阿美特克 (AME) 2007 Q1 法說會逐字稿

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

first quarter earnings release conference call.

This call is being recorded.

For opening remarks and introductions, I'd like to turn the call over to Mr.

Bill Burke, the Vice President of Investor Relations.

Please go ahead, sir.

Thank you.

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

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 3 by calling 888-203-1112 and entering the confirmation code number 436-0546.

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 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 Investors 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.

Thank you, Bill.

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

Sales were up 19% to $505.3 million, an outstanding internal growth of 9%, and the contributions from acquired businesses.

Operating income was up 27%, driven by the topline growth and operational improvements resulting in 110 basis point improvement in operating income margin.

Net income of $50.9 million was at 26% and diluted earnings per share of $0.48 were up 26%.

Cash flow from operations was $54.8 million, up 42% from last year's first quarter level of $38.7 million.

Overall, we are very pleased with these results.

Our markets are strong.

Our strategy of acquiring differentiated businesses is working well and our focus on Operational Excellence continues to drive profitability.

Turning our attention to the individual operating groups, the Electronic Instruments Group had a great quarter with sales up 20% to $282.9 million.

Strong internal growth of 11% driven by our Process and Analytical Power and Aerospace businesses together with the contributions from the acquisitions of Precitech and Land Instruments drove the topline increase.

EIG's operating income was up 30% for the quarter to $62.2 million.

Operating margins improved dramatically to 22% as compared to 20.2% in the first quarter of 2006.

The Electromechanical Group also had a great quarter with revenues up 19% to $222.4 million, solid internal growth of 6%, and the contribution from the PennEngineering Motion Technologies and Southern Aeroparts acquisitions drove the revenue growth.

Operating income for the quarter was up 19% and operating margins were 17.1% compared with 17% in last year's first quarter.

Turning now to some of our strategic initiatives -- first, to Operational Excellence.

Operational Excellence is the cornerstone strategy for the Company and our relentless focus on cost and asset management has been a key driver to both our competitive and financial success.

This quarter was no exception as we dramatically improved operating margins 110 basis points to 17.8%.

While many factors are at play in this increase, including the contribution margin impact on the strong core growth and the impact of our shift to more differentiated businesses, Operational Excellence is clearly a driver to our strong operating results.

As part of this effort, the movement of production to low-cost locales continues to play an important role.

Revenue from production in low-cost locales in the first quarter of 2007 was $81 million, an increase of 11% over last year's first quarter.

For all of 2007, we expect revenue from low-cost locales to be $325 million to $335 million, up 40 to $50 million over 2006.

Secondly, our global sourcing and strategic procurement efforts continue to take hold.

Our global sourcing office was originally chartered to support our motor manufacturing efforts in Shanghai.

Given the success supporting local operations, we decided to utilize it as a companywide resource with the charter to assist all AMETEK divisions in procuring material in China and throughout Asia.

We significantly expanded the staffing in this group and encouraged our divisions to utilize this resource to drive cost savings in their businesses.

This concept has been embraced by our divisions and they are seeing some very dramatic results.

This year, we have also undertaken a strategic procurement initiative.

This initiative is focused on leveraging AMETEK's global spend on key commodities and driving cost savings with our vendor base.

In total, these two efforts are targeted with generating $10 million of savings this year.

While these big projects may gather much of the attention related to Operational Excellence, there are a multitude of other actions going on every day at all of our divisions to improve the efficiency and profitability of their businesses.

Whether it is lean manufacturing, Six Sigma, designed for Six Sigma or other techniques, each of our businesses are focused on Operational Excellence.

Last year, we made an additional $9 million investment in sales and marketing and new product development funding.

On the sales and marketing side, these funds were focused on bolstering our sales and marketing capabilities in key market segments and geographies.

On the new product side, we supplemented our normal strong R&D spending with additional funding in our high-growth analytic instrument businesses.

We are seeing very good results from these efforts.

Organic growth for the Company was very good at 9%.

Very importantly, our Process and Analytic Instrument businesses had internal growth of double digits in the quarter.

While favorable market conditions play a part in this excellent growth, our investments in marketing and new product development for these higher-growth, higher-margin markets are paying off.

Sales from products introduced in the last three years were a healthy $80 million.

International sales grew 27% in the quarter, reaching 50% of our total volume -- and that's the first time we've reached that magic 50% level.

Acquisitions have also been a key part of AMETEK's past success and continue to be a strategic focus for us.

2006 was a very good year for acquisitions.

We acquired approximately $150 million in annualized revenue, expanding our position in analytic instrumentation, aerospace, MRO and technical motors.

I'm pleased to report that these acquisitions are doing great.

The integrations are going well and financial targets are being met or exceeded.

2007 is shaping up to be another great year with two transactions recently completed.

Earlier this week, we acquired Seacon Phoenix, a privately held provider of undersea electrical interconnect subsystems to the global submarine market.

Seacon Phoenix adds to AMETEK's position in highly engineered hermetically sealed electrical interconnects and microelectronic packages that are used to protect sophisticated electronics in aerospace, defense, telecommunications, and industrial applications.

Seacon Phoenix is an excellent fit with AMETEK.

Its product, retrofit, and service offerings complement those of AMETEK HCC Industries and extends our reach into an entirely new defense market.

Seacon Phoenix also enjoys an excellent reputation with the world's leading naval defense contractors.

Its custom electrical and optical connectors, cable assemblies, and hole penetrators are installed on a U.S.

submarine fleet as well as many of the other world Navy's.

In addition, it holds strong positions on several submarine development programs, including the Royal Navy's next generation of attack submarines.

We also announced a small technology acquisition earlier this week.

We acquired the Halmar Robicon silicon controlled rectifier power controller and related power control systems technology from Seaman's.

Robicon is widely recognized for its advanced power control technology.

That technology fits well with AMETEK's solid-state controls and provides us with attractive opportunities to further broaden our capabilities and position in the U.S.

power controller market.

SCR power controllers provide advanced power conversion and control for a wide range of industrial applications.

They are solid-state alternatives to mechanical contactors that are used to provide temperature control for semiconductor fabrication, glass manufacturing, plastic extrusion, and other industrial and laboratory furnaces and ovens.

The pipeline of acquisition candidates remains full and 2007 has the potential to be a very strong year for us.

Turning to our outlook for 2007, revenue is estimated to increase in the low double digits on a percentage basis on mid to high single digit core growth in each group and the annualized impacts of acquisitions.

Electronic instrument internal growth will benefit from continued strength in our aerospace, power, and process businesses.

In the Electromechanical Group, the core growth will be driven by strong performance in our differentiated businesses.

Our acquisition growth will result from the benefits of the PennEngineering motion technologies, Land Instruments, Precitech, and Southern Aeroparts acquisitions made in 2006 and the recently completed Seacon Phoenix acquisition.

Given our strong first quarter results and the expectation of continued strength in our markets, we have raised our estimated earnings to a range of $1.95 to $2 per diluted share, an increase of 14 to 17% over 2006 earnings of $1.71 per diluted share.

For the second quarter, sales were expected to be up in the low double digits on a percentage basis from last year's second quarter.

Earnings are expected to be approximately $0.50 to $0.52 per diluted share, an increase of 16 to 21% over last year's second quarter of $0.43 per diluted share.

So, in summary, we're very pleased with our performance in the first quarter, solid internal growth and the contributions from acquired businesses enabled us to grow the topline by 19%.

We've been able to translate the topline growth into bottom-line performance, driving significant margin expansion and strong net income and earnings per share growth.

2007 is shaping up to be another great year.

Strong internal growth, continued focus on Operational Excellence, and our ability to make additional acquisitions make me very optimistic for the balance of the year.

We look forward to building on our track record of success during 2007 and remain confident that our four growth strategies will continue to create value for our shareholders.

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

Thank you, Frank.

As Frank has covered our financial results at a high level, I will provide some additional details on the Company's performance.

Compared to the same quarter of a year ago, we drove margin improvement at the group level and increased our operating income margins by 110 basis points.

Selling expenses were up 23% in the first quarter.

Excluding acquisitions, selling expense increased in line with our core growth.

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

Corporate G&A expense was 2.0% of sales in the first quarter, down from 2.1% in the first quarter of last year.

On an absolute basis, corporate G&A expense was up on higher stock compensation costs due to the accelerated vesting of a restricted stock grant and other costs to grow the Company.

The tax rate for the quarter was 35.1%, and we expect our full-year 2007 tax rate to be about 32.5%, reflecting the adoption of FIN 48 and the elimination of the FISC ETI benefit.

I want to emphasize that this is a full-year rate and as we saw in 2006, actual quarterly rates can differ dramatically, either positively or negatively, from this full-year rate.

On the balance sheet, our operating working capital defined as inventories plus receivables less payables ended the quarter at approximately 20.9% [for] first quarter annualized sales; essentially unchanged from last quarter.

We expect that we should be able to improve this metric with a long-term goal of driving this number below 20%.

Total debt was $648 million at March 31, a reduction of $34 million in the quarter.

Our debt to capital ratio at quarter end was approximately 39%, down from 41% at the beginning of the year.

Capital spending was $9 million for the quarter.

Depreciation and amortization was $12 million in the quarter.

For 2007, we expect that capital expenditures will total approximately $40 million while depreciation and amortization is expected to be about $50 million.

Cash flow for the first quarter was superb, totaling $54.8 million, up 42% from last year's first quarter.

We expect operating cash flow for the Company to be 275 to $280 million in 2007, reflecting growth in earnings, better working capital management, and the additional working capital needs of a growing business.

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

At the end of March, we had $307 million available under our existing credit lines.

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

Bill?

Thanks, John.

That concludes our prepared remarks and we'll be happy to take questions at this point in time.

Thank you, sir.

(OPERATOR INSTRUCTIONS).

Ryan McLean, Janney Montgomery.

I just wanted to know if you could provide some color on the growth across the various geographies.

Is there any particular part of the world that's stronger than others?

And also, I know you guys made some incremental investments last year in China and Russia.

If you can talk about some of the returns that you've had there, that'd be great.

Sure.

International growth was great.

As I mentioned in my opening remarks, we were up 27% in international.

And actually, a very positive thing that happened in the quarter is that our European growth was strong.

It was up about 29% in the quarter.

Asia remains very, very strong and even South America did well, so really all of our international markets are quite strong right now.

In terms of the question regarding our new sales offices which are basically in Chengdu, China and also in Moscow, they're really getting off the ground.

So there hasn't been, I would say, a significant amount of sales yet coming out of those entities, but I would expect that to pick up as the year progresses.

: Okay, thanks.

Great quarter, guys.

That's all I've got.

Amit Daryanani, RBC Capital.

Just a quick question -- the low-cost manufacturing, I think you guys said you expect 325 to 350 million of manufacturing down in low-cost regions.

That's about 25% of the cost.

I was wondering how much of your business can you actually move to low-cost regions over the (multiple speakers)?

Yes, that's a great question.

We easily can see up to the 450 to $500 million region in terms of businesses that we can move, and that's sort of a dynamic number because several things happen.

First, as we acquire more businesses, we find the opportunity to move more to these low-cost regions goes up.

So that's a factor in where it would be in the long-term.

And also, it's fairly typical of many businesses that over time, some of the lower end businesses move more down the differentiation curve, so that also opens up additional opportunities.

So we plan on basically moving 40, 50, maybe as much as 60 million a year and we can do that for the foreseeable future.

And if I can get 50, 60 million incremental per shift to low-cost regions on a yearly basis, you guys would save about 10% of that?

That's about right.

That's about right.

So that should add about $0.03 to $0.04 in EPS right off the bat every year for you guys?

Yes, that's about right.

That's about right.

And then, I know you kind of spoke about some strength on the military aerospace side.

I was wondering, could you just talk about a little bit more in terms if it's more on the military side or the commercial side?

Sure.

The military business is just doing incredibly well right now.

Basically, we made some very -- I would say smart strategic decisions many years ago to basically invest in two key parts of the military business.

One is helicopters, and the other is on air moving and air cooling devices, basically fans that go into HVAC systems.

And they are used to basically cool electronics.

So what has happened in each of those areas, if you look at the DOD funding, the funding in those particular areas is growing at a much higher rate than the average DOD budget increases.

So therefore, we're enjoying the fruits of those investments and those decisions that we made a number of years ago.

So I would say the strongest segment across both parts of our aerospace business is the military segment, but right behind that is commercial.

Boeings production is estimated to be up about 15% this year.

Airbus' production is forecasted to be up in the mid single digits, and we are enjoying that growth as well.

And I don't want to leave out the business in regional aircraft market, because that -- Cessna is our largest customer there and they also are doing well.

So there's really strength across all of the segments, but if I had to pick the one that's really booming for us right now, it's military.

Fair enough.

Just my final question, if you could just maybe talk really quick about pricing trends in the quarter and if you saw any unanticipated headwinds for raw materials in Q1 or you expect to see in Q2?

Yes, pricing is a good story.

We're able to get the budgeted levels that we talked about to you at the end of last year, which is about 2.5%.

It's a lot easier to get pricing increases now than it was a few years ago, where we were all struggling to get price increases.

In terms of commodity increases, definitely there have been movements in commodity prices, but you've never heard me talk about any bottom-line problem associated with those.

And that's due to the fact that we've managed it very, very well; that we have either straight price increases like we just talked about or pricing that will actually vary as a function of the commodity.

So as a result, we've had our profitability pretty much immune to that and I don't see that changing as we go forward.

Thanks a lot, guys.

Wendy Caplan, Wachovia Securities.

A couple of things.

I usually check in about your incremental margin, and it looks like overall, it was actually even with the acquisitions, pretty good; the best we've seen in nearly two years.

Can you give us that figure on an ex-acquisition basis?

Sure.

And you're absolutely right.

We're very pleased with the incremental margin.

For the entire Company, it was 33%, and that excludes the acquisitions.

All right, and John, can you give us the impact of currency for the two segments in the Company as a whole, please?

I have them.

It's basically, for the Company as a whole, the internal growth was 11% versus the 9% that we talked about, and it's the same for each group.

For EIG, it was 13%, so 2% points due to currency versus the 11%, and for EMG it was 8 versus 6.

Great.

And finally, the acquisition pipeline, yesterday you announced two small acquisitions.

As I recall, during your record acquisition year two years ago, it was a slow start as well.

Should we read anything into this slow start?

And should we think, as we're looking at the acquisitions, are there any trends that are meaningful that would be helpful for us to know?

For example, is the pipeline full -- fuller than it's been?

A little less full?

What kind of mix of targets are we looking at in terms of size or who owns them or any other issues that would be helpful?

Sure.

First of all, the pipeline is very -- it's been as strong as it's ever been and we're actually pretty excited and we think we'll have a good year in terms of that pipeline.

If you look at mix, it pretty much follows where our acquisitions have occurred over the last few years; very strong backlog in our process businesses.

It's one of the reasons that we've really put focus on those businesses because there are a lot of companies that basically can augment that -- that part of our business.

So there's strong backlog there.

We've got good backlog in aerospace.

We've got good backlog in the differentiated parts of EMG.

So I'm feeling pretty good.

I think the only negative trend I would say is that pricing is higher.

There's no question about that, that there's just too much capital out there right now, so pricing is up from where it has been.

However, Wendy, as you know, we do a pretty respectable job of getting substantial synergies from the acquisitions that we do, so I don't think it's going to be a major problem for us; but I'd obviously be preferring to spend a little bit less than what we probably will have to do over the next year or so.

Okay, and finally, in regards to those acquisitions, I know we've been big fans of your operating management, but are there any -- are you comfortable with the level of -- with the number and quality of the operating folks given the growth prospects that face you over the next foreseeable future?

Is there -- do we need to be doing any more aggressive hiring or are we pretty comfortable strategically with the folks that are in place?

Absolutely great question.

Absolutely great question, and I can tell you that for the last nine months, it's been my number one focus.

And we actually have a list in the Company -- and I don't know how it got this name, but we're calling it the Top 44, where we're basically doing a substantial amount of recruiting.

The issue here really isn't a concern over the next year or two in terms of our growth.

The real issue is when we looked out and we have this vision of making AMETEK a $5 billion company and a very profitable $5 billion company, and we are basically putting the talent in place to enable us to do that.

When you look at companies as they're growing rapidly, typically the number one problem they run into is that the growth outstrips the management capability.

And what we're doing is staying ahead of that curve.

You may have noticed that just recently we announced Bob [Fite] as our -- what?

It hasn't gone out yet.

Oh, it hasn't gone out yet.

We will announce it very shortly.

I thought it went out.

It will go out shortly.

The guys are cutting me here.

We have some new employees coming into the Company.

So, any way, It's a positive situation and we're going to basically put the best talent in place to make sure the Company grows.

Thanks very much, Frank.

Elana Wood, Merrill Lynch.

Wondering if you could break down the organic growth international versus domestic?

I don't have that at my fingertips.

I'm sorry, I can't do that.

Do you have a sense of if international was stronger than U.S.?

Yes, sure.

I'm sure there's a few points of extra growth coming out of the international side of the business, but I don't have it broken down in that fashion.

And then, can you just talk about business trends in March, maybe how they compared to January and February?

And then also how April is shaping up?

Yes, basically, if I looked at the order trend, we came out of the chute very strong in January.

February just being a short month we were weaker, and then March was extremely strong, much stronger than January, so.

And that's, I would say, a fairly typical trend because March tends to be a longer month and obviously February a shorter month.

And April looks fine so far.

So I'm not seeing any weakness of any significance in our business right now.

Okay, and then just lastly, how would you characterize growth in the businesses that you acquired over the past year?

Are they growing at a 9% core rate as well or is it higher or lower?

I actually didn't go back and look at each of them, but what I can tell you is when we look at the internal growth of AMETEK in total, one of the number one drivers to that growth has been the movement towards a much more differentiated portfolio.

As we acquire these companies that are on the high end of the differentiation curve, the internal growth rate is higher on those businesses, almost any financial metric is higher, and it's been a sizable factor in our growth rate.

And in particular, I can mention the SPECTRO acquisition, which has done phenomenally well and had a phenomenal first quarter.

Okay, thank you very much.

Matt Summerville, Keybanc.

Two questions.

First, the $10 million of savings you're talking about from low-cost sourcing and procurement, Frank, is that incremental or is that a run rate number?

That's incremental.

And then how much of your, I guess, overall buy would that represent?

That's an interesting question.

John, you ran those numbers, (multiple speakers)?

Yes, that's probably -- I'd say $200 million roughly is what we're running through the pipeline right now.

And that's a really rough number.

We're trying to ramp that number up to get closer.

We've got an overall spend of about 600 to 700 million we're trying to get to.

So we've got a long ways to go in terms of how much spend we can get into the hands of this team we've got working on it, so.

Okay, so right now you're moving about $200 million through that low-cost procurement source of organization (multiple speakers)?

No, no.

That's through the strategic procurement initiative in general.

Low-cost is probably in the order of 60 million, give or take a few million.

Okay.

I got you.

And then Frank, I think you've given out order and backlog numbers before.

Can you talk about that for the quarter?

Yes, it was very good.

Backlog was $561 million.

Do I have that right, guys?

561 -- let's see -- yes, 561.

That was up $25 million in the quarter.

Our orders were up 13%, so the situation is very, very good.

That would imply that your core orders were up about a like amount as your internal growth, 9%, 10%?

Yes, I didn't actually go back and do that calculation, but it's a reasonably good number.

Okay, and then Frank, historically, you'd walk through a little more detail at the divisional level across the two segments.

Can you go ahead and do that for us?

Sure.

I'd be glad to do that.

And the kind of trends you saw in terms of end markets and growth?

All right.

Well, let's walk through the four or five subsegments that we normally talk about.

Let's start with EIG.

First, sales, as you know, from all of EIG were up 25% in the quarter and organic growth was 11%.

If we look at aerospace, which I've talked a little about already, that business is doing great.

The markets are strong.

There's strength in essentially all parts of the business.

As I mentioned, Boeing and Airbus are having strong production years as is Cessna.

The military business is doing great.

For the full aerospace and defense business on both halves of the Company, organic growth was up double-digits in the quarter.

And if we look forward, I expect continued strong growth in those businesses and we're looking at internal growth for the year, that should be high single digits.

I may be a little bit conservative on those numbers.

Switching to process, our markets are very strong there.

It's driven by the price of oil.

Our Analytic Instruments are doing great.

As I mentioned, SPECTRO had just a phenomenal quarter, but more globally than SPECTRO, Process and Analytic Instruments, that division; AMT, Sensor Technology, EDAX and TMC all had excellent performances in the quarter.

So essentially every division in our process businesses.

The new products and the investments we made are doing well.

Q1 internal growth was up double-digit in the process businesses and, again, we expect that good growth to continue.

In power and industrial, continues to do well.

We had very strong performance in our power business.

Even the heavy truck business remains strong in the quarter and actually was stronger than what we had expected, so Q1 was up high single digits organically.

For 2007, we expect power and industrial to have mid single digit organic growth, again driven by power.

We'd expect power, as I mentioned in our conference call last time, will probably have high single digit growth for the year.

Industrial will be flat due to the expected downturn in the heavy vehicle market.

However, our Dixson team, they've really done a great job diversifying that business away from heavy trucks, so we're not going to really be substantially impacted by that heavy truck downturn.

Switching to the other half of the Company, for EMG, sales, as you know, were up 19% in the quarter.

Organic growth was about 6%.

The differentiated businesses were very strong, again, driven by strength in aerospace and defense, but also technical motors and specialty metals.

Our U.S.

military business, again, was very strong.

Internal growth was up double-digits for that part of our business, and we expect that growth rate to continue at least into the high single digits for the full year.

Cross driven motors, doing fine.

Our Q1 internal growth was roughly flat, but based on a number of new wins, we expect at least low single digit growth for the year.

As you are aware, we run this business for maximum profitability versus growth, and we're continuing to move production to low-cost locales including China, Mexico, and the Czech Republic.

We have a focus in that business on lien and efficient manufacturing.

So for 2007 for the cost driven businesses, we're expecting double-digit profit growth.

So when you look across the entire Company, it's a very, very positive situation.

Very helpful.

And then just one final question.

On the military side of your business, how sustainable is the growth you're seeing?

Do you have visibility on the military side into 2008 at this point based on the -- or beyond, based on the program wins that you've had?

Yes, actually I just asked our aerospace people that question yesterday, and they're telling me they've got about 12 month visibility right now.

Great.

Thanks a lot.

Richard Eastman, Robert W.

Baird.

Frank, could I just clarify when you said the organic growth rates here and you pulled currency out, were you implying that currency was a negative 2%?

Yes.

Yes.

It was negative?

Okay.

And then the international sales, I think earlier in your comment you said now approximated 50% of total?

That's correct.

It was actually 49.9% in the quarter.

I see.

And then the last question is, can you just give an update on the ORTEC business within process?

There was some dynamics and decisions there that maybe were looking like they could be reversed and on the portal monitoring side, but also just how that business is doing internationally overall?

Yes, actually, it's a very positive story on ORTEC.

As I'm sure you'll recall, there are two parts to that business for us.

One are the portable radiation devices and they're doing extremely well.

Actually, in the quarter, our sales were up 85% over the first quarter of the previous year, so very strong performance in those products.

I would say it's occurring both internationally and in the United States.

We're involved -- we've won a Department of Homeland Security contract for the portable device.

We're in the development phase of that contract, and we would hope to start seeing revenue off that contract other than the development funding next year.

On the portal monitor side of that business, as you may recall, subsequent to us losing the contract on the portal monitors, we basically decided to take a different tact on that business.

We decided to basically develop modules that we could then sell to primes and those primes would then sell the end systems.

And we also diversified the series of primes that we would be involved in, because we really feel what is needed in the industry is one product that does chemical, biological, nuclear, and explosive detection.

So we have been out working with a number of those primes, and although we have not at this point seen significant revenue from that, we're pretty optimistic that that will happen.

I don't want to specifically talk about the contract that you were referring to, but I can tell you that our business looks like there's going to be significant opportunity for us as time goes on, both in the United States and internationally.

Relative size of that business, are we 75 million?

Where about is ORTEC at?

ORTEC is about 70 million now.

Okay, thank you.

(OPERATOR INSTRUCTIONS).

John Baliotti, FTN Midwest Securities.

I was wondering, maybe this is a question for John, but I was [sort of] keeping an eye on your return invested capital was up nicely and it seemed like there were a couple of headwinds there.

But on the positive side, your cash was up very strong, as you pointed out, year-over-year and also it looks -- you obviously took on some debt for the acquisition.

So I'd imagine that fundamentally the acquisitions are a bit of a headwind to that because of the (multiple speakers)--

Goodwill.

But is there any sense of any color you could paint on what you thought of your return invested capital and maybe how you're looking at it for the year?

Well, it looks pretty good.

I mean return invested capital was 12% in the quarter and it was up, I think, 6 or 7% over the last year number.

So we are seeing really good movement on return on invested capital and it's -- the margins are surely helping it, but also the asset management side of the equation is helping it.

You're right.

There is a headwind, largely due to goodwill in the acquisitions that will impact that, but I'm pretty bullish because I'm feeling like we're going to get margin growth in the businesses.

And as John mentioned in his opening talk, we think we've got some leverage on the asset side of the business.

No, I meant that it was strong and that it was strong despite some of the things that might have been -- you know, like with cash being up, which is obviously a good thing and sort of taking on some near-term debt just because of some of the deals and usually the dilution of the deal.

So I would say that if you're able to do 130 basis points with all that, it seems like you have pretty good opportunity going ahead.

I was just seeing if you felt the same way about that.

Yes, we do.

We do.

We do, John.

Okay, great.

Thank you.

With no further questions, I'd now like to turn the call over to Mr.

Burke for closing remarks.

Okay.

I'd like to thank everyone for joining the call.

As a reminder, a replay of the call can be heard.

Dial in 888-203-1112 and entering the confirmation code number 4360546 and obviously shortly there will be a replay available on ametek.com or at streetevents.com.

Thank you.

That conclude today's conference.

We appreciate your participation and have a nice day.