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| 8-K - 8-K - INTERLINE BRANDS, INC./DE | ibiq3fy138-k.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
November 12, 2013
Interline Brands Announces Third Quarter 2013 Sales and Earnings Results
Jacksonville, Fla. - November 12, 2013 - Interline Brands, Inc. (“Interline” or the “Company”), a leading distributor and direct marketer of broad-line maintenance, repair and operations (“MRO”) products to the facilities maintenance end-market, reported sales and earnings for the fiscal quarter ended September 27, 2013(1).
Third Quarter 2013 Highlights:
• | Sales increased 20.4% to $421.5 million |
• | Adjusted EBITDA totaled $41.3 million, or 9.8% of sales |
• | Net debt(2) as of quarter-end to last-twelve months Further Adjusted EBITDA ratio of 5.9x |
• | Total liquidity as of quarter-end of $155.3 million |
Michael J. Grebe, Chairman and Chief Executive Officer commented, “Our strategic initiatives continued to gain momentum during the third quarter. Organic year-over-year revenues increased 3%, and Adjusted EBITDA totaled over $41 million, which was our highest quarterly Adjusted EBITDA in history. We are encouraged by the fact that growth accelerated across all of our facilities maintenance end-markets during the quarter, in spite of what continued to be an overall sluggish macroeconomic environment. Our performance during the quarter was aided by certain key investments in our sales team and capabilities, including under-penetrated market expansion and bundling our product suite to better fit the needs of our national account customers. We also benefited from improving trends in the housing market, which lead to additional repair, remodel and replacement activity among homeowners and property managers. We will continue to invest in our business and expect to build additional momentum as we close out the year.”
Third Quarter 2013 Results
Sales for the quarter ended September 27, 2013 were $421.5 million, a 20.4% increase compared to sales of $350.3 million for the quarter ended September 28, 2012. On an organic sales basis, sales increased 3.0% for the quarter. Sales to our institutional facilities customers, comprising 50% of sales, increased 44.7% for the quarter, and 2.2% on an organic sales basis. Sales to our multi-family housing facilities customers, comprising 31% of sales, increased 4.8% for the quarter. Sales to our residential facilities customers, comprising 19% of sales, increased 2.3% for the quarter.
Gross profit increased $19.6 million, or 15.4%, to $147.0 million for the third quarter of 2013, compared to $127.4 million for the third quarter of 2012. As a percentage of sales, gross profit decreased 150 basis points to 34.9% compared to 36.4%. On an organic basis, gross margin increased 10 basis points to 36.5%.
Selling, general and administrative (“SG&A”) expenses for the third quarter of 2013 increased $37.9 million, or 41.1%, to $130.1 million from $92.2 million for the third quarter of 2012. As a percentage of sales, SG&A expenses were 30.9% compared to 26.3%, an increase of 460 basis points. SG&A expenses for the quarter ended September 27, 2013 include a pre-tax charge totaling $20.9 million for litigation related costs (described below). On an organic basis and excluding distribution center consolidation and restructuring costs, acquisition costs, share-based compensation and litigation related costs, SG&A as a percentage of sales increased by 20 basis points year-over-year.
Third quarter 2013 Adjusted EBITDA of $41.3 million, or 9.8% of sales, increased 10.2% compared to $37.5 million, or 10.7% of sales, in the third quarter of 2012.
Kenneth D. Sweder, President and Chief Operating Officer commented, "Our execution improved in the third quarter. We delivered strong growth in national accounts as we gained market share and sold a broader bundle of products. We also generated improvements in our gross margin through merchandising efforts and the ongoing integration of our recent acquisitions, both of which continue to gain traction. In addition, the investments we’ve made in the business to support our long-term growth plans began to pay dividends this quarter. For example, we have hired over 80 associates to date in 2013 to support targeted geographic expansion and national account growth, cross-selling, merchandising and marketing opportunities, and expanded technology and supply chain capabilities. While early, we are encouraged by how these associates are beginning to ramp up and their initial contributions to our growth and success. We will continue to invest to exploit the many opportunities in front of us to improve our market position and accelerate our growth.”
Including merger-related expenses as well as increased interest expense and depreciation and amortization expense associated with the previously disclosed acquisition of Interline and litigation related costs, net loss for the third quarter of 2013 was $7.2 million compared to $28.4 million for the third quarter of the comparable 2012 period.
Year-To-Date 2013 Results
Sales for the nine months ended September 27, 2013 were $1,208.0 million, a 21.0% increase compared to sales of $998.7 million for the nine months ended September 28, 2012. On an average organic daily sales basis, sales increased 2.8% for the nine months ended September 27, 2013. Sales to our institutional facilities customers, comprising 51% of sales, increased 47.6% for the nine months ended September 27, 2013, and 2.9% on an organic daily sales basis. Sales to our multi-family housing facilities customers, comprising 30% of sales, increased 3.1% for the nine months ended September 27, 2013, and 3.7% on an average daily sales basis. Sales to our residential facilities customers, comprising 19% of sales, increased by 1.4% for the nine months ended September 27, 2013, and 1.9% on an average daily sales basis.
Gross profit increased $53.0 million, or 14.6%, to $417.0 million for the nine months ended September 27, 2013, compared to $364.0 million for the nine months ended September 28, 2012. As a percentage of sales, gross profit decreased 200 basis points to 34.5% compared to 36.5% in the comparable 2012 period. On an organic basis, gross margin decreased 20 basis points to 36.3%.
SG&A expenses for the nine months ended September 27, 2013 increased $71.6 million, or 26.0%, to $347.3 million from $275.7 million for the nine months ended September 28, 2012. As a percentage of sales, SG&A expenses were 28.7% compared to 27.6%, an increase of 110 basis points. SG&A expenses for the nine months ended September 27, 2013 include a pre-tax charge totaling $20.9 million for litigation related costs (described below). On an organic basis and excluding distribution center consolidation and restructuring costs, acquisition costs, share-based compensation and litigation related costs, SG&A as a percentage of sales increased by 20 basis points year-over-year.
Adjusted EBITDA of $100.7 million, or 8.3% of sales for the nine months ended September 27, 2013, increased 6.5% compared to $94.5 million, or 9.5% of sales, for the nine months ended September 28, 2012.
Including merger-related expenses as well as increased interest expense and depreciation and amortization expense associated with the previously disclosed acquisition of Interline and litigation related costs, net loss for the nine months ended September 27, 2013 was $7.5 million compared to $11.9 million for the nine months ended September 28, 2012.
Operating Free Cash Flow and Leverage
Cash flow provided by operating activities for the nine months ended September 27, 2013 was $11.5 million compared to cash flow used in operating activities of $4.4 million for the nine months September 28, 2012. Operating Free Cash Flow generated for the nine months ended September 27, 2013 was $55.3 million compared to $47.8 million during the nine months ended September 28, 2012.
Michael Grebe commented, “We generated nearly $33 million of operating free cash flow during the quarter bringing our total to over $55 million for the year to date period. The combination of our strong liquidity position, solid capital structure and healthy cash flows provides us with a strong foundation from which to continue pursuing our strategic plan for long-term growth and value creation."
Merger
On September 7, 2012, Interline was acquired by affiliates of GS Capital Partners LP and P2 Capital Partners, LLC. The acquisition is referred to as the “Merger.” As a result of the Merger, the Company applied the acquisition method of accounting and established a new basis of accounting on September 8, 2012. Periods presented prior to the Merger represent the operations of the predecessor company (“Predecessor”) and periods presented after the Merger represent the operations of the successor company (“Successor”). The comparability of the financial statements of the Predecessor and Successor periods has been impacted by the application of acquisition accounting and changes in the Company's capital structure resulting from the Merger. See our Quarterly Report on Form 10-Q for a presentation of Predecessor and Successor financial statements.
Litigation Update
In May 2011, the Company was named as a defendant in the case of Craftwood Lumber Company v. Interline Brands, Inc. ("Craftwood Matter"), filed before the Nineteenth Judicial Circuit Court of Lake County, Illinois, and subsequently removed to the United States District Court for the Northern District of Illinois. The complaint alleges that the Company sent unsolicited fax advertisements to businesses nationwide in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 (“Junk Fax Act”). At the time of filing the initial complaint in state court, the plaintiff also filed a motion asking the Court to certify a class of plaintiffs comprised of businesses who allegedly received unsolicited fax advertisements from the Company during the four-year statute of limitations period. In its amended complaint filed in the United States District Court, the plaintiff seeks preliminary and permanent injunctive relief enjoining the Company from violating the Junk Fax Act, as well as statutory damages for each fax transmission found to be in violation of the Junk Fax Act. The Company continues to vigorously contest class action certification and liability; however, in light of the Company’s assessment of potential legal risks associated with the Craftwood Matter, the Company has recorded a pre-tax charge of approximately $21 million in the third quarter of 2013. This estimated charge is included in selling, general and administrative expenses in the statements of operations. Net of tax benefits, the amount of the charge is approximately $13 million. Actual results may differ. For more information on this matter, please see the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 27, 2013.
About Interline
Interline Brands, Inc. is a leading distributor and direct marketer with headquarters in Jacksonville, Florida. Interline provides broad-line MRO products to a diversified facilities maintenance customer base of institutional, multi-family housing and residential customers located primarily throughout North America, Central America and the Caribbean. For more information, visit the Company's website at http://www.interlinebrands.com.
Recent releases and other news, reports and information about the Company can be found on the “Investor Relations” page of the Company's website at http://ir.interlinebrands.com/.
Non-GAAP Financial Information
This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Interline's management uses non-US GAAP measures in its analysis of the Company's performance. Investors are encouraged to review the reconciliation of non-US GAAP financial measures to the comparable US GAAP results available in the accompanying tables.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The statements contained in this release that are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, forward-looking statements. The Company has tried, whenever possible, to identify these forward-looking statements by using words such as “projects,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions. Similarly, statements herein that describe the Company's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. The risks and uncertainties involving forward-looking statements include, for example, economic slowdowns, general market conditions, credit market contractions, consumer spending and debt levels, natural or man-made disasters, adverse changes in trends in the home improvement and remodeling and home building markets, the failure to realize expected benefits from acquisitions, material facilities systems disruptions and shutdowns, the failure to locate, acquire and integrate acquisition candidates, commodity price risk, foreign currency exchange risk, interest rate risk, the dependence on key employees and other risks described in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 27, 2013 and in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2012. These statements reflect the Company's current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this release are likely to cause these statements to become outdated with the passage of time. The Company does not currently intend to update the information provided today prior to its next earnings release.
(1) To facilitate comparability with prior year periods, the attached financial statements present combined Successor (September 8, 2012 through September 28, 2012) and Predecessor (June 30, 2012 through September 7, 2012) information for the three months ended September 28, 2012 and Successor (September 8, 2012 through September 28, 2012) and Predecessor (December 31, 2011 through September 7, 2012) information for the nine months ended September 28, 2012. We present the combined information to assist readers in understanding and assessing the trends and significant changes in our results of operations on a comparable basis. The combined presentation does not comply with accounting principles generally accepted
in the United States of America, but we believe this combined presentation is appropriate because it provides a more meaningful comparison and more relevant analysis of our results of operations for the three-and nine-month periods ended September 28, 2012, compared to the three- and nine-month periods ended September 27, 2013, than a presentation of separate historical results for the Predecessor and Successor periods would provide. See our Quarterly Report on Form 10-Q for a presentation of Predecessor and Successor financial statements.
(2) Net debt of $776.3 million is comprised of long-term debt of $804.2 million plus $0.3 million of capital leases less cash and cash equivalents of $9.0 million and $19.2 million of unamortized fair value premium resulting from the acquisition of Interline.
CONTACT: Lev Cela
PHONE: 904-421-1441
INTERLINE BRANDS, INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
AS OF SEPTEMBER 27, 2013 AND DECEMBER 28, 2012 |
(in thousands, except share and per share data) |
September 27, 2013 | December 28, 2012 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 9,026 | $ | 17,505 | |||
Accounts receivable - trade (net of allowance for doubtful accounts of $2,101 and $528) | 185,546 | 157,487 | |||||
Inventories | 261,224 | 249,551 | |||||
Prepaid expenses and other current assets | 33,812 | 32,984 | |||||
Income taxes receivable | 10,337 | 16,643 | |||||
Deferred income taxes | 16,892 | 17,149 | |||||
Total current assets | 516,837 | 491,319 | |||||
Property and equipment, net | 58,244 | 61,747 | |||||
Goodwill | 501,493 | 501,493 | |||||
Other intangible assets, net | 453,075 | 476,888 | |||||
Other assets | 9,977 | 9,586 | |||||
Total assets | $ | 1,539,626 | $ | 1,541,033 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 123,145 | $ | 113,603 | |||
Accrued expenses and other current liabilities | 68,285 | 49,378 | |||||
Accrued interest | 16,204 | 18,230 | |||||
Current portion of capital leases | 302 | 521 | |||||
Total current liabilities | 207,936 | 181,732 | |||||
Long-Term Liabilities: | |||||||
Deferred income taxes | 169,777 | 182,164 | |||||
Long-term debt, net of current portion | 804,152 | 813,994 | |||||
Capital leases, net of current portion | 46 | 226 | |||||
Other liabilities | 3,285 | 5,447 | |||||
Total liabilities | 1,185,196 | 1,183,563 | |||||
Commitments and contingencies | |||||||
Stockholders' Equity: | |||||||
Common stock; $0.01 par value, 2,500,000 authorized;1,477,602 issued and outstanding as of September 27, 2013, and 1,474,465 issued and outstanding as of December 28, 2012 | 15 | 15 | |||||
Additional paid-in capital | 390,665 | 385,932 | |||||
Accumulated deficit | (35,958 | ) | (28,444 | ) | |||
Accumulated other comprehensive loss | (292 | ) | (33 | ) | |||
Total stockholders' equity | 354,430 | 357,470 | |||||
Total liabilities and stockholders' equity | $ | 1,539,626 | $ | 1,541,033 | |||
INTERLINE BRANDS, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
THREE AND NINE MONTHS ENDED SEPTEMBER 27, 2013 AND SEPTEMBER 28, 2012 |
(in thousands) |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 27, 2013 | September 28, 2012 | September 27, 2013 | September 28, 2012 | ||||||||||||
Net sales | $ | 421,541 | $ | 350,250 | $ | 1,208,000 | $ | 998,653 | |||||||
Cost of sales | 274,563 | 222,895 | 790,993 | 634,634 | |||||||||||
Gross profit | 146,978 | 127,355 | 417,007 | 364,019 | |||||||||||
Operating Expenses: | |||||||||||||||
Selling, general and administrative expenses | 130,052 | 92,191 | 347,288 | 275,680 | |||||||||||
Depreciation and amortization | 12,531 | 7,415 | 37,583 | 20,074 | |||||||||||
Merger related expenses | 303 | 54,559 | 1,275 | 56,744 | |||||||||||
Total operating expenses | 142,886 | 154,165 | 386,146 | 352,498 | |||||||||||
Operating income (loss) | 4,092 | (26,810 | ) | 30,861 | 11,521 | ||||||||||
Loss on extinguishment of debt, net | — | (2,214 | ) | — | (2,214 | ) | |||||||||
Interest expense | (15,753 | ) | (8,588 | ) | (47,356 | ) | (20,690 | ) | |||||||
Interest and other income | 448 | 639 | 1,249 | 1,651 | |||||||||||
Loss before income taxes | (11,213 | ) | (36,973 | ) | (15,246 | ) | (9,732 | ) | |||||||
Income tax (benefit) provision | (4,007 | ) | (8,597 | ) | (7,732 | ) | 2,158 | ||||||||
Net loss | $ | (7,206 | ) | $ | (28,376 | ) | $ | (7,514 | ) | $ | (11,890 | ) | |||
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 27, 2013 AND SEPTEMBER 28, 2012
(in thousands)
September 27, 2013 | September 28, 2012 | ||||||
Cash Flows from Operating Activities: | |||||||
Net loss | $ | (7,514 | ) | $ | (11,890 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 37,583 | 20,074 | |||||
Amortization of deferred lease incentive obligation | (633 | ) | (601 | ) | |||
Amortization of deferred debt financing costs | 2,836 | 1,245 | |||||
Amortization of OpCo Notes fair value adjustment | (2,342 | ) | (189 | ) | |||
Loss on extinguishment of debt, net | — | 2,214 | |||||
Share-based compensation | 3,933 | 22,182 | |||||
Excess tax benefits from share-based compensation | — | (1,083 | ) | ||||
Deferred income taxes | (13,038 | ) | 12,221 | ||||
Provision for doubtful accounts | 1,816 | 1,344 | |||||
Gain on disposal of property and equipment | (1 | ) | (126 | ) | |||
Other | (300 | ) | (500 | ) | |||
Changes in assets and liabilities, net of business acquired: | |||||||
Accounts receivable - trade | (29,927 | ) | (27,858 | ) | |||
Inventories | (11,768 | ) | (577 | ) | |||
Prepaid expenses and other current assets | (830 | ) | (759 | ) | |||
Other assets | (91 | ) | 38 | ||||
Accounts payable | 10,650 | (5,068 | ) | ||||
Accrued expenses and other current liabilities | 17,525 | (772 | ) | ||||
Accrued interest | (2,026 | ) | 7,482 | ||||
Income taxes | 5,899 | (21,764 | ) | ||||
Other liabilities | (226 | ) | (35 | ) | |||
Net cash provided by (used in) operating activities | 11,546 | (4,422 | ) | ||||
Cash Flows from Investing Activities: | |||||||
Acquisition of Interline Brands, Inc. | — | (825,717 | ) | ||||
Purchases of property and equipment, net | (14,415 | ) | (13,260 | ) | |||
Purchase of business, net of cash acquired | — | (3,278 | ) | ||||
Net cash used in investing activities | (14,415 | ) | (842,255 | ) | |||
Cash Flows from Financing Activities: | |||||||
Proceeds from equity contributions, net | — | 350,886 | |||||
Increase (decrease) in purchase card payable, net | 1,845 | (1,021 | ) | ||||
Proceeds from issuance of HoldCo Notes | — | 365,000 | |||||
Proceeds from ABL Facility | 104,000 | 80,000 | |||||
Payments on ABL Facility | (111,500 | ) | (11,000 | ) | |||
Payment of debt financing costs | (228 | ) | (26,701 | ) | |||
Payments on capital lease obligations | (399 | ) | (502 | ) | |||
Proceeds from issuance of common stock | 800 | — | |||||
Proceeds from stock options exercised | — | 5,678 | |||||
Excess tax benefits from share-based compensation | — | 1,083 | |||||
Purchases of treasury stock | — | (1,450 | ) | ||||
Net cash (used in) provided by financing activities | (5,482 | ) | 761,973 | ||||
Effect of exchange rate changes on cash and cash equivalents | (128 | ) | 114 | ||||
Net decrease in cash and cash equivalents | (8,479 | ) | (84,590 | ) | |||
Cash and cash equivalents at beginning of period | 17,505 | 97,099 | |||||
Cash and cash equivalents at end of period | $ | 9,026 | $ | 12,509 | |||
INTERLINE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 27, 2013 AND SEPTEMBER 28, 2012
(in thousands)
September 27, 2013 | September 28, 2012 | ||||||
Supplemental Disclosure of Cash Flow Information: | |||||||
Cash paid (received) during the period for: | |||||||
Interest | $ | 48,714 | $ | 11,663 | |||
Income taxes, net of refunds | $ | (313 | ) | $ | 8,156 | ||
Schedule of Non-Cash Investing and Financing Activities: | |||||||
Non-cash equity contribution from shareholders | $ | — | $ | 23,648 | |||
Contingent consideration associated with purchase of business | $ | — | $ | 300 | |||
INTERLINE BRANDS, INC. AND SUBSIDIARIES |
RECONCILIATION OF NON-GAAP INFORMATION |
THREE AND NINE MONTHS ENDED SEPTEMBER 27, 2013 AND SEPTEMBER 28, 2012 |
(in thousands) |
Daily Sales Calculations | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
September 27, 2013 | September 28, 2012 | % Variance | September 27, 2013 | September 28, 2012 | % Variance | |||||||||||||||||
Net sales | $ | 421,541 | $ | 350,250 | 20.4 | % | $ | 1,208,000 | $ | 998,653 | 21.0 | % | ||||||||||
Less acquisitions | (60,695 | ) | — | (186,771 | ) | — | ||||||||||||||||
Organic sales | $ | 360,846 | $ | 350,250 | 3.0 | % | $ | 1,021,229 | $ | 998,653 | 2.3 | % | ||||||||||
Daily sales: | ||||||||||||||||||||||
Shipping days | 63 | 63 | 191 | 192 | ||||||||||||||||||
Average daily sales(1) | $ | 6,691 | $ | 5,560 | 20.4 | % | $ | 6,325 | $ | 5,201 | 21.6 | % | ||||||||||
Average organic daily sales(2) | $ | 5,728 | $ | 5,560 | 3.0 | % | $ | 5,347 | $ | 5,201 | 2.8 | % | ||||||||||
____________________
(1)Average daily sales are defined as sales for a period of time divided by the number of shipping days in that period of time.
(2)Average organic daily sales are defined as sales for a period of time divided by the number of shipping days in that period of time excluding any sales from acquisitions made subsequent to the beginning of the prior year period.
Average organic daily sales is presented herein because we believe it to be relevant and useful information to our investors since it is used by management to evaluate the operating performance of our business, as adjusted to exclude the impact of acquisitions, and compare our organic operating performance with that of our competitors. However, average organic daily sales is not a measure of financial performance under US GAAP and it should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with US GAAP, such as net sales. Management utilizes average organic daily sales as an operating performance measure in conjunction with US GAAP measures such as net sales.
EBITDA, Adjusted EBITDA, and Further Adjusted EBITDA | ||||||||||||||||||||
Last Twelve Months Ended September 27, 2013 | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 27, 2013 | September 28, 2012 | September 27, 2013 | September 28, 2012 | |||||||||||||||||
EBITDA | ||||||||||||||||||||
Net loss (GAAP) | $ | (7,206 | ) | $ | (28,376 | ) | $ | (7,514 | ) | $ | (11,890 | ) | $ | (11,244 | ) | |||||
Interest expense, net | 15,743 | 8,577 | 47,322 | 20,668 | 63,025 | |||||||||||||||
Income tax (benefit) provision | (4,007 | ) | (8,597 | ) | (7,732 | ) | 2,158 | (9,009 | ) | |||||||||||
Depreciation and amortization | 12,531 | 7,415 | 37,583 | 20,074 | 48,053 | |||||||||||||||
EBITDA | 17,061 | (20,981 | ) | 69,659 | 31,010 | 90,825 | ||||||||||||||
EBITDA Adjustments | ||||||||||||||||||||
Merger related expenses | 303 | 54,559 | 1,275 | 56,744 | 3,221 | |||||||||||||||
Share-based compensation | 1,401 | 1,254 | 3,933 | 3,922 | 6,878 | |||||||||||||||
Loss on extinguishment of debt | — | 2,214 | — | 2,214 | — | |||||||||||||||
Distribution center consolidations and restructuring costs | 1,485 | 288 | 4,600 | 396 | 5,011 | |||||||||||||||
Acquisition-related costs, net | 172 | 193 | 344 | 263 | 787 | |||||||||||||||
Litigation related costs | 20,924 | — | 20,924 | — | 20,924 | |||||||||||||||
Adjusted EBITDA | $ | 41,346 | $ | 37,527 | $ | 100,735 | $ | 94,549 | $ | 127,646 | ||||||||||
Adjusted EBITDA margin | 9.8 | % | 10.7 | % | 8.3 | % | 9.5 | % | 8.3 | % | ||||||||||
Adjusted EBITDA Adjustments | ||||||||||||||||||||
Impact of straight-line rent expense | 1,134 | |||||||||||||||||||
Full-year impact of acquisitions | 3,220 | |||||||||||||||||||
Further Adjusted EBITDA | $ | 132,000 | ||||||||||||||||||
We define EBITDA as net income (loss) adjusted to exclude interest expense, net of interest income; provision (benefit) for income taxes; and depreciation and amortization expense.
We define Adjusted EBITDA as EBITDA adjusted to exclude merger-related expenses associated with the acquisition of the Company by affiliates of GS Capital Partners and P2 Capital Partners; share-based compensation, which is comprised of non-cash compensation arising from the grant of equity incentive awards; loss on extinguishment of debt, which is comprised of gains and losses associated with specific significant financing transactions such as writing off the deferred financing costs associated with our previous asset-based credit facility; distribution center consolidations and restructuring costs, which are comprised of facility closing costs, such as lease termination charges, property and equipment write-offs and headcount reductions, incurred as part of the rationalization of our distribution network, as well as employee separation costs, such as severance charges, incurred as part of a restructuring; acquisition-related costs, which includes our direct acquisition-related expenses, including legal, accounting and other professional fees and expenses arising from acquisitions, as well as severance charges, stay bonuses, and fair market value adjustments to earn-outs; and litigation related costs associated with the class action lawsuit filed by Craftwood Lumber Company in 2011.
Further Adjusted EBITDA is defined as Adjusted EBITDA further adjusted to exclude the non-cash impact on rent expense associated with the straight-line of rent expense on leases; and include the estimated Adjusted EBITDA impact of the acquisition of JanPak, Inc. as if we had acquired it on October 1, 2012, which is comprised of its estimated EBITDA for the period from October 1, 2012 to December 11, 2012 and the actual EBITDA for the period from December 12, 2012 to September 27, 2013 plus first year synergies expected to be attained.
EBITDA, Adjusted EBITDA and Further Adjusted EBITDA differ from Consolidated EBITDA per our asset-based credit facility agreement for purposes of determining our net leverage ratio and EBITDA as defined in our indentures. We believe EBITDA, Adjusted EBITDA and Further Adjusted EBITDA allow management and investors to evaluate our operating performance without regard to the adjustments described above which can vary from company to company depending upon the
acquisition history, capital intensity, financing options and the method by which its assets were acquired. While adjusting for these items limits the usefulness of these non-US GAAP measures as performance measures because they do not reflect all the related expenses we incurred, we believe adjusting for these items and monitoring our performance with and without them helps management and investors more meaningfully evaluate and compare the results of our operations from period to period and to those of other companies. Actual results could differ materially from those presented. We believe these items for which we are adjusting are not indicative of our core operating results. These items impacted net income (loss) over the periods presented, which makes direct comparisons between years less meaningful and more difficult without adjusting for them. While we believe that some of the items excluded in the calculation of EBITDA, Adjusted EBITDA and Further Adjusted EBITDA are not indicative of our core operating results, these items did impact our income statement during the relevant periods, and management therefore utilizes EBITDA, Adjusted EBITDA and Further Adjusted EBITDA as operating performance measures in conjunction with other measures of financial performance under US GAAP such as net income (loss).
Operating Free Cash Flow | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 27, 2013 | September 28, 2012 | September 27, 2013 | September 28, 2012 | |||||||||||||
Adjusted EBITDA | $ | 41,346 | $ | 37,527 | $ | 100,735 | $ | 94,549 | ||||||||
Change in net working capital items: | ||||||||||||||||
Accounts receivable | (6,466 | ) | (7,394 | ) | (29,927 | ) | (27,858 | ) | ||||||||
Inventories | 3,750 | 1,676 | (11,768 | ) | (577 | ) | ||||||||||
Accounts payable | (2,043 | ) | 2,697 | 10,650 | (5,068 | ) | ||||||||||
Decrease in net working capital | (4,759 | ) | (3,021 | ) | (31,045 | ) | (33,503 | ) | ||||||||
Less capital expenditures | (3,820 | ) | (5,590 | ) | (14,415 | ) | (13,260 | ) | ||||||||
Operating Free Cash Flow | $ | 32,767 | $ | 28,916 | $ | 55,275 | $ | 47,786 | ||||||||
We define Operating Free Cash Flow as Adjusted EBITDA adjusted to include the cash provided by (used for) our core working capital accounts, which are comprised of accounts receivable, inventories and accounts payable, less capital expenditures. We believe Operating Free Cash Flow is an important measure of our liquidity as well as our ability to meet our financial commitments. We use operating free cash flow in the evaluation of our business performance. However, a limitation of this measure is that it does not reflect payments made in connection with investments and acquisitions. To compensate for this limitation, management evaluates its investments and acquisitions through other return on capital measures.