藝達思 (IEX) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to the IDEX third quarter 2008 earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Heath Mitts, Vice President of Corporate Finance. Mr. Mitts, please go ahead, sir.

Thank you, Rufus. Good morning, and thank you for joining us for our discussion of the IDEX third quarter 2008 financial results. Yesterday, we issued a press release outlining our company's financial and operating performance for the three-month period ending September 30, 2008. The press release along with the presentation slides to be used during today's webcast can be accessed on our company Web site at www.idexcorp.com.

Joining me today from IDEX management are Larry Kingsley, Chairman and CEO and Don Romeo, Vice President and Chief Financial Officer. The format for our call today is as follows: We will begin with an update on our overall performance for the quarter and then pride detail on our four business segments. We will then provide an update on the recent acquisitions and restructuring initiatives and we will wrap up with the outlook for 2008 and the fourth quarter. Following our prepared remarks we will then open the call 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 the call concludes by dialing the total free number (888)203-1112 and entering conference I.D. 1429642. 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 IDEX's filings with the Securities and Exchange Commission. With that, I'll now turn this call over to our CEO, Larry Kingsley. Larry.

Thanks. Good morning all. A quick summary of our operating performance for the quarter. Third quarter orders of $353 million increased 8% from last year. Sales of $365 million increased 9% from last year. Organic growth was 1%. Operating income was down 4%. Reporting operating margin at 16.7% was down by 220 basis points from last year, driven primarily by the impact of the restructuring related charges associated with previously announced restructuring initiatives. As well as the impact from acquisitions. Excluding the impact of the restructuring charges and acquisitions, operating margin was 18.6% or down 30 basis points from prior year.

EPS was up 4% to $0.49, excluding the impact of the restructuring costs, diluted EPS was up 13% to $0.53. Record free cash flow up nearly $68 million was up 26% from last year. For the year, we are well on our way to exceeding $200 million of free cash-flow or over 120% of net income, which is a record for the company obviously. So now we will walk through these components by segment. For the fluid metering segment, orders were up 21% in the quarter, sales increased 18%, 13% from recent acquisitions and 4% on an organic basis. Operating income of $34 million was a 9% increase from last year, operating margin of 20.1% was down 180 basis points from Q3 of '07 excluding the impact of acquisitions operating margin was 21.5% or down 40 basis points from Q3 of last year and that's largely due to mix within the segment.

While our overall results for FMT were good for Q3, it's clear that some of the process industry segments are slowing. So accordingly we are taking appropriate cost actions. At the same time, our end market content has improved over the past few years, and based on our exposure, several factors lead us to believe that we can outperform the general process control market. One, with the completion of IPEX and IETG we now have $200 million of revenue in the water, particularly the wastewater services portions of our FMT strategy. Two, our energy business, primarily the liquid controls group, continues to leverage strong panel penetration and the build out of the refined fuel infrastructure. And, three, nearly half of fluid metering now is outside the U.S. and we are seeing nice traction with our international sales growth investments that we've made over the past two years, particularly in Asia and in the Middle East. And we've made significant sales marketing and engineering investments to drive the ongoing global expansion.

Now turning to slide seven. In our HST segment orders were down 2% for the quarter. Sales were down flat, down 4% organically. Operating income was up 3%, operating margin up 20.7% was up 60 basis points compared to last year. Our core market focus as you know is the fluid devices that are used in analytical instrumentation, clinical diagnostic applications as well as the medical devices and key components used in medical equipment. We continue to anticipate core business growth driven by end market demand for new generation equipment, equipment that is that's required for the microliter and even the nanoliter application inside biotech, drug discovery and in the clinical environment. With the acquisition of Semrock, which we just discussed yesterday, we will add product content and applications expertise, again in the analytical instrumentation and clinical spaces. With our continually broadening product platform, and integrated solutions approach we expect positive organic growth in '09.

In dispensing equipment on slide eight, orders in the quarter were down 27%. Sales decreased 17% and organically were down 21%. Margin was down 760 basis points compared to prior year primarily due to the lower volume that's both North America and Europe. As noted in our October 6 earnings release, our update deteriorating economic conditions and lower capital spending in the segments resulted in an order reduction for capital equipment within retail paint and coatings. In addition, we've been informed by a major retailer of their decision to use a competitors' dispensing equipment in their current equipment replacement program. We expect that the North American and European markets for this segment will remain soft through '09. To mitigate the impact from these challenges we've taken appropriate cost action to size the dispensing business for the expected volume softness both in the U.S. and in Europe. So we are not pleased with the dispensing segment performance, yet we've already taken action to insure that the segments profit will improve and continue to provide strong cash generation to IDEX.

Moving now to fire and safety, on slide nine. For the quarter, orders were up 9%. Sales were up 15%. Organic sales were up 13%. Operating margin at 25.3% was up 190 basis points compared to last year. As you know we provide the pumps, the valves, the control devices as well the full set of systems for fire suppression. We also manufacture a broad line of rescue equipment used in first response and in industrial applications. And lastly we include our band clamping business in this segment. The three, fire suppression, rescue and band clamping each contribute about a third of total sales to the segment.

For the quarter our rescue tools business grew at double-digit rates. We anticipate that the rescue tools business will continue to perform well in the challenging environment as we continue to drive innovation and grow internationally. Demand from the developed countries and the new developing markets continues to be strong. The band clamping business continue to perform well driven by demand for infrastructure related applications, here again we anticipate reasonable growth driven by good end market exposure and continued served market expansion. As we expected, the fire suppression market is stable while we are keeping a close watch on the domestic municipal market, demands in the global market continues to remain comparably stronger. During the quarter, the segment expanded nicely in Asia. In total for the segment, we anticipate mid single-digit organic growth driven by continued expansion in the band clamping and the rescue tools businesses.

So I will now turn to acquisitions. We completed four acquisitions over the past three months which will add annualized revenues of approximately $130 million approximately $33 million of EBITDA. On October 1, we completed the acquisition of Richter, a leading provider of corrosion resistant pumps, valves and control equipment. Richter's expertise is at its proprietary Teflon lined product range. The corrosion resistant Teflon line pumps and valves are preferred substitutes to exotic metals. The demand for corrosion resistant process equipment continues to grow and at rates that are higher than the overall process industry. Based on more stringent safety and environmental standards, and the heightened environmental awareness in China, India, Russia and Brazil, particularly. Headquartered in Kempton, Germany, Richter also has manufacturing in Asia. Richter's capabilities will further enable to us serve demands and specific chemical and other industry processing applications while enhancing our global position. Richter adds $53 million of revenue and is expected to be accretive to earnings in '09.

Our outlook on the global water market remains positive. The fresh water shortage and the need for potable was there continue to drive demands in developing nations while regulatory requirements in the western world for pollution prevention are dictating continued municipal and industrial spend. In January, we acquired ADS if you remember. That extended our water and wastewater services offering and we continue to build on that basis. In October, we acquired two companies that specialize in wastewater services and infrastructure analysis.

The first of the two acquisitions, IPEX is a leading provide of remote controlled systems used for infrastructure analysis. IPEX manufactures state-of-the-art imaging, sensing and data cataloging devices which are used to assist physical use and condition. IPEX has annual revenues of approximately $26 million is expected to be accretive again to '09 earnings. IETG, the second in the wastewater space is a leading provider of flow monitoring and underground utility detection and mapping services. With IETG's expertise, we are able to offer our customers an ends to end managed solution insuring optimal network efficiencies. IETGs presence in the U.K. and European market will enable us to extend our footprint, supporting the expansion of the water wastewater platform within the the fluid metering technology segment. IETG has annual revenues of approximately $25 million, and is again expected to be accretive to '09 earnings. So with the addition of both IPEX and IETG we are extending our geographic footprints and we've added core product and service capability as part of our wastewater strategy.

Now we just closed the acquisition of Semrock. Semrock is a leading manufacturing of optical filters for the biotechnology and life science markets. The new available imaging techniques that are used in molecular analysis enable detection, identification and observation of biological and chemical activity and optical filters enable selective transmission of light which enables that microscopic fluid analysis. Semrock's expertise in this market will enable us to continue serving the growing demand for fluidic solutions, extending our offerings with existing OEMs and provide us with significant new access to new opportunities within the health and the life sciences markets. Semrock's products are purchased as part of the original equipment design, but they are also replacement devices that are purchased for post OEM purchases once the equipment is installed. Semrock is headquartered in Rochester, New York and has annual revenues of approximately $20 million,(Sic-see slide presentation) and we again expect it to be accretive next year.

As previously announced, we've begun the process to close manufacturing operations in the dispensing segment's Milan facility. In addition, we've initiated company-wide plans for management and administrative workforce reductions as well as additional facility consolidation. The projected savings in costs and operating expenses resulting from these restructuring activities is expected to be between 15 and $17 million annually, beginning in 2009. The company expects these actions to result in restructuring related charges totaling approximately $15 million over the second half of '08. These costs are inclusive of the estimated $5 to $6 million relating to the Milan facility closures. So we'll now wrap up an outlook for the full year in the fourth quarter.

Based on the results and the assumptions we just reviewed, we anticipate full year growth rates at 10 to 11%, organic growth is expected to be in the low single digits, acquisitions will contribute 7%, FX is assumed to contribute two. Based on that volume range, our adjusted EPS estimate is $2 to $2.04. For the fourth quarter of '08 we anticipate total sales growth of 8 to 10% with growth driven primarily by the impact of acquisitions. Organic growth is projected to be down slightly driven by dispensing anticipated performance. Based on this, we estimate the fourth quarter EPS will be between $0.41 and $0.45 per share. So with that, we will take a break and open the line to questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). And for our first question we go to Mike Schneider with Robert Baird.

Good morning, everyone. Maybe we can start Larry with the fluid and metering division, the orders for the quarter, do you happen to know what the organic rate was? And then can you give us a sense of what changed the most notably since last quarter because orders were up 11% organically last quarter?

Yes, let me give you the numbers, Mike, I just want to make sure -- organic orders were six, and give you a sense, end markets, Mike, was that the second half of your question?

The orders that accelerate from plus 11 last quarter to plus six this quarter, just what was the most notable change either by business segment or market and any details on why.

Yes, sure. Well, let me take a step back, Mike, think about the break out of FMT by end markets because I think that gives I was broader perspective too looking forward. The three biggest segments, end markets that we serve within fluid metering are refined fuels and gases, what we typically refer to as energy, water, which is mainly wastewater as you know, and then you've got chemical which is they are all in aggregate about 75% of FMT's end market exposure. We continue to see very strong demand out of the energy end markets. We continue to see and have pretty good visibility toward very strong wastewater performance. The only water markets softness that we've seen is in some of the lower priced pumps that are used in the associated residential and some of the lighter commercial applications for water treat that going into boiler applications and things of the sort. And then chemical which chemical orders did come down a bit in the quarter. Now we think that they are not going to continue to degrade.

They actually look as though they flattened out but that would represent the largest sequential order decline Q2 to Q3. Beyond those three large segments, FMT is exposed to essentially ag, which remains decent. The pharma-and food segments. And food was, did soften soften a bit from Q2 to Q3 and we don't thinking that will continue either likely as we look out into '09. If you look at the overall process environment and our overall FMT exposure there will be different end market performance expectations as we look into our planning and assumption sets for '09, we think more of the same is probably the like the outcome where energy remains particularly strong, wastewater and particularly the water portion strong. Chemical, we think will be probably positive end market growth but not hugely so. And then the other smaller segments again positive but not hugely so.

And then just the backlog level on fluid and metering given that orders again were up 11 last quarter, up six this quarter and yet organic growth was only up four this quarter it looks like you must be building substantial backlog or is there some other phenomenon occurring?

It's just building a little bit of backlog, Mike. And so, no, there's not a huge order push out phenomenon that's tied into those sequential numbers.

Mike, you also have the impacts of ADS being in our fold this year that has a longer backlog but that's on the acquisition side as we book orders.

A question on HST and I will get back in line, the core business you mentioned remains resilient. What was the core business up this quarter? And can you talk about gas and the other portions HST and what's going on sequentially there?

The core business did remain strong for the quarter and again let's take a look maybe broader perspective on the entire segment. As you all remember, we in the third quarter essentially finally sunsetted the impact on a comp basis that we have with an HST. There is just a very, very little bit of trailing comp impact in the fourth quarter. The third quarter headwind associated with those commercial OEM contracts that we've been sunsetting through the course of this year was fairly substantial. It was more than 600 basis points of growth for the segment. So if you pull that out without delving into all the various subsets of HST you'd see positive growth in HST of maybe about 3, 3.5, 4%.

Any further questions, sir?

No, thank you.

Thank you, Mike.

We go next to Charlie Brady with BMO Capital Markets.

Thanks, good morning. Just your comments on FMT and some of the process markets slowing, can you give some granularity where you are seeing that slowing?

Sorry, HST or FMT?

FMT.

FMT, again, we saw between Q2 and Q3 order rates slow in the end markets that are chemical process applications. We did see the same in some of the commercial food applications. And in some of the OEM equipment that's closer to tied to residential applications or things that are going to cycle I think more so with the construction markets. Other than that, we saw energy again very strong, water particularly the wastewater piece is strong, ag remains strong and most of the other smaller segments are a mix of down sequentially but still remain in positive growth territory.

With regard to dispensing and a decline you saw in the quarter has that stabilized subsequent to the end of the quarter? Or has it gotten any worse?

The dispensing basically fell off end of August, beginning of September and it was principally Europe. There is a number of things impacting dispensing, some of which is financing for equipment both here and in Europe, but also dispensing has always been a pretty lumpy business and there aren't any large projects right now that we are betting on in terms of how you would run rate dispensing out of Q3 forward, we don't think it gets worse on a year over year basis, but we are not assuming any immediate tick back up. And the major components to that is there aren't as many major programs out of the retailers for new equipment right now total. New store openings are obviously way off. And we think that where cash is key, the smaller retailers are going to preserve their capital and they're probably not going to spend in the short term. There's a possibility that given pent up demand. we could see some of that return at some point middle part of next year. But again. not seeing any further deterioration but certainly not expecting any immediate kickback up.

Charlie and Larry, our prepared comments, our Q4 guidance is for a 20% decline in dispensing so it's fairly consistent with what we experienced. 20% plus consistent with what we experienced in Q3.

One more question and I'll get back in the queue,, with regard to the acquisitions you've made specifically IPEX and IETG, to what degree if any do they rely on municipal or government type funding for the projects that they are selling into?

That's a great question. The reason that we like ADS, IPEX and IETG is that those businesses are service models, those are funds that are spent ahead of the major capital outlay. And they typically are used to determine the capital outlay. And so we don't see the same potential impact as where perhaps major capital programs may get delayed because these things typically are on a programmatic basis get spent out of the current funding basis. We think whether it's a municipality looking at just understanding their infrastructure requirements in preparation for major outlay or to determine if that can be spent now or later that the funds associated with the ADS, the IPEX and IETG business model will remain fairly strong. And indications that we are seeing out of ADS which we've obviously owned longer, since January this year, certainly support that. So again we don't think we are going to see the dramatic impact if there is an ongoing constraint around capital outlay from major projects as some of the others who are associated with that major equipment production can see.

Thanks.

For our next question we go to AJ Kejriwal with Goldman Sachs.

Good morning, gentlemen. On the restructuring initiatives here, wondering if you could talk about the time line, when these actions will be completed and thoughts on whether there can be more down the line or you feel good about the cost structure post the restructuring?

AJ, if you look at what we've already initiated, obviously we all know we are in a relatively uncertain environment. We decided to go ahead and not understanding what the '09 topline opportunity looked like but certainly not assuming all doom and gloom ahead I'd to get ahead of it on the cost side and so the 15 to $17 million of cost actions that is we essentially have already initiated, we believe will be largely complete by the ends of the year with some trailing impact into the first part of the first quarter will set us up very nicely for all of '09. If you want to think about the impact here on an EPS basis you should hopefully get $0.15 or so out of the cost actions that are already underway for '09.

And these actions put you on a good footing as far as your view of the economic environment for 2009?

Based on the way that we're modeling again within the unknow,n these cost actions -- well think about frankly the combination of the acquisition impact, the EPS next year, the cost action impact to next year, we think that the price versus material inputs equation for next year will be a net positive. We think with what we know now, that we are doing the right thing structurally to set ourselves up for a good '09; EPS insurance plan if you want to call it that.

Great. Maybe some more color on dispensing on the loss of that contract. What was the issue? Was it pricing? Was it product features? And then are there other contracts that could be at risk? Maybe some more color around that contract?

Yes, sure, AJ. Essentially it was a commercial decision. It was a decision by one of the U.S. retailers to go ahead and use someone else's equipment. There is, for a number of reasons we can't really get into a lot of specific comments. And there are some other issues at play here in the dynamic of the project itself. But it was basically a decision by the customer to use a competitor's technology that we for commercial reasons we will call it.

What was your assessment of threats or risk with other contracts in the U.S.?

No, we don't see there as being a spill-over associated with that, AJ.

Thank you.

For our next question we go to Christopher Glynn with Oppenheimer.

Hi, thanks. Could you just review again the allocation of the restructuring actions besides dispensing, where else they are taking place?

We haven't broken them out outside of dispensing, Christopher, so the answer is we would leave it on a company-wide basis, assume the 15 to $17 million is company-wide exclusive of the Milan impact.

A little bit on any specificity around degree of accretion from the acquisitions or color on there, historic growth rates or market penetration share, thing like that?

In the announcement for Semrock we gave you the EBITDA and sales as we saw the run rates of all four businesses. We won't have a view on intangibles for a few weeks yet so we'll have to guide on that later. But the growth rates are excellent and as Larry mentioned these are great fits with our existing portfolio so you get a good feel for the revenue and the EBITDA in the Semrock release.

Okay. Great. Thank you.

Sure.

We go next to Walt Liptak with Barrington Research.

Hi, thanks, good morning. I may have missed this, but the organic orders, could you go through the four segments and tell us exactly what the order growth was per segment.

Sure, Walt. Six or seven for FMT, if we look at H. S. T., remember, we've got the impact of the contracts that were exited this year. So the organic growth rate there is about negative four. Dispensing, down 25 to 30, and FSD up 7% or so organically.

Okay. And Europe is --

The growth rates for orders followed our sales growth rates by segment plus or minus.

Okay. And just a couple more quick ones. The European economies have declined rapidly. I wonder what the outlook is for the fire and safety division as we look out? I mean, are there growth initiatives that, is it more Asia driven? Can you keep your international part of the business growing next year?

Yes, Walt, what we are seeing now in the way of growth is essentially counted out of the underdeveloped country markets for the most part. We are seeing some of the markets that we've talked about on prior calls continue to spend on both the fire side and particularly on the rescue side. So it's Middle East, Asia, Eastern Europe, and we are very well positioned there d now. As you remember we acquired Dinglee in early '04 and that gives us a great position to serve Asia but also a great cost platform to serve some of these other emerging country markets. The rescue tools business out of the two continues to see new country marketplace orders that have historically never done so. And then piggyback those with spends as they work their way around the country by region. So we think that the lesser developed country markets will remain quite strong. Europe on a municipal spend basis is slightly comparatively better than the U.S., that's western Europe, and we think also that remains pretty good. So we weren't expecting huge things out of the fire suppression side as we look forward. We are seeing a stable market. On the rescue tools side, we still have hopes for very nice positive growth contribution as we look into next year.

Okay. And then last fully I could just ask a leading question on 2009 you kind of set it up saying that you got the benefits in 2009 of $0.15, accretion from acquisition, better price cost, are you looking for an up year in earnings or do you expect an up year in earnings in 2009?

Just to be clear, Walt, what I was saying is $0.15 accretion as a function of the restructuring costs and the cost savings, excuse me, the cost savings associated restructuring active as we head into '09 much the acquisition impact would obvious will be above and beyond that, probably figure $0.10 or so accretion for '09, something in that neighborhood. The EPS target at this point is obviously a function of organic growth where we are early in our business planning process for '09 but we don't expect to certainly see a down year on the EPS line based on the three components that I mentioned, the cost savings that are essentially money in the bank as we head into the beginning of the year, the acquisition impact, which should be very solid and I think pretty well already done, that doesn't include obviously '09 acquisitions, and then the price versus direct material equation that we are anticipating for next year, just those three on top of even, even Q4 run rate EPS, gets us to a little bit of EPS growth. So I think that even conservative base rate modeling without understanding topline for '09 completely yet, but with some pretty known components already nicely set up for next year we feel good about at least EPS preservation if not decent growth.

That sounds great right now. Okay. Thanks very much.

For our next question we go to Matt Summerville with KeyBanc.

A couple of questions. What will the drag be in the fourth quarter for HST on those contract rolloffs?

It will be minor, a couple hundred basis points.

Okay. And then with respect to dispensing, the development you had with one of your customers is this more competitive bidding process, going forward what's your strategy and response going to be if this is now more of a permanent thing with this customer?

Matt, we are not trying to dodge the question but put simply there's elements of where we stand at this point with the competitive dynamic that we can't really speak to in a lot of detail. With regard to our customer relationship, it remains strong and we will continue to work with the customer, we continue to sell them equipment and service equipment for them and we expect a long relationship.

Historically I think you guys have gone somewhere in the range of two to three points of price per year. Are you thinking for 2009 you'll be able to get something similar?

For the last few years we've gotten between 170 and 220 basis points. So not quite three-point on price but more like 180-ish. Next year might be a slightly more difficult environment but again on the cost side particularly material inputs we think it's going to be a much better equation. So probably if we had to guess, we are early in the process and preplan but price might be a little more difficult next year. Cost will be better. And the other thing to remember, we are a customized product business. Most everything we do is engineered to a customer specific requirement. And therefore we probably won't see a commodity like relationship to price that would affect us in any dramatic way. So it's perhaps the case that we see a little less upside but not a dramatic negative impact as a function of overall commodity pricing that we are seeing.

Great. Thanks a lot.

We go next to Mike Schneider with Robert Baird.

Larry, just some follow ups and maybe first on HST again, could you just call it specifically what the core analytical businesses grew in the quarter so we are separate kind of the OEM hit from what's going on in the core business that you focus on?

4% organic, Mike.

4%, okay.

A little better than that.

So if you scrub then the OEM contract divestitures or endings or however you like to phrase them so even the core gas and industrial businesses grew in the quarter?

That's correct.

You say you expect positive organic growth for HST in 2009, can you give us your assumption as to recession, no recession for, I guess embedded in that forecast.

Current degree of economic uncertainty gets to us what I said in my prepared remarks, I wouldn't go into any more specific comments at this point, Mike. But we are largely banking on the fact that we have customers that are in development platforms, they already have specific launch platforms, we are on those platforms, we see new volume opportunities that come out of more content per platform on some of the newer stuff coming out. So the adverse impact is going to be their unit volume and that's the part that's obviously hard to determine at this point.

If you assume those unit volumes decline at your customers for the core businesses in line with the economy?

We haven't assumed that our customers in total in that core HST space are going to see equipment volume increases. They are all up at, that assumption hasn't bounced slightly with our content increase.

The boost from the OEM contracts in 2009 just on comparison, do you have a dollar amount or percentage point boost that growth rate that HST actually benefits in 2009?

For the full year, Mike, I would say it's about three to 4%, maybe five.

Then just a question on FSD, the rescue tools business growing very nicely you mentioned on international orders in particular. Have you seen any cancellations domestically or any signs indeed that tighter municipal budgets here or broader having any impact on existing programs?

Domestic sales are flat to up very slightly and we have seen just a couple cancellations and that would be only I think a couple more than we've seen typically in a quarter, so it's not a massive concern out of any of the domestic municipal spending programs for rescue tools. As you know, on the fire side overall truck demand has been down now for a few quarters and so while it's not continuing to deteriorate that's been down versus historic run rates. Rescue tools continue to be a pretty important purchase item and something that gets budget clearance quickly on a municipality. That's a global comment just not the U.S.

On the acquisitions the D&A levels for the deals I assume you are still finalizing the figures but can you give us a rough sense of what we should assume for the four deals as far as incremental D&A on an annualized basis.

Mike, at this point we can't. You can run rate your own model based on our track record but obviously completing the last three in the last week or so we are still real early in the process so that the EBITDA that we've given you in the announcements is where we are right now so we will advise on that when we talk next time.

In ballpark terms would $10 million of the $33 million in EBITDA be roughly D.A.

Mike, I am not going to let you tune me down right now. We are too early in the process. Our internal assumptions are the typical run rates of the prior acquisition. These are all very high cash flow cash generating companies with very low capital so there's a fairly substantial analysis to go through the customer list and intangibles as you know.

Okay. On interest expense what run rate are you assuming for dollars of interest expense in the Q4 guidance?

We haven't gotten that prescriptive yet Mike other than the fact that the acquisitions will be probably brake even once we look at the incremental interest expense and the impact of intangibles. Again it may wait a little bit just based on the timing.

Maybe a different way to attack it is the $233 million in cash yet on the balance sheet, how much of that is left after paying for the final deal here, Semrock?

About 50 million, Mike.

And should we assume you maintain that rate and just pay down the revolver then going forward?

That would be a correct modeling assumption, Mike.

Thank you.

Next question, Wendy Caplan with Wachovia Securities.

Thank you. Good morning.

Hi, Wendy.

Larry, historically IDEX decks has been a collection of book and ship products with some exceptions, including dispensing, which has been more product related, you mentioned lumpy, somewhat longer lead time segment. So it's somewhat surprising to me and somewhat confusing that that was the business that was called out as being an issue for the quarter. Can you share with us which part of European slowing, fewer programs in terms of retail programs, loss of the contract was the surprise? And I guess the follow on question would be what degree of confidence do you have that your visibility is better today than it was say three months ago?

Yes, sure, Wendy. Let me come back at that hopefully comprehensively. First of all there's really not a much longer lead component to dispensing versus IDEX. Now it is more of a project related business. But the book to ship window for that business is still relatively tight. And we are, as you know very good as turning what is that lumpiness operationally. So we don't typically see more than a couple months worth of actual bookings visibility to project associated shipments.

What trailed off in the third quarter and during the quarter as I said toward the end of August, we weren't sure in Europe if it was first the typical European seasonality or if there really was some financing associated constraints around purchasing. But it was essentially two things in Europe. First that we believe that where the smaller customer didn't have access to financing or inclusive of leasing capability, they have deferred the purchase and therefore they are running on an aging equipment fleet for the time being. Now that won't continue, because at some point, the equipment doesn't work, you have to replace it but they are limping along short term. The other European piece is that as you remember the paint companies buy the equipment and then they allocate it out in many cases to the wholesale and retail channel as part of a comprehensive contract for the actual paint supply. And the paint companies pulled in their associated purse strings too in the third quarter in Europe. So we saw them pretty quickly pull in and that we think there's an opportunity for some of that relax as we get into the middle part of next year.

But same dynamic applies. They are using in many cases in those applications, equipment that's perhaps older than it should be. And the same replacement math that we've always talked about applies it's just whether or not short term they get by. In the US, we've not expected a lot out of the new store opening remarks and introductions component for the year, for that matter in the quarter. But there's nothing there that's been better buoyancy either so we haven't seen any new store openings. And of the major retailers. most of them, at least short term, clamped down on their CapEx. We know that some of them are already planning for continued spend maybe at a very slightly reduced rate versus where they were at at the first half of '08 as they go into the first half of '09 but it's primarily, Wendy the smaller guys in the U.S. who again have seen some unexpected financing constraints that manifested during the quarter that have held off their purchases and have drove most of that. The customer agreement or the customer contract that I spoke to just a minute ago without going through it all again in detail was not a large part of our assumption set for the quarter so that wasn't a big surprise. It had a lot more to do with those folks that have made a cash decision to push something out we assume short term and they will kind of limp along on what they've got.

Just so I can understand this a little better I know had you talked about the small guys in the U.S. So that wasn't new news. And so it's primarily the fact that Europe didn't recover the way that it might have after a vacation filled August slow down that led to you kind of raise the flag on this segment.

The largest portion of the Q3 in quarter change and book to ship rate came out of the smaller and mid-size European customer commitments and that combined with the fact that in any business you always have offsetting elements. There was not an offsetting element otherwise within global dispensing during the quarter. So, yes, your point is correct.

Are there other situations across IDEX as you look across all the businesses that maybe could portend future issues like this in terms of your maybe I'm sure hope is not the right word but that you are seeing some weakness but you are not quite at the point to pull the plug in terms of aggressive cost cutting or do you think that you're seeing it all? Is that a fair question? You know what I'm saying?

I know what you're saying, the biggest difference between dispensing and the rest of IDEX is some portion of the dispensing customer base does require financing to purchase their equipment so it's a different kind of purchase than what you see anywhere else in the company. We basically typically are a either new equipment or an MRO type of purchase and as you know fluid metering is a combination of the two. As are the other segments. So there isn't the dynamic of someone seeking financing to buy the equipment nor is there a discretionary nature of the timing of the purchase as there is in dispensing.

Do we have a complete grip on '09? I would say, no, I don't think the world does at this point. We've gone ahead and planned for a reasonably conservative organic assumption set based on what we see right now that puts us in good cost position and we always are going to be closely watching what we think is happening. If we need to get more aggressive on cost we remain capable of doing so. But at this point we think that the remainder of the company doesn't suffer the same kind of short term potential issues because there isn't the purchase dynamic like there is in dispensing around both the financing requirement as well as the discretionary nature of the timing of the purchase.

That's fair. Thank you. Finally in fire and safety and diversified, can you, are you making the assumption that the mix should continue to remain favorable towards rescue tools and Band-It?

Yes, yes.

Thank you very much.

You bet, Wendy.

We go next to Jimmy Kim with RBC Capital Markets.

Good morning.

Hi.

I'd like to get some clarification on your guidance. By my math if you have Q4 sales going up by 4% that gets you to the low end of your '08 revenue guidance of 10%, and I think the guidance you gave for Q4 was 8 to 10%.

Right, Jimmy. Without getting too specific I think, the topline guidance we've given includes the recent acquisitions as well so you've kind of got to do the math on what we've announced in terms of the four acquisitions for the quarter. And that I think is the bridge on your topline commentary. The currency side of this largely flat year over year maybe a bit of a drag. So that the balance is, an assumption on organic and I would tell you at this point we've looked at organic and there's a range in our assumption set but without getting too descriptive that's the combination of those events that result in the low and top end of the range.

Okay. So expect maybe flat currency and probably double-digit acquisition?

That's correct, that's actually what's on the slide. It's 8 to 10% in total acquisitions, ten to 12.

Got it. Thank you.

You bet.

With that, ladies and gentlemen, we have no further questions on our roster. Therefore, Mr. Kingsley, I will turn the conference back over to you for any closing remarks.

Okay. Thank you. Let me just follow on a couple of the questions that were asked and make sure a couple of points are clear. Definitely the economic outlook certainly on a macro basis is uncertain. We clearly expect that the organic environment will be more difficult as we go into next year and at the same time as we talked about and quantified, the combinations of actions that are already in place and underway get us off to a great start with cost actions that will largely be complete as we enter the new year. So well ahead on that side. And the new acquisitions which will have a nice positive impact to next year as well.

The other thing that we didn't talk about too much or as much in the call is our balance sheet is in fantastic shape. Post these transactions we have plenty of capacity should we choose to continue as we enter into the new year with $220 million of capability available plus the free cash that we will generate through the course of next year, which just if you look at run rate this year plus a little bit of improvement irrespective of the organic assumptions set gets you to somewhere north of $220 million of free cash generation even more than that next year now with these acquisitions. So obviously we've got plenty of balance sheet capability at this point to continue to execute our strategic growth plans. That being the case, we really think that it becomes more of a buyers market as we head into the year and that it sets us up nicely for continuing to execute the things that we've got in our proprietary funnel.

So in general and in summary I would say taking a very sober look at the general market and with the unknown as the assumption we planned in a very appropriate fashion to get at cost now to set ourselves up nicely for next year. And we think it's a very appropriate planning assumption set as we now work through the mechanics of understanding '09 in a lot of detail. I want to thank everybody for joining and we look forward to seeing you all soon.

And, again, ladies and gentlemen, this does conclude the IDEX third quarter 2008 earnings results conference call. We do appreciate your participation, and you may disconnect at this time.