1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES 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 60062
NORTHBROOK, ILLINOIS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 498-7070
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
IDEX Corporation as of December 31, 1998 was $479,086,630.
The number of shares outstanding of IDEX Corporation's common stock, par
value $.01 per share (the "Common Stock"), as of January 29, 1999 was
29,463,390.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to shareholders of IDEX Corporation (the
"1998 Annual Report") are incorporated by reference into Parts I and II of this
Form 10-K and portions of the definitive Proxy Statement of IDEX Corporation
(the "1999 Proxy Statement") with respect to the 1999 annual meeting of
shareholders are incorporated by reference into Part III of this Form 10-K.
================================================================================
2
PART 1
ITEM 1. BUSINESS.
IDEX Corporation ("IDEX" or the "Company") designs, manufactures and
markets a broad range of pump products, dispensing equipment and other
engineered products serving a diverse customer base in the United States 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 Group, Dispensing
Equipment Group and Other Engineered Products Group.
PUMP PRODUCTS 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, machinery, water treatment, medical equipment, petroleum
distribution, oil and refining, and food processing. In 1998, the six business
units comprising the group -- Corken, Gast Manufacturing, Micropump,
Pulsafeeder, Viking Pump, and Warren Rupp -- accounted for 59% of the Company's
net sales. The Company acquired Gast Manufacturing Corporation ("Gast") on
January 21, 1998, for a cash purchase price of approximately $118 million.
Approximately 32% of 1998 net sales in this Group were to customers outside the
United States.
Corken. Management estimates that Corken has approximately 50% of the U.S.
market for pumps and small horsepower compressors used in liquefied petroleum
gas distribution facilities. Corken produces low-horsepower compressors, vane
and turbine pumps and valves used for the transfer of liquefied petroleum gas,
compressed natural gas and other gaseous substances. Most of Corken's sales are
made through domestic and international distributors, and they often incorporate
Corken's products into engineered packages sold to end-users. Approximately 45%
of Corken's 1998 net sales were to customers outside the United States. Corken,
which was acquired by IDEX in 1991, is based in Oklahoma City, Oklahoma.
Gast Manufacturing. Gast Manufacturing is one of the world's leading
manufacturers of an extensive and versatile line of air-moving products,
including vacuum pumps, air motors, vacuum generators, regenerative blowers and
fractional horsepower compressors. Gast is headquartered in Benton Harbor,
Michigan, and has an assembly facility in England. Approximately 20% of Gast's
sales are to customers outside the United States. Management believes that Gast
has a leading position with an estimated one-third U.S. market share in air
motors, low and medium range vacuum pumps, and rotary and diaphragm fractional
horsepower compressors.
Micropump. Micropump is, according to management estimates, the leader in
corrosion-resistant, magnetically-driven miniature pump technology with an
estimated 40% U.S. market share. Micropump's products include pumps and fluid
management systems for low-flow abrasive and corrosive applications such as
inks, dyes, solvents, chemicals, petrochemicals, acids and chlorides. Micropump
products are used in a variety of industries including chemical processing,
laboratory, medical, printing, electronics, pulp and paper, water treatment,
pharmaceutical and textiles. Approximately 50% of Micropump's 1998 net sales
were to customers outside the United States. Micropump, which was acquired by
IDEX in 1995, has its headquarters and principal manufacturing facility in
Vancouver, Washington, and also conducts operations in England.
Pulsafeeder. Management estimates that Pulsafeeder has approximately 40% of
the U.S. market for metering pumps used in the process industries and water
treatment markets. Pulsafeeder designs, manufactures and markets a wide range of
metering pumps, special purpose rotary pumps, peristalic pumps, electronic
controls and dispensing equipment. These products regulate the precise flow of
liquids in mixing, blending and injection applications. Primary markets served
are water conditioning and wastewater treatment, chemical and hydrocarbon
processing, food processing, chemical metering and institutional warewash.
Pulsafeeder products
1
3
are sold through an extensive distribution network, which includes company sales
personnel, distributors and independent representatives and an estimated 30% of
its 1998 net sales were to customers outside the United States. IDEX acquired
Knight Equipment International, Inc. ("Knight"), a leading manufacturer of pumps
and dispensing equipment for industrial laundries, commercial dishwashing and
chemical metering, in December 1997. Knight is operated as part of Pulsafeeder.
Pulsafeeder, which was acquired by IDEX in 1992, is headquartered in Rochester,
New York, with additional manufacturing facilities in Punta Gorda, Florida, Lake
Forest, California, Covington, Georgia and Enschede, The Netherlands.
Pulsafeeder also has sales offices in Singapore and China.
Viking Pump. Viking Pump is one of the world's largest manufacturers of
positive displacement rotary gear pumps. Management believes that Viking pumps
represent approximately 35% of the U.S. rotary gear pump market. Viking's other
products include rotary lobe and metering pumps, speed reducers, flow dividers
and basket-type line strainers. Viking pumps are used by numerous industries
such as the chemical, petroleum, food, pulp and paper, machinery and
construction industries. Sales of Viking pumps and replacement parts are made
through approximately 100 independent distributors and directly to original
equipment manufacturers. Approximately 30% of Viking's 1998 net sales were to
customers outside the United States. In addition to its facilities in Cedar
Falls, Iowa, Viking also maintains manufacturing facilities in England, Canada
and Ireland, and has sales offices in the Netherlands, Singapore, Mexico, Canada
and China. Viking operates two foundries in Cedar Falls, Iowa which supply a
majority of Viking's castings requirements. In addition, these foundries sell a
variety of castings to outside customers.
Warren Rupp. Warren Rupp is a producer of air-operated and motor-driven
double-diaphragm pumps. Management believes that Warren Rupp has approximately
one-quarter of the U.S. market for air-operated double-diaphragm pumps. Blagdon
Pump, the U.K.-based manufacturer of air-operated diaphragm pumps acquired by
IDEX in April 1997, is operated as part of Warren Rupp. Warren Rupp's pumps are
well suited for pumping liquids, slurries and solids in suspension. End-user
markets include paint, chemical, mining, construction, and automotive service
industries. Warren Rupp pumps are sold through a network of independent
distributors and directly to a small number of original equipment manufacturers.
Sales to customers outside the U.S. represented approximately 50% of Warren
Rupp's 1998 net sales. Warren Rupp is headquartered in Mansfield, Ohio, and has
a sales office in Singapore. Blagdon Pump has a manufacturing facility in
England to serve the European market and a sales office in Singapore.
DISPENSING EQUIPMENT GROUP
The Dispensing Equipment Group produces 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. In 1998, the two business units comprising this
group -- Fluid Management and Lubriquip -- accounted for 19% of the Company's
net sales. Approximately 46% of this Group's 1998 net sales were to customers
outside the United States.
Fluid Management. Fluid Management is the world's leading manufacturer of
dispensing and mixing equipment that precisely meters and mixes a wide variety
of liquids including paints, colorants, ink, dyes and other liquids and pastes.
Management believes Fluid Management has an approximate 50% worldwide share in
its niche market. Its products can be found in local paint and building supply
stores, paint plants, vehicle manufacturing facilities and other locations where
fluids are dispensed and mixed in precise volumes. Fluid Management, which was
acquired by IDEX in 1996, has manufacturing facilities in Wheeling, Illinois,
the Netherlands and Australia, with sales and distribution facilities worldwide.
Approximately 55% of its 1998 sales were to customers outside the United States.
Lubriquip. Lubriquip is, according to management estimates, the largest
United States producer of centralized oil and grease lubrication systems and
force-feed lubricators, with approximately one-third of the U.S. market for its
type of products. Lubriquip's lubrication system components include pumps and
pump packages for pneumatic, mechanical, electric and hydraulic operations,
metering devices, electronic controllers, monitors and timers, and accessories.
These systems are sold through a variety of sales channels,
2
4
including independent distributors, to a wide range of industrial markets
including machine tools (both automotive and general purpose), chemical
processing, construction equipment, food processing machinery, engine and
compressor, railroad, and over-the-road industries. Lubriquip's products are
available worldwide through over 100 independent distributors, with
international sales representing approximately 20% of its 1998 net sales.
Lubriquip, headquartered in Warrensville Heights, Ohio, also has a manufacturing
plant in Madison, Wisconsin and has sales offices in Belgium and Singapore.
OTHER ENGINEERED PRODUCTS GROUP
The Other Engineered Products Group manufactures proprietary equipment,
including banding and clamping devices, fire fighting pumps and rescue tools.
These products are used in a broad range of industrial and commercial markets,
including transportation equipment, oil and gas, electronics, communications,
traffic and commercial signs, and fire and rescue. In 1998, the two business
units comprising this group -- Band-It and Hale Products -- accounted for 22% of
the Company's net sales. Approximately 53% of 1998 net sales in this group were
to customers outside the United States.
Band-It. Band-It, headquartered in Denver, Colorado, is one of the largest
worldwide producers of stainless steel bands, buckles and preformed clamps and
related installation tools. Its products include stainless steel bands and
clamps for various municipal, commercial and industrial applications and road,
traffic and commercial sign-mounting systems. Management believes that Band-It
has approximately 50% of the U.S. market for high quality stainless steel band
and buckle. Its clamps are used to secure hoses to nipples, devices to pipes and
poles, signs to sign standards, cables in a group, insulation to pipes and for
hundreds of other industrial clamping applications. Band-It also has developed
an exclusive line of tools for installing its band, buckle and preformed clamps.
Band-It's Signfix subsidiary, acquired by IDEX in 1993, is the leading
U.K.-based manufacturer of sign-mounting devices and related equipment. Band-It
markets its products domestically and internationally. It has manufacturing and
distribution facilities in three locations in England, as well as Germany and
Singapore to serve the European and Far East markets. International sales
accounted for approximately 60% of Band-It's 1998 net sales. Its products are
sold through a worldwide network of over 4,500 distributors to a wide range of
markets, including the transportation, commercial and governmental signage,
utilities, mining, oil and gas, industrial maintenance, construction,
communication and electronics industries.
Hale Products. Hale Products ("Hale"), acquired by IDEX in 1994, is the
world's leading manufacturer of truck-mounted fire-fighting pumps and also
manufactures a wide range of portable, mobile and freestanding pumping units.
Hale also is the world's leading manufacturer of rescue tool systems with the
Hurst Jaws of Life(R) and Lukas(R) rescue systems. Lukas, headquartered in
Germany, was acquired by IDEX in 1995. Hale is estimated to have a worldwide
market share for truck-mounted fire-fighting pumps and rescue systems in excess
of 50%. Sales of Hale's truck-mounted fire-fighting pumps are made directly to
manufacturers of fire trucks, while portable pumps and rescue tools are
generally sold through independent distributors. Approximately 50% of Hale's
1998 net sales were to customers outside the United States. Hale has its
headquarters and a manufacturing facility in Conshohocken, Pennsylvania. It also
has production facilities in North Carolina, Tennessee, England and Germany, and
service and distribution centers in Germany and Singapore.
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. The sale of Vibratech generated a gain on
disposition, while the Strippit sale resulted in a small loss. The proceeds were
used to repay borrowings under the Company's U.S. bank credit facilities. In
1998, these two businesses contributed net income of $10.2 million, including a
net gain of $9.0 million (net of taxes of $3.1 million) from the sale of these
units.
3
5
GENERAL ASPECTS APPLICABLE TO THE COMPANY'S BUSINESS GROUPS
COMPETITORS
The Company's businesses are highly competitive in most product lines.
Generally, all of the Company's businesses compete on the basis of performance,
quality, service and price.
Principal competitors of the businesses in the Pump Products Group are the
Blackmer division of Dover Corporation (with respect to rotary gear pumps, and
pumps and small horsepower compressors used in liquefied petroleum gas
distribution facilities); Milton Roy, a unit of Sundstrand Corporation (with
respect to metering pumps and controls); Roper Industries (with respect to
rotary gear pumps); Wilden Pump and Engineering Co., a division of Dover
Corporation (with respect to air-operated double-diaphragm pumps); Tuthill
Corporation (with respect to rotary gear pumps); and Thomas Industries (with
respect to vacuum pumps and compressors).
The principal competitors of the Dispensing Equipment Group are Corob (with
respect to dispensing and mixing equipment for the paint industry) and Lincoln,
a unit of Pentair Corporation (with respect to centralized lubrication systems).
The Other Engineered Products Group's principal competitors are A. J.
Gerrard (with respect to stainless steel bands, buckles and tools) and Waterous
Company, a subsidiary of American Cast Iron Pipe Company (with respect to
truck-mounted fire-fighting pumps).
EMPLOYEES
At December 31, 1998, IDEX had approximately 3,800 employees. Approximately
16% were represented by labor unions with various contracts expiring through
March 2003. Management believes that the Company's relationship with its
employees is good. The Company has historically been able to satisfactorily
renegotiate its collective bargaining agreements, with its last work stoppage in
March 1993.
SUPPLIERS
IDEX manufactures many of the parts and components used in its products.
Substantially all materials, parts and components purchased by IDEX are
available from multiple sources.
INVENTORY AND BACKLOG
Backlogs do not have material significance in any of the Company's business
segments. The Company regularly and systematically adjusts production schedules
and quantities based on the flow of incoming orders. Backlogs are therefore
typically limited to approximately 1 to 1 1/2 months of production. While total
inventory levels may also be affected by changes in orders, the Company
generally tries to maintain relatively stable inventory levels based on its
assessment of the requirements of the various industries served.
SEGMENT INFORMATION
For segment financial information for the years 1998, 1997, and 1996, see
the table titled "Company Business Group Financial Information" presented on
page 18 under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 10 of the "Notes to Consolidated Financial
Statements" on page 30 of the 1998 Annual Report, which is incorporated herein
by reference.
4
6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names of the executive officers of the
Company, their ages, years of service, the positions held by them, and their
business experience during the past 5 years.
YEAR OF
NAME AGE SERVICE(1) POSITION
---- --- ---------- --------
Donald N. Boyce....................... 60 29 Chairman of the Board, Chief Executive
Officer and Director
Frank J. Hansen....................... 57 23 President, Chief Operating Officer and
Director
Wayne P. Sayatovic.................... 52 26 Senior Vice President-Finance and
Chief Financial Officer
Jerry N. Derck........................ 51 6 Vice President-Human Resources
David T. Windmuller................... 41 18 Vice President-Operations
James R. Fluharty..................... 55 11 Vice President-Corporate Marketing and
Group Executive
Dennis L. Metcalf..................... 51 25 Vice President-Corporate Development
John L. McMurray...................... 48 6 Vice President-Group Executive and
President, Viking Pump
Frank J. Notaro....................... 35 1 Vice President-General Counsel and
Secretary
Rodney L. Usher....................... 53 18 Vice President-Group Executive and
President, Pulsafeeder
Clinton L. Kooman..................... 55 34 Controller
Douglas C. Lennox..................... 46 19 Treasurer
- ---------------
(1) The years of service for executive officers include the period prior to
acquisition by IDEX or with IDEX's predecessor company.
Mr. Boyce was elected Chairman of the Board, President and Chief Executive
Officer of the Company on January 22, 1988, the date of the Company's
acquisition of its six original operating subsidiaries from Houdaille
Industries, Inc. On January 1, 1998, Mr. Hansen assumed the title of President
from Mr. Boyce with Mr. Boyce continuing as Chairman of the Board and Chief
Executive Officer. In connection with Mr. Boyce's planned retirement on March
31, 1999, the Board named Mr. Hansen to serve as Chief Executive Officer on
April 1, 1999, with Mr. Boyce remaining as Chairman of the Board. Mr. Boyce is a
director of United Dominion Industries Ltd. and Walter Industries, Inc.
Mr. Hansen was appointed President, Chief Operating Officer and Director of
IDEX by the Board on January 1, 1998. In connection with Mr. Boyce's planned
retirement on March 31, 1999, Mr. Hansen will serve as Chief Executive Officer
effective April 1, 1999. Previously, Mr. Hansen served as Vice President-
Operations and Chief Operating Officer from August 1994 to December 1997. Mr.
Hansen was Vice President-Group Executive of the Company from January 1993 to
July 1994. From 1989 to July 1994, Mr. Hansen was President of Viking Pump. Mr.
Hansen is a director of Gardner Denver Machinery, Inc.
Mr. Sayatovic has been Senior Vice President-Finance and Chief Financial
Officer of the Company since January 1992 and was Vice President-Treasurer from
January 1988 to December 1991. He also served as Secretary from January 1988 to
February 1998.
Mr. Derck has been Vice President-Human Resources of the Company since
November 1992.
Mr. Windmuller has served as Vice President-Operations of the Company since
January 1998. Previously, Mr. Windmuller was President of Fluid Management from
January 1997 to December 1997. From July 1994 to December 1996, Mr. Windmuller
served as President of Viking Pump, and from May 1993 to June 1994 as Executive
Vice President of Viking Pump. Mr. Windmuller served as Vice President-
Engineering of Viking Pump from November 1991 to April 1993.
5
7
Mr. Fluharty has served as Vice President-Corporate Marketing of the
Company since March 1997 and as Vice President-Group Executive since December
1998. He was President of Fluid Management from January 1998 to December 1998
and from April 1996 to February 1997, was President of Micropump. Previously,
Mr. Fluharty served as President of John Crane North America from May 1993 to
March 1996, as Executive Vice President of Viking Pump from May 1992 to April
1993, and Vice President-Marketing of Viking Pump from 1988 to April 1992.
Mr. Metcalf has served as Vice President-Corporate Development of the
Company since March 1997. Mr. Metcalf was Director of Business Development of
the Company from March 1991 to February 1997.
Mr. McMurray has been Vice President-Group Executive of the Company since
November 1998 and President of Viking Pump since January 1997. He was Executive
Vice President of Viking Pump from August 1994 to December 1996, and Vice
President Finance of Viking Pump from October 1992 to July 1994.
Mr. Notaro has served as Vice President-General Counsel and Secretary since
March 1998. Previously, Mr. Notaro was a Partner of Hodgson, Russ, Andrews,
Woods and Goodyear LLP from January 1993 to February 1998.
Mr. Usher has been Vice President-Group Executive of the Company since
August 1997 and President of Pulsafeeder since August 1994. From 1986 to July
1994, Mr. Usher served as President of Warren Rupp.
Mr. Kooman has been Controller of the Company since November 1995. Mr.
Kooman served as Assistant Controller of Manufacturing Accounting from January
1988 to October 1995.
Mr. Lennox has served as Treasurer of the Company since November 1995. From
April 1991 to October 1995, Mr. Lennox was Vice President-Controller of
Lubriquip. Mr. Lennox was Assistant Controller of Financial Accounting from
January 1988 to March 1991.
The Company's executive officers are elected at a meeting of the Board of
Directors immediately following the annual meeting of shareholders, and they
serve until the next annual meeting of the Board, or until their successors are
duly elected.
ITEM 2. PROPERTIES.
The Company's principal plants and offices have an aggregate floor space
area of approximately 2.6 million square feet, of which 2.0 million square feet
(77%) are located in the U.S. and approximately .6 million (23%) are located
outside the U.S., primarily in the U.K. (10%), Germany (6%) and the Netherlands
(4%). These facilities are considered to be suitable and adequate for their
operations. Management believes that utilization of manufacturing capacity
ranges from 50% to 80% in each facility. The Company's executive office occupies
approximately 12,000 square feet of leased space in Northbrook, Illinois.
Approximately 2.0 million square feet (77%) of the principal plant and
office floor area is owned by the Company, and the balance is held under lease.
Approximately 1.5 million square feet (58%) of the principal plant and office
floor area is held by business units in the Pump Products Group; .5 million
square feet (19%) is held by business units in the Dispensing Equipment Group;
and .6 million square feet (23%) is held by business units in the Other
Engineered Products Group.
ITEM 3. LEGAL PROCEEDINGS.
The Company and the Company's Subsidiaries ("Subsidiaries") are party to
various legal proceedings arising in the ordinary course of business, none of
which is expected to have a material adverse effect on the Company's business or
financial condition.
6
8
The Subsidiaries are subject to extensive federal, state, and local laws,
rules and regulations pertaining to environmental, waste management, and health
and safety matters. Permits are or may be required for some of the Subsidiaries'
facilities and waste-handling activities and these permits are subject to
revocation, modification and renewal. In addition, risks of substantial costs
and liabilities are inherent in the Subsidiaries' operations and facilities, as
they are with other companies engaged in similar industries, and there can be no
assurance that such costs and liabilities will not be incurred. The Company is
not aware of any environmental, health or safety matter which could,
individually or in the aggregate, cause a material adverse effect on the
business, financial condition, results of operations, or cash flows of the
Company or any of its Subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.
Information regarding the prices of, and dividends on, the Common Stock,
and certain related matters, is incorporated herein by reference to "Shareholder
Information" on page 37 of the 1998 Annual Report.
The principal market for the Common Stock is the New York Stock Exchange,
but the Common Stock is also listed on the Chicago Stock Exchange. As of January
29, 1999, the Common Stock was held by approximately 7,700 shareholders and
there were 29,463,390 shares of Common Stock outstanding.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under "Historical Data" on pages 14 and 15 of the
1998 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 to 21 of the 1998
Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is subject to market risk associated principally with changes
in interest rates and foreign currency exchange rates. Interest rate exposure is
principally limited to the $283.4 million of long-term debt of the Company
outstanding at December 31, 1998. 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
$350,000 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 which 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 Sterling, German Mark, Dutch Guilder and other Western
European currencies. The Company manages its foreign exchange risk principally
through the invoicing of customers in the same currency as the source of the
products. The implementation of the Euro currency as of January 1, 1999 is not
expected to materially affect the Company's foreign currency exchange risk
profile, although some customers may require the Company to invoice or pay in
Euros rather than the functional currency of the manufacturing entity.
7
9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of IDEX, including the Notes thereto,
together with the independent auditors' report thereon of Deloitte & Touche LLP
on pages 22 to 34 of the 1998 Annual Report are incorporated herein by
reference.
During the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Pursuant to SFAS No. 131, IDEX realigned
its historical presentation of business segments into three reportable segments:
Pump Products, Dispensing Equipment and Other Engineered Products. As additional
information, presented below is IDEX's unaudited quarterly group financial
information for 1998 and 1997 reflecting the revised reporting structure.
IDEX CORPORATION
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1998(1)
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
(UNAUDITED)
--------------------------------------------------
PUMP PRODUCTS
Net sales(2)......................... $ 94,471 $ 99,273 $ 93,049 $ 88,899 $375,692
Operating income(3).................. 20,625 19,623 17,962 16,602 74,812
Operating margin..................... 21.8% 19.8% 19.3% 18.7% 19.9%
Depreciation and amortization........ $ 4,597 $ 5,095 $ 5,145 $ 4,489 $ 19,326
Capital expenditures................. 2,236 2,920 1,344 2,152 8,652
DISPENSING EQUIPMENT
Net sales(2)......................... $ 29,973 $ 33,356 $ 30,759 $ 28,756 $122,844
Operating income(3).................. 5,333 7,417 6,009 3,724 22,483
Operating margin..................... 17.8% 22.2% 19.5% 13.0% 18.3%
Depreciation and amortization........ $ 1,732 $ 1,770 $ 1,796 $ 1,834 $ 7,132
Capital expenditures................. 629 1,119 1,030 1,222 4,000
OTHER ENGINEERED PRODUCTS
Net sales(2)......................... $ 35,392 $ 37,320 $ 36,129 $ 35,163 $144,004
Operating income(3).................. 5,770 6,222 6,839 5,765 24,596
Operating margin..................... 16.3% 16.7% 18.9% 16.4% 17.1%
Depreciation and amortization........ $ 1,569 $ 1,578 $ 1,589 $ 1,539 $ 6,275
Capital expenditures................. 1,463 1,397 1,404 1,064 5,328
COMPANY
Net sales............................ $159,084 $169,461 $159,406 $152,180 $640,131
Operating income..................... 28,392 30,443 27,517 23,191 109,543
Operating margin..................... 17.8% 18.0% 17.3% 15.2% 17.1%
Depreciation and amortization(4)..... $ 7,963 $ 8,500 $ 8,588 $ 7,884 $ 32,935
Capital expenditures................. 7,096 5,446 3,778 4,443 20,763
- ---------------
See page 9 for note explanations.
8
10
IDEX CORPORATION
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1997(5)
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
(UNAUDITED)
--------------------------------------------------
PUMP PRODUCTS
Net sales(2)......................... $ 64,947 $ 65,612 $ 68,274 $ 67,085 $265,918
Operating income(3).................. 15,452 14,500 15,397 16,094 61,443
Operating margin..................... 23.8% 22.1% 22.6% 24.0% 23.1%
Depreciation and amortization........ $ 2,624 $ 2,708 $ 2,654 $ 2,207 $ 10,193
Capital expenditures................. 1,261 2,150 1,848 1,616 6,875
DISPENSING EQUIPMENT
Net sales(2)......................... $ 31,043 $ 35,527 $ 37,009 $ 34,623 $138,202
Operating income(3).................. 4,849 7,410 7,017 6,360 25,636
Operating margin..................... 15.6% 20.9% 19.0% 18.4% 18.5%
Depreciation and amortization........ $ 1,690 $ 1,860 $ 1,756 $ 1,786 $ 7,092
Capital expenditures................. 789 577 515 1,119 3,000
OTHER ENGINEERED PRODUCTS
Net sales(2)......................... $ 35,904 $ 40,785 $ 37,773 $ 35,993 $150,455
Operating income(3).................. 6,008 6,884 6,912 6,622 26,426
Operating margin..................... 16.7% 16.9% 18.3% 18.4% 17.6%
Depreciation and amortization........ $ 1,703 $ 1,800 $ 1,892 $ 1,521 $ 6,916
Capital expenditures................. 466 708 931 1,213 3,318
COMPANY
Net sales............................ $131,375 $141,976 $141,799 $137,013 $552,163
Operating income..................... 23,966 25,966 26,568 27,095 103,595
Operating margin..................... 18.2% 18.3% 18.7% 19.8% 18.8%
Depreciation and amortization(4)..... $ 6,024 $ 6,413 $ 6,377 $ 5,479 $ 24,293
Capital expenditures................. 2,521 3,709 3,347 3,985 13,562
- ---------------
(1) Includes acquisition of Gast Manufacturing (January 21, 1998), Knight
Equipment (December 9, 1997) and Blagdon Pump (April 4, 1997) in the Pump
Products Group.
(2) Group net sales include intersegment sales.
(3) Group operating income excludes unallocated corporate operating expenses.
(4) Excludes amortization of debt issuance expenses.
(5) Includes acquisition of Knight Equipment (December 9, 1997) and Blagdon Pump
(April 4, 1997) in the Pump Products Group.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
9
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information regarding the directors of the Company is incorporated
herein by reference to the information set forth under the caption "Election of
Directors" in the 1999 Proxy Statement.
Information regarding executive officers of the Company is incorporated
herein by reference to Item 1 of this report under the caption "Executive
Officers of the Registrant" on page 5.
Certain information regarding compliance with Section 16(a) of the
Securities and Exchange Act of 1934, as amended, is incorporated herein by
reference to the information set forth under "Compliance with Section 16(a) of
the Exchange Act" in the 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated herein by
reference to the materials under the caption "Compensation of Executive
Officers" in the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference set forth under the caption
"Security Ownership" in the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information set forth under the caption
"Certain Interests" in the 1999 Proxy Statement.
10
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements
The following financial statements are incorporated herein by reference to
the 1998 Annual Report.
1998 ANNUAL
REPORT PAGE
-----------
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 22
Statements of Consolidated Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... 23
Statements of Consolidated Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.............. 24
Statements of Consolidated Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... 25
Notes to Consolidated Financial Statements.................. 26-33
Independent Auditors' Report................................ 34
1998 FORM
10-K PAGE
2. Financial Statement Schedule ---------
(a) Independent Auditors' Report.................... 12
(b) Schedule II -- Valuation and Qualifying
Accounts...................................... 12
All other schedules are omitted because they are
not applicable, or not required, or because the
required information is included in the
Consolidated Financial Statements of IDEX or the
Notes thereto.
3. Exhibits
The exhibits filed with this report are listed on the "Exhibit Index."
(B) Report on Form 8-K
In a report on Form 8-K, dated December 21, 1998, and filed with the
Securities Exchange Commission on December 21, 1998, the Company announced that
Donald N. Boyce, Chairman and Chief Executive Officer, plans to retire as Chief
Executive Officer as of March 31, 1999, but will remain as Chairman of the
Company's Board of Directors. Mr. Boyce, 60, has been the Chief Executive
Officer of IDEX since its founding in 1988 and was previously Chief Executive
Officer of IDEX's predecessor, Houdaille Industries, Inc.
Frank J. Hansen, 57, currently President and Chief Operating Officer, will
be named President and Chief Executive Officer as of April 1, 1999. The position
of Chief Operating Officer will remain unfilled for the present time. Mr. Hansen
joined IDEX's Viking Pump business unit in 1975 and held several management
positions there prior to being named President of Viking Pump in 1989. He became
an IDEX Vice President-Group Executive in 1993, was named Senior Vice
President-Operations in 1994, and assumed the positions of President and Chief
Operating Officer in January 1998.
11
13
INDEPENDENT AUDITORS' REPORT
IDEX Corporation:
We have audited the consolidated financial statements of IDEX Corporation
and its Subsidiaries as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon,
dated January 19, 1999: such financial statements and report are included in
your 1998 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of IDEX
Corporation, listed in Item 14. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements as a
whole, presents fairly, in all material respects, the information set forth
herein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 19, 1999
IDEX CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
BALANCE CHARGED TO BALANCE
BEGINNING OF COSTS AND DEDUCTIONS END
DESCRIPTION YEAR EXPENSES (1) OTHER(2) OF YEAR
----------- ------------ ---------- ---------- -------- -------
(IN THOUSANDS)
Year Ended December 31, 1998:
Deducted From Assets To Which They Apply:
Allowance for Doubtful Accounts........ $2,561 $ 665 $1,060 $318 $2,484
Year Ended December 31, 1997:
Deducted From Assets To Which They Apply:
Allowance for Doubtful Accounts........ 2,111 1,315 1,083 218 2,561
Year Ended December 31, 1996:
Deducted From Assets To Which They Apply:
Allowance for Doubtful Accounts........ 1,820 1,302 1,325 314 2,111
- ---------------
(1) Represents uncollectible accounts, net of recoveries.
(2) Represents acquisition, translation and reclassification adjustments.
12
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 5th day of
February, 1999.
IDEX CORPORATION
By /s/ WAYNE P. SAYATOVIC
------------------------------------
Wayne P. Sayatovic
Senior Vice President -- Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DONALD N. BOYCE Chairman of the Board, Chief Executive
- ------------------------------------ Officer (Principal Executive Officer) and
Donald N. Boyce Director February 5, 1999
/s/ FRANK J. HANSEN President, Chief Operating Officer and
- ------------------------------------ Director
Frank J. Hansen February 5, 1999
/s/ WAYNE P. SAYATOVIC Senior Vice President -- Finance and Chief
- ------------------------------------ Financial Officer (Principal Financial and
Wayne P. Sayatovic Accounting Officer) February 5, 1999
/s/ RICHARD E. HEATH Director
- ------------------------------------
Richard E. Heath February 5, 1999
/s/ HENRY R. KRAVIS Director
- ------------------------------------
Henry R. Kravis February 5, 1999
/s/ WILLIAM H. LUERS Director
- ------------------------------------
William H. Luers February 5, 1999
/s/ PAUL E. RAETHER Director
- ------------------------------------
Paul E. Raether February 5, 1999
/s/ CLIFTON S. ROBBINS Director
- ------------------------------------
Clifton S. Robbins February 5, 1999
/s/ GEORGE R. ROBERTS Director
- ------------------------------------
George R. Roberts February 5, 1999
/s/ NEIL A. SPRINGER Director
- ------------------------------------
Neil A. Springer February 5, 1999
/s/ MICHAEL T. TOKARZ Director
- ------------------------------------
Michael T. Tokarz February 5, 1999
13
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
2.1 Agreement and Plan of Merger between IDEX Corporation and
Gast Acquisition Corporation dated January 7, 1998
(incorporated by reference to Exhibit No. 2.1 to the IDEX
Form 8-K/A dated January 21, 1998, and filed on February 6,
1998, Commission File No. 1-10235)..........................
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% 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 No. 4.5 (a) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, Commission
File No. 1-10235)...........................................
4.5(b) Second Amendment to the Third Amended and Restated Credit
Agreement dated as of January 20, 1998 (incorporated by
reference to Exhibit No. 4.5 (b) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, Commission
File No. 1-10235)...........................................
14
16
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
4.5(c) Third Amendment to the Third Amended and Restated Credit
Agreement dated as of February 9, 1998 (incorporated by
reference to Exhibit No. 4.5 (c) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, Commission
File No. 1-10235)...........................................
4.5(d) Fourth Amendment to the Third Amended and Restated Credit
Agreement dated as of April 3, 1998 (incorporated by
reference to Exhibit No. 4.5 (d) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, Commission
File No. 1-10235)...........................................
**10.1 Amended and Restated Employment Agreement between IDEX
Corporation and Donald N. Boyce, dated as of January 22,
1988 (incorporated by reference to Exhibit No. 10.15 to
Amendment No. 1 to the Registration Statement on Form S-1 of
IDEX Corporation, Registration No. 33-28317, as filed on
June 1, 1989)...............................................
**10.1(a) First Amendment to the Amended and Restated Employment
Agreement between IDEX Corporation and Donald N. Boyce,
dated as of January 13, 1993 (incorporated by reference to
Exhibit No. 10.5(a) to the Annual Report of IDEX on Form
10-K for the year ending December 31, 1992, Commission File
No. 1-10235)................................................
**10.1(b) Second Amendment to the Amended and Restated Employment
Agreement between IDEX Corporation and Donald N. Boyce,
dated as of September 27, 1994 (incorporated by reference to
Exhibit No. 10.5(b) to the Annual Report of IDEX on Form
10-K for the year ending December 31, 1994, Commission File
No. 1-10235)................................................
**10.1(c) Third Amendment to the Amended and Restated Employment
Agreement between IDEX Corporation and Donald N. Boyce,
dated December 19, 1997 (incorporated by reference to
Exhibit No. 10.1(c) to the Annual Report of IDEX on Form
10-K for the year ending December 31, 1997, Commission File
No. 1-10235)................................................
**10.2 Amended and Restated Employment Agreement between IDEX
Corporation and Wayne P. Sayatovic, dated as of January 22,
1988 (incorporated by reference to Exhibit No. 10.17 to
Amendment No. 1 to the Registration Statement on Form S-1 of
IDEX Corporation, Registration No. 33-28317, as filed on
June 1, 1989)...............................................
**10.2(a) First Amendment to the Amended and Restated Employment
Agreement between IDEX Corporation and Wayne P. Sayatovic,
dated as of January 13, 1993 (incorporated by reference to
Exhibit No. 10.7(a) to the Annual Report of IDEX on Form
10-K for the year ending December 31, 1992, Commission File
No. 1-10235)................................................
**10.2(b) Second Amendment to the Amended and Restated Employment
Agreement between IDEX Corporation and Wayne P. Sayatovic,
dated as of September 27, 1994 (incorporated by reference to
Exhibit No. 10.6(b) to Amendment No. 1 to the Annual Report
of IDEX on Form 10-K for the year ending December 31, 1994,
Commission File No. 1-10235)................................
**10.3 Employment Agreement between IDEX Corporation and Frank J.
Hansen dated as of August 1, 1994 (incorporated by reference
to Exhibit No. 10.7 to the Quarterly Report of IDEX on Form
10-Q for the quarter ended September 30, 1994, Commission
File No. 1-10235)...........................................
**10.3(a) First Amendment to the Employment Agreement between IDEX
Corporation and Frank J. Hansen, dated as of September 27,
1994 (incorporated by reference to Exhibit No. 10.7(a) to
the Annual Report of IDEX on Form 10-K for the year ending
December 31, 1994, Commission File No. 1-10235).............
15
17
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
**10.3(b) Amended and Restated Employment Agreement between IDEX
Corporation and Frank J. Hansen, dated December 19, 1997
(incorporated by reference to Exhibit No. 10.3(b) to the
Annual Report of IDEX on Form 10-K for the year ending
December 31, 1997, Commission File No. 1-10235).............
**10.3(c)* Amended and Restated Employment Agreement between IDEX
Corporation and Frank J. Hansen, dated December 23, 1998....
**10.4 Employment Agreement between IDEX Corporation and Jerry N.
Derck dated as of September 27, 1994 (incorporated by
reference to Exhibit No. 10.8 to the Annual Report of IDEX
on Form 10-K for the fiscal year ending December 31, 1994,
Commission File No. 1-10235)................................
**10.5 Management Incentive Compensation Plan (incorporated by
reference to Exhibit No. 10.21 to Amendment No. 1 to the
Registration Statement on Form S-1 of IDEX Corporation,
Registration No. 33-28317, as filed on June 1, 1989)........
**10.5(a) Amended Management Incentive Compensation Plan (incorporated
by reference to Exhibit No. 10.9(a) to the Quarterly Report
of IDEX on Form 10-Q for the quarter ended March 31, 1996,
Commission File No. 1-10235)................................
**10.6 Form of Indemnification Agreement (incorporated by reference
to Exhibit No. 10.23 to the Registration Statement on Form
S-1 of IDEX Corporation, Registration No. 33-28317, as filed
on April 26, 1989)..........................................
**10.7 Form of Shareholder Purchase and Sale Agreement
(incorporated by reference to Exhibit No. 10.24 to Amendment
No. 1 to the Registration Statement on Form S-1 of IDEX
Corporation, Registration No. 33-28317, as filed on June 1,
1989).......................................................
**10.8 Revised Form of IDEX Corporation Stock Option Plan for
Outside Directors (incorporated reference to Exhibit No.
10.22 to Post-Effective Amendment No. 4 to the Registration
Statement on Form S-1 of IDEX Corporation, et al.,
Registration No. 33-21205, as filed on March 2, 1990).......
**10.9 Amendment to the IDEX Corporation Stock Option Plan for
Outside Directors adopted by resolution to the Board of
Directors dated as of January 28, 1992 (incorporated by
reference to Exhibit No. 10.21(a) of the Annual Report of
IDEX on Form 10-K for the year ended December 31, 1992,
Commission File No. 10-10235)...............................
**10.10 Non-Qualified Stock Option Plan for Non-Officer Key
Employees of IDEX Corporation (incorporated by reference to
Exhibit No. 10.15 to the Annual Report of IDEX on Form 10-K
for the year ended December 31, 1992, Commission File No.
1-102351)...................................................
**10.10(a) 1996 Stock Plan for Non-Officer Key Employees of IDEX
Corporation (incorporated by reference to Exhibit No. 4.5 to
the Registration Statement on Form S-8 of IDEX, Registration
No. 333-18643, as filed on December 23, 1996)...............
**10.11 Non-Qualified Stock Option Plan for Officers of IDEX
Corporation (incorporated by reference to Exhibit No. 10.16
to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 1992, Commission File No. 1-102351)............
**10.12 IDEX Corporation Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit No. 10.17 to the
Annual Report of IDEX on Form 10-K for the year ended
December 31, 1992, Commission File No. 1-102351)............
**10.13 1996 Stock Plan for Officers of IDEX (incorporated by
reference to Exhibit No. 4.4 to the Registration Statement
on Form S-8 of IDEX Registration No. 333-18643, as filed on
December 23, 1996)..........................................
16
18
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
**10.14 Amended and Restated IDEX Corporation Directors Deferred
Compensation Plan, as amended (incorporated by reference to
Exhibit No. 4.6 to the Registration Statement on Form S-8 of
IDEX Registration No. 333-18643, as filed on December 23,
1996).......................................................
**10.14(a) Second Amended and Restated IDEX Corporation Directors
Deferred Compensation Plan, dated December 16, 1997
(incorporated by reference to Exhibit No. 10.14(b) to the
Annual Report of IDEX on Form 10-K for the year ending
December 31, 1997, Commission File No. 1-10235).............
**10.15 IDEX Corporation 1996 Deferred Compensation Plan for
Officers, as amended (incorporated by reference to Exhibit
No. 4.8 to the Registration Statement on Form S-8 of IDEX,
Registration No. 333-18643, as filed on December 23,
1996).......................................................
**10.16 IDEX Corporation 1996 Deferred Compensation Plan for
Non-Officer Presidents, as amended (incorporated by
reference to Exhibit No. 4.7 to the Registration Statement
on Form S-8 of IDEX, Registrant No. 333-18643, as filed on
December 23, 1996)..........................................
*13 1998 Annual Report to Shareholders of IDEX..................
*21 Subsidiaries of IDEX........................................
*24 Consent of Deloitte & Touche LLP............................
*27 Financial Data Schedule.....................................
Revolving Credit Facility, dated as of September 29, 1995,
between Dunja Verwaltungsgesellschaft GmbH and Bank of
America NT & SA, Frankfurt Branch (a copy of the agreement
will be furnished to the Commission upon request)...........
- ---------------
* Filed herewith.
** Management contract or compensatory plan or agreement.
17
1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
between
IDEX CORPORATION
and
FRANK J. HANSEN
2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the ____ day of December, 1998, between IDEX
CORPORATION, a Delaware corporation with its executive offices at 630 Dundee
Road, Suite 400, Northbrook, Illinois 60062 ("IDEX"), and FRANK J. HANSEN, 1716
Mulberry Drive, Libertyville, Illinois 60048 (the "Executive").
IDEX and the Executive entered into an Employment Agreement dated as of
August 1, 1994 and subsequently amended as of September 27, 1994, amended and
restated in its entirety as of November 22, 1996, further amended and restated
in its entirety as of January 1, 1998, and further amended as of January 1,
1998. The parties now wish to modify certain provisions of the Employment
Agreement and to restate the Employment Agreement in its entirety as modified.
Therefore, IDEX and the Executive agree as follows:
1. Introductory statement. The Executive has previously served as
President of Viking Pump, Inc., a business unit of IDEX Corporation, and as
Vice President-Group Executive and Senior Vice President-Operations of IDEX
Corporation ("IDEX"). IDEX desires to secure the full-time services of the
Executive as President and Chief Operating Officer effective as of January 1,
1998, until at least December 31, 2001, on the terms and conditions as provided
in this Agreement. The Executive is willing to execute this Agreement with
respect to his employment upon the terms and conditions set forth in this
Agreement.
3
-2-
2. Agreement of employment. IDEX agrees to, and hereby does, employ the
Executive, and the Executive agrees to, and hereby does accept, employment by
IDEX (hereafter, the "Corporation"), as President and Chief Operating Officer
of the Corporation, subject to the provisions of the by-laws of the Corporation
in respect of the duties and responsibilities assigned from time to time by the
Chief Executive Officer of the Corporation, if the Executive is not serving as
Chief Executive Officer, and subject also at all times to the control of the
Board of Directors of the Corporation.
The Executive has been elected to be a member of the Board of Directors as
of January 1, 1998. Subject to election by the shareholders of the Corporation
at annual meetings, it is contemplated that the Executive will continue to be
elected to be a member of the Board of Directors. Further, subject to election
by the Board of Directors in the exercise of its judgment, it is contemplated
that the Executive will continue to be elected to the position of President and
Chief Operating Officer and will be elected to the position of Chief Executive
Officer as of April 1, 1999.
The Corporation shall not require the Executive to perform services
hereunder away from the Chicago, Illinois area of such frequency and duration
as would necessitate, in the reasonable judgment of the Executive, the
Executive moving his residence from the Chicago, Illinois area.
4
-3-
3. Executive's obligations; vacations; automobile. During the period
of his full-time service under this Agreement, the Executive shall devote
substantially all of his time and energies during business hours to the
supervision and conduct, faithfully and to the best of his ability, of the
business and affairs of the Corporation, and to the furtherance of its
interests, and shall not accept other gainful employment except with the prior
consent of the Chief Executive Officer of the Corporation or, if the Executive
is serving as Chief Executive Officer, prior consent of the Board of Directors
of the Corporation. With the approval of the Chief Executive Officer of the
Corporation, or, if the Executive is serving as Chief Executive Officer, prior
consent of the Board of Directors of the Corporation, the Executive may become
a director, trustee or other fiduciary of other corporations, trusts or
entities. The Executive may take five weeks vacation each year with pay. The
Corporation shall furnish and maintain an automobile for the use of the
Executive consistent with the policy of the Corporation in effect at any time;
provided, however, that at no time shall the policy of the Corporation be
materially less generous than that in effect as of January 1, 1998.
4. Compensation.
4(a) Annual salary. The Corporation shall pay to the Executive for his
services under this Agreement a salary at the rate of $330,000 per year
commencing as of January 1, 1999, payable in equal monthly installments, and
continuing during the period of his full-time service hereunder. If the
Executive shall be elected to serve as Chief Executive Officer, his salary
shall be at the rate of $440,000 per year commencing as of April 1, 1999. The
Corporation shall in good faith review the salary of the Executive, on an
annual basis,
5
-4-
with a view to consideration of appropriate increases in such salary. If the
Executive dies during the period of his full-time service hereunder, service
for any part of the month of his death shall be considered service for the
entire month.
4(b) Bonus. The Executive shall be entitled to receive an annual cash
bonus from the Corporation calculated pursuant to the Corporation's management
incentive compensation program (the "MICP") in effect from time to time, but in
an amount not less than would result if such bonus were calculated pursuant to
the Corporation's management incentive compensation program in effect on
January 1, 1998. The Board of Directors of the Corporation, in its discretion,
may award bonuses to the Executive in addition to those provided for above, as
it may from time to time determine. The Target Incentive Amount for the
Executive with respect to any calculation of bonus shall be at least 75% of his
base salary as of the end of the fiscal period of the Corporation for which the
bonus is calculated. Notwithstanding the foregoing sentence, if the Executive
shall be elected to serve as Chief Executive Officer, the Target Incentive
Amount for the Executive for the period January 1, 1999 through March 31, 1999
shall be 75% of his base salary and the Target Incentive Amount shall be 80% of
his base salary for the period from April 1, 1999 to the end of the 1999 fiscal
period of the Corporation and for subsequent fiscal periods of the Corporation.
6
-5-
5. Period of service and benefits.
5(a) Period of full-time service. The period of full-time service of the
Executive under this Agreement shall continue to December 31, 2001, and for
successive 12 month periods thereafter; provided, however, that the Corporation
may terminate at any time the full-time service of the Executive hereunder by
delivering written notice of termination to the Executive at least three months
prior to the effective date of such termination, or the Executive may resign
and terminate his full-time service hereunder at any time (i) if the
Corporation does not retain him in the positions of President, Chief Operating
Officer and, if elected to serve as Chief Executive Officer, Chief Executive
Officer or if the Executive's scope of duties hereunder is significantly
reduced, (ii) at any time within the 24-month period following an Acquisition
(as hereinafter defined), liquidation or dissolution of the Corporation, or
(iii) if the services required to be performed by the Executive would
necessitate, in the reasonable judgment of the Executive, the Executive's
moving his residence from the Chicago, Illinois area by delivering written
notice of his intention to resign to the Corporation at least three months
prior to the effective date of such resignation.
In the event of termination of the Executive by the Corporation, the
Executive shall be entitled to receive his full annual salary and fringe
benefits in effect on the date of receipt of the notice of termination for a
continuing period of 24 months beginning with that month next following the
month during which he ceases to be actively employed. In the event
7
-6-
of the Executive's death, the balance of the continuing salary payments shall
be made to his wife, if surviving, or if not, to his estate in addition to any
and all other benefits payable under this Agreement upon his death.
In the event of resignation by the Executive as permitted under the first
paragraph of this Section 5(a), the Executive shall be entitled to receive his
full annual salary and fringe benefits in effect on the date of receipt of the
notice of resignation for a continuing period of 24 months beginning with that
next month following the month during which he ceases to be actively employed.
In the event of the Executive's death, in addition to any and all other
benefits payable under this Agreement upon his death, the balance of the
continuing salary payments shall be made to his wife, if surviving, or if not,
to his estate.
Except as otherwise provided in Section 5(c)(4), continuing fringe
benefits under this Section 5(a) shall be reduced to the extent of any fringe
benefits provided by and available to the Executive from any subsequent
employer but shall not be limited by the terms of any such fringe benefit of a
subsequent employer.
In the event of termination of the Executive by the Corporation, the
Executive's death or disability, or resignation by the Executive as permitted
under the first paragraph of this Section 5(a), the Executive or his estate
shall receive a cash bonus for the entire fiscal year in which such
termination, death, or resignation occurs or disability commences. Such
8
-7-
bonus shall be calculated in accordance with the management incentive
compensation program of the Corporation in effect from time to time and shall
in no event be less than the full target amount for the Executive for such
fiscal year. If no policy of the Corporation then exists with regard to
calculation and payment of bonuses, the bonus shall be calculated and paid in
accordance with the policy of the Corporation in effect as of January 1, 1999.
In addition, in the event of termination of the Executive by the
Corporation, the Executive's death or disability, or the resignation by the
Executive (whether or not permitted under the first paragraph of this Section
5(a)), the Executive shall receive payment for accrued but unused vacation,
which payment shall be equitably prorated based on the period of active
employment for that portion of the fiscal year in which the termination or
resignation becomes effective, death occurs, or disability commences, plus
payment for accrued but unused vacation for the prior fiscal year. Payment for
accrued but unused vacation shall be payable in one lump sum on the effective
date of termination or resignation, the date of death (or as soon thereafter as
practicable) or the date disability commences.
In the event of termination of the Executive by the Corporation or
resignation by the Executive as permitted under the first paragraph of this
Section 5(a) within 24 months following an "Acquisition" of the Corporation (as
hereinafter defined), the benefits to be provided to the Executive upon such
termination, regardless of the continued effectiveness of this Agreement or of
the provisions of this Section 5(a), shall be in an amount and character
9
-8-
not less generous than the benefits payable upon a termination of the Executive
by the Corporation as set forth in this Section 5(a). Further, upon such a
termination, in determining the bonus to be paid to the Executive under this
Section 5(a), he shall receive (i) a full year's bonus under the MICP at the
Target Incentive Amount in effect on the date of termination, or, if greater,
at the time of the Acquisition plus (ii) a proportionate bonus under the MICP
determined by multiplying the amount determined under (i) by a fraction, the
numerator of which is the number of whole calendar months in the calendar year
preceding the date of termination, and the denominator of which is 12.
For purposes of this Agreement, an "Acquisition" means (I) any transaction
or series of transactions which within a 12-month period constitute a change of
control where (i) at least 51 percent of the then outstanding common shares of
the Corporation are (for cash, property (including, without limitation, stock
in any corporation), or indebtedness, or any combination thereof), redeemed by
the Corporation or purchased by an person(s), firm(s) or entity(ies), or
exchanged for shares in any other corporation whether or not affiliated with
the Corporation, or any combination of such redemption, purchase or exchange,
or (ii) at least 51 percent of the Corporation's assets are purchased by any
person(s), firm(s) or entity(ies) whether or not affiliated with the
Corporation for cash, property (including, without limitation, stock in any
corporation) or indebtedness or any combination thereof, or (iii) the
Corporation is merged or consolidated with another corporation regardless of
whether the Corporation is the survivor, or (II) any substantial equivalent of
any such redemption, purchase, exchange,
10
-9-
change, transaction or series of transactions, merger or consolidation,
constituting such change of control. For purposes of this paragraph, the term
"control" shall have the meaning ascribed thereto under the Securities Exchange
Act of 1934, as amended, and the regulations thereunder. For purposes of
clause (I)(ii) above or as appropriate for purposes of clause (II) above, the
Corporation shall be deemed to include on a consolidated basis all subsidiaries
and other affiliated corporations or other entities with the same effect as if
they were divisions.
The benefits provided for under this section shall be in lieu of, and not
in addition to, any and all benefits to which the Executive may be entitled
under any bonus or severance program or policy adopted by the Corporation from
time to time unless otherwise expressly stated therein.
5(b)(1) Death benefit. If the Executive dies during the period of his
full-time service hereunder, his wife, if surviving, or if not, his estate
shall be entitled to receive his full annual salary in effect on the date of
his death for a continuing period of 18 months commencing on the first day of
the month immediately following the date of his death.
5(b)(2) Disability benefits. In the event the Executive ceases to be
actively employed by the Corporation for any reason during any period of his
disability, he shall be entitled to receive (i) his full annual salary in
effect on the date he ceased to be employed for a continuing period of 18
months from the date he ceases to be employed by the Corporation,
11
-10-
and (ii) the fringe benefits provided by the Corporation under its
executive disability policy in effect on the date he ceases to be employed.
5(b)(3) Determination of disability. Any question as to the existence,
extent or potentiality of disability of the Executive upon which the Executive
and the Corporation cannot agree shall be determined by a qualified independent
physician selected by the Executive and reasonably acceptable to the
Corporation (or, if the Executive is unable to make such selection, it shall be
made by any adult member of his immediate family). For the purpose of this
Agreement, "disability" shall mean a disability which is, or has the potential
to become, total and permanent and because of which the Executive is or may
become physically or mentally unable to substantially perform his regular
duties as President or Chief Operating Officer of the Corporation, as the case
may be. The determination of such physician made in writing to the Corporation
and to the Executive shall be final and conclusive for all purposes of this
Agreement. In the event of his disability, the Executive shall cease to be
employed on the last day of the month in which the Executive's disability is
determined by written agreement of the Executive and the Corporation or the
written determination of a physician, as the case may be.
5(c)(1) Retirement compensation and obligations. Upon the retirement or
resignation of the Executive or upon his termination from full-time service
with the Corporation, in either case pursuant to the provisions of this Section
5 hereof, the full-time
12
-11-
service obligations of the Executive and the Corporation to each other under
Sections 2, 3 and 4 hereof shall cease, and the Executive shall be entitled to
receive benefits and compensation as specified in the preceding provisions of
this Section 5.
5(c)(2) Guarantee of pension benefits. In addition to the compensation
otherwise provided herein, the Executive and his beneficiaries shall be
entitled to receive the retirement and death benefits they would receive at the
times and under such optional arrangements as the Executive is entitled to
under the terms of any defined benefit retirement or pension plan adopted and
implemented by the Corporation for its executive office employees in effect at
the date of the Executive's retirement, resignation or termination (for
whatever reason) from full-time service with the Corporation or at any time
during the Executive's service with the Corporation (any such plan is referred
to hereafter as the "Plan") (such Plan shall include a lump sum option)
pursuant to the Plan provisions as in effect at the point in time during the
Executive's employment at which the Plan would provide the greatest benefits
for the Executive and his beneficiaries and, in addition, the greatest latitude
in choice of options (including, but not limited to, a lump sum option), but in
any event computed without reference to (i) any restrictions in the Plan upon
payments to the Executive, as described in Section 1.401(a)(4)-5(b) of the
Treasury Regulations; (ii) any restrictions in the Plan upon the maximum
contributions to the Plan or upon the maximum benefits payable under the Plan,
as the case may be, pursuant to Section 415 of the Internal Revenue Code of
1986, as in effect at such point in time (the "Code"); (iii) any limitations on
the amount of the
13
-12-
Executive's compensation that may be taken into account under the Plan pursuant
to Section 401(a)(17) of the Code or any successor section; (iv) the
limitations on compensation that would exclude any income attributable to the
exercise of the nonqualified stock options granted in replacement of Equity
Appreciation Rights granted under the First Restatement of the Amended and
Restated 1988 Equity Appreciation Rights Plan or the 1989 Equity Appreciation
Rights Plan (hereafter the "EAR Plans"); (v) for purposes of determining
eligibility for a lump sum distribution, any condition under the Plan
considered necessary to receive a lump sum distribution, such as the submission
of medical evidence of reasonable health of the Participant or the meeting of a
specified age or service requirement (in other words the lump sum distribution
shall be an election solely in the discretion of the Executive); or (vi) any
other restriction on the Executive's benefits as determined under the Plan
pursuant to the Code, to the Employee Retirement Income Security Act of 1974,
as in effect at such point in time ("ERISA") or to any other law affecting the
determination of such benefits. However, except as specifically described
otherwise in the preceding sentence, all calculations pursuant to this Section
5(c)(2) of benefits shall be made on the basis of the actual years of service
to the Corporation, including any Affiliated Corporation and Company as defined
under the Plan, and actual compensation of the Executive taken into account
under the applicable Plan provisions. In calculating the Executive's
compensation and years of service to the Corporation under the Plan for
purposes of benefit accrual and to determine active employment on any date
relevant for any purpose under the Plan, compensation shall be deemed to
include amounts termed severance (including, without limitation, amounts paid
14
-13-
pursuant to Section 5(a)) and service shall be deemed to include the periods
for which the Executive receives such payments termed severance (based on the
period over which the severance amount would have been paid if paid as
compensation over the entire period as to which severance is calculated) even
if such amount is paid as a lump sum settlement. To the extent that the
benefits to which the Executive or his beneficiaries are entitled under this
Section 5(c)(2) are not paid from the Trust under the Plan or from the IDEX
Corporation Supplemental Executive Retirement Plan, the Corporation shall pay
such benefits directly from its general assets.
If payments are being made, pursuant to this Section 5(c)(2), in the form
of an annuity or other periodic form of distribution, and the portion of the
total amount to be paid from the Trust under the Plan shall thereafter be
reduced after the date such payments have been determined pursuant to the
preceding paragraph, by virtue of the operation of restrictions in the Plan
upon payments to the Executive, as described in Section 1.401(a)(4)-5(b) of the
Treasury Regulations, or by virtue of the termination of the Plan (including
the operation of Section 4045 of ERISA or any successor section) or for any
other reason other than the operation of the provisions of the optional form
selected under the Plan, the Corporation shall increase, in an amount equal to
any such reduction, the amount of the benefit under this Section 5(c)(2) which
is to be paid directly from its general assets, and such increase shall be
prorated over the remaining payments or used to recalculate the annuity
payments, as the case may be.
15
-14-
If payments are being made or have been made in full, pursuant to this
Section 5(c)(2), but the Executive or any of his beneficiaries is required to
make a payment to the Trustee under the Plan (whether in the form of a loss of
collateral, interest on such collateral or otherwise) as the result of the
application of the restrictions in the Plan upon payments to the Executive, as
described in Section 1.401(a)(4)-5(b) of the Treasury Regulations, or by virtue
of the termination of the Plan (including the operation of Section 4045 of
ERISA or any successor section) or for any other reason, the Corporation shall
reimburse the Executive or his beneficiaries, as the case may be, directly from
its general assets, for each such payment to the Trustee, and if the Executive
or any of his beneficiaries does not receive a deduction for federal, state
and/or local income tax purposes for such a payment and/or if such payment
would result in the imposition of any penalty tax because of such repayment,
then the amount of such reimbursement shall be increased by an amount such that
after payment by the Executive or his beneficiaries of all taxes, including,
without limitation, any interest or penalties imposed with respect to such
reimbursement, the Executive or his beneficiaries retain an amount from the
Corporation approximately equal to the amount repaid to the Trustee.
In the event (I) the Executive requests a lump sum distribution from the
Trustee or Committee under the Plan and is denied the request, regardless of
the reason for the denial, or (II) (i) if the Plan is amended to eliminate the
lump sum distribution option on future benefit accruals or (ii) the Executive
is not otherwise entitled to a lump sum distribution under the
16
-15-
Plan terms and, in the case of (i) or (ii), the Executive states in
writing to the Corporation at any time prior to the Executive or his
beneficiaries receiving a benefit under the Plan that he otherwise would have
requested the lump sum distribution option, the Corporation shall pay the
Executive, or his beneficiaries, as the case may be, in cash in a single lump
sum benefit, an amount equal to the benefit hereinbefore determined less any
amount received by the Executive or his beneficiaries from the Plan directly or
indirectly in a single payment, regardless of the form of payment in which the
benefit is being paid or is to be paid under the Plan. In the case of a
benefit provided under this paragraph, the Corporation shall pay the Executive
or his beneficiaries an additional amount in cash in a single lump sum payment
such that after payment by the Executive or his beneficiaries of all federal,
state, and/or local income taxes (including, without limitation, any interest
or penalties imposed with respect to such taxes) imposed upon such single lump
sum payment, the Executive or his beneficiaries retain an amount that would
have been retained by him or them (without regard to any limitations as
described in the first paragraph of this Section 5(c)(2)) had he or they
directly rolled the amount from the Plan into an individual retirement account.
If the Executive or his beneficiaries receive the single lump sum payment from
the Corporation under this paragraph, the Executive and his beneficiaries agree
to waive and/or return to the Corporation all benefits to him or them that he
or they subsequently receive from the Plan. Notwithstanding the preceding
sentence, if the Executive or any of his beneficiaries does not receive a
deduction for federal, state and/or local income tax purposes for such benefits
and/or if such benefits would result in the imposition of any penalty tax
because of such repayment, then the amount
17
-16-
of such waiver and/or return to the Corporation shall be decreased by an amount
such that after payment by the Executive or his beneficiaries of all taxes,
including, without limitation, any interest or penalties imposed with respect
to such waiver and/or return, the Executive or his beneficiaries incur no net
expense from such benefits he or they subsequently receive from the Plan. For
purposes of this Section, beneficiaries means the beneficiaries as determined
under the Plan.
Notwithstanding the preceding provisions of this Section 5(c)(2), in
calculating the benefit provided under this Section 5(c)(2) under the terms of
any Plan, compensation shall include in any year any amount otherwise excluded
from compensation in such year as a result of an election to defer income made
pursuant to the provisions of the IDEX Corporation 1996 Deferred Compensation
Plan for Officers and shall exclude in any year any amount that would otherwise
be included in compensation in a year which relates to an amount deferred in a
prior year under the provisions of the IDEX Corporation 1996 Deferred
Compensation Plan for Officers.
Notwithstanding the preceding provisions of this Section 5(c)(2), in
calculating the benefit provided under this Section 5(c)(2) under the terms of
the Plan, the following rules shall apply:
18
-17-
(a) In computing average compensation for purposes of any benefit
formula under the Plan, compensation shall not include any income
includable in the Executive's income for income tax purposes attributable
to the exercise of stock options granted in replacement for Equity
Appreciation Rights under the EAR Plans at any time.
(b) An additional benefit under this Section 5(c)(2) shall be
payable in an amount equal to the benefit accrued at the rate provided in
the Plan's career average formula applied to the income includable in the
Executive's income for income tax purposes attributable to the exercise
of stock options granted in replacement of Equity Appreciation Rights
under the EAR Plans at any time.
5(c)(3) Supplemental retirement compensation.
(i) If the Executive ceases to be actively employed by the
Corporation upon resignation, termination, death or disability on or after
December 31, 2002, or is receiving continuing salary payments or disability
payments on or after December 31, 2002, pursuant to Section 5(a) or Section
5(b)(2), respectively, the Executive shall be entitled to receive, in addition
to the other benefits and compensation specified in this Section 5 and
commencing upon completion of the continuing salary payments provided for in
Section 5(a) and Section 5(b)(2) of up to 24 or 18 months, respectively, (and
excluding any salary payments
19
-18-
pursuant to fringe benefit plans), supplemental retirement compensation at the
annual rate of 40% of his Adjusted Salary (as that term is defined under
5(c)(3)(v) below) calculated as of the date he ceases to be employed by the
Corporation. Such supplemental retirement compensation shall be paid in equal
monthly installments and such payments of supplemental retirement compensation
shall continue for a period of three years from the date continuing salary
payments under Section 5(a) and Section 5(b)(2) cease. Regardless of the
Executive's death prior to or after commencement of benefits under this
paragraph, the benefits provided for in this paragraph shall be paid to him, his
wife, if surviving, or his estate, as the case may be.
(ii) If the Executive ceases to be actively employed by the Corporation
upon resignation, termination or disability other than death (unless the
election under (iii) below is in effect on the date of the Executive's death)
on or after December 31, 2002, or is receiving continuing salary payments or
disability payments on or after December 31, 2002, pursuant to Section 5(a) or
Section 5(b)(2), respectively, the Executive shall also be entitled to receive,
in addition to the other benefits and compensation specified in this Section 5,
supplemental retirement compensation at the annual rate of 20% of his Adjusted
Salary. Such supplemental retirement compensation shall be paid in equal
monthly installments commencing on the first day of the month next following
the last payment under Section 5(c)(3)(i) and shall continue for the remainder
of his life.
20
-19-
(iii) If the Executive's spouse is surviving on the date that the
benefits under (i) commence, the Executive hereby elects in lieu of his
benefits under (i) or (ii) above, an actuarially equivalent joint and 50%
surviving spouse annuity calculated using the actuarial assumptions under the
Plan; provided, however, that he reserves the right to revoke such election at
any time prior to the commencement of payment of the benefits under (i); said
spouse's consent shall not be required for such revocation. If such election
is effective on the date of the Executive's death, any benefit payable pursuant
to Section 5(c)(3)(i) and (ii) shall commence immediately upon the date of his
death notwithstanding any other death benefits payable under this Agreement.
(iv) Notwithstanding any provision in this Section 5(c)(3) to the
contrary, if the Executive ceases to be actively employed by the Corporation
due to resignation, termination, death or disability prior to January 1, 2003,
but on or after December 31, 2001, then payments under Section 5(c)(3)(i) or
Section 5(c)(3)(ii) shall be made in an amount adjusted so that the present
value of benefit payments at the date of commencement is equivalent to the
present value of the benefits payable if benefit payments commenced at the time
they otherwise would have commenced if the Executive actually ceased to be
actively employed on December 31, 2002, using an interest rate and mortality
factor of one-half percent (1/2%) per month without compounding.
21
-20-
(v) For purposes of this Agreement, the term Adjusted Salary shall mean
the highest base salary paid to the Executive at any time during the term of
this Agreement.
5(c)(4) Medical benefits. The Executive and/or his wife, as the case may
be, shall be entitled to prompt reimbursement for all medical, dental,
hospitalization, convalescent, nursing, extended care facilities (including,
without limitation, long term care facilities such as convalescent and nursing
homes) and similar health and welfare expenses incurred by the Executive (or by
his wife in the event of the Executive's death or disability) for the Executive
or for the benefit of his wife or other dependents (hereinafter collectively
referred to as "medical benefits"). Such medical benefits shall continue at
all times while the Executive is employed by the Corporation, and thereafter
for the remainder of his life or the life of his wife, whichever shall be the
longer time. The Corporation may, in its discretion, insure such medical
benefits; provided, however, that such benefits shall not be affected by the
existence or non-existence of any available insurance from any source, shall
not be limited by the terms of any such insurance or the failure of any insurer
to meet its obligations thereunder, shall not limit the Executive or his wife
or other dependents in the choice of any physician, medical care facility or
type of medical expenses in any way, and, except as provided in the following
sentence, shall not be affected by the availability of any medical benefits
provided by and available to the Executive from any subsequent employer. Such
medical benefits shall be reduced to the extent of any medical benefits
actually available and actually provided by any subsequent employer to the
Executive, his wife, or other dependents only until the
22
-21-
commencement of his 60th year if he ceases to be employed by the Corporation as
a result of his resignation or retirement prior to the commencement of his
60th year. Without limiting the foregoing, there shall be no such offset in
the event of:
(a) termination for any reason after commencement of the Executive's
60th year,
(b) resignation permitted under the first paragraph of Section 5(a),
(c) involuntary termination following an Acquisition, or
(d) the death or disability of the Executive while in the active
employment of the Corporation.
In any case such reduction in medical benefits shall be only to the extent of
any medical benefits actually provided by and actually available to the
Executive (and/or his wife or other dependents) from any subsequent employer
without cost to the Executive (and/or his wife or other dependents) or subject
to full reimbursement of any such cost by the Corporation to the Executive
(and/or his wife or other dependents), but shall not be limited by the terms of
any such insurance or reimbursement. For purposes of this Agreement, the term
"medical expenses" shall include, but not be limited to, prescription drugs,
prosthetics, optical care (including corrective lenses) and travel and lodging
associated with medical expenses, with the selection of medical providers and
institutions and related travel and lodging to be solely in the discretion of
the Executive (and/or his wife or other dependents).
23
-22-
5(d) Confidentiality agreement. During the course of his employment,
the Executive has had and will have access to confidential information relating
to the lines of business of the Corporation, its trade secrets, marketing
techniques, technical and cost data, information concerning customers and
suppliers, information relating to product lines, and other valuable and
confidential information relating to the business operations of the Corporation
not generally available to the public (the "Confidential Information"). The
parties hereby acknowledge that any unauthorized disclosure or misuse of the
Confidential Information could cause irreparable damage to the Corporation. The
parties also agree that covenants by the Executive not to make unauthorized use
or disclosures of the Confidential Information are essential to the growth and
stability of the business of the Corporation. Accordingly, the Executive
agrees to the confidentiality covenants set forth in this section.
The Executive agrees that, except as required by his duties with the
Corporation or as authorized by the Corporation in writing, he will not use or
disclose to anyone at any time, regardless of whether before or after the
Executive ceases to be employed by the Corporation, any of the Confidential
Information obtained by him in the course of his employment with the
Corporation.
The Executive agrees that since irreparable damage could result from his
breach of the covenants in this Section 5(d) of this Agreement, in addition to
any and all other remedies available to the Corporation, the Corporation shall
have the remedies of a restraining
24
-23-
order, injunction or other equitable relief to enforce the provisions thereof.
The Employee consents to jurisdiction in Lake County, Illinois on the date of
the commencement of any action for purposes of any claims under this Section
5(d). In addition, the Executive agrees that the issues in any action brought
under this section will be limited to claims under this section, and all other
claims or counterclaims under other provisions of this Agreement will be
excluded.
5(e). Cost of living adjustments. All payments under Sections 5(c)(3)(i)
and (ii) hereof shall be appropriately increased at such time as the
Corporation shall first become obligated to make such payments, and at the
beginning of each year thereafter, in proportion to the amount, if any, by
which the Consumer Price Index (the "CPI") for the then most recently reported
month exceeds the CPI as of the month and year of the date the Executive ceased
to be employed. The CPI to be used hereunder shall be the CPI for All Urban
Consumers (CPI-U) (All Cities, All Items, 1982-84 = 100), published by the
Bureau of Labor Statistics of the United States Department of Labor. In the
event of any substantial change in the composition of the CPI to be used
hereunder or in the event of discontinuance or termination of such index, the
most appropriate available price index shall be substituted and utilized
hereunder.
6. Compensation under this Agreement not exclusive. Except as expressly
stated to the contrary in this Agreement, the compensation and benefits payable
by the Corporation to the Executive under the provisions of this Agreement
shall be in addition to and separate and apart from such additional
compensation or incentives and such retirement,
25
-24-
disability or other benefits as the Executive may be entitled to under any
present or future extra compensation or bonus plan, stock option plan, share
purchase agreement, pension plan, disability insurance plan, medical insurance
plan, life insurance program, or other plan or arrangement of the Corporation
established for its executives or employees, and the provisions of this
Agreement shall not affect any such compensation, incentives or benefits. The
Board of Directors of the Corporation, in its discretion, may award the
Executive such additional compensation, incentives or benefits, pursuant to
such plans or otherwise, as it may from time to time determine.
7. Termination of this Agreement. This Agreement shall terminate when the
Corporation has made the last payment provided for hereunder; provided,
however, that the obligations set forth under Section 5(d) of this Agreement
shall survive any such termination and shall remain in full force and effect.
Without the written consent of the Executive, the Corporation shall have no
right to terminate this Agreement prior thereto. In the event the Executive,
or his beneficiaries, as the case may be, and the Corporation shall disagree as
to their respective rights and obligations under this Agreement, and the
Executive or his beneficiaries are successful in establishing, privately or
otherwise, that his or their position is substantially correct, or that the
Corporation's position is substantially wrong or unreasonable, or in the event
that the disagreement is resolved by settlement, the Corporation shall pay all
costs and expenses, including counsel fees, which the Executive or his
beneficiaries may incur in connection therewith directly to the provider of the
services or as
26
-25-
may otherwise be directed by the Executive or his beneficiaries. The
Corporation shall not delay or reduce the amount of any payment provided for
hereunder or setoff or counterclaim against any such amount for any reason
whatever; it is the intention of the Corporation and the Executive that the
amounts payable to the Executive or his beneficiaries hereunder shall continue
to be paid in all events in the manner and at the times herein provided. All
payments made by the Corporation hereunder shall be final and the Corporation
shall not seek to recover all or any part of any such payments for any reason
whatsoever.
8. Additional payments by Corporation.
8(a) Notwithstanding anything in this Agreement or any other agreement to
the contrary, in the event it shall be determined that any payment or
distribution by the Corporation or any affiliate (as defined under the
Securities Act of 1933, as amended, and the regulations thereunder) thereof or
any other person to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement, pursuant to that certain shareholder purchase and sale agreement
between Executive and the Corporation made as of January 22, 1988, as amended
and restated, pursuant to all non-qualified stock option plans of the
Corporation now or hereafter in effect, pursuant to the IDEX Corporation
Supplemental Executive Retirement Plan, pursuant to the IDEX Corporation 1996
Deferred Compensation Plan for Officers, pursuant to any other plan of deferred
compensation, or pursuant to any other agreement or arrangement with the
27
-26-
Corporation or any affiliate thereof now or hereafter in effect (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Code, or any
successor statute thereto, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including,
without limitation, any interest or penalties imposed with respect to such
taxes and any Excise Tax) imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
8(b) The Executive and/or the Corporation shall notify each other in
writing as soon as practicable of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Corporation of the
Gross-Up Payment. Such notification shall state the nature of such claim and
the date on which such claim is requested to be paid. Neither the Executive
nor the Corporation shall pay such claim for taxes prior to the expiration of
the thirty-day period following the date on which the notice is given (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Executive or Corporation (hereafter the "Notifying
Party") notifies the other party in writing prior to the expiration of such
period that it desires to contest such claim, such other party shall take such
action, in connection with contesting such claim as the Notifying Party shall
reasonably request in writing from time to time, including, without limitation,
accepting
28
-27-
legal representation with respect to such claim by an attorney selected by the
Notifying Party and approved by the other party, provided, however, that the
Corporation shall bear and pay directly all costs and expenses (including
additional interest and penalties and counsel fees as submitted) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Furthermore, if the
Corporation is the Notifying Party, the Corporation's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
9 Rights in event of change of control or liquidation.
9(a) Rights in event of change in management or control. In the event of
an Acquisition, the Executive, regardless of whether still employed by the
Corporation, or, in the event of his death or inability to act, his wife or, if
not surviving, his eldest surviving child (or in the event of their inability
to act, such person who has the legal power to act on their behalf), shall have
the right, in his or her sole option, upon receipt of prior written notice of
the Acquisition from the Corporation, which such notice the Corporation is
hereby required to provide, prior to the Acquisition to elect to receive on the
consummation of the Acquisition, or for a period of 24 months after the
Acquisition to elect to receive on the date designated by the Executive, or
other beneficiary as the case may be, in either case within such 24-month
29
-28-
period, a lump sum settlement of any one or more of the economic obligations of
the Corporation to the Executive or other beneficiary under this Agreement or
any other agreement, plan, policy or program of the Corporation.
Notwithstanding anything in the preceding sentence to the contrary, in the
event that pursuant to the preceding sentence the Corporation is obligated to
pay to the Executive or such beneficiary in a lump sum settlement all of the
obligations of the Corporation to the Executive or such beneficiary under this
Agreement or any other agreement, plan, policy or program of the Corporation,
the Executive or, in the event of his death or inability to act, his wife or,
if not surviving, his eldest surviving child (or in the event of their
inability to act, such person who has the legal power to act on their behalf),
shall have the right, in his or her sole discretion, to elect not to receive a
lump sum settlement of the obligations of the Corporation to the Executive or
other beneficiary under Section 5(c)(4) of this Agreement and, in lieu thereof,
to receive a guaranty (including, without limitation, a letter of credit), in
form and substance satisfactory to the Executive or other beneficiary, as the
case may be, in his or her sole discretion, of the payment of such obligations
from any entity satisfactory to the Executive or other beneficiary, in his or
her sole discretion. In addition, if the Executive or other beneficiary elects
to receive a lump sum settlement, such election may be withdrawn by the
Executive or other beneficiary with respect to any one or more of such
obligations at any time prior to receipt of payment by the Executive or other
beneficiary from the Corporation. Any lump sum payment shall be actuarially
computed by the Corporation in good faith on an equitable basis based on the
prevailing economic circumstances at the time of such election and shall
include an assumption
30
-29-
regarding future cost of living increases based upon the average of the
monthly CPI for the five (5) calendar years immediately preceding the date of
election. Any lump sum pension guarantee under Section 5(c)(2) shall be
determined using the mortality assumptions of the "applicable mortality table"
under Section 417(e) of the Code and either (i) the interest rate that would be
used (as of the date of payment) by the Pension Benefit Guaranty Corporation
for purposes of valuing a lump sum distribution upon a plan termination on the
January 1 of the calendar year in which the single sum is paid or (ii) the
"applicable interest rate" under Section 417(e) of the Code, determined as of
the first month of the calendar year in which the single sum is paid, whichever
would produce the greater single sum amount.
9(b) Assurances on liquidation. The Corporation agrees that until the
termination of this Agreement as above provided, it will not voluntarily
liquidate or dissolve, or enter into or be a party to any other transaction the
effect of which would be to materially reduce the net assets or operations of
the Corporation, without first making a written agreement with the Executive or
other beneficiary, satisfactory to and approved by him or such beneficiary in
writing within 30 days of receipt of a notice from the Corporation of such
proposed liquidation, dissolution or other transaction, in fulfillment of or in
lieu of its obligations to him or such beneficiary under this Agreement or any
other agreement, plan, policy or program of the Corporation or, in the absence
of such agreement, paying him or such beneficiary in a lump sum settlement of
all such obligations prior to such proposed liquidation, dissolution or other
transaction. Notwithstanding anything in the preceding
31
-30-
sentence to the contrary, in the event that pursuant to the preceding sentence
the Corporation is obligated to pay to the Executive or such beneficiary in a
lump sum settlement all of the obligations of the Corporation to the Executive
or such beneficiary under this Agreement or any other agreement, plan, policy
or program of the Corporation, the Executive or, in the event of his death or
inability to act, his wife or, if not surviving, his eldest surviving child (or
in the event of their inability to act, such person who has the legal power to
act on their behalf), shall have the right, in his or her sole discretion, to
elect not to receive a lump sum settlement of the obligations of the
Corporation to the Executive or other beneficiary under Section 5(c)(4) of this
Agreement and, in lieu thereof, to receive a guaranty (including, without
limitation, a letter of credit), in form and substance satisfactory to the
Executive or other beneficiary, as the case may be, in his or her sole
discretion, of the payment of such obligations from any entity satisfactory to
the Executive or other beneficiary, as the case may be, in his or her sole
discretion. Any lump sum settlement shall reflect a reasonable assumption of
cost-of-living adjustments, if appropriate to such obligation, and shall be
determined using the mortality assumptions of the "applicable mortality table"
under Section 417(e) of the Code and either (i) the interest rate that would be
used (as of the date of payment) by the Pension Benefit Guaranty Corporation
for purposes of valuing a lump sum distribution upon a plan termination on the
January 1 of the calendar year in which the single sum is paid or (ii) the
"applicable interest rate" under Section 417(e) of the Code, determined as of
the first month of the calendar year in which the single sum is paid, whichever
would produce the greater single sum amount. For purposes of this Subsection,
the Corporation shall
32
-31-
be deemed to include on a consolidated basis all subsidiaries and other
affiliated corporations or other entities with the same effect as if they were
divisions.
10. Definitions. For purposes of this Agreement, the term "year" shall
mean fiscal year, the term "dependents" shall have the same meaning as pursuant
to Section 152 of the Code and the term "his 60th year" shall mean immediately
following the Executive's 59th birthday. Any reference in this Agreement to
the Code or ERISA or to related regulations shall be deemed to include any
subsequent amendments to the Code or ERISA or related regulations and to
include any successor provision of law or related regulation.
11. Amendments. This Agreement may not be amended or modified orally, and
no provision hereof may be waived, except in a writing signed by the parties
hereto, and specifically the agreement of any beneficiary, wife, dependents or
other potential or actual third party beneficiary shall not be required, except
as specifically provided for in this Agreement.
12. Assignment. This Agreement cannot be assigned by either party hereto
except with the written consent of the other.
33
-32-
13. Binding effect. This Agreement shall be binding upon and inure to the
benefit of the personal representatives and successors in interest of the
Executive and any successors in interest of the Corporation. In addition to
inuring to the benefit of the Executive, Sections 5(a) and 5(b) are intended to
inure to the benefit of the Executive's beneficiaries, Section 5(c)(2) is
intended to inure to the benefit of the Executive's beneficiaries, to the
extent contemplated in that provision, Section 5(c)(4) is intended to inure to
the benefit of the Executive's wife and his dependents, Sections 5(c)(3)(i) and
(ii) is intended to insure to the benefit of the Executive's wife, to the
extent of any election under Section 5(c)(3)(iii) and Section 7, Section 8 and
Section 9 are intended to inure to the benefit of the Executive's
beneficiaries; such provisions shall be enforceable by the aforesaid
beneficiaries, wife and/or dependents, as the case may be, who upon the
Executive's death shall be deemed successors in interest.
14. Choice of law. This Agreement shall be governed by the law of the
State of Illinois (excluding the law of the State of Illinois with regard to
conflicts of law) as to all matters, including but not limited to matters of
validity, construction, effect and performance.
15. Notice. Except as otherwise provided in this Agreement, all notices
and other communications given pursuant to this Agreement shall be deemed to
have been properly given if personally delivered or mailed, addressed to the
appropriate party at the address of
34
-33-
such party as shown at the beginning of this Agreement, postage prepaid, by
certified mail or by Federal Express or similar overnight courier service.
A copy of any notice sent pursuant to this section shall also be sent to
Hodgson, Russ, Andrews, Woods & Goodyear, 1800 One M & T Plaza, Buffalo, New
York 14203, Attention: Richard E. Heath, Esq. and Dianne Bennett, Esq. Any
party may from time to time designate by written notice given in accordance
with the provisions of this paragraph any other address or party to which such
notice or communication or copies thereof shall be sent.
16. Severability of provisions. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be effected or impaired thereby and this
Agreement shall be interpreted as if such invalid, illegal or unenforceable
provision was not contained herein.
17. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
35
-34-
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Corporation has caused this Agreement to be executed in its name and on its
behalf as of the date first above written.
----------------------------------------
Frank J. Hansen
Date of Execution: December ___, 1998
IDEX CORPORATION
By:
-------------------------------------
Donald N. Boyce, Chairman of the Board and
Chief Executive Officer
Date of Execution: December ___, 1998
The undersigned hereby executes this Amendment to evidence her agreement
to be bound by the terms of Subsection 5(c)(2) and 5(c)(3) of the Employment
Agreement.
----------------------------------------
Kathryn Hansen
DATE OF EXECUTION: December ___, 1998
1
IDEX Corporation manufactures an extensive array of proprietary, engineered
industrial products sold to customers in a variety of industries around the
globe. Our businesses have leading positions in their niche markets, and we have
a history of achieving high profit margins.
Among the factors in the success equation at IDEX are emphasis on the worth of
our people, fleetfootedness, ethical business conduct, continuing new product
development, superior customer service, top-quality products, market share
growth, international expansion, and above-average shareholder returns. The IDEX
acronym stands for - and the essence of IDEX is - Innovation, Diversity, and
EXcellence. IDEX shares are traded on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol IEX.
TABLE OF CONTENTS
Shareholders' Letter............. 2
Business Groups.................. 4
Business Profile................. 6
Product and Process
Innovation....................... 8
Acquisition Strategy............ 10
Market Leadership............... 12 [graph]
Historical Data................. 14
Management's Discussion
and Analysis.................... 16
Financial Statements............ 22
Business Units.................. 35
Corporate Officers
and Directors................... 36
Shareholder Information......... 37 Total return to IDEX shareholders since
going public in June 1989 has been 307%.
In the same period the S&P 500 Index has
increased 389%, and the Russell 2000
Index rose 184%.
2
Financial Highlights
(in thousands except share and per share amounts)
Years ended December 31, 1998 Change 1997 Change 1996
--------------------------------------------------------------------------------
RESULTS OF
OPERATIONS
Net sales $640,131 16% $552,163 16% $474,699
Operating income 109,543 6 103,595 18 87,616
[Graph] Interest expense 22,359 22 18,398 5 17,476
Income from
continuing operations 54,396 2 53,475 20 44,424
Net income 62,064 6 58,626 17 50,198
--------------------------------------------------------------------------------
FINANCIAL
POSITION
Working capital $115,635 (3)% $119,466 10% $108,313
Total assets 695,811 16 599,193 5 569,745
Long-term debt 283,410 10 258,417 (5) 271,709
Sales have grown at a 22% compound Shareholders' equity 286,037 20 238,671 22 195,509
annual rate since 1993. --------------------------------------------------------------------------------
PERFORMANCE
MEASURES
Percent of net sales
Operating income 17.1% 18.8% 18.5%
Income from
continuing operations 8.5 9.7 9.4
Net income return on
average assets 9.6 10.0 9.8
Debt as a percent of
capitalization 49.8 52.0 58.2
Net income return on
[Graph] average shareholders'
equity 23.7 27.0 29.0
--------------------------------------------------------------------------------
PER SHARE DATA-
DILUTED
Income from
continuing operations $ 1.81 2% $ 1.78 19% $ 1.49
Net income 2.07 6 1.95 15 1.69
Cash dividends paid .54 13 .48 12 .43
Shareholders' equity 9.71 19 8.16 21 6.76
Diluted earnings per share have --------------------------------------------------------------------------------
increased at a 19% compound annual
rate in the last five years. OTHER DATA
Employees at year end 3,803 14% 3,326 8% 3,093
Shareholders at year end 7,700 10 7,000 15 6,100
Weighted average
shares outstanding 30,052 - 29,999 1 29,779
--------------------------------------------------------------------------------
* All share and per share data throughout this report have been restated to reflect
the three-for-two stock splits effected in the form of 50% stock dividends in
January 1995 and 1997.
3
Shareholders' Letter
TO OUR SHAREHOLDERS:
While worldwide developments in the manufacturing sector of the economy
prevented us from doing as well as we expected when the year began, IDEX still
set new financial records in 1998. Importantly, your company also made
significant strides in a number of areas to enhance future growth opportunities
by:
- acquiring Gast Manufacturing, a leading manufacturer of air-moving
devices,
- introducing a number of new products,
- making capital investments in production equipment and business systems to
accommodate growth,
- selling two businesses which did not fit our long-term strategy,
- arranging a new, more attractive $150 million long-term note issue and
redeeming $75 million of higher cost debt, and
- selecting the next generation of senior management of the company.
NEW HIGHS IN SALES AND NET INCOME FROM CONTINUING OPERATIONS
Net sales reached $640 million and increased by 16% from the $552 million of
1997. Net income from continuing operations was $54.4 million and increased by
2% from $53.5 million in 1997. Diluted earnings per share from continuing
operations in 1998 amounted to $1.81 compared with $1.78 in 1997. However, a
one-time charge of approximately 3 cents per share was taken in connection with
closing a small plant in McKees Rocks, Pennsylvania. Without this charge, income
from continuing operations would have been $1.84 per diluted share, a 6 cent per
share improvement. We also recorded net income from discontinued operations and
a gain on the sale of the Strippit and Vibratech businesses aggregating $10.2
million, or 34 cents per share. These gains were partially offset by a charge of
$2.5 million, or 8 cents per share, from prepayment of the $75 million senior
subordinated note issue which was replaced by the new $150 million senior note
issue at a lower cost. Net income for the year, including the unusual items
mentioned, reached $62.1 million or $2.07 per diluted share.
The turmoil in Asia reduced our business there, and the effects spread to
U.S. and other world markets as the year progressed, dampening activity in
several of our markets. As a result, all of our growth in sales and earnings in
1998 stemmed from our acquisitions. Without acquisitions, our sales would have
been down about 6% from last year.
International expansion has been a key development strategy for IDEX, and was
very beneficial for us until this year. From our formation in 1988 through 1997,
international sales rose from 24% of total sales to 44%. In 1998, international
sales were 39% of total. This was primarily because of our most recent
acquisition, Gast Manufacturing, having only about 20% of its sales outside the
U.S., but softer conditions in international markets and the effect of the
strong dollar on exports also affected our international activity.
Operating income margins in 1998 were 17.1% of sales, which is a strong
showing for an industrial company. However, margins declined from 18.8% in 1997
because our recent acquisitions have margins that are below the IDEX average.
Our base business margins actually remained steady in 1998, despite the sales
decline. We have a history of acquiring good companies with
[Graph]
International growth continues to be a key factor in IDEX's success.
[Graph]
Since its formation,
IDEX has continuously achieved significantly higher operating margins than most
manufacturers.
[Graph]
IDEX's net income margins exceed those of most manufacturers.
2
4
somewhat lower margins than ours, and then working with managements to improve
margins and asset utilization. Our process involves strong financial discipline
and sharing best practices among business units. Indeed, all of the companies
acquired prior to 1997 have better margins today than when they were acquired.
In reviewing the detailed information in this report, you will see that our
operations are now separated into three groups: Pump Products, Dispensing
Equipment and Other Engineered Products. This change provides you with further
details about the company's operations and complies with the new accounting
standard on disclosures about business segments.
DIVIDEND INCREASE AND AUTHORIZATION OF SHARE BUYBACK PROGRAM
The Board of Directors, after considering the company's prospects, again
increased the dividend on our common shares beginning with the January 1999
payment. The new dividend rate is 14 cents per share per calendar quarter, up 4%
from the 13-1/2 cents per share paid in 1998.
In addition, at its October 1998 meeting, the Board authorized the repurchase
of up to 1.5 million shares of common stock at market prices or on a negotiated
basis. While no share repurchases occurred in 1998, purchases may be made as
conditions warrant, with funding for the purchases coming from borrowings under
our existing facilities.
GAST MANUFACTURING ACQUIRED
On January 21, 1998, we acquired Gast Manufacturing of Benton Harbor,
Michigan, in a $118 million cash transaction. Gast is a leading manufacturer of
air-moving products such as vacuum pumps, air motors, vacuum generators,
regenerative blowers and fractional horsepower compressors. It is being operated
as a member of our Pump Products Group. This company fits the IDEX profile very
well and expands our offering of specialized fluid handling and pump products.
SALE OF TWO BUSINESSES
During 1998, we divested Strippit and Vibratech, which were among the six
businesses acquired from Houdaille Industries when IDEX was formed in 1988.
While both businesses were profitable, they no longer fit the IDEX profile
because of significant differences in product technology, distribution methods,
and markets served. In addition, they tended to be much more cyclical than our
other businesses. Proceeds from the sales, aggregating approximately $40
million, were used to reduce debt.
INTERNAL DEVELOPMENT
We were able to maintain our leading positions in niche markets in 1998
because of our dedication to superior customer service, introduction of a number
of new products, intensified marketing efforts, expenditures for production
equipment and improved business systems, development of our people, and
adherence to a strict code of ethics. Further information on these initiatives
is found in other sections of this annual report.
MANAGEMENT TRANSITION
On December 18, Donald N. Boyce, who has been Chairman and Chief Executive
Officer of IDEX since its founding in 1988, and who has been with IDEX and its
predecessor since 1969, announced that he plans to retire on March 31, 1999. He
will remain Chairman of the Board. Succeeding Mr. Boyce as CEO on April 1, 1999,
will be Frank J. Hansen, who was named President and Chief Operating Officer on
January 1, 1998, in anticipation of Mr. Boyce's retirement. Mr. Hansen joined
the company at its Viking Pump business unit in 1975, was named President of
Viking in 1989, and became a corporate officer in 1994. We believe the IDEX
management team backing Mr. Hansen is a premier group with an excellent record
of success in operating manufacturing businesses.
In other management changes, P. Peter Merkel, Jr., Chairman of our
Band-It-IDEX business unit and an IDEX Vice President - Group Executive with
more than 25 years of service, retired in January 1999. We appreciate the many
and significant contributions he made to IDEX's successes. John L. McMurray, who
has been with Viking Pump for six years and is its President, was named to the
added post of IDEX Vice President - Group Executive. Also during the year, Frank
J. Notaro joined us as Vice President - General Counsel and Secretary.
OUTLOOK
While our record of above-average growth for an industrial company was
moderated in 1998 because of conditions in world-wide industrial markets, we
believe the company is well positioned for future growth. We have this
confidence because IDEX has a strong management team - in depth, a reputation
for quality (all of our plants worldwide are certified under ISO 9000
standards), leading market positions with healthy operating margins, a "serve
the customer" attitude, adherence to a strong code of ethics, a continuing flow
of new products, and sales opportunities in diverse markets not only in the U.S.
but worldwide.
Having achieved strong market positions and high margins,
your management team realizes that these advantages will be but temporary unless
we continue to strive to better our own records in areas ranging from new
product development to market development, and from production efficiencies to
systems improvements. We are in a constant state of renewal because we want to
be certain that IDEX excels in the future as it
has in the past.
While there are uncertainties in the current outlook for 1999, we believe
that, barring unforeseen circumstances, IDEX should again set records in sales,
net income and earnings per share. We also believe the coming years are filled
with opportunity.
We express our thanks to our shareholders, customers, employees, vendors and
communities in which we operate for their support.
/s/ Donald N. Boyce
---------------------------------
Donald N. Boyce
Chairman and Chief Executive Officer
/s/ Frank J. Hansen
---------------------------------
Frank J. Hansen
President and Chief Operating Officer
January 19, 1999
3
5
Business Groups
Pump Products
Corken
Gast Manufacturing
Micropump
Pulsafeeder
Viking Pump
Warren Rupp
[Sales Pi Chart]
59% Pump Products
19% Dispensing Equipment
22% Other Engineered Products
IDEX's business units are organized into three business groups: Pump
Products, Dispensing Equipment and Other Engineered Products. These businesses
offer innovative products that exemplify how we gain strength through ideas. Our
companies design, manufacture and market proprietary, precision-engineered fluid
handling devices and other engineered equipment.
PUMP PRODUCTS
The six business units in this group manufacture engineered industrial pumps
and related controls. These products are used for a wide range of process
applications, including moving paints, inks, chemicals, foods, lubricants and
fuels, as well as in medical applications, water treatment and industrial
production operations.
Our complementary lines of specialized positive displacement pumps and
related products give customers an unparalleled range of choices to meet their
needs. They 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.
The Pump Products Group accounted for 59% for our sales and 61% of profits in
1998, with 32% of sales shipped to customers outside the United States.
[Picture]
Pulsafeeder metering pump
[Picture]
Warren Rupp high-pressure diaphragm pump
Gast regenerative blower
[Picture]
Corken stainless steel vane pump
4
6
DISPENSING EQUIPMENT
The two business units in this group produce 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 Dispensing Equipment Group contributed 19% of our sales and 19% of
profits in 1998, and 46% of the group's sales were to international customers.
OTHER ENGINEERED PRODUCTS
The two business units in this group manufacture proprietary equipment,
including engineered banding and clamping devices, fire fighting pumps and
rescue tools. Our products are used in a broad range of industrial and
commercial markets, including transportation equipment, oil and gas,
electronics, communications, traffic and commercial signs, and fire and rescue.
This group represented 22% of our sales and 20% of profits in 1998. Sales to
non- U.S. customers amounted to 53% of total group sales.
[Picture]
Fluid Management
paint shaker
[Picture]
Lubriquip Trabon(R)
lubrication
package
[Picture]
Band-It clamp
installation tool
[Picture]
Hurst Jaws of
Life(R) rescue tool
[Photo]
Steve Semmler (left), President of Corken, shows Jim Grigsby III (right) of
American Propane Gas Co., their new Coro-Vac(R) cylinder evacuation device.
Dispensing Equipment
FLUID MANAGEMENT
LUBRIQUIP
Other Engineered Products
BAND-IT
HALE PRODUCTS
[Profits Pi Chart]
61% Pump Products
19% Dispensing Equipment
20% Other Engineered Products
5
7
Business
Profile
CORKEN GAST MANUFACTURING MICROPUMP
Product Positive Vacuum pumps, air Small,
offering displacement rotary motors, vacuum precision-engineered,
vane pumps, single generators, magnetically and
and multistage regenerative blowers electromagnetically
regenerative turbine and fractional driven rotary gear,
pumps, and small horsepower piston and
horsepower compressors. centrifugal pumps.
reciprocating piston
compressors.
-----------------------------------------------------------------------------------
Brand Corken, Coro-Flo, Gast, Regenair, Micropump, Delta,
names* Coro-Vane, Coro-Vac, Smart-Air, Roc-R Integral Series
Sabre
-----------------------------------------------------------------------------------
Markets Liquefied petroleum gas Medical equipment, Printing machinery,
served (LPG), oil and gas, computers and medical equipment,
petrochemical, pulp and electronics, chemical processing,
paper, transportation, printing machinery, pharmaceutical, refining,
marine, food processing paint mixing laboratory, electronics,
and general industrial. machinery, packaging pulp and paper, water
machinery, graphic treatment and textiles.
arts and industrial
manufacturing.
-----------------------------------------------------------------------------------
Product Products used for Air motors for Pumps and fluid
applications transfer and recovery of industrial equipment management systems for
LPG, alternative fuels applications, and low-flow abrasive and
and other gases and vacuum pumps and corrosive applications
liquids. fractional such as inks, dyes,
horsepower solvents, chemicals,
compressors for petrochemicals, acids and
specialty pneumatic chlorides.
applications
requiring a quiet,
clean source of
moderate vacuum or
pressure.
-----------------------------------------------------------------------------------
Competitive Market leader for pumps A leading Market and technology
strengths and compressors used in manufacturer of leader in
LPG distribution air-moving products corrosion-resistant,
facilities with an with an estimated magnetically and
estimated 50% U.S. market one-third U.S. electromagnetically
share. market share in air driven, miniature pump
motors, low and technology with an
medium range vacuum estimated 40% U.S. market
pumps, vacuum share.
generators,
regenerative blowers
and fractional
horsepower
compressors.
-----------------------------------------------------------------------------------
International 45% of sales outside the 20% of sales outside 50% of sales outside the
sales U.S. the U.S. U.S.
-----------------------------------------------------------------------------------
Examples of New Coro-Vac vacuum pump, New line of rocking New series of pumps built
recently designed in cooperation piston vacuum pumps from injection molded
introduced with Gast Manufacturing, and air compressors stainless steel, new
products* for purging air from for medical and dual-pumps sharing a
cylinders and tanks prior industrial common drive, and a new
to filling with LP gas. applications. brushless DC motor used
New high pressure, Extended series of throughout several pump
two-stage compressor for miniature diaphragm series.
gas and liquid transfer vacuum pumps for
and recovery. environmental
applications.
-----------------------------------------------------------------------------------
Manufacturing Oklahoma City, Oklahoma Benton Harbor, Michigan Vancouver, Washington
locations Bridgman, Michigan St. Neots, England
High Wycombe, England
Swansea, Wales
*Brand names shown are registered trademarks of IDEX and/or its
subsidiaries.
6
8
- -----------------------------------------------------------------------------------------------------------------------------
PULSAFEEDER VIKING PUMP WARREN RUPP FLUID MANAGEMENT
- -----------------------------------------------------------------------------------------------------------------------------
Metering pumps, special Positive displacement Double-diaphragm pumps, Precision-engineered equipment
purpose rotary pumps, peristaltic rotary gear, lobe and both air-operated and for dispensing, metering and
pumps, electronic controls and metering pumps and motor-driven, and mixing paints, coatings, colorants,
dispensing equipment. related electronic accessories. inks, dyes, and other liquids and
controls. pastes.
- -----------------------------------------------------------------------------------------------------------------------------
Pulsafeeder, Knight, PULSAR, Viking, Vican, Duralobe, Warren Rupp, SandPIPER, Fluid Management, Harbil, Miller,
PULSAtron, PULSAtrol, Chem-Tech Viking Mag Drive, Viking Marathon, PoweRupp, Blendorama, Tintmaster, Accutinter,
Eco, Isochem, Mec-O-Matic Flow Manager, Vi-Corr, RuppTech, Blagdon Eurotinter, ColorPro, Prisma, EZ Load,
Johnson, Classic, On- GyroMixer
Line, SQ
- -----------------------------------------------------------------------------------------------------------------------------
Water and wastewater treatment, Chemical processing, Chemical, paint, food Retail and commercial paint stores,
power generation, pulp and paper, petroleum food processing, processing, electronics, hardware stores, home centers,
chemical and hydrocarbon pulp and paper, construction, utilities, department stores, printers, and paint
processing, swimming pool, pharmaceutical, mining and industrial and ink manufacturers.
industrial and commercial laundry biotechnology, paints, maintenance.
and dishwashing. plastics, inks and power
generation.
- -----------------------------------------------------------------------------------------------------------------------------
Pumps, controls and dispensing Pumps for transferring Pumps for abrasive and Fluid management systems for precise
equipment for introducing precise and metering thin and semisolid materials as blending of base paint, tints and
amounts of fluids into processes viscous liquids, including well as for applications colorants, and inks and dyes in a
to manage water quality and chemicals, foods, petroleum where product broad range of industries from
chemical composition. products, paints, inks, degradation is a concern retail point-of-sale equipment to
coatings, glues and asphalt. or where electricity is manufacturing systems.
not available or should
not be used.
- -----------------------------------------------------------------------------------------------------------------------------
A leading manufacturer of Largest internal gear pump A leading double- Industry innovator and worldwide
metering pumps, controls and producer with an estimated diaphragm pump producer market leader in automatic and
dispensing equipment used in 35% share of U.S. rotary offering products in manually operated dispensing,
water treatment, process gear pump market. Also a several materials metering and mixing equipment for
applications and warewash producer of external gear including composites, the coating market. Estimated 50%
constitutional applications. and rotary lobe pumps. stainless steel and cast worldwide market share.
Estimated 40% U.S. market share. iron. Estimated one-
quarter U.S. market
share.
- -----------------------------------------------------------------------------------------------------------------------------
30% of sales outside the U.S. 30% of sales outside of 50% of sales outside the 55% of sales outside the U.S.
U.S. U.S.
- -----------------------------------------------------------------------------------------------------------------------------
An advance cooling tower A new line of industrial Stroke counter batch New high speed EZ Load and GyroMixer
controller offering simplified lobe pumps for high control, expanded line line of paint mixing equipment. New
user interface, and upgraded pressure/non-shearing of stainless steel mini-gravimetric dispenser for
leak detection technology used applications, and a hygienic pumps, and new printing applications, and industrial
throughout the metering pump sanitary lobe pump for plastic pump models. software for management of small to
range. loading/unloading food- medium batch production operations.
grade liquids from
transport trucks
- -----------------------------------------------------------------------------------------------------------------------------
Rochester, New York Cedar Falls, Iowa Mansfield, Ohio Wheeling, Illinois
Lake Forest, California Windsor, Ontario, Canada Newcastle, England Sassenheim, The Netherlands
Punta Gorda, Florida Eastbourne, England Unanderra, Australia
Covington, Georgia Shannon, Ireland
Enschede, The Netherlands
9
- --------------------------------------------------------------------------------------------------------------
LUBRIQUIP BAND-IT HALE PRODUCTS
- --------------------------------------------------------------------------------------------------------------
Centralized oil and grease Stainless steel bands, buckles, Truck-mounted and portable fire
lubrication systems, force- preformed clamps, cable ties, pumps, and rescue tool systems.
feed lubricators, metering installation tools and modular
devices, related electronic sign-mounting systems.
controls and accessories.
- --------------------------------------------------------------------------------------------------------------
Trabon, Manzel, Kipp, OPCO, Band-It, Signfix, Tespa, Self-Lok, Hale, Godiva, LUKAS, Hurst Jaws
Grease Jockey, TrackMaster, Ultra-Lok, Band-It Jr, Ball-Lok, of Life, FoamMaster, CAFSMaster,
Spindl-Gard, Injecto-Flo, Mill- Band-Lok, Infocurve Century, Green Cross, Hurst Entry
Gard Systems, Typhoon, Qflo, Qmax
- --------------------------------------------------------------------------------------------------------------
Machine tools, transfer machines, Transportation equipment, oil Public and private fire and
conveyors, packaging machinery, and gas, industrial maintenance, rescue applications.
transportation equipment, electronics, electrical,
construction machinery, and food communications, aerospace,
processing and paper machinery. traffic and commercial signs.
- --------------------------------------------------------------------------------------------------------------
Lubrication devices to prolong Clamps and bands for securing hose Pumps for water or foam to
equipment life, reduce fittings, signs, signals, pipes, extinguish fires, and rescue
maintenance costs and increase poles, electrical lines and numerous equipment for extricating accident
productivity. other "hold-together" applications victims.
for industrial and commercial use.
- --------------------------------------------------------------------------------------------------------------
Market leader in centralized World's leading producer of high- World's leading manufacturer
lubrication systems serving a quality stainless steel bands, of truck-mounted fire pumps and
broad range of industries. buckles and clamping systems with rescue systems with an estimated
Estimated one-third U.S. market an estimated 50% U.S. market share. worldwide market share in excess
share. of 50%.
- --------------------------------------------------------------------------------------------------------------
20% of sales outside the U.S. 60% of sales outside the U.S. 50% of sales outside the U.S.
- --------------------------------------------------------------------------------------------------------------
Environmentally friendly self- New high volume industrial Newly designed line of compact,
contained Mill-Gard lubrication application tools, Self-Lok and efficient Hale midship "muscle
system for the primary metals and Ball-Lok stainless steel cable ties, pumps," new "world pumps" in Europe,
paper industries, and state-of- Band-Lok general purpose clamps, and new compact compressed air foam
the-art Injecto-Flo piston Infocurve curved sign systems. systems for portable firefighting
distribution systems for machine applications, and LUKAS super silent
tools. rescue tool power packs.
- --------------------------------------------------------------------------------------------------------------
Warrensville Heights, Ohio Denver, Colorado Conshohocken, Pennsylvania
Madison, Wisconsin Bristol, England Shelby, North Carolina
Staveley, England St. Joseph, Tennessee
Tipton, England Warwick, England
Singapore Erlangen, Germany
10
Pump Products
CORKEN
GAST MANUFACTURING
MICROPUMP
PULSAFEEDER
VIKING PUMP
WARREN RUPP
Dispensing Equipment
FLUID MANAGEMENT
LUBRIQUIP
Other Engineered Products
BAND-IT
HALE PRODUCTS
11
Product and Process Innovation
[New Product Sales Pi Chart]
One-quarter of sales come from new products
[Picture]
Micropump metal injection molded mag drive pump
"Strength
Through
Ideas"
New ideas. Better ideas. Ideas that provide the best overall value for IDEX
customers. These are key factors in our strength and success.
We aim to keep pace with customer needs, exceed their expectations, and stay
ahead of the competition by continually improving product and process
technologies and introducing new products. For each of the last 11 years, about
one-fourth of our sales have come from products that were totally redesigned or
introduced in the preceding four years.
New product development is a company-wide effort. One in 10 people is
directly involved with product or process technology development.
8
12
Multidisciplinary teams consult with customers, specifying engineers, end-users,
distributors and focus groups to ensure our products are state-of-the-art.
Because many of our products are mechanical in nature and often include
electronic control devices, our engineering processes encompass the full
spectrum of technical specialties - from hydraulics and pneumatics, to
electrical and mechanical, to electronics and software development.
IDEX's strengths include our ability to leapfrog our own technology, using a
fleetfooted approach that quickly brings new products with proven reliability to
the market. Our customers deserve the best and the latest new product
technology. The variety of new products introduced by IDEX business units in
1998 include:
o an industrial lobe pump at Viking Pump,
o a Corken LP gas cylinder evacuation system developed in cooperation with
Gast Manufacturing,
o a coated Ball-Lok(R) tie system at Band-It,
o a new class of PULSAtrol(R) controllers at Pulsafeeder,
o a miniature diaphragm vacuum pump and an updated line of compressors at
Gast Manufacturing,
o a new breed of "muscle pumps" from Hale Products for truck-mounted,
fire-fighting applications in both the U.S. and Europe,
o a lower-cost, metal injection molded, miniature mag drive pump at
Micropump, and
o a new series of lube system timers and a line of Grease Jockey(R)
equipment for low-maintenance vehicles at Lubriquip.
Quality is the foundation of every new product or technology at IDEX. The
internationally recognized ISO 9000 standard has become the benchmark for
quality, and each of our worldwide manufacturing locations is certified under
this standard. This certification requires stringent controls that further
reinforce our tradition of manufacturing integrity, and ensures that our
customers constantly receive first-class products.
It is no coincidence that the first word in the IDEX acronym is Innovation.
Our commitment to developing new products is one of the cornerstones on which
IDEX will continue to grow stronger.
[Picture]
Elements of a Hale midship fire pump
[Picture]
Gast miniature vacuum pump and air compressor
9
13
Acquisition Strategy
[1998 Repair & Replacement Sales
Pi Chart]
Estimated one-third of sales come from repair & replacement
[Picture]
Gast rocking piston vacuum pump and air compressor
"Acquisitions to
enhance growth in
shareholder value"
The idea behind IDEX's acquisition strategy is simple - to promote growth in
shareholder value rather than growth for growth's sake. We use carefully
designed and rigidly applied acquisition criteria to acquire good companies and
make them better through internal benchmarking, sharing of best practices and
financial discipline.
IDEX's track record speaks for itself. Since 1989, we have completed 13
acquisitions, each meeting
[1998 Sales from Acquisitions Pi Chart]
20% of sales came from Gast Manufacturing, Knight and Blagdon
10
14
our strict criteria and now contributing to our bottom line. We will continue to
follow this disciplined approach to acquire more companies that produce
proprietary industrial products with leading positions in their niche markets.
These are our four most recently completed acquisitions:
o Gast Manufacturing, purchased in January 1998, is one of the world's
leading manufacturers of air-moving products including air motors, vacuum
pumps, vacuum generators, regenerative blowers and fractional horsepower
compressors.
o Knight Equipment, acquired in December 1997, is a leading manufacturer of
pumps and dispensing equipment for industrial laundries, commercial
dishwashing and chemical injection. It operates as part of our Pulsafeeder
business unit.
o Blagdon Pump, added in April 1997, is a U.K.-based manufacturer of
air-operated diaphragm pumps. Blagdon complements our Warren Rupp business
unit, under which it now operates.
o Fluid Management, acquired in July 1996, is the world's leading
manufacturer of mixing and dispensing equipment for a wide variety of
liquids, including paints, colorants, inks, dyes and pastes.
IDEX offers many advantages for the employees and customers of companies that
we acquire. They benefit from implementing IDEX's financial control systems
immediately after the acquisition, and then sharing the best practices of our
business units, because there is commonality in our engineering principles,
manufacturing methods, distribution channels and business systems. We can
implement what works successfully and avoid the problems of what does not. This
idea of "cross-pollination" has resulted in exceptional customer service,
improved margins and higher asset utilization in our acquired businesses.
Acquisitions have been an important part of the proven growth strategy at
IDEX since it was formed in 1988. We intend to continue to use our very strong
cash flow to further enhance shareholder value by acquiring companies that meet
our rigidly applied criteria.
[Picture]
Blagdon food-grade diaphragm pump
11
15
Market Leadership
[Market Share Leadership Pi Chart]
Estimated 40% weighted average share of markets served
[International 1998 Sales Pi Chart]
61% Domestic
24% Europe
6% Far East & Oceania
9% Rest of World
"The essence of IDEX is
Innovation, Diversity, and
EXcellence"
IDEX's strength is perhaps best demonstrated by our leadership positions in
niche markets. Each IDEX business unit holds either the number one market
position or has a sizable share as the number two producer. On a weighted
average basis, we enjoy an estimated 40% share of those markets.
The focus throughout our organization is to offer our customers the best
overall value in the marketplace. We do this by responding quickly to their
needs with the highest quality products using the latest designs. We thrive on
the urgency this requires and cut through unnecessary red tape that might slow
our response to customers.
IDEX companies are market leaders not because they have the lowest prices,
but because our customers recognize the superior value we offer. We maintain our
leadership positions by continually providing more in reliability, service,
diversity, performance, selection, easy-to-use features, productivity, safety,
maintenance, and long-term cost effectiveness.
We have used this market leadership to strengthen our international presence,
and IDEX conducts business in more than 100 countries around the world.
International sales have grown from 24% 11 years ago to 39% in 1998, and we
expect international growth to continue. By sharing application ideas with
agents, distributors and customers, we continually broaden our market base. We
provide our diverse array of products to a wide variety of customers and
industries around the globe, in an effort to minimize the effects of business
cycles in specific markets or countries.
[Picture]
Corken Coro-Vac(R) LP gas cylinder evacuation system,
developed in cooperation with
Gast Manufacturing
[Picture]
Viking industrial lobe pump
12
16
An important element in our market leadership is the well-established
industrial distribution network through which most of IDEX's products are sold.
Where volume requirements are higher, we also sell directly to original
equipment manufacturers. Our distributors are our partners in assisting
thousands of customers worldwide with product selection, installation and
service. They have technological sophistication, coupled with extensive training
and support, to ensure IDEX's reputation for excellence continues.
Our market leadership is made possible by the talent and performance of the
people of IDEX. Our dedicated employees follow a strict code of ethics, and
share the belief that IDEX is a company that people are proud to work for, buy
from, sell to and invest in. Through their effort, our business units are among
the most respected in their industries.
At IDEX we gain strength through generating ideas and translating them into
effective actions as well as by following ethical business practices; providing
top-quality, state-of-the-art products; selling to a broad base of customers and
industries worldwide; continuously working to introduce innovative new products;
caring for our people; and striving for superiority in everything we do. We
believe the very essence of IDEX is defined in its acronym Innovation, Diversity
and EXcellence.
[Market Served Pi Chart]
Chemical Processing
Paints & Coatings
Machinery
Fire & Rescue
Water Treatment
Transportation Equipment
Oil & Refining
Food Processing
Medical Equipment
All Other
[Picture]
Fluid Management computer-controlled colorant dispenser
13
17
Historical Data
(in thousands except share and per share amounts)
1998 1997
------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales $ 640,131 $ 552,163
Sales have Gross profit 252,846 222,357
grown at SG&A expenses 132,627 110,588
a 22% [Graph] Goodwill amortization 10,676 8,174
compound Operating income 109,543 103,595
annual rate Other income (expense) 479 (693)
since 1993. Interest expense 22,359 18,398
Provision for income taxes 33,267 31,029
Income from continuing operations 54,396 53,475
Income from discontinued operations 10,182 5,151
Extraordinary items (2,514) -
Net income 62,064 58,626
Income applicable to common stock 62,064 58,626
FINANCIAL POSITION
Current assets $ 195,900 $ 197,267
Current liabilities 80,265 77,801
Working capital 115,635 119,466
Current ratio 2.4 2.5
IDEX's Capital expenditures 20,763 13,562
operating Depreciation and amortization 33,575 24,943
margins have Total assets 695,811 599,193
consistently Long-term debt 283,410 258,417
been well [Graph] Shareholders' equity 286,037 238,671
above average
for an PERFORMANCE MEASURES
industrial Percent of net sales
company. Gross profit 39.5% 40.3%
SG&A expenses 20.7 20.0
Goodwill amortization 1.7 1.5
Operating income 17.1 18.8
Income from continuing operations 8.5 9.7
Net income return on average assets 9.6 10.0
Debt as a percent of capitalization 49.8 52.0
Net income return on average shareholders' equity 23.7 27.0
PER SHARE DATA
Basic - income from continuing operations $ 1.85 $ 1.83
- net income 2.12 2.01
Diluted - income from continuing operations 1.81 1.78
- net income 2.07 1.95
Cash dividends declared .545 .495
Aftertax Shareholders' equity 9.71 8.16
margins at Stock price - high 38 3/4 36 11/16
IDEX compare - low 19 1/2 23 1/4
very favorably - close 24 1/2 34 7/8
with those of [Graph] Price/earnings ratio at year end 13 18
the average
industrial OTHER DATA
company. Employees at year end 3,803 3,326
Shareholders at year end 7,700 7,000
Weighted average shares outstanding - basic 29,332 29,184
- diluted 30,052 29,999
Shares outstanding at year end 29,466 29,250
18
1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
$ 474,699 $ 395,480 $ 319,231 $ 239,704 $ 215,778 $ 166,724 $ 160,605 $ 148,870 $ 127,048
187,074 157,677 126,951 96,903 88,312 67,845 65,712 60,584 52,171
93,217 78,712 66,743 52,950 49,326 34,046 29,930 27,391 23,356
6,241 4,196 3,025 1,889 1,422 525 487 487 453
87,616 74,769 57,183 42,064 37,564 33,274 35,295 32,706 28,362
(696) 524 281 728 602 587 448 951 (1,123)
17,476 14,301 11,939 9,168 9,809 10,397 11,795 13,989 14,486
25,020 21,845 16,181 11,187 9,763 8,993 9,221 7,964 5,929
44,424 39,147 29,344 22,437 18,594 14,471 14,727 11,704 6,824
5,774 6,178 4,266 2,889 1,552 1,446 976 3,404 3,830
- - - - (3,441) 1,214 2,145 2,972 4,583
50,198 45,325 33,610 25,326 16,705 17,131 17,848 18,080 15,237
50,198 45,325 33,610 25,326 16,705 17,131 17,848 14,857 10,012
$ 191,599 $ 173,889 $ 140,450 $ 106,864 $ 107,958 $ 68,671 $ 68,807 $ 66,512 $ 59,126
83,286 70,798 58,443 34,038 31,276 25,940 23,852 20,198 18,055
108,313 103,091 82,007 72,826 76,682 42,731 44,955 46,314 41,071
2.3 2.5 2.4 3.1 3.5 2.6 2.9 3.3 3.3
11,634 8,181 6,818 6,120 5,657 2,778 4,025 3,146 1,683
21,312 15,277 12,515 10,092 8,758 5,750 4,842 4,641 4,499
569,745 450,077 357,980 245,291 240,175 137,349 127,466 124,998 118,266
271,709 206,184 168,166 117,464 139,827 65,788 103,863 124,942 143,308
195,509 150,945 116,305 83,686 58,731 37,112 (4,287) (23,282) (84,681)
39.4% 39.9% 39.8% 40.4% 40.9% 40.7% 40.9% 40.7% 41.1%
19.6 19.9 20.9 22.1 22.9 20.4 18.6 18.4 18.4
1.3 1.1 1.0 .8 .7 .3 .3 .3 .4
18.5 18.9 17.9 17.5 17.4 20.0 22.0 22.0 22.3
9.4 9.9 9.2 9.4 8.6 8.7 9.2 7.9 5.4
9.8 11.2 11.1 10.4 8.9 12.9 14.1 12.2 8.0
58.2 57.7 59.1 58.4 70.4 63.9 104.3 122.9 244.4
29.0 33.9 33.6 35.6 34.9 104.4 - - -
$ 1.54 $ 1.37 $ 1.03 $ .79 $ .66 $ .57 $ .61 $ .41 $ .10
1.74 1.58 1.18 .89 .59 .68 .73 .72 .64
1.49 1.32 1.00 .77 .65 .57 .61 .41 .10
1.69 1.53 1.15 .87 .59 .68 .73 .72 .64
.440 .387 .093 - - - - - -
6.76 5.26 4.06 2.93 2.07 1.32 (.18) (.96) (5.38)
27 5/8 29 1/2 19 1/2 16 10 5/8 8 7/8 7 3/4 7 1/2 -
19 7/8 18 3/8 15 1/8 9 3/4 7 3/8 4 1/4 4 5/8 6 1/8 -
26 5/8 27 1/8 18 3/4 15 7/8 10 5/8 7 3/8 4 3/4 7 1/2 -
16 18 16 18 15 12 7 13 -
3,093 2,680 2,305 1,828 1,864 1,418 1,367 1,391 1,222
6,100 5,300 4,400 4,300 4,200 3,900 3,700 3,600 -
28,818 28,662 28,600 28,396 28,353 25,367 24,309 20,537 15,740
29,779 29,609 29,331 28,976 28,389 25,367 24,309 20,537 15,740
28,926 28,695 28,619 28,580 28,353 28,184 24,303 24,317 15,740
* All share and per share data have been restated to reflect the three-for-two
stock splits effected in the form of 50% stock dividends in January 1995 and
1997.
15
19
Management's Discussion & Analysis of
Financial Condition & Results of Operations
Diluted earnings HISTORICAL OVERVIEW AND OUTLOOK
per share have
grown at a 19% [Graph] IDEX sells a broad range of proprietary pump
compound annual products, dispensing equipment and other
rate in the last engineered products to a diverse customer base
five years. 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 1998 orders, sales, income from
continuing operations, net income and earnings
per share were at record levels. New orders
from continuing operations totaled $627.6
million and trailed shipments by about $12.5
million. IDEX ended 1998 with a typical backlog
of unfilled orders of about 1-1/3 months'
sales. This customarily low level of backlog
allows the Company to provide excellent
IDEX's cash flow customer service, but also means that changes
coverage of in orders are felt quickly in operating
interest expense [Graph] results.
has improved
significantly. 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 United States economy and many other
economies in which IDEX sells its products
continued during 1998. 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 are currently
affecting most manufacturing companies.
However, the Company does not sell the more
cyclical, higher-ticket capital goods. IDEX has
high margins and strong cash flow, thus should
not face severe financial pressure in an
economic downturn. Based on current activity
levels and barring unforeseen circumstances, we
expect orders, sales, net income and earnings
per share for the full year in 1999 will exceed
the comparable 1998 level from continuing
operations, although the new year is
IDEX's balance
sheet has
strengthened
considerably [Graph]
since its first
year of operation From left to right: Doug Lennox (Treasurer),
in 1988. Clint Kooman (Controller), Wayne Sayatovic
(Senior Vice President - Finance and Chief
Financial Officer)
16
20
expected to start slowly. 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 its
profitable growth.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The preceding paragraph, the Shareholders' Letter, and the "Liquidity and
Capital Resources," "Year 2000" and "Euro Preparations" 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 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 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 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 18 and the Company's Statements of Consolidated Operations on page
23. During the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Pursuant to SFAS No. 131, IDEX realigned
its historical presentation of business segments into three reporting groups:
Pump Products, Dispensing Equipment and Other Engineered Products.
The Pump Products Group designs, produces and distributes a wide range of
engineered industrial pumps and related controls for process applications. The
Dispensing Equipment Group designs, manufactures and distributes
precision-engineered equipment for dispensing, metering and mixing paints, and
oil and grease lubrication systems. The Other Engineered Products Group designs,
produces and distributes proprietary engineered products for industrial and
commercial markets including fire and rescue, transportation equipment, oil and
gas, electronics, electrical, communications, and traffic and commercial signs.
In December 1997, IDEX announced its intention to divest its Strippit and
Vibratech business units. The Company completed the sale of Vibratech on June 9,
1998, and Strippit on August 25, 1998. The financial statements report Strippit
and Vibratech as discontinued operations and the group financial information
have been reclassified to reflect IDEX's revised group reporting structure.
Revenues from the discontinued operations amounted to $42.1 million, $83.9
million, and $87.9 million for the years ended 1998, 1997 and 1996,
respectively.
PERFORMANCE IN 1998 COMPARED TO 1997
Orders, sales, income from continuing operations, net income and earnings per
share exceeded the levels achieved in all prior years. Incoming orders were 15%
higher than in 1997, with the recent acquisitions of Blagdon Pump (April 1997),
Knight Equipment (December 1997) and Gast Manufacturing (January 1998)
contributing all of the growth. Orders in the base businesses decreased 6% in
1998 compared to 1997.
Net sales for 1998 reached $640.1 million and increased $87.9 million, or 16%,
over 1997 due to inclusion of the recently acquired Gast, Knight, and Blagdon
businesses. Overall base business volume was down about 5% in 1998 and foreign
currency translation had a negative effect of 1% on the Company's sales growth.
In 1998, total international sales in base businesses were down 9%, primarily
due to economic conditions in Asia and Latin America. Base business domestic
sales were down 2%. Sales to the Far East and Asian countries from base
businesses declined by about 29%, and represented 6% of total base business
sales in 1998 versus 8% in 1997. Sales to customers outside the U.S. were 39% of
total sales in 1998 compared with 44% in 1997. The decline in international
sales as a percent of total sales was primarily attributable to inclusion in
1998 of Gast, whose international sales represent about 20% of its total sales.
Total domestic sales increased by 27% in 1998, while international sales grew by
only 3%.
Pump Products Group sales of $375.7 million in 1998 increased by $109.8 million,
or 41%, from 1997 due to the recently acquired Blagdon, Knight and Gast
businesses. Base business sales volume was down 4% in 1998 and foreign currency
translation had almost no effect on the Group's sales. Sales to customers
outside the U.S. declined to 32% of total group sales in 1998 from 36% in 1997
principally due to the inclusion of Gast in 1998.
Dispensing Equipment Group sales of $122.8 million decreased $15.4 million, or
11%, compared to 1997. The decrease reflected conditions in the domestic paint
dispensing markets and lower sales to the Far East, Asia and Latin America.
Foreign currency translation had a negative effect of 1% on this Group's sales
volume. Sales to customers outside the U.S. were 46% of total group sales in
1998, down slightly from 47% in 1997.
Other Engineered Products sales of $144.0 million decreased by $6.5 million, or
4%, compared to 1997. The decrease reflected conditions in the fire and rescue
equipment markets and lower sales to the Far East and Asia. Foreign currency
translation had a negative effect of 1% on this Group's sales volume. Sales to
customers outside the U.S. were 53% of total group sales in 1998, down from 57%
in 1997.
17
21
Management's Discussion & Analysis of
Financial Condition & Results of Operations
Company and Business Group Financial Information
(dollars in thousands)
For the years ended December 31, (1) 1998 1997 1996
- ---------------------------------------------------------------------------------------
PUMP PRODUCTS GROUP
Net sales (2) $ 375,692 $ 265,918 $ 245,620
Operating income (3) 74,812 61,443 55,129
Operating margin 19.9% 23.1% 22.4%
Identifiable assets $ 370,578 $ 237,870 $ 183,749
Depreciation and amortization 19,326 10,193 9,509
Capital expenditures 8,652 6,875 5,175
DISPENSING EQUIPMENT GROUP
Net sales (2) $ 122,844 $ 138,202 $ 80,169
Operating income (3) 22,483 25,636 14,370
Operating margin 18.3% 18.5% 17.9%
Identifiable assets $ 151,380 $ 156,304 $ 167,986
Depreciation and amortization 7,132 7,092 3,523
Capital expenditures 4,000 3,000 3,485
OTHER ENGINEERED PRODUCTS GROUP
Net sales (2) $ 144,004 $ 150,455 $ 149,949
Operating income (3) 24,596 26,426 26,595
Operating margin 17.1% 17.6% 17.7%
Identifiable assets $ 158,930 $ 166,189 $ 173,030
Depreciation and amortization 6,275 6,916 7,434
Capital expenditures 5,328 3,318 2,940
COMPANY
Net sales $ 640,131 $ 552,163 $ 474,699
Operating income 109,543 103,595 87,616
Operating margin 17.1% 18.8% 18.5%
Income before interest expense and income taxes $ 110,022 $ 102,902 $ 86,920
Total assets 695,811 599,193 569,745
Depreciation and amortization (4) 32,935 24,293 20,672
Capital expenditures 20,763 13,562 11,634
(1) Includes acquisition of Blagdon Pump (April 4, 1997), Knight Equipment
(December 9, 1997) and Gast Manufacturing (January 21, 1998) in the Pump
Products Group; and acquisition of Fluid Management (July 29, 1996) in the
Dispensing Equipment Group.
(2) Group net sales include intersegment sales.
(3) Group operating income excludes net unallocated corporate operating
expenses.
(4) Excludes amortization of debt issuance expenses.
Gross profits of $252.8 million in 1998 increased by $30.5 million, or 14% from
1997. Gross profit as a percent of sales was 39.5% in 1998, down from 40.3% in
1997. Selling, general and administrative expenses increased to $132.6 million
in 1998 from $110.6 million in 1997, and as a percent of net sales, increased to
20.7% from 20.0% in 1997. Goodwill amortization increased by 31% to $10.7
million in 1998 from $8.2 million in 1997. As a percent of sales, goodwill
amortization amounted to 1.7% in 1998, up from 1.5% in 1997. The year-over-year
increases in gross profit; selling, general and administrative expenses; and
goodwill amortization were primarily due to the inclusion of the recently
acquired businesses.
Operating income increased by $5.9 million, or 6%, to $109.5 million in 1998
from $103.6 million in 1997. Operating income as a percent of sales decreased to
17.1% in 1998 from 18.8% in 1997. In the Pump Products Group, operating income
of $74.8 million and operating margin of 19.9% in 1998 compared to the $61.4
million and 23.1% recorded in 1997. The operating margin decline for the Pump
Products Group resulted from the inclusion of recently acquired businesses,
whose operating margins were lower than other business units in the Group and
whose operating income was further reduced by purchase accounting adjustments.
Operating margins in the base businesses of the Pump Products Group improved
slightly despite the sales decline. Operating
18
22
income in the Dispensing Equipment Group of $22.5 million decreased by $3.1
million, principally due to lower sales volume and costs associated with closing
a small plant in McKees Rocks, Pennsylvania. Operating margins in the Dispensing
Equipment Group of 18.3% in 1998 decreased slightly from the 18.5% achieved in
1997 due to costs associated with the plant closing. Without this charge,
operating margins would have increased despite the sales decline. Operating
income in the Other Engineered Products Group of $24.6 million and operating
margin of 17.1% in 1998 decreased from $26.4 million and 17.6% achieved in 1997,
principally due to lower volume.
Interest expense increased to $22.4 million in 1998 from $18.4 million in 1997
because of the additional borrowings to complete the Blagdon, Knight and Gast
acquisitions, partially offset by lower interest rates, debt reductions from
operating cash flow and the proceeds from the sale of discontinued businesses.
The provision for income taxes increased to $33.3 million in 1998 from $31.0
million in 1997. The effective tax rate increased to 37.9% in 1998 from the
36.7%, mainly due to higher nondeductible goodwill amortization resulting from
the recent acquisitions.
Income from continuing operations of $54.4 million in 1998 was 2% higher than
income of $53.5 million in 1997. Diluted earnings per share from continuing
operations amounted to $1.81 in 1998, an increase of 3 cents per share from the
$1.78 achieved in 1997. Diluted earnings per share in 1998 were reduced by
approximately 3 cents per share because of the one-time charge for the plant
closing.
During 1998, the Company recorded income of $10.2 million, or 34 cents per
share, from discontinued operations. This included a net gain of $9.0 million
related to the sales of discontinued businesses during 1998. 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 9.75% $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 $62.1 million in 1998 was 6% higher than net income of $58.6
million in 1997. Diluted earnings per share on a net income basis were $2.07 per
share in 1998, an increase of 12 cents per share, or 6%, from the $1.95 per
share achieved in 1997.
PERFORMANCE IN 1997 COMPARED TO 1996
In 1997, orders, sales, income from continuing operations, net income and
earnings per share exceeded the levels achieved in all prior years. Incoming
orders were 15% higher in 1997 than in 1996, with recent acquisitions of Fluid
Management (July 1996), Blagdon Pump (April 1997) and Knight Equipment (December
1997) contributing the majority of the growth. The orders for the base
businesses increased 3% in 1997 compared to 1996.
Net sales for 1997 reached $552.2 million and increased by $77.5 million, or
16%, over 1996. Overall base business sales volume was up about 3% in 1997, with
acquisitions accounting for 14% of total growth and foreign currency translation
having a negative 1% effect. International sales contributed 44% of the 1997
total, up from 43% in 1996. The increase in international sales contributed
approximately 50% of the year-over-year improvement in total sales.
Pump Products Group sales of $265.9 million in 1997 increased by $20.3 million,
or 8%, from 1996 with approximately two-thirds of the increase occurring in the
Group's base businesses and the remaining increase resulting from the recently
acquired Blagdon and Knight businesses. Total group sales to customers outside
the U.S. in 1997 were 36% of total sales, unchanged from 1996.
Dispensing Equipment Group sales of $138.2 million increased by $58.0 million,
or 72%, compared to 1996 with almost all of the increase resulting from
inclusion of Fluid Management for a full year in 1997. Base business sales in
1997 were essentially equal to the prior year as a result of steady demand for
this Group's products. Sales to customers outside the U.S. increased to 47% of
total Dispensing Equipment shipments in 1997, up from 42% in 1996, principally
due to the inclusion of Fluid Management in 1997 for a full year.
Other Engineered Products Group sales of $150.5 million in 1997 were essentially
equal to 1996 as a result of consistent demand for this Group's products. Sales
to customers outside the U.S. increased to 57% of total Other Engineered
Products shipments in 1997, up slightly from 56% in 1996.
Gross profit of $222.4 million in 1997 increased by $35.3 million, or 19%, from
1996. Gross profit as a percent of sales was 40.3% in 1997, up from 39.4% in
1996. The improvement in gross profit margin principally was due to sales volume
growth, product mix and manufacturing efficiency improvements. Selling, general
and administrative expenses increased to $110.6 million in 1997 from $93.2
million in 1996, and as a percent of net sales, increased slightly to 20.0% from
19.6% in 1996. Goodwill amortization increased by 31% to $8.2 million in 1997
from $6.2 million in 1996. As a percent of sales, goodwill amortization totaled
1.5% in 1997 compared to 1.3% in 1996. The year-over-year increases in gross
profit; selling, general and administrative expenses; and goodwill amortization
are primarily due to the inclusion of Fluid Management for a full year in 1997.
Operating income increased by $16.0 million, or 18%, to $103.6 million in 1997
from $87.6 million in 1996. Operating income as a percent of sales increased to
18.8% in 1997 from 18.5% in 1996. In the Pump Products Group, operating income
of $61.4 million and operating margin of 23.1% in 1997 compared to the $55.1
million and 22.4% recorded in 1996. Operating margin improvements resulted
primarily from volume-related gains. Operating income in the Dispensing
Equipment Group of $25.6 million and operating margin of 18.5% in 1997 compared
to the $14.4 million and 17.9% recorded in 1996. The increase in operating
income for the Dispensing Equipment Group primarily reflected the full year
inclusion of Fluid Management in 1997. Operating income in the Other Engineered
Products Group of $26.4 million and operating margin of 17.6% in 1997 were
essentially equal to the totals of $26.6 million and 17.7% achieved in 1996.
Interest expense increased to $18.4 million in 1997 from $17.5 million in 1996
because of the additional long-term debt incurred to complete the acquisitions
of Fluid Management, Blagdon Pump and Knight Equipment, partially offset by debt
reductions from operating cash flow in 1997.
23
Management's Discussion & Analysis of
Financial Condition & Results of Operations
From left to right:
Vice Presidents -
Dennis Metcalf (Corporate
Development), Jerry Derck
(Human Resources),
Frank Notaro (General
Counsel and Secretary)
[Graph]
The provision for income taxes increased to $31.0 million in 1997
from $25.0 million in 1996. The effective tax rate increased to
36.7% in 1997 from 36.0% in 1996 due to the changing mix of
international earnings and state franchise taxes.
Income from continuing operations of $53.5 million in 1997 was
20% higher than income of $44.4 million in 1996. Diluted earnings
per share from continuing operations amounted to $1.78 in 1997,
an increase of 29 cents per share, or 19%, from $1.49 achieved in
1996.
The Company recorded income of $5.1 million, or 17 cents per
share, from discontinued operations in 1997 compared with $5.8
million, or 20 cents per share, in 1996.
Total net income of $58.6 million in 1997 was 17% higher than net
income of $50.2 million in 1996. Diluted earnings per share on a
net income basis were $1.95 in 1997, an increase of 26 cents per
share, or 15%, from the $1.69 achieved in 1996.
LIQUIDITY AND CAPITAL RESOURCES
[Graph] At December 31, 1998, IDEX's working capital was $115.6 million
and its current ratio was 2.4 to 1. The Company's cash flow from
continuing operations in 1998 of $88.2 million remained strong,
increasing by $6.7 million from 1997. The improvement reflected a
higher level of earnings before depreciation and amortization.
Cash flow from discontinued operations in 1998 decreased by $1.5
million to $4.2 million, principally due to 1998 including only a
partial year of operations.
Net cash flows provided from operating activities was more than
adequate to fund capital expenditures of $20.8 million, $13.6
million and $11.6 million in 1998, 1997 and 1996, respectively.
Capital expenditures were generally for machinery and equipment
which improved productivity, although a portion was for repair
and replacement of equipment and facilities. Management believes
that IDEX has ample capacity in its plant and equipment to meet
expected needs for future growth in the intermediate term.
The Company acquired Gast Manufacturing Corporation on January
21, 1998, at a net cash 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.
In December 1997, IDEX announced its intention to divest the
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. The sale of
24
Vibratech generated a gain on disposition, while the Strippit sale resulted in a
small loss. The proceeds were used to repay borrowings under the Company's U.S.
bank credit facilities. In 1998, these two businesses contributed net income of
$10.2 million, including a net gain of $9.0 million (net of taxes of $3.1
million) from the sale of these units.
On February 18, 1998, IDEX sold $150 million of Senior Notes due February 15,
2008, with a coupon interest rate of 6.875%, and an effective rate of 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 9.75% Senior Subordinated
Notes due 2002. This redemption resulted in an extraordinary loss of $2.5
million, net of an income tax benefit of $1.5 million.
At December 31, 1998, the maximum amount available under the U.S. Credit
Agreement was $235 million, of which $86.6 million was borrowed, including a
Netherlands guilder borrowing of NGL 82 million ($43.6 million), which provides
an economic hedge against the net investment in Fluid Management's Netherlands
operation. The availability under this facility declines in stages commencing
July 1, 1999, to $185 million on July 1, 2000. Any amount outstanding at July 1,
2001, becomes due at that date. Interest is payable quarterly on the outstanding
balance at the agent bank's reference rate or at LIBOR plus an applicable
margin. At December 31, 1998, the applicable margin was 35 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 December 31, 1998, the Company had $5 million
borrowed under this short-term line of credit at an interest rate of 5.60% 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. In December 1998, Lukas again amended the German
credit agreement eliminating the reduction scheduled for November 1, 1999. At
December 31, 1998, the maximum amount available under the German credit
agreement was DM 52.5 million ($31.5 million), and DM 52 million ($31.2 million)
was being used, which provides an economic hedge against the net investment in
this operation in Germany. The availability under this agreement declines to DM
37.0 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 December 31, 1998, 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 1998, no shares had been
repurchased under the program.
IDEX believes it will generate sufficient cash flow from operations in 1999 to
meet its operating requirements, interest and scheduled amortization payments
under the U.S. Credit Agreement, demand line and the German credit agreement,
interest and principal payments on the Senior Notes, any share repurchases,
approximately $25 million of planned capital expenditures, and approximately $17
million of annual dividend payments to holders of common stock. From
commencement of operations in January 1988 until December 31, 1998, IDEX has
borrowed $578 million under its various credit facilities to complete 13
acquisitions. During this same period IDEX generated, principally from
operations, cash flow of $464 million to reduce its indebtedness. In the event
that suitable businesses are available for acquisition by IDEX upon terms
acceptable to the Board of Directors, IDEX may obtain all or a portion of the
financing for the acquisitions through the incurrence of additional long-term
indebtedness.
YEAR 2000
IDEX initiated a Year 2000 compliance program in late 1996 to ensure that its
information systems and other date-sensitive equipment continue an uninterrupted
transition into the Year 2000. The Company is currently in the final phases of
correcting systems with identified deficiencies and is performing the final
validation testing of its Year 2000 compliance program. IDEX currently believes
all essential processes, systems, and business functions will comply with the
Year 2000 requirements by the middle of 1999. While IDEX does not expect that
the consequences of any unsuccessful modifications would significantly affect
its financial position, liquidity or results of operations, there can be no
assurance that failure to be fully compliant by 2000 would not have an impact on
the Company.
The Company is also surveying critical suppliers and customers to ensure that
their systems will be Year 2000 compliant and anticipates this survey will be
complete by April 1999. While the failure of a single third party to timely
achieve Year 2000 compliance should not have a material adverse effect on IDEX's
results of operations in a particular period, the failure of several key third
parties to achieve such compliance could have such an effect. IDEX will develop
contingency plans by mid-1999 to alter business relationships in the event
certain third parties fail to become Year 2000 compliant.
The cost of IDEX's Year 2000 transition program is being funded with cash flows
from operations. Some of these costs relate solely to the modification of
existing systems, while others are for new systems, which will improve business
functionality. In total, these costs are not expected to be substantially
different from the normal, recurring costs that are 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 approximately $6 million.
EURO PREPARATIONS
At December 31, 1998, the Company had upgraded its business systems to
accommodate the Euro currency. The cost of this upgrade was not material to the
Company's financial results. Although difficult to predict, any competitive
implications and any impact on existing financial instruments resulting from the
Euro implementation are not expected to be material to the Company's financial
position, liquidity or results of operations.
25
IDEX Corporation & Subsidiaries
Consolidated Balance Sheets
(in thousands except share and per share amounts)
As of December 31, 1998 1997
=======================================================================================
ASSETS
Current assets
Cash and cash equivalents $ 2,721 $ 11,771
Receivables - net 86,006 80,766
Inventories 101,201 84,240
Net current assets of companies held for disposition - 16,200
Other current assets 5,972 4,290
- ---------------------------------------------------------------------------------------
Total current assets 195,900 197,267
Property, plant and equipment - net 125,422 88,628
Intangible assets - net 360,810 293,803
Net noncurrent assets of companies held for disposition - 13,089
Other noncurrent assets 13,679 6,406
- ---------------------------------------------------------------------------------------
Total assets $ 695,811 $ 599,193
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 39,521 $ 34,991
Dividends payable 4,125 3,949
Accrued expenses 36,619 38,861
- ---------------------------------------------------------------------------------------
Total current liabilities 80,265 77,801
Long-term debt 283,410 258,417
Other noncurrent liabilities 46,099 24,304
- ---------------------------------------------------------------------------------------
Total liabilities 409,774 360,522
- ---------------------------------------------------------------------------------------
Commitments and contingencies (Note 6)
Shareholders' equity
Common stock, par value $.01 per share
Shares authorized 1998 and 1997 - 75,000,000
Shares issued and outstanding: 1998 - 29,466,416;
1997 - 29,249,608 295 292
Additional paid-in capital 96,064 90,506
Retained earnings 195,465 149,403
Minimum pension liability adjustment (1,489) (756)
Accumulated translation adjustment (4,298) (774)
- ---------------------------------------------------------------------------------------
Total shareholders' equity 286,037 238,671
- ---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 695,811 $ 599,193
=======================================================================================
See Notes to Consolidated Financial Statements.
26
IDEX Corporation & Subsidiaries
Statements of Consolidated Operations
(in thousands except per share amounts)
For the years ended December 31, 1998 1997 1996
================================================================================================================
Net sales $ 640,131 $ 552,163 $ 474,699
Cost of sales 387,285 329,806 287,625
- ----------------------------------------------------------------------------------------------------------------
Gross profit 252,846 222,357 187,074
Selling, general and administrative expenses 132,627 110,588 93,217
Goodwill amortization 10,676 8,174 6,241
- ----------------------------------------------------------------------------------------------------------------
Operating income 109,543 103,595 87,616
Other income (expense) - net 479 (693) (696)
- ----------------------------------------------------------------------------------------------------------------
Income before interest expense and income taxes 110,022 102,902 86,920
Interest expense 22,359 18,398 17,476
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 87,663 84,504 69,444
Provision for income taxes 33,267 31,029 25,020
- ----------------------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary item 54,396 53,475 44,424
- ----------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income from discontinued operations, net of taxes 1,202 5,151 5,774
Gain on sale of discontinued operations, net of taxes 8,980 - -
- ----------------------------------------------------------------------------------------------------------------
Income from discontinued operations 10,182 5,151 5,774
- ----------------------------------------------------------------------------------------------------------------
Extraordinary loss from early extinguishment of debt, net of taxes (2,514) - -
- ----------------------------------------------------------------------------------------------------------------
Net income $ 62,064 $ 58,626 $ 50,198
================================================================================================================
EARNINGS PER COMMON SHARE - BASIC:
Continuing operations $ 1.85 $ 1.83 $ 1.54
Discontinued operations .36 .18 .20
Extraordinary loss from early extinguishment of debt (.09) - -
- ----------------------------------------------------------------------------------------------------------------
Net income $ 2.12 $ 2.01 $ 1.74
================================================================================================================
EARNINGS PER COMMON SHARE - DILUTED:
Continuing operations $ 1.81 $ 1.78 $ 1.49
Discontinued operations .34 .17 .20
Extraordinary loss from early extinguishment of debt (.08) - -
- ----------------------------------------------------------------------------------------------------------------
Net income $ 2.07 $ 1.95 $ 1.69
================================================================================================================
SHARE DATA:
Weighted average common shares outstanding 29,332 29,184 28,818
================================================================================================================
Weighted average common shares outstanding
assuming full dilution 30,052 29,999 29,779
================================================================================================================
See Notes to Consolidated Financial Statements.
27
IDEX Corporation & Subsidiaries Statements of Consolidated
Shareholders' Equity (in thousands except share and per
share amounts)
Minimum
Common Stock Pension Accumulated Total
and Additional Retained Liability Translation Shareholders'
Paid-In Capital Earnings Adjustment Adjustment Equity
===================================================================================================================
Balance, December 31, 1995 $ 86,309 $ 67,729 $ - $ (3,093) $ 150,945
- -------------------------------------------------------------------------------------------------------------------
Net Income 50,198 50,198
Unrealized translation adjustment,
net of taxes 3,418 3,418
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income 50,198 3,418 53,616
- -------------------------------------------------------------------------------------------------------------------
Issuance of 113,550 shares
of common stock related
to an acquisition 2,271 2,271
Issuance of 116,891 shares of
common stock from exercise
of stock options 1,366 1,366
Cash dividends declared - $.440
per common share outstanding (12,689) (12,689)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 89,946 105,238 - 325 195,509
- -------------------------------------------------------------------------------------------------------------------
Net income 58,626 58,626
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income,
net of taxes
Unrealized translation adjustment (1,099) (1,099)
Minimum pension adjustment (756) (756)
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income (756) (1,099) (1,855)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income 58,626 (756) (1,099) 56,771
- -------------------------------------------------------------------------------------------------------------------
Issuance of 323,741 shares of
common stock from exercise
of stock options, net of those
surrendered 852 852
Cash dividends declared - $.495
per common share outstanding (14,461) (14,461)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 90,798 149,403 (756) (774) 238,671
- -------------------------------------------------------------------------------------------------------------------
Net income 62,064 62,064
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income,
net of taxes
Unrealized translation adjustment (3,524) (3,524)
Minimum pension adjustment (733) (733)
- -------------------------------------------------------------------------------------------------------------------
Other comprehensive income (733) (3,524) (4,257)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income 62,064 (733) (3,524) 57,807
- -------------------------------------------------------------------------------------------------------------------
Issuance of 216,808 shares of
common stock from exercise of
stock options, net of those surrend-
ered, and earned compensation 5,561 5,561
Cash dividends declared - $.545
per common share outstanding (16,002) (16,002)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 96,359 $ 195,465 $ (1,489) $ (4,298) $ 286,037
===================================================================================================================
See Notes to Consolidated Financial Statements.
28
IDEX Corporation & Subsidiaries
Statements of Consolidated Cash Flows
(in thousands)
For the years ended December 31, 1998 1997 1996
============================================================================================
Cash flows from operating activities
Income from continuing operations $ 54,396 $ 53,475 $ 44,424
Adjustments to reconcile to net cash
provided by continuing operations:
Depreciation and amortization 20,747 14,350 12,532
Amortization of intangibles 12,188 9,943 8,140
Amortization of debt issuance expenses 640 650 640
Deferred income taxes 3,445 6,304 4,385
Decrease (increase) in receivables 7,360 3,605 (6,587)
Decrease in inventories 1,199 7,659 13,025
Increase (decrease) in trade accounts payable 10 (2,216) (949)
Decrease in accrued expenses (11,224) (8,117) (2,312)
Other - net (538) (4,091) 4,390
- --------------------------------------------------------------------------------------------
Net cash provided by continuing operations 88,223 81,562 77,688
Net cash provided by discontinued operations 4,159 5,669 12,427
- --------------------------------------------------------------------------------------------
Net cash flows from operating activities 92,382 87,231 90,115
- --------------------------------------------------------------------------------------------
Cash flows from investing activities
Additions to property, plant and equipment (20,763) (13,562) (11,634)
Acquisition of businesses (net of cash acquired) (118,088) (49,744) (132,584)
Proceeds from sale of businesses 39,695 - -
- --------------------------------------------------------------------------------------------
Net cash flows from investing activities (99,156) (63,306) (144,218)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings under credit agreements for acquisitions 118,088 36,198 136,100
(Repayments) borrowings - other long-term debt (9,962) 13,546 -
Net repayments under credit agreements (166,314) (51,909) (71,514)
Proceeds from issuance of 6.875% Senior Notes 150,000 - -
Repayment of 9.75% Senior Subordinated Notes (75,000) - -
Financing payments (5,031) - -
Increase (decrease) in accrued interest 1,769 (736) 939
Dividends paid (15,826) (13,983) (12,278)
- --------------------------------------------------------------------------------------------
Net cash flows from financing activities (2,276) (16,884) 53,247
- --------------------------------------------------------------------------------------------
Net (decrease) increase in cash (9,050) 7,041 (856)
Cash and cash equivalents at beginning of year 11,771 4,730 5,586
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,721 $ 11,771 $ 4,730
============================================================================================
Supplemental cash flow information
Cash paid for:
Interest $ 20,070 $ 18,781 $ 17,363
Income taxes 36,568 25,446 23,686
See Notes to Consolidated Financial Statements.
29
IDEX Corporation & Subsidiaries
Notes to Consolidated Financial Statements
(in thousands except share and per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES
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. Its products include industrial pumps and related controls for
use in a wide variety of process applications; precision-engineered equipment
for dispensing, metering and mixing paints, and oil and grease lubrication
systems; and proprietary engineered products for industrial and commercial
markets including fire and rescue, transportation equipment, oil and gas,
electronics, communications, and traffic and commercial signs. These activities
are grouped into three business segments: Pump Products, Dispensing Equipment
and Other Engineered Products.
Principles of Consolidation
The consolidated financial statements include the Company and its subsidiaries.
Significant intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities, and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment. The Company
estimates and records provisions for sales returns, allowances and original
warranties in the period the sale is reported, based on its experience.
Cash Equivalents
For purposes of the Statements of Consolidated Cash Flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three or fewer
months to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost, which includes
labor, material and factory overhead, is determined on the first-in, first-out
(FIFO) basis or the last-in, first-out (LIFO) basis.
Debt Expenses
Expenses incurred in securing and issuing long-term debt are amortized over the
life of the related debt.
Reclassifications
Certain amounts in the prior years' financial statements have been reclassified
to conform to the current year presentation.
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
average shares outstanding using the treasury stock method.
Basic weighted average shares reconciles to fully diluted weighted average
shares as follows:
1998 1997 1996
- ------------------------------------------------------------
Basic weighted average
common shares
outstanding 29,332 29,184 28,818
Dilutive effect of
stock options 720 815 961
- ------------------------------------------------------------
Weighted average common
shares outstanding
assuming full dilution 30,052 29,999 29,779
============================================================
Depreciation and Amortization
Depreciation is recorded using the straight-line method. The estimated useful
lives used in the computation of depreciation are as follows:
Land improvements 10 to 12 years
Buildings and improvements 3 to 30 years
Machinery and equipment
and engineering drawings 3 to 12 years
Office and transportation equipment 3 to 10 years
Identifiable intangible assets are amortized over their estimated useful lives
using the straight-line method. Cost in excess of net assets acquired is
amortized over a period of 30 to 40 years.
The carrying amount of all long-lived assets is evaluated periodically to
determine if adjustment to the depreciation or amortization period or to the
unamortized balance is warranted. Such evaluation is based on the expected
utilization of the long-lived assets and the projected, undiscounted cash flows
of the operations in which the long-lived assets are deployed.
Research and Development Expenditures
Expenditures associated with research and development are expensed in the year
incurred (except for software development capitalized under SFAS 86) and are
included in cost of sales. Research and development expenses, which include
costs associated with the development of new products and major improvements to
existing products, were $6.3 million, $6.7 million and $6.0 million in 1998,
1997 and 1996, respectively.
30
New Accounting Pronouncements
During 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," and SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." In
accordance with SFAS No. 130, the Company expanded its reporting and display of
comprehensive income and its components in the Statements of Consolidated
Shareholders' Equity. SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers. Pursuant to SFAS No. 131, IDEX
modified its disclosures on segment reporting included in Note 10. The new
disclosure required for pensions and other postretirement benefits according to
SFAS No. 132 is included in Note 12. The adoption of these statements had no
effect on the Company's reported 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 fiscal years beginning after
June 15, 1999. Management is still assessing the effects adoption of SFAS No.
133 will have on its financial position, results of operations or cash flows.
2. ACQUISITIONS
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 U.S. bank credit facilities and the
issuance of notes to the sellers. Blagdon, which 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,
commerical dishwashing and chemical metering, and is operated as part of
Pulsafeeder.
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 of 30 to
40 years.
The unaudited pro forma consolidated results of operations for the years ended
December 31, 1998 and 1997, reflecting the allocation of the purchase price and
related financing of the transactions are as follows, assuming that these
acquisitions had occurred at the beginning of each of the respective periods.
1998 1997
- ------------------------------------------------------------
Net sales $ 646,325 $ 679,655
Income from continuing operations 54,294 55,198
Net income 61,962 60,349
Basic EPS
Continuing operations 1.85 1.89
Net income 2.11 2.07
Diluted EPS
Continuing operations 1.81 1.84
Net income 2.06 2.01
The liabilities assumed that represent noncash investing activities in
connection with the acquisition of businesses for 1998, 1997 and 1996 were as
follows:
1998 1997 1996
- ------------------------------------------------------------
Fair value of
assets acquired $ 71,206 $ 16,884 $ 51,055
Cost in excess of
net assets acquired 75,942 38,599 101,473
Cash paid (118,088) (49,744) (132,584)
Common stock issued
in connection with
acquisition - - (2,271)
- ------------------------------------------------------------
Liabilities assumed $ 29,060 $ 5,739 $ 17,673
============================================================
3. DISCONTINUED OPERATIONS
In December 1997, IDEX announced its intention to divest the 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. The sale of Vibratech generated a gain on
disposition, while the Strippit sale resulted in a small loss. The proceeds were
used to repay borrowings under the Company's U.S. bank credit facilities. In
1998, these two businesses contributed net income of $10.2 million, including a
net gain of $9.0 million (net of taxes of $3.1 million) from the sale of these
units.
Revenues from discontinued operations amounted to $42.1 million, $83.9 million
and $87.9 million in 1998, 1997 and 1996, respectively. Income from discontinued
operations is net of taxes of $.7 million, $3.1 million and $3.6 million for
1998, 1997 and 1996, respectively. At December 31, 1997, the assets and
liabilities of these operations, consisting primarily of receivables,
inventories, property and accounts payable, were classified as net current and
net noncurrent assets held for disposition. Interest expense of $0.1 million,
$0.6 million and $1.5 million for 1998, 1997 and 1996, respectively, has been
allocated to these operations based on their acquisition debt, less repayments
generated from operating cash flows that can be specifically attributed to these
operations.
31
IDEX Corporation & Subsidiaries
Notes to Consolidated Financial Statements
(in thousands except share and per share amounts)
4. BALANCE SHEET COMPONENTS
The components of inventories at December 31, 1998 and 1997 were:
1998 1997
===========================================================================
Raw materials $ 27,361 $ 20,841
Work in process 13,904 13,647
Finished goods 59,936 49,752
- ---------------------------------------------------------------------------
Total $ 101,201 $ 84,240
===========================================================================
Those inventories, which were carried on a LIFO basis, amounted to $81,317 and
$65,080 at December 31, 1998 and 1997, respectively. The excess of current cost
over LIFO inventory value and the impact of using the LIFO method on earnings
are not material.
The components of certain other balance sheet accounts at December 31, 1998 and
1997 were:
1998 1997
===========================================================================
Receivables
Customers $ 86,915 $ 82,293
Other 1,575 1,034
- ---------------------------------------------------------------------------
Total 88,490 83,327
Less allowance for doubtful accounts 2,484 2,561
- ---------------------------------------------------------------------------
Receivables - net $ 86,006 $ 80,766
===========================================================================
Property, plant and equipment, at cost
Land and improvements $ 8,069 $ 7,184
Buildings and improvements 52,767 45,895
Machinery and equipment 151,696 112,795
Engineering drawings 3,237 3,281
Office and transportation equipment 33,138 22,900
Construction in progress 2,813 5,261
- ---------------------------------------------------------------------------
Total 251,720 197,316
Less accumulated depreciation
and amortization 126,298 108,688
- ---------------------------------------------------------------------------
Property, plant and equipment - net $ 125,422 $ 88,628
===========================================================================
Intangible assets
Cost in excess of net assets acquired $ 387,209 $ 310,242
Other 24,963 22,416
- ---------------------------------------------------------------------------
Total 412,172 332,658
Less accumulated amortization 51,362 38,855
- ---------------------------------------------------------------------------
Intangible assets - net $ 360,810 $ 293,803
===========================================================================
Accrued expenses
Accrued payroll and related items $ 22,967 $ 22,426
Accrued taxes 870 4,851
Accrued insurance 3,731 3,006
Other 9,051 8,578
- ---------------------------------------------------------------------------
Total $ 36,619 $ 38,861
===========================================================================
Other noncurrent liabilities
Pension and retiree medical reserves $ 26,845 $ 13,722
Deferred income taxes 14,860 7,247
Other 4,394 3,335
- ---------------------------------------------------------------------------
Total $ 46,099 $ 24,304
===========================================================================
5. COMPREHENSIVE INCOME
The tax effects of the components of other comprehensive income for 1998, 1997
and 1996 were:
1998 1997 1996
==============================================================
Unrealized translation
adjustment:
Pretax amount $ (3,524) $ (1,099) $ 3,418
Tax benefit - - -
- --------------------------------------------------------------
Aftertax amount $ (3,524) $ (1,099) $ 3,418
- --------------------------------------------------------------
Minimum pension
adjustment:
Pretax amount $ (1,109) $ (1,181) $ -
Tax benefit 376 425 -
- --------------------------------------------------------------
Aftertax amount $ (733) $ (756) $ -
==============================================================
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, total minimum rental payments under noncancelable
operating leases, primarily for office facilities, warehouses and data
processing equipment, were $36.6 million. The minimum rental commitments for
each of the next five years are as follows: 1999 - $7.7 million; 2000 - $6.5
million; 2001 - $4.8 million; 2002 - $3.0 million; 2003 - $2.0 million;
thereafter - $12.6 million.
Rental expense totaled $8.7 million, $6.7 million and $5.0 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company is involved in certain litigation arising in the ordinary course of
business. None of these matters is expected to have a material adverse effect on
the Company's financial position or results of operations. However, the ultimate
resolution of these matters could result in a change in the Company's estimate
of its liability for these matters.
7. STOCK OPTIONS
The Company has stock option plans for outside directors, executives and certain
key employees. These options are accounted for using the intrinsic value method
and, accordingly, no compensation cost has been recognized. Had compensation
cost been determined using the fair value method in 1998, 1997 and 1996, the
Company's pro forma net income and EPS would have been as follows:
1998 1997 1996
=============================================================
Net income
As reported $ 62,064 $ 58,626 $ 50,198
Pro forma 59,602 57,063 49,312
Basic EPS
As reported 2.12 2.01 1.74
Pro forma 2.03 1.96 1.71
Diluted EPS
As reported 2.07 1.95 1.69
Pro forma 1.98 1.90 1.66
32
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1998,
1997 and 1996, respectively: dividend yield of 1.55%, 1.94% and 1.70%;
volatility of 27.7%, 28.9% and 28.6%; risk-free interest rates of 5.6%, 6.6% and
6.2%; and expected lives of 5.5 years.
The Compensation Committee of the Board of Directors administers the plans and
approves stock option grants. The Company may grant additional options for up to
1.9 million shares. Stock options granted under the plans are exercisable at a
price equal to the market value of the stock at the date of grant. The options
become exercisable from one to five years from the date of grant and generally
expire 10 years from the date of grant. The following table summarizes option
activity under the plans:
Weighted
Average
Number Option Price
of Options Per Share
=============================================================
Outstanding at December 31, 1995 1,854,608 $ 11.27
Granted 442,875 25.56
Exercised (116,891) 6.32
Forfeited (45,900) 20.63
---------
Outstanding at December 31, 1996 2,134,692 14.27
Granted 514,250 24.90
Exercised (431,748) 2.36
Forfeited (87,980) 23.47
---------
Outstanding at December 31, 1997 2,129,214 18.87
Granted 605,000 34.86
Exercised (227,376) 14.01
Forfeited (111,730) 28.07
---------
Outstanding at December 31, 1998 2,395,108 22.89
=========
Exercisable at December 31, 1996 953,482 8.38
=========
Exercisable at December 31, 1997 943,431 14.25
=========
Exercisable at December 31, 1998 1,124,197 16.43
=========
The following table summarizes information about options outstanding at December
31, 1998:
Options Outstanding Options Exercisable
============================================================================
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Life of Exercise Number Exercise
Prices Outstanding Contract Price Exercisable Price
$0 to 11 142,825 2.9 years $ 7.74 142,825 $ 7.74
12 to 23 966,855 5.4 years 16.26 775,030 15.54
24 to 34 1,285,428 8.5 years 29.57 206,342 25.79
--------- ---------
Total 2,395,108 6.9 years 22.89 1,124,197 16.43
========= =========
8. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consisted of the following:
1998 1997
===============================================================
Bank revolving credit facilities,
including accrued interest $ 128,692 $ 169,807
6.875% Senior Notes 150,000 -
9.75% Senior Subordinated Notes - 75,000
Other long-term debt 4,718 13,610
- ---------------------------------------------------------------
Total $ 283,410 $ 258,417
===============================================================
The Company has a $235 million domestic multi-currency bank revolving credit
facility (U.S. Credit Facility). The availability under the U.S. Credit Facility
declines in stages commencing July 1, 1999, to $185 million at July 1, 2000. Any
amount outstanding at July 1, 2001, becomes due at that date. At December 31,
1998, approximately $144.6 million of the facility was unused.
Interest on the outstanding borrowings under the U.S. Credit Facility is payable
quarterly at a rate based on the bank agent's reference rate or, at the
Company's election, at a rate based on LIBOR plus 35 basis points per annum. The
weighted average interest rate on outstanding borrowings under the U.S. Credit
Facility was 4.96% at December 31, 1998. A facility fee equal to 15 basis points
per annum is payable quarterly on the entire amount available under the U.S.
Credit Facility.
The Company also has entered into a $15 million demand line of credit
(Short-Term Facility) expiring on June 1, 1999. Borrowings under the Short-Term
Facility are at the bank agent's reference rate, or at an optional rate based on
the bank's cost of funds. At December 31, 1998, there was $5 million borrowed
under the Short-Term Facility at an interest rate of 5.60% per annum.
A DM 52.5 million ($31.5 million) credit facility (German Facility) declines to
DM 37.0 million at November 1, 2000. Any amount outstanding at November 1, 2001,
becomes due at that date. At December 31, 1998, DM 52.0 million ($31.2 million)
was outstanding. Interest is payable quarterly on the outstanding balance at
LIBOR plus 62.5 basis points per annum.
Total long-term debt outstanding at December 31, 1998 and 1997 included $5.2
million and $3.4 million, respectively, of accrued interest as interest
generally is paid through borrowings under the U.S. Credit Facility.
In February 1998, the Company sold $150 million of Senior Notes due February 15,
2008, with a coupon interest rate of 6.875% and an effective rate of 6.919% to
maturity. Interest is payable semiannually. The Senior Notes are redeemable at
any time at the option of the Company in whole or in part from time-to-time. At
December 31, 1998, the fair market value of the Senior Notes was approximately
$156 million based on the quoted market price. Proceeds from the Senior Note
offering were used to reduce bank debt, and to repay in March 1998 the $75
million principal amount of the 9.75% Senior Subordinated Notes originally due
in 2002. After related expenses and fees, this redemption resulted in an
extraordinary loss of $2.5 million, or 8 cents per diluted share, net of an
income tax benefit of $1.5 million.
33
IDEX Corporation & Subsidiaries
Notes to Consolidated Financial Statements
(in thousands except shares and per share amounts)
The U.S. Credit Facility and the Indenture for the Senior Notes permit the
payment of cash dividends only to the extent that no default exists under these
agreements and limit the amount of cash dividends in accordance with specified
formulas. At December 31, 1998, under the most restrictive of these provisions,
the Company has available approximately $84.8 million for the payment of cash
dividends in 1999.
The Company does not use derivative financial instruments for trading or other
speculative purposes. Interest rate swaps, a form of derivative, are used to
manage interest rate risk. At December 31, 1998, the Company had entered into
two interest rate swaps, expiring between August 1999 and August 2000, which
have effectively converted approximately $44 million of floating rate debt into
fixed rate debt at rates approximating 4.4%.
9. COMMON AND PREFERRED STOCK
On October 20, 1998, IDEX's Board of Directors authorized the repurchase of up
to 1.5 million shares of its common stock either at market prices or on a
negotiated basis as market conditions warrant. During 1998, the Company did not
repurchase any of its common stock.
At December 31, 1998 and 1997, the Company had 5 million
shares of preferred stock with a par value of $.01 per share
authorized but unissued.
10. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
IDEX's operations have been aggregated (primarily on the basis of products,
production processes, distribution methods and management organizations) into
three reportable segments: Pump Products Group, Dispensing Equipment Group and
Other Engineered Products Group. The Pump Products Group designs, produces and
distributes a wide range of engineered industrial pumps and related controls for
process applications. The Dispensing Equipment Group designs, manufactures and
distributes precision-engineered equipment for dispensing, metering and mixing
paints, and oil and grease lubrication systems. The Other Engineered Products
Group designs, produces and distributes proprietary engineered equipment for
industrial and commercial markets including fire and rescue, transportation
equipment, oil and gas, electronics, communications, and traffic and commercial
signs. No single customer accounted for more than 2% of net sales.
Information as to the operations of IDEX in different business segments is
presented below based on the nature of products and services offered. IDEX
evaluates performance based on several factors, of which operating income is the
primary financial measure. The accounting policies of the business segments are
described in Note 1. Intersegment sales are accounted for at fair value as if
the sales were to third parties.
1998 1997 1996
=======================================================================
Net sales
Pump Products
From external customers $ 373,333 $ 263,581 $ 244,641
Intersegment sales 2,359 2,337 979
- -----------------------------------------------------------------------
Total group sales 375,692 265,918 245,620
- -----------------------------------------------------------------------
Dispensing Equipment
From external customers 122,796 138,129 80,112
Intersegment sales 48 73 57
- -----------------------------------------------------------------------
Total group sales 122,844 138,202 80,169
- -----------------------------------------------------------------------
Other Engineered Products
From external customers 144,002 150,453 149,946
Intersegment sales 2 2 3
- -----------------------------------------------------------------------
Total group sales 144,004 150,455 149,949
- -----------------------------------------------------------------------
Intersegment elimination (2,409) (2,412) (1,039)
- -----------------------------------------------------------------------
Total net sales $ 640,131 $ 552,163 $ 474,699
=======================================================================
Operating income (1)
Pump Products $ 74,812 $ 61,443 $ 55,129
Dispensing Equipment 22,483 25,636 14,370
Other Engineered Products 24,596 26,426 26,595
Corporate office & other (12,348) (9,910) (8,478)
- -----------------------------------------------------------------------
Total operating income $ 109,543 $ 103,595 $ 87,616
=======================================================================
Assets
Pump Products $ 370,578 $ 237,870 $ 183,749
Dispensing Equipment 151,380 156,304 167,986
Other Engineered Products 158,930 166,189 173,030
Corporate office & other (2) 14,923 38,830 44,980
- -----------------------------------------------------------------------
Total assets $ 695,811 $ 599,193 $ 569,745
=======================================================================
Depreciation and
amortization (3)
Pump Products $ 19,326 $ 10,193 $ 9,509
Dispensing Equipment 7,132 7,092 3,523
Other Engineered Products 6,275 6,916 7,434
Corporate office & other 202 92 206
- -----------------------------------------------------------------------
Total depreciation
and amortization $ 32,935 $ 24,293 $ 20,672
=======================================================================
Capital expenditures
Pump Products $ 8,652 $ 6,875 $ 5,175
Dispensing Equipment 4,000 3,000 3,485
Other Engineered Products 5,328 3,318 2,940
Corporate office & other 2,783 369 34
- -----------------------------------------------------------------------
Total capital
expenditures $ 20,763 $ 13,562 $ 11,634
=======================================================================
(1) Represents business segment operating income after noncash amortization of
intangible assets.
(2) Includes assets held for disposition of $29.3 million and $29.8 million at
December 31, 1997 and 1996, respectively.
(3) Includes amortization relating to all business combinations accounted for by
the purchase method, and excludes amortization of debt issuance expenses.
34
Information about the Company's operations in different geographical regions for
the years ended December 31, 1998, 1997 and 1996 is shown below. Net sales were
attributed to geographic areas based on location of the customer, and no country
outside the U.S. was deemed material.
1998 1997 1996
============================================================
Net sales
U.S. $ 389,185 $ 307,492 $ 268,318
Europe 153,988 141,371 115,816
Other countries 96,958 103,300 90,565
- ------------------------------------------------------------
Total net sales $ 640,131 $ 552,163 $ 474,699
============================================================
Long-lived assets
U.S. $ 396,826 $ 301,034 $ 274,047
Europe 98,667 96,160 99,004
Other countries 4,418 4,732 5,095
- ------------------------------------------------------------
Total long-lived assets $ 499,911 $ 401,926 $ 378,146
============================================================
11. INCOME TAXES
Pretax income for the years ended December 31, 1998, 1997 and 1996 was taxed
under the following jurisdictions:
1998 1997 1996
============================================================
Domestic $ 61,139 $ 58,748 $ 49,694
Foreign 26,524 25,756 19,750
- -------------------------------------------------------------
Total $ 87,663 $ 84,504 $ 69,444
=============================================================
The provision for income taxes for the years ended December 31, 1998, 1997 and
1996 was as follows:
1998 1997 1996
============================================================
Current
U.S. $ 21,899 $ 17,178 $ 15,356
State and local 1,476 1,379 1,152
Foreign 6,447 6,168 4,127
- ------------------------------------------------------------
Total current 29,822 24,725 20,635
- ------------------------------------------------------------
Deferred
U.S. 800 3,125 1,795
State and local 400 500 125
Foreign 2,245 2,679 2,465
- ------------------------------------------------------------
Total deferred 3,445 6,304 4,385
- ------------------------------------------------------------
Total provision for
income taxes $ 33,267 $ 31,029 $ 25,020
============================================================
Deferred (prepaid) income taxes resulted from the following:
1998 1997 1996
============================================================
Employee and retiree
benefit plans $ 959 $ 1,481 $ (269)
Depreciation and
amortization 2,848 3,536 852
Inventories (895) 323 670
Allowances and accruals 79 2,103 3,745
Financing (259) (103) (100)
Other 713 (1,036) (513)
- ------------------------------------------------------------
Total deferred
tax provision $ 3,445 $ 6,304 $ 4,385
============================================================
Deferred tax assets (liabilities) related to the following at December 31, 1998
and 1997:
1998 1997
============================================================
Employee and retiree benefit plans $ 6,764 $ 4,030
Depreciation and amortization (23,846) (12,545)
Inventories (4,716) (1,860)
Allowances and accruals 5,165 3,738
Financing 50 (209)
Other 2,663 1,731
- ------------------------------------------------------------
Total $ (13,920) $ (5,115)
============================================================
The consolidated balance sheets at December 31, 1998 and 1997 included current
deferred tax assets of $940 and $2,132, respectively, included in "Other current
assets" and noncurrent deferred tax liabilities of $14,860 and $7,247,
respectively, included in "Other noncurrent liabilities."
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to pretax income. The computed amount and the
differences for the years ended December 31, 1998, 1997 and 1996 were as
follows:
1998 1997 1996
============================================================
Pretax income $ 87,663 $ 84,504 $ 69,444
============================================================
Provision for income taxes:
Computed amount at
statutory rate of 35% $ 30,682 $ 29,576 $ 24,305
Foreign sales
corporation (1,340) (1,113) (1,091)
Amortization of cost
in excess of net
assets acquired 1,583 941 896
State and local
income tax (net of
federal tax benefit) 1,219 1,221 830
Other - net 1,123 404 80
- ------------------------------------------------------------
Total provision for
income taxes $ 33,267 $ 31,029 $ 25,020
============================================================
No provision has been made for U.S. or additional foreign taxes on $24.6 million
of undistributed earnings of foreign subsidiaries, which are permanently
reinvested. It is not practical to estimate the amount of additional tax which
might be payable if these earnings were repatriated. However, the Company
believes that U.S. foreign tax credits would, for the most part, eliminate any
additional U.S. tax and offset any additional foreign tax.
35
IDEX Corporation & Subsidiaries
Notes to Consolidated Financial Statements
(in thousands except shares and per share amounts)
12. RETIREMENT BENEFITS
The Company sponsors several qualified and nonqualified pension plans and other
postretirement plans for its employees. The following table provides a
reconciliation of the changes in the benefit obligations and fair value of plan
assets over the two-year period ended December 31, 1998, and a statement of the
funded status at December 31 for both years:
Pension Benefits Other Benefits
1998 1997 1998 1997
=========================================================================================
Change in benefit obligation
Obligation at January 1 $ 49,718 $ 43,361 $ 6,297 $ 5,364
Service cost 3,056 2,525 367 277
Interest cost 3,398 3,031 698 395
Plan amendments 232 16 - -
Acquisitions - - 3,877 -
Benefits paid (1,822) (1,709) (332) (126)
Actuarial loss 4,260 2,494 279 387
- -----------------------------------------------------------------------------------------
Obligation at December 31 $ 58,842 $ 49,718 $ 11,186 $ 6,297
=========================================================================================
Change in plan assets
Fair value of plan assets at January 1 $ 41,859 $ 31,922 $ - $ -
Actual return on plan assets 2,367 7,622 - -
Employer contributions 4,337 4,383 332 126
Benefits paid (1,822) (1,709) (332) (126)
Administrative expenses (237) (359) - -
- -----------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 46,504 $ 41,859 $ - $ -
=========================================================================================
Funded status
Funded status at December 31 $(12,338) $ (7,859) $(11,186) $ (6,297)
Unrecognized (gain) loss 5,452 (1,236) (156) 611
Unrecognized transition obligation 380 357 - -
Unrecognized prior service cost 2,167 2,195 (842) (81)
- -----------------------------------------------------------------------------------------
Net amount recognized at December 31 $ (4,339) $ (6,543) $(12,184) $ (5,767)
=========================================================================================
The following table provides the amounts recognized in the consolidated balance
sheets at December 31 for both years:
Prepaid benefit cost $ 5,665 $ 1,600 $ - $ -
Accrued benefit liability (13,440) (10,376) (12,184) (5,767)
Intangible asset 1,146 1,052 - -
Accumulated other comprehensive income 2,290 1,181 - -
- ------------------------------------------------------------------------------------------
Net amount recognized $ (4,339) $ (6,543) $(12,184) $ (5,767)
==========================================================================================
The Company's nonqualified retirement plans and the retirement plan at Lukas are
not funded. The accumulated benefit obligation for these plans was $12,199 and
$9,339 at December 31, 1998 and 1997, respectively. The Company's plans for
postretirement benefits other than pensions also have no plan assets. The
accumulated benefit obligation for these plans was $11,186 and $6,297 at
December 31, 1998 and 1997, respectively.
The assumptions used in the measurement of the Company's benefit obligation at
December 31, 1998 and 1997 were as follows:
U.S. Plans Non U.S. Plans
1998 1997 1998 1997
==========================================================================================
Weighted-averaged assumptions
Discount rate 6.75% 7.25% 6.0% 6.0-7.2%
Expected return on plan assets 9.00% 9.00% 7.0% 7.2%
Rate of compensation increase 4.00% 4.00% 4.0% 5.7%
The discount rate assumption for benefits other than pension benefits for U.S.
plans was 6.75% and 7.25% at December 31, 1998 and 1997, respectively.
36
The following table provides the components of net periodic benefit cost for the
plans in 1998, 1997 and 1996:
-------------------------------------------------------------------
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
===========================================================================================================================
Service cost $ 3,056 $ 2,525 $ 2,438 $ 367 $ 277 $ 249
Interest cost 3,398 3,031 2,808 698 395 348
Expected return on plan assets (3,697) (2,742) (4,849) - - -
Net amortization 295 202 2,789 (148) (57) (63)
- -------------------------------------------------------------------------------------------- ------------------------------
Net periodic benefit cost $ 3,052 $ 3,016 $ 3,186 $ 917 $ 615 $ 534
===========================================================================================================================
The amounts included in other comprehensive income arising from a change in the
minimum pension liability was $(733) and $(756) at December 31, 1998 and 1997,
respectively.
Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10% of the greater of the benefit obligation and the market value of assets are
amortized over the average remaining service period of active participants.
Contributions to the multiemployer plan and defined contribution plans were
$5,272, $4,423 and $3,265 for 1998, 1997 and 1996, respectively.
For measurement purposes, a 10% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998. The rate was assumed to
decrease gradually each year to a rate of 6% for 2008 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:
1% Increase 1% Decrease
===========================================================================================================================
Effect on the service and interest cost components of the
net periodic benefit cost $ 124 $ (89)
Effect on the health care component of the accumulated
postretirement benefit obligation $ 1,222 $ (1,021)
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1998 and 1997:
- ------------------------------------------------------------------------------------------------------------------------------------
1998 Quarters 1997 Quarters
====================================================================================================================================
First Second Third Fourth First Second Third Fourth
Net sales $159,084 $169,461 $159,406 $ 152,180 $131,375 $141,976 $141,799 $137,013
Gross profit 64,397 67,335 62,443 58,671 52,109 57,290 56,988 55,970
Operating income 28,392 30,443 27,517 23,191 23,966 25,966 26,568 27,095
Income from continuing operations 13,889 15,144 13,662 11,701 12,101 13,284 13,724 14,366
Net income 12,193 23,914 14,256 11,701 13,395 14,995 14,484 15,752
Basic EPS
Continuing operations $ .47 $ .52 $ .47 $ .40 $ .41 $ .46 $ .47 $ .49
Net income .42 .82 .49 .40 .46 .51 .50 .54
Weighted average shares outstanding 29,267 29,308 29,339 29,413 29,178 29,180 29,226 29,247
Diluted EPS
Continuing operations $ .46 $ .50 $ .46 $ .39 $ .41 $ .44 $ .45 $ .48
Net income .40 .79 .48 .39 .45 .50 .48 .52
Weighted average shares outstanding 30,207 30,311 29,980 29,930 29,809 30,028 30,333 30,210
37
Reports
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of IDEX Corporation
We have audited the accompanying consolidated balance sheets of IDEX Corporation
and its subsidiaries as of December 31, 1998 and 1997 and the related statements
of consolidated operations, consolidated shareholders' equity, and consolidated
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------------
Deloitte & Touche LLP
Chicago, Illinois
January 19, 1999
MANAGEMENT REPORT
IDEX Corporation's management is responsible for the fair presentation and
consistency of all financial data included in this Annual Report in accordance
with generally accepted accounting principles. Where necessary, the data reflect
management's best estimates and judgments.
Management also is responsible for maintaining a system of internal control with
the objectives of providing reasonable assurance that IDEX's assets are
safeguarded against material loss from unauthorized use or disposition and that
authorized transactions are properly recorded to permit the preparation of
accurate financial data. Cost benefit judgments are an important consideration
in this regard. The effectiveness of internal control is maintained by personnel
selection and training, division of responsibilities, establishment and
communication of policies, and ongoing internal review programs and audits.
Management believes that IDEX's system of internal control as of December 31,
1998, is effective and adequate to accomplish the above described objectives.
/s/ Donald N. Boyce
- ------------------------------------
Donald N. Boyce
Chairman and Chief Executive Officer
/s/ Frank J. Hansen
- -------------------------------------
Frank J. Hansen
President and Chief Operating Officer
/s/ Wayne P. Sayatovic
- -------------------------------------
Wayne P. Sayatovic
Senior Vice President - Finance and Chief Financial Officer
Northbrook, Illinois
January 19, 1999
38
-------------------------
HALE PRODUCTS, INC.
700 Spring Mill Ave.
Conshohocken, PA 19428
(610) 825-6300
WILLIAM D. KYSOR
President
Age: 51
Years of Service: 2
-------------------------
LUBRIQUIP, INC.
Business Units 18901 Cranwood Pkwy.
Warrensville Heights, OH 44128
Vice Presidents: (Seated center) Pete Merkel (Group Executive); (216) 581-2000
(From left to right) John McMurray (Group Executive),
Jim Fluharty (Corporate Marketing and Group Executive), THOMAS L. ANDREWS
Rod Usher (Group Executive), Dave Windmuller (Operations) President
Age: 52
Years of Service: 8
- ------------------------- -------------------------
BAND-IT-IDEX, INC. FLUID MANAGEMENT, INC. -------------------------
4799 Dahlia St. 1023 S. Wheeling Rd. MICROPUMP, INC.
Denver, CO 80216 Wheeling, IL 60090 1402 N.E. 136th Ave.
(303) 320-4555 (847) 537-0880 Vancouver, WA 98684
(360) 253-2008
P. PETER MERKEL, JR. LEENDERT HELLENBERG
Chairman President - Europe/Asia JEFFREY L. HOHMAN
Age: 65 Age: 53 President
Years of Service: 26 Years of Service: 14 Age: 45
Years of Service: 8
ROGER N. GIBBINS JOHN P. SNOW
President President - Americas -------------------------
Age: 53 Age: 54 PULSAFEEDER, INC.
Years of Service: 14 Years of Service: 22 2883 Brighton -
Henrietta Town Line Rd.
- ------------------------- ------------------------- Rochester, NY 14623
CORKEN, INC. GAST MANUFACTURING, INC. (716) 292-8000
3805 N.W. 36th St. 2300 Highway M-139
Oklahoma City, OK 73112 Benton Harbor, MI 49023 RODNEY L. USHER
(405) 946-5576 (616) 926-6171 President
Age: 53
STEVEN E. SEMMLER WARREN E. GAST Years of Service: 18
President Chairman
Age: 43 Age: 67 -------------------------
Years of Service: 19 Years of Service: 46 VIKING PUMP, INC.
406 State St.
DONALD D. RIMES Cedar Falls, IA 50613
President (319) 266-1741
Age: 53
Years of Service: 28 JOHN L. MCMURRAY
President
Age: 48
Years of Service: 6
-------------------------
WARREN RUPP, INC.
800 North Main St.
Mansfield, OH 44902
(419) 524-8388
JEFFERY F. FEHR
President
Age: 47
Years of Service: 7
NOTE: Years of service
include periods prior to
acquisition by IDEX.
39
Corporate Officers & Directors
From left to right: Clint Kooman, Dennis Metcalf, Frank Notaro, Doug Lennox,
John McMurray, Dave Windmuller, Don Boyce, Pete Merkel, Frank Hansen,
Wayne Sayatovic, Jerry Derck, Rod Usher, Jim Fluharty
CORPORATE OFFICERS Frank J. Notaro
Vice President -
Donald N. Boyce General Counsel and Secretary
Chairman of the Board and Age: 35
Chief Executive Officer Years of Service: 1
Age: 60
Years of Service: 29 Rodney L. Usher
Vice President -
Frank J. Hansen Group Executive
President and Age: 53
Chief Operating Officer Years of Service: 18
Age: 57
Years of Service: 23 David T. Windmuller
Vice President -
Wayne P. Sayatovic Operations
Senior Vice President - Finance Age: 41
and Chief Financial Officer Years of Service: 18
Age: 52
Years of Service: 26 Clinton L. Kooman
Controller
Jerry N. Derck Age: 55
Vice President - Years of Service: 34
Human Resources
Age: 51 Douglas C. Lennox
Years of Service: 6 Treasurer
Age: 46
James R. Fluharty Years of Service: 19
Vice President -
Corporate Marketing and DIRECTORS
Group Executive
Age: 55 Donald N. Boyce []
Years of Service: 11 Chairman of the Board and
Chief Executive Officer
P. Peter Merkel, Jr. IDEX Corporation
Vice President - Northbrook, Illinois
Group Executive Age: 60
Age: 65 Years of Service: 11
Years of Service: 26
Frank J. Hansen
John L. McMurray President and Chief
Vice President - Operating Officer
Group Executive IDEX Corporation
Age: 48 Northbrook, Illinois
Years of Service: 6 Age: 57
Years of Service: 1
Dennis L. Metcalf
Vice President - Richard E. Heath
Corporate Development Partner
Age: 51 Hodgson, Russ, Andrews,
Years of Service: 25 Woods & Goodyear
Buffalo, New York
Age: 68
Years of Service: 10
Henry R. Kravis
Member
Kohlberg Kravis Roberts & Co., L.L.C.
New York, New York
Age: 54
Years of Service: 11
William H. Luers [] []
President
Metropolitan Museum of Art
New York, New York
Age: 69
Years of Service: 10
Paul E. Raether
Member
Kohlberg Kravis Roberts & Co., L.L.C.
New York, New York
Age: 52
Years of Service: 11
Clifton S. Robbins []
Member
Kohlberg Kravis Roberts & Co., L.L.C.
New York, New York
Age: 40
Years of Service: 11
George R. Roberts
Member
Kohlberg Kravis Roberts & Co., L.L.C.
San Francisco, California
Age: 55
Years of Service: 11
Neil A. Springer [] [] []
Managing Director
Springer Souder & Assoc. L.L.C.
Chicago, Illinois
Age: 60
Years of Service: 9
Michael T. Tokarz []
Member
Kohlberg Kravis Roberts & Co., L.L.C.
New York, New York
Age: 49
Years of Service: 11
Member of:
[] Executive Committee
[] Audit Committee
[] Compensation Committee
NOTE: Years of service for
corporate officers includes periods
with predecessor to IDEX.
40
Shareholder Information
CORPORATE EXECUTIVE OFFICES
IDEX Corporation
630 Dundee Road
Northbrook, Illinois 60062
(847) 498-7070
INVESTOR INFORMATION
Shareholders and prospective investors are welcome to call or write with
questions or requests for additional information. Please direct inquiries to:
Wayne P. Sayatovic, Senior Vice President - Finance and Chief Financial Officer.
Further information on IDEX can be found on our World Wide Website at
www.idexcorp.com.
REGISTRAR AND TRANSFER AGENT
Inquiries about stock transfers, address changes or IDEX's dividend reinvestment
program should be directed to:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60690
(312) 461-2288
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
DIVIDEND POLICY
IDEX increased the quarterly dividend on its common stock beginning January 29,
1999, to $.14 per share per calendar quarter, up 4% from last year's dividend of
$.135 per share. The declaration of future dividends, subject to certain
limitations, is within the discretion of the Board of Directors and will depend
upon, among other things, business conditions, earnings, and IDEX's financial
condition. See Note 8 of the Notes to Consolidated Financial Statements.
STOCK MARKET INFORMATION
IDEX common stock was held by an estimated 7,700 shareholders at December 31,
1998, and is traded on the New York Stock Exchange and the Chicago Stock
Exchange under the ticker symbol IEX.
FORM 10-K
Shareholders may obtain a copy of the Form 10-K filed with the Securities and
Exchange Commission by directing a request to IDEX or through its Website at
www.idexcorp.com.
ANNUAL MEETING
The Annual Meeting of IDEX Shareholders will be held on Tuesday, March 23, 1999
at 10:00 a.m. in the:
Shareholders Room of Bank of America NT&SA
231 South LaSalle Street
Chicago, Illinois 60697
[GRAPH]
QUARTERLY STOCK PRICE
----------------------------------------------
Quarter
==============================================================
First Second Third Fourth
1998 High 36 3/4 38 3/4 34 11/16 30 3/8
Low 32 3/8 33 7/8 19 1/2 22 5/8
Close 36 3/8 34 1/2 26 9/16 24 1/2
1997 High 27 34 3/8 35 15/16 36 11/16
Low 23 1/2 23 1/4 31 7/16 31 9/16
Close 23 1/2 33 33 3/8 34 7/8
1
EXHIBIT 21
SUBSIDIARES OF IDEX CORPORATION
December 31, 1998
OTHER NAME
JURISDICTION OF WHICH DOING BUSINESS
SUBSIDIARY INCORPORATION IF ANY
- -------------------------------------------- ----------------------------- ----------------------
BAND-IT-IDEX, INC. DELAWARE
BAND-IT COMPANY LTD. UNITED KINGDOM
BAND-IT CLAMPS (ASIA) PTE., LTD. SINGAPORE
BAND-IT R.S.A. (PTY) LTD. REP. OF S. AFRICA, 51% OWNED
CORKEN, INC. DELAWARE
FMI MANAGEMENT COMPANY ILLINOIS
FLUID MANAGEMENT, INC. DELAWARE
FLUID MANAGEMENT EUROPE B.V. NETHERLANDS
FLUID MANAGEMENT U.K. LTD. UNITED KINGDOM
FLUID MANAGEMENT FRANCE SARL FRANCE
FLUID MANAGEMENT ESPANA SLU SPAIN
FLUID MANAGEMENT SCANDINAVIA AB SWEDEN
FLUID MANAGEMENT GmbH GERMANY
FLUID MANAGEMENT AUSTRALIA PTY., LTD. AUSTRALIA
FLUID MANAGEMENT CANADA, INC. CANADA
FLUID MANAGEMENT SERVICOS e VENDAS LTD. BRAZIL
GAST MANUFACTURING, INC. MICHIGAN
GAST ASIA, INC. MICHIGAN
GAST MANUFACURING COMPANY LTD. UNITED KINGDOM
HALE PRODUCTS, INC. PENNSYLVANIA
HALE PRODUCTS EUROPE GmbH GERMANY
GODIVA PRODUCTS LTD. UNITED KINGDOM
SEITHAL LIMITED UNITED KINGDOM
GODIVA LIMITED UNITED KINGDOM
GINSWAT LTD. HONG KONG
HALE PRODUCTS BET. GmbH GERMANY
LUKAS HYDRAULIK VER. GmbH GERMANY
LUKAS HYDRAULIK GmbH GERMANY
LUBRIQUIP, INC. DELAWARE
KLS LUBRIQUIP, INC. WISCONSIN
MICROPUMP, INC. DELAWARE
MICROPUMP LIMITED UNITED KINGDOM
PULSAFEEDER, INC. DELAWARE
PULSAFEEDER PTE., LTD. SINGAPORE
KNIGHT, INC. DELAWARE
KNIGHT INTERNATIONAL B.V. NETHERLANDS
KNIGHT EQUIPMENT INTL. B.V. NETHERLANDS
KNIGHT U.K. LTD. UNITED KINGDOM
KNIGHT EQUIPMENT AUSTRALIA PTY., LTD. AUSTRALIA
KNIGHT EQUIPMENT (CANADA) LTD. CANADA
SIGNFIX HOLDINGS LIMITED UNITED KINGDOM
SIGNFIX LIMITED UNITED KINGDOM
TESPA GmbH GERMANY
VIKING PUMP, INC. DELAWARE
VIKING PUMP (EUROPE) LTD. IRELAND
JOHNSON PUMP (UK) LTD. UNITED KINGDOM
VIKING PUMP OF CANADA, INC. ONTARIO
VIKING PUMP LATIN AMERICA S.A. DE C.V. MEXICO
WARREN RUPP, INC. DELAWARE MARATHON PUMP COMPANY
WARREN RUPP (EUROPE) LTD. IRELAND
BLAGDON PUMP HOLDINGS, LTD. UNITED KINGDOM
BLAGDOM PUMP LTD. UNITED KINGDOM
IDEX FOREIGN SALES CORP. BARBADOS
1
Exhibit 24
INDEPENDENT AUDITORS' CONSENT
IDEX Corporation
We consent to the incorporation by reference in the Registration Statement
of IDEX Corporation on Form S-3 (File Number 333-41627) and in the Registration
Statements of IDEX Corporation on Form S-8 (File Numbers 33-47678, 33-56586,
33-67688, 333-18643) of our reports dated January 19, 1999, appearing in and
incorporated by reference in this Annual Report on Form 10-K of IDEX Corporation
for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 5, 1999
5
YEAR
DEC-31-1998
JAN-01-1998
DEC-31-1998
2721
0
88490
2484
101201
195900
251720
126298
695811
80265
283410
0
0
295
285742
695811
640131
640131
387285
530588
(479)
1060
22359
87663
33267
54396
10182
(2514)
0
62064
2.12
2.07
