1-800-FLOWERS.COM, Inc. (NASDAQ: FLWS), the world’s leading
florist and gift shop, today reported revenues from continuing
operations of $192.6 million for its fiscal 2013 third quarter
ended March 31, 2013, compared with revenues from continuing
operations of $179.7 million in the prior year period. The Company
said the 7.2 percent growth, or $13.0 million, was primarily driven
by strong Valentine holiday performance in the 1-800-FLOWERS.COM
brand, which grew 11.4 percent during the month of February, as
well as the shift of the Easter holiday into the period, compared
with the prior year when Easter fell in the Company’s fiscal fourth
quarter.
Gross profit margin for the third quarter increased 100 basis
points to 41.7 percent, compared with 40.7 percent in the prior
year period, driven by a 100 basis point improvement in the
Company’s Consumer Floral segment, reflecting disciplined
promotional marketing programs and a continued focus on “truly
original” product designs as well as a 530 basis point increase in
the Company’s BloomNet segment, primarily reflecting product mix.
Operating expenses as a percent of revenue improved 100 basis
points to 39.6 percent, compared with 40.6 percent in the prior
year period. The improved operating expense ratio primarily
reflects the increased revenues for the quarter as well as the
Company’s continued focus on improving leverage across its business
platform.
Adjusted EBITDA from continuing operations for the quarter
increased 57.2 percent to $10.0 million compared with EBITDA of
$6.4 million in the prior year period. Net income from continuing
operations was $2.6 million, or $0.04 per diluted share, compared
with net income from continuing operations of $51,000, or $0.00 per
diluted share, in the prior year period.
Jim McCann, CEO of 1-800-FLOWERS.COM, said, “During the fiscal
third quarter we achieved solid top-line growth and strong
bottom-line results despite continued uncertainty in the consumer
environment. These results represent a continuation of the positive
trends in our business that we have seen for more than two years
now and reflect the success of our efforts to manage those aspects
of our business that we can control. This includes our enhanced
marketing and merchandising programs that are helping to drive
solid revenue growth along with increased gross margins and our
focus on leveraging our business platform to reduce operating costs
and help drive outsized benefits in terms of EBITDA and EPS
growth.”
McCann said that revenue growth during the quarter benefited
from strong Valentine holiday performance for the Company’s
1-800-FLOWERS.COM brand as well as the shift of the Easter holiday
into the period compared with the prior year when Easter fell in
the Company’s fiscal fourth quarter. “The effectiveness of our
enhanced marketing and merchandising programs – focusing on truly
original products such as our “Wow” collection of aspirational
gifts designed to truly wow recipients, and our signature
A-Dog-Able “Lucky-in-Love” and Happy Hour “Love Potion” floral
arrangements – helped drive more than 11 percent revenue growth for
the 1-800-FLOWERS.COM brand during the month of February.
Importantly, we also grew gross margin in this area by 100 basis
points, as compared with the prior year, reflecting the strength of
our brand and our disciplined approach to marketing programs.”
During the fiscal third quarter, the Company attracted 702,000
new customers. Approximately 1.7 million customers placed orders
during the quarter, of whom 58.4 percent were repeat customers.
This reflects the Company’s successful efforts to engage with its
customers and deepen its relationships as their trusted Florist and
Gift Shop for all of their celebratory occasions.
McCann also noted that the Company continued to strengthen its
balance sheet and added financial flexibility with a new, amended
bank credit facility comprised of a $200 million revolving credit
line entered into on April 11, 2013. “Our new credit facility,
which features very advantageous borrowing costs, reflects the
strength of our business model, including the growing cash flows
that enabled us to pay off more than $100 million in debt over the
past several years. As we have stated in the past, we expect to
finish our current fiscal year, at the end of June, with a positive
cash position on our balance sheet and zero debt outstanding. The
strength of our balance sheet, and the increased flexibility
inherent in our new credit line, provides us with significant
opportunities to grow our business going forward and continue to
build value for our shareholders,” said McCann.
SEGMENT RESULTS FROM CONTINUING
OPERATIONS:
The Company provides selected financial results for its Consumer
Floral, BloomNet and Gourmet Foods and Gift Baskets business
segments in the tables attached to this release and as follows:
- 1-800-FLOWERS.COM
Consumer Floral: During the fiscal 2013 third quarter,
revenues in this segment grew 7.1 percent to $121.0 million,
compared with $113.0 million in the prior year period. Revenues for
the quarter benefited from 1-800-FLOWERS.COM ecommerce growth of
11.4 percent in the month of February, reflecting strong
performance for the Valentine holiday, as well as contributions
from the shift of the Easter holiday into the period, compared with
the prior year when Easter fell in the Company’s fiscal fourth
quarter. Gross profit margin for the fiscal third quarter increased
100 basis points to 40 percent, compared with 39.0 percent in last
year’s third quarter. This increase reflected the Company’s
continued focus on enhanced merchandising programs that emphasized
its “better and best” gift offerings, and disciplined marketing
programs that encouraged customers to “wow” their recipients.
Segment contribution margin increased 27.0 percent, or $3.0
million, to $13.9 million compared with $10.9 million in the prior
year period.
- BloomNet Wire
Service: Revenues were $22.8 million, compared with $24.1
million in the prior year period. The 5.2 percent decline reflected
changes in the mix of products, services and order volumes during
the quarter and was driven primarily by reduced sales of wholesale
products to florists. Gross margin increased 530 basis points to
49.9 percent compared with 44.6 percent in the prior year period,
primarily reflecting the aforementioned changes in revenue mix,
which included growth in sales of higher-margin services, such as
web-marketing and directory advertising programs. As a result of
these factors, segment contribution margin increased 11.1 percent
to $7.0 million, compared with $6.3 million in the prior year
period.
- Gourmet Food and
Gift Baskets: Revenues increased 14.5 percent to $49.3
million, compared with $43.1 million in the prior year period,
primarily reflecting contributions from the aforementioned shift of
the Easter holiday into the period, as well as contributions from
the newly launched Fannie May Berries line of chocolate dipped
strawberries. Gross margin was 41.4 percent, compared with 42.0
percent, primarily reflecting product mix. Segment contribution
margin increased 2.3 percent to $970,000 compared with $948,000 in
the prior year period. This reflected the revenue growth in the
period, largely offset by the lower gross margin as well as
investment costs associated with the launch of Fannie May Berries
and efforts to enhance Fannie May operations.
Company Guidance:
The Company reiterated its top- and bottom-line guidance for
fiscal 2013, saying it continues to expect to achieve revenue
growth from continuing operations across all three of its business
segments with consolidated revenue growth from continuing
operations for the year anticipated to be in the mid-single-digit
range. Also, based on anticipated continued improvements in gross
profit margin and operating leverage, the Company expects to
achieve double-digit, year-over-year increases in EBITDA and EPS
and generate Free Cash Flow in excess of $20 million.
Definitions:
* EBITDA: Net income (loss) before interest, taxes,
depreciation, amortization. Free Cash Flow: net cash provided by
operating activities less capital expenditures. Category
contribution margin: earnings before interest, taxes, depreciation
and amortization, before the allocation of corporate overhead
expenses. The Company presents EBITDA and Adjusted EBITDA from
continuing operations because it considers such information
meaningful supplemental measures of its performance and believes
such information is frequently used by the investment community in
the evaluation of similarly situated companies. The Company also
uses EBITDA and Adjusted EBITDA as factors used to determine the
total amount of incentive compensation available to be awarded to
executive officers and other employees. The Company’s credit
agreement uses EBITDA and Adjusted EBITDA to measure compliance
with covenants such as interest coverage and debt incurrence.
EBITDA and Adjusted EBITDA are also used by the Company to evaluate
and price potential acquisition candidates. EBITDA, Adjusted EBITDA
and Free Cash Flow have limitations as analytical tools and should
not be considered in isolation or as a substitute for analysis of
the Company's results as reported under GAAP. Some of the
limitations of EBITDA and Adjusted EBITDA are: (a) EBITDA and
Adjusted EBITDA do not reflect changes in, or cash requirements
for, the Company's working capital needs; (b) EBITDA and Adjusted
EBITDA do not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments,
on the Company's debts; and (c) although depreciation and
amortization are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future and EBITDA does not
reflect any cash requirements for such capital expenditures. EBITDA
and Free Cash Flow should only be used on a supplemental basis
combined with GAAP results when evaluating the Company's
performance.
About 1-800-FLOWERS.COM, Inc.
1-800-FLOWERS.COM, Inc. is the world’s leading florist and gift
shop. For more than 30 years, 1-800-FLOWERS® (1-800-356-9377 or
www.1800flowers.com) has been helping deliver smiles for our
customers with gifts for every occasion, including fresh flowers
and the finest selection of plants, gift baskets, gourmet foods,
confections, candles, balloons and plush stuffed animals. As
always, our 100% Smile Guarantee backs every gift.
1-800-FLOWERS.COM’s Mobile Flower & Gift Center was named
winner of the Mobile Shopping Summit’s “Best Mobile Site of 2011.”
1-800-FLOWERS.COM was also rated number one vs. competitors for
customer satisfaction by STELLAService and named by the E-Tailing
Group as one of only nine online retailers out of 100 benchmarked
to meet the criteria for Excellence in Online Customer Service.
1-800-FLOWERS.COM has been honored in Internet Retailer’s “Hot 100:
America’s Best Retail Web Sites” for 2011. The Company’s BloomNet®
international floral wire service (www.mybloomnet.net) provides a
broad range of quality products and value-added services designed
to help professional florists grow their businesses profitably. The
1-800-FLOWERS.COM “Gift Shop” also includes gourmet gifts such as
popcorn and specialty treats from The Popcorn Factory®
(1-800-541-2676 or www.thepopcornfactory.com); cookies and baked
gifts from Cheryl’s® (1-800-443-8124 or www.cheryls.com); premium
chocolates and confections from Fannie May® confections brands
(www.fanniemay.com and www.harrylondon.com); gift baskets and
towers from 1-800-Baskets.com® (www.1800baskets.com); delicious
cut-fruit arrangements from FruitBouquets.com
(www.fruitbouquets.com); wine gifts from Winetasting.com®
(www.winetasting.com); ultra- premium meats from Stockyards.com
(www.stockyards.com); as well as exquisite, customizable
invitations and personal stationery from FineStationery.com
(www.finestationery.com). The Company’s Celebrations® brand
(www.celebrations.com) is a new premier online destination for
fabulous party ideas and planning tips. 1-800-FLOWERS.COM, Inc. is
involved in a broad range of corporate social responsibility
initiatives including continuous expansion and enhancement of its
environmentally-friendly “green” programs as well as various
philanthropic and charitable efforts. Shares in 1-800-FLOWERS.COM,
Inc. are traded on the NASDAQ Global Select Market, ticker symbol:
FLWS.
Special Note Regarding Forward-Looking
Statements:
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements represent the Company’s
current expectations or beliefs concerning future events and can
generally be identified by the use of statements that include words
such as “estimate,” “expects,” “project,” “believe,” “anticipate,”
“intend,” “plan,” “foresee,” “likely,” “will,” “target” or similar
words or phrases. Forward-looking statements include, but are not
limited to, statements regarding the Company’s expectations for:
its ability to build on positive trends including increases in
revenue, gross margin and contribution margin in its Consumer
Floral business; its ability to achieve continued top and bottom
line growth in its BloomNet and Gourmet Food and Gift Baskets
categories; its ability to achieve its guidance for consolidated
revenue growth for the full year in mid-single digit range along
with further improvement in gross profit margin and double-digit
year-over-year increases in EBITDA and EPS. These forward-looking
statements are subject to risks, uncertainties and other factors,
many of which are outside of the Company’s control, which could
cause actual results to differ materially from the results
expressed or implied in the forward- looking statements, including,
among others: the Company’s ability to leverage its operating
platform and reduce operating expenses; its ability to grow its
1-800-Baskets.com business; its ability to manage the seasonality
of its businesses; its ability to cost effectively acquire and
retain customers; the outcome of contingencies, including legal
proceedings in the normal course of business; its ability to
compete against existing and new competitors; its ability to manage
expenses associated with sales and marketing and necessary general
and administrative and technology investments; its ability to
reduce promotional activities and achieve more efficient marketing
programs; and general consumer sentiment and economic conditions
that may affect levels of discretionary customer purchases of the
Company’s products. The Company undertakes no obligation to
publicly update any of the forward-looking statements, whether as a
result of new information, future events or otherwise, made in this
release or in any of its SEC filings except as may be otherwise
stated by the Company. For a more detailed description of these and
other risk factors, please refer to the Company’s SEC filings
including the Company’s Annual Reports on Form 10-K and its
Quarterly Reports on Form 10-Q. Consequently, you should not
consider any such list to be a complete set of all potential risks
and uncertainties.
Conference Call:
The Company will conduct a conference call to discuss the above
details and attached financial results today, Tuesday, April 30,
2013 at 11:00 a.m. (EDT). The call will be “web cast” live via the
Internet and can be accessed from the Investor Relations section of
the 1-800-FLOWERS.COM web site at www.1800flowersinc.com A
recording of the call will be posted on the Investor Relations
section of the Company’s web site within two hours of the call’s
completion. A telephonic replay of the call can be accessed for 48
hours beginning at 2:00 p.m. EDT on the day of the call at:
1-855-859-2056 or 1-404-537-3406; Conference ID: 893553477.
Note: Attached tables are an integral part of this press
release without which the information presented in this press
release should be considered incomplete.
1-800-FLOWERS.COM, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets
(In thousands)
March 31,
2013
July 1,
2012
(unaudited)
Assets Current assets: Cash and equivalents
$17,004 $28,854 Receivables, net 24,706 14,968 Inventories 59,877
55,744 Deferred tax assets 6,332 4,993 Prepaid and other 6,221
8,447 Current assets of discontinued operations - 100 Total current
assets 114,140 113,106 Property, plant and equipment, net
51,365 48,669 Goodwill 47,901 47,901 Other intangibles, net 43,944
41,838 Deferred income taxes 2,822 2,824 Other assets 9,353 7,875
Total assets $269,525 $262,213
Liabilities and
stockholders’ equity Current liabilities: Accounts payable
$20,537 $17,619 Accrued expenses 55,412 49,900 Current maturities
of long-term debt and obligations under capital leases 18,000
15,756 Current liabilities of discontinued operations - 110 Total
current liabilities 93,949 83,385 Long-term debt and
obligations under capital leases - 13,500 Other liabilities 5,242
3,580 Total liabilities 99,191 100,465 Total stockholders’ equity
170,334 161,748 Total liabilities and stockholders’ equity $269,525
$262,213
1-800-FLOWERS.COM, Inc. and Subsidiaries
Selected Financial Information Consolidated Statements of
Operations
(In thousands, except for per share
data)
(unaudited)
Three Months Ended Nine Months Ended March 31,
2013
April 1,
2012
March 31,
2013
April 1,
2012
Net revenues: E-commerce (combined online and telephonic)
$144,888 $132,190 $398,978 $376,110 Other 47,736 47,469 167,530
160,592 Total net revenues 192,624 179,659 566,508 536,702 Cost of
revenues 112,221 106,620 331,983 316,775 Gross profit 80,403 73,039
234,525 219,927 Operating expenses: Marketing and sales
51,836 48,598 139,727 133,900 Technology and development 5,624
5,646 16,415 15,252 General and administrative 13,998 13,766 40,898
39,057 Depreciation and amortization 4,849 4,874 13,838 14,705
Total operating expenses 76,307 72,884 210,878 202,914
Gain on sale of stores - - - 3,789 Operating income
4,096 155 23,647 20,802 Interest expense, net 227 319 1,088
1,990 Income (loss) from continuing operations before income
taxes 3,869 (164) 22,559 18,812 Income tax expense (benefit) from
continuing operations 1,231 (215) 8,516 7,318 Income from
continuing operations 2,638 51 14,043 11,494 Loss from
discontinued operations, net of tax - - - (22) Gain (loss) on sale
of discontinued operations, net of tax - (136) - 4,342 Income
(loss) from discontinued operations - (136) - 4,320 Net
income (loss) $2,638 $(85) $14,043 $15,814 Net income (loss)
per common share (basic) From continuing operations $0.04 $0.00
$0.22 $0.18 From discontinued operations 0.00 0.00 0.00 0.07 Net
income (loss) per common share (basic) $0.04 $0.00 $0.22 $0.24
Net income (loss) per common share (diluted)
From continuing operations $0.04 $0.00 $0.21 $0.17 From
discontinued operations 0.00 0.00 0.00 0.07 Net income (loss) per
common share (diluted) $0.04 $0.00 $0.21 $0.24 Weighted
average shares used in the calculation of net income (loss) per
common share Basic 64,256 64,988 64,528 64,683 Diluted 66,111
66,299 66,647 66,257
1-800-FLOWERS.COM, Inc. and
Subsidiaries Selected Financial Information
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine Months Ended March 31,
2013
April 1,
2012
Operating activities Net income $14,043 $15,814
Reconciliation of net income to net cash provided by operations:
Operating activities of discontinued operations (10 ) 1,927 Gain on
sale of discontinued operations - (8,733 ) Depreciation and
amortization 13,839 14,705 Amortization of deferred financing costs
343 343 Deferred income taxes (1,337 ) 5,720 Bad debt expense 762
692 Stock-based compensation 3,397 3,736 Other non-cash items 213
(22 ) Changes in operating items, excluding the effects of
acquisitions: Receivables (10,500 ) (9,709 ) Inventories (4,133 )
(7,670 ) Prepaid and other 2,226 804 Accounts payable and accrued
expenses 7,694 2,489 Other assets (464 ) 1,604 Other liabilities
662 1,187
Net cash provided by operating
activities 26,735 22,887
Investing activities
Acquisitions, net of cash acquired (2,000 ) (4,336 ) Proceeds from
sale of business - 12,826 Capital expenditures (15,118 ) (11,986 )
Purchase of investments (1,337 ) (1,111 ) Other, net 22 (271
)
Net cash used in investing activities (18,433 ) (4,878 )
Financing activities Acquisition of treasury stock
(8,921 ) (1,925 ) Proceeds from exercise of employee stock options
67 - Proceeds from bank borrowings 47,000 56,000 Repayment of notes
payable and bank borrowings (58,250 ) (67,250 ) Other (48 ) (1,400
)
Net cash used in financing activities (20,152 ) (14,575 )
Net change in cash and equivalents (11,850 ) 3,434 Cash and
equivalents: Beginning of period 28,854 21,442 End of
period $17,004 $24,876
1-800-FLOWERS.COM,
Inc. and Subsidiaries Selected Financial Information
Category Information
(in thousands)
(unaudited)
Three Months Ended
Nine Months Ended
March 31,
2013
April 1,
2012
% Change
March 31,
2013
April 1,
2012
% Change
Net revenues from continuing operations:
1-800-Flowers.com Consumer Floral $121,005 $112,987 7.1 % $285,608
$274,168 4.2 % BloomNet Wire Service 22,819 24,060 -5.2 % 61,320
60,837 0.8 % Gourmet Food & Gift Baskets 49,341 43,104 14.5 %
220,483 202,829 8.7 % Corporate (*) 200 199 0.5 % 594 575 3.3 %
Intercompany eliminations (741 ) (691 ) -7.2 % (1,497 ) (1,707 )
12.3 %
Total net revenues from continuing operations
$192,624 $179,659 7.2 % $566,508 $536,702
5.6 %
Three Months Ended
Nine Months Ended
March 31,
2013
April 1,
2012
% Change
March 31,
2013
April 1,
2012
% Change
Gross profit from continuing operations:
1-800-Flowers.com Consumer Floral $48,455 $44,045 10.0 % $112,701
$106,258 6.1 % 40.0 % 39.0 % 39.5 % 38.8 % BloomNet Wire
Service 11,382 10,733 6.0 % 30,974 28,254 9.6 % 49.9 % 44.6 % 50.5
% 46.4 % Gourmet Food & Gift Baskets 20,418 18,116 12.7
% 90,200 84,981 6.1 % 41.4 % 42.0 % 40.9 % 41.9 % Corporate
(*) 148 145 650 434 74.0 % 72.9 % 2.1 % 109.4 % 75.6 % 49.8 %
Total gross profit from continuing operations $80,403
$73,039 10.1 % $234,525 $219,927 6.6 %
41.7
%
40.7
%
41.4
%
41.0
%
Three Months Ended
Nine Months Ended
March 31,
2013
April 1,
2012
% Change
March 31,
2013
April 1,
2012
% Change
Adjusted EBITDA from continuing operations:
Segment Contribution Margin (**) 1-800-Flowers.com Consumer
Floral $13,902 $10,948 27.0 % $31,074 $26,899 15.5 % BloomNet Wire
Service 6,952 6,258 11.1 % 18,797 15,925 18.0 % Gourmet Food &
Gift Baskets (***) 970 948 2.3 % 25,351 29,188
-13.1 % Segment Contribution Margin Subtotal 21,824 18,154
20.2 % 75,222 72,012 4.5 % Corporate (*) (12,879 ) (13,125 ) 1.9 %
(37,737 ) (36,505 ) -3.4 %
EBITDA from continuing operations
8,945 5,029 77.9 % 37,485 35,507 5.6 % Add: Stock-based
compensation 1,093 1,356 -19.4 % 3,397 3,736
-9.1 %
EBITDA from continuing operations,
excluding stock-based
compensation
10,038
6,385
57.2
%
40,882
39,243
4.2
%
Less: Gain on sale of stores (***) - - - -
3,789 -
Adjusted EBITDA from continuing operations
$10,038 $6,385 57.2 % $40,882 $35,454
15.3 %
1-800-FLOWERS.COM, Inc. and Subsidiaries
Selected Financial Information Category Information
(in thousands)
(unaudited)
Three Months Ended
Nine Months Ended
March 31,
2013
April 1,
2012
March 31,
2013
April 1,
2012
Reconciliation of Net Income from
continuing operations to Adjusted EBITDA
from continuing operations, less
stock-based compensation (**):
Net income from continuing operations
$2,638 $51 $14,043 $11,494 Add: Interest expense, net 227 319 1,088
1,990 Depreciation and amortization 4,849 4,874 13,838 14,705
Income tax expense 1,231 - 8,516 7,318 Less: Income tax benefit -
215 - -
EBITDA 8,945 5,029 37,485 35,507 Add: Stock-based
compensation 1,093 1,356 3,397 3,736
EBITDA , less stock-based
compensation 10,038 6,385 40,882 39,243 Less: Gain on sale of
stores - - - 3,789
Adjusted EBITDA from continuing
operations $10,038 $6,385 $40,882 $35,454 Three
Months Ended
Nine Months Ended
March 31,
2013
April 1,
2012
March 31,
2013
April 1,
2012
Reconciliation of Net Income and EPS
from continuing operations to Adjusted
Net Income and EPS from continuing
operations:
Net income from continuing operations $2,638 $51 $14,043 $11,494
Less: Gain on sale of stores, net of tax (***) - - - 2,315
Adjusted Net Income from continuing operations $2,638 $51
$14,043 $9,179
Net Income per common share from
continuing operations Basic $0.04 $0.00 $0.22 $0.18
Diluted $0.04 $0.00 $0.21 $0.17
Adjusted Net
Income per common share from continuing operations Basic
$0.04 $0.00 $0.22 $0.14
Diluted $0.04 $0.00 $0.21 $0.14
Weighted average shares used in the
calculation of net income per common share
from continuing operations
Basic 64,256 64,988 64,528 64,683 Diluted 66,111 66,299 66,647
66,257 (*) Corporate expenses consist of the
Company’s enterprise shared service cost centers, and include,
among other items, Information Technology, Human Resources,
Accounting and Finance, Legal, Executive and Customer Service
Center functions, as well as Stock-Based Compensation. In order to
leverage the Company’s infrastructure, these functions are operated
under a centralized management platform, providing support services
throughout the organization. The costs of these functions, other
than those of the Customer Service Center, which are allocated
directly to the above categories based upon usage, are included
within corporate expenses as they are not directly allocable to a
specific segment. (**) Performance is measured based on
segment contribution margin or segment Adjusted EBITDA, reflecting
only the direct controllable revenue and operating expenses of the
segments. As such, management’s measure of profitability for these
segments does not include the effect of corporate overhead,
described above, depreciation and amortization, other income (net),
nor does it include one-time charges. Management utilizes
EBITDA, and adjusted financial information, as a performance
measurement tool because it considers such information a meaningful
supplemental measure of its performance and believes it is
frequently used by the investment community in the evaluation of
companies with comparable market capitalization. The Company also
uses EBITDA and adjusted financial information as one of the
factors used to determine the total amount of bonuses available to
be awarded to executive officers and other employees. The Company’s
credit agreement uses EBITDA and adjusted financial information to
measure compliance with covenants such as interest coverage and
debt incurrence. EBITDA and adjusted financial information is also
used by the Company to evaluate and price potential acquisition
candidates. EBITDA and adjusted financial information have
limitations as an analytical tool, and should not be considered in
isolation or as a substitute for analysis of the Company's results
as reported under GAAP. Some of these limitations are: (a) EBITDA
does not reflect changes in, or cash requirements for, the
Company's working capital needs; (b) EBITDA does not reflect the
significant interest expense, or the cash requirements necessary to
service interest or principal payments, on the Company's debts; and
(c) although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized may have to be replaced
in the future, and EBITDA does not reflect any cash requirements
for such capital expenditures. Because of these limitations, EBITDA
should only be used on a supplemental basis combined with GAAP
results when evaluating the Company's performance. (***)
GFGB segment contribution margin during the nine months ended April
1, 2012 includes a $3.8 million gain on the sale ($2.5mm, net of
tax) of 17 Fannie May stores, which are being operated as
franchised locations post-sale.
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