NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
1. Basis of Presentation and Significant Accounting Policies
The Condensed Consolidated Financial Statements of IDEX Corporation (“IDEX,” “we,” “our,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. The statements are unaudited but include all adjustments, consisting only of recurring items, except as noted, that the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three and
nine months ended
September 30, 2017
are not necessarily indicative of the results to be expected for the entire year.
The Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
Recently Adopted Accounting Standards
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,
which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for a company’s sponsored defined benefit pension and other postretirement plans. Under this ASU, companies are required to disaggregate the current service cost component from the other components of net benefit cost and present it with other current compensation costs for related employees in the income statement and present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. This ASU also requires companies to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. In addition, only the service cost component of periodic net benefit cost is eligible for capitalization. The Company elected to early adopt this standard in the quarter ended March 31, 2017 as presenting the service cost within income from operations is more indicative of our current pension cost. The Company adopted this standard retrospectively and thus
$0.8 million
and
$2.4 million
were reclassified from Selling, general and administrative expenses to Other (income) expense - net for the three and nine months ended September 30, 2016, respectively, to conform to current period presentation. The Company elected to apply the practical expedient that permits the use of previously disclosed service cost and other costs from the prior year’s pension and other postretirement benefit plan footnote in the comparative periods as appropriate estimates when retrospectively changing the presentation of these costs in the income statement. The Company included the required disclosures and the changes resulting from the adoption of this standard in Note 16.
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment
, which eliminates Step 2 from the goodwill impairment test. Under this ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit. This ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. In addition, companies will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The Company early adopted this standard on January 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. Under this guidance, entities utilizing the FIFO or average cost method should measure inventory at the lower of cost or net realizable value, where net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance on January 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards
In January 2017, the FASB issued ASU 2017-01,
Clarifying the Definition of a Business
, which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar assets, the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods for the
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Company on January 1, 2018, with early adoption permitted. The Company does not believe the guidance will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard introduces a new lessee model that will require most leases to be recorded on the balance sheet and eliminates the required use of bright line tests in current U.S. GAAP for determining lease classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Companies are permitted to adopt the standard early and a modified retrospective application is required. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers,
which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a new five-step model for recognizing revenue from contracts with customers. Under ASU 2014-09, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. The FASB has also issued the following standards which clarify ASU 2014-09 and have the same effective date as the original standard: ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
; ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing
; ASU 2016-12
,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients
; and ASU 2016-20
, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
In 2016, we established an implementation team and analyzed the impact of the standard by surveying business units and reviewing contracts to identify potential differences that may result from applying the requirements of the new standard. We have substantially completed our contract reviews. These contract reviews generally supported the recognition of revenue at a point in time, which is consistent with the current revenue recognition model used by most of our business units. As a result, we expect revenue recognition to remain substantially unchanged under the new standard. For our business units that currently recognize revenue under a percentage of completion model, we also expect revenue recognition to remain substantially unchanged as the contract reviews supported the recognition of revenue over time. The implementation team has reported these findings and the progress of the project to the Audit Committee. The Company has also made progress on evaluating new disclosure requirements as well as the impact on controls and is implementing the appropriate changes to its processes, systems and controls to comply with the new guidance. The Company is still evaluating the impact of the new guidance on its consolidated financial statements but expects to adopt the standard in 2018 using the modified retrospective method.
2. Acquisitions and Divestitures
All of the Company’s acquisitions have been accounted for under Accounting Standards Codification (“ASC”) 805,
Business Combinations
. Accordingly, the accounts of the acquired companies, after adjustments to reflect fair values assigned to assets and liabilities, have been included in the Company’s consolidated financial statements from their respective dates of acquisition.
The Company incurred
$0.5 million
and
$1.6 million
of acquisition-related transaction costs in the
three months ended September 30, 2017
and
2016
, respectively, and
$0.7 million
and
$4.0 million
in the
nine months ended September 30, 2017
and
2016
, respectively. These costs were recorded in Selling, general and administrative expenses and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. During the three and
nine
months ended
September 30,
2016
, the Company recorded
$4.6 million
and
$10.4 million
, respectively, of fair value inventory step-up charges in Cost of sales associated with the completed 2016 acquisitions of Akron Brass Holding Corporation (“Akron Brass”), AWG Fittings GmbH (“AWG Fittings”), and SFC Koenig AG (“SFC Koenig”).
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
2016 Acquisitions
On March 16, 2016, the Company acquired the stock of Akron Brass, a producer of a large array of engineered life–safety products for the safety and emergency response markets, which includes apparatus valves, monitors, nozzles, specialty lighting, electronic vehicle–control systems and firefighting hand tools. The business was acquired to complement and create synergies with our existing Hale, Class 1, and Godiva businesses. Headquartered in Wooster, Ohio, Akron Brass operates in our Fire & Safety/Diversified Products segment. Akron Brass was acquired for cash consideration of
$221.4 million
. The purchase price was funded with borrowings under the Company’s revolving facilities. The final goodwill and intangible assets recognized as part of the transaction were
$124.6 million
and
$90.4 million
, respectively. The goodwill is not deductible for tax purposes.
On July 1, 2016, the Company acquired the stock of AWG Fittings, a producer of engineered products for the safety and emergency response markets, including valves, monitors and nozzles. The business was acquired to complement and create synergies with our existing Hale, Class 1, Godiva and Akron Brass businesses. Headquartered in Ballendorf, Germany, AWG Fittings operates in our Fire & Safety/Diversified Products segment. AWG Fittings was acquired for cash consideration of
$47.5 million
(
€42.8 million
). The purchase price was funded with cash on hand. The final goodwill and intangible assets recognized as part of the transaction were
$22.0 million
and
$10.3 million
, respectively. The goodwill is not deductible for tax purposes.
On August 31, 2016, the Company acquired the stock of SFC Koenig, a producer of highly engineered expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets. Headquartered in Dietikon, Switzerland, SFC Koenig operates in our Health & Science Technologies segment. SFC Koenig was acquired for cash consideration of
$241.1 million
(
€215.9 million
). The purchase price was funded with cash on hand and borrowings under the Company’s revolving facilities. The final goodwill and intangible assets recognized as part of the transaction were
$141.3 million
and
$117.0 million
, respectively. The goodwill is not deductible for tax purposes.
2016 Divestitures
The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives to focus on core business and customers. Any resulting gain or loss recognized due to divestitures is recorded within Loss (gain) on sale of businesses - net.
On July 29, 2016, the Company completed the sale of its Hydra-Stop product line for
$15.0 million
in cash, resulting in a pre-tax gain on the sale of
$5.8 million
in the third quarter of 2016. In addition, the Company can earn up to
$2 million
based on the achievement of financial objectives for net sales in 2016 and 2017. The Company earned
$1.0 million
for the achievement of 2016 net sales objectives, which represents the maximum earn out for 2016. The Company can earn an additional
$1.0 million
based on 2017 net sales. The results of Hydra-Stop were reported within the Fluid & Metering Technologies segment and generated
$7.5 million
of revenues in 2016 through the date of sale.
On September 9, 2016, the Company completed the sale of its Melles Griot KK (“CVI Japan”) subsidiary for
$17.5 million
in cash, resulting in a pre-tax loss on the sale of
$7.9 million
in the third quarter of 2016. The results of CVI Japan were reported within the Health & Science Technologies segment and generated
$13.1 million
of revenues in 2016 through the date of sale.
On October 10, 2016, the Company completed the sale of its IETG and 40Seven subsidiaries for
$2.7 million
in cash, resulting in a pre-tax loss on the sale of
$4.2 million
in the fourth quarter of 2016. The results of IETG and 40Seven were reported within the Fluid & Metering Technologies segment and generated
$8.3 million
of revenues in 2016 through the date of sale.
On December 30, 2016, the Company completed the sale of its Korea Electro-Optics Co., Ltd. (“CVI Korea”) subsidiary for
$3.8 million
in cash, resulting in a pre-tax loss on the sale of
$16.0 million
in the fourth quarter of 2016. The results of CVI Korea were reported within the Health & Science Technologies segment and generated
$11.7 million
of revenues in 2016 through the date of sale.
3. Business Segments
The Company has
three
reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, valves, 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 & wastewater, agriculture and energy industries. The Health & Science Technologies
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, including very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded sealing components, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products segment produces firefighting pumps and controls, apparatus valves, monitors, nozzles, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.
Information on the Company’s business segments is presented below, based on the nature of products and services offered. The Company evaluates performance based on several factors, of which operating income is the primary financial measure. Intersegment sales are accounted for as if the sales were to third parties.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
(1)
|
|
2017
|
|
2016
(1)
|
Net sales
|
|
|
|
|
|
|
|
Fluid & Metering Technologies
|
|
|
|
|
|
|
|
External customers
|
$
|
220,897
|
|
|
$
|
208,164
|
|
|
$
|
658,675
|
|
|
$
|
641,508
|
|
Intersegment sales
|
56
|
|
|
171
|
|
|
230
|
|
|
480
|
|
Total group sales
|
220,953
|
|
|
208,335
|
|
|
658,905
|
|
|
641,988
|
|
Health & Science Technologies
|
|
|
|
|
|
|
|
External customers
|
207,018
|
|
|
183,453
|
|
|
610,890
|
|
|
556,157
|
|
Intersegment sales
|
109
|
|
|
111
|
|
|
325
|
|
|
318
|
|
Total group sales
|
207,127
|
|
|
183,564
|
|
|
611,215
|
|
|
556,475
|
|
Fire & Safety/Diversified Products
|
|
|
|
|
|
|
|
External customers
|
146,575
|
|
|
138,739
|
|
|
431,843
|
|
|
384,959
|
|
Intersegment sales
|
24
|
|
|
28
|
|
|
186
|
|
|
37
|
|
Total group sales
|
146,599
|
|
|
138,767
|
|
|
432,029
|
|
|
384,996
|
|
Intersegment elimination
|
(189
|
)
|
|
(310
|
)
|
|
(741
|
)
|
|
(835
|
)
|
Total net sales
|
$
|
574,490
|
|
|
$
|
530,356
|
|
|
$
|
1,701,408
|
|
|
$
|
1,582,624
|
|
Operating income
|
|
|
|
|
|
|
|
Fluid & Metering Technologies
|
$
|
61,988
|
|
|
$
|
55,907
|
|
|
$
|
179,830
|
|
|
$
|
161,782
|
|
Health & Science Technologies
|
46,073
|
|
|
37,195
|
|
|
134,605
|
|
|
118,985
|
|
Fire & Safety/Diversified Products
|
36,199
|
|
|
32,492
|
|
|
106,022
|
|
|
92,566
|
|
Corporate office expense and other
(2)
|
(17,756
|
)
|
|
(15,886
|
)
|
|
(53,149
|
)
|
|
(46,457
|
)
|
Total operating income
|
126,504
|
|
|
109,708
|
|
|
367,308
|
|
|
326,876
|
|
Interest expense
|
11,064
|
|
|
11,913
|
|
|
33,920
|
|
|
33,607
|
|
Other (income) expense - net
|
1,653
|
|
|
(1,513
|
)
|
|
1,717
|
|
|
(2,496
|
)
|
Income before income taxes
|
$
|
113,787
|
|
|
$
|
99,308
|
|
|
$
|
331,671
|
|
|
$
|
295,765
|
|
(1)
Certain amounts in the prior year income statement have been reclassified to conform to the current presentation due to the early adoption of ASU 2017-07.
|
(2)
Corporate office expense for the three and nine months ended September 30, 2016 includes benefits of zero and $4.7 million, respectively, from the reversal of the contingent consideration related to a 2015 acquisition as well as a $2.1 million loss on sale of businesses - net.
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Assets
|
|
|
|
Fluid & Metering Technologies
|
$
|
1,112,788
|
|
|
$
|
1,065,670
|
|
Health & Science Technologies
|
1,281,823
|
|
|
1,266,036
|
|
Fire & Safety/Diversified Products
|
740,026
|
|
|
705,735
|
|
Corporate office
|
183,124
|
|
|
117,503
|
|
Total assets
|
$
|
3,317,761
|
|
|
$
|
3,154,944
|
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
4. Earnings Per Common Share
Earnings per common share (“EPS”) are computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents outstanding (diluted) during the period. Common stock equivalents consist of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method, restricted stock, and performance share units.
ASC 260,
Earnings Per Share,
provides that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. If awards are considered participating securities, the Company is required to apply the two-class method of computing basic and diluted earnings per share. The Company has determined that its outstanding shares of restricted stock are participating securities. Accordingly, earnings per common share are computed using the more dilutive of the treasury stock method and the two-class method prescribed by ASC 260.
Basic weighted average shares reconciles to diluted weighted average shares as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic weighted average common shares outstanding
|
76,309
|
|
|
75,819
|
|
|
76,215
|
|
|
75,753
|
|
Dilutive effect of stock options, restricted stock, and performance share units
|
1,214
|
|
|
1,061
|
|
|
1,031
|
|
|
989
|
|
Diluted weighted average common shares outstanding
|
77,523
|
|
|
76,880
|
|
|
77,246
|
|
|
76,742
|
|
Options to purchase approximately
zero
and
0.1 million
shares of common stock for the
three months ended September 30, 2017
and
2016
, respectively, and
0.4 million
and
0.9 million
shares of common stock for the
nine months ended September 30, 2017
and
2016
, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would be antidilutive.
5. Inventories
The components of inventories as of
September 30, 2017
and
December 31, 2016
were:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Raw materials and component parts
|
$
|
170,677
|
|
|
$
|
154,278
|
|
Work in process
|
38,136
|
|
|
34,832
|
|
Finished goods
|
57,892
|
|
|
63,749
|
|
Total
|
$
|
266,705
|
|
|
$
|
252,859
|
|
Inventories are stated at the lower of cost or net realizable value. Cost, which includes material, labor and factory overhead, is determined on a FIFO basis.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the
nine months ended September 30, 2017
, by reportable business segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluid &
Metering
Technologies
|
|
Health &
Science
Technologies
|
|
Fire & Safety/
Diversified
Products
|
|
Total
|
Balance at December 31, 2016
|
$
|
573,437
|
|
|
$
|
699,299
|
|
|
$
|
359,856
|
|
|
$
|
1,632,592
|
|
Foreign currency translation
|
14,295
|
|
|
19,117
|
|
|
16,185
|
|
|
49,597
|
|
Acquisition adjustments
|
—
|
|
|
(2,421
|
)
|
|
—
|
|
|
(2,421
|
)
|
Balance at September 30, 2017
|
$
|
587,732
|
|
|
$
|
715,995
|
|
|
$
|
376,041
|
|
|
$
|
1,679,768
|
|
ASC 350,
Goodwill and Other Intangible Assets,
requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of the reporting unit below its carrying value. In the first
nine
months of
2017
, there were no events or circumstances that would have required an interim impairment test. Annually, on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. Based on the results of our annual impairment test at October 31, 2016, 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 assets at
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
|
|
At December 31, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Weighted
Average
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
$
|
9,675
|
|
|
$
|
(7,008
|
)
|
|
$
|
2,667
|
|
|
11
|
|
$
|
9,856
|
|
|
$
|
(6,635
|
)
|
|
$
|
3,221
|
|
Trade names
|
117,585
|
|
|
(49,474
|
)
|
|
68,111
|
|
|
16
|
|
113,428
|
|
|
(42,653
|
)
|
|
70,775
|
|
Customer relationships
|
309,693
|
|
|
(115,313
|
)
|
|
194,380
|
|
|
13
|
|
369,087
|
|
|
(161,065
|
)
|
|
208,022
|
|
Unpatented technology
|
88,065
|
|
|
(29,559
|
)
|
|
58,506
|
|
|
13
|
|
106,747
|
|
|
(44,516
|
)
|
|
62,231
|
|
Other
|
839
|
|
|
(550
|
)
|
|
289
|
|
|
10
|
|
6,527
|
|
|
(6,172
|
)
|
|
355
|
|
Total amortized intangible assets
|
525,857
|
|
|
(201,904
|
)
|
|
323,953
|
|
|
|
|
605,645
|
|
|
(261,041
|
)
|
|
344,604
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banjo trade name
|
62,100
|
|
|
—
|
|
|
62,100
|
|
|
|
|
62,100
|
|
|
—
|
|
|
62,100
|
|
Akron Brass trade name
|
28,800
|
|
|
—
|
|
|
28,800
|
|
|
|
|
28,800
|
|
|
—
|
|
|
28,800
|
|
Total intangible assets
|
$
|
616,757
|
|
|
$
|
(201,904
|
)
|
|
$
|
414,853
|
|
|
|
|
$
|
696,545
|
|
|
$
|
(261,041
|
)
|
|
$
|
435,504
|
|
The Banjo trade name is an indefinite-lived intangible asset which is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired. In the first
nine
months of
2017
, there were no events or circumstances that would have required an interim impairment test. Based on the results of our annual impairment test at October 31,
2016
, the fair value of the Banjo trade name was greater than
25%
in excess of the carrying value.
The Akron Brass trade name is an indefinite-lived intangible asset that was acquired as a result of the Akron Brass acquisition in March 2016 and is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired. In the first
nine
months of
2017
, there were no events or circumstances that would have required an interim impairment test. Based on the results of our annual impairment test at October 31,
2016
, the fair value of the Akron Brass trade name was near its carrying value as a result of the acquisition of this business in March 2016.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Amortization of intangible assets was
$11.5 million
and
$35.4 million
for the
three and nine months ended
September 30, 2017
. Amortization of intangible assets was
$12.8 million
and
$28.4 million
for the
three and nine months ended
September 30, 2016
. Based on the intangible asset balances as of
September 30, 2017
, amortization expense is expected to approximate
$10.7 million
for the remaining
three
months of
2017
,
$37.4 million
in
2018
,
$34.2 million
in
2019
,
$33.7 million
in
2020
and
$32.4 million
in
2021
.
7. Accrued Expenses
The components of accrued expenses as of
September 30, 2017
and
December 31, 2016
were:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Payroll and related items
|
$
|
68,296
|
|
|
$
|
67,600
|
|
Management incentive compensation
|
20,547
|
|
|
16,339
|
|
Income taxes payable
|
12,332
|
|
|
8,808
|
|
Insurance
|
9,450
|
|
|
9,416
|
|
Warranty
|
6,138
|
|
|
5,628
|
|
Deferred revenue
|
13,055
|
|
|
12,607
|
|
Restructuring
|
662
|
|
|
3,893
|
|
Liability for uncertain tax positions
|
1,350
|
|
|
1,366
|
|
Accrued interest
|
10,184
|
|
|
1,663
|
|
Other
|
28,209
|
|
|
25,532
|
|
Total accrued expenses
|
$
|
170,223
|
|
|
$
|
152,852
|
|
8. Other Noncurrent Liabilities
The components of other noncurrent liabilities as of
September 30, 2017
and
December 31, 2016
were:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Pension and retiree medical obligations
|
$
|
100,356
|
|
|
$
|
93,604
|
|
Liability for uncertain tax positions
|
1,507
|
|
|
2,623
|
|
Deferred revenue
|
2,205
|
|
|
2,442
|
|
Other
|
18,869
|
|
|
22,561
|
|
Total other noncurrent liabilities
|
$
|
122,937
|
|
|
$
|
121,230
|
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
9. Borrowings
Borrowings at
September 30, 2017
and
December 31, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Revolving Facility
|
$
|
29,415
|
|
|
$
|
169,579
|
|
4.5% Senior Notes, due December 2020
|
300,000
|
|
|
300,000
|
|
4.2% Senior Notes, due December 2021
|
350,000
|
|
|
350,000
|
|
3.2% Senior Notes, due June 2023
|
100,000
|
|
|
100,000
|
|
3.37% Senior Notes, due June 2025
|
100,000
|
|
|
100,000
|
|
Other borrowings
|
388
|
|
|
1,294
|
|
Total borrowings
|
879,803
|
|
|
1,020,873
|
|
Less current portion
|
347
|
|
|
1,046
|
|
Less deferred debt issuance costs
|
3,602
|
|
|
4,399
|
|
Less unaccreted debt discount
|
1,001
|
|
|
1,193
|
|
Total long-term borrowings
|
$
|
874,853
|
|
|
$
|
1,014,235
|
|
On June 13, 2016, the Company completed a private placement of
$100 million
aggregate principal amount of
3.20%
Senior Notes due June 13, 2023 and
$100 million
aggregate principal amount of
3.37%
Senior Notes due June 13, 2025 (collectively, the “Notes”) pursuant to a Note Purchase Agreement, dated June 13, 2016 (the “Purchase Agreement”). Each series of Notes bears interest at the stated amount per annum, which is payable semi-annually in arrears on each June 13
th
and December 13
th
. The Notes are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other unsecured, unsubordinated debt. The Company may at any time prepay all, or any portion of the Notes; provided that such portion is greater than
5%
of the aggregate principal amount of Notes then outstanding. In the event of a prepayment, the Company will pay an amount equal to par plus accrued interest plus a make-whole amount. In addition, the Company may repurchase Notes by making an offer to all holders of the Notes, subject to certain conditions.
The Purchase Agreement contains certain covenants that restrict the Company’s ability to, among other things, transfer or sell assets, incur indebtedness, create liens, transact with affiliates and engage in certain mergers or consolidations or other change of control transactions. In addition, the Company must comply with a leverage ratio and interest coverage ratio, as further described below, and the Purchase Agreement also limits the outstanding principal amount of priority debt that may be incurred by the Company to
15%
of consolidated assets. The Purchase Agreement provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all of the outstanding Notes will become due and payable immediately without further action or notice. In the case of payment event of default, any holder of the Notes affected thereby may declare all the Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of Notes may declare all of the Notes to be due and payable immediately.
On June 23, 2015, the Company entered into a credit agreement (the “Credit Agreement”) along with certain of its subsidiaries, as borrowers (the “Borrowers”), Bank of America, N.A., as administrative agent, swing line lender and an issuer of letters of credit, with other agents party thereto. The Credit Agreement replaced the Company’s existing
five
-year,
$700 million
credit agreement, dated as of June 27, 2011, which was due to expire on June 27, 2016.
The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of
$700 million
, with a final maturity date of
June 23, 2020
. The maturity date may be extended under certain conditions for an additional
one
-year term. Up to
$75 million
of the Revolving Facility is available for the issuance of letters of credit. Additionally, up to
$50 million
of the Revolving Facility is available to the Company for swing line loans, available on a same-day basis.
Proceeds of the Revolving Facility are available for use by the Borrowers for acquisitions, working capital and other general corporate purposes, including refinancing existing debt of the Company and its subsidiaries. The Company may request increases in the lending commitments under the Credit Agreement, but the aggregate lending commitments pursuant to such increases may not exceed
$350 million
. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation,
the Company is required to guarantee the obligations of any such subsidiaries.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Borrowings under the Credit Agreement bear interest, at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from
.005%
to
1.50%
. Based on the Company’s credit rating at
September 30, 2017
, the applicable margin was
1.10%
, resulting in a weighted average interest rate of
1.12%
at
September 30, 2017
. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months.
The Credit Agreement requires payment to the lenders of a facility fee based upon (a) the amount of the lenders’ commitments under the credit facility from time to time and (b) the applicable corporate credit ratings of the Company. Voluntary prepayments of any loans and voluntary reductions of the unutilized portion of the commitments under the credit facility are permissible without penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.
The negative covenants include, among other things, limitations (each of which is subject to customary exceptions for financings of this type) on our ability to grant liens; enter into transactions resulting in fundamental changes (such as mergers or sales of all or substantially all of the assets of the Company); restrict subsidiary dividends or other subsidiary distributions; enter into transactions with the Company’s affiliates; and incur certain additional subsidiary debt.
The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate) including among others: nonpayment of principal, interest or fees; breach of the representations or warranties in any material respect; breach of the financial, affirmative or negative covenants; payment default on, or acceleration of, other material indebtedness; bankruptcy or insolvency; material judgments entered against the Company or any of its subsidiaries; certain specified events under the Employee Retirement Income Security Act of 1974, as amended; certain changes in control of the Company; and the invalidity or unenforceability of the Credit Agreement or other documents associated with the Credit Agreement.
At
September 30, 2017
,
$29.4 million
was outstanding under the Revolving Facility, with
$8.3 million
of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at
September 30, 2017
of approximately
$662.3 million
.
There are
two
key financial covenants that the Company is required to maintain in connection with the Revolving Facility and the Notes, a minimum interest coverage ratio of
3.0
to
1
and a maximum leverage ratio of
3.50
to
1
, which is the ratio of the Company’s consolidated total debt to its consolidated EBITDA. At
September 30, 2017
, the Company was in compliance with both of these financial covenants. There are no financial covenants relating to the
4.5%
Senior Notes or
4.2%
Senior Notes; however, both are subject to cross-default provisions.
10. Derivative Instruments
The Company enters into cash flow hedges from time to time to reduce the exposure to variability in certain expected future cash flows. The type of cash flow hedges the Company enters into includes foreign currency contracts and interest rate exchange contracts that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.
The effective portion of gains or losses on interest rate exchange contracts is reported in Accumulated other comprehensive income (loss) in Shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized into net income during the period of change. See Note 13 for the amount of loss reclassified into income for interest rate contracts for the
nine months ended
September 30, 2017
and
2016
. As of
September 30, 2017
, the Company did not have any interest rate contracts outstanding.
In 2010 and 2011, the Company entered into
two
separate forward starting interest rate contracts in anticipation of the issuance of the
4.2%
Senior Notes and the
4.5%
Senior Notes. The Company cash settled these two interest rate contracts in 2010 and 2011 for a total of
$68.9 million
, which is being amortized into interest expense over the
10
year term of the debt instruments. Approximately
$6.5 million
of the pre-tax amount, included in accumulated other comprehensive income (loss) in shareholders’ equity at
September 30, 2017
, will be recognized into net income over the next 12 months as the underlying hedged transactions are realized.
At September 30, 2017
, the Company had outstanding foreign currency exchange contracts with a combined notional value of
€180 million
that have not been designated as hedges for accounting purposes. These contracts are used to minimize the earnings impact due to foreign currency fluctuations between the Swiss Franc and the Euro associated with certain intercompany loans that
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
were established in conjunction with the SFC Koenig acquisition. The change in the fair value of the foreign currency exchange contracts and the corresponding foreign currency gain or loss on the revaluation of the intercompany loans are both recorded through earnings each period as incurred within other (income) expense in the Condensed Consolidated Statements of Operations.
During the
three and nine months ended
September 30, 2017
, the Company recorded a gain of
$9.3 million
and
$14.8 million
, respectively, within other (income) expense related to these foreign currency exchange contracts. During the
three and nine months ended
September 30, 2017
, the Company recorded a foreign currency transaction loss of
$10.0 million
and
$15.2 million
, respectively, within other (income) expense related to these intercompany loans.
The foreign currency exchange contracts are settled in cash approximately every 90 days, with the proceeds recorded within Financing Activities on the Condensed Statement of Cash Flows. The non-cash impact associated with the change in the amount receivable from or payable to the counter parties is recorded within Operating Activities on the Condensed Statement of Cash Flows until such time as the foreign currency exchange contracts are settled in cash. For the
three and nine months ended
September 30, 2017
, the Company received
zero
and
$4.4 million
in settlement of the foreign currency exchange contracts. The Company received
$9.5 million
on October 4, 2017 in settlement of the foreign currency exchange contracts outstanding as of September 30, 2017.
Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date. The following table sets forth the fair value amounts of derivative instruments held by the Company as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Assets (Liabilities)
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Balance Sheet Caption
|
|
|
(In thousands)
|
|
|
Foreign currency exchange contracts
|
|
$
|
10,351
|
|
|
$
|
—
|
|
|
Other current assets
|
11. 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 at fair value on a recurring basis in the balance sheets at
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements
|
|
Balance at
September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Available for sale securities
|
$
|
6,268
|
|
|
$
|
6,268
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency exchange contracts
|
10,351
|
|
|
—
|
|
|
10,351
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements
|
|
Balance at
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Available for sale securities
|
$
|
5,369
|
|
|
$
|
5,369
|
|
|
$
|
—
|
|
|
$
|
—
|
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
There were no transfers of assets or liabilities between Level 1 and Level 2 during the
three and nine months ended
September 30, 2017
or the year ended
December 31, 2016
.
The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair values because of the short term nature of these instruments. At
September 30, 2017
, the fair value of the outstanding indebtedness under our Revolving Facility,
3.2%
Senior Notes,
3.37%
Senior Notes,
4.5%
Senior Notes and
4.2%
Senior Notes, based on quoted market prices and current market rates for debt with similar credit risk and maturity, was approximately
$910.8 million
compared to the carrying value of
$878.4 million
. This fair value measurement is classified as Level 2 within the fair value hierarchy since it is determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to ours.
12. Restructuring
During the first quarter of 2017, the Company recorded restructuring costs of
$4.8 million
as part of the 2016 restructuring initiatives that support the implementation of key strategic efforts designed to facilitate long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions and facility rationalization. The restructuring costs included severance benefits for
97
employees. The costs incurred related to these initiatives were included in Restructuring expenses in the Consolidated Statements of Operations while the related accruals were included in Accrued expenses in the Condensed Consolidated Balance Sheets. Severance costs primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consisted of asset disposals or impairments.
Pre-tax restructuring expenses by segment for the
nine months ended
September 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Costs
|
|
Exit Costs
|
|
Total
|
|
|
(In thousands)
|
Fluid & Metering Technologies
|
|
$
|
1,566
|
|
|
$
|
—
|
|
|
$
|
1,566
|
|
Health & Science Technologies
|
|
2,470
|
|
|
558
|
|
|
3,028
|
|
Fire & Safety/Diversified Products
|
|
73
|
|
|
—
|
|
|
73
|
|
Corporate/Other
|
|
130
|
|
|
—
|
|
|
130
|
|
Total restructuring costs
|
|
$
|
4,239
|
|
|
$
|
558
|
|
|
$
|
4,797
|
|
Restructuring accruals of
$0.7 million
and
$3.9 million
at
September 30, 2017
and
December 31, 2016
, respectively, are recorded in Accrued expenses in the Consolidated Balance Sheets. Severance benefits are expected to be paid by the end of the year using cash from operations. The changes in the restructuring accrual for the
nine
months ended
September 30, 2017
are as follows:
|
|
|
|
|
|
|
|
Restructuring
|
|
|
(In thousands)
|
Balance at January 1, 2017
|
|
$
|
3,893
|
|
Restructuring expenses
|
|
4,797
|
|
Payments, utilization and other
|
|
(8,028
|
)
|
Balance at September 30, 2017
|
|
$
|
662
|
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
13. Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
Three Months Ended
September 30, 2016
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
Cumulative translation adjustment
|
$
|
28,796
|
|
|
$
|
—
|
|
|
$
|
28,796
|
|
|
$
|
4,611
|
|
|
$
|
—
|
|
|
$
|
4,611
|
|
Pension and other postretirement adjustments
|
2,075
|
|
|
(607
|
)
|
|
1,468
|
|
|
915
|
|
|
(321
|
)
|
|
594
|
|
Reclassification adjustments for derivatives
|
1,681
|
|
|
(627
|
)
|
|
1,054
|
|
|
1,701
|
|
|
(619
|
)
|
|
1,082
|
|
Total other comprehensive income (loss)
|
$
|
32,552
|
|
|
$
|
(1,234
|
)
|
|
$
|
31,318
|
|
|
$
|
7,227
|
|
|
$
|
(940
|
)
|
|
$
|
6,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2017
|
|
Nine Months Ended
September 30, 2016
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
Cumulative translation adjustment
|
$
|
97,160
|
|
|
$
|
—
|
|
|
$
|
97,160
|
|
|
$
|
(6,215
|
)
|
|
$
|
—
|
|
|
$
|
(6,215
|
)
|
Pension and other postretirement adjustments
|
5,625
|
|
|
(1,753
|
)
|
|
3,872
|
|
|
2,820
|
|
|
(964
|
)
|
|
1,856
|
|
Reclassification adjustments for derivatives
|
5,004
|
|
|
(1,845
|
)
|
|
3,159
|
|
|
5,144
|
|
|
(1,872
|
)
|
|
3,272
|
|
Total other comprehensive income (loss)
|
$
|
107,789
|
|
|
$
|
(3,598
|
)
|
|
$
|
104,191
|
|
|
$
|
1,749
|
|
|
$
|
(2,836
|
)
|
|
$
|
(1,087
|
)
|
The following table summarizes the amounts reclassified from accumulated other comprehensive income to net income during the three and
nine months ended September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Pension and other postretirement plans
|
|
|
|
|
|
|
|
|
Amortization of service cost
|
$
|
2,075
|
|
|
$
|
915
|
|
|
$
|
5,625
|
|
|
$
|
2,820
|
|
|
Total before tax
|
2,075
|
|
|
915
|
|
|
5,625
|
|
|
2,820
|
|
|
Provision for income taxes
|
(607
|
)
|
|
(321
|
)
|
|
(1,753
|
)
|
|
(964
|
)
|
|
Total net of tax
|
$
|
1,468
|
|
|
$
|
594
|
|
|
$
|
3,872
|
|
|
$
|
1,856
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Reclassification adjustments
|
$
|
1,681
|
|
|
$
|
1,701
|
|
|
$
|
5,004
|
|
|
$
|
5,144
|
|
|
Total before tax
|
1,681
|
|
|
1,701
|
|
|
5,004
|
|
|
5,144
|
|
|
Provision for income taxes
|
(627
|
)
|
|
(619
|
)
|
|
(1,845
|
)
|
|
(1,872
|
)
|
|
Total net of tax
|
$
|
1,054
|
|
|
$
|
1,082
|
|
|
$
|
3,159
|
|
|
$
|
3,272
|
|
|
The Company recognizes the service cost component in both Selling, general and administrative expenses and Cost of sales, depending on the functional area of the underlying employees included in the plans.
14. Common and Preferred Stock
On
December 1, 2015
, the Company’s Board of Directors approved a
$300.0 million
increase in the authorized level for repurchases of common stock. Repurchases will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the
nine months ended September 30, 2017
, the Company purchased a total of
222 thousand
shares at a cost of
$23.6 million
, of which
$1.0 million
was settled in October 2017. During the
nine months ended September 30, 2016
, the Company purchased a total of
739 thousand
shares at a cost of
$55.0 million
. As of
September 30, 2017
, the amount of share repurchase authorization remaining is
$556.4 million
.
At
September 30, 2017
and
December 31, 2016
, the Company had
150 million
shares of authorized common stock, with a par value of
$.01
per share, and
5 million
shares of authorized preferred stock, with a par value of
$.01
per share.
No
preferred stock was outstanding at
September 30, 2017
or
December 31, 2016
.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
15. Share-Based Compensation
Stock Options
Weighted average option fair values and assumptions for the periods specified are disclosed below. The fair value of each option grant was estimated on the date of the grant using the Binomial lattice option pricing model.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted average fair value of option grants
|
$30.46
|
|
$21.88
|
|
$24.17
|
|
$18.47
|
Dividend yield
|
1.27%
|
|
1.53%
|
|
1.45%
|
|
1.69%
|
Volatility
|
29.35%
|
|
29.60%
|
|
29.41%
|
|
29.71%
|
Risk-free forward interest rate
|
1.24% - 2.80%
|
|
0.51% - 2.01%
|
|
0.83% - 3.04%
|
|
0.53% - 2.50%
|
Expected life (in years)
|
5.83
|
|
5.91
|
|
5.83
|
|
5.91
|
Total compensation cost for stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cost of goods sold
|
$
|
67
|
|
|
$
|
92
|
|
|
$
|
341
|
|
|
$
|
354
|
|
Selling, general and administrative expenses
|
1,721
|
|
|
1,278
|
|
|
5,604
|
|
|
5,084
|
|
Total expense before income taxes
|
1,788
|
|
|
1,370
|
|
|
5,945
|
|
|
5,438
|
|
Income tax benefit
|
(593
|
)
|
|
(441
|
)
|
|
(1,887
|
)
|
|
(1,727
|
)
|
Total expense after income taxes
|
$
|
1,195
|
|
|
$
|
929
|
|
|
$
|
4,058
|
|
|
$
|
3,711
|
|
A summary of the Company’s stock option activity as of
September 30, 2017
, and changes during the
nine months ended
September 30, 2017
, are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Shares
|
|
Weighted
Average
Price
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding at January 1, 2017
|
1,987,946
|
|
|
$
|
61.83
|
|
|
6.84
|
|
$
|
56,144,876
|
|
Granted
|
440,825
|
|
|
93.40
|
|
|
|
|
|
Exercised
|
(360,986
|
)
|
|
52.58
|
|
|
|
|
|
Forfeited
|
(47,046
|
)
|
|
78.67
|
|
|
|
|
|
Outstanding at September 30, 2017
|
2,020,739
|
|
|
$
|
69.98
|
|
|
6.99
|
|
$
|
104,045,261
|
|
Vested and expected to vest as of September 30, 2017
|
1,897,772
|
|
|
$
|
69.00
|
|
|
6.88
|
|
$
|
99,579,316
|
|
Exercisable at September 30, 2017
|
968,929
|
|
|
$
|
55.72
|
|
|
5.35
|
|
$
|
63,709,269
|
|
Restricted Stock
Restricted stock awards generally cliff vest after
three
years for employees and non-employee directors. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. A summary of the Company’s restricted stock activity as of
September 30, 2017
, and changes during the
nine months ended
September 30, 2017
, are presented as follows:
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
|
|
|
|
|
|
|
|
Restricted Stock
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Unvested at January 1, 2017
|
217,898
|
|
|
$
|
76.19
|
|
Granted
|
59,010
|
|
|
93.59
|
|
Vested
|
(75,099
|
)
|
|
72.15
|
|
Forfeited
|
(10,280
|
)
|
|
79.19
|
|
Unvested at September 30, 2017
|
191,529
|
|
|
$
|
82.97
|
|
Dividends are paid on restricted stock awards, whose fair value is equal to the market price of the Company’s stock at the date of the grant.
Total compensation cost for restricted shares is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cost of goods sold
|
$
|
46
|
|
|
$
|
64
|
|
|
$
|
265
|
|
|
$
|
325
|
|
Selling, general and administrative expenses
|
1,163
|
|
|
751
|
|
|
3,722
|
|
|
3,249
|
|
Total expense before income taxes
|
1,209
|
|
|
815
|
|
|
3,987
|
|
|
3,574
|
|
Income tax benefit
|
(370
|
)
|
|
(216
|
)
|
|
(1,295
|
)
|
|
(1,053
|
)
|
Total expense after income taxes
|
$
|
839
|
|
|
$
|
599
|
|
|
$
|
2,692
|
|
|
$
|
2,521
|
|
Cash-Settled Restricted Stock
The Company also maintains a cash-settled share based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after
three
years. A summary of the Company’s unvested cash-settled restricted stock activity as of
September 30, 2017
, and changes during the
nine months ended
September 30, 2017
, are presented in the following table:
|
|
|
|
|
|
|
|
Cash-Settled Restricted Stock
|
Shares
|
|
Weighted-Average
Fair Value
|
Unvested at January 1, 2017
|
103,790
|
|
|
$
|
90.06
|
|
Granted
|
34,290
|
|
|
93.68
|
|
Vested
|
(27,050
|
)
|
|
92.44
|
|
Forfeited
|
(15,220
|
)
|
|
121.47
|
|
Unvested at September 30, 2017
|
95,810
|
|
|
$
|
121.47
|
|
Dividend equivalents are paid on certain cash-settled restricted stock awards. Total compensation cost for cash-settled restricted stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cost of goods sold
|
$
|
327
|
|
|
$
|
307
|
|
|
$
|
963
|
|
|
$
|
627
|
|
Selling, general and administrative expenses
|
696
|
|
|
881
|
|
|
2,203
|
|
|
1,842
|
|
Total expense before income taxes
|
1,023
|
|
|
1,188
|
|
|
3,166
|
|
|
2,469
|
|
Income tax benefit
|
(175
|
)
|
|
(170
|
)
|
|
(557
|
)
|
|
(354
|
)
|
Total expense after income taxes
|
$
|
848
|
|
|
$
|
1,018
|
|
|
$
|
2,609
|
|
|
$
|
2,115
|
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Performance Share Units
Weighted average performance share unit fair values and assumptions for the period specified are disclosed below. The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model.
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
Weighted average fair value of performance share units
|
|
$115.74
|
|
$111.42
|
Dividend yield
|
|
—%
|
|
—%
|
Volatility
|
|
17.36%
|
|
17.99%
|
Risk-free forward interest rate
|
|
1.45%
|
|
0.89%
|
Expected life (in years)
|
|
2.85
|
|
2.86
|
A summary of the Company’s performance share unit activity as of
September 30, 2017
, and changes during the
nine months ended
September 30, 2017
, are presented in the following table:
|
|
|
|
|
|
|
|
Performance Share Units
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Unvested at January 1, 2017
|
137,055
|
|
|
$
|
104.18
|
|
Granted
|
65,530
|
|
|
115.74
|
|
Vested
|
—
|
|
|
95.07
|
|
Forfeited and other
|
(5,625
|
)
|
|
109.75
|
|
Unvested at September 30, 2017
|
196,960
|
|
|
$
|
108.33
|
|
The Company granted
63,325
performance share units in February 2014, which vested on December 31, 2016. Based on the Company’s relative total shareholder return rank during the
three
year period ended December 31, 2016, the Company achieved a
141%
payout that resulted in
89,288
shares issued in February 2017.
Total compensation cost for performance share units is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cost of goods sold
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative expenses
|
1,725
|
|
|
348
|
|
|
5,045
|
|
|
3,844
|
|
Total expense before income taxes
|
1,725
|
|
|
348
|
|
|
5,045
|
|
|
3,844
|
|
Income tax benefit
|
(597
|
)
|
|
(98
|
)
|
|
(1,690
|
)
|
|
(1,266
|
)
|
Total expense after income taxes
|
$
|
1,128
|
|
|
$
|
250
|
|
|
$
|
3,355
|
|
|
$
|
2,578
|
|
The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of stock compensation cost within the Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.
As of
September 30, 2017
, there was
$13.9 million
of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of
1.4
years,
$5.9 million
of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of
1.1
years,
$4.3 million
of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of
1.0
years, and
$8.0 million
of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of
1.0
years.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
16. Retirement Benefits
The Company sponsors several qualified and nonqualified defined benefit and defined contribution pension plans and other postretirement plans for its employees. The following tables provide the components of net periodic benefit cost for its major defined benefit plans and its other postretirement plans. As disclosed in Note 1, the Company elected to early adopt ASU 2017-07 during the quarter ended March 31, 2017. As a result, the Company recorded Interest cost, Expected return on plan assets, and Net amortization within Other (income) expense - net. The Company adopted this standard retrospectively and
$0.8 million
and
$2.4 million
, respectively, were reclassified from Selling, general and administrative expenses to Other (income) expense - net for the
three and nine months ended
September 30, 2016
to conform to current period presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Three Months Ended September 30,
|
|
2017
|
|
2016
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
Service cost
|
$
|
224
|
|
|
$
|
520
|
|
|
$
|
181
|
|
|
$
|
331
|
|
Interest cost
|
687
|
|
|
332
|
|
|
788
|
|
|
344
|
|
Expected return on plan assets
|
(986
|
)
|
|
(277
|
)
|
|
(1,233
|
)
|
|
(203
|
)
|
Net amortization
|
641
|
|
|
418
|
|
|
766
|
|
|
241
|
|
Net periodic benefit cost
|
$
|
566
|
|
|
$
|
993
|
|
|
$
|
502
|
|
|
$
|
713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
Service cost
|
$
|
732
|
|
|
$
|
1,496
|
|
|
$
|
769
|
|
|
$
|
934
|
|
Interest cost
|
2,008
|
|
|
957
|
|
|
2,282
|
|
|
1,049
|
|
Expected return on plan assets
|
(2,874
|
)
|
|
(811
|
)
|
|
(3,583
|
)
|
|
(642
|
)
|
Net amortization
|
1,924
|
|
|
1,195
|
|
|
2,420
|
|
|
722
|
|
Net periodic benefit cost
|
$
|
1,790
|
|
|
$
|
2,837
|
|
|
$
|
1,888
|
|
|
$
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Service cost
|
$
|
152
|
|
|
$
|
181
|
|
|
$
|
456
|
|
|
$
|
494
|
|
Interest cost
|
203
|
|
|
224
|
|
|
611
|
|
|
622
|
|
Net amortization
|
(198
|
)
|
|
(154
|
)
|
|
(595
|
)
|
|
(462
|
)
|
Net periodic benefit cost
|
$
|
157
|
|
|
$
|
251
|
|
|
$
|
472
|
|
|
$
|
654
|
|
The Company previously disclosed in its financial statements for the year ended
December 31, 2016
, that it expected to contribute approximately
$5.8 million
to its defined benefit plans and
$0.1 million
to its other postretirement benefit plans in
2017
. As of
September 30, 2017
, the Company expects to contribute approximately
$4.8 million
to its defined benefit plans and
$0.6 million
to its other postretirement benefit plans in
2017
. The Company contributed a total of
$4.2 million
during the first
nine
months of
2017
to fund these plans.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
17. Legal Proceedings
The Company and certain of its subsidiaries are party to various pending or threatened legal 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
increased
to
$30.0 million
in the
third quarter
of
2017
from
$29.4 million
in the same period of
2016
. The effective tax rate
decreased
to
26.4%
for the
third quarter
of
2017
compared to
29.6%
in the same period of
2016
due to the partial release of the capital loss valuation allowance, higher excess tax benefit recognized in the current period, the mix of global pre-tax income among jurisdictions and the prior year incurrence of an additional
$5.2 million
of foreign withholding taxes as a result of global cash used to fund the SFC Koenig acquisition.
The provision for income taxes
increased
to
$88.2 million
in the
nine months ended September 30, 2017
from
$82.0 million
in the same period of
2016
. The effective tax rate
decreased
to
26.6%
for the
nine months ended September 30, 2017
compared to
27.7%
in the same period of
2016
due to foreign tax credits, the partial release of the capital loss valuation allowance and the mix of global pre-tax income among jurisdictions.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of
zero
to
$1.4 million
.