VRNT Verint Systems Inc

Verint® Systems Inc. (NASDAQ: VRNT), a global leader in Actionable Intelligence® solutions and value-added services, today announced results for the quarter ended July 31, 2011.

“We are pleased with our second quarter performance, which reflects strong sequential revenue growth in both workforce optimization and security intelligence. Behind Verint’s success is a commitment to innovation, as we continue to invest for long-term growth and sustained leadership in the actionable intelligence market,” said Dan Bodner, CEO and President of Verint Systems Inc.

Below is selected financial information for the three and six months ended July 31, 2011 and 2010 prepared in accordance with generally accepted accounting principles (“GAAP”) and not prepared in accordance with GAAP (“non-GAAP”).

(Dollars in thousands, except per share data)   Selected GAAP Information Three Months Ended July 31,     Six Months Ended July 31, 2011   2010 2011   2010   Revenue $ 194,959 $ 180,676 $ 371,291 $ 353,289   Gross Profit 125,850 120,330 246,833 235,136 Gross Margin 64.6% 66.6% 66.5% 66.6%   Operating Income 21,410 23,799 40,244 19,817 Operating Margin 11.0% 13.2% 10.8% 5.6%   Diluted Net Income (Loss) per Common Share Attributable to Verint Systems Inc. $ 0.17 $ 0.23 $ 0.08 $ (0.35)   Selected Non-GAAP Information Three Months Ended July 31, Six Months Ended July 31, 2011 2010 2011 2010   Revenue $ 195,686 $ 180,676 $ 372,253 $ 353,289   Gross Profit 130,303 123,785 255,140 243,232 Gross Margin 66.6% 68.5% 68.5% 68.8%   Operating Income 40,386 46,323 79,903 88,602 Operating Margin 20.6% 25.6% 21.5% 25.1%   Diluted Net Income per Common Share Attributable to Verint Systems Inc. $ 0.57 $ 0.69 $ 1.13 $ 1.25  

Outlook for the Year Ending January 31, 2012

• We are increasing our annual revenue growth guidance from approximately 8% to approximately 9% compared to the year ended January 31, 2011.
• We are targeting a non-GAAP operating margin in the low 20%.

Conference Call Information

We will be conducting a conference call today at 8:30 a.m. to discuss our results for the second quarter and outlook for the year ending January 31, 2012. An on-line, real-time webcast of the conference call will be available on our website at www.verint.com. The conference call can also be accessed live via telephone at 1-888-713-4214 (United States) and 1-617-213-4866 (international) and the passcode is 56607528. Please dial in 5-10 minutes prior to the scheduled start time.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see Table 2 as well as "Supplemental Information About Non-GAAP Financial Measures" at the end of this press release. Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of our forward-looking financial measures for the year ending January 31, 2012.

About Verint Systems Inc.

Verint® Systems Inc. is a global leader in Actionable Intelligence® solutions and value-added services. Our solutions enable organizations of all sizes to make timely and effective decisions to improve enterprise performance and make the world a safer place. More than 10,000 organizations in over 150 countries—including over 85 percent of the Fortune 100—use Verint Actionable Intelligence solutions to capture, distill, and analyze complex and underused information sources, such as voice, video, and unstructured text. Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling and support partners. Visit us at our website www.verint.com.

Cautions About Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding expectations, predictions, views, opportunities, plans, strategies, beliefs, and statements of similar effect relating to Verint Systems Inc. These forward-looking statements are not guarantees of future performance and they are based on management's expectations that involve a number of risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Some of the factors that could cause actual future results or conditions to differ materially from current expectations include: uncertainties regarding the impact of general economic conditions in the United States and abroad, particularly in information technology spending and government budgets, on our business; risks due to aggressive competition in all of our markets, including with respect to maintaining margins and sufficient levels of investment in our business; risks associated with keeping pace with technological changes and evolving industry standards in our product offerings and with successfully introducing new, quality products which meet customer needs and achieve market acceptance; risks created by continued consolidation of competitors or introduction of large competitors in our markets with greater resources than we have; risks associated with successfully competing for, consummating, and implementing mergers and acquisitions, including risks associated with capital constraints, costs and expenses, management distraction, post-acquisition integration activities, and potential asset impairments; risks that customers or partners delay or cancel orders or are unable to honor contractual commitments due to liquidity issues, challenges in their business, or otherwise; risks relating to our implementation and maintenance of adequate systems and internal controls for our current and future operations and reporting needs and related risks of financial statement omissions, misstatements, restatements, or filing delays; risks associated with being a consolidated, controlled subsidiary of Comverse Technology, Inc. (“Comverse”) and formerly part of Comverse’s consolidated tax group, including risks of any future impact on us resulting from Comverse’s extended filing delay or any other future issues; risks associated with Comverse controlling our board of directors and the outcome of all matters submitted for stockholder action, including the approval of significant corporate transactions, such as certain equity issuances or mergers and acquisitions, as well as speculation or announcements regarding Comverse’s strategic plans; risks that products may contain undetected defects, which could expose us to substantial liability; risks associated with allocating limited financial and human resources to business, development, strategic or other opportunities that may not come to fruition or produce satisfactory returns; risks associated with significant foreign and international operations, including exposure to regions subject to political instability and fluctuations in exchange rates; risks associated with complex and changing local and foreign regulatory environments; risks associated with our ability to recruit and retain qualified personnel in geographies in which we operate; challenges in accurately forecasting revenue and expenses and maintaining profitability; risks relating to our ability to improve our infrastructure to support growth; risks that our intellectual property rights may not be adequate to protect our business or assets or that others may make claims on our intellectual property or claim infringement on their intellectual property rights; risks associated with a significant amount of our business coming from domestic and foreign government customers, including the ability to maintain security clearances for certain projects; risks that we improperly handle sensitive or confidential information or the perception of such mishandling; risks associated with our dependence on a limited number of suppliers or original equipment manufacturers (“OEMs”) for certain components of our products; risks that we are unable to maintain and enhance relationships with key resellers, partners, and systems integrators; risks that contract terms may expose us to unlimited liability or other unfavorable positions and risks that we may experience losses that are not covered by insurance; risks that we will experience liquidity or working capital issues and related risks that financing sources will be unavailable to us on reasonable terms or at all; risks associated with significant leverage resulting from our current debt position; risks that we will be unable to comply with the leverage ratio covenant under our credit facility; risks that our credit rating could be downgraded or placed on a credit watch; risks relating to timely implementation of new accounting pronouncements or new interpretations of existing accounting pronouncements and related risks of future restatements or filing delays; risks associated with future regulatory actions or private litigations relating to our extended filing delay and related circumstances; and risks that use of our tax benefits may be restricted or eliminated in the future. We assume no obligation to revise or update any forward-looking statement, except as otherwise required by law. For a detailed discussion of these risk factors, see our Annual Report on Form 10-K for the fiscal year ended January 31, 2011.

VERINT, the VERINT logo, ACTIONABLE INTELLIGENCE, POWERING ACTIONABLE INTELLIGENCE, INTELLIGENCE IN ACTION, ACTIONABLE INTELLIGENCE FOR A SMARTER WORKFORCE, VERINT VERIFIED, WITNESS ACTIONABLE SOLUTIONS, STAR-GATE, RELIANT, VANTAGE, X-TRACT, NEXTIVA, EDGEVR, ULTRA, AUDIOLOG, WITNESS, the WITNESS logo, IMPACT 360, the IMPACT 360 logo, IMPROVE EVERYTHING, EQUALITY, CONTACTSTORE, EYRETEL, BLUE PUMPKIN SOFTWARE, BLUE PUMPKIN, the BLUE PUMPKIN logo, EXAMETRIC and the EXAMETRIC logo, CLICK2STAFF, STAFFSMART, AMAE SOFTWARE and the AMAE logo are trademarks and registered trademarks of Verint Systems Inc. Other trademarks mentioned are the property of their respective owners.

Table 1

Verint Systems Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)   Three Months Ended July 31,     Six Months Ended July 31, 2011   2010 2011   2010   Revenue:

 

Product $ 100,423 $ 93,103 $ 183,701 $ 185,173 Service and support   94,536     87,573     187,590     168,116   Total revenue   194,959     180,676     371,291     353,289   Cost of revenue: Product 33,214 29,866 55,745 56,718 Service and support 33,210 28,260 63,378 56,982 Amortization of acquired technology   2,685     2,220     5,335     4,453   Total cost of revenue   69,109     60,346     124,458     118,153   Gross profit   125,850     120,330     246,833     235,136   Operating expenses: Research and development, net 26,808 22,049 53,176 48,481 Selling, general and administrative 72,217 69,144 142,452 156,161 Amortization of other acquired intangible assets   5,415     5,338     10,961     10,677   Total operating expenses   104,440     96,531     206,589     215,319   Operating income   21,410     23,799     40,244     19,817   Other income (expense), net Interest income 146 117 294 200 Interest expense (7,857 ) (5,936 ) (16,651 ) (11,884 ) Loss on extinguishment of debt - - (8,136 ) - Other income (expense), net   738     (2,448 )   1,750     (6,146 ) Total other expense, net   (6,973 )   (8,267 )   (22,743 )   (17,830 ) Income before provision for income taxes 14,437 15,532 17,501 1,987 Provision for income taxes   3,163     3,141     4,672     5,212   Net income (loss) 11,274 12,391 12,829 (3,225 ) Net income attributable to noncontrolling interest   799     916     2,466     1,508   Net income (loss) attributable to Verint Systems Inc. 10,475 11,475 10,363 (4,733 ) Dividends on preferred stock   (3,707 )   (3,554 )   (7,256 )   (6,957 ) Net income (loss) attributable to Verint Systems Inc. common shares $ 6,768   $ 7,921   $ 3,107   $ (11,690 )   Net income (loss) per common share attributable to Verint Systems Inc. Basic $ 0.18   $ 0.24   $ 0.08   $ (0.35 ) Diluted $ 0.17   $ 0.23   $ 0.08   $ (0.35 )   Weighted-average common shares outstanding Basic   38,557     33,272     37,984     32,972   Diluted   39,377     35,006     39,239     32,972     Table 2 Verint Systems Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Results (Unaudited) (In thousands, except per share data)     Three Months Ended July 31,     Six Months Ended July 31, 2011   2010 2011   2010

Table of Reconciliation from GAAP Revenue to Non-GAAP Revenue

GAAP revenue $ 194,959 $ 180,676 $ 371,291 $ 353,289 Revenue adjustments related to acquisitions   727     -     962     -   Non-GAAP revenue $ 195,686   $ 180,676   $ 372,253   $ 353,289    

Table of Reconciliation from GAAP Gross Profit to Non-GAAP Gross Profit

  GAAP gross profit $ 125,850 $ 120,330 $ 246,833 $ 235,136 Revenue adjustments related to acquisitions 727 - 962 - Amortization of acquired technology 2,685 2,220 5,335 4,453 Stock-based compensation expenses 627 1,235 1,596 3,643 Other adjustments   414     -     414     -   Non-GAAP gross profit $ 130,303   $ 123,785   $ 255,140   $ 243,232    

Table of Reconciliation from GAAP Operating Income to Non-GAAP Operating Income

  GAAP operating income $ 21,410 $ 23,799 $ 40,244 $ 19,817 Revenue adjustments related to acquisitions 727 - 962 - Amortization of acquired technology 2,685 2,220 5,335 4,453 Amortization of other acquired intangible assets 5,415 5,338 10,961 10,677 Stock-based compensation expenses 6,641 8,035 14,191 26,004 Other adjustments 3,491 864 7,202 1,371 Expenses related to our filing delay   17     6,067     1,008     26,280   Non-GAAP operating income $ 40,386   $ 46,323   $ 79,903   $ 88,602    

Table of Reconciliation from GAAP Other Expense, Net to Non-GAAP Other Expense, Net

  GAAP other expense, net $ (6,973 ) $ (8,267 ) $ (22,743 ) $ (17,830 ) Loss on extinguishment of debt - - 8,136 - Unrealized (gains) losses on derivatives, net   (377 )   (3,796 )   730     (7,763 ) Non-GAAP other expense, net $ (7,350 ) $ (12,063 ) $ (13,877 ) $ (25,593 )  

Table of Reconciliation from GAAP Provision for Income Taxes to Non-GAAP Provision for Income Taxes

  GAAP provision for income taxes $ 3,163 $ 3,141 $ 4,672 $ 5,212 Non-cash tax adjustments   471     (948 )   2,591     143   Non-GAAP provision for income taxes $ 3,634   $ 2,193   $ 7,263   $ 5,355    

Table of Reconciliation from GAAP Net Income (Loss) Attributable to Verint Systems Inc. to Non-GAAP Net Income Attributable to Verint Systems Inc.

  GAAP net income (loss) attributable to Verint Systems Inc. $ 10,475 $ 11,475 $ 10,363 $ (4,733 ) Revenue adjustments related to acquisitions 727 - 962 - Amortization of acquired technology 2,685 2,220 5,335 4,453 Amortization of other acquired intangible assets 5,415 5,338 10,961 10,677 Stock-based compensation expenses 6,641 8,035 14,191 26,004 Other adjustments 3,491 864 7,202 1,371 Expenses related to our filing delay 17 6,067 1,008 26,280 Loss on extinguishment of debt - - 8,136 - Unrealized (gains) losses on derivatives, net (377 ) (3,796 ) 730 (7,763 ) Non-cash tax adjustments   (471 )   948     (2,591 )   (143 ) Total GAAP net income (loss) adjustments   18,128     19,676     45,934     60,879   Non-GAAP net income attributable to Verint Systems Inc. $ 28,603   $ 31,151   $ 56,297   $ 56,146    

Table of Reconciliation from GAAP Net Income (Loss) Attributable to Verint Systems Inc. Common Shares to Non-GAAP Net Income Attributable to Verint Systems Inc. Common Shares

  GAAP net income (loss) attributable to Verint Systems Inc. common shares $ 6,768 $ 7,921 $ 3,107 $ (11,690 ) Total GAAP net income (loss) adjustments   18,128     19,676     45,934     60,879   Non-GAAP net income attributable to Verint Systems Inc. common shares $ 24,896   $ 27,597   $ 49,041   $ 49,189    

Table Comparing GAAP Diluted Net Income (Loss) Per Common Share Attributable to Verint Systems Inc. to Non-GAAP Diluted Net Income Per Common Share Attributable to Verint Systems Inc.

  GAAP diluted net income (loss) per common share attributable to Verint Systems Inc. $ 0.17   $ 0.23   $ 0.08   $ (0.35 )   Non-GAAP diluted net income per common share attributable to Verint Systems Inc. $ 0.57   $ 0.69   $ 1.13   $ 1.25     Shares used in computing GAAP diluted net income (loss) per common share (in thousands)   39,377     35,006     39,239     32,972     Shares used in computing non-GAAP diluted net income per common share (in thousands)   49,949     45,178     49,760     45,071     Table 3 Verint Systems Inc. and Subsidiaries Segment Revenue (Unaudited) (In thousands)     Three Months Ended July 31,     Six Months Ended July 31, 2011   2010 2011   2010   GAAP Revenue By Segment Workforce Optimization Segment $ 105,654 $ 94,795 $ 202,923 $ 191,675   Video Intelligence Segment 39,939 37,060 69,974 68,605 Communications Intelligence Segment   49,366   48,821   98,394   93,009 Total Video and Communications Intelligence 89,305 85,881 168,368 161,614         GAAP Total Revenue $ 194,959 $ 180,676 $ 371,291 $ 353,289   Revenue adjustments related to acquisitions $ 727 $ - $ 962 $ -   Non-GAAP Revenue By Segment Workforce Optimization Segment $ 105,654 $ 94,795 $ 202,923 $ 191,675   Video Intelligence Segment 40,666 37,060 70,936 68,605 Communications Intelligence Segment   49,366   48,821   98,394   93,009 Total Video and Communications Intelligence 90,032 85,881 169,330 161,614         Non-GAAP Total Revenue $ 195,686 $ 180,676 $ 372,253 $ 353,289   Table 4 Verint Systems Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share data)     July 31,     January 31, 2011 2011   Assets Current Assets: Cash and cash equivalents $ 179,147 $ 169,906 Restricted cash and bank time deposits 15,647 13,639 Accounts receivable, net 155,309 150,769 Inventories 19,722 16,987 Deferred cost of revenue 5,529 6,269 Prepaid expenses and other current assets   49,384     44,374   Total current assets   424,738     401,944   Property and equipment, net 24,386 23,176 Goodwill 753,972 738,674 Intangible assets, net 146,927 157,071 Capitalized software development costs, net 6,064 6,787 Long-term deferred cost of revenue 17,330 21,715 Other assets   32,608     26,760   Total assets $ 1,406,025   $ 1,376,127     Liabilities, Preferred Stock, and Stockholders' Equity Current Liabilities: Accounts payable $ 39,596 $ 36,861 Accrued expenses and other current liabilities 148,161 163,029 Current maturities of long-term debt 6,000 - Deferred revenue 145,553 142,465 Liabilities to affiliates   1,964     1,847   Total current liabilities   341,274     344,202   Long-term debt 591,105 583,234 Long-term deferred revenue 30,237 40,424 Other liabilities   41,391     45,038   Total liabilities   1,004,007     1,012,898   Preferred Stock - $0.001 par value; authorized 2,500,000 shares. Series A convertible preferred stock; 293,000 shares issued and outstanding; aggregate liquidation preference and redemption value of $345,257 at July 31, 2011.   285,542     285,542   Commitments and Contingencies Stockholders' Equity: Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 39,070,000 and 37,349,000 shares, respectively; outstanding 38,787,000 and 37,089,000 shares, as of July 31, 2011 and January 31, 2011, respectively. 39 38 Additional paid-in capital 540,744 519,834 Treasury stock, at cost - 283,000 and 260,000 shares as of July 31, 2011 and January 31, 2011, respectively. (7,466 ) (6,639 ) Accumulated deficit (384,394 ) (394,757 ) Accumulated other comprehensive loss   (36,364 )   (42,069 ) Total Verint Systems Inc. stockholders' equity 112,559 76,407 Noncontrolling interest   3,917     1,280   Total liabilities stockholders' equity   116,476     77,687   Total liabilities, preferred stock, and stockholders' equity $ 1,406,025   $ 1,376,127     Table 5 Verint Systems Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)     Six Months Ended July 31, 2011     2010     Cash flows from operating activities: Net income (loss) $ 12,829 $ (3,225 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 25,539 23,952 Stock-based compensation 11,640 15,636 Non-cash losses on derivative financial instruments, net 1,907 3,347 Loss on extinguishment of debt 8,136 - Other non-cash items, net 3,294 867 Changes in operating assets and liabilities, net of effects of business combination: Accounts receivable (4,491 ) (5,447 ) Inventories (2,860 ) (2,124 ) Deferred cost of revenue 5,692 9,273 Prepaid expenses and other assets (3,417 ) 2,936 Accounts payable and accrued expenses (16,207 ) (3,798 ) Deferred revenue (10,432 ) (33,273 ) Other, net   (3,792 )   (2,632 ) Net cash provided by operating activities   27,838     5,512     Cash flows from investing activities: Cash paid for business combinations, net of cash acquired (11,958 ) (15,292 ) Purchases of property and equipment (6,715 ) (3,550 ) Settlements of derivative financial instruments not designated as hedges (1,178 ) (11,997 ) Cash paid for capitalized software development costs (1,662 ) (858 ) Change in restricted cash and bank time deposits (1,883 ) (9,720 ) Other investing activities   (1,230 )   -   Net cash used in investing activities   (24,626 )   (41,417 )   Cash flows from financing activities: Proceeds from borrowings, net of original issuance discount 597,000 - Repayments of borrowings and other financing obligations (583,786 ) (22,679 ) Payment of debt issuance and other debt-related costs (15,034 ) (3,688 ) Proceeds from exercises of stock options 8,716 11,650 Purchases of treasury stock (827 ) (4,146 ) Other financing activities   (2,004 )   -   Net cash provided by (used in) financing activities   4,065     (18,863 ) Effect of exchange rate changes on cash and cash equivalents   1,964     (1,368 ) Net increase (decrease) in cash and cash equivalents 9,241 (56,136 ) Cash and cash equivalents, beginning of period   169,906     184,335   Cash and cash equivalents, end of period $ 179,147   $ 128,199     Supplemental disclosures of cash flow information: Cash paid for interest $ 15,427   $ 10,236   Cash paid for income taxes, net of refunds received $ 7,780   $ 3,244   Non-cash investing and financing transactions: Accrued but unpaid purchases of property and equipment $ 659   $ 936   Inventory transfers to property and equipment $ 332   $ 87   Liabilities for contingent consideration in business combinations $ 904   $ 3,224   Stock options exercised, proceeds received subsequent to period end $ 17   $ 285   Accrued but unpaid debt issuance and other debt-related costs $ -   $ 310   Supplier financing arrangements $ -   $ 1,480    

Verint Systems Inc. and SubsidiariesSupplemental Information About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. Table 2 includes a reconciliation of each non-GAAP financial measure presented in this press release to the most directly comparable GAAP financial measure. Non-GAAP financial measures should not be considered in isolation or as a substitute for comparable GAAP financial measures. The non-GAAP financial measures we present have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures. These non-GAAP financial measures do not represent discretionary cash available to us to invest in the growth of our business, and we may in the future incur expenses similar to or in addition to the adjustments made in these non-GAAP financial measures.

We believe that the non-GAAP financial measures we present provide meaningful supplemental information regarding our operating results primarily because they exclude certain non-cash charges or items that we do not believe are reflective of our ongoing operating results when budgeting, planning and forecasting, determining compensation, and when assessing the performance of our business with our individual operating segments or our senior management. We believe that these non-GAAP financial measures also facilitate the comparison by management and investors of results between periods and among our peer companies. However, those companies may calculate similar non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

Adjustments to Non-GAAP Financial Measures

Revenue adjustments related to acquisitions. We exclude from our non-GAAP revenue the impact of fair value adjustments required under GAAP relating to acquired customer support contracts which would have otherwise been recognized on a standalone basis. We exclude these adjustments from our non-GAAP financial measures because these are not reflective of our ongoing operations.

Amortization of acquired intangible assets, including acquired technology. When we acquire an entity, we are required under GAAP to record the fair value of the intangible assets of the acquired entity and amortize it over their useful lives. We exclude the amortization of acquired intangible assets, including acquired technology, from our non-GAAP financial measures. These expenses are excluded from our non-GAAP financial measures because they are non-cash charges. In addition, these amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Thus, we also exclude these amounts to provide better comparability of pre- and post-acquisition operating results.

Stock-based compensation expenses. We exclude stock-based compensation expenses related to stock options, restricted stock awards and units, and phantom stock from our non-GAAP financial measures. These expenses are excluded from our non-GAAP financial measures because they are primarily non-cash charges. In recent periods, we also incurred significant cash-settled stock compensation due to our extended filing delay and restrictions on our ability to issue new shares of common stock to our employees.

Other adjustments. We exclude from our non-GAAP financial measures legal, other professional fees and certain other expenses associated with acquisitions and certain extraordinary transactions, in both cases, whether or not consummated. Also excluded are changes in the fair value of contingent consideration liabilities associated with business combinations. These expenses are excluded from our non-GAAP financial measures because we believe that they are not reflective of our ongoing operations.

Expenses related to our filing delay. We exclude from our non-GAAP financial measures expenses related to our restatement of previously filed financial statements and our extended filing delay. These expenses included professional fees and related expenses, as well as expenses associated with a special cash retention program. These expenses are excluded from our non-GAAP financial measures because we believe that they are not reflective of our ongoing operations.

Unrealized (gains) losses on derivatives, net. We exclude from our non-GAAP financial measures unrealized gains and losses on interest rate swaps and foreign currency derivatives. These gains and losses are excluded from our non-GAAP financial measures because they are non-cash transactions.

Loss on extinguishment of debt. We exclude from our non-GAAP financial measures loss on extinguishment of debt attributable to refinancing of our debt because we believe it is not reflective of our ongoing operations.

Non-cash tax adjustments. Non-cash tax adjustments represent the difference between the amount of taxes we actually paid and our GAAP tax provision on an annual basis. On a quarterly basis, this adjustment reflects our expected annual effective tax rate on a cash basis.