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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 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 July 30, 1999: 29,571,685.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................................. $ 7,012 $ 2,721
Receivables - net......................................... 107,958 86,006
Inventories............................................... 107,335 101,201
Other current assets...................................... 7,505 5,972
-------- --------
Total current assets.............................. 229,810 195,900
Property, plant and equipment - net......................... 131,665 125,422
Intangible assets - net..................................... 392,192 360,810
Other noncurrent assets..................................... 10,233 13,679
-------- --------
Total assets...................................... $763,900 $695,811
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable.................................... $ 45,876 $ 39,521
Dividends payable......................................... 4,144 4,125
Accrued expenses.......................................... 38,483 36,619
-------- --------
Total current liabilities......................... 88,503 80,265
Long-term debt.............................................. 318,757 283,410
Other noncurrent liabilities................................ 50,054 46,099
-------- --------
Total liabilities................................. 457,314 409,774
-------- --------
Shareholders' equity
Common stock, par value $.01 per share
Shares authorized: 1999 and 1998 - 75,000,000
Shares issued and outstanding: 1999 - 29,553,125; 1998
- 29,466,416.......................................... 296 295
Additional paid-in capital................................ 97,966 96,064
Retained earnings......................................... 213,237 195,465
Minimum pension liability adjustment...................... (1,489) (1,489)
Accumulated translation adjustment........................ (3,326) (4,298)
Treasury stock............................................ (98)
-------- --------
Total shareholders' equity........................ 306,586 286,037
-------- --------
Total liabilities and shareholders' equity........ $763,900 $695,811
======== ========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
Net sales.......................................... $161,484 $169,461 $317,972 $328,545
Cost of sales...................................... 96,754 102,126 191,922 196,813
-------- -------- -------- --------
Gross profit....................................... 64,730 67,335 126,050 131,732
Selling, general and administrative expenses....... 35,018 34,203 69,999 67,628
Goodwill amortization.............................. 2,704 2,689 5,418 5,269
-------- -------- -------- --------
Operating income................................... 27,008 30,443 50,633 58,835
Other income (expense) -- net...................... 114 (50) 234 32
-------- -------- -------- --------
Income before interest expense and income taxes.... 27,122 30,393 50,867 58,867
Interest expense................................... 4,345 5,961 8,863 12,034
-------- -------- -------- --------
Income before income taxes......................... 22,777 24,432 42,004 46,833
Provision for income taxes......................... 8,656 9,288 15,962 17,800
-------- -------- -------- --------
Income from continuing operations before
extraordinary item............................... 14,121 15,144 26,042 29,033
-------- -------- -------- --------
Discontinued operations:
Income from discontinued operations, net of
taxes............................................ 384 1,202
Gain on sale of discontinued operations, net of
taxes............................................ 8,386 8,386
-------- -------- -------- --------
Income from discontinued operations................ 8,770 9,588
-------- -------- -------- --------
Extraordinary loss from early extinguishment of
debt, net of taxes............................... (2,514)
-------- -------- -------- --------
Net income......................................... $ 14,121 $ 23,914 $ 26,042 $ 36,107
======== ======== ======== ========
Earnings Per Common Share -- Basic:
Continuing operations.............................. $ .48 $ .52 $ .88 $ .99
Discontinued operations............................ .30 .33
Extraordinary loss from early extinguishment of
debt............................................. (.09)
-------- -------- -------- --------
Net income......................................... $ .48 $ .82 $ .88 $ 1.23
======== ======== ======== ========
Earnings Per Common Share -- Diluted:
Continuing operations.............................. $ .47 $ .50 $ .87 $ .96
Discontinued operations............................ .29 .31
Extraordinary loss from early extinguishment of
debt............................................. (.08)
-------- -------- -------- --------
Net income......................................... $ .47 $ .79 $ .87 $ 1.19
======== ======== ======== ========
Share Data:
Weighted average common shares outstanding......... 29,484 29,308 29,474 29,287
Weighted average common shares outstanding assuming
full dilution.................................... 30,109 30,311 29,955 30,244
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT 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) $ -- $286,037
------- -------- ------- ------- ---- --------
Net income......................... 26,042 26,042
Unrealized translation
adjustment....................... 972 972
-------- ------- --------
Comprehensive income............. 26,042 972 27,014
-------- ------- --------
Issuance of 91,209 shares of common
stock from exercise of stock
options.......................... 1,903 1,903
Purchase of common stock........... (98) (98)
Cash dividends declared on common
stock ($.28 per share)........... (8,270) (8,270)
------- -------- ------- ------- ---- --------
Balance, June 30, 1999
(unaudited)...................... $98,262 $213,237 $(1,489) $(3,326) $(98) $306,586
======= ======== ======= ======= ==== ========
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
-------- ---------
(UNAUDITED)
Cash flows from operating activities:
Income from continuing operations........................... $ 26,042 $ 29,033
Adjustments to reconcile to net cash provided by continuing
operations:
Depreciation and amortization............................. 10,759 10,439
Amortization of intangibles............................... 6,078 6,024
Amortization of debt issuance expenses.................... 242 325
Deferred income taxes..................................... 2,668 1,670
Increase in receivables................................... (7,929) (3,040)
Decrease in inventories................................... 3,634 317
Decrease in trade accounts payable........................ (1,361) (2,338)
Decrease in accrued expenses.............................. (1,922) (4,796)
Other transactions - net.................................. (1,368) (4,166)
-------- ---------
Net cash provided by continuing operations.................. 36,843 33,468
Net cash provided by discontinued operations................ 4,666
-------- ---------
Net cash flows from operating activities............... 36,843 38,134
-------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment................ (8,881) (12,542)
Acquisition of businesses (net of cash acquired).......... (48,175) (118,088)
Proceeds from sale of businesses.......................... 22,290
-------- ---------
Net cash flows from investing activities............... (57,056) (108,340)
-------- ---------
Cash flows from financing activities:
Borrowings under credit agreements for acquisitions....... 48,175 118,088
Net repayments under the credit agreements................ (12,493) (113,088)
Repayments of other long-term debt........................ (3,815) (4,832)
Proceeds from issuance of 6.875% Senior Notes............. 150,000
Repayment of 9.75% Senior Subordinated Notes.............. (75,000)
Financing payments........................................ (5,031)
(Decrease) increase in accrued interest................... (486) 1,180
Dividends paid............................................ (8,250) (7,905)
Proceeds from stock option exercises...................... 1,471 872
Purchase of common stock.................................. (98)
-------- ---------
Net cash flows from financing activities............... 24,504 64,284
-------- ---------
Net increase (decrease) in cash............................. 4,291 (5,922)
Cash and cash equivalents at beginning of year.............. 2,721 11,771
-------- ---------
Cash and cash equivalents at end of period.................. $ 7,012 $ 5,849
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest.................................................. $ 9,107 $ 10,576
Income taxes.............................................. 10,866 14,907
SIGNIFICANT NON-CASH ACTIVITIES
Debt acquired with acquisition of business.................. 13,065
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 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 for the quarter
and six months ended June 30, 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. Amounts are in thousands.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- --------
(UNAUDITED) (UNAUDITED)
Net sales
Pump Products
From external customers........... $ 94,137 $ 98,792 $187,798 $192,530
Intersegment sales................ 754 481 1,401 1,214
-------- -------- -------- --------
Total group sales............ 94,891 99,273 189,199 193,744
-------- -------- -------- --------
Dispensing Equipment
From external customers........... 33,141 33,350 59,400 63,304
Intersegment sales................ 2 6 2 25
-------- -------- -------- --------
Total group sales............ 33,143 33,356 59,402 63,329
-------- -------- -------- --------
Other Engineered Products
From external customers........... 34,206 37,319 70,774 72,711
Intersegment sales................ 1 1 2 1
-------- -------- -------- --------
Total group sales............ 34,207 37,320 70,776 72,712
-------- -------- -------- --------
Intersegment elimination............. (757) (488) (1,405) (1,240)
-------- -------- -------- --------
Total net sales.............. $161,484 $169,461 $317,972 $328,545
======== ======== ======== ========
Operating income
Pump Products........................ $ 17,430 $ 19,623 $ 34,683 $ 40,248
Dispensing Equipment................. 7,462 7,417 11,138 12,750
Other Engineered Products............ 5,766 6,222 12,081 11,992
Corporate Office and Other........... (3,650) (2,819) (7,269) (6,155)
-------- -------- -------- --------
Total operating income....... $ 27,008 $ 30,443 $ 50,633 $ 58,835
======== ======== ======== ========
2. ACQUISITIONS
On June 4, 1999, IDEX acquired FAST S.p.A. (FAST) at a cost of
approximately $61 million, with financing provided by borrowings under the
Company's U.S. bank credit facilities and debt acquired from FAST. FAST, with
headquarters near Milan, Italy, is a leading European manufacturer of
refinishing and color-formulation equipment for a number of applications,
including paints, coatings, inks, colorants and dyes. FAST is being operated as
a stand-alone business unit in IDEX's Dispensing Equipment Group.
On January 21, 1998, the Company 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. Gast is being
operated as a stand-alone business unit in IDEX's Pump Products Group.
Each of these acquisitions was accounted for as a purchase, and operating
results include the acquisitions from the dates of purchase. Cost in excess of
net assets acquired is amortized on a straight-line basis over a period not
exceeding 40 years. The unaudited pro forma consolidated results of operations
for the six months ended June 30, 1999 and 1998, reflecting the allocation of
the purchase price and the related financing of the
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions are as follows, assuming that these acquisitions had occurred at
the beginning of each of the respective periods (in thousands except per share
amounts):
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
(UNAUDITED)
Net sales................................................ $337,781 $355,346
Income from continuing operations before extraordinary
item................................................... 27,612 30,150
Net income............................................... 27,612 37,224
Basic EPS
Continuing operations.................................. 0.94 1.03
Net income............................................. 0.94 1.27
Diluted EPS
Continuing operations.................................. 0.92 1.00
Net income............................................. 0.92 1.23
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
amounted to $16.5 million and $36.4 million in the second quarter and for the
six months ended June 30, 1998, respectively. Interest expense of $0.1 million
and $0.2 million for the second quarter and for the six months ended June 30,
1998, respectively, 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):
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1999 1998 1999 1998
------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
Basic weighted average common shares
outstanding............................. 29,484 29,308 29,474 29,287
Dilutive effect of stock options.......... 625 1,003 481 957
------ ------ ------ ------
Weighted average common shares outstanding
assuming full dilution.................. 30,109 30,311 29,955 30,244
====== ====== ====== ======
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVENTORIES
The components of inventories as of June 30, 1999, and December 31, 1998,
were (in thousands):
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
Raw materials and supplies.............................. $ 31,830 $ 27,361
Work in process......................................... 13,176 13,904
Finished goods.......................................... 62,329 59,936
-------- --------
Total......................................... $107,335 $101,201
======== ========
Those inventories which were carried on a LIFO basis amounted to $87,538
and $81,317 at June 30, 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 June 30, 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 first half of 1999 were below last
year's levels by 1%, 3%, 10% and 9%, respectively. New orders totaled $161.3
million in the second quarter of 1999, slightly higher than last year's second
quarter and within 3% of this year's first quarter. Since the beginning of the
year, IDEX's order backlog has increased by $9 million. IDEX continues to
operate with relatively low backlogs 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 United States 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 is seeing a general improvement in the
industrial economy, but lingering weakness in some of the process industries
that it serves. Backlogs at June 30, 1999, were unchanged from December 31,
1998, in the Pump Products Group but increased in both the Dispensing Equipment
and Other Engineered 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 current order pace; reducing the $9
million backlog build with added sales in the last two quarters; the acquisition
of FAST; continued emphasis on profitable growth initiatives; margin
improvements at recently acquired businesses; and the using of the Company's
strong cash flow to cut debt and interest expense.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The preceding paragraph, 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 and the Company's results,
particularly in light of the low levels of order backlogs typically maintained
by the
9
11
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 SECOND QUARTER ENDED JUNE 30, 1999 COMPARED TO THE SAME
PERIOD OF 1998
Net sales for the three months ended June 30, 1999, were $161.5 million, a
decrease of 5% from the sales of $169.5 million for the second quarter of 1998.
Foreign currency translation accounted for 1% of this difference. Net income
from continuing operations for the quarter amounted to $14.1 million, 7% lower
than the $15.1 million earned in last year's second quarter. Diluted earnings
per share from continuing operations were 47 cents versus 50 cents in the same
quarter last year. Second quarter diluted earnings per share were the third
highest in the Company's history but fell short of the record performance set in
the same quarter last year.
New orders from continuing operations totaled $161.3 million and
essentially equaled shipments, maintaining the $9 million backlog build which
occurred during the first quarter of the year. The Company ended the second
quarter with a typical unfilled orders backlog of about 1 1/3 months' sales.
In the second quarter of 1999, the Pump Products Group contributed 59% of
sales and 57% of operating income, the Dispensing Equipment Group accounted for
20% of sales and 24% of operating income, and the Other Engineered Products
Group represented 21% of sales and 19% of operating income. International sales
were 38% of total sales in the second quarter of 1999, down from 39% in last
year's second quarter.
Compared to the second quarter of last year, total domestic sales decreased
2%, while international sales declined 9%. Certain international markets,
especially Europe, experienced softer economic conditions this quarter compared
to the second quarter of last year.
Pump Products Group sales of $94.9 million decreased by $4.4 million, or
4%, in the second quarter of 1999 compared with last year's second quarter
chiefly due to lower sales from certain business units that serve the chemical
processing, oil and gas, and pulp and paper markets. Sales to customers outside
the U.S. declined to 30% of total sales in the first quarter of 1999 from 31% in
1998.
Dispensing Equipment Group sales of $33.1 million for the three months
ended June 30, 1999, were essentially equal to the sales of $33.4 million in the
same period of 1998. Compared to the second quarter of last year, domestic sales
increased 6%, while international sales declined 8%. As a result of the decrease
in international sales, sales to customers outside the U.S. decreased to 45% of
total Dispensing Equipment Group sales in the second quarter of 1999 down from
49% in the second quarter of 1998 principally due to lower sales volume in
Europe.
Other Engineered Products Group sales of $34.2 million decreased by $3.1
million, or 8%, in the second quarter of 1999 compared with 1998. The decrease
principally reflected lower international sales in the fire, rescue and banding
and clamping markets. Sales to customers outside the U.S. were 49% of total
group sales in the second quarter of 1999, down from 52% in same quarter of 1998
principally due to lower sales volume in certain international markets including
Europe and Asia.
Gross profit of $64.7 million in the second quarter of 1999 decreased by
$2.6 million, or 4%, from 1998 and primarily reflects the lower sales volume.
Gross profit as a percent of sales was 40.1% in 1999, up from 39.7% in 1998. The
increase in year-to-year gross profit margins was caused primarily by sales mix.
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IDEX CORPORATION AND SUBSIDIARIES
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(IN THOUSANDS)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998 (1)
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
Pump Products Group
Net sales(2)............................. $ 94,891 $ 99,273 $189,199 $193,744
Operating income(3)...................... 17,430 19,623 34,683 40,248
Operating margin......................... 18.4% 19.8% 18.3% 20.8%
Depreciation and amortization............ $ 4,901 $ 5,095 $ 9,810 $ 9,692
Capital expenditures..................... 2,336 2,920 4,199 5,156
Dispensing Equipment Group
Net sales(2)............................. $ 33,143 $ 33,356 $ 59,402 $ 63,329
Operating income(3)...................... 7,462 7,417 11,138 12,750
Operating margin......................... 22.5% 22.2% 18.8% 20.1%
Depreciation and amortization............ $ 1,723 $ 1,770 $ 3,422 $ 3,502
Capital expenditures..................... 1,310 1,119 2,507 1,748
Other Engineered Products Group
Net sales(2)............................. $ 34,207 $ 37,320 $ 70,776 $ 72,712
Operating income(3)...................... 5,766 6,222 12,081 11,992
Operating margin......................... 16.9% 16.7% 17.1% 16.5%
Depreciation and amortization............ $ 1,720 $ 1,578 $ 3,449 $ 3,147
Capital expenditures..................... 1,108 1,397 2,125 2,860
Company
Net sales................................ $161,484 $169,461 $317,972 $328,545
Operating income......................... 27,008 30,443 50,633 58,835
Operating margin......................... 16.7% 18.0% 15.9% 17.9%
Depreciation and amortization(4)......... $ 8,422 $ 8,500 $ 16,837 $ 16,463
Capital expenditures..................... 4,777 5,446 8,881 12,542
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(1) Includes acquisition of Gast (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.
11
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Selling, general and administrative expenses increased to $35.0 million in
1999 from $34.2 million in 1998, and as a percent of sales, increased to 21.7%
from 20.2% in 1998 principally reflecting lower sales volume. Goodwill
amortization expense remained unchanged at $2.7 million and as a percent of
sales, goodwill amortization expense remained flat at about 2% for both years.
Operating income decreased by $3.4 million, or 11%, to $27.0 million in
1999 from $30.4 million in 1998. Operating income as a percent of sales
decreased to 16.7% in 1999 from 18.0% in 1998. In the Pump Products Group,
operating income of $17.4 million and operating margin of 18.4% in 1999 compared
to the $19.6 million and 19.8% achieved in 1998. The declines in operating
income and margins for the Company and the Pump Products Group were chiefly
caused by lower sales from certain business units in the Pump Products Group
which have higher operating margins and serve the chemical processing, oil and
gas, and pulp and paper markets. The Dispensing Equipment Group operating income
of $7.5 million and operating margin of 22.5% were up slightly from the $7.4
million and 22.2% achieved in 1998. Operating income in the Other Engineered
Products Group of $5.8 million was below the $6.2 million achieved in 1998 while
second quarter 1999 operating margins of 16.9% were slightly improved from last
year's margins of 16.7%.
Interest expense decreased to $4.3 million in the second quarter of 1999
from $6.0 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 $8.7 million in 1999 from $9.3
million in 1998. The effective tax rate was 38.0% in the second quarters of 1999
and 1998.
Income from continuing operations of $14.1 million in the second quarter of
1999 was 7% lower than income of $15.1 million in 1998. Diluted earnings per
share from continuing operations amounted to 47 cents per share in 1999, a
decrease of 3 cents per share, or 6%, from the 50 cents achieved in 1998.
During the second quarter of 1998, the Company recorded income of $8.8
million, or 29 cents per share, from discontinued operations. This included a
net gain of $8.4 million related to the sale of discontinued business units. The
Company completed the sale of Vibratech on June 9, 1998, and the sale of
Strippit on August 25, 1998.
Total net income of $14.1 million in the second quarter of 1999 was 41%
lower than net income of $23.9 million in 1998. Diluted earnings per share on a
net income basis were 47 cents per share in the second quarter of 1999 versus 79
cents in 1998.
PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SAME PERIOD OF
1998
In the first six months of 1999, net sales of $318.0 million were 3% lower
than the $328.5 million recorded in the first half of 1998. Last year's first
half sales were particularly strong and a 5% decline in base business sales
volume more than offset a 2% increase from acquisitions.. Net income from
continuing operations of $26.0 million was 10% below the $29.0 million of 1998's
first half and diluted earnings per share from continuing operations of 87 cents
decreased from 96 cents last year.
In the first half of 1999, the Pump Products Group represented 59% of sales
and 60% of operating income, the Dispensing Equipment Group accounted for 19% of
both sales and operating income, and the Other Engineered Products Group
contributed 22% of sales and 21% of operating income. International sales were
37% of total sales in this year's first half compared with 40% in the first half
of 1998.
In the first six months of 1999, total domestic sales equaled last year,
while international sales decreased by 9%. Weaker sales in Europe and Latin
America were only partially offset by slightly improved shipments to the Asia
Pacific region.
Pump Products Group sales of $189.2 million decreased $4.5 million, or 2%,
for the six months ended June 30, 1999, compared with 1998. The inclusion of
Gast, acquired on January 21, 1998, for a full six months of 1999 added 4% to
the sales growth, but was offset by a 6% 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 half of 1999 from 32% in 1998 principally due to lower
sales in Europe.
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Dispensing Equipment Group sales of $59.4 million decreased by $3.9
million, or 6%, in the first half of 1999 compared with the comparable period of
last year primarily due to lower sales volume in international markets. As a
result of the decrease in international sales, sales to customers outside the
U.S.
decreased to 43% of total Dispensing Equipment Group sales in the first six
months of 1999, down from 47% of total sales in 1998.
Other Engineered Products Group sales of $70.8 million decreased by $1.9
million, or 3%, in the six months ended June 30, 1999, compared with 1998. The
decrease chiefly reflects lower international sales in the fire, rescue and
banding and clamping markets. Sales to customers outside the U.S. were 51% of
total group sales in the first half of 1999, down from 53% in 1998.
Operating income decreased by $8.2 million, or 14%, to $50.6 million in
1999 from $58.8 million in 1998. Operating income as a percent of sales
decreased to 15.9% in 1999 from 17.9% in 1998. In the Pump Products Group,
operating income of $34.7 million and operating margin of 18.3% in 1999 compared
to the $40.2 million and 20.8% in 1998. The declines in operating income and
margins for the Company and the Pump Products Group were primarily caused by
lower sales from certain business units in the Pump Products Group which have
higher operating margins and serve the chemical processing, oil and gas, and
pulp and paper markets. The Dispensing Equipment Group operating income of $11.1
million and operating margin of 18.8% compared to the $12.8 million and 20.1%
achieved in 1998. The decrease in operating income and margin resulted from
lower sales volume. Operating income in the Other Engineered Products Group of
$12.1 million was essentially equal to 1998 while operating margins were 17.1%
this year versus 16.5% in the prior year.
Selling, general and administrative expenses increased to $70.0 million in
1999 from $67.6 million in 1998, and as a percent of sales, increased to 22.0%
from 20.6% in 1998 principally reflecting a full six months of Gast expenses in
1999 and lower total sales. Goodwill amortization expense increased by 3% to
$5.4 million primarily due to inclusion of Gast for the full six months of 1999.
As a percent of sales, goodwill amortization expense remained flat at about 2%
for both years.
Interest expense decreased to $8.9 million in the first six months of 1999
from $12.0 million in 1998 because of debt reductions from operating cash flow,
the proceeds from the sale of discontinued businesses in 1998, and lower
interest rates.
The provision for income taxes decreased to $16.0 million in 1999 from
$17.8 million in 1998. The effective tax rate was 38.0% in the first six months
of 1999 and 1998.
Income from continuing operations of $26.0 million in the first half of
1999 was 10% lower than income of $29.0 million in 1998. Diluted earnings per
share from continuing operations amounted to 87 cents per share in the first
half of 1999, a decrease of 9 cents per share, or 9%, from the 96 cents achieved
in the first half of 1998.
During the six months ended June 30, 1998, the Company recorded income of
$9.6 million, or 31 cents per share, from discontinued operations. This included
a net gain of $8.4 million related to the sale of discontinued business units.
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 $26.0 million in the first half of 1999 was 28% lower
than net income of $36.1 million in 1998. Diluted earnings per share on a net
income basis were $0.87 in 1999 versus $1.19 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, IDEX's working capital was $141.3 million and its current
ratio was 2.6 to 1. The Company's cash flow from continuing operations increased
by $3.4 million in 1999 to $36.8 million. The improvement in cash flow
principally resulted from lower working capital requirements partially offset by
13
15
lower income from operations. Cash flow from discontinued operations decreased
$4.7 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 $8.9 million and $12.5 million in 1999 and 1998, respectively.
The majority of capital expenditures were 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 to
meet expected needs for future growth.
The Company acquired FAST on June 4, 1999, at a cost of approximately $61
million. The acquisition was accounted for using the purchase method and was
financed through borrowings under the Company's U.S. bank credit facilities and
debt acquired from FAST. IDEX acquired bank borrowings and notes payable of 24.3
million lira ($13.1 million) in connection with the Company's acquisition of
FAST. Interest is payable on the outstanding balance at rates ranging from 1.9%
to 4.7%.
At June 30, 1999, the maximum amount available under the U.S. Credit
Agreement was $235 million, of which $121.6 million was borrowed, including a 82
million Netherlands guilder borrowing ($38.5 million) and a 90 million Italian
lira borrowing ($48.1 million). The Netherlands guilder and Italian lira
borrowings provide an economic hedge against the net investment in Fluid
Management's Netherlands operation and FAST's Italian operation, respectively.
The availability under this facility declines to $210 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 June 30, 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 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 June 30, 1999, the
Company had $1.0 million borrowed under this short-term line of credit at an
interest rate of 5.1% per annum.
At June 30, 1999, the maximum amount available under the Company's German
credit agreement was 52.5 million marks ($27.8 million), of which 52 million
marks ($27.5 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 June
30, 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 six
months of 1999, 4,500 shares had been repurchased under the program at a cost of
approximately $98,000.
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, the demand line of credit and the German credit
agreement, interest and principal payments on the Senior Notes, any share
repurchases, approximately $22 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 June 30, 1999, IDEX
has borrowed $639 million under its various credit agreements to complete 14
acquisitions. During this same period IDEX generated, principally from
operations, cash flow of $490 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.
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16
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 end 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. 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 adopt contingency plans to alter business relationships in
the event certain third parties fail to become Year 2000 compliant.
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 $318.8 million of long-term debt of the Company outstanding at June 30,
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 $385,000 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, Italian lira, 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. None.
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)
August 11, 1999
17
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
2.1* Acquisition Agreement between IDEX Corporation, Gecofin
S.p.A., and PL&C S.r.l. dated June 3, 1999..................
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)...........................................
4.5(e)* Fifth Amendment to the Third Amended and Restated Credit
Agreement dated as of June 8, 1999..........................
10.1 Consulting Agreement between IDEX Corporation and Donald N.
Boyce, dated March 31, 1999 (incorporated by reference to
Exhibit 10.1 to the Quarterly Report of IDEX on Form 10-Q
for the quarter ended March 31, 1999, Commission File No.
1-10235)....................................................
10.2* Indemnity Agreement between IDEX Corporation and Donald N.
Boyce, dated April 1, 1999..................................
27* Financial Data Schedule.....................................
- ---------------
* Filed herewith
18