IDEX Corporation — 2010 Form 10-K Summary
Business context and reporting period
IDEX designs and sells specialized pumps, flow meters, fluidics and sealing solutions, dispensing equipment, and fire, rescue and industrial products. It reports four segments: Fluid & Metering Technologies; Health & Science Technologies; Dispensing Equipment; and Fire & Safety/Diversified Products. This annual report covers the fiscal year ended December 31, 2010; fourth-quarter figures are noted where available.
Financial performance and liquidity
| Metric | 2010 | 2009 |
|---|---|---|
| Net sales | $1,513.1 million | $1,329.7 million |
| Gross profit / margin | $618.5 million / 40.9% | $522.4 million / 39.3% |
| Operating income / margin | $249.1 million / 16.5% | $184.9 million / 13.9% |
| Net income | $157.1 million | $113.4 million |
| Diluted EPS | $1.90 | $1.40 |
| Cash from operating activities | $184.5 million | $212.5 million |
| Capital expenditures | $32.8 million | $25.5 million |
| Total borrowings at year-end | $527.9 million | $400.1 million |
| Cash and cash equivalents at year-end | $235.1 million | $73.5 million |
| Working capital / current ratio | $339.1 million / 2.0 | $262.0 million / 2.4 |
Fourth-quarter 2010 sales were $405.2 million versus $343.3 million in fourth-quarter 2009; net income was $41.5 million versus $33.1 million, and diluted EPS was $0.50 versus $0.40.
Material changes versus the prior comparable period
- Full-year sales rose 14%, reflecting 12% organic growth, 3% contribution from acquisitions, and a 1% unfavorable currency impact. Organic growth was strongest in Health & Science Technologies (+21%) and Fluid & Metering Technologies (+13%); Dispensing Equipment was flat and Fire & Safety/Diversified Products increased 2%.
- Gross margin improved 160 basis points and operating margin increased 260 basis points. Management attributed the improvement mainly to higher volume, product mix and restructuring-related cost reductions.
- Cash from operations declined 13%, primarily due to settlement of a forward-starting interest-rate contract related to the 2020 notes. The company paid $31.0 million on that contract; the amount is being amortized over the notes’ 10-year term.
- Four acquisitions were completed in 2010: PPE, OBL, Periflo and Fitzpatrick. Acquisition spending, net of cash acquired, was $91.3 million.
Outlook, risks and unusual items
- For 2011, management forecast mid- to high-single-digit organic growth and approximately 4% acquisition-related growth, including two expected first-quarter acquisitions. Forecast fully diluted EPS was $2.23–$2.33.
- Management expected available cash and operating cash flow to cover 2011 operating needs, capital spending, interest, debt repayments, benefit-plan funding and dividends. The $600 million revolving credit facility matures December 21, 2011; management intended to arrange a replacement facility. The $90 million term loan and $27.8 million facility borrowing were classified as short-term at year-end.
- The company issued $300 million of 4.5% senior notes due 2020 and €81 million of 2.58% senior euro notes due 2015. It reported compliance with applicable financial covenants and expected continued compliance through 2011.
- Restructuring expense was $11.1 million in 2010, following $12.1 million in 2009. The company said the related employee reductions were completed and severance payments were expected to be paid by the end of 2011.
- Key risks include economic and end-market weakness, international and foreign-exchange exposure, competition and pricing pressure, raw-material availability, acquisition execution, and potential impairment of goodwill or intangible assets. Goodwill and intangible assets totaled $1.207 billion and $281.4 million, respectively; the 2010 annual impairment test identified no impairment.
- IDEX and subsidiaries faced asbestos-related personal-injury lawsuits. Most resolved claims had been dismissed without payment; settlements and legal costs had generally been covered by insurance, subject to deductibles. The company did not believe the claims would have a material adverse effect, but noted uncertainty about future insurance coverage. Other ordinary-course legal matters were not expected to be material.
- Two acquisitions occurred after year-end: Advanced Thin Films for approximately $32 million in January 2011, and an agreement to acquire Microfluidics, expected to close in the first quarter. Purchase-price allocations were not yet complete.
Important facts for investors to verify
- Whether 2011 organic growth and diluted EPS guidance were achieved, and how much growth came from acquisitions versus existing operations.
- Cash conversion and working-capital trends, given lower operating cash flow despite higher earnings and sales.
- Debt refinancing and repayment progress ahead of the revolving facility and term-loan maturities in December 2011.
- Integration and performance of 2010 and subsequent acquisitions, including final purchase-price allocations and goodwill/intangible values.
- Developments in asbestos claims, insurance recoveries and other contingencies, as well as sensitivity of goodwill valuations to operating forecasts and market assumptions.