Adjusted operating income for the 2012 fourth quarter of $9.9 million compares to adjusted operating income for the 2011 fourth quarter of $10.0 million.
Interest Expense, Net
Interest expense, net, excluding terminated swap contracts, decreased $1.4 million in the fourth quarter year-over-year due primarily to lower levels of total debt outstanding. Interest expense, net for the 2012 fourth quarter was $13.9 million, which included $0.7 million of non-cash costs for terminated interest rate swap contracts, compared to $16.6 million for the 2011 fourth quarter, which included $2.0 million for such contracts. These contracts were terminated prior to 2011; however, the related costs were amortized over the original term of the contracts and all amortization is now complete.
During the 2012 fourth quarter, income tax expense was $4.1 million on income before taxes of $8.0 million, or an effective income tax rate of 51.3 percent. The effective rate reflects an adjustment to state taxes and other non-deductible items. Net operating loss carryforwards remain available to offset future taxable earnings.
Use of Non-GAAP Measures
The Company presents adjusted operating income (loss), adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), adjusted net income (loss) per diluted share, free cash flow, net debt and net debt leverage as non-GAAP measures. Adjusted operating income (loss) represents operating income (loss) excluding restructuring. This amount divided by net sales is adjusted operating margin. Adjusted EBITDA represents operating income (loss) excluding restructuring, depreciation and amortization. This amount divided by net sales is adjusted EBITDA margin. The Company presents adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin because these are measures management believes are frequently used by securities analysts, investors and other interested parties in the evaluation of financial performance. Adjusted net income (loss) and adjusted net income (loss) per diluted share exclude discontinued operations, restructuring, certain costs from settled interest rate swap contracts, transactions for the early extinguishment of debt and income tax effects of these excluded items. These items are excluded because they are not considered indicative of recurring operations. Free cash flow represents cash flows from operating activities less capital expenditures from continuing operations. It is presented as a measurement of cash flows because management believes it is commonly used by the investment community. Net debt represents total debt less cash and cash equivalents. Net debt leverage represents net debt divided by trailing 12 months adjusted EBITDA. Net debt and net debt leverage are commonly used by the investment community as measures of indebtedness. These non-GAAP measures have limitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis of the Company's results as reported under accounting principles generally accepted in the United States ("GAAP"). These non-GAAP measures may not be comparable to similarly titled measures used by other companies.