Annual Statements Open main menu

IDEX CORP /DE/ - Quarter Report: 2009 March (Form 10-Q)

FORM 10-Q
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended March 31, 2009
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-10235
 
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  36-3555336
(I.R.S. Employer
Identification No.)
630 Dundee Road, Northbrook, Illinois
(Address of principal executive offices)
  60062
(Zip Code)
 
Registrant’s telephone number: (847) 498-7070
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o 
 
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):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(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 Exchange Act).
Yes o     No þ 
 
Number of shares of common stock of IDEX Corporation outstanding as of April 30, 2009: 80,693,173 (net of treasury shares).
 
 


 

 
TABLE OF CONTENTS
 
             
       
  Financial Statements     1  
    Condensed Consolidated Balance Sheets     1  
    Condensed Consolidated Statements of Operations     2  
    Condensed Consolidated Statements of Shareholders’ Equity     3  
    Condensed Consolidated Statements of Cash Flows     4  
    Notes to Condensed Consolidated Financial Statements     5  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     17  
    Cautionary Statement Under the Private Securities Litigation Reform Act     17  
    Historical Overview     17  
    Results of Operations     17  
    Liquidity and Capital Resources     20  
  Quantitative and Qualitative Disclosures About Market Risk     21  
  Controls and Procedures     22  
       
PART II. Other Information        
  Legal Proceedings     22  
  Unregistered Sales of Equity Securities and Use of Proceeds     23  
  Other Information     23  
  Exhibits     23  
    24  
    25  
 EX-18
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


Table of Contents

 
PART I. FINANCIAL INFORMATION
 
Item 1.   Financial Statements.
 
IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
(unaudited)
 
                 
    March 31, 2009     December 31, 2008  
 
ASSETS                
Current assets
               
Cash and cash equivalents
  $ 63,097     $ 61,353  
Receivables, less allowance for doubtful accounts of $5,960 at March 31, 2009 and $5,600 at December 31, 2008
    205,730       205,269  
Inventories
    176,805       181,200  
Other current assets
    31,867       32,866  
                 
Total current assets
    477,499       480,688  
Property, plant and equipment — net
    179,897       186,283  
Goodwill
    1,152,015       1,167,063  
Intangible assets — net
    292,949       303,226  
Other noncurrent assets
    8,898       14,540  
                 
Total assets
  $ 2,111,258     $ 2,151,800  
                 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities
               
Trade accounts payable
  $ 84,971     $ 87,304  
Accrued expenses
    98,668       117,186  
Short-term borrowings
    1,786       5,856  
Dividends payable
          9,523  
                 
Total current liabilities
    185,425       219,869  
Long-term borrowings
    541,766       548,144  
Deferred income taxes
    137,834       141,984  
Other noncurrent liabilities
    93,028       97,020  
                 
Total liabilities
    958,053       1,007,017  
                 
Commitment and contingencies
               
Shareholders’ equity
               
Preferred stock:
               
Authorized: 5,000,000 shares, $.01 per share par value; Issued: None
           
Common stock:
               
Authorized: 150,000,000 shares, $.01 per share par value Issued: 83,125,962 shares at March 31, 2009 and 82,786,045 shares at December 31, 2008
    831       828  
Additional paid-in capital
    383,861       377,154  
Retained earnings
    844,891       822,286  
Treasury stock at cost: 2,515,501 shares at March 31, 2009 and 2,483,955 shares at December 31, 2008
    (55,597 )     (55,393 )
Accumulated other comprehensive loss
    (20,781 )     (92 )
                 
Total shareholders’ equity
    1,153,205       1,144,783  
                 
Total liabilities and shareholders’ equity
  $ 2,111,258     $ 2,151,800  
                 
 
See Notes to Condensed Consolidated Financial Statements.


1


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
 
                 
    Three Months Ended
 
    March 31,  
    2009     2008  
 
Net sales
  $ 326,613     $ 371,662  
Cost of sales
    203,419       219,182  
                 
Gross profit
    123,194       152,480  
Selling, general and administrative expenses
    81,782       87,068  
Restructuring expenses
    2,251        
                 
Operating income
    39,161       65,412  
Other income (expense) — net
    (191 )     175  
Interest expense
    4,821       5,666  
                 
Income before income taxes
    34,149       59,921  
Provision for income taxes
    11,544       20,318  
                 
Net earnings
  $ 22,605     $ 39,603  
                 
Basic earnings per common share
  $ 0.28     $ 0.49  
                 
Diluted earnings per common share
  $ 0.28     $ 0.48  
                 
Share data:
               
Basic weighted average common shares outstanding
    79,513       81,067  
Diluted weighted average common shares outstanding
    80,219       82,288  
 
See Notes to Condensed Consolidated Financial Statements.


2


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands except share amounts)
(unaudited)
 
                                                         
                Accumulated Other Comprehensive Income (Loss)              
                      Net
                   
                      Actuarial
                   
                      Losses
                   
                      and Prior
                   
                      Service
                   
                      Costs on
                   
                      Pensions
    Cumulative
             
                      and Other
    Unrealized
             
    Common Stock
                Post-
    Losses
             
    and Additional
          Cumulative
    Retirement
    on Derivatives
          Total
 
    Paid-In
    Retained
    Translation
    Benefit
    Designated as Cash
    Treasury
    Shareholders’
 
    Capital     Earnings     Adjustment     Plans     Flow Hedges     Stock     Equity  
 
Balance, December 31, 2008, as previously stated
  $ 377,982     $ 845,396     $ 39,873     $ (33,654 )   $ (6,642 )   $ (55,393 )   $ 1,167,562  
                                                         
Impact of adopting change in accounting related to inventory (see Note 5)
          (23,110 )     331                         (22,779 )
                                                         
Balance, December 31, 2008, as restated
  $ 377,982     $ 822,286     $ 40,204     $ (33,654 )   $ (6,642 )   $ (55,393 )   $ 1,144,783  
                                                         
Net income
          22,605                               22,605  
Other comprehensive income, net of tax:
                                                       
Cumulative translation adjustment
                (19,695 )                       (19,695 )
Amortization of retirement obligations
                      847                   847  
Unrealized loss on derivatives designated as cash flow hedges
                            (1,841 )           (1,841 )
                                                         
Other comprehensive income
                                        (20,689 )
                                                         
Comprehensive income
                                        1,916  
                                                         
Issuance of 74,243 shares of common stock from exercise of stock options and deferred compensation plans, net of tax benefit
    1,165                                     1,165  
Share-based compensation
    5,545                                     5,545  
Unvested shares surrendered for tax withholding
                                  (204 )     (204 )
                                                         
Balance, March 31, 2009
  $ 384,692     $ 844,891     $ 20,509     $ (32,807 )   $ (8,483 )   $ (55,597 )   $ 1,153,205  
                                                         
 
See Notes to Condensed Consolidated Financial Statements.


3


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
                 
    Three Months
 
    Ended
 
    March 31,  
    2009     2008  
 
Cash flows from operating activities
               
Net income
  $ 22,605     $ 39,603  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    7,591       8,087  
Amortization of intangible assets
    6,003       3,962  
Amortization of debt issuance expenses
    73       96  
Stock-based compensation expense
    5,545       2,915  
Deferred income taxes
    6,327       2,996  
Excess tax benefit from stock-based compensation
    (640 )     (122 )
Changes in (net of the effect from acquisitions):
               
Receivables
    (5,025 )     (18,577 )
Inventories
    213       (9,831 )
Trade accounts payable
    (721 )     9,066  
Accrued expenses
    (18,024 )     (4,150 )
Other — net
    (6,304 )     (3,492 )
                 
Net cash flows provided by operating activities
    17,643       30,553  
Cash flows from investing activities
               
Additions to property, plant and equipment
    (4,852 )     (6,276 )
Acquisition of businesses, net of cash acquired
          (155,582 )
Proceeds from fixed assets disposals
    1,610        
Change in restricted cash
          140,005  
Other — net
    250        
                 
Net cash flows used in investing activities
    (2,992 )     (21,853 )
Cash flows from financing activities
               
Borrowings under credit facilities
    32,310       166,413  
Payments under credit facilities
    (37,271 )     (22,301 )
Payment of senior notes
          (150,000 )
Dividends paid
    (9,523 )     (9,789 )
Proceeds from stock option exercises
    1,116       525  
Excess tax benefit from stock-based compensation
    640       122  
Other — net
    (204 )     (432 )
                 
Net cash flows used in financing activities
    (12,932 )     (15,462 )
Effect of exchange rate changes on cash and cash equivalents
    25       3,821  
                 
Net increase (decrease) in cash
    1,744       (2,941 )
Cash and cash equivalents at beginning of year
    61,353       102,757  
                 
Cash and cash equivalents at end of period
  $ 63,097     $ 99,816  
                 
Supplemental cash flow information
               
Cash paid for:
               
Interest
  $ 5,119     $ 9,171  
Income taxes
    8,143       5,280  
Significant non-cash activities:
               
Capital expenditures included in accounts payable
    299       262  
 
See Notes to Condensed Consolidated Financial Statements.


4


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.   Basis of Presentation and Significant Accounting Policies
 
The Condensed Consolidated Financial Statements of IDEX Corporation (“IDEX” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The statements are unaudited but include all adjustments, consisting only of recurring items, except as noted, which the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for the entire year.
 
The condensed consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
 
Adoption of New Accounting Standards
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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 has adopted this statement for acquisitions at 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 significantly changes the financial accounting and reporting for noncontrolling (or minority) interests in consolidated financial statements. The provisions of SFAS No. 160 in part; establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary; clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements; establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation; requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated; and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS No. 160 effective January 2009 did not have an affect on the consolidated financial position, results of operations or cash flows of the Company.
 
Inventory
 
As of January 1, 2009, the Company changed its method for accounting for certain inventories from last-in, first-out (LIFO) to first-in, first-out (FIFO). The company applied this change in accounting principle retrospectively in accordance with SFAS No. 154, “Accounting Changes and Error Corrections” (see Note 5).
 
2.   Restructuring
 
During the past three quarters, we have recorded restructuring costs as a result of cost management efforts and facility closings. Accruals have been recorded based on these costs and primarily consist of employee termination benefits. We record accruals for employee termination benefits based on the guidance of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” These expenses are included in Restructuring


5


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
expenses in the Condensed Consolidated Statement of Operations while the restructuring accruals are included in accrued liabilities in our Condensed Consolidated Balance Sheets.
 
2009 Initiatives
 
During the three months ended March 31, 2009, the Company recorded pre-tax restructuring expenses totaling $2.3 million for employee severance related to employee reductions across various functional areas as well as facility closures resulting from the Company’s cost savings initiatives. The initiative included severance benefits for 180 employees. These employee reductions are expected to be completed by the end of 2009, with severance payments expected to be fully paid by mid-2010 using cash from operations.
 
2008 Initiatives
 
In 2008, the Company recorded pre-tax restructuring expenses totaling $18.0 million for employee severance related to employee reductions across various functional areas as well as facility closures resulting from our cost savings initiatives. The initiative included severance benefits for 380 employees. These employee reductions were completed by the end of 2008, with severance payments expected to be fully paid by the end of 2009 using cash from operations.
 
Pre-tax restructuring expenses, by segment, for the three months ended March 31, 2009 were as follows:
 
                         
          Asset
       
    Severance
    Write-downs
       
    Costs
    & Exit
       
    (Reversals)     Costs     Total  
    (in thousands)  
 
Fluid & Metering Technologies
  $ 812     $ 288     $ 1,100  
Health & Science Technologies
    657       191       848  
Dispensing Equipment
    (311 )     381       70  
Fire & Safety/Diversified Products
    23             23  
Corporate/Other
    160       50       210  
                         
Total restructuring costs
  $ 1,341     $ 910     $ 2,251  
                         
 
Restructuring accruals of $5.2 million and $9.3 million as of March 31, 2009 and December 31, 2008, respectively, are reflected in accrued liabilities in our Condensed Consolidated Balance Sheets as follows:
 
                         
    2008
    2009
       
    Initiatives     Initiatives     Total  
    (in thousands)  
 
Balance at January 1, 2009
  $ 9,263     $     $ 9,263  
Restructuring costs/reversals
    128       2,123       2,251  
Payments/Utilization
    (4,658 )     (1,695 )     (6,353 )
                         
Balance at March 31, 2009
  $ 4,733     $ 428     $ 5,161  
                         
 
3.   Business Segments
 
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,


6


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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


6.1


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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.
 
Information on the Company’s business segments is presented below, based on the nature of products and services offered. The Company evaluates performance based on several factors, of which operating income is the primary financial measure. Intersegment sales are accounted for at fair value as if the sales were to third parties.
 
                 
    Three Months
 
    Ended March 31,  
    2009     2008  
    (In thousands)  
 
Net sales:
               
Fluid & Metering Technologies:
               
External customers
  $ 156,731     $ 170,588  
Intersegment sales
    287       342  
                 
Total group sales
    157,018       170,930  
                 
Health & Science Technologies:
               
External customers
    72,028       82,407  
Intersegment sales
    2,160       1,235  
                 
Total group sales
    74,188       83,642  
                 
Dispensing Equipment:
               
External customers
    32,873       50,008  
Intersegment sales
           
                 
Total group sales
    32,873       50,008  
                 
Fire & Safety/Diversified Products:
               
External customers
    64,981       68,659  
Intersegment sales
    1       4  
                 
Total group sales
    64,982       68,663  
                 
Intersegment elimination
    (2,448 )     (1,581 )
                 
Total net sales
  $ 326,613     $ 371,662  
                 
Operating income:
               
Fluid & Metering Technologies
  $ 22,618     $ 31,607  
Health & Science Technologies
    9,850       15,019  
Dispensing Equipment
    3,979       11,244  
Fire & Safety/Diversified Products
    13,571       17,730  
Corporate office and other
    (10,857 )     (10,188 )
                 
Total operating income
  $ 39,161     $ 65,412  
                 
 
4.   Earnings Per Common Share
 
Earnings per common share (“EPS”) are computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents outstanding (diluted) during the period. Common


7


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
stock equivalents consist of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method, unvested shares, and shares issuable in connection with certain deferred compensation agreements (“DCUs”). Basic weighted average shares reconciles to diluted weighted average shares as follows:
 
                 
    Three Months
 
    Ended
 
    March 31,  
    2009     2008  
    (In thousands)  
 
Basic weighted average common shares outstanding
    79,513       81,067  
Dilutive effect of stock options, unvested shares, and DCUs
    706       1,221  
                 
Diluted weighted average common shares outstanding
    80,219       82,288  
                 
 
Options to purchase approximately 4.4 million and 2.0 million shares of common stock as of March 31, 2009 and 2008, respectively, were not included in the computation of diluted EPS because the exercise price was greater than the average market price of the Company’s common stock and, therefore, the effect of their inclusion would be antidilutive.
 
5.   Inventories
 
Inventories are stated at the lower of cost or market. Cost, which includes material, labor, and factory overhead, is determined on a FIFO basis.
 
Prior to the first quarter of 2009, we valued certain inventories under the LIFO cost method. As of January 1, 2009, we changed our method of accounting for these inventories from the LIFO method to the FIFO method. As of December 31, 2008, the inventories for which the LIFO method of accounting was applied represented approximately 85% of total net inventories. We believe that this change is to a preferable method which better reflects the current cost of inventory on our consolidated balance sheets. Additionally, this change conforms all of our worldwide inventories to a consistent inventory costing method and provides better comparability to our peers. We applied this change in accounting principle retrospectively to all prior periods presented herein in accordance with SFAS No. 154, “Accounting Changes and Error Corrections.” As a result of this accounting change, our retained earnings as of January 1, 2009 decreased to $822.3 million using the FIFO method from $845.4 million as originally


8


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
reported using the LIFO method. The following table summarizes the effect of the accounting change on our consolidated financial statements.
 
                                                 
    Three Months Ended
    Three Months Ended
 
    March 31, 2009     March 31, 2008  
                As
                   
    Computed
    Effect
    Computed
          Effect
       
    Under Prior
    of
    Under
    Originally
    of
    As
 
    Method     Change     FIFO     Reported     Change     Adjusted  
    (Thousands, except per share data)  
 
Statement of Operations:
                                               
Cost of sales
  $ 200,467     $ 2,952     $ 203,419     $ 216,495     $ 2,687     $ 219,182  
Income taxes
    12,542       (998 )     11,544       21,229       (911 )     20,318  
Net earnings
    24,559       (1,954 )     22,605       41,379       (1,776 )     39,603  
Per common share:
                                               
Basic earnings
    0.31       (0.03 )     0.28       0.51       (0.02 )     0.49  
Diluted earnings
    0.31       (0.03 )     0.28       0.50       (0.02 )     0.48  
Statement of Cash Flows:
                                               
Net earnings
    24,559       (1,954 )     22,605       41,379       (1,776 )     39,603  
Deferred income tax liability
    7,325       (998 )     6,327       3,907       (911 )     2,996  
Inventory working capital change
    (2,739 )     2,952       213       (12,892 )     3,061       (9,831 )
Net cash provided by operating activities
    17,643             17,643       30,553             30,553  
 
                                                 
    March 31, 2009     December 31, 2008  
 
Balance Sheet:
                                               
Inventories
  $ 212,717     $ (35,912 )   $ 176,805     $ 214,160     $ (32,960 )   $ 181,200  
Other current assets (prepaid taxes)
    22,426       9,441       31,867       24,423       8,443       32,866  
Accrued expenses (income tax payable)
    98,054       614       98,668       116,572       614       117,186  
Deferred income tax liability
    140,186       (2,352 )     137,834       144,336       (2,352 )     141,984  
Cumulative translation adjustment
    20,178       262       20,440       39,873       331       40,204  
Retained earnings
    869,955       (25,064 )     844,891       845,396       (23,110 )     822,286  
 
The revised components of inventories as of March 31, 2009 and December 31, 2008 were:
 
                 
    March 31,
    December 31,
 
    2009     2008  
    (In thousands)  
 
Raw materials and component parts
  $ 108,914     $ 110,290  
Work-in-process
    22,184       22,483  
Finished goods
    45,707       48,427  
                 
Total
  $ 176,805     $ 181,200  
                 


9


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
6.   Goodwill and Intangible Assets
 
The changes in the carrying amount of goodwill for the three months ended March 31, 2009, by reporting segment, were as follows:
 
                                         
    Fluid &
    Health &
          Fire & Safety/
       
    Metering
    Science
    Dispensing
    Diversified
       
    Technologies     Technologies     Equipment     Products     Total  
    (In thousands)  
 
Balance at December 31, 2008
  $ 524,387     $ 391,654     $ 103,470     $ 147,552     $ 1,167,063  
Foreign currency translation
    (6,215 )     (1,257 )     (5,165 )     (3,415 )     (16,052 )
Acquisition adjustments
    556       448                   1,004  
                                         
Balance at March 31, 2009
  $ 518,728     $ 390,845     $ 98,305     $ 144,137     $ 1,152,015  
                                         
 
For 2008 acquisitions, the Company is in the process of finalizing appraisals of tangible and intangible assets and is continuing to complete the preliminary purchase price allocations, as of the acquisition date, which will be adjusted as additional information relative to the fair values of the assets and liabilities becomes known.
 
SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Annually on October 31st, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. The Company concluded that the fair value of each of the reporting units was in excess of the carrying value as of October 31, 2008. The Company did not consider there to be any triggering event that would require an interim impairment assessment, therefore none of the goodwill or other acquired intangible assets with indefinite lives were tested for impairment during the three months ended March 31, 2009.
 
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset as of March 31, 2009 and December 31, 2008:
 
                                         
    March 31, 2009           December 31, 2008  
    Gross
                Gross
       
    Carrying
    Accumulated
    Average
    Carrying
    Accumulated
 
    Amount     Amortization     Life     Amount     Amortization  
    (In thousands)  
 
Amortizable intangible assets:
                                       
Patents
  $ 11,619     $ (5,572 )     11     $ 11,795     $ (5,550 )
Trade names
    61,763       (7,166 )     16       62,805       (6,310 )
Customer relationships
    153,910       (20,301 )     12       156,216       (16,601 )
Non-compete agreements
    4,539       (3,127 )     4       4,569       (2,989 )
Unpatented technology
    34,337       (3,604 )     14       35,527       (2,939 )
Other
    6,278       (1,827 )     10       6,282       (1,679 )
                                         
Total amortizable intangible assets
    272,446       (41,597 )             277,194       (36,068 )
Banjo trade name
    62,100                     62,100        
                                         
    $ 334,546     $ (41,597 )           $ 339,294     $ (36,068 )
                                         
 
The Banjo trade name is an indefinite lived intangible asset which is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.


10


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
7.   Accrued Expenses
 
The components of accrued expenses as of March 31, 2009 and December 31, 2008 were:
 
                 
    March 31,
    December 31,
 
    2009     2008  
    (In thousands)  
 
Payroll and related items
  $ 38,614     $ 45,162  
Management incentive compensation
    1,390       10,078  
Income taxes payable
    8,296       8,275  
Deferred income taxes
    852       1,469  
Insurance
    9,826       9,964  
Warranty
    3,897       3,751  
Deferred revenue
    2,177       2,600  
Restructuring
    5,161       9,263  
Other
    28,455       26,624  
                 
Total accrued expenses
  $ 98,668     $ 117,186  
                 
 
8.   Borrowings
 
Borrowings at March 31, 2009 and December 31, 2008 consisted of the following:
 
                 
    March 31,
    December 31,
 
    2009     2008  
    (In thousands)  
 
Credit Facility
  $ 443,606     $ 448,763  
Term Loan
    95,000       100,000  
Other borrowings
    4,946       5,237  
                 
Total borrowings
    543,552       554,000  
Less current portion
    1,786       5,856  
                 
Total long-term borrowings
  $ 541,766     $ 548,144  
                 
 
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 March 31, 2009 were approximately $76.6 million (Euro 58.0 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 March 31, 2009 there was $443.6 million outstanding under the Credit Facility and outstanding letters of credit totaled approximately $6.9 million. The net available borrowing under the Credit Facility as of March 31, 2009, was approximately $149.5 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 March 31, 2009, the applicable margin was 40 basis points.


11


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
An annual Credit Facility fee, also based on the Company’s credit rating, is currently 10 basis points and is payable quarterly. At March 31, 2009 the Company has two interest rate exchange agreements related to the Credit Facility. The first 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 in December 2011, effectively converted an additional $100.0 million of floating-rate debt into fixed-rate debt at an interest rate of 2.24%. The fixed rates noted above are comprised of the fixed rates on the interest rate exchange agreements and the Company’s current margin of 40 basis points on the Credit Facility.
 
On April 18, 2008, the Company completed a $100.0 million unsecured senior bank term loan agreement (“Term Loan”) with covenants consistent with the existing Credit Facility and a maturity on December 21, 2011. At March 31, 2009, there was $95.0 million outstanding under the Term Loan. 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 and $7.5 million in April of 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. At March 31, 2009 the Company has an interest rate exchange agreement related to the Term Loan that expires December 2011. With a current notional amount of $95.0 million, the agreement effectively converted $100.0 million of floating-rate debt into fixed-rate debt at an interest rate of 4.00%. The fixed rate is comprised of the fixed rate on the interest rate exchange agreement and the Company’s current margin of 80 basis points on the Term Loan.
 
9.   Derivative Instruments
 
The Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” on January 1, 2009. SFAS 161 requires that a Company with derivative instruments disclose information to enable users of the financial statements to understand: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. As such, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The adoption of SFAS 161 effective January 2009 did not affect the consolidated financial position, results of operations or cash flows of the Company.
 
The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows. The type of cash flow hedges the Company enters into includes foreign currency contracts and interest rate exchange agreements that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.
 
The effective portion of gains or losses on interest rate exchange agreements is reported in accumulated other comprehensive income in shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized into net income during the period of change.
 
Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date.
 
At March 31, 2009, the Company had three interest rate exchange agreements. The first 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 2011, with a current notional amount of $95.0 million, effectively converted $100.0 million of floating-rate debt into fixed-rate debt at


12


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
an interest rate of 4.00%. The third interest rate exchange agreement, also expiring in December 2011 effectively converted an additional $100.0 million of floating-rate debt into fixed-rate debt at an interest rate of 2.24%. The fixed rate is comprised of the fixed rate on the interest rate exchange agreements and the Company’s current margin of 40 basis points for the Credit Facility and 80 basis points on the Term Loan.
 
Based on interest rates at March 31, 2009, approximately $8.0 million of the amount included in accumulated other comprehensive loss in shareholders’ equity at March 31, 2009 will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.
 
At March 31, 2009, the Company had foreign currency exchange contracts with an aggregate notional amount of $10.0 million to manage its exposure to fluctuations in foreign currency exchange rates. The change in fair market value of these contracts for the three months ended March 31, 2009 was immaterial.
 
The following table sets forth the fair value amounts of derivative instruments held by the Company as of March 31, 2009 and December 31, 2008:
 
                     
    Fair Value-Liabilities      
    March 31,
    December 31,
    Balance Sheet
    2009     2008    
Caption
    (In thousands)      
 
Interest rate contracts
  $ 12,869     $ 10,098     Other noncurrent liabilities
Foreign exchange contracts
    369       272     Accrued expenses
                     
    $ 13,238     $ 10,370      
                     
 
The following table summarizes the gain (loss) recognized and the amounts and location of income (expense) and gain (loss) reclassified into income for interest rate contracts and foreign currency contracts during the first three months of 2009 and 2008:
 
                                     
    Gain (Loss)
  Income (Expense) and Gain
   
    Recognized in Other
  (Loss) Reclassified Into
  Income
    Comprehensive Income (Loss)   Income   Statement
    2009   2008   2009   2008  
Caption
    (In thousands)    
 
Interest rate contracts
  $ (1,772 )   $ (904 )   $ (1,692 )   $ 44     Interest expense
Foreign exchange contracts
    (69 )           (80 )         Sales
 
10.   Fair Value Measurements
 
The Company adopted SFAS No. 157, “Fair Value Measurements,” on January 1, 2008, for our financial assets and financial liabilities and on January 1, 2009 for our non-financial assets and liabilities. SFAS No. 157 defines fair value, provides guidance for measuring fair value and requires certain disclosures. SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
 
  •  Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
 
  •  Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
 
  •  Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.


13


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
The following table summarizes the basis used to measure the Company’s financial liabilities at fair value on a recurring basis in the balance sheet at March 31, 2009 and December 31, 2008:
 
                                 
    Basis of Fair Value Measurements  
    Balance at
                   
    March 31, 2009     Level 1     Level 2     Level 3  
    (In thousands)  
 
Interest rate exchange agreement derivative financial instruments (included in Other noncurrent liabilities)
  $ 12,869           $ 12,869        
Foreign currency contracts (included in Accrued expenses)
  $ 369           $ 369        
 
                                 
    Balance at
                   
    December 31, 2008     Level 1     Level 2     Level 3  
    (In thousands)  
 
Interest rate exchange agreement derivative financial instruments (included in Other noncurrent liabilities)
  $ 10,098           $ 10,098        
Foreign currency contracts (included in Accrued expenses)
  $ 272           $ 272        
 
In determining the fair value of the Company’s interest rate exchange agreement derivatives, the Company uses a present value of expected cash flows based on market observable interest rate yield curves commensurate with the term of each instrument and the credit default swap market to reflect the credit risk of either the Company or the counterparty.
 
11.   Common and Preferred Stock
 
At March 31, 2009 and December 31, 2008, the Company had 150 million shares of authorized common stock, with a par value of $.01 per share and 5 million shares of preferred stock with a par value of $.01 per share. No preferred stock was issued as of March 31, 2009 and December 31, 2008.
 
12.   Share-Based Compensation
 
During the three months ending March 31, 2009, the Company granted approximately 1.2 million stock options and 0.3 million unvested shares, respectively.
 
Total compensation cost for stock options is as follows:
 
                 
    Three Months
 
    Ended March 31,  
    2009     2008  
    (In thousands)  
 
Cost of goods sold
  $ 324     $ 233  
Selling, general and administrative expenses
    2,247       1,634  
                 
Total expense before income taxes
    2,571       1,867  
Income tax benefit
    (843 )     (584 )
                 
Total expense after income taxes
  $ 1,728     $ 1,283  
                 


14


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Total compensation cost for unvested shares is as follows:
 
                 
    Three Months
 
    Ended March 31,  
    2009     2008  
    (In thousands)  
 
Cost of goods sold
  $ 62     $ 9  
Selling, general and administrative expenses
    2,912       1,039  
                 
Total expense before income taxes
    2,974       1,048  
Income tax benefit
    (472 )     (179 )
                 
Total expense after income taxes
  $ 2,502     $ 869  
                 
 
Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees and $0.1 million of compensation cost was capitalized as part of inventory.
 
As of March 31, 2009, there was $15.1 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.5 years, and $16.5 million of total unrecognized compensation cost related to unvested shares that is expected to be recognized over a weighted-average period of 1.4 years.
 
13.   Retirement Benefits
 
The Company sponsors several qualified and nonqualified defined benefit and defined contribution pension plans and other postretirement plans for its employees. The following tables provide the components of net periodic benefit cost for its major defined benefit plans and its other postretirement plans.
 
                                 
    Pension Benefits  
    Three Months Ended March 31,  
    2009     2008  
    U.S.     Non-U.S.     U.S.     Non-U.S.  
    (In thousands)  
 
Service cost
  $ 425     $ 192     $ 436     $ 226  
Interest cost
    1,109       493       1,110       466  
Expected return on plan assets
    (913 )     (179 )     (1,313 )     (271 )
Net amortization
    1,218       86       499       101  
                                 
Net periodic benefit cost
  $ 1,839     $ 592     $ 732     $ 522  
                                 
 
                 
    Other Benefits  
    Three Months Ended
 
    March 31,  
    2009     2008  
    (In thousands)  
 
Service cost
  $ 146     $ 152  
Interest cost
    337       334  
Net amortization
    12       41  
                 
Net periodic benefit cost
  $ 495     $ 527  
                 
 
The Company previously disclosed in its financial statements for the year ended December 31, 2008, that it expected to contribute approximately $11.7 million to these pension plans and $1.3 million to its other


15


Table of Contents

 
IDEX CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
postretirement benefit plans in 2009. As of March 31, 2009, $1.1 million of contributions have been made to the pension plans and $0.2 million have been made to its other postretirement benefit plans. The Company presently anticipates contributing up to an additional $11.7 million in 2009 to fund these pension plans and other postretirement benefit plans.
 
14.   Legal Proceedings
 
The Company is party to various legal proceedings arising in the ordinary course of business, none of which are expected to have a material adverse effect on its business, financial condition, results of operations or cash flows.
 
15.   Income Taxes
 
The Company’s provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes decreased to $11.5 million in the first quarter of 2009 from $20.3 million in the first quarter of 2008. The effective tax rate decreased slightly to 33.8% for the first quarter of 2009 compared to 33.9% in the first quarter of 2008 due to the mix of global pre-tax income among jurisdictions.
 
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company adopted the provisions of FASB Interpretation (“FIN”) No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 on January 1, 2007. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $0.3 million.


16


Table of Contents

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Cautionary Statement Under the Private Securities Litigation Reform Act
 
The “Historical Overview” and the “Liquidity and Capital Resources” sections of this management’s discussion and analysis of our financial condition and results of 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, operating results and are indicated by words or phrases such as “expects,” “should,” “will,” 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, IDEX Corporation’s (“IDEX” or the “Company”) ability to integrate and operate acquired businesses on a profitable basis and other risks and uncertainties identified under the heading “Risk Factors” included in item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and information contained in subsequent periodic reports filed by IDEX with the Securities and Exchange Commission. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.
 
Historical Overview
 
IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies, dispensing equipment, and fire, safety and other diversified products built to its customers’ specifications. Our products are sold in niche markets to a wide range of industries throughout the world. Accordingly, our businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where we do business and by the relationship of the U.S. dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are among the factors that influence the demand for our products.
 
IDEX consists of four reportable segments: Fluid & Metering Technologies, Health & Science Technologies, Dispensing Equipment and Fire & Safety/Diversified Products.
 
The Fluid & Metering Technologies Segment produces pumps, compressors, flow meters and related controls for the movement of liquids and gases in a diverse range of end markets from industrial infrastructure to food and beverage; and provides metering technology and flow monitoring services for water and wastewater markets. 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, hair colorants and other personal care products, 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; and 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 the period ended March 31, 2009 and 2008. For purposes of this discussion and analysis section, reference is made to the table below and the Company’s Condensed Consolidated Statements of Operations included in Item 1. As of January 1, 2009, we changed our method of accounting for inventory from the LIFO method to the FIFO method. Certain prior year amounts have been restated to reflect the LIFO to FIFO inventory costing change.
 
Performance in the Three Months Ended March 31, 2009 Compared with the Same Period of 2008
 
Sales in the three months ended March 31, 2009 were $326.6 million, a 12% decrease from the comparable period last year. This decrease reflects a 14% decrease in organic sales and 5% unfavorable foreign currency translation, partially offset by a 7% increase from four acquisitions (Richter — October 2008, iPEK — October 2008, IETG — October 2008 and Semrock — October 2008). Sales to international customers represented approximately 46% of total sales in the current period compared to 47% in the same period in 2008.


17


Table of Contents

For the first quarter of 2009, Fluid & Metering Technologies contributed 48 percent of sales and 45 percent of operating income; Health & Science Technologies accounted for 22 percent of sales and 20 percent of operating income; Dispensing Equipment accounted for 10 percent of sales and 8 percent of operating income; and Fire & Safety/Diversified Products represented 20 percent of sales and 27 percent of operating income.
 
Fluid & Metering Technologies sales of $157.0 million for the three months ended March 31, 2009 declined $13.9 million, or 8% compared with 2008, reflecting a 17% decrease in organic growth and 3% unfavorable foreign currency translation, partially offset by a 12% increase for acquisitions (Richter, iPEK and IETG). The decrease in organic growth was driven by weakness in chemical, water and waste water markets. In the first quarter of 2009, organic sales decreased approximately 16% domestically and 18% internationally. Organic business sales to customers outside the U.S. were approximately 39% of total segment sales during the first quarter of both 2009 and 2008.
 
Health & Science Technologies sales of $74.2 million decreased $9.5 million, or 11% in the first quarter of 2009 compared with 2008. This reflects a 14% decrease in organic growth and 2% of unfavorable foreign currency translation, partially offset by a 5% increase from the acquisition of Semrock. The decrease in organic growth reflects market softness in non-core Health & Science Technologies businesses. In the first quarter of 2009, organic sales decreased 14% domestically and 16% internationally. Organic business sales to customers outside the U.S. were approximately 38% of total segment sales in the first quarter of 2009, compared to 39% in 2008.
 
Dispensing Equipment sales of $32.9 million decreased $17.1 million, or 34% in the first quarter of 2009 compared with 2008. This decrease reflects a 27% decrease in organic growth and 7% of unfavorable foreign currency translation. The dispensing business experienced deterioration in capital spending in both the European and North American markets. In the first quarter of 2009, organic sales decreased 1% domestically and 36% internationally. Organic sales to customers outside the U.S. were approximately 67% of total segment sales in the first quarter of 2009, compared with 75% in the comparable quarter of 2008.


18


Table of Contents

Fire & Safety/Diversified Products sales of $65.0 million decreased $3.7 million, or 5% in the first quarter of 2009 compared with 2008. This decrease reflects 9% unfavorable foreign currency translation, partially offset by a 4% increase in organic business volume. Organic business growth was driven by demand for fire suppression and rescue equipment. In the first quarter of 2009, organic business sales decreased 5% domestically and increased 10% internationally. Organic sales to customers outside the U.S. were approximately 57% of total segment sales in the first quarter of 2009, compared to 54% in 2008.
 
                 
    Three Months
 
    Ended March 31,(1)  
    2009     2008(2)  
 
Fluid & Metering Technologies
               
Net sales
  $ 157,018     $ 170,930  
Operating income(3)
    22,618       31,607  
Operating margin
    14.4 %     18.5 %
Depreciation and amortization
  $ 7,769     $ 6,313  
Capital expenditures
    2,557       2,391  
Health & Science Technologies
               
Net sales
  $ 74,188     $ 83,642  
Operating income(3)
    9,850       15,019  
Operating margin
    13.3 %     18.0 %
Depreciation and amortization
  $ 3,513     $ 2,953  
Capital expenditures
    1,262       1,646  
Dispensing Equipment
               
Net sales
  $ 32,873     $ 50,008  
Operating income(3)
    3,979       11,244  
Operating margin
    12.1 %     22.5 %
Depreciation and amortization
  $ 784     $ 1,138  
Capital expenditures
    218       530  
Fire & Safety/Diversified Products
               
Net sales
  $ 64,982     $ 68,663  
Operating income(3)
    13,571       17,730  
Operating margin
    20.9 %     25.8 %
Depreciation and amortization
  $ 1,280     $ 1,354  
Capital expenditures
    822       1,107  
Company
               
Net sales
  $ 326,613     $ 371,662  
Operating income(3)
    39,161       65,412  
Operating margin
    12.0 %     17.6 %
Depreciation and amortization(4)
  $ 13,594     $ 12,049  
Capital expenditures
    5,152       5,977  
 
 
(1) Data includes acquisition of Richter (October 2008), iPEK (October 2008) and IETG (October 2008) in the Fluid & Metering Technologies segment and Semrock (October 2008) in the Health & Science Technologies segment from the dates of acquisition.
 
(2) Certain prior year amounts have been restated to reflect the LIFO to FIFO inventory costing change.
 
(3) Group operating income excludes unallocated corporate operating expenses.
 
(4) Excludes amortization of debt issuance expenses and unearned stock compensation.


19


Table of Contents

 
Gross profit of $123.2 million in the first quarter of 2009 decreased $29.3 million, or 19% from 2008. Gross profit as a percent of sales was 37.7% in the first quarter of 2009 and 41.0% in 2008. The decrease in gross margin primarily reflects product mix, inventory fair value expense as well as the impact of fixed cost absorption from lower volume across most of our businesses.
 
Selling, general and administrative (“SG&A”) expenses decreased to $81.8 million in the first quarter of 2009 from $87.1 million in 2008. The $5.3 million decrease reflects approximately $12.6 million for volume related expenses, partially offset by a $7.3 million increase for incremental costs associated with recently acquired businesses. As a percent of sales, SG&A expenses were 25.0% for 2009 and 23.4% for 2008.
 
During the three months ended March 31, 2009, the Company recorded pre-tax restructuring expenses totaling $2.3 million for employee severance related to employee reductions across various functional areas and facility closures resulting from the Company’s cost savings initiatives.
 
Operating income of $39.2 million and operating margins of 12.0% in the first quarter of 2009 were down from the $65.4 million and 17.6% recorded in 2008, primarily reflecting increased expenses from previously announced restructuring-related charges, impact from acquisitions and a decrease in volume. In the Fluid & Metering Technologies Segment, operating income of $22.6 million and operating margins of 14.4% in the first quarter of 2009 were down from the $31.6 million and 18.5% recorded in 2008 principally due to the impact of recent acquisitions and lower sales. In the Health & Science Technologies Segment, operating income of $9.9 million and operating margins of 13.3% in the first quarter of 2009 were down from the $15.0 million and 18.0% recorded in 2008 due to lower volume. In the Dispensing Equipment Segment, operating income of $4.0 million and operating margins of 12.1% in the first quarter of 2009 were down from the $11.2 million of operating income and 22.5% recorded in 2008, due to continued deterioration in North America and Europe. Operating income and operating margins in the Fire & Safety/Diversified Products Segment of $13.6 million and 20.9%, respectively, were lower than the $17.7 million and 25.8% recorded in 2008, due primarily unfavorable product mix.
 
Interest expense decreased to $4.8 million in 2009 from $5.7 million in 2008. The decrease was due to a lower interest rate environment and the conversion of floating-rate debt into fixed-rate debt.
 
The provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes decreased to $11.5 million in the first quarter of 2009 compared to the first quarter of 2008, which was $20.3 million. The effective tax rate of 33.8% in the first quarter of 2009 was slightly lower compared to 33.9% in the same period of 2008.
 
Net income for the current quarter of $22.6 million decreased from the $39.6 million earned in the first quarter of 2008. Diluted earnings per share in the first quarter of 2009 of $0.28 decreased $0.20, or 42%, compared with the first quarter of 2008.
 
Liquidity and Capital Resources
 
At March 31, 2009, working capital was $292.1 million and our current ratio was 2.6 to 1. Cash flows from operating activities decreased $12.9 million, or 42%, to $17.6 million in the first three months of 2009 mainly due to reduced volume and restructuring-related payments.
 
Cash flows provided by operations were more than adequate to fund capital expenditures of $4.9 million and $6.3 million in the first three months of 2009 and 2008, 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 maintains a $600.0 million unsecured domestic, multi-currency bank revolving credit facility, which expires on December 21, 2011. At March 31, 2009 there was $443.6 million outstanding under the Credit Facility and outstanding letters of credit totaled approximately $6.9 million. The net available borrowing under the Credit Facility as of March 31, 2009, was approximately $149.5 million. Interest is payable quarterly on the outstanding borrowings at the bank agent’s reference rate. Interest on borrowings based on LIBOR plus an


20


Table of Contents

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 March 31, 2009, 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.
 
At March 31, 2009 the Company has two interest rate exchange agreements related to the Credit Facility. The first 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 in December 2011, effectively converted an additional $100.0 million of floating-rate debt into fixed-rate debt at an interest rate of 2.24%. The fixed rates noted above are comprised of the fixed rates on the interest rate exchange agreements and the Company’s current margin of 40 basis points on the Credit Facility.
 
On April 18, 2008, the Company completed a $100.0 million unsecured senior bank term loan agreement, with covenants consistent with the existing Credit Facility and a maturity on December 21, 2011. At March 31, 2009, there was $95.0 million outstanding under the Term Loan. 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 and $7.5 million in April of 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. At March 31, 2009 the Company has an interest rate exchange agreement related to the Term Loan that expires December 2011. With a current notional amount of $95.0 million, the agreement effectively converted $100.0 million of floating-rate debt into fixed-rate debt at an interest rate of 4.00%. The fixed rate is comprised of the fixed rate on the interest rate exchange agreement and the Company’s current margin of 80 basis points on the Term Loan.
 
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 March 31, 2009, 2.3 million shares have been 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.
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.
 
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 swaps 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 swaps. Under the policy, we do not use derivative financial or commodity instruments for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of derivative instruments is limited to foreign currency forward contracts and interest rate swaps 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.


21


Table of Contents

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 (expense)-net” on the Condensed Consolidated Statements of Operations. At March 31, 2009 the Company had foreign currency contracts with an aggregate notional amount of $10.0 million.
 
The Company’s interest rate exposure is primarily related to the $543.6 million of total debt outstanding at March 31, 2009. 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 $445.0 million of our floating-rate debt outstanding at March 31, 2009 to a fixed-rate. A 50-basis point movement in the interest rate on the remaining $98.6 million floating-rate debt would result in an approximate $0.5 million annualized increase or decrease in interest expense and cash flows.
 
Item 4.   Controls and Procedures.
 
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
 
There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
 
PART II. OTHER INFORMATION
 
Item 1.   Legal Proceedings.
 
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.


22


Table of Contents

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.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.
 
                                 
            Total Number of
  Maximum Dollar
            Shares Purchased as
  Value that May Yet
            Part of Publicly
  be Purchased
    Total Number of
  Average Price
  Announced Plans
  Under the Plans
Period
  Shares Purchased   Paid per Share   or Programs(1)   or Programs(1)
 
January 1, 2009 to
                               
January 31, 2009
                    $ 75,000,020  
February 1, 2009 to
                               
February 28, 2009
                    $ 75,000,020  
March 1, 2009 to
                               
March 31, 2009
                    $ 75,000,020  
                                 
Total
                    $ 75,000,020  
                                 
 
 
(1) On April 21, 2008, IDEX’s Board of Directors authorized the repurchase of up to $125.0 million of its outstanding common shares either in the open market or through private transactions.
 
Item 5.   Other Information.
 
There has been no material change to the procedures by which security holders may recommend nominees to the Company’s board.
 
Item 6.   Exhibits.
 
The exhibits listed in the accompanying “Exhibit Index” are filed as part of this report.


23


Table of Contents

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
IDEX Corporation
   
/s/  Dominic A. Romeo
Dominic A. Romeo
Vice President and Chief Financial Officer
(duly authorized principal financial officer)
 
May 6, 2009


24


Table of Contents

 
EXHIBIT INDEX
 
         
Exhibit
   
Number
 
Description
 
  3 .1   Restated Certificate of Incorporation of IDEX Corporation (formerly HI, Inc.) (incorporated by reference to Exhibit No. 3.1 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on April 21, 1988)
  3 .1(a)   Amendment to Restated Certificate of Incorporation of IDEX Corporation (formerly HI, Inc.), (incorporated by reference to Exhibit No. 3.1(a) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996, Commission File No. 1-10235)
  3 .1(b)   Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1(b) to the Current Report of IDEX on Form 8-K dated March 24, 2005, Commission File No. 1-10235)
  3 .2   Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.2 to Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on July 17, 1989)
  3 .2(a)   Amended and Restated Article III, Section 13 of the Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.2(a) to Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on February 12, 1990)
  4 .1   Restated Certificate of Incorporation and By-Laws of IDEX Corporation (filed as Exhibits No. 3.1 through 3.2(a))
  4 .2   Specimen Certificate of Common Stock of IDEX Corporation (incorporated by reference to Exhibit No. 4.3 to the Registration Statement on Form S-2 of IDEX, et al., Registration No. 33-42208, as filed on September 16, 1991)
  4 .3   Credit Agreement, dated as of December 21, 2006, among IDEX Corporation, Bank of America N.A. as Agent and Issuing Bank, and the other financial institutions party hereto (incorporated by reference to Exhibit No. 10.1 to the Current Report of IDEX on Form 8-K dated December 22, 2006, Commission File No. 1-10235)
  4 .3(a)   Amendment No. 2 to Credit Agreement, dated as of September 29, 2008, among IDEX Corporation, Bank of America N.A. as Agent and Issuing Bank, and the other financial institutions party hereto (incorporated by reference to Exhibit No. 4.3(a) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended September 30, 2008, Commission File No. 1-10235)
  4 .4   Term Loan Agreement, dated April 18, 2008, among IDEX Corporation, Bank of America N.A. as Agent, and the other financial institutions party hereto (incorporated by reference to Exhibit No. 10.1 to the Current Report of IDEX on Form 8-K dated April 18, 2008, Commission File No. 1-10235)
  *18     Letter from Deloitte and Touche, LLP regarding change in accounting principle
  *31 .1   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
  *31 .2   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
  *32 .1   Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
  *32 .2   Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
 
 
* Filed herewith


25