Company Quick10K Filing
Quick10K
IDEX
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$152.91 76 $11,580
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-17 Officers, Exhibits
8-K 2019-06-04 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-10 Shareholder Vote
8-K 2019-04-26 Earnings, Regulation FD, Exhibits
8-K 2019-01-29 Earnings, Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Regulation FD, Exhibits
8-K 2018-07-25 Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Regulation FD, Exhibits
8-K 2018-04-30 Regulation FD, Exhibits
8-K 2018-01-30 Regulation FD, Exhibits
8-K 2018-01-29 Earnings, Exhibits
8-K 2018-01-01 Officers, Exhibits
STOR Store Capital 7,530
M Macy's 7,000
ACIW ACI Worldwide 3,750
RUSHA Rush Enterprises 1,510
RAD Rite Aid 427
MNDO Mind CTI 43
WVVI Willamette Valley Vineyards 36
CWGL Crimson Wine Group 0
VKIN Viking Energy 0
INTX Intersections 0
IEX 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits.
EX-31.1 iex-20190331xex311.htm
EX-31.2 iex-20190331xex312.htm
EX-32.1 iex-20190331xex321.htm
EX-32.2 iex-20190331xex322.htm

IDEX Earnings 2019-03-31

IEX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 iex-20190331x10q.htm 10-Q Document

 
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 March 31, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
36-3555336
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1925 West Field Court, Suite 200, 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 every Interactive Data File required to be submitted 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 such files).
Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  þ
 
Accelerated filer  ¨
 
Non-accelerated filer ¨
 
Smaller reporting company  ¨
 
 
 
 
 
Emerging growth company  ¨
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 April 23, 2019: 75,707,118.
 



TABLE OF CONTENTS
 
 
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
Item 4.
 
 
 
Item 1.
Item 2.
Item 6.



PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

IDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
(unaudited)
 
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
456,130

 
$
466,407

Receivables, less allowance for doubtful accounts of $7,385 at March 31, 2019 and $6,709 at December 31, 2018
333,782

 
312,192

Inventories
298,327

 
279,995

Other current assets
40,989

 
33,938

Total current assets
1,129,228

 
1,092,532

Property, plant and equipment - net
271,920

 
281,220

Goodwill
1,694,408

 
1,697,955

Intangible assets - net
372,740

 
383,327

Other noncurrent assets
83,164

 
18,823

Total assets
$
3,551,460

 
$
3,473,857

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Trade accounts payable
$
160,594

 
$
143,196

Accrued expenses
178,198

 
187,536

Short-term borrowings
455

 
483

Dividends payable

 
33,446

Total current liabilities
339,247

 
364,661

Long-term borrowings
848,437

 
848,335

Deferred income taxes
130,881

 
128,007

Other noncurrent liabilities
177,663

 
138,214

Total liabilities
1,496,228

 
1,479,217

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: 89,967,159 shares at March 31, 2019 and 90,112,028 shares at December 31, 2018
900

 
901

Additional paid-in capital
743,743

 
738,339

Retained earnings
2,452,375

 
2,342,079

Treasury stock at cost: 14,264,971 shares at March 31, 2019 and 14,159,251 shares at December 31, 2018
(1,011,769
)
 
(957,454
)
Accumulated other comprehensive income (loss)
(130,017
)
 
(129,225
)
Total shareholders’ equity
2,055,232

 
1,994,640

Total liabilities and shareholders’ equity
$
3,551,460

 
$
3,473,857

See Notes to Condensed Consolidated Financial Statements

1


IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
 
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net sales
$
622,231

 
$
612,324

Cost of sales
338,397

 
335,672

Gross profit
283,834

 
276,652

Selling, general and administrative expenses
136,052

 
138,327

Restructuring expenses

 
1,642

Operating income
147,782

 
136,683

Other (income) expense - net
(140
)
 
(4,449
)
Interest expense
10,921

 
11,000

Income before income taxes
137,001

 
130,132

Provision for income taxes
26,733

 
31,174

Net income
$
110,268

 
$
98,958

 
 
 
 
Basic earnings per common share
$
1.46

 
$
1.29

Diluted earnings per common share
$
1.44

 
$
1.27

 
 
 
 
Share data:
 
 
 
Basic weighted average common shares outstanding
75,442

 
76,419

Diluted weighted average common shares outstanding
76,284

 
77,739

See Notes to Condensed Consolidated Financial Statements

2


IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net income
$
110,268

 
$
98,958

Other comprehensive income (loss):
 
 
 
Reclassification adjustments for derivatives, net of tax
1,227

 
1,261

Pension and other postretirement adjustments, net of tax
1,262

 
1,413

Cumulative translation adjustment
(3,281
)
 
27,578

Other comprehensive income (loss)
(792
)
 
30,252

Comprehensive income
$
109,476

 
$
129,210

See Notes to Condensed Consolidated Financial Statements

3


IDEX CORPORATION
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, 2018
$
739,240

 
$
2,342,079

 
$
(94,420
)
 
$
(22,740
)
 
$
(12,065
)
 
$
(957,454
)
 
$
1,994,640

Net income

 
110,268

 

 

 

 

 
110,268

Adjustment for adoption of ASU 2016-02

 
28

 

 

 

 

 
28

Cumulative translation adjustment

 

 
(3,281
)
 

 

 

 
(3,281
)
Net change in retirement obligations (net of tax of $438)

 

 

 
1,262

 

 

 
1,262

Net change on derivatives designated as cash flow hedges (net of tax of $361)

 

 

 

 
1,227

 

 
1,227

Issuance of 264,090 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $3,415)

 

 

 

 

 
8,870

 
8,870

Repurchase of 369,810 shares of common stock

 

 

 

 

 
(51,706
)
 
(51,706
)
Shares surrendered for tax withholding

 

 

 

 

 
(11,479
)
 
(11,479
)
Share-based compensation
5,403

 

 

 

 

 

 
5,403

Balance, March 31, 2019
$
744,643

 
$
2,452,375

 
$
(97,701
)
 
$
(21,478
)
 
$
(10,838
)
 
$
(1,011,769
)
 
$
2,055,232

 
 
 
 
 
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, 2017
$
717,808

 
$
2,057,915

 
$
(46,306
)
 
$
(29,154
)
 
$
(14,047
)
 
$
(799,674
)
 
$
1,886,542

Net income

 
98,958

 

 

 

 

 
98,958

Adjustment for adoption of ASU 2016-16

 
(645
)
 

 

 

 

 
(645
)
Adjustment for adoption of ASU 2018-02

 
6,435

 

 
(3,411
)
 
(3,024
)
 

 

Cumulative translation adjustment

 

 
27,578

 

 

 

 
27,578

Net change in retirement obligations (net of tax of $505)

 

 

 
1,413

 

 

 
1,413

Net change on derivatives designated as cash flow hedges (net of tax of $371)

 

 

 

 
1,261

 

 
1,261

Issuance of 227,932 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $2,934)

 

 

 

 

 
6,590

 
6,590

Shares surrendered for tax withholding

 

 

 

 

 
(10,750
)
 
(10,750
)
Share-based compensation
5,938

 

 

 

 

 

 
5,938

Balance, March 31, 2018
$
723,746

 
$
2,162,663

 
$
(18,728
)
 
$
(31,152
)
 
$
(15,810
)
 
$
(803,834
)
 
$
2,016,885


See Notes to Condensed Consolidated Financial Statements

4


IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
110,268

 
$
98,958

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,660

 
10,183

Amortization of intangible assets
8,999

 
10,871

Amortization of debt issuance expenses
335

 
332

Share-based compensation expense
7,560

 
7,652

Deferred income taxes
3,027

 
(2,041
)
Non-cash interest expense associated with forward starting swaps
1,588

 
1,632

Changes in (net of the effect from acquisitions):
 
 
 
Receivables
(21,402
)
 
(30,816
)
Inventories
(18,548
)
 
(21,116
)
Other current assets
(7,119
)
 
16,881

Trade accounts payable
17,488

 
8,215

Accrued expenses
(24,606
)
 
(27,273
)
Other - net
1,413

 
(1,749
)
Net cash flows provided by operating activities
88,663

 
71,729

Cash flows from investing activities
 
 
 
Purchases of property, plant and equipment
(12,875
)
 
(10,009
)
Proceeds from disposal of fixed assets
629

 

Other - net
(195
)
 
(184
)
Net cash flows used in investing activities
(12,441
)
 
(10,193
)
Cash flows from financing activities
 
 
 
Dividends paid
(33,446
)
 
(28,945
)
Proceeds from stock option exercises
8,870

 
6,590

Repurchases of common stock
(50,797
)
 

Shares surrendered for tax withholding
(11,479
)
 
(10,750
)
Settlement of foreign exchange contracts

 
6,618

Other - net
(129
)
 

Net cash flows used in financing activities
(86,981
)
 
(26,487
)
Effect of exchange rate changes on cash and cash equivalents
482

 
1,974

Net increase (decrease) in cash
(10,277
)
 
37,023

Cash and cash equivalents at beginning of year
466,407

 
375,950

Cash and cash equivalents at end of period
$
456,130

 
$
412,973

 
 
 
 
Supplemental cash flow information
 
 
 
Cash paid for:
 
 
 
Interest
$
323

 
$
355

Income taxes
13,911

 
10,942

Significant non-cash activities:
 
 
 
Capital expenditures for construction of new leased facility

 
5,801


See Notes to Condensed Consolidated Financial Statements

5


IDEX CORPORATION
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,” “we,” “our,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 months ended March 31, 2019 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 year ended December 31, 2018.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard introduces a new lessee model that will require most leases to be recorded on the balance sheet and eliminates the required use of bright line tests in current U.S. GAAP for determining lease classification. In July 2018, the FASB issued the following standards which clarify ASU 2016-02 and have the same effective date as the original standard: ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 includes an option to not restate comparative periods in transition and elect to use the effective date of ASU 2016-02 as the date of initial application of transition. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which clarifies ASU 2016-02 and is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

The Company adopted this standard on January 1, 2019 using the optional transition method provided by the FASB in ASU 2018-11. As we did not restate comparative periods, the adoption had no impact on our previously reported results. We elected to use the practical expedient that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases as well as the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component for all asset classes. We also elected to account for short-term leases in accordance with Accounting Standards Codification (“ASC”) 842-20-25-2. The adoption of this standard had a material impact on our condensed consolidated balance sheet due to the recognition of right of use assets and lease liabilities. Upon adoption, we recognized right of use assets and lease liabilities of approximately $68 million that reflected the present value of future lease payments. The adoption of this standard did not have a material impact on our condensed consolidated results of operations or cash flows. See Note 13 for further information.

2.    Acquisitions and Divestitures

All of the Company’s acquisitions of businesses have been accounted for under ASC 805, Business Combinations. Accordingly, the accounts of the acquired companies, after adjustments to reflect the fair values assigned to assets and liabilities, have been included in the Company’s condensed consolidated financial statements from their respective dates of acquisition. The results of operations of the acquired companies have been included in the Company’s condensed consolidated results since the date of each acquisition.

The Company incurred $0.3 million and $0.7 million of acquisition-related transaction costs in the three months ended March 31, 2019 and 2018, respectively. These costs were recorded in Selling, general and administrative expenses and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed.


6


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

2018 Acquisition

On July 23, 2018, the Company acquired Finger Lakes Instrumentation (“FLI”), a technology leader in the design, development and production of low-noise cooled CCD and high speed, high-sensitivity Scientific CMOS cameras for the astronomy and life science markets. Headquartered in Lima, NY, FLI operates in our Health & Sciences Technologies segment. FLI was acquired for an aggregate purchase price of $23.6 million, consisting of $20.2 million in cash and contingent consideration valued at $3.4 million as of the opening balance sheet date. The contingent consideration is based on the achievement of financial objectives during the 24-month period following the close of the transaction. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $12.6 million and $7.9 million, respectively. Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisition reflects the strategic fit, revenue and earnings growth potential of this business. The goodwill is deductible for tax purposes.

The Company made an initial allocation of the purchase price for the FLI acquisition as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. These nonrecurring fair value measurements are classified as Level 3 in the fair value hierarchy. As the Company continues to obtain additional information about these assets and liabilities, and continues to learn more about the newly acquired business, 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 will make the appropriate adjustments to the purchase price allocation prior to the completion of the measurement period, as required.

3.    Business Segments

IDEX has three reportable business segments: Fluid & Metering Technologies (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”).

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, agriculture and energy industries.

The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, including very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded sealing components, 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 designs, produces and distributes firefighting pumps, valves 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 sales, operating income and operating margin are the primary financial measures. Intersegment sales are accounted for at fair value as if the sales were to third parties.


7


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

 
Three Months Ended 
 March 31,
 
2019
 
2018
Net sales
 
 
 
Fluid & Metering Technologies
 
 
 
External customers
$
242,336

 
$
232,261

Intersegment sales
186

 
72

Total segment sales
242,522

 
232,333

Health & Science Technologies
 
 
 
External customers
224,688

 
220,967

Intersegment sales
602

 
108

Total segment sales
225,290

 
221,075

Fire & Safety/Diversified Products
 
 
 
External customers
155,207

 
159,096

Intersegment sales
952

 
77

Total segment sales
156,159

 
159,173

Intersegment elimination
(1,740
)
 
(257
)
Total net sales
$
622,231

 
$
612,324

Operating income
 
 
 
Fluid & Metering Technologies
$
71,866

 
$
66,166

Health & Science Technologies
54,154

 
51,806

Fire & Safety/Diversified Products
40,328

 
39,554

Corporate office
(18,566
)
 
(20,843
)
Total operating income
147,782

 
136,683

Interest expense
10,921

 
11,000

Other (income) expense - net
(140
)
 
(4,449
)
Income before income taxes
$
137,001

 
$
130,132

 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Fluid & Metering Technologies
$
1,140,025

 
$
1,107,777

Health & Science Technologies
1,372,517

 
1,329,368

Fire & Safety/Diversified Products
820,226

 
806,075

Corporate office
218,692

 
230,637

Total assets
$
3,551,460

 
$
3,473,857


4.    Revenue

IDEX is an applied solutions company specializing in the manufacture of fluid and metering technologies, health and science technologies and fire, safety and other diversified products built to customers’ specifications. The Company’s products include industrial pumps, compressors, flow meters, injectors, valves and related controls for use in a wide variety of process applications; precision fluidics solutions, including pumps, valves, degassing equipment, corrective tubing, fittings and complex manifolds, optical filters and specialty medical equipment and devices for use in life science applications; precision-engineered equipment for dispensing, metering and mixing paints; and engineered products for industrial and commercial markets, including fire and rescue, transportation equipment, oil and gas, electronics and communications.


8


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

Revenue is recognized when control of the promised products or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products or providing those services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. We determine the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of each contract or arrangement with a customer.

Disaggregation of Revenue

We have a comprehensive offering of products, including technologies, built to customers’ specifications that are sold in niche markets throughout the world. We disaggregate our revenue from contracts with customers by reporting unit and geographical region for each of our segments as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Revenue was attributed to geographic areas based on the location of the customer. The following tables present our revenue disaggregated by reporting unit and geographical region.

Revenue by reporting unit for the three months ended March 31, 2019 and 2018 was as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Energy
$
39,398

 
$
38,759

Valves
29,382

 
26,029

Water
61,132

 
58,840

Pumps
88,260

 
80,666

Agriculture
24,350

 
28,039

Intersegment elimination
(186
)
 
(72
)
Fluid & Metering Technologies
242,336

 
232,261

Scientific Fluidics & Optics
107,308

 
99,507

Sealing Solutions
50,506

 
53,702

Gast
33,909

 
28,512

Micropump
8,755

 
9,298

Material Processing Technologies
24,812

 
30,056

Intersegment elimination
(602
)
 
(108
)
Health & Science Technologies
224,688

 
220,967

Fire & Safety
99,448

 
96,212

BAND-IT
27,912

 
27,474

Dispensing
28,799

 
35,487

Intersegment elimination
(952
)
 
(77
)
Fire & Safety/Diversified Products
155,207

 
159,096

Total net sales
$
622,231

 
$
612,324


Revenue by geographical region for the three months ended March 31, 2019 and 2018 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

 
Three Months Ended March 31, 2019
 
FMT
 
HST
 
FSDP
 
IDEX
U.S.
$
138,149

 
$
99,051

 
$
74,677

 
$
311,877

North America, excluding U.S.
13,057

 
4,892

 
5,980

 
23,929

Europe
43,624

 
69,372

 
43,062

 
156,058

Asia
31,917

 
48,059

 
23,560

 
103,536

Other (1)
15,775

 
3,916

 
8,880

 
28,571

Intersegment elimination
(186
)
 
(602
)
 
(952
)
 
(1,740
)
Total net sales
$
242,336

 
$
224,688

 
$
155,207

 
$
622,231

 
Three Months Ended March 31, 2018
 
FMT
 
HST
 
FSDP
 
IDEX
U.S.
$
133,153

 
$
93,808

 
$
72,497

 
$
299,458

North America, excluding U.S. (2)

 

 

 

Europe
43,599

 
73,779

 
47,119

 
164,497

Asia
26,398

 
44,548

 
24,233

 
95,179

Other (1)
29,183

 
8,940

 
15,324

 
53,447

Intersegment elimination
(72
)
 
(108
)
 
(77
)
 
(257
)
Total net sales
$
232,261

 
$
220,967

 
$
159,096

 
$
612,324


(1) Other includes: South America, Middle East, Australia and Africa.
(2) Revenue from North America, excluding U.S. of $13,588 from FMT, $3,320 from HST and $7,609 from FSDP were included in Other for the three months ended March 31, 2018.

Contract Balances

The timing of revenue recognition, billings and cash collections results in customer receivables, advance payments and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract assets) and are included in Receivables on our Condensed Consolidated Balance Sheets. Amounts are billed in accordance with contractual terms or as work progresses in accordance with contractual terms. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when contract provisions require specific milestones to be met before a customer can be billed. Unbilled amounts primarily relate to performance obligations satisfied over time when the cost-to-cost method is utilized and the revenue recognized exceeds the amount billed to the customer as there is not yet a right to payment in accordance with contractual terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. Customer receivables are recorded at face amounts less an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses as a result of customers’ inability to make required payments. Management evaluates the aging of the customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of customer receivables that may not be collected in the future and records the appropriate provision.

The composition of Customer receivables was as follows:
 
March 31, 
 2019
 
December 31, 
 2018
Billed receivables
$
323,723

 
$
299,227

Unbilled receivables
12,080

 
14,492

Total customer receivables
$
335,803

 
$
313,719


Advance payments and billings in excess of revenue recognized are included in Deferred revenue which is classified as current or noncurrent based on the timing of when we expect to recognize the revenue. The current portion is included in Accrued expenses

10


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

and the noncurrent portion is included in Other noncurrent liabilities on our Condensed Consolidated Balance Sheets. Advance payments and billings in excess of revenue recognized represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements, including those with performance obligations satisfied over time. Billings in excess of revenue recognized primarily relate to performance obligations satisfied over time when the cost-to-cost method is utilized and revenue cannot yet be recognized as the Company has not completed the corresponding performance obligation. We generally receive advance payments from customers related to maintenance services which we recognize ratably over the service term. Contract liabilities are derecognized when revenue is recognized and the performance obligation is satisfied.

The composition of Deferred revenue was as follows:
 
March 31, 
 2019
 
December 31, 
 2018
Deferred revenue - current
$
12,392

 
$
8,055

Deferred revenue - noncurrent
2,789

 
3,027

Total deferred revenue
$
15,181

 
$
11,082


Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For our contracts that require complex design, manufacturing and installation activities that are not separately identifiable from other promises in the contract and, therefore, not distinct, the entire contract is accounted for as a single performance obligation. For our contracts that include distinct products or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct products or services. Certain of our contracts have multiple performance obligations for which we allocate the transaction price to each performance obligation using an estimate of the standalone selling price of each distinct product or service in the contract. For product sales, each product sold to a customer generally represents a distinct performance obligation. In such cases, the observable standalone sales are used to determine the standalone selling price. In certain cases, we may be required to estimate standalone selling price using the expected cost plus margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct product or service.

Our performance obligations are satisfied at a point in time or over time as work progresses. Performance obligations are supported by contracts with customers that provide a framework for the nature of the distinct products or services or bundle of products and services. We define service revenue as revenue from activities that are not associated with the design, development or manufacture of a product or the delivery of a software license.

Revenue from products and services transferred to customers at a point in time approximated 96% and 95% in the three months ended March 31, 2019 and 2018, respectively. Revenue recognized at a point in time relates to the majority of our product sales. Revenue on these contracts is recognized when obligations under the terms of the contract with our customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.

Revenue from products and services transferred to customers over time approximated 4% and 5% in the three months ended March 31, 2019 and 2018, respectively. Revenue earned by certain business units within the Water, Energy, Material Processing Technologies (“MPT”) and Dispensing reporting units is recognized over time because control transfers continuously to our customers. When accounting for over-time contracts, we use an input measure to determine the extent of progress towards completion of the performance obligation. For certain business units within the Water, Energy and MPT reporting units, revenue is recognized over time as work is performed based on the relationship between actual costs incurred to date for each contract and the total estimated costs for such contract at completion of the performance obligation (i.e. the cost-to-cost method). We believe this measure of progress best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Incurred cost represents work performed, which corresponds with the transfer of control to the customer. Contract costs include labor, material and overhead. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer. Revenues, including

11


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

estimated fees or profits, are recorded proportionally as costs are incurred. For certain business units within the Energy and Dispensing reporting units, revenue is recognized ratably over the contract term.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our estimates regularly. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised. Such revisions to costs and income are recognized in the period in which the revisions are determined as a cumulative catch-up adjustment. The impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize provisions for estimated losses on uncompleted contracts in the period in which such losses are determined.

The Company records allowances for discounts, product returns and customer incentives at the time of sale as a reduction of revenue as such allowances can be reliably estimated based on historical experience and known trends. The Company also offers product warranties (primarily assurance-type) and accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, warranty costs incurred and any other related information known to the Company.

5.    Earnings Per Common Share

Earnings per common share (“EPS”) is 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, restricted stock and performance share units.

ASC 260, Earnings Per Share, concludes 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 shares of restricted stock are participating securities. Accordingly, EPS was computed using the two-class method prescribed by ASC 260.

Basic weighted average shares outstanding reconciles to diluted weighted average shares outstanding as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Basic weighted average common shares outstanding
75,442

 
76,419

Dilutive effect of stock options, restricted stock and performance share units
842

 
1,320

Diluted weighted average common shares outstanding
76,284

 
77,739


Options to purchase approximately 0.6 million and 0.3 million shares of common stock for the three months ended March 31, 2019 and 2018, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would have been antidilutive.


12


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

6.    Inventories

The components of inventories as of March 31, 2019 and December 31, 2018 were:
 
March 31,
2019
 
December 31,
2018
Raw materials and component parts
$
187,299

 
$
178,805

Work in process
44,780

 
37,495

Finished goods
66,248

 
63,695

Total inventories
$
298,327

 
$
279,995


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

7.    Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2019, by reportable business segment, were as follows:
 
FMT
 
HST
 
FSDP
 
IDEX
Balance at December 31, 2018
$
581,041

 
$
745,357

 
$
371,557

 
$
1,697,955

Foreign currency translation
(1,796
)
 
(49
)
 
(1,890
)
 
(3,735
)
Acquisition adjustments

 
188

 

 
188

Balance at March 31, 2019
$
579,245

 
$
745,496

 
$
369,667

 
$
1,694,408


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. In the first three months of 2019, there were no events or circumstances that would have required an interim impairment test. Annually, on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. Based on the results of our annual impairment test at October 31, 2018, all reporting units had fair values in excess of their carrying values.

 

13


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at March 31, 2019 and December 31, 2018:
 
At March 31, 2019
 
 
 
At December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Weighted
Average
Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Patents
$
6,528

 
$
(4,839
)
 
$
1,689

 
12
 
$
6,468

 
$
(4,693
)
 
$
1,775

Trade names
115,788

 
(59,109
)
 
56,679

 
16
 
115,899

 
(57,227
)
 
58,672

Customer relationships
254,923

 
(90,430
)
 
164,493

 
14
 
256,202

 
(85,652
)
 
170,550

Unpatented technology
96,976

 
(38,172
)
 
58,804

 
12
 
96,922

 
(35,685
)
 
61,237

Other
700

 
(525
)
 
175

 
10
 
700

 
(507
)
 
193

Total amortized intangible assets
474,915

 
(193,075
)
 
281,840

 
 
 
476,191

 
(183,764
)
 
292,427

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Banjo trade name
62,100

 

 
62,100

 
 
 
62,100

 

 
62,100

Akron Brass trade name
28,800

 

 
28,800

 
 
 
28,800

 

 
28,800

Total intangible assets
$
565,815

 
$
(193,075
)
 
$
372,740

 
 
 
$
567,091

 
$
(183,764
)
 
$
383,327


On June 22, 2018, the Company acquired the intellectual property assets of Phantom Controls (“Phantom”) for cash consideration of $4.0 million. The operational capabilities and innovative pump operation of Phantom’s technology complements our existing water-flow expertise of Hale, Akron Brass and Class 1 to improve fire ground safety and reduce operational complexity during mission critical response.

The Banjo trade name and the Akron Brass trade name are indefinite-lived intangible assets which are tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the assets might be impaired. In the first three months of 2019, there were no events or circumstances that would have required an interim impairment test. The Company uses the relief-from-royalty method, a form of the income approach, to determine the fair value of these trade names. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues, royalty rates and discount rates.

Amortization of intangible assets was $9.0 million and $10.9 million for the three months ended March 31, 2019 and 2018, respectively. Based on the intangible asset balances as of March 31, 2019, amortization expense is expected to approximate $26.9 million for the remaining nine months of 2019, $35.1 million in 2020, $33.9 million in 2021, $32.1 million in 2022 and $29.0 million in 2023.


14


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

8.    Accrued Expenses

The components of accrued expenses as of March 31, 2019 and December 31, 2018 were:
 
March 31,
2019
 
December 31,
2018
Payroll and related items
$
60,351

 
$
78,944

Management incentive compensation
6,340

 
25,321

Income taxes payable
30,892

 
23,844

Insurance
8,802

 
10,422

Warranty
5,230

 
5,303

Deferred revenue
12,392

 
8,055

Lease liability
13,194

 

Restructuring
4,026

 
6,170

Liability for uncertain tax positions
980

 
980

Accrued interest
10,434

 
1,759

Other
25,557

 
26,738

Total accrued expenses
$
178,198

 
$
187,536


9.    Other Noncurrent Liabilities

The components of other noncurrent liabilities as of March 31, 2019 and December 31, 2018 were:
 
March 31,
2019
 
December 31,
2018
Pension and retiree medical obligations
$
76,186

 
$
80,667

Transition tax payable
17,127

 
17,127

Liability for uncertain tax positions
3,218

 
3,183

Deferred revenue
2,789

 
3,027

Liability for construction of new leased facility

 
11,616

Lease liability
54,968

 

Contingent consideration for acquisition
3,375

 
3,375

Other
20,000

 
19,219

Total other noncurrent liabilities
$
177,663

 
$
138,214



15


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

10.    Borrowings

Borrowings at March 31, 2019 and December 31, 2018 consisted of the following: 
 
March 31,
2019
 
December 31,
2018
Revolving Facility
$

 
$

4.50% Senior Notes, due December 2020
300,000

 
300,000

4.20% Senior Notes, due December 2021
350,000

 
350,000

3.20% Senior Notes, due June 2023
100,000

 
100,000

3.37% Senior Notes, due June 2025
100,000

 
100,000

Other borrowings
931

 
1,078

Total borrowings
850,931

 
851,078

Less current portion
455

 
483

Less deferred debt issuance costs
1,441

 
1,593

Less unaccreted debt discount
598

 
667

Total long-term borrowings
$
848,437

 
$
848,335


On June 13, 2016, the Company completed a private placement of a $100 million aggregate principal amount of 3.20% Senior Notes due June 13, 2023 and a $100 million aggregate principal amount of 3.37% Senior Notes due June 13, 2025 (collectively, the “Notes”) pursuant to a Note Purchase Agreement dated June 13, 2016 (the “Purchase Agreement”). Each series of Notes bears interest at the stated amount per annum, which is payable semi-annually in arrears on each June 13th and December 13th. The Notes are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other unsecured, unsubordinated debt. The Company may at any time prepay all, or any portion of the Notes, provided that such portion is greater than 5% of the aggregate principal amount of the Notes then outstanding. In the event of a prepayment, the Company will pay an amount equal to par plus accrued interest plus a make-whole amount. In addition, the Company may repurchase the Notes by making an offer to all holders of the Notes, subject to certain conditions.

The Purchase Agreement contains certain covenants that restrict the Company’s ability to, among other things, transfer or sell assets, incur indebtedness, create liens, transact with affiliates and engage in certain mergers or consolidations or other change of control transactions. In addition, the Company must comply with a leverage ratio and interest coverage ratio, as further described below, and the Purchase Agreement also limits the outstanding principal amount of priority debt that may be incurred by the Company to 15% of consolidated assets. The Purchase Agreement provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all of the outstanding Notes will become due and payable immediately without further action or notice. In the case of a payment event of default, any holder of the Notes affected thereby may declare all of the Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of the Notes may declare all of the Notes to be due and payable immediately.

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, with other agents party thereto.

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 acquisitions, 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.

16


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)


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 .005% to 1.50%. Based on the Company’s credit rating at March 31, 2019, 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 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 March 31, 2019, there was no balance outstanding under the Revolving Facility and $8.7 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility at March 31, 2019 of approximately $691.3 million.

There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility and the Notes, a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1, which is the ratio of the Company’s consolidated total debt to its consolidated EBITDA. At March 31, 2019, 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.

11.    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 types of cash flow hedges the Company enters into include foreign currency exchange contracts designed to minimize the earnings impact on certain intercompany loans and interest rate exchange agreements that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.

The effective portion of gains or losses on interest rate exchange agreements is reported in accumulated other comprehensive income (loss) in shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized in net income during the period of change. See Note 15 for the amount of loss reclassified into net income for interest rate contracts for the three months ended March 31, 2019 and 2018. As of March 31, 2019, the Company did not have any interest rate contracts outstanding.

In 2010 and 2011, the Company entered into two separate forward starting interest rate exchange agreements 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 terms of the respective debt instruments. Approximately $6.3 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity at March 31, 2019 will be recognized in net income over the next 12 months as the underlying hedged transactions are realized.

17


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)


At March 31, 2018, the Company had outstanding foreign currency exchange contracts with a combined notional value of €180 million that were not designated as hedges for accounting purposes and, as a result, the change in the fair value of these foreign currency exchange contracts and the corresponding foreign currency gain or loss on the revaluation of the intercompany loans were both recorded through earnings within Other (income) expense - net in the Condensed Consolidated Statements of Operations each period as incurred. During the three months ended March 31, 2018, the Company recorded a gain of $1.2 million within Other (income) expense - net in the Condensed Consolidated Statements of Operations related to these foreign currency exchange contracts. During the three months ended March 31, 2018, the Company recorded a foreign currency transaction loss of $1.2 million within Other (income) expense - net in the Condensed Consolidated Statements of Operations related to these intercompany loans.

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.

12.    Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to the 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 (liabilities) at fair value on a recurring basis in the balance sheets at March 31, 2019 and December 31, 2018:
 
Basis of Fair Value Measurements
 
Balance at 
 March 31, 2019
 
Level 1
 
Level 2
 
Level 3
Available for sale securities
$
8,562

 
$
8,562

 
$

 
$

Contingent consideration
3,375

 

 

 
3,375

 
Basis of Fair Value Measurements
 
Balance at 
 December 31, 2018
 
Level 1
 
Level 2
 
Level 3
Available for sale securities
$
7,598

 
$
7,598

 
$

 
$

Contingent consideration
3,375

 

 

 
3,375


There were no transfers of assets or liabilities between Level 1 and Level 2 during the three months ended March 31, 2019 or the year ended December 31, 2018.

The Company utilized a Monte Carlo Simulation during the earn-out period to determine the fair value of the contingent consideration associated with the acquisition of FLI. The $3.4 million represents management’s best estimate of the liability, based on a range of outcomes of FLI’s two-year operating results, from August 1, 2018 to July 31, 2020, and is expected to be paid during the third quarter of 2020. As of March 31, 2019, the $3.4 million of contingent consideration is included in Other noncurrent liabilities on the Condensed Consolidated Balance Sheets.
 
The carrying values of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short term nature of these instruments. At March 31, 2019, the fair value of the outstanding indebtedness under our 3.2% Senior Notes, 3.37% Senior Notes, 4.5% Senior Notes, 4.2% Senior Notes and other borrowings

18


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

based on quoted market prices and current market rates for debt with similar credit risk and maturity was approximately $860.6 million compared to the carrying value of $850.3 million. At December 31, 2018, the fair value of the outstanding indebtedness under our 3.2% Senior Notes, 3.37% Senior Notes, 4.5% Senior Notes, 4.2% Senior Notes and other borrowings based on quoted market prices and current market rates for debt with similar credit risk and maturity was approximately $851.5 million compared to the carrying value of $850.4 million. These fair value measurements are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to ours.

13.    Leases

The Company leases certain office facilities, warehouses, manufacturing plants, equipment (which includes both office and plant equipment) and vehicles under operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Certain leases include one or more options to renew. The exercise of lease renewal options is at the Company’s sole discretion. There are currently no renewal periods included in any of the leases’ respective lease terms as they are not reasonably certain of being exercised. The Company does not have any material purchase options.

Certain of our lease agreements have rental payments that are adjusted periodically for inflation or that are based on usage. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information related to leases as of March 31, 2019 was as follows:
 
Balance Sheet Caption
March 31, 
 2019
Operating leases:
 
 
Building right-of-use assets - net
Other noncurrent assets
$
59,624

Equipment right-of-use assets - net
Other noncurrent assets
6,861

Total right-of-use assets - net
 
$
66,485

Operating leases:
 
 
Current lease liabilities
Accrued expenses
$
13,194

Noncurrent lease liabilities
Other noncurrent liabilities
54,968

Total lease liabilities
 
$
68,162


As part of the adoption of the new lease standard, the Company derecognized its liability for the construction of a new leased facility that was recorded in Other noncurrent liabilities on the Condensed Consolidated Balance Sheets and recorded it as a right of use asset in Other noncurrent assets on the Condensed Consolidated Balance Sheets with a corresponding lease liability in Accured expenses and Other noncurrent liabilities on the Condensed Consolidated Balance Sheets.

The components of lease cost for the three months ended March 31, 2019 were as follows:
 
Three Months Ended 
 March 31, 2019
Operating lease cost (1)
$
5,375

Variable lease cost
593

Total lease expense
$
5,968


(1) Includes short-term leases, which are immaterial.


19


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

Supplemental cash flow information related to leases for the three months ended March 31, 2019 was as follows:
 
Three Months Ended 
 March 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
5,539

Right-of-use assets obtained in exchange for new operating lease liabilities
1,809


Other supplemental information related to leases as of March 31, 2019 was as follows:
Lease Term and Discount Rate
March 31, 
 2019
Weighted-average remaining lease term (years):
 
Operating leases - building and equipment
8.39

Operating leases - vehicles
1.11

Weighted-average discount rate:
 
Operating leases - building and equipment
4.02
%
Operating leases - vehicles
3.23
%

The Company uses the implicit rate to determine the present value of the lease payments. If the implicit rate is not defined in the lease, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company used either the implicit rate or the incremental borrowing rate based on the information available at the transition date to determine the present value of the lease payments as of January 1, 2019.

Total lease liabilities at March 31, 2019 have scheduled maturities as follows:
Maturity of Lease Liabilities
Operating Leases (1)
2019 (excluding the three months ended March 31, 2019)
$
11,276

2020
13,158

2021
11,161

2022
8,193

2023
6,626

Thereafter
30,123

Total lease payments
80,537

Less: Imputed interest
(12,375
)
Present value of lease liabilities
$
68,162


(1) Excludes $25.2 million of legally binding minimum lease payments for leases signed but not yet commenced.

Total lease liabilities at December 31, 2018 had scheduled maturities as follows:
Maturity of Lease Liabilities
Operating Leases
2019
$
17,509

2020
13,162

2021
10,516

2022
7,979

2023
6,535

Thereafter
29,658

Total lease payments
$
85,359



20


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

14.    Restructuring

During the year ended December 31, 2018, the Company recorded accruals for restructuring costs incurred as part of restructuring initiatives that supported 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 restructuring costs included severance benefits and exit costs which were included in Restructuring expenses in the Condensed Consolidated Statements of Operations. 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 and contract termination costs.
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring accruals of $4.0 million and $6.2 million at March 31, 2019 and December 31, 2018, respectively, are recorded in Accrued expenses on the Condensed Consolidated Balance Sheets. Severance benefits are expected to be paid by the end of the year using cash from operations. The changes in the restructuring accrual for the three months ended March 31, 2019 are as follows:
 
Restructuring
Balance at January 1, 2019
$
6,170

Payments, utilization and other
(2,144
)
Balance at March 31, 2019
$
4,026


15.    Other Comprehensive Income (Loss)

The components of Other comprehensive income (loss) are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
 March 31, 2019
 
Three Months Ended 
 March 31, 2018
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Cumulative translation adjustment
$
(3,281
)
 
$

 
$
(3,281
)
 
$
27,578

 
$

 
$
27,578

Pension and other postretirement adjustments
1,700

 
(438
)
 
1,262

 
1,918

 
(505
)
 
1,413

Reclassification adjustments for derivatives
1,588

 
(361
)
 
1,227

 
1,632

 
(371
)
 
1,261

Total other comprehensive income (loss)
$
7

 
$
(799
)
 
$
(792
)
 
$
31,128

 
$
(876
)
 
$
30,252


The following table summarizes the amounts reclassified from accumulated other comprehensive income (loss) to net income during the three months ended March 31, 2019 and 2018:
 
 
Three Months Ended 
 March 31,
 
 
 
2019
 
2018
Income Statement Caption
Pension and other postretirement plans:
 
 
 
 
 
Amortization of service cost
 
$
1,700

 
$
1,918

Other (income) expense - net
Total before tax
 
1,700

 
1,918

 
Provision for income taxes
 
(438
)
 
(505
)
 
Total net of tax
 
$
1,262

 
$
1,413

 
Derivatives:
 
 
 
 
 
Reclassification adjustments
 
$
1,588

 
$
1,632

Interest expense
Total before tax
 
1,588

 
1,632

 
Provision for income taxes
 
(361
)
 
(371
)
 
Total net of tax
 
$
1,227

 
$
1,261

 


21


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

The Company recognizes the service cost component in both Selling, general and administrative expenses and Cost of sales in the Condensed Consolidated Statements of Operations depending on the functional area of the underlying employees included in the plans.

16.    Common and Preferred Stock

On December 1, 2015, the Company’s Board of Directors approved an increase of $300.0 million in the authorized level of repurchases of common stock. This followed the prior Board of Directors approved repurchase authorization of $400.0 million that was announced by the Company on November 6, 2014. These authorizations have no expiration date. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the three months ended March 31, 2019, the Company repurchased a total of 370 thousand shares at a cost of $51.7 million, of which $0.9 million was settled in April 2019. The Company did not repurchase any shares during the three months ended March 31, 2018. As of March 31, 2019, the amount of share repurchase authorization remaining was $325.3 million.

At March 31, 2019 and December 31, 2018, 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 March 31, 2019 or December 31, 2018.

17.    Share-Based Compensation

The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Compensation Committee of the Board of Directors.

Stock Options

Stock options generally vest ratably over four years. 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 
 March 31,
 
2019
 
2018
Weighted average fair value of grants
$35.17
 
$37.96
Dividend yield
1.18%
 
1.07%
Volatility
24.79%
 
28.49%
Risk-free interest rate
2.53% - 3.05%
 
2.01% - 3.17%
Expected life (in years)
5.87
 
5.78

Total compensation cost for stock options is as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Cost of goods sold
$
192

 
$
206

Selling, general and administrative expenses
2,540

 
2,524

Total expense before income taxes
2,732

 
2,730

Income tax benefit
(368
)
 
(470
)
Total expense after income taxes
$
2,364

 
$
2,260


22


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)


A summary of the Company’s stock option activity as of March 31, 2019, and changes during the three months ended March 31, 2019, are presented in the following table:
Stock Options
Shares
 
Weighted
Average
Price
 
Weighted-Average
Remaining
Contractual Term
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2019
1,714,003

 
$
85.08

 
6.70
 
$
74,191,783

Granted
332,625

 
144.83

 
 
 
 
Exercised
(131,565
)
 
67.42

 
 
 
 
Forfeited
(44,168
)
 
108.13

 
 
 
 
Outstanding at March 31, 2019
1,870,895

 
$
96.40

 
7.12
 
$
103,532,580

Vested and expected to vest as of March 31, 2019
1,747,058

 
$
94.14

 
6.99
 
$
100,638,073

Exercisable at March 31, 2019
1,023,778

 
$
75.01

 
5.74
 
$
78,549,384


Restricted Stock

Restricted stock awards generally cliff vest after three years for employees and non-employee directors. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. A summary of the Company’s restricted stock activity as of March 31, 2019, and changes during the three months ended March 31, 2019, are presented as follows:
Restricted Stock
Shares
 
Weighted-Average
Grant Date Fair
Value
Unvested at January 1, 2019
148,041

 
$
101.50

Granted
32,945

 
144.25

Vested
(34,952
)
 
74.72

Forfeited
(3,165
)
 
128.71

Unvested at March 31, 2019
142,869

 
$
117.30


Dividends are paid on restricted stock awards whose fair value is equal to the market price of the Company’s stock at the date of the grant.

Total compensation cost for restricted shares is as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Cost of goods sold
$
138

 
$
156

Selling, general and administrative expenses
1,288

 
1,289

Total expense before income taxes
1,426

 
1,445

Income tax benefit
(275
)
 
(257
)
Total expense after income taxes
$
1,151

 
$
1,188



23


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

Cash-Settled Restricted Stock

The Company also maintains a cash-settled share based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after three years. A summary of the Company’s unvested cash-settled restricted stock activity as of March 31, 2019, and changes during the three months ended March 31, 2019, are presented in the following table:
Cash-Settled Restricted Stock
Shares
 
Weighted-Average
Fair Value
Unvested at January 1, 2019
88,225

 
$
126.26

Granted
24,305

 
144.74

Vested
(27,900
)
 
144.12

Forfeited
(3,625
)
 
151.74

Unvested at March 31, 2019
81,005

 
$
151.74


Dividend equivalents are paid on certain cash-settled restricted stock awards. Total compensation cost for cash-settled restricted stock is as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Cost of goods sold
$
500

 
$
413

Selling, general and administrative expenses
1,530

 
1,204

Total expense before income taxes
2,030

 
1,617

Income tax benefit
(187
)
 
(159
)
Total expense after income taxes
$
1,843

 
$
1,458


Performance Share Units

Weighted average performance share unit fair values and assumptions for the period specified are disclosed below. The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model.
 
Three Months Ended 
 March 31,
 
2019
 
2018
Weighted average fair value of grants
$203.06
 
$216.59
Dividend yield
—%
 
—%
Volatility
19.08%
 
17.42%
Risk-free interest rate
2.53%
 
2.40%
Expected life (in years)
2.84
 
2.85


24


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

A summary of the Company’s performance share unit activity as of March 31, 2019, and changes during the three months ended March 31, 2019, are presented in the following table:
Performance Share Units
Shares
 
Weighted-Average
Grant Date Fair
Value
Unvested at January 1, 2019
111,155

 
$
142.42

Granted
50,255

 
203.06

Vested

 

Forfeited
(8,970
)
 
162.86

Unvested at March 31, 2019
152,440

 
$
175.87


On December 31, 2018, 69,995 performance share units vested. Based on the Company’s relative total shareholder return rank during the three year period ended December 31, 2018, the Company achieved a 250% payout factor and issued 174,994 common shares in February 2019.

Total compensation cost for performance share units is as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Cost of goods sold
$

 
$

Selling, general and administrative expenses
1,372

 
1,860

Total expense before income taxes
1,372

 
1,860

Income tax benefit
(48
)
 
(317
)
Total expense after income taxes
$
1,324

 
$
1,543


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 Condensed Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.

As of March 31, 2019, there was $19.7 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.6 years, $7.5 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.2 years, $5.5 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.2 years and $13.5 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.2 years.


25


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

18.    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 March 31,
 
2019
 
2018
 
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
Service cost
$
208

 
$
464

 
$
254

 
$
545

Interest cost
764

 
365

 
653

 
361

Expected return on plan assets
(801
)
 
(264
)
 
(983
)
 
(290
)
Net amortization
487

 
284

 
685

 
330

Net periodic benefit cost
$
658

 
$
849

 
$
609

 
$
946

 
Other Postretirement Benefits
 
Three Months Ended March 31,
 
2019
 
2018
Service cost
$
140

 
$
168

Interest cost
212

 
203

Net amortization
(159
)
 
(184
)
Net periodic benefit cost
$
193

 
$
187


The Company previously disclosed in its financial statements for the year ended December 31, 2018, that it expected to contribute approximately $0.6 million to its defined benefit plans and $1.1 million to its other postretirement benefit plans in 2019. During the first three months of 2019, the Company contributed a total of $0.1 million to fund these plans.

19.    Legal Proceedings

The Company and certain of its subsidiaries are involved in pending and threatened legal, regulatory and other proceedings arising in the ordinary course of business. These proceedings may pertain to matters such as product liability or contract disputes, and may also involve governmental inquiries, inspections, audits or investigations relating to issues such as tax matters, intellectual property, environmental, health and safety issues, governmental regulations, employment and other matters. Although the results of such legal proceedings cannot be predicted with certainty, the Company believes that the ultimate disposition of these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s business, financial condition, results of operations or cash flows.

20.    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 decreased to $26.7 million for the three months ended March 31, 2019 from $31.2 million in the same period of 2018. The effective tax rate decreased to 19.5% for the three months ended March 31, 2019 compared to 24.0% in the same period of 2018 due to an increase in foreign tax credits as a result of U.S. Treasury proposed regulations issued related to Global Intangible Low-Taxed Income (“GILTI”), discrete income tax expense in the first quarter of 2018 related to IRS Revenue Procedure 2018-17 and IRS Notice 2018-26 as well as the mix of global pre-tax income among jurisdictions.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Due to the potential for resolution of federal, state and foreign examinations and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $1.0 million.

26


IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaud