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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3555336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 DUNDEE ROAD, NORTHBROOK, ILLINOIS 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (847) 498-7070
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ---------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE AND CHICAGO
STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting stock (based on the June 30, 2006
closing price of $47.20) held by non-affiliates of IDEX Corporation was
$2,495,801,008.
The number of shares outstanding of IDEX Corporation's common stock, par value
$.01 per share (the "Common Stock"), as of February 15, 2007 was 53,823,941 (net
of treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2006 Annual Report to stockholders of IDEX Corporation ("the
2006 Annual Report") are incorporated by reference in Part II of this Form 10-K
and portions of the Proxy Statement of IDEX Corporation (the "2007 Proxy
Statement") with respect to the 2007 annual meeting of stockholders are
incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I.
Item 1. Business. 1
Item 1A. Risk Factors. 7
Item 1B. Unresolved Staff Comments. 10
Item 2. Properties. 10
Item 3. Legal Proceedings. 10
Item 4. Submission of Matters to a Vote of Security Holders. 10
PART II.
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities. 11
Item 6. Selected Financial Data. 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 23
Item 8. Financial Statements and Supplementary Data. 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. 57
Item 9A. Controls and Procedures. 57
Item 9B. Other Information. 57
PART III.
Item 10. Directors, Executive Officers and Corporate Governance. 57
Item 11. Executive Compensation. 58
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters. 58
Item 13. Certain Relationships and Related Transactions, and Director
Independence. 58
Item 14. Principal Accountant Fees and Services. 58
PART IV.
Item 15. Exhibits and Financial Statement Schedules. 58
Schedule II - Valuation and Qualifying Accounts 59
Signatures 60
Exhibit Index 61
PART I
ITEM 1. BUSINESS.
IDEX Corporation ("IDEX" or the "Company") is an applied solutions company
specializing in fluid and metering technologies, health and science
technologies, dispensing equipment and fire, safety and other diversified
products. The Company manufactures an extensive array of engineered industrial
products sold to customers in a variety of industries around the world. We
believe that each of our business units is a leader in its niche market. We also
believe that our consistent financial performance has been attributable to the
manufacture of quality products designed and engineered by us, coupled with our
ability to identify and successfully consummate and integrate strategic
acquisitions. In 2006, IDEX changed its reporting segments based on recent
organizational and structural changes from three to four reportable segments.
The new business structure reflects a more focused market strategy across all
businesses. Through this new structure, the Company is better positioned to
address emerging customer needs in industrial fluid and metering technologies,
health and science instrumentation equipment, dispensing, and fire and safety
equipment. The addition of a fourth segment reflects the Company's evolving
capability and content for applied health and science technologies. Under the
new reporting structure, the Fluid & Metering Technologies segment consists of
the following IDEX business units: Banjo, Liquid Controls, Pulsafeeder,
Versa-Matic, Viking Pump ("Viking") and Warren Rupp. The Health & Science
Technologies segment includes Eastern Plastics, Gast Manufacturing ("Gast"),
Micropump, Rheodyne and Scivex. The Dispensing Equipment segment is comprised of
FAST & Fluid Management and Fluid Management. The Fire & Safety/Diversified
Products segment includes Hale Products ("Hale") fire suppression and rescue
tools businesses, as well as the BAND-IT engineered clamping business.
Historical business segment information has been updated to reflect this change
in reporting segments.
FLUID & METERING TECHNOLOGIES SEGMENT
The Fluid & Metering Technologies Segment designs, produces and distributes
some of the most recognized names in positive displacement pumps and flow
meters, compressors, injectors, and other fluid-handling pump modules and
systems. Our application-specific pump and metering solutions serve a diverse
range of growing end markets including: industrial infrastructure (fossil fuels,
refined and alternative fuels, oil & gas, water and wastewater), chemical
processing, food & beverage, pulp & paper, transportation, plastics & resins,
electronics & electrical, construction & mining, machinery and numerous other
specialty niche markets. The segment accounted for 38% of sales and 36% of
operating income in 2006, with approximately 41% of sales to customers outside
the U.S.
Banjo. Banjo, acquired in September 2006, is a provider of special purpose,
severe-duty pumps, valves, fittings and systems used in liquid handling. Banjo
is based in Crawfordsville, Indiana and its products are used in agricultural
and industrial applications. Approximately 8% of Banjos' 2006 sales were to
customers outside the U.S.
Liquid Controls. Liquid Controls, acquired in January 2001, is a leading
manufacturer of positive displacement flow meters and electronic registration
and control products. Applications for its products include mobile and
stationary metering installations for wholesale and retail distribution of
petroleum and liquefied petroleum gas, aviation refueling, and industrial
metering and dispensing of liquids and gases. Liquid Controls is headquartered
in Lake Bluff, Illinois, with additional operations in Italy and India. During
2001, the Company decided to operate its previously acquired Corken business
unit as part of Liquid Controls. Corken, based in Oklahoma City, Oklahoma and
acquired by IDEX in 1991, is a leading producer of positive-displacement rotary
vane pumps, single and multistage regenerative turbine pumps, and small
horsepower reciprocating piston compressors. Sponsler Co., Inc., with
headquarters in Westminster, South Carolina, was acquired in June 2003.
Sponsler, which operates as part of Liquid Controls, is a manufacturer of a line
of precision turbine flow meters to meet all flow applications, including
low-flow applications where viscosity, corrosive media, extreme temperature or
hazardous materials are factors. In December 2006, IDEX acquired Toptech
Systems, Inc. ("Toptech"), a leading
1
provider of terminal automation systems used in the custody transfer and control
of high-value fluids and gases. Toptech's products include terminal automation
hardware and software used by customers in the oil, gas and refined-fuels
markets to control and manage inventories, as well as transactional data and
invoicing. Based in Longwood, Florida, Toptech operates as part of the Liquid
Controls business. Approximately 52% of Liquid Controls' 2006 sales were to
customers outside the U.S.
Pulsafeeder. Pulsafeeder, acquired in 1992, is a leading manufacturer of
metering pumps, special-purpose rotary pumps, peristaltic pumps, electronic
controls and dispensing equipment. Pulsafeeder's products are used to introduce
precise amounts of fluids into processes to manage water quality and chemical
composition, and its markets include water and wastewater treatment, power
generation, pulp and paper, chemical and hydrocarbon processing and swimming
pools. Pulsafeeder is headquartered in Rochester, New York, with additional
operations in Punta Gorda, Florida. Knight Equipment, Inc. ("Knight"), acquired
in 1997, is operated as part of Pulsafeeder, with its headquarters in Lake
Forest, California. Knight is a leading manufacturer of pumps and dispensing
equipment for industrial laundries, commercial dishwashing and chemical
metering. Halox Technologies, Inc. ("Halox"), acquired in April 2002, is also
operated as part of Pulsafeeder and is a small Bridgeport, Connecticut-based
manufacturer of point-of-use chlorine dioxide equipment. Its products produce
chlorine dioxide for use in water treatment and disinfectant applications. Halox
products can be used in a wide variety of end markets including food and
beverage, cooling towers and potable water treatment. During the third quarter
of 2006, the Company determined that Halox met the criteria to be classified as
a discontinued operation. The Company is marketing the Halox operations and
conducting other actions required to complete the sale within one year. Classic
Engineering, Inc. ("Classic"), was acquired in September 2003 and operates as
part of Pulsafeeder. Classic, based in Rochester, New York, is a supplier of
fully integrated pump and metering systems to chemical companies and municipal
water treatment facilities. Classic also designs, engineers and manufactures a
line of standard and custom chemical-feed systems for the water and wastewater,
chemical OEM, pulp and paper, cement, and general industrial markets. In 2006,
approximately 33% of Pulsafeeder's sales were to customers outside the U.S.
Viking Pump. Viking produces internal and external gear pumps, strainers and
reducers, and related controls. These products are used for transferring and
metering thin and viscous liquids. Markets served by Viking include chemical,
petroleum, pulp and paper, plastics, paints, inks, tanker trucks, compressor,
construction, food and beverage, personal care, pharmaceutical and biotech.
Viking is based in Cedar Falls, Iowa, with additional operations in Canada and
Ireland. Johnson Pump UK LTD ("Johnson"), acquired 1992, manufactures rotary
lobe pumps that serve multiple sanitary and industrial applications. Located in
Eastbourne, England, Johnson operates as part of Viking. Wrightech Corporation
("Wrightech"), was acquired in October 2002 and is headquartered in Muskego,
Wisconsin. Wrightech, which operates as part of Viking, is a small manufacturer
of stainless-steel centrifugal and positive displacement pumps and replacement
parts for the sanitary product marketplace. This market includes beverage, food
processing, pharmaceutical, cosmetics and other industries that require sanitary
processing. Approximately 35% of Viking's 2006 sales were to customers outside
the U.S.
Warren Rupp/Versa-Matic. Warren Rupp, based in Mansfield, Ohio, is a
leading producer of air-operated and motor-driven double-diaphragm pumps. Warren
Rupp's products are used for abrasive and semisolid materials as well as for
applications where product degradation is a concern or where electricity is not
available or should not be used. This business serves markets including
chemical, paint, food processing, electronics, construction, utilities, mining
and industrial maintenance. Versa-Matic, headquartered in Export, Pennsylvania,
was acquired in June 2001. Versa-Matic is a manufacturer and distributor of
air-operated double-diaphragm pumps and replacement parts. Blagdon Pump, located
in the United Kingdom, was acquired in 1997 and is operated as part of
Versa-Matic. Warren Rupp/Versa-Matic's sales to customers outside the U.S. in
2006 were approximately 52%.
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HEALTH & SCIENCE TECHNOLOGIES SEGMENT
The Health & Science Technologies Segment designs, produces and distributes
a wide range of precision fluidics solutions from very high precision, low-flow
rate pumping solutions required in analytical instrumentation, clinical
diagnostics and drug discovery to high performance molded and extruded,
biocompatible medical devices and implantables. Through this platform, IDEX is
also expanding its capability in air compressors used in medical, dental and
industrial applications, as well as its expertise in precision gear and
peristaltic pump technologies that meet OEM's exacting specifications The
segment accounted for 26% of sales and 24% of operating income in 2006, with
approximately 39% of sales to customers outside the U.S.
Gast Manufacturing. Gast, acquired in 1998, is a leading manufacturer of
air-moving products, including air motors, low- and medium-range vacuum pumps,
vacuum generators, regenerative blowers and fractional horsepower compressors.
Gast's products are used in a variety of long-life applications requiring a
quiet, clean source of moderate vacuum or pressure. Gast's primary markets
served are medical equipment, environmental equipment, computers and
electronics, printing machinery, paint mixing machinery, packaging machinery,
graphic arts and industrial manufacturing. Gast is based in Benton Harbor,
Michigan, with additional facilities in England. In February 2006, IDEX acquired
JUN-AIR International A/S ("JUN-AIR"), a provider of low-decibel, ultra-quiet
vacuum compressors suitable for medical, dental and laboratory applications.
Based in Norresundby, Denmark, JUN-AIR operates as part of Gast. Approximately
31% of Gast's 2006 sales were to customers outside the U.S.
Micropump. Micropump, acquired in 1995, is a leader in small,
precision-engineered, magnetically and electromagnetically driven rotary gear,
piston and centrifugal pumps. Micropump's products are used in low-flow abrasive
and corrosive applications. Micropump serves markets including printing
machinery, medical equipment, paints and inks, chemical processing,
pharmaceutical, refining, laboratory, electronics, pulp and paper, water
treatment and textiles. Micropump is based in Vancouver, Washington, and also
has operations in England. In April 2000, IDEX acquired Ismatec SA, a leading
manufacturer of peristaltic metering pumps, analytical process controllers, and
sample preparation systems. Headquartered near Zurich, Switzerland, the business
operates as part of Micropump and provides Micropump with entry into scientific
R&D markets including pharmaceutical, medical, biotech and institutional
laboratory. In May 2000, IDEX acquired Trebor International, which also operates
as part of Micropump. Headquartered in Salt Lake City, Utah, Trebor is a leader
in high-purity fluid handling products, including air-operated diaphragm pumps
and deionized water-heating systems. Its products are used in the manufacturing
of semiconductors, disk drives and flat panel displays. Approximately 69% of
Micropump's 2006 sales were to customers outside the U.S.
Rheodyne. Rheodyne, acquired in July 2002, is a leading manufacturer of
injectors, valves, fittings and accessories for the analytical instrumentation
market. Its products are used by manufacturers of high pressure liquid
chromatography equipment servicing the pharmaceutical, biotech, life science,
food and beverage, and chemical markets. Rheodyne is based in Rohnert Park,
California, and its activities are closely coordinated with those of Scivex and
Eastern Plastics. Systec, Inc.("Systec"), acquired in April 2004, designs and
manufactures vacuum degassing products for the analytical chemistry
instrumentation market. Systec, based in New Brighton, Minnesota, is operated as
part of Rheodyne. Approximately 41% of Rheodyne's 2006 sales were to customers
outside the U.S.
Scivex. Scivex, acquired in May 2004, is a leading provider of fluidic
components and systems for the analytical, biotech and diagnostic
instrumentation markets. Its fluidic components and sub-assemblies include:
fittings, precision-dispensing pumps and valves, tubing and integrated tubing
assemblies, filter sensors and other micro- and nano-fluidic components. Markets
served by Scivex include pharmaceutical, drug discovery, chemical, biochemical
processing, genomics/proteomics research, environmental labs, food/agriculture,
medical lab, personal care, and plastics/polymer/rubber production. Scivex
operates Upchurch Scientific and Upchurch Medical in Oak Harbor, Washington and
Sapphire Engineering in Pocasset, Massachusetts. Approximately 23% of Scivex's
2006 sales were to customers outside the U.S.
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Eastern Plastics. Eastern Plastics, acquired in May 2006, is a provider of
high-precision integrated fluidics and associated engineered plastics solutions.
Eastern Plastics products are used in a broad set of end markets including
medical diagnostics, analytical instrumentation, and laboratory automation.
Eastern Plastics is based in Bristol, Connecticut. Approximately 28% of Eastern
Plastics 2006 sales were to customers outside the U.S.
DISPENSING EQUIPMENT SEGMENT
The Dispensing Equipment Segment produces precision equipment for
dispensing, metering and mixing colorants, paints, hair colorants and other
personal care products. This equipment is used in a variety of retail and
commercial industries around the world. This segment provides equipment, systems
and services for applications such as tinting paints and coatings, and
industrial and automotive refinishing. The segment accounted for 14% of sales
and 15% of operating income in 2006, with approximately 65% of sales to
customers outside the U.S.
FAST & Fluid Management - Europe & Asia. The Company acquired Fluid
Management in 1996 and FAST in 1999 (collectively, "F&FM"). F&FM is a leading
European and Asian manufacturer of precision-designed tinting, mixing,
dispensing and measuring equipment for auto refinishing and architectural
paints. Equipment is supplied to retail and commercial stores, home centers and
automotive body shops. F&FM is headquartered in Sassenheim, The Netherlands,
with additional operations in Italy, Australia, Poland, China, France, Spain and
the United Kingdom. Over 95% of F&FM's sales in 2006 were to customers outside
the U.S.
Fluid Management. Fluid Management, acquired in 1996, is a leading American
manufacturer of precision-designed tinting, mixing, dispensing and measuring
equipment for architectural paints and personal care products. Fluid
Management's markets include retail and commercial paint stores, hardware
stores, home centers, department stores, and point-of-purchase dispensers and
mixing equipment for the personal care, and health and beauty industry. Fluid
Management is based in Wheeling, Illinois with additional operations located in
Canada and Brazil. Approximately 15% of Fluid Management's 2006 sales were to
customers outside the U.S.
FIRE & SAFETY/DIVERSIFIED PRODUCTS SEGMENT
The Fire & Safety/Diversified Products Segment produces firefighting pumps
and controls, rescue tools, lifting bags and other components and systems for
the fire and rescue industry, and engineered stainless steel banding and
clamping devices used in a variety of industrial and commercial applications.
The two business units that comprise this segment are Hale Products and Band-It.
The segment accounted for 22% of sales and 25% of operating income in 2006, with
approximately 46% of sales to customers outside the U.S.
Band-It. Band-It is a leading producer of high-quality stainless steel
banding, buckles and clamping systems. The Band-It brand is highly recognized
worldwide. Band-It's products are used for securing exhaust system heat and
sound shields, industrial hose fittings, traffic signs and signals, electrical
cable shielding, identification and bundling, and numerous other industrial and
commercial applications. Band-It's markets include transportation equipment, oil
and gas, general industrial maintenance, electronics, electrical,
communications, aerospace, utility, municipal and subsea marine. Band-It is
based in Denver, Colorado, with additional manufacturing operations in the
United Kingdom and Singapore. In 2006, approximately 45% of Band-It's sales were
to customers outside the U.S.
Hale Products. Hale, acquired in 1994, is a leading manufacturer of rescue
systems, lifting bags, and truck-mounted fire pumps. Hale's products include the
Hurst Jaws of Life(R) and LUKAS(R) rescue tool and re-railing systems. Hale's
pumps are used to pump water or foam to extinguish fires; its rescue equipment
is used to extricate accident victims; its forced-entry equipment is used for
law enforcement; and its hydraulic products are used for re-railing, vehicular
and structural support, disaster recovery and industrial
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recycling. Hale's markets include public and private fire and rescue
organizations. LUKAS Hydraulik, headquartered in Erlangen, Germany, was acquired
in 1995 and operates as part of Hale. In January 2001, IDEX acquired Class 1,
headquartered in Ocala, Florida, and now operates as part of Hale. Class 1 is a
leading supplier of components and systems to the fire and rescue vehicle
market. Its primary products include electronic information controls, engine
information systems, electronic multiplexing units, electrical monitoring
equipment and systems and fire truck mechanical components. In January 2004,
IDEX acquired Manfred Vetter GmbH ("Vetter"), headquartered in Zulpich, Germany.
Vetter, operating as part of the Hale business unit, designs and manufactures
pneumatic lifting and sealing bags for vehicle and aircraft rescue,
environmental protection, industrial maintenance, and disaster recovery and
control. Tianjin Dinglee Machine and Motor Co., Ltd. ("Dinglee"), based in
Tianjin, China, was acquired in July 2004 and operates as part of Hale. Dinglee
is a leading manufacturer of rescue tools in China. Hale Products is
headquartered in Ocala, Florida, with additional operations in Conshohocken,
Pennsylvania, Shelby, North Carolina, as well as England, Germany and China. In
January 2006, IDEX acquired the assets of Airshore International ("Airshore"), a
provider of stabilization struts for collapsed buildings and vehicles,
high-and-low pressure lifting bags and forcible entry tools for the fire and
rescue markets. Airshore operates as part of Hale. Approximately 47% of Hale's
2006 sales were to customers outside the U.S.
GENERAL ASPECTS APPLICABLE TO THE COMPANY'S BUSINESS SEGMENTS
COMPETITORS
The Company's businesses participate in highly competitive markets.
Generally, all of the Company's businesses compete on the basis of performance,
quality, service and price.
Principal competitors of the businesses in the Fluid and Metering
Technologies Segment are the Blackmer division of Dover Corporation (with
respect to rotary gear pumps, and pumps and small horsepower compressors used in
liquified petroleum gas distribution facilities); Milton Roy, a division of
United Technologies Corporation (with respect to metering pumps and controls);
Roper Industries and Tuthill Corporation (with respect to rotary gear pumps);
Wilden Pump and Engineering Co., a division of Dover Corporation (with respect
to air-operated double-diaphragm pumps).
For Health and Science Technologies, Thomas Industries, a division of
Gardner Denver (with respect to vacuum pumps and compressors); and Valco
Instruments Co. (with respect to fluid injectors and valves) are the key
competitors.
The principal competitor of the Dispensing Equipment Segment is Corob
S.p.A. (with respect to dispensing and mixing equipment for the paint industry).
The Fire & Safety/Diversified Products Segment's principal competitors are
A.J. Gerrard & Company, a division of Illinois Tool Works Inc. (with respect to
stainless steel bands, buckles and tools), Waterous Company, a division of
American Cast Iron Pipe Company (with respect to truck-mounted firefighting
pumps) and Holmatro, Inc (with respect to rescue tools).
EMPLOYEES
At December 31, 2006, IDEX had 4,863 employees. Approximately 10% were
represented by labor unions with various contracts expiring through November
2008. Management believes that the Company's relationship with its employees is
good. The Company historically has been able to satisfactorily renegotiate its
collective bargaining agreements, with its last work stoppage in March 1993.
SUPPLIERS
IDEX manufactures many of the parts and components used in its products.
Substantially all materials, parts and components purchased by IDEX are
available from multiple sources.
5
INVENTORY AND BACKLOG
The Company regularly and systematically adjusts production schedules and
quantities based on the flow of incoming orders. Backlogs typically are limited
to 1 to 1 1/2 months of production. While total inventory levels also may be
affected by changes in orders, the Company generally tries to maintain
relatively stable inventory levels based on its assessment of the requirements
of the various industries served.
SEGMENT INFORMATION
For segment financial information for the years 2006, 2005, and 2004, see
the table titled "Company and Business Segment Financial Information" presented
on page 16 in Part II. Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 9 of the "Notes to
Consolidated Financial Statements" on page 40 in Part II. Item 8. Financial
Statements and Supplementary Data.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names of the executive officers of the
Company, their ages, years of service, the positions held by them, and their
business experience during the past 5 years.
YEARS OF
NAME AGE SERVICE POSITION
---- --- -------- ------------------------------------------------
Lawrence D. Kingsley... 44 2 Chairman of the Board, President and Chief
Executive Officer
Dominic A. Romeo....... 47 3 Vice President and Chief Financial Officer
Kimberly K. Bors....... 46 4 Vice President-Human Resources
John L. McMurray....... 56 14 Vice President-Group Executive of Fluid &
Metering Technologies
Heath A. Mitts......... 36 1 Vice President-Corporate Finance
Frank J. Notaro........ 43 9 Vice President-General Counsel and Secretary
Daniel J. Salliotte.... 40 2 Vice President-Strategy and Business Development
Michael J. Yates....... 41 1 Vice President-Controller
Mr. Kingsley was appointed Chairman of the Board by the Board of Directors,
effective April 4, 2006. He was appointed to the position of President and Chief
Executive Officer in March 2005. Prior to that, Mr. Kingsley was Chief Operating
Officer since joining the Company in August 2004. Prior to joining IDEX, Mr.
Kingsley served as Corporate Vice President and Group Executive responsible for
the Sensors and Controls businesses at Danaher Corporation, an industrial and
consumer products manufacturing company. During his tenure at Danaher, he served
as President, Industrial Controls Group from April 2002 to July 2004 and as
President, Motion Group, Special Purpose Systems from January 2001 to March
2002.
Mr. Romeo has been Vice President and Chief Financial Officer of the
Company since January 2004. Prior to joining IDEX, Mr. Romeo was Vice
President-Chief Financial Officer of Honeywell Aerospace, a segment of Honeywell
International, from August 2001 to January 2004.
Ms. Bors has been Vice President-Human Resources of the Company since
January 2003. Prior to joining IDEX, Ms. Bors was Vice President of People and
Process Integration from December 2000 to December 2002 for Brunswick
Corporation's Boat Group, a manufacturer of recreational boats.
Mr. McMurray has been Vice President-Group Executive of Fluid & Metering
Technologies since August 2003. Prior to that, Mr. McMurray was Vice
President-Operational Excellence since October 2000.
6
Mr. Mitts has been Vice President-Corporate Finance since September 2005.
Prior to joining IDEX, Mr. Mitts was Chief Financial Officer of PerkinElmer's
Asia operations, based out of Singapore, from February 2002 to September 2005.
From February 2001 to February 2002, he was a finance leader for PerkinElmer's
Telecom and Sensors business in Montreal, Canada.
Mr. Notaro has served as Vice President-General Counsel and Secretary since
March 1998.
Mr. Salliotte has been Vice President-Strategy and Business Development of
the Company since October 2004. From May 2003 to October 2004, Mr. Salliotte was
a transaction advisor on behalf of two private equity firms located in
Bloomfield, Michigan - Quantum Value Management LLC and Oxford Investment Group.
From April 1998 to May 2003, Mr. Salliotte worked at SPX Corporation, a
multi-industrial corporation headquartered in Charlotte, North Carolina.
Mr. Yates has been Vice President-Controller since October 2005. Prior to
joining IDEX, Mr. Yates was a Senior Manager at PricewaterhouseCoopers LLP from
November 1999 to October 2005.
The Company's executive officers are elected at a meeting of the Board of
Directors immediately following the annual meeting of stockholders, and they
serve until the next annual meeting of the Board, or until their successors are
duly elected.
PUBLIC FILINGS
Copies of the Company's annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports are made
available free of charge at www.idexcorp.com as soon as reasonably practicable
after being filed electronically with the SEC.
ITEM 1A. RISK FACTORS.
For an enterprise as diverse and complex as the Company, a wide range of factors
could materially affect future developments and performance. In addition to the
factors affecting specific business operations identified in connection with the
description of these operations and the financial results of these operations
elsewhere in this report, the most significant factors affecting our operations
include the following:
CHANGES IN U.S. OR INTERNATIONAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT THE
PROFITABILITY OF ANY OF OUR BUSINESSES.
In 2006, 55% of the Company's revenue was derived from domestic operations
while 45% was international. The Company's largest markets include life
sciences, fire and rescue, paint and coatings, refined fuels and gases and
chemical processing. A slowdown in the economy and in particular any of these
specific end markets could directly affect the Company's revenue stream and
profitability.
POLITICAL CONDITIONS IN FOREIGN COUNTRIES IN WHICH WE OPERATE COULD ADVERSELY
AFFECT OUR BUSINESS.
In the year ended December 31, 2006, approximately 45% of our total sales
were to customers outside the U.S. We expect international operations and export
sales to continue to contribute to earnings for the foreseeable future. Both the
sales from international operations and export sales are subject in varying
degrees to risks inherent in doing business outside the United States. Such
risks include the following:
- possibility of unfavorable circumstances arising from host country
laws or regulations;
- risks of economic instability;
- currency exchange rate fluctuations and restrictions on currency
repatriation;
- potential negative consequences from changes to taxation policies;
- the disruption of operations from labor and political disturbances;
- changes in tariff and trade barriers and import or export licensing
requirements; and,
- insurrection or war.
7
We cannot predict the impact such future, largely unforeseeable events
might have on the Company's operations.
INNOVATION IS A BIG DRIVER OF OUR REVENUE GROWTH. AN INABILITY TO CONTINUE TO
DEVELOP NEW PRODUCTS CAN LIMIT THE COMPANY'S REVENUE AND PROFITABILITY.
The Company's organic growth in 2006 and 2005 was 9% and 10%, respectively.
Approximately 21% of our revenue was derived from new products developed over
the past three years. Our ability to continue to grow organically is tied to our
ability to continue to develop new products.
OUR GROWTH STRATEGY INCLUDES ACQUISITIONS AND WE MAY NOT BE ABLE TO MAKE
ACQUISITIONS OF SUITABLE CANDIDATES OR INTEGRATE ACQUISITIONS SUCCESSFULLY.
Our historical growth has depended, and our future growth is likely to
continue to depend, in large part on our acquisition strategy and the successful
integration of acquired businesses into our existing operations. We intend to
continue to seek additional acquisition opportunities both to expand into new
markets and to enhance our position in existing markets throughout the world. We
cannot be assured, however, that we will be able to successfully identify
suitable candidates, negotiate appropriate acquisition terms, obtain financing
which may be needed to consummate such acquisitions, complete proposed
acquisitions, successfully integrate acquired businesses into our existing
operations or expand into new markets. In addition, we cannot assure you that
any acquisition, once successfully integrated, will perform as planned, be
accretive to earnings, or prove to be beneficial to our operations and cash
flow.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. In addition, prior acquisitions have resulted, and future
acquisitions could result, in the incurrence of substantial additional
indebtedness and other expenses. Once integrated, acquired operations may not
achieve levels of revenues, profitability or productivity comparable with those
achieved by our existing operations, or otherwise perform as expected.
THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE. THIS COMPETITION COULD LIMIT THE
VOLUME OF PRODUCTS THAT WE SELL AND REDUCE OUR OPERATING MARGINS.
Most of our products are sold in competitive markets. We believe that the
principal points of competition in our markets are product quality, price,
design and engineering capabilities, product development, conformity to customer
specifications, quality of post-sale support, timeliness of delivery, and
effectiveness of our distribution channels. Maintaining and improving our
competitive position will require continued investment by us in manufacturing,
engineering, quality standards, marketing, customer service and support, and our
distribution networks. We cannot be assured that we will be successful in
maintaining our competitive position. Our competitors may develop products that
are superior to our products, or may develop methods of more efficiently and
effectively providing products and services or may adapt more quickly than us to
new technologies or evolving customer requirements. Pricing pressures also could
cause us to adjust the prices of certain of our products to stay competitive. We
cannot be assured that we will be able to compete successfully with our existing
competitors or with new competitors. Failure to continue competing successfully
could adversely affect our business, financial condition, results of operations
and cash flow.
WE ARE DEPENDENT ON THE AVAILABILITY OF RAW MATERIALS, PARTS AND COMPONENTS USED
IN OUR PRODUCTS.
While we manufacture many of the parts and components used in our products,
we require substantial amounts of raw materials and purchase some parts and
components from suppliers. The availability and prices for raw materials, parts
and components may be subject to curtailment or change due to, among other
things, suppliers' allocations to other purchasers, interruptions in production
by suppliers, changes in exchange rates and prevailing price levels. Any change
in the supply of, or price for, these raw materials or parts and components
could materially affect our business, financial condition, results of operations
and cash flow.
8
SIGNIFICANT MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES MAY HARM OUR FINANCIAL
RESULTS.
We are exposed to fluctuations in foreign currency exchange rates,
particularly with respect to the euro and the British pound. Any significant
change in the value of the currencies of the countries in which we do business
against the U.S. dollar could affect our ability to sell products competitively
and control our cost structure, which could have a material adverse effect on
our business, financial condition, results of operations and cash flow. The
impact from these foreign currency exchange rate fluctuations is, to a certain
extent, mitigated through invoicing our customers in the same currency as the
source of the products. For additional detail related to this risk, see Part II.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
AN UNFAVORABLE OUTCOME WITH REGARDS TO ANY OF OUR PENDING CONTINGENCIES OR
LITIGATION COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND CASH FLOW.
We currently are involved in certain legal and regulatory proceedings and,
as required and where it is reasonably possible to do so, have accrued our
estimates of the probable costs for the resolution of these matters. These
estimates have been developed in consultation with outside counsel and are based
upon an analysis of potential results, assuming a combination of litigation and
settlement strategies. It is possible, however, that future operating results
for any particular quarter or annual period could be materially affected by
changes in our assumptions or the effectiveness of our strategies related to
these proceedings.
WE COULD BE ADVERSELY AFFECTED BY RAPID CHANGES IN INTEREST RATES.
Our profitability may be adversely affected during any period of an
unexpected or rapid increase in interest rates. At December 31, 2006, we had
$362.0 million of total debt outstanding, of which approximately 59% was priced
at interest rates that float with the market. A 50-basis point increase in the
interest rate on the floating rate debt would result in an approximate $1.1
million annualized increase in interest expense and decrease in cash flows. For
additional detail related to this risk, see Part II. Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.
OUR INTANGIBLE ASSETS ARE A SIGNIFICANT PORTION OF OUR TOTAL ASSETS AND A
WRITE-OFF OF OUR INTANGIBLE ASSETS COULD CAUSE A MAJOR IMPACT ON THE COMPANY'S
NET WORTH.
Our total assets reflect substantial intangible assets, primarily goodwill
and identifiable intangible assets. At December 31, 2006, goodwill and
intangible assets totaled $912.6 million and $171.4 million, respectively. These
intangible assets result from our acquisitions, representing the excess of cost
over the fair value of the tangible assets we have acquired. Annually, or when
certain events occur that require a more current valuation, we assess whether
there has been an impairment in the value of our intangible assets. If future
operating performance at one or more of our business units were to fall
significantly below current levels, we could reflect, under current applicable
accounting rules, a non-cash charge to operating earnings for any impairment.
Any determination requiring the write-off of a significant portion of
unamortized intangible assets could have a material negative effect on our
results of operations and total capitalization. As of December 31, 2006, we have
determined that no impairment existed.
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN NEGOTIATING NEW COLLECTIVE
BARGAINING AGREEMENTS.
As of December 31, 2006, we had 4,863 employees. Approximately 10% of our
employees are represented by unions with various contracts expiring through
November 2008. We cannot assure you that we will be successful in negotiating
new collective bargaining agreements, or that such negotiations will not result
in significant increases in the cost of labor or that a breakdown in such
negotiations will not result in the disruption of our operations. In addition,
our closures of certain facilities may create the risk of strikes or work
stoppages at those and other facilities.
9
ITEM 1B. UNRESOLVED STAFF COMMENTS.
The Company has received no written comments regarding its periodic or
current reports from the staff of the Securities and Exchange Commission that
were issued 180 days or more preceding the end of its 2006 calendar year and
that remain unresolved.
ITEM 2. PROPERTIES.
The Company's principal plants and offices have an aggregate floor space
area of approximately 3.2 million square feet, of which 2.2 million square feet
(68%) are located in the U.S. and approximately 1.0 million square feet (32%)
are located outside the U.S., primarily in Italy (7%), the U.K. (6%), Germany
(7%) and The Netherlands (5%). These facilities are considered to be suitable
and adequate for their operations. Management believes we can meet the expected
demand increase over the near term with our existing facilities, especially
given our mixed model lean initiatives that usually increase capacity. The
Company's executive office occupies approximately 26,000 square feet of leased
space in Northbrook, Illinois.
Approximately 2.4 million square feet (75%) of the principal plant and
office floor area is owned by the Company, and the balance is held under lease.
Approximately 1.3 million square feet (42%) of the principal plant and office
floor area is held by business units in the Fluid & Metering Technologies
Segment; 0.6 million square feet (17%) is held by business units in the Health &
Science Technologies Segment; 0.5 million square feet (15%) is held by business
units in the Dispensing Equipment Segment; and 0.7 million square feet (22%) is
held by business units in the Fire & Safety/Diversified Products Segment.
ITEM 3. LEGAL PROCEEDINGS.
IDEX and five of its subsidiaries have been named as defendants in a number
of lawsuits claiming various asbestos-related personal injuries, allegedly as a
result of exposure to products manufactured with components that contained
asbestos. Such components were acquired from third party suppliers, and were not
manufactured by any of our subsidiaries. To date, all of the Company's
settlements and legal costs, except for costs of coordination, administration,
insurance investigation and a portion of defense costs, have been covered in
full by insurance subject to applicable deductibles. However, the Company cannot
predict whether and to what extent insurance will be available to continue to
cover such settlements and legal costs, or how insurers may respond to claims
that are tendered to them.
Claims have been filed in Alabama, California, Connecticut, Delaware,
Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Missouri, Nevada, New Jersey, New York, Ohio, Oklahoma,
Oregon, Pennsylvania, Rhode Island, Texas, Utah, Virginia, Washington and
Wyoming. Most of the claims resolved to date have been dismissed without
payment. The balance have been settled for reasonable amounts. Only one case has
been tried, resulting in a verdict for the Company's business unit.
No provision has been made in the financial statements of the Company,
other than for insurance deductibles in the ordinary course, and IDEX currently
does not believe the asbestos-related claims will have a material adverse effect
on the Company's business or financial position.
IDEX is also party to various other legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on its business, financial condition, results of operations or
cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Information regarding the prices of, and dividends on, the Common Stock,
and certain related matters, is incorporated herein by reference to "Shareholder
Information" on the inner back cover of the 2006 Annual Report.
The principal market for the Common Stock is the New York Stock Exchange,
but the Common Stock is also listed on the Chicago Stock Exchange. As of
February 15, 2007, Common Stock was held by approximately 6,700 shareholders and
there were 53,823,941 shares of Common Stock outstanding, net of treasury
shares.
The following table provides information about Company purchases of equity
securities that are registered by the Company pursuant to Section 12 of the
Exchange Act during the quarter ended December 31, 2006:
Total Number of Maximum Number of
Shares Purchased as Shares that May
Part of Publicly Yet be Purchased
Total Number of Average Price Announced Plans Under the Plans
Period Shares Purchased Paid per Share or Programs (1) or Programs (1)
------ ---------------- -------------- ------------------- -----------------
October 1, 2006 to
October 31, 2006 -- -- -- 2,240,250
November 1, 2006 to
November 30, 2006 -- -- -- 2,240,250
December 1, 2006 to
December 31, 2006 -- -- -- 2,240,250
(1) On October 20, 1998, IDEX's Board of Directors authorized the repurchase of
up to 2.25 million shares of its common stock, either at market prices or
on a negotiated basis as market conditions warrant.
The following table compares total shareholder returns over the last five
years to the Standard & Poor's (the "S&P") 500 Index, the S&P 600 Small Cap
Industrial Machinery Index and the Russell 2000 Index assuming the value of the
investment in IDEX Common Stock and each index was $100 on December 31, 2001.
Total return values for IDEX Common Stock, the S&P 500 Index, S&P 600 Small Cap
Industrial Machinery Index and the Russell 2000 Index were calculated on
cumulative total return values assuming reinvestment of dividends. The
shareholder return shown on the graph below is not necessarily indicative of
future performance.
Total Return To Shareholders
(Includes reinvestment of dividends)
Annual Return Percentage
Years Ending
----------------------------------------------------
Company / Index 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
--------------- -------- -------- -------- -------- --------
IDEX Corp -3.58 29.33 48.02 2.74 16.74
S&P 500 Index -22.10 28.68 10.88 4.91 15.79
S&P 600 Industrial Machinery Index -4.25 36.18 28.39 9.20 20.77
Russell 2000 Index -20.48 47.25 18.33 4.55 18.37
11
Indexed Returns
Base Years Ending
Period ----------------------------------------------------
Company / Index 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
--------------- -------- -------- -------- -------- -------- --------
IDEX Corp 100 96.42 124.70 184.58 189.64 221.38
S&P 500 Index 100 77.90 100.25 111.15 116.61 135.03
S&P 600 Industrial Machinery Index 100 95.75 130.39 167.41 182.82 220.79
Russell 2000 Index 100 79.52 117.09 138.55 144.86 171.47
12
ITEM 6. SELECTED FINANCIAL DATA.(1)
2006 2005 2004 2003 2002
---------- ---------- ---------- -------- --------
RESULTS OF OPERATIONS
Net sales $1,154,940 $1,011,253 $ 901,072 $775,655 $718,710
Gross profit 477,407 413,967 363,390 305,403 279,965
SG&A expenses 260,201 232,935 214,092 191,914 173,505
Operating income 217,206 181,032 149,298 113,489 103,769
Other (income) expense --net (1,040) (557) 688 (949) (7)
Interest expense 16,353 14,370 14,764 14,036 16,319
Provision for income taxes 68,171 58,644 47,511 35,664 31,060
Income from continuing operations 133,722 108,575 86,335 64,738 56,397
Income/(loss) from discontinued operations, net of tax 12,949 1,228 71 (2,386) (2,285)
Net income 146,671 109,803 86,406 62,352 54,112
FINANCIAL POSITION
Current assets $ 417,908 $ 350,971 $ 265,122 $229,238 $227,207
Current liabilities 187,252 153,296 149,006 116,485 109,032
Working capital 230,656 197,675 116,116 112,753 118,175
Current ratio 2.2 2.3 1.8 2.0 2.1
Capital expenditures 21,198 22,532 20,835 20,220 18,830
Depreciation and amortization 29,956 26,254 27,557 26,261 26,259
Total assets 1,670,821 1,244,180 1,186,292 960,739 931,050
Total borrowings 361,980 160,043 225,317 176,546 241,051
Shareholders' equity 979,272 823,010 713,605 592,102 506,791
PERFORMANCE MEASURES
Percent of net sales:
Gross profit 41.3% 40.9% 40.3% 39.4% 39.0%
SG&A expenses 22.5 23.0 23.8 24.7 24.1
Operating income 18.8 17.9 16.6 14.6 14.4
Income before income taxes 17.5 16.5 14.9 12.9 12.2
Income from continuing operations 11.6 10.7 9.6 8.4 7.9
Effective tax rate 33.8 35.1 35.5 35.5 35.5
Return on average assets (2) 9.2 8.9 8.0 6.7 6.2
Borrowings as a percent of capitalization 26.9 16.3 24.0 23.0 32.2
Return on average shareholders' equity (2) 14.8 14.1 13.2 11.5 12.1
PER SHARE DATA(3)
Basic--income from continuing operations $ 2.52 $ 2.11 $ 1.72 $ 1.33 $ 1.19
--net income 2.77 2.14 1.73 1.28 1.14
Diluted--income from continuing operations 2.48 2.06 1.68 1.30 1.16
--net income 2.72 2.08 1.68 1.25 1.11
Cash dividends declared .60 .48 .45 .37 .37
Shareholders' equity 18.24 15.59 14.04 11.97 10.40
Stock price--high 53.48 45.33 40.96 28.25 26.44
--low 39.00 36.50 26.53 17.35 17.13
--close 47.41 41.11 40.50 27.73 21.80
Price/earnings ratio at year end 19 20 24 22 20
OTHER DATA(3)
Employees at year end 4,863 4,263 4,232 3,689 3,863
Shareholders at year end 6,700 6,700 6,000 5,700 4,700
Shares outstanding (in 000s):
Weighted average--basic 53,018 51,392 50,073 48,795 47,504
--diluted 53,984 52,720 51,348 49,973 48,725
At year end (net of treasury) 53,697 52,794 50,821 49,479 48,716
13
(1) For additional detail, see Notes to Consolidated Financial Statements in
Part II. Item 8. Financial Statements and Supplementary Data.
(2) Return calculated based on income from continuing operations.
(3) All share and per share data has been restated to reflect the three-for-two
stock split effected in the form of a 50% stock dividend in May 2004.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The "Historical Overview and Outlook" and the "Liquidity and Capital
Resources" sections of this management's discussion and analysis of our
operations contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act
of 1934, as amended. These statements may relate to, among other things, capital
expenditures, cost reductions, cash flow, and operating improvements and are
indicated by words or phrases such as "anticipate," "estimate," "plans,"
"expects," "projects," "should," "will," "management believes," "the Company
believes," "we believe," "the Company intends" and similar words or phrases.
These statements are subject to inherent uncertainties and risks that could
cause actual results to differ materially from those anticipated at the date of
this filing. The risks and uncertainties include, but are not limited to, the
following: economic and political consequences resulting from terrorist attacks
and wars; levels of industrial activity and economic conditions in the U.S. and
other countries around the world; pricing pressures and other competitive
factors, and levels of capital spending in certain industries--all of which
could have a material impact on our order rates and results, particularly in
light of the low levels of order backlogs we typically maintain; our ability to
make acquisitions and to integrate and operate acquired businesses on a
profitable basis; the relationship of the U.S. dollar to other currencies and
its impact on pricing and cost competitiveness; political and economic
conditions in foreign countries in which we operate; interest rates; capacity
utilization and the effect this has on costs; labor markets; market conditions
and material costs; and developments with respect to contingencies, such as
litigation and environmental matters. The forward-looking statements included
here are only made as of the date of this report, and we undertake no obligation
to publicly update them to reflect subsequent events or circumstances. Investors
are cautioned not to rely unduly on forward-looking statements when evaluating
the information presented here.
HISTORICAL OVERVIEW AND OUTLOOK
IDEX Corporation ("IDEX", or the "Company") is an applied solutions company
specializing in fluid and metering technologies, health and science
technologies, dispensing equipment, and fire, safety and other diversified
products built to its customers' specifications. Our products are sold in niche
markets to a wide range of industries throughout the world. Accordingly, our
businesses are affected by levels of industrial activity and economic conditions
in the U.S. and in other countries where we do business and by the relationship
of the U.S. dollar to other currencies. Levels of capacity utilization and
capital spending in certain industries and overall industrial activity are among
the factors that influence the demand for our products.
Effective in 2006, IDEX changed its reporting segments based on recent
organizational and structural changes from three to four reportable segments.
The new business structure reflects a more focused market strategy across all
businesses. The Company's reporting segments are now: Fluid & Metering
Technologies, Health & Science Technologies, Dispensing Equipment and Fire &
Safety/Diversified Products. Historical business segment information has been
updated to reflect this change in reporting segments.
14
The Fluid & Metering Technologies Segment produces pumps, compressors, flow
meters, and related controls for the movement of liquids and gases in a diverse
range of end markets from industrial infrastructure to food and beverage. The
Health & Science Technologies Segment produces a wide variety of small-scale,
highly accurate pumps, valves, fittings and medical devices, as well as
compressors used in medical, dental and industrial applications. The Dispensing
Equipment Segment produces highly engineered equipment for dispensing, metering
and mixing colorants, paints, inks and dyes, as well as refinishing equipment.
The Fire & Safety/Diversified Products Segment produces firefighting pumps,
rescue tools, lifting bags and other components and systems for the fire and
rescue industry, as well as engineered stainless steel banding and clamping
devices used in a variety of industrial and commercial applications.
IDEX has a history of achieving above-average operating margins. Our
operating margins have exceeded the average operating margin for the companies
that comprise the Value Line Composite Index (VLCI) every year since 1988. We
view the VLCI operating performance statistics as a proxy for an average
industrial company. Our operating margins are influenced by, among other things,
utilization of facilities as sales volumes change and inclusion of newly
acquired businesses.
Some of our key 2006 financial highlights were as follows:
- Orders were $1.18 billion, 16% higher than a year ago; base business orders
- excluding acquisitions and foreign currency translation - were up 10%.
- Sales of $1.15 billion rose 14%; base business sales - excluding
acquisitions and foreign currency translation - were up 9%.
- Gross margins improved 40 basis points to 41.3% of sales, while operating
margins at 18.8% were 90 basis points higher than a year ago.
- Income from continuing operations increased 23% to $133.7 million.
- Diluted EPS from continuing operations of $2.48 was 42 cents ahead of the
same period of 2005.
- Net income increased 34% to $146.7 million.
- Diluted EPS of $2.72 was 64 cents ahead of the same period of 2005.
In 2006, our business units again delivered very strong financial results.
Organic sales growth was led by our Health & Science Technologies and Fluid &
Metering Technologies businesses. We continue to complement our organic growth
with strategic acquisitions and our businesses are well positioned in attractive
product segments supported by strong underlying industry fundamentals. We enter
2007 well positioned for continued growth and are using all the tools at our
disposal to drive revenues, profitability and cash generation. The following
forward-looking statements are qualified by the cautionary statement under the
Private Securities Litigation Reform Act set forth above.
We expect economic conditions to remain favorable as we continue to
leverage rapid process improvement to meet customer needs, drive earnings and
fund innovation to support our organic growth. As a short-cycle business, we are
mindful that our financial performance is reliant on the current pace of
incoming orders. Although we have limited visibility on future business
conditions, we believe IDEX is well positioned for earnings expansion, based on
our lower cost levels resulting from our operational excellence discipline, our
investments in new products, applications and global markets, and our pursuit of
strategic acquisitions to complement our longer-term profitable growth.
RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial position and
results of operations for each of the three years in the period ended December
31, 2006. For purposes of this discussion and analysis section, reference is
made to the table on page 17 and the Consolidated Statements of Operations in
Part II. Item 8. Financial Statements and Supplementary Data on page 26.
15
In the third quarter of 2006, IDEX sold Lubriquip, its lubricant dispensing
business that operated as part of the Company's Dispensing Equipment segment,
resulting in an after-tax gain of $16.7 million. Also in the third quarter, the
Company determined that Halox, its chemical and electrochemical systems product
line operating as part of Pulsafeeder in IDEX's Fluid & Metering Technologies
segment, met the criteria to be classified as assets held for sale and a
discontinued operation. As a result, the Company recorded a $6.2 million
write-down ($4.1 million after-tax) of the carrying value of Halox to its
estimated fair market value. Financial information for all periods presented has
been restated to present the operating results of both Lubriquip and Halox as a
discontinued operation.
PERFORMANCE IN 2006 COMPARED WITH 2005
Orders, sales, net income and earnings per share were higher in 2006
compared with 2005. New orders in 2006 totaled $1,184.5 million and were 16%
higher than the prior year. Excluding foreign currency translation and the
impact of five acquisitions made since the beginning of 2006 (Airshore -January
2006; JUN-AIR - February 2006; Eastern Plastics - May 2006; Banjo - October 2006
and Toptech - December 2006), orders were 10% higher than a year ago.
Sales in 2006 of $1,154.9 million were 14% higher than the $1,011.3 million
recorded a year ago. Base business sales rose 9%, while acquisitions accounted
for an improvement of 5%. Base business sales increased in all four of the
Company's reporting segments. Domestic base sales were up over 8% versus the
prior year, while base sales to international customers increased 9% in 2006.
Sales to customers outside the U.S. represented 45% of total sales for both 2006
and 2005.
In 2006, Fluid & Metering Technologies contributed 38% of sales and 36% of
operating income; Health & Science Technologies accounted for 26% of sales and
24% of operating income; Dispensing Equipment accounted for 14% of sales and 15%
of operating income; and Fire & Safety/Diversified Products represented 22% of
sales and 25% of operating income.
Fluid & Metering Technologies sales of $435.5 million in 2006 rose $52.4
million, or 14%, compared with 2005, reflecting 10% base business growth and an
additional 4% impact related to the acquisitions of Banjo and Toptech. In 2006,
base business sales grew approximately 10% domestically and over 9%
internationally. Base business sales to customers outside the U.S. were
approximately 42% of total segment sales for both 2006 and 2005.
Health & Science Technologies sales of $304.9 million increased $69.4
million, or 29%, in 2006 compared with last year. The acquisition of JUN-AIR and
EPI accounted for 16% of the increase while base business volume contributed
13%. In 2006, base business sales increased 8% domestically and 24%
internationally. Base business sales to customers outside the U.S. were
approximately 37% of total segment sales in 2006, compared with 33% in 2005.
Dispensing Equipment sales of $159.8 million increased $1.7 million, or 1%,
in 2006 compared with the prior year. Base domestic sales increased 5% compared
with 2005, while base international sales decreased 1%. Base sales to customers
outside the U.S. were 65% of total segment sales in 2006, down from 66% in 2005.
Fire & Safety/Diversified Products sales of $260.1 million increased $21.1
million, or 9%, in 2006 compared with 2005. Base business activity increased 8%,
while foreign currency translation accounted for 1%. In 2006, base sales
increased 9% domestically, while base international sales increased 7%. Base
business sales to customers outside the U.S. were 46% of total segment sales for
both 2006 and 2005.
Gross profit of $477.4 million in 2006 was $63.4 million, or 15%, higher
than 2005. As a percent of sales, gross profit was 41.3% in 2006, which
represented a 40 basis-point increase from 40.9% in 2005.
16
The improved gross profit margin is primarily attributable to strategic sourcing
and other operational excellence initiatives.
Selling, general and administrative (SG&A) expenses increased to $260.2
million in 2006 from $232.9 million in 2005. This increase reflects
acquisitions, volume-related expenses, the implementation of Statement of
Financial Accounting Standard (SFAS) No. 123(R), "Share-Based Payment" and the
reinvestment in the business to drive organic growth. As a percent of net sales,
SG&A expenses were 22.5%, an improvement of 50 basis points compared with the
23.0% achieved in 2005.
Operating income increased $36.2 million, or 20%, to $217.2 million in 2006
from $181.0 million in 2005, primarily due to higher 2006 gross profit, offset
by increased SG&A expenses. Operating margins in 2006 were 18.8% of sales, an
improvement of 90 basis points compared with the 17.9% achieved in 2005.
In the Fluid & Metering Technologies segment, operating income of $89.9
million and operating margins of 20.6% in 2006 were up from the $72.6 million
and 18.9% recorded in 2005 principally due to volume and the impact of our
operational excellence initiatives. Operating income for the Health & Science
Technologies segment of $58.2 million was up from the $43.1 million recorded in
2005 principally due to volume. Operating margins for Health & Science
Technologies of 19.1% in 2006 were up from 18.3% in 2005. Operating income for
the Dispensing Equipment segment of $38.0 million was up slightly from the $37.8
million recorded in 2005. Operating margins for Dispensing Equipment of 23.8% in
2006 were down slightly from 23.9% in 2005, primarily due to product mix.
Operating income in the Fire & Safety/Diversified Products segment of $62.7
million was higher than the $56.6 million recorded in 2005, primarily due to
increased volume. Operating margins within Fire & Safety/Diversified Products of
24.1% in 2006 was up from 23.7% in 2005, primarily due to product mix.
COMPANY AND BUSINESS SEGMENT FINANCIAL INFORMATION (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 2006(1) 2005 2004
-------------------------------- ---------- ---------- ----------
Fluid & Metering Technologies
Net sales (2)..................... $ 435,532 $ 383,163 $ 352,153
Operating income (3).............. 89,899 72,596 62,316
Operating margin (3).............. 20.6% 18.9% 17.7%
Identifiable assets............... $ 613,203 $ 307,838 $ 303,805
Depreciation and amortization..... 10,524 9,824 $ 9,541
Capital expenditures.............. 5,487 8,204 10,693
Health & Science Technologies
Net sales (2)..................... $ 304,892 $ 235,499 $ 188,292
Operating income (3).............. 58,229 43,133 32,155
Operating margin (3).............. 19.1% 18.3% 17.1%
Identifiable assets............... $ 520,991 $ 391,991 $ 383,221
Depreciation and amortization..... 9,043 5,917 6,859
Capital expenditures.............. 4,726 5,525 3,190
Dispensing Equipment
Net sales (2)..................... $ 159,794 $ 158,111 $ 145,091
Operating income (3).............. 38,021 37,772 32,435
Operating margin (3).............. 23.8% 23.9% 22.4%
Identifiable assets............... $ 217,081 $ 196,157 $ 205,665
Depreciation and amortization..... 3,861 4,376 4,590
Capital expenditures.............. 2,362 3,383 2,588
Fire & Safety/Diversified Products
Net sales (2)..................... $ 260,080 $ 238,992 $ 219,006
Operating income (3).............. 62,664 56,593 47,052
Operating margin (3).............. 24.1% 23.7% 21.5%
Identifiable assets............... $ 306,400 $ 256,632 $ 246,435
17
Depreciation and amortization..... 6,086 5,712 6,023
Capital expenditures.............. 6,060 4,365 3,208
Company
Net sales......................... $1,154,940 $1,011,253 $ 901,072
Operating income.................. 217,206 181,032 149,298
Operating margin.................. 18.8% 17.9% 16.6%
Identifiable assets............... $1,670,821 $1,244,180 $1,186,292
Depreciation and amortization..... 29,956 26,254 27,557
Capital expenditures.............. 21,198 22,532 20,835
(1) Data includes acquisition of Banjo (October 2006) and Toptech (December
2006) in the Fluid & Metering Technologies segment; JUN-AIR (February 2006)
and Eastern Plastics (May 2006) in the Health & Sciences Technologies
segment; and Airshore (January 2006) in the Fire & Safety/Diversified
Products segment from the dates of acquisition.
(2) Segment net sales include intersegment sales.
(3) Segment operating income and margin excludes unallocated corporate
operating expenses.
Other income of $1.0 million in 2006 was $.4 million higher than the $.6
million in 2005. In 2006, we benefited from an increase in interest income,
partially offset by unfavorable foreign currency translation.
Interest expense increased to $16.4 million in 2006 from $14.4 million in
2005. The increase was principally due to higher debt levels as a result of
acquisitions and higher interest rates.
The provision for income taxes increased to $68.2 million in 2006 from
$58.6 million in 2005. The effective tax rate decreased to 33.8% in 2006 from
35.1% in 2005, due to changes in the mix of global pre-tax income among taxing
jurisdictions.
Income from continuing operations for 2006 was $133.7 million, 23% higher
than the $108.6 million earned in 2005. Diluted earnings per share from
continuing operations for 2006 of $2.48 increased $0.42, or 20%, compared with
the same period of 2005.
Net income for 2006 was $146.7 million, 34% higher than the $109.8 million
earned in the same period of 2005. Diluted earnings per share in 2006 of $2.72,
which included $.24 from discontinued operations, increased $0.64, or 31%,
compared with the same period last year.
PERFORMANCE IN 2005 COMPARED WITH 2004
Orders, sales, net income and earnings per share were higher in 2005
compared with 2004. New orders in 2005 totaled $1,024.7 million and were 12%
higher than the prior year. Excluding foreign currency translation and the
impact of acquisitions, orders were 9% higher than a year ago.
Sales in 2005 of $1,011.3 million were 12% higher than the $901.1 million
recorded a year ago. Base business sales rose 10%, while acquisitions accounted
for an improvement of 2%. Base business sales increased in all four of the
Company's reporting segments. Domestic base sales were up 12% over the prior
year, while base sales to international customers increased 7% in 2005. Base
sales to international customers represented approximately 45% of total sales
for both 2005 and 2004.
In 2005, Fluid & Metering Technologies contributed 38% of sales and 35% of
the operating income; Health & Science Technologies accounted for 23% of sales
and 20% of operating income; Dispensing Equipment accounted for 16% of sales and
18% of operating income; and Fire & Safety/Diversified Products represented 23%
of sales and 27% of operating income.
Fluid & Metering Technologies sales of $383.2 million in 2005 rose $31.0
million, or 9%, compared with 2004, with the increase almost entirely due to
base business growth. In 2005, base business sales grew
18
approximately 7% domestically and 9% internationally. Base business sales to
customers outside the U.S. were approximately 42% of total segment sales during
2005, compared with 40% in 2004.
Health & Science Technologies sales of $235.5 million increased $47.2
million, or 25%, in 2005 compared with 2004. Base business volume contributed
15% of the increase, while the acquisitions of Scivex and Systec in 2004
accounted for the remaining 10%. In 2005, base business sales increased 20%
domestically and 4% internationally. Base business sales to customers outside
the U.S. were approximately 33% of total sales for both 2005 and 2004.
Dispensing Equipment sales of $158.1 million increased $13.0 million, or
9%, in 2005 compared with 2004, due to a 7% increase in base business activity
and a favorable foreign currency translation of 2%. Base domestic sales
increased 21% compared with 2004, while base international sales increased 1%.
Base sales to customers outside the U.S. were approximately 66% of total segment
sales in 2005, down from 69% in 2004.
Fire & Safety/Diversified Products sales of $239.0 million increased $20.0
million, or 9%, in 2005 compared with 2004. Base business activity drove the 9%
increase in sales. In 2005, base sales increased 8% domestically, while base
international sales increased 11%. Base business sales to customers outside the
U.S. were approximately 46% of total segment sales in 2005, up from 45% in 2004.
Gross profit of $414.0 million in 2005 was $50.6 million, or 14%, higher
than 2004. As a percent of sales, gross profit was 40.9% in 2005, which
represented a 60 basis-point increase from 40.3% in 2004. The higher gross
profit margin primarily reflects volume leverage and global sourcing and
operational excellence initiatives.
SG&A expenses increased $18.8 million, or 9%, to $232.9 million in 2005
from $214.1 million in 2004. This increase reflects the deliberate reinvestment
in the business to drive long-term growth, volume-related expenses and
acquisitions. As a percent of net sales, SG&A expenses were 23.0%, an
improvement of 70 basis points compared with the 23.7% achieved in 2004.
Operating income increased $31.7 million, or 21%, to $181.0 million in 2005
from $149.3 million in 2004, primarily due to higher 2005 gross profit, offset
by increased SG&A expenses. Operating margins in 2005 were 17.9% of sales, an
improvement of 130 basis points compared with the 16.6% achieved in 2004.
In the Fluid & Metering Technologies segment, operating income of $72.6
million and operating margins of 18.9% in 2005 were up from the $62.3 million
and 17.7% recorded in 2004, principally due to volume and the impact of
operational excellence initiatives. Operating income for the Health & Science
Technologies segment of $43.1 million was up from the $32.2 million recorded in
2004, principally due to volume. Operating margins within the Health & Science
Technologies segment of 18.3% in 2005 were up from 17.1% in 2004, primarily due
to volume leverage. Operating income for the Dispensing Equipment segment of
$37.8 million was up from the $32.4 million recorded in 2004, mainly due to
volume and the impact of operational excellence initiatives. Operating margins
within Dispensing Equipment of 23.9% in 2005 were up from 22.4% in 2004,
primarily due to volume leverage and product mix. Operating income in the Fire &
Safety/Diversified Products segment of $56.6 million was higher than $47.1
million recorded in 2004, primarily due to increased volume. Operating margins
for Fire & Safety/Diversified Products of 23.7% in 2005 were up from the 21.5%
in 2004, primarily due to volume leverage and the impact of operational
excellence initiatives.
Other income of $.6 million in 2005 was $1.3 million higher than $.7
million of other expense in 2004, due to foreign currency exchange gains in
2005. Additionally, in 2004, hurricane-related costs were incurred at one of our
business units, as well as certain costs associated with the refinancing of the
credit facility.
Interest expense decreased to $14.4 million in 2005 from $14.8 million in
2004. The decrease was principally due to lower debt levels resulting from debt
paydowns, partially offset by higher interest rates.
19
The provision for income taxes increased to $58.6 million in 2005 from
$47.5 million in 2004. The effective tax rate decreased to 35.1% in 2005 from
35.5% in 2004, due to a favorable impact from foreign tax credits and the
additional benefit realized from the deduction for income from qualified
domestic production activity, partially offset by a reduction in research and
development credits.
Income from continuing operations for 2005 was $108.6 million, 26% higher
than the $86.3 million earned in the same period of 2004. Diluted earnings per
share from continuing operations in 2005 of $2.06 increased $0.38, or 23%,
compared with the same period of 2004.
Net income for 2005 was $109.8 million, 27% higher than the $86.4 million
earned in the same period of 2004. Diluted earnings per share in 2005 of $2.08,
which included $.02 from discontinued operations, increased $0.40, or 24%,
compared with the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2006, working capital was $230.7 million and the Company's
current ratio was 2.2 to 1. Cash flows from operating activities of continuing
operations increased $17.2 million, or 12%, to $160.1 million in 2006 mainly due
to the improved operating results discussed above.
Cash flows from continuing operations were more than adequate to fund
capital expenditures of $21.2 million and $22.5 million in 2006 and 2005,
respectively. Capital expenditures were generally for machinery and equipment
that improved productivity and tooling to support the global sourcing
initiatives, although a portion was for business system technology and
replacement of equipment and facilities. Management believes that IDEX has ample
capacity in its plants and equipment to meet expected needs for future growth in
the intermediate term.
The Company acquired Airshore in January 2006 for cash consideration of
$12.6 million, JUN-AIR in February 2006 for cash consideration of $15.3 million
and the assumption of approximately $7.1 million in debt, Eastern Plastics in
May 2006 for cash consideration of $92.4 million, Banjo in October 2006 for a
purchase price of $184.5 million, primarily financed by borrowings under the
Company's credit facilities and Toptech in December 2006 for a purchase price of
$55.0 million, primarily financed by borrowings under the Company's credit
facilities.
In addition to the $150.0 million of 6.875% Senior Notes ("Senior Notes")
due February 15, 2008, the Company has a $600.0 million domestic, multi-currency
bank revolving credit facility ("Credit Facility"), which expires December 21,
2011. With $194.0 million outstanding under the facility at December 31, 2006
and outstanding letters of credit totaling $5.3 million, the maximum amount
available under the Credit Facility was $400.7 million. Interest is payable
quarterly on the outstanding balance at the bank agent's reference rate or, at
the Company's election, at LIBOR plus an applicable margin. The applicable
margin is based on the credit rating of our Senior Notes, and can range from 24
basis points to 50 basis points. Based on the Company's BBB rating at December
31, 2006, the applicable margin was 40 basis points. We also pay an annual fee
of 10 basis points on the total Credit Facility.
There are two financial covenants that the Company is required to maintain.
As defined in the agreement, the minimum interest coverage ratio (operating cash
flow to interest) is 3.0 to 1 and the maximum leverage ratio (outstanding debt
to operating cash flow) is 3.25 to 1. At December 31, 2006, the Company was in
compliance with both of these financial covenants.
We also have a one-year, renewable $30.0 million demand line of credit
("Short-Term Facility"), which expires on December 12, 2007. Borrowings under
the Short-Term Facility are at LIBOR plus the applicable margin in effect under
the Credit Facility. At December 31, 2006, there were no borrowings outstanding
under this facility.
20
We believe the Company will generate sufficient cash flow from operations
for the next 12 months to meet its operating requirements, interest on all
borrowings, required debt repayments, any authorized share repurchases, planned
capital expenditures, and annual dividend payments to holders of common stock.
The Company is currently in the process of evaluating its options related to the
Senior Notes due February 15, 2008, including the potential use of its Credit
Facility. In the event that suitable businesses are available for acquisition
upon terms acceptable to the Board of Directors, we may obtain all or a portion
of the financing for the acquisitions through the incurrence of additional
long-term borrowings.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
Our contractual obligations and commercial commitments include rental
payments under operating leases, payments under capital leases, and other
long-term obligations arising in the ordinary course of business. There are no
identifiable events or uncertainties, including the lowering of our credit
rating that would accelerate payment or maturity of any of these commitments or
obligations. The Company also has obligations with respect to its pension and
postretirement medical benefit plans, which are not included in the table below.
See Note 13 of the Notes to Consolidated Financial Statements in Part II. Item
8. Financial Statements and Supplementary Data.
The following table summarizes our significant contractual obligations and
commercial commitments at December 31, 2006, and the future periods in which
such obligations are expected to be settled in cash. In addition, the table
reflects the timing of principal and interest payments on outstanding
borrowings. Additional detail regarding these obligations are provided in the
Notes to Consolidated Financial Statements in Part II. Item 8. Financial
Statements and Supplementary Data, as referenced in the table:
LESS MORE
PAYMENTS DUE BY PERIOD THAN 1-3 3-5 THAN
(IN THOUSANDS) TOTAL 1 YEAR YEARS YEARS 5 YEARS
---------------------- -------- ------- -------- -------- -------
Borrowings (Note 4)(1) $432,552 $30,778 $181,850 $218,239 $1,685
Operating lease commitments (Note 5) 16,422 5,870 7,609 1,627 1,316
Capital lease obligations(2) 6,412 802 1,578 1,302 2,730
Purchase obligations(3) 49,433 47,918 1,495 20 --
-------- ------- -------- -------- ------
Total contractual obligations(4) $504,819 $85,368 $192,532 $221,188 $5,731
======== ======= ======== ======== ======
(1) Includes interest payments based on contractual terms and current interest
rates for variable debt.
(2) Comprised primarily of property leases.
(3) Comprised primarily of inventory commitments.
(4) Comprised of liabilities recorded on the balance sheet of $366,351, and
obligations not recorded on the balance sheet of $138,468.
CRITICAL ACCOUNTING POLICIES
We believe that the application of the following accounting policies, which
are important to our financial position and results of operations, requires
significant judgments and estimates on the part of management. For a summary of
all of our accounting policies, including the accounting policies discussed
below, see Note 1 of the Notes to Consolidated Financial Statements in Part II.
Item 8. Financial Statements and Supplementary Data.
Revenue recognition--We primarily recognize revenue from product sales when
title passes and the risks of ownership have passed to the customer. Our
customary terms are FOB shipping point. Based on our historical experience, we
estimate and record provisions for sales returns and sales allowances in the
21
period the related products are sold. To the extent actual results differ from
these estimated amounts, results could be adversely affected.
Share-based Compensation--Effective January 1, 2006, the Company adopted
SFAS No. 123 (R), which is a new critical accounting policy that the Company
believes is important to aid in understanding the financial results for 2006.
Under SFAS No. 123 (R), the Company uses the Binomial lattice option-pricing
model to determine the fair value of options. The Binomial lattice
option-pricing model incorporates certain assumptions, such as the expected
volatility, risk-free interest rate, expected dividend yield and expected life
of options, in order to arrive at a fair value estimate. As a result, share
based compensation expense, as calculated and recorded under SFAS No. 123 (R),
could have been impacted if other assumptions were used. Furthermore, if the
Company used different assumptions in future periods, stock-based compensation
expense could be impacted in future periods. We use an independent third party
to assist in determining these assumptions. See Note 12 of Notes to Consolidated
Financial Statements in Part II. Item 8. Financial Statements and Supplementary
Data for additional information.
Inventory--The Company states inventory at the lower of cost or market.
Cost includes material, labor and overhead and is determined by the last-in,
first-out basis or first-in, first-out basis. We make adjustments to reduce the
cost of inventory to its net realizable value, if required, at the reporting
unit level for estimated excess, obsolescence or impaired balances. Factors
influencing these adjustments include changes in market demand, product life
cycle and engineering changes.
Long - Lived Assets and Goodwill--The Company evaluates the recoverability
of certain noncurrent assets utilizing various estimation processes. An
impairment of a long-lived asset exists when the asset's carrying amount exceeds
its fair value, and is recorded when the carrying amount is not recoverable
through future operations. A goodwill impairment exists when the carrying amount
of goodwill exceeds its fair value. Assessments of possible impairments of
long-lived assets and goodwill are made when events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable through
future operations. Additionally, testing for possible impairment of recorded
goodwill and intangible asset balances is required annually. The amount and
timing of impairment charges for these assets require the estimation of future
cash flows and the fair market value of the related assets.
Income taxes--The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income tax
assets and liabilities are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities based on currently enacted tax laws. The Company's tax balances are
based on management's interpretation of the tax regulations and rulings in
numerous taxing jurisdictions. Future tax authority rulings and changes in tax
laws and future tax planning strategies could affect the actual effective tax
rate and tax balances recorded by the Company.
Contingencies and litigation--We are currently involved in certain legal
and regulatory proceedings and, as required and where it is reasonably possible
to do so, have accrued our estimates of the probable costs for the resolution of
these matters. These estimates have been developed in consultation with outside
counsel and are based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies. It is possible, however,
that future operating results for any particular quarterly or annual period
could be materially affected by changes in our assumptions or the effectiveness
of our strategies related to these proceedings.
Defined benefit retirement plans--The plan obligations and related assets
of defined benefit retirement plans are presented in Note 13 of the Notes to
Consolidated Financial Statements in Part II. Item 8. Financial Statements and
Supplementary Data. Plan assets, which consist primarily of marketable equity
and debt instruments, are valued using market quotations. Plan obligations and
the annual pension expense are determined by consulting with actuaries using a
number of assumptions provided by the Company. Key assumptions in measuring the
plan obligations include the discount rate at which the obligations could be
effectively settled and the anticipated rate of future salary increases. Key
assumptions in the determination of the annual pension expense include the
discount rate, the rate of salary increases, and the estimated
22
future return on plan assets. To the extent actual amounts differ from these
assumptions and estimated amounts, results could be adversely affected.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of SFAS No. 109." This interpretation clarifies the accounting
and disclosure for uncertain income tax positions relating to the uncertainty
about whether a tax return position will ultimately be sustained by the
respective tax authorities. This interpretation is effective for fiscal years
beginning after December 15, 2006. Management is currently evaluating the
requirements of FIN 48 and has not yet determined the impact on the consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about fair value measurements. This statement is effective for fiscal periods
beginning after November 15, 2007, and does not require any new fair value
measurements. Management is currently evaluating the requirements of SFAS No.
157, and has not yet determined the impact on the consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans." This statement amends
certain requirements of SFAS Nos. 87, 88, 106 and 132(R). SFAS No. 158 requires
two major changes to accounting for defined benefit and other postretirement
plans, with two different effective dates. The first requirement of SFAS No.
158, which the Company adopted as of December 31, 2006, requires the recognition
of the over funded or under funded status of a defined benefit postretirement
plan as an asset or a liability in the balance sheet, with changes in the funded
status recorded through comprehensive income in the year in which those changes
occur. The impact of the Company's adoption of SFAS No. 158 is more fully
described in Note 13 of the Notes to Consolidated Financial Statements in Part
II. Item 8. Financial Statements and Supplementary Data.
The second requirement of SFAS No. 158, which is effective for the Company
as of December 31, 2008, requires that the funded status be measured as of an
entity's year-end balance sheet date rather than as of an earlier date as
currently permitted. The Company currently uses a measurement date of September
30 for the majority of its non-U.S. defined benefit pension and postretirement
plans.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- Including an Amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company is in
the process of evaluating the impact this pronouncement may have on its results
of operations and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We are subject to market risk associated with changes in interest rates and
foreign currency exchange rates. Interest rate exposure is limited to the $362.0
million of total debt outstanding at December 31, 2006. Approximately 59% of the
debt is priced at interest rates that float with the market. A 50-basis point
movement in the interest rate on the floating rate debt would result in an
approximate $1.1 million annualized increase or decrease in interest expense and
cash flows. The remaining debt is fixed-rate debt.
A treasury risk management policy, adopted by the Board of Directors,
describes the procedures and controls over derivative financial and commodity
instruments, including interest rate swaps. Under the policy, we do not use
derivative financial or commodity instruments for trading purposes, and the use
of these instruments is subject to strict approvals by senior corporate
officers. Typically, the use of derivative instruments is limited to interest
rate swaps on the Company's outstanding long-term debt. As of December 31, 2006,
the Company did not have any derivative instruments outstanding.
23
Our foreign currency exchange rate risk is limited principally to the euro
and British pound. We manage our foreign exchange risk principally through
invoicing our customers in the same currency as the source of our products. As a
result, the Company's exposure to any movement in foreign currency exchange
rates is immaterial to the Consolidated Statements of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
24
IDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
AS OF DECEMBER 31
-----------------------
2006 2005
---------- ----------
ASSETS
Current assets
Cash and cash equivalents .................................... $ 77,941 $ 77,201
Receivables - net ............................................ 166,485 129,428
Inventories .................................................. 160,687 123,281
Assets held for sale ......................................... 829 10,099
Other current assets ......................................... 11,966 10,962
---------- ----------
Total current assets ...................................... 417,908 350,971
Property, plant and equipment - net ............................. 165,949 142,485
Goodwill ........................................................ 912,600 691,399
Intangible assets - net ......................................... 171,363 28,615
Other noncurrent assets ......................................... 3,001 30,710
---------- ----------
Total assets .............................................. $1,670,821 $1,244,180
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable ....................................... $ 75,444 $ 66,859
Accrued expenses ............................................. 95,170 72,180
Short-term borrowings ........................................ 8,210 3,144
Liabilities held for sale .................................... 373 4,792
Dividends payable ............................................ 8,055 6,321
---------- ----------
Total current liabilities ................................. 187,252 153,296
Long-term borrowings ............................................ 353,770 156,899
Deferred income taxes ........................................... 100,316 64,650
Other noncurrent liabilities .................................... 50,211 46,325
---------- ----------
Total liabilities ......................................... 691,549 421,170
---------- ----------
Commitments and contingencies (Note 5)
Shareholders' equity
Preferred stock:
Authorized: 5,000,000 shares, $.01 per share par value .... -- --
Common stock:
Authorized: 150,000,000 shares, $.01 per share par value
Issued: 53,779,414 shares at December 31, 2006 and
52,857,059 shares at December 31, 2005 ................. 538 529
Additional paid-in capital ................................... 326,968 290,428
Retained earnings ............................................ 638,579 524,035
Pension liability adjustments ................................ (26,309) (5,884)
Cumulative translation adjustment ............................ 52,295 25,160
Treasury stock at cost: 82,255 shares at December 31, 2006 and
63,318 shares at December 31, 2005 ........................ (3,248) (2,361)
Unearned compensation ........................................ (9,551) (8,897)
---------- ----------
Total shareholders' equity ................................ 979,272 823,010
---------- ----------
Total liabilities and shareholders' equity ................ $1,670,821 $1,244,180
========== ==========
See Notes to Consolidated Financial Statements.
25
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2006 2005 2004
---------- ---------- --------
Net sales ................................................ $1,154,940 $1,011,253 $901,072
Cost of sales ............................................ 677,533 597,286 537,682
---------- ---------- --------
Gross profit ............................................. 477,407 413,967 363,390
Selling, general and administrative expenses ............. 260,201 232,935 214,092
---------- ---------- --------
Operating income ......................................... 217,206 181,032 149,298
Other (income) expense - net ............................. (1,040) (557) 688
Interest expense ......................................... 16,353 14,370 14,764
---------- ---------- --------
Income from continuing operations before income taxes .... 201,893 167,219 133,846
Provision for income taxes ............................... 68,171 58,644 47,511
---------- ---------- --------
Income from continuing operations ........................ 133,722 108,575 86,335
Income from discontinued operations, net of tax .......... 294 1,228 71
Net gain on sale of discontinued operations, net of tax .. 12,655 -- --
---------- ---------- --------
Income from discontinued operations, net of tax .......... 12,949 1,228 71
---------- ---------- --------
Net income ............................................... $ 146,671 $ 109,803 $ 86,406
========== ========== ========
Basic earnings per common share:
Continuing operations .................................... $ 2.52 $ 2.11 $ 1.72
Discontinued operations .................................. 0.25 0.03 0.01
---------- ---------- --------
Net income ............................................... $ 2.77 $ 2.14 $ 1.73
========== ========== ========
Diluted earnings per common share:
Continuing operations .................................... $ 2.48 $ 2.06 $ 1.68
Discontinued operations .................................. 0.24 0.02 --
---------- ---------- --------
Net income ............................................... $ 2.72 $ 2.08 $ 1.68
========== ========== ========
Share data:
Basic weighted average common shares outstanding ......... 53,018 51,392 50,073
Diluted weighted average common shares outstanding ....... 53,984 52,720 51,348
See Notes to Consolidated Financial Statements.
26
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON
STOCK
AND
ADDITIONAL PENSION CUMULATIVE TOTAL
PAID-IN RETAINED LIABILITY TRANSLATION TREASURY UNEARNED SHAREHOLDERS'
CAPITAL EARNINGS ADJUSTMENTS ADJUSTMENT STOCK COMPENSATION EQUITY
---------- -------- ----------- ----------- -------- ------------ -------------
BALANCE, JANUARY 1, 2004 $198,496 $375,629 $(12,481) $ 35,892 $(2,903) $(2,531) $592,102
-------- -------- -------- -------- ------- ------- --------
Net income 86,406 86,406
Other comprehensive income,
net of tax
Cumulative translation
adjustment 17,154 17,154
Minimum pension adjustment 7,837 7,837
--------
Other comprehensive income 24,991
--------
Comprehensive income 111,397
--------
Issuance of 1,238,247 shares
of common stock
from exercise of stock
options and deferred
compensation plans 31,997 31,997
Issuance of 145,000 shares of
restricted common stock 4,371 (4,371) --
Amortization of restricted
common stock award 2,313 2,313
Restricted shares surrendered
for tax withholdings (1,306) (1,306)
Cash dividends declared--$.45
per common share outstanding (22,898) (22,898)
-------- -------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 2004 234,864 439,137 (4,644) 53,046 (4,209) (4,589) 713,605
-------- -------- -------- -------- ------- ------- --------
Net income 109,803 109,803
Other comprehensive income,
net of tax
Cumulative translation
adjustment (27,886) (27,886)
Minimum pension adjustment (1,240) (1,240)
--------
Other comprehensive loss (29,126)
--------
Comprehensive income 80,677
--------
Issuance of 1,848,340 shares
of common stock
from exercise of stock
options and deferred
compensation plans 52,683 52,683
Issuance of 176,150 shares of
restricted common stock 3,410 3,735 (7,145) --
Amortization of restricted
common stock award 2,837 2,837
Restricted shares surrendered
for tax withholdings (1,887) (1,887)
Cash dividends declared--$.48
per common share outstanding (24,905) (24,905)
27
-------- -------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 2005 290,957 524,035 (5,884) 25,160 (2,361) (8,897) 823,010
-------- -------- -------- -------- ------- ------- --------
Net income 146,671 146,671
Other comprehensive income,
net of tax
Cumulative translation
adjustment 27,135 27,135
Minimum pension adjustment 707 707
Adjustment for adoption of
SFAS No. 158 (21,132) (21,132)
--------
Other comprehensive income 6,710
--------
Comprehensive income 153,381
--------
Issuance of 857,990 shares of
common stock
from exercise of stock
options and deferred
compensation plans 32,797 32,797
Issuance of 74,310 shares of
restricted common stock 3,752 (3,752) --
Amortization of restricted
common stock award 3,098 3,098
Restricted shares surrendered
for tax withholdings (887) (887)
Cash dividends declared--$.60
per common share outstanding (32,127) (32,127)
-------- -------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 2006 $327,506 $638,579 $(26,309) $ 52,295 $(3,248) $(9,551) $979,272
-------- -------- -------- -------- ------- ------- --------
See Notes to Consolidated Financial Statements.
28
IDEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
2006 2005 2004
--------- -------- ---------
Cash flows from operating activities of continuing operations
Net income ................................................................. $ 146,671 $109,803 $ 86,406
Adjustments to reconcile net income to net cash provided by
operating activities:
Income from discontinued operations ..................................... (294) (1,228) (71)
Gain on sale of business ................................................ (12,655) -- --
Gain on sale of fixed assets ............................................ (1,435) -- --
Depreciation and amortization ........................................... 25,825 25,546 26,935
Amortization of intangible assets ....................................... 4,131 708 622
Amortization of debt issuance expenses .................................. 456 686 580
Stock-based compensation expense ........................................ 10,698 2,837 2,313
Deferred income taxes ................................................... 1,313 4,316 10,782
Excess tax benefit from stock-based compensation ........................ (5,792) -- --
Changes in (net of the effect from acquisitions):
Receivables .......................................................... (14,421) (18,222) (5,336)
Inventories .......................................................... (7,203) (3,344) (9,166)
Trade accounts payable ............................................... (724) 38 11,225
Accrued expenses ..................................................... 15,837 21,628 16,104
Other - net ............................................................. (2,289) 145 144
--------- -------- ---------
Net cash flows from operating activities of continuing operations .... 160,118 142,913 140,538
Cash flows from investing activities of continuing operations
Additions to property, plant and equipment .............................. (21,198) (22,532) (20,835)
Acquisition of businesses, net of cash acquired ......................... (359,844) (1,191) (170,983)
Proceeds from the sale of discontinued business ......................... 30,579 -- --
Proceeds from fixed assets disposals .................................... 3,761 86 --
Other - net ............................................................. (1,153) -- 527
--------- -------- ---------
Net cash flows from investing activities of continuing operations .... (347,855) (23,637) (191,291)
Cash flows from financing activities of continuing operations
Borrowings under credit facilities for acquisitions ..................... 285,000 -- 170,983
Net repayments under credit facilities .................................. (91,000) (60,067) (124,953)
Net borrowings (repayments) of other long-term debt ..................... (481) (1,709) 1,665
Dividends paid .......................................................... (30,393) (24,689) (21,415)
Distributions from discontinued operations .............................. 80 1,438 2,306
Proceeds from stock option exercises .................................... 17,214 37,503 22,848
Excess tax benefit from stock-based compensation ........................ 5,792 -- --
Other - net ............................................................. (1,779) (1,887) (1,148)
--------- -------- ---------
Net cash flows from financing activities of continuing operations .... 184,433 (49,411) 50,286
Cash flows from discontinued operations
Net cash provided by operating activities of discontinued operations .... (101) 1,975 2,526
Net cash used in investing activities of discontinued operations ........ (321) (462) (211)
Net cash used in financing activities of discontinued operations ........ 335 (1,438) (2,306)
--------- -------- ---------
Net cash flows from discontinued operations .......................... (87) 75 9
Effect of exchange rate changes on cash and cash equivalents ............... 4,044 76 (820)
--------- -------- ---------
Net increase (decrease) in cash ............................................ 653 70,016 (1,278)
Cash and cash equivalents at beginning of year ............................. 77,290 7,274 8,552
--------- -------- ---------
Cash and cash equivalents at end of period ................................. 77,943 77,290 7,274
--------- -------- ---------
Less-cash at end of period-discontinued operations ......................... 2 89 14
--------- -------- ---------
Cash and cash equivalents at end of period-continuing operations ........... $ 77,941 $ 77,201 $ 7,260
========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest ............................................................. $ 15,605 $ 13,953 $ 14,022
Income taxes ......................................................... 61,896 35,916 23,617
Significant non-cash activities:
Issuance of restricted stock ......................................... $ 3,753 $ 7,145 $ 4,371
Debt acquired with acquisition of business ........................... 7,102 -- --
Capital expenditures included in accounts payable .................... 640 -- --
See Notes to Consolidated Financial Statements.
29
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
IDEX Corporation ("IDEX" or the "Company") is an applied solutions company
specializing in fluid and metering technologies, health and science
technologies, dispensing equipment, and fire, safety and other diversified
products built to its customers' specifications. Its products are sold in niche
markets to a wide range of industries throughout the world. Its products include
industrial pumps, compressors, flow meters, injectors and valves, and related
controls for use in a wide variety of process applications; precision fluidics
solutions, including pumps, valves, degassing equipment, corrective tubing,
fittings, and complex manifolds, as well as specialty medical equipment and
devices used in life science applications; precision-engineered equipment for
dispensing, metering and mixing paints, and personal care products; refinishing
equipment; and engineered products for industrial and commercial markets,
including fire and rescue, transportation equipment, oil and gas, electronics,
and communications. These activities are grouped into four business segments:
Fluid & Metering Technologies, Health & Science Technologies, Dispensing
Equipment, and Fire & Safety/Diversified Products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its
subsidiaries. Significant intercompany transactions and accounts have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. The principal areas of estimation reflected
in the financial statements are sales returns and allowances, inventory,
goodwill and intangible assets, income taxes, contingencies and litigation, and
defined benefit retirement plans.
REVENUE RECOGNITION
IDEX recognizes revenue from product sales when title passes and the risks
of ownership have passed to the customer. Customary terms are FOB shipping
point. Based on its historical experience, the Company estimates and records
provisions for sales returns and sales allowances in the period that the related
products are sold.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three or fewer months to be cash and cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost--which includes
material, labor and factory overhead--is determined on the first-in, first-out
basis or the last-in, first-out basis. A reserve for excess inventory is
recorded for inventory on hand in excess of anticipated or historical usage. An
obsolescence reserve is recorded for inventory made obsolete by marketplace,
product or engineering changes.
GOODWILL AND INTANGIBLE ASSETS
The Company reviews the carrying value of goodwill and intangible assets in
the fourth quarter of each year, or upon the occurrence of events or changes in
circumstances that indicate that the carrying value of the assets may not be
recoverable, in accordance with Statement of Financial Accounting Standard
("SFAS") No. 142, "Goodwill and Other Intangible Assets". The Company evaluates
the recoverability of
30
each of these assets based on the estimated market value of each business unit
and the estimated future cash flows from each of the business units.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment upon the occurrence of events
or changes in circumstances that indicate that the carrying value of the assets
may not be recoverable, as measured by comparing their net book value to the
projected undiscounted future cash flows generated by their use. Impaired assets
are recorded at their estimated fair value.
BORROWING EXPENSES
Expenses incurred in securing and issuing debt are amortized over the life
of the related borrowing and are included in interest expense in the
Consolidated Statements of Operations.
EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") are computed by dividing net income by
the weighted average number of shares of common stock (basic) plus common stock
equivalents and unvested restricted stock (diluted) outstanding during the year.
Common stock equivalents consist of stock options and deferred compensation
units ("DCUs") and have been included in the calculation of weighted average
shares outstanding using the treasury stock method.
Basic weighted average shares outstanding reconciles to diluted weighted
average shares outstanding as follows:
(in thousands) 2006 2005 2004
------ ------ ------
Basic weighted average common shares outstanding....... 53,018 51,392 50,073
Dilutive effect of stock options, DCUs and unvested
restricted shares................................... 966 1,328 1,275
------ ------ ------
Diluted weighted average common shares outstanding..... 53,984 52,720 51,348
====== ====== ======
Options to purchase approximately 1.2 million and .2 million shares of
common stock as of December 31, 2006 and 2005, respectively, were not included
in the computation of diluted EPS because the exercise price was greater than
the average market price of the Company's common stock and, therefore, the
effect of their inclusion would be antidilutive.
STOCK OPTIONS
Prior to January 1, 2006, the Company accounted for its stock-based
compensation using the intrinsic value method of Accounting Principles Bulletin
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company provided pro forma disclosure in accordance with
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure," as if the fair-value method of SFAS No. 123, "Accounting for
Stock-Based Compensation," had been applied to stock-based compensation. In
accordance with APB Opinion No. 25, no stock-based compensation cost was
reflected in the Company's prior year net income for grants of stock options to
employees because the Company granted stock options with an exercise price equal
to the market value of the stock on the date of grant. The reported stock-based
compensation expense, net of related tax effects, in prior periods represents
the amortization of restricted stock grants.
Had the Company used the fair-value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148 for the twelve months
ended December 31, 2005 and 2004, the Company's consolidated income from
continuing operations and EPS from continuing operations would have been reduced
to the pro-forma amounts as follows:
31
2005 2004
-------- -------
(in thousands)
Income from continuing operations - as reported............................. $108,575 $86,335
Add: Total stock-based employee compensation included in reported
Income from continuing operations, net of related tax effects......... 1,804 1,457
Deduct: Total stock-based compensation expense determined under
fair - value based method for all awards, net of related tax effects.. (8,591) (6,839)
-------- -------
Income from continuing operations - pro forma............................... $101,788 $80,953
======== =======
EPS from continuing operations:
Basic - as reported...................................................... $ 2.11 $ 1.72
Stock - based compensation............................................... (0.13) (0.11)
-------- -------
Basic - pro forma........................................................ $ 1.98 $ 1.61
======== =======
Diluted - as reported.................................................... $ 2.06 $ 1.68
Stock - based compensation............................................... (0.13) (0.10)
-------- -------
Diluted - pro forma...................................................... $ 1.93 $ 1.58
======== =======
Effective January 1, 2006, IDEX adopted the fair-value recognition
provisions of SFAS No. 123(R), "Share-Based Payment," using the modified
prospective transition method and, therefore, has not restated results for prior
periods. Under this transition method, stock-based compensation expense for the
twelve months ended December 31, 2006, includes compensation expense for all
stock-based compensation awards granted prior to, but not yet vested as of
December 31, 2005, based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123. Stock-based compensation expense
for all stock-based compensation awards granted after December 31, 2005, is
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123(R). IDEX recognizes these compensation costs on a straight-line
basis over the requisite service period of the award, which is generally the
option vesting period of four years. Prior to the adoption of SFAS No. 123(R),
IDEX recognized stock-based compensation expense in accordance with APB Opinion
No. 25. In March 2005, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 107 regarding the SEC's interpretation of
SFAS No. 123(R) and the valuation of share-based payments for public companies.
IDEX has applied the provisions of SAB No. 107 in its adoption of SFAS No.
123(R). See Note 12 for a further discussion on stock-based compensation.
DEPRECIATION AND AMORTIZATION
Depreciation is recorded using the straight-line method. The estimated
useful lives used in the computation of depreciation of tangible assets are as
follows:
Land improvements 10 to 12 years
Buildings and improvements 3 to 30 years
Machinery and equipment and engineering drawings 3 to 12 years
Office and transportation equipment 3 to 10 years
Certain identifiable intangible assets are amortized over their estimated
useful lives using the straight-line method.
The carrying amount of all long-lived assets is evaluated periodically to
determine if adjustment to the depreciation or amortization period or to the
unamortized balance is warranted. This evaluation is based on
32
the expected utilization of the long-lived assets and the projected,
undiscounted cash flows of the operations in which the long-lived assets are
used.
RESEARCH AND DEVELOPMENT EXPENDITURES
Costs associated with research and development are expensed in the period
incurred and are included in "Cost of sales" within the Consolidated Statements
of Operations. Research and development expenses from continuing
operations--which include costs associated with developing new products and
major improvements to existing products--were $24.8 million, $23.8 million and
$20.9 million in 2006, 2005 and 2004, respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency of substantially all operations outside the United
States is the respective local currency. Accordingly, those foreign currency
balance sheet accounts have been translated using the exchange rates in effect
as of the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the year. The gains and losses resulting
from changes in exchange rates from year to year have been reported in
"Cumulative translation adjustment" in the Consolidated Balance Sheets. The
effect on the Consolidated Statements of Operations of transaction gains and
losses is insignificant for all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, trade receivables, accounts payable and accrued expenses, approximate
their fair values.
CONCENTRATION OF CREDIT RISK
IDEX is not dependent on a single customer, the largest of which accounted
for less than 2% of net sales for all years presented.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of SFAS No. 109." This interpretation clarifies the accounting
and disclosure for uncertain income tax positions relating to the uncertainty
about whether a tax return position will ultimately be sustained by the
respective tax authorities. This interpretation is effective for fiscal years
beginning after December 15, 2006. Management is currently evaluating the
requirements of FIN 48 and has not yet determined the impact on the consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about fair value measurements. This statement is effective for fiscal periods
beginning after November 15, 2007, and does not require any new fair value
measurements. Management is currently evaluating the requirements of SFAS No.
157 and has not yet determined the impact on the consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans." This statement amends
certain requirements of SFAS Nos. 87, 88, 106 and 132(R). SFAS No. 158 requires
two major changes to accounting for defined benefit and other postretirement
plans, with two different effective dates. The first requirement of SFAS No.
158, which the Company adopted as of December 31, 2006, requires the recognition
of the over funded or under funded
33
status of a defined benefit postretirement plan as an asset or a liability in
the balance sheet, with changes in the funded status recorded through
comprehensive income in the year in which those changes occur. The impact of the
Company's adoption of SFAS No. 158 is more fully described in Note 13.
The second requirement of SFAS No. 158, which is effective for the Company
as of December 31, 2008, requires that the funded status be measured as of an
entity's year-end balance sheet date rather than as of an earlier date as
currently permitted. The Company currently uses a measurement date of September
30 for the majority of its non-U.S. defined benefit pension and postretirement
plans.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- Including an Amendment of FASB
Statement No. 115". SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company is in
the process of evaluating the impact this pronouncement may have on its results
of operations and financial condition.
2. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts at December 31, 2006 and
2005 were as follows:
2006 2005
-------- --------
(in thousands)
RECEIVABLES
Customers ............................. $166,201 $130,619
Other ................................. 3,829 2,493
-------- --------
Total .............................. 170,030 133,112
Less allowance for doubtful accounts .. 3,545 3,684
-------- --------
Total receivables--net ............. $166,485 $129,428
======== ========
INVENTORIES
Raw materials ......................... $ 63,360 $ 51,066
Work in process ....................... 16,420 12,749
Finished goods ........................ 80,907 59,466
-------- --------
Total inventories .................. $160,687 $123,281
======== ========
Inventories that were carried on a LIFO basis amounted to $133.7 million
and $96.6 million at December 31, 2006 and 2005, respectively. The excess of
current cost over LIFO inventory value amounted to $3.1 million and $1.3 million
at December 31, 2006 and 2005, respectively.
2006 2005
-------- --------
(in thousands)
PROPERTY, PLANT AND EQUIPMENT
Land and improvements .............................. $ 17,307 $ 14,538
Buildings and improvements ......................... 109,408 91,171
Machinery and equipment ............................ 213,750 193,250
Office and transportation equipment ................ 85,806 78,436
Engineering drawings ............................... 2,327 3,962
Construction in progress ........................... 6,056 5,753
-------- --------
Total ........................................... 434,654 387,110
Less accumulated depreciation and amortization .. 268,705 244,625
-------- --------
Total property, plant and equipment--net ..... $165,949 $142,485
======== ========
34
(in thousands)
ACCRUED EXPENSES
Payroll and related items .......... $32,897 $23,851
Management incentive compensation .. 15,279 13,109
Income taxes payable ............... 10,897 7,234
Deferred income taxes .............. 1,359 1,142
Insurance .......................... 7,608 6,742
Other .............................. 27,130 20,102
------- -------
Total accrued expenses .......... $95,170 $72,180
======= =======
(in thousands)
OTHER NONCURRENT LIABILITIES
Pension and retiree medical reserves ... $44,414 $36,387
Other .................................. 5,797 9,938
------- -------
Total other noncurrent liabilities .. $50,211 $46,325
======= =======
3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the years ended December
31, 2006 and 2005, by business segment, were as follows:
FIRE &
FLUID & HEALTH & SAFETY/
METERING SCIENCE DISPENSING DIVERSIFIED
(in thousands) TECHNOLOGIES TECHNOLOGIES EQUIPMENT PRODUCTS TOTAL
------------ ------------ ---------- ----------- ---------
Balance at January 1, 2005 .... $177,819 $265,282 $130,570 $139,477 $713,148
Foreign currency translation .. (1,272) (816) (10,053) (7,363) (19,504)
Purchase price adjustments .... 676 (2,850) -- (71) (2,245)
-------- -------- -------- -------- --------
Balance at December 31, 2005 .. 177,223 261,616 120,517 132,043 691,399
Acquisitions (Note 10) ........ 132,646 69,300 -- 7,679 209,625
Foreign currency translation .. 1,254 1,305 7,940 6,156 16,655
Purchase price adjustments .... -- 1,580 -- -- 1,580
Divestiture (Note 11) ......... (6,659) -- -- -- (6,659)
-------- -------- -------- -------- --------
Balance at December 31, 2006 .. $304,464 $333,801 $128,457 $145,878 $912,600
======== ======== ======== ======== ========
During 2006, the Company determined that due to changes in the Company's
strategy, certain previously indefinite-lived intangible assets should be
considered definite-lived assets. Therefore, effective at the beginning of the
second quarter of 2006, the Company began to amortize these definite-lived
intangible assets.
35
The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset at December 31, 2006 and
2005:
AT DECEMBER 31, 2006 AT DECEMBER 31, 2005
----------------------- -----------------------
GROSS GROSS
CARRYING ACCUMULATED AVERAGE CARRYING ACCUMULATED
(in thousands) AMOUNT AMORTIZATION LIFE AMOUNT AMORTIZATION
-------- ------------ ------- -------- ------------
Amortizable intangible assets:
Patents ................................. $ 8,508 $ (5,171) 10 $ 8,680 $(4,744)
Trade names ............................. 30,081 (1,224) 18 23,982 --
Customer relationships .................. 64,796 (1,609) 18 -- --
Non-compete agreements .................. 4,087 (702) 4 150 (99)
Unpatented technology ................... 4,727 (127) 13 -- --
Other ................................... 6,457 (560) 5 821 (175)
-------- -------- ------- -------
Total amortizable intangible assets .. 118,656 (9,393) 33,633 (5,018)
Banjo trade name (see Note 10) .......... $ 62,100 -- -- -- --
-------- -------- ------- -------
Balance at December 31, 2006 ............... $180,756 $ (9,393) $33,633 $(5,018)
======== ======== ======= =======
The Banjo trade name is an indefinite lived intangible asset which will be
tested for impairment on an annual basis. Amortization of intangible assets was
$4.1 million and $.7 million in 2006 and 2005, respectively. Amortization
expense for each of the next five years is estimated to be approximately $7.6
million.
4. BORROWINGS
Borrowings at December 31, 2006 and 2005 consisted of the following:
2006 2005
-------- --------
(in thousands)
Senior Notes ................... $150,000 $150,000
Bank credit facilities ......... 194,000 --
Other borrowings ............... 17,980 10,043
-------- --------
Total borrowings ............ 361,980 160,043
Less current portion ........... 8,210 3,144
-------- --------
Total long-term borrowings .. $353,770 $156,899
======== ========
In February 1998, the Company sold $150 million of unsecured Senior Notes
due February 15, 2008 ("Senior Notes"), with a coupon interest rate of 6.875%
and an effective rate of 6.919% to maturity. Interest is payable semiannually.
The Senior Notes are redeemable at any time at the option of the Company in
whole or in part. At December 31, 2006, the fair market value of the Senior
Notes was approximately $152 million, based on the quoted market price.
The Company also maintains a $600 million domestic, multi-currency bank
revolving credit facility ("Credit Facility"), which expires on December 21,
2011. At December 31, 2006, there was $194 million outstanding under the Credit
Facility and outstanding letters of credit totaled approximately $5 million. The
net available borrowings under the Credit Facility as of December 31, 2006, were
approximately $401 million.
Interest on the outstanding borrowings under the Credit Facility is payable
quarterly at a rate based on the bank agent's reference rate or, at the
Company's election, at a rate based on LIBOR plus 40 basis points per annum and
is payable at maturity. A facility fee equal to 10 basis points per annum is
payable quarterly on the total amount available under the Credit Facility.
36
The Company also has a $30 million demand line of credit (Short-Term
Facility), which expires on December 12, 2007. Borrowings under the Short-Term
Facility are based on LIBOR plus the applicable margin in effect under the
Credit Facility. At December 31, 2006, there were no borrowings under the
Short-Term Facility.
At December 31, 2006, other borrowings included capital leases as well as
debt at international locations maintained for working capital purposes.
Interest is payable on the outstanding debt balances at the international
locations at rates ranging from 3.3% to 6.6% per annum.
There are two financial covenants that the Company is required to maintain
in connection with the Credit Facility. As defined in the agreement, the minimum
interest coverage ratio (operating cash flow to interest) is 3.0 to 1 and the
maximum leverage ratio (outstanding debt to operating cash flow) is 3.25 to 1.
At December 31, 2006, the Company was in compliance with both of these financial
covenants.
Total borrowings at December 31, 2006 have scheduled maturities as follows
(in thousands):
2007.................. $ 8,210
2008.................. 153,636
2009.................. 880
2010.................. 956
2011.................. 194,463
Thereafter............ 3,835
--------
Total borrowings... $361,980
========
5. COMMITMENTS AND CONTINGENCIES
At December 31, 2006, total future minimum rental payments under
noncancelable operating leases, primarily for office facilities, warehouses and
data processing equipment, were $16.4 million. The future minimum rental
commitments for each of the next five years and thereafter are as follows:
2007--$5.9 million; 2008--$4.6 million; 2009--$3.0 million; 2010--$1.3 million;
2011--$.3 million; thereafter--$1.3 million.
Rental expense from continuing operations totaled $9.0 million, $8.9
million and $9.9 million for the years ended December 31, 2006, 2005, and 2004,
respectively.
IDEX is a party to various legal proceedings involving employment,
contractual, product liability and other matters, none of which is expected to
have a material adverse effect on its results of operations, financial
condition, or cash flows.
6. COMMON AND PREFERRED STOCK
The Company issued 74,000 and 176,000 shares of restricted stock as
compensation to key employees in 2006 and 2005, respectively. All 74,000
restricted shares issued in 2006 contain a cliff vesting feature and vest three
or four years after the grant date. Of the 176,000 shares issued in 2005,
100,000 shares vest annually from one to four years after the grant date, while
the remaining 76,000 shares contain a cliff vesting feature and vest four years
after the grant date.
All restricted shares carry dividend and voting rights, and the sale of the
shares is restricted prior to the date of vesting. The restricted shares were
recorded at their fair market value on the date of the grant, with a
corresponding charge to shareholders' equity. The unearned portion is being
amortized as compensation expense on a straight-line basis over the related
vesting period.
On October 20, 1998, IDEX's Board of Directors authorized the repurchase of
up to 2.25 million shares of the Company's common stock, either at market prices
or on a negotiated basis as market conditions
37
warrant. Since the inception of this program, IDEX has purchased a total of
9,750 shares at a cost of approximately $144,000.
At December 31, 2006 and 2005, the Company had 150 million of authorized
common stock, with a par value of $.01 per share and 5 million shares of
preferred stock with a par value of $.01 per share. No preferred stock was
issued as of December 31, 2006 and 2005.
7. INCOME TAXES
Pretax income for the years ended December 31, 2006, 2005, and 2004, was
taxed in the following jurisdictions:
(in thousands) 2006 2005 2004
-------- -------- --------
Domestic...... $140,630 $114,275 $ 85,088
Foreign....... 61,263 52,944 48,758
-------- -------- --------
Total...... $201,893 $167,219 $133,846
======== ======== ========
The provision for income taxes for the years ended December 31, 2006, 2005,
and 2004, was as follows:
(in thousands) 2006 2005 2004
------- ------- -------
Current
U.S. .................................. $46,656 $36,729 $21,961
State and local ....................... 3,946 1,738 326
Foreign ............................... 16,256 15,861 14,442
------- ------- -------
Total current ...................... 66,858 54,328 36,729
Deferred
U.S. .................................. 592 2,563 6,293
State and local ....................... 24 (164) 1,439
Foreign .............................. 697 1,917 3,050
------- ------- -------
Total deferred ..................... 1,313 4,316 10,782
------- ------- -------
Total provision for income taxes ... $68,171 $58,644 $47,511
======= ======= =======
Deferred tax assets (liabilities) related to the following at December 31,
2006 and 2005:
(in thousands) 2006 2005
--------- --------
Employee and retiree benefit plans ... $ 20,221 $ 2,199
Depreciation and amortization ........ (119,700) (68,835)
Inventories .......................... (5,523) (3,653)
Allowances and accruals .............. 6,726 6,408
Other ................................ (354) 1,506
--------- --------
Total ............................. $ (98,630) $(62,375)
========= ========
The deferred tax assets and liabilities recognized in the Company's
Consolidated Balance Sheets are as follows:
38
(in thousands) 2006 2005
--------- --------
Deferred tax asset--other current assets ................... $ 2,682 $ 3,417
Deferred tax asset--other noncurrent assets ................ 363 --
--------- --------
Total deferred tax assets .................................. 3,045 3,417
Deferred tax liability--accrued expenses ................... (1,359) (1,142)
Noncurrent deferred tax liability--deferred income taxes ... (100,316) (64,650)
--------- --------
Total deferred tax liabilities ............................. (101,675) (65,792)
--------- --------
Net deferred tax liabilities ............................ $ (98,630) $(62,375)
========= ========
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to pretax income. The computed amount and
the differences for the years ended December 31, 2006, 2005, and 2004 are shown
in the following table:
(in thousands) 2006 2005 2004
-------- -------- --------
Pretax income ................................................. $201,893 $167,219 $133,846
======== ======== ========
Provision for income taxes:
Computed amount at statutory rate of 35% ................... $ 70,663 $ 58,527 $ 46,846
State and local income tax (net of federal tax benefit) .... 2,576 1,023 1,147
Taxes on non-U.S. earnings-net of foreign tax credits ... (2,670) (620) 2,319
U.S. business tax credits .................................. (1,210) (1,455) (2,674)
Extra-territorial income deduction ...................... (910) (1,214) (1,531)
Domestic activities production deduction ................ (797) (1,528) --
Other ...................................................... 519 3,911 1,404
-------- -------- --------
Total provision for income taxes ........................ $ 68,171 $ 58,644 $ 47,511
======== ======== ========
The Company has not provided an estimate for any U.S. or additional foreign
taxes on undistributed earnings of foreign subsidiaries that might be payable if
these earnings were repatriated since the Company considers these amounts to be
permanently invested.
8. COMPREHENSIVE INCOME
The tax effects of the components of other comprehensive income for 2006,
2005 and 2004 follow:
(in thousands) 2006 2005 2004
------- -------- -------
Pension liability adjustments*
Pretax amount .................... $ 821 $ (1,748) $12,118
Tax benefit (provision) .......... (114) 508 (4,281)
------- -------- -------
Aftertax amount .................. $ 707 $ (1,240) $ 7,837
======= ======== =======
Cumulative translation adjustment
Pretax amount .................... $27,135 $(27,886) $17,154
Tax provision .................... -- -- --
------- -------- -------
Aftertax amount .................. $27,135 $(27,886) $17,154
======= ======== =======
* Amounts reflect the change in the minimum pension liability prior to the
adoption of SFAS No. 158. The SFAS No. 158 transition amount has been
included in other comprehensive income. See Note 13 for the affect from
adoption of SFAS No. 158.
39
9. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Effective in 2006, IDEX changed its reporting segments based on
organizational and structural changes from three to four reportable segments.
Under the new reporting structure, the Fluid & Metering Technologies segment
consists of the following IDEX business units: Banjo, Liquid Controls,
Pulsafeeder, Versa-Matic, Viking and Warren Rupp. The Health & Science
Technologies segment includes Eastern Plastics, Gast, Micropump, Rheodyne and
Scivex. The Dispensing Equipment segment consists of FAST & FM- Europe & Asia
and Fluid Management. The Fire & Safety/Diversified Products segment includes
Hale Products' fire suppression and rescue tools businesses, as well as the
BAND-IT engineered clamping business. Historical business segment information
has been updated to reflect this change in reporting segments.
IDEX is not dependent on a single customer, the largest of which accounted
for less than 2% of net sales for all years presented.
Information on IDEX's business segments from continuing operations is
presented below, based on the nature of products and services offered. IDEX
evaluates performance based on several factors, of which operating income is the
primary financial measure. Intersegment sales are accounted for at fair value as
if the sales were to third parties.
(in thousands) 2006 2005 2004
---------- ---------- ----------
NET SALES
Fluid & Metering Technologies:
External customers...................... $ 433,845 $ 381,625 $ 350,146
Intersegment sales...................... 1,687 1,538 2,007
---------- ---------- ----------
Total segment sales.................. 435,532 383,163 352,153
Health & Science Technologies:
External customers...................... 301,223 232,531 186,834
Intersegment sales...................... 3,669 2,968 1,458
---------- ---------- ----------
Total segment sales.................. 304,892 235,499 188,292
Dispensing Equipment:
External customers...................... 159,794 158,111 145,091
Intersegment sales...................... -- -- --
---------- ---------- ----------
Total segment sales.................. 159,794 158,111 145,091
Fire & Safety/Diversified Products:
External customers...................... 260,078 238,986 219,001
Intersegment sales...................... 2 6 5
---------- ---------- ----------
Total segment sales.................. 260,080 238,992 219,006
Intersegment eliminations............... (5,358) (4,512) (3,470)
---------- ---------- ----------
Total net sales...................... $1,154,940 $1,011,253 $ 901,072
========== ========== ==========
OPERATING INCOME (1)
Fluid & Metering Technologies.............. $ 89,899 $ 72,596 $ 62,316
Health & Science Technologies.............. 58,229 43,133 32,155
Dispensing Equipment....................... 38,021 37,772 32,435
Fire & Safety/Diversified Products......... 62,664 56,593 47,052
Corporate office and other (2)............. (31,607) (29,062) (24,660)
---------- ---------- ----------
Total operating income............... $ 217,206 $ 181,032 $ 149,298
========== ========== ==========
40
ASSET
Fluid & Metering Technologies.............. $ 613,203 $ 307,838 $ 303,805
Health & Science Technologies.............. 520,991 391,991 383,221
Dispensing Equipment....................... 217,081 196,157 205,665
Fire & Safety/Diversified Products......... 306,400 256,632 246,435
Corporate office and other (2)............. 13,146 91,562 47,166
---------- ---------- ----------
Total assets......................... $1,670,821 $1,244,180 $1,186,292
========== ========== ==========
DEPRECIATION AND AMORTIZATION
Fluid & Metering Technologies.............. $ 10,524 $ 9,824 $ 9,541
Health & Science Technologies.............. 9,043 5,917 6,859
Dispensing Equipment....................... 3,861 4,376 4,590
Fire & Safety/Diversified Products......... 6,086 5,712 6,023
Corporate office and other................. 442 425 544
---------- ---------- ----------
Total depreciation and amortization.. $ 29,956 $ 26,254 $ 27,557
========== ========== ==========
CAPITAL EXPENDITURES
Fluid & Metering Technologies.............. $ 5,487 $ 8,204 $ 10,693
Health & Science Technologies.............. 4,726 5,525 3,190
Dispensing Equipment....................... 2,362 3,383 2,588
Fire & Safety/Diversified Products......... 6,060 4,365 3,208
Corporate office and other................. 2,563 1,055 1,156
---------- ---------- ----------
Total capital expenditures........... $ 21,198 $ 22,532 $ 20,835
========== ========== ==========
(1) Segment operating income excludes net unallocated corporate operating
expenses.
(2) Includes intersegment eliminations.
Information about the Company's operations in different geographical
regions for the years ended December 31, 2006, 2005 and 2004 is shown below. Net
sales were attributed to geographic areas based on location of the customer, and
no country outside the U.S. was greater than 10% of total revenues.
(in thousands) 2006 2005 2004
---------- ---------- --------
NET SALES
U.S.......................... $ 632,239 $ 557,469 $494,666
Europe....................... 285,208 252,749 241,843
Other countries.............. 237,493 201,035 164,563
---------- ---------- --------
Total net sales........... $1,154,940 $1,011,253 $901,072
========== ========== ========
LONG-LIVED ASSETS--
PROPERTY, PLANT AND EQUIPMENT
U.S.......................... $ 110,340 $ 94,805 $ 97,944
Europe....................... 48,966 43,713 51,398
Other countries.............. 6,643 3,967 2,847
---------- ---------- --------
Total long-lived assets... $ 165,949 $ 142,485 $152,189
========== ========== ========
10. ACQUISITIONS
On January 12, 2006, the Company acquired the assets of Airshore
International ("Airshore"), based in British Columbia, Canada. Airshore, with
annual revenue of approximately $5 million, provides stabilization struts for
collapsed buildings and vehicles, high-and-low pressure lifting bags and
forcible entry tools for the fire and rescue markets. Airshore operates as part
of Hale in the Fire & Safety/Diversified Products segment. IDEX acquired
Airshore for a purchase price of $12.6 million, consisting entirely of cash.
Goodwill and intangible assets recognized as part of this transaction were $7.7
million and $4.0 million, respectively. The $7.7 million of goodwill is
deductible for tax purposes.
41
On February 28, 2006, the Company acquired the stock of JUN-AIR
International A/S ("JUN-AIR"), based in Norresundby, Denmark. JUN-AIR, with
annual revenue of approximately $22 million, is a provider of low decibal, ultra
quiet vacuum compressors suitable to medical, dental and laboratory
applications. JUN-AIR operates as part of Gast in the Health & Science
Technologies segment. IDEX acquired JUN-AIR for an aggregate purchase price of
$22.4 million, consisting of $15.3 million in cash and debt of approximately
$7.1 million. Goodwill and intangible assets recognized as part of this
transaction were $9.5 million and $3.7 million, respectively. The $9.5 million
of goodwill is not deductible for tax purposes.
On May 2, 2006, the Company acquired the stock of Eastern Plastics, Inc.
("Eastern Plastics"), a provider of high-precision integrated fluidics and
associated engineered plastics solutions. Based in Bristol, Connecticut with
annual revenues of approximately $30 million, Eastern Plastics products are used
in a broad set of end markets including medical diagnostics, analytical
instrumentation, and laboratory automation. IDEX acquired Eastern Plastics for a
purchase price of $92.4 million, consisting entirely of cash. Eastern Plastics
operates as a stand-alone business in the Health & Science Technologies segment.
Goodwill and intangible assets recognized as part of this transaction were $59.8
million and $19.1 million, respectively. The $59.8 million of goodwill is
deductible for tax purposes.
On October 3, 2006, the Company acquired the stock of Banjo Corporation
("Banjo"), a provider of special purpose, severe duty pumps, valves, fittings
and systems used in liquid handling. Based in Crawfordsville, Indiana, with
annual revenues of approximately $44 million, Banjo's products are used in
agricultural and industrial applications. IDEX acquired Banjo for a purchase
price of $184.5 million, primarily with financing provided by borrowings under
the Company's credit facilities. Banjo operates as a stand-alone business in the
Fluid & Metering Technologies segment. Goodwill and intangible assets recognized
as part of this transaction were $101.1 million and $99.3 million, respectively.
The $101.1 million of goodwill is not deductible for tax purposes.
On December 1, 2006, the Company acquired the stock of Toptech Systems,
Inc. ("Toptech"), a leading provider of terminal automation systems used in the
custody transfer and control of high-value fluids and gases. Based in Longwood,
Florida, with annual revenues of approximately $22 million, Toptech's products
include terminal automation hardware and software used by customers in the oil,
gas and refined fuels markets to control and manage inventories, as well as
transactional data and invoicing. IDEX acquired Toptech for a purchase price of
$55.0 million, primarily financed by borrowings under the Company's credit
facilities. Toptech operates as part of the Liquid Controls business in its
Fluid & Metering Technologies segment. Goodwill and intangible assets recognized
as part of this transaction were $31.3 million and $20.6 million, respectively.
The $31.3 million of goodwill is deductible for tax purposes.
The purchase price for Airshore, JUN-AIR, Eastern Plastics, Banjo and
Toptech, including transaction costs, has been allocated to the assets acquired
and liabilities assumed based on estimated fair values at the date of the
acquisitions. The purchase price allocation is preliminary and further
refinements may be necessary pending finalization of asset valuations.
The results of operations for these acquisitions have been included in the
financial results from the date of the respective acquisition. The Company does
not consider any of the acquisitions, individually or in aggregate, to be
material to its results of operations for any of the periods presented.
11. DISCONTINUED OPERATIONS
On July 11, 2006, IDEX sold Lubriquip, its lubricant dispensing business
that operated as part of IDEX's Dispensing Equipment segment, resulting in an
after-tax gain of $16.7 million.
In September 2006, the Company determined that Halox, its chemical and
electrochemical systems product line operating as part of Pulsafeeder in IDEX's
Fluid & Metering Technologies segment, met the criteria to be classified as
assets held for sale and a discontinued operation. As a result, the Company
recorded a $6.2 million write-down ($4.1 million after-tax) of the carrying
value of Halox to its estimated
42
fair market value. The Company is marketing the Halox operations and conducting
other actions required to complete the sale within one year.
Financial information for all periods presented has been restated to
present the operating results of both Lubriquip and Halox as discontinued
operations.
Summarized results of the Company's discontinued operations are as follows:
DECEMBER 31,
---------------------------
(in thousands) 2006 2005 2004
------- ------- -------
Revenue ................................. $18,149 $32,022 $27,225
======= ======= =======
Income from discontinued operations
before income taxes .................. $ 525 $ 1,709 $ 31
Income tax benefit (provision) .......... (231) (481) 40
------- ------- -------
Sub-total ............................... 294 1,228 71
Net gain on sale of discontinued
operations, net of tax ............... 12,655 -- --
------- ------- -------
Income from discontinued operations .. $12,949 $ 1,228 $ 71
======= ======= =======
Total assets and liabilities expected to be transferred as part of the sale
of the discontinued operations at December 31, 2006 and 2005 were as follows:
DECEMBER 31, DECEMBER 31,
(in thousands) 2006 2005
------------ ------------
Cash and cash equivalents ........... $ 2 $ 89
Receivables, net .................... 424 3,115
Inventory, net ...................... 272 3,295
Other current assets ................ 20 129
Property, plant and equipment, net .. 111 3,000
Goodwill(1).......................... -- 471
---- -------
Assets held for sale ................ $829 $10,099
==== =======
Accounts payable .................... $154 $ 2,614
Other liabilities ................... 219 2,178
---- -------
Liabilities held for sale ........... $373 $ 4,792
==== =======
(1) Balance as of December 31, 2005 excludes $6.6 million of goodwill, which
was written off as part of the loss in 2006.
12. STOCK-BASED COMPENSATION
As of December 31, 2006, the Company has two stock-based compensation plans
for executives, non-employee directors, and certain key employees which
authorize the granting of stock options, restricted stock, restricted stock
units, and other types of awards consistent with the purpose of the plans. The
number of shares authorized for issuance under the Company's plans as of
December 31, 2006, totals 2.3 million, of which .9 million shares were available
for future issuance. Stock options granted under these plans are generally
non-qualified, and are granted with an exercise price equal to the market price
of the Company's stock at the date of grant. Substantially all of the options
issued to employees prior to 2005 become exercisable in five equal installments,
while all options issued to employees in 2005 and after become exercisable in
four equal installments, beginning one year from the date of grant, and
generally expire 10 years from the date of grant. Stock options granted to
non-employee directors cliff vest after one or two years. Restricted stock and
restricted stock unit awards generally cliff vest after four years for
employees, and three years for non-employee directors.
43
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123(R) using the modified prospective method, and thus
did not restate any prior period amounts. Under this method, compensation cost
in the twelve months ending December 31, 2006 include the portion vesting in the
period for (1) all share-based payments granted prior to, but not vested as of
December 31, 2005, based on the grant date fair value estimated using the
Black-Scholes option-pricing model in accordance with the original provisions of
SFAS No. 123 and (2) all share-based payments granted subsequent to December 31,
2005, based on the grant date fair value estimated using the Binomial lattice
option-pricing model. Weighted average option fair values and assumptions for
the period specified are disclosed in the following table:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------
2006 2005 2004
------------ ------ ------
Weighted average fair value of grants... $14.42 $12.51 $ 7.81
Dividend yield.......................... 1.21% 1.50% 1.55%
Volatility.............................. 30.76% 30.00% 29.60%
Risk-free interest rate................. 4.71% - 5.00% 4.30% 3.00%
Expected life (in years)................ 4.93 5.50 5.50
The assumptions are as follows:
- The Company estimated volatility using its historical share price
performance over the contractual term of the option.
- The Company uses historical data to estimate the expected life of the
option. The expected life assumption for the year ended December 31, 2006,
is an output of the Binomial lattice option-pricing model, which
incorporates vesting provisions, rate of voluntary exercise and rate of
post-vesting termination over the contractual life of the option to define
expected employee behavior.
- The risk-free interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant for periods within the contractual life of the
option. For the year ended December 31, 2006, the Company presents the
range of risk-free one-year forward rates, derived from the U.S. treasury
yield curve, utilized in the Binomial lattice option-pricing model.
- The expected dividend yield is based on the Company's current dividend
yield as the best estimate of projected dividend yield for periods within
the contractual life of the option.
Results of prior periods do not reflect any restated amounts and the
Company had no cumulative effect adjustment upon adoption of SFAS No. 123(R)
under the modified prospective method. The Company's policy is to recognize
compensation cost on a straight-line basis over the requisite service period for
the entire award. Additionally, the Company's general policy is to issue new
shares of common stock to satisfy stock option exercises or grants of restricted
stock.
The adoption of SFAS No. 123(R) decreased the Company's reported operating
income and income before income taxes for the twelve months ending December 31,
2006, by $7.6 million and reported net income by $4.7 million. The adoption of
SFAS No. 123(R) resulted in a decrease in reported cash flow from operating
activities for the twelve months ending December 31, 2006, of $5.8 million,
offset by an increase in reported cash flow from financing activities. The
Company's adoption of SFAS No. 123(R) did not affect operating income, income
before income taxes, net income, cash flow from continuing operations, cash flow
from financing activities, basic and diluted EPS reported for 2005.
Total compensation cost for stock-based compensation arrangements
recognized in the twelve months ending December 31, 2006, was $7.6 million for
stock options and $3.1 million for restricted stock. Compensation cost
recognized in SG&A expenses for the twelve months ending December 31, 2006, was
$6.6 million for stock options and $3.0 million for restricted stock.
Compensation cost recognized in cost of goods sold for the twelve months ending
December 31, 2006, was $1.0 million for stock options and $0.1 million for
restricted stock. Recognition of compensation cost was consistent with
recognition of cash compensation for the same employees, and $0.2 million of
compensation cost was capitalized as part of
44
inventory. The total income tax benefit recognized in the income statement for
the twelve months ending December 31, 2006 for stock-based compensation
arrangements was $2.9 million.
As of December 31, 2006, there was $14.3 million of total unrecognized
compensation cost related to stock options that is expected to be recognized
over a weighted-average period of 1.4 years.
A summary of the Company's stock option activity as of December 31, 2006,
and changes during the year ended December 31, 2006 is presented in the
following table:
Weighted Weighted-Average Aggregate
Average Remaining Intrinsic
Stock Options Shares Price Contractual Term Value
------------- --------- -------- ---------------- -----------
Outstanding at January 1, 2006.......... 4,197,150 $26.57
Granted................................. 675,895 49.34
Exercised............................... (733,440) 23.02
Forfeited/Expired....................... (530,312) 29.12
--------- ------ ---- -----------
Outstanding at December 31, 2006........ 3,609,293 $31.13 7.06 $60,625,312
--------- ------ ---- -----------
Expected to vest at December 31, 2006... 3,441,904 $30.72 6.99 $59,108,800
--------- ------ ---- -----------
Exercisable at December 31, 2006........ 1,574,658 $24.67 5.92 $35,799,923
========= ====== ==== ===========
The intrinsic value for stock options outstanding and exercisable is
defined as the difference between the market value of the Company's common stock
as of the end of the period and the grant price. The total intrinsic value of
options exercised during the twelve months ending December 31, 2006, was $18.6
million. During the year ending December 31, 2006, cash received from options
exercised was $17.2 million and the actual tax benefit realized for the tax
deductions from stock options exercised totaled $6.8 million.
A summary of the Company's restricted stock activity as of December 31,
2006, and changes during the year ending December 31, 2006, is presented in the
following table:
Weighted-Average
Grant Date Fair
Restricted Stock Shares Value
---------------- ------- ----------------
Nonvested at January 1, 2006..... 296,530 $35.93
Granted.......................... 74,310 50.50
Vested........................... (48,675) 36.01
Forfeited........................ (11,620) 42.84
------- ------
Nonvested at December 31, 2006... 310,545 $39.49
======= ======
Generally, restricted stock grants accrue dividends and their fair value is
equal to the market price of the Company's stock at the date of the grant. As of
December 31, 2006, there was $7.2 million of total unrecognized compensation
cost related to restricted stock that is expected to be recognized over a
weighted-average period of 1.4 years.
13. RETIREMENT BENEFITS
In September 2006, the FASB issued SFAS No. 158, which amends certain
requirements of SFAS Nos. 87, 88, 106 and 132(R). Under SFAS No. 158, companies
are required to report the plan's funded status on their balance sheets. The
difference between the plan's funded status and its current balance sheet
position is recognized, net of tax, as a component of other comprehensive
income. This statement is effective for fiscal years ending after December 15,
2006. We adopted SFAS No. 158 effective December
45
31, 2006, and the incremental effect of applying it on individual line items on
our consolidated balance sheet as of December 31, 2006 is as follows:
Before After
Application Application
(in thousands) of SFAS No. 158 Adjustments of SFAS No. 158
--------------- ----------- ---------------
Other noncurrent assets........ $ 14,501 $(11,500) $ 3,001
Total assets................... 1,682,321 (11,500) 1,670,821
Accrued expenses............... 90,372 4,798 95,170
Other noncurrent liabilities... 45,377 4,834 50,211
Total liabilities.............. 681,917 9,632 691,549
Other comprehensive income..... (5,177) (21,132) (26,309)
Total shareholders' equity..... 1,000,404 (21,132) 979,272
The Company sponsors several qualified and nonqualified pension plans and
other postretirement plans for its employees. The Company uses a measurement
date of December 31 for its U.S. and Canadian defined benefit pension plans and
a September 30 measurement date for its other non-U.S. defined benefit pension
plans. The following table provides a reconciliation of the changes in the
benefit obligations and fair value of plan assets over the two-year period ended
December 31, 2006, and a statement of the funded status at December 31 for both
years:
46
PENSION BENEFITS
-----------------------------------------
2006 2005 OTHER BENEFITS
------------------- ------------------- -------------------
(in thousands) U.S. Non-U.S. U.S. Non-U.S. 2006 2005
-------- -------- -------- -------- -------- --------
Change in benefit obligation
Obligation at January 1 $ 78,627 $ 23,373 $ 73,432 $ 21,883 $ 23,319 $ 20,090
Service cost 2,128 726 4,261 593 478 410
Interest cost 4,359 1,235 4,107 1,124 1,211 1,193
Plan amendments 705 -- 492 -- -- (93)
Benefits paid (6,516) (895) (5,821) (1,048) (1,140) (1,015)
Actuarial loss 1,035 962 2,941 3,495 (521) 2,734
Currency translation -- 3,151 -- (2,674) (9) --
Divestitures (4,178) -- -- -- -- --
Curtailments/Settlements (1,633) -- (785) -- -- --
Other 2,395 3,861 -- -- -- --
-------- -------- -------- -------- -------- --------
Obligation at December 31 $ 76,922 $ 32,413 $ 78,627 $ 23,373 $ 23,338 $ 23,319
======== ======== ======== ======== ======== ========
Change in plan assets
Fair value of plan assets at January 1 $ 65,236 $ 12,264 $ 64,306 $ 11,163 $ -- $ --
Actual return on plan assets 7,312 1,048 1,098 1,447 -- --
Employer contributions 4,950 1,921 6,438 1,983 1,140 1,015
Benefits paid (6,516) (895) (5,821) (1,048) (1,140) (1,015)
Currency translation -- 1,849 -- (1,281) -- --
Divestitures (4,892) -- -- -- -- --
Curtailments/Settlements (1,633) -- (785) -- -- --
Other -- 665 -- -- -- --
-------- -------- -------- -------- -------- --------
Fair value of plan assets at December 31 $ 64,457 $ 16,852 $ 65,236 $ 12,264 $ -- $ --
======== ======== ======== ======== ======== ========
Funded Status at December 31 $(12,465) $(15,561) $(13,391) $(11,109) $(23,338) $(23,319)
Components on the Consolidated Balance
Sheets *:
Noncurrent assets $ 12 $ -- $ -- $ -- $ -- $ --
Current liabilities (2,978) (517) -- -- (1,302) --
Noncurrent liabilities (9,499) (15,044) -- -- (22,036) --
-------- -------- -------- -------- -------- --------
Net liability at December 31 $(12,465) $(15,561) $ -- $ -- $(23,338) $ --
======== ======== ======== ======== ======== ========
* In accordance with SFAS No. 158, retrospective application is not required
47
The accumulated benefit obligation for all defined benefit pension plans
was $102.5 million and $95.7 million at December 31, 2006 and 2005,
respectively. For plans with an accumulated benefit obligation in excess of plan
assets, the projected benefit obligation, accumulated benefit obligation and
fair value of plan assets was $28.2 million, $26.7 million and $3.3 million,
respectively, at December 31, 2006, and $33.2 million, $31.9 million and $12.3
million, respectively, at December 31, 2005.
The assumptions used in the measurement of the Company's benefit obligation
at December 31, 2006 and 2005, were as follows:
U.S. PLANS NON-U.S. PLANS
------------------ -----------------------
2006 2005 2006 2005
---------- ----- ---------- ----------
Discount rate.................... 5.80% 5.50% 4.50-5.25% 4.30-5.10%
Expected return on plan assets... 8.50% 8.50% 5.00-7.00% 5.00-5.90%
Rate of compensation increase.... 4.00% 4.00% 2.75-4.50% 4.25%
To develop the expected rate of return on plan assets, the Company
considered the historical returns and the future expectations for returns on
each asset class, as well as the target asset allocation of the pension
portfolio.
The pre-tax amounts recognized in other comprehensive income (loss) as of
December 31, 2006 are as follows:
Non-U.S. Other Post-
U.S. Pension Pension Benefit Retirement
(in thousands) Benefit Plans Plans Benefit Plans Total
------------- --------------- ------------- --------
Initial net obligation .......... $ (93) $ -- $ (93)
Prior service credit (cost)...... (1,423) -- $ 363 (1,060)
Net loss ........................ (23,746) (10,751) (5,330) (39,827)
-------- -------- ------- --------
Total............................ $(25,262) $(10,751) $(4,967) $(40,980)
======== ======== ======= ========
The amounts in other comprehensive income as of December 31, 2006, that are
expected to be recognized as components of net periodic benefit cost during 2007
are as follows:
Non-U.S. Other Post-
U.S. Pension Pension Benefit Retirement
(in thousands) Benefit Plans Plans Benefit Plans Total
------------- --------------- ------------- ------
Initial net obligation........... $ 46 $ -- $ -- $ 46
Prior service cost............... 529 -- 30 559
Net loss......................... 2,087 744 158 2,989
------ ---- ---- ------
Total ........................... $2,662 $744 $188 $3,594
====== ==== ==== ======
48
The following tables provide the components of, and the assumptions used to
determine, the net periodic benefit cost for the plans in 2006, 2005 and 2004:
Pension Benefits
------------------------------------------------------------
2006 2005 2004
------------------ ------------------ ------------------
(in thousands) U.S. Non-U.S. U.S. Non-U.S. U.S. Non-U.S.
------- -------- ------- -------- ------- --------
Service cost .................... $ 2,128 $ 726 $ 4,261 $ 593 $ 3,849 $ 581
Interest cost ................... 4,359 1,235 4,107 1,124 4,014 1,089
Expected return on
plan assets .................. (5,175) (829) (5,271) (664) (5,009) (588)
Net amortization ................ 3,587 540 2,463 309 2,710 252
Other ........................... 2,186 -- 504 -- 265 --
------- ------ ------- ------ ------- ------
Net periodic benefit cost ....... $ 7,085 $1,672 $ 6,064 $1,362 $ 5,829 $1,334
======= ====== ======= ====== ======= ======
Other Benefits
------------------------
(in thousands) 2006 2005 2004
------ ------ ------
Service cost..................... $ 478 $ 410 $ 413
Interest cost.................... 1,211 1,194 1,088
Expected return on plan assets... -- -- --
Net amortization................. 373 212 67
Other............................ -- -- --
------ ------ ------
Net periodic benefit cost........ $2,062 $1,816 $1,568
====== ====== ======
U.S. Plans Non-U.S. Plans
------------------ ---------------------------------
2006 2005 2004 2006 2005 2004
---- ---- ---- --------- --------- ---------
Discount rate 5.50% 5.75% 6.00% 4.30-5.10% 5.50-6.00% 5.50-6.00%
Expected return
on plan assets 8.50% 8.50% 8.50% 5.00-7.00% 5.00-6.25% 6.50%
Rate of
compensation
increase 4.00% 4.00% 4.00% 3.00-4.40% 4.25% 4.25%
Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10% of the greater of the benefit obligation or the market value of assets are
amortized over the average remaining service period of active participants.
Costs of bargaining unit-sponsored multi-employer plans and defined contribution
plans were $7.8 million, $7.4 million and $6.4 million for 2006, 2005 and 2004,
respectively.
For measurement purposes, a 9.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2006. The rate was assumed
to decrease gradually each year to a rate of 6% for 2013, and remain at that
level thereafter. Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A 1% increase in the assumed
health care cost trend rates would increase the service and interest cost
components of the net periodic benefit cost by $.1 million and the health care
component of the accumulated postretirement benefit obligation by $2.0 million.
A 1% decrease in the assumed health care cost trend rate would decrease the
service and interest cost components of the net periodic benefit cost by $.1
million and the health care component of the accumulated postretirement benefit
obligation by $1.7 million.
49
PLAN ASSETS
The Company's pension plan weighted average asset allocations at December
31, 2006 and 2005, by asset category, were as follows:
2006 2005
---- ----
Equity securities................ 60% 64%
Debt securities.................. 39 35
Other............................ 1 1
--- ----
Total......................... 100% 100%
=== ====
INVESTMENT POLICIES AND STRATEGIES
The investment objectives of the Company's plan assets are to earn the
highest possible rate of return consistent with the tolerance for risk as
determined periodically by IDEX in its role as a fiduciary. The general
guidelines of asset allocation of fund assets are that "equities" will represent
from 55% to 75% of the market value of total fund assets with a target of 66%,
and "fixed income" obligations, including cash, will represent from 25% to 45%
with a target of 34%. The term "equities" includes common stock, convertible
bonds and convertible stock. The term "fixed income" includes preferred stock
and/or contractual payments with a specific maturity date. The Company strives
to maintain asset allocations within the designated ranges by conducting
periodic reviews of fund allocations and plan liquidity needs, and rebalancing
the portfolio accordingly. The total fund performance is monitored and results
measured using a 3- to 5-year moving average against long-term absolute and
relative return objectives to meet actuarially determined forecasted benefit
obligations. No restrictions are placed on the selection of individual
investments by the qualified investment fund managers. The performance of the
investment fund managers is reviewed on a regular basis, using appointed
professional independent advisors. As of December 31, 2006 and 2005, there were
no shares of the Company's stock held in plan assets.
CASH FLOWS
The Company expects to contribute approximately $5.1 million to its defined
benefit plans, $7.8 million to its defined contribution plans and $1.3 million
to its other postretirement benefit plans in 2007.
ESTIMATED FUTURE BENEFIT PAYMENTS
The future estimated benefit payments for the next five years and the five
years thereafter are as follows: 2007--$9.9 million; 2008--$6.8 million;
2009--$7.2 million; 2010--$7.9 million; 2011--$8.7 million; 2012 to 2016--$52.0
million.
14. SUBSEQUENT EVENTS
In February 2007, the Company acquired Faure Herman SA, a leading provider
of ultrasonic and helical turbine flow meters used in the custody transfer and
control of high value fluids and gases. Headquartered in La Ferte Bernard,
France, Faure Herman has sales offices in Europe and North America, with annual
revenues of approximately $22 million. Faure Herman will be operated as part of
the Company's Liquid Controls business within its Fluid & Metering Technologies
segment.
50
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the unaudited quarterly results of
operations for the years ended December 31, 2006 and 2005. All periods have
been presented to reflect discontinued operations (see Note 11).
2006 QUARTERS 2005 QUARTERS
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- -------- -------- -------- -------- -------- -------- --------
Net sales $266,388 $296,573 $289,848 $302,131 $244,515 $264,296 $249,576 $252,866
Gross profit 110,133 122,921 118,765 125,588 99,713 109,422 101,304 103,528
Operating income 47,778 55,984 54,413 59,031 40,460 47,934 45,870 46,768
Income from
continuing
operations 29,581 34,619 33,333 36,189 23,451 28,805 27,992 28,327
Income (loss) from
discontinued
operations, net
of tax 497 337 12,663 (548) 194 128 523 383
Net income $ 30,078 $ 34,956 $ 45,996 $ 35,641 $ 23,645 $ 28,933 $ 28,515 $ 28,710
Basic EPS from
continuing
operations $ .56 $ .65 $ .63 $ .68 $ .46 $ .57 $ .54 $ .54
Basic EPS from
discontinued
operations .01 .01 .24 (.01) .01 -- .01 .01
Basic EPS $ .57 $ .66 $ .87 $ .67 $ .47 $ .57 $ .55 $ .55
Basic weighted
average shares
outstanding 52,637 53,014 53,126 53,293 50,679 50,963 51,618 52,306
Diluted EPS from
continuing
operations $ .55 $ .64 $ .62 $ .67 $ .45 $ .55 $ .53 $ .53
Diluted EPS from
discontinued
operations .01 .01 .23 (.01) -- -- .01 .01
Diluted EPS $ .56 $ .65 $ .85 $ .66 $ .45 $ .55 $ .54 $ .054
Diluted weighted
average shares
outstanding 53,857 54,029 53,971 54,186 52,383 52,641 53,071 53,492
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of IDEX Corporation
We have audited the accompanying consolidated balance sheets of IDEX
Corporation and its subsidiaries (the "Company") as of December 31, 2006 and
2005, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2006. Our audits also included the financial statement schedule listed in
the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of IDEX Corporation and its
subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2006,
based on the criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 27, 2007 expressed an unqualified opinion on
management's assessment of the effectiveness of the Company's internal control
over financial reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
As discussed in Note 1, effective January 1, 2006, the Company changed its
method of accounting for stock-based compensation as a result of adopting
Statement of Financial Accounting Standards No. 123(R), "Share Based Payment".
As discussed in Note 13 effective December 31, 2006, the Company changed its
method of accounting for pensions and other postretirement benefits as a result
of adopting Statement of Financial Accounting Standards No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans".
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
February 27, 2007
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of IDEX Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that IDEX
Corporation and its subsidiaries (the "Company") maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As described in
Management's Report on Internal Control Over Financial Reporting, management
excluded from its assessment the internal control over financial reporting at:
Banjo Corporation, which was acquired on October 3, 2006 and whose
financial statements constitute 9.9 percent and 14.0 percent of net and total
assets, respectively, 1.0 percent of revenues, and 1.5 percent of net income of
the consolidated financial statement amounts as of and for the year ended
December 31, 2006,
Toptech Systems Inc., which was acquired on December 1, 2006 and whose
financial statements constitute 3.2 percent and 3.5 percent of net and total
assets, respectively, 0.2 percent of revenues, and 0.4 percent of net income of
the consolidated financial statement amounts as of and for the year ended
December 31, 2006.
Accordingly, our audit did not include the internal control over financial
reporting at Banjo Corporation and Toptech Systems, Inc. The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the
53
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the financial statements and
financial statement schedule as of and for the year ended December 31, 2006 of
the Company and our report dated February 27, 2007 expressed an unqualified
opinion on those financial statements and included an explanatory paragraph
related to a change in accounting for share based payments as a result of
adopting Statement of Financial Accounting Standards No. 123(R), "Share Based
Payments" and a change in accounting for pension and other postretirement
benefits as a result of adopting Statement of Financial Accounting Standards No.
158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans".
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
February 27, 2007
54
Management's Report on Internal Control over Financial Reporting
Internal control over financial reporting refers to the process designed
by, or under the supervision of, our Chief Executive Officer and Chief Financial
Officer, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, and includes those policies and
procedures that:
Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company; Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management
and directors of the Company; and Provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company's assets that could have a material effect on the financial
statements.
Internal control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. Management is
responsible for establishing and maintaining effective internal control over
financial reporting for the Company. Management has used the framework set forth
in the report entitled "Internal Control--Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission to assess the
effectiveness of the Company's internal control over financial reporting.
Management has concluded that the Company's internal control over financial
reporting was effective as of December 31, 2006.
The Company completed the acquisition of Banjo Corporation (Banjo) on
October 3, 2006. Due to the timing of the acquisition, management has excluded
Banjo from our evaluation of effectiveness of internal controls over financial
reporting. This exclusion represented approximately 1.0 percent of total sales
and 1.5 percent of net income as well as 9.9 percent of net assets and 14.0
percent of total assets for the year ended December 31, 2006.
The Company completed the acquisition of Toptech Systems, Inc. (Toptech) on
December 1, 2006. Due to the timing of the acquisition, management has excluded
Toptech from our evaluation of effectiveness of internal controls over financial
reporting. This exclusion represented approximately 0.2 percent of total sales
and 0.4 percent of net income as well as 3.2 percent of net assets and 3.5
percent of total assets for the year ended December 31, 2006.
The Company's independent registered public accounting firm, Deloitte &
Touche LLP has issued an attestation report on management's assessment of the
Company's internal control over financial reporting dated February 27, 2007.
/s/ Lawrence D. Kingsley
-------------------------------------
Lawrence D. Kingsley
Chairman of the Board and
Chief Executive Officer
55
/s/ Dominic A. Romeo
-------------------------------------
Dominic A. Romeo
Vice President and Chief Financial
Officer
Northbrook, Illinois
February 27, 2007
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and the Company's Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based on the foregoing, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective at the reasonable assurance level.
The information set forth under the captions "Report of Independent
Registered Public Accounting Firm" and "Management's Report on Internal Control
Over Financial Reporting" on pages 53 - 55 of Part II. Item 8. Financial
Statements and Supplementary Data is incorporated herein by reference.
There has been no change in the Company's internal controls over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
During the fourth quarter of 2006, the Company implemented a new ERP system
at one of our larger business units. The Company believes that effective
internal control over financial reporting was maintained during and after this
conversion.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," and the information under the
subheading "Information Regarding the Board of Directors and Committees," in the
Company's 2007 Proxy Statement is incorporated herein by reference. Information
regarding executive officers of the Company is located in Part I. Item 1. of
this report under the caption "Executive Officers of the Registrant."
The Company has adopted a Code of Business Conduct and Ethics applicable to
the Company's directors, officers (including the Company's principal executive
officer and principal financial & accounting officer) and employees. The Code of
Business Conduct and Ethics, along with the Audit Committee Charter, Nominating
and Corporate Governance Committee Charter, Compensation Committee Charter and
Corporate Governance Guidelines are available on the Company's website at
www.idexcorp.com.
57
In the event that we amend or waive any of the provisions of the Code of
Business Conduct and Ethics applicable to our principal executive officer or
principal financial & accounting officer, we intend to disclose the same on the
Company's website.
ITEM 11. EXECUTIVE COMPENSATION.
Information under the heading "Executive Compensation" in the Company's
2007 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS.
Information under the heading "Security Ownership" in the Company's 2007
Proxy Statement is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information with respect to the
Company's equity compensation plans as of December 31, 2006:
NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE FOR
EXERCISE OF OUTSTANDING FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, OPTIONS, WARRANTS EQUITY COMPENSATION
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS PLANS(1)
------------- -------------------- ----------------- -----------------------
Equity compensation plans approved by the
Company's shareholders ........................ 3,844,488 $ 29.22 858,766(2)
Equity compensation plans not approved by
the Company's shareholders..................... -- -- 432,851(3)
--------- ------- ---------
Total ...................................... 3,844,488 $ 29.22 1,291,617
========= ======= =========
--------------------
(1) Excludes securities to be issued upon the exercise of outstanding options,
warrants and rights.
(2) Includes 27,985 shares remaining available for future issuance for
settlement of Deferred Compensation Units under the Directors' Deferred
Compensation Plan.
(3) Includes 432,851 shares remaining for future issuance for settlement of
Deferred Compensation Units under the 1996 Deferred Compensation Plan for
Non-Officer Presidents (the "Presidents' Deferred Compensation Plan").
Under the Presidents' Deferred Compensation Plan, presidents who are not
officers can defer their compensation into either an interest-bearing
account or a deferred compensation units account as of the date that such
compensation would otherwise be payable. The deferred compensation credited
to the interest-bearing account is credited with interest, as determined by
the Company, on at least a quarterly basis, based on an interest rate equal
to the Lehman Brothers Long Term AAA Corporate Bond Yield Average as
determined on the first business day of December preceding the calendar
year. Deferred compensation credited to the deferred compensation units
account is converted into a number of Deferred Compensation Units (DCUs),
which represent equivalent shares of the Company Common Stock.
The number of DCUs is determined by dividing the amount deferred by the
closing price of the Company's Common Stock the day before the date of
deferral. The DCUs are entitled to receive dividend equivalents which are
reinvested in DCUs based on the same formula for investment of a
participant's deferral. Both of these accounts are payable upon separation
of service within the meaning of Internal Revenue Code Section 409A of the
Internal Revenue Code; however, no benefits are payable prior to the date
that is six months after the date of separation of service, or the date of
death of the employee, if earlier.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
No certain relationships exist. Information under the heading "Information
Regarding the Board of Directors and Committees" in the Company's 2007 Proxy
Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information under the heading "Principal Accountant Fees and Services" in
the Company's 2007 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(A) 1. Financial Statements
Consolidated financial statements filed as part of this report are listed
under Part II. Item 8. "Financial Statements and Supplementary Data" of this
Annual Report on Form 10-K.
2006 FORM
10-K PAGE
---------
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts................. 59
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the
Consolidated Financial Statements of IDEX or the Notes thereto.
3. Exhibits
The exhibits filed with this report are listed on the "Exhibit Index."
(B) Exhibit Index
Reference is made to the Exhibit Index beginning on page 61 hereof.
58
IDEX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(IN THOUSANDS)
BALANCE CHARGED TO
BEGINNING COSTS AND BALANCE
DESCRIPTION OF YEAR EXPENSES (1) DEDUCTIONS (2) OTHER (3) END OF YEAR
----------- --------- ------------ -------------- --------- -----------
Allowance for Doubtful Accounts
Year Ended December 31, 2006:
Deducted from assets to which they apply:
Allowance for Doubtful Accounts .............. $3,684 $553 $746 $ 54 $3,545
Year Ended December 31, 2005:
Deducted from assets to which they apply:
Allowance for Doubtful Accounts............... 4,106 866 658 (630) 3,684
Year Ended December 31, 2004:
Deducted from assets to which they apply:
Allowance for Doubtful Accounts............... 3,640 976 904 394 4,106
----------
(1) Includes provision for doubtful accounts, sales returns and sales discounts
granted to customers.
(2) Represents uncollectible accounts, net of recoveries.
(3) Represents acquisition, divestiture, translation and reclassification
adjustments.
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IDEX CORPORATION
By: /s/ DOMINIC A. ROMEO
------------------------------------
Dominic A. Romeo
Vice President and Chief Financial
Officer
Date: February 27, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ LAWRENCE D. KINGSLEY Chairman of the Board and Chief Executive Officer February 27, 2007
------------------------------------- (Principal Executive Officer)
Lawrence D. Kingsley
/S/ DOMINIC A. ROMEO Vice President and Chief Financial Officer February 27, 2007
------------------------------------- (Principal Financial and Accounting Officer)
Dominic A. Romeo
/S/ BRADLEY J. BELL Director February 27, 2007
-------------------------------------
Bradley J. Bell
/S/ RUBY R. CHANDY Director February 27, 2007
-------------------------------------
Ruby R. Chandy
/S/ FRANK S. HERMANCE Director February 27, 2007
-------------------------------------
Frank S. Hermance
/S/ GREGORY B. KENNY Director February 27, 2007
-------------------------------------
Gregory B. Kenny
/S/ NEIL A. SPRINGER Director February 27, 2007
-------------------------------------
Neil A. Springer
/S/ MICHAEL T. TOKARZ Director February 27, 2007
-------------------------------------
Michael T. Tokarz
60
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation of IDEX Corporation
(formerly HI, Inc.) (incorporated by reference to Exhibit No. 3.1
to the Registration Statement on Form S-1 of IDEX, et al.,
Registration No. 33-21205, as filed on April 21, 1988)
3.1(a) Amendment to Restated Certificate of Incorporation of IDEX
Corporation (formerly HI, Inc.) (incorporated by reference to
Exhibit No. 3.1(a) to the Quarterly Report of IDEX on Form 10-Q
for the quarter ended March 31, 1996, Commission File No. 1-10235)
3.1(b) Amendment to Restated Certificate of Incorporation of IDEX
Corporation (formerly HI, Inc.) (incorporated by reference to
Exhibit No. 3.1(b) to the Current Report of IDEX on Form 8-K March
24, 2005, Commission File No. 1-10235)
3.2 Amended and Restated By-Laws of IDEX Corporation (incorporated by
reference to Exhibit No. 3.2 to Post-Effective Amendment No. 2 to
the Registration Statement on Form S-1 of IDEX, et al.,
Registration No. 33-21205, as filed on July 17, 1989)
3.2(a) Amended and Restated Article III, Section 13 of the Amended and
Restated By-Laws of IDEX Corporation (incorporated by reference to
Exhibit No. 3.2(a) to Post-Effective Amendment No. 3 to the
Registration Statement on Form S-1 of IDEX, et al., Registration
No. 33-21205, as filed on February 12, 1990)
4.1 Restated Certificate of Incorporation and By-Laws of IDEX
Corporation (filed as Exhibits No. 3.1 through 3.2 (a))
4.2 Indenture, dated as of February 23, 1998, between IDEX
Corporation, and Norwest Bank Minnesota, National Association, as
Trustee, relating to the 6-7/8% of Senior Notes of IDEX due
February 15, 2008 (incorporated by reference to Exhibit No. 4.1 to
the Current Report of IDEX on Form 8-K dated February 23, 1998,
Commission File No. 1-10235)
4.3 Specimen Senior Note of IDEX Corporation (incorporated by
reference to Exhibit No. 4.1 to the Current Report of IDEX on Form
8-K dated February 23, 1998, Commission File No. 1-10235)
4.4 Specimen Certificate of Common Stock of IDEX Corporation
(incorporated by reference to Exhibit No. 4.3 to the Registration
Statement on Form S-2 of IDEX, et al., Registration No. 33-42208,
as filed on September 16, 1991)
4.5 Credit Agreement, dated as of December 21, 2006, among IDEX
Corporation, Bank of America N.A. as Agent and Issuing Bank, and
the Other Financial Institutions Party Hereto (incorporated by
reference to Exhibit 10.1 to the Current Report of IDEX on Form
8-K dated December 22, 2006, Commission File No. 1-10235)
4.6 Credit Lyonnais Uncommitted Line of Credit, dated as of December
3, 2001 (incorporated by reference to Exhibit 4.6 to the Annual
Report of IDEX on Form 10-K for the year ended December 31, 2001,
Commission File No. 1-10235)
*4.6(a) Amendment No. 7 dated as of December 12, 2006 to the Credit
Lyonnais Uncommitted Line of Credit Agreement dated December 3,
2001
10.1** Revised and Restated IDEX Management Incentive Compensation Plan
for Key Employees Effective January 1, 2003
10.2** Form of Indemnification Agreement of IDEX Corporation
(incorporated by reference to Exhibit No. 10.23 to the
Registration Statement on Form S-1 of IDEX, et al., Registration
No. 33-28317, as filed on April 26, 1989)
61
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.3** Form of Shareholder Purchase and Sale Agreement of IDEX Corporation
(incorporated by reference to Exhibit 10.24 to Amendment No. 1 to
the Registration Statement on Form S-1 of IDEX, Registration No.
33-28317, as filed on June 1, 1989)
10.4** IDEX Corporation Amended and Restated Stock Option Plan for
Outside Directors adopted by resolution of the Board of Directors
dated as of January 25, 2000 (incorporated by reference to Exhibit
No. 10.1 of the Quarterly Report of IDEX on Form 10-Q for the
quarter ended March 31, 2000, Commission File No. 10-10235)
10.4(a)** First Amendment to IDEX Corporation Amended and Restated Stock
Option Plan for Outside Directors, adopted by resolution of the
Board of Directors dated as of November 20, 2003 (incorporated by
reference to Exhibit 10.6 (a) to the Annual Report of IDEX on Form
10-K for the year ended December 31, 2003)
10.5** Non-Qualified Stock Option Plan for Non-Officer Key Employees of
IDEX Corporation (incorporated by reference to Exhibit No. 10.15
to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 1992, Commission File No. 1-102351)
10.6** Third Amended and Restated 1996 Stock Option Plan for Non-Officer
Key Employees of IDEX Corporation dated January 9, 2003
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-8 of IDEX, Registration No. 333-104768, as
filed on April 25, 2003)
10.7** Non-Qualified Stock Option Plan for Officers of IDEX Corporation
(incorporated by reference to Exhibit No. 10.16 to the Annual
Report of IDEX on Form 10-K for the year ended December 31, 1992,
Commission File No. 1-102351)
10.8** First Amended and Restated 1996 Stock Plan for Officers of IDEX
Corporation (incorporated by reference to Exhibit No. 10.1 to the
Quarterly Report of IDEX on Form 10-Q for the quarter ended March
31, 1998, Commission File No. 1-102351)
10.9** 2001 Stock Plan for Officers dated March 27, 2001 (incorporated by
reference to Exhibit No. 10.2 to the Quarterly Report of IDEX on
Form 10-Q for the quarter ended March 31, 2001, Commission File
No. 1-10235)
10.10** Executive Incentive Bonus Plan dated March 27, 2001 (incorporated
by reference to Exhibit No. 10.1 to the Quarterly Report of IDEX
on Form 10-Q for the quarter ended March 31, 2001, Commission File
No. 1-10235)
10.11** IDEX Corporation Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit No. 10.17 to the Annual
Report of IDEX on Form 10-K for the year ended December 31, 1992,
Commission File No. 1-102351)
10.12** Second Amended and Restated IDEX Corporation Directors Deferred
Compensation Plan (incorporated by reference to Exhibit No.
10.14(b) to the Annual Report of IDEX on Form 10-K for the year
ended December 31, 1997, Commission File No. 1-10235)
10.13** IDEX Corporation 1996 Deferred Compensation Plan for Officers
(incorporated by reference to Exhibit No. 4.8 to the Registration
Statement on Form S-8 of IDEX, et al., Registration No. 333-18643,
as filed on December 23, 1996)
10.13(a)** First Amendment to the IDEX Corporation 1996 Deferred Compensation
Plan for Officers, dated March 23, 2004 (incorporated by reference
to Exhibit No. 10.1 to the Quarterly Report of IDEX on Form 10-Q
for the quarter ended March 31, 2004)
10.14** IDEX Corporation 1996 Deferred Compensation Plan for Non-Officer
Presidents (incorporated by reference to Exhibit No. 4.7 to the
Registration Statement on Form S-8 of IDEX, et al., Registrant No.
333-18643, as filed on December 23, 1996)
62
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.15** Letter Agreement between IDEX Corporation and John L. McMurray,
dated April 24, 2000 (incorporated by reference to Exhibit No.
10.17(a) to the Annual Report of IDEX on Form 10-K for the year
ended December 31, 2001, Commission File No. 1-10235)
10.16** Letter Agreement between IDEX Corporation and Dominic A. Romeo,
dated December 1, 2003 (incorporated by reference to Exhibit No.
10.21 to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 2003)
10.17** Restricted Stock Award Agreement between IDEX Corporation and
Dominic A. Romeo, dated January 14, 2004 (incorporated by
reference to Exhibit No. 10.22 to the Annual Report of IDEX on
Form 10-K for the year ended December 31, 2003)
10.18** Employment Agreement between IDEX Corporation and Lawrence D.
Kingsley, dated July 21, 2004 (incorporated by reference to
Exhibit No. 10.1 to the Quarterly Report of IDEX on Form 10-Q for
the quarter ended September 30, 2004)
10.18(a)** First Amendment to Employment Agreement between IDEX Corporation
and Lawrence D. Kingsley, dated March 22, 2005 (incorporated by
reference to Exhibit 10.20 (a) to the Current Report of IDEX on
Form 8-K dated March 24, 2005, Commission File No. 1-10235)
10.19** Restricted Stock Award Agreement between IDEX Corporation and
Lawrence D. Kingsley, dated August 23, 2004 (incorporated by
reference to Exhibit No. 10.01 to the Periodic Report of IDEX on
Form 8-K filed on August 26, 2004)
10.20** Restricted Stock Award Agreement between IDEX Corporation and
Lawrence D. Kingsley, dated March 22, 2005 (incorporated by
reference to Exhibit No. 10.25 to the Current Report of IDEX on
Form 8-K filed dated March 24, 2005, Commission File No. 1-10235)
10.21** Form Stock Option Agreement (incorporated by reference to Exhibit
10.23 to the Current Report of IDEX on Form 8-K dated March 24,
2005, Commission File No. 1-10235)
10.22** Form Restricted Stock Agreement (incorporated by reference to
Appendix A of the Proxy Statement of IDEX Corporation, dated
February 25, 2005, Commission File No. 1-10235)
10.23** IDEX Corporation Incentive Award Plan (incorporated by reference
to Exhibit 10.24 to the Current Report of IDEX on Form 8-K dated
March 24, 2005, Commission File No. 1-10235)
10.24** Letter Agreement between IDEX Corporation and Frank J. Notaro,
dated April 24, 2000
10.25** Definitive agreement to acquire Banjo Corporation, dated September
8, 2006, (incorporated by reference to exhibit 10.1 to the Current
Report of IDEX on Form 8-K dated September 14, 2006, Commission
File No. 1-10235)
*12 Ratio of Earnings to Fixed Charges
*13 The portions of IDEX Corporation's 2006 Annual Report to
Shareholders, which are specifically incorporated by reference
*21 Subsidiaries of IDEX
*23 Consent of Deloitte & Touche LLP
63
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
*31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a)
*31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a)
*32.1 Certification pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code
*32.2 Certification pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code
----------
* Filed herewith
** Management contract or compensatory plan or agreement.
61