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Natural Grocers by Vitamin Cottage Reports Fiscal 2012 Fourth Quarter and Full Year Results and Provides 2013 Outlook



Natural Grocers by Vitamin Cottage Reports Fiscal 2012 Fourth Quarter and Full
                    Year Results and Provides 2013 Outlook

PR Newswire

LAKEWOOD, Colo., Nov. 15, 2012

LAKEWOOD, Colo., Nov. 15, 2012 /PRNewswire/ -- Natural Grocers by Vitamin
Cottage, Inc. (NYSE: NGVC) today reported results for the fourth quarter and
fiscal year ended September 30, 2012 and provided its outlook for fiscal year
2013.

(Logo:  http://photos.prnewswire.com/prnh/20121115/LA13448LOGO)

An Introduction

In addition to presenting the financial results of Natural Grocers by Vitamin
Cottage, Inc. (NGVC) and its subsidiaries (collectively, the Company) in
conformity with U.S. generally accepted accounting principles (GAAP), the
Company has presented selected results:

  o on an adjusted basis in order to reflect the impact of certain
    compensation charges related to the July 25, 2012 initial public offering
    (IPO); and
  o on a pro forma basis to reflect the purchase of the 45% noncontrolling
    interest in Boulder Vitamin Cottage Group, LLC (BVC), which owned five
    stores in Colorado. 

Such adjustments to financial results and EBITDA are non-GAAP financial
measures.  The Company describes the use of non-GAAP financial measures at the
end of this press release.  In addition, reconciliations of GAAP measures to
adjusted results and EBITDA are presented in schedules to this press release. 

Highlights

  o Comparable store sales increased 13.0% for the fourth quarter and
    increased 11.6% for fiscal year 2012.
  o Net sales increased 28.2% to $89.9 million for the fourth quarter and
    increased 27.2% to $336.4 million for fiscal year 2012.
  o Net income attributable to NGVC increased 6.0% to $973,000 for the fourth
    quarter and increased 89.8% to $6.6 million for fiscal year 2012 with
    diluted earnings per share of $0.30.
  o Adjusted pro forma net income attributable to NGVC (which illustrates net
    income as if the Company owned 100% of BVC for the periods presented and
    excludes stock-based and incentive compensation expenses associated with
    the IPO) increased 64.0% to $1.8 million for the fourth quarter with
    diluted earnings per share of $0.08 and increased 92.0% to $8.0 million
    for fiscal year 2012 with diluted earnings per share of $0.36.
  o EBITDA increased 7.7% to $4.3 million for the fourth quarter and increased
    45.0% to $21.9 million for fiscal year 2012. Adjusted EBITDA (which
    excludes $1.4 million of stock-based and incentive compensation expenses
    associated with the IPO) increased 42.7% to $5.7 million for the fourth
    quarter and increased 54.2% to $23.3 million for fiscal year 2012.

"We are pleased to report these strong results to our shareholders following
our first quarter as a public company," stated Kemper Isely, Co-President. 
"Our 2012 fiscal performance reflects strength in both new store openings and
comparable store sales increases, which together demonstrate the strong
foundation of people and systems we have in place to support disciplined
sustainable growth."

Operating Results

Fourth Quarter Fiscal Year 2012 compared to 2011

During the fourth quarter, net sales increased 28.2% to $89.9 million due to
an increase of $10.8 million in sales from new stores and a 13.0% increase in
comparable store sales. Comparable store transaction count increased 7.9%
quarter over quarter.

Gross profit increased 29.0% to $26.4 million. Gross margin increased to 29.3%
from 29.2%, quarter over quarter with product margin staying relatively flat.
The increase in gross margin is due to a decrease in occupancy costs as a
percentage of sales at comparable stores.

Store expenses as a percentage of sales decreased to 21.3% from 21.9%. The
decrease was primarily driven by a decrease in salary related expenses at
comparable stores, partially offset by an increase in salary related expenses
at new stores, all as a percentage of related sales. 

Administrative expenses increased 62.9% to $4.4 million, in part due to the
$1.1 million stock-based compensation expense and the $286,000 incentive
compensation expense associated with the IPO. Excluding the stock-based and
incentive compensation expenses associated with the IPO, administrative
expenses as a percentage of sales were 3.4% compared to 3.9% in the prior
comparable quarter.

Pre-opening and relocation expenses increased $367,000 to $862,000, due to the
timing of new store openings, the relocation of one store and the relocation
of the bulk food repackaging facility and distribution center. 

Interest expense decreased by less than $1,000, as a result of a $40,000
decrease in interest expense due to the payoff of the term loan and all
outstanding amounts under the revolving credit facility in July 2012, offset
by a $39,000 increase in interest expense as a result of two new stores that
were accounted for as capital lease finance obligations.

Other expense increased to $301,000 primarily due to asset disposals in
conjunction with the relocation of one store. 

Net income attributable to noncontrolling interest decreased $359,000 to a net
loss of $74,000 compared to net income of $285,000 in the prior
comparable quarter as a result of the purchase of the remaining noncontrolling
interest in BVC in July 2012. The fourth quarter includes approximately one
month of operations for 45% of BVC combined with increased expenses due to
BVC's share of IPO costs. 

Net income attributable to NGVC increased 6.0% to $973,000 and EBITDA
increased 7.7% to $4.3 million.

Pro forma net income attributable to NGVC decreased 15.5% to $927,000 or $0.04
diluted earnings per share. Adjusted pro forma net income attributable to NGVC
increased 64.0% to $1.8 million or $0.08 diluted earnings per share. Adjusted
EBITDA increased 42.7% to $5.7 million.   

Fiscal Year 2012 compared to 2011

For fiscal year 2012, net sales increased 27.2% to $336.4 million due to an
increase of $41.3 million in sales from new stores and an 11.6% increase in
comparable store sales. Comparable store transaction count increased 7.0% year
over year. Mature store sales increased 7.6%. For fiscal 2012, mature stores
are stores open during or before fiscal 2007.

Gross profit increased 28.0% to $99.1 million. Gross margin increased to 29.4%
from 29.3%, with product margin staying relatively flat. The increase in gross
margin is due to a decrease in occupancy costs as a percentage of sales at
comparable stores.

Store expenses as a percentage of sales decreased to 21.4% from 21.8%. The
decrease was primarily driven by a decrease in salary related expenses, and to
a lesser extent, a decrease in advertising expense, partially offset by an
increase in depreciation expense, all as a percentage of sales.

Administrative expenses increased 22.5% to $12.7 million, in part due to the
$1.1 million stock-based compensation expense and the $286,000 incentive
compensation expense associated with the IPO, as well as an increase in
general and administrative positions in fiscal year 2012 to support store
growth. Excluding the stock-based and incentive compensation expenses
associated with the IPO, administrative expenses as a percentage of sales were
3.4% compared to 3.9% in the prior year.

Pre-opening and relocation expenses increased $209,000 to $2.2 million due to
the relocation of one store and the relocation of the bulk food repackaging
facility and distribution center.

Interest expense decreased $101,000 or 15.0% due to the repayment of all
outstanding amounts under the term loan and revolving credit facility in July
2012. The decrease in interest expense as a result of the repayments was
partially offset by a $39,000 increase in interest expense as a result of two
new stores that were accounted for as capital lease finance obligations.

Other expense increased $325,000 primarily due to asset disposals in
conjunction with the relocation of one store. 

The Company's effective income tax rate for fiscal 2012 was 34.6% compared to
32.0% in the prior year. The increase was primarily due to changes in
nontaxable net income attributable to noncontrolling interest, and to a lesser
extent, different state income tax rates.

Net income attributable to noncontrolling interest decreased $278,000 to
$828,000 as a result of the purchase of the remaining noncontrolling interest
in BVC in July 2012. Fiscal year 2012 includes approximately ten months of
operations for 45% of BVC combined with increased expenses due to BVC's share
of IPO costs. The prior year includes twelve months of operations for 45% of
BVC. 

Net income attributable to NGVC increased 89.8% to $6.6 million and EBITDA
increased 45.0% to $21.9 million.

Pro forma net income attributable to NGVC increased 71.2% to $7.2 million or
$0.32 diluted earnings per share. Adjusted pro forma net income attributable
to NGVC increased 92.0% to $8.0 million or $0.36 diluted earnings per share.
Adjusted EBITDA increased 54.2% to $23.3 million.

Balance Sheet and Cash Flow

During the fourth quarter, the Company generated $7.2 million in cash from
operations and invested $11.7 million in capital expenditures primarily for
new stores and the relocation and expansion of the bulk food repackaging
facility and distribution center. For fiscal 2012, the Company generated $25.2
million in cash from operations and invested $25.3 million in capital
expenditures primarily for new stores.

In connection with the IPO, the Company received $58.1 million in proceeds,
net of underwriting fees, repaid the outstanding $26.4 million on the term
loan and revolving credit facility, purchased the remaining 45% noncontrolling
interest in five of the Colorado stores for $10.1 million and paid $2.5
million in expenses associated with the IPO.

The Company ended the fiscal year with $17.3 million in cash and cash
equivalents and $1.8 million in available for sale securities, as well as
$21.0 million available under the revolving credit facility. On October 31,
2012 the Company amended the revolving credit facility and reduced the amount
available from $21.0 million to $15.0 million.

The Company entered into four capital leases during fiscal year 2012. Two
opened during the fourth quarter of fiscal 2012, and two are scheduled to open
in the first quarter of fiscal 2013.

Growth and Development

In fiscal year 2012, the Company opened ten stores, including four stores in
the fourth quarter.

As of September 30, 2012, the Company had 59 stores located in 12 states.

The Company plans to open 12 stores in fiscal year 2013 and expects to remodel
three existing stores. On October 30, 2012, the Company opened a store in
Missoula, MT.

The Company has signed leases for six stores scheduled to open in fiscal year
2013 in Helena, MT; Denton, TX; Omaha, NE; Lubbock, TX; Medford, OR; and
Kalispell, MT.

Store Level Economics

Historically, new stores opened since January 1, 2005 required an upfront
capital investment of approximately $1.9 million. The Company anticipates that
fiscal 2013 new stores will require an upfront capital investment of
approximately $2.3 million consisting of capital expenditures of approximately
$1.8 million (net of tenant allowances), initial inventory of approximately
$300,000 (net of payables) and pre-opening expenses of approximately $180,000.
It is projected that these stores will experience higher than historical first
year sales. The Company continues to target approximately four years to recoup
the initial net cash investments and approximately 35% cash on cash returns by
the end of the fifth year following the opening.

Outlook Fiscal Year 2013

For fiscal year 2013 the Company expects:
                                Fiscal 2013 Outlook
Number of new stores          12                         20% increase
Number of remodels            3                          -
Comparable store sales growth 7.5% to 8.5%               -
Public company costs (1)      Approximately $1.2 million -
EBITDA percent of sales       7.0% to 7.2%               -
Net income percent of sales   2.5% to 2.7%               -
Diluted earnings per share    $0.46 to $0.49             -
Capital expenditures          $25 to $30 million         -

          

(1) Public company costs include additional legal, accounting, insurance,
    stock‑based compensation, board of director expenses and other costs.

 

Earnings Conference Call

The Company will host a conference call today at 3:00 p.m. Mountain Time (5:00
p.m. Eastern Time) to discuss this earnings release. The dial-in number is
(800)-866-2442. The conference ID is "Natural Grocers by Vitamin Cottage." A
simultaneous audio webcast will be available at
http://Investors.NaturalGrocers.com and archived for a minimum of 30 days.

About Natural Grocers by Vitamin Cottage

Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) is a rapidly expanding
specialty retailer of natural and organic groceries and dietary supplements
whose products must meet strict quality guidelines. Grocery products may not
contain artificial colors, flavors, preservatives, sweeteners, or partially
hydrogenated or hydrogenated oils. Natural Grocers' flexible small-store
format allows it to offer affordable prices in a shopper-friendly retail
environment. The Company provides extensive free science-based nutrition
education programs to help customers make informed health and nutrition
choices. The Company, founded in 1955, now has 60 stores in 12 states. 

Visit www.NaturalGrocers.com for more information and store locations.

Forward Looking Statements

The following constitutes a "safe harbor" statement under the Private
Securities Litigation Reform Act of 1995. Except for the historical
information contained herein, statements in this release are "forward-looking
statements" and are based on current expectations and assumptions that are
subject to risks and uncertainties. Actual results could differ materially
from those described in the forward-looking statements because of factors such
as our industry, business strategy, goals and expectations concerning our
market position, the economy, future operations, margins, profitability,
capital expenditures, liquidity and capital resources, other financial and
operating information and other risks detailed in the Company's Prospectus
dated July 24, 2012. The Company undertakes no obligation to update
forward-looking statements.

For further information regarding risks and uncertainties associated with our
business, please refer to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors" sections of
our SEC filings, including, but not limited to, our S-1 registration
statement, copies of which may be obtained by contacting investor relations at
303-986-4600 or by visiting our website at
http://Investors.NaturalGrocers.com.

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Income (unaudited)
                         Three months ended September Year ended September 30,
                         30,
                         2012           2011          2012         2011
Statements of Income
Data:
Net sales                $89,932,891    70,136,488    336,385,372  264,544,046
Cost of goods sold and   63,558,793     49,687,700    237,328,764  187,162,252
occupancy costs
Gross profit             26,374,098     20,448,788    99,056,608   77,381,794
Store expenses           19,189,661     15,391,173    71,856,455   57,609,690
Administrative expenses  4,447,020      2,730,014     12,732,100   10,396,891
Pre-opening and          862,014        494,649       2,173,181    1,964,186
relocation expenses
Operating income         1,875,403      1,832,952     12,294,872   7,411,027
Other income (expense):
Dividends and interest   658            1,740         6,096        10,077
income
Interest expense         (93,971)       (94,847)      (568,501)    (669,125)
Other (expense) income,  (300,676)      6,801         (300,676)    24,707
net
Income before income     1,481,414      1,746,646     11,431,791   6,776,686
taxes
Provision for income     (582,393)      (543,462)     (3,955,219)  (2,166,800)
taxes
Net income               899,021        1,203,184     7,476,572    4,609,886
Net loss (income)
attributable to          73,595         (285,218)     (827,772)    (1,106,075)
noncontrolling interest
Net income attributable
to Natural Grocers by    $972,616       917,966       6,648,800    3,503,811
  Vitamin Cottage, Inc
Per Share Data:
Net income attributable
to Natural Grocers by
Vitamin Cottage, Inc.
per common share
Basic                    $0.04          0.04          0.30         0.16
Diluted                  $0.04          0.04          0.30         0.16
Weighted average common
shares outstanding:
Basic                    22,372,184     22,372,184    22,372,184   22,372,184
Diluted                  22,463,093     22,461,405    22,463,093   22,461,405

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Balance Sheets (unaudited)
                                                      September 30,
                                                      2012          2011
Assets
Current assets:
Cash and cash equivalents                             $ 17,290,948  377,549
Short term investments – available-for-sale           777,445       —
securities
Accounts receivable, net                              1,755,142     1,027,141
Accounts receivable – leasehold incentives            100,274       1,111,475
Merchandise inventory                                 37,543,861    29,820,321
Prepaid expenses                                      596,090       455,126
Income tax receivable                                 —             1,701,917
Deferred income tax assets                            842,963       583,668
Total current assets                                  58,906,723    35,077,197
Property and equipment, net                           64,602,743    41,737,234
Other assets:
Long-term investments – available-for-sale securities 973,729       —
Deposits and other assets                             196,365       167,558
Goodwill                                              511,029       511,029
Deferred financing costs, net                         54,643        88,631
Other intangibles, net                                416,464       490,301
Split-dollar life insurance premiums                  —             577,861
Notes receivable – related party, long-term           —             265,572
Total other assets                                    2,152,230     2,100,952
Total assets                                          $ 125,661,696 78,915,383
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                      $ 26,031,756  16,087,882
Accrued expenses                                      7,783,430     5,785,499
Long-term debt, current portion                       —             500,000
Revolving credit facility                             —             11,036,324
Notes payable – related party, current portion        260,187       562,271
Capital lease finance obligation, current portion     11,884        —
Total current liabilities                             34,087,257    33,971,976
Long-term liabilities:
Capital lease finance obligation, net of current      5,513,958     —
portion
Deferred income tax liabilities                       4,143,351     4,947,870
Deferred rent                                         3,618,233     2,845,292
Leasehold incentives                                  5,327,408     4,879,432
Long-term debt, net of current portion                —             15,700,000
Notes payable – related party, net of current portion 22,312        643,834
Total long-term liabilities                           18,625,262    29,016,428
Total liabilities                                     52,712,519    62,988,404
Commitments
Stockholders' equity:
Common stock, $0.001 par value. Authorized 50,000,000
shares, 22,372,184 issued and outstanding at 2012,    22,372        —
none issued and outstanding at 2011
Common stock Vitamin Cottage Natural Food Markets,
Inc., Class A, voting, no par value. Authorized 1,000 —             1,679
shares, issued and outstanding at 2011
Common stock Vitamin Cottage Natural Food Markets,
Inc., Class B, nonvoting, no par value. Authorized    —             792,676
1,000,000 shares, 625,112 shares issued and
outstanding at 2011
Additional paid in capital                            52,675,925    —
Accumulated other comprehensive loss                  (3,696)       —
Retained earnings                                     20,254,576    13,605,776
Total Natural Grocers by Vitamin Cottage, Inc. equity 72,949,177    14,400,131
Noncontrolling interest                               —             1,526,848
Total stockholders' equity                            72,949,177    15,926,979
Total liabilities and stockholders' equity            $ 125,661,696 78,915,383

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Consolidated Statements of Cash Flows (unaudited)
                                                     Year ended September 30,
                                                     2012         2011
Operating activities:
Net income                                           $7,476,572   4,609,886
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization                        9,948,243    7,690,778
Loss (gain) on disposal of property and equipment    300,676      (24,707)
Stock-based compensation (excluding cash portion of
restricted stock award                               779,979      —

paid of $334,579)
Excess tax benefit from stock-based compensation     (620,138)    —
Deferred income tax expense                          2,673,248    3,937,798
Non-cash interest expense                            38,036       50,196
Other amortization                                   67,837       67,837
Unrealized loss on available-for-sale securities     (3,696)      —
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net                             (728,001)    (165,987)
Accounts receivable – leasehold incentives           1,011,201    221,963
Income tax receivable                                1,488,931    (711,764)
Merchandise inventory                                (7,723,540)  (4,256,193)
Prepaid expenses and other assets                    (169,771)    75,979
Increase in:
Accounts payable                                     6,860,498    2,107,957
Accrued expenses                                     2,560,927    849,259
Deferred rent and lease incentives                   1,241,343    2,288,519
Net cash provided by operating activities            25,202,345   16,741,521
Investing activities:
Acquisition of property and equipment                (25,258,595) (20,446,122)
Proceeds from sale of property and equipment         608,022      35,600
Purchase of available-for-sale securities            (1,751,174)  —
Payments received on notes receivable, related party 270,301      —
Payments received for premiums paid on split-dollar  659,852      —
life insurance
Notes receivable, related party – insurance premiums (4,729)      (36,163)
Increase in split-dollar life insurance premiums     (81,991)     (65,364)
Net cash used in investing activities                (25,558,314) (20,512,049)
Financing activities:
Borrowings under credit facility                     —            5,847,041
Repayments under credit facility                     (27,236,324) (500,000)
Repayments under notes payable                       —            (119,412)
Repayments under notes payable, related party        (923,606)    (533,150)
Capital lease and financing obligation payments      (485)        —
Distributions to noncontrolling interests            (810,000)    (990,000)
Purchase of remaining 45% noncontrolling interest in (10,050,880) —
BVC
Proceeds from common stock issued in IPO, net of     58,134,770   —
commissions
Excess tax benefit from stock-based compensation     620,138      —
Equity issuance costs                                (2,460,196)  —
Loan fees paid                                       (4,049)      (1,972)
Net cash provided by financing activities            17,269,368   3,702,507
Net increase (decrease) in cash and cash equivalents 16,913,399   (68,021)
Cash and cash equivalents, beginning of year         377,549      445,570
Cash and cash equivalents, end of year               $17,290,948  377,549
Supplemental disclosures of cash flow information:
Cash paid for interest, net of capitalized interest  $524,391     615,425
of $25,000 and $32,000 respectively
    Cash paid for interest on capital lease and      39,197       —
financing obligations
Income taxes paid                                    519,231      11,589
Supplemental disclosures of non-cash investing and
financing activities:
Acquisition of property and equipment not yet paid   $5,007,169   2,055,213
Property acquired through capital lease financing    5,526,327    —
obligations
Equity issuance costs not yet paid                   256,420      —
    Tax benefit associated with acquisition of       3,591,931    —
noncontrolling interest in BVC

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.
Non-GAAP Financial Measures (unaudited)

In addition to reporting financial results in accordance with U.S. generally
accepted accounting principles, or GAAP, the Company provides information
regarding pro forma net income, Adjusted pro forma net income, EBITDA,
Adjusted EBITDA and additional information about its operating results.  These
measures are not in accordance with, or an alternative to GAAP. 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 the financial results
of the Company as well as a component of incentive compensation. The Company
defines pro forma net income as what net income would have been had it owned
100% of BVC for the periods presented. The Company defines Adjusted pro forma
net income as pro forma net income excluding stock-based and incentive
compensation expenses associated with the IPO. The Company defines EBITDA as
net income attributable to Natural Grocers by Vitamin Cottage, Inc. before
interest expense, provision for income tax, net income attributable to the
noncontrolling interest and depreciation and amortization. The Company defines
Adjusted EBITDA as EBITDA excluding stock-based and incentive compensation
expenses associated with the IPO ($1.4 million).

The following is a tabular presentation of the non-GAAP financial measures,
including reconciliation from net income attributable to Natural Grocers by
Vitamin Cottage, Inc. to pro forma net income, Adjusted pro forma net income,
EBITDA, and Adjusted EBITDA.

Pro Forma and Adjusted Pro Forma Statements of Income Data

In connection with the IPO in July 2012, the Company purchased the 45%
noncontrolling interest in BVC, not previously owned by the Company. Prior to
the purchase of the noncontrolling interest, the Company held a controlling
55% interest in BVC for all periods presented, as such, the consolidated
statements of income include the revenues and expenses of BVC for all periods
presented as required by GAAP. 45% of BVC's net income has previously been
reported as net income attributable to noncontrolling interest in the
Company's consolidated statements of income for the periods in which it did
not own 100% of BVC. The pro forma financial data presented below illustrates
what net income would have been had the Company owned 100% of BVC for all
periods presented. The Company's effective tax rate increased as a result of
the BVC acquisition, as the income attributable to the noncontrolling interest
was nontaxable income prior to the BVC acquisition but is included in taxable
income after the acquisition. 

                                  Three months ended   Year ended
                                  September 30,
                                                       September 30,
                                  2012       2011      2012        2011
Net income attributable to
Natural Grocers by Vitamin        $972,616   917,966   6,648,800   3,503,811
Cottage, Inc
Net (loss) income attributable to (73,595)   285,218   827,772     1,106,075
noncontrolling interest
Net income                        899,021    1,203,184 7,476,572   4,609,886
Provision for income taxes        582,393    543,462   3,955,219   2,166,800
Income before income taxes        1,481,414  1,746,646 11,431,791  6,776,686
Pro forma provision for income    (554,830)  (649,526) (4,263,972) (2,589,443)
taxes
Pro forma net income              926,584    1,097,120 7,167,819   4,187,243
Stock-based compensation of
$1,106,228, net of income taxes   693,605    —         693,605     —
of $412,623 (1)
Incentive compensation of
$285,726, net of income taxes of  179,150    —         179,150     —
$106,576 (1)
Adjusted pro forma net income     $1,799,339 1,097,120 8,040,574   4,187,243
Per Share Data:
Adjusted pro forma net income per
common share
    Basic                         $0.08      0.05      0.36        0.19
    Diluted                       $0.08      0.05      0.36        0.19

 

(1) Entirely contingent upon a successful IPO

 

The following table reconciles the effective tax rate to the pro forma
effective tax rate had the Company owned 100% of BVC for all periods
presented:

 

                                              Three months ended Year ended
                                              September 30,
                                                                 September 30,
                                              2012      2011     2012   2011
Effective tax rate                            39.3%     31.1     34.6   32.0
Pro forma adjustment to exclude nontaxable
net income attributable to noncontrolling     (1.8)     6.1      2.7    6.2
interest
Pro forma effective tax rate                  37.5%     37.2     37.3   38.2

 

Effective October 31, 2012, BVC merged with and into the Company's wholly
owned subsidiary Vitamin Cottage Natural Foods Market, Inc. and ceased to
exist.

EBITDA and Adjusted EBITDA

EBITDA is not a measure of financial performance under GAAP. The Company
believes EBITDA and Adjusted EBITDA provide additional information about
(i) operating performance, because they assist in comparing the operating
performance of stores on a consistent basis, as they remove the impact of
non-cash depreciation and amortization expense as well as items not directly
resulting from core operations such as interest expense and income taxes and
(ii) the performance and the effectiveness of operational strategies.
Additionally, EBITDA is a measure in the Company's debt covenants under the
credit facility, and incentive compensation plans base incentive compensation
payments on EBITDA performance. Furthermore, investors use EBITDA as a
supplemental measure to evaluate the overall operating performance of
companies in the industry. Management believes that investors' understanding
of performance is enhanced by including these non-GAAP financial measures as a
reasonable base for comparing ongoing results of operations. Many investors
are interested in understanding the performance of the business by comparing
the Company's results from ongoing operations period over period and would
ordinarily add back non-cash expenses such as depreciation and amortization as
well as items that are not part of normal day-to-day operations of business
such as interest expense and income taxes. By providing these non-GAAP
financial measures, together with a reconciliation, the Company believes it is
enhancing investors' understanding of the business and results of operations,
as well as assisting investors in evaluating how well the Company is executing
strategic initiatives. The Company's competitors may define EBITDA and
Adjusted EBITDA differently, and as a result, the Company's measure of EBITDA
and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted
EBITDA of other companies. Items excluded from EBITDA and Adjusted EBITDA are
significant components in understanding and assessing financial performance.
EBITDA and Adjusted EBITDA are a supplemental measure of operating performance
that do not represent and should not be considered in isolation or as
alternatives to, or substitutes for, net income or other financial statement
data presented in the consolidated financial statements of the Company as
indicators of financial performance. EBITDA and Adjusted EBITDA have
limitations as analytical tools, and should not be considered in isolation, or
as a substitute for analysis of the Company's results as reported under GAAP.
EBITDA and Adjusted EBITDA should not be considered as a measure of
discretionary cash available to the Company to invest in the growth of the
business.

The following table reconciles net income attributable to Natural Grocers by
Vitamin Cottage, Inc. and net income, to EBITDA and to Adjusted EBITDA:

                                 Three months ended   Year ended September 30,
                                 September 30,
                                 2012       2011      2012         2011
Net income attributable to
Natural Grocers by Vitamin       $972,616   917,966   6,648,800    3,503,811
Cottage, Inc
Net (loss) income attributable   (73,595)   285,218   827,772      1,106,075
to noncontrolling interest
Net income                       899,021    1,203,184 7,476,572    4,609,886
Interest expense                 93,971     94,847    568,501      669,125
Provision for income taxes       582,393    543,462   3,955,219    2,166,800
Depreciation and amortization    2,719,498  2,145,068 9,948,243    7,690,778
EBITDA                           4,294,883  3,986,561 21,948,535   15,136,589
Stock-based compensation (1)     1,106,228  —         1,106,228    —
Incentive compensation (1)       285,726    —         285,726      —
Adjusted EBITDA                  $5,686,837 3,986,561 23,340,489   15,136,589

 

 

(1) Entirely contingent upon a successful IPO

 

SOURCE Natural Grocers by Vitamin Cottage, Inc.

Website: http://www.naturalgrocers.com
Contact: Sandra Buffa, CFO, +1-303-986-4600, sbuffa@vitamincottage.com
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