Non-GAAP Reconciliations

Transcription

1 Non-GAAP Reconciliations Big Heart Pet Brands (the Company ) reports its financial results in accordance with generally accepted accounting principles in the United States ( GAAP ). In its earnings call on December 10, 2014, the Company also provided certain non-gaap financial measures- including Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, and Net Debt to Adjusted EBITDA. Big Heart Pet Brands cautions investors that the non-gaap financial measures presented are intended to supplement its GAAP results and are not a substitute for such results. Additionally, Big Heart Pet Brands cautions investors that the non-gaap financial measures used by the Company may not be comparable to similarly titled measures of other companies. Adjusted EBITDA Big Heart Pet Brands presents Adjusted EBITDA because it believes that this is an important supplemental measure relating to its financial condition since it is used in certain covenant calculations that may be required from time to time under the indenture that governs its 7.625% Senior Notes due 2019 (referred to therein as EBITDA ) and the credit agreements relating to its Term Loan B Facility and ABL Facility (referred to therein as Consolidated EBITDA ). EBITDA is defined as income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA, further adjusted as required by the definitions of EBITDA and Consolidated EBITDA contained in the Company s indenture and credit agreements. Although Adjusted EBITDA may be useful to benchmark our performance period to period, the Company s presentation of Adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA is not a GAAP measure of liquidity or profitability and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a

2 measure of cash flow available for discretionary expenditures, as it does not take into account debt service requirements, obligations under the monitoring agreement with the Company s Sponsors, capital expenditures or other non-discretionary expenditures that are not deducted from the measure. Adjusted EBITDA Margin The Company uses Adjusted EBITDA Margin internally to focus management on year-over-year changes in the Company s business and believes this information is also helpful to investors. In calculating Adjusted EBITDA Margin, the Company uses Adjusted EBITDA, which is used in certain covenant calculations that may be required from time to time under the indenture that governs its 7.625% Senior Notes due 2019 (referred to therein as EBITDA ) and the credit agreements relating to its Term B Loan Facility and ABL Facility (referred to therein as Consolidated EBITDA ). The Company uses Adjusted EBITDA in this EBITDA-related margin measure because it believes its investors are familiar with Adjusted EBITDA and that consistency in presentation of EBITDA-related measures is helpful to investors. Free Cash Flow The Company presents Free Cash Flow because it uses such measure internally to benchmark its performance period-to-period and believes this information is also helpful to investors. This presentation of Free Cash Flow has limitations as an analytical tool. Free Cash Flow does not represent the residual cash flow available for discretionary expenditures, since it does not take into account debt service requirements or other non-discretionary expenditures that are not deducted from the measure. Net Debt to Adjusted EBITDA Big Heart Pet Brands uses Net Debt to Adjusted EBITDA ratios internally to focus management on year-over-year changes in the Company s leverage and believes this information is also helpful to investors. In calculating Net Debt to Adjusted EBITDA, the Company uses Adjusted EBITDA, which is used in certain covenant calculations that may be required from time to time under the indenture that governs its 7.625% Senior Notes due 2019 (referred to therein as EBITDA ) and the credit agreements relating to its Term B Loan Facility and ABL Facility (referred to therein as Consolidated EBITDA ). The Company uses Adjusted EBITDA in this leverage measure because it believes its investors are familiar with Adjusted EBITDA and that consistency in presentation of EBITDA-related measures is helpful to investors.

3 (dollars in millions) October 26, 2014 October 27, 2013 Operating income $ 68.6 $ 71.8 Other income (expense), net (4.5) 1.2 Depreciation and amortization expense Three Months Ended debt discount (1) (2.7) (6.0) EBITDA $ 86.1 $ 93.3 Non-cash charges Derivative transactions (2) 4.1 (1.7) Non-cash stock based compensation Non-recurring (gains) losses 0.1 (4.0) Merger/acquisition-related items Disposed business reclassification (3) 9.2 Business optimization charges Other Adjusted EBITDA $ $ (4) Net sales $ $ Adjusted EBITDA margin 18.0% 19.2% for the three months ended October 27, Subsequent to the divestiture of the Consumer Products (4) For comparability, Adjusted EBITDA for the three months ended October 27, 2013 has been recast to exclude the Consumer Products Business.

4 (dollars in millions) October 26, 2014 October 27, 2013 Operating income $ $ Other income (expense), net (7.2) 9.6 Depreciation and amortization expense Six Months Ended debt discount (1) (5.5) (11.1) EBITDA $ $ Non-cash charges Derivative transactions (2) (12.9) (3.9) Non-cash stock based compensation Non-recurring (gains) losses (0.1) (3.8) Merger/acquisition-related items Disposed business reclassification (3) 18.6 Business optimization charges Other Adjusted EBITDA $ $ (4) Adjustments to arrive at free cash flow: Cash interest (65.5) (107.4) Cash taxes (net of refunds) (9.7) (36.5) Changes in working capital and other (80.0) (301.1) Capital expenditures (26.0) (47.6) Free cash flow (5) $ (14.9) $ (270.6) Net sales $ 1,095.2 $ 1,033.0 Adjusted EBITDA margin 15.2% 21.5% for the six months ended October 27, Subsequent to the divestiture of the Consumer Products (4) For comparability, Adjusted EBITDA for the six months ended October 27, 2013 has been recast to exclude the Consumer Products Business. (5) Free Cash Flow is defined as Adjusted EBITDA less cash interest, cash taxes (net of refunds), normal capital expenditures and plus/less decrease/increase in working capital (excluding the acquisitions cost of Natural Balance). Adjustments to arrive at free cash flow are inclusive of discontinued operations for the six months ended October 27, 2013.

5 (dollars in millions) October 26, 2014 April 27, 2014 Operating income $ $ Other income (expense), net (4.7) 12.1 Depreciation and amortization expense Trailing Twelve Months Ended debt discount (1) (15.2) (20.8) EBITDA $ $ Non-cash charges Derivative transactions (2) Non-cash stock based compensation Non-recurring (gains) losses Merger/acquisition-related items Disposed business reclassification (3) Business optimization charges Other Adjusted EBITDA $ $ (4) Net debt (5) $ 2,544.1 $ 2,513.6 Net debt to Adjusted EBITDA 6.5 x 5.6 x for the trailing twelve months ended April 27, Subsequent to the divestiture of the Consumer Products (4) According to the terms of our credit agreements, Adjusted EBITDA shall exclude the EBITDA of any business that has been sold. As such, Adjusted EBITDA for the trailing twelve months ended April 27, 2014 excludes the Adjusted EBITDA of the Consumer Products Business as it was sold prior to the end of the period. (5) Net debt is calculated as total debt at the end of the period (including both short-term borrowings and long-term debt) less cash and cash equivalents.