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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999, 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 executive offices) (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, 1999: 29,464,110.
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2
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,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................................. $ 3,865 $ 2,721
Receivables -- net........................................ 91,461 86,006
Inventories............................................... 97,484 101,201
Other current assets...................................... 7,318 5,972
-------- --------
Total current assets.............................. 200,128 195,900
Property, plant and equipment -- net........................ 122,468 125,422
Intangible assets -- net.................................... 354,251 360,810
Other noncurrent assets..................................... 13,490 13,679
-------- --------
Total assets...................................... $690,337 $695,811
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable.................................... $ 38,270 $ 39,521
Dividends payable......................................... 4,125 4,125
Accrued expenses.......................................... 37,172 36,619
-------- --------
Total current liabilities......................... 79,567 80,265
Long-term debt.............................................. 269,908 283,410
Other noncurrent liabilities................................ 46,482 46,099
-------- --------
Total liabilities................................. 395,957 409,774
-------- --------
Shareholders' equity
Common stock, par value $.01 per share
Shares authorized: 1999 and 1998 -- 75,000,000
Shares issued and outstanding: 1999 -- 29,463,390;
1998 -- 29,466,416.................................... 295 295
Additional paid-in capital................................ 96,110 96,064
Retained earnings......................................... 203,260 195,465
Minimum pension liability adjustment...................... (1,489) (1,489)
Accumulated translation adjustment........................ (3,698) (4,298)
Treasury stock............................................ (98)
-------- --------
Total shareholders' equity........................ 294,380 286,037
-------- --------
Total liabilities and shareholders' equity........ $690,337 $695,811
======== ========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1999 1998
--------- ---------
(UNAUDITED)
Net sales................................................... $156,488 $159,084
Cost of sales............................................... 95,168 94,687
-------- --------
Gross profit................................................ 61,320 64,397
Selling, general and administrative expenses................ 34,981 33,425
Goodwill amortization....................................... 2,714 2,580
-------- --------
Operating income............................................ 23,625 28,392
Other income -- net......................................... 120 82
-------- --------
Income before interest expense and income taxes............. 23,745 28,474
Interest expense............................................ 4,518 6,073
-------- --------
Income before income taxes.................................. 19,227 22,401
Provision for income taxes.................................. 7,306 8,512
-------- --------
Income from continuing operations before extraordinary
item...................................................... 11,921 13,889
Income from discontinued operations, net of taxes........... 818
Extraordinary loss from early extinguishment of debt, net of
taxes..................................................... (2,514)
-------- --------
Net income.................................................. $ 11,921 $ 12,193
======== ========
Earnings Per Common Share -- Basic:
Continuing operations....................................... $ .40 $ .47
Discontinued operations..................................... .04
Extraordinary loss from early extinguishment of debt........ (.09)
-------- --------
Net income.................................................. $ .40 $ .42
======== ========
Earnings Per Common Share -- Diluted:
Continuing operations....................................... $ .40 $ .46
Discontinued operations..................................... .02
Extraordinary loss from early extinguishment of debt........ (.08)
-------- --------
Net income.................................................. $ .40 $ .40
======== ========
Share Data:
Weighted average common shares outstanding.................. 29,464 29,267
Weighted average common shares outstanding assuming full
dilution.................................................. 29,880 30,207
======== ========
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
ADDITIONAL PENSION ACCUMULATED TOTAL
PAID-IN RETAINED LIABILITY TRANSLATION TREASURY SHAREHOLDERS'
CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT STOCK EQUITY
---------- -------- ---------- ----------- -------- -------------
Balance, December 31, 1998....... $96,359 $195,465 $(1,489) $(4,298) $ -- $286,037
------- -------- ------- ------- ---- --------
Net income....................... 11,921 11,921
Unrealized translation
adjustment..................... 600 600
--------
Comprehensive income........... 12,521
Issuance of 1,474 shares of
common stock from exercise of
stock options.................. 46 46
Purchase of common stock......... (98) (98)
Cash dividends declared on common
stock ($.14 per share)......... (4,126) (4,126)
------- -------- ------- ------- ---- --------
Balance, March 31, 1999
(unaudited).................... $96,405 $203,260 $(1,489) $(3,698) $(98) $294,380
======= ======== ======= ======= ==== ========
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,
---------------------
1999 1998
-------- ---------
(UNAUDITED)
Cash flows from operating activities:
Income from continuing operations........................... $ 11,921 $ 13,889
Adjustments to reconcile to net cash provided by continuing
operations:
Depreciation and amortization............................. 5,352 5,013
Amortization of intangibles............................... 3,063 2,950
Amortization of debt issuance expenses.................... 139 162
Deferred income taxes..................................... (141) (85)
Increase in receivables................................... (5,455) (3,423)
Decrease (increase) in inventories........................ 3,717 (1,190)
(Decrease) increase in trade accounts payable............. (1,251) 230
Increase (decrease) in accrued expenses................... 553 (7,544)
Other transactions -- net................................. (1,016) 717
-------- ---------
Net cash provided by continuing operations.................. 16,882 10,719
Net cash provided by discontinued operations................ 475
-------- ---------
Net cash flows from operating activities............... 16,882 11,194
-------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment................ (4,104) (7,096)
Acquisition of business (net of cash acquired)............ (118,088)
-------- ---------
Net cash flows from investing activities............... (4,104) (125,184)
-------- ---------
Cash flows from financing activities:
Net repayments under the credit agreements................ (4,758) (75,088)
Borrowing under credit agreements for acquisition......... 118,088
Proceeds from issuance of 6.875% Senior Notes............. 150,000
Repayment of 9.75% Senior Subordinated Notes.............. (75,000)
Financing payments........................................ (4,375)
Decrease in accrued interest.............................. (2,689) (1,097)
Dividends paid............................................ (4,126) (3,949)
Proceeds from stock option exercises...................... 37 397
Purchase of common stock.................................. (98)
-------- ---------
Net cash flows from financing activities............... (11,634) 108,976
-------- ---------
Net increase (decrease) in cash............................. 1,144 (5,014)
Cash and cash equivalents at beginning of year.............. 2,721 11,771
-------- ---------
Cash and cash equivalents at end of period.................. $ 3,865 $ 6,757
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest.................................................. $ 7,136 $ 7,079
Income taxes.............................................. 2,793 7,018
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
IDEX Corporation ("IDEX" or the "Company") is a manufacturer of a broad
range of proprietary pump products, dispensing equipment and other engineered
products sold to a diverse customer base in a variety of industries in the U.S.
and internationally. The Company believes that each of its principal business
units holds the number-one or number-two market share position in that 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 and sold to a wide range of customers, coupled with
its ability to identify and successfully integrate strategic acquisitions. IDEX
consists of three reportable business segments: Pump Products, Dispensing
Equipment and Other Engineered Products.
The Pump Products Group manufactures engineered industrial pumps and
related controls. The Group's complementary lines of specialized positive
displacement pumps and related products include rotary gear, vane and lobe
pumps, vacuum pumps, air-operated diaphragm pumps, miniature magnetically and
electromagnetically driven pumps, and diaphragm and peristaltic metering pumps.
These products are used for a wide range of process applications, including
moving chemicals, paints, inks, foods, lubricants and fuels, as well as in
medical applications, water treatment and industrial production operations.
The Dispensing Equipment Group manufactures highly engineered equipment for
dispensing, metering and mixing tints, colorants, paints, inks and dyes, and
centralized lubrication systems. This equipment is used in a wide array of
industries around the world, such as paints and coatings, machinery and
transportation equipment.
The Other Engineered Products Group manufactures proprietary equipment,
including engineered banding and clamping devices, fire fighting pumps and
rescue tools. These products are used in a broad range of industrial and
commercial markets, including fire and rescue, transportation equipment, oil and
gas, electronics, communications, traffic and commercial signs.
Information about to the operations of IDEX in different business segments
follows based on the nature of products and services offered. The Company's
basis of segmentation and basis of segment profit measurement during the quarter
ended March 31, 1999, are the same as those set forth under "Business Segments
and Geographic Information" on pages 30 and 31 of the 1998 Annual Report.
Intersegment sales are accounted for at fair value as if the sales were to third
parties.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1999 1998
----------- -----------
(IN THOUSANDS - UNAUDITED)
Net sales
Pump Products
From external customers............................ $ 93,661 $ 93,738
Intersegment sales................................. 647 733
-------- --------
Total group sales............................. 94,308 94,471
-------- --------
Dispensing Equipment
From external customers............................ 26,259 29,954
Intersegment sales................................. 19
-------- --------
Total group sales............................. 26,259 29,973
-------- --------
Other Engineered Products
From external customers............................ 36,568 35,392
Intersegment sales................................. 1
-------- --------
Total group sales............................. 36,569 35,392
-------- --------
Intersegment elimination.............................. (648) (752)
-------- --------
Total net sales............................... $156,488 $159,084
======== ========
Operating income
Pump Products......................................... $ 17,253 $ 20,625
Dispensing Equipment.................................. 3,676 5,333
Other Engineered Products............................. 6,315 5,770
Corporate Office and Other............................ (3,619) (3,336)
-------- --------
Total operating income........................ $ 23,625 $ 28,392
======== ========
2. ACQUISITION
On January 21, 1998, IDEX completed the acquisition of Gast Manufacturing
Corporation (Gast) for a cash purchase price of $118 million, with financing
provided by borrowings under the Company's U.S. bank credit facilities. Gast,
headquartered in Benton Harbor, Michigan, is one of the world's leading
manufacturers of its type of air-moving equipment.
The acquisition, which was an addition to the Pump Products Group, was
accounted for as a purchase, and operating results include the acquisition from
the date of purchase. The excess of the acquisition purchase price over the fair
market value of net assets acquired is being amortized on a straight-line basis
over a period not exceeding 40 years. The unaudited pro forma consolidated
results of operations for the three months ended March 31, 1998, reflecting the
allocation of the purchase price and the related financing of the transaction
are as follows, assuming that the acquisition had occurred at the beginning of
the period (in thousands except per share amounts):
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998
-----------
(UNAUDITED)
Net sales................................................... $165,278
Income from continuing operations before extraordinary
item...................................................... 13,787
Net income.................................................. 12,091
Basic EPS
Continuing operations..................................... .47
Net income................................................ .41
Diluted EPS
Continuing operations..................................... .46
Net income................................................ .40
3. DISCONTINUED OPERATIONS
In December 1997 IDEX announced its intention to divest its Strippit and
Vibratech businesses. The Company completed the sale of Vibratech on June 9,
1998, for $23.0 million in cash, and the sale of Strippit on August 25, 1998,
for $19.5 million in cash and notes. Revenues from discontinued operations for
the first quarter of 1998 amounted to $19.9 million. Interest expense of $0.1
million for the first quarter of 1998 was allocated to these operations based on
their acquisition debt, less repayments generated from operating cash flows that
could be specifically attributed to these operations.
4. EXTRAORDINARY ITEM
During the first quarter of 1998, the Company retired, at a premium, its
9 3/4% $75 million Senior Subordinated Notes due in 2002. The transaction
resulted in an extraordinary loss of $2.5 million, net of an income tax benefit
of $1.5 million.
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,
---------------------
1999 1998
------ ------
(UNAUDITED)
Basic weighted average common shares outstanding........... 29,464 29,267
Dilutive effect of stock options........................... 416 940
------ ------
Weighted average common shares outstanding assuming full
dilution................................................. 29,880 30,207
====== ======
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVENTORIES
The components of inventories as of March 31, 1999, and December 31, 1998,
were (in thousands):
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
Raw materials and supplies......................... $25,504 $ 27,361
Work in process.................................... 14,565 13,904
Finished goods..................................... 57,415 59,936
------- --------
Total.................................... $97,484 $101,201
======= ========
Those inventories which were carried on a LIFO basis amounted to $77,949
and $81,317 at March 31, 1999, and December 31, 1998, 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, 1999, and December 31, 1998.
8. RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
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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 U.S. 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 affected 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's orders, sales, income from continuing operations and earnings per
share from continuing operations for the three months ended March 31, 1999, were
below last year's levels by 1%, 2%, 14% and 13%, respectively. New orders
totaled $165.9 million in the first quarter of 1999, a 13% improvement from the
fourth quarter of 1998 and within 1% of the record order level achieved in the
first quarter of last year. As a result, order backlog rose more than $9 million
during the three months ended March 31, 1999, the first increase in the last
year. IDEX continues to operate with a relatively low backlog of unfilled orders
of about 1 1/3 months' 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.
The slow rate of growth in 1998 in the U.S. economy and many other economies in
which IDEX sells its products continued into 1999. While the Company has strong
market positions, and emphasizes new product development and sales opportunities
worldwide, it is not able to escape the soft economic conditions that affect
most manufacturing companies. However, the Company does not sell the more
cyclical, higher-ticket capital goods, has high margins and strong cash flow,
and thus should not face severe financial pressure in an economic downturn. At
the beginning of 1999, IDEX recognized that uncertainties existed in the
economies of the world and in some of the markets it serves. IDEX anticipated a
slow start to the year and knew comparisons for the first half of 1999 would be
difficult. The Company currently is seeing a general improvement in the
industrial economy, but lingering weakness in some of the process industries
that it serves. Backlogs were up from December 31, 1998, in all business
segments, with the largest increases occurring in the Dispensing Equipment and
Pump Products Groups. IDEX continues to believe the situation will improve as
the year progresses and, barring unforeseen circumstances, expects that orders,
sales, income from continuing operations and earnings per share in 1999 will
exceed comparable 1998 levels. Several factors should contribute to our 1999
earnings growth: the increased order pace; reducing our backlog build with added
sales in the second and third quarters; continuing to emphasize new product
development, stringent cost controls and margin improvements at recently
acquired businesses; and using the Company's strong cash flow to cut debt and
interest expense.
Cautionary Statement Under the Private Securities Litigation Reform Act
The preceding paragraph and the "Liquidity and Capital Resources" and "Year
2000" sections of this management's discussion and analysis of IDEX's operations
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934. 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 that 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 U.S. and other countries around the world; pricing pressures and other
competitive factors, and levels of capital spending in certain industries, all
of which could have a material impact on order rates
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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 effect 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.
RESULTS OF OPERATIONS
For purposes of this discussion and analysis section, reference is made to
the table on page 11 and the Company's Statements of Consolidated Operations
included in the Financial Statements section. IDEX consists of three reportable
business segments: Pump Products, Dispensing Equipment and Other Engineered
Products.
PERFORMANCE IN THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE SAME PERIOD
OF 1998
Net sales for the three months ended March 31, 1999, were $156.5 million, a
decrease of 2% from the sales of $159.1 million for the first quarter of 1998.
Net income from continuing operations for the quarter amounted to $11.9 million,
14% lower than the $13.9 million earned in last year's first quarter. Diluted
earnings per share from continuing operations were 40 cents versus 46 cents in
the same quarter last year.
New orders from continuing operations totaled $165.9 million and exceeded
shipments by more than $9 million in the first quarter of 1999. The Company
ended the first quarter with a typical unfilled orders backlog of about 1 1/3
months' sales.
In the first quarter of 1999, the Pump Products Group contributed 60% of
sales and 63% of operating income, the Dispensing Equipment Group accounted for
17% of sales and 14% of operating income, and the Other Engineered Products
Group represented 23% of both sales and operating income. The inclusion of Gast,
acquired on January 21, 1998, for a full quarter of 1999 added 4% to the
quarterly sales growth but was offset by a 6% decline in base business activity.
International sales were 37% of total sales in the first quarter of 1999, down
from 40% in last year's first quarter. A portion of this reduction came from
including Gast for a full quarter in 1999, which only has about 20% of its sales
outside of the United States. Certain international markets, particularly Europe
and Latin America, experienced softer economic conditions this quarter compared
to the first quarter of last year, which also contributed to the reduction in
the international sales. Partially offsetting this international decline were
shipments to Asia, which were about 5% higher than either the first or fourth
quarters of 1998. Compared to the first quarter of last year, total domestic
sales increased 2%, while international sales declined 8%.
Pump Products Group sales of $94.3 million for the three months ended March
31, 1999, were essentially equal to the sales of $94.5 million in same period of
1998. The inclusion of Gast for a full quarter of 1999 added 8% to the quarterly
sales growth but was offset by a decline in base business activity of the Pump
Products Group. Sales to customers outside the U.S. declined to 30% of total
sales in the first quarter of 1999 from 32% in 1998, principally due to the
inclusion of Gast for the full first quarter of 1999.
Dispensing Equipment Group sales of $26.3 million decreased by $3.7
million, or 12%, in the first quarter of 1999 compared with last year's first
quarter principally due to lower sales volume in certain international markets,
particularly Europe and Latin America. As a result of the decrease in
international sales, shipments to customers outside the U.S. decreased to 40% of
total Dispensing Equipment Group sales in the first quarter of 1999, down from
44% in the first quarter of 1998.
Other Engineered Products Group sales of $36.6 million increased by $1.2
million, or 3%, in the first quarter of 1999 compared with 1998. The increase
principally reflected higher sales in the U.S. fire and rescue markets. As a
result of the strengthening in U.S. sales, international sales were 52% of total
group sales in the first quarter of 1999, down from 54% in same quarter of 1998.
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IDEX CORPORATION AND SUBSIDIARIES
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1999 1998(1)
--------- ---------
(UNAUDITED)
Pump Products Group
Net sales (2)............................................. $ 94,308 $ 94,471
Operating income (3)...................................... 17,253 20,625
Operating margin.......................................... 18.3% 21.8%
Depreciation and amortization............................. $ 4,909 $ 4,597
Capital expenditures...................................... 1,863 2,236
Dispensing Equipment Group
Net sales (2)............................................. $ 26,259 $ 29,973
Operating income (3)...................................... 3,676 5,333
Operating margin.......................................... 14.0% 17.8%
Depreciation and amortization............................. $ 1,699 $ 1,732
Capital expenditures...................................... 1,197 629
Other Engineered Products Group
Net sales (2)............................................. $ 36,569 $ 35,392
Operating income (3)...................................... 6,315 5,770
Operating margin.......................................... 17.3% 16.3%
Depreciation and amortization............................. $ 1,729 $ 1,569
Capital expenditures...................................... 1,017 1,463
Company
Net sales................................................. $156,488 $159,084
Operating income.......................................... 23,625 28,392
Operating margin.......................................... 15.1% 17.8%
Depreciation and amortization (4)......................... $ 8,415 $ 7,963
Capital expenditures...................................... 4,104 7,096
- -------------------------
1) Includes acquisition of Gast Manufacturing (January 21, 1998) from date of
purchase.
2) Group net sales include intersegment sales.
3) Group operating income excludes net unallocated corporate operating expenses.
4) Excludes amortization of debt issuance expenses.
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Gross profit of $61.3 million in the first quarter of 1999 decreased by
$3.1 million, or 5%, from 1998. Gross profit as a percent of sales was 39.2% in
1999, down from 40.5% in 1998. The year-over-year decrease in gross profit
primarily reflects lower sales volume. The decrease in gross profit margins was
caused primarily by sales mix with a greater portion of sales in the first
quarter of 1999 coming from recent acquisitions whose gross margins are lower
than the existing base businesses. Selling, general and administrative expenses
increased to $35.0 million in 1999 from $33.4 million in 1998, and as a percent
of net sales, increased to 22.4% from 21.0% in 1998 principally due to lower
sales volume of the base businesses and including a full quarter of Gast
expenses in the current year. Goodwill amortization expense increased by 5% to
$2.7 million in the first quarter of 1999 primarily due to the inclusion of Gast
for the full quarter in 1999. As a percent of sales, goodwill amortization
expense remained flat at about 2% for both periods.
Operating income decreased by $4.8 million, or 17%, to $23.6 million in
1999 from $28.4 million in 1998. Operating income as a percent of sales
decreased to 15.1% in 1999 from 17.8% in 1998. In the Pump Products Group,
operating income of $17.3 million and operating margin of 18.3% in 1999 compared
to the $20.6 million and 21.8% in 1998. The declines in operating income and
margins for the Company and the Pump Products Group were primarily caused by
having a greater portion of sales in the first quarter of 1999 coming from Gast,
whose operating margin is lower than the base businesses. Lower sales volume was
also a factor in the operating margin decline. The Dispensing Equipment Group
operating income of $3.7 million and operating margin of 14.0% compared to $5.3
million and 17.8% achieved in 1998. The decrease in operating income and margin
resulted from lower sales volume. Operating income in the Other Engineered
Products Group of $6.3 million and operating margin of 17.3% in 1999 increased
from $5.8 million and 16.3% achieved in 1998, principally due to higher sales
volume.
Interest expense decreased to $4.5 million in the first quarter of 1999
from $6.1 million in 1998 because of debt reductions from operating cash flow,
the proceeds from the sale of discontinued businesses during 1998, and lower
interest rates.
The provision for income taxes decreased to $7.3 million in 1999 from $8.5
million in 1998. The effective tax rate was 38.0% in the first quarters of 1999
and 1998.
Income from continuing operations of $11.9 million in 1999 was 14% lower
than income of $13.9 million in 1998. Diluted earnings per share from continuing
operations amounted to 40 cents per share in 1999, a decrease of 6 cents per
share, or 13%, from the 46 cents achieved in 1998.
During the first quarter of 1998, the Company recorded income of $0.8
million, or 2 cents per share, from discontinued operations. The Company
completed the sale of Vibratech on June 9, 1998, and the sale of Strippit on
August 25, 1998.
In the first quarter of 1998, the Company retired, at a premium, its 9 3/4%
$75 million Senior Subordinated Notes due in 2002. The transaction resulted in
an extraordinary charge of $2.5 million, net of an income tax benefit.
Total net income of $11.9 million in the first quarter of 1999 was 2% lower
than net income of $12.2 million in 1998. Diluted earnings per share on a net
income basis were 40 cents per share in the first quarter of 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, IDEX's working capital was $120.6 million and its
current ratio was 2.5 to 1. The Company's cash flow from continuing operations
increased by $6.2 million in 1999 to $16.9 million. The improvement in cash flow
principally resulted from lower working capital requirements partially offset by
lower income from continuing operations. Cash from discontinued operations
decreased $0.5 million as a result of selling the discontinued operations during
1998.
Cash flow provided by operations was more than adequate to fund capital
expenditures of $4.1 million and $7.1 million in 1999 and 1998, respectively.
The majority of capital expenditures was for machinery and equipment that
improved productivity, although a portion was for repair and replacement of
equipment and
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facilities. Management believes that IDEX has ample production capacity to meet
expected needs for future growth.
At March 31, 1999, the maximum amount available under the U.S. Credit
Agreement was $235 million, of which $80.1 million was borrowed, including an 82
million Netherlands guilder borrowing ($40.1 million), which provides an
economic hedge against the net investment in Fluid Management's Netherlands
operation. The availability under this facility declines in stages commencing
July 1, 1999, to $185 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 agent bank's reference rate or at LIBOR plus an applicable
margin. At March 31, 1999, the applicable margin was 35 basis points. The
Company also pays a facility fee of 15 basis points on the total facility. The
Company also has a $15 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, 1999, the Company had $3 million
borrowed under this short-term line of credit at an interest rate of 5.1% per
annum.
At March 31, 1999, the maximum amount available under the Company's German
credit agreement was 52.5 million marks ($28.9 million), of which 52 million
marks ($28.6 million) was being used, which provides an economic hedge against
the net investment in the Company's Lukas subsidiary. The availability under
this agreement declines to 37 million marks 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 an applicable margin. At
March 31, 1999, the applicable margin was 62.5 basis points.
On October 20, 1998, IDEX's Board of Directors authorized the repurchase of
up to 1.5 million shares of common stock either at market prices or on a
negotiated basis as market conditions warrant, which will be funded with
borrowings under the Company's existing lines of credit. During the first
quarter of 1999, 4,500 shares had been repurchased under the program.
IDEX believes it will generate sufficient cash flow from operations in 1999
to meet its operating requirements, interest and scheduled amortization payments
under the U.S. Credit Agreement, demand line and the German credit agreement,
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. From
commencement of operations in January 1988 until March 31, 1999, IDEX has
borrowed $578 million under its various credit agreements to complete 13
acquisitions. During this same period IDEX generated, principally from
operations, cash flow of $477 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.
YEAR 2000
IDEX initiated a Year 2000 compliance program in late 1996 to ensure that
its information systems and other date-sensitive equipment continue an
uninterrupted transition into the Year 2000. The Company is currently in the
final phases of correcting systems with identified deficiencies and is
performing the final validation testing of its Year 2000 compliance program.
IDEX currently believes all essential processes, systems and business functions
will comply with the Year 2000 requirements by the middle of 1999. While IDEX
does not expect that the consequences of any unsuccessful modifications would
significantly affect the financial position, liquidity or results of operations,
there can be no assurance that failure to be fully compliant by 2000 would not
have an impact on the Company.
The Company is also surveying critical suppliers and customers to ensure
that their systems will be Year 2000 compliant and anticipates this survey will
be complete by mid-1999. While the failure of a single third party to timely
achieve Year 2000 compliance should not have a material adverse effect on IDEX's
results of operations in a particular period, the failure of several key third
parties to achieve such compliance could have such an effect. IDEX will develop
contingency plans by mid-1999 to alter business relationships in the event
certain third parties fail to become Year 2000 compliant.
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The cost of IDEX's Year 2000 transition program is being funded with cash
flows from operations. Some of the cost relates solely to the modification of
existing systems, while some is for new systems, that will improve business
functionality. In total, the cost is not expected to be substantially different
from the normal recurring cost incurred for system development and
implementation, in part due to the reallocation of internal resources to
implement the new business systems. Expenditures related to this program are
projected to total $6 million.
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 $269.9 million of long-term debt of the Company outstanding at March 31,
1999. Approximately one-quarter 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 $325,000 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 British Pound, German Mark, Dutch Guilder, Euro and other Western European
currencies. 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 23,
1999. 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 I directors:
DIRECTOR FOR WITHHELD
-------- ---------- --------
Donald N. Boyce........................................... 27,016,980 149,403
Richard E. Heath.......................................... 27,016,980 149,403
Henry R. Kravis........................................... 26,767,299 399,084
Additionally, shareholders voted on the following matter:
A proposal to appoint Deloitte & Touche LLP as auditors of IDEX
Corporation received a majority of the votes cast, specifically as
stated:
Affirmative Votes........................................... 27,142,354
Negative Votes.............................................. 15,053
Abstentions................................................. 8,975
Broker Nonvotes............................................. 0
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:
There have been no reports on Form 8-K filed during the quarter for
which this report is filed.
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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 7, 1999
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
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 No. 3.1 through 3.2(a))..................
4.2 Indenture, dated as of February 23, 1998, between IDEX, and
Norwest Bank Minnesota, National Association, as Trustee,
relating to the 6 7/8% of Senior Notes of IDEX 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 (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 (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 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 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 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 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 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)...........................................
*10.1 Consulting Agreement between IDEX Corporation and Donald N.
Boyce, dated March 31, 1999.................................
*27 Financial Data Schedule.....................................
- -------------------------
* Filed herewith
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