Adjusted EBITDA Reconciliation
Adjusted EBITDA represents net income before interest, taxes, depreciation and amortization, gains or losses on interest rate swaps and class survey costs. Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by United States generally accepted accounting principles, or U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to that reported by other companies. Adjusted EBITDA is included herein because it is a basis upon which the Company measures its operations and efficiency. Adjusted EBITDA is also used by our lenders as a measure of our compliance with certain covenants contained in our loan agreements and because the Company believes that it presents useful information to investors regarding a company's ability to service and/or incur indebtedness.
The following table reconciles net income to Adjusted EBITDA:
Three Months Ended Nine Months Ended(Dollars in thousands) September 30, September 30, ------------------- ------------------- 2011 2012 2011 2012 --------- -------- -------- ---------Net income/(loss) $ 49,134 (12,179) 59,567 $ (61,322)Add: Net interest expense 17,020 29,222 24,600 86,048Add: Depreciation and amortization 43,095 56,538 108,003 168,025Add: Income taxes 7,778 10,975 17,556 32,603Add: Loss on interest rate swaps 15,542 21,174 34,158 32,114Add: Class survey costs - 16,773 15,258 21,579 --------- -------- -------- ---------Adjusted EBITDA $ 132,569 122,503 259,142 $ 279,047 ========= ======== ======== =========
Drill Rigs Holdings Inc. - Supplemental Information
The Leiv Eiriksson will commence its mobilization from the Falkland Islands to Norway in mid December. Upon arrival, the rig is scheduled to go on drydock at a Norwegian yard to complete scheduled equipment and winterization upgrades related to the Rig Management contract. It will then undergo acceptance testing at the drilling location in Norway and is expected to commence drilling operations that will last for three years on or before mid April. The Company will receive approximately $82.0 million for mobilization plus fuel costs and equipment upgrades. We estimate total upgrade costs to be approximately $90.0 million. All such revenues received and the majority of costs, including operating expenses, incurred during this period, will be capitalized and expensed through the duration of the Rig Management contract.
The Eirik Raude contract with Ophir Services finished in September 2012. The Eirik Raude then mobilized from Equatorial Guinea to Las Palmas, Spain, where she arrived on October 8, 2012 in order to commence its scheduled 10-year class survey. During the class survey works and drydock, the unit is earning zero revenue and operating expenses are accounted for on an "as incurred" basis. The majority of actual drydock- and class survey-related expenses currently expected to be up to $65.0 million will also be accounted for on an "as incurred" basis. The Eirik Raude is expected to leave the shipyard on or before December 15, 2012. While most of these expenses will be incurred in the fourth quarter of 2012, we already incurred approximately $17.0 million in expenses during the third quarter of 2012 and $5.0 million during the first half of 2012. Following the completion of the scheduled 10-year class survey, the Eirik Raude will mobilize to Liberia with expected mobilization fees of $15.0 million plus fuel costs to commence the contract with European Hydrocarbons.