QD Quadramed Corp.

QuadraMed Corporation (Amex:QD) announced today that it will report net income of $53.6 million before preferred stock accretion for the three months ended December 31, 2007, compared to $4.0 million for the same period in 2006. For the twelve months ended December 31, 2007, the Company had net income before preferred stock accretion of $59.9 million compared to $11.9 million for the twelve months ended December 31, 2006. Included in the three month and twelve month periods ended December 31, 2007 is an income tax benefit of $50.0 million, which includes deferred income tax expense of $4.5 million. The Company recorded these items as a result of management�s determination that it is now more likely than not that most of its deferred tax assets will in all probability be realized in future periods. Accordingly, a substantial portion of the valuation allowance that the Company had maintained against its deferred tax assets was released, which together with other miscellaneous tax expense of $0.5 million, resulted in the recording of the net income tax benefit for 2007 of $49.4 million. No corresponding amounts of this nature were recorded in 2006. The Company is still reviewing deferred tax assets related to its research credits, and may recognize additional income tax benefit once that review is complete. The Company expects to record book income tax expense in future periods as a function of any reported pretax earnings, but does not expect to pay substantial cash taxes for the next few years. Income before income taxes was $3.9 million and $4.0 million for the three month periods ended December 31, 2007 and 2006, and $10.6 million and $12.3 million for the twelve month periods ended December 31, 2007 and 2006. Revenues of $40.9 million for the quarter ended December 31, 2007 exceeded quarterly revenue guidance of $36 million to $39 million, and compares to $31.2 million for the same period in 2006, an increase of 31%. For the twelve months ended December 31, 2007, revenue of $137.4 million, increased 9.7%, compared to revenue of $125.2 million in 2006. Included in both of the 2007 periods is $5.6 million of revenue recognized as a result of the integration of the Computerized Patient Record (CPR) business assets during the fourth quarter. Sales bookings for 2007 amounted to $93 million (including approximately $8 million from CPR for the nine months prior to the acquisition), compared to $84.5 million in 2006. As previously announced at the UBS Global Healthcare Conference in February, QuadraMed expects 2008 revenues to be between $146 million and $152 million which would represent a 6% to 10% increase over 2007 revenues of $137.4 million. Income from operations was $3.5 million for the three months ended December 31, 2007, compared to $3.6 million for the same period in 2006. For the twelve months ended December 31, 2007, income from operations was $7.9 million, compared to $10.8 million for the twelve months ended December 31, 2006. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, adjusted for stock based compensation) was $15.9 million for the twelve months ended December 31, 2007, compared to adjusted EBITDA of $19.8 million for the same period in 2006. The declines in income from operations and adjusted EBITDA for the 2007 periods from 2006 are due primarily to costs incurred related to the acquisition of the CPR assets on September 23, 2007 from Misys Healthcare, the recording of a $1.3 million expense related to the change in wage/hour classifications of certain employees in the third quarter of 2007, and the inclusion of $3.0 million of additional income in 2006 that was generated from cash basis revenues originated in 2005 but not recognized until 2006. The Company also reported net income attributable to common shareholders of $53.9 million, or $1.22 income per share basic, and $0.75 income per share diluted for the twelve months ended December 31, 2007. This is compared to a net income attributable to common shareholders of $6.0 million, or income per share of $0.14 basic, and $0.13 diluted for the same period in 2006. Cash provided by operating activities was $12.8 million in 2007 compared to $16.7 million for 2006. Included in the 2007 period is the effect of paying the $1.3 million expense related to the change in wage/hour classifications of certain employees in the third quarter of 2007, as well as the first full quarter of activities related to the acquired CPR assets, which amounted to a use of cash of $1.2 million. In addition, during the fourth quarter of 2007, no monies were received from the Veterans Administration related to $4.6 million of term licenses earned, pending resolution of contract negotiations and Federal government budget resolutions; however all of the $4.6 million outstanding was subsequently received on January 6, 2008. By contrast, cash flow from operating activities in 2006 included approximately $6 million related to the reduction in DSO that year from 81 to 60. Cash, cash equivalents and investments decreased $27 million during 2007 to $17.5 million, compared to an increase of $11.2 million in 2006. The primary reason for the decline in cash and investments during 2007 was the $33 million cash purchase of the CPR assets during the third quarter. The 2007 results reflect the execution of the second year tactical initiatives from the three-year strategic plan that was implemented in 2006 by the Company�s new management team. �2007 was a very successful year for QuadraMed. We started growing the top line for the first time in years. Without the acquisition we grew 5.2%, and with it our revenues were up 9.7%, which is growth in line with our peers. While delivering these results we integrated a transformational acquisition of an award winning clinical information system, QCPR. This product will allow us to compete in market opportunities that our previous clinical systems could not,� added Mr. Hagen. Management will review these results in an investment community conference call at 4:00 PM Eastern (1:00 PM Pacific) Thursday, March 13, 2008. To ensure fair dissemination of information, no inquiries of management should be made regarding QuadraMed�s results until after the conference call. A brief question and answer period will follow management�s presentation. The dial-in number for the conference call is 877-879-6207 domestic, and 719-325-4806 international. Callers should dial in by 3:45 PM Eastern (12:45 PM Pacific) to register. The call will also be webcast live and available to the public via the Investor Relations section of QuadraMed�s webpage at www.quadramed.com. Please note that the webcast is listen-only. Listeners should access the website at 3:45 PM Eastern (12:45 PM Pacific) to register and to download and install any necessary audio software. The webcast replays will be available until 12:00 AM CT on March 20, 2008 by dialing 888-203-1112 or 719-457-0820. The replay passcode is 9024044. Attachments � Exhibit 1 � Consolidated Balance Sheets as of December 31, 2007 and December 31, 2006 Exhibit 2 Consolidated Statements of Operations for the Three Months Ended December 31, 2007 and December 31, 2006 and Years Ended December 31, 2007 and December 31, 2006 Exhibit 3 Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2007 and December 31, 2006 and the years ended December 31, 2007 and December 31, 2006 Exhibit 4 Reconciliation of EBITDA and Non-GAAP Measurements for the Three Months Ended December 31, 2007, September 30, 2007, June 30, 2007, March 31, 2007 and December 31, 2006, September 30, 2006, June 30, 2006, and March 31, 2006 Exhibit 5 Reconciliation of EBITDA and Non-GAAP Measurements for the Years Ended December 31, 2007 and December 31, 2006 About Adjusted EBITDA and other Non-GAAP Measurements The Company�s use and presentation of the terms EBITDA, Adjusted EBITDA and other Non-GAAP Measurements included in this press release and Exhibits 4 and 5 thereto, and the reconciliations of those items to the most directly comparable GAAP financial measure with equal or greater prominence as the non-GAAP financial measures, have been prepared in direct response to questions from its investors and other interested parties. Although the Company has frequently discussed these reconciling items when they occur, both in its filings as well in investment community conference calls that are open to the public at large, many inquiries are still made as to the nature of these items, and the impact of removing these items from the GAAP financial results. As a result, the Company believes it is important to provide these reconciliations, so that the requesting investors will not have to perform the arithmetic themselves and so that all interested parties will benefit from the disclosures and reconciliations, through a straightforward and unambiguous presentation. The Company believes that the use and presentation of the terms EBITDA, Adjusted EBITDA and the other non-GAAP financial measures is useful because it allows readers of its financial information to evaluate its performance for different periods on a more comparable basis by excluding items that are unique in nature such as non-cash compensation, or do not relate to the ongoing operation of its core business. The items presented in calculating Adjusted EBITDA other Non-GAAP reconciliations represent specific events or items as follows (please see Exhibits 4 and 5 to this press release): Cash Severance -- costs associated with restructuring and downsizing of the Company�s employee base during the three-month periods ended June 30, 2006 and March 31, 2006; Costs of Litigation -- costs associated with the settlement of a long standing and fully disclosed litigation proceeding during the three-month periods ended June 30, 2006 and March 31, 2006. Non-cash Compensation � the costs of employee stock options and restricted stock; Tax benefit, net � the amount recorded in the period resulting from the release of a portion of the reserve against the Company�s deferred tax assets, net of deferred income tax expense recorded in the period; Strategic Initiatives � the expenses recorded in connection with merger and acquisition activities during the three- month period ended June 30, 2007; Employment Matters � the cost of the Company�s review of wage/hour classifications for certain employees during the three month periods ended September 30, 2007 and December 31, 2007. About QuadraMed Corporation QuadraMed Corporation advances the success of healthcare organizations through IT solutions that leverage quality care into positive financial outcomes. QuadraMed provides real world solutions that help healthcare professionals deliver outstanding patient care efficiently and cost effectively. Behind the company�s products and services is a staff of 650 professionals whose experience and dedication have earned QuadraMed the trust and loyalty of clients at over 2,000 healthcare provider facilities. For more information about QuadraMed, visit http://www.quadramed.com. Cautionary Statement on Risks Associated with QuadraMed Forward-Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 by QuadraMed that are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "intend," "plan," "estimate," "may," "should," "could," and similar expressions are intended to identify such statements. Forward-looking statements are not guarantees of future performance and are to be interpreted only as of the date on which they are made. QuadraMed undertakes no obligation to update or revise any forward-looking statement except as required by law. QuadraMed advises investors that it discusses risk factors and uncertainties that could cause QuadraMed�s actual results to differ from forward-looking statements in its periodic reports filed with the Securities and Exchange Commission ("SEC"). QuadraMed�s SEC filings can be accessed through the Investor Relations section of our website, www.quadramed.com, or through the SEC�s EDGAR Database at www.sec.gov (QuadraMed has EDGAR CIK No. 0001018833). QuadraMed is a registered trademark of QuadraMed Corporation. All other trademarks are the property of their respective holders. Exhibit 1 QUADRAMED CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) � � � December 31, December 31, ASSETS 2007 2006 � Current assets Cash and cash equivalents $ 7,119 $ 32,596 Short-term investments 9,169 10,703 Accounts receivable, net of allowance for doubtful accounts of $1,449 and $2,612, respectively 26,088 20,358 Unbilled receivables 5,183 4,253 Deferred contract expenses 6,060 5,438 Prepaid expenses and other current assets, net of allowance on other receivables of $1,229 and $833, respectively 5,367 5,410 Deferred tax asset, net of valuation allowance � 6,353 � � - � Total current assets 65,339 78,758 � Restricted cash 2,389 2,341 Long-term investments 1,197 1,244 Property and equipment, net of accumulated depreciation and amortization of $22,855 and $21,131, respectively 3,778 2,557 Goodwill 33,942 25,983 Other amortizable intangible assets, net of accumulated amortization of $31,119 and $28,354, respectively 11,768 2,132 Other long-term assets 3,182 3,183 Deferred tax asset, net of valuation allowance � 47,727 � � - � Total assets $ 169,322 � $ 116,198 � LIABILITIES AND STOCKHOLDERS� EQUITY � Current liabilities Accounts payable and accrued expenses $ 4,910 $ 3,493 Accrued payroll and related benefits 9,602 8,720 Accrued exit cost of facility closing 1,178 1,547 Other accrued liabilities 7,537 4,119 Dividends payable 1,375 3,775 Deferred revenue � 36,111 � � 46,347 � Total current liabilities 60,713 68,001 � Accrued exit cost of facility closing 888 2,066 Deferred tax liability - 1,042 Other long-term liabilities � 2,722 � � 2,618 � Total liabilities 64,323 73,727 � Stockholders� equity Preferred stock, $0.01 par, 5,000 shares authorized, 4,000 shares issued and outstanding, respectively 96,144 93,290 Common stock, $0.01 par, 150,000 shares authorized; 45,891 and 43,678 shares issued and 45,284 and 43,221 outstanding, respectively 459 437 Shares held in treasury, 607 and 457, respectively (292 ) (5 ) Additional paid-in-capital 310,557 304,504 Accumulated other comprehensive loss (80 ) (49 ) Accumulated deficit � (301,789 ) � (355,706 ) Total stockholders� equity � 104,999 � � 42,471 � Total liabilities and stockholders� equity $ 169,322 � $ 116,198 � Exhibit 2 QUADRAMED CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) � � � � � Three months ended, Year ended, December 31, December 31, UNAUDITED � � � 2007 2006 2007 2006 Revenue Services $ 6,484 $ 2,799 $ 19,371 $ 12,767 Maintenance 17,618 13,370 59,892 55,975 Installation and other � 4,005 � � 2,708 � � 12,328 � � 11,823 � Services and other revenue 28,107 18,877 91,591 80,565 � Term licenses 8,939 6,377 31,031 25,515 Perpetual licenses � 3,560 � � 4,666 � � 10,597 � � 16,596 � Licenses 12,499 11,043 41,628 42,111 � Hardware � 268 � � 1,293 � � 4,131 � � 2,525 � Total revenue � 40,874 � � 31,213 � � 137,350 � � 125,201 � � Cost of revenue Cost of services and other revenue 11,303 6,552 36,737 26,456 Royalties and other 4,410 3,271 15,683 12,095 Amortization of acquired technology and capitalized software � 265 � � 702 � � 1,090 � � 3,401 � Cost of license revenue 4,675 3,973 16,773 15,496 Cost of hardware revenue � 189 � � 876 � � 3,722 � � 2,007 � Total cost of revenue � 16,167 � � 11,401 � � 57,232 � � 43,959 � Gross margin � 24,707 � � 19,812 � � 80,118 � � 81,242 � � Operating expense General and administration 5,359 3,984 18,275 19,127 Software development 9,172 6,955 32,390 31,770 Sales and marketing 5,712 4,294 18,057 15,331 Amortization of intangible assets and depreciation � 963 � � 956 � � 3,468 � � 4,195 � Total operating expenses � 21,206 � � 16,189 � � 72,190 � � 70,423 � Income from operations � 3,501 � � 3,623 � � 7,928 � � 10,819 � � Other income Interest expense, includes non-cash charges of $18, $68, $122 and $374, respectively (20 ) (68 ) (127 ) (379 ) Interest income 364 480 2,280 1,746 Other income � 8 � � 7 � � 511 � � 101 � Other income � 352 � � 419 � � 2,664 � � 1,468 � � Income from continuing operations before income taxes $ 3,853 $ 4,042 $ 10,592 $ 12,287 Benefit (provision) for income taxes � 49,767 � � (80 ) � 49,354 � � (342 ) Net income $ 53,620 $ 3,962 $ 59,946 $ 11,945 Preferred stock accretion, dividend premium and dividends declared � (1,375 ) � (1,459 ) � (6,032 ) � (5,978 ) � Net income attributable to common shareholders $ 52,245 � $ 2,503 � $ 53,914 � $ 5,967 � � Income per share-basic Basic $ 1.19 $ 0.06 $ 1.22 $ 0.14 Diluted 0.68 0.05 0.75 0.13 Weighted average shares outstanding Basic � 44,006 � � 42,825 � � 44,061 � � 42,057 � Diluted � 78,645 � � 79,571 � � 79,466 � � 45,867 � Exhibit 3 QUADRAMED CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) � � � � � For the three months ended For the Year ended UNAUDITED � December 31, 2007 December 31, 2006 2007 2006 Cash flows from operating activities Net income $ 53,620 $ 3,962 $ 59,946 $ 11,945 Adjustments to reconcile net income to net cash provided by operating activities: � Depreciation and amortization 1,228 1,661 4,559 7,598 Deferred compensation amortization 95 96 382 385 Stock-based compensation 928 181 2,474 879 Dividend discount amortization - 51 50 303 Provision for bad debts - - 181 820 Gain on sales of investments (3 ) - (46 ) - Interest income on investments (26 ) - (101 ) - Interest income on letters of credit (103 ) - (103 ) - Interest expense on note payable 18 18 72 72 Deferred income taxes (49,048 ) - (49,048 ) - Other - - - (21 ) � Changes in assets and liabilities: Accounts receivable (2,254 ) (1,012 ) 2,544 5,911 Prepaid expenses and other 2,676 (795 ) 5,663 413 Accounts payable and accrued liabilities 1,224 725 175 (4,508 ) Deferred revenue � (13,456 ) � (663 ) � (13,995 ) � (7,135 ) Cash (used in) provided by operating activities (5,101 ) 4,224 12,753 16,662 � Cash flows from investing activities Decrease in restricted cash (10 ) (55 ) (48 ) 50 Sales of available-for-sale securities, net 6,893 4,618 51,162 7,227 Purchases of available-for-sale securities (2,739 ) (11,106 ) (49,484 ) (17,813 ) Acquisition of businesses, net of cash acquired (227 ) (33,901 ) - Purchases of property and equipment (787 ) (251 ) (2,261 ) (982 ) Other � - � � (33 ) � - � � (28 ) Cash (used in) provided by investing activities 3,130 (6,827 ) (34,532 ) (11,546 ) � Cash flows from financing activities Payment of preferred stock dividends (1,375 ) (1,625 ) (5,628 ) (6,500 ) Proceeds from issuance of common stock and other 23 339 2,217 938 Repurchase of common stock � (287 ) � - � � (287 ) � - � Cash used in financing activities (1,639 ) (1,286 ) (3,698 ) (5,562 ) � Net decrease in cash and cash equivalents (3,610 ) (3,889 ) (25,477 ) (446 ) � Cash and cash equivalents, beginning of period � 10,729 � � 36,485 � � 32,596 � � 33,042 � � Cash and cash equivalents, end of period $ 7,119 � $ 32,596 � $ 7,119 � $ 32,596 � Exhibit 4 � QUADRAMED CORPORATION RECONCILIATION OF EBITDA AND NON-GAAP MEASUREMENTS For the Three Months Ended December 31, 2007, September 30, 2007, June 30, 2007, March 31, 2007 and December 31, 2006, September 30, 2006, June 30, 2006 and March 31, 2006 (in thousands) � � For the Three Months Ended (Unaudited) 12/31/07 � 9/30/07 � 6/30/07 � 3/31/07 � 12/31/06 � 9/30/06 � 6/30/06 � 3/31/06 � � EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) � Net income, as reported $53,620 $1,502 $2,200 $2,624 $3,962 $5,979 $3,847 ($1,843 ) � Adjustments to Net Income for EBITDA Interest Expense 20 24 33 50 68 85 103 123 Interest Income (364 ) (699 ) (644 ) (573 ) (480 ) (501 ) (399 ) (366 ) Benefit (provision) for Income Taxes (49,767 ) 142 162 109 80 101 63 98 Depreciation and Amortization 1,323 � 802 � 1,326 � 1,490 � 1,757 � 1,878 � 2,133 � 2,215 � Subtotal Non-GAAP Adjustments for EBITDA (48,788 ) 269 877 1,076 1,425 1,563 1,900 2,070 � � � � � � � � � � � � � � � � EBITDA $4,832 � $1,771 � $3,077 � $3,700 � $5,387 � $7,542 � $5,747 � $227 � � Non-cash Compensation 928 807 356 383 182 229 196 272 � � � � � � � � � � � � � � � � Adjusted Non-GAAP EBITDA 5,760 � 2,578 � 3,433 � 4,083 � 5,569 � 7,771 � 5,943 � 499 � � � � Non-GAAP Net Income before Preferred Stock Accretion � Net income, as reported $53,620 $1,502 $2,200 $2,624 $3,962 $5,979 $3,847 ($1,843 ) � Non-GAAP adjustments to Net income Costs of Litigation - - - - - - - 1,121 Non-cash Compensation 928 807 356 383 182 229 196 272 Cash Severance - - - - - - 142 315 Strategic Initiatives 57 - 412 - - - - - Tax benefit (50,034 ) - - - - - - - Employment Matters (374 ) 1,544 � - � - � - � - � - � - � Subtotal Non-GAAP adjustments (49,423 ) 2,351 768 383 182 229 338 1,708 � � � � � � � � � � � � � � � � Non-GAAP net income (loss) $4,197 � $3,853 � $2,968 � $3,007 � $4,144 � $6,208 � $4,185 � ($135 ) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other Information � Revenue $40,874 $32,908 $34,362 $29,206 $31,213 $33,032 $32,028 $28,928 Costs of Revenue $16,167 � $14,105 � $15,991 � $10,969 � $11,401 � $10,436 � $11,133 � $10,989 � Gross Margin $24,707 � $18,803 � $18,371 � $18,237 � $19,812 � $22,596 � $20,895 � $17,939 � Gross Margin % 60 % 57 % 53 % 62 % 63 % 68 % 65 % 62 % About Adjusted EBITDA and other Non-GAAP Measurements The Company�s use and presentation of the terms EBITDA, Adjusted EBITDA and other Non-GAAP Measurements included in this press release and on these Exhibits 4 and 5 thereto, and the reconciliations of those items to the most directly comparable GAAP financial measure with equal or greater prominence as the non-GAAP financial measures, have been prepared in direct response to questions from its investors and other interested parties. Although the Company has frequently discussed these reconciling items when they occur, both in its filings as well in investment community conference calls that are open to the public at large, many inquiries are still made as to the nature of these items, and the impact of removing these items from the GAAP financial results. As a result, the Company believes it is important to provide these reconciliations, so that the requesting investors will not have to perform the arithmetic themselves and so that all interested parties will benefit from the disclosures and reconciliations, through a straightforward and unambiguous presentation. The Company believes that the use and presentation of the terms EBITDA, Adjusted EBITDA and the other non-GAAP financial measures is useful because it allows readers of its financial information to evaluate its performance for different periods on a more comparable basis by excluding items that are unique in nature such as non-cash compensation, or do not relate to the ongoing operation of its core business. The items presented in calculating Adjusted EBITDA other Non-GAAP reconciliations represent specific events or items as follows: Cash Severance -- costs associated with restructuring and downsizing of the Company�s employee base during the three-month periods ended June 30, 2006 and March 31, 2006; Costs of Litigation -- costs associated with the settlement of a long standing and fully disclosed litigation proceeding during the three-month periods ended June 30, 2006 and March 31, 2006. Non-cash Compensation � the costs of employee stock options and restricted stock; Tax benefit, net � the amount recorded in the period resulting from the release of a portion of the reserve against the Company�s deferred tax assets, net of deferred income tax expense recorded in the period; Strategic Initiatives � the expenses recorded in connection with merger and acquisition activities during the three- month period ended June 30, 2007; Employment Matters � the cost of the Company�s review of wage/hour classifications for certain employees during the three month periods ended September 30, 2007 and December 31, 2007. Exhibit 5 QUADRAMED CORPORATION RECONCILIATION OF EBITDA AND NON-GAAP MEASUREMENTS For the Years Ended December 31, 2007 and December 31, 2006 (in thousands) � � � For the Year Ended (Unaudited) 12/31/2007 � 12/31/2006 � � EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) � Net income, as reported $ 59,946 $ 11,945 � Adjustments to Net Income for EBITDA Interest Expense 127 379 Interest Income (2,280 ) (1,746 ) Provision (Benefit) for Income Taxes (49,354 ) 342 Depreciation and Amortization � 4,941 � � 7,983 � Subtotal Non-GAAP Adjustments for EBITDA (46,566 ) 6,958 � � EBITDA � 13,380 � � 18,903 � � Non-cash Compensation 2,474 879 � � Adjusted Non-GAAP EBITDA � 15,854 � � 19,782 � � � � Non-GAAP Net Income before Preferred Stock Accretion � Net income, as reported $ 59,946 $ 11,945 � Non-GAAP adjustments to Net income Cash Severance - 457 Costs of Litigation - 1,121 Non-cash Compensation 2,474 879 Tax benefit (50,034 ) - Strategic Initiatives 469 - Employment Matters � 1,170 � � - � Subtotal Non-GAAP adjustments (45,921 ) 2,457 � � Non-GAAP net income $ 14,025 � $ 14,402 � � Other Information � Revenue $ 137,350 $ 125,201 Costs of Revenue $ 57,232 � $ 43,959 � Gross Margin $ 80,118 � $ 81,242 � Gross Margin % 58 % 65 % About Adjusted EBITDA and other Non-GAAP Measurements The Company�s use and presentation of the terms EBITDA, Adjusted EBITDA and other Non-GAAP Measurements included in this press release and on these Exhibits 4 and 5 thereto, and the reconciliations of those items to the most directly comparable GAAP financial measure with equal or greater prominence as the non-GAAP financial measures, have been prepared in direct response to questions from its investors and other interested parties. Although the Company has frequently discussed these reconciling items when they occur, both in its filings as well in investment community conference calls that are open to the public at large, many inquiries are still made as to the nature of these items, and the impact of removing these items from the GAAP financial results. As a result, the Company believes it is important to provide these reconciliations, so that the requesting investors will not have to perform the arithmetic themselves and so that all interested parties will benefit from the disclosures and reconciliations, through a straightforward and unambiguous presentation. The Company believes that the use and presentation of the terms EBITDA, Adjusted EBITDA and the other non-GAAP financial measures is useful because it allows readers of its financial information to evaluate its performance for different periods on a more comparable basis by excluding items that are unique in nature such as non-cash compensation, or do not relate to the ongoing operation of its core business. The items presented in calculating Adjusted EBITDA other Non-GAAP reconciliations represent specific events or items as follows: Cash Severance -- costs associated with restructuring and downsizing of the Company�s employee base during the three-month periods ended June 30, 2006 and March 31, 2006; Costs of Litigation -- costs associated with the settlement of a long standing and fully disclosed litigation proceeding during the three-month periods ended June 30, 2006 and March 31, 2006. Non-cash Compensation � the costs of employee stock options and restricted stock; Tax benefit, net � the amount recorded in the period resulting from the release of a portion of the reserve against the Company�s deferred tax assets, net of deferred income tax expense recorded in the period; Strategic Initiatives � the expenses recorded in connection with merger and acquisition activities during the three- month period ended June 30, 2007; Employment Matters � the cost of the Company�s review of wage/hour classifications for certain employees during the three month periods ended September 30, 2007 and December 31, 2007.