Non-GAAP Financial Measures
From time to time, management may publicly disclose certain "non-GAAP financial measures" in the course of our financial presentations, earnings releases, earnings conference calls, and otherwise. For these purposes, the SEC defines a "non-GAAP financial measure" as a numerical measure of historical or future financial performance, financial positions, or cash flows that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in financial statements, and vice versa for measures that include amounts, or is subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure so calculated and presented. For these purposes, "GAAP" refers to generally accepted accounting principles in the United States.
Non-GAAP financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies.
Pursuant to the requirements of Regulation G, whenever we refer to a non-GAAP financial measure, we will also generally present, on this Web site, the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference with such comparable GAAP financial measure.
The Company calculates Adjusted Earnings before Interest, Income Taxes, Depreciation, Depletion and Amortization ("Adjusted EBITDA") as net earnings (loss) before interest expense, income tax expense (benefit), depreciation, depletion and amortization expense, the noncash earnings (loss) from nonconsolidated equity affiliates and the impact of other nonrecurring items.
Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net earnings (loss), operating earnings (loss), cash flow provided by operating activities or other income or cash flow data prepared in accordance with GAAP. However, the Company's management believes that Adjusted EBITDA may provide additional information with respect to the Company's performance or ability to meet its future debt service, capital expenditures and working capital requirements. Because Adjusted EBITDA excludes some, but not all, items that affect net earnings and may vary among companies, the Adjusted EBITDA presented by Martin Marietta may not be comparable to similarly titled measures of other companies.
The ratio of Consolidated Debt-to-Consolidated EBITDA, as defined, for the trailing -12 months is a covenant under the Company’s Revolving Facility and Accounts Receivable Securitization Facility. Under the terms of these agreements, as amended, the Company’s ratio of consolidated debt-to-consolidated EBITDA, as defined, for the trailing -12 months cannot exceed 3.50 times, with certain exceptions related to qualifying acquisitions, as defined.
If there are no amounts outstanding under the Revolving Facility and the Accounts Receivable Securitization Facility, consolidated debt, including debt for which the Company is a co-borrower, may be reduced for purposes of the covenant calculation by the Company’s unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million (hereinafter, “net debt”).
Consolidated Debt-to-Consolidated EBITDA, as defined, is calculated as net debt, including debt for which the Company is a co-borrower, divided by consolidated EBITDA, as defined, for the trailing -12 months. Consolidated EBITDA is generally defined as earnings before interest expense (benefit), income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring items and noncash items, if they occur, can affect the calculation of consolidated EBITDA.
Adjusted consolidated gross profit and adjusted consolidated earnings from operations for the three months ended June 30, 2018, exclude the impact of acquisition-related expenses, net and the impact of selling acquired inventory due to the markup to fair value as part of acquisition accounting. Acquisition-related expenses, net, consist of acquisition and integration expenses and the nonrecurring gain on the required divestiture of a legacy Martin Marietta quarry in Georgia as part of the acquisition of Bluegrass Materials.
Adjusted consolidated gross profit and adjusted consolidated earnings from operations represent non-GAAP financial measures. Management presents these measures for investors and analysts to evaluate and forecast the Company's financial results, as acquisition-related expenses, net and the impact of selling acquired inventory due to the markup to fair value as part of acquisition accounting are nonrecurring.