The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods presented:
Three Months Ended Year Ended December 31, December 31, ------------------ ------------------(Dollars in millions), (Unaudited) 2012 2011 2012 2011 -------- -------- -------- --------Net income $ 22.9 $ 14.5 $ 92.0 $ 72.2Add back: Income taxes 7.2 9.0 59.6 17.8 Interest expense, net of interest income 29.4 30.7 119.1 142.8 Depreciation and amortization 46.8 48.3 190.2 179.8 -------- -------- -------- --------EBITDA 106.3 102.5 460.9 412.6Adjustments 4.5 9.6 30.2 74.6Superstorm Sandy 9.1 -- 9.1 -- -------- -------- -------- --------Adjusted EBITDA $ 119.9 $ 112.1 $ 500.2 $ 487.2 ======== ======== ======== ========
KAR Auction Services, Inc.
Adjusted Net Income and Adjusted Net Income Per Share
Adjusted Net Income and Adjusted Net Income Per Share
The revaluation of certain assets of the company, and resultant increase in depreciation and amortization expense which resulted from the 2007 merger, as well as stock-based compensation expense incurred in connection with service and exit options tied to the 2007 merger, have had a continuing effect on our reported results. Non-GAAP measures of adjusted net income and adjusted net income per share, in the opinion of the company, provide comparability to other companies that may have not incurred these types of non-cash expenses. In the second quarter of 2011 we also recorded a charge representing the net premiums paid related to the repurchase of the 8 3/4% senior notes and 10% senior subordinated notes, the write-off of certain unamortized debt issuance costs associated with the notes and term loan, as well as certain expenses related to the prepayment. We also incurred a charge to settle and terminate our $650 million notional swap agreement in the second quarter of 2011. In 2012, we recorded contingent consideration related to certain prior year acquisitions, and in 2011, we reversed and recorded, respectively, contingent consideration related to certain prior year acquisitions. Lastly, in the fourth quarter of 2012, we incurred a net loss resulting from processing vehicles associated with Superstorm Sandy.
The following table reconciles adjusted net income and adjusted net income per share to net income and net income per share for the periods presented:
Three Months Ended Year Ended December 31, December 31, ------------------ ------------------(In millions, except per share amounts) 2012 2011 2012 2011 -------- -------- -------- --------Net income $ 22.9 $ 14.5 $ 92.0 $ 72.2 Loss on extinguishment of debt, net of tax (1) -- -- -- 33.2 Swap termination, net of tax (2) -- -- -- 9.0 Stepped up depreciation and amortization expense, net of tax (3) 7.3 9.3 32.5 38.6 Stock-based compensation, net of tax (4) 1.5 4.7 18.2 10.4 Contingent consideration adjustment, net of tax (5) 0.1 -- 0.7 (2.9) Superstorm Sandy, net of tax (6) 5.4 -- 5.4 -- -------- -------- -------- --------Adjusted net income $ 37.2 $ 28.5 $ 148.8 $ 160.5 ======== ======== ======== ========Net income per share - diluted $ 0.16 $ 0.11 $ 0.66 $ 0.52 Loss on extinguishment of debt, net of tax -- -- -- 0.24 Swap termination, net of tax -- -- -- 0.07 Stepped up depreciation and amortization expense, net of tax 0.05 0.07 0.23 0.28 Stock-based compensation, net of tax 0.01 0.03 0.13 0.07 Contingent consideration adjustment, net of tax 0.01 -- 0.01 (0.02) Superstorm Sandy, net of tax 0.04 -- 0.04 -- -------- -------- -------- --------Adjusted net income per share - diluted $ 0.27 $ 0.21 $ 1.07 $ 1.16 ======== ======== ======== ========Weighted average diluted shares 139.6 137.9 139.0 137.8
(1) In the second quarter of 2011, there were losses on extinguishments of debt totaling $53.5 million ($33.2 million net of tax).
(2) In connection with our debt refinancing, in the second quarter of 2011 we de-designated our interest rate swap and entered into a swap termination agreement. We paid $14.5 million ($9.0 million net of tax) to settle and terminate the swap agreement.
(3) Increased depreciation and amortization expense was $11.6 million ($7.3 million net of tax) and $15.0 million ($9.3 million net of tax) for the three months ended December 31, 2012 and 2011, respectively. For the year ended December 31, 2012 and 2011, increased depreciation and amortization expense was $51.8 million ($32.5 million net of tax) and $61.4 million ($38.6 million net of tax), respectively.
(4) Stock-based compensation resulting from the 2007 merger was $1.7 million ($1.5 million net of tax) and $5.9 million ($4.7 million net of tax) for the three months ended December 31, 2012 and 2011, respectively. For the year ended December 31, 2012 and 2011, such stock-based compensation was $20.9 million ($18.2 million net of tax) and $16.1 million ($10.4 million net of tax), respectively.
(5) We recorded accrued contingent consideration of approximately $0.1 million ($0.1 million net of tax) for the three months ended December 31, 2012. For the year ended December 31, 2012 and 2011, we recorded and reversed accrued contingent consideration of approximately $1.1 million ($0.7 million net of tax) and $4.6 million ($2.9 million benefit net of tax), respectively.
(6) In the fourth quarter of 2012, we incurred a loss resulting from Superstorm Sandy of $9.1 million ($5.4 million net of tax).
Non-GAAP Financial Measures
The company provides historical and forward-looking non-GAAP measures called EBITDA, Adjusted EBITDA, free cash flow, adjusted net income and adjusted net income per share. Management believes that these measures provide investors additional meaningful methods to evaluate certain aspects of the company's results period over period and for the other reasons set forth previously.
Earnings guidance also does not contemplate future items such as business development activities, strategic developments (such as restructurings or dispositions of assets or investments), significant expenses related to litigation and changes in applicable laws and regulations (including significant accounting and tax matters). The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company's reported results for any given period. Prospective quantification of these items is generally not practicable. Forward-looking non-GAAP guidance excludes stock-based compensation under certain equity grants related to the 2007 merger, increased depreciation and amortization expense that resulted from the 2007 revaluation of the company's assets, as well as one-time charges, net of taxes.
Jonathan Peisner
Vice President and Treasurer
(317) 249-4390
jonathan.peisner@karauctionservices.com
