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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998, 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 character)
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, including area code (847) 498-7070
Former name, former address and formal fiscal year, if changes since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Number of shares of common stock of IDEX Corporation ("IDEX" or the
"Company") outstanding as of July 31, 1998: 29,341,365 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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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,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,849 $ 11,771
Receivables -- net........................................ 96,406 80,766
Inventories............................................... 102,083 84,240
Net current assets of companies held for disposition...... 13,236 16,200
Other current assets...................................... 7,817 4,290
-------- --------
Total current assets................................. 225,391 197,267
Property, plant and equipment -- net........................ 127,082 88,628
Intangible assets -- net.................................... 363,591 293,803
Net noncurrent assets of companies held for disposition..... 3,593 13,089
Other noncurrent assets..................................... 11,873 6,406
-------- --------
Total assets......................................... $731,530 $599,193
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 37,173 $ 34,991
Dividends payable......................................... 3,959 3,949
Accrued expenses.......................................... 42,391 38,861
-------- --------
Total current liabilities............................ 83,523 77,801
Long-term debt.............................................. 335,224 258,417
Other noncurrent liabilities................................ 44,511 24,304
-------- --------
Total liabilities.................................... 463,258 360,522
-------- --------
Shareholders' equity:
Common stock, par value $.01 per share
Shares authorized: 1998 and 1997 -- 75,000,000
Shares issued and outstanding: 1998 -- 29,325,575; 1997
-- 29,249,608.......................................... 293 292
Additional paid-in capital................................ 92,376 90,506
Retained earnings......................................... 177,595 149,403
Minimum pension liability adjustment...................... (756) (756)
Accumulated translation adjustment........................ (1,236) (774)
-------- --------
Total shareholders' equity........................... 268,272 238,671
-------- --------
Total liabilities and shareholders' equity........... $731,530 $599,193
======== ========
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,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
Net sales.......................................... $169,461 $141,976 $328,545 $273,351
Cost of sales...................................... 102,126 84,686 196,813 163,952
-------- -------- -------- --------
Gross profit....................................... 67,335 57,290 131,732 109,399
Selling, general and administrative expenses....... 34,203 29,189 67,628 55,448
Goodwill amortization.............................. 2,689 2,135 5,269 4,019
-------- -------- -------- --------
Operating income................................... 30,443 25,966 58,835 49,932
Other income (expense) -- net...................... (50) 1 32 (94)
-------- -------- -------- --------
Income before interest expense and income taxes.... 30,393 25,967 58,867 49,838
Interest expense................................... 5,961 4,754 12,034 9,584
-------- -------- -------- --------
Income before income taxes......................... 24,432 21,213 46,833 40,254
Provision for income taxes......................... 9,288 7,929 17,800 14,869
-------- -------- -------- --------
Income from continuing operations before
extraordinary item............................... 15,144 13,284 29,033 25,385
-------- -------- -------- --------
Discontinued operations:
Income from discontinued operations, net of
taxes............................................ 384 1,711 1,202 3,005
Gain on sale of discontinued operations, net of
taxes............................................ 8,386 8,386
-------- -------- -------- --------
Income from discontinued operations................ 8,770 1,711 9,588 3,005
-------- -------- -------- --------
Extraordinary loss from early extinguishment of
debt, net of taxes............................... (2,514)
-------- -------- -------- --------
Net income......................................... $ 23,914 $ 14,995 $ 36,107 $ 28,390
======== ======== ======== ========
Earnings Per Common Share -- Basic:
Continuing operations.............................. $ .52 $ .46 $ .99 $ .87
Discontinued operations............................ .30 .05 .33 .10
Extraordinary loss from early extinguishment of
debt............................................. (.09)
-------- -------- -------- --------
Net income......................................... $ .82 $ .51 $ 1.23 $ .97
======== ======== ======== ========
Earnings Per Common Share -- Diluted:
Continuing operations.............................. $ .50 $ .44 $ .96 $ .85
Discontinued operations............................ .29 .06 .31 .10
Extraordinary loss from early extinguishment of
debt............................................. (.08)
-------- -------- -------- --------
Net income......................................... $ .79 $ .50 $ 1.19 $ .95
======== ======== ======== ========
Share Data:
Weighted average common shares outstanding......... 29,308 29,180 29,287 29,140
Weighted average common shares outstanding assuming
full dilution.................................... 30,311 30,028 30,244 29,902
======== ======== ======== ========
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 SHAREHOLDERS'
CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT EQUITY
---------- -------- ---------- ----------- -------------
Balance, December 31, 1997............. $90,798 $149,403 $(756) $ (774) $238,671
------- -------- ----- ------- --------
Net income............................. 36,107 36,107
Unrealized translation adjustment...... (462) (462)
--------
Comprehensive income................. 35,645
Issuance of 75,967 shares of common
stock from exercise of stock options
and earned compensation.............. 1,871 1,871
Cash dividends declared on common stock
($.27 per share)..................... (7,915) (7,915)
------- -------- ----- ------- --------
Balance, June 30, 1998 (unaudited)..... $92,669 $177,595 $(756) $(1,236) $268,272
======= ======== ===== ======= ========
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,
--------------------
1998 1997
--------- --------
(UNAUDITED)
Cash flows from operating activities:
Income from continuing operations before extraordinary
item...................................................... $ 29,033 $ 25,385
Adjustments to reconcile to net cash provided by continuing
operations:
Depreciation and amortization............................. 10,439 7,511
Amortization of intangibles............................... 6,024 4,926
Amortization of debt issuance expenses.................... 325 324
Deferred income taxes..................................... 1,670 3,014
Increase in receivables................................... (3,040) (2,342)
Decrease in inventories................................... 317 3,301
Decrease in trade accounts payable........................ (2,338) (1,486)
Decrease in accrued expenses.............................. (4,796) (987)
Other transactions -- net................................. (3,294) (4,076)
--------- --------
Net cash provided by continuing operations.................. 34,340 35,570
Net cash provided by discontinued operations................ 4,666 5,333
--------- --------
Net cash flows from operating activities............... 39,006 40,903
--------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (12,542) (6,230)
Acquisition of business (net of cash acquired)............ (118,088) (11,871)
Proceeds from sale of business............................ 22,290
--------- --------
Net cash flows from investing activities............... (108,340) (18,101)
--------- --------
Cash flows from financing activities:
Borrowings under credit agreements for acquisitions....... 118,088 2,140
(Repayments) borrowings under notes payable for
acquisitions........................................... (4,832) 9,731
Net repayments under the credit agreements................ (113,088) (26,935)
Proceeds from issuance of long-term debt.................. 150,000
Repayment of long-term debt............................... (75,000)
Financing payments........................................ (5,031)
Increase (decrease) in accrued interest................... 1,180 (290)
Dividends paid............................................ (7,905) (6,971)
--------- --------
Net cash flows from financing activities............... 63,412 (22,325)
--------- --------
Net (decrease) increase in cash............................. (5,922) 477
Cash and cash equivalents at beginning of year.............. 11,771 4,730
--------- --------
Cash and cash equivalents at end of period.................. $ 5,849 $ 5,207
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest.................................................. $ 10,576 $ 9,757
Income taxes.............................................. 14,907 6,218
See Notes to Consolidated Financial Statements.
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
IDEX Corporation designs, manufactures and markets a broad range of pump
products and engineered equipment serving a diverse customer base in the United
States and internationally. For each of its business units, the Company believes
that it 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 two business segments: the Pump Products Group and the Engineered
Equipment Group.
The Pump Products Group designs, manufactures and sells a wide variety of
industrial pumps and related controls, and low-horsepower compressors for the
movement of liquids, air and gases. The devices and equipment produced by this
Group are used in a large and diverse set of industries, including chemical
processing, non-electrical machinery, water and wastewater treatment, medical
equipment, petroleum distribution, oil and refining, and food processing.
The Engineered Equipment Group designs, manufactures, and sells proprietary
equipment that may combine pumps or other devices into products for industrial,
commercial and safety applications. The products and devices manufactured by
this Group are used in a variety of industries and applications, including
paints and coatings, fire and rescue, transportation equipment, non-electrical
machinery, traffic sign and signal, and oil and refining.
2. NEW ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." In accordance with SFAS No. 130, the Company expanded its reporting and
display of comprehensive income and its components in the Company's Statement of
Consolidated Shareholders' Equity. Adoption of this statement had no effect on
the Company's financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company is assessing the impact
of SFAS No. 133 on its reported financial position, results of operations and
cash flows.
3. ACQUISITION
On January 21, 1998, IDEX completed the acquisition of Gast Manufacturing
Corporation ("Gast") for a cash purchase price of $118.1 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.
In 1997, the Company acquired Blagdon Pump on April 4 and Knight Equipment
on December 9 at an aggregate purchase price of $49.7 million with financing
provided by borrowings under the Company's bank credit facilities and the
issuance of notes to the sellers. Blagdon manufactures air-operated diaphragm
pumps, is located in Washington, Tyne & Wear, England, and is operated as part
of Warren Rupp. Knight, based in Lake Forest, California, is a leading
manufacturer of pumps and dispensing equipment for industrial laundries,
commercial dishwashing, and chemical metering, and is operated as part of
Pulsafeeder.
All of these acquisitions, which were additions to the Pump Products Group,
were accounted for as purchases, and operating results include the acquisitions
from the dates of purchase. The excess of the acquisition purchase price over
the fair market value of net assets acquired is being amortized on a
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
straight-line basis over periods not exceeding 40 years. The unaudited proforma
consolidated results of operations for the six months ended June 30, 1998 and
1997, reflecting the allocation of the purchase price and the related financing
of the transactions are as follows, assuming that these acquisitions had
occurred at the beginning of each of the respective periods (in thousands except
per share).
1998 1997
-------- --------
(UNAUDITED)
Net sales................................................. $334,739 $331,485
Income from continuing operations before extraordinary
item.................................................... 28,931 26,318
Net income................................................ 36,005 29,323
Basic EPS
Continuing operations................................... .99 .90
Net income.............................................. 1.23 1.01
Diluted EPS
Continuing operations................................... .96 .88
Net income.............................................. 1.19 .98
4. DISCONTINUED OPERATIONS
In December 1997 IDEX announced its intention to divest its Strippit and
Vibratech business units. During the fourth quarter of 1997, the Company also
realigned the business units into two groups: the Pump Products and Engineered
Equipment Groups. The Company completed the sale of Vibratech on June 9, 1998
for $22.3 million in cash and realized a gain from disposition.
During the second quarter of 1998, the Company recorded an estimated net
loss on the expected divestiture of Strippit, based on management's revised
estimate of the net realizable value of Strippit. The net gain on these
divestitures is reported separately in discontinued operations and is net of
income taxes of $1.5 million. The financial statements and the group financial
information have been reclassified to reflect Strippit and Vibratech as
discontinued operations and IDEX's revised group reporting structure.
Revenues from the discontinued operations amounted to $16.5 million and
$23.2 million in the second quarter of 1998 and 1997, respectively, and $36.4
million and $43.7 million for the six months ended June 30, 1998 and 1997,
respectively. Interest expense of $0.1 million and $0.2 million for the second
quarter of 1998 and 1997, respectively, and $0.2 million and $0.3 million for
the six months ended June 30, 1998 and 1997, respectively, has been allocated to
these operations based on their acquisition debt less repayments generated from
subsequent operating cash flows that can be specifically attributed to these
operations.
5. 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 charge of $2.5 million, net of an income tax
benefit of $1.5 million.
6. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") are computed by dividing net income by
the weighted average number of shares of common stock (basic) plus common stock
equivalents (diluted) outstanding during the year. Common stock equivalents
consist of stock options and have been included in the calculation of weighted
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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
average shares outstanding using the treasury stock method. The basic weighted
average shares reconciles to fully diluted weighted average shares as follows
(in thousands):
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
Basic weighted average common shares outstanding......... 29,308 29,180 29,287 29,140
Dilutive effect of stock options......................... 1,003 848 957 762
------ ------ ------ ------
Weighted average common shares outstanding assuming full
dilution............................................... 30,311 30,028 30,244 29,902
====== ====== ====== ======
7. INVENTORIES
The components of inventories as of June 30, 1998 and December 31, 1997
were (in thousands):
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
Raw materials and supplies............................. $ 27,857 $20,841
Work in process........................................ 13,308 13,647
Finished goods......................................... 60,918 49,752
-------- -------
Total................................................ $102,083 $84,240
======== =======
Those inventories which were carried on a LIFO basis amounted to $80,795
and $65,080 at June 30, 1998 and December 31, 1997, respectively. The excess of
current cost over LIFO inventory value and the impact on earnings of using the
LIFO method are not material.
8. COMMON AND PREFERRED STOCK
The Company had five million shares of preferred stock authorized but
unissued at June 30, 1998 and December 31, 1997.
9. RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform with the 1998
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 and engineered
equipment to a diverse customer base in the United States and internationally.
Accordingly, IDEX's businesses are affected by levels of industrial activity and
economic conditions in the United States and 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 capital spending, and overall industrial activity.
IDEX has a history of operating margins which are above average for an
industrial manufacturer. The Company's operating margins are affected by, among
other things, utilization of facilities as sales volumes change and inclusion of
newly acquired businesses which may have lower margins that usually are further
reduced by purchase accounting adjustments.
Orders, net sales, income from continuing operations, net income and
earnings per share from continuing operations for the first half of 1998
surpassed the levels achieved for comparable periods in all prior years. New
orders from continuing operations in the second quarter of 1998 totaled $161
million and trailed shipments by about $9 million, eliminating the $9 million
first quarter backlog build. IDEX ended the second quarter with a typical
backlog of unfilled orders of about 1 1/3 months' sales. This customarily low
level of backlog improves IDEX's ability to respond quickly to customer needs,
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 1997 in the U.S. economy and many other economies in
which IDEX sells its products continued during the first half of 1998. With the
incoming order pace, strong market positions, new and redesigned products,
recent acquisitions, and opportunities for expansion worldwide, management
believes the outlook for IDEX remains positive. Based on current activity levels
and barring unforeseen circumstances, IDEX expects that orders, net sales,
income from continuing operations, net income and earnings per share from
continuing operations in 1998 will exceed 1997 levels. By stressing new product
development, market share growth, international expansion, operating
improvements particularly in newly acquired businesses, and by adhering to its
disciplined approach to acquisitions, management believes IDEX is well
positioned to continue profitable growth. The Company has addressed compliance
with the year 2000 information processing issue and does not anticipate any
material expense or interruption to its operations.
Cautionary Statement Under the Private Securities Litigation Reform Act
The preceding paragraph and the "Liquidity and Capital Resources" section
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 and Section 21E of the Exchange Act. Such statements relate to, among other
things, capital expenditures, cost reduction, and cash flow and operating
improvements, and are indicated by words such as "anticipates," "estimates,"
"expects," "plans," "should," "will," "management believes," "the Company
intends," and similar words or phrases. Such statements are subject to inherent
uncertainties and risks which could cause actual results to vary materially from
suggested results, including but not limited to the following: levels of
industrial activity and economic conditions in the United States and other
countries around the world, pricing pressures and other competitive factors, and
levels of capital spending in certain industries, all of which could have a
material impact on order rates and the Company's results, particularly in light
of the low levels of order backlogs typically maintained by the Company; IDEX's
ability to integrate and operate acquired businesses, including Gast and Knight,
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.
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IDEX CORPORATION AND SUBSIDIARIES
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(IN THOUSANDS -- UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1998 1997 1998 1997
--------- --------- -------- --------
Pump Products Group (1)
Net sales (2)..................................... $ 99,273 $ 65,612 $193,744 $130,559
Operating income (3).............................. 19,623 14,500 40,248 29,952
Operating margin.................................. 19.8% 22.1% 20.8% 22.9%
Depreciation and amortization..................... $ 5,095 $ 2,708 $ 9,692 $ 5,332
Capital expenditures.............................. 2,920 2,150 5,156 3,411
Engineered Equipment Group
Net sales (2)..................................... $ 70,676 $ 76,312 $136,041 $143,259
Operating income (3).............................. 13,639 14,294 24,742 25,151
Operating margin.................................. 19.3% 18.7% 18.2% 17.6%
Depreciation and amortization..................... $ 3,348 $ 3,660 $ 6,649 $ 7,053
Capital expenditures.............................. 2,516 1,285 4,608 2,540
Company
Net sales......................................... $169,461 $141,976 $328,545 $273,351
Operating income.................................. 30,443 25,966 58,835 49,932
Operating margin.................................. 18.0% 18.3% 17.9% 18.3%
Depreciation and amortization(4).................. $ 8,500 $ 6,413 $ 16,463 $ 12,437
Capital expenditures.............................. 5,446 3,709 12,542 6,230
- -------------------------
(1) Includes acquisition of Gast (January 21, 1998), Knight Equipment (December
9, 1997) and Blagdon Pump (April 4, 1997) from the dates of purchase.
(2) Group net sales include intersegment sales.
(3) Group operating income excludes net unallocated corporate operating expense.
(4) Excludes amortization of debt issuance expenses.
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RESULTS OF OPERATIONS
For purposes of this discussion and analysis section, reference is made to
the table on the preceding page and the Company's Statements of Consolidated
Operations included in the Financial Statements section. IDEX consists of two
business segments: Pump Products Group and Engineered Equipment Group.
PERFORMANCE IN THE SECOND QUARTER ENDED JUNE 30, 1998 COMPARED TO THE SAME
PERIOD OF 1997
IDEX achieved new highs in sales as well as income and diluted earnings per
share from continuing operations in the second quarter of 1998. Net sales for
the three months ended June 30, 1998 were $169.5 million, and increased by 19%
over the $142.0 million reported for the second quarter of 1997. Income from
continuing operations before the extraordinary item amounted to $15.1 million
and improved by 14% from the $13.3 million earned in last year's second quarter.
Diluted earnings per share from continuing operations in the second quarter of
1998 were 50 cents compared with 44 cents earned in the same quarter of the
prior year.
New orders from continuing operations totaled $161 million in the quarter
and trailed shipments by about $9 million, eliminating the $9 million first
quarter backlog build. The Company ended the second quarter with a typical
backlog of unfilled orders of about 1 1/3 months' sales.
In the second quarter of 1998, the Pump Products Group generated 58% of
sales and 59% of operating income, and the Engineered Equipment Group
contributed 42% of sales and 41% of operating income. International sales from
continuing operations represented 39% of total sales in the second quarter of
1998 versus 44% last year. The percentage decline stems from inclusion of the
recently acquired Gast Manufacturing Corporation, whose international sales were
17% of their total sales. Total sales in base businesses were down about 4% in
the second quarter year-to-year comparison, and currency translation caused a
further 1% decline. Accordingly, acquisitions accounted for all of the sales
improvement in the second quarter of 1998 compared with the second quarter of
1997.
Pump Products Group sales of $99.3 million increased by $33.7 million, or
51%, for the three months ended June 30, 1998 compared with 1997 principally
resulting from the recently acquired Gast and Knight Equipment businesses. Base
business sales volume in 1998 was approximately equal to that of 1997 and the
foreign currency effect on year-to-year comparisons was less than 1%. Sales to
customers outside the U.S. declined to 31% of the Group's total sales in the
second quarter of 1998 from 35% in 1997 principally due to the inclusion of Gast
in 1998.
Engineered Equipment Group sales of $70.7 million decreased $5.6 million,
or 7%, in the second quarter of 1998 versus the comparable quarter of 1997. The
decrease in this Group's sales principally reflected a decrease in base business
sales which were down 6% from the prior year and foreign currency translation,
which had a negative effect of 1% on this Group's sales volume. Sales to
customers outside the U.S. were 51% of the total Engineered Equipment Group
sales in the second quarters of 1998 and 1997.
Gross profit was $67.3 million in the second quarter of 1998 and increased
by $10.0 million, or 18%, from 1997 principally reflecting higher sales volume.
Gross profit as a percent of sales was 39.7% in 1998, down from 40.4% in 1997.
The decrease in gross profit margin was due principally to inclusion of recent
acquisitions whose margins were lower than IDEX's base businesses. Selling,
general and administrative expenses increased to $34.2 million in 1998 from
$29.2 million in 1997; however, as a percent of sales decreased modestly to
20.2% in 1998 from 20.6% in 1997. Goodwill amortization increased by 29% to $2.7
million in 1998 from $2.1 million in 1997. The year-over-year increases in gross
profit; selling, general and administrative expenses; and goodwill amortization
were due primarily to inclusion of the recently acquired businesses.
Operating income increased by $4.4 million, or 17%, to $30.4 million in the
second quarter of 1998 from $26.0 million in same quarter of 1997. Operating
income as a percent of sales decreased slightly to 18.0% in 1998 from 18.3% in
1997. In the Pump Products Group, operating income of $19.6 million and
operating margin of 19.8% compared with $14.5 million and 22.1% in 1997. The
operating margin decline resulted from the inclusion of recently acquired
businesses, whose operating margins were lower than the other business units in
the Group and whose operating income was further reduced by purchase accounting
adjustments.
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Engineered Equipment Group operating income of $13.6 million and operating
margin of 19.3% compared with $14.3 million and 18.7% achieved in 1997. The
improvement in operating margins resulted from margin improvement efforts and
changes in product mix.
Interest expense increased to $6.0 million in the second quarter of 1998
from $4.8 million in 1997 because of additional borrowings to complete the
Blagdon Pump, Knight Equipment, and Gast acquisitions, partially offset by debt
reductions from operating cash flow.
The provision for income taxes increased to $9.3 million for the three
months ended June 30, 1998 from $7.9 million in 1997. The effective tax rate
increased to 38.0% in 1998 from 37.4% in 1997 mainly due to the higher
nondeductible goodwill amortization resulting from recently acquired businesses.
Income from continuing operations of $15.1 million in the second quarter of
1998 was 14% higher than the $13.3 million in the same quarter of 1997. Diluted
earnings per share from continuing operations amounted to 50 cents in 1998, an
increase of 6 cents per share, or 14%, from 44 cents in the second quarter of
last year.
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.
IDEX announced late in 1997 that it intended to sell the Strippit and Vibratech
business units. The sale of Vibratech was completed on June 9. The Company
entered into an agreement for the sale of Strippit and currently expects that
the sale of Strippit will be completed in the third quarter of 1998.
Diluted earnings per share on a net income basis were 79 cents in 1998
versus 50 cents in 1997.
PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SAME PERIOD OF
1997
In the six months ended June 30, 1998, IDEX had record sales of $328.5
million, up 20% from the previous record achieved last year of $273.4 million.
Income from continuing operations before the extraordinary item amounted to
$29.0 million, and was 14% above the $25.4 million of the comparable period of
1997. Diluted earnings per share from continuing operations were 96 cents
compared with 85 cents earned in the prior year.
In the first half of 1998, the Pump Products Group represented 59% of sales
and 62% of operating income, and the Engineered Equipment Group accounted for
41% of sales and 38% of operating income. International sales from continuing
operations were 40% of total sales in this year's first half compared to 43% in
the first half of 1997. The decline in international sales as a percent of total
was attributable to inclusion of the recently acquired Gast Manufacturing
Corporation, whose international sales were 17% of their total sales. Sales to
Asian countries from the base businesses declined by about 30%, and represented
4% of sales in this year's first half versus 6% last year. Overall, sales to
customers outside the U.S. increased by about 10%, primarily due to inclusion of
recent acquisitions. In 1998's first half, acquisitions accounted for all of the
sales growth with foreign currency and base business volume each having an
approximate 1% negative effect on sales.
Pump Products Group sales of $193.7 million increased by $63.2 million, or
48%, for the six months ended June 30, 1998 compared with 1997 principally
resulting from the recently acquired Gast, Knight Equipment, and Blagdon Pump
businesses. Base business sales volume was up 2% in 1998 while foreign currency
translation had a negative effect of 1% on the Group's sales growth. Sales to
customers outside the U.S. declined to 32% of total sales in the first half of
1998 from 35% in 1997 principally due to the inclusion of Gast in 1998.
Engineered Equipment Group sales of $136.0 million decreased $7.2 million,
or 5%, in the first half of 1998 versus the comparable period of 1997. The
decrease in this Group's sales was caused primarily by a 3% decline in base
sales due to conditions in the domestic paint dispensing and fire equipment
markets. Foreign currency translation had a negative effect of 2% on this
Group's sales volume. Sales to customers outside the U.S. represented 50% of
total Engineered Equipment Group sales in both 1998 and 1997.
Gross profit was $131.7 million for the six months ended June 30, 1998 and
increased by $22.3 million, or 20%, from the corresponding period of 1997
principally reflecting higher sales volume. Gross profit as a
11
13
percent of sales was 40.1% in 1998, up modestly from 40.0% in 1997. The
improvement in gross profit margin was due principally to sales volume growth,
product mix and margin improvement efforts partially offset by inclusion of
recent acquisitions whose gross margins were lower than IDEX's base businesses.
Selling, general and administrative expenses increased to $67.6 million in
the first half of 1998 from $55.4 million in the same period of 1997, and as a
percent of sales increased to 20.6% from 20.3% in 1997 reflecting the recently
acquired businesses which had slightly higher selling, general and
administrative expenses than IDEX's existing businesses. Goodwill amortization
increased by 33% to $5.3 million in 1998 from $4.0 million in 1997. The
year-over-year increases in gross profit; selling, general and administrative
expenses; and goodwill amortization were primarily due to inclusion of the
recently acquired businesses.
Operating income increased by $8.9 million, or 18%, to $58.8 million in
1998 from $49.9 million in 1997. Operating margin as a percent of sales
decreased slightly to 17.9% in 1998 from 18.3% in 1997. In the Pump Products
Group, operating income of $40.2 million and operating margin of 20.8% compared
with $30.0 million and 22.9% in 1997. The operating margin decline resulted from
the inclusion of recently acquired businesses, whose operating margins were
lower than the other business units in the Group and whose operating income was
further reduced by purchase accounting adjustments. Margins in the base
businesses in the Pump Products Group improved slightly due to margin
improvement efforts. The Engineered Equipment Group operating income of $24.7
million and operating margin of 18.2% compared with $25.2 million and 17.6%
achieved in 1997. The slight improvement in operating margins resulted from
margin improvement efforts and changes in product mix.
Interest expense increased to $12.0 million in the first half of 1998 from
$9.6 million in 1997 because of additional borrowings to complete the Blagdon
Pump, Knight Equipment, and Gast acquisitions, partially offset by debt
reductions from operating cash flow.
The provision for income taxes increased to $17.8 million for the six
months ended June 30, 1998 from $14.9 million in first six months of 1997. The
effective tax rate increased to 38.0% in 1998 from 36.9% in 1997 mainly due to
the higher nondeductible goodwill amortization resulting from recently acquired
businesses.
Income from continuing operations of $29.0 million in the first half of
1998 was 14% higher than the $25.4 million in the comparable period of 1997.
Diluted earnings per share from continuing operations amounted to 96 cents in
1998, an increase of 11 cents per share, or 13%, from the 85 cents achieved in
the first half of last year.
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.
IDEX announced late in 1997 that it intended to sell the Strippit and Vibratech
business units. The sale of Vibratech was completed on June 9. The Company
entered into an agreement for the sale of Strippit and currently expects that
the sale of Strippit will be completed in the third quarter of 1998.
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 charge of $2.5 million, net of an income tax
benefit of $1.5 million. This extraordinary loss adversely effected diluted
earnings per share by 8 cents.
Diluted earnings per share on a net income basis were $1.19 in 1998 versus
$0.95 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, IDEX's working capital was $141.9 million and its current
ratio was 2.7 to 1. The Company's cash flow from continuing operations decreased
by $1.2 million in 1998 to $34.3 million. The decrease resulted principally from
an increase in working capital partially offset by an increase in income from
continuing operations. Cash from discontinued operations decreased $0.7 million
to $4.7 million principally because of lower operating income.
12
14
Cash flow provided by operations was more than adequate to fund capital
expenditures of $12.5 million and $6.2 million in 1998 and 1997, respectively.
The majority of capital expenditures were for machinery and equipment which
improved productivity, although a portion was for replacement of equipment and
facilities. Management believes that IDEX has ample capacity in its plant and
equipment to meet expected needs for future growth.
The Company acquired Gast on January 21, 1998 at a cost of approximately
$118 million. The acquisition was accounted for using the purchase method of
accounting and was financed through borrowings under the Company's U.S. bank
credit facilities.
Late in 1997 IDEX announced that it intended to dispose of the Strippit and
Vibratech business units because they no longer fit its profile and are not
businesses the Company would choose to build upon. Consequently, results of
these two businesses, which contributed net income of $9.6 million, including a
net gain of $8.4 million related to the sale of discontinued business units, for
the first half of 1998 were treated as discontinued operations. IDEX completed
the sale of Vibratech on June 9 for $22.3 million in cash and realized a gain
from disposition. The proceeds were used to repay borrowings under the Company's
bank credit facilities. During the second quarter of 1998, the Company recorded
an estimated net loss on the expected divestiture of Strippit. The net gain on
these divestitures was reported separately in discontinued operations and was
net of income taxes of $1.5 million. The Company currently expects that the sale
of Strippit will be completed in the third quarter of 1998.
On February 18, 1998, IDEX sold $150 million of Senior Notes due February
15, 2008 with a coupon interest rate of 6 7/8%, priced to yield 6.919% to
maturity. Proceeds from the offering were used to reduce bank debt and to redeem
the $75 million principal amount of the Company's 9 3/4% Senior Subordinated
Notes due 2002. This redemption resulted in an after-tax extraordinary loss of
$2.5 million, net of an income tax benefit of $1.5 million.
At June 30, 1998, the maximum amount available under the U.S. credit
agreement was $235 million, of which $140.2 million was borrowed, including a
Netherlands guilder borrowing of NGL 82.0 million ($40.2 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 $200 million on July 1, 2000. Any amount outstanding at July 1,
2001 becomes due at that date. Interest is payable quarterly on the outstanding
balance at the agent bank's reference rate or at LIBOR plus an applicable
margin. At June 30, 1998, the applicable margin was 50 basis points. 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 June 30, 1998, there was $2.0 million of borrowing
under this short-term line of credit and the interest rate was 6.3% per annum.
On May 23, 1997, the Company's Lukas subsidiary entered into an amended
German credit agreement improving the interest rate structure and eliminating
certain reductions in availability. At June 30, 1998, the maximum amount
available under the German credit agreement was DM 52.5 million ($29.0 million),
of which DM 52 million ($28.8 million) was being used. The availability under
this agreement declines in stages commencing November 1, 1999, to DM 31.3
million at November 1, 2000. Any amount outstanding at November 1, 2001 becomes
due at that date. Interest is payable quarterly on the outstanding balance at
LIBOR plus an applicable margin. At June 30, 1998, the applicable margin was
77.5 basis points.
IDEX believes it will generate sufficient cash flow from operations in 1998
to meet its operating requirements, interest and scheduled amortization payments
under both the amended U.S. credit agreement and the amended German credit
agreement, interest and principal payments on the Senior Notes, approximately
$25 million of planned capital expenditures, and approximately $16 million of
annual dividend payments to holders of common stock. From commencement of
operations in January 1988 through June 30, 1998, 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 $412
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.
13
15
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.
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:
1) In a report on Form 8-K dated April 23, 1998, and filed with the
Securities Exchange Commission on April 23, 1998, the Company filed
unaudited quarterly condensed statements of consolidated operations and
group financial information for 1997 and 1996 reflecting Strippit and
Vibratech as discontinued operations and reflecting IDEX's revised group
reporting structure.
2) In a report on Form 8-K dated May 28, 1998, and filed with the
Securities Exchange Commission on May 28, 1998, the Company filed Exhibit
27, financial data schedule, restating certain IDEX financial information
reflecting adoption of Statement of Financial Accounting Standards No. 128,
Earnings Per Share and reflecting Vibratech and Strippit as discontinued
operations.
14
16
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 10, 1998
15
17
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 No. 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 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 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........................
4.5(b) Second Amendment to the Third Amended and Restated Credit
Agreement dated as of January 20, 1998......................
4.5(c) Third Amendment to the Third Amended and Restated Credit
Agreement dated as of February 9, 1998......................
4.5(d) Fourth Amendment to the Third Amended and Restated Credit
Agreement dated as April 3, 1998............................
**10.1 First Amended and Restated 1996 Stock Plan for Officers of
IDEX Corporation dated March 10, 1998.......................
*27 Financial Data Schedule.....................................
- -------------------------
* Filed herewith
** Management contract or compensatory plan or arrangement
16
1
[TO COME]
1
[TO COME]
1
[TO COME]
1
[TO COME]
1
[TO COME]
5
6-MOS
DEC-31-1997
JUN-30-1998
5,849
0
99,328
2,922
102,083
225,391
245,325
118,243
731,530
83,523
335,224
0
0
293
267,979
731,530
328,545
328,545
196,813
269,710
(32)
80
12,034
46,833
17,800
29,033
9,588
(2,514)
0
36,107
1.23
1.19
