Annual Statements Open main menu

IDEX CORP /DE/ - Quarter Report: 2013 June (Form 10-Q)

FORM 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, 2013

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 31, 2013: 81,760,702.

 

 

 


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      33  

Item 4.

   Controls and Procedures      33   

Part II. Other Information

  

Item 1.

   Legal Proceedings      34  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      34   

Item 6.

   Exhibits      34   

Signatures

     35  

Exhibit Index

     36   


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, 2013     December 31, 2012  

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 374,489      $ 318,864   

Receivables, less allowance for doubtful accounts of $5,483 at June 30, 2013 and $5,596 at December 31, 2012

     268,035        256,095   

Inventories — net

     231,504        234,950   

Other current assets

     62,072        71,956   
  

 

 

   

 

 

 

Total current assets

     936,100        881,865   

Property, plant and equipment — net

     213,384        219,161   

Goodwill

     1,329,797        1,321,727   

Intangible assets — net

     329,030        341,372   

Other noncurrent assets

     19,341        21,265   
  

 

 

   

 

 

 

Total assets

   $ 2,827,652      $ 2,785,390   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities

    

Trade accounts payable

   $ 127,292      $ 117,341   

Accrued expenses

     143,994        150,176   

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

     4,451        7,335   

Dividends payable

     18,946        16,575   
  

 

 

   

 

 

 

Total current liabilities

     294,683        291,427   

Long-term borrowings

     811,007        779,241   

Deferred income taxes

     122,291        121,349   

Other noncurrent liabilities

     120,179        128,375   
  

 

 

   

 

 

 

Total liabilities

     1,348,160        1,320,392   
  

 

 

   

 

 

 

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: 88,769,796 shares at June 30, 2013 and 87,732,405 shares at December 31, 2012

     888        877   

Additional paid-in capital

     586,108        550,682   

Retained earnings

     1,199,610        1,113,541   

Treasury stock at cost: 6,670,074 shares at June 30, 2013 and 5,005,518 shares at December 31, 2012

     (245,190     (156,699

Accumulated other comprehensive loss

     (61,924     (43,403
  

 

 

   

 

 

 

Total shareholders’ equity

     1,479,492        1,464,998   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,827,652      $ 2,785,390   
  

 

 

   

 

 

 

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,
 
     2013     2012     2013      2012  

Net sales

   $ 518,445      $ 494,144      $ 1,012,893       $ 983,561   

Cost of sales

     295,596        291,031        578,047         577,559   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     222,849        203,113        434,846         406,002   

Selling, general and administrative expenses

     123,290        111,882        240,575         225,264   

Restructuring expenses

            2,581                7,519   
  

 

 

   

 

 

   

 

 

    

 

 

 

Operating income

     99,559        88,650        194,271         173,219   

Other income (expense) — net

     (573     (230     706         (113

Interest expense

     10,597        10,536        21,154         21,198   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before income taxes

     88,389        77,884        173,823         151,908   

Provision for income taxes

     25,828        23,533        49,962         45,386   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 62,561      $ 54,351      $ 123,861       $ 106,522   
  

 

 

   

 

 

   

 

 

    

 

 

 

Basic earnings per common share

   $ 0.76      $ 0.65      $ 1.50       $ 1.28   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.76      $ 0.65      $ 1.49       $ 1.27   
  

 

 

   

 

 

   

 

 

    

 

 

 

Share data:

         

Basic weighted average common shares outstanding

     81,829        83,180        82,013         82,987   

Diluted weighted average common shares outstanding

     82,734        84,090        82,943         83,991   

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,
 
     2013      2012     2013     2012  

Net income

   $ 62,561       $ 54,351      $ 123,861      $ 106,522   

Other comprehensive income (loss)

         

Reclassification adjustments for derivatives, net of tax

     1,187         1,219        2,377        2,440   

Pension and other postretirement adjustments, net of tax

     938         1,965        2,211        3,088   

Cumulative translation adjustment

     4,144         (26,731     (23,109     (11,700
  

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     6,269         (23,547     (18,521     (6,172
  

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 68,830       $ 30,804      $ 105,340      $ 100,350   
  

 

 

    

 

 

   

 

 

   

 

 

 

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 and per 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, 2012

  $ 551,559      $ 1,113,541      $ 38,639      $ (45,645   $ (36,397   $ (156,699   $ 1,464,998   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

           123,861                                    123,861   

Cumulative translation adjustment

                  (23,109                          (23,109

Pension and other postretirement adjustments (net of tax of $1,245)

                         2,211                      2,211   

Amortization of forward starting swaps (net of tax of $1,363)

                                2,377               2,377   

Issuance 1,031,401 shares of common stock from issuance of unvested shares, exercise of stock options and deferred compensation plans (net of tax of $3,140)

    27,842                                           27,842   

Repurchase of 1,629,561 shares of common stock

                                       (86,719     (86,719

Unvested shares surrendered for tax withholding

                                       (1,772     (1,772

Share-based compensation

    7,595                                           7,595   

Cash dividends declared — $.46 per common share

           (37,792                                 (37,792
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

  $ 586,996      $ 1,199,610      $ 15,530      $ (43,434   $ (34,020   $ (245,190   $ 1,479,492   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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,
 
     2013     2012  

Cash flows from operating activities

    

Net income

   $ 123,861      $ 106,522   

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

    

Depreciation and amortization

     17,847        18,092   

Amortization of intangible assets

     22,069        20,301   

Amortization of debt issuance expenses

     849        637   

Share-based compensation expense

     9,489        8,176   

Deferred income taxes

     (64     3,537   

Excess tax benefit from share based compensation

     (4,771     (2,456

Non-cash interest expense associated with forward starting swaps

     3,740        3,845   

Changes in:

    

Receivables

     (13,156     (7,390

Inventories

     5,380        787   

Other current assets

     4,743        (8,596

Trade accounts payable

     11,480        (1,213

Accrued expenses

     83        (1,242

Other — net

     (36     (1,522
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     181,514        139,478   

Cash flows from investing activities

    

Cash purchases of property, plant and equipment

     (15,822     (18,688

Acquisition of businesses, net of cash acquired

     (36,849     (34,201

Other — net

     (130     (90
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (52,801     (52,979

Cash flows from financing activities

    

Borrowings under revolving facilities for acquisitions

     34,648        20,000   

Borrowings under revolving facilities

     28,425        31,510   

Payments under revolving facilities

     (31,824     (102,298

Dividends paid

     (35,421     (30,892

Proceeds from stock option exercises

     22,983        27,976   

Excess tax benefit from stock-based compensation

     4,771        2,456   

Purchase of common stock

     (84,479     (36,042

Unvested shares surrendered for tax withholding

     (1,772     (2,265

Other

     (3,181     (1,292
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (65,850     (90,847

Effect of exchange rate changes on cash and cash equivalents

     (7,238     (4,801
  

 

 

   

 

 

 

Net increase (decrease) in cash

     55,625        (9,149

Cash and cash equivalents at beginning of year

     318,864        230,259   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 374,489      $ 221,110   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for:

    

Interest

   $ 16,557      $ 20,658   

Income taxes

     25,445        31,521   

Significant non-cash activities:

    

Debt acquired with acquisition of business

            4,680   
    

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 three and six months ended June 30, 2013 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, 2012.

Adoption of New Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02 which requires additional disclosures regarding the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. This guidance is effective for reporting periods beginning after December 15, 2012. The Company adopted this guidance effective January 1, 2013 and its adoption did not impact the consolidated financial position, results of operations or cash flows of the Company. See Note 13 for a further discussion on other comprehensive income (loss).

New Accounting Pronouncements

In July 2012, the FASB issued ASU 2012-02, “Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” which allows an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test of an indefinite-lived intangible asset. Under ASU 2012-02, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset if the entity determines, based on qualitative assessment, that it is not more likely than not impaired. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not expect ASU 2012-02 to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.

2.    Restructuring

During 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 related accruals are included in Accrued expenses in the Consolidated Balance Sheets. Severance costs primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consisted of asset disposals or impairments, the termination of a defined benefit plan, legal costs and relocation charges. 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

 

6


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

severance related to employee reductions across various functional areas as well as facility rationalization. The 2011 restructuring initiatives included severance benefits for 406 employees. These initiatives were completed by the end of 2012 and no further restructuring is currently planned. Severance payments are expected to be fully paid in the next six months using cash from operations.

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 $1.3 million and $10.9 million at June 30, 2013 and December 31, 2012, respectively, are reflected in Accrued expenses in the Consolidated Balance Sheets as follows:

 

(In thousands)       

Balance at January 1, 2013

   $ 10,887   

Restructuring expenses

       

Payments/utilization

     (9,555
  

 

 

 

Balance at June 30, 2013

   $ 1,332   
  

 

 

 

3.    Acquisitions

All of the Company’s acquisitions have been accounted for under Accounting Standards Codification (“ASC”) 805, Business Combinations. Accordingly, the accounts of the acquired companies, after adjustments to reflect fair values assigned to assets and liabilities, have been included in the consolidated financial statements from their respective dates of acquisition.

2013 Acquisitions

On March 18, 2013, the Company acquired the assets of FTL Seals Technology, Ltd (“FTL”). FTL specializes in the design and application of high integrity rotary seals, specialty bearings, and other custom products for the oil & gas, mining, power generation, and marine markets. Located in Leeds, England, FTL has annual revenues of approximately $22.5 million (£15.0 million). FTL, along with Precision Polymer Engineering

 

7


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

(“PPE”), operates within the Health & Science Technologies segment as part of the Sealing Solutions group (formerly the Containment group) and will expand the range of PPE’s technology expertise and markets served. FTL was acquired for an aggregate purchase price of $34.5 million (£23.1 million) in cash. The entire purchase price was funded with borrowings under the Company’s revolving credit facility. Goodwill and intangible assets recognized as part of this transaction were $18.0 million and $13.0 million, respectively. The $18.0 million of goodwill is not deductible for tax purposes.

The purchase price for FTL has been allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition. These nonrecurring fair value measurements are classified as Level 3 in the fair value hierarchy. The Company is in the process of finalizing appraisals of 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 business 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:

 

(In thousands)       

Accounts receivable

   $ 3,454   

Inventory

     4,524   

Other current assets, net of cash acquired

     131   

Property, plant and equipment

     1,357   

Goodwill

     17,994   

Intangible assets

     13,016   
  

 

 

 

Total assets acquired

     40,476   

Total liabilities assumed

     (5,939
  

 

 

 

Net assets acquired

   $ 34,537   
  

 

 

 

Acquired intangible assets consist of trade names, non-compete agreements, customer relationships and unpatented technology. The goodwill recorded for the acquisition reflects the strategic fit, revenue and earnings growth potential of this business.

The acquired intangible assets and weighted average amortization periods are as follows:

 

(In thousands)    Total      Weighted
Average
Life
 

Trade names

   $ 1,005         15   

Non-compete agreements

     224         3   

Customer relationships

     10,950         9   

Unpatented technology

     837         8   
  

 

 

    

2013 acquired intangible assets

   $ 13,016      
  

 

 

    

The Company incurred $1.4 million of acquisition-related transaction costs in 2013. These costs were recorded in selling, general and administrative expense and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. The Company incurred $1.8 million of non-cash acquisition fair value inventory charges in 2013. These charges were recorded in cost of sales.

 

8


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

2012 Acquisitions

On April 11, 2012, the Company acquired the stock 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 operates within the Health & Science Technologies segment as a part of the IDEX Optics & Photonics platform. The Company acquired PPC for an aggregate purchase price of $20.6 million in cash, which was funded from operations. Goodwill and intangible assets recognized as part of this transaction were $13.9 million and $5.1 million, respectively. The $13.9 million of goodwill is not deductible for tax purposes.

On April 30, 2012, the Company acquired the stock of 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 operates as part of the Scientific Fluidics (formerly IDEX Health & Science) platform within the Health & Science Technologies segment. The Company acquired ERC for an aggregate purchase price of $18.0 million (¥1.47 billion), consisting of $13.3 million in cash and assumption of approximately $4.7 million of debt. The cash payment was financed with borrowings under the Company’s revolving credit facility. Goodwill and intangible assets recognized as part of this transaction were $8.5 million and $5.6 million, respectively. The $8.5 million of goodwill is not deductible for tax purposes.

On July 20, 2012, the Company acquired the stock of Matcon. 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 operates within the Health & Science Technologies segment as part of the Materials Process Technologies platform. The Company acquired Matcon for an aggregate purchase price of $45.8 million (£29.1 million), consisting of $35.0 million in cash, $2.4 million of working capital adjustments paid in the second quarter of 2013, and contingent consideration valued at $8.4 million as of the opening balance sheet date. The contingent consideration amount is based on Matcon’s 2012 and 2013 earnings before interest, income taxes, depreciation and amortization. The Company paid $3.8 million in April 2013 for settlement of the 2012 contingent consideration. Based on potential outcomes, the undiscounted amount of the remaining future payment that the Company could be required to pay under the contingent consideration arrangement is estimated between $0 and $4.9 million. As of June 30, 2013, the Company has $4.9 million accrued for the 2013 contingent consideration. Approximately $15.0 million of the cash portion of the purchase price was financed with borrowings under the revolving credit facility. Goodwill and intangible assets recognized as part of this transaction were $28.0 million and $14.1 million, respectively. The $28.0 million of goodwill is not deductible for tax purposes.

The purchase price for PPC, ERC and Matcon was 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.

 

9


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

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, semiconductor, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.

Information on the Company’s business segments is presented below, based on the nature of products and services offered. The Company evaluates performance based on several factors, of which operating income is the primary financial measure. Intersegment sales are accounted for at fair value as if the sales were to third parties.

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Net sales:

        

Fluid & Metering Technologies:

        

External customers

   $ 225,214      $ 210,365      $ 436,621      $ 422,831   

Intersegment sales

     274        350        622        602   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total group sales

     225,488        210,715        437,243        423,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

Health & Science Technologies:

      

External customers

     179,111        168,742        350,785        341,963   

Intersegment sales

     1,756        1,821        2,950        2,386   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total group sales

     180,867        170,563        353,735        344,349   
  

 

 

   

 

 

   

 

 

   

 

 

 

Fire & Safety/Diversified Products:

        

External customers

     114,120        115,037        225,487        218,767   

Intersegment sales

     116        887        262        1,207   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total group sales

     114,236        115,924        225,749        219,974   
  

 

 

   

 

 

     

 

 

 

Intersegment elimination

     (2,146     (3,058     (3,834     (4,195
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

   $ 518,445      $ 494,144        1,012,893      $ 983,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

        

Fluid & Metering Technologies

   $ 56,115      $ 46,302      $ 104,194      $ 90,828   

Health & Science Technologies

     34,522        27,136        66,789        57,406   

Fire & Safety/Diversified Products

     23,676        26,098        51,908        49,786   

Corporate office and other

     (14,754     (10,886     (28,620     (24,801
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

     99,559        88,650        194,271        173,219   

Interest expense

     10,597        10,536        21,154        21,198   

Other income (expense)-net

     (573     (230     706        (113
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 88,389      $ 77,884      $ 173,823      $ 151,908   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Assets:

     

Fluid & Metering Technologies

   $ 1,042,770       $ 1,023,143   

Health & Science Technologies

     1,121,697         1,102,868   

Fire & Safety/Diversified Products

     492,171         488,886   

Corporate office and other(1)

     171,014         170,493   
  

 

 

    

 

 

 

Total assets

   $ 2,827,652       $ 2,785,390   
  

 

 

    

 

 

 

(1) Includes intersegment eliminations.

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, performance share units, and shares issuable in connection with certain deferred compensation agreements (“DCUs”).

ASC 260 “Earnings Per Share”, provides that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. If awards are considered participating securities, the Company is required to apply the two-class method of computing basic and diluted earnings per share. The Company has determined that its outstanding unvested shares are participating securities. Accordingly, earnings per common share are computed using the more dilutive of the treasury stock method and the two-class method prescribed by ASC 260. Net income attributable to common shareholders was reduced by $0 and $0.4 million for the three months ended June 30, 2013 and 2012, respectively. Net income attributable to common shareholders was reduced by $0.5 million and $0.4 million for the six months ended June 30, 2013 and 2012, respectively.

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

 

     Three Months
Ended June 30,
     Six Months
Ended June 30,
 
     2013      2012      2013      2012  
     (In thousands)  

Basic weighted average common shares outstanding

     81,829         83,180         82,013         82,987   

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

     905         910         930         1,004   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     82,734         84,090         82,943         83,991   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options to purchase approximately 0.6 million and 1.3 million shares of common stock for the three and six months ended June 30, 2013 and 2012, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would be antidilutive.

 

11


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

6.    Inventories

The components of inventories as of June 30, 2013 and December 31, 2012 were:

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Raw materials and component parts

   $ 135,867       $ 139,229   

Work-in-process

     39,262         33,025   

Finished goods

     56,375         62,696   
  

 

 

    

 

 

 

Total

   $ 231,504       $ 234,950   
  

 

 

    

 

 

 

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

7.    Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2013, by reportable business segment, were as follows:

 

     Fluid &
Metering
Technologies
    Health &
Science
Technologies
    Fire &  Safety/
Diversified
Products
    Total  
     (In thousands)  

Balance at December 31, 2012

   $ 524,325      $ 553,204      $ 244,198      $ 1,321,727   

Foreign currency translation

     (1,816     (5,722     (2,386     (9,924

Acquisitions and acquisition adjustments

            17,994               17,994   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 522,509      $ 565,476      $ 241,812      $ 1,329,797   
  

 

 

   

 

 

   

 

 

   

 

 

 

ASC 350 “Goodwill and Other Intangible Assets” requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Annually on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. The Company did not consider there to be a triggering event that would require an interim impairment assessment, therefore none of the goodwill or other acquired intangible assets with indefinite lives were tested for impairment during the six months ended June 30, 2013.

 

12


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at June 30, 2013 and December 31, 2012:

 

    At June 30, 2013           At December 31, 2012  
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net     Weighted
Average
Life
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net  
    (In thousands)           (In thousands)  

Amortized intangible assets:

             

Patents

  $ 10,538      $ (4,560   $ 5,978        11        $10,650      $ (4,273   $ 6,377   

Trade names

    103,106        (24,675     78,431        16        103,113        (21,603     81,510   

Customer relationships

    238,562        (105,660     132,902        10        230,196        (93,273     136,923   

Non-compete agreements

    3,706        (3,114     592        3        3,505        (2,827     678   

Unpatented technology

    74,351        (28,208     46,143        11        74,758        (24,211     50,547   

Other

    6,832        (3,948     2,884        10        6,841        (3,604     3,237   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Total amortized intangible assets

    437,095        (170,165     266,930          429,063        (149,791     279,272   

Unamortized intangible assets:

             

Banjo trade name

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

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Total intangible assets

  $ 499,195      $ (170,165   $ 329,030        $ 491,163      $ (149,791   $ 341,372   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

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

8.    Accrued Expenses

The components of accrued expenses as of June 30, 2013 and December 31, 2012 were:

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Payroll and related items

   $ 52,954       $ 55,618   

Management incentive compensation

     10,985         15,974   

Income taxes payable

     16,828         10,284   

Insurance

     9,206         8,974   

Warranty

     4,812         4,875   

Deferred revenue

     12,576         9,682   

Restructuring

     1,332         10,887   

Liability for uncertain tax positions

     2,368         2,679   

Accrued interest

     1,721         1,713   

Contingent consideration for acquisition

     4,890         3,528   

Other

     26,323         25,962   
  

 

 

    

 

 

 

Total accrued expenses

   $ 143,994       $ 150,176   
  

 

 

    

 

 

 

 

13


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

9.    Other Noncurrent Liabilities

The components of noncurrent liabilities as of June 30, 2013 and December 31, 2012 were:

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Pension and retiree medical obligations

   $ 94,749       $ 96,853   

Liability for uncertain tax positions

     4,579         4,989   

Deferred revenue

     6,304         6,534   

Contingent consideration for acquisition .

             5,515   

Other

     14,547         14,484   
  

 

 

    

 

 

 

Total other noncurrent liabilities

   $ 120,179       $ 128,375   
  

 

 

    

 

 

 

10.    Borrowings

Borrowings at June 30, 2013 and December 31, 2012 consisted of the following:

 

     June 30,
2013
     December 31,
2012
 
     (In thousands)  

Revolving Facility

   $ 55,000       $ 21,000   

4.2% Senior Notes, due December 2021

     349,234         349,197   

4.5% Senior Notes, due December 2020

     298,758         298,689   

2.58% Senior Euro Notes, due June 2015

     105,519         107,042   

Other borrowings

     6,947         10,648   
  

 

 

    

 

 

 

Total borrowings

     815,458         786,576   

Less current portion

     4,451         7,335   
  

 

 

    

 

 

 

Total long-term borrowings

   $ 811,007       $ 779,241   
  

 

 

    

 

 

 

On June 27, 2011, the Company and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”), as 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. 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 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, Fast & Fluid Management Europe B.V., (“FME”) and IDEX UK Ltd. (“IDEX UK”) were approved by the lenders as designated borrowers. At June 30, 2013, FME and IDEX UK had no borrowings under the Revolving Facility.

 

14


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

Borrowings under the Revolving Facility bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .875% to 1.70%. Based on the Company’s credit rating at June 30, 2013, 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, 2013, $55.0 million was outstanding under the Revolving Facility, with $9.7 million of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at June 30, 2013 of approximately $635.3 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 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 a 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 a $1.6 million issuance discount, a $1.9 million underwriting commission and $0.8 million offering expenses,

 

15


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

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 a $0.9 million issuance discount, a $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 $6.9 million at June 30, 2013 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 1.4% per annum.

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. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes, other than cross-default provisions.

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.

 

16


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

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 million 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, 2013, the Company did not have any interest rate contracts outstanding.

The following table summarizes the loss reclassified into income for interest rate contracts for June 30, 2013 and 2012:

 

     Three Months
Ended June 30,
 
     2013      2012  
     (In thousands)  

Interest rate agreements

   $ 1,867       $ 1,920   

 

     Six Months
Ended June 30,
 
     2013      2012  
     (In thousands)  

Interest rate agreements

   $ 3,740       $ 3,845   

Approximately $7.3 million of the pre-tax amount included in accumulated other comprehensive income (loss) in shareholders’ equity at June 30, 2013 will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.

 

17


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

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, 2013 and December 31, 2012:

 

     Basis of Fair Value Measurements  
     Balance at
June 30,  2013
    Level 1      Level 2      Level 3  
     (In thousands)  

Money market investment

   $ 13,414      $ 13,414       $       $   

Available for sale securities

     2,970        2,970                   

Contingent consideration

     (4,890                     (4,890

 

     Basis of Fair Value Measurements  
     Balance at
December 31, 2012
    Level 1      Level 2      Level 3  
     (In thousands)  

Money market investment

   $ 11,165      $ 11,165       $       $   

Available for sale securities

     2,862        2,862                   

Contingent consideration

     (9,043                     (9,043

There were no transfers of assets or liabilities between Level 1 and Level 2 during the first six months of 2013 or 2012.

In determining the initial fair value of the contingent consideration potentially due on the acquisition of Matcon, the Company used probability weighted estimates adjusted for the time value of money. In April 2013, the Company paid $3.8 million on the contingent consideration arrangement based on Matcon’s 2012 operating results. The remaining $4.9 million represents management’s best estimate of the remaining liability, based on a range of outcomes of Matcon’s 2013 operating results and is expected to be paid during the first six months of 2014. At June 30, 2013, the $4.9 million of contingent consideration is included in Accrued expenses in the Consolidated Balance Sheet.

The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair values because of the short term nature of these instruments. At June 30, 2013, 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

 

18


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

approximately $837.2 million compared to the carrying value of $808.5 million. This fair value measurement is classified as Level 2 within the fair value hierarchy since it is determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to ours.

13.    Other Comprehensive Income (Loss)

The components of other comprehensive income (loss) are as follows:

 

     Three months ended
June 30, 2013
     Three months ended
June 30, 2012
 
     Pre-tax      Tax     Net of tax      Pre-tax     Tax     Net of tax  
     (In thousands)  

Cumulative translation adjustment

   $ 4,144       $      $ 4,144       $ (26,731   $      $ (26,731

Pension and other postretirement adjustments

     1,521         (583     938         3,060        (1,095     1,965   

Reclassification adjustments for derivatives

     1,867         (680     1,187         1,920        (701     1,219   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

   $ 7,532       $ (1,263   $ 6,269         (21,751     (1,796     (23,547

 

     Six months ended
June 30, 2013
    Six months ended
June 30, 2012
 
     Pre-tax     Tax     Net of tax     Pre-tax     Tax     Net of tax  
     (In thousands)  

Cumulative translation adjustment

   $ (23,109   $      $ (23,109   $ (11,700   $      $ (11,700

Pension and other postretirement adjustments

     3,456        (1,245     2,211        4,807        (1,719     3,088   

Reclassification adjustments for derivatives

     3,740        (1,363     2,377        3,845        (1,405     2,440   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

   $ (15,913   $ (2,608     (18,521     (3,048     (3,124     (6,172

The following table summarizes the amounts reclassified from accumulated other comprehensive income (loss) to net income (loss) June 30, 2013 and 2012:

 

     Three months ended
June 30,
    Six months ended
June 30,
     
     2013     2012     2013     2012     Income Statement Caption

Pension and other postretirement plans:

          

Amortization of service cost

   $ 1,521      $ 3,060      $ 3,456      $ 4,807      Selling, general and administrative expense
  

 

 

   

 

 

   

 

 

   

 

 

   

Total before tax

     1,521        3,060        3,456        4,807     

Provision for income taxes

     (583     (1,095     (1,245     (1,719  
  

 

 

   

 

 

   

 

 

   

 

 

   

Total net of tax

   $ 938      $ 1,965      $ 2,211      $ 3,088     

Derivatives:

        

Reclassification adjustments

   $ 1,867      $ 1,920      $ 3,740      $ 3,845      Interest expense
  

 

 

   

 

 

   

 

 

   

 

 

   

Total before tax

     1,867        1,920        3,740        3,845     

Provision for income taxes

     (680     (701     (1,363     (1,405  
  

 

 

   

 

 

   

 

 

   

 

 

   

Total net of tax

   $ 1,187      $ 1,219      $ 2,377      $ 2,440     

 

19


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

14.    Common and Preferred Stock

On October 22, 2012, the Company’s Board of Directors approved a $200.0 million increase in the authorized level for repurchases of common stock. Repurchases under the program will be funded with future cash flow generation or cash available under the Revolving Facility. During the first six months of 2013, the Company purchased a total of 1.6 million shares at a cost of $86.7 million, of which $2.2 million was settled in July 2013. During the first six months of 2012, the Company purchased 0.9 million shares at a cost of $36.0 million.

At June 30, 2013 and December 31, 2012, the Company had 150 million shares of authorized common stock, with a par value of $.01 per share, and 5 million shares of authorized preferred stock, with a par value of $.01 per share. No preferred stock was outstanding at June 30, 2013 and December 31, 2012.

15.    Share-Based Compensation

During the six months ended June 30, 2013, the Company granted approximately 0.6 million stock options and 0.2 million unvested shares. During the six months ended June 30, 2012, the Company granted approximately 0.7 million stock options and 0.2 million unvested shares.

Beginning in 2013, the Company provides performance share units to selected key employees that may be earned based on IDEX total shareholder return over the three-year period following the date of grant. Performance share units (referred to as “TSR awards”) are expected to be made annually and are paid out at the end of a three-year period based on the Company’s performance. Performance is measured by determining the percentile rank of the total shareholder return of IDEX common stock in relation to the total shareholder return of the S&P Midcap 400 Industrial Group for the three-year period following the date of grant. The payment of awards following the three-year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0 percent to 200 percent of the initial grant. A target payout of 100 percent is earned if total shareholder return is equal to the 50th percentile of the S&P Midcap 400 Industrial Group. Performance share units earn dividend equivalents for the award period, which will be paid to participants with the award payout at the end of the period based on the actual number of performance share units that are earned. Any payments made at the end of the award period will be in the form of stock. During the six months ended June 30, 2013, the Company granted approximately 0.1 million performance share units.

Weighted average performance share unit fair values and assumptions for the period specified are disclosed below. The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model.

 

     Three and Six
Months  Ended
June 30, 2013

Weighted average fair value of performance share units

   $50.45

Dividend yield

   0.00%

Volatility

   28.99%

Risk-free forward interest rate

   0.40%

Expected life (in years)

   2.87

 

20


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 below. The fair value of each option grant was estimated on the date of grant using the Binomial lattice option pricing model.

 

     Three Months Ended
June 30,
     2013   2012

Weighted average fair value of option grants

   $ 13.28   $ 11.23

Dividend yield

   1.51%   1.83%

Volatility

   30.76%   31.91%

Risk-free forward interest rate

   0.14% - 3.94%   0.19% - 3.99%

Expected life (in years)

   5.84   5.92

 

     Six Months Ended
June 30,
     2013   2012

Weighted average fair value of option grants

   $ 12.85   $ 11.44

Dividend yield

   1.57%   1.58%

Volatility

   30.94%   32.01%

Risk-free forward interest rate

   0.17% - 4.10%   0.17% - 3.98%

Expected life (in years)

   5.87   5.98

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 newly issued shares of common stock to satisfy stock option exercises, grants of unvested shares and vesting of performance share units.

Total compensation cost for stock options is as follows:

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Cost of goods sold

   $ 99      $ 189      $ 291      $ 482   

Selling, general and administrative expenses

     1,253        1,462        3,421        3,428   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense before income taxes

     1,352        1,651        3,712        3,910   

Income tax benefit

     (445     (492     (1,182     (1,200
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense after income taxes

   $ 907      $ 1,159      $ 2,530      $ 2,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total compensation cost for the unvested shares is as follows:

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Cost of goods sold

   $ 212      $ 197      $ 614      $ 603   

Selling, general and administrative expenses

     2,098        1,667        4,758        3,663   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense before income taxes

     2,310        1,864        5,372        4,266   

Income tax benefit

     (609     (477     (1,319     (1,140
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expense after income taxes

   $ 1,701      $ 1,387      $ 4,053      $ 3,126   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

Total compensation cost for performance share units is as follows:

 

     Three Months
Ended
June 30, 2013
    Six Months
Ended
June 30, 2013
 
     (In thousands)  

Cost of goods sold

   $ 0      $ 0   

Selling, general and administrative expenses

     216        405   
  

 

 

   

 

 

 

Total expense before income taxes

     216        405   

Income tax benefit

     (77     (114
  

 

 

   

 

 

 

Total expense after income taxes

   $ 139      $ 291   
  

 

 

   

 

 

 

Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.

As of June 30, 2013, 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, $13.9 million of total unrecognized compensation cost related to unvested shares/units that is expected to be recognized over a weighted-average period of 1.2 years, and $2.1 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.4 years.

A summary of the Company’s stock option activity as of June 30, 2013, and changes during the six months ended June 30, 2013 is presented in the following table:

 

Stock Options

  Shares     Weighted
Average
Price
    Weighted-Average
Remaining

Contractual Term
    Aggregate
Intrinsic
Value
 

Outstanding at January 1, 2013

    3,223,742      $ 33.16        6.37      $ 43,106,153   

Granted

    619,385        50.27       

Exercised

    (813,702     28.60       

Forfeited/Expired

    (62,421     42.10       
 

 

 

       

Outstanding at June 30, 2013

    2,967,004      $ 37.79        6.95      $ 47,524,458   
 

 

 

       

Vested and expected to vest at June 30, 2013

    2,323,450      $ 37.33        6.71      $ 38,284,375   

Exercisable at June 30, 2013

    1,501,547      $ 31.12        5.24      $ 34,065,352   

16.    Retirement Benefits

The Company sponsors several qualified and nonqualified defined benefit and defined contribution pension plans and other postretirement plans for its employees. The following tables provide the components of net periodic benefit cost for its major defined benefit plans and its other postretirement plans.

 

     Pension Benefits  
     Three Months Ended June 30,  
     2013     2012  
     U.S.     Non-U.S.     U.S.     Non-U.S.  
     (In thousands)  

Service cost

   $ 326      $ 345      $ 547      $ 336   

Interest cost

     1,209        533        1,083        548   

Expected return on plan assets

     (1,310     (260     (1,186     (260

Net amortization

     1,377        237        1,836        84   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,602      $ 855      $ 2,280      $ 708   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(unaudited)

 

     Pension Benefits  
     Six Months Ended June 30,  
     2013     2012  
     U.S.     Non-U.S.     U.S.     Non-U.S.  
     (In thousands)  

Service cost

   $ 763      $ 684      $ 1,033      $ 678   

Interest cost

     2,152        1,052        2,175        1,105   

Expected return on plan assets

     (2,663     (516     (2,397     (517

Net amortization

     2,991        468        3,427        167   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 3,243      $ 1,688      $ 4,238      $ 1,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Other Postretirement Benefits  
     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2013      2012     2013      2012  
     (In thousands)  

Service cost

   $ 242       $ 191      $ 485       $ 381   

Interest cost

     227         228        454         457   

Net amortization

     6         (37     11         (74
  

 

 

    

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ 475       $ 382      $ 950       $ 764   
  

 

 

    

 

 

   

 

 

    

 

 

 

The Company previously disclosed in its financial statements for the year ended December 31, 2012, that it expected to contribute approximately $7.0 million to its defined benefit plans and $0.9 million to its other postretirement benefit plans in 2013. As of June 30, 2013, $3.4 million of contributions have been made to the defined benefit plans and $0.5 million has been made to its other postretirement benefit plans. The Company presently anticipates contributing up to an additional $4.0 million in 2013 to fund these plans.

17.    Legal Proceedings

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

18.    Income Taxes

The Company’s provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes increased to $25.8 million in the second quarter of 2013 from $23.5 million in the second quarter of 2012. The effective tax rate decreased to 29.2% for the second quarter of 2013 compared to 30.2% in the second quarter of 2012, due to the mix of global pre-tax income among jurisdictions.

The provision for income taxes increased to $50.0 million in the first six months of 2013 from $45.4 million in the same period of 2012. The effective tax rate decreased to 28.7% for the first six months of 2013 compared to 29.9% in the same period of 2012, primarily due to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013, which reinstated the U.S. R&D credit retroactively to January 1, 2012, as well as the mix of global pre-tax income among jurisdictions.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $2.4 million.

 

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, 2012 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 platforms, where we will invest in organic growth and acquisitions with a strategic view towards a platform with the potential for at least $500 million in revenue, and eight groups, where we will focus on organic growth and strategic acquisitions. The Fluid & Metering Technologies segment is comprised of the Energy, Diaphragm & Dosing Pump Technology, and Chemical, Food & Process platforms as well as the Water Services & Technology and Agricultural groups. The Health & Science Technologies segment is comprised of the IDEX Optics & Photonics, Scientific Fluidics and Materials Process Technologies platforms, as well as the Sealing Solutions and the 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, semiconductor, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications.

 

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, 2013 are as follows:

 

   

Sales of $1,013 million rose 3%; organic sales — excluding acquisitions and foreign currency translation — were flat from the prior year period.

 

   

Operating income of $194.3 million increased 12% compared to 2012.

 

   

Net income increased 16% to $123.9 million.

 

   

Diluted EPS of $1.49 increased 22 cents, or 17%, compared to 2012.

Our projected third quarter 2013 EPS is in the range of $0.72 to $0.74. Given the second quarter results and the projection of 3% full year organic revenue growth, we have increased our full year 2013 outlook — we now expect full year 2013 diluted EPS of $2.93 to $2.98.

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, 2013 and 2012. Segment operating income excludes unallocated corporate operating expenses.

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.

Consolidated Results in the Three Months Ended June 30, 2013 Compared with the Same Period of 2012

 

     Three Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 518,445      $ 494,144   

Operating income

     99,559        88,650   

Operating margin

     19.2     17.9

Depreciation and amortization

   $ 20,077      $ 19,203   

Depreciation and amortization as a percentage of net sales

     3.9     3.9

 

25


Table of Contents

Sales in the three months ended June 30, 2013 were $518.4 million, a 5% increase from the comparable period last year. This increase reflects a 2% increase in organic sales and 3% from acquisitions (ERC — April 2012, Matcon — July 2012, and FTL — March 2013). International sales represented approximately 49% of total sales in the current period compared with 51% in the same period in 2012.

For the second quarter of 2013, Fluid & Metering Technologies contributed 43% of sales and 49% of operating income; Health & Science Technologies accounted for 35% of sales and 30% of operating income; and Fire & Safety/Diversified Products represented 22% of sales and 21% of operating income.

Gross profit of $222.8 million in the second quarter of 2013 increased $19.7 million, or 9.7%, from 2012. Gross profit as a percentage of sales, or gross margin, was 43.0% in the second quarter of 2013 and 41.1% in 2012. The increase in gross margin primarily reflects volume leverage, improved productivity and benefits from prior period restructuring activities.

Selling, general and administrative (“SG&A”) expenses increased to $123.3 million in the second quarter of 2013 from $111.9 million in 2012. The $11.4 million increase reflects approximately $4.1 million of incremental costs from new acquisitions, a $1.0 million charge related to the closure of our Conshohocken facility, and $6.3 million of volume related expenses. As a percentage of sales, SG&A expenses were 23.8% for 2013 and 22.6% for 2012.

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 $99.6 million in the second quarter of 2013 was up from the $88.7 million recorded in 2012, primarily from an increase in volume and improved productivity. Operating income as a percentage of sales, or operating margin, of 19.2% in the second quarter of 2013 was up from 17.9% in 2012. The increase is primarily due to volume leverage and improved productivity from prior period, and due to 2012 operating margin being negatively impacted by $2,6 million of restructuring charges.

Other expense, net was $0.6 million in the second quarter of 2013 compared with $0.2 million recorded in 2012, primarily due to higher losses on foreign currency.

Interest expense increased slightly to $10.6 million in 2013 from $10.5 million in 2012.

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 $25.8 million in the second quarter of 2013 compared to $23.5 million in the second quarter of 2012. The effective tax rate decreased to 29.2% for the second quarter of 2013 compared to 30.2% in the second quarter of 2012 due to the mix of global pre-tax income among jurisdictions.

Net income for the current quarter of $62.6 million increased from the $54.4 million in 2012. Diluted earnings per share in the second quarter of 2013 of $0.76 increased $0.11, or 17%, compared with 2012.

Fluid & Metering Technologies Segment

 

     Three Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 225,488      $ 210,715   

Operating income

     56,115        46,302   

Operating margin

     24.9     22.0

Depreciation and amortization

   $ 7,012      $ 7,408   

Depreciation and amortization as a percentage of net sales

     3.1     3.5

 

26


Table of Contents

Sales of $225.5 million increased $14.8 million, or 7%, in the second quarter of 2013 compared with 2012. This sales increase is entirely attributed to organic growth. In the second quarter of 2013, organic sales increased approximately 10% domestically and 3% internationally. Organic sales to customers outside the U.S. were approximately 44% of total segment sales during the second quarter of 2013, compared with 47% in 2012.

Sales increased across all platforms and groups of the Fluid & Metering Technologies segment, compared to the second quarter of 2012. The increase within our Energy platform was primarily due to the continued rebound in our North American LPG market and global truck manufacturing. Sales increased within our Chemical, Food & Process platform primarily due to strength of chemical markets and large projects in Asia and the Middle East. The increase in sales within our Diaphragm & Dosing Pump Technology platform is mainly attributed to strength in the oil and gas markets. Sales within our Agricultural group increased due to strong seasonal demand. The sales increase within our Water Services & Technology group is primarily attributable to increased demands for new systems.

Operating income and operating margin of $56.1 million and 24.9%, respectively, were higher than the $46.3 million and 22.0% recorded in the second quarter of 2012, primarily due to volume leverage and the continued benefit of cost-out actions.

Health & Science Technologies Segment

 

     Three Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 180,867      $ 170,563   

Operating income

     34,522        27,136   

Operating margin

     19.1     15.9

Depreciation and amortization

   $ 10,947      $ 9,559   

Depreciation and amortization as a percentage of net sales

     6.1     5.6

Sales of $180.9 million increased $10.3 million, or 6%, in the second quarter of 2013 compared with 2012. This reflects a 2% decrease in organic sales, 9% growth from acquisitions (ERC, Matcon and FTL) and 1% unfavorable foreign currency translation. In the second quarter of 2013, organic sales increased 3% domestically and decreased 7% internationally. Organic sales to customers outside the U.S. were approximately 50% of total segment sales in the second quarter of 2013, compared with 51% in 2012.

Sales within our MPT platform increased compared to the second quarter of 2012 primarily due to the Matcon acquisition and strength in the Asian food and pharmaceutical markets, partially offset by lower sales in North America. Sales increased compared to the second quarter of 2012 within our Scientific Fluidics platform due to a recovery in North American and Western European markets. Sales within our Sealing Solutions group increased compared to the second quarter of 2012 primarily due to the acquisition of FTL, and strong sales to the oil & gas and semiconductor markets. Sales within our Optics and Photonics platform decreased compared to the second quarter of 2012 due to continued weakness in the defense markets, lower catalog sales, and the exit of low margin business in 2013. Sales within our Industrial group decreased compared to the second quarter of 2012 due to softness in North American distributor sales, partially offset by slightly higher sales in the automotive end markets.

Operating income of $34.5 million in the second quarter of 2013 was higher than the $27.1 million recorded in 2012, primarily due to acquisitions, improved productivity and benefits from prior period restructuring actions. Operating margin of 19.1% in the second quarter of 2013 was an increase from 15.9% in 2012, due to 2012 being negatively impacted by $1.1 million of restructuring charges.

 

27


Table of Contents

Fire & Safety/Diversified Products Segment

 

     Three Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 114,236      $ 115,924   

Operating income

     23,676        26,098   

Operating margin

     20.7     22.5

Depreciation and amortization

   $ 1,741      $ 1,824   

Depreciation and amortization as a percentage of net sales

     1.5     1.6

Sales of $114.2 million decreased $1.7 million, or 1%, in the second quarter of 2013 compared with the second quarter of 2012. This decrease was purely organic. In the second quarter of 2013, organic sales decreased 1% domestically and 2% internationally. Organic sales to customers outside the U.S. were approximately 57% of total segment sales in the second quarter of 2013, compared with 59% in 2012.

Sales within our Dispensing group decreased due to lower North American replenishment sales in the second quarter of 2013 compared with the second quarter of 2012, partially offset by increased market share in emerging markets and new product introductions. The sales increase within our Band-It group was driven by new vehicle platforms in North America and continued cable management shipments in China. Sales within our Fire Suppression group increased as a result of a stable North American market and a strong project funnel in China. Sales within our Rescue group increased as a result of robust demand from emerging markets.

Operating income and operating margin of $23.7 million and 20.7%, respectively, were lower than the $26.1 million and 22.5% recorded in the second quarter of 2012, primarily due to a $1.0 million charge related to the closure of the Company’s Conshohocken, PA facility and lower volume.

Consolidated Results in the Six Months Ended June 30, 2013 Compared with the Same Period of 2012

 

     Six Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 1,012,893      $ 983,561   

Operating income

     194,271        173,219   

Operating margin

     19.2     17.6

Depreciation and amortization

   $ 39,916      $ 38,393   

Depreciation and amortization as a percentage of net sales

     3.9     3.9

Sales in the six months ended June 30, 2013 were $1,013 million, a 3% increase from the comparable period last year. This increase is almost entirely due to acquisitions (ERC — April 2012, Matcon — July 2013, and FTL — March 2013). International sales represented approximately 51% of total sales in both the current period and the same period in 2012.

For the first six months of 2013, Fluid & Metering Technologies contributed 43% of sales and 47% of operating income; Health & Science Technologies accounted for 35% of sales and 30% of operating income; and Fire & Safety/Diversified Products represented 22% of sales and 23% of operating income.

Gross profit of $434.8 million in the first six months of 2013 increased $28.8 million, or 7.1%, from 2012. Gross margin of 42.9% in the first six months of 2013 increased from 41.3% for the same period in 2012 as a result of volume leverage, improved productivity and benefits from prior period restructuring activities.

SG&A expenses increased to $240.6 million in the first six months of 2013 from $225.3 million in 2012. The $15.3 million increase reflects approximately $7.6 million of incremental costs from new acquisitions, a $1.0 million charge related to the closure of our Conshohocken facility and $6.7 million of volume related expenses. As a percentage of sales, SG&A expenses were 23.8% for 2013 and 22.9% for 2012.

 

28


Table of Contents

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 $194.3 million in the first six months of 2013 was up from the $173.2 million recorded in 2012, primarily reflecting an increase in volume and improved productivity. Operating margin of 19.2% in the first six months of 2013 was up from 17.6% in 2012 primarily due to improved productivity and benefits from prior period restructuring as well as 2012 operating margin being negatively impacted by restructuring-related charges.

Other income, net of $0.7 million in 2013 was greater than other expense, net of $0.1 million in 2012, primarily due to higher losses in foreign currency in 2012.

Interest expense was $21.2 million in 2013 and 2012.

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 $50.0 million for the first six months of 2013 compared to $45.4 in the same period in 2012. The effective tax rate decreased to 28.7% for the first six months of 2012 compared to 29.9% in the same period of 2012 primarily due to the enactment of the American Taxpayer Relief Act of 2012 in January 2013, which reinstated the U.S. R&D credit retroactively to January 1, 2012, as well as the mix of global pre-tax income among jurisdictions.

Net income for the current period of $123.9 million increased from the $106.5 million earned in 2012. Diluted earnings per share in the first six months of 2013 of $1.49 increased $0.22, or 17%, compared with 2012.

Fluid & Metering Technologies Segment

 

     Six Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 437,243      $ 423,433   

Operating income

     104,194        90,828   

Operating margin

     23.8     21.5

Depreciation and amortization

   $ 13,972      $ 14,948   

Depreciation and amortization as a percentage of net sales

     3.2     3.5

Sales of $437.2 million increased $13.8 million, or 3%, in the first six months of 2013 compared with 2012. This sales increase was almost entirely attributable to organic growth as organic sales increased approximately 6% domestically and less than 1% internationally. Organic sales to customers outside the U.S. were approximately 45% of total segment sales during the first six months of 2013, compared with 47% in 2012.

Sales within our Energy platform increased compared to the first six months of 2012 due to the continued rebound in the North American LPG market, and project sales to emerging markets, which was partially offset by weakness in certain European markets due to general economic conditions. Sales within our Chemical, Food & Process platform increased compared to the first six months of 2012 due to strength in chemical markets and large projects in emerging markets, partially offset by weak general industrial demand in the first three months of 2013. Sales within our Agricultural group increased due to robust demand in North America. Our Water Services & Technology group saw increased sales based on demand for new systems and a stabilization of municipal water markets in North America.

Operating income and operating margin of $104.2 million and 23.8%, respectively, were higher than the $90.8 million and 21.5% recorded in the first six months of 2012, primarily due to volume strength and the continued benefit of prior period restructuring actions.

 

29


Table of Contents

Health & Science Technologies Segment

 

     Six Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 353,735      $ 344,349   

Operating income

     66,789        57,406   

Operating margin

     18.9     16.7

Depreciation and amortization

   $ 21,739      $ 19,020   

Depreciation and amortization as a percentage of net sales

     6.1     5.5

Sales of $353.7 million increased $9.4 million, or 3%, in the first six months of 2013 compared with 2012. This increase reflects a 4% decrease in organic sales, 8% growth from acquisitions (ERC, Matcon, and FTL) and 1% unfavorable foreign currency translation. Organic sales in the first six months of 2013 were flat domestically and down 8% internationally. Organic sales to customers outside the U.S. were approximately 52% of total segment sales in the first six months of 2013, compared with 52% in 2012.

Sales within our MPT platform increased compared to the first six months of 2013 primarily due to the Matcon acquisition and strength in the Asian food and pharmaceutical markets, partially offset by lower sales in North America. Sales within our Scientific Fluidics platform increased compared to the first six months of 2013 due to growth across the globe within the Life Sciences end market. Sales within our Sealing Solutions group increased compared to the first six months of 2013 primarily due to the acquisition of FTL as well as strong sales to the oil & gas and semiconductor markets. Sales within our Optics and Photonics platform decreased compared to the first six months of 2012 due to continued weakness in the defense and research markets, lower catalog sales, and the exit of low margin business. Sales within our Industrial group decreased compared to the first six months of 2012 due to lower North American distributor sales, partially offset by slightly higher sales in the automotive end markets.

Operating income of $66.8 million and operating margin of 18.9% in the first six months of 2013 was up from the $57.4 million and 16.7% recorded in 2012 , primarily due to volume leverage, improved productivity and benefits from prior period restructuring activities and also due to 2012 being negatively impacted by $2.6 million of restructuring charges.

Fire & Safety/Diversified Products Segment

 

     Six Months
Ended
June 30,
 
(in thousands)    2013     2012  

Net sales

   $ 225,749      $ 219,974   

Operating income

     51,908        49,786   

Operating margin

     23.0     22.6

Depreciation and amortization

   $ 3,449      $ 3,603   

Depreciation and amortization as a percentage of net sales

     1.5     1.6

Sales of $225.7 million increased $5.8 million, or 3%, in the first six months of 2013 compared with the first six months of 2012. This increase was almost entirely attributable to organic growth as organic sales increased 4% domestically and 2% internationally. Organic sales to customers outside the U.S. were approximately 58% of total segment sales in the first six months of 2013, compared with 59% in 2012.

Sales within our Dispensing group decreased due to softness in the European markets. The sales increase within our Band-It group was driven by new vehicle platforms in North America and continued cable management shipments in China. Sales within our Fire Suppression group increased as a result of international markets, particularly China and Eastern Europe and new products in adjacent markets. Sales within our Rescue group increased as a result of robust demand from emerging markets.

 

30


Table of Contents

Operating income and operating margin of $51.9 million and 23.0%, respectively, were higher than the $49.8 million and 22.6% recorded in the first six months of 2012, primarily due to favorable mix and improved productivity, gained market share in emerging markets and profitability from the facility consolidation in North America, partially offset by a $1.0 million charge related to the closure of our Conshohocken facility.

Liquidity and Capital Resources

At June 30, 2013, working capital was $641.4 million and the current ratio was 3.2 to 1. Cash flows from operating activities for the first six months of 2013 increased $42.0 million, or 30%, to $181.5 million compared to the first six months of 2012 mainly due to higher earnings and improved working capital.

Cash flows provided by operating activities were more than adequate to fund capital expenditures of $15.8 million and $18.7 million in the first six months of 2013 and 2012, respectively. Capital expenditures were generally for machinery and equipment that improved productivity, 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, 2013, there were $55.0 million in outstanding borrowings under the Revolving Facility and outstanding letters of credit totaled approximately $9.7 million. The net available borrowing capacity under the Revolving Facility at June 30, 2013, was approximately 635.3 million. Borrowings under the Revolving Facility bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .875% to 1.70%. Based on the Company’s credit rating at June 30, 2013, 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,

 

31


Table of Contents

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.

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, 2013, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 10.66 to 1 and the leverage ratio was 1.88 to 1. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes, other than cross-default provisions.

 

32


Table of Contents

On October 22, 2012, the Company’s Board of Directors approved a $200.0 million increase in the authorized level for repurchases of common stock. Repurchases under the program will be funded with future cash flow generation or cash available under the revolving facility. During the six months ended June 30, 2013, the Company purchased 1.6 million shares at a cost of $86.7 million, of which $2.2 million was settled in July 2013. As of June 30, 2013, the Company had $148.7 million remaining from the October 22, 2012 authorized repurchase.

The Company believes current cash, cash from operations and cash available under the Revolving Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest on all borrowings, pension and postretirement funding requirements, authorized share repurchases and annual dividend payments to holders of the Company’s stock for the remainder of 2013 and 2014. 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. At June 30, 2013, $55.0 million was outstanding under the Revolving Facility, with $9.7 million of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at June 30, 2013 of approximately $635.3 million.

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, 2013, that the Company’s disclosure controls and procedures were effective.

There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

33


Table of Contents

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings.

The Company and six 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 has 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, 2013:

 

Period

   Total Number of
Shares  Purchased
     Average Price
Paid per  Share
     Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
     Maximum Dollar
Value that May Yet
be Purchased
Under the Plans
or Programs
 

April 1, 2013 to April 30, 2013

     322,315       $ 51.54         322,315       $ 183,172,334   

May 1, 2013 to May 31, 2013

     351,705       $ 54.77         351,705       $ 163,907,998   

June 1, 2013 to June 30, 2013

     282,299       $ 53.81         282,299       $ 148,718,089   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     956,319       $ 53.40         956,319       $ 148,718,089   
  

 

 

    

 

 

    

 

 

    

 

 

 

Item 6.    Exhibits.

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

 

34


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

IDEX Corporation
By:  

/s/    HEATH A. MITTS

  Heath A. Mitts
 

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 5, 2013

 

35


Table of Contents

EXHIBIT INDEX

 

Exhibit

Number

 

Description

      3.1  

Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on April 21, 1988)

      3.1(a)  

Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1(a) to the Quarterly Report of IDEX on Form 10-Q for the quarter ended March 31, 1996, Commission File No. 1-10235)

      3.1(b)  

Amendment to Restated Certificate of Incorporation of IDEX Corporation (incorporated by reference to Exhibit No. 3.1(b) to the Current Report of IDEX on Form 8-K dated March 24, 2005, Commission File No. 1-10235)

      3.2  

Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.1 to the Current Report of IDEX Corporation on form 8-K filed November 14, 2011, Commission File No. 1-10235)

      3.2(a)  

Amended and Restated Article III, Section 13 of the Amended and Restated By-Laws of IDEX Corporation (incorporated by reference to Exhibit No. 3.2(a) to Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 of IDEX, et al., Registration No. 33-21205, as filed on February 12, 1990)

  *31.1  

Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes Oxley Act of 2002

  *31.2  

Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes Oxley Act of 2002

  *32.1  

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

  *32.2  

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

*101  

The following financial information from IDEX Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

 

*

Filed herewith

 

36