MONRO, INC. Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including (without limitation) statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words "anticipates," "believes," "contemplates," "expects," "see," "could," "may," "estimate," "appear," "intend," "plans," "potential," "strategy," "will" and variations thereof and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed. These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which Monro's stores are located, the need for and costs associated with store renovations and other capital expenditures, the duration and impact of the COVID-19 pandemic and its impact on our customers, executive officers and employees, the effect of economic conditions, seasonality, the impact of weather conditions and natural disasters, the impact of competitive services and pricing, parts supply restraints or difficulties, our dependence on vendors, including foreign vendors, changes inU.S. or foreign trade policies, including the impacts of tariffs on products imported fromChina , industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, advances in automotive technologies, disruption or unauthorized access to our computer systems, risks relating to protection of customer and employee personal data, business interruptions, risks relating to litigation, risks relating to integration of acquired businesses, including goodwill impairment and the risks set forth in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedMarch 28, 2020 . Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. References to fiscal 2021 and fiscal 2020 in this Management's Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal years endingMarch 27, 2021 andMarch 28, 2020 , respectively.
Impact of the COVID-19 Pandemic
In response to the unprecedented and rapid spread of COVID-19 (coronavirus), manyU.S. state governments, in states in which we operate, have taken preventative or protective actions, such as issuing stay-at-home restrictions and social distancing measures. State and local governments have ordered temporary closures of some businesses and numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of certain businesses. As a result, demand for automotive undercar repair and tire sales and services declined at a rapid pace and has remained below normal levels, which has had an unprecedented and materially adverse impact on our results of operations and business operations. Although demand improved during the quarter endedSeptember 26, 2020 , we experienced a significant decline in store traffic throughout the quarter, as compared to the prior year, due to the COVID-19 pandemic. During the quarter, comparable store sales decreased 11.4% from the same period in the prior year. (We define comparable store sales as sales for stores that have been opened or acquired at least one fiscal year prior toMarch 29, 2020 .) Substantially all Company-operated retail stores operated under a reduced schedule throughout the quarter to match lower demand. We continue to address the ongoing business challenges and shifting economic dynamics as the COVID-19 pandemic has continued to evolve. Given the uncertainties surrounding the impacts of the COVID-19 pandemic on our future financial condition, results of operations and cash flows, we have taken a number of actions in response to prevailing uncertain market conditions. In order to enhance our liquidity position, we took a precautionary measure and borrowed$350 million available to us under our credit facility inMarch 2020 . We subsequently repaid$335 million of these borrowings during the six months endedSeptember 26, 2020 , of which$95 million was repaid during the quarter. To improve our liquidity, we continued to take the following measures during the quarter endedSeptember 26, 2020 as we did in the first quarter of fiscal 2021 to reduce costs and improve cash flows: (i) reduced store hours and store labor to align with reduced demand across our store locations; (ii) undertook significant reductions in operating expenses across the Company, including non-store compensation expense through the continued furlough of or other reduction to certain members of our non-store workforce; and (iii) negotiated rent deferrals for a significant number of our stores, as well as other rent reductions. Although acquisition activity was paused during the first six months of fiscal 2021, we continued to evaluate potential acquisition candidates that we believe would fit our growth strategy while maintaining financial discipline, and subsequent toSeptember 26, 2020 , we signed a definitive asset purchase agreement to complete the acquisition of 17 retail tire and automotive repair stores located inCalifornia . As the COVID-19 pandemic has continued to evolve, our priority has been and continues to be, the health and safety of our employees and customers. To protect our employees and customers, we have implemented strict cleaning and sanitation measures. In addition, we have provided face masks and other protective equipment, including sneeze guards installed at each sales counter, necessary to ensure the safety our employees and customers. We have also implemented various measures intended to reduce the spread of COVID-19 among our non-store workforce including working from home and encouraging employees to adhere to 13
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prevention measures recommended by the
Despite the challenges, some positive signs have begun to emerge. Since the low point duringApril 2020 , we have experienced continued improvement in sales driven by increases in store traffic. However, there can be no assurance as to the time required to fully recover operations and sales to pre-pandemic levels or if we will reach those levels again.
With continued sales improvement to date, we have resumed our rebrand and
reimage initiatives during the quarter ended
Current Trends
Our Company-operated stores have experienced a steady improvement in sales to date since the low point of sales duringApril 2020 . The following table presents fiscal monthly information about our comparable store sales trends. There is no assurance that these trends will continue. Fiscal Month Ended April May June July August September October Comparable store sales % (year-over-year decline) (41) % (24) % (14) % (12) % (13) % (8) % (12) % As we move through this transition and anticipate sales trends to improve, we expect to incur some labor inefficiencies as we adjust to new operating models and federal and local health and safety protocols with a goal to remain as efficient as possible while still offering safe and high quality service to our customers. Those labor inefficiencies may include difficulty in hiring employees required to maintain store staffing levels needed to meet demand. We will also incur additional costs and investments in supplies necessary to keep our teams and customers safe, such as face masks, hand sanitizer and cleaning supplies, which are all expected to be ongoing costs for the duration of the COVID-19 pandemic and recovery period.
Given the unpredictable nature of this situation, we cannot estimate with certainty the long-term impacts of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows.
As ofOctober 30, 2020 , we had approximately$46 million in cash on hand. During the month ofOctober 2020 , we have paid down an additional$41 million in borrowings from our five-year$600 million revolving credit facility with eight banks (the "Credit Facility"). We believe we have sufficient liquidity available from operating cash flow and, if necessary, cash on hand and/or bank financing to support our operations for at least the next 12 months.
Non-GAAP Financial Measures
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain financial measures, such as adjusted net income and
adjusted diluted earnings per common share ("EPS") not derived in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). Non-GAAP financial measures should not be used as a substitute for
GAAP financial measures, or considered in isolation, for the purpose of
analyzing our operating performance, financial position or cash flows, and may
not be comparable to similarly titled non-GAAP financial measures used by other
companies. We have included reconciliations of the non-GAAP financial measures
used in this Management's Discussion and Analysis of Financial Condition and
Results of Operations to their most directly comparable GAAP measures in the
section titled "Reconciliation of Non-GAAP Financial Measures" below.
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Table of Contents Results of Operations
The following table sets forth income statement data of Monro expressed as a percentage of sales for the fiscal periods indicated:
Quarter Ended Six Months Ended
September 26, September 28, September 26, September 28,
2020 2019 2020 2019
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales, including distribution
and occupancy costs 63.8 62.3 64.2 61.0
Gross profit 36.2 37.7 35.8 39.0
Operating, selling, general and
administrative expenses 27.8 27.4 29.2 28.2
Operating income 8.5 10.3 6.7 10.9
Interest expense, net of interest income 2.5 2.1 2.7 2.2
Other income, net of other loss - (0.1) - (0.1)
Income before income taxes 6.0 8.2 4.0 8.7
Provision for income taxes 1.5 1.9 1.0 2.0
Net income 4.5 % 6.3 % 3.0 % 6.7 %
The table may not subtract down by +/- 0.1% due to rounding as percentages are calculated based on unrounded numbers.
Second Quarter and Six Months Ended
Sales were$288.6 million for the quarter endedSeptember 26, 2020 as compared with$324.1 million for the quarter endedSeptember 28, 2019 . The sales decrease of$35.5 million , or 11.0%, was due to a decrease in comparable store sales for the quarter endedSeptember 26, 2020 of 11.4% as compared to the same period in the prior year. Additionally, there was a decrease in sales from closed stores amounting to$6.5 million in the quarter. Partially offsetting these decreases was an increase of$9.4 million related to new stores, of which$8.4 million came from fiscal 2020 acquisitions. There were 91 selling days in the quarter endedSeptember 26, 2020 and in the quarter endedSeptember 28, 2019 . Sales were$535.6 million for the six months endedSeptember 26, 2020 as compared with$641.2 million for the six months endedSeptember 28, 2019 . The sales decrease of$105.5 million , or 16.5%, was due to a decrease in comparable store sales for the six months endedSeptember 26, 2020 of 18.7% as compared to the same period in the prior year. Additionally, there was a decrease in sales from closed stores amounting to$9.3 million . Partially offsetting these decreases was an increase of$22.1 million related to new stores, of which$19.4 million came from fiscal 2020 acquisitions. There were 181 selling days in the six months endedSeptember 26, 2020 and in the six months endedSeptember 28, 2019 . AtSeptember 26, 2020 , we had 1,242 Company-operated stores in operation and 97 franchised locations as compared with 1,262 Company-operated stores in operation and 98 franchised locations atSeptember 28, 2019 . AtMarch 28, 2020 , we had 1,283 Company-operated stores in operation and 98 franchised locations. During the quarter endedSeptember 26, 2020 , we added one Company-operated store and closed six stores, of which five stores have been closed temporarily as a result of damage sustained during Hurricane Laura inLouisiana and Tropical Storm Isaias in the Northeast. During the six months endedSeptember 26, 2020 , we have added one Company-operated store and closed 42 stores. Additionally, one franchised location was closed during the six months endedSeptember 26, 2020 . Comparable store brakes and tires category sales for the quarter endedSeptember 26, 2020 decreased by approximately 24% and 3%, respectively, from the prior year quarter. Additionally, alignment and exhaust category sales for the quarter endedSeptember 26, 2020 each decreased by approximately 16% on a comparable store basis as compared to the same period in the prior year. Comparable store maintenance services and front end/shocks category sales for the quarter endedSeptember 26, 2020 each decreased by approximately 19% from the prior year quarter. Comparable store sales were impacted by a decline in store traffic resulting from the impact of the ongoing COVID-19 pandemic in our markets, partially offset by higher average ticket. Gross profit for the quarter endedSeptember 26, 2020 was$104.5 million or 36.2% of sales as compared with$122.1 million or 37.7% of sales for the quarter endedSeptember 28, 2019 . The decrease in gross profit for the quarter endedSeptember 26, 2020 , as a percentage of sales, was partially due to an increase in distribution and occupancy costs, as a percentage of sales. Although we were able to reduce these largely fixed costs through rent concessions from landlords, we lost leverage on these costs with lower overall comparable store sales. The decrease in gross profit for the quarter, as a percentage of sales, was also partially due to an increase in material costs, as a percentage of sales, as a result of a shift in sales mix to tires. However, during the quarter, we expanded our gross profit per tire from the prior year quarter with the ongoing rollout of our tire category management tool. Partially offsetting these increases was a decrease in technician labor costs, which decreased from the prior year quarter as a percentage of sales, due to improved labor productivity as a result of our store staffing optimization initiatives, including our cloud based labor scheduling tool. 15
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Gross profit for the six months endedSeptember 26, 2020 was$192.0 million or 35.8% of sales as compared with$250.2 million or 39.0% of sales for the six months endedSeptember 28, 2019 . For the six months endedSeptember 26, 2020 , the increase in distribution and occupancy costs, as a percentage of sales, due to lost leverage on these largely fixed costs against lower overall comparable store sales, as well as the increase in material costs, as a percentage of sales, resulting from a shift in sales mix to tires were partially offset by a decrease in technician labor costs, which decreased as a percentage of sales, due to our store staffing optimization initiatives, when compared to the same period in the prior year. Operating expenses for the quarter endedSeptember 26, 2020 were$80.1 million or 27.8% of sales as compared to$88.7 million or 27.4% of sales for the quarter endedSeptember 28, 2019 . The decrease of$8.6 million in operating expenses from the comparable period of the prior year is primarily due to decreased expenses as a result of focused cost reductions, including actively managing our store management staffing levels to match demand and realigned marketing spend toward digital channels. The decrease in operating expenses from the comparable period of the prior year also reflect lower expenses from a net reduction of 20 stores compared to the prior year period. We lost leverage on these cost reductions with lower overall comparable stores sales, which resulted in the increase in operating expenses, as a percentage of sales, from the prior year quarter. For the six months endedSeptember 26, 2020 , operating expenses decreased by$24.3 million to$156.2 million from the comparable period of the prior year and were 29.2% of sales as compared to 28.2% of sales for the six months endedSeptember 28, 2019 . The decrease is primarily due to decreased expenses as a result of focused cost reductions and reflects lower expenses from closed stores. Partially offsetting these decreases was an increase in store closure costs of$2.5 million .
Operating income for the quarter ended
Operating income for the six months endedSeptember 26, 2020 of approximately$35.8 million decreased by 48.6% as compared to operating income of approximately$69.7 million for the six months endedSeptember 28, 2019 , and decreased as a percentage of sales from 10.9% to 6.7% for the reasons described above. Net interest expense for the quarter endedSeptember 26, 2020 increased by approximately$0.4 million as compared to the same period in the prior year, and increased from 2.1% to 2.5% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter endedSeptember 26, 2020 increased by approximately$237 million as compared to the quarter endedSeptember 28, 2019 . This increase is partially related to an increase in debt outstanding under our Credit Facility that was borrowed in response to the COVID-19 pandemic in late fiscal 2020. We paid down approximately$95 million of our debt outstanding during the second quarter endedSeptember 26, 2020 , in addition to the$240 million we paid back in the first quarter. The remaining increase in weighted average debt is due to an increase in finance lease debt recorded in connection with the fiscal 2020 acquisitions and greenfield expansion, along with renegotiated leases. Partially offsetting these increases was a decrease in the weighted average interest rate of approximately 190 basis points from the prior year quarter due primarily to a decrease in borrowing rates associated with new leases. Net interest expense for the six months endedSeptember 26, 2020 increased by approximately$0.6 million as compared to the same period in the prior year, and increased from 2.2% to 2.7% as a percentage of sales for the same periods. Weighted average debt outstanding increased by approximately$363 million and the weighted average interest rate decreased by approximately 280 basis points as compared to the same period of the prior year. Income before income taxes for the quarter endedSeptember 26, 2020 of approximately$17.2 million decreased by 35.4% as compared to income before income taxes of approximately$26.6 million for the quarter endedSeptember 28, 2019 , and decreased as a percentage of sales from 8.2% to 6.0% for the reasons described above.
Income before income taxes for the six months ended
For the quarter endedSeptember 26, 2020 , our effective income tax rate was 25.2% compared to 23.6% for the quarter endedSeptember 28, 2019 , as discrete items, primarily related to employee stock-based compensation, resulted in a larger tax rate benefit in the prior year period. For the six months endedSeptember 26, 2020 , our effective income tax rate was 25.3% compared to 23.3% for the six months endedSeptember 28, 2019 , as discrete items, primarily related to employee stock-based compensation, resulted in a larger tax rate benefit in the prior year period. 16
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Net income for the quarter endedSeptember 26, 2020 of$12.8 million decreased 36.8% from net income of$20.3 million for the quarter endedSeptember 28, 2019 . Adjusted net income (a non-GAAP financial measure) was$13.3 million and$21.1 million for the quarters endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Diluted EPS for the quarter endedSeptember 26, 2020 of$0.38 decreased 36.7% as compared to diluted EPS of$0.60 for the quarter endedSeptember 28, 2019 . Adjusted diluted EPS (a non-GAAP financial measure) was$0.39 and$0.62 for the quarters endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Please refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a discussion of these non-GAAP financial measures, adjusted net income and adjusted diluted EPS, and the reconciliations to their most comparable GAAP measures, net income and diluted EPS, respectively. For the six months endedSeptember 26, 2020 , net income of$15.8 million decreased 63.1% from net income of$42.9 million for the six months endedSeptember 28, 2019 . Adjusted net income (a non-GAAP financial measure) was$18.4 million and$44.5 million for the six months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Diluted EPS for the six months endedSeptember 26, 2020 of$0.47 decreased 62.7% as compared to diluted EPS of$1.26 for the six months endedSeptember 28, 2019 . Adjusted diluted EPS (a non-GAAP financial measure) was$0.54 and$1.31 for the six months endedSeptember 26, 2020 andSeptember 28, 2019 , respectively. Please refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a discussion of these non-GAAP financial measures, adjusted net income and adjusted diluted EPS, and the reconciliations to their most comparable GAAP measures, net income and diluted EPS, respectively.
Reconciliation of Non-GAAP Financial Measures
In addition to reporting net income and diluted EPS, which are GAAP measures, this Form 10-Q includes adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures. We have included reconciliations to adjusted net income and adjusted diluted EPS from our most directly comparable GAAP measures, net income and diluted EPS, below. Management views these non-GAAP financial measures as indicators to better assess comparability between periods because management believes these non-GAAP financial measures reflect the core business operations while excluding certain non-recurring items and items related to store closings as well as Monro.Forward or acquisition initiatives. These non-GAAP financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-GAAP financial measures may be different from similarly titled non-GAAP financial measures used by other companies.
Adjusted net income is summarized as follows:
Reconciliation of Adjusted Net Income
Quarter Ended Six Months Ended
September 26, September 28, September 26, September 28,
2020 2019 2020 2019
(Dollars in thousands)
Net income $ 12,846 $ 20,314 $ 15,833 $ 42,920
Store impairment charge 99 - 99 -
Store closing costs (17) - 2,510 -
Monro.Forward initiative costs 248 769 430 1,307
Acquisition due diligence and
integration costs 22 287 39 769
Management transition costs 257 - 257 -
Provision for income taxes on
adjustments (141) (263) (782) (518)
Adjusted net income $ 13,314 $ 21,107 $ 18,386 $ 44,478
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Adjusted diluted EPS is summarized as follows:
Reconciliation of Adjusted Diluted EPS
Quarter Ended Six Months Ended
September 26, September 28, September 26, September 28,
2020 2019 2020 2019
Diluted EPS $ 0.38 $ 0.60 $ 0.47 $ 1.26
Store impairment charge (a) - - - -
Store closing costs (a) - - 0.06 -
Monro.Forward initiative costs 0.01 0.02 0.01 0.03
Acquisition due diligence and
integration costs (a) - 0.01 - 0.02
Management transition costs 0.01 - 0.01 -
Adjusted diluted EPS $ 0.39 $ 0.62 $ 0.54 $ 1.31
_____________
(a)For the quarter ended September 26, 2020 , the store impairment charge, as
well as store closing and acquisition due diligence and integration costs are
each minor in amount, net of the impact from income taxes, to have an impact on
the calculation of adjusted diluted EPS. These items may also be minor in
amount, net of the impact from income taxes, to have an impact on the
calculation of adjusted diluted EPS for the six months ended September 26, 2020 .
The calculation of the impact of non-GAAP adjustments on diluted earnings per
share is performed on each line independently. The table may not add down by +/-
$0.01 due to rounding.
The adjustments to diluted EPS reflect adjusted effective tax rates of 23.2% and
23.4% for the quarter and six months ended September 26, 2020 , respectively, and
25.0% for each of the quarter and six months ended September 28, 2019 . These
adjusted effective tax rates exclude the income tax impacts from share-based
compensation. See adjustments from the Reconciliation of Adjusted Net Income
table above for pre-tax amounts.
Capital Resources, Commitments and Liquidity
Capital Resources
Our primary capital requirements in fiscal 2021 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the six months endedSeptember 26, 2020 , we spent approximately$24.0 million on these items, of which approximately$16.1 million was related to our Monro.Forward initiatives, including our store technology infrastructure upgrade project completed in the first quarter of fiscal 2021. Capital requirements were met primarily by cash flow from operations and from cash on hand. While we suspended all capital expenditures related to our store rebrand and reimage initiatives during the first quarter of fiscal 2021, we resumed this program in the second quarter of fiscal 2021. We paid dividends of$14.9 million during the six months endedSeptember 26, 2020 . However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and restrictions under the Credit Facility, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to$38.5 million in the aggregate for the period fromJune 30, 2020 toJune 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended. Additionally, we have signed a definitive asset purchase agreement to complete the acquisition of 17 retail tire and automotive repair stores located inCalifornia . This transaction is expected to close during the third quarter of fiscal 2021 and is expected to be financed through our Credit Facility.
Because acquisitions remain a pillar of our growth strategy, we are continuing to evaluate potential acquisition candidates that we believe would fit our growth strategy while maintaining financial discipline. We believe we have sufficient resources available (including cash flow from operations and, if necessary, cash on hand and/or bank financing) to expand our business as currently planned for the next twelve months.
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Commitments
Payments due by period under long-term debt, other financing instruments and
commitments are as follows:
Within 2 to 4 to After
Total 1 Year 3 Years 5 Years 5 Years
(Dollars in thousands)
Principal payments on long-term
debt $ 231,300 - - $ 231,300 -
Finance lease commitments/financing
obligations (a) 517,489 $ 53,518 $ 106,833 99,356 $ 257,782
Operating lease commitments (a) 239,906 35,511 64,754 52,754 86,887
Accrued rent 3,235 2,993 209 16 17
Other liabilities 1,533 800 733 - -
Total $ 993,463 $ 92,822 $ 172,529 $ 383,426 $ 344,686
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(a)Operating and finance lease commitments represent future undiscounted lease
payments and include $59.1 million and $108.1 million , respectively, related to
options to extend lease terms that are reasonably certain of being exercised.
During fiscal 2021, we negotiated rent deferrals for a significant number of our
stores, with repayment at later dates, primarily in the third and fourth
quarters of fiscal 2021 and the first and second quarters of fiscal 2022. These
concessions provide a deferral of rent payments with no substantive changes to
the original contract. Consistent with updated guidance from the Financial
Accounting Standards Board in April 2020 , we have elected to treat the rent
deferrals as accrued liabilities. The accrued rent reflected in the table above
includes $2.0 million related to rent deferrals and $1.2 million due to timing
of other lease related expenses.
In addition, during fiscal 2021, we negotiated rent reductions with certain
landlords on approximately 23% of our lease contracts in exchange for extending
our current lease term. As these agreements represent substantive changes to our
contractual obligations, the leases were remeasured. As a result, finance lease
and financing obligation assets, net and finance leases and financing
obligations were increased by $66.5 million and $62.8 million , respectively, and
operating lease assets, net and operating lease liabilities were increased by
$16.4 million and $20.2 million , respectively. The negotiated terms were
generally consistent with terms of normal renewal agreements.
Liquidity
InApril 2019 , we entered into a new five-year$600 million revolving Credit Facility with eight banks that will expire inApril 2024 . Interest only is payable monthly throughout the Credit Facility's term. The borrowing capacity for the Credit Facility of$600 million includes an accordion feature permitting us to request an increase in availability of up to an additional$250 million . The Credit Facility bears interest at 75 to 200 basis points over LIBOR (or replacement index) or at the prime rate, depending on the type of borrowing and the rates then in effect. The Credit Facility requires fees payable quarterly throughout the term between 0.125% and 0.35% of the amount of the average net availability under the Credit Facility during the preceding quarter. There was$231.3 million outstanding under the Credit Facility atSeptember 26, 2020 .
Within the Credit Facility, we have a sub-facility of
The net availability under the Credit Facility at
Mortgages and specific lease financing arrangements with other parties (with certain limitations) are permitted under the Credit Facility. Other specific terms and the maintenance of specified ratios are generally consistent with our prior financing agreement. Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions. OnJune 11, 2020 , we entered into a First Amendment to the Credit Facility (the "First Amendment"), which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement to provide us with additional flexibility to operate our business through the first quarter of fiscal 2022. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect. Specifically, fromJune 11, 2020 toJune 26, 2021 , the First Amendment (1) eliminates the covenant for us to maintain an interest coverage ratio above 1.55x; (2) requires us to maintain liquidity of$275 million as of the end of each fiscal month; and (3) adjusts the ratio of maximum adjusted debt to EBITDAR. The ratio of maximum adjusted debt to EBITDAR will vary by quarter as follows: (a) 5.50x in the first quarter of fiscal 2021; (b) 6.00x in the second quarter of fiscal 2021; (c) 6.25x in the third quarter of 19
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fiscal 2021; (d) 5.50x in the fourth quarter of fiscal 2021; (e) 5.00x in the first quarter of fiscal 2022; and (f) thereafter, returning to 4.75x.
For the period fromJune 30, 2020 toJune 30, 2021 , we are permitted under the First Amendment to acquire stores or other businesses up to$100 million in the aggregate, as long as, on a pro forma basis after taking the acquisition into account, we would comply with the financial covenants and other restrictions in the First Amendment. In addition, fromJune 30, 2020 toJune 30, 2021 , we may declare, make or pay any dividend or distribution up to$38.5 million in the aggregate, if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility. The First Amendment will permanently amend the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75% and also added two levels of interest rate pricing applicable during the covenant relief period in the event the ratio of adjusted debt to EBITDAR is higher than 5.00x. During the covenant relief period, the minimum interest rate spread charged on borrowings will be 225 basis points over LIBOR.
We were in compliance with all debt covenants at
We believe that we can fulfill our commitments and working capital needs utilizing our cash flow from operations and, if necessary, cash on hand and/or bank financing for at least the next 12 months and the foreseeable future.
In addition, we have financed certain store properties with finance
leases/financing obligations, which amounted to
Recent Accounting Pronouncements
See "Recent Accounting Pronouncements" in Note 1 to our Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our Consolidated Financial Statements as ofSeptember 26, 2020 and the expected impact on the Consolidated Financial Statements for future periods.
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