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IDEX CORP /DE/ - Quarter Report: 2021 March (Form 10-Q)

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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 endedMarch 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number 1-10235
IDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
Delaware36-3555336
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3100 Sanders Road,Suite 301,Northbrook,Illinois60062
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number: (847) 498-7070

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $.01 per shareIEXNew 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.


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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.

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 April 22, 2021: 75,931,032.


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TABLE OF CONTENTS
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 2.
Item 6.


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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)
 
March 31, 2021December 31, 2020
ASSETS
Current assets
Cash and cash equivalents$958,142 $1,025,851 
Receivables, less allowance for doubtful accounts of $5,653 at March 31, 2021 and $6,091 at December 31, 2020
341,793 293,146 
Inventories304,636 289,910 
Other current assets46,573 48,324 
Total current assets1,651,144 1,657,231 
Property, plant and equipment - net302,805 298,273 
Goodwill1,928,665 1,895,574 
Intangible assets - net441,640 415,563 
Other noncurrent assets136,477 147,757 
Total assets$4,460,731 $4,414,398 
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable$171,379 $151,993 
Accrued expenses206,088 208,828 
Short-term borrowings46 88 
Dividends payable— 38,149 
Total current liabilities377,513 399,058 
Long-term borrowings1,044,589 1,044,354 
Deferred income taxes173,244 163,863 
Other noncurrent liabilities255,370 266,797 
Total liabilities1,850,716 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: 90,071,924 shares at March 31, 2021 and 90,071,763 shares at December 31, 2020
901 901 
Additional paid-in capital781,427 775,153 
Retained earnings2,954,254 2,841,546 
Treasury stock at cost: 14,032,706 shares at March 31, 2021 and 14,111,221 shares at December 31, 2020
(1,066,101)(1,063,872)
Accumulated other comprehensive income (loss)(60,555)(13,525)
Total shareholders’ equity2,609,926 2,540,203 
Noncontrolling interest89 123 
Total equity2,610,015 2,540,326 
Total liabilities and equity$4,460,731 $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 March 31,
 20212020
Net sales$652,036 $594,462 
Cost of sales359,413 322,506 
Gross profit292,623 271,956 
Selling, general and administrative expenses134,848 132,015 
Restructuring expenses and asset impairments2,228 — 
Operating income155,547 139,941 
Other (income) expense - net(848)1,565 
Interest expense10,776 10,877 
Income before income taxes145,619 127,499 
Provision for income taxes32,947 25,501 
Net income112,672 101,998 
Net (income) loss attributable to noncontrolling interest36 — 
Net income attributable to IDEX$112,708 $101,998 
Earnings per common share:
Basic earnings per common share attributable to IDEX$1.48 $1.35 
Diluted earnings per common share attributable to IDEX$1.48 $1.33 
Share data:
Basic weighted average common shares outstanding75,892 75,740 
Diluted weighted average common shares outstanding76,341 76,452 
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 March 31,
 20212020
Net income$112,672 $101,998 
Other comprehensive income (loss):
Reclassification adjustments for derivatives, net of tax
664 1,194 
Pension and other postretirement adjustments, net of tax
745 2,296 
Cumulative translation adjustment
(48,439)(26,456)
Other comprehensive income (loss)
(47,030)(22,966)
Comprehensive income65,642 79,032 
Comprehensive (income) loss attributable to noncontrolling interest34 — 
Comprehensive income attributable to IDEX$65,676 $79,032 
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 InterestTotal 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)(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 compensation6,274 — — — — — 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 


   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 compensation6,463 — — — — — 6,463 
Balance, March 31, 2020$767,815 $2,717,129 $(120,809)$(23,513)$(5,989)$(1,104,846)$2,229,787 

See Notes to Condensed Consolidated Financial Statements
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IDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


 Three Months Ended March 31,
 20212020
Cash flows from operating activities
Net income$112,672 $101,998 
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairments136 — 
Depreciation and amortization10,554 10,453 
Amortization of intangible assets10,990 9,544 
Amortization of debt issuance expenses366 343 
Share-based compensation expense7,752 6,730 
Deferred income taxes561 2,012 
Non-cash interest expense associated with forward starting swaps859 1,545 
Changes in (net of the effect from acquisitions):
Receivables(46,289)(24,190)
Inventories(7,539)(23,717)
Other current assets3,350 (14,267)
Trade accounts payable20,042 14,146 
Deferred revenue11,089 25,651 
Accrued expenses(11,592)(23,870)
Other - net(3,627)(1,618)
Net cash flows provided by operating activities109,324 84,760 
Cash flows from investing activities
Purchases of property, plant and equipment(14,609)(12,762)
Acquisition of businesses, net of cash acquired(106,236)(120,839)
Proceeds from disposal of fixed assets211 41 
Other - net1,100 (160)
Net cash flows used in investing activities(119,534)(133,720)
Cash flows from financing activities
Borrowings under revolving credit facilities— 150,000 
Dividends paid(38,149)(38,736)
Proceeds from stock option exercises3,231 2,089 
Repurchases of common stock— (108,907)
Shares surrendered for tax withholding(5,460)(12,119)
Other - net (46)(129)
Net cash flows used in financing activities(40,424)(7,802)
Effect of exchange rate changes on cash and cash equivalents(17,075)(6,600)
Net decrease in cash(67,709)(63,362)
Cash and cash equivalents at beginning of year1,025,851 632,581 
Cash and cash equivalents at end of period$958,142 $569,219 
Supplemental cash flow information
Cash paid for:
Interest$483 $276 
Income taxes18,322 10,492 

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 months ended March 31, 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 an 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 of the acquired companies have been included in the Company’s condensed consolidated results since the date of each acquisition.

The Company incurred acquisition-related transaction costs of $1.4 million and $1.1 million in the three months ended March 31, 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 also recorded a $0.7 million fair value inventory step-up charge associated with the completed 2021 acquisition of ABEL described below. This charge was recorded in Cost of sales during the three months ended March 31, 2021 and the remainder of the charge will be recorded in Cost of sales during the second quarter of 2021.

2021 Acquisition

On March 10, 2021, the Company acquired the stock of ABEL Pumps, L.P. and certain of its affiliates (“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 $106.2 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $59.0 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
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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$18,500 
Property, plant and equipment4,034 
Goodwill58,980 
Intangible assets46,000 
Other noncurrent assets98 
Total assets acquired127,612 
Current liabilities(6,707)
Deferred income taxes(14,597)
Other noncurrent liabilities(72)
Net assets acquired
$106,236 

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)TotalWeighted Average Life
Trade names$9,000 15
Customer relationships30,000 13
Unpatented technology7,000 11
Acquired intangible assets$46,000 

2020 Acquisitions

On February 28, 2020, the Company acquired the stock of Flow MD, a privately held provider of flow measurement systems that ensure custody transfer accuracy in the oil and gas industry. Flow MD engineers and manufactures small volume provers. Headquartered in Phoenix, AZ, with operations in Houston, TX and Pittsburgh, PA, Flow MD operates in the Company’s Energy group within the Fluid & Metering Technologies segment. Flow MD was acquired for cash consideration of $121.2 million. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were $60.0 million and $53.0 million, respectively. The goodwill is deductible for tax purposes.

The Company finalized the allocation of the purchase price for the Flow MD 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.
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

The final allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:
(In thousands)Total
Current assets, net of cash acquired$32,858 
Property, plant and equipment4,166 
Goodwill60,026 
Intangible assets53,000 
Other noncurrent assets1,344 
Total assets acquired151,394 
Current liabilities(32,291)
Deferred income taxes2,459 
Other noncurrent liabilities(329)
Net assets acquired (1)
$121,233 

(1) Subsequent to the first quarter of 2020, the Company obtained additional information about the assets and liabilities acquired that required a net $0.4 million adjustment to the purchase price of the Flow MD 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)TotalWeighted Average Life
Trade names$6,000 15
Customer relationships31,500 10
Unpatented technology15,500 20
Acquired intangible assets$53,000 
On November 23, 2020, the Company acquired Qualtek Manufacturing, Inc. (“Qualtek”), a manufacturer of high quality specialty metal components and parts by providing vertically integrated tool and die, metal stamping and metal finishing services. Headquartered in Colorado Springs, CO, Qualtek operates in the Company’s BAND-IT reporting unit within the Fire & Safety/Diversified Products segment. Qualtek was acquired for cash consideration of $1.9 million. The entire purchase price was funded with cash on hand. Goodwill recognized as part of this transaction was $1.1 million. The goodwill recorded for the acquisition reflects the strategic fit, revenue and earnings growth potential of this business. The goodwill is deductible for tax purposes.

The Company finalized its allocation of the purchase price for the Qualtek acquisition as of the acquisition date based on its understanding of the fair value of the acquired assets. These nonrecurring fair value measurements are classified as Level 3 in the fair value hierarchy.

Divestitures

The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives and focuses on core business and customers. Any resulting gain or loss recognized due to divestitures is recorded within Loss (gain) on sale of businesses - net within Selling, general and administrative expenses.

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
On March 12, 2021, the Company completed the sale of CiDRA Precision Services (“CiDRA”) for $1.0 million in cash, resulting in a pre-tax gain on the sale of $0.5 million. The Company recorded $0.1 million of income tax expense associated with this transaction during the three months ended March 31, 2021. The results of CiDRA were reported within the Health & Science Technologies segment and generated $0.9 million of revenues in 2021 through the date of sale. The Company concluded that this divestiture did not meet the criteria for reporting the results of CiDRA as discontinued operations. There were no divestitures that took place during the three months ended March 31, 2020.

3.    Joint Venture

On May 12, 2020, a subsidiary of IDEX entered into a joint venture agreement with a third party to form a limited liability company (the “Joint Venture”) that will manufacture and sell high performance elastomer seals for the oil and gas industry to customers within the Kingdom of Saudi Arabia as well as export these high performance elastomer seals outside of the Kingdom of Saudi Arabia. The Joint Venture is headquartered in Damman, Saudi Arabia and operates in the Company’s Sealing Solutions reporting unit within the Health & Science Technologies segment. In the fourth quarter of 2020, the Company contributed $147 thousand and owns 55% of the share capital while the third party partner contributed $120 thousand and owns 45% of the share capital. As of March 31, 2021, the Joint Venture has incurred start-up expenses but has not yet begun manufacturing. Since IDEX controls the entity, IDEX has consolidated the Joint Venture and recorded a noncontrolling interest in its condensed consolidated financial statements.

4.    Business Segments

IDEX has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.

The Fluid & Metering Technologies (“FMT”) segment designs, produces and distributes positive displacement pumps, small volume provers, flow meters, injectors and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water and wastewater, agriculture and energy industries.

The Health & Science Technologies (“HST”) segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems 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, custom mechanical and shaft seals for a variety of end markets including food and beverage, marine, chemical, wastewater and water treatment, engineered hygienic mixers and valves for the global biopharmaceutical industry, 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 (“FSDP”) segment designs, produces and develops firefighting pumps, valves and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.

Information on the Company’s business segments is presented below based on the nature of products and services offered. The Company evaluates performance based on several factors, of which sales, operating income and operating margin are the primary financial measures. Intersegment sales are accounted for at fair value as if the sales were to third parties.


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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
 Three Months Ended March 31,
 20212020
Net sales
Fluid & Metering Technologies
External customers$243,066 $226,712 
Intersegment sales299 149 
Total segment sales243,365 226,861 
Health & Science Technologies
External customers249,507 223,456 
Intersegment sales862 603 
Total segment sales250,369 224,059 
Fire & Safety/Diversified Products
External customers159,463 144,294 
Intersegment sales21 30 
Total segment sales159,484 144,324 
Intersegment elimination(1,182)(782)
Total net sales$652,036 $594,462 
Operating income (loss) (1)
Fluid & Metering Technologies$62,897 $66,771 
Health & Science Technologies66,650 52,643 
Fire & Safety/Diversified Products44,560 38,037 
Corporate office and other(18,560)(17,510)
Total operating income155,547 139,941 
Interest expense10,776 10,877 
Other (income) expense - net(848)1,565 
Income before income taxes$145,619 $127,499 
March 31,
2021
December 31,
2020
Assets
Fluid & Metering Technologies$1,532,987 $1,387,067 
Health & Science Technologies1,563,473 1,576,093 
Fire & Safety/Diversified Products798,494 891,864 
Corporate office and other565,777 559,374 
Total assets$4,460,731 $4,414,398 

(1) Segment operating income (loss) excludes net unallocated corporate operating expenses.
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
5.    Revenue

IDEX is an applied solutions company specializing in the manufacture of fluid and metering technologies, health and science technologies and fire, safety and other diversified products built to customers’ specifications. The Company’s products include industrial pumps, provers, compressors, flow meters, injectors, valves and related controls for use in a wide variety of process applications; precision fluidics solutions, including pumps, valves, degassing equipment, corrective tubing, fittings and complex manifolds, optical filters and specialty medical equipment and devices for use in life science applications; precision-engineered equipment for dispensing, metering and mixing paints; and engineered products for industrial and commercial markets, including fire and rescue, transportation equipment, oil and gas, electronics and communications.

Revenue is recognized when control of products or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those products or providing those services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. The Company determines the appropriate revenue recognition for contracts with customers by analyzing the type, terms and conditions of each contract or arrangement with a customer.

Disaggregation of Revenue

The Company has a comprehensive offering of products, including technologies, built to customers’ specifications that are sold in niche markets throughout the world. The Company disaggregates its revenue from contracts with customers by reporting unit and geographical region for each segment as the Company believes it best depicts how the amount, nature, timing and uncertainty of its revenue and cash flows are affected by economic factors. Revenue was attributed to geographical region based on the location of the customer. The following tables present the Company’s revenue disaggregated by reporting unit and geographical region.
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

Revenue by reporting unit for the three months ended March 31, 2021 and 2020 was as follows:

Three Months Ended March 31,
20212020
Energy$45,362 $38,514 
Valves28,061 26,207 
Water61,616 58,336 
Pumps82,351 81,830 
Agriculture25,975 21,974 
Intersegment elimination(299)(149)
Fluid & Metering Technologies243,066 226,712 
Scientific Fluidics & Optics114,357 106,142 
Sealing Solutions65,571 55,330 
Gast32,872 27,346 
Micropump7,636 7,715 
Material Processing Technologies29,933 27,526 
Intersegment elimination(862)(603)
Health & Science Technologies249,507 223,456 
Fire & Safety96,810 94,068 
BAND-IT25,813 25,233 
Dispensing36,861 25,023 
Intersegment elimination(21)(30)
Fire & Safety/Diversified Products159,463 144,294 
Total net sales$652,036 $594,462 

Revenue by geographical region for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended March 31, 2021
FMTHSTFSDPIDEX
U.S.$130,961 $93,717 $75,502 $300,180 
North America, excluding U.S.14,829 7,072 7,220 29,121 
Europe 48,645 76,765 42,568 167,978 
Asia33,738 67,719 26,862 128,319 
Other (1)
15,192 5,096 7,332 27,620 
Intersegment elimination(299)(862)(21)(1,182)
Total net sales$243,066 $249,507 $159,463 $652,036 


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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Three Months Ended March 31, 2020
FMTHSTFSDPIDEX
U.S.$127,778 $95,996 $74,931 $298,705 
North America, excluding U.S.13,676 5,968 6,269 25,913 
Europe 44,665 67,087 40,070 151,822 
Asia26,785 51,339 16,579 94,703 
Other (1)
13,957 3,669 6,475 24,101 
Intersegment elimination(149)(603)(30)(782)
Total net sales$226,712 $223,456 $144,294 $594,462 

(1) Other includes: South America, Middle East, Australia and Africa.

Contract Balances

The timing of revenue recognition, billings and cash collections can result in customer receivables, advance payments or billings in excess of revenue recognized. Customer receivables include both amounts billed and currently due from customers as well as unbilled amounts (contract assets) and are included in Receivables on the Company’s Condensed Consolidated Balance Sheets. Amounts are billed in accordance with contractual terms or as work progresses. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when contract provisions require specific milestones to be met before a customer can be billed. Unbilled amounts primarily relate to performance obligations satisfied over time when the cost-to-cost method (defined below) is utilized and the revenue recognized exceeds the amount billed to the customer as there is not yet a right to invoice in accordance with contractual terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. Customer receivables are recorded at face amount less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for expected losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of customer receivables that may not be collected in the future and records the appropriate provision.

The composition of Customer receivables was as follows:
March 31, 2021December 31, 2020
Billed receivables$326,307 $273,536 
Unbilled receivables13,616 14,752 
Total customer receivables$339,923 $288,288 

Advance payments, deposits and billings in excess of revenue recognized are included in Deferred revenue which is classified as current or noncurrent based on the timing of when the Company expects to recognize the revenue. The current portion is included in Accrued expenses and the noncurrent portion is included in Other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. Advance payments and deposits represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements, including those with performance obligations satisfied over time. The Company generally receives advance payments from customers related to maintenance services which the Company recognizes ratably over the service term. The Company also receives deposits from customers on certain orders which the Company recognizes as revenue at a point in time. Billings in excess of revenue recognized represent contract liabilities and primarily relate to performance obligations satisfied over time when the cost-to-cost method (defined below) is utilized and revenue cannot yet be recognized as the Company has not completed the corresponding performance obligation. Contract liabilities are derecognized when revenue is recognized and the performance obligation is satisfied.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

The composition of Deferred revenue was as follows:
March 31, 2021December 31, 2020
Deferred revenue - current$33,286 $28,374 
Deferred revenue - noncurrent36,531 30,354 
Total deferred revenue$69,817 $58,728 

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts that require complex design, manufacturing and installation activities, certain performance obligations may not be separately identifiable from other performance obligations in the contract and, therefore, not distinct. As a result, the entire contract is accounted for as a single performance obligation. For contracts that include distinct products or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct products or services. Certain contracts have multiple performance obligations for which the Company allocates the transaction price to each performance obligation using an estimate of the standalone selling price of each distinct product or service in the contract. For product sales, each product sold to a customer generally represents a distinct performance obligation. In such cases, the observable standalone sales are used to determine the standalone selling price. In certain cases, the Company may be required to estimate standalone selling price using the expected cost plus margin approach, under which it forecasts the expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct product or service.

The Company’s performance obligations are satisfied at a point in time or over time as work progresses. Performance obligations are supported by contracts with customers that provide a framework for the nature of the distinct product or service or bundle of products and services. The Company defines service revenue as revenue from activities that are not associated with the design, development or manufacture of a product or the delivery of a software license.

Revenue from products and services transferred to customers at a point in time approximated 96% of total revenues in both the three months ended March 31, 2021 and 2020. Revenue on these contracts is recognized when obligations under the terms of the contract with the customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.

Revenue from products and services transferred to customers over time approximated 4% of total revenues in both the three months ended March 31, 2021 and 2020. Revenue earned by certain business units within the Water, Energy, Material Processing Technologies (“MPT”) and Dispensing reporting units is recognized over time because control transfers continuously to customers. When accounting for over-time contracts, the Company uses an input measure to determine the extent of progress towards completion of the performance obligation. For certain business units within the Water, Energy and MPT reporting units, revenue is recognized over time as work is performed based on the relationship between actual costs incurred to date for each contract and the total estimated costs for such contract at completion of the performance obligation (i.e. the cost-to-cost method). The Company believes this measure of progress best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Incurred cost represents work performed, which corresponds with the transfer of control to the customer. Contract costs include labor, material and overhead. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. For certain business units within the Energy and Dispensing reporting units, revenue is recognized ratably over the contract term.

As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company reviews and updates its estimates regularly. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised. Such revisions to costs and income are recognized in the period in which the revisions are determined as a cumulative
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
catch-up adjustment. The impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes provisions for estimated losses on incomplete contracts in the period in which such losses are determined.

The Company records allowances for discounts and product returns at the time of sale as a reduction of revenue as such allowances can be reliably estimated based on historical experience and known trends. The Company also offers product warranties (primarily assurance-type) and accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, warranty costs incurred and any other related information known to the Company.

6.    Earnings Per Common Share

Earnings per common share (“EPS”) is 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, concludes 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, EPS was computed using the two-class method prescribed by ASC 260.

Basic weighted average shares outstanding reconciles to diluted weighted average shares outstanding as follows:
 Three Months Ended March 31,
 20212020
Basic weighted average common shares outstanding75,892 75,740 
Dilutive effect of stock options, restricted stock and performance share units449 712 
Diluted weighted average common shares outstanding76,341 76,452 

Options to purchase approximately 0.3 million and 0.6 million shares of common stock for the three months ended March 31, 2021 and 2020, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would have been antidilutive.

7.    Inventories

The components of inventories as of March 31, 2021 and December 31, 2020 were:
March 31,
2021
December 31,
2020
Raw materials and component parts$180,230 $173,248 
Work in process35,746 29,436 
Finished goods88,660 87,226 
Total inventories$304,636 $289,910 

Inventories are stated at the lower of cost or net realizable value. Cost, which includes material, labor and factory overhead, is determined on a first in, first out basis.

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
8.    Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2021, by reportable business segment, were as follows:
FMTHSTFSDPIDEX
Goodwill$670,442 $1,012,448 $413,315 $2,096,205 
   Accumulated goodwill impairment losses(20,721)(149,820)(30,090)(200,631)
Balance at December 31, 2020649,721 862,628 383,225 1,895,574 
Foreign currency translation(5,737)(13,461)(6,157)(25,355)
Acquisitions58,980 — — 58,980 
Disposition of businesses— (129)— (129)
Acquisition adjustments(405)— — (405)
Balance at March 31, 2021$702,559 $849,038 $377,068 $1,928,665 

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 three months of 2021, there were no events or circumstances that would have required an interim impairment test. Annually, on October 31, goodwill and other acquired intangible assets with indefinite lives are tested for impairment. Based on the results of the Company’s annual impairment test at October 31, 2020, all reporting units had fair values in excess of their carrying values.

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at March 31, 2021 and December 31, 2020:
 At March 31, 2021 At December 31, 2020
 Gross
Carrying
Amount
Accumulated
Amortization
NetWeighted
Average
Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amortized intangible assets:
Patents$3,106 $(1,811)$1,295 10$3,030 $(1,740)$1,290 
Trade names138,089 (74,118)63,971 16130,793 (72,685)58,108 
Customer relationships337,646 (122,043)215,603 13318,350 (120,294)198,056 
Unpatented technology122,561 (52,725)69,836 13122,287 (55,131)67,156 
Other700 (665)35 10700 (647)53 
Total amortized intangible assets602,102 (251,362)350,740 575,160 (250,497)324,663 
Indefinite-lived intangible assets:
Banjo trade name62,100 — 62,100 62,100 — 62,100 
Akron Brass trade name28,800 — 28,800 28,800 — 28,800 
Total intangible assets$693,002 $(251,362)$441,640 $666,060 $(250,497)$415,563 

The Banjo trade name and the Akron Brass trade name are indefinite-lived intangible assets which are tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the assets might be impaired. Based on the results of the Company’s annual impairment test at October 31, 2020, these indefinite-lived intangible assets had fair values in excess of their carrying values. In the first three months of 2021, there were no events or circumstances that would have required an interim impairment test on these indefinite-lived intangible assets. The Company uses the relief-from-royalty method, a form of the income approach, to determine the fair value of these trade names. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues, royalty rates and discount rates.

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Amortization of intangible assets was $11.0 million and $9.5 million for the three months ended March 31, 2021 and 2020, respectively. Based on the intangible asset balances as of March 31, 2021, amortization expense is expected to approximate $33.2 million for the remaining nine months of 2021, $43.5 million in 2022, $40.2 million in 2023, $38.3 million in 2024 and $36.6 million in 2025.

9.    Accrued Expenses

The components of accrued expenses as of March 31, 2021 and December 31, 2020 were:
March 31,
2021
December 31,
2020
Payroll and related items$68,277 $75,238 
Management incentive compensation6,489 15,763 
Income taxes payable17,365 13,453 
Insurance11,690 11,115 
Warranty7,610 7,394 
Deferred revenue33,286 28,374 
Lease liability16,468 16,721 
Restructuring2,860 3,868 
Liability for uncertain tax positions652 — 
Accrued interest12,660 3,592 
Other28,731 33,310 
Total accrued expenses$206,088 $208,828 

10.    Other Noncurrent Liabilities

The components of other noncurrent liabilities as of March 31, 2021 and December 31, 2020 were:
March 31,
2021
December 31,
2020
Pension and retiree medical obligations$84,831 $99,417 
Transition tax payable14,208 14,208 
Liability for uncertain tax positions1,429 1,071 
Deferred revenue36,531 30,354 
Lease liability92,083 94,250 
Other26,288 27,497 
Total other noncurrent liabilities$255,370 $266,797 

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
11.    Borrowings

Borrowings at March 31, 2021 and December 31, 2020 consisted of the following: 
March 31,
2021
December 31,
2020
4.20% Senior Notes, due December 2021
350,000 350,000 
3.20% Senior Notes, due June 2023
100,000 100,000 
3.37% Senior Notes, due June 2025
100,000 100,000 
3.00% Senior Notes, due May 2030
500,000 500,000 
Other borrowings159 215 
Total borrowings1,050,159 1,050,215 
Less current portion46 88 
Less deferred debt issuance costs4,621 4,824 
Less unaccreted debt discount903 949 
Total long-term borrowings$1,044,589 $1,044,354 

On April 29, 2020, the Company completed a public offering of $500.0 million in aggregate principal amount of 3.0% Senior Notes due 2030 (the “3.0% Senior Notes”). The net proceeds from the offering were approximately $494.4 million, after deducting the issuance discount of $0.9 million, the underwriting commission of $3.3 million and offering expenses of $1.4 million. The net proceeds were used to redeem and repay the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes due December 15, 2020 and the related accrued interest and a make-whole redemption premium, with the balance used for general corporate purposes. The 3.0% Senior Notes bear interest at a rate of 3.0% per annum, which is payable semi-annually in arrears on May 1 and November 1 of each year. The 3.0% Senior Notes mature on May 1, 2030.

The Company may redeem all or a portion of the 3.0% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture (“Indenture”) governing the 3.0% Senior Notes. The Indenture and 3.0% Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of the Company’s assets. The terms of the 3.0% Senior Notes also require the Company to make an offer to repurchase the 3.0% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any. The Indenture also provides for customary events of default, which include nonpayment, breach of covenants in the Indenture and certain events of bankruptcy and insolvency. Generally, if an event of default occurs, the Trustee or holders of at least 25% of the then outstanding 3.0% Senior Notes may declare the principal amount of all of the 3.0% Senior Notes to be due and payable immediately.

On April 27, 2020, the Company provided notice of its election to redeem early, on May 27, 2020, the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes at a redemption price of $300.0 million plus a make-whole redemption premium of $6.8 million and accrued and unpaid interest of $6.1 million using proceeds from the Company’s 3.0% Senior Notes. In addition, the Company recognized the remaining $1.4 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity related to the interest rate exchange agreement associated with the 4.5% Senior Notes and wrote off the remaining $0.1 million of deferred issuance costs and $0.1 million of the debt issuance discount associated with the 4.5% Senior Notes for a total loss on early debt redemption of $8.4 million which was recorded within Other (income) expense - net in the Condensed Consolidated Statements of Operations during the three months ended June 30, 2020.

On May 31, 2019, 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 prior five-year, $700 million credit agreement, dated as of June 23, 2015, which was due to expire in June 2020.

The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $800 million with a final maturity date of May 31, 2024. 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.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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 from 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 $400 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 under the Credit Agreement.

Borrowings under the Credit Agreement bear interest, at either an alternate base rate or adjusted LIBOR plus, in each case, an applicable margin. Such applicable margin is based on the lower of the Company’s senior, unsecured, long-term debt rating or the Company’s applicable leverage ratio and can range from 0.00% to 1.275%. Based on the Company’s leverage ratio at March 31, 2021, the applicable margin was 1.00% resulting in a weighted average interest rate of 1.19% for the three months ended March 31, 2021. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR loans, on the last day of the applicable interest period selected, or every three months from the effective date of such interest period for interest periods exceeding three months.

The Credit Agreement requires payment to the lenders of a facility fee based upon the amount of the lenders’ commitments under the credit facility from time to time, determined based on the lower of the Company’s senior, unsecured long-term debt rating or the Company’s applicable leverage ratio. Voluntary prepayments of any loans and voluntary reductions of the unutilized portion of the commitments under the Credit Agreement are permissible without penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.

The Credit Agreement contains customary affirmative and negative covenants for senior unsecured credit agreements. There are two key financial covenants that the Company is required to maintain in connection with the Credit Agreement 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 earnings before interest, income taxes, depreciation and amortization (“EBITDA”), both of which are tested quarterly and in the case of the leverage ratio under the Revolving Facility, there is an option to increase the ratio to 4.00 for 12 months in connection with certain acquisitions. At March 31, 2021, the Company was in compliance with each financial covenant under Credit Agreement and the Notes. There are no financial covenants relating to the 3.0% Senior Notes or 4.2% Senior Notes; however, both are subject to cross-default provisions. The negative covenants include restrictions on the Company’s 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), make certain subsidiary dividends or distributions, engage in materially different lines of businesses and allow subsidiaries to incur certain additional debt.

The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate).

At March 31, 2021, there was no balance outstanding under the Revolving Facility and $7.1 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility at March 31, 2021 of approximately $792.9 million.

On June 13, 2016, the Company completed a private placement of a $100 million aggregate principal amount of 3.20% Senior Notes due June 13, 2023 and a $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 13th and December 13th. 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 the 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 the 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
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
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 a payment event of default, any holder of the Notes affected thereby may declare all of the Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of the Notes may declare all of the Notes to be due and payable immediately.

On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15, 2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting a $0.9 million issuance discount, a $2.3 million underwriting commission and $0.6 million of offering expenses, were used to repay $306.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of the Company’s assets. The terms of the 4.2% Senior Notes also require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.

As of March 31, 2020, the $350.0 million 4.2% Senior Notes are due in December 2021 but have not been classified as short-term borrowings on the Condensed Consolidated Balance Sheets as the Company has the ability and intent to either refinance or repay the Notes using the available borrowing capacity of the Revolving Facility. As a result, the 4.2% Senior Notes remain classified as long-term borrowings in the Condensed Consolidated Balance Sheets as of March 31, 2021.

12.    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 types of cash flow hedges the Company enters into include foreign currency exchange contracts designed to minimize the earnings impact on certain intercompany loans as well as interest rate exchange agreements designed to reduce the impact of interest rate changes on future interest expense that effectively convert a portion of floating-rate debt to fixed-rate debt.

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. 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 in net income during the period of change. See Note 16 for the amount of loss reclassified into net income for interest rate contracts for the three months ended March 31, 2021 and 2020. As of March 31, 2021, the Company did not have any interest rate contracts outstanding.

In 2010 and 2011, the Company entered into two separate forward starting interest rate exchange agreements 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 terms of the respective debt instruments. Approximately $2.4 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity at March 31, 2021 related to the 4.2% Senior Notes will be recognized in net income over the remaining nine months as the underlying hedged transaction is realized. In conjunction with the early redemption of the 4.5% Senior Notes on May 27, 2020, the Company accelerated the recognition of the remaining $1.4 million of the pre-tax amount included in Accumulated other comprehensive income (loss) in shareholders’ equity related to the 4.5% Senior Notes and recorded such as Other (income) expense - net during the three months ended June 30, 2020 in the Condensed Consolidated Statements of Operations.



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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
13.    Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table summarizes the basis used to measure the Company’s financial assets (liabilities) at fair value on a recurring basis in the balance sheets at March 31, 2021 and December 31, 2020:
 Basis of Fair Value Measurements
 Balance at March 31, 2021Level 1Level 2Level 3
Available for sale securities$13,486 $13,486 $— $— 
 Basis of Fair Value Measurements
 Balance at December 31, 2020Level 1Level 2Level 3
Available for sale securities$13,554 $13,554 $— $— 

There were no transfers of assets or liabilities between Level 1 and Level 2 during the three months ended March 31, 2021 or the year ended December 31, 2020.

The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short term nature of these instruments. At March 31, 2021, the fair value of the outstanding indebtedness under the Company’s 3.0% Senior Notes, 3.2% Senior Notes, 3.37% Senior Notes, 4.2% Senior Notes and other borrowings based on quoted market prices and current market rates for debt with similar credit risk and maturity was approximately $1,087.8 million compared to the carrying value of $1,049.3 million. At December 31, 2020, the fair value of the outstanding indebtedness under the Company’s 3.0% Senior Notes, 3.2% Senior Notes, 3.37% Senior Notes, 4.2% Senior Notes and other borrowings based on quoted market prices and current market rates for debt with similar credit risk and maturity was approximately $1,127.6 million compared to the carrying value of $1,049.3 million. These fair value measurements are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to the Company’s rating.

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
14.    Leases

    The Company leases certain office facilities, warehouses, manufacturing plants, equipment (which includes both office and plant equipment) and vehicles under operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Certain leases include one or more options to renew. The exercise of lease renewal options is at the Company’s sole discretion. The Company does not include renewal periods in any of the leases’ terms until the renewal is executed as they are generally not reasonably certain of being exercised. The Company does not have any material purchase options.

Certain of the Company’s lease agreements have rental payments that are adjusted periodically for inflation or that are based on usage. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information related to leases as of March 31, 2021 and December 31, 2020 was as follows:
Balance Sheet CaptionMarch 31, 2021December 31, 2020
Operating leases:
Building right-of-use assets - netOther noncurrent assets$99,027 $100,775 
Equipment right-of-use assets - netOther noncurrent assets5,463 5,811 
Total right-of-use assets - net$104,490 $106,586 
Operating leases:
Current lease liabilitiesAccrued expenses$16,468 $16,721 
Noncurrent lease liabilitiesOther noncurrent liabilities92,083 94,250 
Total lease liabilities$108,551 $110,971 

The components of lease cost for the three months ended March 31, 2021 and 2020 were as follows:
Three Months Ended March 31,
20212020
Operating lease cost (1)
$7,435 $6,328 
Variable lease cost579 641 
Total lease expense$8,014 $6,969 

(1) Includes short-term leases, which are immaterial.

Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended March 31,
20212020
Cash paid for amounts included in the measurement of operating lease liabilities$6,410 $6,038 
Right-of-use assets obtained in exchange for new operating lease liabilities3,457 17,024 
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

Other supplemental information related to leases as of March 31, 2021 and December 31, 2020 was as follows:
Lease Term and Discount RateMarch 31, 2021December 31, 2020
Weighted-average remaining lease term (years):
Operating leases - building and equipment9.249.43
Operating leases - vehicles2.152.01
Weighted-average discount rate:
Operating leases - building and equipment3.45 %3.51 %
Operating leases - vehicles2.10 %2.05 %

The Company uses its incremental borrowing rate to determine the present value of the lease payments.

Total lease liabilities at March 31, 2021 have scheduled maturities as follows:
Maturity of Lease LiabilitiesOperating Leases
2021 (excluding the three months ended March 31, 2021)
$14,706 
202217,572 
202314,717 
202411,847 
202511,041 
Thereafter57,464 
Total lease payments127,347 
Less: Imputed interest(18,796)
Present value of lease liabilities$108,551 

Total lease liabilities at December 31, 2020 had scheduled maturities as follows:
Maturity of Lease LiabilitiesOperating Leases
2021$19,717 
202217,014 
202313,662 
202411,681 
202511,141 
Thereafter57,570 
Total lease payments130,785 
Less: Imputed interest(19,814)
Present value of lease liabilities$110,971 


15.    Restructuring Expenses and Asset Impairments
During the three months ended March 31, 2021, the Company incurred restructuring costs to facilitate long-term, sustainable growth through cost reduction actions, consisting of employee reductions, facility rationalization and asset impairments. Restructuring costs include severance benefits, exit costs and asset impairments and are included in Restructuring expenses and asset impairments in the Condensed Consolidated Statements of Operations. Severance costs primarily consist of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consist of lease exit and contract termination costs.

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
In the first quarter of 2021, the Company consolidated certain facilities within the FMT segment, which resulted in an impairment charge of $0.1 million related to property, plant and equipment that was not relocated to the new location

Pre-tax restructuring expenses and asset impairments by segment for the three months ended March 31, 2021 were as follows:
Three Months Ended March 31, 2021
Severance CostsExit CostsAsset ImpairmentTotal
Fluid & Metering Technologies$807 $— $136 $943 
Health & Science Technologies625 — — 625 
Fire & Safety/Diversified Products97 — — 97 
Corporate/Other563 — — 563 
Total restructuring costs$2,092 $— $136 $2,228 

Restructuring accruals of $2.9 million and $3.9 million at March 31, 2021 and December 31, 2020, respectively, are reflected in Accrued expenses in the Company’s Condensed 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 three months ended March 31, 2021 are as follows:
Restructuring
Balance at January 1, 2021$3,868 
Restructuring expenses2,228 
Payments, utilization and other(3,236)
Balance at March 31, 2021$2,860 


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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
16.    Other Comprehensive Income (Loss)

The components of Other comprehensive income (loss) are as follows:
 Three Months Ended March 31, 2021Three Months Ended March 31, 2020
 Pre-taxTaxNet of taxPre-taxTaxNet of tax
Cumulative translation adjustment$(48,439)$— $(48,439)$(26,456)$— $(26,456)
Pension and other postretirement adjustments1,054 (309)745 2,874 (578)2,296 
Reclassification adjustments for derivatives859 (195)664 1,545 (351)1,194 
Total other comprehensive income (loss)$(46,526)$(504)$(47,030)$(22,037)$(929)$(22,966)

The amounts reclassified from Accumulated other comprehensive income (loss) to net income during the three months ended March 31, 2021 and 2020 are as follows:
 Three Months Ended March 31,
 20212020Income Statement Caption
Pension and other postretirement plans:
Amortization of net (gain) loss$1,054 $2,874 Other (income) expense - net
Total before tax1,054 2,874 
Provision for income taxes(309)(578)
Total net of tax$745 $2,296 
Derivatives:
Reclassification adjustments$859 $1,545 Interest expense
Total before tax859 1,545 
Provision for income taxes(195)(351)
Total net of tax$664 $1,194 

17.    Common and Preferred Stock

On March 17, 2020, the Company’s Board of Directors approved an increase of $500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorization of the Board of Directors of $300.0 million on December 1, 2015. These authorizations have no expiration date. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. There were no share repurchases during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company repurchased a total of 867 thousand shares at a cost of $108.9 million. As of March 31, 2021, the amount of share repurchase authorizations remaining was $712.0 million.

At March 31, 2021 and December 31, 2020, the Company had 150 million shares of authorized common stock, with a par value of $.01 per share, and five million shares of authorized preferred stock, with a par value of $.01 per share. No preferred stock was outstanding at March 31, 2021 or December 31, 2020.

18.    Share-Based Compensation

The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Board of Directors based on the recommendation from the Compensation Committee.
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)

Stock Options

Stock options generally vest ratably over four years. 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 March 31,
 20212020
Weighted average fair value of grants$38.59$34.34
Dividend yield1.01%1.15%
Volatility23.73%22.01%
Risk-free interest rate
0.09% - 1.57%
1.43% - 1.68%
Expected life (in years)5.745.80

Total compensation cost for stock options is as follows:
 Three Months Ended March 31,
 20212020
Cost of goods sold$227 $185 
Selling, general and administrative expenses2,694 3,145 
Total expense before income taxes2,921 3,330 
Income tax benefit(273)(367)
Total expense after income taxes$2,648 $2,963 

A summary of the Company’s stock option activity as of March 31, 2021 and changes during the three months ended March 31, 2021 are presented in the following table:
Stock OptionsSharesWeighted
Average
Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2021963,726 $125.70 6.94$70,829,529 
Granted266,985 197.12 
Exercised(34,500)93.65 
Forfeited(10,191)160.30 
Outstanding at March 31, 20211,186,020 $142.42 7.47$79,349,107 
Vested and expected to vest as of March 31, 20211,117,282 $140.14 7.36$77,293,221 
Exercisable at March 31, 2021589,346 $107.82 5.86$59,819,281 

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 March 31, 2021 and changes during the three months ended March 31, 2021 are presented as follows:
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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
Restricted StockSharesWeighted-Average
Grant Date Fair
Value
Unvested at January 1, 2021111,300 $147.13 
Granted22,535 197.05 
Vested(18,909)132.53 
Forfeited(2,610)158.07 
Unvested at March 31, 2021112,316 $159.73 

Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the grant.

Total compensation cost for restricted stock awards is as follows:
 Three Months Ended March 31,
 20212020
Cost of goods sold$167 $109 
Selling, general and administrative expenses1,446 982 
Total expense before income taxes1,613 1,091 
Income tax benefit(336)(229)
Total expense after income taxes$1,277 $862 

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. Cash-settled restricted stock awards are recorded at fair value on a quarterly basis using the market price of the Company’s stock on the last day of the quarter. A summary of the Company’s unvested cash-settled restricted stock activity as of March 31, 2021 and changes during the three months ended March 31, 2021 are presented in the following table:
Cash-Settled Restricted StockSharesWeighted-Average
Fair Value
Unvested at January 1, 202163,940 $199.20 
Granted19,480 197.10 
Vested(19,806)196.77 
Forfeited(395)209.32 
Unvested at March 31, 202163,219 $209.32 

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 March 31,
 20212020
Cost of goods sold$210 $71 
Selling, general and administrative expenses1,270 189 
Total expense before income taxes1,480 260 
Income tax benefit(113)(16)
Total expense after income taxes$1,367 $244 
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IDEX CORPORATION
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 Months Ended March 31,
20212020
Weighted average fair value of grants$247.49$224.14
Dividend yield—%—%
Volatility28.6%19.5%
Risk-free interest rate0.33%1.30%
Expected life (in years)2.932.94

A summary of the Company’s performance share unit activity as of March 31, 2021 and changes during the three months ended March 31, 2021 are presented in the following table:
Performance Share UnitsSharesWeighted-Average
Grant Date Fair
Value
Unvested at January 1, 202158,695 $218.16 
Granted29,020 247.49 
Vested— — 
Forfeited(1,590)212.77 
Unvested at March 31, 202186,125 $227.13 

On December 31, 2020, 24,305 performance share units vested. Based on the Company’s relative total shareholder return rank during the three year period ended December 31, 2020, the Company achieved a 201% payout factor and issued 48,867 common shares in February 2021 for awards that vested in 2020.

Total compensation cost for performance share units is as follows:
 Three Months Ended March 31,
20212020
Cost of goods sold$— $— 
Selling, general and administrative expenses1,738 2,049 
Total expense before income taxes1,738 2,049 
Income tax benefit(33)(49)
Total expense after income taxes$1,705 $2,000 

The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of stock compensation cost within the Condensed Consolidated Statements of Operations is consistent with classification of cash compensation for the same employees.

As of March 31, 2021, there was $14.7 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, $7.5 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, $5.6 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.2 years and $8.4 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.

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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
19.    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 March 31,
 20212020
 U.S.Non-U.S.U.S.Non-U.S.
Service cost$38 $508 $34 $540 
Interest cost64 183 461 263 
Expected return on plan assets(216)(253)(899)(291)
Settlement loss recognized48 — 302 — 
Net amortization89 548 442 426 
Net periodic (benefit) cost$23 $986 $340 $938 
 Other Postretirement Benefits
 Three Months Ended March 31,
 20212020
Service cost$178 $155 
Interest cost102 156 
Net amortization(169)(136)
Net periodic (benefit) cost$111 $175 

The Company expects to contribute approximately $3.4 million to its defined benefit plans and $1.0 million to its other postretirement benefit plans in 2021. During the first three months of 2021, the Company contributed a total of $1.1 million to fund these plans.

Effective September 30, 2019, the IDEX Corporation Retirement Plan (“Plan”), a U.S. defined benefit plan, was amended to freeze the accrual of retirement benefits for all participants. This action impacted fewer than 60 participants, as the Plan had been closed to new entrants as of December 31, 2004 and frozen as of December 31, 2005 for all but certain older, longer service participants. Subsequent to the freeze, termination of the Plan was approved in November 2019. Participants were notified in February 2020 and the Plan was terminated in May 2020. As a result of the termination, settlements were triggered in the first quarters of 2021 and 2020, resulting in the Company recording a charge of $48 thousand and $0.3 million to Other (income) expense - net in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the Plan’s funded status is 113%, with assets valued at $88.1 million and liabilities of $77.8 million.

20.    Legal Proceedings

The Company and certain of its subsidiaries are involved in pending and threatened legal, regulatory and other proceedings arising in the ordinary course of business. These proceedings may pertain to matters such as product liability or contract disputes, and may also involve governmental inquiries, inspections, audits or investigations relating to issues such as tax matters, intellectual property, environmental, health and safety issues, governmental regulations, employment and other matters. Although the results of such legal proceedings cannot be predicted with certainty, the Company believes that the ultimate disposition of these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s business, financial condition, results of operations or cash flows.


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IDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data and where otherwise indicated)
(unaudited)
21.    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 $32.9 million for the three months ended March 31, 2021 from $25.5 million during the same period in 2020. The effective tax rate increased to 22.6% for the three months ended March 31, 2021 compared to 20.0% during the same period in 2020 primarily due to a decrease in the excess tax benefits related to share-based compensation.

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 $0.7 million.


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22.    Subsequent Events

On April 27, 2021, the Company entered into a definitive agreement to acquire Airtech Group, Inc., US Valve Corporation and related entities (“Airtech”) from investment funds managed by EagleTree Capital for cash consideration of $470.0 million, subject to customary post-closing adjustments. Based in Rutherford, New Jersey, Airtech engineers and manufactures high performance regenerative blowers, pneumatic valves, air compressors and vacuum pumps. Airtech will be part of the Company’s GAST reporting unit within the Health & Science Technologies segment. The Company expects to close the transaction by the end of the second quarter of 2021.




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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Under the Private Securities Litigation Reform Act

This quarterly report on Form 10-Q, including the “Overview,” “Liquidity and Capital Resources” and “Results of Operations” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, the Company’s expected organic sales growth, the anticipated benefits of the Company’s acquisition of ABEL Pumps, L.P. and certain of its affiliates (“ABEL”), and the anticipated continuing effects of the COVID-19 pandemic, including with respect to the Company’s sales, improvements in the Company’s end markets, facility closures, supply chains and access to capital, capital expenditures, acquisitions, cost reductions, cash flow, revenues, earnings, liquidity, capital resources, market conditions, global economies and operating improvements, and are indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “guidance,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the Company believes,” “the Company intends” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this report. The risks and uncertainties include, but are not limited to, the following: the duration of the COVID-19 pandemic and the continuing effects of the COVID-19 pandemic on the Company’s ability to operate its business and facilities, on the Company’s customers, on supply chains and on the U.S. and global economy generally; economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the world; pricing pressures and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company’s results, particularly in light of the low levels of order backlogs it typically maintains; the Company’s ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the Company operates; developments with respect to trade policy and tariffs; interest rates; capacity utilization and the effect this has on costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports filed with the Securities and Exchange Commission (“SEC”) and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this report, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

Overview

IDEX Corporation (“IDEX” or the “Company”) is an applied solutions company specializing in the manufacture of fluid and metering technologies, health and science technologies and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets across a wide range of industries throughout the world. Accordingly, IDEX’s businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where it does business and by the relationship of the U.S. Dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are important factors that influence the demand for IDEX’s products.

The Company has three reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products. Within its three reportable segments, the Company maintains 13 reporting units that focus on organic growth and strategic acquisitions. Each of the 13 reporting units is tested annually for goodwill impairment.

The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, small volume provers, flow meters, injectors and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water and wastewater, agriculture and energy industries. The Fluid & Metering Technologies segment contains the Energy reporting unit (comprised of Corken, Liquid Controls, SAMPI, Toptech and Flow MD), the Valves reporting unit (comprised of Alfa Valvole, Richter and Aegis), the Water reporting unit (comprised of Pulsafeeder, OBL, Knight, ADS, Trebor and iPEK), the Pumps reporting unit (comprised of Viking, Warren Rupp and ABEL) and the Agriculture reporting unit (comprised of Banjo).

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
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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, custom mechanical and shaft seals for a variety of end markets including food and beverage, marine, chemical, wastewater and water treatment, engineered hygienic mixers and valves for the global biopharmaceutical industry, 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 Health & Science Technologies segment contains the Scientific Fluidics & Optics reporting unit (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch Scientific, ERC, thinXXS, CVI Melles Griot, Semrock, Advanced Thin Films and FLI), the Sealing Solutions reporting unit (comprised of Precision Polymer Engineering, FTL Seals Technology, Novotema, SFC Koenig and Velcora), the Gast reporting unit, the Micropump reporting unit and the Material Processing Technologies reporting unit (comprised of Quadro, Fitzpatrick, Microfluidics and Matcon).

On April 27, 2021, the Company entered into a definitive agreement to acquire Airtech Group, Inc., US Valve Corporation and related entities (“Airtech”) from investment funds managed by EagleTree Capital for cash consideration of $470.0 million, subject to customary post-closing adjustments. Based in Rutherford, New Jersey, Airtech engineers and manufactures high performance regenerative blowers, pneumatic valves, air compressors and vacuum pumps. Airtech will be part of the Company’s GAST reporting unit within the Health & Science Technologies segment. The Company expects to close the transaction by the end of the second quarter of 2021.

The Fire & Safety/Diversified Products segment designs, produces and develops firefighting pumps, valves and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world. The Fire & Safety/Diversified Products segment is comprised of the Fire & Safety reporting unit (comprised of Class 1, Hale, Akron Brass, Weldon, AWG Fittings, Godiva, Dinglee, Hurst Jaws of Life, Lukas and Vetter), the BAND-IT reporting unit and the Dispensing reporting unit.

Management’s primary measurements of segment performance are sales, operating income and operating margin. In addition, due to the highly acquisitive nature of the Company, the determination of operating income includes amortization of acquired intangible assets and as a result, management reviews depreciation and amortization as a percentage of sales. These measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management.

This report references organic sales, a non-GAAP measure, that refers to sales from continuing operations calculated according to accounting principles generally accepted in the United States of America (“U.S. GAAP”) but excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first 12 months of ownership or prior to divestiture. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping to identify underlying growth trends in the Company’s business and facilitating easier comparisons of its revenue performance with prior and future periods and to its peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers.

EBITDA, a non-GAAP measure, means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company, which results in a higher level of amortization expense from recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses’ performance across its three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within its industry. Management believes that EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 11 in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements” such as EBITDA interest coverage, which is EBITDA divided by consolidated interest expense. In addition, this report presents Adjusted EBITDA, which is EBITDA adjusted for items that are
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not reflective of ongoing operations, such as restructuring expenses and asset impairments and a fair value inventory step-up charge, and Adjusted EBITDA interest coverage, which is Adjusted EBITDA divided by consolidated interest expense. Management believes that Adjusted EBITDA is useful as a performance indicator of ongoing operations. The Company believes that Adjusted EBITDA is also useful to some investors as an indicator of the strength and performance of the Company and its segments’ ongoing business operations and a way to evaluate and compare operating performance and value companies within its industry. The definition of Adjusted EBITDA used here may differ from that used by other companies.

Organic sales have been reconciled to net sales and EBITDA has been reconciled to net income in Item 2 under the heading “Non-GAAP Disclosures.” The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that the Company does not allocate consolidated interest expense or the consolidated provision for income taxes to its segments.

Management uses Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted earnings per share (“EPS”) and Adjusted EBITDA as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as restructuring expenses and asset impairments and a fair value inventory step-up charge. Management also uses free cash flow as a measure of operating performance because it provides management a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing the Company’s common stock. Each of Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS, Adjusted EBITDA and free cash flow are non-GAAP measures and have been reconciled to their most directly comparable GAAP measures in Item 2 under the heading “Non-GAAP Disclosures.”

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

Some of the Company’s key financial results for the three months ended March 31, 2021 when compared to the same period in the prior year are as follows:

Sales of $652.0 million increased 10%; organic sales (which excludes acquisitions and foreign currency translation) were up 6%.
Operating income of $155.5 million increased 11%. Adjusted for $2.2 million of restructuring expenses and asset impairments and a $0.7 million fair value inventory step-up charge, adjusted operating income increased 13% to $158.4 million.
Net income of $112.7 million increased 10%. Adjusted for $1.7 million of restructuring expenses and asset impairments and the $0.4 million fair value inventory step-up charge, both net of related tax benefits, adjusted net income increased 13% to $114.8 million.
EBITDA of $177.9 million was 27% of sales and covered interest expense by almost 17 times. Adjusted EBITDA of $180.8 million was 28% of sales and covered interest expense by almost 17 times.
Diluted EPS of $1.48 increased 15 cents, or 11%. Adjusted EPS of $1.51 increased 18 cents, or 14%.

The Company continues to participate in the fight to end the COVID-19 pandemic. Safety remains the Company’s top priority and protocols have been implemented at all of its facilities, including temperature taking, social distancing, enhanced cleaning and face coverings. These measures have enabled successful business continuity, allowing the Company’s facilities to remain in operation with only temporary shutdowns. Although the Company has remained in operation throughout the pandemic and continued to meet the needs of its customers, the pandemic and the enacted containment measures did affect the Company’s business and results of operations. From the onset of the pandemic through the second quarter of 2020, the Company’s customers purchased less product than they have historically purchased; however, beginning in the third quarter of 2020 and continuing through the first quarter of 2021 the Company has seen improvement in its end markets and expects them to continue to normalize to historical levels throughout 2021. Additionally, IDEX has implemented cost reduction actions, including employee reductions and facility consolidations, and continues to maintain a tight cost control environment. The continuing impact of COVID-19 and the enacted containment measures cannot be predicted and may continue to adversely affect the Company’s business, results of operations, financial condition and liquidity.

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 $0.7 million.

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Results of Operations

The following is a discussion and analysis of the Company’s results of operations for the three months ended March 31, 2021 and 2020. Segment operating income and EBITDA exclude unallocated corporate operating expenses of $18.6 million and $17.5 million for the three months ended March 31, 2021 and 2020, respectively.

Consolidated Results for the Three Months Ended March 31, 2021 Compared with the Same Period in 2020
(In thousands)Three Months Ended March 31,
20212020
Net sales$652,036 $594,462 
Operating income155,547 139,941 
Operating margin23.9 %23.5 %

Sales in the first quarter of 2021 were $652.0 million, which was a 10% increase compared to the same period in 2020. This reflects a 6% increase in organic sales, a 1% increase from acquisitions (ABEL - March 2021 and Flow MD - February 2020) and a 3% favorable impact from foreign currency translation. Sales to customers outside the U.S. represented approximately 54% of total sales in the first quarter of 2021 compared to 50% during the same period in 2020.

Gross profit of $292.6 million in the first quarter of 2021 increased $20.7 million, or 8%, compared to the same period in 2020 and gross margin of 44.9% in the first quarter of 2021 decreased 80 basis points from 45.7% during the same period in 2020. Gross profit increased compared to the prior year period primarily as a result of higher volume and price. The decrease in gross margin was primarily due to increases to inventory reserves associated with COVID-19 new product development (“NPD”) opportunities not materializing, lower margins from the ABEL and Flow MD acquisitions and the fair value inventory step-up charge.

Selling, general and administrative expenses increased to $134.8 million in the first quarter of 2021 from $132.0 million during the same period in 2020, primarily due to the ABEL and Flow MD acquisitions and an unfavorable impact from foreign currency translation, partially offset by lower discretionary spending. Corporate costs increased to $18.0 million in the first quarter of 2021 compared to $17.5 million during the same period in 2020 primarily due to higher acquisition and variable compensation expenses. As a percentage of sales, selling, general and administrative expenses were 20.7% for the first quarter of 2021, down 150 basis points compared to 22.2% during the same period in 2020.

The Company incurred $2.2 million of restructuring expenses and asset impairments in the first quarter of 2021 primarily related to severance benefits for cost reduction actions consisting of employee reductions as well as asset impairments related to property, plant and equipment resulting from the consolidation of certain facilities.

Operating income of $155.5 million and operating margin of 23.9% in the first quarter of 2021 were up from the $139.9 million and 23.5%, respectively, recorded during the same period in 2020. The increases in operating income and operating margin are primarily due to higher volume, price and cost savings, partially offset by restructuring expenses and asset impairments and lower gross margin.

Other (income) expense - net was $0.8 million of income in the first quarter of 2021 compared to $1.6 million of expense during the same period in 2020, primarily due to higher gains on pension-related investments, higher foreign currency transaction gains and lower pension expense, partially offset by lower interest income.

Interest expense of $10.8 million in the first quarter of 2021 was slightly lower than the $10.9 million during the same period in 2020 due to borrowings under the Revolving Facility (defined below) in 2020 that did not reoccur in 2021.

The 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 $32.9 million in the first quarter of 2021 compared to $25.5 million during the same period in 2020. The effective tax rate increased to 22.6% in the first quarter of 2021 compared to 20.0% during the same period in 2020 primarily due to a decrease in the excess tax benefits related to share-based compensation.

Net income of $112.7 million in the first quarter of 2021 increased from $102.0 million during the same period in 2020. Diluted earnings per share of $1.48 in the first quarter of 2021 increased $0.15, or 11%, compared to the same period in 2020.

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For the three months ended March 31, 2021, Fluid & Metering Technologies contributed 37% of sales, 36% of operating income and 36% of EBITDA; Health & Science Technologies contributed 38% of sales, 38% of operating income and 39% of EBITDA; and Fire & Safety/Diversified Products contributed 25% of sales, 26% of operating income and 25% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA.

Fluid & Metering Technologies Segment
(In thousands)Three Months Ended March 31,
20212020
Net sales$243,365 $226,861 
Operating income62,897 66,771 
Operating margin25.8 %29.4 %

Sales of $243.4 million increased $16.5 million, or 7%, in the first quarter of 2021 compared to the same period in 2020. This reflects a 2% increase in organic sales, a 3% increase from acquisitions (ABEL - March 2021 and Flow MD - February 2020) and a 2% favorable impact from foreign currency translation. In the first quarter of 2021, sales increased 3% domestically and 13% internationally compared to the same period in 2020. Sales to customers outside the U.S. were approximately 46% of total segment sales in the first quarter of 2021 compared to 44% during the same period in 2020.

Sales within the Company’s Agriculture reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to increased demand across both the agricultural and industrial original equipment manufacturer (“OEM”) markets. Sales within the Company’s Energy reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to the acquisition of Flow MD and positive momentum within the downstream oil and gas markets. Sales within the Company’s Valves reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation. Sales within the Company’s Water reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to water saving project volume. Sales within the Company’s Pumps reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to the acquisition of ABEL and recovery within the industrial market.

Operating income of $62.9 million and operating margin of 25.8% in the first quarter of 2021 were lower than the $66.8 million and 29.4%, respectively, recorded during the same period in 2020, primarily due to increases to inventory reserves associated with COVID-19 NPD opportunities not materializing, lower margins from the ABEL and Flow MD acquisitions, restructuring expenses and asset impairments and the fair value inventory step-up charge, partially offset by higher volume and cost savings.

Health & Science Technologies Segment
(In thousands)Three Months Ended March 31,
20212020
Net sales$250,369 $224,059 
Operating income66,650 52,643 
Operating margin26.6 %23.5 %

Sales of $250.4 million increased $26.3 million, or 12%, in the first quarter of 2021 compared to the same period in 2020. This reflects a 9% increase in organic sales and a 3% favorable impact from foreign currency translation. In the first quarter of 2021, sales decreased 2% domestically and increased 22% internationally compared to the same period in 2020. Sales to customers outside the U.S. were approximately 63% of total segment sales in the first quarter of 2021 compared to 57% during the same period in 2020.

Sales within the Company’s Material Processing Technologies reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to continued demand in the food and pharmaceutical markets. Sales within the Company’s Sealing Solutions reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to strength in the semiconductor market and a rebound in the automotive market. Sales within the Company’s Gast reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to recovery in the industrial market and targeted growth initiatives. Sales within the Company’s Scientific Fluidics & Optics reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to recovery in analytical instrumentation and strength in several optics end markets. Sales within the Company’s Micropump reporting unit decreased in
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the first quarter of 2021 compared to the same period in 2020 primarily due to weakness in core printing and industrial distribution.
    
    Operating income of $66.7 million and operating margin of 26.6% in the first quarter of 2021 were higher than the $52.6 million and 23.5%, respectively, recorded during the same period in 2020, primarily due to higher volume and cost savings, partially offset by restructuring expenses and asset impairments.

Fire & Safety/Diversified Products Segment
(In thousands)Three Months Ended March 31,
20212020
Net sales$159,484 $144,324 
Operating income44,560 38,037 
Operating margin27.9 %26.4 %

Sales of $159.5 million increased $15.2 million, or 11%, in the first quarter of 2021 compared to the same period in 2020. This reflects a 7% increase in organic sales and a 4% favorable impact from foreign currency translation. In the first quarter of 2021, sales increased 1% domestically and 21% internationally compared to the same period in 2020. Sales to customers outside the U.S. were approximately 53% of total segment sales in the first quarter of 2021 compared to 48% during the same period in 2020.

Sales within the Company’s Dispensing reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to a strong recovery from COVID-19 in the paint market. Sales within the Company’s Fire & Safety reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation partly offset by COVID-19 driven municipal spending delays. Sales within the Company’s Band-It reporting unit increased in the first quarter of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation as well as a rebound in the automotive market.

Operating income of $44.6 million and operating margin of 27.9% in the first quarter of 2021 were higher than the $38.0 million and 26.4%, respectively, recorded during the same period in 2020, primarily due to higher volume and cost savings.

Liquidity and Capital Resources

Operating Activities

Cash flows from operating activities for the first quarter of 2021 increased $24.6 million, or 29%, to $109.3 million compared to the first quarter of 2020 primarily due to higher earnings and a favorable impact from the timing of accrued expenses. At March 31, 2021, working capital was $1,273.6 million and the Company’s current ratio was 4.4 to 1. At March 31, 2021, the Company’s cash and cash equivalents totaled $958.1 million, of which $471.3 million was held outside of the United States. The COVID-19 pandemic has impacted and may continue to impact the Company’s operating cash flows through direct and indirect effects on the Company’s operations, customers and supply chain. Although the Company has been able to operate through the COVID-19 pandemic with only temporary shutdowns, any future disruptions due to operational shutdowns may impact the Company’s ability to operate as well as generate operating cash flow. Based on currently available information and management’s current expectations, the Company anticipates that it has sufficient cash on hand and sufficient access to capital to continue to fund operations for at least the next twelve months. However, the continuing impact of COVID-19 and its associated containment measures cannot be predicted with certainty and may increase the Company’s incremental borrowing costs and other costs of capital and otherwise adversely affect the Company’s business, results of operations, financial condition and liquidity, and the Company cannot assure that it will have access to external financing at times and on terms the Company considers acceptable, or at all, or that the Company will not experience other liquidity issues going forward.

Investing Activities

Cash flows used in investing activities for the first quarter of 2021 decreased by $14.2 million to $119.5 million compared to the same period in 2020, primarily due to lower cash outflows for acquisitions, partially offset by higher capital expenditures.

Cash flows from operations were more than adequate to fund capital expenditures of $14.6 million and $12.8 million in the first quarters of 2021 and 2020, respectively. The Company believes it has sufficient operating cash flow to continue to meet current obligations and invest in planned capital expenditures. Capital expenditures are generally expenditures for machinery
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and equipment that support growth and improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. Management believes that the Company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term.

Financing Activities

Cash flows used in financing activities for the first quarter of 2021 were $40.4 million compared to $7.8 million during the same period in 2020, primarily due to borrowings under the Revolving Facility in 2020 that did not reoccur, partially offset by lower share repurchases and shares surrendered for tax purposes in 2021.

Liquidity

The Company believes current cash, cash from operations and cash available under the Revolving Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements and quarterly dividend payments to holders of the Company’s common stock for the foreseeable future. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings. As of March 31, 2021, there was no balance outstanding under the Revolving Facility and $7.1 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of $792.9 million. The Company believes that additional borrowings through various financing alternatives remain available, if required.

On April 29, 2020, the Company completed a public offering of $500.0 million in aggregate principal amount of its 3.0% Senior Notes due 2030 (the “3.0% Senior Notes”). The net proceeds from the offering were approximately $494.4 million, after deducting the issuance discount of $0.9 million, the underwriting commission of $3.3 million and offering expenses of $1.4 million. The net proceeds were used to redeem and repay the $300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes due December 15, 2020 and the related accrued interest and make-whole premium, with the balance used for general corporate purposes. The 3.0% Senior Notes bear interest at a rate of 3.0% per annum, which is payable semi-annually in arrears on May 1 and November 1 of each year. The 3.0% Senior Notes mature on May 1, 2030.

On May 31, 2019, 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 consists of a revolving credit facility (the “Revolving Facility”), which is an $800.0 million unsecured, multi-currency bank credit facility maturing on May 31, 2024. The Credit Agreement replaced the Company’s prior five-year, $700 million credit agreement, dated as of June 23, 2015, which was due to expire in June 2020. At March 31, 2021, there was no balance outstanding under the Revolving Facility and $7.1 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of $792.9 million.

Borrowings under the Credit Agreement bear interest, at either an alternate base rate or adjusted LIBOR plus, in each case, an applicable margin. Such applicable margin is based on the lower of the Company’s senior, unsecured, long-term debt rating or the Company’s applicable leverage ratio and can range from 0.00% to 1.275%. Based on the Company’s leverage ratio at March 31, 2021, the applicable margin was 1.00% resulting in a weighted average interest rate of 1.19% for the three months ended March 31, 2021. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR loans, on the last day of the applicable interest period selected, or every three months from the effective date of such interest period for interest periods exceeding three months. 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 $400 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 under the Credit Agreement.

On June 13, 2016, the Company completed a private placement of a $100 million aggregate principal amount of 3.20% Senior Notes due June 13, 2023 and a $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 13th and December 13th. 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 the 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 the Notes by making an offer to all holders of the Notes, subject to certain conditions.
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On December 9, 2011, the Company completed a public offering of $350.0 million 4.2% senior notes due December 15, 2021 (“4.2% Senior Notes”). The net proceeds from the offering of $346.2 million, after deducting a $0.9 million issuance discount, a $2.3 million underwriting commission and $0.6 million of offering expenses, were used to repay $306.0 million of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of the Company’s assets. The terms of the 4.2% Senior Notes also require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any.

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 3.00 to 1 and a maximum leverage ratio of 3.50 to 1. In the case of the leverage ratio, there is an option to increase the ratio to 4.00 for 12 months in connection with certain acquisitions. At March 31, 2021, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 15.28 to 1 and the leverage ratio was 1.60 to 1. There are no financial covenants relating to the 3.0% Senior Notes or the 4.2% Senior Notes; however, both are subject to cross-default provisions.

Share Repurchases

On March 17, 2020, the Company’s Board of Directors approved an increase of $500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorization of the Board of Directors of $300.0 million on December 1, 2015. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. There were no share repurchases during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company repurchased a total of 867 thousand shares at a cost of $108.9 million. As of March 31, 2021, the amount of share repurchase authorization remaining is $712.0 million.

Non-GAAP Disclosures

Set forth below are reconciliations of Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS, EBITDA and Adjusted EBITDA to the comparable measures of gross profit, operating income, net income and EPS, as determined in accordance with U.S. GAAP. The Company has reconciled Adjusted gross profit to Gross profit, Adjusted operating income to Operating income; Adjusted net income to Net income; Adjusted EPS to EPS; and consolidated EBITDA, segment EBITDA, Adjusted consolidated EBITDA and Adjusted segment EBITDA to Net income. The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that the Company does not allocate consolidated interest expense or the consolidated provision for income taxes to its segments.

EBITDA, a non-GAAP measure, means earnings before interest, income taxes, depreciation and amortization. Given the acquisitive nature of the Company, which results in a higher level of amortization expense from recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses’ performance across the Company’s three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within the Company’s industry. Management believes that EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 11 in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements” such as EBITDA interest coverage, which is EBITDA divided by consolidated interest expense. In addition, this report presents Adjusted EBITDA, which is EBITDA adjusted for items that are not reflective of ongoing operations, such as restructuring expenses and asset impairments and a fair value inventory step-up charge, and Adjusted EBITDA interest coverage, which is Adjusted EBITDA divided by consolidated interest expense. Management believes that Adjusted EBITDA is useful as a performance indicator of ongoing operations. The Company believes that Adjusted EBITDA is also useful to some investors as an indicator of the strength and performance of the Company and its segments’ ongoing business operations and a way to evaluate and compare operating performance and value companies within the Company’s industry. The definition of Adjusted EBITDA used here may differ from that used by other companies.

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This report references organic sales, a non-GAAP measure, that refers to sales from continuing operations calculated according to U.S. GAAP but excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first 12 months of ownership or prior to divestiture. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping to identify underlying growth trends in the Company’s business and facilitating easier comparisons of the Company’s revenue performance with prior and future periods and to its peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers.

Management uses Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS and Adjusted EBITDA as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as restructuring expenses and asset impairments and a fair value inventory step-up charge. Management also supplements its U.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making.

In addition to measuring the Company’s cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, the Company also measures free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. The Company believes that free cash flow is an important measure of operating performance because it provides management a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing the Company’s common stock.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.
1. Reconciliations of the Change in Net Sales to Organic Net Sales
Three Months Ended March 31, 2021
FMTHSTFSDPIDEX
Change in net sales%12 %11 %10 %
 - Impact from acquisitions%— %— %%
- Impact from foreign currency%%%%
Change in organic net sales%%%%

2. Reconciliations of Reported-to-Adjusted Gross Profit and Margin
(dollars in thousands)Three Months Ended March 31,
20212020
Gross profit$292,623 $271,956 
+ Fair value inventory step-up charge664 — 
Adjusted gross profit$293,287 $271,956 
Net sales$652,036 $594,462 
Gross profit margin44.9 %45.7 %
Adjusted gross profit margin45.0 %45.7 %

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3. Reconciliations of Reported-to-Adjusted Operating Income and Margin
(dollars in thousands)Three Months Ended March 31, 2021
FMTHSTFSDPCorporateIDEX
Reported operating income (loss)$62,897 $66,650 $44,560 $(18,560)$155,547 
 + Restructuring expenses and asset impairments943 625 97 563 2,228 
 + Fair value inventory step-up charge664 — — — 664 
Adjusted operating income (loss)$64,504 $67,275 $44,657 $(17,997)$158,439 
Net sales (eliminations)$243,365 $250,369 $159,484 $(1,182)$652,036 
Operating margin25.8 %26.6 %27.9 %n/m23.9 %
Adjusted operating margin26.5 %26.9 %28.0 %n/m24.3 %

Three Months Ended March 31, 2020
FMTHSTFSDPCorporateIDEX
Reported operating income (loss)$66,771 $52,643 $38,037 $(17,510)$139,941 
 + Restructuring expenses and asset impairments— — — — — 
 + Fair value inventory step-up charge — — — — — 
Adjusted operating income (loss)$66,771 $52,643 $38,037 $(17,510)$139,941 
Net sales (eliminations)$226,861 $224,059 $144,324 $(782)$594,462 
Operating margin29.4 %23.5 %26.4 %n/m23.5 %
Adjusted operating margin29.4 %23.5 %26.4 %n/m23.5 %

4. Reconciliations of Reported-to-Adjusted Net Income and EPS
(in thousands, except EPS)Three Months Ended March 31,
20212020
Reported net income attributable to IDEX$112,708 $101,998 
 + Restructuring expenses and asset impairments2,228 — 
 + Tax impact on restructuring expenses and asset impairments(533)— 
 + Fair value inventory step-up charge664 — 
 + Tax impact on fair value inventory step-up charge(199)— 
Adjusted net income attributable to IDEX$114,868 $101,998 
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Three Months Ended March 31,
20212020
Reported EPS attributable to IDEX$1.48 $1.33 
 + Restructuring expenses and asset impairments0.03 — 
 + Tax impact on restructuring expenses and asset impairments(0.01)— 
 + Fair value inventory step-up charge0.01 — 
 + Tax impact on fair value inventory step-up charge— — 
Adjusted EPS attributable to IDEX$1.51 $1.33 
Diluted weighted average shares76,341 76,452 
5. Reconciliations of EBITDA to Net Income
(dollars in thousands)Three Months Ended March 31, 2021
FMTHSTFSDPCorporate IDEX
Operating income (loss)$62,897 $66,650 $44,560 $(18,560)$155,547 
- Other (income) expense - net (345)(271)(241)(848)
+ Depreciation and amortization7,053 10,513 3,872 106 21,544 
EBITDA69,941 77,508 48,703 (18,213)177,939 
- Interest expense10,776 
- Provision for income taxes32,947 
- Depreciation and amortization21,544 
Net income$112,672 
Net sales (eliminations)$243,365 $250,369 $159,484 $(1,182)$652,036 
Operating margin25.8 %26.6 %27.9 %n/m23.9 %
EBITDA margin28.7 %31.0 %30.5 %n/m27.3 %
EBITDA interest coverage16.5

Three Months Ended March 31, 2020
FMTHSTFSDPCorporate IDEX
Operating income (loss)$66,771 $52,643 $38,037 $(17,510)$139,941 
- Other (income) expense - net 766 (531)(315)1,645 1,565 
+ Depreciation and amortization5,398 10,659 3,759 181 19,997 
EBITDA71,403 63,833 42,111 (18,974)158,373 
- Interest expense10,877 
- Provision for income taxes25,501 
- Depreciation and amortization19,997 
Net income$101,998 
Net sales (eliminations)$226,861 $224,059 $144,324 $(782)$594,462 
Operating margin29.4 %23.5 %26.4 %n/m23.5 %
EBITDA margin31.5 %28.5 %29.2 %n/m26.6 %
EBITDA interest coverage14.6
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6. Reconciliations of EBITDA to Adjusted EBITDA
(dollars in thousands)Three Months Ended March 31, 2021
FMTHSTFSDPCorporateIDEX
EBITDA(1)
$69,941 $77,508 $48,703 $(18,213)$177,939 
+ Restructuring expenses and asset impairments943 625 97 563 2,228 
+ Fair value inventory step-up charge664 — — — 664 
Adjusted EBITDA$71,548 $78,133 $48,800 $(17,650)$180,831 
Adjusted EBITDA margin29.4 %31.2 %30.6 %n/m27.7 %
Adjusted EBITDA interest coverage16.8
Three Months Ended March 31, 2020
FMTHSTFSDPCorporateIDEX
EBITDA(1)
$71,403 $63,833 $42,111 $(18,974)$158,373 
+ Restructuring expenses and asset impairments— — — — — 
+ Fair value inventory step-up charge— — — — — 
Adjusted EBITDA$71,403 $63,833 $42,111 $(18,974)$158,373 
Adjusted EBITDA margin31.5 %28.5 %29.2 %n/m26.6 %
Adjusted EBITDA interest coverage14.6

(1) EBITDA, a non-GAAP financial measure, is reconciled to net income, its most directly comparable GAAP financial measure, immediately above in Item 5.

7. Reconciliations of Cash Flows from Operating Activities to Free Cash Flow
Three Months Ended
(dollars in thousands)March 31,
20212020
Cash flows from operating activities$109,324 $84,760 
- Capital expenditures14,609 12,762 
Free cash flow$94,715 $71,998 

Critical Accounting Policies

As discussed in the Annual Report on Form 10-K for the year ended December 31, 2020, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. See Part 1, Notes to the Condensed Consolidated Financial Statements, Note 1 Basis of Presentation and Significant Accounting Policies. There have been no changes to the Company’s critical accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2020.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. The Company may, from time to time, enter into foreign currency forward contracts and interest rate swaps on its debt when it believes there is a financial advantage in doing so. A treasury risk management policy, adopted by the Board of Directors, describes the procedures and controls over derivative financial and commodity instruments, including foreign currency forward contracts and interest rate swaps. Under the policy, the Company does not use financial or commodity derivative instruments for trading purposes, and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of
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derivative instruments is limited to foreign currency forward contracts and interest rate swaps on the Company’s outstanding long-term debt. As of March 31, 2021, the Company did not have any derivative instruments outstanding.

Foreign Currency Exchange Rates

The Company’s foreign currency exchange rate risk is limited principally to the Euro, Swiss Franc, British Pound, Canadian Dollar, Indian Rupee, Chinese Renminbi and Swedish Krona. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as the source of products. The effect of transaction gains and losses is reported within Other (income) expense-net in the Condensed Consolidated Statements of Operations.

Interest Rate Fluctuation

The Company does not have significant interest rate exposure due to all of the $1,050.2 million of debt outstanding as of March 31, 2021 being fixed rate debt.

Item 4.    Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021.

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings

The Company and its subsidiaries are party to legal proceedings as described in Note 20 in Part I, Item 1, “Legal Proceedings,” and such disclosure is incorporated by reference into this Item 1, “Legal Proceedings.” In addition, the Company and six of its subsidiaries are presently named as defendants in a number of lawsuits claiming various asbestos-related personal injuries, allegedly as a result of exposure to products manufactured with components that contained asbestos. These components were acquired from third party suppliers and were not manufactured by the Company or any of the defendant subsidiaries. To date, the majority of the Company’s settlements and legal costs, except for costs of coordination, administration, insurance investigation and a portion of defense costs, have been covered in full by insurance, subject to applicable deductibles. However, the Company cannot predict whether and to what extent insurance will be available to continue to cover these settlements and legal costs, or how insurers may respond to claims that are tendered to them. Asbestos-related claims have been filed in jurisdictions throughout the United States and the United Kingdom. Most of the claims resolved to date have been dismissed without payment. The balance of the claims have been settled for various immaterial amounts. Only one case has been tried, resulting in a verdict for the Company’s business unit. No provision has been made in the financial statements of the Company, other than for insurance deductibles in the ordinary course, and the Company does not currently believe the asbestos-related claims will have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about the Company’s purchases of its common stock during the quarter ended March 31, 2021:
PeriodTotal Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs(1)
Approximate Dollar
Value that May Yet
be Purchased
Under the Plans
or Programs(1)
January 1, 2021 to January 31, 2021— $— — $712,001,005 
February 1, 2021 to February 28, 2021— — — 712,001,005 
March 1, 2021 to March 31, 2021— — — 712,001,005 
Total— $— — $712,001,005 
 
(1)On March 17, 2020, the Company’s Board of Directors approved an increase of $500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorization of the Board of Directors of $300.0 million on December 1, 2015. These authorizations have no expiration date.
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Item 6.    Exhibits.

Exhibit
Number
Description
3.1
10.1*,**
31.1*
31.2*
32.1*
32.2*
101*The following financial information from IDEX Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in Inline eXtensible Business Reporting Language (iXBRL) includes: (i) the Cover Page, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Operations, (iv) the Condensed Consolidated Statements of Comprehensive Income, (v) the Condensed Consolidated Statements of Equity, (vi) the Condensed Consolidated Statements of Cash Flows, and (vii) Notes to the Condensed Consolidated Financial Statements.
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Management contract or compensatory plan or agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
IDEX Corporation
By:/s/ WILLIAM K. GROGAN
William K. Grogan
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
By:/s/ MICHAEL J. YATES
Michael J. Yates
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: April 28, 2021
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