filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
(unaudited)
| June 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 557.8 | $ | 855.4 | |||||||
| Receivables, less allowance for doubtful accounts of $7.9 at June 30, 2022 and $7.2 at December 31, 2021 | 425.7 | 356.4 | |||||||||
| Inventories | 457.4 | 370.4 | |||||||||
| Other current assets | 110.4 | 95.8 | |||||||||
| Total current assets | 1,551.3 | 1,678.0 | |||||||||
| Property, plant and equipment - net | 323.3 | 327.3 | |||||||||
| Goodwill | 2,238.6 | 2,167.7 | |||||||||
| Intangible assets - net | 655.0 | 597.3 | |||||||||
| Other noncurrent assets | 144.6 | 146.9 | |||||||||
| Total assets | $ | 4,912.8 | $ | 4,917.2 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Trade accounts payable | $ | 214.4 | $ | 178.8 | |||||||
| Accrued expenses | 254.0 | 259.8 | |||||||||
| Dividends payable | 45.4 | 41.4 | |||||||||
| Total current liabilities | 513.8 | 480.0 | |||||||||
| Long-term borrowings | 1,190.9 | 1,190.3 | |||||||||
| Deferred income taxes | 189.6 | 196.4 | |||||||||
| Other noncurrent liabilities | 230.5 | 247.4 | |||||||||
| Total liabilities | 2,124.8 | 2,114.1 | |||||||||
| Commitments and contingencies | |||||||||||
| Shareholders’ equity | |||||||||||
| Preferred stock: | |||||||||||
| Authorized: 5,000,000 shares, $.01 per share par value; Issued: None | — | — | |||||||||
| Common stock: | |||||||||||
| Authorized: 150,000,000 shares, $.01 per share par value | |||||||||||
| Issued: 90,075,084 shares at June 30, 2022 and 90,067,996 shares at December 31, 2021 | 0.9 | 0.9 | |||||||||
| Additional paid-in capital | 809.1 | 795.6 | |||||||||
| Retained earnings | 3,313.8 | 3,126.5 | |||||||||
| Treasury stock at cost: 14,405,163 shares at June 30, 2022 and 13,872,555 shares at December 31, 2021 | (1,165.8) | (1,050.3) | |||||||||
| Accumulated other comprehensive loss | (169.8) | (69.6) | |||||||||
| Total shareholders’ equity | 2,788.2 | 2,803.1 | |||||||||
| Noncontrolling interest | (0.2) | — | |||||||||
| Total equity | 2,788.0 | 2,803.1 | |||||||||
| Total liabilities and equity | $ | 4,912.8 | $ | 4,917.2 |
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | 796.1 | $ | 686.0 | $ | 1,547.2 | $ | 1,338.0 | |||||||||||||||
| Cost of sales | 439.2 | 379.9 | 847.8 | 739.3 | |||||||||||||||||||
| Gross profit | 356.9 | 306.1 | 699.4 | 598.7 | |||||||||||||||||||
| Selling, general and administrative expenses | 167.5 | 144.6 | 321.8 | 279.5 | |||||||||||||||||||
| Restructuring expenses and asset impairments | 2.8 | 3.2 | 3.4 | 5.4 | |||||||||||||||||||
| Operating income | 186.6 | 158.3 | 374.2 | 313.8 | |||||||||||||||||||
| Other expense (income) - net | — | 17.2 | (2.3) | 16.4 | |||||||||||||||||||
| Interest expense | 9.5 | 11.2 | 19.0 | 21.9 | |||||||||||||||||||
| Income before income taxes | 177.1 | 129.9 | 357.5 | 275.5 | |||||||||||||||||||
| Provision for income taxes | 39.0 | 27.7 | 79.5 | 60.6 | |||||||||||||||||||
| Net income | 138.1 | 102.2 | 278.0 | 214.9 | |||||||||||||||||||
| Net loss attributable to noncontrolling interest | 0.1 | — | 0.2 | — | |||||||||||||||||||
| Net income attributable to IDEX | $ | 138.2 | $ | 102.2 | $ | 278.2 | $ | 214.9 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic earnings per common share attributable to IDEX | $ | 1.82 | $ | 1.34 | $ | 3.66 | $ | 2.83 | |||||||||||||||
| Diluted earnings per common share attributable to IDEX | $ | 1.81 | $ | 1.34 | $ | 3.65 | $ | 2.81 | |||||||||||||||
| Share data: | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | 75.8 | 76.0 | 76.0 | 75.9 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 76.1 | 76.4 | 76.2 | 76.4 |
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | 138.1 | $ | 102.2 | $ | 278.0 | $ | 214.9 | |||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||
| Reclassification adjustments for derivatives, net of tax | — | 1.8 | — | 2.5 | |||||||||||||||||||
| Pension and other postretirement adjustments, net of tax | 0.6 | 9.2 | 1.2 | 10.0 | |||||||||||||||||||
| Cumulative translation adjustment | (81.9) | 20.3 | (101.4) | (28.2) | |||||||||||||||||||
| Other comprehensive loss | (81.3) | 31.3 | (100.2) | (15.7) | |||||||||||||||||||
| Comprehensive income | 56.8 | 133.5 | 177.8 | 199.2 | |||||||||||||||||||
| Comprehensive loss attributable to noncontrolling interest | 0.1 | — | 0.2 | — | |||||||||||||||||||
| Comprehensive income attributable to IDEX | $ | 56.9 | $ | 133.5 | $ | 178.0 | $ | 199.2 |
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in millions)
(unaudited)
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock and Additional Paid-In Capital | Retained Earnings | Cumulative Translation Adjustment | Retirement Benefits Adjustment | Treasury Stock | Total Shareholders’ Equity | Noncontrolling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | 796.5 | $ | 3,126.5 | $ | (62.2) | $ | (7.4) | $ | (1,050.3) | $ | 2,803.1 | $ | — | $ | 2,803.1 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | 140.0 | — | — | — | 140.0 | (0.1) | 139.9 | |||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (19.5) | — | — | (19.5) | — | (19.5) | |||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $0.2) | — | — | — | 0.6 | — | 0.6 | — | 0.6 | |||||||||||||||||||||||||||||||||||||||
| Issuance of 73,755 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $1.7) | — | — | — | — | 1.4 | 1.4 | — | 1.4 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of 147,500 shares of common stock | — | — | — | — | (28.3) | (28.3) | (28.3) | ||||||||||||||||||||||||||||||||||||||||
| Shares surrendered for tax withholding | — | — | — | — | (4.9) | (4.9) | — | (4.9) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 6.6 | — | — | — | — | 6.6 | — | 6.6 | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | 803.1 | $ | 3,266.5 | $ | (81.7) | $ | (6.8) | $ | (1,082.1) | $ | 2,899.0 | $ | (0.1) | $ | 2,898.9 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | 138.2 | — | — | — | 138.2 | (0.1) | 138.1 | |||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (81.9) | — | — | (81.9) | (81.9) | ||||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $0.5) | — | — | — | 0.6 | — | 0.6 | — | 0.6 | |||||||||||||||||||||||||||||||||||||||
| Issuance of 42,408 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $0.4) | — | — | — | — | 3.8 | 3.8 | — | 3.8 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of 474,690 shares of common stock | — | — | — | — | (87.5) | (87.5) | — | (87.5) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 6.9 | — | — | — | — | 6.9 | — | 6.9 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared - $1.20 per common share outstanding | — | (90.9) | — | — | — | (90.9) | — | (90.9) | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | 810.0 | $ | 3,313.8 | $ | (163.6) | $ | (6.2) | $ | (1,165.8) | $ | 2,788.2 | $ | (0.2) | $ | 2,788.0 |
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in millions)
(unaudited)
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock and Additional Paid-In Capital | Retained Earnings | Cumulative Translation Adjustment | Retirement Benefits Adjustment | Cumulative Unrealized Gain (Loss) on Derivatives | Treasury Stock | Total Shareholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 776.1 | $ | 2,841.5 | $ | 13.4 | $ | (24.4) | $ | (2.5) | $ | (1,063.9) | $ | 2,540.2 | $ | 0.1 | $ | 2,540.3 | |||||||||||||||||||||||||||||||||||
| Net income | — | 112.7 | — | — | — | — | 112.7 | — | 112.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (48.5) | — | — | — | (48.5) | — | (48.5) | ||||||||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $0.3) | — | — | — | 0.8 | — | — | 0.8 | — | 0.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Net change on derivatives designated as cash flow hedges (net of tax of $0.2) | — | — | — | — | 0.7 | — | 0.7 | — | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of 106,122 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $1.9) | — | — | — | — | — | 3.2 | 3.2 | — | 3.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares surrendered for tax withholding | — | — | — | — | — | (5.4) | (5.4) | — | (5.4) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 6.2 | — | — | — | — | — | 6.2 | — | 6.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | 782.3 | $ | 2,954.2 | $ | (35.1) | $ | (23.6) | $ | (1.8) | $ | (1,066.1) | $ | 2,609.9 | $ | 0.1 | $ | 2,610.0 | |||||||||||||||||||||||||||||||||||
| Net income | — | 102.2 | — | — | — | — | 102.2 | — | 102.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | 20.3 | — | — | — | 20.3 | — | 20.3 | ||||||||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $2.8) | — | — | — | 9.2 | — | — | 9.2 | — | 9.2 | ||||||||||||||||||||||||||||||||||||||||||||
| Net change on derivatives designated as cash flow hedges (net of tax of $0.5) | — | — | — | — | 1.8 | — | 1.8 | — | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of 67,476 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $0.6) | — | — | — | — | — | 7.5 | 7.5 | — | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares surrendered for tax withholding | — | — | — | — | — | (0.1) | (0.1) | — | (0.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 4.3 | — | — | — | — | — | 4.3 | — | 4.3 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared - $1.08 per common share outstanding | — | (82.3) | — | — | — | — | (82.3) | — | (82.3) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | 786.6 | $ | 2,974.1 | $ | (14.8) | $ | (14.4) | $ | — | $ | (1,058.7) | $ | 2,672.8 | $ | 0.1 | $ | 2,672.9 | |||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 278.0 | $ | 214.9 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Gain on sale of assets | (2.6) | — | |||||||||
| Asset impairments | 0.2 | 0.2 | |||||||||
| Depreciation and amortization | 24.7 | 21.5 | |||||||||
| Amortization of intangible assets | 32.2 | 24.5 | |||||||||
| Amortization of debt issuance expenses | 0.8 | 1.0 | |||||||||
| Share-based compensation expense | 13.5 | 10.5 | |||||||||
| Deferred income taxes | (0.2) | (14.0) | |||||||||
| Non-cash interest expense associated with forward starting swaps | — | 3.3 | |||||||||
| Termination of the U.S. pension plan | — | 9.7 | |||||||||
| Changes in (net of the effect from acquisitions/divestitures and foreign exchange): | |||||||||||
| Receivables | (68.7) | (46.3) | |||||||||
| Inventories | (84.5) | (20.9) | |||||||||
| Other current assets | (17.8) | 0.1 | |||||||||
| Trade accounts payable | 36.2 | 22.6 | |||||||||
| Deferred revenue | 1.3 | 15.5 | |||||||||
| Accrued expenses | (22.5) | 2.3 | |||||||||
| Other - net | 1.4 | 0.7 | |||||||||
| Net cash flows provided by operating activities | 192.0 | 245.6 | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property, plant and equipment | (31.7) | (30.6) | |||||||||
| Acquisition of businesses, net of cash acquired | (234.9) | (575.6) | |||||||||
| Note receivable from collaborative partner | — | (4.2) | |||||||||
| Proceeds from disposal of fixed assets | 6.6 | 0.2 | |||||||||
| Other - net | (0.1) | 0.9 | |||||||||
| Net cash flows used in investing activities | (260.1) | (609.3) | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from issuance of long-term borrowings | — | 499.4 | |||||||||
| Payment of long-term borrowings | — | (350.0) | |||||||||
| Payment of make-whole redemption premium | — | (6.7) | |||||||||
| Debt issuance costs | — | (4.6) | |||||||||
| Dividends paid | (86.9) | (79.2) | |||||||||
| Proceeds from stock option exercises | 5.2 | 10.7 | |||||||||
| Repurchases of common stock | (110.4) | — | |||||||||
| Shares surrendered for tax withholding | (4.9) | (5.5) | |||||||||
| Other - net | (0.1) | (0.1) | |||||||||
| Net cash flows (used in) provided by financing activities | (197.1) | 64.0 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (32.4) | (11.8) | |||||||||
| Net decrease in cash | (297.6) | (311.5) | |||||||||
| Cash and cash equivalents at beginning of year | 855.4 | 1,025.9 | |||||||||
| Cash and cash equivalents at end of period | $ | 557.8 | $ | 714.4 | |||||||
| Supplemental cash flow information | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | 18.5 | $ | 17.2 | |||||||
| Income taxes | 86.9 | 72.7 | |||||||||
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
The Condensed Consolidated Financial Statements of IDEX Corporation (“IDEX” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 six months ended June 30, 2022 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, 2021.
Recently Issued Accounting Standards
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which adds contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue recognition guidance. ASU 2021-08 is effective for annual periods beginning after December 15, 2022 and interim periods therein. Early adoption is permitted. Entities should apply the ASU’s provisions prospectively to business combinations occurring on or after the effective date of the amendments. The adoption of this standard is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Accounting Standards Codification (“ASC”) 832): Disclosures by Business Entities about Government Assistance, which requires entities to provide certain annual disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. ASU 2021-10 is effective for annual periods beginning after December 15, 2021. Early adoption is permitted, and entities may apply the ASU’s provisions prospectively or retrospectively. The adoption of this standard is not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.
2. Acquisitions
All of the Company’s acquisitions of businesses have been accounted for under ASC 805, Business Combinations. Accordingly, the assets and liabilities 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 ABEL Pumps, L.P. and certain of its affiliates (“ABEL”), Airtech Group, Inc., US Valve Corporation and related entities (“Airtech”), Nexsight, LLC and its businesses Envirosight, WinCan, MyTana and Pipeline Renewal Technologies (“Nexsight”) and KZ CO. (“KZValve”) have been included in the Company’s Condensed Consolidated Financial Statements since the dates of acquisition on March 10, 2021, June 14, 2021, February 28, 2022 and May 2, 2022, respectively. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on the Company’s Condensed Consolidated Financial Statements individually or in the aggregate.
2022 Acquisitions
Nexsight
On February 28, 2022, the Company acquired Nexsight in a partial stock and asset acquisition. Nexsight complements and creates synergies with the Company’s existing iPEK and ADS business units that design and create sewer crawlers, inspection and monitoring systems and software applications that allow teams to identify, anticipate and correct wastewater system issues remotely. Headquartered in Randolph, New Jersey, Nexsight operates in the Company’s Water reporting unit within the Fluid & Metering Technologies (“FMT”) segment. Nexsight was acquired for cash consideration of $114.7 million. The entire
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $58.3 million and $49.8 million, respectively. The goodwill is partially deductible for tax purposes.
The Company made a preliminary allocation of the purchase price for the Nexsight 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 integrate the newly acquired business, the Company 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.
The 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:
| Total | |||||
| Current assets, net of cash acquired | $ | 16.6 | |||
| Property, plant and equipment | 2.0 | ||||
| Goodwill | 58.3 | ||||
| Intangible assets | 49.8 | ||||
| Other noncurrent assets | 4.4 | ||||
| Total assets acquired | 131.1 | ||||
| Current liabilities | (11.1) | ||||
| Deferred income taxes | (1.0) | ||||
| Other noncurrent liabilities | (4.3) | ||||
| Net assets acquired | $ | 114.7 |
Acquired intangible assets consist of trade names, customer relationships and software. 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:
| Total | Weighted Average Life | ||||||||||
| Trade names | $ | 13.5 | 15 | ||||||||
| Customer relationships | 31.5 | 10 | |||||||||
| Software | 4.8 | 5 | |||||||||
| Acquired intangible assets | $ | 49.8 |
KZValve
On May 2, 2022, the Company acquired KZValve in an asset acquisition. KZValve is a leading manufacturer of electric valves and controllers used primarily in agricultural applications. KZValve will augment and expand IDEX’s agricultural portfolio, complementing Banjo’s current fluid management solutions for these applications. Headquartered in Greenwood, Nebraska, KZValve operates in the Company’s Agriculture reporting unit within the FMT segment. KZValve was acquired for cash consideration of $120.2 million. The entire purchase was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $56.6 million and $52.0 million, respectively. The goodwill is deductible for tax purposes.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
The Company made a preliminary allocation of the purchase price for the KZValve 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 integrate the newly acquired business, the Company 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.
The 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:
| Total | |||||
| Current assets, net of cash acquired | $ | 9.7 | |||
| Property, plant and equipment | 1.8 | ||||
| Goodwill | 56.6 | ||||
| Intangible assets | 52.0 | ||||
| Deferred income taxes | 0.1 | ||||
| Other noncurrent assets | 1.0 | ||||
| Total assets acquired | 121.2 | ||||
| Current liabilities | (1.0) | ||||
| Net assets acquired | $ | 120.2 |
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:
| Total | Weighted Average Life | ||||||||||
| Trade names | $ | 7.5 | 15 | ||||||||
| Customer relationships | 36.0 | 13 | |||||||||
| Unpatented technology | 8.5 | 10 | |||||||||
| Acquired intangible assets | $ | 52.0 |
The Company incurred $1.7 million and $2.6 million of acquisition-related transaction costs during the three and six months ended June 30, 2022, 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. The Company also recorded $0.1 million and $0.3 million of fair value inventory step-up charges associated with the completed 2022 acquisitions of Nexsight and KZValve, respectively, in Cost of sales during the three and six months ended June 30, 2022.
2021 Acquisitions
ABEL
On March 10, 2021, the Company acquired the stock of ABEL. ABEL designs and manufactures highly engineered reciprocating positive displacement pumps for a variety of end markets, including mining, marine, power, water, wastewater and other general industries. Headquartered in Büchen, Germany, with sales and service locations in Madrid, Spain, and subsequent to the acquisition, with operations in Mansfield, Ohio, ABEL operates in the Company’s Pumps reporting unit within the FMT segment. ABEL was acquired for cash consideration of $106.3 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $42.7 million and $46.0 million, respectively. The goodwill is not deductible for tax purposes.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
The Company finalized the allocation of the purchase price for the ABEL 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.
The final 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:
| Total | |||||
| Current assets, net of cash acquired | $ | 18.1 | |||
| Property, plant and equipment | 4.0 | ||||
| Goodwill | 42.7 | ||||
| Intangible assets | 46.0 | ||||
| Deferred income taxes | 2.6 | ||||
| Other noncurrent assets | 0.1 | ||||
| Total assets acquired | 113.5 | ||||
| Current liabilities | (7.1) | ||||
| Other noncurrent liabilities | (0.1) | ||||
| Net assets acquired | $ | 106.3 |
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:
| Total | Weighted Average Life | ||||||||||
| Trade names | $ | 9.0 | 15 | ||||||||
| Customer relationships | 30.0 | 13 | |||||||||
| Unpatented technology | 7.0 | 11 | |||||||||
| Acquired intangible assets | $ | 46.0 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Airtech
On June 14, 2021, the Company acquired the stock of Airtech. Airtech designs and manufactures a wide range of highly-engineered pressure technology products, including vacuum pumps, regenerative blowers, compressor systems and valves for a variety of end markets, including alternative energy, food processing, medical, packaging and transportation. Headquartered in Rutherford, New Jersey, with primary manufacturing operations in Werneck, Germany and Shenzhen, China, Airtech operates in the Company’s Performance Pneumatic Technologies reporting unit within the Health & Science Technologies (“HST”) segment. Airtech was acquired for cash consideration of $471.0 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $268.5 million and $202.3 million, respectively. The goodwill is not deductible for tax purposes.
The Company finalized the allocation of the purchase price for the Airtech 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.
The final 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:
| Total | |||||
| Current assets, net of cash acquired | $ | 45.3 | |||
| Property, plant and equipment | 4.8 | ||||
| Goodwill | 268.5 | ||||
| Intangible assets | 202.3 | ||||
| Other noncurrent assets | 10.2 | ||||
| Total assets acquired | 531.1 | ||||
| Current liabilities | (11.8) | ||||
| Deferred income taxes | (39.9) | ||||
| Other noncurrent liabilities | $ | (8.4) | |||
| Net assets acquired | $ | 471.0 |
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:
| Total | Weighted Average Life | ||||||||||
| Trade names | $ | 15.4 | 15 | ||||||||
| Customer relationships | 162.9 | 13 | |||||||||
| Unpatented technology | 24.0 | 11 | |||||||||
| Acquired intangible assets | $ | 202.3 |
The Company incurred $2.3 million and $3.7 million of acquisition-related costs during the three and six months ended June 30, 2021, 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. The Company also recorded a fair value inventory step-up charge associated with the completed 2021 acquisition of ABEL in Cost of sales, of which $1.8 million was recorded during the three months ended June 30, 2021 and $2.5 million was recorded during the six months ended June 30, 2021.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
3. Business Segments
IDEX has three reportable business segments: Fluid & Metering Technologies (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”).
The 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 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, pneumatic components and sealing solutions, high performance molded and extruded sealing components, custom mechanical and shaft seals, engineered hygienic mixers and valves, biocompatible medical devices and implantables, air compressors and blowers, optical components and coatings, laboratory and commercial equipment, precision photonic solutions and precision gear and peristaltic pump technologies. HST serves a variety of end markets, including food and beverage, pharmaceutical and biopharmaceutical, cosmetics, marine, chemical, wastewater and water treatment, life sciences, research and defense markets.
The FSDP 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.
Information on the Company’s business segments is presented below based on the nature of the products and services offered. The Company evaluates its performance based on several factors, of which sales, operating income and operating margin are the primary financial measures. Intersegment sales are accounted for at fair value as if the sales were to third parties.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Fluid & Metering Technologies | |||||||||||||||||||||||
| External customers | $ | 299.5 | $ | 250.9 | $ | 571.4 | $ | 493.9 | |||||||||||||||
| Intersegment sales | 0.4 | 0.4 | 0.5 | 0.7 | |||||||||||||||||||
| Total segment sales | 299.9 | 251.3 | 571.9 | 494.6 | |||||||||||||||||||
| Health & Science Technologies | |||||||||||||||||||||||
| External customers | 325.4 | 274.3 | 640.0 | 523.8 | |||||||||||||||||||
| Intersegment sales | 0.6 | 0.7 | 1.2 | 1.6 | |||||||||||||||||||
| Total segment sales | 326.0 | 275.0 | 641.2 | 525.4 | |||||||||||||||||||
| Fire & Safety/Diversified Products | |||||||||||||||||||||||
| External customers | 171.2 | 160.8 | 335.8 | 320.3 | |||||||||||||||||||
| Intersegment sales | — | — | 0.1 | — | |||||||||||||||||||
| Total segment sales | 171.2 | 160.8 | 335.9 | 320.3 | |||||||||||||||||||
| Intersegment elimination | (1.0) | (1.1) | (1.8) | (2.3) | |||||||||||||||||||
| Total net sales | $ | 796.1 | $ | 686.0 | $ | 1,547.2 | $ | 1,338.0 | |||||||||||||||
| Operating income (loss) (1) | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 82.9 | $ | 63.5 | $ | 163.3 | $ | 126.4 | |||||||||||||||
| Health & Science Technologies | 86.5 | 76.0 | 170.1 | 142.6 | |||||||||||||||||||
| Fire & Safety/Diversified Products | 39.9 | 42.8 | 80.4 | 87.4 | |||||||||||||||||||
| Corporate office and other | (22.7) | (24.0) | (39.6) | (42.6) | |||||||||||||||||||
| Total operating income | $ | 186.6 | $ | 158.3 | $ | 374.2 | $ | 313.8 |
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Fluid & Metering Technologies | $ | 1,742.6 | $ | 1,458.8 | |||||||
| Health & Science Technologies | 2,119.9 | 2,138.3 | |||||||||
| Fire & Safety/Diversified Products | 906.2 | 892.5 | |||||||||
| Corporate office and other | 144.1 | 427.6 | |||||||||
| Total assets | $ | 4,912.8 | $ | 4,917.2 |
(1) Segment operating income (loss) excludes net unallocated corporate operating expenses.
4. Revenue
Disaggregation of Revenue
The Company has a comprehensive offering of products, including technologies, built to customers’ specifications that are sold in niche markets throughout the world. The Company disaggregates its revenue from contracts with customers by reporting unit and geographical region for each segment as the Company believes it best depicts how the amount, nature, timing and uncertainty of its 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 revenue disaggregated by reporting unit and geographical region.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Revenue by reporting unit for the three and six months ended June 30, 2022 and 2021 was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Pumps | $ | 104.5 | $ | 89.1 | $ | 201.9 | $ | 171.4 | |||||||||||||||
| Water(1) | 81.6 | 65.5 | 146.0 | 124.2 | |||||||||||||||||||
| Energy | 44.7 | 40.1 | 93.0 | 85.4 | |||||||||||||||||||
| Agriculture | 38.1 | 25.1 | 70.4 | 51.1 | |||||||||||||||||||
| Valves(1) | 31.0 | 31.5 | 60.6 | 62.5 | |||||||||||||||||||
| Intersegment elimination | (0.4) | (0.4) | (0.5) | (0.7) | |||||||||||||||||||
| Fluid & Metering Technologies | 299.5 | 250.9 | 571.4 | 493.9 | |||||||||||||||||||
| Scientific Fluidics & Optics | 149.2 | 130.4 | 290.4 | 244.8 | |||||||||||||||||||
| Sealing Solutions | 68.0 | 69.1 | 138.2 | 134.7 | |||||||||||||||||||
| Performance Pneumatic Technologies | 65.1 | 30.3 | 127.1 | 63.2 | |||||||||||||||||||
| Material Processing Technologies | 34.8 | 36.5 | 68.5 | 66.4 | |||||||||||||||||||
| Micropump | 8.9 | 8.7 | 17.0 | 16.3 | |||||||||||||||||||
| Intersegment elimination | (0.6) | (0.7) | (1.2) | (1.6) | |||||||||||||||||||
| Health & Science Technologies | 325.4 | 274.3 | 640.0 | 523.8 | |||||||||||||||||||
| Fire & Safety | 99.8 | 98.0 | 195.5 | 194.8 | |||||||||||||||||||
| Dispensing | 43.8 | 38.9 | 85.4 | 75.8 | |||||||||||||||||||
| BAND-IT | 27.6 | 23.9 | 55.0 | 49.7 | |||||||||||||||||||
| Intersegment elimination | — | — | (0.1) | — | |||||||||||||||||||
| Fire & Safety/Diversified Products | 171.2 | 160.8 | 335.8 | 320.3 | |||||||||||||||||||
| Total net sales | $ | 796.1 | $ | 686.0 | $ | 1,547.2 | $ | 1,338.0 |
(1) During the third quarter of 2021, the Company merged a business in the Water reporting unit with a business in the Valves reporting unit. Revenue for each reporting unit has been restated to reflect this change for the three and six months ended June 30, 2021.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Revenue by geographical region for the three and six months ended June 30, 2022 and 2021 was as follows:
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S. | $ | 170.5 | $ | 157.7 | $ | 85.0 | $ | 413.2 | |||||||||||||||
| North America, excluding U.S. | 16.6 | 9.5 | 8.5 | 34.6 | |||||||||||||||||||
| Europe | 51.8 | 92.5 | 42.0 | 186.3 | |||||||||||||||||||
| Asia | 41.2 | 60.8 | 26.6 | 128.6 | |||||||||||||||||||
| Other (1) | 19.8 | 5.5 | 9.1 | 34.4 | |||||||||||||||||||
| Intersegment elimination | (0.4) | (0.6) | — | (1.0) | |||||||||||||||||||
| Total net sales | $ | 299.5 | $ | 325.4 | $ | 171.2 | $ | 796.1 |
| Three Months Ended June 30, 2021 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S. | $ | 131.1 | $ | 113.9 | $ | 71.8 | $ | 316.8 | |||||||||||||||
| North America, excluding U.S. | 14.1 | 4.4 | 8.2 | 26.7 | |||||||||||||||||||
| Europe | 52.7 | 95.5 | 45.4 | 193.6 | |||||||||||||||||||
| Asia | 37.9 | 51.3 | 26.8 | 116.0 | |||||||||||||||||||
| Other (1) | 15.5 | 9.9 | 8.6 | 34.0 | |||||||||||||||||||
| Intersegment elimination | (0.4) | (0.7) | — | (1.1) | |||||||||||||||||||
| Total net sales | $ | 250.9 | $ | 274.3 | $ | 160.8 | $ | 686.0 |
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S. | $ | 320.5 | $ | 309.7 | $ | 161.5 | $ | 791.7 | |||||||||||||||
| North America, excluding U.S. | 33.9 | 17.0 | 19.4 | 70.3 | |||||||||||||||||||
| Europe | 100.5 | 183.8 | 87.0 | 371.3 | |||||||||||||||||||
| Asia | 77.7 | 119.6 | 50.0 | 247.3 | |||||||||||||||||||
| Other (1) | 39.3 | 11.1 | 18.0 | 68.4 | |||||||||||||||||||
| Intersegment elimination | (0.5) | (1.2) | (0.1) | (1.8) | |||||||||||||||||||
| Total net sales | $ | 571.4 | $ | 640.0 | $ | 335.8 | $ | 1,547.2 |
| Six Months Ended June 30, 2021 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S. | $ | 262.1 | $ | 207.6 | $ | 147.3 | $ | 617.0 | |||||||||||||||
| North America, excluding U.S. | 28.9 | 11.5 | 15.4 | 55.8 | |||||||||||||||||||
| Europe | 101.3 | 172.3 | 88.0 | 361.6 | |||||||||||||||||||
| Asia | 71.6 | 119.0 | 53.7 | 244.3 | |||||||||||||||||||
| Other (1) | 30.7 | 15.0 | 15.9 | 61.6 | |||||||||||||||||||
| Intersegment elimination | (0.7) | (1.6) | — | (2.3) | |||||||||||||||||||
| Total net sales | $ | 493.9 | $ | 523.8 | $ | 320.3 | $ | 1,338.0 |
(1) Other includes: South America, Middle East, Australia and Africa.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Performance Obligations
The Company’s performance obligations are satisfied either at a point in time or over time as work progresses. Revenue from products and services transferred to customers at a point in time approximated 96% and 95% of total revenues in the three months ended June 30, 2022 and 2021, respectively, and 96% in both the six months ended June 30, 2022 and 2021. Revenue from products and services transferred to customers over time approximated 4% and 5% of total revenues in the three months ended June 30, 2022 and 2021, respectively, and 4% in both the six months ended June 30, 2022 and 2021.
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 the 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.
The composition of customer receivables was as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Billed receivables | $ | 411.6 | $ | 344.0 | |||||||
| Unbilled receivables | 9.9 | 10.9 | |||||||||
| Total customer receivables | $ | 421.5 | $ | 354.9 |
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 the Company expects to recognize the revenue. The current portion is included in Accrued expenses and the noncurrent portion is included in Other noncurrent liabilities on the Condensed Consolidated Balance Sheets. Advance payments and deposits represent contract liabilities and are recorded when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance obligations satisfied over time. The Company generally receives advance payments from customers related to maintenance services which are recognized ratably over the service term. The Company also receives deposits from customers on certain orders which the Company recognizes 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:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Deferred revenue - current | $ | 57.3 | $ | 49.0 | |||||||
| Deferred revenue - noncurrent | 28.4 | 32.2 | |||||||||
| Total deferred revenue | $ | 85.7 | $ | 81.2 |
5. Earnings Per Common Share
Diluted earnings per common share (“EPS”) attributable to IDEX is computed by dividing net income attributable to IDEX 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.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
ASC 260, Earnings Per Share, concludes that all outstanding unvested share-based payment awards that contain rights to non-forfeitable 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, diluted EPS attributable to IDEX was computed using the two-class method prescribed by ASC 260.
Basic weighted average shares outstanding reconciles to diluted weighted average shares outstanding as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Basic weighted average common shares outstanding | 75.8 | 76.0 | 76.0 | 75.9 | |||||||||||||||||||
| Dilutive effect of stock options, restricted stock and performance share units | 0.3 | 0.4 | 0.2 | 0.5 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 76.1 | 76.4 | 76.2 | 76.4 |
Options to purchase approximately 0.5 million and 0.3 million shares of common stock for the three months ended June 30, 2022 and 2021, respectively, and 0.5 million and 0.3 million shares of common stock for the six months ended June 30, 2022 and 2021, respectively, were not included in the computation of diluted EPS attributable to IDEX because the effect of their inclusion would have been antidilutive.
6. Inventories
The components of inventories as of June 30, 2022 and December 31, 2021 were:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Raw materials and component parts | $ | 286.0 | $ | 229.4 | |||||||
| Work in process | 54.1 | 47.4 | |||||||||
| Finished goods | 117.3 | 93.6 | |||||||||
| Total inventories | $ | 457.4 | $ | 370.4 |
Inventories are stated at the lower of cost or net realizable value. Cost, which includes material, labor and overhead, is determined on a first in, first out basis.
7. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the six months ended June 30, 2022, by reportable business segment, were as follows:
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| Goodwill | $ | 701.7 | $ | 1,264.3 | $ | 402.3 | $ | 2,368.3 | |||||||||||||||
| Accumulated goodwill impairment losses | (20.7) | (149.8) | (30.1) | (200.6) | |||||||||||||||||||
| Balance at December 31, 2021 | 681.0 | 1,114.5 | 372.2 | 2,167.7 | |||||||||||||||||||
| Foreign currency translation | (9.7) | (24.7) | (10.8) | (45.2) | |||||||||||||||||||
| Acquisitions | 114.9 | — | — | 114.9 | |||||||||||||||||||
| Acquisition adjustments | 0.3 | 0.9 | — | 1.2 | |||||||||||||||||||
| Balance at June 30, 2022 | $ | 786.5 | $ | 1,090.7 | $ | 361.4 | $ | 2,238.6 |
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 six months of 2022, there were no events or
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
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 the Company’s annual impairment test at October 31, 2021, all reporting units had fair values in excess of their carrying values.
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at June 30, 2022 and December 31, 2021:
| At June 30, 2022 | At December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Weighted Average Life | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Patents | $ | 3.0 | $ | (1.9) | $ | 1.1 | 10 | $ | 3.2 | $ | (2.0) | $ | 1.2 | ||||||||||||||||||||||||||||
| Trade names | 157.9 | (76.2) | 81.7 | 15 | 140.9 | (72.4) | 68.5 | ||||||||||||||||||||||||||||||||||
| Customer relationships | 551.1 | (159.7) | 391.4 | 13 | 495.9 | (144.2) | 351.7 | ||||||||||||||||||||||||||||||||||
| Unpatented technology | 148.4 | (63.0) | 85.4 | 13 | 143.8 | (58.8) | 85.0 | ||||||||||||||||||||||||||||||||||
| Software | 4.7 | (0.2) | 4.5 | 5 | — | — | — | ||||||||||||||||||||||||||||||||||
| Total amortized intangible assets | 865.1 | (301.0) | 564.1 | 783.8 | (277.4) | 506.4 | |||||||||||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Banjo trade name | 62.1 | — | 62.1 | 62.1 | — | 62.1 | |||||||||||||||||||||||||||||||||||
| Akron Brass trade name | 28.8 | — | 28.8 | 28.8 | — | 28.8 | |||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 956.0 | $ | (301.0) | $ | 655.0 | $ | 874.7 | $ | (277.4) | $ | 597.3 |
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. Based on the results of the Company’s annual impairment test at October 31, 2021, these indefinite-lived intangible assets had fair values in excess of their carrying values. In the first six months of 2022, there were no events or circumstances that would have required an interim impairment test on these indefinite-lived intangible assets.
Amortization of intangible assets was $16.9 million and $32.2 million for the three and six months ended June 30, 2022, respectively. Amortization of intangible assets was $13.5 million and $24.5 million for the three and six months ended June 30, 2021, respectively. Based on the intangible asset balances as of June 30, 2022, amortization expense is expected to approximate $34.4 million for the remaining six months of 2022, $65.9 million in 2023, $61.4 million in 2024, $59.8 million in 2025 and $58.0 million in 2026.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
8. Accrued Expenses
The components of accrued expenses as of June 30, 2022 and December 31, 2021 were:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Payroll and related items | $ | 78.9 | $ | 91.5 | |||||||
| Management incentive compensation | 15.3 | 25.0 | |||||||||
| Income taxes payable | 19.7 | 17.9 | |||||||||
| Insurance | 11.2 | 11.0 | |||||||||
| Warranty | 8.2 | 7.6 | |||||||||
| Deferred revenue | 57.3 | 49.0 | |||||||||
| Lease liability | 18.6 | 17.6 | |||||||||
| Restructuring | 2.9 | 2.8 | |||||||||
| Accrued interest | 3.3 | 3.6 | |||||||||
| Pension and retiree medical obligations | 3.5 | 3.5 | |||||||||
| Other | 35.1 | 30.3 | |||||||||
| Total accrued expenses | $ | 254.0 | $ | 259.8 |
9. Other Noncurrent Liabilities
The components of other noncurrent liabilities as of June 30, 2022 and December 31, 2021 were:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Pension and retiree medical obligations | $ | 78.9 | $ | 82.2 | |||||||
| Transition tax payable | 9.1 | 14.1 | |||||||||
| Deferred revenue | 28.4 | 32.2 | |||||||||
| Lease liability | 94.2 | 93.4 | |||||||||
| Other | 19.9 | 25.5 | |||||||||
| Total other noncurrent liabilities | $ | 230.5 | $ | 247.4 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
10. Borrowings
Borrowings at June 30, 2022 and December 31, 2021 consisted of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
| 3.20% Senior Notes, due June 2023(1) | $ | 100.0 | $ | 100.0 | |||||||
| 3.37% Senior Notes, due June 2025 | 100.0 | 100.0 | |||||||||
| 3.00% Senior Notes, due May 2030 | 500.0 | 500.0 | |||||||||
| 2.625% Senior Notes, due June 2031 | 500.0 | 500.0 | |||||||||
| $800.0 million revolving credit facility, due May 2024 (“Revolving Facility”)(2) | — | — | |||||||||
| Other borrowings | 0.1 | 0.1 | |||||||||
| Total borrowings | 1,200.1 | 1,200.1 | |||||||||
| Less deferred debt issuance costs | 7.9 | 8.4 | |||||||||
| Less unaccreted debt discount | 1.3 | 1.4 | |||||||||
| Total long-term borrowings | $ | 1,190.9 | $ | 1,190.3 |
(1) As of June 30, 2022, the $100.0 million 3.20% Senior Notes, due in June 2023, have not been classified as short-term borrowings on the Condensed Consolidated Balance Sheets as the Company has the ability and intent to either refinance or repay the Notes using the available borrowing capacity of the Revolving Facility, due May 2024. As a result, the 3.20% Senior Notes remain classified as long-term borrowings in the Condensed Consolidated Balance Sheets as of June 30, 2022.
(2) At June 30, 2022, there was no balance outstanding under the Revolving Facility and $7.2 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility at June 30, 2022 of approximately $792.8 million.
At June 30, 2022, the Company was in compliance with covenants contained in the credit agreement associated with the Revolving Facility as well as other long-term debt agreements.
Issuance of 2.625% Senior Notes in 2021
On May 28, 2021, the Company completed a public offering of $500.0 million in aggregate principal amount of 2.625% Senior Notes due June 2031 (the “2.625% Senior Notes”). The net proceeds from the offering were approximately $494.7 million, after deducting the issuance discount of $0.6 million, the underwriting commission of $3.3 million and offering expenses of $1.4 million.
On May 17, 2021, the Company provided notice of its election to redeem early, on June 16, 2021, the $350.0 million aggregate principal amount of its then outstanding 4.20% Senior Notes at a redemption price of $350.0 million plus a make-whole redemption premium of $6.7 million using proceeds from the Company’s 2.625% Senior Notes discussed above. In addition, the Company recognized the remaining $1.3 million of the pre-tax amount included in Accumulated other comprehensive loss in shareholders’ equity related to the interest rate exchange agreement associated with the 4.20% Senior Notes. The Company wrote off the remaining $0.1 million of deferred issuance costs and $0.1 million of the debt issuance discount associated with the 4.20% Senior Notes as well as $0.4 million of deferred taxes for a total loss on early debt redemption of $8.6 million, which was recorded within Other expense (income) - net in the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2021.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
11. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
-
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
-
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the basis used to measure the Company’s financial assets (liabilities) at fair value on a recurring basis in the balance sheets at June 30, 2022 and December 31, 2021:
| Basis of Fair Value Measurements | |||||||||||||||||||||||
| Balance at June 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Trading securities - mutual funds held in nonqualified SERP(1) | $ | 9.5 | $ | 9.5 | $ | — | $ | — | |||||||||||||||
| Available-for-sale securities - equities(2) | 41.8 | 41.8 | — | — |
| Basis of Fair Value Measurements | |||||||||||||||||||||||
| Balance at December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Trading securities - mutual funds held in nonqualified SERP(1) | $ | 11.6 | $ | 11.6 | $ | — | $ | — | |||||||||||||||
| Available-for-sale securities - equities(2) | 45.3 | 45.3 | — | — |
(1) The Supplemental Executive Retirement Plan (“SERP”) investment assets are offset by a SERP liability which represents the Company’s obligation to distribute SERP funds to participants.
(2) At June 30, 2022 and December 31, 2021, the securities are included in Other current assets on the Company’s Condensed Consolidated Balance Sheets and are available for overnight cash settlement, if necessary, to fund current operations.
There were no transfers of assets or liabilities between Level 1 and Level 2 during the three and six months ended June 30, 2022 or the year ended December 31, 2021.
The carrying values of the Company’s cash and cash equivalents, accounts receivable, marketable securities, accounts payable and accrued expenses approximate fair value because of the short term nature of these instruments. At June 30, 2022 and December 31, 2021, the fair value of the outstanding indebtedness described in Note 10 based on quoted market prices and current market rates for debt with similar credit risk and maturity was approximately $1,054.8 million and $1,219.9 million, respectively, compared to the carrying value of $1,198.8 million and $1,198.7 million, respectively. These fair value measurements are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to the Company’s rating.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
12. Leases
The Company leases certain office facilities, warehouses, manufacturing plants, equipment (which includes both office and plant equipment) and vehicles under operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Certain leases include one or more options to renew. The exercise of lease renewal options is at the Company’s sole discretion. The Company does not include renewal periods in any of the leases’ terms until the renewal is executed as they are generally not reasonably certain of being exercised. The Company does not have any material purchase options.
Certain of the Company’s lease agreements have rental payments that are adjusted periodically for inflation or that are based on usage. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to leases as of June 30, 2022 and December 31, 2021 was as follows:
| Balance Sheet Caption | June 30, 2022 | December 31, 2021 | |||||||||||||||
| Operating leases: | |||||||||||||||||
| Building right-of-use assets - net | Other noncurrent assets | $ | 103.2 | $ | 101.0 | ||||||||||||
| Equipment right-of-use assets - net | Other noncurrent assets | 5.3 | 6.2 | ||||||||||||||
| Total right-of-use assets - net | $ | 108.5 | $ | 107.2 | |||||||||||||
| Operating leases: | |||||||||||||||||
| Current lease liabilities | Accrued expenses | $ | 18.6 | $ | 17.6 | ||||||||||||
| Noncurrent lease liabilities | Other noncurrent liabilities | 94.2 | 93.4 | ||||||||||||||
| Total lease liabilities | $ | 112.8 | $ | 111.0 |
The components of lease cost for the three and six months ended June 30, 2022 and 2021 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating lease cost (1) | $ | 9.0 | $ | 7.1 | $ | 16.4 | $ | 14.5 | |||||||||||||||
| Variable lease cost | 0.8 | 0.6 | 1.2 | 1.2 | |||||||||||||||||||
| Total lease expense | $ | 9.8 | $ | 7.7 | $ | 17.6 | $ | 15.7 |
(1) Includes short-term leases, which are immaterial.
Supplemental cash flow information related to leases for the six months ended June 30, 2022 and 2021 was as follows:
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 16.9 | $ | 13.6 | |||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | 9.3 | 6.2 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Other supplemental information related to leases as of June 30, 2022 and December 31, 2021 was as follows:
| Lease Term and Discount Rate | June 30, 2022 | December 31, 2021 | |||||||||||||||
| Weighted-average remaining lease term (years): | |||||||||||||||||
| Operating leases - building and equipment | 7.92 | 8.50 | |||||||||||||||
| Operating leases - vehicles | 2.21 | 2.34 | |||||||||||||||
| Weighted-average discount rate: | |||||||||||||||||
| Operating leases - building and equipment | 3.19 | % | 3.27 | % | |||||||||||||
| Operating leases - vehicles | 1.06 | % | 1.08 | % |
The Company uses its incremental borrowing rate to determine the present value of the lease payments.
Total lease liabilities at June 30, 2022 have scheduled maturities as follows:
| Maturity of Lease Liabilities | Operating Leases | |||||||
| 2022 (excluding the six months ended June 30, 2022) | $ | 10.7 | ||||||
| 2023 | 20.5 | |||||||
| 2024 | 17.7 | |||||||
| 2025 | 16.0 | |||||||
| 2026 | 13.8 | |||||||
| Thereafter | 49.6 | |||||||
| Total lease payments | 128.3 | |||||||
| Less: Imputed interest | (15.5) | |||||||
| Present value of lease liabilities | $ | 112.8 |
13. Restructuring Expenses and Asset Impairments
During the three and six months ended June 30, 2022 and 2021, the Company incurred restructuring costs to facilitate long-term sustainable growth through cost reduction actions, consisting of employee reductions, facility rationalization and contract termination costs. Restructuring costs include severance costs, exit costs and asset impairments and are included in Restructuring expenses and asset impairments in the Condensed Consolidated Statements of Income. Severance costs primarily consist of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consist of lease exit and contract termination costs.
2022 Initiative
During the three and six months ended June 30, 2022, the Company incurred restructuring costs primarily related to employee reductions.
Pre-tax restructuring expenses and asset impairments by segment for the three and six months ended June 30, 2022 were as follows:
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairment | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 1.2 | $ | 0.3 | $ | 0.2 | $ | 1.7 | ||||||||||||||||||
| Health & Science Technologies | 0.1 | — | — | 0.1 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 1.0 | — | — | 1.0 | ||||||||||||||||||||||
| Corporate/Other | — | — | — | — | ||||||||||||||||||||||
| Total restructuring costs | $ | 2.3 | $ | 0.3 | $ | 0.2 | $ | 2.8 |
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairment | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 1.5 | $ | 0.3 | $ | 0.2 | $ | 2.0 | ||||||||||||||||||
| Health & Science Technologies | 0.2 | — | — | 0.2 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 1.0 | — | — | 1.0 | ||||||||||||||||||||||
| Corporate/Other | 0.2 | — | — | 0.2 | ||||||||||||||||||||||
| Total restructuring costs | $ | 2.9 | $ | 0.3 | $ | 0.2 | $ | 3.4 |
2021 Initiative
During the three and six months ended June 30, 2021, the Company incurred severance costs related to employee reductions. In addition, the Company consolidated certain facilities within the FMT segment, which resulted in impairment charges related to property, plant and equipment that was not relocated to the new locations.
Pre-tax restructuring expenses and asset impairments by segment for the three and six months ended June 30, 2021 were as follows:
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairment | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 1.8 | $ | — | $ | 0.1 | $ | 1.9 | ||||||||||||||||||
| Health & Science Technologies | 0.5 | — | — | 0.5 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 0.1 | — | — | 0.1 | ||||||||||||||||||||||
| Corporate/Other | 0.7 | — | — | 0.7 | ||||||||||||||||||||||
| Total restructuring costs | $ | 3.1 | $ | — | $ | 0.1 | $ | 3.2 |
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairment | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 2.6 | $ | — | $ | 0.2 | $ | 2.8 | ||||||||||||||||||
| Health & Science Technologies | 1.1 | — | — | 1.1 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 0.2 | — | — | 0.2 | ||||||||||||||||||||||
| Corporate/Other | 1.3 | — | — | 1.3 | ||||||||||||||||||||||
| Total restructuring costs | $ | 5.2 | $ | — | $ | 0.2 | $ | 5.4 |
Restructuring accruals reflected in Accrued expenses in the Company’s Condensed Consolidated Balance Sheets are as follows:
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Restructuring Initiatives | |||||
| Balance at January 1, 2022 | $ | 2.8 | |||
| Restructuring expenses | 3.2 | ||||
| Payments, utilization and other | (3.1) | ||||
| Balance at June 30, 2022 | $ | 2.9 |
14. Other Comprehensive (Loss) Income
The components of Other comprehensive (loss) income are as follows:
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of tax | Pre-tax | Tax | Net of tax | ||||||||||||||||||||||||||||||
| Cumulative translation adjustment | $ | (81.9) | $ | — | $ | (81.9) | $ | 20.3 | $ | — | $ | 20.3 | |||||||||||||||||||||||
| Pension and other postretirement adjustments | 1.1 | (0.5) | 0.6 | 12.0 | (2.8) | 9.2 | |||||||||||||||||||||||||||||
| Reclassification adjustments for derivatives | — | — | — | 2.3 | (0.5) | 1.8 | |||||||||||||||||||||||||||||
| Total other comprehensive (loss) income | $ | (80.8) | $ | (0.5) | $ | (81.3) | $ | 34.6 | $ | (3.3) | $ | 31.3 |
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of tax | Pre-tax | Tax | Net of tax | ||||||||||||||||||||||||||||||
| Cumulative translation adjustment | $ | (101.4) | $ | — | $ | (101.4) | $ | (28.2) | $ | — | $ | (28.2) | |||||||||||||||||||||||
| Pension and other postretirement adjustments | 1.9 | (0.7) | 1.2 | 13.1 | (3.1) | 10.0 | |||||||||||||||||||||||||||||
| Reclassification adjustments for derivatives | — | — | — | 3.2 | (0.7) | 2.5 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | $ | (99.5) | $ | (0.7) | $ | (100.2) | $ | (11.9) | $ | (3.8) | $ | (15.7) |
The amounts reclassified from Accumulated other comprehensive loss to net income during the three and six months ended June 30, 2022 and 2021 are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Income Statement Caption | ||||||||||||||||||||||
| Pension and other postretirement plans: | ||||||||||||||||||||||||||
| Amortization of net (gain) loss | $ | 1.1 | $ | 12.0 | $ | 1.9 | $ | 13.1 | Other expense (income) - net | |||||||||||||||||
| Total before tax | 1.1 | 12.0 | 1.9 | 13.1 | ||||||||||||||||||||||
| Provision for income taxes | (0.5) | (2.8) | (0.7) | (3.1) | ||||||||||||||||||||||
| Total net of tax | $ | 0.6 | $ | 9.2 | $ | 1.2 | $ | 10.0 | ||||||||||||||||||
| Derivatives: | ||||||||||||||||||||||||||
| Reclassification adjustments | $ | — | $ | 2.3 | $ | — | $ | 3.2 | Interest expense | |||||||||||||||||
| Total before tax | — | 2.3 | — | 3.2 | ||||||||||||||||||||||
| Provision for income taxes | — | (0.5) | — | (0.7) | ||||||||||||||||||||||
| Total net of tax | $ | — | $ | 1.8 | $ | — | $ | 2.5 |
In conjunction with the early redemption of the 4.20% Senior Notes discussed in Note 10, the Company recognized the remaining $1.3 million of the pre-tax amount included in Accumulated other comprehensive loss in shareholders’ equity related to the affiliated interest rate contract in Other expense (income) - net in the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2021.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
15. Share Repurchases
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 authorization of the Board of Directors of $300.0 million on December 1, 2015. 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 six months ended June 30, 2022, the Company repurchased a total of 622,190 shares at a cost of $115.8 million, of which $5.4 million was settled in July 2022. There were no share repurchases during the six months ended June 30, 2021. As of June 30, 2022, the amount of share repurchase authorization remaining was $596.2 million.
16. 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.
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 Income is consistent with classification of cash compensation for the same employees.
Stock Options
Stock options generally vest ratably over four years, with vesting beginning one year from the date of grant, and generally expire 10 years from the date of grant. The service period for certain retiree eligible participants is accelerated. 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 (for options granted before March 2021) or the Black Scholes valuation model (for options granted after February 2021). The adoption of the Black Scholes model in 2021 was driven by a review of option exercise history, which more closely aligned with the methodology of the Black Scholes model.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Weighted average fair value of grants | $46.33 | $43.89 | $41.74 | $38.63 | |||||||||||||||||||
| Dividend yield | 1.14% | 0.94% | 1.14% | 1.01% | |||||||||||||||||||
| Volatility | 25.39% | 24.67% | 25.15% | 23.74% | |||||||||||||||||||
| Risk-free interest rate | 2.98% | 0.76% - 0.91% | 1.85% | 0.10% - 1.56% | |||||||||||||||||||
| Expected life (in years) | 4.90 | 4.90 | 4.90 | 5.73 |
Total compensation cost for stock options is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of goods sold | $ | — | $ | 0.1 | $ | 0.3 | $ | 0.3 | |||||||||||||||
| Selling, general and administrative expenses | 2.8 | 1.8 | 5.9 | 4.5 | |||||||||||||||||||
| Total expense before income taxes | 2.8 | 1.9 | 6.2 | 4.8 | |||||||||||||||||||
| Income tax benefit | (0.2) | (0.1) | (0.5) | (0.4) | |||||||||||||||||||
| Total expense after income taxes | $ | 2.6 | $ | 1.8 | $ | 5.7 | $ | 4.4 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
A summary of the Company’s stock option activity as of June 30, 2022 and changes during the six months ended June 30, 2022 are presented in the following table:
| Stock Options | Shares | Weighted Average Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||
| (Dollars in millions except weighted average price) | |||||||||||||||||||||||
| Outstanding at January 1, 2022 | 1,008,586 | $ | 147.60 | 6.97 | $ | 89.5 | |||||||||||||||||
| Granted | 268,775 | 189.38 | |||||||||||||||||||||
| Exercised | (43,041) | 120.69 | |||||||||||||||||||||
| Forfeited | (59,052) | 180.68 | |||||||||||||||||||||
| Outstanding at June 30, 2022 | 1,175,268 | $ | 156.48 | 7.17 | $ | 35.7 | |||||||||||||||||
| Vested and expected to vest as of June 30, 2022 | 1,124,569 | $ | 154.99 | 7.08 | $ | 35.5 | |||||||||||||||||
| Exercisable at June 30, 2022 | 589,478 | $ | 126.79 | 5.55 | $ | 33.3 |
As of June 30, 2022, there was $15.0 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.1 years.
Restricted Stock
Restricted stock awards generally cliff vest after three years for employees and non-employee directors. The service period for certain retiree eligible participants is accelerated. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the grant. A summary of the Company’s restricted stock activity as of June 30, 2022 and changes during the six months ended June 30, 2022 are presented in the following table:
| Restricted Stock | Shares | Weighted-Average Grant Date Fair Value | |||||||||
| Unvested at January 1, 2022 | 107,475 | $ | 169.58 | ||||||||
| Granted | 41,160 | 189.13 | |||||||||
| Vested | (24,428) | 148.60 | |||||||||
| Forfeited | (8,570) | 184.27 | |||||||||
| Unvested at June 30, 2022 | 115,637 | $ | 179.88 |
Total compensation cost for restricted stock is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of goods sold | $ | — | $ | — | $ | 0.2 | $ | 0.2 | |||||||||||||||
| Selling, general and administrative expenses | 1.6 | 1.2 | 3.2 | 2.6 | |||||||||||||||||||
| Total expense before income taxes | 1.6 | 1.2 | 3.4 | 2.8 | |||||||||||||||||||
| Income tax benefit | (0.2) | (0.3) | (0.6) | (0.6) | |||||||||||||||||||
| Total expense after income taxes | $ | 1.4 | $ | 0.9 | $ | 2.8 | $ | 2.2 |
As of June 30, 2022, there was $10.9 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.2 years.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Cash-Settled Restricted Stock
The Company also maintains a cash-settled share-based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after three years. The service period for certain retiree eligible participants is accelerated. 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. Dividend equivalents are paid on certain cash-settled restricted stock awards. A summary of the Company’s unvested cash-settled restricted stock activity as of June 30, 2022 and changes during the six months ended June 30, 2022 are presented in the following table:
| Cash-Settled Restricted Stock | Shares | Weighted-Average Fair Value | |||||||||
| Unvested at January 1, 2022 | 57,949 | $ | 236.32 | ||||||||
| Granted | 22,880 | 189.19 | |||||||||
| Vested | (19,362) | 191.75 | |||||||||
| Forfeited | (4,062) | 181.63 | |||||||||
| Unvested at June 30, 2022 | 57,405 | $ | 181.63 |
Total compensation (benefit) cost for cash-settled restricted stock is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of goods sold | $ | 0.1 | $ | 0.2 | $ | — | $ | 0.4 | |||||||||||||||
| Selling, general and administrative expenses | (0.5) | 1.0 | — | 2.3 | |||||||||||||||||||
| Total (benefit) expense before income taxes(1) | (0.4) | 1.2 | — | 2.7 | |||||||||||||||||||
| Income tax benefit | — | (0.1) | — | (0.2) | |||||||||||||||||||
| Total (benefit) expense after income taxes | $ | (0.4) | $ | 1.1 | $ | — | $ | 2.5 |
(1) The 2021 amount was previously included in Share-based compensation expense on the Condensed Consolidated Statements of Cash Flows. This amount has been reclassified to Accrued expenses and Other-net such that the amount presented in Share-based compensation expense on the Condensed Consolidated Statements of Cash Flows relates solely to non-cash awards for both periods presented. There was no change to the reported amount of net cash flows provided by operating activities for 2021 as a result of the reclassification.
As of June 30, 2022, there was $4.9 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.3 years.
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.
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Weighted average fair value of grants | $235.54 | $247.49 | |||||||||
| Dividend yield | —% | —% | |||||||||
| Volatility | 28.09% | 28.6% | |||||||||
| Risk-free interest rate | 1.73% | 0.33% | |||||||||
| Expected life (in years) | 2.93 | 2.93 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
A summary of the Company’s performance share unit activity as of June 30, 2022 and changes during the six months ended June 30, 2022 are presented in the following table:
| Performance Share Units | Shares | Weighted-Average Grant Date Fair Value | |||||||||
| Unvested at January 1, 2022 | 52,025 | $ | 236.75 | ||||||||
| Granted | 31,370 | 235.54 | |||||||||
| Vested | — | ||||||||||
| Forfeited | (8,080) | 235.97 | |||||||||
| Unvested at June 30, 2022 | 75,315 | $ | 236.61 |
On December 31, 2021, 29,840 performance share units vested. Based on the Company’s relative total shareholder return rank during the three year period ended December 31, 2021, the Company achieved a 143% payout factor and issued 42,688 common shares in February 2022 for awards that vested in 2021.
Total compensation cost for performance share units is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of goods sold | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Selling, general and administrative expenses | 2.5 | 1.2 | 3.8 | 2.9 | |||||||||||||||||||
| Total expense before income taxes | 2.5 | 1.2 | 3.8 | 2.9 | |||||||||||||||||||
| Income tax benefit | — | (0.1) | (0.1) | (0.1) | |||||||||||||||||||
| Total expense after income taxes | $ | 2.5 | $ | 1.1 | $ | 3.7 | $ | 2.8 |
As of June 30, 2022, there was $8.5 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 0.9 years.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
17. Retirement Benefits
The Company sponsors several qualified and nonqualified defined benefit and defined contribution pension plans as well as other post-retirement plans for its employees. The following tables provide the components of net periodic benefit cost for its major defined benefit plans and its other postretirement plans.
| Pension Benefits | |||||||||||||||||||||||
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.4 | $ | 0.1 | $ | 0.5 | |||||||||||||||
| Interest cost | — | 0.3 | 0.1 | 0.2 | |||||||||||||||||||
| Expected return on plan assets | — | (0.3) | (0.6) | (0.3) | |||||||||||||||||||
| Settlement loss recognized | — | — | 10.5 | — | |||||||||||||||||||
| Net amortization | — | 0.2 | 0.1 | 0.6 | |||||||||||||||||||
| Net periodic cost | $ | 0.1 | $ | 0.6 | $ | 10.2 | $ | 1.0 |
| Pension Benefits | |||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.9 | $ | 0.1 | $ | 1.0 | |||||||||||||||
| Interest cost | 0.1 | 0.5 | 0.2 | 0.4 | |||||||||||||||||||
| Expected return on plan assets | (0.1) | (0.6) | (0.8) | (0.5) | |||||||||||||||||||
| Settlement loss recognized | — | — | 10.5 | — | |||||||||||||||||||
| Net amortization | 0.1 | 0.4 | 0.2 | 1.1 | |||||||||||||||||||
| Net periodic (benefit) cost | $ | 0.2 | $ | 1.2 | $ | 10.2 | $ | 2.0 |
| Other Postretirement Benefits | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.1 | $ | 0.3 | $ | 0.3 | |||||||||||||||
| Interest cost | 0.2 | 0.1 | 0.3 | 0.2 | |||||||||||||||||||
| Net amortization | (0.1) | (0.1) | (0.2) | (0.3) | |||||||||||||||||||
| Net periodic cost | $ | 0.2 | $ | 0.1 | $ | 0.4 | $ | 0.2 |
The Company expects to contribute approximately $4.0 million to its defined benefit plans and $1.2 million to its other post-retirement benefit plans in 2022. During the first six months of 2022, the Company contributed a total of $2.6 million to fund these plans.
The IDEX Corporation Retirement Plan (“Plan”), a U.S. defined benefit plan, was terminated in May 2020. During the second quarter of 2021, the Company settled its remaining obligations under the Plan. The Company recognized a net loss of $9.7 million, which was recorded within Other expense (income) - net. The net loss consisted of $10.7 million related to previously deferred pension related costs, partially offset by $1.0 million related to an increase in plan assets remaining after the settlement. As of June 30, 2022, the Company has $4.4 million of surplus assets from the Plan included in Other current assets on the Company’s Condensed Consolidated Balance Sheets that will be used to fund the Company’s other retirement benefit plans over the next twelve months.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
18. Legal Proceedings
The Company and certain of its subsidiaries are involved in pending and threatened legal, regulatory and other proceedings arising in the ordinary course of business. These proceedings may pertain to matters such as product liability or contract disputes, and may also involve governmental inquiries, inspections, audits or investigations relating to issues such as tax matters, intellectual property, environmental, health and safety issues, governmental regulations, employment and other matters. Although the results of such legal proceedings cannot be predicted with certainty, the Company believes that the ultimate disposition of these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s business, financial condition, results of operations or cash flows.
19. Income Taxes
The Company’s provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes increased to $39.0 million for the three months ended June 30, 2022 from $27.7 million during the same period in 2021. The effective tax rate increased to 22.1% for the three months ended June 30, 2022 from 21.3% during the same period in 2021 primarily due to a decrease in the excess tax benefits related to share-based compensation.
The provision for income taxes increased to $79.5 million for the six months ended June 30, 2022 from $60.6 million during the same period in 2021. The effective tax rate of 22.2% for the six months ended June 30, 2022 increased compared with 22.0% during the same period in 2021 due to a decrease in the excess tax benefits related to share-based compensation.
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