Navigant Reports Fourth Quarter And Full Year 2013 Financial Results

Navigant (NYSE:NCI) today announced financial results for the fourth quarter and full year ended December 31, 2013. The Company also provided its business and financial outlook for 2014.

Financial Summary and Highlights:
  • Fourth quarter revenues before reimbursements (RBR) of $177.8 million and total revenues of $204.8 million; net income from continuing operations of $14.2 million or $0.28 per share; adjusted EPS of $0.25; adjusted EBITDA of $29.8 million and adjusted EBITDA margin of 17%.
  • Full year revenues before reimbursements improved 2% on a year-over-year basis to $734.4 million and total revenues also improved 2% year-over-year to $835.6 million; net income from continuing operations increased 25% year-over-year to $55.1 million or $1.08 per share; adjusted EPS increased 14% year-over-year to $1.06; adjusted EBITDA increased 14% year-over-year to $124.1 million resulting in an adjusted EBITDA margin of 17% for full year 2013.
  • Full year free cash flow increased 38% year-over-year to $78.8 million.
  • Lowered bank debt by 58% to $56.7 million at December 31, 2013 compared to $134.2 million at December 31, 2012.
  • Repurchased 339,315 shares of common stock in fourth quarter 2013 at an average cost of $17.69 per share for a total of approximately 2.1 million shares repurchased in 2013 at an average cost of $13.76 per share. Company announces an increase and extension of share repurchase authorization. As increased and extended, the Company is authorized to repurchase up to $100 million during the two year period ending December 31, 2015.

Navigant reported fourth quarter 2013 revenues before reimbursements of $177.8 million compared to $189.3 million for fourth quarter 2012. Total revenues for the Company were $204.8 million for fourth quarter 2013 compared to $218.9 million for fourth quarter 2012. Net income from continuing operations for fourth quarter 2013 increased 8% to $14.2 million, or $0.28 per share, compared to $13.2 million, or $0.26 per share, in the prior year quarter. Adjusted EPS was $0.25 for fourth quarter 2013 compared to $0.29 for fourth quarter 2012. Adjusted EBITDA was $29.8 million for fourth quarter 2013 compared to $33.0 million for the same period in 2012. Adjusted EBITDA margin (adjusted EBITDA as a percentage of RBR) was 17% for fourth quarter 2013.

RBR for the full year 2013 improved 2% on a year-over-year basis to $734.4 million compared to $722.2 million for 2012. Total revenues for the Company also improved 2% on a year-over-year basis to $835.6 million for the full year 2013 compared to $818.2 million for the prior year. Net income from continuing operations for full year 2013 increased 25% to $55.1 million, or $1.08 per share, compared to $44.2 million, or $0.86 per share, in the prior year. Adjusted EPS for full year 2013 increased 14% to $1.06 compared to $0.93 for 2012. Adjusted EBITDA improved 14% on a year-over-year basis to $124.1 million for full year 2013 compared to $108.7 million in 2012. Adjusted EBITDA margin was 17% for full year 2013, a two percentage point improvement over 2012. A 10% reduction in general and administrative expenses for full year 2013 compared to 2012, primarily due to lower bad debt expense, contributed to the margin improvement.

“In 2013, we focused on delivering a higher level of operating performance, reinforcing our strong financial foundation and investing in our capabilities to drive future growth,” commented Julie Howard, Chief Executive Officer. “We realized significant progress on our key goals highlighted by our full year revenue and earnings gains, margin expansion, strengthened balance sheet and enhanced shareholder value. While fourth quarter top-line performance primarily reflects a timing imbalance on the start-up and wind-down of certain engagements, we expect to build upon the operating, financial and strategic disciplines we implemented in 2013 to benefit company performance in 2014.”
 

Segment Financial Summary
 
    For the quarter ended       For the full year ended  
December 31, December 31,
      2013   2012   Change     2013   2012   Change
RBR ($000)    
Disputes, Investigations & Economics $ 72,852 $ 85,142 -14.4 % $ 301,545 $ 340,036 -11.3 %
Financial, Risk & Compliance 37,691 38,370 -1.8 % 155,656 141,421 10.1 %
Healthcare 44,298 41,800 6.0 % 182,783 151,065 21.0 %
Energy       22,948       24,014     -4.4 %       94,449       89,668     5.3 %
Total Company     $ 177,789     $ 189,326     -6.1 %     $ 734,433     $ 722,190     1.7 %
Total Revenues ($000)
Disputes, Investigations & Economics $ 78,700 $ 91,459 -14.0 % $ 326,130 $ 364,426 -10.5 %
Financial, Risk & Compliance 47,180 50,750 -7.0 % 190,116 177,722 7.0 %
Healthcare 49,920 47,429 5.3 % 205,215 170,150 20.6 %
Energy       29,024       29,274     -0.9 %       114,124       105,899     7.8 %
Total Company     $ 204,824     $ 218,912     -6.4 %     $ 835,585     $ 818,197     2.1 %
Segment Operating Profit ($000)
Disputes, Investigations & Economics $ 22,880 $ 32,125 -28.8 % $ 99,828 $ 123,288 -19.0 %
Financial, Risk & Compliance 14,590 16,060 -9.2 % 62,487 55,926 11.7 %
Healthcare 15,815 15,711 0.7 % 67,696 50,959 32.8 %
Energy       7,441       9,155     -18.7 %       31,280       31,721     -1.4 %
Total Company     $ 60,726     $ 73,051     -16.9 %     $ 261,291     $ 261,894     -0.2 %
Segment Operating Margin (% of RBR)
Disputes, Investigations & Economics 31.4 % 37.7 % 33.1 % 36.3 %
Financial, Risk & Compliance 38.7 % 41.9 % 40.1 % 39.5 %
Healthcare 35.7 % 37.6 % 37.0 % 33.7 %
Energy       32.4 %     38.1 %           33.1 %     35.4 %    
Total Company       34.2 %     38.6 %           35.6 %     36.3 %    
 

Healthcare RBR increased 6% year-over-year for fourth quarter 2013 with a 1% increase in segment operating profit compared to fourth quarter 2012. RBR growth in the quarter was tempered by the wind-down of a large engagement and smaller performance-based fees compared to fourth quarter 2012. For the full year 2013, Healthcare RBR increased 21% compared to 2012 with a 33% increase in segment operating profit year-over-year. All of the fourth quarter RBR increase and approximately two-thirds of the full year increase was organic. Segment growth for the fourth quarter and full year was driven by expanding market demand throughout the healthcare industry which is expected to continue in 2014.

Financial, Risk & Compliance RBR for fourth quarter 2013 decreased 2% compared to the prior year quarter with a 9% decline in segment operating profit compared to fourth quarter 2012. Segment performance reflects the expected reduced contribution from the mortgage servicing review engagements partially offset by strength from services related to anti-money laundering regulatory compliance. For the full year 2013, Financial, Risk & Compliance RBR increased 10% compared to the prior year and 2013 segment operating profit increased 12% compared to 2012.

Energy RBR for fourth quarter 2013 decreased 4% and segment operating profit decreased 19% compared to fourth quarter 2012. Segment performance reflects lower contribution from energy research services and the adverse impact resulting from the report issued by the Moreland Commission in New York State in late June 2013. On November 27, 2013, the Company reported that the United States Attorney’s Office closed its investigation into the issues raised in the Moreland Commission Report with no indication of wrongdoing on the part of Navigant or any of its employees. Full year 2013 Energy RBR increased 5% compared to 2012 and segment operating profit for 2013 decreased 1% compared to 2012.

Disputes, Investigations & Economics RBR declined 14% for fourth quarter 2013 with a 29% decline in segment operating profit compared to the same period of 2012. Segment performance year-over-year was primarily attributable to the sale of a portion of the Economics practice early in 2013 and lower contribution from forensic accounting engagements. Full year 2013 Disputes, Investigations & Economics RBR decreased 11% compared to 2012 and segment operating profit for 2013 decreased 19% compared to 2012.

Cash Flow

Free cash flow was $15.2 million for fourth quarter 2013 compared to $5.5 million for the same period in 2012. For the full year, free cash flow was $78.8 million for 2013 compared to $57.3 million for 2012, a year-over-year improvement of 38%. Strong fourth quarter cash collections improved DSO to 65 days at 2013 year-end compared to 72 days at the end of 2012.

The Company used $53.7 million of cash to pay down bank debt during fourth quarter 2013. Year-end bank debt was 58% lower than the prior year level at $56.7 million at December 31, 2013 compared to $134.2 million at December 31, 2012. Leverage (bank debt divided by trailing twelve month adjusted EBITDA) improved to 0.46 at December 31, 2013 compared to 1.23 at December 31, 2012.

Navigant repurchased 339,315 shares of common stock during fourth quarter 2013 at an aggregate cost of $6.0 million and an average cost of $17.69 per share. For the full year, the Company repurchased approximately 2.1 million shares at an aggregate cost of $28.3 million and an average cost of $13.76 per share. As of December 31, 2013, $50.2 million remained on the Company’s share repurchase authorization.

The Company announced today an increase in its share repurchase authorization and an extension of the authorization through December 31, 2015. After giving effect to this increase and extension, approximately $100 million is available for share repurchases under the authorization for the two year period ending December 31, 2015.

Lucinda (Cindy) Baier, Executive Vice President and Chief Financial Officer, commented, “Our focus on profitability improvement and better working capital management yielded several positive results including double-digit adjusted EBITDA growth, significant margin expansion, and improved collections on receivables. The resulting increase in free cash flows enabled us to pursue our strategic objectives while further strengthening our balance sheet and returning $28.3 million of capital to our shareholders through our share repurchase program.”

2014 Outlook

Full year 2014 RBR is expected to range between $735 and $775 million while 2014 total revenues are estimated to be between $810 and $850 million. Adjusted EBITDA is expected to range between $120 and $130 million and adjusted EPS is estimated to be between $1.03 and $1.13.

Non-GAAP Financial Information

This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP) are included in the financial schedules attached to this press release. This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP.

Conference Call Details

Julie Howard and Cindy Baier will host a conference call to discuss the Company’s 2013 results at 10:00 a.m. Eastern Time on Thursday, February 13, 2014. The conference call may be accessed via the Navigant website ( www.navigant.com/investor_relations) or by dialing 888.790.1863 (312.470.7051 for international callers) and referencing pass code “NCI.” An archived version of the webcast will also be available via the Navigant website. A report of financial and related supplemental information is also available via the Navigant website.

About Navigant

Navigant (NYSE: NCI) is a specialized, global expert services firm dedicated to assisting clients in creating and protecting value in the face of critical business risks and opportunities. Through senior level engagement with clients, Navigant professionals combine technical expertise in Disputes and Investigations, Economics, Financial Advisory and Management Consulting, with business pragmatism in the highly regulated Construction, Energy, Financial Services and Healthcare industries to support clients in addressing their most critical business needs. More information about Navigant can be found at www.navigant.com.

Statements included in this press release which are not historical in nature are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “plan,” “outlook” and similar expressions. These statements are based upon management’s current expectations and speak only as of the date of this press release. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation: the success of the Company’s organizational changes and margin improvement initiatives; risks inherent in international operations, including foreign currency fluctuations; ability to make acquisitions and divestitures; pace, timing and integration of acquisitions and separation of divestitures; impairment charges; management of professional staff, including dependence on key personnel, recruiting, attrition and the ability to successfully integrate new consultants into the Company’s practices; utilization rates; conflicts of interest; potential loss of clients or large engagements; clients’ financial condition and their ability to make payments to the Company; risks inherent with litigation; higher risk client assignments; professional liability; potential legislative and regulatory changes; continued access to capital; and market and general economic conditions. Further information on these and other potential factors that could affect the Company’s financial results are included under the “Risk Factors” section and elsewhere in the Company’s filings with the Securities and Exchange Commission (SEC), which are available on the SEC’s website or at www.navigant.com/investor_relations . The Company cannot guarantee any future results, levels of activity, performance or achievement and undertakes no obligation to update any of its forward-looking statements.
 
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data (1))
(Unaudited)
           
For the quarter ended For the year ended
December 31, December 31,
2013   2012 2013   2012
Revenues:
Revenues before reimbursements $ 177,789 $ 189,326 $ 734,433 $ 722,190
Reimbursements   27,035       29,586     101,152     96,007  
Total revenues 204,824 218,912 835,585 818,197
Costs of services:
Cost of services before reimbursable expenses 120,390 121,867 487,967 476,344
Reimbursable expenses   27,035       29,586     101,152       96,007  
Total costs of services 147,425 151,453 589,119 572,351
General and administrative expenses 28,043 36,661 127,079 141,195
Depreciation expense 4,228 4,112 16,180 14,986
Amortization expense 1,600 1,888 6,826 6,767
Other operating costs (benefit):
Contingent acquisition liability adjustments, net (3,399 ) 445 (5,399 ) 1,065
Office consolidation, net - 580 348 580
Gain on disposition of assets   -       -     (1,715 )     -  
Operating income 26,927 23,773 103,147 81,253
Interest expense 942 1,267 4,433 5,453
Interest income (92 ) (286 ) (463 ) (872 )
Other (income) expense, net   218       (134 )   175       (78 )
Income from continuing operations before income tax expense 25,859 22,926 99,002 76,750
Income tax expense   11,640     9,774     43,890       32,518  
Net income from continuing operations 14,219 13,152 55,112 44,232
(Loss) Income from discontinued operations, net of tax   -       375     (2,919 )     1,937  
Net income $ 14,219     $ 13,527   $ 52,193     $ 46,169  
 
Basic per share data
Net income from continuing operations $ 0.29 $ 0.26 $ 1.11 $ 0.87
(Loss) Income from discontinued operations, net of tax $ -     $ 0.01   $ (0.06 )   $ 0.04  
Net income $ 0.29     $ 0.27   $ 1.05     $ 0.91  
Shares used in computing per basic share data 49,174 50,568 49,771 50,894
 
Diluted per share data
Net income from continuing operations $ 0.28 $ 0.26 $ 1.08 $ 0.86
(Loss) Income from discontinued operations, net of tax $ -     $ 0.01   $ (0.06 )   $ 0.04  
Net income $ 0.28     $ 0.26   $ 1.02     $ 0.90  
Shares used in computing per diluted share data 50,603 51,340 50,951 51,572
 
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AND SELECTED DATA
(In thousands, except DSO data)
       
December 31, December 31,
2013     2012
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,968 $ 1,052
Accounts receivable, net 167,066 198,709
Prepaid expenses and other current assets 24,554 25,054
Deferred income tax assets   17,314         17,821  
Total current assets 210,902 242,636
Non-current assets:
Property and equipment, net 44,338 45,342
Intangible assets, net 10,778 16,123
Goodwill 615,343 619,932
Other assets   22,836         30,417  
Total assets $ 904,197       $ 954,450  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,415 $ 18,042
Accrued liabilities 12,691 11,557
Accrued compensation-related costs 78,610 84,813
Income tax payable 1,137 7,129
Other current liabilities   32,009         35,754  
Total current liabilities 137,862 157,295
Non-current liabilities:
Deferred income tax liabilities 86,571 67,623
Other non-current liabilities 26,016 35,606
Bank debt non-current   56,673         134,183  
Total non-current liabilities   169,260         237,412  
Total liabilities   307,122         394,707  
Stockholders' equity:
Common stock 63 62
Additional paid-in capital 598,724 582,363
Treasury stock (247,106 ) (216,500 )
Retained earnings 254,735 202,542
Accumulated other comprehensive loss   (9,341 )       (8,724 )
Total stockholders' equity   597,075         559,743  
Total liabilities and stockholders' equity $ 904,197       $ 954,450  
 

Selected Data
Days sales outstanding, net (DSO) 65 72
 
NAVIGANT CONSULTING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
           
 
For the quarter ended For the year ended
December 31,   December 31,
2013   2012 2013   2012
 
Cash flows from operating activities:
Net income $ 14,219 $ 13,527 $ 52,193 $ 46,169
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 4,228 4,112 16,180 14,986
Accelerated depreciation - office consolidation - - 498 -
Amortization expense 1,600 1,888 6,826 6,767
Amortization expense - external use software 222 - 459 -
Share-based compensation expense 2,885 2,350 11,079 10,027
Accretion of interest expense 266 191 942 630
Deferred income taxes 5,671 (1,932 ) 18,421 11,123
Allowance for doubtful accounts receivable (2,024 ) 2,219 (107 ) 6,329
Contingent acquisition liability adjustments, net (3,399 ) 445 (5,399 ) 1,065
Gain on disposition of assets - - (1,715 ) -
Loss on disposition of discontinued operations - - 3,675 -
Changes in assets and liabilities (net of acquisitions and dispositions):
Accounts receivable 42,158 10,921 19,604 (22,821 )
Prepaid expenses and other assets 2,160 4,126 12,260 (2,668 )
Accounts payable (1,249 ) (816 ) (4,623 ) 1,754
Accrued liabilities (3,767 ) (153 ) (382 ) 2,879
Accrued compensation-related costs 11,038 19,723 (3,470 ) (10,794 )
Income taxes payable (6,690 ) 6,194 (6,386 ) 4,385
Other liabilities   1,813       4,726     (286 )     6,131  
 
Net cash provided by operating activities 69,131 67,521 119,769 75,962
 
Cash flows from investing activities:
Purchases of property and equipment (5,510 ) (5,541 ) (14,217 ) (20,052 )
Acquisitions of businesses, net of cash acquired - (24,891 ) (2,989 ) (27,479 )
Proceeds from dispositions, net of selling costs - - 16,973 -
Payments of acquisition liabilities (5,028 ) (3,750 ) (6,866 ) (4,856 )
Capitalized external use software (793 ) (633 ) (3,285 ) (1,934 )
Other, net   -       -     -       (300 )
 
Net cash used in investing activities (11,331 ) (34,815 ) (10,384 ) (54,621 )
 
Cash flows from financing activities:
Issuances of common stock 524 550 3,144 3,283
Repurchase of common stock (6,004 ) (6,203 ) (28,325 ) (18,870 )
Payments of contingent acquisition liabilities - (5,779 ) (3,287 ) (8,580 )
Repayments to banks (115,718 ) (138,873 ) (382,045 ) (347,877 )
Borrowings from banks 62,033 117,503 304,499 349,729
Payments of debt issuance costs (62 ) - (731 ) -
Other, net   (141 )     (101 )   (1,692 )     (1,071 )
Net cash used in financing activities   (59,368 )     (32,903 )   (108,437 )     (23,386 )
 
Effect of exchange rate changes on cash and cash equivalents   17       10     (32 )     128  
Net increase (decrease) in cash and cash equivalents (1,551 ) (187 ) 916 (1,917 )
Cash and cash equivalents at beginning of the period   3,519       1,239     1,052       2,969  
Cash and cash equivalents at end of the period $ 1,968     $ 1,052   $ 1,968     $ 1,052  
 
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (2)
(In thousands, except per share data)
(Unaudited)
             
This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Below are the reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP). This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. Management uses these non-GAAP financial measures in addition to GAAP financial measures to assess the Company's operations and financial results and believes they are useful indicators of operating performance and the Company's ability to generate cash flows from operations that are available for interest, debt service, taxes and capital expenditures. Investors should recognize that these non-GAAP financial measures may not be comparable to similarly-titled measures of other companies.
 

EBITDA, adjusted EBITDA, adjusted Net Income and
For the quarter ended For the year ended

adjusted Earnings Per Share (3)
December 31, December 31,
2013   2012 2013     2012
Severance expense $ 421 $ 2,183 $ 4,686 $ 4,078
Income tax benefit (4)   (170 )     (859 )   (1,558 )       (1,573 )
Net income impact of severance expense $ 251     $ 1,324   $ 3,128       $ 2,505  
 
Other operating (benefit) costs - contingent acquisition liability adjustment $ (3,399 ) $ 445 $ (5,399 ) $ 1,065
Income tax expense (benefit)(4)   1,371       (180 )   2,178         (430 )
Net income impact of other operating (benefit) costs - contingent acquisition liability adjustment $ (2,028 )   $ 265   $ (3,221 )     $ 635  
 
Other operating costs - office consolidation $ - $ 580 $ 348 $ 580
Income tax benefit (4)   -       (234 )   (141 )       (234 )
Net income impact of other operating costs - office consolidation $ -     $ 346   $ 207       $ 346  
 
Other operating benefit - gain on disposition of assets $ - $ - $ (1,715 ) $ -
Income tax expense (4)   -       -     692         -  
Net income impact of other operating benefit - gain on disposition of assets $ -     $ -   $ (1,023 )     $ -  
 
EBITDA reconciliation:
Operating income $ 26,927 $ 23,773 $ 103,147 $ 81,253
Depreciation expense 4,228 4,112 16,180 14,986
Accelerated depreciation - office consolidation - - 498 -
Amortization expense   1,600       1,888     6,826         6,767  
EBITDA $ 32,755 $ 29,773 $ 126,651 $ 103,006
Severance expense 421 2,183 4,686 4,078
Other operating (benefit) costs - contingent acquisition liability adjustment (3,399 ) 445 (5,399 ) 1,065
Other operating benefit - office consolidation - 580 (150 ) 580
Other operating benefit - gain on disposition of assets   -       -     (1,715 )       -  
Adjusted EBITDA $ 29,777     $ 32,981   $ 124,073       $ 108,729  
 
Net income from continuing operations $ 14,219 $ 13,152 $ 55,112 $ 44,232
Net income impact of severance expense 251 1,324 3,128 2,505
Net income impact of other operating (benefit) costs - contingent acquisition liability adjustment (2,028 ) 265 (3,221 ) 635
Net income impact of other operating costs - office consolidation - 346 207 346
Net income impact of other operating benefit - gain on disposition of assets   -       -     (1,023 )       -  
Adjusted net income $ 12,442     $ 15,087   $ 54,203       $ 47,718  
Shares used in computing per diluted share data 50,603 51,340 50,951 51,572
Adjusted earnings per share $ 0.25     $ 0.29   $ 1.06       $ 0.93  
 
For the quarter ended For the year ended

Free Cash Flow (5)
December 31, December 31,
2013   2012 2013     2012
Net cash provided by operating activities $ 69,131 $ 67,521 $ 119,769 $ 75,962
Changes in assets and liabilities (45,463 ) (44,721 ) (16,717 ) 21,134
Allowance for doubtful accounts receivable 2,024 (2,219 ) 107 (6,329 )
Purchases of property and equipment (5,510 ) (5,541 ) (14,217 ) (20,052 )
Payments of acquisition liabilities (5,028 ) (3,750 ) (6,866 ) (4,856 )
Payments of contingent acquisition liabilities   -       (5,779 )   (3,287 )       (8,580 )
Free Cash Flow $ 15,154     $ 5,511   $ 78,789       $ 57,279  
 
At

Leverage Ratio (6)
December 31,
2013   2012
Adjusted EBITDA for prior twelve-month period $ 124,073 $ 108,729
Bank debt $ 56,673 $ 134,183
Leverage ratio 0.46 1.23
 

Footnotes
(1) Per share data may not sum due to rounding.
(2) During the quarter ended September 30, 2013, the United Kingdom financial services advisory business was sold. The results of operations from this business are presented as discontinued operations. Prior period information has been reclassified to reflect this change. All non-GAAP financial measures are presented on a continuing operations basis unless otherwise noted.
(3) EBITDA is earnings from continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA excludes the impact of severance expense and other operating costs (benefit). Adjusted net income and adjusted earnings per share exclude the net income and per share net income impact of discontinued operations, severance expense and other operating costs (benefit). Severance expense and other operating costs (benefit) are not considered to be non-recurring, infrequent or unusual to our business. Management believes that these measures provide investors with enhanced comparability of the Company's results of operations across periods.
(4) Effective income tax expense (benefit) has been determined based on specific tax jurisdiction.
(5) Free cash flow is calculated as net cash provided from operations excluding changes in assets and liabilities and allowance for doubtful accounts receivable less cash payments for property and equipment and deferred acquisition related payments. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayment. However, management believes that it provides investors with an indicator of cash flows available for on-going business operations and long term value creation.
(6) Leverage ratio is calculated as bank debt at the end of the period divided by adjusted EBITDA for the prior twelve-month period. Management believes that leverage ratio provides investors with an indicator of the cash flows available to repay the Company's debt obligations.
 

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