<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-10235
-------
IDEX Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3555336
- ----------------------------------- ----------------------
State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
630 Dundee Road
Northbrook, Illinois 60062
- ----------------------------------- ----------------------
(Address of principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (847) 498-7070
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changes since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock of IDEX Corporation ("IDEX" or the "Company")
outstanding as of November 12, 1996: 19,273,086 shares.
Documents Incorporated by Reference: None.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31
1996 1995
------------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 4,133 $ 5,937
Receivables - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,520 70,338
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,151 101,052
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,934 7,045
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,646 1,527
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 199,384 185,899
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . . . . 103,872 91,278
Intangible assets - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 283,682 184,217
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,200 4,728
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $592,138 $466,122
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,253 $ 36,846
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,082 3,061
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,001 42,901
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 88,336 82,808
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,113 206,184
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 23,579 26,185
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,028 315,177
-------- --------
Shareholders' equity
Common stock, par value $.01 per share;
Shares authorized:
1996: 75,000,000
1995: 50,000,000
Shares issued and outstanding:
1996: 19,269,391
1995: 19,130,284 . . . . . . . . . . . . . . . . . . . . . . . . . . 193 191
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 89,476 86,118
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,217 67,729
Accumulated translation adjustment . . . . . . . . . . . . . . . . . . . . . (1,776) (3,093)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 183,110 150,945
-------- --------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $592,138 $466,122
======== ========
</TABLE>
_________________________________________
See Notes to Consolidated Financial Statements.
1
<PAGE> 3
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Third Quarter Ended September 30, 1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,864 $116,807
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,496 71,910
-------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,368 44,897
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 28,799 23,414
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,823 1,114
-------- --------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,746 20,369
Other income - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 218
-------- --------
Income before interest expense and income taxes . . . . . . . . . . . . . . . . 23,788 20,587
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,246 4,061
-------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 18,542 16,526
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,713 5,845
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,829 $ 10,681
======== ========
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .60 $ .54
======== ========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 19,823 19,841
======== ========
</TABLE>
- ---------------
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $405,919 $360,590
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,834 221,447
-------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,085 139,143
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 81,899 72,029
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,287 3,124
-------- --------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,899 63,990
Other income (expense) - net . . . . . . . . . . . . . . . . . . . . . . . . . (12) 268
-------- --------
Income before interest expense and income taxes . . . . . . . . . . . . . . . . 70,887 64,258
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,537 11,668
-------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 57,350 52,590
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 20,646 18,828
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,704 $ 33,762
======== ========
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.85 $ 1.71
======== ========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 19,815 19,713
======== ========
</TABLE>
- ---------------
See Notes to Consolidated Financial Statements.
3
<PAGE> 5
IDEX CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
AND ADDITIONAL RETAINED TRANSLATION SHAREHOLDERS'
PAID-IN CAPITAL EARNINGS ADJUSTMENT EQUITY
--------------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Balance:
December 31, 1995 . . . . . . . . $86,309 $67,729 $(3,093) $150,945
Issuance of 75,700 shares
of common stock . . . . . . . . . 2,270 2,270
Stock options exercised . . . . . . 1,090 1,090
Unrealized translation adjustment . 1,317 1,317
Cash dividends on common
stock ($.48 per share) . . . . . . (9,216) ( 9,216)
Net income . . . . . . . . . . . .
36,704 36,704
------- ------- ------- --------
Balance:
September 30, 1996 . . . . . . . $89,669 $95,217 $(1,776) $183,110
======= ======= ======= ========
</TABLE>
- ---------------
See Notes to Consolidated Financial Statements.
4
<PAGE> 6
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996 1995
--------- --------
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,704 $ 33,762
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,740 8,616
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . 5,675 3,963
Amortization of debt issuance expenses . . . . . . . . . . . . . . . . . 475 467
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 2,532 232
(Increase) decrease in receivables . . . . . . . . . . . . . . . . . . . 3,360 (1,061)
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . 13,499 (10,312)
Increase (decrease) in trade accounts payable . . . . . . . . . . . . . . (6,553) 785
Increase (decrease) in accrued expenses . . . . . . . . . . . . . . . . . (3,345) 225
Other transactions - net . . . . . . . . . . . . . . . . . . . . . . . . (160) (108)
--------- --------
Net cash flows from operating activities . . . . . . . . . . . . . . . 62,927 36,569
--------- --------
Cash Flows From Investing Activities:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . (9,310) (9,601)
Acquisition of business (net of cash acquired) . . . . . . . . . . . . . . . (137,395) (32,905)
--------- --------
Net cash flows from investing activities . . . . . . . . . . . . . . . . . (146,705) (42,506)
--------- --------
Cash Flows From Financing Activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,195) (8,019)
Net borrowings of long-term debt . . . . . . . . . . . . . . . . . . . . . . 91,720 12,500
Decrease in accrued interest . . . . . . . . . . . . . . . . . . . . . . . . (551) (1,605)
--------- --------
Net cash flows from financing activities . . . . . . . . . . . . . . . . 81,974 2,876
--------- --------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,804) (3,061)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 5,937 6,288
--------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 4,133 $ 3,227
========= ========
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,442 $ 12,621
Taxes (including foreign) . . . . . . . . . . . . . . . . . . . . . . . . . . 19,652 16,859
</TABLE>
- ---------------
See Notes to Consolidated Financial Statements.
5
<PAGE> 7
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Acquisition
Pursuant to the requirements of the Securities and Exchange Commission,
the January 22, 1988 acquisition of the initial six businesses comprising IDEX
Corporation ("IDEX" or the "Company") was not accounted for as a purchase
transaction. Consequently, the accounting for the acquisition does not reflect
any adjustment of the carrying value of the assets and liabilities to their
fair values at the time of the acquisition. Accordingly, the total
shareholders' equity of IDEX at September 30, 1996 and December 31, 1995
includes a charge of $96.5 million which represents the excess of the purchase
price over the book value of the subsidiaries purchased at the date of the
acquisition.
2. (a) Significant Accounting Policies
In the opinion of management, the unaudited information presented as of
September 30, 1996 and for the three and nine months ended September 30, 1996
and 1995 reflects all adjustments necessary, which consist only of normal
recurring adjustments, for a fair presentation of the interim periods.
(b) Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. Common stock equivalents, in the form of stock
options, have been included in the calculation of weighted average shares
outstanding using the treasury stock method.
3. Inventories
The components of inventories as of September 30, 1996 and December 31,
1995 were (000's omitted):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- --------
Inventories (unaudited)
<S> <C> <C>
Raw materials and supplies $ 18,515 $ 13,978
Work in process 16,496 15,434
Finished goods 68,140 71,640
-------- --------
Totals $103,151 $101,052
======== ========
</TABLE>
Those inventories which were carried on a LIFO basis amounted to $68,225
and $57,409 at September 30, 1996 and December 31, 1995, respectively. The
excess of current cost over LIFO inventory value and the impact on earnings of
using the LIFO method are not material.
4. Common and Preferred Stock
The Company had five million shares of preferred stock authorized but
unissued at September 30, 1996 and December 31, 1995.
5. Long-Term Debt
On July 17, 1996, IDEX entered into a multi-currency Third Amended and
Restated Credit Agreement ("Amended U.S. Credit Agreement") increasing the
maximum availability to $250 million along with making certain adjustments to
the interest rate structure. The availability under the Amended U.S. Credit
Agreement declines in stages commencing July 1, 1999 to $200 million on July 1,
2000. Any amount outstanding at July 1, 2001 becomes due at that date.
Interest is payable quarterly on the outstanding balance at the bank agent's
reference rate, or at LIBOR plus an applicable margin.
6
<PAGE> 8
6. Acquisition of Fluid Management Limited Partnership
On July 29, 1996, IDEX purchased substantially all of the net operating
assets of Fluid Management Limited Partnership ("FMLP"), the leading worldwide
manufacturer of dispensing and mixing equipment for paints, coatings, inks,
colorants and dyes. The $138 million purchase price was financed through a
$136 million borrowing under the Amended U.S. Credit Agreement and the issuance
of 75,700 shares of IDEX common stock. The excess of the purchase price over
the fair market value of net assets acquired of approximately $104.2 million
will be amortized over 30 years. The acquisition has been accounted for by the
purchase method of accounting. The liabilities assumed in connection with the
acquisition of FMLP were as follows:
Fair value of assets acquired $ 51,553
Cost in excess of net assets acquired 104,226
Cash paid for net assets of FMLP and related transaction costs (136,100)
Common stock issued in connection with the acquisition ( 2,270)
--------
Liabilities assumed $ 17,409
========
The unaudited pro forma consolidated results of operations of IDEX for the
nine months ended September 30, 1996 and 1995, reflecting the allocation of the
purchase price and related financing of the transactions would have been as
follows (in thousands except per share amounts), assuming that the FMLP
acquisition had occurred at the beginning of each of the respective periods.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $454,230 $426,401
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,978 35,824
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . 1.86 1.81
</TABLE>
Fluid Management's financial performance for the period January 1 to
July 29, 1996, prior to the acquisition by IDEX was adversely affected by
volume-related profit declines in Europe, and startup costs associated with
major new product introductions.
7
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Historical Overview and Outlook
IDEX sells a broad range of proprietary fluid handling and industrial
products to a diverse customer base in the U.S. and, to an increasing extent,
internationally. Accordingly, IDEX's businesses are affected by levels of
industrial activity and economic conditions in the U.S. and in other countries
where its products are sold and by the relationship of the dollar to other
currencies. Among the factors that affect the demand for IDEX's products are
interest rates, levels of capital spending in certain industries, and overall
industrial growth.
IDEX has a history of strong operating margins. The Company's operating
margins are affected by, among other things, utilization of facilities as sales
volumes change, and inclusion of newly acquired businesses which may have lower
margins that could be further affected by purchase accounting adjustments.
IDEX's orders, sales, net income and earnings per share in the third
quarter of 1996 were the highest of any third quarter in its history. Incoming
orders in the 1996 third quarter increased 28% over the same quarter of 1995,
while sales increased 21%. This year's third quarter results include two
months of activity for Fluid Management, acquired in late July 1996, and a full
quarter of activity for Lukas Hydraulik, acquired in the fourth quarter of last
year. Without these acquisitions, incoming orders in the base businesses were
up 9% and sales were up by about 3% over the third quarter of last year. New
orders exceeded shipments by about $2.5 million in this year's third quarter,
while backlogs were reduced by $5 million in last year's third quarter.
Although backlogs increased slightly in this year's third quarter, they remain
at IDEX's typical operating level of about 1- 1/2 months' sales. This low
level of backlog allows IDEX to provide excellent customer service, but also
means that changes in orders are felt quickly in operating results.
The following forward looking statements are qualified by the cautionary
statement under the Private Securities Litigation Reform Act set forth below.
As expected, IDEX was able to achieve nice growth in earnings in the third
quarter. With customarily small backlogs of about 1- 1/2 months' sales,
near-term sales volume hinges on the incoming order pace. Based on current
activity levels, IDEX continues to expect that new records will be achieved in
sales, net income and earnings per share for the fourth quarter and for the
full year 1996. Beyond that, IDEX is well situated to continue its progression
by stressing new product development, market share growth, international
expansion, operating improvements in recently acquired businesses, and by
continuing its disciplined acquisition program as appropriate opportunities
arise.
Cautionary Statement Under the Private Securities Litigation Reform Act
Demand for the Company's products is cyclical in nature and subject to
changes in general market conditions that affect demand. The Company's
customers operate primarily in industries that are affected by changes in
economic conditions, which in turn can affect orders. The Company operates
without significant order backlogs. As a result, economic slowdowns could
quickly have an adverse effect on the Company's performance. In addition, the
Company's operating forecasts and budgets are based upon detailed assumptions,
which it believes are reasonable, but inherent difficulties in predicting the
impact of certain factors may cause actual results to differ materially from
the forward-looking statements set forth above. These factors include, but are
not limited to the following: the Company's utilization of its capacity and the
impact of capacity utilization on costs; developments with respect to
contingencies such as environmental matters and litigation; labor market
conditions and raw materials costs; levels of industrial activity and economic
conditions in the U.S. and other countries around the world and levels of
capital spending in certain industries, all of which have a material influence
on order rates; the relationship of the dollar to other currencies; interest
rates; the Company's ability to integrate and operate acquired businesses on a
profitable basis; and, other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
8
<PAGE> 10
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(000'S OMITTED)
<TABLE>
<CAPTION>
For the Third Quarter Ended September 30, 1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Fluid Handling Group . . . . . . . . . . . . . . . . . . . . . . . .
Net sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . $107,798 $ 85,130
Income from operations (2) . . . . . . . . . . . . . . . . . . 20,158 16,649
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 18.7% 19.6%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 5,338 $ 3,561
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 2,170 1,439
Industrial Products Group
Net sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,492 $ 31,739
Income from operations (2) . . . . . . . . . . . . . . . . . . 5,801 5,328
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 16.8% 16.8%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 819 $ 785
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 725 2,644
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,864 $116,807
Income from operations . . . . . . . . . . . . . . . . . . . . 23,746 20,369
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 16.9% 17.4%
Depreciation and amortization (3) . . . . . . . . . . . . . . . $ 6,179 $ 4,361
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 2,905 4,062
</TABLE>
(1) Group net sales include intersegment sales.
(2) Group income from operations excludes net unallocated corporate
operating expenses.
(3) Excludes amortization of debt issuance expenses.
9
<PAGE> 11
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(000'S OMITTED)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Fluid Handling Group . . . . . . . . . . . . . . . . . . . . . . . .
Net sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . $300,928 $258,083
Income from operations (2) . . . . . . . . . . . . . . . . . . 60,531 53,317
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 20.1% 20.7%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 13,850 $ 10,186
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 5,968 5,038
Industrial Products Group
Net sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . $106,532 $102,769
Income from operations (2) . . . . . . . . . . . . . . . . . . 16,824 17,040
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 15.8% 16.6%
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 2,499 $ 2,348
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 3,313 4,563
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $405,919 $360,590
Income from operations . . . . . . . . . . . . . . . . . . . . 70,899 63,990
Operating margin . . . . . . . . . . . . . . . . . . . . . . . 17.5% 17.7%
Depreciation and amortization (3) . . . . . . . . . . . . . . . $ 16,415 $ 12,579
Capital expenditures . . . . . . . . . . . . . . . . . . . . . 9,310 9,601
</TABLE>
(1) Group net sales include intersegment sales.
(2) Group income from operations excludes net unallocated corporate
operating expenses.
(3) Excludes amortization of debt issuance expenses.
10
<PAGE> 12
Results of Operations
For purposes of this discussion and analysis section, reference is made to
the tables on the preceding pages 9 and 10 and the Company's Statements of
Consolidated Operations included in the Financial Statement section. IDEX
consists of two business segments: Fluid Handling and Industrial Products.
Performance in the Third Quarter Ended September 30, 1996 Compared to 1995
Net sales for the three months ended September 30, 1996 were $140.9
million, a gain of 21% over $116.8 million in the third quarter of last year.
International sales rose to 41% of the total in the third quarter from 35% in
the same quarter last year.
Fluid Handling Group sales of $107.8 million in the three months ended
September 30, 1996 increased by $22.7 million, or 27%, over the same period in
1995, primarily due to the inclusion of recent acquisitions, Lukas (October
1995) and Fluid Management (late July 1996). Sales outside the U.S.
increased to 40% of total Fluid Handling Group sales in the third quarter of
1996 from 34% in the comparable 1995 period primarily due to the inclusion of
Lukas, based in Germany, and the international operations of Fluid Management.
Third quarter 1996 sales in the Industrial Products Group of $34.5 million
increased $2.8 million, or 9%, from the same quarter of last year due to higher
demand in international markets. Shipments outside the U.S. were 42% of
total sales in the Industrial Products Group in the third quarter of 1996, up
from 36% in the comparable 1995 period.
Income from operations increased $3.3 million, or 16%, to $23.7 million in
the three months ended September 30, 1996 from $20.4 million in 1995's third
quarter. Overall operating profit margins are usually lower in the third
quarter because of vacations and plant shutdowns. IDEX's 16.9% operating
profit margins in the third quarter of this year were down slightly from last
year's third quarter margins of 17.4% because margins in the recently acquired
Fluid Management business do not yet match those of the Company's base
businesses.
In the Fluid Handling Group, income from operations of $20.2 million and
operating margins of 18.7% in the three-month 1996 period compared to the $16.6
million and 19.6% recorded in 1995. The slight operating margin decline
resulted from the inclusion of recent acquisitions whose operating margins, as
expected, were somewhat lower than the other units in the Group, and whose
profits were further affected by purchase accounting adjustments. Income from
operations in the Industrial Products Group of $5.8 million in the third
quarter of 1996 rose $.5 million from $5.3 million in 1995. Operating margin
of 16.8% for the Group in the 1996 third quarter equaled the margin achieved in
the same 1995 period.
Interest expense increased to $5.2 million in the third quarter of 1996
from $4.1 million in the comparable period last year because of additional
borrowings under the credit agreements for the acquisitions of Lukas and Fluid
Management.
The provision for income taxes increased 16% to $6.7 million in the three
months ended September 30, 1996 from $5.8 million in 1995. The effective tax
rate increased to 36.2% in the 1996 period from 35.4% in the corresponding
period of 1995 due to increased profit from international operations in higher
tax jurisdictions.
Net income of $11.8 million was 11% higher than the $10.7 million earned
in the same period in 1995. Earnings per share in this year's third quarter
amounted to 60 cents, also an 11% improvement over last year's 54 cents.
11
<PAGE> 13
Performance in the Nine Months Ended September 30, 1996 Compared to 1995
In the nine months ended September 30, 1996, IDEX had record sales of
$405.9 million, up 13% from last year's previous record of $360.6 million.
Sales in the base businesses were up about 1% from last year, with acquisitions
accounting for 12% of the Company's sales growth. International sales
accounted for 39% of the total in the first nine months of 1996, up from 34%
last year and incoming orders totaled $402.8 million, within 1% of sales.
Backlogs at September 30 were at a typical 1- 1/2 months' equivalent sales.
Fluid Handling Group sales of $300.9 million increased $42.8 million, or
17%, primarily due to the inclusion of the recently acquired Micropump, Lukas
and Fluid Management operations. Sales outside the U.S. increased to 39% of
total Fluid Handling Group sales in the first nine months of 1996 from 32% in
the comparable 1995 period due to the inclusion of Lukas, based in Germany, the
U.K. operations of Micropump, the international operations of Fluid Management,
and stronger worldwide demand for products of the Group's core businesses.
Sales of $106.5 million in the first nine months of 1996 in the Industrial
Products Group increased $3.7 million, or 4%, over the same period of
last year due to higher customer demand for the Group's products. Shipments
outside the U.S. were 39% of total sales in the Industrial Products Group in
the nine-month 1996 period, up slightly from 38% in the comparable 1995 period.
Income from operations increased $6.9 million, or 11%, to $70.9 million in
the nine months ended September 30, 1996 from $64.0 million in the same 1995
period. Nine-month 1996 operating margins of 17.5% were slightly lower than
the 17.7% posted last year. In the Fluid Handling Group, income from
operations of $60.5 million and operating margin of 20.1% in the first nine
months of 1996 compare to the $53.3 million and 20.7% recorded in 1995. The
slight operating margin decline resulted from the inclusion of recent
acquisitions whose operating margins, as expected, were somewhat lower than the
other units in the Group and whose profits were further affected by purchase
accounting adjustments. Income from operations of $16.8 million in the
Industrial Products Group in the nine-month 1996 period was down $.2 million
from the $17.0 million recorded in 1995. The Group's operating margin of 15.8%
in 1996's first nine months decreased from the 16.6% achieved in 1995, because
of margin declines at the Company's Strippit business unit.
Interest expense increased to $13.5 million in the first nine months of
1996 from $11.7 million in the 1995 period because of additional borrowings
under the credit agreements for the acquisitions of Micropump, Lukas and Fluid
Management.
The provision for income taxes increased to $20.6 million in the nine
months ended September 30, 1996 from $18.8 million in the comparable 1995
period. The effective tax rate increased slightly to 36.0% in 1996 from 35.8%
in 1995.
Record net income of $36.7 million improved by 9% over the $33.8 million
in the same period last year, and record earnings per share of $1.85 in this
year's first three quarters compared with $1.71 earned in last year's
nine-month period.
12
<PAGE> 14
Liquidity and Capital Resources
At September 30, 1996, IDEX's working capital was $111.0 million and its
current ratio was 2.3 to 1. Internally generated funds were adequate to fund
capital expenditures of $9.3 million and $9.6 million, and dividends on common
stock of $9.2 million and $8.0 million, for the nine months ended September 30,
1996 and 1995, respectively. The capital expenditures were generally for
machinery and equipment which improved productivity, although a portion was for
repair and replacement of equipment and facilities. Management believes that
IDEX has ample capacity in its plant and equipment to meet expected needs for
future growth in the intermediate term. During the nine months ended September
30, 1996 and 1995, depreciation and amortization expense, excluding
amortization of debt issuance expenses, was $16.4 million and $12.6 million,
respectively.
On July 17, 1996, IDEX entered into an Amended U.S. Credit Agreement
increasing the maximum amount available to $250 million and making certain
adjustments to the interest rate structure. At September 30, 1996, $186
million was borrowed under this facility. The availability under the Amended
U.S. Credit Agreement declines in stages commencing July 1, 1999 to $200
million on July 1, 2000. Any amount outstanding at July 1, 2001 becomes due at
that date. Interest is payable quarterly on the outstanding balance at the
bank agent's reference rate, or at LIBOR plus an applicable margin. At
September 30, 1996, that applicable margin was 62.5 basis points. In addition,
a facility fee is payable quarterly on the entire $250 million available under
the Amended U.S. Credit Agreement. At September 30, 1996, the applicable
facility fee percentage was 20 basis points.
The maximum amount available at September 30, 1996 under the Company's
German Credit Agreement was DM 52.5 million ($35.4 million), of which DM 50.0
million ($33.7 million) was being used. The availability under the Company's
German Credit Agreement declines in stages to DM 31.3 million at November 1,
2000. Any amount outstanding at November 1, 2001 becomes due at that date.
Interest is payable quarterly on the outstanding balance at LIBOR plus 100
basis points.
IDEX believes it will generate sufficient cash flow from operations to
meet its operating requirements, interest and scheduled amortization payments
under both the Amended U.S. Credit Agreement and the German Credit Agreement,
interest and principal payments on the Senior Subordinated Notes, approximately
$16 million of planned capital expenditures and $12 million of annual dividend
payments to holders of common stock in 1996. From commencement of operations
in January 1988 until September 30, 1996, IDEX has borrowed $413 million under
the credit agreements to complete ten acquisitions. During this same period,
IDEX generated, principally from operations, cash flow of $283 million to
reduce its indebtedness. In the event that suitable businesses or assets are
available for acquisition by IDEX upon terms acceptable to the Board of
Directors, IDEX may obtain all or a portion of the financing for the
acquisitions through the incurrence of additional long-term indebtedness.
On July 29, 1996, IDEX acquired Fluid Management, a Wheeling,
Illinois-based manufacturer of dispensing and mixing equipment for paints,
coatings, inks, colorants and dyes for approximately $138 million, including
IDEX common stock valued at about $2 million. Fluid Management, which also has
operations in the Netherlands, Germany and Australia, is a leading producer of
this type of equipment, with annual sales of approximately $90 million. The
acquisition was accounted for using the purchase method of accounting and was
financed through a $136 million borrowing under the Amended U.S. Credit
Agreement and the issuance of 75,700 shares of IDEX common stock.
13
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities.
On July 29, 1996, IDEX issued 75,700 shares of Common Stock, par
value $.01 per share, in consideration for all of the outstanding
capital stock of the Saranow Company, an entity engaged in the
management of the Fluid Management business, as part of IDEX's
acquisition of Fluid Management. The shares were issued in
reliance on the exemption set forth in Section 4(2) of the
Securities Act of 1933, as amended.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying "Exhibit Index" are
filed as part of this report.
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the
quarter for which this report is filed.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized in the capacity and on the date
indicated.
IDEX CORPORATION
November 12, 1996 /s/Wayne P. Sayatovic
---------------------------------
Wayne P. Sayatovic
Senior Vice President -
Finance, Chief Financial
Officer and Secretary
(Duly Authorized and Principal
Financial Officer)
15
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C>
2.1 Asset Purchase Agreement dated July 26, 1996 between IDEX and Fluid Management Limited
Partnership, Fluid Management U.S., L.L.C., Fluid Management Service, Inc., Fluid Management
Canada, LLC, Fluid Management France, SNC, FM International, Inc., Fluid Management Europe B.V.
(incorporated by reference to Exhibit No. 2.1 to the Quarterly Report of IDEX on Form 10-Q for
the quarter ended June 30, 1996, 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 3.1 through
3.2(a)).
4.2 Indenture, dated as of September 15, 1992, among IDEX, the Subsidiaries and The Connecticut
National Bank, as Trustee, relating to the 9-3/4% Senior Subordinated Notes of IDEX due 2002
(incorporated by reference to Exhibit No. 4.2 to the Annual Report of IDEX on Form 10-K for the
fiscal year ending December 31, 1992, Commission File No. 1-10235).
4.2(a) First Supplemental Indenture dated as of December 22, 1995 among IDEX and the Subsidiaries named
therein and Fleet National Bank of Connecticut (formerly known as The Connecticut National
Bank), a national banking association, as trustee (incorporated by reference to Exhibit No.
4.2(a) to the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1995,
Commission File No. 1-10235).
4.2(b) Second Supplemental Indenture dated as of July 29, 1996 among IDEX and the Subsidiaries named
therein and Fleet National Bank (formerly known as Fleet National Bank Connecticut), a national
banking association, as trustee (incorporated by reference to Exhibit No. 4.2(b) to the
Quarterly Report of IDEX on Form 10-Q for the quarter ended June 30, 1996, Commission File No.
1-10235).
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C>
4.3 Specimen Senior Subordinated Note of IDEX (including specimen Guarantee) (incorporated by
reference to Exhibit No. 4.3 to the Annual Report of IDEX on Form 10-K for the fiscal year
ending December 31, 1992, Commission File No. 1-10235).
4.4 Specimen Certificate of Common Stock (incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-2 of IDEX Corporation, et al., Registration No. 33-42208, as
filed on September 16, 1991).
4.5 Third Amended and Restated Credit Agreement dated as of July 17, 1996 among IDEX, Bank of
America Illinois, as Agent, and other financial institutions named therein (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).
4.6 Amended and Restated Pledge Agreement dated as of July 17, 1996 by IDEX in favor of the Agent
and Banks (incorporated by reference to Exhibit No. 4.6 to the Quarterly Report of IDEX on Form
10-Q for the quarter ended June 30, 1996, Commission File No. 1-10235).
4.6(a) Supplement No. 1 to the Amended and Restated Pledge Agreement dated as of August 5, 1996 by IDEX
in favor of the Agent and Banks (incorporated by reference to Exhibit No. 4.6(a) to the
Quarterly Report of IDEX on Form 10-Q for the quarter ended June 30, 1996, Commission File No.
1-10235).
4.7 Amended and Restated Subsidiary Guaranty Agreement dated as of July 17, 1996 by the Subsidiaries
named therein in favor of the Agent and Banks (incorporated by reference to Exhibit No. 4.7 to
the Quarterly Report of IDEX on Form 10-Q for the quarter ended June 30, 1996, Commission File
No. 1-10235).
4.7(a) Supplement No. 1 to the Amended and Restated Subsidiary Guaranty Agreement dated as of August 5,
1996 by FMI Management Company in favor of the Agent and Banks (incorporated by reference to
Exhibit No. 4.7(a) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended June 30,
1996, Commission File No. 1-10235).
4.7(b) Supplement No. 2 to the Amended and Restated Subsidiary Guaranty Agreement dated as of August 5,
1996 by Fluid Management, Inc. in favor of the Agent and Banks (incorporated by reference to
Exhibit No. 4.7(b) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended June 30,
1996, Commission File No. 1-10235).
4.8 Registration Rights Agreement dated as of July 26, 1996 between IDEX and Mitchell H. Saranow
(incorporated by reference to Exhibit No. 4.8 to the Quarterly Report of IDEX on Form 10-Q for
the quarter ended June 30, 1996, Commission File No. 1-10235).
**10.1 Amended and Restated Employment Agreement between IDEX and Donald N. Boyce, dated as of January
22, 1988 (incorporated by reference to Exhibit No. 10.15 to Amendment No. 1 to the Registration
Statement on Form S-1 of IDEX Corporation, Registration No. 33-28317, as filed on June 1, 1989).
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C>
**10.1(a) First Amendment to the Amended and Restated Employment Agreement between IDEX and Donald N.
Boyce, dated as of January 13, 1993 (incorporated by reference to Exhibit No. 10.5(a) to the
Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992, Commission File
No. 1-10235).
**10.1(b) Second Amendment to the Amended and Restated Employment Agreement between IDEX and Donald N.
Boyce, dated as of September 27, 1994 (incorporated by reference to Exhibit No. 10.5(b) to the
Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1994, Commission File
No. 1-10235).
**10.2 Amended and Restated Employment Agreement between IDEX and Wayne P. Sayatovic, dated as of
January 22, 1988 (incorporated by reference to Exhibit No. 10.17 to Amendment No. 1 to the
Registration Statement on Form S-1 of IDEX Corporation, Registration No. 33-28317, as filed on
June 1, 1989).
**10.2(a) First Amendment to the Amended and Restated Employment Agreement between IDEX and Wayne P.
Sayatovic, dated as of January 13, 1993 (incorporated by reference to Exhibit No. 10.6(b) to the
Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1994, Commission File
No. 1-10235).
**10.3 Employment Agreement between IDEX and Frank J. Hansen dated as of August 1, 1994 (incorporated
by reference to Exhibit No.10.7 to the Quarterly Report of IDEX on Form 10-Q for the quarter
ended September 30, 1994, Commission File No. 1-10235).
**10.3(a) First Amendment to the Employment Agreement between IDEX and Frank J. Hansen, dated as of
September 27, 1994 (incorporated by reference to Exhibit No. 10.7(a) to the Annual Report of
IDEX on Form 10-K for the fiscal year ending December 31, 1994, Commission File No. 1-10235).
**10.4 Employment Agreement between IDEX and Jerry N. Derck, dated as of September 27, 1994
(incorporated by reference to Exhibit No. 10.8 to the Annual Report of IDEX on Form 10-K for the
fiscal year ending December 31, 1994, Commission File No. 1-10235).
**10.5 Management Incentive Compensation Plan (incorporated by reference to Exhibit No. 10.21 to
Amendment No. 1 to the Registration Statement on Form S-1 of IDEX Corporation, Registration No.
33-28317, as filed on June 1, 1989).
**10.5(a) Amended Management Incentive Compensation Plan (incorporated by reference to Exhibit No. 10.9(a)
to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996, Commission
File No. 1-10235).
**10.6 Form of Indemnification Agreement (incorporated by reference to Exhibit No. 10.23 to the
Registration Statement on Form S-1 of IDEX Corporation, Registration No. 33-28317, as filed on
April 26, 1989).
**10.7 Form of Shareholder Purchase and Sale Agreement (incorporated by reference to Exhibit No. 10.24
to Amendment No. 1 to the Registration Statement on Form S-1 of IDEX Corporation, Registration
No. 33-28317, as filed on June 1, 1989).
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
----------- ----
NUMBER
-------
<S> <C>
**10.8 Revised Form of IDEX Stock Option Plan for Outside Directors (incorporated by reference to
Exhibit No. 10.22(a) to Post-Effective Amendment No. 4 to the Registration Statement on Form S-1
of IDEX Corporation, et al., Registration No. 33-21205, as filed on March 2, 1990).
**10.9 Amendment to the IDEX Stock Option Plan for Outside Directors, adopted by resolution of the
Board of Directors dated as of January 28, 1992 (incorporated by reference to Exhibit No.
10.21(a) of the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992,
Commission File No. 1-102351).
**10.10 Non-Qualified Stock Option Plan for Non-Officer Key Employees of IDEX (incorporated by reference
to Exhibit No. 10.15 to the Annual Report of IDEX on Form 10-K for the fiscal year ending
December 31, 1992, Commission File No. 1-102351).
**10.11 Non-Qualified Stock Option Plan for Officers of IDEX (incorporated by reference to Exhibit No.
10.16 to the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992,
Commission File No. 1-102351).
**10.12 IDEX Supplemental Executive Retirement Plan (incorporated by reference to Exhibit No. 10.17 to
the Annual Report of IDEX on Form 10-K for the fiscal year ending December 31, 1992, Commission
File No. 1-102351).
**10.13 1996 Stock Plan for Officers of IDEX (incorporated by reference to Exhibit No. 10.18 to the
Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996, Commission File No.
1-10235).
10.14 Amended and Restated IDEX Directors Deferred Compensation Plan (incorporated by reference to
Exhibit No. 10.19 to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31,
1996, Commission File No. 1-10235).
*27 Financial Data Schedule.
Revolving Credit Facility, dated as of September 29, 1995, between Dunja Verwaltungsgesellschaft
mbH and Bank of America NT & SA, Frankfurt Branch (a copy of the agreement will be furnished to
the Commission upon request).
</TABLE>
- ---------------
*Filed herewith.
**Management contract or compensatory plan or arrangement.
19
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,133
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<RECEIVABLES> 85,909
<ALLOWANCES> 2,389
<INVENTORY> 103,151
<CURRENT-ASSETS> 199,384
<PP&E> 241,182
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<CURRENT-LIABILITIES> 88,336
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0
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