filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net sales | $ | 793.4 | $ | 824.0 | $ | 2,485.0 | $ | 2,371.2 | |||||||||||||||
| Cost of sales | 443.8 | 442.2 | 1,374.9 | 1,290.0 | |||||||||||||||||||
| Gross profit | 349.6 | 381.8 | 1,110.1 | 1,081.2 | |||||||||||||||||||
| Selling, general and administrative expenses | 165.9 | 161.9 | 529.9 | 483.7 | |||||||||||||||||||
| Restructuring expenses and asset impairments | 4.1 | 17.7 | 8.2 | 21.1 | |||||||||||||||||||
| Operating income | 179.6 | 202.2 | 572.0 | 576.4 | |||||||||||||||||||
| Gain on sale of business | (93.8) | (34.8) | (93.8) | (34.8) | |||||||||||||||||||
| Other (income) expense - net | (2.1) | (1.0) | 5.6 | (3.3) | |||||||||||||||||||
| Interest expense | 13.7 | 9.6 | 40.1 | 28.6 | |||||||||||||||||||
| Income before income taxes | 261.8 | 228.4 | 620.1 | 585.9 | |||||||||||||||||||
| Provision for income taxes | 52.8 | 49.7 | 132.8 | 129.2 | |||||||||||||||||||
| Net income | 209.0 | 178.7 | 487.3 | 456.7 | |||||||||||||||||||
| Net loss attributable to noncontrolling interest | 0.1 | — | 0.2 | 0.2 | |||||||||||||||||||
| Net income attributable to IDEX | $ | 209.1 | $ | 178.7 | $ | 487.5 | $ | 456.9 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic earnings per common share attributable to IDEX | $ | 2.76 | $ | 2.37 | $ | 6.44 | $ | 6.02 | |||||||||||||||
| Diluted earnings per common share attributable to IDEX | $ | 2.75 | $ | 2.36 | $ | 6.42 | $ | 6.00 | |||||||||||||||
| Share data: | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | 75.6 | 75.4 | 75.6 | 75.8 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 75.9 | 75.8 | 75.9 | 76.1 |
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Net income | $ | 209.0 | $ | 178.7 | $ | 487.3 | $ | 456.7 | |||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Pension and other postretirement adjustments, net of tax | (0.3) | 0.6 | (0.8) | 1.8 | |||||||||||||||||||||||||||||||
| Cumulative translation adjustment | (58.1) | (94.9) | (19.2) | (196.3) | |||||||||||||||||||||||||||||||
| Other comprehensive loss | (58.4) | (94.3) | (20.0) | (194.5) | |||||||||||||||||||||||||||||||
| Comprehensive income | 150.6 | 84.4 | 467.3 | 262.2 | |||||||||||||||||||||||||||||||
| Comprehensive loss attributable to noncontrolling interest | 0.1 | — | 0.2 | 0.2 | |||||||||||||||||||||||||||||||
| Comprehensive income attributable to IDEX | $ | 150.7 | $ | 84.4 | $ | 467.5 | $ | 262.4 |
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
(unaudited)
| September 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 562.7 | $ | 430.2 | |||||||
| Receivables - net of allowance for credit losses of $6.9 and $8.0, respectively | 430.6 | 442.8 | |||||||||
| Inventories - net | 446.6 | 470.9 | |||||||||
| Other current assets | 78.3 | 55.4 | |||||||||
| Total current assets | 1,518.2 | 1,399.3 | |||||||||
| Property, plant and equipment - net of accumulated depreciation of $539.6 and $516.7, respectively | 421.5 | 382.1 | |||||||||
| Goodwill | 2,677.3 | 2,638.1 | |||||||||
| Intangible assets - net | 919.6 | 947.8 | |||||||||
| Other noncurrent assets | 133.0 | 144.6 | |||||||||
| Total assets | $ | 5,669.6 | $ | 5,511.9 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Trade accounts payable | $ | 176.3 | $ | 208.9 | |||||||
| Accrued expenses | 262.0 | 289.1 | |||||||||
| Current portion of long-term borrowings - net | 0.7 | — | |||||||||
| Dividends payable | 48.5 | 45.6 | |||||||||
| Total current liabilities | 487.5 | 543.6 | |||||||||
| Long-term borrowings - net | 1,320.8 | 1,468.7 | |||||||||
| Deferred income taxes | 279.3 | 264.2 | |||||||||
| Other noncurrent liabilities | 194.8 | 195.8 | |||||||||
| Total liabilities | 2,282.4 | 2,472.3 | |||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Shareholders’ equity | |||||||||||
| Preferred stock: | |||||||||||
| Authorized: 5,000,000 shares, $.01 per share par value; Issued: None | — | — | |||||||||
| Common stock: | |||||||||||
| Authorized: 150,000,000 shares, $.01 per share par value | |||||||||||
| Issued: 89,962,648 shares at September 30, 2023 and 90,064,988 shares at December 31, 2022 | 0.9 | 0.9 | |||||||||
| Additional paid-in capital | 836.1 | 817.2 | |||||||||
| Retained earnings | 3,874.0 | 3,531.7 | |||||||||
| Treasury stock at cost: 14,337,849 shares at September 30, 2023 and 14,451,032 shares at December 31, 2022 | (1,177.7) | (1,184.3) | |||||||||
| Accumulated other comprehensive loss | (146.2) | (126.2) | |||||||||
| Total shareholders’ equity | 3,387.1 | 3,039.3 | |||||||||
| Noncontrolling interest | 0.1 | 0.3 | |||||||||
| Total equity | 3,387.2 | 3,039.6 | |||||||||
| Total liabilities and equity | $ | 5,669.6 | $ | 5,511.9 |
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, June 30, 2023 | $ | 835.1 | $ | 3,713.4 | $ | (98.2) | $ | 10.4 | $ | (1,182.0) | $ | 3,278.7 | $ | 0.2 | $ | 3,278.9 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | 209.1 | — | — | — | 209.1 | (0.1) | 209.0 | |||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (58.1) | — | — | (58.1) | — | (58.1) | |||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $—) | — | — | — | (0.3) | — | (0.3) | — | (0.3) | |||||||||||||||||||||||||||||||||||||||
| Net issuance of 29,360 shares of common stock (net of tax of $0.4) | — | — | — | — | 4.3 | 4.3 | — | 4.3 | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 1.9 | — | — | — | — | 1.9 | — | 1.9 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared - $0.64 per common share outstanding | — | (48.5) | — | — | — | (48.5) | — | (48.5) | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | 837.0 | $ | 3,874.0 | $ | (156.3) | $ | 10.1 | $ | (1,177.7) | 3,387.1 | $ | 0.1 | $ | 3,387.2 |
| 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, June 30, 2022 | $ | 810.0 | $ | 3,313.8 | $ | (163.6) | $ | (6.2) | $ | (1,165.8) | $ | 2,788.2 | $ | (0.2) | $ | 2,788.0 | |||||||||||||||||||||||||||||||
| Net income | — | 178.7 | — | — | — | 178.7 | — | 178.7 | |||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (94.9) | — | — | (94.9) | — | (94.9) | |||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $—) | — | — | — | 0.6 | — | 0.6 | — | 0.6 | |||||||||||||||||||||||||||||||||||||||
| Net issuance of 28,034 shares of common stock (net of tax of $0.4) | — | — | — | — | 3.6 | 3.6 | — | 3.6 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of 166,433 shares of common stock | — | — | — | — | (30.9) | (30.9) | — | (30.9) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 2.9 | — | — | — | — | 2.9 | — | 2.9 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared - $0.60 per common share outstanding | — | (45.4) | — | — | — | (45.4) | — | (45.4) | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | 812.9 | $ | 3,447.1 | $ | (258.5) | $ | (5.6) | $ | (1,193.1) | $ | 2,802.8 | $ | (0.2) | $ | 2,802.6 |
| 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, 2022 | $ | 818.1 | $ | 3,531.7 | $ | (137.1) | $ | 10.9 | $ | (1,184.3) | $ | 3,039.3 | $ | 0.3 | $ | 3,039.6 | |||||||||||||||||||||||||||||||
| Net income (loss) | — | 487.5 | — | — | — | 487.5 | (0.2) | 487.3 | |||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (19.2) | — | — | (19.2) | — | (19.2) | |||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $(0.2)) | — | — | — | (0.8) | — | (0.8) | — | (0.8) | |||||||||||||||||||||||||||||||||||||||
| Net issuance of 120,767 shares of common stock (net of tax of $2.5) | — | — | — | — | 7.7 | 7.7 | — | 7.7 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of 5,400 shares of common stock | — | — | — | — | (1.1) | (1.1) | — | (1.1) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 18.9 | — | — | — | — | 18.9 | — | 18.9 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared - $1.92 per common share outstanding | — | (145.2) | — | — | — | (145.2) | — | (145.2) | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | 837.0 | $ | 3,874.0 | $ | (156.3) | $ | 10.1 | $ | (1,177.7) | 3,387.1 | $ | 0.1 | $ | 3,387.2 |
| 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) | — | 456.9 | — | — | — | 456.9 | (0.2) | 456.7 | |||||||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | (196.3) | — | — | (196.3) | — | (196.3) | |||||||||||||||||||||||||||||||||||||||
| Net change in retirement obligations (net of tax of $0.7) | — | — | — | 1.8 | — | 1.8 | — | 1.8 | |||||||||||||||||||||||||||||||||||||||
| Net issuance of 117,656 shares of common stock (net of tax of $2.5) | — | — | — | — | 3.9 | 3.9 | — | 3.9 | |||||||||||||||||||||||||||||||||||||||
| Repurchase of 788,623 shares of common stock | — | — | — | — | (146.7) | (146.7) | — | (146.7) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 16.4 | — | — | — | — | 16.4 | — | 16.4 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends declared - $1.80 per common share outstanding | — | (136.3) | — | — | — | (136.3) | — | (136.3) | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | 812.9 | $ | 3,447.1 | $ | (258.5) | $ | (5.6) | $ | (1,193.1) | $ | 2,802.8 | $ | (0.2) | $ | 2,802.6 |
See Notes to Condensed Consolidated Financial Statements
IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 487.3 | $ | 456.7 | |||||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||||
| Gain on sale of business | (93.8) | (34.8) | |||||||||
| Asset impairments | 0.8 | 17.0 | |||||||||
| Credit loss on note receivable from collaborative partner | 7.7 | — | |||||||||
| Depreciation | 41.9 | 37.0 | |||||||||
| Amortization of intangible assets | 70.6 | 49.2 | |||||||||
| Share-based compensation expense | 18.9 | 16.4 | |||||||||
| Deferred income taxes | (1.8) | 0.2 | |||||||||
| Changes in (net of the effect from acquisitions/divestitures and foreign currency translation): | |||||||||||
| Receivables | 11.6 | (62.5) | |||||||||
| Inventories | 24.5 | (99.6) | |||||||||
| Other current assets | 0.3 | (4.8) | |||||||||
| Trade accounts payable | (30.2) | 25.6 | |||||||||
| Deferred revenue | 5.6 | (24.7) | |||||||||
| Accrued expenses | (34.0) | 13.1 | |||||||||
| Other - net | 6.3 | 1.3 | |||||||||
| Net cash flows provided by operating activities | 515.7 | 390.1 | |||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | (68.3) | (48.0) | |||||||||
| Acquisition of businesses, net of cash acquired | (110.3) | (232.6) | |||||||||
| Proceeds from sale of business, net of cash remitted | 110.3 | 49.4 | |||||||||
| Purchases of marketable securities | (24.6) | — | |||||||||
| Other - net | 2.9 | 6.8 | |||||||||
| Net cash flows used in investing activities | (90.0) | (224.4) | |||||||||
| Cash flows from financing activities | |||||||||||
| Borrowings under revolving credit facilities | — | 40.0 | |||||||||
| Payments under revolving credit facilities | — | (40.0) | |||||||||
| Proceeds from issuance of 5.13% Senior Notes | 100.0 | — | |||||||||
| Payment of 3.20% Senior Notes | (100.0) | — | |||||||||
| Payments under Term Facility | (150.0) | — | |||||||||
| Cash dividends paid to shareholders | (142.3) | (132.2) | |||||||||
| Net proceeds from stock option exercises | 7.7 | 3.9 | |||||||||
| Repurchases of common stock | (1.1) | (146.3) | |||||||||
| Other - net | (1.0) | — | |||||||||
| Net cash flows used in financing activities | (286.7) | (274.6) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (6.5) | (65.8) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 132.5 | (174.7) | |||||||||
| Cash and cash equivalents at beginning of year | 430.2 | 855.4 | |||||||||
| Cash and cash equivalents at end of period | $ | 562.7 | $ | 680.7 | |||||||
| Supplemental cash flow information | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | 30.5 | $ | 18.9 | |||||||
| Income taxes | 147.1 | 129.5 | |||||||||
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 nine months ended September 30, 2023 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, 2022.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. Any recent ASUs were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s Condensed Consolidated Financial Statements.
2. Acquisitions and Divestitures
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 the assets and liabilities, have been included in the Company’s Condensed Consolidated Balance Sheets from their respective dates of acquisition. The results of operations of Nexsight, LLC and its businesses Envirosight, WinCan, MyTana and Pipeline Renewal Technologies (“Nexsight”) (acquired February 28, 2022), KZ CO. (“KZValve”) (acquired May 2, 2022), Muon B.V. and its subsidiaries (“Muon Group”) (acquired November 18, 2022) and Iridian Spectral Technologies ("Iridian") (acquired May 19, 2023) have been included in the Company’s Condensed Consolidated Statements of Income since the respective dates of acquisition. The results of operations of Micropump, Inc. (“Micropump”) (sold on August 3, 2023) and Knight LLC (“Knight”) (sold on September 9, 2022) have been included in the Company’s Condensed Consolidated Statements of Income through the respective dates of disposition. 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. In addition, the divestitures did not represent a strategic shift that had a major effect on operations and financial results and, therefore, did not qualify for presentation as discontinued operations.
2023 Acquisitions
Iridian
On May 19, 2023, the Company acquired Iridian in a stock acquisition. Iridian is a global leader in designing and manufacturing thin-film, multi-layer optical filters serving the laser communications, telecommunications and life sciences markets and expands the Company’s array of optical technology offerings. Headquartered in Ottawa, Ontario, Canada, Iridian operates in the Company’s Scientific Fluidics & Optics reporting unit within the Health & Science Technologies (“HST”) segment. Iridian was acquired for cash consideration of $110.3 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $53.6 million and $45.6 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 made a preliminary allocation of the purchase price for the Iridian 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, primarily related to the valuations of these assets and liabilities, 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 | $ | 10.6 | |||
| Property, plant and equipment | 19.9 | ||||
| Goodwill | 53.6 | ||||
| Intangible assets | 45.6 | ||||
| Other noncurrent assets | 5.4 | ||||
| Total assets acquired | 135.1 | ||||
| Current liabilities | (1.2) | ||||
| Deferred income taxes | (18.7) | ||||
| Other noncurrent liabilities | (4.9) | ||||
| Net assets acquired | $ | 110.3 |
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 | $ | 5.2 | 15 | ||||||||
| Customer relationships | 29.3 | 12 | |||||||||
| Unpatented technology | 11.1 | 11 | |||||||||
| Acquired intangible assets | $ | 45.6 |
2022 Acquisitions
Nexsight
On February 28, 2022, the Company acquired Nexsight in a partial stock and partial 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 $112.5 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $54.7 million and $49.8 million, respectively. The goodwill is partially deductible for tax purposes.
The Company finalized the 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.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
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 | $ | 16.6 | |||
| Property, plant and equipment | 2.0 | ||||
| Goodwill | 54.7 | ||||
| Intangible assets | 49.8 | ||||
| Other noncurrent assets | 4.3 | ||||
| Total assets acquired | 127.4 | ||||
| Current liabilities | (9.2) | ||||
| Deferred income taxes | (1.9) | ||||
| Other noncurrent liabilities | (3.8) | ||||
| Net assets acquired | $ | 112.5 |
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 augments and expands 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 $120.1 million. The entire purchase was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $56.4 million and $52.0 million, respectively. The goodwill is deductible for tax purposes.
The Company finalized the 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.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
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 | $ | 9.7 | |||
| Property, plant and equipment | 1.8 | ||||
| Goodwill | 56.4 | ||||
| Intangible assets | 52.0 | ||||
| Deferred income taxes | 0.2 | ||||
| Other noncurrent assets | 1.0 | ||||
| Total assets acquired | 121.1 | ||||
| Current liabilities | (1.0) | ||||
| Net assets acquired | $ | 120.1 |
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 |
Muon Group
On November 18, 2022, the Company acquired the stock of Muon Group. Muon Group manufactures highly precise flowpaths in a variety of materials that enable the movement of various liquids and gases in critical applications for medical, semiconductor, food processing, digital printing and filtration technologies. Muon Group maintains operations in Hapert, the Netherlands; Eerbeek, the Netherlands; Wijchen, the Netherlands; Dorset, United Kingdom and Pune, India and operates in the Company’s Scientific Fluidics & Optics reporting unit within the HST segment. Muon Group was acquired for cash consideration of $713.0 million. The purchase price was funded with $342.6 million of cash on hand, $170.4 million of proceeds from the Company's Revolving Credit Facility and $200.0 million of proceeds from the Company's Term Facility. Goodwill and intangible assets recognized as part of this transaction were $394.4 million and $319.1 million, respectively. The goodwill is not deductible for tax purposes.
The Company made a preliminary allocation of the purchase price for the Muon Group 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, primarily related to the valuations of these assets and liabilities, 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.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
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 | $ | 52.0 | |||
| Property, plant and equipment | 59.1 | ||||
| Goodwill | 394.4 | ||||
| Intangible assets | 319.1 | ||||
| Other noncurrent assets | 9.6 | ||||
| Total assets acquired | 834.2 | ||||
| Current liabilities | (26.7) | ||||
| Deferred income taxes | (83.8) | ||||
| Other noncurrent liabilities | (10.7) | ||||
| Net assets acquired | $ | 713.0 |
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 | $ | 38.3 | 15 | ||||||||
| Customer relationships | 212.4 | 13 | |||||||||
| Unpatented technology | 68.4 | 11 | |||||||||
| Acquired intangible assets | $ | 319.1 |
Acquisition-Related Costs
The Company incurred $1.8 million and $5.4 million of acquisition-related costs during the three and nine months ended September 30, 2023, respectively, and $2.7 million and $5.3 million of acquisition-related costs during the three and nine months ended September 30, 2022, respectively. These costs were recorded in Selling, general and administrative expenses and were related to completed, pending and potential acquisitions, including those that ultimately were not completed.
The Company also recorded a $1.2 million fair value inventory step-up charge associated with the completed 2023 acquisition of Iridian in Cost of sales during the three and nine months ended September 30, 2023, and $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 nine months ended September 30, 2022.
Divestitures
The Company periodically reviews its businesses for their strategic fit within its core businesses and customers and may from time to time sell various businesses or assets for a variety of reasons. Any resulting gain or loss recognized due to divestitures is recorded within Gain on sale of business in the Condensed Consolidated Statements of Income.
On August 3, 2023, the Company completed the sale of Micropump for proceeds of $110.3 million, net of cash remitted, resulting in a pre-tax gain on the sale of $93.8 million. The divestiture resulted in $22.7 million of income tax expense in the Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2023. Micropump was its own reporting unit and its results were reported within the HST segment.
On September 9, 2022, the Company completed the sale of Knight for proceeds of $49.4 million, net of cash remitted, resulting in a pre-tax gain on the sale of $34.8 million. The divestiture resulted in $5.5 million of income tax expense in the
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2022. The results of Knight were reported in the Water reporting unit within the FMT segment.
3. Collaborative Investments
During 2021 and 2022, a subsidiary of IDEX funded a total of $7.2 million in promissory notes as an investment in a start-up company that provides communication technology to improve individual performance and team coordination for firefighters’ responses, which aligns with IDEX’s Fire & Safety/Diversified Products (“FSDP”) segment’s strategic plan. On a quarterly basis, the Company evaluates whether an allowance for credit losses is required for these promissory notes and measures the allowance using the current expected credit loss model. While the Company continues to retain certain convertible equity rights as well as a secured interest in the intellectual property of the start-up company, during the second quarter of 2023, IDEX concluded it would not provide additional funding to the start-up at that time. As a result of the Company’s analysis of the recoverability of its investment during the second quarter of 2023, IDEX determined that its investment may no longer be recoverable. As a result, IDEX recorded a credit loss of $7.7 million in Other expense (income) - net in the Condensed Consolidated Statements of Income and a reserve in Other noncurrent assets on the Condensed Consolidated Balance Sheets for the full amount of the principal and accrued interest outstanding.
4. 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. FMT application-specific pump and metering solutions serve a diverse range of end markets, including industrial infrastructure (fossil fuels, refined and alternative fuels and water and wastewater), energy, chemical processing, agriculture, food and beverage, semiconductor, pulp and paper, automotive/transportation, plastics and resins, electronics and electrical, construction and mining, pharmaceutical and biopharmaceutical, machinery and numerous other specialty niche markets.
The HST segment designs, produces and distributes a wide range of precision fluidics, positive displacement pumps, powder and liquid processing technologies, drying systems, micro-precision components, 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 and precision photonic solutions. HST serves a variety of end markets, including food and beverage, life sciences, analytical instruments, pharmaceutical and biopharmaceutical, industrial, semiconductor, automotive/transportation, medical/dental, energy, cosmetics, marine, chemical, wastewater and water treatment, research and aerospace/defense markets.
The FSDP segment designs, produces and distributes firefighting pumps, valves and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications in the automotive, energy and industrial markets and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses in the paint and industrial markets 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 uses Adjusted EBITDA as its principal measure of segment performance. Intersegment sales are contracted with terms equivalent to those of an arm’s-length transaction.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Fluid & Metering Technologies | |||||||||||||||||||||||
| External customers | $ | 300.5 | $ | 307.4 | $ | 945.7 | $ | 878.8 | |||||||||||||||
| Intersegment sales | 0.6 | 0.2 | 2.3 | 0.7 | |||||||||||||||||||
| Total segment sales | 301.1 | 307.6 | 948.0 | 879.5 | |||||||||||||||||||
| Health & Science Technologies | |||||||||||||||||||||||
| External customers | 312.7 | 344.3 | 1,001.4 | 984.3 | |||||||||||||||||||
| Intersegment sales | 0.5 | 0.7 | 2.3 | 1.9 | |||||||||||||||||||
| Total segment sales | 313.2 | 345.0 | 1,003.7 | 986.2 | |||||||||||||||||||
| Fire & Safety/Diversified Products | |||||||||||||||||||||||
| External customers | 180.2 | 172.3 | 537.9 | 508.1 | |||||||||||||||||||
| Intersegment sales | 0.4 | 0.1 | 1.9 | 0.2 | |||||||||||||||||||
| Total segment sales | 180.6 | 172.4 | 539.8 | 508.3 | |||||||||||||||||||
| Intersegment eliminations | (1.5) | (1.0) | (6.5) | (2.8) | |||||||||||||||||||
| Net sales | $ | 793.4 | $ | 824.0 | $ | 2,485.0 | $ | 2,371.2 | |||||||||||||||
| ADJUSTED EBITDA | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 103.6 | $ | 104.4 | $ | 323.9 | $ | 287.8 | |||||||||||||||
| Health & Science Technologies | 84.4 | 101.4 | 278.8 | 304.8 | |||||||||||||||||||
| Fire & Safety/Diversified Products | 52.8 | 47.8 | 157.0 | 137.3 | |||||||||||||||||||
| Segment Adjusted EBITDA | 240.8 | 253.6 | 759.7 | 729.9 | |||||||||||||||||||
| Corporate and other(1) | (15.3) | (22.2) | (63.7) | (64.6) | |||||||||||||||||||
| Adjusted EBITDA | 225.5 | 231.4 | 696.0 | 665.3 | |||||||||||||||||||
| Interest expense | (13.7) | (9.6) | (40.1) | (28.6) | |||||||||||||||||||
| Depreciation | (14.7) | (12.3) | (41.9) | (37.0) | |||||||||||||||||||
| Amortization | (23.8) | (17.0) | (70.6) | (49.2) | |||||||||||||||||||
| Fair value inventory step-up charges | (1.2) | — | (1.2) | (0.4) | |||||||||||||||||||
| Restructuring expenses and asset impairments | (4.1) | — | (8.2) | (2.8) | |||||||||||||||||||
| Net impact from the exit of a COVID-19 testing application(2) | — | 1.1 | — | 1.1 | |||||||||||||||||||
| Gain on sale of business | 93.8 | 34.8 | 93.8 | 34.8 | |||||||||||||||||||
| Gains on sales of assets | — | — | — | 2.7 | |||||||||||||||||||
| Credit loss on note receivable from collaborative partner(3) | — | — | (7.7) | — | |||||||||||||||||||
| Income before income taxes | $ | 261.8 | $ | 228.4 | $ | 620.1 | $ | 585.9 |
(1) Corporate expenses that can be identified with a segment have been included in determining segment results. The remainder is included in Corporate and Other.
(2) Represents the net impact of the acceleration of previously deferred revenue of $17.9 million and an impairment charge of $16.8 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application in the HST segment in 2022 that did not reoccur in 2023. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.
(3) Represents a reserve recorded on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| September 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Fluid & Metering Technologies | $ | 1,700.0 | $ | 1,676.9 | |||||||
| Health & Science Technologies | 2,997.3 | 2,931.1 | |||||||||
| Fire & Safety/Diversified Products | 797.2 | 771.8 | |||||||||
| Corporate and other | 175.1 | 132.1 | |||||||||
| Total assets | $ | 5,669.6 | $ | 5,511.9 |
5. 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.
Revenue by reporting unit for the three and nine months ended September 30, 2023 and 2022 was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Pumps | $ | 94.7 | $ | 102.6 | $ | 309.0 | $ | 304.5 | |||||||||||||||||||||||||||
| Water | 79.8 | 82.1 | 261.2 | 228.1 | |||||||||||||||||||||||||||||||
| Energy | 53.7 | 51.3 | 160.1 | 144.3 | |||||||||||||||||||||||||||||||
| Agriculture | 39.2 | 42.1 | 117.9 | 112.5 | |||||||||||||||||||||||||||||||
| Valves | 33.7 | 29.5 | 99.8 | 90.1 | |||||||||||||||||||||||||||||||
| Intersegment elimination | (0.6) | (0.2) | (2.3) | (0.7) | |||||||||||||||||||||||||||||||
| Fluid & Metering Technologies | 300.5 | 307.4 | 945.7 | 878.8 | |||||||||||||||||||||||||||||||
| Scientific Fluidics & Optics(1) | 162.1 | 172.4 | 509.7 | 462.8 | |||||||||||||||||||||||||||||||
| Performance Pneumatic Technologies | 60.0 | 64.1 | 195.4 | 191.2 | |||||||||||||||||||||||||||||||
| Sealing Solutions | 59.2 | 64.9 | 186.3 | 203.1 | |||||||||||||||||||||||||||||||
| Material Processing Technologies | 29.7 | 34.6 | 90.4 | 103.1 | |||||||||||||||||||||||||||||||
| Micropump(2) | 2.2 | 9.0 | 21.9 | 26.0 | |||||||||||||||||||||||||||||||
| Intersegment elimination | (0.5) | (0.7) | (2.3) | (1.9) | |||||||||||||||||||||||||||||||
| Health & Science Technologies | 312.7 | 344.3 | 1,001.4 | 984.3 | |||||||||||||||||||||||||||||||
| Fire & Safety | 112.0 | 100.6 | 328.0 | 296.1 | |||||||||||||||||||||||||||||||
| Dispensing | 41.9 | 42.8 | 122.8 | 128.2 | |||||||||||||||||||||||||||||||
| BAND-IT | 26.7 | 29.0 | 89.0 | 84.0 | |||||||||||||||||||||||||||||||
| Intersegment elimination | (0.4) | (0.1) | (1.9) | (0.2) | |||||||||||||||||||||||||||||||
| Fire & Safety/Diversified Products | 180.2 | 172.3 | 537.9 | 508.1 | |||||||||||||||||||||||||||||||
| Net sales | $ | 793.4 | $ | 824.0 | $ | 2,485.0 | $ | 2,371.2 | |||||||||||||||||||||||||||
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
(1) The three and nine months ended September 30, 2022 include the acceleration of previously deferred revenue of $17.9 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application. See Note 12 for further detail.
(2) Revenue from Micropump (sold on August 3, 2023) has been included in the Company’s Condensed Consolidated Statements of Income through the date of disposition. See Note 2 for further detail.
Revenue by geographical region for the three and nine months ended September 30, 2023 and 2022 was as follows:
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S. | $ | 168.4 | $ | 139.2 | $ | 94.4 | $ | 402.0 | |||||||||||||||
| North America, excluding U.S. | 15.5 | 3.2 | 8.8 | 27.5 | |||||||||||||||||||
| Europe | 52.3 | 106.0 | 39.0 | 197.3 | |||||||||||||||||||
| Asia | 43.1 | 57.8 | 29.0 | 129.9 | |||||||||||||||||||
| Other(1) | 21.8 | 7.0 | 9.4 | 38.2 | |||||||||||||||||||
| Intersegment elimination | (0.6) | (0.5) | (0.4) | (1.5) | |||||||||||||||||||
| Net sales | $ | 300.5 | $ | 312.7 | $ | 180.2 | $ | 793.4 |
| Three Months Ended September 30, 2022 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S.(2) | $ | 178.4 | $ | 175.0 | $ | 93.5 | $ | 446.9 | |||||||||||||||
| North America, excluding U.S. | 20.4 | 3.3 | 8.4 | 32.1 | |||||||||||||||||||
| Europe(2) | 47.2 | 93.0 | 36.8 | 177.0 | |||||||||||||||||||
| Asia | 39.1 | 67.4 | 25.4 | 131.9 | |||||||||||||||||||
| Other(1) | 22.5 | 6.3 | 8.3 | 37.1 | |||||||||||||||||||
| Intersegment elimination | (0.2) | (0.7) | (0.1) | (1.0) | |||||||||||||||||||
| Net sales | $ | 307.4 | $ | 344.3 | $ | 172.3 | $ | 824.0 |
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S. | $ | 525.9 | $ | 437.3 | $ | 280.5 | $ | 1,243.7 | |||||||||||||||
| North America, excluding U.S. | 52.8 | 16.6 | 25.4 | 94.8 | |||||||||||||||||||
| Europe | 163.0 | 338.1 | 126.1 | 627.2 | |||||||||||||||||||
| Asia | 137.0 | 189.6 | 80.4 | 407.0 | |||||||||||||||||||
| Other(1) | 69.3 | 22.1 | 27.4 | 118.8 | |||||||||||||||||||
| Intersegment elimination | (2.3) | (2.3) | (1.9) | (6.5) | |||||||||||||||||||
| Net sales | $ | 945.7 | $ | 1,001.4 | $ | 537.9 | $ | 2,485.0 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| U.S.(2) | $ | 498.9 | $ | 484.7 | $ | 255.0 | $ | 1,238.6 | |||||||||||||||
| North America, excluding U.S. | 54.3 | 20.3 | 27.8 | 102.4 | |||||||||||||||||||
| Europe(2) | 147.7 | 276.8 | 123.8 | 548.3 | |||||||||||||||||||
| Asia | 116.8 | 187.0 | 75.4 | 379.2 | |||||||||||||||||||
| Other(1) | 61.8 | 17.4 | 26.3 | 105.5 | |||||||||||||||||||
| Intersegment elimination | (0.7) | (1.9) | (0.2) | (2.8) | |||||||||||||||||||
| Net sales | $ | 878.8 | $ | 984.3 | $ | 508.1 | $ | 2,371.2 |
(1) Other includes: South America, Middle East, Australia and Africa.
(2) The HST segment includes the acceleration of $17.9 million of previously deferred revenue related to a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application, of which $9.5 million was recognized in the U.S. and $8.4 million was recognized in Europe in both the three and nine months ended September 30, 2022. See Note 12 for further detail.
Performance Obligations
A majority of the Company's contracts have a single performance obligation which represents, in most cases, the product being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation, extended warranty, software and/or maintenance services. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation.
The Company’s performance obligations are satisfied either at a point in time or over time as work progresses. For performance obligations satisfied at a point in time, revenue is recognized when control transfers to the customer, typically upon shipment. For performance obligations in which the Company transfers control of a product or service over time, revenue is recognized over time as work is performed. Typically, this results when the Company performs services over time or the Company creates a product with no alternative use and has an enforceable right to payment for its performance to date. Revenue from products and services transferred to customers at a point in time and over time was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Revenue from products transferred at a point in time | 95 | % | 96 | % | 95 | % | 96 | % | |||||||||||||||||||||||||||
| Revenue from products and services transferred over time | 5 | % | 4 | % | 5 | % | 4 | % |
Contract Balances
The timing of billings and cash collections can result in customer receivables, billings in excess of revenue recognized, advance payments or deposits. 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.
The composition of customer receivables was as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Billed receivables | $ | 413.4 | $ | 421.3 | |||||||
| Unbilled receivables | 9.4 | 10.0 | |||||||||
| Total customer receivables | $ | 422.8 | $ | 431.3 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Billings in excess of revenue recognized, advance payments and deposits represent contract liabilities and are included in deferred revenue which is classified as current or noncurrent based on 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.
The composition of deferred revenue was as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Deferred revenue - current | $ | 48.9 | $ | 44.7 | |||||||
| Deferred revenue - noncurrent | 15.8 | 15.0 | |||||||||
| Total deferred revenue | $ | 64.7 | $ | 59.7 |
6. 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 common shares outstanding (basic) plus common stock equivalents outstanding (diluted) for the period. Common stock equivalents consist of restricted stock, performance share units and stock options, which have been included in the calculation of weighted average common shares outstanding using the treasury stock method.
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 common shares outstanding reconciles to diluted weighted average common shares outstanding as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Basic weighted average common shares outstanding | 75.6 | 75.4 | 75.6 | 75.8 | |||||||||||||||||||
| Dilutive effect of restricted stock, performance share units and stock options | 0.3 | 0.4 | 0.3 | 0.3 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 75.9 | 75.8 | 75.9 | 76.1 |
Options to purchase shares of common stock that were not included in the computation of Diluted EPS attributable to IDEX because the effect of their inclusion would have been antidilutive were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Antidilutive shares not included in Diluted EPS attributable to IDEX | 0.2 | 0.5 | 0.2 | 0.5 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
7. Balance Sheet Components
| September 30, 2023 | December 31, 2022 | ||||||||||
| INVENTORIES | |||||||||||
| Raw materials and component parts | $ | 289.7 | $ | 301.2 | |||||||
| Work in process | 47.0 | 54.3 | |||||||||
| Finished goods | 109.9 | 115.4 | |||||||||
| Inventories - net | $ | 446.6 | $ | 470.9 | |||||||
| ACCRUED EXPENSES | |||||||||||
| Payroll and related items | $ | 91.7 | $ | 102.7 | |||||||
| Management incentive compensation | 9.7 | 26.4 | |||||||||
| Income taxes payable | 17.9 | 30.2 | |||||||||
| Insurance | 10.6 | 11.2 | |||||||||
| Warranty | 8.0 | 8.1 | |||||||||
| Deferred revenue | 48.9 | 44.7 | |||||||||
| Lease liability | 21.0 | 21.6 | |||||||||
| Restructuring | 3.4 | 1.4 | |||||||||
| Accrued interest | 13.6 | 5.5 | |||||||||
| Pension and retiree medical obligations | 3.3 | 3.3 | |||||||||
| Other | 33.9 | 34.0 | |||||||||
| Accrued expenses | $ | 262.0 | $ | 289.1 | |||||||
| OTHER NONCURRENT LIABILITIES | |||||||||||
| Pension and retiree medical obligations | $ | 53.4 | $ | 55.1 | |||||||
| Transition tax payable | 5.0 | 9.1 | |||||||||
| Deferred revenue | 15.8 | 15.0 | |||||||||
| Lease liability | 96.9 | 96.6 | |||||||||
| Other | 23.7 | 20.0 | |||||||||
| Other noncurrent liabilities | $ | 194.8 | $ | 195.8 |
8. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2023, by reportable business segment, were as follows:
| FMT | HST | FSDP | IDEX | ||||||||||||||||||||
| Goodwill | $ | 800.9 | $ | 1,644.8 | $ | 393.0 | $ | 2,838.7 | |||||||||||||||
| Accumulated goodwill impairment losses | (20.7) | (149.8) | (30.1) | (200.6) | |||||||||||||||||||
| Balance at January 1, 2023 | 780.2 | 1,495.0 | 362.9 | 2,638.1 | |||||||||||||||||||
| Foreign currency translation | (1.3) | (6.1) | (1.3) | (8.7) | |||||||||||||||||||
| Acquisitions | — | 53.6 | — | 53.6 | |||||||||||||||||||
| Measurement period adjustments | (1.8) | 3.3 | — | 1.5 | |||||||||||||||||||
| Divestitures | — | (7.2) | — | (7.2) | |||||||||||||||||||
| Balance at September 30, 2023 | $ | 777.1 | $ | 1,538.6 | $ | 361.6 | $ | 2,677.3 |
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
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
the fair value of the reporting unit below its carrying value. In the first nine months of 2023, there were no events or circumstances that would have required an interim impairment test. Annually, on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. Based on the results of the Company’s annual impairment test at October 31, 2022, 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 September 30, 2023 and December 31, 2022:
| At September 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Weighted Average Life | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Patents | $ | 2.8 | $ | (2.0) | $ | 0.8 | 12 | $ | 2.9 | $ | (1.8) | $ | 1.1 | ||||||||||||||||||||||||||||
| Trade names | 180.8 | (71.5) | 109.3 | 15 | 186.5 | (71.4) | 115.1 | ||||||||||||||||||||||||||||||||||
| Customer relationships | 793.7 | (225.0) | 568.7 | 13 | 772.2 | (184.9) | 587.3 | ||||||||||||||||||||||||||||||||||
| Unpatented technology | 210.5 | (63.9) | 146.6 | 12 | 207.1 | (57.8) | 149.3 | ||||||||||||||||||||||||||||||||||
| Software | 4.8 | (1.5) | 3.3 | 5 | 4.8 | (0.7) | 4.1 | ||||||||||||||||||||||||||||||||||
| Total amortized intangible assets | 1,192.6 | (363.9) | 828.7 | 1,173.5 | (316.6) | 856.9 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 1,283.5 | $ | (363.9) | $ | 919.6 | $ | 1,264.4 | $ | (316.6) | $ | 947.8 |
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, 2022, these indefinite-lived intangible assets had fair values in excess of their carrying values. In the first nine months of 2023, 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 $23.8 million and $70.6 million for the three and nine months ended September 30, 2023, respectively. Amortization of intangible assets was $17.0 million and $49.2 million for the three and nine months ended September 30, 2022, respectively. Based on the intangible asset balances as of September 30, 2023, expected amortization expense for the remaining three months of 2023 and for the years 2024 through 2027 is as follows:
| Maturity of Intangible Assets | Estimated Amortization | |||||||
| 2023 (excluding the nine months ended September 30, 2023) | $ | 23.4 | ||||||
| 2024 | 90.2 | |||||||
| 2025 | 88.8 | |||||||
| 2026 | 87.0 | |||||||
| 2027 | 83.2 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
9. Borrowings
Borrowings at September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| 3.20% Senior Notes, due June 2023 | $ | — | $ | 100.0 | |||||||
| 3.37% Senior Notes, due June 2025 | 100.0 | 100.0 | |||||||||
| 5.13% Senior Notes, due June 2028 | 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 November 2027(1) | 76.9 | 77.7 | |||||||||
| $200.0 million Term Facility, due November 2027(2) | 50.0 | 200.0 | |||||||||
| Other borrowings | 2.5 | 0.1 | |||||||||
| Total borrowings | 1,329.4 | 1,477.8 | |||||||||
| Less current portion | 0.7 | — | |||||||||
| Less deferred debt issuance costs | 6.8 | 7.9 | |||||||||
| Less unaccreted debt discount | 1.1 | 1.2 | |||||||||
| Long-term borrowings | $ | 1,320.8 | $ | 1,468.7 |
(1) At September 30, 2023, there was $76.9 million outstanding under the Revolving Credit Facility with a weighted average interest rate of 2.95% and $7.2 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Credit Facility of approximately $715.9 million.
(2) The Term Facility has a weighted average interest rate of 6.10%. During the third quarter of 2023, the Company repaid $150.0 million of the $200.0 million previously outstanding under the Term Facility.
At September 30, 2023, the Company was in compliance with covenants contained in the credit agreement associated with the Revolving Credit Facility as well as other long-term debt agreements.
Issuance of 5.13% Senior Notes in 2023
On June 13, 2023, the Company completed a private placement of $100 million aggregate principal amount of 5.13% Senior Notes due June 13, 2028 (the “5.13% Senior Notes”) pursuant to a Note Purchase and Master Note Agreement, dated as of June 13, 2023 (the “Purchase Agreement”), among the Company, NYL Investors LLC (“New York Life”) and certain affiliates of New York Life identified as Purchasers of the 5.13% Senior Notes therein. The 5.13% Senior 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 used the proceeds from the 5.13% Senior Notes issuance to repay the 3.20% Senior Notes due June 13, 2023.
The Company may at any time prepay all, or any portion of the 5.13% Senior Notes, provided that such portion is not less than 5% of the aggregate principal amount of all notes then outstanding under the Purchase Agreement. In the event of a prepayment, the Company will pay an amount equal to par plus accrued interest plus a make-whole amount. The Company also has the ability to make certain other offers to repurchase any notes outstanding under the Purchase Agreement.
The Purchase Agreement contains certain covenants that restrict the Company’s and its subsidiaries’ ability to, among other things, transfer or sell assets, create liens, incur indebtedness, transact with affiliates and engage in certain mergers or consolidations. In addition, the Company must comply with a leverage ratio, interest coverage ratio and priority debt ratio as set forth in the Purchase Agreement. The Purchase Agreement provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all notes then outstanding under the Purchase Agreement will become due and payable immediately without further action or notice. In the case of payment events of default, any holder of
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
such notes affected thereby may declare all of the notes outstanding under the Purchase Agreement held by it due and payable immediately. In the case of any other event of default, a majority of the holders of the notes then outstanding under the Purchase Agreement may declare all of such notes to be due and payable immediately, in each case subject to certain cure and notice provisions.
10. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
-
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
-
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the basis used to measure the Company’s financial assets (liabilities) at fair value on a recurring basis in the balance sheets at September 30, 2023 and December 31, 2022:
| Basis of Fair Value Measurements | |||||||||||
| September 30, 2023 | December 31, 2022 | ||||||||||
| Level 1 | Level 1 | ||||||||||
| Trading securities - mutual funds held in nonqualified SERP(1) | $ | 9.1 | $ | 7.5 | |||||||
| Available-for-sale securities - equities(2) | 24.6 | — | |||||||||
(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 September 30, 2023, 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 nine months ended September 30, 2023 or the year ended December 31, 2022.
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.
The following table provides the fair value of the outstanding indebtedness described in Note 9, which is based on quoted market prices and current market rates for debt with similar credit risk and maturity, as well as the carrying value. 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.
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Fair Value | Carrying Amount | Fair Value | Carrying Amount | ||||||||||||||||||||||||||||||||
| Total Borrowings, less deferred debt issuance costs | $ | 1,135.4 | $ | 1,328.3 | $ | 1,328.7 | $ | 1,476.6 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
11. Leases
The Company has commitments under operating leases for certain office facilities, warehouses, manufacturing plants, equipment (which includes both office and plant equipment) and vehicles used in its operations. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Certain leases can 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 contain provisions for future rent increases or have rental payments that are adjusted periodically for inflation or based on usage. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company does not have any significant leases that have not yet commenced.
Supplemental balance sheet information related to leases as of September 30, 2023 and December 31, 2022 was as follows:
| Balance Sheet Caption | September 30, 2023 | December 31, 2022 | |||||||||||||||
| Right-of-Use (“ROU”) Assets: | |||||||||||||||||
| Building ROU assets - net | Other noncurrent assets | $ | 106.3 | $ | 104.4 | ||||||||||||
| Equipment ROU assets - net | Other noncurrent assets | 6.5 | 5.6 | ||||||||||||||
| Total ROU assets - net | $ | 112.8 | $ | 110.0 | |||||||||||||
| Lease Liabilities: | |||||||||||||||||
| Current lease liabilities | Accrued expenses | $ | 21.0 | $ | 21.6 | ||||||||||||
| Noncurrent lease liabilities | Other noncurrent liabilities | 96.9 | 96.6 | ||||||||||||||
| Total lease liabilities | $ | 117.9 | $ | 118.2 |
The components of lease cost for the three and nine months ended September 30, 2023 and 2022 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Fixed lease cost (1) | $ | 8.5 | $ | 11.4 | $ | 24.2 | $ | 27.8 | |||||||||||||||
| Variable lease cost | 0.6 | 0.6 | 1.9 | 1.8 | |||||||||||||||||||
| Total lease cost | $ | 9.1 | $ | 12.0 | $ | 26.1 | $ | 29.6 |
(1) Includes short-term leases, which are immaterial.
Supplemental cash flow information related to leases for the nine months ended September 30, 2023 and 2022 was as follows:
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 24.8 | $ | 28.1 | |||||||
| Right-of-use assets obtained in exchange for new lease liabilities | 17.6 | 7.1 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Other supplemental information related to leases as of September 30, 2023 and December 31, 2022 was as follows:
| Lease Term and Discount Rate | September 30, 2023 | December 31, 2022 | |||||||||||||||
| Weighted-average remaining lease term (years): | |||||||||||||||||
| Building and equipment | 7.14 | 7.43 | |||||||||||||||
| Vehicles | 2.61 | 2.14 | |||||||||||||||
| Weighted-average discount rate: | |||||||||||||||||
| Building and equipment | 3.68 | % | 3.41 | % | |||||||||||||
| Vehicles | 2.81 | % | 1.70 | % |
The Company uses its incremental borrowing rate to determine the present value of the lease payments.
Total lease liabilities at September 30, 2023 have scheduled maturities as follows:
| Maturity of Lease Liabilities | ||||||||
| 2023 (excluding the nine months ended September 30, 2023) | $ | 6.4 | ||||||
| 2024 | 19.6 | |||||||
| 2025 | 22.3 | |||||||
| 2026 | 19.5 | |||||||
| 2027 | 15.5 | |||||||
| Thereafter | 52.0 | |||||||
| Total lease payments | 135.3 | |||||||
| Less: Imputed interest | (17.4) | |||||||
| Present value of lease liabilities | $ | 117.9 |
12. Restructuring Expenses and Asset Impairments
From time to time, the Company incurs expenses to facilitate long-term sustainable growth through cost reduction actions, consisting of employee reductions, facility rationalization and contract termination costs. These 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.
2023 Initiative
During the three and nine months ended September 30, 2023, the Company incurred severance costs related to employee reductions in conjunction with cost mitigation efforts as a result of current market conditions, contract termination costs and asset impairments.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Pre-tax restructuring expenses and asset impairments by segment for the three and nine months ended September 30, 2023 were as follows:
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairments | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 0.8 | $ | 0.6 | $ | 0.3 | $ | 1.7 | ||||||||||||||||||
| Health & Science Technologies | 1.5 | — | — | 1.5 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 0.4 | — | — | 0.4 | ||||||||||||||||||||||
| Corporate/Other | 0.5 | — | — | 0.5 | ||||||||||||||||||||||
| Restructuring expenses and asset impairments | $ | 3.2 | $ | 0.6 | $ | 0.3 | $ | 4.1 |
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairments | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 1.0 | $ | 0.6 | $ | 0.8 | $ | 2.4 | ||||||||||||||||||
| Health & Science Technologies | 4.5 | — | — | 4.5 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 0.8 | — | — | 0.8 | ||||||||||||||||||||||
| Corporate/Other | 0.5 | — | — | 0.5 | ||||||||||||||||||||||
| Restructuring expenses and asset impairments | $ | 6.8 | $ | 0.6 | $ | 0.8 | $ | 8.2 |
2022 Initiative
During the three and nine months ended September 30, 2022, the restructuring costs incurred by the Company primarily related to asset impairments. In addition, the Company also incurred severance costs related to employee reductions.
In the second quarter of 2020, the Company engaged in the development of a COVID-19 testing application with a customer at one of the Company’s businesses in the HST segment. As part of this contract, the customer fully funded the $28.7 million investment needed to complete the development and production of microfluidic cartridges during 2020 and 2021. The costs incurred by the Company were primarily recorded as Property, plant and equipment – net in the Condensed Consolidated Balance Sheets and were being depreciated over the expected life of the assets, while the reimbursement was recorded as Deferred revenue in the Condensed Consolidated Balance Sheets and was being recognized as units were shipped.
In the third quarter of 2022, the Company was informed by the customer of its decision to discontinue further investment in commercializing its COVID-19 testing application. This event was deemed a triggering event, which required an interim impairment test be performed on the Property, plant and equipment related to this contract, resulting in an impairment charge of $16.8 million that was recorded as Restructuring expenses and asset impairments in the Condensed Consolidated Statements of Income during three and nine months ended September 30, 2022. In addition, the Company accelerated previously deferred revenue of $17.9 million related to units that are no longer expected to be shipped and recorded it as Net sales in the Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2022.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Pre-tax restructuring expenses and asset impairments by segment for the three and nine months ended September 30, 2022 were as follows:
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairments | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 0.1 | $ | — | $ | — | $ | 0.1 | ||||||||||||||||||
| Health & Science Technologies | 0.4 | — | 16.8 | 17.2 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 0.4 | — | — | 0.4 | ||||||||||||||||||||||
| Corporate/Other | — | — | — | — | ||||||||||||||||||||||
| Restructuring expenses and asset impairments | $ | 0.9 | $ | — | $ | 16.8 | $ | 17.7 |
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||
| Severance Costs | Exit Costs | Asset Impairments | Total | |||||||||||||||||||||||
| Fluid & Metering Technologies | $ | 1.6 | $ | 0.3 | $ | 0.2 | $ | 2.1 | ||||||||||||||||||
| Health & Science Technologies | 0.6 | — | 16.8 | 17.4 | ||||||||||||||||||||||
| Fire & Safety/Diversified Products | 1.4 | — | — | 1.4 | ||||||||||||||||||||||
| Corporate/Other | 0.2 | — | — | 0.2 | ||||||||||||||||||||||
| Restructuring expenses and asset impairments | $ | 3.8 | $ | 0.3 | $ | 17.0 | $ | 21.1 |
Restructuring accruals reflected in Accrued expenses in the Company’s Condensed Consolidated Balance Sheets are as follows:
| Restructuring Initiatives | |||||
| Balance at January 1, 2023 | $ | 1.4 | |||
| Restructuring expenses | 7.4 | ||||
| Payments, utilization and other | (5.4) | ||||
| Balance at September 30, 2023 | $ | 3.4 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
13. Other Comprehensive Loss
The components of Other comprehensive loss are as follows:
| Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of tax | Pre-tax | Tax | Net of tax | ||||||||||||||||||||||||||||||
| Cumulative translation adjustment | $ | (58.1) | $ | — | $ | (58.1) | $ | (94.9) | $ | — | $ | (94.9) | |||||||||||||||||||||||
| Pension and other postretirement adjustments | (0.3) | — | (0.3) | 0.6 | — | 0.6 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | $ | (58.4) | $ | — | $ | (58.4) | $ | (94.3) | $ | — | $ | (94.3) |
| Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of tax | Pre-tax | Tax | Net of tax | ||||||||||||||||||||||||||||||
| Cumulative translation adjustment | $ | (19.2) | $ | — | $ | (19.2) | $ | (196.3) | $ | — | $ | (196.3) | |||||||||||||||||||||||
| Pension and other postretirement adjustments | (1.0) | 0.2 | (0.8) | 2.5 | (0.7) | 1.8 | |||||||||||||||||||||||||||||
| Total other comprehensive loss | $ | (20.2) | $ | 0.2 | $ | (20.0) | $ | (193.8) | $ | (0.7) | $ | (194.5) |
The amounts reclassified from Accumulated other comprehensive loss to Net income during the three and nine months ended September 30, 2023 and 2022 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | Income Statement Caption | ||||||||||||||||||||||
| Pension and other postretirement plans: | ||||||||||||||||||||||||||
| Amortization of actuarial (gains) losses and prior service costs | $ | (0.3) | $ | 0.6 | $ | (1.0) | $ | 2.5 | Other (income) expense - net | |||||||||||||||||
| Total before tax | (0.3) | 0.6 | (1.0) | 2.5 | ||||||||||||||||||||||
| Provision for income taxes | — | — | 0.2 | (0.7) | ||||||||||||||||||||||
| Total net of tax | $ | (0.3) | $ | 0.6 | $ | (0.8) | $ | 1.8 |
14. 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 Credit Facility. During the nine months ended September 30, 2023, the Company repurchased a total of 5,400 shares at a cost of $1.1 million. During the nine months ended September 30, 2022, the Company repurchased a total of 788,623 shares at a cost of $146.3 million, of which $0.5 million was settled in October 2022. As of September 30, 2023, the amount of share repurchase authorization remaining was $562.8 million.
15. 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 the classification of cash compensation for the same employees.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Stock Options
Stock options granted under the Company’s plans are generally non-qualified and are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. The fair value of each option grant was estimated on the date of the grant using the Black Scholes valuation model. 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 stock option fair values and assumptions for the periods presented are disclosed below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Weighted average fair value of grants | $56.47 | $52.91 | $60.49 | $41.90 | |||||||||||||||||||
| Dividend yield | 1.20% | 1.16% | 1.07% | 1.14% | |||||||||||||||||||
| Volatility | 26.78% | 25.99% | 27.17% | 25.16% | |||||||||||||||||||
| Risk-free interest rate | 4.26% | 3.35% | 4.12% | 1.87% | |||||||||||||||||||
| Expected life (in years) | 4.50 | 4.90 | 4.50 | 4.90 |
Total compensation cost for stock options is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of sales | $ | 0.1 | $ | 0.1 | $ | 0.5 | $ | 0.4 | |||||||||||||||
| Selling, general and administrative expenses(1) | 1.0 | 0.7 | 8.2 | 6.6 | |||||||||||||||||||
| Total expense before income taxes | 1.1 | 0.8 | 8.7 | 7.0 | |||||||||||||||||||
| Income tax benefit | (0.2) | (0.1) | (0.8) | (0.6) | |||||||||||||||||||
| Total expense after income taxes | $ | 0.9 | $ | 0.7 | $ | 7.9 | $ | 6.4 |
(1) The three months ended September 30, 2023 include $0.4 million of higher expense due to timing of accelerated stock compensation costs for retiree eligible participants, net of $0.2 million of executive forfeitures compared with the same period in 2022. The nine months ended September 30, 2023 include $1.5 million of higher expense compared with the same period in 2022 as it relates to the timing of accelerated stock compensation costs for retiree eligible participants.
A summary of the Company’s stock option activity as of September 30, 2023 and changes during the nine months ended September 30, 2023 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, 2023 | 1,015,572 | $ | 161.45 | 6.94 | $ | 67.9 | |||||||||||||||||
| Granted | 225,115 | 224.90 | |||||||||||||||||||||
| Exercised | (87,217) | 143.37 | |||||||||||||||||||||
| Forfeited | (71,833) | 200.60 | |||||||||||||||||||||
| Outstanding at September 30, 2023 | 1,081,637 | $ | 173.52 | 6.82 | $ | 40.9 | |||||||||||||||||
| Vested and expected to vest as of September 30, 2023 | 1,048,823 | $ | 172.37 | 6.76 | $ | 40.7 | |||||||||||||||||
| Exercisable at September 30, 2023 | 595,028 | $ | 148.02 | 5.44 | $ | 35.8 |
As of September 30, 2023, there was $10.0 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.5 years.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
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 September 30, 2023 and changes during the nine months ended September 30, 2023 are presented in the following table:
| Restricted Stock | Shares | Weighted-Average Grant Date Fair Value | |||||||||
| Unvested at January 1, 2023 | 104,382 | $ | 179.45 | ||||||||
| Granted | 41,075 | 219.72 | |||||||||
| Vested | (22,992) | 173.91 | |||||||||
| Forfeited | (12,220) | 201.97 | |||||||||
| Unvested at September 30, 2023 | 110,245 | $ | 193.11 |
Total compensation cost for restricted stock is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of sales | $ | 0.1 | $ | — | $ | 0.4 | $ | 0.2 | |||||||||||||||
| Selling, general and administrative expenses(1) | 1.0 | 2.2 | 4.0 | 5.4 | |||||||||||||||||||
| Total expense before income taxes | 1.1 | 2.2 | 4.4 | 5.6 | |||||||||||||||||||
| Income tax benefit | (0.2) | (0.4) | (0.9) | (1.0) | |||||||||||||||||||
| Total expense after income taxes | $ | 0.9 | $ | 1.8 | $ | 3.5 | $ | 4.6 |
(1) The three and nine months ended September 30, 2023 include $1.1 million and $0.6 million, respectively, of lower expense due to timing of accelerated stock compensation costs for retiree eligible participants compared with the same period in 2022.
As of September 30, 2023, there was $7.3 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.1 years.
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 September 30, 2023 and changes during the nine months ended September 30, 2023 are presented in the following table:
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Cash-Settled Restricted Stock | Shares | Weighted-Average Fair Value | |||||||||
| Unvested at January 1, 2023 | 57,356 | $ | 228.33 | ||||||||
| Granted | 20,705 | 225.34 | |||||||||
| Vested | (15,981) | 229.03 | |||||||||
| Forfeited | (3,420) | 208.02 | |||||||||
| Unvested at September 30, 2023 | 58,660 | $ | 208.02 |
Total compensation cost for cash-settled restricted stock is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of sales | $ | — | $ | — | $ | 0.2 | $ | — | |||||||||||||||
| Selling, general and administrative expenses | 0.6 | 1.1 | 2.1 | 1.1 | |||||||||||||||||||
| Total expense before income taxes | 0.6 | 1.1 | 2.3 | 1.1 | |||||||||||||||||||
| Income tax benefit | — | — | (0.1) | — | |||||||||||||||||||
| Total expense after income taxes | $ | 0.6 | $ | 1.1 | $ | 2.2 | $ | 1.1 |
As of September 30, 2023, there was $4.8 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.1 years.
Performance Share Units
Weighted average performance share unit fair values and assumptions for the periods specified are disclosed below. The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model.
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Weighted average fair value of grants | $308.18 | $235.54 | |||||||||
| Dividend yield | —% | —% | |||||||||
| Volatility | 27.00% | 28.09% | |||||||||
| Risk-free interest rate | 4.37% | 1.73% | |||||||||
| Expected life (in years) | 2.94 | 2.93 |
A summary of the Company’s performance share unit activity as of September 30, 2023 and changes during the nine months ended September 30, 2023 are presented in the following table:
| Performance Share Units | Shares | Weighted-Average Grant Date Fair Value | |||||||||
| Unvested at January 1, 2023 | 70,915 | $ | 236.66 | ||||||||
| Granted | 28,030 | 308.18 | |||||||||
| Vested | (18,105) | 226.86 | |||||||||
| Forfeited | (12,050) | 262.44 | |||||||||
| Unvested at September 30, 2023 | 68,790 | $ | 265.22 |
On January 31, 2023, 18,105 performance share units vested. Based on the Company’s relative total shareholder return rank during the three year period ended January 31, 2023, the Company achieved a 173% payout factor and issued 31,334 common shares in February 2023 for awards that vested in 2023.
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
Total compensation cost for performance share units is recorded in the Condensed Consolidated Statements of Income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of sales | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Selling, general and administrative expenses(1) | (0.3) | 0.2 | 5.7 | 4.0 | |||||||||||||||||||
| Total expense before income taxes | (0.3) | 0.2 | 5.7 | 4.0 | |||||||||||||||||||
| Income tax benefit | (0.1) | — | (0.3) | (0.1) | |||||||||||||||||||
| Total expense after income taxes | $ | (0.4) | $ | 0.2 | $ | 5.4 | $ | 3.9 |
(1) The three months ended September 30, 2023 include $1.0 million of lower expense due to executive forfeitures, net of $0.4 million of higher expense due to timing of accelerated stock compensation costs for retiree eligible participants compared with the same period in 2022. The nine months ended September 30, 2023 include $2.0 million of higher expense as it relates to the timing of accelerated stock compensation costs for retiree eligible participants, net of $0.7 million of executive forfeitures when compared with the same period in 2022.
As of September 30, 2023, there was $3.1 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.1 years.
16. 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 September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.3 | $ | — | $ | 0.5 | |||||||||||||||
| Interest cost | 0.1 | 0.6 | 0.1 | 0.2 | |||||||||||||||||||
| Expected return on plan assets | (0.1) | (0.4) | (0.1) | (0.4) | |||||||||||||||||||
| Net amortization | — | (0.1) | 0.1 | 0.2 | |||||||||||||||||||
| Net periodic cost | $ | 0.1 | $ | 0.4 | $ | 0.1 | $ | 0.5 | |||||||||||||||
| Pension Benefits | |||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.9 | $ | 0.1 | $ | 1.4 | |||||||||||||||
| Interest cost | 0.3 | 2.0 | 0.2 | 0.7 | |||||||||||||||||||
| Expected return on plan assets | (0.2) | (1.2) | (0.2) | (1.0) | |||||||||||||||||||
| Net amortization | 0.1 | (0.4) | 0.2 | 0.6 | |||||||||||||||||||
| Net periodic cost | $ | 0.3 | $ | 1.3 | $ | 0.3 | $ | 1.7 |
IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(unaudited)
| Other Postretirement Benefits | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Service cost | $ | 0.1 | $ | 0.2 | $ | 0.3 | $ | 0.5 | |||||||||||||||
| Interest cost | 0.2 | 0.1 | 0.6 | 0.4 | |||||||||||||||||||
| Net amortization | (0.2) | (0.1) | (0.7) | (0.3) | |||||||||||||||||||
| Net periodic cost | $ | 0.1 | $ | 0.2 | $ | 0.2 | $ | 0.6 |
The Company recognizes the service cost component in both Cost of sales and Selling, general and administrative expenses in the Condensed Consolidated Statements of Income depending on the functional area of the underlying employees and the interest cost, expected return on plan assets and net amortization components in Other expense (income) - net in the Condensed Consolidated Statements of Income.
The Company expects to contribute approximately $3.9 million to its defined benefit plans and $1.1 million to its other post-retirement benefit plans in 2023. During the first nine months of 2023, the Company contributed a total of $3.9 million to fund these plans.
17. Commitments and Contingencies
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.
18. Income Taxes
The Company’s provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes and the effective tax rates were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 52.8 | $ | 49.7 | $ | 132.8 | $ | 129.2 | |||||||||||||||||||||||||||
| Effective tax rate | 20.2 | % | 21.8 | % | 21.4 | % | 22.1 | % |
The decrease in the effective tax rate for both the three and nine months ended September 30, 2023 is primarily due to the tax benefit related to the finalization of the impact of research expenditure capitalization on the foreign derived intangible income deduction and the reduction of Global Intangible Low-Tax Income (“GILTI”) as a result of the tax amortization of goodwill related to the Muon Group acquisition.
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