14. Segment reporting

The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa.

The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business. The Elfa segment includes the manufacturing business that produces the elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance. Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.


Fiscal Year Ended March 28, 2020	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	852,349	$	63,604	$	—	$	915,953
Intersegment sales		—		61,955		(61,955)		—
Adjusted EBITDA		77,156		16,988		(3,373)		90,771
Depreciation and amortization		34,608		4,030		—		38,638
Interest expense, net		21,200		341		—		21,541
Capital expenditures (1)		30,500		3,119		—		33,619
Goodwill		202,815		—		—		202,815
Trade names (1)		187,048		35,721		—		222,769
Assets (1)		1,073,888		99,587		(6,661)		1,166,814


Fiscal Year Ended March 30, 2019	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	829,622	$	65,471	$	—	$	895,093
Intersegment sales		—		57,849		(57,849)		—
Adjusted EBITDA		84,041		12,563		(257)		96,347
Depreciation and amortization		31,924		4,381		—		36,305
Interest expense, net		27,016		259		—		27,275
Capital expenditures (1)		31,176		2,494		—		33,670
Goodwill		202,815		—		—		202,815
Trade names (1)		187,048		38,102		—		225,150
Assets (1)		649,351		103,347		(3,954)		748,744


Fiscal Year Ended March 31, 2018	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	787,375	$	69,853	$	—	$	857,228
Intersegment sales		—		54,939		(54,939)		—
Adjusted EBITDA		77,274		13,233		(904)		89,603
Depreciation and amortization		32,504		5,418		—		37,922
Interest expense, net		24,740		273		—		25,013
Capital expenditures (1)		25,678		1,968		—		27,646
Goodwill		202,815		—		—		202,815
Trade names (1)		187,048		42,353		—		229,401
Assets (1)		635,529		117,592		(3,752)		749,369

(1)

Tangible assets and trade names in the Elfa column are located outside of the United States.

A reconciliation of Adjusted EBITDA by segment to income before taxes is set forth below:


	Fiscal Year Ended
	March 28,		March 30,		March 31,
		2020		2019		2018
Income before taxes	$	21,202	$	21,961	$	6,705
Add:
Depreciation and amortization		38,638		36,305		37,922
Interest expense, net		21,541		27,275		25,013
Pre-opening costs (a)		8,237		2,103		5,293
Non-cash lease expense (b)		(2,169)		(1,327)		(1,915)
Stock-based compensation (c)		3,110		2,846		2,026
Loss on extinguishment of debt (d)		—		2,082		2,369
Foreign exchange (gains) losses (e)		(167)		60		(596)
Optimization Plan implementation charges (f)		—		4,864		11,479
Elfa manufacturing facility closure (g)		—		—		803
Elfa France closure (h)		402		—		—
Other adjustments (i)		(23)		178		504
Adjusted EBITDA		90,771		96,347		89,603

(a)

Non-capital expenditures associated with opening new stores, relocating stores, and net costs associated with opening the second distribution center, including marketing expenses, travel and relocation costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b)

Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. In fiscal 2019, lease expenses associated with the opening of the second distribution center were excluded from Non-cash lease expense and included in Pre-opening costs.

(c)

Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

(d)

Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility in August 2017 and September 2018 and the Revolving Credit Facility in August 2017, which we do not consider in our evaluation of our ongoing operations.

(e)

Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

(f)

Charges incurred to implement our Optimization Plan, which include certain consulting costs recorded in selling, general and administrative expenses, cash severance payments associated with the elimination of certain full-time positions at the TCS segment recorded in other expenses, and cash severance payments associated with organizational realignment at the Elfa segment recorded in other expenses, which we do not consider in our evaluation of ongoing performance.

(g)

Charges related to the closure of an Elfa manufacturing facility in Lahti, Finland in December 2017, recorded in other expenses, which we do not consider in our evaluation of our ongoing performance.

(h)

Charges related to the closure of Elfa France operations in the second quarter of fiscal 2019, which we do not consider in our evaluation of ongoing performance.

(i)

Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

The following table shows sales by merchandise category as a percentage of total net sales for fiscal years 2019, 2018, and 2017:


	Fiscal Year Ended
	March 28,		March 30,		March 31,
	2020		2019		2018
Custom Closets (1)	51	%	49	%	48	%
Storage, Long-Term Storage, Shelving	13	%	14	%	14	%
Kitchen and Trash	14	%	14	%	13	%
Office, Collections, Hooks	8	%	8	%	8	%
Bath, Travel, Laundry	7	%	8	%	8	%
Gift Packaging, Seasonal, Impulse	5	%	6	%	7	%
Other	2	%	1	%	2	%
Total	100	%	100	%	100	%

(1)

Includes elfa®, Avera® and Laren® products and installation services, as well as closet lifestyle department products sold by the TCS segment and Elfa segment sales to third parties.