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Executives

Matt McGrew - Vice President of Investor Relations

H. Culp - Chief Executive Officer, President, Director, Member of Finance Committee and Member of Executive Committee

Daniel Comas - Chief Financial Officer and Executive Vice President

Analysts

Scott Davis - Morgan Stanley

Richard Eastman - Robert W. Baird & Co. Incorporated

John Inch - BofA Merrill Lynch

Terry Darling - Goldman Sachs Group Inc.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Robert Cornell - Barclays Capital

C. Stephen Tusa - JP Morgan Chase & Co

D. Mark Douglass - Longbow Research LLC

Jon Wood - Jefferies & Company, Inc.

Nigel Coe - Deutsche Bank AG

Deane Dray - Citigroup Inc

Danaher (DHR) Q1 2011 Earnings Call April 21, 2011 7:30 AM ET

Operator

Please stand by. Good morning. My name is Casey, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation First Quarter 2011 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Matt McGrew, Vice President of Investor Relations. Mr. McGrew, you may begin your conference.

Matt McGrew

Good morning, everyone, and thanks for joining us. On the call today are Larry Culp, our President and Chief Executive Officer; and Dan Comas, our Executive Vice President and Chief Financial Officer.

I'd like to point out that our earnings release, a slide presentation supplementing today's call, our first quarter Form 10-Q and the reconciling and other information required by SEC Regulations G. relating to any non-GAAP financial measures provided during the call are all available in the Investors section of our website, www.danaher.com, under the heading Earnings and will remain available following the call.

The audio portion of this call will be archived in the Investors section of the website later today under the heading Investor Events and will remain archived 'til our next quarterly call. The replay of this call will also be available until April 26. The replay number is (888)203-1112 in the U.S. and (719)457-0820 internationally. The confirmation code is 8183339.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. Please refer to the accompanying slide presentation, our earnings release, our first quarter Form 10-Q and other related presentation materials supplementing today's call for additional factors that impacted year-over-year performance.

As announced on January 18, we reached an agreement to sell our Pacific Scientific Aerospace businesses. For the current quarter, the results of this business are reflected as discontinued operations in our statement of earnings as required by generally accepted accounting principles.

In addition, our historical audited financial statements for the 3 years ended December 31, 2010, we revised to reflect this business as discontinued operations. We'll be filing these financial statements with the SEC later today under our Form 8-K. All references in these remarks and accompanying presentation to earnings, revenues and other company-specific financial metrics relate only to the continuing operation of Danaher's businesses, unless otherwise noted.

I'd also like to note that we'll be making some statements during the call that may be forward-looking statements within the meaning of the Federal Securities law including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. It is possible that actual results may differ materially from any forward-looking statements that we might make today.

These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events and developments or otherwise.

With that, I'd like to turn the call to Larry.

H. Culp

Matt, thanks. Good morning, everyone. We've gotten off to a great start in 2011, and I'm pleased to report an outstanding first quarter for Danaher.

We grew 10% organically in the first quarter, with all of our segments reporting mid single-digit growth or better. We feel very good about where the portfolio is today in terms of how our businesses are performing, how they are positioned in our served markets and the macro drivers in these markets.

Over the last several years, we've aimed many of our investments at the emerging markets, which positions us well in the fastest-growing parts of the world. Those investments are paying off as we grew nearly 20% in the emerging markets this quarter, with China and Brazil leading the way.

We were also encouraged by the continued strength in the developed economies, which grew to high single-digit rate in the quarter. I want to provide a special word of thanks to our associates in Japan, who in the face of great strategy, have shown tremendous spirit and resilience.

In addition to our go-to-market initiatives, we've also been making significant investments in innovation and new product development. In the quarter, R&D, as a percentage of sales, was up 50 basis points year-over-year to 6.5%. This level of investment is much higher than where we were just a few years ago and is indicative of our long-term trajectory.

Our R&D efforts have led to a number of exciting new products throughout the portfolio, which in turn, we believe, are helping drive market share gains in many of our businesses, including Leica, Videojet, Fluke, Radiometer, Hach Lange and Kollmorgen, with other important product launches scheduled for later this year.

During the quarter, we delivered strong operational performance as evidenced by the outstanding margin performance with our core operating margin improvement, up 245 basis points year-over-year. Each of our segments delivered at least 200 basis points of core margin improvement. So with that as a backdrop, let me move to the details of the quarter.

Today, we reported first quarter diluted net earnings per share from continuing operations of $0.61, representing a record first quarter for Danaher and a 33% increase as compared to our adjusted EPS last year.

Revenues for the quarter increased 11% to a record $3.3 billion, with core revenues up 10%. The impact of currency translation increased revenues by 1.5%, while the impact of deconsolidating the Apex revenues more than offset sales growth attributed to acquisitions, resulting in a net decrease of revenues of 0.5%.

Our year-over-year gross margin for the first quarter increased 390 basis points to 52.7%, largely due to leverage from greater sales volumes, productivity improvements and the higher gross margins of our newer businesses. This is the third consecutive quarter that our gross margin has exceeded 50%.

Overall, our operating margin in the first quarter increased 370 basis points year-over-year to 17.7%, with our core operating margin up 245 basis points. Included in the operating results was a $14.5 million in equity earnings contributed by Apex. Absent the Apex contribution, our operating margin was 17.2%.

First quarter operating cash flow was $434 million, a 10% increase, notwithstanding a $100 million increase year-on-year in income tax payments made during the quarter. We expect the timing of our tax payments to normalize during the balance of the year. Free cash flow was $385 million.

During the quarter, we completed 2 acquisitions with aggregate annual revenues of approximately $250 million to strengthen our Product ID and Water Quality platforms. We also announced the pending acquisition of Beckman Coulter. Based in Brea, California, Beckman is a leading supplier of in-vitro diagnostic systems, including instruments, consumables and software for the biomedical laboratory market. Its clinical diagnostic systems are found in hospitals and other clinical settings around the world and deliver critical information to physicians to diagnose disease, make treatment decisions and monitor patient care.

To date, we have received U.S. anti-trust approval and expect to close the transaction late in the second quarter. We are looking forward to sharing with you more details after the closing.

Turning to our 5 operating segments, Test & Measurement revenues increased 27.5% for the quarter, with core revenues up 14%. Our core operating margin for the first quarter increased 270 basis points. Overall, our operating margin increased 170 basis points to 20.7%.

Fluke core revenues grew at a mid-teens rate in the quarter, with solid demand in all major geographies and product categories. Emerging market revenues were up more than 20%, led by Brazil, where we are expanding our market presence with investments in feet on the street and a series of mid-priced core service and installation test tools.

At Tektronix, core revenues were up mid-teens in the quarter, led by sales of oscilloscopes and logic analyzers, which were both up over 30%, partially offset by continued softness in the video end markets. The strength was broad-based geographically, led again by the emerging markets. We've been particularly pleased with the sales of our new mid-range line of oscilloscopes, the DPO/MSO4000 and 5000 series, which we launched last quarter.

Core revenues from our Communications businesses also grew at a mid-teens rate in the quarter, with healthy demand for both our core enterprise tools and our network management solutions. During the quarter, Verizon Wireless, selected Tektronix Communications to provide monitoring solutions for their next-generation LTE platform. This was an important and exciting win for the team, who were chosen in part due to the versatility and scalability of their products to provide deep end-to-end visibility into LTE network and service performance for Verizon.

Environmental segment revenues increased 9% in the quarter, with core revenues up 7%. Our core operating margin was up 240 basis points in the first quarter. Overall, our operating margin increased 230 basis points to 19.3%. Water Quality core revenues increased at a high single-digit rate. At Hach Lange, the demand was solid for our core lab and process instrumentation in all major geographies.

Industrial and food and beverage verticals in the U.S., Latin America and China were particularly robust during the quarter. Hach continues to focus on expanding its service capabilities, which have more than doubled in the past 2 years, and currently account for about 10% of total revenues.

Trojan core revenues increased at a low double-digit rate in the quarter, driven by robust growth in its industrial applications. ChemTreat's core revenues also grew low double digits in the quarter. ChemTreat continues to expand outside the U.S. and their Canadian revenues have more than doubled in the last 2 years as they've invested in feet on the street initiatives to expand our penetration there.

During the quarter, Hach expanded its direct sales and service team in Australia and New Zealand, with the acquisition of Accurate Group, enhancing our ability to provide local training and personalized application support in that region. This acquisition represents another example of Hach Lange expanding its direct go-to-market capabilities.

Gilbarco Veeder-Root's first quarter core revenues increased in a mid single-digit rate, with robust shipments of dispensers and automatic tank gauges in North America and Europe, partially offset by slower global sales of payment and point-of-sale systems.

During the quarter, Gilbarco launched 2 new dispenser platforms, specifically designed for Eastern Europe and India. We expect these platforms to help capture additional market share in these fast-growing economies.

Moving to Life Sciences & Diagnostics, revenues for the quarter increased at 21.5%, compared to the prior year with core revenues up 9%. Our core operating margin was up 220 basis points in the first quarter. Overall, our operating margin was up 730 basis points from the prior year to 14.4%, primarily due to the first quarter 2010 acquisition-related charges that did not repeat in the first quarter of 2011.

Radiometer's core revenues grew at a high single-digit rate for the quarter. This performance has been driven by healthy demand in Europe, China and Japan for both the ABL90 and ABL80 blood gas analyzers, which bodes well for future consumable sales.

We also continue to build AQT's installed base outside of North America with placements up more than 30% in the quarter.

Leica Biosystems' core revenues increased in excess of 10% in the quarter, with strong demand in North America and Europe for our advanced staining systems, which grew more than 20%. We believe that we continue to take share in this market.

During the quarter, we launched our HER2 fully automated breast cancer diagnostic test for the BOND system in Europe. This is a critically important addition to our companion diagnostics reagent offering as we are now able to aid in the selection and identification of specific targeted therapies for breast cancer patients.

Leica Microsystems core revenues grew at a mid single-digit rate during the quarter, which we were particularly pleased with given the difficult year-over-year comparison as a result of Japanese stimulus activity in 2010.

Sales of compound and confocal microscopes into the life science research and industrial markets were particularly strong. During the quarter, we launched several of new research products including the SDAF inverted microscope with integrated spinning disc technology for high-speed comparable sectioning and 3D reconstruction, addressing the high-growth live-cell imaging market.

We look forward to hosting investors at our Leica facility in Wetzlar, Germany in a couple of weeks to share with them more Leica success stories.

And core revenues at AB SCIEX grew to high single-digit rate in the quarter with robust demand from the academic proteomic and applied markets. Our new Triple TOF 5600 led the way. Proteomics Researchers are selecting the 5600 because it is able to deliver both qualitative and quantitative analysis effectively on a single platform. Customer acceptance and feedback on the new product continues to be outstanding.

Now full year into the acquisition, AB SCIEX is clearly seeing the benefits of new products, a much more focused go-to-market effort and the implementation of DBS.

Turning to Dental, segment revenues increased 7.5% in the first quarter with core revenues up 5.5%. Our core operating margin was up 275 basis points in the first quarter. Overall, our operating margin was up 220 basis points from the prior year to 10.7%.

KaVo revenues increased at a mid single-digit rate in the quarter with solid demand in all major geographies for our instruments and imaging products. KaVo launched a record number of new products in the quarter at 2 of the largest dental industry trade shows, the Chicago Midwinter Show and The International Dental Show or IDS held in Germany.

Doctors are particularly excited about the new OP300, a hybrid digital imaging system, which integrates three imaging modalities; cephalometric using orthodontics, along with 2D Panoramic and 3D Cone Beam on a single unit, giving dentist a truly adaptable, flexible imaging platform.

As the digitization of the dental practice continues, the OP300 provides general practitioners for the first time with the range of technologies to perform more complex procedures such as implants in their own operatories instead of referring patients to the specialists.

Sybron core revenues grew at a mid single-digit rate in the quarter, with good growth in general dentistry consumables, infection prevention and orthodontic solutions. Sales in the emerging markets were again strong as we continue to invest together with KaVo and go-to-market initiatives in those high-growth areas.

During the quarter, we launched SonicFill, a new composite filling system that combines Kerr's composite technology with KaVo's hand piece technology. Customer feedback on this new product launch has been very positive.

Moving to our Industrial Technologies segment, revenues increased 16% for the quarter with core revenues up 14.5%. Our core operating margin increased 200 basis points in the first quarter. Overall, our operating margin was 21.3%, a 210 basis point increase compared to the same period last year.

Product Identification core revenues were up mid-teens in the quarter, with broad-based global growth across all major product categories, including the Videojet's full suite of CIJ printers, where we believe we continue to capture share.

Demand from electronics customers for our parts marking instruments was again strong this quarter. During the quarter, we launched a new suite of large character marking or LCM systems for barcode graphics and alphanumeric printing and packaging applications. While still early, we've been pleased with customer feedback thus far.

And in March, we closed on the previously announced acquisition of EskoArtwork, a leading full service solutions provider for the digital packaging design and production market based in Belgium. With revenues of about $250 million, Esko is an attractive adjacency to Videojet and our Product Identification platform.

Our Motion businesses' core revenues grew in excess of 20% in the quarter. The momentum we saw build last year continued as we experienced significant growth in all major geographies and end markets. The investments we've made during the last few years in our new AKM and AKD motors and drive, product lines continue to pay off with robust demand in the quarter, particularly among industrial automation customers. We believe we continue to capture market share with AKM and AKD, with volumes there up over 100% year-over-year.

So, to wrap up, the first quarter 2011 was an excellent start for Danaher. Our portfolio of businesses is well-positioned. The investments we've made in innovation and emerging markets continue to drive growth and share gains. We are pleased with our team's performance, which led to outstanding core revenue and earnings growth in the quarter. We expect the global economy to continue to improve in 2011, led by the emerging markets, with the developed markets also growing, albeit at a lower rate. We believe we are well-positioned with DBS, driving our focus on our performance.

We are initiating second quarter 2011 adjusted earnings per share from continuing operations guidance of $0.62 to $0.67. Due to the broad strength we are seeing in our businesses, we are increasing our full year adjusted earnings per share from continuing operations guidance from the prior range of $2.55 to $2.70, to a new range of $2.65 to $2.75 for the full year 2011. This includes $0.04 of anticipated net dilution resulting from the impact of the Pacific Scientific Divestiture and the EskoArtwork acquisition. This updated guidance excludes the impact of a pending acquisition of Beckman Coulter.

Matt McGrew

Thanks, Larry. That concludes the formal comments. We're now ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Steve Tusa with JPMorgan.

C. Stephen Tusa - JP Morgan Chase & Co

The gain on the sale of the Aerospace business, did you guys disclose the size of that before? That was $0.30 in the 10-Q?

Daniel Comas

We think it hasn't closed, it's eminent, and it will be about $0.30 after tax.

C. Stephen Tusa - JP Morgan Chase & Co

Okay. So what are you -- you're going to restructure that away, obviously?

Daniel Comas

We'll call that out separately.

C. Stephen Tusa - JP Morgan Chase & Co

Okay. Will there be restructuring? Will there be incremental -- will you use that for incremental restructuring or no?

Daniel Comas

I think they'll be restructuring through the year, but we're not going to use that gain to offset it.

C. Stephen Tusa - JP Morgan Chase & Co

Okay. So the numbers will be clean there?

Daniel Comas

Yes.

C. Stephen Tusa - JP Morgan Chase & Co

Okay. And then the core growth moving throughout the year -- sorry, I got a lot going on this morning, core growth for the second quarter, what do you think there? And have you updated the core growth number for the year?

H. Culp

Steve, we do not envy your challenge today with everybody reporting. On the core growth side, I think, with what we saw in the first quarter, we come in to the second quarter here working against our toughest comp. But I think we're looking at 6% to 8% core in the quarter and, frankly, I think, probably looking at that rate for the year but feeling very good as we get going here in April for sure.

C. Stephen Tusa - JP Morgan Chase & Co

Okay. So you'll be exiting the year at more of a kind of a 4% to 5% rate then?

H. Culp

No, I think if you look at where we would expect to be in the second quarter, I think we'll be in that 6% to 8% range. I suspect we'll be at the higher end of that range, given what we see right now. I think, for the full -- for the remaining 3 quarters of the year, I think we'll be in that 6% to 8% range. And even with the 10% of first quarter, we probably could be in that range for the year. I don't think we'll be that muted come year end, but we got a long way to travel. It's still early in the year between now and December.

C. Stephen Tusa - JP Morgan Chase & Co

Sure. And then orders, just the book-to-bill, one last question, for the quarter?

Daniel Comas

We're a little bit north of 1 and it trended nicely during the quarter.

C. Stephen Tusa - JP Morgan Chase & Co

Okay, thanks a lot. Appreciate it.

H. Culp

Thanks, Steve.

Operator

Thank you. We'll take our next question from Scott Davis with Morgan Stanley.

Scott Davis - Morgan Stanley

Everybody handles earnings releases differently, I choose to eat doughnuts and drink lots of coffee and generally abuse myself. So on another note, your gross margin was just fantastic and be on kind of probably the most bullish of models. Talk about what drove that? I mean, obviously, you must be getting price out there because clearly, you couldn't have had any headwind on price cost with that kind of gross margin. I mean, how much of it is mix, how much of it is price, give us a little granularity on that?

H. Culp

Sure. Well, I think we -- while we do see some of those inflationary pressures and price was a positive, we nearly had a point of price. And I think that price-cost balance is in a good place, Scott, because as a 50% gross margin business, we don't have a lot of those core commodity exposures that some other folks, obviously, will. I think that with the core growth being better, particularly with some of our newer and/or higher gross margin businesses, that certainly helped. And I think we've just had very good execution from a cost and from the other variables in the gross margin calculation. I'm just, obviously, very pleased with the execution across-the-board in that regard. I think you saw that, really, in all 5 segments.

Scott Davis - Morgan Stanley

Okay, fair enough. As a follow-up, you've got a big one to bite off, Beckman. But are you still out there looking at deals? Is there capacity to look at deals? I mean, just talk to us about how you think about forward M&A and forward cash for investments?

H. Culp

Scott, I think we're very much in the position that we said we would be when we announced Beckman. Obviously, that transaction is still pending, but we're much in the deal game, not as much we typically would be. But you saw us announce another small acquisition here for water, we're looking at a number of things. We probably are talking about a deal envelope, barring other sources of capital, in the $300 million range for the rest of this year. But I think by and large, we get back into probably the $2 billion range in 2012, which at this point is only 9 months out. So I don't think at this juncture, we're feeling unduly pinched by, obviously, the implications from the Beckman deal.

Scott Davis - Morgan Stanley

Okay. That's helpful. Good luck, guys. Thanks.

H. Culp

Thanks, Scott.

Operator

Thank you. We'll take our next question from Bob Cornell with Barclays Capital.

Robert Cornell - Barclays Capital

I'm surprised nobody answered that Beckman Coulter yet. So, there is a press release talking about any delays in the FDA address, so the high throughput machine, maybe you could give us some color on that and what it means?

H. Culp

What Beckman put out earlier this week was an update, I think, really for investors given the delay in their submission to the FDA for the approval or the re-approval of the Troponin test on their 2 major testing platforms. I think we want to respect the company's primacy on commenting on those sorts of matters in great detail, but I think given the work required, they basically wanted to make sure investors and their customers understood that they were going to be submitting to the FDA later than they had initially flagged. I don't think we were wildly surprised by that. There is a lot of work to do in preparing for those submissions. And it's work, obviously, that the company is very focused on. But in terms of the big picture relative to Beckman, I don't think the delay that they have announced is material.

Robert Cornell - Barclays Capital

Given your comment that it's a second -- late second quarter close, I mean, could you update us on the accretion dilution comments for '11 and '12?

Daniel Comas

Bob, it does appear that as opposed to closing and we may be having the business for 2 months in this quarter, it's more likely going to -- it could well be towards the end of June, and we won't have much of an impact here in the quarter. We'll come back and update as we get to closing or if we close the end of June, maybe we'll do it in the third week of July with earnings. But it could have some modest impact here in 2011. But given the things that we're working on, we have planned, I don't see that impacting our sort of 2012 outlook her.

Robert Cornell - Barclays Capital

Well, I mean, did you guys at one point that this could be $0.05 to $0.10 accretive this year and $0.25 to $0.30 accretive next year, just my memory may be failing me?

Daniel Comas

That's correct, Bob. And given the delay here, that obviously could have some impact on this year, but we don't see that impacting next year at this point.

Robert Cornell - Barclays Capital

Not next year. Final point, bigger picture point, you guys mentioned a couple of times the lower price point products and the variety of the end markets, I mean, could you just address the broad opportunity for Danaher to get into the local products at lower price points and make good margins? I mean, you mentioned that at a couple of points, and I'm sure that's a part of the R&D boost and so forth and so on and is that strategy going to impact gross profit margins? I mean, how is that all low price point emerging market development going to reflect itself in the results?

H. Culp

Well, Bob, I think that when we talk about our emerging market product strategy, we really want to play up and down the price point continuum for two reasons. The first thing, of course, the deeper we penetrate those markets, the faster we plug into the underlying growth in those markets. And secondly, the further we go down that price point continuum is, by and large, we really have started at the high-priced-point segment with our western brands. The tougher we make it for local competitors to come up the experienced curve and take that volume into the developed markets. I think when you look at what we've done in building the China businesses and are now really trying to drive in earnest in India and Brazil. We really start not with the high-priced point products and taking their prices down, but really putting together product specifications, building material cost targets and the like, so that we're geared towards meeting that differentiated customer need, at a cost position that allows us to drive margin maintenance and hopefully, we often aim for this, margin expansion. So, I don't believe there is an inherent tradeoff in humming down that price point continuum and your gross margins if the products back and the cost targets are designed upfront with that market reality in mind.

Robert Cornell - Barclays Capital

Yes, thanks. That's all for me. Very interesting. Thanks, Larry. Thanks, Dan.

H. Culp

Thanks, Bob.

Operator

We'll take our next question from Steven Winoker with Sanford Bernstein.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

So just first question on, maybe at this point, working capital and your cash conversion, which was -- looks like still healthy, 90% plus, 92%, but down. And as you build for all this growth, what was your experience? It looks like your receivable days up, inventory days up a bit. I mean, how did that go or any issues?

Daniel Comas

Steve, it's Dan. The build we had at working capital was very consistent with what they've had in sort of prior years than the first quarter. The biggest driver of the year-on-year, on the sub-100%, still 90%, sub-100% conversion was we had a $100 million increase in tax payments year-on-year in the first quarter. Probably have pretty heavy tax payments here in Q2, but then that will flip in the second half. So, I think, from the broader issue on cash flow conversion, I think we're going to have a very strong year, particularly as we get in the second half with likely lower tax payments as compared to the second half a year ago. On the working capital side, as we did last year with double-digit core growth, we had a very modest increase in working capital. And I think if we are in that 6% to 8% range though that could suggest a multi-$100 million increase in working capital, we don't expect that at all. We think it will be -- working capital by the end of the year will be flat to slightly up.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Okay, all right, great. And may be on dental margin increase, which has been a long road. Can you comment about what the dynamics were in that business and how much is sort of the result of initiatives versus maybe just sort of tailwinds?

H. Culp

Well , I think with KaVo being up nearly 400 basis points, they would -- they'd argue they earned more of that. Obviously, the growth helps both at KaVo and at Sybron, but I really think, Steve, it's fundamentally the story that you're well aware of and we've told many times in terms of the efforts just to get that cost structure right and to make sure that we're driving growth that's accretive both in terms of our market share positions and our growth in operating margins.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Okay, all right. I'll leave it there. Thanks, guys.

H. Culp

Okay. Thanks, Steve.

Operator

Thank you. We'll take our next question from Jon Wood with Jefferies & Company.

Jon Wood - Jefferies & Company, Inc.

So, Larry, could you talk about Test & Measurement, the book-to-bill in the first quarter and just talk about the year. Is it reasonable to assume that franchise can do double-digit in 2011 at this point or is it too early to go there?

H. Culp

Well, I think that we look at just book-to-bill for T&M. They -- where that matters most, I think, is at Tek, and they had north of 1.0 on a book-to-bill basis, and we were very pleased with that. I think if we look at TEK, we see a very good stream of new products forthcoming, which we're excited about. I mean given the -- our sense of the market, we'd probably have maybe a little more market risk in the wake of the Japan tragedy and T&M than we do some other businesses but, by and large, I'd suspect even with the tough comps that T&M will be one of the lead businesses for us this year relative to our core growth. I'd certainly expect them to be in the double-digit range here in the second quarter and certainly would not rule it out for the full year. They are very well positioned not only at TEK but, frankly, across that segment.

Jon Wood - Jefferies & Company, Inc.

Okay, great. Thanks. One last one on SCIEX, and this is another big year for product introductions feasibly. Do you need another major product line turn this year to maintain kind of that high single-digit trajectory in your view or is the TripleTOF really in the early innings of penetration?

H. Culp

Well, I would say that first of all, we were very pleased with the performance at SCIEX. Really the first full quarter outside of the transition arrangement because we, obviously, anniversaried that deal. So to see the top line performance and the bottom line performance, at SCIEX, was reassuring and they, frankly, they did better than we would have anticipated in part because there has been so much work done, but also they probably had one of the tougher comps given the Japan stimulus of any of our businesses. Clearly, the 56 [TripleTOF 5600] has been impactful. I think we are in the early innings. But that said, there are other things forthcoming, and we're looking forward to being at ASMS in Denver come June and talking about the next wave of innovation at AB SCIEX.

Jon Wood - Jefferies & Company, Inc.

Okay, great. Thanks for the comments.

H. Culp

Thank you, Jon.

Operator

Thank you. We'll take our next question from John Inch with Merrill Lynch.

John Inch - BofA Merrill Lynch

Thank you. Good morning, everyone. We'll start with Japan. Japan, I think, is about 5% of your total revs. And I think you guys had called out roughly a point of top line expectation drag from Japan this quarter, which I guess sort of implies Japan all else would be down about 20%. What did you actually see and what are you seeing there? And maybe you could comment on if you've seen any sort of supply chain issues and how you're dealing with that?

H. Culp

Yes, I think that -- first of all, John, what we saw since the earthquake is just an incredible level of strength, of character, of leadership on the part of our team. I don't think I've ever been more proud of our people, particularly given the circumstances that I have been with our Japan team. What we were flagging, obviously, immediately following the quake, was some concern that we could have some immediate revenue impact. We did not see that. That really didn't materialize in any meaningful way in the quarter. As you know, Japan's year end is March, so it was an important time, and there was real revenue at risk -- thrilled that it didn't materialize. I think what we, like most companies at this point, are trying to sort through, is just what happened as the ramifications from everything that has transpired here, work their way into the Japanese economy. It's less than 5% of sales. It's obviously important, but it's not like it's going to have, I think, a significant impact for us going through the rest of the year, as best we see, it in terms of our sales in Japan. But I would characterize the situation as being a bit fluid at this point. I think our greater concern, again, like most companies is how supply chains come back online during the course of the year. We haven't really baked in anything here relative to negative effects, but it's probably one of the variables in our outlook and certainly getting a lot of management attention because it only takes 1 specialty material. It only takes 1 IC that may come from a Northern Japanese facility, obviously, to ricochet through the -- a particular product line on a global basis. But at this point, I think as each day passes the news in that regard becomes more encouraging. But again, I think it's a dynamic that's getting a tremendous amount of work on this end. And we'll know -- we'll be smarter about things as we go through the course of the year. I don't think we can wholly categorically rule out some risk in that regard as we look out to the last 9 months of the year.

John Inch - BofA Merrill Lynch

Yes, well, Larry, understanding the broader risk, I'm just wondering, I mean, a lot of your products have some kind of electronic content in them, right? So have you identified...

H. Culp

They do.

John Inch - BofA Merrill Lynch

Yes, have you identified the one area that may be an issue? I'm just trying to think -- you wouldn't want to kind of hit a quarter and one of your segments sort of skips simply because you couldn't have supply chain issues. I'm just wondering if you thought about -- well, if there's anything, it's probably this area, and it's pertaining to this. And right now, we're trying to dual source or do something like that. I mean, have you identified anything in that regard yet or not really?

H. Culp

Well, John, I think we're well aware that we can't ship product if we're missing a particular component. I think given the nature of our products and the diversity of our portfolio, the risk that we're talking about here could crop up anywhere. I think what you really have to do and what we're doing, and I get an update on this every 48 hours is you literally have to go to the component level, right? This isn't about Northern Japan. It's not about a particular company or a commodity category. You've got to go to that SKU and understand the current inventory position, where that supplier is relative to their own production capability and verify that. So, we are at that point where we think we have risk, even a potential risk. We are working through sourcing inventory in other locations looking at resourcing options, availing ourselves of all those array of options. I think if you look at what we've been able to do over time in terms of holding on-time delivery in the face of growth, driving margin expansion in good times and in bad, we've got an outstanding procurement materials management team standing up to that test right now. But, again, I think that there's still a lot of work to do to work through our supply base to make sure that we have no disruptions to our customers, let alone our investors as we look through to the rest of 2011.

John Inch - BofA Merrill Lynch

Yes, that's fair. Can I ask you about China? You called China out as a continued source of strength, along with Brazil. China has obviously been trying to reign in growth to a degree and, obviously, Japan is a big trader with China. What are your folks on the ground saying, Larry, with respect to kind of the runway or trajectory for the rest of the year? Do you think kind of macro tightening is going to have much of an impact in your businesses and clearly, like Beckman has got a pretty good position in China as well. I'm just wondering if there are implications for Beckman as it pertains to China?

H. Culp

John, while we don't have a macroeconomist on staff in China, Dan and I did have the opportunity just 2 nights ago to do an in-depth review with the China team. On the back of an outstanding first quarter, despite the very real policy direction that you referenced, our team see nothing but very robust demand across the portfolio. It was striking. Their level of conviction and confidence given the start of the year and what they are hearing from customers. Again, I think we need to be very mindful of the issues that the Chinese Government are trying to bring to the fore. But right now we're very excited about the year we could have in China.

Daniel Comas

And for a number of us, those, our companies over there, we've had a very significant year-on-year increase in feet on the street and sales people over there. So in some cases, where they are seeing some modest slowing, we've got much better coverage. And we think we can kind of grow through that at these sort of rates.

John Inch - BofA Merrill Lynch

And just lastly, Larry, the big picture delay with respect to Beckman and the FDA that you called out, you said it was not material. Can you just help us understand, with respect to you guys, why is it not material? Meaning, just again, from sort of very high level, isn't there a risk that this kind of gets further delayed? Like at what point does it really become material, or is this simply because the deal is based truly on cost synergy, and you're not really that concerned about sort of this testing stuff getting into market on a timely basis?

H. Culp

John, just to be clear, what I intended to convey is that the delay here is not something that, in our view, is unanticipated, I think we didn't assume as I think we referenced back in January, that we were planning for perfection here relative to the resubmissions. So the slippage a bit here, as long as they get that application in and it's approved, and again, you go back to their 8-K, their caveats there, but given the planning assumptions that are in place on this end, I think we're still going to be in a very good place.

John Inch - BofA Merrill Lynch

Great, thank you.

Operator

Thank you. [Operator Instructions] We'll take our next question from Deane Dray with Citi.

Deane Dray - Citigroup Inc

Thank you. I wasn't planning on asking a question about motion, but when you go across the businesses and motion stands out as really upside performance, you said 20%-plus growth all geographies all end markets. So if you just take us through some additional color here on was it retrofits or new capacity being added with the customers, share gains, any further color will be helpful?

H. Culp

Deane, thanks for asking because they really had a terrific performance on the back of, I think, of an excellent 2010. I think that there really is no one silver bullet here. In essence, what we referenced in the prepared remarks is very important. These new product introductions have really helped us with design wins. I think that we are doing a much better job, not only investing, but executing on the ground in the emerging markets, particularly in China. But that said, overall, the commercial execution on the part of the Kollmorgen and Thomson teams, Dan and I were just with them as well the other day, I think has dramatically improved vis-a-vis where it was just a few years ago. So, you've got technology, you've got better commercial capability, you've got more emerging market exposure and, obviously, you've got a market dynamic where the tailwinds are strong, put all that together, they're leading the way right now, for us, on the core growth side.

Deane Dray - Citigroup Inc

I know Motion does not have much in the way of backlog, but in terms of visibility, quote activity, how sustainable does this look over the next couple of quarters?

H. Culp

Well, obviously, the comps get tougher for them and I think we'll see their core growth taper a bit as we go through the year. But I would still expect them to be a growth leader for us this year. While they don't have maybe booked backlog per se, Deane, I think as you look at their design wins and their likely shipments, assuming certain build rates on the part of their OEM customers, they're looking at a good 2011.

Deane Dray - Citigroup Inc

Great. And then Just last one from me, regarding the 2011 guidance increase. If my -- looking at the incremental margins, based upon what we've talked about in December, 35% to 40%, looks like you could be tracking towards the upper end of that range. Is that still your outlook for the year on incrementals?

H. Culp

Yes, I think that's a fair assessment, Deane. Obviously, with a range of 265 to 275, if you dialed in the high end of that core growth range for the year of 6% to 8% with a mid to high 30 ECM, you kind of get to that – you get into that zone. I think, again, I think one of the things we want to make sure we share with folks is that, we had an outstanding first quarter, great start for the year. We are mindful the Japanese risks that are out there, maybe more so on the global supply chain than local sales, but they are both real, still fluid. Clearly, some inflationary pressures out there. And, I think, with all that said, we certainly want to make sure that in a year like this, we are investing ahead both with respect to growth and margin expansion. So we've already begun some of the dialogue here about what are some of the things we might have thought were really 2012 initiative that we might be able to action this year. That's part of what we want to do here, to make sure we've got the latitude, not only to deliver a good 2011, but also continue to build for '12 and '13.

Deane Dray - Citigroup Inc

Great, thank you.

Operator

Thank you. We'll make our question from Mark Douglass with Longbow Research.

D. Mark Douglass - Longbow Research LLC

We can talk through margins a little bit, very strong moving industrial TEK margins. Do we see these fairly sustainable given the continued strength that is going to be likely in the Product ID in Motion or is it going to be small drop-offs, certainly in 2Q with Esko being folded in now?

Daniel Comas

Yes, you'll, Mark, operationally, we expect to see these sort of margins for the balance of the year. We will have about $25 million of non-cash expenses related to Esko acquisition that'll bleed out, primarily in Q2, but some in the second half as well. So, the margins we're seeing in Motion, Product ID, the other businesses, Industrial remain quite strong. We're seeing a little bit of inflation, but we're also getting pretty good price, particularly at Motion. And we think, absent some of these non-cash charges, which will bring the reported margin down, the true operating margins we think we can sustain at these levels.

D. Mark Douglass - Longbow Research LLC

Great. Thank you. I was going to ask about the -- with steel prices going up at Motion, would be safe as well, so thanks for that. And then as you kind of think about margins on Test & Measurement, as you continue to integrate Keithley, do you see a pretty good trajectory there, assuming T&M stays pretty healthy, which it seems that it will at least through '11?

Daniel Comas

Sure. I mean, we clearly -- we had almost 21% in the first quarter. And I think you'll see some modest sequential improvement maybe to 50, 100 basis points over the next couple of quarters in T&M margins as well in part as we partially as we get the benefit of integrating Keithley.

H. Culp

And thanks for bringing Keithley up, Mark, because that is an acquisition, obviously, rather recent perhaps overshadowed by Beckman. That integration, that activity has gone exceptionally well. We're very pleased with the team, their embrace of Tektronix. The opportunities really to partner both from a new product development and technology view, but also in terms of leveraging the Tektronix global channels to help accelerate Keithley sales. Very pleased to have that one on board.

D. Mark Douglass - Longbow Research LLC

Right. And was there kind of core sales for Keithley kind of similar to the segment average or are they closer to what TEK put up, 5% to 8%.

H. Culp

They were very much in line with the rest of the team.

Daniel Comas

I think the rest of T&M.

D. Mark Douglass - Longbow Research LLC

Right. Thank you.

Operator

Thank you. We'll take our next question from Nigel Coe with Deutsche Bank.

Nigel Coe - Deutsche Bank AG

So, obviously the delay in the closure of Beckman, does this change any way the size of the acquisition? The reason I ask is that you guys are earning roughly $4 million of free cash flow a quarter. So in theory, it just reduce the need to raise cash. So, I mean, just any comment on that would be helpful?

Daniel Comas

Nigel, I think that our previous disclosure of around $1 billion of equity, I think that still stands. We're pleased with the cash flow, very strong with our cash position, which will, hopefully, in the coming days, as we close Pacific Scientific, we'll be north of $2 billion. And that, obviously, will go towards the Beckman acquisition. I think we're still comfortable with equity in that sort of range. In part, we want to give ourselves some latitude here on the M&A side.

Nigel Coe - Deutsche Bank AG

Okay, and then GVR doesn't get a lot of ad time but high oil prices, retail gas prices, pushing $5 a gallon, I mean, how does the investment environment change with high gas prices? Do they tend to spend more CapEx and could that benefit GVR? Anything you've seen in the past that might suggest that?

H. Culp

Well, I think that there have been some rules of thumb in the past that would suggest at least in the developed markets that retail spend tracks pretty well with retail margin. But the market has really undergone, I think, a good deal of change over time. Obviously, the emerging markets are far more important there, a bit less sensitive to that regard. The offering that we have given the automation, around the payment POS and card list, has also been a driver that has defied some of the underlying economics. So I think we worry about that dynamic less. But clearly, what we've seen is a real uptick in investment broadly that we think will continue over the next several years. In the short-term though, Nigel, as you know, we had an exceptional year last year in payment, particularly given some of the compliance deadlines. And that's where we're probably facing some of our stiffest headwind here in the second quarter and through the rest of this year, and GVR, looking at the second quarter, just here in the short-term likely is going to be down low double digits in part because of these tougher comps that will bring the core and environmental down to probably a flattish figure, offsetting some good performance in water quality. But long term, I think we see good investment levels around the world and that, combined with these automation requirements, positions GVR very well, let alone, of course, the uptick in environmental concerns at retail.

Nigel Coe - Deutsche Bank AG

Sure. And then just finally, just to clarify your comments on Japan, mean it's encouraging that you don't see a major impact on the financials, they're down for the year, but just to kind of clarify in late March and through April, you haven't seen a significant sort of deterioration in your Japanese business?

H. Culp

That's right. When we were together in New York, what we were watching twice daily was just what the implications would be from the disruptions to the infrastructure, let alone customer operations and the like. That news got better virtually every day as we went through March, and they finished pretty much in line with the original expectation, which I thought was simply remarkable. I think at this point, as things evolve, we don't see today tremendous negative headwind there. But I think probably next to some of the specific issues at GVR, we are expressing some caution around the situation on the ground in Japan. But thus far, I think we feel like that's manageable.

Nigel Coe - Deutsche Bank AG

Great. Thanks a lot.

H. Culp

Thank you, Nigel.

Operator

Thank you. We'll take our next question from Richard Eastman with Robert W. Baird.

Richard Eastman - Robert W. Baird & Co. Incorporated

Larry and Dan, could you address in the Life Sciences, LSD segment, the operating margin there, just on an absolute basis, I think I understand the basis point improvement year-over-year with the restructuring cost and things at AB SCIEX, but at this 14.4% level, is that -- again, is that sustainable? Was that helped by mix? It sounds like the TSA is out, that probably helps and should be sustainable. Do we build off of that margin level for the balance of the year?

Daniel Comas

Rick, I think at this point, we think we'll be in that range. I mean, it was a quirk that everything went right for LSD, both the top line and the mix was very favorable. As you know, a year ago, that segment margins were 7%. So, we doubled it year-on-year. Also, in part because some of the strength we're seeing there, we've ramped up some investments both on the growth side. We've got some clinical studies at both Radiometer and Leica Bio that will cost some money here in the next couple of quarters. There's also some restructuring. So, I think we're very pleased where we are. I'm not sure you'll see movement here, in fact, I think sequentially in Q2, because some of these growth investments in restructuring, sequentially, margins will come down a little bit. Spending will be in sort of the mid-teens range for the full year, but we'll be doing things this year that will hopefully get us another leg up in 2012.

Richard Eastman - Robert W. Baird & Co. Incorporated

Okay. And then Larry, is there any movement that you can kind of mention on the AQT product in the U.S. in terms of approval?

H. Culp

There is movement, and that's probably all I should say. I think what you've seen us try to do is avoid being specific given the process that we're going through right now with the authorities that we continue to make progress. But in terms of when we'll able to launch, I think I'm going to defer that to the day we launch. But we're thrilled. I think it's important to recognize that, that product outside of the U.S. continues to be well accepted. We saw another good quarter of placement globally. We're up to nearly 500 instruments installed. That, obviously, really begins to build, I think, an exceptional foundation for the consumable stream as utilization picks up. So, we're very encouraged that we've got the right product. We are going to make sure we address the questions and the needs of the U.S. regulators. And once we do, we'll be ready to go.

Richard Eastman - Robert W. Baird & Co. Incorporated

Is it likely this year, I mean, that we hope this year?

H. Culp

I stand by my prior comments.

Richard Eastman - Robert W. Baird & Co. Incorporated

That's okay. There is positive movement, got it. And then one other thing, it just felt like we maybe took a little extra time to highlight some of the new products in some of the segments and we've got some key major price point products like the 5600 that have come to market now. Would you look at your growth rate this year thinking 6% to 8% core for the full year? Would you feel like there is maybe a point, probably not 2, but a point or 2 of incremental growth that is more than end market recovery and it's a fairly aggressive new product intro this year relative to past?

H. Culp

Well, I think we're getting better at execution in terms of conception, development and launch. We're obviously spending more money. You see that in the uptick in R&D. I think it's really, in many respects, table stakes in some of these industries and markets that we've entered. What's really hard to segment, Rick, is when we drive growth even with tailwind. How much of that, typically, while we've got this increased vitality, will we attribute to the new products vis-a-vis the improved commercial and go-to-market execution. It's just very hard. I don't think we want to try to internally get into that game. If we're winning, we're winning. We're doing everything we can to do so, to try to parse that for ourselves, let alone for you. I'm not sure that's high value-add.

Richard Eastman - Robert W. Baird & Co. Incorporated

Yes, that's fine. Okay, thank you.

H. Culp

Yes, thank you, Rick.

Operator

Thank you. And due to time constraints, our last question will come from Terry Darling with Goldman Sachs.

Terry Darling - Goldman Sachs Group Inc.

Thanks. Just a couple of quick ones, on second quarter core, you guys had talked about a number of different segments. Just wondering if you could follow up on Industrial and Dental?

Daniel Comas

Sure, Terry. I think Dental, we continue to see in sort of that mid single-digit rate. Industrial, probably double-digit, 10%, 10% plus.

Terry Darling - Goldman Sachs Group Inc.

And where is Apex in full year guidance at this point?

Daniel Comas

They came in about -- they contributed about $15 million in the quarter. We expect that to be about $60 million for the full year, good ramp up over last year, but they're also doing a fair amount of restructuring which, again, I think will get another step up in 2012.

Terry Darling - Goldman Sachs Group Inc.

Okay, and then kind of lastly, kind of a follow-up on the last question, Larry. A lot of benefit from new products growth, a better margins and, really, I guess the question is, as we move in to 2012, does the curve or the impact of all that sort of start to flatten or do you see the flattening further out beyond 2012? I know it's tough because you have a lot of different segments and products. But I think -- maybe just touch on that?

H. Culp

Sure. I think we feel very good about those things that we can control, both from an innovation and a go-to-market perspective. I think with all the history that's been made in the macros seen in the last 3 months, we're not going to get too far our ahead of ourselves on those calls, but I think we like the positions that we have, and we like the markets that we're in. If the global recovery continues the pace, we're going to be very well placed. We're well-positioned going to '12 and '13.

Terry Darling - Goldman Sachs Group Inc.

So does R&D stay at 6.5% through the year or should we expect that to come back down?

H. Culp

It should be in that zone. I mean well, obviously -- part of the latitude that we want to make sure we retain through the year is to take that up above plan, above budget, where those opportunities present themselves. And we had a couple of discussions just this week, too, in that direction.

Terry Darling - Goldman Sachs Group Inc.

Maybe just squeeze just one last one in, did you call out Videojet core in the quarter?

Daniel Comas

We did. It was in mid-teens.

Terry Darling - Goldman Sachs Group Inc.

Great. Thanks very much.

H. Culp

Thanks, Terry.

Operator

Thank you. And at this time, I'll turn the conference back over to Matt McGrew for any additional or closing remarks.

Matt McGrew

Thanks, Casey. Just Dan and I are around all day today for any follow-up calls. Thanks, everyone.

Operator

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.

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