IDEX CORP /DE/ (IEX) FY 2021 MD&A

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and related notes in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Company’s actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this annual report.

This discussion includes certain non-GAAP financial measures that have been defined and reconciled to their most directly comparable U.S. GAAP measures later in this Item under the headings “Non-GAAP Disclosures” and “Free Cash Flow.” This discussion also includes Operating working capital which has been defined later in this Item under the heading “Cash Flow Summary.” The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

2021 Overview

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

In 2021, the Company achieved a record year in sales, earnings per share and capital deployment as robust demand, targeted growth initiatives and the ability to capture price drove a strong rebound from 2020. Throughout the year, teams steadily navigated continued headwinds arising from material availability, logistical challenges and pandemic-related absenteeism exacerbated by the emergence of new COVID-19 variants. Despite these challenges, the Company expanded operating margin in a highly inflationary environment as previous investments to optimize cost position and productivity initiatives delivered value together with diligent price capture where possible. Finally, the Company delivered strong cash flow and deployed record capital, both within its existing portfolio and with the addition of ABEL and Airtech to the IDEX family of businesses.

Select key financial results for the year ended December 31, 2021 when compared to 2020 were as follows:

•Sales of $2.8 billion increased 18%; organic sales (which excludes acquisitions/divestitures and foreign currency translation) were up 12%.

•Operating income of $637.0 million increased 22%. Adjusted operating income increased 23% to $661.4 million.

•Operating margin of 23.0% was up 90 basis points. Adjusted operating margin increased 110 basis points to 23.9%.

•Net income attributable to IDEX of $449.4 million increased 19%. Adjusted net income attributable to IDEX increased 21% to $481.6 million.

•EBITDA of $723.8 million was 26% of sales and covered interest expense by almost 18 times. Adjusted EBITDA of $765.4 million was 28% of sales and covered interest expense by almost 19 times.

•Diluted EPS attributable to IDEX of $5.88 increased $0.94, or 19%. Adjusted EPS attributable to IDEX of $6.30 increased $1.11, or 21%.

•Cash flows provided by operating activities of $565.3 million was flat as strong operating results were offset by volume-driven increases in working capital. Free cash flow of $492.6 million was 102% of adjusted net income attributable to IDEX.

Focus and Outlook for 2022

During 2022, the Company’s primary focus will be to:

•Navigate the Short Term while Innovating for the Future. Demand for the Company’s differentiated technology remains strong. However, the degree to which the difficult supply chain and COVID-19 environment will persist remains highly variable, and the Company will continue to navigate the day-to-day operational challenges posed by external conditions. At the same time, the Company remains focused on the longer-term. The Company will continue to support efficient, innovative, value-creating processes and invest in resources necessary to ensure its businesses are well-positioned to take advantage of the growth potential ahead.

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•Build Great Global Teams. The Company is committed to its core values and will continue to develop top performing teams. DE&I remains an area of focus as the Company looks to continue its trajectory in creating environments where people feel like they belong and are comfortable bringing their true selves to work.

•Deploy Capital. The Company deployed record capital in 2021 and has identified several organic investment opportunities that will result in even higher capital spending in 2022. Additionally, the pipeline for potential acquisitions continues to be strong. The Company anticipates deploying additional capital in 2022 to acquire IDEX-like businesses to further strengthen its portfolio.

Results of Operations

The following is a discussion and analysis of the Company’s results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020. For the discussion related to the results of operations for the year ended December 31, 2020 compared with the year ended December 31, 2019, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021.

Performance in 2021 Compared with 2020

Sales increased 18%, reflecting a 12% increase in organic sales, a 4% increase from acquisitions (Airtech - June 2021, ABEL - March 2021 and Flow MD - February 2020) and a 2% favorable impact from foreign currency translation. Sales increased 15% domestically and 20% internationally, and sales to customers outside the U.S. were approximately 52% and 51% of total sales in 2021 and 2020, respectively.

Cost of sales increased due to higher sales volume and cost inflation. Both gross profit and gross margin increased primarily due to volume leverage, partially offset by higher fair value inventory step-up charges related to acquisitions. Additionally, gross profit increased as a result of favorable price/cost.

Selling, general and administrative (“SG&A”) expenses increased primarily due to higher variable compensation and employee-related costs, higher amortization from acquisitions and higher acquisition expenses.

The Company incurred restructuring expenses and asset impairments in 2021 and 2020 primarily related to severance benefits for cost reduction actions as well as asset impairments related to the consolidation of certain facilities.

Operating income increased 22%, reflecting a 20% increase in organic operating income, a 1% favorable impact from lower restructuring costs and a 2% favorable impact from foreign currency translation, partially offset by a 1% decrease driven by higher amortization and fair value inventory step-up charges related to acquisitions (Airtech - June 2021, ABEL - March

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2021 and Flow MD - February 2020). The increase in organic operating income is primarily due to higher volume leverage and favorable price/cost, partially offset by incremental resource investments and targeted discretionary spending.

Operating margin increased 90 basis points, reflecting a 170 basis point increase in organic operating margin and a 10 basis point favorable impact from lower restructuring costs, partially offset by a 90 basis point decrease due to acquisitions, which was driven by higher amortization and fair value inventory step-up charges. The increase in organic operating margin is primarily due to higher volume leverage, partially offset by incremental resource investments and targeted discretionary spending.

Other expense - net increased primarily due to an $8.6 million noncash loss related to the termination of the U.S. pension plan, net of curtailment, and $2.3 million of higher losses on trading securities in 2021. Other expense - net includes a loss on early debt redemption of $8.6 million in 2021 and $8.4 million in 2020.

Interest expense decreased primarily due to lower interest rates on the Company’s indebtedness, partially offset by an increase in the amount of debt outstanding compared with 2020.

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 and the effective tax rate increased as compared with 2020 due to a lower excess tax benefit related to share-based compensation in 2021 and the absence of a benefit from the finalization of the Global Intangible Low-Tax Income (“GILTI”) regulations that favorably impacted the 2020 effective tax rate.

Results of Reportable Business Segments

The Company has three reportable segments: Fluid & Metering Technologies (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”). For a detailed description of the operations within each segment, please refer to Part I, Item 1, “Business” of this Annual Report on Form 10-K.

•The FMT segment designs, produces and distributes positive displacement pumps, valves, 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 HST segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems, pneumatic components and sealing solutions, high performance molded and extruded sealing components, custom mechanical and shaft seals, engineered hygienic mixers and valves, biocompatible medical devices and implantables, air compressors and blowers, optical components and coatings, laboratory and commercial equipment, precision photonic solutions and precision gear and peristaltic pump technologies. HST serves a variety of end markets, including food and beverage, pharmaceutical and biopharmaceutical, cosmetics, marine, chemical, wastewater and water treatment, life sciences, research and defense markets.

•The FSDP segment designs, produces and distributes firefighting pumps, valves and controls, rescue tools, lifting bags, 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.

Within its three reportable segments, the Company maintains 13 reporting units where the Company focuses on organic growth and strategic acquisitions. Management’s primary measurements of segment performance are sales, operating income and operating margin. Segment operating income excludes unallocated corporate operating expenses.

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Fluid & Metering Technologies Segment

(1) Acquisitions included ABEL in March 2021 and Flow MD in February 2020. Based on the timing of its acquisition, Flow MD results for the first quarter of 2021 are reflected in the acquisitions/divestitures column while the remaining year-over-year fluctuation is included in the organic column.

•The change in organic sales was attributed to increases in the Pumps reporting unit due to recovery within the industrial market, in the Water reporting unit due to recovery of the municipal water market and water-saving growth projects and in the Agriculture reporting unit due to increased global demand, partially offset by a decrease in the Energy reporting unit due to a decline in capital spending in the oil and gas markets.

•Sales increased 5% domestically and 19% internationally. Sales to customers outside the U.S. were approximately 47% and 44% of total segment sales in 2021 and 2020, respectively.

•Operating margin of 26.0% decreased 20 basis points compared with 26.2% in 2020. The change in operating margin was attributed to the following:

◦Organic operating margin increased 80 basis points due to higher volume leverage, favorable price/cost and a fair value inventory step-up charge in 2020 related to the Flow MD acquisition that did not reoccur in 2021, partially offset by increases to inventory reserves associated with COVID-19 new product development opportunities not materializing and resource investments.

◦Acquisitions negatively impacted operating margin by 110 basis points due to:

•A $2.5 million fair value inventory step-up charge related to the ABEL acquisition, which lowered operating margin by 20 basis points;

•Incremental intangible asset amortization from the ABEL and Flow MD acquisitions of $4.0 million, which negatively impacted operating margin by 40 basis points; and

•The dilutive impact from acquisitions on overall FMT operating margin, which was primarily driven by the Flow MD acquisition.

Health & Science Technologies Segment

(1) Acquisitions included Airtech in June 2021.

•The change in organic sales was attributed to increases in the Scientific Fluidics & Optics reporting unit due to recovery within the analytical instrumentation market as well as increased microfluidics and optics demand, in the Sealing Solutions reporting unit due to strength in the semiconductor market and improvements in the automotive market and in the Material Processing Technologies reporting unit due to increased demand in the food and pharmaceutical markets.

•Sales increased 27% domestically and 24% internationally. Sales to customers outside the U.S. were approximately 56% and 57% of total segment sales in 2021 and 2020, respectively.

•Operating margin of 25.8% increased 280 basis points compared with 23.0% in 2020. The change in operating margin was attributed to the following:

◦Organic operating margin increased 410 basis points due to volume leverage and favorable price/cost, partially offset by targeted reinvestment.

◦Acquisitions negatively impacted operating margin by 130 basis points due to the contributions of the Airtech business, which were more than offset by:

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▪A $9.1 million fair value inventory step-up charge related to the Airtech acquisition, which lowered operating margin by 80 basis points; and

▪Incremental intangible asset amortization from the Airtech acquisition of $8.6 million, which negatively impacted operating margin by 70 basis points.

Fire & Safety/Diversified Products Segment

•The change in organic sales was attributed to increases in the Dispensing reporting unit due to strong demand in the paint market and in the BAND-IT reporting unit due to improvements in the aerospace, energy and industrial markets, partially offset by a decrease in the Fire & Safety reporting unit due to a lack of large tenders for rescue tools and North America Fire OEM supply chain constraints slowing order to revenue conversion.

•Sales increased 17% domestically and 13% internationally. Sales to customers outside the U.S. were approximately 51% and 52% of total segment sales in 2021 and 2020, respectively.

•Operating margin of 26.1% increased 50 basis points compared with 25.6% in 2020. The change in organic operating margin was attributed to higher volume, partially offset by unfavorable price/cost and mix.

Liquidity and Capital Resources

Liquidity

Although the COVID-19 pandemic (including the emergence of variant strains) 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, share repurchases 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.

At December 31, 2021, working capital was $1,198.0 million and the Company’s current ratio was 3.5 to 1. At December 31, 2021, the Company’s cash and cash equivalents totaled $855.4 million, of which $457.5 million was held outside of the United States. At December 31, 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.

Cash Flow Summary

The following table is derived from the Consolidated Statements of Cash Flows:

Operating Activities

Cash flows provided by operating activities decreased $4.0 million to $565.3 million in 2021, primarily due to increases in working capital discussed below, mostly offset by higher earnings.

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Operating working capital, calculated as accounts receivable plus inventory minus accounts payable, is used by management as a measurement of operational results as well as the short-term liquidity of the Company. The following table details operating working capital as of December 31, 2021 and 2020:

Operating working capital increased $117.0 million to $548.0 million at December 31, 2021, with acquisition, divestiture and foreign currency translation impacts primarily driving a net $44.4 million of the increase. Excluding these impacts, the increase in accounts receivables was $49.4 million, driven by higher revenues as demand rebounded from 2020 levels; inventories increased $46.1 million to address higher demand and build safety stock to support production amid supply chain difficulties; and trade accounts payable increased $22.9 million as a result of timing of inventory purchases.

Investing Activities

Cash flows used in investing activities increased $525.5 million to $698.1 million in 2021, primarily due to higher cash outflows for acquisitions with the addition of ABEL and Airtech in 2021 compared to Flow MD in 2020, for the purchase of marketable securities and for capital expenditures which significantly increased as the Company is expanding both its China and India facilities.

Financing Activities

Cash flows used in financing activities decreased $33.1 million to $9.5 million in 2021. During 2021, the Company issued $500.0 million of 2.2625% Senior Notes and redeemed $350.0 million of 4.2% Senior Notes due December 2021 and increased its quarterly cash dividend to $0.54, resulting in dividend payments of $161.1 million. During 2020, the Company issued $500.0 million of 3.0% Senior Notes and redeemed $300.0 million of 4.5% Senior Notes due December 2020, paid $151.8 million in dividends and repurchased 0.9 million shares at a cost of $110.3 million.

Free Cash Flow

The Company believes free cash flow, a non-GAAP measure, is an important measure of performance because it provides a measurement of cash generated from operations that is available for payment obligations such as planned capital expenditures, interest and principal payments on all borrowings and quarterly dividend payments to holders of the Company’s common stock as well as for funding acquisitions. Free cash flow is calculated as cash flows provided by operating activities less capital expenditures.

The following table reconciles free cash flow to cash flows provided by operating activities:

The decrease in free cash flow as compared to 2020 is due to a volume-driven build in working capital and higher investments in growth projects in 2021, including capital expenditures related to the expansion of facilities in China and India.

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Cash Requirements

Pending Acquisitions

As previously announced, on November 23, 2021, the Company entered into a definitive agreement to acquire Nexsight, LLC and its businesses for cash consideration of $120.0 million. The Company expects to close the transaction by the end of the first quarter of 2022, subject to regulatory approval and customary closing conditions.

Contractual Obligations

The Company’s contractual obligations include borrowings and related interest, purchase obligations, pension and post-retirement medical benefit plans, rental payments under operating leases, payments under capital leases, a transition tax payable and other obligations arising in the ordinary course of business (such as acquisition commitments). There are no identifiable events or uncertainties, including the lowering of the Company’s credit rating, which would accelerate payment or maturity of any of these commitments or obligations. For a description of the funding requirements related to the Company’s contractual obligations, refer to Note 4 (transition tax payable), Note 7 (borrowings and related interest), Note 10 (lease obligations), Note 18 (pension and post-retirement obligations) and Note 19 (acquisition commitments) in the Notes to Consolidated Financial Statements, respectively. As of December 31, 2021, the Company’s purchase obligations, consisting primarily of inventory commitments, totaled approximately $347.4 million, of which $320.4 million is expected to be settled during 2022 and the remainder thereafter.

Capital Expenditures

Cash flows from operations were more than adequate to fund capital expenditures of $72.7 million and $51.6 million in 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. The Company has invested a significant amount of capital to expand both the China and India facilities that will ultimately double the Company’s historic capacity in each of these countries. Otherwise, management believes that the Company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term.

Covenants

There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility and the 2016 Private Placement Notes, a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At December 31, 2021, the Company was in compliance with both of these financial covenants, as the Company’s interest coverage ratio was 20.12 to 1 for covenant calculation purposes and the leverage ratio was 1.52 to 1. There are no financial covenants relating to the 2.625% Senior Notes or the 3.00% Senior Notes; however, both are subject to cross-default provisions. For a discussion of the Company’s Revolving Facility and Senior Notes as well as the associated covenants, refer to Note 7 in the Notes to Consolidated Financial Statements.

Credit Ratings

The Company’s credit ratings, which were independently developed by the following credit agencies, are detailed below:

•S&P Global Ratings affirmed the Company’s corporate credit rating of BBB (stable outlook) in June 2021.

•Moody’s Investors Service affirmed the Company’s corporate credit rating of Baa2 (stable outlook) in December 2021.

•Fitch Ratings affirmed the Company’s corporate credit rating of BBB+ (stable outlook) in March 2021.

Share Repurchases

There were no share repurchases in 2021. The Company repurchased 0.9 million shares at a cost of $110.3 million in 2020. As of December 31, 2021, the amount of share repurchase authorization remaining was $712.0 million. For additional information regarding the Company’s share repurchase program, refer to Note 12 in the Notes to Consolidated Financial Statements.

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Dividends

The Company increased its quarterly cash dividend by 8% from $0.50 per common share in 2020 to $0.54 per common share in 2021. Total dividend payments to common shareholders were $161.1 million in 2021 compared with $151.8 million in 2020.

Critical Accounting Estimates

The Company believes that the application of the following accounting policy, which is important to its financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of the Company’s accounting policies, including the accounting policy discussed below, see Note 1 in the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”

Goodwill and intangible assets — The Company’s business acquisitions result in recording goodwill and other intangible assets, which affect the amount of amortization expense and possible impairment expense that the Company will incur in future periods. The Company evaluates the recoverability of certain noncurrent assets utilizing various estimation processes. The Company follows the guidance prescribed in Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets, to test goodwill and intangible assets for impairment. The Company determines the fair value of each reporting unit utilizing an income approach (discounted cash flows) weighted 50% and a market approach (consisting of a comparable public company multiples methodology) weighted 50%. The Company uses the relief-from-royalty method, a form of the income approach, to determine the fair value of its indefinite-lived intangible assets. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues, royalty rates and discount rates. To determine the reasonableness of the calculated fair values, the Company reviews the assumptions to ensure that neither the income approach nor the market approach yielded significantly different valuations. Based on the results of the Company’s annual impairment test at October 31, 2021, all reporting units had fair values substantially in excess of their carrying values.

The key assumptions are updated every year for each reporting unit for the income and market approaches used to determine the fair value. Various assumptions are utilized including forecasted operating results, annual operating plans, strategic plans, economic projections, anticipated future cash flows, the weighted average cost of capital, market data and market multiples. The assumptions that have the most significant effect on the fair value calculations are the weighted average cost of capital, market multiples, forecasted EBITDA and terminal growth rates. The following assumption ranges were utilized by the Company in 2021 and 2020:

See Note 6 for further discussion on goodwill and indefinite-lived intangible assets.

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Non-GAAP Disclosures

Set forth below are reconciliations of each of Organic sales, Adjusted gross profit (and adjusted gross margin), Adjusted operating income (and adjusted operating margin), Adjusted net income attributable to IDEX, Adjusted diluted earnings per share (“EPS”) attributable to IDEX, Earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA to its respective most directly comparable U.S. GAAP measure. Management uses these metrics to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as fair value inventory step-up charges, restructuring expenses and asset impairments, the impact of the settlement for a corporate transaction indemnity, losses on early debt redemptions and the loss related to the termination of the U.S. pension plan, net of curtailment. Management also supplements its U.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making. The reconciliation of segment EBITDA and Adjusted 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.

This report references organic sales and organic operating income, non-GAAP measures, that exclude (1) the impact of foreign currency translation and (2) sales and operating income, respectively, from acquired or divested businesses during the first 12 months of ownership or prior to divestiture. The portion of sales and operating income attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and organic operating income, respectively, and (b) the period-to-period change in organic sales and organic operating income, respectively, after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales and organic operating income 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 and operating performance with prior and future periods and to its peers. The Company excludes the effect of foreign currency translation from organic sales and organic operating income 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.

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 7 in the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” 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 as discussed above 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 also references free cash flow. This non-GAAP measure is discussed and reconciled to its most directly comparable GAAP measure in the section above titled “Cash Flow Summary.”

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

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

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