Container Store Group, Inc.

Our top priorities are to develop policies and efforts that focus on the environment, social responsibility and our employees, respect for human rights and ethics. Our contribution to a sustainable society is to reduce environmental impacts of our products at each stage of development. Our Elfa-manufactured products, which contributed approximately 29% of our fiscal year 2019 retail sales, are largely made from recycled materials and Elfa has a robust sustainability program in place. Additionally, we desire to progress towards a fair, healthy and safe workplace, while creating work environment policies that promote diversity, equality and inclusion. We believe that when we create a workplace where our colleagues are engaged, committed and empowered for the long-term, we are better positioned to create value for our company, as well as for our shareholders. We are proud of our focus on promoting human rights across our operations – from our supply chain to our products – and are committed to build our business on a foundation of ethics.

The COVID-19 outbreak has led to disruption of our store operations and has had a significant and continuing adverse impact on our results of operations, financial position and cash flows.

The COVID-19 pandemic continues to affect the U.S. and grow globally and has significantly affected our business operations. It is not possible to predict the ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving. On March 13, 2020, the President of the United States declared a national emergency as a result of the COVID-19 outbreak in the U.S. We experienced significant disruptions in store operations, including the temporary closure of all stores and the shift to contactless curbside click and pick-up service and limited in-store appointments at select stores, which adversely affected our business, results of operations and financial condition. As of the date of filing this Annual Report on Form 10-K, all 93 stores have reopened, of which 88 stores are operating with strict health and safety protocols and allowing limited customers in the store at a time, and 5 stores are operating with contactless curbside pick-up only until local mandates allow for more extensive operations. There can be no assurance that the continuation of the COVID-19 pandemic will not materially impact our future business operations.

In July 2017, the U.K. Financial Conduct Authority announced its intention to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing LIBOR with the Secured Overnight Financing Rate, or "SOFR", a new index calculated by short-term repurchase agreements, backed by Treasury securities. At this time, it is not possible to definitively predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates, including SOFR. Our Senior Secured Term Loan Facility and Revolving Credit Facility provide that in the event LIBOR rates are no longer available, we and our lenders will negotiate in good faith to adopt a replacement benchmark rate and an applicable margin for borrowings based on such replacement benchmark rate. We may incur increased interest expense using any such replacement benchmark rates, which could have an adverse effect on us, including our costs of funds, access to capital markets and financial results.

In connection with the employee furloughs, the Company also reduced the base salaries of its executive officers. Effective March 30, 2020, the base salaries of Melissa Reiff, Chairwoman, President and Chief Executive Officer, and the Company’s other executive officers, were reduced by 45% and 33%, respectively.  Ms. Reiff and Jodi Taylor, Chief Financial Officer and Chief Administrative Officer, have also amended their employment contracts to temporarily defer the payment of any annual cash bonus for fiscal 2019. In addition, the base salaries of all other members of the Company’s senior management team, as well as other certain salaried employees, were temporarily reduced by varying amounts. The Company’s senior management team’s performance-based cash bonuses have also been temporarily deferred. All furloughs and reductions of pay will remain in effect for a period to be determined and will be periodically reassessed as the situation regarding COVID-19 develops. The non-employee members of the Company’s Board of Directors have also agreed to waive their quarterly retainer fees previously scheduled to be paid on April 1, 2020.  

As of our intangibles annual testing date of December 29, 2019, we determined that there was no impairment of goodwill or trade names. However, in the fourth quarter of fiscal 2019, we experienced significant disruptions to our operations, including temporary store closures and a decline in our market capitalization, due to the COVID-19 pandemic. Therefore, we conducted an additional interim impairment test of goodwill and trade names as of March 28, 2020. The interim impairment test included forecasts of future operations incorporating certain assumptions about the duration of the COVID-19 pandemic and its impact on our business. Based on the results of our interim impairment tests performed, we determined there was no impairment of intangibles. Future impairment charges could be required if we do not achieve our current net sales and profitability projections or if our weighted average cost of capital increases. Moreover, changes in our market capitalization may impact certain assumptions used in our income approach calculations.