March 2006 0
Forward-Looking Statements This presentation contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are outside our control. These forward-looking statements include statements about our business strategy, objectives, and expectations, our future operating results and anticipated sources of funds. All statements, other than statements of historical facts included in our prospectus, regarding our strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this presentation, the words will, may, believe, anticipate, intend, estimate, expect, project and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this presentation. You should not place undue reliance on these forward-looking statements. Although we believe our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this presentation are reasonable, we may be unable to achieve these plans, intentions or expectations. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. Information regarding market and industry statistics contained in this presentation is based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forwardlooking statements, even if new information becomes available in the future. 1
Company Overview Michael Grebe President and Chief Executive Officer 2
Investment Highlights Industry Leader in in Growing End Markets Strong customer relationships with entrenched brands Focus on $30 billion facilities maintenance and repair and remodeling end markets MRO end markets benefiting from improving economy and recovery in multi-family vacancy rates Fragmented market Diversification Customers: diversified, long-standing customer relationships Products: over 50,000 products End-Markets: sell to a variety of end-markets and geographies Unique Business Model Customer segmentation through multiple brands Varying service levels across brands drive best in class profitability Highly scalable and leverageable model creates significant operating leverage Leading Operating Platform Strong Earnings Growth Common logistics and technology-based operating platform Specialized catalog approach Efficient inventory management system optimizes working capital utilization Leading private label program Organic growth initiatives and strategic acquisitions drive significant earnings growth Low capital expenditure levels 2005 sales and adjusted EBITDA of $852 million and $97 million, respectively with 23% EPS growth 3
Value Added MRO Distributor Professional Contractors 30% FY 2005 Revenue by: Specialty Distributors 19% Customer Type Product Offering Plumbing 42% Facilities Maintenance 51% Other Products 14% Value-added distributor of maintenance, repair and operations ( MRO ) products Over 160,000 active customer accounts Deep product offering with over 50,000 items Industry leading profitability Focused on multi-family apartment, commercial facility and residential end markets Diverse customer and supplier base FY 2005 revenue and adjusted EBITDA (1) of $852 million and $97 million, respectively YOY top line growth 11.2% increase in average organic daily sales (1) HVAC, Appliances & Parts 18% Security 6% Hardw are 6% Electrical 14% (1) Reconciliation to the comparable measures under GAAP is presented in the reconciliation section of this presentation. 4
Large, Highly Fragmented Market $300 Billion MRO Market $270 BN Addressable Market: Facilities Maintenance and Repair & Remodeling $30 BN New Commercial and Residential Construction and Heavy Industrial Manufacturing Facilities maintenance and repair & remodeling sectors $30 billion segment Driven by less cyclical repair and remodeling No exposure to manufacturing; limited exposure to new construction Competition based on product line breadth, product availability, service and price Highly fragmented Largely composed of small, local and regional companies Largest MRO distribution competitor estimated at 2% of the MRO market 5
Facilities Maintenance Market: Improving Vacancy Rates Apartment Vacancy Rate vs. 10 yr Treasury Yield 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 12/31/1995 12/30/1996 12/31/1996 12/30/1997 12/31/1997 12/30/1998 12/31/1998 12/31/1999 12/30/2000 12/31/2000 12/30/2001 12/31/2001 12/31/2002 12/31/2003 12/30/2004 12/31/2004 12/31/2005 Rental Vacancy Rates Source: FactSet Research Systems; U.S. Department of Commerce. 10-Year Treasury Yield Vacancy rates are declining as the economy improves and interest rates rise. 6
Professional Contractor Market Remains Strong Home Improvement & Repair Expenditures ($ in billions) 5-Year CAGR: 6.2% $199 $207 16.3% $82 14.9% $94 $98 $107 $108 $115 $108 $116 $122 $131 $125 $131 $134 $134 8.6% 6.8% 7.3% 7.2% $153 $158 $143 6.9% 7.1% $173 $177 9.9% 12.2% 4.3% 1.1% 5.5% 5.1% 1.7% 0.1% 3.1% 2.1% 8.4% -6.7% -4.3% 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (1) Total Expenditure % Change (YoY) (1) LTM September 30, 2005. Source: U.S. Census Bureau. Home improvement & repair expenditures include expenses for maintenance, repairs, additions, alterations and major replacements to residential properties. Home improvement and repair expenditures have increased in each of the last nine years and have only declined two out of the past 20 years. 7
Unique Model Focused on Customer Segmentation SEGMENT BRAND PRODUCTS / TARGETED END MARKETS MRO products for multi-family housing PRIMARY SALES CHANNEL Field sales reps Facilities Maintenance 51% of LTM Sales Specialty plumbing and maintenance for institutional markets Field sales reps MRO products for multi-family, hospitality and institutional markets Telesales and direct marketing MRO products for professional contractors Telesales and direct marketing Professional Contractors 30% of LTM Sales Security hardware products for professional locksmiths Electrical products for electrical contractors MRO products for independent and cooperative retail hardware stores Specialty Distributors 19% of LTM Sales Electrical products for electrical distributors Telesales and direct marketing Telesales, direct marketing and manufacturers reps Telesales and direct marketing Telesales, direct marketing and manufacturers reps Interline s targeted brand approach results in deep penetration of markets served and allows the Company to offer varying levels of service and price. 8
Products and Service Levels Targeted to Customers Interline s Premier single-handle kitchen faucet Customer: Apartment Manager Service Model: Field Sales Reps and Same Day Delivery Customer: Service Model: Retail Hardware Store Telesales, Direct Mail and Display Packaging Customer: Service Model: Professional Contractor Telesales and Direct Mail (1) Interline packages products and services to meet the specific needs of each of its diverse customer groups. (1) Premier is one of Interline s private label product brands. 9
Leverageable Common Operating Platform Features Common Logistics NDC supercharges the private label strategy Regional distribution centers ship for all brands Centralized inventory management system Common transportation management Leveraged truck routing across multiple brands Common Marketing & Sales Resources Centralized management of all customer relationships Common direct marketing production with offshore capabilities Proprietary information technology provides deep customer analysis Common Operating Platform Facilities Maintenance Professional Contractors Specialty Distributors Leverageable operating platform enables customer segmentation strategy and drives industry leading service levels and profit margins. 10
Strong Private Label Program High quality private label product lines designed and custom manufactured to specifications Approximately 13,000 SKUs Offers high value alternative to compete with branded products while maintaining high margins Strong relationships with contract manufacturers developed over the last 20 years Growing High Margin Private Label Product Sales Growing Faster Than Interline s Total Revenue Better Margins Than Equivalent Branded Product Select Private Label Products 11
National Distribution Network 55 Distribution Centers 21 Professional Contractor Showrooms 1 National Distribution Center Next-day delivery service to over 98% of U.S. population Same-day service offered as a premium service Leased truck fleet serving same-day/next-day delivery in densely populated areas National coverage is achieved through third-party, next-day delivery Distributions Distribution Center Headquarters National Distribution Center Professional Contractor Showroom Our nationwide distribution network helps attract National Accounts and serves as the logistics backbone for our growth initiatives. 12
Growth Strategy Michael Grebe President and Chief Executive Officer 13
Growth Strategy Organic Growth Initiatives Market penetration / sales force expansion National account initiatives Supply chain management services Strategic Acquisitions Targeting new products, customer segments and geographies Strategic objective of increasing customer density and leveraging the infrastructure Interline s organic growth plan combined with strategic acquisitions should drive significant and consistent earnings growth. 14
Consistent Top-Line Growth Year-Over-Year Daily Sales Growth 15.0% 10.0% 5.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2004 2005 Organic YOY Daily Sales Growth National Accounts and Pro Contractor programs have contributed to consistent top-line growth. 15
Growth Strategy Facilities Maintenance Market Daily Sales Growth Rate 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Q1 Q2 Q3 Q4 National Accounts >20% of sales Supply Chain Management Supply chain opportunities exist with approximately 45% of National Accounts Program Institutional Facilities 2004 2005 16
Facilities Maintenance, National Accounts and Supply Chain Management Increased Customer Penetration Spend per Unit (multi-family) $20 No Agreement $40 National Account Lower Admin. and Delivery Expenses Transaction Expense as a % of Total Sale $450 $450 $102 Supply Chain Management $2-$3 billion market opportunity Targeted approach to senior decision makers at national customers with multi-regional facilities Leveraging successful model honed in the multi-family housing market across other facilities markets Sample National Account customers: 15.0% 7.0% 3 Small Orders 1 Large Order Through its National Account program, Interline is able to increase customer penetration while realizing a number of operating expense savings. 17
Growth Strategy Professional Contractor Business 21.0% 18.0% 15.0% 12.0% 9.0% 6.0% 3.0% 0.0% Daily Sales Growth Rate Q1 Q2 Q3 Q4 2004 2005 (1) Field Sales Expansion Telesales Expansion Accelerating National Accounts Program Pro-Center and Onsite VMI Strategy Three Pro Centers opened in 2005, bringing the total to 21 Eleven Vendor Managed Inventory locations opened in 2005, bringing the total to 13 (1) In the third quarter of 2005, our pro contractor business grew at a daily sales rate of 32%, of which 19% was organic (presented above) and 13% was related to Copperfield. In the fourth quarter of 2005, our pro contractor business grew at a daily sales rate of 39%, of which 16% was organic (presented above) and 23% was related to Copperfield. 18
Key Las Vegas Locations 1 1. Las Vegas Distribution Center & Pro Center 2 3 4 2. Pro Center / HVAC Distribution Center 3. HVAC VMI Location 4. Plumbing VMI Location 5. HVAC VMI Location 5 19
Las Vegas Locations V.M.I. Facility Distribution Center Pro Center HVAC Distribution Center 20
Growth Strategy Specialty Distributors Daily Sales Growth Rate (1) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Q1 Q2 Q3 Q4 New Leadership Team in 2004 Field Sales Expansion Telesales Expansion New Product Strategies 2004 2005 (1) In the third quarter of 2005, our specialty distributor business grew at a daily sales rate of 22%, of which 10% was organic (presented above) and 12% was related to Copperfield. In the fourth quarter of 2005, our specialty distributor business grew at a daily sales rate of 32%, of which 8% was organic (presented above) and 24% was related to Copperfield. 21
Growth Strategy Specialty Distributors 22
Disciplined Acquisition Strategy Utilize selective acquisitions that are strategic in the residential and facilities MRO market to increase customer density and leverage infrastructure Preserve and maintain liquidity and capital structure Financial criteria: Sales growth in line or exceeding Interline s organic growth rates Ability to achieve returns on capital in excess of Interline s WACC in 2-3 years Clear path to operating synergies of 1x (purchase price multiple) in year 1 and an additional 1x upon full integration in year 2 Integration strategy: Obtain strategic operating synergies in year 1; fully integrated in year 2 Centralized finance, marketing, logistics and management functions Interline will continue to supplement organic growth with select acquisitions. 23
Recent Transactions Florida Lighting Florida Lighting is a leading distributor of specialty lighting and electrical products Date Acquired: November 24, 2003 Acquisition Price: $23M Copperfield Copperfield is a leading distributor of specialty ventilation and chimney repair products Date Acquired: July 7, 2005 Acquisition Price: $70M Transaction Rationale Distribute Florida Lighting s brands nationally Import sourcing cost-savings Strengthen Interline s electrical product offering Integration Full integration achieved in 24 months Transaction Rationale Expand IBI s product offering into niche chimney and hearth markets Sourcing cost-savings Cross-selling opportunities Integration Targeted completion date in year 1 Interline s management team has significant experience integrating acquisitions. 24
Financial Overview Tom Tossavainen Chief Financial Officer 25
Strong Financial Performance Revenue Gross Margin ($ in millions) ($ in millions) $851.9 $743.9 $640.1 $244.2 15.9% 23.1% 14.4% 15.5% 14.4% 14.0% 38.2% 13.6% $195.5 $226.0 4.6% 0.4% 0.4% $285.4 38.4% $325.6 38.2% 38.6% 38.4% 14.0% $75.5 13.6% $86.7 2003 2004 2005 Q4 2004 Q4 2005 Note: Percentage reflects YOY daily sales growth. 2003 2004 2005 Q4 2004 Q4 2005 Note: Percentage reflects gross margin. Adjusted EBITDA (1)(2) Adjusted Operating Income (2) $96.6 $83.8 $72.6 11.3% 11.3% 11.3% 11.1% 10.8% 11.5% 11.3% 11.3% 11.3% $21.7 10.5% $24.5 $83.0 $70.7 $61.6 9.6% 9.5% 9.6% 9.5% 9.7% 8.8% 9.9% 9.4% 9.3% 9.6% $18.3 $20.9 2003 2004 2005 Q4 2004 Q4 2005 2003 2004 2005 Q4 2004 Q4 2005 Note: Percentage reflects adjusted EBITDA margin. Note: Percentage reflects adjusted operating margin. (1) Adjusted EBITDA represents net income plus interest expense, change in fair value of interest rate swaps, cumulative change in accounting principle, loss on extinguishment of debt, additional compensation expense for forgiveness of shareholder loans and one-time bonuses that relate to financing transactions, provision for income taxes and depreciation and amortization. (2) Reconciliation to the comparable measures under GAAP is presented in the reconciliation section of this presentation. 26
FY 2005 Financial Results ($ in millions) QTR Y-o-Y FY Y-o-Y Metric Q4 2004 Q4 2005 Increase 2004 2005 Increase Revenue $195.5 $226.0 15.6% $743.9 $851.9 14.5% Gross Profit $75.5 $86.7 14.8% $285.4 $325.6 14.1% Gross Margin 38.6% 38.4% 38.4% 38.2% Adj. EBITDA (1) $21.7 $24.5 12.9% $83.8 $96.6 15.4% % Margin 11.1% 10.8% 11.3% 11.3% Adj. OPINC (2) $18.3 $20.9 14.2% $70.7 $83.0 17.3% % Margin 9.4% 9.3% 9.5% 9.7% (3) Adj. Pro Forma EPS $0.24 $0.28 16.7% $0.91 $1.12 23.1% (1)(2)(3) Reconciliation to the comparable measures under GAAP is presented in the reconciliation section of this presentation. Achieved YOY organic daily sales growth of 11.2% Increasing sales of private label products >50% growth in Big Ticket items such as appliances, HVAC equipment and HWH 4% of growth was price driven Adjusted EBITDA increased $12.8 million Investing in our growth initiatives at a rate of approximately $1.0 - $1.5 million per quarter Approximately $1.1 million in Sox compliance costs Continuing to leverage our distribution and logistics network 27
Efficient Working Capital Management and Industry Leading Returns on Invested Capital Net Working Capital Days (1) ROIC 44.0% 20.0% 89 88 86 87 40.0% 18.0% 36.0% 16.0% 32.0% 14.0% 2002 2003 2004 2005 28.0% 12.0% 2002 2003 2004 2005 ROIC Excluding Goodwill & Intangibles LTM Period Ending ROIC Including Goodwill & Intangibles (2) (3) Note: Graph above reflects average working capital metrics. Note: Reconciliation to the comparable measures under GAAP is presented in the reconciliation section of this presentation. (1) Net working capital days defined as average LTM trade receivables plus inventory less payables, all divided by LTM Sales, then multiplied by 365. (2) Tangible ROIC defined as Adjusted EBITDA divided by (average LTM NWC + average LTM fixed assets). (3) ROIC defined as Adjusted EBITDA divided by (average LTM NWC + average LTM fixed assets + average LTM goodwill + average LTM intangibles). 28
Solid Free Cash Flow Generation Cash Flow From Operations Before Changes in Net Working Capital (1) Cash Flow Before Changes in Working Capital YOY Sales Growth $16.3 4.6% $34.7 0.4% 16.2% $29.6 $57.4 14.5% 2002 2003 2004 2005 (-) Increase in NWC (5.9) (1.6) (31.0) (18.6) Cash Provided by 10.4 33.1 (1.4) 38.8 Operating Activities (-) CAPEX (4.9) (4.6) (6.8) (7.9) Free Cash Flow $ 5.5 $ 28.5 $ (8.2) $ 30.9 Capex as a % of Sales 0.8% 0.7% 0.9% 0.9% (1) Net working capital includes trade receivables, inventory and accounts payable. 29
Capitalization ($ in millions) 12/30/2005 Cash $3.0 Debt: Revolver 3.0 Term Loan 148.8 Sr. Sub. Notes 130.0 Other LT Debt 3.3 Total Debt 285.1 Senior Preferred Stock - Shareholders' Equity 284.5 Total Capitalization $569.6 Credit Statistics Total Debt / Total Capitalization 50.1% Total Debt / Adj. EBITDA (1) 2.9x Net Debt / Adj. EBITDA (1) 2.9x (1) 2005 Adj. EBITDA excludes a $10.3 million charge for the early extinguishment of debt in Q1, and a $0.9 million charge for secondary offering costs in Q3. 30
Financial Guidance (1)(2) Q1 06 FY 2006 Pro Forma EPS $0.25 - $0.27 $1.26 - $1.29 (1) The above guidance was provided in the Company s press release dated February 23, 2006 and was effective as of that date. It is the Company s policy to provide guidance only once per quarter and this information will not be updated until the Company publicly provides guidance for the next quarter. (2) In 2006, Statement of Financial Accounting Standard No. 123, Share-based Payments, requires options to be expensed. The earnings guidance provided above, dated February 23, 2006, excludes the effect of expensing options in 2006. 31
Investment Highlights Industry Leader in in Growing End Markets Strong customer relationships with entrenched brands Focus on $30 billion facilities maintenance and repair and remodeling end markets MRO end markets benefiting from improving economy and recovery in multi-family vacancy rates Fragmented market Diversification Customers: diversified, long-standing customer relationships Products: over 50,000 products End-Markets: sell to a variety of end-markets and geographies Unique Business Model Customer segmentation through multiple brands Varying service levels across brands drive best in class profitability Highly scalable and leverageable model creates significant operating leverage Leading Operating Platform Strong Earnings Growth Common logistics and technology-based operating platform Specialized catalog approach Efficient inventory management system optimizes working capital utilization Leading private label program Organic growth initiatives and strategic acquisitions drive significant earnings growth Low capital expenditure levels 2005 sales and adjusted EBITDA of $852 million and $97 million, respectively with 23% EPS growth 32
Reconciliations 33
Reconciliation: Adjusted EBITDA ($ in millions) For the 12 Months Ended Three Months Ended 12/27/02 12/26/03 12/31/04 12/30/05 12/31/04 12/30/05 Net Income (Loss) $ 7.1 $ 7.2 $ 18.1 $ 28.8 $ 1.0 $ 9.1 % of Sales 1.1% 1.1% 2.4% 3.4% 0.5% 4.0% Plus (Less): Interest expense, net $ 38.6 $ 40.3 $ 39.8 $ 25.2 $ 9.3 $ 6.6 Change in fair value of interest rate swaps 5.8 (5.3) (8.2) -- (2.0) Cumulative effect of change in accounting principle -- -- -- -- -- Loss on extinguishment of debt -- 14.9 0.7 10.3 0.7 IPO/Secondary expenses -- -- 9.2 0.9 9.2 0.0 Provision for income taxes 4.2 4.5 11.6 18.3 0.4 5.3 Depreciation and amortization 11.3 10.9 12.6 13.0 3.2 3.3 Adjusted EBITDA(1) $ 67.1 $ 72.6 $ 83.8 $ 96.6 $ 21.7 $ 24.5 % of Sales 10.5% 11.3% 11.3% 11.3% 11.1% 10.8% (1) Adjusted EBITDA is presented herein because we believe it to be relevant and useful information to our investors because it is used by our management to evaluate the operating performance of our business and compare our operating performance with that of our competitors. Management also uses Adjusted EBITDA for planning purposes, including the preparation of annual operating budgets, to determine appropriate levels of operating and capital investments. Adjusted EBITDA excludes certain items, including change in fair value of interest rate swaps and loss on extinguishment of debt, which we believe are not indicative of our core operating results. We therefore utilize Adjusted EBITDA as a useful alternative to net income as an indicator of our operating performance. However, Adjusted EBITDA is not a measure of financial performance under GAAP and Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as net income. While we believe that some of the items excluded from Adjusted EBITDA are not indicative of our core operating results, these items do impact our income statement, and management therefore utilizes Adjusted EBITDA as an operating performance measure in conjunction with GAAP measures such as net income and gross profit. 34
Reconciliation: Adjusted Pro Forma EPS ($ in millions) For the Twelve Months Ended, Three Months Ended, 12/26/03 12/31/04 12/30/05 12/31/04 12/30/05 Income before income taxes (GAAP) $11.7 $29.7 $47.1 $1.3 14.45 ( ) Change in fair value of interest rate swaps (5.3) (8.2) -- (2.0) -- (+) Loss on early extinguishment of debt 14.9 0.7 10.3 0.7 -- (+) Pro forma interest expense adjustment (1) 17.1 16.8 0.5 3.2 -- (+) IPO/Secondary related expenses (2) 0.0 9.2 0.9 9.2 0.0 Adjusted pro forma income before income taxes $38.4 $48.1 $58.9 $12.4 $14.5 ( ) Provision for income taxes 15.0 18.8 22.5 4.7 5.3 Adjusted pro forma net income (3) $23.4 $29.3 $36.3 $7.7 $9.1 Fully-diluted shares outstanding 32.1 32.1 32.4 32.1 32.6 Adjusted pro forma net income per share $0.73 $0.91 $1.12 $0.24 $0.28 % YOY Growth 25% 23% 17% (1) Pro forma interest expense adjustment reflects the estimated annual reduction in interest expense assuming the reduction of debt from IPO proceeds and subsequent elimination of associated amortization of deferred financing fees occurred at the beginning of each respective fiscal year. (2) Adjusted pro forma net income is presented herein because we believe it to be relevant and useful information to our investors because it is used by our management to evaluate the operating performance of our business and compare our operating performance with that of our competitors. Adjusted pro forma net income excludes certain items, including change in fair value of interest rate swaps and loss on extinguishment of debt, that relate to financing transactions and which we believe are not indicative of our core operating results. However, adjusted pro forma net income is not a measure of financial performance under GAAP and adjusted pro forma net income should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as gross profit and operating income. While we believe that the items excluded from adjusted pro forma net income are not indicative of our core operating results, these items do impact our income statement, and management therefore utilizes adjusted pro forma net income as an operating performance measure in conjunction with GAAP measures such as gross profit and operating income. 35
Reconciliation: Adjusted Operating Income ($ in millions) For the 12 Months Ended Three Months Ended 12/27/02 12/26/03 12/31/04 12/30/05 12/31/04 12/30/05 Revenue $637.5 $640.1 $743.9 $851.9 $195.5 $226.0 Operating Income (GAAP) $55.8 $61.6 $61.5 $82.0 $9.1 $20.9 % Margin 8.8% 9.6% 8.3% 9.6% 4.7% 9.3% IPO/Secondary Related Expenses (1) - - 9.2 0.9 9.2 0.0 Adjusted Operating Income (2) $55.8 $61.6 $70.7 $83.0 $18.3 $20.9 % Margin 8.8% 9.6% 9.5% 9.7% 9.4% 9.3% (1) IPO related expenses include additional compensation expense for forgiveness of shareholder loans and one-time bonuses. (2) Adjusted Operating Income is presented herein because we believe it to be relevant and useful information to our investors because it is used by our management to evaluate the operating performance of our business and compare our operating performance with that of our competitors. Adjusted Operating Income excludes certain items that relate to financing transactions and which we believe are not indicative of our core operating results. We therefore utilize Adjusted Operating Income as a useful alternative to net income as an indicator of our operating performance. However, Adjusted Operating Income is not a measure of financial performance under GAAP and Adjusted Operating Income should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as operating income. While we believe that the item excluded from Adjusted Operating Income is not indicative of our core operating results, this item does impact our income statement, and management therefore utilizes Adjusted Operating Income as an operating performance measure in conjunction with GAAP measures such as net income and gross profit. 36
Reconciliation: Return on Invested Capital ($ in millions) For the Twelve Months Ended 12/28/01 12/27/02 12/26/03 12/31/04 12/30/05 LTM Adjusted EBITDA $64.3 $67.1 $72.6 $83.8 $96.6 Invested Capital (LTM 5 QTR Averages) (+) Accounts receivable, trade $86.9 $90.4 $87.3 $97.2 $111.9 (+) Inventory 111.4 117.9 115.3 131.0 153.1 ( ) Accounts payable 49.1 52.5 47.5 52.5 61.7 Avg. Net Working Capital $149.2 $155.8 $155.1 $175.7 $203.4 (+) Property and equipment 39.6 36.2 31.8 29.8 29.1 Avg. Tangible Capital $188.7 $192.0 $186.9 $205.5 $232.5 (+) Goodwill 195.1 194.1 197.0 202.7 222.3 (+) Other intangible assets, net 83.2 80.8 81.2 88.0 91.5 Avg. Invested Capital $466.9 $466.9 $465.0 $496.1 $546.2 ROIC (1) Tangible ROIC (ex. goodwill & intangibles) 34.1% 34.9% 38.8% 40.8% 41.6% ROIC 13.8% 14.4% 15.6% 16.9% 17.7% (1) Return on Invested Capital ( ROIC ) is presented herein because we believe it to be relevant and useful information to our investors because it is a measure utilized by our management to evaluate our operating performance given the capital we employ in our business. Management believes ROIC is a key operating metric because it is a measure of how the Company manages certain assets and liabilities in which management has direct control over. Management also uses ROIC for planning purposes, including the preparation of annual operating budgets, and to determine appropriate levels of operating and capital investments. ROIC is not a measure of financial performance under GAAP and ROIC should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Calculating ROIC with net income would not provide any meaningful results. Certain credit statistics that include Adjusted EBITDA were not calculated using net income because they would not provide any meaningful results. 37
Reconciliation: Daily Sales Growth ($ in millions) 2003 2004 Q1 Q2 Q3 Q4 FY 03 Q1 Q2 Q3 Q4 FY 04 Net Sales $ 154.9 $ 159.7 $ 166.7 $ 158.9 $ 640.1 $ 172.6 $ 185.4 $ 190.4 $ 195.5 $ 743.9 Less: Florida Lighting $ - $ - $ - $ - $ - $ (8.2) $ (9.0) $ (8.8) $ (6.2) $ (32.3) Freight Revenue Reclassification $ - $ - $ - $ - $ - $ (1.3) $ (1.4) $ - $ - $ (2.7) Organic Sales $ 154.9 $ 159.7 $ 166.7 $ 158.9 $ 640.1 $ 163.0 $ 175.0 $ 181.6 $ 189.3 $ 708.9 Daily Sales: Ship Days 64 64 63 61 252 64 64 63 65 256 Average Daily Sales $ 2.4 $ 2.5 $ 2.6 $ 2.6 $ 2.5 $ 2.7 $ 2.9 $ 3.0 $ 3.0 $ 2.9 Average Organic Daily Sales $ 2.4 $ 2.5 $ 2.6 $ 2.6 $ 2.5 $ 2.5 $ 2.7 $ 2.9 $ 2.9 $ 2.8 Daily Sales Growth Rates: Average Daily Sales Growth 11.5% 16.1% 14.2% 15.5% 14.4% Average Organic Daily Sales Growth 5.2% 9.6% 8.9% 11.8% 9.0% ($ in millions) 2004 2005 Q1 Q2 Q3 Q4 FY 04 Q1 (3) Q2 (3) Q3 Q4 FY 05 Net Sales $ 172.6 $ 185.4 $ 190.4 $ 195.5 $ 743.9 $ 196.5 $ 203.7 $ 225.8 $ 226.0 $ 851.9 Less: Acquisitions - - - - - - - 11.7 22.5 34.25 Adjustments - - - - - - - - Organic Sales $ 172.6 $ 185.4 $ 190.4 $ 195.5 $ 743.9 $ 196.5 $ 203.7 $ 214.1 $ 203.4 $ 817.7 Daily Sales: Ship Days 64 64 63 65 256 65 64 63 61 253 Average Daily Sales $ 2.7 $ 2.9 $ 3.0 $ 3.0 $ 2.9 $ 3.0 $ 3.2 $ 3.6 $ 3.7 $ 3.4 Average Organic Daily Sales $ 2.7 $ 2.9 $ 3.0 $ 3.0 $ 2.9 $ 3.0 $ 3.2 $ 3.4 $ 3.3 $ 3.2 Daily Sales Growth Rates: Average Daily Sales Growth 11.5% 16.1% 14.2% 15.5% 14.4% 12.1% 9.9% 18.6% 23.1% 15.9% Average Organic Daily Sales Growth 5.2% 9.6% 8.9% 11.8% 9.0% 12.1% 9.9% 12.4% 10.9% 11.2% (1) Florida Lighting was acquired in November 2003. Copperfield was acquired in July 2005. (2) During the third quarter of 2003, we reclassified freight revenue from selling, general and administrative expenses to net sales, in order to more properly reflect that these amounts (2) are revenues earned from our products provided. For comparability purposes, freight revenue is adjusted in the 2004 comparable periods to properly reflect this reclassification. (3) Q1 05 and Q2 05 organic daily sales growth is equal to the average daily sales growth given no acquisition occurred in the prior twelve months. 38