Results of Operations
The following is a discussion and analysis of our financial position and results of operations for the period ended September 30, 2008 and 2007. For purposes of this discussion and analysis section, reference is made to the table below and the Company's Condensed Consolidated Statements of Operations included in Item 1.
Performance in the Three Months Ended September 30, 2008 Compared with the Same Period of 2007
Sales in the three months ended September 30, 2008 were $365.2 million, a 9% improvement from the comparable period last year. Two acquisitions (Isolation Technologies - October 2007 and ADS - January 2008) accounted for a sales improvement of 7%, organic sales grew 1% and foreign currency translation contributed 1%. Sales to international customers represented approximately 46% of total sales in both 2008 and 2007.
Fluid & Metering Technologies sales of $170.3 million for the three months ended September 30, 2008 rose $26.4 million, or 18% compared with 2007, reflecting 4% organic growth, 13% for acquisitions (ADS) and 1% favorable foreign currency translation. Growth was driven by continued global demand for infrastructure-related applications and acquisition performance. In the third quarter of 2008, organic sales grew approximately 6% domestically and were essentially flat internationally. Organic business sales to customers outside the U.S. were approximately 40% of total segment sales during the third quarter of 2008, compared to 42% in 2007.
Health & Science Technologies sales of $82.9 million were flat compared to the third quarter of 2007. This reflects a 3% increase for acquisitions (Isolation Technologies) and 1% from favorable foreign currency translation, offset by a 4% decrease in organic growth. The decrease in organic growth reflects the exit from two specific OEM contracts. In the third quarter of 2008, organic sales increased 4% domestically and decreased 16% internationally. Organic business sales to customers outside the U.S. were approximately 38% of total segment sales in the third quarter of 2008, compared to 43% in 2007.
Dispensing Equipment sales of $31.5 million decreased $6.6 million, or 17% in the third quarter of 2008 compared with 2007. This decrease reflects a 21% decrease in organic growth, partially offset by 4% from favorable foreign currency translation. The dispensing business experienced deterioration in capital spending in both the European and North American markets and the loss of a major retail customer during the quarter. In the third quarter of 2008, organic sales decreased 38% domestically and 11% internationally. Organic sales to customers outside the U.S. were approximately 72% of total segment sales in the third quarter of 2008, compared with 64% in the comparable quarter of 2007.
Fire & Safety/Diversified Products sales of $81.2 million increased $10.6 million, or 15% in the third quarter of 2008 compared with 2007. This increase reflects a 13% increase in organic business volume and 2% from favorable foreign currency translation. The engineered band clamping business as well as the rescue business achieved strong growth driven by global demand for infrastructure-related applications and rescue equipment serving emerging markets. In the third quarter of 2008, organic business sales were flat domestically and increased 25% internationally. Organic sales to customers outside the U.S. were approximately 56% of total segment sales in the third quarter of 2008, compared to 51% in 2007.

                                                         Three Months                             Nine Months
                                                    Ended September 30,(1)                   Ended September 30,(1)
                                                    2008               2007                2008                 2007
Fluid & Metering Technologies
Net sales                                       $  170,258          $ 143,842          $   518,546          $   421,642
Operating income (2)                                32,735             31,559              101,635               91,443
Operating margin                                      19.2 %             21.9 %               19.6 %               21.7 %
Depreciation and amortization                   $    5,842          $   4,310          $    18,605          $    12,428
Capital expenditures                                 2,519              2,883                7,695                8,992

Health & Science Technologies
Net sales                                       $   82,889          $  83,266          $   253,778          $   246,356
Operating income (2)                                16,540             16,703               47,673               45,733
Operating margin                                      20.0 %             20.1 %               18.8 %               18.6 %
Depreciation and amortization                   $    2,573          $   3,316          $     8,411          $     8,162
Capital expenditures                                 1,294              1,207                3,894                3,987

Dispensing Equipment
Net sales                                       $   31,543          $  38,145          $   138,152          $   135,897
Operating income (loss) (2)                        (32,074 )            5,625               (6,547 )             31,577
Operating margin                                    (101.7 )%            14.7 %               (4.7 )%              23.2 %
Depreciation and amortization                   $      946          $     854          $     3,215          $     2,431
Capital expenditures                                   652                694                2,236                2,448

Fire & Safety/Diversified Products
Net sales                                       $   81,189          $  70,592          $   227,099          $   212,596
Operating income (2)                                20,455             16,533               56,793               50,008
Operating margin                                      25.2 %             23.4 %               25.0 %               23.5 %
Depreciation and amortization                   $    1,206          $   1,235          $     3,950          $     4,289
Capital expenditures                                   789                829                3,929                2,528

Company
Net sales                                       $  365,193          $ 334,884          $ 1,134,165          $ 1,012,634
Operating income (2)                                29,417             63,148              171,324              193,565
Operating margin                                       8.1 %             18.9 %               15.1 %               19.1 %
Depreciation and amortization (3)               $   10,879          $   9,826          $    35,092          $    28,305
Capital expenditures                                 5,851              7,794               19,164               20,924

(1) Data includes acquisition of ADS
(January 2008) and Quadro (June 2007) in the Fluid & Metering Technologies segment and Isolation Technologies
(October 2007) in the Health & Science Technologies segment from the dates of acquisition.

(2) Group operating income excludes unallocated corporate operating expenses.

(3) Excludes amortization of debt issuance expenses and unearned stock compensation.

Gross profit of $146.4 million in the third quarter of 2008 increased $8.7 million, or 6% from 2007. Gross profit as a percent of sales was 40.1% in the third quarter of 2008 and 41.1% in 2007. The decrease in gross margin primarily reflects product mix, an inventory valuation adjustment at Fluid Management Americas and the impact of recent acquisitions.
Selling, general and administrative ("SG&A") expenses increased to $81.6 million in the third quarter of 2008 from $74.5 million in 2007. The $7.1 million increase reflects approximately $4.7 million of incremental costs associated with recently acquired businesses and $2.4 million volume related expenses. As a percent of sales, SG&A expenses were 22.4% for 2008 and 22.2% for 2007.

During the three months ended September 30, 2008, the Company recorded pre-tax restructuring expenses totaling $5.3 million. These restructuring expenses were related to the Company's restructuring program to support the implementation of key strategic initiatives designed to achieve long-term sustainable growth, which includes the previously announced cessation of manufacturing operations in its Dispensing segment's Milan, Italy facility. The plant closure is expected to improve operating productivity and enhance capacity utilization. In addition, the Company has initiated company-wide plans which include management and administrative workforce reductions as well as an additional facility consolidation. Employees separated or to be separated from the Company as a result of these initiatives were offered severance packages, as appropriate. The expenses recorded during the three months ended September 30, 2008 included costs related to involuntary terminations and other direct costs associated with implementing these initiatives.
During the third quarter of 2008 in accordance with SFAS No. 142, the Company concluded that events had occurred and circumstances had changed which required the Company to perform an interim period goodwill impairment test at Fluid Management Americas, a reporting unit within the Company's Dispensing Equipment Segment. Fluid Management Americas has experienced a downturn in capital spending by its customer base and the loss of a major retail customer. The Company performed an impairment test and compared the fair value of the reporting unit to its carrying value. It was determined that the fair value of Fluid Management Americas was less than the carrying value of the net assets. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The Company's analysis resulted in an implied fair value of goodwill of $21.2 million, and as a result, the Company recognized an impairment charge of $30.1 million in the third quarter of 2008.
Operating income decreased $33.7 million, or 53%, to $29.4 million in the third quarter of 2008 from $63.1 million in 2007, primarily reflecting increased SG&A expenses from previously announced restructuring-related and goodwill impairment charges, as well as the impact from acquisitions, partially offset by an increase in volume. Third quarter operating margins were 8.1% of sales compared with 18.9% in the third quarter of 2007. The decrease was driven primarily by the impact of the previously announced restructuring-related charges, goodwill impairment charges, as well as expenses associated with recent acquisitions. In the Fluid & Metering Technologies Segment, operating income of $32.7 million in the third quarter of 2008 was up from the $31.6 million recorded in 2007 principally due to strong global demand for process control and infrastructure-related applications. Operating margins within the Fluid & Metering Technologies Segment of 19.2% in the current quarter were down from 21.9% in 2007, due to the impact of recent acquisitions. In the Health & Science Technologies Segment, operating income of $16.5 million and operating margins of 20.0% in the third quarter of 2008 were down slightly from the $16.7 million and 20.1% recorded in 2007. In the Dispensing Equipment Segment, operating loss of $32.1 million and operating margins of (101.7)% in the third quarter of 2008 were down from the $5.6 million of operating income and 14.7% recorded in 2007, due to lower volume within related end markets, inventory valuation adjustment and goodwill impairment charges. Operating income and operating margins in the Fire & Safety/Diversified Products Segment of $20.5 million and 25.2%, respectively, were higher than the $16.5 million and 23.4% recorded in 2007, due primarily to increased volume and favorable product mix.
Other income of $2.7 million in 2008 was $2.3 million higher than the $0.4 million in 2007, primarily due to foreign exchange gain and higher interest income.
Interest expense decreased to $3.9 million in 2008 from $5.5 million in 2007. The decrease was due to a lower interest rate environment and the refinancing of the $150.0 million senior notes to a lower interest rate.
The provision for income taxes from continuing operations is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes decreased to $9.2 million in the third quarter of 2008 compared to the third quarter of 2007, which was $19.2 million. The effective tax rate of 32.5% in the third quarter of 2008 was lower compared to 33.1% in the same period of 2007 due to the mix of global pre-tax income among jurisdictions which was partially offset by the non-recurring unfavorable discrete items in the third quarter of 2008 and the non-renewal of the federal research and development tax credit as of September 30, 2008.
Income from continuing operations for the current quarter was $19.1 million, 51% lower than the $38.8 million earned in the third quarter of 2007. Diluted earnings per share from continuing operations in the third quarter of 2008 of $0.23 decreased $0.24, or 51%, compared with the third quarter of 2007.

Loss from discontinued operations for 2007 was $0.4 million, which resulted from operations for Halox.
Net income for the current quarter of $19.1 million decreased from the $38.4 million earned in the third quarter of 2007, which included loss from discontinued operations of $0.4 million. Diluted earnings per share in the third quarter of 2008 of $0.23 decreased $0.24, or 51%, compared with the third quarter of 2007.
Performance in the Nine Months Ended September 30, 2008 Compared with the Same Period of 2007
Sales in the nine months ended September 30, 2008 were $1,134.2 million, a 12% improvement from the comparable period last year. Three acquisitions accounted for a sales improvement of 7%, foreign currency translation contributed 3% and organic sales improved 2%. Sales to international customers represented approximately 47% of total sales in the current period compared to 46% in the same period in 2007.
Fluid & Metering Technologies sales of $518.5 million for the nine months ended September 30, 2008 rose $96.9 million, or 23% compared with 2007, reflecting 6% organic growth, 15% for acquisitions and a 2% favorable impact from foreign currency translation. Growth was driven by continued global demand for infrastructure-related applications and acquisition performance. In the first nine months of 2008, organic sales grew approximately 4% domestically and 7% internationally. Organic business sales to customers outside the U.S. were approximately 42% of total segment sales during the first nine months of 2008, compared to 41% in 2007.
Health & Science Technologies sales of $253.8 million increased $7.4 million, or 3%, in the first nine months of 2008 compared with last year's period. This increase reflects a 4% increase for acquisitions, 1% from favorable foreign currency translation and a 2% decline in organic growth. In the nine month period of 2008, organic sales increased 1% domestically and decreased 5% internationally. Organic business sales to customers outside the U.S. were approximately 39% of total segment sales in the first nine months of 2008 compared with 40% in the comparable period of 2007.
Dispensing Equipment sales of $138.2 million increased $2.3 million, or 2% in the nine month period of 2008 compared with 2007. This increase reflects a 7% decrease in organic growth offset by 9% from favorable foreign currency translation. In the first nine months of 2008, organic sales decreased 26% domestically and increased 4% internationally. Organic sales to customers outside the U.S. were approximately 72% of total segment sales in the first nine months of 2008, compared with 65% in the comparable period of 2007.
Fire & Safety/Diversified Products sales of $227.1 million increased $14.5 million, or 7% in the first nine months of 2008 compared with 2007. This increase reflects a 4% increase in organic business volume and 3% from favorable foreign currency translation. The engineered band clamping business as well as rescue business achieved strong growth. In the first nine months of 2008, organic business sales were essentially flat domestically and increased 25% internationally. Organic sales to customers outside the U.S. were approximately 56% of total segment sales during the first nine months of 2008, compared to 51% in 2007.
Gross profit of $464.8 million in the first nine months of 2008 increased $39.9 million, or 9% from 2007. Gross profit as a percent of sales was 41.0% in 2008 and 42.0% in 2007. The decrease in gross margin primarily reflects product mix, higher material costs and the effect from recent acquisitions.
SG&A expenses increased to $258.1 million in the first nine months of 2008 from $231.3 million in 2007. This increase reflects $17.8 million of incremental costs associated with recent acquisitions and approximately $9.0 million for volume-related expenses. As a percent of sales, SG&A expenses were 22.8% for 2008 and 22.9% for 2007.

During the nine months ended September 30, 2008, the Company recorded pre-tax restructuring expenses totaling $5.3 million. These restructuring expenses were related to the Company's restructuring program to support the implementation of key strategic initiatives designed to achieve long-term sustainable growth, which includes the previously announced cessation of manufacturing operations in its Dispensing segment's Milan, Italy facility. The plant closure is expected to improve operating productivity and enhance capacity utilization. In addition, the Company has initiated company-wide plans which include management and administrative workforce reductions as well as an additional facility consolidation. Employees separated or to be separated from the Company as a result of these initiatives were offered severance packages, as appropriate. The expenses recorded during the nine months ended September 30, 2008 included costs related to involuntary terminations and other direct costs associated with implementing these initiatives.
During the first nine months of 2008 in accordance with SFAS No. 142, the Company concluded that events had occurred and circumstances had changed which required the Company to perform an interim period goodwill impairment test at Fluid Management Americas, a reporting unit within the Company's Dispensing Equipment Segment. Fluid Management Americas has experienced a downturn in capital spending by its customer base and the loss of a major retail customer. The Company performed an impairment test and compared the fair value of the reporting unit to its carrying value. It was determined that the fair value of Fluid Management Americas was less than the carrying value of the net assets. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The Company's analysis resulted in an implied fair value of goodwill of $21.2 million, and as a result, the Company recognized an impairment charge of $30.1 million in the first nine months of 2008.
Operating income decreased $22.2 million, or 11%, to $171.3 million in the first nine months of 2008 from $193.6 million in 2007, primarily reflecting increased SG&A expenses from previously announced restructuring-related and goodwill impairment charges, partially offset by higher volumes. Nine month operating margins were 15.1% of sales, 400 basis points lower than the same period of 2007. The decrease was driven primarily by the impact of the previously announced restructuring-related and goodwill impairment charges as well as expenses associated with recent acquisitions. In the Fluid & Metering Technologies Segment, operating income of $101.6 million in the first nine months of 2008 was up from the $91.4 million recorded in 2007 principally due to strong global demand for process control and infrastructure-related applications. Operating margins within the Fluid & Metering Technologies Segment of 19.6% in the current period were down from 21.7% in 2007, due to the impact of recent acquisitions. In the Health & Science Technologies Segment, operating income of $47.7 million and operating margins of 18.8% in the first nine months of 2008 were up from the $45.7 million and 18.6% recorded in 2007 principally due to favorable product mix. In the Dispensing Equipment Segment, operating loss of $6.5 million and operating margins of (4.7)% in the first nine months of 2008 were down from the $31.6 million operating income and 23.2% recorded in 2007, due to lower volume within related end markets, goodwill impairment charges and selective material cost increases. Operating income and operating margins in the Fire & Safety/Diversified Products Segment of $56.8 million and 25.0%, respectively, were higher than the $50.0 million and 23.5% recorded in 2007, due primarily to favorable product mix.
Interest expense decreased to $13.6 million in 2008 from $18.0 million in 2007. The decrease was due to a lower interest rate environment and the refinancing of the $150.0 million senior notes to a lower interest rate.
The provision for income taxes from continuing operations is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes decreased to $55.1 million in the first nine months of 2008 from $59.6 million in 2007. The effective tax rate increased to 34.1% in the first nine months of 2008 compared to 33.7% in the same period of 2007 due to the mix of global pre-tax income among jurisdictions, non-recurring unfavorable discrete items in 2008 and the non-renewal of the federal research and development tax credit as of September 30, 2008.
Income from continuing operations for the current period was $106.5 million, 9% lower than the $117.5 million earned in the same period of 2007. Diluted earnings per share from continuing operations in the first nine months of 2008 of $1.29 decreased $0.14, or 10%, compared with the nine months of 2007.
Loss from discontinued operations for 2007 was $0.8 million, which resulted from operations for Halox.

Net income for the current period of $106.5 million decreased from the $116.7 million earned in the first nine months of 2007, which included a loss from discontinued operations of $0.8 million. Diluted earnings per share in the first nine months of 2008 of $1.29 decreased $0.13, or 9%, compared with the same period of 2007.
Liquidity and Capital Resources
At September 30, 2008, working capital was $446.8 million and our current ratio was 3.1 to 1. Cash flows from operating activities increased $28.5 million, or 21%, to $166.7 million in the first nine months of 2008 mainly due to the improved operating results discussed above.
Cash flows provided by operations were more than adequate to fund capital expenditures of $19.1 million and $18.8 million in the first nine months of 2008 and 2007, respectively. Capital expenditures were generally for machinery and equipment that improved productivity and tooling to support the global sourcing initiatives, although a portion was for business system technology and replacement of equipment and facilities. Management believes that the Company . . .