SEC Filing | IDEX Corporation

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iex-20210630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

Form 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from	to

Commission file number 1-10235

IDEX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware

36-3555336

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

3100 Sanders Road,

Suite 301,

Northbrook,

Illinois

60062

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (847) 498-7070

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share

IEX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares of common stock of IDEX Corporation outstanding as of July 23, 2021: 75,998,135.

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TABLE OF CONTENTS


Part I. Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
	Cautionary Statement Under the Private Securities Litigation Reform Act	35
	Overview	35
	Results of Operations	38
	Liquidity and Capital Resources	43
	Non-GAAP Disclosures	45
	Critical Accounting Policies	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	53

Part II. Other Information
Item 1.	Legal Proceedings	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	55
Signatures		56

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

IDEX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share amounts)

(unaudited)


	June 30, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	714,380	$	1,025,851
Receivables, less allowance for doubtful accounts of $5,907 at June 30, 2021 and $6,091 at December 31, 2020	356,469		293,146
Inventories	360,079		289,910
Other current assets	62,761		48,324
Total current assets	1,493,689		1,657,231
Property, plant and equipment - net	313,353		298,273
Goodwill	2,210,570		1,895,574
Intangible assets - net	626,586		415,563
Other noncurrent assets	138,799		147,757
Total assets	$	4,782,997	$	4,414,398
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable	$	178,796	$	151,993
Accrued expenses	230,426		208,828
Short-term borrowings	41		88
Dividends payable	41,096		38,149
Total current liabilities	450,359		399,058
Long-term borrowings	1,189,828		1,044,354
Deferred income taxes	211,164		163,863
Other noncurrent liabilities	258,782		266,797
Total liabilities	2,110,133		1,874,072
Commitments and contingencies
Shareholders’ equity
Preferred stock:
Authorized: 5,000,000 shares, $.01 per share par value; Issued: None	—		—
Common stock:
Authorized: 150,000,000 shares, $.01 per share par value
Issued: 90,069,757 shares at June 30, 2021 and 90,071,763 shares at December 31, 2020	901		901
Additional paid-in capital	785,674		775,153
Retained earnings	2,974,163		2,841,546
Treasury stock at cost: 13,965,568 shares at June 30, 2021 and 14,111,221 shares at December 31, 2020	(1,058,719)		(1,063,872)
Accumulated other comprehensive income (loss)	(29,223)		(13,525)
Total shareholders’ equity	2,672,796		2,540,203
Noncontrolling interest	68		123
Total equity	2,672,864		2,540,326
Total liabilities and equity	$	4,782,997	$	4,414,398

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net sales	$	685,947	$	561,249	$	1,337,983	$	1,155,711
Cost of sales	379,875		326,449		739,288		648,955
Gross profit	306,072		234,800		598,695		506,756
Selling, general and administrative expenses	144,680		120,365		279,528		252,380

Restructuring expenses and asset impairments	3,136		3,841		5,364		3,841
Operating income	158,256		110,594		313,803		250,535
Other (income) expense - net	17,175		6,460		16,327		8,025
Interest expense	11,205		12,439		21,981		23,316
Income before income taxes	129,876		91,695		275,495		219,194
Provision for income taxes	27,697		20,831		60,644		46,332
Net income	$	102,179	$	70,864	214,851		172,862
Net (income) loss attributable to noncontrolling interest	16		—		52		—
Net income attributable to IDEX	$	102,195	$	70,864	$	214,903	$	172,862

Earnings per common share:
Basic earnings per common share attributable to IDEX	$	1.34	$	0.94	$	2.83	$	2.29
Diluted earnings per common share attributable to IDEX	$	1.34	$	0.93	$	2.81	$	2.27

Share data:
Basic weighted average common shares outstanding	75,968		75,171		75,930		75,459
Diluted weighted average common shares outstanding	76,429		75,937		76,385		76,198

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	102,179	$	70,864	$	214,851	$	172,862
Other comprehensive income (loss):
Reclassification adjustments for derivatives, net of tax	1,867		2,116		2,531		3,310
Pension and other postretirement adjustments, net of tax	9,210		(631)		9,955		1,665
Cumulative translation adjustment	20,255		19,271		(28,184)		(7,185)

Other comprehensive income (loss)	31,332		20,756		(15,698)		(2,210)
Comprehensive income	133,511		91,620		199,153		170,652
Comprehensive (income) loss attributable to noncontrolling interest	21		—		55		—
Comprehensive income attributable to IDEX	$	133,532	$	91,620	$	199,208	$	170,652

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands except share amounts)

(unaudited)


					Accumulated Other Comprehensive Income (Loss)
	Common Stock and Additional Paid-In Capital		Retained Earnings		Cumulative Translation Adjustment		Retirement Benefits Adjustment		Cumulative Unrealized Gain (Loss) on Derivatives		Treasury Stock		Total Shareholders’ Equity		Noncontrolling Interest		Total Equity
Balance, December 31, 2020	$	776,054	$	2,841,546	$	13,430	$	(24,424)	$	(2,531)	$	(1,063,872)	$	2,540,203	$	123	$	2,540,326
Net income (loss)	—		112,708		—		—		—		—		112,708		(36)		112,672
Cumulative translation adjustment	—		—		(48,439)		—		—		—		(48,439)		2		(48,437)
Net change in retirement obligations (net of tax of $309)	—		—		—		745		—		—		745		—		745
Net change on derivatives designated as cash flow hedges (net of tax of $195)	—		—		—		—		664		—		664		—		664
Issuance of 106,122 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $1,865)	—		—		—		—		—		3,231		3,231		—		3,231

Shares surrendered for tax withholding	—		—		—		—		—		(5,460)		(5,460)		—		(5,460)
Share-based compensation	6,274		—		—		—		—		—		6,274		—		6,274

Balance, March 31, 2021	$	782,328	$	2,954,254	$	(35,009)	$	(23,679)	$	(1,867)	$	(1,066,101)	$	2,609,926	$	89	$	2,610,015
Net income (loss)	—		102,195		—		—		—		—		102,195		(16)		102,179
Cumulative translation adjustment	—		—		20,255		—		—		—		20,255		(5)		20,250
Net change in retirement obligations (net of tax of $2,799)	—		—		—		9,210		—		—		9,210		—		9,210
Net change on derivatives designated as cash flow hedges (net of tax of $549)	—		—		—		—		1,867		—		1,867		—		1,867
Issuance of 67,476 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $621)	—		—		—		—		—		7,456		7,456		—		7,456

Shares surrendered for tax withholding	—		—		—		—		—		(74)		(74)		—		(74)
Share-based compensation	4,247		—		—		—		—		—		4,247		—		4,247
Cash dividends declared - $1.08 per common share outstanding	—		(82,286)		—		—		—		—		(82,286)		—		(82,286)
Balance, June 30, 2021	$	786,575	$	2,974,163	$	(14,754)	$	(14,469)	$	—	$	(1,058,719)	$	2,672,796	$	68	$	2,672,864

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IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands except share amounts)

(unaudited)


					Accumulated Other Comprehensive Income (Loss)
	Common Stock and Additional Paid-In Capital		Retained Earnings		Cumulative Translation Adjustment		Retirement Benefits Adjustment		Cumulative Unrealized Gain (Loss) on Derivatives		Treasury Stock		Total Shareholders’ Equity
Balance, December 31, 2019	$	761,352	$	2,615,131	$	(94,353)	$	(25,809)	$	(7,183)	$	(985,909)	$	2,263,229
Net income	—		101,998		—		—		—		—		101,998
Cumulative translation adjustment	—		—		(26,456)		—		—		—		(26,456)
Net change in retirement obligations (net of tax of $578)	—		—		—		2,296		—		—		2,296
Net change on derivatives designated as cash flow hedges (net of tax of $351)	—		—		—		—		1,194		—		1,194
Issuance of 131,757 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $3,061)	—		—		—		—		—		2,089		2,089
Repurchase of 866,823 shares of common stock	—		—		—		—		—		(108,907)		(108,907)
Shares surrendered for tax withholding	—		—		—		—		—		(12,119)		(12,119)
Share-based compensation	6,463		—		—		—		—		—		6,463
Balance, March 31, 2020	$	767,815	$	2,717,129	$	(120,809)	$	(23,513)	$	(5,989)	$	(1,104,846)	$	2,229,787
Net income	—		70,864		—		—		—		—		70,864


Cumulative translation adjustment	—		—		19,271		—		—		—		19,271
Net change in retirement obligations (net of tax of $62)	—		—		—		(631)		—		—		(631)
Net change on derivatives designated as cash flow hedges (net of tax of $623)	—		—		—		—		2,116		—		2,116
Issuance of 145,263 shares of common stock from issuance of unvested shares, performance share units and exercise of stock options (net of tax of $594)	—		—		—		—		—		11,022		11,022
Repurchase of 9,600 shares of common stock	—		—		—		—		—		(1,435)		(1,435)
Shares surrendered for tax withholding	—		—		—		—		—		(29)		(29)
Share-based compensation	5,753		—		—		—		—		—		5,753
Cash dividends declared - $1.00 per common share outstanding	—		(75,681)		—		—		—		—		(75,681)
Balance, June 30, 2020	$	773,568	$	2,712,312	$	(101,538)	$	(24,144)	$	(3,873)	$	(1,095,288)	$	2,261,037

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities
Net income	$	214,851	$	172,862
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments	226		—
Depreciation and amortization	21,480		20,591
Amortization of intangible assets	24,513		20,032
Amortization of debt issuance expenses	961		976
Share-based compensation expense	13,245		13,665
Deferred income taxes	(13,982)		2,421
Non-cash interest expense associated with forward starting swaps	3,275		4,284
Termination of the U.S. pension plan	9,688		—
Changes in (net of the effect from acquisitions):
Receivables	(46,257)		34,253
Inventories	(20,936)		(9,529)
Other current assets	125		(18,421)
Trade accounts payable	22,569		(6,842)
Deferred revenue	15,502		20,346
Accrued expenses	1,217		(3,084)
Other - net	(881)		2,659
Net cash flows provided by operating activities	245,596		254,213
Cash flows from investing activities
Purchases of property, plant and equipment	(30,593)		(21,085)

Acquisition of businesses, net of cash acquired	(575,606)		(120,839)

Note receivable from collaborative partner	(4,200)		—
Proceeds from disposal of fixed assets	242		2,114
Other - net	905		(636)
Net cash flows used in investing activities	(609,252)		(140,446)
Cash flows from financing activities

Borrowings under revolving credit facilities	—		150,000
Proceeds from issuance of 3.0% Senior Notes	—		499,100
Proceeds from issuance of 2.625% Senior Notes	499,380		—
Payment of 4.5% Senior Notes	—		(300,000)
Payment of 4.2% Senior Notes	(350,000)		—
Payments under revolving credit facilities	—		(150,000)
Payment of make-whole redemption premium	(6,659)		(6,756)
Debt issuance costs	(4,611)		(4,166)
Dividends paid	(79,242)		(76,498)
Proceeds from stock option exercises	10,687		13,111
Repurchases of common stock	—		(110,342)
Shares surrendered for tax withholding	(5,534)		(12,148)

Other - net	(60)		(251)
Net cash flows provided by financing activities	63,961		2,050
Effect of exchange rate changes on cash and cash equivalents	(11,776)		(2,050)
Net (decrease) increase in cash	(311,471)		113,767
Cash and cash equivalents at beginning of year	1,025,851		632,581
Cash and cash equivalents at end of period	$	714,380	$	746,348

Supplemental cash flow information
Cash paid for:
Interest	$	17,157	$	16,089
Income taxes	72,681		21,781

See Notes to Condensed Consolidated Financial Statements

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IDEX CORPORATION

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” 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, 2021 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, 2020.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes, which eliminates the need to analyze whether the following apply in a given period (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. This ASU is also designed to improve the application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax and (4) enacted changes in tax laws in interim periods. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

2. Acquisitions and Divestitures

All of the Company’s acquisitions of businesses have been accounted for under Accounting Standards Codification (“ASC”) 805, Business Combinations. Accordingly, the accounts of the acquired companies, after adjustments to reflect the fair values assigned to assets and liabilities, have been included in the Company’s condensed consolidated financial statements from their respective dates of acquisition. The results of operations associated with the acquisition of ABEL Pumps, L.P. and certain of its affiliates (“ABEL”) have been included in the Company’s condensed consolidated results since the date of acquisition on March 10, 2021.

The Company incurred acquisition-related transaction costs of $2.3 million and $0.7 million in the three months ended June 30, 2021 and 2020, respectively, and $3.7 million and $1.8 million in the six months ended June 30, 2021 and 2020, respectively. These costs were recorded in Selling, general and administrative expenses and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. The Company recorded a fair value inventory step-up charge associated with the completed 2021 acquisition of ABEL described below in Cost of sales, of which $1.8 million was recorded during the three months ended June 30, 2021 and $2.5 million was recorded during the six months ended June 30, 2021. The Company expects to record a fair value inventory step-up charge associated with the completed 2021 acquisition of Airtech described below in Cost of sales during the remainder of 2021. The Company also recorded a $4.1 million fair value inventory step-up charge associated with the completed 2020 acquisition of Flow Management Devices, LLC (“Flow MD”) described below in Cost of sales during the three and six months ended June 30, 2020.

2021 Acquisitions

On March 10, 2021, the Company acquired the stock of ABEL. ABEL designs and manufactures highly engineered reciprocating positive displacement pumps for a variety of end markets, including mining, marine, power, water, wastewater and other general industries. Headquartered in Büchen, Germany, with sales and service locations in Madrid, Spain and Pittsburgh, Pennsylvania, ABEL operates in the Company’s Pumps reporting unit within the Fluid & Metering Technologies segment. ABEL was acquired for cash consideration of $106.3 million. The entire purchase price was funded with cash on

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IDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

hand. Goodwill and intangible assets recognized as part of this transaction were $59.5 million and $46.0 million, respectively. The goodwill is not deductible for tax purposes.

The Company made an initial allocation of the purchase price for the ABEL acquisition as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. These nonrecurring fair value measurements are classified as Level 3 in the fair value hierarchy. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation and accrued expenses, and continues to learn more about the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the measurement period.

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:


(In thousands)	Total
Current assets, net of cash acquired	$	18,419
Property, plant and equipment	4,034
Goodwill	59,481
Intangible assets	46,000
Other noncurrent assets	123
Total assets acquired	128,057
Current liabilities	(7,100)
Deferred income taxes	(14,537)
Other noncurrent liabilities	(84)
Net assets acquired (1)	$	106,336

(1) During the second quarter of 2021, the Company obtained additional information about the assets and liabilities acquired that required a net $0.1 million adjustment to the purchase price of the ABEL business.

Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisition reflects the strategic fit, revenue and earnings growth potential of this business.

The acquired intangible assets and weighted average amortization periods are as follows:


(In thousands, except weighted average life)	Total		Weighted Average Life
Trade names	$	9,000	15
Customer relationships	30,000		13
Unpatented technology	7,000		11
Acquired intangible assets	$	46,000

On June 14, 2021, the Company acquired the stock of Airtech Group, Inc., US Valve Corporation and related entities (“Airtech”). Airtech designs and manufactures a wide range of highly-engineered pressure technology products, including vacuum pumps, regenerative blowers, compressor systems and valves for a variety of end markets, including alternative energy, food processing, medical, packaging and transportation. Headquartered in Rutherford, New Jersey, with manufacturing operations in Werneck, Germany and Shenzhen, China, Airtech operates in the Company’s Performance Pneumatic Technologies reporting unit within the Health & Science Technologies segment. Airtech was acquired for cash consideration of $469.3 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $271.3 million and $194.3 million, respectively. The goodwill is not deductible for tax purposes.

The Company made an initial allocation of the purchase price for the Airtech acquisition as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. These nonrecurring fair value measurements are classified as Level 3 in the fair value hierarchy. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation and accrued expenses, and continues to learn

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IDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share data and where otherwise indicated)

(unaudited)

more about the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the measurement period.

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:


(In thousands)	Total
Current assets, net of cash acquired	$	54,916
Property, plant and equipment	4,868
Goodwill	271,301
Intangible assets	194,300
Other noncurrent assets	87
Total assets acquired	525,472
Current liabilities	(8,315)
Deferred income taxes	(47,886)
Other noncurrent liabilities	(1)
Net assets acquired	$	469,270

The acquired intangible assets and weighted average amortization periods are as follows:


(In thousands, except weighted average life)	Total		Weighted Average Life
Trade names	$	14,200	15
Customer relationships	156,100		13
Unpatented technology	24,000		10
Acquired intangible assets	$	194,300