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Readjusting Black Box's Earnings Adjustments (Adjusted)
With a name like Black Box Corp., you just know there has to be something funny about the company's numbers.
Check out the company's Jan. 29 quarterly earnings release, and you'll see an unconventional profitability metric with a wonderfully awful name. The company calls it "adjusted Ebitda (as adjusted)." No doubt this was inspired by the mythical department of redundancy department.
Ebitda, as any financial junkie can tell you, is a widely cited measure that stands for earnings before interest, taxes, depreciation and amortization. For Black Box, a Lawrence, Pennsylvania-based telecommunications company, one set of adjustments just wasn't enough.
To get "adjusted Ebitda (as adjusted)," Black Box first started with net income, which was $8.5 million for the three months ended Dec. 29, 2012. Then it subtracted a bunch of ordinary expenses, including a $2.7 million loss on a joint venture, to come up with "Ebitda (as adjusted)," which the company said was $22.3 million. But wait, there's more. Next it subtracted stock-based compensation expenses to arrive at "adjusted Ebitda (as adjusted)" of $24.1 million.
As Forrest Gump might say, adjusted is as adjusted does. Here's the company's explanation for this nonsense, which doesn't comply with normal U.S. accounting rules. From its latest press release:
"Management believes that Ebitda (as adjusted), defined as net income (loss) plus provision (benefit) for income taxes, interest, depreciation, amortization, the goodwill impairment loss and the joint venture investment loss, is a widely-accepted measure of profitability that may be used to measure the company's ability to service its debt. Adjusted Ebitda (as adjusted), defined as Ebitda plus stock compensation expense, may also be used to measure the company's ability to service its debt. Stock compensation is an integral part of ongoing operations since it is considered similar to other types of compensation to employees. However, management believes that varying levels of stock compensation expense could result in misleading period-over-period comparisons and is providing an adjusted disclosure which excludes stock compensation expense."
My rough translation: We do this to make our earnings look better.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)
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