UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
PART I ITEM 1. BUSINESS. We manufacture an extensive array of engineered industrial products sold to customers in a variety of industries around the world. We believe that each of our business units is a leader in its niche market. We also believe that our consistent financial performance has been attributable to the manufacture of quality products designed and engineered by us, coupled with our ability to identify and successfully consummate and integrate strategic acquisitions. IDEX Corporation ("IDEX" or the "Company") consists of three reportable business segments: Pump Products Group, Dispensing Equipment Group, and Other Engineered Products Group. PUMP 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 and gases. The devices and equipment produced by this group are used by a large and diverse set of industries including chemical processing, machinery, water treatment, medical equipment, liquid petroleum distribution, oil and refining, food and beverage, biotech, life sciences and drug processing. The seven business units that comprise this group are Gast Manufacturing, Liquid Controls, Micropump, Pulsafeeder, Rheodyne, Viking Pump and Warren Rupp. The group accounted for 57% of sales and 55% of operating income in 2003, with 39% of sales to customers outside the U.S. Gast Manufacturing. Gast Manufacturing, acquired in 1998, is a leading manufacturer of air-moving products, including air motors, low- and medium-range vacuum pumps, vacuum generators, regenerative blowers and fractional horsepower compressors. Gast's products are used in a variety of long-life applications requiring a quiet, clean source of moderate vacuum or pressure. Gast's primary markets served are medical equipment, environmental equipment, computers and electronics, printing machinery, paint mixing machinery, packaging machinery, graphic arts and industrial manufacturing. Gast is based in Benton Harbor, Michigan, with additional facilities in England. Approximately 20% of Gast's 2003 sales were to customers outside the U.S. Liquid Controls. Liquid Controls, acquired in January 2001, is a leading manufacturer of positive displacement flow meters and electronic registration and control products. Applications for its products include mobile and stationary metering installations for wholesale and retail distribution of petroleum and liquefied petroleum gas, aviation refueling, and industrial metering and dispensing of liquids and gases. Liquid Controls is headquartered in Lake Bluff, Illinois, with additional operations in Italy and India. During 2001, the Company decided to operate its previously acquired Corken business unit as part of Liquid Controls. Corken, based in Oklahoma City, Oklahoma and acquired by IDEX in 1991, is a leading producer of positive displacement rotary vane pumps, single and multistage regenerative turbine pumps, and small horsepower reciprocating piston compressors. Sponsler Co., Inc., with headquarters in Westminster, South Carolina, was acquired in June 2003. Sponsler, which operates as part of Liquid Controls, is a manufacturer of a line of precision turbine flowmeters to meet all flow applications, including low-flow and applications where viscosity, corrosive media, extreme temperature or hazardous materials are factors. Approximately 50% of Liquid Controls' 2003 sales were outside the U.S. Micropump. Micropump, acquired in 1995, is a leader in small, precision-engineered, magnetically and electromagnetically driven rotary gear, piston and centrifugal pumps. Micropump's products are used in low-flow applications, including abrasive and corrosive applications. Micropump serves markets including printing machinery, medical equipment, chemical processing, pharmaceutical, refining, laboratory, electronics, pulp and paper, water treatment and textiles. Micropump is based in Vancouver, Washington, and also has operations in England. In April 2000, IDEX acquired Ismatec SA. Ismatec is a leading manufacturer of peristaltic metering pumps, analytical process controllers, and sample preparation systems. Headquartered near Zurich, Switzerland, the business operates as part of Micropump and provides Micropump with entry into scientific R&D markets including pharmaceutical, medical, biotech and institutional laboratory. In May 2000, IDEX acquired Trebor International, which also now operates as part of Micropump. Trebor is headquartered in Salt Lake City, Utah, and is a leader in high-purity fluid handling products, including 1
air-operated diaphragm pumps and deionized water-heating systems. Its products are used in the manufacturing of semiconductors, disk drives and flat panel displays. Approximately 65% of Micropump's 2003 sales were to customers outside the U.S. Pulsafeeder. Pulsafeeder, acquired in 1992, is a leading manufacturer of metering pumps, special purpose rotary pumps, peristaltic pumps, electronic controls and dispensing equipment. Pulsafeeder's products are used to introduce precise amounts of fluids into processes to manage water quality and chemical composition. Pulsafeeder's markets include water and wastewater treatment, power generation, pulp and paper, chemical and hydrocarbon processing and swimming pools. This business is headquartered in Rochester, New York, with additional operations in Punta Gorda, Florida. Knight Equipment, Inc. was acquired in 1997 and is operated as part of the Pulsafeeder business unit. Knight, headquartered in Lake Forest, California, also has additional operations in The Netherlands. Knight is a leading manufacturer of pumps and dispensing equipment for industrial laundries, commercial dishwashing and chemical metering. Halox Technologies, Inc. was acquired in April 2002 and is also operated as part of the Pulsafeeder business unit. Halox is a small Bridgeport, Connecticut-based manufacturer of point-of-use chlorine dioxide equipment. Its products produce chlorine dioxide for use in water treatment and disinfectant applications. Chlorine dioxide is an effective biocide treatment of legionella and other water-borne pathogens. Halox products can be used in a wide variety of end markets including food and beverage, cooling towers and potable water treatment. Classic Engineering, Inc. was acquired in September 2003 and operates as part of the Pulsafeeder group. Classic, based in Jacksonville, Florida, is a supplier of fully integrated pump and metering systems to chemical companies and municipal water treatment facilities. Classic also engineers, designs and manufactures a line of standard and custom chemical-feed systems for the water, wastewater, chemical OEM, pulp and paper, cement and general industrial markets. In 2003, approximately 30% of Pulsafeeder's sales were to customers outside the U.S. Rheodyne. Rheodyne, acquired in July 2002, is a leading manufacturer of injectors, valves, fittings and accessories for the analytical instrumentation market. Its products are used by manufacturers of high performance liquid chromatography equipment servicing the pharmaceutical, biotech, life science, food and beverage, and chemical markets. Rheodyne, based in Rohnert Park, California, became IDEX's twelfth stand-alone business unit and its activities are closely coordinated with those of Ismatec, Trebor and Micropump. Approximately 40% of Rheodyne's 2003 sales were to customers outside the U.S. Viking Pump. Viking Pump is one of the world's largest internal gear pump producers. Viking also produces lobe and external gear pumps, strainers and reducers, and related controls. These products are used for transferring and metering thin and viscous liquids. Markets served by Viking include chemical, petroleum, pulp and paper, plastics, paints, inks, tanker trucks, compressor, construction, food and beverage, personal care, pharmaceutical and biotech. Viking operates two foundries that supply a portion of Viking's castings requirements and also sells a variety of castings to outside customers. Viking is based in Cedar Falls, Iowa, with additional operations in Canada, England and Ireland. Wrightech Corporation was acquired in October 2002 and is headquartered in Waukesha, Wisconsin. Wrightech, which operates as part of Viking Pump, is a small manufacturer of stainless-steel positive displacement pumps and replacement parts for the sanitary product marketplace. This market includes beverage, food processing, pharmaceutical, cosmetics and other industries that require sanitary processing. Approximately 35% of Viking's 2003 sales were to customers outside the U.S. Warren Rupp. Warren Rupp is a leading producer of double-diaphragm pumps, both air-operated and motor-driven. Warren Rupp's products are used for abrasive and semisolid materials as well as for applications where product degradation is a concern or where electricity is not available or should not be used. This business serves markets including chemical, paint, food processing, electronics, construction, utilities, mining and industrial maintenance. Warren Rupp is based in Mansfield, Ohio. Blagdon Pump, located in the U.K., was acquired in 1997 and is operated as part of the Warren Rupp business unit. Versa-Matic Tool, Inc. was acquired in June 2001 and also operates as part of Warren Rupp. Headquartered in Export, Pennsylvania, Versa-Matic is also a manufacturer and distributor of air-operated double-diaphragm pumps and pump replacement parts. Warren Rupp's sales to customers outside the U.S. in 2003 were approximately 50%. 2
DISPENSING EQUIPMENT GROUP The Dispensing Equipment Group produces highly engineered equipment for dispensing, metering and mixing colorants, paints, inks and dyes; refinishing equipment; and centralized lubrication systems. This equipment is used in a variety of retail and commercial industries around the world. This group provides equipment, systems and services for applications such as tinting paints and coatings, industrial and automotive refinishing, and the precise lubrication of machinery and transportation equipment. The three business units that comprise this group are FAST, Fluid Management and Lubriquip. The group accounted for 20% of both sales and operating income in 2003, with 62% of sales to customers outside the U.S. FAST. The Company acquired FAST (now Fast & Fluid Management Srl -- Italy) in 1999. F&FM is a leading European manufacturer of precision-designed tinting, mixing, dispensing and measuring equipment for refinishing, architectural and industrial paints, inks, dyes, pastes and other liquids. F&FM's products are used for the precise and reliable reproduction of colors based on paint producers' formulas. Through architectural, refinishing and industrial paint producers, precision equipment is supplied to retail and commercial stores, home centers and automotive body shops. F&FM is headquartered in Milan, Italy, with additional operations in France, Spain and the United Kingdom. Over 95% of F&FM's sales in 2003 were to customers outside the U.S. Fluid Management. Fluid Management, acquired in 1996, is the market leader in automatic and manually operated dispensing, metering and mixing equipment for the paints and coatings market. Fluid Management's products are used for the precise blending and mixing of base paints, tints and colorants, and inks and dyes. Fluid Management's markets include retail and commercial paint stores, hardware stores, home centers, department stores, printers, paint and ink manufacturers and point of purchase dispensers and mixing equipment for the personal care and health and beauty industry. Fluid Management is based in Wheeling, Illinois. Additional operations are located in The Netherlands and Australia. Approximately 55% of Fluid Management's 2003 sales were to customers outside the U.S. Lubriquip. Lubriquip is a market leader in centralized oil and grease lubrication systems, force-feed lubricators, metering devices, related electronic controls and accessories. Lubriquip's products are used to prolong equipment life, reduce maintenance costs and increase productivity. Lubriquip serves markets including machine tools, transfer machines, conveyors, packaging equipment, transportation equipment, construction machinery, food processing and paper machinery. Lubriquip is headquartered in Warrensville Heights, Ohio, with an additional operation in Madison, Wisconsin. Approximately 25% of Lubriquip's sales in 2003 were to customers outside the U.S. OTHER ENGINEERED PRODUCTS GROUP The Other Engineered Products Group produces firefighting pumps, rescue tools and other components and systems for the fire and rescue industry, and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications. The two business units that comprise this group are Hale Products and Band-It. The group accounted for 23% of sales and 25% of operating income in 2002, with 43% of sales to customers outside the U.S. Band-It. Band-It is a leading producer of high-quality stainless steel banding, buckles and clamping systems. The Band-It brand is highly recognized worldwide. Band-It's products are used for securing exhaust system heat and sound shields, industrial hose fittings, traffic signs and signals, electrical cable shielding, identification and bundling, and numerous other industrial and commercial applications. Band-It's markets include transportation equipment, oil and gas, general industrial maintenance, electronics, electrical, communications, aerospace, utility and municipal. Band-It is based in Denver, Colorado, with additional manufacturing operations in the United Kingdom, Singapore and South Africa. In 2003, approximately 45% of Band-It's sales were to customers outside the U.S. Hale Products. Hale Products, acquired in 1994, is a leading manufacturer of rescue systems and truck-mounted fire pumps. Hale's products include the Hurst Jaws of Life(R) and LUKAS(R) rescue tool and re-railing systems. Hale's pumps are used to pump water or foam to extinguish fires; its rescue equipment is used to 3
extricate accident victims; its forced-entry equipment is used for law enforcement; and its hydraulic products are used for re-railing, disaster recovery and recycling. Hale's markets include public and private fire and rescue organizations. LUKAS Hydraulik was acquired in 1995 and is operated as part of the Hale business unit. In January 2001, IDEX acquired Class 1, Inc., headquartered in Ocala, Florida, which now is also operated as part of Hale. Class 1 is a leading supplier of components and systems to the fire and rescue vehicle market. Its primary products include electronic information controls, engine information systems, electronic multiplexing units, electrical monitoring equipment and systems and fire truck mechanical components. Hale is headquartered in Ocala, Florida, with additional operations in Conshohocken, Pennsylvania, Shelby, North Carolina, England and Germany. Approximately 40% of Hale's 2003 sales were to customers outside the U.S. GENERAL ASPECTS APPLICABLE TO THE COMPANY'S BUSINESS GROUPS COMPETITORS The Company's businesses participate in highly competitive markets. Generally, all of the Company's businesses compete on the basis of performance, quality, service and price. Principal competitors of the businesses in the Pump Products Group are the Blackmer division of Dover Corporation (with respect to rotary gear pumps, and pumps and small horsepower compressors used in liquified petroleum gas distribution facilities); Milton Roy, a division of United Technologies Corporation (with respect to metering pumps and controls); Roper Industries and Tuthill Corporation (with respect to rotary gear pumps); Wilden Pump and Engineering Co., a division of Dover Corporation (with respect to air-operated double-diaphragm pumps); and Thomas Industries (with respect to vacuum pumps and compressors.) The principal competitors of the Dispensing Equipment Group are Corob S.p.A. (with respect to dispensing and mixing equipment for the paint industry) and Lincoln Industrial (with respect to centralized lubrication systems). The Other Engineered Products Group's principal competitors are A.J. Gerrard & Company, a division of Illinois Tool Works Inc. (with respect to stainless steel bands, buckles and tools) and Waterous Company, a division of American Cast Iron Pipe Company (with respect to truck-mounted fire-fighting pumps). EMPLOYEES At December 31, 2003, IDEX had approximately 3,700 employees. Approximately 13% were represented by labor union with various contracts expiring though February 2008. Management believes that the Company's relationship with its employees is good. The Company has historically been able to satisfactorily renegotiate its collective bargaining agreements, with its last work stoppage in March 1993. SUPPLIERS IDEX manufactures many of the parts and components used in its products. Substantially all materials, parts and components purchased by IDEX are available from multiple sources. INVENTORY AND BACKLOG The Company regularly and systematically adjusts production schedules and quantities based on the flow of incoming orders. Backlogs are therefore typically limited to approximately 1 to 1 1/2 months of production. While total inventory levels may also be affected by changes in orders, the Company generally tries to maintain relatively stable inventory levels based on its assessment of the requirements of the various industries served. SEGMENT INFORMATION For segment financial information for the years 2003, 2002, and 2001, see the table titled "Company and Business Group Financial Information" presented on page 20 under "Management's Discussion and Analysis 4
of Financial Condition and Results of Operations" and Note 6 of the "Notes to Consolidated Financial Statements" starting on page 32 of the 2003 Annual Report, which is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names of the executive officers of the Company, their ages, years of service, the positions held by them, and their business experience during the past 5 years.
Mr. McMurray also served as Vice President-Group Executive from November 1998 through September 2000, and President of Viking Pump from January 1997 through September 2000. Mr. Metcalf has served as Vice President-Corporate Development of the Company since March 1997. Mr. Notaro has served as Vice President-General Counsel and Secretary since March 1998. Mr. Windmuller has served as Vice President-Group Executive of Dispensing Equipment and Engineered Products since April 2003. Prior to that, Mr. Windmuller was Vice President-Group Executive since October 2000. Mr. Windmuller served as Vice President-Operations of the Company from January 1998 through September 2000. The Company's executive officers are elected at a meeting of the Board of Directors immediately following the annual meeting of shareholders, and they serve until the next annual meeting of the Board, or until their successors are duly elected. PUBLIC FILINGS Copies of the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are made available free of charge through the Company's web site at www.idexcorp.com as soon as reasonably practicable after we electronically file them with the SEC. ITEM 2. PROPERTIES. The Company's principal plants and offices have an aggregate floor space area of approximately 2.9 million square feet, of which 2.0 million square feet (70%) are located in the U.S. and approximately 0.9 million square feet (30%) are located outside the U.S., primarily in Italy (8%), the U.K. (6%), The Netherlands (5%) and Germany (4%). These facilities are considered to be suitable and adequate for their operations. Management believes that utilization of manufacturing capacity ranges from 40% to 70% in each facility. The Company's executive office occupies approximately 19,000 square feet of leased space in Northbrook, Illinois. Approximately 2.2 million square feet (74%) of the principal plant and office floor area is owned by the Company, and the balance is held under lease. Approximately 1.7 million square feet (57%) of the principal plant and office floor area is held by business units in the Pump Products Group; 0.6 million square feet (21%) is held by business units in the Dispensing Equipment Group; and 0.6 million square feet (19%) is held by business units in the Other Engineered Products Group. ITEM 3. LEGAL PROCEEDINGS. IDEX and nine of its subsidiaries have been named as defendants in a number of lawsuits claiming various asbestos-related personal injuries, allegedly as a result of exposure to products manufactured with components that contained asbestos. Such components were acquired from third party suppliers, and were not manufactured by any of the subsidiaries. To date, all of the Company's settlements and legal costs, except for costs of coordination, administration, insurance investigation and a portion of defense costs, have been covered in full by insurance. However, the Company cannot predict whether and to what extent insurance will be available to continue to cover such settlements and legal costs, or how insurers may respond to claims that are tendered to them. Claims have been filed in Alabama, California, Connecticut, Georgia, Illinois, Louisiana, Michigan, Mississippi, Nevada, New Jersey, New York, Ohio, Pennsylvania, Texas and Washington. A few claims have been settled for minimal amounts and some have been dismissed without payment. None have been tried. No provision has been made in the financial statements of the Company, and IDEX does not currently believe the asbestos-related claims will have a material adverse effect on the Company's business or financial position. 6
IDEX is also party to various other legal proceedings arising in the ordinary course of business, none of which is expected to have a material adverse effect on its business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Information regarding the prices of, and dividends on, the Common Stock, and certain related matters, is incorporated herein by reference to "Shareholder Information" on page 44 of the 2003 Annual Report. The principal market for the Common Stock is the New York Stock Exchange, but the Common Stock is also listed on the Chicago Stock Exchange. As of January 31, 2004, Common Stock was held by approximately 5,700 shareholders and there were 33,108,535 shares of Common Stock outstanding, net of treasury shares. ITEM 6. SELECTED FINANCIAL DATA. The information set forth under "Historical Data" on pages 16 and 17 of the 2003 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 to 25 of the 2003 Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information set forth under the caption "Market Risk" on page 25 of the 2003 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements of IDEX, including Notes thereto, together with the independent auditors' report thereon of Deloitte & Touche LLP on pages 26 to 39 of the 2003 Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 7
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information under the headings "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," and the information under the subheading "Information Regarding the Board of Directors and Committees," in the Company's 2004 Proxy Statement is incorporated herein by reference. Information regarding executive officers of the Company is located in Part I, Item 1 of this report under the caption "Executive Officers of the Registrant." The Company has adopted a Code of Business Conduct and Ethics applicable to the Company's directors, officers (including the Company's principal executive officer and principal financial & accounting officer) and employees. The Code of Business Conduct and Ethics, along with the Audit Committee Charter, Nominating and Corporate Governance Committee Charter, Compensation Committee Charter and Corporate Governance Guidelines are available on the Company's website at www.idexcorp.com. In the event that we amend or waive any of the provisions of the Code of Business Conduct and Ethics applicable to our principal executive officer or principal financial & accounting officer, we intend to disclose the same on the Company's website. ITEM 11. EXECUTIVE COMPENSATION. Information under the heading "Compensation of Executive Officers" in the Company's 2004 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Information under the heading "Security Ownership" and the information under the subheading "Equity Compensation Plan Information" in the Company's 2004 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information under the subheading "Certain Interests" in the Company's 2004 Proxy Statement is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information under the heading "Principal Accountant Fees and Services" in the Company's 2004 Proxy Statement is incorporated herein by reference. 8
PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)1. Financial Statements The following financial statements are incorporated herein by reference to the 2003 Annual Report.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of IDEX Corporation: We have audited the consolidated financial statements of IDEX Corporation and its Subsidiaries as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, and have issued our report thereon dated January 22, 2004; such financial statements and report are included in your 2003 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of IDEX Corporation, listed in Item 15. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Chicago, Illinois January 22, 2004 10
IDEX CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IDEX CORPORATION By: /s/ DOMINIC A. ROMEO ------------------------------------ Dominic A. Romeo Vice President and Chief Financial Officer Date: March 5, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
EXHIBIT 4.7 (a) SECOND AMENDED AND RESTATED FEE LETTER Dated as of December 17, 2003 IDEX Receivables Corporation 630 Dundee Road, Suite 400 Northbrook, IL 60062 Re: Receivables Purchase Agreement Ladies and Gentlemen: Reference is hereby made to that certain Receivables Purchase Agreement (as amended by Amendment No. 1 thereto dated as of December 18, 2002, by Amendment No. 2 thereto dated as of even date herewith and as may be further amended, restated or otherwise modified from time to time, the "Purchase Agreement"), dated as of December 20, 2001, among IDEX Receivables Corporation, as seller (the "Seller"), IDEX Corporation, as servicer (the "Servicer"), Falcon Asset Securitization Corporation ("Falcon"), certain entities party thereto as "Financial Institutions" and Bank One, NA (Main Office Chicago), as Agent (the "Agent") for Falcon and the Financial Institutions. This letter constitutes the "Fee Letter" referred to in the Purchase Agreement and sets forth our understanding in respect of certain fees payable by the Seller and the obligations of the Seller in connection therewith. Capitalized terms that are used herein and not otherwise defined herein shall have the respective meanings assigned thereto under the Purchase Agreement. SECTION 1. Fees. Notwithstanding any limitation on recourse contained in the Purchase Agreement: (a) Amendment and Renewal Fee. On the date hereof, the Seller shall pay to Falcon an amendment and renewal fee in the amount of $18,750.00. (b) On-Going Fees. The following fees shall be due and payable on each Settlement Date of the type described in clause (A) of the definition of "Settlement Date" in the Purchase Agreement, or such other day as agreed to by the Seller and the Agent in writing (each such date, a "Payment Date"), during the period commencing on December 18, 2003 until the date occurring after the Facility Termination Date on which the amount of the Aggregate Unpaids shall be reduced to zero. All such fees shall accrue from and including the date hereof and shall, as provided in Section 1.4 of the Purchase Agreement, be calculated on the basis of a 360-day year for the actual number of days elapsed (including the first but excluding the last such day). Signature Page to Second Amended and Restated Fee Letter
(i) Administration Fee. On each Payment Date, the Seller shall pay to Falcon a fee equal to 0.50% per annum times 102% of the Purchase Limit. (ii) Program Fee. On each Payment Date, the Seller shall pay to Falcon a fee equal to 0.27% times the average daily outstanding Capital during the immediately preceding calendar month or portion thereof. SECTION 2. Independent Nature of Fees. Each of the fees described in Section 1 above shall be in addition to, and not in lieu of any other fees, expenses, reimbursements, indemnities and any other amounts payable by the Seller under or in connection with the Purchase Agreement. Nothing contained in this Fee Letter shall limit in any way the obligation of the Seller to pay any amount required to be paid by it in accordance with the terms of the Purchase Agreement. SECTION 3. Termination. This Fee Letter shall terminate immediately following the later to occur of (a) the Facility Termination Date and (b) the repayment in full of all of the Aggregate Unpaids. SECTION 4. Amendments and Waivers. No amendment, waiver, supplement or other modification of this Fee Letter shall be effective unless made in writing and executed by each of the parties hereto. SECTION 5. Counterparts. This Fee Letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 6. Successors and Assigns. This Fee Letter shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided that the Seller may not assign any of its obligations hereunder without the prior written consent of the Agent and each of the Purchasers. SECTION 7. Governing Law. This Fee Letter shall be governed and construed in accordance with the internal laws (and not the law of conflicts) of the State of Illinois. SECTION 8. Amendment and Restatement; Effectiveness. This letter agreement amends and restates in its entirety that certain Amended and Restated Fee Letter dated as of December 18, 2002 among the parties hereto (the "Existing Fee Letter"). This letter agreement is not intended to constitute a novation of the Existing Fee Letter, and all fees that have accrued under the Existing Fee Letter up to (but not including) the date hereof shall have accrued at the rates specified in the Existing Fee Letter and shall be payable as and when required in accordance with the terms thereof. All fees accruing from and after the date hereof shall accrue at the rates specified in this letter agreement and shall be payable as and when required in accordance with the terms hereof. If the foregoing agreements evidence your understanding, please acknowledge by executing this letter in the space provided below.
Very truly yours, BANK ONE, NA (MAIN OFFICE CHICAGO), as Agent and as a Financial Institution By__________________________________________ Director, Capital Markets FALCON ASSET SECURITIZATION CORPORATION By__________________________________________ Authorized Signatory Acknowledged and Agreed: IDEX RECEIVABLES CORPORATION By____________________________ Name: Title:
Execution Copy AMENDMENT NO. 2 to RECEIVABLES PURCHASE AGREEMENT Dated as of December 17, 2003 THIS AMENDMENT NO. 2 ("Amendment") is entered into as of December 17, 2003 by and among IDEX Receivables Corporation (the "Seller"), IDEX Corporation (the "Servicer"), Falcon Asset Securitization Corporation ("Falcon"), the Financial Institutions party hereto and Bank One, NA, as Agent (the "Agent"). PRELIMINARY STATEMENT A. The Seller, the Servicer, Falcon, the Financial Institutions and the Agent are parties to that certain Receivables Purchase Agreement dated as of December 20, 2001 (as amended by Amendment No. 1 thereto dated as of December 18, 2002 and as otherwise amended, restated, supplemented or otherwise modified from time to time, the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Purchase Agreement. B. The Seller, the Servicer, Falcon, the Financial Institutions and the Agent have agreed to amend the Purchase Agreement on the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: I. Amendment. Effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Purchase Agreement is hereby amended as follows: A. Section 14.5 of the Purchase Agreement is hereby amended by adding the following paragraph (c) at the end thereof: "(c) Anything herein to the contrary notwithstanding, the Agent, each Purchaser, each Indemnified Party and any successor or assign of any of the foregoing (and each employee, representative or other agent of any of the foregoing) may disclose to any and all Persons, without limitation of any kind, the "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated herein and in the other Transaction Documents and all materials of any kind (including opinions or other tax analyses) that are or have been provided to any of the foregoing relating to such tax
treatment or tax structure, and it is hereby confirmed that each of the foregoing have been so authorized at all times since the date of this Agreement." B. Exhibit I to the Purchase Agreement is hereby amended as follows: 1. The definition of "Liquidity Termination Date" is amended by deleting "December 17, 2003" therefrom and replacing it with "December 15, 2004". 2. The definition of "Purchase Limit" is amended by deleting "$50,000,000" therefrom and replacing it with "$25,000,000". C. Schedule A to the Purchase Agreement is hereby amended by deleting "$51,000,000" therefrom and replacing it with "$25,500,000". II. Conditions Precedent. This Amendment shall become effective and be deemed effective, as of the date first above written, upon the latest to occur of (i) the date hereof, (ii) receipt by the Agent of one copy of each of (a) this Amendment and (b) the Second Amended and Restated Fee Letter dated as of the date hereof (the "Fee Letter"), among the Agent, Falcon and the Seller, in each case duly executed by each of the parties hereto or thereto, and (iii) payment by the Seller to Falcon of all fees due and payable on the date hereof under the Fee Letter. III. Covenants, Representations and Warranties of the Seller and the Servicer. A. Upon the effectiveness of this Amendment, each of the Seller and the Servicer hereby reaffirms all covenants, representations and warranties made by it in the Purchase Agreement, as amended, and agrees that all such covenants, representations and warranties shall be deemed to have been re-made as of the effective date of this Amendment. B. Each of the Seller and the Servicer hereby represents and warrants as to itself (i) that this Amendment constitutes the legal, valid and binding obligation of such party enforceable against such party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general principles of equity which may limit the availability of equitable remedies and (ii) upon the effectiveness of this Amendment, that no event shall have occurred and be continuing which constitutes an Amortization Event or a Potential Amortization Event. IV. Fees, Costs, Expenses and Taxes. Without limiting the rights of the Agent and the Purchasers set forth in the Purchase Agreement and the other Transaction Documents, the Seller agrees to pay on demand all reasonable fees and out-of-pocket expenses of counsel for the Agent and the Purchasers incurred in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered in connection herewith and with respect to advising the Agent and the Purchasers as to their rights and responsibilities hereunder and thereunder.
V. Reference to and Effect on the Purchase Agreement. Upon the effectiveness of this Amendment, each reference in the Purchase Agreement to "this Agreement," "hereunder," "hereof," "herein," "hereby" or words of like import shall mean and be a reference to the Purchase Agreement as amended hereby, and each reference to the Purchase Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Purchase Agreement shall mean and be a reference to the Purchase Agreement as amended hereby. Except as specifically amended hereby, the Purchase Agreement and other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Purchaser or the Agent under the Purchase Agreement or any of the other Transaction Documents, nor constitute a waiver of any provision contained therein. VI. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS. VII. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. VIII. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the date first set forth above by their respective officers thereto duly authorized, to be effective as hereinabove provided.
IDEX RECEIVABLES CORPORATION, as Seller By:________________________________________ Name: Title: IDEX CORPORATION, individually and as Servicer By:________________________________________ Name: Title: FALCON ASSET SECURITIZATION CORPORATION By:________________________________________ Name: Title: Authorized Signatory BANK ONE, NA, as a Financial Institution and as Agent By:________________________________________ Name: Title: Director, Capital Markets
EXHIBIT 10.6 (a) FIRST AMENDMENT TO IDEX CORPORATION AMENDED AND RESTATED STOCK OPTION PLAN FOR OUTSIDE DIRECTORS WHEREAS, this corporation has adopted the IDEX Corporation Amended and Restated Stock Option Plan for Outside Directors (the "Plan"); WHEREAS, the Plan currently prohibits a non-employee director who is a general partner, limited partner or full-time employee of either KKR Associates, L.P. or Kohlberg Kravis Roberts & Co., LLC (collectively "KKR") from participating in the Plan; WHEREAS, all historical equity and contractual relationships between KKR and the Company have or will have ceased by December 31, 2003; thus, it is desirable to amend the Plan to remove the restriction on partners, limited partners and full-time employees of KKR from participating in the Plan; NOW, THEREFORE, it is resolved that the Plan is amended effective January 1, 2004 by substituting the following for the definition of "Outside Director" contained in Article 1 thereof: "Outside Director - a Director who is not then a full-time employee (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code) of the Company or of any corporation that is then a Parent Corporation or a Subsidiary." In all other respects the Plan shall remain in full force and effect. FURTHER RESOLVED, that the officers of this corporation are authorized to produce a copy of the Plan as conformed to reflect the foregoing amendment and to take all action appropriate and necessary to effectuate the foregoing amendment. * * * * * * I, Frank J. Notaro, the Secretary of IDEX Corporation, do hereby certify that the foregoing resolutions were adopted by the Board of Directors of IDEX Corporation at a duly held meeting on November 20, 2003. ___________________________________ Secretary as Aforesaid
EXHIBIT 10.19 PERSONAL AND CONFIDENTIAL VIA OVERNIGHT MAIL November 13, 2002 Ms. Kimberly Bors 728 Westgate Road Deerfield, Illinois 60015 Dear Kim: We are pleased to offer you the position of Vice President - Human Resources for IDEX. The position is situated at the Executive Office in Northbrook, Illinois. In this position you will report directly to Dennis Williams, IDEX Chief Executive Officer, Chairman, and President. The following terms apply to this offer: - Your annual base salary will be $220,000, payable on a monthly basis at the rate of $18,333 per month. You will be eligible for a review of your salary with consideration for an increase on January 1, 2004. While we hope that you have a long and mutually beneficial relationship with IDEX, your employment will not be for any fixed term or definite period and may be terminated at any time. - You will be eligible for participation in our Management Incentive Compensation Plan (MICP), which provides annual incentive earnings opportunity based on group and personal performance. You will be placed in Salary Range 24, which means your target level of extra compensation will be 57% of your annual base pay in effect at the beginning of the plan year. The actual payout under the plan could be more or less than the target level and will depend on the performance of your operations and your performance. Enclosed is a copy of the IDEX MICP plan document. For the 2003 MICP plan year, we will guarantee a minimum pay-out of $95,000, provided your employment with IDEX begins on or before January 2, 2003 and you remain employed with IDEX on December 31, 2003. If actual unit and personal performance earn a higher bonus (prorated for the number of months of participation rounded to full months), the higher amount will be
LETTER TO MS. KIM BORS November 13, 2002 Page Two payable. The 2003 bonus is payable in late January or early February 2004. For the 2004 MICP plan year, your bonus will be based on actual unit and personal performance. - You will be eligible for the full range of ChoiceComp benefits for IDEX employees at the Executive Office, including defined benefit pension, 401(k) IDEX Savings Plan, medical and dental coverage, short-term and long-term disability coverage, and life insurance. A ChoiceComp folder describing our flexible benefit plan is enclosed. You will be eligible for medical coverage on the first of the month following your employment date. - As an IDEX officer, you are eligible to use a company-provided car under the IDEX Car Policy. Currently, you would be eligible for a Buick Park Avenue, Chrysler 300 LX, BMW 325i, Lexus ES 300, or several other specified similar-valued cars. You will be subject to taxable income for the personal use of this car under current IRS regulations. Please work with Doug Lennox, Treasurer, to place the order through Wheels, Inc., which supplies our company cars. - Subject to approval of our Board of Directors, we expect to award you an appropriate number of stock options under the IDEX Corporation Stock Option Plan. This plan is designed to provide an incentive and reward to key employees who are in a position to make substantial contributions to the success of the company. Stock options are normally awarded to MICP participants at the Annual Shareholders' Meeting in March. The initial price at which the options are granted will be the fair market value on the day prior to the meeting at which the shares are approved (or the day before the date if issue, if they are issued at a later date). If and when the options are granted, we will notify you, provide you with a Stock Option Agreement, and ask that you sign the agreement and complete a beneficiary designation form. A special stock option grant of 15,000 shares will be awarded to you immediately following your starting employment with IDEX
LETTER TO MS. KIM BORS November 13, 2002 Page Three The initial price at which the options are granted will be the fair market value on the day immediately prior to the effective date of the grant. - Effective January 1, 2004, you will be eligible to participate in the IDEX Deferred Compensation Plan for Officers, which provides an alternative to defer income and subsequent earnings on that income until after retirement. - You will be eligible for three (3) weeks of vacation during the vacation year from June 1 through May 31, and in each succeeding vacation year. We will work with you to schedule vacation you may require between now and May 31, 2003. - As discussed with you, we expect that IDEX will continue to grow and prosper as an independent publicly-owned company. However, in the event of a "Change in Control," as defined in the Amended and Restated IDEX Corporation Supplemental Executive Retirement Plan, that results in your termination from service within 24 months of the Change of Control, the Company would be obligated to pay your salary at the rate then in effect and your then current target MICP bonus for a minimum of 36 months following the date of termination. This payment would not be applicable in the event of your resignation. - We are agreeable to delaying the start date for your employment until January 2, 2003 to enable you to complete your long-term project and to enhance the possibility of your access to earned annual and longer-term incentive payments. In order to reflect equity that may be jeopardized in making the transition between companies, a signing bonus of $25,000, less appropriate deductions for taxes, will be payable on February 1, 2003. This offer of employment is subject to your satisfactory completion of a drug and alcohol abuse-screening test. The test may be scheduled at a qualified laboratory. The results should be communicated to me. At IDEX we have a strong standard of conduct and ethics policy, a copy of which is enclosed. Immediately upon accepting employment, we
LETTER TO MS. KIM BORS November 13, 2002 Page Four ask that you sign a statement indicating that you have read the policy and will abide by it. The company does require that all salaried employees agree to and sign a Confidentiality and Invention Agreement. A copy is enclosed. Two copies of this offer letter are enclosed. Please indicate your acceptance of this offer by signing on the line provided below and return a signed copy to me by Wednesday, November 20, 2002. Kim, we have discussed some of the critical challenges that our team faces. We are confident that your leadership skills and experience can make a significant contribution to the success of the IDEX Corporation, and that this position can be a positive professional step for you. Sincerely, /s/ Jerry N. Derck Jerry N. Derck _________________________________ __________________ Acceptance of Employment Offer Date Kim Bors c: D. K. Williams Enclosures: - - MICP Plan Document - - ChoiceComp benefit folder - - Ethics policy - - Ethics acknowledgement form - - Confidentiality Agreement - Exhibit A
EXHIBIT 10.20 PERSONAL AND CONFIDENTIAL VIA OVERNIGHT MAIL November 22, 2002 Ms. Kimberly Bors 728 Westgate Road Deerfield, Illinois 60015 Dear Kim: The purpose of this letter is to confirm the commitment made verbally to you on Tuesday, November 19,2002 relating to your employment status with IDEX. If, in the future, your employment with IDEX Corporation is terminated without cause ("cause" defined as willful misconduct or fraudulent behavior), IDEX will pay you a minimum of 12 months' salary at the then current monthly base rate as severance. Such benefit will not be applicable if you resign. Kim, we are delighted that you have decided to join IDEX. We look forward to working closely with you as well as to the significant contributions you will make to IDEX in the years ahead. Sincerely, /s/ Jerry N. Derck Jerry N. Derck c: D. K. Williams
EXHIBIT 10.21 PERSONAL AND CONFIDENTIAL VIA OVERNIGHT MAIL December 1, 2003 Mr. Dominic A. Romeo 10831 East Fanfol Scottsdale, AZ 85259 Dear Dom: We are pleased to confirm our offer to you for the position of Vice President - Chief Financial Officer for IDEX Corporation. The position is situated at the Executive Office in Northbrook, Illinois. In this position, you will report directly to Dennis Williams, IDEX Chief Executive Officer, Chairman, and President. This letter supercedes the prior letter dated November 26, 2003 and encompasses all parts of our final employment offer to you. The following terms apply: - Your annual base salary will be $315,000, payable on a biweekly basis at the rate of $12,115.38 per pay period. You will be eligible for a review of your salary with consideration for an increase on January 1, 2005. While we hope that you have a long and mutually beneficial relationship with IDEX, your employment will not be for any fixed term or definite period and may be terminated at any time. - You will be eligible for participation in our Management Incentive Compensation Plan (MICP), which provides an annual incentive earnings opportunity based on company and personal performance. You will be placed in Salary Range 26, which means your target level of extra compensation will be 65% of your annual base pay in effect at the beginning of the plan year. The actual payout under the plan could be more or less than the target level and will depend on the performance of IDEX and your individual performance. Enclosed is a copy of the IDEX MICP plan document.
LETTER TO MR. DOMINIC A. ROMEO December 1, 2003 Page Two - You will be eligible for the full range of ChoiceComp benefits for IDEX employees at the Executive Office, including the IDEX Corporation Retirement Plan (defined benefit pension), IDEX Corporation Supplemental Executive Retirement Plan (benefits in excess of the IRS limits), 401(k) IDEX Savings Plan, medical and dental coverage, short-term and long-term disability coverage, life insurance, and enhanced one million-dollar business travel accident coverage. A ChoiceComp folder describing our flexible benefit plan is enclosed. You will be eligible for medical coverage on the first of the month following your employment date. - As an IDEX officer, you are eligible to use a company-provided car under the IDEX Car Policy. Currently, you would be eligible for a BMW 325i, Lexus 300, Buick Park Avenue, Chrysler 300 LX, or other similar-valued cars. You will be subject to taxable income for the personal use of this car under current IRS regulations. Doug Lennox, Treasurer, will assist you to place the order through Wheels, Inc., which supplies our company cars. - Subject to approval of our Board of Directors, we expect to award you an annual grant of stock options under the IDEX Corporation Stock Option Plan. This plan is designed to provide an incentive and reward to key employees who are in a position to make substantial contributions to the success of the company. Stock options are normally awarded to Officers at the Annual Shareholders' Meeting in March. The initial price at which the options are granted will be the fair market value on the day prior to the meeting at which the shares are approved (or the day before the date of issue, if they are issued at a later date). If and when the options are granted, we will notify you, provide you with a Stock Option Agreement, and ask that you sign the agreement and complete a beneficiary designation form. - An initial, special stock option grant of 50,000 shares will be awarded to you immediately following your starting employment with IDEX. The initial price at which the options are granted will be the fair market value on the day immediately prior to the
LETTER TO MR. DOMINIC A. ROMEO December 1, 2003 Page Three effective date of the grant. Vesting will occur in five annual installments of twenty percent (20%) each, commencing on the first anniversary of the grant date. Accelerated vesting would occur in the event of change in control. - As a special sign-on incentive, you will be awarded 20,000 shares of restricted stock with a five-year cliff-vesting requirement. Accelerated vesting would occur in the event of a change in control or termination of employment by the Company without cause. We will also provide a Restricted Stock Agreement for you to sign upon employment. - As a replacement for your forfeited 2003 Honeywell annual bonus, we have agreed to pay you an amount equal to what you would have received had you remained employed at Honeywell through the payout date. You have indicated that this amount is approximated at $150,000. We will provide this payment as soon as practical following your employment date and the determination that the Honeywell bonus has actually been forfeited. - Effective January 1, 2004, you will be eligible to participate in the IDEX Deferred Compensation Plan for Officers, which provides an alternative to defer income and subsequent earnings on that income until after retirement. - You will be eligible for three (3) weeks of vacation during the vacation year from June 1 through May 31, and in each succeeding vacation year. In addition, we will accommodate vacation time you may require between now and May 31, 2004. Additionally, the IDEX Holiday schedule typically contains 14 paid holidays, including a shutdown period during the December holiday season. - You will be eligible for the complete provisions of the IDEX moving policy, as it applies to current employees, including the third-party purchase of your home in Scottsdale, reimbursement of fees involved in the sale of your Scottsdale home and the purchase of a Chicago-area home, and payment of moving expenses. A copy of the moving policy is attached.
LETTER TO MR. DOMINIC A. ROMEO December 1, 2003 Page Four We are in agreement that you may delay the physical relocation of your home and family until mid-2004 to accommodate the completion of your children's current school year. To further support you through this transition, the Company will extend the temporary housing provisions of the moving policy and reimburse you for twice monthly return trips to your Scottsdale home through June 2004. - As discussed with you, we expect that IDEX will continue to grow and prosper as an independent publicly-owned company. However, in the event of a "Change in Control," as defined in the 2001 Stock Option Plan for Officers of IDEX Corporation, that results in your termination from service within 24 months of the Change in Control, the Company would be obligated to pay your salary at the rate then in effect and your then current target MICP bonus for a minimum of 24 months following the date of termination. This payment would not be applicable in the event of your resignation. - In other than a Change in Control event, should your employment with IDEX Corporation be terminated without cause ("cause" defined as willful misconduct or fraudulent behavior), you shall be entitled to 18 months salary continuation at your then current base salary. This benefit would not be applicable in the event of your resignation. This offer of employment is subject to your satisfactory completion of a drug and alcohol abuse-screening test. The test may be scheduled at a qualified laboratory. The results should be communicated to me. At IDEX we have a strong standard of conduct and ethics policy, a copy of which is enclosed. Immediately upon accepting employment, we ask that you sign a statement indicating that you have read the policy and will abide by it. The company does require that all salaried employees agree to and sign a Confidentiality and Invention Agreement. A copy is enclosed. Two copies of this offer letter are enclosed. Please indicate your acceptance of this offer by signing on the line provided below and return a signed copy to me by Tuesday, December 2, 2003.
LETTER TO MR. DOMINIC A. ROMEO December 1, 2003 Page Five Dom, we have discussed some of the critical challenges and opportunities that our team faces. We are confident that your leadership skills and experience can make a significant contribution to the success of IDEX, and that this position can be a positive professional step for you. Sincerely, Kimberly Bors __________________________________ ________________ Acceptance of Employment Offer Date Dominic A. Romeo KKB/jlk c: D. K. Williams Enclosures: - - MICP Plan Document - - 2004 ChoiceComp Benefits Booklet - - IDEX Defined Benefit Retirement Plan Summary - - IDEX 401(k) Plan Summary - - 2004 Holiday Schedule - - Moving Policy for Current Employees - - Ethics policy - - Ethics acknowledgement form - - Confidentiality Agreement
EXHIBIT 10.22 RESTRICTED STOCK AWARD AGREEMENT BETWEEN IDEX CORPORATION AND DOMINIC A. ROMEO This Agreement is made as of the 14th day of January, 2004 (hereafter the "Effective Date"), between IDEX Corporation, a Delaware corporation with its executive offices at 630 Dundee Road, Suite 400, Northbrook, Illinois 60062 ("IDEX"), and Dominic A. Romeo, an individual residing at 10831 East Fanfol, Scottsdale, AZ 85259 (the "Executive"). WITNESSETH: WHEREAS, in order to entice Executive to accept employment with IDEX and in view of the key role the Executive will play in the success of IDEX and its subsidiaries, and the desire that he accepts employment as Vice President and Chief Financial Officer of IDEX, the Compensation Committee of the Board of Directors of IDEX (the "Committee") now believes that it is appropriate to make an award of Restricted Stock to the Executive; and WHEREAS, the Committee desires that the award be evidenced by a written agreement, executed by IDEX and the Executive, containing such restrictions, terms and conditions as may be required by the Committee; NOW THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, the Executive and IDEX hereby agree as follows: 1. Award. As of the Effective Date, IDEX hereby grants to the Executive an award (the "Award") of 20,000 Shares of IDEX's common stock ("Restricted Shares") subject to the restrictions, terms and conditions set forth below. 2. Vesting of the Award. (a) The Restricted Shares awarded under the Award shall vest subject to the Executive remaining employed by IDEX as follows: (i) 50% of the Restricted Shares shall vest on the fourth anniversary of the Effective Date; and (ii) 50% of the Restricted Shares shall vest on the fifth anniversary of the Effective Date.
(b) Notwithstanding any other provision in this Agreement to the contrary, in the event of a Change in Control, as defined in the 2001 Stock Plan for Officers of IDEX Corporation (the "Officers Plan"), then all Restricted Shares shall vest in full immediately. (c) Notwithstanding the provisions in Section 2(a), if the Executive's employment is terminated by IDEX without cause; then, all unvested Restricted Shares under the Award shall vest immediately. For this purpose, "cause" shall mean the Executive's willful misconduct or fraudulent behavior. (d) Until a Restricted Share vests, the Executive acknowledges that he may not, and agrees that he shall not, transfer his rights to such Restricted Share. Until a Restricted Share vests, no attempt to transfer such Restricted Share, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to such Restricted Share. (e) The Executive will receive all dividends paid on the Restricted Shares and will be entitled to vote the Restricted Shares. 3. Termination. (a) If the Executive ceases to be an employee by reason of disability or death prior to the vesting of the Restricted Shares, then the Executive or his estate shall be entitled to receive the unvested shares of the Award. No transfer, by will or by the laws of the descent and distribution, of the Common Shares which vest by reason of the Executive's death shall be effective to bind IDEX unless the Committee shall have been furnished with (i) written notice thereof and a copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and (ii) an agreement by the transferee to comply with the terms and conditions of this Agreement that were or would have been applicable to the Executive. (b) Notwithstanding the provisions in Section 2(a), the Executive's resignation will result in forfeiture of the awarded Restricted Shares. If the Executive ceases to be an employee of IDEX prior to the vesting of the Restricted Shares for any reason other than by reason of disability or death or as provided in Section 2(c), the Executive's rights to any unvested shares of the Award shall be immediately and irrevocably forfeited. 4. Insurance and Custody Certificate. (a) IDEX shall cause to be issued one or more stock certificates, registered in the name of the Executive evidencing the Restricted Shares awarded pursuant to Section 1. Each such certificate shall bear the following legends: 2
The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and thus may not be offered for sale, sold, transferred or otherwise disposed of unless registered under the Securities Act of 1933, as amended, or unless an exemption from such registration is available. The shares of stock represented by this certificate are subject to forfeiture and the transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including restrictions against transfer) contained in a Restricted Stock Award Agreement dated January 13, 2003, entered into between the registered owner of such shares and IDEX Corporation. A copy of the Agreement is on file in the office of the Secretary of IDEX Corporation, Suite 400, 630 Dundee Road, Northbrook, Illinois 60062. (b) Each Certificate issued pursuant to Section 4(a), together with stock powers duly executed in blank relating to such Restricted Shares, shall be deposited by IDEX with the Secretary of IDEX or a custodian designated by such Secretary. The Secretary or such custodian shall issue a receipt to the Executive evidencing the certificates held which are registered in the name of the Executive. (c) Promptly after any Restricted Shares vest pursuant to Section 2 of this Agreement, IDEX shall cause to be issued certificates evidencing such Restricted Shares, free of the second legend provided in Section 4(a) and shall cause such certificates to be delivered to the Executive (or the Executive's legal representatives, beneficiaries or heirs) and to return the related stock power. (d) The Executive shall not be deemed for any purpose to be, or have rights as, a shareholder of IDEX by virtue of the Award, until a stock certificate is issued therefore pursuant to Section 4(a). 5. Agreements of the Executive. The Executive acknowledges that: (a) this Agreement is not a contract of employment and the terms of the Executive's employment shall not be affected in any way by this Agreement except as specifically provided in this Agreement; (b) the Award made by this Agreement shall not confer any legal rights upon the Executive for continuation of employment or interfere with or limit the right of IDEX to terminate the Executive's employment at any time; and (c) the Committee may amend, suspend or terminate this Agreement or any part thereof at any time provided that no amendment, suspension or termination (other than that resulting from termination of employment of the Executive) shall be made or effected which would adversely affect any right of the Executive with respect to the Award made by this Agreement without the written consent 3
of the Executive unless such amendment, termination or suspension is required by applicable law. 6. Legal Compliance Restrictions. IDEX shall not be obligated to issue or deliver any certificates evidencing Restricted Shares awarded by this Agreement unless and until IDEX is advised by its counsel that the issuance and delivery of such certificates are in compliance with all applicable laws, regulations of governmental authorities and the requirements of the New York Stock Exchange or any other exchange upon which Shares of IDEX are traded. 7. Withholding Taxes. The Executive agrees to pay or make arrangements for the payment to IDEX of the amount of any taxes that IDEX is required by law to withhold with respect to the Award made by this Agreement. Such payment shall be due on the date IDEX is required to withhold such taxes. The Executive may satisfy any such tax obligation, in whole or in part, by (i) electing to have IDEX withhold Restricted Shares otherwise to be delivered with a fair market value equal to the minimum amount of any such tax withholding obligation, or (ii) electing to surrender to IDEX previously owned Restricted Shares with a fair market value equal to the minimum amount of any such tax withholding obligation. The election must be made on or before the date that the amount of the tax to be withheld is determined. In the event that payment is not made when due, IDEX shall have the right (a) to retain, or sell within 10 days notice or such longer notice as may be required by applicable law, a sufficient number of the Restricted Shares subject to the Award made to the Executive in order to cover all or part of the minimum amount required to be withheld; (b) to deduct, to the extent permitted by law, from any payment of any kind otherwise due to Executive from IDEX all or part of the minimum amount required to be withheld or (c) to pursue any other remedy at law or in equity. 8. Stock Splits, Recapitalizations, Acquisitions, etc. In the event of any change in the number of outstanding Shares by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the number and kind of shares subject to this Agreement shall be appropriately and equitably adjusted by the Committee. If changes in capitalization of IDEX other than those referred to above shall occur, the Committee shall make such adjustments in the number and kind of shares available under this Agreement as the Committee in good faith may deem appropriate and equitable. Unless the Committee otherwise determines, the Employee's right in respect of such securities and other property shall not vest until such Restricted Share would have vested and no such securities or other property shall be issued or delivered until such Restricted Share would be issued or delivered. 4
9. Notices. All written Communications to parties required hereunder must be in writing and (a) delivered in person, (b) mailed by registered or certified mail, return receipt requested, (such mailed notice to be effective 4 days after the date it is mailed) or (c) sent by facsimile transmission, with confirmation sent by way of one of the above methods, to the party at the address given below for the party (or to any other address as the party designates in writing complying with this Section, delivered to the other party): If to IDEX: IDEX Corporation Suite 400 630 Dundee Road Northbrook, IL 60062 Attention: Vice President - General Counsel Telephone: 847-498-7070 Telecopier: 847-498-9123 with a copy to: Latham & Watkins, LLP Sears Tower, Suite 5800 233 South Wacker Drive Chicago, Illinois 60606-6401 Attention: Christopher D. Lueking, Esq. Telephone: 312-876-7680 Telecopier: 312-993-9767 If to the Executive: At the address on file with IDEX. 10. Illinois Law. 5
This Agreement is made and accepted in the State of Illinois. The laws of the State of Illinois shall control the interpretation and performance of the terms of this Agreement. 11. Binding Effect. This Agreement shall be binding upon, and shall inure to the benefit of, the respective successors, assigns, heirs, executors, administrators and guardians of the parties hereto. 12. Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be enforceable under applicable law. However, if any provision of this Agreement is deemed unenforceable under applicable law by a court having jurisdiction, the provision will be unenforceable only to the extent necessary to make it enforceable without invalidating the remainder thereof or any of the remaining provisions of this Agreement. 13. Miscellaneous. This Agreement (a) may not be amended, modified or terminated orally or by any course of conduct pursued by IDEX or the Executive, but may be amended, modified or terminated only by a written agreement duly executed by IDEX and the Executive, (b) is binding upon an inures to the benefit of IDEX and the Executive and each of their respective heirs, representatives, successors and assignees, and (c) constitutes the entire agreement between IDEX and the Executive with respect to the subject matter of this Agreement, and supersedes all oral and written proposals, representations, understandings and agreements previously made or existing with respect to the subject matter. 14. Multiple Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any party may execute this Agreement by facsimile signature and the other party shall be entitled to rely on such facsimile signature as evidence that this Agreement has been duly executed by such party. Any party executing this Agreement by facsimile signature shall immediately forward to the other party an original signature page by overnight mail. 6
IN WITNESS WHEREOF, IDEX and the Executive have caused this Agreement to be executed and delivered, all as of the day and year first above written. EXECUTIVE __________________________________________ Dominic A. Romeo Date: ___________ IDEX CORPORATION By: /s/ Frank Notaro ----------------------------- Date: 01/14/04 7
. . . EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in 000's) YEARS ENDED DECEMBER 31 2003 2002 2001 2000 1999 ---------- ---------- ---------- --------- ---------- FIXED CHARGES: Interest charges $ 14,091 $ 16,354 $ 20,738 $ 16,521 $ 18,020 Net amortization of debt discount and premium and issuance expense 580 580 364 224 371 Interest portion of rental charges 559 484 455 472 478 ---------- ---------- ---------- --------- ---------- TOTAL FIXED CHARGES $ 15,230 $ 17,418 $ 21,557 $ 17,217 $ 18,869 ========== ========== ========== ========= ========== EARNINGS: Pre-tax earnings $ 96,670 $ 83,895 $ 53,431 $ 101,026 $ 87,225 Interest charges 14,091 16,354 20,738 16,521 18,020 Net amortization of debt discount and Premium and issuance expense 580 580 364 224 371 Interest portion of rental charges 559 484 455 472 478 ---------- ---------- ---------- --------- ---------- TOTAL EARNINGS $ 111,900 $ 101,313 $ 74,988 $ 118,243 $ 106,094 ========== ========== ========== ========= ========== RATIO OF EARNINGS TO FIXED CHARGES 7.3 5.8 3.5 6.9 5.6
. . . EXHIBIT 13 Historical Data (1) (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
IDEX Corporation 2003 Annual Report 19 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. RESULTS OF OPERATIONS 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 27. IDEX consists of three reporting groups: Pump Products, Dispensing Equipment and Other Engineered Products. 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, hair colorants and other personal care products; refinishing equipment; and centralized lubrication systems. The Other Engineered Products Group produces firefighting pumps, rescue tools 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. PERFORMANCE IN 2003 COMPARED WITH 2002 Orders, sales, net income and earnings per share were higher in 2003 compared with 2002. New orders in 2003 totaled $797.8 million and were 6% higher than the prior year. Excluding the impact of the five acquisitions made since the beginning of 2002 and foreign currency translation, orders were essentially unchanged from last year. Sales in 2003 of $797.9 million were 8% higher than the $742.0 million recorded a year ago. Acquisitions and foreign currency translation accounted for an improvement of 2% and 5%, respectively, while base business sales rose by 1%. Domestic sales increased by 1%, while international sales, net of foreign currency translation, were 8% higher. For the year, international sales were 45% of total sales, up from 41% in 2002. In 2003, the Pump Products Group contributed 57% of sales and 55% of operating income, the Dispensing Equipment Group accounted for 20% of both sales and operating income, and the Other Engineered Products Group represented 23% of sales and 25% of operating income. Pump Products Group sales of $456.5 million in 2003 increased by $19.9 million, or 5%, compared with 2002. Acquisitions and foreign currency translation accounted for a 5% and 2% sales improvement, respectively, but this was offset by a 2% decline in base business activity. In 2003, domestic sales increased slightly and international sales increased by 12% compared with last year. Excluding acquisitions, base U.S. sales volume decreased by 4%, while base international sales increased by 7%. Sales to customers outside the U.S. were 39% of total group sales in 2003, up from 37% in 2002. Dispensing Equipment Group sales of $159.2 million increased by $20.5 million, or 15%, in 2003 compared with the prior year, mainly due to favorable foreign currency translation of 13% and a 2% increase in base business activity. Domestic sales decreased by 5% compared with 2002, while international sales increased by 32%. Sales to customers outside the U.S. were 62% of total group sales in 2003, up from 54% in 2002. Other Engineered Products Group sales of $185.0 million increased by $15.3 million, or 9%, in 2003 compared with 2002. Foreign currency translation and increased base business activity provided an improvement of 5% and 10%, respectively, but this was partially offset by a 6% decline due to the sale of a product line. In 2003, domestic sales increased by 7% and international sales increased by 29%. Sales to customers outside the U.S. were 43% of total group sales in 2003, up from 38% in 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION (DOLLARS IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31,(1) 2003 2002 2001 ----------------------------------- ---- ---- ---- Pump Products Group Net sales(2) $ 456,516 $ 436,664 $ 427,037 Operating income(3)(4) 70,436 71,945 61,758 Operating margins(3)(4) 15.4% 16.5% 14.5% Identifiable assets $ 551,183 $ 535,822 $ 462,275 Depreciation and amortization(3) As reported 16,141 16,913 24,124 Goodwill and trademarks - - 7,745 Capital expenditures 12,887 9,348 10,251 Dispensing Equipment Group Net sales(2) $ 159,225 $ 138,702 $ 137,407 Operating income(3)(4) 25,724 18,627 13,957 Operating margins(3)(4) 16.2% 13.4% 10.2% Identifiable assets $ 203,786 $ 192,258 $ 180,361 Depreciation and amortization(3) As reported 5,881 5,734 9,719 Goodwill and trademarks - - 3,897 Capital expenditures 2,967 3,651 5,129 Other Engineered Products Group Net sales(2) $ 185,022 $ 169,692 $ 164,815 Operating income(3)(4) 32,990 25,638 25,032 Operating margins(3)(4) 17.8% 15.1% 15.2% Identifiable assets $ 186,417 $ 186,860 $ 181,032 Depreciation and amortization(3) As reported 5,116 4,666 7,920 Goodwill and trademarks - - 2,932 Capital expenditures 3,874 4,990 5,987 Company Net sales $ 797,920 $ 742,014 $ 726,947 Operating income(3)(4) 109,862 100,372 73,438 Operating margins(3)(4) 13.8% 13.5% 10.1% Total assets $ 960,739 $ 931,050 $ 838,804 Depreciation and amortization(3) As reported 29,475 29,525 43,933 Goodwill and trademarks - - 14,574 Capital expenditures 20,318 19,335 21,639 (1) Includes acquisition of Classic Engineering, Inc. (September 2003), Sponsler Co., Inc. (June 2003), Wrightech Corporation (October 2002), Rheodyne, L.P. (July 2002), Halox Technologies, Inc. (April 2002), Versa-Matic Tool, Inc. (June 2001) and Liquid Controls L.L.C. (January 2001) in the Pump Products Group; and Class 1, Inc. (January 2001) in the Other Engineered Products Group from dates of acquisition. See Note 10 of the Notes to Consolidated Financial Statements. (2) Group net sales include intersegment sales. (3) IDEX discontinued goodwill and trademark amortization as of January 1, 2002, in accordance with Statement of Financial Accounting Standards No. 142, as further explained in Note 2 of the Notes to Consolidated Financial Statements. (4) IDEX took actions in 2002 and 2001 to downsize operations to lower its cost structure, as further explained in Note 7 of the Notes to Consolidated Financial Statements. Group operating income in these years excluded net unallocated corporate operating expenses and restructuring activity. The restructuring activity resulted in income of $203 in 2002 and a charge of $11,226 in 2001, which were not assigned to the individual group segments. Had the company allocated the 2002 restructuring activity, it would have been assigned to the groups as follows: Pump Products (income of $1,046), Dispensing Equipment (expense of $121) and Other Engineered Products (expense of $722). Had the company allocated the 2001 restructuring charge, it would have been assigned to the groups as follows: Pump Products ($7,769), Dispensing Equipment ($1,894) and Other Engineered Products ($1,563).
IDEX Corporation 2003 Annual Report 21 Gross profit of $309.3 million in 2003 was $27.9 million higher than 2002. As a percent of sales, gross profit was 38.8% in 2003, which represented an increase from 37.9% in 2002. The higher gross profit margin primarily reflects reduced material costs from our increased global sourcing activities and savings from Six Sigma, Kaizen and Lean Manufacturing initiatives, which more than offset increased research and development expenses. Selling, general and administrative (SG&A) expenses increased to $199.5 million in 2003 from $181.3 million in 2002. This increase was partly due to the inclusion of five acquisitions that incrementally added $4.4 million of cost. This increase also reflects the deliberate reinvestment in the business to drive organic growth, as well as certain cost increases including pension, insurance, audit and legal expenses. As a percent of net sales, SG&A expenses were 25.0%, up from 24.4% in 2002. While 2003 SG&A expenses are up for the reasons noted, we do not believe this is indicative of a significant negative trend. We also generated income related to restructuring activity of $.2 million in 2002. For more details on our restructuring programs, see "Restructuring Actions" on page 24. Operating income increased by $9.5 million, or 9%, to $109.9 million in 2003 from $100.4 million in 2002, primarily due to higher 2003 gross profit, offset by increased SG&A expenses. Operating margins in 2003 were 13.8% of sales, compared with 13.5% in 2002. As described in footnote 4 of the "Company and Business Group Financial Information" table on page 20, each group's operating income and margins exclude restructuring activity in 2002 and 2001. In the Pump Products Group, operating income of $70.4 million and operating margin of 15.4% decreased in 2003 compared with $71.9 million and 16.5% recorded in 2002. The decline in operating margin was due to a number of factors including new product development, additional sales/marketing resources, ERP implementation and reduced volume in some of our more profitable base businesses. Operating income for the Dispensing Equipment Group increased to $25.7 million from $18.6 million last year, and operating margins improved to 16.2% from 13.4% recorded in 2002. The margin increase was mainly due to increased volumes. Operating income in the Other Engineered Products Group of $33.0 million and operating margin of 17.8% increased from $25.6 million and 15.1% achieved in 2002. The improvement in margins was mostly attributable to improved sales volumes. Other income of $.9 million in 2003 was $1.0 million higher than the $.1 million of expense in 2002. In 2003, we benefitted from a foreign currency exchange gain associated with the anticipated funding of the Manfred Vetter acquisition in early January 2004. Interest expense decreased to $14.1 million in 2003 from $16.4 million in 2002. The decrease was principally due to lower debt levels resulting from debt paydowns from operating cash flow and a lower interest rate environment. The provision for income taxes increased to $34.3 million in 2003 from $29.8 million in 2002. The effective tax rate was 35.5% for both periods. Net income was $62.4 million, or $1.87 per share, compared with $54.1 million, or $1.67 per share, in 2002. PERFORMANCE IN 2002 COMPARED WITH 2001 Orders, sales, net income and earnings per share were higher in 2002 compared with 2001. New orders in 2002 totaled $749.8 million and were 5% higher than the prior year. Excluding the impact of the four acquisitions made since mid-2001 and foreign currency translation, orders were 1% higher than in 2001. Sales in 2002 of $742.0 million were 2% higher than the $726.9 million recorded in the prior year. Acquisitions and foreign currency translation accounted for an improvement of 3% and 1%, respectively, but this was offset by a 2% decline in the base businesses. Domestic sales increased by 3%, while international sales, net of foreign currency translation, decreased by 2%. For the year, international sales were 41% of total sales, down slightly from 42% in 2001. In 2002, the Pump Products Group contributed 58% of sales and 62% of operating income, the Dispensing Equipment Group accounted for 19% of sales and 16% of operating income, and the Other Engineered Products Group represented 23% of sales and 22% of operating income. Pump Products Group sales of $436.7 million in 2002 increased by $9.6 million, or 2%, compared with 2001. Acquisitions accounted for a 5% sales improvement, but this was partially offset by a 3% decline in base business activity. In 2002, domestic and international sales increased by 3% and 1%, respectively, compared with last year. Excluding acquisitions, base business sales volume in both the U.S. and internationally decreased by 3%. Sales to customers outside the U.S. were 37% of total group sales in 2002, unchanged from 2001. Dispensing Equipment Group sales of $138.7 million increased by $1.3 million, or 1%, in 2002 compared with the prior year. Domestic by sales increased by 7% compared with 2001, while international sales decreased by 4%. Sales to customers outside the U.S. were 54% of total group sales in 2002, down from 57% in 2001. Other Engineered Products Group sales of $169.7 million increased by $4.9 million, or 3%, in 2002 compared with 2001. In 2002, domestic sales increased by 1%, while international sales grew by 6%. Sales to customers outside the U.S. were 42% of total group sales in 2002, up slightly from 41% in 2001. Gross profit of $281.4 million in 2002 was $17.7 million higher than in 2001. As a percent of sales, gross profit was 37.9% in 2002, compared with 36.3% in 2001. The higher gross profit margin primarily reflected reduced material costs from our increased Global Sourcing activities, benefits from our Kaizen, Lean and Six Sigma activities plus savings from actions to consolidate certain production facilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FROM LEFT TO RIGHT, SEATED: Chuck Hemann (Director - eBusiness), Dennis Metcalf (Vice President - Corporate Development), Kim Bors (Vice President - Human Resources) FROM LEFT TO RIGHT, STANDING: Frank Notaro (Vice President - General Counsel and Secretary), Dave Kamath (Chief Information Officer) SG&A expenses increased to $181.3 million in 2002 from $164.9 million in 2001. This increase was due primarily to including four acquisitions that incrementally added $5.2 million of cost, and increased spending on corporate initiatives and new product/market development. The increased corporate initiative costs included both implementation and training expenses for programs such as Six Sigma, Lean, Kaizen and Global Sourcing, as well as eBusiness. The goal of these efforts is to increase the company's organic sales and profit growth. As a percent of net sales, SG&A expenses were 24.4%, up from 22.7% in 2001. In accordance with the new accounting rules, we discontinued amortization of goodwill and trademarks as of January 1, 2002. As a result, we did not record any goodwill and trademark amortization expense in 2002 compared with $14.6 million in 2001. We also generated income related to restructuring activity of $.2 million in 2002 compared with a restructuring charge in 2001 of $11.2 million. For more details on our restructuring programs, see "Restructuring Actions" on page 24. Operating income increased by $26.9 million, or 37%, to $100.4 million in 2002 from $73.4 million in 2001. This was due primarily to the absence of goodwill and trademark amortization in 2002, the restructuring charge recorded in 2001 and higher 2002 gross profit. This increase was partially offset by increased SG&A expenses in 2002. Operating margins in 2002 were 13.5% compared with 10.1% in 2001. As described in footnote 4 of the "Company and Business Group Financial Information" table on page 20, each group's operating income and margins exclude restructuring activity. In the Pump Products Group, operating income of $71.9 million and operating margins of 16.5% in 2002, compared with $61.8 million and 14.5% in 2001. Operating income for the Dispensing Equipment Group increased to $18.6 million from $14.0 million last year, and operating margins improved to 13.4% from 10.2% in 2001. Operating income in the Other Engineered Products Group of $25.6 million and operating margins of 15.1% compared with the $25.0 million and 15.2% achieved in 2001. In the Pump Products Group, 2001 operating income and margins excluding goodwill and trademark amortization of $7.7 million, or 1.8% of sales, were $69.5 million and 16.3%, respectively. In the Dispensing Equipment Group, operating income and margins in 2001 were $17.9 million and 13.0%, respectively, excluding goodwill and trademark amortization of $3.9 million, or 2.8% of sales. Operating income and margins in the Other Engineered Products Group in 2001 were $27.9 million and 17.0%, respectively, excluding goodwill and trademark amortization of $2.9 million, or 1.8% of sales. The expenses related to the corporate initiatives of eBusiness (including ERP implementation), Six Sigma, Lean, Kaizen, and Global Sourcing are allocated to the reporting units in each segment based on expected usage. The businesses in the Pump Products and Dispensing Equipment segments have been more successful than those in the Other Engineered Products segment at offsetting the SG&A cost increases resulting from the corporate initiatives, new product/market development, and other cost increases, with efficiencies related to the initiatives as well as other operational improvements. The Other Engineered Products Group also was affected by higher than normal costs associated primarily with ERP implementations and a reserve established for a patent infringement suit. Interest expense decreased to $16.4 million in 2002 from $20.7 million in 2001. The decrease was due principally to lower debt levels as a result of debt paydowns from operating cash flow and proceeds from a common stock offering, and a lower interest rate environment. The provision for income taxes increased to $29.8 million in 2002 from $20.7 million in 2001. The effective tax rate decreased to 35.5% in 2002 from 38.8% in 2001. This was due primarily to the discontinuation of goodwill and trademark amortization in 2002, a portion of which was nondeductible for tax purposes. Net income was $54.1 million, or $1.67 per share, compared with $32.7 million, or $1.05 per share, in 2001. When adjusted to exclude goodwill and trademark amortization of $11.4 million, or $.37 per share, net income and earnings per share in 2001 were $44.1 million and $1.42 per share, respectively.
IDEX Corporation 2003 Annual Report 23 LIQUIDITY AND CAPITAL RESOURCES At December 31, 2003, working capital was $108.8 million and our current ratio was 1.9-to-1. Cash flows from operating activities increased by $2.2 million, or 2%, to $111.7 million in 2003, mainly due to the improved operating results discussed above, offset by increased contributions to our pension plans of $17.4 million from 2002. Cash flows from operating activities were more than adequate to fund capital expenditures of $20.3 million and $19.3 million in 2003 and 2002, respectively. Capital expenditures were generally for machinery and equipment that improved productivity and tooling to support IDEX's Global Sourcing initiative, although a portion was for 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 February 2003, an $8.0 million payment of deferred consideration was made in connection with the Rheodyne acquisition that was consummated in July 2002. The company also completed the acquisitions of Sponsler in June 2003 and Classic Engineering in September 2003 at a cost of $10.3 million and $3.7 million, respectively. These payments were financed under the company's credit facility. In addition to the $150 million of 6.875% Senior Notes (Senior Notes) due February 15, 2008, the company also has a $300 million domestic multi-currency bank revolving credit facility (Credit Facility), which expires June 8, 2006. At December 31, 2003, the maximum amount available under the Credit Facility was $300.0 million, of which $14.0 million was borrowed with outstanding letters of credit totaling $4.0 million. The Credit Facility contains a covenant that limits total debt outstanding to three times operating cash flow, as defined in the agreement. Our total debt outstanding was $176.5 million at December 31, 2003, and based on the covenant, total debt outstanding was limited to $426.0 million. Interest is payable quarterly on the outstanding balance at the agent bank's reference rate or at LIBOR plus an applicable margin and a utilization fee if the total borrowings exceed certain levels. The applicable margin is based on the credit rating of our Senior Notes, and can range from 25 basis points to 100 basis points. The utilization fee can range from zero to 25 basis points. On March 27, 2003, Standard & Poor's upgraded its corporate credit and senior unsecured debt ratings on IDEX to BBB from BBB-. As a result of this change, at December 31, 2003, the applicable margin was 57.5 basis points and the utilization fee was zero. We also pay an annual fee of 17.5 basis points on the total Credit Facility. In December 2001, we, and certain of our subsidiaries, entered into a one-year, renewable agreement with a financial institution, under which we collateralized certain receivables for borrowings (Receivables Facility). This agreement was renewed in December 2003 for another year. The Receivables Facility provides for borrowings of up to $25.0 million, depending upon the level of eligible receivables. At December 31, 2003, there were no borrowings outstanding under the Receivables Facility. We also have a $30.0 million demand line of credit (Short-Term Facility), which expires May 21, 2004. Borrowings under the Short-Term Facility are at LIBOR plus the applicable margin in effect under the Credit Facility. At December 31, 2003, 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. Since we began operations in January 1988 and through December 31, 2003, we have borrowed approximately $906.0 million under our various credit agreements to complete 24 acquisitions. During the same period we generated, principally from operations, cash flow of $894.0 million to reduce indebtedness. In the event that suitable businesses are available for acquisition upon terms acceptable to the Board of Directors, we may obtain all or a portion of the financing for the acquisitions through the incurrence of additional long-term debt. [BAR GRAPH]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. We have no off-balance sheet arrangements or material long-term purchase obligations. 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 following table summarizes our significant contractual obligations and commercial commitments at December 31, 2003, and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal payments on outstanding borrowings. Additional detail regarding these obligations are provided in the Notes to Consolidated Financial Statements, as referenced in the table: PAYMENTS LESS MORE DUE BY PERIOD THAN 1-3 3-5 THAN (IN THOUSANDS) TOTAL 1 YEAR YEARS YEARS 5 YEARS -------------- ----- ------ ----- ----- ------- Borrowings (Note 9) $ 176,546 $ 12,546 $ 14,000 $ 150,000 $ - Operating lease commitments (Note 5) 23,631 6,869 8,769 4,036 3,957 Capital lease obligations(1) 3,183 3,180 3 - - Purchase obligations(2) 29,101 25,690 3,253 158 - ---------- ---------- ---------- ---------- ---------- Total contractual obligations(3) $ 232,461 $ 48,285 $ 26,025 $ 154,194 $ 3,957 ========== ========== ========== ========== ========== (1) Comprised primarily of property leases (2) Comprised primarily of inventory commitments (3) Comprised of liabilities recorded on the balance sheet of $203,360, and obligations not recorded on the balance sheet $29,101 The company also has obligations with respect to its pension and postretirement medical benefit plans. See Note 14 of the Notes to Consolidated Financial Statements. RESTRUCTURING ACTIONS IDEX took actions in 2002 and 2001 to downsize operations to lower its cost structure. The restructuring affected all three business groups and reduced the workforce, lowered costs, improved efficiencies and addressed excess capacity that resulted from lower demand and more efficient processes. These steps were necessary to appropriately size the company's production capacity to match the declining levels of demand for a broad range of products. The restructuring actions affected multiple employee groups in approximately 20 locations across 11 of our business units. No business activities or product lines were abandoned. The restructuring actions included the layoff of 508 employees with 250 terminations resulting from the first quarter 2001 plan, 231 from the fourth quarter 2001 plan, and 27 from the second quarter 2002 plan. All costs of the restructuring activities were charged to expense and included in the single caption "Restructuring activity" in the Consolidated Statements of Operations. The restructuring charges included employee severance, fringe benefits, outplacement fees, idle facility carrying costs, lease termination costs, the loss on sale of equipment and the loss on disposal of two manufacturing facilities owned by the company. Determination of the restructuring charges was based on the estimated severance benefits paid to terminated employees, the net book value of surplus assets less expected proceeds, and estimated other costs. The restructuring plans have been executed substantially as originally planned. The restructuring activity resulted in income of $.2 million in 2002. This related to a reversal of $1.5 million of restructuring expenses initially recorded, which more than offset the 2002 charges of $1.3 million. Of the $1.5 million reversal, $1.1 million was attributed to the sale of a manufacturing facility for more than the value estimated at the time the restructuring plan was adopted. For additional detail related to restructuring activity, see Note 7 of Notes to Consolidated Financial Statements. CRITICAL ACCOUNTING ESTIMATES 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, based on the terms of the sale. Our customary terms are FOB shipping point. We estimate and record provisions for sales returns, sales allowances and original warranties in the period the related products are sold, in each case based on our historical experience. 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, 2003 balances for goodwill and intangible assets of $559.0 million and $19.4 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 reasonableness 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 - Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. Federal income taxes are provided on that portion of the income of foreign subsidiaries that is expected to be remitted to the United States and be taxable. The management of the company, along with third-party advisors, periodically estimates the company's probable tax obligations using historical experience in tax jurisdictions and informed judgments. To the extent actual results differ from these estimated amounts, results could be adversely affected.
IDEX Corporation 2003 Annual Report 25 Contingencies and litigation - We are currently involved in certain legal and regulatory proceedings and, as required and where it is reasonably possible to do so, have accrued our estimates of the probable costs for the resolution of these matters. These estimates have been developed in consultation with outside counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future operating results for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Defined benefit retirement plans - The plan obligations and related assets of defined benefit retirement plans are presented in Note 14 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 actuaries using a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate at which the obligation 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. REGISTRATION STATEMENT FILINGS FOR COMMON STOCK OFFERINGS In March 2002, we filed a registration statement on Form S-3 with the Securities and Exchange Commission (SEC) covering the secondary offering of 2,939,199 shares of common stock owned by IDEX Associates, L.P. In April 2002, that registration statement was amended to also include the secondary offering of 560,801 shares of IDEX common stock owned by KKR Associates, L.P., and the primary offering of 1,500,000 shares of IDEX common stock. Also in April 2002, we announced the pricing of this public offering at $36 per common share. Subsequently, the overallotment option was exercised by the underwriter for the sale of an additional 750,000 secondary shares owned by KKR Associates, L.P., bringing the total offering to 5,750,000 shares. The $50.8 million of net proceeds we received was used to repay debt under the Credit Facility. This increased the amount available for borrowing under the facility, which we will continue to use for general corporate purposes, including acquisitions. In September 2002, we filed a registration statement on Form S-3 with the SEC covering the secondary offering of 1,350,000 shares of IDEX common stock owned by KKR Associates, L.P. This offering, completed in January 2003, did not increase the number of IDEX shares outstanding, and the company did not receive any proceeds from the offering. The secondary shares covered by both of these registration statements had been owned by KKR Associates, L.P. and IDEX Associates, L.P. since IDEX was formed in January 1988. NEW ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements regarding its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The company adopted this interpretation effective January 1, 2003. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which was revised in December 2003. This interpretation addresses consolidation requirements of variable interest entities. The effective date for the company will be March 31, 2004. The company does not expect this interpretation to have a material impact on its results of operations, financial condition, or cash flows. In May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The company adopted this SFAS effective September 30, 2003. This SFAS had no impact on the company's results of operations, financial condition, or cash flows. In December 2003, the FASB issued SFAS No. 132 (Revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits". This revised SFAS modifies the financial statement disclosures for defined benefit plans. These modifications increase disclosure of plan assets, benefit obligations, cash flows, benefit costs and other related information. The implementation of SFAS No. 132 (Revised) was effective for the company on December 31, 2003. The company has included SFAS No. 132 (Revised) disclosures in Note 14 of the Notes to Consolidated Financial Statements. 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 $176.5 million of total debt outstanding at December 31, 2003. Approximately 13% 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. We will, from time to time, enter into interest rate swaps on our debt when we believe there is a financial advantage for doing so. A treasury risk management policy, adopted by the Board of Directors, describes the procedures and controls over derivative financial and commodity instruments, including interest rate swaps. Under the policy, we do not use derivative financial or commodity instruments for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of derivative instruments is limited to interest rate swaps on the company's outstanding long-term debt. 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. At December 31, 2003, the company had a foreign currency contract that it entered into in anticipation of the funding of the January 2004 purchase of Manfred Vetter. The increase in fair market value of this contract resulted in income of $.5 million at December 31, 2003, and was included in "Other income (expense) - net" in the Consolidated Statements of Operations.
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) AS OF DECEMBER 31, 2003 2002 ------------------ ---- ---- Assets Current assets Cash and cash equivalents $ 8,552 $ 6,952 Receivables - net 101,859 101,494 Inventories 105,304 105,580 Other current assets 8,781 7,234 ---------- ----------- Total current assets 224,496 221,260 Property, plant and equipment - net 147,095 148,246 Goodwill - net 559,008 530,663 Intangible assets - net 19,401 19,377 Other noncurrent assets 10,739 11,504 ---------- ----------- Total assets $ 960,739 $ 931,050 ========== =========== Liabilities and Shareholders' Equity Current liabilities Trade accounts payable $ 56,252 $ 61,153 Dividends payable 4,622 4,548 Accrued expenses 54,807 42,631 ---------- ----------- Total current liabilities 115,681 108,332 Long-term debt 176,546 241,051 Other noncurrent liabilities 76,410 74,876 ---------- ----------- Total liabilities 368,637 424,259 ---------- ----------- Commitments and Contingencies (Note 5) Shareholders' equity Common stock, par value $.01 per share Shares issued and outstanding: 2003-33,075,552; 2002-32,536,166 331 325 Additional paid-in capital 198,165 182,538 Retained earnings 375,629 331,635 Minimum pension liability adjustment (12,481) (10,571) Accumulated translation adjustment 35,892 9,240 Treasury stock, at cost: 2003-89,485 shares; 2002-59,350 shares (2,903) (1,946) Unearned compensation on restricted stock (2,531) (4,430) ---------- ----------- Total shareholders' equity 592,102 506,791 ---------- ----------- Total liabilities and shareholders' equity $ 960,739 $ 931,050 ========== =========== See Notes to Consolidated Financial Statements.
IDEX Corporation 2003 Annual Report 27 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED DECEMBER 31, 2003 2002 2001 -------------------------------- ---- ---- ---- Net sales $ 797,920 $ 742,014 $ 726,947 Cost of sales 488,600 460,576 463,225 --------- --------- ------------ Gross profit 309,320 281,438 263,722 Selling, general and administrative expenses 199,458 181,269 164,893 Goodwill amortization - - 14,165 Restructuring activity - (203) 11,226 --------- --------- ------------ Operating income 109,862 100,372 73,438 Other income (expense) - net 899 (123) 731 --------- --------- ------------ Income before interest expense and income taxes 110,761 100,249 74,169 Interest expense 14,091 16,354 20,738 --------- --------- ------------ Income before income taxes 96,670 83,895 53,431 Provision for income taxes 34,318 29,783 20,721 --------- --------- ------------ Net income $ 62,352 $ 54,112 $ 32,710 ========= ========= ============ Earnings Per Common Share Basic earnings per common share $ 1.92 $ 1.71 $ 1.08 ========= ========= ============ Diluted earnings per common share $ 1.87 $ 1.67 $ 1.05 ========= ========= ============ Share Data Basic weighted average common shares outstanding 32,530 31,669 30,222 ========= ========= ============ Diluted weighted average common shares outstanding 33,315 32,483 31,047 ========= ========= ============ See Notes to Consolidated Financial Statements.
CONSOLIDATED SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) MINIMUM UNREALIZED UNEARNED COMMON STOCK PENSION ACCUMULATED GAINS COMPENSATION AND ADDITIONAL RETAINED LIABILITY TRANSLATION (LOSSES) ON TREASURY ON RESTRICTED PAID-IN CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT DERIVATIVES STOCK STOCK --------------- -------- ---------- ----------- ----------- -------- ------------- Balance, December 31, 2000 $ 115,583 $ 279,907 $ (2,127) $ (10,489) $ - $ (144) $ (8,228) --------------- --------- ---------- ----------- ----------- -------- ------------- Net income 32,710 --------- Other comprehensive income, net of tax Unrealized translation adjustment 263 Cumulative effect of change in accounting principle 204 Unrealized derivative losses (344) Minimum pension adjustment 344 ---------- Other comprehensive income 344 263 (140) ---------- ----------- ----------- Comprehensive income 32,710 344 263 (140) --------- ---------- ----------- ----------- Issuance of 498,462 shares of common stock from exercise of stock options, and deferred compensation plans 9,383 Amortization of restricted common stock award 1,899 Restricted shares surrendered for tax withholdings (721) Cash dividends declared - $.56 per common share outstanding (17,128) --------------- --------- ---------- ----------- ----------- -------- ------------- Balance, December 31, 2001 124,966 295,489 (1,783) (10,226) (140) (865) (6,329) --------------- --------- ---------- ----------- ----------- -------- ------------- Net income 54,112 --------- Other comprehensive income, net of tax Unrealized translation adjustment 19,466 Reversal of unrealized derivative losses 140 Minimum pension adjustment (8,788) ---------- Other comprehensive income (8,788) 19,466 140 ---------- ----------- ----------- Comprehensive income 54,112 (8,788) 19,466 140 --------- ---------- ----------- ----------- Issuance of 272,973 shares of common stock from exercise of stock options, and deferred compensation plans 7,061 Issuance of 1,500,000 shares of common stock 50,836 Amortization of restricted common stock award 1,899 Restricted shares surrendered for tax withholdings (1,081) Cash dividends declared - $.56 per common share outstanding (17,966) --------------- --------- ---------- ----------- ----------- -------- ------------- Balance, December 31, 2002 182,863 331,635 (10,571) 9,240 - (1,946) (4,430) --------------- --------- ---------- ----------- ----------- -------- ------------- Net income 62,352 --------- Other comprehensive income, net of tax Unrealized translation adjustment 26,652 Minimum pension adjustment 1,910) ---------- Other comprehensive income (1,910) 26,652 ---------- ----------- Comprehensive income 62,352 (1,910) 26,652 --------- ---------- ----------- Issuance of 539,386 shares of common stock from exercise of stock options, and deferred compensation plans 15,633 Amortization of restricted common stock award 1,899 Restricted shares surrendered for tax withholdings (957) Cash dividends declared - $.56 per common share outstanding (18,358) --------------- --------- ---------- ----------- ----------- -------- ------------- Balance, December 31, 2003 $ 198,496 $ 375,629 $ (12,481) $ 35,892 $ - $ (2,903) $ (2,531) =============== ========= ========== =========== =========== ======== ============= TOTAL SHAREHOLDERS' EQUITY ------------- Balance, December 31, 2000 $ 374,502 ------------- Net income 32,710 ------------- Other comprehensive income, net of tax Unrealized translation adjustment 263 Cumulative effect of change in accounting principle 204 Unrealized derivative losses (344) Minimum pension adjustment 344 ------------- Other comprehensive income 467 ------------- Comprehensive income 33,177 ------------- Issuance of 498,462 shares of common stock from exercise of stock options, and deferred compensation plans 9,383 Amortization of restricted common stock award 1,899 Restricted shares surrendered for tax withholdings (721) Cash dividends declared - $.56 per common share outstanding (17,128) ------------- Balance, December 31, 2001 401,112 ------------- Net income 54,112 ------------- Other comprehensive income, net of tax Unrealized translation adjustment 19,466 Reversal of unrealized derivative losses 140 Minimum pension adjustment (8,788) ------------- Other comprehensive income 10,818 ------------- Comprehensive income 64,930 ------------- Issuance of 272,973 shares of common stock from exercise of stock options, and deferred compensation plans 7,061 Issuance of 1,500,000 shares of common stock 50,836 Amortization of restricted common stock award 1,899 Restricted shares surrendered for tax withholdings (1,081) Cash dividends declared - $.56 per common share outstanding (17,966) ------------- Balance, December 31, 2002 506,791 ------------- Net income 62,352 ------------- Other comprehensive income, net of tax Unrealized translation adjustment 26,652 Minimum pension adjustment (1,910) ------------- Other comprehensive income 24,742 ------------- Comprehensive income 87,094 ------------- Issuance of 539,386 shares of common stock from exercise of stock options, and deferred compensation plans 15,633 Amortization of restricted common stock award 1,899 Restricted shares surrendered for tax withholdings (957) Cash dividends declared - $.56 per common share outstanding (18,358) ------------- Balance, December 31, 2003 $ 592,102 ============= See Notes to Consolidated Financial Statements.
IDEX Corporation 2003 Annual Report 29 CONSOLIDATED CASH FLOWS (IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, 2003 2002 2001 -------------------------------- ---- ---- ---- Cash flows from operating activities Net income $ 62,352 $ 54,112 $ 32,710 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 27,146 27,103 26,354 Amortization of goodwill and other intangible assets 430 523 15,680 Amortization of unearned compensation on restricted stock 1,899 1,899 1,899 Amortization of debt issuance expenses 580 580 364 Deferred income taxes 10,487 9,592 (152) Changes in: Receivables - net 6,867 1,006 24,008 Inventories 4,624 6,246 22,232 Trade accounts payable 211 7,025 (7,207) Accrued expenses 2,508 (310) (4,356) Other - net (5,418) 1,709 (5,319) ---------- ---------- ---------- Net cash flows from operating activities 111,686 109,485 106,213 ---------- ---------- ---------- Cash flows from investing activities Additions to property, plant and equipment (20,318) (19,335) (21,639) Acquisition of businesses (net of cash acquired) (21,954) (74,928) (132,295) Proceeds from fixed asset disposals 3,436 3,934 1,808 ---------- ---------- ---------- Net cash flows from investing activities (38,836) (90,329) (152,126) ---------- ---------- ---------- Cash flows from financing activities Borrowings under credit facilities for acquisitions 21,954 74,928 132,295 Net repayments under credit facilities (85,387) (132,195) (77,858) Net (repayments) borrowings of other long-term debt (1,686) 2,759 (3,470) Proceeds from issuance of common stock - 50,836 - Dividends paid (18,284) (17,721) (17,061) Proceeds from stock option exercises 13,176 5,755 9,001 Other - net (1,023) (1,538) (437) ---------- ---------- ---------- Net cash flows from financing activities (71,250) (17,176) 42,470 ---------- ---------- ---------- Net increase (decrease) in cash 1,600 1,980 (3,443) Cash and cash equivalents at beginning of year 6,952 4,972 8,415 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 8,552 $ 6,952 $ 4,972 ========== ========== ========== Supplemental cash flow information Cash paid for: Interest $ 13,576 $ 16,232 $ 20,818 Income taxes 18,774 21,022 23,482 Significant non-cash activities Debt acquired with acquisition of businesses - 2,136 2,931 See Notes to Consolidated Financial Statements.
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, hair colorants and other 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 revenue recognition 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, based on the terms of the sale. Customary terms are FOB shipping point. The Company estimates and records provisions for sales returns, sales allowances and original warranties in the period the related products are sold, in each case based on its historical experience. Cash Equivalents The Company considers all highly liquid debt instruments purchased with a 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. Generally, for other than newly introduced products, a reserve for excess inventory is recorded for inventory on hand in excess of one year of 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. 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 equivalent 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: 2003 2002 2001 ---- ---- ---- Basic weighted average common shares outstanding 32,530 31,669 30,222 Dilutive effect of stock options, DCUs and unvested restricted shares 785 814 825 ------ ------ ------ Diluted weighted average common shares outstanding 33,315 32,483 31,047 ====== ====== ====== Options to purchase approximately $.9 million shares of common stock as of December 31, 2003, 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 Bulletin No. 25 and, accordingly, does not recognize compensation expense for its stock option awards in the Consolidated Statements of Operations. The following table reflects pro forma net income and net income per share had the Company elected to adopt the fair value approach of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". 2003 2002 2001 ---- ---- ---- Net income As reported $62,352 $54,112 $32,710 Pro forma 57,563 49,682 28,904 Basic EPS As reported 1.92 1.71 1.08 Pro forma 1.77 1.57 .96 Diluted EPS As reported 1.87 1.67 1.05 Pro forma 1.73 1.53 .93 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 2003, 2002 and 2001, respectively: dividend yield of 1.84%, 1.54% and 1.98%; volatility of 32.6%, 34.1% and 34.2%; risk-free interest rates of 3.2%, 4.5% and 4.9%; 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. Cost in excess of net assets acquired was amortized over a period of 30 to 40 years for periods prior to 2002 (see Note 2). 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.
IDEX Corporation 2003 Annual Report 31 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 $17,261, $12,738 and $10,127 in 2003, 2002 and 2001, respectively. Foreign Currency Translation The functional currency of all operations outside the United States is the respective local currency. All 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 "Accumulated translation adjustment" in the Consolidated Balance Sheet. 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 and trade receivables and payables, approximate their fair values. Concentration of Credit Risk IDEX is not overly dependent on a single customer, the largest of which accounted for about 2% of the Company's net sales for all years presented. Reclassifications Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation. New Accounting Pronouncements In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements regarding its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company adopted this interpretation effective January 1, 2003. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which was revised in December 2003. This interpretation addresses consolidation requirements of variable interest entities. The effective date for the Company will be March 31, 2004. The Company does not expect that this interpretation will have a material impact on its results of operations, financial condition, or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The Company adopted this SFAS effective September 30, 2003. This SFAS had no impact on the Company's results of operations, financial condition, or cash flows. In December 2003, the FASB issued SFAS No. 132 (Revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits". This revised SFAS modifies the financial statement disclosures for defined benefit plans. These modifications increase disclosure of plan assets, benefit obligations, cash flows, benefit costs and other related information. The implementation of SFAS No. 132 (Revised) was effective for the Company on December 31, 2003. The Company has included SFAS No. 132 (Revised) disclosures in Note 14 of the Notes to Consolidated Financial Statements. 2. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the year ended December 31, 2003, by business group, were as follows: OTHER PUMP DISPENSING ENGINEERED PRODUCTS EQUIPMENT PRODUCTS TOTAL --------- ---------- ---------- --------- Balance as of December 31, 2002 $ 323,881 $ 113,504 $ 93,278 $ 530,663 Goodwill acquired during the year 11,484 - - 11,484 Goodwill related to sale of business - - (383) (383) Foreign currency translation 2,927 11,783 2,534 17,244 --------- ---------- ---------- --------- Balance as of December 31, 2003 $ 338,292 $ 125,287 $ 95,429 $ 559,008 ========= ========== ========== ========= The carrying value of indentifiable intangible assets as of December 31, 2003, was $19,401, which was split between amortizable and unamortizable assets as follows: GROSS NET CARRYING ACCUMULATED CARRYING AMOUNT AMORTIZATION AMOUNT ------ ------------ ------ Amortized intangible assets Patents $ 8,080 $ 4,078 $ 4,002 Other 993 353 640 ------------ ---------------- ----------- Total amortized intangible assets 9,073 4,431 4,642 Unamortized trademark assets 14,759 - 14,759 ------------ ---------------- ----------- Total intangible assets $ 23,832 $ 4,431 $ 19,401 ============ ================ =========== Amortization expense in 2003 for the items listed above was $430, which is consistent with the estimated amortization expense for the next five years. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which establishes the accounting and reporting standards for goodwill and intangible assets. SFAS No. 142 also eliminated the amortization of goodwill and certain intangible assets to earnings, but instead required these assets be reviewed periodically for impairment. IDEX adopted SFAS No. 142 on January 1, 2002. After reviewing the estimated fair market values, both in the aggregate and at each individual reporting unit, no impairment to goodwill and other intangible assets was recorded as of December 31, 2003. Had the new pronouncement been adopted on January 1, 2001, IDEX's pro forma net income and EPS for 2001, compared with 2002 and 2003, would have been as follows: 2003 2002 2001 ---- ---- ---- Net income Reported net income $ 62,352 $ 54,112 $ 32,710 Goodwill amortization - - 11,175 Trademark amortization - - 258 ------------- --------------- ----------- Adjusted net income $ 62,352 $ 54,112 $ 44,143 ============= =============== =========== Basic EPS Reported net income $ 1.92 $ 1.71 $ 1.08 Goodwill amortization - - .37 Trademark amortization - - .01 ------------- --------------- ----------- Adjusted net income $ 1.92 $ 1.71 $ 1.46 ============= =============== =========== Diluted EPS Reported net income $ 1.87 $ 1.67 $ 1.05 Goodwill amortization - - .36 Trademark amortization - - .01 ------------- --------------- ----------- Adjusted net income $ 1.87 $ 1.67 $ 1.42 ============= =============== =========== Weighted average shares outstanding Basic 32,530 31,669 30,222 ============= =============== =========== Diluted 33,315 32,483 31,047 ============= =============== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 3. BALANCE SHEET COMPONENTS The components of certain balance sheet accounts at December 31, 2003 and 2002, were as follows: 2003 2002 ---- ---- Receivables Customers $101,961 $101,861 Other 3,692 2,722 -------- -------- Total 105,653 104,583 Less allowance for doubtful accounts 3,794 3,089 -------- -------- Total receivables - net $101,859 $101,494 ======== ======== Inventories Raw materials $ 38,998 $ 41,985 Work in process 13,651 11,960 Finished goods 52,655 51,635 -------- -------- Total inventories $105,304 $105,580 ======== ======== Inventories that were carried on a LIFO basis amounted to $90,812 and $91,743 at December 31, 2003 and 2002, respectively. The excess of current cost over LIFO inventory value and the impact of using the LIFO method on earnings were not material. 2003 2002 ---- ---- Property, plant and equipment, at cost Land and improvements $ 14,904 $ 12,772 Buildings and improvements 82,007 77,830 Machinery and equipment 194,181 185,288 Office and transportation equipment 76,088 65,450 Engineering drawings 3,919 4,011 Construction in progress 5,887 4,202 ---------------- ------------- Total 376,986 349,553 Less accumulated depreciation and amortization 229,891 201,307 ---------------- ------------- Total property, plant and equipment - net $ 147,095 $ 148,246 ================ ============= Goodwill Cost in excess of net assets acquired $ 642,856 $ 612,146 Less accumulated amortization 83,848 81,483 ---------------- ------------- Total goodwill - net $ 559,008 $ 530,663 ================ ============= Intangible assets Cost (at fair market value on acquisition date) $ 25,897 $ 25,415 Less accumulated amortization 6,496 6,038 ---------------- ------------- Total intangible assets - net $ 19,401 $ 19,377 ================ ============= Accrued expenses Payroll and related items $ 30,528 $ 27,802 Taxes 11,072 657 Insurance 2,308 3,447 Other 10,899 10,725 ---------------- ------------- Total accrued expenses $ 54,807 $ 42,631 ================ ============= Other noncurrent liabilities Pension and retiree medical reserves $ 41,888 $ 47,495 Deferred income taxes 31,345 24,228 Other 3,177 3,153 ---------------- ------------- Total other noncurrent liabilities $ 76,410 $ 74,876 ================ ============= 4. COMMON AND PREFERRED STOCK In January 2004, the Company issued 20,000 shares of restricted stock as compensation to a key employee. These shares carry dividend and voting rights. Sales of these shares are restricted prior to the date of vesting, with half vesting four years and the remaining half vesting five years after the grant date. 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. During 2000, the Company issued 350,000 shares of restricted stock as compensation to a key employee. These shares carry dividend and voting rights. Sales of these shares are restricted prior to the date of vesting, occurring annually from one to five years after the grant date. The restricted shares were recorded at their fair market value on the date of the grant, with a corresponding charge to shareholders' equity. The unearned portion is being amortized as compensation expense on a straight-line basis over the related vesting period. On October 20, 1998, IDEX's Board of Directors authorized the repurchase of up to 1.5 million shares of its common stock, either at market prices or on a negotiated basis as market conditions warrant. At December 31, 2003, IDEX had purchased a total of 6,500 shares under the program at a cost of approximately $144. At December 31, 2003 and 2002, the Company had 75 million shares of authorized common stock with a par value of $.01 per share and 5 million shares of preferred stock with a par value of $.01 per share authorized but unissued. 5. COMMITMENTS AND CONTINGENCIES At December 31, 2003, total future minimum rental payments under noncancelable operating leases, primarily for office facilities, warehouses and data processing equipment, were $23,631. The future minimum rental commitments for each of the next five years and thereafter are as follows: 2004 - $6,869; 2005 - $5,360; 2006 -$3,409; 2007 - $2,073; 2008 - $1,963; thereafter - $3,957. Rental expense totaled $9,238, $9,510 and $8,500 for the years ended December 31, 2003, 2002 and 2001, 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. 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, hair colorants and other 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 just over 2% of net sales in 2003. Information on IDEX's business segments is presented below, based on the nature of products and services offered. IDEX evaluates performance based on several factors, of which operating income is the primary financial measure. 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.
IDEX Corporation 2003 Annual Report 33 2003 2002 2001 ---- ---- ---- Net sales Pump Products External customers $ 453,703 $ 433,623 $ 424,727 Intersegment sales 2,813 3,041 2,310 ---------- ---------- ---------- Total group sales 456,516 436,664 427,037 ---------- ---------- ---------- Dispensing Equipment External customers 159,224 138,701 137,406 Intersegment sales 1 1 1 ---------- ---------- ---------- Total group sales 159,225 138,702 137,407 ---------- ---------- ---------- Other Engineered Products External customers 184,994 169,690 164,814 Intersegment sales 28 2 1 ---------- ---------- ---------- Total group sales 185,022 169,692 164,815 ---------- ---------- ---------- Intersegment elimination (2,843) (3,044) (2,312) ---------- ---------- ---------- Total net sales $ 797,920 $ 742,014 $ 726,947 ========== ========== ========== Operating income(1)(2) Pump Products $ 70,436 $ 71,945 $ 61,758 Dispensing Equipment 25,724 18,627 13,957 Other Engineered Products 32,990 25,638 25,032 Restructuring activity - 203 (11,226) Corporate office and other (19,288) (16,041) (16,083) ---------- ---------- ---------- Total operating income $ 109,862 $ 100,372 $ 73,438 ========== ========== ========== Assets Pump Products $ 551,183 $ 535,822 $ 462,275 Dispensing Equipment 203,786 192,258 180,361 Other Engineered Products 186,417 186,860 181,032 Corporate office and other 19,353 16,110 15,136 ---------- ---------- ---------- Total assets $ 960,739 $ 931,050 $ 838,804 ========== ========== ========== Depreciation and amortization(1) Pump Products $ 16,141 $ 16,913 $ 24,124 Dispensing Equipment 5,881 5,734 9,719 Other Engineered Products 5,116 4,666 7,920 Corporate office and other(3) 2,337 2,212 2,170 ---------- ---------- ---------- Total depreciation and amortization $ 29,475 $ 29,525 $ 43,933 ========== ========== ========== Capital expenditures Pump Products $ 12,887 $ 9,348 $ 10,251 Dispensing Equipment 2,967 3,651 5,129 Other Engineered Products 3,874 4,990 5,987 Corporate office and other 590 1,346 272 ---------- ---------- ---------- Total capital expenditures $ 20,318 $ 19,335 $ 21,639 ========== ========== ========== (1) IDEX discontinued goodwill and trademark amortization as of January 1, 2002, in accordance with SFAS No. 142, as further explained in Note 2. (2) IDEX took actions in 2002 and 2001 to downsize operations to lower its cost structure, as further explained in Note 7. Group operating income in these years excluded net unallocated corporate operating expenses and restructuring activity. The restructuring activity resulted in income of $203 in 2002 and a charge of $11,226 in 2001 and were not assigned to the individual group segments. Had the Company allocated the 2002 restructuring activity, it would have been assigned to the groups as follows: Pump Products (income of $1,046), Dispensing Equipment (expense of $121) and Other Engineered Products (expense of $722). Had the Company allocated the 2001 restructuring charge, it would have been assigned to the groups as follows: Pump Products ($7,769), Dispensing Equipment ($1,894) and Other Engineered Products ($1,563). (3) Excludes amortization of debt issuance expenses. Information about the Company's operations in different geographical regions for the years ended December 31, 2003, 2002 and 2001 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. 2003 2002 2001 ---- ---- ---- Net sales U.S $441,427 $434,791 $422,084 Europe 213,905 186,466 173,747 Other countries 142,588 120,757 131,116 -------- -------- -------- Total net sales $797,920 $742,014 $726,947 ======== ======== ======== Long-lived assets U.S $523,633 $528,942 $489,734 Europe 207,308 176,948 130,280 Other countries 5,206 3,900 3,887 -------- -------- -------- Total long-lived assets $736,147 $709,790 $623,901 ======== ======== ======== 7. RESTRUCTURING ACTIVITY IDEX took actions in 2002 and 2001 to downsize operations to lower its cost structure. These steps were necessary to appropriately size the Company's production capacity to match the declining levels of demand for a broad range of products. The restructuring actions affected multiple employee groups in approximately 20 locations across 11 of our operating business units. No business activities or product lines were abandoned. All costs of the restructuring actions were charged to expense and included in "Restructuring activity" in the Consolidated Statements of Operations. The restructuring charges included employee severance, fringe benefits, outplacement fees, idle facility carrying costs, lease termination costs, the loss on sale of equipment, and the loss on disposal of two manufacturing facilities owned by the Company. Determination of the restructuring charges was based on the estimated severance benefits paid to terminated employees, the net book value of surplus assets less expected proceeds, and estimated other costs. In 2002, IDEX reversed $1,531 of accrued restructuring expenses previously recorded. Of this reversal, $1,090 was attributable to the fact that the Company was able to sell one manufacturing facility for more than the value estimated at the time the restructuring plan was adopted. The restructuring activity was separately identified in the Consolidated Statements of Operations and resulted in the following activity for 2002 and 2001: 2002 2001 ---- ---- Pretax charge $ 1,328 $ 11,226 Reversal of previously recorded charges (1,531) - ------- -------- Total pretax (income) charge (203) 11,226 Provision (benefit) for income taxes 72 (4,154) ------- -------- Total (income) charge after taxes $ (131) $ 7,072 ======= ======== The Consolidated Balance Sheets at December 31, 2002 and 2001, included accrued restructuring costs of $480 and $5,479, respectively, in "Accrued expenses". The cash requirements for the restructuring plans did not have a significant impact on the Company's liquidity. The restructuring actions resulted in the layoff of 508 employees, both hourly and salaried, across 11 business units, representing approximately 12% of our labor force. The restructurings led to 27 and 481 employee terminations in 2002 and 2001, respectively. As of December 31, 2003, all planned employee terminations have been completed.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 8. 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 become exercisable in five 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 1.3 million shares. The following table summarizes option activity under the plans: WEIGHTED NUMBER AVERAGE OF SHARES OPTION PRICE UNDER OPTION PER SHARE ------------ --------- Outstanding at December 31, 2000 3,253,459 $ 25.10 Granted 796,650 28.33 Exercised (886,367) 21.09 Forfeited (169,900) 29.08 --------------- --------------- Outstanding at December 31, 2001 2,993,842 26.92 Granted 866,440 36.72 Exercised (345,945) 24.71 Forfeited (184,775) 30.95 --------------- --------------- Outstanding at December 31, 2002 3,329,562 29.48 Granted 1,007,325 30.54 Exercised (542,600) 25.41 Forfeited (189,454) 32.20 --------------- --------------- Outstanding at December 31, 2003 3,604,833 $ 30.24 =============== =============== Exercisable at December 31, 2001 1,256,382 $ 25.27 =============== =============== Exercisable at December 31, 2002 1,428,916 $ 26.49 =============== =============== Exercisable at December 31, 2003 1,539,935 $ 28.71 =============== =============== WEIGHTED-AVERAGE FAIR VALUE OF OPTIONS GRANTED DURING THE YEAR ENDED: December 31, 2001 $ 9.30 =============== December 31, 2002 $ 12.49 =============== December 31, 2003 $ 8.85 =============== The following table summarizes information about options outstanding at December 31, 2003: OPTIONS OPTIONS OUTSTANDING EXERCISABLE ------------------------------------- ----------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER LIFE OF EXERCISE NUMBER EXERCISE PRICES OUTSTANDING CONTRACT PRICE EXERCISABLE PRICE ------ ----------- -------- ----- ----------- ----- $15.50 - 25.00 409,246 3.7 years $23.18 371,338 $23.02 25.01 - 30.00 2,206,872 7.6 years 28.50 766,069 27.73 30.01 - 39.45 988,715 7.5 years 37.06 402,528 35.82 ----------- --------- ------ --------- ------ TOTAL 3,604,833 7.1 years $30.24 1,539,935 $28.71 =========== ========= ====== ========= ====== 9. DEBT Debt at December 31, 2003 and 2002 consisted of the following: 2003 2002 ---- ---- Long-term debt Senior Notes $150,000 $150,000 Bank credit facilities, including accrued interest 18,009 81,507 Other long-term debt 8,537 9,544 -------- -------- Total long-term debt $176,546 $241,051 ======== ======== 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, 2003, the fair market value of the Senior Notes was approximately $228 million, based on the quoted market price. The Company has a $300 million domestic multi-currency bank revolving credit facility (Credit Facility), which expires June 8, 2006. At December 31, 2003, the Company had a total of $14 million drawn under the Credit Facility and outstanding letters of credit totaling $4 million. The net available borrowings under the Credit Facility as of December 31, 2003, were approximately $282 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 57.5 basis points per annum. A utilization fee is added to the interest rate. The weighted average interest rate on borrowings outstanding under the Credit Facility was 3.2% per annum at December 31, 2003. A facility fee equal to 17.5 basis points per annum is payable quarterly on the total amount available under the Credit Facility. The Company and certain of its subsidiaries entered into a renewable, one-year agreement in December 2001 (Receivables Facility) with a financial institution, under which the Company collateralized certain of its receivables for borrowings. This agreement was renewed in December 2003 for another year. The Receivables Facility provides for borrowings of up to $25 million depending upon the level of eligible receivables. At December 31, 2003, there were no borrowings outstanding under the Receivables Facility. The Company has a $30 million demand line of credit (Short-Term Facility), which expires May 21, 2004. Borrowings under the Short-Term Facility are based on LIBOR plus the applicable margin in effect under the Credit Facility. At December 31, 2003, there were no borrowings under the Short-Term Facility. At December 31, 2003, other long-term debt included debt acquired in connection with recent acquisitions and other debt at international locations maintained for working capital purposes. Interest is payable on the outstanding balances at rates ranging from 2.8% to 4.9% per annum. Total debt outstanding at December 31, 2003 and 2002 included accrued interest of $4.0 million and $4.1 million, respectively.
IDEX Corporation 2003 Annual Report 35 The indenture for the Senior Notes permits the payment of cash dividends only to the extent that no default exists under the notes, and limits the amount of cash dividends in accordance with specified formulas. At December 31, 2003, under the most restrictive of these provisions, the Company had approximately $154.3 million available for the payment of cash dividends in 2004. 10. ACQUISITIONS In January 2004, the Company acquired Manfred Vetter GmbH, based in Zulpich, Germany. Vetter is a world leader in the design and manufacture of pneumatic lifting and sealing bags for vehicle and air rescue, environmental protection, industrial maintenance, and disaster recovery and control. Vetter is operated as part of Hale Products. In 2003, the Company acquired Sponsler Co., Inc. (June 2003) and Classic Engineering, Inc. (September 2003). Both companies are operated as part of the Pump Products Group. 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 Engineering, Inc., headquartered in Jacksonville, Florida, is a supplier of fully integrated pump and metering systems to chemical companies and municipal water treatment facilities. It also engineers, designs and manufactures standard and custom chemical-feed systems for the water, wastewater, chemical OEM, pulp and paper, cement and general industrial markets. 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 aquisitions 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 that was consummated in July 2002. In 2002, the Company acquired Halox Technologies, Inc. (April 2002), Rheodyne, L.P. (July 2002) and Wrightech Corporation (October 2002). All are operated as part of the Pump Products Group. Halox, headquartered in Bridgeport, Connecticut, is a manufacturer of point-of-use chlorine dioxide equipment. Its products generate chlorine dioxide for use in water treatment and disinfectant applications. Rheodyne, headquartered in Rohnert Park, California, is a manufacturer of injectors, valves, fittings and accessories for the analytical instrumentation market and used by manufacturers of high performance liquid chromatography equipment. Wrightech, headquartered in Waukesha, Wisconsin, is a manufacturer of stainless-steel positive displacement circumferential piston pumps and replacement parts for the sanitary pump market. Wrightech is operated as part of Viking Pump, while Halox is operated as part of Pulsafeeder. Rheodyne became IDEX's 12th stand-alone business unit, with its activities being closely coordinated with those of ISMATEC, Micropump and Trebor. IDEX acquired the above businesses for an aggregate purchase price of $74,928, with financing provided by borrowings under the Credit Facility. The Company also acquired $2,136 of debt in connection with the acquisitions. Goodwill and intangible assets recognized as part of these acquisitions was $62,370 and $6,431, respectively. In addition, in certain instances, the acquisitions contain purchase price contingencies, which are considered to be immaterial to the Company. In 2001, IDEX completed the acquisitions of Liquid Controls L.L.C. (January 2001), Class 1, Inc. (January 2001) and Versa-Matic Tool Inc. (June 2001). Liquid Controls and Versa-Matic are operated as part of the Pump Products Group, while Class 1 is operated as part of the Other Engineered Products Group. Liquid Controls, headquartered in Lake Bluff, Illinois, is a leading manufacturer of positive displacement flow meters, electronic registration and process control systems. Class 1, headquartered in Ocala, Florida, is a leading manufacturer of electronic and mechanical components and systems for the specialty vehicle market. Versa-Matic, headquartered in Export, Pennsylvania, is a leading manufacturer and distributor of air-operated double-diaphragm pumps and pump replacement parts. IDEX acquired these businesses for an aggregate purchase price of $132,295, with financing provided by borrowings under the Credit Facility. The Company also acquired $2,931 of debt in connection with the acquisitions. Goodwill and intangible assets recognized as part of these acquisitions was $94,320 and $1,061, respectively. Goodwill of $67,782 and intangible assets of $740 were assigned to the Pump Products Group, while goodwill of $26,538 and intangible assets of $321 were assigned to the Other Engineered Products Group. All acquisitions were accounted for as purchases, and operating results include the acquisitions from the dates of purchase. The Company does not consider any of the acquisitions to be material to its results of operations, financial condition, or cash flows for any of the years noted. 11. COMPREHENSIVE INCOME The tax effects of the components of other comprehensive income for 2003, 2002 and 2001 follow: 2003 2002 2001 ---- ---- ---- Minimum pension adjustment Pretax amount $ (2,864) $ (13,732) $ 640 Tax benefit (provision) 954 4,944 (296) ------------ ------------ ------------ Aftertax amount $ (1,910) $ (8,788) $ 344 ============ ============ ============ Unrealized translation adjustment Pretax amount $ 26,652 $ 19,466 $ 263 Tax provision - - - ------------ ------------ ------------ Aftertax amount $ 26,652 $ 19,466 $ 263 ============ ============ ============ Unrealized gains (losses) on derivatives Cumulative effect of change in accounting principles $ - $ - $ 329 Derivatives - 226 (555) ------------ ------------ ------------ Pretax amount - 226 (226) Tax (provision) benefit - (86) 86 ------------ ------------ ------------ Aftertax amount $ - $ 140 $ (140) ============ ============ ============
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 12. INCOME TAXES Pretax income for the years ended December 31, 2003, 2002, and 2001, was taxed under the following jurisdictions: 2003 2002 2001 ---- ---- ---- Domestic $ 66,402 $ 58,087 $ 29,882 Foreign 30,268 25,808 23,549 -------------- ------------- -------- Total $ 96,670 $ 83,895 $ 53,431 ============== ============= ======== The provision for income taxes for the years ended December 31, 2003, 2002, and 2001, was as follows: 2003 2002 2001 ---- ---- ---- Current U.S. $ 13,000 $ 12,891 $ 12,775 State and local 738 448 1,178 Foreign 10,093 6,852 6,920 -------------- ------------- -------- Total current 23,831 20,191 20,873 -------------- ------------- -------- Deferred U.S. 6,954 6,934 (1,747) State and local 779 - (150) Foreign 2,754 2,658 1,745 -------------- ------------- -------- Total deferred 10,487 9,592 (152) -------------- ------------- -------- Total provision for income taxes $ 34,318 $ 29,783 $ 20,721 ============== ============= ======== Deferred (prepaid) income taxes resulted from the following: 2003 2002 2001 ---- ---- ---- Employee and retiree benefit plans $ 5,046 $ (59) $ (903) Depreciation and amortization 8,334 6,603 4,364 Inventories (785) (285) (2,263) Allowances and accruals (1,557) 3,560 (1,808) Other (551) (227) 458 -------------- ------------- ----------- Total deferred (prepaid) $ 10,487 $ 9,592 $ (152) ============== ============= =========== Deferred tax assets (liabilities) related to the following at December 31, 2003 and 2002: 2003 2002 ---- ---- Employee and retiree benefit plans $ 11,144 $ 13,762 Depreciation and amortization (55,776) (43,328) Inventories (4,456) (4,764) Tax benefit carry forwards 872 2,575 Allowances and accruals 4,922 3,789 Other 2,512 2,061 ------------- ----------- Total $ (40,782) $ (25,905) ============= =========== The balance sheet at December 31, 2003, included a current deferred tax liability of $9,437 in accrued expenses and a noncurrent deferred tax liability of $31,345 in other noncurrent liabilities. The balance sheet at December 31, 2002, included a current deferred tax liability of $1,677 in accrued expenses and a noncurrent deferred tax liability of $24,228 in other noncurrent liabilities. 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, 2003, 2002, and 2001, were as follows: 2003 2002 2001 ---- ---- ---- Pretax income $ 96,670 $ 83,895 $ 53,431 ======== ======== ======== Provision for income taxes: Computed amount at statutory rate of 35% $ 33,835 $ 29,363 $ 18,701 State and local income tax (net of federal tax benefit) 986 291 668 Taxes on non-US earnings-net 960 674 (536) Amortization of cost in excess of net assets acquired - - 2,197 Foreign sales corporation (945) (1,260) (858) Other (518) 715 549 -------- -------- -------- Total provision for income taxes $ 34,318 $ 29,783 $ 20,721 ======== ======== ======== No provision has been made for U.S. or additional foreign taxes on $50,630 of undistributed earnings of foreign subsidiaries, which are permanently reinvested. It is not practical to estimate the amount of additional tax that might be payable if these earnings were repatriated. However, the Company believes that U.S. foreign tax credits would, for the most part, eliminate any additional U.S. tax and offset any additional foreign tax. 13. DERIVATIVE INSTRUMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", requires that derivative financial instruments be recognized in the financial statements at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or shareholders' equity as a component of comprehensive income, depending on whether the derivative is being used to hedge changes in fair value or cash flows. The adoption of SFAS No. 133 in 2001 initially increased comprehensive income by $204 in Consolidated Shareholders' Equity. 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 Manfred Vetter. The increase in fair market value of this contract resulted in income of $.5 million at December 31, 2003 and was included in "Other income (expense) - net" in the Consolidated Statements of Operations. At December 31, 2001, the Company had two interest rate swaps, which effectively converted $52.3 million of floating rate debt into fixed rate debt at interest rates approximating 5.6%. The fair market value of the interest rate swaps was a net expense of $140 at December 31, 2001, as reported in other comprehensive income. Both of the interest rate swaps expired in March 2002. Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date, based on quoted market prices of comparable contracts. The net gain or loss on the interest rate swap contracts was not material.
IDEX Corporation 2003 Annual Report 37 14. RETIREMENT BENEFITS The Company sponsors several qualified and nonqualified pension plans and other postretirement plans for its employees. 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, 2003, and a statement of the funded status at December 31 for both years: PENSION BENEFITS OTHER BENEFITS 2003 2002 2003 2002 ---- ---- ---- ---- CHANGE IN BENEFIT OBLIGATION Obligation at January 1 $ 71,968 $ 58,914 $ 16,188 $ 14,171 Service cost 3,765 3,486 330 346 Interest cost 4,703 4,209 1,066 1,054 Plan amendments (15) 407 - - Benefits paid (5,374) (3,854) (510) (480) Actuarial loss 9,470 8,806 1,583 1,097 -------- -------- -------- -------- Obligation at December 31 $ 84,517 $ 71,968 $ 18,657 $ 16,188 ======== ======== ======== ======== CHANGE IN PLAN ASSETS Fair value of plan assets at January 1 $ 38,764 $ 44,402 $ - $ - Actual return on plan assets 7,668 (5,387) - - Employer contributions 20,444 3,019 510 480 Benefits paid (5,374) (3,854) (510) (480) Other 746 584 - - -------- -------- -------- -------- Fair value of plan assets at December 31 $ 62,248 $ 38,764 $ - $ - ======== ======== ======== ======== FUNDED STATUS Funded status at December 31 $(22,269) $(33,204) $(18,657) $(16,188) Unrecognized loss 29,354 28,313 3,619 2,127 Unrecognized transition obligation 287 321 - - Unrecognized prior service cost 2,411 2,798 (533) (564) -------- -------- -------- -------- Net amount recognized at December 31 $ 9,783 $ (1,772) $(15,571) $(14,625) ======== ======== ======== ======== RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS Prepaid benefit cost $ 5,433 $ 4,707 $ - $ - Accrued benefit liability 16,764 (25,085) (15,571) (14,625) Intangible asset 1,712 2,069 - - Accumulated other comprehensive income 19,402 16,537 - - -------- -------- -------- -------- Net amount recognized at December 31 $ 9,783 $ (1,772) $(15,571) $(14,625) ======== ======== ======== ======== The accumulated benefit obligation for all defined benefit pension plans was $77,611 and $63,205 at December 31, 2003 and 2002, 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 $67,847, $62,073 and $45,309, respectively, at December 31, 2003, and $62,654, $54,140 and $29,055, respectively, at December 31, 2002. The assumptions used in the measurement of the Company's benefit obligation at December 31, 2003 and 2002, were as follows: U.S. PLANS NON-U.S. PLANS 2003 2002 2003 2002 ---- ---- ---- ---- Discount rate 6.00% 6.75% 5.50% 5.75% Expected return on plan assets 8.50% 9.00% 6.50% 6.50% Rate of compensation increase 4.00% 4.00% 4.25% 3.75% The discount rate assumption for benefits other than pension benefit plans was 6.00% and 6.75% at December 31, 2003 and 2002, respectively. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) The following tables provide the components of, and the assumptions used to determine, the net periodic benefit cost for the plans in 2003, 2002, and 2001: PENSION BENEFITS OTHER BENEFITS 2003 2002 2001 2003 2002 2001 ---- ---- ---- ---- ---- ---- Service cost $ 3,765 $ 3,486 $ 3,160 $ 330 $ 346 $ 317 Interest cost 4,703 4,209 3,991 1,066 1,054 1,155 Expected return on plan assets (3,449) (3,903) (4,248) - - - Net amortization 3,216 848 475 (31) (29) 28 ------- ------- ------- ------- ------- ------ Net periodic benefit cost $ 8,235 $ 4,640 $ 3,378 $ 1,365 $ 1,371 $1,500 ======= ======= ======= ======= ======= ====== U.S. PLANS NON-U.S. PLANS 2003 2002 2001 2003 2002 2001 ---- ---- ---- ---- ---- ---- Discount rate 6.75% 7.50% 8.00% 5.75% 6.00% 6.00% Expected return on plan assets 8.50% 9.00% 9.00% 6.50% 7.50% 7.00% Rate of compensation increase 4.00% 4.00% 4.00% 3.75% 4.00% 4.50% The discount rate assumption used to determine the net periodic benefit cost for benefits other than pension benefit plans was 6.75%, 7.50% and 8.00% in 2003, 2002 and 2001, respectively. 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 and the market value of assets are amortized over the average remaining service period of active participants. Contributions to bargaining unit-sponsored multiemployer plans and defined contribution plans were $6,756, $6,607 and $6,292 for 2003, 2002 and 2001, respectively. For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease gradually each year to a rate of 6% for 2008, 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 $137 and the health care component of the accumulated postretirement benefit obligation by $1,711. 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 $116 and the health care component of the accumulated postretirement benefit obligation by $1,463. The provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Act) have not been taken into account in the determination of IDEX's accumulated postretirement benefit obligation or net periodic benefit cost, pending further guidance on the accounting for the federal subsidy. The Company does not expect that the effects of the Act will have a material impact on its results of operations, financial condition, or cash flows. Plan Assets The Company's pension plan weighted-average asset allocations at December 31, 2003, and 2002, by asset category, were as follows: 2003 2002 ---- ---- Equity securities 68% 54% Debt securities 31 39 Other 1 7 --- --- Total 100% 100% === === The investment objectives of its 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 64%, and fixed income obligations, including cash, will represent from 25% to 45% with a target of 36%. 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. As of December 31, 2003 and 2002, there were no shares of the Company's stock held in plan assets. Cash Flows The Company expects to contribute approximately $9.0 million to its pension plans and $.7 million to its other postretirement benefit plans in 2004. 15. QUARTERLY RESULTS OF OPERATIONS The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2003 and 2002: 2003 QUARTERS FIRST SECOND THIRD FOURTH ----- ------ ----- ------ Net sales $195,498 $207,147 $197,314 $197,961 Gross profit 74,303 82,123 76,178 76,716 Operating income 23,401 29,557 28,943 27,961 Net income 12,695 16,943 16,509 16,205 Basic EPS $ .39 $ .52 $ .51 $ .49 Basic weighted average shares outstanding 32,291 32,384 32,661 32,785 Diluted EPS $ .39 $ .51 $ .49 $ .48 Diluted weighted average shares outstanding 32,805 33,131 33,640 33,826 2003 QUARTERS FIRST SECOND THIRD FOURTH ----- ------ ----- ------ Net sales $174,936 $190,430 $189,105 $187,543 Gross profit 65,425 74,138 71,614 70,261 Operating income 22,506 28,160 26,945 22,761 Net income 11,545 15,610 14,786 12,171 Basic EPS $ .38 $ .49 $ .46 $ .38 Basic weighted average shares outstanding 30,513 31,668 32,245 32,252 Diluted EPS $ .37 $ .48 $ .45 $ .37 Diluted weighted average shares outstanding 31,544 32,653 32,883 32,893 During the second and fourth quarters of 2002, IDEX took actions to downsize its operations to reflect lower levels of activity. As a result, the Company recorded a charge of $107 and income of $310 in the second and fourth quarters of 2002, respectively, related to the restructuring activity. See Note 7 for additional details.
IDEX Corporation 2003 Annual Report 39 REPORTS INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of IDEX Corporation We have audited the accompanying consolidated balance sheets of IDEX Corporation and its subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of operations, consolidated shareholders' equity, and consolidated cash flows for each of the three years in the period ended December 31, 2003. 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 auditing standards generally accepted in the United States of America. 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 the Company and its subsidiaries at December 31, 2003 and 2002 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the Consolidated Financial Statements, in 2002 the Company changed its method of accounting for goodwill and intangible assets to conform to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." /s/ Deloitte & Touche LLP Deloitte & Touche LLP Chicago, Illinois January 22, 2004 MANAGEMENT REPORT IDEX Corporation's management is responsible for the fair presentation and consistency of all financial data included in this Annual Report in accordance with accounting principles generally accepted in the United States of America. Where necessary, the data reflect management's best estimates and judgments. Management also is responsible for maintaining a system of internal control with the objectives of providing reasonable assurance that IDEX's assets are safeguarded against material loss from unauthorized use or disposition, and that authorized transactions are properly recorded to permit the preparation of accurate financial data. Cost benefit judgments are an important consideration in this regard. The effectiveness of internal control is maintained by personnel selection and training, division of responsibilities, establishment and communication of policies, and ongoing internal review programs and audits. Management believes that IDEX's system of internal control as of December 31, 2003, is effective and adequate to accomplish the above described objectives. /s/ Dennis K. Williams Dennis K. Williams Chairman of the Board, President and Chief Executive Officer /s/ Wayne P. Sayatovic Wayne P. Sayatovic Senior Vice President - Finance and Chief Financial Officer Northbrook, Illinois January 22, 2004
. . . EXHIBIT 21 SUBSIDIARIES OF IDEX CORPORATION
[DELOITTE & TOUCHE LOGO] EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT IDEX Corporation: We consent to the incorporation by reference in the Registration Statement of IDEX Corporation on Form S-3 (File Number 333-41627) and in the Registration Statements of IDEX Corporation on Form S-8 (File Numbers 33-47678, 33-56586, 33-67688, 333-18643, 333-70450 and 333-70452) of our reports, dated January 22, 2004, appearing in and incorporated by reference in this Annual Report on Form 10-K of IDEX Corporation for the year ended December 31, 2003. Deloitte & Touche LLP Chicago, Illinois March 5, 2004
EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 I, Dennis K. Williams, certify that: 1. I have reviewed this annual report on Form 10-K of IDEX Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. March 5, 2004 /s/ DENNIS K. WILLIAMS ----------------------------------------------- DENNIS K. WILLIAMS Chairman, President and Chief Executive Officer
EXHIBIT 31.2 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 I, Dominic A. Romeo, certify that: 1. I have reviewed this annual report on Form 10-K of IDEX Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. March 5, 2004 /s/ DOMINIC A. ROMEO ------------------------------------------ DOMINIC A. ROMEO Vice President and Chief Financial Officer
EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, thE undersigned officer of IDEX Corporation (the "Company") hereby certifies, to such officer's knowledge, that: (i) the accompanying Annual Report on Form 10-K of the Company for the annual period ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. March 5, 2004 /s/ Dennis K. Williams ----------------------------------------------- Dennis K. Williams Chairman, President and Chief Executive Officer
EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, thE undersigned officer of IDEX Corporation (the "Company") hereby certifies, to such officer's knowledge, that: (i) the accompanying Annual Report on Form 10-K of the Company for the annual period ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. March 5, 2004 /s/ Dominic A. Romeo -------------------------------------------- Dominic A. Romeo Vice President and Chief Financial Officer