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KAR Auction Services, Inc. Reports Fourth Quarter And Full Year 2011 Results

The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods presented:

 

Three Months Ended December 31,

 

Year Ended December 31,

( Dollars in millions), ( Unaudited) 2011   2010 2011   2010
 
Net income $ 14.5 $ 7.3 $ 72.2 $ 69.6
Add back:
Income taxes 9.0 (2.5 ) 17.8 27.2

Interest expense, net of interest income

30.7 35.0 142.8 141.3
Depreciation and amortization   48.3   44.0     179.8   171.3
EBITDA 102.5 83.8 412.6 409.4
Adjustments   9.6   19.2     74.6   65.8
Adjusted EBITDA $ 112.1 $ 103.0   $ 487.2 $ 475.2
 

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 8¾% senior notes and our 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 addition, in the first quarter of 2010, we recorded a charge representing the net premiums paid related to the repurchase of the 10% senior subordinated notes, the write-off of certain unamortized debt issuance costs related to the repurchase of the 10% senior subordinated notes and certain expenses associated with the corresponding tender offer. Lastly, in 2011, we reversed and recorded contingent consideration related to certain prior year acquisitions.

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 December 31,

 

Year Ended December 31,

( In millions, except per share amounts) 2011   2010 2011   2010
 
Net income $ 14.5 $ 7.3 $ 72.2 $ 69.6
Loss on extinguishment of debt, net of tax (1) -- 4.6 33.2 20.3
Swap termination, net of tax (2) -- -- 9.0 --

Stepped up depreciation and amortization expense, net of tax (3)

9.3 10.0 38.6 40.1
Stock-based compensation, net of tax (4) 4.7 5.6 10.4 13.2
Contingent consideration adjustment, net of tax (5)   --   --   (2.9 )   --
Adjusted net income $ 28.5 $ 27.5 $ 160.5   $ 143.2
 
Net income per share – diluted $ 0.11 $ 0.05 $ 0.52 $ 0.51
Loss on extinguishment of debt, net of tax -- 0.04 0.24 0.15
Swap termination, net of tax -- -- 0.07 --

Stepped up depreciation and amortization expense, net of tax

0.07 0.07 0.28 0.29
Stock-based compensation, net of tax 0.03 0.04 0.07 0.10
Contingent consideration adjustment, net of tax   --   --   (0.02 )   --
Adjusted net income per share $ 0.21 $ 0.20 $ 1.16   $ 1.05
 
Weighted average diluted shares 137.9 136.4 137.8 135.9
 
(1)     In the second quarter of 2011, there were losses on extinguishments of debt totaling $53.5 million ($33.2 million net of tax). In addition, there was a loss on extinguishment of debt of $25.3 million ($15.7 million net of tax) incurred in the first quarter 2010 and another loss on extinguishment of debt of $7.4 million ($4.6 million net of tax) incurred in the fourth quarter 2010.
(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 $15.0 million ($9.3 million net of tax) and $15.6 million ($10.0 million net of tax) for the three months ended December 31, 2011 and 2010. For the years ended December 31, 2011 and 2010, increased depreciation and amortization expense was $61.4 million ($38.6 million net of tax) and $63.6 million ($40.1 million net of tax).
(4)

Stock-based compensation resulting from the 2007 merger was $5.9 million ($4.7 million net of tax) and $7.4 million ($5.6 million net of tax) for the three months ended December 31, 2011 and 2010. For the years ended December 31, 2011 and 2010, such stock-based compensation was $16.1 million ($10.4 million net of tax) and $19.8 million ($13.2 million net of tax).

(5) In 2011, we reversed accrued contingent consideration of approximately $4.6 million ($2.9 million benefit net of tax). The net adjustments to accrued contingent consideration related to certain prior year acquisitions based on revised forecasts, which indicated the unit volumes required during the measurement period in order for the contingent consideration to become payable would not be met.

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.

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