Washington, D.C. 20549
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth 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).
PART I. FINANCIAL INFORMATION
See Notes to Condensed Consolidated Financial Statements
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,” “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 and nine months ended September 30, 20172020 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, 2016.2019.
Recently Adopted Accounting Standards
In March 2017,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-07, Improving2016-13, Financial Instruments - Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued a subsequent amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the Presentation of Net Periodic Pension Costprior “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 affects loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and Net Periodic Postretirement Benefit Cost, which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for a company’s sponsored defined benefit pension andany other postretirement plans. Under this ASU, companies are required to disaggregate the current service cost componentfinancial assets not excluded from the other components of net benefit cost and present it with other current compensation costs for related employees in the income statement and present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. This ASU also requires companies to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. In addition, only the service cost component of periodic net benefit cost is eligible for capitalization. The Company elected to early adopt this standard in the quarter ended March 31, 2017 as presenting the service cost within income from operations is more indicative of our current pension cost. The Company adopted this standard retrospectively and thus $0.8 million and $2.4 million were reclassified from Selling, general and administrative expenses to Other (income) expense - net for the three and nine months ended September 30, 2016, respectively, to conform to current period presentation. The Company elected to apply the practical expedient that permits the use of previously disclosed service cost and other costs from the prior year’s pension and other postretirement benefit plan footnote in the comparative periods as appropriate estimates when retrospectively changing the presentation of these costs in the income statement. The Company included the required disclosures and the changes resulting from the adoptionscope of this standard in Note 16.
In January 2017,amendment that represent the FASB issuedcontractual right to receive cash. ASU 2017-04, Simplifying2016-13 and ASU 2018-19 should be applied on either a prospective transition or modified-retrospective approach depending on the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. Under this ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit. This ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. In addition, companies will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.subtopic. The Company early adopted this standard on January 1, 2017.2020 using the prospective transition approach. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. Under this guidance, entities utilizing the FIFO or average cost method should measure inventory at the lower of cost or net realizable value, where net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance on January 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar assets, the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods for the
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Company on January 1, 2018, with early adoption permitted. The Company does not believe the guidance will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued 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. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Companies are permitted to adopt the standard early and a modified retrospective application is required. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a new five-step model for recognizing revenue from contracts with customers. 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 is effective for fiscal years beginning after December 15, 2017, 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 FASB has also issued the following standards which clarify ASU 2014-09 and have the same effective date as the original standard: ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-12,Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
In 2016, we established an implementation team and analyzed the impact of the standard by surveying business units and reviewing contracts to identify potential differences that may result from applying the requirements of the new standard. We have substantially completed our contract reviews. These contract reviews generally supported the recognition of revenue at a point in time, which is consistent with the current revenue recognition model used by most of our business units. As a result, we expect revenue recognition to remain substantially unchanged under the new standard. For our business units that currently recognize revenue under a percentage of completion model, we also expect revenue recognition to remain substantially unchanged as the contract reviews supported the recognition of revenue over time. The implementation team has reported these findings and the progress of the project to the Audit Committee. The Company has also made progress on evaluating new disclosure requirements as well as the impact on controls and is implementing the appropriate changes to its processes, systems and controls to comply with the new guidance. The Company is still evaluating the impact of the new guidance on its consolidated financial statements but expects to adopt the standard in 2018 using the modified retrospective method.
2. Acquisitions and Divestitures
All of the Company’s acquisitions of businesses have been accounted for under Accounting Standards Codification (“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 $0.5acquisition-related transaction costs of $1.3 million and $1.6$0.6 million of acquisition-related transaction costs in the three months ended September 30, 20172020 and 2016,2019, respectively, and $0.7$3.1 million and $4.0$1.3 million in the nine months ended September 30, 20172020 and 2016,2019, 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. DuringThe Company also incurred a $4.1 million fair value inventory step-up charge associated with the completed 2020 acquisition of Flow Management Devices, LLC (“Flow MD”) described below in the nine months ended September 30, 2020 and a $3.3 million fair value inventory step-up charge associated with the completed 2019 acquisition of Velcora Holding AB (“Velcora”) described below in the three and nine months ended September 30, 2016, the Company2019. These charges were recorded $4.6 million and $10.4 million, respectively, of fair value inventory step-up charges in Cost of sales associatedsales.
2020 Acquisition
On February 28, 2020, the Company acquired the stock of Flow MD, a privately held provider of flow measurement systems that ensure custody transfer accuracy in the oil and gas industry. Flow MD engineers and manufactures small volume provers. Headquartered in Phoenix, AZ, with operations in Houston, TX and Pittsburgh, PA, Flow MD operates in our Energy group within the completed 2016 acquisitionsFluid & Metering Technologies segment. Flow MD was acquired for cash consideration of Akron Brass Holding Corporation (“Akron Brass”), AWG Fittings GmbH (“AWG Fittings”),$118.2 million. The entire purchase price was funded with cash on hand. Goodwill and SFC Koenig AG (“SFC Koenig”).intangible assets recognized as part of this transaction were $61.7 million and $53.0 million, respectively. The goodwill is deductible for tax purposes.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
The Company made an initial allocation of the purchase price for the Flow MD 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, including intangible asset appraisals, inventory valuation and accrued expenses, 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 continue to make required adjustments to the purchase price allocation prior to the completion of the measurement period.
2016 AcquisitionsThe preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:
| | | | | |
| (In thousands) | Total |
| Current assets, net of cash acquired | $ | 32,980 | |
| Property, plant and equipment | 4,230 | |
| Goodwill | 61,739 | |
| Intangible assets | 53,000 | |
| Other noncurrent assets | 1,344 | |
| Total assets acquired | 153,293 | |
| Current liabilities | (35,554) | |
| Deferred income taxes | 749 | |
| Other noncurrent liabilities | (329) | |
Net assets acquired(1) | $ | 118,159 | |
(1) During the third quarter of 2020, the Company finalized the purchase price of the Flow MD business, resulting in a $2.7 million adjustment to the purchase price.
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 acquired intangible assets and weighted average amortization periods are as follows:
| | | | | | | | | | | |
| (In thousands, except weighted average life) | Total | | Weighted Average Life |
| Trade names | $ | 6,000 | | | 15 |
| Customer relationships | 31,500 | | | 10 |
| Unpatented technology | 15,500 | | | 20 |
| Acquired intangible assets | $ | 53,000 | | | |
2019 Acquisition
On March 16, 2016,July 18, 2019, the Company acquired the stock of Akron Brass,Velcora and its operating subsidiaries, Roplan and Steridose. Roplan is a producerglobal manufacturer of custom mechanical and shaft seals for a large arrayvariety of end markets including food and beverage, marine, chemical, wastewater and water treatment. Steridose develops engineered life–safety productshygienic mixers and valves for the safetyglobal biopharmaceutical industry. Both companies are headquartered in Sweden but also have operations in China, the United Kingdom and emergency response markets, which includes apparatus valves, monitors, nozzles, specialty lighting, electronic vehicle–control systemsthe United States. Roplan and firefighting hand tools. The business was acquired to complement and create synergies with our existing Hale, Class 1, and Godiva businesses. Headquartered in Wooster, Ohio, Akron Brass operatesSteridose operate in our FireHealth & Safety/Diversified ProductsScience Technologies segment. Akron BrassVelcora was acquired for cash consideration of $221.4 million.$87.2 million and the assumption of $51.1 million of debt. The entire purchase price was funded with borrowings under the Company’s revolving facilities. The final goodwillcash on hand. Goodwill and intangible assets recognized as part of thethis transaction were $124.6$86.6 million and $90.4$48.2 million, respectively. The goodwill is not deductible for tax purposes.
On July 1, 2016, the Company acquired the stock of AWG Fittings, a producer of engineered products for the safety and emergency response markets, including valves, monitors and nozzles. The business was acquired to complement and create synergies with our existing Hale, Class 1, Godiva and Akron Brass businesses. Headquartered in Ballendorf, Germany, AWG Fittings operates in our Fire & Safety/Diversified Products segment. AWG Fittings was acquired for cash consideration of $47.5 million (€42.8 million). The purchase price was funded with cash on hand. The final goodwill and intangible assets recognized as part of the transaction were $22.0 million and $10.3 million, respectively. The goodwill is not deductible for tax purposes.
On August 31, 2016, the Company acquired the stock of SFC Koenig, a producer of highly engineered expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets. Headquartered in Dietikon, Switzerland, SFC Koenig operates in our Health & Science Technologies segment. SFC Koenig was acquired for cash consideration of $241.1 million (€215.9 million). The purchase price was funded with cash on hand and borrowings under the Company’s revolving facilities. The final goodwill and intangible assets recognized as part of the transaction were $141.3 million and $117.0 million, respectively. The goodwill is not deductible for tax purposes.
2016 Divestitures
The Company periodically reviewsfinalized the allocation of the purchase price for the Velcora acquisition as of the acquisition date based on its operations for businesses which may no longer be aligned with its strategic objectives to focus on core businessunderstanding of the fair value of the acquired assets and customers. Any resulting gain or loss recognized due to divestitures is recorded within Loss (gain) on sale of businesses - net.
On July 29, 2016, the Company completed the sale of its Hydra-Stop product line for $15.0 million in cash, resulting in a pre-tax gain on the sale of $5.8 millionassumed liabilities. These nonrecurring fair value measurements are classified as Level 3 in the third quarterfair value hierarchy.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
The final allocation of the Company can earn uppurchase price to $2 millionthe assets acquired and liabilities assumed, based on their estimated fair values at the achievementacquisition date, is as follows:
| | | | | |
| (In thousands) | Total |
| Current assets, net of cash acquired | $ | 20,248 | |
| Property, plant and equipment | 1,656 | |
| Goodwill | 86,613 | |
| Intangible assets | 48,183 | |
| Other noncurrent assets | 788 | |
| Total assets acquired | 157,488 | |
| Current liabilities | (7,630) | |
| Long-term borrowings | (51,130) | |
| Deferred income taxes | (11,094) | |
| Other noncurrent liabilities | (454) | |
| Net assets acquired | $ | 87,180 | |
Acquired intangible assets consist of financial objectives for net sales in 2016trade names, customer relationships and 2017.unpatented technology. The Company earned $1.0 milliongoodwill recorded for the achievementacquisition reflects the strategic fit, revenue and earnings growth potential of 2016 net sales objectives, which represents the maximum earn out for 2016. these businesses.
The Company can earn an additional $1.0 million based on 2017 net sales. The results of Hydra-Stop were reported within the Fluid & Metering Technologies segmentacquired intangible assets and generated $7.5 million of revenues in 2016 through the date of sale.weighted average amortization periods are as follows:
| | | | | | | | | | | |
| (In thousands, except weighted average life) | Total | | Weighted Average Life |
| Trade names | $ | 7,089 | | | 15 |
| Customer relationships | 34,677 | | | 12 |
| Unpatented technology | 6,417 | | | 9 |
| Acquired intangible assets | $ | 48,183 | | | |
On September 9, 2016,3, 2019, the Company completedsettled the sale of its Melles Griot KK (“CVI Japan”) subsidiary for $17.5 milliondebt assumed in cash, resulting inthe Velcora acquisition and incurred a pre-tax loss on the saleearly retirement of $7.9$0.7 million which was recorded in Other (income) expense - net in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019.
3. Joint Venture
On May 12, 2020, a subsidiary of IDEX entered into a joint venture agreement with a third quarterparty to form a limited liability company (the “Joint Venture”) that will manufacture and sell high performance elastomer seals for the oil and gas industry to customers within the Kingdom of 2016.Saudi Arabia as well as export these high performance elastomer seals outside of the Kingdom of Saudi Arabia. The results of CVI Japan were reportedJoint Venture will be headquartered in Damman, Saudi Arabia and will operate in our Sealing Solutions platform within the Health & Science Technologies segmentsegment. IDEX will contribute $0.6 million and generated $13.1will own 55% of the share capital while the third party partner will contribute $0.5 million and will own 45% of revenuesthe share capital. As of September 30, 2020, the Joint Venture had not yet been funded or begun its operations. Since we will control the entity, we expect to consolidate the Joint Venture and record a noncontrolling interest in 2016 through the dateour financial statements once funding occurs and operations begin, both of sale.
On October 10, 2016, the Company completed the sale of its IETG and 40Seven subsidiaries for $2.7 million in cash, resulting in a pre-tax loss on the sale of $4.2 million inwhich are currently expected to occur during the fourth quarter of 2016. The results of IETG and 40Seven were reported within the Fluid & Metering Technologies segment and generated $8.3 million of revenues in 2016 through the date of sale.2020.
On December 30, 2016, the Company completed the sale of its Korea Electro-Optics Co., Ltd. (“CVI Korea”) subsidiary for $3.8 million in cash, resulting in a pre-tax loss on the sale of $16.0 million in the fourth quarter of 2016. The results of CVI Korea were reported within the Health & Science Technologies segment and generated $11.7 million of revenues in 2016 through the date of sale.
3.4. Business Segments
The Company
IDEX has three3 reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
The Fluid & Metering Technologies (“FMT”) segment designs, produces and distributes positive displacement pumps, valves,small volume provers, 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
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
(“HST”) 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, custom mechanical and shaft seals for a variety of end markets including food and beverage, marine, chemical, wastewater and water treatment, engineered hygienic mixers and valves for the global biopharmaceutical industry, 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 (“FSDP”) segment designs, produces and develops firefighting pumps, valves and controls, apparatus valves, monitors, nozzles, 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 isand operating margin are the primary financial measure.measures. Intersegment sales are accounted for at fair value as if the sales were to third parties.
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, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Net sales | | | | | | | |
| Fluid & Metering Technologies | | | | | | | |
| External customers | $ | 220,553 | | | $ | 240,758 | | | $ | 666,187 | | | $ | 729,205 | |
| Intersegment sales | 194 | | | 103 | | | 533 | | | 367 | |
| Total segment sales | 220,747 | | | 240,861 | | | 666,720 | | | 729,572 | |
| Health & Science Technologies | | | | | | | |
| External customers | 219,671 | | | 228,988 | | | 658,361 | | | 685,848 | |
| Intersegment sales | 707 | | | 622 | | | 1,744 | | | 1,305 | |
| Total segment sales | 220,378 | | | 229,610 | | | 660,105 | | | 687,153 | |
| Fire & Safety/Diversified Products | | | | | | | |
| External customers | 140,889 | | | 154,500 | | | 412,276 | | | 473,523 | |
| Intersegment sales | 7 | | | 43 | | | 20 | | | 1,222 | |
| Total segment sales | 140,896 | | | 154,543 | | | 412,296 | | | 474,745 | |
| Intersegment elimination | (908) | | | (768) | | | (2,297) | | | (2,894) | |
| Total net sales | $ | 581,113 | | | $ | 624,246 | | | $ | 1,736,824 | | | $ | 1,888,576 | |
| Operating income | | | | | | | |
| Fluid & Metering Technologies | $ | 58,402 | | | $ | 77,481 | | | $ | 176,111 | | | $ | 223,493 | |
| Health & Science Technologies | 49,912 | | | 40,170 | | | 150,562 | | | 151,087 | |
| Fire & Safety/Diversified Products | 37,103 | | | 41,967 | | | 103,977 | | | 125,909 | |
| Corporate office | (14,204) | | | (17,853) | | | (48,902) | | | (55,659) | |
| Total operating income | 131,213 | | | 141,765 | | | 381,748 | | | 444,830 | |
| Interest expense | 10,642 | | | 11,330 | | | 33,958 | | | 33,262 | |
| Other (income) expense - net | (704) | | | 1,219 | | | 7,321 | | | 701 | |
| Income before income taxes | $ | 121,275 | | | $ | 129,216 | | | $ | 340,469 | | | $ | 410,867 | |
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Assets | | | |
| Fluid & Metering Technologies | $ | 1,327,303 | | | $ | 1,150,712 | |
| Health & Science Technologies | 1,535,745 | | | 1,507,108 | |
| Fire & Safety/Diversified Products | 838,747 | | | 825,398 | |
| Corporate office | 523,800 | | | 330,694 | |
| Total assets | $ | 4,225,595 | | | $ | 3,813,912 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 (1) | | 2017 | | 2016 (1) |
| Net sales | | | | | | | |
| Fluid & Metering Technologies | | | | | | | |
| External customers | $ | 220,897 |
| | $ | 208,164 |
| | $ | 658,675 |
| | $ | 641,508 |
|
| Intersegment sales | 56 |
| | 171 |
| | 230 |
| | 480 |
|
| Total group sales | 220,953 |
| | 208,335 |
| | 658,905 |
| | 641,988 |
|
| Health & Science Technologies | | | | | | | |
| External customers | 207,018 |
| | 183,453 |
| | 610,890 |
| | 556,157 |
|
| Intersegment sales | 109 |
| | 111 |
| | 325 |
| | 318 |
|
| Total group sales | 207,127 |
| | 183,564 |
| | 611,215 |
| | 556,475 |
|
| Fire & Safety/Diversified Products | | | | | | | |
| External customers | 146,575 |
| | 138,739 |
| | 431,843 |
| | 384,959 |
|
| Intersegment sales | 24 |
| | 28 |
| | 186 |
| | 37 |
|
| Total group sales | 146,599 |
| | 138,767 |
| | 432,029 |
| | 384,996 |
|
| Intersegment elimination | (189 | ) | | (310 | ) | | (741 | ) | | (835 | ) |
| Total net sales | $ | 574,490 |
| | $ | 530,356 |
| | $ | 1,701,408 |
| | $ | 1,582,624 |
|
| Operating income | | | | | | | |
| Fluid & Metering Technologies | $ | 61,988 |
| | $ | 55,907 |
| | $ | 179,830 |
| | $ | 161,782 |
|
| Health & Science Technologies | 46,073 |
| | 37,195 |
| | 134,605 |
| | 118,985 |
|
| Fire & Safety/Diversified Products | 36,199 |
| | 32,492 |
| | 106,022 |
| | 92,566 |
|
Corporate office expense and other (2) | (17,756 | ) | | (15,886 | ) | | (53,149 | ) | | (46,457 | ) |
| Total operating income | 126,504 |
| | 109,708 |
| | 367,308 |
| | 326,876 |
|
| Interest expense | 11,064 |
| | 11,913 |
| | 33,920 |
| | 33,607 |
|
| Other (income) expense - net | 1,653 |
| | (1,513 | ) | | 1,717 |
| | (2,496 | ) |
| Income before income taxes | $ | 113,787 |
| | $ | 99,308 |
| | $ | 331,671 |
| | $ | 295,765 |
|
(1) Certain amounts in the prior year income statement have been reclassified to conform to the current presentation due to the early adoption of ASU 2017-07. |
(2) Corporate office expense for the three and nine months ended September 30, 2016 includes benefits of zero and $4.7 million, respectively, from the reversal of the contingent consideration related to a 2015 acquisition as well as a $2.1 million loss on sale of businesses - net. |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Assets | | | |
| Fluid & Metering Technologies | $ | 1,112,788 |
| | $ | 1,065,670 |
|
| Health & Science Technologies | 1,281,823 |
| | 1,266,036 |
|
| Fire & Safety/Diversified Products | 740,026 |
| | 705,735 |
|
| Corporate office | 183,124 |
| | 117,503 |
|
| Total assets | $ | 3,317,761 |
| | $ | 3,154,944 |
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
5. 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, provers, 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.
Revenue is recognized when control of 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 amount, nature, timing and uncertainty of our revenue and cash flows are affected by economic factors. Revenue was attributed to geographical region 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 and nine months ended September 30, 2020 and 2019 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Energy | $ | 56,155 | | | $ | 42,876 | | | $ | 150,483 | | | $ | 122,882 | |
| Valves | 26,901 | | | 30,764 | | | 78,822 | | | 89,955 | |
| Water | 59,822 | | | 62,611 | | | 172,888 | | | 188,891 | |
| Pumps | 59,585 | | | 84,936 | | | 201,970 | | | 260,321 | |
| Agriculture | 18,284 | | | 19,674 | | | 62,557 | | | 67,523 | |
| Intersegment elimination | (194) | | | (103) | | | (533) | | | (367) | |
| Fluid & Metering Technologies | 220,553 | | | 240,758 | | | 666,187 | | | 729,205 | |
| Scientific Fluidics & Optics | 100,569 | | | 108,869 | | | 313,275 | | | 325,731 | |
| Sealing Solutions | 50,726 | | | 51,389 | | | 151,257 | | | 148,326 | |
| Gast | 32,173 | | | 32,699 | | | 87,558 | | | 104,007 | |
| Micropump | 7,273 | | | 8,273 | | | 22,260 | | | 25,299 | |
| Material Processing Technologies | 29,637 | | | 28,380 | | | 85,755 | | | 83,790 | |
| Intersegment elimination | (707) | | | (622) | | | (1,744) | | | (1,305) | |
| Health & Science Technologies | 219,671 | | | 228,988 | | | 658,361 | | | 685,848 | |
| Fire & Safety | 94,065 | | | 100,389 | | | 280,428 | | | 303,094 | |
| BAND-IT | 22,692 | | | 26,087 | | | 64,228 | | | 81,757 | |
| Dispensing | 24,139 | | | 28,067 | | | 67,640 | | | 89,894 | |
| Intersegment elimination | (7) | | | (43) | | | (20) | | | (1,222) | |
| Fire & Safety/Diversified Products | 140,889 | | | 154,500 | | | 412,276 | | | 473,523 | |
| Total net sales | $ | 581,113 | | | $ | 624,246 | | | $ | 1,736,824 | | | $ | 1,888,576 | |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
4.Revenue by geographical region for the three and nine months ended September 30, 2020 and 2019 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | IDEX |
| U.S. | $ | 122,352 | | | $ | 98,943 | | | $ | 65,369 | | | $ | 286,664 | |
| North America, excluding U.S. | 13,706 | | | 5,417 | | | 5,680 | | | 24,803 | |
| Europe | 43,855 | | | 59,509 | | | 37,437 | | | 140,801 | |
| Asia | 26,010 | | | 52,197 | | | 25,378 | | | 103,585 | |
Other (1) | 14,824 | | | 4,312 | | | 7,032 | | | 26,168 | |
| Intersegment elimination | (194) | | | (707) | | | (7) | | | (908) | |
| Total net sales | $ | 220,553 | | | $ | 219,671 | | | $ | 140,889 | | | $ | 581,113 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | IDEX |
| U.S. | $ | 133,710 | | | $ | 103,891 | | | $ | 74,306 | | | $ | 311,907 | |
| North America, excluding U.S. | 13,652 | | | 5,450 | | | 6,726 | | | 25,828 | |
| Europe | 46,830 | | | 65,339 | | | 38,078 | | | 150,247 | |
| Asia | 30,182 | | | 51,378 | | | 26,317 | | | 107,877 | |
Other (1) | 16,487 | | | 3,552 | | | 9,116 | | | 29,155 | |
| Intersegment elimination | (103) | | | (622) | | | (43) | | | (768) | |
| Total net sales | $ | 240,758 | | | $ | 228,988 | | | $ | 154,500 | | | $ | 624,246 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | IDEX |
| U.S. | $ | 384,429 | | | $ | 288,042 | | | $ | 203,940 | | | $ | 876,411 | |
| North America, excluding U.S. | 38,741 | | | 15,911 | | | 16,980 | | | 71,632 | |
| Europe | 127,906 | | | 182,596 | | | 108,683 | | | 419,185 | |
| Asia | 77,144 | | | 161,342 | | | 63,500 | | | 301,986 | |
Other (1) | 38,500 | | | 12,214 | | | 19,193 | | | 69,907 | |
| Intersegment elimination | (533) | | | (1,744) | | | (20) | | | (2,297) | |
| Total net sales | $ | 666,187 | | | $ | 658,361 | | | $ | 412,276 | | | $ | 1,736,824 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | IDEX |
| U.S. | $ | 411,645 | | | $ | 309,135 | | | $ | 227,881 | | | $ | 948,661 | |
| North America, excluding U.S. | 41,337 | | | 15,839 | | | 19,124 | | | 76,300 | |
| Europe | 134,403 | | | 200,509 | | | 124,953 | | | 459,865 | |
| Asia | 94,452 | | | 149,939 | | | 76,621 | | | 321,012 | |
Other (1) | 47,735 | | | 11,731 | | | 26,166 | | | 85,632 | |
| Intersegment elimination | (367) | | | (1,305) | | | (1,222) | | | (2,894) | |
| Total net sales | $ | 729,205 | | | $ | 685,848 | | | $ | 473,523 | | | $ | 1,888,576 | |
(1) Other includes: South America, Middle East, Australia and Africa.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Contract Balances
The timing of revenue recognition, billings and cash collections can result in customer receivables, advance payments or billings in excess of revenue recognized. Customer receivables include both 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. 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 invoice 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 amount less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for expected losses as a result of customers’ inability to make required payments. Management evaluates the aging of 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:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Billed receivables | $ | 266,074 | | | $ | 286,196 | |
| Unbilled receivables | 10,385 | | | 11,922 | |
| Total customer receivables | $ | 276,459 | | | $ | 298,118 | |
Advance payments, deposits 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 and the noncurrent portion is included in Other noncurrent liabilities on our Condensed Consolidated Balance Sheets. Advance payments or deposits 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. We generally receive advance payments from customers related to maintenance services which we recognize ratably over the service term. We also receive deposits from customers on certain orders which we recognize as revenue at a point in time. Billings in excess of revenue recognized represent contract liabilities and 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. Contract liabilities are derecognized when revenue is recognized and the performance obligation is satisfied.
The composition of Deferred revenue was as follows:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Deferred revenue - current | $ | 41,840 | | | $ | 17,633 | |
| Deferred revenue - noncurrent | 5,100 | | | 2,129 | |
| Total deferred revenue | $ | 46,940 | | | $ | 19,762 | |
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 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, certain performance obligations may not be separately identifiable from other performance obligations in the contract and, therefore, not distinct. As a result, 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
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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 product or service 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 95% of total revenues in both the three and nine months ended September 30, 2020 and 2019. 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 5% of total revenues in both the three and nine months ended September 30, 2020 and 2019. 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 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 incomplete contracts in the period in which such losses are determined.
The Company records allowances for discounts and product returns 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.
6. Earnings Per Common Share
Earnings per common share (“EPS”) areis 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, provides 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, earnings per common share areEPS was computed using the more dilutive of the treasury stock method and the two-class method prescribed by ASC 260.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Basic weighted average shares outstanding reconciles to diluted weighted average shares outstanding as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Basic weighted average common shares outstanding | 75,352 | | | 75,698 | | | 75,423 | | | 75,532 | |
| Dilutive effect of stock options, restricted stock and performance share units | 608 | | | 879 | | | 696 | | | 883 | |
| Diluted weighted average common shares outstanding | 75,960 | | | 76,577 | | | 76,119 | | | 76,415 | |
|
| | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Basic weighted average common shares outstanding | 76,309 |
| | 75,819 |
| | 76,215 |
| | 75,753 |
|
| Dilutive effect of stock options, restricted stock, and performance share units | 1,214 |
| | 1,061 |
| | 1,031 |
| | 989 |
|
| Diluted weighted average common shares outstanding | 77,523 |
| | 76,880 |
| | 77,246 |
| | 76,742 |
|
Options to purchase approximately zero and 0.10.3 million shares of common stock for each of the three months ended September 30, 20172020 and 2016, respectively,2019, and 0.4 million and 0.90.6 million shares of common stock for each of the nine months ended September 30, 20172020 and 2016,2019, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would behave been antidilutive.
5.7. Inventories
The components of inventories as of September 30, 20172020 and December 31, 20162019 were:
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Raw materials and component parts | $ | 187,244 | | | $ | 182,382 | |
| Work in process | 30,093 | | | 28,761 | |
| Finished goods | 85,073 | | | 82,324 | |
| Total inventories | $ | 302,410 | | | $ | 293,467 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Raw materials and component parts | $ | 170,677 |
| | $ | 154,278 |
|
| Work in process | 38,136 |
| | 34,832 |
|
| Finished goods | 57,892 |
| | 63,749 |
|
| Total | $ | 266,705 |
| | $ | 252,859 |
|
Inventories are stated at the lower of cost or net realizable value. Cost, which includes material, labor and factory overhead, is determined on a FIFOfirst in, first out basis.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
6.8. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2017,2020, by reportable business segment, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| FMT | | HST | | FSDP | | IDEX |
| Goodwill | $ | 599,646 | | | $ | 981,592 | | | $ | 399,138 | | | $ | 1,980,376 | |
| Accumulated goodwill impairment losses | (20,721) | | | (149,820) | | | (30,090) | | | (200,631) | |
| Balance at December 31, 2019 | 578,925 | | | 831,772 | | | 369,048 | | | 1,779,745 | |
| Foreign currency translation | 4,726 | | | 9,832 | | | 5,737 | | | 20,295 | |
| Acquisitions | 61,739 | | | 0 | | | 0 | | | 61,739 | |
| | | | | | | |
| Acquisition adjustments | 0 | | | 1,798 | | | 0 | | | 1,798 | |
| Balance at September 30, 2020 | $ | 645,390 | | | $ | 843,402 | | | $ | 374,785 | | | $ | 1,863,577 | |
|
| | | | | | | | | | | | | | | |
| | Fluid & Metering Technologies | | Health & Science Technologies | | Fire & Safety/ Diversified Products | | Total |
| Balance at December 31, 2016 | $ | 573,437 |
| | $ | 699,299 |
| | $ | 359,856 |
| | $ | 1,632,592 |
|
| Foreign currency translation | 14,295 |
| | 19,117 |
| | 16,185 |
| | 49,597 |
|
| Acquisition adjustments | — |
| | (2,421 | ) | | — |
| | (2,421 | ) |
| Balance at September 30, 2017 | $ | 587,732 |
| | $ | 715,995 |
| | $ | 376,041 |
| | $ | 1,679,768 |
|
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 nine months of 2017,2020, 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, 2016,2019, all reporting units had fair values in excess of their carrying values.
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 assetsasset at September 30, 20172020 and December 31, 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At September 30, 2020 | | | | At December 31, 2019 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted
Average
Life | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net |
| Amortized intangible assets: | | | | | | | | | | | | | |
| Patents | $ | 2,865 | | | $ | (1,668) | | | $ | 1,197 | | | 10 | | $ | 6,678 | | | $ | (5,276) | | | $ | 1,402 | |
| Trade names | 128,393 | | | (69,568) | | | 58,825 | | | 16 | | 123,062 | | | (64,938) | | | 58,124 | |
| Customer relationships | 313,977 | | | (115,815) | | | 198,162 | | | 13 | | 275,575 | | | (96,252) | | | 179,323 | |
| | | | | | | | | | | | | |
| Unpatented technology | 119,233 | | | (51,307) | | | 67,926 | | | 13 | | 101,721 | | | (43,561) | | | 58,160 | |
| Other | 700 | | | (630) | | | 70 | | | 10 | | 700 | | | (578) | | | 122 | |
| Total amortized intangible assets | 565,168 | | | (238,988) | | | 326,180 | | | | | 507,736 | | | (210,605) | | | 297,131 | |
| 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 | $ | 656,068 | | | $ | (238,988) | | | $ | 417,080 | | | | | $ | 598,636 | | | $ | (210,605) | | | $ | 388,031 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | At September 30, 2017 | | | | At December 31, 2016 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net | | Weighted Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| Amortized intangible assets: | | | | | | | | | | | | | |
| Patents | $ | 9,675 |
| | $ | (7,008 | ) | | $ | 2,667 |
| | 11 | | $ | 9,856 |
| | $ | (6,635 | ) | | $ | 3,221 |
|
| Trade names | 117,585 |
| | (49,474 | ) | | 68,111 |
| | 16 | | 113,428 |
| | (42,653 | ) | | 70,775 |
|
| Customer relationships | 309,693 |
| | (115,313 | ) | | 194,380 |
| | 13 | | 369,087 |
| | (161,065 | ) | | 208,022 |
|
| Unpatented technology | 88,065 |
| | (29,559 | ) | | 58,506 |
| | 13 | | 106,747 |
| | (44,516 | ) | | 62,231 |
|
| Other | 839 |
| | (550 | ) | | 289 |
| | 10 | | 6,527 |
| | (6,172 | ) | | 355 |
|
| Total amortized intangible assets | 525,857 |
| | (201,904 | ) | | 323,953 |
| | | | 605,645 |
| | (261,041 | ) | | 344,604 |
|
| 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 | $ | 616,757 |
| | $ | (201,904 | ) | | $ | 414,853 |
| | | | $ | 696,545 |
| | $ | (261,041 | ) | | $ | 435,504 |
|
The Banjo trade name is anand the Akron Brass trade name are indefinite-lived intangible assetassets which isare tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the assetassets might be impaired. In the first nine months of 2017,2020, there were no events or circumstances that would have required an interim impairment test. Basedtest on these indefinite-lived intangible assets. The Company uses the resultsrelief-from-royalty method, a form of our annual impairment test at October 31, 2016,the income approach, to determine the fair value of the Banjothese trade name was greater than 25% in excessnames. The relief-from-royalty method is dependent on a number of the carrying value.significant management assumptions, including estimates of revenues, royalty rates and discount rates.
The Akron Brass trade name is an indefinite-lived intangible asset that was acquired as a result of the Akron Brass acquisition in March 2016 and 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.
In the first nine months of 2017, there2020, the outbreak of the novel coronavirus (“COVID-19”) resulted in government lockdown mandates globally that forced us to both reduce hours and temporarily close some facilities. These events required that an interim impairment test be performed on the definite-lived intangible assets at one of the Company’s businesses. The impairment test did 0t result in an impairment charge.
In the second quarter of 2019, the Company began to evaluate strategic alternatives for one of its businesses in the HST segment. Prior to making a final decision on the options that were no events or circumstances that would havepresented for this business, the business was informed in the third quarter of 2019 of the loss of its largest customer. As a result, the Company accelerated its restructuring activities for this business and a decision was made to wind down the business over time. This event required an interim impairment test.test be performed on certain of its definite-lived intangible assets, which resulted in an impairment charge of $7.1 million, consisting of $6.1 million related to customer relationships and $1.0 million related to unpatented technology. This charge was recorded as Restructuring expense in the three and nine months ended September 30, 2019. See Note 15 for further discussion.
Amortization of intangible assets was $11.1 million and $31.1 million for the three and nine months ended September 30, 2020, respectively. Amortization of intangible assets was $9.7 million and $27.7 million for the three and nine months ended September 30, 2019, respectively. Based on the resultsintangible asset balances as of our annual impairment test at October 31, 2016,September 30, 2020, amortization expense is expected to approximate $10.8 million for the fair valueremaining three months of the Akron Brass trade name was near its carrying value as a result of the acquisition of this business2020, $42.2 million in March 2016.2021, $40.3 million in 2022, $37.6 million in 2023 and $35.8 million in 2024.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Amortization of intangible assets was $11.5 million and $35.4 million for the three and nine months ended September 30, 2017. Amortization of intangible assets was $12.8 million and $28.4 million for the three and nine months ended September 30, 2016. Based on the intangible asset balances as of September 30, 2017, amortization expense is expected to approximate $10.7 million for the remaining three months of 2017, $37.4 million in 2018, $34.2 million in 2019, $33.7 million in 2020 and $32.4 million in 2021.
7.9. Accrued Expenses
The components of accrued expenses as of September 30, 20172020 and December 31, 20162019 were:
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Payroll and related items | $ | 75,658 | | | $ | 77,556 | |
| Management incentive compensation | 10,945 | | | 14,408 | |
| Income taxes payable | 31,279 | | | 9,905 | |
| Insurance | 11,955 | | | 8,240 | |
| Warranty | 7,082 | | | 5,581 | |
| Deferred revenue | 41,840 | | | 17,633 | |
| Lease liability | 15,896 | | | 15,235 | |
| Restructuring | 4,026 | | | 6,110 | |
| Liability for uncertain tax positions | 0 | | | 890 | |
| Accrued interest | 12,774 | | | 1,735 | |
| Contingent consideration for acquisition | 0 | | | 3,375 | |
| Other | 25,482 | | | 19,622 | |
| Total accrued expenses | $ | 236,937 | | | $ | 180,290 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Payroll and related items | $ | 68,296 |
| | $ | 67,600 |
|
| Management incentive compensation | 20,547 |
| | 16,339 |
|
| Income taxes payable | 12,332 |
| | 8,808 |
|
| Insurance | 9,450 |
| | 9,416 |
|
| Warranty | 6,138 |
| | 5,628 |
|
| Deferred revenue | 13,055 |
| | 12,607 |
|
| Restructuring | 662 |
| | 3,893 |
|
| Liability for uncertain tax positions | 1,350 |
| | 1,366 |
|
| Accrued interest | 10,184 |
| | 1,663 |
|
| Other | 28,209 |
| | 25,532 |
|
| Total accrued expenses | $ | 170,223 |
| | $ | 152,852 |
|
8.10. Other Noncurrent Liabilities
The components of other noncurrent liabilities as of September 30, 20172020 and December 31, 20162019 were:
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Pension and retiree medical obligations | $ | 86,325 | | | $ | 87,478 | |
| Transition tax payable | 14,208 | | | 11,292 | |
| Liability for uncertain tax positions | 1,071 | | | 3,008 | |
| Deferred revenue | 5,100 | | | 2,129 | |
| | | |
| Lease liability | 93,507 | | | 69,928 | |
| | | |
| Other | 23,120 | | | 23,533 | |
| Total other noncurrent liabilities | $ | 223,331 | | | $ | 197,368 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Pension and retiree medical obligations | $ | 100,356 |
| | $ | 93,604 |
|
| Liability for uncertain tax positions | 1,507 |
| | 2,623 |
|
| Deferred revenue | 2,205 |
| | 2,442 |
|
| Other | 18,869 |
| | 22,561 |
|
| Total other noncurrent liabilities | $ | 122,937 |
| | $ | 121,230 |
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
9.11. Borrowings
Borrowings at September 30, 20172020 and December 31, 20162019 consisted of the following:
| | | | | | | | | | | |
| September 30,
2020 | | December 31,
2019 |
| Revolving Facility | $ | 0 | | | $ | 0 | |
| 4.50% Senior Notes, due December 2020 | 0 | | | 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 | |
| 3.00% Senior Notes, due May 2030 | 500,000 | | | 0 | |
| Other borrowings | 275 | | | 622 | |
| Total borrowings | 1,050,275 | | | 850,622 | |
| Less current portion | 150 | | | 388 | |
| Less deferred debt issuance costs | 5,019 | | | 983 | |
| Less unaccreted debt discount | 994 | | | 387 | |
| Total long-term borrowings | $ | 1,044,112 | | | $ | 848,864 | |
On April 29, 2020, the Company completed a public offering of $500.0 million in aggregate principal amount of 3.0% Senior Notes due 2030 (the “3.0% Senior Notes”). The net proceeds from the offering were approximately $494.4 million, after deducting the issuance discount of $0.9 million, the underwriting commission of $3.3 million and offering expenses of $1.4 million. The net proceeds were used to redeem and repay the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes due December 15, 2020 and the related accrued interest and a make-whole redemption premium, with the balance used for general corporate purposes. The 3.0% Senior Notes bear interest at a rate of 3.0% per annum, which is payable semi-annually in arrears on May 1 and November 1 of each year. The 3.0% Senior Notes mature on May 1, 2030.
The Company may redeem all or a portion of the 3.0% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture (“Indenture”) governing the 3.0% Senior Notes. The Indenture and 3.0% Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of the Company’s assets. The terms of the 3.0% Senior Notes also require the Company to make an offer to repurchase the 3.0% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any. The Indenture also provides for customary events of default, which include nonpayment, breach of covenants in the Indenture and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the Trustee or holders of at least 25% of the then outstanding 3.0% Senior Notes may declare the principal amount of all of the 3.0% Senior Notes to be due and payable immediately.
On April 27, 2020, the Company provided notice of its election to redeem early, on May 27, 2020, the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes at a redemption price of $300.0 million plus a make-whole redemption premium of $6.8 million and accrued and unpaid interest of $6.1 million using proceeds from the Company’s 3.0% Senior Notes. In addition, the Company recognized the remaining $1.4 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity related to the interest rate exchange agreement associated with the 4.5% Senior Notes and wrote off the remaining $0.1 million of deferred issuance costs and $0.1 million of the debt issuance discount associated with the 4.5% Senior Notes for a total loss on early debt redemption of $8.4 million which was recorded within Other (income) expense - net in the Condensed Consolidated Statements of Operations.
On May 31, 2019, 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 replaced the Company’s prior five-year, $700 million credit agreement, dated as of June 23, 2015, which was due to expire in June 2020.
Terms and fees of the Credit Agreement are essentially the same as the prior credit agreement except for certain fees and interest rate pricing that are more favorable to the Company.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Revolving Facility | $ | 29,415 |
| | $ | 169,579 |
|
| 4.5% Senior Notes, due December 2020 | 300,000 |
| | 300,000 |
|
| 4.2% Senior Notes, due December 2021 | 350,000 |
| | 350,000 |
|
| 3.2% Senior Notes, due June 2023 | 100,000 |
|
| 100,000 |
|
| 3.37% Senior Notes, due June 2025 | 100,000 |
|
| 100,000 |
|
| Other borrowings | 388 |
| | 1,294 |
|
| Total borrowings | 879,803 |
| | 1,020,873 |
|
| Less current portion | 347 |
| | 1,046 |
|
| Less deferred debt issuance costs | 3,602 |
| | 4,399 |
|
| Less unaccreted debt discount | 1,001 |
| | 1,193 |
|
| Total long-term borrowings | $ | 874,853 |
| | $ | 1,014,235 |
|
The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $800 million with a final maturity date of May 31, 2024. 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 from 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 $400 million. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation, the Company is required to guarantee the obligations of any such subsidiaries under the Credit Agreement.
Borrowings under the Credit Agreement bear interest, at either an alternate base rate or adjusted LIBOR plus, in each case, an applicable margin. Such applicable margin is based on the lower of the Company’s senior, unsecured, long-term debt rating or the Company’s applicable leverage ratio and can range from 0.00% to 1.275%. Based on the Company’s leverage ratio at September 30, 2020, the applicable margin was 1.00% resulting in a weighted average interest rate of 1.23% for the nine months ended September 30, 2020. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR loans, on the last day of the applicable interest period selected, or every three months from the effective date of such interest period for interest periods exceeding three months.
The Credit Agreement requires payment to the lenders of a facility fee based upon the amount of the lenders’ commitments under the credit facility from time to time, determined based on the lower of the Company’s senior, unsecured long-term debt rating or the Company’s applicable leverage ratio. Voluntary prepayments of any loans and voluntary reductions of the unutilized portion of the commitments under the Credit Agreement are permissible without penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.
The Credit Agreement contains customary affirmative and negative covenants for senior unsecured credit agreements, including an interest coverage ratio test and a leverage ratio test, in each case tested quarterly and, in the case of the leverage ratio, with an option to increase the ratio for 12 months in connection with certain acquisitions. The negative covenants include restrictions on the Company’s 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), make certain subsidiary dividends or distributions, engage in materially different lines of businesses and allow subsidiaries to incur certain additional debt.
The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate).
At September 30, 2020, there was 0 balance outstanding under the Revolving Facility and $7.0 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility at September 30, 2020 of approximately $793.0 million.
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;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
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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,December 9, 2011, the Company entered intocompleted a credit agreement (the “Credit Agreement”) along with certainpublic offering of its subsidiaries, as borrowers (the “Borrowers”$350.0 million 4.2% senior notes due December 15, 2021 (“4.2% Senior Notes”), Bank. The net proceeds from the offering of America, N.A., as administrative agent, swing line lender$346.2 million, after deducting a $0.9 million issuance discount, a $2.3 million underwriting commission and an issuer of letters of credit, with other agents party thereto. The Credit Agreement replaced 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$0.6 million of the Revolving Facility is available for the issuance of letters of credit. Additionally, upoffering expenses, were used to $50repay $306.0 million of outstanding bank indebtedness, with the Revolving Facility is available to the Companybalance used 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 debtpurposes. The 4.2% Senior Notes bear interest at a rate of the Company4.2% per annum, which is payable semi-annually in arrears on each June 15th and its subsidiaries.December 15th. The Company may request increases inredeem all or a portion of the lending commitments under4.2% Senior Notes at any time prior to maturity at 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 conditionsredemption prices set forth in the Credit Agreement, to designate certain foreign subsidiaries ofNote Indenture governing the 4.2% Senior Notes. 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.
IDEX CORPORATION AND SUBSIDIARIES
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-termmay issue additional debt rating and can range from .005% to 1.50%. Based on the Company’s credit rating at September 30, 2017, the applicable margin was 1.10%, resulting in a weighted average interest rate of 1.12% at September 30, 2017. 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 pursuant to the Indenture. The Indenture and (b)4.2% Senior Notes contain covenants that limit 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, subjectCompany’s ability 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;incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into transactions resulting in fundamental changes (such ascertain consolidations, mergers, conveyances, transfers or salesleases of all or substantially all of the assetsCompany’s assets. The terms 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 Agreement4.2% Senior Notes 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 againstrequire the Company or anyto make an offer to repurchase the 4.2% Senior Notes upon a change of its subsidiaries; certain specified events undercontrol triggering event (as defined in the Employee Retirement Income Security ActIndenture) at a price equal to 101% of 1974, as amended; certain changes in control of the Company;their principal amount plus accrued and the invalidity or unenforceability of the Credit Agreement or other documents associated with the Credit Agreement.unpaid interest, if any.
At September 30, 2017, $29.4 million was outstanding under the Revolving Facility, with $8.3 million of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at September 30, 2017 of approximately $662.3 million.
There are two2 key financial covenants that the Company is required to maintain in connection with the Revolving Facility and the Notes,Notes: a minimum interest coverage ratio of 3.03.00 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.earnings before interest, income taxes, depreciation and amortization (“EBITDA”). In the case of the leverage ratio under the Revolving Facility, there is an option to increase the ratio to 4.00 for 12 months in connection with certain acquisitions. At September 30, 2017,2020, the Company was in compliance with both of these financial covenants. There are no financial covenants relating to the 4.5%3.0% Senior Notes or 4.2% Senior Notes; however, both are subject to cross-default provisions.
10.12. 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 typetypes of cash flow hedges the Company enters into includesinclude foreign currency exchange contracts anddesigned to minimize the earnings impact on certain intercompany loans as well as interest rate exchange contracts that effectively convert a portion of floating-rate debt to fixed-rate debt and areagreements designed to reduce the impact of interest rate changes on future interest expense.expense that effectively convert a portion of floating-rate debt to fixed-rate debt.
The effective portion of gains or losses on interest rate exchange contractsagreements is reported in Accumulatedaccumulated other comprehensive income (loss) in Shareholders’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 intoin net income during the period of change. See Note 1316 for the amount of loss reclassified into net income for interest rate contracts for the three and nine months ended September 30, 20172020 and 2016.2019. As of September 30, 2017,2020, the Company did not have any interest rate contracts outstanding.
In 2010 and 2011, the Company entered into two2 separate forward starting interest rate contractsexchange 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 termterms of the respective debt instruments. Approximately $6.5$3.4 million of the pre-tax amount included in accumulatedAccumulated other comprehensive income (loss) in shareholders’ equity at September 30, 2017,2020 related to the 4.2% Senior Notes will be recognized intoin net income over the next 12 months as the underlying hedged transactions aretransaction is realized.
At In conjunction with the early redemption of the 4.5% Senior Notes on May 27, 2020, the Company accelerated the recognition of the remaining $1.4 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity related to the 4.5% Senior Notes and recorded such as Other (income) expense - net during the nine months ended September 30, 2017,2020 in the Company had outstanding foreign currency exchange contracts with a combined notional valueCondensed Consolidated Statements of €180 million that have not been designated as hedges for accounting purposes. These contracts are used to minimize the earnings impact due to foreign currency fluctuations between the Swiss Franc and the Euro associated with certain intercompany loans thatOperations.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
were established in conjunction with the SFC Koenig acquisition. The change in the fair value of the foreign currency exchange contracts and the corresponding foreign currency gain or loss on the revaluation of the intercompany loans are both recorded through earnings each period as incurred within other (income) expense in the Condensed Consolidated Statements of Operations.
During the three and nine months ended September 30, 2017, the Company recorded a gain of $9.3 million and $14.8 million, respectively, within other (income) expense related to these foreign currency exchange contracts. During the three and nine months ended September 30, 2017, the Company recorded a foreign currency transaction loss of $10.0 million and $15.2 million, respectively, within other (income) expense related to these intercompany loans.
The foreign currency exchange contracts are settled in cash approximately every 90 days, with the proceeds recorded within Financing Activities on the Condensed Statement of Cash Flows. The non-cash impact associated with the change in the amount receivable from or payable to the counter parties is recorded within Operating Activities on the Condensed Statement of Cash Flows until such time as the foreign currency exchange contracts are settled in cash. For the three and nine months ended September 30, 2017, the Company received zero and $4.4 million in settlement of the foreign currency exchange contracts. The Company received $9.5 million on October 4, 2017 in settlement of the foreign currency exchange contracts outstanding as of September 30, 2017.
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. The following table sets forth the fair value amounts of derivative instruments held by the Company as of September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | |
| | | Fair Value Assets (Liabilities) | | |
| | | September 30, 2017 | | December 31, 2016 | | Balance Sheet Caption |
| | | (In thousands) | | |
| Foreign currency exchange contracts | | $ | 10,351 |
| | $ | — |
| | Other current assets |
11.13. 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 (liabilities) at fair value on a recurring basis in the balance sheets at September 30, 20172020 and December 31, 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Basis of Fair Value Measurements |
| | Balance at September 30, 2020 | | Level 1 | | Level 2 | | Level 3 |
| Available for sale securities | $ | 12,136 | | | $ | 12,136 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Basis of Fair Value Measurements |
| | Balance at December 31, 2019 | | Level 1 | | Level 2 | | Level 3 |
| Available for sale securities | $ | 10,462 | | | $ | 10,462 | | | $ | 0 | | | $ | 0 | |
| Contingent consideration | 3,375 | | | 0 | | | 0 | | | 3,375 | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Basis of Fair Value Measurements |
| | Balance at
September 30, 2017 | | Level 1 | | Level 2 | | Level 3 |
| Available for sale securities | $ | 6,268 |
| | $ | 6,268 |
| | $ | — |
| | $ | — |
|
| Foreign currency exchange contracts | 10,351 |
| | — |
| | 10,351 |
| | — |
|
|
| | | | | | | | | | | | | | | |
| | Basis of Fair Value Measurements |
| | Balance at
December 31, 2016 | | Level 1 | | Level 2 | | Level 3 |
| Available for sale securities | $ | 5,369 |
| | $ | 5,369 |
| | $ | — |
| | $ | — |
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
There were no transfers of assets or liabilities between Level 1 and Level 2 during the three and nine months ended September 30, 20172020 or the year ended December 31, 2016.2019.
As of December 31, 2019, the Company utilized a Monte Carlo simulation to determine the fair value of the contingent consideration associated with the acquisition of Finger Lakes Instrumentation as of the acquisition date. In March 2020, the Company and the seller reached an agreement to settle the contingency for $3.0 million, which was paid in April 2020.
The carrying valuevalues of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximatesapproximate their fair values because of the short term nature of these instruments. At September 30, 2017,2020, the fair value of the outstanding indebtedness under our Revolving Facility,3.0% Senior Notes, 3.2% Senior Notes, 3.37% Senior Notes, 4.5%4.2% Senior Notes and 4.2% Senior Notes,other borrowings based on quoted market prices and current market rates for debt with similar credit risk and maturity was approximately $910.8$1,136.3 million compared to the carrying value of $878.4$1,049.3 million. ThisAt December 31, 2019, the fair value measurement isof 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 $876.0 million compared to the carrying value of $850.2 million. These fair value measurements are classified as Level 2 within the fair value hierarchy since it isthey 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.
12.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
14. 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 1 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 September 30, 2020 and December 31, 2019 was as follows:
| | | | | | | | | | | | | | |
| Balance Sheet Caption | September 30, 2020 | | December 31, 2019 |
| Operating leases: | | | | |
| Building right-of-use assets - net | Other noncurrent assets | $ | 100,904 | | | $ | 75,381 | |
| Equipment right-of-use assets - net | Other noncurrent assets | 5,431 | | | 6,993 | |
| Total right-of-use assets - net | | $ | 106,335 | | | $ | 82,374 | |
| Operating leases: | | | | |
| Current lease liabilities | Accrued expenses | $ | 15,896 | | | $ | 15,235 | |
| Noncurrent lease liabilities | Other noncurrent liabilities | 93,507 | | | 69,928 | |
| Total lease liabilities | | $ | 109,403 | | | $ | 85,163 | |
In the second quarter of 2019, the Company began to evaluate strategic alternatives for one of its businesses in the HST segment. Prior to making a final decision on the options that were presented for this business, the business was informed in the third quarter of 2019 of the loss of its largest customer. As a result, the Company accelerated its restructuring activities for this business and a decision was made to wind down the business over time. This event required an interim impairment test be performed on its long-lived assets, which resulted in an impairment charge of $0.6 million related to its building right-of-use asset. This charge was recorded as Restructuring expense in the Condensed Consolidated Statements of Operations. See Note 15 for further discussion.
The components of lease cost for the three and nine months ended September 30, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Operating lease cost (1) | $ | 7,349 | | | $ | 4,817 | | | $ | 19,663 | | | $ | 16,387 | |
| Variable lease cost | 426 | | | 436 | | | 1,380 | | | 1,654 | |
| Total lease expense | $ | 7,775 | | | $ | 5,253 | | | $ | 21,043 | | | $ | 18,041 | |
(1) Includes short-term leases.
Supplemental cash flow information related to leases for the nine months ended September 30, 2020 and 2019 was as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 19,198 | | | $ | 15,813 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | 36,707 | | | 6,899 | |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Other supplemental information related to leases as of September 30, 2020 and December 31, 2019 was as follows:
| | | | | | | | | | | | | |
| Lease Term and Discount Rate | September 30, 2020 | | December 31, 2019 | | |
| Weighted-average remaining lease term (years): | | | | | |
| Operating leases - building and equipment | 9.65 | | 9.61 | | |
| Operating leases - vehicles | 2.01 | | 1.92 | | |
| Weighted-average discount rate: | | | | | |
| Operating leases - building and equipment | 3.57 | % | | 4.08 | % | | |
| Operating leases - vehicles | 2.51 | % | | 2.99 | % | | |
The Company uses its incremental borrowing rate to determine the present value of the lease payments.
Total lease liabilities at September 30, 2020 have scheduled maturities as follows:
| | | | | |
| Maturity of Lease Liabilities | Operating Leases (1) |
| 2020 (excluding the nine months ended September 30, 2020) | $ | 5,080 | |
| 2021 | 18,593 | |
| 2022 | 15,863 | |
| 2023 | 13,195 | |
| 2024 | 11,289 | |
| Thereafter | 67,451 | |
| Total lease payments | 131,471 | |
| Less: Imputed interest | (22,068) | |
| Present value of lease liabilities | $ | 109,403 | |
(1) Excludes $0.2 million of legally binding minimum lease payments for leases signed but not yet commenced.
Total lease liabilities at December 31, 2019 had scheduled maturities as follows:
| | | | | |
| Maturity of Lease Liabilities | Operating Leases |
| 2020 | $ | 18,449 | |
| 2021 | 15,070 | |
| 2022 | 10,647 | |
| 2023 | 8,894 | |
| 2024 | 7,037 | |
| Thereafter | 44,284 | |
| Total lease payments | 104,381 | |
| Less: Imputed interest | (19,218) | |
| Present value of lease liabilities | $ | 85,163 | |
15. Restructuring
During the first quarter of 2017,year ended December 31, 2019 and the three and nine months ended September 30, 2020, the Company recorded accruals for restructuring costs of $4.8 million as part of the 2016 restructuring initiatives that support the implementation of key strategic efforts designedincurred to facilitate long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions and facility rationalization. The restructuringRestructuring costs includedinclude severance benefits, for 97 employees. Theexit costs incurred related to these initiatives wereand asset impairment charges and are included in Restructuring expenses in the Condensed Consolidated Statements of Operations while the related accruals were included in Accrued expenses in the Condensed Consolidated Balance Sheets.Operations. Severance costs primarily consistedconsist of severance benefits through payroll continuation, COBRA subsidies, outplacement services,
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
conditional separation costs and employer tax liabilities, while exit costs primarily consistedconsist of lease exit and contract termination costs.
In the second quarter of 2019, the Company began to evaluate strategic alternatives for one of its businesses in the HST segment. Prior to making a final decision on the options that were presented for this business, the business was informed in the third quarter of 2019 of the loss of its largest customer. As a result, the Company accelerated its restructuring activities for this business and a decision was made to wind down the business over time. This event required an interim impairment test be performed on the long-lived tangible and intangible assets of the business, which resulted in an impairment charge of $9.7 million, consisting of $6.1 million related to a customer relationships intangible asset, disposals or impairments.$1.0 million related to an unpatented technology intangible asset, $2.0 million related to property, plant and equipment and $0.6 million related to a building right-of-use asset. This charge was recorded as Restructuring expense in the Condensed Consolidated Statements of Operations.
Pre-tax restructuring expenses by segment for the three and nine months ended September 30, 2017 are2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
| | Severance Costs | | Exit Costs | | Asset Impairment | | Total |
| Fluid & Metering Technologies | | $ | 500 | | | $ | 0 | | | $ | 85 | | | $ | 585 | |
| Health & Science Technologies | | 978 | | | 0 | | | 0 | | | 978 | |
| Fire & Safety/Diversified Products | | 1,249 | | | 0 | | | 0 | | | 1,249 | |
| Corporate/Other | | 105 | | | 0 | | | 0 | | | 105 | |
| Total restructuring costs | | $ | 2,832 | | | $ | 0 | | | $ | 85 | | | $ | 2,917 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 |
| | Severance Costs | | Exit Costs | | Asset Impairment | | Total |
| Fluid & Metering Technologies | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Health & Science Technologies | | 1,164 | | | 352 | | | 9,680 | | | 11,196 | |
| Fire & Safety/Diversified Products | | 104 | | | 0 | | | 0 | | | 104 | |
| Corporate/Other | | 656 | | | 0 | | | 0 | | | 656 | |
| Total restructuring costs | | $ | 1,924 | | | $ | 352 | | | $ | 9,680 | | | $ | 11,956 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
| | Severance Costs | | Exit Costs | | Asset Impairment | | Total |
| Fluid & Metering Technologies | | $ | 2,348 | | | $ | 0 | | | $ | 85 | | | $ | 2,433 | |
| Health & Science Technologies | | 2,162 | | | 0 | | | 0 | | | 2,162 | |
| Fire & Safety/Diversified Products | | 1,890 | | | 0 | | | 0 | | | 1,890 | |
| Corporate/Other | | 273 | | | 0 | | | 0 | | | 273 | |
| Total restructuring costs | | $ | 6,673 | | | $ | 0 | | | $ | 85 | | | $ | 6,758 | |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
| | | | | Severance Costs | | Exit Costs | | Total | | Nine Months Ended September 30, 2019 |
| | | (In thousands) | | Severance Costs | | Exit Costs | | Asset Impairment | | Total |
| Fluid & Metering Technologies | | $ | 1,566 |
| | $ | — |
| | $ | 1,566 |
| Fluid & Metering Technologies | | $ | 930 | | | $ | 0 | | | $ | 0 | | | $ | 930 | |
| Health & Science Technologies | | 2,470 |
| | 558 |
| | 3,028 |
| Health & Science Technologies | | 1,210 | | | 636 | | | 9,680 | | | 11,526 | |
| Fire & Safety/Diversified Products | | 73 |
| | — |
| | 73 |
| Fire & Safety/Diversified Products | | 923 | | | 0 | | | 0 | | | 923 | |
| Corporate/Other | | 130 |
| | — |
| | 130 |
| Corporate/Other | | 703 | | | 0 | | | 0 | | | 703 | |
| Total restructuring costs | | $ | 4,239 |
| | $ | 558 |
| | $ | 4,797 |
| Total restructuring costs | | $ | 3,766 | | | $ | 636 | | | $ | 9,680 | | | $ | 14,082 | |
Restructuring accruals of $0.7$4.0 million and $3.9$6.1 million at September 30, 20172020 and December 31, 2016,2019, respectively, are recordedreflected in Accrued expenses inon 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 nine months ended September 30, 20172020 are as follows:
| | | | | |
| Restructuring |
| Balance at January 1, 2020 | $ | 6,110 | |
| Restructuring expenses | 6,758 | |
| Payments, utilization and other | (8,842) | |
| Balance at September 30, 2020 | $ | 4,026 | |
|
| | | | |
| | | Restructuring |
| | | (In thousands) |
| Balance at January 1, 2017 | | $ | 3,893 |
|
| Restructuring expenses | | 4,797 |
|
| Payments, utilization and other | | (8,028 | ) |
| Balance at September 30, 2017 | | $ | 662 |
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
13.16. Other Comprehensive Income (Loss)
The components of otherOther comprehensive income (loss) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 |
| | Pre-tax | | Tax | | Net of tax | | Pre-tax | | Tax | | Net of tax |
| Cumulative translation adjustment | $ | 47,343 | | | $ | 0 | | | $ | 47,343 | | | $ | (37,825) | | | $ | 0 | | | $ | (37,825) | |
| Pension and other postretirement adjustments | 462 | | | (171) | | | 291 | | | 2,188 | | | (525) | | | 1,663 | |
| Reclassification adjustments for derivatives | 869 | | | (197) | | | 672 | | | 1,566 | | | (356) | | | 1,210 | |
| Total other comprehensive income (loss) | $ | 48,674 | | | $ | (368) | | | $ | 48,306 | | | $ | (34,071) | | | $ | (881) | | | $ | (34,952) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2017 | | Three Months Ended
September 30, 2016 | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
| | Pre-tax | | Tax | | Net of tax | | Pre-tax | | Tax | | Net of tax | | Pre-tax | | Tax | | Net of tax | | Pre-tax | | Tax | | Net of tax |
| Cumulative translation adjustment | $ | 28,796 |
| | $ | — |
| | $ | 28,796 |
| | $ | 4,611 |
| | $ | — |
| | $ | 4,611 |
| Cumulative translation adjustment | $ | 40,158 | | | $ | 0 | | | $ | 40,158 | | | $ | (38,478) | | | $ | 0 | | | $ | (38,478) | |
| Pension and other postretirement adjustments | 2,075 |
| | (607 | ) | | 1,468 |
| | 915 |
| | (321 | ) | | 594 |
| Pension and other postretirement adjustments | 2,767 | | | (811) | | | 1,956 | | | 5,579 | | | (1,398) | | | 4,181 | |
| Reclassification adjustments for derivatives | 1,681 |
| | (627 | ) | | 1,054 |
| | 1,701 |
| | (619 | ) | | 1,082 |
| Reclassification adjustments for derivatives | 5,153 | | | (1,171) | | | 3,982 | | | 4,737 | | | (1,076) | | | 3,661 | |
| Total other comprehensive income (loss) | $ | 32,552 |
| | $ | (1,234 | ) | | $ | 31,318 |
| | $ | 7,227 |
| | $ | (940 | ) | | $ | 6,287 |
| Total other comprehensive income (loss) | $ | 48,078 | | | $ | (1,982) | | | $ | 46,096 | | | $ | (28,162) | | | $ | (2,474) | | | $ | (30,636) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2016 |
| | Pre-tax | | Tax | | Net of tax | | Pre-tax | | Tax | | Net of tax |
| Cumulative translation adjustment | $ | 97,160 |
| | $ | — |
| | $ | 97,160 |
| | $ | (6,215 | ) | | $ | — |
| | $ | (6,215 | ) |
| Pension and other postretirement adjustments | 5,625 |
| | (1,753 | ) | | 3,872 |
| | 2,820 |
| | (964 | ) | | 1,856 |
|
| Reclassification adjustments for derivatives | 5,004 |
| | (1,845 | ) | | 3,159 |
| | 5,144 |
| | (1,872 | ) | | 3,272 |
|
| Total other comprehensive income (loss) | $ | 107,789 |
| | $ | (3,598 | ) | | $ | 104,191 |
| | $ | 1,749 |
| | $ | (2,836 | ) | | $ | (1,087 | ) |
The following table summarizes the amounts reclassified from accumulated other comprehensive income (loss) to net income during the three and nine months ended September 30, 20172020 and 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | Income Statement Caption |
| Pension and other postretirement plans: | | | | | | | | |
| Amortization of net (gain) loss | $ | 462 | | | $ | 2,188 | | | $ | 2,767 | | | $ | 5,579 | | Other (income) expense - net |
| Total before tax | 462 | | | 2,188 | | | 2,767 | | | 5,579 | | |
| Provision for income taxes | (171) | | | (525) | | | (811) | | | (1,398) | | |
| Total net of tax | $ | 291 | | | $ | 1,663 | | | $ | 1,956 | | | $ | 4,181 | | |
| Derivatives: | | | | | | | | |
| Reclassification adjustments | $ | 869 | | | $ | 1,566 | | | $ | 5,153 | | | $ | 4,737 | | Interest expense, Other (income) expense -net |
| Total before tax | 869 | | | 1,566 | | | 5,153 | | | 4,737 | | |
| Provision for income taxes | (197) | | | (356) | | | (1,171) | | | (1,076) | | |
| Total net of tax | $ | 672 | | | $ | 1,210 | | | $ | 3,982 | | | $ | 3,661 | | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| | 2017 | | 2016 | | 2017 | | 2016 | |
| Pension and other postretirement plans | | | | | | | | |
| Amortization of service cost | $ | 2,075 |
| | $ | 915 |
| | $ | 5,625 |
| | $ | 2,820 |
| |
| Total before tax | 2,075 |
| | 915 |
| | 5,625 |
| | 2,820 |
| |
| Provision for income taxes | (607 | ) | | (321 | ) | | (1,753 | ) | | (964 | ) | |
| Total net of tax | $ | 1,468 |
| | $ | 594 |
| | $ | 3,872 |
| | $ | 1,856 |
| |
| Derivatives | | | | | | | | |
| Reclassification adjustments | $ | 1,681 |
| | $ | 1,701 |
| | $ | 5,004 |
| | $ | 5,144 |
| |
| Total before tax | 1,681 |
| | 1,701 |
| | 5,004 |
| | 5,144 |
| |
| Provision for income taxes | (627 | ) | | (619 | ) | | (1,845 | ) | | (1,872 | ) | |
| Total net of tax | $ | 1,054 |
| | $ | 1,082 |
| | $ | 3,159 |
| | $ | 3,272 |
| |
The Company recognizes the service cost component in both Selling, general and administrative expenses and Cost of sales, depending on the functional area of the underlying employees included in the plans.
14.17. Common and Preferred Stock
On December 1, 2015,March 17, 2020, the Company’s Board of Directors approved a $300.0an increase of $500.0 million increase in the authorized level forof repurchases of common stock. This approval is in addition to the prior repurchase authorizations of the Board of Directors of $300.0 million on December 1, 2015 and $400.0 million 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 nine months ended September 30, 2017,2020, the Company purchasedrepurchased a total of 222876 thousand shares at a cost of $23.6 million, of which $1.0 million was settled in October 2017.$110.3 million. During the nine months ended September 30, 2016,2019, the Company purchasedrepurchased a total of 739389 thousand shares at a cost of $55.0$54.7 million. As of September 30, 2017,2020, the amount of share repurchase authorizationauthorizations remaining is $556.4was $712.0 million.
At September 30, 20172020 and December 31, 2016,2019, the Company had 150 million shares of authorized common stock, with a par value of $.01$.01 per share, and 5 million shares of authorized preferred stock, with a par value of $.01$.01 per share. NoNaN preferred stock was outstanding at September 30, 20172020 or December 31, 2016.2019.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
15.18. Share-Based Compensation
The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Board of Directors based on the recommendation from the Compensation Committee.
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 September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Weighted average fair value of grants | $31.60 | | $27.72 | | $34.22 | | $35.15 |
| Dividend yield | 1.18% | | 1.27% | | 1.15% | | 1.18% |
| Volatility | 23.71% | | 22.33% | | 22.04% | | 24.78% |
| Risk-free interest rate | 0.14% - 0.70% | | 1.75% - 1.77% | | 1.40% - 1.66% | | 2.53% - 3.04% |
| Expected life (in years) | 5.81 | | 4.65 | | 5.80 | | 5.87 |
|
| | | | | | | |
| | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Weighted average fair value of option grants | $30.46 | | $21.88 | | $24.17 | | $18.47 |
| Dividend yield | 1.27% | | 1.53% | | 1.45% | | 1.69% |
| Volatility | 29.35% | | 29.60% | | 29.41% | | 29.71% |
| Risk-free forward interest rate | 1.24% - 2.80% | | 0.51% - 2.01% | | 0.83% - 3.04% | | 0.53% - 2.50% |
| Expected life (in years) | 5.83 | | 5.91 | | 5.83 | | 5.91 |
Total compensation cost for stock options is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Cost of goods sold | $ | 107 | | | $ | 74 | | | $ | 389 | | | $ | 356 | |
| Selling, general and administrative expenses | 2,177 | | | 2,137 | | | 7,449 | | | 6,663 | |
| Total expense before income taxes | 2,284 | | | 2,211 | | | 7,838 | | | 7,019 | |
| Income tax benefit | (216) | | | (288) | | | (801) | | | (940) | |
| Total expense after income taxes | $ | 2,068 | | | $ | 1,923 | | | $ | 7,037 | | | $ | 6,079 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Cost of goods sold | $ | 67 |
| | $ | 92 |
| | $ | 341 |
| | $ | 354 |
|
| Selling, general and administrative expenses | 1,721 |
| | 1,278 |
| | 5,604 |
| | 5,084 |
|
| Total expense before income taxes | 1,788 |
| | 1,370 |
| | 5,945 |
| | 5,438 |
|
| Income tax benefit | (593 | ) | | (441 | ) | | (1,887 | ) | | (1,727 | ) |
| Total expense after income taxes | $ | 1,195 |
| | $ | 929 |
| | $ | 4,058 |
| | $ | 3,711 |
|
A summary of the Company’s stock option activity as of September 30, 2017,2020 and changes during the nine months ended September 30, 2017,2020 are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | Shares | | Weighted
Average
Price | | Weighted-Average
Remaining
Contractual Term | | Aggregate
Intrinsic
Value |
| Outstanding at January 1, 2020 | 1,386,539 | | | $ | 103.58 | | | 6.95 | | $ | 94,764,140 | |
| Granted | 351,780 | | | 172.87 | | | | | |
| Exercised | (364,063) | | | 78.91 | | | | | |
| Forfeited | (61,511) | | | 142.11 | | | | | |
| Outstanding at September 30, 2020 | 1,312,745 | | | $ | 127.20 | | | 7.30 | | $ | 72,470,296 | |
| Vested and expected to vest as of September 30, 2020 | 1,231,073 | | | $ | 125.14 | | | 7.20 | | $ | 70,508,425 | |
| Exercisable at September 30, 2020 | 570,901 | | | $ | 96.07 | | | 5.75 | | $ | 49,295,129 | |
|
| | | | | | | | | | | | |
| Stock Options | Shares | | Weighted Average Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2017 | 1,987,946 |
| | $ | 61.83 |
| | 6.84 | | $ | 56,144,876 |
|
| Granted | 440,825 |
| | 93.40 |
| | | | |
| Exercised | (360,986 | ) | | 52.58 |
| | | | |
| Forfeited | (47,046 | ) | | 78.67 |
| | | | |
| Outstanding at September 30, 2017 | 2,020,739 |
| | $ | 69.98 |
| | 6.99 | | $ | 104,045,261 |
|
| Vested and expected to vest as of September 30, 2017 | 1,897,772 |
| | $ | 69.00 |
| | 6.88 | | $ | 99,579,316 |
|
| Exercisable at September 30, 2017 | 968,929 |
| | $ | 55.72 |
| | 5.35 | | $ | 63,709,269 |
|
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 September 30, 2017,2020 and changes during the nine months ended September 30, 2017,2020 are presented as follows:
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
| | | | | | | | | | | |
| Restricted Stock | Shares | | Weighted-Average
Grant Date Fair
Value |
| Unvested at January 1, 2020 | 130,248 | | | $ | 124.61 | |
| Granted | 38,795 | | | 168.28 | |
| Vested | (39,578) | | | 95.17 | |
| Forfeited | (16,435) | | | 140.96 | |
| Unvested at September 30, 2020 | 113,030 | | | $ | 147.08 | |
|
| | | | | | |
| Restricted Stock | Shares | | Weighted-Average
Grant Date Fair
Value |
| Unvested at January 1, 2017 | 217,898 |
| | $ | 76.19 |
|
| Granted | 59,010 |
| | 93.59 |
|
| Vested | (75,099 | ) | | 72.15 |
|
| Forfeited | (10,280 | ) | | 79.19 |
|
| Unvested at September 30, 2017 | 191,529 |
| | $ | 82.97 |
|
Dividends are paid on restricted stock awards whoseand their fair value is equal to the market price of the Company’s stock at the date of the grant.
Total compensation cost for restricted sharesstock awards is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Cost of goods sold | $ | 69 | | | $ | (10) | | | $ | 255 | | | $ | 192 | |
| Selling, general and administrative expenses | 963 | | | 1,094 | | | 2,809 | | | 3,419 | |
| Total expense before income taxes | 1,032 | | | 1,084 | | | 3,064 | | | 3,611 | |
| Income tax benefit | (217) | | | (204) | | | (643) | | | (684) | |
| Total expense after income taxes | $ | 815 | | | $ | 880 | | | $ | 2,421 | | | $ | 2,927 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Cost of goods sold | $ | 46 |
| | $ | 64 |
| | $ | 265 |
| | $ | 325 |
|
| Selling, general and administrative expenses | 1,163 |
| | 751 |
| | 3,722 |
| | 3,249 |
|
| Total expense before income taxes | 1,209 |
| | 815 |
| | 3,987 |
| | 3,574 |
|
| Income tax benefit | (370 | ) | | (216 | ) | | (1,295 | ) | | (1,053 | ) |
| Total expense after income taxes | $ | 839 |
| | $ | 599 |
| | $ | 2,692 |
| | $ | 2,521 |
|
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. Cash-settled restricted stock awards are recorded at fair value on a quarterly basis using the market price of the Company’s stock on the last day of the quarter. A summary of the Company’s unvested cash-settled restricted stock activity as of September 30, 2017,2020 and changes during the nine months ended September 30, 2017,2020 are presented in the following table:
| | | | | | | | | | | |
| Cash-Settled Restricted Stock | Shares | | Weighted-Average
Fair Value |
| Unvested at January 1, 2020 | 74,560 | | | $ | 172.08 | |
| Granted | 20,670 | | | 173.21 | |
| Vested | (24,810) | | | 172.98 | |
| Forfeited | (5,020) | | | 182.41 | |
| Unvested at September 30, 2020 | 65,400 | | | $ | 182.41 | |
|
| | | | | | |
| Cash-Settled Restricted Stock | Shares | | Weighted-Average
Fair Value |
| Unvested at January 1, 2017 | 103,790 |
| | $ | 90.06 |
|
| Granted | 34,290 |
| | 93.68 |
|
| Vested | (27,050 | ) | | 92.44 |
|
| Forfeited | (15,220 | ) | | 121.47 |
|
| Unvested at September 30, 2017 | 95,810 |
| | $ | 121.47 |
|
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
September 30, | | Nine Months Ended
September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| Cost of goods sold | $ | 327 |
| | $ | 307 |
| | $ | 963 |
| | $ | 627 |
| Cost of goods sold | $ | 283 | | | $ | 118 | | | $ | 595 | | | $ | 954 | |
| Selling, general and administrative expenses | 696 |
| | 881 |
| | 2,203 |
| | 1,842 |
| Selling, general and administrative expenses | 1,319 | | | 435 | | | 2,433 | | | 3,132 | |
| Total expense before income taxes | 1,023 |
| | 1,188 |
| | 3,166 |
| | 2,469 |
| Total expense before income taxes | 1,602 | | | 553 | | | 3,028 | | | 4,086 | |
| Income tax benefit | (175 | ) | | (170 | ) | | (557 | ) | | (354 | ) | Income tax benefit | (150) | | | (67) | | | (286) | | | (413) | |
| Total expense after income taxes | $ | 848 |
| | $ | 1,018 |
| | $ | 2,609 |
| | $ | 2,115 |
| Total expense after income taxes | $ | 1,452 | | | $ | 486 | | | $ | 2,742 | | | $ | 3,673 | |
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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.
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| 2020 | | 2019 |
| Weighted average fair value of grants | $224.14 | | $207.26 |
| Dividend yield | 0% | | 0% |
| Volatility | 19.5% | | 19.11% |
| Risk-free interest rate | 1.30% | | 2.49% |
| Expected life (in years) | 2.94 | | 2.83 |
|
| | | | |
| | | Nine months ended September 30, |
| | | 2017 | | 2016 |
| Weighted average fair value of performance share units | | $115.74 | | $111.42 |
| Dividend yield | | —% | | —% |
| Volatility | | 17.36% | | 17.99% |
| Risk-free forward interest rate | | 1.45% | | 0.89% |
| Expected life (in years) | | 2.85 | | 2.86 |
A summary of the Company’s performance share unit activity as of September 30, 2017,2020 and changes during the nine months ended September 30, 2017,2020 are presented in the following table:
| | | | | | | | | | | |
| Performance Share Units | Shares | | Weighted-Average
Grant Date Fair
Value |
| Unvested at January 1, 2020 | 100,575 | | | $ | 178.97 | |
| Granted | 42,690 | | | 224.14 | |
| Vested | 0 | | | 0 | |
| Forfeited | (6,095) | | | 212.47 | |
| Unvested at September 30, 2020 | 137,170 | | | $ | 216.26 | |
|
| | | | | | |
| Performance Share Units | Shares | | Weighted-Average
Grant Date Fair
Value |
| Unvested at January 1, 2017 | 137,055 |
| | $ | 104.18 |
|
| Granted | 65,530 |
| | 115.74 |
|
| Vested | — |
| | 95.07 |
|
| Forfeited and other | (5,625 | ) | | 109.75 |
|
| Unvested at September 30, 2017 | 196,960 |
| | $ | 108.33 |
|
The Company granted 63,325On December 31, 2019, 54,545 performance share units in February 2014, which vested on December 31, 2016.vested. Based on the Company’s relative total shareholder return rank during the three year period ended December 31, 2016,2019, the Company achieved a 141%250% payout that resulted in 89,288factor and issued 136,370 common shares issued in February 2017.2020.
Total compensation cost for performance share units is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Cost of goods sold | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Selling, general and administrative expenses | 2,572 | | | 2,359 | | | 7,225 | | | 5,904 | |
| Total expense before income taxes | 2,572 | | | 2,359 | | | 7,225 | | | 5,904 | |
| Income tax benefit | (49) | | | (196) | | | (157) | | | (447) | |
| Total expense after income taxes | $ | 2,523 | | | $ | 2,163 | | | $ | 7,068 | | | $ | 5,457 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Cost of goods sold | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Selling, general and administrative expenses | 1,725 |
| | 348 |
| | 5,045 |
| | 3,844 |
|
| Total expense before income taxes | 1,725 |
| | 348 |
| | 5,045 |
| | 3,844 |
|
| Income tax benefit | (597 | ) | | (98 | ) | | (1,690 | ) | | (1,266 | ) |
| Total expense after income taxes | $ | 1,128 |
| | $ | 250 |
| | $ | 3,355 |
| | $ | 2,578 |
|
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 September 30, 2017,2020, there was $13.914.9 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.4 years, $5.96.8 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.1 years, $4.3$3.9 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.0 years and $8.0$9.9 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.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
16.19. 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. As disclosed in Note 1, the Company elected to early adopt ASU 2017-07 during the quarter ended March 31, 2017. As a result, the Company recorded Interest cost, Expected return on plan assets, and Net amortization within Other (income) expense - net. The Company adopted this standard retrospectively and $0.8 million and $2.4 million, respectively, were reclassified from Selling, general and administrative expenses to Other (income) expense - net for the three and nine months ended September 30, 2016 to conform to current period presentation.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | Pension Benefits |
| | Three Months Ended September 30, |
| | 2020 | | 2019 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| Service cost | $ | 34 | | | $ | 539 | | | $ | 484 | | | $ | 462 | |
| Interest cost | 312 | | | 263 | | | 764 | | | 355 | |
| Expected return on plan assets | (927) | | | (291) | | | (801) | | | (258) | |
| Settlement loss recognized | 326 | | | 0 | | | 486 | | | 0 | |
| Net amortization | 643 | | | 427 | | | 487 | | | 276 | |
| Net periodic (benefit) cost | $ | 388 | | | $ | 938 | | | $ | 1,420 | | | $ | 835 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Pension Benefits |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| Service cost | $ | 224 |
| | $ | 520 |
| | $ | 181 |
| | $ | 331 |
| Service cost | $ | 103 | | | $ | 1,620 | | | $ | 901 | | | $ | 1,386 | |
| Interest cost | 687 |
| | 332 |
| | 788 |
| | 344 |
| Interest cost | 963 | | | 789 | | | 2,292 | | | 1,081 | |
| Expected return on plan assets | (986 | ) | | (277 | ) | | (1,233 | ) | | (203 | ) | Expected return on plan assets | (2,804) | | | (873) | | | (2,403) | | | (784) | |
| Net amortization | 641 |
| | 418 |
| | 766 |
| | 241 |
| |
| Net periodic benefit cost | $ | 566 |
| | $ | 993 |
| | $ | 502 |
| | $ | 713 |
| |
| Settlement loss recognized | | Settlement loss recognized | 702 | | | 0 | | | 486 | | | 0 | |
| Net amortization and settlement effect | | Net amortization and settlement effect | 852 | | | 1,279 | | | 1,460 | | | 840 | |
| Net periodic (benefit) cost | | Net periodic (benefit) cost | $ | (184) | | | $ | 2,815 | | | $ | 2,736 | | | $ | 2,523 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Other Postretirement Benefits |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | $ | 154 | | | $ | 141 | | | $ | 463 | | | $ | 421 | |
| Interest cost | 156 | | | 212 | | | 469 | | | 636 | |
| Net amortization | (135) | | | (159) | | | (407) | | | (476) | |
| Net periodic (benefit) cost | $ | 175 | | | $ | 194 | | | $ | 525 | | | $ | 581 | |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| Service cost | $ | 732 |
| | $ | 1,496 |
| | $ | 769 |
| | $ | 934 |
|
| Interest cost | 2,008 |
| | 957 |
| | 2,282 |
| | 1,049 |
|
| Expected return on plan assets | (2,874 | ) | | (811 | ) | | (3,583 | ) | | (642 | ) |
| Net amortization | 1,924 |
| | 1,195 |
| | 2,420 |
| | 722 |
|
| Net periodic benefit cost | $ | 1,790 |
| | $ | 2,837 |
| | $ | 1,888 |
| | $ | 2,063 |
|
|
| | | | | | | | | | | | | | | |
| | Other Postretirement Benefits |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | $ | 152 |
| | $ | 181 |
| | $ | 456 |
| | $ | 494 |
|
| Interest cost | 203 |
| | 224 |
| | 611 |
| | 622 |
|
| Net amortization | (198 | ) | | (154 | ) | | (595 | ) | | (462 | ) |
| Net periodic benefit cost | $ | 157 |
| | $ | 251 |
| | $ | 472 |
| | $ | 654 |
|
The Company previously disclosed in its financial statements for the year ended December 31, 2016, that it expected to contribute approximately $5.8 million to its defined benefit plans and $0.1 million to its other postretirement benefit plans in 2017. As of September 30, 2017, the Company expects to contribute approximately $4.8$3.0 million to its defined benefit plans and $0.6$1.1 million to its other postretirement benefit plans in 2017. The2020. During the first nine months of 2020, the Company contributed a total of $4.2$3.0 million during the first nine months of 2017 to fund these plans.
Effective September 30, 2019, the IDEX Corporation Retirement Plan (“Plan”), a U.S. defined benefit plan, was amended to freeze the accrual of retirement benefits for all participants. This action impacted fewer than 60 participants, as the Plan had been closed to new entrants as of December 31, 2004 and frozen as of December 31, 2005 for all but certain older, longer service participants. Subsequent to the freeze, termination of the Plan was approved in November 2019. Participants were notified in February 2020 and the Plan was terminated in May 2020. As a result of the termination, the settlement threshold was reached in early 2020 and the Company recorded a charge of $0.7 million to Other (income) expense - net in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020. The settlement threshold was also reached in 2019, resulting in the Company recording a charge of $0.5 million in Other (income) expense - net in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019. The settlement also
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
triggered the remeasurement of net periodic benefit cost resulting in a reduction of $1.0 million to Other (income) expense - net in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020 as a result of significant decreases in discount rates and strong asset performance in 2020. As of September 30, 2020, the Plan’s funded status is 110%, with assets valued at $93.4 million and liabilities of $84.8 million.
17.20. Legal Proceedings
The Company and certain of its subsidiaries are party to variousinvolved in pending orand 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.
18.21. 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 increaseddecreased to $30.0$17.4 million infor the third quarter of 2017 from $29.4three months ended September 30, 2020 compared to $24.0 million induring the same period of 2016.in 2019. The effective tax rate decreased to 26.4%14.4% for the three months ended September 30, 2020 compared to 18.6% during the same period in 2019 primarily due to benefits associated with the finalization of the Global Intangible Low-Tax Income (“GILTI”) regulations in the third quarter of 2017 compared to 29.6% in the same period of 2016 due to the partial release of the capital loss valuation allowance, higher excess tax benefit recognized in the current period, the mix of global pre-tax income among jurisdictions and the prior year incurrence of an additional $5.2 million of foreign withholding taxes as a result of global cash used to fund the SFC Koenig acquisition.2020.
The provision for income taxes increased to $88.2 million in the nine months ended September 30, 2017 from $82.0 million in the same period of 2016. The effective tax rate decreased to 26.6%$63.8 million for the nine months ended September 30, 2017 compared to 27.7% in2020 from $82.2 million during the same period of 2016in 2019. The effective tax rate decreased to 18.7% for the nine months ended September 30, 2020 compared to 20.0% during the same period in 2019 primarily due to foreign tax credits,benefits associated with the partial releasefinalization of the capital loss valuation allowance andGILTI regulations in the mixthird quarter of global pre-tax income among jurisdictions.2020.
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. However, these unrecognized tax benefits are long-term in nature and will not change within the next twelve months by a range of zero to $1.4 million.12 months.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.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” and “Results of Operations” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, the anticipated continuing effects of the coronavirus pandemic, including with respect to the Company’s sales, facility closures, supply chains and access to capital, capital expenditures, acquisitions, cost reductions, cash flow, cash requirements, revenues, earnings, market conditions, global economies, plant and equipment capacity and operating improvements, and are indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the Company believes,” “the Company intends,”intends” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this report. The risks and uncertainties include, but are not limited to, the following: the duration of the coronavirus pandemic and the continuing effects of the coronavirus on our ability to operate our business and facilities, on our customers, on supply chains and on the U.S. and global economy generally; economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the world; pricing pressures and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and IDEX Corporation’sthe Company’s results, particularly in light of the low levels of order backlogs it typically maintains; itsthe Company’s ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the companyCompany operates; developments with respect to trade policy and tariffs; interest rates; capacity utilization and the effect this has on costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports, including this quarterly report on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”) and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this report, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.
Overview and Outlook
IDEX Corporation (“IDEX,” “we,” “our,” or the “Company”) 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. IDEX’s products are sold in niche markets toacross 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 important factors that influence the demand for IDEX’s products.
The Company has three reportable business segments: Fluid & Metering Technologies, (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”).Products. Within our three reportable segments, the Company maintains thirteen13 platforms where we focus on organic growth and strategic acquisitions. Each of our thirteen13 platforms is also a reporting unit wherethat we annually test for goodwill for impairment.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, small volume provers, 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 Fluid & Metering Technologies segment contains the Energy platform (comprised of Corken, Faure Herman, Liquid Controls, SAMPI, Toptech and Toptech)Flow Management Devices, LLC (“Flow MD”)), the Valves platform (comprised of Alfa Valvole, Richter and Aegis), the Water platform (comprised of Pulsafeeder, OBL, Knight, ADS, Trebor and iPEK), the Pumps platform (comprised of Viking and Warren Rupp), and the Agriculture platform (comprised of Banjo). The Health & Science Technologies segment contains the Scientific Fluidics & Optics platform (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch Scientific, ERC, CiDRA Precision Services, CVI Melles Griot, Semrock, and AT Films), the Sealing Solutions platform (comprised of Precision Polymer Engineering, FTL Seals Technology, Novotema, and SFC Koenig), the Gast platform, the Micropump platform, and the Material Processing Technologies platform (comprised of Quadro, Fitzpatrick, Microfluidics, and Matcon). The Fire & Safety/Diversified Products segment is comprised of the Fire & Safety platform (comprised of Class 1, Hale, Akron Brass, AWG Fittings, Godiva, Dinglee, Hurst Jaws of Life, Lukas, and Vetter), the Band-It platform, and the Dispensing platform.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters, valves, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water & 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-flowlow-
flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded sealing components, custom mechanical and shaft seals for a variety of end markets including food and beverage, marine, chemical, wastewater and water treatment, engineered hygienic mixers and valves for the global biopharmaceutical industry, 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, life sciences, 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 Health & Science Technologies segment contains the Scientific Fluidics & Optics platform (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch Scientific, ERC, CiDRA Precision Services, thinXXS, CVI Melles Griot, Semrock, Advanced Thin Films and FLI), the Sealing Solutions platform (comprised of Precision Polymer Engineering, FTL Seals Technology, Novotema, SFC Koenig and Velcora), the Gast platform, the Micropump platform and the Material Processing Technologies platform (comprised of Quadro, Fitzpatrick, Microfluidics and Matcon).
The Fire & Safety/Diversified Products segment designs, produces and develops firefighting pumps, valves and controls, valves, monitors, nozzles, 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. The Fire & Safety/Diversified Products segment is comprised of the Fire & Safety platform (comprised of Class 1, Hale, Akron Brass, Weldon, AWG Fittings, Godiva, Dinglee, Hurst Jaws of Life, Lukas and Vetter), the BAND-IT platform and the Dispensing platform.
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.
This report references organic sales, a non-GAAP measure, that refers to sales calculated according to U.S. GAAP but excluding amounts from acquired or divested businesses during the first twelve months after acquisition or divestiture and 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 and divestitures because the nature, size, and number 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.
EBITDA means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company, which results in a higher level of amortization expense at recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses’ performance across our three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within our industry. Management believes EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 9 of the Notes to Consolidated Financial Statements in Part I, Item 1, “Financial Statements.”
Organic sales have been reconciled to net sales and EBITDA has been reconciled to net income in Item 2 under the heading “Non-GAAP Disclosures.” The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that we do not allocate consolidated interest expense or the consolidated provision for income taxes to our segments.
Management uses Adjusted operating income, Adjusted net income, Adjusted EBITDA, and Adjusted EPS as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as restructuring expenses or gains and losses on sales of 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, 2017 when compared to the same period from the prior year were as follows:
Sales of $574 million increased 8%; organic sales (which excludes acquisitions, divestitures and foreign currency translation) were up 7%.
Operating income of $127 million increased 15%. Excluding the $2 million net loss on divestitures from the prior year results, operating income increased 13%.
Net income increased 20% to $84 million. Excluding the $1 million net loss on divestitures, net of tax benefit from the prior year results, net income increased 19%.
EBITDA of $146 million was 25% of sales and covered interest expense by more than 13 times.
Diluted EPS of $1.08 increased 17 cents, or 19%. Excluding the net loss on divestitures from the prior year results, EPS increased 16 cents, or 17%.
Some of our key financial results for the nine months ended September 30, 2017 when compared to the same period from the prior year were as follows:
Sales of $1.7 billion increased 8%; organic sales (which excludes acquisitions, divestitures and foreign currency translation) were up 5%.
Operating income of $367 million increased 12%. Adjusted operating income of $372 million, adjusted for $5 million of restructuring charges in the first quarter of 2017 and the $2 million net loss on divestitures in the prior year, increased 13%.
Net income increased 14% to $244 million. Adjusted net income of $247 million, adjusted for $3 million of restructuring charges, net of tax benefit, in the first quarter of 2017 and the $1 million net loss on divestitures, net of the tax benefit, in the prior year, increased 15%.
EBITDA of $429 million was 25% of sales and covered interest expense by nearly 13 times. Adjusted EBITDA of $434 million was 26% of sales and covered interest expense by nearly 13 times.
Diluted EPS of $3.15 increased37 cents, or 13%. Adjusted EPS of $3.19 increased 40 cents, or 14%.
Given the Company’s current outlook, we are projecting fourth quarter 2017 EPS in the range of $1.06 to $1.08 with full year 2017 adjusted EPS of $4.25 to $4.27. We are also projecting full year organic revenue growth expectations of 5%, with 6% growth expected in the fourth quarter.
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, 2017 and 2016. Segment operating income and EBITDA exclude unallocated corporate operating expenses of $17.8 million and $15.9 million, respectively, for the three months ended September 30, 2017 and 2016 and $53.1 million and $46.5 million, respectively, for the nine months ended September 30, 2017 and 2016. Corporate office expense for the three and nine months ended September 30, 2016 includes a $2.1 million loss on sale of businesses - net.
Consolidated Results for the Three Months Ended September 30, 2017 Compared with the Same Period of 2016
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| (In thousands) | Three Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 574,490 |
| | $ | 530,356 |
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| Operating income | 126,504 |
| | 109,708 |
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| Operating margin | 22.0 | % | | 20.7 | % |
For the third quarter of 2017, Fluid & Metering Technologies contributed 38% of sales, 43% of operating income and 41% of EBITDA; Health & Science Technologies accounted for 36% of sales, 32% of operating income and 35% of EBITDA; and Fire & Safety/Diversified Products represented 26% of sales, 25% of operating income and 24% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA.
Sales in the three months ended September 30, 2017 were $574.5 million, an 8% increase from the comparable period last year. This increase reflects a 7% increase in organic sales and a 1% favorable foreign currency translation. Sales to customers outside the U.S. represented approximately 50% of total sales in the third quarter of 2017 compared to 48% during the same period in 2016.
Gross profit of $257.9 million in the third quarter of 2017 increased $27.0 million, or 12%, from the same period in 2016. Gross margin of 44.9% in the third quarter of 2017 increased 140 basis points from 43.5% during the same period in 2016. The increase in gross profit and gross margin is primarily due to $4.6 million of fair value inventory step-up charges related to the AWG Fittings and SFC Koenig acquisitions in the prior year period and increased sales volume, partially offset by pockets of operating inefficiencies associated with growth.
Selling, general and administrative expenses increased to $131.4 million in the third quarter of 2017 from $119.1 million during the same period of 2016. The increase is primarily related to $3.8 million of higher variable compensation, $2.0 million of higher stock compensation expense, $1.3 million of net incremental costs from acquisitions and divestitures and an increase in volume related expenses, partially offset by the benefits from prior year restructuring initiatives and cost controls. As a percentage of sales, selling, general and administrative expenses were 22.9% for the third quarter of 2017, up 50 basis points from the 22.4% for the same period of 2016.
Operating income of $126.5 million and operating margin of 22.0% in the third quarter of 2017 were up from the $109.7 million and 20.7%, respectively, recorded during the same period in 2016. These increases are primarily due to volume leverage and benefits from prior year restructuring initiatives as well as the inclusion in the prior year of $4.6 million of fair value inventory step-up charges related to the AWG and SFC Koenig acquisitions and a $2.1 million loss on sale of businesses - net.
Other (income) expense - net was $1.7 million in the third quarter of 2017 compared with $(1.5) million recorded in the same period in 2016, primarily due to higher foreign currency translation gains in 2016.
Interest expense of $11.1 million in the third quarter of 2017 was down from $11.9 million in 2016 as a result of lower outstanding borrowings on revolving facilities.
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 $30.0 million for the third quarter of 2017 increased compared to $29.4 million recorded in the same period of 2016. The effective tax rate decreased to 26.4% for the third quarter of 2017 compared to 29.6% in the same period of 2016 due to the partial release of the capital loss valuation allowance, higher excess tax benefit recognized in the current period, the mix of global pre-tax income among jurisdictions and the prior year incurrence of an additional $5.2 million of foreign withholding taxes as a result of global cash used to fund the SFC Koenig acquisition.
Net income in the third quarter of 2017 of $83.8 million increased from $69.9 million during the same period of 2016. Diluted earnings per share in the third quarter of 2017 of $1.08 increased $0.17, or 19%, compared with the same period in 2016.
Fluid & Metering Technologies Segment
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| (In thousands) | Three Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 220,953 |
| | $ | 208,335 |
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| Operating income | 61,988 |
| | 55,907 |
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| Operating margin | 28.1 | % | | 26.8 | % |
Sales of $221.0 million increased $12.6 million, or 6%, in the third quarter of 2017 compared with the same period of 2016. This reflects a 7% increase in organic sales, a 2% decrease from divestitures (Hydra-Stop - July 2016 and IETG - October 2016) and a 1% favorable foreign currency translation. In the third quarter of 2017, sales increased 8% domestically and 4% internationally compared to the same period in 2016. Sales to customers outside the U.S. were approximately 43% of total segment sales during the third quarter of 2017 and 2016.
Sales within our Pumps platform increased compared to the third quarter of 2016 due to strength in the oil and gas upstream markets and the North American industrial distribution market. Sales within the Agriculture platform increased compared to the third quarter of 2016 due to broad based demand across both OEM and distribution channels. Sales within the Valves platform increased slightly compared to the third quarter of 2016 as a result of overall stability in the chemical and oil and gas end markets. Sales within the Water platform increased compared to the third quarter of 2016 due to strong U.S. distribution, new product development and project wins in Asia, partially offset by the impact of the Hydra-Stop and IETG divestitures. Sales within our Energy platform increased slightly in the third quarter of 2017 compared to the same period of 2016, primarily due to strength in U.S. distribution and LPG truck builds, partially offset by a few non-recurring aviation projects in the prior year.
Operating income and operating margin of $62.0 million and 28.1%, respectively, were higher than the $55.9 million and 26.8% recorded in the third quarter of 2016, primarily due to volume leverage on organic growth, cost savings from prior year restructuring initiatives and lower amortization.
Health & Science Technologies Segment
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| (In thousands) | Three Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 207,127 |
| | $ | 183,564 |
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| Operating income | 46,073 |
| | 37,195 |
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| Operating margin | 22.2 | % | | 20.3 | % |
Sales of $207.1 million increased $23.6 million, or 13%, in the third quarter of 2017 compared with the same period in 2016. This reflects a 10% increase in organic sales and a 3% net increase from an acquisition (SFC Koenig - September 2016) offset by divestitures (CVI Japan - September 2016 and CVI Korea - December 2016). In the third quarter of 2017, sales increased 6% domestically and 19% internationally. Sales to customers outside the U.S. were approximately 56% of total segment sales in the third quarter of 2017 compared with 53% during the same period in 2016.
Sales within our Material Processing Technologies platform increased compared to the third quarter of 2016, primarily due to global strength in the pharma and food end markets partially offset by the impact of strategic changes in product focus which resulted in discontinued products. Sales within our Scientific Fluidics & Optics platform increased compared to the third quarter of 2016 due to new products, market share wins and strong demand in all primary end markets, including analytical instrumentation, IVD and biotechnology, semiconductor and defense, partially offset by the impact of the CVI Japan and CVI Korea divestitures in 2016. Sales within our Sealing Solutions platform increased compared to the third quarter of 2016 as a result of the SFC Koenig acquisition as well as continued strength within the semiconductor end market. Sales within our Gast platform increased compared to the third quarter of 2016 primarily due to strength in North American distribution as well as strong demand from OEM markets within agriculture, medical and dental. Sales within the Micropump platform increased compared to the third quarter of 2016 due to strength in the core printing and hemodialysis markets.
Operating income and operating margin of $46.1 million and 22.2%, respectively, in the third quarter of 2017 were up from the $37.2 million and 20.3% recorded in the same period of 2016. Operating income was up due to the SFC Koenig acquisition, higher volume and productivity improvements. Operating margin was up primarily due to higher volume, the net impact of prior year acquisitions and divestitures, cost savings from prior year restructuring initiatives and the inclusion of a $2.9 million fair value inventory charge related to the SFC Koenig acquisition in the prior year period.
Fire & Safety/Diversified Products Segment
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| (In thousands) | Three Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 146,599 |
| | $ | 138,767 |
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| Operating income | 36,199 |
| | 32,492 |
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| Operating margin | 24.7 | % | | 23.4 | % |
Sales of $146.6 million increased $7.8 million, or 6%, in the third quarter of 2017 compared with the same period in 2016. This reflects a 4% increase in organic sales and a 2% favorable foreign currency translation. In the third quarter of 2017, sales decreased 5% domestically and increased 17% internationally. Sales to customers outside the U.S. were approximately 53% of total segment sales in the third quarter of 2017 compared to 48% in the same period of 2016.
Sales within our Dispensing platform decreased compared to the third quarter of 2016 primarily due to timing of shipments to U.S. retailers, partially offset by stability in our core markets in Europe and Asia. Sales within our Band-It platform increased compared to the third quarter of 2016 due to a continued rebound in the energy markets as well as growth in the automotive and industrial end markets. Sales within our Fire & Safety platform increased due to OEM and municipal spending strength and strong project activity.
Operating income of $36.2 million in the third quarter of 2017 was higher than $32.5 million in the third quarter of 2016 due to an increase in organic sales. Operating margin of 24.7% in the third quarter of 2017 was higher than the 23.4% recorded in the third quarter of 2016, primarily due to increased volume and a $1.7 million fair value inventory step-up charge related to the AWG Fittings acquisition in the prior year.
Consolidated Results for the Nine Months EndedSeptember 30, 2017 Compared with the Same Period of 2016
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| (In thousands) | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 1,701,408 |
| | $ | 1,582,624 |
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| Operating income | 367,308 |
| | 326,876 |
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| Operating margin | 21.6 | % | | 20.7 | % |
For the nine months ended September 30, 2017, Fluid & Metering Technologies contributed 39% of sales, 43% of operating income and 41% of EBITDA; Health & Science Technologies contributed 36% of sales, 32% of operating income and 35% of EBITDA; and Fire & Safety/Diversified Products contributed 25% of sales, 25% of operating income and 24% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA.
Sales in the nine months ended September 30, 2017 were $1,701.4 million, which was an 8% increase compared to the same period last year. This reflects a 5% increase in organic sales, a 4% net increase from acquisitions (Akron Brass - March 2016, AWG Fittings - July 2016 and SFC Koenig - September 2016) net of divestitures (Hydra-Stop - July 2016, CVI Japan - September 2016, IETG - October 2016, and CVI Korea - December 2016) and a 1% unfavorable foreign currency translation. Sales to customers outside the U.S. represented approximately 49% of total sales in the first nine months of 2017 compared with 50% during the same period in 2016.
Gross profit of $765.8 million in the first nine months of 2017 increased $67.5 million, or 10%, from the same period in 2016. Gross margin of 45.0% in the first nine months of 2017 increased 90 basis points from 44.1% during the same period in 2016, primarily due to increased productivity, volume leverage and $10.4 million of fair value inventory step-up charges in the prior year period related to 2016 acquisitions. Gross profit increased compared to 2016 as a result of a full nine months of prior year acquisitions, net of divestitures as well as increased sales volume.
Selling, general and administrative expenses increased to $393.7 million in the first nine months of 2017 from $369.3 million during the same period of 2016. The change is due to $16.2 million of net incremental costs from acquisitions and divestitures, an increase in volume related expenses and a $4.7 million benefit in the prior year period from the reversal of contingent consideration related to a 2015 acquisition, partially offset by benefits from prior period restructuring. As a percentage of sales, selling, general and administrative expenses were 23.1% for the first nine months of 2017, down 20 basis points compared to 23.3% during the same period of 2016.
Operating income of $367.3 million in the first nine months of 2017 was up from the $326.9 million recorded during the same period in 2016 and operating margin of 21.6% was up from 20.7% recorded in the same period of 2016. The increase in operating income and margin is primarily due to volume, cost savings from prior period restructuring activities as well as $10.4 million of fair value inventory step-up charges and a $2.1 million net loss on sale of businesses in the prior year period.
Other (income) expense - net was $1.7 million in the first nine months of 2017 compared with $(2.5) million in the same period in 2016, primarily due to higher foreign currency translation gains in 2016.
Interest expense of $33.9 million in the first nine months of 2017 was up from $33.6 million in 2016, primarily as a result of the Notes issued in June 2016, partially offset by strong cash flows in 2017 used to reduce the borrowings on the revolving facilities.
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 $88.2 million for the first nine months of 2017 increased compared to $82.0 million recorded in the same period of 2016. The effective tax rate decreased to 26.6% for the first nine months of 2017 compared to 27.7% in the same period of 2016 due to foreign tax credits, the partial release of the capital loss valuation allowance and the mix of global pre-tax income among jurisdictions.
Net income in the first nine months of 2017 of $243.5 million increased from $213.8 million during the same period of 2016. Diluted earnings per share in the first nine months of 2017 of $3.15 increased $0.37, or 13%, compared with the same period in 2016.
Fluid & Metering Technologies Segment
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| (In thousands) | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 658,905 |
| | $ | 641,988 |
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| Operating income | 179,830 |
| | 161,782 |
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| Operating margin | 27.3 | % | | 25.2 | % |
Sales of $658.9 million increased $16.9 million, or 3%, in the first nine months of 2017 compared with the same period of 2016. This reflects a 5% increase in organic sales and a 2% decrease from divestitures (Hydra-Stop - July 2016 and IETG - October 2016). In the first nine months of 2017, sales increased 8% domestically and decreased 4% internationally compared to the same period in 2016. Sales to customers outside the U.S. were approximately 42% of total segment sales during the first nine months of 2017 compared with 44% during the same period in 2016.
Sales within our Pumps platform increased compared to the first nine months of 2016 due to strength in the oil & gas upstream markets and the North American industrial distribution market. Sales within our Agriculture platform increased in the first nine months of 2017 compared to the same period of 2016 due to broad based demand across both OEM and distribution channels. Sales in the Valves platform were up in the first nine months of 2017 compared to the prior year period as a result of overall stability in the chemical and oil and gas end markets. Sales within the Water platform decreased in the first nine months of 2017 compared to the same period in 2016 due to the Hydra-Stop and IETG divestitures, partially offset by an increase in municipal spending and strength in U.S. distribution. Sales within our Energy platform decreased in the first nine months of 2017 compared to the same period of 2016 primarily as a result of weakness in the North American LPG mobile end market and non-recurring aviation projects in the prior year, partially offset by strong oil & gas projects.
Operating income and operating margin of $179.8 million and 27.3%, respectively, in the first nine months of 2017 were higher than the $161.8 million and 25.2%, respectively, recorded in the first nine months of 2016, primarily due to productivity, volume leverage on organic growth and the benefit from prior period restructuring initiatives, partially offset by current period restructuring expenses.
Health & Science Technologies Segment
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| (In thousands) | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 611,215 |
| | $ | 556,475 |
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| Operating income | 134,605 |
| | 118,985 |
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| Operating margin | 22.0 | % | | 21.4 | % |
Sales of $611.2 million increased $54.7 million, or 10%, in the first nine months of 2017 compared with the same period in 2016. This reflects a 7% increase in organic sales, a 4% net increase from acquisitions (SFC Koenig - September 2016) offset by divestitures (CVI Japan - September 2016 and CVI Korea - December 2016) and a 1% unfavorable foreign currency translation. In the first nine months of 2017, sales increased 10% both domestically and internationally. Sales to customers outside the U.S. were approximately 55% of total segment sales in the first nine months of 2017 and 2016.
Sales within our Material Processing Technologies platform decreased in the first nine months of 2017 compared to the same period in 2016 primarily due to the impact of strategic changes in product focus which resulted in discontinued products and several large projects in the prior year period, partially offset by global strength in the pharma and food end markets. Sales within our Scientific Fluidics & Optics platform increased compared to the first nine months of 2016 due to new products, market share wins and strong demand in all primary end markets, including analytical instrumentation, IVD, and biotechnology, semiconductor and defense, partially offset by the impact of the CVI Japan and CVI Korea divestitures in 2016. Sales within our Sealing Solutions platform increased compared to the first nine months of 2016 due to the inclusion of the SFC Koenig acquisition as well as continued strength in the semiconductor end market. Sales within our Gast platform decreased compared to the first nine months of 2016 primarily due to the impact of OEM headwinds during the first half of 2017. Sales within our Micropump platform increased compared to the first nine months of 2016 due to increasing demand in North American industrial distribution markets as well as the core printing and hemodialysis end markets.
Operating income of $134.6 million in the first nine months of 2017 was up from the $119.0 million recorded in the same period of 2016, primarily due to the SFC acquisition, higher volume and productivity improvements, partially offset by 2017 restructuring expenses related to site consolidations within the Material Processing Technologies platform, as well as a $2.9 million fair value inventory step-up charge related to the SFC Koenig acquisition in the prior year period. Operating margin of 22.0% in the first nine months of 2017 was up from the 21.4% recorded for the same period of 2016 primarily due to volume and productivity, partially offset by site consolidation related restructuring expenses, as well as a $2.9 million fair value inventory step-up charge related to the SFC Koenig acquisition in the prior year period.
Fire & Safety/Diversified Products Segment
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| (In thousands) | Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| Net sales | $ | 432,029 |
| | $ | 384,996 |
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| Operating income | 106,022 |
| | 92,566 |
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| Operating margin | 24.5 | % | | 24.0 | % |
Sales of $432.0 millionincreased $47.0 million, or 12%, in the first nine months of 2017 compared with the same period in 2016. This reflects a 1% increase in organic revenue, a 12% increase from acquisitions (Akron Brass - March 2016 and AWG Fittings - July 2016) and a 1% unfavorable impact from foreign currency translation. In the first nine months of 2017, sales increased 8% domestically and 16% internationally compared with the same period in 2016. Sales to customers outside the U.S. were approximately 52% of total segment sales in the first nine months of 2017 and 51% during the same period of 2016.
Sales within our Dispensing platform decreased compared to the first nine months of 2016 primarily due to timing of shipments to U.S. retailers, partially offset by stability in our core markets in Europe and Asia. Sales within our Band-It platform increased compared to the first nine months of 2016 due to rebounding energy markets and solid growth in the automotive and industrial end markets, partially offset by a lack of project funding in Asia. Sales within our Fire & Safety platform increased compared to the first nine months of 2016 primarily due to a full nine months of the Akron Brass and AWG Fittings acquisitions as well as OEM and municipal spending strength.
Operating income of $106.0 million in the first nine months of 2017 was higher than the $92.6 million recorded in the same period of 2016 and operating margin of 24.5% recorded in the first nine months of 2017 was higher than the 24.0% recorded for the same period of 2016 due to a full nine months of the Akron Brass and AWG fittings acquisitions included in the 2017 results, partially offset by $7.5 million of fair value inventory step-up charges related to the Akron Brass and AWG Fittings acquisitions in the prior year period.
Liquidity and Capital Resources
Operating Activities
At September 30, 2017, the Company’s cash and cash equivalents totaled $303.3 million, of which $209.3 million was held outside of the United States. At September 30, 2017, working capital was $618.6 million and the current ratio was 2.8 to 1. Cash
flows from operating activities for the first nine months of 2017 increased $12.3 million, or 4%, to $296.6 million compared to the first nine months of 2016, due to higher net income, partially offset by higher use of working capital to fund growth and a use of cash within Other current assets associated with the foreign currency exchange contracts.
Investing Activities
Cash flows used in investing activities for the first nine months of 2017 decreased $483.0 million to $23.2 million compared to the same period in 2016, primarily due to $510.0 million spent on acquisitions in 2016, partially offset by $32.5 million of proceeds received from the sale of businesses in 2016 and proceeds received from the sale of a facility in Elmhurst, IL associated with the site consolidation within our Material Processing Technologies platform.
Cash flows provided by operating activities were more than adequate to fund capital expenditures of $28.1 million and $28.6 million in the first nine months of 2017 and 2016, respectively. Capital expenditures were generally for machinery and equipment that improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. Management believes the Company has sufficient capacity in its plants and equipment to meet expected needs for future growth.
Financing Activities
Cash flows used in financing activities for the first nine months of 2017 were $236.7 million compared to cash flows provided by financing activities of $141.7 million in the same period of 2016, primarily as a result of borrowings to fund the Akron Brass and SFC Koenig acquisitions, partially offset by lower stock repurchases and higher repayments, net of borrowings, under revolving facilities in 2017 compared to the same period in 2016.
On June 13, 2016, the Company completed a private placement of $100 million aggregate principal amount of 3.20% Senior Notes due June 13, 2023 and $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 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 Notes by making an offer to all holders of the Notes, subject to certain conditions.
The Credit Agreement consists of the Revolving Facility, which is a $700.0 million unsecured, multi-currency bank credit facility expiring on June 23, 2020. At September 30, 2017, there were $29.4 million of outstanding borrowings under the Revolving Facility and outstanding letters of credit totaled approximately $8.3 million. The net available borrowing capacity under the Revolving Facility at September 30, 2017, was approximately $662.3 million. Borrowings under the Revolving Facility bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from .005% to 1.50%. Based on the Company’s credit rating at September 30, 2017, the applicable margin was 1.10%, resulting in a weighted average interest rate of 1.12% at September 30, 2017. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months. An annual Revolving Facility fee, also based on the Company’s credit rating, is currently 15 basis points and is payable quarterly.
There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility and the Notes, which require a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At September 30, 2017, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 12.46 to 1 and the leverage ratio was 1.58 to 1. 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.
On December 1, 2015, the Company’s Board of Directors approved a $300.0 million increase in the authorized level for repurchases of common stock. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the first nine months of 2017, the Company purchased a total of 222 thousand shares at a cost of $23.6 million. During the nine months ended September 30, 2016, the Company purchased a total of 739 thousand shares at a cost of $55.0 million. As of September 30, 2017, the amount of share repurchase authorization remaining is $556.4 million.
The Company believes current cash, cash from operations and cash available under the Revolving Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest on all borrowings, pension and postretirement funding requirements, expected share repurchases and annual dividend payments to holders of the Company’s stock for the
remainder of 2017. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings.
Non-GAAP Disclosures
Set forth below are reconciliations of Adjusted operating income, Adjusted net income, Adjusted EPS, and EBITDA to the comparable measures of net income and operating income, as determined in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). We have reconciled Adjusted operating income to Operating income; Adjusted net income to Net income; Adjusted EPS to EPS; consolidated EBITDA and segment EBITDA to net income and EBITDA to Adjusted EBITDA. The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that we do not allocate consolidated interest expense or the consolidated provision for income taxes to our segments.
EBITDA means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company, which results in a higher level of amortization expense at recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses’ performance across our three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within our industry. Management believes EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 9 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements.”
This report references organic sales, a non-GAAP measure, that refers to sales from continuing operations calculated according to accounting principles generally accepted in the United States of America (“U.S. GAAPGAAP”) but excluding amountsexcludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first twelve12 months after acquisitionof ownership or divestiture and the impact of foreign currency translation.divestiture. 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 and divestitures because they can obscure underlying business trends and make comparisons of long termlong-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers.
EBITDA, a non-GAAP measure, means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company, which results in a higher level of amortization expense from recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses’ performance across our three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within our industry. Management believes that EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 11 in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements.”
Organic sales have been reconciled to net sales and EBITDA has been reconciled to net income in Item 2 under the heading “Non-GAAP Disclosures.” The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that we do not allocate consolidated interest expense or the consolidated provision for income taxes to our segments.
Management uses Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EBITDA and Adjusted EPS as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as restructuring expenses.expenses, a fair value inventory step-up charge and a loss on early debt redemption. Management also uses free cash flow as a measure of operating performance because it provides management a measurement
of cash generated from operations that is available for mandatory payment obligations and investment opportunities. Each of Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EBITDA, Adjusted EPS and free cash flow are non-GAAP measures and have been reconciled to their most directly comparable GAAP measures in this Item 2 under the heading “Non-GAAP Disclosures.”
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. 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, 2020 when compared to the same period in the prior year are as follows:
•Sales of $581.1 million decreased 7%; organic sales (which excludes acquisitions and foreign currency translation) were down 12%.
•Operating income of $131.2 million decreased 7%. Adjusted for $2.9 million of restructuring expenses, adjusted operating income decreased 15% to $134.1 million.
•Net income of $103.8 million decreased 1%. Adjusted for $2.2 million of restructuring expenses, net of related tax benefit, adjusted net income decreased 9% to $106.1 million.
•EBITDA of $153.3 million was 26% of sales and covered interest expense by over 14 times. Adjusted EBITDA of $156.2 million was 27% of sales and covered interest expense by almost 15 times.
•Diluted EPS of $1.37 was flat. Adjusted EPS of $1.40 decreased 12 cents, or 8%.
Some of our key financial results for the nine months ended September 30, 2020 when compared to the same period in the prior year are as follows:
•Sales of $1,736.8 million decreased 8%; organic sales (which excludes acquisitions and foreign currency translation) were down 11%.
•Operating income of $381.7 million decreased 14%. Adjusted for a $4.1 million fair value inventory step-up charge and $6.8 million of restructuring expenses, adjusted operating income decreased 15% to $392.6 million.
•Net income of $276.7 million decreased 16%. Adjusted for the $3.2 million fair value inventory step-up charge, $5.2 million of restructuring expenses and a $6.5 million loss on early debt redemption, all net of related tax benefits, adjusted net income decreased 15% to $291.6 million.
•EBITDA of $436.4 million was 25% of sales and covered interest expense by almost 13 times. Adjusted EBITDA of $455.7 million was 26% of sales and covered interest expense by over 13 times.
•Diluted EPS of $3.64 decreased 66 cents, or 15%. Adjusted EPS of $3.84 decreased 63 cents, or 14%.
Results of Operations
The following is a discussion and analysis of our results of operations for the three and nine months ended September 30, 2020 and 2019. Segment operating income and EBITDA exclude unallocated corporate operating expenses of $14.2 million and $17.9 million for the three months ended September 30, 2020 and 2019, respectively, and $48.9 million and $55.7 million for the nine months ended September 30, 2020 and 2019, respectively.
The Company has adapted to help in the fight against COVID-19 with several of our businesses pivoting to support many products that are being used in the fight against COVID-19. We have placed safety atop our list of priorities, implementing protocols at all of our facilities, including temperature taking, social distancing, enhanced cleaning and face coverings. These measures have enabled successful business continuity, allowing our facilities to remain in operation with only temporary shutdowns at the initial onset of the COVID-19 pandemic. Although we have remained in operation throughout the pandemic, satisfying customer needs in part through our focus on the development and manufacturing of products used in the fight against COVID-19, the pandemic and the enacted containment measures have adversely affected our business and results of operations. The businesses of our customers have been harmed by the economic conditions caused by COVID-19 and as a result, our customers are purchasing less product than they have historically purchased outside of these conditions. Based on currently available information and management's current expectations, the Company anticipates that organic sales will be down approximately 3 to 5 percent in the fourth quarter of 2020 but we believe our strong balance sheet, with over $1.6 billion of liquidity and gross leverage of 1.7 times, will provide IDEX the necessary capital to navigate the COVID-19 pandemic for the foreseeable future. Additionally, IDEX implemented cost reduction actions, including employee reductions, and continues to maintain a tight cost control environment. Despite our expectations and the actions taken to reduce costs, we can provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted by adverse conditions in the financial markets, including, without limitation, as a result of the impact of the COVID-19 pandemic and we
cannot predict how long the COVID-19 pandemic will continue. Moreover, COVID-19 and related measures to contain its impact have caused material disruptions in both national and global financial markets and economies. The continuing impact of COVID-19 and the enacted containment measures cannot be predicted and may continue to adversely affect, perhaps materially, our business, results of operations, financial condition and liquidity.
Consolidated Results for the Three Months Ended September 30, 2020 Compared with the Same Period in 2019
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| (In thousands) | Three Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 581,113 | | | $ | 624,246 | |
| Operating income | 131,213 | | | 141,765 | |
| Operating margin | 22.6 | % | | 22.7 | % |
Sales in the third quarter of 2020 were $581.1 million, which was a 7% decrease compared to the same period in 2019. This reflects a 12% decrease in organic sales, partially offset by a 1% favorable impact from foreign currency translation and a 4% increase from acquisitions (Flow MD - February 2020 and Velcora - July 2019). Sales to customers outside the U.S. represented approximately 51% of total sales in the third quarter of 2020 compared to 50% during the same period in 2019.
Gross profit of $251.5 million in the third quarter of 2020 decreased $30.5 million, or 11%, compared to the same period in 2019, and gross margin of 43.3% in the third quarter of 2020 decreased 190 basis points from 45.2% during the same period in 2019 as a result of lower volume and business mix, partially offset by price.
Selling, general and administrative expenses decreased to $117.4 million in the third quarter of 2020 from $128.3 million during the same period in 2019. The decrease is primarily due to restructuring savings, discretionary cost controls and lower variable costs. Corporate costs of $14.1 million in the third quarter of 2020 decreased from $17.2 million during the same period in 2019 primarily as a result of tightly controlling discretionary spending in the current year, restructuring savings and lower variable costs. As a percentage of sales, selling, general and administrative expenses were 20.2% for the third quarter of 2020, down 40 basis points compared to 20.6% during the same period in 2019.
The Company incurred $2.9 million of restructuring expenses in the third quarter of 2020 compared with $12.0 million during the same period in 2019. The restructuring expenses in the third quarter of 2020 primarily related to severance benefits for cost reduction actions primarily consisting of employee reductions due to lower demand as a result of the COVID-19 pandemic. The restructuring expenses in the third quarter of 2019 included severance benefits of $1.9 million and exit costs of $0.4 million as well as an asset impairment charge of $9.7 million. In the second quarter of 2019, the Company began to evaluate strategic alternatives for one of its businesses in the HST segment. Prior to making a final decision on the options that were presented for this business, the business was informed in the third quarter of 2019 of the loss of its largest customer. As a result, the Company accelerated its restructuring activities for this business and a decision was made to wind down the business over time, requiring the asset impairment charge.
Operating income of $131.2 million and operating margin of 22.6% in the third quarter of 2020 were down from $141.8 million and 22.7%, respectively, during the same period in 2019. The decreases in operating income and operating margin were driven by lower volume and business mix, partially offset by price, restructuring savings, tightly controlling discretionary spending in the current year and the asset impairment and fair value inventory step-up charges that occurred in the third quarter of 2019.
Other (income) expense - net increased to $0.7 million of income in the third quarter of 2020 compared to $1.2 million of expense during the same period in 2019, primarily due to a $0.7 million loss on early retirement of Velcora debt assumed at acquisition in the third quarter of 2019 that did not reoccur in 2020, $0.5 million of higher gains on pension-related investments, $0.5 million of lower foreign currency transaction losses in 2020 compared to the same period in 2019 and $0.3 million of lower pension expense in 2020.
Interest expense of $10.6 million in the third quarter of 2020 was lower than the $11.3 million in the same period of 2019 due to lower interest expense on the new 3.0% Senior Notes issued during the second quarter of 2020.
The provision for income taxes decreased to $17.4 million for the third quarter of 2020 compared to $24.0 million during the same period in 2019. The effective tax rate decreased to 14.4% for the third quarter of 2020 compared to 18.6% during the
same period in 2019 primarily due to benefits associated with the finalization of the Global Intangible Low-Tax Income (“GILTI”) regulations in the third quarter of 2020.
Net income in the third quarter of 2020 of $103.8 million decreased from $105.2 million during the same period in 2019. Diluted earnings per share in the third quarter of 2020 of $1.37 was flat compared to the same period in 2019.
For the three months ended September 30, 2020, Fluid & Metering Technologies contributed 38% of sales, 40% of operating income and 40% of EBITDA; Health & Science Technologies contributed 38% of sales, 34% of operating income and 36% of EBITDA; and Fire & Safety/Diversified Products contributed 24% of sales, 26% of operating income and 24% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA.
Fluid & Metering Technologies Segment
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| (In thousands) | Three Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 220,747 | | | $ | 240,861 | |
| Operating income | 58,402 | | | 77,481 | |
| Operating margin | 26.5 | % | | 32.2 | % |
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Sales of $220.7 million decreased $20.1 million, or 8%, in the third quarter of 2020 compared to the same period in 2019. This reflects a 17% decrease in organic sales, partially offset by a 1% favorable impact from foreign currency translation and an 8% percent increase from acquisitions (Flow MD - February 2020). In the third quarter of 2020, sales decreased 9% domestically and 8% internationally compared to the same period in 2019. Sales to customers outside the U.S. were approximately 45% of total segment sales in the third quarters of both 2020 and 2019.
Sales within our Pumps platform decreased in the third quarter of 2020 compared to the same period in 2019 due to continued market declines in industrial and oil and gas markets, compounded by the continued impact of the COVID-19 pandemic driving reduced capital spending. Sales within our Valves platform decreased in the third quarter of 2020 compared to the same period in 2019 due to the softening global industrial landscape and lower energy prices driving decreases in capital spending. Sales within our Agriculture platform decreased in the third quarter of 2020 compared to the same period in 2019 due to timing of pre-season programs and decreased demand across both the agricultural and industrial original equipment manufacturer (“OEM”) markets. Sales within our Water platform decreased in the third quarter of 2020 compared to the same period in 2019 primarily due to project delays from the impact of COVID-19 and market softness. Sales within our Energy platform increased in the third quarter of 2020 compared to the same period in 2019 due to the acquisition of Flow MD, partially offset by declining capital spending in the oil and gas markets.
Operating income of $58.4 million and operating margin of 26.5% in the third quarter of 2020 were lower than $77.5 million and 32.2%, respectively, recorded during the same period in 2019, primarily due to lower volume and higher restructuring expenses, partially offset by price, restructuring savings and tightly controlling discretionary spending in the current year.
Health & Science Technologies Segment
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| (In thousands) | Three Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 220,378 | | | $ | 229,610 | |
| Operating income | 49,912 | | | 40,170 | |
| Operating margin | 22.6 | % | | 17.5 | % |
Sales of $220.4 million decreased $9.2 million, or 4%, in the third quarter of 2020 compared to the same period in 2019. This reflects a 6% decrease in organic sales, partially offset by a 1% favorable impact from foreign currency translation and a 1% increase from acquisitions (Velcora - July 2019). In the third quarter of 2020, sales decreased 5% domestically and 3% internationally compared to the same period in 2019. Sales to customers outside the U.S. were approximately 55% of total segment sales in both the third quarters of 2020 and 2019.
Sales within our Micropump platform decreased in the third quarter of 2020 compared to the same period in 2019 due to lower demand from customers in the inkjet printing market. Sales within our Scientific Fluidics & Optics platform decreased in the third quarter of 2020 compared to the same period in 2019 due to the impact of the COVID-19 pandemic which limited or delayed investments in Analytical Instrumentation due to lab closures and IVD/Bio due to lower demand for non-COVID applications, partially offset by increased demand for microfluidics and optical solutions supporting COVID-19 testing applications. Sales within our Gast platform decreased in the third quarter of 2020 compared to the same period in 2019 primarily due to the non-repeat of a large customer project and a slowdown across various industrial end markets, partially offset by new initiatives in response to the COVID-19 pandemic. Sales within our Sealing Solutions platform decreased in the third quarter of 2020 compared to the same period in 2019 primarily due to disruption in the automotive and oil and gas markets, partially offset by the Velcora acquisition and the recovery in the semiconductor market. Sales within our Material Processing Technologies platform increased in the third quarter of 2020 compared to the same period in 2019 primarily due to strong volumes in the food and pharmaceutical industries.
Operating income of $49.9 million and operating margin of 22.6% in the third quarter of 2020 were higher than $40.2 million and 17.5%, respectively, recorded during the same period in 2019, primarily due to the asset impairment and fair value inventory-step up charges that occurred in the prior year period, price, restructuring savings and tightly controlling discretionary spending in the current year, partially offset by lower volume and the impact on margins from the Velcora acquisition.
Fire & Safety/Diversified Products Segment
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| (In thousands) | Three Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 140,896 | | | $ | 154,543 | |
| Operating income | 37,103 | | | 41,967 | |
| Operating margin | 26.3 | % | | 27.2 | % |
Sales of $140.9 million decreased $13.6 million, or 9%, in the third quarter of 2020 compared to the same period in 2019. This reflects a 10% decrease in organic sales, partially offset by a 1% favorable impact from foreign currency translation. In the third quarter of 2020, sales decreased 12% domestically and 6% internationally compared to the same period in 2019. Sales to customers outside the U.S. were approximately 54% of total segment sales in the third quarter of 2020 compared to 52% during the same period in 2019.
Sales within our Dispensing platform decreased in the third quarter of 2020 compared to the same period in 2019 primarily due to the non-repeat of large projects in North America. Sales within our Band-It platform decreased in the third quarter of 2020 compared to the same period in 2019 due to continued softness in the industrial and transportation markets as a result of the COVID-19 pandemic and lower capital spending in the energy markets. Sales within our Fire & Safety platform decreased in the third quarter of 2020 compared to the same period in 2019 due to timing of large projects and market softness globally for the Fire business.
Operating income of $37.1 million and operating margin of 26.3% in the third quarter of 2020 were lower than $42.0 million and 27.2%, respectively, during the same period in 2019. Operating income and operating margin decreased compared to the prior period as a result of lower volume and higher restructuring expenses, partially offset by price, restructuring savings and tightly controlling discretionary spending in the current year.
Consolidated Results for the Nine Months EndedSeptember 30, 2020 Compared with the Same Period in 2019
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| (In thousands) | Nine Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 1,736,824 | | | $ | 1,888,576 | |
| Operating income | 381,748 | | | 444,830 | |
| Operating margin | 22.0 | % | | 23.6 | % |
Sales in the first nine months of 2020 were $1,736.8 million, which was an 8% decrease compared to the same period in 2019. This reflects an 11% decrease in organic sales, partially offset by a 3% increase from acquisitions (Flow MD - February 2020 and Velcora - July 2019). Sales to customers outside the U.S. represented approximately 50% of total sales in the first nine months of 2020 and 2019.
Gross profit of $758.3 million in the first nine months of 2020 decreased $99.9 million, or 12%, compared to the same period in 2019 and gross margin of 43.7% in the first nine months of 2020 decreased 170 basis points from 45.4% during the same period in 2019. Both gross profit and gross margin decreased compared to the prior year period primarily due to lower volume and business mix.
Selling, general and administrative expenses decreased to $369.8 million in the first nine months of 2020 from $399.2 million during the same period in 2019, primarily due to restructuring savings and lower variable costs. Corporate costs decreased to $48.6 million in the first nine months of 2020 compared to $55.0 million during the same period in 2019 primarily due to tightly controlling discretionary spending in the current year, restructuring savings and lower variable costs. As a percentage of sales, selling, general and administrative expenses were 21.3% for the first nine months of 2020, up 20 basis points compared to 21.1% during the same period in 2019.
The Company incurred $6.8 million of restructuring expenses in the first nine months of 2020 compared with $14.1 million during the same period in 2019. The restructuring expenses in the first nine months of 2020 primarily related to severance benefits for cost reduction actions primarily consisting of employee reductions due to lower demand as a result of the COVID-19 pandemic. The restructuring expenses in the third quarter of 2019 included severance benefits of $3.8 million and exit costs of $0.6 million as well as an asset impairment charge of $9.7 million. In the second quarter of 2019, the Company began to evaluate strategic alternatives for one of its businesses in the HST segment. Prior to making a final decision on the options that were presented for this business, the business was informed in the third quarter of 2019 of the loss of its largest customer. As a result, the Company accelerated its restructuring activities for this business and a decision was made to wind down the business over time, requiring the asset impairment charge.
Operating income of $381.7 million and operating margin of 22.0% in the first nine months of 2020 were down from the $444.8 million and 23.6%, respectively, recorded during the same period in 2019. The decreases in operating income and operating margin are primarily due to lower volume, the dilutive impact on margins from the Velcora acquisition and the fair value inventory step-up charge, partially offset by price, lower restructuring expenses in 2020 and an overall reduction in variable costs.
Other (income) expense - net was $7.3 million of expense in the first nine months of 2020 compared to $0.7 million of expense during the same period in 2019, primarily due to an $8.4 million loss on early debt redemption, partially offset by $1.7 million of lower pension expense in 2020.
Interest expense of $34.0 million in the first nine months of 2020 was higher than the $33.3 million in the same period of 2019 due to borrowings under the Revolving Facility in 2020, partially offset by lower interest expense on the new 3.0% Senior Notes issued during the second quarter of 2020.
The provision for income taxes decreased to $63.8 million in the first nine months of 2020 compared to $82.2 million during the same period in 2019. The effective tax rate decreased to 18.7% in the first nine months of 2020 compared to 20.0% during the same period in 2019 primarily due to benefits associated with the finalization of the GILTI regulations in the third quarter of 2020.
Net income of $276.7 million in the first nine months of 2020 decreased from $328.7 million during the same period in 2019. Diluted earnings per share of $3.64 in the first nine months of 2020 decreased $0.66, or 15%, compared to the same period in 2019.
For the nine months ended September 30, 2020, Fluid & Metering Technologies contributed 38% of sales, 41% of operating income and 40% of EBITDA; Health & Science Technologies contributed 38% of sales, 35% of operating income and 37% of EBITDA; and Fire & Safety/Diversified Products contributed 24% of sales, 24% of operating income and 23% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA.
Fluid & Metering Technologies Segment
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| (In thousands) | Nine Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 666,720 | | | $ | 729,572 | |
| Operating income | 176,111 | | | 223,493 | |
| Operating margin | 26.4 | % | | 30.6 | % |
Sales of $666.7 million decreased $62.9 million, or 9%, in the first nine months of 2020 compared to the same period in 2019. This reflects a 15% decrease in organic sales, partially offset by a 6% increase from acquisitions (Flow MD - February 2020). In the first nine months of 2020, sales decreased 7% domestically and 11% internationally compared to the same period in 2019. Sales to customers outside the U.S. were approximately 42% of total segment sales in the first nine months of 2020 compared to 44% during the same period in 2019.
Sales within our Pumps platform decreased in the first nine months of 2020 compared to the same period in 2019 due to continued market declines in industrial and oil and gas markets, compounded by the continued impact of the COVID-19 pandemic, driving declines across most end markets and geographies. Sales within our Valves platform decreased in the first nine months of 2020 compared to the same period in 2019 due to the softening global industrial landscape and lower energy prices driving decreases in capital spending. Sales within our Water platform decreased in the first nine months of 2020 compared to the same period in 2019 primarily due to lower project volumes across the U.S. and Asia. Sales within our Agriculture platform decreased in the first nine months of 2020 compared to the same period in 2019 due to decreased demand across both the agricultural and industrial OEM markets. Sales within our Energy platform increased in the first nine months of 2020 compared to the same period in 2019due to the acquisition of Flow MD, partially offset by declining capital spending in the oil and gas markets.
Operating income of $176.1 million and operating margin of 26.4% in the first nine months of 2020 were lower than the $223.5 million and 30.6%, respectively, recorded in the first nine months of 2019, primarily due to lower volume as well as higher restructuring expenses and a fair value inventory step-up charge included in the current year period, partially offset by the impact of the Flow MD acquisition, price, restructuring savings and tightly controlling discretionary spending in the current year.
Health & Science Technologies Segment
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| (In thousands) | Nine Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 660,105 | | | $ | 687,153 | |
| Operating income | 150,562 | | | 151,087 | |
| Operating margin | 22.8 | % | | 22.0 | % |
Sales of $660.1 million decreased $27.0 million, or 4%, in the first nine months of 2020 compared to the same period in 2019. This reflects a 7% decrease in organic sales, partially offset by a 3% increase from acquisitions (Velcora - July 2019). In the first nine months of 2020, sales decreased 7% domestically and 2% internationally compared to the same period in 2019. Sales to customers outside the U.S. were approximately 56% of total segment sales in the first nine months of 2020 compared to 55% during the same period in 2019.
Sales within our Gast platform decreased in the first nine months of 2020 compared to the same period in 2019 primarily due to the non-repeat of a large customer project and a slowdown across various industrial end markets, partially offset by new initiatives in response to the COVID-19 pandemic. Sales within our Micropump platform decreased in the first nine months of 2020 compared to the same period in 2019 due to weakness in core printing and industrial distribution. Sales within our Scientific Fluidics & Optics platform decreased in the first nine months of 2020 compared to the same period in 2019 due to the impact of the COVID-19 pandemic, which limited or delayed investments in Analytical Instrumentation and IVD/Bio due to lab closures and lower demand for non-COVID applications, partially offset by increased demand for microfluidics and optical solutions supporting COVID-19 testing applications. Sales within our Sealing Solutions platform increased in the first nine months of 2020 compared to the same period in 2019 primarily due to the Velcora acquisition and the recovery in the semiconductor market, partially offset by disruption in the automotive and oil and gas markets. Sales within our Material Processing Technologies platform increased in the first nine months of 2020 compared to the same period in 2019 primarily due
to strong volumes in the food and pharmaceutical industry in response to the COVID-19 pandemic, partially offset by the non-repeat of large projects from the prior year.
Operating income of $150.6 million in the first nine months of 2020 was lower than the $151.1 million recorded during the same period in 2019 while operating margin of 22.8% in the first nine months of 2020 was higher than the 22.0% recorded during the same period in 2019. The decrease in operating income was primarily due to lower volume. The increase in operating margin was due to restructuring savings, tightly controlling discretionary spending in the current year and lower restructuring expenses in the current period, partially offset by the dilutive impact on margins from the Velcora acquisition.
Fire & Safety/Diversified Products Segment
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| (In thousands) | Nine Months Ended September 30, |
| 2020 | | 2019 |
| Net sales | $ | 412,296 | | | $ | 474,745 | |
| Operating income | 103,977 | | | 125,909 | |
| Operating margin | 25.2 | % | | 26.5 | % |
Sales of $412.3 million decreased $62.4 million, or 13%, in the first nine months of 2020 compared to the same period in 2019. This reflects a 13% decrease in organic sales. In the first nine months of 2020, sales decreased 11% domestically and 16% internationally compared to the same period in 2019. Sales to customers outside the U.S. were approximately 51% of total segment sales in the first nine months of 2020 compared with 52% during the same period in 2019.
Sales within our Dispensing platform decreased in the first nine months of 2020 compared to the same period in 2019 primarily due to lower capital spending by customers as a result of the COVID-19 pandemic. Sales within our Band-It platform decreased in the first nine months of 2020 compared to the same period in 2019 due to customer shutdowns in the transportation market as a result of the COVID-19 pandemic and lower capital spending in the energy markets. Sales within our Fire & Safety platform decreased in the first nine months of 2020 compared to the same period in 2019 due to fewer large projects and market softness globally for the Fire and Rescue businesses.
Operating income of $104.0 million and operating margin of 25.2% in the first nine months of 2020 were lower than the $125.9 million and 26.5%, respectively, recorded during the same period in 2019, primarily due to lower volume and higher restructuring expenses, partially offset by price, restructuring savings and tightly controlling discretionary spending in the current year.
Liquidity and Capital Resources
Operating Activities
Cash flows from operating activities for the first nine months of 2020 increased $31.0 million, or 8%, to $407.9 million compared to the first nine months of 2019 due to favorable working capital, partially offset by lower earnings. At September 30, 2020, working capital was $1,111.1 million and the Company’s current ratio was 3.7 to 1. At September 30, 2020, the Company’s cash and cash equivalents totaled $877.8 million, of which $483.3 million was held outside of the United States. The COVID-19 pandemic has impacted and may continue to impact the Company’s operating cash flows through direct and secondary effects on the Company’s operations, customers and supply chain. Although the Company has been able to operate through the COVID-19 pandemic with only temporary shutdowns at the onset of the pandemic, any future disruptions due to operational shutdowns may impact the Company’s ability to operate as well as generate operating cash flow. Based on currently available information and management’s current expectations, the Company anticipates that it has sufficient cash on hand and sufficient access to capital to continue to fund operations for the foreseeable future. However, the continuing impact of COVID-19 and its associated containment measures cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.
Investing Activities
Cash flows used in investing activities for the first nine months of 2020 increased by $33.0 million to $155.6 million compared to the same period in 2019, primarily due to the acquisition of Flow MD and higher capital expenditures in 2020.
Cash flows from operations were more than adequate to fund capital expenditures of $39.4 million and $36.8 million in the first nine months of 2020 and 2019, respectively. The COVID-19 pandemic has impacted and may continue to impact the Company’s operating cash flows, which may lead to reductions in capital expenditures. The Company believes it has sufficient operating cash flow to continue to meet current obligations and invest in planned capital expenditures. Capital expenditures are generally expenditures for machinery and equipment that support growth, improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. Management believes that the Company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term.
Financing Activities
Cash flows used in financing activities for the first nine months of 2020 were $20.8 million compared to $192.7 million used in financing activities during the same period in 2019, primarily as a result of proceeds from the issuance of the 3.0% Senior Notes and the repayment of debt assumed in the Velcora acquisition in the third quarter of 2019, partially offset by the early payment of the 4.5% Senior Notes as well as higher share repurchases and dividends paid in 2020.
On April 29, 2020, the Company completed a public offering of $500.0 million in aggregate principal amount of its 3.0% Senior Notes due 2030 (the “3.0% Senior Notes”). The net proceeds from the offering were approximately $494.4 million, after deducting the issuance discount of $0.9 million, the underwriting commission of $3.3 million and offering expenses of $1.4 million. The net proceeds were used to redeem and repay the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes due December 15, 2020 and the related accrued interest and make-whole premium, with the balance used for general corporate purposes. The 3.0% Senior Notes bear interest at a rate of 3.0% per annum, which is payable semi-annually in arrears on May 1 and November 1 of each year. The 3.0% Senior Notes mature on May 1, 2030.
On April 27, 2020, the Company provided notice of its election to redeem early, on May 27, 2020, the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes at a redemption price of $300.0 million plus a make-whole redemption premium of $6.8 million and accrued and unpaid interest of $6.1 million using proceeds from the Company’s 3.0% Senior Notes. In addition, the Company recognized the remaining $1.4 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity related to the interest rate exchange agreement associated with the 4.5% Senior Notes as well as the remaining $0.1 million of deferred issuance costs and $0.1 million of the debt issuance discount associated with the 4.5% Senior Notes for a total loss on early debt redemption of $8.4 million which was recorded within Other (income) expense - net in the Condensed Consolidated Statements of Operations.
On May 31, 2019, 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”), which is an $800.0 million unsecured, multi-currency bank credit facility maturing on May 31, 2024. The Credit Agreement replaced the Company’s prior five-year, $700 million credit agreement, dated as of June 23, 2015, which was due to expire in June 2020. At September 30, 2020, there was no balance outstanding under the Revolving Facility and $7.0 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of $793.0 million.
Borrowings under the Credit Agreement bear interest, at either an alternate base rate or adjusted LIBOR plus, in each case, an applicable margin. Such applicable margin is based on the lower of the Company’s senior, unsecured, long-term debt rating or the Company’s applicable leverage ratio and can range from 0.00% to 1.275%. Based on the Company’s leverage ratio at September 30, 2020, the applicable margin was 1.00% resulting in a weighted average interest rate of 1.23% for the nine months ended September 30, 2020. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR loans, on the last day of the applicable interest period selected, or every three months from the effective date of such interest period for interest periods exceeding three months. 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 $400 million.
The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation, the Company is required to guarantee the obligations of any such subsidiaries under the Credit Agreement.
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.
On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15, 2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting a $0.9 million issuance discount, a $2.3 million underwriting commission and $0.6 million of offering expenses, were used to repay $306.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of the Company’s assets. The terms of the 4.2% Senior Notes also require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.
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 3.00 to 1 and a maximum leverage ratio of 3.50 to 1. In the case of the leverage ratio, there is an option to increase the ratio to 4.00 for 12 months in connection with certain acquisitions. At September 30, 2020, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 14.60 to 1 and the leverage ratio was 1.7 to 1. There are no financial covenants relating to the 3.0% Senior Notes or the 4.2% Senior Notes; however, both are subject to cross-default provisions.
On March 17, 2020, the Company’s Board of Directors approved an increase of $500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorizations of the Board of Directors of $300.0 million on December 1, 2015 and $400.0 million on November 6, 2014. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the nine months ended September 30, 2020, the Company repurchased a total of 876 thousand shares at a cost of $110.3 million. During the nine months ended September 30, 2019, the Company repurchased a total of 389 thousand shares at a cost of $54.7 million. As of September 30, 2020, the amount of share repurchase authorization remaining is $712.0 million.
Although the COVID-19 pandemic has impacted and may continue to impact the Company’s operating cash flows, based on management’s current expectations and currently available information, the Company believes current cash, cash from operations and cash available under the Revolving Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements and quarterly dividend payments to holders of the Company’s common stock for the foreseeable future. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings. At September 30, 2020, there was no balance outstanding under the Revolving Facility and $7.0 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of $793.0 million. The Company believes that additional borrowings through various financing alternatives remain available if required. However, the continuing impact of COVID-19 and its associated containment measures cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.
Non-GAAP Disclosures
Set forth below are reconciliations of Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS, EBITDA and Adjusted EBITDA to the comparable measures of gross profit, operating income, net income and EPS, as determined in accordance with U.S. GAAP. We have reconciled Adjusted gross profit to Gross profit, Adjusted operating income to Operating income; Adjusted net income to Net income; Adjusted EPS to EPS; and consolidated EBITDA, segment EBITDA, Adjusted consolidated EBITDA and Adjusted segment EBITDA to Net income. The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that we do not allocate consolidated interest expense or the consolidated provision for income taxes to our segments.
EBITDA means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company, which results in a higher level of amortization expense from recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses’ performance across our three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within our industry. Management believes that EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 11 in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements.”
This report references organic sales, a non-GAAP measure, that refers to sales from continuing operations calculated according to U.S. GAAP but excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first 12 months of ownership or divestiture. 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 to 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 and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers.
Management uses Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS and Adjusted EBITDA as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as restructuring expenses, a fair value inventory step-up charge and a loss on early debt redemption. Management also supplements its U.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making.
In addition to measuring our cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, we also measure free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. We believe that free cash flow is an important measure of operating performance because it provides management a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing our common stock.
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. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.
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| | | | | | | |
| 1. Reconciliations of the Change in Net Sales to Organic Net Sales | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | IDEX |
| Change in net sales | (8) | % | | (4) | % | | (9) | % | | (7) | % |
| - Impact from acquisitions/divestitures | 8 | % | | 1 | % | | — | % | | 4 | % |
| - Impact from foreign currency | 1 | % | | 1 | % | | 1 | % | | 1 | % |
| Change in organic net sales | (17) | % | | (6) | % | | (10) | % | | (12) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| Nine Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | IDEX |
| Change in net sales | (9) | % | | (4) | % | | (13) | % | | (8) | % |
| - Impact from acquisitions/divestitures | 6 | % | | 3 | % | | — | % | | 3 | % |
| - Impact from foreign currency | — | % | | — | % | | — | % | | — | % |
| Change in organic net sales | (15) | % | | (7) | % | | (13) | % | | (11) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2. Reconciliations of Reported-to-Adjusted Gross Profit and Margin | | | | | | |
| | | | | | | |
| (dollars in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Gross profit | $ | 251,500 | | | $ | 281,978 | | | $ | 758,256 | | | $ | 858,149 | |
| + Fair value inventory step-up charge | — | | | 3,340 | | | 4,107 | | | 3,340 | |
| Adjusted gross profit | $ | 251,500 | | | $ | 285,318 | | | $ | 762,363 | | | $ | 861,489 | |
| | | | | | | |
| Net sales | $ | 581,113 | | | $ | 624,246 | | | $ | 1,736,824 | | | $ | 1,888,576 | |
| | | | | | | |
| Gross profit margin | 43.3 | % | | 45.2 | % | | 43.7 | % | | 45.4 | % |
| Adjusted gross profit margin | 43.3 | % | | 45.7 | % | | 43.9 | % | | 45.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 3. Reconciliations of Reported-to-Adjusted Operating Income and Margin | | | | | | |
| | | | | | | | | |
| (dollars in thousands) | Three Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | $ | 58,402 | | | $ | 49,912 | | | $ | 37,103 | | | $ | (14,204) | | | $ | 131,213 | |
| + Restructuring expenses | 585 | | | 978 | | | 1,249 | | | 105 | | | 2,917 | |
| | | | | | | | | |
| + Fair value inventory step-up charge | — | | | — | | | — | | | — | | | — | |
| Adjusted operating income (loss) | $ | 58,987 | | | $ | 50,890 | | | $ | 38,352 | | | $ | (14,099) | | | $ | 134,130 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 220,747 | | | $ | 220,378 | | | $ | 140,896 | | | $ | (908) | | | $ | 581,113 | |
| | | | | | | | | |
| Operating margin | 26.5 | % | | 22.6 | % | | 26.3 | % | | n/m | | 22.6 | % |
| Adjusted operating margin | 26.7 | % | | 23.1 | % | | 27.2 | % | | n/m | | 23.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | $ | 77,481 | | | $ | 40,170 | | | $ | 41,967 | | | $ | (17,853) | | | $ | 141,765 | |
| + Restructuring expenses | — | | | 11,196 | | | 104 | | | 656 | | | 11,956 | |
| + Fair value inventory step-up charge | — | | | 3,340 | | | — | | | — | | | 3,340 | |
| Adjusted operating income (loss) | $ | 77,481 | | | $ | 54,706 | | | $ | 42,071 | | | $ | (17,197) | | | $ | 157,061 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 240,861 | | | $ | 229,610 | | | $ | 154,543 | | | $ | (768) | | | $ | 624,246 | |
| | | | | | | | | |
| Operating margin | 32.2 | % | | 17.5 | % | | 27.2 | % | | n/m | | 22.7 | % |
| Adjusted operating margin | 32.2 | % | | 23.8 | % | | 27.2 | % | | n/m | | 25.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Nine Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | $ | 176,111 | | | $ | 150,562 | | | $ | 103,977 | | | $ | (48,902) | | | $ | 381,748 | |
| + Restructuring expenses | 2,433 | | | 2,162 | | | 1,890 | | | 273 | | | 6,758 | |
| | | | | | | | | |
| + Fair value inventory step-up charge | 4,107 | | | — | | | — | | | — | | | 4,107 | |
| Adjusted operating income (loss) | $ | 182,651 | | | $ | 152,724 | | | $ | 105,867 | | | $ | (48,629) | | | $ | 392,613 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 666,720 | | | $ | 660,105 | | | $ | 412,296 | | | $ | (2,297) | | | $ | 1,736,824 | |
| | | | | | | | | |
| Operating margin | 26.4 | % | | 22.8 | % | | 25.2 | % | | n/m | | 22.0 | % |
| Adjusted operating margin | 27.4 | % | | 23.1 | % | | 25.7 | % | | n/m | | 22.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | $ | 223,493 | | | $ | 151,087 | | | $ | 125,909 | | | $ | (55,659) | | | $ | 444,830 | |
| + Restructuring expenses | 930 | | | 11,526 | | | 923 | | | 703 | | | 14,082 | |
| + Fair value inventory step-up charge | — | | | 3,340 | | | — | | | — | | | 3,340 | |
| Adjusted operating income (loss) | $ | 224,423 | | | $ | 165,953 | | | $ | 126,832 | | | $ | (54,956) | | | $ | 462,252 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 729,572 | | | $ | 687,153 | | | $ | 474,745 | | | $ | (2,894) | | | $ | 1,888,576 | |
| | | | | | | | | |
| Operating margin | 30.6 | % | | 22.0 | % | | 26.5 | % | | n/m | | 23.6 | % |
| Adjusted operating margin | 30.8 | % | | 24.2 | % | | 26.7 | % | | n/m | | 24.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| 4. Reconciliations of Reported-to-Adjusted Net Income and EPS | | | | |
| | | | | | | |
| (in thousands, except EPS) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Reported net income | $ | 103,848 | | | $ | 105,194 | | | $ | 276,710 | | | $ | 328,671 | |
| + Restructuring expenses | 2,917 | | | 11,956 | | | 6,758 | | | 14,082 | |
| + Tax impact on restructuring expenses | (703) | | | (2,776) | | | (1,540) | | | (3,336) | |
| + Fair value inventory step-up charge | — | | | 3,340 | | | 4,107 | | | 3,340 | |
| + Tax impact on fair value inventory step-up charge | — | | | (735) | | | (932) | | | (735) | |
| + Loss on early debt redemption | — | | | — | | | 8,421 | | | — | |
| + Tax impact on loss on early debt redemption | — | | | — | | | (1,912) | | | — | |
| Adjusted net income | $ | 106,062 | | | $ | 116,979 | | | $ | 291,612 | | | $ | 342,022 | |
|
| | | | | | | | | | | | | | | | |
| Reconciliations of Reported-to-Adjusted Net Income | | |
| (in thousands) | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Reported net income | | $ | 83,768 |
| | $ | 69,873 |
| | $ | 243,511 |
| | $ | 213,762 |
|
| + Restructuring expenses | | — |
| | — |
| | 4,797 |
| | — |
|
| + Tax impact on restructuring expenses | | — |
| | — |
| | (1,529 | ) | | — |
|
| + Loss (gain) on sale of businesses - net | | — |
| | 2,067 |
| | — |
| | 2,067 |
|
| + Tax impact on loss (gain) on sales of businesses - net | | — |
| | (1,467 | ) | | — |
| | (1,467 | ) |
| Adjusted net income | | $ | 83,768 |
| | $ | 70,473 |
| | $ | 246,779 |
| | $ | 214,362 |
|
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| Reconciliations of Reported-to-Adjusted EPS | | | |
| (shares in thousands) | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Reported EPS | | $ | 1.08 |
| | $ | 0.91 |
| | $ | 3.15 |
| | $ | 2.78 |
|
| + Restructuring expenses | | — |
| | — |
| | 0.06 |
| | — |
|
| + Tax impact on restructuring expenses | | — |
| | — |
| | (0.02 | ) | | — |
|
| + Loss (gain) on sale of businesses - net | | — |
| | 0.03 |
| | — |
| | 0.03 |
|
| + Tax impact on loss (gain) on sale of businesses - net | | — |
| | (0.02 | ) | | — |
| | (0.02 | ) |
| Adjusted EPS | | $ | 1.08 |
| | $ | 0.92 |
| | $ | 3.19 |
| | $ | 2.79 |
|
| | | | | | | | | |
| Diluted weighted average shares | | 77,523 |
| | 76,880 |
| | 77,246 |
| | 76,742 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Reconciliations of Reported-to-Adjusted Operating Income and Margin |
| (dollars in thousands) | | Three Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | | $ | 61,988 |
| | $ | 46,073 |
| | $ | 36,199 |
| | $ | (17,756 | ) | | $ | 126,504 |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjusted operating income (loss) | | $ | 61,988 |
| | $ | 46,073 |
| | $ | 36,199 |
| | $ | (17,756 | ) | | $ | 126,504 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 220,953 |
| | $ | 207,127 |
| | $ | 146,599 |
| | $ | (189 | ) | | $ | 574,490 |
|
| | | | | | | | | | | |
| Operating margin | | 28.1 | % | | 22.2 | % | | 24.7 | % | | n/m |
| | 22.0 | % |
| Adjusted operating margin | | 28.1 | % | | 22.2 | % | | 24.7 | % | | n/m |
| | 22.0 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| |
| | | Three Months Ended September 30, 2016 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | | $ | 55,907 |
| | $ | 37,195 |
| | $ | 32,492 |
| | $ | (15,886 | ) | | $ | 109,708 |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | 2,067 |
| | 2,067 |
|
| Adjusted operating income (loss) | | $ | 55,907 |
| | $ | 37,195 |
| | $ | 32,492 |
| | $ | (13,819 | ) | | $ | 111,775 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 208,335 |
| | $ | 183,564 |
| | $ | 138,767 |
| | $ | (310 | ) | | $ | 530,356 |
|
| | | | | | | | | | | |
| Operating margin | | 26.8 | % | | 20.3 | % | | 23.4 | % | | n/m |
| | 20.7 | % |
| Adjusted operating margin | | 26.8 | % | | 20.3 | % | | 23.4 | % | | n/m |
| | 21.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Reported EPS | $ | 1.37 | | | $ | 1.37 | | | $ | 3.64 | | | $ | 4.30 | |
| + Restructuring expenses | 0.04 | | | 0.16 | | | 0.09 | | | 0.18 | |
| + Tax impact on restructuring expenses | (0.01) | | | (0.04) | | | (0.02) | | | (0.04) | |
| + Fair value inventory step-up charge | — | | | 0.04 | | | 0.05 | | | 0.04 | |
| + Tax impact on fair value inventory step-up charge | — | | | (0.01) | | | (0.01) | | | (0.01) | |
| + Loss on early debt redemption | — | | | — | | | 0.11 | | | — | |
| + Tax impact on loss on early debt redemption | — | | | — | | | (0.02) | | | — | |
| Adjusted EPS | $ | 1.40 | | | $ | 1.52 | | | $ | 3.84 | | 3.84 | $ | 4.47 | |
| | | | | | | |
| Diluted weighted average shares | 75,960 | | | 76,577 | | | 76,119 | | | 76,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 5. Reconciliations of EBITDA to Net Income | | | | | | | | | |
| | | | | | | | | |
| (dollars in thousands) | Three Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Operating income (loss) | $ | 58,402 | | | $ | 49,912 | | | $ | 37,103 | | | $ | (14,204) | | | $ | 131,213 | |
| - Other (income) expense - net | (719) | | | (32) | | | 340 | | | (293) | | | (704) | |
| + Depreciation and amortization | 7,163 | | | 10,230 | | | 3,854 | | | 104 | | | 21,351 | |
| EBITDA | 66,284 | | | 60,174 | | | 40,617 | | | (13,807) | | | 153,268 | |
| - Interest expense | | | | | | | | | 10,642 | |
| - Provision for income taxes | | | | | | | | | 17,427 | |
| - Depreciation and amortization | | | | | | | | | 21,351 | |
| Net income | | | | | | | | | $ | 103,848 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 220,747 | | | $ | 220,378 | | | $ | 140,896 | | | $ | (908) | | | $ | 581,113 | |
| Operating margin | 26.5 | % | | 22.6 | % | | 26.3 | % | | n/m | | 22.6 | % |
| EBITDA margin | 30.0 | % | | 27.3 | % | | 28.8 | % | | n/m | | 26.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Operating income (loss) | $ | 77,481 | | | $ | 40,170 | | | $ | 41,967 | | | $ | (17,853) | | | $ | 141,765 | |
| - Other (income) expense - net | 295 | | | 1,272 | | | (92) | | | (256) | | | 1,219 | |
| + Depreciation and amortization | 5,507 | | | 10,296 | | | 3,566 | | | 154 | | | 19,523 | |
| EBITDA | 82,693 | | | 49,194 | | | 45,625 | | | (17,443) | | | 160,069 | |
| - Interest expense | | | | | | | | | 11,330 | |
| - Provision for income taxes | | | | | | | | | 24,022 | |
| - Depreciation and amortization | | | | | | | | | 19,523 | |
| Net income | | | | | | | | | $ | 105,194 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 240,861 | | | $ | 229,610 | | | $ | 154,543 | | | $ | (768) | | | $ | 624,246 | |
| Operating margin | 32.2 | % | | 17.5 | % | | 27.2 | % | | n/m | | 22.7 | % |
| EBITDA margin | 34.3 | % | | 21.4 | % | | 29.5 | % | | n/m | | 25.6 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| |
| | | Nine Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | | $ | 179,830 |
| | $ | 134,605 |
| | $ | 106,022 |
| | $ | (53,149 | ) | | $ | 367,308 |
|
| + Restructuring expenses | | 1,566 |
| | 3,028 |
| | 73 |
| | 130 |
| | 4,797 |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjusted operating income (loss) | | $ | 181,396 |
| | $ | 137,633 |
| | $ | 106,095 |
| | $ | (53,019 | ) | | $ | 372,105 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 658,905 |
| | $ | 611,215 |
| | $ | 432,029 |
| | $ | (741 | ) | | $ | 1,701,408 |
|
| | | | | | | | | | | |
| Operating margin | | 27.3 | % | | 22.0 | % | | 24.5 | % | | n/m |
| | 21.6 | % |
| Adjusted operating margin | | 27.5 | % | | 22.5 | % | | 24.6 | % | | n/m |
| | 21.9 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| |
| | | Nine Months Ended September 30, 2016 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| Reported operating income (loss) | | $ | 161,782 |
| | $ | 118,985 |
| | $ | 92,566 |
| | $ | (46,457 | ) | | $ | 326,876 |
|
| + Restructuring expenses | | — |
| | — |
| | — |
| | — |
| | — |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | 2,067 |
| | 2,067 |
|
| Adjusted operating income (loss) | | $ | 161,782 |
| | $ | 118,985 |
| | $ | 92,566 |
| | $ | (44,390 | ) | | $ | 328,943 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 641,988 |
| | $ | 556,475 |
| | $ | 384,996 |
| | $ | (835 | ) | | $ | 1,582,624 |
|
| | | | | | | | | | | |
| Operating margin | | 25.2 | % | | 21.4 | % | | 24.0 | % | | n/m |
| | 20.7 | % |
| Adjusted operating margin | | 25.2 | % | | 21.4 | % | | 24.0 | % | | n/m |
| | 20.8 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Reconciliation of EBITDA to Net Income | | | | | | | | | | |
| (in thousands) | | Three Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | Corporate Office | | Total IDEX |
| Operating income (loss) | | $ | 61,988 |
| | $ | 46,073 |
| | $ | 36,199 |
| | $ | (17,756 | ) | | $ | 126,504 |
|
| - Other (income) expense - net | | 230 |
| | (970 | ) | | 1,044 |
| | 1,349 |
| | 1,653 |
|
| + Depreciation & amortization | | 6,192 |
| | 11,189 |
| | 3,709 |
| | 190 |
| | 21,280 |
|
| EBITDA | | 67,950 |
| | 58,232 |
| | 38,864 |
| | (18,915 | ) | | 146,131 |
|
| - Interest expense | | | | | | | | | | 11,064 |
|
| - Provision for income taxes | | | | | | | | | | 30,019 |
|
| - Depreciation and amortization | | | | | | | | | | 21,280 |
|
| Net income | |
| |
| |
| | | | $ | 83,768 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 220,953 |
| | $ | 207,127 |
| | $ | 146,599 |
| | $ | (189 | ) | | $ | 574,490 |
|
| Operating margin | | 28.1 | % | | 22.2 | % | | 24.7 | % | | n/m |
| | 22.0 | % |
| EBITDA margin | | 30.8 | % | | 28.1 | % | | 26.5 | % | | n/m |
| | 25.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| |
| Nine Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Operating income (loss) | $ | 176,111 | | | $ | 150,562 | | | $ | 103,977 | | | $ | (48,902) | | | $ | 381,748 | |
| - Other (income) expense - net | (35) | | | (91) | | | 148 | | | 7,299 | | | 7,321 | |
| + Depreciation and amortization | 19,370 | | | 30,806 | | | 11,409 | | | 389 | | | 61,974 | |
| EBITDA | 195,516 | | | 181,459 | | | 115,238 | | | (55,812) | | | 436,401 | |
| - Interest expense | | | | | | | | | 33,958 | |
| - Provision for income taxes | | | | | | | | | 63,759 | |
| - Depreciation and amortization | | | | | | | | | 61,974 | |
| Net income | | | | | | | | | $ | 276,710 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 666,720 | | | $ | 660,105 | | | $ | 412,296 | | | $ | (2,297) | | | $ | 1,736,824 | |
| Operating margin | 26.4 | % | | 22.8 | % | | 25.2 | % | | n/m | | 22.0 | % |
| EBITDA margin | 29.3 | % | | 27.5 | % | | 28.0 | % | | n/m | | 25.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
| Operating income (loss) | $ | 223,493 | | | $ | 151,087 | | | $ | 125,909 | | | $ | (55,659) | | | $ | 444,830 | |
| - Other (income) expense - net | 612 | | | 1,636 | | | 273 | | | (1,820) | | | 701 | |
| + Depreciation and amortization | 16,653 | | | 29,438 | | | 10,745 | | | 510 | | | 57,346 | |
| EBITDA | 239,534 | | | 178,889 | | | 136,381 | | | (53,329) | | | 501,475 | |
| - Interest expense | | | | | | | | | 33,262 | |
| - Provision for income taxes | | | | | | | | | 82,196 | |
| - Depreciation and amortization | | | | | | | | | 57,346 | |
| Net income | | | | | | | | | $ | 328,671 | |
| | | | | | | | | |
| Net sales (eliminations) | $ | 729,572 | | | $ | 687,153 | | | $ | 474,745 | | | $ | (2,894) | | | $ | 1,888,576 | |
| Operating margin | 30.6 | % | | 22.0 | % | | 26.5 | % | | n/m | | 23.6 | % |
| EBITDA margin | 32.8 | % | | 26.0 | % | | 28.7 | % | | n/m | | 26.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| 6. Reconciliations of EBITDA to Adjusted EBITDA | | | | | | | | |
| | | | | | | | | |
| (dollars in thousands) | Three Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
EBITDA(1) | $ | 66,284 | | | $ | 60,174 | | | $ | 40,617 | | | $ | (13,807) | | | $ | 153,268 | |
| + Restructuring expenses | 585 | | | 978 | | | 1,249 | | | 105 | | | 2,917 | |
| + Fair value inventory step-up charge | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
| Adjusted EBITDA | $ | 66,869 | | | $ | 61,152 | | | $ | 41,866 | | | $ | (13,702) | | | $ | 156,185 | |
| | | | | | | | | |
| Adjusted EBITDA margin | 30.3 | % | | 27.7 | % | | 29.7 | % | | n/m | | 26.9 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Three Months Ended September 30, 2016 |
| | | FMT | | HST | | FSDP | | Corporate Office | | Total IDEX |
| Operating income (loss) | | $ | 55,907 |
| | $ | 37,195 |
| | $ | 32,492 |
| | $ | (15,886 | ) | | $ | 109,708 |
|
| - Other (income) expense - net | | 171 |
| | (384 | ) | | (195 | ) | | (1,105 | ) | | (1,513 | ) |
| + Depreciation & amortization | | 7,168 |
| | 11,163 |
| | 3,584 |
| | 277 |
| | 22,192 |
|
| EBITDA | | 62,904 |
| | 48,742 |
| | 36,271 |
| | (14,504 | ) | | 133,413 |
|
| - Interest expense | | | | | | | | | | 11,913 |
|
| - Provision for income taxes | | | | | | | | | | 29,435 |
|
| - Depreciation and amortization | | | | | | | | | | 22,192 |
|
| Net income | | | | | | | | | | $ | 69,873 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 208,335 |
| | $ | 183,564 |
| | $ | 138,767 |
| | $ | (310 | ) | | $ | 530,356 |
|
| Operating margin | | 26.8 | % | | 20.3 | % | | 23.4 | % | | n/m |
| | 20.7 | % |
| EBITDA margin | | 30.2 | % | | 26.6 | % | | 26.1 | % | | n/m |
| | 25.2 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | |
| | | Nine Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| Operating income (loss) | | $ | 179,830 |
| | $ | 134,605 |
| | $ | 106,022 |
| | $ | (53,149 | ) | | $ | 367,308 |
|
| - Other (income) expense - net | | 707 |
| | 97 |
| | 1,663 |
| | (750 | ) | | 1,717 |
|
| + Depreciation and amortization | | 17,823 |
| | 34,447 |
| | 10,938 |
| | 598 |
| | 63,806 |
|
| EBITDA | | 196,946 |
| | 168,955 |
| | 115,297 |
| | (51,801 | ) | | 429,397 |
|
| - Interest expense | | | | | | | | | | 33,920 |
|
| - Provision for income taxes | | | | | | | | | | 88,160 |
|
| - Depreciation and amortization | | | | | | | | | | 63,806 |
|
| Net income | |
| |
| |
| | | | $ | 243,511 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 658,905 |
| | $ | 611,215 |
| | $ | 432,029 |
| | $ | (741 | ) | | $ | 1,701,408 |
|
| Operating margin | | 27.3 | % | | 22.0 | % | | 24.5 | % | | n/m |
| | 21.6 | % |
| EBITDA margin | | 29.9 | % | | 27.6 | % | | 26.7 | % | | n/m |
| | 25.2 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | Nine Months Ended September 30, 2016 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| Operating income (loss) | | $ | 161,782 |
| | $ | 118,985 |
| | $ | 92,566 |
| | $ | (46,457 | ) | | $ | 326,876 |
|
| - Other (income) expense - net | | 566 |
| | (1,548 | ) | | (485 | ) | | (1,029 | ) | | (2,496 | ) |
| + Depreciation and amortization | | 22,011 |
| | 33,044 |
| | 8,316 |
| | 953 |
| | 64,324 |
|
| EBITDA | | 183,227 |
| | 153,577 |
| | 101,367 |
| | (44,475 | ) | | 393,696 |
|
| - Interest expense | | | | | | | | | | 33,607 |
|
| - Provision for income taxes | | | | | | | | | | 82,003 |
|
| - Depreciation and amortization | | | | | | | | | | 64,324 |
|
| Net income | |
| |
| |
| | | | $ | 213,762 |
|
| | | | | | | | | | | |
| Net sales (eliminations) | | $ | 641,988 |
| | $ | 556,475 |
| | $ | 384,996 |
| | $ | (835 | ) | | $ | 1,582,624 |
|
| Operating margin | | 25.2 | % | | 21.4 | % | | 24.0 | % | | n/m |
| | 20.7 | % |
| EBITDA margin | | 28.5 | % | | 27.6 | % | | 26.3 | % | | n/m |
| | 24.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
EBITDA(1) | $ | 82,693 | | | $ | 49,194 | | | $ | 45,625 | | | $ | (17,443) | | | $ | 160,069 | |
| + Restructuring expenses | — | | | 11,196 | | | 104 | | | 656 | | | 11,956 | |
| + Fair value inventory step-up charge | — | | | 3,340 | | | — | | | — | | | 3,340 | |
| Adjusted EBITDA | $ | 82,693 | | | $ | 63,730 | | | $ | 45,729 | | | $ | (16,787) | | | $ | 175,365 | |
| | | | | | | | | |
| Adjusted EBITDA margin | 34.3 | % | | 27.8 | % | | 29.6 | % | | n/m | | 28.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| |
| Nine Months Ended September 30, 2020 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
EBITDA(1) | $ | 195,516 | | | $ | 181,459 | | | $ | 115,238 | | | $ | (55,812) | | | $ | 436,401 | |
| + Restructuring expenses | 2,433 | | | 2,162 | | | 1,890 | | | 273 | | | 6,758 | |
| + Fair value inventory step-up charge | 4,107 | | | — | | | — | | | — | | | 4,107 | |
| + Loss on early debt redemption | — | | | — | | | — | | | 8,421 | | | 8,421 | |
| Adjusted EBITDA | $ | 202,056 | | | $ | 183,621 | | | $ | 117,128 | | | $ | (47,118) | | | $ | 455,687 | |
| | | | | | | | | |
| Adjusted EBITDA margin | 30.3 | % | | 27.8 | % | | 28.4 | % | | n/m | | 26.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| FMT | | HST | | FSDP | | Corporate | | IDEX |
EBITDA(1) | $ | 239,534 | | | $ | 178,889 | | | $ | 136,381 | | | $ | (53,329) | | | $ | 501,475 | |
| + Restructuring expenses | 930 | | | 11,526 | | | 923 | | | 703 | | | 14,082 | |
| + Fair value inventory step-up charge | — | | | 3,340 | | | — | | | — | | | 3,340 | |
| Adjusted EBITDA | $ | 240,464 | | | $ | 193,755 | | | $ | 137,304 | | | $ | (52,626) | | | $ | 518,897 | |
| | | | | | | | | |
| Adjusted EBITDA margin | 33.0 | % | | 28.2 | % | | 28.9 | % | | n/m | | 27.5 | % |
(1) EBITDA, a non-GAAP financial measure, is reconciled to net income, its most directly comparable GAAP financial measure, immediately above in Item 5.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 7. Reconciliations of Cash Flows from Operating Activities to Free Cash Flow | | | | |
| | | | | | | | | |
| (dollars in thousands) | Three Months Ended September 30, | | | | Nine Months Ended September 30, |
| 2020 | | 2019 | | | | 2020 | | 2019 |
| Cash flows from operating activities | $ | 153,686 | | | $ | 157,064 | | | | | $ | 407,899 | | | $ | 376,902 | |
| - Capital expenditures | 18,353 | | | 11,031 | | | | | 39,438 | | | 36,773 | |
| Free cash flow | $ | 135,333 | | | $ | 146,033 | | | | | $ | 368,461 | | | $ | 340,129 | |
| | | | | | | | | |
| | | | | | | | | |
Critical Accounting Policies
|
| | | | | | | | | | | | | | | | | | | | |
| Reconciliation of EBITDA to Adjusted EBITDA |
| (in thousands) | | Three Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| EBITDA | | $ | 67,950 |
| | $ | 58,232 |
| | $ | 38,864 |
| | $ | (18,915 | ) | | $ | 146,131 |
|
| + Restructuring expenses | | — |
| | — |
| | — |
| | — |
| | — |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjusted EBITDA | | $ | 67,950 |
| | $ | 58,232 |
| | $ | 38,864 |
| | $ | (18,915 | ) | | $ | 146,131 |
|
| | |
| |
| |
| | | |
|
| Adjusted EBITDA margin | | 30.8 | % | | 28.1 | % | | 26.5 | % | | n/m |
| | 25.4 | % |
As discussed in the Annual Report on Form 10-K for the year ended December 31, 2019, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. See Part 1, Notes to the Condensed Consolidated Financial Statements, Note 1 Basis of Presentation and Significant Accounting Policies. There have been no changes to the Company’s critical accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Three Months Ended September 30, 2016 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| EBITDA | | $ | 62,904 |
| | $ | 48,742 |
| | $ | 36,271 |
| | $ | (14,504 | ) | | $ | 133,413 |
|
| + Restructuring expenses | | — |
| | — |
| | — |
| | — |
| | — |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | 2,067 |
| | 2,067 |
|
| Adjusted EBITDA | | $ | 62,904 |
| | $ | 48,742 |
| | $ | 36,271 |
| | $ | (12,437 | ) | | $ | 135,480 |
|
| | | | | | | | | | | |
| Adjusted EBITDA margin | | 30.2 | % | | 26.6 | % | | 26.1 | % | | n/m |
| | 25.5 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Nine Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| EBITDA | | $ | 196,946 |
| | $ | 168,955 |
| | $ | 115,297 |
| | $ | (51,801 | ) | | $ | 429,397 |
|
| + Restructuring expenses | | 1,566 |
| | 3,028 |
| | 73 |
| | 130 |
| | 4,797 |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjusted EBITDA | | $ | 198,512 |
| | $ | 171,983 |
| | $ | 115,370 |
| | $ | (51,671 | ) | | $ | 434,194 |
|
| | | | | | | | | | | |
| Adjusted EBITDA margin | | 30.1 | % | | 28.1 | % | | 26.7 | % | | n/m |
| | 25.5 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Nine Months Ended September 30, 2016 |
| | | FMT | | HST | | FSDP | | Corporate | | IDEX |
| EBITDA | | $ | 183,227 |
| | $ | 153,577 |
| | $ | 101,367 |
| | $ | (44,475 | ) | | $ | 393,696 |
|
| + Restructuring expenses | | — |
| | — |
| | — |
| | — |
| | — |
|
| + Loss (gain) on sale of businesses - net | | — |
| | — |
| | — |
| | 2,067 |
| | 2,067 |
|
| Adjusted EBITDA | | $ | 183,227 |
| | $ | 153,577 |
| | $ | 101,367 |
| | $ | (42,408 | ) | | $ | 395,763 |
|
| | | | | | | | | | | |
| Adjusted EBITDA margin | | 28.5 | % | | 27.6 | % | | 26.3 | % | | n/m |
| | 25.0 | % |
|
| | | | | | | | | | | | |
| Reconciliation of Net Sales to Net Organic Sales | | Three Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | IDEX |
| | | | | | | | | |
| Change in net sales | | 6 | % | | 13 | % | | 6 | % | | 8 | % |
| - Net impact from acquisitions/divestitures | | (2 | )% | | 3 | % | | — | % | | — | % |
| - Impact from foreign currency | | 1 | % | | — | % | | 2 | % | | 1 | % |
| Change in net organic sales | | 7 | % | | 10 | % | | 4 | % | | 7 | % |
|
| | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2017 |
| | | FMT | | HST | | FSDP | | IDEX |
| | | | | | | | | |
| Change in net sales | | 3 | % | | 10 | % | | 12 | % | | 8 | % |
| - Impact from acquisitions/divestitures | | (2 | )% | | 4 | % | | 12 | % | | 4 | % |
| - Impact from foreign currency | | — | % | | (1 | )% | | (1 | )% | | (1 | )% |
| Change in net organic sales | | 5 | % | | 7 | % | | 1 | % | | 5 | % |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Reconciliations of Free Cash Flow |
| (in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Cash flow from operating activities | | $ | 124,000 |
| | $ | 125,480 |
| | $ | 296,580 |
| | $ | 284,324 |
|
| - Capital expenditures | | 8,515 |
| | 11,590 |
| | 28,054 |
| | 28,642 |
|
| Free cash flow | | $ | 115,485 |
| | $ | 113,890 |
| | $ | 268,526 |
| | $ | 255,682 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. The Company may, from time to time, enter into foreign currency forward contracts and interest rate swaps on its debt when it believes there is a financial advantage in doing so. A treasury risk management policy, adopted by the Board of Directors, provides fordescribes the procedures and controls over derivative financial and commodity instruments, including foreign currency forward contracts and interest rate swaps. Under the policy, the Company does not use derivative financial or commodity derivative instruments for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of derivative instruments is limited to foreign currency forward contracts and interest rate swaps on the Company’s outstanding long-term debt. As of September 30, 2020, the Company did not have any derivative instruments outstanding.
Foreign Currency Exchange Rates
The Company’s foreign currency exchange rate risk is limited principally to the Euro, Swiss Franc, British Pound, Canadian Dollar, Swiss Franc, Indian Rupee, Chinese Renminbi and Chinese Renminbi.Swedish Krona. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as the cost incurred to produce oursource of products. The effect of transaction gains and losses is reported within Other (income) expense-net onin the Condensed Consolidated Statements of Operations.
Interest Rate Fluctuation
The Company’sCompany does not have significant interest rate exposure is primarily relateddue to all of the $879.8$1,044.3 million of total debt outstanding atas of September 30, 2017. Approximately 3% of the debt, representing the amount drawn on the Revolving Facility at September 30, 2017, is priced at interest rates that float with the market. A 50 basis point movement in the interest rate on the floating rate debt would result in an approximate $0.1 million annualized increase or decrease in interest expense and cash flows. The remaining debt is2020 being fixed rate debt.
Item 4. Controls and Procedures.Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by SEC Rule 13a-15(b) promulgated under the Securities Exchange Act,, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of September 30, 2017,2020, that the Company’s disclosure controls and procedures were effective.
There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controlscontrol over financial reporting.
PART II. OTHER INFORMATION
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Item 1. | Legal Proceedings. |
Item 1. Legal Proceedings
The Company and its subsidiaries are party to legal proceedings as described in Note 20 in Part I, Item 1, “Legal Proceedings,” and such disclosure is incorporated by reference into this Item 1, “Legal Proceedings.” In addition, the Company and six of its subsidiaries are presently named as defendants in a number of lawsuits claiming various asbestos-related personal injuries, allegedly as a result of exposure to products manufactured with components that contained asbestos. These components were acquired from third party suppliers and were not manufactured by the Company or any of the defendant subsidiaries. To date, the majority of the Company’s settlements and legal costs, except for costs of coordination, administration, insurance investigation and a portion of defense costs, have been covered in full by insurance, subject to applicable deductibles. However, the Company cannot predict whether and to what extent insurance will be available to continue to cover these settlements and legal costs, or how insurers may respond to claims that are tendered to them. Claims have been filed in jurisdictions throughout the United States.States and the United Kingdom. Most of the claims resolved to date have been dismissed without payment. The balance of the claims have been settled for various insignificantimmaterial amounts. Only one case has been tried, resulting in a verdict for the Company’s business unit. No provision has been made in the financial statements of the Company, other than for insurance deductibles in the ordinary course, and the Company does not currently believe the asbestos-related claims will have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.
Item 1A. Risk Factors
In light of current global economic events and conditions experienced during the nine months ended September 30, 2020, the following factors are present risks to the Company. Aside from these risk factors, there have been no changes to the Company’s risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2019 that have a material impact on our condensed consolidated financial statements.
Our business, results of operations and financial condition have been and may continue to be materially adversely impacted by the recent coronavirus (COVID-19) pandemic.
The novel coronavirus (COVID-19) pandemic is a rapidly-changing situation that has negatively impacted and could continue to negatively impact the global economy. Our operating results are subject to fluctuations based on general economic conditions and have been adversely affected by the negative general economic conditions. The extent to which COVID-19 continues to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak and business closures or business disruptions for our Company, our suppliers and our customers.
The deterioration in economic conditions materially reduced, and could continue to reduce, the Company’s sales and profitability. The financial distress our customers have experienced due to the deterioration in economic conditions has resulted in and could continue to result in reduced sales and decreased collectability of accounts receivable which has and could continue to negatively impact our results of operations. Based on currently available information and management’s current expectations, we believe the Company’s organic sales will be down approximately 3 to 5 percent in the fourth quarter of 2020. Any changes in or resurgence of the COVID-19 outbreak could also have a material impact on our ability to get the raw materials, parts and components we need to manufacture our products as our suppliers face disruptions in their businesses, closures or bankruptcy as a result of the COVID-19 outbreak. We depend greatly on our suppliers for items that are essential to the manufacturing of our products. Although we have not experienced material supply chain disruptions to date, if our suppliers fail to meet our manufacturing needs in the future, it would delay our production and our product shipments to customers and negatively affect our operations.
U.S and international government responses to the COVID-19 outbreak have included “shelter in place”, “stay at home” and similar types of orders. These orders exempt certain individuals needed to maintain continuity of its subsidiariesoperations of critical infrastructure sectors as determined by the U.S. federal and international governmental bodies. Although the Company’s operations are currently considered essential and exempt (and in some regions government lockdown mandates have been lifted), if any of the applicable exemptions are curtailed or revoked in the future, including in response to any COVID-19 resurgence, that would adversely impact our business, operating results and financial condition. Furthermore, to the extent these exemptions do not extend to our key suppliers and customers, this would also partyadversely impact our business, operating results and financial condition. We have also implemented work-from-home policies for certain “non-essential” employees. Although these work-from-home policies have not negatively impacted our business in any material respect to various other pending or threatened legal proceedings arisingdate, the COVID-19
outbreak is dynamic and any future resurgences could negatively impact productivity, disrupt conduct of our business in the ordinary course and delay our production timelines.
Due to the large remote workforce populations, we may also face informational technology infrastructure and connectivity issues from the vendors that we rely on for certain information technologies to administer, store and support the Company’s multiple business activities. IDEX is heavily dependent on the availability and support of business. These proceedingsour technology landscape, several of which are provided by external third party service providers (e.g., Microsoft, AT&T and Verizon). Although we have not suffered any disruptions to date, any future disruptions in their operations could also negatively impact our business, operating results and financial condition.
To the extent the COVID-19 outbreak continues to adversely affect our business and financial results, it may pertain to mattersalso have the effect of heightening many of the other risks described in the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2019, such as product liability or contract disputes, and may also involve governmental inquiries, inspections, audits or investigationsthose relating to issues such as tax matters, intellectual property, environmental, healthour international operations, our ability to develop new products, our ability to execute on our growth strategy of acquisitions, our dependency on raw materials, parts and safety issues, governmental regulations, employmentcomponents, the effects on movements in foreign currency exchange rates on our Company, the effects on our Company that result from declines in commodity prices 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,our reliance on the Company’s business, financial condition, results of operations or cash flows.labor availability to operate and grow our business.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about the Company’s purchases of its common stock during the quarter ended September 30, 2017:2020:
|
| | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Dollar Value that May Yet be Purchased Under the Plans or Programs(1) |
| July 1, 2017 to July 31, 2017 | — |
| | $ | — |
| | — |
| | $ | 570,211,110 |
|
| August 1, 2017 to August 31, 2017 | 36,000 |
| | 114.75 |
| | 36,000 |
| | 566,080,109 |
|
| September 1, 2017 to September 30, 2017 | 80,000 |
| | 121.22 |
| | 80,000 |
| | 556,382,861 |
|
| Total | 116,000 |
| | $ | 119.21 |
| | 116,000 |
| | $ | 556,382,861 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(1)Period | Total Number of
Shares Purchased | | Average Price
Paid per Share | | On DecemberTotal Number of
Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Approximate Dollar Value that May Yet be Purchased Under the Plans or Programs(1) |
July 1, 2015, the Company announced that its Board of Directors had increased the authorized level for repurchases of its common stock by 2020 to July 31, 2020 | — | | | $300.0 million. This followed the prior Board of Directors repurchase authorization of $400.0 million, announced by the Company on November 6, 2014. These authorizations have no expiration date. | — | | | — | | | $ | 712,001,005 | |
| August 1, 2020 to August 31, 2020 | — | | | — | | | — | | | 712,001,005 | |
| September 1, 2020 to September 30, 2020 | — | | | — | | | — | | | 712,001,005 | |
| Total | — | | | $ | — | | | — | | | $ | 712,001,005 | |
(1)On March 17, 2020, the Company’s Board of Directors approved an increase of $500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorizations of the Board of Directors of $300.0 million on December 1, 2015 and $400.0 million on November 6, 2014. These authorizations have no expiration date.
Item 6. Exhibits.
| | | | | | | | |
Exhibit
Number | | Description |
| | |
| | |
| | |
| *31.1 | | |
| |
Item 6.*31.2 | Exhibits. | |
| |
| *32.1 | | |
| |
| *32.2 | | |
| |
| *101 | | The following financial information from IDEX Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 formatted in Inline eXtensible Business Reporting Language (iXBRL) includes: (i) the Cover Page, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Operations, (iv) the Condensed Consolidated Statements of Comprehensive Income, (v) the Condensed Consolidated Statements of Shareholders’ Equity, (vi) the Condensed Consolidated Statements of Cash Flows, and (vii) Notes to the Condensed Consolidated Financial Statements. |
| | |
| *104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| | |
| * Filed herewith |
The exhibits listed in the accompanying “Exhibit Index” are filed or furnished as part of this report.
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| IDEX Corporation |
| | |
| IDEX Corporation |
| By: | | |
| By: | /s/ WILLIAM K. GROGAN |
| | William K. Grogan |
| | Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|
| | |
| By: | /s/ MICHAEL J. YATES |
| | Michael J. Yates |
| | Vice President and Chief Accounting Officer (Principal Accounting Officer) |
Date: October 23, 2017
EXHIBIT INDEX
|
| | |
Exhibit
Number
| By: | Description/s/ MICHAEL J. YATES |
| | Michael J. Yates |
*31.1 | | |
| |
*31.2 | | |
| |
*32.1 | | |
| |
*32.2 | | |
| |
*101 | | The following financial information from IDEX Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in XBRL includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
|
| | |
* Filed herewith
(Principal Accounting Officer) |
Date: October 28, 2020