Overview
Net loss for the thirteen week period ended June 2, 2012 was $28.1 million
compared to the net loss of $63.1 million for the thirteen week period ended
May 28, 2011. The decrease in net loss was primarily driven by increased sales
volume, higher gross margin and lower lease termination and impairment charges
and loss on debt retirements, partially offset by higher selling, general and
administrative expenses ("SG&A"). Revenues were higher in the current quarter
with growth in both pharmacy and front end same store sales, partially offset by
store closings. The increase in gross margin was mainly due to new generics,
partially offset by lower pharmacy reimbursement rates and higher markdowns
associated with our wellness+ customer loyalty program. The increase in SG&A is
due to the reversal of the tax indemnification asset, litigation charges and a
shift in the Memorial Day holiday.
Results of Operations
Revenues and Other Operating Data
Thirteen Week Period Ended
June 2, May 28,
2012 2011
(dollars in thousands)
Revenues $ 6,468,287 $ 6,390,793
Revenue growth (decline) 1.2 % (0.1 )%
Same store sales growth 2.5 % 0.8 %
Pharmacy sales growth 1.7 % 0.6 %
Same store prescription count increase 3.0 % 0.4 %
Same store pharmacy sales growth 2.4 % 1.1 %
Pharmacy sales as a % of total sales 68.4 % 68.7 %
Third party sales as a % of total pharmacy sales 96.6 % 96.5 %
Front-end sales growth (decline) 2.0 % (1.3 )%
Same store front-end sales growth 2.7 % -
Front-end sales as a % of total sales 31.6 % 31.3 %
Store data:
Total stores beginning of period 4,667 4,714
Closed stores (15 ) (10 )
Total stores end of period 4,652 4,704
Relocated stores 2 6
Remodeled stores 143 3
Revenues
Revenue increased 1.2% for the thirteen week period ended June 2, 2012
compared to the thirteen week period ended May 28, 2011, primarily driven by an
increase in same store sales. The increase in same store sales was driven by
incremental prescriptions from the Walgreens / Express Scripts dispute, the
positive impact of our wellness+ loyalty program, and initiatives to increase
sales and prescriptions. These increases were partially offset by lower pharmacy
reimbursement rates and by operating 52 fewer stores than in the same period
last year. Same store sales increased 2.5% during the quarter reflecting the
positive impact of wellness+ and positive script count.
Pharmacy same store sales increased by 2.4% in the thirteen week period
ended June 2, 2012 compared to the thirteen week period ended May 28, 2011. The
increase was primarily driven by a same store prescription increase of 3.0%
driven by the Walgreens / Express Scripts dispute, our wellness+ loyalty program
and other initiatives to increase prescription sales, partially offset by an
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approximate 3.3% negative impact from new generic introductions and continued
lower reimbursement rates from pharmacy benefit managers and government payors.
We expect recent and future generic introductions and lower reimbursement rates
to continue to have additional negative impact on our revenues.
Front-end same store sales increased by 2.7% in the thirteen week period
ended June 2, 2012 compared to the thirteen week period ended May 28, 2011
reflecting the continued positive impact from our wellness+ loyalty program and
other initiatives to increase sales in the front end. Active wellness+ members,
defined as those who have used their cards at least twice during the last
26 weeks, reached 25 million as of June 2, 2012. This represented an 11%
increase over the same period a year ago.
We include in same store sales all stores that have been open at least one
year. Stores in liquidation are considered closed. Relocation stores are not
included in the same store sales until one year has lapsed.
Costs and Expenses
Thirteen Week Period Ended
June 2, May 28,
2012 2011
(dollars in thousands)
Cost of goods sold $ 4,719,516 $ 4,699,874
Gross profit 1,748,771 1,690,919
Gross margin 27.0 % 26.5 %
Selling, general and administrative expenses 1,688,066 1,586,236
Selling, general and administrative expenses as a
percentage of revenues 26.1 % 24.8 %
Lease termination and impairment charges 12,143 17,090
Interest expense 130,588 130,760
Cost of Goods Sold
Gross profit increased $57.9 million due to overall revenue growth and
generic introductions. Pharmacy gross profit was higher due to increased
prescription volume and cost reductions relating to recent generic introductions
including generic Lipitor and Plavix and increases in generic penetration,
partially offset by continued pressure on pharmacy benefit manager and
governmental reimbursement rates. Front end gross profit was higher due to
higher same store sales reflecting the continued positive impact of our
wellness+ loyalty program.
Gross margin was 27.0% of sales for the thirteen week period ended June 2,
2012 compared to 26.5% of sales for the thirteen week period ended May 28, 2011.
The improvement in gross margin was primarily due to cost reductions on existing
generic products and new generic introductions, partially offset by increased
tier discounts from our wellness+ customer loyalty program and continued
pressure on pharmacy benefit manager and governmental reimbursement rates.
We use the last-in, first-out (LIFO) method of inventory valuation, which is
estimated on a quarterly basis and is finalized at year end when inflation rates
and inventory levels are final. Therefore, LIFO costs for interim period
financial statements are estimated. The LIFO charges were $18.8 million for the
thirteen week period ended June 2, 2012 compared to LIFO charges of
$20.0 million for the thirteen week period ended May 28, 2011.
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Selling, General and Administrative Expenses
SG&A as a percentage of revenues was 26.1% in the thirteen week period ended
June 2, 2012 compared to 24.8% in the thirteen week period ended May 28, 2011.
The increase in SG&A as a percentage of revenues was due primarily to the
reversal of $60.2 million of tax indemnification asset resulting from our
settlement with the Internal Revenue Service associated with a pre-acquisition
Brooks Eckerd tax audit, which is completely offset by an income tax benefit as
noted below, litigation charges relating to the settlement of certain labor
related actions , increased salaries and benefit costs for wage increases and to
support our increased sales volume and increased salaries relating to the
Memorial Day holiday occurring in the first quarter this year compared to the
second quarter last year. These amounts are partially offset by lower
depreciation and amortization. We expect to see continued SG&A increases as a
percentage of revenues relative to the prior year due to the continued impact of
new generic introductions and reimbursement rate pressures on our pharmacy
sales.
Lease termination and Impairment Charges
Lease termination and impairment charges consist of amounts as follows:
Thirteen Week
Period Ended
June 2, May 28,
2012 2011
Impairment charges $ 495 $ 734
Lease termination charges 11,648 16,356
$ 12,143 $ 17,090
Impairment Charges: These amounts include the write-down of long-lived
assets at locations that were assessed for impairment because of management's
intention to relocate or close the location, or because of changes in
circumstances that indicated the carrying value of an asset may not be
recoverable.
Please refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Impairment Charges" included in our fiscal 2012 10-K
for a detailed description of our impairment methodology.
Lease Termination Charges: Charges to close a store, which principally
consist of continuing lease obligations, are recorded at the time the store is
closed and all inventory is liquidated, pursuant to the guidance set forth in
ASC 420, "Exit or Disposal Cost Obligations." We calculate our liability for
closed stores on a store-by-store basis. The calculation includes the discounted
effect of future minimum lease payments and related ancillary costs, from the
date of closure to the end of the remaining lease term, net of estimated cost
recoveries that may be achieved through subletting properties or through
favorable lease terminations. We evaluate these assumptions each quarter and
adjust the liability accordingly. As part of our ongoing business activities, we
assess stores and distribution centers for potential closure and relocation.
Decisions to close or relocate stores or distribution centers in future periods
would result in charges for lease exit costs and liquidation of inventory, as
well as impairment of assets at these locations.
Interest Expense
Interest expense was $130.6 million for the thirteen week period ended
June 2, 2012, compared to $130.8 million for the thirteen week period ended
May 28, 2011. The weighted average interest rates on our indebtedness for the
thirteen week periods ended June 2, 2012 and May 28, 2011 were 7.4% and 7.4%
respectively.
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Income Taxes
We recorded an income tax benefit of $61.7 million and an income tax expense
of $2.3 million for the thirteen week periods ended June 2, 2012 and May 28,
2011, respectively. The income tax benefit for the thirteen week period ended
June 2, 2012 is primarily attributable to the recognition of previously
unrecognized tax benefits resulting from the appellate settlement of the Brooks
Eckerd Internal Revenue Service (IRS) Audit for the periods leading up to the
acquisition which include fiscal years 2004 - 2007. This amount was completely
offset by a reversal of the related tax indemnification asset which was recorded
in selling, general and administrative expenses. The income tax expense for the
thirteen week period ended May 28, 2011 is primarily attributable to the accrual
of state and local taxes and adjustments to unrecognized tax benefits.
In the first quarter of FY 2013 we reached an agreement with the IRS
Appellate Division settling the examination of the Brooks Eckerd periods
2004-2007. The IRS settlement did not impact our net financial position, results
of operations or cash flows. Furthermore, the IRS settlement results in the
resolution of tax contingencies associated with these tax years which will
impact the effective rate by decreasing tax expense in the first quarter by
$61.5 million.
We recognize tax liabilities in accordance with the guidance for uncertain
tax positions and management adjusts these liabilities with changes in judgment
as a result of the evaluation of new information not previously available. Due
to the complexity of some of these uncertainties, the ultimate resolution may
result in a payment that is materially different from the current estimate of
the tax liabilities.
Over the next 12 months, we believe that it is reasonably possible that the
amount of unrecognized tax positions including interest and penalties could
decrease tax liabilities by approximately $51.9 million which would impact the
effective tax rate if our tax positions are sustained upon audit or the
controlling statute of limitations expires. The primary driver of the decrease
is contingent upon the statute of limitations expiring and the conclusion of the
pre-acquisition period's state audits for Brooks Eckerd. The corresponding tax
indemnification asset will reverse concurrently in selling, general and
administrative expenses.
We evaluate our deferred tax assets on a regular basis to determine if a
valuation allowance against the net deferred tax assets is required. A
cumulative loss in recent years is significant negative evidence in considering
whether deferred tax assets are realizable. Based on the negative evidence, we
are precluded from relying on projections of future taxable income to support
the recognition of deferred tax assets. The ultimate realization of deferred tax
assets is dependent upon the existence of sufficient taxable income generated in
the carryforward periods.
Liquidity and Capital Resources
General
We have three primary sources of liquidity: (i) cash and cash equivalents,
(ii) cash provided by operating activities and (iii) borrowings under the
revolving credit facility of our senior secured credit facility. Our principal
uses of cash are to provide working capital for operations, to service our
obligations to pay interest and principal on debt and to fund capital
expenditures. Total liquidity as of June 2, 2012 was $1,151.8 million, which
consisted of revolver borrowing capacity of $1,049.8 million and invested cash
of $102.0 million.
Credit Facility
Our senior secured credit facility consists of a $1.175 billion revolving
credit facility and two term loans. Borrowings under the revolving credit
facility bear interest at a rate per annum between LIBOR plus 3.25% and LIBOR
plus 3.75%, if we choose to make LIBOR borrowings, or between Citibank's
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base rate plus 2.25% and Citibank's base rate plus 2.75% in each case based upon
the amount of revolver availability as defined in the senior secured credit
facility. We are required to pay fees between 0.50% and 0.75% per annum on the
daily unused amount of the revolver, depending on the amount of revolver
availability. Amounts drawn under the revolver become due and payable on
August 19, 2015, provided that such maturity date shall instead be April 18,
2014 in the event that on or prior to April 18, 2014 we do not repay, refinance
or otherwise extend the maturity date of our Tranche 2 Term Loan (as defined
below) to a date that is at least 90 days after August 19, 2015 and, in the case
of a repayment or refinancing, we must have at least $500.0 million of
availability under the revolver.
Our ability to borrow under the revolver is based upon a specified borrowing
base consisting of accounts receivable, inventory and prescription files. At
June 2, 2012, we had no borrowings outstanding under the revolver and had
letters of credit outstanding against the revolver of $125.2 million, which
resulted in additional borrowing capacity of $1,049.8 million.
The credit facility also includes our $1.044 billion senior secured term
loan (the "Tranche 2 Term Loan"). The Tranche 2 Term Loan will mature on June 4,
2014 and currently bears interest at a rate per annum equal to LIBOR plus 1.75%,
if we choose to make LIBOR borrowings, or at Citibank's base rate plus 0.75%. We
must make mandatory prepayments of the Tranche 2 Term Loan with the proceeds of
certain asset dispositions and casualty events (subject to certain limitations),
with a portion of any excess cash flow generated by us (as defined in the senior
secured credit facility) and with the proceeds of certain issuances of equity
and debt (subject to certain exceptions). If at any time there is a shortfall in
our borrowing base under our senior secured credit facility, prepayment of the
Tranche 2 Term Loan may also be required.
On March 3, 2011, we refinanced the Tranche 3 Term Loan with a
$331.9 million senior secured term loan (the "Tranche 5 Term Loan"). The
Tranche 5 Term Loan matures on March 3, 2018. The Tranche 5 Term Loan bears
interest at a rate per annum equal to LIBOR plus 3.25% with a 1.25% LIBOR floor.
We must make mandatory prepayments of the Tranche 5 Term Loan with the proceeds
of asset dispositions and casualty events (subject to certain limitations), with
a portion of any excess cash flow generated by us (as defined in the senior
secured credit facility) and with the proceeds of certain issuances of equity
and debt (subject to certain exceptions). If at any time there is a shortfall in
our borrowing base under our senior secured credit facility, prepayment of the
Tranche 5 Term Loan may also be required.
The senior secured credit facility also restricts us and the subsidiary
guarantors from accumulating cash on hand in excess of $200.0 million at any
time when revolving loans are outstanding (not including cash located in our
store deposit accounts, cash necessary to cover our current liabilities and
certain other exceptions) and from accumulating cash on hand with revolver
borrowings in excess of $100.0 million over three consecutive business days. The
senior secured credit facility also states that if at any time (other than
following the exercise of remedies or acceleration of any senior obligations or
second priority debt and receipt of a triggering notice by the senior collateral
agent from a representative of the senior obligations or the second priority
debt) either (a) an event of default exists under our senior secured credit
facility or (b) the sum of revolver availability under our senior secured credit
facility and certain amounts held on deposit with the senior collateral agent in
a concentration account is less than $100.0 million for three consecutive
business days (a "cash sweep period"), the funds in our deposit accounts will be
swept to a concentration account with the senior collateral agent and will be
applied first to repay outstanding revolving loans under the senior secured
credit facility, and then held as Collateral for the senior obligations until
such cash sweep period is rescinded pursuant to the terms of our senior secured
credit facility.
The senior secured credit facility allows us to have outstanding, at any
time, up to $1.5 billion in secured second priority debt and unsecured debt in
addition to borrowings under the senior secured credit facility and existing
indebtedness, provided that not in excess of $750.0 million of such secured
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second priority debt and unsecured debt shall mature or require scheduled
payments of principal prior to three months after June 4, 2014. The senior
secured credit facility allows us to incur an unlimited amount of unsecured debt
with a maturity beyond three months after June 4, 2014; however, other
outstanding indebtedness limits the amount of unsecured debt that can be
incurred if certain interest coverage levels are not met at the time of
incurrence of said debt. The senior secured credit facility also contains
certain restrictions on the amount of secured first priority debt we are able to
incur. The senior secured facility also allows, so long as the senior secured
credit facility is not in default, for the repurchase of any debt with a
maturity on or before June 4, 2014, for the voluntary repurchase of debt with a
maturity after June 4, 2014 and the mandatory repurchase of our 8.5% convertible
notes due 2015 if we maintain availability on the revolving credit facility of
more than $100.0 million.
Our senior secured credit facility contains covenants which place
restrictions on the incurrence of debt beyond the restrictions described above,
the payment of dividends, sale of assets, mergers and acquisitions and the
granting of liens. Our credit facility also has one financial covenant, which is
the maintenance of a fixed charge coverage ratio. The covenant requires that, if
availability on the revolving credit facility is less than $150.0 million, we
maintain a minimum fixed charge coverage ratio of 1.05 to 1.00. As of June 2,
2012, we were in compliance with this financial covenant.
The senior secured credit facility provides for customary events of default
including nonpayment, misrepresentation, breach of covenants and bankruptcy. It
is also an event of default if we fail to make any required payment on debt
having a principal amount in excess of $50.0 million or any event occurs that
enables, or which with the giving of notice or the lapse of time would enable,
the holder of such debt to accelerate the maturity or require the repurchase of
such debt. The August 2010 amendments to the senior secured credit facility
exclude the mandatory repurchase of the 8.5% convertible notes due 2015 from
this event of default.
The indentures that govern our secured and guaranteed unsecured notes
contain restrictions on the amount of additional secured and unsecured debt that
can be incurred by us. As of June 2, 2012, the amount of additional secured debt
that could be incurred under these indentures was approximately $1.142 billion
(which amount does not include the ability to enter into certain sale and
leaseback transactions). However, effective February 27, 2010, we could not
incur any additional secured debt assuming a fully drawn revolver and the
outstanding letters of credit. The ability to issue additional unsecured debt
under these indentures is governed by an interest coverage ratio test.
Other Transactions
In February 2012, we issued $481.0 million of our 9.25% senior notes due
March 2020 and in May 2012, we issued an additional $421.0 million of our 9.25%
senior notes due 2020. The proceeds of the notes, together with available cash,
were used to repurchase and repay the 8.625% senior notes due March 2015 and the
9.375% senior notes due December 2015, respectively. These notes are unsecured,
unsubordinated obligations of Rite Aid Corporation and rank equally in right of
payment with all other unsubordinated indebtedness. Our obligations under the
notes are fully and unconditionally guaranteed, jointly and severally, on an
unsecured unsubordinated basis, by all of our subsidiaries that guarantee our
obligations under our senior secured credit facility and our outstanding 8.00%
senior secured notes due 2020, 9.75% senior secured notes due 2016, 10.375%
senior secured notes due 2016, 7.5% senior secured notes due 2017, 10.25% senior
secured notes due 2019 and 9.5% senior notes due 2017.
In February 2012, $404.8 million aggregate principal amount of the
outstanding 8.625% notes were tendered and repurchased by us. We redeemed the
remaining 8.625% notes in March 2012 for $55.6 million which included the call
premium and interest through the redemption date. The refinancing resulted in an
aggregate loss on debt retirement of $16.1 million recorded in the fourth
quarter of fiscal 2012.
In May 2012, $296.3 million aggregate principal amount of the outstanding
9.375% notes were tendered and repurchased by us. We redeemed the remaining
9.375% notes in June 2012 for $108.7 million. The refinancing resulted in an
aggregate loss on debt retirement of $17.8 million.
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Net Cash Provided by/Used in Operating, Investing and Financing Activities
Cash provided by operating activities was $363.6 million in the thirteen
week period ended June 2, 2012. Operating cash flow was positively impacted by
reductions in inventory due to management initiatives and generic price
reductions, and reductions of accounts receivable. These sources of cash were
partially offset by a decrease in accounts payable due to the timing of payments
in the prior year.
Cash used in investing activities in the thirteen week period ended June 2,
2012 was $75.7 million. Cash used for the purchase of property, plant, equipment
and prescription files as well as proceeds from the sale of assets were higher
compared to the prior year.
Cash used in financing activities was $235.4 million for the thirteen week
period ended June 2, 2012 due to the reduction of borrowings on our revolving
credit facility and zero balance cash accounts. Additionally, included in
financing activities is the refinancing of our 9.375% senior notes due December
2015 with the proceeds from our 9.25% senior notes due March 2020 as well as the
repayment of $54.2 million of our 8.625% senior notes due 2015 that were not
redeemed with our February 2012 tender offer.
Capital Expenditures
During the thirteen week period ended June 2, 2012, we spent $87.0 million
on capital expenditures, consisting of $51.9 million related to new store
construction, store relocation and store remodel projects, $26.1 million related
to technology enhancements, improvements to distribution centers and other
corporate requirements, and $9.0 million related to the purchase of prescription
files from other retail pharmacies. We plan on making total capital expenditures
of approximately $300.0 million during fiscal 2013, consisting of approximately
58% related to store relocations and remodels and new store construction, 25%
related to infrastructure and maintenance requirements and 17% related to
prescription file purchases. Management expects that these capital expenditures
will be financed primarily with cash flow from operating activities.
Future Liquidity
We are highly leveraged. Our high level of indebtedness: (i) limits our
ability to obtain additional financing; (ii) limits our flexibility in planning
for, or reacting to, changes in our business and the industry; (iii) places us
at a competitive disadvantage relative to our competitors with less debt;
(iv) renders us more vulnerable to general adverse economic and industry
conditions; and (v) requires us to dedicate a substantial portion of our cash
flow to service our debt. Based upon our current levels of operations, we
believe that cash flow from operations together with available borrowings under
the senior secured credit facility and other sources of liquidity will be
adequate to meet our requirements for working capital, debt service and capital
expenditures at least for the next twelve months. Based on our liquidity
position, which we expect to remain strong throughout the year, we do not expect
the restriction on our credit facility, that could result if we fail to meet the
fixed charge covenant in our senior secured credit facility, to impact our
business in the next twelve months. We will continue to assess our liquidity
position and potential sources of supplemental liquidity in light of our
operating performance, and other relevant circumstances. Should we determine, at
any time, that it is necessary to obtain additional short-term liquidity, we
will evaluate our alternatives and take appropriate steps to obtain sufficient
additional funds. There can be no assurance that any such supplemental funding,
if sought, could be obtained or if obtained, would be on terms acceptable to us.
From time to time, we may seek deleveraging transactions, including entering
into transactions to exchange debt for shares of common stock, issuance of
equity, repurchase outstanding indebtedness, or seek to refinance our
outstanding debt or may otherwise seek transactions to reduce interest expense
and extend debt maturities. Any of these transactions could impact our financial
results.
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Critical Accounting Policies and Estimates
For a description of the critical accounting policies that require the use
of significant judgments and estimates by management, refer to "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Estimates" included in our Fiscal
2012 10-K.
Factors Affecting Our Future Prospects
For a discussion of risks related to our financial condition, operations and
industry, refer to "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Fiscal 2012 10-K.
Adjusted EBITDA
In addition to net income determined in accordance with GAAP, we use certain
non-GAAP measures, such as "Adjusted EBITDA", in assessing our operating
performance. We believe the non-GAAP measures serve as an appropriate measure to
be used in evaluating the performance of our business. We define Adjusted EBITDA
as net income (loss) excluding the impact of income taxes (and any corresponding
reduction of tax indemnification asset), interest expense, depreciation and
amortization, LIFO adjustments, charges or credits for facility closing and
impairment, inventory write-downs related to store closings, stock-based
compensation expense, debt modifications and retirements, sale of assets and
investments, revenue deferrals related to customer loyalty programs and other
items. We reference this particular non-GAAP financial measure frequently in our
decision-making because it provides supplemental information that facilitates
internal comparisons to the historical operating performance of prior periods
and external comparisons to competitors' historical operating performance. In
addition, incentive compensation is based on Adjusted EBITDA and we base certain
of our forward- looking estimates on Adjusted EBITDA to facilitate
quantification of planned business activities and enhance subsequent follow-up
with comparisons of actual to planned Adjusted EBITDA.
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The following is a reconciliation of adjusted EBITDA to our net loss for the
thirteen week periods ended June 2, 2012 and May 28, 2011:
Thirteen Week Period Ended
June 2, 2012 May 28, 2011
(dollars in thousands)
Net loss $ (28,088 ) $ (63,082 )
Interest expense 130,588 130,760
Income tax (benefit) expense (61,729 ) 2,273
Reduction of tax indemnification asset(1) 60,237 -
Depreciation and amortization expense 106,371 117,090
LIFO charges 18,750 20,001
Lease termination and impairment charges 12,143 17,090
Stock-based compensation expense 3,958 3,571
Gain on sale of assets, net (10,051 ) (4,792 )
Loss on debt modifications and retirements, net 17,842 22,434
Closed facility liquidation expense 1,456 2,647
Severance costs - (49 )
Customer loyalty card programs revenue deferral 23,180 21,866
Other (492 ) (6,955 )
Adjusted EBITDA $ 274,165 $ 262,854
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º (1)
º Note: The income tax benefit from the IRS settlement described in Footnote
4 in the notes to our condensed consolidated financial statements and the
corresponding reduction of the tax indemnification asset had no net effect
on Adjusted EBITDA.
In addition to Adjusted EBITDA, we occasionally refer to several other
Non-GAAP measures, on a less frequent basis, in order to describe certain
components of our business and how we utilize them to describe our results.
These measures include but are not limited to Adjusted EBITDA Gross Margin and
Gross Profit (gross margin/gross profit adjusted for non-EBITDA items), Adjusted
EBITDA SG&A (SG&A expenses adjusted for non-EBITDA items), FIFO Gross Margin
(gross margin before LIFO charges) and Free Cash Flow (Adjusted EBITDA less cash
paid for interest, rent on closed stores, capital expenditures and the change in
working capital).
We include these non-GAAP financial measures in our earnings announcements
and guidance in order to provide transparency to our investors and enable
investors to better compare our operating performance with the operating
performance of our competitors including with those of our competitors having
different capital structures. Adjusted EBITDA or other non-GAAP measures should
not be considered in isolation from, and are not intended to represent an
alternative measure of, operating results or of cash flows from operating
activities, as determined in accordance with GAAP. Our definition of these
non-GAAP measures may not be comparable to similarly titled measurements
reported by other companies.
