Annual Statements Open main menu

IDEX CORP /DE/ - Quarter Report: 2012 June (Form 10-Q)

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 June 30, 2012

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 July 26, 2012: 83,383,928.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Part I. Financial Information

  

Item 1.

   Financial Statements      1  
   Condensed Consolidated Balance Sheets      1   
   Condensed Consolidated Statements of Operations      2  
   Condensed Consolidated Statements of Comprehensive Income      3  
   Condensed Consolidated Statements of Shareholders’ Equity      4  
   Condensed Consolidated Statements of Cash Flows      5  
   Notes to Condensed Consolidated Financial Statements      6  

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      24   
   Cautionary Statement Under the Private Securities Litigation Reform Act      24  
   Overview and Outlook      24   
   Results of Operations      25   
   Liquidity and Capital Resources      31   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      34  

Item 4.

   Controls and Procedures      34   

Part II. Other Information

  

Item 1.

   Legal Proceedings      35  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      35   

Item 6.

   Exhibits      35   

Signatures

     36  

Exhibit Index

     37   


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)

 

     June 30, 2012     December 31, 2011  

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 221,110      $ 230,259   

Receivables, less allowance for doubtful accounts of $5,486 at June 30, 2012 and $5,860 at December 31, 2011

     265,209        252,845   

Inventories — net

     254,497        254,258   

Other current assets

     57,273        51,799   
  

 

 

   

 

 

 

Total current assets

     798,089        789,161   

Property, plant and equipment — net

     215,673        213,717   

Goodwill

     1,450,969        1,431,366   

Intangible assets — net

     371,475        382,222   

Other noncurrent assets

     20,596        19,641   
  

 

 

   

 

 

 

Total assets

   $ 2,856,802      $ 2,836,107   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities

    

Trade accounts payable

   $ 114,430      $ 110,977   

Accrued expenses

     124,167        130,696   

Current portion of long-term debt and short-term borrowings

     5,616        2,444   

Dividends payable

     16,687        14,161   
  

 

 

   

 

 

 

Total current liabilities

     260,900        258,278   

Long-term borrowings

     753,725        806,366   

Deferred income taxes

     152,854        142,482   

Other noncurrent liabilities

     110,070        115,846   
  

 

 

   

 

 

 

Total liabilities

     1,277,549        1,322,972   
  

 

 

   

 

 

 

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: 87,083,550 shares at June 30, 2012 and 85,968,630 shares at December 31, 2011

     871        860   

Additional paid-in capital

     527,610        490,128   

Retained earnings

     1,215,516        1,142,412   

Treasury stock at cost: 3,654,044 shares at June 30, 2012 and 2,734,747 shares at December 31, 2011

     (103,103     (64,796

Accumulated other comprehensive loss

     (61,641     (55,469
  

 

 

   

 

 

 

Total shareholders’ equity

     1,579,253        1,513,135   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,856,802      $ 2,836,107   
  

 

 

   

 

 

 

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
June 30,
     Six Months Ended
June 30,
 
     2012     2011      2012     2011  

Net sales

   $ 494,144      $ 453,798       $ 983,561      $ 880,887   

Cost of sales

     291,031        268,959         577,559        517,348   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     203,113        184,839         406,002        363,539   

Selling, general and administrative expenses

     111,882        105,210         225,264        206,189   

Restructuring expenses

     2,581                7,519          
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     88,650        79,629         173,219        157,350   

Other income (expense) — net

     (230     347         (113     (560

Interest expense

     10,536        6,720         21,198        13,174   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

     77,884        73,256         151,908        143,616   

Provision for income taxes

     23,533        23,074         45,386        45,483   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 54,351      $ 50,182       $ 106,522      $ 98,133   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic earnings per common share

   $ 0.65      $ 0.61       $ 1.28      $ 1.19   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.65      $ 0.60       $ 1.27      $ 1.17   
  

 

 

   

 

 

    

 

 

   

 

 

 

Share data:

         

Basic weighted average common shares outstanding

     83,180        82,151         82,987        81,790   

Diluted weighted average common shares outstanding

     84,090        83,778         83,991        83,507   

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
June 30,
     Six Months Ended
June 30,
 
     2012     2011      2012     2011  
     (In thousands)  

Net income

   $ 54,351      $ 50,182       $ 106,522      $ 98,133   

Other comprehensive income

         

Gains, losses and reclassification adjustments for derivatives,
net of tax

     1,219        860         2,440        1,764   

Pension and other postretirement adjustments, net of tax

     1,965        792         3,088        1,577   

Cumulative translation adjustment

     (26,731     6,659         (11,700     31,537   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 30,804      $ 58,493       $ 100,350      $ 133,011   
  

 

 

   

 

 

    

 

 

   

 

 

 

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
Adjustments
    Cumulative
Unrealized
Loss on
Derivatives
    Treasury
Stock
    Total
Shareholders’
Equity
 

Balance, December 31, 2011

  $ 490,988      $ 1,142,412      $ 24,194      $ (38,486   $ (41,177   $ (64,796   $ 1,513,135   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           106,522                                    106,522   

Cumulative translation adjustment

                  (11,700                          (11,700

Pension and other postretirement adjustments, net of tax

                         3,088                      3,088   

Amortization of forward starting swaps, net of tax

                                2,440               2,440   

Issuance of 1,142,685 shares of common stock from issuance of unvested shares, exercise of stock options and deferred compensation plans, net of tax benefit

    30,346                                           30,346   

Repurchase of 865,151 shares of common stock

                                       (36,042     (36,042

Unvested shares surrendered for tax withholding

                                       (2,265     (2,265

Share-based compensation

    7,147                                           7,147   

Cash dividends declared — $.40 per common share

           (33,418                                 (33,418
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

  $ 528,481      $ 1,215,516      $ 12,494      $ (35,398   $ (38,737   $ (103,103   $ 1,579,253   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

4


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Six Months
Ended June 30,
 
     2012     2011  

Cash flows from operating activities

    

Net income

   $ 106,522      $ 98,133   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Gain on sale of fixed assets

            (2,831

Depreciation and amortization

     18,092        17,127   

Amortization of intangible assets

     20,301        15,449   

Amortization of debt issuance expenses

     637        647   

Share-based compensation expense

     8,176        10,082   

Deferred income taxes

     3,537        2,427   

Excess tax benefit from share based compensation

     (2,456     (4,010

Non-cash interest expense associated with forward starting swaps

     3,845        1,800   

Changes in:

    

Receivables

     (7,390     (25,722

Inventories

     787        (19,532

Trade accounts payable

     (1,213     6,101   

Accrued expenses

     (1,242     (6,490

Other — net

     (10,118     (12,343
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     139,478        80,838   

Cash flows from investing activities

    

Cash purchases of property, plant and equipment

     (18,688     (18,618

Proceeds from disposal of fixed assets

            12,651   

Acquisition of businesses, net of cash acquired

     (34,201     (446,044

Other — net

     (90     (2,289
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (52,979     (454,300

Cash flows from financing activities

    

Borrowings under revolving facilities and credit facilities for acquisitions

     20,000        365,000   

Borrowings under revolving facilities

     31,510        374,222   

Borrowings under credit facilities

            1,886   

Payments under revolving facilities, credit facilities and term loan

     (102,298     (402,976

Debt issuance costs

            (2,465

Dividends paid

     (30,892     (26,360

Proceeds from stock option exercises

     27,976        24,053   

Excess tax benefit from stock-based compensation

     2,456        4,010   

Purchase of common stock

     (36,042       

Unvested shares surrendered for tax withholding

     (2,265     (5,768

Other

     (1,292       
  

 

 

   

 

 

 

Net cash flows (used in) provided by financing activities

     (90,847     331,602   

Effect of exchange rate changes on cash and cash equivalents

     (4,801     9,685   
  

 

 

   

 

 

 

Net decrease in cash

     (9,149     (32,175

Cash and cash equivalents at beginning of year

     230,259        235,136   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 221,110      $ 202,961   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for:

    

Interest

   $ 20,658      $ 12,821   

Income taxes

     31,521        35,307   

Significant non-cash activities:

    

Contingent consideration for acquisition

            2,707   

Debt acquired with acquisition of business

     4,680        1,400   

See Notes to Condensed Consolidated Financial Statements

 

5


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 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 six months ended June 30, 2012 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 should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Adoption of New Accounting Standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04 which was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The Company adopted this guidance on January 1, 2012, and its adoption did not impact the consolidated financial position, results of operations or cash flows of the Company.

In June 2011, FASB issued ASU 2011-05 “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While ASU 2011-05 changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. In December 2011, FASB issued ASU 2011-12 “Comprehensive Income (Topic 220); Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). ASU 2011-12 deferred certain aspects of ASU 2011-05. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 did not impact the consolidated financial position, results of operations or cash flows of the Company.

2.    Restructuring

During the second half of 2011 and into 2012, the Company recorded restructuring costs as a part of 2011 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 are included in Restructuring expenses in the Consolidated Statements of Operations while the restructuring accruals are included in Accrued expenses in the Consolidated Balance Sheets.

During the three and six months ended June 30, 2012, the Company recorded $2.6 million and $7.5 million, respectively, of pre-tax restructuring expenses related to its 2011 restructuring initiative for employee severance related to employee reductions across various functional areas, the termination of a defined benefit pension plan as well as facility rationalization. The 2011 restructuring initiative included severance benefits for 292 employees in 2011 and 114 employees for the first six months of 2012.

 

6


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

Pre-tax restructuring expenses, by segment, for the three months ended June 30, 2012, were as follows:

 

     Severance
Costs
     Exit Costs      Total  
     (In thousands)  

Fluid & Metering Technologies

   $ 309       $ 10       $ 319   

Health & Science Technologies

     757         395         1,152   

Fire & Safety/Diversified Products

     280         748         1,028   

Corporate/Other

     82                 82   
  

 

 

    

 

 

    

 

 

 

Total restructuring costs

   $ 1,428       $ 1,153       $ 2,581   
  

 

 

    

 

 

    

 

 

 

Pre-tax restructuring expenses, by segment, for the six months ended June 30, 2012, were as follows:

 

     Severance
Costs
     Exit Costs      Total  
     (In thousands)  

Fluid & Metering Technologies

   $ 2,968       $ 10       $ 2,978   

Health & Science Technologies

     1,907         700         2,607   

Fire & Safety/Diversified Products

     280         1,292         1,572   

Corporate/Other

     163         199         362   
  

 

 

    

 

 

    

 

 

 

Total restructuring costs

   $ 5,318       $ 2,201       $ 7,519   
  

 

 

    

 

 

    

 

 

 

Restructuring accruals of $2.8 million and $5.9 million at June 30, 2012 and December 31, 2011, respectively, are reflected in Accrued expenses in the Consolidated Balance Sheets as follows:

 

(In thousands)

      

Balance at January 1, 2012

   $ 5,875   

Restructuring expenses

     7,519   

Payments/utilization

     (10,640
  

 

 

 

Balance at June 30, 2012

   $ 2,754   
  

 

 

 

3.    Acquisitions

All of the Company’s acquisitions have been accounted for under 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 consolidated financial statements from their respective dates of acquisition.

2012 Acquisitions

On April 11, 2012, the Company acquired the assets of Precision Photonics Corporation (“PPC”). PPC specializes in optical components and coatings for applications in the fields of scientific research, aerospace, telecommunications and electronics manufacturing. Located in Boulder, Colorado, PPC has annual revenues of approximately $7.0 million. PPC operates within the Health & Science Technologies segment as a part of the IDEX Optics and Photonics (“IOP”) platform. The Company acquired PPC for an aggregate purchase price of $20.6 million in cash. The $20.6 million cash payment was funded from operations. Goodwill and intangible assets recognized as part of this transaction were $15.0 million and $5.1 million, respectively. The $15.0 million of goodwill is not deductible for tax purposes.

 

7


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

On April 30, 2012, the Company acquired ERC. ERC is a leader in the manufacture of gas liquid separations and detection solutions for the life science, analytical instrumentation and clinical chemistry markets. ERC’s pioneering products include in-line membrane vacuum degassing solutions, refractive index detectors and ozone generation systems. ERC’s original equipment degassing solutions are considered the “standard” for many of the world’s leading instrument producers. Located in Kawaguchi, Japan, ERC has annual revenues of approximately $27.0 million (¥2.14 billion) and operates as part of the IH&S platform within the Health & Science Technologies segment. The Company acquired ERC for an aggregate purchase price of $18.3 million (¥1.47 billion), consisting of $13.6 million in cash and assumption of approximately $4.7 million of debt. The cash payment was financed with borrowings under the company’s Revolving Facility. Goodwill and intangible assets recognized as part of this transaction were $10.8 million and $5.6 million, respectively. The $10.8 million of goodwill is not deductible for tax purposes.

The purchase price for PPC and ERC has been allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition. The Company is in the process of obtaining or finalizing appraisals of tangible and intangible assets and it is continuing to evaluate the initial purchase price allocations, as of the acquisition date, which will be adjusted as additional information relative to the fair values of the assets and liabilities of the businesses become known. Accordingly, management has used its best estimate in the initial purchase price allocation as of the date of these financial statements.

The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values, is as follows:

 

     ERC     PPC     Total  

Accounts receivable

   $ 5,766      $ 877      $ 6,643   

Inventory

     4,217        932        5,149   

Other current assets, net of cash acquired

     417        328        745   

Property, plant and equipment

     2,738        1,985        4,723   

Goodwill

     10,837        15,012        25,849   

Intangible assets

     5,642        5,094        10,736   

Other assets

     67        13        80   
  

 

 

   

 

 

   

 

 

 

Total assets acquired

     29,684        24,241        53,925   

Total liabilities assumed

     (16,073     (3,651     (19,724
  

 

 

   

 

 

   

 

 

 

Net assets acquired

   $ 13,611      $ 20,590      $ 34,201   
  

 

 

   

 

 

   

 

 

 

Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisitions reflects the strategic fit and 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

   $ 1,017         15   

Customer relationships

     7,585         6   

Unpatented technology

     2,134         6   
  

 

 

    

2012 acquired intangible assets

   $ 10,736      
  

 

 

    

 

8


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

The Company incurred $1.8 million of acquisition-related transaction costs in the first six months of 2012. These costs were recorded in selling, general and administrative expense and were related to completed transactions, pending transactions and potential transactions, including certain transactions that ultimately were not completed.

2011 Acquisitions

On January 31, 2011, the Company acquired the membership interests of AT Films. AT Films specializes in optical components and coatings for applications in the fields of scientific research, defense, aerospace, telecommunications and electronics manufacturing. AT Films’ core competence is the design and manufacture of filters, splitters, reflectors and mirrors with the precise physical properties required to support their customers’ most challenging and cutting-edge optical applications. Headquartered in Boulder, Colorado, AT Films has annual revenues of approximately $9.0 million. AT Films operates within the Health & Science Technologies segment as a part of the IOP platform. The Company acquired AT Films for an aggregate purchase price of $34.5 million, consisting of $31.8 million in cash and contingent consideration valued at approximately $2.7 million as of the opening balance sheet date. In February 2012, the Company paid $1.5 million on the contingent consideration arrangement. The maximum remaining liability is $1.5 million, which is reflected in Accrued expenses and is expected to be paid in the first quarter of 2013. Goodwill and intangible assets recognized as part of this transaction were $18.2 million and $11.4 million, respectively. The $18.2 million of goodwill is deductible for tax purposes.

On March 11, 2011, the Company completed the acquisition of Microfluidics. Microfluidics is a global leader in the design and manufacture of laboratory and commercial equipment used in the production of micro and nano scale materials for the pharmaceutical and chemical markets. Microfluidics is the exclusive producer of the Microfluidizer® family of high shear fluid processors for uniform particle size reduction, robust cell disruption and nanoparticle creation. Microfluidics operates within the Health & Science Technologies segment as a part of the Material Process Technology (“MPT”) platform. The Company acquired Microfluidics for an aggregate purchase price of $18.5 million in cash. Headquartered in Newton, Massachusetts, Microfluidics has annual revenues of approximately $16.0 million. Goodwill and intangible assets recognized as part of this transaction were $5.9 million and $9.7 million, respectively. The $5.9 million of goodwill is not deductible for tax purposes.

On June 10, 2011, the Company completed the acquisition of CVI Melles Griot (“MG”). CVI MG is a global leader in the design and manufacture of precision photonic solutions used in the life sciences, research, semiconductor, security and defense markets. CVI MG’s innovative products are focused on the generation, control and productive use of light for a variety of key science and industrial applications. Products include specialty lasers and light sources, electro-optical components, specialty shutters, opto-mechanical assemblies and components. In addition, CVI MG produces critical components for life science research, electronics manufacturing, military and other industrial applications including lenses, mirrors, filters and polarizers. These components are utilized in a number of important applications such as spectroscopy, cytometry (cell counting), guidance systems for target designation, remote sensing, menology and optical lithography. CVI MG operates within the Health and Science Technologies segment as part of the IOP platform. The Company acquired CVI MG for an aggregate purchase price of $394.7 million, consisting of $393.3 million in cash and the assumption of approximately $1.4 million of debt. Approximately $365.0 million of the cash payment was financed with borrowings under the Company’s Revolving Facility. Headquartered in Albuquerque, New Mexico, with manufacturing sites located on three continents, CVI MG had annual revenues of approximately $178.0 million in 2011. Goodwill and intangible assets recognized as part of this transaction were $208.5 million and $115.8 million, respectively. Approximately $117.7 million of goodwill is deductible for tax purposes.

 

9


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

The purchase price for PPC, ERC, CVI MG, AT Films and Microfluidics has been allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition.

4.    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, including 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.

 

10


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

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. Certain prior year amounts have been revised to include the Dispensing Equipment segment as part of the Fire & Safety/Diversified Products segment and to reflect the movement of our Trebor business unit from the Health & Science Technologies segment to the Fluid & Metering Technologies segment.

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2012     2011     2012     2011  
     (In thousands)  

Net sales:

        

Fluid & Metering Technologies:

        

External customers

   $ 210,365      $ 208,800      $ 422,831      $ 408,334   

Intersegment sales

     350        96        602        236   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total group sales

     210,715        208,896        423,433        408,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Health & Science Technologies:

        

External customers

     168,742        140,074        341,963        268,987   

Intersegment sales

     1,821        400        2,386        721   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total group sales

     170,563        140,474        344,349        269,708   
  

 

 

   

 

 

   

 

 

   

 

 

 

Fire & Safety/Diversified Products:

        

External customers

     115,037        104,924        218,767        203,566   

Intersegment sales

     887        268        1,207        513   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total group sales

     115,924        105,192        219,974        204,079   
  

 

 

   

 

 

   

 

 

   

 

 

 

Intersegment elimination

     (3,058     (764     (4,195     (1,470
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

   $ 494,144      $ 453,798      $ 983,561      $ 880,887   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income and income before income taxes:

        

Fluid & Metering Technologies

   $ 46,302      $ 41,486      $ 90,828      $ 83,338   

Health & Science Technologies

     27,136        26,867        57,406        56,366   

Fire & Safety/Diversified Products

     26,098        26,865        49,786        48,007   

Corporate office and other

     (10,886     (15,589     (24,801     (30,361
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

     88,650        79,629        173,219        157,350   

Interest expense

     10,536        6,720        21,198        13,174   

Other income (expense)-net

     (230     347        (113     (560
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 77,884      $ 73,256      $ 151,908      $ 143,616   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     June 30,
2012
     December 31,
2011
 
     (In thousands)  

Assets:

     

Fluid & Metering Technologies

   $ 1,036,447       $ 1,072,023   

Health & Science Technologies

     1,221,118         1,178,653   

Fire & Safety/Diversified Products

     447,717         442,400   

Corporate office and other(1)

     151,520         143,031   
  

 

 

    

 

 

 

Total assets

   $ 2,856,802       $ 2,836,107   
  

 

 

    

 

 

 

 

(1)

Includes intersegment eliminations.

 

11


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

5.    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, 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 two-class method prescribed by ASC 260. Net income attributable to common shareholders was reduced by $0.2 million and $0.4 million for the three months ended June 30, 2012 and 2011, respectively. Net income attributable to common shareholders was reduced by $0.4 million and $0.8 million for the six months ended June 30, 2012 and 2011, respectively.

Basic weighted average shares reconciles to diluted weighted average shares as follows:

 

    Three Months
Ended June 30,
    Six Months
Ended June 30,
 
    2012     2011     2012     2011  
    (In thousands)  

Basic weighted average common shares outstanding

    83,180        82,151        82,987        81,790   

Dilutive effect of stock options, unvested shares, and DCUs

    910        1,627        1,004        1,717   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

    84,090        83,778        83,991        83,507   
 

 

 

   

 

 

   

 

 

   

 

 

 

Options to purchase approximately 1.3 million and 0.7 million shares of common stock for both the three and six months ended June 30, 2012 and 2011, respectively, were not included in the computation of diluted EPS because the exercise price was greater than the average market price of the Company’s common stock and, therefore, the effect of their inclusion would be antidilutive.

6.    Inventories

The components of inventories as of June 30, 2012 and December 31, 2011 were:

 

     June 30,
2012
     December 31,
2011
 
     (In thousands)  

Raw materials and component parts

   $ 158,381       $ 155,577   

Work-in-process

     35,985         40,506   

Finished goods

     60,131         58,175   
  

 

 

    

 

 

 

Total

   $ 254,497       $ 254,258   
  

 

 

    

 

 

 

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

 

12


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

7.    Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2012, by reportable business segment, were as follows:

 

     Fluid &
Metering
Technologies
    Health &
Science
Technologies
     Fire &  Safety/
Diversified
Products
    Total  

Balance at December 31, 2011(1)

   $ 541,640      $ 648,906       $ 240,820      $ 1,431,366   

Acquisition adjustments

            1,424                1,424   

Foreign currency translation

     (3,527     120         (4,263     (7,670

Acquisition

            25,849                25,849   
  

 

 

   

 

 

    

 

 

   

 

 

 

Balance at June 30, 2012

   $ 538,113      $ 676,299       $ 236,557      $ 1,450,969   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1)

Revised to reflect the movement of the Dispensing Equipment segment to the Fire & Safety/Diversified Products segment and the transfer of $20.6 million of goodwill related to the movement of our Trebor business unit within the Health & Science Technologies segment to the Fluid & Metering Technologies segment.

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 concluded that the fair value of each of the reporting units was in excess of the carrying value as of October 31, 2011. However, as of June 30, 2012 if market conditions deteriorate, the Water reporting unit, the Optics and Photonics reporting unit and the CVI and Melles Griot trade names, could potentially be at risk for an impairment charge. As of June 30, 2012, the total goodwill balance of the Water and the Optics and Photonics reporting units was $217.9 million and $279.4 million, respectively.

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at June 30, 2012 and December 31, 2011:

 

    At June 30, 2012           At December 31, 2011  
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net     Weighted
Average
Life
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net  
    (In thousands)                          

Amortized intangible assets:

             

Patents

  $ 10,475      $ (3,726   $ 6,749        11      $ 11,506      $ (4,315   $ 7,191   

Trade names

    75,981        (22,850     53,131        17        72,823        (18,205     54,618   

Customer relationships

    227,168        (81,355     145,813        10        221,076        (69,280     151,796   

Non-compete agreements

    3,196        (2,708     488        2        4,801        (4,053     748   

Unpatented technology

    72,532        (19,670     52,862        11        70,741        (15,617     55,124   

Other

    6,612        (3,288     3,324        10        6,793        (3,156     3,637   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Total amortized intangible assets

    395,964        (133,597     262,367          387,740        (114,626     273,114   

Unamortized intangible assets:

             

Banjo trade name

    62,100               62,100          62,100               62,100   

CVI and Melles Griot trade names

    47,008               47,008          47,008               47,008   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Total intangible assets

  $ 505,072      $ (133,597   $ 371,475        $ 496,848      $ (114,626   $ 382,222   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

 

13


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

The unamortized trade names are indefinite lived intangible assets which are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.

8.    Accrued Expenses

The components of accrued expenses as of June 30, 2012 and December 31, 2011 were:

 

     June 30,
2012
     December 31,
2011
 
     (In thousands)  

Payroll and related items

   $ 48,900       $ 51,728   

Management incentive compensation

     8,306         17,402   

Income taxes payable

     19,659         8,456   

Deferred income taxes

     169         167   

Insurance

     5,393         6,495   

Warranty

     4,361         4,417   

Deferred revenue

     4,914         7,954   

Restructuring

     2,754         5,875   

Liability for uncertain tax positions

     1,792         1,061   

Accrued interest

     1,328         1,424   

Contingent consideration for acquisition

     1,500         1,500   

Other

     25,091         24,217   
  

 

 

    

 

 

 

Total accrued expenses

   $ 124,167       $ 130,696   
  

 

 

    

 

 

 

9.    Other Noncurrent Liabilities

The components of noncurrent liabilities as of June 30, 2012 and December 31, 2011 were:

 

     June 30,
2012
     December 31,
2011
 
     (In thousands)  

Pension and retiree medical obligations

   $ 86,392       $ 91,542   

Liability for uncertain tax positions

     4,201         5,262   

Deferred revenue

     4,959         3,198   

Other

     14,518         15,844   
  

 

 

    

 

 

 

Total other noncurrent liabilities

   $ 110,070       $ 115,846   
  

 

 

    

 

 

 

10.    Borrowings

Borrowings at June 30, 2012 and December 31, 2011 consisted of the following:

 

     June 30,
2012
     December 31,
2011
 
     (In thousands)  

Revolving Facility

   $       $ 50,798   

4.2% Senior Notes, due December 2021

     349,161         349,125   

4.5% Senior Notes, due December 2020

     298,621         298,555   

2.58% Senior Euro Notes, due June 2015

     100,918         104,655   

Other borrowings

     10,641         5,677   
  

 

 

    

 

 

 

Total borrowings

     759,341         808,810   

Less current portion

     5,616         2,444   
  

 

 

    

 

 

 

Total long-term borrowings

   $ 753,725       $ 806,366   
  

 

 

    

 

 

 

 

14


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

On June 27, 2011, the Company entered into a credit agreement (the “Credit Agreement”) along with certain of its subsidiaries, as borrowers (the “Borrowers”), with Bank of America, N.A., as administrative agent, swing line lender and an issuer of letters of credit, and other lenders party thereto which provided for a new revolving credit facility (the “Revolving Facility”). The Revolving Facility replaced the Company’s previous $600.0 million credit facility, which expired in December 2011.

The Revolving Facility is in an aggregate principal amount of $700.0 million with a maturity date of June 27, 2016. The maturity date may be extended under certain conditions for an additional one-year term prior to the second anniversary of the initial closing date of June 27, 2011. Up to $75.0 million of the Revolving Facility is available for the issuance of letters of credit. Additionally, up to $25.0 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 may not exceed $950.0 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 under the Credit Agreement. Under the Credit Agreement, Fluid Management Europe B.V., (“FME”) and IDEX UK Ltd. (“IDEX UK”) were approved by the lenders as designated borrowers. At June 30, 2012, FME and IDEX UK had no borrowings under the Revolving Facility.

Borrowings under the Revolving Facility bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .875% to 1.70%. Based on the Company’s credit rating at June 30, 2012, the applicable margin was 1.05%. 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 20 basis points and is payable quarterly.

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 3.25 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 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 June 30, 2012, there were no outstanding borrowings under the Revolving Facility and $7.0 million of outstanding letters of credit. The net available borrowing capacity under the Revolving Facility at June 30, 2012, was approximately $693.0 million.

On June 9, 2010, the Company completed a private placement of €81.0 million ($96.8 million) aggregate principal amount of 2.58% Series 2010 Senior Euro Notes due June 9, 2015 (“2.58% Senior Euro Notes”) pursuant to a Master Note Purchase Agreement, dated June 9, 2010 (the “Purchase Agreement”). The Purchase

 

15


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

Agreement provides for the issuance of additional series of notes in the future, provided that the aggregate principal amount outstanding under the agreement at any time does not exceed $750.0 million. The 2.58% Senior Euro Notes bear interest at a rate of 2.58% per annum, which is payable semi-annually in arrears on each June 9th and December 9th and will mature on June 9, 2015. The 2.58% Senior Euro Notes are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other senior debt. The Company may at any time prepay all or any portion of the 2.58% Senior Euro Notes; provided that any such portion is greater than 5% of the aggregate principal amount of Notes then outstanding under the Purchase Agreement. In the event of a prepayment, the Company would be required to pay an amount equal to par plus accrued interest plus a make-whole premium. The Purchase Agreement contains certain covenants that restrict the Company’s ability to, among other things, transfer or sell assets, create liens and engage in certain mergers or consolidations. In addition, the Company must comply with a leverage ratio and interest coverage ratio as set forth in the Purchase Agreement. The Purchase Agreement provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding 2.58% Senior Euro Notes will become due and payable immediately without further action or notice. In the case of payment events of defaults, any holder of the 2.58% Senior Euro Notes affected thereby may declare all the 2.58% Senior Euro Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of the 2.58% Senior Euro Notes may declare all the 2.58% Senior Euro Notes to be due and payable immediately.

On December 6, 2010, the Company completed a public offering of $300.0 million 4.5% senior notes due December 15, 2020 (“4.5% Senior Notes”). The net proceeds from the offering of $295.7 million, after deducting the $1.6 million issuance discount, the $1.9 million underwriting commission and $0.8 million offering expenses, were used to repay $250.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.5% Senior Notes bear interest at a rate of 4.5% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.5% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.5% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.5% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the 4.5% Senior Notes also require the Company to make an offer to repurchase the 4.5% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.

On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15, 2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting the $0.9 million issuance discount, the $2.3 million underwriting commission and $0.6 million offering expenses, were used to repay $306.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the 4.2% Senior Notes also require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.

Other borrowings of $10.6 million at June 30, 2012 were comprised of capital leases, debt at international locations maintained for working capital purposes and international debt as a result of acquisitions. Interest is payable on the outstanding debt balances at the international locations at rates ranging from 0.4% to 3.7% per annum.

 

16


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility and 2.58% Senior Euro Notes. The most restrictive financial covenants under these debt instruments require a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.25 to 1. At June 30, 2012, 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.

11.    Derivative Instruments

The Company enters into cash flow hedges 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. 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.

On April 15, 2010, the Company entered into a forward starting interest rate contract with a notional amount of $300.0 million with a settlement date in December 2010. This contract was entered into in anticipation of the issuance of the 4.5% Senior Notes and was designed to lock in the market interest rate as of April 15, 2010. In December 2010, the Company settled and paid this interest rate contract for $31.0 million. The $31.0 million is being amortized into interest expense over the 10 year term of the 4.5% Senior Notes, which results in an effective interest rate of 5.8%.

On July 12, 2011, the Company entered into a forward starting interest rate contract with a notional amount of $350.0 million and a settlement date of September 30, 2011. This contract was entered into in anticipation of the issuance of the 4.2% Senior Notes and was designed to lock in the market interest rate as of July 12, 2011. On September 29, 2011, the Company settled this interest rate contract for $34.7 million with a payment made on October 3, 2011. Simultaneously, the Company entered into a separate interest rate contract with a notional amount of $350.0 million and a settlement date of February 28, 2012. The contract was entered into in anticipation of the expected issuance of the 4.2% Senior Notes and was designed to maintain the market rate as of July 12, 2011. In December 2011, the Company settled and paid the September interest rate contract for $4.0 million, resulting in a total settlement of $38.7 million. Of the $38.7 million, $0.8 was recognized as other expense in 2011 and the balance of $37.9 million is being amortized into interest expense over the 10 year term of the 4.2% Senior Notes, which results in an effective interest rate of 5.3%.

As of June 30, 2012, the Company did not have any interest rate contracts outstanding.

 

17


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

The following table summarizes the gain (loss) recognized and the amounts and location of income (expense) and gain (loss) reclassified into income for interest rate contracts and foreign currency contracts for June 30, 2012 and 2011:

 

     Gain
Recognized in Other
Comprehensive
Income
     (Expense)
and Gain
Reclassified into
Income
       
     Three Months Ended June 30,     Income
Statement  Caption
 
         2012              2011              2012             2011        
     (In thousands)        

Interest rate agreements

   $       $ 956       $ (1,920   $ (1,518     Interest expense   

Foreign exchange contracts

                            107        Sales   

 

     Gain (Loss)
Recognized in Other
Comprehensive
Income
    (Expense) and Gain
Reclassified into
Income
       
     Six Months Ended June 30,     Income
Statement  Caption
 
         2012              2011             2012             2011        
     (In thousands)        

Interest rate agreements

   $       $ 1,911      $ (3,845   $ (3,078     Interest expense   

Foreign exchange contracts

             (55            227        Sales   

Approximately $7.6 million of the pre-tax amount included in accumulated other comprehensive income (loss) in shareholders’ equity at June 30, 2012 will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.

12.    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 and (liabilities) at fair value on a recurring basis in the balance sheet at June 30, 2012 and December 31, 2011:

 

     Basis of Fair Value Measurements  
     Balance at
June 30,  2012
    Level 1      Level 2      Level 3  
     (In thousands)  

Money market investment

   $ 17,707      $ 17,707       $       $   

Available for sale securities

     2,618        2,618                   

Contingent consideration

     (1,500                     (1,500

 

18


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

     Basis of Fair Value Measurements  
     Balance at
December 31,  2011
    Level 1      Level 2      Level 3  
     (In thousands)  

Money market investment

   $ 11,899      $ 11,899       $       $   

Available for sale securities

     2,785        2,785                   

Contingent consideration

     (3,000                     (3,000

There were no transfers of assets or liabilities between Level 1 and Level 2 during the first six months of 2012 or 2011.

In determining the fair value of the Company’s contingent consideration upon acquisition of AT Films, the Company used a probability weighted estimate adjusted for the time value of money. In February 2012, the Company paid $1.5 million on the contingent consideration arrangement. The maximum remaining liability is $1.5 million, which is reflected in Accrued expenses and is expected to be paid in the first quarter of 2013.

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 June 30, 2012, the fair value of our Revolving Facility, 2.58% Senior Euro Notes, 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 $782.6 million compared to the carrying value of $748.7 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.

13.    Common and Preferred Stock

On December 6, 2011, the Company announced that its Board of Directors increased the authorized level for repurchases of its common stock by approximately $50.0 million. The increased authorization is in addition to the approximately $75.0 million that remains available from the prior authorization approved by the Board of Directors on April 21, 2008, resulting in a total authorized repurchase amount of $125.0 million. During the six months ended June 30, 2012, the Company has purchased a total of 0.9 million shares at a cost of approximately $36.0 million.

At June 30, 2012 and December 31, 2011, 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 issued at June 30, 2012 and December 31, 2011.

14.    Share-Based Compensation

During the six months ended for both June 30, 2012 and 2011, the Company granted approximately 0.7 million stock options and 0.2 million unvested shares, respectively.

 

19


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

Weighted average option fair values and assumptions for the periods specified are disclosed in the following table:

 

     Three Months Ended
June 30,
     2012   2011

Weighted average fair value of option grants

   $ 11.23   $ 12.89

Dividend yield

   1.83%   1.35%

Volatility

   31.91%   31.96%

Risk-free forward interest rate

   0.19% - 3.99%   0.26% - 5.62%

Expected life (in years)

   5.92   5.89

 

     Six Months Ended
June 30,
     2012   2011

Weighted average fair value of option grants

   $ 11.44   $ 12.31

Dividend yield

   1.58%   1.45%

Volatility

   32.01%   32.73%

Risk-free forward interest rate

   0.17% - 3.98%   0.28% - 5.62%

Expected life (in years)

   5.98   6.13

The assumptions are as follows:

 

   

The Company estimated volatility using its historical share price performance over the contractual term of the option.

 

   

The Company uses historical data to estimate the expected life of the option. The expected life assumption for the three and six months ended June 30, 2012 and 2011 is an output of the Binomial lattice option-pricing model, which incorporates vesting provisions, rate of voluntary exercise and rate of post-vesting termination over the contractual life of the option to define expected employee behavior.

 

   

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option. For the three and six months ended June 30, 2012 and 2011, we present the range of risk-free one-year forward rates, derived from the U.S. treasury yield curve, utilized in the Binomial lattice option-pricing model.

 

   

The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.

The Company’s policy is to recognize compensation cost on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s general policy is to issue authorized and unissued shares of common stock to satisfy stock option exercises or grants of unvested shares.

 

20


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

Total compensation cost for the stock options is as follows:

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2012     2011     2012     2011  
     (In thousands)  

Cost of goods sold

   $ 189      $ 208      $ 482      $ 443   

Selling, general and administrative expenses

     1,462        1,930        3,428        3,983   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense before income taxes

     1,651        2,138        3,910        4,426   

Income tax benefit

     (492     (716     (1,200     (1,452
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense after income taxes

   $ 1,159      $ 1,422      $ 2,710      $ 2,974   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation cost for the unvested shares is as follows:

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2012     2011     2012     2011  
     (In thousands)  

Cost of goods sold

   $ 197      $ 150      $ 603      $ 298   

Selling, general and administrative expenses

     1,667        2,945        3,663        5,358   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense before income taxes

     1,864        3,095        4,266        5,656   

Income tax benefit

     (477     (582     (1,140     (1,086
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense after income taxes

   $ 1,387      $ 2,513      $ 3,126      $ 4,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees and $0.3 million of compensation cost was capitalized as part of inventory as of June 30, 2012, while $0.2 million was capitalized as of December 31, 2011.

As of June 30, 2012, there was $11.3 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, and $12.1 million of total unrecognized compensation cost related to unvested shares that is expected to be recognized over a weighted-average period of 1.2 years.

15.    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 June 30,  
     2012     2011  
     U.S.     Non-U.S.     U.S.     Non-U.S.  
     (In thousands)  

Service cost

   $ 547      $ 336      $ 460      $ 211   

Interest cost

     1,083        548        1,132        595   

Expected return on plan assets

     (1,186     (260     (1,198     (282

Net amortization

     1,836        84        1,081        113   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 2,280      $ 708      $ 1,475      $ 637   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

     Pension Benefits  
     Six Months Ended June 30,  
     2012     2011  
     U.S.     Non-U.S.     U.S.     Non-U.S.  
     (In thousands)  

Service cost

   $ 1,033      $ 678      $ 920      $ 413   

Interest cost

     2,175        1,105        2,264        1,169   

Expected return on plan assets

     (2,397     (517     (2,396     (559

Net amortization

     3,427        167        2,162        223   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 4,238      $ 1,433      $ 2,950      $ 1,246   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Other Postretirement Benefits  
     Three Months Ended June 30,     Six Months Ended June 30,  
         2012             2011             2012             2011      
     (In thousands)  

Service cost

   $ 191      $ 173      $ 381      $ 346   

Interest cost

     228        260        457        519   

Net amortization

     (37     (39     (74     (78
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 382      $ 394      $ 764      $ 787   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company previously disclosed in its financial statements for the year ended December 31, 2011, that it expected to contribute approximately $9.4 million to its pension plans and $0.9 million to its other postretirement benefit plans in 2012. As of June 30, 2012, $5.3 million of contributions have been made to the pension plans and $0.3 million have been made to its other postretirement benefit plans. The Company presently anticipates contributing up to an additional $4.7 million in 2012 to fund its pension plans and other postretirement benefit plans.

16.    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 adverse effect on its business, financial condition, results of operations or cash flows.

17.    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 $23.5 million in the second quarter of 2012 from $23.1 million in the second quarter of 2011. The effective tax rate decreased to 30.2% for the second quarter of 2012 compared to 31.5% in the second quarter of 2011 due to the mix of global pre-tax income among jurisdictions, a decrease in the amount of disallowed executive compensation expense, and as a result of recent acquisitions.

The provision for income taxes decreased to $45.4 million in the first six months of 2012 from $45.5 million in the same period of 2011. The effective tax rate decreased to 29.9% for the first six months of 2012 compared to 31.7% in the same period of 2011 due to the mix of global pre-tax income among jurisdictions, a decrease in the amount of disallowed executive compensation expense, and as a result of recent acquisitions.

 

22


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

 

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 $1.8 million.

18.    Subsequent Events

On July 20, 2012, the Company acquired Matcon Group Limited (“Matcon”) for cash consideration of approximately $37.5 million (£24.0 million) paid upon close and the potential to pay additional consideration contingent upon 2012 and 2013 financial results. Matcon is a global leader in material processing solutions for high value powders used in the manufacture of pharmaceuticals, food, plastics, and fine chemicals. Matcon’s innovative products include the original cone valve powder discharge system and filling, mixing and packaging systems, all of which support their customers’ automation and process requirements. Matcon’s products are critical to their customers’ need to maintain clean, reliable and repeatable formulations of prepackaged foods and pharmaceuticals while helping them achieve lean and agile manufacturing. Located in Evesham, Worcestershire, England, Matcon has annual revenues of approximately $34.4 million (£22.0 million) and will operate within the Health & Science Technologies segment in the MPT platform.

 

23


Table of Contents

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Under the Private Securities Litigation Reform Act

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 contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. These statements relate to, among other things, operating results and are indicated by words or phrases such as “expects,” “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, IDEX Corporation’s (“IDEX” or the “Company”) ability to integrate and operate acquired businesses on a profitable basis and other 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, 2011 and information contained in subsequent periodic 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 its customers’ specifications. IDEX’s products are sold in niche markets to a wide range of industries throughout the world. Accordingly, its businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where IDEX 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 these three reportable segments, the Company maintains six strategic platforms, where we will primarily invest organically and through acquisitions, and seven groups, where we will primarily focus on organic growth to drive these high value diversified businesses. The Fluid & Metering Technologies segment is comprised of the Energy, Water and Waste Water, and Chemical, Food and Process (“CFP”) platforms as well as the Agricultural group. The Health & Science Technologies segment is comprised of the Optics & Photonics, Scientific Fluidics, and MPT platforms as well as the Containment and Industrial groups. The Fire & Safety/Diversified Products segment is comprised of the Dispensing, Rescue, Band-It, and Fire Suppression groups.

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, including 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.

 

24


Table of Contents

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.

Some of our key financial highlights for the six months ended June 30, 2012 are as follows:

 

   

Sales of $983.6 million rose 12%; organic sales — excluding acquisitions and foreign currency translation — were up 6%.

 

   

Operating income of $173.2 million increased 10% compared to 2011.

 

   

Net income increased 9% to $106.5 million.

 

   

Diluted EPS of $1.27 increased 10 cents compared to 2011.

Our projected third quarter 2012 EPS is in the range of $0.62 to $0.64. Given the second quarter results and the challenging economic environment, we have revised our full year 2012 outlook downward — we now expect full year 2012 diluted EPS of $2.65 to $2.70, excluding any future restructuring related charges and the impact from the recently announced Matcon acquisition. Full year diluted EPS exceeding the top end of our range would be predicated on continued strong U.S. and emerging markets and a stabilization in Europe.

Results of Operations

The following is a discussion and analysis of our results of operations for the three and six month periods ended June 30, 2012 and 2011. Segment operating income excludes unallocated corporate operating expenses. Certain prior year amounts have been revised to include the Dispensing Equipment segment as part of the Fire & Safety/Diversified Products segment and to reflect the movement of our Trebor business unit from the Health & Science Technologies segment to the Fluid & Metering Technologies segment.

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.

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.

 

25


Table of Contents

Consolidated Results in the Three Months Ended June 30, 2012 Compared with the Same Period of 2011

 

     Three Months
Ended
June  30,
 
(in thousands)    2012     2011  

Net sales

   $ 494,144      $ 453,798   

Operating income

     88,650        79,629   

Operating margin

     17.9     17.5

Depreciation and amortization

   $ 19,203      $ 16,954   

Depreciation and amortization as a percentage of net sales

     3.9     3.7

Sales in the three months ended June 30, 2012 were $494.1 million, a 9% increase from the comparable period last year. This increase reflects a 6% increase in organic sales, 6% from acquisitions (CVI MG — June 2011 and ERC — April 2012) and 3% unfavorable foreign currency translation. International sales represented approximately 51% of total sales in the current period compared with 53% in the same period in 2011.

For the second quarter of 2012, Fluid & Metering Technologies contributed 43% of sales and 47% of operating income; Health & Science Technologies accounted for 34% of sales and 27% of operating income; and Fire & Safety/Diversified Products represented 23% of sales and 26% of operating income.

Gross profit of $203.1 million in the second quarter of 2012 increased $18.3 million, or 10%, from 2011. Gross profit as a percent of sales, or gross margins, was 41.1% in the second quarter of 2012 and 40.7% in 2011. The increase in gross margin primarily reflects volume leverage and an acquisition fair value inventory charge for CVI MG recorded in 2011.

Selling, general and administrative (“SG&A”) expenses increased to $111.9 million in the second quarter of 2012 from $105.2 million in 2011. The $6.7 million increase reflects approximately $7.7 million for incremental costs from new acquisitions and $1.8 million in volume related expenses, partially offset by a $2.8 million gain recorded in 2011 from the sale of a facility in Italy. As a percentage of sales, SG&A expenses were 22.6% for 2012 and 23.2% for 2011.

During the three months ended June 30, 2012, the Company recorded pre-tax restructuring expenses totaling $2.6 million. These restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas, the termination of a defined benefit pension plan and facility rationalization resulting from the Company’s cost savings initiatives.

Operating income of $88.7 million in the second quarter of 2012 was up from the $79.6 million recorded in 2011, primarily reflecting an increase in volume and improved productivity. Operating income as a percent of sales, or operating margin, of 17.9% in the second quarter of 2012 was up from 17.5% in 2011 primarily due to volume leverage and productivity, partially offset by increased expenses from restructuring-related charges and the dilutive impact from acquisitions.

Other expense, net was $0.2 million in the second quarter of 2012 compared with a $0.3 million gain recorded in 2011, primarily due to higher losses on foreign currency.

Interest expense increased to $10.5 million in 2012 from $6.7 million in 2011. The increase was principally due to higher debt levels issued in conjunction with the CVI MG acquisition and higher interest rates associated with fixed rate debt.

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 increased to $23.5 million in the second quarter of 2012 compared to $23.1 million in the second quarter of 2011. The effective tax rate decreased to 30.2% for the second quarter of 2012 compared to 31.5% in the second quarter of 2011. The decrease was due to the mix of global pre-tax income among jurisdictions, a decrease in the amount of disallowed executive compensation expense, and as a result of recent acquisitions.

 

26


Table of Contents

Net income for the current quarter of $54.4 million increased from the $50.2 million earned in 2011. Diluted earnings per share in the second quarter of 2012 of $0.65 increased $0.05, or 8%, compared with 2011.

Fluid & Metering Technologies Segment

 

     Three Months
Ended
June 30,
 
(in thousands)    2012     2011  

Net sales

   $ 210,715      $ 208,896   

Operating income

     46,302        41,486   

Operating margin

     22.0     19.9

Depreciation and amortization

   $ 7,408      $ 8,240   

Depreciation and amortization as a percentage of net sales

     3.5     3.9

Sales of $210.7 million increased $1.8 million, or 1%, in the second quarter of 2012 compared with 2011. This reflects 3% organic growth and 2% unfavorable foreign currency translation. The increase in organic sales was largely attributed to growth across our Energy platform; CFP platform; and our Agricultural group. In the second quarter of 2012, organic sales increased approximately 6% domestically and were flat internationally. Organic sales to customers outside the U.S. were approximately 47% of total segment sales during the second quarter of 2012, compared with 46% in 2011.

Sales within our Energy platform increased compared to the second quarter of 2011, due to strong demand for systems used in upstream and downstream oil and gas applications in North America, Middle East, Africa, Asia and Russia, partially offset by weakness in Europe. Domestic sales growth within Energy was driven by the transportation end markets and strength in our distribution channel. Sales within our CFP platform increased compared to the second quarter of 2011 on strong general industrial and chemical demand in both our OEM and distributor channels in North America to support new capacity build-out and the after-market. Sales within our Agriculture group increased due to strong brand based seasonal demand. Offsetting the sales increases above was a decrease in sales within our Water and Waste Water platform, as the platform experienced ongoing municipal water end market softness internationally.

Operating income and operating margin of $46.3 million and 22.0%, respectively, were higher than the $41.5 million and 19.9% recorded in the second quarter of 2011, primarily due to productivity and benefits from prior period restructuring activities.

Health & Science Technologies Segment

 

     Three Months
Ended
June 30,
 
(in thousands)    2012     2011  

Net sales

   $ 170,563      $ 140,474   

Operating income

     27,136        26,867   

Operating margin

     15.9     19.1

Depreciation and amortization

   $ 9,559      $ 5,990   

Depreciation and amortization as a percentage of net sales

     5.6     4.3

Sales of $170.6 million increased $30.1 million, or 21%, in the second quarter of 2012 compared with 2011. This reflects 3% organic growth, 19% growth from acquisitions (CVI MG and ERC) and 1% unfavorable foreign currency translation. In the second quarter of 2012, organic sales increased 3% both domestically and internationally. Organic sales to customers outside the U.S. were approximately 51% of total segment sales in the second quarter of 2012, compared with 47% in 2011.

Sales within our MPT platform increased compared to the second quarter of 2011 due to strength in the Asian food and pharmaceutical markets. Sales within our Scientific Fluidics platform increased compared to the second quarter of 2011 due to growth in Asia within the Life Sciences end market, partially offset by market

 

27


Table of Contents

softness on inconsistent OEM demand in North America. Sales within our Containment group increased slightly compared to the second quarter of 2011 due to strong oil & gas distributor sales. Sales within our Optics and Photonics platform increased compared to the second quarter of 2011 primarily as a result of our CVI MG acquisition. However, 2012 sales within our Optics and Photonics platform are less than anticipated due to weak demand in the defense, biotech and electronics markets. Sales within our Industrial group increased compared to the second quarter of 2011 due to higher distributor sales, partially offset by slower sales in the automotive end markets and in Europe.

Operating income of $27.1 million in the second quarter of 2012 was up slightly from the $26.9 million recorded in 2011, primarily due to acquisitions and productivity from prior period restructuring actions, partially offset by $1.1 million of current period restructuring charges. Operating margin of 15.9% in the second quarter of 2012 was down from 19.1% in 2011, due to the dilutive impact from acquisitions and $1.1 million of current period restructuring charges.

Fire & Safety/Diversified Products Segment

 

     Three Months
Ended
June 30,
 
(in thousands)    2012     2011  

Net sales

   $ 115,924      $ 105,192   

Operating income

     26,098        26,865   

Operating margin

     22.5     25.5

Depreciation and amortization

   $ 1,824      $ 2,375   

Depreciation and amortization as a percentage of net sales

     1.6     2.3

Sales of $115.9 million increased $10.7 million, or 10%, in the second quarter of 2012 compared with the second quarter of 2011. This reflects 15% organic growth and 5% unfavorable foreign currency translation. In the second quarter of 2012, organic sales increased 33% domestically and 5% internationally. Organic sales to customers outside the U.S. were approximately 59% of total segment sales in the second quarter of 2012, compared with 64% in 2011.

Sales within our Dispensing group increased as a result of a large replenishment project in the North American market which began shipping in the second quarter, partially offset by weakness in European markets. The sales increase within our Band-It group was driven by strength outside the core market, particularly in oil and gas applications. Sales within our Fire Suppression group increased as a result of growing sales of adjacent products in North American fire markets. Sales within our Rescue group increased as a result of robust demand for our rescue tools within emerging markets.

Operating income and operating margin of $26.1 million and 22.5%, respectively, were lower than the $26.9 million and 25.5% recorded in the second quarter of 2011, primarily due to a $2.8 million gain on the sale of a facility in 2011 and $1.0 million of restructuring charges within our Fire Suppression group, partially offset by improved productivity and the benefit of prior period restructuring activities.

Consolidated Results in the Six Months Ended June 30, 2012 Compared with the Same Period of 2011

 

     Six Months
Ended
June 30,
 
(in thousands)    2012     2011  

Net sales

   $ 983,561      $ 880,887   

Operating income

     173,219        157,350   

Operating margin

     17.6     17.9

Depreciation and amortization

   $ 38,393      $ 32,576   

Depreciation and amortization as a percentage of net sales

     3.9     3.7

 

28


Table of Contents

Sales in the six months ended June 30, 2012 were $983.6 million, a 12% increase from the comparable period last year. This increase reflects a 6% increase in organic sales, 8% from acquisitions (AT Films — January 2011, Microfluidics — March 2011, CVI MG — June 2011 and ERC — April 2012) and 2% unfavorable foreign currency translation. International sales represented approximately 51% of total sales in the current period compared with 52% in the same period in 2011.

For the first six months of 2012, Fluid & Metering Technologies contributed 43% of sales and 46% of operating income; Health & Science Technologies accounted for 35% of sales and 29% of operating income; and Fire & Safety/Diversified Products represented 22% of sales and 25% of operating income.

Gross profit of $406.0 million in the first six months of 2012 increased $42.5 million, or 12%, from 2011. Gross margins were 41.3% in the first six months of both 2012 and 2011.

SG&A expenses increased to $225.3 million in the first six months of 2012 from $206.2 million in 2011. The $19.1 million increase reflects approximately $20.4 million for incremental costs from new acquisitions and $1.5 million in volume related expenses, partially offset by a $2.8 million gain recorded in 2011 from the sale of a facility in Italy. As a percentage of sales, SG&A expenses were 22.9% for 2012 and 23.4% for 2011.

During the six months ended June 30, 2012, the Company recorded pre-tax restructuring expenses totaling $7.5 million. These restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas, the termination of a defined benefit pension plan and facility rationalization resulting from the Company’s cost savings initiatives.

Operating income of $173.2 million in the first six months of 2012 was up from the $157.4 million recorded in 2011, primarily reflecting an increase in volume and improved productivity. Operating margin of 17.6% in the first six months of 2012 was down from 17.9% in 2011 primarily due to increased expenses from restructuring-related charges and the dilutive impact from acquisitions, partially offset by volume leverage and productivity.

Other expense, net of $0.1 million in 2012 was lower than the $0.6 million recorded in 2011, primarily due to an increase in interest income.

Interest expense increased to $21.2 million in 2012 from $13.2 million in 2011. The increase was principally due to higher debt levels, issued in conjunction with the CVI MG acquisition, and higher interest rates associated with fixed rate debt.

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 decreased slightly to $45.4 million for the first six months of 2012 compared to $45.5 in the same period in 2011. The effective tax rate decreased to 29.9% for the first six months of 2012 compared to 31.7% in the same period of 2011 due to the mix of global pre-tax income among jurisdictions, a decrease in the amount of disallowed executive compensation expense, and as a result of recent acquisitions.

Net income for the current period of $106.5 million increased from the $98.1 million earned in 2011. Diluted earnings per share in the first six months of 2012 of $1.27 increased $0.10, or 9%, compared with 2011.

Fluid & Metering Technologies Segment

 

     Six Months
Ended
June 30,
 
(in thousands)        2012             2011      

Net sales

   $ 423,433      $ 408,570   

Operating income

     90,828        83,338   

Operating margin

     21.5     20.4

Depreciation and amortization

   $ 14,948      $ 16,238   

Depreciation and amortization as a percentage of net sales

     3.5     4.0

 

29


Table of Contents

Sales of $423.4 million increased $14.9 million, or 4%, in the first six months of 2012 compared with 2011. This reflects 6% organic growth and 2% unfavorable foreign currency translation. The increase in organic sales was largely attributed to growth across our Energy platform, CFP platform, and our Agricultural group. In the first six months of 2012, organic sales increased approximately 7% domestically and 4% internationally. Organic sales to customers outside the U.S. were approximately 47% of total segment sales during the first six months of 2012, compared with 45% in 2011.

Sales within our Energy platform increased compared to the first six months of 2011, due to strong demand for systems used in upstream and downstream oil and gas applications both domestically and internationally. Additionally, large Energy project sales to emerging markets drove international sales growth, partially offset by weakness in the European downstream markets due to general economic conditions. Domestic sales growth within Energy was driven by the transportation end markets and strength in our distribution channel. Sales within our CFP platform increased compared to the first six months of 2011 on strong general industrial and chemical demand in both our OEM and distributor channels in North America and Asia. In addition, CFP sales growth accelerated in emerging markets. Sales within our Agriculture group increased due to robust demand in North America. Offsetting the sales increases above was a decrease in sales within our Water and Waste Water platform, as the platform continues to experience ongoing municipal water end market softness due to municipal funding headwinds.

Operating income and operating margin of $90.8 million and 21.5%, respectively, were higher than the $83.3 million and 20.4% recorded in the first six months of 2011, primarily due to volume leverage, productivity and benefits from prior period restructuring activities, partially offset by $3.0 million of current period restructuring charges.

Health & Science Technologies Segment

 

     Six Months
Ended
June 30,
 
(in thousands)    2012     2011  

Net sales

   $ 344,349      $ 269,708   

Operating income

     57,406        56,366   

Operating margin

     16.7     20.9

Depreciation and amortization

   $ 19,020      $ 10,974   

Depreciation and amortization as a percentage of net sales

     5.5     4.1

Sales of $344.3 million increased $74.6 million, or 28%, in the first six months of 2012 compared with 2011. This reflects 3% organic growth, 26% growth from acquisitions (AT Films, Microfluidics, CVI MG and ERC) and 1% unfavorable foreign currency translation. In the first six months of 2012, organic sales increased 1% domestically and 4% internationally. Organic sales to customers outside the U.S. were approximately 52% of total segment sales in the first six months of 2012, compared with 48% in 2011.

Sales within our MPT platform increased compared to the first six months of 2011 due a full six months of sales from Microfluidics, acquired in March 2011, strength in Asian food and pharmaceutical markets, and large project orders received in the second half of 2011, which shipped during the first six months of 2012. Sales within our Scientific Fluidics platform decreased compared to the first six months of 2011 due to slowed instrumentation end markets driven by National Institutes of Health (NIH) funding concerns, inventory reduction programs by our customers and inconsistent OEM demand in North America, partially offset by modest growth in the Life Sciences end market, particularly in Asia. Sales within our Containment group increased compared to the first six months of 2011 due to strong distributor sales and an upturn in the diesel and gas engine markets. Sales within our Optics and Photonics platform increased compared to the first six months of 2011 primarily as a result of our CVI MG acquisition. However, 2012 sales within our Optics and Photonics platform are less than anticipated due to weak demand in the defense, biotech and electronics end markets. Sales at our Industrial group decreased compared to the first six months of 2011 due to lower sales to distributors and slower sales into automotive end markets.

 

30


Table of Contents

Operating income of $57.4 million in the first six months of 2012 was up from the $56.4 million recorded in 2011, primarily due to acquisitions and productivity from prior period restructuring actions, partially offset by $2.6 million of current period restructuring charges. Operating margin of 16.7% in the first six months of 2012 was down from 20.9% in 2011, due to the dilutive impact from acquisitions and $2.6 million of current period restructuring charges.

Fire & Safety/Diversified Products Segment

 

     Six Months
Ended
June 30,
 
(in thousands)    2012     2011  

Net sales

   $ 219,974      $ 204,079   

Operating income

     49,786        48,007   

Operating margin

     22.6     23.5

Depreciation and amortization

   $ 3,603      $ 4,717   

Depreciation and amortization as a percentage of net sales

     1.6     2.3

Sales of $220.0 million increased $15.9 million, or 8%, in the first six months of 2012 compared with the first six months of 2011. This reflects 11% organic growth and 3% unfavorable foreign currency translation. In the first six months of 2012, organic sales increased 27% domestically and 2% internationally. Organic sales to customers outside the U.S. were approximately 59% of total segment sales in the first six months of 2012, compared with 64% in 2011.

Sales within our Dispensing group increased on strength in our core North American markets and a large replenishment project, which began shipping in the second quarter of 2012. The sales increase within our Band-It group was driven by general North American industrial market improvement and strength in the oil and gas applications market. Sales within our Fire Suppression group increased as a result of geographic expansions into Eastern Europe and Asian markets and through the penetration into product adjacencies. Sales within our Rescue group increased as a result of robust demand for our rescue tools within emerging markets.

Operating income of $49.8 million was higher than the $48.0 million recorded in the first six months of 2011, primarily due to volume leverage and productivity, partially offset by a $2.8 million gain on the sale of a facility in 2011. Operating margin of 22.6% in the first six months of 2012 was down from 23.5% in 2011, due to $1.6 million of restructuring charges and a $2.8 million gain on the sale of a facility in 2011.

Liquidity and Capital Resources

At June 30, 2012, working capital was $537.2 million and the current ratio was 3.1 to 1. Cash flows from operating activities for the first six months of 2012 increased $58.6 million, or 73%, to $139.5 million compared to the first six months of 2011 mainly due to higher earnings and improved working capital.

Cash flows provided by operating activities were more than adequate to fund capital expenditures of $18.7 million and $18.6 million in the first six months of 2012 and 2011, respectively. Capital expenditures were generally for machinery and equipment that improved productivity and tooling to support the Company’s global sourcing initiatives, although a portion was for business system technology and replacement of equipment and facilities. Management believes that the Company has sufficient capacity in its plants and equipment to meet expected needs for future growth.

The Company maintains the Revolving Facility, which is a $700.0 million unsecured, multi-currency bank credit facility expiring on June 27, 2016. At June 30, 2012, there were no outstanding borrowings under the Revolving Facility and outstanding letters of credit totaled approximately $7.0 million. The net available borrowing capacity under the Revolving Facility at June 30, 2012, was approximately $693.0 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,

 

31


Table of Contents

long-term debt rating and can range from .875% to 1.70%. Based on the Company’s credit rating at June 30, 2012, the applicable margin was 1.05%. 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 20 basis points and is payable quarterly.

On June 9, 2010, the Company completed a private placement of €81.0 million ($96.8 million) aggregate principal amount of 2.58% Series 2010 Senior Euro Notes due June 9, 2015 (“2.58% Senior Euro Notes”) pursuant to a Master Note Purchase Agreement, dated June 9, 2010 (the “Purchase Agreement”). The Purchase Agreement provides for the issuance of additional series of notes in the future, provided that the aggregate principal amount outstanding under the agreement at any time does not exceed $750.0 million. The 2.58% Senior Euro Notes bear interest at a rate of 2.58% per annum, which is payable semi-annually in arrears on each June 9th and December 9th and will mature on June 9, 2015. The 2.58% Senior Euro Notes are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other senior debt. The Company may at any time prepay all or any portion of the 2.58% Senior Euro Notes; provided that any such portion is greater than 5% of the aggregate principal amount of Notes then outstanding under the Purchase Agreement. In the event of a prepayment, the Company would be required to pay an amount equal to par plus accrued interest plus a make-whole premium. The Purchase Agreement contains certain covenants that restrict the Company’s ability to, among other things, transfer or sell assets, create liens and engage in certain mergers or consolidations. In addition, the Company must comply with a leverage ratio and interest coverage ratio as set forth in the Purchase Agreement. The Purchase Agreement provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding 2.58% Senior Euro Notes will become due and payable immediately without further action or notice. In the case of payment events of defaults, any holder of the 2.58% Senior Euro Notes affected thereby may declare all the 2.58% Senior Euro Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of the 2.58% Senior Euro Notes may declare all the 2.58% Senior Euro Notes to be due and payable immediately.

On December 6, 2010, the Company completed a public offering of $300.0 million 4.5% senior notes due December 15, 2020 (“4.5% Senior Notes”). The net proceeds from the offering of $295.7 million, after deducting the $1.6 million issuance discount, the $1.9 million underwriting commission and $0.8 million offering expenses, were used to repay $250.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.5% Senior Notes bear interest at a rate of 4.5% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.5% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.5% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.5% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the 4.5% Senior Notes also require the Company to make an offer to repurchase the 4.5% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.

On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15, 2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting the $0.9 million issuance discount, the $2.3 million underwriting commission and $0.6 million offering expenses, were used to repay $306.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets.

 

32


Table of Contents

The terms of the 4.2% Senior Notes also require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.

On April 15, 2010, the Company entered into a forward starting interest rate contract with a notional amount of $300.0 million with a settlement date in December 2010. This contract was entered into in anticipation of the issuance of the 4.5% Senior Notes and was designed to lock in the market interest rate as of April 15, 2010. In December 2010, the Company settled and paid this interest rate contract for $31.0 million. The $31.0 million is being amortized into interest expense over the 10 year term of the 4.5% Senior Notes, which results in an effective interest rate of 5.8%.

On July 12, 2011, the Company entered into a forward starting interest rate contract with a notional amount of $350.0 million and a settlement date of September 30, 2011. This contract was entered into in anticipation of the issuance of the 4.2% Senior Notes and was designed to lock in the market interest rate as of July 12, 2011. On September 29, 2011, the Company settled this interest rate contract for $34.7 million with a payment made on October 3, 2011. Simultaneously, the Company entered into a separate interest rate contract with a notional amount of $350.0 million and a settlement date of February 28, 2012. The contract was entered into in anticipation of the expected issuance of the 4.2% Senior Notes and was designed to maintain the market rate as of July 12, 2011. In December 2011, the Company settled and paid the September interest rate contract for $4.0 million, resulting in a total settlement of $38.7 million. Of the $38.7 million, $0.8 was recognized as other expense in 2011 and the balance of $37.9 million is being amortized into interest expense over the 10 year term of the 4.2% Senior Notes, which results in an effective interest rate of 5.3%.

There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility and 2.58% Senior Euro Notes. The most restrictive financial covenants under these debt instruments require a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.25 to 1. At June 30, 2012, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 11.0 to 1 and the leverage ratio was 1.9 to 1. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes.

On December 6, 2011, the Company announced that its Board of Directors increased the authorized level for repurchases of its common stock by approximately $50.0 million. The increased authorization is in addition to the approximately $75.0 million that remains available from the prior authorization approved by the Board of Directors on April 21, 2008, resulting in a total authorized repurchase amount of $125.0 million. During the six months ended June 30, 2012, 0.9 million shares were purchased at a cost of $36.0 million.

The Company believes current cash and cash that will be generated from operations will be sufficient to meet its operating cash requirements, planned capital expenditures, interest on all borrowings, pension and postretirement funding requirements, authorized share repurchases and annual dividend payments to holders of the Company’s stock for the remainder of 2012 and 2013. 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. As of June 30, 2012, there were no outstanding borrowings under the Revolving Facility.

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 concluded that the fair value of each of the reporting units was in excess of the carrying value as of October 31, 2011. However, as of June 30, 2012 if market conditions deteriorate, the Water reporting unit, the Optics and Photonics reporting unit and the CVI and Melles Griot trade names, could potentially be at risk for an impairment charge. As of June 30, 2012, the total goodwill balance of the Water and the Optics and Photonics reporting units was $217.9 million and $279.4 million, respectively.

 

33


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, describes the 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 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.

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 June 30, 2012, 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.

 

34


Table of Contents

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings.

The Company and seven 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. Such 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 such 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 flow.

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 flow.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information about Company purchases of its common stock during the quarter ended June 30, 2012:

 

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)
 

April 1, 2012 to April 30, 2012

     34,800       $ 43.54         34,800       $ 113,293,141   

May 1, 2012 to May 31, 2012

     591,166       $ 41.04         625,966       $ 88,926,446   

June 1, 2012 to June 30, 2012

                           $ 88,926,446   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     625,966       $ 41.25         625,966       $ 88,926,446   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

On December 6, 2011, the Company announced that its Board of Directors had increased the authorized level for repurchases of its common stock by approximately $50.0 million. The increased authorization is in addition to the approximately $75.0 million that remains available from the prior authorization approved by the Board of Directors on April 21, 2008, resulting in a total authorized repurchase amount of $125.0 million.

Item 6.    Exhibits.

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

 

35


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
 

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)

August 1, 2012

 

36


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 June 30, 2012, 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

 

37