Balance Sheet and LiquidityAs of September 30, 2012, the company held $15.6 million of cash and cash equivalents, compared to $0.8 million at the end of 2011. During the third quarter of 2012, the company used $2.9 million of cash from operating activities and generated $5.4 million of free cash flow, which is defined as net cash provided by operating activities minus capital expenditures. Quarterly capital expenditures were $2.5 million. Days sales outstanding were 94 for the third quarter of 2012, which was up from 86 days at the end of 2011 and 84 days at the end of the second quarter of 2012. Total debt outstanding at the end of the second quarter was $190.2 million, of which $141.3 million was under a term loan facility. This amount reflects the conversion of $100 million from a revolver to term debt in the recent amendment. Net debt was $174.6 million, down $1.0 million from the end of 2011. At September 30, 2012, the combined weighted-average interest rate on the company’s credit facilities was 3.8%. The leverage ratio at the end of the quarter was 3.8 times total debt to trailing twelve month pro forma adjusted EBITDA, up from 3.3 times as of June 30, 2012, but within the maximum of 4.5 times allowed under the senior debt covenants, as amended on October 5, 2012. Non-GAAP Financial Measures Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting in the United States. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, The Dolan Company reports the following non-GAAP measures:
- Adjusted EBITDA, defined as GAAP income from continuing operations adjusted for the impact of the following: net interest expense resulting from the company’s net cash or borrowing position, which includes non-cash interest income or expense related to the changes in fair value of interest rate swaps; income tax expense; non-cash expenses, including depreciation and amortization, charges for stock options and restricted stock the company has granted, and fair value adjustments on earnouts recorded in connection with acquisitions; non-recurring items of income or expense, if applicable, including impairments of long-lived assets; and distributions paid to holders of non-controlling interest;
- Cash earnings, defined as GAAP income from continuing operations adjusted for the impact of the following: non-controlling interests; non-cash expenses, including non-cash interest income or expense related to the changes in the fair value of interest rate swaps, charges for stock options and restricted stock granted, fair value adjustments on earnouts recorded in connection with acquisitions, and amortization; certain non-recurring items of income or expense, including impairments of long-lived assets and goodwill; and an adjustment to income tax expense related to the above reconciling items at the appropriate then-in-effect tax rate;
- Cash earnings per diluted share, defined as cash earnings divided by the number of weighted average diluted shares outstanding; and
- Free cash flow, defined as net cash provided by operating activities minus capital expenditures.