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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 April 3, 1994
Commission File Number 0-12016
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INTERFACE, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1451243
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ORCHARD HILL ROAD, P.O. BOX 1503, LAGRANGE, GEORGIA 30241
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(Address of principal executive offices and zip code)
(706) 882-1891
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(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
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Shares outstanding of each of the registrant's classes of common stock at
May 10, 1994:
Class Number of Shares
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Class A Common Stock, $.10 par value per share 15,057,828
Class B Common Stock, $.10 par value per share 3,103,525
Page 1 of Pages
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The Exhibit Index appears at page .
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INTERFACE, INC.
Index
Page
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Part I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance Sheets April 3, 1994 and January 2, 1994 3
Statements of Income - Three Months
Ended April 3, 1994 and April 4, 1993 4
Statements of Cash Flows -
Three Months Ended April 3, 1994 and April 4, 1993 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in the Rights of the Company's Security
Holders 10
Item 3. Defaults by the Company on Its Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In thousands)
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April 3, January 2,
ASSETS 1994 1994
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CURRENT ASSETS:
Cash and Cash Equivalents $2,339 $4,674
Escrowed and Restricted Funds 4,015 4,015
Accounts Receivable 123,240 124,170
Inventories 130,797 116,041
Deferred Tax Asset 2,539 2,539
Prepaid Expenses 17,863 15,078
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TOTAL CURRENT ASSETS 280,793 266,517
PROPERTY AND EQUIPMENT, less
accumulated depreciation 150,542 145,125
EXCESS OF COST OVER NET ASSETS ACQUIRED 198,994 195,143
OTHER ASSETS 38,310 35,534
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$668,639 $642,319
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LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts Payable 58,700 56,043
Accrued Expenses 42,268 52,744
Current Maturities of Long-Term Debt 16,629 17,155
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TOTAL CURRENT LIABILITIES 117,597 125,942
LONG-TERM DEBT, less current maturities 208,334 187,712
CONVERTIBLE SUBORDINATED DEBENTURES 103,925 103,925
DEFERRED INCOME TAXES 18,086 17,856
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TOTAL LIABILITIES 447,942 435,435
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Redeemable Preferred Stock 25,000 25,000
Common Stock:
Class A 1,862 1,793
Class B 311 311
Additional Paid-In Capital 94,118 83,989
Retained Earnings 127,286 125,960
Foreign Currency Translation Adjustment (10,134) (12,423)
Treasury Stock, 3,600
Class A Shares, at Cost (17,746) (17,746)
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$668,639 $642,319
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See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(Unaudited)
(In thousands except per share amounts)
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Three Months Ended
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April 3, April 4,
1994 1993
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Net Sales $160,719 $135,041
Cost of Sales 112,375 93,805
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Gross Profit on Sales 48,344 41,236
Selling, General and Administrative Expense 37,905 32,532
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Operating Income 10,439 8,704
Other (Expense) Income - Net (6,044) (5,310)
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Income before Taxes on Income 4,395 3,394
Taxes on Income 1,583 1,190
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Net Income 2,812 2,204
Less: Preferred Dividends 438 0
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Net Income Applicable to Common Shareholders $2,374 $2,204
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Primary Earnings Per Common Share $0.14 $0.13
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See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
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April 3, April 4,
(In thousands) 1994 1993
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OPERATING ACTIVITIES:
Net Income $2,812 $2,202
Adjustment to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 6,853 5,681
Deferred income taxes (154) (29)
Cash provided by (used for):
Accounts receivable (1,656) 6,732
Inventories (7,647) (2,848)
Prepaid and other (2,382) (3,618)
Accounts payable and accrued expenses (9,685) (4,959)
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(11,859) 3,161
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INVESTING ACTIVITIES:
Capital Expenditures (4,824) (2,436)
Acquisitions of businesses (643) (4,330)
Other (100) (1,350)
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(5,567) (8,116)
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FINANCING ACTIVITIES:
Net borrowing of long-term debt 16,151 5,515
Issuance of common stock 328 0
Dividends paid (1,486) (1,036)
Other 0 0
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14,993 4,479
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Net cash provided by operating,
investing and financing activities (2,433) (476)
Effect of exchange rate changes on cash 98 250
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CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period (2,335) (226)
Balance at beginning of period 4,674 5,824
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Balance at end of period $2,339 $5,598
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See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
NOTE 1 - CONDENSED FOOTNOTES
As contemplated by the Securities and Exchange 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 January 2, 1994, as filed with the Securities and Exchange
Commission.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
April 4, January 2,
1994 1994
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Finished Goods $70,171 $ 64,497
Work-in-Process 24,662 20,010
Raw Materials 35,964 31,534
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$130,797 $116,041
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NOTE 3 - BUSINESS ACQUISITIONS
On March 29, 1994, the Company acquired 100% of the outstanding shares
of Prince Street Technologies, Ltd. ("PST"), a broadloom carpet producer
located in Atlanta, Georgia. The Company issued 674,953 shares of Class A
Common Stock in exchange for 100% of the outstanding shares of PST. The
transaction will be accounted for as a purchase, and the operations of PST will
be included in the consolidated results of the Company from the date of the
acquisition.
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 each year. The computation does not
include a negligible dilutive effect of stock options. Neither the Convertible
Debentures issued in September 1988 nor the Preferred Stock issued during June
1993 were determined to be common stock equivalent. In computing primary
earnings per share, the preferred stock dividend reduces income
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INTERFACE, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
applicable to common shareholders. Primary earnings per share are based upon
17,463,000 shares, and 17,265,000 shares for the periods ended April 3, 1994
and April 4, 1993, respectively. For the periods ended April 3, 1994 and April
4, 1993, fully diluted earnings per common share were antidilutive. 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).
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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 year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS. The Company's net sales increased $25.7
million (19.0%) for the quarter ended April 3, 1994, compared with the
same period in 1993. The increase was primarily attributable to (i) sales
generated by Bentley Mills, Inc., which was acquired during June 1993, (ii)
increased sales volume in the Company's carpet tile operations in Europe and
Southeast Asia, and (iii) continued improvement in unit volume in the Company's
interior fabric and chemical operations. These increases were offset somewhat
by the strengthening of the U.S. Dollar, the Company's reporting currency,
against certain key European currencies; a decrease in sales volume in Japan,
which continues to experience a recessionary economic climate.
Cost of sales increased as a percentage of sales for the quarter ended
April 3, 1994, compared with the same period in 1993. The increase was due
primarily to (i) increased manufacturing costs in the Company's interior fabric
division, and (ii) the acquisition of Bentley, which had a higher cost of sales
than the Company, in June 1993.
Selling, general and administrative expenses as a percentage of sales
decreased to 23.6% for the three months ended April 3, 1994, compared to 24.4%
for the same period in 1993, primarily as a result of (i) the acquisition of
Bentley, which had lower selling, general and administrative costs than the
Company, in June 1993, and (ii) the continuation of cost controls measures
initiated in 1991 and 1992, which reduced discretionary marketing cost and
fixed overhead expenditures.
Other expense increased $.7 million for the quarter ended April 3,
1994, compared to the same period in 1993, primarily due to an increase in bank
debt coupled with the increase in U.S. interest rates.
Due, by and large, to the aforementioned factors, coupled with the
dividends paid on the Series A Preferred Shares, the Company's net income
increased 7.7% to $2.4 million for the first quarter of 1994, from $2.2 million
for the same period in 1993.
LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash during the
period have been (i) $11.9 million for operations, (ii) $4.8 for additions to
property and equipment in the Company's manufacturing facilities, (iii) $.6
million associated with the acquisition of Prince Street Technologies, Ltd.,
and (iv) $1.5 million for dividends paid. These uses were funded, in part, by
$16.2 million from long-term financing.
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The Company, as of April 3, 1994, recognized a $2.3 million decrease
in foreign currency translation adjustment compared to that of January 2, 1994,
primarily due to the movement of the U.S. dollar against two key functional
currencies, the British pound sterling and the Dutch Guilder. The adjustment
to shareholders' equity was converted by the guidelines of the Financial
Accounting Standards Board (FASB) 52.
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.
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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 THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS 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
Number Description of Exhibit
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10.1 Employment agreement of Charles R. Eitel.
10.2 Employment agreement of Royce R. Renfroe.
(b) No reports on Form 8-K were filed during the quarter ended April
3. 1994.
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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: May 13, 1994 By:/s/Daniel T. Hendrix
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Daniel T. Hendrix
Vice President
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
10.1 Employment agreement of Charles R. Eitel.
10.2 Employment agreement of Royce R. Renfroe.
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