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10-Q
Table of Contents


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________ 
Form 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
36-3555336
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1925 West Field Court, Lake Forest, Illinois
 
60045
(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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  þ
 
Accelerated filer  ¨
 
Non-accelerated filer ¨
 
Smaller reporting company  ¨
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨   No   þ 
Number of shares of common stock of IDEX Corporation outstanding as of October 21, 2015: 76,518,607.
 


Table of Contents


TABLE OF CONTENTS
 
 
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
Item 4.
 
 
 
Item 1.
Item 2.
Item 6.

Table of Contents


PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

IDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
(unaudited)
 
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
306,482

 
$
509,137

Receivables, less allowance for doubtful accounts of $8,496 at September 30, 2015 and $6,961 at December 31, 2014
272,008

 
256,040

Inventories — net
252,518

 
237,631

Other current assets
75,391

 
72,983

Total current assets
906,399

 
1,075,791

Property, plant and equipment — net
240,270

 
219,543

Goodwill
1,400,185

 
1,321,277

Intangible assets — net
300,922

 
271,164

Other noncurrent assets
22,586

 
20,295

Total assets
$
2,870,362

 
$
2,908,070

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Trade accounts payable
$
129,224

 
$
127,462

Accrued expenses
169,907

 
163,409

Notes payable and current portion of long-term borrowings
471

 
98,946

Dividends payable
24,584

 
22,151

Total current liabilities
324,186

 
411,968

Long-term borrowings
852,780

 
765,006

Deferred income taxes
153,505

 
130,368

Other noncurrent liabilities
111,298

 
114,277

Total liabilities
1,441,769

 
1,421,619

Commitments and contingencies

 

Shareholders’ equity
 
 
 
Preferred stock:
 
 
 
Authorized: 5,000,000 shares, $.01 per share par value; Issued: None
—

 
—

Common stock:
 
 
 
Authorized: 150,000,000 shares, $.01 per share par value
 
 
 
Issued: 90,121,275 shares at September 30, 2015 and 89,761,305 shares at December 31, 2014
901

 
898

Additional paid-in capital
674,290

 
647,553

Retained earnings
1,624,759

 
1,483,821

Treasury stock at cost: 13,297,996 shares at September 30, 2015 and 10,995,361 shares at December 31, 2014
(730,312
)
 
(553,543
)
Accumulated other comprehensive income (loss)
(141,045
)
 
(92,278
)
Total shareholders’ equity
1,428,593

 
1,486,451

Total liabilities and shareholders’ equity
$
2,870,362

 
$
2,908,070

See Notes to Condensed Consolidated Financial Statements

1
Table of Contents


IDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
503,791

 
$
533,179

 
$
1,520,870

 
$
1,623,868

Cost of sales
280,531

 
298,533

 
839,954

 
903,670

Gross profit
223,260

 
234,646

 
680,916

 
720,198

Selling, general and administrative expenses
114,794

 
123,799

 
360,784

 
383,428

Gain on sale of business
(18,070
)
 
—

 
(18,070
)
 
—

Restructuring expenses
4,723

 
—

 
4,723

 
—

Operating income
121,813

 
110,847

 
333,479

 
336,770

Other (income) expense — net
(693
)
 
(944
)
 
(1,589
)
 
(1,651
)
Interest expense
10,229

 
10,461

 
31,410

 
31,323

Income before income taxes
112,277

 
101,330

 
303,658

 
307,098

Provision for income taxes
32,772

 
29,889

 
88,614

 
89,332

Net income
$
79,505

 
$
71,441

 
$
215,044

 
$
217,766

 
 
 
 
 
 
 
 
Basic earnings per common share
$
1.03

 
$
0.89

 
$
2.77

 
$
2.70

Diluted earnings per common share
$
1.02

 
$
0.88

 
$
2.75

 
$
2.68

 
 
 
 
 
 
 
 
Share data:
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
76,831

 
79,558

 
77,431

 
80,064

Diluted weighted average common shares outstanding
77,646

 
80,561

 
78,266

 
81,093

See Notes to Condensed Consolidated Financial Statements

2
Table of Contents


IDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
79,505

 
$
71,441

 
$
215,044

 
$
217,766

Other comprehensive income (loss)
 
 
 
 
 
 
 
Reclassification adjustments for derivatives, net of tax
1,114

 
1,141

 
3,370

 
3,453

Pension and other postretirement adjustments, net of tax
818

 
1,614

 
2,418

 
2,570

Foreign currency translation adjustments
 
 
 
 
 
 
 
Cumulative translation adjustment
(16,936
)
 
(55,688
)
 
(49,830
)
 
(41,530
)
Reclassification of foreign currency translation to earnings upon sale of subsidiaries
(4,725
)
 
—

 
(4,725
)
 
—

Other comprehensive income (loss)
(19,729
)
 
(52,933
)
 
(48,767
)
 
(35,507
)
Comprehensive income
$
59,776

 
$
18,508

 
$
166,277

 
$
182,259

See Notes to Condensed Consolidated Financial Statements

3
Table of Contents


IDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands except share amounts)
(unaudited)
 
 
 
 
 
 
Accumulated Other Comprehensive
Income (Loss)
 
 
 
 
 
Common
Stock and
Additional
Paid-In Capital
 
Retained
Earnings
 
Cumulative
Translation
Adjustment
 
Retirement
Benefits
Adjustment
 
Cumulative
Unrealized Gain (Loss) on
Derivatives
 
Treasury
Stock
 
Total
Shareholders’
Equity
Balance, December 31, 2014
$
648,451

 
$
1,483,821

 
$
(24,813
)
 
$
(40,316
)
 
$
(27,149
)
 
$
(553,543
)
 
$
1,486,451

Net income
—

 
215,044

 
—

 
—

 
—

 
—

 
215,044

Cumulative translation adjustment
—

 
—

 
(54,555
)
 
—

 
—

 
—

 
(54,555
)
Pension and other postretirement adjustments (net of tax of $1,187)
—

 
—

 
—

 
2,418

 
—

 
—

 
2,418

Amortization of forward starting swaps (net of tax of $1,917)
—

 
—

 
—

 
—

 
3,370

 
—

 
3,370

Issuance of 557,026 shares of common stock from issuance of unvested shares, exercise of stock options and deferred compensation plans
9,278

 
—

 
—

 
—

 
—

 
5,888

 
15,166

Excess tax benefit from share-based compensation
4,350

 
—

 
—

 
—

 
—

 
—

 
4,350

Repurchase of 2,401,729 shares of common stock
—

 
—

 
—

 
—

 
—

 
(179,440
)
 
(179,440
)
Shares surrendered for tax withholding
—

 
—

 
—

 
—

 
—

 
(3,217
)
 
(3,217
)
Share-based compensation
13,112

 
—

 
—

 
—

 
—

 
—

 
13,112

Cash dividends declared - $0.96 per common share
 
 
(74,106
)
 
 
 
 
 
 
 
 
 
(74,106
)
Balance, September 30, 2015
$
675,191

 
$
1,624,759

 
$
(79,368
)
 
$
(37,898
)
 
$
(23,779
)
 
$
(730,312
)
 
$
1,428,593

See Notes to Condensed Consolidated Financial Statements

4
Table of Contents


IDEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities
 
 
 
Net income
$
215,044

 
$
217,766

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Gain on sale of business
(18,070
)
 
—

Depreciation and amortization
26,634

 
25,330

Amortization of intangible assets
31,340

 
32,952

Amortization of debt issuance costs
1,233

 
1,290

Share-based compensation expense
14,735

 
16,445

Deferred income taxes
1,473

 
(5,170
)
Excess tax benefit from share-based compensation
(4,350
)
 
(5,360
)
Non-cash interest expense associated with forward starting swaps
5,287

 
5,432

Changes in (net of effect from acquisitions):
 
 
 
Receivables
(1,417
)
 
(21,394
)
Inventories
(6,474
)
 
(17,888
)
Other current assets
(2,742
)
 
(2,570
)
Trade accounts payable
(4,002
)
 
2,188

Accrued expenses
2,067

 
19,069

Other — net
1,023

 
(1,507
)
Net cash flows provided by operating activities
261,781

 
266,583

Cash flows from investing activities
 
 
 
Additions of property, plant and equipment
(32,611
)
 
(33,820
)
Acquisition of businesses, net of cash acquired
(193,163
)
 
(25,442
)
Proceeds from sale of business
27,677

 
—

Other — net
647

 
(52
)
Net cash flows used in investing activities
(197,450
)
 
(59,314
)
Cash flows from financing activities
 
 
 
Borrowings under revolving facilities
383,621

 
105,014

Payments under revolving facilities
(295,934
)
 
(46,780
)
Payment of 2.58% Senior Euro Notes
(88,420
)
 
—

Debt issuance costs
(1,698
)
 
—

Dividends paid
(71,673
)
 
(63,525
)
Proceeds from stock option exercises
15,167

 
13,787

Excess tax benefit from share-based compensation
4,350

 
5,360

Purchase of common stock
(177,772
)
 
(146,042
)
Unvested shares surrendered for tax withholding
(3,217
)
 
(4,903
)
Net cash flows used in financing activities
(235,576
)
 
(137,089
)
Effect of exchange rate changes on cash and cash equivalents
(31,410
)
 
(22,743
)
Net increase (decrease) in cash
(202,655
)
 
47,437

Cash and cash equivalents at beginning of year
509,137

 
439,629

Cash and cash equivalents at end of period
$
306,482

 
$
487,066

 
 
 
 
Supplemental cash flow information
 
 
 
Cash paid for:
 
 
 
Interest
$
18,069

 
$
16,525

Income taxes
70,217

 
91,625

Significant non-cash activities:
 
 
 
Contingent consideration for acquisition
4,705

 
—

See Notes to Condensed Consolidated Financial Statements

5
Table of Contents


IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

1.    Basis of Presentation and Significant Accounting Policies
The Condensed Consolidated Financial Statements of IDEX Corporation (“IDEX” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The statements are unaudited but include all adjustments, consisting only of recurring items, except as noted, that the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the entire year.
The Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Recently Adopted Accounting Standards
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, which includes amendments that change the requirements for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations with a major effect on the organization’s operations and financial results should be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about disposal transactions that do not meet the discontinued operations criteria. The Company adopted the standard effective January 1, 2015.
Recently Issued Accounting Standards
In May 2014, FASB ASU 2014-09 was issued, which introduces a new five-step revenue recognition model. Under ASU 2014-09, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard was initially released as effective for fiscal years beginning after December 15, 2016; however, in July 2015 the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. The new guidelines can be implemented using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements and has not yet determined the method by which we will adopt the standard.
In April 2015, the FASB issued ASU 2015-03 which simplifies the presentation of debt issuance costs. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This standard is effective for fiscal years beginning after December 15, 2015. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements and does not expect it to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.  

2.    Acquisitions and Dispositions
All of the Company’s acquisitions have been accounted for under Accounting Standards Codification (“ASC”) 805, Business Combinations. Accordingly, the accounts of the acquired companies, after adjustments to reflect fair values assigned to assets and liabilities, have been included in the Company’s consolidated financial statements from their respective dates of acquisition.
The Company incurred $0.9 million of acquisition-related transaction costs in the three months ended September 30, 2015, resulting in a total of $2.1 million of acquisition-related transaction costs year to date. These costs were recorded in selling, general and administrative expense and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. During the three and nine months ended September 30, 2015, the Company recorded within cost of sales $2.7 million and $3.4 million, respectively, of fair value inventory charges associated with the completed acquisitions.

6
Table of Contents

IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



2015 Acquisitions
On May 29, 2015, the Company acquired the stock of Novotema, SpA (“Novotema”), a leader in the design, manufacture and sale of specialty sealing solutions for use in the building products, gas control, transportation, industrial and water markets. The business was acquired to complement and create synergies with our existing sealing group. Located in Villongo, Italy, Novotema has annual revenues of approximately $33 million and will operate in our Health & Science Technologies segment. Novotema was acquired for cash consideration of $61.1 million (€56 million). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $33.9 million and $20.0 million, respectively. The $33.9 million of goodwill is not deductible for tax purposes.
On June 10, 2015, the Company acquired the stock of Alfa Valvole, S.r.l (“Alfa”), a leader in the design, manufacture and sale of specialty valve products for use in the chemical, petro-chemical, energy and sanitary markets. The business was acquired to expand our valve capabilities. Located in Casorezzo, Italy, Alfa has annual revenues of approximately $33 million and will operate in our Fluid & Metering Technologies segment. Alfa was acquired for cash consideration of $112.6 million (€99.8 million). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $68.0 million and $32.1 million, respectively. The $68.0 million of goodwill is not deductible for tax purposes.
On July 1, 2015, the Company acquired the membership interests of CiDRA Precision Services, LLC (“CPS”), a leader in the design, manufacture and sale of microfluidic components serving the life science, health and industrial markets. The business was acquired to provide a critical building block to our emerging microfluidic and nanofludics capabilities. Located in Wallingford, Connecticut, CPS has annual revenues of approximately $9 million and will operate within our Health & Sciences Technologies segment. CPS was acquired for an aggregate purchase price of $24.2 million, consisting of $19.5 million in cash and contingent consideration valued at $4.7 million as of the opening balance sheet date. The contingent consideration is based on the achievement of financial objectives during the 12-month period following the close. Based on potential outcomes, the undiscounted amount of all the future payments that the Company could be required to make under the contingent consideration arrangement is between $0 and $5.5 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $9.8 million and $12.3 million, respectively. The $9.8 million of goodwill is deductible for tax purposes.
The Company made an initial allocation of the purchase price for the Novotema, Alfa, and CPS acquisitions as of the date of acquisition based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company obtains additional information about these assets and liabilities, including tangible and intangible asset appraisals, and learns more about the newly acquired businesses, we will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate the valuation of inventory and accounts receivable associated with the Alfa acquisition and is in the process of finalizing purchase price allocations for the Novotema, Alfa, and CPS acquisitions. The Company will make appropriate adjustments to the purchase price allocations prior to the completion of the measurement period, as required.
The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values, is as follows:
 
Novotema
 
Alfa
 
CPS
 
Total
 
 
 
 
 
 
 
 
Current assets, net of cash acquired
$
11,445

 
$
26,181

 
$
1,494

 
$
39,120

Property, plant and equipment
11,844

 
8,395

 
1,042

 
21,281

Goodwill
33,934

 
67,970

 
9,826

 
111,730

Intangible assets
20,011

 
32,058

 
12,290

 
64,359

Other noncurrent assets
1,226

 
470

 
140

 
1,836

Total assets acquired
78,460

 
135,074

 
24,792

 
238,326

Current liabilities
(7,493
)
 
(9,080
)
 
(613
)
 
(17,186
)
Deferred tax liability
(7,579
)
 
(11,828
)
 
—

 
(19,407
)
Other noncurrent liabilities
(2,290
)
 
(1,575
)
 
—

 
(3,865
)
Net assets acquired
$
61,098

 
$
112,591

 
$
24,179

 
$
197,868


7
Table of Contents

IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisitions reflect the strategic fit, revenue and earnings growth potential of these businesses.
The acquired intangible assets and weighted average amortization periods are as follows:
 
Total
 
Weighted Average Life
Trade names
$
9,246

 
15
Customer relationships
44,402

 
12
Unpatented technology
10,711

 
8
Acquired intangible assets
$
64,359

 
 
2014 Acquisitions
On April 28, 2014, the Company acquired the stock of Aegis Flow Technologies (“Aegis”), a leader in the design, manufacture and sale of specialty chemical processing valves for use in the chemical, petro-chemical, chlor-alkali, pharmaceutical, semiconductor and pulp/paper industries. Located in Geismar, Louisiana, Aegis operates in our Fluid & Metering Technologies segment. Aegis was acquired for cash consideration of $25.0 million. The entire purchase price was funded with borrowings under the Company’s revolving credit facility. Goodwill and intangible assets recognized as part of this transaction were $7.7 million and $8.8 million, respectively. The $7.7 million of goodwill is deductible for tax purposes.
2015 Dispositions
The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives and focus on core business and customers. On July 31, 2015, the Company entered into a definitive agreement to sell its Ismatec product line to Cole-Palmer Instruments Company for $27.7 million in cash, resulting in a pre-tax gain on the sale of $18.1 million. The Company recorded $4.8 million of income tax expense associated with this transaction during the three months ended September 30, 2015. The results of Ismatec were reported within the Health & Science Technologies segment through the date of sale.

3.    Business Segments
The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the water and wastewater industries. The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, semiconductor, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.
Information on the Company’s business segments is presented below, based on the nature of products and services offered. The Company evaluates performance based on several factors, of which operating income is the primary financial measure. Intersegment sales are accounted for at fair value as if the sales were to third parties.
 

8
Table of Contents

IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net sales
 
 
 
 
 
 
 
Fluid & Metering Technologies
 
 
 
 
 
 
 
External customers
$
211,971

 
$
223,018

 
$
644,886

 
$
671,891

Intersegment sales
130

 
240

 
756

 
828

Total group sales
212,101

 
223,258

 
645,642

 
672,719

Health & Science Technologies
 
 
 
 
 
 
 
External customers
184,816

 
189,975

 
550,612

 
558,716

Intersegment sales
77

 
877

 
1,806

 
4,183

Total group sales
184,893

 
190,852

 
552,418

 
562,899

Fire & Safety/Diversified Products
 
 
 
 
 
 
 
External customers
107,004

 
120,186

 
325,372

 
393,261

Intersegment sales
5

 
127

 
200

 
518

Total group sales
107,009

 
120,313

 
325,572

 
393,779

Intersegment elimination
(212
)
 
(1,244
)
 
(2,762
)
 
(5,529
)
Total net sales
$
503,791

 
$
533,179

 
$
1,520,870

 
$
1,623,868

Operating income
 
 
 
 
 
 
 
Fluid & Metering Technologies
$
46,910

 
$
54,791

 
$
154,665

 
$
166,821

Health & Science Technologies
38,371

 
42,214

 
117,888

 
114,580

Fire & Safety/Diversified Products
32,536

 
31,355

 
91,180

 
106,988

Corporate office income (expense) and other (1)
3,996

 
(17,513
)
 
(30,254
)
 
(51,619
)
Total operating income
121,813

 
110,847

 
333,479

 
336,770

Interest expense
10,229

 
10,461

 
31,410

 
31,323

Other (income) expense - net
(693
)
 
(944
)
 
(1,589
)
 
(1,651
)
Income before income taxes
$
112,277

 
$
101,330

 
$
303,658

 
$
307,098

 
 
 
 
 
 
 
 
(1) 2015 includes an $18.1 million gain on the sale of business.

 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Fluid & Metering Technologies
$
1,154,614

 
$
1,026,238

Health & Science Technologies
1,119,185

 
1,101,155

Fire & Safety/Diversified Products
453,554

 
510,841

Corporate office
143,009

 
269,836

Total assets
$
2,870,362

 
$
2,908,070



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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



4.    Earnings Per Common Share
Earnings per common share (“EPS”) are computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents outstanding (diluted) during the period. Common stock equivalents consist of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method, unvested shares, performance share units, and shares issuable in connection with certain deferred compensation agreements (“DCUs”).
ASC 260 “Earnings Per Share” provides that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. If awards are considered participating securities, the Company is required to apply the two-class method of computing basic and diluted earnings per share. The Company has determined that its outstanding unvested shares are participating securities. Accordingly, earnings per common share are computed using the more dilutive of the treasury stock method and the two-class method prescribed by ASC 260. For purposes of calculating diluted EPS, net income attributable to common shareholders was reduced by $0.2 million and $0.5 million for the three months ended September 30, 2015 and 2014, respectively; and $0.6 million and $1.2 million for the nine months ended September 30, 2015 and 2014, respectively.
Basic weighted average shares reconciles to diluted weighted average shares as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Basic weighted average common shares outstanding
76,831

 
79,558

 
77,431

 
80,064

Dilutive effect of stock options, unvested shares, performance share units and DCUs
815

 
1,003

 
835

 
1,029

Diluted weighted average common shares outstanding
77,646

 
80,561

 
78,266

 
81,093

Options to purchase approximately 0.9 million and 0.5 million shares of common stock for both the three and the nine months ended September 30, 2015 and 2014, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would be antidilutive.

5.    Inventories
The components of inventories as of September 30, 2015 and December 31, 2014 were:
 
 
September 30,
2015
 
December 31,
2014
Raw materials and component parts
$
147,529

 
$
137,584

Work in process
43,783

 
37,178

Finished goods
61,206

 
62,869

Total
$
252,518

 
$
237,631

Inventories are stated at the lower of cost or market. Cost, which includes material, labor, and factory overhead, is determined on a FIFO basis.


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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



6.    Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2015, by reportable business segment, were as follows:
 
 
Fluid &
Metering
Technologies
 
Health &
Science
Technologies
 
Fire & Safety/
Diversified
Products
 
Total
Balance at December 31, 2014
$
524,149

 
$
563,465

 
$
233,663

 
$
1,321,277

Foreign currency translation
(6,914
)
 
(6,517
)
 
(9,178
)
 
(22,609
)
Acquisitions
67,970

 
43,760

 
—

 
111,730

Disposition of business (1)
—

 
(10,213
)
 
—

 
(10,213
)
Balance at September 30, 2015
$
585,205

 
$
590,495

 
$
224,485

 
$
1,400,185

 
 
 
 
 
 
 
 
(1) Amount reflects goodwill allocated to Ismatec upon its disposition, based on the fair value of this business relative to the remaining entities within the Scientific Fluidics reporting unit.
ASC 350 “Goodwill and Other Intangible Assets” requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Annually on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. The Company did not consider there to be any triggering event that would require an interim impairment assessment, therefore none of the goodwill or other acquired intangible assets with indefinite lives were tested for impairment during the nine months ended September 30, 2015. Based on the results of our annual impairment test at October 31, 2014, all reporting units had a fair value that was more than 100% greater than the carrying value, except for our IDEX Optics and Photonics (“IOP”) reporting unit, which had a fair value approximately 15% greater than the carrying value.

     The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at September 30, 2015 and December 31, 2014:
 
 
At September 30, 2015
 
 
 
At December 31, 2014
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Patents
$
10,117

 
$
(5,941
)
 
$
4,176

 
11
 
$
10,016

 
$
(5,313
)
 
$
4,703

Trade names
111,537

 
(37,168
)
 
74,369

 
16
 
104,118

 
(32,881
)
 
71,237

Customer relationships
258,883

 
(138,145
)
 
120,738

 
11
 
222,486

 
(126,193
)
 
96,293

Non-compete agreements
813

 
(775
)
 
38

 
3
 
840

 
(636
)
 
204

Unpatented technology
78,613

 
(40,249
)
 
38,364

 
10
 
69,760

 
(35,165
)
 
34,595

Other
6,557

 
(5,420
)
 
1,137

 
10
 
7,034

 
(5,002
)
 
2,032

Total amortized intangible assets
466,520

 
(227,698
)
 
238,822

 
 
 
414,254

 
(205,190
)
 
209,064

Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Banjo trade name
62,100

 
—

 
62,100

 
 
 
62,100

 
—

 
62,100

Total intangible assets
$
528,620

 
$
(227,698
)
 
$
300,922

 
 
 
$
476,354

 
$
(205,190
)
 
$
271,164

The unamortized Banjo trade name is an indefinite lived intangible asset which is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired.


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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



7.    Accrued Expenses
The components of accrued expenses as of September 30, 2015 and December 31, 2014 were:
 
 
September 30,
2015
 
December 31,
2014
Payroll and related items
$
61,348

 
$
64,124

Management incentive compensation
9,627

 
21,567

Income taxes payable
18,671

 
9,305

Insurance
9,454

 
10,058

Warranty
7,164

 
7,196

Deferred revenue
9,696

 
11,813

Restructuring
3,544

 
6,056

Liability for uncertain tax positions
2,197

 
2,084

Accrued interest
8,559

 
1,738

Contingent consideration for acquisition
4,705

 
—

Other
34,942

 
29,468

Total accrued expenses
$
169,907

 
$
163,409


8.    Other Noncurrent Liabilities
The components of other noncurrent liabilities as of September 30, 2015 and December 31, 2014 were:
 
 
September 30,
2015
 
December 31,
2014
Pension and retiree medical obligations
$
85,289

 
$
90,584

Liability for uncertain tax positions
4,014

 
2,471

Deferred revenue
3,486

 
4,612

Other
18,509

 
16,610

Total other noncurrent liabilities
$
111,298

 
$
114,277


9.    Borrowings
Borrowings at September 30, 2015 and December 31, 2014 consisted of the following:
 
 
September 30,
2015
 
December 31,
2014
Revolving Facility
$
203,000

 
$
115,000

2.58% Senior Euro Notes, due June 2015
—

 
98,456

4.5% Senior Notes, due December 2020
299,089

 
298,975

4.2% Senior Notes, due December 2021
349,412

 
349,351

Other borrowings
1,750

 
2,170

Total borrowings
853,251

 
863,952

Less current portion
471

 
98,946

Total long-term borrowings
$
852,780

 
$
765,006

On June 23, 2015, the Company entered into a credit agreement (the “Credit Agreement”) along with certain of its subsidiaries, as borrowers (the “Borrowers”), Bank of America, N.A., as administrative agent, swing line lender and an issuer of letters of credit,

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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



with other agents party thereto. The Credit Agreement replaces the Company’s existing five-year, $700 million credit agreement, dated as of June 27, 2011, which was due to expire on June 27, 2016.
The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $700 million with a final maturity date of June 23, 2020. The maturity date may be extended under certain conditions for an additional one-year term. Up to $75 million of the Revolving Facility is available for the issuance of letters of credit. Additionally, up to $50 million of the Revolving Facility is available to the Company for swing line loans, available on a same-day basis.
Proceeds of the Revolving Facility are available for use by the Borrowers for working capital and other general corporate
purposes, including refinancing existing debt of the Company and its subsidiaries. The Company may request increases in the
lending commitments under the Credit Agreement, but the aggregate lending commitments pursuant to such increases may not
exceed $350 million. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate
certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation,
the Company is required to guarantee the obligations of any such subsidiaries.
Borrowings under the Credit Agreement bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .91% to 1.50%. Based on the Company’s credit rating at September 30, 2015, the applicable margin was 1.10%. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months.
The Credit Agreement requires payment to the lenders of a facility fee based upon (a) the amount of the lenders’ commitments under the credit facility from time to time and (b) the applicable corporate credit ratings of the Company. Voluntary prepayments of any loans and voluntary reductions of the unutilized portion of the commitments under the credit facility are permissible without penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.
The Credit Agreement contains affirmative and negative covenants that the Company believes are usual and customary for
senior unsecured credit agreements, including a financial covenant requiring the maintenance of a 3.50 to 1.0 or lower leverage
ratio, which is the ratio of the Company’s consolidated total debt to its consolidated EBITDA, each as defined in the Credit
Agreement.
The negative covenants include, among other things, limitations (each of which is subject to customary exceptions for
financings of this type) on our ability to grant liens; enter into transactions resulting in fundamental changes (such as mergers or sales of all or substantially all of the assets of the Company); restrict subsidiary dividends or other subsidiary distributions; enter into transactions with the Company’s affiliates; and incur certain additional subsidiary debt.
The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate) including among others: nonpayment of principal, interest or fees; breach of the representations or warranties in any material respect; breach of the financial, affirmative or negative covenants; payment default on, or acceleration of, other material indebtedness; bankruptcy or insolvency; material judgments entered against the Company or any of its subsidiaries; certain specified events under the Employee Retirement Income Security Act of 1974, as amended; certain changes in control of the Company; and the invalidity or unenforceability of the Credit Agreement or other documents associated with the Credit Agreement.
At September 30, 2015, $203.0 million was outstanding under the Revolving Facility, with $7.3 million of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at September 30, 2015 of approximately $489.7 million.
Other borrowings of $1.8 million at September 30, 2015 consisted primarily of debt at international locations maintained for working capital purposes. Interest is payable on the outstanding debt balances at rates ranging from 0.2% to 1.1% per annum.
During the three months ended June 30, 2015, the Company paid the balance of the 2.58% Senior Euro Notes, upon its maturity, using cash on hand.
There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility, which requires a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At September 30, 2015, the Company was in compliance with both of these financial covenants. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes; however, both are subject to cross-default provisions.


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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



10.    Derivative Instruments
The Company enters into cash flow hedges from time to time to reduce the exposure to variability in certain expected future cash flows. The type of cash flow hedges the Company enters into includes foreign currency contracts and interest rate exchange agreements that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.
The effective portion of gains or losses on interest rate exchange agreements is reported in accumulated other comprehensive income (loss) in shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. See Note 13 for the amount of loss reclassified into income for interest rate contracts for the nine months ended September 30, 2015 and 2014. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized into net income during the period of change.
 
Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date. As of September 30, 2015, the Company did not have any interest rate contracts outstanding.
In 2010 and 2011, the Company entered into two separate forward starting interest rate contracts in anticipation of the issuance of the 4.2% Senior Notes and the 4.5% Senior Notes. The Company cash settled these two interest rate contracts in 2010 and 2011 for a total of $68.9 million, which is being amortized into interest expense over the 10 year term of the debt instruments. Approximately $6.9 million of the pre-tax amount included in accumulated other comprehensive income (loss) in shareholders’ equity at September 30, 2015 will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.

11.    Fair Value Measurements
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
•
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the basis used to measure the Company’s financial assets at fair value on a recurring basis in the balance sheet at September 30, 2015 and December 31, 2014:
 
 
Basis of Fair Value Measurements
 
Balance at 
 September 30, 2015
 
Level 1
 
Level 2
 
Level 3
Money market investment
$
21,145

 
$
21,145

 
$
—

 
$
—

Available for sale securities
5,001

 
5,001

 
—

 
—

Contingent consideration
(4,705
)
 
—

 
—

 
(4,705
)
 
 
Basis of Fair Value Measurements
 
Balance at 
 December 31, 2014
 
Level 1
 
Level 2
 
Level 3
Money market investment
$
21,094

 
$
21,094

 
$
—

 
$
—

Available for sale securities
4,513

 
4,513

 
—

 
—

There were no transfers of assets or liabilities between Level 1 and Level 2 during the quarter ended September 30, 2015 or the year ended December 31, 2014.

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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



In determining the fair value of the contingent consideration potentially due on the acquisition of CPS, the Company used probability weighted estimates of EBITDA during the earn-out period. The $4.7 million represents management’s best estimate of the liability, based on a range of outcomes of CPS’s 12 month operating results, from July 1, 2015 to June 30, 2016, and is expected to be paid during the second half of 2016. At September 30, 2015, the $4.7 million of contingent consideration is included in Accrued expenses in the Consolidated Balance Sheet.
The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair values because of the short term nature of these instruments. At September 30, 2015, the fair value of the outstanding indebtedness under our Revolving Facility, 4.5% Senior Notes and 4.2% Senior Notes, based on quoted market prices and current market rates for debt with similar credit risk and maturity, was approximately $869.7 million compared to the carrying value of $851.5 million. This fair value measurement is classified as Level 2 within the fair value hierarchy since it is determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to ours.

12.    Restructuring
During the the fourth quarter of 2014 and the third quarter of 2015, the Company recorded restructuring costs as a part of restructuring initiatives that support the implementation of key strategic efforts designed to facilitate long-term, sustainable, growth through cost reduction actions, primarily consisting of employee reductions and facility rationalization. The costs incurred related to these initiatives were included in Restructuring expenses in the Consolidated Statements of Operations while the related accruals were included in Accrued expenses in the Consolidated Balance Sheets. Severance costs primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consisted of asset disposals or impairments and lease exit costs.
During the three and nine months ended September 30, 2015, the Company recorded $4.7 million of pre-tax restructuring expenses related to its 2015 restructuring initiative, which included severance benefits for 90 employees. The restructuring expense associated with these actions is not expected to exceed $10 million and will be completed by the end of the year.
Pre-tax restructuring expenses, by segment, for the three and nine months ended September 30, 2015 were as follows:
 
Severance
Costs
 
Exit Costs
 
Total
 
 
Fluid & Metering Technologies
$
2,505

 
$
—

 
$
2,505

Health & Science Technologies
1,774

 
—

 
1,774

Fire & Safety/Diversified Products
279

 
—

 
279

Corporate/Other
165

 
—

 
165

Total restructuring costs
$
4,723

 
$
—

 
$
4,723

Restructuring accruals of $3.5 million and $6.1 million at September 30, 2015 and December 31, 2014, respectively, are recorded in Accrued expenses in the Consolidated Balance Sheets. Severance benefits are expected to be paid by the end of 2016 using cash from operations. The changes in the restructuring accrual for the nine months ended September 30, 2015 are as follows:
Balance at January 1, 2015
 
$
6,056

Restructuring expenses
 
4,723

Payments, utilization and other
 
(7,235
)
Balance at September 30, 2015
 
$
3,544

    

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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



13.    Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
 September 30, 2015
 
Three Months Ended 
 September 30, 2014
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Cumulative translation adjustment
$
(21,661
)
 
$
—

 
$
(21,661
)
 
$
(55,688
)
 
$
—

 
$
(55,688
)
Pension and other postretirement adjustments
1,215

 
(397
)
 
818

 
1,927

 
(313
)
 
1,614

Reclassification adjustments for derivatives
1,748

 
(634
)
 
1,114

 
1,795

 
(654
)
 
1,141

Total other comprehensive income (loss)
$
(18,698
)
 
$
(1,031
)
 
$
(19,729
)
 
$
(51,966
)
 
$
(967
)
 
$
(52,933
)
 
Nine Months Ended 
 September 30, 2015
 
Nine Months Ended 
 September 30, 2014
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Cumulative translation adjustment
$
(54,555
)
 
$
—

 
$
(54,555
)
 
$
(41,530
)
 
$
—

 
$
(41,530
)
Pension and other postretirement adjustments
3,605

 
(1,187
)
 
2,418

 
3,404

 
(834
)
 
2,570

Reclassification adjustments for derivatives
5,287

 
(1,917
)
 
3,370

 
5,432

 
(1,979
)
 
3,453

Total other comprehensive income (loss)
$
(45,663
)
 
$
(3,104
)
 
$
(48,767
)
 
$
(32,694
)
 
$
(2,813
)
 
$
(35,507
)

The following table summarizes the amounts reclassified from accumulated other comprehensive income to net income during the three and nine months ended September 30, 2015 and 2014:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
 
2015
 
2014
 
2015
 
2014
 
Income Statement Caption
Pension and other postretirement plans
 
 
 
 
 
 
 
 
 
Amortization of service cost
$
1,215

 
$
1,927

 
$
3,605

 
$
3,404

 
Selling, general and administrative expense
Total before tax
1,215

 
1,927

 
3,605

 
3,404

 
 
Provision for income taxes
(397
)
 
(313
)
 
(1,187
)
 
(834
)
 
 
Total net of tax
$
818

 
$
1,614

 
$
2,418

 
$
2,570

 
 
Derivatives
 
 
 
 
 
 
 
 
 
Reclassification adjustments
$
1,748

 
$
1,795

 
$
5,287

 
$
5,432

 
Interest expense
Total before tax
1,748

 
1,795

 
5,287

 
5,432

 
 
Provision for income taxes
(634
)
 
(654
)
 
(1,917
)
 
(1,979
)
 
 
Total net of tax
$
1,114

 
$
1,141

 
$
3,370

 
$
3,453

 
 

14.    Common and Preferred Stock
On November 6, 2014, the Company’s Board of Directors approved a $400.0 million increase in the authorized level for repurchases of common stock. Repurchases will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the nine months ended September 30, 2015, the Company purchased a total of 2.4 million shares at a cost of $179.4 million, of which $4.3 million was settled in October 2015. During the nine months ended September 30, 2014, the Company purchased 2.0 million shares at a cost of $149.7 million, of which $3.7 million was settled in October 2014. As of September 30, 2015, the amount of share repurchase authorization remaining is $366.0 million.
At September 30, 2015 and December 31, 2014, the Company had 150 million shares of authorized common stock, with a par value of $.01 per share, and 5 million shares of authorized preferred stock, with a par value of $.01 per share. No preferred stock was outstanding at September 30, 2015 or December 31, 2014.


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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



15.    Share-Based Compensation
During the nine months ended September 30, 2015, the Company granted approximately 0.5 million stock options, 0.1 million unvested shares and 0.1 million performance share units. During the nine months ended September 30, 2014, the Company granted approximately 0.5 million stock options, 0.1 million unvested shares and 0.1 million performance share units.
Weighted average option fair values and assumptions for the periods specified are disclosed below. The fair value of each option grant was estimated on the date of the grant using the Binomial lattice option pricing model.
 
 
 
 
 
 
 
Three Months Ended 
 September 30,
 
 
2015
 
2014
Weighted average fair value of option grants
 
$19.98
 
$20.34
Dividend yield
 
1.65%
 
1.44%
Volatility
 
29.64%
 
30.24%
Risk-free forward interest rate
 
0.29%-3.37%
 
0.12%-3.67%
Expected life (in years)
 
6.16
 
5.87
 
 
 
 
 
 
 
Nine Months Ended 
 September 30,
 
 
2015
 
2014
Weighted average fair value of option grants
 
$20.34
 
$19.54
Dividend yield
 
1.44%
 
1.26%
Volatility
 
29.91%
 
30.36%
Risk-free forward interest rate
 
0.24%-2.82%
 
0.12% - 4.66%
Expected life (in years)
 
5.93
 
5.89

Weighted average performance share unit fair values and assumptions for the period specified are disclosed below. The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model.
 
 
Three and Nine Months Ended September 30,
 
 
2015
 
2014
Weighted average fair value of performance share units
 
$95.07
 
$94.55
Dividend yield
 
0.00%
 
0.00%
Volatility
 
19.14%
 
26.41%
Risk-free forward interest rate
 
1.01%
 
0.65%
Expected life (in years)
 
2.86
 
2.88
Total compensation cost for stock options is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Cost of goods sold
$
91

 
$
126

 
$
441

 
$
501

Selling, general and administrative expenses
1,297

 
1,411

 
4,987

 
5,026

Total expense before income taxes
1,388

 
1,537

 
5,428

 
5,527

Income tax benefit
(440
)
 
(492
)
 
(1,709
)
 
(1,743
)
Total expense after income taxes
$
948

 
$
1,045

 
$
3,719

 
$
3,784

 

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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



Total compensation cost for unvested shares is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Cost of goods sold
$
38

 
$
259

 
$
778

 
$
1,424

Selling, general and administrative expenses
613

 
1,843

 
5,051

 
7,167

Total expense before income taxes
651

 
2,102

 
5,829

 
8,591

Income tax benefit
(212
)
 
(447
)
 
(1,490
)
 
(1,778
)
Total expense after income taxes
$
439

 
$
1,655

 
$
4,339

 
$
6,813

Total compensation cost for performance share units is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Cost of goods sold
$
—

 
$
—

 
$
—

 
$
—

Selling, general and administrative expenses
953

 
843

 
3,478

 
2,327

Total expense before income taxes
953

 
843

 
3,478

 
2,327

Income tax benefit
(323
)
 
(294
)
 
(1,161
)
 
(768
)
Total expense after income taxes
$
630

 
$
549

 
$
2,317

 
$
1,559

The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.
As of September 30, 2015, there was $11.7 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.5 years, $9.9 million of total unrecognized compensation cost related to unvested shares that is expected to be recognized over a weighted-average period of 1.1 years, and $6.8 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.0 years.
A summary of the Company’s stock option activity as of September 30, 2015, and changes during the nine months ended September 30, 2015, is presented in the following table:
 
Stock Options
Shares
 
Weighted
Average
Price
 
Weighted-Average
Remaining
Contractual Term
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2015
2,378,559

 
$
46.91

 
6.69
 
$
73,561,785

Granted
514,780

 
78.27

 
 
 
 
Exercised
(377,056
)
 
39.98

 
 
 
 
Forfeited
(158,235
)
 
65.74

 
 
 
 
Outstanding at September 30, 2015
2,358,048

 
$
53.60

 
6.75
 
$
45,576,807

Vested and expected to vest as of September 30, 2015
2,242,169

 
$
52.62

 
6.64
 
$
45,214,008

Exercisable at September 30, 2015
1,285,586

 
$
41.73

 
5.33
 
$
38,206,259



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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)



16.    Retirement Benefits
The Company sponsors several qualified and nonqualified defined benefit and defined contribution pension plans and other postretirement plans for its employees. The following tables provide the components of net periodic benefit cost for its major defined benefit plans and its other postretirement plans.
 
 
 
 
 
 
 
 
 
Pension Benefits
 
Three Months Ended September 30,
 
2015
 
2014
 
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
Service cost
$
214

 
$
377

 
$
227

 
$
377

Interest cost
956

 
437

 
896

 
593

Expected return on plan assets
(1,186
)
 
(282
)
 
(1,219
)
 
(329
)
Net amortization
906

 
405

 
590

 
394

Net periodic benefit cost
$
890

 
$
937

 
$
494

 
$
1,035

 
Pension Benefits
 
Nine Months Ended September 30,
 
2015
 
2014
 
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
Service cost
$
965

 
$
1,134

 
$
872

 
$
1,143

Interest cost
2,831

 
1,305

 
3,002

 
1,797

Expected return on plan assets
(3,682
)
 
(838
)
 
(4,035
)
 
(986
)
Net amortization
2,585

 
1,334

 
1,964

 
833

Net periodic benefit cost
$
2,699

 
$
2,935

 
$
1,803

 
$
2,787

 
 
Other Postretirement Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
168

 
$
178

 
$
506

 
$
535

Interest cost
208

 
233

 
626

 
699

Net amortization
(95
)
 
(118
)
 
(314
)
 
(355
)
Net periodic benefit cost
$
281

 
$
293

 
$
818

 
$
879

The Company previously disclosed in its financial statements for the year ended December 31, 2014, that it expected to contribute approximately $1.6 million to its defined benefit plans and $0.5 million to its other postretirement benefit plans in 2015. The amount previously disclosed was based upon the Company’s minimum required contributions. During the first nine months of 2015, the Company made incremental discretionary contributions to its defined benefit plans. As of September 30, 2015, the Company now expects to contribute $6.1 million to its defined benefit plans and $0.7 million to its other postretirement benefit plans in 2015. The Company contributed a total of $5.0 million during the first nine months of 2015 to fund these plans.

17.    Legal Proceedings
The Company is party to various legal proceedings arising in the ordinary course of business, none of which are expected to have a material impact on its financial condition, results of operations or cash flows.



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IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)




18.    Income Taxes
The Company’s provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes increased to $32.8 million in the third quarter of 2015 from $29.9 million in the same period of 2014. The effective tax rate decreased to 29.2% for the third quarter of 2015 compared to 29.5% in the same period of 2014 due to the disposition of the Ismatec product line as well as a mix of global pre-tax income among jurisdictions.

The provision for income taxes decreased to $88.6 million in the nine months ended September 30, 2015 from $89.3 million in the same period of 2014. The effective tax rate increased to 29.2% for the nine months ended September 30, 2015 compared to 29.1% in the same period of 2014 due to the mix of global pre-tax income among jurisdictions. Additionally, the effective tax rate for the comparable period of the prior year was favorably impacted by settlements with taxing authorities primarily related to purchase price adjustments for prior period acquisitions.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $2.2 million.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement Under the Private Securities Litigation Reform Act
This quarterly report on Form 10-Q, including the “Overview and Outlook” and the “Liquidity and Capital Resources” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to, among other things, operating results and are indicated by words or phrases such as “expects,” “anticipates,” “should,” “will,” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those statements. The risks and uncertainties include, but are not limited to, those risks and uncertainties identified under the heading “Risk Factors” in item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, and information contained in subsequent reports filed by IDEX with the Securities and Exchange Commission. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

Overview and Outlook
IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets to a wide range of industries throughout the world. Accordingly, IDEX’s businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where it does business and by the relationship of the U.S. Dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are among the factors that influence the demand for IDEX’s products.
The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products. Within our three reportable segments, the Company maintains fifteen platforms where we will focus on organic growth and strategic acquisitions. Each of our fifteen platforms is also a reporting unit, where we annually test goodwill for impairment.
During the third quarter of 2015, the Company announced the appointment of Eric Ashleman to Chief Operating Officer. While there were no changes to the reportable segments or movement of businesses between the reportable segments, the Company no longer delineates between “platforms” and “groups” and made the following changes to how certain businesses are managed internally:
•
Created the Valve platform as a result of the Alfa Valvole acquisition in June 2015.
•
Eliminated the Diaphragm and Dosing Pump Technology (“DDPT”) platform.
•
Created the Industrial platform from the businesses previously reported within Chemical, Food & Process (Richter, Viking, and Aegis) plus the Warren Rupp and Trebor businesses from DDPT.

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•
Created the Water platform from the businesses previously reported within Water Services & Technology (ADS, IETG, and iPEK) plus the Pulsafeeder and Knight businesses from DDPT.

The Fluid & Metering Technologies segment contains the Energy (comprised of Corken, Faure Herman, Liquid Controls, SAMPI and Toptech), Valves (comprised of Alfa Valvole), Water (comprised of Pulsafeeder, Knight, ADS, IETG, and iPEK), Industrial (comprised of Richter, Viking, Aegis, Warren Rupp, and Trebor), and Agricultural platforms (comprised of Banjo). The Health & Science Technologies segment contains the IDEX Optics & Photonics (comprised of CVI Melles Griot, Semrock, and AT Films), Scientific Fluidics (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch, ERC, and CiDRA Precision Services), Material Processing Technologies (comprised of Quadro, Fitzpatrick, Microfluidics, and Matcon), Sealing Solutions (comprised of PPE, FTL, and Novotema), Micropump, and Gast platforms. The Fire & Safety/Diversified Products segment is comprised of the Dispensing, Rescue, Band-It, and Fire Suppression platforms. 
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water and wastewater, agricultural and energy industries.
The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications.
The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.
Management’s primary measurements of segment performance are sales, operating income, and operating margin. In addition, due to the highly acquisitive nature of the Company, the determination of operating income includes amortization of acquired intangible assets and, as a result, management reviews depreciation and amortization as a percentage of sales. These measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management.
In this report, references to organic sales, a non-GAAP measure, refers to sales from continuing operations calculated according to generally accepted accounting principles in the United States but excludes (1) sales from acquired businesses during the first twelve months of ownership and (2) the impact of foreign currency translation. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions because the nature, size, and number of acquisitions can vary dramatically from period to period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult. In addition, this report references EBITDA. This non-GAAP measure has been reconciled to net income and operating income in Item 2 under the heading “Non-GAAP Disclosures.” Given the acquisitive nature of the Company, management believes that EBITDA provides important information about the performance of the Company’s businesses by, among other matters, eliminating the impact of higher amortization expense at recently acquired businesses.
The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP, and the financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.
Some of our key financial results for the three months ended September 30, 2015 are as follows:
•
Sales of $503.8 million decreased 6%; organic sales — excluding acquisitions and foreign currency translation — were down 4%.

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•
EBITDA of $142.9 million was 28% of sales and covered interest expense by 14 times.
•
Operating income of $121.8 million increased 10%.
•
Net income increased 11% to $79.5 million.
•
Diluted EPS of $1.02 increased 14 cents, or 16%.
Our third quarter 2015 financial results, adjusted for $4.7 million of restructuring costs and an $18.1 million gain on disposition of business, are as follows:
•
Adjusted operating income of $108.5 million decreased 2% while adjusted operating margin of 21.5% was up 70 basis points from the prior year.
•
Adjusted net income of $69.4 million decreased 3% from the prior year.
•
Adjusted EPS of $0.89 increased $0.01, or 1%, from the prior year period.
Some of our key financial results for the nine months ended September 30, 2015 are as follows:
•
Sales of $1.5 billion decreased 6%; organic sales — excluding acquisitions and foreign currency translation — were down 3%.
•
EBITDA of $393.0 million was 26% of sales and covered interest expense by more than 12 times.
•
Operating income of $333.5 million decreased 1%.
•
Net income decreased 1% to $215.0 million.
•
Diluted EPS of $2.75 increased 7 cents, or 3%.
Our financial results for the nine months ended September 30, 2015, adjusted for $4.7 million of restructuring costs and an $18.1 million gain on disposition of business, are as follows:
•
Adjusted operating income of $320.1 million decreased 5% while adjusted operating margin of 21.0% was up 30 basis points from the prior year.
•
Adjusted net income of $204.9 million decreased 6% from the prior year.
•
Adjusted EPS of $2.62 decreased $0.06, or 2%, from the prior year period.
Given the Company’s current outlook, we are projecting fourth quarter 2015 adjusted EPS in the range of $0.88 to $0.91 with full year 2015 adjusted EPS of $3.50 to $3.53. This guidance anticipates fourth quarter organic sales to be down 1 to 2 percent, with full year organic sales down 2 to 3 percent.

Results of Operations
The following is a discussion and analysis of our results of operations for the three and nine month periods ended September 30, 2015 and 2014. Segment operating income and EBITDA excludes unallocated corporate operating expenses.

Consolidated Results in the Three Months Ended September 30, 2015 Compared with the Same Period of 2014
(In thousands)
Three Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
503,791

 
$
533,179

Operating income
121,813

 
110,847

Operating margin
24.2
%
 
20.8
%
For the third quarter of 2015, Fluid & Metering Technologies contributed 42% of sales, 40% of operating income and 39% of EBITDA; Health & Science Technologies accounted for 37% of sales, 33% of operating income and 36% of EBITDA; and Fire & Safety/Diversified Products represented 21% of sales, 27% of operating income and 25% of EBITDA. These percentages are calculated on the basis of total segment (and not total Company) sales, operating income and EBITDA.
Sales in the three months ended September 30, 2015 were $503.8 million, a 6% decrease from the comparable period last year. This decrease reflects a 4% decrease in organic sales, a 2% increase from acquisitions (Novotema - June 2015, Alfa - June 2015 and CPS - July 2015) and 4% unfavorable foreign currency translation. Organic sales to customers outside the U.S. represented approximately 52% of total sales in the third quarter of both 2015 and 2014.

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Gross profit of $223.3 million in the third quarter of 2015 decreased $11.4 million, or 5%, from the same period in 2014. Gross margin of 44.3% in the third quarter of 2015 increased 30 basis points from 44.0% during the same period in 2014. The increase in gross margin is primarily due to productivity and benefits from the Company’s restructuring actions, partially offset by non-cash acquisition fair value inventory charges.
Selling, general and administrative expenses decreased to $114.8 million in the third quarter of 2015 from $123.8 million during the same period of 2014. The change reflects a decrease in volume related expenses of $12.9 million, partially offset by approximately $3.9 million for incremental costs from the Novotema, Alfa and CPS acquisitions. As a percentage of sales, SG&A expenses were 22.8% for the third quarter of 2015, down 40 basis points from the 23.2% for the same period of 2014.
During the third quarter of 2015, the Company recorded pre-tax restructuring expenses of $4.7 million. No restructuring expenses were recorded in the comparable period of 2014. The 2015 restructuring expenses were mainly attributable to employee severance related to head count reductions across all three segments and corporate.
In the third quarter of 2015, the Company sold its Ismatec product line for a pre-tax gain of $18.1 million.
Operating income and operating margin of $121.8 million and 24.2%, respectively, in the third quarter of 2015 was up from the $110.8 million and 20.8%, respectively, recorded during the same period in 2014. These increases were primarily due to the inclusion of the $18.1 million gain on the sale the Ismatec product line and improved productivity, partially offset by a decrease in volume and the $4.7 million of restructuring related charges.
Interest expense of $10.2 million in the third quarter of 2015 was slightly down from $10.5 million in 2014.
The provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes of $32.8 million for the third quarter of 2015 increased compared to $29.9 million recorded in the same period of 2014. The effective tax rate decreased to 29.2% for the third quarter of 2015 compared to 29.5% in the same period of 2014 due to the disposition of the Ismatec product line and a mix of global pre-tax income among jurisdictions.
Net income in the third quarter of 2015 of $79.5 million increased from $71.4 million during the same period of 2014. Diluted earnings per share in the third quarter of 2015 of $1.02 increased $0.14, or 16%, compared with the same period in 2014.
Fluid & Metering Technologies Segment
(In thousands)
Three Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
212,101

 
$
223,258

Operating income
46,910

 
54,791

Operating margin
22.1
%
 
24.5
%
Sales of $212.1 million decreased $11.2 million, or 5%, in the third quarter of 2015 compared with the same period of 2014. This reflects a 4% decrease in organic sales, a 3% increase from acquisitions (Alfa - June 2015) and 4% unfavorable foreign currency translation. In the third quarter of 2015, organic sales decreased 2% domestically and 6% internationally compared to the same period in 2014. Organic sales to customers outside the U.S. were approximately 47% of total segment sales during the third quarter of 2015, compared with 50% during the same period in 2014.
Sales decreased in the Energy platform in the third quarter of 2015 compared to the same period of 2014 primarily due to the effect of depressed oil prices and a decline of large capital project sales in Europe and the Middle East. Sales within our Industrial platform decreased compared to the third quarter of 2014 due to softening in the North American industrial distribution markets, partially offset by increased sales into the North American semiconductor markets. Sales decreased slightly in the Water platform compared to the third quarter of 2014, due to weakness in industrial markets, offset by increase in municipal spending. Sales within the Agricultural platform decreased compared to the third quarter of 2014 as commodity prices and farm incomes have remained depressed, affecting both OEM and after-market distribution sales. Sales in the Valve platform, which was created in the third quarter of 2015, increased as a result of the Alfa acquisition.
Operating income and operating margin of $46.9 million and 22.1%, respectively, were lower than the $54.8 million and 24.5% recorded in the third quarter of 2014, primarily due to lower volume, a non-cash acquisition fair value inventory charge and restructuring-related expenses.

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Health & Science Technologies Segment
(In thousands)
Three Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
184,893

 
$
190,852

Operating income
38,371

 
42,214

Operating margin
20.8
%
 
22.1
%
Sales of $184.9 million decreased $6.0 million, or 3%, in the third quarter of 2015 compared with the same period in 2014. This reflects a 3% decrease in organic revenue, a 4% increase from acquisitions (Novotema - June 2015 and CPS - July 2015) and 4% unfavorable foreign currency translation. In the third quarter of 2015, organic sales decreased 14% domestically and increased 5% internationally. Organic sales to customers outside the U.S. were approximately 58% of total segment sales in the third quarter of 2015 compared with 53% in the same period of 2014.
Sales within our Material Processing Technologies platform decreased compared to the third quarter of 2014 primarily due to slower orders in the first two quarters of 2015 as spending on large capital projects in the food and pharmaceutical industry declined. Sales increased compared to the third quarter of 2014 within our Scientific Fluidics platform due to consistently strong demand in the primary end-markets of analytical instrumentation, in-vitro diagnostic and bio. Sales within our Sealing Solutions platform increased compared to the third quarter of 2014 due to the acquisition of Novotema and strength in the semi-conductor markets, partially offset by continued softness in the oil & gas and heavy equipment markets. Sales within our Optics and Photonics platform decreased compared to the third quarter of 2014 due to laser optical end-market softness. Sales within our Gast platform decreased compared to the third quarter of 2014 due to continued declines in the North American industrial markets. Sales within our Micropump platform decreased compared to the third quarter of 2014 as a result of the exit of certain end markets and the impact of large projects in the prior year.
Operating income and operating margin of $38.4 million and 20.8%, respectively, in the third quarter of 2015 were down from the $42.2 million and 22.1% recorded in the same period of 2014, primarily due to decreased volume and restructuring-related expenses.
Fire & Safety/Diversified Products Segment
(In thousands)
Three Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
107,009

 
$
120,313

Operating income
32,536

 
31,355

Operating margin
30.4
%
 
26.1
%
Sales of $107.0 million decreased $13.3 million, or 11%, in the third quarter of 2015 compared with the same period in 2014. This reflects a 5% decrease in organic revenue and 6% unfavorable foreign currency translation. In the third quarter of 2015, organic sales decreased 4% domestically and 7% internationally. Organic sales to customers outside the U.S. were approximately 54% of total segment sales in the third quarter of both 2015 and 2014.
Sales within our Dispensing platform decreased compared to the third quarter of 2014 primarily due to softness in the Asian markets, particularly China. Sales within our Band-It platform decreased compared to the third quarter of 2014 due to the decline of upstream oil & gas sales, a result of depressed oil prices. Sales within our Fire Suppression platform decreased due to trailer sales into North American power facilities in the prior year. Sales within our Rescue platform decreased compared to the third quarter of 2014 due to continued declines in Asia as a result of delays in municipal spending.
Operating income and operating margin of $32.5 million and 30.4%, respectively, in the third quarter of 2015 was higher than the $31.4 million and 26.1% recorded in the third quarter of 2014, primarily due to gross margin improvements at the Dispensing and Fire Suppression platforms driven by favorable product mix within these platforms along with productivity improvements across the entire segment.


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Consolidated Results in the Nine Months Ended September 30, 2015 Compared with the Same Period of 2014
 
(In thousands)
Nine Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
1,520,870

 
$
1,623,868

Operating income
333,479

 
336,770

Operating margin
21.9
%
 
20.7
%
For the nine months ended September 30, 2015, Fluid & Metering Technologies contributed 42% of sales, 43% of operating income and 42% of EBITDA; Health & Science Technologies contributed 36% of sales, 32% of operating income and 35% of EBITDA; and Fire & Safety/Diversified Products contributed 22% of sales, 25% of operating income and 23% of EBITDA. These percentages are calculated on the basis of total segment (and not total Company) sales, operating income and EBITDA.
Sales in the nine months ended September 30, 2015 were $1.5 billion, a 6% decrease from the comparable period last year. This decrease reflects a 3% decrease in organic sales, a 1% favorable impact from acquisitions (Aegis - April 2014, Novotema - June 2015, Alfa - June 2015 and CPS - July 2015) and 4% unfavorable foreign currency translation. Organic sales to customers outside the U.S. represented approximately 51% of total sales in the first nine months of 2015, compared to 49% during the same period of 2014.
Gross profit of $680.9 million in the first nine months of 2015 decreased $39.3 million, or 5%, from the same period in 2014. Gross margin of 44.8% in the first nine months of 2015 increased 40 basis points from 44.4% during the same period in 2014, primarily resulting from benefits of the Company’s restructuring actions, partially offset by non-cash acquisition fair value inventory charges.
Selling, general and administrative expenses decreased to $360.8 million in the first nine months of 2015 from $383.4 million during the same period of 2014. The change reflects a decrease in volume related expenses of $29.3 million partially offset by an increase of approximately $6.7 million of incremental costs from acquisitions. As a percentage of sales, SG&A expenses were 23.8% for the first nine months of 2015, up 10 basis points compared to 23.7% during the same period of 2014.
Operating income of $333.5 million in the first nine months of 2015 was down from the $336.8 million recorded during the same period in 2014, primarily reflecting a decrease in volume and $4.7 million of restructuring-related activity, partially offset by the $18.1 million gain on the sale of the Ismatec product line and improved productivity, including benefits from our restructuring actions. Operating margin of 21.9% in the first nine months of 2015 was slightly up from 20.7% during the same period of 2014 mainly due to the $18.1 million gain on the sale of the Ismatec product line.
During the third quarter of 2015, the Company recorded pre-tax restructuring expenses of $4.7 million. No restructuring expenses were recorded in the comparable period of 2014. The 2015 restructuring expenses were mainly attributable to employee severance related to head count reductions across all three segments and corporate.
In the third quarter of 2015, the Company sold its Ismatec product line for a pre-tax gain of $18.1 million.
The provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes of $88.6 million for the first nine months of 2015 decreased compared to $89.3 million recorded in the same period of 2014. The effective tax rate increased slightly to 29.2% for the first nine months of 2015 compared to 29.1% in the same period of 2014 due to the mix of global pre-tax income among jurisdictions. Additionally, the effective tax rate for the comparable period of the prior year was favorably impacted by settlements with the taxing authorities primarily related to purchase price adjustments for previous acquisitions.
Net income in the first nine months of 2015 of $215.0 million decreased from $217.8 million during the same period of 2014. Diluted earnings per share in the first nine months of 2015 of $2.75 increased $0.07, or 3%, compared with the same period in 2014.

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Table of Contents


Fluid & Metering Technologies Segment
(In thousands)
Nine Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
645,642

 
$
672,719

Operating income
154,665

 
166,821

Operating margin
24.0
%
 
24.8
%
Sales of $645.6 million decreased $27.1 million, or 4%, in the first nine months of 2015 compared with the same period of 2014. This reflects a 2% decrease in organic sales, a 2% favorable impact from acquisitions (Aegis - April 2014 and Alfa - June 2015) and 4% unfavorable foreign currency translation. In the first nine months of 2015, organic sales decreased 4% domestically and increased 1% internationally compared to the same period in 2014. Organic sales to customers outside the U.S. were approximately 45% of total segment sales during the first nine months of 2015 and 2014.
Sales within the Energy platform decreased in the first nine months of 2015 compared to the same period of 2014 due to the continued depression of energy prices and decline of sales for large capital projects, particularly in Europe and the Middle East. Sales within our Industrial platform decreased compared to the first nine months of 2014 due to declines in the North American industrial distribution, slightly offset by solid demand in the North American chemical and petrochemical industries. Sales within our Agricultural platform decreased due to the impact of low commodity prices and depressed farm income on OEM production and the after-market business. Water sales were down slightly compared to the first nine months of 2014 from weakness in the industrial markets, offset by an increase in municipal spending. Sales in the Valve platform, which was created in the third quarter of 2015, increased as a result of the Alfa acquisition.
Operating income and operating margins of $154.7 million and 24.0%, respectively, in the first nine months of 2015 were lower than the $166.8 million and 24.8%, respectively, recorded in the first nine months of 2014, primarily due to decreased volume and the restructuring-related expenses recorded in the third quarter, partially offset by productivity and the benefits from our restructuring actions.
Health & Science Technologies Segment
(In thousands)
Nine Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
552,418

 
$
562,899

Operating income
117,888

 
114,580

Operating margin
21.3
%
 
20.4
%
Sales of $552.4 million decreased $10.5 million, or 2%, in the first nine months of 2015 compared with the same period in 2014. This decrease reflects a 2% favorable impact from acquisitions (Novotema - June 2015 and CPS - July 2015) and 4% unfavorable foreign currency translation. Organic sales were flat, year over year. In the first nine months of 2015, organic sales decreased 3% domestically and increased 3% internationally. Organic sales to customers outside the U.S. were approximately 55% of total segment sales in the first nine months of 2015 compared with 53% during the same period in 2014.
Sales within our Material Processing Technologies platform decreased compared to the first nine months of 2014 due to a decline in large capital spending in both North America and Asia in the food and pharmaceutical markets. Sales within our Scientific Fluidics platform were up compared to the first nine months of 2014 due to strong demand in all primary end-markets. Sales within the Sealing Solutions platform increased compared to the first nine months of 2014 due to the Novotema acquisition and strength in the semi-conductor markets, partially offset by the negative impact of declining energy prices. Sales within our Optics and Photonics platform decreased compared to the first nine months of 2014 due to softness in our particular exposure within the semiconductor markets, combined with slower biomedical markets. Sales within our Gast platform decreased compared to the first nine months of 2014 due to continued declines in the North American industrial distribution markets. Sales within our Micropump platform decreased compared to the first nine months of 2014 as a result of the exit of certain end-markets and the impact of large projects in the prior year.
Operating income and operating margin of $117.9 million and 21.3%, respectively, in the first nine months of 2015 were up from the $114.6 million and 20.4%, respectively, recorded in the same period of 2014, primarily due to improved productivity including benefits from our restructuring actions, partially offset by decreased volume and restructuring-related activity.

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Table of Contents


Fire & Safety/Diversified Products Segment
(In thousands)
Nine Months Ended 
 September 30,
 
2015
 
2014
Net sales
$
325,572

 
$
393,779

Operating income
91,180

 
106,988

Operating margin
28.0
%
 
27.2
%
Sales of $325.6 million decreased $68.2 million, or 17%, in the first nine months of 2015 compared with the same period in 2014. This reflects a decline in organic revenue of 11% and 6% unfavorable foreign currency translation. In the first nine months of 2015, organic sales decreased 16% domestically and 6% internationally, compared with the same period in 2014. Organic sales to customers outside the U.S. were approximately 56% of total segment sales in the first nine months of 2015 compared to 52% during the same period of 2014.
Sales within our Dispensing platform decreased compared to the first nine months of 2014 as a result of fulfilling a large project in 2014. Sales within our Band-It platform decreased compared to the first nine months of 2014 driven by the decline in energy prices and the impact on upstream oil & gas sales, partially offset by strength in the North American transportation markets. Sales within our Fire Suppression platform decreased compared to the first nine months of 2014 due to declines in trailer sales to North American power facilities in the prior year period. Sales within our Rescue platform decreased due to the impact of negative foreign currency translation and a lack of activity in the China municipal markets.
Operating income of $91.2 million in the first nine months of 2015 was lower than the $107.0 million recorded in the first nine months of 2014 primarily due to lower volume, partially offset by benefits from our restructuring actions. Operating margin of 28.0% in the first nine months of 2015 was higher than the 27.2% recorded in the first nine months of 2014, primarily due to benefits from our restructuring actions, gross margin improvements at the Dispensing and Fire Suppression platforms driven by favorable product mix within these platforms, along with productivity improvements across the entire segment, partially offset by lower volume.

Liquidity and Capital Resources
Operating Activities
At September 30, 2015, the Company’s cash and cash equivalents totaled $306.5 million, of which $270.0 million was held outside of the United States. At September 30, 2015, working capital was $582.2 million and the current ratio was 2.8 to 1. Cash flows from operating activities for the first nine months of 2015 decreased $4.8 million, or 2%, to $261.8 million compared to the first nine months of 2014, due to lower net income offset by improvements in working capital performance.
Investing Activities
Cash flows used in investing activities for the first nine months of 2015 increased $138.1 million to $197.5 million compared to the same period of 2014, primarily due the acquisitions of Novotema, Alfa and CPS, partially offset by the disposition of the Ismatec product line.
Cash flows provided by operating activities were more than adequate to fund capital expenditures of $32.6 million and $33.8 million in the first nine months of 2015 and 2014, respectively. Capital expenditures were generally for machinery and equipment that improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. Management believes the Company has sufficient capacity in its plants and equipment to meet expected needs for future growth.
Financing Activities
Cash flows used in financing activities for the first nine months of 2015 increased $98.5 million to $235.6 million compared to the same period of 2014, primarily as a result of the payoff of the 2.58% Senior Euro Notes and purchases of common stock.
On June 23, 2015, the Company entered into the Credit Agreement along with certain of its subsidiaries, as Borrowers, Bank of America, N.A., as administrative agent, swing line lender and an issuer of letters of credit, with other agents party thereto. The Credit Agreement replaces the Company’s existing five-year, $700 million credit agreement, dated as of June 27, 2011, which was due to expire in June 27, 2016.
The Credit Agreement consists of the Revolving Facility, which is a $700.0 million unsecured, multi-currency bank credit facility expiring on June 23, 2020. At September 30, 2015, there were $203.0 million of outstanding borrowings under the Revolving Facility and outstanding letters of credit totaled approximately $7.3 million. The net available borrowing capacity under the

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Revolving Facility at September 30, 2015, was approximately $489.7 million. Borrowings under the Revolving Facility bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .91% to 1.50%. Based on the Company’s credit rating at September 30, 2015, the applicable margin was 1.10%. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months. An annual Revolving Facility fee, also based on the Company’s credit rating, is currently 15 basis points and is payable quarterly.
There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility, which requires a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At September 30, 2015, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 13.01 to 1 and the leverage ratio was 1.58 to 1. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes; however, both are subject to cross-default provisions.
In the three months ended June 30, 2015, the Company paid off the balance of the 2.58% Senior Euro Notes, upon its maturity, using cash on the balance sheet.
On November 6, 2014, the Company’s Board of Directors approved a $400.0 million increase in the authorized level for repurchases of common stock. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the first nine months of 2015, the Company purchased a total of 2.4 million shares at a cost of $179.4 million, of which $4.3 million was settled in October 2015. As of September 30, 2015, the amount of share repurchase authorization remaining is $366.0 million.
The Company believes current cash, cash from operations and cash available under the Revolving Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest on all borrowings, pension and postretirement funding requirements, expected share repurchases and annual dividend payments to holders of the Company’s stock for the remainder of 2015. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings.

Non-GAAP Disclosures
Set forth below are reconciliations of EBITDA and Adjusted EBITDA, Adjusted operating income, Adjusted net income, and Adjusted EPS to the comparable measures of net income and operating income, as determined in accordance with U.S. GAAP. We have reconciled Adjusted operating income to Operating income; Adjusted net income to Net income; Adjusted EPS to EPS; consolidated EBITDA to net income; and segment EBITDA to segment operating income.
Management uses Adjusted operating income, Adjusted net income, and Adjusted EPS as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as asset impairments and restructuring expenses. Management also supplements its U.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency, and a more comprehensive understanding of the information used by management in its financial and operational decision making.
EBITDA means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company which results in a higher level of amortization expense at recently acquired businesses, management uses EBITDA as an internal operating metric to provide management with another representation of performance of businesses across our three segments and for enterprise valuation purposes. EBITDA is also used to calculate certain financial covenants, as discussed in Note 9 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.” In addition, EBITDA has been adjusted for items that are not reflective of ongoing operations, such as asset impairments and restructuring expenses to arrive at Adjusted EBITDA. Management believes that Adjusted EBITDA is useful as a performance indicator on ongoing operations. We believe that Adjusted EBITDA is also useful to some investors as an indicator of the strength and performance of the Company’s and its segments ongoing business operations and a way to evaluate and compare operating performance and value companies within our industry. The definition of Adjusted EBITDA used here may differ from that used by other companies.
The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP, and the financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

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Table of Contents


 
 
 
 
 
Consolidated EBITDA Reconciliation (in thousands)
 
Three Months Ended 
 September 30,
 
 
2015
 
2014
Net income
 
$
79,505

 
$
71,441

+ Income taxes
 
32,772

 
29,889

+ Interest expense
 
10,229

 
10,461

+ Depreciation & amortization
 
20,377

 
19,609

EBITDA
 
142,883

 
131,400

+ Restructuring expense
 
4,723

 
—

+ Gain on sale of business
 
(18,070
)
 
—

Adjusted EBITDA
 
$
129,536

 
$
131,400

 
 
 
 
 
Net sales
 
$
503,791

 
$
533,179

EBITDA margin
 
28.4
%
 
24.6
%
Adjusted EBITDA margin
 
25.7
%
 
24.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBITDA Reconciliation
 
Three Months Ended September 30,
(in thousands)
 
2015
 
2014
 
 
FMT
 
HST
 
FSDP
 
FMT
 
HST
 
FSDP
Operating income
 
$
46,910

 
$
38,371

 
$
32,536

 
$
54,791

 
$
42,214

 
$
31,355

- Other (income) expense - net

 
(82
)
 
(877
)
 
(247
)
 
55

 
(420
)
 
(531
)
+ Depreciation & amortization
 
7,311

 
11,179

 
1,513

 
6,724

 
11,005

 
1,597

EBITDA
 
54,303

 
50,427

 
34,296

 
61,460

 
53,639

 
33,483

+ Restructuring expense
 
2,505

 
1,774

 
279

 
—

 
—

 
—

Adjusted EBITDA
 
$
56,808

 
$
52,201

 
$
34,575

 
$
61,460

 
$
53,639

 
$
33,483

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
212,101

 
$
184,893

 
$
107,009

 
$
223,258

 
$
190,852

 
$
120,313

EBITDA margin
 
25.6
%
 
27.3
%
 
32.0
%
 
27.5
%
 
28.1
%
 
27.8
%
Adjusted EBITDA margin
 
26.8
%
 
28.2
%
 
32.3
%
 
27.5
%
 
28.1
%
 
27.8
%
Consolidated EBITDA Reconciliation (in thousands)
 
Nine Months Ended 
 September 30,
 
 
2015
 
2014
Net income
 
$
215,044

 
$
217,766

+ Income taxes
 
88,614

 
89,332

+ Interest expense
 
31,410

 
31,323

+ Depreciation and amortization
 
57,974

 
58,282

EBITDA
 
393,042

 
396,703

+ Restructuring expense
 
4,723

 
—

+ Gain on sale of business
 
(18,070
)
 
—

Adjusted EBITDA
 
$
379,695

 
$
396,703

 
 
 
 
 
Net sales
 
$
1,520,870

 
$
1,623,868

EBITDA margin
 
25.8
%
 
24.4
%
Adjusted EBITDA margin
 
25.0
%
 
24.4
%


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Table of Contents


Segment EBITDA Reconciliation
 
Nine Months Ended September 30,
(in thousands)
 
2015
 
2014
 
 
FMT
 
HST
 
FSDP
 
FMT
 
HST
 
FSDP
Operating income
 
$
154,665

 
$
117,888

 
$
91,180

 
$
166,821

 
$
114,580

 
$
106,988

 - Other (income) expense - net
 
(894
)
 
(347
)
 
(1,091
)
 
(371
)
 
(24
)
 
(644
)
+ Depreciation and amortization
 
20,321

 
31,874

 
4,574

 
20,022

 
32,404

 
4,949

EBITDA
 
175,880

 
150,109

 
96,845

 
187,214

 
147,008

 
112,581

+ Restructuring expense
 
2,505

 
1,774

 
279

 
—

 
—

 
—

Adjusted EBITDA
 
$
178,385

 
$
151,883

 
$
97,124

 
$
187,214

 
$
147,008

 
$
112,581

 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
645,642

 
$
552,418

 
$
325,572

 
$
672,719

 
$
562,899

 
$
393,779

EBITDA margin
 
27.2
%
 
27.2
%
 
29.7
%
 
27.8
%
 
26.1
%
 
28.6
%
Adjusted EBITDA margin
 
27.6
%
 
27.5
%
 
29.8
%
 
27.8
%
 
26.1
%
 
28.6
%

Consolidated Reported-to-Adjusted Operating Income and Margin Reconciliation
 
Three Months Ended September 30,
(in thousands)
 
2015
 
2014
Reported operating income
 
$
121,813

 
$
110,847

 + Restructuring expenses
 
4,723

 
—

 + Gain on sale of business
 
(18,070
)
 
—

Adjusted operating income
 
$
108,466

 
$
110,847

 
 
 
 

Net sales
 
$
503,791

 
$
533,179

 
 
 
 
 
Operating margin
 
24.2
%
 
20.8
%
Adjusted operating margin
 
21.5
%
 
20.8
%

Segment Reported-to-Adjusted Operating Income and Margin Reconciliation
 
 
 
(in thousands)
 
Three Months Ended September 30,
 
 
2015
 
2014
 
 
FMT
 
HST
 
FSDP
 
FMT
 
HST
 
FSDP
Reported operating income
 
$
46,910

 
$
38,371

 
$
32,536

 
$
54,791

 
$
42,214

 
$
31,355

 + Restructuring expense
 
2,505

 
1,774

 
279

 
—

 
—

 
—

Adjusted operating income
 
$
49,415

 
$
40,145

 
$
32,815

 
$
54,791

 
$
42,214

 
$
31,355

 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
212,101

 
$
184,893

 
$
107,009

 
$
223,258

 
$
190,852

 
$
120,313

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
 
22.1
%
 
20.8
%
 
30.4
%
 
24.5
%
 
22.1
%
 
26.1
%
Adjusted operating margin
 
23.3
%
 
21.7
%
 
30.7
%
 
24.5
%
 
22.1
%
 
26.1
%


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Table of Contents


Consolidated Reported-to-Adjusted Operating Income and Margin Reconciliation
 
Nine Months Ended September 30,
(in thousands)
 
2015
 
2014
Reported operating income
 
$
333,479

 
$
336,770

 + Restructuring expense
 
4,723

 
—

 + Gain on sale of business
 
(18,070
)
 
—

Adjusted operating income
 
$
320,132

 
$
336,770

 
 
 
 
 
Net sales
 
$
1,520,870

 
$
1,623,868

 
 
 
 
 
Operating margin
 
21.9
%
 
20.7
%
Adjusted operating margin
 
21.0
%
 
20.7
%

Segment Reported-to-Adjusted Operating Income and Margin Reconciliation
 
 
 
(in thousands)
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
FMT
 
HST
 
FSDP
 
FMT
 
HST
 
FSDP
Reported operating income
 
$
154,665

 
$
117,888

 
$
91,180

 
$
166,821

 
$
114,580

 
$
106,988

 + Restructuring expense
 
2,505

 
1,774

 
279

 
—

 
—

 
—

Adjusted operating income
 
$
157,170

 
$
119,662

 
$
91,459

 
$
166,821

 
$
114,580

 
$
106,988

 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
645,642

 
$
552,418

 
$
325,572

 
$
672,719

 
$
562,899

 
$
393,779

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating margin
 
24.0
%
 
21.3
%
 
28.0
%
 
24.8
%
 
20.4
%
 
27.2
%
Adjusted operating margin
 
24.3
%
 
21.7
%
 
28.1
%
 
24.8
%
 
20.4
%
 
27.2
%

Reported-to-Adjusted Net Income and EPS Reconciliation (in thousands)
 
Three Months Ended September 30,
 
 
2015
 
2014
Reported net income
 
$
79,505

 
$
71,441

 + Restructuring expense, net of tax
 
3,085

 
—

 + Gain on sale of business, net of tax
 
(13,231
)
 
—

Adjusted net income
 
$
69,359

 
$
71,441

 
 
 
 
 
Reported EPS
 
$
1.02

 
$
0.88

 + Restructuring expense, net of tax
 
0.04

 
—

 + Gain on sale of business, net of tax
 
(0.17
)
 
—

Adjusted EPS
 
$
0.89

 
$
0.88

 
 
 
 
 
Diluted weighted average shares
 
77,646

 
80,561




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Table of Contents


Reported-to-Adjusted Net Income and EPS Reconciliation (in thousands)
 
Nine Months Ended September 30,
 
 
2015
 
2014
Reported net income
 
$
215,044

 
$
217,766

 + Restructuring expense, net of tax
 
3,085

 
—

 + Gain on sale of business, net of tax
 
(13,231
)
 
—

Adjusted net income
 
$
204,898

 
$
217,766

 
 
 
 
 
Reported EPS
 
$
2.75

 
$
2.68

 + Restructuring expense, net of tax
 
0.04

 
—

 + Gain on sale of business, net of tax
 
(0.17
)
 
—

Adjusted EPS
 
$
2.62

 
$
2.68

 
 
 
 
 
Diluted weighted average shares
 
78,266

 
81,093



32
Table of Contents


Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. The Company may, from time to time, enter into foreign currency forward contracts and interest rate swaps on its debt when it believes there is a financial advantage in doing so. A treasury risk management policy, adopted by the Board of Directors, provides for procedures and controls over derivative financial and commodity instruments, including foreign currency forward contracts and interest rate swaps. Under the policy, the Company does not use derivative financial or commodity instruments for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of derivative instruments is limited to foreign currency forward contracts and interest rate swaps on the Company’s outstanding long-term debt.
The Company’s foreign currency exchange rate risk is limited principally to the Euro, British Pound, Canadian Dollar, Japanese Yen, Indian Rupee and Chinese Renminbi. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as the source of products. The effect of transaction gains and losses is reported within other (income) expense -net on the Consolidated Statements of Operations.

The Company’s interest rate exposure is primarily related to the $853.3 million of total debt outstanding at September 30, 2015. Approximately 24% of the debt, representing the amount drawn on the Revolving Facility at September 30, 2015, 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 $1.0 million annualized increase or decrease in interest expense and cash flows. The remaining debt is fixed rate debt.

Item 4.    Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) promulgated under the Securities Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2015, that the Company’s disclosure controls and procedures were effective.
There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

33
Table of Contents


PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings.
The Company and four of its subsidiaries are presently 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. These components were acquired from third party suppliers, and were not manufactured by any of the subsidiaries. To date, the majority of the Company’s settlements and legal costs, except for costs of coordination, administration, insurance investigation and a portion of defense costs, have been covered in full by insurance, subject to applicable deductibles. However, the Company cannot predict whether and to what extent insurance will be available to continue to cover these settlements and legal costs, or how insurers may respond to claims that are tendered to them. Claims have been filed in jurisdictions throughout the United States. Most of the claims resolved to date have been dismissed without payment. The balance have been settled for various insignificant amounts. Only one case has been tried, resulting in a verdict for the Company’s business unit. No provision has been made in the financial statements of the Company, other than for insurance deductibles in the ordinary course, and the Company does not currently believe the asbestos-related claims will have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.
The Company is also party to various other legal proceedings arising in the ordinary course of business, none of which is expected to have a material adverse effect on its business, financial condition, results of operations or cash flows.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information about the Company’s purchases of its common stock during the quarter ended September 30, 2015:
 
Period
Total Number of
Shares Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs(1)
 
Maximum Dollar
Value that May Yet
be Purchased
Under the Plans
or Programs(1)
July 1, 2015 to July 31, 2015
190,740

 
$
77.24

 
190,740

 
$
417,450,631

August 1, 2015 to August 31, 2015
310,500

 
$
72.91

 
310,500

 
$
394,811,192

September 1, 2015 to September 30, 2015
409,907

 
$
70.27

 
409,907

 
$
366,006,870

Total
911,147

 
$
72.63

 
911,147

 
$
366,006,870

 
(1)
On November 6, 2014, the Company announced that its Board of Directors had increased the authorized level for repurchases of its common stock by $400.0 million. This followed the prior Board of Directors repurchase authorizations of $300.0 million, announced by the Company on November 8, 2013; $200.0 million, announced by the Company on October 22, 2012; $50.0 million, announced by the Company on December 6, 2011; and the original repurchase authorization of $125.0 million announced by the Company on April 21, 2008.

Item 6.
Exhibits.
The exhibits listed in the accompanying “Exhibit Index” are filed or furnished as part of this report.


34
Table of Contents


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.
 
 
IDEX Corporation
 
 
 
 
By:
/s/ HEATH A. MITTS
 
 
Heath A. Mitts
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 
 
 
 
By:
/s/ MICHAEL J. YATES
 
 
Michael J. Yates
 
 
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: October 26, 2015

35
Table of Contents


EXHIBIT INDEX
 
Exhibit
Number
 
Description
3.1
 
Restated Certificate of Incorporation of IDEX Corporation (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 (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)
 
 
3.1(b)
 
Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1(b) to the Current Report of IDEX on Form 8-K dated March 24, 2005, Commission File No. 1-10235)
 
 
3.2
 
Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.1 to the Current Report of IDEX Corporation on Form 8-K filed November 14, 2011, Commission File No. 1-10235)
 
 
 
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)
 
 
*31.1
 
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes Oxley Act of 2002
 
 
*31.2
 
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes Oxley Act of 2002
 
 
*32.1
 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
 
 
*32.2
 
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
 
 
*101
 
The following financial information from IDEX Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in XBRL includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
 
 
 
* Filed herewith

36
Exhibit


Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Andrew K. Silvernail, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IDEX Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
 
 
 
/s/ ANDREW K. SILVERNAIL
 
 
Andrew K. Silvernail
 
 
Chairman of the Board and Chief Executive Officer
Date: October 26, 2015


Exhibit


Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Heath A. Mitts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IDEX Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
 
 
 
/s/ HEATH A. MITTS
 
 
Heath A. Mitts
 
 
Senior Vice President and Chief Financial Officer
Date: October 26, 2015


Exhibit


Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of IDEX Corporation (the “Company”) hereby certifies, to such officer's knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
/s/ ANDREW K. SILVERNAIL
 
 
Andrew K. Silvernail
 
 
Chairman of the Board and Chief Executive Officer
Date: October 26, 2015



Exhibit


Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of IDEX Corporation (the “Company”) hereby certifies, to such officer's knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
/s/ HEATH A. MITTS
 
 
Heath A. Mitts
 
 
Senior Vice President and Chief Financial Officer
Date: October 26, 2015