IDEX CORPORATION 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 anticipated continuing effects of the coronavirus pandemic, including with respect to the Company's sales, facility closures, supply chains and access to capital, capital expenditures, acquisitions, cost reductions, cash flow, cash requirements, revenues, earnings, market conditions, global economies, plant and equipment capacity and operating improvements, and are indicated by words or phrases such as "anticipates," "estimates," "plans," "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 coronavirus pandemic and the continuing effects of the coronavirus on our ability to operate our business and facilities, on our customers, on supply chains and on theU.S. and global economy generally; economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in theU.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 theU.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, including this quarterly report on Form 10-Q, filed with theSecurities and Exchange Commission ("SEC") and the other risks discussed in the Company's filings with theSEC . 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," "we," "our," 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 theU.S. and in other countries where it does business and by the relationship of theU.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 our three reportable segments, the Company maintains 13 platforms where we focus on organic growth and strategic acquisitions. Each of our 13 platforms is also a reporting unit that we annually test 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 platform (comprised ofCorken , Liquid Controls, SAMPI,Toptech and Flow Management Devices, LLC ("Flow MD")), the Valves platform (comprised of Alfa Valvole,Richter and Aegis), the Water platform (comprised ofPulsafeeder , OBL, Knight, ADS, Trebor and iPEK), the Pumps platform (comprised of Viking andWarren Rupp ) and the Agriculture platform (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 processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, including very high precision, low- 32
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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 platform (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch Scientific, ERC, CiDRA Precision Services, thinXXS,CVI Melles Griot , Semrock,Advanced Thin Films and FLI), the Sealing Solutions platform (comprised ofPrecision Polymer Engineering , FTL Seals Technology, Novotema,SFC Koenig andVelcora ), the Gast platform, theMicropump platform and the Material Processing Technologies platform (comprised of Quadro, Fitzpatrick,Microfluidics andMatcon ). 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 platform (comprised of Class 1, Hale, Akron Brass, Weldon, AWG Fittings, Godiva, Dinglee,Hurst Jaws of Life , Lukas and Vetter), the BAND-IT platform and the Dispensing platform. 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 inthe 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 twelve months of ownership or 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 identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our 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 our 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 our 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." 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 we do not allocate consolidated interest expense or the consolidated provision for income taxes to our segments. Management uses Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EBITDA and Adjusted EPS 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, a fair value inventory step-up charge and a loss on early debt redemption. Each of Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EBITDA and Adjusted EPS are non- 33
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GAAP measures and have been reconciled to their most directly comparable GAAP measures in this 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
Some of our key financial results for the three months ended
•Sales of$561.2 million decreased 13%; organic sales (which excludes acquisitions and foreign currency translation) were down 17%. •Operating income of$110.6 million decreased 29%. Adjusted for a$4.1 million fair value inventory step-up charge and$3.8 million of restructuring expenses, adjusted operating income decreased 25% to$118.5 million . •Net income of$70.9 million decreased 37%. Adjusted for the$3.2 million fair value inventory step-up charge,$3.0 million of restructuring expenses and a$6.5 million loss on early debt redemption, all net of related tax benefits, adjusted net income decreased 27% to$83.6 million . •EBITDA of$124.8 million was 22% of sales and covered interest expense by 10 times. Adjusted EBITDA of$141.1 million was 25% of sales and covered interest expense by over 11 times. •Diluted EPS of$0.93 decreased55 cents , or 37%. Adjusted EPS of$1.10 decreased40 cents , or 27%.
Some of our key financial results for the six months ended
•Sales of$1,155.7 million decreased 9%; organic sales (which excludes acquisitions and foreign currency translation) were down 11%. •Operating income of$250.5 million decreased 17%. Adjusted for a$4.1 million fair value inventory step-up charge and$3.8 million of restructuring expenses, adjusted operating income decreased 15% to$258.5 million . •Net income of$172.9 million decreased 23%. Adjusted for a$3.2 million fair value inventory step-up charge,$3.0 million of restructuring expenses and a$6.5 million loss on early debt redemption, all net of related tax benefits, adjusted net income decreased 18% to$185.6 million . •EBITDA of$283.1 million was 25% of sales and covered interest expense by over 12 times. Adjusted EBITDA of$299.5 million was 26% of sales and covered interest expense by over 13 times. •Diluted EPS of$2.27 decreased65 cents , or 22%. Adjusted EPS of$2.44 decreased50 cents , or 17%.
Results of Operations
The following is a discussion and analysis of our results of operations for the three and six months endedJune 30, 2020 and 2019. Segment operating income and EBITDA exclude unallocated corporate operating expenses of$17.2 million and$19.2 million for the three months endedJune 30, 2020 and 2019, respectively, and$34.7 million and$37.8 million for the six months endedJune 30, 2020 and 2019, respectively. The Company continues to help in the fight against COVID-19 with several of our businesses playing critical roles in keeping essential activities operating. We also continue to be focused on making sure our employees are safe and our operations have the ability to deliver the products needed to support the COVID-19 battle. Most of our sites are considered essential businesses and have remained open during the pandemic. However, the virus did cause several of our sites to temporarily shut down for cleaning due to employees testing positive for COVID-19. All such sites returned to operations within a short period of time. COVID-19 and the enacted containment measures have adversely affected our business and results of operations and the businesses of our customers, who are purchasing less product in response to the economic conditions caused by COVID-19. The Company expects the months ahead will remain challenging as this global pandemic continues and, based on currently available information and management's current expectations, the Company anticipates that organic sales will be down approximately 12 to 17 percent in the third quarter of 2020. Based on management's current expectations, we believe our strong balance sheet, with over$1.5 billion of liquidity and gross leverage of 1.6 times, will provide IDEX the necessary capital to navigate the COVID-19 pandemic for the foreseeable future. Additionally, IDEX has implemented certain cost reduction actions, including employee reductions and has maintained a tight cost control environment. Despite our expectations and actions taken to reduce costs, we can provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted by adverse conditions in the financial markets, including, without limitation, as a result of the impact of the COVID-19 pandemic and we cannot predict how long the COVID-19 pandemic will continue. Moreover, 34
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COVID-19 and related measures to contain its impact have caused material disruptions in both national and global financial markets and economies. The continuing impact of COVID-19 and the enacted containment measures cannot be predicted and may continue to adversely affect, perhaps materially, our business, results of operations, financial condition and liquidity. Consolidated Results for the Three Months EndedJune 30, 2020 Compared with the Same Period in 2019 (In thousands) Three Months Ended June 30, 2020 2019 Net sales$ 561,249 $ 642,099 Operating income 110,594 155,283 Operating margin 19.7 % 24.2 % Sales in the second quarter of 2020 were$561.2 million , which was a 13% decrease compared to the same period in 2019. This reflects a 17% decrease in organic sales and a 1% unfavorable impact from foreign currency translation, partially offset by a 5% increase from acquisitions (Flow MD -February 2020 andVelcora -July 2019 ). Sales to customers outside theU.S. represented approximately 48% of total sales in the second quarter of 2020 compared to 49% during the same period in 2019. Gross profit of$234.8 million in the second quarter of 2020 decreased$57.5 million , or 20%, compared to the same period in 2019, and gross margin of 41.8% in the second quarter of 2020 decreased 370 basis points from 45.5% during the same period in 2019. Gross profit and gross margin decreased compared to the prior year period as a result of reduced volume, business mix, the dilutive impact to margins from the recent acquisitions and a fair value inventory step-up charge included in the current year period. Selling, general and administrative expenses decreased to$120.4 million in the second quarter of 2020 from$134.9 million during the same period in 2019. The decrease is primarily due to restructuring savings and lower variable costs. Corporate costs of$17.0 million in the second quarter of 2020 decreased from$19.2 million during the same period in 2019 primarily as a result of tightly controlling discretionary spending and restructuring savings. As a percentage of sales, selling, general and administrative expenses were 21.4% for the second quarter of 2020, up 40 basis points compared to 21.0% during the same period in 2019. The Company incurred$3.8 million of restructuring expenses in the second quarter of 2020 compared with$2.1 million during the same period in 2019 for cost reduction actions primarily consisting of employee reductions due to lower demand as a result of the COVID-19 pandemic. The restructuring expenses in the second quarter of 2020 all related to severance benefits. Operating income of$110.6 million and operating margin of 19.7% in the second quarter of 2020 were down from$155.3 million and 24.2%, respectively, during the same period in 2019. The decreases in operating income and operating margin were driven by lower sales volume, the dilutive impact to margins from the recent acquisitions, the fair value inventory step-up charge and higher restructuring expenses in 2020, partially offset by price, restructuring savings and an overall reduction in variable expenses. Other (income) expense - net increased to$6.5 million of expense in the second quarter of 2020 compared to$0.4 million of income during the same period in 2019, primarily due to an$8.4 million loss on early debt redemption, partially offset by$1.5 million of lower pension expense in 2020 and$1.2 million of higher gains on pension-related investments. Interest expense of$12.4 million in the second quarter of 2020 was higher than the$11.0 million in the same period of 2019 due to borrowings under the Revolving Facility in 2020 and interest expense on the new 3.0% Senior Notes issued during the second quarter of 2020. The provision for income taxes decreased to$20.8 million for the second quarter of 2020 compared to$31.4 million during the same period in 2019. The effective tax rate increased to 22.7% for the second quarter of 2020 compared to 21.7% during the same period in 2019 primarily due to a decrease in the excess tax benefits related to share-based compensation. Net income in the second quarter of 2020 of$70.9 million decreased from$113.2 million during the same period in 2019. Diluted earnings per share in the second quarter of 2020 of$0.93 decreased$0.55 , or 37%, compared to the same period in 2019. 35
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For the three months endedJune 30, 2020 , Fluid & Metering Technologies contributed 39% of sales, 40% of operating income and 39% of EBITDA; Health & Science Technologies contributed 38% of sales, 37% of operating income and 39% of EBITDA; and Fire & Safety/Diversified Products contributed 23% of sales, 23% of operating income and 22% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA. Fluid & Metering Technologies Segment (In thousands) Three Months Ended June 30, 2020 2019 Net sales$ 219,112 $ 246,189 Operating income 50,938 74,146 Operating margin 23.2 % 30.1 % Sales of$219.1 million decreased$27.1 million , or 11%, in the second quarter of 2020 compared to the same period in 2019. This reflects a 20% decrease in organic sales and a 1% unfavorable impact from foreign currency translation, partially offset by a 10% percent increase from acquisitions (Flow MD -February 2020 ). In the second quarter of 2020, sales decreased 4% domestically and 20% internationally compared to the same period in 2019. Sales to customers outside theU.S. were approximately 39% of total segment sales in the second quarter of 2020 compared to 43% during the same period in 2019. Sales within our Valves platform decreased in the second quarter of 2020 compared to the same period in 2019 due to the softening global industrial landscape and lower energy prices driving decreases in capital spending. Sales within our Agriculture platform decreased in the second quarter of 2020 compared to the same period in 2019 due to decreased demand across both the agricultural and industrial original equipment manufacturer ("OEM") markets. Sales within our Pumps platform decreased in the second quarter of 2020 compared to the same period in 2019 due to continued market declines in industrial and oil and gas markets, compounded by the impact of the COVID-19 pandemic driving reduced capital spending. Sales within our Water platform decreased in the second quarter of 2020 compared to the same period in 2019 primarily due to the non-repeat of large projects across theU.S. andAsia . Sales within our Energy platform increased in the second quarter of 2020 compared to the same period in 2019 due to the acquisition of Flow MD, partially offset by declining capital spending in the oil and gas markets. Operating income of$50.9 million and operating margin of 23.2% in the second quarter of 2020 were lower than$74.1 million and 30.1%, respectively, recorded during the same period in 2019, primarily due to lower volume and the impact of the Flow MD acquisition as well as a fair value inventory step-up charge and higher restructuring expenses included in the current year period, partially offset by price, restructuring savings and lower variable costs. Health & Science Technologies Segment (In thousands) Three Months Ended June 30, 2020 2019 Net sales$ 215,668 $ 232,253 Operating income 48,007 56,763 Operating margin 22.3 % 24.4 % Sales of$215.7 million decreased$16.6 million , or 7%, in the second quarter of 2020 compared to the same period in 2019. This reflects a 10% decrease in organic sales and a 1% unfavorable impact from foreign currency translation, partially offset by a 4% increase from acquisitions (Velcora -July 2019 ). In the second quarter of 2020, sales decreased 12% domestically and 3% internationally compared to the same period in 2019. Sales to customers outside theU.S. were approximately 57% of total segment sales in the second quarter of 2020 compared to 54% during the same period in 2019. Sales within our Gast platform decreased in the second quarter of 2020 compared to the same period in 2019 primarily due to the non-repeat of a large customer project and a slowdown across various industrial end markets, partially offset by new initiatives in response to the COVID-19 pandemic. Sales within ourMicropump platform decreased in the second quarter of 2020 compared to the same period in 2019 due to lower demand from customers in the inkjet printing market. Sales within our Scientific Fluidics & Optics platform decreased in the second quarter of 2020 compared to the same period in 2019 due to the impact of the COVID-19 pandemic which limited investment by hospitals and laboratories in new Analytical Instrumentation equipment, partially offset by increased demand for microfluidics and optical solutions supporting COVID-19 testing. Sales within our Material Processing Technologies platform decreased in the second quarter of 2020 compared to the same period in 36
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2019 primarily due to lower overall demand as a result of the COVID-19 pandemic and the non-repeat of large projects from the prior year, partially offset by strong volumes in the pharmaceutical industry in response to the COVID-19 pandemic. Sales within our Sealing Solutions platform decreased in the second quarter of 2020 compared to the same period in 2019 primarily due to disruption in the automotive and oil and gas markets, partially offset by theVelcora acquisition and the recovery in the semiconductor market. Operating income of$48.0 million and operating margin of 22.3% in the second quarter of 2020 were lower than$56.8 million and 24.4%, respectively, recorded during the same period in 2019, primarily due to lower volume, the impact of theVelcora acquisition and higher restructuring expenses, partially offset by price, restructuring savings and lower variable costs. Fire & Safety/Diversified Products Segment (In thousands) Three Months Ended June 30, 2020 2019 Net sales$ 127,076 $ 164,043 Operating income 28,837 43,614 Operating margin 22.7 % 26.6 % Sales of$127.1 million decreased$37.0 million , or 23%, in the second quarter of 2020 compared to the same period in 2019. This reflects a 22% decrease in organic sales and a 1% unfavorable impact from foreign currency translation. In the second quarter of 2020, sales decreased 19% domestically and 26% internationally compared to the same period in 2019. Sales to customers outside theU.S. were approximately 50% of total segment sales in the second quarter of 2020 compared to 52% during the same period in 2019. Sales within our Dispensing platform decreased in the second quarter of 2020 compared to the same period in 2019 primarily due to customer shutdowns and disruption in the paint market as a result of the COVID-19 pandemic. Sales within our Band-It platform decreased in the second quarter of 2020 compared to the same period in 2019 due to customer shutdowns in the transportation market as a result of the COVID-19 pandemic and lower capital spending in the energy markets. Sales within our Fire & Safety platform decreased in the second quarter of 2020 compared to the same period in 2019 due to fewer large projects and market softness globally for theFire and Rescue businesses. Operating income of$28.8 million in the second quarter of 2020 was lower than$43.6 million during the same period in 2019 and operating margin of 22.7% in the second quarter of 2020 was lower than the 26.6% during the same period in 2019. Operating income and operating margin decreased compared to the prior period as a result of lower volume and business mix, partially offset by price and restructuring savings as well as lower variable costs and lower restructuring expenses. Consolidated Results for the Six Months EndedJune 30, 2020 Compared with the Same Period in 2019 (In thousands) Six Months Ended June 30, 2020 2019 Net sales$ 1,155,711 $ 1,264,330 Operating income 250,535 303,065 Operating margin 21.7 % 24.0 % Sales in the first six months of 2020 were$1,155.7 million , which was a 9% decrease compared to the same period in 2019. This reflects an 11% decrease in organic sales and a 1% unfavorable impact from foreign currency translation, partially offset by a 3% increase from acquisitions (Flow MD -February 2020 andVelcora -July 2019 ). Sales to customers outside theU.S. represented approximately 49% of total sales in the first six months of 2020 compared to 50% during the same period in 2019. Gross profit of$506.8 million in the first six months of 2020 decreased$69.4 million , or 12%, compared to the same period in 2019 and gross margin of 43.8% in the first six months of 2020 decreased 180 basis points from 45.6% during the same period in 2019. Both gross profit and gross margin decreased compared to the prior year period primarily due to reduced volume, business mix, the dilutive impact to margins from the recent acquisitions and a fair value inventory step-up charge included in the current year period. 37
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Selling, general and administrative expenses decreased to$252.4 million in the first six months of 2020 from$271.0 million during the same period in 2019, primarily due to restructuring savings and lower variable costs. Corporate costs decreased to$34.5 million in the first six months of 2020 compared to$37.8 million during the same period in 2019 primarily due to tightly controlling discretionary spending and restructuring savings. As a percentage of sales, selling, general and administrative expenses were 21.8% for the first six months of 2020, up 40 basis points compared to 21.4% during the same period in 2019. The Company incurred$3.8 million of restructuring expenses in the first six months of 2020 compared with$2.1 million during the same period in 2019 for cost reduction actions primarily consisting of employee reductions due to lower demand as a result of the COVID-19 pandemic. The restructuring expenses in the first six months of 2020 all related to severance benefits. Operating income of$250.5 million and operating margin of 21.7% in the first six months of 2020 were down from the$303.1 million and 24.0%, respectively, recorded during the same period in 2019. The decreases in operating income and operating margin are primarily due to lower sales volume, the dilutive impact to margins from the recent acquisitions, the fair value inventory step-up charge and higher restructuring expenses in 2020, partially offset by price, restructuring savings and an overall reduction in variable expenses. Other (income) expense - net was$8.0 million of expense in the first six months of 2020 compared to$0.5 million of income during the same period in 2019, primarily due to an$8.4 million loss on early debt redemption, partially offset by$1.7 million of lower pension expense in 2020. Interest expense of$23.3 million in the first six months of 2020 was higher than the$21.9 million in the same period of 2019 due to borrowings under the Revolving Facility in 2020 and interest expense on the new 3.0% Senior Notes issued during the second quarter of 2020. The provision for income taxes decreased to$46.3 million in the first six months of 2020 compared to$58.2 million during the same period in 2019. The effective tax rate increased to 21.1% in the first six months of 2020 compared to 20.7% during the same period in 2019 primarily due to a decrease in the excess tax benefits related to share-based compensation. Net income of$172.9 million in the first six months of 2020 decreased from$223.5 million during the same period in 2019. Diluted earnings per share of$2.27 in the first six months of 2020 decreased$0.65 , or 22%, compared to the same period in 2019. For the six months endedJune 30, 2020 , Fluid & Metering Technologies contributed 39% of sales, 41% of operating income and 40% of EBITDA; Health & Science Technologies contributed 38% of sales, 35% of operating income and 37% of EBITDA; and Fire & Safety/Diversified Products contributed 23% of sales, 24% of operating income and 23% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA. Fluid & Metering Technologies Segment (In thousands) Six Months Ended June 30, 2020 2019 Net sales$ 445,973 $ 488,711 Operating income 117,709 146,012 Operating margin 26.4 % 29.9 % Sales of$446.0 million decreased$42.7 million , or 9%, in the first six months of 2020 compared to the same period in 2019. This reflects a 13% decrease in organic sales and a 1% unfavorable impact from foreign currency translation, partially offset by a 5% increase from acquisitions (Flow MD -February 2020 ). In the first six months of 2020, sales decreased 6% domestically and 13% internationally compared to the same period in 2019. Sales to customers outside theU.S. were approximately 41% of total segment sales in the first six months of 2020 compared to 43% during the same period in 2019. Sales within our Valves platform decreased in the first six months of 2020 compared to the same period in 2019 due to the softening global industrial landscape and lower energy prices driving decreases in capital spending. Sales within our Agriculture platform decreased in the first six months of 2020 compared to the same period in 2019 due to decreased demand across both the agricultural and industrial OEM markets. Sales within our Pumps platform decreased in the first six months of 2020 compared to the same period in 2019 due to continued market declines in industrial and oil and gas markets, compounded by the impact of the COVID-19 pandemic, driving declines across most end markets and geographies. Sales within our Water 38
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platform decreased in the first six months of 2020 compared to the same period in 2019 primarily due to lower project volumes across theU.S. andAsia . Sales within our Energy platform increased in the first six months of 2020 compared to the same period in 2019 due to the acquisition of Flow MD, partially offset by declining capital spending in the oil and gas markets. Operating income of$117.7 million and operating margin of 26.4% in the first six months of 2020 were lower than the$146.0 million and 29.9%, respectively, recorded in the first six months of 2019, primarily due to lower volume and the impact of the Flow MD acquisition as well as a fair value inventory step-up charge and higher restructuring expenses included in the current year period, partially offset by price, restructuring savings and lower variable costs. Health & Science Technologies Segment (In thousands) Six Months Ended June 30, 2020 2019 Net sales$ 439,727 $ 457,543 Operating income 100,650 110,917 Operating margin 22.9 % 24.2 % Sales of$439.7 million decreased$17.8 million , or 4%, in the first six months of 2020 compared to the same period in 2019. This reflects a 7% decrease in organic sales and a 1% unfavorable impact from foreign currency translation, partially offset by a 4% increase from acquisitions (Velcora -July 2019 ). In the first six months of 2020, sales decreased 8% domestically and 1% internationally compared to the same period in 2019. Sales to customers outside theU.S. were approximately 57.0% of total segment sales in the first six months of 2020 compared to 55% during the same period in 2019. Sales within our Gast platform decreased in the first six months of 2020 compared to the same period in 2019 primarily due to the non-repeat of a large customer project and a slowdown across various industrial end markets, partially offset by new initiatives in response to the COVID-19 pandemic. Sales within ourMicropump platform decreased in the first six months of 2020 compared to the same period in 2019 due to weakness in core printing and industrial distribution. Sales within our Scientific Fluidics & Optics platform decreased in the first six months of 2020 compared to the same period in 2019 due to the impact of the COVID-19 pandemic which limited investment by hospitals and laboratories in new Analytical Instrumentation equipment, partially offset by increased demand for microfluidics and optical solutions supporting COVID-19 testing. Sales within our Material Processing Technologies platform increased in the first six months of 2020 compared to the same period in 2019 primarily due to strong volumes in the pharmaceutical industry in response to the COVID-19 pandemic, partially offset by the non-repeat of large projects from the prior year. Sales within our Sealing Solutions platform increased in the first six months of 2020 compared to the same period in 2019 primarily due to theVelcora acquisition and the recovery in the semiconductor market, partially offset by disruption in the automotive and oil and gas markets. Operating income of$100.7 million and operating margin of 22.9% in the first six months of 2020 were lower than the$110.9 million and 24.2%, respectively, recorded during the same period in 2019, primarily due to lower volume, the dilutive impact to margins of theVelcora acquisition and higher restructuring expenses, partially offset by price, restructuring savings and lower variable costs. Fire & Safety/Diversified Products Segment (In thousands) Six Months Ended June 30, 2020 2019 Net sales$ 271,400 $ 320,202 Operating income 66,874 83,942 Operating margin 24.6 % 26.2 % Sales of$271.4 million decreased$48.8 million , or 15%, in the first six months of 2020 compared to the same period in 2019. This reflects a 14% decrease in organic sales and a 1% unfavorable impact from foreign currency translation. In the first six months of 2020, sales decreased 10% domestically and 20% internationally compared to the same period in 2019. Sales to customers outside theU.S. were approximately 49% of total segment sales in the first six months of 2020 compared with 52% during the same period in 2019.
Sales within our Dispensing platform decreased in the first six months of 2020 compared to the same period in 2019 primarily due to customer shutdowns and disruption in the paint market as a result of the COVID-19 pandemic. Sales within
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our Band-It platform decreased in the first six months of 2020 compared to the same period in 2019 due to customer shutdowns in the transportation market as a result of the COVID-19 pandemic and lower capital spending in the energy markets. Sales within our Fire & Safety platform decreased in the first six months of 2020 compared to the same period in 2019 due to fewer large projects and market softness globally for theFire and Rescue businesses. Operating income of$66.9 million and operating margin of 24.6% in the first six months of 2020 were lower than the$83.9 million and 26.2%, respectively, recorded during the same period in 2019, primarily due to lower volume and business mix, partially offset by price and restructuring savings as well as lower variable costs and lower restructuring expenses.
Liquidity and Capital Resources
Operating Activities
Cash flows from operating activities for the first six months of 2020 increased$34.4 million , or 16%, to$254.2 million compared to the first six months of 2019 due to favorable working capital, partially offset by lower earnings. AtJune 30, 2020 , working capital was$995.9 million and the Company's current ratio was 3.5 to 1. AtJune 30, 2020 , the Company's cash and cash equivalents totaled$746.3 million , of which$411.2 million was held outside ofthe United States . The COVID-19 pandemic has impacted and may continue to impact the Company's operating cash flows through direct and secondary 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 the foreseeable future. However, the continuing impact of COVID-19 and the COVID-19 containment measures cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.
Investing Activities
Cash flows used in investing activities for the first six months of 2020
increased
Cash flows from operations were more than adequate to fund capital expenditures of$21.1 million and$25.7 million in the first six months of 2020 and 2019, respectively. The COVID-19 pandemic has impacted and may continue to impact the Company's operating cash flows, which may lead to a reduction in capital expenditures. The Company believes it has sufficient operating cash flow to meet current obligations and invest in required currently planned capital expenditures. Capital expenditures were generally for machinery and equipment that supported growth, 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 provided by financing activities for the first six months of 2020 were$2.1 million compared to$118.6 million used in financing activities during the same period in 2019, primarily as a result of proceeds from the issuance of the 3.0% Senior Notes, partially offset by the early payment of the 4.5% Senior Notes as well as higher share repurchases and dividends paid in 2020. OnApril 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$494.9 million , after deducting the issuance discount of$0.9 million , the underwriting commission of$3.3 million and offering expenses of$0.9 million . The net proceeds were used to redeem and repay the$300.0 million aggregate principal amount outstanding of its 4.5% Senior Notes dueDecember 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 onMay 1 andNovember 1 of each year. The 3.0% Senior Notes mature onMay 1, 2030 . OnApril 27, 2020 , the Company provided notice of its election to redeem early, onMay 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% 40
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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 as well as 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. OnMay 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 onMay 31, 2024 . The Credit Agreement replaced the Company's prior five-year,$700 million credit agreement, dated as ofJune 23, 2015 , which was due to expire inJune 2020 . AtJune 30, 2020 , 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 atJune 30, 2020 , the applicable margin was 1.00% resulting in a weighted average interest rate of 1.32% for the six months endedJune 30, 2020 . 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. OnJune 13, 2016 , the Company completed a private placement of a$100 million aggregate principal amount of 3.20% Senior Notes dueJune 13, 2023 and a$100 million aggregate principal amount of 3.37% Senior Notes dueJune 13, 2025 (collectively, the "Notes") pursuant to a Note Purchase Agreement datedJune 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 eachJune 13th andDecember 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. OnDecember 9, 2011 , the Company completed a public offering of$350.0 million 4.2% senior notes dueDecember 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 eachJune 15th andDecember 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. AtJune 30, 2020 , the Company was in compliance with both of these financial covenants, as the Company's interest coverage ratio was 14.64 to 1 and the leverage ratio was 1.62 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.
On
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$300.0 million onDecember 1, 2015 and$400.0 million onNovember 6, 2014 . Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During the six months endedJune 30, 2020 , the Company repurchased a total of 876 thousand shares at a cost of$110.3 million . During the six months endedJune 30, 2019 , the Company repurchased a total of 389 thousand shares at a cost of$54.7 million . As ofJune 30, 2020 , the amount of share repurchase authorization remaining is$712.0 million . Although the COVID-19 pandemic has impacted and may continue to impact the Company's operating cash flows, based on management's current expectations and currently available information, 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 annual dividend payments to holders of the Company's common stock for the remainder of 2020. 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. AtJune 30, 2020 , 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. However, the continuing impact of COVID-19 and the COVID-19 containment measures cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.
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 withU.S. GAAP. We have 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 we do not allocate consolidated interest expense or the consolidated provision for income taxes to our segments. EBITDA 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 our 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 our 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." This report references organic sales, a non-GAAP measure, that refers to sales from continuing operations calculated according toU.S. GAAP but excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first twelve months of ownership or 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 our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our 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, a fair value inventory step-up charge and a loss on early debt redemption. Management also supplements itsU.S. GAAP financial statements with adjusted information to provide investors with greater 42
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insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making.
In addition to measuring our cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, we also measure free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. We believe 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 our 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 withU.S. GAAP. The financial results prepared in accordance withU.S. GAAP and the reconciliations from these results should be carefully evaluated. 1. Reconciliations of the Change inNet Sales to OrganicNet Sales
Three Months Ended
FMT HST FSDP IDEX
Change in net sales (11) % (7) % (23) % (13) %
- Impact from acquisitions/divestitures 10 % 4 % - % 5 %
- Impact from foreign currency (1) % (1) % (1) % (1) %
Change in organic net sales (20) % (10) % (22) % (17) %
Six Months Ended June 30, 2020
FMT HST FSDP IDEX
Change in net sales (9) % (4) % (15) % (9) %
- Impact from acquisitions/divestitures 5 % 4 % - % 3 %
- Impact from foreign currency (1) % (1) % (1) % (1) %
Change in organic net sales (13) % (7) % (14) % (11) %
2. Reconciliations of Reported-to-Adjusted Gross Profit and
Margin
Six Months Ended June
(dollars in thousands) Three Months Ended June 30, 30,
2020 2019 2020 2019
Gross profit $ 234,800 $
292,337
4,107 - 4,107 -
Adjusted gross profit $ 238,907 $ 292,337 $ 510,863 $ 576,171
Net Sales $ 561,249 $ 642,099 $ 1,155,711 $ 1,264,330
Gross profit margin 41.8 % 45.5 % 43.8 % 45.6 %
Adjusted gross profit margin 42.6 % 45.5 % 44.2 % 45.6 %
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3. Reconciliations of Reported-to-Adjusted Operating Income and Margin
(dollars in thousands) Three
Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
+ Restructuring expenses 1,848 1,184 641 168 3,841 + Fair value inventory step-up charge 4,107 - - - 4,107
Adjusted operating income (loss)
Net sales (eliminations)$ 219,112 $ 215,668 $ 127,076 $ (607) $ 561,249 Operating margin 23.2 % 22.3 % 22.7 % n/m 19.7 % Adjusted operating margin 26.0 % 22.8 % 23.2 % n/m 21.1 %
Three Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss) $ 74,146 $ 56,763 + Restructuring expenses 930 330 819 47 2,126 Adjusted operating income (loss)$ 75,076 $ 57,093
Net sales (eliminations)$ 246,189 $ 232,253 $ 164,043 $ (386) $ 642,099 Operating margin 30.1 % 24.4 % 26.6 % n/m 24.2 % Adjusted operating margin 30.5 % 24.6 % 27.1 % n/m 24.5 % Six Months Ended June 30, 2020 FMT HST FSDP Corporate IDEX
Reported operating income (loss)
+ Restructuring expenses 1,848 1,184 641 168 3,841 + Fair value inventory step-up charge 4,107 - - - 4,107
Adjusted operating income (loss)
Net sales (eliminations)$ 445,973 $ 439,727
Operating margin 26.4 % 22.9 % 24.6 % n/m 21.7 %
Adjusted operating margin 27.7 % 23.2 % 24.9 % n/m 22.4 %
Six Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss) $ 146,012 $ 110,917 + Restructuring expenses 930 330 819 47 2,126 Adjusted operating income (loss)$ 146,942 $ 111,247
Net sales (eliminations)$ 488,711 $ 457,543
Operating margin 29.9 % 24.2 % 26.2 % n/m 24.0 %
Adjusted operating margin 30.1 % 24.3 % 26.5 % n/m 24.1 %
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4. Reconciliations of Reported-to-Adjusted Net Income and EPS
Six Months Ended June
(in thousands, except EPS) Three Months Ended June 30, 30,
2020 2019 2020 2019
Reported net income $ 70,864 $ 113,209 $ 172,862 $ 223,477
+ Restructuring expenses 3,841 2,126 3,841 2,126
+ Tax impact on restructuring expenses (837) (560) (837) (560)
+ Fair value inventory step-up charge 4,107 - 4,107 -
+ Tax impact on fair value inventory step-up
charge (932) - (932) -
+ Loss on early debt redemption 8,421 - 8,421 -
+ Tax impact on loss on early debt redemption (1,912) - (1,912) -
Adjusted net income $ 83,552 $ 114,775 $ 185,550 $ 225,043
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Reported EPS $ 0.93 $ 1.48 $ 2.27 $ 2.92
+ Restructuring expenses 0.05 0.03 0.05 0.03
+ Tax impact on restructuring expenses (0.01) (0.01) (0.01) (0.01)
+ Fair value inventory step-up charge 0.05 - 0.05 -
+ Tax impact on fair value inventory
step-up charge (0.01) - (0.01) -
+ Loss on early debt redemption 0.11 - 0.11 -
+ Tax impact on loss on early debt
redemption (0.02) - (0.02) -
Adjusted EPS $ 1.10 $ 1.50 $ 2.44 2.44 $ 2.94
Diluted weighted average shares 75,937 76,387 76,198 76,334
5. Reconciliations of EBITDA to Net
Income
(dollars in thousands) Three Months Ended June 30, 2020
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 50,938 $ 48,007 $ 28,837 $ (17,188) $ 110,594
- Other (income) expense - net (82) 472 123 5,947 6,460
+ Depreciation and amortization 6,809 9,917 3,796 104 20,626
EBITDA 57,829 57,452 32,510 (23,031) 124,760
- Interest expense 12,439
- Provision for income taxes 20,831
- Depreciation and amortization 20,626
Net income $ 70,864
Net sales (eliminations) $ 219,112 $ 215,668 $ 127,076 $ (607) $ 561,249 Operating margin 23.2 % 22.3 % 22.7 % n/m 19.7 % EBITDA margin 26.4 % 26.6 % 25.6 % n/m 22.2 % 45
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Three Months Ended June 30, 2019
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 74,146 $ 56,763 $ 43,614 $ (19,240) $ 155,283
- Other (income) expense - net 239 80 (140) (557) (378)
+ Depreciation and amortization 5,640 9,635 3,717 172 19,164
EBITDA 79,547 66,318 47,471 (18,511) 174,825
- Interest expense 11,011
- Provision for income taxes 31,441
- Depreciation and amortization 19,164
Net income $ 113,209
Net sales (eliminations) $ 246,189 $ 232,253 $ 164,043 $ (386) $ 642,099
Operating margin 30.1 % 24.4 % 26.6 % n/m 24.2 %
EBITDA margin 32.3 % 28.6 % 28.9 % n/m 27.2 %
Six Months Ended June 30, 2020
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 117,709 $ 100,650 $ 66,874 $ (34,698) $ 250,535
- Other (income) expense - net 684 (59) (192) 7,592 8,025
+ Depreciation and amortization 12,207 20,576 7,555 285 40,623
EBITDA 129,232 121,285 74,621 (42,005) 283,133
- Interest expense 23,316
- Provision for income taxes 46,332
- Depreciation and amortization 40,623
Net income $ 172,862
Net sales (eliminations) $ 445,973 $ 439,727 $ 271,400 $ (1,389) $ 1,155,711
Operating margin 26.4 % 22.9 % 24.6 % n/m 21.7 %
EBITDA margin 29.0 % 27.6 % 27.5 % n/m 24.5 %
Six Months Ended June 30, 2019
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 146,012 $ 110,917 $ 83,942 $ (37,806) $ 303,065
- Other (income) expense - net 317 364 365 (1,564) (518)
+ Depreciation and amortization 11,146 19,142 7,179 356 37,823
EBITDA 156,841 129,695 90,756 (35,886) 341,406
- Interest expense 21,932
- Provision for income taxes 58,174
- Depreciation and amortization 37,823
Net income $ 223,477
Net sales (eliminations) $ 488,711 $ 457,543 $ 320,202 $ (2,126) $ 1,264,330
Operating margin 29.9 % 24.2 %
26.2 % n/m 24.0 %
EBITDA margin 32.1 % 28.3 % 28.3 % n/m 27.0 %
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6. Reconciliations of EBITDA to Adjusted EBITDA
(dollars in thousands) Three
Months Ended
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 57,829 $ 57,452 $ 32,510 $ (23,031) $ 124,760
+ Restructuring expenses 1,848 1,184 641 168 3,841
+ Fair value inventory step-up charge 4,107 - - - 4,107
+ Loss on early debt redemption - - - 8,421 8,421
Adjusted EBITDA $ 63,784 $ 58,636 $ 33,151 $ (14,442) $ 141,129
Adjusted EBITDA margin 29.1 % 27.2 % 26.1 % n/m 25.1 %
Three Months Ended June 30, 2019
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 79,547 $ 66,318 $ 47,471 $ (18,511) $ 174,825
+ Restructuring expenses 930 330 819 47 2,126
Adjusted EBITDA $ 80,477 $ 66,648 $ 48,290 $ (18,464) $ 176,951
Adjusted EBITDA margin 32.7 % 28.7 % 29.4 % n/m 27.6 %
Six Months Ended June 30, 2020
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 129,232 $ 121,285 $ 74,621 $ (42,005) $ 283,133
+ Restructuring expenses 1,848 1,184 641 168 3,841
+ Fair value inventory step-up
charge 4,107 - - - 4,107
+ Loss on early debt redemption - - - 8,421 8,421
Adjusted EBITDA $ 135,187 $ 122,469 $
75,262
Adjusted EBITDA margin 30.3 % 27.9 % 27.7 % n/m 25.9 %
Six Months Ended June 30, 2019
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 156,841 $ 129,695 $ 90,756 $ (35,886) $ 341,406
+ Restructuring expenses 930 330 819 47 2,126
Adjusted EBITDA $ 157,771 $ 130,025 $ 91,575 Adjusted EBITDA margin 32.3 % 28.4 % 28.6 %
n/m 27.2 %
(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
Six Months Ended June
(dollars in thousands) Three Months Ended June 30, 30,
2020 2019 2020 2019
Cash flows from operating activities $ 169,453 $ 131,175 $ 254,213 $ 219,838
- Capital expenditures 8,323 12,867 21,085 25,742
Free cash flow $ 161,130 $ 118,308 $ 233,128 $ 194,096
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Critical Accounting Policies
As discussed in the Annual Report on Form 10-K for the year endedDecember 31, 2019 , the preparation of financial statements in conformity withU.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 endedDecember 31, 2019 .
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