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NEWS RELEASE FOR IMMEDIATE RELEASE | Lisa K. Klinger EVP-Chief Financial Officer (336) 217-4070 lisaklinger@thefreshmarket.com |
The Fresh Market, Inc. Reports Second Quarter and First Half Fiscal 2012 Earnings
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| - Total sales increased 20.6% for the second quarter and 21.7% for the first half |
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| - Comparable store sales increased 8.0% for the second quarter and 8.1% for the first half |
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| - Company raises guidance for fiscal 2012 |
GREENSBORO, North Carolina - August 29, 2012 - The Fresh Market, Inc. (NASDAQ: TFM), a high-growth specialty retailer, today announced unaudited sales and earnings results for its second quarter and first half period ended July 29, 2012.
Financial Overview
In the second quarter of fiscal 2012, net sales increased 20.6% to $313.0 million and comparable store sales increased 8.0%, compared to the corresponding thirteen week period last year. Net income in the second quarter of fiscal 2012 increased 26.9% to $13.3 million, from $10.5 million in the corresponding thirteen week period in fiscal 2011. Diluted earnings per share in the second quarter of fiscal 2012 was $0.28, an increase of 26.4% over diluted earnings per share of $0.22 for the corresponding period in fiscal 2011.
First half fiscal 2012 net sales were $637.8 million, a 21.7% increase as compared to the corresponding twenty-six week period in fiscal 2011, while comparable store sales increased 8.1%. Net income increased 35.9% to $32.6 million as compared to $24.0 million in the corresponding twenty-six week period in fiscal 2011. Diluted earnings per share for first half fiscal 2012 increased 35.5%, to $0.68, compared to diluted earnings per share of $0.50 for the corresponding twenty-six week period in fiscal 2011. Items described under “Items Impacting Comparability” (below) impact the comparability of quarterly and first half results and should be reviewed by investors in order to assess the Company's ongoing operations on a comparable basis.
“We are extremely pleased with our strong second quarter performance for both sales and earnings growth,” said Craig Carlock, President and Chief Executive Officer. “Our comparable store sales grew 8.0% in the second quarter, led by customer transactions and continuing the sales momentum we've seen over the past several quarters. Additionally, during the quarter we opened five new stores, we made significant progress on our California expansion plans and, despite incremental public company expenses, transactions costs due to our public offering and legal settlement costs incurred during the quarter, we were able to increase our operating margin to 6.9%. We continue to be extremely enthusiastic about the consistency of our business and are therefore raising our fiscal 2012 guidance to reflect not only the strong first half performance but our continued confidence in our second half growth prospects. We now believe that fiscal 2012 comparable sales growth will be 5.5% to 6.5% and that our earnings per share will be between $1.33 and $1.38, including the absorption of equity offering transaction expenses and incremental legal costs incurred this quarter.”
Items Impacting Comparability
During the second quarter of fiscal 2012, the Company completed a public offering of common stock impacting the comparability of both the quarterly and first half fiscal 2012 results to the corresponding results in fiscal 2011. Transaction expenses related to the offering, which in general are not tax deductible, are included in selling, general and administrative expense and totaled approximately $0.5 million, resulting in a reduction in earnings per share of approximately $0.01 per share on a diluted basis. The costs associated with the offering include legal, printing, accounting and filing fees and expenses as well as other charges directly related to the offering. Additionally, as it relates to first half fiscal 2012 and fiscal 2011
comparisons, the Company completed a public offering of common stock during the first quarter of fiscal 2011 and incurred approximately $1.1 million in transaction expenses, resulting in a reduction in earnings per share of approximately $0.02 per share on a diluted basis.
The Company also resolved two legal matters during the second quarter of fiscal 2012. The net amount of the settlement payments made and received related to these matters is included in selling, general and administrative expense and totaled approximately $0.6 million on a pre-tax basis, resulting in a reduction in earnings per share of approximately $0.01 per share on a diluted basis. Legal fees and related expenses incurred in connection with these matters have been expensed as incurred.
Operating Performance
The Company had strong sales and earnings growth and significantly improved its operating margin in the second quarter of fiscal 2012. Total net sales increased 20.6% to $313.0 million in the second quarter of fiscal 2012, and comparable store sales increased 8.0% to $270.8 million, in each case compared to the corresponding thirteen week period in fiscal 2011. The second quarter comparable store sales increase resulted from a 5.3% increase in the number of transactions and a 2.7% increase in average transaction size. For the first half of fiscal 2012, total net sales increased 21.7% to $637.8 million and comparable store sales increased 8.1% to $554.5 million, compared to the corresponding twenty-six week period in fiscal 2011. The first half fiscal 2012 comparable store sales increase resulted from a 5.5% increase in the number of transactions and a 2.6% increase in average transaction size.
The Company's gross profit increased 25.6%, or $21.8 million, to $106.7 million in the second quarter of fiscal 2012, compared to the corresponding thirteen week period of fiscal 2011. For the same period, the gross margin rate increased 140 basis points to 34.1% compared to the corresponding prior year period. This increase in the Company's gross margin rate was attributable to an increase in our merchandise margin rate, primarily as a result of improved supply chain expense and a reduction in shrink expense. For the first half of fiscal 2012, the Company's gross profit increased 25.7%, or $44.9 million, to $219.4 million, compared to the corresponding twenty-six week period of the prior year. For the same period, the gross margin rate increased 110 basis points to 34.4%, compared to the prior year period. The change in the Company's gross margin rate for the first half of fiscal 2012 was mostly attributable to increased merchandise margin, as well as slight leverage in occupancy cost, offset by slight deleverage in supplies expense. For the second quarter and first half periods, estimated LIFO expense did not change materially as a percentage of sales, compared to the corresponding periods in fiscal 2011.
Selling, general, and administrative expenses for the second quarter of fiscal 2012 increased $15.2 million to $74.0 million as compared to the corresponding thirteen week period in fiscal 2011. Selling, general, and administrative expenses increased by 100 basis points as a percentage of sales to 23.7% for the period as compared to 22.7% for the corresponding thirteen week period in fiscal 2011. This increase in the selling, general and administrative expense rate was primarily attributable to higher corporate expenses, driven by approximately $0.5 million in transaction expenses incurred in connection with the Company's public offering of common stock during the second quarter of fiscal 2012, approximately $0.6 million representing the net amount of a settlement payment made which was partially offset by a settlement payment received in connection with two legal matters and approximately $0.6 million of incremental expenses mostly attributable to the Company's share-based compensation programs as a result of its public company status. For the first half of fiscal 2012, selling, general, and administrative expenses increased $26.7 million to $144.5 million, or 22.7% as a percentage of sales, from $117.8 million, or 22.5% as a percentage of sales, for the comparable twenty-six week period in fiscal 2011. These expenses included higher corporate expenses, driven by approximately $1.3 million of incremental expenses attributable to the Company's public company status primarily as it relates to its share-based compensation programs, and approximately $0.6 million related to legal settlements, which together adversely impacted selling, general and administrative expenses as a percentage of sales by approximately 30 basis points during the first half of fiscal 2012. In addition to these higher corporate expenses, the Company also had transaction costs associated with the Company's public offering of common stock in the second quarter of fiscal 2012 totaling approximately $0.5 million, compared to approximately $1.1 million of transaction costs incurred in connection with the Company's public offering of common stock in the first half of fiscal 2011.
Operating income increased $4.7 million to $21.7 million for the second quarter of fiscal 2012, compared to $17.0 million for the corresponding thirteen week period of fiscal 2011. Operating income as a percentage of sales for the second quarter of fiscal 2012 increased 40 basis points to 6.9%, compared to 6.5% for the corresponding period of fiscal 2011, including the approximately 50 basis point negative impact of the Company's public offering of common stock, incremental public company costs primarily related to share-based compensation expense and incremental net settlement payments made and received in connection with two legal matters. For the first half of fiscal 2012, operating income increased $13.7 million to $52.8 million, compared to $39.1 million in the corresponding twenty-six week period for fiscal 2011. As a percentage of sales, our operating margin increased by 80 basis points to 8.3% for the first half of fiscal 2012, compared to an operating margin of 7.5% for the corresponding period in fiscal 2011. The primary drivers of the increase in operating margin for the first half of fiscal 2012
were the increase in gross margin rate and a year-over-year decrease of transaction expenses incurred in connection with our public offerings of common stock, off-set by higher corporate expenses.
Balance Sheet/Cash Flow
During the second quarter of fiscal 2012, the Company generated $17.3 million in cash flow from operations and invested $24.8 million in capital expenditures, of which $23.3 million related to new, relocated and remodeled stores. For the year to date fiscal 2012 period, the Company generated $52.9 million in cash flow from operations and invested $41.9 million in capital expenditures, with $37.5 million spent on real estate activities.
The Company's cash balance as of July 29, 2012 was approximately $11.1 million which was relatively flat compared to the cash balance as of January 29, 2012. Total debt as of July 29, 2012 was $46.3 million, down $17.7 million from a balance of $64.0 million as of January 29, 2012.
Average inventory on a FIFO basis per store at the end of the second quarter of fiscal 2012 increased 5.9%, compared to the corresponding period in fiscal 2011. The increase resulted from commodity cost increases in certain departments such as Meat, Produce and Grocery and increased inventory investments in new product assortments and faster growing categories to support our overall sales growth.
On a trailing four quarter basis for the period ended July 29, 2012, the Company's return on assets was 18.7%, after-tax return on invested capital, excluding excess cash, was 26.7%, and return on equity was 37.0%. These financial return measures are non-GAAP financial measures. The schedules attached to this press release include a discussion of these non-GAAP measures, as well as the details of our calculations of these financial return measures.
Growth and Development
During the second quarter of fiscal 2012, the Company opened five new stores in Wichita, Kansas; Tulsa, Oklahoma; Bedford, New Hampshire; New Orleans, Louisiana and Rogers, Arkansas. As of July 29, 2012, the Company operated 121 stores in 24 states as we added our first stores in the states of Kansas, Oklahoma and New Hampshire.
The Company announced the signing of leases for two new stores in: Winter Park, FL and Charlottesville, VA, during the period ended August 29, 2012. These stores are currently scheduled to open after fiscal 2012.
The following table provides additional information about the Company's real estate and store opening activities through the second quarter of fiscal 2012 and leases announced as signed as of August 29, 2012 for stores scheduled to open during or after fiscal 2012.
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| Store Information for Stores Opened in FY 2012 | Opened As of July 29, 2012 | Current Leases Signed for Future Stores 1 |
| Number of new leased stores | 7 | 14 |
| Number of relocations | — | 1 |
| Number of ground leases and owned properties | 1 | 2 |
Average capital cost per store 2 | $3.8 million | |
| Store Information for All Open Stores | | |
| Average store size (gross square feet) | 21,083 | |
| Total rentable square footage (at end of period) | 2.6 million | |
Note 1: The Company may also be party from time to time to other leases and real estate transaction documents that it has not yet announced. The Company’s website sets forth the most current list of announced leases and stores that are coming soon.
Note 2: Net of capital contributions, if any, received from landlords, and including building costs but excluding cost of land for owned stores.
Fiscal 2012 Outlook
For fiscal 2012, management now expects the Company to:
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| • | Open 14 to 16 new stores |
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| • | Spend approximately $95 million to $105 million in capital expenditures, primarily related to real estate investments |
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| • | Increase comparable store sales 5.5% to 6.5% |
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| • | Increase operating margin, as a percentage of sales, by 30 to 50 basis points, including the impact of the Company's equity offering costs and legal settlement costs incurred in the second quarter |
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| • | Generate diluted earnings per share of $1.33 to $1.38 |
2012 Second Quarter Earnings Conference Call
The Company will host a conference call today at 9:00 a.m. Eastern Time hosted by President and Chief Executive Officer, Craig Carlock and Executive Vice President and Chief Financial Officer, Lisa Klinger. During the conference call, the Company may answer questions concerning business and financial developments and trends and other business and financial matters. The Company's responses to these questions, as well as other matters discussed during the conference call, may contain or constitute information that has not been previously disclosed.
Those who wish to participate in the call may do so by dialing (877) 852-2928. Any interested party will also have the opportunity to access the call via the Internet at www.thefreshmarket.com/company. To listen to the live call via our website, please go to the website at least fifteen minutes early to register and download any necessary audio software. For those who cannot listen to the live broadcast, a recording will be available for 30 days after the date of the event. Recordings may be accessed at www.thefreshmarket.com/company.
About The Fresh Market, Inc.
Founded in 1982, The Fresh Market, Inc. is a specialty grocery retailer focused on providing high-quality products in a unique and inviting atmosphere with a high level of customer service. As of August 29, 2012, the Company operates 124 stores in 24 states, located primarily in the Southeast, Midwest, Mid-Atlantic, and Northeast. For more information, please visit www.thefreshmarket.com.
Forward Looking Statements: This document contains forward-looking statements that reflect our plans, estimates, and beliefs and involve a number of risks and uncertainties. Any statements contained herein (including, but not limited to, statements to the effect that The Fresh Market or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements. The following are some of the factors that could cause actual results to differ materially from any forward-looking statements: accounting entries and adjustments at the close of our fiscal quarter and fiscal year; unexpected expenses and risks associated with our business; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service and convenience; the effective management of our merchandise buying and inventory levels; our ability to anticipate and/or react to changes in customer demand; changes in consumer confidence and spending; unexpected consumer responses to promotional programs; unusual, unpredictable and/or severe weather conditions including their effect on our supply chain and our store operations; the effectiveness of our logistics and supply chain model, including the ability of our third-party logistics providers to meet our product demands and restocking needs on a cost competitive basis; the execution and management of our store growth, including the availability and cost of acceptable real estate locations for new store openings, the capital that we utilize in connection with new store development and the time between lease execution and store opening; the mix of our new store openings as between build to suit sites and second-generation, as-is sites; the actions of third parties involved in our store growth activities, including property owners, landlords, property managers, contractors, subcontractors, government agencies and current tenants who occupy one or more of our proposed new store locations, all of whom may be impacted by their financial condition, their lenders, their activities outside of those focused on our new store growth and other tenants, customers and business partners of theirs; global economies and credit and financial markets; our ability to maintain the security of electronic and other confidential information; serious disruptions and catastrophic events; competition; personnel recruitment and retention; acquisitions and divestitures including the ability to integrate successfully any such acquisitions; information systems and technology; commodity, energy, fuel, and other cost increases; compliance with laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings and the availability of insurance, indemnification and other third-party coverage of any losses suffered in connection therewith; tax matters and other factors as set forth from time to time in our Securities and Exchange Commission filings. We intend these forward-looking statements to speak only as of the time of this release and do not undertake to update or revise them as more information becomes available.
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This press release, and access to our earnings call, is also available in the Investor Relations portion of The Fresh Market, Inc.
website (http://ir.thefreshmarket.com/).
The Fresh Market, Inc.
Consolidated Statements of Comprehensive Income
(In thousands, except share and per share amounts)
(unaudited)
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| | | | | | | | | | | | | | | |
| | For the Thirteen Weeks Ended | | For the Twenty-Six Weeks Ended |
| | July 29,
2012 | | July 31,
2011 | | July 29,
2012 | | July 31,
2011 |
| | | | | | | | |
| Sales | $ | 312,997 |
| | $ | 259,543 |
| | $ | 637,781 |
| | $ | 524,003 |
|
| Cost of goods sold | 206,255 |
| | 174,578 |
| | 418,348 |
| | 349,464 |
|
| Gross profit | 106,742 |
| | 84,965 |
| | 219,433 |
| | 174,539 |
|
| | | | | | | | |
| Operating expenses: | |
| | |
| | | | |
| Selling, general and administrative expenses | 74,032 |
| | 58,830 |
| | 144,497 |
| | 117,805 |
|
| Store closure and exit costs | 152 |
| | 109 |
| | 725 |
| | 239 |
|
| Depreciation | 10,846 |
| | 9,032 |
| | 21,415 |
| | 17,372 |
|
| Income from operations | 21,712 |
| | 16,994 |
| | 52,796 |
| | 39,123 |
|
| Other expense: | |
| | |
| | | | |
| Interest expense | 227 |
| | 486 |
| | 583 |
| | 969 |
|
| Income before provision for income taxes | 21,485 |
| | 16,508 |
| | 52,213 |
| | 38,154 |
|
| Tax provision | 8,156 |
| | 6,001 |
| | 19,614 |
| | 14,167 |
|
| | | | | | | | |
| Net income | $ | 13,329 |
| | $ | 10,507 |
| | $ | 32,599 |
| | $ | 23,987 |
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| | | | | | | | |
| Net income per share: | |
| | |
| | | | |
| Basic and diluted | $ | 0.28 |
| | $ | 0.22 |
| | $ | 0.68 |
| | $ | 0.50 |
|
| | | | | | | | |
| Weighted average common shares outstanding: | |
| | |
| | | | |
| Basic | 48,057,232 |
| | 47,993,336 |
| | 48,051,741 |
| | 47,992,190 |
|
| | | | | | | | |
| Diluted | 48,283,403 |
| | 48,121,837 |
| | 48,260,407 |
| | 48,121,722 |
|
| | | | | | | | |
| Other comprehensive income | |
| | |
| | | | |
| Net income | $ | 13,329 |
| | $ | 10,507 |
| | $ | 32,599 |
| | $ | 23,987 |
|
| Interest rate swaps, net of tax expense of $0 and $113 and $0 and $120 for the thirteen and twenty-six weeks ended July 29, 2012 and July 31, 2011, respectively | — |
| | 49 |
| | — |
| | 188 |
|
| | | | | | | | |
| Total comprehensive income | $ | 13,329 |
| | $ | 10,556 |
| | $ | 32,599 |
| | $ | 24,175 |
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The Fresh Market, Inc. Consolidated Balance Sheets (In thousands, except share amounts) (unaudited) |
| | | | | | | |
| | July 29,
2012 | | January 29,
2012 |
| Assets | |
| | |
|
| Current assets: | |
| | |
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| Cash and cash equivalents | $ | 11,139 |
| | $ | 10,681 |
|
| Accounts receivable, net | 5,436 |
| | 4,550 |
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| Inventories | 36,682 |
| | 37,796 |
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| Prepaid expenses and other current assets | 7,457 |
| | 5,595 |
|
| Deferred income taxes | 4,981 |
| | 4,445 |
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| Total current assets | 65,695 |
| | 63,067 |
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| | | | |
| Property and equipment: | |
| | |
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| Land | 2,846 |
| | 5,451 |
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| Buildings | 14,992 |
| | 15,077 |
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| Store fixtures and equipment | 254,791 |
| | 237,678 |
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| Leasehold improvements | 155,694 |
| | 141,391 |
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| Office furniture, fixtures, and equipment | 11,011 |
| | 10,175 |
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| Automobiles | 1,311 |
| | 1,211 |
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| Construction in progress | 21,256 |
| | 14,347 |
|
| Total property and equipment | 461,901 |
| | 425,330 |
|
| Accumulated depreciation | (187,597 | ) | | (168,518 | ) |
| Total property and equipment, net | 274,304 |
| | 256,812 |
|
| Other assets | 6,880 |
| | 3,461 |
|
| Total assets | $ | 346,879 |
| | $ | 323,340 |
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| | | | |
| Liabilities and stockholders' equity | |
| | |
|
| Current liabilities: | |
| | |
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| Accounts payable | $ | 35,894 |
| | $ | 34,788 |
|
| Accrued liabilities | 45,888 |
| | 46,354 |
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| Total current liabilities | 81,782 |
| | 81,142 |
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| Long-term debt | 46,300 |
| | 64,000 |
|
| Deferred income taxes | 30,160 |
| | 31,053 |
|
| Deferred rent | 10,992 |
| | 9,142 |
|
| Other long-term liabilities | 15,549 |
| | 11,087 |
|
| Total noncurrent liabilities | 103,001 |
| | 115,282 |
|
| | | | |
| Stockholders' equity: | |
| | |
|
| Preferred stock – $0.01 par value; 40,000,000 shares authorized, none issued | — |
| | — |
|
| Common stock – $0.01 par value; 200,000,000 shares authorized, 48,063,096 and 48,040,083 shares issued and outstanding at July 29, 2012 and January 29, 2012, respectively | 481 |
| | 481 |
|
| Additional paid-in capital | 101,203 |
| | 98,622 |
|
| Retained earnings | 60,412 |
| | 27,813 |
|
| Total stockholders' equity | 162,096 |
| | 126,916 |
|
| Total liabilities and stockholders' equity | $ | 346,879 |
| | $ | 323,340 |
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| The Fresh Market, Inc. |
| | | | |
| Consolidated Statements of Cash Flows |
| (In thousands) |
| (unaudited) |
|
| | | | | | | |
| | For the Twenty-Six Weeks Ended |
| | July 29,
2012 | | July 31,
2011 |
| Operating activities | |
| | |
|
| Net income | $ | 32,599 |
| | $ | 23,987 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
| Depreciation and amortization | 21,526 |
| | 17,470 |
|
| Loss on disposal of property and equipment | 61 |
| | 187 |
|
| Share-based compensation associated with equity awards | 2,099 |
| | 1,099 |
|
| Excess tax benefits from share-based compensation | (74 | ) | | — |
|
| Deferred income taxes | (1,429 | ) | | 8,159 |
|
| Change in assets and liabilities: | |
| | |
|
| Accounts receivable | (886 | ) | | (1,146 | ) |
| Inventories | 1,115 |
| | 193 |
|
| Prepaid expenses and other assets | (5,391 | ) | | (2,223 | ) |
| Accounts payable | 1,106 |
| | 4,784 |
|
| Accrued liabilities and other long-term liabilities | 2,164 |
| | (1,717 | ) |
| Net cash provided by operating activities | 52,890 |
| | 50,793 |
|
| | | | |
| Investing activities | |
| | |
|
| Purchases of property and equipment | (41,892 | ) | | (44,086 | ) |
| Proceeds from sale of property and equipment | 6,678 |
| | 113 |
|
| Net cash used in investing activities | (35,214 | ) | | (43,973 | ) |
| | | | |
| Financing activities | |
| | |
|
| Borrowings on revolving credit note | 233,193 |
| | 258,890 |
|
| Payments made on revolving credit note | (250,893 | ) | | (264,040 | ) |
| Debt issuance costs | — |
| | (1,056 | ) |
| Proceeds from issuance of common stock pursuant to employee stock purchase plan | 88 |
| | — |
|
| Excess tax benefits from share-based compensation | 74 |
| | — |
|
| Proceeds from exercise of share-based compensation awards | 320 |
| | — |
|
| Net cash used in financing activities | (17,218 | ) | | (6,206 | ) |
| | | | |
| Net increase in cash and cash equivalents | 458 |
| | 614 |
|
| Cash and cash equivalents at beginning of period | 10,681 |
| | 7,867 |
|
| | | | |
| Cash and cash equivalents at end of period | $ | 11,139 |
| | $ | 8,481 |
|
| | | | |
| Supplemental disclosures of cash flow information: | |
| | |
|
| Cash paid during the period for interest | $ | 497 |
| | $ | 827 |
|
| | | | |
| Cash paid during the period for taxes | $ | 27,318 |
| | $ | 8,160 |
|
|
|
| The Fresh Market, Inc. |
| Calculation of Return Metrics (1) |
| (Unaudited) |
|
| | | | | | | | | |
| | | July 29, 2012 Calculated Using GAAP | | July 31, 2011 Calculated Using GAAP | | July 31, 2011 Calculated Using Adjusted |
| Return Metrics - Trailing Four Quarters | | Net Income (2) | | Net Income (2) | | Net Income (3) |
| Return on assets (4) | | 18.7 | % | | 5.4 | % | | 17.5 | % |
| Return on invested capital (5) | | 26.7 | % | | 8.0 | % | | 25.7 | % |
| Return on equity (6) | | 37.0 | % | | 14.5 | % | | 35.7 | % |
| |
| (1) | The return metrics do not represent financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). For a discussion of financial measures not prepared in accordance with GAAP, please see below. The Company's management believes that these presentations provide useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses these measures for reviewing financial results of the Company. The financial return metrics are calculated on a trailing four quarter basis giving effect to the recasting of 2010 quarters as a result of the Company's change in its fiscal year end. |
| |
| (2) | The return metrics in this column are calculated using net income determined in accordance with GAAP. Please see the footnotes below for the formulas used to determine these return metrics. |
| |
| (3) | The return metrics in this column are calculated using adjusted net income, which is a non-GAAP measure. Please see the reconciliation below for a summary of adjusted net income for this period to net income determined in accordance with GAAP. The adjustment of $17.6 million for the share-based compensation is related to the pre-IPO stock awards. We do not reflect subsequent share-based compensation as a recurring adjustment for our metrics calculation. |
|
| | | |
| Trailing four quarters ended July 31, 2011 | |
| | |
| Net income | $ | 14.1 |
|
| Share-based compensation expense (net of tax) | 17.6 |
|
| Deferred tax adjustment | 19.1 |
|
| Pro forma income taxes | (4.7 | ) |
| Adjusted net income | $ | 46.1 |
|
| |
| (4) | Net Income/Average Assets (for the column which presents metrics calculated using net income) and Adjusted Net Income/Average Assets (for the column which presents metrics calculated using adjusted net income). |
| |
| (5) | (1-Tax Rate)*(EBIT)/(Average Assets - Average Cash - Average Non-Interest Bearing Current Liabilities). EBIT, which is not presented as a stand-alone financial measure, is a non-GAAP financial measure and equals (i) net income plus interest expense plus provision for income taxes (for the calculation set forth in the column which presents metrics calculated using net income) and (ii) adjusted net income plus interest expense plus provision for income taxes (for the calculation set forth in the column which presents metrics calculated using adjusted net income). |
| |
| (6) | Net Income/Ending Equity (for the column which presents metrics calculated using net income) and Adjusted Net Income/Ending Equity (for the column which presents metrics calculated using adjusted net income). |
Non-GAAP Financial Measures
In addition to reporting return metrics derived from measures prepared in accordance with GAAP, the Company provides return metrics derived from adjusted net income. The Company has utilized adjusted net income, which is a non-GAAP measure, for purposes of calculating these return metrics in order to eliminate the effect on operating results of certain expenses and charges incurred in connection with the Company's November 2010 initial public offering and related conversion to a taxable C-corporation, as well as pro forma income taxes as if the Company had been taxed as a C-corporation during the entire period presented. The Company believes that the use of adjusted net income to calculate these return metrics facilitates an understanding of the Company's operations without the one-time impact associated with the November 2010 initial public offering. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors
are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure. A reconciliation of GAAP to non-GAAP results has been provided in footnote 3 above.
