EBITDA consists of earnings before interest, taxes, depreciation, and amortization. EBITDA is a measure commonly used in our industry, and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as a way of evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of the performance of our ongoing operations and other pro forma adjustments permitted in calculating covenant compliance in the indentures governing our debt securities. Adjusted EBITDA is modified to align the mark-to-market impact of derivative contracts used to economically hedge a portion of future natural gas purchases with the period in which the contracts settle and is modified to reflect the amount of net cost savings projected to be realized as a result of specified activities taken during the preceding 12-month period. You are encouraged to evaluate each adjustment and to consider whether the adjustment is appropriate. In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments included in the presentation of adjusted EBITDA. We believe that the supplemental adjustments applied in calculating Adjusted EBITDA are reasonable and appropriate to provide additional information to investors. We also believe that Adjusted EBITDA is a useful liquidity measurement tool for assessing our ability to meet our future debt service, capital expenditures, and working capital requirements.
However, EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP, and our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. You should not consider our EBITDA or Adjusted EBITDA as an alternative to operating or net income, determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities, determined in accordance with U.S. GAAP, as an indicator of our cash flows or as a measure of liquidity. The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods presented.
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|(Dollars in millions)||2012||2011||2012||2011|
|Net income (loss)||$||25.5||$||(67.9||)||$||(173.8||)||$||(137.1||)|
|Income tax (benefit) expense||(1.3||)||0.1||(1.4||)||0.2|
|Interest expense, net||36.8||31.8||135.4||126.5|
Depreciation, amortization, and depletion
|Adjustments to EBITDA:|
|Restructuring charges (1)||5.4||24.5||102.4||24.5|
|Gain on insurance settlement (2)||(53.1||)||-||(52.6||)||-|
|Goodwill impairment (3)||-||18.7||-||18.7|
|Loss on early extinguishment of debt, net (4)||-||-||8.2||26.1|
|Hedge (gains) losses (5)||(0.1||)||7.5||(3.7||)||7.5|
|Equity award expense (6)||0.4||0.6||2.7||2.4|
|Other items, net (7)||0.6||1.3||4.7||8.4|
Adjusted EBITDA before pro forma effects of profitability program
Pro forma effects of profitability program (8)
Represents costs associated with the closure of the Sartell mill in 2012 and the shutdown of three paper machines in 2011.
|(2)||Represents gain on insurance settlement resulting from the fire at our Sartell mill.|
|(3)||Represents impairment of goodwill allocated to the coated paper segment.|
|(4)||Represents net loss related to debt refinancing.|
|(5)||Represents unrealized (gains) losses on energy-related derivative contracts.|
|(6)||Represents amortization of non-cash incentive compensation.|
|(7)||Represents miscellaneous non-cash and other earnings adjustments.|
|(8)||Represents cost savings expected to be realized as part of our cost savings program.|
In this press release, all statements that are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “intend,” and other similar expressions. Forward-looking statements are based on currently available business, economic, financial, and other information and reflect management’s current beliefs, expectations, and views with respect to future developments and their potential effects on Verso. Actual results could vary materially depending on risks and uncertainties that may affect Verso and its business. For a discussion of such risks and uncertainties, please refer to Verso’s filings with the Securities and Exchange Commission. Verso assumes no obligation to update any forward-looking statement made in this press release to reflect subsequent events or circumstances or actual outcomes.