really depends on exactly what the end requirements are that the government is going to ask for.

I mean, if you use a number like $350,000 as an average system price and you multiply that by the 1800 units, John is doing with his calculator, that's probably over $500 million.

Is that right John?

$600 million.

$600 million.

I mean, that's the size of the market.

And then, what we win, is still up for grabs obviously.

And again, remember that's just a U.S. portal monitor.

So there is going to be international sales of the portal monitor, and then there's the entire other market which is the portable device, our detective product, the hand held device that sells for more like 65 or $70,000.

And what are you seeing internationally at this point in terms of demand or interest?

Well, that's very, very interesting.

Actually a reasonable percentage of our portable devices have actually been sold offshore, and the Department of Homeland Security is actually encouraging it because their view is, they would rather have the material caught before it gets out of foreign countries and to minimize the probability of it getting into the United States.

So we've seen very active involvement from foreign governments in the portable device and we're just starting to see some interest on the portal monitor, and I think that is going to be largely driven by the test results and what is going to happen with the portal monitor in the United States.

Okay.

Thanks very much.

You bet Wendy.

Once again, if you do have a question please press star-one in your touch tone phone.

If you find your answer question has been answered you may remove yourself from queue by pressing the pound key.

We'll hear next from Scott Graham with Bear Stearns.

Yes.

Good morning, Frank.

Hi Bill.

Hi John.

A couple of questions on the internal growth.

I'm sorry if I missed this, but did you give us internal growth by division?

Actually I didn't.

I didn't give you EIG, which was 3%. 2% for the Company. 1% for EMG.

Right and if we look at the -- I kind of want to unbundle each of these a little bit.

If you were able to say, where the hurricanes hit, and obviously the Aerospace and Defense timing thing, did the hurricanes affect this business?

Which business?

I'm sorry.

The EIG business.

Yes.

As a matter of fact, the major impact of the hurricanes was in the EIG business.

It wasn't solely there but it was probably 75%, 80% in EIG business, and within EIG it was particularly in the Power part of that business.

Okay, and that number, the hurricane sales number looked like, if I backed into it, about $6 million?

It's about 1% of sales is the kind of, actually if you just look at the total internal growth picture we were at 2%, our internal forecast was 4%, we lost a point due to the hurricanes, we lost a point due to this rebalancing in Aerospace.

That's the simplistic view of what occurred.

Okay.

So all told, EIG internal growth of 3%, you know X those things maybe more like 5, kind of thing?

Yeah, that's basically correct.

Still that was a little bit lower than I think what we saw last quarter, if I'm not mistaken?

Anything behind that, or am I --

It was about the same.

It was about the same.

Okay.

Okay.

Maybe a point less.

If we X out the gain in EIG, is there anything that we should then be adding to EIG other than the million dollars for, or 75% of the million dollars for the hurricanes?

Because that margin was X the gain.

Yeah, if you, maybe a simple way of answering your question, is to say, that the total Company margin was up 80 basis points.

If you exclude all of this -- the one time events that I talked about that affect the group line, there was about 30 points of the 80 that in essence were due to these one time events so that the true margin growth of the Company, excluding all of these one time events was 50 basis points.

And most of that came from EIG, and in EIG if you you did that same analysis, it's roughly the margins, X the one time events in EIG were up about 1%.

So very very good margin performance in EIG.

In EIG, up 1%.

Up 1% if you exclude all of this -- all of the one time events.

Okay.

All right.

Was there a reason why we decided this quarter to expedite these -- the production to low cost facilities in EMG?

Just a super opportunity because we're able to make an investment of roughly $1.8 million, and get a $4 million annualized return.

The movements, the low cost locales this year are going fine.

And it was, basically just a phenomenal opportunity to increase our earnings, that we're going to see next year.

Okay.

I guess the thing that I don't understand is why was that opportunity presenting itself this quarter as opposed to next quarter or last quarter?

It's just that we were analyzing our business in preparation for our budgets for next year, and in essence the people that were driving this business said we've got this opportunity, things are going well, we ought to take advantage of it.

It's as simple as that.

Okay.

Okay.

Would you be able to do your typical thing Frank of giving us, sort of order of magnitude by business?

You mean sort of walk through the business?

Would you mind?

No.

I don't mind at all.

Thank you.

I'd like to do it.

Why don't we start with the EIG part of the business.

Process is doing extremely well.

That's driven by the price of oil.

Our organic growth rate in the quarter was up high single digits.

Our internal sales in that part of the business were also up high single digits.

The analytic instruments part of the business continues to do extremely well.

SPECTRO did well coming online.

In particular our nuclear business had a very strong quarter.

And Process had excellent margins in the quarter.

So pretty positive story in the Process part of the business.

Power part of EIG, we're starting potentially to see an upturn in that market.

Orders were up 25% in Power, and that's the largest increase I can remember in a long time.

So we're hoping that that's clearly the beginning of a trend.

There was strength in both the instrument side of the business, as well as our battery back up side of the business.

In terms of sales, sales were flat in this business because this was the business I mentioned before that was most significantly impacted by the hurricane.

We're unable to ship product and also unable to realize service revenue.

There is a very high service revenue component in this particular business.

If we had not had the hurricane, this business would have been up substantially in sales.

And as I mentioned in my opening remarks, we believe the basic storm is going to be a net positive impact on AMETEK.

That over the course of the next 6 to 9 months, we're going to get increased -- increased equipment sales and we're going to get increased service revenue as they rebuild that part of the world.

I think we have already pretty much covered Aerospace.

The picture there was orders were up nicely 14%, and we did have the rebalancing in the third quarter.

So I won't elaborate anymore on it.

In the industrial part of EIG the heavy vehicle market remains good.

As I mentioned before, that might be the first market that goes south on us, but we have no indications of that happening.

The prevalent thought process in the industry is that won't happen until 2007.

As you may be aware, a year or so ago we decided to restructure our chemical products division, and we took out some major nonprofitable product lines in that area.

That impacted the growth in Industrial in the quarter as we had anticipated, and it was actually down somewhat in the quarter, but the good news here is that the profitability is absolutely first-class.

We expect the industrial part of EIG to be up on the order of 30% in pre-tax profit for the year.

So that's half of the Company, and if I flip to the other half now Scott, the differentiated part of EMG.

Good market conditions.

Internal orders were up about 6%.

Sales were up about 3%.

We had a very similar situation to what we talked about in Aerospace, that there was some rebalancing in the Aerospace part of the differentiated segment which hindered the growth a little bit.

But again, strong backlog, excellent order input, so we're pretty bullish about Q4 in terms of the differentiated part of EMG.

And last part of the Company is our cost driven businesses.

There is really no change in these particular businesses.

The markets are as expected.

Orders were up about 3% in the cost driven part of the business.

Sales were down slightly.

But these are sort of the normal fluctuations in sales that we would expect in this kind of business.

You might recall the first quarter was flat on sales.

The second quarter was up a little bit.

This one was down a little bit.

So overall year-to-date it's roughly flat, which is I think the kind of guidance that we have been giving you.

So there's really no change of any appreciable magnitude in that business.

So that's the walk through.

Thank you very much.

That was very helpful.

You bet Scott.

Moving on we will go to Richard Eastman with Robert W. Baird.

Just a couple of things.

Frank, could you just address maybe the raw materials situation, and if -- how our variance from plan is moving around, if so?

Yeah, that's a great question.

We've got things going in different directions here.

Steel is actually becoming on a quarter over quarter basis a positive.

Nickel, is about flat.

And copper is up.

So our predominant area that we have to be concerned about is copper.

We've been very very effective in being able to offset the impacts of the copper increase, and it really has with our pricing increases, in some cases we've done surcharges and other cases across the board long-term increases in prices.

We've also been quite effective in resourcing material from different parts of the world so the net affect on the Company when you sum all of that up has not been significant.

We are concerned as we go forward that if fuel costs go up and we potentially are in a somewhat of an inflationary, a higher inflationary world, that we're going to be more aggressive in pricing as we go forward than we have been in the past.

Okay.

All right.

And then just a quick question in terms of the acquisition pipeline.

It sounds like you've had some success here this year for sure.

You walked away from something.

But I'm just curious, how does the pipeline look from a, just a sheer opportunity perspective, as well as a pricing perspective?

From an opportunity perspective it looks great.

We've been able to basically pick the acquisitions that we are doing which is great.

I mean we've got a list and we can say this is the one that makes the most sense.

So I would just say the opportunities continue to abound.

Pricing, there is no question it's a little bit higher.

I think as I said in my opening remarks for these last three acquisitions we paid about 8 times and I think if you go back and look at us historically, say before the last year, that would probably be about 7 and a half times.

So, it's up about a half point.

But the market data that I see suggests it's probably up more like a point to even a point and a half.

So I think we've been very judicious in the pricing we have paid for companies, but there is no question that the pricing has gone up, and the thing Rick, as you and I and all of us have talked before, we tend to focus more on the multiple a year after we own the company than the first year because we only acquire companies that we can bring significant synergy to.

And John why don't you -- you just did this analysis, why don't you talk to it a bit like you did.

Well, Rick, we do a very rigorous analysis that follows our acquisitions after a year.

We track them carefully for -- even if they get merged into some of our other businesses.

We track the activity, the revenue and the EBIT and the EBITDA and we got a couple of acquisitions that just passed our one year anniversary so we've got their results in.

Our results continue to exceed our expectations, so our multiple is not only at the time of pricing are comfortable from a pricing standpoint, but we beat our expectations by one or two points consistently.

We have not -- have not had a disappointment period in our track record.

It's just a remarkably good consistent knock on wood, and that doesn't mean we're going to let our guard down, but we're quite proud and we do pay a lot of attention to the integration and results and have expectations of 1 or 2 points multiples better within a year or 18 months of the deal.

And we also relooked at the profit of our first first year of ownership versus the year prior to our ownership including these new acquisitions -- not the new ones we just did but the ones that had their one year anniversary, and it's basically up 35%.

Okay.

And just one admin question, did Hughes-Treitler, did that contribute anything incrementally to the quarter year-over-year?

We -- that we considered annualized.

We had bought them right in the early part of July and they were shut down in advance of --

Okay.

So just consider that in for the full quarter?

Exactly.

Okay.

I understand.

Thank you.

Okay.

We will hear next from Fran O'Kinowski with Friese Associates.

Hi there Frank.

Hi Fran.

My questions have been answered.

But maybe I'll try something different.

With the expedited movement of production to low cost countries, do you still expect to see around the same amount that your previous goal was produced at these facilities for '05 and maybe '06 or would change a bit?

Well, I don't think there's going to be any appreciable change to '05 because we're going to basically just start to implement this.

So we're still focused on that $250 million number for '05.

We're in the process of rolling up our budgets right now, and -- so I don't actually know what it's going to be for 2006.

But what I can tell you is this change, the couple million dollars we're investing to get the $4 million annualized benefit, represents about $20 million worth of business.

So just this accelerated piece will give us $20 million, and the question is what else are we going to do from our other businesses and I won't know that until we get through our budgeting process.

Okay.

Thanks.

With KSA Capital Partners we'll hear from Dan Khoshaba .

Hi, this is Adija Doon filling in for Dan Khoshaba .

I have a question for your move to the low cost countries.

Do you expect that to continue in the fourth quarter or was that a one time event in the third quarter?

This is going to be continual.

I mean, we have been moving a significant amount of production to low cost locales and last year we did about 210 million, this year we're expecting to do about 250 million.

The cost we took in the third quarter was basically to focus on what we're going to move in 2006.

Not 2005.

I see.

Okay.

Great.

Thank you.

You bet.

Our next question will come from Ned Borland with Next Generation Equity Research.

Hi guys.

Hi Ned.

Just two quick questions.

Most of my questions have been answered.

But to follow-up on Rick's point about acquisitions, does the pace of deals slow down in the wake of all of this activity recently?

Well, the issue with acquisitions is you can't time them.

Right.

Right.

If I had had my druthers I would have rather spread these 3 acquisitions out a little bit, but you just can't do that.

And the issue right now is the opportunity list is so big.

You've got to strike when the iron is hot.

So we're not changing our basic approach because we've done 3 this year.

If the opportunities are there and they are, we're going to continue.

Okay and, I don't know if you gave this already or not, but did you have a sales number in the quarter for SPECTRO?

Our acquisition growth in the quarter was on the order of $25 million.

Okay.

Okay.

That's all I got.

Thanks.

You bet.

We'll hear next from Matt Summerville with KeyBank Capital Market.

I apologize, I joined the call a little late, so if you already said this, again, I apologize.

But, can you go into more detail about what this rebalancing was that you're talking about in both of your businesses?

Yeah, we have covered it to some degree Matt, but I'll elaborate.

Basically, we shipped very large amounts to our customers in the first half of the year, and as I mentioned, we were sort of our own worst enemy in that I think our customers were basically trying to rev up their pipeline so they put very aggressive orders on us.

We met those shipments and I think others didn't.

So we had a slight rebalancing in the third quarter.

But orders were great, up 14% and backlog is great so we're going to be right back in tune in the fourth quarter.

So it's temporal.

And the impact was about the same on each half of the business.

In that there was roughly 1 point of total sales that were impacted by this.

Roughly split between EIG and EMG.

Okay.

And then, did you talk about, and again I apologize if you already did, what your free cash flow targets are for the full-year?

Or what your operating cash flow targets are?

We believe our cash flow from operations should approximate $180 million, Matt, for the year.

Okay, and then Frank, earlier when you were talking about the process business you mentioned that the nuclear spec business had a pretty strong quarter.

Can you elaborate on that?

Yeah, I mean, it's obviously a hot area right now with everything that's going on in the nuclear world, and they just -- I think they were up about 20% in the quarter.

They had a great -- just a great shipment quarter and they're doing well.

And obviously very excited about the portal monitor opportunity that I talked about.

Which products are driving that growth and is that a rate that you think is sustainable if you look out --

No, I don't think that's a sustainable rate.

I think that was on the short-term here for the next few quarters.

I think it was an exceptionally good quarter.

Now, obviously, when this portal monitor hopefully kicks in then hopefully this number will look small that we're talking about.

But that's a bit off in terms of time.

Okay.

Thank you.

You bet Matt.

One final reminder to the audience if you do have a question please press star-one on your touch tone phone.

We have a follow-up question from Richard Eastman with Robert W. Baird.

Hi Frank.

Just two quick follow-ups.

You had mentioned when you talked about the portal monitoring opportunity the process here is to short list to three potential suppliers.

Just two questions along those lines.

Would you expect that these 1800 units would be split amongst vendors?

Oh yeah, absolutely Rick.

Okay.

And then secondly, when do you -- what would be your best guess as the timing of that short list?

I think it's going to be in the first half of next year.

Okay.

So sometime before June they would announce the short list?

I think so.

Okay.

And then one other -- one other question on the Aerospace side within the military component.

One of the big military Aerospace suppliers was out recently commenting that they're seeing the military Aerospace piece of their business start to weaken and I know that business has been at a high level for some time.

What is your perspective there?

Well, we're -- if you look at the military business across AMETEK right now it's very strong.

And our ROTRON business is just having a phenomenal year.

Maybe, that's on the EMG side, on the EIG side it probably isn't quite as strong as it is on the EMG side, but counterbalancing that is that commercial is extremely strong on the EIG side, so when you sum all of that up both parts of the business, both EIG and EMG are doing just fine.

Okay.

All right very good.

Thanks again.

All right you bet.

We also have a follow-up from Wachovia Securities Wendy Caplan.

Hi, I forgot to ask one question.

I usually talk -- we usually talk about incremental margins in the quarter.

And clearly they were negatively impacted by some of the issues that you've talked about.

Do you expect them to sort of snap back in Q4 to the thirty plus percent range or what should we expect?

Actually it's, as I think I have mentioned before, it's difficult to look at this on a quarter by quarter basis, but actually if you look at the third quarter Wendy, and subtract all of this one time stuff that we've talked about, basically the incremental margins in the Company were greater than 50%.

So they were higher than our norms.

I think the right modeling, as we have talked about before, is to use incremental margins of about 40% and to use EIG incremental margins of high 40s and EMG margins in the say, 32, 33% region.

That's the best modeling that we can give you.

And every time we go back and look at it over a number of quarters you have aberrations like the third quarter was particularly high, and I don't even remember the quarters in the first and second quarter, but I think one of those was abnormally low.

But when you average them out over a period of time, that 40% kind of number holds to be pretty -- pretty correct.

And your statement that incrementals were over 50 for the Company as a whole, that excludes acquisitions I assume.

Yeah.

What we do is we exclude acquisitions and in this quarter we excluded all of the one time events that happened so that we felt it was a true indication of what the base Company is doing.

Great.

Thanks Frank.

Okay Wendy.

There are no further questions at this time.

Mr. Burke I'll turn the conference back to you for your closing remarks.

Thank you.

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 9070431 or go to AMETEK.com or streetevents.com for an archived webcast.

Thank you.

That does conclude today's conference.

We thank you all for your participation.

Have a great day.