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 Company's expected organic sales growth and the anticipated benefits of the Company's acquisition of bothABEL Pumps, L.P. and certain of its affiliates andAirtech Group, Inc. ,US Valve Corporation and related entities ("Airtech"), 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 (including the emergence of variant strains) on the Company's ability to operate its business and facilities, on the Company's 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 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" 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 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 ofCorken , Liquid Controls, SAMPI, Toptech and Flow MD), the Valves reporting unit (comprised of Alfa Valvole, Richter and Aegis), the Water reporting unit (comprised ofPulsafeeder , 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 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 35 -------------------------------------------------------------------------------- Table of Content 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 and regenerative blowers used in medical, dental, alternative energy 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 ofPrecision Polymer Engineering , FTL Seals Technology, Novotema,SFC Koenig andVelcora ), the Performance Pneumatic Technologies reporting unit (comprised of Gast and Airtech), theMicropump reporting unit and the Material Processing Technologies reporting unit (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 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 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 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 not reflective of ongoing operations, such as a fair value inventory step-up charge, restructuring expenses and asset impairments, a charge related to recording a contingent reserve for a Corporate transaction indemnity, the loss on early debt redemption and the noncash loss related to the termination of theU.S pension plan, 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. 36
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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 a fair value inventory step-up
charge, restructuring expenses and asset impairments, a charge related to
recording a contingent reserve for a Corporate transaction indemnity, the loss
on early debt redemption and the noncash loss related to the termination of the
U.S pension plan. 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
Some of the Company's key financial results for the three months ended
•Sales of$685.9 million increased 22%; organic sales (which excludes acquisitions and foreign currency translation) were up 17%. •Operating income of$158.3 million increased 43%. Adjusted for a$1.8 million pre-tax fair value inventory step-up charge,$3.1 million of restructuring expenses and asset impairments and a$3.9 million charge related to recording a contingent reserve for a Corporate transaction indemnity, adjusted operating income increased 41% to$167.1 million . •Net income attributable to IDEX of$102.2 million increased 44%. Adjusted for a$1.3 million fair value inventory step-up charge,$2.4 million of restructuring expenses and asset impairments, a$3.1 million charge related to recording a contingent reserve for a Corporate transaction indemnity, the$6.7 million loss on early debt redemption and the$7.6 million noncash loss related to the termination of theU.S pension plan, all net of related tax benefits, adjusted net income increased 47% to$123.2 million . •EBITDA of$165.5 million was 24% of sales and covered interest expense by almost 15 times. Adjusted EBITDA of$192.6 million was 28% of sales and covered interest expense by over 17 times. •Diluted EPS of$1.34 increased41 cents , or 44%. Adjusted EPS of$1.61 increased51 cents , or 46%.
Some of the Company's key financial results for the six months ended
•Sales of$1,338.0 million increased 16%; organic sales (which excludes acquisitions and foreign currency translation) were up 11%. •Operating income of$313.8 million increased 25%. Adjusted for a$2.5 million pre-tax fair value inventory step-up charge,$5.4 million of restructuring expenses and asset impairments and a$3.9 million charge related to recording a contingent reserve for a Corporate transaction indemnity, adjusted operating income increased 26% to$325.6 million . •Net income attributable to IDEX of$214.9 million increased 24%. Adjusted for a$1.7 million fair value inventory step-up charge,$4.1 million of restructuring expenses and asset impairments, a$3.1 million charge related to recording a contingent reserve for a Corporate transaction indemnity, the$6.7 million loss on early debt redemption and the$7.6 million noncash loss related to the termination of theU.S pension plan, all net of related tax benefits, adjusted net income increased 28% to$238.1 million . •EBITDA of$343.5 million was 26% of sales and covered interest expense by almost 16 times. Adjusted EBITDA of$373.5 million was 28% of sales and covered interest expense by 17 times. •Diluted EPS of$2.81 increased54 cents , or 24%. Adjusted EPS of$3.11 increased67 cents , or 27%. The Company and its subsidiaries file income tax returns in theU.S. federal jurisdiction as well as 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$0.1 million . 37
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Results of Operations
The following is a discussion and analysis of the Company's results of operations for the three and six months endedJune 30, 2021 and 2020. Segment operating income and EBITDA exclude unallocated corporate operating expenses of$24.0 million and$17.2 million for the three months endedJune 30, 2021 and 2020, respectively, and$42.5 million and$34.7 million for the six months endedJune 30, 2021 and 2020, respectively. Consolidated Results for the Three Months EndedJune 30, 2021 Compared with the Same Period in 2020 (In thousands) Three Months Ended June 30, 2021 2020 Net sales$ 685,947 $ 561,249 Operating income 158,256 110,594 Operating margin 23.1 % 19.7 % Sales in the second quarter of 2021 were$685.9 million , which was a 22% increase compared to the same period in 2020. This reflects a 17% increase in organic sales, a 4% favorable impact from foreign currency translation and a 1% increase from acquisitions (ABEL -March 2021 and Flow MD -February 2020 ) partially offset by divestitures (CiDRA Precision Services -March 2021 ). Sales to customers outside theU.S. represented approximately 54% of total sales in the second quarter of 2021 compared to 48% during the same period in 2020. Gross profit of$306.1 million in the second quarter of 2021 increased$71.3 million , or 30%, compared to the same period in 2020 and gross margin of 44.6% in the second quarter of 2021 increased 280 basis points from 41.8% during the same period in 2020 as a result of higher volume and price capture, partially offset by inflation and supply chain constraints. Selling, general and administrative expenses increased to$144.7 million in the second quarter of 2021 from$120.4 million during the same period in 2020. The increase is primarily due to higher fixed and variable compensation expenses and higher amortization due to acceleration of certain trade names. Corporate costs increased to$23.3 million in the second quarter of 2021 from$17.0 million during the same period in 2020 primarily as a result of a charge related to recording a contingent reserve for a Corporate transaction indemnity as well as higher professional fees related to acquisitions and a strategy project. As a percentage of sales, selling, general and administrative expenses were 21.1% for the second quarter of 2021, down 30 basis points compared to 21.4% during the same period in 2020. The Company incurred$3.1 million of restructuring expenses and asset impairments in the second 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. The restructuring expenses in the second quarter of 2020 all related to severance benefits. Operating income of$158.3 million and operating margin of 23.1% in the second quarter of 2021 were up from$110.6 million and 19.7%, respectively, during the same period in 2020. The increase in operating income and operating margin were driven by higher volume and price capture, partially offset by inflation, supply chain constraints, a recovery in discretionary spending and a charge related to recording a contingent reserve for a Corporate transaction indemnity. Other (income) expense - net increased to$17.2 million of expense in the second quarter of 2021 compared to$6.5 million of expense during the same period in 2020, primarily due to a$9.7 million noncash loss related to the termination of theU.S pension plan and$0.8 million of lower gains on pension-related investments. Other (income) and expense - net includes a loss on early debt redemption of$8.6 million for the three months endedJune 30, 2021 and$8.4 million for the three months endedJune 30, 2020 . Interest expense of$11.2 million in the second quarter of 2021 was lower than the$12.4 million during the same period in 2020 due to lower interest expense on the new 2.625% Senior Notes issued during the second quarter of 2021 and borrowings under the Revolving Facility in 2020 that did not reoccur in 2021. 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$27.7 million in the second quarter of 2021 compared to$20.8 million during the same period in 2020. The effective tax rate decreased to 21.3% in the second quarter of 2021 compared to 38 -------------------------------------------------------------------------------- Table of Content 22.7% during the same period in 2020 primarily due to the impact of the finalization of the Global Intangible Low-Tax Income ("GILTI") regulations enacted post second quarter of 2020 as well as an increase in the Foreign-Derived Intangible Income ("FDII") deduction due to an increase in US foreign sourced income. Net income attributable to IDEX of$102.2 million in the second quarter of 2021 increased from$70.9 million during the same period in 2020. Diluted earnings per share of$1.34 in the second quarter of 2021 increased from$0.93 during the same period in 2020. For the three months endedJune 30, 2021 , Fluid & Metering Technologies contributed 37% of sales, 35% of operating income and 33% of EBITDA; Health & Science Technologies contributed 40% of sales, 42% of operating income and 45% of EBITDA; and Fire & Safety/Diversified Products contributed 23% of sales, 23% of operating income and 22% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA. Fluid & Metering Technologies Segment (In thousands) Three Months Ended June 30, 2021 2020 Net sales$ 251,277 $ 219,112 Operating income 63,467 50,938 Operating margin 25.3 % 23.2 % Sales of$251.3 million increased$32.2 million , or 15%, in the second quarter of 2021 compared to the same period in 2020. This reflects an 8% increase in organic sales, a 4% percent increase from acquisitions (ABEL -March 2021 and Flow MD -February 2020 ) and a 3% favorable impact from foreign currency translation. In the second quarter of 2021, sales decreased 2% domestically and increased 42% internationally compared to the same period in 2020. Sales to customers outside theU.S. were approximately 48% of total segment sales in the second quarter of 2021 compared to 39% during the same period in 2020. Sales within the Company's Pumps reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to the acquisition of ABEL, recovery within the industrial market and the favorable impact of foreign currency translation. Sales within the Company's Water reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to municipal water recovery, water saving projects and the favorable impact of foreign currency translation. Sales within the Company's Valves reporting unit increased in the second quarter of 2021 compared to the same period in 2020 primarily due to a rebound of the global industrial landscape and the favorable impact of foreign currency translation. Sales within the Company's Agriculture reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to increased demand across theU.S. ,Europe andBrazil . Sales within the Company's Energy reporting unit decreased in the second quarter of 2021 compared to the same period in 2020 due to delayed capital spending in the oil and gas markets. Operating income of$63.5 million and operating margin of 25.3% in the second quarter of 2021 were higher than$50.9 million and 23.2%, respectively, recorded during the same period in 2020, primarily due to higher volume, price capture, favorable mix, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Health & Science Technologies Segment (In thousands) Three Months Ended June 30, 2021 2020 Net sales$ 275,012 $ 215,668 Operating income 75,963 48,007 Operating margin 27.6 % 22.3 % Sales of$275.0 million increased$59.3 million , or 28%, in the second quarter of 2021 compared to the same period in 2020. This reflects a 25% increase in organic sales and a 4% favorable impact from foreign currency translation, partially offset by a 1% decrease from divestitures. In the second quarter of 2021, sales increased 22% domestically and 32% internationally compared to the same period in 2020. Sales to customers outside theU.S. were approximately 59% of total segment sales in the second quarter of 2021 compared to 57% during the same period in 2020. 39 -------------------------------------------------------------------------------- Table of Content Sales within the Company's Sealing Solutions reporting unit increased in the second quarter of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation, strength in the semiconductor market and a rebound in the automotive market. Sales within the Company's Scientific Fluidics & Optics reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to the favorable impact of foreign currency translation, recovery in analytical instrumentation as well as microfluidics and optics demand. Sales within the Company'sMicropump reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to recovery of demand in the inkjet printing market. Sales within the Company's Performance Pneumatic Technologies reporting unit increased in the second 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 Material Processing Technologies reporting unit increased in the second quarter of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation and increased demand in the food and pharmaceutical markets. Operating income of$76.0 million and operating margin of 27.6% in the second quarter of 2021 were higher than$48.0 million and 22.3%, respectively, recorded during the same period in 2020, primarily due to higher volume, price capture and favorable mix, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Fire & Safety/Diversified Products Segment (In thousands) Three Months Ended June 30, 2021 2020 Net sales$ 160,812 $ 127,076 Operating income 42,797 28,837 Operating margin 26.6 % 22.7 % Sales of$160.8 million increased$33.7 million , or 27%, in the second quarter of 2021 compared to the same period in 2020. This reflects a 22% increase in organic sales and a 5% favorable impact from foreign currency translation. In the second quarter of 2021, sales increased 13% domestically and 40% internationally compared to the same period in 2020. Sales to customers outside theU.S. were approximately 55% of total segment sales in the second quarter of 2021 compared to 50% during the same period in 2020. Sales within the Company's Dispensing reporting unit increased in the second quarter of 2021 compared to the same period in 2020 primarily due to strong recovery from COVID-19 in the paint market. Sales within the Company's Band-It reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to the favorable impact of foreign currency translation as well as a rebound in the automotive, energy and industrial markets. Sales within the Company's Fire & Safety reporting unit increased in the second quarter of 2021 compared to the same period in 2020 due to the favorable impact of foreign currency translation and recovery of the market globally for the Fire business. Operating income of$42.8 million and operating margin of 26.6% in the second quarter of 2021 were higher than$28.8 million and 22.7%, respectively, during the same period in 2020, primarily due to higher volume and price capture, partially offset by inflation and a recovery in discretionary spending. Consolidated Results for the Six Months EndedJune 30, 2021 Compared with the Same Period in 2020 (In thousands) Six Months Ended June 30, 2021 2020 Net sales$ 1,337,983 $ 1,155,711 Operating income 313,803 250,535 Operating margin 23.5 % 21.7 % Sales in the first six months of 2021 were$1,338.0 million , which was a 16% increase compared to the same period in 2020. This reflects an 11% increase in organic sales, a 4% favorable impact from foreign currency translation and a 1% increase from acquisitions (ABEL -March 2021 and Flow MD -February 2020 ). Sales to customers outside theU.S. represented approximately 54% of total sales in the first six months of 2021 compared to 49% during the same period in 2020. Gross profit of$598.7 million in the first six months of 2021 increased$91.9 million , or 18%, compared to the same period in 2020 and gross margin of 44.7% in the first six months of 2021 increased 90 basis points from 43.8% during the same period in 2020 as a result of higher volume and price capture, partially offset by inflation and supply chain constraints. 40
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Selling, general and administrative expenses increased to$279.5 million in the first six months of 2021 from$252.4 million during the same period in 2020, primarily due to higher fixed and variable compensation expenses and higher amortization due to acceleration of certain trade names. Corporate costs increased to$41.3 million in the first six months of 2021 compared to$34.5 million during the same period in 2020 primarily due to a charge related to recording a contingent reserve for a Corporate transaction indemnity as well as higher professional fees related to acquisitions and a strategy project. As a percentage of sales, selling, general and administrative expenses were 20.8% for the first six months of 2021, down 100 basis points compared to 21.8% during the same period in 2020. The Company incurred$5.4 million of restructuring expenses and asset impairments in the first six months 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. The restructuring expenses in the first six months of 2020 all related to severance benefits. Operating income of$313.8 million and operating margin of 23.5% in the first six months of 2021 were up from the$250.5 million and 21.7%, respectively, recorded during the same period in 2020. The increases in operating income and operating margin are primarily due to higher volume and price capture, partially offset by inflation, supply chain constraints, a recovery in discretionary spending and a charge related to recording a contingent reserve for a Corporate transaction indemnity. Other (income) expense - net was$16.3 million of expense in the first six months of 2021 compared to$8.0 million of expense during the same period in 2020, primarily due to a$9.7 million noncash loss related to the termination of theU.S pension plan, partially offset by$0.7 million higher gains on pension-related investments. Other (income) and expense - net includes a loss on early debt redemption of$8.6 million for the six months endedJune 30, 2021 and$8.4 million for the six months endedJune 30, 2020 . Interest expense of$22.0 million in the first six months of 2021 was slightly lower than the$23.3 million during the same period in 2020 due to lower interest expense on the new 2.625% Senior Notes issued during the second quarter of 2021 and borrowings under the Revolving Facility in 2020 that did not reoccur in 2021. The provision for income taxes increased to$60.6 million in the first six months of 2021 compared to$46.3 million during the same period in 2020. The effective tax rate increased to 22.0% in the first six months of 2021 compared to 21.1% during the same period in 2020 primarily due to a decrease in the excess tax benefits related to share-based compensation offset by the impact of the final GILTI regulations and increase in FDII deduction. Net income attributable to IDEX of$214.9 million in the first six months of 2021 increased from$172.9 million during the same period in 2020. Diluted earnings per share of$2.81 in the first six months of 2021 increased$0.54 , or 24%, compared to the same period in 2020. For the six months endedJune 30, 2021 , Fluid & Metering Technologies contributed 37% of sales, 35% of operating income and 34% of EBITDA; Health & Science Technologies contributed 39% of sales, 40% of operating income and 42% of EBITDA; and Fire & Safety/Diversified Products contributed 24% of sales, 25% of operating income and 24% of EBITDA. These percentages are calculated on the basis of total segment (not total Company) sales, operating income and EBITDA. Fluid & Metering Technologies Segment (In thousands) Six Months Ended June 30, 2021 2020 Net sales$ 494,642 $ 445,973 Operating income 126,364 117,709 Operating margin 25.5 % 26.4 % Sales of$494.6 million increased$48.7 million , or 11%, in the first six months of 2021 compared to the same period in 2020. This reflects a 5% increase in organic sales, a 3% increase from acquisitions (ABEL -March 2021 and Flow MD -February 2020 ) partially offset by divestitures (CiDRa Precision Services -March 2021 ) and a 3% favorable impact from foreign currency translation. In the first six months of 2021, sales were flat domestically and increased 27% internationally compared to the same period in 2020. Sales to customers outside theU.S. were approximately 47% of total segment sales in the first six months of 2021 compared to 41% during the same period in 2020. 41 -------------------------------------------------------------------------------- Table of Content Sales within the Company's Pumps reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the acquisition of ABEL, recovery within the industrial market and the favorable impact of foreign currency translation. Sales within the Company's Agriculture reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to increased demand across theU.S. ,Europe andBrazil . Sales within the Company's Water reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation, municipal water recovery and water saving projects. Sales within the Company's Valves reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation. Sales within the Company's Energy reporting unit decreased in the first six months of 2021 compared to the same period in 2020 primarily due to a decline in capital spending in the oil and gas markets. Operating income of$126.4 million in the first six months of 2021 was higher than the$117.7 million recorded during the same period in 2020 while operating margin of 25.5% in the first six months of 2021 was lower than the 26.4% recorded during the same period in 2020. The increase in operating income is primarily due to higher volume, price capture and favorable mix, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Health & Science Technologies Segment (In thousands) Six Months Ended June 30, 2021 2020 Net sales$ 525,381 $ 439,727 Operating income 142,613 100,650 Operating margin 27.1 % 22.9 % Sales of$525.4 million increased$85.7 million , or 19%, in the first six months of 2021 compared to the same period in 2020. This reflects a 16% increase in organic sales and a 3% favorable impact from foreign currency translation. In the first six months of 2021, sales increased 10% domestically and 27% internationally compared to the same period in 2020. Sales to customers outside theU.S. were approximately 61% of total segment sales in the first six months of 2021 compared to 57% during the same period in 2020. Sales within the Company's Sealing Solutions reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the favorable impact from foreign currency translation, strength in the semiconductor market and a rebound in the automotive market. Sales within the Company's Material Processing Technologies reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the favorable impact from foreign currency translation and increased demand in the food and pharmaceutical markets. Sales within the Company's Scientific Fluidics & Optics reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation, recovery in analytical instrumentation and strength in microfluidics and optics end markets, partially offset by divestitures. Sales within the Company's Performance Pneumatic Technologies reporting unit increased in the first six months 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'sMicropump reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to recovery of demand in the inkjet printing market. Operating income of$142.6 million and operating margin of 27.1% in the first six months of 2021 were higher than the$100.7 million and 22.9%, respectively, recorded during the same period in 2020, primarily due to higher volume, price capture and favorable mix, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Fire & Safety/Diversified Products Segment (In thousands) Six Months Ended June 30, 2021 2020 Net sales$ 320,296 $ 271,400 Operating income 87,357 66,874 Operating margin 27.3 % 24.6 % Sales of$320.3 million increased$48.9 million , or 18%, in the first six months of 2021 compared to the same period in 2020. This reflects a 14% increase in organic sales and a 4% favorable impact from foreign currency translation. In the first six 42 -------------------------------------------------------------------------------- Table of Content months of 2021, sales increased 6% domestically and 30% internationally compared to the same period in 2020. Sales to customers outside theU.S. were approximately 54% of total segment sales in the first six months of 2021 compared to 49% during the same period in 2020. Sales within the Company's Dispensing reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to a strong recovery from COVID-19 in the paint market and the favorable impact of foreign currency translation. Sales within the Company's Band-It reporting unit increased in the first six months 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. Sales within the Company's Fire & Safety reporting unit increased in the first six months of 2021 compared to the same period in 2020 primarily due to the favorable impact of foreign currency translation and recovery of the market globally for the Fire business. Operating income of$87.4 million and operating margin of 27.3% in the first six months of 2021 were higher than the$66.9 million and 24.6%, respectively, recorded during the same period in 2020, primarily due to higher volume and price capture, partially offset by inflation, supply chain constraints and a recovery in discretionary spending.
Liquidity and Capital Resources
Operating Activities
Cash flows from operating activities for the first six months of 2021 decreased$8.6 million , or 3%, to$245.6 million compared to the first six months of 2020 primarily due to volume driven increases in working capital and timing of tax payments, partially offset by higher earnings. AtJune 30, 2021 , working capital was$1,043.3 million and the Company's current ratio was 3.3 to 1. AtJune 30, 2021 , the Company's cash and cash equivalents totaled$714.4 million , of which$519.3 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 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.
Investing Activities
Cash flows used in investing activities for the first six months of 2021 increased by$468.8 million to$609.3 million compared to the same period in 2020, primarily due to higher cash outflows for acquisitions and higher capital expenditures. Cash flows from operations were more than adequate to fund capital expenditures of$30.6 million and$21.1 million in the first six months 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 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. 43
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Financing Activities
Cash flows provided by financing activities for the first six months of 2021 were$64.0 million compared to$2.1 million provided by financing activities during the same period in 2020, primarily due to lower share repurchases, partially offset by higher payments of Senior Notes.
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 ofJune 30, 2021 , there was no balance outstanding under the Revolving Facility and$7.2 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of$792.8 million . The Company believes that additional borrowings through various financing alternatives remain available, if required. OnMay 28, 2021 , the Company completed a public offering of$500.0 million in aggregate principal amount of 2.625% Senior Notes dueJune 2031 (the "2.625% Senior Notes"). The net proceeds from the offering were approximately$494.8 million , after deducting the issuance discount of$0.6 million , the underwriting commission of$3.3 million and offering expenses of$1.3 million . The net proceeds were used to redeem and repay the$350.0 million aggregate principal amount outstanding of its 4.2% Senior Notes dueDecember 15, 2021 and a make-whole redemption premium, with the balance used for general corporate purposes. The 2.625% Senior Notes bear interest at a rate of 2.625% per annum, which is payable semi-annually in arrears onJune 15 andDecember 15 of each year. The 2.625% Senior Notes mature onJune 15, 2031 . The 2.625% Senior Notes were issued under an Indenture, dated as ofDecember 6, 2010 (the "Base Indenture"), between the Company andWells Fargo Bank, National Association , as trustee (the "Trustee"), as supplemented by the Fourth Supplemental Indenture, dated as ofMay 28, 2021 (the "Supplemental Indenture" and, together with the Base Indenture and other supplements thereto, the "Indenture"), between the Company and the Trustee. OnApril 29, 2020 , the Company completed a public offering of$500.0 million in aggregate principal amount of its 3.0% Senior Notes dueMay 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 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 . 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, 2021 , there was no balance outstanding under the Revolving Facility and$7.2 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of$792.8 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%. 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 44 -------------------------------------------------------------------------------- Table of Content (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. 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, 2021 , the Company was in compliance with both of these financial covenants, as the Company's interest coverage ratio was 16.07 to 1 and the leverage ratio was 1.66 to 1. There are no financial covenants relating to the 3.0% Senior Notes or the 2.625% 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.
Share Repurchases
OnMarch 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 onDecember 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 six months endedJune 30, 2021 . During the six months endedJune 30, 2020 , the Company repurchased a total of 876 thousand shares at a cost of$110.3 million . As ofJune 30, 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 withU.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 a fair value inventory step-up charge, restructuring expenses and asset impairments, a charge related to recording a contingent reserve for a Corporate transaction indemnity, the loss on early debt redemption and the noncash loss related to the termination of theU.S. pension plan, 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. 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 45 -------------------------------------------------------------------------------- Table of Content 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 a fair value inventory step-up charge, restructuring expenses and asset impairments, a charge related to recording a contingent reserve for a Corporate transaction indemnity, the loss on early debt redemption and the noncash loss related to the termination of theU.S. pension plan. Management also supplements itsU.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 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 15 % 28 % 27 % 22 %
- Impact from acquisitions/divestitures 4 % (1 %) - % 1 %
- Impact from foreign currency 3 % 4 % 5 % 4 %
Change in organic net sales 8 % 25 % 22 % 17 %
Six Months Ended June 30, 2021
FMT HST FSDP IDEX
Change in net sales 11 % 19 % 18 % 16 %
- Impact from acquisitions/divestitures 3 % - % - % 1 %
- Impact from foreign currency 3 % 3 % 4 % 4 %
Change in organic net sales 5 % 16 % 14 % 11 %
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Table of Content 2. Reconciliations of Reported-to-Adjusted Gross Profit and Margin
(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Gross profit $ 306,072 $
234,800
1,822 4,107 2,486 4,107
Adjusted gross profit $ 307,894 $ 238,907 $ 601,181 $ 510,863
Net sales $ 685,947 $ 561,249 $ 1,337,983 $ 1,155,711
Gross profit margin 44.6 % 41.8 % 44.7 % 43.8 %
Adjusted gross profit margin 44.9 % 42.6 % 44.9 % 44.2 %
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 and asset impairments 1,910 442 119 665 3,136 + Fair value inventory step-up charge 1,822 - - - 1,822 + Corporate transaction indemnity - - - 3,900 3,900
Adjusted operating income (loss)
Net sales (eliminations)$ 251,277 $ 275,012
Operating margin 25.3 % 27.6 % 26.6 % n/m 23.1 %
Adjusted operating margin 26.7 % 27.8 % 26.7 % n/m 24.4 %
Three Months Ended June 30, 2020
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
$ 28,837 $ (17,188) $ 110,594 + Restructuring expenses and asset impairments 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
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 %
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Six
Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
+ Restructuring expenses and asset impairments 2,853 1,067 216 1,228 5,364 + Fair value inventory step-up charge 2,486 - - - 2,486 + Corporate transaction indemnity - - - 3,900 3,900
Adjusted operating income (loss)
Net sales (eliminations)$ 494,642 $ 525,381
Operating margin 25.5 % 27.1 % 27.3 % n/m 23.5 %
Adjusted operating margin 26.6 % 27.3 % 27.3 % n/m 24.3 %
Six Months Ended June 30, 2020
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
+ Restructuring expenses and asset impairments 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 %
4. Reconciliations of Reported-to-Adjusted Net Income and EPS
(in thousands, except EPS) Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Reported net income attributable to IDEX $ 102,195 + Restructuring expenses and asset impairments 3,136 3,841 5,364 3,841 + Tax impact on restructuring expenses and asset impairments (756) (837) (1,289) (837) + Fair value inventory step-up charge 1,822 4,107 2,486 4,107 + Tax impact on fair value inventory step-up charge (547) (932) (746) (932) + Loss on early debt redemption 8,561 8,421 8,561 8,421 + Tax impact on loss on early debt redemption (1,841) (1,912) (1,841) (1,912) + Termination of the U.S. pension plan 9,688 - 9,688 - + Tax impact on termination of theU.S. pension plan (2,083) - (2,083) - + Corporate transaction indemnity 3,900 - 3,900 - + Tax impact on Corporate transaction indemnity (839) - (839) - Adjusted net income attributable to IDEX$ 123,236
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Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Reported EPS attributable to IDEX $ 1.34 $
0.93 $ 2.81
+ Restructuring expenses and asset impairments 0.04 0.05 0.07 0.05 + Tax impact on restructuring expenses and asset impairments (0.01) (0.01) (0.02) (0.01) + Fair value inventory step-up charge 0.02 0.05 0.03 0.05 + Tax impact on fair value inventory step-up charge (0.01) (0.01) (0.01) (0.01) + Loss on early debt redemption 0.11 0.11 0.11 0.11 + Tax impact on loss on early debt redemption (0.02) (0.02) (0.02) (0.02) + Termination of the U.S. pension plan 0.13 - 0.13 $ - + Tax impact on termination of theU.S. pension plan (0.03) - (0.03) $ - + Corporate transaction indemnity 0.05 - 0.05 $ - + Tax impact on Corporate transaction indemnity (0.01) - (0.01) $ - Adjusted EPS attributable to IDEX $ 1.61 $
1.10 $ 3.11
Diluted weighted average shares 76,429 75,937 76,385 76,198
5. Reconciliations of EBITDA to Net
Income
(dollars in thousands) Three Months Ended June 30, 2021
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 63,467 $ 75,963 $ 42,797 $ (23,971) $ 158,256
- Other (income) expense - net 5,575 291 2,054 9,255 17,175
+ Depreciation and amortization 7,953 12,534 3,851 111 24,449
EBITDA 65,845 88,206 44,594 (33,115) 165,530
- Interest expense 11,205
- Provision for income taxes 27,697
- Depreciation and amortization 24,449
Net income $ 102,179
Net sales (eliminations) $ 251,277 $ 275,012 $ 160,812 $ (1,154) $ 685,947
Operating margin 25.3 % 27.6 % 26.6 % n/m 23.1 %
EBITDA margin 26.2 % 32.1 % 27.7 % n/m 24.1 %
EBITDA interest coverage 14.8
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Three
Months Ended
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 %
EBITDA interest coverage 10.0
Six
Months Ended
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 126,364 $ 142,613 $ 87,357 $ (42,531) $ 313,803
- Other (income) expense - net 5,584 (54) 1,783 9,014 16,327
+ Depreciation and amortization 15,006 23,047 7,723 217 45,993
EBITDA 135,786 165,714 93,297 (51,328) 343,469
- Interest expense 21,981
- Provision for income taxes 60,644
- Depreciation and amortization 45,993
Net income $ 214,851
Net sales (eliminations) $ 494,642 $ 525,381 $ 320,296 $ (2,336) $ 1,337,983
Operating margin 25.5 % 27.1 % 27.3 % n/m 23.5 %
EBITDA margin 27.5 % 31.5 % 29.1 % n/m 25.7 %
EBITDA interest coverage 15.6
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Six
Months Ended
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 %
EBITDA interest coverage 12.1
6. Reconciliations of EBITDA to Adjusted EBITDA
(dollars in thousands) Three Months Ended June 30, 2021
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 65,845 $ 88,206 $ 44,594 $ (33,115) $ 165,530
+ Restructuring expenses and asset
impairments 1,910 442 119 665 3,136
+ Fair value inventory step-up charge 1,822 - - - 1,822
+ Loss on early debt redemption - - - 8,561 8,561
+ Termination of the U.S. pension plan 6,293 - 1,782 1,613 9,688
+ Corporate transaction indemnity - - - 3,900 3,900
Adjusted EBITDA $ 75,870 $ 88,648 $ 46,495 $ (18,376) $ 192,637
Adjusted EBITDA margin 30.2 % 32.2 % 28.9 % n/m 28.1 %
Adjusted EBITDA interest coverage 17.2
Three Months Ended June 30, 2020
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 57,829 $ 57,452 $ 32,510 $ (23,031) $ 124,760
+ Restructuring expenses and asset
impairments 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 %
Adjusted EBITDA interest coverage 11.3
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Six Months Ended June 30, 2021
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 135,786 $ 165,714 $ 93,297 $ (51,328) $ 343,469
+ Restructuring expenses and asset
impairments 2,853 1,067 216 1,228 5,364
+ Fair value inventory step-up
charge 2,486 - - - 2,486
+ Loss on early debt redemption - - - 8,561 8,561
+ Termination of the U.S. pension
plan 6,293 - 1,782 1,613 9,688
+ Corporate transaction indemnity - - - 3,900 3,900
Adjusted EBITDA $ 147,418 $ 166,781 $ 95,295 $ (36,026) $ 373,468
Adjusted EBITDA margin 29.8 % 31.7 % 29.8 % n/m 27.9 %
Adjusted EBITDA interest coverage 17.0
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 and asset
impairments 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 $ (33,416) $ 299,502
Adjusted EBITDA margin 30.3 % 27.9 % 27.7 % n/m 25.9 %
Adjusted EBITDA interest coverage 12.8
(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
(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Cash flows from operating activities
$ 245,596 $ 254,213 - Capital expenditures 15,984 8,323 30,593 21,085 Free cash flow$ 120,288 $ 161,130 $ 215,003 $ 233,128
Critical Accounting Policies
As discussed in the Annual Report on Form 10-K for the year endedDecember 31, 2020 , 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, 2020 . 52
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