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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
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 whether the registrant is a large accelerated filer,
an accelerated filer or a non-accelerated filer.
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 Exchange Act).
Yes [ ] No [X]
Number of shares of common stock of IDEX Corporation outstanding as of
April 30, 2007: 54,082,742 (net of treasury shares).
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................. 1
Consolidated Balance Sheets....................................... 1
Consolidated Statements of Operations............................. 2
Consolidated Statements of Shareholders' Equity................... 3
Consolidated Statements of Cash Flows............................. 4
Notes to Consolidated Financial Statements........................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 13
Cautionary Statement Under the Private Securities Litigation
Reform Act........................................................ 13
Historical Overview and Outlook................................... 13
Results of Operations............................................. 14
Liquidity and Capital Resources................................... 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 18
Item 4. Controls and Procedures........................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....... 19
Item 5. Other Information................................................. 19
Item 6. Exhibits.......................................................... 19
Signatures................................................................. 20
Exhibit Index.............................................................. 21
Certifications............................................................. 22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, 2007 DECEMBER 31, 2006
-------------- -----------------
ASSETS
Current assets
Cash and cash equivalents............................ $ 77,500 $ 77,941
Receivables, less allowance for doubtful accounts of
$4,253 at March 31, 2007 and $3,545 at December
31, 2006.......................................... 196,336 166,485
Inventories.......................................... 169,668 160,687
Assets held for sale................................. 852 829
Other current assets................................. 21,803 11,966
---------- ----------
Total current assets.............................. 466,159 417,908
Property, plant and equipment -- net................... 167,278 165,949
Goodwill............................................... 927,495 912,600
Intangible assets -- net............................... 180,775 171,363
Other noncurrent assets................................ 2,533 3,001
---------- ----------
Total assets...................................... $1,744,240 $1,670,821
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable............................... $ 87,332 $ 75,444
Accrued expenses..................................... 91,794 95,170
Short-term borrowings................................ 158,489 8,210
Liabilities held for sale............................ 229 373
Dividends payable.................................... -- 8,055
---------- ----------
Total current liabilities......................... 337,844 187,252
Long-term borrowings................................... 217,900 353,770
Deferred income taxes.................................. 109,293 100,316
Other noncurrent liabilities........................... 50,437 50,211
---------- ----------
Total liabilities................................. 715,474 691,549
---------- ----------
Commitment and contingencies
Shareholders' equity
Preferred stock:
Authorized: 5,000,000 shares, $.01 per share par
value; Issued: None............................. -- --
Common stock:
Authorized: 150,000,000 shares, $.01 per share par
value Issued: 54,018,711 shares at March 31,
2007 and 53,779,414 shares at December 31,
2006............................................ 540 538
Additional paid-in capital........................... 336,578 326,968
Retained earnings.................................... 674,042 638,579
Pension liability adjustments........................ (25,716) (26,309)
Cumulative translation adjustment.................... 57,606 52,295
Treasury stock at cost: 92,118 shares at March 31,
2007 and 82,255 shares at December 31, 2006....... (3,750) (3,248)
Unearned compensation................................ (10,534) (9,551)
---------- ----------
Total shareholders' equity........................ 1,028,766 979,272
---------- ----------
Total liabilities and shareholders' equity........ $1,744,240 $1,670,821
========== ==========
See Notes to Consolidated Financial Statements.
1
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FIRST QUARTER ENDED
MARCH 31,
-------------------
2007 2006
-------- --------
Net sales.................................................... $333,268 $266,388
Cost of sales................................................ 193,604 156,255
-------- --------
Gross profit................................................. 139,664 110,133
Selling, general and administrative expenses................. 78,112 62,355
-------- --------
Operating income............................................. 61,552 47,778
Other income -- net.......................................... 573 11
Interest expense............................................. 6,379 2,941
-------- --------
Income from continuing operations before income taxes........ 55,746 44,848
Provision for income taxes................................... 18,915 15,267
-------- --------
Income from continuing operations............................ 36,831 29,581
Income (loss) from discontinued operations, net of tax....... (164) 497
-------- --------
Net income................................................... $ 36,667 $ 30,078
======== ========
Basic earnings per common share:
Continuing operations........................................ $ 0.69 $ 0.56
Discontinued operations...................................... -- 0.01
-------- --------
Net income................................................... $ 0.69 $ 0.57
======== ========
Diluted earnings per common share:
Continuing operations........................................ $ 0.68 $ 0.55
Discontinued operations...................................... (0.01) 0.01
-------- --------
Net income................................................... $ 0.67 $ 0.56
======== ========
Share data:
Basic weighted average common shares outstanding............. 53,509 52,637
Diluted weighted average common shares outstanding........... 54,451 53,857
Basic earnings per common share: (adjusted for announced
stock split- See Note 16) Continuing operations.............. $ 0.46 $ 0.37
Discontinued operations...................................... -- 0.01
-------- --------
Net income................................................... $ 0.46 $ 0.38
======== ========
Diluted earnings per common share: (adjusted for announced
stock split- See Note 16)
Continuing operations........................................ $ 0.45 $ 0.37
Discontinued operations...................................... -- --
-------- --------
Net income................................................... $ 0.45 $ 0.37
======== ========
Share data: (adjusted for announced stock split- See Note 16)
Basic weighted average common shares outstanding............. 80,264 78,956
Diluted weighted average common shares outstanding........... 81,677 80,786
See Notes to Consolidated Financial Statements.
2
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
COMMON STOCK &
ADDITIONAL PENSION CUMULATIVE TOTAL
PAID-IN RETAINED LIABILITY TRANSLATION TREASURY UNEARNED SHAREHOLDERS'
CAPITAL EARNINGS ADJUSTMENTS ADJUSTMENT STOCK COMPENSATION EQUITY
-------------- -------- ----------- ----------- -------- ------------ -------------
Balance, December 31, 2006... $327,506 $638,579 $(26,309) $52,295 $(3,248) $ (9,551) $ 979,272
-------- -------- -------- ------- ------- -------- ----------
Net income................... 36,667 36,667
Other comprehensive income,
net of tax
Cumulative translation
adjustment.............. 5,311 5,311
Amortization of periodic
pension cost............ 593 593
----------
Other comprehensive
income.................. 5,904
----------
Comprehensive income.... 42,571
----------
Issuance of 198,047 shares of
common stock from exercise
of stock options and
deferred compensation
plans...................... 7,726 7,726
Issuance of 12,250 shares of
restricted common stock.... 1,886 (1,886) --
Amortization of restricted
common stock award......... 903 903
Restricted shares surrendered
for tax withholdings....... (502) (502)
Cumulative effect of change
in accounting for
uncertainties in income
taxes (FIN No. 48 -- see
Note 14)................... (1,204) (1,204)
-------- -------- -------- ------- ------- -------- ----------
Balance, March 31, 2007...... $337,118 $674,042 $(25,716) $57,606 $(3,750) $(10,534) $1,028,766
-------- -------- -------- ------- ------- -------- ----------
See Notes to Consolidated Financial Statements.
3
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FIRST QUARTER
ENDED MARCH 31,
-------------------
2007 2006
-------- --------
Cash flows from operating activities of continuing operations
Net Income...................................................... $ 36,667 $ 30,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Income (loss) from discontinued operations.................... 164 (498)
Depreciation and amortization................................. 7,125 6,026
Amortization of intangible assets............................. 2,014 267
Amortization of debt issuance expenses........................ 115 114
Stock-based compensation expense.............................. 2,444 2,416
Deferred income taxes......................................... (1,763) 5,477
Excess tax benefit from stock-based compensation.............. (1,784) (2,543)
Changes in (net of the effect from acquisitions):
Receivables................................................ (21,965) (16,375)
Inventories................................................ (4,101) (3,679)
Trade accounts payable..................................... 8,253 6,720
Accrued expenses........................................... (5,947) 1,744
Other -- net.................................................. (5,553) (5,704)
-------- --------
Net cash flows from operating activities of continuing
operations............................................ 15,669 24,043
Cash flows from investing activities of continuing operations
Additions to property, plant and equipment.................... (5,418) (4,015)
Acquisition of businesses, net of cash acquired............... (24,917) (27,255)
-------- --------
Net cash flows from investing activities of continuing
operations............................................ (30,335) (31,270)
Cash flows from financing activities of continuing operations
Borrowings under credit facilities for acquisitions........... 12,885 --
Net repayments of other long-term debt........................ (362) (599)
Dividends paid................................................ (8,055) (6,321)
Distributions from discontinued operations.................... (331) 451
Proceeds from stock option exercises.......................... 4,268 6,163
Excess tax benefit from stock-based compensation.............. 1,784 2,543
Other -- net.................................................. 1,269 (504)
-------- --------
Net cash flows from financing activities of continuing
operations............................................ 11,458 1,733
Cash flows from discontinued operations
Net cash (used in) provided by operating activities of
discontinued operations.................................... (329) 480
Net cash used in investing activities of discontinued
operations................................................. -- (106)
Net cash provided by (used in) financing activities of
discontinued operations.................................... 331 (451)
-------- --------
Net cash flows from discontinued operations.............. (2) (77)
Effect of exchange rate changes on cash and cash equivalents.... 2,767 (608)
-------- --------
Net decrease in cash............................................ (439) (6,179)
Cash and cash equivalents at beginning of year.................. 77,943 77,290
-------- --------
Cash and cash equivalents at end of period...................... 77,504 71,111
-------- --------
Less-cash, end of period-discontinued operations................ 4 12
-------- --------
Cash and cash equivalents at end of period-continuing
operations.................................................... $ 77,500 $ 71,099
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest...................................................... $ 8,843 $ 5,410
Income taxes.................................................. 12,919 5,796
Significant non-cash activities:
Issuance of restricted stock.................................. $ 1,886 $ --
Debt acquired with acquisition of business.................... 1,653 6,996
Capital expenditures included in accounts payable............. 365 --
See Notes to Consolidated Financial Statements.
4
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of IDEX Corporation ("IDEX" or the
"Company") have been prepared in accordance with the instructions to Form 10-Q
under the Securities Exchange Act of 1934, as amended. The statements are
unaudited but include all adjustments, consisting only of recurring items,
except as noted, which the Company considers necessary for a fair presentation
of the information set forth herein. The results of operations for the three
months ended March 31, 2007 are not necessarily indicative of the results to be
expected for the entire year.
The consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2006.
2. ACQUISITIONS
On February 14, 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. IDEX acquired Faure Herman for an aggregate purchase price
of $26.1 million, consisting of $24.4 million in cash and the assumption of
approximately $1.7 million of debt. The cash payment was partially financed by
borrowings under the Company's credit facility. Goodwill and intangible assets
recognized as part of this transaction were $11.8 million and $11.0 million,
respectively. The $11.8 million of goodwill is not deductible for tax purposes.
The purchase price for Faure Herman, 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 this acquisition have been included within
the financial results from the date of the acquisition. The Company does not
consider this acquisition to be material to its results of operations for any of
the periods presented.
3. DISCONTINUED OPERATIONS
On July 11, 2006, IDEX sold Lubriquip, its lubricant dispensing business
that operated as part of IDEX's Dispensing Equipment segment.
During the third quarter of 2006, the Company determined that Halox, its
chemical and electrochemical systems product line operating as a unit of
Pulsafeeder in IDEX's Fluid & Metering Technologies segment, met the criteria to
be classified as a discontinued operation. The Company is marketing the Halox
operation and conducting other actions with the intention to complete the sale
within one year.
Financial information for all periods presented has been restated to
present the operating results of Halox as discontinued operations, while the
operating results for the three months ended March 31, 2006 also include
Lubriquip as discontinued operations.
5
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Summarized results of the Company's discontinued operations are as follows:
FIRST QUARTER
ENDED MARCH
31,
--------------
2007 2006
----- ------
(IN THOUSANDS)
Revenue................................................... $ 621 $8,683
===== ======
Income (loss) from discontinued operations before income
taxes................................................... (252) 725
Income tax benefit (provision)............................ 88 (228)
----- ------
Income (loss) from discontinued operations................ $(164) $ 497
===== ======
Total assets and liabilities expected to be transferred as part of the sale
of discontinued operations held for sale at March 31, 2007 and December 31, 2006
were as follows:
MARCH 31, DECEMBER 31,
2007 2006
--------- ------------
(IN THOUSANDS)
Cash and cash equivalents............................. $ 4 $ 2
Receivables, net...................................... 382 424
Inventory............................................. 325 272
Other current assets.................................. 26 20
Property, plant and equipment, net equivalents........ 115 111
---- ----
Assets held for sale................................ $852 $829
==== ====
Accounts payable...................................... $127 $154
Other liabilities..................................... 102 219
---- ----
Liabilities held for sale........................ $229 $373
==== ====
4. BUSINESS SEGMENTS
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.
6
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
FIRST QUARTER ENDED
MARCH 31,
-------------------
2007 2006
-------- --------
(IN THOUSANDS)
Net sales
Fluid & Metering Technologies:
External customers................................ $136,302 $101,638
Intersegment sales................................ 404 282
-------- --------
Total group sales............................... 136,706 101,920
-------- --------
Health & Science Technologies:
External customers................................ 79,878 62,127
Intersegment sales................................ 842 894
-------- --------
Total group sales............................... 80,720 63,021
-------- --------
Dispensing Equipment:
External customers................................ 47,893 41,408
Intersegment sales................................ -- --
-------- --------
Total group sales............................... 47,893 41,408
-------- --------
Fire & Safety/Diversified Products:
External customers................................ 69,195 61,215
Intersegment sales................................ 1 1
-------- --------
Total group sales............................... 69,196 61,216
-------- --------
Intersegment elimination............................. (1,247) (1,177)
-------- --------
Total net sales................................. $333,268 $266,388
======== ========
Operating income
Fluid & Metering Technologies........................ $ 29,751 $ 19,759
Health & Science Technologies........................ 13,863 12,280
Dispensing Equipment................................. 11,704 10,330
Fire & Safety/Diversified Products................... 15,358 13,655
Corporate office and other........................... (9,124) (8,246)
-------- --------
Total operating income....................... $ 61,552 $ 47,778
======== ========
5. 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 outstanding (diluted) during the period. Common stock equivalents
consist of stock options, which have been included in the calculation of
weighted average shares outstanding using the treasury stock method, unvested
restricted shares, and shares issuable in connection with
7
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
certain deferred compensation agreements ("DCUs"). Basic weighted average shares
reconciles to diluted weighted average shares as follows:
FIRST QUARTER
ENDED MARCH 31,
---------------
2007 2006
(IN THOUSANDS) ------ ------
Basic weighted average common shares outstanding.......... 53,509 52,637
Dilutive effect of stock options, unvested restricted
shares, and DCUs........................................ 942 1,220
------ ------
Diluted weighted average common shares outstanding........ 54,451 53,857
====== ======
Options to purchase approximately .8 million and .6 million shares of
common stock as of March 31, 2007 and 2006, 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.
6. INVENTORIES
The components of inventories as of March 31, 2007 and December 31, 2006
were:
MARCH 31, 2007 DECEMBER 31, 2006
-------------- -----------------
(IN THOUSANDS)
Raw materials......................................... $ 63,744 $ 63,360
Work-in-process....................................... 18,174 16,420
Finished goods........................................ 87,750 80,907
-------- --------
Total............................................... $169,668 $160,687
======== ========
Inventories carried on a LIFO basis amounted to $140.7 million and $133.7
million at March 31, 2007 and December 31, 2006, respectively. The excess of
current cost over LIFO inventory value amounted to $3.4 million and $3.1 million
at March 31, 2007 and December 31, 2006 respectively.
7. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three months ended
March 31, 2007, by business group, were as follows:
FLUID & METERING HEALTH & SCIENCE DISPENSING FIRE & SAFETY/
TECHNOLOGIES TECHNOLOGIES EQUIPMENT DIVERSIFIED PRODUCTS TOTAL
---------------- ---------------- ---------- -------------------- --------
(IN THOUSANDS)
Balance at December 31,
2006..................... $304,464 $333,801 $128,457 $145,878 $912,600
Foreign currency
translation.............. 693 180 743 491 2,107
Acquisitions............... 11,791 -- -- -- 11,791
Acquisition adjustments.... 949 48 -- -- 997
-------- -------- -------- -------- --------
Balance at March 31, 2007.. $317,897 $334,029 $129,200 $146,369 $927,495
======== ======== ======== ======== ========
8
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following table provides the gross carrying value and accumulated
amortization for each major class of intangible asset as of March 31, 2007 and
December 31, 2006:
AT MARCH 31, 2007 AT DECEMBER 31, 2006
----------------------- -----------------------
GROSS GROSS
CARRYING ACCUMULATED AVERAGE CARRYING ACCUMULATED
AMOUNT AMORTIZATION LIFE AMOUNT AMORTIZATION
-------- ------------ ------- -------- ------------
(IN THOUSANDS)
Amortizable intangible assets:
Patents............................ $ 8,550 $ (5,308) 10 $ 8,508 $(5,171)
Trade names........................ 31,114 (1,649) 18 30,081 (1,224)
Customer relationships............. 72,806 (2,600) 17 64,796 (1,609)
Non-compete agreements............. 4,384 (1,305) 4 4,087 (702)
Unpatented technology.............. 7,268 (253) 16 4,727 (127)
Other.............................. 6,278 (610) 5 6,457 (560)
-------- -------- -------- -------
Total amortizable intangible
assets........................ 130,400 (11,725) 118,656 (9,393)
Banjo trade name..................... 62,100 -- 62,100 --
-------- -------- -------- -------
Balance at March 31, 2007............ $192,500 $(11,725) $180,756 $(9,393)
======== ======== ======== =======
8. ACCRUED EXPENSES
The components of accrued expenses as of March 31, 2007 and December 31,
2006 were:
MARCH 31, DECEMBER 31,
2007 2006
--------- ------------
(IN THOUSANDS)
Payroll and related items............................. $33,418 $32,897
Management incentive compensation..................... 3,005 15,279
Income taxes payable.................................. 16,506 10,897
Deferred income taxes................................. 1,262 1,359
Insurance............................................. 11,336 10,338
Other................................................. 26,267 24,400
------- -------
Total accrued expenses.............................. $91,794 $95,170
======= =======
9. BORROWINGS
The $150.0 million of 6.875% Senior Notes due February 15, 2008 have been
reclassified from long-term borrowings to short-term borrowings.
10. PREFERRED STOCK
The Company had five million shares of preferred stock authorized but
unissued at March 31, 2007 and December 31, 2006.
11. SHARE-BASED COMPENSATION
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 123R using the modified prospective method, and
thus did not restate any prior period amounts. Under this method, compensation
cost in the three months ending March 31, 2007 include the portion vesting in
the period for
9
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(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.
Total compensation cost for stock options is as follows:
FIRST QUARTER
ENDED MARCH 31,
---------------
2007 2006
------ ------
(IN THOUSANDS)
General and administrative expenses....................... $1,325 $1,515
Cost of goods sold........................................ 216 223
------ ------
Total expense before income taxes......................... 1,541 1,738
Income tax benefit........................................ (561) (522)
------ ------
Total expense after income taxes.......................... $ 980 $1,216
====== ======
Total compensation cost for restricted stock is as follows:
FIRST
QUARTER
ENDED MARCH
31,
------------
2007 2006
----- ----
(IN
THOUSANDS)
General and administrative expenses......................... $ 899 $678
Cost of goods sold.......................................... 4 --
----- ----
Total expense before income taxes........................... 903 678
Income tax benefit.......................................... (166) (80)
----- ----
Total expense after income taxes............................ $ 737 $598
===== ====
Recognition of compensation cost within the Statement of Operations is
consistent with recognition of cash compensation for the same employees, and
compensation cost capitalized as part of inventory was immaterial.
As of March 31, 2007, there was $12.4 million of total unrecognized
compensation cost related to stock options that is expected to be recognized
over a weighted-average period of 1.3 years, and $7.7 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.
10
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
12. RETIREMENT BENEFITS
The Company sponsors several qualified and nonqualified defined benefit and
defined contribution pension plans and other postretirement plans for its
employees. The following tables provide the components of net periodic benefit
cost for its major defined benefit plans and its other postretirement plans.
PENSION BENEFITS
---------------------------------------
FIRST QUARTER ENDED MARCH 31,
---------------------------------------
2007 2006
------------------ ------------------
U.S. NON-U.S. U.S. NON-U.S.
------- -------- ------- --------
(IN THOUSANDS)
Service cost..................................... $ 512 $ 221 $ 744 $ 162
Interest cost.................................... 1,062 386 945 282
Expected return on plan assets................... (1,322) (261) (1,209) (182)
Net amortization................................. 666 185 625 126
------- ----- ------- -----
Net periodic benefit cost...................... $ 918 $ 531 $ 1,105 $ 388
======= ===== ======= =====
OTHER
BENEFITS
-----------
FIRST
QUARTER
ENDED MARCH
31,
-----------
2007 2006
---- ----
(IN
THOUSANDS)
Service cost................................................ $123 $110
Interest cost............................................... 325 319
Expected return on plan assets.............................. -- --
Net amortization............................................ 83 57
---- ----
Net periodic benefit cost................................. $531 $486
==== ====
The Company previously disclosed in its financial statements for the year
ended December 31, 2006, that it expected to contribute approximately $5.1
million to these pension plans and $1.3 million to its other postretirement
benefit plans in 2007. As of March 31, 2007, $.8 million of contributions have
been made to the pension plans and $.3 million has been made to its other
postretirement benefit plans. The Company presently anticipates contributing up
to an additional $5.3 million in 2007 to fund these pension plans and other
postretirement benefit plans.
13. LEGAL PROCEEDINGS
IDEX is a party to various 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 flows.
14. INCOME TAXES
The Company's provision for income taxes is based upon estimated annual tax
rates for the year applied to federal, state and foreign income. The provision
for income taxes increased to $18.9 million in the first quarter of 2007 from
$15.3 million in the first quarter of 2006. The effective tax rate decreased to
33.9% in the first quarter of 2007 from 34.0% in the first quarter of 2006.
The Company and it subsidiaries file income tax returns in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. Effective January 1,
2007, the Company adopted Financial Accounting Standards Board ("FASB")
Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes -- an
interpretation of
11
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SFAS No. 109." In accordance with FIN No. 48, the Company recognized a
cumulative-effect adjustment of $1.2 million, increasing its liability for
unrecognized tax benefits, interest, and penalties and reducing the January 1,
2007 balance of retained earnings.
At January 1, 2007, the Company had $6.6 million in unrecognized tax
benefits, the recognition of which would have an effect of $5.8 million on the
effective tax rate. Included in the balance of unrecognized tax benefits at
January 1, 2007, is between $.5 million and $.8 million related to tax positions
for which it is reasonably possible that the total amounts could significantly
change during the next twelve months. This range represents a decrease in
unrecognized tax benefits and depends on the ultimate closure date of various
examinations.
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in income tax expense. At January 1, 2007, the Company
had accrued $.9 million and $.2 million for the potential payment of interest
and penalties, respectively.
As of January 1, 2007 the Company is subject to U.S. Federal income tax
examinations for the tax years 2000 through 2006, however the 2001 and 2002 tax
years are limited to adjustments to the research and development credit only.
The Company is subject to non-U.S. income tax examinations for the tax years
2002 through 2006. In addition, the Company is subject to state and local income
tax examinations for the tax years 2002 through 2006 in jurisdictions for which
tax returns have been filed.
During the first quarter of 2007, unrecognized tax benefits were reduced by
$1.7 million due to the resolution of various income tax audits, of which $.4
million reduced the effective tax rate.
15. NEW ACCOUNTING PRONOUNCEMENTS
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 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.
16. SUBSEQUENT EVENTS
On April 4, 2007, the Company's Board of Directors authorized a 20 percent
increase in the Company's regular quarterly cash dividend and declared a 3-for-2
split of the Company's common stock. The regular quarterly cash dividend will
increase to $0.18 per common share (or $0.12 per post-split share), payable
April 30, 2007, to shareholders of record as of April 16, 2007.
The 3-for-2 stock split of IDEX common shares, which will be effected in
the form of a 50 percent stock dividend, will result in the issuance of one
additional share of IDEX common stock for every two shares owned as of the
record date. The new shares are payable on May 21, 2007, to shareholders of
record as of May 7, 2007. Par value of common stock remained at $.01 per share.
12
ITEM 2. 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
financial condition and 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.
IDEX consists of four reportable segments: Fluid & Metering Technologies,
Health & Science Technologies, Dispensing Equipment and Fire &
Safety/Diversified Products.
The Fluid & Metering Technologies Group 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 Group 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 Group produces highly engineered equipment for dispensing, metering
and mixing colorants, paints, inks and dyes, hair colorants and other personal
care products, as well as refinishing equipment. The Fire &Safety/Diversified
Products Group produces firefighting pumps, 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.
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.
13
Some of our key 2007 financial highlights for the three months ended March
31, 2007 were as follows:
- Orders were $362.8 million, 23% higher than a year ago; base business
orders -- excluding acquisitions and foreign currency translation -- were
up 9%.
- Sales of $333.3 million rose 25%; base business sales -- excluding
acquisitions and foreign currency translation -- were up 10%.
- Gross margins improved 60 basis points to 41.9% of sales, while operating
margins at 18.5% were 60 basis points higher than a year ago.
- Income from continuing operations increased 25% to $36.8 million.
- Diluted EPS from continuing operations of $0.68 was 13 cents ahead of the
same period 2006.
- Net income increased 22% to $36.7 million.
- Diluted EPS of $0.67 was 11 cents ahead of the same period of 2006.
Our business units continue to deliver profitable sales growth as a result
of new product initiatives and market initiatives and our on-going commitment to
operational excellence. During the first three months of the year, organic sales
growth was 10 percent, reflecting particular strength in Fluid & Metering
Technologies at 12 percent and Dispensing Equipment at 10 percent. As we move
forward, we believe we are well positioned in attractive product segments buoyed
by strong underlying industry fundamentals. We are leveraging commercial and
operational excellence to effectively serve our customers, expand our market
position and generate profitable growth.
The following forward-looking statements are qualified by the cautionary
statement under the Private Securities Litigation Reform Act set forth above.
As a short-cycle business, our performance is reliant upon the current pace
of incoming orders, and we have limited visibility on future business
conditions. We believe IDEX is well positioned for earnings expansion. This is
based on our favorable cost structure resulting from our operational excellence
discipline, our investment in new products, applications and global markets, and
our pursuit of strategic acquisitions to help drive IDEX's longer term
profitable growth.
RESULTS OF OPERATIONS
For purposes of this discussion and analysis section, reference is made to
the table on the following page and the Company's Consolidated Statements of
Operations included in Item 1. During the third quarter 2006, the Company
determined that Halox, its chemical and electrochemical systems business, met
the criteria to be classified as a discontinued operation. During the second
quarter, the Company determined that Lubriquip, its lubricant dispensing
business, met the criteria to be classified as a discontinued operation and was
subsequently sold July 11, 2006. Financial information for all periods presented
has been restated to present the operating results of Halox as discontinued
operations, while the operating results for the three months ended March 31,
2006 have been restated to present Lubriquip as discontinued operations.
PERFORMANCE IN THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED WITH THE SAME
PERIOD OF 2006
For the three months ended March 31, 2007, orders, sales and profits were
higher than the comparable three months of last year. New orders totaled $362.8
million, 23% higher than the same period last year. Excluding the impact of
foreign currency translation and the five acquisitions made since the beginning
of 2006 (JUN-AIR -- February 2006, EPI -- May 2006, Banjo -- October 2006,
Toptech -- December 2006 and Faure Herman -- February 2007), base business
orders were 9% higher than the same period one year ago.
Sales in the three months ended March 31, 2007 were $333.3 million, a 25%
improvement from the comparable period last year. The increase was driven by
base business shipments of 10%, acquisitions accounted for 13% and foreign
currency translation contributed 2%. Sales to international customers from base
businesses represented approximately 44% of total sales in the current period of
both 2007 and 2006.
14
During the quarter, Fluid & Metering Technologies contributed 41% of sales
and 42% of operating income; Health & Science Technologies accounted for 24% of
sales and 20% of operating income; Dispensing Equipment accounted for 14% of
sales and 16% of operating income; and Fire & Safety/Diversified Products
represented 21% of sales and 22% of operating income.
Fluid & Metering Technologies Group sales of $136.7 million for the three
months ended March 31, 2007 rose $34.8 million, or 34% compared with 2006,
reflecting 12% base business growth, 21% for acquisitions and a 1% favorable
impact from foreign currency translation. In the first quarter of 2007, base
business sales grew approximately 7% domestically and 16% internationally. Base
business sales to customers outside the U.S. were approximately 43% of total
group sales during the first quarter of 2007 compared with 41% in the comparable
quarter of 2006.
Health & Science Technologies Group sales of $80.7 million increased $17.7
million, or 28%, in the first quarter of 2007 compared with last year's first
quarter. This increase was attributed to the JUN-AIR and EPI acquisitions which
contributed 21% and an increase in base business volume of 7%. In the first
quarter of 2007, base business sales increased 7% domestically and 5%
internationally. Base business sales to customers outside the U.S. were
approximately 33% of total group sales in the first quarter of both 2007 and
2006.
Dispensing Equipment Group sales of $47.9 million increased $6.5 million,
or 16%, in the first quarter of 2007 compared with 2006. This increase reflects
a 10% increase in base business volume and 6% from favorable foreign currency
translation. In the first quarter of 2007, base business sales increased 18%
domestically and increased 4% internationally. Base business sales to customers
outside the U.S. were approximately 58% of total group sales in the first
quarter of 2007, compared with 65% in the comparable quarter of 2006.
Fire & Safety/Diversified Products Group sales of $69.2 million increased
$8.0 million, or 13%, in the first quarter of 2007 compared with 2006. This
increase reflects a 9% increase in base business volume, with an additional 4%
of favorable foreign currency translation. In the first quarter of 2007, base
business sales increased 8% domestically and 9% internationally. Base business
sales to customers outside the U.S. were approximately 45% of total group sales
in the first quarter of both 2007 and 2006.
15
THREE MONTHS ENDED
MARCH 31,(1)
-------------------
2007 2006
-------- --------
(IN THOUSANDS)
Fluid & Metering Technologies
Net sales.................................................. $136,706 $101,920
Operating income(2)........................................ 29,751 19,759
Operating margin........................................... 21.8% 19.4%
Depreciation and amortization.............................. $ 3,549 $ 2,233
Capital expenditures....................................... 2,636 1,132
Health & Science Technologies
Net sales.................................................. $ 80,720 $ 63,021
Operating income(2)........................................ 13,863 12,280
Operating margin........................................... 17.2% 19.5%
Depreciation and amortization.............................. $ 2,569 $ 1,399
Capital expenditures....................................... 1,651 877
Dispensing Equipment
Net sales.................................................. $ 47,893 $ 41,408
Operating income(2)........................................ 11,704 10,330
Operating margin........................................... 24.4% 24.9%
Depreciation and amortization.............................. $ 547 $ 1,013
Capital expenditures....................................... 292 659
Fire & Safety/Diversified Products
Net sales.................................................. $ 69,196 $ 61,216
Operating income(2)........................................ 15,358 13,655
Operating margin........................................... 22.2% 22.3%
Depreciation and amortization.............................. $ 1,525 $ 1,538
Capital expenditures....................................... 886 1,138
Company
Net sales.................................................. $333,268 $266,388
Operating income(2)........................................ 61,552 47,778
Operating margin........................................... 18.5% 17.9%
Depreciation and amortization(3)........................... $ 9,139 $ 6,293
Capital expenditures....................................... 5,783 4,015
--------
(1) First quarter data includes acquisition of Banjo (October 2006), Toptech
(December 2006) and Faure Herman (February 2007) in the Fluid & Metering
Technologies Group, JUN-AIR (February 2006) and EPI (May 2006) in the Health
& Science Technologies Group and Airshore (January 2006) in the Fire &
Safety/Diversified Products Group from the dates of acquisition.
(2) Group operating income excludes unallocated corporate operating expenses.
(3) Excludes amortization of debt issuance expenses and unearned stock
compensation.
Gross profit of $139.7 million, in the first quarter of 2007, increased
$29.5 million, or 27%, from 2006. Gross profit as a percent of sales was 41.9%
in the first quarter of 2007 and 41.3% 2006. The improved gross margins
primarily reflect volume leverage and the Company's strategic sourcing and other
operational excellence initiatives.
Selling, general and administrative (SG&A) expenses increased to $78.1
million in the first quarter of 2007 from $62.4 million in 2006. First quarter
SG&A expenses were unfavorably impacted by $1.0 million of severance cost
associated with the Dispensing segment's international operations. In addition,
higher total SG&A expenses
16
reflect acquisitions, volume-related expenses, and reinvestment in the business
to drive organic growth. As a percent of sales, SG&A expenses were 23.4% for
both 2007 and 2006.
Operating income increased $13.8 million, or 29%, to $61.6 in the first
quarter of 2007 from $47.8 million in 2006, primarily reflecting higher volumes,
partially offset by increased SG&A expenses. First quarter operating margins
were 18.5% of sales, 60 basis points higher than the first quarter of 2006. The
improvement from last year resulted from higher gross margins. In the Fluid &
Metering Technologies Group, operating income of $29.8 million and operating
margins of 21.8% in the first quarter of 2007 were up from the $19.8 million and
19.4% recorded in 2006 principally due to strong global demand and acquisitions.
Operating income for the Health & Science Technologies Group of $13.9 million
was up from the $12.3 million recorded in 2006 principally due to volume.
Operating margins within Health & Science Technologies Group of 17.2% in the
current quarter were down from 19.5% in 2006 primarily due to acquisitions and
growth-related investments in the Company's medical product lines. Operating
income for the Dispensing Equipment Group of $11.7 million was up from the $10.3
million recorded in 2006 mainly due to volume leverage and the impact of our
operational excellence initiatives. Operating margins within Dispensing
Equipment Group of 24.4% in the current quarter were down from 24.9% in 2006
primarily due to $1.0 million of severance-related expenses in Dispensing's
international operations. Operating income in the Fire & Safety/Diversified
Products Group of $15.4 million was higher than $13.7 recorded in 2006, due
primarily to increased volume. Operating margins within Fire &
Safety/Diversified Products Group of 22.2% in the current quarter were down from
22.3% in 2006, primarily due to product mix.
Other income in the first quarter of 2007 increased $.6 million compared
with 2006 primarily due to an increase in interest income.
IDEX's provision for income taxes is based upon estimated annual tax rates
for the year applied to federal, state and foreign income. The provision for
income taxes increased to $18.9 million in the first quarter of 2007 from $15.3
million in 2006. The effective tax rate decreased slightly to 33.9% in the
current quarter from 34.0% in the first quarter of 2006.
Income from continuing operations for the current quarter was $36.8
million, 25% higher than the $29.6 million earned in the first quarter of 2006.
Diluted earnings per share from continuing operations in the first quarter of
2007 of $.68 increased $.13, or 24%, compared with the first quarter of 2006.
Net income for the current quarter of $36.7 million, which included a loss
from discontinued operations of $.2 million, increased from the $30.1 million
earned in the first quarter of 2006, which included income from discontinued
operations of $.5 million. Diluted earnings per share in the first quarter of
2007 of $.67, which included a loss from discontinued operations of $.01,
increased $.11, or 20%, compared with the first quarter of 2006.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2007, working capital was $128.3 million and our current ratio
was 1.4 to 1. Cash flows from operating activities decreased $8.3 million, or
35%, to $15.7 million in the first three months of 2007 mainly due to an
increase in working capital requirements.
Cash flows provided from operations were more than adequate to fund capital
expenditures of $5.4 million and $4.0 million in the first three months of 2007
and 2006, respectively. Capital expenditures were generally for machinery and
equipment that improved productivity and tooling to support IDEX's 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 Faure Herman in February 2007 for cash consideration
of $24.4 million and the assumption of approximately $1.7 million in debt. The
cash payment was partially financed by borrowings under the Company's credit
facility.
In addition to the $150.0 million of 6.875% Senior Notes due February 15,
2008, the Company also has a $600.0 million domestic multi-currency bank
revolving credit facility ("Credit Facility"), which expires December 21, 2011.
With $207.0 million outstanding under the facility at March 31, 2007, and
outstanding letters of credit
17
totaling $5.7 million, the maximum amount available under the Credit Facility
was $387.3 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 payable at maturity. 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 March 31, 2007, 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 is 3.0 to 1 and
the maximum leverage ratio is 3.25 to 1. At March 31, 2007, 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 March 31, 2007, there were no borrowings outstanding
under this facility.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to market risk associated with changes in interest
rates and foreign currency exchange rates. The Company's interest rate exposure
is primarily related to the $376.4 million of total debt outstanding at March
31, 2007. Approximately 60% 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. We will, from time to time, enter into interest rate swaps on our debt
when we believe there is a financial advantage for doing so. 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 officers. Typically, the use of derivative
instruments is limited to interest rate swaps on the Company's outstanding long-
term debt. As of March 31, 2007, the Company did not have any derivative
instruments outstanding.
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 4. 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
18
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.
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
controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. 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 the 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, South Carolina, 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 does not
currently believe the asbestos-related claims will have a material adverse
effect on the Company's business, financial position, results of operations or
cash flow.
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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
TOTAL NUMBER OF MAXIMUM NUMBER
SHARES PURCHASED AS OF 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)
------ ---------------- -------------- ------------------- ------------------
January 1, 2007 to January 31,
2007.............................. -- -- -- 2,240,250
February 1, 2007 to February 28,
2007.............................. -- -- -- 2,240,250
March 1, 2007 to March 31, 2007..... -- -- -- 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.
ITEM 5. OTHER INFORMATION.
There has been no material change to the procedures by which security
holders may recommend nominees to the Company's board.
ITEM 6. EXHIBITS.
The exhibits listed in the accompanying "Exhibit Index" are filed as part
of this report.
19
SIGNATURES
Pursuant to the requirements 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
/s/ DOMINIC A. ROMEO
----------------------------------------
Dominic A. Romeo
Vice President and Chief Financial
Officer
(duly authorized principal financial
officer)
May 7, 2007
20
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 (incorporated by reference to Exhibit No. 3.1(b) to the
Current Report of IDEX on Form 8-K dated 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% Senior Notes of IDEX Corporation 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 No. 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
(incorporated by reference to Exhibit No. 4.6(a) to the Annual Report
of IDEX on Form 10-K for the year ended December 31, 2006, Commission
File No. 1-10235)
*10.1** Revised IDEX Incentive Award Plan for Key Employees Effective
February 12, 2007
*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.
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