- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q <Table> <S> <C> [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </Table> COMMISSION FILE NUMBER 1-10235 IDEX CORPORATION (Exact Name of Registrant as Specified in its Charter) <Table> <S> <C> DELAWARE 36-3555336 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 630 DUNDEE ROAD, NORTHBROOK, ILLINOIS 60062 (Address of principal executive offices) (Zip Code) </Table> REGISTRANT'S TELEPHONE NUMBER: (847) 498-7070 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Number of shares of common stock of IDEX Corporation outstanding as of October 26, 2007: 81,492,424 (net of treasury shares). - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
TABLE OF CONTENTS <Table> <S> <C> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements............................................... 1 Condensed Consolidated Balance Sheets.............................. 1 Condensed Consolidated Statements of Operations.................... 2 Condensed Consolidated Statements of Shareholders' Equity.......... 3 Condensed Consolidated Statements of Cash Flows.................... 4 Notes to Condensed Consolidated Financial Statements............... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 15 Cautionary Statement Under the Private Securities Litigation Reform Act................................................................ 15 Historical Overview and Outlook.................................... 15 Results of Operations.............................................. 16 Liquidity and Capital Resources.................................... 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 21 Item 4. Controls and Procedures............................................ 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................. 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........ 23 Item 5. Other Information.................................................. 23 Item 6. Exhibits........................................................... 23 Signatures................................................................... 24 Exhibit Index................................................................ 25 Certifications............................................................... 25 </Table>
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. IDEX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) <Table> <Caption> SEPTEMBER 30, 2007 DECEMBER 31, 2006 ------------------ ----------------- <S> <C> <C> ASSETS Current assets Cash and cash equivalents......................... $ 74,992 $ 77,941 Receivables, less allowance for doubtful accounts of $4,793 at September 30, 2007 and $3,545 at December 31, 2006.............................. 193,457 166,485 Inventories....................................... 178,622 160,687 Assets held for sale.............................. -- 829 Other current assets.............................. 19,209 11,966 ---------- ---------- Total current assets........................... 466,280 417,908 Property, plant and equipment -- net................ 170,788 165,949 Goodwill............................................ 950,503 912,600 Intangible assets -- net............................ 184,976 171,363 Other noncurrent assets............................. 4,733 3,001 ---------- ---------- Total assets................................... $1,777,280 $1,670,821 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable............................ $ 86,769 $ 75,444 Accrued expenses.................................. 89,377 95,170 Short-term borrowings............................. 154,578 8,210 Liabilities held for sale......................... -- 373 Dividends payable................................. 9,775 8,055 ---------- ---------- Total current liabilities...................... 340,499 187,252 Long-term borrowings................................ 149,448 353,770 Deferred income taxes............................... 115,225 100,316 Other noncurrent liabilities........................ 54,280 50,211 ---------- ---------- Total liabilities.............................. 659,452 691,549 ---------- ---------- Commitment and contingencies Shareholders' equity Preferred stock: Authorized: 5,000,000 shares, $.01 per share par value; Issued: None......................................... -- -- Common stock: Authorized: 150,000,000 shares, $.01 per share par value Issued: 81,615,623 shares at September 30, 2007 and 80,669,121 shares at December 31, 2006..... 816 538 Additional paid-in capital........................ 343,963 317,417 Retained earnings................................. 724,857 638,579 Treasury stock at cost: 151,787 shares at September 30, 2007 and 123,383 shares at December 31, 2006.............................. (4,244) (3,248) Accumulated other comprehensive income............ 52,436 25,986 ---------- ---------- Total shareholders' equity..................... 1,117,828 979,272 ---------- ---------- Total liabilities and shareholders' equity..... $1,777,280 $1,670,821 ========== ========== </Table> See Notes to Condensed Consolidated Financial Statements. 1
IDEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <Table> <Caption> THIRD QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- --------------------- 2007 2006 2007 2006 -------- -------- ---------- -------- <S> <C> <C> <C> <C> Net sales................................... $334,884 $289,848 $1,012,634 $852,809 Cost of sales............................... 197,219 171,083 587,771 500,990 -------- -------- ---------- -------- Gross profit................................ 137,665 118,765 424,863 351,819 Selling, general and administrative expenses.................................. 74,517 64,352 231,298 193,644 -------- -------- ---------- -------- Operating income............................ 63,148 54,413 193,565 158,175 Other income -- net......................... 437 501 1,531 770 Interest expense............................ 5,537 3,366 17,974 10,368 -------- -------- ---------- -------- Income from continuing operations before income taxes.............................. 58,048 51,548 177,122 148,577 Provision for income taxes.................. 19,231 18,215 59,639 51,044 -------- -------- ---------- -------- Income from continuing operations........... 38,817 33,333 117,483 97,533 Income (loss) from discontinued operations, net of tax................................ (350) (306) (719) 528 Net gain (loss) on sale of discontinued operations, net of tax.................... (55) 12,969 (55) 12,969 -------- -------- ---------- -------- Income (loss) from discontinued operations, net of tax................................ (405) 12,663 (774) 13,497 -------- -------- ---------- -------- Net income.................................. $ 38,412 $ 45,996 $ 116,709 $111,030 ======== ======== ========== ======== Basic earnings per common share: Continuing operations....................... $ .48 $ .42 $ 1.46 $ 1.23 Discontinued operations..................... -- .16 (.01) .17 -------- -------- ---------- -------- Net income.................................. $ .48 $ .58 $ 1.45 $ 1.40 ======== ======== ========== ======== Diluted earnings per common share: Continuing operations....................... $ .47 $ .41 $ 1.43 $ 1.21 Discontinued operations..................... -- .16 (.01) .16 -------- -------- ---------- -------- Net income.................................. $ .47 $ .57 $ 1.42 $ 1.37 ======== ======== ========== ======== Share data: Basic weighted average common shares outstanding............................... 80,832 79,689 80,563 79,389 Diluted weighted average common shares outstanding............................... 82,311 80,957 82,005 80,897 </Table> See Notes to Condensed Consolidated Financial Statements. 2
IDEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) <Table> <Caption> COMMON STOCK & ACCUMULATED ADDITIONAL OTHER TOTAL PAID-IN RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS' CAPITAL EARNINGS STOCK INCOME EQUITY -------------- -------- -------- ------------- ------------- <S> <C> <C> <C> <C> <C> Balance, December 31, 2006.............. $317,955 $638,579 $(3,248) $25,986 $ 979,272 Net income.............................. 116,709 116,709 Other comprehensive income, net of tax Cumulative translation adjustment....... 24,685 24,685 Amortization of retirement obligations.. 1,765 1,765 ------- ---------- Other comprehensive income............ 26,450 26,450 ------- ---------- Comprehensive income.................... 143,159 ---------- Issuance of 773,229 shares of common stock from exercise of stock options and deferred compensation plans....... 17,175 17,175 Share-based compensation................ 9,649 9,649 Restricted shares surrendered for tax withholdings.......................... (996) (996) Cash dividends declared -- $.36 per common share outstanding.............. (29,227) (29,227) Cumulative effect of change in accounting for uncertainties in income taxes (FIN 48 -- See Note 15)......... (1,204) (1,204) -------- -------- ------- ------- ---------- Balance, September 30, 2007............. $344,779 $724,857 $(4,244) $52,436 $1,117,828 ======== ======== ======= ======= ========== </Table> See Notes to Condensed Consolidated Financial Statements. 3
IDEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <Table> <Caption> NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2007 2006 --------- --------- <S> <C> <C> Cash flows from operating activities of continuing operations Net income.............................. $ 116,709 $ 111,030 Adjustments to reconcile net income to net cash provided by operating activities: Loss (income) from discontinued operations......................... 719 (528) Gain on sale of fixed assets.......... (371) (810) Loss (gain) on sale of business....... 55 (12,969) Depreciation and amortization......... 21,235 18,505 Amortization of intangible assets..... 7,070 2,182 Amortization of debt issuance expenses........................... 345 342 Stock-based compensation expense...... 9,649 8,429 Deferred income taxes................. 3,181 3,166 Excess tax benefit from stock-based compensation....................... (4,671) (4,887) Changes in (net of the effect from acquisitions): Receivables........................ (11,112) (18,183) Inventories........................ (6,733) (3,595) Trade accounts payable............. 5,306 3,914 Accrued expenses................... (6,652) 5,357 Other -- net.......................... 3,466 (2,400) --------- --------- Net cash flows provided by operating activities of continuing operations......... 138,196 109,553 Cash flows from investing activities of continuing operations Purchases of property, plant and equipment.......................... (18,764) (15,985) Acquisition of businesses, net of cash acquired........................... (55,978) (120,208) Proceeds from sales of discontinued businesses......................... 326 31,474 Proceeds from fixed assets disposals.. 288 1,848 Other................................. -- (1,500) --------- --------- Net cash flows used in investing activities of continuing operations.................... (74,128) (104,371) Cash flows from financing activities of continuing operations Borrowings under credit facilities for acquisitions....................... 24,177 44,000 Borrowings under credit facilities.... 37,968 33,276 Payments under credit facilities...... (122,837) (78,027) Dividends paid........................ (27,508) (22,357) Distributions (to) from discontinued operations......................... (719) 328 Proceeds from stock option exercises.. 12,249 14,276 Excess tax benefit from stock-based compensation....................... 4,671 4,887 Other -- net.......................... (149) (888) --------- --------- Net cash flows used in financing activities of continuing operations.................... (72,148) (4,505) Cash flows from discontinued operations Net cash (used in) provided by operating activities of discontinued operations............ (869) 561 Net cash used in investing activities of discontinued operations......... -- (321) Net cash provided by (used in) financing activities of discontinued operations............ 867 (328) --------- --------- Net cash flows used in discontinued operations....... (2) (88) Effect of exchange rate changes on cash and cash equivalents.................. 5,131 651 --------- --------- Net (decrease) increase in cash......... (2,951) 1,240 Cash and cash equivalents at beginning of year............................... 77,943 77,290 --------- --------- Cash and cash equivalents at end of period................................ 74,992 78,530 --------- --------- Less-cash, end of period-discontinued operations............................ -- 1 --------- --------- Cash and cash equivalents at end of period-continuing operations.......... $ 74,992 $ 78,529 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for: Interest.............................. $ 20,247 $ 12,595 Income taxes.......................... 59,761 47,441 Significant non-cash activities: Debt acquired with acquisition of business........................... 1,571 7,195 Capital expenditures included in accounts payable................... 723 -- Non-cash capital expenditures......... 1,437 -- </Table> See Notes to Condensed Consolidated Financial Statements. 4
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements of IDEX Corporation ("IDEX" or the "Company") have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The statements are unaudited but include all adjustments, consisting only of recurring items, except as noted, which the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three and nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the entire year. The condensed consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006. UNCERTAINTY IN INCOME TAXES Effective January 1, 2007, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of SFAS No. 109." This interpretation clarifies the accounting and disclosure for uncertain income tax positions relating to the uncertainty about whether a tax return position will ultimately be sustained by the respective tax authorities. See Note 15 for the impact of FIN 48 on the Company's consolidated financial statements. STOCK SPLIT On April 4, 2007, the Company's Board of Directors authorized a three-for- two common stock split effected in the form of a 50% dividend payable on May 21, 2007, to shareholders of record on May 7, 2007. Par value of common stock remained at $.01 per share. All prior share and per share amounts have been restated to reflect the stock split. CASH FLOW PRESENTATION In previously issued financial statements the Company incorrectly presented borrowings and payments under credit facilities as net repayments in the financing activities section of the Consolidated Statements of Cash Flows. Accordingly, such presentation in the accompanying financial statements for the nine months ended September 30, 2006 has been restated to separate line items borrowings and payments under credit facilities. This correction does not affect net cash used in financing activities of continuing operations as previously presented. 2. RESTATEMENT OF 2006 CONSOLIDATED BALANCE SHEET AND STATEMENT OF SHAREHOLDERS' EQUITY In January 2006, the Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 123(R), "Share-Based Compensation." Subsequent to the issuance of the Company's 2006 consolidated financial statements, the Company's management determined that the Company had incorrectly continued to record unearned compensation related to the issuance of restricted stock awards (nonvested shares) in Shareholders' Equity within the Consolidated Balance Sheet and the Consolidated Statements of Shareholders' Equity. Additionally, the Company did not record an entry as of January 1, 2006 to eliminate the Unearned Compensation balance as of December 31, 2005 against Additional Paid-In Capital. The following is a summary of the effect of the immaterial restatement on the Company's 2006 Consolidated Balance Sheet and Statement of Shareholders' Equity. The adjustment has no impact on Consolidated Shareholders' Equity but rather only the components listed below. <Table> <Caption> 2006 2006 AS REPORTED ADJUSTMENT AS RESTATED ----------- ---------- ----------- (IN THOUSANDS) <S> <C> <C> <C> Additional paid-in capital................... $326,968 $(9,551) $317,417 Unearned compensation........................ $ (9,551) $ 9,551 $ -0- </Table> 5
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) It is the Company's intention to correct its presentation for the year ended December 31, 2006 in its 2007 Annual Report on Form 10-K. The Company has corrected the previous presentation of the December 31, 2006 balances within the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Shareholders' Equity included in this Form 10Q. In December 2006, the Company adopted the provisions of SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." The transition adjustment related to the adoption of SFAS No. 158 was $21.1 million. Subsequent to the issuance of the Company's 2006 consolidated financial statements, the Company's management determined that the Company had incorrectly included the transition adjustment within Other comprehensive income and Comprehensive income for the year ended December 31, 2006 in its Consolidated Statements of Shareholders' Equity in the 2006 Annual Report on Form 10-K. The transition adjustment should have been presented as an adjustment to the ending balance of Accumulated other comprehensive income within the 2006 Consolidated Statement of Shareholders' Equity. The following is a summary of the effect of the adjustment on the Company's 2006 Consolidated Statement of Shareholders' Equity. The adjustment has no impact on Consolidated Shareholders' Equity but rather only the components listed below. <Table> <Caption> 2006 2006 AS REPORTED ADJUSTMENT AS RESTATED ----------- ---------- ----------- (IN THOUSANDS) <S> <C> <C> <C> Other comprehensive income................... $ 6,710 $21,132 $ 27,842 Comprehensive income......................... $153,381 $21,132 $174,513 </Table> It is the Company's intention to correct its presentation for the year ended December 31, 2006 in its 2007 Annual Report on Form 10-K. 3. ACQUISITIONS On February 14, 2007, the Company acquired Faure Herman SA ("Faure Herman"), a leading provider of ultrasonic and helical turbine flow meters used in the custody transfer and control of high value fluids and gases. Headquartered in La Ferte Bernard, France, Faure Herman has sales offices in Europe and North America, with annual revenues of approximately $22 million. Faure Herman operates as part of the Company's Liquid Controls business within its Fluid & Metering Technologies segment. IDEX acquired Faure Herman for an aggregate purchase price of $25.8 million, consisting of $24.2 million in cash and the assumption of approximately $1.6 million of debt. Approximately $12.9 million of the cash payment was financed by borrowings under the Company's credit facility. Goodwill and intangible assets recognized as part of this transaction were $13.3 million and $7.7 million, respectively. The $13.3 million of goodwill is not deductible for tax purposes. On June 12, 2007, the Company acquired Quadro Engineering ("Quadro"), a leading provider of particle control solutions for the pharmaceutical and bio- pharmaceutical markets. Quadro's core capabilities include fine milling, emulsification and special handling of liquid and solid particulates for laboratory, pilot phase and production scale processing within the pharmaceutical and bio-pharmaceutical markets. Headquartered in Waterloo, Ontario, Canada, Quadro operates as a standalone unit within the Company's Fluid & Metering Technologies segment. IDEX acquired Quadro for a purchase price of $32.2 million, consisting entirely of cash. Approximately $11.3 million of the cash payment was financed by borrowings under the Company's credit facility. Goodwill and intangible assets recognized as part of this transaction were $11.8 million and $10.9 million, respectively, reflecting intangible asset valuation refinements of $4.5 million. Of the $11.8 million of goodwill, approximately $8.7 million is expected to be deductible for tax purposes. The purchase price for Faure Herman and Quadro, including transaction costs, has been allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of the acquisitions. The purchase price allocation is preliminary and further refinements may be necessary pending finalization of asset valuations. 6
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The results of operations for these acquisitions have been included within the Company's financial results from the date of the acquisition. The Company does not consider these acquisitions to be material to its results of operations for any of the periods presented. 4. DISCONTINUED OPERATIONS On July 11, 2006, IDEX sold Lubriquip, its lubricant dispensing business that operated as part of IDEX's Dispensing Equipment segment. On August 13, 2007, the Company completed the sale of Halox, its chemical and electrochemical systems product line operating as a unit of Pulsafeeder in IDEX's Fluid & Metering Technologies segment, resulting in an after-tax loss of $0.1 million. Summarized results of the Company's discontinued operations are as follows: <Table> <Caption> THIRD QUARTER NINE MONTHS ENDED SEPTEMBER ENDED SEPTEMBER 30, 30, --------------- ----------------- 2007 2006 2007 2006 ----- ------- ------- ------- (IN THOUSANDS) <S> <C> <C> <C> <C> Revenue..................................... $ 292 $ 1,025 $ 1,428 $17,550 ===== ======= ======= ======= Income (loss) from discontinued operations before income taxes....................... (539) (529) (1,106) 680 Income tax benefit (provision).............. 189 223 387 (152) Net gain (loss) on sale of discontinued operations, net of tax.................... (55) 12,969 (55) 12,969 ----- ------- ------- ------- Income (loss) from discontinued operations.. $(405) $12,663 $ (774) $13,497 ===== ======= ======= ======= </Table> Total assets and liabilities of discontinued operations held for sale at December 31, 2006 were as follows: <Table> <Caption> DECEMBER 31, 2006 ----------------- (IN THOUSANDS) <S> <C> Cash and cash equivalents................................. $ 2 Receivables, net.......................................... 424 Inventory................................................. 272 Other current assets...................................... 20 Property, plant and equipment, net ....................... 111 ---- Assets held for sale.................................... $829 ==== Accounts payable.......................................... $154 Other liabilities......................................... 219 ---- Liabilities held for sale............................... $373 ==== </Table> 7
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. BUSINESS SEGMENTS Information on IDEX's business segments from continuing operations 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. Intersegment sales are accounted for at fair value as if the sales were to third parties. <Table> <Caption> THIRD QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- --------------------- 2007 2006 2007 2006 -------- -------- ---------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> Net sales Fluid & Metering Technologies: External customers............... $143,438 $105,886 $ 420,323 $314,911 Intersegment sales............... 404 365 1,319 1,100 -------- -------- ---------- -------- Total group sales.............. 143,842 106,251 421,642 316,011 -------- -------- ---------- -------- Health & Science Technologies: External customers............... 82,709 80,775 243,819 223,121 Intersegment sales............... 557 477 2,537 2,451 -------- -------- ---------- -------- Total group sales.............. 83,266 81,252 246,356 225,572 -------- -------- ---------- -------- Dispensing Equipment: External customers............... 38,145 37,955 135,897 123,778 Intersegment sales............... -- -- -- -- -------- -------- ---------- -------- Total group sales.............. 38,145 37,955 135,897 123,778 -------- -------- ---------- -------- Fire & Safety/Diversified Products: External customers............... 70,592 65,232 212,595 190,999 Intersegment sales............... -- 1 1 2 -------- -------- ---------- -------- Total group sales.............. 70,592 65,233 212,596 191,001 -------- -------- ---------- -------- Intersegment elimination............ (961) (843) (3,857) (3,553) -------- -------- ---------- -------- Total net sales................ $334,884 $289,848 $1,012,634 $852,809 ======== ======== ========== ======== Operating income Fluid & Metering Technologies....... $ 31,559 $ 22,957 $ 91,443 $ 64,362 Health & Science Technologies....... 16,703 14,488 45,733 41,281 Dispensing Equipment................ 5,625 8,425 31,577 30,443 Fire & Safety/Diversified Products.. 16,533 15,844 50,008 45,766 Corporate office and other.......... (7,272) (7,301) (25,196) (23,677) -------- -------- ---------- -------- Total operating income......... $ 63,148 $ 54,413 $ 193,565 $158,175 ======== ======== ========== ======== </Table> 6. 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 outstanding (diluted) during the period. Common stock equivalents consist of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method, unvested restricted shares, and shares issuable in connection with 8
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) certain deferred compensation agreements ("DCUs"). Basic weighted average shares reconciles to diluted weighted average shares as follows: <Table> <Caption> THIRD QUARTER NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, --------------- --------------- 2007 2006 2007 2006 ------ ------ ------ ------ (IN THOUSANDS) <S> <C> <C> <C> <C> Basic weighted average common shares outstanding................................ 80,832 79,689 80,563 79,389 Dilutive effect of stock options, unvested restricted shares, and DCUs................ 1,479 1,268 1,442 1,508 ------ ------ ------ ------ Diluted weighted average common shares outstanding................................ 82,311 80,957 82,005 80,897 ====== ====== ====== ====== </Table> Options to purchase approximately 1.7 million and 1.4 million shares of common stock as of September 30, 2007 and 2006, respectively, were not included in the computation of diluted EPS because the exercise price was greater than the average market price of the Company's common stock and, therefore, the effect of their inclusion would be antidilutive. 7. INVENTORIES The components of inventories as of September 30, 2007 and December 31, 2006 were: <Table> <Caption> SEPTEMBER 30, DECEMBER 31, 2007 2006 ------------- ------------ (IN THOUSANDS) <S> <C> <C> Raw materials....................................... $ 90,341 $ 63,360 Work-in-process..................................... 23,207 16,420 Finished goods...................................... 65,074 80,907 -------- -------- Total............................................. $178,622 $160,687 ======== ======== </Table> Inventories carried on a LIFO basis amounted to $148.0 million and $133.7 million at September 30, 2007 and December 31, 2006, respectively. The excess of current cost over LIFO inventory value amounted to $4.1 million and $3.1 million at September 30, 2007 and December 31, 2006 respectively. 8. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the nine months ended September 30, 2007, by business segment, were as follows: <Table> <Caption> FLUID & HEALTH & FIRE & SAFETY/ METERING SCIENCE DISPENSING DIVERSIFIED TECHNOLOGIES TECHNOLOGIES EQUIPMENT PRODUCTS TOTAL ------------ ------------ ---------- -------------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Balance at December 31, 2006...................... $304,464 $333,801 $128,457 $145,878 $912,600 Foreign currency translation............... 2,970 815 5,543 3,784 13,112 Acquisitions................ 25,099 -- -- -- 25,099 Acquisition adjustments..... (114) (194) -- -- (308) -------- -------- -------- -------- -------- Balance at September 30, 2007...................... $332,419 $334,422 $134,000 $149,662 $950,503 ======== ======== ======== ======== ======== </Table> 9
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset as of September 30, 2007 and December 31, 2006: <Table> <Caption> AT SEPTEMBER 30, 2007 AT DECEMBER 31, 2006 ----------------------- ----------------------- GROSS GROSS CARRYING ACCUMULATED AVERAGE CARRYING ACCUMULATED AMOUNT AMORTIZATION LIFE AMOUNT AMORTIZATION -------- ------------ ------- -------- ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Amortizable intangible assets: Patents....................... $ 8,035 $ (4,891) 11 $ 8,508 $(5,171) Trade names................... 34,508 (2,670) 17 30,081 (1,224) Customer relationships........ 72,978 (4,991) 17 64,796 (1,609) Non-compete agreements........ 4,332 (1,828) 4 4,087 (702) Unpatented technology......... 12,682 (644) 16 4,727 (127) Other......................... 6,281 (916) 10 6,457 (560) -------- -------- -------- ------- Total amortizable intangible assets........ 138,816 (15,940) 118,656 (9,393) Banjo trade name................ 62,100 -- 62,100 -- -------- -------- -------- ------- Balance at September 30, 2007... $200,916 $(15,940) $180,756 $(9,393) ======== ======== ======== ======= </Table> The Banjo trade name is an indefinite lived intangible asset which will be tested for impairment on an annual basis. 9. ACCRUED EXPENSES The components of accrued expenses as of September 30, 2007 and December 31, 2006 were: <Table> <Caption> SEPTEMBER 30, DECEMBER 31, 2007 2006 ------------- ------------ (IN THOUSANDS) <S> <C> <C> Payroll and related items........................... $38,864 $32,897 Management incentive compensation................... 7,028 15,279 Income taxes payable................................ 2,477 10,897 Deferred income taxes............................... 1,262 1,359 Insurance........................................... 10,561 10,338 Other............................................... 29,185 24,400 ------- ------- Total accrued expenses............................ $89,377 $95,170 ======= ======= </Table> 10. BORROWINGS Effective February 2007 the $150.0 million of 6.875% Senior Notes due February 15, 2008 were reclassified from long-term borrowings to short-term borrowings. In addition to the $150.0 million of 6.875% Senior Notes due February 15, 2008, the Company also has a $600.0 million domestic multi-currency bank revolving credit facility ("Credit Facility"), which expires December 21, 2011. With $139.0 million outstanding under the facility at September 30, 2007, and outstanding letters of credit totaling $5.7 million, the maximum amount available under the Credit Facility was $455.3 million. Interest is payable quarterly on the outstanding balance at the bank agent's reference rate or, at the Company's election, at LIBOR plus an applicable margin payable at maturity. The applicable margin is based on the credit rating of our Senior Notes, and can range from 24 basis points to 50 basis points. Based on the Company's BBB rating at 10
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) September 30, 2007, the applicable margin was 40 basis points. We also pay an annual fee of 10 basis points on the total Credit Facility. We also have a one-year, renewable $30.0 million demand line of credit ("Short-Term Facility"), which expires on December 12, 2007. Borrowings under the Short-Term Facility are at LIBOR plus the applicable margin in effect under the Credit Facility. At September 30, 2007, there were no borrowings outstanding under this facility. 11. PREFERRED STOCK The Company had five million shares of preferred stock authorized but unissued at September 30, 2007 and December 31, 2006. 12. SHARE-BASED COMPENSATION Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 123R using the modified prospective method, and thus did not restate any prior period amounts. Under this method, compensation cost in the three and nine months ending September 30, 2007 include the portion vesting in the period for (1) all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated using the Black-Scholes option-pricing model in accordance with the original provisions of SFAS No. 123 and (2) all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated using the Binomial lattice option-pricing model. During 2007, the Company has granted approximately 1.1 million stock options and 0.1 million restricted shares, respectively. Total compensation cost for stock options is as follows: <Table> <Caption> THIRD QUARTER NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, --------------- ----------------- 2007 2006 2007 2006 ------ ------ ------- ------- (IN THOUSANDS) <S> <C> <C> <C> <C> General and administrative expenses......... $1,687 $1,650 $ 5,658 $ 5,197 Cost of goods sold.......................... 247 283 818 816 ------ ------ ------- ------- Total expense before income taxes........... 1,934 1,933 6,476 6,013 Income tax benefit.......................... (704) (704) (2,358) (2,029) ------ ------ ------- ------- Total expense after income taxes............ $1,230 $1,229 $ 4,118 $ 3,984 ====== ====== ======= ======= </Table> Total compensation cost for restricted stock is as follows: <Table> <Caption> THIRD QUARTER NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- --------------- 2007 2006 2007 2006 ----- ----- ------ ------ (IN THOUSANDS) <S> <C> <C> <C> <C> General and administrative expenses............ $ 986 $ 815 $3,153 $2,410 Cost of goods sold............................. 8 3 20 6 ----- ----- ------ ------ Total expense before income taxes.............. 994 818 3,173 2,416 Income tax benefit............................. (177) (126) (628) (396) ----- ----- ------ ------ Total expense after income taxes............... $ 817 $ 692 $2,545 $2,020 ===== ===== ====== ====== </Table> 11
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees. Compensation cost capitalized as part of inventory was immaterial. As of September 30, 2007, there was $15.8 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.4 years, and $8.8 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.3 years. 13. RETIREMENT BENEFITS The Company sponsors several qualified and nonqualified defined benefit and defined contribution pension plans and other postretirement plans for its employees. The following tables provide the components of net periodic benefit cost for its major defined benefit plans and its other postretirement plans. <Table> <Caption> PENSION BENEFITS --------------------------------------- THIRD QUARTER ENDED SEPTEMBER 30, 2007 2006 ------------------ ------------------ U.S. NON-U.S. U.S. NON-U.S. ------- -------- ------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> Service cost............................... $ 469 $ 224 $ 102 $ 177 Interest cost.............................. 1,072 396 1,329 306 Expected return on plan assets............. (1,310) (267) (1,527) (201) Net amortization........................... 682 190 1,352 137 ------- ----- ------- ----- Net periodic benefit cost................ $ 913 $ 543 $ 1,256 $ 419 ======= ===== ======= ===== </Table> <Table> <Caption> PENSION BENEFITS --------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 2007 2006 ------------------ ------------------ U.S. NON-U.S. U.S. NON-U.S. ------- -------- ------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> Service cost............................... $ 1,407 $ 668 $ 1,635 $ 504 Interest cost.............................. 3,216 1,178 3,306 876 Expected return on plan assets............. (3,931) (795) (3,944) (566) Net amortization........................... 2,047 563 2,719 393 ------- ------ ------- ------ Net periodic benefit cost................ $ 2,739 $1,614 $ 3,716 $1,207 ======= ====== ======= ====== </Table> <Table> <Caption> OTHER BENEFITS ----------------------------- THIRD QUARTER ENDED NINE MONTHS SEPTEMBER ENDED 30, SEPTEMBER 30, ----------- --------------- 2007 2006 2007 2006 ---- ---- ------ ------ (IN THOUSANDS) <S> <C> <C> <C> <C> Service cost.................................... $202 $115 $ 457 $ 352 Interest cost................................... 264 290 919 982 Net amortization................................ (4) 89 169 212 ---- ---- ------ ------ Net periodic benefit cost..................... $462 $494 $1,545 $1,546 ==== ==== ====== ====== </Table> The Company previously disclosed in its financial statements for the year ended December 31, 2006, that it expected to contribute approximately $5.1 million to these pension plans and $1.3 million to its other postretirement 12
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) benefit plans in 2007. As of September 30, 2007, $3.8 million of contributions have been made to the pension plans and $0.6 million has been made to its other postretirement benefit plans. The Company presently anticipates contributing up to an additional $0.6 million in 2007 to fund these pension plans and other postretirement benefit plans. 14. LEGAL PROCEEDINGS IDEX is a party to various 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, results of operations or cash flows. 15. INCOME TAXES The Company's provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes from continuing operations increased to $19.2 million in the third quarter of 2007 from $18.2 million in the third quarter of 2006. The effective tax rate decreased to 33.1% in the third quarter of 2007 from 35.3% in the third quarter of 2006 due to the renewal of the research and development tax credit and changes in the mix of global pre-tax income among taxing jurisdictions. Additionally, in the third quarter of 2007, the Company recorded certain deferred tax liabilities related to acquisitions occurring in prior years. The effect of this $2.8 million of additional income tax expense was primarily offset during the quarter by favorable discrete items related to tax events in foreign jurisdictions. The Company and it subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Effective January 1, 2007, the Company adopted FIN 48. In accordance with FIN 48, the Company recognized a cumulative-effect adjustment of $1.2 million, increasing its liability for unrecognized tax benefits, interest, and penalties and reducing the January 1, 2007 balance of retained earnings. At January 1, 2007, the Company had $6.6 million in unrecognized tax benefits. If recognized, $5.8 million of our unrecognized tax benefits would reduce our income tax expense and effective tax rate. Included in the balance of unrecognized tax benefits at January 1, 2007, is $0.5 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This represents a decrease in unrecognized tax benefits and depends on the ultimate closure date of various examinations. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. At January 1, 2007, the Company had accrued $0.9 million and $0.2 million for the potential payment of interest and penalties, respectively. The Company is subject to U.S. Federal income tax examinations for the tax years 2000 through 2006, however the 2001 and 2002 tax years are limited to adjustments to the research and development credit only. The Company is subject to non-U.S. income tax examinations for the tax years 2002 through 2006. In addition, the Company is subject to state and local income tax examinations for the tax years 2002 through 2006 in jurisdictions for which tax returns have been filed. During the third quarter of 2007, unrecognized net tax benefits increased by $0.1 million, which increased the effective tax rate accordingly. 16. NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. This statement is effective for fiscal periods beginning after November 15, 2007, and does not require any new fair value measurements. Management is currently evaluating the requirements of SFAS No. 157, and has not yet determined the impact on the consolidated financial statements. 13
IDEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No. 115". SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the impact this pronouncement may have on its results of operations and financial condition. 17. SUBSEQUENT EVENTS In October 2007, the Company acquired Isolation Technologies, a leading developer of advanced column hardware and accessories for the High Performance Liquid Chromatography (HPLC) market, for cash consideration of approximately $30 million. HPLC instruments are used in a variety of analytical chemistry applications, with primary commercial applications including drug discovery and quality control measurements for pharmaceutical and food/beverage testing. Headquartered in Hopedale, MA, Isolation Technologies has annual revenues of approximately $11 million. Isolation Technologies will be operated as part of the Company's Sapphire Engineering business unit within IDEX's Health and Science Technologies segment. 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT The "Historical Overview and Outlook" and the "Liquidity and Capital Resources" sections of this management's discussion and analysis of our financial condition and operations contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. These statements may relate to, among other things, capital expenditures, cost reductions, cash flow, and operating improvements and are indicated by words or phrases such as "anticipate," "estimate," "plans," "expects," "projects," "should," "will," "management believes," "the company believes," "we believe," "the company intends" and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this filing. The risks and uncertainties include, but are not limited to, the following: economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the world; pricing pressures and other competitive factors, and levels of capital spending in certain industries -- all of which could have a material impact on our order rates and results, particularly in light of the low levels of order backlogs we typically maintain; our ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which we operate; interest rates; capacity utilization and the effect this has on costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. The forward-looking statements included here are only made as of the date of this report, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here. HISTORICAL OVERVIEW AND OUTLOOK IDEX Corporation ("IDEX") or the ("Company") is an applied solutions company specializing in fluid and metering technologies, health and science technologies, dispensing equipment, and fire, safety and other diversified products built to its customers' specifications. Our products are sold in niche markets to a wide range of industries throughout the world. Accordingly, our businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where we do business and by the relationship of the U.S. dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are among the factors that influence the demand for our products. IDEX consists of four reportable segments: Fluid & Metering Technologies, Health & Science Technologies, Dispensing Equipment and Fire & Safety/Diversified Products. The Fluid & Metering Technologies Group produces pumps, compressors, flow meters, and related controls for the movement of liquids and gases in a diverse range of end markets from industrial infrastructure to food and beverage. The Health & Science Technologies Group produces a wide variety of small scale, highly accurate pumps, valves, fittings and medical devices, as well as compressors used in medical, dental and industrial applications. 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, as well as refinishing equipment. The Fire &Safety/Diversified Products Group produces firefighting pumps, rescue tools, lifting bags and other components and systems for the fire and rescue industry; and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications. IDEX has a history of achieving above-average operating margins. Our operating margins have exceeded the average operating margin for the companies that comprise the Value Line Composite Index (VLCI) every year since 1988. We view the VLCI operating performance statistics as a proxy for an average industrial company. Our operating margins are influenced by, among other things, utilization of facilities as sales volumes change and inclusion of newly acquired businesses. 15
Some of our key 2007 financial highlights for the nine months ended September 30, 2007 were as follows: - Sales rose 19% to $1,012.6 million; organic business sales -- excluding acquisitions and foreign currency translation -- were up 6%. - Gross margins improved 70 basis points to 42.0% of sales, while operating margins at 19.1% were 60 basis points higher than a year ago. - Income from continuing operations increased 20% to $117.5 million. - Diluted EPS from continuing operations of $1.43 was 22 cents ahead of the same period of 2006. - Net income increased 5% to $116.7 million. - Diluted EPS of $1.42 was 5 cents ahead of the same period of 2006. The following forward-looking statements are qualified by the Cautionary Statement Under the Private Securities Litigation Reform Act set forth above. In the third quarter, we continued to experience strong global demand in our process controls, infrastructure and core health and science end markets. However, our third quarter results were unfavorably impacted by lower demand in the Dispensing Equipment and Fire & Safety/Diversified Products segments. In the Dispensing Equipment segment, we experienced softer than expected demand in the North American small retail channel as well as lower operating margins primarily due to reduced volume, in-quarter operational issues and unfavorable mix. In the Fire & Safety/Diversified Products segment, the results were impacted by lower OEM demand for fire suppression equipment. For the fourth quarter of 2007, projected organic growth rates in the Fluid & Metering Technologies and Health & Science Technologies segments are 6-8 percent and 3-5 percent, respectively. In the Dispensing Equipment segment, the projected fourth quarter organic growth rate of 4-6 percent reflects improvement from the third quarter due to planned replenishment orders in the North American large retail channel. The projected fourth quarter organic growth rate in the Fire & Safety/Diversified Products segment of 4-5 percent is consistent with third quarter performance, as we anticipate continued softness in the North American fire suppression market. Given these trends, current market conditions and the impact from currency and recent acquisitions, we expect fourth quarter sales growth of 12 to 15 percent and EPS of 46 to 49 cents per diluted share. The EPS estimate range as stated includes a projected unfavorable impact of one to two cents from estimated severance and field service expenses in the fourth quarter. RESULTS OF OPERATIONS For purposes of this discussion and analysis section, reference is made to the table below and the Company's Condensed Consolidated Statements of Operations included in Item 1. During the third quarter 2006, the Company determined that Halox, its chemical and electrochemical systems business, met the criteria to be classified as a discontinued operation. The sale of Halox was completed during the third quarter 2007. During the second quarter 2006, the Company determined that Lubriquip, its lubricant dispensing business, met the criteria to be classified as a discontinued operation and was subsequently sold July 11, 2006. Financial information for the three and nine months ended September 30, 2006 have been restated to present Halox and Lubriquip as discontinued operations. PERFORMANCE IN THE THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THE SAME PERIOD OF 2006 Sales in the three months ended September 30, 2007 were $334.9 million, a 16% improvement from the comparable period last year. The increase was driven by organic business shipments of 5%, acquisitions accounted for 9% and foreign currency translation contributed 2%. Sales to international customers from organic businesses represented approximately 46% of total sales in the current period compared to 45% in the same period in 2006. During the quarter, Fluid & Metering Technologies contributed 43% of sales and 45% of operating income; Health & Science Technologies accounted for 25% of sales and 24% of operating income; Dispensing Equipment 16
accounted for 11% of sales and 8% of operating income; and Fire & Safety/Diversified Products represented 21% of sales and 23% of operating income. Fluid & Metering Technologies Group sales of $143.8 million for the three months ended September 30, 2007 rose $37.6 million, or 35% compared with 2006, reflecting 9% organic business growth, 25% for acquisitions and a 1% favorable impact from foreign currency translation. In the third quarter of 2007, organic business sales grew approximately 10% domestically and 6% internationally. Organic business sales to customers outside the U.S. were approximately 42% of total group sales during the third quarter of 2007, compared to 43% in 2006. Health & Science Technologies Group sales of $83.3 million increased $2.0 million, or 3%, in the third quarter of 2007 compared with last year's third quarter. Growth in core analytical instrumentation, IVD and biotechnology markets was offset by slow growth in specific pneumatic OEM markets. In the third quarter of 2007, organic business sales decreased 5% domestically and increased 13% internationally. Organic business sales to customers outside the U.S. were approximately 43% of total group sales in the third quarter of 2007, compared to 38% in 2006. Dispensing Equipment Group sales of $38.1 million increased $0.2 million in the third quarter of 2007 compared with 2006. This increase reflects a 5% decrease in organic business offset by 5% from favorable foreign currency translation. Slower North American demand driven by softness in the small retail channel coupled with timing of large retail replenishment programs contributed to lower than expected performance. In the third quarter of 2007, organic business sales decreased 8% domestically and decreased 2% internationally. Organic business sales to customers outside the U.S. were approximately 62% of total group sales in the third quarter of 2007, compared with 61% in the comparable quarter of 2006. Fire & Safety/Diversified Products Group sales of $70.6 million increased $5.4 million, or 8%, in the third quarter of 2007 compared with 2006. This increase reflects a 5% increase in organic business volume, with an additional 3% of favorable foreign currency translation. The engineered band clamping business achieved strong growth, offset by weak demand in the North American fire suppression market. In the third quarter of 2007, organic business sales decreased 1% domestically and increased 11% internationally. Organic business sales to customers outside the U.S. were approximately 49% of total group sales in the third quarter of 2007 and 46% in 2006. 17
<Table> <Caption> THIRD QUARTER NINE MONTHS ENDED SEPTEMBER ENDED SEPTEMBER 30,(1) 30,(1) ------------------- --------------------- 2007 2006 2007 2006 -------- -------- ---------- -------- <S> <C> <C> <C> <C> Fluid & Metering Technologies Net sales................................. $143,842 $106,251 $ 421,642 $316,011 Operating income(2)....................... 31,559 22,957 91,443 64,362 Operating margin.......................... 21.9% 21.6% 21.7% 20.4% Depreciation and amortization............. $ 4,310 $ 2,142 $ 12,428 $ 6,882 Capital expenditures...................... 2,883 1,280 8,992 3,515 Health & Science Technologies Net sales................................. $ 83,266 $ 81,252 $ 246,356 $225,572 Operating income(2)....................... 16,703 14,488 45,733 41,281 Operating margin.......................... 20.1% 17.8% 18.6% 18.3% Depreciation and amortization............. $ 3,316 $ 2,460 $ 8,162 $ 6,303 Capital expenditures...................... 1,207 1,025 3,987 3,408 Dispensing Equipment Net sales................................. $ 38,145 $ 37,955 $ 135,897 $123,778 Operating income(2)....................... 5,625 8,425 31,577 30,443 Operating margin.......................... 14.7% 22.2% 23.2% 24.6% Depreciation and amortization............. $ 854 $ 544 $ 2,431 $ 2,609 Capital expenditures...................... 694 794 2,448 1,984 Fire & Safety/Diversified Products Net sales................................. $ 70,592 $ 65,233 $ 212,596 $191,001 Operating income(2)....................... 16,533 15,844 50,008 45,766 Operating margin.......................... 23.4% 24.3% 23.5% 24.0% Depreciation and amortization............. $ 1,235 $ 1,425 $ 4,289 $ 4,503 Capital expenditures...................... 829 2,332 2,528 5,098 Company Net sales................................. $334,884 $289,848 $1,012,634 $852,809 Operating income(2)....................... 63,148 54,413 193,565 158,175 Operating margin.......................... 18.9% 18.8% 19.1% 18.5% Depreciation and amortization(3).......... $ 9,826 $ 6,592 $ 28,305 $ 20,687 Capital expenditures...................... 7,794 6,282 20,924 15,985 </Table> - -------- (1) Data includes acquisition of Faure Herman (February 2007) and Quadro (June 2007) in the Fluid & Metering Technologies Group, JUN-AIR (February 2006) and EPI (May 2006) in the Health & Science Technologies Group and Airshore (January 2006) in the Fire & Safety/Diversified Products Group from the dates of acquisition. (2) Group operating income excludes unallocated corporate operating expenses. (3) Excludes amortization of debt issuance expenses and unearned stock compensation. Gross profit of $137.7 million in the third quarter of 2007 increased $18.9 million, or 16%, from 2006. Gross profit as a percent of sales was 41.1% in the third quarter of 2007 and 41.0% in 2006. The improved gross margins primarily reflect volume leverage, the Company's strategic sourcing and other operational excellence initiatives and acquisitions, partially offset by lower operating performance in the Dispensing Equipment segment. Selling, general and administrative (SG&A) expenses increased to $74.5 million in the third quarter of 2007 from $64.4 million in 2006. Higher total SG&A expenses reflect acquisitions, volume-related expenses, and 18
reinvestment in the business to drive organic growth. As a percent of sales, SG&A expenses were 22.2% for both 2007 and 2006. Operating income increased $8.7 million, or 16%, to $63.1 million in the third quarter of 2007 from $54.4 million in 2006, primarily reflecting higher volumes, partially offset by increased SG&A expenses. Third quarter operating margins were 18.9% of sales, 10 basis points higher than the third quarter of 2006. The improvement from last year resulted from higher gross margins. In the Fluid & Metering Technologies Group, operating income of $31.6 million and operating margins of 21.9% in the third quarter of 2007 were up from the $23.0 million and 21.6% recorded in 2006 principally due to strong global demand for infrastructure-related applications and acquisitions. In the Health & Science Technologies Group, operating income of $16.7 million and operating margins of 20.1% in the third quarter of 2007 were up from the $14.5 million and 17.8% recorded in 2006 principally due to favorable mix. In the Dispensing Equipment Group, operating income of $5.6 million and operating margins of 14.7% in the third quarter of 2007 were down from the $8.4 million and 22.2% recorded in 2006, due to reduced volume, operational inefficiencies, product quality-driven service costs, unfavorable mix and severance expenses. Operating income in the Fire & Safety/Diversified Products Group of $16.5 million was higher than the $15.8 million recorded in 2006, due primarily to increased volume. Operating margins within Fire & Safety/Diversified Products Group of 23.4% in the current quarter were down from 24.3% in 2006, due to volume decline in fire suppression and product mix. IDEX's provision for income taxes from continuing operations is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes increased to $19.2 million in the third quarter of 2007 from $18.2 million in 2006. The effective tax rate decreased to 33.1% in the third quarter of 2007 from 35.3% in the third quarter of 2006 due to the renewal of the research and development tax credit and changes in the mix of global pre-tax income among taxing jurisdictions. Additionally, in the third quarter of 2007, the Company recorded certain deferred tax liabilities related to acquisitions occurring in prior years. The effect of this $2.8 million of additional income tax expense was primarily offset during the quarter by favorable discrete items related to tax events in foreign jurisdictions. Income from continuing operations for the current quarter was $38.8 million, 16% higher than the $33.3 million earned in the third quarter of 2006. Diluted earnings per share from continuing operations in the third quarter of 2007 of $0.47 increased $0.06, or 15%, compared with the third quarter of 2006. Net income for the current quarter of $38.4 million, which included a loss from discontinued operations of $0.4 million, decreased from the $46.0 million earned in the third quarter of 2006, which included income from discontinued operations of $12.7 million. Diluted earnings per share in the third quarter of 2007 of $0.47 decreased $0.10, or 18%, compared with the third quarter of 2006. PERFORMANCE IN THE NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THE SAME PERIOD OF 2006 Sales in the nine months ended September 30, 2007 were $1,012.6 million, a 19% improvement from the comparable period last year. The increase was driven by organic business shipments of 6%, acquisitions accounted for 10% and foreign currency translation contributed 3%. For the first nine months of the year, organic business sales to international customers were approximately 45% of total sales for both 2007 and 2006. For the first nine months, Fluid & Metering Technologies contributed 42% of sales and operating income; Health & Science Technologies accounted for 24% of sales and 21% of operating income; Dispensing Equipment accounted for 13% of sales and 14% of operating income; and Fire & Safety/Diversified Products represented 21% of sales and 23% of operating income. Fluid & Metering Technologies Group sales of $421.6 million for the nine months ended September 30, 2007 rose $105.6 million, or 33% compared with 2006, reflecting 9% organic business growth, 23% for acquisitions and a 1% favorable impact from foreign currency translation. In the first nine months of 2007, organic business sales grew approximately 8% both domestically and internationally. Organic business sales to customers outside the U.S. were approximately 43% of total group sales during the first nine months of 2007 compared with 42% in the comparable period of 2006. 19
Health & Science Technologies Group sales of $246.4 million increased $20.8 million, or 9%, for the first nine months of 2007 compared with 2006. This increase was attributed to acquisitions which contributed 7%, an increase in organic business volume of 1% and favorable foreign currency translation of 1%. In the first nine months of 2007, organic business sales were down 1% domestically and increased 9% internationally. Organic business sales to customers outside the U.S. were approximately 39% of total group sales in 2007 and 37% in 2006. Dispensing Equipment Group sales of $135.9 million increased $12.1 million, or 10%, in the first nine months of 2007 compared with 2006. This increase reflects a 5% increase in organic business volume and 5% from favorable foreign currency translation. In the first nine months of 2007, organic business sales increased 8% domestically and increased 3% internationally. Organic business sales to customers outside the U.S. were approximately 63% of total group sales in the first nine months of 2007 compared with 64% in the comparable period of 2006. Fire & Safety/Diversified Products Group sales of $212.6 million increased $21.6 million, or 11%, in the first nine months of 2007 compared with 2006. This increase reflects a 7% increase in organic business volume, with an additional 4% of favorable foreign currency translation. In the first nine months of 2007, organic business sales increased 5% domestically and 10% internationally. Organic business sales to customers outside the U.S. were approximately 47% of total group sales in the first nine months of 2007 and 45% in 2006. Gross profit of $424.9 million, in the first nine months of 2007, increased $73.0 million, or 21%, from 2006. Gross profit as a percent of sales was 42.0% in 2007 an increase from 41.3% in 2006. The improved gross margins primarily reflect volume leverage and the Company's strategic sourcing and other operational excellence initiatives. SG&A expenses increased to $231.3 million in the first nine months of 2007 from $193.6 million in 2006. Higher total SG&A expenses reflect acquisitions, volume-related expenses, and reinvestment in the business to drive organic growth. As a percent of sales, SG&A expenses were 22.9% for 2007 and 22.8% for 2006. Operating income increased $35.4 million, or 22%, to $193.6 million in the first nine months of 2007 from $158.2 million in 2006, primarily reflecting higher volumes, partially offset by increased SG&A expenses. Operating margins for the first nine months of 2007 were 19.1% of sales, 60 basis points higher than the first nine months of 2006. The improvement from last year resulted from higher gross margins, partially offset by higher SG&A. In the Fluid & Metering Technologies Group, operating income of $91.4 million and operating margins of 21.7% in the first nine months of 2007 were up from the $64.4 million and 20.4%, respectively, recorded in 2006 principally due to strong global demand and acquisitions. Operating income for the Health & Science Technologies Group of $45.7 million was up from the $41.3 million recorded in 2006 principally due to volume. Operating margins within Health & Science Technologies Group of 18.6% in the current period were up slightly from 18.3% in 2006 primarily due to acquisitions and growth-related investments in the Company's medical product lines. In the Dispensing Equipment Group, operating income of $31.6 million in the first nine months of 2007 was up from the $30.4 million recorded in 2006 principally due to improved market conditions in Europe and the impact of our operational excellence initiatives. Operating margins within the Dispensing Equipment Group of 23.2% in the current period were down from 24.6% in 2006 primarily due to operational issues, unfavorable mix and severance expenses. Operating income in the Fire & Safety/Diversified Products Group of $50.0 million was higher than $45.8 million recorded in 2006, due primarily to increased volume. Operating margins within Fire & Safety/Diversified Products Group of 23.5% in the current period were down slightly from 24.0% in 2006, primarily due to product mix. Other income in the first nine months of 2007 increased $0.8 million compared with 2006 primarily due to favorable foreign currency translation. IDEX's provision for income taxes from continuing operations is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes increased to $59.6 million in the first nine months of 2007 from $51.0 million in 2006. The effective tax rate decreased to 33.7% in the current period from 34.4% in 2006. In 2007, the Company recorded certain deferred tax liabilities related to acquisitions occurring in prior years. The effect of this $2.8 million of additional income tax expense was primarily offset during the year by favorable discrete items related to tax events in foreign jurisdictions. 20
Income from continuing operations for the first nine months was $117.5 million, 20% higher than the $97.5 million earned in the same period of 2006. Diluted earnings per share from continuing operations in the first nine months of 2007 of $1.43 increased $0.22, or 18%, compared with the same period last year. Net income for the first nine months of 2007 was $116.7 million, which included a loss from discontinued operations of $0.8 million, increased from the $111.0 million earned in the same period of 2006, which included income from discontinued operations of $13.5 million. Diluted earnings per share in the first nine months of 2007 of $1.42 increased $0.05, or 4%, compared with the same period of 2006. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2007, working capital was $125.8 million and our current ratio was 1.4 to 1. Cash flows from operating activities increased $28.6 million, or 26%, to $138.2 million in the first nine months of 2007 mainly due to the improved operating results discussed above. Cash flows provided from operations were more than adequate to fund capital expenditures of $18.8 million and $16.0 million in the first nine months of 2007 and 2006, respectively. Capital expenditures were generally for machinery and equipment that improved productivity and tooling to support IDEX's global sourcing initiatives, although a portion was for business system technology and replacement of equipment and facilities. Management believes that IDEX has ample capacity in its plants and equipment to meet expected needs for future growth in the intermediate term. The Company acquired Faure Herman in February 2007 for cash consideration of $24.2 million and the assumption of approximately $1.6 million in debt and Quadro Engineering in June 2007 for cash consideration of $32.2 million. Approximately $12.9 million and $11.3 million, respectively, of the cash payments for both acquisitions were financed by borrowings under the Company's credit facility. In addition to the $150.0 million of 6.875% Senior Notes due February 15, 2008, the Company also has a $600.0 million domestic multi-currency bank revolving credit facility ("Credit Facility"), which expires December 21, 2011. With $139.0 million outstanding under the facility at September 30, 2007, and outstanding letters of credit totaling $5.7 million, the maximum amount available under the Credit Facility was $455.3 million. Interest is payable quarterly on the outstanding balance at the bank agent's reference rate or, at the Company's election, at LIBOR plus an applicable margin payable at maturity. The applicable margin is based on the credit rating of our Senior Notes, and can range from 24 basis points to 50 basis points. Based on the Company's BBB rating at September 30, 2007, the applicable margin was 40 basis points. We also pay an annual fee of 10 basis points on the total Credit Facility. We also have a one-year, renewable $30.0 million demand line of credit ("Short-Term Facility"), which expires on December 12, 2007. Borrowings under the Short-Term Facility are at LIBOR plus the applicable margin in effect under the Credit Facility. At September 30, 2007, there were no borrowings outstanding under this facility. We believe for the next 12 months that cash flow from operations and our availability under the Credit Facility will be sufficient to meet our 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. The Company is currently in the process of evaluating its options related to the Senior Notes due February 15, 2008, including the potential use of its Credit Facility. 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 borrowings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is subject to market risk associated with changes in interest rates and foreign currency exchange rates. The Company's interest rate exposure is primarily related to the $304.0 million of total debt outstanding at September 30, 2007. Approximately 51% 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 $0.8 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 21
treasury risk management policy, adopted by the Board of Directors, describes the procedures and controls over derivative financial and commodity instruments, including interest rate swaps. Under the policy, we do not use derivative financial or commodity instruments for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of derivative instruments is limited to interest rate swaps on the Company's outstanding long-term debt. As of September 30, 2007, the Company did not have any interest rate swaps outstanding. On June 12, 2007, the Company acquired certain forward contracts as part of the Quadro acquisition that are expected to lapse by December 31, 2007. Currently these contracts are marked-to market on a monthly basis, the impact of which is immaterial to the Consolidated Statements of Operations. 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. ITEM 4. 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. 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. 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 controls over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. IDEX and five 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 subject to applicable deductibles. 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, Delaware, Florida, Georgia, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Virginia, Washington and Wyoming. Most of the claims resolved to date have been dismissed without payment. The balance has been settled for reasonable amounts. Only one case has been tried, resulting in a verdict for the Company's business unit. 22
No provision has been made in the financial statements of the Company, other than for insurance deductibles in the ordinary course, and IDEX does not currently believe the asbestos-related claims will have a material adverse effect on the Company's business, financial position, results of operations or cash flow. 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, results of operations or cash flow. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. <Table> <Caption> TOTAL NUMBER OF MAXIMUM NUMBER OF SHARES PURCHASED AS SHARES THAT MAY YET PART OF PUBLICLY BE PURCHASED UNDER TOTAL NUMBER OF AVERAGE PRICE ANNOUNCED PLANS THE PLANS PERIOD SHARES PURCHASED PAID PER SHARE OR PROGRAMS(1) OR PROGRAMS(1) - ------ ---------------- -------------- ------------------- ------------------- <S> <C> <C> <C> <C> July 1, 2007 to July 31, 2007.................... -- -- -- 2,240,250 August 1, 2007 to August 31, 2007.................. -- -- -- 2,240,250 September 1, 2007 to September 30, 2007............... -- -- -- 2,240,250 </Table> - -------- (1) On October 20, 1998, IDEX's Board of Directors authorized the repurchase of up to 2.25 million shares of its common stock, either at market prices or on a negotiated basis as market conditions warrant. ITEM 5. OTHER INFORMATION. There has been no material change to the procedures by which security holders may recommend nominees to the Company's board. ITEM 6. EXHIBITS. The exhibits listed in the accompanying "Exhibit Index" are filed as part of this report. 23
SIGNATURES Pursuant to the requirements 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 /s/ DOMINIC A. ROMEO ---------------------------------------- Dominic A. Romeo Vice President and Chief Financial Officer (duly authorized principal financial officer) November 7, 2007 24
EXHIBIT INDEX <Table> <Caption> EXHIBIT NUMBER DESCRIPTION ------- ----------- <S> <C> 3.1 Restated Certificate of Incorporation of IDEX Corporation (formerly HI, Inc.) (incorporated by reference to Exhibit No. 3.1 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on April 21, 1988) 3.1(a) Amendment to Restated Certificate of Incorporation of IDEX Corporation (formerly HI, Inc.), (incorporated by reference to Exhibit No. 3.1(a) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996, Commission File No. 1-10235) 3.1(b) Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1(b) to the Current Report of IDEX on Form 8-K dated March 24, 2005, Commission File No. 1-10235) 3.2 Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.2 to Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on July 17, 1989) 3.2(a) Amended and Restated Article III, Section 13 of the Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.2(a) to Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on February 12, 1990) 4.1 Restated Certificate of Incorporation and By-Laws of IDEX Corporation (filed as Exhibits No. 3.1 through 3.2(a)) 4.2 Indenture, dated as of February 23, 1998, between IDEX Corporation, and Norwest Bank Minnesota, National Association, as Trustee, relating to the 6 7/8% Senior Notes of IDEX Corporation due February 15, 2008 (incorporated by reference to Exhibit No. 4.1 to the Current Report of IDEX on Form 8-K dated February 23, 1998, Commission File No. 1-10235) 4.3 Specimen Senior Note of IDEX Corporation (incorporated by reference to Exhibit No. 4.1 to the Current Report of IDEX on Form 8-K dated February 23, 1998, Commission File No. 1-10235) 4.4 Specimen Certificate of Common Stock of IDEX Corporation (incorporated by reference to Exhibit No. 4.3 to the Registration Statement on Form S-2 of IDEX, et al., Registration No. 33-42208, as filed on September 16, 1991) 4.5 Credit Agreement, dated as of December 21, 2006, among IDEX Corporation, Bank of America N.A. as Agent and Issuing Bank, and the other financial institutions party hereto (incorporated by reference to Exhibit No. 10.1 to the Current Report of IDEX on Form 8-K dated December 22, 2006, Commission File No. 1-10235) 4.6 Credit Lyonnais Uncommitted Line of Credit, dated as of December 3, 2001 (incorporated by reference to Exhibit 4.6 to the Annual Report of IDEX on Form 10-K for the year ended December 31, 2001, Commission File No. 1-10235) 4.6(a) Amendment No. 7 dated as of December 12, 2006 to the Credit Lyonnais Uncommitted Line of Credit Agreement dated December 3, 2001 (incorporated by reference to Exhibit No. 4.6(a) to the Annual Report of IDEX on Form 10-K for the year ended December 31, 2006, Commission File No. 1-10235) *31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) *31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) *32.1 Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code *32.2 Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code </Table> - -------- * Filed herewith 25