IEX

IDEX Corp. 10-Q Summary: Period Ended September 30, 2009

Business Context and Reporting Period

This filing is a Quarterly Report (Form 10-Q) for IDEX Corporation, a Delaware corporation specializing in fluid and metering technologies, health and science technologies, dispensing equipment, and fire and safety products. The report covers the three and nine months ended September 30, 2009. The company operates four reportable segments and serves diverse industrial markets globally. As of October 30, 2009, there were 80,827,210 shares of common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 12% in the quarter and 13% year-to-date compared to 2008. This was driven by a 17% and 16% decline in organic sales, respectively, and unfavorable foreign currency translation (2% and 3%). These declines were partially offset by a 7% and 6% increase from four acquisitions completed in late 2008.
• Profitability Improvement: Despite lower sales, Net Income increased 50% in the quarter ($29.8M vs $19.9M) due to significantly lower expenses in 2009 compared to 2008. The 2008 period included a $30.1 million goodwill impairment charge in the Dispensing Equipment segment and higher restructuring costs.
• Restructuring: Restructuring expenses were $2.8 million for the quarter and $8.3 million for the nine months in 2009, compared to $5.3 million for both periods in 2008. These costs relate to employee severance and facility closures.
• Accounting Change: The company changed its inventory accounting method from LIFO to FIFO effective January 1, 2009. Prior year data has been restated to reflect this change.

Outlook, Risks, and Management Commentary

• Segment Performance:
  • Fluid & Metering Technologies: Sales down 8% (quarter) and 9% (YTD) due to weakness in chemical, energy, and water markets.
  • Health & Science Technologies: Sales down 8% (quarter) and 12% (YTD) due to market softness in non-core businesses.
  • Dispensing Equipment: Sales down 19% (quarter) and 25% (YTD) due to deterioration in capital spending in Europe and North America.
  • Fire & Safety: Sales down 19% (quarter) and 15% (YTD) due to lower demand for rescue equipment and banding systems.
• Liquidity: The company maintains a $600 million credit facility with $245.2 million available as of September 30, 2009. Management expects current liquidity to be sufficient to meet operating requirements, debt repayments, and dividends for the next 12 months.
• Restructuring Outlook: The company anticipates completing employee reductions by the end of 2009, with an additional $2.0 million to $3.0 million in costs expected in the fourth quarter.
• Risks: The company faces risks related to global economic conditions, foreign currency fluctuations, and the ability to integrate acquired businesses. There are ongoing asbestos-related legal proceedings, though management does not believe they will have a material adverse effect.

Investor Verification Checklist

• Organic Sales Trends: Verify the sustainability of the 16-17% organic sales decline across all four segments and the specific impact of the global economic downturn on industrial capital spending.
• Restructuring Costs: Monitor the fourth-quarter restructuring expense guidance ($2.0M - $3.0M) and the timeline for severance payments.
• Acquisition Integration: Assess the performance of the four acquisitions (Richter, iPEK, IETG, Semrock) which contributed to sales growth but also added incremental costs.
• Debt Servicing: Review the interest rate exposure on the $447.1 million debt, noting that $345 million is hedged at fixed rates, leaving $102.1 million exposed to floating rates.
• Inventory Valuation: Confirm the impact of the LIFO to FIFO accounting change on future cost of sales and gross margin comparisons.