Adjusted EBITDA Reconciliation
Adjusted EBITDA represents net income before interest, taxes, depreciation and amortization and gains or losses on interest rate swaps. 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(Dollars in thousands) March 31, -------------------------- 2012 2013 ------------ ------------Net income/(loss) $ (46,347) $ 6,383Add: Net interest expense/(income) 28,928 31,369Add: Depreciation and amortization 54,680 53,407Add: Income taxes 10,032 14,164Add: Gain/(Loss) on interest rate swaps 3,362 (598) ------------ ------------Adjusted EBITDA $ 50,655 $ 104,725 ============ ============
Drill Rigs Holdings Inc - Supplemental Information
The Leiv Eiriksson completed its scheduled drydock for equipment and winterization upgrades related to its contract with the consortium managed by Rig Management Norway and commenced, as expected, drilling operations under the three-year contract on April 15, 2013. During the first quarter of 2013, and until it commenced drilling operations, the Leiv Eiriksson was earning zero revenue and the majority of the operating expenses relating to such rig were capitalized. We believe that the significant investment in equipment and winterization upgrades will enable the Leiv Eiriksson to achieve high operating efficiency and will ensure its employment marketability for years to come.
The Eirik Raude commenced on January 1, 2013 drilling operations under the contract with European Hydrocarbons. During the initial phase of the drilling contract, testing revealed that the blow out preventer, or BOP, bonnets were defective and not performing up to specifications. The equipment replacement took 21 days, during which time the unit was earning zero revenue and operating expenses were accounted for on an "as incurred" basis. The unit then drilled for 27 days completing the first well of the two well contract. On March 3, 2013, European Hydrocarbons unilaterally cancelled the contract paying a termination fee of approximately $14.5 million. The Eirik Raude mobilized to Ireland and commenced drilling operations under its contract with ExxonMobil on April 21, 2013. Following the completion of the ExxonMobil contract, the Eirik Raude is scheduled to commence mobilization from Ireland to offshore West Africa to commence a 4 to 6 wells contract with Lukoil in the third quarter of 2013.