1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
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 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 (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (847) 498-7070
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changes since last
report.
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 August 12, 1996: 19,267,471 shares.
Documents Incorporated by Reference: None.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31
1996 1995
------------ ------------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 6,766 $ 5,937
Receivables - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,540 70,338
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,864 101,052
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,944 7,045
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,038 1,527
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 180,152 185,899
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . . . . 90,077 91,278
Intangible assets - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,029 184,217
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,773 4,728
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 455,031 $ 466,122
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,331 $ 36,846
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,069 3,061
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,355 42,901
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 72,755 82,808
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,650 206,184
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 25,407 26,185
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,812 315,177
--------- ---------
Shareholders' equity
Common stock, par value $.01 per share;
Shares authorized:
1996: 75,000,000
1995: 50,000,000
Shares issued and outstanding:
1996: 19,183,661
1995: 19,130,284 . . . . . . . . . . . . . . . . . . . . . . . . . . 192 191
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 86,976 86,118
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,472 67,729
Accumulated translation adjustment . . . . . . . . . . . . . . . . . . . . . (2,421) (3,093)
--------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 171,219 150,945
--------- ---------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 455,031 $ 466,122
========= =========
- ---------------
See Notes to Consolidated Financial Statements.
1
3
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Second Quarter Ended June 30, 1996 1995
---------- ----------
(UNAUDITED)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131,169 $ 127,203
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,116 78,030
-------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,053 49,173
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 26,084 24,976
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232 1,050
-------- --------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,737 23,147
Other income (expense) - net . . . . . . . . . . . . . . . . . . . . . . . . . (96) 41
-------- --------
Income before interest expense and income taxes . . . . . . . . . . . . . . . . 23,641 23,188
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,066 3,941
-------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 19,575 19,247
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,913 6,928
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,662 $ 12,319
======== ========
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .64 $ .63
======== ========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 19,823 19,701
======== ========
- ---------------
See Notes to Consolidated Financial Statements.
2
4
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Six Months Ended June 30, 1996 1995
---------- ----------
(UNAUDITED)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265,055 $ 243,783
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,338 149,537
--------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,717 94,246
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 53,100 48,615
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,464 2,010
--------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,153 43,621
Other income (expense) - net . . . . . . . . . . . . . . . . . . . . . . . . . (53) 50
--------- ---------
Income before interest expense and income taxes . . . . . . . . . . . . . . . . 47,100 43,671
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,291 7,607
--------- ---------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 38,809 36,064
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 13,933 12,983
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,876 $ 23,081
========= =========
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.26 $ 1.17
========= =========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 19,804 19,652
========= =========
- ---------------
See Notes to Consolidated Financial Statements.
3
5
IDEX CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK ACCUMULATED TOTAL
AND ADDITIONAL RETAINED TRANSLATION SHAREHOLDERS'
PAID-IN CAPITAL EARNINGS ADJUSTMENT EQUITY
------------------- ---------- ------------ -------------------
Balance:
December 31, 1995 . . . . . . . . $ 86,309 $ 67,729 $ (3,093) $ 150,945
Stock options exercised . . . . . . 859 859
Unrealized translation adjustment . 672 672
Cash dividends on common
stock ($.32 per share) . . . . . . (6,133) (6,133)
Net income . . . . . . . . . . . .
24,876 24,876
--------- --------- --------- ---------
Balance:
June 30, 1996 (unaudited) . . . . $ 87,168 $ 86,472 $ (2,421) $ 171,219
========= ========= ========= =========
- ---------------
See Notes to Consolidated Financial Statements.
4
6
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
For the Six Months Ended June 30, 1996 1995
---------- ----------
(UNAUDITED)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,876 $ 23,081
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,865 5,681
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . 3,371 2,537
Amortization of debt issuance expenses . . . . . . . . . . . . . . . . . 312 312
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 587 150
Increase in receivables . . . . . . . . . . . . . . . . . . . . . . . . . (202) (8,443)
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . 7,188 (8,114)
Increase (decrease) in trade accounts payable . . . . . . . . . . . . . . (4,515) 1,386
Increase (decrease) in accrued expenses . . . . . . . . . . . . . . . . . (5,546) 2,016
Other transactions - net . . . . . . . . . . . . . . . . . . . . . . . . 957 274
-------- ---------
Net cash flows from operating activities . . . . . . . . . . . . . . . 33,893 18,880
-------- ---------
Cash Flows From Investing Activities:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . (6,405) (5,539)
Acquisition of business (net of cash required) . . . . . . . . . . . . . . . (32,905)
-------- ---------
Net cash flows from investing activities . . . . . . . . . . . . . . . . . (6,405) (38,444)
-------- ---------
Cash Flows From Financing Activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,125) (5,348)
Net borrowings (repayments) of long-term debt . . . . . . . . . . . . . . . . (20,138) 21,500
Decrease in accrued interest . . . . . . . . . . . . . . . . . . . . . . . . (396) (21)
-------- ---------
Net cash flows from financing activities . . . . . . . . . . . . . . . . (26,659) 16,131
-------- ---------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . 829 (3,433)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 5,937 6,288
-------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 6,766 $ 2,855
======== =========
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,254 $ 7,192
Taxes (including foreign) . . . . . . . . . . . . . . . . . . . . . . . . . . 13,354 10,913
- ---------------
See Notes to Consolidated Financial Statements.
5
7
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Acquisition
Pursuant to the requirements of the Securities and Exchange Commission,
the January 22, 1988 acquisition of the initial six businesses comprising IDEX
Corporation ("IDEX" or the "Company") was not accounted for as a purchase
transaction. Consequently, the accounting for the acquisition does not reflect
any adjustment of the carrying value of the assets and liabilities to their
fair values at the time of the acquisition. Accordingly, the total
shareholders' equity of IDEX at June 30, 1996 and December 31, 1995 includes a
charge of $96.5 million which represents the excess of the purchase price over
the book value of the subsidiaries purchased at the date of the acquisition.
2. (a) Significant Accounting Policies
In the opinion of management, the unaudited information presented as of
June 30, 1996 and for the three and six months ended June 30, 1996 and 1995
reflects all adjustments necessary, which consist only of normal recurring
adjustments, for a fair presentation of the interim periods.
(b) Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents, in the form of stock
options, have been included in the calculation of weighted average shares
outstanding using the treasury stock method.
3. Inventories
The components of inventories as of June 30, 1996 and December 31, 1995
were (000's omitted):
June 30, December 31,
1996 1995
------------ -------------
(unaudited)
Inventories
Raw materials and supplies $ 12,807 $ 13,978
Work in process 13,311 15,434
Finished goods 67,746 71,640
--------- ---------
Totals $ 93,864 $101,052
========= ========
Those inventories which were carried on a LIFO basis amounted to $55,418
and $57,409 at June 30, 1996 and December 31, 1995, respectively. The excess
of current cost over LIFO inventory value and the impact on earnings of using
the LIFO method are not material.
4. Common and Preferred Stock
The Company had five million shares of preferred stock authorized but
unissued at June 30, 1996 and December 31, 1995.
5. Subsequent Events
On July 17, 1996, IDEX entered into a multi-currency Third Amended and
Restated Credit Agreement ("Amended U.S. Credit Agreement") increasing the
maximum availability to $250 million along with making certain adjustments to
the interest rate structure. The availability under the Amended U.S. Credit
Agreement declines in stages commencing July 1, 1999 to $200 million on July 1,
2000. Any amount outstanding at July 1, 2001 becomes due at that date.
Interest is payable quarterly on the outstanding balance at the bank agent's
reference rate, or at LIBOR plus an applicable margin.
On July 29, 1996, IDEX purchased certain assets and assumed certain
liabilities of Fluid Management L.P. for approximately $137 million. The
purchase price was financed through a borrowing of $135 million under the
Amended U.S. Credit Agreement and the issuance of 75,700 shares of IDEX Common
Stock.
6
8
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 fluid handling and industrial
products to a diverse customer base in the U.S. and, to an increasing extent,
internationally. Accordingly, IDEX's businesses are affected by levels of
industrial activity and economic conditions in the U.S. and in other countries
where its products are sold and by the relationship of the dollar to other
currencies. Among the factors that affect the demand for IDEX's products are
interest rates, levels of capital spending in certain industries, and overall
industrial growth.
IDEX has a history of strong operating margins. The Company's operating
margins are affected by, among other things, utilization of facilities as sales
volumes change, and inclusion of newly acquired businesses which may have lower
margins that could be further affected by purchase accounting adjustments.
IDEX's orders, sales, net income and earnings per share in the second
quarter of 1996 were the highest of any second quarter in its history.
Business conditions have shown more modest growth this year than in the first
half of 1995. Incoming orders in the 1996 second quarter increased 6% over the
same quarter of 1995, which was IDEX's previous record second quarter. Sales
in the second quarter of 1996 increased 3% over the same quarter of last year,
as sales in the core businesses decreased 5%, while the inclusion of Micropump
(acquired May 1995) and Lukas (acquired October 1995) added 8% to the volume
increase. Shipments in the quarter outpaced incoming orders by $2.9 million,
and backlogs declined accordingly, but remain at IDEX's typical operating level
of about 1.4 months' sales. This low level of backlog allows IDEX to provide
excellent customer service, but also means that changes in orders are felt
quickly in operating results.
Clearly, growth in the U.S. and Europe is more sluggish this year than
last. Nevertheless, with the Company's strong market position, new product
emphasis, international presence, and the integration of recent acquisitions,
including the Fluid Management acquisition, IDEX's prospects are quite good.
The second quarter provided a difficult comparison with the prior year because
of IDEX's all-time record earnings in the three months ended June 30, 1995,
following a surge in orders across the company. Based on current conditions
and barring unforeseen circumstances, IDEX expects operating results in each of
the third and fourth quarters will improve from those of the same quarters last
year, and the Company will again set new records in sales, net income, and
earnings per share in 1996.
Cautionary Statement Under the Private Securities Litigation Reform Act
Demand for the company's products is cyclical in nature and subject to
changes in general market conditions that affect demand. The Company's
customers operate primarily in industries that are affected by changes in
economic conditions, which in turn can affect orders. The Company operates
without significant order backlogs. As a result, economic slowdowns could
quickly have an adverse effect on the Company's performance. In addition, the
Company's operating forecasts and budgets are based upon detailed assumptions,
which it believes are reasonable, but inherent difficulties in predicting the
impact of certain factors may cause actual results to differ materially from the
forward-looking statements set forth above. These factors include, but are not
limited to the following: The Company's utilization of its capacity and the
impact of capacity utilization on costs; developments with respect to
contingencies such as environmental matters and litigation; labor market
conditions and raw materials costs; levels of industrial activity and economic
conditions in the U.S. and other countries around the world and levels of
capital spending in certain industries, all of which have a material influence
on order rates: the relationship of the dollar to other currencies; interest
rates; the Company's ability to integrate and operate acquired businesses on a
profitable basis; and, other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
7
9
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(000'S OMITTED)
For the Second Quarter Ended June 30, 1996 1995
---------- ----------
(UNAUDITED)
Fluid Handling Group (1) . . . . . . . . . . . . . . . . . . . . . .
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,513 $ 91,426
Income from operations . . . . . . . . . . . . . . . . . . . . 20,580 19,761
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 21.3% 21.6%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 4,179 $ 3,423
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 2,468 2,258
Industrial Products Group (1)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,712 $ 35,870
Income from operations . . . . . . . . . . . . . . . . . . . . 5,143 5,822
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 14.8% 16.2%
Depreciation and amortization . . . . . . . . . . . . . . . . . 829 $ 722
Capital expenditures . . . . . . . . . . . . . . . . . . . . . $ 1,248 1,024
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $131,169 $127,203
Income from operations . . . . . . . . . . . . . . . . . . . . 23,737 23,147
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 18.1% 18.2%
Depreciation and amortization (2) . . . . . . . . . . . . . . . $ 5,046 $ 4,160
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 3,716 3,283
(1) Group income from operations excludes net unallocated corporate
operating expenses.
(2) Excludes amortization of debt issuance expenses.
8
10
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(000'S OMITTED)
For the Six Months Ended June 30, 1996 1995
---------- ----------
(UNAUDITED)
Fluid Handling Group (1) . . . . . . . . . . . . . . . . . . . . . .
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $193,130 $172,953
Income from operations . . . . . . . . . . . . . . . . . . . . 40,373 36,668
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 20.9% 21.2%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 8,482 6,625
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 3,798 3,599
Industrial Products Group (1)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,040 $ 71,030
Income from operations . . . . . . . . . . . . . . . . . . . . 11,023 11,712
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 15.3% 16.5%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 1,680 $ 1,563
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 2,588 1,919
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $265,055 $243,783
Income from operations . . . . . . . . . . . . . . . . . . . . 47,153 43,621
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 17.8% 17.9%
Depreciation and amortization (2) . . . . . . . . . . . . . . . $ 10,236 $ 8,218
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 6,405 5,539
(1) Group income from operations excludes net unallocated corporate operating
expenses.
(2) Excludes amortization of debt issuance expenses.
9
11
Results of Operations
For purposes of this discussion and analysis section, reference is made to
the tables on the preceding pages 8 and 9 and the Company's Statements of
Consolidated Operations included in the Financial Statement section. IDEX
consists of two business segments: Fluid Handling and Industrial Products.
Performance in the Second Quarter Ended June 30, 1996 Compared to 1995
Sales in the second quarter of 1996 were $131.2 million, and increased by
3 percent over $127.2 million in the corresponding period of 1995.
Fluid Handling Group sales of $96.5 million in the three months ended June
30, 1996 increased by $5.1 million, or 6% over the same period in 1995, due to
the inclusion of recent acquisitions, Micropump (May, 1995) and Lukas (October,
1995). Sales outside the U.S. increased to 38% of total Fluid Handling Group
sales in the second quarter of 1996 from 33% in the comparable 1995 period due
to the inclusion of Lukas, based in Germany, and the U.K. - based operations of
Micropump.
Second quarter 1996 sales in the Industrial Products Group of $34.7
million decreased $1.2 million, or 3%, from the same quarter of last year due
to lower worldwide demand for higher-ticket capital goods, particularly metal
fabrication equipment. Shipments outside the U.S. were 39% of total sales in
the Industrial Products Group in the second quarter of 1996, down from 42% in
the comparable 1995 period.
Income from operations increased $.6 million or 3% to $23.7 million in the
three months ended June 30, 1996 from $23.1 million in 1995's second quarter.
Second quarter 1996 operating margins of 18.1% were just about the same as the
18.2% recorded in last year's record second quarter. In the Fluid Handling
Group, income from operations of $20.6 million and operating margin of 21.3% in
the three-month 1996 period compare to the $19.8 million and 21.6% recorded in
1995. The slight operating margin decline resulted from the inclusion of
recent acquisitions whose operating margins, as expected, were somewhat lower
than the other units in the Group and whose profits were further affected by
purchase accounting adjustments. Income from operations in the Industrial
Products Group of $5.1 million in the second quarter of 1996 declined $.7
million from the $5.8 million in 1995. Operating margin of 14.8% in the 1996
second quarter decreased from the 16.2% achieved in 1995 due primarily to
volume-related profit declines associated with lower sales of metal fabrication
equipment.
Interest expense increased to $4.1 million in the second quarter of 1996
from $3.9 million in the 1995 period because of additional borrowings under the
credit agreements for the acquisitions of Micropump and Lukas.
The provision for income taxes remained the same at $6.9 million in the
three months ended June 30, 1996 and 1995. The effective tax rate decreased to
35.3% in the 1996 period from 36.0% in the corresponding period of 1995.
Net income of $12.7 million in the second quarter of 1996 was 3% higher
than the net income of $12.3 million in same period of 1995. Record earnings
per share of 64 cents in this year's second quarter improved 2% from the 63
cents earned in the same quarter of last year, which was the previous all-time
high for any quarter in IDEX's history.
10
12
Performance in the Six Months Ended June 30, 1996 Compared to 1995
In the six months ended June 30, 1996, IDEX had record sales of $265.1
million, up 9% from last year's previous record of $243.8 million. Overall
growth was dampened by those businesses that produce or sell to manufacturers
of higher-ticket capital goods. Specifically, Strippit, which produces metal
fabrication equipment; Vibratech, which serves the heavy-duty truck engine
market; and Lubriquip, which makes centralized lubrication systems for
machinery, have experienced sales declines this year. On an overall basis,
sales in the base businesses were essentially flat with last year, with
acquisitions accounting for the volume increases. International sales
accounted for 38% of the total in the 1996 first half, up from 35% last year.
Incoming orders in the first six months totaled $261.9 million, almost
equivalent to sales, and backlogs at June 30 were at a typical 1.4 months'
sales.
Fluid Handling Group sales of $193.1 million increased $20.2 million, or
12%, due to the inclusion of the recently acquired Micropump and Lukas
operations. Sales outside the U.S. increased to 38% of total Fluid Handling
Group sales in the first six months of 1996 from 32% in the comparable 1995
period due to the inclusion of Lukas, based in Germany, the U.K. - based
operations of Micropump, and stronger worldwide demand for products of the
Group's core businesses.
First half 1996 sales in the Industrial Products Group of $72.0 million
increased $1.0 million, or 1%, over the same period of last year due to higher
customer demand for banding and clamping devices and sign mounting systems,
offset by lower worldwide shipments of metal fabrication equipment. Shipments
outside the U.S. were 38% of total sales in the Industrial Products Group in
the six-month 1996 period, down slightly from 39% in the comparable 1995
period.
Income from operations increased $3.5 million or 8% to $47.2 million in
the six months ended June 30, 1996 from $43.6 million in 1995's first half.
Six-month 1996 operating margins of 17.8% were just about the same as the 17.9%
posted in last year's record first six months. In the Fluid Handling Group,
income from operations of $40.4 million and operating margin of 20.9 % in the
first six months of 1996 compare to the $36.7 million and 21.2% recorded in
1995. The slight operating margin decline resulted from the inclusion of
recent acquisitions whose operating margins, as expected, were somewhat lower
than the other units in the Group and whose profits were further affected by
purchase accounting adjustments. Income from operations in the Industrial
Products Group of $11.0 million in the six-month 1996 period was down $.7
million from the $11.7 million in 1995. Operating margin of 15.3% in the 1996
first half decreased from the 16.5% achieved in 1995 because of volume-related
profit declines at the Company's Strippit operations.
Interest expense increased to $8.3 million in the first half of 1996 from
$7.6 million in the 1995 period because of additional borrowings under the
credit agreements for the acquisitions of Micropump and Lukas.
The provision for income taxes increased to $13.9 million in the six
months ended June 30, 1996 from $13.0 million in the comparable 1995 period.
The effective tax rate decreased slightly to 35.9% in 1996 from 36.0% in 1995.
Record net income of $24.9 million in the first six months of 1996 was 8%
higher than the net income of $23.1 million in the same period of 1995.
Earnings per share amounted to $1.26 in 1996's first half, a new all-time high,
which was 8% higher than the $1.17 recorded in the year-ago period.
11
13
Liquidity and Capital Resources
At June 30, 1996, IDEX's working capital was $107.4 million and its
current ratio was 2.5 to 1. Internally generated funds were adequate to fund
capital expenditures of $6.4 million and $5.5 million, and dividends on common
stock of $6.1 million and $5.3 million, for the six months ended June 30, 1996
and 1995, respectively. The 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. During the six months ended June 30, 1996 and
1995, depreciation and amortization expense, excluding amortization of debt
issuance expenses, was $10.2 million and $8.2 million, respectively.
At June 30, 1996, the maximum amount available under the U.S. Credit
Agreement was $150 million, of which $75 million was being used. On July 17,
1996, IDEX entered into an Amended U.S. Credit Agreement increasing the maximum
amount available to $250 million along with making certain adjustments to the
interest rate structure. The availability under the Amended U.S. Credit
Agreement declines in stages commencing July 1, 1999 to $200 million on July 1,
2000. Any amount outstanding at July 1, 2001 becomes due at that date.
Interest is payable quarterly on the outstanding balance at the bank agent's
reference rate, or at LIBOR plus an applicable margin. At June 30, 1996, that
applicable margin was 35 basis points. In addition, a facility fee is payable
quarterly on the entire $250 million available under the Amended U.S. Credit
Agreement. At June 30, 1996, the applicable facility fee percentage was 15
basis points.
The maximum amount available at June 30, 1996 under the Company's German
Credit Agreement was DM 52.5 million ($34.5 million), of which DM 50.0 million
($32.8 million) was being used. The availability under the Company's German
Credit Agreement declines in stages from DM 52.5 million to DM 31.3 million at
November 1, 2000. Any amount outstanding at November 1, 2001 becomes due at
that date. Interest is payable quarterly on the outstanding balance at LIBOR
plus 100 basis points.
IDEX believes it will generate sufficient cash flow from operations to
meet its operating requirements, interest and scheduled amortization payments
under both the Amended U.S. Credit Agreement and the German Credit Agreement,
interest and principal payments on the Senior Subordinated Notes, approximately
$14 million of planned capital expenditures and $12 million of annual dividend
payments to holders of common stock in 1996. From commencement of operations
in January 1988 until June 30, 1996, IDEX has borrowed $277 million under the
credit agreements to complete nine acquisitions. During this same period, IDEX
generated, principally from operations, cash flow of $259 million to reduce its
indebtedness. In the event that suitable businesses or assets 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.
On July 29, 1996 IDEX acquired Fluid Management, a Wheeling,
Illinois-based manufacturer of color formulation equipment for paints,
coatings, inks and dyes for approximately $137 million. Fluid Management,
which also has operations in the Netherlands, Germany and Australia, is the
world's leading producer of this type of equipment, with annual sales of
approximately $90 million. The acquisition was accounted for using the
purchase method of accounting and was financed through a $135 million
borrowing under the Amended U.S. Credit Agreement and the issuance of 75,700
shares of IDEX common stock.
12
14
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. None.
Item 5. Other Information.
On July 29, 1996, IDEX Corporation ("IDEX"), through its newly
formed subsidiary Fluid Management, Inc. ("FM"), a Delaware
Corporation, purchased certain assets and assumed certain
liabilities of Fluid Management Limited Partnership ("FMLP")
and certain related entities for approximately $137 million.
The purchase price, arrived at through arms-length
negotiations between IDEX and the partners of FMLP, is subject
to an adjustment equal to the difference between certain
targets provided in the contract and the amounts at closing.
The purchase price was financed through a $135 million
borrowing under IDEX's amended U.S. bank revolving credit
facility with Bank of America Illinois as agent for the
participating banks, and through the issuance of 75,700 shares
of IDEX common stock.
The assets acquired from FMLP include trade accounts
receivable, inventory, machinery and equipment comprising
substantially all of FMLP's assets used in its business of
manufacturing color formulation equipment for paints,
coatings, inks, colorants and dyes. IDEX intends to operate
the acquired assets in the same business in which FMLP
operated.
It is impracticable, at this time, to provide the required
financial statements and pro forma information for FM.
Therefore, the required financial statements and pro forma
information has not been included in this form 10-Q report.
The required financial statements and pro forma financial
information will be filed under cover of a report on Form 8K
within 60 days.
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
There have been no reports on Form 8-K filed during the
quarter for which this report is filed.
13
15
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
August 12, 1996 /s/Wayne P. Sayatovic
Wayne P. Sayatovic
Senior Vice President -
Finance, Chief Financial
Officer and Secretary
(Duly Authorized and Principal
Financial Officer)
14
16
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
*2.1 Asset Purchase Agreement dated July 26, 1996 between IDEX and Fluid Management Limited Partnership, Fluid
Management U.S., L.L.C., Fluid Management Service, Inc., Fluid Management Canada, L.L.C., Fluid Management
France SNC, FM International, Inc., Fluid Management Europe B.V.
A copy of the omitted schedules will be furnished to the Commission upon request.
3.1 Restated Certificate of Incorporation of IDEX (formerly HI, Inc.) (incorporated by reference to
Exhibit No. 3.1 to the Registration Statement on Form S-1 of IDEX Corporation, et al.,
Registration No. 33-21205, as filed on April 21, 1988).
3.1(a) Amendment to Restated Certificate of Incorporation of IDEX (formerly HI, Inc.), as amended
(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 (incorporated by reference to Exhibit No. 3.2 to Post-
Effective Amendment No. 2 to the Registration Statement on Form S-1 of IDEX Corporation, 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
(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 Corporation, et al., Registration No. 33-21205, as
filed on February 12, 1990).
4.1 Restated Certificate of Incorporation and By-Laws of IDEX (filed as Exhibits 3.1 through
3.2(a)).
4.2 Indenture, dated as of September 15, 1992, among IDEX, the Subsidiaries and The Connecticut
National Bank, as Trustee, relating to the 9-3/4% Senior Subordinated Notes of IDEX due 2002
(incorporated by reference to Exhibit No. 4.2 to the Annual Report of IDEX on Form 10-K for the
fiscal year ending December 31, 1992, Commission File No. 1-10235).
4.2(a) First Supplemental Indenture dated as of December 22, 1995 among IDEX and the Subsidiaries named
therein and Fleet National Bank of Connecticut (formerly known as The Connecticut National
Bank), a national banking association, as trustee (incorporated by reference to Exhibit No.
4.2(a) to the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1995,
Commission File No. 1-10235).
*4.2(b) Second Supplemental Indenture dated as of July 29, 1996 among IDEX and the Subsidiaries named therein
and Fleet National Bank (formerly known as Fleet National Bank Connecticut), a national banking
association, as trustee.
4.3 Specimen Senior Subordinated Note of IDEX (including specimen Guarantee) (incorporated by
reference to Exhibit No. 4.3 to the Annual Report of IDEX on Form 10-K for the fiscal year
ending December 31, 1992, Commission File No. 1-10235).
4.4 Specimen Certificate of Common Stock (incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-2 of IDEX Corporation, 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, Bank of
America Illinois, as Agent, and other financial institutions named therein.
15
17
Exhibit
Number Description Page
------- ----------- ----
*4.6 Amended and Restated Pledge Agreement dated as of July 17, 1996 by IDEX in favor of the Agent and
Banks.
*4.6(a) Supplement No. 1 to the Amended and Restated Pledge Agreement dated as of August 5, 1996 by IDEX
in favor of the Agent and Banks.
*4.7 Amended and Restated Subsidiary Guaranty Agreement dated as of July 17, 1996 by the Subsidiaries
named therein in favor of the Agent and Banks.
*4.7(a) Supplement No. 1 to the Amended and Restated Subsidiary Guaranty Agreement dated as of August 5,
1996 by FMI Management Company in favor of the Agent and Banks.
*4.7(b) Supplement No. 2 to the Amended and Restated Subsidiary Guaranty Agreement dated as of August 5,
1996 by Fluid Management, Inc. in favor of the Agent and Banks.
*4.8 Registration Rights Agreement dated as of July 29, 1996 between IDEX and Mitchell H. Saranow.
16
18
Exhibit
Number Description Page
------- ----------- ----
**10.1 Amended and Restated Employment Agreement between IDEX and Donald N. Boyce, dated as of January
22, 1988 (incorporated by reference to Exhibit No. 10.15 to Amendment No. 1 to the Registration
Statement on Form S-1 of IDEX Corporation, Registration No. 33-28317, as filed on June 1, 1989).
**10.1(a) First Amendment to the Amended and Restated Employment Agreement between IDEX and Donald N.
Boyce, dated as of January 13, 1993 (incorporated by reference to Exhibit No. 10.5(a) to the
Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992, Commission File
No. 1-10235).
**10.1(b) Second Amendment to the Amended and Restated Employment Agreement between IDEX and Donald N.
Boyce, dated as of September 27, 1994 (incorporated by reference to Exhibit No. 10.5(b) to the
Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1994, Commission File
No. 1-10235).
**10.2 Amended and Restated Employment Agreement between IDEX and Wayne P. Sayatovic, dated as of
January 22, 1988 (incorporated by reference to Exhibit No. 10.17 to Amendment No. 1 to the
Registration Statement on Form S-1 of IDEX Corporation, Registration No. 33-28317, as filed on
June 1, 1989).
**10.2(a) First Amendment to the Amended and Restated Employment Agreement between IDEX and Wayne P.
Sayatovic, dated as of January 13, 1993 (incorporated by reference to Exhibit No. 10.6(b) to the
Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1994, commission File
No. 1-10235).
**10.3 Employment Agreement between IDEX and Frank J. Hansen dated as of August 1, 1994 (incorporated
by reference to Exhibit No.10.7 to the Quarterly Report of IDEX on Form 10-Q for the quarter
ended September 30, 1994, Commission File No. 1-10235).
**10.3(a) First Amendment to the Employment Agreement between IDEX and Frank J. Hansen, dated as of
September 27, 1994 (incorporated by reference to Exhibit No. 10.7(a) to the Annual Report of
IDEX on Form 10-K for the fiscal year ending December 31, 1994, Commission File No. 1-10235).
17
19
Exhibit
Number Description Page
------- ----------- ----
**10.4 Employment Agreement between IDEX and Jerry N. Derck, dated as of September 27, 1994
(incorporated by reference to Exhibit No. 10.8 to the Annual Report of IDEX on Form 10-K for the
fiscal year ending December 31, 1994, Commission File No. 1-10235).
**10.5 Management Incentive Compensation Plan (incorporated by reference to Exhibit No. 10.21 to
Amendment No. 1 to the Registration Statement on Form S-1 of IDEX Corporation, Registration No.
33-28317, as filed on June 1, 1989).
**10.5(a) Amended Management Incentive Compensation Plan (incorporated by reference to Exhibit No. 10.9(a)
to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996, Commission
File No. 1-10235).
**10.6 Form of Indemnification Agreement (incorporated by reference to Exhibit No. 10.23 to the
Registration Statement on Form S-1 of IDEX Corporation, Registration No. 33-28317, as filed on
April 26, 1989).
**10.7 Form of Shareholder Purchase and Sale Agreement (incorporated by reference to Exhibit No. 10.24
to Amendment No. 1 to the Registration Statement on Form S-1 of IDEX Corporation, Registration
No. 33-28317, as filed on June 1, 1989).
**10.8 Revised Form of IDEX Stock Option Plan for Outside Directors (incorporated by reference to
Exhibit No. 10.22(a) to Post-Effective Amendment No. 4 to the Registration Statement on Form S-1
of IDEX Corporation, et al., Registration No. 33-21205, as filed on March 2, 1990).
**10.9 Amendment to the IDEX Stock Option Plan for Outside Directors, adopted by resolution of the
Board of Directors dated as of January 28, 1992 (incorporated by reference to Exhibit No.
10.21(a) of the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992,
Commission File No. 1-102351).
**10.10 Non-Qualified Stock Option Plan for Non-Officer Key Employees of IDEX (incorporated by reference
to Exhibit No. 10.15 to the Annual Report of IDEX on Form 10-K for the fiscal year ending
December 31, 1992, Commission File No. 1-102351).
**10.11 Non-Qualified Stock Option Plan for Officers of IDEX (incorporated by reference to Exhibit No.
10.16 to the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992,
Commission File No. 1-102351).
**10.12 IDEX Supplemental Executive Retirement Plan (incorporated by reference to Exhibit No. 10.17 to
the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992, Commission
File No. 1-102351).
**10.13 1996 Stock Plan for Officers of IDEX (incorporated by reference to Exhibit No. 10.18 to the
Quarterly Report of IDEX Corporation on Form 10-Q for the Quarter ended March 31, 1996,
Commission File No. 1-10235).
18
20
Exhibit
Number Description Page
------- ----------- ----
10.14 Amended and Restated IDEX Directors Deferred Compensation Plan (incorporated by reference to
Exhibit No. 10.19 to the Quarterly Report of IDEX Corporation on Form 10-Q for the Quarter ended
March 31, 1996, Commission File No. 1-10235).
*27 Financial Data Schedule.
Revolving Credit Facility, dated as of September 29, 1995,
between Dunja Verwaltungsgesellschaft mbH and Bank of America
NT & SA, Frankfurt Branch (a copy of the agreement will be
furnished to the Commission upon request).
- ---------------
*Filed herewith.
**Management contract or compensatory plan or arrangement.
19