Edgar Filing: IDEX CORP /DE/

Large accelerated filer þ

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

Form 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2015



¨	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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

Number of shares of common stock of IDEX Corporation outstanding as of October 21, 2015: 76,518,607.

Table of Contents

TABLE OF CONTENTS



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	20
	Cautionary Statement Under the Private Securities Litigation Reform Act	20
	Overview and Outlook	20
	Results of Operations	22
	Liquidity and Capital Resources	27
	Non-GAAP Disclosures	28
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)



	September 30, 2015			December 31, 2014
ASSETS
Current assets
Cash and cash equivalents	$	306,482		$	509,137
Receivables, less allowance for doubtful accounts of $8,496 at September 30, 2015 and $6,961 at December 31, 2014	272,008			256,040
Inventories — net	252,518			237,631
Other current assets	75,391			72,983
Total current assets	906,399			1,075,791
Property, plant and equipment — net	240,270			219,543
Goodwill	1,400,185			1,321,277
Intangible assets — net	300,922			271,164
Other noncurrent assets	22,586			20,295
Total assets	$	2,870,362		$	2,908,070
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	129,224		$	127,462
Accrued expenses	169,907			163,409
Notes payable and current portion of long-term borrowings	471			98,946
Dividends payable	24,584			22,151
Total current liabilities	324,186			411,968
Long-term borrowings	852,780			765,006
Deferred income taxes	153,505			130,368
Other noncurrent liabilities	111,298			114,277
Total liabilities	1,441,769			1,421,619
Commitments and contingencies
Shareholders’ equity
Preferred stock:
Authorized: 5,000,000 shares, $.01 per share par value; Issued: None	—			—
Common stock:
Authorized: 150,000,000 shares, $.01 per share par value
Issued: 90,121,275 shares at September 30, 2015 and 89,761,305 shares at December 31, 2014	901			898
Additional paid-in capital	674,290			647,553
Retained earnings	1,624,759			1,483,821
Treasury stock at cost: 13,297,996 shares at September 30, 2015 and 10,995,361 shares at December 31, 2014	(730,312		)	(553,543		)
Accumulated other comprehensive income (loss)	(141,045		)	(92,278		)
Total shareholders’ equity	1,428,593			1,486,451
Total liabilities and shareholders’ equity	$	2,870,362		$	2,908,070

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net sales	$	503,791		$	533,179		$	1,520,870		$	1,623,868
Cost of sales	280,531			298,533			839,954			903,670
Gross profit	223,260			234,646			680,916			720,198
Selling, general and administrative expenses	114,794			123,799			360,784			383,428
Gain on sale of business	(18,070		)	—			(18,070		)	—
Restructuring expenses	4,723			—			4,723			—
Operating income	121,813			110,847			333,479			336,770
Other (income) expense — net	(693		)	(944		)	(1,589		)	(1,651		)
Interest expense	10,229			10,461			31,410			31,323
Income before income taxes	112,277			101,330			303,658			307,098
Provision for income taxes	32,772			29,889			88,614			89,332
Net income	$	79,505		$	71,441		$	215,044		$	217,766

Basic earnings per common share	$	1.03		$	0.89		$	2.77		$	2.70
Diluted earnings per common share	$	1.02		$	0.88		$	2.75		$	2.68

Share data:
Basic weighted average common shares outstanding	76,831			79,558			77,431			80,064
Diluted weighted average common shares outstanding	77,646			80,561			78,266			81,093

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net income	$	79,505		$	71,441		$	215,044		$	217,766
Other comprehensive income (loss)
Reclassification adjustments for derivatives, net of tax	1,114			1,141			3,370			3,453
Pension and other postretirement adjustments, net of tax	818			1,614			2,418			2,570
Foreign currency translation adjustments
Cumulative translation adjustment	(16,936		)	(55,688		)	(49,830		)	(41,530		)
Reclassification of foreign currency translation to earnings upon sale of subsidiaries	(4,725		)	—			(4,725		)	—
Other comprehensive income (loss)	(19,729		)	(52,933		)	(48,767		)	(35,507		)
Comprehensive income	$	59,776		$	18,508		$	166,277		$	182,259

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands except share amounts)

(unaudited)



						Accumulated Other Comprehensive Income (Loss)
	Common Stock and Additional Paid-In Capital		Retained Earnings			Cumulative Translation Adjustment			Retirement Benefits Adjustment			Cumulative Unrealized Gain (Loss) on Derivatives			Treasury Stock			Total Shareholders’ Equity
Balance, December 31, 2014	$	648,451	$	1,483,821		$	(24,813	)	$	(40,316	)	$	(27,149	)	$	(553,543	)	$	1,486,451
Net income	—		215,044			—			—			—			—			215,044
Cumulative translation adjustment	—		—			(54,555		)	—			—			—			(54,555		)
Pension and other postretirement adjustments (net of tax of $1,187)	—		—			—			2,418			—			—			2,418
Amortization of forward starting swaps (net of tax of $1,917)	—		—			—			—			3,370			—			3,370
Issuance of 557,026 shares of common stock from issuance of unvested shares, exercise of stock options and deferred compensation plans	9,278		—			—			—			—			5,888			15,166
Excess tax benefit from share-based compensation	4,350		—			—			—			—			—			4,350
Repurchase of 2,401,729 shares of common stock	—		—			—			—			—			(179,440		)	(179,440		)
Shares surrendered for tax withholding	—		—			—			—			—			(3,217		)	(3,217		)
Share-based compensation	13,112		—			—			—			—			—			13,112
Cash dividends declared - $0.96 per common share			(74,106		)													(74,106		)
Balance, September 30, 2015	$	675,191	$	1,624,759		$	(79,368	)	$	(37,898	)	$	(23,779	)	$	(730,312	)	$	1,428,593

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities
Net income	$	215,044		$	217,766
Adjustments to reconcile net income to net cash provided by operating activities
Gain on sale of business	(18,070		)	—
Depreciation and amortization	26,634			25,330
Amortization of intangible assets	31,340			32,952
Amortization of debt issuance costs	1,233			1,290
Share-based compensation expense	14,735			16,445
Deferred income taxes	1,473			(5,170		)
Excess tax benefit from share-based compensation	(4,350		)	(5,360		)
Non-cash interest expense associated with forward starting swaps	5,287			5,432
Changes in (net of effect from acquisitions):
Receivables	(1,417		)	(21,394		)
Inventories	(6,474		)	(17,888		)
Other current assets	(2,742		)	(2,570		)
Trade accounts payable	(4,002		)	2,188
Accrued expenses	2,067			19,069
Other — net	1,023			(1,507		)
Net cash flows provided by operating activities	261,781			266,583
Cash flows from investing activities
Additions of property, plant and equipment	(32,611		)	(33,820		)
Acquisition of businesses, net of cash acquired	(193,163		)	(25,442		)
Proceeds from sale of business	27,677			—
Other — net	647			(52		)
Net cash flows used in investing activities	(197,450		)	(59,314		)
Cash flows from financing activities
Borrowings under revolving facilities	383,621			105,014
Payments under revolving facilities	(295,934		)	(46,780		)
Payment of 2.58% Senior Euro Notes	(88,420		)	—
Debt issuance costs	(1,698		)	—
Dividends paid	(71,673		)	(63,525		)
Proceeds from stock option exercises	15,167			13,787
Excess tax benefit from share-based compensation	4,350			5,360
Purchase of common stock	(177,772		)	(146,042		)
Unvested shares surrendered for tax withholding	(3,217		)	(4,903		)
Net cash flows used in financing activities	(235,576		)	(137,089		)
Effect of exchange rate changes on cash and cash equivalents	(31,410		)	(22,743		)
Net increase (decrease) in cash	(202,655		)	47,437
Cash and cash equivalents at beginning of year	509,137			439,629
Cash and cash equivalents at end of period	$	306,482		$	487,066

Supplemental cash flow information
Cash paid for:
Interest	$	18,069		$	16,525
Income taxes	70,217			91,625
Significant non-cash activities:
Contingent consideration for acquisition	4,705			—

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

The Condensed Consolidated Financial Statements of IDEX Corporation (“IDEX” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The statements are unaudited but include all adjustments, consisting only of recurring items, except as noted, that the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the entire year.

The Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Recently Adopted Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, which includes amendments that change the requirements for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations with a major effect on the organization’s operations and financial results should be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about disposal transactions that do not meet the discontinued operations criteria. The Company adopted the standard effective January 1, 2015.

Recently Issued Accounting Standards

In May 2014, FASB ASU 2014-09 was issued, which introduces a new five-step revenue recognition model. Under ASU 2014-09, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard was initially released as effective for fiscal years beginning after December 15, 2016; however, in July 2015 the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. The new guidelines can be implemented using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements and has not yet determined the method by which we will adopt the standard.

In April 2015, the FASB issued ASU 2015-03 which simplifies the presentation of debt issuance costs. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This standard is effective for fiscal years beginning after December 15, 2015. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements and does not expect it to have a material impact on the consolidated financial position, results of operations or cash flows of the Company.

2. Acquisitions and Dispositions

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

The Company incurred $0.9 million of acquisition-related transaction costs in the three months ended September 30, 2015, resulting in a total of $2.1 million of acquisition-related transaction costs year to date. These costs were recorded in selling, general and administrative expense and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. During the three and nine months ended September 30, 2015, the Company recorded within cost of sales $2.7 million and $3.4 million, respectively, of fair value inventory charges associated with the completed acquisitions.

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

2015 Acquisitions

On May 29, 2015, the Company acquired the stock of Novotema, SpA (“Novotema”), a leader in the design, manufacture and sale of specialty sealing solutions for use in the building products, gas control, transportation, industrial and water markets. The business was acquired to complement and create synergies with our existing sealing group. Located in Villongo, Italy, Novotema has annual revenues of approximately $33 million and will operate in our Health & Science Technologies segment. Novotema was acquired for cash consideration of $61.1 million (€56 million). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $33.9 million and $20.0 million, respectively. The $33.9 million of goodwill is not deductible for tax purposes.

On June 10, 2015, the Company acquired the stock of Alfa Valvole, S.r.l (“Alfa”), a leader in the design, manufacture and sale of specialty valve products for use in the chemical, petro-chemical, energy and sanitary markets. The business was acquired to expand our valve capabilities. Located in Casorezzo, Italy, Alfa has annual revenues of approximately $33 million and will operate in our Fluid & Metering Technologies segment. Alfa was acquired for cash consideration of $112.6 million (€99.8 million). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $68.0 million and $32.1 million, respectively. The $68.0 million of goodwill is not deductible for tax purposes.

On July 1, 2015, the Company acquired the membership interests of CiDRA Precision Services, LLC (“CPS”), a leader in the design, manufacture and sale of microfluidic components serving the life science, health and industrial markets. The business was acquired to provide a critical building block to our emerging microfluidic and nanofludics capabilities. Located in Wallingford, Connecticut, CPS has annual revenues of approximately $9 million and will operate within our Health & Sciences Technologies segment. CPS was acquired for an aggregate purchase price of $24.2 million, consisting of $19.5 million in cash and contingent consideration valued at $4.7 million as of the opening balance sheet date. The contingent consideration is based on the achievement of financial objectives during the 12-month period following the close. Based on potential outcomes, the undiscounted amount of all the future payments that the Company could be required to make under the contingent consideration arrangement is between $0 and $5.5 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $9.8 million and $12.3 million, respectively. The $9.8 million of goodwill is deductible for tax purposes.

The Company made an initial allocation of the purchase price for the Novotema, Alfa, and CPS acquisitions as of the date of acquisition based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company obtains additional information about these assets and liabilities, including tangible and intangible asset appraisals, and learns more about the newly acquired businesses, we will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate the valuation of inventory and accounts receivable associated with the Alfa acquisition and is in the process of finalizing purchase price allocations for the Novotema, Alfa, and CPS acquisitions. The Company will make appropriate adjustments to the purchase price allocations prior to the completion of the measurement period, as required.

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



	Novotema			Alfa			CPS			Total

Current assets, net of cash acquired	$	11,445		$	26,181		$	1,494		$	39,120
Property, plant and equipment	11,844			8,395			1,042			21,281
Goodwill	33,934			67,970			9,826			111,730
Intangible assets	20,011			32,058			12,290			64,359
Other noncurrent assets	1,226			470			140			1,836
Total assets acquired	78,460			135,074			24,792			238,326
Current liabilities	(7,493		)	(9,080		)	(613		)	(17,186		)
Deferred tax liability	(7,579		)	(11,828		)	—			(19,407		)
Other noncurrent liabilities	(2,290		)	(1,575		)	—			(3,865		)
Net assets acquired	$	61,098		$	112,591		$	24,179		$	197,868

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisitions reflect the strategic fit, revenue and earnings growth potential of these businesses.

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



	Total		Weighted Average Life
Trade names	$	9,246	15
Customer relationships	44,402		12
Unpatented technology	10,711		8
Acquired intangible assets	$	64,359

2014 Acquisitions

On April 28, 2014, the Company acquired the stock of Aegis Flow Technologies (“Aegis”), a leader in the design, manufacture and sale of specialty chemical processing valves for use in the chemical, petro-chemical, chlor-alkali, pharmaceutical, semiconductor and pulp/paper industries. Located in Geismar, Louisiana, Aegis operates in our Fluid & Metering Technologies segment. Aegis was acquired for cash consideration of $25.0 million. The entire purchase price was funded with borrowings under the Company’s revolving credit facility. Goodwill and intangible assets recognized as part of this transaction were $7.7 million and $8.8 million, respectively. The $7.7 million of goodwill is deductible for tax purposes.

2015 Dispositions

The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives and focus on core business and customers. On July 31, 2015, the Company entered into a definitive agreement to sell its Ismatec product line to Cole-Palmer Instruments Company for $27.7 million in cash, resulting in a pre-tax gain on the sale of $18.1 million. The Company recorded $4.8 million of income tax expense associated with this transaction during the three months ended September 30, 2015. The results of Ismatec were reported within the Health & Science Technologies segment through the date of sale.

3. Business Segments

The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.

The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the water and wastewater industries. The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, semiconductor, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.

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

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net sales
Fluid & Metering Technologies
External customers	$	211,971		$	223,018		$	644,886		$	671,891
Intersegment sales	130			240			756			828
Total group sales	212,101			223,258			645,642			672,719
Health & Science Technologies
External customers	184,816			189,975			550,612			558,716
Intersegment sales	77			877			1,806			4,183
Total group sales	184,893			190,852			552,418			562,899
Fire & Safety/Diversified Products
External customers	107,004			120,186			325,372			393,261
Intersegment sales	5			127			200			518
Total group sales	107,009			120,313			325,572			393,779
Intersegment elimination	(212		)	(1,244		)	(2,762		)	(5,529		)
Total net sales	$	503,791		$	533,179		$	1,520,870		$	1,623,868
Operating income
Fluid & Metering Technologies	$	46,910		$	54,791		$	154,665		$	166,821
Health & Science Technologies	38,371			42,214			117,888			114,580
Fire & Safety/Diversified Products	32,536			31,355			91,180			106,988
Corporate office income (expense) and other ⁽¹⁾	3,996			(17,513		)	(30,254		)	(51,619		)
Total operating income	121,813			110,847			333,479			336,770
Interest expense	10,229			10,461			31,410			31,323
Other (income) expense - net	(693		)	(944		)	(1,589		)	(1,651		)
Income before income taxes	$	112,277		$	101,330		$	303,658		$	307,098

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



	September 30, 2015		December 31, 2014
Assets
Fluid & Metering Technologies	$	1,154,614	$	1,026,238
Health & Science Technologies	1,119,185		1,101,155
Fire & Safety/Diversified Products	453,554		510,841
Corporate office	143,009		269,836
Total assets	$	2,870,362	$	2,908,070

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

4. Earnings Per Common Share

Earnings per common share (“EPS”) are computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents outstanding (diluted) during the period. Common stock equivalents consist of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method, unvested shares, performance share units, and shares issuable in connection with certain deferred compensation agreements (“DCUs”).

ASC 260 “Earnings Per Share” provides that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. If awards are considered participating securities, the Company is required to apply the two-class method of computing basic and diluted earnings per share. The Company has determined that its outstanding unvested shares are participating securities. Accordingly, earnings per common share are computed using the more dilutive of the treasury stock method and the two-class method prescribed by ASC 260. For purposes of calculating diluted EPS, net income attributable to common shareholders was reduced by $0.2 million and $0.5 million for the three months ended September 30, 2015 and 2014, respectively; and $0.6 million and $1.2 million for the nine months ended September 30, 2015 and 2014, respectively.

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



	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Basic weighted average common shares outstanding	76,831	79,558	77,431	80,064
Dilutive effect of stock options, unvested shares, performance share units and DCUs	815	1,003	835	1,029
Diluted weighted average common shares outstanding	77,646	80,561	78,266	81,093

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

5. Inventories

The components of inventories as of September 30, 2015 and December 31, 2014 were:



	September 30, 2015		December 31, 2014
Raw materials and component parts	$	147,529	$	137,584
Work in process	43,783		37,178
Finished goods	61,206		62,869
Total	$	252,518	$	237,631

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

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

6. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2015, by reportable business segment, were as follows:



	Fluid & Metering Technologies			Health & Science Technologies			Fire & Safety/ Diversified Products			Total
Balance at December 31, 2014	$	524,149		$	563,465		$	233,663		$	1,321,277
Foreign currency translation	(6,914		)	(6,517		)	(9,178		)	(22,609		)
Acquisitions	67,970			43,760			—			111,730
Disposition of business⁽¹⁾	—			(10,213		)	—			(10,213		)
Balance at September 30, 2015	$	585,205		$	590,495		$	224,485		$	1,400,185

⁽¹⁾Amount reflects goodwill allocated to Ismatec upon its disposition, based on the fair value of this business relative to the remaining entities within the Scientific Fluidics reporting unit.

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

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at September 30, 2015 and December 31, 2014:



	At September 30, 2015								At December 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net		Weighted Average Life	Gross Carrying Amount		Accumulated Amortization			Net
Amortized intangible assets:
Patents	$	10,117	$	(5,941	)	$	4,176	11	$	10,016	$	(5,313	)	$	4,703
Trade names	111,537		(37,168		)	74,369		16	104,118		(32,881		)	71,237
Customer relationships	258,883		(138,145		)	120,738		11	222,486		(126,193		)	96,293
Non-compete agreements	813		(775		)	38		3	840		(636		)	204
Unpatented technology	78,613		(40,249		)	38,364		10	69,760		(35,165		)	34,595
Other	6,557		(5,420		)	1,137		10	7,034		(5,002		)	2,032
Total amortized intangible assets	466,520		(227,698		)	238,822			414,254		(205,190		)	209,064
Unamortized intangible assets:
Banjo trade name	62,100		—			62,100			62,100		—			62,100
Total intangible assets	$	528,620	$	(227,698	)	$	300,922		$	476,354	$	(205,190	)	$	271,164

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

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

7. Accrued Expenses

The components of accrued expenses as of September 30, 2015 and December 31, 2014 were:



	September 30, 2015		December 31, 2014
Payroll and related items	$	61,348	$	64,124
Management incentive compensation	9,627		21,567
Income taxes payable	18,671		9,305
Insurance	9,454		10,058
Warranty	7,164		7,196
Deferred revenue	9,696		11,813
Restructuring	3,544		6,056
Liability for uncertain tax positions	2,197		2,084
Accrued interest	8,559		1,738
Contingent consideration for acquisition	4,705		—
Other	34,942		29,468
Total accrued expenses	$	169,907	$	163,409

8. Other Noncurrent Liabilities

The components of other noncurrent liabilities as of September 30, 2015 and December 31, 2014 were:



	September 30, 2015		December 31, 2014
Pension and retiree medical obligations	$	85,289	$	90,584
Liability for uncertain tax positions	4,014		2,471
Deferred revenue	3,486		4,612
Other	18,509		16,610
Total other noncurrent liabilities	$	111,298	$	114,277

9. Borrowings

Borrowings at September 30, 2015 and December 31, 2014 consisted of the following:



	September 30, 2015		December 31, 2014
Revolving Facility	$	203,000	$	115,000
2.58% Senior Euro Notes, due June 2015	—		98,456
4.5% Senior Notes, due December 2020	299,089		298,975
4.2% Senior Notes, due December 2021	349,412		349,351
Other borrowings	1,750		2,170
Total borrowings	853,251		863,952
Less current portion	471		98,946
Total long-term borrowings	$	852,780	$	765,006

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

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

with other agents party thereto. The Credit Agreement replaces the Company’s existing five-year, $700 million credit agreement, dated as of June 27, 2011, which was due to expire on June 27, 2016.

The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $700 million with a final maturity date of June 23, 2020. The maturity date may be extended under certain conditions for an additional one-year term. Up to $75 million of the Revolving Facility is available for the issuance of letters of credit. Additionally, up to $50 million of the Revolving Facility is available to the Company for swing line loans, available on a same-day basis.

Proceeds of the Revolving Facility are available for use by the Borrowers for working capital and other general corporate

purposes, including refinancing existing debt of the Company and its subsidiaries. The Company may request increases in the

lending commitments under the Credit Agreement, but the aggregate lending commitments pursuant to such increases may not

exceed $350 million. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate

certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation,

the Company is required to guarantee the obligations of any such subsidiaries.

Borrowings under the Credit Agreement bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .91% to 1.50%. Based on the Company’s credit rating at September 30, 2015, the applicable margin was 1.10%. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months.

The Credit Agreement requires payment to the lenders of a facility fee based upon (a) the amount of the lenders’ commitments under the credit facility from time to time and (b) the applicable corporate credit ratings of the Company. Voluntary prepayments of any loans and voluntary reductions of the unutilized portion of the commitments under the credit facility are permissible without penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.

The Credit Agreement contains affirmative and negative covenants that the Company believes are usual and customary for

senior unsecured credit agreements, including a financial covenant requiring the maintenance of a 3.50 to 1.0 or lower leverage

ratio, which is the ratio of the Company’s consolidated total debt to its consolidated EBITDA, each as defined in the Credit

Agreement.

The negative covenants include, among other things, limitations (each of which is subject to customary exceptions for

financings of this type) on our ability to grant liens; enter into transactions resulting in fundamental changes (such as mergers or sales of all or substantially all of the assets of the Company); restrict subsidiary dividends or other subsidiary distributions; enter into transactions with the Company’s affiliates; and incur certain additional subsidiary debt.

The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate) including among others: nonpayment of principal, interest or fees; breach of the representations or warranties in any material respect; breach of the financial, affirmative or negative covenants; payment default on, or acceleration of, other material indebtedness; bankruptcy or insolvency; material judgments entered against the Company or any of its subsidiaries; certain specified events under the Employee Retirement Income Security Act of 1974, as amended; certain changes in control of the Company; and the invalidity or unenforceability of the Credit Agreement or other documents associated with the Credit Agreement.

At September 30, 2015, $203.0 million was outstanding under the Revolving Facility, with $7.3 million of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at September 30, 2015 of approximately $489.7 million.

Other borrowings of $1.8 million at September 30, 2015 consisted primarily of debt at international locations maintained for working capital purposes. Interest is payable on the outstanding debt balances at rates ranging from 0.2% to 1.1% per annum.

During the three months ended June 30, 2015, the Company paid the balance of the 2.58% Senior Euro Notes, upon its maturity, using cash on hand.

There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility, which requires a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At September 30, 2015, the Company was in compliance with both of these financial covenants. There are no financial covenants relating to the 4.5% Senior Notes or 4.2% Senior Notes; however, both are subject to cross-default provisions.

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

10. Derivative Instruments

The Company enters into cash flow hedges from time to time to reduce the exposure to variability in certain expected future cash flows. The type of cash flow hedges the Company enters into includes foreign currency contracts and interest rate exchange agreements that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.

The effective portion of gains or losses on interest rate exchange agreements is reported in accumulated other comprehensive income (loss) in shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. See Note 13 for the amount of loss reclassified into income for interest rate contracts for the nine months ended September 30, 2015 and 2014. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized into net income during the period of change.

Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date. As of September 30, 2015, the Company did not have any interest rate contracts outstanding.

In 2010 and 2011, the Company entered into two separate forward starting interest rate contracts in anticipation of the issuance of the 4.2% Senior Notes and the 4.5% Senior Notes. The Company cash settled these two interest rate contracts in 2010 and 2011 for a total of $68.9 million, which is being amortized into interest expense over the 10 year term of the debt instruments. Approximately $6.9 million of the pre-tax amount included in accumulated other comprehensive income (loss) in shareholders’ equity at September 30, 2015 will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.

11. Fair Value Measurements

ASC 820 “Fair Value Measurements and Disclosures” defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:


•	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.


•	Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table summarizes the basis used to measure the Company’s financial assets at fair value on a recurring basis in the balance sheet at September 30, 2015 and December 31, 2014:



	Basis of Fair Value Measurements
	Balance at September 30, 2015			Level 1		Level 2		Level 3
Money market investment	$	21,145		$	21,145	$	—	$	—
Available for sale securities	5,001			5,001		—		—
Contingent consideration	(4,705		)	—		—		(4,705		)



	Basis of Fair Value Measurements
	Balance at December 31, 2014		Level 1		Level 2		Level 3
Money market investment	$	21,094	$	21,094	$	—	$	—
Available for sale securities	4,513		4,513		—		—

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

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

In determining the fair value of the contingent consideration potentially due on the acquisition of CPS, the Company used probability weighted estimates of EBITDA during the earn-out period. The $4.7 million represents management’s best estimate of the liability, based on a range of outcomes of CPS’s 12 month operating results, from July 1, 2015 to June 30, 2016, and is expected to be paid during the second half of 2016. At September 30, 2015, the $4.7 million of contingent consideration is included in Accrued expenses in the Consolidated Balance Sheet.

The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair values because of the short term nature of these instruments. At September 30, 2015, the fair value of the outstanding indebtedness under our Revolving Facility, 4.5% Senior Notes and 4.2% Senior Notes, based on quoted market prices and current market rates for debt with similar credit risk and maturity, was approximately $869.7 million compared to the carrying value of $851.5 million. This fair value measurement is classified as Level 2 within the fair value hierarchy since it is determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to ours.

12. Restructuring

During the the fourth quarter of 2014 and the third quarter of 2015, the Company recorded restructuring costs as a part of restructuring initiatives that support the implementation of key strategic efforts designed to facilitate long-term, sustainable, growth through cost reduction actions, primarily consisting of employee reductions and facility rationalization. The costs incurred related to these initiatives were included in Restructuring expenses in the Consolidated Statements of Operations while the related accruals were included in Accrued expenses in the Consolidated Balance Sheets. Severance costs primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consisted of asset disposals or impairments and lease exit costs.

During the three and nine months ended September 30, 2015, the Company recorded $4.7 million of pre-tax restructuring expenses related to its 2015 restructuring initiative, which included severance benefits for 90 employees. The restructuring expense associated with these actions is not expected to exceed $10 million and will be completed by the end of the year.

Pre-tax restructuring expenses, by segment, for the three and nine months ended September 30, 2015 were as follows:



	Severance Costs		Exit Costs		Total

Fluid & Metering Technologies	$	2,505	$	—	$	2,505
Health & Science Technologies	1,774		—		1,774
Fire & Safety/Diversified Products	279		—		279
Corporate/Other	165		—		165
Total restructuring costs	$	4,723	$	—	$	4,723

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



Balance at January 1, 2015	$	6,056
Restructuring expenses	4,723
Payments, utilization and other	(7,235		)
Balance at September 30, 2015	$	3,544

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

13. Other Comprehensive Income (Loss)

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




	Three Months Ended September 30, 2015									Three Months Ended September 30, 2014
	Pre-tax			Tax			Net of tax			Pre-tax			Tax			Net of tax
Cumulative translation adjustment	$	(21,661	)	$	—		$	(21,661	)	$	(55,688	)	$	—		$	(55,688	)
Pension and other postretirement adjustments	1,215			(397		)	818			1,927			(313		)	1,614
Reclassification adjustments for derivatives	1,748			(634		)	1,114			1,795			(654		)	1,141
Total other comprehensive income (loss)	$	(18,698	)	$	(1,031	)	$	(19,729	)	$	(51,966	)	$	(967	)	$	(52,933	)



	Nine Months Ended September 30, 2015									Nine Months Ended September 30, 2014
	Pre-tax			Tax			Net of tax			Pre-tax			Tax			Net of tax
Cumulative translation adjustment	$	(54,555	)	$	—		$	(54,555	)	$	(41,530	)	$	—		$	(41,530	)
Pension and other postretirement adjustments	3,605			(1,187		)	2,418			3,404			(834		)	2,570
Reclassification adjustments for derivatives	5,287			(1,917		)	3,370			5,432			(1,979		)	3,453
Total other comprehensive income (loss)	$	(45,663	)	$	(3,104	)	$	(48,767	)	$	(32,694	)	$	(2,813	)	$	(35,507	)

The following table summarizes the amounts reclassified from accumulated other comprehensive income to net income during the three and nine months ended September 30, 2015 and 2014:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014			Income Statement Caption
Pension and other postretirement plans
Amortization of service cost	$	1,215		$	1,927		$	3,605		$	3,404		Selling, general and administrative expense
Total before tax	1,215			1,927			3,605			3,404
Provision for income taxes	(397		)	(313		)	(1,187		)	(834		)
Total net of tax	$	818		$	1,614		$	2,418		$	2,570
Derivatives
Reclassification adjustments	$	1,748		$	1,795		$	5,287		$	5,432		Interest expense
Total before tax	1,748			1,795			5,287			5,432
Provision for income taxes	(634		)	(654		)	(1,917		)	(1,979		)
Total net of tax	$	1,114		$	1,141		$	3,370		$	3,453

14. Common and Preferred Stock

On November 6, 2014, the Company’s Board of Directors approved a $400.0 million increase in the authorized level for repurchases of common stock. Repurchases will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the nine months ended September 30, 2015, the Company purchased a total of 2.4 million shares at a cost of $179.4 million, of which $4.3 million was settled in October 2015. During the nine months ended September 30, 2014, the Company purchased 2.0 million shares at a cost of $149.7 million, of which $3.7 million was settled in October 2014. As of September 30, 2015, the amount of share repurchase authorization remaining is $366.0 million.

At September 30, 2015 and December 31, 2014, the Company had 150 million shares of authorized common stock, with a par value of $.01 per share, and 5 million shares of authorized preferred stock, with a par value of $.01 per share. No preferred stock was outstanding at September 30, 2015 or December 31, 2014.

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

15. Share-Based Compensation

During the nine months ended September 30, 2015, the Company granted approximately 0.5 million stock options, 0.1 million unvested shares and 0.1 million performance share units. During the nine months ended September 30, 2014, the Company granted approximately 0.5 million stock options, 0.1 million unvested shares and 0.1 million performance share units.

Weighted average option fair values and assumptions for the periods specified are disclosed below. The fair value of each option grant was estimated on the date of the grant using the Binomial lattice option pricing model.




	Three Months Ended September 30,
	2015	2014
Weighted average fair value of option grants	$19.98	$20.34
Dividend yield	1.65%	1.44%
Volatility	29.64%	30.24%
Risk-free forward interest rate	0.29%-3.37%	0.12%-3.67%
Expected life (in years)	6.16	5.87




	Nine Months Ended September 30,
	2015	2014
Weighted average fair value of option grants	$20.34	$19.54
Dividend yield	1.44%	1.26%
Volatility	29.91%	30.36%
Risk-free forward interest rate	0.24%-2.82%	0.12% - 4.66%
Expected life (in years)	5.93	5.89

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



	Three and Nine Months Ended September 30,
	2015	2014
Weighted average fair value of performance share units	$95.07	$94.55
Dividend yield	0.00%	0.00%
Volatility	19.14%	26.41%
Risk-free forward interest rate	1.01%	0.65%
Expected life (in years)	2.86	2.88

Total compensation cost for stock options is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Cost of goods sold	$	91		$	126		$	441		$	501
Selling, general and administrative expenses	1,297			1,411			4,987			5,026
Total expense before income taxes	1,388			1,537			5,428			5,527
Income tax benefit	(440		)	(492		)	(1,709		)	(1,743		)
Total expense after income taxes	$	948		$	1,045		$	3,719		$	3,784

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

Total compensation cost for unvested shares is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Cost of goods sold	$	38		$	259		$	778		$	1,424
Selling, general and administrative expenses	613			1,843			5,051			7,167
Total expense before income taxes	651			2,102			5,829			8,591
Income tax benefit	(212		)	(447		)	(1,490		)	(1,778		)
Total expense after income taxes	$	439		$	1,655		$	4,339		$	6,813

Total compensation cost for performance share units is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Cost of goods sold	$	—		$	—		$	—		$	—
Selling, general and administrative expenses	953			843			3,478			2,327
Total expense before income taxes	953			843			3,478			2,327
Income tax benefit	(323		)	(294		)	(1,161		)	(768		)
Total expense after income taxes	$	630		$	549		$	2,317		$	1,559

The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.

As of September 30, 2015, there was $11.7 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.5 years, $9.9 million of total unrecognized compensation cost related to unvested shares that is expected to be recognized over a weighted-average period of 1.1 years, and $6.8 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.0 years.

A summary of the Company’s stock option activity as of September 30, 2015, and changes during the nine months ended September 30, 2015, is presented in the following table:



Stock Options	Shares		Weighted Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2015	2,378,559		$	46.91	6.69	$	73,561,785
Granted	514,780		78.27
Exercised	(377,056	)	39.98
Forfeited	(158,235	)	65.74
Outstanding at September 30, 2015	2,358,048		$	53.60	6.75	$	45,576,807
Vested and expected to vest as of September 30, 2015	2,242,169		$	52.62	6.64	$	45,214,008
Exercisable at September 30, 2015	1,285,586		$	41.73	5.33	$	38,206,259

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

16. Retirement Benefits

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




	Pension Benefits
	Three Months Ended September 30,
	2015						2014
	U.S.			Non-U.S.			U.S.			Non-U.S.
Service cost	$	214		$	377		$	227		$	377
Interest cost	956			437			896			593
Expected return on plan assets	(1,186		)	(282		)	(1,219		)	(329		)
Net amortization	906			405			590			394
Net periodic benefit cost	$	890		$	937		$	494		$	1,035



	Pension Benefits
	Nine Months Ended September 30,
	2015						2014
	U.S.			Non-U.S.			U.S.			Non-U.S.
Service cost	$	965		$	1,134		$	872		$	1,143
Interest cost	2,831			1,305			3,002			1,797
Expected return on plan assets	(3,682		)	(838		)	(4,035		)	(986		)
Net amortization	2,585			1,334			1,964			833
Net periodic benefit cost	$	2,699		$	2,935		$	1,803		$	2,787



	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Service cost	$	168		$	178		$	506		$	535
Interest cost	208			233			626			699
Net amortization	(95		)	(118		)	(314		)	(355		)
Net periodic benefit cost	$	281		$	293		$	818		$	879

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

17. Legal Proceedings

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

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IDEX CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

18. Income Taxes

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

The provision for income taxes decreased to $88.6 million in the nine months ended September 30, 2015 from $89.3 million in the same period of 2014. The effective tax rate increased to 29.2% for the nine months ended September 30, 2015 compared to 29.1% in the same period of 2014 due to the mix of global pre-tax income among jurisdictions. Additionally, the effective tax rate for the comparable period of the prior year was favorably impacted by settlements with taxing authorities primarily related to purchase price adjustments for prior period acquisitions.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $2.2 million.

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

Cautionary Statement Under the Private Securities Litigation Reform Act

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

Overview and Outlook

IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets to a wide range of industries throughout the world. Accordingly, IDEX’s businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where it does business and by the relationship of the U.S. Dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are among the factors that influence the demand for IDEX’s products.

The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products. Within our three reportable segments, the Company maintains fifteen platforms where we will focus on organic growth and strategic acquisitions. Each of our fifteen platforms is also a reporting unit, where we annually test goodwill for impairment.

During the third quarter of 2015, the Company announced the appointment of Eric Ashleman to Chief Operating Officer. While there were no changes to the reportable segments or movement of businesses between the reportable segments, the Company no longer delineates between “platforms” and “groups” and made the following changes to how certain businesses are managed internally:


•	Created the Valve platform as a result of the Alfa Valvole acquisition in June 2015.


•	Eliminated the Diaphragm and Dosing Pump Technology (“DDPT”) platform.


•	Created the Industrial platform from the businesses previously reported within Chemical, Food & Process (Richter, Viking, and Aegis) plus the Warren Rupp and Trebor businesses from DDPT.

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

The Fluid & Metering Technologies segment contains the Energy (comprised of Corken, Faure Herman, Liquid Controls, SAMPI and Toptech), Valves (comprised of Alfa Valvole), Water (comprised of Pulsafeeder, Knight, ADS, IETG, and iPEK), Industrial (comprised of Richter, Viking, Aegis, Warren Rupp, and Trebor), and Agricultural platforms (comprised of Banjo). The Health & Science Technologies segment contains the IDEX Optics & Photonics (comprised of CVI Melles Griot, Semrock, and AT Films), Scientific Fluidics (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch, ERC, and CiDRA Precision Services), Material Processing Technologies (comprised of Quadro, Fitzpatrick, Microfluidics, and Matcon), Sealing Solutions (comprised of PPE, FTL, and Novotema), Micropump, and Gast platforms. The Fire & Safety/Diversified Products segment is comprised of the Dispensing, Rescue, Band-It, and Fire Suppression platforms.

The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications.

The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.

Management’s primary measurements of segment performance are sales, operating income, and operating margin. In addition, due to the highly acquisitive nature of the Company, the determination of operating income includes amortization of acquired intangible assets and, as a result, management reviews depreciation and amortization as a percentage of sales. These measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management.

In this report, references to organic sales, a non-GAAP measure, refers to sales from continuing operations calculated according to generally accepted accounting principles in the United States but excludes (1) sales from acquired businesses during the first twelve months of ownership and (2) the impact of foreign currency translation. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions because the nature, size, and number of acquisitions can vary dramatically from period to period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult. In addition, this report references EBITDA. This non-GAAP measure has been reconciled to net income and operating income in Item 2 under the heading “Non-GAAP Disclosures.” Given the acquisitive nature of the Company, management believes that EBITDA provides important information about the performance of the Company’s businesses by, among other matters, eliminating the impact of higher amortization expense at recently acquired businesses.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP, and the financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

Some of our key financial results for the three months ended September 30, 2015 are as follows:


•	Sales of $503.8 million decreased 6%; organic sales — excluding acquisitions and foreign currency translation — were down 4%.

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•	EBITDA of $142.9 million was 28% of sales and covered interest expense by 14 times.


•	Operating income of $121.8 million increased 10%.


•	Net income increased 11% to $79.5 million.


•	Diluted EPS of $1.02 increased 14 cents, or 16%.

Our third quarter 2015 financial results, adjusted for $4.7 million of restructuring costs and an $18.1 million gain on disposition of business, are as follows:


•	Adjusted operating income of $108.5 million decreased 2% while adjusted operating margin of 21.5% was up 70 basis points from the prior year.


•	Adjusted net income of $69.4 million decreased 3% from the prior year.


•	Adjusted EPS of $0.89 increased $0.01, or 1%, from the prior year period.

Some of our key financial results for the nine months ended September 30, 2015 are as follows:


•	Sales of $1.5 billion decreased 6%; organic sales — excluding acquisitions and foreign currency translation — were down 3%.


•	EBITDA of $393.0 million was 26% of sales and covered interest expense by more than 12 times.


•	Operating income of $333.5 million decreased 1%.


•	Net income decreased 1% to $215.0 million.


•	Diluted EPS of $2.75 increased 7 cents, or 3%.

Our financial results for the nine months ended September 30, 2015, adjusted for $4.7 million of restructuring costs and an $18.1 million gain on disposition of business, are as follows:


•	Adjusted operating income of $320.1 million decreased 5% while adjusted operating margin of 21.0% was up 30 basis points from the prior year.


•	Adjusted net income of $204.9 million decreased 6% from the prior year.


•	Adjusted EPS of $2.62 decreased $0.06, or 2%, from the prior year period.

Given the Company’s current outlook, we are projecting fourth quarter 2015 adjusted EPS in the range of $0.88 to $0.91 with full year 2015 adjusted EPS of $3.50 to $3.53. This guidance anticipates fourth quarter organic sales to be down 1 to 2 percent, with full year organic sales down 2 to 3 percent.

Results of Operations

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

Consolidated Results in the Three Months Ended September 30, 2015 Compared with the Same Period of 2014



(In thousands)	Three Months Ended September 30,
	2015			2014
Net sales	$	503,791		$	533,179
Operating income	121,813			110,847
Operating margin	24.2		%	20.8		%

For the third quarter of 2015, Fluid & Metering Technologies contributed 42% of sales, 40% of operating income and 39% of EBITDA; Health & Science Technologies accounted for 37% of sales, 33% of operating income and 36% of EBITDA; and Fire & Safety/Diversified Products represented 21% of sales, 27% of operating income and 25% of EBITDA. These percentages are calculated on the basis of total segment (and not total Company) sales, operating income and EBITDA.

Sales in the three months ended September 30, 2015 were $503.8 million, a 6% decrease from the comparable period last year. This decrease reflects a 4% decrease in organic sales, a 2% increase from acquisitions (Novotema - June 2015, Alfa - June 2015 and CPS - July 2015) and 4% unfavorable foreign currency translation. Organic sales to customers outside the U.S. represented approximately 52% of total sales in the third quarter of both 2015 and 2014.

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Gross profit of $223.3 million in the third quarter of 2015 decreased $11.4 million, or 5%, from the same period in 2014. Gross margin of 44.3% in the third quarter of 2015 increased 30 basis points from 44.0% during the same period in 2014. The increase in gross margin is primarily due to productivity and benefits from the Company’s restructuring actions, partially offset by non-cash acquisition fair value inventory charges.

Selling, general and administrative expenses decreased to $114.8 million in the third quarter of 2015 from $123.8 million during the same period of 2014. The change reflects a decrease in volume related expenses of $12.9 million, partially offset by approximately $3.9 million for incremental costs from the Novotema, Alfa and CPS acquisitions. As a percentage of sales, SG&A expenses were 22.8% for the third quarter of 2015, down 40 basis points from the 23.2% for the same period of 2014.

During the third quarter of 2015, the Company recorded pre-tax restructuring expenses of $4.7 million. No restructuring expenses were recorded in the comparable period of 2014. The 2015 restructuring expenses were mainly attributable to employee severance related to head count reductions across all three segments and corporate.

In the third quarter of 2015, the Company sold its Ismatec product line for a pre-tax gain of $18.1 million.

Operating income and operating margin of $121.8 million and 24.2%, respectively, in the third quarter of 2015 was up from the $110.8 million and 20.8%, respectively, recorded during the same period in 2014. These increases were primarily due to the inclusion of the $18.1 million gain on the sale the Ismatec product line and improved productivity, partially offset by a decrease in volume and the $4.7 million of restructuring related charges.

Interest expense of $10.2 million in the third quarter of 2015 was slightly down from $10.5 million in 2014.

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

Net income in the third quarter of 2015 of $79.5 million increased from $71.4 million during the same period of 2014. Diluted earnings per share in the third quarter of 2015 of $1.02 increased $0.14, or 16%, compared with the same period in 2014.

Fluid & Metering Technologies Segment



(In thousands)	Three Months Ended September 30,
	2015		2014
Net sales	$	212,101	$	223,258
Operating income	46,910