# Floor & Decor Holdings, Inc.: Form 10-Q for the period ended Mar 29, 2018

- Company: [Floor & Decor Holdings, Inc.](/companies/fnd.md) (CIK 1507079)
- Form: 10-Q
- Filed: 2018-05-03
- Accepted by EDGAR: May 3, 2018, 08:01 ET
- Period: 2018-03-29
- Accession: 0001558370-18-003826
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1507079/000155837018003826/fnd-20180329x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1507079/000155837018003826/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-03-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2017-12-29 to 2018-03-29 | $402.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2017-12-29 to 2018-03-29 | $237.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2017-12-29 to 2018-03-29 | $165.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2017-12-29 to 2018-03-29 | $36.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-12-29 to 2018-03-29 | $1.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-12-29 to 2018-03-29 | $2.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-12-29 to 2018-03-29 | $31.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-12-29 to 2018-03-29 | $0.30 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-12-29 to 2018-03-29 | $0.33 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-12-29 to 2018-03-29 | 104,665,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2017-12-29 to 2018-03-29 | $40.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2017-12-29 to 2018-03-29 | $27.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2018-03-29 | $572.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-03-29 | $486.4m | us-gaap:AssetsCurrent |
| Total assets | at 2018-03-29 | $1.08bn | us-gaap:Assets |
| Current liabilities | at 2018-03-29 | $331.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-03-29 | $588.3m | us-gaap:Liabilities |
| Long-term debt | at 2018-03-29 | $143.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-03-29 | $3.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-03-29 | $487.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,952 characters.

*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 28, 2017 and filed with the SEC on March 5, 2018 (the “Annual Report”). As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms “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 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. All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding the Company’s future operating results and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. 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. Forward-looking statements are based on management’s current expectations and assumptions regarding the Company’s business, the economy and other future conditions, including the impact of recent natural disasters on sales. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “seeks,” “intends,” “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 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;
- any disruption in our distribution capabilities resulting from our inability to operate our distribution centers going forward;
- competition from other stores and internet-based competition;
- our failure to execute our business strategy effectively and deliver value to our customers;
- our inability to manage our growth;
- our inability to manage costs and risks relating to new store openings;
- our dependence on foreign imports for the products we sell;
- our inability to find, train and retain key personnel;
- violations of laws and regulations applicable to us or our suppliers;
- 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;
- 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 and damage;
- fluctuations in material and energy costs;
- our vulnerability to natural disasters and other unexpected events;
- an overall decline in the health of the economy, the hard surface flooring industry, consumer spending, and the housing market; and
- restrictions imposed by our indebtedness on our current and future operations.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this Quarterly Report speak only as of the date hereof. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. If a change to the events and circumstances reflected in our forward-looking statements occurs, our business, financial condition and operating results may vary materially from those expressed in our forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

### Overview

Founded in 2000, Floor & Decor is a high growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 84 warehouse format stores across 21 states as of March 29, 2018. We believe that we offer the industry’s broadest in stock assortment of tile, wood, laminate and natural stone flooring along with decorative and installation accessories at everyday low prices positioning us as the one stop destination for our customers’ entire hard surface flooring needs. We appeal to a variety of customers, including professional installers and commercial businesses (“Pro”), Do It Yourself customers (“DIY”) and customers who buy the products for professional installation (“Buy it Yourself” or “BIY”).

We operate on a 52- or 53-week fiscal year ending on the Thursday on or preceding December 31. The following discussion contains references to the first thirteen weeks of fiscal 2018 and fiscal 2017, which ended on March 29, 2018 and March 30, 2017, respectively.

During the thirteen weeks ended March 29, 2018, we continued to make long-term key strategic investments, including:

- opening one new warehouse-format store ending with 84 warehouse-format stores;
- focusing on innovative new products and localized assortments, supported by inspirational in-store and online visual merchandising solutions;
- promoting key leaders in our regional staff to support our growing number of stores; and
- investing capital in our stores, information technology and our connected customer strategies to continue enhancing and integrating the online and in-store shopping experience for our customers.

### Key Performance Indicators

We consider a variety of performance and financial measures in assessing the performance of our business. The key performance and financial measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income and EBITDA and Adjusted EBITDA. For definitions and a discussion of how we use our key performance indicators, see the “Key Performance Indicators” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. See “Non-GAAP Financial Measures” below for a discussion of how we define EBITDA and Adjusted EBITDA and a reconciliation of our EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

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 our other key financial definitions, see the “Other Key Financial Definitions” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.

### Results of Operations

The following table summarizes key components of our results of operations for the periods indicated, in dollars and as a percentage of net sales:

*(in thousands)*

|  | Thirteen Weeks Ended 3/29/2018 Actual | % of Sales | 3/30/2017 Actual | % of Sales | % Increase/(Decrease) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $402,948 | 100.0% | $307,296 | 100.0% | 31.1% |
| Cost of sales | 237,562 | 59.0 | 181,825 | 59.2 | 30.7 |
| Gross profit | 165,386 | 41.0 | 125,471 | 40.8 | 31.8 |
| Selling & store operating expenses | 102,567 | 25.4 | 80,751 | 26.2 | 27.0 |
| General & administrative expenses | 23,339 | 5.8 | 17,881 | 5.8 | 30.5 |
| Pre-opening expenses | 2,974 | 0.7 | 4,167 | 1.4 | (28.6) |
| Total operating expenses | 128,880 | 31.9 | 102,799 | 33.4 | 25.4 |
| Operating income | 36,506 | 9.1 | 22,672 | 7.4 | 61.0 |
| Interest expense | 1,784 | 0.5 | 5,414 | 1.8 | (67.0) |
| Income before income taxes | 34,722 | 8.6 | 17,258 | 5.6 | 101.2 |
| Provision for income taxes | 2,851 | 0.7 | 6,130 | 2.0 | (53.5) |
| Net income | $31,871 | 7.9% | $11,128 | 3.6% | 186.4% |

### Selected Financial Information

|  | Thirteen Weeks Ended 3/29/2018 | 3/30/2017 |
| --- | ---: | ---: |
| Comparable stores sales | 15.6% | 12.8% |
| Comparable average ticket | 1.9% | (0.7)% |
| Comparable customer transactions | 13.4% | 14.0% |
| Number of warehouse-format stores | 84 | 72 |
| Adjusted EBITDA (in thousands) (1) | $47,827 | $31,897 |
| Adjusted EBITDA margin | 11.9% | 10.4% |

*(1) Adjusted EBITDA is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for additional information and a reconciliation to the most comparable GAAP measure.*

### Net Sales

Net sales during the thirteen weeks ended March 29, 2018 increased $95.7 million, or 31.1%, compared to the corresponding prior year period, which does not reflect $6.6M of prior year sales recognized through the opening balance sheet adjustment described in “Recently Adopted Accounting Pronouncements” included in Item 1 of this quarterly report. All of our product categories experienced comparable store sales increases during the period, driven by increases in laminate/luxury vinyl plank and installation materials and tools that were above our average for the thirteen weeks ended March 29, 2018. Comparable store sales increased 15.6%, or $48.6 million and our non-comparable store sales contributed $40.5 million. The increase in comparable store sales was largely driven by a 13.4% increase in comparable customer transactions and to a lesser extent a 1.9% increase in comparable average ticket growth. We estimate our same stores sales benefited by approximately 400 basis points from the continued recovery in the areas impacted by Hurricane Harvey. We believe the increase in net sales, customer transactions and average ticket are due to the execution of our key strategic investments and a growing U.S. flooring market. We believe our enhanced Pro, merchandising, connected customer, marketing and visual merchandising strategies, along with new innovative products led to our sales growth. Non-comparable store sales were driven by the opening of 12 new stores since March 30, 2017.

### Gross Profit and Gross Margin

Gross profit during the thirteen weeks ended March 29, 2018 increased $39.9 million, or 31.8%, compared to the corresponding prior year period. This increase in gross profit was primarily the result of increased sales driven by comparable store sales increase of 15.6% and the opening of 12 new stores since March 30, 2017. Gross margin for the thirteen weeks ended March 29, 2018 increased approximately 20 basis points to 41.0% from 40.8% in the corresponding prior year period. This increase in gross margin was primarily attributable to approximately 10 basis points of lower distribution center costs and approximately 10 basis points due to lower inventory shrink and damage.

### Selling and Store Operating Expenses

Selling and store operating expenses during the thirteen weeks ended March 29, 2018 increased $21.8 million, or 27.0% compared to the corresponding prior year period, due primarily to the addition of 12 new stores since March 30, 2017. As a percentage of net sales, our selling and store operating expenses decreased approximately 80 basis points to 25.4%. Comparable store selling and store operating expenses as a percentage of comparable store sales decreased by approximately 160 basis points, as we leveraged occupancy, personnel and advertising expenses on higher net sales.

### General and Administrative Expenses

General and administrative expenses, which are typically expenses incurred outside of our stores, during the thirteen weeks ended March 29, 2018 increased $5.5 million, or 30.5% compared to the corresponding prior year period, due to our continued investments in personnel for our regional and store support functions in support of our store growth. Our general and administrative expenses as a percentage of net sales remained flat compared to the corresponding prior year period.

### Pre‑Opening Expenses

Pre-opening expenses during the thirteen weeks ended March 29, 2018 decreased $1.2 million, or 28.6% compared to the corresponding prior year period. The decrease is primarily the result of the cadence of our 2018 store openings, which are primarily in the second half of fiscal 2018. This resulted in a lower number of new stores opened or planned to be opened for which pre-opening expenses were incurred compared to the corresponding prior year period. During the thirteen weeks ended March 29, 2018, we opened one store as compared to opening three stores during the corresponding prior year period.

### Interest Expense

Interest expense during the thirteen weeks ended March 29, 2018 decreased $3.6 million, or 67.0% compared to the corresponding prior year period. The decrease in interest expense was primarily due to lowering our average debt balance to $188.5 million during the thirteen weeks ended March 29, 2018 compared to an average debt balance of $384.0 million in the corresponding prior year period. The decrease in average total debt was primarily due to paying down approximately $192.0 million with net proceeds from our initial public offering during the fiscal second quarter of 2017. The decrease in our average interest rate to 3.8% for the thirteen weeks ended March 29, 2018 from 5.6% for the corresponding prior year period also benefited interest expense.

### Taxes

The provision for income taxes during the thirteen weeks ended March 29, 2018 decreased $3.3 million, or 53.5% compared to the corresponding prior year period. The effective tax rate was 8.2% compared to 35.5% for the thirteen weeks ended March 29, 2018 compared to the corresponding prior year period, respectively. The decrease in the effective tax rate was primarily due to the impact of new tax reform legislation passed in December 2017 and to a lesser extent the recognition of excess tax benefits related to stock options exercised.

### 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 operating income, 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 (as defined below), 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, loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, 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 our 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 disposal, 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.

The reconciliations of net income to Adjusted EBITDA for the periods noted below are set forth in the table as follows:

*(in thousands)*

|  | Thirteen Weeks Ended 3/29/2018 | 3/30/2017 |
| --- | ---: | ---: |
| Net income | $31,871 | $11,128 |
| Depreciation and amortization (1) | 10,228 | 7,768 |
| Interest expense | 1,784 | 5,414 |
| Income tax expense (benefit) | 2,851 | 6,130 |
| EBITDA | 46,734 | 30,440 |
| Stock compensation expense (2) | 1,415 | 885 |
| Other (3) | (322) | 572 |
| Adjusted EBITDA | $47,827 | $31,897 |

*(1) Net of amortization of tenant improvement allowances and excludes deferred financing amortization, which is included as a part of interest expense in the table above.*

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

*(3) Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts for the thirteen weeks ended March 29, 2018 primarily relate to losses from hurricanes Harvey and Irma. Amounts for the thirteen weeks ended March 30, 2017 relate to costs in connection with our initial public offering.*

### Liquidity and Capital Resources

Liquidity is provided primarily by our cash flows from operations and our $200 million asset-backed revolving credit facility (the “ABL Facility”). As of March 29, 2018, we had $160.9 million in unrestricted liquidity, consisting of $0.6 million in cash and cash equivalents and $160.3 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder.

Our primary cash needs are for merchandise inventories, payroll, store rent, and other operating expenses and capital expenditures associated with opening new stores and remodeling existing stores, as well as information technology, e-commerce and store support center infrastructure. We also use cash for the payment of taxes and interest.

The most significant components of our operating assets and liabilities are merchandise inventories and accounts payable, and to a lesser extent accounts receivable, prepaid expenses and other assets, other current and non-current liabilities, taxes receivable and taxes payable. Our liquidity is not generally seasonal, and our uses of cash are primarily tied to when we open stores and make other capital expenditures. We believe that cash expected to be generated from operations and the availability of borrowings under the ABL Facility will be sufficient to meet liquidity requirements, anticipated capital expenditures and payments due under the ABL Facility and our $350 million senior secured term loan facility (the “Term Loan Facility” and together with the ABL Facility, our “Credit Facilities”) for at least the next 12 months.

The Term Loan Facility has no financial maintenance covenants. As of March 29, 2018, we were in compliance with the covenants of the Credit Facilities and no Event of Default (as defined in the credit agreements governing our Credit Facilities) had occurred.

Total capital expenditures in fiscal 2018 are planned to be between approximately $150 million to $158 million and will be funded primarily by cash generated from operations. We intend to make the following capital expenditures in fiscal 2018:

- Open 17 stores and start construction on stores opening in early 2019 using approximately $91 million to $93 million of cash;
- Invest in existing store remodeling projects and our distribution centers using approximately $34 million to $36 million of cash; and
- Invest in information technology infrastructure, e-commerce and other store support center initiatives using approximately $25 million to $29 million of cash.

During the first quarter of fiscal 2018, we relocated much of the existing inventory from our currently leased distribution center near Miami, Florida to the newly leased distribution center near Savannah, Georgia and incurred related costs of approximately $0.3 million. We expect to incur an additional $0.3 million early in the second quarter of fiscal 2018.

### Cash Flow Analysis

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

*(in thousands)*

|  | Thirteen Weeks Ended 3/29/2018 | 3/30/2017 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $40,612 | $56,074 |
| Net cash used in investing activities | (27,841) | (19,801) |
| Net cash used in financing activities | (12,755) | (36,279) |
| Increase (decrease) in cash and cash equivalents | $16 | $(6) |

### Net Cash Provided By Operating Activities

Cash from operating activities consists primarily of net income adjusted for non‑cash items, including depreciation and amortization, write-off of deferred issuance costs on extinguishment of debt, stock‑based compensation, deferred taxes and the effects of changes in operating assets and liabilities.

Net cash provided by operating activities was $40.6 million for the thirteen weeks ended March 29, 2018 and $56.1 million for the thirteen weeks ended March 30, 2017. The net cash provided by operating activities for the thirteen weeks ended March 29, 2018 was primarily the result of an increase in net income and adjustments to net income driven by depreciation related to capital expenditures. This was slightly offset by reduced working capital requirements mainly associated with timing of inventory payments associated with Chinese New Year in the thirteen weeks ended March 29, 2018.

The net cash provided by operating activities for the thirteen weeks ended March 30, 2017 was primarily the result of an increase in net income and improved working capital management with timing of inventory payments associated with Chinese New Year receipts in anticipation of factory closures.

### Net Cash Used In Investing Activities

Investing activities consist primarily of capital expenditures for new store openings, existing store remodels (including leasehold improvements, new racking, new fixtures, new vignettes and new design centers) and new infrastructure and information systems.

Capital expenditures during the thirteen weeks ended March 29, 2018 and March 30, 2017 were $27.8 million and $19.8 million, respectively. We continued our investment in new stores, as we opened one new store through March 29, 2018 and are preparing for an additional four stores to be opened during the second quarter. During the thirteen weeks ended March 29, 2018, approximately 63% of capital expenditures was for new stores, 27% was for existing stores and distribution centers, and the remainder of the spend was for information technology and e‑commerce investments to support our growth.

For the thirteen weeks ended March 30, 2017, approximately 48% of capital expenditures was for new stores, 44% was for existing store remodel and distribution center investments, and the remainder was for information technology and e‑commerce investments.

### Net Cash Used In 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.

Net cash used in financing activities was $12.8 million for the thirteen weeks ended March 29, 2018 and $36.3 million for the thirteen weeks ended March 30, 2017. The net cash used in financing activities for the thirteen weeks ended March 29, 2018 was primarily driven by a net paydown on the ABL Facility of $14.2 million, slightly offset by proceeds from the exercise of stock options of $3.2 million.

The net cash used in financing activities for the thirteen weeks ended March 30, 2017 was primarily driven by a net paydown on our ABL Facility of $35.5 million.

### Contractual Obligations

There were no material changes to our contractual obligations outside the ordinary course of our business during the thirteen weeks ended March 29, 2018.

### Off‑Balance Sheet Arrangements

For the thirteen weeks ended March 29, 2018, except for operating leases entered into in the normal course of business, 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 U.S. generally accepted accounting principles, which require 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. Actual results may differ from those estimates and assumptions. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report. See Note 1 to our consolidated financial statements included in this quarterly report on Form 10-Q, which describes recently issued accounting pronouncements not yet required to be adopted by us.

## Market risk

As filed, 274 characters.

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. Our exposure to market risk has not changed materially since December 28, 2017.

## Controls and procedures

As filed, 1,089 characters.

### Internal Control over Financial Reporting

The process of improving our internal controls has required and will continue to require us to expend significant resources to design, implement and maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. There can be no assurance that any actions we take will be completely successful. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis. As part of this process, we may identify specific internal controls as being deficient.

We have begun documenting and testing internal control procedures in order to comply with the requirements of Section 404(a) of the Sarbanes‑Oxley Act. Section 404 requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing these assessments. We must comply with Section 404 no later than the time we file our annual report for fiscal 2018 with the SEC.

## Risk factors

As filed, 634 characters.

In addition to the other information set forth in this Report, you should carefully consider the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report, which could materially affect our business, financial condition and/or operating results. There have been no material changes to the risk factors disclosed in the Annual Report. The risks described in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

Filed May 3, 2018.
Source: SEC EDGAR, the filing index for accession 0001558370-18-003826. Last ingested by Listed: Nov 11, 2026, 03:34 ET. No prices; not investment advice.