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 2021-04-01 Filed 2021-05-06
10-K 2020-12-31 Filed 2021-02-25
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 2021-02-11
8-K 2021-02-09
8-K 2020-10-27
8-K 2020-08-10
8-K 2020-07-30
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-20210401xex311.htm
EX-31.2 fnd-20210401xex312.htm
EX-32.1 fnd-20210401xex321.htm

Floor & Decor Holdings Earnings 2021-04-01

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 April 1, 2021
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.
Class
Outstanding at May 3, 2021
Class A common stock, $0.001 par value per share104,911,805


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2

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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 April 1,
2021
As of December 31,
2020
Assets    
Current assets:    
Cash and cash equivalents$354,051 $307,772 
Receivables, net60,002 50,427 
Inventories, net607,649 654,000 
Prepaid expenses and other current assets40,173 28,257 
Total current assets1,061,875 1,040,456 
Fixed assets, net611,311 579,359 
Right-of-use assets947,451 916,325 
Intangible assets, net109,269 109,269 
Goodwill227,447 227,447 
Other assets7,370 7,569 
Total long-term assets1,902,848 1,839,969 
Total assets$2,964,723 $2,880,425 
Liabilities and stockholders’ equity
Current liabilities:
Current portion of term loans$2,103 $1,647 
Current portion of lease liabilities79,041 94,502 
Trade accounts payable402,134 417,898 
Accrued expenses and other current liabilities160,406 162,283 
Income taxes payable13,635 12,391 
Deferred revenue15,659 10,115 
Total current liabilities672,978 698,836 
Term loans195,546 207,157 
Lease liabilities975,185 941,125 
Deferred income tax liabilities, net32,449 27,990 
Other liabilities7,845 7,929 
Total long-term liabilities1,211,025 1,184,201 
Total liabilities1,884,003 1,883,037 
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 April 1, 2021 and December 31, 2020
  
Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 104,628,761 shares issued and outstanding at April 1, 2021 and 104,368,212 issued and outstanding at December 31, 2020
105 104 
Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at April 1, 2021 and December 31, 2020
  
Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at April 1, 2021 and December 31, 2020
  
Additional paid-in capital415,576 408,124 
Accumulated other comprehensive income, net247 164 
Retained earnings664,792 588,996 
Total stockholders’ equity1,080,720 997,388 
Total liabilities and stockholders’ equity$2,964,723 $2,880,425 
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 Ended
in thousands, except for per share dataApril 1,
2021
March 26,
2020
Net sales$782,537 $554,937 
Cost of sales445,604 318,905 
Gross profit336,933 236,032 
Operating expenses:
Selling and store operating189,946 153,066 
General and administrative44,041 30,858 
Pre-opening6,997 5,434 
Total operating expenses240,984 189,358 
Operating income95,949 46,674 
Interest expense, net1,388 1,807 
Income before income taxes94,561 44,867 
Provision for income taxes18,765 7,804 
Net income$75,796 $37,063 
Change in fair value of hedge instruments, net of tax83 68 
Total comprehensive income$75,879 $37,131 
Basic earnings per share$0.73 $0.36 
Diluted earnings per share$0.71 $0.35 
See accompanying notes to condensed consolidated financial statements.


4

Table of Contents

Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeRetained EarningsTotal Stockholders' Equity
Class A
in thousandsSharesAmount
Balance, January 1, 2021104,368 $104 $408,124 $164 $588,996 $997,388 
Stock-based compensation expense— — 4,734 — — 4,734 
Exercise of stock options195 1 2,382 — — 2,383 
Issuance of restricted stock awards27 — — — — — 
Forfeiture of restricted stock awards(2)— — — — — 
Issuance of common stock upon vesting of restricted stock units25 — — — — — 
Shares issued under employee stock purchase plan26 — 1,302 — — 1,302 
Common stock redeemed for tax liability(10)— (966)— — (966)
Other comprehensive gain, net of tax— — — 83 — 83 
Net income— — — — 75,796 75,796 
Balance, April 1, 2021104,629 $105 $415,576 $247 $664,792 $1,080,720 
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 purchase plan30 — 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 
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)
Thirteen Weeks Ended
in thousandsApril 1,
2021
March 26,
2020
Operating activities    
Net income$75,796 $37,063 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization26,415 22,088 
Gain on asset impairments and disposals, net (29)
Deferred income taxes4,459 (4,739)
Interest cap derivative contracts84 83 
Stock-based compensation expense4,734 2,908 
Changes in operating assets and liabilities:
Receivables, net(9,575)18,740 
Inventories, net46,351 (7,076)
Trade accounts payable(13,376)(48,644)
Accrued expenses and other current liabilities(16,204)(2,478)
Income taxes1,244 12,542 
Deferred revenue5,544 506 
Other, net(24,476)(6,296)
Net cash provided by operating activities100,996 24,668 
Investing activities
Purchases of fixed assets(45,876)(38,384)
Net cash used in investing activities(45,876)(38,384)
Financing activities
Borrowings on revolving line of credit 275,000 
Proceeds from term loans65,000  
Payments on term loans(75,151)(875)
Proceeds from exercise of stock options2,383 3,783 
Proceeds from employee stock purchase plan1,302 1,131 
Debt issuance costs(1,409)(2,429)
Tax payments for stock-based compensation awards(966) 
Net cash (used in) provided by financing activities(8,841)276,610 
Net increase in cash and cash equivalents46,279 262,894 
Cash and cash equivalents, beginning of the period307,772 27,037 
Cash and cash equivalents, end of the period$354,051 $289,931 
Supplemental disclosures of cash flow information
Buildings and equipment acquired under operating leases$53,758 $63,578 
Cash paid for interest, net of capitalized interest$1,376 $1,298 
Cash paid for income taxes, net of refunds$13,055 $ 
Fixed assets accrued at the end of the period$46,275 $19,620 
See accompanying notes to condensed consolidated financial statements.

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Table of Contents

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, vinyl, and natural stone flooring along with decorative and installation accessories and adjacent categories 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 April 1, 2021, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. ("Outlets"), operates 140 warehouse-format stores, which average 78,000 square feet, and two small-format standalone design studios in 32 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 30, 2021 (“fiscal 2021”) includes 52 weeks, and the fiscal year ended December 31, 2020 (“fiscal 2020”) included 53 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 31, 2020 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 2020, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2021 (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 weeks ended April 1, 2021 and March 26, 2020 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. The full impact that the COVID-19 pandemic could continue to have on the Company's business remains a rapidly evolving situation and is highly uncertain. While the Company’s operations during the first quarter of fiscal 2021 did not appear to be negatively impacted, the COVID-19 pandemic had a material negative impact on the Company's fiscal 2020 operations and financial results during the first half of fiscal 2020 and could have additional negative impacts in the future. 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, the success of vaccination programs, the spread of COVID-19 within the markets in which the Company operates, as well as the countries from which the Company sources inventory, fixed assets, and other supplies, the effect of the pandemic on consumer confidence and spending, and actions taken by government entities in response to the pandemic, all of which are highly uncertain.
Summary of Significant Accounting Policies
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.
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Recently Adopted Accounting Pronouncements
Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("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. In the first quarter of fiscal 2021, the Company adopted ASU No. 2019-12 on a prospective basis. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Reference Rate Reform. In January 2021, the FASB issued ASU No. 2021-01, “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.
2. Revenue
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.
Deferred Revenue & Contract Liabilities
Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, 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 April 1, 2021 and December 31, 2020 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 April 1, 2021, contract liabilities totaled $32.4 million and included $15.7 million of deferred revenue, $13.9 million of loyalty program liabilities, and $2.8 million of unredeemed gift cards. As of December 31, 2020, contract liabilities totaled $24.8 million and included $10.1 million of deferred revenue, $12.1 million of loyalty program liabilities, and $2.6 million of unredeemed gift cards. Of the contract liabilities outstanding as of December 31, 2020, approximately $8.0 million was recognized in revenue during the thirteen weeks ended April 1, 2021.
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
April 1, 2021March 26, 2020 (1)
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$189,436 24 %$134,912 24 %
Laminate / luxury vinyl plank186,035 24 124,994 23 
Decorative accessories / wall tile (1)157,374 20 111,047 20 
Installation materials and tools130,601 17 94,576 17 
Wood62,131 8 48,995 9 
Natural stone49,251 6 34,877 6 
Adjacent categories (1)12,236 2 2,550  
Other (2)(4,527)(1)2,986 1 
Total$782,537 100 %$554,937 100 %
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(1) To conform to the current period presentation, the presentation of revenue by product category for the thirteen weeks ended March 26, 2020 has been updated within this table to provide disclosure of adjacent categories, which primarily includes bathroom and kitchen products and accessories, as a separate category. In prior periods, adjacent categories revenue was included as a component of the decorative accessories / wall tile product category.
(2) Other includes delivery and sample revenue and adjustments for deferred revenue, sales returns reserves, customer rewards under our Pro Premier Loyalty program, and other revenue related adjustments that are not allocated on a product-level basis.
3. Debt
The following table summarizes the Company's long-term debt as of April 1, 2021 and December 31, 2020:
in thousandsMaturity DateInterest Rate per Annum at
April 1, 2021
April 1, 2021December 31, 2020
Credit Facilities:
UBS Facility Term Loan BFebruary 14, 20272.12%Variable$207,653 $143,179 
UBS Facility Term Loan B-1February 14, 2027n/an/a 74,625 
Wells Facility Revolving Line of CreditFebruary 14, 20253.50%Variable  
Total secured debt at par value207,653 217,804 
Less: current maturities2,103 1,647 
Long-term debt maturities205,550 216,157 
Less: unamortized discount and debt issuance costs10,004 9,000 
Total long-term debt$195,546 $207,157 
Total debt at fair value$205,057 $215,626 
n/a - not applicable
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 April 1, 2021:
in thousandsAmount
Thirty-nine weeks ending December 30, 2021$1,577 
20222,103 
20232,103 
20242,103 
20252,103 
Thereafter197,664 
Total minimum debt payments$207,653 
Components of interest expense are as follows for the periods presented:
in thousandsApril 1, 2021March 26, 2020
Total interest costs$1,969 $2,034 
Interest capitalized581 227 
Interest expense, net$1,388 $1,807 
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Term Loan Facility
On February 9, 2021 (the "Effective Date"), Outlets entered into a fifth amendment to the credit agreement governing its senior secured term loan facility (as amended, the "Term Loan Facility"). The fifth amendment provided for, among other things, a supplemental term loan in the aggregate principal amount of $65.0 million (the "Supplemental Term Loan Facility") that increased the term loan B facility. The Supplemental Term Loan Facility has the same maturity date (February 14, 2027) and terms as the term loan B facility, except that voluntary prepayments made within six months after the Effective Date are subject to a 1% soft call prepayment premium. The other terms of loans under the Term Loan Facility remain unchanged, including the applicable margin for loans under the term loan B facility. The proceeds of the Supplemental Term Loan Facility, together with cash on hand, were used to (i) repay the $75.0 million term loan B-1 facility and (ii) pay fees and expenses incurred in connection with the Supplemental Term Loan Facility.
The Term Loan Facility (including loans under the Supplemental Term Loan Facility) provides a margin for loans of: (x) in the case of ABR Loans (as defined in the Term Loan Facility) 1.00% per annum (subject to a leverage-based step-up to 1.25% if Outlets exceeds certain leverage ratio tests), and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility) 2.00% per annum (subject to a leverage-based step-up to 2.25% if Outlets exceeds certain leverage ratio tests and a 0.00% floor on Eurodollar Loans).
All obligations under the Term Loan Facility (including loans under the Supplemental 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 ("ABL Facility").
The Company evaluated the fifth amendment to the Term Loan Facility in accordance with ASC 470-50, Debt, and determined that the amendment resulted in a debt modification that was not an extinguishment. Therefore, no loss on debt extinguishment was recognized. The Company incurred costs of $1.6 million in connection with the refinancing which were comprised of (i) $1.4 million of fees to creditors that were accounted for as debt issuance costs and are amortizing to interest expense over the term of the Term Loan Facility using the interest method and (ii) $0.2 million of professional fees to other third parties that were expensed during the thirteen week period ended April 1, 2021 and included in general and administrative expense on the consolidated statements of operations and comprehensive income.
ABL Facility
As of April 1, 2021, 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 $21.3 million, was $370.5 million based on financial data as of April 1, 2021.
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).
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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 weeks ended April 1, 2021 and March 26, 2020 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 19.8% and 17.4% for the thirteen weeks ended April 1, 2021 and March 26, 2020, 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.
The Company recognizes discrete expense for loss contingencies related to uncertain tax positions, including estimated interest and penalties. The Company recognized no expense related to uncertain tax positions during the thirteen weeks ended April 1, 2021 compared with $2.2 million of such expense during the thirteen weeks ended March 26, 2020.
The Company accounts for income taxes under the asset and 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, Income Taxes. 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 Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides for, among other things, 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. In December 2020, the Consolidated Appropriations Act, 2021 was signed into law and generally extended and expanded the availability of the CARES Act employee retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021, enacted in March 2021, generally extended and expanded the availability of the CARES Act employee retention credit through December 31, 2021.
As of April 1, 2021, the Company has deferred $12.1 million of employer social security taxes under the CARES Act, of which 50% are required to be deposited by December 2021 and the remaining 50% by December 2022. Of the deferred employer social security taxes outstanding as of April 1, 2021, approximately $6.1 million is included in accrued expenses and other current liabilities and $6.0 million is included in other liabilities within the Condensed Consolidated Balance Sheets.
The Company recognized $0.7 million related to employee retention credits during the thirteen weeks ended April 1, 2021 as an offset to selling and store operating 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 2046. Most of these agreements are retail leases wherein both the land and building are leased. For a small number of retail locations, the Company has ground leases in which only the land is leased. The initial lease terms for the Company's corporate office, retail, and distribution center facilities range from 10-20 years. The majority of the Company's retail and ground 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 April 1, 2021 and March 26, 2020, the Company's weighted average discount rate was 5.3% and 5.2%, respectively, and the Company's weighted average remaining lease term was approximately 11 years and 10 years, respectively.
Lease Costs
The table below presents components of lease expense for operating leases.
Thirteen Weeks Ended
in thousandsClassificationApril 1, 2021March 26, 2020 (3)
Fixed operating lease cost:Selling and store operating$28,768 $24,933 
Cost of sales5,660 5,674 
Pre-opening1,635 2,191 
General and administrative1,029 1,018 
Total fixed operating lease cost$37,092 $33,816 
Variable lease cost (1):Selling and store operating$9,776 $7,938 
Cost of sales1,408 1,084 
Pre-opening68 84 
General and administrative22 27 
Total variable lease cost$11,274 $9,133 
Sublease incomeCost of sales(597)(597)
Total operating lease cost (2)$47,769 $42,352 
(1) Includes variable costs for common area maintenance, property taxes, and insurance on leased real estate.
(2) Excludes short-term lease costs, which were immaterial for the thirteen weeks ended April 1, 2021 and March 26, 2020.
(3) To conform to the current period presentation, the presentation of the components of operating lease expense for the thirteen weeks ended March 26, 2020 has been updated within this table to provide disclosure of variable lease costs and additional information related to the classification of operating leases within the Condensed Consolidated Statements of Operations and Comprehensive Income.
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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 April 1, 2021 were as follows:
in thousandsAmount
Thirty-nine weeks ending December 30, 2021$136,002 
2022141,430 
2023140,051 
2024137,182 
2025128,248 
Thereafter748,306 
Total minimum lease payments (1) (2)$1,431,219 
Less: amount of lease payments representing interest376,993 
Present value of future minimum lease payments1,054,226 
Less: current obligations under leases79,041 
Long-term lease obligations$975,185 
(1) Future lease payments exclude approximately $108.0 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
(2) Operating lease payments include $67.6 million related to options to extend lease terms that are reasonably certain of being exercised.
For the thirteen weeks ended April 1, 2021 and March 26, 2020, cash paid for operating leases was $50.9 million and $32.9 million, respectively.
Litigation
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 previously dismissed In re Floor & Decor Holdings, Inc. Securities Litigation described in our Annual Report on Form 10-K. 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 any liability arising out of 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.
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 its 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.
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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 thirteen weeks ended April 1, 2021 and March 26, 2020 was $4.7 million and $2.9 million, respectively, and was included in general and administrative expenses within the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income.
Stock Options
Stock options are granted with an exercise price greater than or equal to the fair market value on the date of grant, as authorized by the Company’s board of directors or compensation committee. Options granted have contractual terms of ten years and vesting provisions ranging from one year to five years. The stock options granted to eligible employees during the thirteen weeks ended April 1, 2021 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 grants are generally subject to forfeiture if employment terminates prior to vesting.
The fair value of stock option awards granted during the thirteen weeks ended April 1, 2021 was estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:
Thirteen Weeks Ended
April 1, 2021
Weighted average fair value per stock option$41.75
Risk-free interest rate0.8%
Expected volatility48.1%
Expected life (in years)5.4
Dividend yield%
The Company determines the grant date fair value of stock options with assistance from a third-party valuation specialist. Expected volatility is estimated based on the historical volatility of the Company’s Class A common stock since its initial public offering in 2017 as well as the historical volatility of the common stock of similar public entities. The Company considers various factors in determining the appropriateness of the public entities used in determining expected volatility, including the entity's life cycle stage, industry, growth profile, size, financial leverage, and products offered. To determine the expected life of the options granted, the Company relied upon a combination of the observed exercise behavior of prior grants with similar characteristics and the contractual terms and vesting schedules of the current grants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.
The table below summarizes stock option activity for the thirteen weeks ended April 1, 2021:
OptionsWeighted Average Exercise Price
Outstanding at January 1, 20213,740,604 $20.72 
Granted66,505 95.68 
Exercised(195,073)12.22 
Forfeited or expired(15,635)44.20 
Outstanding at April 1, 2021
3,596,401 $22.47 
Vested and exercisable at April 1, 2021
1,996,497 $15.03 
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The total unrecognized compensation cost related to stock options as of April 1, 2021 and December 31, 2020, was $16.4 million and $16.0 million, respectively. The unrecognized compensation cost remaining as of April 1, 2021 is expected to be recognized over a weighted average period of 2.4 years.
Restricted Stock Units
During the thirteen weeks ended April 1, 2021, the Company granted restricted stock units to certain employees that represent an unfunded, unsecured right to receive a share of the Company’s Class A common stock upon vesting. These awards 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. The fair value of the restricted stock units was determined based on the closing price of the Company’s Class A common stock on the date of grant.
The following table summarizes restricted stock unit activity during the thirteen weeks ended April 1, 2021:
Restricted Stock Units
Unvested at January 1, 2021128,220 
Granted100,799 
Vested(25,349)
Forfeited(2,556)
Unvested at April 1, 2021201,114 
The total unrecognized compensation cost related to restricted stock units as of April 1, 2021 and December 31, 2020 was $15.0 million and $6.2 million, respectively. The unrecognized compensation cost remaining as of April 1, 2021 is expected to be recognized over a weighted average period of 3.5 years.
Restricted Stock Awards
During the thirteen weeks ended April 1, 2021, the Company issued service-based restricted stock awards to certain executive officers and non-employee directors that are subject to the grantee’s continued service through the applicable vesting date. Service-based restricted stock awards granted during the period to executive officers vest in four ratable annual installments on each of the first four anniversaries of the grant date, while such awards granted to non-employee directors during the period cliff vest on the first anniversary from the grant date.
The following table summarizes restricted stock award activity during the thirteen weeks ended April 1, 2021:
Restricted Stock Awards
Service-basedPerformance-basedTotal Stock Return (TSR)
Unvested at January 1, 2021131,844 160,315 104,456 
Granted27,465   
Vested(10,459)  
Forfeited(2,508)  
Unvested at April 1, 2021146,342 160,315 104,456 
The fair value of performance-based and service-based restricted stock awards is based on the closing market price of the Company's Class A common stock on the date of grant. The fair value of the TSR awards is estimated on grant date using the Monte Carlo valuation method. Compensation cost for restricted stock awards is recognized using the straight-line method over the requisite service period, which for each of the awards is the service vesting period. As of April 1, 2021 and December 31, 2020, total unrecognized compensation cost related to unvested restricted stock awards was $15.7 million and $15.2 million, respectively. The unrecognized compensation cost remaining as of April 1, 2021 is expected to be recognized over a weighted average period of 2.5 years.

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7. Earnings Per Share
Net Income per Common Share
The Company calculates basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding adjusted for the dilutive effect of share-based awards.
The following table shows the computation of basic and diluted earnings per share:
Thirteen Weeks Ended
in thousands, except per share dataApril 1, 2021March 26, 2020
Net income$75,796 $37,063 
Basic weighted average shares outstanding104,073 101,629 
Dilutive effect of share-based awards3,026 3,881 
Diluted weighted average shares outstanding107,099 105,510 
Basic earnings per share$0.73 $0.36 
Diluted earnings per share$0.71 $0.35 
The following potentially dilutive securities were excluded from the computation of diluted earnings per share as a result of their anti-dilutive effect:
Thirteen Weeks Ended
in thousandsApril 1, 2021March 26, 2020
Stock options81 590 
Restricted stock18 284 
Restricted stock units100 108 


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Floor & Decor Holdings, Inc. and Subsidiaries included in Item 1 of this quarterly report on Form 10-Q (this “Quarterly Report”) and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2021 (the “Annual Report”). As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms “Floor & Decor,” “Company,” “we,” “our” or “us” refer to Floor & Decor Holdings, Inc. and its subsidiaries.
Forward-Looking Statements
The discussion in this Quarterly Report, including under this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and Item 1A, “Risk Factors” of Part II, contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding the Company’s future operating results and financial position, business strategy and plans, objectives of management for future operations, and the impact of the coronavirus (COVID-19) pandemic, are forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “could,” “seeks,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “budget,” “potential” or “continue” or the negative of these terms or other similar expressions.
The forward-looking statements contained in this Quarterly Report are only predictions. Although we believe that the expectations reflected in the forward-looking statements in this Quarterly Report are reasonable, we cannot guarantee future events, results, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements in this Quarterly Report, including, without limitation, those factors described in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and Item 1A, “Risk Factors” of Part II. Some of the key factors that could cause actual results to differ from our expectations include the following:
an overall decline in the health of the economy, the hard surface flooring industry, consumer spending and the housing market; including as a result of the COVID-19 pandemic;
an economic recession or depression, including as a result of the COVID-19 pandemic;
the inability to staff our stores sufficiently, including for reasons due to the COVID-19 pandemic and other impacts of the COVID-19 pandemic;
a pandemic, such as COVID-19, or other natural disaster or unexpected event, and its impacts on our suppliers, customers, employees, lenders, operations, including our ability to operate our distribution centers and stores or on the credit markets or our future financial and operating results;
any disruption in our supply chain, including carrier capacity constraints or higher shipping prices;
our failure to successfully anticipate consumer preferences and demand;
our inability to manage our growth;
our inability to manage costs and risks relating to new store openings;
geopolitical risks that impact our ability to import from foreign suppliers;
our dependence on foreign imports for the products we sell, which may include the impact of tariffs and other duties;
suppliers may sell similar or identical products to our competitors;
competition from other stores and internet-based competition;
any disruption in our distribution capabilities, including from difficulties operating our distribution centers;
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fluctuations in commodity, material, transportation and energy costs;
our failure to execute our business strategy effectively and deliver value to our customers;
our inability to manage our inventory obsolescence, shrinkage and damage;
our inability to find available locations for our stores on terms acceptable to us;
our inability to maintain sufficient levels of cash flow or liquidity to meet growth expectations;
violations of laws and regulations applicable to us or our suppliers;
our inability to obtain merchandise on a timely basis at prices acceptable to us;
our failure to adequately protect against security breaches involving our information technology systems and customer information;
the resignation, incapacitation or death of any key personnel;
our inability to find, train and retain key personnel;
fluctuations in material and energy costs; and
restrictions imposed by our indebtedness on our current and future operations.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this Quarterly Report speak only as of the date hereof. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. If a change to the events and circumstances reflected in our forward-looking statements occurs, our business, financial condition and operating results may vary materially from those expressed in our forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
Overview
Founded in 2000, Floor & Decor is a high growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 140 warehouse format stores across 32 states as of April 1, 2021. We believe that we offer the industry’s broadest in-stock assortment of tile, wood, laminate, vinyl, and natural stone flooring along with decorative and installation accessories and adjacent categories at everyday low prices positioning us as the one-stop destination for our customers’ entire hard surface flooring needs. We appeal to a variety of customers, including professional installers and commercial businesses (“Pro”), Do it Yourself customers (“DIY”), and customers who buy the products for professional installation (“Buy it Yourself” or “BIY”).
We operate on a 52- or 53-week fiscal year ending the Thursday on or preceding December 31. The following discussion contains references to the first thirteen weeks of fiscal 2021 and fiscal 2020, which ended on April 1, 2021 and March 26, 2020, respectively.
During the thirteen weeks ended April 1, 2021, we continued to make long-term key strategic investments, including:
supporting our stores and distribution centers during this heightened period of sales, with particular emphasis on increasing staffing levels and working collaboratively throughout our supply chain to increase our in-stock inventory levels;
opening seven new warehouse-format stores, ending the quarter with 140 warehouse-format stores and two design studios;
focusing on innovative new products and localized assortments, supported by inspirational in-store and online visual merchandising solutions;
investing in our connected customer, in-store designer, and customer relationship and store focused technology;
adding more resources dedicated to serving our Pro customers, including hiring a professional external sales staff to drive more commercial sales;
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increasing proprietary credit offerings, including through our non-recourse Pro credit card; and
investing capital to continue enhancing the in-store shopping experience for our customers.
COVID-19 Update
As the COVID-19 pandemic continues into fiscal 2021, we remain focused on five priorities while navigating through this period of volatility and uncertainty:
First, protect the health and safety of our employees and customers through enhanced safety and sanitation measures at our stores, distribution centers, and store support center.
Second, keep our brand strong and support all of our customers, including the numerous small businesses that rely upon us such as general contractors and flooring installers.
Third, invest in store and distribution center staffing to support the heightened demand.
Fourth, work with all our supply chain partners to increase our in-stock inventory positions.
Fifth, position Floor & Decor to emerge strong from this event.

We are working hard to continue monitoring and quickly responding to the ongoing impacts of the COVID-19 pandemic, including communicating often throughout the organization and adapting our operations to follow evolving federal, state, and local ordinances as well as health guidelines on mitigating the risk of COVID-19 transmission. We have teams in place monitoring this evolving situation and recommending risk mitigation actions, and we are encouraging social distancing practices.
We have also assessed and are implementing supply chain continuity plans. While to date there has been no material impact on supply for most of our sourced merchandise and our sales have remained strong as we continue to maintain a broad assortment of in-stock inventory, COVID-19-related labor shortages and supply chain disruptions continue to cause logistical challenges for us and the entire hard surface flooring industry. In particular, there is significant congestion at ports of entry to the United States, which is increasing the time and cost to ship goods to our stores and has resulted in a decrease in our in-stock levels for certain products. We are working closely with our suppliers and transportation partners to mitigate the impact of these disruptions; however, future capacity shortages or shipping cost increases could have an adverse impact upon our business.
In addition, while vaccines have become more widely available and an increasing portion of the U.S. population is being vaccinated, there remains substantial uncertainty regarding the potential duration and severity of the COVID-19 pandemic, including if or when “herd immunity” will be achieved and the public health restrictions imposed to slow the spread of the virus will be lifted entirely. There may also be future increases "waves" or variants of COVID-19 infections despite mass vaccination programs and other efforts to mitigate its spread. Although our stores are currently open to the public, we may face future closure requirements and other operational restrictions at some or all of our physical locations for prolonged periods of time if federal, state, and local authorities impose new and potentially more stringent restrictions such as shelter-in-place orders. We also may face store closures due to staffing challenges, including if store and distribution center associates are in quarantine due to the COVID-19 pandemic. In addition, changes in consumer behavior due to financial, health, or other concerns may continue even after the COVID-19 pandemic and may reduce consumer demand for our products. In addition, some of the countries from which we source inventory and other necessary supplies are not vaccinating their populations as quickly or effectively as the U.S., which could constrain our ability to obtain inventory and other necessary supplies. As a result of these and other uncertainties, the full financial impact of the pandemic cannot be reasonably estimated at this time.
Key Performance Indicators
We consider a variety of performance and financial measures in assessing the performance of our business. The key performance and financial measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income, and EBITDA and Adjusted EBITDA. For definitions and a discussion of how we use our key performance indicators, see the “Key Performance Indicators” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. See “Non-GAAP Financial Measures” below for a discussion of how we define EBITDA and Adjusted EBITDA and a reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).
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Other key financial terms we use include net sales, selling and store operating expenses, general and administrative expenses, and pre-opening expenses. For definitions and a discussion of how we use other key financial terms, see the “Other Key Financial Definitions” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.
Results of Operations
While our revenue and earnings have improved during the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020, the full impact that the COVID-19 pandemic could have on our business remains highly uncertain. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations -COVID-19 Update” and Item 1A., “Risk Factors” for more information about the potential impacts that the COVID-19 pandemic may have on our results of operations and overall financial performance for future periods.
The following table summarizes key components of our results of operations for the periods indicated, in dollars and as a percentage of net sales (actuals in thousands; dollar changes in millions; certain numbers may not sum due to rounding):
Thirteen Weeks Ended
April 1, 2021March 26, 2020
Actual% of SalesActual% of Sales$ Increase/(Decrease)% Increase/(Decrease)
Net sales$782,537 100.0 %$554,937 100.0 %$227.6 41.0 %
Cost of sales445,604 56.9 318,905 57.5 126.7 39.7 
Gross profit336,933 43.1 236,032 42.5 100.9 42.7 
Operating expenses:
Selling and store operating189,946 24.3 153,066 27.6 36.9 24.1 
General and administrative44,041 5.6 30,858 5.6 13.2 42.7 
Pre-opening6,997 0.9 5,434 1.0 1.6 28.8 
Total operating expenses240,984 30.8 189,358 34.1 51.6 27.3 
Operating income95,949 12.3 46,674 8.4 49.3 105.6 
Interest expense, net1,388 0.2 1,807 0.3 (0.4)(23.2)
Income before income taxes94,561 12.1 44,867 8.1 49.7 110.8 
Provision for income taxes18,765 2.4 7,804 1.4 11.0 140.5 
Net income$75,796 9.7 %$37,063 6.7 %$38.7 104.5 %

Selected Financial Information
Thirteen Weeks Ended
April 1, 2021March 26, 2020
Comparable store sales (% change)31.1 %2.4 %
Comparable average ticket (% change)1.5 %3.4 %
Comparable customer transactions (% change)29.2 %(1.0)%
Number of warehouse-format stores140123
Adjusted EBITDA (in thousands) (1) $127,075$73,126
Adjusted EBITDA margin16.2 %13.2 %
(1) Adjusted EBITDA is a non-GAAP financial measure. See “Non-GAAP Financial Measures” section below for additional information and a reconciliation of Adjusted EBITDA to net income.
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Net Sales
Net sales during the thirteen weeks ended April 1, 2021 increased $227.6 million, or 41.0%, compared to the corresponding prior year period primarily due to an increase in comparable store sales of 31.1% and sales from the 17 new warehouse stores that we opened since March 26, 2020. The comparable store sales increase during the period of 31.1%, or $172.5 million, was driven by a 29.2% increase in comparable customer transactions and a 1.5% increase in comparable average ticket. Comparable store sales increased among all of our product categories during the period. Non-comparable store sales increased $55.1 million during the same period primarily due to the increase in new stores.
We believe the increase in first quarter fiscal 2021 sales is also due in part to (i) unprecedented government intervention to help mitigate the negative impacts of the COVID-19 pandemic and (ii) customers investing in home improvements while spending less on leisure activities like travel, eating out, sporting events, and hotels. We also believe that our business model, with its focus on substantial amounts of trend-right, in-stock inventory, is also contributing to the sales increase. In addition, we limited our stores to curbside services during the final week of the first quarter of fiscal 2020, which resulted in a decrease in sales during that period and contributed to the current quarter increase in comparable store sales. Further, the addition of a 53rd-week in fiscal 2020, which was the last week in December, a historically low volume week, shifted the beginning of fiscal 2021 to January and modestly benefited first quarter fiscal 2021 comparable store sales growth.
Gross Profit and Gross Margin
Gross profit during the thirteen weeks ended April 1, 2021 increased $100.9 million, or 42.7%, compared to the corresponding prior year period. The increase in gross profit was driven by the 41.0% increase in net sales and an increase in gross margin to 43.1%, up approximately 60 basis points from 42.5% in the same period a year ago. The increase in gross margin was primarily due to improved leverage of our distribution center and supply chain infrastructure on higher sales.
Selling and Store Operating Expenses
Selling and store operating expenses during the thirteen weeks ended April 1, 2021 increased $36.9 million, or 24.1%, compared to the thirteen weeks ended March 26, 2020. The increase was primarily attributable to 17 new warehouse stores opened since March 26, 2020 as well as additional staffing to satisfy sales growth. As a percentage of net sales, selling and store operating expenses decreased approximately 330 basis points to 24.3% from 27.6% in the corresponding prior year period. This decrease was primarily driven by leveraging our costs across an increase in comparable store sales. Comparable store selling and store operating expenses as a percentage of comparable store sales decreased by approximately 390 basis points as sales grew faster than new hiring during the current quarter and as our occupancy costs were lower as a percentage of net revenue due to the increase in sales.
General and Administrative Expenses
General and administrative expenses, which are typically expenses incurred outside of our stores, increased $13.2 million, or 42.7%, during the thirteen weeks ended April 1, 2021 compared to the corresponding prior year period primarily due to higher incentive compensation expense and costs to support store growth, including increased store support staff and higher depreciation related to technology and other store support center investments. Our general and administrative expenses as a percentage of net sales remained at approximately 5.6% during the thirteen weeks ended April 1, 2021 and March 26, 2020.
Pre-Opening Expenses
Pre-opening expenses during the thirteen weeks ended April 1, 2021 increased $1.6 million, or 28.8%, compared to the corresponding prior year period. The increase is primarily the result of an increase in the number of stores that we either opened or were preparing for opening compared to the prior year period. We opened seven warehouse stores during the thirteen weeks ended April 1, 2021 as compared to opening three warehouse stores during the thirteen weeks ended March 26, 2020.
Interest Expense
Net interest expense during the thirteen weeks ended April 1, 2021 decreased $0.4 million, or 23.2%, compared to the corresponding prior year period. The decrease in interest expense was primarily due to an increase in interest capitalized during the construction period of certain capital assets during the thirteen weeks ended April 1, 2021 compared to the corresponding prior year period.
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Income Taxes
The provision for income taxes was $18.8 million during the thirteen weeks ended April 1, 2021 compared to $7.8 million during the thirteen weeks ended March 26, 2020. The effective tax rate was 19.8% for the thirteen weeks ended April 1, 2021 compared to 17.4% in the corresponding prior year period. The increase in the effective tax rate was primarily due to higher earnings without a proportionate increase in available tax credits and the recognition of lower excess tax benefits related to stock option exercises during the current quarter compared to the same period of the prior year.
Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are key metrics used by management and our board of directors to assess our financial performance and enterprise value. We believe that EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our ABL Facility and Term Loan Facility (together, the "Credit Facilities"), to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors, and other interested parties as performance measures to evaluate companies in our industry.
EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by or presented in accordance with GAAP. We define EBITDA as net income before interest, (gain) loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, (gain) loss on early extinguishment of debt, taxes, depreciation and amortization adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. See below for a reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free cash flow for management's discretionary use. In addition, these non-GAAP measures exclude certain non-recurring and other charges. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock compensation expense, loss (gain) on asset impairments and disposals, executive recruiting/relocation, and other adjustments. Our presentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies.
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The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods presented:
Thirteen Weeks Ended
in thousandsApril 1, 2021March 26, 2020
Net income$75,796 $37,063 
Depreciation and amortization (1)25,520 21,673 
Interest expense, net1,388 1,807 
Income tax expense18,765 7,804 
EBITDA121,469 68,347 
Stock compensation expense (2)4,734 2,908 
COVID-19 costs (3)216 1,310 
Tariff refunds (4)— (401)
Other (5)656 962 
Adjusted EBITDA$127,075 $73,126 
(1) Excludes amortization of deferred financing costs, which is included as a part of interest expense, net in the table above.

(2) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and forfeitures.

(3) Amounts are comprised of sanitation, personal protective equipment, and other costs directly related to efforts to mitigate the impact of the COVID-19 pandemic on our business.

(4) Represents income for additional tariff refunds during the thirteen weeks ended March 26, 2020 related to certain engineered wood products. Interest income for tariff refunds is included within interest expense, net in the table above.

(5) Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts for the thirteen weeks ended April 1, 2021 primarily relate to relocation expenses for our Houston distribution center and legal fees associated with the February 2021 amendment to our senior secured term loan credit facility. Amounts for the thirteen weeks ended March 26, 2020 primarily relate to legal fees associated with the February 2020 amendment to our senior secured term loan credit facility and costs associated with a potential secondary public offering of the Company’s Class A common stock by certain of our stockholders.
Liquidity and Capital Resources
Liquidity is provided primarily by our cash flows from operations and our $400.0 million ABL Facility. Unrestricted liquidity based on our April 1, 2021 financial data was $724.6 million, consisting of $354.1 million in cash and cash equivalents and $370.5 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder.
Our primary cash needs are for merchandise inventories, payroll, store rent, and other operating expenses and capital expenditures associated with opening new stores and remodeling existing stores, as well as information technology, e-commerce, and distribution center and store support center infrastructure. We also use cash for the payment of taxes and interest.
The most significant components of our operating assets and liabilities are merchandise inventories and accounts payable, and, to a lesser extent, accounts receivable, prepaid expenses and other assets, other current and non-current liabilities, taxes receivable, and taxes payable. In an operating environment outside of the COVID-19 pandemic, our liquidity is not generally seasonal, and our uses of cash are primarily tied to when we open stores and make other capital expenditures.
Merchandise inventory is our most significant working capital asset and is considered “in-transit” or “available for sale” based on whether we have physically received the products at an individual store location or in one of our four distribution centers. In-transit inventory generally varies due to contractual terms, country of origin, transit times, international holidays, weather patterns, and other factors.
We measure realizability of our inventory by monitoring sales, gross margin, inventory aging, weeks of supply or inventory turns as well as by reviewing SKUs that have been determined by our merchandising team to be discontinued. Based on our analysis of these factors, we believe our inventory is realizable.
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Twice a year, we conduct a clearance event with the goal of selling through discontinued inventory, followed by donations of the aged discontinued inventory that we are unable to sell. We generally conduct a larger clearance event during our third fiscal quarter followed by a smaller clearance event towards the end of the fiscal year. We define aged discontinued inventory as inventory in discontinued status for more than 12 months that we intend to sell or donate. As of April 1, 2021, we had $1.3 million of aged discontinued inventory that we intend to donate if unable to sell.
Impact of the COVID-19 Pandemic on Liquidity
While our primary sources of funds for business activities are typically cash flows from operations and our existing credit facilities, the full potential impact of the pandemic on our sources of funds and liquidity cannot be reasonably estimated at this time due to uncertainty regarding the potential severity and duration of the pandemic and its future effect on our business. For additional discussion of the impact of the COVID-19 pandemic on our business, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - COVID-19 Update.”
We continue to monitor the impact of the COVID-19 pandemic on our business and may, as necessary, reduce expenditures, borrow additional amounts under our term loan and revolving credit facilities, or pursue other sources of capital that may include other forms of external financing in order to increase our cash position and preserve financial flexibility. The pandemic may continue to drive volatility and uncertainty in financial and credit markets. Our continued access to external sources of liquidity depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. If the impacts of the pandemic continue to create severe disruptions or turmoil in the financial markets, or if rating agencies lower our credit ratings, it could adversely affect our ability to access the debt markets, our cost of funds, and other terms for new debt or other sources of external liquidity. We expect that cash generated from operations together with cash on hand, our actions to reduce expenditures, the availability of borrowings under our credit facilities, and if necessary, additional funding through other forms of external financing, will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our credit facilities for at least the next twelve months.
The exact scope of our capital plans is evolving and will ultimately depend on a variety of factors, including the impact of the COVID-19 pandemic on our business. Total capital expenditures are currently planned to be between approximately $440 million to $460 million and will be funded primarily by cash generated from operations and borrowings under the ABL Facility. Our capital needs may change in the future due to changes in our business, including in response to the COVID-19 pandemic, or new opportunities that we choose to pursue; however, we currently expect the following for capital expenditures in fiscal 2021:
open 27 warehouse-format stores, open two small-format design studios, and start construction on stores opening and relocating in 2022 using approximately $285 million to $295 million of cash;
relocate our Houston, Texas distribution center and open a transload facility in Los Angeles, California using approximately $72 million to $76 million of cash;
invest in existing store remodeling projects and our distribution centers using approximately $56 million to $59 million of cash; and
invest in information technology infrastructure, e-commerce, and other store support center initiatives using approximately $27 million to $30 million of cash.
Cash Flow Analysis
A summary of our operating, investing, and financing activities are shown in the following table:
Thirteen Weeks Ended
in thousandsApril 1, 2021March 26, 2020
Net cash provided by operating activities$100,996 $24,668 
Net cash used in investing activities(45,876)(38,384)
Net cash (used in) provided by financing activities(8,841)276,610 
Net increase in cash and cash equivalents$46,279 $262,894 
Net Cash Provided by Operating Activities
Cash provided by operating activities consists primarily of net income adjusted for changes in working capital as well as non-cash items, including depreciation and amortization, deferred income taxes, and stock-based compensation.
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Net cash provided by operating activities was $101.0 million for the thirteen weeks ended April 1, 2021 and $24.7 million for the thirteen weeks ended March 26, 2020. The increase in net cash provided by operating activities was primarily the result of an increase in net income and decrease in inventory, partially offset by a net increase in other working capital items to support our operations.
Net Cash Used in Investing Activities
Investing activities consist primarily of capital expenditures for new store openings, existing store remodels (including leasehold improvements, new racking, new fixtures, new product and display vignettes, and enhanced design studios) and new infrastructure and information systems.
Capital expenditures during the thirteen weeks ended April 1, 2021 and March 26, 2020 were $45.9 million and $38.4 million, respectively. The increase is primarily related to the growth in new stores that opened or were under construction during the thirteen weeks ended April 1, 2021 compared to the corresponding prior year period, as we generally incur significant capital expenditures for new stores a few to several months in advance of opening. During the thirteen weeks ended April 1, 2021, approximately 57.3% of capital expenditures were for new stores and 34.8% were for existing stores and distribution centers, while the remaining spending was associated with information technology, e-commerce, and store support center investments to support our growth.
Net Cash (Used in) Provided by Financing Activities
Financing activities consist primarily of borrowings and related repayments under our credit agreements as well as proceeds from the exercise of stock options and our employee share purchase program.
Net cash used in financing activities was $8.8 million for the thirteen weeks ended April 1, 2021 compared to net cash provided by financing activities of $276.6 million for the thirteen weeks ended March 26, 2020. The decrease was primarily driven by the repayment of a portion of our Term Loan Facility during the thirteen weeks ended April 1, 2021 compared with borrowings under our ABL facility of $275.0 million during the thirteen weeks ended March 26, 2020.
Credit Facility Amendments
On February 9, 2021 (the "Effective Date"), we entered into a fifth amendment to the credit agreement governing our senior secured term loan facility (as amended, the "Term Loan Facility"). The fifth amendment provided for, among other things, a supplemental term loan in the aggregate principal amount of $65.0 million (the "Supplemental Term Loan Facility") that increased the term loan B facility. The Supplemental Term Loan Facility has the same maturity date (February 14, 2027) and terms as the term loan B facility, except that voluntary prepayments made within six months after the Effective Date are subject to a 1% soft call prepayment premium. The other terms of loans under the Term Loan Facility remain unchanged, including the applicable margin for loans under the term loan B facility. The proceeds of the Supplemental Term Loan Facility, together with cash on hand, were used to (i) repay the $75.0 million term loan B-1 facility and (ii) pay fees and expenses incurred in connection with the Supplemental Term Loan Facility.
Refer to Note 3, “Debt” for additional details regarding our Term Loan Facility and ABL Facility, including applicable covenants.
Credit Ratings
Our credit ratings are periodically reviewed by rating agencies. In November 2020, Moody's reaffirmed the Company's issuer corporate family rating of Ba3 and changed its outlook for the Company to stable from negative. In December 2020, Standard & Poor's reaffirmed the Company's corporate credit rating of BB- and revised its outlook for the Company to positive from stable. These ratings and our current credit condition affect, among other things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our financial condition, including any further increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.
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U.S. Tariffs and Global Economy
The current domestic and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy. In particular, the ongoing trade dispute between the U.S. and China has resulted in the U.S. imposing tariffs of 25% on many products from China. While exclusions from tariffs were granted for certain products from China, nearly all of these exclusions have expired. In fiscal 2020, approximately 30% of the products we sold were sourced from China, and we expect that percentage to decrease moderately in fiscal 2021. As we continue to manage the impact these tariffs may have on our business, we continue taking steps to mitigate some of these cost increases through negotiating lower costs from our vendors, increasing retail pricing as we deem appropriate, and sourcing from alternative countries. While our efforts have mitigated a substantial portion of the overall effect of increased tariffs, the enacted tariffs have increased our inventory costs and associated cost of sales for the remaining products still sourced from China.
Antidumping and Countervailing Duties

On May 24, 2019, the U.S. International Trade Commission (the “ITC”) announced it had completed a preliminary phase antidumping and countervailing duty investigation pursuant to the Tariff Act of 1930 with respect to the imports of ceramic tile from China and determined there is a reasonable indication that the ceramic tile production industry in the U.S. is being materially injured by imports of ceramic tile from China that have allegedly been subsidized by the Chinese government and are being sold in the U.S. at less than fair value, otherwise known as “dumping”. As a result of the ITC’s affirmative determinations, the U.S. Department of Commerce (the “DOC”) began its own related investigation. In April 2020, the DOC reached a final determination that imports from China were subsidized and were being sold in the U.S. at less than fair value. As a result of these final determinations, the DOC set the countervailing duty to 358.81% for all Chinese exporters and the antidumping duty to 203.71% or 330.69% depending on the exporter. In May 2020, the ITC announced their final determination that the ceramic tile production industry in the U.S. is being materially injured by imports of ceramic tile from China, but retroactive duty deposits would not be required as the ITC made a negative critical circumstances determination. The DOC subsequently issued antidumping and countervailing orders.
The DOC has instructed the U.S. Customs and Boarder Protection ("U.S. Customs") to require cash deposits based on the announced effective rates. The final rates for the first 18 months of the orders will not be determined until the first administrative review process is completed, approximately two years after the published date of the orders.
We took steps to mitigate the risk of future exposure by sourcing from alternative countries, and we are no longer importing applicable products from China. We have made duty deposits for applicable entries according to U.S. Customs entry procedures. While we do not currently believe additional duty deposits will apply, we believe our potential exposure could be up to approximately $3.0 million. The actual additional duties, if applicable, could differ from this estimate. We have not established a reserve for this matter as we currently do not believe additional duties will be applicable. Potential costs and any attendant impact on pricing arising from these tariffs or potential duties, and any further expansion in the types or levels of tariffs or duties implemented, could require us to modify our current business practices and could adversely affect our business, financial condition, and results of operations.
Tariff Refunds
In November 2019, the U.S. Trade Representative (“USTR”) made a ruling to retroactively exclude certain flooring products imported from China from the Section 301 tariffs that were implemented at 10% beginning in September 2018 and increased to 25% in June 2019. The granted exclusions apply to certain “click” vinyl and engineered products that we have sold and continue to sell. As these exclusions were granted retroactively, we are entitled to a refund from U.S. Customs for the applicable Section 301 tariffs previously paid on these goods. While tariff refund claims are subject to the approval of U.S. Customs, the Company currently expects to recover $24.4 million related to these Section 301 tariff payments, including interest, of which $13.4 million has been received as of April 1, 2021.
Contractual Obligations
There were no material changes to our contractual obligations outside the ordinary course of our business during the thirteen weeks ended April 1, 2021.
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Off-Balance Sheet Arrangements
For the thirteen weeks ended April 1, 2021, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, expenses, results of operations, liquidity, capital expenditures, or capital resources. We do not have any relationship with unconsolidated entities or financial partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and other factors management believes to be reasonable. The COVID-19 pandemic has impacted our business as discussed in Management’s Discussion and Analysis and the estimates used for, but not limited to, our critical accounting policies could be affected by future developments related to the COVID-19 pandemic. We have assessed the impact and are not aware of any specific events or circumstances that required an update to the estimates and assumptions used for our critical accounting policies or that materially affected the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
For a description of our critical accounting policies and estimates, refer to Part II, Item 7, “Critical Accounting Policies and Estimates” in our Annual Report. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report. See Note 1 to our condensed consolidated financial statements included in this Quarterly Report, which describes recent accounting pronouncements adopted by us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of the Annual Report. While our exposure to market risk has not changed materially since December 31, 2020, uncertainty with respect to the economic effects of the COVID-19 pandemic has introduced significant volatility in the financial markets, including interest rates and foreign currency exchange rates. The COVID-19 pandemic is expected to have a continued adverse impact on market conditions and may trigger a period of global economic slowdown for an unknown duration. See further discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details.
Interest Rate Risk
Our operating results are subject to risk from interest rate fluctuations on our Credit Facilities, which carry variable interest rates. As of April 1, 2021, our senior secured term loan facility had a remaining principal balance of $207.7 million and was our only vari