| Segment reporting | 10. Segment reporting The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business. The Elfa segment includes the manufacturing business that produces the elfa ® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa ® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States. The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance. Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. Thirteen Weeks Ended July 3, 2021 TCS Elfa Eliminations Total Net sales to third parties $ 228,729 $ 16,586 $ — $ 245,315 Intersegment sales — 15,693 (15,693) — Adjusted EBITDA 27,968 4,097 1,437 33,502 Interest expense, net 3,123 62 — 3,185 Assets (1) 985,454 105,386 (6,314) 1,084,526 Thirteen Weeks Ended June 27, 2020 TCS Elfa Eliminations Total Net sales to third parties $ 139,386 $ 12,300 $ — $ 151,686 Intersegment sales — 8,691 (8,691) — Adjusted EBITDA 1,725 2,937 (199) 4,463 Interest expense, net 4,848 102 — 4,950 Assets (1) 1,016,425 100,834 (6,798) 1,110,461 (1) Tangible assets in the Elfa column are located outside of the United States. A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below: Thirteen Weeks Ended July 3, June 27, 2021 2020 Income (loss) before taxes $ 23,332 $ (23,568) Add: Depreciation and amortization 8,201 8,949 Interest expense, net 3,185 4,950 Pre-opening costs (a) 594 9 Non-cash lease expense (b) (3,355) 11,138 Stock-based compensation (c) 869 832 Management transition costs (d) 473 — Foreign exchange losses (e) 11 121 COVID-19 costs (f) 192 1,223 COVID-19 severance (g) — 809 Adjusted EBITDA $ 33,502 $ 4,463 (a) Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period. (b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. Non-cash lease expense increased during the first quarter of fiscal 2020 due to renegotiated terms with landlords due to COVID-19 that resulted in deferral of $11,900 of certain cash lease payments, of which approximately $2,200 remains deferred as of July 3, 2021 . (c) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period. (d) Costs related to the transition of key executives including severance and signing bonus recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance. (e) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations. (f) Includes incremental costs attributable to the COVID-19 pandemic, which consist of sanitization costs in the first quarter of fiscal 2021 and fiscal 2020, and hazard pay for distribution center employees in the first quarter of fiscal 2020, all of which are recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance. (g) Includes costs incurred in the first quarter of fiscal 2020 associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in the first quarter of fiscal 2020, which we do not consider in our evaluation of ongoing performance . |
