UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September ~~24, 2020~~30, 2021

☐ 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)


Delaware						27-3730271
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2500 Windy Ridge Parkway SE

Atlanta,

Georgia

30339

(Address of principal executive offices)

(Zip Code)


	(404)	471-1634	Not 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 class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.001 par value per share	FND	New 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 ~~October 27, 2020~~November 1, 2021
Class A common stock, $0.001 par value per share						~~103,997,182~~105,591,567

Table of Contents


			Page
Part I – Financial Information			3
	Item 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets (Unaudited)	3
		Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)	4
		Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows (Unaudited)	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1921
		Forward-Looking Statements	1921
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3133
	Item 4.	Controls and Procedures	3134
Part II – Other Information			3234
	Item 1.	Legal Proceedings	3234
	Item 1A.	Risk Factors	3235
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3339
	Item 3.	Defaults Upon Senior Securities	3339
	Item 4.	Mine Safety Disclosures	3339
	Item 5.	Other Information	3339
	Item 6.	Exhibits	3440
	Signatures		3641

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Floor & Decor Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


in thousands, except for share and per share data	in thousands, except for share and per share data	As of September 24, 2020		As of December 26, 2019		in thousands, except for share and per share data	As of September 30, 2021		As of December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	271,126	$	27,037	Cash and cash equivalents	$	330,085	$	307,772
Income taxes receivable		25,722		2,868

Receivables, net	Receivables, net	55,293		69,301		Receivables, net	81,480		50,427
Inventories, net	Inventories, net	598,461		581,865		Inventories, net	833,122		654,000
Prepaid expenses and other current assets	Prepaid expenses and other current assets	23,367		20,415		Prepaid expenses and other current assets	49,522		28,257
Total current assets	Total current assets	973,969		701,486		Total current assets	1,294,209		1,040,456
Fixed assets, net	Fixed assets, net	506,789		456,289		Fixed assets, net	836,310		579,359
Right-of-use assets	Right-of-use assets	890,148		822,256		Right-of-use assets	1,082,031		916,325
Intangible assets, net	Intangible assets, net	109,275		109,299		Intangible assets, net	152,678		109,269
Goodwill	Goodwill	227,447		227,447		Goodwill	255,473		227,447
Other assets	Other assets	6,768		7,532		Other assets	7,409		7,569
Total long-term assets	Total long-term assets	1,740,427		1,622,823		Total long-term assets	2,333,901		1,839,969
Total assets	Total assets	$	2,714,396	$	2,324,309	Total assets	$	3,628,110	$	2,880,425
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of term loans	Current portion of term loans	$	2,745	$	0	Current portion of term loans	$	1,577	$	1,647
Current portion of lease liabilities	Current portion of lease liabilities	92,809		74,592		Current portion of lease liabilities	98,238		94,502
Trade accounts payable	Trade accounts payable	362,457		368,459		Trade accounts payable	634,339		417,898
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	150,054		102,807		Accrued expenses and other current liabilities	255,106		162,283

Income taxes payable						Income taxes payable	1,553		12,391
Deferred revenue	Deferred revenue	10,853		6,683		Deferred revenue	21,173		10,115
Total current liabilities	Total current liabilities	618,918		552,541		Total current liabilities	1,011,986		698,836
Term loans	Term loans	206,793		142,606		Term loans	195,865		207,157

Lease liabilities	Lease liabilities	914,701		844,269		Lease liabilities	1,106,812		941,125
Deferred income tax liabilities, net	Deferred income tax liabilities, net	40,551		18,378		Deferred income tax liabilities, net	33,589		27,990
Other liabilities	Other liabilities	1,928		2,179		Other liabilities	14,948		7,929
Total long-term liabilities	Total long-term liabilities	1,163,973		1,007,432		Total long-term liabilities	1,351,214		1,184,201
Total liabilities	Total liabilities	1,782,891		1,559,973		Total liabilities	2,363,200		1,883,037
Commitments and Contingencies (Note 5)	Commitments and Contingencies (Note 5)					Commitments and Contingencies (Note 5)	0		0
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Capital stock:	Capital stock:					Capital stock:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 24, 2020 and December 26, 2019		0		0
Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 103,909,036 shares issued and outstanding at September 24, 2020 and 101,457,858 issued and outstanding at December 26, 2019		104		101
Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 24, 2020 and December 26, 2019		0		0
Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at September 24, 2020 and December 26, 2019		0		0
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020						Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 105,578,555 shares issued and outstanding at September 30, 2021 and 104,368,212 issued and outstanding at December 31, 2020						Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 105,578,555 shares issued and outstanding at September 30, 2021 and 104,368,212 issued and outstanding at December 31, 2020	106		104
Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020						Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020						Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020	—		—
Additional paid-in capital	Additional paid-in capital	399,489		370,413		Additional paid-in capital	442,247		408,124
Accumulated other comprehensive income (loss), net		56		(193)
Accumulated other comprehensive income, net						Accumulated other comprehensive income, net	204		164
Retained earnings	Retained earnings	531,856		394,015		Retained earnings	822,353		588,996
Total stockholders’ equity	Total stockholders’ equity	931,505		764,336		Total stockholders’ equity	1,264,910		997,388
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,714,396	$	2,324,309	Total liabilities and stockholders’ equity	$	3,628,110	$	2,880,425

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Floor & Decor Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited)


		Thirteen Weeks Ended				Thirty-nine Weeks Ended
											Thirteen Weeks Ended				Thirty-nine Weeks Ended
in thousands, except for per share data	in thousands, except for per share data	September 24, 2020		September 26, 2019		September 24, 2020		September 26, 2019		in thousands, except for per share data	September 30, 2021		September 24, 2020		September 30, 2021		September 24, 2020
Net sales	Net sales	$	684,847	$	521,093	$	1,702,136	$	1,518,454	Net sales	$	876,553	$	684,847	$	2,519,198	$	1,702,136
Cost of sales	Cost of sales	390,219		307,305		974,784		885,469		Cost of sales	511,245		390,219		1,451,519		974,784
Gross profit	Gross profit	294,628		213,788		727,352		632,985		Gross profit	365,308		294,628		1,067,679		727,352
Operating expenses:	Operating expenses:									Operating expenses:
Selling and store operating	Selling and store operating	171,513		136,958		463,036		398,984		Selling and store operating	218,690		171,513		613,708		463,036
General and administrative	General and administrative	39,286		37,246		103,857		98,364		General and administrative	52,488		39,286		149,348		103,857
Pre-opening	Pre-opening	5,027		8,184		13,894		18,580		Pre-opening	10,733		5,027		26,720		13,894
Total operating expenses	Total operating expenses	215,826		182,388		580,787		515,928		Total operating expenses	281,911		215,826		789,776		580,787
Operating income	Operating income	78,802		31,400		146,565		117,057		Operating income	83,397		78,802		277,903		146,565
Interest expense, net	Interest expense, net	2,024		1,978		6,134		7,122		Interest expense, net	1,124		2,024		3,805		6,134
Gain on early extinguishment of debt	Gain on early extinguishment of debt	0		0		(1,015)		0		Gain on early extinguishment of debt	—		—		—		(1,015)
Income before income taxes	Income before income taxes	76,778		29,422		141,446		109,935		Income before income taxes	82,273		76,778		274,098		141,446
Provision (benefit) for income taxes		8,004		(11,552)		3,605		(5,355)
Provision for income taxes										Provision for income taxes	7,628		8,004		40,741		3,605
Net income	Net income	$	68,774	$	40,974	$	137,841	$	115,290	Net income	$	74,645	$	68,774	$	233,357	$	137,841
Change in fair value of hedge instruments, net of tax	Change in fair value of hedge instruments, net of tax	89		0		249		(547)		Change in fair value of hedge instruments, net of tax	(36)		89		40		249
Total comprehensive income	Total comprehensive income	$	68,863	$	40,974	$	138,090	$	114,743	Total comprehensive income	$	74,609	$	68,863	$	233,397	$	138,090
Basic earnings per share	Basic earnings per share	$	0.67	$	0.41	$	1.35	$	1.17	Basic earnings per share	$	0.71	$	0.67	$	2.23	$	1.35
Diluted earnings per share	Diluted earnings per share	$	0.65	$	0.39	$	1.30	$	1.10	Diluted earnings per share	$	0.69	$	0.65	$	2.17	$	1.30

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Floor & Decor Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Stockholders' Equity
		Class A
											Common Stock										Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings					Total Stockholders’ Equity
																				Class A
in thousands	in thousands	Shares	Amount				Additional Paid-in Capital							Accumulated Other Comprehensive Income (Loss)									Retained Earnings								Total Stockholders' Equity					in thousands		Shares					Amount
Balance, December 27, 2019		101,458	$	101
Balance, January 1, 2021										Balance, January 1, 2021	104,368															$	104								$	408,124				$	164				$	588,996			$	997,388
Stock-based compensation expense	Stock-based compensation expense	—	—							2,908						—					—						2,908			Stock-based compensation expense				—					—					4,734				—			—	4,734
Exercise of stock options	Exercise of stock options	453	1		3,782					—					—				3,783			Exercise of stock options	195				1					2,382					—					—					2,383
Issuance of restricted stock awards	Issuance of restricted stock awards	368	—		—			—				—				0		Issuance of restricted stock awards		27				—				—					—					—					—
Shares issued under employee stock plans		30	—		1,131			—				—				1,131
Forfeiture of restricted stock awards																		Forfeiture of restricted stock awards		(2)				—				—					—					—					—
Issuance of common stock upon vesting of restricted stock units																		Issuance of common stock upon vesting of restricted stock units		25				—				—					—					—					—
Shares issued under employee stock purchase plan																		Shares issued under employee stock purchase plan		26				—				1,302					—					—					1,302
Common stock redeemed for tax liability																		Common stock redeemed for tax liability		(10)				—				(966)					—					—					(966)
Other comprehensive gain, net of tax	Other comprehensive gain, net of tax	—	—		—			68				—				68		Other comprehensive gain, net of tax		—				—				—					83					—					83
Net income	Net income	—	—		—			—				37,063				37,063		Net income		—				—				—					—					75,796					75,796
Balance, March 26, 2020		102,309	$	102	$	378,234		$	(125)			$	431,078			$	809,289
Balance, April 1, 2021																		Balance, April 1, 2021		104,629				$	105			$	415,576				$	247				$	664,792				$	1,080,720
Stock-based compensation expense	Stock-based compensation expense	—	—		4,234			—				—				4,234		Stock-based compensation expense		—				—				5,319					—					—					5,319
Exercise of stock options	Exercise of stock options	838	1		4,876			—				—				4,877		Exercise of stock options		409				—				3,943					—					—					3,943
Other comprehensive gain, net of tax		—	—		—			92				—				92
Issuance of restricted stock awards																		Issuance of restricted stock awards		2				—				—					—					—					—
Issuance of common stock upon vesting of restricted stock units																		Issuance of common stock upon vesting of restricted stock units		2				—				—					—					—					—
Shares issued under employee stock purchase plan																		Shares issued under employee stock purchase plan		21				—				1,761					—					—					1,761
Issuance of stock related to acquisition																		Issuance of stock related to acquisition		50				—				5,000					—					—					5,000
Common stock redeemed for tax liability																		Common stock redeemed for tax liability		(1)				—				(50)					—					—					(50)
Other comprehensive loss, net of tax																		Other comprehensive loss, net of tax		—				—				—					(7)					—					(7)
Net income	Net income	—	—		—			—				32,004				32,004		Net income		—				—				—					—					82,916					82,916
Balance, June 25, 2020		103,147	$	103	$	387,344		$	(33)			$	463,082			$	850,496
Balance, July 1, 2021																		Balance, July 1, 2021		105,111				$	105			$	431,549				$	240				$	747,708				$	1,179,602
Stock-based compensation expense	Stock-based compensation expense	—	—		4,400			—				—				4,400		Stock-based compensation expense		—				—				5,282					—					—					5,282
Exercise of stock options	Exercise of stock options	735	1		6,532			—				—				6,533		Exercise of stock options		468				1				5,428					—					—					5,429
Shares issued under employee stock plans		27	—		1,213			—				—				1,213

Common stock redeemed for tax liability																		Common stock redeemed for tax liability		—				—				(12)					—					—					(12)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—			89				—				89		Other comprehensive loss, net of tax		—				—				—					(36)					—					(36)
Net income	Net income	—	—		—			—				68,774				68,774		Net income		—				—				—					—					74,645					74,645
Balance, September 24, 2020		103,909	$	104	$	399,489		$	56			$	531,856			$	931,505
Balance, September 30, 2021																		Balance, September 30, 2021		105,579				$	106			$	442,247				$	204				$	822,353				$	1,264,910

~~Table of Contents~~


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders' Equity
	Class A
in thousands	Shares	Amount
Balance, December 27, 2019	101,458	$	101	$	370,413	$	(193)	$	394,015	$	764,336
Stock-based compensation expense	—	—		2,908		—		—		2,908
Exercise of stock options	453	1		3,782		—		—		3,783
Issuance of restricted stock awards	368	—		—		—		—		—
Shares issued under employee stock purchase plan	30	—		1,131		—		—		1,131
Other comprehensive gain, net of tax	—	—		—		68		—		68
Net income	—	—		—		—		37,063		37,063
Balance, March 26, 2020	102,309	$	102	$	378,234	$	(125)	$	431,078	$	809,289
Stock-based compensation expense	—	—		4,234		—		—		4,234
Exercise of stock options	838	1		4,876		—		—		4,877
Other comprehensive gain, net of tax	—	—		—		92		—		92
Net income	—	—		—		—		32,004		32,004
Balance, June 25, 2020	103,147	$	103	$	387,344	$	(33)	$	463,082	$	850,496
Stock-based compensation expense	—	—		4,400		—		—		4,400
Exercise of stock options	735	1		6,532		—		—		6,533
Shares issued under employee stock purchase plan	27	—		1,213		—		—		1,213
Other comprehensive gain, net of tax	—	—		—		89		—		89
Net income	—	—		—		—		68,774		68,774
Balance, September 24, 2020	103,909	$	104	$	399,489	$	56	$	531,856	$	931,505

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders' Equity
Class A
in thousands Shares Amount
Balance, December 28, 2018 97,588 $ 98 $ 340,462 $ 186 $ 243,563 $ 584,309
Stock-based compensation expense — — 2,250 — — 2,250
Exercise of stock options 348 — 1,776 — — 1,776
Cumulative effect from adoption of ASU No. 2016-02
— — — — (179) (179)
Shares issued under employee stock plans 61 — 1,419 — — 1,419
Other comprehensive loss, net of tax — — — (334) — (334)
Net income — — — — 30,720 30,720
Balance, March 28, 2019 97,997 $ 98 $ 345,907 $ (148) $ 274,104 $ 619,961
Stock-based compensation expense — — 2,168 — — 2,168
Exercise of stock options 1,090 1 5,375 — — 5,376
Issuance of restricted stock awards 24 — — — — 0
Other comprehensive loss, net of tax — — — (213) — (213)
Net income — — — — 43,596 43,596
Balance, June 27, 2019 99,111 $ 99 $ 353,450 $ (361) $ 317,700 $ 670,888
Stock-based compensation expense — — 2,242 — — 2,242
Exercise of stock options 1,871 2 7,908 — — 7,910
Shares issued under employee stock plans 43 — 1,026 — — 1,026
Net income — — — — 40,974 40,974
Balance, September 26, 2019 101,025 $ 101 $ 364,626 $ (361) $ 358,674 $ 723,040

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Floor & Decor Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Thirty-nine Weeks Ended
							Thirty-nine Weeks Ended
in thousands	in thousands	September 24, 2020		September 26, 2019		in thousands	September 30, 2021		September 24, 2020
Operating activities	Operating activities					Operating activities
Net income	Net income	$	137,841	$	115,290	Net income	$	233,357	$	137,841
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	67,249		53,297		Depreciation and amortization	84,496		67,249
Stock-based compensation expense						Stock-based compensation expense	15,335		11,542
Deferred income taxes						Deferred income taxes	5,599		22,173
Loss on asset impairments and disposals, net						Loss on asset impairments and disposals, net	475		84
Interest cap derivative contracts						Interest cap derivative contracts	40		264
Gain on early extinguishment of debt	Gain on early extinguishment of debt	(1,015)		0		Gain on early extinguishment of debt	—		(1,015)
Loss on asset impairments and disposals, net		84		4,111
Deferred income taxes		22,173		(6,644)
Interest cap derivative contracts		264		323
Stock-based compensation expense		11,542		6,660
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of effects of acquisition:						Changes in operating assets and liabilities, net of effects of acquisition:
Receivables, net	Receivables, net	14,008		6,166		Receivables, net	(19,785)		14,008
Inventories, net	Inventories, net	(16,596)		(12,943)		Inventories, net	(174,649)		(16,596)
Trade accounts payable	Trade accounts payable	(6,002)		4,847		Trade accounts payable	202,386		(6,002)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	40,331		26,209		Accrued expenses and other current liabilities	38,492		40,331
Income taxes	Income taxes	(22,849)		(4,871)		Income taxes	(10,838)		(22,849)
Deferred revenue	Deferred revenue	4,170		3,579		Deferred revenue	9,840		4,170
Other, net	Other, net	18,485		13,570		Other, net	(19,856)		18,485
Net cash provided by operating activities	Net cash provided by operating activities	269,685		209,594		Net cash provided by operating activities	364,892		269,685
Investing activities	Investing activities					Investing activities
Purchases of fixed assets	Purchases of fixed assets	(109,653)		(141,015)		Purchases of fixed assets	(277,688)		(109,653)
Acquisition, net of cash acquired						Acquisition, net of cash acquired	(63,567)		—
Net cash used in investing activities	Net cash used in investing activities	(109,653)		(141,015)		Net cash used in investing activities	(341,255)		(109,653)
Financing activities	Financing activities					Financing activities
Borrowings on revolving line of credit	Borrowings on revolving line of credit	275,000		100,100		Borrowings on revolving line of credit	13,466		275,000
Payments on revolving line of credit	Payments on revolving line of credit	(275,000)		(100,100)		Payments on revolving line of credit	(15,969)		(275,000)
Proceeds from term loans	Proceeds from term loans	75,000		0		Proceeds from term loans	65,000		75,000
Payments on term loans	Payments on term loans	(1,598)		(2,625)		Payments on term loans	(76,202)		(1,598)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	15,193		15,063		Proceeds from exercise of stock options	11,755		15,193
Proceeds from employee stock purchase plan						Proceeds from employee stock purchase plan	3,063		2,344
Debt issuance costs	Debt issuance costs	(6,882)		0		Debt issuance costs	(1,409)		(6,882)
Proceeds from employee stock purchase plan		2,344		2,445
Net cash provided by financing activities		84,057		14,883
Tax payments for stock-based compensation awards						Tax payments for stock-based compensation awards	(1,028)		—
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(1,324)		84,057
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	244,089		83,462		Net increase in cash and cash equivalents	22,313		244,089
Cash and cash equivalents, beginning of the period	Cash and cash equivalents, beginning of the period	27,037		644		Cash and cash equivalents, beginning of the period	307,772		27,037
Cash and cash equivalents, end of the period	Cash and cash equivalents, end of the period	$	271,126	$	84,106	Cash and cash equivalents, end of the period	$	330,085	$	271,126
Supplemental disclosures of cash flow information	Supplemental disclosures of cash flow information					Supplemental disclosures of cash flow information
Buildings and equipment acquired under operating leases	Buildings and equipment acquired under operating leases	$	129,803	$	177,953	Buildings and equipment acquired under operating leases	$	238,023	$	129,803
Cash paid for interest, net of capitalized interest	Cash paid for interest, net of capitalized interest	$	4,897	$	5,726	Cash paid for interest, net of capitalized interest	$	1,676	$	4,897
Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	$	4,272	$	12,125	Cash paid for income taxes, net of refunds	$	45,996	$	4,272
Fixed assets accrued at the end of the period	Fixed assets accrued at the end of the period	$	26,441	$	23,394	Fixed assets accrued at the end of the period	$	94,839	$	26,441

See accompanying notes to condensed consolidated financial statements.

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Floor & Decor Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

Floor & Decor Holdings, Inc., together with its subsidiaries (the “Company,” “we,” ~~“our”~~“our,” or “us”) is a highly differentiated, rapidly growing specialty retailer of hard surface flooring and related accessories. We offer a broad in-stock assortment of tile, wood, ~~laminate/luxury~~laminate, vinyl, ~~plank,~~ 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~~Do it Yourself customers (“DIY”), and customers who buy our products for professional installation (“~~Buy-it-Yourself”~~Buy it Yourself” or “BIY”). We operate within 1 reportable segment.

On June 4, 2021, the Company acquired Spartan Surfaces, Inc. (“Spartan”), a commercial specialty hard-surface flooring distribution company for total estimated purchase consideration of $77.7 million. Refer to Note 8 for additional information.

As of September ~~24, 2020,~~30, 2021, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. ~~("Outlets"~~(“Outlets”), operates ~~128~~153 warehouse-format stores, which average ~~77,000~~78,000 square feet, and 2 small-format standalone design ~~centers~~studios in 3033 states, as well as 4 distribution centers and an e-commerce site, FloorandDecor.com.

Fiscal Year

The Company’s fiscal year is the 52- or 53-week period ending on the Thursday on or preceding December 31st. Fiscal year ending December ~~31, 2020~~30, 2021 (“fiscal ~~2020”~~2021”) includes 5352 weeks, and the fiscal year ended December ~~26, 2019~~31, 2020 (“fiscal ~~2019”~~2020”) included 5253 weeks. When a 53-week fiscal year occurs, we report the additional week at the end of the fiscal fourth quarter. 52-week fiscal years consist of thirteen-week periods in each quarter of the fiscal year.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. The Condensed Consolidated Balance Sheet as of December ~~26, 2019~~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 ~~2019,~~2020, filed with the Securities and Exchange Commission (the “SEC”) on February ~~20, 2020~~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 and thirty-nine weeks ended September ~~24, 2020~~30, 2021 and September ~~26, 2019~~24, 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)~~(“COVID-19”) had become a pandemic, and on March 13, 2020, the President of the United States announced a National Emergency relating to the COVID-19 pandemic. ~~While the~~The full impact that the COVID-19 pandemic could continue to have on the ~~Company's~~Company’s business remains an evolving situation and is highly ~~uncertain, it~~uncertain. While the Company’s operations during the first thirty-nine weeks 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~~Company’s operations and financial results during the first half of fiscal ~~2020. The following summarizes certain actions taken~~2020 and could have additional negative impacts ~~from~~in the ~~COVID-19 pandemic during and subsequent to the thirteen and thirty-nine weeks ended September 24, 2020:~~

•Beginning in late March 2020, for the health and safety of its customers and employees, the Company temporarily closed some of its stores and shifted its remaining stores to a curbside pickup model. Under this model, customers were not allowed to enter the Company's stores, resulting in a significant decline in sales compared to the same period of the prior year.

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•In May, the Company began a phased approach to reopening its stores for in-store shopping with enhanced safety and sanitation measures such as requiring associates to wear face masks, installing social distancing markers on floors and protective shields at cash registers, and regularly sanitizing shopping carts, pin pads, design desks, and other high-traffic areas. By the end of the second quarter of fiscal 2020, all of the Company's stores were reopened for in-store shopping and have remained open other than for temporary cleaning or in response to certain weather events. Sales have recovered since reopening stores, with third quarter fiscal 2020 sales higher than the same period of the prior year.

•To provide additional liquidity in response to the business uncertainties resulting from the evolving COVID-19 pandemic, the Company entered into a $75.0 million incremental term loan on May 18, 2020. See Note 3, "Debt" for additional information.

•In response to the impact and uncertainties caused by the COVID-19 pandemic, the Company initially implemented a number of measures to minimize cash outlays, including lowering inventory purchases and related supply chain costs to align with reduced sales, temporarily reducing compensation for all executive officers and most employees, temporarily freezing new hiring, reducing or eliminating non-essential spending, reducing advertising spending, furloughing certain employees, and delaying or reducing rent payments and planned capital expenditures, including new store investments. Since the Company began to reopen stores for in-store shopping starting in May, many of these cost saving measures have been eliminated or relaxed as the Company's financial results have improved.

•On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted, which includes provisions related to income taxes, the temporary deferral of the employer portion of social security taxes, and retention credits for 50% of eligible wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. Refer to Note 4, "Income Taxes" for additional information.

~~The COVID-19 pandemic remains a rapidly evolving situation.~~future. The extent of the impact of the pandemic on the ~~Company's~~Company’s business and financial results will depend on future developments, including the duration of the pandemic, ~~and~~the success of vaccination programs, the spread of COVID-19, including its developing variants, within the markets in which the Company operates, as well as the ~~related impact~~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.

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Summary of Significant Accounting Policies

Other than as noted below, there have been no updates to our Significant Accounting Policies since the Annual Report. For more information regarding our Significant Accounting Policies and Estimates, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements and Supplementary Data” of our Annual Report.

~~Impairment Assessment of Goodwill and Other Indefinite-Lived Intangible Assets~~Business Combinations

The Company ~~tests goodwill and indefinite-lived intangible assets~~accounts for ~~impairment annually~~acquisitions in the fourth quarter of each fiscal year, or more often if events occur or changes in circumstances indicate that the carrying amount of goodwill or indefinite-lived intangible assets may not be recoverable. We assess the value of our goodwill and indefinite-lived intangible assets under either a qualitative or quantitative approach. Under a qualitative approach, the Company evaluates various market and other factors to determine whether it is more likely than not that the Company’s goodwill or indefinite-lived intangible assets have been impaired. In performing the qualitative assessment, the Company considers the carrying value of its single reporting unit compared to its fair value as well as events and changes in circumstances that could include, but are not limited to, a significant adverse change in customer demand or business climate, an adverse action or assessment by a regulator, and significant adverse changes in theaccordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The purchase price of an acquisition is measured as the ~~Company’s common stock. If such qualitative assessment indicates that impairment may have occurred, an additional quantitative assessment is performed by comparing the carrying~~aggregate fair value of the consideration transferred at the date of acquisition. The purchase price is allocated to the fair values of the tangible and intangible assets ~~to their respective estimated fair values. If the~~acquired and liabilities assumed, with any excess recorded ~~carrying value of goodwill or an indefinite-lived intangible asset exceeds its estimated~~as goodwill. These fair value ~~an impairment charge is recorded~~determinations require judgment and may involve the use of significant estimates and assumptions. The purchase price allocation may be provisional during a measurement period of up to ~~write~~one year from the ~~asset down~~acquisition date to ~~its estimated fair value.~~

~~Due~~provide reasonable time to obtain the ~~impact of~~information necessary to identify and measure the ~~COVID-19 pandemic on the Company’s business, the Company qualitatively assessed whether it was more likely than not~~assets acquired and liabilities assumed. Only facts and circumstances that ~~the goodwill and indefinite-lived intangible assets were impaired as of March 26, 2020. As part of this assessment, the Company considered information available~~existed as of the ~~April 30, 2020 filing~~acquisition date ~~of its first quarter fiscal 2020 10-Q related~~are considered for subsequent adjustment to the ~~negative financial impact that resulted from temporary store closures~~purchase price allocation, and ~~limited curbside operations beginning~~any such adjustment will be recognized in ~~late March. Based on this interim impairment assessment,~~ the ~~Company~~period in which it is determined ~~that its goodwill and indefinite-lived intangible assets were not impaired as of March 26, 2020. Further, the Company considered events and changes in circumstances subsequent~~prior to April 30, 2020, including the improvement in sales since reopening stores to customers for in-store shopping, and did not identify an indication of impairment of its goodwill or indefinite-lived intangible assets as of September 24, 2020.

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~~Leases~~

~~During the second and third quarters of fiscal 2020, the Company negotiated rent deferrals or abatements for a significant number of its stores due to the impact~~completion of the ~~COVID-19 pandemic. The Company has also delayed rent payments for some stores~~measurement period. Transaction costs associated with acquisitions are expensed as negotiations are in process with landlords. Total payments delayed or deferred as of September 24, 2020 were approximately $8.1 million, of which $7.1 million was included in the current portion of lease liabilities and $1.0 million was included in lease liabilities on the condensed consolidated balance sheets.

~~In accordance with Financial Accounting Standards Board ("FASB") Staff Q&A - Topic 842: "Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic"~~ issued in April 2020, the Company has elected to account for lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee as though enforceable rights and obligations for those concessions existed in the original lease agreements. For qualified rent deferrals, the Company has recognized a non-interest bearing accrued liability, which will be reduced when the deferred payment is made in the future. For qualifying rent abatement concessions, which are immaterial in aggregate, the Company is recognizing negative lease expense for the amount of the abatement on a straight-line basis over the term of the lease. During the thirteen and thirty-nine weeks ended September 24, 2020, the Company recognized approximately $0.1 million of negative lease expense related to rent abatement concessions.incurred.

Recently Adopted Accounting Pronouncements

~~Implementation Costs Incurred in Cloud Computing Arrangements.~~Simplifying the Accounting for Income Taxes. In ~~August 2018,~~December 2019, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)~~2019-12, “Income Taxes (Topic 740): ~~Customer's~~Simplifying the Accounting for ~~Implementation Costs Incurred~~Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in ~~a Cloud Computing Arrangement that is a Service Contract~~.”Topic 740. The ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurredalso clarifies and amends existing guidance to ~~develop or obtain internal-use software.~~improve consistent application among reporting entities. In the first quarter of fiscal ~~2020,~~2021, the Company adopted ASU No. ~~2018-15~~2019-12 on a prospective ~~basis for implementation costs for new or existing arrangements incurred on or after the adoption date.~~basis. The adoption of ASU No. ~~2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.~~

~~Credit Losses.~~ ~~In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~,” which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. The amended guidance requires the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions, and a reasonable and supportable forecast that affects the collectability of the related financial asset. The adoption of ASU No. 2016-13 in the first quarter of fiscal 20202019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

Reference Rate Reform. In ~~March 2020,~~January 2021, the FASB issued ASU No. ~~2020-04,~~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.

~~Simplifying the Accounting for Income Taxes.~~Presentation of Financial Statements, Financial Services—Depository and Lending, Financial Services—Investment Companies. In ~~December 2019,~~August 2021, the FASB issued ASU No. ~~2019-12, “Income Taxes~~2021-06, “Presentation of Financial Statements (Topic ~~740): Simplifying the Accounting for Income Taxes.~~205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946).” The ASU ~~simplifies~~includes Release No.33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements, including updates to business acquisition and disposition significance tests used, the significance thresholds for ~~income taxes by removing certain exceptions~~proforma statement disclosures, the number of preceding years of financial statements required for disclosure, and other provisions in the SEC releases. The guidance is effective upon its addition to the ~~general principles in Topic 740.~~FASB codification. The Company is assessing the impact of ASU No. 2021-06 but does not expect that it will have a material impact on its consolidated financial statements and related disclosures.

Business Combinations. In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU ~~also clarifies~~addresses diversity and ~~amends existing guidance~~inconsistency related to ~~improve consistent application among reporting entities. The guidance will be~~the recognition and measurement of contract assets and contract liabilities acquired in a business combination and require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. This standard is effective for fiscal years ~~and~~beginning after December 15, 2022, including interim periods within those fiscal years, ~~beginning~~and should be applied prospectively to business combinations occurring on or after ~~December 15, 2020, with early~~the effective date of the amendments. Early adoption ~~permitted.~~of the standard is permitted, including adoption in an interim period. The ~~Company is currently evaluating the impact~~adoption of ~~adopting~~ this standard update is not expected to have a material impact on ~~its~~the Company's consolidated financial ~~statements.~~statements and related disclosures.

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2. ~~Revenues~~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.

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Deferred Revenue & Contract Liabilities

Under ~~Accounting Standards Codification (“ASC”)~~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 September ~~24, 2020~~30, 2021 and December ~~26, 2019~~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 September ~~24, 2020,~~30, 2021, contract liabilities totaled ~~$23.6~~$43.0 million and included ~~$10.9~~$21.2 million of deferred revenue, ~~$10.5~~$18.4 million of loyalty program liabilities, and ~~$2.2~~$3.4 million of unredeemed gift cards. As of December ~~26, 2019,~~31, 2020, contract liabilities totaled ~~$15.5~~$24.8 million and included ~~$6.7~~$10.1 million of deferred revenue, ~~$6.6~~$12.1 million of loyalty program liabilities, and ~~$2.2~~$2.6 million of unredeemed gift cards. Of the contract liabilities outstanding as of December ~~26, 2019, $8.7~~31, 2020, approximately $8.5 million was recognized in revenue during the thirty-nine weeks ended September ~~24, 2020.~~30, 2021.

Disaggregated Revenue

The Company has ~~1 operating segment and~~ 1 reportable segment. The following table presents the net sales of each major product category (in thousands):


		Thirteen Weeks Ended
		September 24, 2020				September 26, 2019
											Thirteen Weeks Ended
											September 30, 2021				September 24, 2020 (1)
Product Category	Product Category	Net Sales		% of Net Sales		Net Sales		% of Net Sales		Product Category	Net Sales		% of Net Sales		Net Sales		% of Net Sales
Laminate / luxury vinyl plank										Laminate / luxury vinyl plank	$	230,279	26	%	$	157,795	23	%
Tile	Tile	$	173,466	25	%	$	133,340	26	%	Tile	201,674		23		173,466		25
Laminate / luxury vinyl plank		157,795		23		116,037		22
Decorative accessories / wall tile(1)	Decorative accessories / wall tile(1)	135,868		20		100,357		19		Decorative accessories / wall tile(1)	160,195		18		130,136		19
Installation materials and tools	Installation materials and tools	113,202		17		88,197		17		Installation materials and tools	138,794		16		113,202		17
Wood	Wood	60,515		9		51,807		10		Wood	64,798		7		60,515		9
Natural stone	Natural stone	41,712		6		31,511		6		Natural stone	48,267		6		41,712		6
Other (1)		2,289		0		(156)		0
Adjacent categories (1)										Adjacent categories (1)	13,685		2		5,732		1
Other (2)										Other (2)	18,861		2		2,289		—
Total	Total	$	684,847	100	%	$	521,093	100	%	Total	$	876,553	100	%	$	684,847	100	%


	Thirty-nine Weeks Ended
	September 30, 2021				September 24, 2020 (1)
Product Category	Net Sales		% of Net Sales		Net Sales		% of Net Sales
Laminate / luxury vinyl plank	$	630,956	25	%	$	388,216	23	%
Tile	599,489		24		427,359		25
Decorative accessories / wall tile (1)	481,525		19		325,397		19
Installation materials and tools	410,764		16		280,991		17
Wood	193,087		8		151,411		9
Natural stone	149,501		6		106,908		6
Adjacent categories (1)	39,508		2		11,615		1
Other (2)	14,368		—		10,239		—
Total	$	2,519,198	100	%	$	1,702,136	100	%

Thirty-nine Weeks Ended
September 24, 2020 September 26, 2019
Product Category Net Sales % of Net Sales Net Sales % of Net Sales
Tile $ 427,359 25 % $ 394,969 26 %
Laminate / luxury vinyl plank 388,216 23 321,757 21
Decorative accessories / wall tile 337,012 20 292,391 19
Installation materials and tools 280,991 17 256,498 17
Wood 151,411 9 153,799 10
Natural stone 106,908 6 95,301 6
Other (1) 10,239 0 3,739 1
Total $ 1,702,136 100 % $ 1,518,454 100 %

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(1) To conform to the current period presentation, the presentation of revenue by product category for the thirteen and thirty-nine weeks ended September 24, 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, sample, and other product revenue ~~less~~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.

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3. Debt

The following table summarizes the ~~Company's~~Company’s long-term debt as of September ~~24, 2020~~30, 2021 and December ~~26, 2019:~~31, 2020:


in thousands	in thousands	September 24, 2020		December 26, 2019		in thousands	Maturity Date	Interest Rate Per Annum at September 30, 2021		September 30, 2021		December 31, 2020
Credit Facilities:	Credit Facilities:					Credit Facilities:
UBS Facility Term Loan B		$	143,902	$	145,500
UBS Facility Term Loan B-1		75,000		0
Wells Facility Revolving Line of Credit		0		0
Term Loan B						Term Loan B	February 14, 2027	2.09%	Variable	$	206,602	$	143,179
Term Loan B-1						Term Loan B-1	February 14, 2027	n/a		—		74,625

Total secured debt at par value	Total secured debt at par value	218,902		145,500		Total secured debt at par value				206,602		217,804
Less: current maturities						Less: current maturities				1,577		1,647
Long-term debt maturities						Long-term debt maturities				205,025		216,157
Less: unamortized discount and debt issuance costs	Less: unamortized discount and debt issuance costs	9,364		2,894		Less: unamortized discount and debt issuance costs				9,160		9,000
Net carrying amount		209,538		142,606
Less: current maturities		2,745		0
Total long-term debt	Total long-term debt	$	206,793	$	142,606	Total long-term debt				$	195,865	$	207,157
Total debt at fair value	Total debt at fair value	$	214,524	$	145,136	Total debt at fair value				$	204,536	$	215,626

n/a - not applicable

Market risk associated with the ~~Company's~~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~~Company’s estimates of interest rates, maturities, credit risk, and underlying collateral and is classified as Level 3 within the fair value hierarchy.

The following table summarizes scheduled maturities of the Company’s debt, including current maturities, as of September ~~24, 2020:~~30, 2021:


in thousands	in thousands	Amount		in thousands	Amount
Fourteen weeks ending December 31, 2020		$	1,098
2021		1,647
Thirteen weeks ending December 30, 2021				Thirteen weeks ending December 30, 2021	$	—
2022	2022	2,196		2022	2,103
2023	2023	2,196		2023	2,103
2024	2024	2,196		2024	2,103
2025				2025	2,103
Thereafter ~~(1)~~	Thereafter ~~(1)~~	209,569		Thereafter ~~(1)~~	198,190
Total minimum debt payments	Total minimum debt payments	$	218,902	Total minimum debt payments	$	206,602

~~(1)Thereafter maturities~~Components of interest expense are ~~comprised of$137.8 million due under~~as follows for the ~~term loan B facility and $71.8 million due under the term loan B-1 facility through February 14, 2027.~~periods presented:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended
in thousands	September 30, 2021		September 24, 2020		September 30, 2021		September 24, 2020
Total interest costs	$	1,906	$	2,489	$	5,737	$	6,915
Interest capitalized	782		465		1,932		781
Interest expense, net	$	1,124	$	2,024	$	3,805	$	6,134

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~~Credit Facility Amendments~~

Term Loan Facility

On February ~~14, 2020, the Company~~9, 2021 (the “Effective Date”), Outlets entered into a ~~repricing and third~~fifth amendment to the credit agreement governing its senior secured term loan facility ~~(the "Term~~(as amended, the “Term Loan ~~Facility"~~Facility”) ~~which,~~. The fifth amendment provided for, among other things, ~~(a) refinanced~~a supplemental term loan in the ~~existing~~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, ~~with~~except that voluntary prepayments made within six months after the Effective Date are subject to a ~~new term loan B facility in the same aggregate principal amount~~1% soft call prepayment premium. The other terms of approximately $144.6 million, and (b) extended the stated maturity date under the Term Loan Facility to February 14, 2027. The Term Loan Facility also includes an “accordion” feature that allows the Company, under certain circumstances, to increase the size of the Term Loan Facility by an amount up to the greater of $270.0 million or 100.0% of Consolidated EBITDA (as defined in the Term Loan Facility), plus additional amounts (x) if such increase is secured on a pari passu basis with the loans under the Term Loan Facility ~~up to a Consolidated First Lien Leverage Ratio (as defined in~~remain unchanged, including the Term Loan Facility) of 2.50:1.00, (y) if such increase is secured on a junior basis with the loans under the Term Loan Facility, up to a Consolidated Secured Leverage Ratio (as defined in the Term Loan Facility) of 3.50:1.00 and (z) if such increase is unsecured, up to a Consolidated Total Leverage Ratio (as defined in the Term Loan Facility) of 3.50:1.00, subject to certain additional adjustments, which, under certain circumstances, allowapplicable margin for ~~a Consolidated Total Leverage Ratio of up to 4.50:1.00.~~

~~The third amendment to the Term Loan Facility also amended the margin applied to~~ loans under the term loan B facility. 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 toand (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)~~, from 1.75% or 1.50% per annum (based on credit rating tests) to~~ 1.00% per annum (subject ~~to satisfying a leverage ratio test and subject~~ to a leverage-based step-up to 1.25% if ~~such~~Outlets exceeds certain leverage ratio ~~test is exceeded)~~tests), and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility)~~, from 2.75% or 2.50% per annum (based on credit rating tests) to~~ 2.00% per annum (subject ~~to satisfying a leverage ratio test and subject~~ to a leverage-based step-up to 2.25% if ~~such~~Outlets exceeds certain leverage ratio ~~test is exceeded) (subject to~~tests and a 0.00% floor on Eurodollar Loans). ~~The material terms of the Term Loan Facility were otherwise unchanged.~~

On May 18, 2020, to provide additional liquidity in response to the business uncertainties resulting from the evolving COVID-19 pandemic, the Company entered into a fourth amendment to the Term Loan Facility, which, among other things, (a) provides for a ~~new incremental term loan facility in an aggregate principal amount of $75.0 million with a maturity date of February 14, 2027 (the “term loan B-1~~ facility”). The Company received net proceeds of $70.5 million from the term loan B-1 facility after deducting a $4.1 million original issuance discount and $0.3 million of debt issuance costs to third parties. The Company intends to use the net proceeds to support its growth plans and for general corporate purposes. The ~~term loan B-1 facility is a separate tranche from the Company's existing term loan B facility. The terms of loans under the term loan B facility remain unchanged.~~

The Term Loan Facility provides a margin for loans under the term loan B-1 facility of (x) in the case of ABR Loans (as defined in the Term Loan Facility), 3.00% per annum, and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility), 4.00% per annum (subject to a 1.00% floor on Eurodollar Loans). At September 24, 2020, the applicable interest rate for borrowings was 2.2% for the term loan B facility and 5.0% for the term loan B-1 facility.

All obligations under the Term Loan Facility (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.~~

~~Gain on Debt Extinguishment~~facility (“ABL Facility”).

~~During the second quarter of fiscal 2020, the~~The Company evaluated the ~~fourth~~fifth amendment to the Term Loan Facility in accordance with ASC 470-50, "Debt ~~- Modifications and Extinguishments~~,~~" on a lender-by-lender basis~~ and determined that the ~~incremental term loan borrowing~~amendment resulted in a debt modification that was ~~provided entirely by one lender and its affiliates. As this lender held a portion~~not an extinguishment. Therefore, no loss on debt extinguishment was recognized. The Company incurred costs of $1.6 million in connection with the ~~existing Term Loan Facility debt, the Company performed the 10% cash flow test pursuant~~refinancing which were comprised of (i) $1.4 million of fees to ~~ASC 470-50-40-10 and concluded~~creditors that ~~the results exceeded the 10% threshold. As a result, the Company~~were accounted for ~~this transaction~~ as a partial extinguishment and derecognized the existing debt held by this lender and recorded the new debt at fair value. Based on the difference between the reacquisition price and carrying amount of debt, the Company recognized a $1.0 million gain on early extinguishment of debt during the second quarter of fiscal 2020, which included the original issuance discount of $4.1 million and $0.5 million of unamortized debt issuance costs ~~related~~and are amortizing to interest expense over the ~~extinguished debt as part~~term of ~~the calculation.~~

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~~ABL Facility~~

On February 14, 2020, the Company also entered into a repricing and general amendment to the credit agreement governing its revolving credit facility (as amended, the “ABL Facility” and together with the Term Loan Facility using the ~~"Credit Facilities"), which, among~~interest method and (ii) $0.2 million of professional fees to other ~~things, (a) increased its revolving commitments to a total aggregate principal amount~~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 ~~$400.0 million,~~operations and ~~(b) extended the stated maturity date under the ABL~~comprehensive income.

Asset-based Loan Facility to February 14, 2025. The ABL Facility also includes an “accordion” feature that allows the Company under certain circumstances, to increase the size of the facility by an amount up to $100.0 million, or such higher amount as may be agreed to by the Required Lenders (as defined in the ABL Facility).

The amendment to the ABL Facility also amended the margin applied to loans and letters of credit to (x) in the case of Base Rate Loans (as defined in the ABL Facility), from 0.25% or 0.50% per annum (based on availability) to a flat rate of 0.25% per annum, (y) in the case of LIBO Rate Loans (as defined in the ABL Facility) and letter of credit fees for standby letters of credit, from 1.25% or 1.50% per annum (based on availability) to a flat rate of 1.25% per annum (subject to a 0.00% floor on LIBO Rate Loans) and (z) in the case of letter of credit fees for commercial letters of credit, from 0.75% or 1.00% per annum (based on availability) to a flat rate of 0.75% per annum. The material terms of the ABL Facility were otherwise unchanged.(“ABL”)

As of September ~~24, 2020,~~30, 2021, the ~~Company's~~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 has a maturity date of February 14, 2025 and is available for issuance of letters of credit and contains a sublimit of $50.0 million for standby letters of credit and commercial letters of credit combined. Available borrowings under the facility are reduced by the face amount of outstanding letters of credit.

All obligations under the ABL Facility are secured by (1) a first-priority security interest in the cash and cash equivalents, accounts receivable, inventory, and related assets of Outlets and the other guarantors under the ABL Facility, with certain exceptions, and (2) a second-priority security interest in substantially all of the other property and assets of Outlets and the other guarantors under the Term Loan Facility.

Net availability under the ABL Facility, as reduced by outstanding letters of credit of ~~$20.3~~$21.2 million, was ~~$357.4~~$378.8 million based on financial data as of September ~~24, 2020.~~30, 2021.

Spartan Revolving Line of Credit Facility

In connection with its June 4, 2021 acquisition of Spartan, the Company assumed Spartan’s existing short-term line of credit facility (the “Spartan LOC”), which has a maximum borrowing availability of $8.0 million with actual available borrowings based on Spartan’s eligible working capital balances. The Spartan LOC is an on-demand line of credit that has no stated maturity date, although it is cancellable at any time by either the Company or the lender with any amounts outstanding upon cancellation becoming immediately due and payable. Net availability under the Spartan LOC was $8.0 million as of September 30, 2021.

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Covenants

The credit agreements governing the Term Loan Facility, ~~and~~ ABL Facility, and Spartan LOC contain customary restrictive covenants, which, among other things and with certain exceptions, limit the Company’s ability to (i) incur additional indebtedness and liens in connection with such indebtedness, (ii) pay dividends and make certain other restricted payments, (iii) effect mergers or consolidations, (iv) enter into transactions with affiliates, (v) sell or dispose of property or assets, and (vi) engage in unrelated lines of business. In addition, these credit agreements subject the Company to certain reporting obligations and require that the Company satisfy certain financial covenants, including, among other things, a requirement that if borrowings under the ABL Facility exceed 90% of availability, the Company will maintain a certain fixed charge coverage ratio (defined as Consolidated EBITDA less non-financed capital expenditures and income taxes paid to consolidated fixed charges, in each case as more fully defined in the ABL Facility).

The Term Loan Facility has no financial maintenance covenants. The Company is currently in compliance with all material covenants under the credit agreements.

4. Income Taxes

Effective tax rates for the thirteen and thirty-nine weeks ended September ~~24, 2020~~30, 2021 and September ~~26, 2019~~24, 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 ~~10.4%~~9.3% and ~~(39.3)%~~10.4% for the thirteen weeks ended September ~~24, 2020~~30, 2021 and September ~~26, 2019,~~24, 2020, respectively. The Company’s effective income tax rate was ~~2.5%~~14.9% and ~~(4.9)%~~2.5% for the thirty-nine weeks ended September ~~24, 2020~~30, 2021 and September ~~26, 2019,~~24, 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. Additionally, the thirty-nine weeks ended September 24, 2020 included income tax benefits resulting from the enactment of the CARES Act.

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The Company recognizes discrete expense for loss contingencies related to uncertain tax positions, including estimated interest and penalties. The Company recognized ~~a $0.3 million benefit~~no expense related to uncertain tax positions during the thirteen and thirty-nine weeks ended September ~~24, 2020; 0~~30, 2021. The Company recognized a $0.3 million benefit and $2.2 million expense related to uncertain tax positions ~~was recognized~~ during the thirteen ~~weeks ended September 26, 2019. The Company recognized $2.2 million~~ and ~~$0.1 million of such expense during the~~ thirty-nine weeks ended September 24, 2020, ~~and September 26, 2019,~~ respectively.

The Company accounts for income taxes under the 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~~become 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.~~740, Income Taxes. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an ~~enterprise's~~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~~Condensed Consolidated Balance Sheets and within income tax expense in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive income.~~Comprehensive Income.

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Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

The ~~CARES~~Coronavirus Aid, Relief, and Economic Security Act ~~includes,~~(the “CARES Act”) provides for, among other things, income tax provisions allowing for the temporary five-year carryback of net operating losses generated in 2018, 2019, and 2020, temporary modifications to the limitations placed on interest deductions, and technical corrections of tax depreciation methods for qualified improvement property ("QIP"), which changes 39-year property to 15-year property eligible for 100% tax bonus depreciation. In addition, the CARES Act includes provisions such as the temporary deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. ~~The Company has made estimates of~~In December 2020, the ~~effect~~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 ~~will adjust estimates, if needed, as new legislation or guidance becomes available.~~

~~As a result~~expanded the availability of ~~the faster tax depreciation methods allowed under~~ the CARES Act for QIP and the retroactive application of those methods for QIP placed in service during fiscal 2018 and 2019, the Company incurred a fiscal 2019 net operating loss for federal income tax purposes that was carried back to prior years during which the federal tax rate was 35%, resulting in a $7.7 million income tax benefit during the second quarter of fiscal 2020. The Company expects to receive an estimated $28.4 million of cash refunds related to the accelerated QIP depreciation and the carry back of the fiscal 2019 net operating loss. Furthermore, the Company expects the changes to QIP depreciation to result in reductions to estimated income tax payments for fiscal 2020.employee retention credit through December 31, 2021.

As of September ~~24, 2020,~~30, 2021, the Company has deferred ~~$7.1~~$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. ~~Deferred~~Of the deferred employer social security taxes ~~are~~outstanding as of September 30, 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.

~~In addition,~~During the thirty-nine weeks ended September 30, 2021 and September 24, 2020, the Company ~~recorded a credit of $0.3 million related to~~recognized employee retention credits ~~made available under~~totaling $1.0 million and $1.4 million, respectively. No employee retention credits were recognized during the ~~CARES Act~~thirteen weeks ended September 30, 2021, while the Company recognized $0.3 million of employee retention credits during the thirteen weeks ended September 24, ~~2020 that was~~2020. Within the Condensed Consolidated Statements of Operations and Comprehensive Income, employee retention credits recorded during the periods presented were recognized as ~~an offset~~a reduction to selling and store operating expenses ~~within~~with the ~~condensed consolidated statements~~exception of ~~operations and comprehensive income. The Company recorded $1.4~~$0.2 million of ~~employee retention~~such credits ~~during the thirty-nine weeks ended September 24, 2020, of which $1.2 million was recognized as an offset to selling and store operating expenses and $0.2 million was~~that were recognized as an offset to general and administrative expenses ~~within~~during the ~~condensed consolidated statements of operations and comprehensive income.~~thirty-nine weeks ended September 24, 2020.

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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~~Company’s long-term operating lease agreements are for its corporate office, retail locations, and distribution centers, which expire in various years through 2041. 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 building~~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~~Company’s leases do not provide a readily determinable implicit rate. If the rate implicit in the lease is not readily determinable, we use a third party to assist in the determination of a secured incremental borrowing rate, determined on a collateralized basis, to discount lease payments based on information available at lease commencement. The secured incremental borrowing rate is estimated based on yields obtained from Bloomberg for U.S. consumers with a BB- credit rating and is adjusted for collateralization as well as inflation. As of September 30, 2021 and September 24, 2020, ~~and September 26, 2019,~~ the ~~Company's~~Company’s weighted average discount rate was ~~5.3%~~5.2% and ~~5.2%~~5.3%, ~~respectively. As of both September 24, 2020~~respectively, and ~~September 26, 2019,~~ the ~~Company's~~Company’s weighted average remaining lease term was approximately 11 years and 10 ~~years.~~years, respectively.

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Lease Costs

The table below presents components of lease expense for operating leases.

Thirteen Weeks Ended Thirty-nine Weeks Ended
in thousands Classification (2) September 24, 2020 September 26, 2019 September 24, 2020 September 26, 2019
Operating lease cost (1): Selling and store operating $ 26,549 $ 22,969 $ 77,325 $ 65,286
Cost of sales 5,676 4,005 17,005 11,996
Pre-opening 2,230 1,988 6,103 4,913
General and administrative 1,029 1,016 3,088 2,712
Operating lease right-of-use asset impairment General and administrative 0 4,136 0 4,136
Sublease income Cost of sales (597) (588) (1,791) (1,817)
Total lease cost $ 34,887 $ 33,526 $ 101,730 $ 87,226


		Thirteen Weeks Ended				Thirty-nine Weeks Ended
in thousands	Classification	September 30, 2021		September 24, 2020 (3)		September 30, 2021		September 24, 2020 (3)
Fixed operating lease cost:	Selling and store operating	$	31,940	$	26,549	$	91,528	$	77,325
	Cost of sales	5,668		5,676		16,984		17,005
	Pre-opening	3,272		2,230		7,927		6,103
	General and administrative	1,029		1,029		3,088		3,088
Total fixed operating lease cost		$	41,909	$	35,484	$	119,527	$	103,521

Variable lease cost (1):	Selling and store operating	$	10,605	$	8,583	$	30,356	$	25,702
	Cost of sales	1,101		1,397		3,693		3,616
	Pre-opening	13		128		83		297
	General and administrative	78		40		(10)		112
Total variable lease cost		$	11,797	$	10,148	$	34,122	$	29,727

Sublease income	Cost of sales	(597)		(597)		(1,791)		(1,791)

Total operating lease cost (2)		$	53,109	$	45,035	$	151,858	$	131,457

(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 and thirty-nine weeks ended September ~~24, 2020~~30, 2021 and September ~~26, 2019.~~24, 2020.

~~(2) Certain prior period balances related to operating lease costs and sublease income have been reclassified within this table to~~(3) To conform to the current period ~~presentation.~~

~~Table~~presentation, the presentation of ~~Contents~~

the components of operating lease expense for the thirteen weeks and thirty-nine weeks ended September 24, 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.

Undiscounted Cash Flows

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of September ~~24, 2020~~30, 2021 were as follows:


in thousands	in thousands	Amount		in thousands	Amount
Fourteen weeks ending December 31, 2020		$	135,857
2021		139,457
Thirteen weeks ending December 30, 2021				Thirteen weeks ending December 30, 2021	$	40,422
2022	2022	133,226		2022	159,154
2023	2023	133,531		2023	162,826
2024	2024	124,733		2024	158,644
2025				2025	147,164
Thereafter	Thereafter	663,679		Thereafter	970,806
Total minimum lease payments (2)		$	1,330,483
Total minimum lease payments (1) (2)				Total minimum lease payments (1) (2)	1,639,016
Less: amount of lease payments representing interest	Less: amount of lease payments representing interest	322,973		Less: amount of lease payments representing interest	433,966
Present value of future minimum lease payments	Present value of future minimum lease payments	1,007,510		Present value of future minimum lease payments	1,205,050
Less: current obligations under leases	Less: current obligations under leases	92,809		Less: current obligations under leases	98,238
Long-term lease obligations	Long-term lease obligations	$	914,701	Long-term lease obligations	$	1,106,812

~~(2)~~(1) Future lease payments exclude approximately ~~$47.3~~$74.2 million of legally binding minimum lease payments for operating leases signed but not yet commenced.

(2) Operating lease payments include $108.5 million related to options to extend lease terms that are reasonably certain of being exercised.

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For the thirty-nine weeks ended September ~~24, 2020~~30, 2021 and September ~~26, 2019,~~24, 2020, cash paid for operating leases was ~~$92.6~~$115.7 million and ~~$80.2~~$92.6 million, respectively.

Litigation

~~On May 20, 2019, an alleged stockholder of the Company filed a putative class action lawsuit,~~ ~~Taylor v. Floor & Decor Holdings, Inc., et al.~~, No. 1:19-cv-02270-SCJ (N.D. Ga.), in the United States District Court for the Northern District of Georgia against the Company and certain of our officers, directors and stockholders. On August 14, 2019, the Court named a lead plaintiff, and the case was re-captioned ~~In re Floor & Decor Holdings, Inc. Securities Litigation~~, No. 1:19-cv-02270-SCJ (N.D. Ga.). The operative complaint alleged certain violations of federal securities laws based on, among other things, purported materially false and misleading statements and omissions allegedly made by the Company between May 23, 2018 and August 1, 2018 and sought class certification, unspecified monetary damages, costs and attorneys’ fees and equitable relief. The Company denied the material allegations and moved to dismiss the lawsuit. On September 21, 2020, the District Court granted the Company’s motion to dismiss in its entirety. The plaintiff did not appeal that decision, meaning the dismissal is final.

On June 18, 2020, an alleged stockholder filed a putative derivative complaint, Lincolnshire Police Pension Fund v. Taylor, et al., No. 2020-0487-JTL, in the Delaware Court of Chancery, purportedly on behalf of the Company against certain of the Company’s officers, directors, and stockholders. The complaint alleges breaches of fiduciary duties and unjust enrichment. The factual allegations underlying these claims are similar to the factual allegations made in the previously dismissed In re Floor & Decor Holdings, Inc. Securities Litigation described ~~above.~~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.

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The Company is also subject to various other legal actions, claims and proceedings arising in the ordinary course of business, which may include claims related to general liability, workers’ compensation, product liability, intellectual property and employment-related matters resulting from ~~our~~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.

6. Stock-based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, ~~Compensation- Stock~~Compensation-Stock Compensation, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of forfeitures, over the requisite service period for awards expected to vest. Stock-based compensation expense for the thirty-nine weeks ended September 30, 2021 and September 24, 2020 ~~and September 26, 2019~~ was ~~$11.5~~$15.3 million and ~~$6.7~~$11.5 million, respectively, and was included in general and administrative expenses onwithin the Company’s ~~condensed consolidated statement~~Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive income.~~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 thirty-nine weeks ended September ~~24, 2020~~30, 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 ~~activity~~grants are generally subject to forfeiture if employment terminates prior to vesting.

The fair value of stock option awards granted during the thirty-nine weeks ended September ~~24, 2020~~30, 2021 was ~~as follows:~~

Options Weighted Average Exercise Price
Outstanding at December 27, 2019 6,037,079 $ 13.64
Granted 279,504 57.25
Exercised (2,027,087) 7.49
Forfeited or expired (100,539) 25.10
Outstanding at September 24, 2020 4,188,957 $ 19.25
Vested and exercisable at September 24, 2020 2,083,405 $ 11.03

~~The Company~~ estimated ~~the fair value of stock option grants~~ using the Black-Scholes-Merton option pricing model with the following ~~weighted average assumptions during the period:~~weighted-average assumptions:


	~~Thirty-nine Weeks Ended~~
	~~September 24, 2020~~
~~Risk-free interest rate~~	~~1.21~~	%
~~Expected volatility~~	~~38.7~~	%
~~Expected life (in years)~~	~~5.75~~
~~Dividend yield~~	0	%


	Thirty-nine Weeks Ended
	September 30, 2021
Weighted average fair value per stock option	$	41.75
Risk-free interest rate	0.8%
Expected volatility	48.1%
Expected life (in years)	5.4
Dividend yield	—%

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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 ~~weighted average grant date fair value of~~table below summarizes stock ~~options granted during~~option activity for the thirty-nine weeks ended September ~~24, 2020 was $21.81.~~ 30, 2021:


	Options	Weighted Average Exercise Price
Outstanding at January 1, 2021	3,740,604	$	20.72
Granted	66,505	95.68
Exercised	(1,071,838)	10.98
Forfeited or expired	(48,988)	39.03
Outstanding at September 30, 2021	2,686,283	$	26.13
Vested and exercisable at September 30, 2021	1,689,127	$	17.80

The ~~Company’s~~ total unrecognized compensation cost related to stock options as of September ~~24,~~30, 2021 and December 31, 2020 was ~~$17,917 thousand, which~~$11.6 million and $16.0 million, respectively. The unrecognized compensation cost remaining as of September 30, 2021 is expected to be recognized over a weighted average period of ~~2.4~~2.0 years.

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Restricted Stock Units

During the thirty-nine weeks ended September ~~24, 2020,~~30, 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 thirty-nine weeks ended September ~~24, 2020:~~30, 2021:


			Restricted Stock Units
Unvested at ~~December 27, 2019~~January 1, 2021			0128,220
Granted			~~115,765~~123,362
Vested			0 (26,968)
Forfeited			~~(3,728)~~(12,472)
Unvested at September ~~24, 2020~~30, 2021			~~112,037~~212,142

The ~~weighted average grant date fair value of the restricted stock units granted during the thirty-nine weeks ended September 24, 2020 was $56.89. The Company’s~~ total unrecognized compensation cost related to restricted stock units as of September ~~24,~~30, 2021 and December 31, 2020 was ~~$5,470 thousand, which~~$14.5 million and $6.2 million, respectively. The unrecognized compensation cost remaining as of September 30, 2021 is expected to be recognized over a weighted average period of ~~3.4~~3.2 years.

Restricted Stock Awards

During the thirty-nine weeks ended September ~~24, 2020,~~30, 2021, the Company issued service-based restricted stock awards to certain executive officers and non-employee directors comprised of performance-based restricted stock, total shareholder return (“TSR”) awards, and service-based restricted stock. The performance-based restricted stock cliff vest based on (i) the Company's achievement of predetermined financial metrics at the end of a three-year performance period and (ii)that are subject to the grantee’s continued service through the applicable vesting date. ~~The TSR~~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 ~~based~~ on ~~(i)~~ the ~~Company's relative TSR compared to a specified peer group, with no vesting unless the Company’s TSR exceeds the median of the specified peer group and (ii)~~first anniversary from the grant ~~recipient continues service through the vesting~~ date.

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The following table summarizes restricted stock award activity during the thirty-nine weeks ended September ~~24, 2020:~~30, 2021:


		Restricted Stock Awards				Restricted Stock Awards
		Service-based	Performance-based	TSR		Service-based	Performance-based	Total Stock Return (TSR)
Unvested at December 27, 2019		37,032	0	0
Unvested at January 1, 2021					Unvested at January 1, 2021	131,844	160,315	104,456
Granted	Granted	102,931	160,315	104,456	Granted	28,814	—	—
Vested	Vested	(3,870)	0	0	Vested	(13,555)	—	—
Forfeited	Forfeited	0	0	0	Forfeited	(2,508)	—	—
Unvested at September 24, 2020		136,093	160,315	104,456
Unvested at September 30, 2021					Unvested at September 30, 2021	144,595	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. ~~The weighted average grant date fair value of the respective awards granted during the thirty-nine weeks ended September 24, 2020 was $53.85.~~ As of September ~~24,~~30, 2021 and December 31, 2020, total unrecognized compensation cost related to unvested restricted stock awards was ~~$16,850 thousand, which~~$12.7 million and $15.2 million, respectively. The unrecognized compensation cost remaining as of September 30, 2021 is expected to be recognized over a weighted average period of ~~2.9~~2.1 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				Thirty-nine Weeks Ended
											Thirteen Weeks Ended				Thirty-nine Weeks Ended
in thousands, except per share data	in thousands, except per share data	September 24, 2020		September 26, 2019		September 24, 2020		September 26, 2019		in thousands, except per share data	September 30, 2021		September 24, 2020		September 30, 2021		September 24, 2020
Net income	Net income	$	68,774	$	40,974	$	137,841	$	115,290	Net income	$	74,645	$	68,774	$	233,357	$	137,841
Basic weighted average shares outstanding	Basic weighted average shares outstanding	103,180		100,137		102,308		98,855		Basic weighted average shares outstanding	104,899		103,180		104,506		102,308
Dilutive effect of share-based awards	Dilutive effect of share-based awards	3,199		5,043		3,500		5,957		Dilutive effect of share-based awards	2,587		3,199		2,795		3,500
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	106,379		105,180		105,808		104,812		Diluted weighted average shares outstanding	107,486		106,379		107,301		105,808
Basic earnings per share	Basic earnings per share	$	0.67	$	0.41	$	1.35	$	1.17	Basic earnings per share	$	0.71	$	0.67	$	2.23	$	1.35
Diluted earnings per share	Diluted earnings per share	$	0.65	$	0.39	$	1.30	$	1.10	Diluted earnings per share	$	0.69	$	0.65	$	2.17	$	1.30

The following ~~share-based awards have been~~potentially dilutive securities were excluded from the computation of ~~dilutive~~diluted earnings per share ~~because~~as a result of their ~~effect would be anti-dilutive:~~anti-dilutive effect:

Thirteen Weeks Ended

Thirty-nine Weeks Ended

Thirteen Weeks Ended

Thirty-nine Weeks Ended

in thousands

September 24, 2020

September 26, 2019

September 24, 2020

September 26, 2019

in thousands

September 30, 2021

September 24, 2020

September 30, 2021

September 24, 2020

Stock options

266

281

481

997

Stock options

266

481

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8. Acquisition

On June 4, 2021 (“acquisition date” or “closing date”), the Company acquired Spartan Surfaces, Inc. (“Spartan”), a commercial specialty hard-surface flooring distribution company, for total estimated purchase consideration of $77.7 million. The acquisition was accounted for in accordance with ASC 805, Business Combinations, and, accordingly, Spartan’s results of operations, financial position, and cash flows have been consolidated in the Company’s condensed consolidated financial statements since the date of acquisition. Net sales and net earnings for fiscal 2021 attributable to Spartan since the completion of the acquisition were immaterial. Results of operations would not be materially different as a result of the acquisition and therefore pro forma information is not presented. During the thirteen and thirty-nine weeks ended September 30, 2021, we recognized acquisition-related costs totaling $0.1 million and $3.3 million, respectively, within general and administrative expenses within the Condensed Consolidated Statements of Operations and Comprehensive Income.

The following table summarizes the fair values of the components of the purchase price as of the acquisition date:


in thousands
Cash, net of cash acquired	$	63,567
Floor and Decor Class A common stock	5,000
Contingent consideration	9,090
Total purchase price	$	77,657

The contingent consideration represents the estimated fair value associated with potential earn-out payments to the seller of up to $18.0 million subject to Spartan's achievement of certain financial performance targets in fiscal years 2021 through 2024. Of the total earn-out consideration, $9.0 million is related to the achievement of certain annual adjusted EBITDA margin targets, and $9.0 million is related to the achievement of certain annual gross profit targets. A portion of these earn-out opportunities are payable each year subject to achievement of the applicable performance targets for that year, with the maximum payout requiring that each of the individual annual targets are met. The Company determined the fair value of the contingent earn-out consideration (“contingent earn-out liability”) with assistance from a third-party valuation specialist using a Monte Carlo valuation method. Significant assumptions included the amount and timing of projected cash flows, growth rates, volatility, and the discount factor. The contingent earn-out liability is classified as Level 3 within the fair value hierarchy due to the use of unobservable inputs that are significant to its valuation and is required to be remeasured at each reporting date through the applicable earn-out periods, with any resulting gains or losses recognized in general and administrative expenses in the period of remeasurement.

For the thirteen and thirty-nine weeks ended September 30, 2021, a $0.3 million net increase in the fair value of the contingent earn-out liability was recognized in general and administrative expense within the Condensed Consolidated Statements of Operations and Comprehensive Income. As of September 30, 2021, the estimated fair value of the contingent earn-out consideration totaled $9.4 million, of which $2.5 million is included in accrued expenses and other current liabilities and the remaining $6.9 million is included in other liabilities within the Condensed Consolidated Balance Sheets.

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The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:


in thousands	Fair Value
Current assets	$	16,467
Fixed assets, net	970
Right-of-use assets	3,300
Intangible assets, net	44,400
Goodwill	28,026
Total assets acquired	$	93,163

Current liabilities	$	12,393
Lease liabilities	2,725
Other liabilities	388
Total liabilities assumed	$	15,506

Net assets acquired	$	77,657

The purchase price allocation reflected above is preliminary and may be subject to change as final fair values are determined. Accordingly, there may be adjustments to the assigned values of acquired assets and liabilities, including, but not limited to, intangible assets and contingent earn-out consideration. The final determination of acquisition-date fair values will be completed as soon as practicable, which is generally within the measurement period of up to one year from the acquisition date in accordance with ASC 805, Business Combinations. Any adjustments to provisional amounts that are identified during the measurement period will be recognized in the reporting period in which the adjustment is determined.

The preliminary fair values of identifiable intangible assets were determined with assistance from a third-party valuation specialist using the multi-period excess earnings method for customer relationships, the relief-from-royalty method for the trade name, and an incremental income method for the non-compete agreement. These valuation methodologies included significant assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, royalty rates (for use in estimating the fair value of the Spartan trade name), and the assessment of each asset’s life cycle. Following are the preliminary estimated fair values and estimated remaining useful lives of identifiable intangibles assets as of the acquisition date:


in thousands	Useful Life (Years)	Preliminary Fair Value
Identifiable intangible assets:
Customer relationships	12	$	34,900
Trade name	Indefinite	$	9,200
Non-compete agreement	5	$	300
Total identifiable intangible assets		$	44,400

The goodwill arising from the acquisition is primarily attributable to operational synergies and acceleration of growth strategies. The goodwill and intangible assets from the Spartan acquisition are expected to be deductible for U.S. federal and state tax purposes.

The gross carrying amount of goodwill and other intangible assets and the related accumulated amortization for amortizable intangible assets as of September 30, 2021 and December 31, 2020 are as follows:

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	September 30, 2021						December 31, 2020
in thousands	Gross carrying amount		Accumulated amortization		Net carrying value		Gross carrying amount		Accumulated amortization		Net carrying value
Amortizable intangible assets:
Customer relationships	$	34,900	$	(969)	$	33,931	$	—	$	—	$	—
Non-compete agreement	300		(22)		278		—		—		—
Total amortizable intangible assets	35,200		(991)		34,209		—		—		—
Unamortizable intangible assets:
Trade names - Floor & Decor	109,269		—		109,269		109,269		—		109,269
Trade names - Spartan	9,200		—		9,200		—		—		—
Total intangible assets:	$	153,669	$	(991)	$	152,678	$	109,269	$	—	$	109,269

Goodwill	$	255,473	$	—	$	255,473	$	227,447	$	—	$	227,447

The estimated aggregate future amortizable expense for the intangible assets is as follows:


in thousands	Amount
Thirteen weeks ending December 30, 2021	$	743
2022	2,974
2023	2,974
2024	2,974
2025	2,974
Thereafter	21,570
Total	$	34,209

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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 ~~26, 2019~~31, 2020 and filed with the Securities and Exchange Commission (the “SEC”) on February ~~20, 2020~~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, expectations related to our acquisition of Spartan Surfaces, Inc. (“Spartan”), 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,~~market; including as a result of the COVID-19 pandemic;

•an economic recession or depression, including as a result of the COVID-19 pandemic;

•any disruption in our supply chain, including carrier capacity constraints, higher shipping prices and other supply chain costs or product shortages;

•the inability to staff our stores and distribution centers sufficiently, including for reasons due to the COVID-19 pandemic and other impacts of the COVID-19 pandemic;

•~~the impacts of the~~a pandemic, such as COVID-19, ~~pandemic~~ or ~~any~~other natural disaster or unexpected event, ~~including any~~and its impacts on ~~the credit markets,~~ our suppliers, customers, employees, lenders, ~~us,~~operations, including our ~~operations, or our future financial or operational results;~~

•~~the resignation, incapacitation or death of any key personnel;~~

•~~any disruption in our distribution capabilities resulting from our inability~~ability to operate our distribution centers ~~going forward;~~

•~~competition from other~~and stores or on the credit markets or our future financial and ~~internet-based competition;~~operating results;

•our failure to ~~execute our business strategy effectively~~successfully anticipate consumer preferences and ~~deliver value to our customers;~~demand;

•impact of acquired companies, including Spartan;

•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;

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•competition from other stores and internet-based competition;

•any disruption in our distribution capabilities, including from difficulties operating our distribution centers;

•fluctuations in commodity, material, transportation and energy costs, including the impact such increases could have on the cost of goods sold;

•global inflationary pressures on raw materials could cause our vendors to seek further price increases on the products we sell;

•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 ~~train and retain key personnel;~~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;

•~~our failure to successfully anticipate consumer preferences and demand;~~

~~Table~~the resignation, incapacitation or death of ~~Contents~~any key personnel;

•our inability to find, ~~available locations for our stores or our store support center on terms acceptable to us;~~

•~~our inability to obtain merchandise on a timely basis at prices acceptable to us;~~

•~~suppliers may sell similar or identical products to our competitors;~~

•~~our inability to maintain sufficient levels of cash flow to meet growth expectations;~~

•~~our inability to manage our inventory obsolescence, shrinkage~~train and ~~damage;~~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 and commercial flooring distributor of hard surface flooring and related accessories with ~~128~~153 warehouse format stores across 3033 states as of September ~~24, 2020.~~30, 2021. We believe that we offer the industry’s broadest in-stock assortment of tile, wood, ~~laminate/luxury~~laminate, vinyl, ~~plank,~~ and natural stone flooring along with decorative and installation accessories and adjacent categories at everyday low prices positioning us as the ~~one stop~~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~~Do it Yourself customers (“DIY”), and customers who buy the products for professional ~~installation.~~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 thirty-nine weeks of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, which ended on September ~~24, 2020~~30, 2021 and September ~~26, 2019,~~24, 2020, respectively.

During the thirty-nine weeks ended September ~~24, 2020,~~30, 2021, we continued to make long-term key strategic investments, including:

•investing in new solutions for new and existing commercial customers through our purchase of Spartan, a specialty hard-surface flooring distribution company that primarily serves the architectural and design community, end-users, and commercial flooring contractors (refer to Note 8, “Acquisition” for additional details);

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•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 improve our in-stock inventory levels;

•opening ~~eight~~20 new warehouse-format stores, ~~and one design center,~~ ending the quarter with ~~128~~153 warehouse-format stores and two design ~~centers;~~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 ~~Pro customer personnel 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;

•~~increasing~~providing proprietary credit offerings, including ~~launching~~through our non-recourse Pro credit card; and

•investing capital to continue enhancing the in-store shopping experience for our ~~customers; and~~customers.

•investing in the protection of the health of our employees and customers, including temporarily implementing a curbside pickup model, shortening store operating hours, and implementing enhanced safety and sanitation measures in our stores.

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COVID-19 Update

The COVID-19 pandemic had a material negative impact on our operations and financial results for the first and second quarters of fiscal 2020. Compared with the same periods a year ago, comparable store sales declined by 20.8% and 9.6% during the thirteen and twenty-six weeks ended June 25, 2020, respectively, leading to decreases in operating and net income. These declines in sales, operating income, and net income were due to operational disruptions caused by the COVID-19 pandemic. Financial results improved substantially during the third quarter of fiscal 2020, with comparable store sales increasing by 18.4% during the thirteen weeks ended September 24, 2020 and reaching break-even for the thirty-nine weeks ended September 24, 2020, leading to increases in operating and net income compared with the same periods a year ago.

~~In response to~~As the COVID-19 pandemic ~~we took measures to protect the health and safety of our employees and customers, including temporarily limiting most of our stores to curbside services starting~~continues in late March. Beginning in May and concluding in June, we implemented a phased approach to reopening stores for in-store shopping with enhanced safety and sanitation measures such as requiring associates to wear face masks, installing social distancing markers on floors and protective shields at cash registers, and regularly sanitizing shopping carts, pin pads, design desks, and other high-traffic areas. By the end of the second quarter of fiscal ~~2020, all of our stores were reopened to customers and have remained open other than for temporary cleaning or in response to certain weather events.~~

~~Despite the disruptions caused by COVID-19,~~2021, we remain focused on ~~three~~five priorities while navigating through this period of volatility and uncertainty:

•First, protect the health and safety of our employees and ~~customers.~~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 ~~this situation,~~the ongoing impacts of the COVID-19 pandemic, including communicating often throughout the organization and adapting our operations to follow ~~rapidly~~ 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 ~~rapidly~~ evolving situation and recommending risk mitigation ~~actions; we have implemented travel restrictions;~~actions, and we are encouraging social distancing practices.

We have also assessed and ~~are implementing~~continue to implement supply chain continuity plans. ~~There~~While 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 distribution centers and stores and has ~~been no material impact on supply~~resulted in a decrease in our in-stock levels for ~~most~~certain products. While we believe that we can pass these higher transportation costs to our customers, the potential significance and duration of ~~our sourced merchandise, and we~~these elevated costs is uncertain. We are ~~also~~ working closely with our suppliers and transportation ~~partners.~~partners to mitigate the impact of these disruptions; however, future capacity shortages or shipping cost increases could have an adverse impact upon our business.

~~There~~

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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. While we have reopened~~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 “waves” or new 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 ~~due to, among other factors, evolving~~if federal, state, and local authorities impose new and potentially more stringent ~~federal, state, and local~~ restrictions ~~including~~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. We also do not know what impact the proposed federal vaccine and testing mandate applicable to large employers will have on our business. 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. Further, 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 further 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.

~~Coronavirus Aid, Relief, and Economic Security Act~~

As discussed in Note 4, “Income Taxes,” on March 27, 2020, the President of the United States signed the CARES Act into law. Based on our assessment of the CARES Act, we estimate the following benefits to the Company:

•Due to the accelerated depreciation under the CARES Act of QIP placed in service during fiscal 2018 and 2019, we incurred a net operating loss for fiscal 2019 that we expect to carry back to prior years during which the federal tax rate was 35%, resulting in a $7.7 million income tax benefit during the second quarter of fiscal 2020. We expect to receive an estimated $28.4 million of cash refunds related to the accelerated QIP depreciation and the carry back of fiscal 2019 net operating losses. Furthermore, we anticipate the changes to QIP depreciation and net operating loss carryback rules to result in reductions to estimated income tax payments for fiscal 2020.

•Cash savings in fiscal 2020 from the temporary deferral of the employer portion of social security taxes. As of September 24, 2020, we have deferred $7.1 million of employer social security taxes, of which 50% are required to be deposited by December 2021 and the remaining 50% by December 2022.

•The receipt of refundable payroll tax credits related to employee retention. For the thirteen and thirty-nine weeks ended September 24, 2020, we recognized employee retention credits totaling $0.3 million and $1.4 million, respectively.

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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~~Other than as noted below, 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”).

Comparable Store Sales

Comparable store sales refer to period-over-period comparisons of our net sales among the comparable store base and are based on when the customer obtains control of the product, which is typically at the time of sale. A store is included in the comparable store sales calculation on the first day of the thirteenth full fiscal month following a store’s opening, which is when we believe comparability has been achieved. Changes in our comparable store sales between two periods are based on net sales for stores that were in operation during both of the two periods. Any change in the square footage of an existing comparable store, including for remodels and relocations within the same primary trade area of the existing store being relocated, does not eliminate that store from inclusion in the calculation of comparable store sales. Stores that are closed for a full fiscal month or longer are excluded from the comparable store sales calculation for each full fiscal month that they are closed. Since our e-commerce, regional account manager, and design studio sales are fulfilled by individual stores, they are included in comparable store sales only to the extent the fulfilling store meets the above mentioned store criteria. Sales through our Spartan subsidiary do not involve our stores and are therefore excluded from the comparable store sales calculation.

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.

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Results of Operations

While our revenue and earnings ~~have improved~~were strong during the ~~third quarter of fiscal 2020~~thirty-nine weeks ended September 30, 2021 compared to the ~~first and second quarters of the year,~~thirty-nine weeks ended September 24, 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~~-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, ~~both~~ in dollars and as a percentage of net sales (actuals in thousands; dollar changes in ~~millions)~~millions; certain numbers may not sum due to rounding):


		Thirteen Weeks Ended													Thirteen Weeks Ended
		September 24, 2020				September 26, 2019									September 30, 2021				September 24, 2020
		Actual		% of Sales		Actual		% of Sales		$ Increase/(Decrease)		% Increase/(Decrease)			Actual		% of Sales		Actual		% of Sales		$ Increase/(Decrease)		% Increase/(Decrease)
Net sales	Net sales	$	684,847	100.0	%	$	521,093	100.0	%	$	163.8	31.4	%	Net sales	$	876,553	100.0	%	$	684,847	100.0	%	$	191.7	28.0	%
Cost of sales	Cost of sales	390,219		57.0		307,305		59.0		82.9		27.0		Cost of sales	511,245		58.3		390,219		57.0		121.0		31.0
Gross profit	Gross profit	294,628		43.0		213,788		41.0		80.8		37.8		Gross profit	365,308		41.7		294,628		43.0		70.7		24.0
Operating expenses:	Operating expenses:													Operating expenses:
Selling and store operating	Selling and store operating	171,513		25.0		136,958		26.3		34.6		25.2		Selling and store operating	218,690		24.9		171,513		25.0		47.2		27.5
General and administrative	General and administrative	39,286		5.7		37,246		7.1		2.0		5.5		General and administrative	52,488		6.0		39,286		5.7		13.2		33.6
Pre-opening	Pre-opening	5,027		0.7		8,184		1.6		(3.2)		(38.6)		Pre-opening	10,733		1.2		5,027		0.7		5.7		113.5
Total operating expenses	Total operating expenses	215,826		31.5		182,388		35.0		33.4		18.3		Total operating expenses	281,911		32.2		215,826		31.5		66.1		30.6
Operating income	Operating income	78,802		11.5		31,400		6.0		47.4		151.0		Operating income	83,397		9.5		78,802		11.5		4.6		5.8
Interest expense, net	Interest expense, net	2,024		0.3		1,978		0.4		—		2.3		Interest expense, net	1,124		0.1		2,024		0.3		(0.9)		(44.5)

Income before income taxes	Income before income taxes	76,778		11.2		29,422		5.6		47.4		161.0		Income before income taxes	82,273		9.4		76,778		11.2		5.5		7.2
Provision/(benefit) for income taxes		8,004		1.2		(11,552)		(2.2)		19.6		NM
Provision for income taxes														Provision for income taxes	7,628		0.9		8,004		1.2		(0.4)		(4.7)
Net income	Net income	$	68,774	10.0	%	$	40,974	7.9	%	$	27.8	67.8	%	Net income	$	74,645	8.5	%	$	68,774	10.0	%	$	5.9	8.5	%

Thirty-nine Weeks Ended
September 24, 2020 September 26, 2019
Actual % of Sales Actual % of Sales $ Increase/(Decrease) % Increase/(Decrease)
Net sales $ 1,702,136 100.0 % $ 1,518,454 100.0 % $ 183.7 12.1 %
Cost of sales 974,784 57.3 885,469 58.3 89.3 10.1
Gross profit 727,352 42.7 632,985 41.7 94.4 14.9
Operating expenses:
Selling and store operating 463,036 27.2 398,984 26.3 64.1 16.1
General and administrative 103,857 6.1 98,364 6.5 5.5 5.6
Pre-opening 13,894 0.8 18,580 1.2 (4.7) (25.2)
Total operating expenses 580,787 34.1 515,928 34.0 64.9 12.6
Operating income 146,565 8.6 117,057 7.7 29.5 25.2
Interest expense, net 6,134 0.4 7,122 0.5 (1.0) (13.9)
Gain on early extinguishment of debt (1,015) (0.1) — — (1.0) NM
Income before income taxes 141,446 8.3 109,935 7.2 31.5 28.7
Provision/(benefit) for income taxes 3,605 0.2 (5,355) (0.4) 9.0 NM
Net income $ 137,841 8.1 % $ 115,290 7.6 % $ 22.6 19.6 %


	Thirty-nine Weeks Ended
	September 30, 2021				September 24, 2020
	Actual		% of Sales		Actual		% of Sales		$ Increase/(Decrease)		% Increase/(Decrease)
Net sales	$	2,519,198	100.0	%	$	1,702,136	100.0	%	$	817.1	48.0	%
Cost of sales	1,451,519		57.6		974,784		57.3		476.7		48.9
Gross profit	1,067,679		42.4		727,352		42.7		340.3		46.8
Operating expenses:
Selling and store operating	613,708		24.4		463,036		27.2		150.7		32.5
General and administrative	149,348		5.9		103,857		6.1		45.5		43.8
Pre-opening	26,720		1.1		13,894		0.8		12.8		92.3
Total operating expenses	789,776		31.4		580,787		34.1		209.0		36.0
Operating income	277,903		11.0		146,565		8.6		131.3		89.6
Interest expense, net	3,805		0.2		6,134		0.4		(2.3)		(38.0)
Gain on early extinguishment of debt	—		—		(1,015)		(0.1)		1.0		NM
Income before income taxes	274,098		10.9		141,446		8.3		132.7		93.8
Provision for income taxes	40,741		1.6		3,605		0.2		37.1		NM
Net income	$	233,357	9.3	%	$	137,841	8.1	%	$	95.5	69.3	%

NM –- Not ~~meaningful~~Meaningful

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Selected Financial Information


		Thirteen Weeks Ended						Thirty-nine Weeks Ended							Thirteen Weeks Ended						Thirty-nine Weeks Ended
		September 24, 2020			September 26, 2019			September 24, 2020			September 26, 2019				September 30, 2021			September 24, 2020			September 30, 2021			September 24, 2020
Comparable store sales (% change)	Comparable store sales (% change)	18.4		%	4.6		%	—		%	3.6		%	Comparable store sales (% change)	10.9		%	18.4		%	33.1		%	—		%
Comparable average ticket (% change)	Comparable average ticket (% change)	(0.5)		%	2.8		%	1.4		%	2.0		%	Comparable average ticket (% change)	8.3		%	(0.5)		%	4.7		%	1.4		%
Comparable customer transactions (% change)	Comparable customer transactions (% change)	18.9		%	1.8		%	(1.4)		%	1.6		%	Comparable customer transactions (% change)	2.4		%	18.9		%	27.1		%	(1.4)		%
Number of warehouse-format stores	Number of warehouse-format stores	128			113			128			113			Number of warehouse-format stores	153			128			153			128
Adjusted EBITDA (in thousands)(1)	Adjusted EBITDA (in thousands)(1)	$	106,728		$	57,147		$	225,409		$	183,807		Adjusted EBITDA (in thousands)(1)	$	120,242		$	106,728		$	384,341		$	225,409
Adjusted EBITDA margin	Adjusted EBITDA margin	15.6		%	11.0		%	13.2		%	12.1		%	Adjusted EBITDA margin	13.7		%	15.6		%	15.3		%	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 ~~the most comparable GAAP measure.~~net income.

Net Sales

Net sales during the thirteen weeks ended September ~~24, 2020~~30, 2021 increased ~~$163.8~~$191.7 million, or ~~31.4%~~28.0%, compared to the corresponding prior year period primarily due to an increase in comparable store sales of 10.9% and sales from the 25 new warehouse stores that we opened since September 24, 2020. The comparable store sales increase during the period of 10.9%, or $74.8 million, was driven by a 2.4% increase in comparable customer transactions and an 8.3% increase in comparable average ticket. Among our seven product categories, six experienced comparable store sales increases during the period including tile, laminate / luxury vinyl plank, decorative accessories / wall tile, installation materials and tools, natural stone, and adjacent categories. Non-comparable store sales increased $116.9 million during the same period primarily due to the increase in new stores and the acquisition of Spartan.

Net sales during the thirty-nine weeks ended September 30, 2021 increased $817.1 million, or 48.0%, compared to the corresponding prior year period due to an increase in comparable store sales of ~~18.4%~~33.1% and sales from the ~~opening of 15~~25 new warehouse stores that we opened since September ~~26, 2019.~~24, 2020. The comparable store sales increase during the period of ~~18.4%~~33.1%, or ~~$95.9~~$563.1 million, was driven by ~~an 18.9%~~a 27.1% increase in comparable customer transactions ~~partially offset by~~and a ~~0.5% decrease~~4.7% increase in comparable average ticket. Comparable ~~store~~ sales increased among all ~~six~~ of our product categories during the period. Non-comparable store sales increased ~~$67.9~~$254.0 million during the same period primarily due to the increase in new ~~stores.~~ stores and the acquisition of Spartan.

We believe the increase in ~~third quarter fiscal 2020~~ sales ~~relative to~~for the ~~first half of the year~~thirteen and thirty-nine weeks ended September 30, 2021 is also due in part to (i) unprecedented government intervention to help mitigate the negative impacts of the COVID-19 pandemic and (ii) customers ~~nesting at home and~~ investing in home improvements while spending less on leisure activities like travel, eating out, sporting events, and hotels. ~~Our unique~~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.

~~Net~~ In addition, our total sales ~~during~~growth and associated comparable store sales growth for the thirty-nine weeks ended September ~~24,~~30, 2021 were particularly strong because in late March 2020, ~~increased $183.7 million, or 12.1%, compared~~we closed the interior of our stores to the ~~corresponding prior year period~~public as a precautionary measure due to ~~an increase~~COVID-19. We began re-opening our stores in ~~non-comparable store sales from~~early May, and by early June, all of our stores were fully open to the ~~opening~~public. Further, the addition of ~~15 new warehouse stores since September 26, 2019. Comparable store sales during~~a 53rd-week in fiscal 2020, which was the ~~period were unchanged from~~last week in December, a historically low volume week, shifted the corresponding prior year period driven by a 1.4% decrease in comparable customer transactions that was offset by a 1.4% increase in comparable average ticket. Among our six product categories, three experiencedbeginning of fiscal 2021 to January and modestly benefited fiscal 2021 comparable store sales ~~increases including laminate/luxury vinyl plank, decorative accessories, and stone.~~growth.

Gross Profit and Gross Margin

Gross profit during the thirteen weeks ended September ~~24, 2020~~30, 2021 increased ~~$80.8~~$70.7 million, or ~~37.8%~~24.0%, compared to the corresponding prior year period. The increase in gross profit was driven by the 28.0% increase in net sales, partially offset by a decrease to gross margin to 41.7%, down approximately 130 basis points from 43.0% in the same period a year ago. The decrease in gross margin was primarily due to higher freight costs.

Gross profit during the thirty-nine weeks ended September 30, 2021 increased $340.3 million, or 46.8%, compared to the corresponding prior year period. This increase in gross profit was primarily driven by the ~~31.4%~~48.0% increase in net sales, ~~and an increase in~~modestly offset by a decrease to gross margin to ~~43.0%~~42.4%, updown approximately ~~200~~30 basis points from ~~41.0%~~42.7% in the same period a year ago. The ~~increase~~decrease in gross margin was primarily due to higher product margin driven by continued enhancements to our merchandising strategies and improved leverage of our distribution center and supply chain infrastructure on higher sales, partially offset by higher clearance markdowns in our wood category.

Gross profit during the thirty-nine weeks ended September 24, 2020 increased $94.4 million, or 14.9%, compared to the corresponding prior year period. This increase in gross profit was driven by the 12.1% increase in net sales and an increase in gross margin to 42.7%, up approximately 100 basis points from 41.7% in the same period a year ago. The increase in gross margin was primarily due to higher product margin driven by lower costs from the elimination of certain tariffs and improved merchandising strategies, partially offset by higher distribution center costs related to our new distribution center in Maryland and higher clearance markdowns in our wood category.freight costs.

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Selling and Store Operating Expenses

Selling and store operating expenses during the thirteen weeks ended September ~~24, 2020~~30, 2021 increased ~~$34.6~~$47.2 million, or ~~25.2%~~27.5%, compared to the thirteen weeks ended September ~~26, 2019.~~24, 2020. The increase was primarily attributable to 1525 new warehouse stores that opened since September ~~26, 2019~~24, 2020 as well as additional staffing to satisfy sales growth. As a percentage of net sales, selling and store operating expenses decreased modestly by approximately ~~130~~10 basis points to ~~25.0%~~24.9% from ~~26.3%~~25.0% in the corresponding prior year ~~period. This decline~~period, while comparable store selling and store operating expenses as a percentage of comparable store sales decreased by approximately 80 basis points. The decrease in selling and store operating expenses as a percentage of comparable store sales during the thirteen weeks ended September 30, 2021 was primarily driven by ~~leveraging~~leverage of our advertising and occupancy costs ~~across an increase~~on higher net sales.

Selling and store operating expenses during the thirty-nine weeks ended September 30, 2021 increased $150.7 million, or 32.5%, compared to the thirty-nine weeks ended September 24, 2020, primarily driven by the opening of 25 new stores since September 24, 2020 as well as additional staffing to satisfy sales growth. As a percentage of net sales, our selling and store operating expenses decreased approximately 280 basis points to 24.4%, down from 27.2% in ~~comparable store sales.~~the corresponding prior year period. Comparable store selling and store operating expenses as a percentage of comparable store sales decreased by approximately ~~220~~360 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~~points. The decreases in ~~sales.~~

Selling and store operating expenses during the thirty-nine weeks ended September 24, 2020 increased $64.1 million, or 16.1%, compared to the thirty-nine weeks ended September 26, 2019, due primarily to opening 15 new warehouse stores since September 26, 2019. As a percentage of net sales, our selling and store operating expenses increased approximately 90 basis points to 27.2% from 26.3% in the corresponding prior year period. The increase was primarily attributable to higher occupancy costs for new stores open less than one year. Comparable store selling and store operating expenses as a percentage of both overall sales and comparable store sales ~~decreased by approximately~~was primarily due to significantly higher sales during the thirty-nine weeks ended September 30, ~~basis points over this~~2021 compared with the same period ~~due~~a year ago when our stores were limited to ~~a decrease in advertising~~curbside services and ~~other spending.~~not fully open to the public during part of the first and second quarters of fiscal 2020.

General and Administrative Expenses

General and administrative expenses, which are typically expenses incurred outside of our stores, increased ~~$2.0~~$13.2 million, or ~~5.5%~~33.6%, during the thirteen weeks ended September ~~24, 2020~~30, 2021 compared to the corresponding prior year period due to costs to support store growth, including increased store support staff and higher depreciation related to technology and other store support center investments. As a percentage of sales, general and administrative expenses increased approximately 30 basis points to 6.0% from 5.7% in the corresponding period. The increase as a percentage of net sales was primarily driven by amortization of intangible assets acquired from Spartan and other non-payroll related general and administrative costs.

General and administrative expenses increased $45.5 million, or 43.8%, during the thirty-nine weeks ended September 30, 2021 compared to the corresponding prior year period due to higher incentive compensation expense and costs to support store growth, including increased store support staff, higher depreciation related to technology and other store support center investments, and ~~higher occupancy costs for our new store support center that we moved into during~~expenses related to the ~~fourth quarter of fiscal 2019.~~Spartan acquisition. Our general and administrative expenses as a percentage of net sales decreased approximately ~~140~~20 basis points to ~~5.7%~~5.9%, down from 7.1% during the thirteen weeks ended September 26, 2019. Approximately 80 basis points of the decline was due to the prior year period including a $4.1 million impairment charge related to the operating lease right-of-use asset for our former store support center in Smyrna, Georgia. There was no such impairment charge during the current quarter. The remaining 60 basis points of the decline was primarily due to leverage of our general and administrative costs on higher net sales and lower expenses for travel, meals, and meetings.

General and administrative expenses increased $5.5 million, or 5.6%, during the thirty-nine weeks ended September 24, 2020 compared to the corresponding prior year period due to higher incentive compensation expense and costs to support store growth, including increased depreciation related to technology and other store support center investments and higher occupancy costs for our new store support center that we moved into during the fourth quarter of fiscal 2019. Our general and administrative expenses as a percentage of net sales decreased approximately 40 basis points to 6.1%, down from 6.5% during the thirty-nine weeks ended September 26, 2019. The decline was primarily due to the $4.1 million operating lease right-of-use asset impairment recognized during the prior year period, while there was no such impairment charge during the thirty-nine weeks ended September 24, 2020. ~~In addition,~~The decline as a percentage of net sales was primarily driven by sales growing faster than increases in store support staffing and occupancy costs, partially offset by acquisition-related expenses and intangible asset amortization resulting from our purchase of Spartan in the second quarter of fiscal 2021 (refer to Note 8, “Acquisition” for ~~travel, meals, and meetings decreased year-over-year due to a reduction of in-person meetings during the pandemic.~~additional details).

Pre-Opening Expenses

Pre-opening expenses during the thirteen weeks ended September ~~24, 2020 decreased $3.2~~30, 2021 increased $5.7 million, or ~~38.6%~~113.5%, compared to the corresponding prior year period. The ~~decrease~~increase is primarily the result of ~~a decline~~an increase in the number of stores that we either opened or were preparing for opening compared to the prior year period. We opened ~~three warehouse stores and one design center during the thirteen weeks ended September 24, 2020 as compared to opening seven~~six warehouse stores during the thirteen weeks ended September ~~26, 2019.~~30, 2021 as compared to opening three warehouse stores and one design studio during the thirteen weeks ended September 24, 2020.

Pre-opening expenses during the thirty-nine weeks ended September ~~24, 2020 decreased $4.7~~30, 2021 increased $12.8 million, or ~~25.2%~~92.3%, compared to the corresponding prior year period. The ~~decrease~~increase is primarily the result of ~~a decline~~an increase in the number of stores that we either opened or were preparing for opening compared to the prior year period. ~~During the thirty-nine weeks ended September 24, 2020, we~~We opened ~~warehouse eight stores and one design center as compared to opening thirteen~~20 warehouse stores during the thirty-nine weeks ended September ~~26, 2019.~~30, 2021 as compared to opening eight warehouse stores and one design studio during the thirty-nine weeks ended September 24, 2020.

Interest Expense

Net interest expense during the thirteen weeks ended September 30, 2021 decreased $0.9 million, or 44.5%, compared to the thirteen weeks ended September 24, 2020. Net interest expense during the thirty-nine weeks ended September 30, 2021 decreased $2.3 million, or 38.0%, compared to the thirty-nine weeks ended September 24, 2020. The decrease in interest expense for the thirteen and thirty-nine weeks ended September 30, 2021 was primarily due to lower revolver and term loan borrowings and a decrease in term loan interest rates compared to the thirteen and thirty-nine weeks ended September 24, 2020.

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~~Interest Expense~~Income Taxes

~~Net interest expense~~The provision for income taxes was $7.6 million during the thirteen weeks ended September 30, 2021 compared to $8.0 million during the thirteen weeks ended September 24, ~~2020 increased by less than $0.1 million, or 2.3%, compared to the corresponding prior year period.~~2020. The ~~slight increase in interest expense~~effective tax rate was primarily due to interest on new borrowings in fiscal 2020 that was substantially offset by interest capitalized during the construction period of certain capital assets and higher interest income related to cash on hand during9.3% for the thirteen weeks ended September ~~24, 2020~~30, 2021 compared to ~~the third quarter of fiscal 2019.~~

~~Net interest expense during the thirty-nine weeks ended September 24, 2020 decreased $1.0 million, or 13.9%, compared to~~10.4% in the corresponding prior year period. The decrease in ~~interest expense was primarily due to a decrease in interest rates on borrowings, an increase in interest capitalized during~~ the construction period of certain capital assets, and higher interest income related to cash on hand and tariff refund receivables during the thirty-nine weeks ended September 24, 2020 compared to the corresponding prior year period.

~~Income Taxes~~

~~The provision for income taxes was an $8.0 million expense~~effective tax rate during the thirteen weeks ended September 24, 2020 compared to an $11.6 million benefit during the thirteen weeks ended September 26, 2019. The effective tax rate was 10.4% for the thirteen weeks ended September 24, 2020 compared to (39.3)% in the corresponding prior year period. The increase in the effective tax rate30, 2021 was primarily due to ~~the recognition of lower~~higher excess tax benefits related to stock option exercises during the ~~current~~third quarter compared to the same period of the prior year.

The provision for income taxes was a$40.7 million during the thirty-nine weeks ended September 30, 2021 compared to $3.6 million ~~expense~~ during the thirty-nine weeks ended September 24, ~~2020 compared to a $5.4 million benefit during~~2020. The effective tax rate was 14.9% for the thirty-nine weeks ended September ~~26, 2019. The effective tax rate was~~30, 2021 compared to 2.5% for the thirty-nine weeks ended September 24, ~~2020 compared to (4.9)% for the thirty-nine weeks ended September 26, 2019.~~2020. The increase in the effective tax rate during the thirty-nine weeks ended September 30, 2021 was primarily due to ~~an increase in operating income,~~ the recognition of ~~discrete expense for loss contingencies related to uncertain tax positions, and a decrease in excess tax benefits related to stock option exercises, partially offset by~~ income tax benefits ~~related to~~in connection with the CARES ~~Act.~~Act during fiscal 2020 and higher earnings during the thirty-nine weeks ended September 30, 2021 without a proportionate increase in available tax credits.

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 ~~Credit Facilities,~~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				Thirty-nine Weeks Ended
											Thirteen Weeks Ended				Thirty-nine Weeks Ended
in thousands	in thousands	September 24, 2020		September 26, 2019		September 24, 2020		September 26, 2019		in thousands	September 30, 2021		September 24, 2020		September 30, 2021		September 24, 2020
Net income	Net income	$	68,774	$	40,974	$	137,841	$	115,290	Net income	$	74,645	$	68,774	$	233,357	$	137,841
Depreciation and amortization (1)	Depreciation and amortization (1)	22,566		18,188		66,230		52,451		Depreciation and amortization (1)	30,348		22,566		83,245		66,230
Interest expense, net	Interest expense, net	2,024		1,978		6,134		7,122		Interest expense, net	1,124		2,024		3,805		6,134
Gain on early extinguishment of debt (2)	Gain on early extinguishment of debt (2)	—		—		(1,015)		—		Gain on early extinguishment of debt (2)	—		—		—		(1,015)
Income tax expense (benefit)		8,004		(11,552)		3,605		(5,355)
Income tax expense										Income tax expense	7,628		8,004		40,741		3,605
EBITDA	EBITDA	101,368		49,588		212,795		169,508		EBITDA	113,745		101,368		361,148		212,795
Stock compensation expense (3)		4,400		2,242		11,542		6,660
COVID-19 costs (4)		571		—		3,482		—
Tariff refunds (5)		—		—		(4,016)		—
Loss on asset impairments and disposals, net (6)		—		4,133		—		4,111
Stock-based compensation expense (3)										Stock-based compensation expense (3)	5,282		4,400		15,335		11,542
Acquisition and integration expense (4)										Acquisition and integration expense (4)	120		—		3,286		—
Tariff refund adjustments (5)										Tariff refund adjustments (5)	—		—		1,728		(4,016)
COVID-19 costs (6)										COVID-19 costs (6)	286		571		910		3,482
Other (7)	Other (7)	389		1,184		1,606		3,528		Other (7)	809		389		1,934		1,606
Adjusted EBITDA	Adjusted EBITDA	$	106,728	$	57,147	$	225,409	$	183,807	Adjusted EBITDA	$	120,242	$	106,728	$	384,341	$	225,409

(1) Excludes amortization of deferred financing costs, which is included as a part of interest expense, net in the table above.

(2) Represents gain on partial debt extinguishment in connection with the May 2020 amendment to the senior secured term loan credit facility.

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

(4) Represents third-party transaction, legal, and consulting costs directly related to the acquisition of Spartan.

(5) Represents a reduction in estimated tariff refund receivables during the thirty-nine weeks ended September 30, 2021 and income for incremental tariff refunds recognized for certain bamboo and other flooring products during the thirty-nine weeks ended September 24, 2020. Interest income for tariff refunds is included within interest expense, net in the table above.

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

~~(5) Represents income for estimated tariff refunds recognized for certain products. Interest income for the tariff refunds is included within interest expense, net in the table above.~~

~~(6) Amounts primarily represent impairment loss for the operating lease right-of-use asset related to our former store support center in Smyrna, Georgia.~~

(7) Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts for the thirteen and thirty-nine weeks ended September 30, 2021 primarily relate to relocation expenses for our Houston distribution center and changes in the fair value of the contingent earn-out liability associated with the Spartan acquisition. Amounts for the thirteen weeks ended September 24, 2020 primarily relate to costs associated with a secondary public offering of the Company’s Class A common stock by certain of our stockholders, and amounts for the thirty-nine weeks ended September 24, 2020 relate to the costs associated with two such public offerings and the legal fees associated with the February 2020 amendment to ~~our~~the senior secured term loan credit facility. Amounts for the thirteen and thirty-nine weeks ended September 26, 2019 primarily relate to costs associated with the secondary public offering of our Class A common stock by certain of our stockholders, the relocation of our store support center in Smyrna, Georgia, and the closure of our Miami distribution center. The Company did not sell any shares in the offerings and did not receive any proceeds from the sale of shares by the selling 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 September ~~24, 2020~~30, 2021 financial data was ~~$628.5~~$708.9 million, consisting of ~~$271.1~~$330.1 million in cash and cash equivalents and ~~$357.4~~$378.8 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder. In addition, our Spartan subsidiary has access to an $8.0 million revolving line of credit facility (the “Spartan LOC”) that had $8.0 million immediately available for borrowing as of September 30, 2021.

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.

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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 ~~a normal~~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.

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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.

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 September ~~24, 2020,~~30, 2021, we had ~~$2.4~~$1.0 million of aged discontinued inventory that we intend to donate if unable to sell.

Impact of the COVID-19 Pandemic on Liquidity

~~In more normal times and historically,~~While our primary sources of funds for ~~our~~ business activities are typically cash flows from operations and our existing credit ~~facilities. As described in~~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” and “Item 1A. Risk Factors,~~Update.” the COVID-19 pandemic had a significant negative impact on our business and financial results during the first half of fiscal 2020, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty regarding its potential severity and duration. As a result of the COVID-19 pandemic, we may be required to rely more heavily on our cash reserves and lines of credit than we have in recent years. In response to these uncertainties, we have taken proactive steps to improve liquidity and maintain financial flexibility, including making targeted reductions in operating expenses and capital expenditures and entering into a $75.0 million incremental term loan (see Note 3, "Debt" for additional details).

We continue to monitor ~~this rapidly developing situation~~the impact of the COVID-19 pandemic on our business and may, as necessary, reduce expenditures, ~~further,~~ 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 have experienced and may continue to experience significant volatility and turmoil.~~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.

Due to the increase in sales at our stores since reopening for in-store shopping, we have revised our planned capital expenditures for fiscal 2020 higher, although these amounts continue to remain below our initial 2020 estimates prior to the pandemic. The exact scope of ~~changes in~~ 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~~Excluding cash paid for the Spartan acquisition, total capital expenditures are currently planned to be between approximately ~~$200.0~~$455 million to ~~$208.0~~$475 million ~~compared to the approximately $188.0 million to $196.0 million we had planned at the end of the second quarter of fiscal 2020,~~ 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 ~~2020:~~2021:

•open 1327 warehouse-format stores, ~~as well as one~~open two small-format ~~standalone~~ design ~~center~~studios, and start construction on stores opening and relocating in ~~early 2021~~2022 using approximately ~~$132.0~~$305 million to ~~$136.0~~$315 million of cash;

•relocate our Houston, Texas distribution center in the first quarter of fiscal 2022 and open a transload facility in Los Angeles, California using approximately $70 million to $74 million of cash;

•invest in existing store remodeling projects and our distribution centers using approximately ~~$46.0~~$52 million to ~~$48.0~~$56 million of cash; and

•invest in information technology infrastructure, e-commerce, and other store support center initiatives using approximately ~~$22.0~~$28 million to ~~$24.0~~$30 million of cash.

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Cash Flow Analysis

A summary of our operating, investing, and financing activities ~~are~~is shown in the following table:


		Thirty-nine Weeks Ended
							Thirty-nine Weeks Ended
in thousands	in thousands	September 24, 2020		September 26, 2019		in thousands	September 30, 2021		September 24, 2020
Net cash provided by operating activities	Net cash provided by operating activities	$	269,685	$	209,594	Net cash provided by operating activities	$	364,892	$	269,685
Net cash used in investing activities	Net cash used in investing activities	(109,653)		(141,015)		Net cash used in investing activities	(341,255)		(109,653)
Net cash provided by financing activities		84,057		14,883
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(1,324)		84,057
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	$	244,089	$	83,462	Net increase in cash and cash equivalents	$	22,313	$	244,089

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.

Net cash provided by operating activities was $364.9 million for the thirty-nine weeks ended September 30, 2021 and $269.7 million for the thirty-nine weeks ended September 24, ~~2020 and $209.6 million for the thirty-nine weeks ended September 26, 2019.~~2020. The increase in net cash provided by operating activities was primarily the result of an increase in net income, trade accounts payable, and ~~decreases~~accrued expenses and other current liabilities, partially offset by an increase in inventory and other working capital ~~and cash paid for income taxes.~~items to support our operations.

Net Cash Used in Investing Activities

Investing activities typically 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 ~~centers)~~studios) and new infrastructure and information systems. Cash payments to acquire a business are also included in investing activities.

~~Capital expenditures~~Net cash used in investing activities during the thirty-nine weeks ended September 30, 2021 and September 24, 2020 ~~and September 26, 2019 were $109.7~~was $341.3 million and ~~$141.0~~$109.7 million, respectively. The ~~decline is~~increase was driven by a $168.0 million increase in capital expenditures and $63.6 million in cash paid as part of the purchase price to acquire Spartan (refer to Note 8, "Acquisition" for additional details). The year-over-year growth in capital expenditures was primarily ~~related to the decrease~~driven by (i) an increase in new stores that opened or were under construction, during the thirty-nine weeks ended September 24, 2020 compared to the corresponding prior year period. We are preparing for an additional twelve new stores to be opened during the fourth quarter of fiscal 2020 and first quarter of fiscal 2021, andas we generally incur significant capital expenditures for new stores a few to several months in advance of ~~opening.~~opening, (ii) ongoing construction for the Houston distribution center relocation, and (iii) an increase in existing store remodels. During the thirty-nine weeks ended September ~~24, 2020,~~30, 2021, approximately ~~71%~~67.9% of non-acquisition related capital expenditures were for new stores and ~~16%~~25.6% were for existing stores and distribution centers, while the remaining spending was primarily 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 $1.3 million for the thirty-nine weeks ended September 30, 2021 compared to net cash provided by financing activities ~~was~~of $84.1 million for the thirty-nine weeks ended September 24, ~~2020 compared to $14.9 million for~~2020. The decrease was primarily driven by the repayment of a portion of our Term Loan Facility during the thirty-nine weeks ended September ~~26, 2019. The increase in net cash provided by financing activities was primarily driven by~~30, 2021 compared with net proceeds from ~~borrowings under~~ the ~~incremental term loan facility~~Term Loan Facility during the ~~second quarter~~thirty-nine weeks ended September 24, 2020.

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Credit Facility Amendments

On February ~~14, 2020,~~9, 2021 (the “Effective Date”), we entered into a ~~repricing and third~~fifth amendment to the credit agreement governing our senior secured term loan facility (as amended, the “Term Loan Facility”) ~~which,~~. The fifth amendment provided for, among other things, ~~(a) refinanced our existing~~a supplemental term loan ~~B facility with a new term loan B facility~~ in the aggregate principal amount of ~~approximately $144.6~~$65.0 million ~~(b) extended~~(the "Supplemental Term Loan Facility") that increased the ~~stated~~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 ~~to February 14, 2027, and (c) included an “accordion” feature that allows us to borrow additional amounts as described more fully in Note 3, “Debt.”~~

~~On February 14, 2020, we also entered into a repricing and general amendment to~~remain unchanged, including the credit agreement governing our revolving credit facility (as amended, the “ABL Facility”), which, among other things, (a) increased our revolving commitments to a total aggregate principal amount of $400.0 million, and (b) extended the stated maturity date under the ABL Facility to February 14, 2025. The ABL Facility also includes an “accordion” feature that allows us under certain circumstances, to increase the size of the facility by an amount up to $100.0 million, or such higher amount as may be agreed to by the Required Lenders (as defined in the ABL Facility).

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~~On May 18, 2020, we entered into a fourth amendment to the Term Loan Facility which, among other things, (a) provides~~applicable margin for a ~~new incremental term loan facility in an aggregate principal amount of $75.0 million with a maturity date of February 14, 2027 (the “term loan B-1~~ facility”). We received net proceeds of $70.5 million from the term loan B-1 facility after deducting a $4.1 million original issuance discount and $0.3 million of debt issuance costs to third parties, and we intend to use the net proceeds to support our growth plans and for general corporate purposes. The ~~term loan B-1 facility is a separate tranche from our existing term loan B facility. The terms of~~ 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 ~~remain unchanged.~~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, and Spartan LOC, including applicable covenants.

Credit Ratings

Our credit ratings are periodically reviewed by rating agencies. In November ~~2019, Moody's upgraded~~2020, Moody’s reaffirmed the Company's issuer corporate family rating ~~from B1 to~~of Ba3 and ~~stable~~changed its outlook for the ~~Company.~~Company to stable from negative. In ~~April~~December 2020, ~~Moody’s~~Standard & Poor’s reaffirmed the Company’s ~~Ba3 rating but changed our outlook to negative from stable. In November 2019, S&P reaffirmed the Company's~~ corporate credit rating of BB- and revised its ~~stable~~ outlook for the ~~Company.~~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.

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. ~~Historically,~~While exclusions from tariffs were granted for certain products from China, nearly all of these exclusions have expired. In fiscal 2020, approximately ~~half~~30% of the products we ~~sell~~sold were ~~imported~~sourced from China, ~~the majority of which are impacted by these tariffs.~~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 ~~we expect~~ our efforts ~~will mitigate~~have mitigated a substantial portion of the overall effect of increased tariffs, ~~we expect~~ the enacted tariffs ~~will increase~~have increased our inventory costs and associated cost of ~~sales.~~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 ~~Border~~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.

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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 ~~and Border Protection~~ entry procedures. While we do not currently believe additional duty deposits will apply, we believe our potential exposure could be up to approximately ~~$6.0~~$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

~~Table~~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. Tariff refund claims are subject to the approval of ~~Contents~~U.S. Customs, and the Company currently expects to recover $21.9 million, including interest, related to these Section 301 tariff payments. Of the expected refunds, $14.5 million has been received as of September 30, 2021.

Contractual Obligations

There were no material changes to our contractual obligations outside the ordinary course of our business during the thirty-nine weeks ended September ~~24, 2020.~~30, 2021.

Off-Balance Sheet Arrangements

For the thirty-nine weeks ended September ~~24, 2020,~~30, 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 ~~is disrupting~~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 ~~impacted.~~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 ~~26, 2019,~~31, 2020, uncertainty with respect to the economic effects of the COVID-19 pandemic has introduced significant volatility in the financial markets, ~~and the effects of this volatility could materially impact our risks related to foreign currencies,~~including interest rates and ~~commodity prices. Given the evolving nature of the~~foreign currency exchange rates. The COVID-19 pandemic ~~its potential~~is expected to have a continued adverse impact on ~~these~~market conditions and ~~other market risks remains uncertain at this time.~~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.

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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 September ~~24, 2020, the~~30, 2021, our senior secured term loan facility, which has a variable interest rate, had a remaining principal balance of ~~our outstanding variable rate debt aggregated approximately $218.9~~$206.6 million. A 1.0% increase in the effective interest rate for this debt would cause an increase in interest expense of approximately ~~$2.2~~$2.1 million over the next twelve months. To lessen our exposure to changes in interest rate risk, we entered into atwo $75.0 million interest rate cap agreements in May 2021. The contracts capped our LIBOR at 1.75% beginning in May 2021. In addition, our $102.5 million interest rate cap agreement inentered into during November 2016 ~~with Wells Fargo~~ that ~~capped~~caps our LIBOR at 2.0% ~~beginning~~remains in effect until the agreement expires on December ~~2016.~~31, 2021. We do not anticipate that the interest rate cap ~~agreement with Wells Fargo~~agreements will significantly impact interest expense in the near term as the U.S. Federal Reserve and other central banks have taken recent action to lower interest rates in response to the COVID-19 pandemic, and interest rates are near historic lows.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in reports filed or submitted under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The Company’s management, including the chief executive officer and the chief financial officer, have reviewed the effectiveness of the Company’s disclosure controls and procedures as of September ~~24, 2020~~30, 2021 and, based on their evaluation, have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. The condensed consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the fiscal quarter ended September ~~24, 2020~~30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See the information under the “Litigation” caption in Note 5, Commitments and Contingencies to our Condensed Consolidated Financial Statements included in this Quarterly Report and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - U.S. Tariffs and Global Economy” in this Quarterly Report, each of which we incorporate here by reference.

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Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report filed with the SEC on February ~~20, 2020,~~25, 2021, which could materially affect our business, financial condition, and/or operating results, as well as the following:

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During the first and second quarters of fiscal 2020, the effects of the COVID-19 pandemic negatively impacted our business and results of operations. Additional governmental restrictions on business operations, including as a result of a further resurgence of the COVID-19 pandemic, could ~~re-emerge and~~ have a negative impact on our net sales, results of operations, financial position, store operations, new store openings and earnings.

On March 11, 2020, the World Health Organization announced that infections of ~~the coronavirus (COVID-19)~~COVID-19 had become a pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the COVID-19 pandemic. National, state and local authorities have recommended social distancing and some authorities have imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, have had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have relaxed ~~the~~ public health restrictions ~~with a view to~~and partially or fully ~~reopening~~reopened their economies, ~~recurring~~such reopening measures have sometimes resulted in a surge in the reported number of cases and hospitalizations related to the COVID-19 ~~outbreaks have~~pandemic. This increase in cases has led to the ~~re-introduction~~reintroduction of ~~such~~ restrictions and business shutdowns in certain states, counties and cities in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. ~~Additionally,~~In December 2020, the ~~absence~~U.S. Food and Drug Administration authorized certain vaccines for emergency use and on April 16, 2021, every person over the age of 16 in the United States was deemed eligible to receive a COVID-19 vaccine. However, it remains unclear how quickly the vaccines will be distributed globally or ~~delay~~if or when “herd immunity” will be achieved and the restrictions that were imposed to slow the spread of ~~viable treatment options~~the virus will be lifted entirely. Delays in distributing the vaccines or ~~a vaccine~~an actual or perceived failure to achieve “herd immunity” could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time. 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. Even after the COVID-19 pandemic subsides, the U.S. economy and most other major global economies may experience or continue to experience a recession, and our business and operations could be materially adversely affected by a prolonged recession in the U.S. and other major markets.

In response to the COVID-19 pandemic and these changing conditions, beginning in ~~mid-March,~~late March 2020, we closed some of our stores and shifted other stores to a curbside pickup model in the jurisdictions where government regulations permitted our stores to continue to operate and where the customer demand made such operations sustainable. We also furloughed or modified work hours for many of our employees and identified and implemented cost savings measures throughout our operations. ~~Beginning in~~In May and ~~concluding in~~ June 2020, we implemented a phased approach to reopening stores for in-store shopping with enhanced safety and sanitation measures such as requiring associates to wear face masks, installing social distancing markers on floors and protective shields at cash registers, and ~~regularly~~ sanitizing shopping carts, pin pads, design desks, and other high-traffic areas. Since reopening our stores for in-store shopping, we have experienced increased sales and order activity, likely due to customers spending more time at home and the continuation of school and workplace closures due to the ongoing impacts of the COVID-19 pandemic. Some of this increased demand is also likely attributable to the timing of tax refunds and COVID-19-related stimulus payments.

The COVID-19 pandemic and ~~these~~initial responses had ~~and may in the future have~~ an adverse ~~affect~~effect on our customer traffic, sales, operating costs, and profit during the first two quarters of fiscal 2020 and wemay have such an impact again in the future. We cannot predict how long the COVID-19 pandemic will last, whether we will be required to re-close stores or what other government responses may occur. The COVID-19 pandemic has also adversely affected our ability to staff our existing stores and open new stores, and we have experienced construction delays. While our stores saw increased sales and order activity in the final two quarters of fiscal 2020 and the first three quarters of fiscal 2021, those results, as well as those of other metrics such as net revenues, gross margins and other financial and operating data, may not be indicative of results for future periods. Additionally, such increased demand may increase beyond manageable levels, may fluctuate significantly, or may not continue, including the possibility that demand may decrease from historical levels.

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Our operations have been and could be further disrupted if more of our employees are diagnosed with COVID-19 since this could require us to quarantine some or all of a store’s employees and disinfect the impacted stores. If a significant percentage of our workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially affecting our liquidity, financial condition or results of operations. In addition, the COVID-19 pandemic has made it difficult to hire a sufficient number of store associates in many of our stores. We also do not know what impact the proposed federal vaccine and testing mandate applicable to large employers will have on our business. If we are unable to hire a sufficient number of store associates or if there are insufficient existing store associates not subject to quarantine, we may need to reduce store hours or temporarily close stores.

Our suppliers have been and could also be further adversely impacted by the COVID-19 pandemic. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with the COVID-19 pandemic, we could face further shortages of inventory at our stores, and our operations and sales could be adversely impacted by such supply interruptions.

Our business may be further negatively impacted by the fear of exposure to or actual effects of the COVID-19 pandemic or another disease pandemic, epidemic, or similar widespread public health concern; these impacts may include but are not limited to:

•~~Additional~~additional temporary store closures due to reduced workforces or government mandates or the need to utilize a curbside pickup model or otherwise modify our operations;

•~~Reduced~~reduced workforces, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates or the inability to sufficiently staff our stores;

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•~~Failure~~failure of third parties on which we rely, including our suppliers, contract manufacturers, contractors, commercial banks, joint venture partners and external business partners to meet their obligations to the company, or significant disruptions in their ability to do so which may be caused by their own financial or operational difficulties and may adversely impact our operations;

•~~Supply~~supply chain risks such as scrutiny or embargoing of goods produced in infected areas;

•~~Construction~~construction delays or halts, preventing us from opening new stores;

•~~Liquidity~~liquidity strains, which could slow the rate at which we open new stores;

•~~Inability~~inability of our key leaders to visit our stores, which could negatively impact customer service and associate morale;

•~~Increased~~increased cybersecurity risks due to the number of associates working remotely;

•~~Increased~~global inflationary pressures, particularly on energy costs and commodities, which could continue to negatively impact our supply chain costs and the cost of the products we sell;

•increased litigation risk as a result of the pandemic; and

•~~Reduced~~reduced consumer traffic and purchasing, which may be caused by, but not limited to, the temporary inability of customers to shop with us due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from discretionary spending, or shifts in demand from higher priced products to lower priced products.

Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic or another disease pandemic, epidemic, or similar widespread public health concern, including effects that are not currently foreseeable, could materially increase our costs, negatively impact our sales and damage our financial condition, results of operations, cash flows and our liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted, and while it is not clear whether our current insurance policies will provide recovery for any of the impacts of the COVID-19 pandemic or any future disease pandemic, epidemic, or similar widespread public health concern, we do not anticipate that such policies will provide adequate coverage for the impacts of COVID-19 or any future disease pandemic, epidemic, or similar widespread public health concern.

We face risks related to our indebtedness.

As of September 30, 2021, the principal amount of our total indebtedness was approximately $206.6 million related to our indebtedness outstanding under the Term Loan Facility. In addition, as of September 30, 2021, we had the ability to access approximately $378.8 million of unused borrowings available under the ABL Facility without violating any covenants thereunder and had approximately $21.2 million in outstanding letters of credit thereunder.

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Our indebtedness, combined with our lease and other financial obligations and contractual commitments, could adversely affect our business, financial condition and operating results by:

•making it more difficult for us to satisfy our obligations with respect to our indebtedness, including restrictive covenants and borrowing conditions, which may lead to an event of default under the agreements governing our debt;

•making us more vulnerable to adverse changes in general economic, industry and competitive conditions and government regulation;

•requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of cash flows to fund current operations and future growth;

•exposing us to the risk of increased interest rates as our borrowings under our Credit Facilities are at variable rates;

•restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

•requiring us to comply with financial and operational covenants, restricting us, among other things, from placing liens on our assets, making investments, incurring debt, making payments to our equity or debt holders and engaging in transactions with affiliates;

•limiting our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business and growth strategies or other purposes; and

•limiting our ability to obtain credit from our suppliers and other financing sources on acceptable terms or at all.

We may also incur substantial additional indebtedness in the future, subject to the restrictions contained in our Credit Facilities. If such new indebtedness is in an amount greater than our current debt levels, the related risks that we now face could intensify. However, we cannot give assurance that any such additional financing will be available to us on acceptable terms or at all. Moreover, for taxable years beginning after December 31, 2017, the deductibility of net business interest expenses on our indebtedness for each taxable year could be limited under the Tax Cuts and Jobs Act.

Additionally, in July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), the authority that regulates London Interbank Offered Rate ("LIBOR"), announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the ICE Benchmark Administration Limited ("IBA"), which is regulated by the FCA confirmed that it would cease the publication of the one-week and two-month U.S. dollar LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the U.S. dollar LIBOR settings (overnight and 12 months) immediately following the LIBOR publication on June 30, 2023. Accordingly, in the near future LIBOR will cease being a widely used benchmark interest rate. The current and any future reforms and other pressures may cause LIBOR to be replaced with a new benchmark or to perform differently than in the past, including during the transition period. The Company has material debt contracts that are indexed to USD-LIBOR and is currently working on a transition plan. We believe all our material agreements have appropriate language to negotiate a transition to an alternative index rate and are continuing to monitor this activity and evaluate the related risks. However, the consequences of these market developments cannot be entirely predicted and a transition from LIBOR, even if administered consistent with the provisions of our material agreements, may require us to amend or restructure our existing LIBOR-based debt instruments and any related hedging arrangements that extend beyond 2021, which may be difficult, costly and time consuming. We cannot give assurance that our financial condition and operating results will not be adversely affected.

Both New York State and federal legislation in the U.S. is under consideration that if enacted could result, upon the unavailability of LIBOR, in the replacement of certain fallback provisions in LIBOR-based financing agreements. Under the proposed legislation, some of these existing fallback provisions would be replaced by a provision specifying that the replacement rate and related adjustments recommended by the Alternative Reference Rates Committee ("ARRC"), the committee in the United States convened to ensure a successful transition from LIBOR, would be used to establish the interest-rate on the financing. The legislation would also require the use of the benchmark replacement rate and related adjustments recommended by the ARRC in the event that there are no fallback provisions in a financing. The legislation would not impact credit agreements that already include fallbacks to the changes recommended by the ARRC. Any such legislation adopted in New York State would have applicability only to agreements governed by New York law. There can be no assurance as to the final form of any such New York or federal legislation or as to whether any such legislation will be adopted.

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In the event that one or more LIBOR-based interest rate derivatives are entered into to hedge variable rate indebtedness, the LIBOR rate specified therein will be determined from time to time by reference to a publication page specified in the relevant definitions of the International Swaps and Derivatives Association, Inc. ("ISDA"). However, if such rate does not appear on the relevant page, and the above-referenced legislation is not adopted that would address the replacement of LIBOR under such derivatives, LIBOR will be determined in accordance with dealer polls conducted by the calculation agent under the agreement governing the derivative. This dealer polling mechanism may not be successful in arriving at a replacement interest rate for LIBOR. Even if the dealer polling mechanism successfully arrives at a replacement interest rate for derivatives, that rate could differ significantly from the interest rates used for our variable-rate indebtedness.

Any disruption in our distribution capabilities, supply chain or our related planning and control processes may adversely affect our business, financial condition, and operating results.

Our success is highly dependent on our planning and distribution infrastructure, which includes the ordering, transportation, and distribution of products to our stores and the ability of suppliers to meet distribution requirements. We also need to ensure that we continue to identify and improve our processes and supply chain and that our distribution infrastructure and supply chain keep pace with our anticipated growth and increased number of stores. The cost of these enhanced processes could be significant and any failure to maintain, grow, or improve them could adversely affect our business, financial condition, and operating results. Due to our rapid expansion, we have had to significantly increase the size of our distribution centers, including opening a 1.5 million square foot distribution center in Maryland in the fourth quarter of fiscal 2019, the planned new opening of an expanded distribution center in Houston in the first quarter of 2022, and, relatedly, the new opening of a transload facility in Los Angeles, California in fiscal 2021. Based on our growth intentions, we plan to add additional distribution centers or increase the size of our existing distribution centers in the future. Increasing the size of our distribution centers may decrease the efficiency of our distribution costs.

We manage our four distribution centers internally rather than rely on independent third-party logistics providers. If we are not able to manage our distribution centers successfully or at a lower cost than with third-party logistics providers, it could adversely affect our business, financial condition, and operating results. As we continue to add distribution centers, we may incur unexpected costs, and our ability to distribute our products may be adversely affected. Any disruption in the transition to or operation of our distribution centers could have an adverse impact on our business, financial condition, and operating results. For example, the landlord for our Maryland distribution center has identified a construction defect with that facility that we are working with the landlord to address. While we are unable to predict the impact such defect could have on our business, any necessary repairs could cause disruption in the operation of that distribution center, which could negatively impact the in-stock positions in the stores served by such distribution center and could have an adverse impact on our business, financial condition, and operating results.

Additionally, our supply chain and our suppliers could be disrupted by factors beyond our control, including from damage or destruction to our distribution centers; weather-related events; natural disasters; international trade disputes or trade policy changes or restrictions; tariffs or import-related taxes; third-party strikes, lock-outs, work stoppages or slowdowns; shortages of truck drivers; shipping capacity constraints; third-party contract disputes; supply or shipping interruptions or costs; military conflicts; acts of terrorism; public health issues, including pandemics or quarantines (such as the COVID-19 outbreak); or other factors beyond our control. Any such disruption could negatively impact our financial performance or financial condition. Accordingly, we have 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, 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. Additionally, customer demand for certain products has also fluctuated as the COVID-19 pandemic has progressed and customer behaviors have changed, which has challenged our ability to anticipate and/or adjust inventory levels to meet that demand. These factors have resulted in certain of our products having in-stock levels below our goals. In certain cases, we are also experiencing delays in delivering those products to our distribution centers, stores or customers. Recently, we have seen a significant increase in supply chain costs, and we do not know how long this will last. It is our belief that we can pass along these costs. While we are working closely with our suppliers and transportation partners to mitigate the impact of these disruptions, future capacity shortages or shipping cost increases could have an adverse impact upon our business. Our success is also dependent on our ability to provide timely delivery to our customers. Our business could also be adversely affected if fuel prices increase or there are delays in product shipments due to freight difficulties, inclement weather, strikes by our employees or employees of third-parties involved in our supply chain, or other difficulties. If we are unable to deliver products to our customers on a timely basis, they may decide to purchase products from our competitors instead of from us, which would adversely affect our business, financial condition, and operating results.

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Proposed changes in U.S. taxation of businesses could adversely affect us.

The new Democratic Presidential Administration has proposed changes to tax law that would, among other things, increase the corporate tax rate, impose a 15% minimum tax on corporate book income, and strengthen the GILTI regime imposed by the Tax Cuts and Jobs Act while eliminating related tax exemptions. Any such tax changes could materially increase the amount of taxes we would be required to pay, which could adversely affect our business, financial condition and operating results. For example, increases in the corporate tax rate may adversely impact our cash flow, which would in turn negatively impact our performance and liquidity. Other changes that may be enacted in the future, including changes to tax laws enacted by state or local governments in jurisdictions in which we operate, could result in further changes to state and local taxation and materially adversely affect our financial position and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit No.						Exhibit Description
3.1						Amended & Restated Certificate of Incorporation of Floor & Decor Holdings, Inc. (1)
3.2						Second Amended and Restated Bylaws of Floor & Decor Holdings, Inc. ~~(1)~~(2)
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

(1) Filed as an exhibit to the Registrant’s Form 10-Q filed with the SEC on August 5, 2021, and incorporated herein by reference.

(2) Filed as an exhibit to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-216000) filed with the SEC on April 24, 2017, and incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	FLOOR & DECOR HOLDINGS, INC.

Dated: ~~October 29, 2020~~November 4, 2021	By:	/s/ Thomas V. Taylor
		Thomas V. Taylor
		Chief Executive Officer
		(Principal Executive Officer)

Dated: ~~October 29, 2020~~November 4, 2021	By:	/s/ Trevor S. Lang
		Trevor S. Lang
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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	Options	Weighted Average Exercise Price
Outstanding at December 27, 2019	6,037,079	$	13.64
Granted	279,504	57.25
Exercised	(2,027,087)	7.49
Forfeited or expired	(100,539)	25.10
Outstanding at September 24, 2020	4,188,957	$	19.25
Vested and exercisable at September 24, 2020	2,083,405	$	11.03