IDEX CORP /DE/ - Annual Report: 2008 (Form 10-K)

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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

 

 

Commission file number 1-10235

IDEX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Registrant’s telephone number:

(847) 498-7070

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

 

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 þ     No o

 

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 o     No þ

 

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 þ     No o

 

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.  þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o     No þ

 

The aggregate market value of the voting stock (based on the June 30, 2008 closing price of $36.84) held by non-affiliates of IDEX Corporation was $2,994,473,862.

 

The number of shares outstanding of IDEX Corporation’s common stock, par value $.01 per share (the “Common Stock”), as of February 12, 2009 was 80,333,557 (net of treasury shares).

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the 2008 Annual Report to stockholders of IDEX Corporation (“the 2008 Annual Report”) are incorporated by reference in Part II of this Form 10-K and portions of the Proxy Statement of IDEX Corporation (the “2009 Proxy Statement”) with respect to the 2009 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

 

 

Table of Contents

 

 

 

IDEX Corporation (“IDEX” or the “Company”), a Delaware Corporation incorporated on September 24, 1987, 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. IDEX consists of four reportable business segments. The Fluid & Metering Technologies Segment consists of the following business units: ADS, LLC (“ADS”), Air Operated Double Diaphragm (“AODD”), Banjo, iPEK Spezial-TV (“iPEK”), Liquid Controls, Pulsafeeder, Richter Chemie-Technik (“Richter”), Sanitary and Viking Pump (“Viking”). The Health & Science Technologies Segment includes HST Core, Gast Manufacturing (“Gast”), and Micropump. The Dispensing Equipment Segment is comprised of FAST & Fluid Management Europe & Asia and Fluid Management Americas. The Fire & Safety/Diversified Products Segment includes Hale-Fire Suppression and Hale-Hydraulic Equipment, as well as the BAND-IT engineered clamping business.

 

FLUID & METERING TECHNOLOGIES SEGMENT

 

The Fluid & Metering Technologies Segment designs, produces and distributes positive displacement pumps and flow meters, 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, water and wastewater), chemical processing, agricultural, food & beverage, pulp & paper, transportation, plastics & resins, electronics & electrical, construction & mining, pharmaceutical and bio-pharmaceutical, machinery and numerous other specialty niche markets. The segment accounted for 47% of sales and 51% of operating income in 2008, with approximately 41% of sales to customers outside the U.S.

 

ADS.  ADS, acquired in January 2008, is a provider of metering technology and flow monitoring services for water and wastewater markets. ADS develops products and provides comprehensive integrated solutions that enable industry, municipalities and government agencies to analyze and measure the capacity, quality and integrity of wastewater collection systems. ADS is headquartered in Huntsville, Alabama, with regional sales and service offices throughout the United States and Australia. In October 2008, the Company acquired Integrated Environmental Technology Group (“IETG”), a leading provider of flow monitoring and underground utility surveillance services for the water and wastewater markets. IETG products and services enable water companies to effectively manage their water distribution and sewerage networks, while its surveillance service specializes in underground asset detection and mapping for utilities and other private companies. Headquartered in Leeds, United Kingdom, IETG operates as part of the ADS business. Approximately 12% of ADS’s 2008 sales were to customers outside the U.S.

 

AODD.  AODD consists of the following components: Warren Rupp and Versa-Matic. Warren Rupp, based in Mansfield, Ohio with additional operations in Latin America and Brazil, 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, is a manufacturer and distributor of air-operated double-diaphragm pumps and replacement parts. Blagdon Pump, located in the United Kingdom, is operated as part of Versa-Matic. AODD’s sales to customers outside the U.S. in 2008 were approximately 55%.

 

Banjo.  Banjo, acquired in October 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 12% of Banjos’ 2008 sales were to customers outside the U.S.

iPEK.  iPEK, acquired in October 2008, is a provider of systems focused on infrastructure analysis, specifically waste water collection systems. iPEK is based in Hirschegg, Austria and is a developer of remote controlled systems used for infrastructure inspection. All of iPEK’s 2008 sales were to customers outside the U.S.

 

Liquid Controls.  Liquid Controls 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. Corken, a subsidiary of Liquid Controls based in Oklahoma City, Oklahoma, 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., headquartered in Westminster, South Carolina, operates as part of Liquid Controls and 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. Toptech Systems, Inc. (“Toptech”), a subsidiary of Liquid Controls based in Longwood, Florida was acquired in December 2006. Toptech is a leading 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. In February 2007, the Company acquired Faure Herman SA (“Faure Herman”), a leading provider of ultrasonic and helical turbine flow meters used in the custody transfer and control of high value fluids and gases. Based in La Ferté Bernard, France, Faure Herman operates as part of the Liquid Controls business. Approximately 54% of Liquid Controls’ 2008 sales were to customers outside the U.S.

 

Pulsafeeder.  Pulsafeeder 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. Classic Engineering, Inc. (“Classic”) 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 2008, approximately 31% of Pulsafeeder’s sales were to customers outside the U.S.

 

Richter.  Richter, acquired in October 2008, is a leading provider of premium quality lined pumps, valves and control equipment for the chemical, fine chemical and pharmaceutical industries. Based in Kempen, Germany, with facilities in China and the U.S., Richter’s corrosion resistant fluoroplastic lined products offer superior solutions for demanding applications in the process industry. Approximately 93% of Richter’s 2008 sales were to customers outside the U.S.

 

Sanitary.  Sanitary consists of the following components: Quadro Engineering (“Quadro”), Wrightech Corporation (“Wrightech”) and Knight Equipment, Inc. (“Knight”). Quadro, acquired in June 2007, is a leading provider of particle control solutions for the pharmaceutical and bio-pharmaceutical markets. Based in Waterloo, Ontario, Canada, Quadro’s core capabilities include fine milling, emulsification and special handling of liquid and solid particulates for laboratory, pilot phase and production scale processing within the pharmaceutical and bio-pharmaceutical markets. Wrightech, headquartered in Muskego, Wisconsin, 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. Wright Flow UK LTD manufactures rotary lobe pumps that serve multiple sanitary and industrial applications. Located in Eastbourne, England, Wright Flow UK LTD operates as part of Wrightech. Knight, with headquarters in Lake Forest, California, is a leading manufacturer of pumps and dispensing equipment for industrial laundries, commercial dishwashing and chemical metering. Approximately 48% of Sanitary’s 2008 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. Approximately 40% of Viking’s 2008 sales were to customers outside the U.S.

 

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, the Company 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 22% of sales and 24% of operating income in 2008, with approximately 39% of sales to customers outside the U.S.

 

HST Core.  HST Core consists of the following components: Rheodyne, Upchurch Scientific (“Upchurch”), Sapphire Engineering (“Sapphire”), Eastern Plastics and Semrock. Rheodyne 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 Upchurch, Sapphire and Eastern Plastics. Upchurch and Sapphire are leading providers 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 include pharmaceutical, drug discovery, chemical, biochemical processing, genomics/proteomics research, environmental labs, food/agriculture, medical lab, personal care, and plastics/polymer/rubber production. Upchurch operates in Oak Harbor, Washington and Sapphire in Pocasset, Massachusetts. In October 2007, the Company acquired Isolation Technologies, a leading developer of advanced column hardware and accessories for the High Performance Liquid Chromatography (HPLC) market. HPLC instruments are used in a variety of analytical chemistry applications, with primary commercial applications including drug discovery and quality control measurements for pharmaceutical and food/beverage testing. Headquartered in Hopedale, MA, Isolation Technologies operates as part of Sapphire. Eastern Plastics, acquired in May 2006 and based in Bristol, Connecticut, 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. In October 2008, the Company acquired Semrock, a provider of optical filters for biotech and analytical instrumentation in the life sciences markets. Semrock produces optical filters using state-of-the-art manufacturing processes which enable them to offer significant improvements in the performance and reliability of their customers’ instruments. Headquartered in Rochester, New York, Semrock’s products are used in the biotechnology and analytical instrumentation industries. Approximately 31% of HST Core’s 2008 sales were to customers outside the U.S.

 

Gast.  Gast 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 34% of Gast’s 2008 sales were to customers outside the U.S.

 

Micropump.  Micropump 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, textiles,

peristaltic metering pumps, analytical process controllers and sample preparation systems. Micropump is based in Vancouver, Washington, and also has operations in England. Trebor International (“Trebor”) operates as part of Micropump and is 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 2008 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 11% of sales and (4)% of operating income in 2008, with approximately 74% of sales to customers outside the U.S.

 

FAST & Fluid Management — Europe & Asia.  Fast & Fluid Management-Europe & Asia (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. All of F&FM’s sales in 2008 were to customers outside the U.S.

 

Fluid Management.  Fluid Management 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. Approximately 25% of Fluid Management’s 2008 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 three business units that comprise this segment are Hale-Fire Suppression, Hale-Hydraulic Equipment and Band-It. The segment accounted for 20% of sales and 29% of operating income in 2008, with approximately 54% of sales to customers outside the U.S.

 

Hale-Fire Suppression.  Hale-Fire Suppression Group (FSG) consists of the following business units: Hale, Godiva and Class 1. FSG produces truck-mounted and portable fire pumps; stainless steel valves; foam and compressed air foam systems; pump modules and pump kits; electronic controls and information systems; conventional and networked electrical systems and mechanical components for fire, rescue and specialty vehicle markets. FSG’s markets include public and private fire and rescue organizations. FSG is based in Ocala, Florida, with additional operations located in Conshohocken, Pennsylvania, as well as England. In 2008, approximately 30% of FSG’s sales were to customers outside the U.S.

 

Hale-Hydraulic Equipment.  Hale-Hydraulic Equipment Group (HEG) consists of the following business units: Hurst, Lukas, Airshore, Hale Europe GMBH, Dinglee and Vetter. HEG produces hydraulic, battery, gas and electric-operated rescue equipment; hydraulic re-railing equipment; hydraulic tools for industrial applications; recycling cutters; pneumatic lifting and sealing bags for vehicle and aircraft rescue, environmental protection and disaster control; and shoring equipment for vehicular or structural collapse. HEG’s markets include public and private fire and rescue organizations. HEG is based in Ocala, Florida, with additional operations located in Shelby, North Carolina; Erlangen, Germany; Tianjin, China and Zulpich, Germany. In 2008, approximately 78% of HEG’s sales were 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 2008, approximately 47% of Band-It’s 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. 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.

 

Principal competitors of the businesses in the Fluid & 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 & 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, 2008, the Company had 5,813 employees. Approximately 8% were represented by labor unions with various contracts expiring through February 2012. Management believes that the Company’s relationship with their 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

 

The Company manufactures many of the parts and components used in its products. Substantially all materials, parts and components purchased by the Company are available from multiple sources.

 

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 11/2 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 2008, 2007, and 2006, see the table titled “Company and Business Segment Financial Information” presented on page 17 in Part II. Item 7. “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” and Note 12 of the “Notes to Consolidated Financial Statements” on page 46 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.

 

 

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. Prior to his departure from Danaher, he served as President, Industrial Controls Group from April 2002 to July 2004.

 

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.

 

Mr. Morgan has been Vice President-Human Resources of the Company since June 2008. From February 2003 to June 2008, Mr. Morgan was Senior Vice President and Chief Administrative Officer for Bally Total Fitness Corporation.

 

Mr. McMurray has been Vice President-Group Executive of Fluid & Metering Technologies since August 2003.

 

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.

 

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.

 

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.

 

 

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:

 

THE RECENT FINANCIAL CRISIS AND CURRENT UNCERTAINTY IN GLOBAL ECONOMIC CONDITIONS COULD NEGATIVELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION OR CASH FLOWS.

 

The recent financial crisis affecting the banking system and financial markets and the current uncertainty in global economic conditions have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in credit, equity and fixed income markets. There could be a number of follow-on effects from these economic developments on our business, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies; decreased customer confidence; and decreased customer demand, including order delays or cancellations.

 

CHANGES IN U.S. OR INTERNATIONAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT THE PROFITABILITY OF ANY OF OUR BUSINESSES.

 

In 2008, 53% of the Company’s revenue was derived from domestic operations while 47% was international. The Company’s largest markets include life sciences & medical technologies, fire and rescue, petroleum LPG, paint and coatings, chemical processing and water & wastewater treatment. 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 2008, approximately 47% 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.

 

We cannot predict the impact such future, largely unforeseeable events might have on the Company’s operations.

AN INABILITY TO CONTINUE TO DEVELOP NEW PRODUCTS CAN LIMIT THE COMPANY’S REVENUE AND PROFITABILITY.

 

The Company’s organic growth was flat in 2008 and 6% in 2007. Approximately 14% 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 included, and our future growth is likely to continue to include, in large part 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.

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, Canadian Dollar, British Pound and Chinese Renminbi. 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. 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. Where it is reasonably possible to do so, we accrue estimates of the probable costs for the resolution of these matters. These estimates are 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. For additional detail related to this risk, see Item 3. Legal 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. The Company’s interest rate exposure was primarily related to the $554.0 million of total debt outstanding at December 31, 2008. The majority of the debt is priced at interest rates that float with the market. In order to mitigate this interest exposure, the Company entered into interest rate exchange agreements that effectively converted $350.0 million of our floating-rate debt to a fixed rate. A 50 basis point movement in the interest rate on the remaining $204.0 million floating-rate debt would result in an approximate $1.0 million annualized increase or decrease in interest expense and cash flow. 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, 2008, goodwill and intangible assets totaled $1,167.1 million and $303.2 million, respectively. These intangible assets and goodwill 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 or goodwill. If future operating performance at one or more of our reporting units were to fall significantly below forecast levels, we could reflect, under current applicable accounting rules, a non-cash charge to operating earnings for an impairment. Any determination requiring the write-off of a significant portion of the intangible assets or goodwill could have a material negative effect on our results of operations and total capitalization. In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 142, the Company concluded that events had occurred and circumstances had changed in 2008 which required the Company to record a goodwill impairment of $30.1 million at Fluid Management Americas, a reporting unit within the Company’s Dispensing Equipment segment. See Note 4 in Part II. Item 8. Financial Statements and Supplementary Data for further discussion on goodwill and intangible assets.

 

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 2008 calendar year and that remain unresolved.

 

 

The Company’s principal plants and offices have an aggregate floor space area of approximately 4.0 million square feet, of which 2.5 million square feet (62%) is located in the U.S. and approximately 1.5 million square feet (38%) is located outside the U.S., primarily in Italy (9%), Germany (8%), the U.K. (4%) and The Netherlands (3%). 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 operational improvement initiatives that usually increase capacity. The Company’s executive office occupies approximately 26,000 square feet of leased space in Northbrook, Illinois.

 

Approximately 3.0 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 1.8 million square feet (45%) of the principal plant and office floor area is held by business units in the Fluid & Metering Technologies Segment; 0.8 million square feet (19%) is held by business units in the Health & Science Technologies Segment; 0.6 million square feet (15%) is held by business units in the Dispensing Equipment Segment; and 0.7 million square feet (18%) is held by business units in the Fire & Safety/Diversified Products Segment.

 

 

The Company 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, the majority 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, Arizona, California, Connecticut, Delaware, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Virginia, Washington, West Virginia and Wyoming. Most of the claims resolved to date have been dismissed without payment. The balance have been settled for various insignificant 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 the Company 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.

 

The Company 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.

 

 

None

 

 

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 2008 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 12, 2009, Common Stock was held by approximately 7,000 shareholders and there were 80,333,557 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, 2008:

 

 

 

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, 2003. 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.

 

 

 

 

 

 

 

Cautionary Statement Under the Private Securities Litigation Reform Act

 

The “Liquidity and Capital Resources” section 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

 

IDEX Corporation 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.

 

The Company consists of four reporting segments: Fluid & Metering Technologies, Health & Science Technologies, Dispensing Equipment and Fire & Safety/Diversified Products.

 

The Fluid & Metering Technologies Segment produces pumps, 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.

 

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, 2008. 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 27.

 

In 2006, the Company sold Lubriquip, its lubricant dispensing business that operated as part of the Company’s Dispensing Equipment Segment. In 2007, the Company sold Halox, its chemical and electrochemical systems

product line operating as part of Pulsafeeder in the Company’s Fluid & Metering Technologies Segment. Financial information for 2006 and 2007 has been restated to present the operating results of Lubriquip and Halox as discontinued operations.

 

Performance in 2008 Compared with 2007

 

Sales in 2008 of $1,489.5 million were 10% higher than the $1,358.6 million recorded a year ago. Seven acquisitions (Quadro — June 2007, Isolation Technologies — October 2007, ADS — January 2008, Richter — October 2008, iPEK — October 2008, IETG — October 2008 and Semrock — October 2008) made since 2007 accounted for an improvement of 9%, foreign currency translation accounted for 1%, while organic sales were flat. Organic sales increased in the Fluid & Metering Technologies and Fire & Safety/Diversified Products segments, but were down in the Health & Science Technologies and Dispensing Equipment segments. Domestic organic sales were down 3% versus the prior year, while international organic sales were up 4% over the prior year. Sales to customers outside the U.S. represented 47% of total sales in 2008 and 46% in 2007.

 

In 2008, Fluid & Metering Technologies contributed 47% of sales and 51% of operating income; Health & Science Technologies accounted for 22% of sales and 24% of operating income; Dispensing Equipment accounted for 11% of sales and (4)% of operating income; and Fire & Safety/Diversified Products represented 20% of sales and 29% of operating income.

 

Fluid & Metering Technologies sales of $697.7 million in 2008 rose $127.4 million, or 22%, compared with 2007. The acquisition of Quadro, ADS, Richter, iPEK and IETG accounted for 18% of the increase, while organic growth increased 4%. In 2008, organic sales grew approximately 2% domestically and 6% internationally. Sales to customers outside the U.S. were approximately 41% of total segment sales in 2008 and 42% in 2007.

 

Health & Science Technologies sales of $331.6 million increased $4.4 million, or 1%, in 2008 compared with last year. The acquisition of Isolation Technologies and Semrock accounted for 4% of the increase partially offset by a 3% decrease in organic volume. In 2008, organic sales decreased 2% domestically and 5% internationally. Sales to customers outside the U.S. were approximately 39% of total segment sales in 2008 and 2007.

 

Dispensing Equipment sales of $163.9 million decreased $14.1 million, or 8%, in 2008 compared with the prior year. Organic sales decreased 13%, while foreign currency translation accounted for an increase of 5%. Organic domestic sales decreased 35% compared with 2007, while organic international sales were essentially flat. Sales to customers outside the U.S. were 74% of total segment sales in 2008, up from 63% in 2007.

 

Fire & Safety/Diversified Products sales of $300.5 million increased $12.0 million, or 4%, in 2008 compared with 2007. Organic sales activity increased 3%, while foreign currency translation accounted for 1%. In 2008, organic sales decreased 4% domestically, while organic international sales increased 11%. Sales to customers outside the U.S. were 54% of total segment sales in 2008 and 49% in 2007.

 

Gross profit of $603.9 million in 2008 was $35.5 million, or 6%, higher than 2007. As a percent of sales, gross profit was 40.5% in 2008, which represented a 130 basis-point decrease from 41.8% in 2007. The decrease in gross margin primarily reflects product mix, higher material costs and the effect from recent acquisitions.

 

Selling, general and administrative (SG&A) expenses increased to $343.4 million in 2008 from $313.4 million in 2007. This increase primarily relates to our recent acquisitions. As a percent of net sales, SG&A expenses were 23.0% for both 2008 and 2007.

 

In 2008, the Company recorded pre-tax restructuring expenses totaling $18.0 million. These restructuring expenses were related to the Company’s restructuring program to support the implementation of key strategic initiatives designed to achieve long-term sustainable growth, which includes the previously announced cessation of manufacturing operations in its Dispensing Equipment segment’s Milan, Italy facility. The plant closure is expected to improve operating productivity and enhance capacity utilization. The Company has substantially completed company-wide plans which include management and administrative workforce reductions as well as an additional facility consolidation. Employees separated or to be separated from the Company as a result of these initiatives were offered severance packages, as appropriate. The expenses recorded in 2008 included costs related to involuntary terminations and other direct costs associated with implementing these initiatives.

In 2008, in accordance with SFAS No. 142, the Company concluded that events had occurred and circumstances had changed which required the Company to perform an interim period goodwill impairment test at Fluid Management Americas, a reporting unit within the Company’s Dispensing Equipment Segment. Fluid Management Americas has experienced a downturn in capital spending by its customer base and the loss of market share. As a result, the Company performed an impairment test and compared the fair value of the reporting unit to its carrying value. It was determined that the fair value of Fluid Management Americas was less than the carrying value of the net assets. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities was the implied fair value of goodwill. The Company’s analysis resulted in an implied fair value of goodwill of $21.2 million, and as a result, the Company recognized an impairment charge of $30.1 million in 2008.

 

Since October 31, 2008, the date of our annual impairment test, the Company has updated certain forecasts to reflect, among other things, the global economic downturn and other considerations. Because of these changes in circumstances, as of December 31, 2008 the Company has reassessed the likelihood of any further impairment of our reporting units. No goodwill impairments were identified. However, further changes in our forecasts or changes in key assumptions could cause book values of certain reporting units to exceed their fair values which would potentially result in goodwill impairment charges in future periods. Except for two of our reporting units within the Fluid & Metering Technologies segment, a 10% decrease in the fair value of our reporting units would not result in goodwill impairment based on carrying values at December 31, 2008. The two reporting units which could potentially result in a goodwill impairment if a 10% decrease in fair value were realized have a total goodwill balance of $204.2 million.

 

Operating income decreased $42.7 million, or 17%, to $212.4 million in 2008 from the $255.1 million in 2007. This decrease was primarily due to the $18.0 million of restructuring-related charges and $30.1 million for the goodwill impairment charge, offset by a net amount of $5.4 million related to the favorable effect of 2008 acquisitions and other inflationary increases in costs. Operating margins in 2008 were 14.3% of sales compared with 18.8% in 2007. The decrease in operating margins was primarily due to the impact of the previously announced restructuring-related and goodwill impairment charges, as well as expenses associated with recent acquisitions, partially offset by an increase in volume.

 

In the Fluid & Metering Technologies Segment, operating income of $129.4 million in 2008 was up from the $121.4 million recorded in 2007 principally due to increased volume, partially offset by the restructuring-related charges. Operating margins for Fluid & Metering Technologies of 18.5% in 2008 were down from 21.3% in 2007, primarily due to the impact of acquisitions and the restructuring-related charges. In the Health & Science Technologies Segment, operating income of $59.7 million and operating margins of 18.0% in 2008 were down from the $60.9 million and 18.6% recorded in 2007, principally due to recent acquisitions and the restructuring-related charges. In the Dispensing Equipment Segment, an operating loss of $10.6 million and operating margins of (6.5)% in 2008 were down from the $39.4 million and 22.1% recorded in 2007, due to lower volume as a result of continued deterioration in capital spending for both North American and European markets, the restructuring-related and goodwill impairment charges and selective material cost increases. Operating income and operating margins in the Fire & Safety/Diversified Products Segment of $73.7 million and 24.5%, respectively, were higher than the $66.5 million and 23.1% recorded in 2007, due primarily to favorable product mix, partially offset by restructuring-related charges.

Company and Business Segment Financial Information

 

 

 

 

 

Other income of $5.1 million in 2008 was $1.7 million higher than the $3.4 million in 2007, due to favorable foreign currency translation and higher interest income.

 

Interest expense decreased to $18.9 million in 2008 from $23.4 million in 2007. The decrease was due to a lower interest rate environment, the refinancing of the $150.0 million senior notes to a lower interest rate and the conversion of floating-rate debt into fixed-rate debt.

 

The provision for income taxes decreased to $67.3 million in 2008 from $79.3 million in 2007. The effective tax rate increased to 33.9% in 2008 from 33.7% in 2007, due to changes in the mix of global pre-tax income among taxing jurisdictions.

 

Income from continuing operations in 2008 was $131.4 million, 16% lower than the $155.9 million earned in 2007. Diluted earnings per share from continuing operations in 2008 of $1.60 decreased $0.30, or 16%, compared with the same period of 2007.

 

Loss from discontinued operations in 2007 was $0.7 million or $0.01 per share, which resulted from operations for Halox. The 2007 loss includes $0.7 million loss from operations and a $0.1 million loss from the sale of Halox, offset by a $0.1 million income adjustment from the sale of Lubriquip.

 

Net income for 2008 was $131.4 million, 15% lower than the $155.1 million earned in the same period of 2007. Diluted earnings per share in 2008 of $1.60 decreased $0.29, or 15%, compared with the same period last year.

 

Performance in 2007 Compared with 2006

 

In 2006, the Company sold Lubriquip, its lubricant dispensing business that operated as part of the Company’s Dispensing Equipment Segment. In 2007, the Company sold Halox, its chemical and electrochemical systems product line operating as part of Pulsafeeder in the Company’s Fluid & Metering Technologies Segment. Financial information for all periods presented has been restated to present the operating results of both Lubriquip and Halox as a discontinued operation.

 

Sales in 2007 of $1,358.6 million were 18% higher than the $1,154.9 million recorded a year ago. Organic sales rose 6%, seven acquisitions (JUN-AIR — February 2006; Eastern Plastics — May 2006; Banjo — October 2006; Toptech — December 2006; Faure Herman — February 2007; Quadro — June 2007 and Isolation Technologies — October 2007) made since the beginning of 2006 accounted for an improvement of 9%, while foreign currency translation accounted for 3%. Organic sales increased in all four of the Company’s reporting segments. Both domestic and international organic sales were up over 6% versus the prior year. Sales to customers outside the U.S. represented 46% of total sales in 2007 and 45% in 2006.

 

In 2007, Fluid & Metering Technologies contributed 42% of sales and operating income; Health & Science Technologies accounted for 24% of sales and 21% of operating income; Dispensing Equipment accounted for 13% of sales and 14% of operating income; and Fire & Safety/Diversified Products represented 21% of sales and 23% of operating income.

 

Fluid & Metering Technologies sales of $570.3 million in 2007 rose $134.8 million, or 31%, compared with 2006. The acquisition of Quadro, Faure Herman, Toptech and Banjo accounted for 20% of the increase, organic growth increased 9%, while foreign currency translation accounted for 2%. In 2007, organic sales grew approximately 7% domestically and 13% internationally. Sales to customers outside the U.S. were approximately 42% of total segment sales in 2007 and 41% in 2006.

 

Health & Science Technologies sales of $327.2 million increased $22.3 million, or 7%, in 2007 compared with last year. The acquisition of Isolation Technologies, EPI and JUN-AIR accounted for 6% of the increase while organic volume contributed 1%. In 2007, organic sales increased 3% domestically and decreased 1% internationally. Sales to customers outside the U.S. were approximately 39% of total segment sales in 2007 and 2006.

Dispensing Equipment sales of $177.9 million increased $18.2 million, or 11%, in 2007 compared with the prior year. Organic sales increased 6%, while foreign currency translation accounted for 5%. Organic domestic sales increased 17% compared with 2006, while organic international sales were essentially flat. Sales to customers outside the U.S. were 63% of total segment sales in 2007, down from 65% in 2006.

 

Fire & Safety/Diversified Products sales of $288.4 million increased $28.3 million, or 11%, in 2007 compared with 2006. Organic sales activity increased 7%, while foreign currency translation accounted for 4%. In 2007, organic sales increased 4% domestically, while organic international sales increased 10%. Sales to customers outside the U.S. were 49% of total segment sales in 2007 and 46% in 2006.

 

Gross profit of $568.4 million in 2007 was $91.0 million, or 19%, higher than 2006. As a percent of sales, gross profit was 41.8% in 2007, which represented a 50 basis-point increase from 41.3% in 2006. The improved gross profit margin is primarily attributable to strategic sourcing and other operational excellence initiatives.

 

SG&A expenses increased to $313.4 million in 2007 from $260.2 million in 2006. This increase reflects $33.1 million for acquisitions, $16.1 million of volume-related expenses, and a $1.7 million increase from severance-related and field service expenses as well as a $2.3 million increase from bad debt expense associated with the bankruptcy of a fire suppression customer. As a percent of net sales, SG&A expenses were 23.0%, an increase of 50 basis points compared with the 22.5% achieved in 2006.

 

Operating income increased $37.9 million, or 17%, to $255.1 million in 2007 from $217.2 million in 2006, primarily due to higher 2007 gross profit, offset by increased SG&A expenses. Operating margins in 2007 were 18.8% of sales, flat with the prior year. Operating margin improvement was offset by the impact of acquisitions, foreign currency translation and severance-related and field service expenses as well as bad debt expense associated with the bankruptcy of a fire suppression customer.

 

In the Fluid & Metering Technologies Segment, operating income of $121.4 million and operating margins of 21.3% in 2007 were up from the $89.9 million and 20.6% recorded in 2006 principally due to the impact of acquisitions, foreign currency translation and increased volume. Operating income for the Health & Science Technologies Segment of $60.9 million was up from the $58.2 million recorded in 2006 principally due to volume. Operating margins for Health & Science Technologies of 18.6% in 2007 were down from 19.1% in 2006, primarily due to product mix and severance-related expenses. Operating income for the Dispensing Equipment Segment of $39.4 million was up slightly from the $38.0 million recorded in 2006, principally due to improved market conditions in Europe and the impact of our operational excellence initiatives. Operating margins for Dispensing Equipment of 22.1% in 2007 were down from 23.8% in 2006, primarily due to foreign currency translation and severance-related and field service expenses. Operating income in the Fire & Safety/Diversified Products Segment of $66.5 million was higher than the $62.7 million recorded in 2006, primarily due to increased volume. Operating margins within Fire & Safety/Diversified Products of 23.1% in 2007 was down from 24.1% in 2006, primarily due to severance-related and bad debt expenses.

 

Other income of $3.4 million in 2007 was $2.4 million higher than the $1.0 million in 2006, due to favorable foreign currency translation and higher interest income.

 

Interest expense increased to $23.4 million in 2007 from $16.4 million in 2006. The increase was principally due to higher debt levels as a result of acquisitions.

 

The provision for income taxes increased to $79.3 million in 2007 from $68.2 million in 2006. The effective tax rate decreased to 33.7% in 2007 from 33.8% in 2006, due to changes in the mix of global pre-tax income among taxing jurisdictions.

 

Income from continuing operations in 2007 was $155.9 million, 17% higher than the $133.7 million earned in 2006. Diluted earnings per share from continuing operations in 2007 of $1.90 increased $0.25, or 15%, compared with the same period of 2006.

 

Loss from discontinued operations in 2007 was $0.7 million, or $0.01 per share, compared to income from discontinued operations of $12.9 million, or $0.16 per share, in the comparable period of 2006. The 2007 loss includes $0.7 million loss from operations and a $0.1 million loss from the sale of Halox, offset by a $0.1 million income adjustment from the sale of Lubriquip. The 2006 income from discontinued operations includes an after tax

gain of $16.7 million from the sale of Lubriquip and $0.3 million of income from operations, partially offset by a $4.1 million loss from the write-down of the carrying value of Halox to its estimated fair market value.

 

Net income in 2007 was $155.1 million, 6% higher than the $146.7 million earned in the same period of 2006. Diluted earnings per share in 2007 of $1.89, increased $0.08, or 4%, compared with the same period last year.

 

Liquidity and Capital Resources

 

At December 31, 2008, working capital was $286.0 million and the Company’s current ratio was 2.3 to 1. Cash flows from operating activities of continuing operations increased $26.0 million, or 13%, to $224.1 million in 2008.

 

Cash flows from continuing operations were more than adequate to fund capital expenditures of $27.8 million and $24.5 million in 2008 and 2007, 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 the Company has ample capacity in its plants and equipment to meet expected needs for future growth in the intermediate term.

 

The Company acquired ADS in January 2008 for cash consideration of $156.4 million, Richter in October 2008 for cash consideration of $93.4 million and the assumption of approximately $8.6 million in debt related items and $0.1 million in debt, iPEK in October 2008 for cash consideration of $43.3 million and the assumption of approximately $1.4 million in debt related items, IETG in October 2008 for cash consideration of $35.5 million and the assumption of approximately $1.9 million in debt related items, Semrock in October 2008 for cash consideration of $60.9 million and the assumption of approximately $0.2 million in debt related items and Innovadyne Technologies, Inc (“Innovadyne”) for cash consideration of $3.7 million. Approximately $155.0 million of the cash payment for ADS was financed by borrowings under the Company’s credit Facility, of which $140.0 million was reflected as restricted cash at December 31, 2007. Approximately $63.7 million, $33.2 million, $20.5 million, $60.0 million and $3.3 million of the cash payments for the acquisitions of Richter, iPEK, IETG, Semrock and Innovadyne, respectively, were financed by borrowings under the Company’s credit facility.

 

The Company acquired Faure Herman in February 2007 for cash consideration of $24.3 million and the assumption of approximately $1.6 million in debt, Quadro in June 2007 for cash consideration of $32.0 million and Isolation Technologies in October 2007 for cash consideration of $30.2 million. Approximately $12.9 million, $11.3 million and $29.9 million of the cash payments for the acquisitions of Faure Herman, Quadro and Isolation Technologies, respectively, were financed by borrowings under the Company’s credit facility.

 

The Company maintains a $600.0 million unsecured domestic, multi-currency bank revolving credit facility (“Credit Facility”), which expires on December 21, 2011. In 2008, the Credit Facility was amended to allow the Company to designate certain foreign subsidiaries as designated borrowers. Upon approval from the lenders, the designated borrowers will be allowed to receive loans under the Credit Facility. A designated borrower sublimit was established as the lesser of the aggregate commitments or $100.0 million. As of the amendment date, Fluid Management Europe B.V., (FME) was approved by the lenders as a designated borrower. FME’s borrowings under the Credit Facility at year end were approximately $82.0 million (Euro 58 million). As the FME borrowings under the Credit Facility are Euro denominated and the cash flows that will be used to make payments of principal and interest are predominately denominated in Euros, the Company does not anticipate any significant foreign exchange gains or losses in servicing this debt.

 

At December 31, 2008 there was $448.8 million outstanding under the Credit Facility and outstanding letters of credit totaled approximately $6.3 million. The net available borrowing under the Credit Facility as of December 31, 2008, was approximately $144.9 million. Interest is payable quarterly on the outstanding borrowings at the bank agent’s reference rate. Interest on borrowings based on LIBOR plus an applicable margin is payable on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months. The applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from 24 basis points to 50 basis points. Based on the Company’s BBB rating at December 31, 2008, the applicable margin was 40 basis points. An annual Credit Facility fee, also based on the Company’s credit rating, is currently 10 basis points and is payable quarterly. In 2008 the Company entered into two interest rate exchange agreements. One interest rate exchange agreement, expiring in January 2011, effectively converted $250.0 million of floating-rate debt into fixed-rate debt at

an interest rate of 3.25%. The second interest rate exchange agreement, expiring December 21, 2011, effectively converted an additional $100.0 million of floating-rate debt into fixed-rate debt at an interest rate of 4.00%.

 

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, 2008, the Company was in compliance with both of these financial covenants.

 

On February 15, 2008, the Company retired its $150.0 million senior notes using proceeds available under the Company’s Credit Facility.

 

On April 18, 2008, the Company completed a $100.0 million senior bank term loan agreement (“Term Loan”) with covenants consistent with the existing Credit Facility and a maturity on December 21, 2011. At December 31, 2008, there was $100.0 million outstanding under the Term Loan with $5.0 million included within short-term borrowings. Interest under the Term Loan is based on the bank agent’s reference rate or LIBOR plus an applicable margin and is payable at the end of the selected interest period, but at least quarterly. The applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from 45 to 100 basis points. Based on the Company’s current debt rating, the applicable margin is 80 basis points. The Term Loan requires repayments of $5.0 million, $5.0 million and $7.5 million in April of 2009, 2010, and 2011, respectively, with the remaining balance due on December 21, 2011. The Company used the proceeds from the Term Loan to pay down existing debt outstanding under the Credit Facility.

 

On April 21, 2008, the Company’s Board of Directors authorized the repurchase of up to $125.0 million of its outstanding common shares. Repurchases under the new program will be funded with cash flow generation, and made from time to time in either the open market or through private transactions. The timing, volume, and nature of share repurchases will be at the discretion of management, dependent on market conditions, other priorities for cash investment, applicable securities laws, and other factors, and may be suspended or discontinued at any time. As of December 31, 2008, 2.3 million shares were purchased at a cost of $50.0 million.

 

Despite the current downturn in global financial markets, the Company has not experienced any liquidity issues and we continue to expect that our current liquidity, notwithstanding these adverse market conditions, will be sufficient to meet our 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 during the next twelve months. 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. However, in light of recent adverse events in global financial and economic conditions, we cannot be certain that additional financing will be available on satisfactory terms, if at all.

 

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 16 of the Notes to Consolidated Financial Statements in Part II. Item 8. Financial Statements and Supplementary Data for additional detail related to pension and postretirement medical benefit plans.

 

The following table summarizes our significant contractual obligations and commercial commitments at December 31, 2008, 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 is provided in the Notes to Consolidated Financial Statements in Part II. Item 8. Financial Statements and Supplementary Data, as referenced in the table:

 

 

 

 

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 — The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility of the sales price is reasonably assured. For product sales, delivery does not occur until the products have been shipped and risk of loss has been transferred to the customer. Revenue from services is recognized when the services are provided or ratably over the contract term. Some arrangements with customers may include multiple deliverables, including the combination of products and services. In such cases the Company has identified these as separate elements in accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables” and recognizes revenue consistent with the policy for each separate element based on the fair value of each accounting unit. Revenues from certain long-term contracts are recognized on the percentage-of-completion method. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. Provisions for estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined.

 

The Company records allowances for discounts, product returns and customer incentives at the time of sale as a reduction of revenue as such allowances can be reliably estimated based on historical experience and known trends. The Company also offers product warranties and accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, warranty costs incurred and any other related information known to the Company.

 

Share-Based Compensation — The Company adopted SFAS No. 123(R), “Share Based Payment” effective January 1, 2006, and applies 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, share-based compensation expense could be impacted in future periods. See Note 15 of the 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 business unit level for estimated excess, obsolescence or impaired balances. Factors influencing these adjustments include changes in market demand, product life cycle and engineering changes.

 

Goodwill, Long-Lived and Intangible assets — 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. An intangible asset or goodwill impairment exists when the carrying amount of intangible assets and goodwill exceeds its fair value. Assessments of possible impairments of goodwill, long-lived or intangible assets 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 indefinite-lived intangible asset balances is performed 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, we accrue estimates of the probable costs for the resolution of these matters. These estimates are 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 the defined benefit retirement plans are presented in Note 16 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 the determination of the annual pension expense include the discount rate, the rate of salary increases, and the estimated 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 December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R) (revised 2007), “Business Combinations,” which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after an entity’s fiscal year that begins after December 15, 2008. The Company will adopt this statement for acquisitions consummated after its effective date.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. Minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. It also establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary and requires expanded disclosures. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The implementation of this standard will not have a material impact on our consolidated financial position and results of operations.

 

In February 2008, FASB issued a FASB Staff Position (“FSP”) to allow a one-year deferral of adoption of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized at fair value on a nonrecurring basis. The Company will adopt the FSP on January 1, 2009 and we expect the adoption to have an immaterial impact on our consolidated financial position and results of operations.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133.” SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company is currently evaluating the impact of SFAS No. 161 on its financial statements.

 

In April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible Assets.” FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008. The implementation of this standard will not have a material impact on our consolidated financial position and results of operations.

 

In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company is currently evaluating the impact of EITF No. 03-6-1 on its financial statements.

 

In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.” FSP No. 157-3 clarifies the application of SFAS No. 157, which the Company adopted as of January 1, 2008, in cases where a market is not active. The Company has considered the guidance provided by FSP No. 157-3 in its determination of estimated fair values as of December 31, 2008, and the impact was not material.

 

 

The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. We may, from time to time, enter into foreign currency forward contracts and interest rate exchange agreements on our debt when we believe there is a financial advantage in 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 foreign currency forward contracts and interest rate exchange agreements. 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 foreign currency forward contracts and interest rate exchange agreements on the Company’s outstanding long-term debt. The Company’s exposure related to derivative instruments is, in the aggregate, not material to its financial position, results of operations, or cash flows.

The Company’s foreign currency exchange rate risk is limited principally to the Euro, British Pound, Canadian Dollar and Chinese Renminbi. We manage our foreign exchange risk principally through invoicing our customers in the same currency as the source of our products. The effect of transaction gains and losses is reported within “Other income-net” on the Consolidated Statements of Operations. At December 31, 2008 the Company had foreign currency contracts with an aggregate notional amount of $13.4 million.

 

The Company’s interest rate exposure was primarily related to the $554.0 million of total debt outstanding at December 31, 2008. The majority of the debt was priced at interest rates that float with the market. In order to mitigate this interest exposure, the Company entered into interest rate exchange agreements that effectively converted $350.0 million of our floating-rate debt to a fixed-rate. A 50-basis point movement in the interest rate on the remaining $204.0 million floating-rate debt would result in an approximate $1.0 million annualized increase or decrease in interest expense and cash flows.

 

IDEX CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

 

See Notes to Consolidated Financial Statements.

IDEX CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

See Notes to Consolidated Financial Statements.

IDEX CORPORATION

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

 

See Notes to Consolidated Financial Statements.

IDEX CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS