Non-GAAP EPS: The Company believes that non-GAAP EPS from continuing operations provides meaningful supplemental information regarding its performance by excluding certain expenses that may not be indicative of the core business operating results and may help in comparing current period results with those of prior periods as well as with its peers. Non-GAAP EPS from continuing operations is defined as net earnings from continuing operations not including the tax effected impact of amortization of intangibles, deferred financing costs, stock-based compensation, intangible asset amortization expense, secondary offering expense, plant closure costs, asset impairment, goodwill impairment, plus interest expense from prior credit facilities divided by the weighted-average common shares outstanding. Although the Company uses non-GAAP EPS from continuing operations as a measure to assess the operating performance of its business, non-GAAP EPS from continuing operations has significant limitations as an analytical tool because it excludes certain material costs. Because non-GAAP EPS from continuing operations does not account for these expenses, its utility as a measure of its operating performance has material limitations. Because of these limitations, the Company does not view non-GAAP EPS from continuing operations in isolation and uses other metrics to measure operating performance such as, but not limited to, net sales, gross margin, operating income, adjusted EBITDA, and net earnings from continuing operations.
During the current period, the Company has also included plant closure costs, goodwill impairment, asset impairment and interest expense from prior credit facilities as non-GAAP adjustments. Information regarding these items is set forth below:
- Plant closure costs: The plant closure costs relate to the Company’s exit from its Florida manufacturing facility. The costs include severance associated with terminated employees, accelerated depreciation of abandoned machinery and equipment and other costs to exit the facility. The Company believes that the costs associated with the exit of its Florida facility will not recur after 2011 and is not indicative of its future operating results.
- Goodwill impairment: In December 2011, the Company recorded a goodwill impairment of $63.9 million attributable to the decline in solar market conditions and the market capitalization of its common stock. The Company is excluding this item because it believes it is not reflective of the operational conditions of its core business, it is non-cash, and may be helpful in comparing its results with those of prior periods and as well as with its peers.
- Asset Impairment: The non-cash asset impairment relates to the Company’s real property that used to be occupied by the QA business that was sold to UL on September 1, 2011. Since this asset was not included as part of the sale transaction, the real property is now a non-operating asset of the Company which is being leased to UL under a one-year agreement. As such, the Company has impaired this asset to reflect the sale and rental proceeds expected to be received.
- Interest expense from prior credit facilities: The interest expense on the Company’s prior First and Second Lien debt was not directly related to the QA business. However, since the former credit facilities required the proceeds received from the UL transaction to be used to retire the First and Second Lien debt, GAAP requires the Company to record historical interest expense in discontinued operations. However, the Company has recently closed on a new $150 million credit facility and may incur interest expense in the future. Since the interest expense related to both of its businesses from an operational standpoint, the Company is reducing the non-GAAP EPS from continuing operations to appropriately reflect its historical interest cost as the Company may incur interest expense in the future.
Weighted-average common shares outstanding
|STR Holdings, Inc.|
|RECONCILIATION OF NON-GAAP SHARES OUTSTANDING|
|Three Months Ended December 31,||Twelve Months Ended December 31,|
|Weighted-average shares outstanding|
|Basic shares outstanding GAAP||41,083,830||40,526,435||40,886,022||40,302,509|
|Diluted shares outstanding GAAP||41,083,830||42,396,262||40,886,022||42,126,502|
|Restricted common stock||-||-||397,641||-|
|Diluted shares outstanding non-GAAP||41,083,830||42,396,262||41,826,751||42,126,502|
Diluted GAAP shares outstanding: Due to a loss from continuing operations during the quarter and year ended December 31, 2011, the diluted weighted-average common shares outstanding for purposes of its diluted GAAP loss per share (EPS) does not include 4,489 of stock options, 167,542 of restricted common stock, 543,088 of stock options and 397,641 of restricted common stock, respectively, as these potential awards do not share in any loss generated by the Company and are anti-dilutive.Diluted non-GAAP shares outstanding: Due to a non-GAAP net loss from continuing operations during the quarter ended December 31, 2011, the weighted-average common shares outstanding for the purposes of its non-GAAP EPS does not include 4,489 of stock options and 167,542 of restricted common stock as these potential awards do not share in any loss generated by the Company and are anti-dilutive. Free Cash Flow: The Company believes free cash flow is an important measure of its overall liquidity and its ability to fund future growth and provide a return to shareowners. Free cash flow is defined as cash flow from operations from continuing operations excluding cash spent on capital expenditures. A limitation of using free cash flow versus the GAAP measure of cash provided by operating activities as a means for evaluating the Company’s business is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period.