UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For Quarterly Period Ended OctoberJuly 2, 20162017
Commission File Number 001-33994
INTERFACE, INC.
(Exact name of registrant as specified in its charter)
GEORGIA | 58-1451243 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) |
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2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339
(Address of principal executive offices and zip code)
(770) 437-6800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☑ | Accelerated filer ☐ | Non-accelerated filer ☐ Emerging Growth Company ☐ | Smaller reporting company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
Shares outstanding of each of the registrant’s classes of common stock at November 4, 2016:August 1, 2017:
Class | Number of Shares | |||
Common Stock, $.10 par value per share |
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INTERFACE,, INC.
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PARTPART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
Oct. 2, 2016 | Jan. 3, 2016 | JULY 2, 2017 | JANUARY 1, 2017 | |||||||||||||
(UNAUDITED) | (UNAUDITED) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and Cash Equivalents | $ | 113,729 | $ | 75,696 | $ | 66,783 | $ | 165,672 | ||||||||
Accounts Receivable, net | 128,740 | 130,322 | 136,609 | 126,004 | ||||||||||||
Inventories | 164,199 | 161,174 | 182,808 | 156,083 | ||||||||||||
Prepaid Expenses and Other Current Assets | 22,682 | 22,490 | 24,155 | 23,123 | ||||||||||||
Deferred Income Taxes | 8,935 | 8,726 | ||||||||||||||
TOTAL CURRENT ASSETS | 438,285 | 398,408 | 410,355 | 470,882 | ||||||||||||
PROPERTY AND EQUIPMENT, less accumulated depreciation | 213,574 | 211,489 | 208,725 | 204,508 | ||||||||||||
DEFERRED TAX ASSET | 7,815 | 20,110 | 32,522 | 33,117 | ||||||||||||
GOODWILL | 65,356 | 63,890 | 66,172 | 61,218 | ||||||||||||
OTHER ASSETS | 62,510 | 62,652 | 66,170 | 65,714 | ||||||||||||
TOTAL ASSETS | $ | 787,540 | $ | 756,549 | $ | 783,944 | $ | 835,439 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts Payable | $ | 48,377 | $ | 52,834 | $ | 49,799 | $ | 45,380 | ||||||||
Current Portion of Long-Term Debt | 15,000 | 15,000 | ||||||||||||||
Accrued Expenses | 90,494 | 88,933 | 92,068 | 98,703 | ||||||||||||
Current Portion of Long-Term Debt | 15,000 | 11,250 | ||||||||||||||
TOTAL CURRENT LIABILITIES | 153,871 | 153,017 | 156,867 | 159,083 | ||||||||||||
LONG TERM DEBT | 202,612 | 202,281 | ||||||||||||||
LONG-TERM DEBT | 215,425 | 255,347 | ||||||||||||||
DEFERRED INCOME TAXES | 8,504 | 10,505 | 5,195 | 4,728 | ||||||||||||
OTHER | 45,056 | 48,380 | 74,522 | 75,552 | ||||||||||||
TOTAL LIABILITIES | 410,043 | 414,183 | 452,009 | 494,710 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
SHAREHOLDERS’ EQUITY: | ||||||||||||||||
Preferred Stock | 0 | 0 | 0 | 0 | ||||||||||||
Common Stock | 6,479 | 6,570 | 6,158 | 6,424 | ||||||||||||
Additional Paid-In Capital | 359,063 | 370,327 | 305,331 | 359,451 | ||||||||||||
Retained Earnings | 139,297 | 100,270 | 167,980 | 140,238 | ||||||||||||
Accumulated Other Comprehensive Loss – Foreign Currency Translation Adjustment | (87,684 | ) | (91,511 | ) | ||||||||||||
Accumulated Other Comprehensive Loss – Pension Liability | (39,658 | ) | (43,290 | ) | ||||||||||||
Accumulated Other Comprehensive Income (Loss) – Foreign Currency Translation Adjustment | (89,692 | ) | (110,522 | ) | ||||||||||||
Accumulated Other Comprehensive Income (Loss) – Pension Liability | (57,842 | ) | (54,862 | ) | ||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 377,497 | 342,366 | 331,935 | 340,729 | ||||||||||||
$ | 787,540 | $ | 756,549 | $ | 783,944 | $ | 835,439 |
See accompanying notes to consolidated condensed financial statements.
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED | NINE MONTHS ENDED | THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | JULY 2, 2017 | JULY 3, 2016 | JULY 2, 2017 | JULY 3, 2016 | |||||||||||||||||||||||||
NET SALES | $ | 248,349 | $ | 254,686 | $ | 719,110 | $ | 755,227 | $ | 251,700 | $ | 248,207 | $ | 472,802 | $ | 470,761 | ||||||||||||||||
Cost of Sales | 155,431 | 156,720 | 440,434 | 470,577 | 153,803 | 149,081 | 287,103 | 285,003 | ||||||||||||||||||||||||
GROSS PROFIT ON SALES | 92,918 | 97,966 | 278,676 | 284,650 | 97,897 | 99,126 | 185,699 | 185,758 | ||||||||||||||||||||||||
Selling, General and Administrative Expenses | 67,175 | 66,664 | 200,108 | 198,729 | 64,852 | 67,328 | 130,027 | 132,933 | ||||||||||||||||||||||||
Restructuring and Asset Impairment Charges | 0 | 0 | 7,299 | 0 | ||||||||||||||||||||||||||||
OPERATING INCOME | 25,743 | 31,302 | 78,568 | 85,921 | 33,045 | 31,798 | 48,373 | 52,825 | ||||||||||||||||||||||||
Interest Expense | 1,654 | 1,348 | 4,763 | 5,026 | 1,682 | 1,590 | 3,299 | 3,109 | ||||||||||||||||||||||||
Other Expense | 739 | 657 | 1,072 | 1,483 | ||||||||||||||||||||||||||||
Other Expense (Income) | 232 | (116 | ) | 1,165 | 333 | |||||||||||||||||||||||||||
INCOME BEFORE INCOME TAX EXPENSE | 23,350 | 29,297 | 72,733 | 79,412 | 31,131 | 30,324 | 43,909 | 49,383 | ||||||||||||||||||||||||
Income Tax Expense | 7,446 | 9,170 | 23,278 | 25,241 | 10,193 | 9,667 | 14,424 | 15,832 | ||||||||||||||||||||||||
NET INCOME | $ | 15,904 | $ | 20,127 | $ | 49,455 | $ | 54,171 | $ | 20,938 | $ | 20,657 | $ | 29,485 | $ | 33,551 | ||||||||||||||||
Earnings Per Share – Basic | $ | 0.25 | $ | 0.31 | $ | 0.76 | $ | 0.82 | $ | 0.33 | $ | 0.32 | $ | 0.46 | $ | 0.51 | ||||||||||||||||
Earnings Per Share – Diluted | $ | 0.25 | $ | 0.31 | $ | 0.76 | $ | 0.82 | $ | 0.33 | $ | 0.32 | $ | 0.46 | $ | 0.51 | ||||||||||||||||
Common Shares Outstanding – Basic | 64,805 | 65,854 | 65,285 | 66,091 | 62,789 | 65,367 | 63,432 | 65,526 | ||||||||||||||||||||||||
Common Shares Outstanding – Diluted | 64,842 | 65,907 | 65,322 | 66,139 | 62,832 | 65,405 | 63,474 | 65,564 |
See accompanying notes to consolidated condensed financial statements.
INTERFACE, INC. AND SUBSIDIARIES
CCONSOLIDATED ONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | |||||||||||||
Net Income | $ | 15,904 | $ | 20,127 | $ | 49,455 | $ | 54,171 | ||||||||
Other Comprehensive Income (Loss), Foreign | ||||||||||||||||
Currency Translation Adjustment | 2,759 | (8,408 | ) | 3,827 | (28,647 | ) | ||||||||||
Other Comprehensive Income, Pension Liability Adjustment | 834 | 796 | 3,632 | 1,441 | ||||||||||||
Comprehensive Income | $ | 19,497 | $ | 12,515 | $ | 56,914 | $ | 26,965 |
THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||
JULY 2, 2017 | JULY 3, 2016 | JULY 2, 2017 | JULY 3, 2016 | |||||||||||||
Net Income | $ | 20,938 | $ | 20,657 | $ | 29,485 | $ | 33,551 | ||||||||
Other Comprehensive Income (Loss), ForeignCurrency Translation Adjustment | 9,800 | (8,311 | ) | 20,830 | 1,068 | |||||||||||
Other Comprehensive Income (Loss), Pension Liability Adjustment | (2,048 | ) | 2,190 | (2,980 | ) | 2,798 | ||||||||||
Comprehensive Income | $ | 28,690 | $ | 14,536 | $ | 47,335 | $ | 37,417 |
See accompanying notes to consolidated condensed financial statements.
INTERFACE, INC. AND SUBSIDIARIES
CONCONSOLIDATED SOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
�� | SIX MONTHS ENDED | |||||||||||||||
NINE MONTHS ENDED | ||||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | JULY 2, 2017 | JULY 3, 2016 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net Income | $ | 49,455 | $ | 54,171 | $ | 29,485 | $ | 33,551 | ||||||||
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: | ||||||||||||||||
Depreciation and Amortization | 22,474 | 23,188 | 14,422 | 14,960 | ||||||||||||
Stock Compensation Amortization Expense | 3,390 | 10,928 | 1,821 | 2,349 | ||||||||||||
Deferred Income Taxes and Other | 5,049 | 15,403 | 2,870 | 4,490 | ||||||||||||
Working Capital Changes: | ||||||||||||||||
Accounts Receivable | 1,449 | 17,852 | (6,288 | ) | 1,668 | |||||||||||
Inventories | (454 | ) | (28,670 | ) | (21,087 | ) | (6,169 | ) | ||||||||
Prepaid Expenses and Other Current Assets | (1,008 | ) | (377 | ) | (667 | ) | (574 | ) | ||||||||
Accounts Payable and Accrued Expenses | (6,123 | ) | 196 | 1,389 | (15,731 | ) | ||||||||||
CASH PROVIDED BY OPERATING ACTIVITIES: | 74,232 | 92,691 | 21,945 | 34,544 | ||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Capital Expenditures | (20,912 | ) | (23,734 | ) | (15,352 | ) | (12,752 | ) | ||||||||
Other | 1,140 | (80 | ) | 306 | 1,585 | |||||||||||
CASH USED IN INVESTING ACTIVITIES: | (19,772 | ) | (23,814 | ) | (15,046 | ) | (11,167 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Repayments of Long-Term Debt | (54,675 | ) | (10,000 | ) | ||||||||||||
Borrowing of Long-Term Debt | 20,329 | 0 | 10,000 | 20,167 | ||||||||||||
Repayment of Long-Term Debt | (17,500 | ) | (28,000 | ) | ||||||||||||
Tax withholding payments for share-based compensation | (1,406 | ) | (4,629 | ) | ||||||||||||
Repurchase of Common Stock | (10,443 | ) | (10,469 | ) | (55,667 | ) | (10,443 | ) | ||||||||
Proceeds from Issuance of Common Stock | 0 | 359 | ||||||||||||||
Dividends Paid | (10,429 | ) | (8,592 | ) | (7,575 | ) | (6,547 | ) | ||||||||
CASH USED IN FINANCING ACTIVITIES: | (18,043 | ) | (46,702 | ) | (109,323 | ) | (11,452 | ) | ||||||||
Net Cash Provided By Operating, Investing and | ||||||||||||||||
Financing Activities | 36,417 | 22,175 | ||||||||||||||
Net Cash Provided by (Used in) Operating, Investing andFinancing Activities | (102,424 | ) | 11,925 | |||||||||||||
Effect of Exchange Rate Changes on Cash | 1,616 | (3,339 | ) | 3,535 | 743 | |||||||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||||||
Net Change During the Period | 38,033 | 18,836 | (98,889 | ) | 12,668 | |||||||||||
Balance at Beginning of Period | 75,696 | 54,896 | 165,672 | 75,696 | ||||||||||||
Balance at End of Period | $ | 113,729 | $ | 73,732 | $ | 66,783 | $ | 88,364 |
See accompanying notes to consolidated condensed financial statements.
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATEDCONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 – CONDENSED FOOTNOTES
As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end audited consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended January 3, 2016,1, 2017, as filed with the Commission.
The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The January 3, 20161, 2017, consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The first nine months of 2016 were comprised of 39 weeks, while the first nine months of 2015 were comprised of 40 weeks. Each of the third quarters of 2016 and 2015 were comprised of 13 weeks.
Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2 – INVENTORIES
Inventories are summarized as follows:
Oct. 2, 2016 | Jan. 3, 2016 | July 2, 2017 | January 1, 2017 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Finished Goods | $ | 106,891 | $ | 101,697 | $ | 122,737 | $ | 104,742 | ||||||||
Work in Process | 9,975 | 9,865 | 12,281 | 8,711 | ||||||||||||
Raw Materials | 47,333 | 49,612 | 47,790 | 42,630 | ||||||||||||
$ | 164,199 | $ | 161,174 | $ | 182,808 | $ | 156,083 |
NOTE 3 – EARNINGS PER SHARE
The Company computes basic earnings per share (“EPS”) by dividing net income by the weighted average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings.
The Company includes all unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in our basic and diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following tables show distributed and undistributed earnings:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | |||||||||||||||||||||||||
Earnings Per Share | ||||||||||||||||||||||||||||||||
Earnings Per Share: | ||||||||||||||||||||||||||||||||
Basic Earnings Per Share | ||||||||||||||||||||||||||||||||
Basic Earnings Per Share: | ||||||||||||||||||||||||||||||||
Distributed Earnings | $ | 0.06 | $ | 0.05 | $ | 0.10 | $ | 0.13 | $ | 0.06 | $ | 0.05 | $ | 0.12 | $ | 0.10 | ||||||||||||||||
Undistributed Earnings | 0.19 | 0.26 | 0.66 | 0.69 | 0.27 | 0.27 | 0.34 | 0.41 | ||||||||||||||||||||||||
Total | $ | 0.25 | $ | 0.31 | $ | 0.76 | $ | 0.82 | $ | 0.33 | $ | 0.32 | $ | 0.46 | $ | 0.51 | ||||||||||||||||
Diluted Earnings Per Share | ||||||||||||||||||||||||||||||||
Diluted Earnings Per Share: | ||||||||||||||||||||||||||||||||
Distributed Earnings | $ | 0.06 | $ | 0.05 | $ | 0.10 | $ | 0.13 | $ | 0.06 | $ | 0.05 | $ | 0.12 | $ | 0.10 | ||||||||||||||||
Undistributed Earnings | 0.19 | 0.26 | 0.66 | 0.69 | 0.27 | 0.27 | 0.34 | 0.41 | ||||||||||||||||||||||||
Total | $ | 0.25 | $ | 0.31 | $ | 0.76 | $ | 0.82 | $ | 0.33 | $ | 0.32 | $ | 0.46 | $ | 0.51 | ||||||||||||||||
Basic Earnings Per Share | $ | 0.25 | $ | 0.31 | $ | 0.76 | $ | 0.82 | ||||||||||||||||||||||||
Diluted Earnings Per Share | $ | 0.25 | $ | 0.31 | $ | 0.76 | $ | 0.82 | ||||||||||||||||||||||||
Basic earningsper share | $ | 0.33 | $ | 0.32 | $ | 0.46 | $ | 0.51 | ||||||||||||||||||||||||
Diluted earnings per share | $ | 0.33 | $ | 0.32 | $ | 0.46 | $ | 0.51 |
The following tables present net income that was attributable to participating securities:
Three Months Ended | Nine Months Ended | |||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | |||||||||||||
(In millions) | ||||||||||||||||
Net Income | $ | 0.1 | $ | 0.5 | $ | 0.4 | $ | 1.2 |
Three Months Ended | Six Months Ended | |||||||||||||||
July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | |||||||||||||
(In millions) | ||||||||||||||||
Net Income Attributable to Participating Securities | $ | 0.2 | $ | 0.2 | $ | 0.3 | $ | 0.3 |
The weighted average shares outstanding for basic and diluted EPS were as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Weighted Average Shares Outstanding | 64,241 | 64,359 | 64,721 | 64,596 | 62,305 | 64,779 | 62,948 | 64,938 | ||||||||||||||||||||||||
Participating Securities | 564 | 1,495 | 564 | 1,495 | 484 | 588 | 484 | 588 | ||||||||||||||||||||||||
Shares for Basic Earnings Per Share | 64,805 | 65,854 | 65,285 | 66,091 | 62,789 | 65,367 | 63,432 | 65,526 | ||||||||||||||||||||||||
Dilutive Effect of Stock Options | 37 | 53 | 37 | 48 | 43 | 38 | 42 | 38 | ||||||||||||||||||||||||
Shares for Diluted Earnings Per Share | 64,842 | 65,907 | 65,322 | 66,139 | 62,832 | 65,405 | 63,474 | 65,564 |
For all periods presented, there were no stock options or participating securities excluded from the computation of diluted EPS.
NOTE 4 – LONG-TERM DEBT
Syndicated Credit Facility
The Company has a syndicated credit facility (the “Facility”) pursuant to which the lenders provide to the Company and certain of its subsidiaries a multicurrency revolving credit facility and provide to the Company a term loan. The facility matures in October of 2019. Interest on base rate loans is charged at varying rates computed by applying a margin 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. In addition, the Company pays a commitment fee 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.
As of OctoberJuly 2, 2016,2017, the Company had outstanding $190.0$177.5 million of term loan borrowingborrowings and $27.6$52.9 million of revolving loan borrowings under the Facility, and had $4.0$2.6 million in letters of credit outstanding under the Facility. As of OctoberJuly 2, 2016,2017, the weighted average interest rate on borrowings outstanding under the Facility was 2.2%2.6%.
Beginning in the fourth quarter of 2015, theThe Company becameis required to make quarterly amortization payments of the term loan borrowing. The amortization payments are due on the last day of the calendar quarter. The payment amount for each of the first three quarters of 2016 is $2.5 million per quarter. The quarterly amortization payment amount increases towas $3.75 million on December 31, 2016.for the second quarter of 2017 and will remain this amount for all future quarters until maturity.
The Company is currently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future.
On August 8, 2017, subsequent to the end of the second quarter of 2017, the Company amended and restated the syndicated credit facility. The terms and conditions of the amended and restated credit facility (the “Amended Facility”) are substantially similar to the preceding Facility, with the following key changes:
● | The Amended Facility matures in August of 2022; |
● | The restricted payments covenant in the Amended Facility has been liberalized (and now allows for, among other things, the repurchase of the full amount of the new share repurchase program described above); and |
● | Permits the potential release of the lenders’ liens on certain real property and equipment in connection with an anticipated property tax abatement transaction in Georgia. |
Other Lines of Credit
Subsidiaries of the Company have an aggregate of the equivalent of $14.8$9.8 million of other lines of credit available at interest rates ranging from 2.5% to 6.5%. As of OctoberJuly 2, 2016,2017, there were no borrowings outstanding under these lines of credit.
NOTE 5 – STOCK-BASED COMPENSATION
Stock Option Awards
In accordance with accounting standards, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award.
There were no stock options granted during 2015-2017. All outstanding stock options vested prior to the end of 2013, and therefore there was no stock option compensation expense in the first ninesix months of 20152016 or 2016.2017.
As of OctoberJuly 2, 2016,2017, there were 87,50082,500 stock options outstanding and exercisable, at an average exercise price of $8.75$8.53 per share. There were no5,000 stock options grantedexercised in 2016 or 2015.the first six months of 2017. There were no forfeitures during the 2017 period. There were no exercises or forfeitures of stock options in the first ninesix months of 2016. The aggregate intrinsic value of the outstanding and exercisable stock options was $0.7$0.9 million as of OctoberJuly 2, 2016.2017.
Restricted Stock Awards
During the ninesix months ended OctoberJuly 2, 20162017 and October 4, 2015,July 3, 2016, the Company granted restricted stock awards for 272,000244,000 and 597,000266,500 shares of common stock, respectively. Awards of restricted stock (or a portion thereof) vest with respect to each recipient over a twoone to three-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, certain awards (or a portion thereof) could vest earlier(or vest earlier) upon the attainment of certain performance criteria, in the event of a change in control of the Company, or upon involuntary termination without cause.
Compensation expense related to restricted stock grants was $2.4$1.3 million and $10.9$1.7 million for the ninesix months ended OctoberJuly 2, 20162017 and October 4, 2015,July 3, 2016, respectively. Accounting standards require that the Company estimate forfeitures for restricted stock and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.
The following table summarizes restricted stock outstanding as of OctoberJuly 2, 2016,2017, as well as activity during the ninesix months then ended:
Restricted Shares | Weighted Average Grant Date Fair Value | Restricted Shares | Weighted Average Grant Date Fair Value | |||||||||||||
Outstanding at January 3, 2016 | 1,470,000 | $ | 17.92 | |||||||||||||
Outstanding at January 1, 2017 | 504,500 | $ | 17.05 | |||||||||||||
Granted | 272,000 | 17.36 | 244,000 | 17.87 | ||||||||||||
Vested | 1,004,000 | 18.47 | 261,500 | 16.53 | ||||||||||||
Forfeited or canceled | 174,000 | 16.71 | 3,000 | 16.70 | ||||||||||||
Outstanding at October 2, 2016 | 564,000 | $ | 17.04 | |||||||||||||
Outstanding at July 2, 2017 | 484,000 | $ | 17.75 |
As of OctoberJuly 2, 2016,2017, the unrecognized total compensation cost related to unvested restricted stock was $5.6$5.7 million. That cost is expected to be recognized by the end of 2019.2020.
Performance Share Awards
In 2017 and 2016, 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 following table summarizes the performance shares outstanding as of OctoberJuly 2, 2016,2017, as well as the activity during the ninesix months then ended:
Performance Shares | Weighted Average Grant Date Fair Value | Performance Shares | Weighted Average Grant Date Fair Value | |||||||||||||
Outstanding at January 3, 2016 | 0 | $ | 0 | |||||||||||||
Outstanding at January 1, 2017 | 368,500 | $ | 17.20 | |||||||||||||
Granted | 441,000 | 17.23 | 352,500 | 17.79 | ||||||||||||
Vested | 3,500 | 17.22 | 28,000 | 17.22 | ||||||||||||
Forfeited or canceled | 7,500 | 17.22 | 16,000 | 17.22 | ||||||||||||
Outstanding at October 2, 2016 | 430,000 | $ | 17.23 | |||||||||||||
Outstanding at July 2, 2017 | 677,000 | $ | 17.51 |
Compensation expense related to the performance shares was $0.5 million and $0.6 million for the ninesix months ended OctoberJuly 2, 2017, and July 3, 2016, was $1.0 million.respectively. Unrecognized compensation expense related to these performance shares was approximately $6.5$8.2 million as of OctoberJuly 2, 2016. No performance shares were granted or outstanding during 2015.
2017.
NOTE 6 – EMPLOYEE BENEFIT PLANS
The following tables provide the components of net periodic benefit cost for the three-month and nine-monthsix-month periods ended OctoberJuly 2, 2016,2017 and October 4, 2015,July 3, 2016, respectively:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
Defined Benefit Retirement Plan (Europe) | Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | ||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Service cost | $ | 260 | $ | 265 | $ | 781 | $ | 799 | $ | 397 | $ | 263 | $ | 780 | $ | 521 | ||||||||||||||||
Interest cost | 1,610 | 2,124 | 5,058 | 6,328 | 1,378 | 1,728 | 2,712 | 3,448 | ||||||||||||||||||||||||
Expected return on assets | (1,876 | ) | (2,279 | ) | (5,880 | ) | (6,791 | ) | (1,628 | ) | (2,007 | ) | (3,216 | ) | (4,004 | ) | ||||||||||||||||
Amortization of prior service costs | 9 | 8 | 27 | 25 | (9 | ) | (9 | ) | (16 | ) | 18 | |||||||||||||||||||||
Recognized net actuarial losses | 169 | 244 | 537 | 725 | 320 | 184 | 629 | 368 | ||||||||||||||||||||||||
Net periodic benefit cost | $ | 172 | $ | 362 | $ | 523 | $ | 1,086 | $ | 458 | $ | 159 | $ | 889 | $ | 351 |
Three Months Ended | Nine Months Ended | |||||||||||||||
Salary Continuation Plan (SCP) | Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | ||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Service cost | $ | 110 | $ | 148 | $ | 330 | $ | 445 | ||||||||
Interest cost | 317 | 278 | 952 | 834 | ||||||||||||
Amortization of loss | 203 | 131 | 608 | 392 | ||||||||||||
Net periodic benefit cost | $ | 630 | $ | 557 | $ | 1,890 | $ | 1,671 |
Three Months Ended | Six Months Ended | |||||||||||||||
Salary Continuation Plan (SCP) | July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | ||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Service cost | $ | 0 | $ | 110 | $ | 0 | $ | 220 | ||||||||
Interest cost | 314 | 317 | 628 | 634 | ||||||||||||
Amortization of loss | 91 | 203 | 182 | 405 | ||||||||||||
Net periodic benefit cost | $ | 405 | $ | 630 | $ | 810 | $ | 1,259 |
NOTE 7 – SEGMENT INFORMATION
Based on applicable accounting standards, the Company has determined that it has three operating segments – namely, the Americas, Europe and Asia-Pacific geographic regions. Pursuant to accounting standards, the Company has aggregated the three operating segments into one reporting segment because they have similar economic characteristics, and the operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment.
While the Company operates as one reporting segment for the reasons discussed, included below is selected information on our operating segments.
AMERICAS | EUROPE | ASIA-PACIFIC | TOTAL | AMERICAS | EUROPE | ASIA- PACIFIC | TOTAL | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Three Months Ended October 2, 2016: | ||||||||||||||||||||||||||||||||
Three Months Ended July 2, 2017: | ||||||||||||||||||||||||||||||||
Net Sales | $ | 147,500 | $ | 62,682 | $ | 38,167 | $ | 248,349 | $ | 153,616 | $ | 57,811 | $ | 40,273 | $ | 251,700 | ||||||||||||||||
Depreciation and amortization | 3,635 | 1,253 | 2,213 | 7,101 | 3,310 | 1,314 | 2,090 | 6,714 | ||||||||||||||||||||||||
Total assets | 235,591 | 270,106 | 191,691 | 697,388 | 264,871 | 239,839 | 181,431 | 686,141 | ||||||||||||||||||||||||
Three Months Ended October 4, 2015: | ||||||||||||||||||||||||||||||||
Three Months Ended July 3, 2016: | ||||||||||||||||||||||||||||||||
Net Sales | $ | 152,710 | $ | 66,440 | $ | 35,536 | $ | 254,686 | $ | 148,761 | $ | 61,264 | $ | 38,182 | $ | 248,207 | ||||||||||||||||
Depreciation and amortization | 3,836 | 1,309 | 2,193 | 7,338 | 3,611 | 1,297 | 2,169 | 7,077 | ||||||||||||||||||||||||
Nine Months Ended October 2, 2016: | ||||||||||||||||||||||||||||||||
Six Months Ended July 2, 2017: | ||||||||||||||||||||||||||||||||
Net Sales | $ | 426,677 | $ | 181,904 | $ | 110,529 | $ | 719,110 | $ | 285,378 | $ | 113,830 | $ | 73,594 | $ | 472,802 | ||||||||||||||||
Depreciation and amortization | 10,903 | 3,824 | 6,598 | 21,325 | 6,678 | 2,611 | 4,247 | 13,536 | ||||||||||||||||||||||||
Nine Months Ended October 4, 2015: | ||||||||||||||||||||||||||||||||
Six Months Ended July 3, 2016: | ||||||||||||||||||||||||||||||||
Net Sales | $ | 450,299 | $ | 197,220 | $ | 107,708 | $ | 755,227 | $ | 279,177 | $ | 119,222 | $ | 72,362 | $ | 470,761 | ||||||||||||||||
Depreciation and amortization | 11,656 | 3,745 | 6,855 | 22,256 | 7,268 | 2,571 | 4,385 | 14,224 |
A reconciliation of the Company’s total operating segment depreciation and amortization, and assets, to the corresponding consolidated amounts follows:
Three Months Ended | ||||||||
DEPRECIATION AND AMORTIZATION | July 2, 2017 | July 3, 2016 | ||||||
(In thousands) | ||||||||
Total segment depreciation and amortization | $ | 6,714 | $ | 7,077 | ||||
Corporate depreciation and amortization | 739 | 366 | ||||||
Reported depreciation and amortization | $ | 7,453 | $ | 7,443 |
Three Months Ended | Six Months Ended | |||||||||||||||
DEPRECIATION AND AMORTIZATION | October 2, 2016 | October 4, 2015 | July 2, 2017 | July 3, 2016 | ||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Total segment depreciation and amortization | $ | 7,101 | $ | 7,338 | $ | 13,536 | $ | 14,224 | ||||||||
Corporate depreciation and amortization | 413 | 311 | 886 | 736 | ||||||||||||
Reported depreciation and amortization | $ | 7,514 | $ | 7,649 | $ | 14,422 | $ | 14,960 |
Nine Months Ended | ||||||||
DEPRECIATION AND AMORTIZATION | October 2, 2016 | October 4, 2015 | ||||||
(In thousands) | ||||||||
Total segment depreciation and amortization | $ | 21,325 | $ | 22,256 | ||||
Corporate depreciation and amortization | 1,149 | 932 | ||||||
Reported depreciation and amortization | $ | 22,474 | $ | 23,188 |
ASSETS | July 2, 2017 | |||
(In thousands) | ||||
Total segment assets | $ | 686,141 | ||
Corporate assets and eliminations | 97,803 | |||
Reported total assets | $ | 783,944 |
ASSETS | October 2, 2016 | |||
(In thousands) | ||||
Total segment assets | $ | 697,388 | ||
Corporate assets and eliminations | 90,152 | |||
Reported total assets | $ | 787,540 |
NOTE 8 – SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest amounted to $4.0$3.2 million and $4.8$2.5 million for the ninesix months ended OctoberJuly 2, 20162017 and October 4, 2015,July 3, 2016, respectively. Income tax payments amounted to $9.9$11.5 million and $5.9$7.3 million for the ninesix months ended OctoberJuly 2, 2017 and July 3, 2016, and October 4, 2015, respectively.
NOTE 9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding recognition of revenue from contracts with customers. In summary, the core principle of this standard is that an entity recognizes revenue to depict the transfer of promised 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. The guidance for this standard was initially effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, in August of 2015, the FASB delayed the effective date of the standard for one full year. Nearly 95% of the Company’s revenue is produced from the sale of carpet, hard surface flooring and related products (TacTiles installation system, etc.) and the revenue from sales of these products is recognized upon shipment. There does not exist any performance or any other obligation after the sale of these products outside of the product warranty, which has not historically been of significance compared to total product sales. There is a small portion of the Company’s revenues (less than 6%) that is for the sale and installation of carpet and related products. Of these projects, the overwhelming majority are completed in less than 48 hours and therefore the Company does not anticipate a significant shift in the timing of revenue recognition for these sales either. While the Company is currently reviewingcontinuing its review of this new standard, and the method by which it will be adopted, given the nature of the Company’s sales it does not believe that the adoption of this standard will have a material impact on its revenues, financial condition or results of operations.
In January 2015, the FASB issued an accounting standard which eliminates the concept of extraordinary items from generally accepted accounting principles. The standard does not affect disclosure guidance for events or transactions that are unusual in nature or infrequent in their occurrence. The standard is effective for interim and annual periods in fiscal years beginning after December 15, 2015. The adoption of this standard did not have any impact on our financial condition or results of operations.
In February 2015, the FASB issued an accounting standard which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (“VIE”), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The new accounting standard is effective for annual and interim periods in fiscal years beginning after December 15, 2015. The adoption of this standard did not have any impact on our financial condition or results of operations.
In April 2015, the FASB issued an accounting standard to simplify the presentation of debt issuance costs. This accounting standard requires debt issuance costs to be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability. In August 2015, the FASB issued an accounting standard update that allows the presentation of debt issuance costs related to line-of-credit arrangements as an asset on the balance sheet under the simplified guidance, regardless of whether there are any outstanding borrowings on the related arrangements. The guidance in these accounting standards is to be applied retrospectively and is effective for interim and annual reporting periods beginning after December 15, 2015. The Company’s debt issuance costs relate to its Syndicated Credit Facility and, as a result, these costs have been, and will continue to be, included as an asset on the balance sheet. Thus, the adoption of this standard did not have any impact on our financial statements.
In July 2015, the FASB issued an accounting standard to simplify the accounting for inventory. This standard requires all inventories to be measured at the lower of cost and net realizable value, except for inventory that is accounted for using the LIFO or the retail inventory method, which will be measured under existing accounting standards. The new guidance must be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this new standard and doesdid not expect it to have aany significant impact on itsthe Company’s consolidated financial statements.
In November 2015, the FASB issued an accounting standard which requires deferred tax assets and liabilities, as well as any related valuation allowance, to be classified as noncurrent on the balance sheet. As a result, each jurisdiction will only have one net noncurrent deferred tax asset or liability. This standard does not change the existing requirement that only permits offsetting within a jurisdiction. The amendments in the standard may be applied either prospectively or retrospectively to all prior periods presented. The new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. AsThe Company adopted this standard impacts only presentation,in the first quarter of 2017, and recorded a reduction of current assets of $10.0 million and a corresponding increase in long term assets of $5.9 million as well as a reduction of long term liabilities of $4.1 million. The Company doesapplied this standard retrospectively and as a result has adjusted the balance sheet as of the end of 2016 by these amounts as well.
In March 2016, the FASB issued an accounting standard update to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest, which is the current U.S. GAAP practice, or account for forfeitures when they occur. This update will be effective for fiscal periods beginning after December 15, 2016, including interim periods within that reporting period. The element of the new standard that will have the most impact on the Company’s financial statements will be income tax consequences. Excess tax benefits and tax deficiencies on stock-based compensation awards will now be included in the tax provision within the consolidated statement of operations as discrete items in the reporting period in which they occur, rather than the current accounting of recording them in additional paid-in capital on the consolidated balance sheet. The adoption of this standard resulted in an increase in deferred tax assets of approximately $5.8 million, with a corresponding increase to equity accounts, as of implementation in the first quarter of 2017. There was an impact of this standard on the consolidated statement of cash flows upon adoption, as under the standard when an employer withholds shares for tax withholding purposes those related tax payments will be treated as financing activities, not expect itas operating activities. Upon adoption in the first quarter of 2017, this resulted in a reclassification of $4.6 million of such tax payments in the first quarter of 2016 from operating activities to have any significant effect on its ongoing financial reporting.financing activities. The Company has elected to continue our current policy of estimating forfeitures of stock-based compensation awards at the time of grant and revising in subsequent periods to reflect actual forfeitures, which is allowable under the new standard.
In February 2016, the FASB issued a new accounting standard regarding 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. A modified retrospective transition approach is required for lessees for 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 Company is currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statementsstatements.
NOTE 10 – INCOMETAXESINCOMETAXES
Accounting standards require that all tax positions be analyzed using a two-step approach. The first step requires an entity to determine if a tax position is more-likely-than-not to be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, that is more-likely-than-not to be realized upon ultimate settlement. In the first ninesix months of 2016,2017, the Company decreasedincreased its liability for unrecognized tax benefits by $0.1$0.5 million. As of OctoberJuly 2, 2016,2017, the Company had accrued approximately $28.2$28.4 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of OctoberJuly 2, 20162017 reflects a reduction for $14.2$5.0 million of these unrecognized tax benefits.
NOTE 11 – ITEMS RECLASSIFIED FROM OTHER COMPREHENSIVE INCOME
During the first ninesix months of 2016,2017, the Company did not reclassify any significant amounts out of accumulated other comprehensive income. The reclassifications that occurred in that period were primarily comprised of $1.2$0.8 million related to the Company’s defined benefit retirement plan and salary continuation plan. These reclassifications were included in the selling, general and administrative expenses line item of the Company’s consolidated condensed statement of operations.
NOTE 12 – REPURCHASE OF COMMON STOCK
In the fourth quarter of 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. In the second quarter of 2016, the Company amended the share purchase program to authorize the repurchase of up to $50 million of common stock. This amended program hasstock, with no specific expiration date. During the first ninethree months of 2016,2017, the Company repurchased and retired 662,5001,601,896 shares of common stock at a weighted average purchase price of $15.73$19.36 per share. These repurchases completed the $50 million repurchase plan.
In the second quarter of 2017, the Company adopted a new share repurchase program in which the Company is authorized to repurchase up to $100 million of its outstanding shares of common stock. The program has no specific expiration date. During the second quarter of 2017, pursuant to this new program, the Company repurchased and retired 1,244,735 shares of common stock at a weighted average price of $19.74 per share.
NOTE 13 – RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
In the fourth quarter of 2016, the Company committed to a new restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involves (i) a substantial restructuring of the FLOR business model that includes closure of its headquarters office 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 include information technology assets, intellectual property assets, and obsolete manufacturing, office and retail store equipment.
As a result of this plan, the Company incurred a pre-tax restructuring and asset impairment charge in the fourth quarter of 2016 of $19.8 million. In the first quarter of 2017, the Company recorded an additional charge of $7.3 million, primarily related to exit costs associated with the closure of most FLOR retail stores in the first quarter of 2017. The charge in the first quarter of 2017 was comprised of lease exit costs of $3.4 million, asset impairment charges of $3.3 million and severance charges of $0.6 million.
A summary of these restructuring activities is presented below:
Total Restructuring Charge | Costs Incurred in 2016 | Costs Incurred in 2017 | Balance at July, 2, 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Workforce Reduction | $ | 10,652 | $ | 1,451 | $ | 5,631 | $ | 3,570 | ||||||||
Asset Impairment | 11,319 | 8,019 | 3,300 | 0 | ||||||||||||
Lease Exit Costs | 5,116 | 27 | 4,122 | 967 |
ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016,1, 2017, under Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter and ninesix months ended, or as of, OctoberJuly 2, 2016,2017, and the comparable periods of 20152016 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information.
Forward-Looking Statements
This report contains statements which may constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading “Risk Factors” included in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2016,1, 2017, which discussion is hereby incorporated by reference. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
General
During the quarter ended OctoberJuly 2, 2016,2017, we had net sales of $248.3$251.7 million, compared with net sales of $254.7$248.2 million in the thirdsecond quarter last year. During the first ninesix months of fiscal year 2016,2017, we had net sales of $719.1$472.8 million, compared with net sales of $755.2$470.8 million in the first ninesix months of last year. Fluctuations in currency exchange rates had small negative impacts on our sales and operating income in the 20162017 reported periods, compared with the prior year periods. The following table presents the amounts (in U.S. dollars) by which the exchange rates for converting foreign currencies into U.S. dollars have negatively affected our net sales and operating income for the three months and ninesix months ended OctoberJuly 2, 2016. The impacts of changes in foreign currency presented in the tables are calculated based on applying the prior year period's average foreign currency exchange rates to the current year period.2017.
Impact of Changes in Foreign Currency on: | Three Months Ended October 2, 2016 | Nine Months Ended October 2, 2016 | ||||||||||||||
Impact of Changes in Foreign Currency on: | Three Months Ended July 2, 2017 | Six Months Ended July 2, 2017 | ||||||||||||||
(In millions) | (In millions) | |||||||||||||||
Net sales | (1.7 | ) | (8.1 | ) | $ | (2.7 | ) | $ | (4.9 | ) | ||||||
Operating income | (0.1 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) |
During the thirdsecond quarter of 2016,2017, we had net income of $15.9$20.9 million, or $0.25$0.33 per share.diluted share, compared with net income of $20.7 million, or $0.32 per diluted share, in the second quarter of 2016. During the third quarter of 2015,six months ended July 2, 2017, we had net income of $20.1$29.5 million, or $0.31$0.46 per share. During the nine months ended October 2, 2016, we haddiluted share, compared with net income of $49.4$33.6 million, or $0.76$0.51 per share. During the nine months ended October 4, 2015, we had net income of $54.2 million, or $0.82 per share.
The first nine months of 2016 were comprised of 39 weeks, while the first nine months of 2015 were comprised of 40 weeks. (The additional week wasdiluted share, in the first six months of 2016. The first six months of 2017 include $7.3 million of restructuring and asset impairment charges (all of which were recorded in the first quarter) as a continuation of the plans announced for the fourth quarter of 2015.) This is a factor in certain2016, primarily relating to our closing of the comparisons discussed in this Item 2.majority of our FLOR specialty retail stores.
Results of Operations
The following table presents, as a percentage of net sales, certain items included in our Consolidated Condensed Statements of Operations for the three-month and nine-monthsix-month periods ended OctoberJuly 2, 2016,2017, and October 4, 2015,July 3, 2016, respectively:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Oct. 2, 2016 | Oct. 4, 2015 | July 2, 2017 | July 3, 2016 | July 2, 2017 | July 3, 2016 | |||||||||||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
Cost of sales | 62.6 | 61.5 | 61.2 | 62.3 | 61.1 | 60.1 | 60.7 | 60.5 | ||||||||||||||||||||||||
Gross profit on sales | 37.4 | 38.5 | 38.8 | 37.7 | 38.9 | 39.9 | 39.3 | 39.5 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 27.0 | 26.2 | 27.8 | 26.3 | 25.8 | 27.1 | 27.5 | 28.2 | ||||||||||||||||||||||||
Restructuring and asset impairment charges | 0.0 | 0.0 | 1.5 | 0.0 | ||||||||||||||||||||||||||||
Operating income | 10.4 | 12.3 | 10.9 | 11.4 | 13.1 | 12.8 | 10.2 | 11.2 | ||||||||||||||||||||||||
Interest/Other expenses | 1.0 | 0.8 | 0.8 | 0.9 | 0.8 | 0.6 | 0.9 | 0.8 | ||||||||||||||||||||||||
Income before tax expense | 9.4 | 11.5 | 10.1 | 10.5 | 12.4 | 12.2 | 9.3 | 10.5 | ||||||||||||||||||||||||
Income tax expense | 3.0 | 3.6 | 3.2 | 3.3 | 3.9 | 3.9 | 3.1 | 3.4 | ||||||||||||||||||||||||
Net income | 6.4 | 7.9 | 6.9 | 7.2 | 8.3 | 8.3 | 6.2 | 7.1 |
Net Sales
Below we provide information regarding net sales and analyze those results for the three-month and nine-monthsix-month periods ended OctoberJuly 2, 2016,2017 and October 4, 2015,July 3, 2016, respectively.
Three Months Ended | Percentage | |||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Change | ||||||||||
(In thousands) | ||||||||||||
Net Sales | $ | 248,349 | $ | 254,686 | (2.5% | ) |
Three Months Ended | Percentage | |||||||||||
July 2, 2017 | July 3, 2016 | Change | ||||||||||
(In thousands) | ||||||||||||
Net Sales | $ | 251,700 | $ | 248,207 | 1.4 | % |
Nine Months Ended | Percentage | |||||||||||
Oct. 2, 2016 | Oct. 4, 2015 | Change | ||||||||||
(In thousands) | ||||||||||||
Net Sales | $ | 719,110 | $ | 755,227 | (4.8% | ) |
For the quarter ended October 2, 2016, net sales decreased $6.3 million (2.5%) versus the comparable period in 2015. As noted above, on a consolidated basis, currency fluctuations did not have a significant impact on the comparison, as weakness in the British Pound was offset by a recovery in the Australian Dollar and the Euro. On a geographic basis, we experienced sales declines in the Americas (down 3.4%) and Europe (5.7%), while sales in our Asia-Pacific region increased 7.4%. In the Americas, the decrease in sales was almost entirely attributable to a decline in the corporate office market (down 10%), and was a result of customer deferrals of projects in this segment. This decrease was offset partially by a 1% increase in non-office segments, with increases in the hospitality (up 19%) and healthcare (up 13%) market segments negated by a decrease in the government segment (down 16%). Our direct-to-consumer FLOR business experienced a 1% sales increase for the third quarter versus the comparable period in 2015. In Europe, the economic and political uncertainty surrounding the Brexit referendum was the primary driver of the sales decline, as the decrease was most severe in the United Kingdom and was partially offset by increases in Central and Southern Europe, with Germany leading the way in growth. On a segment basis, the European sales decline was most significant in the corporate office market with a 3% decline; however, with the exception of the hospitality market segment (up 33%), all other market segments were down for the quarter with education (down 20%) being the most significant. The sales increases in Asia-Pacific were primarily experienced in Australia (up 10%), China (up 21%) and India (up 5%), offset by a decline of 13% in Southeast Asia, Japan and Korea. On a segment basis, the increase in Asia-Pacific sales for the quarter was due to a 11% increase in the corporate office segment, offset by a decline of 4% in non-office segments.
For the nine months ended October 2, 2016, net sales decreased 36.1 million (4.8%) versus the comparable period in 2015. Fluctuations in currency had a small impact on the comparison; if currency rates had remained consistent from the first nine months of 2015, the decease would have been approximately $8.1 million less. On a geographic basis, we experienced sales declines in the Americas (down 5.2%) and Europe (down 8%), partially offset by an increase of 2.6% in our Asia-Pacific business. In the Americas, the sales decline was most significant in the first six months of the year, when sales were down 6% year over year. The decline on a year-to-date basis was due to lower sales in the corporate office market (down 6%). Other than the hospitality (up 15%) and healthcare (up 9%) market segments, all other market segments experienced a decline for the first nine months of 2016 as compared to the first nine months of 2015. In Europe, the decline was again due primarily to uncertainty leading up to and after the Brexit vote, as well as other geopolitical and other socio-economic issues. The decline in Europe was most significant in the corporate office market segment (down 8%) as well as the education market segment (down 30%). These declines were offset by smaller increases in the retail (up 12%) and hospitality (up 26%) market segments. The sales increase in Asia-Pacific was due to a strong corporate office market (up 9%) and government market segment (up over 80%). These increases were partially offset by decreases in other non-office markets in Asia-Pacific, with the retail (down 39%), education (down 16%) and hospitality (down 31%) market segments having the most significant negative impact.
Six Months Ended | Percentage | |||||||||||
July 2, 2017 | July 3, 2016 | Change | ||||||||||
(In thousands) | ||||||||||||
Net Sales | $ | 472,802 | $ | 470,761 | 0.4 | % |
For the quarter ended July 2, 2017, net sales increased $3.5 million (1.4%) versus the comparable period in 2016. Currency fluctuations had an approximately $2.7 million (1.1%) negative impact on the 2017 second quarter sales compared to the second quarter of 2016. This negative impact was a result of the weakening of the British Pound and Euro as compared to the prior year period, and was offset somewhat by the strengthening of the Australian dollar. On a geographic basis, sales increases in the Americas (up 4%) and Asia-Pacific (up 6%) were partially offset by a decline in Europe (down 6%). The 2017 second quarter also was negatively impacted by the exit of the FLOR specialty retail stores at the end of the first quarter of 2017, although this was partially offset by gains in FLOR’s other sales channels. A slight decline in corporate office market sales were offset by increases in the retail, government and multi-family residential market segments. Growth in the Americas region was primarily due to sales of our modular resilient flooring products, a line of luxury vinyl tile, which launched in the first quarter of 2017. These products were introduced globally during the second quarter but the majority of the sales for the period were in the Americas. In Europe, sales decreased 6% on declines throughout the region, with the exception of an increase in Germany. Sales in Asia-Pacific were higher due to the performance of the Australian business, offset by a decline in China.
For the six months ended July 2, 2017, net sales increased $2.0 million (0.4%) versus the comparable period in 2016. Currency rate changes had an approximately $4.9 million (1%) negative impact on sales for the first six months of 2017 as compared to the first half of 2016. This impact was a result of the weakening of the British Pound and Euro as compared to the prior year period, offset somewhat by strengthening of the Australia dollar. Sales increases were primarily in the non-office markets of retail, government and multi-family residential. On a geographical basis, sales for the six-month period increased 2% in the Americas and 2% in Asia-Pacific, offset by sales in Europe that declined 5%. As discussed above, we launched modular resilient flooring products in the first quarter of 2017. Sales of these products are progressing according to plan and have been primarily in the Americas, although they were launched globally in the second quarter of this year. Sales were also negatively impacted by the exit of FLOR specialty retail stores at the end of the first quarter of 2017.
Cost and Expenses
The following tables present,table presents, on a consolidated basis for our operations, our overall cost of sales and selling, general and administrative expenses for the three-month and nine-monthsix-month periods ended OctoberJuly 2, 2016,2017, and October 4, 2015,July 3, 2016, respectively:
Three Months Ended | Percentage | Three Months Ended | Percentage | |||||||||||||||||||||
Cost and Expenses | Oct. 2, 2016 | Oct. 4, 2015 | Change | July 2, 2017 | July 3, 2016 | Change | ||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Cost of sales | $ | 155,431 | $ | 156,720 | (0.8% | ) | $ | 153,803 | $ | 149,081 | 3.2 | % | ||||||||||||
Selling, general and administrative expenses | 67,175 | 66,664 | 0.7 | % | 64,852 | 67,328 | (3.7 | %) | ||||||||||||||||
Total | $ | 222,606 | $ | 223,384 | (0.3% | ) | $ | 218,655 | $ | 216,409 | 1.0 | % |
Nine Months Ended | Percentage | Six Months Ended | Percentage | |||||||||||||||||||||
Cost and Expenses | Oct. 2, 2016 | Oct. 4, 2015 | Change | July 2, 2017 | July 3, 2016 | Change | ||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Cost of sales | $ | 440,434 | $ | 470,577 | (6.4% | ) | $ | 287,103 | $ | 285,003 | 0.7 | % | ||||||||||||
Selling, general and administrative expenses | 200,108 | 198,729 | 0.7 | % | 130,027 | 132,933 | (2.2 | %) | ||||||||||||||||
Total | $ | 640,542 | $ | 669,306 | (4.3% | ) | $ | 417,130 | $ | 417,936 | (0.2 | %) |
For the three monthsquarter ended OctoberJuly 2, 2016, our2017, cost of sales decreased $1.3increased $4.7 million (0.8%(3.2%) versusas compared to the comparable period in 2015.second quarter of 2016. Fluctuations in currency exchange rates did not have a significant impact on the comparison between periods. Despitecomparison. The increase in cost of sales was partially due to higher levels of sales during the decreasequarter, as net sales increased 1.4% for the second quarter of 2017. The remainder of the increase was due to higher per-unit raw material costs for the quarter, in absolute dollars,particular backing and yarn components, as a result of higher input costs. These increases were somewhat offset by productivity and process improvement gains as well as savings from our restructuring activities. As a percentage of sales, cost of sales increased to 61.1% for the second quarter of 2017 as compared to 60.1% for the second quarter of 2017. This increase as a percentage of sales is due to the factors noted above, as well as a result of the exit of our costFLOR specialty retail stores at the end of sales increased in the thirdfirst quarter of 2016 to 62.6%, versus 61.5% the third quarter of 2015. This percentage increase was attributable entirely2017. Sales in these stores typically generated higher gross margins compared to our Americascommercial carpet business, unit, as both our European and Asia-Pacific regions experienced decreases in costtherefore the absence of salesthese stores was dilutive to gross profit margin when measured as a percentage of sales for the third quartersales.
For the ninesix months ended OctoberJuly, 2, 2016, our cost2017, costs of sales decreased $30.1increased $2.1 million (6.4%(0.7%) versus the correspondingcomparable period in 2015.2016. Fluctuations in currency exchange rates did not have a significant impact on the comparison between periods.comparison. The increase for the six-month period was due to the factors for the second quarter discussed above as our costs of sales for the first ninequarter of 2017 declined versus the first quarter of 2016. The increase in the first six months of 2016 showed improvement as a percentage of sales2017 was primarily due to lower raw materials costs, higher average selling prices and a mix shift towards higher margin accretive products, such as skinny planks. These decreases to cost ofincreased sales were partially offset, however, by the factors discussed above in the Americas for the third quarter of 2016period, with regard to additionalraw material input costs associated with our transition to centralized warehouse and distribution center and lower absorption of fixed costshaving little effect on lower production volume. In total, asthe year over year comparison. As a percentage of sales, our cost of sales declinedincreased slightly to 61.2%60.7% for the nine-month2017 six-month period ended October 2, 2016, versus 62.3%60.5% for the corresponding period in 2015. Ascomparable 2016 period. This increase as a percentage of sales was due to the exit of the FLOR specialty retail stores as discussed above, we expect the additional warehouse centralization costsas these higher margin sales were not present in the Americassecond quarter of 2017 to subside by the end ofsame extent they were for the fourthsecond quarter of 2016. In the second half of 2017, we expect raw material price inflation and, as a result, cost of sales as a percentage of sales is expected to increase for the remainder of 2017.
For the three months ended OctoberJuly 2, 2016, our2017, selling, general and administrative (“SG&A”) expenses increased $0.5decreased $2.5 million (0.7%(3.7%) versus the comparable period in 2015.2016. Fluctuations in currency exchanges rates did not have a significant impact on the comparison. The decline in SG&A expenses for the quarter was a result of (1) lower selling expenses related to the exit of the FLOR specialty retail stores, (2) lower functional expenses as we transition to more centralized services, and (3) savings as a result of our restructuring plans implemented in the fourth quarter of 2016. These savings were offset by higher incentive compensation associated with higher projected attainment of performance goals in the second quarter of 2017 as compared to the second quarter of 2016 as well as costs associated with our luxury vinyl tile product launch. As a result of the savings discussed above, as a percentage of sales SG&A expenses declined to 25.8% for the three months ended July 2, 2017, versus 27.1% for the comparable period in 2016.
For the six months ended July 2, 2017, SG&A expenses decreased $2.9 million (2.2%) versus the comparable period in 2016. Fluctuations in currency exchange rates did not have a significant impact on the comparison between periods.comparison. The increasedecline was a result of (1) lower functional expenses, as we move towards more centralized functions and realize associated savings, (2) the selling expense savings in selling, general and administrative expenses was due entirely to higher marketing expense for the thirdsecond quarter of 20162017 associated with the exit of approximately $1.0 million. These additional expensesthe FLOR specialty retail stores, and (3) savings associated with our previously announced restructuring plans. During the first half of 2017, these savings were primarily related to the rollout of our modular resilient flooring (luxury vinyl tile) products, which are hard surface flooring products that complement our modular carpet products,offset by higher incentive compensation amounts as well as additional marketing expenses related tocosts associated with our core modular carpet offerings. These increases were offset by lower selling costs of approximately $0.5 million due to lower sales activity for the quarter. Due to the slight overall increase in expenses discussed above, as well as lower sales levels, asluxury vinyl tile product launches. As a percentage of sales, our selling, general and administrativeSG&A expenses increaseddeclined to 27.0%27.5% for the three months ended October 2, 2016, compared to 26.2% for the three months ended October 4, 2015. Our selling, general and administrative expenses did have a small sequential decline as a percentage of sales from the second quarter of 2016, when they were 27.1% of sales.
For the nine months ended October 4, 2016, our selling, general and administrative expenses increased $1.4 million (0.7%) versus the comparable period in 2015. Fluctuations in currency exchange rates did not have a significant impact on the comparison between periods. The largest driver of this increase was higher marketing expenses of $5.4 million due to strategic marketing initiatives including our modular resilient flooring projects as well as global marketing and branding initiatives. Selling expenses also increased by approximately $0.9 million for the first nine months of 2016 as compared to the prior year period due to personnel additions in the Americas, primarily in the first six months of 2016. These increases were offset by approximately $5.0 million of lower administrative costs, primarily2017 as a result of lower levels of share-based payments and incentives as performance targets are not expectedcompared to be met to the same level in 2016 as in 2015. Due to the above factors and the decline in sales, as a percentage of sales our selling, general and administrative expenses increased to 27.8%28.2% for the first nine monthscomparable period of 2016, versus 26.3% for same period in 2015.2016.
Interest Expense
For the three-month period ended OctoberJuly 2, 2016, our2017, interest expense increased $0.3$0.1 million to $1.7 million, from $1.3$1.6 million in the thirdsecond quarter of 2015. This increase was due to a slightly higher weighted average borrowing rate for the 2016 period versus that of the 2015 period.2016. For the nine-monthsix-month period ended OctoberJuly 2, 2016, our2017, interest expense decreasedincreased $0.2 million to $4.8$3.3 million, from $5.0$3.1 million in the comparable period last year. The decrease wasincreases were due to lowerhigher average daily outstanding borrowings under our Syndicated Credit Facility primarily during the second quarter and first six months of 20162017 as compared to the corresponding periodperiods of 2015.2016.
Liquidity and Capital Resources
General
At OctoberJuly 2, 2016,2017, we had $113.7$66.8 million in cash.cash and cash equivalents. At that date, we had outstanding $190.0$177.5 million ofin term loan borrowings, $27.6$52.9 million of revolving loan borrowings and $4.0$2.6 million in letters of credit outstanding under ourthe Syndicated Credit Facility.
As of OctoberJuly 2, 2016,2017, we could have incurred $218.4$194.5 million of additional borrowings under our Syndicated Credit Facility. InFacility.In addition, we could have incurred an additional $14.8$9.8 million of borrowings under our other lines of credit in place at other non-U.S. subsidiaries.
It is also important for you to consider that borrowings under our Syndicated Credit Facility comprise essentially all of our indebtedness, and that these borrowings are based on variable interest rates (as described above) that expose the Company to the risk that short-term interest rates may increase. For information regarding the current variable interest rates of these borrowings and the potential impact on our interest expense from hypothetical increases in short term interest rates, please see Note 4 in Part I, Item 1 of this report and the discussion under the heading “Interest Rate Risk” in Item 7A of our Annual Report on Form 10-K for the year ended January 3, 2016.
Analysis of Cash Flows
We exited the quarter ended OctoberAs of July 2, 2016 with $113.72017, we had $66.8 million in cash, an increasea decrease of $38.0$98.9 million during the first ninesix months of the year. The increasedecrease in cash was dueprimarily a result of cash outflows for financing activities, with the most significant factors being (1) $55.7 million of cash used to repurchase and retire 2.8 million shares of our outstanding common stock, (2) $54.7 million of cash flow from operating activitiesused to repay borrowings under the Syndicated Credit Facility (including required amortization payments of $74.2$7.6 million), and (3) $7.6 million for the payment of dividends. We also used cash of $15.4 million for capital expenditures in the first ninesix months of 2016.2017. These uses were partially offset by $21.9 million of cash generated by operating activities. The factors driving the increase in cash from operating activitiesoperations were (1) $49.5$29.5 million of net income for the year-to-date period, and (2) $1.5$1.4 million of cash received due to a decrease in accounts receivable. Thean increase in cash from operating activities was partially offset by a use of $6.1 million for a reduction in accounts payable and accruals. We also borrowed $20.3accrued expenses. These inflows were partially offset by operating cash outflows of $21.1 million under our Syndicated Credit Facility during the nine months ended October 2, 2016, but repaid $17.5 million of borrowings during this time, for a net cashdue to an increase of $2.8 million from this borrowing activity. Our other primary uses of cash during the first nine months of 2016 were (1) $20.9 million of capital expenditures, (2) $10.4in inventory and $6.3 million used to repurchase and retire 662,500 shares of our outstanding common stock, and (3) $10.4 million for the payment of dividends.an increase in accounts receivable.
ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our discussion below in this Item 3 is based upon the more detailed discussions of our market risk and related matters included in our Annual Report on Form 10-K for the fiscal year ended January 3, 20161, 2017 under Item 7A of that Form 10-K. Our discussion here focuses on the period ended OctoberJuly 2, 2016,2017, and any material changes from (or other important intervening developments since the time of) the information discussed in that Form 10-K. This discussion should be read in conjunction with that Form 10-K for more detailed and background information.
At OctoberJuly 2, 2016,2017, we recognized a $3.8$20.8 million increase in our foreign currency translation adjustment account compared to January 3, 2016,1, 2017, primarily because of the weakening of the U.S. dollar against certain foreign currencies, particularly the Euro, British Pound and Australian dollar.
Sensitivity Analysis. For purposes of specific risk analysis, we use sensitivity analysis to measure the impact that market risk may have on the fair values of our market sensitive instruments.
To perform sensitivity analysis, we assess the risk of loss in fair values associated with the impact of hypothetical changes in interest rates and foreign currency exchange rates on market sensitive instruments.
Because the debt outstanding under our Syndicated Credit Facility has variable interest rates based on an underlying prime lending rate or LIBOR rate, we do not believe changes in interest rates would have any significant impact on the fair value of that debt instrument. Changes in the underlying prime lending rate or LIBOR rate would, however, impact the amount of our interest expense. For a discussion of these hypothetical impacts on our interest expense, please see the discussion in Item 7A of our Annual Report on Form 10-K for the year ended January 3, 2016.1, 2017.
As of OctoberJuly 2, 2016,2017, a 10% decrease or increase in the levels of foreign currency exchange rates against the U.S. dollar, with all other variables held constant, would result in a decrease in the fair value of our financial instruments of $13.1$6.5 million or an increase in the fair value of our financial instruments of $16.0$7.9 million, respectively. As the impact of offsetting changes in the fair market value of our net foreign investments is not included in the sensitivity model, these results are not indicative of our actual exposure to foreign currency exchange risk.
IITEM TEM4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including our ChairmanPresident and Chief Executive Officer and our Senior Vice President and Chief 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 (the “Act”), pursuant to Rule 13a-14(c) under the Act. Based on that evaluation, our ChairmanPresident and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
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.
PARTPART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various legal proceedings in the ordinary course of business, none of which is required to be disclosed under this Item 1.
ITEM ITEM 1A. RISK FACTORS
There are no material changes in risk factors in the thirdsecond quarter of 2016.2017. For a discussion of risk factors, see Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016.1, 2017.
ITEM ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NoneThe following table contains information with respect to purchases made by or on behalf of the Company, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the quarter ended July 2, 2017:
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) | ||||||||||||
April 3-30, 2017(3) | 5,354 | $ | 19.37 | 0 | $ | 100,000,000 | ||||||||||
May 1-31, 2017(3) | 5,155 | $ | 20.65 | 0 | 100,000,000 | |||||||||||
June 1-30, 2017 | 1,244,735 | $ | 19.74 | 1,244,735 | 75,431,486 | |||||||||||
July 1-2, 2017 | 0 | N/A | 0 | 75,431,486 | ||||||||||||
Total | 1,255,244 | $ | 19.75 | 1,244,735 | $ | 75,431,486 |
(1)The monthly periods identified above correspond to the Company’s fiscal second quarter of 2017, which commenced April 3, 2017 and ended July 2, 2017.
(2) In April 2017, the Company announced a new share purchase program authorizing the repurchase of up to $100 million of common stock. This amended program has no specific expiration date.
(3) Comprised of shares acquired by the Company from employees to satisfy income tax withholding obligations in connection with the vesting of previous grants of equity awards.
ITEM ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
IITEM TEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITITEM EM5. OTHER INFORMATION
None
IITEM TEM 6. EXHIBITS
The following exhibits are filed with this report:
EXHIBIT NUMBER |
DESCRIPTION OF EXHIBIT |
4.1 | Amended and Restated Rights Agreement dated May 8, 2017 between Interface, Inc. and Computershare Trust Company, N.A., as Rights Agent (included as Exhibit 4.1 to the Company’s current report on Form 8-K filed on May 9, 2017, previously filed with the Commission and incorporated herein by reference). |
31.1 | Section 302 Certification of Chief Executive Officer. |
31.2 | Section 302 Certification of Chief Financial Officer. |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350. |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350. |
101.INS | XBRL Instance |
101.SCH | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
101.LAB | XBRL Taxonomy Extension Label Linkbase |
101.PRE | XBRL Taxonomy Presentation Linkbase |
101.DEF | XBRL Taxonomy Definition Linkbase |
SIGNATURE
Pursuant to the requirements 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.
INTERFACE, INC. | |||
Date: | By: | /s/ | |
| |||
| |||
(Principal Financial Officer) |
EXHIBITS INCLUDED HEREWTIHHEREWITH
EXHIBIT NUMBER |
DESCRIPTION OF EXHIBIT | |
31.1 | Section 302 Certification of Chief Executive | |
31.2 | Section 302 Certification of Chief Financial | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. § | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. § | |
101.INS | XBRL Instance | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Presentation Linkbase | |
101.DEF | XBRL Taxonomy Definition Linkbase |
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