Exhibit 13
IDEX CORPORATION 2005 ANNUAL REPORT
Historical Data(1)
(dollars in thousands except per share amounts)
2005 2004 2003 2002 2001
---------- ---------- -------- -------- --------
RESULTS OF OPERATIONS
Net sales $1,043,275 $ 928,297 $797,920 $742,014 $726,947
Gross profit 423,844 370,795 309,320 281,438 263,722
SG&A expenses 241,057 221,411 199,458 181,269 164,893
Goodwill amortization -- -- -- -- 14,165
Restructuring activity -- -- -- (203) 11,226
Operating income 182,787 149,384 109,862 100,372 73,438
Other income (expense)--net 564 (743) 899 (123) 731
Interest expense 14,423 14,764 14,091 16,354 20,738
Provision for income taxes 59,125 47,471 34,318 29,783 20,721
Income from continuing operations 109,803 86,406 62,352 54,112 32,710
Income from discontinued operations -- -- -- -- --
Extraordinary items -- -- -- -- --
Net income 109,803 86,406 62,352 54,112 32,710
FINANCIAL POSITION
Current assets $ 347,501 $ 261,238 $224,496 $221,260 $214,903
Current liabilities 153,296 148,255 115,681 108,332 87,338
Working capital 194,205 112,983 108,815 112,928 127,565
Current ratio 2.3 1.8 1.9 2.0 2.5
Capital expenditures 22,994 21,097 20,318 19,335 21,639
Depreciation and amortization 30,651 31,529 30,055 30,105 44,297
Total assets 1,244,180 1,186,292 960,739 931,050 838,804
Total borrowings 160,043 225,317 176,546 241,051 291,820
Shareholders' equity 823,010 713,605 592,102 506,791 401,112
PERFORMANCE MEASURES
Percent of net sales
Gross profit 40.6% 40.0% 38.8% 37.9% 36.3%
SG&A expenses 23.1 23.9 25.0 24.4 22.7
Goodwill amortization -- -- -- -- 1.9
Restructuring activity -- -- -- -- 1.5
Operating income 17.5 16.1 13.8 13.5 10.1
Income before income taxes 16.2 14.4 12.1 11.3 7.4
Income from continuing operations 10.5 9.3 7.8 7.3 4.5
Effective tax rate 35.0 35.5 35.5 35.5 38.8
Net income return on average assets 9.0 8.0 6.6 6.1 4.1
Borrowings as a percent of capitalization 16.3 24.0 23.0 32.2 42.1
Net income return on average shareholders' 14.3 13.2 11.3 11.9 8.4
equity
PER SHARE DATA(2)
Basic--income from continuing operations $ 2.14 $ 1.73 $ 1.28 $ 1.14 $ .72
--net income 2.14 1.73 1.28 1.14 .72
Diluted--income from continuing operations 2.08 1.68 1.25 1.11 .70
--net income 2.08 1.68 1.25 1.11 .70
Cash dividends declared .48 .45 .37 .37 .37
Shareholders' equity 15.59 14.04 11.97 10.40 8.70
Stock price--high 45.33 40.96 28.25 26.44 24.80
--low 36.50 26.53 17.35 17.13 16.60
--close 41.11 40.50 27.73 21.80 23.00
Price/earnings ratio at year end 20 24 22 20 33
OTHER DATA(2)
Employees at year end 4,263 4,232 3,689 3,863 3,873
Shareholders at year end 6,700 6,000 5,700 4,700 5,500
Shares outstanding (in 000s):
Weighted average--basic 51,392 50,073 48,795 47,504 45,333
--diluted 52,720 51,348 49,973 48,725 46,571
At year end (net of treasury) 52,794 50,821 49,479 48,716 46,101
(1) See Notes to Consolidated Financial Statements for additional detail.
(2) All share and per share data have been restated to reflect the
three-for-two stock splits effected in the form of 50% stock dividends in
January 1995 and 1997, and May 2004.
16
IDEX CORPORATION 2005 ANNUAL REPORT
2000 1999 1998 1997 1996
- -------- -------- -------- -------- --------
$704,276 $655,041 $640,131 $552,163 $474,699
277,952 256,484 252,846 222,357 187,074
149,639 140,495 132,627 110,588 93,217
11,797 11,312 10,676 8,174 6,241
-- -- -- -- --
116,516 104,677 109,543 103,595 87,616
1,031 568 479 (693) (696)
16,521 18,020 22,359 18,398 17,476
37,581 32,797 33,267 31,029 25,020
63,445 54,428 54,396 53,475 44,424
-- -- 10,182 5,151 5,774
-- -- (2,514) -- --
63,445 54,428 62,064 58,626 50,198
$232,089 $213,715 $195,900 $197,267 $191,599
177,811 91,634 80,265 77,801 83,286
54,278 122,081 115,635 119,466 108,313
1.3 2.3 2.4 2.5 2.3
20,739 18,338 20,763 13,562 11,634
36,704 34,835 33,575 24,943 21,312
758,854 738,567 695,811 599,193 569,745
241,886 268,589 283,410 258,417 271,709
374,502 329,024 286,037 238,671 195,509
39.5% 39.2% 39.5% 40.3% 39.4%
21.2 21.4 20.7 20.0 19.6
1.7 1.7 1.7 1.5 1.3
-- -- -- -- --
16.5 16.0 17.1 18.8 18.5
14.3 13.3 13.7 15.3 14.6
9.0 8.3 8.5 9.7 9.4
37.2 37.6 37.9 36.7 36.0
8.5 7.6 9.6 10.0 9.8
39.2 44.9 49.8 52.0 58.2
18.0 17.7 23.7 27.0 29.0
$ 1.42 $ 1.23 $ 1.23 $ 1.22 $ 1.03
1.42 1.23 1.41 1.34 1.16
1.38 1.21 1.21 1.19 .99
1.38 1.21 1.38 1.30 1.13
.37 .37 .36 .33 .29
8.25 7.40 6.47 5.44 4.51
24.00 22.75 25.83 24.46 18.42
15.17 14.42 13.00 15.50 13.25
22.09 20.25 16.33 23.25 17.75
16 17 14 20 16
3,880 3,773 3,803 3,326 3,093
5,200 5,600 7,000 7,000 6,100
44,589 44,316 43,998 43,776 43,227
45,948 45,128 45,078 44,999 44,669
45,387 44,454 44,199 43,875 43,389
Net Sales (in millions)
(BAR GRAPH)
<Table>
<Caption>
Net Sales
---------
2005 $1,043,275
2004 $ 928,297
2003 $ 797,920
2002 $ 742,014
2001 $ 726,947
2000 $ 704,276
1999 $ 655,041
1998 $ 640,131
1997 $ 552,163
1996 $ 474,699
</Table>
Operating Margin (percent)
(BAR GRAPH)
<Table>
<Caption>
Operating Margin
----------------
2005 17.5
2004 16.1
2003 13.8
2002 13.5
2001 10.1
2000 16.5
1999 16.0
1998 17.1
1997 18.8
1996 18.5
</Table>
Diluted Earnings Per Share
(dollars)
(BAR GRAPH)
<Table>
<Caption>
Diluted Earnings per Share
--------------------------
2005 $2.08
2004 $1.68
2003 $1.25
2002 $1.11
2001 $0.70
2000 $1.38
1999 $1.21
1998 $1.21
1997 $1.19
1996 $0.99
</Table>
17
IDEX CORPORATION 2005 ANNUAL REPORT
Management's Discussion and Analysis of Financial Condition and Results of
Operations
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The "Historical Overview and Outlook" and the "Liquidity and Capital Resources"
sections of this management's discussion and analysis of our operations contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as
amended. These statements may relate to, among other things, capital
expenditures, cost reductions, cash flow, and operating improvements and are
indicated by words or phrases such as "anticipate," "estimate," "plans,"
"expects," "projects," "should," "will," "management believes," "the Company
believes," "we believe," "the Company intends" and similar words or phrases.
These statements are subject to inherent uncertainties and risks that could
cause actual results to differ materially from those anticipated at the date of
this filing. The risks and uncertainties include, but are not limited to, the
following: economic and political consequences resulting from terrorist attacks
and wars; levels of industrial activity and economic conditions in the U.S. and
other countries around the world; pricing pressures and other competitive
factors, and levels of capital spending in certain industries-- all of which
could have a material impact on our order rates and results, particularly in
light of the low levels of order backlogs we typically maintain; our ability to
make acquisitions and to integrate and operate acquired businesses on a
profitable basis; the relationship of the U.S. dollar to other currencies and
its impact on pricing and cost competitiveness; political and economic
conditions in foreign countries in which we operate; interest rates; capacity
utilization and the effect this has on costs; labor markets; market conditions
and material costs; and developments with respect to contingencies, such as
litigation and environmental matters. The forward-looking statements included
here are only made as of the date of this report, and we undertake no obligation
to publicly update them to reflect subsequent events or circumstances. Investors
are cautioned not to rely unduly on forward-looking statements when evaluating
the information presented here.
HISTORICAL OVERVIEW AND OUTLOOK
IDEX Corporation (IDEX or the Company) sells a broad range of pump products,
dispensing equipment and other engineered products to a diverse customer base in
the United States and other countries around the world. Accordingly, our
businesses are affected by levels of industrial activity and economic conditions
in the U.S. and in other countries where our products are sold 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 three reporting segments: Pump Products Group, Dispensing
Equipment Group and Other Engineered Products Group.
The Pump Products Group produces a wide variety of pumps, compressors, flow
meters, injectors and valves, and related controls for the movement of liquids,
air and gases. The Dispensing Equipment Group produces highly engineered
equipment for dispensing, metering and mixing colorants, paints, inks and dyes,
and personal care products; refinishing equipment; and centralized lubrication
systems. The Other Engineered Products Group produces firefighting pumps,
valves, 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.
IDEX has a history of achieving above-average operating margins. Our
operating margins have exceeded the average operating margin of the companies
that comprise the Value Line Composite Index (VLCI) every year since 1988. We
view the VLCI operating performance statistics as a proxy for an average
industrial company. Our operating margins are influenced by, among other
things, utilization of facilities as sales volumes change and inclusion of newly
acquired businesses.
Some of our key 2005 financial highlights were as follows:
- Orders were a record $1,057.0 million, 12% higher than a year ago;
base business orders--excluding 2004 acquisitions and foreign currency
translation--were up 10%.
- Sales of $1,043.3 million set a new record and were up 12% from last
year; base business sales--excluding 2004 acquisitions and foreign
currency translation--were up 10%.
- Gross margins improved 60 basis points to 40.6% of sales, while
operating margins at 17.5% were 140 basis points higher than 2004.
- Net income rose 27% to $109.8 million.
- Diluted EPS of $2.08 was 40 cents ahead of last year.
- Cash flows from operating activities rose 1% and reached an all time
high of $144.9 million.
We are pleased with our results in 2005. Our business units again
delivered--with double digit increases in orders, sales, and net income as well
as strong cash flow. All three business segments generated organic sales growth
and continued operating margin expansion as a result of our operational
excellence and new product and market initiatives. We enter 2006 well positioned
for continued growth and are using all the tools at our disposal to drive
revenues, profitability and cash generation.
The following forward-looking statements are qualified by the cautionary
statement under the Private Securities Litigation Reform Act set forth above.
18
IDEX CORPORATION 2005 ANNUAL REPORT
We expect economic conditions to remain favorable as we continue to
leverage rapid process improvement to meet customer needs, drive earnings and
fund innovation to support our organic growth. As a short cycle business, we are
mindful that our financial performance is reliant on the current pace of
incoming orders. Although we have limited visibility on future business
conditions, we believe IDEX is well positioned for earnings expansion, based on
our lower cost levels resulting from our operational excellence discipline, our
investments in new products, applications and global markets, and our pursuit of
strategic acquisitions to complement our longer-term profitable growth.
RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial position and results
of operations for each of the three years in the period ended December 31, 2005.
For purposes of this discussion and analysis section, reference is made to the
table on page 20 and the Consolidated Statements of Operations on page 26.
PERFORMANCE IN 2005 COMPARED WITH 2004
Orders, sales, net income and earnings per share were higher in 2005 compared
with 2004. New orders in 2005 totaled $1,057.0 million and were 12% higher than
the prior year. Excluding foreign currency translation and the impact of the
three acquisitions made since the beginning of 2004 (Systec--April 2004;
Scivex--May 2004 and Dinglee--July 2004), orders were 10% higher than a year
ago.
Sales in 2005 of $1,043.3 million were 12% higher than the $928.3 million
recorded a year ago. Base business sales rose 10%, while acquisitions accounted
for an improvement of 2%. Base business sales increased in all three of the
Company's reporting segments. Domestic base sales were up 12% over the prior
year, while base sales to international customers increased 7% in 2005. Sales to
international customers represented 43% of the total, compared with 44% in 2004.
In 2005, the Pump Products Group contributed 59% of sales and 54% of
operating income, the Dispensing Equipment Group accounted for 18% of sales and
19% of operating income, and the Other Engineered Products Group represented 23%
of sales and 27% of operating income.
Pump Products Group sales of $620.7 million in 2005 increased $78.3
million, or 14%, compared with 2004. The 2004 acquisitions of Systec and Scivex
accounted for a 3% sales improvement, while base business activity provided an
11% increase. In 2005, base business sales increased 12% domestically, while
base international sales increased 7%. Base business sales to customers outside
the U.S. were 37% of total group sales in 2005, down from 38% in 2004.
Dispensing Equipment Group sales of $187.8 million increased by $17.6
million, or 10%, in 2005 compared with the prior year, due to a 9% increase in
base business activity and favorable foreign currency translation of 1%. Base
domestic sales increased 20% compared with 2004, while base international sales
increased 2%. Base sales to customers outside the U.S. were 59% of total group
sales in 2005, down from 61% in 2004.
Other Engineered Products Group sales of $239.0 million increased by $20.0
million, or 9%, in 2005 compared with 2004. Base business activity drove the 9%
increase in sales. In 2005, base sales increased 8% domestically, while base
international sales increased 11%. Base business sales to customers outside the
U.S. were 46% of total group sales in 2005, up from 39% in 2004.
Gross profit of $423.8 million in 2005 was $53.0 million, or 14%, higher
than 2004. As a percent of sales, gross profit was 40.6% in 2005, which
represented a 60 basis point increase from 40.0% in 2004. The higher gross
profit margin primarily reflects volume leverage and the Company's global
sourcing and operational excellence initiatives.
Selling, general and administrative (SG&A) expenses increased to $241.1
million in 2005 from $221.4 million in 2004. This increase reflects the
deliberate reinvestment in the business to drive long-term growth,
volume-related expenses and acquisitions. As a percent of net sales, SG&A
expenses were 23.1%, an improvement of 80 basis points compared with the 23.9%
achieved in 2004.
Operating income increased by $33.4 million, or 22%, to $182.8 million in
2005 from $149.4 million in 2004, primarily due to higher 2005 gross profit,
offset by increased SG&A expenses. Operating margins in 2005 were 17.5% of
sales, an improvement of 140 basis points compared with the 16.1% achieved in
2004.
In the Pump Products Group, operating income of $114.4 million and
operating margin of 18.4% increased in 2005 compared with the $93.4 million and
17.2% recorded in 2004. Operating income for the Dispensing Equipment Group
increased to $40.8 million in 2005 from $33.5 million last year, and operating
margins improved to 21.7% from 19.7% recorded in 2004. Operating income in the
Other Engineered Products Group of $56.7 million and operating margin of 23.7%
increased from the $47.1 million and 21.5% achieved in 2004. The margin
improvement in all three segments was mostly attributable to the improved sales
volumes and other factors discussed above.
19
IDEX CORPORATION 2005 ANNUAL REPORT
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(dollars in thousands)
For the years ended December 31,(1) 2005 2004 2003
- ----------------------------------- ---------- ---------- --------
PUMP PRODUCTS GROUP
Net sales(2) $ 620,673 $ 542,336 $456,516
Operating income(3) 114,404 93,356 70,436
Operating margins(3) 18.4% 17.2% 15.4%
Identifiable assets $ 707,614 $ 694,731 $551,183
Depreciation and amortization(4) 15,797 16,464 16,141
Capital expenditures 13,758 13,968 12,887
DISPENSING EQUIPMENT GROUP
Net sales(2) $ 187,814 $ 170,198 $159,225
Operating income(3) 40,785 33,489 25,724
Operating margins(3) 21.7% 19.7% 16.2%
Identifiable assets $ 205,333 $ 214,140 $203,786
Depreciation and amortization(4) 5,210 5,616 5,881
Capital expenditures 3,824 2,769 2,967
OTHER ENGINEERED PRODUCTS GROUP
Net sales(2) $ 238,992 $ 219,006 $185,022
Operating income(3) 56,682 47,120 32,990
Operating margins(3) 23.7% 21.5% 17.8%
Identifiable assets $ 256,622 $ 246,410 $186,417
Depreciation and amortization(4) 5,696 6,012 5,116
Capital expenditures 4,357 3,204 3,874
COMPANY
Net sales $1,043,275 $ 928,297 $797,920
Operating income(3) 182,787 149,384 109,862
Operating margins(3) 17.5% 16.1% 13.8%
Total assets $1,244,180 $1,186,292 $960,739
Depreciation and amortization(4) 29,965 30,949 29,475
Capital expenditures 22,994 21,097 20,318
(1) Includes acquisitions of Scivex, Inc. (May 2004), Systec, L.L.C. (April
2004), Classic Engineering, Inc. (September 2003) and Sponsler Co., Inc.
(June 2003) in the Pump Products Group; and Tianjin Dinglee Machine and
Motor Co., Ltd (July 2004) and Manfred Vetter GmbH (January 2004) in the
Other Engineered Products Group from dates of acquisition. See Note 11 of
the Notes to Consolidated Financial Statements.
(2) Group net sales include intersegment sales.
(3) Group operating income excludes net unallocated corporate operating
expenses.
(4) Depreciation and amortization includes amortization of intangible assets
and unearned compensation.
20
IDEX CORPORATION 2005 ANNUAL REPORT
Other income of $.6 million in 2005 was $1.3 million higher than $.7
million of expense in 2004. In 2005, we benefited from foreign currency exchange
gains. Additionally, in 2004, we incurred hurricane-related costs at one of our
business units as well as certain costs associated with the refinancing of our
credit facility.
Interest expense decreased to $14.4 million in 2005 from $14.8 million in
2004. The decrease was principally due to lower debt levels resulting from debt
paydowns, partially off-set by higher interest rates.
The provision for income taxes increased to $59.1 million in 2005 from
$47.5 million in 2004. The effective tax rate decreased to 35.0% in 2005 from
35.5% in 2004 due to a favorable impact from foreign tax credits and the
additional benefit realized from the deduction for income from qualified
domestic production activity, partially offset by a reduction in research and
development credits.
Net income was $109.8 million, or $2.08 per share, compared with $86.4
million, or $1.68 per share, in 2004.
PERFORMANCE IN 2004 COMPARED WITH 2003
Orders, sales, net income and earnings per share were higher in 2004 compared
with 2003. New orders in 2004 totaled $942.4 million and were 18% higher than
the prior year. Excluding the impact of the six acquisitions made since the
beginning of 2003 (Sponsler-June 2003; Classic-September 2003; Vetter-January
2004; Systec-April 2004; Scivex-May 2004 and Dinglee-July 2004) and foreign
currency translation, orders were 9% higher in 2004 compared with 2003.
Sales in 2004 of $928.3 million were 16% higher than the $797.9 million
recorded in 2003. Acquisitions and foreign currency translation accounted for
an improvement of 6% and 3%, respectively, while base business sales rose 7%.
Base business sales increased in all three of the Company's reporting groups.
Domestic base sales were up 10% over the prior year, while base sales to
international customers increased 2% in 2004. Base sales to international
customers represented 43% of the total, compared with 45% in 2003.
In 2004, the Pump Products Group contributed 58% of sales and 54% of
operating income, the Dispensing Equipment Group accounted for 18% of sales and
19% of operating income, and the Other Engineered Products Group represented
24% of sales and 27% of operating income.
Pump Products Group sales of $542.3 million in 2004 increased $85.8
million, or 19%, compared with 2003. Acquisitions and foreign currency
translation accounted for an 8% and 2% sales improvement, respectively, while
base business activity provided a 9% increase. In 2004, base business sales
increased 12% domestically, while base international sales increased 6%. Base
business sales to customers outside the U.S. were 38% of total group sales in
2004, down from 40% in 2003.
Dispensing Equipment Group sales of $170.2 million increased by $11.0
million, or 7%, in 2004 compared with the prior year, due to favorable foreign
currency translation of 5% and a 2% increase in base business activity. Base
domestic sales increased 7% compared with 2003, while base international sales
decreased 2%. Base sales to customers outside the U.S. were 61% of total group
sales in 2004, down from 63% in 2003.
Other Engineered Products Group sales of $219.0 million increased by $34.0
million, or 18%, in 2004 compared with 2003. Acquisitions accounted for an
increase of 7%, foreign currency translation added 4% and base business activity
contributed 7%. In 2004, base sales increased 13% domestically, while base
international sales decreased 1%. Base business sales to customers outside the
U.S. were 39% of total group sales in 2004, down from 43% in 2003.
Gross profit of $370.8 million in 2004 was $61.5 million, or 20%, higher
than 2003. As a percent of sales, gross profit was 40.0% in 2004, which
represented a 120 basis point increase from 38.8% in 2003. The higher gross
profit margin primarily reflects reduced material costs from our global sourcing
and operational excellence initiatives, volume leverage, and price increases,
all of which more than offset cost increases and additional expenses.
SG&A expenses increased to $221.4 million in 2004 from $199.5 million in
2003. This increase was partly due to the inclusion of six acquisitions that
incrementally added $10.0 million of cost. This increase also reflects the
deliberate reinvestment in the business to drive organic growth as well as
certain volume-related cost increases. As a percent of net sales, SG&A expenses
were 23.9% in 2004, down from 25.0% in 2003.
Operating income increased by $39.5 million, or 36%, to $149.4 million in
2004 from $109.9 million in 2003, primarily due to higher 2004 gross profit,
offset by increased SG&A expenses. Operating margins in 2004 were 16.1% of
sales, compared with 13.8% in 2003.
21
IDEX CORPORATION 2005 ANNUAL REPORT
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
In the Pump Products Group, operating income of $93.4 million and operating
margin of 17.2% increased in 2004 compared with the $70.4 million and 15.4%
recorded in 2003. Operating income for the Dispensing Equipment Group increased
to $33.5 million in 2004 from $25.7 million last year, and operating margins
improved to 19.7% from 16.2% recorded in 2003. Operating income in the Other
Engineered Products Group of $47.1 million and operating margin of 21.5%
increased from the $33.0 million and 17.8% achieved in 2003. The margin
improvement in all three segments was mostly attributable to the improved sales
volumes and other factors discussed above.
Other expense of $.7 million in 2004 was $1.6 million higher than $.9
million of income in 2003. In 2004, we incurred hurricane-related costs at one
of our business units as well as certain costs associated with the refinancing
of our credit facility. In 2003, we benefited from a foreign currency exchange
gain related to the anticipated funding of the Vetter acquisition in January
2004.
Interest expense increased to $14.8 million in 2004 from $14.1 million in
2003. The increase was principally due to higher debt levels resulting from our
recent acquisitions as well as a slightly higher interest rate environment.
The provision for income taxes increased to $47.5 million in 2004 from
$34.3 million in 2003. The effective tax rate was 35.5% for both periods.
Net income was $86.4 million, or $1.68 per share, compared with $62.4
million, or $1.25 per share, in 2003.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005, working capital was $194.2 million and our current ratio
was 2.3 to 1. Cash flows from operating activities increased by $1.8 million, or
1%, to $144.9 million in 2005, mainly due to the improved operating results
discussed earlier offset by an increase in working capital requirements.
Cash flows from operating activities were more than adequate to fund
capital expenditures of $23.0 million and $21.1 million in 2005 and 2004,
respectively. Capital expenditures were generally for machinery and equipment
that improved productivity, tooling to support IDEX's global sourcing
initiative, business system technology and replacement of equipment and
facilities. Management believes that IDEX has ample capacity in its plant and
equipment to meet expected needs for future growth in the intermediate term.
In 2004, the Company acquired Vetter, Systec, Scivex and Dinglee at a cost
of $44.8 million, $22.4 million, $98.6 million and $4.1 million, respectively.
In 2004, the Company also paid $1.1 million in settlement of a purchase price
contingency related to the 2003 acquisition of Classic. These payments were
financed under the Company's credit facilities.
In addition to the $150.0 million of 6.875% Senior Notes (Senior Notes) due
February 15, 2008, the Company also maintains a $600.0 million domestic
multi-currency bank revolving credit facility (Credit Facility), which expires
on December 14, 2009. With no borrowings outstanding under the Credit Facility
at December 31, 2005, and outstanding letters of credit totaling $4.7 million,
the maximum amount available under the Credit Facility was $595.3. million. The
Credit Facility contains a covenant that limits total debt outstanding to 3.25
times operating cash flow, as defined in the agreement. Our total debt
outstanding was $160.0 million at December 31, 2005, and based on the covenant,
total debt outstanding was limited to $693.3 million. Interest is payable
quarterly on the outstanding balance at the bank agent's reference rate or, at
the Company's election, at LIBOR plus an applicable margin. The applicable
margin is based on the credit rating of our Senior Notes, and can range from 27
basis points to 75 basis points. Based on the Company's BBB rating at December
31, 2005, the applicable margin was 55 basis points. We also pay an annual fee
of 15 basis points on the total Credit Facility.
We also have a one-year, renewable $30.0 million demand line of credit
(Short-Term Facility), which expires on December 12, 2006. Borrowings under the
Short-Term Facility are at LIBOR plus the applicable margin in effect under the
Credit Facility. At December 31, 2005, there were no borrowings outstanding
under the Short-Term Facility.
We believe the Company will generate sufficient cash flow from operations
for the next 12 months and over the long term to meet its operating
requirements, interest on all borrowings, required debt repayments, any
authorized share repurchases, planned capital expenditures, and annual dividend
payments to holders of common stock. 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 borrowings.
22
IDEX CORPORATION 2005 ANNUAL REPORT
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND
OFF-BALANCE SHEET ARRANGEMENTS
Our contractual obligations and commercial commitments include rental payments
under operating leases, payments under capital leases, and other long-term
obligations arising in the ordinary course of business. There are no
identifiable events or uncertainties, including the lowering of our credit
rating that would accelerate payment or maturity of any of these commitments or
obligations. The Company also has obligations with respect to its pension and
postretirement medical benefit plans, which are not included in the table below.
See Note 13 of the Notes to Consolidated Financial Statements.
The following table summarizes our significant contractual obligations and
commercial commitments at December 31, 2005, and the future periods in which
such obligations are expected to be settled in cash. In addition, the table
reflects the timing of principal and interest payments on outstanding
borrowings. Additional detail regarding these obligations are provided in the
Notes to Consolidated Financial Statements, as referenced in the table:
Less More
Payments Due than 1-3 3-5 than
by Period Total 1 Year Years Years 5 Years
- ----------------- -------- ------- -------- ------ -------
(in thousands)
Borrowings
(Note 4)(1) $184,673 $13,793 $169,675 $1,074 $ 131
Operating lease
commitments
(Note 5) 20,250 6,699 8,309 3,441 1,801
Capital lease
obligations(2) 6,362 955 1,251 1,374 2,782
Purchase
obligations(3) 39,645 36,418 3,199 28 --
-------- ------- -------- ------ ------
Total contractual
obligations(4) $250,930 $57,865 $182,434 $5,917 $4,714
======== ======= ======== ====== ======
(1) Includes interest payments based on contractual terms and current interest
rates for variable debt.
(2) Comprised primarily of property leases.
(3) Comprised primarily of inventory commitments.
(4) Comprised of liabilities recorded on the balance sheet of $184,319, and
obligations not recorded on the balance sheet of $66,611.
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.
Revenue recognition--We recognize revenue from product sales when title
passes and the risks of ownership have passed to the customer. Our customary
terms are FOB shipping point. Based on our historical experience, we estimate
and record provisions for sales returns and sales allowances in the period the
related products are sold. To the extent actual results differ from these
estimated amounts, results could be adversely affected.
Noncurrent assets--The Company evaluates the recoverability of certain
noncurrent assets utilizing various estimation processes. In particular, the
recoverability of December 31, 2005 balances for goodwill and intangible assets
of $691.9 million and $28.6 million, respectively, are subject to estimation
processes, which depend on the accuracy of underlying assumptions, including
future operating results. The Company evaluates the recoverability of each of
these assets based on estimated business values and estimated future cash flows
(derived from estimated earnings and cash flow multiples). The recoverability of
these assets depends on the reasonable- ness of these assumptions and how they
compare with the eventual operating performance of the specific businesses to
which the assets are attributed. To the extent actual business values or cash
flows differ from those estimated amounts, the recoverability of these
noncurrent assets could be affected.
Income taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities
are determined based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities based on
currently enacted tax laws. The Company's tax balances are based on management's
interpretation of the tax regulations and rulings in numerous taxing
jurisdictions. Future tax authority rulings and changes in tax laws and future
tax planning strategies could affect the actual effective tax rate and tax
balances recorded by the Company.
Contingencies and litigation--We are currently involved in certain legal
and regulatory proceedings and, as required and where it is reasonably possible
to do so, have accrued our estimates of the probable costs for the resolution of
these matters. These estimates have been developed in consultation with outside
counsel and are based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies. It is possible, however,
that future operating results for any particular quarterly or annual period
could be materially affected by changes in our assumptions or the effectiveness
of our strategies related to these proceedings.
23
IDEX CORPORATION 2005 ANNUAL REPORT
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Defined benefit retirement plans--The plan obligations and related assets
of defined benefit retirement plans are presented in Note 13 of the Notes to
Consolidated Financial Statements. Plan assets, which consist primarily of
marketable equity and debt instruments, are valued using market quotations. Plan
obligations and the annual pension expense are determined by consulting with
actuaries using a number of assumptions provided by the Company. Key assumptions
in measuring the plan obligations include the discount rate at which the
obligations could be effectively settled and the anticipated rate of future
salary increases. Key assumptions in the determination of the annual pension
expense include the discount rate, the rate of salary increases, and the
estimated 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 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R). SFAS 123R replaces
SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123R will require the
fair value of all stock option awards issued to employees to be recorded as an
expense over the related vesting period. SFAS 123R also requires the recognition
of compensation expense for the fair value of any unvested stock option awards
outstanding at the date of adoption. See Note 1 for the pro forma effect on our
net income and earnings per share of applying SFAS No. 123. SFAS 123R is
effective for public companies for annual periods that begin after June 15,
2005. Accordingly, we will adopt SFAS 123R in the first quarter of 2006. The
Company is still evaluating the impact of adopting this SFAS in 2006, but we
anticipate an annual pre-tax expense of approximately $8.0 million, or 10 cents
per diluted share, net of tax.
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47),
"Accounting for Conditional Asset Retirement Obligations." FIN 47 clarifies that
the term conditional asset retirement obligation, as used in SFAS No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. The adoption of FIN 47 did not have a material
impact on our results of operations, financial condition or cash flows.
MARKET RISK
We are subject to market risk associated with changes in interest rates and
foreign currency exchange rates. Interest rate exposure is limited to the $160.0
million of total debt outstanding at December 31, 2005. Approximately 6% of the
debt is priced at interest rates that float with the market. A 50 basis point
movement in the interest rate on the floating rate debt would result in an
approximate $.1 million annualized increase or decrease in interest expense and
cash flows. The remaining debt is fixed rate debt.
A treasury risk management policy, adopted by the Board of Directors,
describes the procedures and controls over derivative financial and commodity
instruments, including interest rate swaps. Under the policy, we do not use
derivative financial or commodity instruments for trading purposes, and the use
of these instruments is subject to strict approvals by senior officers.
Typically, the use of derivative instruments is limited to interest rate swaps
on the Company's outstanding long-term debt. As of December 31, 2005, the
Company did not have any derivative instruments outstanding.
Our foreign currency exchange rate risk is limited principally to the euro
and British pound. We manage our foreign exchange risk principally through
invoicing our customers in the same currency as the source of our products. As a
result, the Company's exposure to any movement in foreign currency exchange
rates is immaterial to the Consolidated Statements of Operations.
24
IDEX CORPORATION 2005 ANNUAL REPORT
Consolidated Balance Sheets
(dollars in thousands except per share amounts)
2005 2004
---------- ----------
As of December 31,
ASSETS
Current assets
Cash and cash equivalents $ 77,290 $ 7,274
Receivables--net 132,544 119,567
Inventories 126,576 126,978
Other current assets 11,091 7,419
---------- ----------
Total current assets 347,501 261,238
Property, plant and equipment--net 145,485 155,602
Goodwill 691,869 713,619
Intangible assets--net 28,615 29,545
Other noncurrent assets 30,710 26,288
---------- ----------
Total assets $1,244,180 $1,186,292
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 69,473 $ 71,405
Accrued expenses 74,358 70,745
Short-term borrowings 3,144 --
Dividends payable 6,321 6,105
---------- ----------
Total current liabilities 153,296 148,255
Long-term borrowings 156,899 225,317
Other noncurrent liabilities 110,975 99,115
---------- ----------
Total liabilities 421,170 472,687
---------- ----------
Commitments and Contingencies (Note 5)
Shareholders' equity
Common stock:
Authorized: 150,000,000 shares at December 31,
2005 and 75,000,000 shares at December 31,
2004, $.01 per share par value
Issued: 52,857,059 shares at December 31, 2005
and 50,996,444 shares at December 31, 2004 529 510
Additional paid-in capital 290,428 234,354
Retained earnings 524,035 439,137
Minimum pension liability adjustment (5,884) (4,644)
Cumulative translation adjustment 25,160 53,046
Treasury stock, at cost: 63,318 shares at December
31, 2005 and 175,650 shares at December 31, 2004 (2,361) (4,209)
Unearned compensation (8,897) (4,589)
---------- ----------
Total shareholders' equity 823,010 713,605
---------- ----------
Total liabilities and shareholders' equity $1,244,180 $1,186,292
========== ==========
See Notes to Consolidated Financial Statements.
25
IDEX CORPORATION 2005 ANNUAL REPORT
Consolidated Statements of Operations
(in thousands except per share amounts)
For the years ended December 31, 2005 2004 2003
- -------------------------------- ---------- -------- --------
Net sales $1,043,275 $928,297 $797,920
Cost of sales 619,431 557,502 488,600
---------- -------- --------
Gross profit 423,844 370,795 309,320
Selling, general and administrative expenses 241,057 221,411 199,458
---------- -------- --------
Operating income 182,787 149,384 109,862
Other income (expense)--net 564 (743) 899
---------- -------- --------
Income before interest expense and income taxes 183,351 148,641 110,761
Interest expense 14,423 14,764 14,091
---------- -------- --------
Income before income taxes 168,928 133,877 96,670
Provision for income taxes 59,125 47,471 34,318
---------- -------- --------
Net income $ 109,803 $ 86,406 $ 62,352
========== ======== ========
EARNINGS PER COMMON SHARE
Basic earnings per common share $ 2.14 $ 1.73 $ 1.28
========== ======== ========
Diluted earnings per common share $ 2.08 $ 1.68 $ 1.25
========== ======== ========
SHARE DATA
Basic weighted average common shares outstanding 51,392 50,073 48,795
========== ======== ========
Diluted weighted average common shares outstanding 52,720 51,348 49,973
========== ======== ========
See Notes to Consolidated Financial Statements.
26
IDEX CORPORATION 2005 ANNUAL REPORT
Consolidated Statements of Shareholders' Equity
(dollars in thousands except per share amounts)
Common
Stock and Minimum
Additional Pension Cumulative Total
Paid-In Retained Liability Translation Treasury Unearned Shareholders'
Capital Earnings Adjustment Adjustment Stock Compensation Equity
---------- -------- ---------- ----------- -------- ------------ -------------
Balance, December 31, 2002 $182,863 $331,635 $(10,571) $ 9,240 $(1,946) $(4,430) $ 506,791
-------- -------- -------- -------- ------- ------- ---------
Net income 62,352 62,352
Other comprehensive income, net of tax
Cumulative translation adjustment 26,652 26,652
Minimum pension adjustment (1,910) (1,910)
---------
Other comprehensive income 24,742
---------
Comprehensive income 87,094
---------
Issuance of 809,079 shares of common stock
from exercise of stock options and deferred
compensation plans 15,633 15,633
Amortization of restricted common stock award 1,899 1,899
Restricted shares surrendered for tax
withholdings (957) (957)
Cash dividends declared--$.37 per common
share outstanding (18,358) (18,358)
-------- -------- -------- -------- ------- ------- ---------
Balance, December 31, 2003 198,496 375,629 (12,481) 35,892 (2,903) (2,531) 592,102
-------- -------- -------- -------- ------- ------- ---------
Net income 86,406 86,406
Other comprehensive income, net of tax
Cumulative translation adjustment 17,154 17,154
Minimum pension adjustment 7,837 7,837
---------
Other comprehensive income 24,991
---------
Comprehensive income 111,397
---------
Issuance of 1,238,247 shares of common stock
from exercise of stock options and deferred
compensation plans 31,997 31,997
Issuance of 145,000 shares of restricted
common stock 4,371 (4,371) --
Amortization of restricted common stock award 2,313 2,313
Restricted shares surrendered for tax
withholdings (1,306) (1,306)
Cash dividends declared--$.45 per common
share outstanding (22,898) (22,898)
-------- -------- -------- -------- ------- ------- ---------
Balance, December 31, 2004 234,864 439,137 (4,644) 53,046 (4,209) (4,589) 713,605
-------- -------- -------- -------- ------- ------- ---------
Net income 109,803 109,803
Other comprehensive income, net of tax
Cumulative translation adjustment (27,886) (27,886)
Minimum pension adjustment (1,240) (1,240)
---------
Other comprehensive income (29,126)
---------
Comprehensive income 80,677
---------
Issuance of 1,848,340 shares of common stock
from exercise of stock options and deferred
compensation plans 52,683 52,683
Issuance of 176,150 shares of restricted
common stock 3,410 3,735 (7,145) --
Amortization of restricted common stock award 2,837 2,837
Restricted shares surrendered for tax
withholdings (1,887) (1,887)
Cash dividends declared--$.48 per common
share outstanding (24,905) (24,905)
-------- -------- -------- -------- ------- ------- ---------
BALANCE, DECEMBER 31, 2005 $290,957 $524,035 $ (5,884) $ 25,160 $(2,361) $(8,897) $ 823,010
======== ======== ======== ======== ======= ======= =========
See Notes to Consolidated Financial Statements.
27
IDEX CORPORATION 2005 ANNUAL REPORT
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31, 2005 2004 2003
- -------------------------------- -------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $109,803 $ 86,406 $ 62,352
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 26,420 27,998 27,146
Amortization of intangible assets 708 638 430
Amortization of unearned compensation on restricted stock 2,837 2,313 1,899
Amortization of debt issuance expenses 686 580 580
Income tax benefit related to equity awards 15,234 5,624 2,061
Deferred income taxes 4,483 10,782 10,487
Changes in (net of the effect from acquisitions):
Receivables (18,769) (5,953) 6,867
Inventories (3,931) (9,284) 4,624
Trade accounts payable 512 11,897 211
Accrued expenses 7,691 11,995 2,508
Other--net (786) 119 (6,900)
-------- --------- --------
Net cash flows provided by operating activities 144,888 143,115 112,265
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (22,994) (21,097) (20,318)
Acquisition of businesses (net of cash acquired) (1,191) (170,983) (21,954)
Proceeds from fixed asset disposals 86 527 3,436
-------- --------- --------
Net cash flows used in investing activities (24,099) (191,553) (38,836)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit facilities for acquisitions -- 170,983 21,954
Net repayments under credit facilities (60,067) (124,953) (85,387)
Net borrowings (repayments) of other long-term debt (1,709) 1,665 (1,686)
Dividends paid (24,689) (21,415) (18,284)
Proceeds from stock option exercises 37,503 22,848 13,176
Other--net (1,887) (1,148) (1,023)
-------- --------- --------
Net cash flows provided by (used in) financing activities (50,849) 47,980 (71,250)
-------- --------- --------
Effect of exchange rate changes on cash and cash equivalents 76 (820) (579)
-------- --------- --------
Net increase (decrease) in cash 70,016 (1,278) 1,600
Cash and cash equivalents at beginning of year 7,274 8,552 6,952
-------- --------- --------
Cash and cash equivalents at end of year $ 77,290 $ 7,274 $ 8,552
======== ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 13,953 $ 14,022 $ 13,576
Income taxes 35,916 23,617 18,774
SIGNIFICANT NON-CASH ACTIVITIES
Issuance of restricted stock $ 7,145 $ 4,371 --
See Notes to Consolidated Financial Statements.
28
IDEX CORPORATION 2005 ANNUAL REPORT
Notes to Consolidated Financial Statements
(in thousands except per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
IDEX Corporation (IDEX or the Company) is a manufacturer of a broad range of
pumps, metering products, dispensing equipment, and other engineered products
sold to a diverse customer base in a variety of industries in the U.S. and
internationally. Its products include industrial pumps, compressors, flow
meters, injectors and valves, and related controls for use in a wide variety of
process applications; precision- engineered equipment for dispensing, metering
and mixing paints, and personal care products; refinishing equipment;
centralized lubrication systems; and engineered products for industrial and
commercial markets, including fire and rescue, transportation equipment, oil and
gas, electronics, and communications. These activities are grouped into three
business segments: Pump Products, Dispensing Equipment and Other Engineered
Products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its subsidiaries.
Significant intercompany transactions and accounts have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates. The principal areas of estimation reflected in the financial
statements are sales returns and allowances, warranties, noncurrent assets,
income taxes, contingencies and litigation, and defined benefit retirement
plans.
REVENUE RECOGNITION
IDEX recognizes revenue from product sales when title passes and the risks of
ownership have passed to the customer. Customary terms are FOB shipping point.
Based on its historical experience, the Company estimates and records provisions
for sales returns and sales allowances in the period the related products
are sold.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three or fewer months to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost-which includes
labor, material and factory overhead-is determined on the first-in, first-out
(FIFO) basis or the last-in, first-out (LIFO) basis. A reserve for excess
inventory is recorded for inventory on hand in excess of anticipated or
historical usage. An obsolescence reserve is recorded for inventory made
obsolete by marketplace, product or engineering changes.
DEBT EXPENSES
Expenses incurred in securing and issuing debt are amortized over the life of
the related debt and are included in interest expense in the Consolidated
Statements of Operations.
EARNINGS PER COMMON SHARE
Earnings per common share (EPS) are computed by dividing net income by the
weighted average number of shares of common stock (basic) plus common stock
equivalents and unvested restricted shares (diluted) outstanding during the
year. Common stock equivalents consist of stock options and deferred
compensation units (DCUs) and have been included in the calculation of weighted
average shares outstanding using the treasury stock method.
Basic weighted average shares outstanding reconciles to diluted weighted
average shares outstanding as follows:
2005 2004 2003
------ ------ ------
Basic weighted average common
shares outstanding 51,392 50,073 48,795
Dilutive effect of stock options, DCUs
and unvested restricted shares 1,328 1,275 1,178
------ ------ ------
Diluted weighted average common
shares outstanding 52,720 51,348 49,973
====== ====== ======
Options to purchase approximately .2 and .1 million shares of common stock
as of December 31, 2005 and 2004, respectively, were not included in the
computation of diluted EPS because the exercise price was greater than the
average market price of the Company's common stock and, therefore, the effect of
their inclusion would be antidilutive.
STOCK OPTIONS
The Company uses the intrinsic-value method of accounting for stock option
awards as prescribed by Accounting Principles Board (APB) Opinion No. 25 and,
accordingly, does not recognize compensation expense for its stock option awards
in the Consolidated Statements of Operations.
29
IDEX CORPORATION 2005 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
The following table reflects pro forma net income and EPS had the Company
elected to adopt the fair value approach of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
2005 2004 2003
-------- ------- -------
NET INCOME
As reported $109,803 $86,406 $62,352
Add: Stock-based employee
compensation expense, 1,804 1,457 1,196
net of tax
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of tax (8,591) (6,839) (5,985)
-------- ------- -------
Pro forma $103,016 $81,024 $57,563
======== ======= =======
BASIC EPS
As reported $ 2.14 $ 1.73 $ 1.28
Pro forma 2.00 1.62 1.18
======== ======= =======
DILUTED EPS
As reported $ 2.08 $ 1.68 $ 1.25
Pro forma 1.97 1.58 1.15
======== ======= =======
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions for
2005, 2004 and 2003, respectively: dividend yields of 1.50%, 1.55% and 1.84%;
volatility of 30.0%, 29.6% and 32.6%; risk-free interest rates of 4.3%, 3.0% and
3.2%; and expected lives of 5.5 years.
DEPRECIATION AND AMORTIZATION
Depreciation is recorded using the straight-line method. The estimated useful
lives used in the computation of depreciation of tangible assets are as follows:
Land improvements 10 to 12 years
Buildings and improvements 3 to 30 years
Machinery and equipment and engineering drawings 3 to 12 years
Office and transportation equipment 3 to 10 years
Certain identifiable intangible assets are amortized over their estimated
useful lives using the straight-line method.
The carrying amount of all long-lived assets is evaluated periodically to
determine if adjustment to the depreciation or amortization period or to the
unamortized balance is warranted. This evaluation is based on the expected
utilization of the long-lived assets and the projected, undiscounted cash flows
of the operations in which the long-lived assets are used.
RESEARCH AND DEVELOPMENT EXPENDITURES
Costs associated with research and development are expensed in the year incurred
and included in "Cost of sales." Research and development expenses--which
include costs associated with developing new products and major improvements to
existing products--were $24,213, $21,242 and $17,261 in 2005, 2004 and 2003,
respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency of substantially all operations outside the United
States is the respective local currency. Accordingly, those foreign currency
balance sheet accounts have been translated using the exchange rates in effect
as of the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the year. The gains and losses resulting
from changes in exchange rates from year to year have been reported in
"Cumulative translation adjustment" in the Consolidated Balance Sheets. The
effect on the Consolidated Statements of Operations of transaction gains and
losses is insignificant for all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
trade receivables, accounts payable and accrued expenses, approximate their fair
values.
CONCENTRATION OF CREDIT RISK
IDEX is not overly dependent on a single customer, the largest of which
accounted for less than 2% of net sales for all years presented.
RECLASSIFICATION
Certain reclassifications have been made in the prior years' financial
statements to conform to the current year presentation. Specifically, the 2004
and 2003 effect of foreign currency exchange rates on cash and cash equivalents
have been reclassified to a separate line outside of operating activities on the
Consolidated Statements of Cash Flows. This change in presentation was deemed to
be immaterial.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R). SFAS 123R replaces
SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123R will require the fair
value of all stock option awards issued to employees to be recorded as an
expense over the related vesting period. SFAS 123R also requires the recognition
of compensation expense for the fair value of any unvested stock option awards
outstanding at the date of adoption. SFAS 123R is effective for public companies
for annual periods that begin after June 15, 2005. Accordingly, we will adopt
SFAS 123R in the first quarter of 2006. The Company is still evaluating the
impact of adopting this SFAS in 2006, but we anticipate an annual pre-tax
expense of approximately $8.0 million, or 10 cents per diluted share, net of
tax.
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47)
"Accounting for Conditional Asset Retirement Obligations." FIN 47 clarifies that
the term conditional asset retirement obligation, as used in SFAS No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation
30
IDEX CORPORATION 2005 ANNUAL REPORT
to perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. The adoption of FIN 47 did not have a material
impact on the Company's results of operations, financial condition or cash
flows.
2. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts at December 31, 2005 and 2004,
were as follows:
2005 2004
-------- --------
RECEIVABLES
Customers $133,993 $120,696
Other 2,367 3,131
-------- --------
Total 136,360 123,827
Less allowance for doubtful accounts 3,816 4,260
-------- --------
Total receivables--net $132,544 $119,567
======== ========
INVENTORIES
Raw materials $ 52,215 $ 52,824
Work in process 13,138 14,181
Finished goods 61,223 59,973
-------- --------
Total inventories $126,576 $126,978
======== ========
Inventories that were carried on a LIFO basis amounted to $97,785 and
$104,957 at December 31, 2005 and 2004, respectively. The excess of current cost
over LIFO inventory value amounted to $1,686 and $897 at December 31, 2005 and
2004, respectively.
2005 2004
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and improvements $ 14,812 $ 15,474
Buildings and improvements 94,740 95,984
Machinery and equipment 208,691 206,494
Office and transportation equipment 81,007 80,222
Engineering drawings 5,791 3,990
Construction in progress 5,814 5,650
-------- --------
Total 410,855 407,814
Less accumulated depreciation
and amortization 265,370 252,212
-------- --------
Total property, plant and
equipment--net $145,485 $155,602
======== ========
ACCRUED EXPENSES
Payroll and related items $ 24,381 $ 23,950
Management incentive compensation 13,109 14,366
Income taxes payable 7,234 5,345
Deferred income taxes 1,142 7,638
Insurance 6,810 4,776
Other 21,682 14,670
-------- --------
Total accrued expenses $ 74,358 $ 70,745
======== ========
OTHER NONCURRENT LIABILITIES
Deferred income taxes $ 64,650 $ 56,414
Pension and retiree medical reserves 36,387 40,196
Other 9,938 2,505
-------- --------
Total other noncurrent liabilities $110,975 $ 99,115
======== ========
3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the years ended December 31,
2005 and 2004, by business group, were as follows:
Other
Pump Dispensing Engineered
Products Equipment Products Total
-------- ---------- ---------- --------
Balance, December 31, 2003 $338,292 $125,287 $ 95,429 $559,008
Goodwill acquired during the year 103,409 -- 39,535 142,944
Foreign currency translation 1,400 5,754 4,513 11,667
-------- --------- ---------- --------
Balance, December 31, 2004 $443,101 $131,041 $139,477 $713,619
Purchase price adjustments (2,174) -- (71) (2,245)
Foreign currency translation (2,088) (10,053) (7,364) (19,505)
-------- --------- ---------- --------
Balance, December 31, 2005 $438,839 $120,988 $132,042 $691,869
======== ========= ========== ========
The carrying value of identifiable intangible assets at December 31, 2005
and 2004, was $28,615 and $29,545, respectively, which was split between
definite and indefinite lived intangible assets as follows:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
-------- ------------ --------
As of December 31, 2005
DEFINITE LIVED INTANGIBLE ASSETS
Patents $ 9,386 $(4,984) $ 4,402
Other 972 (274) 698
------- ------- -------
Total definite lived
intangible assets 10,358 (5,258) 5,100
------- ------- -------
INDEFINITE LIVED INTANGIBLE ASSETS
Trademarks 23,515 -- 23,515
------- ------- -------
Total intangible assets $33,873 $(5,258) $28,615
======= ======= =======
As of December 31, 2004
DEFINITE LIVED INTANGIBLE ASSETS
Patents $10,018 $(4,808) $ 5,210
Other 725 (168) 557
------- ------- -------
Total definite lived
intangible assets 10,743 (4,976) 5,767
------- ------- -------
INDEFINITE LIVED INTANGIBLE ASSETS
Trademarks 23,778 -- 23,778
------- ------- -------
Total intangible assets $34,521 $(4,976) $29,545
======= ======= =======
31
IDEX CORPORATION 2005 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
Amortization of intangible assets was $708 and $638 in 2005 and 2004,
respectively. Amortization expense for the next five years is estimated to be
consistent with 2005.
4. BORROWINGS
Borrowings at December 31, 2005 and 2004 consisted of the following:
2005 2004
-------- --------
Senior Notes $150,000 $150,000
Bank credit facilities -- 64,195
Other borrowings 10,043 11,122
-------- --------
Total borrowings 160,043 225,317
Less current portion 3,144 --
-------- --------
Total long-term borrowings $156,899 $225,317
======== ========
In February 1998, the Company sold $150 million of Senior Notes due
February 15, 2008 (Senior Notes), with a coupon interest rate of 6.875% and an
effective rate of 6.919% to maturity. Interest is payable semiannually. The
Senior Notes are redeemable at any time at the option of the Company in whole or
in part. At December 31, 2005, the fair market value of the Senior Notes was
approximately $154 million, based on the quoted market price.
The Company also maintains a $600 million domestic multi-currency bank
revolving credit facility (Credit Facility), which expires on December 14, 2009.
At December 31, 2005, there were no borrowings outstanding under the Credit
Facility and outstanding letters of credit totaled approximately $5 million. The
net available borrowings under the Credit Facility as of December 31, 2005, were
approximately $595 million.
Interest on the outstanding borrowings under the Credit Facility is payable
quarterly at a rate based on the bank agent's reference rate or, at the
Company's election, at a rate based on LIBOR plus 55 basis points per annum. A
facility fee equal to 15 basis points per annum is payable quarterly on the
total amount available under the Credit Facility.
The Company also has a $30 million demand line of credit (Short-Term
Facility), which expires on December 12, 2006. Borrowings under the Short-Term
Facility are based on LIBOR plus the applicable margin in effect under the
Credit Facility. At December 31, 2005, there were no borrowings under the
Short-Term Facility.
At December 31, 2005, other borrowings included capital leases as well as
debt at international locations maintained for working capital purposes.
Interest is payable on the outstanding debt balances at the international
locations at rates ranging from 2.3% to 7.7% per annum.
There are two financial covenants that the Company is required to maintain
in connection with the Credit Facility. As defined in the agreement, the minimum
interest coverage ratio (operating cash flow to interest) is 3.0 to 1 and the
maximum leverage ratio (outstanding debt to operating cash flow) is 3.25 to 1.
At December 31, 2005, the Company was in compliance with both of these financial
covenants.
Total borrowings at December 31, 2005 have scheduled maturities as follows:
2006 $ 3,144
2007 485
2008 152,599
2009 553
2010 721
Thereafter 2,541
--------
Total borrowings $160,043
========
5. COMMITMENTS AND CONTINGENCIES
At December 31, 2005, total future minimum rental payments under noncancelable
operating leases, primarily for office facilities, warehouses and data
processing equipment, were $20,250. The future minimum rental commitments for
each of the next five years and thereafter are as follows: 2006-- $6,699;
2007--$4,915; 2008--$3,394; 2009--$2,256; 2010-- $1,185; thereafter--$1,801.
Rental expense totaled $9,402, $10,401 and $9,238 for the years ended
December 31, 2005, 2004 and 2003, respectively.
IDEX is a party to various legal proceedings involving employment,
contractual, product liability and other matters, none of which is expected to
have a material adverse effect on its results of operations, financial
condition, or cash flows.
6. COMMON AND PREFERRED STOCK
The Company issued 176 and 145 shares of restricted stock as compensation to key
employees in 2005 and 2004, respectively. Of the 176 shares issued in 2005, 100
shares vest annually from one to four years after the grant date, while the
remaining 76 shares contain a cliff vesting feature and vest four years after
the grant date. Of the 145 shares issued in 2004, 115 shares vest annually from
one to five years after the grant date, while the remaining 30 shares contain a
cliff vesting feature with half vesting four years and the remaining half five
years after the grant date. In 2000, the Company issued 525 shares of restricted
stock as compensation to a key employee. These shares vested annually from one
to five years after the grant date.
All restricted shares carry dividend and voting rights, and the sale of the
shares is restricted prior to the date of vesting. The restricted shares were
recorded at their fair market value on the date of the grant, with a
corresponding charge to shareholders' equity. The unearned portion is being
amortized as compensation expense on a straight-line basis over the related
vesting period.
32
IDEX CORPORATION 2005 ANNUAL REPORT
On October 20, 1998, IDEX's Board of Directors authorized the repurchase of
up to 2.25 million shares of the Company's common stock, either at market prices
or on a negotiated basis as market conditions warrant. Since the inception of
this program, IDEX has purchased a total of 10 shares at a cost of approximately
$144.
At December 31, 2005 and 2004, the Company had 150 million and 75 million
shares of authorized common stock, respectively, with a par value of $.01 per
share and 5 million shares of preferred stock with a par value of $.01 per share
authorized. No preferred stock has been issued as of December 31, 2005.
7. DERIVATIVE INSTRUMENT
At December 31, 2003, the Company had a foreign currency contract, which it
entered into in anticipation of the funding of the January 2004 purchase of
Vetter. The increase in fair market value of this contract resulted in income of
$.5 million for the year ended December 31, 2003 and was included in "Other
income (expense)--net" in the Consolidated Statements of Operations. The Company
did not enter into any derivative contracts in 2004 or 2005.
8. INCOME TAXES
Pretax income for the years ended December 31, 2005, 2004, and 2003, was taxed
in the following jurisdictions:
2005 2004 2003
-------- -------- -------
Domestic $115,984 $ 85,119 $66,402
Foreign 52,944 48,758 30,268
-------- -------- -------
Total $168,928 $133,877 $96,670
======== ======== =======
The provision for income taxes for the years ended December 31, 2005, 2004,
and 2003, was as follows:
2005 2004 2003
------- ------- -------
Current
U.S. $37,043 $21,921 $13,000
State and local 1,738 326 738
Foreign 15,861 14,442 10,093
------- ------- -------
Total current 54,642 36,689 23,831
------- ------- -------
Deferred
U.S. 2,730 6,293 6,954
State and local (164) 1,439 779
Foreign 1,917 3,050 2,754
------- ------- -------
Total deferred 4,483 10,782 10,487
------- ------- -------
Total provision for
income taxes $59,125 $47,471 $34,318
======= ======= =======
Deferred tax assets (liabilities) related to the following at December 31,
2005 and 2004:
2005 2004
-------- --------
Employee and retiree benefit plans $ 2,199 $ 882
Depreciation and amortization (69,074) (68,455)
Inventories (3,284) (4,660)
Allowances and accruals 6,774 5,666
Other 1,506 2,515
-------- --------
Total $(61,879) $(64,052)
======== ========
The deferred tax assets and liabilities recognized in the Company's
Consolidated Balance Sheets are as follows:
2005 2004
-------- --------
Deferred tax asset--other current assets $ 3,913 $ --
Deferred tax liability--accrued expenses (1,142) (7,638)
Noncurrent deferred tax liability--other
noncurrent liabilities (64,650) (56,414)
-------- --------
Net deferred tax liabilities $(61,879) $(64,052)
======== ========
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to pretax income. The computed amount and
the differences for the years ended December 31, 2005, 2004, and 2003 are shown
in the following table.
2005 2004 2003
-------- -------- -------
Pretax income $168,928 $133,877 $96,670
======== ======== =======
Provision for income taxes:
Computed amount at statutory rate of 35% $ 59,125 $ 46,857 $33,835
State and local income tax (net of
federal tax benefit) 1,023 1,147 986
Taxes on non-US earnings --net of
foreign tax credits (620) 2,319 960
U.S. business tax credits (1,455) (2,674) --
Extra-territorial income (ETI) deduction (1,214) (1,531) (945)
Domestic activities production deduction (1,528) -- --
Other 3,794 1,353 (518)
-------- -------- -------
Total provision for income taxes $ 59,125 $ 47,471 $34,318
======== ======== =======
The Company has not provided an estimate for any U.S. or additional foreign
taxes on undistributed earnings of foreign subsidiaries that might be payable if
these earnings were repatriated since the Company considers these amounts to be
permanently invested.
33
IDEX CORPORATION 2005 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
9. COMPREHENSIVE INCOME
The tax effects of the components of other comprehensive income for 2005, 2004
and 2003 follow:
2005 2004 2003
-------- ------- -------
MINIMUM PENSION ADJUSTMENT
Pretax amount $ (1,748) $12,118 $(2,864)
Tax benefit (provision) 508 (4,281) 954
-------- ------- -------
Aftertax amount $ (1,240) $ 7,837 $(1,910)
======== ======= =======
CUMULATIVE TRANSLATION
ADJUSTMENT
Pretax amount $(27,886) $17,154 $26,652
Tax provision -- -- --
-------- ------- -------
Aftertax amount $(27,886) $17,154 $26,652
======== ======= =======
10. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
IDEX's operations have been aggregated (primarily on the basis of products,
production processes, distribution methods and management organizations) into
three reportable segments: Pump Products, Dispensing Equipment and Other
Engineered Products. The Pump Products Group designs, produces and distributes a
wide range of engineered industrial pumps, flow meters, compressors, injectors
and valves, and related controls for process applications. The Dispensing
Equipment Group designs, manufactures and markets precision-engineered equipment
for dispensing, metering and mixing paints, and personal care products;
refinishing equipment; and centralized lubrication systems. The Other Engineered
Products Group designs, produces and distributes engineered equipment for
industrial and commercial markets, including fire and rescue, transportation
equipment, oil and gas, electronics, and communications. IDEX is not overly
dependent on a single customer, the largest of which accounted for less than 2%
of net sales for all years presented.
Information on IDEX's business segments follows, and is 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. The
accounting policies of the business segments are described in Note 1.
Intersegment sales are accounted for at fair value as if the sales were to third
parties.
2005 2004 2003
---------- ---------- --------
NET SALES
Pump Products
External customers $ 616,475 $ 539,101 $453,703
Intersegment sales 4,198 3,235 2,813
---------- ---------- --------
Total group sales 620,673 542,336 456,516
---------- ---------- --------
Dispensing Equipment
External customers 187,814 170,195 159,224
Intersegment sales -- 3 1
---------- ---------- --------
Total group sales 187,814 170,198 159,225
---------- ---------- --------
Other Engineered Products
External customers 238,986 219,001 184,994
Intersegment sales 6 5 28
---------- ---------- --------
Total group sales 238,992 219,006 185,022
---------- ---------- --------
Intersegment eliminations (4,204) (3,243) (2,843)
---------- ---------- --------
Total net sales $1,043,275 $ 928,297 $797,920
========== ========== ========
OPERATING INCOME(1)
Pump Products $ 114,404 $ 93,356 $ 70,436
Dispensing Equipment 40,785 33,489 25,724
Other Engineered Products 56,682 47,120 32,990
Corporate office and other(2) (29,084) (24,581) (19,288)
---------- ---------- --------
Total operating income $ 182,787 $ 149,384 $109,862
========== ========== ========
ASSETS
Pump Products $ 707,614 $ 694,731 $551,183
Dispensing Equipment 205,333 214,140 203,786
Other Engineered Products 256,622 246,410 186,417
Corporate office and other(2) 74,611 31,011 19,353
---------- ---------- --------
Total assets $1,244,180 $1,186,292 $960,739
========== ========== ========
DEPRECIATION AND AMORTIZATION
Pump Products $ 15,797 $ 16,464 $ 16,141
Dispensing Equipment 5,210 5,616 5,881
Other Engineered Products 5,696 6,012 5,116
Corporate office and other(3) 3,262 2,857 2,337
---------- ---------- --------
Total depreciation
and amortization $ 29,965 $ 30,949 $ 29,475
========== ========== ========
CAPITAL EXPENDITURES
Pump Products $ 13,758 $ 13,968 $ 12,887
Dispensing Equipment 3,824 2,769 2,967
Other Engineered Products 4,357 3,204 3,874
Corporate office and other 1,055 1,156 590
---------- ---------- --------
Total capital
expenditures $ 22,994 $ 21,097 $ 20,318
========== ========== ========
(1) Group operating income excludes net unallocated corporate operating
expenses.
(2) Includes intersegment eliminations.
(3) Includes amortization of intangible assets and unearned compensation.
34
IDEX CORPORATION 2005 ANNUAL REPORT
Information about the Company's operations in different geographical
regions for the years ended December 31, 2005, 2004 and 2003 is shown below. Net
sales were attributed to geographic areas based on location of the customer, and
no country outside the U.S. was greater than 10% of total revenues.
2005 2004 2003
---------- -------- --------
NET SALES
U.S. $ 595,091 $516,155 $441,427
Europe 255,216 244,153 213,905
Other countries 192,968 167,989 142,588
---------- -------- --------
Total net sales $1,043,275 $928,297 $797,920
========== ======== ========
LONG-LIVED ASSETS-
PROPERTY, PLANT AND
EQUIPMENT
U.S. $ 97,805 $101,357 $102,522
Europe 43,713 51,398 42,358
Other countries 3,967 2,847 2,215
---------- -------- --------
Total long-lived assets $ 145,485 $155,602 $147,095
========== ======== ========
11. ACQUISITIONS
In January 2006, the Company acquired the assets used to conduct the Airshore
International business of Direct Equipment West, Ltd. Based in British Columbia,
Canada, the Airshore business provides stabilization struts for collapsed
buildings and vehicles, high and low pressure lifting bags and forcible entry
tools for the fire and rescue markets. Airshore will operate as part of Hale
Products.
In 2004, the Company acquired Manfred Vetter GmbH (January 2004), Systec,
L.L.C. (April 2004), Scivex, L.L.C. (May 2004) and Tianjin Dinglee Machine and
Motor Co., Ltd (July 2004). Vetter, based in Zulpich, Germany, designs and manu-
factures pneumatic lifting and sealing bags for vehicle and aircraft rescue,
environmental protection, industrial maintenance, and disaster recovery and
control. Vetter operates as part of the Hale business unit within the Other
Engineered Products Group. Systec, based in New Brighton, Minnesota, designs and
manufactures vacuum degassing products for the analytical chemistry
instrumentation market. Systec operates as part of our Rheodyne business unit
within the Pump Products Group. Scivex, which operates Upchurch Scientific in
Oak Harbor, Washington and Sapphire Engineering in Pocasset, Massachusetts, is a
leading provider of fluidic components and systems for the analytical,
biotechnology and diagnostics instrumentation markets. Scivex is being operated
as a stand-alone business unit in IDEX's Pump Products Group. Dinglee, based in
Tianjin, China, is a leading manufacturer of rescue tools in the Chinese rescue
tool market. Dinglee operates as part of our Hale business unit within the Other
Engineered Products Group. IDEX acquired Vetter, Systec, Scivex and Dinglee for
a purchase price of $44,813, $22,442, $98,553 and $4,106, respectively, with
financing provided by borrowings under the Credit Facility. In addition, a
purchase price contingency related to the acquisition of Classic Engineering in
September 2003 was settled in 2004, resulting in an additional payment of
$1,069. Goodwill and intangible assets recognized as part of these transactions
was $142,944 and $10,212, respectively.
In 2003, the Company acquired Sponsler Co., Inc. (June 2003) and Classic
Engineering, Inc. (September 2003). Sponsler, headquartered in Westminster,
South Carolina, is a manufacturer of precision turbine flow meters to meet all
flow applications, including low-flow and situations where viscosity, corrosive
media, extreme temperature or hazardous materials are factors. Classic,
headquartered in Jacksonville, Florida, is a supplier of fully integrated pump
and metering systems to chemical companies and municipal water treatment
facilities. It also designs, engineers and manufactures standard and custom
chemical-feed systems for the water, wastewater, chemical OEM, pulp and paper,
cement and general industrial markets. Within the Pump Products Group, Classic
is operated as part of Pulsafeeder, while Sponsler is operated as part of Liquid
Controls. IDEX acquired Sponsler and Classic for a purchase price of $10,251 and
$3,703, respectively, with financing provided by borrowings under the Credit
Facility. Goodwill and intangible assets recognized as part of these
acquisitions was $11,484 and $373, respectively. In February 2003, an $8.0
million payment of deferred consideration was made in connection with the
Rheodyne acquisition in July 2002.
All acquisitions were accounted for as purchases, and operating results
include the acquisitions from the dates of purchase. In addition, in certain
instances, the acquisitions contain purchase price contingencies, which are
considered to be immaterial to the Company. IDEX does not consider any of the
acquisitions, individually or in aggregate, to be material to its results of
operations, financial condition, or cash flows for any of the years presented.
12. STOCK OPTIONS
Under various plans, the Company may grant stock options to employees and
non-employee directors at exercise prices equal to or exceeding the market price
at the date of grant. Therefore, no compensation cost has been recognized in the
Consolidated Statements of Operations for these plans. Substantially all of the
options issued prior to 2005 become exercisable in five equal installments,
while all options issued in 2005 become exercisable in four equal installments,
beginning one year from the date of grant, and generally expire 10 years from
the date of grant. The Company may grant additional options for up to 1.5
million shares.
35
IDEX CORPORATION 2005 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
The following table summarizes option activity under the plans:
Weighted
Number Average
of Shares Option Price
Under Option Per Share
------------ ------------
Outstanding at December 31, 2002 4,994,343 $19.65
Granted 1,510,988 20.36
Exercised (813,900) 16.94
Forfeited (284,181) 21.47
---------- ------
Outstanding at December 31, 2003 5,407,250 20.16
Granted 1,619,300 28.23
Exercised (1,249,628) 18.95
Forfeited (208,810) 22.00
---------- ------
Outstanding at December 31, 2004 5,568,112 22.70
Granted 681,040 40.82
Exercised (1,838,719) 20.35
Forfeited (213,283) 25.40
---------- ------
Outstanding at December 31, 2005 4,197,150 $26.57
========== ======
Exercisable at December 31, 2003 2,309,903 $19.14
========== ======
Exercisable at December 31, 2004 1,946,501 $19.90
========== ======
Exercisable at December 31, 2005 1,353,473 $22.10
========== ======
Weighted average fair value of options granted during the year ended:
December 31, 2003 $ 5.90
======
December 31, 2004 $ 8.04
======
December 31, 2005 $11.82
======
The following table summarizes information about options outstanding at
December 31, 2005:
Options Outstanding
------------------------------------------------- Options Exercisable
Weighted Average ------------------------------
Number Remaining Weighted Average Number Weighted Average
Range of Exercise Prices Outstanding Life of Contract Exercise Price Exercisable Exercise Price
- ------------------------ ----------- ---------------- ---------------- ----------- ---------------
$11.66-18.00 165,819 3.4 years $17.00 148,183 $16.95
18.01-23.00 1,384,236 6.1 years 19.59 679,070 19.53
23.01-27.00 592,672 5.9 years 25.32 284,255 25.12
27.01-44.84 2,054,423 8.4 years 32.42 241,965 28.90
--------- --------- ------ --------- ------
Total 4,197,150 7.1 years $26.57 1,353,473 $22.10
========= ========= ====== ========= ======
36
IDEX CORPORATION 2005 ANNUAL REPORT
13. RETIREMENT BENEFITS
The Company sponsors several qualified and nonqualified pension plans and other
postretirement plans for its employees. The Company uses a measurement date of
December 31 for its U.S. defined benefit pension plans and a September 30
measurement date for its non-U.S. defined benefit pension plans. The following
table provides a reconciliation of the changes in the benefit obligations and
fair value of plan assets over the two-year period ended December 31, 2005, and
a statement of the funded status at December 31 for both years:
Pension Benefits
----------------------------------------
2005 2004
------------------- ------------------ Other Benefits
NON- Non- -------------------
U.S. U.S. U.S. U.S. 2005 2004
-------- -------- ------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Obligation at January 1 $ 73,432 $ 21,883 $67,966 $ 16,551 $ 20,090 $ 18,657
Service cost 4,261 593 3,849 581 410 414
Interest cost 4,107 1,124 4,014 1,089 1,193 1,088
Plan amendments 492 -- 433 -- (93) 250
Benefits paid (6,606) (1,048) (5,576) (890) (1,015) (692)
Actuarial loss 2,941 3,495 2,746 214 2,734 373
Currency translation -- (2,674) -- 1,530 -- --
Other -- -- -- 2,808 -- --
-------- -------- ------- -------- -------- --------
Obligation at December 31 $ 78,627 $ 23,373 $73,432 $ 21,883 $ 23,319 $ 20,090
======== ======== ======= ======== ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1 $ 64,306 $ 11,163 $54,988 $ 7,260 $ -- $ --
Actual return on plan assets 1,098 1,447 6,384 718 -- --
Employer contributions 6,438 1,983 8,510 1,901 1,015 692
Benefits paid (6,606) (1,048) (5,576) (890) (1,015) (692)
Currency translation -- (1,281) -- 728 -- --
Other -- -- -- 1,446 -- --
-------- -------- ------- -------- -------- --------
Fair value of plan assets at December 31 $ 65,236 $ 12,264 $64,306 $ 11,163 $ -- $ --
======== ======== ======= ======== ======== ========
FUNDED STATUS
Funded status at December 31 $(13,391) $(11,109) $(9,126) $(10,720) $(23,319) $(20,090)
Unrecognized loss 28,401 7,980 23,536 6,439 6,232 3,770
Unrecognized transition obligation 139 -- 199 -- -- --
Unrecognized prior service cost 2,178 -- 2,420 -- (376) (281)
-------- -------- ------- -------- -------- --------
Net amount recognized at December 31 $ 17,327 $ (3,129) $17,029 $ (4,281) $(17,463) $(16,601)
======== ======== ======= ======== ======== ========
RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost $ 23,806 $ -- $22,010 $ -- $ -- $ --
Accrued benefit liability (9,376) (10,193) (7,310) (9,844) (17,463) (16,601)
Intangible asset 929 -- 608 -- -- --
Accumulated other comprehensive income 1,968 7,064 1,721 5,563 -- --
-------- -------- ------- -------- -------- --------
Net amount recognized at December 31 $ 17,327 $ (3,129) $17,029 $ (4,281) $(17,463) $(16,601)
======== ======== ======= ======== ======== ========
The accumulated benefit obligation for all defined benefit pension plans
was $95,720 and $87,955 at December 31, 2005 and 2004, respectively. For plans
with an accumulated benefit obligation in excess of plan assets, the projected
benefit obligation, accumulated benefit obligation and fair value of plan assets
was $33,233, $31,917 and $12,263, respectively, at December 31, 2005, and
$30,558, $28,487 and $11,163, respectively, at December 31, 2004.
37
IDEX CORPORATION 2005 ANNUAL REPORT
Notes to Consolidated Financial Statements (continued)
The assumptions used in the measurement of the Company's benefit obligation
at December 31, 2005 and 2004, were as follows:
U.S. Plans Non-U.S. Plans
----------- ---------------------
2005 2004 2005 2004
---- ---- --------- ---------
Discount rate 5.50% 5.75% 4.30-5.10% 5.50-6.00%
Expected return on plan assets 8.50% 8.50% 5.00-5.90% 5.00-6.50%
Rate of compensation increase 4.00% 4.00% 4.25% 4.25%
To develop the expected rate of return on plan assets, the Company
considered the historical returns and the future expectations for returns on
each asset class, as well as the target asset allocation of the pension
portfolio.
The following tables provide the components of, and the assumptions used to
determine, the net periodic benefit cost for the plans in 2005, 2004, and 2003:
Pension Benefits Other Benefits
--------------------------- ------------------------
2005 2004 2003 2005 2004 2003
------- ------- ------- ------ ------ ------
Service cost $ 4,854 $ 4,430 $ 3,765 $ 410 $ 413 $ 330
Interest cost 5,231 5,103 4,703 1,194 1,088 1,066
Expected return on plan assets (5,935) (5,597) (3,449) -- -- --
Net amortization 3,276 3,227 3,216 212 67 (31)
------- ------- ------- ------ ------ ------
Net periodic benefit cost $ 7,426 $ 7,163 $ 8,235 $1,816 $1,568 $1,365
======= ======= ======= ====== ====== ======
U.S. Plans Non-U.S. Plans
------------------ ----------------------------
2005 2004 2003 2005 2004 2003
---- ---- ---- --------- --------- ----
Discount rate 5.75% 6.00% 6.75% 5.50-6.00% 5.50-6.00% 5.75%
Expected return on plan assets 8.50% 8.50% 8.50% 5.00-6.25% 6.50% 6.50%
Rate of compensation increase 4.00% 4.00% 4.00% 4.25% 4.25% 3.75%
Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10% of the greater of the benefit obligation on the market value of assets are
amortized over the average remaining service period of active participants.
Costs of bargaining unit-sponsored multi-employer plans and defined contribution
plans were $7,354, $6,404 and $6,756 for 2005, 2004 and 2003, respectively.
For measurement purposes, a 9.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2005. The rate was assumed
to decrease gradually each year to a rate of 6% for 2013, and remain at that
level thereafter. Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A 1% increase in the assumed
health care cost trend rates would increase the service and interest cost
components of the net periodic benefit cost by $103 and the health care
component of the accumulated postretirement benefit obligation by $1,445. A 1%
decrease in the assumed health care cost trend rate would decrease the service
and interest cost components of the net periodic benefit cost by $89 and the
health care component of the accumulated postretirement benefit obligation by
$1,235.
PLAN ASSETS
The Company's pension plan weighted average asset allocations at December 31,
2005 and 2004, by asset category, were as follows:
2005 2004
---- ----
Equity securities 64% 66%
Debt securities 35 33
Other 1 1
--- ---
Total 100% 100%
=== ===
38
IDEX CORPORATION 2005 ANNUAL REPORT
INVESTMENT POLICIES AND STRATEGIES
The investment objectives of the Company's plan assets are to earn the highest
possible rate of return consistent with the tolerance for risk as determined
periodically by IDEX in its role as a fiduciary. The general guidelines of asset
allocation of fund assets are that "equities" will represent from 55% to 75% of
the market value of total fund assets with a target of 66%, and "fixed income"
obligations, including cash, will represent from 25% to 45% with a target of
34%. The term "equities" includes common stock, convertible bonds and
convertible stock. The term "fixed income" includes preferred stock and/or
contractual payments with a specific maturity date. The Company strives to
maintain asset allocations within the designated ranges by conducting periodic
reviews of fund allocations and plan liquidity needs, and rebalancing the
portfolio accordingly. The total fund performance is monitored and results
measured using a 3- to 5-year moving average against long-term absolute and
relative return objectives to meet actuarially determined forecasted benefit
obligations.
No restrictions are placed on the selection of individual investments by the
qualified investment fund managers. The performance of the investment fund
managers is reviewed on a regular basis, using appointed professional
independent advisors. As of December 31, 2005 and 2004, there were no shares of
the Company's stock held in plan assets.
CASH FLOWS
The Company expects to contribute approximately $6.0 million to its defined
benefit plans, $7.0 million to its defined contribution plans and $1.0 million
to its other postretirement benefit plans in 2006.
ESTIMATED FUTURE BENEFIT PAYMENTS
The future estimated benefit payments for the next five years and the five years
thereafter are as follows: 2006--$9,327; 2007--$7,087; 2008--$5,536;
2009--$5,827; 2010--$6,234; 2011 to 2015--$45,149.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 2005 and 2004:
2005 QUARTERS 2004 Quarters
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH First Second Third Fourth
-------- -------- -------- -------- -------- -------- -------- --------
Net sales $252,058 $271,758 $257,930 $261,529 $214,600 $233,590 $237,557 $242,550
Gross profit 101,957 111,649 104,044 106,194 85,730 93,923 94,989 96,153
Operating income 40,695 48,132 46,649 47,311 31,286 39,814 39,961 38,323
Net income 23,645 28,933 28,515 28,710 17,692 22,834 23,219 22,661
Basic EPS $ .47 $ .57 $ .55 $ .55 $ .36 $ .46 $ .46 $ .45
Basic weighted average
shares outstanding 50,679 50,963 51,618 52,306 49,475 50,060 50,293 50,462
Diluted EPS $ .45 $ .55 $ .54 $ .54 $ .35 $ .44 $ .44 $ .43
Diluted weighted average
shares outstanding 52,383 52,641 53,071 53,492 51,279 52,037 52,400 52,099
39
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of IDEX Corporation
We have audited the accompanying consolidated balance sheets of IDEX Corporation
and its subsidiaries (the Company) as of December 31, 2005 and 2004 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of IDEX Corporation and its
subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2005,
based on the criteria established in "Internal Control--Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 27, 2006 expressed an unqualified opinion on
management's assessment of the effectiveness of the Company's internal control
over financial reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Chicago, Illinois
February 27, 2006
40
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of IDEX Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that IDEX
Corporation and its subsidiaries (the Company) maintained effective internal
control over financial reporting as of December 31, 2005, based on criteria
established in "Internal Control--Integrated Frame work" issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company's management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an under standing of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the criteria established in
"Internal Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on the criteria established in
"Internal Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of IDEX Corporation and its subsidiaries as of December 31, 2005 and 2004
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2005,
and our report dated February 27, 2006 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Chicago, Illinois
February 27, 2006
41
IDEX CORPORATION 2005 ANNUAL REPORT
Management's Report on Internal Control over Financial Reporting
Internal control over financial reporting refers to the process designed by, or
under the supervision of, our Chief Executive Officer and Chief Financial
Officer, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, and includes those policies and
procedures that:
Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company;
Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and
Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance
of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk. Management is
responsible for establishing and maintaining effective internal control over
financial reporting for the Company.
Management has used the framework set forth in the report entitled
"Internal Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission to assess the effectiveness of the
Company's internal control over financial reporting. Management has concluded
that the Company's internal control over financial reporting was effective as of
December 31, 2005. Deloitte & Touche LLP has issued an attestation report on
management's assessment of the Company's internal control over financial
reporting dated February 27, 2006.
/s/ Lawrence D. Kingsley
- -------------------------------------
Lawrence D. Kingsley
President and Chief Executive Officer
/s/ Dominic A. Romeo
- -------------------------------------
Dominic A. Romeo
Vice President and
Chief Financial Officer
Northbrook, Illinois
February 27, 2006
42