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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3555336
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 DUNDEE ROAD, NORTHBROOK, ILLINOIS 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (847) 498-7070
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of common stock of IDEX Corporation ("IDEX" or the
"Company") outstanding as of July 31, 2002: 32,456,671.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................................. $ 7,692 $ 4,972
Receivables -- net........................................ 105,371 93,053
Inventories............................................... 103,296 104,111
Other current assets...................................... 14,202 12,767
-------- --------
Total current assets................................. 230,561 214,903
Property, plant and equipment -- net........................ 138,539 144,146
Goodwill -- net............................................. 469,870 454,560
Intangible assets -- net.................................... 13,054 12,776
Other noncurrent assets..................................... 12,223 12,419
-------- --------
Total assets......................................... $864,247 $838,804
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable.................................... $ 53,020 $ 41,260
Dividends payable......................................... 4,542 4,303
Accrued expenses.......................................... 43,700 41,775
-------- --------
Total current liabilities............................ 101,262 87,338
Long-term debt.............................................. 210,908 291,820
Other noncurrent liabilities................................ 63,756 58,534
-------- --------
Total liabilities.................................... 375,926 437,692
-------- --------
Shareholders' equity
Common stock, par value $.01 per share
Shares issued and outstanding: 2002 -- 32,444,111;
2001 -- 30,763,193..................................... 324 308
Additional paid-in capital................................ 181,773 124,658
Retained earnings......................................... 313,770 295,489
Accumulated other comprehensive loss...................... (221) (12,149)
Treasury stock, at cost: 2002 -- 59,350 and 2001 -- 29,215
shares................................................. (1,945) (865)
Unearned compensation on restricted stock................. (5,380) (6,329)
-------- --------
Total shareholders' equity........................... 488,321 401,112
-------- --------
Total liabilities and shareholders' equity........... $864,247 $838,804
======== ========
See Notes to Consolidated Financial Statements.
1
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
2002 2001 2002 2001
--------- --------- -------- --------
Net sales.......................................... $190,430 $192,622 $365,366 $380,017
Cost of sales...................................... 116,292 121,914 225,803 240,532
-------- -------- -------- --------
Gross profit....................................... 74,138 70,708 139,563 139,485
Selling, general and administrative expenses....... 45,871 40,977 88,790 83,778
Goodwill amortization (Note 4)..................... -- 3,490 -- 6,969
Restructuring charge (Note 2)...................... 107 -- 107 5,661
-------- -------- -------- --------
Operating income................................... 28,160 26,241 50,666 43,077
Other income -- net................................ 134 179 337 405
-------- -------- -------- --------
Income before interest expense and income taxes.... 28,294 26,420 51,003 43,482
Interest expense................................... 3,904 5,198 8,574 10,601
-------- -------- -------- --------
Income before income taxes......................... 24,390 21,222 42,429 32,881
Provision for income taxes......................... 8,780 8,229 15,274 12,659
-------- -------- -------- --------
Net income......................................... $ 15,610 $ 12,993 $ 27,155 $ 20,222
======== ======== ======== ========
Basic earnings per common share (Note 4)........... $ .49 $ .43 $ .87 $ .67
======== ======== ======== ========
Diluted earnings per common share (Note 4)......... $ .48 $ .42 $ .85 $ .65
======== ======== ======== ========
Share data:
Weighted average common shares outstanding......... 31,668 30,137 31,090 30,067
======== ======== ======== ========
Weighted average common shares outstanding assuming
full dilution.................................... 32,653 31,073 32,074 30,994
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
2
IDEX CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
COMMON ACCUMULATED
STOCK & OTHER UNEARNED
ADDITIONAL COMPREHENSIVE COMPENSATION TOTAL
PAID-IN RETAINED (LOSS) TREASURY ON RESTRICTED SHAREHOLDERS'
CAPITAL EARNINGS INCOME STOCK STOCK EQUITY
---------- -------- ------------- -------- ------------- -------------
Balance, December 31, 2001... $124,966 $295,489 $(12,149) $ (865) $(6,329) $401,112
-------- -------- -------- ------- ------- --------
Net Income................... 27,155 27,155
Other comprehensive income
Unrealized derivative
gains................... 140 140
Unrealized translation
adjustment.............. 11,788 11,788
-------- -------- --------
Other comprehensive
income................ -- 11,928 11,928
-------- -------- --------
Comprehensive income.... 27,155 11,928 39,083
-------- -------- --------
Issuance of 1,500,000 shares
of common stock............ 50,935 50,935
Issuance of 240,268 shares of
common stock from exercise
of stock options and
deferred compensation
plans...................... 6,196 6,196
Amortization of restricted
stock...................... 949 949
Restricted shares surrendered
for tax withholdings....... (1,080) (1,080)
Cash dividends
declared -- $.28 per common
share
outstanding................ (8,874) (8,874)
-------- -------- -------- ------- ------- --------
Balance, June 30, 2002....... $182,097 $313,770 $ (221) $(1,945) $(5,380) $488,321
======== ======== ======== ======= ======= ========
See Notes to Consolidated Financial Statements.
3
IDEX CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
2002 2001
--------- ---------
Cash flows from operating activities
Net income.................................................. $ 27,155 $ 20,222
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization............................. 14,021 13,424
Amortization of intangibles............................... 378 7,717
Amortization of unearned compensation..................... 949 949
Amortization of debt issuance expenses.................... 290 130
Restructuring charge...................................... (2,928) 4,032
Deferred income taxes..................................... 3,075 2,243
(Increase) decrease in receivables........................ (12,011) 5,666
Decrease in inventories................................... 1,184 10,992
Increase (decrease) in trade accounts..................... 11,521 (4,600)
Increase (decrease) in accrued expenses................... 4,824 (1,368)
Other -- net.............................................. 6,060 (8,890)
--------- ---------
Net cash flows from operating activities............... 54,518 50,517
--------- ---------
Cash flows from investing activities
Additions to property, plant and equipment................ (9,045) (11,110)
Acquisition of businesses (net of cash acquired).......... (5,538) (129,637)
--------- ---------
Net cash flows from investing activities............... (14,583) (140,747)
--------- ---------
Cash flows from financing activities
Borrowings under credit facilities for acquisitions....... 5,538 129,637
Net repayments under credit facilities.................... (89,235) (31,369)
Repayments of other long-term debt........................ (487) (3,412)
Proceeds from issuance of common stock.................... 50,935 --
(Decrease) increase in accrued interest................... (443) 307
Dividends paid............................................ (8,635) (8,493)
Proceeds from stock option exercises...................... 5,112 4,995
--------- ---------
Net cash flows from financing activities............... (37,215) 91,665
--------- ---------
Net increase in cash........................................ 2,720 1,435
Cash and cash equivalents at beginning of year.............. 4,972 8,415
--------- ---------
Cash and cash equivalents at end of period.................. $ 7,692 $ 9,850
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest.................................................. $ 9,307 $ 10,425
Income taxes.............................................. 14,709 6,321
Significant non-cash activities:
Debt assumed with acquisition of business................... 1,886 2,931
See Notes to Consolidated Financial Statements.
4
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BUSINESS
IDEX is a leading global manufacturer of fluid handling products and other
specialized industrial equipment. We manufacture an extensive array of
proprietary, engineered industrial products sold to customers in a variety of
industries around the world. The Company believes that each of our principal
business units holds the number-one or number-two market share position in the
niche markets they serve. The Company believes that its financial performance
has been attributable to its expertise in designing and manufacturing quality
proprietary products, coupled with its ability to identify and successfully
integrate strategic acquisitions. IDEX reports results in three segments: Pump
Products Group, Dispensing Equipment Group, and Other Engineered Products Group.
Pump Products Group. The Pump Products Group produces a wide variety of
pumps, compressors, flow meters and related controls for the movement of
liquids, air and gases. The devices and equipment produced by this group are
used by a large and diverse set of industries including chemical processing,
machinery, water treatment, medical equipment, liquid petroleum distribution,
oil and refining, food and beverage, biotech, and drug processing. The seven
business units that comprise this group are Gast Manufacturing, Liquid Controls,
Micropump, Pulsafeeder, Rheodyne, Viking Pump, and Warren Rupp.
Dispensing Equipment Group. The Dispensing Equipment Group produces highly
engineered equipment for dispensing, metering and mixing colorants, paints, inks
and dyes; refinishing equipment; and centralized lubrication systems. This
proprietary equipment is used in a variety of retail and commercial industries
around the world. This group provides equipment, systems, and service for
applications such as tinting paints and coatings, industrial and automotive
refinishing, and the precise lubrication of machinery and transportation
equipment. The three business units that comprise this group are FAST, Fluid
Management and Lubriquip.
Other Engineered Products Group. The Other Engineered Products Group
produces engineered banding and clamping devices, firefighting pumps and rescue
tools, and other components and systems for the fire and rescue industry. The
high-quality stainless steel bands, buckles and preformed clamps and related
installation tools are used in a wide variety of industrial and commercial
applications. The group also includes the world's leading manufacturer of
truck-mounted fire pumps and rescue tool systems used by public and private fire
and rescue organizations. The two business units that comprise this group are
Band-It and Hale Products.
Information follows about the operations of IDEX in different business
segments based on the nature of products and services offered. The Company's
basis of segmentation and basis of segment profit measurement for the six months
ended June 30, 2002, are the same as those set forth under Business Segments and
Geographic Information on pages 30 and 31 of the 2001 Annual Report to
Shareholders. Intersegment sales are accounted for at fair value as if the sales
were to third parties.
5
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
2002 2001 2002 2001
--------- --------- -------- --------
Net sales
Pump Products
From external customers............... $109,296 $109,713 $210,778 $218,995
Intersegment sales.................... 710 720 1,401 1,180
-------- -------- -------- --------
Total group sales................ 110,006 110,433 212,179 220,175
-------- -------- -------- --------
Dispensing Equipment
From external customers............... 40,355 41,577 74,096 77,411
Intersegment sales.................... -- -- -- --
-------- -------- -------- --------
Total group sales................ 40,355 41,577 74,096 77,411
-------- -------- -------- --------
Other Engineered Products
From external customers............... 42,176 41,332 82,540 83,611
Intersegment sales.................... 1 1 1 1
-------- -------- -------- --------
Total group sales................ 42,177 41,333 82,541 83,612
-------- -------- -------- --------
Intersegment elimination................. (2,108) (721) (3,450) (1,181)
-------- -------- -------- --------
Total net sales.................. $190,430 $192,622 $365,366 $380,017
======== ======== ======== ========
Operating income
Pump Products............................ $ 18,461 $ 18,615 $ 34,879 $ 36,702
Dispensing Equipment..................... 7,617 7,595 11,756 13,229
Other Engineered Products................ 6,596 7,356 12,251 14,137
Corporate office and other............... (4,407) (3,733) (8,113) (8,156)
Goodwill and trademark amortization...... -- (3,592) -- (7,174)
Restructuring charge..................... (107) -- (107) (5,661)
-------- -------- -------- --------
Total operating income........... $ 28,160 $ 26,241 $ 50,666 $ 43,077
======== ======== ======== ========
IDEX discontinued goodwill and trademark amortization as of January 1,
2002, in accordance with SFAS No. 142 as further explained in Note 4. To
facilitate comparison of segment operating results, prior-period goodwill and
trademark amortization are treated as a corporate cost rather than a segment
cost and the information for 2001 was reclassified accordingly. The
restructuring charges of $107 (net of reversal amount of $1,221) and $5,661 in
2002 and 2001, respectively, were not assigned to the individual group segments.
Had the Company allocated the 2002 restructuring charge, the charge would have
been assigned to the groups as follows: Pump Products (income of $736),
Dispensing Equipment (expense of $121) and Other Engineered Products (expense of
$722). Had the Company allocated the 2001 restructuring charge, the charge would
have been assigned to the groups as follows: Pump Products ($4,623), Dispensing
Equipment ($592) and Other Engineered Products ($446).
2. RESTRUCTURING CHARGE
IDEX took actions in 2002 and 2001 to downsize operations to lower its cost
structure. These steps were necessary to appropriately size the Company's
businesses, lower costs and improve efficiencies. The
6
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
restructuring charges included, among other things, employee severance, fringe
benefits, outplacement fees, and the consolidation of certain manufacturing
facilities. In June 2002, IDEX reversed $1,221 of certain accrued restructuring
expenses initially recorded during 2001. This reversal resulted primarily from
higher than anticipated proceeds on asset sales.
The restructuring costs are separately identified in the statement of
consolidated operations and resulted in the following charges to operations:
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ------------------
2002 2001 2002 2001
-------- ------- ------- ------
Pretax income charge..................... $ 1,328 $ -- $ 1,328 $5,661
Reversal of 2001 charges................. (1,221) -- (1,221) --
------- ------ ------- ------
Total pretax charge...................... 107 -- 107 5,661
Income taxes............................. 39 -- 39 2,152
------- ------ ------- ------
Total charge after taxes................. $ 68 $ -- $ 68 $3,509
======= ====== ======= ======
Impact on fully diluted earnings per
share.................................. $ -- $ -- $ -- $ .12
======= ====== ======= ======
The annualized savings from these actions will exceed the total
restructuring charges recorded. The balance sheet at June 30, 2002, and December
31, 2001, included accrued restructuring costs of $2,551 and $5,479,
respectively, in "accrued expenses." It is expected that the restructuring
accrual will be utilized by December 31, 2002. Restructuring charges and
spending associated with the restructuring actions were as follows:
RESTRUCTURING
ACCRUAL
-------------
Balance January 1, 2001..................................... $ --
Restructuring charge -- first quarter 2001.................. 5,661
Restructuring charge -- fourth quarter 2001................. 5,565
Deductions.................................................. (5,747)
-------
Balance December 31, 2001................................... 5,479
Restructuring charge -- second quarter 2002................. 1,328
Reversal of 2001 charges -- second quarter 2002............. (1,221)
Deductions.................................................. (3,035)
-------
Balance June 30, 2002....................................... $ 2,551
=======
3. ACQUISITIONS
On July 18, the Company completed the acquisition of Rheodyne, L.P. based
in Rohnert Park, California. Rheodyne, with sales of approximately $23 million,
is a leading manufacturer of injectors, valves, fittings and accessories for the
analytical instrumentation market. Its products are used by manufacturers of
high performance liquid chromatography (HPLC) and ion chromatography (IC)
equipment serving the pharmaceutical, biotech, life science, food and beverage,
and chemical markets.
During the second quarter, IDEX also completed the acquisition of Halox
Technologies, Inc., a small Bridgeport, Connecticut-based manufacturer of
point-of-use chlorine dioxide equipment. Its proprietary
7
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
products safely produce chlorine dioxide for use in water treatment and
disinfectant applications. Chlorine dioxide is a very effective biocide
treatment of legionella and other water-borne pathogens. Halox products can be
used in a wide variety of end markets including food and beverage, cooling
towers and potable water treatment.
4. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, The Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 establishes the accounting
and reporting standards for intangible assets and goodwill. It requires that
goodwill and certain intangible assets no longer be amortized to earnings, but
instead be reviewed periodically for impairment. IDEX adopted SFAS No. 142 on
January 1, 2002. After reviewing the estimated fair market values, both in the
aggregate and at individual business units, IDEX recorded no impairment to
goodwill and other intangible assets on January 1, 2002. Had the new
pronouncement been adopted on January 1, 2001, IDEX's net income and earnings
per share, net of tax, would have been as follows:
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------
2002 2001 2002 2001
--------- --------- ------- -------
Net income
Net income as reported....................... $15,610 $12,993 $27,155 $20,222
Add back: Goodwill amortization.............. -- 2,743 -- 5,475
Add back: Trademark amortization............. -- 64 -- 129
------- ------- ------- -------
Adjusted net income.......................... $15,610 $15,800 $27,155 $25,826
======= ======= ======= =======
Basic earnings per share
Net income as reported....................... $ .49 $ .43 $ .87 $ .67
Goodwill amortization........................ -- .09 -- .18
Trademark amortization....................... -- -- -- --
------- ------- ------- -------
Adjusted net income.......................... $ .49 $ .52 $ .87 $ .85
======= ======= ======= =======
Diluted earnings per share
Net income as reported....................... $ .48 $ .42 $ .85 $ .65
Goodwill amortization........................ -- .09 -- .18
Trademark amortization....................... -- -- -- --
------- ------- ------- -------
Adjusted net income.......................... $ .48 $ .51 $ .85 $ .83
======= ======= ======= =======
Weighted average shares outstanding
Basic........................................ 31,668 30,137 31,090 30,067
Fully diluted................................ 32,653 31,073 32,074 30,994
Excluding the restructuring charge in 2001, IDEX's diluted earnings per
share would have increased by another $.12 from $.83 to $.95 for the six months
ended June 30, 2001.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." The standard
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after
8
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
December 31, 2002. Management is still assessing the effects adoption of SFAS
No. 146 will have on its financial position, liquidity, or results of
operations.
5. DERIVATIVE INSTRUMENTS
IDEX uses derivative financial instruments principally to manage the risk
that changes in interest rates will affect either the fair value of its debt
obligations or the amount of its future interest payments. At December 31, 2001,
the Company had two interest rate swaps, expiring in March 2002, which
effectively converted $52.3 million of floating rate debt into fixed rate debt
at interest rates approximating 5.6%. There were no swap agreements outstanding
at June 30, 2002. The net gain or loss on these interest rate swap contracts was
not material during the first six months of 2002.
6. EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock (basic) plus common stock
equivalents outstanding (diluted) during the period. 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:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2002 2001 2002 2001
------- ------- ------ ------
Basic weighted average common shares
outstanding................................... 31,668 30,137 31,090 30,067
Dilutive effect of stock options and unvested
restricted shares............................. 985 936 984 927
------ ------ ------ ------
Weighted average common shares outstanding
assuming full dilution........................ 32,653 31,073 32,074 30,994
====== ====== ====== ======
7. INVENTORIES
The components of inventories as of June 30, 2002, and December 31, 2001,
were:
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Raw materials............................................... $ 39,043 $ 38,813
Work in process............................................. 13,483 11,797
Finished goods.............................................. 50,770 53,501
-------- --------
Total.................................................. $103,296 $104,111
======== ========
Those inventories, which were carried on a LIFO basis, amounted to $87,372
and $87,661 at June 30, 2002, and December 31, 2001, respectively. The impact on
earnings of using the LIFO method is not material.
8. COMMON AND PREFERRED STOCK
The Company had five million shares of preferred stock authorized but
unissued at June 30, 2002, and December 31, 2001.
9
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
9. LEGAL PROCEEDINGS
IDEX and five of its subsidiaries have been named as defendants in a number
of lawsuits claiming various asbestos-related personal injuries, allegedly as a
result of exposure to products manufactured with components that contained
asbestos. IDEX does not believe that its subsidiaries manufactured any such
components, which were acquired from third party suppliers. To date, all of the
Company's settlements and legal costs, except for costs of coordination,
administration, and insurance investigation, have been covered in full by
insurance. However, the Company cannot predict whether and to what extent
insurance will be available to continue to cover such settlements and legal
costs, or how insurers may respond to claims that are tendered to them.
Claims have been filed principally in Illinois, Michigan, Mississippi, New
Jersey, Ohio, and Pennsylvania. A few claims have been settled for minimal
amounts and some have been dismissed without payment. None have been tried.
No provision for these cases has been made in the financial statements of
the Company, and IDEX does not currently believe the asbestos-related claims
will have a material adverse effect on the Company's business or financial
position. The outcome of asbestos claims, however, is inherently uncertain and
always difficult to predict. Consequently, IDEX cannot give any assurance that
the resolution of such claims will not be significant in the future.
IDEX is also party to various other legal proceedings arising in ordinary
course of business, none of which are expected to have a material adverse effect
on its business, financial condition or results of operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
HISTORICAL OVERVIEW AND OUTLOOK
We sell a broad range of proprietary pump products, dispensing equipment
and other engineered products to a diverse customer base in the U.S. and
internationally. Accordingly, our businesses are affected by levels of
industrial activity and economic conditions in the U.S. and in other countries
where our 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.
We have a history of above-average operating margins. The Company's
operating margins are impacted by, among other things, utilization of facilities
as sales volumes change and inclusion of newly acquired businesses. Beginning in
2002, purchase accounting adjustments did not significantly affect our reported
margins, since we are no longer required, in accordance with new accounting
rules, to amortize goodwill and intangible assets with indefinite lives to
earnings. Instead, we periodically review these assets for impairment.
For the three months ended June 30, 2002, we reported higher orders, sales
and profits than in the first quarter of 2002 but lower than the comparable
quarter of last year. New orders for the second quarter totaled $188.7 million,
2% higher than the first quarter of 2002 but 1% lower than the second quarter of
last year. Excluding the impact of foreign currency translation and the June
2001 Versa-Matic acquisition, orders were 5% lower than in the second quarter of
2001. During the first half of this year, IDEX built $7.4 million of backlog. At
June 30, the Company had a typical unfilled order backlog of slightly over one
month's sales.
The following forward-looking statements are qualified by the cautionary
statement under the Private Securities Litigation Reform Act set forth below.
While not up to performance levels of a year ago, we are encouraged by our
performance in the first half compared with the second half of last year. While
the economic conditions in our markets have not fully recovered to the year-ago
levels, we were able to report sequential sales and earnings improvement in both
the first and second quarters. Looking ahead, while economic conditions have
clearly improved from the second half of 2001, we must wait to see if the
recovery continues. As a short-cycle business, IDEX operates with a very small
backlog of unfilled orders, so changes in order activity very quickly have an
impact on sales and profitability. Our financial performance depends on the
current pace of incoming orders, and we have very limited visibility of future
business conditions. We believe IDEX is well positioned for earnings improvement
as the economy strengthens. This is based on our lower cost structures resulting
from recent restructurings; our margin improvement initiatives of Six Sigma,
global sourcing and eBusiness; and the use of our strong cash flow to cut debt
and interest expense. In addition, we continue to pursue acquisitions that meet
our criteria to drive the Company's longer-term profitable growth.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The preceding paragraph and the Liquidity and Capital Resources section of
this management's discussion and analysis of our operations contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Exchange Act of 1934, as amended.
Such statements may relate to, among other things, capital expenditures, cost
reductions, cash flow, and operating improvements and are indicated by words or
phrases such as "anticipate," "estimate," "plans," "expects," "projects,"
"should," "will," "management believes," "the Company believes," "the Company
intends" and similar words or phrases. Such statements are subject to inherent
uncertainties and risks that could cause actual results to differ materially
from those anticipated at the date of this filing. The risks and uncertainties
are more fully detailed in our registration statement on Form S-3 filed with the
Securities and Exchange Commission on April 29, 2002, registration no.
333-84036. These risks include, but are not limited to, the following: economic
and political consequences resulting from the September 11, 2001 terrorist
attacks; 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 our results, particularly in
light of the low levels of order backlogs we typically maintain; our ability to
make acquisitions and 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
11
competitiveness; political and economic conditions in foreign countries in which
we operate; interest rates; utilization of our capacity and the effect of
capacity utilization on costs; labor markets, market conditions and material
costs; and developments with respect to contingencies, such as litigation and
environmental matters. We undertake no obligation to publicly update
forward-looking statements to reflect subsequent events or circumstances.
Investors are cautioned not to rely unduly on such forward-looking statements
when evaluating the information presented here.
RESULTS OF OPERATIONS
For purposes of this discussion and analysis section, reference is made to
the table on the following page and the Company's Statements of Consolidated
Operations included in the Financial Statements section. IDEX consists of three
reporting groups: Pump Products, Dispensing Equipment and Other Engineered
Products.
PERFORMANCE IN THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME PERIOD
OF 2001
For the three months ended June 30, 2002, we reported higher orders, sales
and profits than in the first quarter of 2002 but lower than the comparable
quarter of last year. New orders for the second quarter totaled $188.7 million,
2% higher than the first quarter of 2002 but 1% lower than the second quarter of
last year. Excluding the impact of foreign currency translation and the June
2001 Versa-Matic acquisition, orders were 5% lower than in the second quarter of
2001.
Sales in the second quarter were $190.4 million, which represented a 9%
improvement from the first quarter of 2002. This was 1% lower than our second
quarter 2001 performance, when stronger business conditions prevailed throughout
the manufacturing sector. Compared with the second quarter last year,
acquisitions accounted for a 2% sales improvement and favorable currency
translation contributed 1%. These items were offset by a 4% decline in base
business shipments. Domestic sales increased slightly, while international sales
were 3% lower.
For the quarter, the Pump Products Group contributed 57% of both sales and
operating income, the Dispensing Equipment Group accounted for 21% of sales and
23% of operating income, and the Other Engineered Products Group represented 22%
of sales and 20% of operating income. Sales to international customers were 42%
of the total, down slightly from 43% last year.
Pump Products Group sales of $110.0 million for the three months ended June
30, 2002 were slightly below the prior year, principally reflecting lower base
business partially offset by the Versa-Matic acquisition. Compared with the
second quarter last year, acquisitions accounted for a 3% sales improvement and
foreign currency translation added 1%, which was offset by a 4% decline in base
business sales volume. In the second quarter of 2002, domestic sales increased
by 3% and international sales decreased by 7%. Excluding acquisitions and
foreign currency translation, U.S. sales volume was virtually unchanged while
international sales decreased 9% due to weaker conditions in those markets.
Sales to customers outside the U.S. decreased to 35% of total group sales in
2002 from 38% in 2001.
Dispensing Equipment Group sales of $40.4 million decreased $1.2 million,
or 3%, in the second quarter of 2002 compared with last year's second quarter as
a 6% decline in business volume was partially offset by a 3% favorable currency
translation. In the second quarter of 2002, domestic and international sales
both decreased by 3%. Excluding foreign currency, international sales volume
decreased 8% due to weaker conditions in certain end markets. Sales to customers
outside the U.S. were 59% of total group sales in 2002, the same as in 2001.
Other Engineered Products Group sales of $42.2 million increased by $0.8
million, or 2%, in the second quarter of 2002 compared with 2001 as business
volume was up 1% and foreign currency translation added another 1%. In the
second quarter of 2002, domestic sales decreased by 1% while international sales
increased by 6%. Excluding foreign currency, international sales increased 4%
from the comparable period of last year. Sales to customers outside the U.S.
were 42% of total group sales in 2002, up from 40% in 2001.
12
IDEX CORPORATION AND SUBSIDIARIES
COMPANY AND BUSINESS GROUP FINANCIAL INFORMATION
(IN THOUSANDS)
(UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2002(1) 2001(1) 2002(1) 2001(1)
-------- -------- -------- --------
Pump Products Group
Net sales(3).................................. $110,006 $110,433 $212,179 $220,175
Operating income(2)(4)........................ 18,461 18,615 34,879 36,702
Operating margin(2)(4)........................ 16.8% 16.9% 16.4% 16.7%
Depreciation and amortization(2).............. $ 4,351 $ 4,252 $ 8,648 $ 8,563
Capital expenditures.......................... 2,325 2,626 4,270 5,283
Dispensing Equipment Group
Net sales(3).................................. $ 40,355 $ 41,577 $ 74,096 $ 77,411
Operating income(2)(4)........................ 7,617 7,595 11,756 13,229
Operating margin(2)(4)........................ 18.9% 18.3% 15.9% 17.1%
Depreciation and amortization(2).............. $ 1,420 $ 1,278 $ 3,015 $ 2,702
Capital expenditures.......................... 861 1,591 1,777 2,703
Other Engineered Products Group
Net sales(3).................................. $ 42,177 $ 41,333 $ 82,541 $ 83,612
Operating income(2)(4)........................ 6,596 7,356 12,251 14,137
Operating margin(2)(4)........................ 15.6% 17.8% 14.8% 16.9%
Depreciation and amortization(2).............. $ 1,322 $ 1,181 $ 2,587 $ 2,524
Capital expenditures.......................... 1,370 1,429 2,830 2,919
Company
Net sales(3).................................. $190,430 $192,622 $365,366 $380,017
Before goodwill and trademark amortization(2):
Operating income before restructuring(4)... 28,267 29,833 50,773 55,912
Operating margin before restructuring(4)... 14.8% 15.5% 13.9% 14.7%
Depreciation and amortization(2).............. $ 7,643 $ 7,273 $ 15,348 $ 14,916
As reported:
Operating income(2)(4)..................... 28,160 26,241 50,666 $ 43,077
Operating margin(2)(4)..................... 14.8% 13.6% 13.9% 11.3%
Depreciation and amortization(5).............. $ 7,643 $ 10,865 $ 15,348 $ 22,090
Capital expenditures.......................... 4,660 5,807 9,045 11,110
- ---------------
(1) Includes acquisition of Versa-Matic Tool, Inc. (June 2001) in the Pump
Products Group.
(2) IDEX discontinued amortizing goodwill and trademark amortization as of
January 1, 2002, in accordance with SFAS No. 142 as further explained in
Note 4 to the consolidated financial statements. To facilitate comparison of
segment operating results, prior-period goodwill and trademark amortization
now are treated as a corporate cost rather than a segment cost and the
information for 2001 was reclassified accordingly.
(3) Group net sales include intersegment sales.
(4) IDEX took actions in 2002 and 2001 to downsize operations to lower its cost
structure. Group operating income in these years excludes net unallocated
corporate operating expenses and the restructuring charges. In June 2002,
IDEX reversed $1.2 million of certain accrued restructuring expenses
initially recorded during 2001. The reversal primarily resulted from higher
than anticipated proceeds on asset sales. The restructuring charges of $107
(net of reversal amount of $1.2 million) and $5,661 were included with
corporate and other in 2002 and 2001, respectively, and were not assigned to
the individual group segments. Had the Company allocated the 2002
restructuring charge, this would have been assigned to the groups as
follows: Pump Products (income of $736), Dispensing Equipment (expense of
$121) and Other Engineered Products (expense of $722). Had the Company
allocated the 2001 restructuring charge, this would have been assigned to
the groups as follows: Pump Products ($4,623), Dispensing Equipment ($592)
and Other Engineered Products ($446).
(5) Excludes amortization of debt issuance expenses.
13
Gross profit of $74.1 million in the second quarter of 2002 increased by
$3.4 million, or 5%, from 2001. Gross profit as a percent of sales was 38.9% in
2002 and increased from 36.7% in 2001. The improved gross margins reflected
lower material costs from our global sourcing activities and cost savings
actions taken in 2001 to consolidate certain production facilities. Selling,
general and administrative expenses increased to $45.9 million in 2002 from
$41.0 million in 2001, and as a percent of net sales, were 24.1%, up from 21.3%
in 2001. The increase in selling, general and administrative expenses resulted
from several factors, including the impact of acquisitions and the reinvestment
in the business to drive organic growth. In accordance with the new accounting
rule, we discontinued amortizing goodwill and trademark amortization as of
January 1, 2002. As a result, we recorded no goodwill amortization expense in
the second quarter of 2002 compared with $3.5 million in the comparable quarter
of last year. We also recorded a net restructuring charge of $0.1 million in the
second quarter of 2002.
Operating income increased by $1.9 million, or 7%, to $28.2 million in 2002
from $26.2 million in 2001, primarily reflecting goodwill amortization partially
offset by the effects of lower current year sales volume. Second quarter 2002
operating margins were 14.8% of sales. Compared on the same accounting basis
(excluding goodwill amortization in accordance with new accounting rules
effective January 1, 2002), margins showed a .7 percentage point decline from
the second quarter 2001 but were 1.9 percentage points above the first quarter
of 2002. The sequential margin improvement was largely attributable to the
increase in sales volume in the second quarter compared to the first.
In the Pump Products Group, operating income of $18.5 million and operating
margin of 16.8% in 2002 compared to the $18.6 million and 16.9% recorded in
2001. Operating income for the Dispensing Equipment Group was unchanged at $7.6
million while operating margins declined slightly from 18.9% last year to 18.3%
in this year's second quarter. Operating income in the Other Engineered Products
Group of $6.6 million and operating margin of 15.6% in 2002 decreased from $7.4
million and 17.8% achieved in 2001.
Other income remained virtually unchanged at $0.1 million in the second
quarter of 2002 compared to $0.2 million during the same period last year.
Interest expense decreased to $3.9 million in the second quarter of 2002
from $5.2 million in 2001. This reduction was principally attributable to
significantly lower debt levels this year due to debt paydowns from operating
cash flow and proceeds from the common stock offering.
The provision for income taxes increased to $8.8 million in 2002 from $8.2
million in 2001. The effective tax rate decreased to 36.0% in 2002 from 38.8% in
2001 primarily due to the discontinuation of recording goodwill amortization in
2002 which included certain nondeductible amounts for tax purposes.
Net income for the current quarter was $15.6 million, 20% higher than the
$13.0 million earned in the second quarter of 2001. Second quarter diluted
earnings per share of $.48 were improved from last year's second quarter of $.42
due to goodwill amortization in 2001. Compared on the same accounting basis
diluted earnings per share for the second quarter were $.03 lower than the $.51
earned last year before goodwill amortization. Compared to the first quarter of
2002, diluted earnings per share in the second quarter improved $.11 or 30%.
PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME PERIOD OF
2001
Orders, sales, net income and earnings per share were lower for the first
six months of 2002 compared with last year. New orders for the first half of
2002 totaled $372.8 million and were 2% below the prior year. Excluding the
Versa-Matic acquisition (June 2001), orders were 4% lower than in the first six
months of 2001.
Sales in the first six months decreased 4% to $365.4 million from $380.0
million a year ago. Acquisitions accounted for a 2% improvement, which was
offset by a 6% decline in base business sales as stronger business conditions
prevailed in the manufacturing sector last year. Domestic sales declined 3% and
international sales were lower by 5%.
In the first half of 2002, the Pump Products Group contributed 58% of sales
and 59% of operating income, the Dispensing Equipment Group accounted for 20% of
both sales and operating income, and the
14
Engineered Products Group represented 22% of sales and 21% of operating income.
Sales to international customers were 41% of the total, down slightly from 42%
last year.
Pump Products Group sales of $212.2 million decreased by $8.0 million or 4%
for the six months ended June 30, 2002 compared with 2001. Acquisitions
accounted for a 3% sales improvement, but this was more than offset by a 7%
decline in base business activity. In the first six months of 2002, domestic
sales declined by 1%, and international sales declined by 8% compared to the
first half of 2001. Excluding acquisitions, base U.S. sales volume decreased 5%,
while base international sales decreased by 10%. Sales to customers outside the
U.S. decreased slightly to 35% of total group sales in 2002 from 36% in 2001.
Dispensing Equipment Group sales of $74.1 million decreased $3.3 million,
or 4%, in the first half of 2002 compared with the same period of last year.
Base business volume was down 4% from 2001. Domestic sales decreased by 1%, and
international sales were down 6% from last year. Sales to customers outside the
U.S. were 57% of total group sales in 2002, down from 58% in 2001.
Other Engineered Products sales of $82.5 million decreased by $1.1 million,
or 1%, in the first six months of 2002 compared with 2001. In the first six
months of 2002, domestic sales decreased by 3%, while international sales
increased by 2%. Sales to customers outside the U.S. were 42% of total group
sales in 2002, up from 40% in 2001.
Gross profit of $139.6 million in the first six months of 2002 was
essentially equal to 2001. As a percent of sales, gross profit was 38.2% in 2002
which represents an increase from 36.7% in 2001. The improved gross margin
primarily reflected lower material costs from our increased global sourcing
activities and savings from actions taken within the last year to consolidate
certain production facilities. Selling, general and administrative expenses
increased to $88.8 million in 2002 from $83.8 million in 2001 and as a percent
of net sales were 24.3%, up from 22.0% in 2001. The increase in selling, general
and administrative expenses resulted from several factors, including the impact
of acquisitions and the reinvestment in the business to drive organic growth. In
accordance with the new accounting rule, we discontinued amortizing goodwill and
trademarks as of January 1, 2002. As a result, we recorded no goodwill
amortization expense in the first half of 2002 compared with $7.0 million last
year. We also recorded a net restructuring charge of $0.1 million in the first
half of 2002 compared with $5.7 million last year. The restructuring charges
were to size our work force and facilities to current business conditions.
Operating income increased by $7.6 million, or 18%, to $50.7 million in
2002 from $43.1 million in 2001, primarily reflecting goodwill amortization and
restructuring recorded in 2001 partially offset by the effects of lower current
year sales volume. Operating margins for the first half of 2002 were 13.9% of
sales. Excluding 2001 goodwill amortization and restructuring charges, operating
income as a percent of sales was 14.7% in 2001. This decline was primarily
attributable to lower base business sales volumes in 2002.
In the Pump Products Group, operating income of $34.9 million and operating
margin of 16.4% in 2002 compared to $36.7 million and 16.7% recorded in 2001.
Operating income for the Dispensing Equipment Group decreased to $11.8 million
from $13.2 million last year, and operating margins declined to 15.9% from 17.1%
recorded in 2001. Operating income in the Other Engineered Products Group of
$12.3 million and operating margin of 14.8% decreased from the $14.1 million and
16.9% achieved in 2001.
Other income of $0.3 million in the first six months of 2002 was $0.1
million below 2001.
Interest expense decreased to $8.6 million in the first half of 2002 from
$10.6 million in 2001. The decrease in interest was principally due to lower
debt levels resulting from debt paydowns from operating cash flow and proceeds
from the common stock offering.
The provision for income taxes increased to $15.3 million in 2002 from
$12.7 million in 2001. The effective tax rate decreased to 36.0% in 2002 from
38.5% in 2001 primarily due to the discontinuation of recording goodwill
amortization in 2002, which included certain nondeductible amounts for tax
purposes.
Year-to-date net income was $27.2 million. After adjusting last year's
results to exclude restructuring charges and goodwill amortization, this
represented a 7% decline from the $29.3 million for the first half of
15
2001. Compared on the same basis, diluted earnings per share were $.85 this
year, down from $.95 a year ago. First half 2001 diluted earnings per share were
$.65 on an "as reported" basis.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, working capital was $129.3 million and our current ratio
was 2.3 to 1. Cash flow from operations increased by $4.0 million to $54.5
million in the first half of 2002 versus the prior year, principally reflecting
lower working capital requirements.
Cash flow provided from operations was more than adequate to fund capital
expenditures of $9.0 million and $11.1 million in the first six months of 2002
and 2001, respectively. Capital expenditures were generally for machinery and
equipment which improved productivity, although a portion was for business
system technology and repair and replacement of equipment and facilities.
Management believes that we have ample capacity in our plant and equipment to
meet expected needs for future growth in the intermediate term.
At June 30, 2002, the maximum amount available under our five-year
multi-currency loan and revolving credit facility which terminates in 2006
(Credit Facility) was $300 million, of which $26.0 million was borrowed.
Interest is payable quarterly on the outstanding balance at the agent bank's
reference rate or at LIBOR plus an applicable margin, and a utilization fee if
the total borrowings exceed certain levels. The applicable margin is based on
our debt rating and can range from 25 basis points to 100 basis points. The
utilization fee can range from zero to 25 basis points. At June 30, 2002, the
applicable margin was 80 basis points and the utilization fee was zero. We pay
an annual facility fee of 20 basis points on the total facility.
We and certain of our subsidiaries entered into an agreement in December
2001 with a financial institution under which we collateralized certain
receivables for borrowings (Receivables Facility). The Receivables Facility
provides for borrowings of up to $50 million depending upon the level of
eligible receivables. At June 30, 2002, $25 million was borrowed and included in
long-term debt at an interest rate of approximately 3.2% per annum.
We also have a $20 million demand line of credit (Short-Term Facility),
which expires December 1, 2002. Borrowings under the Short-Term Facility are at
the bank's reference rate, or based on LIBOR plus 80 basis points per annum. At
June 30, 2002 we had no borrowings under this facility.
We believe the Company will generate sufficient cash flow from operations
in 2002 to meet our operating requirements, interest on all borrowings
outstanding in long-term debt, any authorized share repurchases, restructuring
expenses, approximately $25 million of planned capital expenditures, and
approximately $18 million of annual dividend payments to holders of common
stock. Since we began operations in January 1988 through June 30, 2002, we have
borrowed approximately $815 million under our various credit agreements to
complete 20 acquisitions. During this same period we generated, principally from
operations, cash flow of $769 million to reduce indebtedness. In the event that
suitable businesses are available for acquisition upon terms acceptable to the
Board of Directors, we may obtain all or a portion of the financing for the
acquisitions through incurring additional long-term debt. The Credit Facility
contains a covenant that limits total debt outstanding to three times operating
cash flow. At June 30, 2002, under this covenant we were limited to $350 million
of total debt outstanding. Our contractual obligations and commercial
commitments include rental payments under operating leases, payments under
capital leases, long-term obligations and other long-term obligations arising in
the ordinary course of business. We have no off-balance sheet arrangements or
material long-term purchase obligations. There are no identifiable events or
uncertainties, including the lowering of our credit rating that would accelerate
payment or maturity of any of these commitments or obligations.
REGISTRATION STATEMENT FILING FOR COMMON STOCK OFFERING
On March 8, 2002, we announced the filing of a registration statement on
Form S-3 with the Securities and Exchange Commission covering the secondary
offering of 2,939,199 shares of common stock owned by IDEX Associates, L.P. On
April 10, 2002, we announced that an amendment had been filed to this
registration statement to include, in addition to the secondary offering of
2,939,199 shares of IDEX stock
16
owned by IDEX Associates, L.P., the secondary offering of 560,801 shares of IDEX
common stock owned by KKR Associates, L.P. and the primary offering of 1,500,000
shares of IDEX common stock. On April 29, IDEX announced the pricing of the
public offering $36 per share. Subsequently, the overallotment option was
exercised by the underwriter for the sale of an additional 750,000 secondary
shares owned by KKR Associates, L.P. bringing the total size of the offering to
5,750,000 shares. The $50.9 million of net proceeds we received was used to
repay debt under our revolving credit facility. This increased the amount
available for borrowing under the facility, which IDEX intends to use for
general corporate purposes, including acquisitions.
NEW ACCOUNTING PRONOUNCEMENT
We historically have accounted for all business combinations using the
purchase method and will continue to use this method for all prospective
business combinations. At June 30, 2002, goodwill totaled $469.9 million, which
is subject to periodic review for impairment under SFAS No. 142. After reviewing
the estimated fair market values, both in the aggregate and at individual
business unit reporting levels, we recorded no impairment to goodwill on January
1, 2002 or subsequently. Conditions that indicate an impairment issue that might
exist include a long-term economic downturn in a market or a change in the
assessment of future operations. If such a condition is identified, an
assessment will be performed using a variety of methodologies, including cash
flow analysis, estimates of sales proceeds and independent appraisals. If a
goodwill impairment exists, we would reflect a non-cash charge to our results of
operations in that period.
The pronouncement also requires that goodwill and certain intangible assets
with indefinite lives no longer be amortized to earnings. In accordance with
this rule, we discontinued amortizing goodwill and trademark assets on January
1, 2002. Had the new accounting pronouncement been adopted on January 1, 2001,
reported diluted earnings per share would have increased $.18 for the first half
of 2001.
RESTRUCTURING ACTIONS
As a direct result of the depressed business environment in 2002 and 2001,
Company management took actions to downsize operations to be consistent with
reduced business activity levels. In June 2002, IDEX reversed $1.2 million of
certain accrued restructuring expenses initially recorded in 2001. The reversal
primarily resulted from higher than anticipated proceeds on asset sales. A
restructuring charge of $107 (net of reversal amount of $1.2 million) was
recorded in the second quarter of 2002. A total restructuring charge of $11.2
million was taken in 2001 that affected all three business groups and included a
charge of $5.7 million ($3.5 million after tax, or $.12 per diluted share) in
the first half of 2001. At June 30, 2002, the amount remaining in accrued
expenses for the restructuring program was $2.6 million. It is expected that the
restructuring accrual will be utilized during 2002. These actions were necessary
to appropriately size IDEX's businesses, lower costs and improve efficiencies.
The annual savings from these actions will exceed the total charge recorded.
Excluding the restructuring charge in the first half of 2001, diluted earnings
per share would have increased by another $.12 to $.95 after adding back the
effect of goodwill and trademark amortization expense as explained in the New
Accounting Pronouncement section above.
Net earnings per diluted share excluding restructuring charges is commonly
used as an analytical indicator to compare operating results for various
periods. It should not be considered as an alternative to net earnings per
diluted share calculated in accordance with U.S. generally accepted accounting
principles, or as an indicator of our operating performance for a specific
period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to market risk associated with changes in interest rates and
foreign currency exchange rates. Interest rate exposure is limited to the $210.9
million of total debt outstanding at June 30, 2002. Approximately 27% 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 $284,000 annualized increase or decrease in interest expense and
cash flows. The remaining debt is fixed rate debt. We will from time to time
enter into interest rate swaps on our debt when we believe there is a clear
financial advantage for
17
doing so. A formalized treasury risk management policy adopted by the Board of
Directors exists that describes the procedures and controls over derivative
financial and commodity instruments, including interest rate swaps. Under the
policy, we do 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 our outstanding long-term debt.
Our foreign currency exchange rate risk is limited principally to the euro
and British pound. We manage our foreign exchange risk principally through
invoicing our customers in the same currency as the source of the products.
18
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS. IDEX and five of its subsidiaries have been named as
defendants in a number of lawsuits claiming various asbestos-related
personal injuries, allegedly as a result of exposure to products
manufactured with components that contained asbestos. IDEX does not
believe that its subsidiaries manufactured any such components, which
were acquired from third party suppliers. To date, all of the Company's
settlements and legal costs, except for costs of coordination,
administration, and insurance investigation, have been covered in full by
insurance. However, the Company cannot predict whether and to what extent
insurance will be available to continue to cover such settlements and
legal costs, or how insurers may respond to claims that are tendered to
them.
Claims have been filed principally in Illinois, Michigan, Mississippi,
New Jersey, Ohio, and Pennsylvania. A few claims have been settled for
minimal amounts and some have been dismissed without payment. None have
been tried.
No provision has been made in the financial statements of the Company,
and IDEX does not currently believe the asbestos-related claims will have
a material adverse effect on the Company's business or financial
position. The outcome of asbestos claims, however, is inherently
uncertain and always difficult to predict. Consequently, IDEX cannot give
any assurance that the resolution of such claims will be not significant
in the future.
IDEX is also party to various other legal proceedings arising in ordinary
course of business, none of which are expected to have a material adverse
effect on its business, financial condition or results of operations.
ITEM 2.CHANGES IN SECURITIES. Not Applicable.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5.OTHER INFORMATION. None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The exhibits listed in the accompanying "Exhibit Index" are filed as
part of this report.
(b) Reports on Form 8-K:
On April 10, IDEX Corporation announced that it expected to report
net income per diluted common share of 37 cents for the first quarter
of 2002. Sales for the quarter were projected to total $175 million
and orders written to total approximately $184 million. First quarter
earnings were to be announced on Tuesday, April 16, 2002.
On April 16, IDEX Corporation reported that orders, sales and
earnings for the three months ended March 31, 2002, were improving
from fourth quarter levels but lower than the comparable quarter of
last year. Sales in the first quarter were $174.9 million, net income
was $11.5 million and diluted earnings per share were $.37.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized in the capacity and on the date
indicated.
IDEX CORPORATION
/s/ WAYNE P. SAYATOVIC
--------------------------------------
WAYNE P. SAYATOVIC
Senior Vice President -- Finance and
Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
August 13, 2002
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation of IDEX Corporation
(formerly HI, Inc.) (incorporated by reference to Exhibit
No. 3.1 to the Registration Statement on Form S-1 of IDEX,
et al., Registration No. 33-21205, as filed on April 21,
1988)
3.1(a) Amendment to Restated Certificate of Incorporation of IDEX
Corporation (formerly HI, Inc.), (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 Corporation
(incorporated by reference to Exhibit No. 3.2 to
Post-Effective Amendment No. 2 to the Registration Statement
on Form S-1 of IDEX, 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 Corporation (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, et
al., Registration No. 33-21205, as filed on February 12,
1990)
4.1 Restated Certificate of Incorporation and By-Laws of IDEX
Corporation (filed as Exhibits No. 3.1 through 3.2(a))
4.2 Indenture, dated as of February 23, 1998, between IDEX
Corporation, and Norwest Bank Minnesota, National
Association, as Trustee, relating to the 6 7/8% Senior Notes
of IDEX Corporation 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 Corporation (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 of IDEX Corporation
(incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-2 of IDEX, et al.,
Registration No. 33-42208, as filed on September 16, 1991)
4.5 Credit Agreement, dated as of June 8, 2001, among IDEX
Corporation, Bank of America N.A. as Agent and Issuing Bank,
and the Other Financial Institutions Party Hereto:
(incorporated by reference to Exhibit No. 4.5 to the
Quarterly Report of IDEX on Form 10-Q for the quarter ended
June 30, 2001, Commission File No. 1-10235)
4.6 Credit Lyonnais Uncommitted Line of Credit, dated as of
December 3, 2001 (incorporated by reference to Exhibit 4.6
to the Annual Report of IDEX on Form 10-K for the year ended
December 31, 2001, Commission File No. 1-10235)
4.7 Receivables Purchase Agreement dated as of December 20, 2001
among IDEX Receivables Corporation, as Seller, IDEX
Corporation, as Servicer, Falcon Asset Securitization
Corporation, the Several Financial Institutions from Time to
Time Party Hereto, and Bank One, NA (Main Office Chicago),
as Agent (incorporated by reference to Exhibit 4.7 to the
Annual Report of IDEX on Form 10-K for the year ended
December 31, 2001, Commission File No. 1-10235)
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