THE SECURITIES EXCHANGE ACT OF 1934
29, 2019
Interface, Inc.
| Georgia | 58-1451243 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
1280 West Peachtree Street | Atlanta | Georgia | 30309 | |
|
| |||
(Address of principal executive offices) | (zip code) | |||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered: |
Common Stock, $0.10 Par Value Per Share | TILE | Nasdaq Global Select Market |
Yes
þ No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
Yes
þ No o
|
| ||
| Class | Number of Shares | |
| Common Stock, $0.10 par value per share |
| |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
otherwise. On August 7, 2018, the Company acquired nora Holding GmbH (“nora”) a global leader in performance flooring and worldwide leader in the rubber flooring category under the established nora brands ITEM 1. BUSINESSIntroduction and GeneralReferences in this Annual Report on Form 10-K to “Interface,” “the Company,” “we,” “our,” “ours” and “us” refer to Interface, Inc. and its subsidiaries or any of them, unless the context requires otherwise.Interface is a global flooring company specializing in carpet tile and resilient flooring, including luxury vinyl tile (“LVT”) and 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.We are a worldwide leader in design, production and sales of modular carpet, also known as carpet tile. As a global company with a reputation for high quality, reliability and premium positioning, we market modular carpet in over 110 countries under the established brand names Interface®and FLOR®. Our principal geographic markets are the Americas, Europe and Asia-Pacific, where the percentages of our total net sales were approximately 58%, 27% and 15%, respectively, for fiscal year 2018.FLOR®.In 2017, we globally launched a line of LVT products, which represented our first introduction into a category of products that we call resilient flooring.The nora acquisition is expected to advance the Company’s growth strategy in expanding market segments, particularly in the healthcare, life sciences and education market segments. Similar to Interface, nora operates on an international footprint and the Company expects the acquisition will also allow for geographic sales synergies as well. The results of operations for this acquisition have been consolidated with those of the Company from the acquisition date forward. Due to the nora acquisition, our resilient rubber flooring products accounted for approximately 10% of our sales in 2018.Capitalizing on our acquisition of nora, as well as our leadership in modular carpet for the corporate office market segment, we are executing a market diversification strategy to increase our presence and market sharepenetration for modular carpet in non-corporate office market segments, such as government, education, healthcare, hospitality and retail space. As a result of our efforts, our mix of corporate office versus non-corporate office modular carpet and LVT sales in the Americas was 45%47% and 55%53%, respectively, for 2018.2019. Company-wide, our mix of corporate office versus non-corporate office modular carpet and LVT sales was 60%61% and 40%39%, respectively, in 2018.2019. We believe the appeal and utilization of modular carpet is growing in non-corporate office market segments, and we are using our considerable skills and experience with designing, producing and marketing modular products that make us thea market leader in the corporate office segment to support and facilitate our penetration into these segments around the world. Rubber flooring also is already an attractive product for non-corporate applications and the acquisition of nora will continue to allow for growth of non-corporate office markets.Our principal geographic markets are the Americas, Europe and Asia-Pacific, where the percentages of our total net sales were approximately 57%, 29% and 14%, respectively, for fiscal year 2019.Our StrengthsOur principal competitive strengths include:Market Leader in Attractive Modular Carpet Segment. We are a global manufacturer and global leader in the world’s leading manufacturer ofcommercial carpet tile.tile industry. Modular carpet has become more prevalent across all commercial interiorsinterior markets as designers, architects and end users have become more familiar with its unique attributes, including its dynamic design capabilities, greater economic value (which includes lower costs as a result of reduced waste in both installation and replacement), and installation ease and speed. We continue to drive this trend with our product innovations and designs discussed below. We believe that we are well positioned to lead and capitalize upon the market for modular carpet, both domestically and around the world.3
Established BrandsBrandsand Reputation for Quality, Reliability and Leadership. Our products are known in the industry for their high quality, reliability and premium positioning in the marketplace, and our established brand names are leaders in the industry. On the international front,Interface is a well-recognized brand name in carpet tilestile for commercial and institutional use. More generally, we believe that as the appeal and utilization of modular carpet continues to expand into market segments such as government, healthcare, education, hospitality, retail and multi-tenant residential space,space; our reputation as the pioneer of modular carpet — as well as our established brands and leading market position for modular carpet in the corporate office segment — will enhance our competitive advantage in marketing to the customers in these new markets. Our acquisition of nora, which is a global leader in performancerubber flooring, further strengthens our strong global brand reputation.
Innovative Product Design and Development Capabilities. Our product design and development capabilities have long given us a significant competitive advantage, and we believe they continue to do so as modular carpet’s appeal and utilization expand across virtually every market segment and around the globe. One of our recent design innovations is the introduction of long and narrow rectangular carpet tiles in the shape of planks, and even more narrow versions known as Skinny Planks™SkinnyPlanks™. The use of planks and Skinny PlanksSkinnyPlanks increases the design versatility of our carpet tile, as these products can create aesthetics (such as a herringbone pattern) that are different from, or enhance, that of our traditional square carpet tiles. Nora also offers strong design capabilities and tremendousa wide variety of color palate options to offerwhich provide attractive and resilient flooring options to our customers.The award-winning design firm David Oakey Designs has had a pivotal role in developing our plank and Skinny Plank products, as well as many of our other innovative product designs, and our long-standing exclusive relationship with David Oakey Designs remains vibrant and augments our internal research, development and design staff. As another example, David Oakey Designs has developed products that are manufactured using state-of-the-art tufting technology which allows us to pinpoint tufts of different colored yarns in virtually any arrangement within a carpet tile. These unique designs are best exemplified by our Urban Retreat®Retreat®, Net Effect®Effect®,Human Nature®Nature®andWorld Woven® collections, which are sold throughout our international operations.Historically, one of our best design innovations is ouri2™ modular product line, which includes our popularEntropy® product for which we received a patent in 2005 on the key elements of its design. Thei2 line introduced and features mergeable dye lots, and includes a number of carpet tile products that are designed to be installed randomly without reference to the orientation of neighboring tiles. Thei2 line offers cost-efficient installation and maintenance, interactive flexibility, and recycled and recyclable materials. Another innovation is our TacTiles®carpet tile installation system, which uses small squares of adhesive plastic film to connect intersecting carpet tiles, thus eliminating the need for traditional carpet adhesive and resulting in a reduction in installation time and material waste.Made-to-Order and Custom Products; Global Manufacturing Capabilities. We have a distinct competitive advantage in meeting two principal requirements of the specified products markets we primarily target — that is, providing made-to-order and custom samples quickly, and on-time delivery of made-to-order or customized final products. We also can generate realistic digital samples that allow us to create a virtually unlimited number of new design concepts and distribute them instantly for customer review, while at the same time reducing sampling waste.About half of our modular carpet products worldwide are made-to-order sales, which are not custom products, but are instead standard styles which can be produced once ordered. Our made-to-order capabilities not only enhance our marketing and sales, they significantly improve our inventory turns. Our customized products, which are both custom colors of established styles, as well as limited amounts of true custom carpet designs or configurations, are less than 10% of our global sales. The remainder of our modular carpet sales are serviced from off-the-shelf inventory. The salient terms of our contracts for made-to-order and custom modular carpet tile do not differ materially from those for off-the-shelf inventory.Our global manufacturing capabilities in modular carpet production are an important component of our strength in these areas, and give us an advantage in serving the needs of multinational corporate customers that require products and services at various locations around the world. Our manufacturing locations across four continents enable us to compete effectively with local producers in our international markets, while giving international customers more favorable delivery times and freight costs.Recognized Global Leadership in Ecological Sustainability. Our long-standing goal and commitment to be ecologically “sustainable”sustainable — that is, the point at which we are no longer a net “taker” from the earth and do no harm to the biosphere — have emerged as a competitive strength for our business and remain a strategic initiative. It includesMission Zero®Zero®, our global branding initiative, which represents our mission to eliminate any negative impact our companiescompany may have on the environment by the year 2020.environment. It also includes a bold new mission called Climate Take Back™, in which we seek to lead the industry in designing and making products in ways that will maintain a climate fit for life. Our acknowledged leadership position and expertise in this area resonate deeply with many of our customers and prospects around the globe, and provide us with a differentiating advantage in competing for business among architects, designers and end users of our products, who often make purchase decisions based on “green”sustainability factors.Experienced and Motivated Management and Sales Force. An important component of our competitive position is the quality of our management team and its commitment to developing and maintaining an engaged and accountable workforce. Our team is highly skilled and dedicated to guiding our overall growth and expansion into our targeted market segments, while maintaining our leadership in traditional markets and our highstrong contribution margins. We utilize an internal marketing and predominantly commissioned sales force of more than 9501,100 experienced personnel, stationed at over 70 locations in over 30 countries, to market our products and services in person to our customers. Our incentive compensation and our sales and marketing training programs are tailored to promote performance and facilitate leadership by our executives both in strategic areas as well as the Company as a whole.4
Our Business Strategy and Principal Initiatives
|
| |
|
| |
|
| |
|
| |
|
|
Sustain Leadership in Product Design and Development. As discussed above, our leadership position for product design and development is a competitive advantage and key strength. Our plank, Skinny Plank, and i2 products and TacTiles installation system have confirmed our position as an innovation leader in modular carpet. We will continue initiatives to sustain, augment and capitalize upon that strength to continue to increase our market share in targeted market segments. OurMission Zero and Climate TakeBack initiatives, which draw upon and promote our ecological sustainability commitment, are part of those initiatives and include placing ourMission Zeroand Climate Take Back logos on many of our marketing and merchandising materials distributed throughout the world.
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Our carpet tile has become popular for a number of reasons. Carpet tile incorporating our reinforced backing may be easily removed and replaced, permitting rearrangement of furniture without the inconvenience and expense associated with removing, replacing or repairing other soft surface flooring products, including broadloom carpeting. Because a relatively small portion of a carpet installation often receives the bulk of traffic and wear, the ability to rotate carpet tiles between high traffic and low traffic areas and to selectively replace worn tiles can significantly increase the average life and cost efficiency of the floorcovering. In addition, carpet tile facilitates access to sub-floor air delivery systems and telephone, electrical, computer and other wiring by lessening disruption of operations. It also eliminates the cumulative damage and unsightly appearance commonly associated with frequent cutting of conventional carpet as utility connections and disconnections are made. We believe that, within the overall floorcovering market, the worldwide demand for modular carpet is increasing as more customers recognize these advantages.
Other Productsand Services
We have a flexible-inputs carpet backing line, which we call “Cool Blue™”, at our modular carpet manufacturing facility in LaGrange, Georgia. Using next generation thermoplastic technology, the custom-designed backing line dramatically improves our ability to keep reclaimed and waste carpet in the production “technical loop,” and further permits us to explore other plastics and polymers as inputs. We also have technology that more cleanly separates the face fiber and backing of reclaimed and waste carpet, thus making it easier to recycle some of its components and providing a purer supply of inputs for the Cool Blue process. This technology, which is part of our ReEntry®2.0 carpet reclamation program, allows us to send some of the reclaimed face fiber back to our fiber supplier to be blended with virgin or other post-industrial materials and extruded into new fiber.
Innovation and increased customization in product design and styling are the principal focus of our product development efforts, and this focus has led to several design breakthroughs such as our plank and Skinny PlankSkinny Plank products, as well as our i2 product line. Our carpet design and development team is recognized as an industry leader in carpet design and product engineering for the commercial and institutional markets.
Backlog
Financial Information by Operating Segments and Geographic Areas
The Notes to Consolidated Financial Statements appearing in Item 8 of this Report set forth information concerning our sales and long-lived assets by geographic areas, which are also our operating segments. We have only one reporting segment.
29, 2019.
|
|
| ||
|
| |||
| Name | Age | Principal Position(s) | ||
| Daniel T. Hendrix | 65 | President and Chief Executive Officer | ||
David B. Foshee |
| Vice President, General Counsel and Secretary | ||
Bruce A. Hausmann |
| Vice President and Chief Financial Officer | ||
|
|
| ||
|
|
| ||
Nigel Stansfield |
| Vice President (President - Europe, Africa, Australia, and Asia) | ||
Mr. Gould Hendrixjoined us asin 1983 after having worked previously for a national accounting firm. He was promoted to Treasurer in 1984, Chief Financial Officer in 1985, Vice President-Finance in 1986, Senior Vice President in October 1995, Executive Vice President in October 2000, and President and Chief OperatingExecutive Officer in July 2001. He was elected to the Board in October 1996 and has served on the Executive Committee of the Board since July 2001. In October 2011, Mr. Hendrix was elected as Chairman of the Board of Directors. Mr. Hendrix retired from the positions of President and Chief Executive Officer in March 2017 (while remaining Chairman of the Board), and subsequently was re-elected as President and Chief Executive Officer in January 2015, was promoted to President and Chief Operating Officer in January 2016, and was promoted to Chief Executive Officer effective March 3, 2017. From 2012 to January 2015, Mr. Gould was the Chief Executive Officer of American Standard Brands, a kitchen and bath products company. Prior to his employment with American Standard Brands, Mr. Gould held senior executive roles at Newell Rubbermaid Inc., a global marketer of consumer and commercial products, serving as President of its Home & Family business group from 2008 to 2012 and President of its Parenting Essentials business group from 2006 to 2008. He also previously held executive level positions at The Campbell Soup Company (2002-2006) and The Coca-Cola Company (1995-2002).
2020.Mr. Foshee, who previously practiced with an Atlanta-based international law firm, joined us in October 1999 as Associate Counsel. He was promoted to Assistant Secretary in April 2002, Senior Counsel in April 2006, Assistant Vice President in April 2007, Vice President in July 2012, Associate General Counsel in May 2014, and Secretary and General Counsel in January 2017.Mr. Hausmann joined us in April 2017 as Vice President and Chief Financial Officer. He came to us from the food, facilities and uniform services supplier Aramark Corporation, where he served as Senior Vice President and Chief Financial Officer for Aramark’s Uniform business unit since 2009, and for Aramark’s Direct Store Delivery segment since 2014. Prior to joining Aramark, he served as Vice President and Segment Controller for the Interactive Media Group of The Walt Disney Company, which he joined in 2002. He has also previously held finance and controller positions with several software and internet companies and is a certified public accountant (inactive status) in the State of California.Mr. Miller joined us in June 2015 as Vice President and Chief Strategy Officer, and became President of our Americas business in June 2016. He came to Interface from American Standard Brands, where he was Senior Vice President of Innovation and Strategy from April 2013 to May 2015. Mr. Miller also was an independent consultant to American Standard Brands from February 2012 to April 2013. Previously, he served as Global Vice President-Finance of the Juvenile Products Segment of Newell Rubbermaid Inc. from 2008 to 2011, and as Director of Strategy and Corporate Development for Newell Rubbermaid from 2006-2008. He also has worked with a number of other global organizations, including Kraft Foods and Zyman Group.Ms. Owen joined us in June 2015 as Vice President and Chief Human Resources Officer. Ms. Owen is responsible for the development and oversight of human resources strategies and initiatives for talent management, organization development, learning, compensation, culture and diversity for Interface associates, globally. She came to Interface from Taylor Morrison Home Corporation, a publicly traded North American real estate developer and home builder, where she served as Vice President of Human Resources from June 2005 to December 2014. Prior to that, she held several human resources positions with experience across the U.S. and Europe with companies including McKesson Technology Solutions, Check-Free Corporation and Lanier Worldwide.Mr. Stansfield was the Operations Manager for Firth Carpets (our former European broadloom operations) at the time it was acquired by us in 1997. For two years following that acquisition, Mr. Stansfield served as Manufacturing Systems Manager, part of a global project team that designed and implemented MRP manufacturing software systems at seven of our manufacturing plants. In 1999, he returned to Firth Carpets as Operations Director. In 2002, he became a member of our European research and development team focusing on our sustainability initiatives, and in 2004, he became Product and Innovations Director for all of our European Operations. In 2010, he joined our European management team as Senior Vice President of Product, Design and Innovation, before being named Vice President and Chief Innovations Officer for the Company in March 2012. In December 2016, he became President of our business serving Europe, the Middle East and Africa, and in January 2019 he assumed responsibility for the Asia-Pacific region as well. Available InformationWe make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Internet address is http://www.interface.com. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The SEC’s website is http://www.sec.gov.Interface, Inc. was incorporated in 1973 as a Georgia corporation.12
Forward-Looking Statements
ITEM 1A. RISK FACTORSYou should carefully consider the following factors, in addition to the otherinformation included in thisAnnual Report on Form 10-K and the other documents incorporated herein by reference,beforedeciding whether to purchase or sell our common stock.stock.Any or all of the following risk factors could have a material adverse effecton our business, financial condition, results of operations and prospects.SalesSales of our principal products have been and may continue to be affected by adverse economic cycles in the renovation and construction of commercial and institutional buildings.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 by businesses and other users of commercial or institutional space. The effects of cyclicality upon the corporate office segment tend to be more pronounced than the effects upon the institutional segment. Historically, we have generated more sales in the corporate office segment than in any other market. The effects of cyclicality upon the new construction segment of the market also tend to be more pronounced than the effects upon the renovation segment. These effects may recur and could be more pronounced if global economic conditions do not improve or are weakened.WeWe compete with a large number of manufacturers in the highly competitive floorcovering products market, and some of these competitors have greater financialresources than we do.We may face challenges competing on price, making investments in our business,,orcompetingon product design.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.OurOur success depends significantly upon the efforts, abilities and continued serviceof our senior management executives,,our principal design consultantand other key personnel (including(including sales personnel), and our lossof any of them could affect us adversely.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 strong sales leaders.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.13
Our
The results of a June
Unanticipated termination or interruption of any of our arrangements with our primary third party suppliers of synthetic fiber or our sole third party supplier for luxury vinyl tile (“LVT”) could have a material adverse effect on us.
us.
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are also making significant investments and modifications to our manufacturing facilities, particularly in LaGrange, Georgia. At times this process can be disruptive, and there is no guarantee that these efforts will yield the financial returns and improvements in the business that we hope to achieve from them. In addition, while these changes are intended to yield stronger financial results, they could potentially adversely affect financial results due to project delays, business disruption as new facilities and equipment come online, and general disruption as we make changes and modifications to our manufacturing facilities and processes.
Our business operations could suffer significant losses from natural disasters, catastrophes, fire, pandemics or other unexpected events.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, or by fire or other unexpected events such as adverse weather conditions, pandemics or other public health crises (such as the recent outbreak of the novel coronavirus described above), or other disruptions to our facilities, supply chain or our customers’ facilities. For example, in July 2012, a fire occurred at our manufacturing facility in Picton, Australia, causing extensive damage and rendering the facility inoperable. In January 2014, we commenced operations at a new manufacturing facility in Minto, Australia. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition and results of operations.Disruptions to or failures of our information technology systems could adversely effect onaffect 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:●facilitate and plan the purchase, management and distribution of, and payment for, inventory and raw materials;●control our production processes;●manage and monitor our distribution network and logistics;●receive, process and ship orders;●manage billing, collections and payables;●manage financial reporting; and●manage payroll and human resources information.facilitate and plan the purchase, management and distribution of, and payment for, inventory and raw materials;control our production processes;manage and monitor our distribution network and logistics;receive, process and ship orders;manage billing, collections and payables;manage financial reporting; andmanage payroll and human resources information.Our IT systems may be disrupted or fail for a number of reasons, including:●natural disasters, like fires;●power loss;●software “bugs”, hardware defects or human error; or●hacking, computer viruses, malware, ransomware or other cyber attacks.natural disasters, like fires;power loss;software “bugs”, hardware defects or human error; orhacking, computer viruses, malware, ransomware or other cyber attacks.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, the costs to defend and insure against cyberattacks can be expected to rise.19
ITEM 1B. UNRESOLVED STAFF COMMENTSNone.1720PROPERTIES
| ||||
| Location | Floor Space (Sq. Ft.) | |||
Bangkok, Thailand | 275,946 | |||
Craigavon, N. | 72,200 | |||
LaGrange, Georgia | 669,145 | |||
LaGrange, | 351,205 | |||
Union City, | Georgia(1) | 370,000 | ||
Valley, | Alabama(1) | 338,086 | ||
Minto, Australia | 240,000 | |||
Scherpenzeel, the Netherlands | 1,250,960 | |||
West Point, Georgia | 250,000 | |||
Salem, New | 109,129 | |||
Weinheim, | 831,113 | |||
Taicang, | China(1) | 142,500 | ||
__________
|
|
|
We
|
Annual Report on Form 10-K is incorporated by reference herein.
|
On February 19, 2019, our Board declared a regular quarterly cash dividend of $0.065 per share, payable March 22, 2019 to shareholders of record as of March 8, 2019.
Stock Performance
12/29/13 | 12/28/14 | 1/3/16 | 1/1/17 | 12/31/17 | 12/30/18 | |
Interface, Inc. | $100 | $78 | $90 | $89 | $122 | $70 |
NASDAQ Composite Index | $100 | $117 | $123 | $134 | $174 | $168 |
Previous Self-Determined Peer Group (14 Stocks) | $100 | $111 | $119 | $137 | $152 | $103 |
New Self-Determined Peer Group (20 Stocks) | $100 | $109 | $109 | $125 | $128 | $102 |
The lines represent annual index levels derived from compound daily returns that include all dividends. The indices are re-weighted daily, using the market capitalization on the previous trading day. If the annual interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. The index level was set to $100 as of December The Company’s fiscal year ends on the Sunday nearest December 31. The following companies are included in the
12/28/14 1/3/16 1/1/17 12/31/17 12/30/18 12/29/19 Interface, Inc. $100 $115 $112 $152 $86 $100 NASDAQ Composite Index $100 $104 $112 $144 $137 $187 Self-Determined Peer Group (20 Stocks) $100 $91 $110 $115 $94 $123 Notes to Performance Graph(1) (2) (2)(3) (3)(4) (4)29, 201328, 2014 (the last day of fiscal year 2013)2014).(5) (5)(6) (6) Previous Self-Determined Peer Group depicted above: Acuity Brands, Inc.; Albany International Corp.; Apogee Enterprises, Inc.; Armstrong World Industries, Inc.; BE Aerospace, Inc.; The Dixie Group, Inc.; Herman Miller, Inc.; HNI Corporation; Kimball International, Inc.; Knoll, Inc.; Mohawk Industries, Inc.; Steelcase, Inc.; Unifi, Inc.; and USG Corp.(7)The following companies are included in the New Self-Determined Peer Group depicted above: Acuity Brands, Inc.; Albany International Corp.; Apogee Enterprises, Inc.; Armstrong Flooring, Inc.; Armstrong World Industries, Inc.; Caesarstone Ltd.; FLIR Systems, Inc.; Gentherm Incorporated; H. B. Fuller Company; Harsco Corporation; Herman Miller, Inc.; HNI Corporation; Kimball International, Inc.; Knoll, Inc.; Masonite International Corporation; Materion Corporation; P. H. Glatfelter Company; Steelcase Inc.; Unifi, Inc.; and Welbilt, Inc.
Securities Authorized for Issuance Under Equity Compensation Plans
Period(1) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||||
October 1 - 31, 2018 (3) | 2,559 | $ | 23.50 | 0 | $ | 25,109,272 | ||||||||||
November 1 – 30, 2018 (3) | 8,022 | 16.29 | 0 | 25,109,272 | ||||||||||||
December 1 – 30, 2018 | 0 | 0.00 | 0 | 25,109,272 | ||||||||||||
Total | 10,581 | $ | 18.03 | 0 | $ | 25,109,272 | ||||||||||
(1) The monthly periods identified above correspond to the Company’s fiscal fourth quarter of 2018, which commenced October 1, 2018 and ended December 30, 2018.
(2) In April 2017, the Company announced a new share purchase program authorizing the repurchase of up to $100 million of common stock. This program has no specific expiration date.
(3) Includes shares acquired by the Company from an employee to satisfy income tax withholding obligations in connection with the vesting of previous equity awards.
Period(1) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
| September 30 - October 31, 2019 | — | $ | — | — | $ | — | ||||||||
November 1 – 30, 2019 (2) | 502 | 16.77 | — | — | ||||||||||
December 1 – 29, 2019 (2) | 902 | 14.47 | — | — | ||||||||||
| Total | 1,404 | $ | 15.29 | — | $ | — | ||||||||
(1) | The monthly periods identified above correspond to the Company’s fiscal fourth quarter of 2019, which commenced September 30, 2019 and ended December 29, 2019. |
(2) | Includes shares acquired by the Company from employees to satisfy income tax withholding obligations in connection with the vesting of previous equity awards. |
|
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net sales | $ | 1,179,573 | $ | 996,443 | $ | 958,617 | $ | 1,001,863 | $ | 1,003,903 | ||||||||||
Cost of sales | 755,216 | 610,422 | 589,973 | 618,974 | 663,876 | |||||||||||||||
Operating income(1) | 76,379 | 111,571 | 87,153 | 113,593 | 70,295 | |||||||||||||||
Net income(2) | 50,253 | 53,246 | 54,162 | 72,418 | 24,808 | |||||||||||||||
Income from continuing operations per common share attributable to Interface, Inc. | ||||||||||||||||||||
Basic | $ | 0.84 | $ | 0.86 | $ | 0.83 | $ | 1.10 | $ | 0.37 | ||||||||||
Diluted | $ | 0.84 | $ | 0.86 | $ | 0.83 | $ | 1.10 | $ | 0.37 | ||||||||||
Average Shares Outstanding | ||||||||||||||||||||
Basic | 59,544 | 61,996 | 65,098 | 66,027 | 66,389 | |||||||||||||||
Diluted | 59,566 | 62,040 | 65,136 | 66,075 | 66,448 | |||||||||||||||
Cash dividends per common share | $ | 0.26 | $ | 0.25 | $ | 0.22 | $ | 0.18 | $ | 0.14 | ||||||||||
Property additions | 54,857 | 30,474 | 28,071 | 27,188 | 38,922 | |||||||||||||||
Depreciation and amortization | 53,580 | (3) | 37,508 | 36,505 | 44,751 | 34,675 | ||||||||||||||
Working capital | $ | 335,292 | $ | 254,221 | $ | 311,799 | $ | 245,391 | $ | 240,881 | ||||||||||
Total assets | 1,284,644 | �� | 800,600 | 835,439 | 756,549 | 774,914 | ||||||||||||||
Total long-term debt | 618,581 | 229,928 | 270,347 | 213,531 | 263,338 | |||||||||||||||
Shareholders’ equity | 354,663 | 330,091 | 340,729 | 342,366 | 306,639 | |||||||||||||||
Current ratio(4) | 2.5 | 2.4 | 3.0 | 2.6 | 2.7 | |||||||||||||||
__________
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Net sales | $ | 1,343,029 | $ | 1,179,573 | $ | 996,443 | $ | 958,617 | $ | 1,001,863 | |||||||||
| Cost of sales | 817,575 | 755,216 | 610,422 | 589,973 | 618,974 | ||||||||||||||
Operating income(1) | 130,903 | 76,379 | 111,571 | 87,153 | 113,593 | ||||||||||||||
Net income(2) | 79,200 | 50,253 | 53,246 | 54,162 | 72,418 | ||||||||||||||
| Income from continuing operations per common share attributable to Interface, Inc. | |||||||||||||||||||
| Basic | $ | 1.34 | $ | 0.84 | $ | 0.86 | $ | 0.83 | $ | 1.10 | |||||||||
| Diluted | $ | 1.34 | $ | 0.84 | $ | 0.86 | $ | 0.83 | $ | 1.10 | |||||||||
| Average Shares Outstanding | |||||||||||||||||||
| Basic | 58,943 | 59,544 | 61,996 | 65,098 | 66,027 | ||||||||||||||
| Diluted | 58,948 | 59,566 | 62,040 | 65,136 | 66,075 | ||||||||||||||
| Cash dividends per common share | $ | 0.26 | $ | 0.26 | $ | 0.25 | $ | 0.22 | $ | 0.18 | |||||||||
| Property additions | 74,647 | 54,857 | 30,474 | 28,071 | 27,188 | ||||||||||||||
| Depreciation and amortization | 53,623 | (3) | 53,580 | (3) | 37,508 | 36,505 | 44,751 | ||||||||||||
| Working capital | $ | 284,860 | $ | 335,292 | $ | 254,221 | $ | 311,799 | $ | 245,391 | |||||||||
| Total assets | 1,423,049 | 1,284,644 | 800,600 | 835,439 | 756,549 | ||||||||||||||
| Total long-term debt | 596,200 | 618,581 | 229,928 | 270,347 | 213,531 | ||||||||||||||
| Shareholders’ equity | 368,202 | 354,663 | 330,091 | 340,729 | 342,366 | ||||||||||||||
Current ratio(4) | 2.1 | 2.5 | 2.4 | 3.0 | 2.6 | ||||||||||||||
|
| (1) | The following charges and items are included in our operating income. In 2019 we recorded restructuring and other charges of $12.9 million and purchase accounting amortization of $5.9 million. In 2018, we recorded restructuring and asset impairment charges of $20.5 million, purchase accounting amortization of $32.1 million |
(2) | Included in 2018 net income are tax benefits of $6.7 million due to the finalization of our analysis of the U.S. Tax Cuts and Jobs Act. Included in 2017 net income are provisional tax charges of $15.2 million due to the U.S. Tax Cuts and Jobs Act. Please see Item 8, Note |
(3) |
|
(4) | Current ratio is the ratio of current assets to current liabilities. |
|
2019.
During fiscal 2019, the Company continued to expand into these market segments as the sales of rubber flooring products were primarily in the healthcare, education and transportation market segments.
During 2017, we had net sales
Restructuring Plans
fiscal year 2021.
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 iswas comprised of severance expenses (approximately $10.8 million), impairment of assets (approximately $8.6 million) and other items (approximately $1.1 million). The charge iswas expected to result in future cash expenditures of $12 million, primarily for severance payments (approximately $10.8 million). The restructuring plan is expected to bewas substantially completed incomplete at the first halfend of 2019, and is expected to yield gross annual savings of approximately $12 million beginning in fiscal 2019. The Company expects to redeploy in 2019 essentially all ofredeployed the anticipated savings toward the funding of sales and strategic growth initiatives in 2019, yielding negligible net savings on the Company’s income statement.
Inadditional lease exit costs in the fourththird quarter of 2016, we committed to a separate restructuring plan. The plan involved (i) a substantial restructuring of the FLOR business model that included closure of its headquarters office2019, and most retail FLOR stores, (ii) a reduction of approximately 70 FLOR employees and a number of employees in the commercial carpet tile business, primarily in the Americas and Europe regions, and (iii) the write-down of certain underutilized and impaired assets that included information technology assets, intellectual property assets, and obsolete manufacturing, office and retail store equipment.
As a result of the 2016 restructuring plan, we incurred a pre-tax restructuring and asset impairment charge in the fourth quarter of 20162019 the Company adjusted its expected severance expenses and recognized a decrease in restructuring costs of $19.8$1.7 million.
Our net
2018 | 2017 | 2016 | ||||||||||
(in millions) | ||||||||||||
Impact of changes in foreign currency on net sales | $ | 8.4 | $ | 5.5 | $ | (10.9 | ) | |||||
Impact of changes in foreign currency on operating income | 1.2 | 1.0 | (1.0 | ) | ||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in millions) | |||||||||||
| Impact of changes in foreign currency on net sales | $ | (26.2 | ) | $ | 8.4 | $ | 5.5 | ||||
| Impact of changes in foreign currency on operating income | (3.9 | ) | 1.2 | 1.0 | |||||||
Fiscal Year | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 64.0 | 61.3 | 61.5 | |||||||||
Gross profit on sales | 36.0 | 38.7 | 38.5 | |||||||||
Selling, general and administrative expenses | 27.8 | 26.8 | 27.3 | |||||||||
Restructuring and asset impairment charges | 1.7 | 0.7 | 2.1 | |||||||||
Operating income | 6.5 | 11.2 | 9.1 | |||||||||
Interest/Other expense | 1.8 | 1.1 | 0.8 | |||||||||
Income before income tax expense | 4.7 | 10.1 | 8.3 | |||||||||
Income tax expense | 0.4 | 4.7 | 2.6 | |||||||||
Net income | 4.3 | 5.3 | 5.7 | |||||||||
| Fiscal Year | ||||||||
| 2019 | 2018 | 2017 | ||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||
| Cost of sales | 60.9 | 64.0 | 61.3 | |||||
| Gross profit on sales | 39.1 | 36.0 | 38.7 | |||||
| Selling, general and administrative expenses | 28.4 | 27.8 | 26.8 | |||||
| Restructuring, asset impairment and other charges | 1.0 | 1.7 | 0.7 | |||||
| Operating income | 9.7 | 6.5 | 11.2 | |||||
| Interest/Other expense | 2.2 | 1.8 | 1.1 | |||||
| Income before income tax expense | 7.5 | 4.7 | 10.1 | |||||
| Income tax expense | 1.7 | 0.4 | 4.7 | |||||
| Net income | 5.8 | 4.3 | 5.3 | |||||
Fiscal Year | Percentage Change | |||||||||||||||||||
2018 | 2017 | 2016 | 2018 compared | 2017 compared | ||||||||||||||||
(in thousands) | with 2017 | with 2016 | ||||||||||||||||||
Net Sales | $ | 1,179,573 | 996,443 | $ | 958,617 | 18.4 | % | 3.9 | % | |||||||||||
2018 Fiscal Year Percentage Change 2019 2018 2017 2019 compared with 2018 2018 compared with 2017 (in thousands) Net Sales $ 1,343,029 $ 1,179,573 $ 996,443 13.9 % 18.4 % Net sales for 20182019 compared with 2017For 2019, our net sales increased $163.5 million (13.9%) as compared to 2018. As discussed above, the 2019 period included revenue from the nora acquisition for the full fiscal year. The 2018 period included nora revenue only from the acquisition date on August 7, 2018 to the end of the 2018 fiscal year of $112.6 million during that stub period. The increase in net sales was primarily volume related and not materially impacted by changing prices. Fluctuations in currency exchange rates had a negative impact on our year-over-year sales comparison of approximately $26.2 million, meaning that if currency levels had remained constant year over year our 2019 sales would have been higher by this amount. On a geographic basis, including the impact of the nora acquisition, we experienced sales growth across all our regions. Sales in the Americas were up 11.0%, sales in Europe were up 23.0% as reported in U.S. dollars, and sales in Asia-Pacific were up 8.5%.The sales increase of 11.0% in the Americas in 2019 was due primarily to the impact of the nora acquisition and growth from our luxury vinyl tile (“LVT”) products. The legacy Americas carpet and LVT business grew approximately 3.6% for the year. This increase in the legacy business was due to increased sales in the corporate office market segment (up 8.6%) as well as increases in the healthcare (up 18.2%) and education (up 7.6%) market segments. These legacy sales increases were partially offset by a decline in the retail market segment (down 24.6%).In Europe, sales in the region were up in both U.S. dollars (23.0%) and local currency (29.1%). This increase was due primarily to the impact of the nora acquisition and growth from our LVT products offset by weakening of the Euro and British pound against the U.S. dollar. The legacy European carpet and LVT business declined 2.7% on a U.S. dollar basis, but grew 2.6% in local currency. The sales growth in local currency in the legacy European business was most pronounced in the corporate office segment (up 6.9%). The decline in legacy sales on a U.S. dollars basis was primarily due to the weakening of the Euro and British pound against the U.S. dollar.In Asia-Pacific, sales increased 8.5% primarily due to the impact of the nora acquisition and growth in our LVT products. This sales increase was partially offset by the weakening of the Australian dollar and lower sales in Australia. The legacy Asia-Pacific carpet and LVT business declined 3.9% on a U.S. dollar basis, but increased 0.1% in local currency. The sales decline in the legacy Asia-Pacific business was primarily in the corporate (down 5.7%) and government (down 17.9%) market segments, partially offset by increases in the retail market segment (up 12.0%).Net sales for 2018 compared with 2017For 2018, our net sales increased $183.1 million (18.4%) as compared to 2017. As discussed above, the 2018 period included revenue of $112.6 million from the nora acquisition that was not present in 2017. This nora revenue was broken down by region as follows: the Americas $47.6 million, Europe $51.2 million, and Asia-Pacific $13.7 million. Fluctuations in currency exchange rates had a positive impact on our year-over-year sales comparison of approximately $8.4 million, meaning that if currency levels had remained constant year over year our 2018 sales would have been lower by this amount. On a geographic basis, including the impact of nora, we experienced sales growth across all of our regions. Sales in the Americas were up 16.0%, sales in Europe were up 29.7% as reported in U.S. dollars, and sales in Asia-Pacific were up 9.7%.The sales increase of 16.0% in the Americas in 2018 was due primarily to the impact of the nora acquisition, growth from our luxury vinyl tile (“LVT”) products, which were introduced in early 2017, but offset by a slight decrease of 2% in our weighted average selling price per square yard for our modular carpet and a decrease of 5% in our weighted average selling price per square feet for LVT compared to 2017.acquisition. The legacy Interface Americas carpet and LVT business grew approximately 8% for the year. This increase in the legacy business was due to an increase in the corporate office market segment (up 9%) as well as increases in the retail (up 18%) and hospitality (up 7%) market segments. The increase in retail was due to the performance of our InterfaceInterface SERVICES™ business, which hashad a larger percentage of its sales in the retail segment. These legacy sales increases were partially offset by a decline in the government (down 10%) market segment. The acquired nora business generated approximately 42% of its revenue in the Americas region, which was primarily in the healthcare, education, and transportation market segments.In Europe, sales in the region were up in both U.S. dollars (29.7%) and local currency (25.0%). This sales increase was due primarily to the impact of the nora acquisition, growth in our LVT products and the strengthening of the Euro and British pound against the U.S. dollar. In Europe, our weighted average selling price per square yard for modular carpet tile increased 3% and our weighted average selling price per square feet for LVT decreased 6% in 2018 compared with 2017. The legacy Interface European carpet and LVT business grew 9% on a U.S. dollar basis, and 5% in local currency. Our legacy business in the United Kingdom, which has historically been our third largest market, experienced a sales decrease in local currency of 7% for the year, but a decline of 4% when translated into U.S. dollars. The sales growth in the legacy Interface European business was most pronounced in the corporate office (up 9%), retail (up 11%), healthcare (up 15%), and hospitality (up 34%) market segments. The acquired nora business generated approximately 46% of its revenue in the Europe region, which was primarily in the healthcare, education, and transportation market segments.In Asia-Pacific, sales increased 9.7% primarily due to the impact of the nora acquisition and growth in our LVT products. This sales increase was partially offset by the weakening of the Australian dollar and lower sales in Australia. Our weighted average selling price per square yard for modular carpet and our weighted average selling price per square feet for LVT decreased 5% in 2018 compared to 2017. The legacy Interface Asia-Pacific carpet and LVT business grew 1% on a U.S. dollar basis and 2% in local currency. Within the region on a legacy Interface basis, Asia sales increased 8% while Australia sales decreased 5% as translated into U.S. dollars. The sales growth in the legacy Asia-Pacific business was primarily in the hospitality (up 5%) and healthcare (up 6%) market segments, partially offset by decreases in government (down 32%) and retail (down 3%) market segments. The acquired nora business generated approximately 12% of its revenue in the Asia-Pacific region, which was primarily in the healthcare and education market segments.Net sales for 2017 compared with 2016For 2017, our net sales increased $37.8 million (3.9%) as compared to 2016. Fluctuations in currency exchange rates had a positive impact on the comparison of approximately $5.5 million, meaning that if currency levels had remained constant year over year our 2017 sales would have been lower by this amount. On a geographic basis, we experienced sales growth across all our regions. Sales in the Americas were up 3.5%, sales in Europe were up 2.0% in U.S. dollars (1.5% increase in local currencies), and sales in Asia-Pacific were up 8.7%.In the Americas, our weighted average selling price per square yard for our modular carpet decreased 1% in 2017 as compared to 2016. The sales increase in the Americas was due primarily to the introduction of our LVT products in early 2017, as our modular carpet sales in the Americas declined versus 2016. This decline in modular carpet sales was due entirely to the closure of our FLOR specialty retail stores in the first quarter of 2017, as our commercial modular business was up approximately 1% in 2017 as compared to 2016. The corporate office market segment increased 2% for the year. Other market segments showing growth were the government (up 19%), retail (up 5%) and education (up 4%) market segments. The increase in the government market segment was seen across most government customers, with sales to state and municipal governments representing the most significant increase. The increase in retail was due to the performance of our Interface SERVICES™ business, which has a larger percentage of its sales to the retail segment. These increases were offset by declines in the hospitality (down 7%) and healthcare (down 6%) market segments.24
In Europe, our weighted average selling price per square meter increased 3% in 2017 compared with 2016. Sales in the region were up in both U.S. dollars (2%) and local currency (1.5%). Within the region, the weakening of the British pound versus the Euro had a negative impact on sales, however this was offset by the strengthening of the Euro versus the U.S. dollar during 2017 as compared to 2016. The United Kingdom, which has historically been our third largest market, experienced a sales increase in local currency of 3% for the year, but a decline of 2% when translated into U.S. dollars. We also experienced growth in Germany in 2017, but this was partially offset by other declines in central Europe. The increase in sales was entirely within the corporate office market segment (up 3%) as no other market segment had a significant increase in sales. The corporate office market comprises the majority of sales in the Europe region. This increase was partially offset by declines in the retail (down 17%), education (down 12%), and residential (down 52%) market segments.
In Asia-Pacific, our weighted average selling price increased 5.6% for the year, with the appreciation of the Australian dollar having a positive impact on this increase. Within the region, Asia sales increased 5% while Australia sales increased 12% as translated into U.S. dollars. As noted, the appreciation of the Australian dollar had a positive impact on the sales increase, as in local currency sales in Australia increased 9%. The increase in sales for the region was primarily due to the strength of the corporate office market (which comprises the bulk of the region’s sales and was up 8%). Other non-office market segments showing growth for the year were education (up 16%) and healthcare (up 36%). The increase in the education segment was due to our success in the Australian education market, a result of increased government education spending in the market, as well as growth of student accommodation projects at the university level. These increases were only slightly offset by declines in the retail, government and residential market segments.
Cost and Expenses Fiscal Year Percentage Change 2018 2017 2016 2018 compared with 2017 2017 compared with 2016 (in thousands) Cost of Sales Selling, General and Administrative Expenses TotalCost and ExpensesThe following table presents our overall cost of sales and selling, general and administrative (“SG&A”) expenses during the past three years: $ 755,216 $ 610,422 $ 589,973 23.7 % 3.5 % 327,449 267,151 261,703 22.6 % 2.1 % $ 1,082,665 $ 877,573 $ 851,676 23.4 % 3.0 % Cost and Expenses Fiscal Year Percentage Change 2019 2018 2017 2019 comparedwith 2018 2018 comparedwith 2017 (in thousands) Cost of Sales $ 817,575 $ 755,216 $ 610,422 8.3 % 23.7 % Selling, General and Administrative Expenses 381,604 327,449 267,151 16.5 % 22.6 % Total For 2019, our costs of sales increased $62.4 million (8.3%) compared to 2018. Included in 2019 are costs of sales for the acquired nora business for the full year, which includes purchase accounting amortization of $5.9 million related to acquired intangible assets. Fluctuations in currency exchange rates had a 1.8% positive impact on the year-over-year comparison. In absolute dollars, the increase in costs of sales was a result of higher sales for 2019 as compared to 2018, as well as the full year impact of the acquired nora business. As a percentage of sales, our costs of sales decreased to 60.9% in 2019 versus 64.0% in 2018. This decrease was primarily due to productivity initiatives and the nora non-recurring inventory step-up amortization which occurred in 2018, but did not recur in 2019.For 2018, our costs of sales increased $144.8 million (23.7%) compared with 2017. Included in the 2018 period are cost of sales of $96.6 million for the acquired nora business, nora, which includes amortization related to acquired inventory and intangible assets of $32.1 million. Fluctuations in currency exchange rates did not have a significant impact (less than 1%) on the year-over-year comparison. In absolute dollars, the increase in costs of sales was a result of higher sales for 2018 as compared to 2017. As a percentage of sales, our costs of sales increased to 64.0% in 2018 versus 61.3% in 2017. This increase was a result of (1) higher costs of sales related to the acquired nora business, including purchase accounting amortization of $32.1 million for acquired inventory and intangible assets, (2) delayed productivity initiatives due to increased sales and production volumes, as well as (3) a change in the sales mix weighted more heavily toward the InterfaceServices business. These service salesInterface Services business, which typically generategenerates a lower gross margin compared to the rest of our operations.For 2017,2019, our costsSG&A expenses increased $54.2 million (16.5%) versus 2018. Included in the 2019 period were a full year of sales increased $20.4 million (3.5%) compared with 2016.SG&A expenses for the acquired nora business versus only a stub period of approximately five months in 2018. Fluctuations in currency exchange rates did not havehad a significant1.5% favorable impact (less than 1%) on the comparison. In absolute dollars, theSG&A expenses. The increase in costs of salesSG&A expenses during the year was a resultprimarily due to (1) higher selling expenses for the full year impact in 2019 of the acquired nora business, (2) higher year-over-year legal expenses of $3.5 million related to the SEC matter discussed in Note 17 – “Commitments and Contingencies”, and (3) higher selling expenses related to bringing the Company’s global sales organization together for 2017 asa meeting to accelerate the nora integration, advance our selling system transformation, and engage the sales force in the Company’s sustainability mission. These increases were partially offset by lower stock compensation expense of $5.8 million compared to 2016. As noted above, sales increased 3.9% in 2017.prior year. As a percentage of sales, our costs of sales improvedSG&A expenses increased to 61.3%28.4% in 20172019 versus 61.5%27.8% in 2016. This improvement was a result of (1) productivity initiatives, including our investment in our manufacturing facilities in LaGrange, Georgia, (2) lower cost of sales as a percentage of sales due to the introduction of our LVT product offerings, which commanded margins in 2017 that were accretive to our modular carpet products, and (3) non-recurring charges in 2016 related to the transition to a centralized warehouse and distribution center in our Americas business. These benefits were partially offset by (1) higher raw materials costs due to input cost inflation, particularly in our European business, and (2) negative gross margin impacts due to the exit of our FLOR specialty retail business. Our FLOR business delivers higher gross margins than our commercial business, and with the closure of the specialty retail stores the decline in sales had a negative impact on our cost of sales as a percentage of sales.2018.25
For 2018, our SG&A expenses increased $60.3 million (22.6%) versus 2017. SG&A expenses for the acquired nora business were $34.9 million from August 7 through the end of the 2018 year. Currency fluctuations had only a slight (less than 1%) unfavorable impact on SG&A expenses. The increase in SG&A expenses during the year was due to (1) transaction costs in connection with the nora acquisition of $5.3 million, (2) higher performance-based stock compensation of approximately $7.0 million as performance targets were met to a higher degree in 2018 as compared to 2017, (3) higher selling expenses of $24.0 million related to the acquired nora business, (4) higher selling expense of $7.5 million due to higher sales volumes in the legacy Interface business, and (5) higher administrative expenses of $15.8 million primarily due to the acquired nora business as noted above. As a percentage of sales, SG&A expenses increased to 27.8% in 2018 versus 26.8% in 2017.
Interest Expense
and 2019, had approximately $0.2 million impact on interest expense for 2019.
For 2017, our interest expense increased $1.0 million to $7.1 million, versus $6.1 million in 2016. This increase was a result of (1) higher average interest rates under our Syndicated Credit Facility during 2017 (the average interest rate for 2016 was 2.5% as compared to 2.9% for 2017), and (2) in 2017 we fixed the variable interest rate on $100 million of our term loan borrowings under the Syndicated Credit Facility by entering into an interest rate swap transaction. The effect of this interest rate swap was to increase the interest rate on the $100 million notional amount of the swap above the variable rate in effect for our other term loan borrowings under the Syndicated Credit Facility.
Our effective tax rate in 2017 was 47.0%, compared with an effective tax rate of 31.6% in 2016. The increase in our effective tax rate in 2017 compared to 2016 was primarily due to the $15.2 million provisional tax charge for the impacts of the Tax Act as discussed above and an increase in U.S. earnings resulting in more U.S. state tax expense. For additional information on taxes and a reconciliation of effective tax rates to statutory tax rates, see the Note 15 entitled “Taxes on Income” in Item 8 of this Report.
FeesInterest RatesRatesandFeesInterest on base rate loans is charged at varying rates computed by applying a margin ranging from 0.25% to 1.25%, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on LIBOR-based loans and fees for letters of credit are charged at varying rates computed by applying a margin over the applicable LIBOR rate, depending on the Company’s consolidated net leverage ratio as of the most recently completed fiscal quarter. Interest on multi-currency-based loans and fees for letters of credit are charged at varying rates computed by applying a margin ranging from 1.25% to 2.25% 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 0.35% 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.CovenantsThe 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:●create or incur liens on assets;●make acquisitions of or investments in businesses (in excess of certain specified amounts);●engage in any material line of business substantially different from the Company’s current lines of business;●incur indebtedness or contingent obligations;●sell or dispose of assets (in excess of certain specified amounts);●pay dividends or repurchase our stock (in excess of certain specified amounts);●repay other indebtedness prior to maturity unless we meet certain conditions; and●enter into sale and leaseback transactions.create or incur liens on assets;make acquisitions of or investments in businesses (in excess of certain specified amounts);engage in any material line of business substantially different from the Company’s current lines of business;incur indebtedness or contingent obligations;sell or dispose of assets (in excess of certain specified amounts);pay dividends or repurchase our stock (in excess of certain specified amounts);repay other indebtedness prior to maturity unless we meet certain conditions; andenter into sale and leaseback transactions.The Facility also requires us to remain in compliance with the following financial covenants as of the end of each fiscal quarter, based on our consolidated results for the year then ended:●Consolidated Net Leverage Ratio: Must be no greater than 4.50:1.00, subject to certain step-downs as described in the Facility agreement.●Consolidated Interest Coverage Ratio: Must be no less than 2.25:1.00.Consolidated Net Leverage Ratio: Must be no greater than 4.25:1.00, subject to a step-down as described in the Facility Agreement.Consolidated Interest Coverage Ratio: Must be no less than 2.25:1.00.Events of DefaultIf we breach or fail to perform any of the affirmative or negative covenants under the Facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or certain subsidiaries, or if we breach or fail to perform any covenant or agreement contained in any instrument relating to any of our other indebtedness exceeding $20 million), after giving effect to any applicable notice and right to cure provisions, an event of default will exist. If an event of default exists and is continuing, the lenders’ Administrative Agent may, and upon the written request of a specified percentage of the lender group shall:●declare all commitments of the lenders under the facility terminated;●declare all amounts outstanding or accrued thereunder immediately due and payable; and●exercise other rights and remedies available to them under the agreement and applicable law.declare all commitments of the lenders under the facility terminated;declare all amounts outstanding or accrued thereunder immediately due and payable; andexercise other rights and remedies available to them under the agreement and applicable law.34CollateralPursuant to an Amended and Restated Security and Pledge Agreement, the Facility is secured by substantially all of the assets of Interface, Inc. and our domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material foreign subsidiaries. If an event of default occurs under the Facility, the lenders’ Administrative Agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries.As of December 30, 2018,29, 2019, we had outstanding $616.1$581.6 million of term loan borrowing and $10.6$20.9 million of revolving loan borrowings under the Facility, and had $3.6$2.2 million in letters of credit outstanding under the Facility. As of December 30, 2018,29, 2019, the weighted average interest rate on borrowings outstanding under the Facility was 3.50%3.27%.28
Under the amended and restated Facility, we are required to make quarterly amortization payments of the Term Loan A borrowings, which commenced in the fourth quarter of 2018. The amortization payments are due on the last day of the calendar quarter.
We exited 2016 with $165.7 million in cash, an increase of $90.0 million during the year. The most significant increase in cash was $87.4 million of borrowings under our Syndicated Credit Facility. Outside of these borrowings, our cash flow from operating activities of $98.1 million was the most significant factor in our cash generation. The significant components of this cash flow from operations were (1) net income of $54.2 million, (2) a $12.2 million increase in accounts payable and accruals, and (3) a $2.7 million decrease in inventory. These increases were partially offset by a $7.7 million increase in prepaid expenses and other assets. Other primary uses of cash during 2016 were (1) capital expenditures of $28.1 million, (2) $18.5 million used to repurchase and retire 1.2 million shares of our outstanding common stock pursuant to our established share repurchase plan, (3) $17.6 million of repayments under our Syndicated Credit Facility, (4) $14.3 million for the payment of dividends, and (5) $12.5 million for repayment of term loan borrowings under our Syndicated Credit Facility as required by the applicable amortization schedule.
Payments Due by Period | ||||||||||||||||||||
Total Payments Due | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Long-Term Debt Obligations | $ | 618,581 | $ | 31,315 | $ | 62,630 | $ | 524,636 | $ | 0 | ||||||||||
Operating Lease Obligations(1) | 93,747 | 26,113 | 38,519 | 13,878 | 15,237 | |||||||||||||||
Expected Interest Payments(2) | 113,531 | 26,907 | 49,178 | 37,446 | 0 | |||||||||||||||
Unconditional Purchase Obligations(3) | 6,725 | 5,144 | 1,545 | 36 | 0 | |||||||||||||||
Pension Cash Obligations(4) | 130,325 | 15,952 | 24,300 | 25,051 | 65,022 | |||||||||||||||
Total Contractual Cash Obligations(5) | $ | 962,909 | $ | 105,431 | $ | 176,172 | $ | 601,047 | $ | 80,259 | ||||||||||
______________________
| Payments Due by Period | |||||||||||||||||||
Total Payments Due | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| (in thousands) | |||||||||||||||||||
Long-Term Debt Obligations (1) | $ | 602,516 | $ | 31,022 | $ | 62,044 | $ | 509,450 | $ | — | |||||||||
Operating and Finance Lease Obligations (2) | 152,828 | 23,202 | 32,425 | 21,841 | 75,360 | ||||||||||||||
Expected Interest Payments (3) | 87,142 | 23,876 | 43,034 | 20,232 | — | ||||||||||||||
Unconditional Purchase Obligations (4) | 70,071 | 65,514 | 4,518 | 37 | 2 | ||||||||||||||
Pension Cash Obligations (5) | 139,413 | 19,146 | 25,667 | 26,420 | 68,180 | ||||||||||||||
Total Contractual Cash Obligations (6) | $ | 1,051,970 | $ | 162,760 | $ | 167,688 | $ | 577,980 | $ | 143,542 | |||||||||
|
|
| (1) |
|
| (2) | Operating and finance lease obligations represent undiscounted future lease payments. |
| (3) | Expected interest payments to be made in future periods reflect anticipated interest payments related to the |
| (4) | ||
| Unconditional purchase obligations do not include unconditional purchase obligations that are included as liabilities in our Consolidated Balance Sheet. Our capital expenditure commitments of approximately $63.3 million are |
| (5) | ||
| We have three foreign defined benefit plans and a domestic salary continuation plan. We have presented above the estimated cash obligations that will be paid under these plans over the next ten years. Such amounts are based on several estimates and assumptions and could differ materially should the underlying estimates and assumptions change. Our domestic salary continuation plan and the nora plan are unfunded plans, and we do not currently have any commitments to make contributions to these plans. However, we do use insurance instruments to hedge our exposure under the salary continuation plan. Contributions to our other employee benefit plans are at our discretion. |
| (6) | ||
| The above table does not reflect unrecognized tax benefits of |
Revenue Recognition. 100% of the Company’s revenue is due to contracts with its customers. These contracts typically take the form of invoices for purchase of materials from the Company. The performance obligation is the delivery of these materials to customer control. Nearly 97% of the Company’s current revenue is produced from the sale of carpet, resilient flooring and related products (TacTiles installation materials, etc.) and the revenue from sales of these products is recognized upon shipment, or in certain cases upon delivery to the customer. The transaction price for these sales is readily identifiable.
The remaining revenue generated by the Company is for contracts to sell and install carpet and related products at customer locations. For projects underway, the Company recognized installation revenue over time as the customer simultaneously received and consumed the benefit of the services. The installation of the carpet and related products is a separate performance obligation from the sale of carpet. The majority of these projects are completed within 5 days of the start of installation. The transaction price for these sale and installation contracts is readily determinable between flooring material and installation services and is specifically identified in the contract with the customer.
The Company has utilized the portfolio approach to its contracts with customers, as its contracts with customers have similar characteristics and it is reasonable to expect that the effects from applying this approach are not materially different from applying the accounting standard to individual contracts.
The Company does not have any other significant revenue streams outside of these sales of flooring material, and the sale and installation of flooring material, as described above.
Shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping and handling costs incurred are classified in cost of sales in the consolidated statements of operations.
Impairment of Long-Lived Assets.Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated. A loss is then recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best judgment) and the carrying value of the asset. The management estimate of fair value considers undiscounted cash flows, market conditions and trends, and other industry specific metrics. If actual market value is less favorable than that estimated by management, additional write-downs may be required.
However, the Company has experienced significant competitive pressure in fiscal 2019 along with volatility in the company stock price. As such, it is reasonably possible that such circumstances along with a recent acquisition may together warrant the need to write down the value of goodwill in the near term.Deferred Income Tax Assets and Liabilities.The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies in accordance with applicable accounting standards and are based on management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws and incorporate management’s assumptions and judgments regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes may result in materially different carrying values of income tax assets and liabilities and results of operations.We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and our short and long-term business forecasts to provide insight. Further, our global business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. As of December 30, 201829, 2019, and December 31, 2017,30, 2018, we had state net operating loss carryforwards of $96.1$87.6 million and $108.6$96.1 million, respectively. Certain of these state net operating loss carryforwards are reserved with a valuation allowance because, based on the available evidence, we believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. The remaining year-end 20182019 amounts are expected to be fully recoverable within the applicable statutory expiration periods. If the actual amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.Goodwill. Pursuant to applicable accounting standards, we We test goodwill for impairment at least annually using a two-step approach. In the first step of this approach, we prepare valuations of reporting units, using both a market comparable approach and an income approach, and those valuations are compared with the respective book values of the reporting units to determine whether any goodwill impairment exists. In preparing the valuations, past, present and expected future performance is considered. If impairment is indicated in this first step of the test, a step two valuation approach is performed. The step two valuation approach compares the implied fair value of goodwill to the book value of goodwill. The implied fair value of goodwill is determined by allocating the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit, including both recognized and unrecognized intangible assets, in the same manner as goodwill is determined in a business combination under applicable accounting standards. After completion of this step two test, a loss is recognized for the difference, if any, between the fair value of the goodwill associated with the reporting unit and the book value of that goodwill. If the actual fair value of the goodwill is determined to be less than that estimated, an additional write-down may be required.During the fourth quarters of 2019, 2018 2017 and 2016,2017, we performed the annual goodwill impairment test. We perform this test at the reporting unit level. For our reporting units which carried a goodwill balance as of December 30, 2018,29, 2019, no impairment of goodwill was indicated. As of December 30, 2018,29, 2019, if our estimates of the fair value of our reporting units were 10% lower, we believe no additional goodwill impairment would have existed.Inventories.We determine the value of inventories using the lower of cost or net realizable value. We write down inventories for the difference between the carrying value of the inventories and their net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.We estimate our reserves for inventory obsolescence by continuously examining our inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for our products and current economic conditions. While we believe that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and we could experience additional inventory write-downs in the future. Our inventory reserve on December 29, 2019 and December 30, 2018, and December 31, 2017, was $28.1$28.3 million and $20.4$28.1 million, respectively. To the extent that actual obsolescence of our inventory differs from our estimate by 10%, our 20182019 net income would be higher or lower by approximately $1.9$2.2 million, on an after-tax basis.31
Pension Benefits.Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return on plan assets and salary increases. While management believes these assumptions are reasonable, changes in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of our plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The actuarial assumptions used in our salary continuation plan and our foreign defined benefit plans reporting are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers. The table below represents the changes to the projected benefit obligation as a result of changes in discount rate assumptions:
Foreign Defined Benefit Plans | Increase (Decrease) in Projected Benefit Obligation | |||
(in millions) | ||||
1% increase in actuarial assumption for discount rate | $ | (43.7 | ) | |
1% decrease in actuarial assumption for discount rate | $ | 47.3 | ||
Domestic Salary Continuation Plan | Increase (Decrease) in Projected Benefit Obligation | |||
(in millions) | ||||
1% increase in actuarial assumption for discount rate | $ | (2.8 | ) | |
1% decrease in actuarial assumption for discount rate | $ | 3.4 | ||
Environmental Remediation. We provide for environmental remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. Remediation liabilities are accrued based on estimates of known environmental exposures and are discounted in certain instances. We regularly monitor the progress of environmental remediation. Should studies indicate that the cost of remediation is to be more than previously estimated, an additional accrual would be recorded in the period in which such determination is made. As of December 30, 2018, no significant amounts were provided for remediation liabilities.
Foreign Defined Benefit Plans Increase (Decrease) inProjected Benefit Obligation (in millions) 1% increase in actuarial assumption for discount rate $ (46.8 ) 1% decrease in actuarial assumption for discount rate $ 60.4 Domestic Salary Continuation Plan Increase (Decrease) inProjected Benefit Obligation (in millions) 1% increase in actuarial assumption for discount rate $ (3.2 ) 1% decrease in actuarial assumption for discount rate $ 3.9 Allowances for Doubtful Accounts.We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Estimating this amount requires us to analyze the financial strengths of our customers. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. By its nature, such an estimate is highly subjective, and it is possible that the amount of accounts receivable that we are unable to collect may be different than the amount initially estimated. Our allowance for doubtful accounts on December 29, 2019 and December 30, 2018, and December 31, 2017, was $3.5$3.8 million and $3.5 million, respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 20182019 net income would be higher or lower by approximately $0.3 million, on an after-tax basis, depending on whether the actual collectability was better or worse, respectively, than the estimated allowance.Product Warranties.We typically provide limited warranties with respect to certain attributes of our carpet products (for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to twenty years, depending on the particular carpet product and the environment in which the product is to be installed. Similar limited warranties are provided on certain attributes of our rubber and LVT products, typically for a period of 5 to 15 years. We typically warrant that any services performed will be free from defects in workmanship for a period of one year following completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of the affected product. We record a provision related to warranty costs based on historical experience and periodically adjust these provisions to reflect changes in actual experience. Our warranty and sales allowance reserve on December 29, 2019 and December 30, 2018, and December 31, 2017, was $3.5$3.9 million and $4.1$3.5 million, respectively. Actual warranty expense incurred could vary significantly from amounts that we estimate. To the extent the actual warranty expense differs from our estimates by 10%, our 20182019 net income would be higher or lower by approximately $0.3 million, on an after-tax basis, depending on whether the actual expense is lower or higher, respectively, than the estimated provision.nora Acquisition.We are required to estimate the fair value of the assets acquired and liabilities assumed in business combinations as of the acquisition date, including identified intangible assets. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill. The fair values are estimated in accordance with accounting standards which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the marketplace participant).32
The most significant of the fair value estimates is related to intangible assets not subject to amortization and intangible assets subject to amortization. We haveacquired $103.3 million of acquired intangible assets in connection with the nora acquisition. Thisacquisition.This amount of intangible assets was determined based primarily on nora’s projected cash flows. The projected cash flows include various assumptions, including the timing of projects embedded in backlog, success in securing future business, profitability of the business, and the appropriate risk-adjusted discount rate used to discount the projected cash flows. At December 29, 2019 intangible assets, net of amortization, were approximately $89.1 million. The preliminaryfinal residual value assigned to goodwill related to the nora acquisition was $184.7 million.
$201.9 million, at the acquisition date exchange rate. We completed our preliminaryfinal valuation of the assets acquired and liabilities assumed at the acquisition date and our estimate of these values remained preliminary on December 30, 2018. Therefore, these provisional amounts are subject to change as we continue to evaluate information required to completein the valuations throughout the measurement period, which will extend into the thirdsecond quarter of 2019.
|
At December 30, 2018,29, 2019, we recognized a $22.5an $11.7 million decrease in our foreign currency translation adjustment account compared with December 31, 2017,30, 2018, because of the strengtheningweakening of the Euro, British pound and Australian dollar against the U.S. dollar against certain foreign currencies during 2018, particularly the Euro and the Australian dollar.
in 2019.
2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Value | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Rate-Sensitive Liabilities | ||||||||||||||||||||||||||||
Long-term Debt: | ||||||||||||||||||||||||||||
Variable Rate | $ | 31,315 | $ | 31,315 | $ | 31,315 | $ | 31,315 | $ | 493,321 | $ | 618,581 | $ | 618,581 | ||||||||||||||
Variable Interest Rate | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | ||||||||||||||||||
29, 2019.
| 2020 | 2021 | 2022 | 2023 | Thereafter | Total | Fair Value | |||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||
| Rate-Sensitive Liabilities | |||||||||||||||||||||||||||
| Long-term Debt: | |||||||||||||||||||||||||||
| Variable Rate | $ | 31,022 | $ | 31,022 | $ | 31,022 | $ | 509,450 | $ | — | $ | 602,516 | $ | 602,516 | |||||||||||||
|
FISCAL YEAR 2018 2017 2016 (in thousands, except per share data) Net sales Cost of sales Gross profit on sales Selling, general and administrative expenses Restructuring and asset impairment charges Operating income Interest expense Other expense Income before income tax expense Income tax expense Net income Net income per share – basic Net income per share – diluted Basic weighted average common shares outstanding Diluted weighted average common shares outstandingINTERFACE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS $ 1,179,573 $ 996,443 $ 958,617 755,216 610,422 589,973 424,357 386,021 368,644 327,449 267,151 261,703 20,529 7,299 19,788 76,379 111,571 87,153 15,436 7,128 6,130 5,952 3,904 1,887 54,991 100,539 79,136 4,738 47,293 24,974 $ 50,253 $ 53,246 $ 54,162 $ 0.84 $ 0.86 $ 0.83 $ 0.84 $ 0.86 $ 0.83 59,544 61,996 65,098 59,566 62,040 65,136
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands, except per share data) | |||||||||||
| Net sales | $ | 1,343,029 | $ | 1,179,573 | $ | 996,443 | |||||
| Cost of sales | 817,575 | 755,216 | 610,422 | ||||||||
| Gross profit on sales | 525,454 | 424,357 | 386,021 | ||||||||
| Selling, general and administrative expenses | 381,604 | 327,449 | 267,151 | ||||||||
| Restructuring, asset impairment and other charges | 12,947 | 20,529 | 7,299 | ||||||||
| Operating income | 130,903 | 76,379 | 111,571 | ||||||||
| Interest expense | 25,656 | 15,436 | 7,128 | ||||||||
| Other expense | 3,431 | 5,952 | 3,904 | ||||||||
| Income before income tax expense | 101,816 | 54,991 | 100,539 | ||||||||
| Income tax expense | 22,616 | 4,738 | 47,293 | ||||||||
| Net income | $ | 79,200 | $ | 50,253 | $ | 53,246 | |||||
| Net income per share – basic | $ | 1.34 | $ | 0.84 | $ | 0.86 | |||||
| Net income per share – diluted | $ | 1.34 | $ | 0.84 | $ | 0.86 | |||||
| Basic weighted average common shares outstanding | 58,943 | 59,544 | 61,996 | ||||||||
| Diluted weighted average common shares outstanding | 58,948 | 59,566 | 62,040 | ||||||||
FISCAL YEAR 2018 2017 2016 (in thousands) Net income Other comprehensive income (loss), after tax Foreign currency translation adjustment Cash flow hedge change in net unrealized gains (losses) Pension liability adjustment Comprehensive incomeINTERFACE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME $ 50,253 $ 53,246 $ 54,162 (22,544 ) 31,579 (19,011 ) 422 904 0 12,944 (1,692 ) (11,572 ) $ 41,075 $ 84,037 $ 23,579
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| Net income | $ | 79,200 | $ | 50,253 | $ | 53,246 | |||||
| Other comprehensive income (loss), after tax | |||||||||||
| Foreign currency translation adjustment | (11,652 | ) | (22,544 | ) | 31,579 | ||||||
| Cash flow hedge (losses) gains | (5,489 | ) | 422 | 904 | |||||||
| Pension liability adjustment | (13,090 | ) | 12,944 | (1,692 | ) | ||||||
| Comprehensive income | $ | 48,969 | $ | 41,075 | $ | 84,037 | |||||
END OF FISCAL YEAR 2018 2017 (in thousands) ASSETS Current Cash and cash equivalents Accounts receivable, net Inventories, net Prepaid expenses and other current assets Total current assets Property and equipment, net Deferred tax asset Goodwill and intangibles, net Other assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable Accrued expenses Current portion of long-term debt Total current liabilities Long term debt Deferred income taxes Other Total liabilities Commitments and contingencies Shareholders’ equity Preferred stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss – foreign currency translation Accumulated other comprehensive income – cash flow hedge Accumulated other comprehensive loss – pension liability Total shareholders’ equity Total liabilities and shareholders’ equityINTERFACE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS $ 80,989 $ 87,037 179,004 142,808 258,657 177,935 40,229 23,087 558,879 430,867 292,888 212,645 15,601 18,003 343,542 68,754 73,734 70,331 $ 1,284,644 $ 800,600 $ 66,301 $ 50,672 125,971 110,974 31,315 15,000 223,587 176,646 587,266 214,928 26,488 6,935 92,640 72,000 929,981 470,509 0 0 5,951 5,981 270,269 271,271 222,214 187,432 (101,487 ) (78,943 ) 1,326 904 (43,610 ) (56,554 ) 354,663 330,091 $ 1,284,644 $ 800,600
| END OF FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 81,301 | $ | 80,989 | |||
| Accounts receivable, net | 177,482 | 179,004 | |||||
| Inventories, net | 253,584 | 258,657 | |||||
| Prepaid expenses and other current assets | 35,768 | 40,229 | |||||
| Total current assets | 548,135 | 558,879 | |||||
| Property, plant and equipment, net | 324,585 | 292,888 | |||||
| Operating lease right-of-use assets | 107,044 | — | |||||
| Deferred tax asset | 19,683 | 15,601 | |||||
| Goodwill and intangibles, net | 346,474 | 343,542 | |||||
| Other assets | 77,128 | 73,734 | |||||
| Total assets | $ | 1,423,049 | $ | 1,284,644 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 75,687 | $ | 66,301 | |||
| Accrued expenses | 140,652 | 125,971 | |||||
| Current portion of operating lease liabilities | 15,914 | — | |||||
| Current portion of long-term debt | 31,022 | 31,315 | |||||
| Total current liabilities | 263,275 | 223,587 | |||||
| Long-term debt | 565,178 | 587,266 | |||||
| Operating lease liabilities | 91,829 | — | |||||
| Deferred income taxes | 35,550 | 26,488 | |||||
| Other long-term liabilities | 99,015 | 92,640 | |||||
| Total liabilities | 1,054,847 | 929,981 | |||||
| Commitments and contingencies | |||||||
| Shareholders’ equity | |||||||
| Preferred stock | — | — | |||||
| Common stock | 5,842 | 5,951 | |||||
| Additional paid-in capital | 250,306 | 270,269 | |||||
| Retained earnings | 286,056 | 222,214 | |||||
| Accumulated other comprehensive loss – foreign currency translation | (113,139 | ) | (101,487 | ) | |||
| Accumulated other comprehensive income – cash flow hedge | (4,163 | ) | 1,326 | ||||
| Accumulated other comprehensive loss – pension liability | (56,700 | ) | (43,610 | ) | |||
| Total shareholders’ equity | 368,202 | 354,663 | |||||
| Total liabilities and shareholders’ equity | $ | 1,423,049 | $ | 1,284,644 | |||
FISCAL YEAR 2018 2017 2016 OPERATING ACTIVITIES: (in thousands) Net income Adjustments to reconcile income to cash provided by operating activities Depreciation and amortization Stock compensation amortization expense Loss on disposal of impaired assets Enactment of U.S. Tax Cuts and Jobs Act expenses (benefit) Bad debt expense Deferred income taxes and other Amortization of acquired intangible assets Amortization of acquired inventory step-up Working capital changes: Accounts receivable Inventories Prepaid expenses and other current assets Accounts payable and accrued expenses Cash provided by operating activities INVESTING ACTIVITIES: Capital expenditures Cash paid for business, net of cash acquired Other Cash used in investing activities FINANCING ACTIVITIES: Revolving loan borrowing Revolving loan repayments Term loan borrowing Term loan repayments Repurchase of common stock Dividends paid Tax Withholding Payments for Share-Based Compensation Debt issuance costs Proceeds from issuance of common stock Cash provided by (used in) financing activities Net cash provided by (used in) operating, investing and financing activities Effect of exchange rate changes on cash CASH AND CASH EQUIVALENTS: Net increase (decrease) Balance, beginning of year Balance, end of yearINTERFACE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS $ 50,253 $ 53,246 $ 54,162 39,084 30,261 30,632 14,496 7,247 5,873 8,569 0 0 (6,739 ) 15,174 0 222 219 145 (11,709 ) 8,154 468 5,387 0 0 26,666 0 0 (10,113 ) (10,313 ) (372 ) (18,784 ) (13,629 ) 2,686 (15,501 ) 1,019 (7,720 ) 9,936 11,975 12,184 91,767 103,353 98,058 (54,857 ) (30,474 ) (28,071 ) (400,697 ) 0 0 (131 ) (614 ) 1,642 (455,685 ) (31,088 ) (26,429 ) 17,000 25,000 87,400 (64,504 ) (57,014 ) (17,575 ) 462,847 0 0 (14,162 ) (15,000 ) (12,500 ) (14,485 ) (91,576 ) (18,496 ) (15,471 ) (15,487 ) (14,285 ) (1,187 ) (1,479 ) (4,895 ) (8,806 ) (1,427 ) 0 294 0 0 361,526 (156,983 ) 19,649 (2,392 ) (84,718 ) 91,278 (3,656 ) 6,083 (1,302 ) (6,048 ) (78,635 ) 89,976 87,037 165,672 75,696 $ 80,989 $ 87,037 $ 165,672
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| OPERATING ACTIVITIES: | (in thousands) | ||||||||||
| Net income | $ | 79,200 | $ | 50,253 | $ | 53,246 | |||||
| Adjustments to reconcile income to cash provided by operating activities | |||||||||||
| Depreciation and amortization | 44,932 | 39,084 | 30,261 | ||||||||
| Stock compensation amortization expense | 8,691 | 14,496 | 7,247 | ||||||||
| Loss on disposal of impaired assets | — | 8,569 | — | ||||||||
| Enactment of U.S. Tax Cuts and Jobs Act expenses (benefit) | — | (6,739 | ) | 15,174 | |||||||
| Bad debt expense | 1,206 | 222 | 219 | ||||||||
| Deferred income taxes and other | (9,497 | ) | (11,709 | ) | 8,154 | ||||||
| Amortization of acquired intangible assets | 5,903 | 5,387 | — | ||||||||
| Amortization of acquired inventory step-up | — | 26,666 | — | ||||||||
| Working capital changes: | |||||||||||
| Accounts receivable | (930 | ) | (10,113 | ) | (10,313 | ) | |||||
| Inventories | 2,573 | (18,784 | ) | (13,629 | ) | ||||||
| Prepaid expenses and other current assets | (9,691 | ) | (15,501 | ) | 1,019 | ||||||
| Accounts payable and accrued expenses | 19,381 | 9,936 | 11,975 | ||||||||
| Cash provided by operating activities | 141,768 | 91,767 | 103,353 | ||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | (74,647 | ) | (54,857 | ) | (30,474 | ) | |||||
| Cash paid for business, net of cash acquired | — | (400,697 | ) | — | |||||||
| Other | 425 | (131 | ) | (614 | ) | ||||||
| Cash used in investing activities | (74,222 | ) | (455,685 | ) | (31,088 | ) | |||||
| FINANCING ACTIVITIES: | |||||||||||
| Revolving loan borrowing | 90,000 | 17,000 | 25,000 | ||||||||
| Revolving loan repayments | (87,664 | ) | (64,504 | ) | (57,014 | ) | |||||
| Term loan borrowing | — | 462,847 | — | ||||||||
| Term loan repayments | (24,028 | ) | (14,162 | ) | (15,000 | ) | |||||
| Repurchase of common stock | (25,154 | ) | (14,485 | ) | (91,576 | ) | |||||
| Dividends paid | (15,358 | ) | (15,471 | ) | (15,487 | ) | |||||
| Tax withholding payments for share-based compensation | (3,278 | ) | (1,187 | ) | (1,479 | ) | |||||
| Debt issuance costs | — | (8,806 | ) | (1,427 | ) | ||||||
| Proceeds from issuance of common stock | 60 | 294 | — | ||||||||
| Other | (1,255 | ) | — | — | |||||||
| Cash (used in) provided by financing activities | (66,677 | ) | 361,526 | (156,983 | ) | ||||||
| Net cash provided by (used in) operating, investing and financing activities | 869 | (2,392 | ) | (84,718 | ) | ||||||
| Effect of exchange rate changes on cash | (557 | ) | (3,656 | ) | 6,083 | ||||||
| CASH AND CASH EQUIVALENTS: | |||||||||||
| Net increase (decrease) | 312 | (6,048 | ) | (78,635 | ) | ||||||
| Balance, beginning of year | 80,989 | 87,037 | 165,672 | ||||||||
| Balance, end of year | $ | 81,301 | $ | 80,989 | $ | 87,037 | |||||
The remaining revenue for 2019 and 2018 of 2% and 3%, respectively, was generated from the installation of carpet and other flooring-related material.NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of OperationsThe Company is a recognized leader in the worldwide commercial interiors market, offering modular carpet, luxury vinyl tile (“LVT”) and rubber flooring products. The Company manufactures modular carpet focusing on the high quality, designer-oriented sector of the market, sources LVT from a third party and focuses on the same sector of the market, and provides specialized carpet replacement, installation and maintenance services. Additionally, the Company offers Intersept, a proprietary antimicrobial used in a number of interior finishes. The Company also offers resilient rubber flooring since its acquisition of nora Holding GmbH on August 7, 2018.Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its subsidiaries. All of our subsidiaries are wholly-owned, and we are not a party to any joint venture, partnership or other variable interest entity that would potentially qualify for consolidation. All material intercompany accounts and transactions are eliminated.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Examples include provisions for returns, bad debts, product claims reserves, rebates, inventory obsolescence and the length of product life cycles, accruals associated with restructuring activities, income tax exposures and valuation allowances, environmental liabilities, and the carrying value of goodwill and property and equipment. Actual results could vary from these estimates.Revenue RecognitionEffective January 1, 2018, the Company adopted a new accounting standard with regard to revenue from customers. The core principle of this standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The Company elected the modified retrospective approach for adoption of this new standard, as is allowed by the standard. The Company did not have any significant impact from this standard as of the date of the adoption.Revenue Recognized from Contracts with Customers100% of the Company’s revenue is due to contractsContracts with its customers. These contractscustomers typically take the form of invoices for purchase of materials from the Company. Customer payment terms vary by region and are typically less than 60 days. The performance obligation is the delivery of these materials to customerthe customer’s control. NearlyDuring 2019 and 2018, approximately 98% and 97% of the Company’s currenttotal revenue, isrespectively, was produced from the sale of carpet, resilient flooring, rubber flooring, and related products (TacTiles installation materials, etc.) and the revenue from sales of these products is recognized upon shipment, or in certain cases, upon delivery to the customer. The transaction price for these sales is readily identifiable.The remaining revenue generated by the Company is for contracts to sell and install carpet and related products at customer locations. For projects underway, the Company recognized installation revenue over time as the customer simultaneously received and consumed the benefit of the services. The installation of the carpet and related products is a separate performance obligation from the sale of carpet. The majority of these projects are completed within 5 days of the start of installation. The transaction price for these sale and installation contracts is readily determinable between flooring material and installation services and is specifically identified in the contract with the customer.The Company has utilized the portfolio approach to its contracts with customers, as its contracts with customers have similar characteristics and it is reasonable to expect that the effects from applying this approach are not materially different from applying the accounting standard to individual contracts.The Company does not have any other significant revenue streams outside of these sales of flooring material, and the sale and installation of flooring material, as described above. 39The Company does not record taxes collected from customers and remitted to governmental authorities on a gross basis.
2019. Handling 30, 2018.Performance ObligationsAs noted above, the Company primarily generates revenue through the sale of flooring material to end users either upon shipment or upon arrival of the product at its destination. In these instances, there typically is no other obligation to the customers other than the delivery of flooring material with the exception of warranty. The Company does offer a warranty to its customers which guarantees certain on-floor performance characteristics and warrants against manufacturing defects. The warranty is not a service warranty, and there is no ability to separate the warranty obligation from the sale of the flooring or purchase them separately. The Company’s incidence of warranty claims is extremely low, with less than 0.3%0.5% of revenue in claims on an annual basis for the last three fiscal years. Given the nature of the warranty as well as the financial impact, the Company has determined that there is no need to identify this warranty as a separate performance obligation and the Company will continue to account for warranty on an accrual basis. For the Company’s installation business, the sales of carpet and other flooring materials and installation services are separate deliverables which under the revenue recognition requirements should be characterized as separate performance obligations. ThePrior to the adoption of the new accounting standard, the Company historically hashad not separated these obligations and hashad accounted for these installation projects on a completed contract basis. The nature of the installation projects is such that the vast majority – an amount in excess of 90% of these installation projects – are completed in less than 5 days. The Company’s largest installation customers are retail and corporate customers, and these are on a project-by-project basis and are short termshort-term installations. The Company has evaluated these projects at the end of the reporting period and recorded revenue in accordance with the accounting standards for projects which were underway as of the end of 2018. Costs to Obtain ContractsThe Company pays sales commissions to many of its sales personnel based upon their selling activity. These are direct costs associated with obtaining the contracts. Under the accounting standard, these costs should becontracts and are expensed as the revenue is earned. As these commissions become payable upon shipment (or in certain cases delivery) of product, the commission is earned as the revenue is recognized. Due to this fact pattern, there is no change to the Company’s accounting for these selling commissions. There are no other material costs the Company incurs as part of obtaining the sales contract.Prior to the adoption of the new revenue recognition model, the Company recognized revenue when the following criteria were met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, price to the buyer is fixedShipping and determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership, which is generally on the date of shipment. Provisions for discounts, sales returns and allowances are estimated using historical experience, current economic trends, and the Company’s quality performance. The related provision is recorded as a reduction of sales and cost of sales in the same period that the revenue is recognized. Material differences may result in the amount and timing of net sales for any period if management makes different estimates.Shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping and handling costs incurred are classified in cost of sales in the consolidated statements of operations.Research and DevelopmentResearch and development costs are expensed as incurred and are included in the selling, general and administrative expense captionexpenses and cost of sales in the consolidated statements of operations. Research and development expense was $17.8 million, $16.4 million, $14.0 million, and $14.3$14.0 million for the years 2019, 2018 and 2017, and 2016, respectively.Cash, Cash Equivalents and Short-Term InvestmentsHighly liquid investments with insignificant interest rate risk and with original maturities of three months or less are classified as cash and cash equivalents. Investments with maturities greater than three months and less than one year are classified as short-term investments. Significant concentrations of credit risk may arise from the Company’s cash maintained at various banks, as from time to time cash balances may exceed the FDIC limits. The Company did not0t hold any significant amounts of cash equivalents and short-term investments at December 30, 201829, 2019 and December 31, 2017.Cash payments for interest amounted to approximately $22.7 million, $13.8 million, $6.3 million, and $5.5$6.3 million for the years 2019, 2018, and 2017, and 2016, respectively. 2019 includes cash payments for interest related to the Company’s finance lease liabilities. Income tax payments amounted to approximately $34.8 million, $29.5 million $19.1 million and $12.8$19.1 million for the years 2019, 2018 2017 and 2016,2017, respectively. During the years 2019, 2018 2017 and 2016,2017, the Company received income tax refunds of $1.9 million, $0.8 million and $0.1 million, and $0.2 million, respectively.InventoriesInventories are carried at the lower of cost (standards approximating the first-in, first-out method) or net realizable value. Costs included in inventories are based on invoiced costs and/or production costs, as applicable. Included in production costs are material, direct labor and allocated overhead. The Company writes down inventories for the difference between the carrying value of the inventories and their estimated net realizable value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.Management estimates its reserves for inventory obsolescence by continuously examining its inventories to determine if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles, anticipated demand for the Company’s products, and current economic conditions. While management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will continue to change and the Company could experience additional inventory write-downs in the future.RebatesThe Company has agreements to receive cash consideration from certain of its vendors, including rebates and cooperative marketing reimbursements. The amounts received from its vendors are generally presumed to be a reduction of the prices the Company pays for their products and, therefore, such amounts are reflected as either a reduction of cost of sales in the accompanying consolidated statements of operations, or, if the product inventory is still on hand at the reporting date, it is reflected as a reduction of “Inventories” on the accompanying consolidated balance sheets. Vendor rebates are typically dependent upon reaching minimum purchase thresholds. The Company evaluates the likelihood of reaching purchase thresholds using past experience and current year forecasts. When rebates can be reasonably estimated and receipt becomes probable, the Company records a portion of the rebate as the Company makes progress towards the purchase threshold.40
When the Company receives direct reimbursements for costs incurred in marketing the vendor’s product or service, the amount received is recorded as an offset to selling, general and administrative expenses in the accompanying consolidated statements of operations.
Assets
the leased asset. The Company considers businesses to be held for sale whenright-of-use asset is measured as the Board or management, having the relevant authority to do so, approves and commits to a formal plan to actively market a business for sale and the sale is considered probable. Upon designation as held for sale, the carryingpresent value of the assetslease obligation. The discount rate used to calculate the present value of the business are recordedlease liability was the Company’s incremental borrowing rate, which is based on the estimated rate for a fully collateralized borrowing that fully amortizes over a similar lease term at the lowercommencement date and for the applicable geographical region.
separate lease and non-lease components for all asset classes and will account for the lease payments as a single component.
Depreciation expense recorded in SG&A expenses in the consolidated statements of operations was $15.2 million, $15.8 million, and $14.7 million, for the years 2019, 2018, and 2017, respectively.
Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for as acquisitions. Accumulated amortization amounted to approximately $77.3 million at both December 30, 2018 and December 31, 2017, and cumulative impairment losses recognized were $212.6 million as of both December 30, 2018 and December 31, 2017.
The Company capitalizes patent defense costs when it determines that a successful defense is probable. Any patent defense costs are amortized overrecorded in cost of sales in the remaining useful life of the patent. During 2016, the Company determined that approximately $3.4 million of patent defense costs related to our TacTiles®carpet tile installation system should be impaired as a successful defense was deemed no longer probable. This impairment is included in “Restructuring and Asset Impairment Charges” in our consolidated statementstatements of operations.
BALANCE JANUARY 1, 2018 | ACQUISITIONS | PURCHASE PRICE ACCOUNTING ADJUSTMENTS | IMPAIRMENT | FOREIGN CURRENCY TRANSLATION | BALANCE DECEMBER 30, 2018 | |||||||||||||||||
(in thousands) | ||||||||||||||||||||||
| $ | 68,754 | $ | 183,348 | $ | 1,377 | $ | 0 | $ | (7,664 | ) | $ | 245,815 | ||||||||||
BALANCE DECEMBER 31, 2018 | ACQUISITIONS | PURCHASE PRICE ACCOUNTING ADJUSTMENTS | IMPAIRMENT | FOREIGN CURRENCY TRANSLATION | BALANCE DECEMBER 29, 2019 | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||||
| $ | 245,815 | $ | — | $ | 17,181 | $ | — | $ | (5,557 | ) | $ | 257,439 | ||||||||||
BALANCE JANUARY 1, 2018 | ACQUISITIONS | PURCHASE PRICE ACCOUNTING ADJUSTMENTS | IMPAIRMENT | FOREIGN CURRENCY TRANSLATION | BALANCE DECEMBER 30, 2018 | ||||||||||||||||
| (in thousands) | |||||||||||||||||||||
| $ | 68,754 | $ | 183,348 | $ | 1,377 | — | $ | (7,664 | ) | $ | 245,815 | ||||||||||
The Company does not record taxes collected from customers and remitted to governmental authorities on a gross basis.
Income (Loss) Per Share
“Shareholders' Equity.”
2017.
Accounting standards require a company to recognize all derivatives
consolidated balance sheet.
Environmental Remediation
The Company provides for remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. Remediation liabilities are accrued based on estimates of known environmental exposures and are discounted in certain instances. The Company regularly monitors the progress of environmental remediation. Should studies indicate that the cost of remediation is to be more than previously estimated, an additional accrual would be recorded in the period in which such determination is made. As of December 30, 2018, and December 31, 2017, no significant amounts were provided for remediation liabilities.
Allowances for Doubtful Accounts
NOTE 2 –RECENT ACCOUNTING PRONOUNCEMENTSIn February 2016,Recently Adopted Accounting PronouncementsOn December 31, 2018, the FinancialCompany adopted Accounting Standards BoardCodification (“FASB”ASC”) issued a new accounting standard regarding leases.Topic 842, “Leases.” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Prior to the issuance of additional guidance on the adoption methodology by the FASB in July 2018, a modified retrospective transition approach was required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The additional guidance issued by the FASB in July 2018, provides entities with the option to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the comparative periods presented in the financial statements would continue to be in accordance with current GAAP. The Company adopted the new lease standard on December 31, 2018, using this methodologythe modified retrospective approach and will providerecorded operating lease right-of-use assets and operating lease liabilities for approximately $115.0 million respectively, with 0 cumulative-effect adjustment to retained earnings. The Company elected to apply the required disclosurespractical expedients allowed by the standard, which resulted in its first quarterly report on form 10-Q of 2019.Upon adoption, the Company elected the package of practical expedients permitted under the transition guidance of the newnot having to reassess whether expired or existing contracts contained a lease standard, which among other things, allows us to carryforwardas well as retaining the historical lease classification. In addition, weclassification of our leases. The Company also elected the hindsight practical expedient in evaluating lessee options and elected to determine thecombine lease term, which allows us to use hindsight when considering the impact of options to extend or terminate the lease as well as the option to purchase the underlying asset. We made an accounting policy election to exclude leases with an initial term of 12 months or less from the calculation ofand non-lease components in calculating the right-of-use asset and lease liability recorded on the Balance Sheet. We will recognize lease costs related to short-term leases in the Consolidated Statements of Operations on a straight-line basis over the lease term. We also made an accounting policy election not to separate lease and non-lease components for all asset classes and will accountleases, except data center assets. See Note 11 entitled “Leases” for the lease payments as a single component.We have operating and finance leases for manufacturing equipment, distribution facilities, corporate offices, design centers, showrooms, as well as computer and office equipment. Our leases have remaining lease terms ranging from 1 to 12 years. The Company is finalizing the evaluation of theadditional information.On December 31, 2018 impact and estimates a material increase208 the Company adopted, Accounting Standards Update (“ASU”) 2018-02, “Reclassification of lease-related assets and liabilities, rangingCertain Tax Effects from $80 million to $100 million in the consolidated balance sheet. The impact to the Company’s consolidated statements of income, consolidated statements of cash flows and debt covenants is not expected to be material.In January 2017, the FASB issued a new accounting standard that provides for the elimination of Step 2 from the goodwill impairment test. Under the new guidance, impairment charges are recognized to the extent the carrying amount of a reporting unit exceeds its fair value with certain limitations. The new guidance is effective for any annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate that the adoption of the new guidance will have a material effect on its consolidated financial statements.In February 2018, the FASB issued a new accounting standard to addressAccumulated Other Comprehensive Income,” which addresses a narrow-scope financial reporting issue that arose as a consequence of the U.S. Tax Cuts and Jobs Act. ExistingThe former guidance requiresrequired that deferred tax liabilities and assets be adjusted for a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. That guidance iswas applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (rather than in net income), such as amounts related to benefit plans and hedging activity. As a result, the tax effects of items within accumulated other comprehensive income do not reflect the appropriate tax rate (the difference is referred to as stranded tax effects). The new guidance allows for a reclassification of these amounts to retained earnings, thereby eliminating these stranded tax effects. The new guidance is effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of adoption of this standard did not have a material effect on itsthe Company’s consolidated financial statements.In Junestatements as the Company did not elect to reclassify stranded tax effects into retained earnings.On December 31, 2018, the FASB issued a new accounting standardCompany adopted ASU 2018-07, “Improvements to address non-employee share-based payments.Nonemployee Share-Based Payment Accounting.” This standard will requirerequires that the accounting treatment for non-employee share-based payments for goods or services be consistent with current GAAPaccounting for employee share-based payments, including measurement of awards at grant-date fair value and the application of probability to evaluate performance conditions. This standard will also eliminateeliminates the current GAAP requirement to reassess the classification of non-employee share-based payments awards upon vesting. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.Recently Issued Accounting Pronouncements Not Yet AdoptedIn December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This new guidance is effective for fiscal years, and interim and annual periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted.2020. The Company is currently evaluating the impact of adoption of this standard, but does not anticipate that the adoption will have a material effect on its consolidated financial statements.In August 2018, the FASB issued a new accounting standard that modifies disclosure requirements relatedASU 2018-13, “Changes to fair value measurements.the Disclosure Requirements for Fair Value Measurement.” This standard eliminates the current requirement to disclose the amount or reason for transfers between level 1 and level 2 of the fair value hierarchy and the requirement to disclose the valuation methodology for level 3 fair value measurements. The standard includes additional disclosure requirements for level 3 fair value measurements, including the requirement to disclose the changes in unrealized gains and losses in other comprehensive income during the period and permits the disclosure of other relevant quantitative information for certain unobservable inputs. The new guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company does not anticipate that the adoption of the new standard will have a material effect on its consolidated financial statements.In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software – Customer’s Accounting for Implementation Costs Incurred in a new accounting standard that changes the disclosure requirements for defined benefit retirement plans.Cloud Computing Arrangement.” This standard eliminates the current requirement to disclose amounts in accumulated other comprehensive income that are expected to be recognized in net periodic benefit expense in the next fiscal year. The standard requires additional disclosures for an entity to explain the reasons for significant gains and losses related to changes in the benefit obligation for the period and clarifies current guidance for disclosures where projected benefit obligations or accumulated benefit obligations exceed the fair value of plan assets. The new guidance is effective for annual periods ending after December 15, 2020. Early adoption is permitted. The Company has elected to early adopt this standard in the fourth quarter of 2018 and there was no material effect on its consolidated financial statements.In August 2018, the FASB issued a new accounting standard to alignASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement service contract with the guidance to capitalize implementation costs of internal use software. This standardThe ASU also requires that the costs for implementation activities during the application development phase be capitalized in a hosting arrangement service contract, and costs during the preliminary and post implementation phase are expensed. The new guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard, but does not anticipate that the adoption will have a material effect on its consolidated financial statements.In December 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other,” that provides for the elimination of Step 2 from the goodwill impairment test. Under the new guidance, impairment charges are recognized to the extent the carrying amount of a reporting unit exceeds its fair value with certain limitations. The new guidance is effective for any annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company does not anticipate that the adoption of the new standard will have a material effect on its consolidated financial statements.In June 2016, the FASB issued ASU 2016-13 “Financial Instruments -- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires a financial asset (including trade receivables) to be presented at the net amount expected to be collected through the use of valuation allowances for credit losses. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. The new standard provides both a modified retrospective or prospective adoption method. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements, due to the short-term nature of its trade accounts receivable. 53NOTE3– REVENUE RECOGNITIONEffective January 1, 2018, the Company adopted a new accounting standard with regard toregarding revenue recognition from contracts with customers. The Company elected the modified retrospective approach for adoption of this new standard, as is allowed by the standard. The Company did not have any significant impact from this standard as of the date of the adoption.45
Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately 97%98% of total revenue for 2018.2019. The remaining 3%2% of revenue was generated from the installation of carpet and other flooring-related material.
Percentage of Net Sales Americas Europe Asia-Pacific END OF FISCAL YEAR 2018 2017 (in thousands) Finished goods Work-in-process Raw materials Inventory, NetDisaggregation of RevenueFor 2018,2019, revenue from the Company’s customers is broken down by geography as follows:Geography 57.80%56.4% 27.10%29.3% 15.10%14.3% Impairment LossesThe Company does not recognize any impairment losses related to its revenue contracts due primarily to the short-term and straightforward nature of these contracts. 54NOTE4–RECEIVABLESThe Company has adopted credit policies and standards intended to reduce the inherent risk associated with potential increases in its concentration of credit risk due to increasing trade receivables from sales to owners and users of commercial office facilities and with specifiers such as architects, engineers and contracting firms. Management believes that credit risks are further moderated by the diversity of its end customers and geographic sales areas. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As of December 30, 2018,29, 2019 and December 31, 2017,30, 2018, the allowance for bad debts amounted to $3.5$3.8 million and $3.5 million, respectively, for all accounts receivable of the Company. Reserves for warranty and returns allowances amounted to $3.5$3.9 million and $4.1$3.5 million as of December 29, 2019 and December 30, 2018, and December 31, 2017, respectively. 55NOTE5–FAIR VALUE OF FINANCIAL INSTRUMENTSThe Company does not have significant assets and liabilities measured atFair Value Measurements of Plan AssetsAccounting standards establish a fair value on a recurring basishierarchy that prioritizes the inputs to valuation techniques used to measure estimated fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under applicable accounting standards asare described below:Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Inputs to the valuation methodology include: quoted prices for similar assets in active markets;quoted prices for identical or similar assets in inactive markets;inputs other than quoted prices that are observable for the asset; andinputs that are derived principally or corroborated by observable data by correlation or otherLevel 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the endfair value measurement.As of 2018. TheDecember 29, 2019 and December 30, 2018, the Company does havehad approximately $23.3 million and $24.3 million, respectively, of Company-owned life insurance, which is measured on a readily determinable cash surrender value on a recurring basis. This Company-owned life insurance is classified as a levelLevel 2 asset within the fair value hierarchy. Due to the short maturity of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, their carrying values approximate fair value. As of December 30, 2018,29, 2019, the carrying value of the Company’s borrowings under its Syndicated Credit Facility approximates fair value as the Facility bears interest rates that are similar to existing market rates. The Company does hedge its interest rate exposure on $100 millionfair value of borrowings on the Syndicated Credit Facility and thisCompany’s derivative instruments is determined using discounted cash flow hedge is measured atvaluation models. The significant inputs used in these models are readily available in public markets, or can be derived from other observable market transactions, and therefore are classified as Level 2 within the fair value. See discussion of this instrument below in Note 10 entitled “Derivative Instruments”.value hierarchy. 56NOTE6–INVENTORIESInventories are summarized as follows: $ 180,847 $ 115,512 17,762 13,022 60,048 49,401 $ 258,657 $ 177,935
| END OF FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Finished goods | $ | 184,336 | $ | 180,847 | |||
| Work-in-process | 13,152 | 17,762 | |||||
| Raw materials | 56,096 | 60,048 | |||||
| Inventory, Net | $ | 253,584 | $ | 258,657 | |||
NOTE 7 – PROPERTY AND EQUIPMENT
Property, plant and equipment consisted of the following:
END OF FISCAL YEAR | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Land | $ | 16,870 | $ | 17,743 | ||||
Buildings | 143,725 | 130,919 | ||||||
Equipment | 565,251 | 371,300 | ||||||
| 725,846 | 519,962 | |||||||
Accumulated depreciation | (432,958 | ) | (307,317 | ) | ||||
Property and Equipment | $ | 292,888 | $ | 212,645 | ||||
| END OF FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Land | $ | 17,777 | $ | 16,870 | |||
| Buildings | 148,833 | 143,725 | |||||
Equipment (1) | 615,149 | 565,251 | |||||
| 781,759 | 725,846 | ||||||
Accumulated depreciation and amortization (2) | (457,174 | ) | (432,958 | ) | |||
| Property, plant and equipment | $ | 324,585 | $ | 292,888 | |||
NOTE 8 – ACCRUED EXPENSES
Accrued expenses are summarized as follows:
END OF FISCAL YEAR | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Compensation | $ | 80,877 | $ | 71,760 | ||||
Interest | 374 | 362 | ||||||
Restructuring | 11,907 | 2,568 | ||||||
Taxes | 14,539 | 19,948 | ||||||
Accrued purchases | 5,329 | 4,569 | ||||||
Warranty and sales allowances | 3,495 | 4,111 | ||||||
Other | 9,450 | 7,656 | ||||||
Accrued Expenses | $ | 125,971 | $ | 110,974 | ||||
Other non-current liabilities include pension liability of $62.4 million and $43.3 million as of December 30, 2018 and December 31, 2017, respectively (see the discussion below in Note 17 entitled “Employee Benefit Plans”).
| END OF FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Compensation | $ | 86,696 | $ | 80,877 | |||
| Interest | 1,485 | 374 | |||||
| Restructuring | 11,445 | 11,907 | |||||
| Taxes | 16,809 | 14,539 | |||||
| Accrued purchases | 4,910 | 5,329 | |||||
| Warranty and sales allowances | 3,853 | 3,495 | |||||
| Other | 15,454 | 9,450 | |||||
| Accrued Expenses | $ | 140,652 | $ | 125,971 | |||
LONG-TERMDEBT
Interest Rates
its subsidiaries to accomplish certain intercompany investments and other intercompany transactions desired to be made by the Company and its subsidiaries, and
Covenants
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| ||
|
|
|
| |
|
| |
|
|
Interest Rate Risk Management
Shortly after entering into
Cash Flow Interest Rate Swap
The Company’s interest rate swap is designated and qualifies as a cash flow hedge of forecasted interest payments. The Company reports the effective portion of the fair value gain or loss on the swap as a component of other comprehensive income (or other comprehensive loss). Gains or losses (if any) on any ineffective portion of derivative instruments in cash flow hedging relationships are recorded in the period in which they occur as a component of other expense (or other income) in the consolidated statement of operations. There were no such gains or losses in 2018. The aggregate notional amount of the swap as of December 30, 2018 was $100 million.
As of December 30, 2018, the fair value of the cash flow interest rate swap asset was $1.8 million and was recorded in other assets in the Company’s consolidated balance sheet. Gains and losses on the interest rate swap are not significant and are included in the operating activities section in the Company’s consolidated statement of cash flows.
amounts.
FISCAL YEAR | AMOUNT | |||
(in thousands) | ||||
2019 | $ | 31,315 | ||
2020 | 31,315 | |||
2021 | 31,315 | |||
2022 | 31,315 | |||
2023 | 493,321 | |||
Thereafter | 0 | |||
Total Debt | $ | 618,581 | ||
FISCAL YEAR AMOUNT (in thousands) 2020 $ 31,022 2021 31,022 2022 31,022 2023 509,450 2024 — Thereafter — Total Debt $ 602,516
INSTRUMENTS
amounts.
The Company’s
The recently acquired
as of December 29, 2019 (in thousands):
| Asset Derivatives as of December 29, 2019 | Liability Derivatives as of December 29, 2019 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
| Derivative instruments designated as hedging instruments: | |||||||||||
| Foreign currency contracts | Other current assets | $ | — | Accrued expenses | $ | — | |||||
| Interest rate swap contract | Other current assets | — | Accrued expenses | 5,801 | |||||||
| $ | — | $ | 5,801 | ||||||||
| Asset Derivatives as of | Liability Derivatives as of | |||||||||
| December 30, 2018 | December 30, 2018 | |||||||||
| Balance Sheet | Balance Sheet | |||||||||
| Location | Fair Value | Location | Fair Value | |||||||
| Derivative instruments designated as hedging instruments: | ||||||||||
| Foreign currency contracts | Other current assets | $ | 651 | Other current liabilities | -- | |||||
| Interest rate swap contract | Other current assets | 1,794 | Other current liabilities | -- | ||||||
| $ | 2,445 | -- | ||||||||
The table below sets forth the fair value of derivative instruments as of December 31, 2017 (in thousands):
| Asset Derivatives as of | Liability Derivatives as of | |||||||||
| December 31, 2017 | December 31, 2017 | |||||||||
| Balance Sheet | Balance Sheet | |||||||||
| Location | Fair Value | Location | Fair Value | |||||||
| Derivative instruments designated as hedging instruments: | ||||||||||
| Interest rate swap contract | Other current assets | $ | 904 | Other current liabilities | -- | |||||
| Asset Derivatives as of December 30, 2018 | Liability Derivatives as of December 30, 2018 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
| Derivative instruments designated as hedging instruments: | |||||||||||
| Foreign currency contracts | Other current assets | $ | 651 | Other current liabilities | $ | — | |||||
| Interest rate swap contract | Other current assets | 1,794 | Other current liabilities | — | |||||||
| $ | 2,445 | $ | — | ||||||||
months.
| Gain (Loss) Recognized in Accumulated | ||||
| 2018 | Other Comprehensive Income | |||
| Foreign currency contracts | $ | (468 | ) | |
| Interest rate swap contract | $ | 890 | ||
Fiscal Year Fiscal Year Fiscal Year 2019 2018 2017 (in thousands) Foreign currency contracts gain (loss) $ 468 $ (468 ) $ — Interest rate swap contracts (loss) gain (5,957 ) 890 904 (Loss) gain recognized in accumulated other comprehensive income $ (5,489 ) $ 422 $ 904
| Fiscal Year | |||||
| Statement of Operations Location | 2019 | ||||
(in thousands) | |||||
| Foreign currency contracts (loss) | Cost of sales | $ | (450 | ) | |
| Interest rate swap contracts gain | Interest expense | 151 | |||
| Total | $ | (299 | ) | ||
| December 29, 2019 | ||||||||
| (In thousands) | ||||||||
| Balance Sheet Location | Operating Leases | Finance Leases | ||||||
| Operating lease right-of-use assets | $ | 107,044 | ||||||
| Current portion of operating lease liabilities | $ | 15,914 | ||||||
| Operating lease liabilities | 91,829 | |||||||
| Total operating lease liabilities | $ | 107,743 | ||||||
| Property and equipment | $ | 5,007 | ||||||
| Accrued expenses | $ | 1,489 | ||||||
| Other long-term liabilities | 1,673 | |||||||
| Total finance lease liabilities | $ | 3,162 | ||||||
| Fiscal Year | |||
| 2019 | |||
| Lease cost | (In thousands) | ||
| Finance lease cost: | |||
| Amortization of right-of-use assets | $ | 890 | |
| Interest on lease liabilities | 51 | ||
| Operating lease cost | 24,246 | ||
| Short-term lease cost | 2,057 | ||
| Variable lease cost | 3,665 | ||
| Total lease cost | $ | 30,909 | |
| Other supplemental information | |||
| Cash paid for amounts included in the measurement of lease liabilities: | |||
| Operating cash flows from finance leases | $ | 51 | |
| Operating cash flows from operating leases | 22,597 | ||
| Financing cash flows from finance leases | 1,255 | ||
| Right-of-use assets obtained in exchange for new finance lease liabilities | 2,240 | ||
| Right-of-use assets obtained in exchange for new operating lease liabilities | 12,655 | ||
| December 29, 2019 | ||
| Weighted-average remaining lease term – finance leases (in years) | 2.76 | |
| Weighted-average remaining lease term – operating leases (in years) | 10.60 | |
| Weighted-average discount rate – finance leases | 2.06 | % |
| Weighted-average discount rate – operating leases | 5.86 | % |
| Fiscal Year | Operating Leases | Finance Leases | |||||
| (In thousands) | |||||||
| 2020 | $ | 21,659 | $ | 1,543 | |||
| 2021 | 17,264 | 861 | |||||
| 2022 | 13,825 | 475 | |||||
| 2023 | 11,504 | 290 | |||||
| 2024 | 9,959 | 88 | |||||
| Thereafter | 75,360 | — | |||||
| Total future minimum lease payments (undiscounted) | 149,571 | 3,257 | |||||
| Less: Present value discount | (41,828 | ) | (95 | ) | |||
| Total lease liability | $ | 107,743 | $ | 3,162 | |||
Prior to March 5, 2012, the Company had two classes of common stock – Class A Common Stock and Class B Common Stock. On March 5, 2012, the number of issued and outstanding shares of Class B Common Stock constituted less than 10% of the aggregate number of issued and outstanding shares of the Company’s Class A Common Stock and Class B Common Stock, as the cumulative result of varied transactions that caused the conversion of shares of Class B Common Stock into shares of Class A Common Stock. Accordingly, the Class A Common Stock and Class B Common Stock are now, irrevocably from March 5, 2012, a single class of Common Stock in all respects. Following the March 5, 2012 event, the
The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE.
On October 7, 2014, the Company announced a program to repurchase up to 500,000 shares of common stock per fiscal year, commencing with the 2014 fiscal year. On November 19, 2015, the Board of Directors amended the program to provide that the 500,000 shares of common stock previously approved for repurchases for the 2016 fiscal year may be repurchased by the Company, in management’s discretion, during the period commencing on November 19, 2015 and ending at the conclusion of fiscal year 2016.
Pursuant to the above-described programs, the Company has repurchased shares in the past three years as follows. During 2016,2017, the Company repurchased and retired 1,177,6004,628,300 shares of common stock at a weighted average purchase price of $15.68 per share. During 2017, the Company repurchased and retired a combined total of 4,628,300 shares under these plans, at an average purchase price of $19.76 per share. During 2018, the Company repurchased and retired a combined total of 615,000 shares under these plans, at an average purchase price of $23.54 per share. During 2019, the Company repurchased and retired a combined total of 1,556,000 shares under these plans, at an average purchase price of $16.13 per share. As of December 30, 2018,29, 2019, the Company had approximately $25.1 million of availability remaining to purchase shares undercompleted the authorized share repurchase program put in place in 2017.
program.
SHARES | AMOUNT | ADDITIONAL PAID-IN CAPITAL | RETAINED EARNINGS (DEFICIT) | PENSION LIABILITY | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Balance, at January 3, 2016 | 65,701 | $ | 6,570 | $ | 370,327 | $ | 100,270 | $ | (43,290 | ) | $ | (91,511 | ) | |||||||||||
Net income | 0 | 0 | 0 | 54,162 | 0 | 0 | ||||||||||||||||||
Stock issuances under employee plans | 17 | 2 | 251 | 0 | 0 | 0 | ||||||||||||||||||
Other issuances of common stock | 277 | 28 | 4,726 | 0 | 0 | 0 | ||||||||||||||||||
Unamortized stock compensation expense related to restricted stock awards | 0 | 0 | (4,754 | ) | 0 | 0 | 0 | |||||||||||||||||
Cash dividends paid | 0 | 0 | 0 | (14,285 | ) | 0 | 0 | |||||||||||||||||
Forfeitures and compensation expense related to stock awards | (579 | ) | (58 | ) | 979 | 0 | 0 | 0 | ||||||||||||||||
Share Repurchases | (1,178 | ) | (118 | ) | (18,378 | ) | 0 | 0 | 0 | |||||||||||||||
Pension liability adjustment | 0 | 0 | 0 | 0 | (11,572 | ) | 0 | |||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | 0 | 0 | (19,011 | ) | |||||||||||||||||
Windfall tax benefit - share-based payment awards | 0 | 0 | 6,300 | 0 | 0 | 0 | ||||||||||||||||||
Other | 0 | 0 | 0 | 91 | 0 | 0 | ||||||||||||||||||
Balance, at January 1, 2017 | 64,238 | $ | 6,424 | $ | 359,451 | $ | 140,238 | $ | (54,862 | ) | $ | (110,522 | ) | |||||||||||
SHARES | AMOUNT | ADDITIONAL PAID-IN CAPITAL | RETAINED EARNINGS (DEFICIT) | PENSION LIABILITY | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | CASH FLOW HEDGE | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Balance, at January 1, 2017 | 64,238 | $ | 6,424 | $ | 359,451 | $ | 140,238 | $ | (54,862 | ) | $ | (110,522 | ) | $ | 0 | |||||||||||||
Net income | 0 | 0 | 0 | 53,246 | 0 | 0 | 0 | |||||||||||||||||||||
Stock issuances under employee plans | 36 | 4 | 508 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Other issuances of common stock | 253 | 25 | 4,507 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Unamortized stock compensation expense related to restricted stock awards | 0 | 0 | (4,532 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Cash dividends paid | 0 | 0 | 0 | (15,487 | ) | 0 | 0 | 0 | ||||||||||||||||||||
Forfeitures and compensation expense related to stock awards | (93 | ) | (9 | ) | 5,574 | 0 | 0 | 0 | 0 | |||||||||||||||||||
Share Repurchases | (4,628 | ) | (463 | ) | (91,113 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||
Pension liability adjustment | 0 | 0 | 0 | 0 | (1,692 | ) | 0 | 0 | ||||||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | 0 | 0 | 31,579 | 0 | |||||||||||||||||||||
Cash flow hedge unrealized gain (loss) | 0 | 0 | 0 | 0 | 0 | 0 | 904 | |||||||||||||||||||||
Windfall tax benefit - share-based payment awards | 0 | 0 | (3,124 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Adoption of new accounting standard - share-based payment awards | 0 | 0 | 0 | 9,435 | 0 | 0 | 0 | |||||||||||||||||||||
Balance, at December 31, 2017 | 59,806 | $ | 5,981 | $ | 271,271 | $ | 187,432 | $ | (56,554 | ) | $ | (78,943 | ) | $ | 904 | |||||||||||||
SHARES | AMOUNT | ADDITIONAL PAID-IN CAPITAL | RETAINED EARNINGS (DEFICIT) | PENSION LIABILITY | FOREIGN CURRENCY TRANSLATION ADJUSTMENT |
CASH FLOW HEDGE | ||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, at December 31, 2017 | 59,806 | $ | 5,981 | $ | 271,271 | $ | 187,432 | $ | (56,554 | ) | $ | (78,943 | ) | $ | 904 | |||||||||||||||||||||||||||||||||||||||
| SHARES | COMMON STOCK | ADDITIONAL PAID-IN CAPITAL | RETAINED EARNINGS | PENSION LIABILITY | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | CASH FLOW HEDGE | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at December 30, 2018 | 59,508 | $ | 5,951 | $ | 270,269 | $ | 222,214 | $ | (43,610 | ) | $ | (101,487 | ) | $ | 1,326 | |||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 50,253 | 0 | 0 | 0 | — | — | — | 79,200 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Stock issuances under employee plans | 224 | 22 | 476 | 0 | 0 | 0 | 0 | 511 | 51 | 636 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Other issuances of common stock | 182 | 18 | 4,809 | 0 | 0 | 0 | 0 | 223 | 22 | 3,900 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Unamortized stock compensation expense related to restricted stock awards | 0 | 0 | (4,710 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||
| Unamortized stock compensation expense related to stock awards | — | — | (4,139 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends paid | 0 | 0 | 0 | (15,471 | ) | 0 | 0 | 0 | — | — | — | (15,358 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||
Forfeitures and compensation expense related to stock awards | (89 | ) | (9 | ) | 12,847 | 0 | 0 | 0 | 0 | (270 | ) | (26 | ) | 4,638 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Share Repurchases | (615 | ) | (61 | ) | (14,424 | ) | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | (1,556 | ) | (156 | ) | (24,998 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment | 0 | 0 | 0 | 0 | 12,944 | 0 | 0 | — | — | — | — | (13,090 | ) | — | — | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | 0 | 0 | (22,544 | ) | 0 | — | — | — | — | — | (11,652 | ) | — | ||||||||||||||||||||||||||||||||||||||
Cash flow hedge unrealized gain | 0 | 0 | 0 | 0 | 0 | 0 | 422 | — | — | — | — | — | — | (5,489 | ) | |||||||||||||||||||||||||||||||||||||||
Balance, at December 30, 2018 | 59,508 | $ | 5,951 | $ | 270,269 | $ | 222,214 | $ | (43,610 | ) | $ | (101,487 | ) | $ | 1,326 | |||||||||||||||||||||||||||||||||||||||
| Balance, at December 29, 2019 | 58,416 | $ | 5,842 | $ | 250,306 | $ | 286,056 | $ | (56,700 | ) | $ | (113,139 | ) | $ | (4,163 | ) | ||||||||||||||||||||||||||||||||||||||
SHARES COMMON STOCK ADDITIONALPAID-INCAPITAL RETAINED
EARNINGS PENSIONLIABILITY FOREIGNCURRENCYTRANSLATIONADJUSTMENT CASH FLOWHEDGE (in thousands) Balance, at December 31, 2017 59,806 $ 5,981 $ 271,271 $ 187,432 $ (56,554 ) $ (78,943 ) $ 904 Net income — — — 50,253 — — — Stock issuances under employee plans 224 22 476 — — — — Other issuances of common stock 182 18 4,809 — — — — Unamortized stock compensation expense related to stock awards — — (4,710 ) — — — — Cash dividends paid — — — (15,471 ) — — — Forfeitures and compensation expense related to stock awards (89 ) (9 ) 12,847 — — — — Share repurchases (615 ) (61 ) (14,424 ) — — — — Pension liability adjustment — — — — 12,944 — — Foreign currency translation adjustment — — — — — (22,544 ) — Cash flow hedge unrealized gain (loss) — — — — — — 422 Balance, at December 30, 2018 59,508 $ 5,951 $ 270,269 $ 222,214 $ (43,610 ) $ (101,487 ) $ 1,326 SHARES COMMON STOCK ADDITIONALPAID-INCAPITAL RETAINED
EARNINGS PENSIONLIABILITY FOREIGNCURRENCYTRANSLATIONADJUSTMENT CASH FLOW HEDGE (in thousands) Balance, at January 1, 2017 64,238 $ 6,424 $ 359,451 $ 140,238 $ (54,862 ) $ (110,522 ) $ — Net income — — — 53,246 — — — Stock issuances under employee plans 36 4 508 — — — — Other issuances of common stock 253 25 4,507 — — — — Unamortized stock compensation expense related to stock awards — — (4,532 ) — — — — Cash dividends paid — — — (15,487 ) — — — Forfeitures and compensation expense related to stock awards (93 ) (9 ) 5,574 — — — — Share repurchases (4,628 ) (463 ) (91,113 ) — — — — Pension liability adjustment — — — — (1,692 ) — — Foreign currency translation adjustment — — — — — 31,579 — Cash flow hedge unrealized gain (loss) — — — — — — 904 Windfall tax benefit - share-based payment awards — — (3,124 ) — — — — Adoption of new accounting standard - share-based payment awards — — — 9,435 — — — Balance, at December 31, 2017 59,806 $ 5,981 $ 271,271 $ 187,432 $ (56,554 ) $ (78,943 ) $ 904 Stock OptionsThe Company has an Omnibus Stock Incentive Plan (“Omnibus Plan”) under which a committee of independent directors is authorized to grant directors and key employees, including officers, options to purchase the Company’s Common Stock. Options are exercisable for shares of Common Stock at a price not less than 100% of the fair market value on the date of grant. The options become exercisable either immediately upon the grant date or ratably over a time period ranging from one to five years from the date of the grant. The Company’s options expire at the end of time periods ranging from three to ten years from the date of the grant.In May 2015, the shareholders approved an amendment and restatement of the Omnibus Plan. This amendment and restatement extended the term of the Omnibus Plan until February 2025, and set the number of shares authorized for issuance or transfer on or after the effective date of the amendment and restatement at 5,161,020 shares, except that each share issued pursuant to an award other than a stock option reduces the number of such authorized shares by 1.33 shares.Accounting standards require that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair market value of the award. That costexpense will be recognized over the period in whichthat the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award. The grant date fair value for options and similar instruments will be estimated using option pricing models. Under accounting standards, the Company is required to select a valuation technique or option pricing model. The Company uses the Black-Scholes model. Accounting standards require that the Company estimate forfeitures for stock options and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. This expense reduction is not significant to the Company.All outstanding stock options vested prior to 2015 and therefore there were no0 stock option compensation expenses during 2019, 2018 2017 or 2016.2017.54
Shares | Weighted Average Exercise Price | |||||||
Outstanding at December 31, 2017 | 82,500 | $ | 8.53 | |||||
Granted | 0 | 0 | ||||||
Exercised | 40,000 | 7.43 | ||||||
Forfeited or cancelled | 0 | 0 | ||||||
Outstanding at December 30, 2018 (a) | 42,500 | $ | 9.56 | |||||
Exercisable at December 30, 2018 (b) | 42,500 | $ | 9.56 | |||||
| Shares | Weighted Average Exercise Price | |||||
| Outstanding at December 30, 2018 | 42,500 | $ | 9.56 | |||
| Granted | — | — | ||||
| Exercised | (10,000 | ) | 4.31 | |||
| Forfeited or canceled | (5,000 | ) | 4.31 | |||
| Outstanding at December 29, 2019 (a) | 27,500 | $ | 12.43 | |||
| Exercisable at December 29, 2019 (b) | 27,500 | $ | 12.43 | |||
less than 1 year.
less than 1 year.
The range of exercise prices of the remaining stock options is from $4.31 to $12.43 per option.
Shares | Weighted Average Grant Date Fair Value | |||||||
Outstanding at January 1, 2018 | 463,000 | $ | 17.79 | |||||
Granted | 194,000 | 25.57 | ||||||
Vested | 83,500 | 17.75 | ||||||
Forfeited or cancelled | 24,500 | 20.41 | ||||||
Outstanding at December 30, 2018 | 549,000 | $ | 27.65 | |||||
| Shares | Weighted Average Grant Date Fair Value | |||||
| Outstanding at December 30, 2018 | 549,000 | $ | 27.65 | |||
| Granted | 223,500 | 17.54 | ||||
| Vested | (241,200 | ) | 18.41 | |||
| Forfeited or canceled | (63,100 | ) | 19.88 | |||
| Outstanding at December 29, 2019 | 468,200 | $ | 28.63 | |||
2022.
Performance Shares Weighted Average Grant Date Fair Value Outstanding at January 1, 2018 Granted Vested Forfeited or canceled Outstanding at December 30, 2018Performance Share AwardsIn each of the years 2016-2018,2017-2019, the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years, subject to the employee’s continued employment through the last date of the performance period, and will be settled in shares of our common stock or in cash at the Company’s election. The number of shares that may be issued in settlement of the performance shares to the award recipients may be greater (up to 200%) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards. The expense related to these performance shares is captured in selling, general and administrative expense on the consolidated statement of operations.The following table summarizes the performance shares outstanding as of December 30, 2018,29, 2019, as well as the activity during the year: 669,500 $ 17.51 261,000 25.69 134,000 17.72 37,000 19.93 759,500 $ 20.17
| Shares | Weighted Average Grant Date Fair Value | |||||
| Outstanding at December 30, 2018 | 759,500 | $ | 20.17 | |||
| Granted | 344,500 | 17.54 | ||||
| Vested | (360,000 | ) | 19.63 | |||
| Forfeited or canceled | (232,000 | ) | 18.10 | |||
| Outstanding at December 29, 2019 | 512,000 | $ | 19.71 | |||
29, 2019. That cost is expected to be recognized by the end of 2022.
Fiscal Year | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Earnings per share: | ||||||||||||
Basic earnings per share | ||||||||||||
Distributed earnings | $ | 0.26 | $ | 0.25 | $ | 0.22 | ||||||
Undistributed earnings | 0.58 | 0.61 | 0.61 | |||||||||
| $ | 0.84 | $ | 0.86 | $ | 0.83 | |||||||
Diluted earnings per share | ||||||||||||
Distributed earnings | $ | 0.26 | $ | 0.25 | $ | 0.22 | ||||||
Undistributed earnings | 0.58 | 0.61 | 0.61 | |||||||||
| $ | 0.84 | $ | 0.86 | $ | 0.83 | |||||||
| Fiscal Year | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Earnings per share: | |||||||||||
| Basic earnings per share | |||||||||||
| Distributed earnings | $ | 0.26 | $ | 0.26 | $ | 0.25 | |||||
| Undistributed earnings | 1.08 | 0.58 | 0.61 | ||||||||
| $ | 1.34 | $ | 0.84 | $ | 0.86 | ||||||
| Diluted earnings per share | |||||||||||
| Distributed earnings | $ | 0.26 | $ | 0.26 | $ | 0.25 | |||||
| Undistributed earnings | 1.08 | 0.58 | 0.61 | ||||||||
| $ | 1.34 | $ | 0.84 | $ | 0.86 | ||||||
Fiscal Year | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in millions) | ||||||||||||
Net income attributable to participating securities | $ | 0.5 | $ | 0.4 | $ | 0.4 | ||||||
| Fiscal Year | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in millions) | |||||||||||
| Net income attributable to participating securities | $ | 0.6 | $ | 0.5 | $ | 0.4 | |||||
Fiscal Year | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
Weighted Average Shares Outstanding | 58,995 | 61,528 | 64,593 | |||||||||
Participating Securities | 549 | 468 | 505 | |||||||||
Shares for Basic Earnings Per Share | 59,544 | 61,996 | 65,098 | |||||||||
Dilutive Effect of Stock Options | 22 | 44 | 38 | |||||||||
Shares for Diluted Earnings Per Share | 59,566 | 62,040 | 65,136 | |||||||||
| Fiscal Year | ||||||||
| 2019 | 2018 | 2017 | ||||||
| (in thousands) | ||||||||
| Weighted Average Shares Outstanding | 58,475 | 58,995 | 61,528 | |||||
| Participating Securities | 468 | 549 | 468 | |||||
| Shares for Basic Earnings Per Share | 58,943 | 59,544 | 61,996 | |||||
| Dilutive Effect of Stock Options | 5 | 22 | 44 | |||||
| Shares for Diluted Earnings Per Share | 58,948 | 59,566 | 62,040 | |||||
AND OTHER
CHARGES| Charged to Expenses 2019 | Deductions 2019 | Charged to Other Accounts 2019 | Balance at December 29, 2019 | |||||||||||||
| Workforce Reduction | $ | 8,827 | $ | 193 | $ | — | $ | 8,634 | ||||||||
| Other Exit Costs | 188 | — | 49 | 139 | ||||||||||||
| Total | $ | 9,015 | $ | 193 | $ | 49 | $ | 8,773 | ||||||||
Total Restructuring Charge |
Costs Incurred in 2018 |
Balance at Dec. 30, 2018 | ||||||||||
(in thousands) | ||||||||||||
Workforce Reduction | $ | 10,816 | $ | 53 | $ | 10,763 | ||||||
Asset Impairment | 8,569 | 8,569 | 0 | |||||||||
Other Exit Costs | 1,144 | 0 | 1,144 | |||||||||
| Balance at Beginning of Year | Deductions 2019 | Charged to Expenses 2019 | Balance at December 29, 2019 | ||||||||||||
| (in thousands) | |||||||||||||||
| Workforce Reduction | $ | 10,763 | $ | 7,122 | $ | (1,743 | ) | $ | 1,898 | ||||||
| Other Exit Costs | 1,144 | 1,042 | 672 | 774 | |||||||||||
| Total | $ | 11,907 | $ | 8,164 | $ | (1,071 | ) | $ | 2,672 | ||||||
A summary of these 2016 and 2017 restructuring activities is presented below:
Total Restructuring Charge |
Costs Incurred in 2016 |
Costs Incurred in 2017 |
Costs Incurred in 2018 |
Balance at Dec. 30, 2018 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Workforce Reduction | $ | 10,652 | $ | 1,451 | $ | 6,633 | $ | 2,568 | $ | 0 | ||||||||||
Asset Impairment | 11,319 | 8,019 | 3,300 | 0 | 0 | |||||||||||||||
Lease Exit Costs | 5,116 | 27 | 5,089 | 0 | 0 | |||||||||||||||
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| U.S. operations | $ | 46,463 | $ | 35,728 | $ | 53,407 | |||||
| Foreign operations | 55,353 | 19,263 | 47,132 | ||||||||
| Income before taxes | $ | 101,816 | $ | 54,991 | $ | 100,539 | |||||
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| Current expense/(benefit): | |||||||||||
| Federal | $ | 8,414 | $ | (3,549 | ) | $ | 10,245 | ||||
| Foreign | 14,513 | 14,548 | 11,923 | ||||||||
| State | 2,312 | 2,628 | 1,414 | ||||||||
| Current expense | 25,239 | 13,627 | 23,582 | ||||||||
| Deferred expense/(benefit): | |||||||||||
| Federal | (625 | ) | 2,145 | 20,467 | |||||||
| Foreign | (2,198 | ) | (11,228 | ) | 1,214 | ||||||
| State | 200 | 194 | 2,030 | ||||||||
| Deferred expense/(benefit) | (2,623 | ) | (8,889 | ) | 23,711 | ||||||
| Total income tax expense | $ | 22,616 | $ | 4,738 | $ | 47,293 | |||||
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| Income taxes at U.S. federal statutory rate | $ | 21,381 | $ | 11,548 | $ | 35,189 | |||||
| Increase (decrease) in taxes resulting from: | |||||||||||
| State income taxes, net of federal tax effect | 2,321 | 2,228 | 2,055 | ||||||||
| Non-deductible business expenses | 933 | 1,352 | 695 | ||||||||
| Non-deductible employee compensation | 1,453 | 2,566 | 80 | ||||||||
| Tax effects of Company owned life insurance | (636 | ) | 235 | (1,295 | ) | ||||||
| Tax effects of Tax Act: | |||||||||||
| One-time transition tax on foreign earnings | — | (5,000 | ) | 11,707 | |||||||
| Remeasurement of net Deferred Tax Asset | — | (1,739 | ) | 3,467 | |||||||
| Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested | (183 | ) | 61 | 523 | |||||||
| Foreign and U.S. tax effects attributable to foreign operations | 783 | (2,226 | ) | (4,575 | ) | ||||||
| Valuation allowance effect – NOL | 133 | (79 | ) | (858 | ) | ||||||
| Federal tax credits | (700 | ) | (2,863 | ) | (632 | ) | |||||
| Changes in unrecognized tax benefits | (3,324 | ) | (1,010 | ) | 874 | ||||||
| Other | 455 | (335 | ) | 63 | |||||||
| Income tax expense | $ | 22,616 | $ | 4,738 | $ | 47,293 | |||||
| FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Deferred tax assets | |||||||
| Lease liability | $ | 29,782 | $ | — | |||
| Net operating loss carryforwards | 3,090 | 2,349 | |||||
| Derivative instruments | 1,638 | — | |||||
| Deferred compensation | 20,194 | 18,945 | |||||
| Inventory | 3,200 | 4,712 | |||||
| Prepaids, accruals and reserves | 7,935 | 6,473 | |||||
| Pensions | 9,229 | 4,290 | |||||
| Other | 71 | — | |||||
| Deferred tax asset (gross) | 75,139 | 36,769 | |||||
| Valuation allowance on net operating loss carryforwards | (971 | ) | (1,067 | ) | |||
| Deferred tax asset (net) | $ | 74,168 | $ | 35,702 | |||
| Deferred tax liabilities | |||||||
| Property and equipment | $ | 23,770 | $ | 24,871 | |||
| Intangible assets | 33,760 | 18,699 | |||||
| Lease asset | 29,301 | — | |||||
| Foreign currency | 3,026 | 2,357 | |||||
| Foreign withholding taxes on unremitted earnings | 178 | 348 | |||||
| Other | — | 314 | |||||
| Deferred tax liabilities | 90,035 | 46,589 | |||||
| Net deferred tax liabilities | $ | 15,867 | $ | 10,887 | |||
Income before taxes on income consisted of the following:
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
U.S. operations | $ | 35,728 | $ | 53,407 | $ | 38,357 | ||||||
Foreign operations | 19,263 | 47,132 | 40,779 | |||||||||
Income before taxes | $ | 54,991 | $ | 100,539 | $ | 79,136 | ||||||
Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
Current expense/(benefit): | ||||||||||||
Federal | $ | (3,549 | ) | $ | 10,245 | $ | 6,886 | |||||
Foreign | 14,548 | 11,923 | 12,934 | |||||||||
State | 2,628 | 1,414 | 1,633 | |||||||||
Current expense | 13,627 | 23,582 | 21,453 | |||||||||
Deferred expense/(benefit): | ||||||||||||
Federal | 2,145 | 20,467 | 6,186 | |||||||||
Foreign | (11,228 | ) | 1,214 | (1,937 | ) | |||||||
State | 194 | 2,030 | (728 | ) | ||||||||
Deferred expense | (8,889 | ) | 23,711 | 3,521 | ||||||||
Total income tax expense | $ | 4,738 | $ | 47,293 | $ | 24,974 | ||||||
The Company’s effective tax rate was 8.6%, 47.0% and 31.6% for fiscal years 2018, 2017 and 2016, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 21% applicable for 2018 and 35% applicable for 2017 and 2016 to the Company’s actual income tax expense:
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
Income taxes at U.S. federal statutory rate | $ | 11,548 | $ | 35,189 | $ | 27,698 | ||||||
Increase (decrease) in taxes resulting from: | ||||||||||||
State income taxes, net of federal tax effect | 2,304 | 2,677 | 1,861 | |||||||||
Non-deductible business expenses | 1,352 | 695 | 538 | |||||||||
Non-deductible employee compensation | 2,566 | 80 | 361 | |||||||||
Tax effects of Company owned life insurance | 235 | (1,295 | ) | (199 | ) | |||||||
| Tax effects of Tax Act: | ||||||||||||
One-time transition tax on foreign earnings | (5,000 | ) | 11,707 | 0 | ||||||||
Remeasurement of net Deferred Tax Asset | (1,739 | ) | 3,467 | 0 | ||||||||
Tax effects of undistributed earnings from foreign subsidiaries not deemed to be indefinitely reinvested | 61 | 523 | 463 | |||||||||
Foreign and U.S. tax effects attributable to foreign operations | (3,756 | ) | (4,537 | ) | (3,963 | ) | ||||||
Valuation allowance effect – State NOL | (79 | ) | (858 | ) | (1,272 | ) | ||||||
Federal tax credits | (2,439 | ) | (442 | ) | (494 | ) | ||||||
Other | (315 | ) | 87 | (19 | ) | |||||||
Income tax expense | $ | 4,738 | $ | 47,293 | $ | 24,974 | ||||||
Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:
FISCAL YEAR | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Deferred tax asset (non-current asset) | $ | 15,601 | $ | 18,003 | ||||
Deferred income taxes (non-current liabilities) | (26,488 | ) | (6,935 | ) | ||||
Total net deferred taxes | $ | (10,887 | ) | $ | 11,068 | |||
Deferred income taxes for the years ended December 30, 2018 and December 31, 2017, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The sources of the temporary differences and their effect on the net deferred tax asset are as follows:
2018 | 2017 | |||||||||||||||
ASSETS | LIABILITIES | ASSETS | LIABILITIES | |||||||||||||
(in thousands) | ||||||||||||||||
Basis differences of property and equipment | $ | 0 | $ | 24,871 | $ | 0 | $ | 13,281 | ||||||||
Basis difference of intangible assets | 0 | 18,699 | 0 | 1,157 | ||||||||||||
Foreign currency | 0 | 2,357 | 0 | 2,597 | ||||||||||||
Net operating loss carryforwards | 2,349 | 0 | 2,468 | 0 | ||||||||||||
Valuation allowances on net operating loss carryforwards | (1,067 | ) | 0 | (1,186 | ) | 0 | ||||||||||
Federal tax credits | 0 | 0 | 3,227 | 0 | ||||||||||||
Deferred compensation | 18,945 | 0 | 20,220 | 0 | ||||||||||||
Basis difference of inventory | 4,712 | 0 | 634 | 0 | ||||||||||||
Basis difference of prepaids, accruals and reserves | 6,473 | 0 | 1,777 | 0 | ||||||||||||
Pensions | 4,290 | 0 | 2,408 | 0 | ||||||||||||
Foreign withholding taxes on unremitted earnings | 0 | 348 | 0 | 909 | ||||||||||||
Basis difference of other assets and liabilities | 0 | 314 | 0 | 536 | ||||||||||||
| $ | 35,702 | $ | 46,589 | $ | 29,548 | $ | 18,480 | |||||||||
During the year ended December 30, 2018, significant changes to the Company’s deferred tax balances included an $18.0 million increase in intangible deferred liability primarily related to its acquisition of nora.
Management believes, based on the Company’s history of taxable income and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the federal deferred tax assets at December 30, 2018.
The Company had approximately $96.1$7.5 million in foreign net operating losses for which the Company applied a valuation allowance against $0.9 million of such losses. The Company had approximately $87.6 million in state net operating loss carryforwards relating to continuing operations with expiration dates through 2035. The Company has provided a valuation allowance against $16.3$14.6 million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately $43.0$36.0 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation allowance has been provided.
The Company expects that domestic cash resources will be sufficient to fund its domestic operations and cash commitments in the future. In the event the Company determines not to continue to assert that all or part of its undistributed earnings in its non-U.S. subsidiaries are permanently reinvested, an actual repatriation from its non-U.S. subsidiaries could still be subject to additional foreign withholding and U.S. state taxes, the determination of which is not practicable.
Management believes changes to our unrecognized tax benefits that are reasonably possible in the next 12 months will not have a significant impact on our financial position or results of operations. The timing of the ultimate resolution of the Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside the Company’s control.
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
Balance at beginning of year | $ | 29,221 | $ | 27,888 | $ | 28,271 | ||||||
Increases related to tax positions taken during the current year | 671 | 627 | 690 | |||||||||
| Increases related to tax positions taken during the prior years | 180 | 709 | 148 | |||||||||
Decreases related to tax positions taken during the prior years | 0 | 0 | (695 | ) | ||||||||
Decreases related to settlements with taxing authorities | 0 | 0 | 0 | |||||||||
Decreases related to lapse of applicable statute of limitations | (1,861 | ) | (462 | ) | (403 | ) | ||||||
Changes due to foreign currency translation | (68 | ) | 459 | (123 | ) | |||||||
Balance at end of year | $ | 28,143 | $ | 29,221 | $ | 27,888 | ||||||
FISCAL YEAR 2019 2018 2017 (in thousands) Balance at beginning of year $ 28,143 $ 29,221 $ 27,888 Increases related to tax positions taken during the current year 318 671 627 Increases related to tax positions taken during the prior years 1,093 180 709 Decreases related to tax positions taken during the prior years (2,809 ) — — Decreases related to settlements with taxing authorities — — — Decreases related to lapse of applicable statute of limitations (1,266 ) (1,861 ) (462 ) Changes due to foreign currency translation 7 (68 ) 459 Balance at end of year $ 25,486 $ 28,143 $ 29,221
The Company leases certain production, distribution and marketing facilities and equipment. At December 30, 2018, aggregate minimum rent commitments under operating leases with initial or remaining terms of one year or more consisted of the following:
FISCAL YEAR | AMOUNT | |||
(in thousands) | ||||
2019 | $ | 26,113 | ||
2020 | 22,066 | |||
2021 | 16,453 | |||
2022 | 8,692 | |||
2023 | 5,186 | |||
Thereafter | 15,237 | |||
Rental expense amounted to approximately $28.5 million, $22.0 million, and $24.5 million for the years 2018, 2017, and 2016, respectively.
The Company is from
Since the inception of the investigation, the Company has cooperated and continues to cooperate with the SEC’s investigation.
2017.
FISCAL YEAR | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Change in benefit obligation | ||||||||
Benefit obligation, beginning of yearClose File | $ | 320,548 | $ | 277,813 | ||||
Service cost | 1,112 | 1,628 | ||||||
Interest cost | 5,467 | 5,559 | ||||||
Benefits and expenses paid | (11,850 | ) | (10,267 | ) | ||||
Business combinations | 36,903 | 0 | ||||||
Actuarial loss (gain) | (53,753 | ) | 13,351 | |||||
Member contributions | 233 | 262 | ||||||
Currency translation adjustment | (13,152 | ) | 32,202 | |||||
Benefit obligation, end of year | $ | 285,508 | $ | 320,548 | ||||
Change in plan assets | ||||||||
Plan assets, beginning of year | $ | 307,166 | $ | 258,365 | ||||
Actual return on assets | (37,495 | ) | 25,691 | |||||
Company contributions | 4,095 | 2,812 | ||||||
Benefits paid | (11,850 | ) | (10,267 | ) | ||||
Currency translation adjustment | (12,603 | ) | 30,565 | |||||
Plan assets, end of year | $ | 249,313 | $ | 307,166 | ||||
Reconciliation to balance sheet | ||||||||
Funded status benefit asset/(liability) | $ | (36,195 | ) | $ | (13,382 | ) | ||
| Net amount recognized | $ | (36,195 | ) | $ | (13,382 | ) | ||
Amounts recognized in accumulated other comprehensive income (after tax) | ||||||||
Unrecognized actuarial loss | $ | 37,141 | $ | 48,443 | ||||
Unamortized prior service costs | (437 | ) | (471 | ) | ||||
Total amount recognized | $ | 36,704 | $ | 47,972 | ||||
Accumulated Benefit Obligation | $ | 284,581 | $ | 313,257 | ||||
END OF FISCAL YEAR | ||||||||
2018 | 2017 | |||||||
| (in thousands) | |||||||
| UK Plan | ||||||||
Projected Benefit Obligation | $ | 157,351 | $ | 190,992 | ||||
Accumulated Benefit Obligation | 157,351 | 190,992 | ||||||
Plan Assets | 158,990 | 179,322 | ||||||
Dutch Plan | ||||||||
Projected Benefit Obligation | $ | 91,837 | $ | 129,554 | ||||
Accumulated Benefit Obligation | 90,910 | 122,265 | ||||||
Plan Assets | 90,323 | 127,844 | ||||||
| Nora Plan | ||||||||
| Projected Benefit Obligation | $ | 36,320 | 0 | |||||
| Accumulated Benefit Obligation | 36,320 | 0 | ||||||
| Plan Assets | 0 | 0 | ||||||
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
Components of net periodic benefit cost | ||||||||||||
Service cost | $ | 1,112 | $ | 1,628 | $ | 1,032 | ||||||
Interest cost | 5,467 | 5,559 | 6,580 | |||||||||
Expected return on plan assets | (6,234 | ) | (6,496 | ) | (7,553 | ) | ||||||
Amortization of prior service cost | (27 | ) | (34 | ) | 33 | |||||||
Amortization of net actuarial (gains)/losses | 1,394 | 1,287 | 1,076 | |||||||||
Net periodic benefit cost | $ | 1,712 | $ | 1,944 | $ | 1,168 | ||||||
| END OF FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| UK Plan | |||||||
| Projected Benefit Obligation | $ | 170,958 | $ | 157,351 | |||
| Accumulated Benefit Obligation | 170,958 | 157,351 | |||||
| Plan Assets | 174,156 | 158,990 | |||||
Dutch Plan | |||||||
| Projected Benefit Obligation | $ | 100,996 | $ | 91,837 | |||
| Accumulated Benefit Obligation | 100,996 | 90,910 | |||||
| Plan Assets | 92,294 | 90,323 | |||||
| Nora Plan | |||||||
| Projected Benefit Obligation | $ | 42,887 | $ | 36,320 | |||
| Accumulated Benefit Obligation | 42,887 | 36,320 | |||||
| Plan Assets | — | — | |||||
| FISCAL YEAR | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| Components of net periodic benefit cost | |||||||||||
| Service cost | $ | 1,589 | $ | 1,112 | $ | 1,628 | |||||
| Interest cost | 5,676 | 5,467 | 5,559 | ||||||||
| Expected return on plan assets | (5,561 | ) | (6,234 | ) | (6,496 | ) | |||||
| Amortization of prior service cost | 63 | (27 | ) | (34 | ) | ||||||
| Amortization of net actuarial (gains)/losses | 991 | 1,394 | 1,287 | ||||||||
| Curtailment gain | (453 | ) | — | — | |||||||
| Net periodic benefit cost | $ | 2,305 | $ | 1,712 | $ | 1,944 | |||||
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Weighted average assumptions used to determine net periodic benefit cost | ||||||||||||
Discount rate | 1.9 | % | 2.0 | % | 2.7 | % | ||||||
Expected return on plan assets | 1.8 | % | 2.3 | % | 3.1 | % | ||||||
Rate of compensation | 1.75 | % | 1.75 | % | 2.0 | % | ||||||
Weighted average assumptions used to determine benefit obligations | ||||||||||||
Discount rate | 2.5 | % | 2.2 | % | 2.3 | % | ||||||
Rate of compensation | 1.75 | % | 1.75 | % | 2.0 | % | ||||||
| FISCAL YEAR | ||||||||
| 2019 | 2018 | 2017 | ||||||
| Weighted average assumptions used to determine net periodic benefit cost | ||||||||
| Discount rate | 1.9 | % | 1.9 | % | 2.0 | % | ||
| Expected return on plan assets | 2.1 | % | 1.8 | % | 2.3 | % | ||
| Rate of compensation | 1.75 | % | 1.75 | % | 1.75 | % | ||
| Weighted average assumptions used to determine benefit obligations | ||||||||
| Discount rate | 1.7 | % | 2.5 | % | 2.2 | % | ||
| Rate of compensation | 1.75 | % | 1.75 | % | 1.75 | % | ||
Dutch Plan Assets and IndexationBenefit
Because After the plan curtailment on December 31, 2019, as discussed above, any shortfall in plan assets to pay vested benefits will be funded by the Company.
The indexation benefit for 2019 is not significant.
FISCAL YEAR | |||||||||||
2019 | 2018 | 2017 | |||||||||
Target Allocation | Percentage of Plan Assets at Year End | ||||||||||
Asset Category: | |||||||||||
Equity Securities | 15% | - | 20% | 16% | 16% | ||||||
Debt and Debt Securities | 35% | - | 45% | 35% | 32% | ||||||
Other | 40% | - | 50% | 49% | 52% | ||||||
| 100% | 100% | 100% | |||||||||
Fair Value Measurements of Plan Assets
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure estimated fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under applicable accounting standards are described below:
|
| ||
|
| ||
| |||
| |||
| |||
| |||
|
| ||
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
| FISCAL YEAR | |||||||
| 2020 | 2019 | 2018 | |||||
| Target Allocation | Percentage of Plan Assets at Year End | ||||||
| Asset Category: | |||||||
| Equity Securities | 15% | — | 20% | 3% | 16% | ||
| Debt and Debt Securities | 35% | — | 45% | 61% | 44% | ||
| Short-term investments | —% | — | —% | 1% | 3% | ||
| Other investments | 40% | — | 50% | 35% | 37% | ||
| 100% | 100% | 100% | |||||
Pension Plan Assets by Category as of December 30, 2018 | ||||||||||||
Dutch Plan | UK Plan | Total | ||||||||||
| (in thousands) | ||||||||||||
Level 1 | $ | 0 | $ | 79,146 | $ | 79,146 | ||||||
Level 2 | 0 | 60,913 | 60,913 | |||||||||
Level 3 | 90,323 | 18,931 | 109,254 | |||||||||
Total | $ | 90,323 | $ | 158,990 | $ | 249,313 | ||||||
Pension Plan Assets by Category as of December 31, 2017 | ||||||||||||
Dutch Plan | UK Plan | Total | ||||||||||
(in thousands) | ||||||||||||
Level 1 | $ | 0 | $ | 87,521 | $ | 87,521 | ||||||
Level 2 | 0 | 68,668 | 68,668 | |||||||||
Level 3 | 127,844 | 23,133 | 150,977 | |||||||||
Total | $ | 127,844 | $ | 179,322 | $ | 307,166 | ||||||
| Pension Plan Assets by Category as of December 29, 2019 | |||||||||||
| Dutch Plan | UK Plan | Total | |||||||||
| (in thousands) | |||||||||||
| Level 1 | $ | — | $ | 64,151 | $ | 64,151 | |||||
| Level 2 | — | 87,047 | 87,047 | ||||||||
| Level 3 | 92,294 | 22,958 | 115,252 | ||||||||
| Total | $ | 92,294 | $ | 174,156 | $ | 266,450 | |||||
| Pension Plan Assets by Category as of December 30, 2018 | |||||||||||
| Dutch Plan | UK Plan | Total | |||||||||
| (in thousands) | |||||||||||
| Level 1 | $ | — | $ | 79,146 | $ | 79,146 | |||||
| Level 2 | — | 60,913 | 60,913 | ||||||||
| Level 3 | 90,323 | 18,931 | 109,254 | ||||||||
| Total | $ | 90,323 | $ | 158,990 | $ | 249,313 | |||||
2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
(in thousands) | ||||||||||||
Asset Class | ||||||||||||
Equity Securities | $ | 39,392 | $ | 0 | $ | 0 | ||||||
Debt and Debt Securities | 33,134 | 38,619 | 16,012 | |||||||||
Other (including cash) | 6,620 | 22,294 | 93,242 | |||||||||
| $ | 79,146 | $ | 60,913 | $ | 109,254 | |||||||
2017 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
(in thousands) | ||||||||||||
Asset Class | ||||||||||||
Equity Securities | $ | 48,285 | $ | 0 | $ | 0 | ||||||
Debt and Debt Securities | 36,780 | 41,381 | 19,883 | |||||||||
Other (including cash) | 2,456 | 27,287 | 131,094 | |||||||||
| $ | 87,521 | $ | 68,668 | $ | 150,977 | |||||||
| FISCAL YEAR 2019 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| (in thousands) | |||||||||||
| Asset Class | |||||||||||
| Equity Securities | $ | 8,143 | $ | — | $ | — | |||||
| Debt and Debt Securities | 54,686 | 87,047 | 19,996 | ||||||||
Short-term investments (1) | 1,322 | — | — | ||||||||
Other investments (2) | — | — | 95,256 | ||||||||
| $ | 64,151 | $ | 87,047 | $ | 115,252 | ||||||
| FISCAL YEAR 2018 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| (in thousands) | |||||||||||
| Asset Class | |||||||||||
| Equity Securities | $ | 39,392 | $ | — | $ | — | |||||
| Debt and Debt Securities | 33,134 | 60,913 | 16,012 | ||||||||
Short-term Investments (1) | 6,620 | — | — | ||||||||
Other Investments (2) | — | — | 93,242 | ||||||||
| $ | 79,146 | $ | 60,913 | $ | 109,254 | ||||||
2018 | 2017 | |||||||
(in thousands) | (in thousands) | |||||||
Balance of level 3 assets, beginning of year | $ | 150,977 | $ | 127,953 | ||||
Interest cost | 1,682 | 2,633 | ||||||
Benefits paid | (4,090 | ) | (3,728 | ) | ||||
Assets transferred in to (out of) Level 3 | 696 | (2,089 | ) | |||||
Actuarial gain (loss) | (35,202 | ) | 8,753 | |||||
Translation adjustment | (4,809 | ) | 17,455 | |||||
Ending Balance of level 3 assets | $ | 109,254 | $ | 150,977 | ||||
| FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Balance of level 3 assets, beginning of year | $ | 109,254 | $ | 150,977 | |||
| Actual return on plan assets | 5,463 | (37,610 | ) | ||||
| Purchases, sales and settlements, net | 663 | — | |||||
| Assets transferred into level 3 | 2,101 | 696 | |||||
| Translation adjustment | (2,229 | ) | (4,809 | ) | |||
| Ending Balance of level 3 assets | $ | 115,252 | $ | 109,254 | |||
FISCAL YEAR | EXPECTED PAYMENTS | ||||
(in thousands) | |||||
2019 | $ | 9,762 | |||
2020 | 9,989 | ||||
2021 | 10,251 | ||||
2022 | 10,356 | ||||
2023 | 10,635 | ||||
| 2024-2028 | 55,231 | ||||
| FISCAL YEAR | EXPECTED PAYMENTS | ||
| (in thousands) | |||
| 2020 | $ | 10,671 | |
| 2021 | 10,772 | ||
| 2022 | 10,836 | ||
| 2023 | 11,068 | ||
| 2024 | 11,292 | ||
| 2025-2029 | 58,556 | ||
FISCAL YEAR | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Change in benefit obligation | ||||||||
Benefit obligation, beginning of year | $ | 31,919 | $ | 29,700 | ||||
Interest cost | 1,082 | 1,256 | ||||||
Benefits paid | (2,030 | ) | (1,943 | ) | ||||
Actuarial loss (gain) | (1,829 | ) | 2,906 | |||||
Benefit obligation, end of year | $ | 29,142 | $ | 31,919 | ||||
| FISCAL YEAR | |||||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Change in benefit obligation | |||||||
| Benefit obligation, beginning of year | $ | 29,142 | $ | 31,919 | |||
| Interest cost | 1,154 | 1,082 | |||||
| Benefits paid | (2,030 | ) | (2,030 | ) | |||
| Actuarial loss (gain) | 3,474 | (1,829 | ) | ||||
| Benefit obligation, end of year | $ | 31,740 | $ | 29,142 | |||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Current liabilities | $ | 2,030 | $ | 2,030 | ||||
Non-current liabilities | 27,112 | 29,889 | ||||||
Total benefit obligation | $ | 29,142 | $ | 31,919 | ||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Current liabilities | $ | 2,030 | $ | 2,030 | |||
| Non-current liabilities | 29,710 | 27,112 | |||||
| Total benefit obligation | $ | 31,740 | $ | 29,142 | |||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Unrecognized actuarial loss | $ | 6,906 | $ | 8,582 | ||||
| 2019 | 2018 | ||||||
| (in thousands) | |||||||
| Unrecognized actuarial loss | $ | 9,139 | $ | 6,906 | |||
2018 | 2017 | 2016 | 2019 | 2018 | 2017 | ||||||||||||||||||
(in thousands, except for assumptions) | (in thousands, except for assumptions) | ||||||||||||||||||||||
Assumptions used to determine net periodic benefit cost | |||||||||||||||||||||||
Discount rate | 3.50 | % | 3.85 | % | 4.25 | % | 4.10 | % | 3.50 | % | 3.85 | % | |||||||||||
Rate of compensation | - | - | 4.0 | % | — | — | — | ||||||||||||||||
Assumptions used to determine benefit obligations | |||||||||||||||||||||||
Discount rate | 4.1 | % | 3.5 | % | 3.85 | % | 3.05 | % | 4.10 | % | 3.50 | % | |||||||||||
Rate of compensation | - | - | 4.0 | % | — | — | — | ||||||||||||||||
Components of net periodic benefit cost | |||||||||||||||||||||||
Service cost | $ | 0 | $ | 0 | $ | 440 | $ | — | $ | — | $ | — | |||||||||||
Interest cost | 1,082 | 1,256 | 1,269 | 1,154 | 1,082 | 1,256 | |||||||||||||||||
Amortizations | 464 | 364 | 811 | 375 | 464 | 364 | |||||||||||||||||
Net periodic benefit cost | $ | 1,546 | $ | 1,620 | $ | 2,520 | $ | 1,529 | $ | 1,546 | $ | 1,620 | |||||||||||
FISCAL YEAR | EXPECTED PAYMENTS | |||
(in thousands) | ||||
2019 | $ 2,030 | |||
2020 | 2,030 | |||
2021 | 2,030 | |||
2022 | 2,030 | |||
2023 | 2,030 | |||
| 2024-2028 | 9,791 |
| FISCAL YEAR | EXPECTED PAYMENTS | ||
| (in thousands) | |||
| 2020 | $ | 2,030 | |
| 2021 | 2,030 | ||
| 2022 | 2,030 | ||
| 2023 | 2,030 | ||
| 2024 | 2,030 | ||
| 2025-2029 | 9,624 | ||
On August 7, 2018, the Company completed the acquisition of nora for a purchase price of €385.1 million, or $447.2 million at the exchange rate as of the transaction date, including acquired cash of €40.0 million ($46.5 million) for a net purchase price of €345.1 million ($400.7 million).
now final and include all measurement period adjustments.
| As of August 7th, 2018 | ||||
| (In thousands) | ||||
| Assets acquired (excluding goodwill) | $ | 359,335 | ||
| Liabilities assumed | (96,868 | ) | ||
| Net assets acquired | 262,467 | |||
| Purchase price | 447,192 | |||
| Goodwill, excess of purchase price | $ | 184,725 | ||
| As of August 7, 2018 | |||
| (In thousands) | |||
| Assets acquired (excluding goodwill) | $ | 359,335 | |
| Liabilities assumed | (114,049 | ) | |
| Net assets acquired | 245,286 | ||
| Purchase price | 447,192 | ||
| Goodwill, excess of purchase price | $ | 201,906 | |
The fair value of acquired accounts receivable was $31.0 million with the gross value being $32.8 million. The Company expects approximately $1.8 million to be uncollectible.
The amounts of revenue and net loss of nora included in the Company’s consolidated statements of operations from the acquisition date to December 30, 2018 are as follows (in thousands):
| Revenue | $ | 112,563 | ||
| Net loss | (20,030 | ) |
The following represents the pro forma consolidated statement of operations as if nora had been included in the consolidated results of the Company as of January 1, 2017. These are estimated for pro forma purposes only and do not necessarily reflect the results had nora been included as of the beginning of 2018 and 2017.
| Pro Forma Consolidated Statement of Operations | |||||||
| (In thousands) | |||||||
| 2018 | 2017 | ||||||
| Revenue | $ | 1,340,449 | $ | 1,229,766 | |||
| Net income | 96,909 | 48,655 | |||||
Based on applicable accounting standards, the
AMERICAS |
EUROPE | ASIA- PACIFIC | TOTAL | |||||||||||||
(in thousands) | ||||||||||||||||
2018 | ||||||||||||||||
Net Sales | $ | 682,261 | $ | 319,677 | $ | 177,635 | $ | 1,179,573 | ||||||||
Depreciation and amortization | 13,732 | 12,862 | 8,567 | 35,161 | ||||||||||||
Total assets | 482,510 | 546,758 | 200,684 | 1,229,952 | ||||||||||||
2017 | ||||||||||||||||
Net Sales | $ | 588,052 | $ | 246,399 | $ | 161,992 | $ | 996,443 | ||||||||
Depreciation and amortization | 13,548 | 6,049 | 8,662 | 28,259 | ||||||||||||
Total assets | 272,883 | 253,519 | 193,555 | 719,957 | ||||||||||||
2016 | ||||||||||||||||
Net Sales | $ | 568,138 | $ | 241,463 | $ | 149,016 | $ | 958,617 | ||||||||
Depreciation and amortization | 14,639 | 5,698 | 8,729 | 29,066 | ||||||||||||
| AMERICAS | EUROPE | ASIA- PACIFIC | TOTAL | ||||||||||||
| (in thousands) | |||||||||||||||
| 2019 | |||||||||||||||
| Net Sales | $ | 757,112 | $ | 393,194 | $ | 192,723 | $ | 1,343,029 | |||||||
| Depreciation and amortization | 12,917 | 18,452 | 8,302 | 39,671 | |||||||||||
| Total assets | 728,683 | 618,375 | 200,251 | 1,547,309 | |||||||||||
| 2018 | |||||||||||||||
| Net Sales | $ | 682,261 | $ | 319,677 | $ | 177,635 | $ | 1,179,573 | |||||||
| Depreciation and amortization | 13,732 | 12,862 | 8,567 | 35,161 | |||||||||||
| Total assets | 482,510 | 546,758 | 200,684 | 1,229,952 | |||||||||||
| 2017 | |||||||||||||||
| Net Sales | $ | 588,052 | $ | 246,399 | $ | 161,992 | $ | 996,443 | |||||||
| Depreciation and amortization | 13,548 | 6,049 | 8,662 | 28,259 | |||||||||||
FISCAL YEAR ENDED | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
DEPRECIATION AND AMORTIZATION | ||||||||||||
Total segment depreciation and amortization | $ | 35,161 | $ | 28,259 | $ | 29,066 | ||||||
Corporate depreciation and amortization | 3,923 | 2,002 | 1,566 | |||||||||
Reported depreciation and amortization | $ | 39,084 | $ | 30,261 | $ | 30,632 | ||||||
ASSETS | ||||||||||||
Total segment assets | $ | 1,229,952 | $ | 719,957 | ||||||||
Corporate assets and eliminations | 54,692 | 80,643 | ||||||||||
Reported total assets | $ | 1,284,644 | $ | 800,600 | ||||||||
| FISCAL YEAR ENDED | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (in thousands) | |||||||||||
| DEPRECIATION AND AMORTIZATION | |||||||||||
| Total segment depreciation and amortization | $ | 39,671 | $ | 35,161 | $ | 28,259 | |||||
| Corporate depreciation and amortization | 5,261 | 3,923 | 2,002 | ||||||||
| Reported depreciation and amortization | $ | 44,932 | $ | 39,084 | $ | 30,261 | |||||
| ASSETS | |||||||||||
| Total segment assets | $ | 1,547,309 | $ | 1,229,952 | |||||||
| Corporate assets | 141,942 | 123,100 | �� | ||||||||
| Eliminations | (266,202 | ) | (68,408 | ) | |||||||
| Reported total assets | $ | 1,423,049 | $ | 1,284,644 | |||||||
FISCAL YEAR | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(in thousands) | ||||||||||||
SALES TO UNAFFILIATED CUSTOMERS(1) | ||||||||||||
United States | $ | 600,093 | $ | 514,783 | $ | 501,206 | ||||||
United Kingdom | 65,406 | 57,391 | 58,266 | |||||||||
Australia | 83,034 | 87,591 | 78,141 | |||||||||
Germany | 75,958 | 36,696 | 30,968 | |||||||||
China | 43,708 | 28,279 | 31,340 | |||||||||
Other foreign countries | 311,374 | 271,703 | 258,696 | |||||||||
Net sales | $ | 1,179,573 | $ | 996,443 | $ | 958,617 | ||||||
LONG-LIVED ASSETS(2) | ||||||||||||
United States | $ | 88,336 | $ | 76,557 | ||||||||
United Kingdom | 6,288 | 7,902 | ||||||||||
Netherlands | 49,935 | 55,132 | ||||||||||
Germany | 83,874 | 0 | ||||||||||
Australia | 38,928 | 45,067 | ||||||||||
Thailand | 15,124 | 16,543 | ||||||||||
China | 6,703 | 8,361 | ||||||||||
Other foreign countries | 3,700 | 3,083 | ||||||||||
Total long-lived assets | $ | 292,888 | $ | 212,645 | ||||||||
NOTE FISCAL YEAR 2018 FIRST QUARTER SECOND QUARTER(1) THIRD QUARTER(2) FOURTH QUARTER(3) (in thousands, except per share data) Net sales Gross profit Net income (loss) Basic income per share Diluted income per share Share prices High Low Results for the third quarter of 2018 include purchase Results for the fourth quarter of 2018 include tax benefit of $6.7 million as a result of the finalization of the Company’s analysis of the U.S. Tax Cuts and Jobs Act, as well as restructuring and asset impairment charges of $20.5 million. Results for the fourth quarter of 2018 include purchase FISCAL YEAR 2017 FIRST QUARTER(1) SECOND QUARTER THIRD QUARTER FOURTH QUARTER(2) (in thousands, except per share data) Net sales Gross profit Net income Basic income per share Diluted income per share Share prices High Low NOTE Notes to Consolidated Financial Statements 10.17 10.18 10.19 10.20 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document COLUMN A BALANCE, AT BEGINNING OF YEAR COLUMN B CHARGED TO COSTS AND EXPENSES (A) COLUMN C CHARGED TO OTHER ACCOUNTS COLUMN D DEDUCTIONS (DESCRIBE) (B) COLUMN E BALANCE, AT END OF YEAR (in thousands) Allowance for Doubtful Accounts: Year Ended: December 30, 2018 December 31, 2017 January 1, 2017 COLUMN A BALANCE, AT BEGINNING OF YEAR COLUMN B CHARGED TO COSTS AND EXPENSES (A) COLUMN C CHARGED TO OTHER ACCOUNTS(B) COLUMN D DEDUCTIONS (DESCRIBE) (C) COLUMN E BALANCE, AT END OF YEAR (in thousands) Restructuring Reserve: Year Ended: December 30, 2018 December 31, 2017 January 1, 2017 COLUMN A BALANCE, AT BEGINNING OF YEAR COLUMN B CHARGED TO COSTS AND EXPENSES (A) COLUMN C CHARGED TO OTHER ACCOUNTS COLUMN D DEDUCTIONS (DESCRIBE) (B) COLUMN E BALANCE, AT END OF YEAR (in thousands) Warranty and Sales Allowances Reserves : Year ended: December 30, 2018 December 31, 2017 January 1, 2017 INTERFACE, INC. By: President and Chief Executive Officer Capacity Date /s/ DANIEL T. HENDRIX President, Chief Executive Officer and Chairman of the Board and Director February Daniel T. Hendrix /s/ Vice President and Chief February (Principal /s/ February John P. Burke /s/ ANDREW B. COGAN Director February Andrew B. Cogan /s/ Director February /s/ Director February /s/ Director February /s/ Director February /s/ Director February /s/ JAMES B. MILLER, JR. Director February Sheryl D. Palmer FISCAL YEAR 2019 2018 2017 (in thousands) SALES TO UNAFFILIATED CUSTOMERS(1) United States $ 681,868 $ 600,093 $ 514,783 Foreign countries 661,161 579,480 481,660 Net sales $ 1,343,029 $ 1,179,573 $ 996,443 LONG-LIVED ASSETS(2) United States $ 132,390 $ 88,336 Foreign countries 192,195 204,552 Total long-lived assets $ 324,585 $ 292,888 (1)Revenue attributed to geographic areas is based on the location of the customer.(2)Long-lived assets include tangible assets physically located in foreign countries.71932021 –QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)The following tables set forth, for the fiscal periods indicated, selected consolidated financial data and information regarding the market price per share of the Company’s Common Stock. The prices represent the reported high and low sale prices during the period presented. $ 240,563 $ 283,626 $ 318,325 $ 337,059 93,582 109,148 99,945 121,682 15,084 20,602 8,172 6,395 $ 0.25 $ 0.35 $ 0.14 $ 0.11 $ 0.25 $ 0.35 $ 0.14 $ 0.11 $ 26.25 $ 26.10 $ 24.50 $ 23.50 $ 22.10 $ 21.25 $ 21.70 $ 13.45 FISCAL YEAR 2019 FIRSTQUARTER(1) SECONDQUARTER(2) THIRDQUARTER(3) FOURTHQUARTER(4) (in thousands, except per share data) Net sales $ 297,688 $ 357,507 $ 348,352 $ 339,482 Gross profit 115,398 138,590 135,762 135,704 Net income 7,059 29,499 26,210 16,432 Basic income per share $ 0.12 $ 0.50 $ 0.45 $ 0.28 Diluted income per share $ 0.12 $ 0.50 $ 0.45 $ 0.28 Share prices High $ 19.40 $ 17.22 $ 15.84 $ 17.68 Low $ 13.87 $ 14.30 $ 10.37 $ 13.32 (1)(1) Results for the first quarter of 2019 include purchase accounting amortization of $1.9 million. (2) Results for the second quarter of 2019 include purchase accounting amortization of $1.3 million. (3) Results for the third quarter of 2019 include purchase accounting amortization of $1.3 million and restructuring and other charges of $0.7 million. (4) Results for the fourth quarter of 2019 include purchase accounting amortization of $1.3 million and restructuring and other charges of $12.3 million. FISCAL YEAR 2018 FIRSTQUARTER SECONDQUARTER(1) THIRDQUARTER(2) FOURTHQUARTER(3) (in thousands, except per share data) Net sales $ 240,563 $ 283,626 $ 318,325 $ 337,059 Gross profit 93,582 109,148 99,945 121,682 Net income 15,084 20,602 8,172 6,395 Basic income per share $ 0.25 $ 0.35 $ 0.14 $ 0.11 Diluted income per share $ 0.25 $ 0.35 $ 0.14 $ 0.11 Share prices High $ 26.25 $ 26.10 $ 24.50 $ 23.50 Low $ 22.10 $ 21.25 $ 21.70 $ 13.45 (1) Results for the second quarter of 2018 include transaction related expenses of $5.8 million. (2) price accounting amortization of $20.3 million and transaction related expenses of $2.4 million.(3) price accounting amortization of $11.8 million and transaction related expense of $1.2 million. $ 221,102 $ 251,700 $ 257,431 $ 266,210 87,802 97,897 98,544 101,778 8,547 20,938 19,439 4,322 $ 0.13 $ 0.33 $ 0.32 $ 0.07 $ 0.13 $ 0.33 $ 0.32 $ 0.07 $ 19.93 $ 21.05 $ 22.60 $ 25.70 $ 17.18 $ 18.15 $ 18.30 $ 21.21 (1)Results for the first quarter of 2017 include restructuring and asset impairment charges of $7.3 million.(2)Results for the fourth quarter of 2017 include tax charges of $15.2 million as a result of the U.S. Tax Cuts and Jobs Act.72942122 –ITEMS RECLASSIFIED FROM OTHER COMPREHENSIVE INCOMEDuring 2019, 2018, and 2017, the Company did not reclassify any significant amountsreclassified $1.0 million, $1.8 million, and $1.6 million, respectively, out of accumulated other comprehensive income. The only significant reclassifications that occurred in that period were comprised of $1.8 millionincome related to the Company’s defined benefit retirement benefit plans and salary continuation plan. These reclassifications were included in the selling, general and administrative expenses line item of the Company’s consolidated statement of operations. Other reclassifications out of accumulated other comprehensive income related to currency forward contracts are discussed in Note 10 entitled “Derivative Instruments”.NOTE 23 – SUBSEQUENT EVENTSOn January 19, 2020, the Company’s Board of Directors voted to terminate for cause the employment of then President and Chief Executive Officer, Jay Gould. As of December 29, 2019, the Company had accrued compensation expense for bonuses and equity awards to this individual. Because the termination was for cause, the Company is not obligated to pay these amounts, and the Company consequently expects to reverse $4.4 million in accrued expenses related to these obligations in the first quarter of 2020.As disclosed in Note 17, subsequent to his termination, the former officer filed a lawsuit against the Company alleging, among other things, that the termination was unlawfully retaliatory and constituted a breach of his employment contract, and that the Company defamed him in connection with the termination.7395Report of Independent Registered Public Accounting FirmShareholders and Board of DirectorsInterface, Inc. and SubsidiariesAtlanta, GeorgiaOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Interface, Inc. and Subsidiaries (the “Company”) as of December 30, 201829, 2019 and December 31, 2017,30, 2018, the related consolidated statements of operations, comprehensive income, and cash flows for each of the three years in the period ended December 30, 2018,29, 2019, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2019 and subsidiaries at December 30, 2018, and December 31, 2017, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 30, 2018,29, 2019, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 30, 2018,29, 2019, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 28, 201926, 2020 expressed an unqualified opinion thereon.Change in Accounting PrincipleAs discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended December 29, 2019 due to the adoption of the Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”).Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit MatterThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.Goodwill Impairment AssessmentAs described in Note 1, the Company’s net consolidated goodwill was $257.4 million as of December 29, 2019, which is tested for impairment annually or when impairment indicators exist. The Company prepared valuations of its reporting units using both a market approach and an income approach. The determination of the fair value of the reporting units requires management to make significant estimates and assumptions related to forecasts of future revenue, operating margins, and discount rates.We identified the valuation of certain reporting units during the annual impairment assessment of goodwill as a critical audit matter. The principal considerations for our determination are: (i) certain of the Company’s reporting units had relatively lower excess fair value over book value and, as such, are more sensitive to management’s estimates, (ii) inherent uncertainties exist related to the Company’s forecasts and how various political, economic and other uncertainties could affect the Company’s forecasted assumptions of revenue, gross margin, and earnings included in the income approach, and (iii) the general downward trend in certain market multiples of guideline public companies as of the 2019 impairment testing date which resulted in a lower valuation based on the market approach analysis. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.The primary procedures we performed to address this critical audit matter included:Testing the design and operating effectiveness of controls related to management’s forecasting process, including controls over the data, inputs, and assumptions utilized to determine the fair value of the Company’s reporting units, including revenue growth rates, gross margin, and earnings.Evaluating the reasonableness of assumptions used in management’s income approach analysis by comparing the forecasts to: (i) historical results, and (ii) Company’s internal communications to management and the Board of Directors.Reconciling the estimated fair value of the Company’s reporting units, as determined using the market and the income approaches, to the indicated market capitalization of the Company as a whole.Utilizing personnel with specialized knowledge and skill in valuation to assist in: (i) testing the underlying source information utilized in the market approach, (ii) assessing the appropriateness and relative weighting of valuation methods, (iii) testing the mathematical accuracy of the Company’s calculations, (iv) evaluating the reasonableness of the discount rate used in the income approach, and (v) evaluating the reasonableness of certain assumptions used in the market approach./s/ BDO USA, LLPWe are uncertain as to the year we began serving consecutively as the auditor of the Company's financial statements; however, we are aware that we have been the Company's auditor consecutively since at least 1981.Atlanta, GeorgiaFebruary 28, 201926, 20207497Report of Independent Registered Public Accounting FirmShareholders and Board of DirectorsInterface, Inc. and SubsidiariesAtlanta, GeorgiaOpinion on Internal Control over Financial ReportingWe have audited Interface, Inc. and Subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 30, 2018,29, 2019, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2018,29, 2019, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 30, 201829, 2019 and December 31, 2017,30, 2018, the related consolidated statements of operations, comprehensive income, and cash flows for each of the three years in the period ended December 30, 2018,29, 2019, and the related notes and schedule,schedules and our report dated February 28, 201926, 2020 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.As indicated in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of nora Holding GmbH (nora), which was acquired on August 7, 2018, and which is included in the consolidated balance sheet of the Company as of December 30, 2018, and the related consolidated statements of operations, comprehensive income, and cash flows for the year then ended. Nora constituted 23% of consolidated total assets as of December 30, 2018, and 9% of consolidated revenues for the year ended December 30, 2018. Management did not assess the effectiveness of internal control over financial reporting of nora because of the timing of the acquisition, which was completed on August 7, 2018. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of nora.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ BDO USA, LLPAtlanta, GeorgiaFebruary 28, 201926, 20207598CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.CONTROLS AND PROCEDURESITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls andProcedures. As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, pursuant to Rule 13a-14(c) under the Act. Based on that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report.Changes in Internal Control over Financial Reporting.There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Management’s Annual Report on Internal Control over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.U.S. Securities and Exchange Commission guidance allows companies to exclude acquisitions from management’s report on internal control over financial reporting for the first year after the acquisition when it is not possible to conduct an assessment. In August 2018, Interface, Inc. completed the acquisition of nora Holding GmbH (nora). Nora is a wholly owned subsidiary. Due to nora’s global operations, management has excluded nora from the annual assessment of the effectiveness of internal control over financial reporting as of December 30, 2018. Nora represents 23 percent of consolidated total assets and 9 percent of consolidated revenues of Interface, Inc. as of and for the year ended December 30, 2018.Our management assessed the effectiveness of our internal control over financial reporting as of December 30, 201829, 2019 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework (2013).” Based on that assessment, management concluded that, as of December 30, 2018,29, 2019, our internal control over financial reporting was effective based on those criteria.Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report immediately precedes Item 9 of this Report.OTHER INFORMATIONITEM 9B. OTHER INFORMATIONNonePART III DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information contained under the captions “Nomination and Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Meetings and Committees of the Board” in our definitive Proxy Statement for our 20192020 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 20182019 fiscal year, is incorporated herein by reference. Pursuant to Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K, information relating to our executive officers is included in Item 1 of this Report.We have adopted the “Interface Code of Business Conduct and Ethics” (the “Code”) which applies to all of our employees, officers and directors, including the Chief Executive Officer and Chief Financial Officer. The Code may be viewed on our website at www.interface.com. Changes to the Code will be posted on our website. Any waiver of the Code for executive officers or directors may be made only by our Board of Directors and will be disclosed to the extent required by law or Nasdaq rules on our website or in a filing on Form 8-K.EXECUTIVE COMPENSATIONITEM 11. EXECUTIVE COMPENSATIONThe information contained under the captions “Executive Compensation and Related Items,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” and “Potential Payments upon Termination or Change in Control” in our definitive Proxy Statement for our 20192020 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 20182019 fiscal year, is incorporated herein by reference.99SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information contained under the captions “Principal Shareholders and Management Stock Ownership” and “Equity Compensation Plan Information” in our definitive Proxy Statement for our 20192020 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 20182019 fiscal year, is incorporated herein by reference.For purposes of determining the aggregate market value of our voting and non-voting stock held by non-affiliates, shares held by our directors and executive officers have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” as that term is defined under federal securities laws.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information contained under the captions “Certain Relationships and Related Transactions” and “Director Independence” in our definitive Proxy Statement for our 20192020 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 20182019 fiscal year, is incorporated herein by reference.PRINCIPAL ACCOUNTANT FEES AND SERVICESITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information contained under the captions “Audit and Non-Audit Fees” and “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors” in our definitive Proxy Statement for our 20192020 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 20182019 fiscal year, is incorporated herein by reference.PART IVEXHIBITS AND FINANCIAL STATEMENT SCHEDULESITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES1. Financial StatementsThe following Consolidated Financial Statements and Notes thereto of Interface, Inc. and subsidiaries and related Reports of Independent Registered Public Accounting Firm are contained in Item 8 of this Report:Consolidated Statements of Operations and Comprehensive Income — fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017.Consolidated Balance Sheets —29, 2019, December 30, 2018 and December 31, 2017.Consolidated Balance Sheets — December 29, 2019 and December 30, 2018.Consolidated Statements of Cash Flows — fiscal years ended December 29, 2019, December 30, 2018 and December 31, 2017 and January 1, 2017.77Report of Independent Registered Public Accounting FirmReport of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting2. Financial Statement ScheduleThe following Consolidated Financial Statement Schedule of Interface, Inc. and subsidiaries is included as part of this Report (see the pages immediately preceding the signatures in this Report).Schedule II — Valuation and Qualifying Accounts and Reserves3. ExhibitsThe following exhibits are included as part of this Report:10.16—10.16 ————10.21—10.22—10.23—10.24—21————29, 2019. —29, 2019. — 29, 2019. — 29, 2019. — — — — — — 104 The cover page from this Annual Report on Form 10-K for the year ended December 29, 2019, formatted in Inline XBRL __________*Management contract or compensatory plan or agreement required to be filed pursuant to Item 15(b) of this Report.80103FORM 10-K SUMMARYNone. INTERFACE,None.INTERFACE, INC. AND SUBSIDIARIESSCHEDULE II–VALUATION AND QUALIFYING ACCOUNTS AND RESERVES $ 3,493 $ 1,848 $ 0 $ 1,801 $ 3,540 3,780 635 0 922 3,493 4,479 (243 ) 0 456 3,780 ______________ COLUMN ABALANCE, ATBEGINNINGOF YEAR COLUMN BCHARGED TOCOSTS ANDEXPENSES (A) COLUMN CCHARGED TOOTHERACCOUNTS COLUMN D DEDUCTIONS(DESCRIBE) (B) COLUMN E BALANCE, ATEND OF YEAR (in thousands) Allowance for Doubtful Accounts: Year Ended: December 29, 2019 $ 3,540 $ 881 $ — $ 628 $ 3,793 December 30, 2018 3,493 1,848 — 1,801 3,540 December 31, 2017 3,780 635 — 922 3,493 (A)Includes changes in foreign currency exchange rates as well as the addition of the nora reserves since the acquisition date.(B)Write off of bad debt, and recovering of previously provided for amounts. $ 2,568 $ 11,961 $ 8,569 $ 2,622 $ 11,907 10,291 3,999 3,300 3,724 2,568 104 11,769 8,019 1,582 10,291 ______________ COLUMN ABALANCE, ATBEGINNINGOF YEAR COLUMN BCHARGED TOCOSTS ANDEXPENSES (A) COLUMN CCHARGED TOOTHERACCOUNTS(B) COLUMN D DEDUCTIONS(DESCRIBE) (C) COLUMN E BALANCE, ATEND OF YEAR (in thousands) Restructuring Reserve: Year Ended: December 29, 2019 $ 11,907 $ 7,944 $ 49 $ 8,357 $ 11,445 December 30, 2018 2,568 11,961 8,569 2,622 11,907 December 31, 2017 10,291 3,999 3,300 3,724 2,568 (A)Includes changes in foreign currency exchange rates as well as the nora reserves since the acquisition date.(B)Direct reduction of asset carrying value, not included in restructuring reserve.(C)Cash payments. COLUMN ABALANCE, ATBEGINNINGOF YEAR COLUMN BCHARGED TOCOSTS ANDEXPENSES (A) COLUMN CCHARGEDTO OTHERACCOUNTS COLUMN D DEDUCTIONS(DESCRIBE) (B) COLUMN E BALANCE, ATEND OF YEAR (in thousands) December 29, 2019 $ 3,495 $ 1,519 $ — $ 1,161 $ 3,853 $ 4,111 $ 1,074 $ 0 $ 1,690 $ 3,495 4,111 1,074 — 1,690 3,495 5,529 2,071 0 3,489 4,111 5,529 2,071 — 3,489 4,111 4,759 3,149 0 2,379 5,529 ______________ (A)Includes changes in foreign currency exchange rates as well as the nora reserves since the acquisition date.(B)Represents credits and costs applied against reserve and adjustments to reflect actual exposure. (All(All other Schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange Commission are omitted because they are either not applicable or the required information is shown in the Company'sCompany’s Consolidated Financial Statements or the Notes thereto.)83105SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.Date: February 28, 201926, 2020 /s/JAYD. GOULD DANIEL T. HENDRIX Jay D. Gould POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel T. Hendrix as attorney-in-fact, with power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.Signature 28, 2019 JAY D. GOULD ExecutiveFinancial Officer and Director 28, 2019Jay D. Gould ExecutiveFinancial Officer) BRUCE A. HAUSMANN Vice President and Chief Financial Officer 28, 2019Bruce A. Hausmann(Principal Financial Officer)/s/ GREGORY J. BAUERVice President and Chief Accounting OfficerFebruary 28, 2019Gregory J. Bauer(Principal Accounting Officer)/s/ JOHN P. BURKEDirectorFebruary 28, 2019 28, 2019 CHRISTOPHER G. KENNEDY 28, 2019Christopher G. KennedyDirector February 26, 2020 Jay D. Gould CATHERINE M. KILBANE 28, 2019Catherine M. Kilbane K. DAVID KOHLER 28, 2019K. David Kohler ERIN A. MATTS 28, 2019Erin A. Matts JAMES B. MILLER, JR. 28, 2019James B. Miller, Jr. Director February 26, 2020 James B. Miller, Jr. /s/ SHERYL D. PALMER 28, 2019 
85