Floor & Decor(FND) - 2020 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Unaudited condensed consolidated financial statements and notes are presented, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets (Unaudited) This table provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | As of June 25, 2020 | As of December 26, 2019 | | :-------------------- | :------------------ | :---------------------- | | Assets | | | | Total current assets | $829,981 | $701,486 | | Total long-term assets | $1,698,749 | $1,622,823 | | Total assets | $2,528,730 | $2,324,309 | | Liabilities | | | | Total current liabilities | $533,690 | $552,541 | | Total long-term liabilities | $1,144,544 | $1,007,432 | | Total liabilities | $1,678,234 | $1,559,973 | | Stockholders' Equity | | | | Total stockholders' equity | $850,496 | $764,336 | | Total liabilities and stockholders' equity | $2,528,730 | $2,324,309 | Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) This table outlines the company's financial performance over specific periods, including net sales, gross profit, operating income, and earnings per share | Metric (in thousands) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net sales | $462,352 | $520,311 | $1,017,289 | $997,361 | | Gross profit | $196,692 | $217,823 | $432,724 | $419,197 | | Operating income | $21,089 | $45,895 | $67,763 | $85,657 | | Income before income taxes | $19,801 | $43,672 | $64,668 | $80,513 | | Net income | $32,004 | $43,596 | $69,067 | $74,316 | | Basic earnings per share | $0.31 | $0.44 | $0.68 | $0.76 | | Diluted earnings per share | $0.30 | $0.42 | $0.65 | $0.71 | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This table details changes in stockholders' equity, including net income and stock-based compensation, between reporting periods | Metric (in thousands) | Balance, December 27, 2019 | Balance, June 25, 2020 | | :-------------------- | :------------------------- | :--------------------- | | Total Stockholders' Equity | $764,336 | $850,496 | | Net income | $37,063 (to March 26, 2020) | $32,004 (to June 25, 2020) | | Stock-based compensation expense | $2,908 (to March 26, 2020) | $4,234 (to June 25, 2020) | Condensed Consolidated Statements of Cash Flows (Unaudited) This table summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (in thousands) | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $96,705 | $122,157 | | Net cash used in investing activities | $(65,994) | $(78,172) | | Net cash provided by financing activities | $76,672 | $6,821 | | Net increase in cash and cash equivalents | $107,383 | $50,806 | | Cash and cash equivalents, end of the period | $134,420 | $51,450 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Basis of Presentation and Summary of Significant Accounting Policies This section outlines the company's business, the impact of the COVID-19 pandemic, and key accounting policy adoptions - The Company is a rapidly growing specialty retailer of hard surface flooring and related accessories, operating 125 warehouse-format stores and one small-format design center across 30 states as of June 25, 2020[20][21] - The COVID-19 pandemic has materially negatively impacted fiscal 2020 operations and financial results, leading to temporary store closures and a shift to curbside pickup, though all stores reopened for in-store shopping by June 25, 2020, with June sales exceeding the prior year[25][26] - The Company qualitatively assessed goodwill and indefinite-lived intangible assets for impairment as of March 26, 2020, and June 25, 2020, and determined no impairment occurred despite the pandemic's impact[31] - The Company negotiated rent deferrals or abatements totaling approximately $5.9 million as of June 25, 2020, in response to COVID-19[32] - The Company adopted ASU No. 2018-15 (Cloud Computing Arrangements) and ASU No. 2016-13 (Credit Losses) in Q1 fiscal 2020, neither of which had a material impact on financial statements[34][35] 2. Revenues This section details the company's net sales broken down by various product categories over different reporting periods Net Sales by Product Category | Product Category | Thirteen Weeks Ended June 25, 2020 (Net Sales, in thousands) | Thirteen Weeks Ended June 27, 2019 (Net Sales, in thousands) | Twenty-six Weeks Ended June 25, 2020 (Net Sales, in thousands) | Twenty-six Weeks Ended June 27, 2019 (Net Sales, in thousands) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Tile | $118,981 | $136,319 | $253,893 | $261,629 | | Laminate / luxury vinyl plank | $105,427 | $108,218 | $230,421 | $205,720 | | Decorative accessories / wall tile | $87,547 | $97,594 | $201,144 | $192,034 | | Installation materials and tools | $73,213 | $88,592 | $167,789 | $168,301 | | Wood | $41,901 | $52,762 | $90,896 | $101,992 | | Natural stone | $30,319 | $32,903 | $65,196 | $63,790 | | Other | $4,964 | $3,923 | $7,950 | $3,895 | | Total | $462,352 | $520,311 | $1,017,289 | $997,361 | 3. Debt This section provides an overview of the company's long-term debt, including refinancing activities and new credit facilities Long-Term Debt Summary | Metric (in thousands) | June 25, 2020 | December 26, 2019 | | :-------------------- | :------------ | :---------------- | | UBS Facility Term Loan B | $144,263 | $145,500 | | UBS Facility Term Loan B-1 | $75,000 | — | | Total secured debt at par value | $219,263 | $145,500 | | Net carrying amount | $209,535 | $142,606 | | Total long-term debt | $206,977 | $142,606 | - On February 14, 2020, the Company refinanced its Term Loan Facility, extending the maturity to February 14, 2027, and amended interest margins[44][45] - On May 18, 2020, the Company secured a new $75.0 million incremental term loan B-1 facility to provide additional liquidity in response to COVID-19 uncertainties, receiving net proceeds of $70.5 million[46] - A $1.0 million gain on early extinguishment of debt was recognized in Q2 fiscal 2020 due to the partial extinguishment of existing debt by a lender participating in the incremental term loan[49] - The ABL Facility was amended on February 14, 2020, increasing revolving commitments to $400.0 million and extending maturity to February 14, 2025. Net availability under the ABL Facility was $362.1 million as of June 25, 2020[50][54] 4. Income Taxes This section explains the company's effective income tax rates and the significant impact of the CARES Act on tax benefits and refunds Effective Income Tax Rates | Period | Effective Tax Rate | | :----- | :----------------- | | Thirteen Weeks Ended June 25, 2020 | (61.6)% | | Thirteen Weeks Ended June 27, 2019 | 0.2% | | Twenty-six Weeks Ended June 25, 2020 | (6.8)% | | Twenty-six Weeks Ended June 27, 2019 | 7.7% | - The significant decrease in the effective tax rate for both the thirteen and twenty-six weeks ended June 25, 2020, was primarily due to income tax benefits from the CARES Act and higher excess tax benefits from stock option exercises[57][121][122] - The CARES Act allowed for a five-year carryback of net operating losses, resulting in a $7.7 million income tax benefit and an estimated $28.4 million in cash refunds for fiscal 2020 due to accelerated QIP depreciation[62][63] - The Company deferred $3.1 million of employer social security taxes and recorded a $1.1 million credit for employee retention credits under the CARES Act[64][65] 5. Commitments and Contingencies This section details the company's operating lease costs and ongoing legal proceedings, including class action lawsuits Total Lease Cost for Operating Leases | Metric (in thousands) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Operating lease cost | $34,221 | $28,914 | $68,037 | $54,929 | | Sublease income | $(597) | $(606) | $(1,194) | $(1,229) | | Total lease cost | $33,624 | $28,308 | $66,843 | $53,700 | - The Company is involved in two putative class action lawsuits (Taylor v. Floor & Decor Holdings, Inc. and Lincolnshire Police Pension Fund v. Taylor, et al.) alleging federal securities law violations and breaches of fiduciary duties, respectively. The Company denies the allegations and is unable to reasonably estimate potential losses[72][73][74] 6. Stock-based Compensation This section outlines the company's stock-based compensation expense, stock option activity, and unrecognized compensation costs for various equity awards - Stock-based compensation expense for the twenty-six weeks ended June 25, 2020, was $7.1 million, an increase from $4.4 million in the prior year period[76] Stock Option Activity (Twenty-six Weeks Ended June 25, 2020) | Metric | Options | Weighted Average Exercise Price | | :----- | :------ | :------------------------------ | | Outstanding at December 27, 2019 | 6,037,079 | $13.64 | | Granted | 278,499 | $57.22 | | Exercised | (1,291,255) | $6.71 | | Forfeited or expired | (91,618) | $23.00 | | Outstanding at June 25, 2020 | 4,932,705 | $17.74 | | Vested and exercisable at June 25, 2020 | 2,746,188 | $10.39 | - Total unrecognized compensation cost for stock options as of June 25, 2020, was $20.2 million, expected to be recognized over 2.6 years[79] - The Company granted 114,440 restricted stock units during the twenty-six weeks ended June 25, 2020, with a weighted average grant date fair value of $56.76[81] - Total unrecognized compensation cost for restricted stock units was $5.9 million, expected to be recognized over 3.7 years[81] - The Company issued performance-based, TSR, and service-based restricted stock awards to executive officers and non-employee directors, with a weighted average grant date fair value of $53.85[82][83] - Total unrecognized compensation cost for restricted stock awards was $18.5 million, expected to be recognized over 3.1 years[83] 7. Earnings Per Share This section presents the calculation of basic and diluted earnings per share, including net income and weighted average shares outstanding Basic and Diluted Earnings Per Share | Metric (in thousands, except per share data) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :------------------------------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | $32,004 | $43,596 | $69,067 | $74,316 | | Basic weighted average shares outstanding | 102,114 | 98,642 | 101,872 | 98,214 | | Dilutive effect of share-based awards | 3,352 | 6,198 | 3,604 | 6,392 | | Diluted weighted average shares outstanding | 105,466 | 104,840 | 105,476 | 104,606 | | Basic earnings per share | $0.31 | $0.44 | $0.68 | $0.76 | | Diluted earnings per share | $0.30 | $0.42 | $0.65 | $0.71 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operating results, highlighting COVID-19 impacts, key performance indicators, liquidity, and debt Forward-Looking Statements This section cautions readers about forward-looking statements and outlines key risks that could affect future financial results and business operations - The report contains forward-looking statements regarding future operating results, financial position, business strategy, and the impact of the COVID-19 pandemic, which are subject to known and unknown risks and uncertainties[87][88] - Key risk factors include economic decline, the COVID-19 pandemic's impact on staffing and credit markets, distribution disruptions, competition, inability to manage growth, dependence on foreign imports, and regulatory violations[89][94] Overview This section provides a high-level description of the company's business as a specialty retailer and its strategic investments during the reporting period - Floor & Decor is a high-growth, multi-channel specialty retailer of hard surface flooring, operating 125 warehouse-format stores across 30 states as of June 25, 2020[92] - Strategic investments during the twenty-six weeks ended June 25, 2020, included opening five new stores, focusing on innovative products, investing in customer and Pro personnel/technology, enhancing in-store experience, and protecting employee/customer health[95] COVID-19 Update This section details the operational and sales impact of the COVID-19 pandemic, including store closures, curbside services, and reopening strategies Comparable Store Sales Impact from COVID-19 | Period | Comparable Store Sales Change | | :----- | :---------------------------- | | Thirteen Weeks Ended June 25, 2020 | (20.8)% | | Twenty-six Weeks Ended June 25, 2020 | (9.6)% | | Second Quarter Fiscal 2020 (curbside model) | (49.6)% | | Second Quarter Fiscal 2020 (in-store shopping) | 8.6% | - The Company temporarily limited most stores to curbside services from late March through early May, significantly impacting sales, but all stores reopened for in-store shopping by June, with positive comparable sales thereafter[94][96] - The Company's priorities during the pandemic are to protect employee/customer health, maintain brand strength and customer support, and position the company for strong emergence[99] Coronavirus Aid, Relief, and Economic Security Act This section explains the financial benefits received from the CARES Act, including income tax benefits, cash refunds, and deferred employer social security taxes - The CARES Act provided a $7.7 million income tax benefit for the thirteen and twenty-six weeks ended June 25, 2020, due to accelerated depreciation of qualified improvement property (QIP) and net operating loss carrybacks[100] - The Company expects to receive an estimated $28.4 million in cash refunds in fiscal 2020 related to the CARES Act provisions[100] - Cash savings in fiscal 2020 include $3.1 million from deferred employer social security taxes and $1.1 million from employee retention credits[100] Key Performance Indicators This section identifies the primary metrics used by management to evaluate the company's financial and operational performance - Key performance indicators include comparable store sales, new store openings, gross profit and margin, operating income, and EBITDA/Adjusted EBITDA[101] Results of Operations This section provides a detailed analysis of the company's financial results, including sales, gross profit, and various operating expenses Selected Financial Information This table presents key financial and operational metrics, including comparable store sales, store count, and Adjusted EBITDA Selected Financial Information | Metric | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :----- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Comparable store sales (% change) | (20.8)% | 3.0% | (9.6)% | 3.1% | | Comparable average ticket (% change) | 2.0% | 1.9% | 2.5% | 1.5% | | Comparable customer transactions (% change) | (22.3)% | 1.1% | (11.9)% | 1.5% | | Number of warehouse-format stores | 125 | 106 | 125 | 106 | | Adjusted EBITDA (in thousands) | $45,555 | $66,592 | $118,681 | $126,660 | | Adjusted EBITDA margin | 9.9% | 12.8% | 11.7% | 12.7% | Net Sales This section analyzes changes in net sales, attributing fluctuations to comparable store sales, new store openings, and customer transaction trends - Net sales decreased by $58.0 million (11.1%) for the thirteen weeks ended June 25, 2020, primarily due to a 20.8% decrease in comparable store sales, partially offset by new store openings[106] - For the twenty-six weeks ended June 25, 2020, net sales increased by $19.9 million (2.0%), driven by new store sales, but offset by a 9.6% decrease in comparable store sales[107] - The decrease in comparable store sales was primarily due to a decline in customer transactions (22.3% for 13 weeks, 11.9% for 26 weeks) caused by COVID-19 operational disruptions, partially offset by an increase in comparable average ticket[106][107] Gross Profit and Gross Margin This section discusses the drivers behind changes in gross profit and margin, including product costs and merchandising strategies - Gross profit decreased by $21.1 million (9.7%) for the thirteen weeks ended June 25, 2020, but gross margin increased by 60 basis points to 42.5%, driven by lower product costs from tariff elimination and improved merchandising[109] - For the twenty-six weeks ended June 25, 2020, gross profit increased by $13.5 million (3.2%), with gross margin increasing by 50 basis points to 42.5% due to similar factors[110] Selling and Store Operating Expenses This section analyzes the trends in selling and store operating expenses, considering new store openings and sales disruptions - Selling and store operating expenses increased by $3.8 million (2.8%) for the thirteen weeks and $29.5 million (11.3%) for the twenty-six weeks ended June 25, 2020, primarily due to 19 new store openings[111][112] - As a percentage of net sales, these expenses increased by approximately 400 basis points (to 29.9%) for the thirteen weeks and 240 basis points (to 28.7%) for the twenty-six weeks, mainly due to sales disruptions from the pandemic[111][112][113] General and Administrative Expenses This section examines changes in general and administrative expenses, including depreciation, incentive compensation, and cost-saving measures - General and administrative expenses increased by $2.8 million (9.0%) for the thirteen weeks and $3.5 million (5.6%) for the twenty-six weeks ended June 25, 2020, driven by increased depreciation and incentive compensation[114][115] - As a percentage of net sales, these expenses increased to 7.3% (up 140 bps) for the thirteen weeks and 6.3% (up 20 bps) for the twenty-six weeks, influenced by pandemic-related sales impact and cost-saving measures[114][115][116] Pre-Opening Expenses This section details the fluctuations in pre-opening expenses, primarily influenced by the number of new store openings or preparations - Pre-opening expenses decreased by $2.9 million (46.1%) for the thirteen weeks and $1.5 million (14.7%) for the twenty-six weeks ended June 25, 2020, due to fewer store openings or preparations compared to the prior year[117][118] Interest Expense This section analyzes changes in net interest expense, considering new borrowings, interest rates, and interest income from tariff refunds - Net interest expense slightly increased by $0.1 million (3.6%) for the thirteen weeks ended June 25, 2020, due to new borrowings, offset by higher interest income[119] - Net interest expense decreased by $1.0 million (20.1%) for the twenty-six weeks ended June 25, 2020, primarily due to lower interest rates on borrowings and increased interest income from tariff refund receivables[120] Income Taxes This section discusses the company's income tax benefit or expense, highlighting the impact of the CARES Act - The Company reported an income tax benefit of $12.2 million for the thirteen weeks and $4.4 million for the twenty-six weeks ended June 25, 2020, compared to expenses in the prior year, primarily due to CARES Act benefits[121][122] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial metrics like EBITDA and Adjusted EBITDA, used for performance assessment - EBITDA and Adjusted EBITDA are key non-GAAP metrics used by management and the board to assess financial performance, eliminate non-core operating expenses, and evaluate business strategies[123] Reconciliation of Net Income to EBITDA and Adjusted EBITDA | Metric (in thousands) | Thirteen Weeks Ended June 25, 2020 | Thirteen Weeks Ended June 27, 2019 | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | $32,004 | $43,596 | $69,067 | $74,316 | | Depreciation and amortization | $21,991 | $17,392 | $43,664 | $34,263 | | Interest expense, net | $2,303 | $2,223 | $4,110 | $5,144 | | Gain on early extinguishment of debt | $(1,015) | — | $(1,015) | — | | Income tax (benefit) expense | $(12,203) | $76 | $(4,399) | $6,197 | | EBITDA | $43,080 | $63,287 | $111,427 | $119,920 | | Stock compensation expense | $4,234 | $2,168 | $7,142 | $4,418 | | COVID-19 costs | $1,601 | — | $2,911 | — | | Tariff refunds | $(3,615) | — | $(4,016) | — | | Other | $255 | $1,137 | $1,217 | $2,322 | | Adjusted EBITDA | $45,555 | $66,592 | $118,681 | $126,660 | Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash needs, and proactive measures taken in response to the COVID-19 pandemic - Liquidity is primarily provided by cash flows from operations and the $400.0 million asset-backed revolving credit facility (ABL Facility)[130] - Unrestricted liquidity as of June 25, 2020, was $496.5 million, comprising $134.4 million in cash and cash equivalents and $362.1 million available under the ABL Facility[130] - Primary cash needs include merchandise inventories, payroll, store rent, operating expenses, and capital expenditures for new/remodeling stores, IT, e-commerce, and store support center infrastructure[131] - The COVID-19 pandemic has significantly impacted liquidity, leading to proactive measures such as reducing operating expenses and capital expenditures, and securing a $75.0 million incremental term loan[136] - Planned capital expenditures for fiscal 2020 are revised higher to $188.0 million to $196.0 million, primarily for 13 new warehouse-format stores, existing store remodels, and IT investments[138][139] Cash Flow Analysis This section provides a summary and analysis of cash flows from operating, investing, and financing activities Summary of Cash Flow Activities | Metric (in thousands) | Twenty-six Weeks Ended June 25, 2020 | Twenty-six Weeks Ended June 27, 2019 | | :-------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $96,705 | $122,157 | | Net cash used in investing activities | $(65,994) | $(78,172) | | Net cash provided by financing activities | $76,672 | $6,821 | | Net increase in cash and cash equivalents | $107,383 | $50,806 | - Net cash provided by operating activities decreased to $96.7 million (from $122.2 million) for the twenty-six weeks ended June 25, 2020, primarily due to an increase in inventory and other working capital[142] - Net cash used in investing activities decreased to $66.0 million (from $78.2 million) for the twenty-six weeks ended June 25, 2020, mainly due to fewer new stores under construction[144] - Net cash provided by financing activities significantly increased to $76.7 million (from $6.8 million) for the twenty-six weeks ended June 25, 2020, driven by net proceeds from the incremental term loan facility[146] Credit Facility Amendments This section details the refinancing and amendments made to the company's Term Loan and ABL Facilities, including new incremental term loans - The Term Loan Facility was refinanced and extended to February 14, 2027, with an 'accordion' feature for additional borrowings[147] - The ABL Facility was amended to increase revolving commitments to $400.0 million and extend maturity to February 14, 2025, also including an 'accordion' feature[147] - A new $75.0 million incremental term loan B-1 facility was established on May 18, 2020, maturing February 14, 2027, to support growth and for general corporate purposes[148] Credit Ratings This section reports on the company's credit ratings from Moody's and S&P, including any changes in outlook - Moody's upgraded the Company's issuer corporate family rating to Ba3 (from B1) in November 2019 but changed the outlook to negative (from stable) in April 2020[150] - S&P reaffirmed the Company's corporate credit rating of BB- with a stable outlook in November 2019[150] U.S. Tariffs and Global Economy This section discusses the impact of U.S. tariffs on products imported from China and the company's mitigation strategies - Approximately half of the Company's products were historically imported from China, with many impacted by 25% U.S. tariffs[151] - The Company is mitigating tariff impacts by negotiating lower vendor costs, increasing retail pricing, and sourcing from alternative countries[151] Antidumping and Countervailing Duties This section outlines the duties imposed on ceramic tile imports from China and the company's actions to mitigate future exposure - The U.S. Department of Commerce imposed final countervailing duties of 358.81% and antidumping duties of 203.71% or 330.69% on ceramic tile imports from China[152] - The Company has ceased importing applicable products from China to mitigate future exposure and estimates potential exposure up to $6.0 million for additional duties, though no reserve has been established[154] Contractual Obligations This section confirms that there were no material changes to contractual obligations during the reporting period - There were no material changes to contractual obligations outside the ordinary course of business during the twenty-six weeks ended June 25, 2020[155] Off-Balance Sheet Arrangements This section states that the company was not party to any material off-balance sheet arrangements - The Company was not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition or results of operations[156] Critical Accounting Policies and Estimates This section addresses the potential impact of the COVID-19 pandemic on critical accounting estimates and policies - The COVID-19 pandemic could impact estimates used for critical accounting policies, but as of the report date, no specific events required an update to estimates or materially affected asset/liability carrying values[157] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, focusing on interest rate fluctuations and COVID-19 impacts Interest Rate Risk This section details the company's exposure to variable interest rates on its credit facilities and the potential impact of rate changes - The Company is exposed to interest rate fluctuations on its variable-rate Credit Facilities, with approximately $219.3 million in outstanding variable rate debt as of June 25, 2020[160] - A 1.0% increase in the effective interest rate would increase interest expense by approximately $2.2 million over the next twelve months[160] - An interest rate cap agreement caps LIBOR at 2.0%, but its impact is not anticipated to be significant in the near term due to historically low interest rates following central bank actions in response to COVID-19[160] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as assessed by management - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 25, 2020[161] Changes in Internal Control Over Financial Reporting This section reports on the absence of any material changes in the company's internal control over financial reporting - There have been no material changes in the Company's internal control over financial reporting during the fiscal quarter ended June 25, 2020[162] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section refers to the detailed discussion of legal proceedings, including litigation and tariff impacts - Legal proceedings, including litigation and impacts from U.S. tariffs and global economy, are detailed in Note 5 and Item 2 of this report[163] Item 1A. Risk Factors This section highlights significant risk factors that could materially affect the company's business, focusing on COVID-19 impacts - The COVID-19 pandemic is negatively impacting the Company's net sales, results of operations, financial position, store operations, new store openings, and earnings[164] - Responses to COVID-19 included temporary store closures, shifting to curbside pickup, furloughs, cost savings, and phased reopening with enhanced safety measures[166] - Potential future risks include re-emerging business interruptions, difficulty accessing liquidity, staffing challenges due to illness or quarantine, supply chain disruptions, construction delays, increased cybersecurity risks, and reduced consumer demand[167][168][169][170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[173] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities to report[174] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[175] Item 5. Other Information This section states that there is no other information to report - No other information to report[176] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, credit agreements, and certifications - Exhibits include Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Amendment No. 4 and Incremental Term Loan Agreement, Section 302 and 906 Certifications, and XBRL documents[178] SIGNATURES Signatures This section contains the required signatures of the company's principal executive and financial officers, certifying the report's submission - The report is signed by Thomas V. Taylor, Chief Executive Officer, and Trevor S. Lang, Executive Vice President and Chief Financial Officer, on July 30, 2020[184]