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IEX > SEC Filings for IEX > Form 10-Q on 31-Oct-2013All Recent SEC Filings

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Form 10-Q for IDEX CORP /DE/


31-Oct-2013

Quarterly Report


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 Securities Exchange Act of 1934, as amended. These statements relate to, among other things, operating results and are indicated by words or phrases such as "expects," "should," "will," and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those statements. The risks and uncertainties include, but are not limited to, those risks and uncertainties identified under the heading "Risk Factors" in item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2012, and information contained in subsequent reports filed by IDEX with the Securities and Exchange Commission. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

Overview and Outlook
IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and fire, safety and other diversified products built to customers' specifications. IDEX's products are sold in niche markets to a wide range of industries throughout the world. Accordingly, IDEX's businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where it does business and by the relationship of the U.S. dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are among the factors that influence the demand for IDEX's products.
The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products. Within 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 Material 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, very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.
Some of our key financial highlights for the three months ended September 30, 2013 are as follows:
Sales of $491 million increased 2%; organic sales - excluding acquisitions and foreign currency translation - were up 1%.

Operating income of $97.4 million increased 21%.

Net income increased 27% to $63.8 million.

Diluted EPS of $0.78 increased 18 cents, or 30%, compared to 2012.


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Some of our key financial highlights for the nine months ended September 30, 2013 are as follows:
Sales of $1,504 million increased 3%; organic sales - excluding acquisitions and foreign currency translation - were up slightly.

Operating income of $291.6 million increased 15%.

Net income increased 20% to $187.7 million.

Diluted EPS of $2.27 increased 40 cents, or 21%, compared to 2012.

Our projected fourth quarter 2013 EPS is in the range of $0.78 to $0.80. Given the Company's current outlook and the projection of 2% organic revenue growth for the year, we have increased our full year EPS outlook - we now expect full year 2013 diluted EPS of $3.05 to $3.07.

Results of Operations
The following is a discussion and analysis of our results of operations for the three and nine month periods ended September 30, 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 September 30, 2013 Compared with

the Same Period of 2012
                                                              Three Months Ended
                                                                 September 30,
(In thousands)                                                2013          2012
Net sales                                                  $ 490,617     $ 479,859
Operating income                                              97,369        80,588
Operating margin                                                19.8 %        16.8 %
Depreciation and amortization                              $  19,779     $  19,545
Depreciation and amortization as a percentage of net sales       4.0 %         4.1 %

Sales in the three months ended September 30, 2013 were $490.6 million, a 2% increase from the comparable period last year. This increase reflects a 1% increase in organic sales and 1% from acquisitions (Matcon - July 2012 and FTL - March 2013). Organic sales to customers outside the U.S. represented approximately 51% of total sales in the third quarter of 2013 compared with 49% in the same period in 2012.
For the third quarter of 2013, Fluid & Metering Technologies contributed 43% of sales and 47% of operating income; Health & Science Technologies accounted for 36% of sales and 33% of operating income; and Fire & Safety/Diversified Products represented 21% of sales and 20% of operating income.
Gross profit of $211.5 million in the third quarter of 2013 increased $16.7 million, or 9%, from the third quarter of 2012. Gross profit as a percentage of sales, or gross margin, was 43.1% in the third quarter of 2013 and 40.6% for the same period in 2012. The increase in gross margin primarily reflects volume leverage, improved productivity and benefits from prior period restructuring activities.


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Selling, general and administrative ("SG&A") expenses increased to $114.1 million in the third quarter of 2013 from $107.2 million in 2012. The $6.9 million increase reflects approximately $1.6 million of incremental costs from new acquisitions and $5.3 million of volume related expenses. As a percentage of sales, SG&A expenses were 23.3% for 2013 and 22.3% for 2012.
During the three months ended September 30, 2012, the Company recorded pre-tax restructuring expenses totaling $7.1 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 $97.4 million and operating margin of 19.8% in the third quarter of 2013 were up from the $80.6 million of operating income and 16.8% of operating margin recorded during the same period in 2012, primarily due to an increase in volume, improved productivity and benefits from our structural cost actions taken in the prior year, as well as third quarter 2012 operating margin being negatively impacted by $7.1 million of restructuring charges. Other expense, net was $0.2 million in the third quarter of 2013 compared with $0.1 million of income recorded in the third quarter of 2012, primarily due to higher losses on foreign currency.
Interest expense of $10.6 million in the third quarter of 2013 increased slightly from $10.5 million during the same period 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 $22.8 million in the third quarter of 2013 compared to $20.1 million in the third quarter of 2012. The effective tax rate decreased to 26.3% for the third quarter of 2013 compared to 28.6% in the third quarter of 2012 due to discrete tax benefits and the mix of global pre-tax income among jurisdictions.
Net income for the third quarter of $63.8 million increased from the $50.1 million during the same period in 2012. Diluted earnings per share in the third quarter of 2013 of $0.78 increased $0.18, or 30%, compared with the third quarter 2012.

Fluid & Metering Technologies Segment
                                                              Three Months Ended
                                                                 September 30,
(In thousands)                                                2013          2012
Net sales                                                  $ 212,337     $ 198,000
Operating income                                              51,736        41,649
Operating margin                                                24.4 %        21.0 %
Depreciation and amortization                              $   6,981     $   7,246
Depreciation and amortization as a percentage of net sales       3.3 %         3.7 %

Sales of $212.3 million increased $14.3 million, or 7%, in the third quarter of 2013 compared with the same period of 2012. This sales increase reflects a 6% increase in organic sales and 1% favorable foreign currency translation. In the third quarter of 2013, organic sales increased approximately 7% domestically and 5% internationally. Organic sales to customers outside the U.S. were approximately 46% of total segment sales during the third quarter of 2013, compared with 48% in the same period of 2012.
Sales increased across all platforms and groups of the Fluid & Metering Technologies segment, compared to the third quarter of 2012. The increase within our Energy platform was primarily due to strength of electronic retrofits in the North American market as well as international aviation orders. Sales increased within our Chemical, Food & Process platform primarily due to strength within our chemical markets, while our core markets of Germany and North America distribution remain stable. The sales increase within our Diaphragm & Dosing Pump Technology platform is mainly attributable to strength in the oil and gas markets. Sales within our Agricultural group increased due to an early order pattern and new product introductions. The sales increase within our Water Services & Technology group is primarily attributable to increased quote activity in North America and stability in Northern Europe and Asia. Operating income and operating margin of $51.7 million and 24.4%, respectively, were higher than the $41.6 million and 21.0% recorded in the third quarter of 2012, primarily due to volume leverage, operational execution, and the continued benefit of cost-out actions along with 2012 being negatively impacted by $0.7 million of restructuring charges.


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Health & Science Technologies Segment
                                                              Three Months Ended
                                                                 September 30,
(In thousands)                                                2013          2012
Net sales                                                  $ 178,628     $ 176,225
Operating income                                              36,775        27,305
Operating margin                                                20.6 %        15.5 %
Depreciation and amortization                              $  10,798     $  10,273
Depreciation and amortization as a percentage of net sales       6.0 %         5.8 %

Sales of $178.6 million increased $2.4 million, or 1%, in the third quarter of 2013 compared with the same period of 2012. This increase reflects a 2% decrease in organic sales, 4% growth from acquisitions (Matcon and FTL) and 1% unfavorable foreign currency translation. In the third quarter of 2013, organic sales decreased 9% domestically and increased 5% internationally. Organic sales to customers outside the U.S. were approximately 54% of total segment sales in the third quarter of 2013, compared with 48% in the third quarter of 2012. Sales within our Material Process Technologies platform increased compared to the third quarter of 2012 primarily due to the Matcon acquisition and strength in the Asian food and pharmaceutical markets. Sales increased compared to the third quarter of 2012 within our Scientific Fluidics platform due to growth in the North American and Western European markets, driven by new product introductions and gains in market share. Sales within our Sealing Solutions group increased compared to the third quarter of 2012 due to the acquisition of FTL and strong sales to the oil & gas and scientific markets. Sales within our Optics and Photonics platform decreased compared to the third quarter of 2012 due to the exit of low margin businesses at the end of 2012 and weakness in the semiconductor market. Sales within our Industrial group decreased compared to the third quarter of 2012 due to certain OEM business from the prior year not repeating in the current year.
Operating income and operating margin of $36.8 million and 20.6%, respectively, in the third quarter of 2013 were higher than the $27.3 million and 15.5% recorded in the third quarter of 2012, primarily due to acquisitions, improved productivity and benefits from prior period restructuring actions along with the third quarter of 2012 being negatively impacted by $3.2 million of restructuring charges.

Fire & Safety/Diversified Products Segment
                                                              Three Months Ended
                                                                 September 30,
(In thousands)                                                2013          2012
Net sales                                                  $ 101,077     $ 108,199
Operating income                                              22,119        24,738
Operating margin                                                21.9 %        22.9 %
Depreciation and amortization                              $   1,726     $   1,622
Depreciation and amortization as a percentage of net sales       1.7 %         1.5 %

Sales of $101.1 million decreased $7.1 million, or 6%, in the third quarter of 2013 compared with the third quarter of 2012. This decrease reflects a 7% decrease in organic sales and 1% favorable foreign currency translation. In the third quarter of 2013, organic sales decreased 12% domestically and 3% internationally. Organic sales to customers outside the U.S. were approximately 55% of total segment sales in the third quarter of 2013, compared with 54% in the third quarter of 2012.
Sales within our Dispensing group decreased as 2012 third quarter sales included a large replenishment order; however, North American demand continued to gain traction with a large equipment order, and the X-Smart product drove market share gains in Europe and emerging 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 slightly as a result of strong China project orders. Sales within our Rescue group decreased slightly as a result of project funding delays in China, offset by a slight improvement in the Eastern Europe market.


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Operating income and operating margin of $22.1 million and 21.9%, respectively, were lower than the $24.7 million and 22.9% recorded in the third quarter of 2012, primarily due to lower volume and unfavorable product mix across the segment. The 2012 operating margin was also negatively impacted by $2.1 million of restructuring charges.
Consolidated Results in the Nine Months Ended September 30, 2013 Compared with

the Same Period of 2012

                                                                 Nine Months Ended
                                                                    September 30,
(In thousands)                                                  2013             2012
Net sales                                                  $  1,503,510     $  1,463,420
Operating income                                                291,640          253,807
Operating margin                                                   19.4 %           17.4 %
Depreciation and amortization                              $     59,695     $     57,938
Depreciation and amortization as a percentage of net sales          4.0 %            4.0 %

Sales in the nine months ended September 30, 2013 were $1,503.5 million, a 3% increase from the comparable period last year. This increase reflects a 1% increase in organic sales and a 2% increase from acquisitions (ERC - April 2012, Matcon - July 2012 and FTL - March 2013). Organic sales to customers outside the U.S. represented approximately 50% of total sales in both periods.
For the first nine months of 2013, Fluid & Metering Technologies contributed 43% of sales and 47% of operating income; Health & Science Technologies accounted for 35% of sales and 31% of operating income; and Fire & Safety/Diversified Products represented 22% of sales and 22% of operating income.
Gross profit of $646.4 million in the first nine months of 2013 increased $45.5 million, or 8%, from the same period in 2012. Gross margin of 43.0% in the first nine months of 2013 increased from 41.1% during the same period in 2012. The increase in gross margin primarily resulted from an increase in volume and benefits from the Company's structural cost actions taken in prior years. Selling, general and administrative expenses increased to $354.7 million in the first nine months of 2013 from $332.4 million during the same period of 2012. The change reflects an increase of approximately $9.2 million for incremental costs from new acquisitions and an increase in volume related expenses of $13.1 million. As a percentage of sales, SG&A expenses were 23.6% for the first nine months of 2013 and 22.7% for the same period of 2012.
During the nine months ended September 30, 2012, the Company recorded pre-tax restructuring expenses totaling $14.6 million. These restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas and facility rationalization resulting from the Company's cost savings initiatives.
Operating income of $291.6 million in the first nine months of 2013 was up from the $253.8 million recorded during the same period in 2012, primarily reflecting an increase in volume, improved productivity and restructuring-related charges recorded in 2012. Operating margin of 19.4% in the first nine months of 2013 was up from 17.3% during the same period of 2012, primarily due to increased volume, productivity, and benefits from the Company's structural cost actions taken in prior years along with 2012 being negatively impacted by $14.6 million of restructuring charges.
Other income, net of $0.5 million in the first nine months of 2013 was up $0.5 million compared with the same period in 2012, primarily due to higher gains on foreign currency transactions.
Interest expense was $31.7 million in the first nine months of 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 of $72.8 million for the first nine months of 2013 increased compared to $65.4 million recorded in the same period of 2012. The effective tax rate decreased to 27.9% for the first nine months of 2013 compared to 29.5% in the same period of 2012 primarily due to discrete tax benefits, 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.
Net income in the first nine months of 2013 of $187.7 million increased from $156.6 million during the same period of 2012. Diluted earnings per share in the first nine months of 2013 of $2.27 increased $0.40, or 21%, compared with the same period in 2012.


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Fluid & Metering Technologies Segment

                                                              Nine Months Ended
                                                                 September 30,
(In thousands)                                                2013          2012
Net sales                                                  $ 649,580     $ 621,433
Operating income                                             155,930       132,477
Operating margin                                                24.0 %        21.3 %
Depreciation and amortization                              $  20,953     $  22,194
Depreciation and amortization as a percentage of net sales       3.2 %         3.6 %

Sales of $649.6 million increased $28.1 million, or 5%, in the first nine months of 2013 compared with the same period of 2012. This reflects a 4% increase in organic sales and 1% favorable foreign currency translation. In the first nine months of 2013, organic sales increased 6% domestically and 2% internationally. Organic sales to customers outside the U.S. were approximately 45% of total segment sales during the first nine months of 2013, compared with 47% during the same period in 2012.
Sales within our Energy platform increased in the first nine months of 2013 compared to the same period of 2012, due to a stronger than anticipated North American LPG market, international aviation and project sales to emerging markets. Sales within our Chemical Food & Process platform increased compared to the first nine months of 2012 based on strength in the chemical markets and large projects in emerging markets, partially offset by weak general industrial demand. Sales within our Agriculture group increased due to higher demand in North America and new product introductions. Diaphragm & Dosing Pump Technology platform sales increased slightly compared to the first nine months of 2012 due to growth within our North American markets and low growth within the European and Asian markets. Our Water Services & Technology group saw increased sales in the first nine months of 2013 compared to the same period in 2012 based on demand for new systems and increased order activity in the North American municipal water markets.
Operating income and operating margin of $155.9 million and 24.0%, respectively, were higher than the $132.5 million and 21.3% recorded in the first nine months of 2012, primarily due to increased volume, operational execution, benefits from the Company's structural cost actions taken in prior years and 2012 being negatively impacted by $3.7 million of restructuring charges.

Health & Science Technologies Segment

                                                              Nine Months Ended
                                                                 September 30,
(In thousands)                                                2013          2012
Net sales                                                  $ 532,363     $ 520,574
Operating income                                             103,564        84,711
Operating margin                                                19.5 %        16.3 %
Depreciation and amortization                              $  32,537     $  29,293
Depreciation and amortization as a percentage of net sales       6.1 %         5.6 %

Sales of $532.4 million increased $11.8 million, or 2%, in the first nine months . . .

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