IDEX Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures are included below. IDEX sells engineered pumps, flow meters, fluidics, dispensing equipment, fire-and-rescue products, and related systems through four reportable segments.
Financial performance and liquidity
| Metric | 2011 | 2010 | Change / context |
|---|---|---|---|
| Net sales | $1,838.5 million | $1,513.1 million | Up 22%; organic growth 9%, acquisitions contributed 11%, and currency 2% |
| Gross profit / margin | $738.7 million / 40.2% | $618.5 million / 40.9% | Profit up 19%; margin down 0.7 percentage point |
| Operating income / margin | $304.7 million / 16.6% | $249.1 million / 16.5% | Income up 22%; margin up 0.1 percentage point |
| Net income | $193.9 million | $157.1 million | Up 23% |
| Diluted EPS | $2.32 | $1.90 | Up $0.42 |
| Operating cash flow | $217.2 million | $184.5 million | Up 18% |
| Capital expenditures | $34.5 million | $32.8 million | Funded from operating cash flow |
| Cash and working capital | $230.3 million cash; $530.9 million working capital | $235.1 million cash; $339.1 million working capital | Current ratio was 3.1 versus 2.0 |
| Total borrowings | $808.8 million | $527.9 million | Higher primarily following acquisitions and debt financing |
Fourth quarter: 2011 sales were $480.7 million, operating income $76.0 million, net income $47.4 million, and diluted EPS $0.57. In fourth-quarter 2010, the respective figures were $405.2 million, $66.0 million, $41.5 million, and $0.50.
Segments and changes versus prior year
- Fluid & Metering Technologies: Sales $816.9 million, up 16%; organic sales rose 13%. Operating income was $160.0 million and margin 19.6%, versus 18.0% in 2010.
- Health & Science Technologies: Sales $622.3 million, up 47%, including 37% from acquisitions and 9% organic growth. Operating income rose to $110.9 million, but margin declined to 17.8% from 20.6%, partly due to acquisition inventory fair-value charges.
- Dispensing Equipment: Sales $117.4 million, down 6%, including an 11% organic decline. Operating income fell to $15.4 million and margin to 13.1% from 15.6%, reflecting softer North American demand and restructuring costs.
- Fire & Safety/Diversified Products: Sales $285.0 million, up 7%; organic growth was 5%. Operating income rose to $70.5 million and margin to 24.7%.
Seven acquisitions contributed to 2011 sales growth, including CVI Melles Griot (CVI MG), acquired for approximately $393.3 million in cash, and AT Films and Microfluidics. Acquisition-related transaction costs and fair-value inventory charges totaled $22.6 million. The filing attributes operating improvement to higher volume, productivity, pricing, and cost controls, partly offset by acquisition-related charges. The effective tax rate declined to 29.2% from 32.2%.
Debt, financing, and capital allocation
- IDEX issued $350 million of 4.2% senior notes due 2021; proceeds primarily refinanced bank debt. It also had $300 million of 4.5% senior notes due 2020 and €81 million of 2.58% senior Euro notes due 2015.
- At year-end, $50.8 million was drawn on a $700 million revolving facility, with approximately $641.4 million of net available capacity. The company reported compliance with financial covenants: 12.4x interest coverage and 2.2x leverage versus limits of 3.0x minimum coverage and 3.25x maximum leverage.
- Interest expense increased to $29.3 million from $16.2 million, principally due to higher debt and the effective cost of senior notes. The filing reports approximately 7% of debt at floating rates and estimates that a 50-basis-point rate move would change annual interest expense by about $0.3 million.
- Cash dividends declared were $0.68 per share, compared with $0.60 in 2010. A $125 million share-repurchase authorization was available at year-end; no shares were repurchased during 2011.
Outlook, risks, and unusual items
- Management forecast mid-single-digit organic growth and fully diluted EPS of $2.74–$2.82 for 2012. This is management guidance, not a guarantee.
- Restructuring charges were $12.3 million in 2011, primarily severance and facility rationalization involving 292 employees. The initiatives were expected to continue into 2012, with severance payments funded from operating cash flow.
- Acquisition fair-value inventory charges, including $15.8 million related to CVI MG, reduced gross margin. Interest-rate contract settlements associated with note issuance also increased financing costs; the filing reports effective interest costs of 5.8% on the 2020 notes and 5.3% on the 2021 notes.
- Goodwill and intangible assets were substantial: $1,431.4 million and $382.2 million, respectively. No impairment was recorded, but management said a 10% decline in the Water reporting unit’s fair value could potentially trigger impairment; its goodwill was $222.3 million.
- Risks include economic weakness in diverse end markets, international exposure (about 53% of revenue), foreign-currency movements, competition and pricing pressure, raw-material availability and cost, execution and integration of acquisitions, and litigation. Asbestos claims were largely covered by insurance historically; the company had not recorded a provision beyond ordinary insurance deductibles and did not expect a material adverse effect, while noting future insurance coverage was uncertain.
- Management and the independent auditor reported effective internal control over financial reporting. The auditor’s control audit excluded AT Films, Microfluidics, and CVI MG, which together represented 17.4% of total assets and 6.7% of sales.
Important facts for investors to verify
- Whether 2012 organic growth and EPS guidance were achieved, and how much reported growth depended on acquisitions.
- Post-acquisition performance and integration of CVI MG and other acquired businesses, including resulting margins and debt levels.
- Debt and interest-cost disclosures: the filing’s borrowing table reports $808.8 million at year-end, while its market-risk discussion refers to $818.8 million of total debt; reconcile the difference.
- Water reporting unit valuation sensitivity, goodwill impairment risk, and the assumptions used in annual impairment testing.
- Progress and cash costs of restructuring, and any changes in asbestos insurance coverage or other contingencies.