Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this annual report.

2019 Overview

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. IDEX’s products are sold in niche markets across 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, Health & Science Technologies and Fire & Safety/Diversified Products. Within our three reportable segments, the Company maintains 13 platforms, where we focus on organic growth and strategic acquisitions. Each of our 13 platforms is also a reporting unit that we annually test goodwill for impairment.

The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters, injectors and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water and wastewater, agriculture and energy industries. The Fluid & Metering Technologies segment contains the Energy platform (comprised of Corken, Liquid Controls, SAMPI and Toptech), 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 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 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, 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, AWG Fittings, Godiva, Dinglee, Hurst Jaws of Life, Lukas and Vetter), the Band-It platform and the Dispensing platform.

Our 2019 financial results were as follows:

•	Sales of $2.5 billion were flat, reflecting a 1% increase in organic sales and a 1% increase due to acquisitions (Velcora - July 2019 and FLI - July 2018), offset by a 2% decrease due to foreign currency translation.

•	Operating income of $579.0 million was up 2% and operating margin of 23.2% was up 30 basis points from the prior year.

•	Net income increased 4% to $425.5 million.

•	Diluted EPS of $5.56 increased $0.27, or 5%, compared to 2018.

Our 2019 financial results, adjusted for $21.0 million of restructuring expense and a $3.3 million fair value inventory step-up charge, compared to our 2018 financial results, adjusted for $12.1 million of restructuring expense, were as follows (these non-GAAP measures have been reconciled to U.S. GAAP measures in Item 6, “Selected Financial Data”):

•	Adjusted operating income of $603.4 million was up 4% and adjusted operating margin of 24.2% was up 80 basis points from the prior year.

•	Adjusted net income increased 6% to $444.2 million.

•	Adjusted EPS of $5.80 was 7% higher than prior year adjusted EPS of $5.41.

Results of Operations

The following is a discussion and analysis of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018. For discussion related to the results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 28, 2019. For purposes of this Item, reference is made to the Consolidated Statements of Operations in Part II, Item 8, “Financial Statements and Supplementary Data.” Segment operating income excludes unallocated corporate operating expenses. Management’s primary measurements of segment performance are sales, operating income and operating margin.

In the following discussion, and throughout this report, references to organic sales, a non-GAAP measure, 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 twelve 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 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.

Performance in 2019 Compared with 2018

(In thousands)	2019				2018				Change
Net sales	$	2,494,573			$	2,483,666			—
Operating income	579,003				569,088				2	%

Sales in 2019 were $2.5 billion, which was flat compared with last year. This reflects a 1% increase in organic sales and a 1% increase from acquisitions (Velcora - July 2019 and FLI - July 2018), offset by a 2% unfavorable impact from foreign currency translation. Sales to customers outside the U.S. represented approximately 50% of total sales in 2019 compared with 51% in 2018.

In 2019, Fluid & Metering Technologies contributed 38% of sales and 44% of total segment operating income; Health & Science Technologies contributed 37% of sales and 31% of total segment operating income; and Fire & Safety/Diversified Products contributed 25% of sales and 25% of total segment operating income.

Gross profit of $1.1 billion in 2019 increased $7.1 million, or 1%, from 2018, while gross margin increased 10 basis points to 45.1% in 2019 from 45.0% in 2018. The increase in gross profit and margin is primarily a due to price capture and productivity initiatives, partially offset by a fair value inventory step-up charge, inflation and higher engineering costs.

Selling, general and administrative (“SG&A”) expenses decreased to $525.0 million in 2019 from $536.7 million in 2018. The $11.7 million decrease is primarily due to lower variable compensation expenses and tighter cost controls in 2019 as well as a stamp duty charge in Switzerland in 2018. As a percentage of sales, SG&A expenses were 21.2% for 2019 and 21.6% for 2018.

In 2019 and 2018, the Company incurred pre-tax restructuring expenses totaling $21.0 million and $12.1 million, respectively, to facilitate long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions, facility

rationalization and impairment charges. The restructuring expenses included severance benefits of $9.8 million, exit costs of $1.1 million and impairment charges of $10.1 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 a $9.7 million impairment charge. In addition, in the fourth quarter of 2019, the Company completed the consolidation of one of its facilities into the Optics Center of Excellence in Rochester, New York, which resulted in a $0.4 million impairment charge.

Operating income of $579.0 million in 2019 increased from $569.1 million in 2018, and operating margin of 23.2% in 2019 was up 30 basis points from 22.9% in 2018. Both operating income and operating margin increased compared to 2018 primarily due to price capture, productivity initiatives and tighter cost controls in 2019, partially offset by inflation and sales mix.

Other (income) expense - net changed by $5.7 million, from income of $4.0 million in 2018 to expense of $1.8 million in 2019 mainly due to foreign currency transaction gains in 2018 that did not repeat in 2019.

Interest expense increased to $44.3 million in 2019 from $44.1 million in 2018. The increase was primarily due to interest on debt assumed in the Velcora acquisition, which has been subsequently retired.

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 decreased to $107.4 million in 2019 compared to $118.4 million in 2018. The effective tax rate decreased to 20.2% in 2019 compared to 22.4% in 2018 due to an increase in the excess tax benefits related to share-based compensation, a partial change in the assertion of permanent reinvestment of certain foreign tax earnings in 2018, and the mix of global pre-tax income among jurisdictions.

Net income for the year of $425.5 million increased from $410.6 million in 2018. Diluted earnings per share in 2019 of $5.56 increased $0.27 from $5.29 in 2018.

Fluid & Metering Technologies Segment

(In thousands)	2019				2018				Change
Net sales	$	957,028			$	951,552			1	%
Operating income	285,256				275,060				4	%
Operating margin	29.8		%		28.9		%		90		bps

Sales of $957.0 million increased $5.5 million, or 1%, in 2019 compared with 2018. This increase reflected a 2% increase in organic sales, partially offset by a 1% unfavorable impact from foreign currency translation. In 2019, sales were flat domestically and up 1% internationally. Sales to customers outside the U.S. were approximately 43% of total segment sales in both 2019 and 2018.

Sales within our Valves platform increased compared to 2018 due to strength in the chemical end market. Sales within our Pumps platform increased compared to 2018 due to strength in the North American industrial market in the first half of the year and lease automated custody transfer (“LACT”) product growth. Sales within our Energy platform increased slightly compared to 2018 due to market demand stability, despite lower capital investment as a result of declines in fuel prices. Sales within our Water platform were flat compared to 2018 as municipal markets remained fairly consistent. Sales within our Agriculture platform decreased compared to 2018 due to challenging market conditions from geopolitical uncertainty and depressed commodity prices.

Operating income and operating margin of $285.3 million and 29.8%, respectively, were higher than the $275.1 million and 28.9%, respectively, recorded in 2018, primarily due to increased volume, price capture and productivity initiatives.

Health & Science Technologies Segment

(In thousands)	2019				2018				Change
Net sales	$	914,446			$	896,419			2	%
Operating income	200,200				205,679				(3	)%
Operating margin	21.9		%		22.9		%		(100	)	bps

Sales of $914.4 million increased $18.0 million, or 2%, in 2019 compared with 2018. This increase reflected a 1% increase in organic sales and a 2% increase from acquisitions (Velcora - July 2019 and FLI - July 2018), partially offset by a 1% unfavorable impact from foreign currency translation. In 2019, sales increased 5% domestically and were flat internationally. Sales to customers outside the U.S. were approximately 55% of total segment sales in 2019 compared with 56% in 2018.

Sales in our Gast platform increased compared to 2018 due to strong demand related to our targeted growth initiatives. Sales within our Scientific Fluidics & Optics platform increased compared to 2018 due to new product introductions and strong demand across our end markets primarily in vitro diagnostics (“IVD”) and biotechnology. Sales within our Sealing Solutions platform were flat compared to 2018 due to the Velcora acquisition, offset by weakness in the semiconductor and industrial markets. Sales within our Material Processing Technologies platform decreased compared to 2018 due to project timing. Sales within our Micropump platform decreased compared to 2018 due to end market demand volatility.

Operating income and operating margin of $200.2 million and 21.9%, respectively, in 2019 were down from $205.7 million and 22.9%, respectively, in 2018, primarily due to the impairment charges and the fair value inventory step-up charge, partially offset by price capture and tighter cost controls in 2019.

Fire & Safety/Diversified Products Segment

(In thousands)	2019				2018				Change
Net sales	$	626,770			$	637,028			(2	)%
Operating income	165,258				168,601				(2	)%
Operating margin	26.4		%		26.5		%		(10	)	bps

Sales of $626.8 million decreased $10.3 million, or 2%, in 2019 compared with 2018. This decrease reflected flat organic sales and a 2% unfavorable impact from foreign currency translation. In 2019, sales increased 2% domestically and decreased 5% internationally. Sales to customers outside the U.S. were approximately 52% of total segment sales in 2019 compared with 53% in 2018.

Sales within our Dispensing platform decreased compared to 2018 due to the timing of large projects in 2018 that did not reoccur in 2019. Sales in our Band-It platform increased compared to 2018 due to strength in transportation markets, partially offset by weakness in the industrial end market. Sales within our Fire & Safety platform increased compared to 2018 primarily due to OEM and distribution strength as well as strong demand for new product introductions.

Operating income of $165.3 million and operating margin of 26.4%, respectively, were lower than the $168.6 million and 26.5%, respectively, in 2018, primarily due to volume declines and sales mix in the Dispensing platform.

Liquidity and Capital Resources

Operating Activities

Cash flows from operating activities increased $48.7 million, or 10.2%, to $528.1 million in 2019, primarily due to higher earnings and favorable operating working capital, partially offset by lower income taxes payable and lower incentive compensation. At December 31, 2019, working capital was $903.6 million and the Company’s current ratio was 3.5 to 1. At December 31, 2019, the Company’s cash and cash equivalents totaled $632.6 million, of which $350.9 million was held outside of the United States.

Investing Activities

Cash flows used in investing activities increased $55.6 million to $137.0 million in 2019, primarily due to $87.2 million spent on the acquisition of Velcora in 2019 compared to $20.2 million spent on the acquisition of FLI in 2018, partially offset by lower capital expenditures in 2019 and $4.0 million spent on the purchase of intellectual property assets from Phantom in 2018.

Cash flows from operations were more than adequate to fund capital expenditures of $50.9 million and $56.1 million in 2019 and 2018, respectively. Capital expenditures were generally for machinery and equipment that supported 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 decreased $62.4 million to $227.6 million in 2019, primarily as a result of lower share repurchases in 2019, partially offset by higher debt repayments due to the repayment of debt assumed in the Velcora acquisition and higher dividends paid in 2019.

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 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 expiring on May 30, 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 December 31, 2019, there was no balance outstanding under the Revolving Facility and $8.5 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of $791.5 million.

Borrowings under the Revolving Facility 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 better of the Company’s senior, unsecured, long-term debt rating or the Company’s applicable leverage ratio. 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 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 15 and December 15. The Company may redeem all or part 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.

On December 6, 2010, the Company completed a public offering of $300.0 million 4.5% senior notes due December 15, 2020 (“4.5% Senior Notes”). The net proceeds from the offering of $295.7 million, after deducting a $1.6 million issuance discount, a $1.9 million underwriting commission and $0.8 million of offering expenses, were used to repay $250.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.5% Senior Notes bear interest at a rate of 4.5% per annum, which is payable semi-annually in arrears on each June 15 and December 15. The Company may redeem all or a portion of the 4.5% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.5% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.5% 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 4.5% Senior Notes also require the Company to make

an offer to repurchase the 4.5% 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 3.0 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 December 31, 2019, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 16.04 to 1 and the leverage ratio was 1.23 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 an increase of $300.0 million in the authorized level for repurchases of common stock. This followed the prior Board of Directors approved repurchase authorization of $400.0 million that was announced by the Company on November 6, 2014. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During 2019, the Company repurchased a total of 389 thousand shares at a cost of $54.7 million compared to 1.3 million shares repurchased in 2018 at a cost of $173.9 million. As of December 31, 2019, the amount of share repurchase authorization remaining is $322.3 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 and principal payments on all borrowings, pension and postretirement funding requirements, authorized share repurchases and annual dividend payments to holders of the Company’s common stock for the next twelve months. 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. As of December 31, 2019, there was no balance outstanding under the Revolving Facility and $8.5 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility at December 31, 2019 of approximately $791.5 million.

Contractual Obligations

Our contractual obligations include pension and postretirement medical benefit plans, rental payments under operating leases, payments under capital leases and other long-term obligations arising in the ordinary course of business. There are no identifiable events or uncertainties, including the lowering of our credit rating, which would accelerate payment or maturity of any of these commitments or obligations.

The following table summarizes our significant contractual obligations and commercial commitments at December 31, 2019 and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal and interest payments on outstanding borrowings. Additional detail regarding these obligations is provided in the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”

	Payments Due by Period
Contractual Obligations	Total				Less Than 1 Year				1-3 Years				3-5 Years				More Than 5 Years
	(In thousands)
Borrowings (1)	$	922,880			$	334,773			$	377,845			$	108,577			$	101,685
Lease obligations	104,381				18,449				25,717				15,931				44,284
Purchase obligations (2)	147,562				137,470				7,206				1,010				1,874
Transition tax payable	11,292				—				2,008				9,284				—
Pension and post-retirement obligations	146,489				49,423				54,920				11,495				30,651
Total contractual obligations (3)	$	1,332,604			$	540,115			$	467,696			$	146,297			$	178,494

(1)	Includes interest payments based on contractual terms and current interest rates for variable debt.

(2)	Consists primarily of inventory commitments.

(3)	Comprises liabilities recorded on the balance sheet of $1,034.9 million and obligations not recorded on the balance sheet of $297.7 million.

Critical Accounting Policies and Estimates

We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”

Revenue recognition — 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. 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. Our performance obligations are satisfied at a point in time or over time as work progresses. Revenue from products and services transferred to customers at a point in time 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. Certain units recognize revenue over time because control transfers continuously to our customers. 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) or 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 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. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize provisions for estimated losses on uncompleted contracts in the period in which such losses are determined.

The Company records allowances for discounts 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.

Goodwill, long-lived and intangible assets — The Company evaluates the recoverability of certain noncurrent assets utilizing various estimation processes. An impairment of a long-lived asset exists when the asset’s carrying amount exceeds its fair value and is recorded when the carrying amount is not recoverable through future operations. An impairment of an indefinite-lived intangible asset or goodwill exists when the carrying amount of the intangible asset or goodwill exceeds its fair value. Assessments of possible impairments of long-lived or indefinite-lived intangible assets or goodwill are made if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Additionally, testing for possible impairments of recorded indefinite-lived intangible asset balances and goodwill is performed annually. On October 31, or more frequently if triggering events occur, the Company compares the fair value of each reporting unit to the carrying amount of each reporting unit to determine if a goodwill impairment exists. The amount and timing of impairment charges for these assets require the estimation of future cash flows to determine the fair value of the related assets. 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 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, $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. In the fourth quarter of 2019, the Company completed the consolidation of one of its facilities into the Optics Center of Excellence in Rochester, New York, which resulted in an impairment charge of $0.4 million related to a building right-of-use asset. These charges were recorded as Restructuring expense in the Consolidated Statements of Operations. In 2018, there were no events that occurred or circumstances that changed that would have required a review other than as of our annual test date and the Company concluded that there were no long-lived assets with a fair value that was less than the carrying value.

The Company’s business acquisitions result in recording goodwill and other intangible assets, which affect the amount of amortization expense and possible impairment expense that the Company will incur in future periods. The Company follows the guidance prescribed in ASC 350, Goodwill and Other Intangible Assets, to test goodwill and intangible assets for impairment. The Company determines the fair value of each reporting unit utilizing an income approach (discounted cash flows) weighted 50% and a market approach (consisting of a comparable public company multiples methodology) weighted 50%. To determine the reasonableness of the calculated fair values, the Company reviews the assumptions to ensure that neither the income approach nor the market approach yielded significantly different valuations.

The key assumptions are updated every year for each reporting unit for the income and market approaches used to determine fair value. Various assumptions are utilized including forecasted operating results, annual operating plans, strategic plans, economic projections, anticipated future cash flows, the weighted average cost of capital, market data and market multiples. The assumptions that have the most significant effect on the fair value calculations are the weighted average cost of capital, market multiples, forecasted EBITDA and terminal growth rates. The 2019 and 2018 ranges for these three assumptions utilized by the Company are as follows:

Assumptions	2019 Range		2018 Range
Weighted average cost of capital	8.5% to 10.5%		9.5% to 11.0%
Market multiples	11.0x to 18.0x		11.0x to 17.0x
Terminal growth rates	3.0% to 3.5%		3.0% to 3.5%

In assessing the fair value of the reporting units, the Company considers both the market approach and the income approach. Under the market approach, the fair value of the reporting unit is determined by the respective trailing twelve month EBITDA and the forward looking 2020 EBITDA (50% each), based on multiples of comparable public companies. The market approach is dependent on a number of significant management assumptions including forecasted EBITDA and selected market multiples. Under the income approach, the fair value of the reporting unit is determined based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including estimates of operating results, capital expenditures, net working capital requirements, long-term growth rates and discount rates. Weighting was equally attributed to both the market and income approaches (50% each) in arriving at the fair value of the reporting units.

The Banjo trade name and the Akron Brass trade name are indefinite-lived intangible assets which are tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company uses the relief-from-royalty method, a form of the income approach, to determine the fair value of these trade names. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues, royalty rates and discount rates.

Defined benefit retirement plans — The plan obligations and related assets of the defined benefit retirement plans are presented in Note 17 of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.” Level 1 assets are valued using unadjusted quoted prices for identical assets in active markets. Level 2 assets are valued using quoted prices or other observable inputs for similar assets. Level 3 assets are valued using unobservable inputs, but reflect the assumptions market participants would use in pricing the assets. Plan obligations and the annual pension expense are determined after consulting with actuaries on a number of key assumptions and on information provided by the Company. Key assumptions in the determination of the annual pension expense include the discount rate, the rate of salary increases and the estimated future return on plan assets. To the extent actual amounts differ from these assumptions and estimated amounts, results could be adversely affected.

The Society of Actuaries releases annual updates to mortality tables, which update life expectancy assumptions. IDEX adopts these annual updates and, in consideration of these tables, we modified the mortality assumptions used in determining our pension and post-retirement benefit obligations as of December 31, 2019, which will have a related impact on our annual benefit expense in future years. New mortality tables may result in additional funding requirements dependent upon the funded status of our plans. These expectations presume all other assumptions remain constant and there are no changes to applicable funding regulations.

Changes in the discount rate assumptions will impact the (gain) loss amortization and interest cost components of the projected benefit obligation (“PBO”), which in turn, may impact the Company’s funding decisions if the PBO exceeds plan assets. Each 100 basis point increase in the discount rate will cause a corresponding decrease in the PBO of approximately $25 million based upon the December 31, 2019 data. Each 100 basis point decrease in the discount rate will cause a corresponding increase in the PBO of approximately $31 million based upon the December 31, 2019 data.