Company Quick10K Filing
Floor & Decor Holdings
Price51.20 EPS1
Shares105 P/E40
MCap5,385 P/FCF26
Net Debt62 EBIT135
TEV5,447 TEV/EBIT40
TTM 2019-09-26, in MM, except price, ratios
10-Q 2020-09-24 Filed 2020-10-29
10-Q 2020-06-25 Filed 2020-07-31
10-Q 2020-03-26 Filed 2020-04-30
10-K 2019-12-26 Filed 2020-02-20
10-Q 2019-09-26 Filed 2019-11-01
10-Q 2019-06-27 Filed 2019-08-01
10-Q 2019-03-28 Filed 2019-05-02
10-K 2018-12-27 Filed 2019-02-25
10-Q 2018-09-27 Filed 2018-11-01
10-Q 2018-06-28 Filed 2018-08-02
10-Q 2018-03-29 Filed 2018-05-03
10-K 2017-12-28 Filed 2018-03-05
10-Q 2017-09-28 Filed 2017-11-02
10-Q 2017-06-29 Filed 2017-07-27
10-Q 2017-03-30 Filed 2017-05-25
8-K 2020-10-27 Earnings, Officers, Exhibits
8-K 2020-08-10 Enter Agreement, Exhibits
8-K 2020-07-30 Earnings, Exhibits
8-K 2020-05-19
8-K 2020-05-18
8-K 2020-05-13
8-K 2020-04-30
8-K 2020-03-26
8-K 2020-03-19
8-K 2020-02-20
8-K 2020-02-14
8-K 2020-01-30
8-K 2019-11-01
8-K 2019-08-01
8-K 2019-05-16
8-K 2019-05-02
8-K 2019-02-25
8-K 2019-02-21
8-K 2018-12-11
8-K 2018-11-01
8-K 2018-09-12
8-K 2018-08-02
8-K 2018-05-23
8-K 2018-05-23
8-K 2018-05-17
8-K 2018-05-03
8-K 2018-03-01
8-K 2018-01-08

FND 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 fnd-20200924xex311.htm
EX-31.2 fnd-20200924xex312.htm
EX-32.1 fnd-20200924xex321.htm

Floor & Decor Holdings Earnings 2020-09-24

Balance SheetIncome StatementCash Flow
2.21.81.30.90.40.02017201820192020
Assets, Equity
0.60.50.40.20.10.02017201820192020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12017201820192020
Ops, Inv, Fin

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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM 10-Q
_________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____        
Commission file number 001-38070
_________________________________________
Floor & Decor Holdings, Inc.
(Exact name of registrant as specified in its charter)
_________________________________________
Delaware27-3730271
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2500 Windy Ridge Parkway SE
Atlanta,Georgia30339
(Address of principal executive offices)(Zip Code)
(404)471-1634Not Applicable
(Registrant’s telephone number, including area code)(Former name, former address and former fiscal year,
if changed since last report)
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.001 par value per shareFNDNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at October 27, 2020
Class A common stock, $0.001 par value per share103,997,182


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2

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
in thousands, except for share and per share dataAs of September 24,
2020
As of December 26,
2019
Assets    
Current assets:    
Cash and cash equivalents$271,126 $27,037 
Income taxes receivable25,722 2,868 
Receivables, net55,293 69,301 
Inventories, net598,461 581,865 
Prepaid expenses and other current assets23,367 20,415 
Total current assets973,969 701,486 
Fixed assets, net506,789 456,289 
Right-of-use assets890,148 822,256 
Intangible assets, net109,275 109,299 
Goodwill227,447 227,447 
Other assets6,768 7,532 
Total long-term assets1,740,427 1,622,823 
Total assets$2,714,396 $2,324,309 
Liabilities and stockholders’ equity
Current liabilities:
Current portion of term loans$2,745 $ 
Current portion of lease liabilities92,809 74,592 
Trade accounts payable362,457 368,459 
Accrued expenses and other current liabilities150,054 102,807 
Deferred revenue10,853 6,683 
Total current liabilities618,918 552,541 
Term loans206,793 142,606 
Lease liabilities914,701 844,269 
Deferred income tax liabilities, net40,551 18,378 
Other liabilities1,928 2,179 
Total long-term liabilities1,163,973 1,007,432 
Total liabilities1,782,891 1,559,973 
Commitments and Contingencies (Note 5)
Stockholders’ equity
Capital stock:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 24, 2020 and December 26, 2019
  
Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 103,909,036 shares issued and outstanding at September 24, 2020 and 101,457,858 issued and outstanding at December 26, 2019
104 101 
Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 24, 2020 and December 26, 2019
  
Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at September 24, 2020 and December 26, 2019
  
Additional paid-in capital399,489 370,413 
Accumulated other comprehensive income (loss), net56 (193)
Retained earnings531,856 394,015 
Total stockholders’ equity931,505 764,336 
Total liabilities and stockholders’ equity$2,714,396 $2,324,309 
See accompanying notes to condensed consolidated financial statements.
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Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
Thirteen Weeks EndedThirty-nine Weeks Ended
in thousands, except for per share dataSeptember 24,
2020
September 26,
2019
September 24,
2020
September 26,
2019
Net sales$684,847 $521,093 $1,702,136 $1,518,454 
Cost of sales390,219 307,305 974,784 885,469 
Gross profit294,628 213,788 727,352 632,985 
Operating expenses:
Selling and store operating171,513 136,958 463,036 398,984 
General and administrative39,286 37,246 103,857 98,364 
Pre-opening5,027 8,184 13,894 18,580 
Total operating expenses215,826 182,388 580,787 515,928 
Operating income78,802 31,400 146,565 117,057 
Interest expense, net2,024 1,978 6,134 7,122 
Gain on early extinguishment of debt  (1,015) 
Income before income taxes76,778 29,422 141,446 109,935 
Provision (benefit) for income taxes8,004 (11,552)3,605 (5,355)
Net income$68,774 $40,974 $137,841 $115,290 
Change in fair value of hedge instruments, net of tax89  249 (547)
Total comprehensive income$68,863 $40,974 $138,090 $114,743 
Basic earnings per share$0.67 $0.41 $1.35 $1.17 
Diluted earnings per share$0.65 $0.39 $1.30 $1.10 
See accompanying notes to condensed consolidated financial statements.


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Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Stockholders' Equity
Class A
in thousandsSharesAmount
Balance, December 27, 2019101,458 $101 $370,413 $(193)$394,015 $764,336 
Stock-based compensation expense— — 2,908 — — 2,908 
Exercise of stock options453 1 3,782 — — 3,783 
Issuance of restricted stock awards368 — — — —  
Shares issued under employee stock plans30 — 1,131 — — 1,131 
Other comprehensive gain, net of tax— — — 68 — 68 
Net income— — — — 37,063 37,063 
Balance, March 26, 2020102,309 $102 $378,234 $(125)$431,078 $809,289 
Stock-based compensation expense— — 4,234 — — 4,234 
Exercise of stock options838 1 4,876 — — 4,877 
Other comprehensive gain, net of tax— — — 92 — 92 
Net income— — — — 32,004 32,004 
Balance, June 25, 2020103,147 $103 $387,344 $(33)$463,082 $850,496 
Stock-based compensation expense— — 4,400 — — 4,400 
Exercise of stock options735 1 6,532 — — 6,533 
Shares issued under employee stock plans27 — 1,213 — — 1,213 
Other comprehensive loss, net of tax— — — 89 — 89 
Net income— — — — 68,774 68,774 
Balance, September 24, 2020103,909 $104 $399,489 $56 $531,856 $931,505 
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Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Stockholders' Equity
Class A
in thousandsSharesAmount
Balance, December 28, 201897,588 $98 $340,462 $186 $243,563 $584,309 
Stock-based compensation expense— — 2,250 — — 2,250 
Exercise of stock options348 — 1,776 — — 1,776 
Cumulative effect from adoption of ASU No. 2016-02
— — — — (179)(179)
Shares issued under employee stock plans61 — 1,419 — — 1,419 
Other comprehensive loss, net of tax— — — (334)— (334)
Net income— — — — 30,720 30,720 
Balance, March 28, 201997,997 $98 $345,907 $(148)$274,104 $619,961 
Stock-based compensation expense— — 2,168 — — 2,168 
Exercise of stock options1,090 1 5,375 — — 5,376 
Issuance of restricted stock awards24 — — — —  
Other comprehensive loss, net of tax— — — (213)— (213)
Net income— — — — 43,596 43,596 
Balance, June 27, 201999,111 $99 $353,450 $(361)$317,700 $670,888 
Stock-based compensation expense— — 2,242 — — 2,242 
Exercise of stock options1,871 2 7,908 — — 7,910 
Shares issued under employee stock plans43 — 1,026 — — 1,026 
Net income— — — — 40,974 40,974 
Balance, September 26, 2019101,025 $101 $364,626 $(361)$358,674 $723,040 
See accompanying notes to condensed consolidated financial statements.

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Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Thirty-nine Weeks Ended
in thousandsSeptember 24,
2020
September 26,
2019
Operating activities    
Net income$137,841 $115,290 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization67,249 53,297 
Gain on early extinguishment of debt(1,015) 
Loss on asset impairments and disposals, net84 4,111 
Deferred income taxes22,173 (6,644)
Interest cap derivative contracts264 323 
Stock-based compensation expense11,542 6,660 
Changes in operating assets and liabilities:
Receivables, net14,008 6,166 
Inventories, net(16,596)(12,943)
Trade accounts payable(6,002)4,847 
Accrued expenses and other current liabilities40,331 26,209 
Income taxes(22,849)(4,871)
Deferred revenue4,170 3,579 
Other, net18,485 13,570 
Net cash provided by operating activities269,685 209,594 
Investing activities
Purchases of fixed assets(109,653)(141,015)
Net cash used in investing activities(109,653)(141,015)
Financing activities
Borrowings on revolving line of credit275,000 100,100 
Payments on revolving line of credit(275,000)(100,100)
Proceeds from term loans75,000  
Payments on term loans(1,598)(2,625)
Proceeds from exercise of stock options15,193 15,063 
Debt issuance costs(6,882) 
Proceeds from employee stock purchase plan2,344 2,445 
Net cash provided by financing activities84,057 14,883 
Net increase in cash and cash equivalents244,089 83,462 
Cash and cash equivalents, beginning of the period27,037 644 
Cash and cash equivalents, end of the period$271,126 $84,106 
Supplemental disclosures of cash flow information
Buildings and equipment acquired under operating leases$129,803 $177,953 
Cash paid for interest, net of capitalized interest$4,897 $5,726 
Cash paid for income taxes, net of refunds$4,272 $12,125 
Fixed assets accrued at the end of the period$26,441 $23,394 
See accompanying notes to condensed consolidated financial statements.

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Floor & Decor Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Nature of Business
Floor & Decor Holdings, Inc., together with its subsidiaries (the “Company,” “we,” “our” or “us”) is a highly differentiated, rapidly growing specialty retailer of hard surface flooring and related accessories. We offer a broad in-stock assortment of tile, wood, laminate/luxury vinyl plank, and natural stone flooring along with decorative and installation accessories at everyday low prices. Our stores appeal to a variety of customers, including professional installers and commercial businesses (“Pro”), Do-it-Yourself customers (“DIY”) and customers who buy our products for professional installation (“Buy-it-Yourself” or “BIY”). We operate within one reportable segment.
As of September 24, 2020, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. ("Outlets"), operates 128 warehouse-format stores, which average 77,000 square feet, and two small-format standalone design centers in 30 states, as well as four distribution centers and an e-commerce site, FloorandDecor.com.
Fiscal Year
The Company’s fiscal year is the 52- or 53-week period ending on the Thursday on or preceding December 31st. Fiscal year ending December 31, 2020 (“fiscal 2020”) includes 53 weeks, and the fiscal year ended December 26, 2019 (“fiscal 2019”) included 52 weeks. When a 53-week fiscal year occurs, we report the additional week at the end of the fiscal fourth quarter. 52-week fiscal years consist of thirteen-week periods in each quarter of the fiscal year.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. The Condensed Consolidated Balance Sheet as of December 26, 2019 has been derived from the audited Consolidated Balance Sheet for the fiscal year then ended. The interim condensed consolidated financial statements should be read together with the audited consolidated financial statements and related footnote disclosures included in the Company’s Annual Report on Form 10-K for fiscal 2019, filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2020 (the “Annual Report”).
Management believes the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary for a fair statement of results for the interim periods presented.
Results of operations for the thirteen and thirty-nine weeks ended September 24, 2020 and September 26, 2019 are not necessarily indicative of the results to be expected for the full years.
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization announced that infections of the coronavirus (COVID-19) had become a pandemic, and on March 13, 2020, the President of the United States announced a National Emergency relating to the COVID-19 pandemic. While the full impact that the COVID-19 pandemic could have on the Company's business remains highly uncertain, it had a material negative impact on the Company's fiscal 2020 operations and financial results during the first half of fiscal 2020. The following summarizes certain actions taken and impacts from the COVID-19 pandemic during and subsequent to the thirteen and thirty-nine weeks ended September 24, 2020:
Beginning in late March 2020, for the health and safety of its customers and employees, the Company temporarily closed some of its stores and shifted its remaining stores to a curbside pickup model. Under this model, customers were not allowed to enter the Company's stores, resulting in a significant decline in sales compared to the same period of the prior year.
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In May, the Company began a phased approach to reopening its stores for in-store shopping with enhanced safety and sanitation measures such as requiring associates to wear face masks, installing social distancing markers on floors and protective shields at cash registers, and regularly sanitizing shopping carts, pin pads, design desks, and other high-traffic areas. By the end of the second quarter of fiscal 2020, all of the Company's stores were reopened for in-store shopping and have remained open other than for temporary cleaning or in response to certain weather events. Sales have recovered since reopening stores, with third quarter fiscal 2020 sales higher than the same period of the prior year.
To provide additional liquidity in response to the business uncertainties resulting from the evolving COVID-19 pandemic, the Company entered into a $75.0 million incremental term loan on May 18, 2020. See Note 3, "Debt" for additional information.
In response to the impact and uncertainties caused by the COVID-19 pandemic, the Company initially implemented a number of measures to minimize cash outlays, including lowering inventory purchases and related supply chain costs to align with reduced sales, temporarily reducing compensation for all executive officers and most employees, temporarily freezing new hiring, reducing or eliminating non-essential spending, reducing advertising spending, furloughing certain employees, and delaying or reducing rent payments and planned capital expenditures, including new store investments. Since the Company began to reopen stores for in-store shopping starting in May, many of these cost saving measures have been eliminated or relaxed as the Company's financial results have improved.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted, which includes provisions related to income taxes, the temporary deferral of the employer portion of social security taxes, and retention credits for 50% of eligible wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. Refer to Note 4, "Income Taxes" for additional information.
The COVID-19 pandemic remains a rapidly evolving situation. The extent of the impact of the pandemic on the Company's business and financial results will depend on future developments, including the duration of the pandemic and the spread of COVID-19 within the markets in which the Company operates as well as the related impact on consumer confidence and spending, all of which are highly uncertain.
Summary of Significant Accounting Policies
Other than as noted below, there have been no updates to our Significant Accounting Policies since the Annual Report. For more information regarding our Significant Accounting Policies and Estimates, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements and Supplementary Data” of our Annual Report.
Impairment Assessment of Goodwill and Other Indefinite-Lived Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more often if events occur or changes in circumstances indicate that the carrying amount of goodwill or indefinite-lived intangible assets may not be recoverable. We assess the value of our goodwill and indefinite-lived intangible assets under either a qualitative or quantitative approach. Under a qualitative approach, the Company evaluates various market and other factors to determine whether it is more likely than not that the Company’s goodwill or indefinite-lived intangible assets have been impaired. In performing the qualitative assessment, the Company considers the carrying value of its single reporting unit compared to its fair value as well as events and changes in circumstances that could include, but are not limited to, a significant adverse change in customer demand or business climate, an adverse action or assessment by a regulator, and significant adverse changes in the price of the Company’s common stock. If such qualitative assessment indicates that impairment may have occurred, an additional quantitative assessment is performed by comparing the carrying value of the assets to their respective estimated fair values. If the recorded carrying value of goodwill or an indefinite-lived intangible asset exceeds its estimated fair value, an impairment charge is recorded to write the asset down to its estimated fair value.
Due to the impact of the COVID-19 pandemic on the Company’s business, the Company qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived intangible assets were impaired as of March 26, 2020. As part of this assessment, the Company considered information available as of the April 30, 2020 filing date of its first quarter fiscal 2020 10-Q related to the negative financial impact that resulted from temporary store closures and limited curbside operations beginning in late March. Based on this interim impairment assessment, the Company determined that its goodwill and indefinite-lived intangible assets were not impaired as of March 26, 2020. Further, the Company considered events and changes in circumstances subsequent to April 30, 2020, including the improvement in sales since reopening stores to customers for in-store shopping, and did not identify an indication of impairment of its goodwill or indefinite-lived intangible assets as of September 24, 2020.
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Leases
During the second and third quarters of fiscal 2020, the Company negotiated rent deferrals or abatements for a significant number of its stores due to the impact of the COVID-19 pandemic. The Company has also delayed rent payments for some stores as negotiations are in process with landlords. Total payments delayed or deferred as of September 24, 2020 were approximately $8.1 million, of which $7.1 million was included in the current portion of lease liabilities and $1.0 million was included in lease liabilities on the condensed consolidated balance sheets.
In accordance with Financial Accounting Standards Board ("FASB") Staff Q&A - Topic 842: "Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic" issued in April 2020, the Company has elected to account for lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee as though enforceable rights and obligations for those concessions existed in the original lease agreements. For qualified rent deferrals, the Company has recognized a non-interest bearing accrued liability, which will be reduced when the deferred payment is made in the future. For qualifying rent abatement concessions, which are immaterial in aggregate, the Company is recognizing negative lease expense for the amount of the abatement on a straight-line basis over the term of the lease. During the thirteen and thirty-nine weeks ended September 24, 2020, the Company recognized approximately $0.1 million of negative lease expense related to rent abatement concessions.
Recently Adopted Accounting Pronouncements
Implementation Costs Incurred in Cloud Computing Arrangements. In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. In the first quarter of fiscal 2020, the Company adopted ASU No. 2018-15 on a prospective basis for implementation costs for new or existing arrangements incurred on or after the adoption date. The adoption of ASU No. 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.
Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. The amended guidance requires the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions, and a reasonable and supportable forecast that affects the collectability of the related financial asset. The adoption of ASU No. 2016-13 in the first quarter of fiscal 2020 did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
2. Revenues
Net sales consist of revenue associated with contracts with customers for the sale of goods and services in amounts that reflect the consideration the Company is entitled to receive in exchange for those goods and services.
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Deferred Revenue & Contract Liabilities
Under Accounting Standards Codification (“ASC”) 606, the Company recognizes revenue when the customer obtains control of the inventory. Amounts in deferred revenue at period-end reflect orders for which the inventory was not yet ready for physical transfer to customers.
Contract liabilities within the Condensed Consolidated Balance Sheets as of September 24, 2020 and December 26, 2019 primarily consisted of deferred revenue as well as amounts in accrued expenses and other current liabilities related to the Pro Premier loyalty program and unredeemed gift cards. As of September 24, 2020, contract liabilities totaled $23.6 million and included $10.9 million of deferred revenue, $10.5 million of loyalty program liabilities, and $2.2 million of unredeemed gift cards. As of December 26, 2019, contract liabilities totaled $15.5 million and included $6.7 million of deferred revenue, $6.6 million of loyalty program liabilities, and $2.2 million of unredeemed gift cards. Of the contract liabilities outstanding as of December 26, 2019, $8.7 million was recognized in revenue during the thirty-nine weeks ended September 24, 2020.
Disaggregated Revenue
The Company has one operating segment and one reportable segment. The following table presents the net sales of each major product category (in thousands):
Thirteen Weeks Ended
September 24, 2020September 26, 2019
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$173,466 25 %$133,340 26 %
Laminate / luxury vinyl plank157,795 23 116,037 22 
Decorative accessories / wall tile135,868 20 100,357 19 
Installation materials and tools113,202 17 88,197 17 
Wood60,515 9 51,807 10 
Natural stone41,712 6 31,511 6 
Other (1)2,289  (156) 
Total$684,847 100 %$521,093 100 %
Thirty-nine Weeks Ended
September 24, 2020September 26, 2019
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$427,359 25 %$394,969 26 %
Laminate / luxury vinyl plank388,216 23 321,757 21 
Decorative accessories / wall tile337,012 20 292,391 19 
Installation materials and tools280,991 17 256,498 17 
Wood151,411 9 153,799 10 
Natural stone106,908 6 95,301 6 
Other (1)10,239  3,739 1 
Total$1,702,136 100 %$1,518,454 100 %
(1) Other includes delivery revenue less adjustments for deferred revenue, sales returns reserves, rewards under our Pro Premier Loyalty program, and other revenue related adjustments that are not allocated on a product-level basis.
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3. Debt
The following table summarizes the Company's long-term debt as of September 24, 2020 and December 26, 2019:
in thousandsSeptember 24, 2020December 26, 2019
Credit Facilities:
UBS Facility Term Loan B$143,902 $145,500 
UBS Facility Term Loan B-175,000  
Wells Facility Revolving Line of Credit  
Total secured debt at par value218,902 145,500 
Less: unamortized discount and debt issuance costs9,364 2,894 
Net carrying amount209,538 142,606 
Less: current maturities2,745  
Total long-term debt$206,793 $142,606 
Total debt at fair value$214,524 $145,136 
Market risk associated with the Company's fixed and variable rate long-term debt relates to the potential change in fair value and negative impact to future earnings, respectively, from a change in interest rates. The aggregate fair value of debt is based primarily on the Company's estimates of interest rates, maturities, credit risk, and underlying collateral and is classified as Level 3 within the fair value hierarchy.
The following table summarizes scheduled maturities of the Company’s debt, including current maturities, as of September 24, 2020:
in thousandsAmount
Fourteen weeks ending December 31, 2020$1,098 
20211,647 
20222,196 
20232,196 
20242,196 
Thereafter (1)209,569 
Total minimum debt payments$218,902 
(1)Thereafter maturities are comprised of $137.8 million due under the term loan B facility and $71.8 million due under the term loan B-1 facility through February 14, 2027.
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Credit Facility Amendments
Term Loan Facility
On February 14, 2020, the Company entered into a repricing and third amendment to the credit agreement governing its senior secured term loan facility (the "Term Loan Facility") which, among other things, (a) refinanced the existing term loan B facility with a new term loan B facility in the same aggregate principal amount of approximately $144.6 million, and (b) extended the stated maturity date under the Term Loan Facility to February 14, 2027. The Term Loan Facility also includes an “accordion” feature that allows the Company, under certain circumstances, to increase the size of the Term Loan Facility by an amount up to the greater of $270.0 million or 100.0% of Consolidated EBITDA (as defined in the Term Loan Facility), plus additional amounts (x) if such increase is secured on a pari passu basis with the loans under the Term Loan Facility, up to a Consolidated First Lien Leverage Ratio (as defined in the Term Loan Facility) of 2.50:1.00, (y) if such increase is secured on a junior basis with the loans under the Term Loan Facility, up to a Consolidated Secured Leverage Ratio (as defined in the Term Loan Facility) of 3.50:1.00 and (z) if such increase is unsecured, up to a Consolidated Total Leverage Ratio (as defined in the Term Loan Facility) of 3.50:1.00, subject to certain additional adjustments, which, under certain circumstances, allow for a Consolidated Total Leverage Ratio of up to 4.50:1.00.
The third amendment to the Term Loan Facility also amended the margin applied to loans under the term loan B facility to (x) in the case of ABR Loans (as defined in the Term Loan Facility), from 1.75% or 1.50% per annum (based on credit rating tests) to 1.00% per annum (subject to satisfying a leverage ratio test and subject to a leverage-based step-up to 1.25% if such leverage ratio test is exceeded), and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility), from 2.75% or 2.50% per annum (based on credit rating tests) to 2.00% per annum (subject to satisfying a leverage ratio test and subject to a leverage-based step-up to 2.25% if such leverage ratio test is exceeded) (subject to a 0.00% floor on Eurodollar Loans). The material terms of the Term Loan Facility were otherwise unchanged.
On May 18, 2020, to provide additional liquidity in response to the business uncertainties resulting from the evolving COVID-19 pandemic, the Company entered into a fourth amendment to the Term Loan Facility, which, among other things, (a) provides for a new incremental term loan facility in an aggregate principal amount of $75.0 million with a maturity date of February 14, 2027 (the “term loan B-1 facility”). The Company received net proceeds of $70.5 million from the term loan B-1 facility after deducting a $4.1 million original issuance discount and $0.3 million of debt issuance costs to third parties. The Company intends to use the net proceeds to support its growth plans and for general corporate purposes. The term loan B-1 facility is a separate tranche from the Company's existing term loan B facility. The terms of loans under the term loan B facility remain unchanged.
The Term Loan Facility provides a margin for loans under the term loan B-1 facility of (x) in the case of ABR Loans (as defined in the Term Loan Facility), 3.00% per annum, and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility), 4.00% per annum (subject to a 1.00% floor on Eurodollar Loans). At September 24, 2020, the applicable interest rate for borrowings was 2.2% for the term loan B facility and 5.0% for the term loan B-1 facility.
All obligations under the Term Loan Facility are secured by (1) a first-priority security interest in substantially all of the property and assets of Outlets and the other guarantors under the Term Loan Facility, with certain exceptions, and (2) a second-priority security interest in the collateral securing the revolving credit facility.
Gain on Debt Extinguishment
During the second quarter of fiscal 2020, the Company evaluated the fourth amendment to the Term Loan Facility in accordance with ASC 470-50, "Debt - Modifications and Extinguishments," on a lender-by-lender basis and determined that the incremental term loan borrowing was provided entirely by one lender and its affiliates. As this lender held a portion of the existing Term Loan Facility debt, the Company performed the 10% cash flow test pursuant to ASC 470-50-40-10 and concluded that the results exceeded the 10% threshold. As a result, the Company accounted for this transaction as a partial extinguishment and derecognized the existing debt held by this lender and recorded the new debt at fair value. Based on the difference between the reacquisition price and carrying amount of debt, the Company recognized a $1.0 million gain on early extinguishment of debt during the second quarter of fiscal 2020, which included the original issuance discount of $4.1 million and $0.5 million of unamortized debt issuance costs related to the extinguished debt as part of the calculation.
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ABL Facility
On February 14, 2020, the Company also entered into a repricing and general amendment to the credit agreement governing its revolving credit facility (as amended, the “ABL Facility” and together with the Term Loan Facility, the "Credit Facilities"), which, among other things, (a) increased its revolving commitments to a total aggregate principal amount of $400.0 million, and (b) extended the stated maturity date under the ABL Facility to February 14, 2025. The ABL Facility also includes an “accordion” feature that allows the Company under certain circumstances, to increase the size of the facility by an amount up to $100.0 million, or such higher amount as may be agreed to by the Required Lenders (as defined in the ABL Facility).
The amendment to the ABL Facility also amended the margin applied to loans and letters of credit to (x) in the case of Base Rate Loans (as defined in the ABL Facility), from 0.25% or 0.50% per annum (based on availability) to a flat rate of 0.25% per annum, (y) in the case of LIBO Rate Loans (as defined in the ABL Facility) and letter of credit fees for standby letters of credit, from 1.25% or 1.50% per annum (based on availability) to a flat rate of 1.25% per annum (subject to a 0.00% floor on LIBO Rate Loans) and (z) in the case of letter of credit fees for commercial letters of credit, from 0.75% or 1.00% per annum (based on availability) to a flat rate of 0.75% per annum. The material terms of the ABL Facility were otherwise unchanged.
As of September 24, 2020, the Company's ABL Facility had a maximum availability of $400.0 million with actual available borrowings limited to the sum, at the time of calculation, of (a) eligible credit card receivables multiplied by the credit card advance rate, plus (b) the cost of eligible inventory, net of inventory reserves, multiplied by the applicable appraisal percentage, plus (c) 85% of eligible net trade receivables, plus (d) all eligible cash on hand, plus (e) 100% of the amount for which the eligible letter of credit must be honored after giving effect to any draws, minus certain Availability Reserves (each component as defined in the ABL Facility). The ABL Facility is available for issuance of letters of credit and contains a sublimit of $50.0 million for standby letters of credit and commercial letters of credit combined. Available borrowings under the facility are reduced by the face amount of outstanding letters of credit.
All obligations under the ABL Facility are secured by (1) a first-priority security interest in the cash and cash equivalents, accounts receivable, inventory, and related assets of Outlets and the other guarantors under the ABL Facility, with certain exceptions, and (2) a second-priority security interest in substantially all of the other property and assets of Outlets and the other guarantors under the Term Loan Facility.
Net availability under the ABL Facility, as reduced by outstanding letters of credit of $20.3 million, was $357.4 million based on financial data as of September 24, 2020.
Covenants
The credit agreements governing the Term Loan Facility and ABL Facility contain customary restrictive covenants, which, among other things and with certain exceptions, limit the Company’s ability to (i) incur additional indebtedness and liens in connection with such indebtedness, (ii) pay dividends and make certain other restricted payments, (iii) effect mergers or consolidations, (iv) enter into transactions with affiliates, (v) sell or dispose of property or assets, and (vi) engage in unrelated lines of business. In addition, these credit agreements subject the Company to certain reporting obligations and require that the Company satisfy certain financial covenants, including, among other things, a requirement that if borrowings under the ABL Facility exceed 90% of availability, the Company will maintain a certain fixed charge coverage ratio (defined as Consolidated EBITDA less non-financed capital expenditures and income taxes paid to consolidated fixed charges, in each case as more fully defined in the ABL Facility).
The Term Loan Facility has no financial maintenance covenants. The Company is currently in compliance with all material covenants under the credit agreements.
4. Income Taxes
Effective tax rates for the thirteen and thirty-nine weeks ended September 24, 2020 and September 26, 2019 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within each period. The Company’s effective income tax rate was 10.4% and (39.3)% for the thirteen weeks ended September 24, 2020 and September 26, 2019, respectively. The Company’s effective income tax rate was 2.5% and (4.9)% for the thirty-nine weeks ended September 24, 2020 and September 26, 2019, respectively. For each period, the effective income tax rate was lower than the statutory federal income tax rate of 21.0% primarily due to the recognition of income tax benefits from tax deductions in excess of book expense related to stock option exercises and other discrete items. Additionally, the thirty-nine weeks ended September 24, 2020 included income tax benefits resulting from the enactment of the CARES Act.
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The Company recognizes discrete expense for loss contingencies related to uncertain tax positions, including estimated interest and penalties. The Company recognized a $0.3 million benefit related to uncertain tax positions during the thirteen weeks ended September 24, 2020; no expense related to uncertain tax positions was recognized during the thirteen weeks ended September 26, 2019. The Company recognized $2.2 million and $0.1 million of such expense during the thirty-nine weeks ended September 24, 2020 and September 26, 2019, respectively.
The Company accounts for income taxes under the liability method in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in the period that includes the enactment date of such a change.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences became deductible. On a quarterly basis, the Company evaluates whether it is more likely than not that its deferred tax assets will be realized in the future and concludes whether or not a valuation allowance must be established.
The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements using a two-step process for evaluating tax positions taken, or expected to be taken, on a tax return. The Company may only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. In addition, the Company recognizes a loss contingency for uncertain tax positions when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The amounts recognized for uncertain tax positions require that management make estimates and judgments based on provisions of the tax law, which may be subject to change or varying interpretations. The Company includes estimated interest and penalties related to uncertain tax position accruals within accrued expenses and other current liabilities in the condensed consolidated balance sheets and within income tax expense in the condensed consolidated statements of operations and comprehensive income.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The CARES Act includes, among other things, income tax provisions allowing for the temporary five-year carryback of net operating losses generated in 2018, 2019, and 2020, temporary modifications to the limitations placed on interest deductions, and technical corrections of tax depreciation methods for qualified improvement property ("QIP"), which changes 39-year property to 15-year property eligible for 100% tax bonus depreciation. In addition, the CARES Act includes provisions such as the temporary deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. The Company has made estimates of the effect of the CARES Act and will adjust estimates, if needed, as new legislation or guidance becomes available.
As a result of the faster tax depreciation methods allowed under the CARES Act for QIP and the retroactive application of those methods for QIP placed in service during fiscal 2018 and 2019, the Company incurred a fiscal 2019 net operating loss for federal income tax purposes that was carried back to prior years during which the federal tax rate was 35%, resulting in a $7.7 million income tax benefit during the second quarter of fiscal 2020. The Company expects to receive an estimated $28.4 million of cash refunds related to the accelerated QIP depreciation and the carry back of the fiscal 2019 net operating loss. Furthermore, the Company expects the changes to QIP depreciation to result in reductions to estimated income tax payments for fiscal 2020.
As of September 24, 2020, the Company has deferred $7.1 million of employer social security taxes, of which 50% are required to be deposited by December 2021 and the remaining 50% by December 2022. Deferred employer social security taxes are included in accrued expenses and other current liabilities within the Condensed Consolidated Balance Sheets.
In addition, the Company recorded a credit of $0.3 million related to employee retention credits made available under the CARES Act during the thirteen weeks ended September 24, 2020 that was recognized as an offset to selling and store operating expenses within the condensed consolidated statements of operations and comprehensive income. The Company recorded $1.4 million of employee retention credits during the thirty-nine weeks ended September 24, 2020, of which $1.2 million was recognized as an offset to selling and store operating expenses and $0.2 million was recognized as an offset to general and administrative expenses within the condensed consolidated statements of operations and comprehensive income.
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5. Commitments and Contingencies
Lease Commitments
The Company accounts for leases in accordance with ASC 842, Leases. The majority of the Company's long-term operating lease agreements are for its corporate office, retail locations, and distribution centers, which expire in various years through 2041. The majority of the Company's building leases also include options to extend, which are factored into the recognition of their respective assets and liabilities when appropriate based on management’s assessment of the probability that the options will be exercised.
When readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of the Company's leases do not provide a readily determinable implicit rate. If the rate implicit in the lease is not readily determinable, we use a third party to assist in the determination of a secured incremental borrowing rate, determined on a collateralized basis, to discount lease payments based on information available at lease commencement. The secured incremental borrowing rate is estimated based on yields obtained from Bloomberg for U.S. consumers with a BB- credit rating and is adjusted for collateralization as well as inflation. As of September 24, 2020 and September 26, 2019, the Company's weighted average discount rate was 5.3% and 5.2%, respectively. As of both September 24, 2020 and September 26, 2019, the Company's weighted average remaining lease term was 10 years.
Lease Costs
The table below presents components of lease expense for operating leases.
Thirteen Weeks EndedThirty-nine Weeks Ended
in thousandsClassification (2)September 24, 2020September 26, 2019September 24, 2020September 26, 2019
Operating lease cost (1):Selling and store operating$26,549 $22,969 $77,325 $65,286 
Cost of sales5,676 4,005 17,005 11,996 
Pre-opening2,230 1,988 6,103 4,913 
General and administrative1,029 1,016 3,088 2,712 
Operating lease right-of-use asset impairmentGeneral and administrative 4,136  4,136 
Sublease incomeCost of sales(597)(588)(1,791)(1,817)
Total lease cost$34,887 $33,526 $101,730 $87,226 
(1) Includes variable lease costs, which were immaterial for the thirteen and thirty-nine weeks ended September 24, 2020 and September 26, 2019.
(2) Certain prior period balances related to operating lease costs and sublease income have been reclassified within this table to conform to the current period presentation.
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Undiscounted Cash Flows
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 24, 2020 were as follows:
in thousandsAmount
Fourteen weeks ending December 31, 2020$135,857 
2021139,457 
2022133,226 
2023133,531 
2024124,733 
Thereafter663,679 
Total minimum lease payments (2)$1,330,483 
Less: amount of lease payments representing interest322,973 
Present value of future minimum lease payments1,007,510 
Less: current obligations under leases92,809 
Long-term lease obligations$914,701 
(2) Future lease payments exclude approximately $47.3 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
For the thirty-nine weeks ended September 24, 2020 and September 26, 2019, cash paid for operating leases was $92.6 million and $80.2 million, respectively.
Litigation
On May 20, 2019, an alleged stockholder of the Company filed a putative class action lawsuit, Taylor v. Floor & Decor Holdings, Inc., et al., No. 1:19-cv-02270-SCJ (N.D. Ga.), in the United States District Court for the Northern District of Georgia against the Company and certain of our officers, directors and stockholders. On August 14, 2019, the Court named a lead plaintiff, and the case was re-captioned In re Floor & Decor Holdings, Inc. Securities Litigation, No. 1:19-cv-02270-SCJ (N.D. Ga.). The operative complaint alleged certain violations of federal securities laws based on, among other things, purported materially false and misleading statements and omissions allegedly made by the Company between May 23, 2018 and August 1, 2018 and sought class certification, unspecified monetary damages, costs and attorneys’ fees and equitable relief. The Company denied the material allegations and moved to dismiss the lawsuit. On September 21, 2020, the District Court granted the Company’s motion to dismiss in its entirety. The plaintiff did not appeal that decision, meaning the dismissal is final.
On June 18, 2020, an alleged stockholder filed a putative derivative complaint, Lincolnshire Police Pension Fund v. Taylor, et al., No. 2020-0487-JTL, in the Delaware Court of Chancery, purportedly on behalf of the Company against certain of the Company’s officers, directors, and stockholders. The complaint alleges breaches of fiduciary duties and unjust enrichment. The factual allegations underlying these claims are similar to the factual allegations made in the In re Floor & Decor Holdings, Inc. Securities Litigation described above. The complaint seeks unspecified damages and restitution for the Company from the individual defendants and the payment of costs and attorneys’ fees. The time for the defendants to respond to the complaint has not yet expired.

The Company maintains insurance that may cover the above-referenced litigation up to the policy limits and subject to meeting certain deductibles and to other terms and conditions thereof. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the above-referenced litigation.
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The Company is also subject to various other legal actions, claims and proceedings arising in the ordinary course of business, which may include claims related to general liability, workers’ compensation, product liability, intellectual property and employment-related matters resulting from our business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. These various other ordinary course proceedings are not expected to have a material impact on the Company's consolidated financial position, cash flows, or results of operations, however regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
6. Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation- Stock Compensation, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of forfeitures, over the requisite service period for awards expected to vest. Stock-based compensation expense for the thirty-nine weeks ended September 24, 2020 and September 26, 2019 was $11.5 million and $6.7 million, respectively, and was included in general and administrative expenses on the Company’s condensed consolidated statement of operations and comprehensive income.
Stock Options
The stock options granted to eligible employees during the thirty-nine weeks ended September 24, 2020 vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to the grantee’s continued service through the applicable vesting date. Stock option activity during the thirty-nine weeks ended September 24, 2020 was as follows:
OptionsWeighted Average Exercise Price
Outstanding at December 27, 20196,037,079 $13.64 
Granted279,504 57.25 
Exercised(2,027,087)7.49 
Forfeited or expired(