1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
630 DUNDEE ROAD, NORTHBROOK, ILLINOIS
(Address of principal executive offices)
36-3555336
(I.R.S. Employer
Identification No.)
60062
(Zip Code)
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 __
Number of shares of common stock of IDEX Corporation ("IDEX" or the
"Company") outstanding as of April 30, 2001: 30,378,234.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................................. $ 8,317 $ 8,415
Receivables -- net........................................ 110,631 104,950
Inventories............................................... 120,231 113,052
Other current assets...................................... 9,773 5,672
-------- --------
Total current assets................................. 248,952 232,089
Property, plant and equipment -- net........................ 145,291 128,283
Intangible assets -- net.................................... 462,475 388,163
Other noncurrent assets..................................... 11,025 10,319
-------- --------
Total assets......................................... $867,743 $758,854
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt........................................... $180,629 $ 88,077
Trade accounts payable.................................... 48,232 43,342
Dividends payable......................................... 4,252 4,236
Accrued expenses.......................................... 44,797 42,156
-------- --------
Total current liabilities............................ 277,910 177,811
Long-term debt.............................................. 151,857 153,809
Other noncurrent liabilities................................ 56,249 52,732
-------- --------
Total liabilities.................................... 486,016 384,352
-------- --------
Shareholders' equity
Common stock, par value $.01 per share
Shares authorized: 2001 and 2000 -- 75,000,000
Shares issued and outstanding: 2001 -- 30,370,799;
2000 -- 30,258,231.................................... 304 303
Additional paid-in capital................................ 116,052 115,280
Retained earnings......................................... 282,884 279,907
Minimum pension liability adjustment...................... (2,127) (2,127)
Accumulated translation adjustment........................ (7,510) (10,489)
Unrealized gains on derivatives........................... 21 --
Treasury stock............................................ (144) (144)
Unearned compensation on restricted stock................. (7,753) (8,228)
-------- --------
Total shareholders' equity........................... 381,727 374,502
-------- --------
Total liabilities and shareholders' equity........... $867,743 $758,854
======== ========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2001 2000
-------- --------
(UNAUDITED)
Net sales................................................... $187,395 $176,662
Cost of sales............................................... 118,618 106,107
-------- --------
Gross profit................................................ 68,777 70,555
Selling, general and administrative expenses................ 42,801 37,692
Goodwill amortization....................................... 3,479 2,900
Restructuring charge........................................ 5,661 --
-------- --------
Operating income............................................ 16,836 29,963
Other income (expense) -- net............................... 226 (499)
-------- --------
Income before interest expense and income taxes............. 17,062 29,464
Interest expense............................................ 5,403 4,164
-------- --------
Income before income taxes.................................. 11,659 25,300
Provision for income taxes.................................. 4,430 9,487
-------- --------
Net income.................................................. $ 7,229 $ 15,813
======== ========
Basic earnings per common share............................. $ .24 $ .53
======== ========
Diluted earnings per common share........................... $ .23 $ .52
======== ========
Share data:
Weighted average common shares outstanding.................. 29,997 29,663
======== ========
Weighted average common shares outstanding assuming full
dilution.................................................. 30,987 30,188
======== ========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON
STOCK & MINIMUM UNEARNED
ADDITIONAL PENSION ACCUMULATED UNREALIZED COMPENSATION
PAID-IN RETAINED LIABILITY TRANSLATION GAINS ON TREASURY ON
CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT DERIVATIVES STOCK RESTRICTED STOCK
---------- -------- ---------- ----------- ----------- -------- ----------------
Balance, December 31,
2000..................... $115,583 $279,907 $(2,127) $(10,489) $ -- $(144) $(8,228)
-------- -------- ------- -------- ----- ----- -------
Net Income................. 7,229
Other comprehensive income
Cumulative effect of
accounting change...... 204
Unrealized derivative
losses................. (183)
Unrealized translation
adjustment............. 2,979
-------- -------- -----
Other comprehensive
income............... 2,979 21
-------- -------- -----
Comprehensive income... 7,229 2,979 21
-------- -------- -----
Issuance of 112,568 shares
of common stock, net of
those surrendered........ 773
Amortization of restricted
stock.................... 475
Cash dividends declared on
common Stock ($.14 per
share)................... (4,252)
-------- -------- ------- -------- ----- ----- -------
Balance, March 31, 2001,
(unaudited).............. $116,356 $282,884 $(2,127) $ (7,510) $ 21 $(144) $(7,753)
======== ======== ======= ======== ===== ===== =======
TOTAL
SHAREHOLDERS'
EQUITY
-------------
Balance, December 31,
2000..................... $374,502
--------
Net Income................. 7,229
Other comprehensive income
Cumulative effect of
accounting change...... 204
Unrealized derivative
losses................. (183)
Unrealized translation
adjustment............. 2,979
--------
Other comprehensive
income............... 3,000
--------
Comprehensive income... 10,229
--------
Issuance of 112,568 shares
of common stock, net of
those surrendered........ 773
Amortization of restricted
stock.................... 475
Cash dividends declared on
common Stock ($.14 per
share)................... (4,252)
--------
Balance, March 31, 2001,
(unaudited).............. $381,727
========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- --------
(UNAUDITED)
Cash flows from operating activities
Net income.................................................. $ 7,229 $ 15,813
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization............................. 6,898 5,697
Amortization of intangibles............................... 3,852 3,268
Amortization of unearned compensation..................... 475 --
Amortization of debt issuance expenses.................... 57 56
Restructuring charge...................................... 5,661 --
Deferred income taxes..................................... 524 (463)
Decrease (increase) in receivables........................ 3,260 (4,564)
Decrease in inventories................................... 2,781 3
Increase in trade accounts payable........................ 880 4,688
(Decrease) increase in accrued expenses................... (6,777) 4,281
Other -- net.............................................. (4,343) (4,904)
--------- --------
Net cash flows from operating activities............... 20,497 23,875
--------- --------
Cash flows from investing activities
Additions to property, plant and equipment................ (5,303) (4,348)
Acquisition of businesses (net of cash acquired).......... (106,506) --
--------- --------
Net cash flows from investing activities............... (111,809) (4,348)
--------- --------
Cash flows from financing activities
Borrowings under credit facilities for acquisitions....... 106,506 --
Net repayments under credit facilities.................... (8,313) (11,336)
Repayments of other long-term debt........................ (2,505) (310)
Decrease in accrued interest.............................. (2,318) (2,596)
Dividends paid............................................ (4,236) (4,152)
Proceeds from stock option exercises...................... 2,080 432
Purchase of common stock.................................. -- (46)
--------- --------
Net cash flows from financing activities............... 91,214 (18,008)
--------- --------
Net increase in cash........................................ (98) 1,519
Cash and cash equivalents at beginning of year.............. 8,415 2,895
--------- --------
Cash and cash equivalents at end of period.................. $ 8,317 $ 4,414
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest.................................................. $ 7,778 $ 6,704
Income taxes.............................................. 1,913 1,598
SIGNIFICANT NON-CASH ACTIVITIES
Debt acquired with acquisition of business.................. 2,931
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
IDEX Corporation ("IDEX" or the "Company") manufactures an extensive array
of proprietary engineered industrial products sold to customers in a variety of
industries around the world. The Company believes that each of its principal
business units holds the number-one or number-two market share position in each
unit's niche market. IDEX believes that its consistent financial performance has
been attributable to the manufacture of quality proprietary products designed
and engineered by the Company, coupled with its ability to identify and
successfully integrate strategic acquisitions. IDEX consists of three reportable
business segments: Pump Products Group, Dispensing Equipment Group, and Other
Engineered Products Group.
The Pump Products Group designs, produces and distributes a wide variety of
industrial pumps, compressors, meters and related controls for the movement of
liquids, air and gases. The devices and equipment produced by the group are used
by a large and diverse set of industries, including chemical processing,
machinery, water treatment, medical equipment, petroleum distribution, oil and
refining, and food processing.
The Dispensing Equipment Group produces highly engineered equipment for
dispensing, metering and mixing colorants, paints, inks and dyes; refinishing
equipment; and centralized lubrication systems. This proprietary equipment is
used in a variety of retail and commercial industries around the world. These
units provide componentry and systems for applications such as tinting paints
and coatings; providing industrial and automotive refinishing equipment; and the
precise lubrication of machinery and transportation equipment.
The Other Engineered Products Group manufactures engineered banding and
clamping devices, fire fighting pumps and rescue tools. The high-quality
stainless steel bands, buckles and preformed clamps and related installation
tools are used in applications including securing hoses, signals, pipes, poles,
electrical lines, sign-mounting systems and numerous other "hold-together"
applications. The Group also includes a leading manufacturer of truck-mounted
fire pumps and rescue tool systems used by public and private fire and rescue
organizations and electronic devices and systems for the specialty vehicle
market.
Information follows about the operations of IDEX in different business
segments based on the nature of products and services offered. The Company's
basis of segmentation and basis of segment profit measurement for the three
months ended March 31, 2001, are the same as those set forth under "Business
Segments and Geographic Information" on pages 30 and 31 of the 2000 Annual
Report to Shareholders. Intersegment sales are accounted for at fair value as if
the sales were to third parties. Amounts are in thousands.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2001 2000
---- ----
Net sales
Pump Products
From external customers................................ $109,282 $ 98,341
Intersegment sales..................................... 460 646
-------- --------
Total group sales................................. 109,742 98,987
-------- --------
Dispensing Equipment
From external customers................................ 35,834 39,919
Intersegment sales..................................... -- 1
-------- --------
Total group sales................................. 35,834 39,920
-------- --------
Other Engineered Products
From external customers................................... 42,279 38,402
Intersegment sales..................................... -- 1
-------- --------
Total group sales................................. 42,279 38,403
-------- --------
Intersegment elimination.................................. (460) (648)
-------- --------
Total net sales................................... $187,395 $176,662
======== ========
Operating income
Pump Products............................................. $ 16,225 $ 19,323
Dispensing Equipment...................................... 4,648 7,217
Other Engineered Products................................. 6,047 7,439
Restructuring charge...................................... (5,661) --
Corporate Office and Other................................ (4,423) (4,016)
-------- --------
Total operating income............................ $ 16,836 $ 29,963
======== ========
Operating income represents business segment operating income after noncash
amortization of intangible assets. The restructuring charge of $5,661 was not
assigned to the individual group segments. Had the Company allocated the
restructuring charge, the charge would have been assigned to the groups as
follows: Pump Products ($4,623), Dispensing Equipment ($592), and Other
Engineered Products ($446).
2. DERIVATIVE INSTRUMENTS
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," on January 1, 2001. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 requires that derivative financial instruments be recognized in the
financial statements at fair value. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
shareholders' equity (as a component of comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value or cash
flows. The adoption of SFAS No. 133 did not have a material effect on IDEX's
balance sheet or statement of operations, but did initially increase
comprehensive income by $0.2 million in the accompanying consolidated statement
of shareholders' equity.
IDEX uses derivative financial instruments principally to manage the risk
that changes in interest rates will affect either the fair value of its debt
obligations or the amount of its future interest payments. At March 31, 2001,
the Company had four interest rate swaps, expiring between June 2001 and March
2002,
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
which effectively converted $88.7 million of floating rate debt into fixed rate
debt at interest rates approximating 4.4%. The fair market value of these
interest rate swaps totaled less than $0.1 million at March 31, 2001. Fair
values relating to derivative financial instruments reflect the estimated
amounts that the Company would receive or pay to terminate the contracts at the
reporting date based on quoted market prices of comparable contracts as of March
31, 2001. The net gain or loss on these interest rate swap contracts was not
material during the first quarter of 2001.
3. ACQUISITIONS
The Company completed separate acquisitions of Liquid Controls L.L.C. and
Class 1, Inc. in January 2001, for an aggregate purchase price of $109 million,
with financing provided by borrowings under the U.S. Credit Facility. Liquid
Controls, headquartered in Lake Bluff, Illinois, is a leading manufacturer of
positive displacement flow meters, electronic registration and process control
systems and is operated as part of the Pump Products Group. Class 1,
headquartered in Ocala, Florida, is a leading manufacturer of electronic and
mechanical components and systems for the specialty vehicle market and is
operated as part of the Other Engineered Products Group.
The Company acquired Ismatec SA on April 17, 2000, and Trebor
International, Inc. on May 31, 2000, at a total purchase price of approximately
$35 million with borrowings under the Company's U.S. Credit Facility. Ismatec,
with headquarters near Zurich, Switzerland, is a leading European manufacturer
of peristalic metering pumps, analytical process controllers and sample
preparation systems. These products typically are used for scientific research
and development in the pharmaceutical, medical, biotech and institutional
laboratory markets. Trebor, with headquarters near Salt Lake City, is a leading
designer and manufacturer of high-purity fluid handling products, including
air-operated diaphragm pumps and deionized water-heating systems. Trebor's
products are incorporated into wet chemical processing, and chemical delivery
and blending systems. Ismatec and Trebor are being operated as part of the Pump
Products group.
All acquisitions were accounted for as purchases, and operating results
include the acquisitions from the effective dates of purchase. Cost in excess of
net assets acquired is amortized on a straight-line basis over a 40 year period.
4. RESTRUCTURING CHARGE
In April 2001, the Company announced a restructuring program with
aggressive actions to properly size its operations to current business
conditions. These actions were designed to reduce costs and improve operating
efficiencies. The program included, among other items, severance of employees,
fringe benefits, outplacement fees, and the plant consolidation of two
facilities. The restructuring, affecting all three business groups, will reduce
the Company's current workforce by approximately 250 employees, representing 6%
of the total workforce, and will include consolidation of Gast Manufacturing's
two production facilities in southwest Michigan.
The restructuring program costs are shown as a separate item in the
accompanying income statement and resulted in a charge to operations of $5,661
($3,509 after taxes), or $0.12 per share. Excluding the charge, fully diluted
earnings per share would have been $0.35 a share for the three months ended
March 31, 2001. At March 31, 2001, the amount remaining in the accruals for the
restructuring program was approximately $5.0 million. Approximately $4.0 million
of the restructuring accrual will be utilized by December 31,2001 and the
remainder will be utilized by March 2003.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. 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 year. Common stock equivalents
consist of stock options and have been included in the calculation of weighted
average shares outstanding using the treasury stock method. Basic weighted
average shares reconciles to fully diluted weighted average shares as follows
(in thousands):
FOR THE THREE
MONTHS
ENDED MARCH 31,
----------------
2001 2000
------ ------
Basic weighted average common shares outstanding............ 29,997 29,663
Dilutive effect of stock options and unvested restricted
shares.................................................... 990 525
------ ------
Weighted average common shares outstanding assuming
full dilution............................................. 30,987 30,188
====== ======
6. INVENTORIES
The components of inventories as of March 31, 2001, and December 31, 2000,
were (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Raw materials......................................... $ 38,523 $ 32,020
Work in process....................................... 13,106 13,852
Finished goods........................................ 68,602 67,180
-------- --------
Total.......................................... $120,231 $113,052
======== ========
Those inventories which were carried on a LIFO basis amounted to $99,436
and $91,532 at March 31, 2001, and December 31, 2000, respectively. The excess
of current cost over LIFO inventory value and the impact of using the LIFO
method on earnings are not material.
7. COMMON AND PREFERRED STOCK
The Company had five million shares of preferred stock authorized but
unissued at March 31, 2001, and December 31, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
HISTORICAL OVERVIEW AND OUTLOOK
IDEX sells a broad range of proprietary pump products, dispensing equipment
and other engineered products to a diverse customer base in the United States
and internationally. Accordingly, IDEX's businesses are affected by levels of
industrial activity and economic conditions in the United States and in other
countries where its products are sold and by the relationship of the U.S. dollar
to other currencies. Among the factors that influence the demand for IDEX's
products are interest rates, levels of capacity utilization and capital spending
in certain industries, and overall industrial activity.
IDEX has a history of above-average operating margins. The Company's
operating margins are impacted by, among other things, utilization of facilities
as sales volumes change and inclusion of newly acquired businesses, which may
have lower margins and whose margins are normally further reduced by purchase
accounting adjustments.
IDEX reported record sales; however, recorded lower net income and earnings
per share for the three months ended March 31, 2001 compared with the
corresponding period of the prior year. New orders for the first quarter totaled
$189.7 million, 2% below the comparable 2000 period. Excluding the impact of
foreign currency and the four acquisitions made during the last year
(Ismatec -- April 2000, Trebor -- May 2000, Class 1 -- January 2001 and Liquid
Controls -- January 2001), orders were 11% lower than the record first quarter
of 2000 but showed an 8% improvement from the fourth quarter of last year.
During the first quarter, backlog increased $2.3 million and IDEX ended the
quarter with a typical unfilled order backlog of slightly over one month's
sales. This customarily low level of backlog allows the Company to provide
excellent customer service, but also means that changes in orders are felt
quickly in operating results.
The following forward-looking statements are qualified by the cautionary
statement under the Private Securities Litigation Reform Act set forth below.
Management is very optimistic about the short- and long-term prospects of the
Company. Looking ahead to the second quarter, the Company believes its sales and
earnings will be higher than the first quarter of 2001. However, IDEX expects
that diluted earnings per share could be about 20 to 25% lower than the record
57 cents earned in the second quarter of 2000. IDEX operates with a very small
backlog of unfilled orders, and it is not able to assess how long the softness
in several of its end-markets will last. The Company's performance will depend
upon the strength of the U.S. and key international economies. The Company's
management continues to believe IDEX is well positioned for future growth, with
diversity in products and markets served and leading positions in its niches. In
the second half of this year, management expects that IDEX will benefit from its
continued emphasis on profitable growth, the margin improvement initiatives of
Six Sigma, global sourcing and e-business, and also the use of strong cash flow
to cut debt and interest expense. The Company will also continue to pursue
acquisitions that will drive its longer-term profitable growth.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The preceding paragraph and the "Liquidity and Capital Resources" sections
of this management's discussion and analysis of IDEX operations contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements relate to, among other
things, capital expenditures, cost reduction, cash flow and operating
improvements, and are indicated by words such as "anticipate," "estimate,"
"expects," "plans," "projects," "should," "will," "management believes," "the
Company intends" and similar words or phrases. Such statements are subject to
inherent uncertainties and risks which could cause actual results to vary
materially from suggested results, including but not limited to the following:
levels of industrial activity and economic conditions in the United States 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 order rates and the Company's results,
particularly in light of the low levels of order backlogs typically maintained
by the Company; IDEX's ability 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; interest rates; utilization of
IDEX's capacity and the affect of capacity utilization on costs; labor market
conditions and raw material costs; developments with respect to contingencies,
such as environmental matters and litigation; and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
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RESULTS OF OPERATIONS
For purposes of this discussion and analysis section, reference is made to
the table on the following page and the Company's Statements of Consolidated
Operations included in the Financial Statements section. IDEX consists of three
reporting groups: Pump Products, Dispensing Equipment and Other Engineered
Products.
PERFORMANCE IN THE THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE SAME PERIOD
OF 2000
IDEX reported record sales; however, recorded lower net income and earnings
per share for the first quarter of 2001 compared with last year. Incoming orders
of $189.7 million were 2% lower than 2000 as a result of an 11% decrease in the
base businesses and a 2% negative effect from foreign currency translation
partially offset by 11% growth from recent acquisitions. Net sales for the three
months ended March 31, 2001 were $187.4 million, a 6% increase over the $176.7
million for the comparable 2000 period. Acquisitions accounted for a 13%
improvement, which was partially offset by a 5% decline in base sales activity
and a 2% unfavorable currency translation. Net income was $7.2 million, 54%
lower than the $15.8 million earned in the first quarter of 2000. Diluted
earnings per share decreased 29 cents to 23 cents, down 56% compared with the
same period a year ago. Excluding the one-time restructuring charge, net income
was $10.7 million, 32% lower than the $15.8 million earned in last year's first
quarter, and diluted earnings per share were 35 cents, down 33% from 52 cents
last year.
In the first three months of 2001, the Pump Products Group contributed 58%
of sales and 60% of operating income, the Dispensing Equipment Group accounted
for 19% of sales and 17% of operating income, and the Engineered Products Group
represented both 23% of sales and operating income. In the first three months of
2001, international sales grew by 9% while domestic sales increased by 4%
compared with last year. As a result, international sales were 41% of total
sales, up from 40% in the same quarter of 2000.
Pump Products Group sales of $109.7 million for the three months ended
March 31, 2001 increased by $10.8 million, or 11%, from 2000 principally
reflecting the Ismatec, Trebor and Liquid Controls acquisitions which added 16%
to the first quarter sales. Base business sales volume was down 4% from last
year and foreign currency had a 1% negative effect on the Group's sales
comparison to 2000. In the first quarter of 2001, international sales grew by
24% and domestic sales increased by 5% principally reflecting the recent
acquisitions. Excluding acquisitions and foreign currency, base international
sales increased 1%, while base U.S. sales volume decreased 7% due to weak
conditions in the U.S. manufacturing sector. Sales to customers outside the
United States increased to 35% of total group sales in 2001 from 31% in 2000
principally due to recent acquisitions and the change in sales mix caused by the
weaker domestic sales in 2001.
Dispensing Equipment Group sales of $35.8 million decreased $4.1 million,
or 10%, in the first quarter of 2001 compared with last year's first quarter.
Base business volume was down 6% from 2000 and foreign currency translation had
a 4% negative effect. In the first quarter of 2001, international sales were
essentially equal to last year, while domestic sales decreased by 21% due to
continuing weak conditions in the U.S. manufacturing sector, which caused
significant year-over-year volume declines. Sales to customers outside the
United States were 57% of total group sales in 2001, up from 51% in 2000
primarily reflecting a change in sales mix due to the weaker domestic sales in
2001.
Other Engineered Products sales of $42.3 million increased by $3.9 million,
or 10%, in the first quarter of 2001 compared with 2000 principally reflecting
the Class 1 acquisition which added 18% to the first quarter sales. Overall base
business sales decreased by 5% and foreign currency translation had a negative
effect of 3%. In the first quarter of 2001, domestic sales increased by 24% and
international sales decreased by 6% with the lower international sales resulting
from foreign currency translation. Excluding foreign currency and acquisitions,
international base sales increased by 1% in 2001, while the base U.S. sales
volume decreased 10% compared to last year due to the weak conditions in the
U.S. manufacturing markets. Sales to customers outside the United States were
41% of total group sales in 2001, down from 48% in 2000 principally reflecting
the change in sales mix due to the Class 1 acquisition.
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IDEX CORPORATION AND SUBSIDIARIES
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2001(1) 2000
-------- --------
(UNAUDITED)
Pump Products Group
Net sales(2).............................................. $109,742 $ 98,987
Operating income before restructuring(3).................. 16,225 19,323
Operating margin.......................................... 14.8% 19.5%
Depreciation and amortization............................. $ 6,173 $ 4,975
Capital expenditures...................................... 2,627 1,966
Dispensing Equipment Group
Net sales(2).............................................. $ 35,834 $ 39,920
Operating income before restructuring(3).................. 4,648 7,217
Operating margin.......................................... 13.0% 18.1%
Depreciation and amortization............................. $ 2,410 $ 2,138
Capital expenditures...................................... 1,112 1,101
Other Engineered Products Group
Net sales(2).............................................. $ 42,279 $ 38,403
Operating income before restructuring(3).................. 6,047 7,439
Operating margin.......................................... 14.3% 19.4%
Depreciation and amortization............................. $ 2,077 $ 1,768
Capital expenditures...................................... 1,490 1,267
Company
Net sales................................................. $187,395 $176,662
Before restructuring: operating income.................... 22,497 29,963
operating margin.................... 12.0% 17.0%
After restructuring: operating income..................... $ 16,836 $ 29,963
operating margin..................... 9.0% 17.0%
Depreciation and amortization(4).......................... $ 11,225 $ 8,965
Capital expenditures...................................... 5,303 4,348
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(1) IDEX completed the acquisitions of Liquid Controls L.L.C. and Class 1, Inc.
in January 2001, with the operating results of Liquid Controls and Class 1
included in the Pump Products Group and Other Engineered Products Group,
respectively. The results also include the acquisition of Ismatec SA (April
2000) and Trebor International, Inc. (May 2000) in the Pump Products Group
from the dates of acquisition.
(2) Group net sales include intersegment sales.
(3) Group operating income excludes net unallocated corporate operating expenses
and the restructuring charge in 2001. The restructuring charge of $5,661 was
included with corporate and other and was not assigned to the individual
group segments. Had the Company allocated the restructuring charge, the
charge would have been assigned to the groups as follows: Pump Products
($4,623), Dispensing Equipment ($592), and Other Engineered Products ($446).
(4) Excludes amortization of debt issuance expenses.
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13
Gross profit of $68.8 million in the first quarter of 2001 decreased by
$1.8 million, or 3%, from 2000. Gross profit as a percent of sales was 36.7% in
2001 and decreased from 39.9% in 2000. The lower gross profit and gross margins
reflected reduced sales volume at the base businesses and inclusion of the
recent acquisitions whose margins are lower than those of the base businesses.
Selling, general and administrative expenses increased to $42.8 million in 2001
from $37.7 million in 2000, and as a percent of net sales, were 22.8%, up from
21.3% in 2000. The increase in selling, general and administrative expenses was
attributable to including recent acquisitions and the incremental up-front costs
associated with implementing the Company's Six Sigma and e-business initiatives.
Goodwill amortization increased by $0.6 million to $3.5 million in 2001 from
$2.9 million in 2000 also reflecting the recent acquisitions. As a percent of
sales, goodwill amortization remained flat at about 2% for both years. During
the first quarter of 2001, IDEX recorded a one-time restructuring charge
amounting to $5.7 million, or 12 cents per share, to properly size the Company's
operations to current business conditions. The restructuring, affecting all
three business groups, will reduce the Company's current workforce by
approximately 250 employees, representing 6% of the total workforce, and will
include the consolidation Gast Manufacturing's two production facilities in
southwest Michigan.
Operating income decreased by $13.1 million, or 44%, to $16.8 million in
2001 from $30.0 million in 2000. Excluding the restructuring charge, operating
income as a percent of sales decreased to 12.0% in 2001 from 17.0% in 2000. The
decrease in operating income and operating margin reflected decreases at all
three business groups and were attributable to reduced volumes at base
businesses, inclusion of recent acquisitions whose margins are lower than those
of the base businesses, and incremental up-front costs associated with
implementing the Company's Six Sigma and e-business initiatives. In the Pump
Products Group, operating income of $16.2 million and operating margin of 14.8%
in 2001 compared to the $19.3 million and 19.5% recorded in 2000. Operating
income of $4.7 million and operating margin of 13.0% in the Dispensing Equipment
Group decreased from the $7.2 million and 18.1% recorded in 2000. Operating
income in the Other Engineered Products Group of $6.0 million and operating
margin of 14.3% in 2001 decreased from $7.4 million and 19.4% achieved in 2000.
Other income increased $0.7 million to income of $0.2 million in the first
quarter of 2001 from expense of $0.5 million last year reflecting higher income
from fixed asset dispositions.
Interest expense increased to $5.4 million in the first quarter of 2001
from $4.2 million in 2000. The increase in interest was principally due to the
additional debt required for the acquisition of the Ismatec, Trebor, Liquid
Controls and Class 1 businesses.
The provision for income taxes decreased to $4.4 million in 2001 from $9.5
million in 2000 reflecting lower income. The effective tax rate increased to
38.0% in 2001 from 37.5% in 2000.
Net income of $7.2 million in 2001 was 54% lower than income of $15.8
million in 2000. Diluted earnings per share amounted to 23 cents in 2001, a
decrease of 29 cents per share, or 56%, from the 52 cents achieved in 2000. Net
income before the restructuring charge was $10.7 million, 32% lower than the
$15.8 million earned in last year's first quarter, and diluted earnings per
share were 35 cents, down 33% from 52 cents last year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, IDEX's working capital was $151.7 million and its
current ratio was 2.6 to 1, excluding short-term debt. The Company's cash flow
from operations decreased by $3.4 million to $20.5 million in 2001 principally
reflecting lower income.
Cash flow provided from operations was more than adequate to fund capital
expenditures of $5.3 million and $4.3 million in 2001 and 2000, respectively.
Capital expenditures were generally for machinery and equipment which improved
productivity, although a portion was for repair and replacement of equipment and
facilities. Management believes that IDEX has ample capacity in its plant and
equipment to meet expected needs for future growth in the intermediate term.
12
14
The Company completed the acquisitions of Liquid Controls and Class 1 for a
cash purchase price of $109 million. The acquisitions were accounted for using
the purchase method and were financed under the Company's U.S. Credit Facility.
Interest is payable at rates averaging 5.25%.
At March 31, 2001, the maximum amount available under the U.S. Credit
Facility was $235 million, of which $166.1 million was borrowed including $73.4
million in Western European currencies. The Western European currency borrowings
provide an economic hedge against the net investment in Fluid Management's
Netherlands operation, FAST's Italian operation and Micropump's Ismatec
Switzerland operation, respectively. Any amount outstanding at July 1, 2001,
becomes due at that date, accordingly, the Company has classified the borrowings
under the U.S. Credit Facility, along with accrued interest, as short-term debt
at March 31, 2001. The Company anticipates securing a similar credit facility
prior to July 1, 2001. Interest is payable quarterly on the outstanding balance
at the agent bank's reference rate or at LIBOR plus an applicable margin. At
March 31, 2001, the applicable margin was 25 basis points. The Company pays an
annual facility fee of 15 basis points on the total facility.
The Company also has an $8 million demand line of credit available for
short-term borrowing requirements at the bank's reference rate or at an optional
rate based on the bank's cost of funds. At March 31, 2001, the Company had $2
million borrowed under this short-term line of credit.
At March 31, 2001, the maximum amount available under the Company's German
Facility was 37 million marks ($16.6 million), of which 16.5 million marks ($7.4
million) was being used, which provides an economic hedge against the net
investment in the Company's Lukas subsidiary. Any amount outstanding at November
1, 2001, becomes due at that date. Interest is payable quarterly on the
outstanding balance at LIBOR plus an applicable margin. At March 31, 2001, the
applicable margin was 62.5 basis points.
IDEX believes it will generate sufficient cash flow from operations in 2001
to meet its operating requirements, interest and the demand line of credit and
the German Facility, interest and principal payments on the Senior Notes, any
share repurchases, approximately $25 million of planned capital expenditures,
and approximately $17 million of annual dividend payments to holders of common
stock. The Company also expects to secure similar credit facilities to its
existing U.S. Credit Facility and German Facility prior to their expiration in
2001. From commencement of operations in January 1988 until March 31, 2001, IDEX
has borrowed $783 million under its various credit agreements to complete 18
acquisitions. During this same period IDEX generated, principally from
operations, cash flow of $620 million to reduce its indebtedness. In the event
that suitable businesses are available for acquisition by IDEX upon terms
acceptable to the Board of Directors, IDEX may obtain all or a portion of the
financing for the acquisitions through the incurrence of additional long-term
indebtedness.
EURO PREPARATIONS
Beginning in 1998, the Company upgraded its business systems to accommodate
the euro currency. The cost of this upgrade was immaterial to the Company's
financial results. Although difficult to predict, any competitive implications
and any impact on existing financial instruments resulting from the euro
implementation also are expected to be immaterial to the Company's results of
operations, financial position or liquidity.
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15
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. Interest rate exposure is limited to
the $332.5 million of total debt of the Company outstanding at March 31, 2001.
Approximately 54% 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 $893,000 annualized increase or decrease in
interest expense and cash flows. The remaining debt is either fixed rate debt or
debt that has been essentially fixed through the use of interest rate swaps. The
Company will from time to time enter into interest rate swaps on its debt when
it believes there is a clear financial advantage for doing so. A formalized
treasury risk management policy adopted by the Board of Directors exists that
describes the procedures and controls over derivative financial and commodity
instruments, including interest rate swaps. Under the policy, the Company does
not use derivative financial or commodity instruments for trading purposes, and
the use of such instruments is subject to strict approval levels by senior
officers. Typically, the use of such derivative instruments is limited to
interest rate swaps on the Company's outstanding long-term debt. The Company's
exposure related to such derivative instruments is, in the aggregate, not
material to the Company's financial position, results of operations and cash
flows.
The Company's foreign currency exchange rate risk is limited principally to
the euro, British pound and Swiss franc. The Company manages its foreign
exchange risk principally through the invoicing of its customers in the same
currency as the source of the products.
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PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held
its Annual Shareholders' Meeting on Tuesday, March 27, 2001. At the
Annual Meeting, shareholders elected three directors to serve three-year
terms on the Board of Directors of IDEX Corporation. The following
persons received a majority of votes cast for Class III directors:
DIRECTOR FOR WITHHELD
-------- --- --------
Paul E. Raether............................ 27,689,742 807,452
Neil A. Springer........................... 27,684,924 812,270
Dennis K. Williams......................... 27,689,819 807,375
In addition to the Class III directors named above, the following
directors' terms also continued after the March 27, 2001, Annual
Shareholders' Meeting:
Richard E. Heath;
Henry R. Kravis;
William H. Luers;
George R. Roberts; and
Michael T. Tokarz
Secondly, shareholders voted on the 2001 Stock Plan for Officers. The
proposal received a majority of votes cast, specifically as follows:
Affirmative Votes.................................. 21,537,776
Negative Votes..................................... 6,914,650
Abstentions........................................ 44,767
Thirdly, shareholders voted on a new management incentive compensation
plan titled, the Executive Incentive Bonus Plan (the "Incentive Plan") to
govern the award and payment of cash bonuses to certain of the Company's
executive officers. The proposal received a majority of votes cast,
specifically as follows:
Affirmative Votes.................................. 27,320,821
Negative Votes..................................... 1,135,731
Abstentions........................................ 40,642
Additionally, shareholders voted on a proposal to appoint Deloitte &
Touche LLP as auditors. The proposal received a majority of the votes
cast as follows:
Affirmative Votes.................................. 28,405,583
Negative Votes..................................... 84,144
Abstentions........................................ 7,467
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17
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The exhibits listed in the accompanying "Exhibit Index" are filed as
part of this report.
(b) Reports on Form 8-K:
In a report dated March 2, 2001, and filed with Securities Commission
on March 2, 2001, the Company reported that it expected earnings per
diluted share for the first quarter of 2001 to be in the range of 32
to 37 cents. In the same period of 2000, IDEX earned 52 cents, and in
the fourth quarter of 2000, the Company earned 44 cents. The decline
in profits is primarily attributable to continuing weakness in
several of the Company's important end-markets.
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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 in the capacity and on the date
indicated.
IDEX CORPORATION
/s/ WAYNE P. SAYATOVIC
--------------------------------------
WAYNE P. SAYATOVIC
Senior Vice President -- Finance
and Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
May 11, 2001
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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)
3.2 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 Third Amended and Restated Credit Agreement dated as of July
17, 1996, among IDEX Corporation, Bank of America NT&SA, as
Agent, and other financial institutions named therein (the
"Banks") (incorporated by reference to Exhibit No. 4.5 to
the Quarterly Report of IDEX on Form 10-Q for the quarter
ended June 30, 1996, Commission File No. 1-10235)
4.5(a) First Amendment to the Third Amended and Restated Credit
Agreement dated as of April 11, 1997 (incorporated by
reference to Exhibit No. 4.5(a) to the Quarterly Report of
IDEX on Form 10-Q for the quarter ended June 30, 1998,
Commission File No. 1-10235)
4.5(b) Second Amendment to the Third Amended and Restated Credit
Agreement dated as of January 20, 1998 (incorporated by
reference to Exhibit No. 4.5(b) to the Quarterly Report of
IDEX on Form 10-Q for the quarter ended June 30, 1998,
Commission File No. 1-10235)
4.5(c) Third Amendment to the Third Amended and Restated Credit
Agreement dated as of February 9, 1998 (incorporated by
reference to Exhibit No. 4.5(c) to the Quarterly Report of
IDEX on Form 10-Q for the quarter ended June 30, 1998,
Commission File No. 1-10235)
4.5(d) Fourth Amendment to the Third Amended and Restated Credit
Agreement dated as of April 3, 1998 (incorporated by
reference to Exhibit No. 4.5(d) to the Quarterly Report of
IDEX on Form 10-Q for the quarter ended June 30, 1998,
Commission File No. 1-10235)
4.5(e) Fifth Amendment to the Third Amended and Restated Credit
Agreement dated as of June 8, 1999 (incorporated by
reference to Exhibit No. 4.5(e) to the Quarterly Report of
IDEX on Form 10-Q for the quarter ended June 30, 1999,
Commission File No. 1-10235)
18
20
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.5(f) Sixth Amendment to the Third Amended and Restated Credit
Agreement dated August 18, 2000 (incorporated by reference
to Exhibit No. 4.5(f) to the Annual Report of IDEX on Form
10-K for the year ended December 31, 2000, Commission File
No. 1-10235)
*10.1** Executive Incentive Bonus Plan dated March 27, 2001
*10.2** 2001 Stock Plan for Officers dated March 27, 2001
- ---------------
* Filed herewith
** Management contract or compensatory plan or agreement.
19