Good day and welcome everyone to the IDEX Third Quarter 2009 Earnings Results Conference Call. This 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. Please go ahead, sir.

Good morning and thank you for joining us for our discussion of the IDEX third quarter 2009 financial results. Yesterday, we issued a press release outlining our company's financial and operating performance for the three-month period ending September 30, 2009. The press release along with presentation slides to be used during today's webcast can be accessed on your company website, at www.idexcorp.com. Joining me today from IDEX management are Larry Kingsley, Chairman and Chief Executive Officer; and Dom Romeo, Vice President and CFO. The format for our call today is as follows. We will begin with an update on our overall performance for the quarter, and then provide detail on our four business segments. We will then wrap-up with an outlook for the fourth quarter of 2009 and a brief update on innovation. 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 toll-free number 888-203-1112 and entering conference ID 2354138, or simply log on to our company homepage 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 Chairman and CEO, Larry Kingsley.

The majority of our end markets have stabilized and we're seeing some of those markets now beginning to improve. Overall, our third quarter results were very strong, and accordingly, we raised our full year guidance to $1.44 to $1.46. During the third quarter, we experienced the benefit of a pick up in global infrastructure spend in the energy and water businesses, and several of the product categories otherwise across the company are also seeing better order rates. The shorter cycle businesses are seeing early signs of a return to growth. Conversely, we expect that some end markets will remain slow for the foreseeable future. The chemical end markets, the paint producers, the Dispensing business, which is the retail capital equipment for paint and a couple of others will be flat to down sequentially in the coming quarter. Daily order rates clearly indicate that the worst is behind us, and while still erratic, they are trending upward. However, we do anticipate that many of our customers will shut down for two weeks at yearend, and therefore, we are assuming a shorter quarter from a comparison standpoint. Our operating performance through the bottom has been very strong. We've improved our customer service levels, protected our margins and we continue to generate outstanding cash flow. Full year adjusted operating margins should be 15%. Full year free cash should exceed 150% of net income. As I mentioned during last quarter's call, our new products and market initiatives are on track, and I'll outline a few of those examples of our organic initiatives as I wrap-up. In general, though, coming out of this we are in great shape to realize profitable growth as our end markets continue to improve, our balance sheet is strong and we have the organizational bench to acquire both domestically and…

(Operator Instructions). We'll take our first question from Mike Schneider with Robert W. Baird.

I think the most encouraging aspect to me is the Fluid and Metering orders this quarter being down just 1% on a year-over-year, and when 3Q last year was a pretty good quarter. I realize energy which presumably is liquid controls and then the water businesses you mentioned are stronger, but, do you sense that this is more distributor-related, is it project-related, any color you can give us. Then I guess presumably orders in Q4 are going to be positive, just again how sustainable this is and your gut feel for the underlying strength of the business, or indeed is it just unique projects coming through?

Mike, it's a combination of the two. We did see a broad-based order bottoming certainly in the quarter and daily rates improved pretty nicely from the distribution base in the US and in Europe during the quarter. Some of the improvements though later in the quarter and orders did come from some of the larger projects that I spoke to, referred to anyway that came out of regions of the world that we haven't historically served. Probably I want to think about those as not one-off because there's more to follow. Frankly, it comes down to the ability to serve some of these larger programs with the energy suite of products, the liquid control suite of products, which includes Toptech as you probably remember. Couple years ago we wouldn't have been under position either bid on some of these and frankly not only we successfully bid, but we're winning. If you want to model it economically, I think you'd say that some of what you're seeing reflected in terms of organic orders in the quarter is, there's a decent, solid foundation, the process across the segment to the distribution base and the smaller OEM base, but some of the spikiness, the improvement we saw late in the quarter did come out as a specific projects and we think we'll see some more of those to follow as we move into new year.

In the water projects that you've seen, are these domestic or European? Secondly, are these projects that you were in touch with already late last year that were shelved or indeed are these new [ROKs] coming out?

The water projects have been on the radar screen for some time. We've been tracking the ones that we're seeing as wins now for better than nine months. The wins came out of a combination of the US and the Middle East, actually. There wasn't any significant project, water project wins in Western Europe in the quarter, but we are seeing again in this case, the acquisition of ADS with leak monitoring and protection being the biggest differentiator, opportunities to bid on programs that historically our water business wouldn't have participated in. We'll see not just some service revenue out of these but good product pull-through from the FMT product content as we get more of these. If you think about what's happening domestically in the water projects, for the most part what we're seeing is federal dollars replacing local and state dollars. In some cases, there's a little bit of incremental spend versus what the local or state allocation has been, but it's not federal incremental to the project dollars that had been planned either on the local or state basis.

Just on flow through; if you look sequentially your flow through was only about a negative 5% and the revenue decline of about $13 million, obviously very impressive. Can you just describe what's different in the cost structure looking from Q1 to Q2 when you did over 40%, even over 50% incrementals on the way up sequentially, and then now just down 5% on lower seasonal revenue in Q3. I'm curious as some of the moving parts that would have benefited Q3 much more than Q2.

It's the continuation of the cost actions coming out through the course of the year. On a year-to-date basis, you'd see in both quarters, obviously sequentially more impressive even as you just said from Q2 to Q3. The body of the cost coming out is structural actions that we talked about. This is not one-time furlough kinds of activities that add back in 2010 or for that matter whenever we see the revenue line, pick up again. These are integrated plans where we get both SG&A saving as well as direct cost improvement. I think we're also seeing a little bits of benefit from material cost improvement through the course of the year, but the bottom-line is that cost actions taken ought to play it pretty nicely as we go into the next year.

Conceptually now, if we look out several years into this recovery, your revenue peak last year just shy at $1.5 billion. If you were to re-achieve that rate in whatever year we forecast, what do you believe the permanent cost reductions have been to get there? If you were operating again at $1.5 billion, how much do you think you've taken out permanently from the cost structure?

We still refer back to the numbers that we've talked about on a year-to-date basis. Earlier in the year, we talked about a target of 40 to 45. We are getting every bit of that, certainly toward the high end of that. Clearly, bottom-build identified cost improvement in structural on a current basis of 45, and we are still working obviously to optimize where we stand going forward.

We'll take our next question from Christopher Glynn with Oppenheimer.

It feels that FMT might have the best kind of recovery prospects next year. Just first comment, maybe if that's fair, but the other part of the question is, as markets recover how do we think about the outgrowth dynamic there relative to whatever the markets do?

I would just say maybe in reverse order to the two parts of your question. I think the operational execution is in very good shape. I'm very pleased with how we're doing. You could see it reflected both in the P&L and working capital progress in the quarter, for that matter, year-to-date. I think the way to think about us all up is growth dollars flow-through very profitably at this point. Not to say that we're not going to continue to invest in the business, but again where we've achieved the savings this year it's been structural. It hasn't been temporary '09 actions that come back in the form of 2010 in the case of almost everything we've done. The segment-based recovery in 2010 I would tell you, I think, is on a rate basis probably led first by HST, then FMT simply from the standpoint that, as I said in our prepared remarks, the couple of the FMT end markets will lag, chemical being the largest. We'll start to see some signs of good profitability from the chemical producers depending on product category, but I think their need for capacity-based expansion, which drives the capital spend, which is what we are all about, lags probably six to nine months. We don't expect that FMT across the board has an early 2010 strong growth start. I think that energy and water within FMT, a little more than half of the segment, will have an early strong start.

Just looking at the very strong margin performance sequentially at HST and FMT, are we thinking completely right sized here and the kind of the volume differential over time is really the exclusive driver at this point?

Essentially the short answer is yes. We're going it continue to always work some of the issues that help us with optimizing our footprint globally. By and large part for modeling sake, I think you can view current cost and the numbers that we just talked about prior question as a way to think about how we go forward sequentially.

Lastly just given a lot of the cost sizing this year across the segments, can you compare the degree of operating leverage that you'd expect?

Pretty ratable. When you think about the actions that have been taken and you can see that in the sequential numbers too, both up and down. I think that the leverage on the upside will be basically right down to the business unit level in many cases. Within the segment depending on product margin mix more than leverage from a sequential sales growth standpoint, we ought to see pretty nice margin pick up if and when sales do grow in the respective businesses.

We'll take our next question from Charles Brady with BMO Capital Markets.

This is actually Tom Brinkman standing in for Charlie Brady. Just wanted to ask you some things about, I guess, the Dispensing equipment. Is this the level of sales and profitability we should expect going forward about this rate or are there some unusual items that impacted the quarter?

If you think about dispensing somewhere between the second quarter and the third quarter is the way to think about the business going forward. It's always been a lumpy business and there is a seasonality trend, and then, typically, you are not, this is one in the business. I wouldn't assume that the Q3 sales rate is certainly not more than a short-term view of the business. The way to think about the business all up is that it's always by way of project activity seen sequentially $10 million, for that matter, this year even $20 million quarter-to-quarter top-line moves. What you can see obviously when you look at the business is while the third quarter doesn't reflect steady state and full form from a cost out position that even at this pretty low sales level the business is better than breakeven. You can also see where sales sequentially picking up, flows through extremely profitably, for that matter, it's a good cash generator. Probably the other way to think about it is, if you look at year-to-date sales for this segment, it was about 104 million or 105 million. When the operating margin is mid teens, if you think about that, it's probably a pretty good profile for where the current P&L is within the business. Even on a sales volume that were annualized, if we were lower than that, I still think low to mid teens operating margin and great cash generation is the way to think about it.

I apologize if you touched on this, but I didn't catch it. I was wondering where the restructuring charges were focused this quarter and what additional actions you may have planned?

They are within each of the segments and the go-forward is kind of cleanup is the best way to characterize it. There is work to be done to finalize some of the things that were initiated through the course of the last 12 months. By and large, the bigger area projects are kind of already under belt. There is little bits of work to do in all the segments going forward.

You mentioned, in term of municipal budgets, that fire suppression has been down and is expected to continue to be down, but water has seen some activity from the federal stimulus dollars. We takeaway from that the federal stimulus dollars are not having a significant impact on fire suppression, only on the water side?

I would say, first, for sure, federal stimulus dollars are impacting water positively. As I said, not to confuse the subject, that what we've seen thus far is the projects that we've had on our target list for the last 12 months that were either locally funded, state funded, sometimes there is kind of regional project, we've seen federal dollars come in and replace those in many cases. In some cases, there's been a bit of positive. There's been an incremental spend in terms of project size as a function of the federal dollars coming in. The same is true for that matter in the UK and selectively across the Continental European country markets. We think water is going to continue to be a targeted area, priority area for spending for that matter. It's been called out in some of the US federal original stimulus package. On the fire truck side, there is not a bucket identified for equipment spend per se. There is ongoing federal money that's targeted toward equipment and we do anticipate that there will be some spend, say, that we have equipment purchases and for that matter constructing fire houses, which will necessitate equipment purchases and things of this sort. In the short term, particularly as we look through the rest of this year and early into 2010, we don't think that we'll see a large federal-based equipment spend opportunity in the US in particular. Hence, the comments about nothing federal in subsidy form there to what's going on at the local level.

Last question, just geographically, where are your expectations for recovery in Europe in terms of the timing versus North America, or how the end markets outlook is?

On an IDEX view of the world, it's tracked pretty closely. We've seen Europe actually bottom kind of in sync with the US and generally outside of the UK things stay pretty decent. It's not an issue of how far it's lagging other than the UK and that's a comment that I would make essentially across all the segments.

(Operator Instructions). We'll now move to our next questioner, Matt Summerville with KeyBanc.

Couple of questions on HST, first obviously you saw very nice sequential margin improvement in that business on slightly higher revenue. Can you talk a little more about the margin dynamic and sustainability there in the quarter? Then Larry, when do you expect the more favorable NIH budget to sort of flow through and begin the core business from IDEX in 2010.

The team did a great job, Q2 to Q3 as you can see. Where it came from? Essentially it was two areas; one continued cost out, so same team as previously mentioned with respect to the entire company. They did a nice job, particularly in the non-core side of the business, getting costs out such that its margins weren't a real drag on the segment, and we'll see that sustained. Frankly, any improvement to the sales rate on the non-core side of HST will continue to true that up in the 20% operating margin range, so very, very good cost performance out of the team. Also mix was good, frankly, in the quarter and so now you see those sequential sales dollars generating huge margin move. Some of that is mixed and we always see within the segment sequentially that margin can move around, 150 to a couple hundred basis points, even in typical economic times. I do think though that the team with the actions taken, again, structural has the opportunity to generate, obviously in this case better than IDEX, but IDEX like operating margins on a go-forward basis. As far as the NIH spending and when we see that start to flow, I would say our customers should start to see that towards the end of this year. We by the early part of 2010 ought to be benefiting from volume rates, principally around some of the targeted areas for academic and for other forms of institutional R&D spend that the government again is focused on, and for that matter other federal governments around the world. We think that we'll see early 2010 buoyancy out of the federal dollars aimed at research and development.

One final question; you had indicated in your prepared remarks that your thought is some of your customers might take two weeks shutdowns at the ends of the year. I guess I am trying to get a feel for what would be sort of the normal scenario, and if there is specific end markets that you are really referring to when you address that concern?

What we've heard thus far, Matt, from a number of OEMs and it's earlier in the quarter than would typically be the case, particularly for a broader set of OEMs that they may take the last two weeks of the year to shutdown. I think, we've got to see how that plays out right now, and you have to do some kind of a calendar, what that looks like on a sequential basis for that matter, if it's pertinent on a year-to-year basis to see how many less days there are in the quarter, but it could play out that there are four to five less days in the fourth quarter than typical or then you would think about on a typical comparative basis. I think that it's an appropriately prudent way to think about the tail end of the year where people are already thinking about shutdown to realize that the number of days available to ship is likely impacted. Beyond the OEMs and some end markets, we also think that some end users may take that time where they don't typically have the opportunities for shutdown to gain efficiencies because they don't have the number of days and the strength to do so. We'll see some of that very tail end of the year.

Our next question comes from Walt Liptak with Barrington Research.

My question is on Fluid and Metering. I wondered about your comments about energy prices and strong global markets. I guess if you can compare energy to water, you talk to your customers looking like energy is stronger and maybe to dive into your fuel retailing or wholesaling part of the business, are you hearing a pickup or are you seeing a pickup in that business yet?

We don't serve the retail end of fuel, Walt. Replay is the another point of refinery down to …

That's what I meant, from the refinery out to the retailer.

What we're seeing is project dollars committed for a number of reasons, not just because the price is supporting of it, but its global projects more than US projects but also I'd say a decent foundation of US projects that are on the docket now for the rest of the year and headed into 2010. I think a lot of its IDEX execution, frankly, versus what are commodity-based swings or crack price based opportunities and what's going on in the downstream world. We're seeing pretty solid execution again out of the fact that we've got systems capability now that we never had historically. I would tell you that energy and water both look good. As to which one looks better, I think it kind of depends on how the federal stimulus dollars continue to play through in the water side. As we currently see, the whole developed world plus the newer opportunities like the ones that I spoke to in the Middle East play out, I think that we're positioned pretty nicely, frankly.

With no further questions in queue, I'd like to turn it over to Mr. Larry Kingsley for any additional comments and closing remarks.

Thank you everyone for joining. I think we covered it pretty well in both the prepared remarks and the Q&A. Again, as we head into the fourth quarter, we see a pretty solid foundation of the daily order rates. It gives us good cause for optimism. At the same time, we see that the quarter might be a short one. With that in mind, we think that the economy is generally moving us in the right direction. We think that our execution will ensure that. The company focuses back to how do we grow, how do we deploy capital effectively, and as we head into 2010, we're in good shape. Look forward to talking to some of you through the course of the quarter and all of you again three months from now. Thanks.

That does conclude today's conference. Thank you for your participation.