Interface is a global flooring company specializing in carbon neutral carpet tile and resilient flooring, including luxury vinyl tile (“LVT”), vinyl sheet, and nora® rubber flooring. We help our customers create high-performance interior spaces that support well-being, productivity, and creativity, as well as the sustainability of the planet.

Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. We believe the appeal and utilization of modular carpet and resilient flooring will continue to grow in corporate office and non-corporate office market segments, and we are using our considerable skills and experience with designing, producing and marketing modular products that make us a market leader in the corporate office market segment to support and facilitate our penetration into more non-corporate office market segments around the world. The nora acquisition continues to advance the Company’s growth strategy to expand into new market segments, particularly in the healthcare, life sciences and education market segments.

Below is a summary of our sales mix between corporate office and non-corporate office market segments for the last three fiscal years:years by reportable segment:

Our AMS and EAAA reportable segments sell the same products within their respective geographical regions. We produce carpet tiles in a wide variety of colors, patterns, textures, pile heights and densities. These varieties are designed to meet both the practical and aesthetic needs of a broad spectrum of commercial interiors — particularly offices, healthcare facilities, airports, educational and other institutions, hospitality spaces, and retail facilities — and residential interiors. Our carpet tile systems permit distinctive styling and patterning that can be used to complement interior designs, to set off areas for particular purposes, create visual cues, and to convey graphic information. While we continue to manufacture and sell a substantial portion of our carpet tile in standard styles, most of our modular carpet sales in the Americas and Asia-Pacific regions are made-to-order products designed to meet customer specifications.

 

We believe our cradle-to-gate carbon negative carpet tile products and our Carbon Neutral Floors program provide us with a competitive advantage, particularly with our global account customers who are increasingly setting their own goals to reduce their carbon footprints.

 

 

We manufacture carpet tile at two locations in the United States and at facilities in the Netherlands, the United Kingdom, Thailand, China and Australia. We also have manufactured carpet tile at a location in Thailand for many years, but in 2021 we announced that we are closing the Thailand plant (anticipated closure at the end of the first quarter of 2022). We manufacture rubber flooring in Germany.

Our raw materials are generally available from multiple sources — both regionally and globally — with the exception of synthetic fiber (nylon yarn).  For yarn, we principally rely upon two major global suppliers, but we also have significant relationships with at least two other suppliers.  Although our number of principal yarn suppliers is limited, we do have the capability to manufacture carpet using face fiber produced from two separate polymer feedstocks — nylon 6 and nylon 6,6 — which provides additional flexibility with respect to yarn supply inputs, if needed. Our global sourcing strategy, including with respect to our principal yarn suppliers and dual polymer manufacturing capability, allows us to help guard against any potential shortages of raw materials or raw material suppliers in a specific polymer supply chain. For rubber flooring, the key polymer raw materials are available from multiple sources, and we can source both synthetic and natural rubber depending on product specification and material availability.

 

The environmental management systems of our floorcovering manufacturing facilities in LaGrange, Georgia, West Point, Georgia, Northern Ireland, the Netherlands, Thailand (anticipated closure at the end of the first quarter of 2022), China and Australia are certified under International Standards Organization (ISO) Standard No. 14001. Nora’s manufacturing facility, which is located in Weinheim, Germany, is ISO14001 certified as well and sells the majority of its products with the Blauer Engel label. Blauer Engel is the leading German institute that recognizes products that have environmentally friendly aspects.

 

An important part of our marketing and sales efforts involves the preparation of custom-made samples of requested carpet designs, in conjunction with the development of innovative product designs and styles to meet the customer’s particular needs. In most cases, we can produce samples to customer specifications in less than five days, which significantly enhances our marketing and sales efforts and has increased our volume of higher margin made-to-order or custom sales. In addition, through our websites, we have made it easy to view and request samples of our products. We also use technology which allows us to provide digital, simulated samples of our products, which helps reduce raw material and energy consumption associated with our samples.

 

We primarily use our internal marketing and sales force teams to market our flooring products. In order to implement our global marketing efforts, we have product showrooms or design studios in the United States, Canada, Mexico, England, France, Germany, Spain, the Netherlands, India, Australia, Norway, United Arab Emirates, Russia, Singapore, Hong Kong, Thailand, China and elsewhere. We may open offices in other locations around the world as necessary to capitalize on emerging marketing opportunities.

Our business strategy is to continue to use our leading position in modular carpet, product design and global made-to-order capabilities as a platform from which to position our modular carpet, LVT products and rubber flooring products across several industry segments.

We will seek to increase revenues and profitability by pursuing the following key initiatives:

Historically, sales in our first quarter had typically been our lowest quarter while our fourth quarter sales had typically been our best quarter, as sales generally increased throughout the course of the fiscal year.  However, in more recent years up through 2019, as our sales efforts and results in the education and other non-corporate office market segments have increased, our second and third quarter sales have sometimes beenwere the highest. In 2020, our first quarter sales were the highest quarter, as the COVID-19 pandemic escalated and more severely impacted the remainder of the year. In 2021, our fourth quarter sales were the highest quarter as certain countries rebounded from the economic impacts of the COVID-19 pandemic over the course of the year.

 

We compete, on a global basis, in the sale of our modular carpet products with other carpet manufacturers and manufacturers of vinyl and other types of floorcoverings, including broadloom carpet. Although the industry has experienced significant consolidation, a large number of manufacturers remain in the industry. We believe we are the largest manufacturer of modular carpet in the world. However, aA number of domestic and foreign competitors manufacture modular carpet as one segment of their business, and some of these competitors have financial resources greater than ours. In addition, some of the competing carpet manufacturers have the ability to extrude at least some of their requirements for fiber used in carpet products, which decreases their dependence on third party suppliers of fiber.

We believe the principal competitive factors in our primary floorcovering markets are brand recognition, quality, design, service, broad product lines, product performance, marketing strategy, pricing and sustainability. In the corporate office market segment, modular carpet competes with various floorcoverings including broadloom carpet, LVT and polished concrete. We believe the quality, service, design, better and longer average product performance, flexibility (design options, selective rotation or replacement, use in combination with our resilient products), sustainabilityenvironmental footprint and convenience of our modular carpet are our principal competitive advantages.

 

 

David Oakey Designs provides carpet design and consulting services to us pursuant to a consulting agreement, and this firm augments our internal research, development and design staff. David Oakey Designs’ services under the agreement include creating commercial carpet designs for use by our modular carpet businesses throughout the world, and overseeing product development, design and coloration functions for our modular carpet business in North America. The agreement can be terminated by either party upon six months prior written notice to the other party.

 

 

We are subject to various federal, state and foreign laws and regulations that address various aspects of our business such as worker safety (including but not limited to safety measures in response to the COVID-19 pandemic), privacy, trade sanctions and anticorruption. In addition, our operations are subject to laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with these laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. The environmental management systems of our floorcovering manufacturing facilities in LaGrange, Georgia, West Point, Georgia, Northern Ireland, the Netherlands, Thailand (anticipated closure at the end of the first quarter of 2022), China, Germany and Australia are certified under ISO Standard No. 14001.

We own numerous patents in the United States and abroad on floorcovering products and on manufacturing processes. The duration of United States patents is between 14 and 20 years from the date of filing of a patent application or issuance of the patent; the duration of patents issued in other countries varies from country to country. We maintain an active patent and trade secret program in order to protect our proprietary technology, know-how and trade secrets. Although we consider our patents to be very valuable assets, we consider our know-how and technology even more important to our current business than patents, and, accordingly, believe that expiration of existing patents or non-issuance of patents under pending applications would not have a material adverse effect on our operations.

At January 3, 2021,2, 2022, we employed a total of 3,7423,646 employees worldwide. Of such total, 1,5791,463 were clerical, staff, sales, supervisory and management personnel and 2,1632,183 were manufacturing personnel. We also utilized the services of 116251 temporary personnel as of January 3, 2021.2, 2022.

Some of our employees in Australia, the United Kingdom and China are represented by unions. In the Netherlands, a Works Council, the members of which are Interface employees, is required to be consulted by management with respect to certain matters relating to our operations in that country, such as a change in control of Interface Europe B.V. (our modular carpet subsidiary based in the Netherlands), and the approval of the Works Council is required for some of our actions, including changes in compensation scales or employee benefits. The majority of our employees in Germany are members ofrepresented by a Works Council as well. Our management believes that its relations with the Works Councils, the unions and all of our employees are good.

Our executive officers, their ages as of January 3, 2021,2, 2022, and their principal positions with us are set forth below. Executive officers serve at the pleasure of the Board of Directors.

 

 

 

Interface, Inc. was incorporated in 1973 as a Georgia corporation.

This report on Form 10-K contains “forward-looking statements” within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include statements regarding the intent, belief or current expectations of our management team, as well as the assumptions on which such statements are based. Any forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed below in Item 1A, “Risk Factors.”

The World Health Organization has declared the COVID-19 outbreak a pandemic and the virus continues to spread inimpact areas where we operate and sell our products and services. The COVID-19 pandemic and similar issues in the future could have a material adverse effect on: our ability to operate; our ability to keep employees safe from the pandemic; our results of operations, financial condition, liquidity and capital investments; our near term and long term ability to stay in compliance with debt covenants under our Syndicated Credit Facility and Senior Notes; our ability to refinance our existing indebtedness; and our ability to gain financing in the capital markets.

Public health organizations have recommended, and many governments have implemented, measures from time to time during the pandemic to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements. Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as: the potential shut down of certain locations; decreased employee availability; employee reluctance to receive COVID-19 vaccinations, whether recommended or potentially required; increased overtime and temporary labor costs; potential border closures; and disruptions to the businesses of our selling channel partners, and others. We may also experience continued manufacturing personnel shortages, which may adversely affect our ability to manufacture our products.

Our suppliers and customers may also facehave faced these and other challenges, which could leadhave led to a disruption in our supply chain, raw material inflation, or the inability to get theobtain sufficient raw materials necessary to produce our products, increased shipping and transport costs, as well as decreased construction and renovation spending and decreased demand for our products and services. These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing from the capital markets. Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, potential near-term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.

Sales of our principal products are related to the renovation and construction of commercial and institutional buildings. This activity is cyclical and has been affected by the strength of a country’s or region’s general economy, prevailing interest rates and other factors that lead to cost control measures, or reduction in the use of space, by businesses and other users of commercial or institutional space. For example, the COVID-19 pandemic may have cyclical and structural impacts on this activity resulting from job losses for office workers, reductions in the use of coworking spaces, and increases in the number of people working from home. As the COVID-19 pandemic continues, the future of the office, and what the office of the future might look like, is being highly debated by senior executives, commercial real estate firms, architects, designers and other global experts which could adversely affect the amount of money that customers spend on our products. In addition, the effects of cyclicality and other factors affecting the corporate office segment have traditionally tended to be more pronounced than the effects on other market segments. Historically, we have generated more sales in the corporate office segment than in any other segment. The effects of cyclicality and other factors on the new construction segment of the market have also tended in the past to be more pronounced than the effects on the renovation segment. These effects may recur and could be more pronounced if global economic conditions do not improve or are weakened by negative cycles or other factors, including as a result of the continuing COVID-19 pandemic.

As prescribed by accounting standards governing goodwill and other intangible assets, we undertake an annual review of the goodwill asset balance reflected in our financial statements. Our review is conducted during the fourth quarter of the year, unless there has been a triggering event prescribed by applicable accounting rules that warrants an earlier interim testing for possible goodwill impairment. A future goodwill impairment test may result in a future non-cash adjustment, which could adversely affect our earnings for any such future period.

We recorded a goodwill and intangible asset impairment loss of $121.3 million in the first quarter of 2020 primarily as a result of the expected duration of the COVID-19 pandemic and its anticipated negative impact to our revenue and operating income. Future impairment charges could result if these expectations change or the COVID-19 pandemic continues for an extended period.

We have substantial international operations and intend to continue to pursue and commit resources to growth opportunities beyond the United States. Outside of the United States, we maintain manufacturing facilities in the Netherlands, the United Kingdom, China, Thailand (anticipated closure at the end of the first quarter of 2022), Australia and Germany, in addition to product showrooms or design studios in Canada, Mexico, England, France, Germany, Spain, the Netherlands, India, Australia, Norway, United Arab Emirates, Russia, Singapore, Hong Kong, Thailand, China and elsewhere. In 2020,2021, approximately half of our net sales and a significant portion of our production were outside the United States, primarily in Europe and Asia-Pacific.

International operations carry certain risks and associated costs, such as: the complexities and expense of administering a business abroad; complications in compliance with, and unexpected changes in, legal and regulatory restrictions or requirements; foreign laws, international import and export legislation; trading and investment policies; economic and political instability in the global markets; foreign currency fluctuations; exchange controls; increased nationalism and protectionism; crime and social instability; tariffs and other trade barriers; difficulties in collecting accounts receivable; potential adverse tax consequences and increasing tax complexity or changes in tax law associated with operating in multiple tax jurisdictions; uncertainties of laws and enforcement relating to intellectual property and privacy rights; difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs, including health and safety regulations and wage and hour laws; potential governmental expropriation (especially in countries with undemocratic or authoritarian ruling parties); and other factors depending upon the jurisdiction involved. There can be no assurance that we will not experience these risks in the future.

Risks include, for example, the uncertainty surrounding the ongoing implementation and effect of the United Kingdom’s exit from the European Union described below, including changes to the legal and regulatory framework that apply to the United Kingdom and its relationship with the European Union. We conduct business in Russia and Ukraine, which subjects us to risks inherent with current geopolitical tensions between the two countries.

We also make a substantial portion of our net sales in currencies other than U.S. dollars (approximately half of 20202021 net sales), which subjects us to the risks inherent in currency translations. The scope and volume of our global operations make it impossible to eliminate completely all foreign currency translation risks as an influence on our financial results.

In addition, due to our global operations, we are subject to many laws governing international relations and international operations, including laws that prohibit improper payments to government officials and commercial customers and that restrict where we can do business, what information or products we can import and export to and from certain countries and what information we can provide to a non-U.S. government. These laws include but are not limited to the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010, the Mexican National Anticorruption System (Sistema Nacional Anticorrupción, or “SNA”), the U.S. Export Administration Act and U.S. and international economic sanctions and money laundering regulations. We have internal policies and procedures relating to compliance with such regulations; however, there is a risk that such policies and procedures will not always protect us from the improper acts of employees, agents, business partners joint venture partners or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures. Violations of these laws, which are complex, may result in criminal penalties, sanctions and/or fines that could have an adverse effect on our business, financial condition and results of operations and reputation. In addition, we are subject to antitrust laws in various countries throughout the world. Changes in these laws or their interpretation, administration or enforcement may occur over time. Any such changes may limit our future acquisitions, divestitures or operations.

Finally, we may not be aware of all the factors that may affect our business in foreign jurisdictions. The risks outlined above, and others specific to certain jurisdictions that we may not be aware of, could adversely and materially affect our business and results.

 

In 2016, voters in the U.K. approved an exit from the European Union via a referendum (commonly referred to as “Brexit”). The U.K. ceased to be a member of the European Union on January 31, 2020. In December 2020, the U.K. and the European Union agreed on a trade and cooperation agreement, which is being applied provisionally until it is formally ratified by the European Union parliament.agreement. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the U.K. and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal. The uncertainty leading up to and following Brexit has had, and the ongoing implementation of Brexit may continue to have, a negative impact on our business and demand for our products in Europe, and particularly in the U.K. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions and regulatory agencies. Brexit could also have the effect of disrupting the free movement of goods, services, and people between the U.K., the European Union and elsewhere. In addition, Brexit has had a detrimental effect, and could have further detrimental effects, on the value of either or both of the Euro and the British poundPound sterling, which could negatively impact our business (principally from the translation of sales and earnings in those foreign currencies into our reporting currency of U.S. dollars). Such a development could have other unpredictable adverse effects, including a material adverse effect on demand for office space and our flooring products in the U.K. and in Europe if the U.K. exit leads to economic difficulties in Europe.

We have a substantial amount of debt and debt service requirements. As of January 3, 2021,2, 2022, we had approximately $585.2$525.1 million of outstanding debt, and we had $295.4$290.9 million of undrawn borrowing capacity under our existing credit facility.

This level of debt could have significant consequences on our future operations, including:

In addition, borrowings under our credit facility have variable interest rates, and therefore our interest expensesexpense will increase if the underlying market rates (upon which the variable interest rates are based) increase.

Furthermore, on July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. This announcement indicates thatSpecifically, the continuationFCA stopped publishing one week and two month U.S. dollar LIBOR rates as of LIBOR on the current basis is not guaranteed afterDecember 31, 2021, and the remaining U.S. dollar LIBOR mayrates will cease to be discontinued or modified by 2021.published on June 30, 2023. The Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (“SOFR”) in April 2018 as an alternative for LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. A transition away from the widespread use of LIBOR to SOFR or another benchmark rate may occur over the course of the next few years. We have exposure to LIBOR-based financial instruments, namely our existing credit facility which has variable (or floating) interest rates based on LIBOR. This facility allows for the use of an alternative benchmark rate if LIBOR is no longer available. In December 2021, we amended our existing credit facility to replace LIBOR with a successor rate for loans denominated in euros or British Pound sterling. At this time, we cannot predict the overall effect of the modification or discontinuation of LIBOR on our U.S. dollar denominated loans under the existing credit facility or the establishment of alternative benchmark rates.

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt.

Our ability to generate cash in order to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, legislative, regulatory and other factors beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our existing credit facility and our other financing agreements, including the indenture governing the Senior Notes, and other agreements we may enter into in the future. Specifically, we will need to maintain certain financial ratios under our existing credit facility. Our business may not continue to generate sufficient cash flow from operations in the future and future borrowings may not be available to us under our existing revolving credit facility or from other sources in an amount sufficient to service our indebtedness, including the Senior Notes, to make necessary capital expenditures or to fund our other liquidity needs. If we are unable to generate cash from our operations or through borrowings, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to make payments on our indebtedness or refinance our indebtedness will depend on the capital markets and our financial condition at such time, as well as the terms of our financing agreements, including the existing credit facility, and the indenture governing the Senior Notes. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, borrowings under our Syndicated Credit Facility have variable interest rates, and therefore our interest expense will increase if the underlying market rates (upon which the variable interest rates are based) increase.

Subject to the restrictions in our existing credit facility and in the indenture governing our Senior Notes, we and our subsidiaries may be able to incur additional indebtedness in the future. Although our existing credit facility and the indenture governing the Senior Notes contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, including the ability, on a non-committed basis, for us to increase revolving commitments and/or term loans under our existing credit facility, and debt incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks we now face would increase.

The floorcovering industry is highly competitive. Globally, we compete for sales of floorcovering products with other carpet manufacturers and manufacturers of other types of floorcovering. Although the industry has experienced significant consolidation, a large number of manufacturers remain in the industry. Moreover, some of our competitors are adding manufacturing capacity into the industry throughout the globe which could increase the amount of supply in the market. Increased capacity at our competitors could result in pricing pressure on our products (including products, like LVT, which may currently carry attractive margins) and less demand for our products, thus adversely affecting both revenues and profitability.

 

Some of our competitors, including a number of large diversified domestic and foreign companies who manufacture modular carpet and resilient flooring as one segment of their business, have greater financial resources than we do. Competing effectively may require us to make additional investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities.

 

In addition, we often compete on design preferences. Our customers’ design preferences may evolve or change before we adapt quickly enough to those changes or before we recognize those changes have happened in the marketplace. If this occurs, it could negatively affect our sales as our customers choose other product offerings.

We believe that our success depends to a significant extent upon the efforts and abilities of our senior management executives. In addition, we rely significantly on the leadership that David Oakey of David Oakey Designs provides to our internal design staff. Specifically, David Oakey Designs provides product design/production engineering services to us under an exclusive consulting contract that contains non-competition covenants. Our agreement with David Oakey Designs can be terminated by either party upon six months prior written notice to the other party. Our business also depends on the recruitment and retention of other key personnel, including strongexperienced sales leaders.and manufacturing personnel.

 

We may lose the services of key personnel for a variety of reasons, including if our compensation programs become uncompetitive in the relevant markets for our employees and service providers, or if the Company undergoes significant disruptive change (including not only economic downturns, but potentially other changes management believes are positive in the long term). The loss of key personnel with a great deal of knowledge, training and experience in the flooring industry — particularly in the areas of sales, marketing, operations, product design and management — could have an adverse impact on our business. We may not be able to easily replace such personnel, particularly if the underlying reasons for the loss make the Company relatively unattractive as an employer.

We are implementingcontinue to implement a multi-year transformation of our sales organization, including the implementation of standardized processes in whichand systems that our sales force goesuses to go to market, interactsinteract with customers, workswork with architects and the architect and design community and, in general, operatesoperate day-to-day. We are also implementingcontinue to improve and change the technology tools that the sales force will beis required to use as part of their day-to-day jobs, and new managementmonitor managerial positions that are designed to actively manage and coach the sales force. All of these changes are disruptive, which may create challenges for our sales force to adapt, particularly for long tenured employees, which comprise a large portion of our sales force. There are no guarantees that these efforts will increase sales or improve profitability of the business, or that they will not instead adversely disrupt the business, decrease sales, and decrease overall profitability. 

Petroleum-based products (including yarn) comprise the predominant portion of the cost of raw materials that we use in manufacturing carpet. Synthetic rubber uses petroleum basedpetroleum-based products as feedstock as well. We also incur significant shipping and transport costs to move our products around the globe.globe, and those costs have increased dramatically due to recent global supply chain challenges. While we attempt to match cost increases with corresponding price increases, continued inflation and volatility in the cost of raw materials, transportation and shipping costs could adversely affect our financial results if we are unable to pass through such cost increases to our customers.

We depend on a small number of third-party suppliers of synthetic fiber and a single supplierare largely dependent upon two primary suppliers for our LVT products. The unanticipated termination or interruption of any of our supply arrangements with our current suppliers of synthetic fiber (nylon), our primary suppliers of LVT, or sole supplier of LVT,other key raw material suppliers, including failure by any third party supplier to meet our product specifications, could have a material adverse effect on us because we do not have the capability to manufacture our own fiber for use in our carpet products or our own LVT. Our suppliers may not be able to meet our demand for a variety of reasons, including our inability to forecast our future needs accurately or a shortfall in production by the supplier for reasons unrelated to us, such as work stoppages, acts of war, terrorism, pandemics, epidemics, fire, earthquake, energy shortages, flooding or other natural disasters. The primary manufacturing facility of our solelargest supplier of LVT is located in South Korea. If any of our supply arrangements with our primary suppliers of synthetic fiber, or our sole supplierprimary suppliers of LVT, isor suppliers of other key raw materials are terminated or interrupted, we likely would incur increased manufacturing costs and experience delays in our manufacturing process (thus resulting in decreased sales and profitability) associated with shifting more of our synthetic fiber purchasing to another synthetic fiber supplier or developing new supply chain sources for LVT. A prolonged inability on our part to source synthetic fiber included in our products, LVT, or LVTother key raw materials on a cost-effective basis could adversely impact our ability to deliver products on a timely basis, which could harm our sales and customer relationships.

The market price of our common stock has been volatile in the past and may continue to be volatile going forward. Such volatility may cause precipitous drops in the price of our common stock on the Nasdaq Global Select Market and may cause your investment in our common stock to lose significant value. As a general matter, market price volatility has had a significant effect on the market values of securities issued by many companies for reasons unrelated to their operating performance. We thus cannot predict the market price for our common stock going forward.

While we manufacture our products in several facilities and maintain insurance covering our facilities, including business interruption insurance, our manufacturing facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes and earthquakes, whether or not as a result of climate change, or by fire or other unexpected events such as adverse weather conditions, acts of war, terrorism, pandemics or other public health crises (such as the COVID-19 pandemic described above), or other disruptions to our facilities, supply chain or our customers’ facilities. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition and results of operations. These types of events could also affect our suppliers, installers, and customers, which could have a material adverse impact on our business.

We rely heavily on information technology systems—both software and computer hardware—to operate our business. We rely on these systems to, among other things:

Our IT systems may be disrupted or fail for a number of reasons, including:

Any of these events which deny us use of vital IT systems may seriously disrupt our normal business operations. These disruptions may lead to production or shipping stoppages, which may in turn lead to material revenue loss and reputational harm. There is no guarantee that our backup systems or disaster recovery procedures will be adequate to mitigate losses due to IT system disruptions in a timely fashion, and we may incur significant expense in correcting IT system emergencies.

To the extent our IT systems store sensitive data, including about our employees or other individuals, security breaches may expose us to other serious liabilities and reputational harm if such data is misappropriated. In addition, as cybercriminals continue to become more sophisticated and numerous, the costs to defend and insure against cyberattacks can be expected to rise.

We have been, and may in the future become, party to lawsuits including, without limitation, actions and proceedings in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes, employment claims made by our current or former employees, or claims relating to intellectual property matters. Litigation might result in substantial costs and may divert management’s attention and resources, which may adversely affect our business, results of operations and financial condition. An unfavorable judgment against us in any legal proceeding or claim could require us to pay monetary damages. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. In addition, an unfavorable judgment in which the counterparty is awarded equitable relief, such as an injunction, could harm our business, results of operations and financial condition.

Please refer to Item 3, “Legal Proceedings,” within this Report for additional information related to litigation and claims.

None.

We maintain our corporate headquarters in Atlanta, Georgia in approximately 42,000 square feet of leased space. The following table lists our principal manufacturing facilities and other material physical locations (some locations are comprised of multiple buildings), by reportable segment, all of which we own except as otherwise noted:

We maintain sales or marketing offices in over 7050 locations in more than 25 countries and a number of other distribution facilities in several countries. Most of our sales and marketing locations and many of our distribution facilities are leased.

 

We believe that our manufacturing and distribution facilities and our marketing offices are sufficient for our present operations. We will continue, however, to consider the desirability of establishing additional facilities and offices in other locations around the world as part of our business strategy to meet global market demands. Substantially all of our owned properties in the United States are subject to mortgages, which secure borrowings under our Syndicated Credit Facility.

From time to time, we are a party to legal proceedings, whether arising in the ordinary course of business or otherwise. The disclosure set forth in Note 18 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K is incorporated by reference herein.

Not applicable.

Our Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE. As of February 18, 2021,2022, we had 631643 holders of record of our Common Stock. We estimate that there are in excess of 9,000 beneficial holders of our Common Stock.

 

Future declaration and payment of dividends is at the discretion of our Board, and depends upon, among other things, our investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board at the time of its determination. Such other factors include limitations contained in the agreement for our Syndicated Credit Facility and the indenture for our Senior Notes, each of which specify conditions as to when any dividend payments may be made. As such, we may discontinue our dividend payments in the future if our Board determines that a cessation of dividend payments is proper in light of the factors indicated above.

The following graph and table compare, for the five-year period comprised of the Company’s five preceding fiscal years ended January 3, 2021,2, 2022, the Company’s total returns to shareholders (assuming all dividends were reinvested) with that of (i) all companies listed on the Nasdaq Composite Index, and (ii) our previous self-determined peer group, and (iii) our new self-determined peer group, assuming an initial investment of $100 in each on January 3, 20161, 2017 (the last day of the fiscal year 2015)2016). In 2021, the Company updated its self-determined peer group to exclude FLIR Systems, Inc. and Knoll, Inc. as both of these companies were acquired in 2021 and no longer trade publicly. In determining its peer group companies, the Company considered various factors, including the potential peer’s industry, business model, size and complexity.  The Company chose a peer group that it believes provides a robust sample size with minimal revenue dispersion, with companies in similar industries or lines of business or subject to similar economic and business cycles, including companies with a significant international presence that are also focused on sustainability.

See Item 12 of Part III of this Annual Report on Form 10-K.

The following table contains information with respect toThere were no purchases made by or on behalf of the Company, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during our fourth quarter ended January 3, 2021:

Our revenues are derived from sales of floorcovering products, primarily modular carpet, luxury vinyl tile (“LVT”) and starting in August 2018, rubber flooring products. Our business, as well as the commercial interiors industry in general, is cyclical in nature and is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. The commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by corporations into their existing businesses in the form of new fixtures and furnishings for their workplaces. In significant part, the timing and amount of such reinvestments are impacted by the profitability of those corporations. As a result, macroeconomic factors such as employment rates, office vacancy rates, capital spending, productivity and efficiency gains that impact corporate profitability in general, also affect our business.

We focus our marketing and sales efforts on both corporate office and non-corporate office market segments, to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more adversely, as well as to capture additional market share.

During 2020, we had consolidated net sales of $1,103.3 million, down 17.9% compared to $1,343.0 million in 2019, primarily due to the impacts of COVID-19. The consolidated operating loss for 2020 was $39.3 million compared to consolidated operating income of $130.9 million in 2019. Net2019, due primarily to a $121.3 million goodwill and intangible asset impairment charge recorded in fiscal 2020 due to the impacts of COVID-19. The consolidated net loss for 2020 was $71.9 million, or $1.23 per share, compared to consolidated net income of $79.2 million, or $1.34 per share, in 2019.

The following discussion and analyses reflect the factors and trends discussed in the preceding sections.

Consolidated net sales denominated in currencies other than the U.S. dollar were approximately 50% in 2021, 51% in 2020, periodand 49% in 2019. Because we have substantial international operations, we are impacted, from time to time, by international developments that affect foreign currency transactions. In 2021, the strengthening of the Euro, Australian dollar, Chinese Renminbi and British Pound sterling against the U.S. dollar had a positive impact on our net sales and operating income. In 2020, the strengthening of the Euro, British Pound sterling, and Chinese Renminbi against the U.S. dollar had a positive impact on our net sales and operating income. In 2019, the weakening of the Euro, British Pound sterling, Australian dollar, Canadian dollar and Chinese Renminbi against the U.S. dollar had a negative impact on our net sales and operating income.

For 2021, our consolidated net sales increased $97.1 million (8.8%) compared to 2020, comprised of higher sales volumes (approximately 5.1%) and higher prices (approximately 3.7%). Fluctuations in currency exchange rates had a positive impact on our year-over-year consolidated sales comparison of approximately $23.9 million, meaning that if currency levels had remained constant year over year our 2021 sales would have been lower by this amount. On a market segment basis, the sales increase was impactedmost significant in non-corporate office market segments including retail, education and healthcare. See the segment results discussion below for additional information on market segments.

For 2020, our consolidated net sales decreased $239.8 million (17.9%) compared to 2019, primarily due to the impacts of COVID-19 resulting in lower sales volumes globally. Fluctuations in currency exchange rates had a positive impact on our year-over-year sales comparison of approximately $7.1 million, meaning that if currency levels had remained constant year over year, our 2020 sales would have been lower by this amount. On a $121.3market segment basis, the decrease in consolidated net sales was primarily in the corporate office, retail, hospitality and healthcare market segments. See the segment results discussion below for additional information on market segments.

For 2021, our consolidated SG&A expenses decreased $8.9 million (2.7%) versus 2020. Currency translation had a $5.3 million (1.6%) negative impact on the year-over-year comparison. Consolidated SG&A expenses were lower in 2021 primarily due to (1) lower legal fees and other related costs of $12.6 million primarily due to the settlement of the SEC matter in the prior year period, and (2) lower severance costs of $9.1 million as the prior year included additional cost reduction initiatives implemented in response to COVID-19 as discussed above. These decreases were partially offset by higher labor costs of approximately $11.0 million due to higher performance-based compensation as target performance measures were achieved in 2021, partially offset by cost savings from prior year headcount reduction initiatives. As a percentage of net sales, SG&A expenses decreased to 27.0% in 2021 versus 30.2% in 2020.

For 2020, our consolidated SG&A expenses decreased $55.9 million (14.4%) versus 2019. Currency translation had a $1.5 million (0.4%) negative impact on the year-over-year comparison. Consolidated SG&A expenses were lower in 2020 primarily due to (1) lower selling expenses of $54.8 million due to lower net sales, (2) $7.3 million of payroll expense credits related to COVID-19 wage support government assistance programs, and (3) $9.2 million lower performance-based compensation due to stock compensation forfeitures and target performance measures not being met due to COVID-19. These reductions were partially offset by $12.9 million of severance charges related to cost saving initiatives in response to COVID-19. These charges were partially offset by $9.3 million of lower payroll costsexpenses due to furloughsvoluntary and credits from payroll protection programs.

On December 23, 2019, the Company committed to a new restructuring plan to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved a reduction of approximately 105 employees and early termination of two office leases. As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately $9.0 million. The charge was comprised of severance expenses ($8.8 million) and lease exit costs ($0.2 million). The restructuring charge was expected to result in future cash expenditures of approximately $9.0 million for payment of these employee severance and lease exit costs. The Company expected the plan to yield annualized savings of approximately $6.0 million. A portion of the annualized savings was realized on the incomeconsolidated statement of operations in fiscal year 2020, with the remaining portion of the annualized savings expected to be realized in fiscal year 2021.

On December 29, 2018, the Company committed to a new restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved (i) a restructuring of its sales and administrative operations in the United Kingdom, (ii) a reduction of approximately 200 employees, primarily in the Europe and Asia-Pacific geographic regions, and (iii) the write-down of certain underutilized and impaired assets that included information technology assets and obsolete manufacturing equipment. As a result of this plan, the Company recorded a pre-tax restructuring and asset impairment charge in the fourth quarter of 2018 of approximately $20.5 million. The charge was comprised of severance expenses (approximately $10.8 million), impairment of assets (approximately $8.6 million) and other items (approximately $1.1 million). The charge was expected to result in future cash expenditures of $12 million, primarily for severance payments (approximately $10.8 million). The restructuring plan was completed at the end of fiscal year 2020.

 

For fiscal year 2020,2021, our net sales decreased $239.8interest expense increased $0.5 million (17.9%) compared to 2019. As discussed above, the decrease was primarily due to the impacts of COVID-19 resulting in lower sales volumes globally. Fluctuations in currency exchange rates had a positive impact on our year-over-year sales comparison of approximately $7.1$29.7 million, meaning that if currency levels had remained constant year over year our 2020 sales would have been lower by this amount. On a geographic basis, we experienced sales declines across all our regions. Sales in the Americas were down 21.6%, sales in Europe were down 10.7% as reported in U.S. dollars, and sales in our Asia-Pacific region were down 17.7%.

 

 

For the year ended January 3, 2021, the Company recorded an income tax benefit of $7.5 million on pre-tax loss of $79.4 million resulting in an effective tax rate of 9.4%. The effective tax rate for this period was significantly impacted by a non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions taken in prior years on discontinued operations. Excluding the impact of the non-deductible goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, the effective tax rate was 14.1% for 2020 compared to 22.2% in 2019. The decrease in the effective tax rate, excluding the goodwill impairment charge and recognition of income tax benefits related to uncertain tax positions on discontinued operations, was primarily due to the favorable impacts of amending prior year tax returns, retroactive election of the GILTI High-tax Exclusion in the 2019 tax return and reduction in non-deductible employee compensation. This decrease was partially offset by the non-deductible SEC penalty.fine.

In our business, we require cash and other liquid assets primarily to purchase raw materials and to pay other manufacturing costs, in addition to funding normal course SG&A expenses, anticipated capital expenditures, interest expense and potential special projects. We generate our cash and other liquidity requirements primarily from our operations and from borrowings or letters of credit under our Syndicated Credit Facility and Senior Notes discussed below. We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months.months and we expect to generate sufficient cash to meet our long-term obligations.

 

Historically, we use more cash in the first half of the fiscal year, as we pay insurance premiums, taxes and incentive compensation and build up inventory in preparation for the holiday/vacation season of our international operations. As outlined in the table above, we have approximately $79.2 million in material contractual cash obligations due by the end of fiscal year 2022, which includes, among other things, scheduled debt repayments under the Syndicated Credit Facility, pension contributions, interest payments on our debt and lease commitments. Our long-term debt obligations include the contractually scheduled principal repayment of our term loan borrowings under the Syndicated Credit Facility, which matures in 2025, and $300 million on our Senior Notes due in 2028. Operating and finance lease obligations consist of undiscounted lease payments due over the term of the lease. Expected interest payments are those associated with borrowings under the Syndicated Credit Facility and Senior Notes consistent with our contractually scheduled principal repayments. Our purchase obligations are for non-cancellable agreements primarily for raw material purchases and capital expenditures. Our current and long-term pension obligations include contributions and expected benefit payments to be paid by the Company related to certain defined benefit pension plans and excludes the expected benefit payments for two of our funded foreign defined benefit plans as these obligations will be paid by the plans over the next ten years.

 

At January 3, 2021,2, 2022, we had $103.1$97.3 million in cash. Approximately $1.7 million of this cash was located in the U.S., and the remaining $101.4$95.6 million was located outside of the U.S. The cash located outside of the U.S. is indefinitely reinvested in the respective jurisdictions (except as identified below). We believe that our strategic plans and business needs, particularly for working capital needs and capital expenditure requirements in Europe, Asia, and Australia, support our assertion that a portion of our cash in foreign locations will be reinvested and remittance will be postponed indefinitely. Of the $101.4$95.6 million of cash in foreign jurisdictions, approximately $13.7$12.9 million represents earnings which we have determined are not permanently reinvested, and as such we have provided for foreign withholding and U.S. state income taxes on these amounts in accordance with applicable accounting standards.

 

As of January 3, 2021,2, 2022, we had $285.2$225.1 million of borrowings outstanding under our Syndicated Credit Facility, of which $282.2$217.6 million were term loan borrowings and $3.0$7.5 million were revolving loan borrowings. Additionally, $1.6 million in letters of credit were outstanding under the Syndicated Credit Facility at the end of fiscal year 2020.2021. As of January 3, 2021,2, 2022, we had additional borrowing capacity of $295.4$290.9 million under the Syndicated Credit Facility and $6.0 million of additional borrowing capacity under our other credit facilities in place at other non-U.S. subsidiaries.

On November 17, 2020, we issued $300 million aggregate principal amount of 5.50% Senior Notes due 2028 (the “Senior Notes”), which are discussed further below. As of January 3, 2021,2, 2022, we had $300.0 million of Senior Notes outstanding.

 

It is also important for you to consider that borrowings under our Syndicated Credit Facility comprise a substantial portion of our indebtedness, and that these borrowings are based on variable interest rates (as described below) that expose the Company to the risk that short-term interest rates may increase. During 2020, we entered into fixed rate Senior Notes (as described below) which reduced the amount of indebtedness subject to interest rate risk. In the fourth quarter of 2020, we terminated our interest rate swaps that were previously being used to fix a portion of our variable rate debt. For information regarding the current variable interest rates of these borrowings, the potential impact on our interest expense from hypothetical increases in short term interest rates, and the interest rate swap transaction, please see the discussion in Item 7A of this Report.

On August 7, 2018,In the normal course of business, in addition to using our available cash, we amended and restatedfund our operations by borrowing under our Syndicated Credit Facility (the “Facility”) in connection with the nora acquisition. The purpose of the amended and restated Facility was to fund the nora purchase price and related fees and expenses of the acquisition, and to increase the credit available to us and our subsidiaries following the closing of the nora acquisition in view of the larger enterprise.

Under the Facility, interest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25% to 2.00%, depending on the Company’s consolidated net leverage ratio (as defined in the Facility agreement) as of the most recently completed fiscal quarter. Interest on Eurocurrency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 3.00% over the applicable Eurocurrency rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, the Company pays a commitment fee ranging from 0.20% to 0.40% per annum (depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility.

 

The Facility contains standard and customary covenants for agreements of this type, including various reporting, affirmative and negative covenants. Among other things, these covenants limit our ability to: