藝達思 (IEX) 2006 Q4 法說會逐字稿

At this time, I'd like to welcome everyone to the Idex Corporation fourth quarter 2006 earnings release conference call. [OPERATOR INSTRUCTIONS] Thank you. I would now like to turn the conference over to Susan Fisher , Director of Investor Relations. Please go ahead, ma'am.

Good afternoon, and thank you, everyone, for joining us for our discussion today of the Idex fourth quarter and full year '06 financial results. Earlier this morning, we issued a press release outlining our Company's financial and operating performance for the 3 and 12-month periods ending December 31, '06. That press release along with presentation slides to be used during today's webcast can be accessed on our company home page at www.IDEXCorp.com.

Joining me today from Idex Management are Larry Kingsley, Chairman and Chief Executive Officer; and Dom Romeo, Vice President and Chief Financial Officer. The format for our call today is as follows-First, Larry will update you on our progress during the fourth quarter and '06 across our Company and four business segments. Dom will then take you through our financial results for the quarter and year. Following our prepared remarks we'll open the line for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after this call concludes by dialing the toll free number 800-642-1687, and entering the conference ID number 5707350, or simply log on to our company home page for the webcast replay.

As we begin, a brief reminder, this call may contain certain forward-looking statements that are subject to the Safe Harbor language in today's press release and in our Company's filings with the SEC. With that, I'd like to turn this call now over to our CEO, Larry Kingsley. Larry?

Thanks, Susan. As Susan mentioned, the format of the call today is to provide you with a progress report of the Company and that's to help you build an understanding of how our portfolio is evolving, how our strategy is delivering results and why we're so positive on prospects for continued strong performance as we look into '07. Before I walk through the progress report, I'll summarize the quarter and the year though.

For the quarter, quarters were up 25%. Sales were up 19%. Operating margin was up 100 basis points and that's 150 basis points when you factor out the impact of option expense. EPS was up 26% to $0.67. For the year, orders were up 16%, sales up 14%, operating margin up 160 basis points on an apples-to-apples basis and EPS is up 20%. You have the performance information on slides six and seven for your reference.

So obviously, a very strong finish to just a super year and most importantly, we finished with a strong order book headed into the New Year. Later in our prepared remarks, Dom will walk you through the quarter and all the detail that we typically do and also break out the segment results.

We executed all around the Company and realized terrific performance versus our stated metrics as well as our internal plans. We continue to achieve our operational excellence associated savings with annual incremental savings in the $20 million range and that's real material and labor productivity. Our price realization for the year was standard Idex fare at about 2%. Again, we didn't see large inputs as increases for the fourth quarter, similar to what we've seen on a full year basis. Free cash was strong again for the year at 1.1 times income.

Beyond the bottom line performance that we're achieving, we are meeting or we're exceeding our customers expectations. Our business model of niche market applied custom products continues to differentiate us and frame the acquisition criteria for our Business Development group. We completed five acquisitions in '06 which at the 125 to $130 million in annualized revenue. AirShore at the beginning of the year brings pneumatic and mechanical struts to our rescue tools capability, JUN-AIR, acquired in February, has been a good addition to our health and science, clean, quiet, air product capability. EPI, acquired in May, continues to open many new health and science applications. Banjo, and now Top Tech are adding to our fluid and metering capability. All the acquisitions will be excellent long term growth additions for us and they will all generate fantastic economic returns.

With that performance summary in mind I'll begin our progress report with fluid metering, and I'm on slide eight. Our fluid metering business operates within a large market, about an $8 billion segment. We provide highly engineered applied solutions to systems which serve end markets like refined fuels and gases, chemical, water treatment and many other attractive application specific solutions such as sanitary fluid components for pharma and food production systems. Building from our core fluid movement and management products, we see excellent opportunities to continue to expand our addressable market by way of acquisition, still focusing within the higher growth end use segments. Fluid metering is making solid progress on their internal initiatives with organic growth of 10% for the quarter and the year, through the implementation of our operational excellence initiative, mixed model lean, and strategic sourcing, we continue to leverage our existing fixed cost structure and we see similar leverage looking forward.

Operating margin for '06 expanded to 20.6%, an improvement of 170 basis points versus '05. Fluid metering ended the year very strong with Q4 organic orders growth of 14%. We continue to see solid orders growth driven primarily by infrastructure repair and expansion, but also by solid industrial end market demands. The fundamentals for capital committment associated with downstream oil and gas remained especially strong as does the demand by -- driven by expansion of the fossil fuel alternatives.

Current energy base demand is coming from a variety of new applications, building on our original custody transfer market focus, in addition to the broader application base, we're realizing a much broader geographic base for the orders from Africa, the Middle East, Eastern Europe, and Russia. The chemical market leading indicators are very positive as we look into '07 as well. Our pumps and meters remained a key enabling technology in the production, processing, and transport of organic and petrochemicals. We recently expanded our liquid vane pump series within this market to address the need for accurate reliable pumping of a variety of low viscosity, flammable, and corrosive chemicals.

U.S. And European capital commitments and maintenance remained strong and Asian capital committment continues to outpace the rest of the world. The worldwide need for clean water continues to drive demand for dosing pumps, flow meters, sludge handling pumps, controls, and instrumentation, as well as completely integrated systems. In the water market, our applications range from municipal cat water and wastewater treatment to cooling towers and power generation plants. During the fourth quarter and water as was the case in energy, we saw a broader geographic base for the new business. The developing country infrastructure and applications are generating an increasing percentage of the new project activity. China, in particular is devoting significant funding to bring their systems up to modern standards.

Within sanitary, multinationals in the food and beverage, in the pharmaceutical markets continue to pursue operational productivity improvement as a way to expand margins while increasing their global footprints and more competitive, faster growing emerging markets. The generic pharmaceuticals continue to spend while the market leaders are looking to counter the impending competitive impact of products coming off patent protection. As a result, we're seeing continued process reengineering and new plant opportunities.

In the other fluid metering service segments, our business continues to grow very nicely such as in specialty engine and turbine applications. Core drivers here are supplemental power generation, alternative energy, and development to improve large engine efficiency.

So, in summary, for the fluid metering business at this stage, our strategic initiatives are providing great returns. We've made some very good choices in terms of attractive market segments to build our way into. The new business opportunities are broad based with more international content. As a matter of fact, about 10% of FMT sales now are Asian born. Most importantly, the size of the addressable market continues to expand nicely with great acquisition potential.

I'm now going to dive into a specific fluid metering initiative to illustrate how we've transformed our thinking and how it impacts the portfolio. If you have the slides you'll flip to slide nine. We acquired Liquid Controls in the first quarter of 2001. At the time LC was a $50 million business. LC historically provided pumps and controls used in downstream oil, custody transfer applications in North America, which was, and is, a nice niche. We built on the LC base by acquiring a couple other small businesses and by 2004, LC was an $85 million business.

More recently we decided that we had the kernel, but needed to rethink the strategy and the scope of what we were targeting so we've assembled a very strong new leadership team. We reassessed our global opportunity and market access including changes required to develop the international channel. We built a new European manufacturing center. We reconfigured portions of our supply chain to lower cost regions including expanding the content of what we make in our Indian facility. We expanded our product offering. We mapped out all of what we needed to build out a complete solution for precision measurement and management of downstream refined fuels and gases. We're now acquiring the strategic complement to our base product.

So exclusive of '07 acquisitions, LC today is $125 million global business. From a North American product based business with a narrow focus to a global platform focused on precision, measurement , and management of energy associated liquids and gases and it's anywhere in the world. It's easy for us to envision how we can now expand the LC strategy again, beyond energy to other high value fluids.

To initiatives like what we've done to dramatically expand the scope of the liquid controls group our fluid metering businesses are evolving well beyond pumps, valves, flow meters, and discrete components to more of a systems approach encompassing all security, data management, and control. Commercial excellence is evolving at Idex. It's evolving to rival our never ending dedication to operational excellence. Our strategic mapping process, which is the backbone to what we've done to transform liquid controls is one of the key commercial excellence tools helping us build and transform the Company.

To continue in this vein, I'll turn to Top Tech now, our most recent acquisition, in December. If you look at slide ten, it will help you understand how Top Tech dovetails with our expanded Liquid Control strategy. Top Tech was not for sale; however, we, together with a Top Tech team, determined that it was an excellent fit for their business an a tremendous enabler for our strategy. Top Tech's expertise in terminal automation and terminal management will become the supervisory control system to our existing precision metering and control capability. Through Top Tech, we are building on our core FMT strength. Terminal automation and transaction management are becoming increasingly important given the growing complexity of the fuel mixtures, more additives, more shared terminals, and that's multiple company products per terminal, but also there's a drive toward global systems standardization among the global producers and the distributors. The Top Tech systems are the terminal management control system of choice in North America and we'll establish that same position globally over the next couple years. Top Tech is already opening up new terminal automation and fuel blending opportunities for us with their customers and increasing the system content opportunity with our pre-existing customers, the major oil companies and the distributors. So this is not just a natural fit but an expansion of our capability that will further enable us to automate the terminal and move into a much higher value contribution for how we participate in a variety of downstream energy applications.

I'm going to turn now to health and science. As you know, we serve a large addressable market here as well. We target small scale, highly accurate pumps, valves, fittings, medical devices, as well as subsystems for fluid and gas handling. The market segments are analytical instrumentation, clinical diagnostics, and medical technology products. Organic growth in health and science for '06 was very strong at 13% while operating margins improved 80 basis points to 19.1%. We also completed and integrated the acquisitions of EPI and JUN-AIR including these new businesses and the five other businesses we acquired since 2000, health and science now represents 26% of the total company revenues.

Beyond the inherent growth that we're realizing within health and science, the end market diversification is key to how we intend to build and sustain our overall growth model. The underlying market drivers here are all of the end market drivers that you typically find within healthcare, both privately and publicly funded for pharmaceutical research and drug discovery and clinical testing. It's also medical and dental equipment and a planable devices. Much of what is driving the market growth for our products specifically is the need for repeatable, very accurate measurement of smaller sample sizes coupled with a desire for faster sample analysis and it's particularly in the analytical instrumentation applications.

So we've developed and are the world leader for new generation, high pressure, and high temperature valves, pumps, tubings, and fittings. These next generation technologies are allowing analysis times to improve four to seven times. The application base for this instrumentation continues to broaden as more global applications are continually developed to discreetly separate the chemical constituents of various compounds and that's to validate and monitor drug formulations, food and water quality, as well as industrial quality control applications. The health and science business is growing as a more global end customer application base as well.

We also continue to broaden our product base for our pumps, injection valves, check valves, degasing systems, liquid end assemblies, and flow cells, many of which are customized configurations designed together with the instrument manufacturers. So the strategy here is similar to fluid metering. Target high growth market segments and buildout all that is related to the fluid path. That's every element for the entire integrated fluid path which may include enabling measurement control capability and then expand the global reach of the business while applying our commercial and operational excellence model to accelerate growth and total business performance.

EPI, the business we acquired last spring, continues to open new doors for a much more integrated fluid path design approach. We're now applying microscale manifold base systems for biotech and clinical equipment applications. As an example, we built a relationship with a leading biotech firm to supply virtually all of the fluid path for their new instrumentation used in micro array DNA screening. It's the same approach for the clinical instrumentation applications. We're building out all of the critical components of the fluid paths, both the liquid and gas paths.

So if you look at slide 12, what you see there is equipment that you would find in a diagnostic lab, such as for screening in a hospital. The surrounding elements to the core picture illustrate the family of components and assembly that Idex has acquired and internally developed as we continue to buildout the offering here. Obviously, all the specialty pumps, but also the valves, the tubing, the fittings, the fluid manifold, the air handling equipment, and a variety of custom components, all critical enabling elements of the fluid path. Our addressable market will continue to expand here as one, the market continues to rapidly expand but also two, as we buildout associated technologies. So again, more the footprint and it's built on our proprietary technology.

In dispensing, we are the global leader in automated dispensing and mixing equipment used today, primarily in the paints and coatings market. Orders from sales growth within dispensing for '06 were 2% and 1% respectively in the fourth quarter, orders grew 10% and sales grew 5% respectively. Within that, we continue to see strong organic growth domestically and Europe, while soft, is now stable. Although this project based business remains our lumpiest segment, for sales and orders, dispensing remains very profitable with a full year operating margin contribution of just under 24%. Our focus in dispensing is on developing the right applied solution for our customer encompassing complex color formulation, increasingly precise and reliable custom dispensing technology and the ability to gather valuable transactional data supported by 24/7 customer service and support. Our leading product position enables us to support the continued U.S, retail paint expansion, as well as to respond to changing regulations and the natural replenishment cycle.

I'll move on to Fire and Safety. As you know, we provide highly engineered pumps, valves, and control devices used in fire trucks and emergency vehicles as well as the rescue tools used by first responders. This segment also includes our engineered band clamping business Band-It which like our fluid metering business is experiencing particular growth due to increased oil and gas as well as other process industry investment. Overall, the Fire and Safety segment is making terrific progress on innovation, base growth of 8% for '06, well ahead of the market. This is also an extremely profitable segment with operating margin of over 24%. We've made significant progress establishing our Fire and Rescue Tools business as a true global provider. As you know, we operate throughout the world and recently we opened up our newest manufacturing facility, another one in China. This segment is rapidly approaching 50% of its revenue on an international basis while 30% of the revenue is European, 8 is Asia, 8 the rest of the world.

Here again, just to give you an example of the expanding global nature of the business, we received Q4 orders for lifting bags in Turkey for the mining industry and in Canada for the military, pumps, and related product in Malaysia for 200 trucks, Saudi Arabia, 197 tanker commitments and we also received rescue tool orders there. We took orders for a number of new Chinese customers, both fire suppression and for rescue equipment. In the U.S, the Fire Act funding release for the previously approved grants was slower than anticipated in the quarter, but as you can see, even with slower than anticipated Fire Act based spend, our Fire and Safety business had a great quarter, and again this year, performed extremely well without as much market help. As we look forward into '07, we anticipate continued outstanding global performance and the release of U.S. funds to generate a very healthy market environment.

Before we get into the quarter, I'd like to direct your attention to slide 15. We want to provide some perspective regarding our financial performance to reinforce the strategic execution that we've just talked about, and that over the last five years. If you look at slide 15, you quickly realize, not just how fast we're growing, but how consistently we bring it to the bottom line. For those of you who don't have access to the slide, the sales have grown from from $719 million in '02 to $1.15 billion in '06. The compounded annual growth rate of 13%. Our operating margin has expanded from 14.5% in '02 to just under 19% in '06. We have more than doubled our EPS from $1.13 in '02 to $2.48 in '06, an annual growth rate of 22%. Obviously, we think we've got a long way to go. Our balance sheet remains very strong. We have a capacity in place to continue to leverage growth to the bottom line, and our execution is continuously improving. So with that, I'll turn it over to Dom to walk us through the quarter.

Thanks, Larry, and good afternoon, everyone. Orders in the fourth quarter grew nicely and as Larry mentioned we have solid momentum moving into 2007. Orders in the quarter were up 25% overall and 12% organically. Sales increased 19%, organic growth was 7,while acquisitions added 10% and currency added 2%. And let me just give a little bit more color behind the fourth quarter order input rates.

Monthly orders were 103 million in October, 108 million in November, and 104 million in December, so fairly consistent flow throughout the quarter. The Q4 composition of the 12% organic orders growth by segment is as follows--16% in Fire, Safety, and Diversified Products, 14% in Fluid Metering Technologies, 10% in Health and Health and Sciences, and 5% within Dispensing. Within both FMT and Fire and Safety, we did experience some level of Q4 orders that relate to the second half of 2007 deliveries. The impact of this would be to reduce our overall reported 12% still to the mid to high -- I'm sorry, to the high single digit range, so still very nice growth. Sales of 302.1 million was an all-time high that was led by fluid metering with organic growth of 10%, health and science of 7, Fire and Safety of 6, and we were flat within Dispensing.

Turning next to operating margin on slide 17, the 19.5% in the fourth quarter is 100 basis point improvement from last year and this also includes a 50 basis point impact from the expensing of options. So here just terrific execution both in terms of our operating initiatives and the contribution from our 2006 acquisitions. Flow through on an organic growth was just over 35% for the quarter. Gross margin companywide was 41.6%. That was up 70 basis points versus last year, and SG&A including the 50 basis point impact from stock option expense is still improved by 30 basis points versus that of the last year. So again from a operating margin perspective, very very strong execution.

Slide 18, income and EPS. Income from continuing operations of 36.2 million is a 28% increase from last year. Diluted EPS of $0.67 improved by $0.14 or 26% from last year and again, from an EPS perspective very strong performance not only for the quarter but for the year. The full year EPS of $2.48 is again an all-time high for the Company. I'll mention too, the effective tax rate for the year is just under 34%. In the fourth quarter that was 32%. Our Q4 ETR was favorably impacted by the renewal of the research and development credit. For 2007 we are using 34% for planning purposes.

Turning to slide 19, we continue to generate terrific cash flow. For the year, free cash flow of 144 million is 20% higher than last year and again, an all-time high. Our conversion rate was 1.1 times income for the year. Working capital, when you adjust for acquisition, comparable inventory is up about 7% from year-end, so with roughly 9% organic sales growth we did have a slight improvement in inventory turns. On receivables, our DSO continues in the mid 40s, CapEx for the year was 21 million, and our balance sheet as you all know continues to be very strong with debt-to-cap of 27% at year-end, net debt-to-cap inclusive of cash is 21% at year-end.

Now, we'll give a little more color on the segments turning to slide 20. Fluid and Metering Technologies, I mentioned the details behind the strong order growth rate earlier. We also experienced consistent growth across all the markets that Larry mentioned earlier. In organic order growth was 14% within this segment, sales were up 26%, 10% on organic basis, and 15% from acquisition, currency was 1%, Larry detailed the market trends and our strategic initiatives but Q4 also marks the 11th straight quarter where our organic growth here has been at least 8% or higher. Flow through again a great story in margin. FMT posted an impressive 21.6% operating margin, that's up 160 basis points and again flow through organically was about 30% so clearly FMT is executing at a very high level and it's extremely well positioned.

Moving to slide 21, Health and Sciences. Orders grew 31% in total and 10% organically. Sales increased 27% in the quarter. Acquisitions added 20% while organic growth was 7, and for the full year, organic growth was 13. Operating income of 16.9 million increased 36% from last year and our operating margin of 21.4% for the fourth quarter was up 150 basis points versus last year and again, the story here is not only our strong growth in margin expansion but also the impact that HST now has on our portfolio as we move forward.

Turning next to Dispensing on slide 22. Orders were up 10% and sales were up 5% for the quarter, excluding currency we were flat in terms of organic sales growth and as we mentioned in the past, dispensing is our lumpiest segment due to it's project nature and we also highlighted in our earnings release in Q4, there was an impact on revenue due to timing of project based orders in North America, and as Larry mentioned we did have a 7% organic growth domestically for the full year within Dispensing and on margin the 7.6 million was 21% of sales and increased about 30 basis points from last year.

Lastly, chart 23, Fire and Safety, order rates here increased by 20% and 16% organically so very very strong and again as Larry mentioned, global order intake. For the quarter sales were up 10% in total and 6% on an organic basis and again, Fire and Safety grew for the year at 8% organically. Operating income of 16.9 million was up 5% and while the 24.5% is solid, it was down versus last year in part due to start-up expenses associated with the opening of our new facility for rescue tools in China. So to sum up the quarter companywide, organic growth is nicely complemented with our strategic acquisitions and we continue to expand margins and generate very strong free cash flow. With that I'll turn it back over to Larry.

Thanks, Dom. We're going to continue our practice of not providing quarterly or annual earnings guidance, but I think it's important to restate our Company's long term objectives. We continue to focus on applied products where we're differentiated, we will expand our footprint in high growth markets building on our fluidics core expertise. We're targeting mid to high single digit organic growth coupled with similar acquisition based annual growth, incremental organic operating margin expansion as you know in the 30 to 35% range, and great cash conversion as measured by free cash in excess of net income.

Based on the continued infrastructure associated demand and our strong execution in fluid metering, the market dynamics and the expanding breadth of our portfolio within health and science, the continued channel expansion of paints and dispensing, and the global expansion of fire and safety, we continue to have the opportunity to post exceptional growth. So just the beginning. We expect much more of the same outstanding performance. And with that, we'll open the line for questions.

[OPERATOR INSTRUCTIONS] Your first question is from Scott Graham with Bear Stearns.

Good afternoon.

Hi, Scott.

I have two or three questions. First, the fluid metering organic growth double digit and I was wondering if from your comments, Larry, it sounds like it was extremely broad based. Is there any division in particular in fluid metering that's really been a real stand out performer, any end market in particular, either/or?

Scott, the short answer is the growth was very broad based and there were operating units within FMT, essentially all of them contributing to that broad growth base. We've basically looked at it both by segment as we typically do, and that's market segment, so we understand what's going on within the industrial segment and where we see the product base execution results as well, and I will tell you that there wasn't one, any very large single orders as associated with any one of them and if you were to go through them, all the brands that you're familiar with, you'd see very strong growth essentially across the entire group. But the industry segment performance was basically pretty strong too across all those process associated segments and particularly the ones that are more infrastructure associated. So as I said in my prepared remarks, the water, chemical, the downstream energy markets were all very strong and continue to look great.

Okay. Sort of the opposite question for health and science. That's a business that I think that internally, I think you guys have high hopes for that to be a double digit, a continuous double digit organic grower and that really hasn't been the case the last couple of quarters. Can you maybe give us some color as to why you think that's the case, Larry?

Basically, if you look at just the fourth quarter, I think you could make that comment but the health and science platform is definitely going to be a strong organic growth contributor for us for a long time to come, Scott. The business is doing just great and there's a little bit of OEM like lumpiness to their business, so you do see some organic cyclicality, if you will, in a given year but if you look at it, it's a nice year on year steady growth business. We have no concerns there relative to our organic capability.

Yes, my confusion in asking the question, I assume that you got about a point of price last quarter, suggesting that the real growth was maybe more like nine as opposed to ten. That's really all I was referring to. So you would attribute that to sort of maybe a limb bit of lumpiness within that business, if you were to--?

Yes. I'd say a little bit of lumpiness, a little bit of issue of the comps, and we definitely see strong continued growth.

That's fine. My last question is--.

Just to be clear too. If you look at the orders growth rate, you see a really strong healthy, very healthy orders growth rate.

Yes, I did see that. Final question is the one I ask all the time. You're still comfortable with doing a $20 million cost save in 2007, something in and around there?

Absolutely, Scott. Absolutely. We made a lot of progress with regard to operational excellence this year. We've added significantly to the regional staff that we have now in terms of Directors with operational excellence and the strategic sourcing team. We opened a new expanded Asian sourcing office to serve the entire corporation just last week in China, and if you look at both the labor and material productivity assumptions that we have in our internal plans, you wouldn't draw any different conclusions relative to our ability to perform as we have historically.

Very good. Thank you.

Okay.

Your next question is from Jim Lucas with Janney Montgomery Scott.

Thanks, good afternoon.

Hi, Jim.

Two questions. First, on dispensing. Could you give us a little bit additional color on North America and Europe of what you're seeing there, your comments about Europe stabilizing in particular? And secondly, one of the things that really is indicative of Idex is the process structure that's put in place that you're continuously evolving and could you perhaps share a little bit of the acquisition integration side, if indeed the process is there and what you could share with us on the outside?

Sure, we can talk a little bit about that. Let me go back to your dispensing question first. We continue to see on the North American side of dispensing solid growth based on the retail channel expansion, and that's in all facets of it, the hardware store chains, the specialty stores, the DIY's new store openings and replenishment is still consistent with our expectations. We definitely still continued to see lumpiness and we talked a little bit about the fact that we didn't realize fourth quarter orders and sales in dispensing, based on that, which we still see that opportunity in the same kind of lumpiness fashion moving forward as good news.

There's really nothing there in terms of a negative at all in the domestic dispensing world. The Wal-Mart rollout continues to go quite well. They're very pleased with how this has enhanced their ability to serve that segment, and we think the ongoing competition, essentially, Jim, within the paint serve segment is going to continue to drive machine purchases so there's really no change in dynamic there. It's a great one. And as a matter of fact we still see other retail interest as we go forward in that equipment.

In Europe in terms of the comments of things stabilizing? Definitely see that the market is stable. It's solid. Where we've come off of in Europe, the combination of regulation driven growth on top of a replenishment cycle, we see opportunities moving forward for replenishment and we see opportunities to bring new equipment to market that we think enhances our positions. So there should be some share gain opportunity there as we look forward, so stable is, I think a good way to put it and there should be some good growth opportunities as we look out into the future for European dispensing.

With regard to your other question, what we do to drive process, how that applies to acquisition integration, if you look at what we do so well as a company, it's basically attack the material and labor productivity consistently at the business unit level, for the most part on the factory floor, and we don't count any form of savings until we really get out and that means get it out in the way of either overtime reduction, labor reduction, or if it's growth that we're leveraging, we measure that, but we measure that and differentiate it versus the real cost out opportunities. Same on the material side. And it's, I think the diligence of how we go at that and how closely we measure it and how well we've done that, that we can take into any new acquisition and apply the same kinds of opportunities, so if you look at our '06 acquisitions, JUN-AIR EPI earlier in the year, those businesses are moving along very nicely adopting our operational excellence capabilities, the tools, the measurement systems. They put together their annual operating plans for '07 using the standard Idex approach now. We had good give and take as to what we expect in the way of productivity improvements out of both those businesses, and they've got a very clear multi-year path ahead of them as to how they can continue to grow and bring it to the bottom line.

If you think about the actual process of integration and what we do there when we buy a company and how that applies, it really applies differently to each and every entity. There isn't a standard approach we take for every acquisition. Some of them that have good process in place, that have a good sense of their direction, they have a very clear market niche that's something that we can leverage going forward basically by bringing them into the portfolio, we're not going to get as involved. It's going to be a little less intrusive process and you could say Banjo would be a great example of that. Others, whereby way of what we think the upside entails and what we can do to help them drive cost or continue to drive differentiation for that matter, it's going to be a much more actively engaged process of where we bring people into functional positions and those people are on site, full time, bringing the tool set in an extremely aggressive fashion. So I would say to you that I basically think the only way to think through proper acquisition integration in a company like ours where you've got diverse opportunities and diverse performance coming in the door is to think about each one independently and build the right approach as a function of what you're going to bring to them.

Okay, thank you very much.

You bet.

Your next question is from Mike Schneider with Robert W. Baird.

Good afternoon.

Hi, Mike.

Maybe you first can address just the comment Dom made earlier, maybe you can just repeat it about the orders that were either pushed out or taken in from the second half of '07? I guess I didn't understand the comment.

Sure, Mike. If you look at the organic order growth rate for the fourth quarter it was about 12% and in the quarter, and this was a fairly slight impact, in the quarter we had some Q4 orders that as we look at those they relate to second half of 2007 sales and/or deliveries. So if you were to adjust that out, and again it was primarily within FM&T and Fire and Safety. Fire and Safety grew 16% organically in the quarter and FMT was at 14, so if you adjust those out from the Company total, it had about a 2% impact on the order growth rate, but still very very solid but we wanted to make sure we highlighted that we had some timing mismatch there within orders.

Okay and then last quarter, Dom, you did talk about the fact that you thought you actually pulled some orders forward and I believe you were actually cautioning us that the order growth rate this quarter for the Company might be lesser so because of it. Can you describe in actuality orders accelerated kind of the puts and takes there?

Mike, I don't recall the third quarter analysis you just described. I think what we were trying to point out in the fourth quarter is what I just described which is the 16% in Fire and Safety and the 14% would be a bit lower if you adjust out orders that relate for '07.

Okay.

I'm sorry, second half of '07. Not the first quarter. But again the message here, Mike, is very very strong growth in orders within both FM&T and Fire and Safety and well in that range of our sales growth that we've seen in the last several quarters for Fire and Safety and for FMT specifically.

Agreed. I was surprised by again, the sequential acceleration in orders, again given your comments I believe from last quarter about the pull forward, but nevertheless, just switching to dispensing. Can you describe how much was actually pushed out in dispensing in dollar terms, in orders, or shipments?

I don't think we want to quantify that, Mike. It was a fairly significant order for the group, but we're not going to go there I don't think.

Okay. And in Fire and Safety, margin is now because of, I believe almost solely the China facility have been down year-over-year, both third quarter and fourth quarter. How long do those ramp up expenses continue and I guess when do you turn the corner and begin to show year-over-year improvements in --?

Yes, Mike, most of the costs in the third and fourth quarter have been training, recruiting, and the like so I would say '07 we feel very good about the margin flow through and the contribution from [Ding Lee] so primarily in '06 second half discussion, not an '07 discussion.

Okay. So in other words, in first quarter, you actually think you can turn the corner and show year-over-year improvement, Dom?

Well, we're not going to get into giving forward-looking guidance on the quarter, but I will say the start-up costs for Ding Lee should be diminished.

Can you give us an update on the Banjo acquisition?

It's going extremely well, Mike. If you look at sales achieved under our ownership, it was basically very much on target with our internal expectations at about, well, just under 12 million and our margins are great and we think we've got a real winner here in terms of ability to take this product line globally and also to leverage the channel exposure we've got both ways, both to FMT and some FMT products by way of the Banjo channel. So things are going extremely well. There's really not a single nit or negative that I could pick out.

And the entire discussion around ethanol and its impact on Banjo's growth opportunities. Have you done any fresh analysis now given what's coming out of Washington?

We have. There's a lot of conflicting stuff coming out right now with respect to alternative fuels in general and ethanol in particular. On the one side of the equation, I would tell you that we still see huge capital investment and frankly, to get to the kinds of numbers that the President suggested last week of 20% within ten years, that would require a much much larger infrastructure investment.

Now, where we are with many of our process applications, frankly, is more along the lines of how to make more ethanol out of a given bushel of corn and we've seen with some of the newer processes that our equipment is on that we're now yielding, or the firm is yielding just under three gallons of ethanol per bushel versus under two as to where they were. So we think the efficiency issue is really going to drive ethanol in particular and continue to drive new systems investment for capital equipment that's going to entail our various fluid metering products. The regulations driving biodiesel, Mike, are also continuing as you know, and there's a lot more in the way of low sulfur diesel that's coming into the marketplace and cars that are being designed around the low sulfur diesel again, so I think that irrespective of the current $55 a barrel kind of number which is still frankly, a good number, the downstream investment for alternative fuels is going to be quite large and we're going to continue to see short and long term, some nice investment around continued process reinvestment particularly around the efficiency issue.

On top of that as I mentioned, in the Top Tech comments, Top Tech is a super acquisition. This business tremendously broadens our ability to go after the logistics of both fossil fuels and alternative fuels, and where we see Top Tech applications for continued expansion, irrespective of oil and gas segment growth, it's all around the terminals, the number of terminals that we think are out there and available for new total systems, the number of pumps and flow meters and the other discrete components that we can apply by way of pull through, now having that Top Tech capability. So if you look at downstream energy in total, we think it's a very attractive segment to begin with and we've got an excellent play now, much more tremendously expanded by way of what we've gotten with the Top Tech capability. And frankly, there's some other product segments that we like as well that continue to add-on to that capability so that that whole liquid controls group becomes a pretty large strategic interest for us.

Mike, I had a chance to look back over the third quarter and you were right. Within fluid and metering, as you recall we reported organic orders in the third quarter up 17% and we highlighted that if you adjusted for '07 inputs that would be 13 to 14, so the 14 this quarter, similar type of analysis so sequentially tremendous growth in year on year as well. So very consistent in terms of the double digit type growth in orders when you adjust for the '07 inputs in '06.

Got it. Thank you, again.

You're welcome.

We gave you several answers to your several questions.

Your next question is from Jack Kelly with Goldman Sachs.

Good afternoon.

Hi, Jack.

Larry, just on the fire suppression and rescue equipment, given the Fire Act, which has been literally hanging fire for it seems like a year in terms of the fundings flowing and now you say they are, can you just maybe size the opportunity looking on the fire suppression side and on the rescue tools side? I mean, how much money might be flowing to those areas and how much might translate through to those two divisions for you?

Yes, sure, Jack. Let me get there in just a second. The bottom line for us for Fire and Safety though for the quarter was that we saw fantastic orders growth and really solid sales growth as a function of the global expansion, and so we see, as we look into this year, great opportunities, I don't want to say irrespective of the Fire Act, but based on what we're doing to grow that business. Now, frankly, without the Fire Act support. All that said, to give you the numbers, the funds released rate through the end of the calendar year '06 versus the funds released rate through the calendar year '05 was about half the pace, just under half the pace.

So that was quarter-over-quarter, Larry, or for the full year '06?

Full year, calendar year '06 versus the equivalent '05.

Okay.

At the point of approval versus that released rate and the total amount released by year-end. So if you think about it, the actual number is 46%. There has not been the release or the approval to specific projects of the funds to this point for those that were already legislated, and so we've got the opportunity, frankly, for improved '07 support there. We're not banking on it frankly. We think we've got a great growth opportunity otherwise, and while the mix of what we see coming out of Fire Act based or Fire Act grant status is going to we with think actually continue to help our overall sales because it's more of the equipment that we sell versus other things such as training and other things in general that that had historically supported. I would just tell you that we were -- we're working more on our global expansion within Fire and Safety than anything else.

Okay. Just so I understand the flow of funds, so the rate was down significantly in '06 and why is it going to turn and when is it going to turn in '07?

Well, the original approved funding was at the same total amount at $650 million, plus or minus that it had been so it's a relatively flat number on a year-over-year basis, but the rate at which the specific projects have been approved, and which funding had been released has been running at about half the pace that it had been on a prior year basis. So funding is approved. It's already been legislated, but what's been released through the end of the calendar year '06 is only about half of what had been released on the comparative period a year ago.

And do you have any sense if it did turn or the release rate increases, what it could mean to those two divisions? Notwithstanding, I know you're doing well overseas but just kind of again focusing on the U.S. point.

Obviously it's upside. It's upside. We've gotten a lot of mixed signals out of DC relative to what projects are going to be approved and at which rate, we've got good visibility into where we play them, most of the larger projects anyway, but a catch up scenario in '07 would yield a better growth opportunity for us.

Just looking at pricing across the Company, could you, it's been kind of running 1 or 2%. Maybe you could just update us on that number for '07? And then secondly, I know there are a lot of factors going into this, but if we look at the price cost dynamic for Idex in '07 versus '02, so let's assume prices were up the same amount in '07 as they were in '02. Is the cost structure whether it's commodities, et cetera, going to be a lot better than it was or is it still whatever equilibrium there was in '06 it's the same as in '07?

Yes. I -- to give you the appropriate answer, Jack. I think we ought to do the analysis around mix '06 versus '02. I don't think though that you're going to see tremendous inputs difference in the mix of '02 versus mix of '06. There's certainly a different sales base to some of the acquired products, but if you think about steel and nickel components and aluminum and copper, without having all of that analysis in front of me I'd tell you I don't think that's tremendously different.

Okay. And I guess just one follow-up question on dispensing. I think in the third quarter, Larry, you used the word stabilize for Europe in terms of sales and dispensing but it was actually up 3 or 4% or somewhere around maybe a mid single digit number. Was that the experience in the fourth quarter also?

Not the same number, no, but the comments in terms of stable were, we certainly don't see year-over-year decline as we look at the European dispensing business, and it's going to bounce around a little bit as does the entire dispensing business quarter to quarter, but it's certainly not going to be an ongoing decline in business opportunity for us -- or business scenario for us.

So in the fourth quarter it was up, but maybe not by the amount I suggested?

Actually, no it was not.

It was down slightly, Jack, but not significantly.

Okay, thank you.

Yes, thank you.

Your next question is from Charles Brady with BMO Capital Markets.

Thanks, good afternoon. Could you guys quantify on fire what the margin impact was on the China cost?

It's roughly 0.5 million or so year-over-year in terms of incremental cost in the quarter.

Thanks, and just on Top Tech, just trying to understand their business, do they have sales outside of North America?

Very little. Very little. The Top Tech business has been principally a North American business. They do have a presence in Europe, but obviously with the Idex channel now available to them not just in Europe but in all parts of the world, that's a tremendous advantage for how we can together take those product opportunities forward.

Is there a similar set of API standards that govern European data exchange and that's sort of been the key to them in the U.S. Is they've got this database that sort of helps the customer base out. Is there a similar opportunity for them to go in and establish sort of their own Top Tech standards and then push that out to a European customer base as they've done in North America or is it -- are the Europeans kind of following what the API does in the U.S?

It's very much the same type of standard, and obviously that's driven in the case of the global oil companies by those companies and their desire to have that capability wherever they are in the world, be it Europe, North America, Eastern Europe, for that matter, or Asia. So the standards are the same. The transactional concern, protecting against fraud, all of the issues that apply to terminal management and in particular, the transaction management, avail the kind of opportunities globally that essentially Top Tech has become the preferred solution for in North America.

So there's no real specific barrier that would prevent them or you now from sort of taking this platform, this idea and applying it to a European standard?

Not at all. There's not a standard barrier in any fashion. There's not a product specification issue that we need to work around. It's essentially taking the software and hardware capability, appropriately packaging it for the system designs that make sense for the particular customer and some of that is a little different country to country, but for the most part, it's the capability that we have in taking it by way of our channel to market.

Thanks very much.

You're welcome.

Your next question is from Ned Borland with Next Generation Equity Research.

Hi, guys. Hi, Larry, Dom.

Hi, Ned.

One quick one here on the fluid metering margins. I'm just trying to get a sense for how much the -- 160 basis point improvement, how much of that was attributable to say mix issues with the inclusion of the higher margin Banjo acquisition?

Yes, the way to think about it if you go back to slide 20, the incremental sales in total were about 425 million inclusive of acquisition, and our operating income was up $6.8 million. If you adjust for currency which doesn't flow, the overall flow through is about 30%, so you kind of see the equal impact and as we've discussed, Banjo is tremendously profitable so you can see organic was 10% in terms of revenue growth and acquisition 15. So clearly the unit got flow through of 30 or so on its organic and obviously Banjo as we mentioned in the past is very profitable. So you're seeing the impact of both.

Okay, great. That's all I had.

Thanks, Ned.

Your next question is from Walt Liptak with Barrington.

Hi, thanks and good afternoon.

Hi, Walt.

My question is about the order trend in the fourth quarter, the pick up, and it sounds like you continue to drive the businesses like Liquid Controls towards system sales and as you do that, can you break out the sales that you have that are going towards distribution OEM or some kind of a break-out of systems versus book and ship?

There's a number of questions there within your statement or your one question. Walt, the most important thing for us in terms in terms of what we're expanding in any of the businesses is where we've got a great niche, what we're always looking at is how can we take advantage of the core capability we've got and expand the target market, and try and to do so tremendously. With a couple examples that I talked about today, both what we're doing within the Liquid Controls group and also the health and science example, now, those are already winning, they're generating huge returns for us and frankly, the channel strategy that we think about in terms of how we size up those growth opportunities is secondary to what is the inherent end market growth potential. So we don't really go into an opportunity thinking about how do we want to compartmentalize this in terms of direct versus distribution sale, and that doesn't change the relative attractiveness necessarily, because our profitability both by way of OEM and distribution sales is pretty close to the same, all up as a company.

In terms of breaking it out, basically in thinking about lumpiness or issues of the sort, the newer, higher growth business opportunities are not going to be, for the most part big, one off kinds of orders. They are going to be mid size product or system commitments that are either going to be direct or they are going to be by way of distribution and we'll see it in the way of just good, constant growth and particularly with regard to fluid metering.

In the health and science space, as you know, from time to time there, we do get larger, one-off kinds of OEM commitments so the dynamic there is a little different. If you think about the profile of the overall company, and where the growth is coming from, it doesn't tremendously change the mix of direct versus distribution sales content.

Okay, well, as I see it, I'm going out of your year, you've got more larger systems commitments and the sort of phenomena happened in the first quarter of 2006 where you had some lumpy order trends that appeared to be slowing into the second quarter. They weren't. It was because the first quarter was so strong for systems. What does the visibility look like beyond December or what is the pipeline of systems business look like whether it's in the H&S segment or in Fire and Rescue?

Well, first, on the first quarter '06 comment, that was more so relative to the health and science OEM customer blanket commitments versus a systems set of order commitments. So that's really the OEM's that are in that space who placed more in the way of annual blankets in the first quarter of '06 than they had traditionally done and that happens from time to time depending on how they're managing what they see as their -- principally their equipment product sales. I'm not going to comment on '07 and certainly not relative to what we saw in the way of Q4 '06 exit order rates, but I would simply tell you that our order rates ended the year strong and we feel really good about the business.

Okay, great. Thanks very much.

Your final question is from Amit Daryanani with RBC Capital Markets.

Just a question on the dispensing segment, looks like timing of deliveries, impacted the year-over-year growth. I realize you don't want to quantify the impact, but should we expect an uptick in Q1 in terms of sales in that segment or is it getting pushed out beyond Q1?

We're not going to quantify it, as we said earlier. The Q4 order will have a favorable impact to the first half of '07.

All right . And then when you just look at commodity prices, things certainly looked a little more benign versus last year. I'm just wondering, does that give you better margin expansion potential this year, since your price increases will probably not only just offset the raw material inflation, but also help expanding margins? How should we think about that?

Yes, potentially. I don't think you got to bake in a very large variable margin expansion based on that because again, we didn't see the kinds of inputs increases, material inputs increases last year that some other companies did. Probably the only material component wildcard that applies to us as we go into '07, that we're watchful on are the stainless components with nickel in particular. Most of the rest of the metal commodities I think we're in better shape on. There's not quite as much variance built into the various different forecasts from the various economists that we track, and so our ability to get price is again more a function of our business model than a direct correlation to changes in input so if you think about that, your theory is probably correct that there is a margin opportunity there.

Fair enough. Just one last question, could you guys just talk about your CapEx expectation and plans for '07?

Sure. As you saw, 06 versus '05 was basically flat, actually slightly down, and Dom, correct me if I'm wrong, we've got a little bit of an increase baked into '07 but it's not significant.

Probably in the 25 30 range, 30 being extremely high. I'd say 25 is where we'll probably end up, but we'll look at acquisitions very closely as well in terms of CapEx.

All right thanks a lot.

Thank you.

Thanks for joining us today. If we didn't get to your questions, we'll be around the remainder of the afternoon for follow-ups, and the replay again is 800-642-1687 with a passcode of 5707350.

This concludes today's conference call. You may now disconnect.