UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
 
FORM 8-K
 
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 23, 2015

 
 
 
VERISIGN, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
Delaware
(State or Other Jurisdiction of
Incorporation) 

 
 
 
000-23593
 
94-3221585
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
12061 Bluemont Way, Reston, VA
 
20190
(Address of Principal Executive Offices)
 
(Zip Code)
(703) 948-3200
(Registrant’s Telephone Number, Including Area Code)
 
(Former Name or Former Address, if Changed Since Last Report)
 
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
c
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
c
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
c
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
c
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 
 





Item 2.02.
Results of Operations and Financial Condition.
On July 23, 2015, VeriSign, Inc. (“Verisign” or the “Company”) announced its financial results for the fiscal quarter ended June 30, 2015, and certain other information, including information on the first quarter 2015 domain name renewal rate. A copy of this press release is attached hereto as Exhibit 99.1.
The information in this Item 2.02 of Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits
Exhibit
Number
 
Description
 
 
99.1
 
Text of press release of VeriSign, Inc. issued on July 23, 2015.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 

 
 
 
 
 
 
 
VERISIGN, INC.
 
 
 
Date: July 23, 2015
 
By:
 
/s/ Thomas C. Indelicarto
 
 
Thomas C. Indelicarto
 
 
Senior Vice President, General Counsel and Secretary




Exhibit Index
 

 
 
 
Exhibit No.
 
Description
Exhibit 99.1
 
Text of press release of VeriSign, Inc. issued on July 23, 2015.











Verisign Reports Second Quarter 2015 Results

RESTON, VA - July 23, 2015 - VeriSign, Inc. (NASDAQ: VRSN), a global leader in domain names and Internet security, today reported financial results for the second quarter of 2015.

Second Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $263 million for the second quarter of 2015, up 4.9 percent from the same quarter in 2014. Verisign reported net income of $93 million and diluted earnings per share of $0.70 for the second quarter of 2015, compared to net income of $100 million and diluted EPS of $0.71 in the same quarter in 2014. The operating margin was 56.7 percent for the second quarter of 2015 compared to 57.2 percent for the same quarter in 2014.

Second Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $99 million and diluted EPS of $0.74 for the second quarter of 2015, compared to net income of $96 million and diluted EPS of $0.68 for the same quarter in 2014. The non-GAAP operating margin was 61.3 percent for the second quarter of 2015 compared to 60.9 percent for the same quarter in 2014. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

“I am pleased to report another quarter in which we have created and delivered value for our shareholders,” commented Jim Bidzos, Executive Chairman, President and Chief Executive Officer.

Financial Highlights

•
Verisign ended the second quarter with cash, cash equivalents and marketable securities of $1.9 billion, an increase of $460 million as compared with year-end 2014.
•
Cash flow from operations was $175 million for the second quarter of 2015, compared with $121 million for the same quarter in 2014.
•
Deferred revenues on June 30, 2015, totaled $932 million, an increase of $41 million from year-end 2014.
•
Capital expenditures were $9 million in the second quarter of 2015.
•
During the second quarter, Verisign repurchased 2.5 million shares of its common stock for $156 million. At June 30, 2015, $761 million remained available and authorized under the current share repurchase program which has no expiration.
•
For purposes of calculating diluted EPS, the second quarter diluted share count included 17 million shares related to subordinated convertible debentures, compared with 11.3 million shares in the same quarter in 2014. These represent diluted shares and not shares that have been issued.

Business Highlights

•
Verisign Registry Services added 0.52 million net new names during the second quarter, ending with 133.5 million .com and .net domain names in the domain name base, which represents a 3.1 percent increase over the base at the end of the second quarter in 2014, as calculated including domain names on hold for both periods.
•
In the second quarter, Verisign processed 8.7 million new domain name registrations for .com and .net, as compared to 8.5 million for the same period in 2014.
•
The final .com and .net renewal rate for the first quarter of 2015 was 73.4 percent compared with 72.6 percent for the same quarter in 2014. Renewal rates are not fully measurable until 45 days after the end of the quarter.
•
Verisign announces an increase in the annual fee for a .net domain name registration from $6.79 to $7.46, effective Feb. 1, 2016, per its agreement with the Internet Corporation for Assigned Names and Numbers. (ICANN).





Non-GAAP Items
Non-GAAP financial results exclude the following items that are included under GAAP: stock-based compensation, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income tax rate. A table reconciling the GAAP to non-GAAP operating income and net income is appended to this release.

Today’s Conference Call
Verisign will host a live conference call today at 4:30 p.m. (EDT) to review the second quarter 2015 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-1233 (international), conference ID: Verisign. A listen-only live web cast of the conference call and accompanying slide presentation will also be available at http://investor.verisign.com. An audio archive of the call will be available at https://investor.verisign.com/events.cfm. This news release and the financial information discussed on today’s conference call are available at http://investor.verisign.com.

About Verisign
Verisign, a global leader in domain names and Internet security, enables Internet navigation for many of the world’s most recognized domain names and provides protection for websites and enterprises around the world. Verisign ensures the security, stability and resiliency of key Internet infrastructure and services, including the .com and .net domains and two of the Internet’s root servers, as well as performs the root-zone maintainer functions for the core of the Internet’s Domain Name System (DNS). Verisign’s Security Services include intelligence-driven Distributed Denial of Service Protection, iDefense Security Intelligence and Managed DNS. To learn more about what it means to be Powered by Verisign, please visit VerisignInc.com.


VRSNF

Statements in this announcement other than historical data and information constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These statements involve risks and uncertainties that could cause our actual results to differ materially from those stated or implied by such forward-looking statements. The potential risks and uncertainties include, among others, the uncertainty of the impact of the U.S. government’s transition of key Internet domain name functions (the Internet Assigned Numbers Authority (“IANA”) function) and related root zone management functions, whether the U.S. Department of Commerce will approve any exercise by us of our right to increase the price per .com domain name, under certain circumstances, the uncertainty of whether we will be able to demonstrate to the U.S. Department of Commerce that market conditions warrant removal of the pricing restrictions on .com domain names and the uncertainty of whether we will experience other negative changes to our pricing terms; the failure to renew key agreements on similar terms, or at all; the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as restrictions on increasing prices under the .com Registry Agreement, changes in marketing and advertising practices, including those of third-party registrars, increasing competition, and pricing pressure from competing services offered at prices below our prices; changes in search engine algorithms and advertising payment practices; the uncertainty of whether we will successfully develop and market new products and services, the uncertainty of whether our new products and services, if any, will achieve market acceptance or result in any revenues; challenging global economic conditions; challenges of ongoing changes to Internet governance and administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; the uncertainty regarding what the ultimate outcome or amount of benefit we receive, if any, from the worthless stock deduction will be; new or existing governmental laws and regulations in the U.S. or other applicable foreign jurisdictions; changes in customer behavior, Internet platforms and web-browsing patterns; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; whether we will be able to continue to expand our infrastructure to meet demand; the uncertainty of the expense and timing of requests for indemnification, if any, relating to completed divestitures; and the impact of the introduction of new gTLDs, any delays in their introduction, the impact of ICANN’s Registry Agreement for new gTLDs, and whether our new gTLDs or the new gTLDs for which we have contracted to provide back-end registry services will be successful; and the uncertainty regarding the impact, if any, of the delegation into the root zone of a large number of new gTLDs. More information about potential factors that could affect our business and financial results is included in our filings with the SEC, including in our Annual Report on Form 10-K for the year ended Dec. 31, 2014, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Verisign undertakes no obligation to update any of the forward-looking statements after the date of this announcement.

Contacts
Investor Relations: David Atchley, datchley@verisign.com, 703-948-4643
Media Relations: Deana Alvy, dalvy@verisign.com, 703-948-4179

©2015 VeriSign, Inc. All rights reserved. VERISIGN, the VERISIGN logo, and other trademarks, service marks, and designs are registered or unregistered trademarks of VeriSign, Inc. and its subsidiaries in the United States and in foreign countries. All other trademarks are property of their respective owners.






VERISIGN, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
187,286

 
$
191,608

Marketable securities
1,697,523

 
1,233,076

Accounts receivable, net
14,418

 
13,448

Other current assets
31,280

 
41,905

Total current assets
1,930,507

 
1,480,037

Property and equipment, net
304,360

 
319,028

Goodwill
52,527

 
52,527

Long-term deferred tax assets
260,892

 
266,954

Other long-term assets
22,378

 
15,918

Total long-term assets
640,157

 
654,427

Total assets
$
2,570,664

 
$
2,134,464

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
166,558

 
$
190,278

Deferred revenues
653,773

 
621,307

Subordinated convertible debentures, including contingent interest derivative
624,767

 
620,620

Deferred tax liabilities
500,433

 
477,781

Total current liabilities
1,945,531

 
1,909,986

Long-term deferred revenues
277,828

 
269,047

Senior notes
1,234,368

 
740,175

Other long-term tax liabilities
107,253

 
98,722

Total long-term liabilities
1,619,449

 
1,107,944

Total liabilities
3,564,980

 
3,017,930

Commitments and contingencies
 
 
 
Stockholders’ deficit:
 
 
 
Preferred stock—par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none
—

 
—

Common stock—par value $.001 per share; Authorized shares: 1,000,000; Issued shares:322,781 at June 30, 2015 and 321,699 at December 31, 2014; Outstanding shares:114,028 at June 30, 2015 and 118,452 at December 31, 2014
323

 
322

Additional paid-in capital
17,828,075

 
18,120,045

Accumulated deficit
(18,819,586
)
 
(19,000,835
)
Accumulated other comprehensive loss
(3,128
)
 
(2,998
)
Total stockholders’ deficit
(994,316
)
 
(883,466
)
Total liabilities and stockholders’ deficit
$
2,570,664

 
$
2,134,464











VERISIGN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)

  
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
262,539

 
$
250,382

 
$
520,961

 
$
499,178

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
48,221

 
45,989

 
96,574

 
94,015

Sales and marketing
24,329

 
23,651

 
46,711

 
43,940

Research and development
16,347

 
15,694

 
33,499

 
34,133

General and administrative
24,677

 
21,927

 
50,975

 
44,384

Total costs and expenses
113,574

 
107,261

 
227,759

 
216,472

Operating income
148,965

 
143,121

 
293,202

 
282,706

Interest expense
(28,503
)
 
(21,490
)
 
(50,520
)
 
(42,875
)
Non-operating income (loss), net
3,201

 
4,994

 
(2,354
)
 
11,510

Income before income taxes
123,663

 
126,625

 
240,328

 
251,341

Income tax expense
(30,652
)
 
(26,449
)
 
(59,079
)
 
(56,742
)
Net income
93,011

 
100,176

 
181,249

 
194,599

Realized foreign currency translation adjustments, included in net income
(291
)
 
—

 
(291
)
 
—

Unrealized gain (loss) on investments
147

 
(33
)
 
234

 
(25
)
Realized (gain) loss on investments, included in net income
(69
)
 
(2
)
 
(73
)
 
3

Other comprehensive loss
(213
)
 
(35
)

(130
)

(22
)
Comprehensive income
$
92,798

 
$
100,141

 
$
181,119

 
$
194,577

 
 
 
 
 
 
 
 
Income per share:
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.77

 
$
1.56

 
$
1.48

Diluted
$
0.70

 
$
0.71

 
$
1.36

 
$
1.34

Shares used to compute net income per share
 
 
 
 
 
 
 
Basic
115,656

 
129,350

 
116,394

 
131,372

Diluted
133,251

 
141,142

 
133,546

 
144,861






VERISIGN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
181,249

 
$
194,599

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment
31,620

 
32,115

Stock-based compensation
22,129

 
19,365

Excess tax benefit associated with stock-based compensation
(11,366
)
 
(15,309
)
Unrealized loss (gain) on contingent interest derivative on Subordinated Convertible Debentures
4,311

 
(10,515
)
Payment of Contingent interest
(5,225
)
 
—

Other, net
4,842

 
3,802

Changes in operating assets and liabilities
 
 
 
Accounts receivable
(1,018
)
 
(233
)
Prepaid expenses and other assets
7,369

 
26,414

Accounts payable and accrued liabilities
(4,778
)
 
(869
)
Deferred revenues
41,247

 
34,615

Net deferred income taxes and other long-term tax liabilities
37,245

 
(21,246
)
Net cash provided by operating activities
307,625

 
262,738

Cash flows from investing activities:
 
 
 
Proceeds from maturities and sales of marketable securities
1,283,367

 
2,118,861

Purchases of marketable securities
(1,747,025
)
 
(2,042,657
)
Purchases of property and equipment
(21,891
)
 
(18,747
)
Other investing activities
(3,736
)
 
74

Net cash (used in) provided by investing activities
(489,285
)
 
57,531

Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock from option exercises and employee stock purchase plans
9,014

 
8,970

Repurchases of common stock
(335,885
)
 
(446,676
)
Proceeds from borrowings, net of issuance costs
492,237

 
—

Excess tax benefit associated with stock-based compensation
11,366

 
15,309

Net cash provided by (used in) financing activities
176,732

 
(422,397
)
Effect of exchange rate changes on cash and cash equivalents
606

 
266

Net decrease in cash and cash equivalents
(4,322
)
 
(101,862
)
Cash and cash equivalents at beginning of period
191,608

 
339,223

Cash and cash equivalents at end of period
$
187,286

 
$
237,361

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest, net of capitalized interest
$
42,839

 
$
37,507

Cash paid for income taxes, net of refunds received
$
14,342

 
$
34,464







VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,
 
2015
 
2014
 
Operating Income
 
Net Income
 
Operating Income
 
Net Income
GAAP as reported
$
148,965

 
$
93,011

 
$
143,121

 
$
100,176

Adjustments:
 
 
 
 
 
 
 
Stock-based compensation
12,001

 
12,001

 
9,372

 
9,372

Unrealized (gain) loss on contingent interest derivative on the subordinated convertible debentures
 
 
(2,708
)
 
 
 
(5,246
)
Non-cash interest expense
 
 
2,956

 
 
 
2,547

Contingent interest payable on subordinated convertible debentures
 
 
(2,767
)
 
 
 
—

Tax adjustment
 
 
(3,965
)
 
 
 
(10,875
)
Non-GAAP
$
160,966

 
$
98,528

 
$
152,493

 
$
95,974

 
 
 
 
 
 
 
 
Revenues
$
262,539

 
 
 
$
250,382

 
 
Non-GAAP operating margin
61.3
%
 
 
 
60.9
%
 
 
Diluted shares
 
 
133,251

 
 
 
141,142

Per diluted share, non-GAAP
 
 
$
0.74

 
 
 
$
0.68



Verisign provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). Along with this information, we typically disclose and discuss certain non-GAAP financial information in our quarterly earnings release, on investor conference calls and during investor conferences and related events. This non-GAAP financial information does not include the following types of financial measures that are included in GAAP: stock-based compensation, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income tax rate.
Management believes that this non-GAAP financial data supplements the GAAP financial data by providing investors with additional information that allows them to have a clearer picture of our operations. The presentation of this additional information is not meant to be considered in isolation nor as a substitute for results prepared in accordance with GAAP. We believe that the non-GAAP information enhances investors’ overall understanding of our financial performance and the comparability of our operating results from period to period. Above, we have provided a reconciliation of the non-GAAP financial information that we provide each quarter with the comparable financial information reported in accordance with GAAP for the given period.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:
 
Three Months Ended June 30,
 
2015
 
2014
     Cost of revenues
$
1,741

 
$
1,532

     Sales and marketing
1,818

 
1,820

     Research and development
1,691

 
1,639

     General and administrative
6,751

 
4,381

Total stock-based compensation expense
$
12,001

 
$
9,372










VERISIGN, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
(Unaudited)
 
Six Months Ended June 30,
 
2015
 
2014
 
Operating Income
 
Net Income
 
Operating Income
 
Net Income
GAAP as reported
$
293,202

 
$
181,249

 
$
282,706

 
$
194,599

Adjustments:
 
 
 
 
 
 
 
Stock-based compensation
22,129

 
22,129

 
19,365

 
19,365

Unrealized loss on contingent interest derivative on the subordinated convertible debentures
 
 
4,311

 
 
 
(10,515
)
Non-cash interest expense
 
 
5,662

 
 
 
4,991

Contingent interest payable on subordinated convertible debentures
 
 
(5,457
)
 
 
 
—

Tax adjustment
 
 
(10,334
)
 
 
 
(17,509
)
Non-GAAP
$
315,331

 
$
197,560

 
$
302,071

 
$
190,931

 
 
 
 
 
 
 
 
Revenues
$
520,961

 
 
 
$
499,178

 
 
Non-GAAP operating margin
60.5
%
 
 
 
60.5
%
 
 
Diluted shares
 
 
133,546

 
 
 
144,861

Per diluted share, non-GAAP
 
 
$
1.48

 
 
 
$
1.32



Verisign provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). Along with this information, we typically disclose and discuss certain non-GAAP financial information in our quarterly earnings release, on investor conference calls and during investor conferences and related events. This non-GAAP financial information does not include the following types of financial measures that are included in GAAP: stock-based compensation, unrealized gain/loss on contingent interest derivative on subordinated convertible debentures, and non-cash interest expense. Non-GAAP net income is decreased by amounts accrued, if any, during the period for contingent interest payable resulting from upside or downside triggers related to the subordinated convertible debentures and is adjusted for an income tax rate of 26 percent for 2015 and 28 percent for 2014, both of which differ from the GAAP income tax rate.
Management believes that this non-GAAP financial data supplements the GAAP financial data by providing investors with additional information that allows them to have a clearer picture of our operations. The presentation of this additional information is not meant to be considered in isolation nor as a substitute for results prepared in accordance with GAAP. We believe that the non-GAAP information enhances investors’ overall understanding of our financial performance and the comparability of our operating results from period to period. Above, we have provided a reconciliation of the non-GAAP financial information that we provide each quarter with the comparable financial information reported in accordance with GAAP for the given period.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:
 
Six Months Ended June 30,
 
2015
 
2014
     Cost of revenues
$
3,480

 
$
3,130

     Sales and marketing
3,117

 
3,668

     Research and development
3,412

 
3,511

     General and administrative
12,120

 
9,056

Total stock-based compensation expense
$
22,129

 
$
19,365







VERISIGN, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

On a quarterly basis we disclose our Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and is calculated in accordance with the terms of the indentures governing our 4.625% senior notes due 2023 and our 5.25% senior notes due 2025. Adjusted EBITDA refers to net income before interest, taxes, depreciation and amortization, stock-based compensation, unrealized loss (gain) on contingent interest derivative on the subordinated convertible debentures and unrealized loss (gain) on hedging agreements.
The following table reconciles GAAP net income to Adjusted EBITDA for the periods shown below (in thousands):
 
Three Months Ended
June 30,
 
2015
 
2014
Net Income
$
93,011

 
$
100,176

Interest expense
28,503

 
21,490

Income tax expense
30,652

 
26,449

Depreciation and amortization
15,873

 
16,107

Stock-based compensation
12,001

 
9,372

Unrealized gain on contingent interest derivative on the subordinated convertible debentures
(2,708
)
 
(5,246
)
Unrealized loss (gain) on hedging agreements
944

 
(150
)
Adjusted EBITDA
$
178,276

 
$
168,198

 
Four Quarters Ended
June 30, 2015
Net income
341,911

Interest expense
93,639

Income tax benefit
130,388

Depreciation and amortization
63,197

Stock-based compensation
46,742

Unrealized loss on contingent interest derivative on the subordinated convertible debentures
12,577

Unrealized loss on hedging agreements
351

Adjusted EBITDA
$
688,805

Verisign’s management believes that presenting Adjusted EBITDA enhances investors’ overall understanding of our financial performance and the comparability of our operating results from period to period. However, Adjusted EBITDA has important limitations as an analytical tool. These limitations include, but are not limited to, the following:
•
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
•
non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating its ongoing operating performance for a particular period; and
•
other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.


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