Dollar General 2008 Annual Report Download - page 46

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44
Events of Default. The indentures also provide for events of default which, if any of them
occurs, would permit or require the principal of and accrued interest on the notes to become or to
be declared due and payable.
Adjusted EBITDA
Under the agreements governing the Credit Facilities and the indentures, certain
limitations and restrictions could arise if we are not able to satisfy and remain in compliance with
specified financial ratios. Management believes the most significant of such ratios is the senior
secured incurrence test under the Credit Facilities. This test measures the ratio of the senior
secured debt to Adjusted EBITDA. This ratio would need to be no greater than 4.25 to 1 to avoid
such limitations and restrictions. As of January 30, 2009, this ratio was 2.1 to 1. Senior secured
debt is defined as our total debt secured by liens or similar encumbrances less cash and cash
equivalents. EBITDA is defined as income (loss) from continuing operations before cumulative
effect of change in accounting principle plus interest and other financing costs, net, provision for
income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA,
further adjusted to give effect to adjustments required in calculating this covenant ratio under our
Credit Facilities. EBITDA and Adjusted EBITDA are not presentations made in accordance with
U.S. GAAP, are not measures of financial performance or condition, liquidity or profitability,
and should not be considered as an alternative to (i) net income, operating income or any other
performance measures determined in accordance with U.S. GAAP or (ii) operating cash flows
determined in accordance with U.S. GAAP. Additionally, EBITDA and Adjusted EBITDA are
not intended to be measures of free cash flow for management’ s discretionary use, as they do not
consider certain cash requirements such as interest payments, tax payments and debt service
requirements and replacements of fixed assets.
Our presentation of EBITDA and Adjusted EBITDA has limitations as an analytical tool,
and should not be considered in isolation or as a substitute for analysis of our results as reported
under U.S. GAAP. Because not all companies use identical calculations, these presentations of
EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of
other companies. We believe that the presentation of EBITDA and Adjusted EBITDA is
appropriate to provide additional information about the calculation of this financial ratio in the
Credit Facilities. Adjusted EBITDA is a material component of this ratio. Specifically, non-
compliance with the senior secured indebtedness ratio contained in our Credit Facilities could
prohibit us from making investments, incurring liens, making certain restricted payments and
incurring additional secured indebtedness (other than the additional funding provided for under
the senior secured credit agreement and pursuant to specified exceptions).