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EX-99.2 - EX-99.2 - HD Supply Holdings, Inc.a18-7998_1ex99d2.htm
8-K - 8-K - HD Supply Holdings, Inc.a18-7998_18k.htm

Exhibit 99.1

 

 

Investor Contact:

Charlotte McLaughlin

HD Supply Investor Relations

770-852-9100

InvestorRelations@hdsupply.com

 

Media Contact:

Quiana Pinckney

HD Supply Public Relations

770-852-9057

Quiana.Pinckney@hdsupply.com

 

HD Supply Holdings, Inc. Announces Fiscal 2017 Full-Year and Fourth-Quarter Results

 

ATLANTA, GA — March 13, 2018 — HD Supply Holdings, Inc. (NASDAQ: HDS), one of the largest industrial distributors in North America, today reported Net sales of $5.1 billion for the full-year of fiscal 2017 ended January 28, 2018, an increase of $302 million, or 6.3 percent, as compared to the full-year of fiscal 2016.

 

“I am proud of the team’s performance in 2017. We built momentum throughout the year and ended 2017 in a position of strength,” stated Joe DeAngelo, Chairman and CEO of HD Supply. “Much of our success is driven by our hourly associates who work hard every day providing exceptional service to our customers. I am therefore pleased to announce that we are providing our hourly associates with a bonus of up to $1,000 to share in the benefits of the recently enacted tax reform.”

 

Gross profit increased $108 million, or 5.6 percent, to $2,033 million for the full-year of fiscal 2017 as compared to $1,925 million for the full-year of fiscal 2016.  Gross profit was 39.7 percent of Net sales for the full-year of fiscal 2017, down approximately 20 basis points from 39.9 percent of Net sales for the full-year of fiscal 2016.

 

Operating income increased $43 million, or 7.6 percent, to $608 million for the full-year of fiscal 2017 as compared to $565 million for the full-year of fiscal 2016. Operating income as a percentage of Net sales was 11.9% percent for the full-year of fiscal 2017, up approximately 20 basis points from 11.7 percent for the full-year of fiscal 2016.

 

Net income increased $774 million, to $970 million for the full-year of fiscal 2017 as compared to $196 million for the full-year of fiscal 2016. The increase in Net income was impacted by a $732 million gain, net of $197 million of tax, on the sale of our Waterworks business unit which was completed in August 2017, partially offset by a $72 million non-cash charge as a result of the Tax Cuts and Jobs Act of 2017. Net income per diluted share increased $4.04 to $5.01 for the full-year of fiscal 2017 as compared to $0.97 for the full-year of fiscal 2016.

 

Adjusted EBITDA increased $51 million, or 7.5 percent, to $731 million for the full-year of fiscal 2017 as compared to $680 million for the full-year of fiscal 2016. Adjusted EBITDA as a percentage of Net sales was 14.3 percent for the full-year of fiscal 2017, up approximately 20 basis points from 14.1 percent for the full-year of fiscal 2016.

 

Adjusted net income increased $145 million, or 48.0 percent, to $447 million for the full-year of fiscal 2017 as compared to $302 million for the full-year of fiscal 2016.  Adjusted net income per diluted share was $2.31 in the full-year of fiscal 2017, as compared to $1.50 in the full-year of fiscal 2016.

 

Fourth-Quarter 2017 Results

 

Net Sales increased $98 million, or 9.0 percent, to $1,183 million for the fourth quarter of fiscal 2017 as compared to $1,085 million for the fourth quarter of fiscal 2016.

 

1



 

Gross profit increased $37 million, or 8.6 percent, to $468 million for the fourth quarter of fiscal 2017 as compared to $431 million for the fourth quarter of fiscal 2016. Gross profit was 39.6 percent of Net sales for the fourth quarter of fiscal 2017, down approximately 10 basis points from 39.7 percent of Net sales for the fourth quarter of fiscal 2016.

 

Operating income increased $15 million, or 14.7 percent, to $117 million for the fourth quarter of fiscal 2017 as compared to $102 million for the fourth quarter of fiscal 2016. Operating income as a percentage of Net sales was 9.9 percent for the fourth quarter of fiscal 2017, up approximately 50 basis points from 9.4 percent for the fourth quarter of fiscal 2016.

 

Net loss was $9 million for the fourth quarter of fiscal 2017 as compared to Net income of $52 million for the fourth quarter of fiscal 2016. The 2017 fourth-quarter loss was due to a $72 million non-cash charge for the remeasuring of the company’s U.S. deferred tax assets and liabilities resulting from the Tax Cuts and Jobs Act of 2017. Net loss per diluted share was $0.05 for the fourth quarter of fiscal 2017 as compared to a $0.26 Net income per diluted share for the fourth quarter of fiscal 2016.

 

Adjusted EBITDA increased $30 million, or 24.6 percent, to $152 million for the fourth quarter of fiscal 2017 as compared to $122 million for the fourth quarter of fiscal 2016. Adjusted EBITDA as a percentage of Net sales was 12.8 percent for the fourth quarter of fiscal 2017, up approximately 160 basis points from 11.2 percent for the fourth quarter of fiscal 2016.

 

Adjusted net income increased $44 million to $91 million for the fourth quarter of fiscal 2017 as compared to $47 million for the fourth quarter of fiscal 2016.  Adjusted net income per diluted share was $0.49 in the fourth quarter of fiscal 2017, as compared to $0.23 in the fourth quarter of fiscal 2016.

 

As of January 28, 2018, HD Supply’s combined liquidity of $1,232 million comprised of $558 million in cash and cash equivalents and $674 million of additional available borrowings (excluding $235 million of borrowings on available cash balances) under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables.

 

Business Unit Performance

 

As a result of the sale of the Waterworks business, the company began sharing resources between its centralized support functions and its business units. As a result, and to provide better comparability to the company’s industry peers, beginning with the full-year of fiscal 2017 results, all Corporate overhead costs are allocated to the business units. Prior periods presented were revised to reflect the allocation of all Corporate overhead costs. Interest expense, interest income, other non-operating income and expenses, and provision for income taxes are not allocated to the company’s business units.  The company does not allocate Corporate assets to its business units. There is no change to the historically reported consolidated financial results.

 

Facilities Maintenance

 

Full-Year Results

 

Net sales increased $85 million, or 3.1 percent, to $2,847 million in the full-year of fiscal 2017, as compared to $2,762 million for the full-year of fiscal 2016.  Adjusted EBITDA increased $17 million, or 3.5 percent, to $499 million for the full-year of fiscal 2017 as compared to $482 million for the full-year of fiscal 2016.  Adjusted EBITDA as a percentage of Net sales was 17.5 percent for the full-year of fiscal 2017 and the full-year of fiscal 2016.

 

Fourth Quarter Results

 

Net sales increased $22 million, or 3.5 percent, to $642 million in the fourth quarter of fiscal 2017, as compared to $620 million for the fourth quarter of fiscal 2016.  Adjusted EBITDA increased $14 million, or 15.9 percent, to $102 million for the fourth quarter of fiscal 2017 as compared to $88 million for the fourth quarter of fiscal 2016.  Adjusted EBITDA as a percentage of Net sales was 15.9 percent for the fourth quarter of fiscal 2017, up approximately 170 basis points from 14.2 percent for the fourth quarter of fiscal 2016.

 

2



 

Construction & Industrial

 

Full-Year Results

 

Net sales increased $216 million, or 10.5 percent, to $2,279 million in the full-year of fiscal 2017, as compared to $2,063 million for the full-year of fiscal 2016.  Adjusted EBITDA increased $34 million, or 17.2 percent, to $232 million for the full-year of fiscal 2017 as compared to $198 million for the full-year of fiscal 2016.  Adjusted EBITDA as a percentage of Net sales was 10.2 percent for the full-year of fiscal 2017, up approximately 60 basis points from 9.6 percent for the full-year of fiscal 2016.

 

Fourth Quarter Results

 

Net sales increased $76 million, or 16.3 percent, to $542 million in the fourth quarter of fiscal 2017, as compared to $466 million for the fourth quarter of fiscal 2016.  Adjusted EBITDA increased $16 million, or 47.1 percent, to $50 million for the fourth quarter of fiscal 2017 as compared to $34 million for the fourth quarter of fiscal 2016.  Adjusted EBITDA as a percentage of Net sales was 9.2 percent for the fourth quarter of fiscal 2017, up approximately 190 basis points from 7.3 percent for the fourth quarter of fiscal 2016.

 

Fourth-Quarter Monthly Sales Performance

 

Net sales for November, December and January of fiscal 2017 were $372 million, $390 million and $421 million, respectively.  There were 18 selling days in November, 20 selling days in December and 23 selling days in January.  Average year-over-year daily sales growth for November, December and January was 9.8 percent, 10.9 percent and 6.8 percent, respectively.

 

Acquisition

 

On March 5, 2018, the company completed its acquisition of A.H. Harris Construction Supplies, a leading specialty construction distributor serving the Northeast and mid-Atlantic regions expanding Construction & Industrial’s market presence in the northeastern United States. The cash purchase price was $380 million subject to post-closing working capital adjustments.

 

Preliminary February Sales Results

 

Preliminary Net sales in February 2018 were approximately $391 million, which represents year-over-year average daily sales growth of approximately 11.7 percent.  Preliminary February year-over-year average daily sales growth by business segment was approximately 7.1 percent for Facilities Maintenance and approximately 17.3 percent for Construction & Industrial.  There were 20 selling days in both February 2018 and February 2017.

 

Fiscal Year 2018 and First-Quarter 2018 Outlook

 

For fiscal year 2018, the company estimates end market growth of approximately 2-3 percent. In accordance with our fiscal calendar, fiscal year 2018 is a 53-week year.

 

For first-quarter 2018, the company anticipates Net sales to be in the range of $1,325 million to $1,375 million, Adjusted EBITDA(1) in the range of $174 million to $184 million, and Adjusted net income per diluted share(1) in the range of $0.60 to $0.66.  The first-quarter 2018 Adjusted net income per diluted share range assumes a fully diluted weighted average share count of 186 million.  At the mid-point of the ranges, our first-quarter 2018 Net sales and Adjusted EBITDA translate into approximately 11 percent growth and 14 percent growth, respectively, versus prior year.  The recently acquired A.H. Harris business is contributing approximately $50 million in sales, $5 million in EBITDA and $0.02 in Adjusted net income per diluted share to our estimated first-quarter 2018 results.

 

For the full year of fiscal 2018, Net sales are anticipated to be in the range of $5,760 million and $5,910 million, Adjusted EBITDA(1) in the range of $815 million and $855 million and Adjusted net income per diluted share(1) in the range of $2.99 and $3.21.  The full year of fiscal 2018 Adjusted net income per diluted share range assumes a fully diluted weighted average share count of approximately 186 million. The recently acquired A.H. Harris business is contributing approximately $360 million in sales, $40 million in EBITDA and $0.18 in Adjusted net income per diluted share to our estimated full year fiscal 2018 results.

 

3



 

The company will provide further specifics on its end markets, the first-quarter of fiscal 2018 outlook and the full-year of fiscal 2018 outlook during the fourth-quarter of fiscal 2017 earnings conference call and in the earnings call presentation materials.

 

Fiscal 2017 Fourth-Quarter Conference Call

 

As previously announced, HD Supply will hold a conference call on Tuesday, March 13th, 2018 at 8:00 a.m. (Eastern Time) to discuss its fourth-quarter and full-year fiscal 2017 results.  The conference call and presentation materials can be accessed via webcast by logging on from the Investor Relations section of the company’s Web site at hdsupply.com. The online replay will remain available for a limited time following the call.

 

Non-GAAP Financial Measures

 

HD Supply supplements its reporting of Net income with non-GAAP measurements, including Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share and Net debt. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements.  Additional information regarding Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share referred to in this press release is included below under “Reconciliation of Non-GAAP Measures.”

 

About HD Supply

 

HD Supply (www.hdsupply.com) is one of the largest industrial distributors in North America. The company provides a broad range of products and value-add services to approximately 500,000 customers with leadership positions in maintenance, repair and operations, and specialty construction sectors. Through approximately 275 branches and 44 distribution centers, in the U.S. and Canada, the company’s more than 11,000 associates provide localized, customer-driven services including jobsite delivery, will call or direct-ship options, diversified logistics and innovative solutions that contribute to its customers’ success.

 

Forward-Looking Statements and Preliminary Results

 

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are based on management’s beliefs and assumptions and information currently available to management and are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented in this press release is not a guarantee of future results, and that actual results may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “plan,” “seek,” “comfortable with,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. A number of important factors could cause actual events to differ materially from those contained in or implied by the forward-looking statements, including those “Risk factors” in our annual report on Form 10-K, for the fiscal year ended January 28, 2018, filed on March 13, 2018 and those described from time to time in our, and HD Supply, Inc.’s, other filings with the U.S. Securities and Exchange Commission, which can be found at the SEC’s website www.sec.gov. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

 

Estimates for Net sales, Adjusted EBITDA and Adjusted net income per diluted share are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end adjustments. Any variation between HD Supply’s actual results and the preliminary financial data set forth above may be material.

 

4



 

HD SUPPLY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Amounts in millions, except share and per share data, Unaudited

 

 

 

Three Months Ended

 

Fiscal Year Ended

 

 

 

January 28,
2018

 

January 29,
2017

 

January 28,
2018

 

January 29,
2017

 

Net Sales

 

$

1,183

 

$

1,085

 

$

5,121

 

$

4,819

 

Cost of sales

 

715

 

654

 

3,088

 

2,894

 

Gross Profit

 

468

 

431

 

2,033

 

1,925

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

326

 

315

 

1,334

 

1,269

 

Depreciation and amortization

 

22

 

21

 

85

 

84

 

Restructuring

 

3

 

(7

)

6

 

7

 

Total operating expenses

 

351

 

329

 

1,425

 

1,360

 

Operating Income

 

117

 

102

 

608

 

565

 

Interest expense

 

32

 

50

 

166

 

269

 

Interest (income)

 

(1

)

 

(2

)

 

Loss on extinguishment & modification of debt

 

3

 

5

 

84

 

179

 

Income from Continuing Operations Before Provision for Income Taxes

 

83

 

47

 

360

 

117

 

Provision for income taxes

 

101

 

21

 

193

 

51

 

Income (loss) from Continuing Operations

 

(18

)

26

 

167

 

66

 

Income from discontinued operations, net of tax

 

9

 

26

 

803

 

130

 

Net Income (loss)

 

$

(9

)

$

52

 

$

970

 

$

196

 

Other comprehensive income (loss) — foreign currency translation adjustment

 

(1

)

 

(2

)

1

 

Total Comprehensive Income (loss)

 

$

(10

)

$

52

 

$

968

 

$

197

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding (thousands)

 

 

 

 

 

 

 

 

 

Basic

 

184,831

 

199,888

 

192,236

 

199,385

 

Diluted

 

184,831

 

202,587

 

193,668

 

202,000

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share(1):

 

 

 

 

 

 

 

 

 

Income (loss) from Continuing Operations

 

$

(0.10

)

$

0.13

 

$

0.87

 

$

0.33

 

Income from Discontinued Operations

 

$

0.05

 

$

0.13

 

$

4.18

 

$

0.65

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

(0.05

)

$

0.26

 

$

5.05

 

$

0.98

 

Diluted Earnings Per Share(1):

 

 

 

 

 

 

 

 

 

Income (loss) from Continuing Operations

 

$

(0.10

)

$

0.13

 

$

0.86

 

$

0.33

 

Income from Discontinued Operations

 

$

0.05

 

$

0.13

 

$

4.15

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

(0.05

)

$

0.26

 

$

5.01

 

$

0.97

 

 


(1 ) Due to rounding, amounts may not add to totals

 

5



 

HD SUPPLY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

Amounts in millions, except per share data, Unaudited

 

 

 

January 28,
2018

 

January 29,
2017

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

558

 

$

75

 

Receivables, less allowance for doubtful accounts of $12 and $9

 

612

 

559

 

Inventories

 

674

 

606

 

Current assets of discontinued operations

 

 

575

 

Other current assets

 

31

 

32

 

Total current assets

 

1,875

 

1,847

 

Property and equipment, net

 

325

 

253

 

Goodwill

 

1,807

 

1,807

 

Intangible assets, net

 

91

 

102

 

Deferred tax asset

 

205

 

556

 

Non-current assets of discontinued operations

 

 

1,122

 

Other assets

 

15

 

20

 

Total assets

 

$

4,318

 

$

5,707

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

377

 

$

320

 

Accrued compensation and benefits

 

95

 

98

 

Current installments of long-term debt

 

11

 

14

 

Current liabilities of discontinued operations

 

 

259

 

Other current liabilities

 

138

 

152

 

Total current liabilities

 

621

 

843

 

Long-term debt, excluding current installments

 

2,090

 

3,798

 

Non-current liabilities of discontinued operations

 

 

20

 

Other liabilities

 

141

 

86

 

Total liabilities

 

2,852

 

4,747

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $0.01; 1 billion shares authorized; 185.7 million and 201.4 million shares issued and outstanding at January 28, 2018, and January 29, 2017, respectively

 

2

 

2

 

Paid-in capital

 

4,029

 

3,962

 

Accumulated deficit

 

(1,966

)

(2,969

)

Accumulated other comprehensive loss

 

(17

)

(15

)

Treasury stock, at cost, 18.2 and 0.6 million shares at January 28, 2018 and January 29, 2017, respectively

 

(582

)

(20

)

Total stockholders’ equity

 

1,466

 

960

 

Total liabilities and stockholders’ equity

 

$

4,318

 

$

5,707

 

 

6



 

HD SUPPLY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in millions, Unaudited

 

 

 

Fiscal Year Ended

 

 

 

January 28,
2018

 

January 29,
2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

970

 

$

196

 

Reconciliation of net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

97

 

102

 

Provision for uncollectibles

 

9

 

6

 

Non-cash interest expense

 

16

 

17

 

Payment of discounts upon extinguishment of debt

 

(6

)

(7

)

Loss on extinguishment & modification of debt

 

84

 

179

 

Stock-based compensation expense

 

26

 

20

 

Deferred income taxes

 

407

 

129

 

(Gain) loss on sales of businesses, net

 

(934

)

6

 

Other

 

2

 

(11

)

Changes in assets and liabilities, net of the effects of acquisitions & dispositions:

 

 

 

 

 

(Increase) decrease in receivables

 

(173

)

(38

)

(Increase) decrease in inventories

 

(127

)

(62

)

(Increase) decrease in other current assets

 

6

 

3

 

(Increase) decrease in other assets

 

 

(2

)

Increase (decrease) in accounts payable and accrued liabilities

 

125

 

(16

)

Increase (decrease) in other long-term liabilities

 

 

(9

)

Net cash provided by operating activities

 

502

 

513

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(94

)

(81

)

Proceeds from sales of property and equipment

 

2

 

32

 

Proceeds from sales of businesses, net

 

2,421

 

28

 

Net cash provided by (used in) investing activities

 

2,329

 

(21

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock under employee benefit plans

 

41

 

33

 

Purchase of treasury shares

 

(584

)

(34

)

Borrowings of long-term debt

 

113

 

1,547

 

Repayments of long-term debt

 

(1,529

)

(2,631

)

Borrowings on long-term revolver debt

 

628

 

689

 

Repayments on long-term revolver debt

 

(995

)

(269

)

Debt issuance and modification costs

 

(26

)

(19

)

Other financing activities

 

4

 

(3

)

Net cash provided by (used in) financing activities

 

(2,348

)

(687

)

Effect of exchange rates on cash and cash equivalents

 

 

1

 

Increase (decrease) in cash and cash equivalents

 

$

483

 

$

(194

)

Cash and cash equivalents at beginning of period

 

75

 

269

 

Cash and cash equivalents at end of period

 

$

558

 

$

75

 

 

7



 

HD SUPPLY HOLDINGS, INC.

SEGMENT REPORTING

Amounts in millions, Unaudited

 

 

 

Facilities
Maintenance

 

Construction
& Industrial

 

Eliminations

 

Total
Continuing
Operations

 

Three Months Ended January 28, 2018

 

 

 

 

 

 

 

 

 

Net sales

 

$

642

 

$

542

 

$

(1

)

$

1,183

 

Adjusted EBITDA

 

102

 

50

 

 

152

 

Depreciation(1) & Software Amortization

 

10

 

11

 

 

21

 

Other Intangible Amortization

 

3

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended January 29, 2017

 

 

 

 

 

 

 

 

 

Net sales

 

$

620

 

$

466

 

$

(1

)

$

1,085

 

Adjusted EBITDA

 

88

 

34

 

 

122

 

Depreciation(1) & Software Amortization

 

9

 

10

 

 

19

 

Other Intangible Amortization

 

3

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended January 28, 2018

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,847

 

$

2,279

 

$

(5

)

$

5,121

 

Adjusted EBITDA

 

499

 

232

 

 

731

 

Depreciation(1) & Software Amortization

 

36

 

42

 

 

78

 

Other Intangible Amortization

 

9

 

3

 

 

12

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended January 29, 2017

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,762

 

$

2,063

 

$

(6

)

$

4,819

 

Adjusted EBITDA

 

482

 

198

 

 

680

 

Depreciation(1) & Software Amortization

 

38

 

38

 

 

76

 

Other Intangible Amortization

 

9

 

3

 

 

12

 

 


(1)         Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.

 

Reconciliation of Non-GAAP Measures

 

Adjusted EBITDA and Adjusted net income are not recognized terms under GAAP and do not purport to be alternatives to Net income as a measure of operating performance. We present Adjusted EBITDA and Adjusted net income because each is a primary measure used by management to evaluate operating performance. In addition, we present Adjusted net income to measure our overall profitability as we believe it is an important measure of our performance. We believe the presentation of Adjusted EBITDA and Adjusted net income enhances investors’ overall understanding of the financial performance of our business.

 

Adjusted EBITDA is based on “Consolidated EBITDA,” a measure which is defined in our senior credit facilities and used in calculating financial ratios in several material debt covenants. Adjusted EBITDA is defined as Net income (loss) less Income from discontinued operations, net of tax, plus (i) Interest expense and Interest income, net, (ii) Provision (benefit) for income taxes, (iii) depreciation and amortization and further adjusted to exclude loss on extinguishment of debt, non-cash items and certain other adjustments to Consolidated Net Income permitted in calculating Consolidated EBITDA under our senior credit facilities.

 

Adjusted net income is defined as Net income (loss) less Income from discontinued operations, net of tax, further adjusted for loss on extinguishment of debt, certain non-cash, non-recurring or unusual items, net of tax.

 

We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA and Adjusted net income may not be comparable to other similarly titled measures of other companies.

 

Adjusted EBITDA and Adjusted net income have limitations as analytical tools and should not be considered in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:

 

·                       Adjusted EBITDA and Adjusted net income do not reflect changes in, or cash requirements for, our working capital needs;

 

8



 

·                       Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;

·                       Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes;

·                       Adjusted EBITDA and Adjusted net income do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

 

Adjusted EBITDA

 

The following table presents a reconciliation of Net income (loss) and Income (loss) from Continuing Operations, the most directly comparable financial measures under GAAP, to Adjusted EBITDA for the periods presented (amounts in millions):

 

 

 

Three Months Ended

 

Fiscal Year Ended

 

 

 

January 28,
2018

 

January 29,
2017

 

January 28,
2018

 

January 29,
2017

 

Net income (loss)

 

$

(9

)

$

52

 

$

970

 

$

196

 

Less income from discontinued operations, net of tax

 

9

 

26

 

803

 

130

 

Income (loss) from continuing operations

 

(18

)

26

 

167

 

66

 

Interest expense, net

 

31

 

50

 

164

 

269

 

Provision for income taxes

 

101

 

21

 

193

 

51

 

Depreciation and amortization (1)

 

24

 

22

 

90

 

88

 

Loss on extinguishment & modification of debt (2)

 

3

 

5

 

84

 

179

 

Restructuring charges (3)

 

3

 

(7

)

6

 

7

 

Stock-based compensation

 

7

 

5

 

26

 

20

 

Acquisition costs (4)

 

1

 

 

1

 

 

Adjusted EBITDA

 

$

152

 

$

122

 

$

731

 

$

680

 

 


(1)         Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.

(2)         Represents the loss on extinguishment of debt including the premium paid to repurchase or call the debt as well as the write-off of unamortized deferred financing costs, original issue discount, and other assets or liabilities associated with such debt.  Also includes the costs of debt modification.

(3)         Represents the costs incurred for strategic alignment of workforce and branch closures or consolidations. These costs include occupancy costs, severance, relocation costs, and other costs incurred to exit a location.

(4)         Represents the costs incurred in the acquisition of A.H. Harris Construction Supplies.

 

9



 

Adjusted Net Income

 

The following table presents a reconciliation of Net income (loss) and Income (loss) from Continuing Operations, the most directly comparable financial measures under U.S. GAAP, to Adjusted net income for the periods presented (amounts in millions):

 

 

 

Three Months Ended

 

Fiscal Year Ended

 

 

 

January 28,
2018

 

January 29,
2017

 

January 28,
2018

 

January 29,
2017

 

Net income (loss)

 

$

(9

)

$

52

 

$

970

 

$

196

 

Less income from discontinued operations, net of tax

 

9

 

26

 

803

 

130

 

Income (loss) from continuing operations

 

(18

)

26

 

167

 

66

 

Plus: Provision (benefit) for income taxes

 

101

 

21

 

193

 

51

 

Less: Cash income taxes (1)

 

(2

)

(1

)

(16

)

(13

)

Plus: Amortization of acquisition-related intangible assets (other than software)

 

3

 

3

 

12

 

12

 

Plus: Loss on extinguishment & modification of debt (2)

 

3

 

5

 

84

 

179

 

Plus: Restructuring charges (3)

 

3

 

(7

)

6

 

7

 

Plus: Acquisition costs (4)

 

1

 

 

1

 

 

Adjusted Net Income

 

$

91

 

$

47

 

$

447

 

$

302

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

185,897

 

202,587

 

193,668

 

202,000

 

Adjusted net income per share — diluted

 

$

0.49

 

$

0.23

 

$

2.31

 

$

1.50

 

 


(1)         Cash paid for income taxes in fiscal 2017 excludes $13 million in tax payments related to the sale of the Waterworks business unit.

(2)         Represents the loss on extinguishment of debt including the premium paid to repurchase or call the debt as well as the write-off of unamortized deferred financing costs, original issue discount, and other assets or liabilities associated with such debt. Also includes the costs of debt modifications.

(3)         Represents the costs incurred for strategic alignment of workforce and branch closures or consolidations. These costs include occupancy costs, severance, relocation costs, and other costs incurred to exit a location.

(4)         Represents the costs incurred in the acquisition of A.H. Harris Construction Supplies.

 

No reconciliation of the forecasted range for Adjusted EBITDA to Net income and Adjusted net income per diluted share to Net income per diluted share for the first quarter of fiscal 2018 and the full year of fiscal 2018 is included in this press release because we are unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable efforts. In addition, the company believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.

 

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Segment Reporting

 

The following table presents Adjusted EBITDA by reportable segment for fiscal 2017, fiscal 2016, and fiscal 2015, revised to reflect allocated Corporate overhead costs for all periods presented (amounts in millions):

 

 

 

Q1-17

 

Q2-17

 

Q3-17

 

Q4-17

 

Fiscal
2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Facilities Maintenance

 

$

108

 

$

145

 

$

144

 

$

102

 

$

499

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Industrial

 

49

 

63

 

70

 

50

 

232

 

 

 

 

Q1-16

 

Q2-16

 

Q3-16

 

Q4-16

 

Fiscal
2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Facilities Maintenance

 

$

124

 

$

142

 

$

128

 

$

88

 

$

482

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Industrial

 

43

 

61

 

60

 

34

 

198

 

 

 

 

Q1-15

 

Q2-15

 

Q3-15

 

Q4-15

 

Fiscal
2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Facilities Maintenance

 

$

111

 

$

145

 

$

140

 

$

93

 

$

489

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Industrial

 

33

 

46

 

53

 

29

 

161

 

 

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