SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended September 28, 1997
Commission File Number 0-12016
------------------------------
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) Identification No.)
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 X No
Shares outstanding of each of the registrant's classes of common
stock at November 7, 1997:
Class Number of Shares
----- ----------------
Class A Common Stock, $.10 par value per share 21,378,397
Class B Common Stock, $.10 par value per share 2,752,331
1
INTERFACE, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets - September 28, 1997 and 3
December 29, 1996
Statements of Income - Three Months and 4
Nine Months Ended September 28, 1997 and
September 29, 1996
Statements of Cash Flows - Nine Months 5
Ended September 28, 1997 and September 29,
1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
____________________________________
THIS FORM 10-Q CONTAINS STATEMENTS WHICH MAY CONSTITUTE "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ANY SUCH
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THE
RISKS AND UNCERTAINTIES DISCUSSED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR ITS FISCAL QUARTER ENDED MARCH 30, 1997,
UNDER THE CAPTION "CERTAIN FACTORS AFFECTING FORWARD-LOOKING
STATEMENTS" IN ITEM 5, WHICH DISCUSSION IS INCORPORATED HEREIN BY
THIS REFERENCE.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
ASSETS SEPTEMBER 28, DECEMBER 29,
- ------ 1997 1996
---- ----
CURRENT ASSETS:
Cash and Cash Equivalents $ 9,616 $ 8,762
Accounts Receivable 190,592 167,817
Inventories 165,655 146,678
Deferred Tax Asset 7,100 7,057
Prepaid Expenses 28,241 22,986
--------- ---------
TOTAL CURRENT ASSETS 401,204 353,300
PROPERTY AND EQUIPMENT, less
accumulated depreciation 224,015 208,791
EXCESS OF COST OVER NET ASSETS ACQUIRED 279,475 249,070
OTHER ASSETS 46,524 51,385
--------- ---------
$ 951,218 $ 862,546
========= =========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $ 17,693 $ 14,918
Accounts Payable 78,807 74,960
Accrued Expenses 90,976 70,919
Current Maturities of Long-Term Debt 1,697 2,919
--------- ---------
TOTAL CURRENT LIABILITIES 189,173 163,716
LONG-TERM DEBT, less current maturities 301,379 254,353
SENIOR SUBORDINATED NOTES 125,000 125,000
DEFERRED INCOME TAXES 26,119 23,484
--------- ---------
TOTAL LIABILITIES 641,671 566,553
--------- ---------
Minority Interest 3,125 3,125
Redeemable Preferred Stock - 19,750
Common Stock 2,762 2,536
Additional Paid-In Capital 160,346 124,557
Retained Earnings 187,027 166,828
Foreign Currency Translation Adjustment (25,967) (3,057)
Treasury Stock, 3,600
Class A Shares, at Cost (17,746) (17,746)
--------- ---------
$ 951,218 $ 862,546
========= =========
See accompanying notes to consolidated condensed financial statements.
3
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
---- ---- ---- ----
Net Sales $297,352 $275,041 $826,443 $717,546
Cost of Sales 196,699 187,581 553,473 492,509
-------- -------- -------- --------v
Gross Profit on Sales 100,653 87,460 272,970 225,037
Selling, General and Administrative Expenses 74,056 65,910 203,867 170,887
-------- -------- -------- --------
Operating Income 26,597 21,550 69,103 54,150
Other (Expense) Income - Net (9,234) (9,105) (28,393) (25,683)
-------- -------- -------- --------
Income before Taxes on Income 17,363 12,445 40,710 28,467
Taxes on Income 6,852 4,864 15,886 11,153
-------- -------- -------- --------
Net Income 10,511 7,581 24,824 17,314
Less: Preferred Dividends - 433 - 1,299
-------- -------- -------- --------
Net Income Applicable to Common Shareholders $ 10,511 $ 7,148 $ 24,824 $ 16,015
======== ======== ======== ========
Primary Earnings Per Common Share $ 0.44 $ 0.34 $ 1.06 $ 0.82
======== ======== ======== ========
Weighted Average Common Shares Outstanding 24,015 20,935 23,408 19,604
======== ======= ======== ========
See accompanying notes to consolidated condensed financial statements.
4
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
-----------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 24,824 $ 17,314
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 26,263 25,041
Deferred income taxes - -
Cash provided by (used for):
Accounts receivable (21,089) (20,461)
Inventories (16,409) (9,671)
Prepaid and other (6,309) (6,112)
Accounts payable and accrued expenses 18,052 17,769
-------- --------
25,332 23,880
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (33,963) (27,795)
Acquisitions of businesses (34,647) (46,912)
Other (7,601) (3,354)
-------- --------
(76,211) (78,061)
-------- --------
FINANCING ACTIVITIES:
Net borrowing (reduction) of long-term debt 50,546 49,638
Issuance of common stock 5,513 881
Dividends paid (4,626) (4,839)
-------- --------
51,433 45,680
-------- --------
Net cash provided by (used for) operating,
investing and financing activities 554 (8,501)
Effect of exchange rate changes on cash 300 (95)
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period 854 (8,596)
Balance at beginning of period 8,762 8,750
-------- --------
Balance at end of period $ 9,616 $ 154
======== ========
See accompanying notes to consolidated condensed financial statements.
5
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 notes to the
Company's year-end financial statements contained in its Annual
Report to Shareholders for the fiscal year ended December 29,
1996, as filed with the Commission.
The financial information included in this report has been
prepared by the Company, without audit, and should not be relied
upon to the same extent as audited financial statements. 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.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
SEPTEMBER 28, DECEMBER 29,
1997 1996
---- ----
Finished Goods $ 92,518 $ 81,034
Work-in-Process 33,731 30,464
Raw Materials 39,406 35,180
-------- --------
$165,655 $146,678
======== ========
NOTE 3 - BUSINESS ACQUISITIONS
During the third quarter of 1997, the Company acquired 100%
of the outstanding capital stock of Camborne Holdings, Ltd., a
manufacturer of interior fabrics based in West Yorkshire, U.K.,
and Facilities Resource Group, Inc., a provider of furniture
installation and related services based in Chicago, Illinois. As
consideration, the Company issued 102,562 shares of Class A
Common Stock, 127,806 shares of Class B Common Stock and paid
approximately $23 million in cash. Both of the acquisitions were
accounted for as purchases; accordingly, the results of
operations for the acquired companies are included in the
Company's consolidated financial statements from the respective
dates of the acquisitions. The excess of the purchase price over
the fair value of the net assets acquired will be amortized over
25 years.
During the second quarter of 1997, the Company acquired 100%
of the outstanding capital stock of four floorcovering
contractors -- Floormart, Inc., based in Glendale, California;
Canaan Corporation, based in Hamden, Connecticut; Carpet Services
6
of Tampa, Inc., based in Tampa, Florida; and Carpet Solutions
Holdings Pty Ltd., based in Brisbane, Queensland, Australia. As
consideration, the Company issued 155,022 shares of Class A
Common Stock valued at approximately $2.1 million and paid $5.3
million in cash. (The Company also paid $6.2 million in the
second quarter of 1997 in connection with acquisitions completed
in prior periods.) All of the acquisitions were accounted for as
purchases; accordingly, the results of operations for the
acquired companies are included in the Company's consolidated
financial statements from the respective dates of the
acquisitions. The excess of the purchase price over the fair
value of the net assets acquired will be amortized over 25 years.
During fiscal 1996, the Company acquired 100% of the
outstanding capital stock (and, in one case, all of the assets)
of fifteen floorcovering contractors -- Landry's Commercial
Flooring Co., Inc., based in Oregon; Reiser Associates, Inc.,
based in Texas; Earl W. Bentley Operating Co., Inc., based in
Oklahoma; Quaker City International, Inc., based in Pennsylvania;
Superior Holdings, Inc., based in Texas; Flooring Consultants,
Inc., based in Arizona; ParCom, Inc., based in Virginia; Congress
Flooring Corp., based in Massachusetts; Southern Contract
Systems, Inc., based in Georgia; B. Shehadi & Sons, Inc., based
in New Jersey; A & F Installations, Inc., based in New Jersey;
Lasher/White Carpet Co., Inc., based in New York; Oldtown Carpet
Center, Inc., based in North Carolina; Architectural Floors, a
division of Continental Office Furniture Corp., based in Ohio;
and Floor Concepts, Inc., based in Maryland. As consideration,
the Company issued 2,674,906 shares of Class A Common Stock
valued at approximately $19.3 million, $.8 million in 7% Notes
and paid $23.0 million in cash. All of the acquisitions were
accounted for as purchases; accordingly, the results of
operations for the acquired companies are included in the
Company's consolidated financial statements from the respective
dates of the acquisitions. The excess of the purchase price over
the fair value of the net assets acquired was approximately $33.9
million and is being amortized over 25 years.
In February 1996, the Company acquired 100% of the
outstanding common stock of Renovisions, Inc., a nationwide
installation services firm (based in Georgia) that has pioneered
a new method of carpet replacement, for approximately $6 million
in cash ($4 million in February 1996 and $2 million in February
1997). The acquisition was accounted for as a purchase and,
accordingly, the results of operations for Renovisions are
included in the Company's consolidated financial statements from
the date of acquisition. The excess of the purchase price over
the fair value of net assets acquired was approximately $4.3
million, and is being amortized over 25 years.
In February 1996, the Company acquired all of the
outstanding common stock of C-Tec, Inc., a Michigan-based
producer of raised/access flooring systems, for approximately
$8.8 million (comprised of $4.5 million in cash and $4.3 million
in 6% subordinated convertible notes). The acquisition was
accounted for as a purchase and, accordingly, the results of
operations for C-Tec are included in the Company's consolidated
financial statements from the date of acquisition. The excess of
the purchase price over the fair value of net assets acquired was
approximately $3.1 million, and is being amortized over 25 years.
7
NOTE 4 - EARNINGS PER SHARE AND DIVIDENDS
Earnings per share are computed by dividing net income
applicable to common shareholders by the combined weighted
average number of shares of Class A and Class B Common Stock
outstanding during the particular reporting period. The earnings
computation does not give effect to the negligible dilutive
impact of outstanding stock options. The Series A Preferred
Stock issued in June 1993 and redeemed in December 1996 (see Note
5 below) is not considered to be a common stock equivalent
because at the date of issuance the stated rate of interest was
greater than 66 2/3% of the AAA bond rate. In computing primary
earnings per share, the preferred stock dividend of 7% per annum
reduces income applicable to common shareholders. For the
purposes of computing earnings per share and dividends paid per
share, the Company is treating as treasury stock (and therefore
not outstanding) the shares that are owned by a wholly-owned
subsidiary (3,600,000 Class A shares, recorded at cost).
NOTE 5 - REDEEMABLE PREFERRED STOCK
In December 1996, the Company notified the holders of its
Series A Preferred Stock that it intended to redeem up to $10
million of the approximately $19.7 million (face value) Series A
Preferred Stock then outstanding. As a result of this notice,
the Series A preferred shareholders, with one exception, instead
elected to convert their shares of Series A Preferred Stock into
an aggregate of approximately 1,360,000 shares of the Company's
Class A Common Stock. The shares of Series A Preferred Stock
owned by the non-converting shareholder were redeemed for
approximately $6,000.
8
NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
The Guarantor Subsidiaries, which consist of the Company's
principal domestic subsidiaries, are guarantors of the Company's
9.5% senior subordinated notes due 2005. The Supplemental
Guarantor Financial Statements are presented herein pursuant to
requirements of the Commission.
INTERFACE, INC. AND SUBSIDIARIES
NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ ----------- ------------- ------------
(IN THOUSANDS)
Net sales $658,258 $271,032 $ - $(102,847) $826,443
Cost of sales 468,904 187,416 - (102,847) 553,473
-------- -------- ------- --------- --------
Gross profit on sales 189,354 83,616 - - 272,970
Selling, general and 138,755 54,138 10,974 - 203,867
administrative expenses -------- -------- ------- --------- --------
Operating income 50,599 29,478 (10,974) - 69,103
Other expense (income)
Interest Expense 7,890 3,238 15,175 - 26,303
Other 2,040 3,324 (3,274) - 2,090
-------- -------- ------- --------- --------
Total other expense 9,930 6,562 11,901 - 28,393
-------- -------- ------- --------- --------
Income before taxes on income
and Equity in income of 40,669 22,916 (22,875) - 40,710
subsidiaries
Taxes on income 16,098 8,396 (8,608) - 15,886
Equity in income of - - 39,091 (39,091) -
subsidiaries -------- -------- ------- --------- --------
Net income applicable to $24,571 $14,520 $24,824 ($39,091) $ 24,824
common shareholders ======== ======== ======= ========= ========
9
BALANCE SHEET
SEPTEMBER 28, 1997
CONSOLIDATION
NON- INTERFACE, INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ -------------- ------------- -----------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents $ 4,914 $ 4,702 $ - $ - $ 9,616
Accounts receivable 131,047 79,071 (19,526) - 190,592
Inventories 112,935 52,720 - - 165,655
Miscellaneous 9,431 16,122 9,788 - 35,341
---------- -------- --------- ------------ ---------
Total current assets 258,327 152,615 (9,738) - 401,204
Property and equipment,
less accumulated depreciation 152,474 64,863 6,678 - 224,015
Investment in subsidiaries 127,062 18,200 381,670 (526,932) -
Miscellaneous 130,567 14,730 406,121 (504,894) 46,524
Excess of cost over net assets 183,858 88,694 6,923 - 279,475
acquired ---------- -------- --------- ------------ ---------
$852,288 $339,102 $791,654 $(1,031,826) $951,218
========== ======== ========= =========== =========
LIABILITIES AND COMMON
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 12,728 $ 4,965 $ - $ - $ 17,693
Accounts payable 42,758 32,741 3,308 - 78,807
Accrued expenses 57,103 34,495 (622) - 90,976
Current maturities of long- 1,697 - - - 1,697
term debt ---------- -------- --------- ------------ ---------
Total current liabilities 114,286 72,201 2,686 - 189,173
Long-term debt, less
current maturities 227,838 37,070 304,271 (267,800) 301,379
Senior subordinated notes - - 125,000 - 125,000
Deferred income taxes 12,862 937 12,320 - 26,119
Minority interests 3,125 - - - 3,125
---------- -------- --------- ------------ ---------
Total liabilities 358,111 110,208 444,277 (267,800) 644,796
Redeemable preferred stock 57,891 - - (57,891) -
Common stock 81,704 102,199 2,762 (183,903) 2,762
Additional paid-in capital 187,195 11,030 160,346 (198,225) 160,346
Retained earnings 174,064 132,197 187,027 (306,261) 187,027
Foreign currency translation (6,677) (16,532) (2,758) - (25,967)
adjust.
Treasury stock - - - (17,746) (17,746)
---------- -------- --------- ------------ ---------
$852,288 $339,102 $791,654 $(1,031,826) $951,218
========== ======== ========= ============ =========
10
STATEMENT OF CASH FLOW
FOR THE NINE MONTHS
ENDED SEPTEMBER 28, 1997
INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ ----------- ----------- -------------
(IN THOUSANDS)
Cash flows from operating activities: $ 27,530 $ 2,803 $ (5,001) $ - $ 25,332
-------- -------- -------- ------- --------
Cash flows from investing activities:
Purchase of plant and equipment (23,664) (7,602) (2,697) - (33,963)
Acquisitions, net of cash acquired - - (34,647) - (34,647)
Other - - (7,601) - (7,601)
-------- -------- -------- ------- --------
Net cash provided by (used in) (23,664) (7,602) (44,945) - (76,211)
investing activities -------- -------- -------- ------- --------
Cash flows from financing activities:
Net borrowings (repayments) (8,071) 5,115 53,502 - 50,546
Proceeds from issuance of common - - 5,513 - 5,513
stock
Cash dividends paid - - (4,626) - (4,626)
Other - - - - -
-------- -------- -------- ------- --------
Net cash provided by (used in) (8,071) 5,115 54,389 - 51,433
financing activities -------- -------- -------- ------- --------
Effect of exchange rate change on - 300 - - 300
cash -------- -------- -------- ------- --------
Net increase (decrease) in cash (4,205) 616 4,443 - 854
Cash at beginning of year 3,481 4,791 490 - 8,762
-------- -------- -------- ------- --------
Cash at end of year $ (724) $ 5,407 $ 4,933 $ - $ 9,616
======== ======== ======== ======= ========
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS. For the three month and nine month
periods ended September 28, 1997, the Company's net sales
increased $22.3 million (8.1%) and $108.9 million (15.2%),
respectively, compared with the same periods in 1996. These
increases were primarily attributable to increased sales volume
in (i) the Company's floorcoverings operations due to increased
demand in the U.S. for its modular carpet products, as well as
the acquisitions of the floorcovering contractors in the Re:Source
Americas network, (ii) the Company's specialty products division,
resulting in part from the sale of specialty products through
the Re:Source Americas network, and (iii) the Company's interior
fabrics operations due to increased U.S. and foreign demand for its
products, as well as the acquisition of Camborne Holdings, Ltd. early
in the third quarter. The weakening of certain key currencies against
the U.S. dollar (particularly the Dutch guilder and Japanese yen)
continue to somewhat offset the increase in sales growth.
Cost of sales, as a percentage of sales, decreased slightly
to 66.1% and 67%, respectively, for the three month and nine
month periods ended September 28, 1997, when compared to 68.2%
and 68.6% for the same periods in 1996. The decreases are
primarily attributable to manufacturing efficiencies resulting
from the Company's "war on waste" initiative and the Company's
new modern yarn plant in its interior fabrics operations. Also,
the Company's mass customization production strategy continues
to result in a shift to higher margin products. These improved
margin levels continue to be somewhat mitigated by the acquisition
of the floorcovering contractors comprising the Re:Source Americas
network, which historically had higher cost of sales ratios than
the Company.
Selling, general and administrative expenses, as a
percentage of sales, increased to 24.9% and 24.7%, respectively,
for the three month and nine month periods ended September 28,
1997, when compared to 24% and 23.8% during the same periods in
1996. The increases are attributable to (i) administrative
expenses associated with building an infrastructure to manage the
Re:Source Americas network, and (ii) increased marketing and
sampling expenses in the Company's floorcovering operations
associated with the introduction of new products as the Company
continues to implement a mass customization strategy in both its
U.S. and its European and Asia-Pacific operations.
For the three month and nine month periods ended September
28, 1997, the Company's other expense increased $.1 million and
$2.7 million, respectively, compared to the same periods in 1996,
primarily due to an increase in bank debt incurred as a result of
the Company's acquisitions, as well as an increase in interest
rates.
As a result of the aforementioned factors, the Company's net
income increased 47% to $10.5 million and 55% to $24.8 million,
respectively, for the three month and nine month periods ended
September 28, 1997, compared to the same periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash
during the nine month period ended September 28, 1997 have been
(i) $34.6 million associated with acquisitions, (ii) $34 million
for additions to property and equipment in the Company's
manufacturing facilities, and (iii) $7.6 million related to
12
various deposits and other long-term assets. These uses were
funded primarily by $50.5 million from long-term financing, $25.3
million from operating activities and $5.5 million from the
issuance of common stock.
Cash provided by operating activities increased to $25.3
million during the nine month period ended September 28, 1997
from $23.9 million during the corresponding period in the prior
year. This increase was caused primarily by increases in net
income, and accounts payable and accrued expenses. The increase
was somewhat offset by increases in accounts receivable and
inventory.
The Company, as of September 28, 1997, recognized a $22.9
million decrease in foreign currency translation adjustment
compared to that of December 29, 1996. The decrease was
associated primarily with the Company's investments in
subsidiaries located in the United Kingdom and Continental
Europe. The translation adjustment to shareholders' equity was
converted by the guidelines of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 52.
The Company employs a variety of off-balance sheet financial
instruments, including foreign currency swap agreements and
foreign currency exchange contracts, to reduce its exposure to
adverse fluctuations in interest and foreign currency exchange
rates. At September 28, 1997, the Company had approximately $35
million (notional amount) of foreign currency hedge contracts
outstanding, consisting principally of currency swap contracts to
hedge firmly committed Dutch guilder and Japanese yen currency
revenues. At September 28, 1997, the Company utilized interest
rate swap agreements to effectively convert approximately $73
million of variable rate debt to fixed rate debt. The interest
rate swap agreements have maturity dates ranging from nine to
twenty-four months.
The Company continually monitors its position with, and the
credit quality of, the financial institutions which are counter-
parties to its off-balance sheet financial instruments and does
not currently anticipate nonperformance by the counter-parties.
Management believes that the cash provided by operations and
available under long-term loan commitments will provide adequate
funds for current commitments and other requirements in the
foreseeable future.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal
proceedings involving it or any of its property.
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal quarter ended September 28, 1997, the
Company issued an aggregate of 230,368 shares of its Common
Stock, par value $.10 per share, that were not registered under
the Securities Act of 1933 (the "Securities Act"). The shares,
in combination with cash, were issued as consideration in the
acquisitions of Camborne Holdings, Ltd. and Facilities Resource
Group, Inc., and were issued to an aggregate of three individuals
and entities. The market price on the dates of issuance ranged
from $22.125 per share to $24.625 per share. The sales of the
above securities are exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer
not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
EXHIBIT DESCRIPTION OF EXHIBIT
NUMBER
3.1 Articles of Incorporation (composite as of September 8, 1988)
(included as Exhibit 3.1 to the Company's annual report on Form
10-K for the year ended January 3, 1993 previously filed with
the Commission and incorporated herein by reference) and
Articles of Amendment (Series A Preferred Stock Designation),
dated June 17, 1993 (included as Exhibit 4.1 to the Company's
current report on Form 8-K, filed with the Commission on July 7,
1993 and incorporated herein by reference).
3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended April 1,
1990, previously filed with the Commission and incorporated
herein by reference).
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's
Articles of Incorporation, as amended, and Bylaws defining the
rights of holders of Common Stock of the Company.
14
4.2 Indenture governing the Company's 9.5% Senior Subordinated Notes
due 2005, dated as of November 15, 1995, among the Company,
certain U.S. subsidiaries of the Company, as Guarantors, and
First Union National Bank of Georgia, as Trustee (included as
Exhibit 4.1 to the Company's registration statement on Form S-4,
File No. 33-65201, previously filed with the Commission and
incorporated herein by reference); and Supplement No. 1 to
Indenture, dated as of December 27, 1996 (included as Exhibit
4.2(b) to the Company's Annual Report on Form 10-K for the year
ended December 29, 1996, previously filed with the Commission
and incorporated herein by reference).
4.3 Form of Exchange Note (included as part of Exhibit 4.2).
10.1 Seventh Amendment to Revolving Credit Loan Agreement dated
August 5, 1997, among the Company, Interface Flooring Systems,
Inc. and SunTrust Bank, Atlanta.
10.2 Shanghai Interface Carpet Co., Ltd. Joint Venture Contract dated
March 20, 1996, among Interface Asia-Pacific, Inc., BASF
Corporation and Shanghai China Textile International Science &
Technological Industrial City Development Company.
10.3 Interface, Inc. Nonqualified Savings Plan (included as Exhibit 4
to the Company's Registration Statement on Form S-8, File No.
333-38677, previously filed with the Commission and incorporated
herein by reference).
27.1 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended
September 28, 1997.
15
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: November 12, 1997 By: /s/ Daniel T. Hendrix
Daniel T. Hendrix
Senior Vice President
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Seventh Amendment to Revolving Credit Loan Agreement
dated August 5, 1997, among the Company, Interface
Flooring Systems, Inc. and SunTrust Bank, Atlanta.
10.2 Shanghai Interface Carpet Co., Ltd. Joint Venture
Contract dated March 20, 1996, among Interface Asia-
Pacific, Inc., BASF Corporation and Shanghai China
Textile International Science & Technological
Industrial City Development Company.
27.1 Financial Data Schedule (for SEC use only)