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
six months ended
June 30, 2016
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, 2015
.
Recently Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company elected to early adopt this standard in the quarter ended March 31, 2016. The Company applied this standard prospectively and thus prior periods have not been adjusted.
The impact of the adoption resulted in the following:
|
|
•
|
The Company recorded a tax benefit of
$1.6 million
and
$4.2 million
within Provision for income taxes for the
three and six
months ended
June 30, 2016
, respectively, related to the excess tax benefit on stock options, restricted stock and performance share units. Prior to adoption this amount would have been recorded as a reduction of additional paid-in capital. This change could create volatility in the Company’s effective tax rate.
|
|
|
•
|
The Company elected not to change our policy on accounting for forfeitures and continued to estimate the total number of awards for which the requisite service period will not be rendered.
|
|
|
•
|
The Company no longer reclassifies the excess tax benefit from operating activities to financing activities in the statement of cash flows.
|
|
|
•
|
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the three and six months ended
June 30, 2016
. This increased our diluted weighted average common shares outstanding by
178 thousand
and
175 thousand
shares for the
three and six months ended
June 30, 2016
, respectively.
|
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02,
Leases
, which 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. This standard is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which introduces a new five-step
revenue recognition model. 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
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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 Company is currently evaluating the impact of the
new guidance on our consolidated financial statements and has not yet determined the method by which we will adopt the
standard in 2018.
2. Acquisitions and Divestitures
All of the Company’s acquisitions have been accounted for under FASB 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
$1.4 million
and
$1.0 million
of acquisition-related transaction costs in the
three months ended June 30, 2016
and 2015, respectively, and
$2.4 million
and
$1.2 million
in the six months ended June 30, 2016 and 2015, 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
six
months ended
June 30, 2016
, the Company recorded
$3.6 million
and
$5.8 million
, respectively, of fair value inventory step-up charges in Cost of sales associated with the completed 2016 acquisition.
2016 Acquisitions
On March 16, 2016, the Company acquired the stock of Akron Brass Holding Corporation (“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 had annual revenues in its most recent fiscal year of approximately
$120 million
and operates in our Fire & Safety/Diversified Products segment. Akron Brass was acquired for cash consideration of
$221.6 million
. The purchase price was funded with borrowings under the Company’s revolving facilities. Goodwill and intangible assets recognized as part of the transaction were
$123.9 million
and
$90.4 million
, respectively. The goodwill is not deductible for tax purposes.
The Company made an initial allocation of the purchase price for the Akron Brass acquisition as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company obtains additional information about these assets and liabilities and learns more about the newly acquired business, we will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will make appropriate adjustments to the purchase price allocation prior to the completion of the measurement period, as required.
The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values, is as follows:
|
|
|
|
|
|
|
|
Total
|
Current assets, net of cash acquired
|
|
$
|
44,887
|
|
Property, plant and equipment
|
|
12,452
|
|
Goodwill
|
|
123,855
|
|
Intangible assets
|
|
90,400
|
|
Total assets acquired
|
|
271,594
|
|
Current liabilities
|
|
(6,757
|
)
|
Deferred income taxes
|
|
(36,836
|
)
|
Other noncurrent liabilities
|
|
(6,445
|
)
|
Net assets acquired
|
|
$
|
221,556
|
|
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.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Of the
$90.4 million
of acquired intangible assets,
$28.8 million
was assigned to the Akron Brass trade name and is not subject to amortization. The acquired intangible assets and weighted average amortization periods are as follows:
|
|
|
|
|
|
|
|
Total
|
|
Weighted Average Life
|
Trade names
|
$
|
4,200
|
|
|
15
|
Customer relationships
|
44,800
|
|
|
14
|
Unpatented technology
|
12,600
|
|
|
9
|
Amortized intangible assets
|
61,600
|
|
|
|
Indefinite lived - Akron Brass trade name
|
28,800
|
|
|
|
Total acquired intangible assets
|
$
|
90,400
|
|
|
|
2015 Acquisitions
On May 29, 2015, the Company acquired the stock of Novotema, SpA (“Novotema”), a leader in the design, manufacture and sale of specialty sealing solutions for use in the building products, gas control, transportation, industrial and water markets. The business was acquired to complement and create synergies with our existing sealing group. Located in Villongo, Italy, Novotema operates in our Health & Science Technologies segment. Novotema was acquired for cash consideration of
$61.1 million
(
€56 million
). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were
$34.3 million
and
$20.0 million
, respectively. The
$34.3 million
of goodwill is not deductible for tax purposes.
On June 10, 2015, the Company acquired the stock of Alfa Valvole, S.r.l (“Alfa”), a leader in the design, manufacture and sale of specialty valve products for use in the chemical, petro-chemical, energy and sanitary markets. The business was acquired to expand our valve capabilities. Located in Casorezzo, Italy, Alfa operates in our Fluid & Metering Technologies segment. Alfa was acquired for cash consideration of
$112.6 million
(
€99.8 million
). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were
$69.6 million
and
$32.1 million
, respectively. The
$69.6 million
of goodwill is not deductible for tax purposes.
On July 1, 2015, the Company acquired the membership interests of CiDRA Precision Services, LLC (“CPS”), a leader in the design, manufacture and sale of microfluidic components serving the life science, health and industrial markets. The business was acquired to provide a critical building block to our emerging microfluidic and nanofludics capabilities. Located in Wallingford, Connecticut, CPS operates within our Health & Sciences Technologies segment. CPS was acquired for an aggregate purchase price of
$24.2 million
, consisting of
$19.5 million
in cash and contingent consideration valued at
$4.7 million
as of the opening balance sheet date. The contingent consideration was based on the achievement of financial objectives during the 12-month period following the close. Based on potential outcomes, the undiscounted amount of all the future payments that the Company could have been required to make under the contingent consideration arrangement was between
$0
and
$5.5 million
. During the six months ended June 30, 2016, the Company re-evaluated the contingent consideration arrangement and fully reversed the
$4.7 million
liability based on CPS’s actual operating results from July 1, 2015 to June 30, 2016. The reversal was recognized as a benefit within Selling, general and administrative expenses of
$1.0 million
and
$4.7 million
during the three and six months ended June 30, 2016, respectively. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were
$9.7 million
and
$12.3 million
, respectively. The
$9.7 million
of goodwill is deductible for tax purposes.
On December 1, 2015 the Company acquired the assets of a complementary product line within our Fluid & Metering Technologies segment. The purchase price and goodwill associated with this transaction were
$1.9 million
and
$0.7 million
, respectively.
2015 Divestiture
The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives and focus on core business and customers. On July 31, 2015, the Company completed the sale of its Ismatec product line to Cole-Palmer Instruments Company for
$27.7 million
in cash, resulting in a pre-tax gain on the sale of
$18.1 million
. The results of Ismatec were reported within the Health & Science Technologies segment through the date of sale.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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, flow meters, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the water and wastewater industries. The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, 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, semiconductor, 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, 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
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net sales
|
|
|
|
|
|
|
|
Fluid & Metering Technologies
|
|
|
|
|
|
|
|
External customers
|
$
|
221,635
|
|
|
$
|
214,983
|
|
|
$
|
433,344
|
|
|
$
|
432,915
|
|
Intersegment sales
|
175
|
|
|
310
|
|
|
309
|
|
|
626
|
|
Total group sales
|
221,810
|
|
|
215,293
|
|
|
433,653
|
|
|
433,541
|
|
Health & Science Technologies
|
|
|
|
|
|
|
|
External customers
|
186,453
|
|
|
188,046
|
|
|
372,704
|
|
|
365,796
|
|
Intersegment sales
|
115
|
|
|
359
|
|
|
207
|
|
|
1,729
|
|
Total group sales
|
186,568
|
|
|
188,405
|
|
|
372,911
|
|
|
367,525
|
|
Fire & Safety/Diversified Products
|
|
|
|
|
|
|
|
External customers
|
141,608
|
|
|
111,852
|
|
|
246,220
|
|
|
218,368
|
|
Intersegment sales
|
3
|
|
|
89
|
|
|
9
|
|
|
195
|
|
Total group sales
|
141,611
|
|
|
111,941
|
|
|
246,229
|
|
|
218,563
|
|
Intersegment elimination
|
(293
|
)
|
|
(758
|
)
|
|
(525
|
)
|
|
(2,550
|
)
|
Total net sales
|
$
|
549,696
|
|
|
$
|
514,881
|
|
|
$
|
1,052,268
|
|
|
$
|
1,017,079
|
|
Operating income
|
|
|
|
|
|
|
|
Fluid & Metering Technologies
|
$
|
53,865
|
|
|
$
|
51,857
|
|
|
$
|
105,266
|
|
|
$
|
107,755
|
|
Health & Science Technologies
|
41,125
|
|
|
42,060
|
|
|
81,824
|
|
|
79,517
|
|
Fire & Safety/Diversified Products
|
34,116
|
|
|
31,482
|
|
|
59,520
|
|
|
58,644
|
|
Corporate office and other
|
(16,130
|
)
|
|
(15,490
|
)
|
|
(31,077
|
)
|
|
(34,250
|
)
|
Total operating income
|
112,976
|
|
|
109,909
|
|
|
215,533
|
|
|
211,666
|
|
Interest expense
|
11,205
|
|
|
10,584
|
|
|
21,694
|
|
|
21,181
|
|
Other (income) expense - net
|
(1,874
|
)
|
|
827
|
|
|
(2,618
|
)
|
|
(896
|
)
|
Income before income taxes
|
$
|
103,645
|
|
|
$
|
98,498
|
|
|
$
|
196,457
|
|
|
$
|
191,381
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Assets
|
|
|
|
Fluid & Metering Technologies
|
$
|
1,118,917
|
|
|
$
|
1,125,266
|
|
Health & Science Technologies
|
1,110,302
|
|
|
1,108,302
|
|
Fire & Safety/Diversified Products
|
753,491
|
|
|
448,867
|
|
Corporate office
|
126,646
|
|
|
123,008
|
|
Total assets
|
$
|
3,109,356
|
|
|
$
|
2,805,443
|
|
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, performance share units, and shares issuable in connection with certain deferred compensation agreements (“DCUs”).
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
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Basic weighted average common shares outstanding
|
75,690
|
|
|
77,466
|
|
|
75,719
|
|
|
77,731
|
|
Dilutive effect of stock options, restricted stock, performance share units and DCUs
|
984
|
|
|
831
|
|
|
968
|
|
|
845
|
|
Diluted weighted average common shares outstanding
|
76,674
|
|
|
78,297
|
|
|
76,687
|
|
|
78,576
|
|
Options to purchase approximately
1.0 million
and
1.3 million
shares of common stock for the three and
six months ended June 30, 2016
, respectively, and
0.9 million
shares of common stock for both the three and six months ended
June 30, 2015
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
June 30, 2016
and
December 31, 2015
were:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Raw materials and component parts
|
$
|
163,302
|
|
|
$
|
141,671
|
|
Work in process
|
34,321
|
|
|
32,387
|
|
Finished goods
|
60,036
|
|
|
65,066
|
|
Total
|
$
|
257,659
|
|
|
$
|
239,124
|
|
Inventories are stated at the lower of cost or market. Cost, which includes material, labor and factory overhead, is determined on a FIFO basis.
6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the
six months ended June 30, 2016
, by reportable business segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluid &
Metering
Technologies
|
|
Health &
Science
Technologies
|
|
Fire & Safety/
Diversified
Products
|
|
Total
|
Balance at December 31, 2015
|
$
|
584,770
|
|
|
$
|
590,605
|
|
|
$
|
221,154
|
|
|
$
|
1,396,529
|
|
Foreign currency translation and other
|
1,534
|
|
|
(4,344
|
)
|
|
352
|
|
|
(2,458
|
)
|
Acquisitions
|
—
|
|
|
—
|
|
|
123,855
|
|
|
123,855
|
|
Acquisition adjustments
|
(1,623
|
)
|
|
—
|
|
|
—
|
|
|
(1,623
|
)
|
Balance at June 30, 2016
|
$
|
584,681
|
|
|
$
|
586,261
|
|
|
$
|
345,361
|
|
|
$
|
1,516,303
|
|
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. Annually, on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. The Company did not consider there to be any triggering events that would require an interim impairment assessment, therefore none of the goodwill or other acquired intangible assets with indefinite lives were tested for impairment during the
six months ended June 30, 2016
. Based on the results of our annual impairment test at October 31,
2015
, all reporting units had a fair value that was more than
70%
greater than the carrying value, except for our IDEX Optics and Photonics (“IOP”) and Valves reporting units. Our IOP reporting unit had a fair value that was approximately
20%
in excess
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
of the carrying value and our Valves reporting unit had a fair value near its carrying value as a result of the formation of this reporting unit in conjunction with our Alfa acquisition in June 2015.
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016
|
|
|
|
At December 31, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Weighted
Average
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
$
|
10,298
|
|
|
$
|
(6,633
|
)
|
|
$
|
3,665
|
|
|
11
|
|
$
|
10,202
|
|
|
$
|
(6,175
|
)
|
|
$
|
4,027
|
|
Trade names
|
114,307
|
|
|
(42,155
|
)
|
|
72,152
|
|
|
16
|
|
110,658
|
|
|
(38,696
|
)
|
|
71,962
|
|
Customer relationships
|
301,507
|
|
|
(157,907
|
)
|
|
143,600
|
|
|
11
|
|
257,071
|
|
|
(144,134
|
)
|
|
112,937
|
|
Non-compete agreements
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
794
|
|
|
(775
|
)
|
|
19
|
|
Unpatented technology
|
91,129
|
|
|
(47,751
|
)
|
|
43,378
|
|
|
10
|
|
78,562
|
|
|
(42,745
|
)
|
|
35,817
|
|
Other
|
6,539
|
|
|
(5,899
|
)
|
|
640
|
|
|
10
|
|
6,554
|
|
|
(5,579
|
)
|
|
975
|
|
Total amortized intangible assets
|
523,780
|
|
|
(260,345
|
)
|
|
263,435
|
|
|
|
|
463,841
|
|
|
(238,104
|
)
|
|
225,737
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banjo trade name
|
62,100
|
|
|
—
|
|
|
62,100
|
|
|
|
|
62,100
|
|
|
—
|
|
|
62,100
|
|
Akron Brass trade name
|
28,800
|
|
|
—
|
|
|
28,800
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total intangible assets
|
$
|
614,680
|
|
|
$
|
(260,345
|
)
|
|
$
|
354,335
|
|
|
|
|
$
|
525,941
|
|
|
$
|
(238,104
|
)
|
|
$
|
287,837
|
|
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
six
months of
2016
, there were no triggering events or changes that would have required a review. Based on the results of our annual impairment test at October 31,
2015
, the fair value of the Banjo trade name was greater than
20%
in excess of the carrying value.
The Akron Brass trade name is an indefinite lived intangible asset that was generated as a result of the Akron Brass acquisition in March 2016.
Amortization of intangible assets was
$12.3 million
and
$10.2 million
for the
three months ended June 30, 2016
and
2015
, respectively. Based on the intangible asset balances as of
June 30, 2016
, amortization expense is expected to approximate
$21.4 million
for the remaining
six
months of
2016
,
$34.4 million
in
2017
,
$25.6 million
in
2018
,
$24.0 million
in
2019
and
$23.3 million
in
2020
.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
7. Accrued Expenses
The components of accrued expenses as of
June 30, 2016
and
December 31, 2015
were:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Payroll and related items
|
$
|
56,468
|
|
|
$
|
67,209
|
|
Management incentive compensation
|
10,731
|
|
|
12,599
|
|
Income taxes payable
|
13,101
|
|
|
3,836
|
|
Insurance
|
9,265
|
|
|
9,505
|
|
Warranty
|
6,036
|
|
|
7,936
|
|
Deferred revenue
|
11,820
|
|
|
9,885
|
|
Restructuring
|
2,379
|
|
|
6,636
|
|
Liability for uncertain tax positions
|
4,113
|
|
|
3,498
|
|
Accrued interest
|
1,824
|
|
|
1,230
|
|
Contingent consideration for acquisition
|
—
|
|
|
4,705
|
|
Other
|
25,671
|
|
|
26,633
|
|
Total accrued expenses
|
$
|
141,408
|
|
|
$
|
153,672
|
|
8. Other Noncurrent Liabilities
The components of other noncurrent liabilities as of
June 30, 2016
and
December 31, 2015
were:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Pension and retiree medical obligations
|
$
|
86,182
|
|
|
$
|
76,190
|
|
Liability for uncertain tax positions
|
3,518
|
|
|
4,252
|
|
Deferred revenue
|
2,041
|
|
|
3,763
|
|
Other
|
15,772
|
|
|
18,160
|
|
Total other noncurrent liabilities
|
$
|
107,513
|
|
|
$
|
102,365
|
|
9. Borrowings
Borrowings at
June 30, 2016
and
December 31, 2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Revolving Facility
|
$
|
210,000
|
|
|
$
|
195,000
|
|
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
|
|
|
—
|
|
3.37% Senior Notes, due June 2025
|
100,000
|
|
|
—
|
|
Other borrowings
|
1,654
|
|
|
2,436
|
|
Total borrowings
|
1,061,654
|
|
|
847,436
|
|
Less current portion
|
1,233
|
|
|
1,087
|
|
Less deferred debt issuance costs
|
4,778
|
|
|
5,203
|
|
Less unaccreted debt discount
|
1,318
|
|
|
1,439
|
|
Total long-term borrowings
|
$
|
1,054,325
|
|
|
$
|
839,707
|
|
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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 holder 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 replaces 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.
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
June 30, 2016
, the applicable margin was
1.10%
, resulting in an interest rate of
1.56%
at
June 30, 2016
. 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
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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
June 30, 2016
,
$210.0 million
was outstanding under the Revolving Facility, with
$7.9 million
of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at
June 30, 2016
of approximately
$482.1 million
.
Other borrowings of
$1.7 million
at
June 30, 2016
consisted primarily of debt at international locations maintained for working capital purposes. Interest is payable on the outstanding debt balances at rates ranging from
0.6%
to
2.8%
per annum.
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
. At
June 30, 2016
, 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 agreements 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 agreements 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. See Note 13 for the amount of loss reclassified into income for interest rate contracts for the
six months ended
June 30, 2016
and
2015
. 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.
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. As of
June 30, 2016
, 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
$6.7 million
of the pre-tax amount included in accumulated other comprehensive income (loss) in shareholders’ equity at
June 30, 2016
will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.
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
June 30, 2016
and
December 31, 2015
:
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements
|
|
Balance at
June 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Money market investment
|
$
|
24,793
|
|
|
$
|
24,793
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Available for sale securities
|
5,358
|
|
|
5,358
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements
|
|
Balance at
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Money market investment
|
$
|
21,931
|
|
|
$
|
21,931
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Available for sale securities
|
4,794
|
|
|
4,794
|
|
|
—
|
|
|
—
|
|
Contingent consideration
|
(4,705
|
)
|
|
—
|
|
|
—
|
|
|
(4,705
|
)
|
There were no transfers of assets or liabilities between Level 1 and Level 2 during the
three and six months ended
June 30, 2016
or the year ended
December 31, 2015
.
In determining the fair value of the contingent consideration potentially due on the acquisition of CPS, the Company used probability weighted estimates of EBITDA during the earn-out period. The
$4.7 million
represented management’s best estimate of the liability as of the opening balance sheet date and December 31, 2015, based on a range of outcomes of CPS’s 12 month operating results, from July 1, 2015 to June 30, 2016. During the six months ended June 30, 2016, the Company re-evaluated the contingent consideration arrangement and fully reversed the
$4.7 million
liability based on CPS’s actual operating results from July 1, 2015 to June 30, 2016. The reversal was recognized as a benefit within Selling, general and administrative expenses and amounted to
$1.0 million
and
$4.7 million
during the three and six months ended June 30, 2016, respectively.
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
June 30, 2016
, 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
$1,105.7 million
compared to the carrying value of
$1,058.7 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 fourth quarter of 2015, the Company recorded restructuring costs as part of the 2015 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. 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 Consolidated Balance Sheets. Severance costs primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities.
Restructuring accruals of
$2.4 million
and
$6.6 million
at
June 30, 2016
and
December 31, 2015
, respectively, are recorded in Accrued expenses in the Consolidated Balance Sheets. Severance benefits are expected to be paid in the next nine months using cash from operations. The changes in the restructuring accrual for the
six
months ended
June 30, 2016
are as follows:
|
|
|
|
|
|
|
|
Restructuring
|
Balance at January 1, 2016
|
|
$
|
6,636
|
|
Payments, utilization and other
|
|
(4,257
|
)
|
Balance at June 30, 2016
|
|
$
|
2,379
|
|
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
June 30, 2016
|
|
Three Months Ended
June 30, 2015
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
Cumulative translation adjustment
|
$
|
(27,043
|
)
|
|
$
|
—
|
|
|
$
|
(27,043
|
)
|
|
$
|
23,743
|
|
|
$
|
—
|
|
|
$
|
23,743
|
|
Pension and other postretirement adjustments
|
912
|
|
|
(321
|
)
|
|
591
|
|
|
1,215
|
|
|
(395
|
)
|
|
820
|
|
Reclassification adjustments for derivatives
|
1,719
|
|
|
(626
|
)
|
|
1,093
|
|
|
1,767
|
|
|
(641
|
)
|
|
1,126
|
|
Total other comprehensive income (loss)
|
$
|
(24,412
|
)
|
|
$
|
(947
|
)
|
|
$
|
(25,359
|
)
|
|
$
|
26,725
|
|
|
$
|
(1,036
|
)
|
|
$
|
25,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2016
|
|
Six Months Ended
June 30, 2015
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
Cumulative translation adjustment
|
$
|
(10,826
|
)
|
|
$
|
—
|
|
|
$
|
(10,826
|
)
|
|
$
|
(32,894
|
)
|
|
$
|
—
|
|
|
$
|
(32,894
|
)
|
Pension and other postretirement adjustments
|
1,905
|
|
|
(643
|
)
|
|
1,262
|
|
|
2,390
|
|
|
(790
|
)
|
|
1,600
|
|
Reclassification adjustments for derivatives
|
3,443
|
|
|
(1,253
|
)
|
|
2,190
|
|
|
3,539
|
|
|
(1,283
|
)
|
|
2,256
|
|
Total other comprehensive income (loss)
|
$
|
(5,478
|
)
|
|
$
|
(1,896
|
)
|
|
$
|
(7,374
|
)
|
|
$
|
(26,965
|
)
|
|
$
|
(2,073
|
)
|
|
$
|
(29,038
|
)
|
The following table summarizes the amounts reclassified from accumulated other comprehensive income to net income during the
six months ended June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Pension and other postretirement plans
|
|
|
|
|
|
|
|
|
Amortization of service cost
|
$
|
912
|
|
|
$
|
1,215
|
|
|
$
|
1,905
|
|
|
$
|
2,390
|
|
|
Total before tax
|
912
|
|
|
1,215
|
|
|
1,905
|
|
|
2,390
|
|
|
Provision for income taxes
|
(321
|
)
|
|
(395
|
)
|
|
(643
|
)
|
|
(790
|
)
|
|
Total net of tax
|
$
|
591
|
|
|
$
|
820
|
|
|
$
|
1,262
|
|
|
$
|
1,600
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Reclassification adjustments
|
$
|
1,719
|
|
|
$
|
1,767
|
|
|
$
|
3,443
|
|
|
$
|
3,539
|
|
|
Total before tax
|
1,719
|
|
|
1,767
|
|
|
3,443
|
|
|
3,539
|
|
|
Provision for income taxes
|
(626
|
)
|
|
(641
|
)
|
|
(1,253
|
)
|
|
(1,283
|
)
|
|
Total net of tax
|
$
|
1,093
|
|
|
$
|
1,126
|
|
|
$
|
2,190
|
|
|
$
|
2,256
|
|
|
The Company recognizes net periodic benefit cost 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
six months ended June 30, 2016
, the Company purchased a total of
726 thousand
shares at a cost of
$53.9 million
, of which
$0.2 million
was settled in
July
2016
. During the
six months ended June 30, 2015
, the Company purchased
1.5 million
shares at a cost of
$113.3 million
, of which
$2.3 million
was settled in
July
2015
. As of
June 30, 2016
, the amount of share repurchase authorization remaining is
$581.1 million
.
At
June 30, 2016
and
December 31, 2015
, 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
June 30, 2016
or
December 31, 2015
.
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
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Weighted average fair value of option grants
|
$20.60
|
|
$19.49
|
|
$18.41
|
|
$20.39
|
Dividend yield
|
1.63%
|
|
1.65%
|
|
1.70%
|
|
1.42%
|
Volatility
|
29.62%
|
|
29.87%
|
|
29.71%
|
|
29.94%
|
Risk-free forward interest rate
|
0.60% - 2.56%
|
|
0.26% - 3.11%
|
|
0.53% - 2.50%
|
|
0.23% - 2.75%
|
Expected life (in years)
|
5.91
|
|
5.90
|
|
5.91
|
|
5.90
|
Total compensation cost for stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of goods sold
|
$
|
143
|
|
|
$
|
124
|
|
|
$
|
262
|
|
|
$
|
350
|
|
Selling, general and administrative expenses
|
1,511
|
|
|
1,494
|
|
|
3,806
|
|
|
3,690
|
|
Total expense before income taxes
|
1,654
|
|
|
1,618
|
|
|
4,068
|
|
|
4,040
|
|
Income tax benefit
|
(526
|
)
|
|
(502
|
)
|
|
(1,286
|
)
|
|
(1,269
|
)
|
Total expense after income taxes
|
$
|
1,128
|
|
|
$
|
1,116
|
|
|
$
|
2,782
|
|
|
$
|
2,771
|
|
A summary of the Company’s stock option activity as of
June 30, 2016
, and changes during the
six months ended
June 30, 2016
, are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Shares
|
|
Weighted
Average
Price
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding at January 1, 2016
|
2,266,433
|
|
|
$
|
54.05
|
|
|
6.58
|
|
$
|
51,918,028
|
|
Granted
|
549,815
|
|
|
74.80
|
|
|
|
|
|
Exercised
|
(393,142
|
)
|
|
43.03
|
|
|
|
|
|
Forfeited
|
(64,874
|
)
|
|
71.49
|
|
|
|
|
|
Outstanding at June 30, 2016
|
2,358,232
|
|
|
$
|
60.25
|
|
|
7.12
|
|
$
|
51,540,880
|
|
Vested and expected to vest as of June 30, 2016
|
2,204,293
|
|
|
$
|
59.23
|
|
|
6.98
|
|
$
|
50,424,569
|
|
Exercisable at June 30, 2016
|
1,211,400
|
|
|
$
|
47.70
|
|
|
5.52
|
|
$
|
41,674,285
|
|
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
June 30, 2016
, and changes during the
six months ended
June 30, 2016
, 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, 2016
|
272,755
|
|
|
$
|
65.90
|
|
Granted
|
60,120
|
|
|
75.01
|
|
Vested
|
(100,972
|
)
|
|
51.41
|
|
Forfeited
|
(13,420
|
)
|
|
73.83
|
|
Unvested at June 30, 2016
|
218,483
|
|
|
$
|
74.61
|
|
Dividends are paid on restricted stock awards and 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
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of goods sold
|
$
|
133
|
|
|
$
|
94
|
|
|
$
|
261
|
|
|
$
|
255
|
|
Selling, general and administrative expenses
|
968
|
|
|
1,256
|
|
|
2,498
|
|
|
3,513
|
|
Total expense before income taxes
|
1,101
|
|
|
1,350
|
|
|
2,759
|
|
|
3,768
|
|
Income tax benefit
|
(324
|
)
|
|
(365
|
)
|
|
(837
|
)
|
|
(1,054
|
)
|
Total expense after income taxes
|
$
|
777
|
|
|
$
|
985
|
|
|
$
|
1,922
|
|
|
$
|
2,714
|
|
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
June 30, 2016
, and changes during the
six months ended
June 30, 2016
, are presented in the following table:
|
|
|
|
|
|
|
|
Cash-Settled Restricted Stock
|
Shares
|
|
Weighted-Average
Fair Value
|
Unvested at January 1, 2016
|
110,860
|
|
|
$
|
76.61
|
|
Granted
|
39,450
|
|
|
82.10
|
|
Vested
|
(35,750
|
)
|
|
72.41
|
|
Forfeited
|
(7,340
|
)
|
|
82.10
|
|
Unvested at June 30, 2016
|
107,220
|
|
|
$
|
82.10
|
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of goods sold
|
$
|
131
|
|
|
$
|
226
|
|
|
$
|
320
|
|
|
$
|
544
|
|
Selling, general and administrative expenses
|
461
|
|
|
485
|
|
|
961
|
|
|
925
|
|
Total expense before income taxes
|
592
|
|
|
711
|
|
|
1,281
|
|
|
1,469
|
|
Income tax benefit
|
(86
|
)
|
|
(107
|
)
|
|
(184
|
)
|
|
(224
|
)
|
Total expense after income taxes
|
$
|
506
|
|
|
$
|
604
|
|
|
$
|
1,097
|
|
|
$
|
1,245
|
|
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.
|
|
|
|
|
|
|
|
Three and Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
Weighted average fair value of performance share units
|
|
$111.42
|
|
$95.07
|
Dividend yield
|
|
—%
|
|
—%
|
Volatility
|
|
17.99%
|
|
19.14%
|
Risk-free forward interest rate
|
|
0.89%
|
|
1.01%
|
Expected life (in years)
|
|
2.86
|
|
2.86
|
A summary of the Company’s performance share unit activity as of
June 30, 2016
, and changes during the
six months ended
June 30, 2016
, are presented in the following table:
|
|
|
|
|
|
|
|
Performance Share Units
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Unvested at January 1, 2016
|
146,275
|
|
|
$
|
94.80
|
|
Granted
|
85,130
|
|
|
111.42
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
(1,065
|
)
|
|
94.74
|
|
Unvested at June 30, 2016
|
230,340
|
|
|
$
|
100.95
|
|
Performance share units that vested on December 31, 2015 resulted in
87,600
shares issued in February 2016.
Total compensation cost for performance share units is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of goods sold
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative expenses
|
1,815
|
|
|
1,183
|
|
|
3,496
|
|
|
2,525
|
|
Total expense before income taxes
|
1,815
|
|
|
1,183
|
|
|
3,496
|
|
|
2,525
|
|
Income tax benefit
|
(633
|
)
|
|
(408
|
)
|
|
(1,168
|
)
|
|
(838
|
)
|
Total expense after income taxes
|
$
|
1,182
|
|
|
$
|
775
|
|
|
$
|
2,328
|
|
|
$
|
1,687
|
|
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
June 30, 2016
, there was
$14.3 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,
$10.4 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, and
$10.1 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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
Service cost
|
$
|
294
|
|
|
$
|
304
|
|
|
$
|
376
|
|
|
$
|
376
|
|
Interest cost
|
747
|
|
|
355
|
|
|
937
|
|
|
433
|
|
Expected return on plan assets
|
(1,175
|
)
|
|
(220
|
)
|
|
(1,248
|
)
|
|
(280
|
)
|
Net amortization
|
827
|
|
|
243
|
|
|
855
|
|
|
470
|
|
Net periodic benefit cost
|
$
|
693
|
|
|
$
|
682
|
|
|
$
|
920
|
|
|
$
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
Service cost
|
$
|
588
|
|
|
$
|
603
|
|
|
$
|
751
|
|
|
$
|
757
|
|
Interest cost
|
1,494
|
|
|
705
|
|
|
1,875
|
|
|
868
|
|
Expected return on plan assets
|
(2,350
|
)
|
|
(439
|
)
|
|
(2,496
|
)
|
|
(556
|
)
|
Net amortization
|
1,654
|
|
|
481
|
|
|
1,679
|
|
|
929
|
|
Net periodic benefit cost
|
$
|
1,386
|
|
|
$
|
1,350
|
|
|
$
|
1,809
|
|
|
$
|
1,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
181
|
|
|
$
|
169
|
|
|
$
|
313
|
|
|
$
|
338
|
|
Interest cost
|
224
|
|
|
209
|
|
|
398
|
|
|
418
|
|
Net amortization
|
(154
|
)
|
|
(111
|
)
|
|
(308
|
)
|
|
(219
|
)
|
Net periodic benefit cost
|
$
|
251
|
|
|
$
|
267
|
|
|
$
|
403
|
|
|
$
|
537
|
|
The Company previously disclosed in its financial statements for the year ended
December 31, 2015
, that it expected to contribute approximately
$6.1 million
to its defined benefit plans and
$0.9 million
to its other postretirement benefit plans in
2016
. As of
June 30, 2016
, the Company now expects to contribute
$5.4 million
to its defined benefit plans and
$0.9 million
to its other postretirement benefit plans in
2016
. The Company contributed a total of
$2.2 million
during the first
six
months of
2016
to fund these plans.
17. Legal Proceedings
The Company is party to various legal proceedings arising in the ordinary course of business, none of which are expected to have a material impact on its financial condition, results of operations or cash flows.
IDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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
decreased
to
$27.9 million
in the
second quarter
of
2016
from
$28.9 million
in the same period of
2015
. The effective tax rate
decreased
to
26.9%
for the
second quarter
of
2016
compared to
29.4%
in the same period of
2015
due to the early adoption of ASU 2016-09 and the related tax effects of share based payments now recognized in income, the enactment of the Protecting Americans from Tax Hikes Act of 2015 on December 18, 2015 which, beginning in 2015, permanently extended the U.S. Research and Development credit, as well as the mix of global pre-tax income among jurisdictions.
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
decreased
to
$52.6 million
in the
six months ended June 30, 2016
from
$55.8 million
in the same period of
2015
. The effective tax rate
decreased
to
26.8%
for the
six months ended June 30, 2016
compared to
29.2%
in the same period of
2015
due to the mix of global pre-tax income among jurisdictions. Additionally, the effective tax rate for the current year period was favorably impacted by the early adoption of ASU 2016-09 and the related tax effects of share based payments now recognized in income and the effective tax rate for the comparable period of the prior year was favorably impacted by the enactment of the Protecting Americans from Tax Hikes Act of 2015 on December 18, 2015 which, beginning in 2015, permanently extended the U.S. Research and Development credit.
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
$4.1 million
.
19. Subsequent Events
On July 1, 2016, the Company announced the acquisition of AWG Fittings GmbH (“AWG”), for cash consideration of approximately
$51 million
(
€46 million
). AWG, located in Ballendorf, Germany, produces a large array of engineered-life safety products for the safety and emergency response markets, including apparatus valves, monitors, nozzles, and hydraulic rescue tools. AWG has annual revenues of approximately
$40 million
and will operate within our Fire & Safety/Diversified Products segment.
On July 28, 2016, the Company entered into a definitive agreement to acquire SFC-Koenig AG (“SFC”) for cash consideration based on an enterprise value of approximately
$240 million
(
€217 million
), subject to certain customary post-closing adjustments. SFC offers solutions for quick and reliable metal-to-metal sealing and flow control applications. With its wide product range of bore diameters and pressure ranges, SFC is a solution provider for the transportation, hydraulics, aerospace and medical industries. Located in Dietikon, Switzerland, SFC has annual revenues of approximately
$63 million
(
€57 million
) and will operate within our Health & Science Technologies segment. The transaction is expected to close in approximately
30
to
45
days, subject to regulatory approvals and customary closing conditions.
On July 29, 2016, the Company entered into a definitive agreement to sell its shares of Melles Griot KK, based in Tamagawa, Japan, in an all cash transaction for approximately
$19 million
(
¥2 billion
) on a cash-free, debt-free basis, subject to certain customary post-closing adjustments. The results of Melles Griot KK were reported within the Health & Science Technologies segment and Melles Griot KK generated revenues of approximately
$19 million
in 2015. The transaction is expected to close by the end of the third quarter, subject to customary closing conditions.
On July 29, 2016, the Company entered into a definitive agreement and completed the sale of its Hydra-Stop product line, based in Burr Ridge, IL, for cash consideration of
$15 million
, subject to customary post-closing adjustments, and contingent consideration of up to
$2 million
based on financial objectives for net sales in 2016 and 2017. The results of the product line were reported within the Fluid & Metering Technologies segment and the product line generated revenues of approximately
$11 million
in 2015.