Adjusted EBITDA Reconciliation
This non-GAAP financial information is provided to enhance the user’s overall understanding of the Company’s current financial performance and prospects for the future. Specifically, management believes the non-GAAP financial information provides useful information to investors by excluding or adjusting certain items affecting reported operating results that were unusual and not indicative of the Company’s core operating results. This non-GAAP financial information should be considered in addition to, and not as a substitute for, or superior to, results prepared in accordance with GAAP. Moreover, this non-GAAP information may not be comparable to similarly titled measures reported by other companies. The non-GAAP financial information included in this 2010 Annual Report has been reconciled to the nearest GAAP measure in the table below.
(1) EBITDA is equal to net income plus (a) interest expense, net; (b) provision for income taxes; and (c) depreciation and amortization.
(2) During fiscal year 2007, we paid a fine of $3.8 million in connection with failure to comply with our wastewater discharge permit prior to 2003 at our primary manufacturing facility in Atlanta, Georgia. Of that fine, $2.0 million had been accrued prior to fiscal year 2005. In May 2007, we accrued a pre-tax liability of $5.0 million representing our best estimate of costs associated with environmental remediation efforts related to soil and groundwater issues present at that manufacturing facility.
(3) During fiscal year 2010, we recorded $8.6 million in restructuring charges primarily related to the cost of severances and selling branch and manufacturing facility consolidations. During the first quarter of fiscal year 2009, we recorded a net pretax charge of $1.9 million entirely composed of severance related costs. In the second quarter of fiscal year 2009, the Company recorded a charge of $1.1 million as it exited two facilities, and, in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, adjusted sub-lease rental income assumptions associated with a leased facility exited during the third quarter of fiscal year 2008. In the fourth quarter of fiscal year 2009, Zep recorded a pretax restructuring charge of $0.4 million for costs associated with severances and facility consolidation.
During fiscal year 2008, we recorded restructuring charges totaling $10 million. The restructuring breakdown is as follows: The Company recognized $5.3 million in charges for employee severance related to the new organizational structure that will serve to decentralize specific functions of the business to establish decision making and accountability closer to the customer. Of these charges, $0.8 million was recorded during the second quarter of fiscal year 2008 with the remainder charged in the following quarter. Additionally, during the third quarter, we incurred a $3.3 million charge related to the consolidation of our corporate headquarters, which includes certain assumptions made regarding future revenue from sublease rentals. Lastly, we recorded a $1.5 million charge related to the write-down and disposal of discontinued inventory as a result of our product line rationalization. This charge addresses the integration of our Selig product line into Zep and the first wave of reductions from the bottom half of our products in our North American I&I product line.
(4) Acquisition costs reflect advisory, legal and other due diligence-related services incurred in connection with acquisition-related activity. Acquisition costs associated with Amrep totaled $1.6 million. Acquisition costs associated with the recently purchased Waterbury Companies and Niagara National totaled $2.2 million during the fourth quarter of fiscal 2010, which included a one-time $0.4 million acceleration of previously capitalized financing costs that were recorded as interest expense when the Company replaced its credit arrangements with a single, expanded facility. This recapitalization was necessary to finance the Company’s acquisitive growth initiatives. All such costs are expensed as incurred pursuant to purchase accounting.
(5) Amrep’s purchase price has been allocated to Amrep’s net tangible and intangible assets based on their estimated fair values as of the January 4, 2010 closing date of the acquisition. The estimated fair value of acquired finished goods inventories exceeded the historical net book value for such goods by $0.9 million. As a result of this step-up in asset basis, the Company recognized an increase of cost of goods sold totaling $0.5 million in the last two months of the second fiscal quarter of 2010. The remainder of this inventory sold through during Zep’s third fiscal quarter, subsequently, the mark up of acquired finished goods inventory will not impact Zep’s operating results.