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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 July 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
- - ------------------------------- -------------------
(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
--- ---
Shares outstanding of each of the registrant's classes of common stock at
July 29, 1994:
Class Number of Shares
- - ---------------------------------------------- ----------------
Class A Common Stock, $.10 par value per share 15,109,328
Class B Common Stock, $.10 par value per share 3,082,025
Page 1 of ____________ Pages
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 - July 3, 1994 and January 2, 1994 3
Statements of Income - Three Months and Six Months
Ended July 3, 1994 and July 4, 1993 4
Statements of Cash Flows -
Six Months Ended July 3, 1994 and July 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)
- - ------------------------------------------------------------------------ July 3, January 2,
ASSETS 1994 1994
- - ------------------------------------------------------------------------ --------- ---------
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,921 $ 4,674
Escrowed and Restricted Funds 2,695 4,015
Accounts Receivable 134,300 124,170
Inventories 139,042 116,041
Deferred Tax Asset 2,539 2,539
Prepaid Expenses 16,057 15,078
-------- --------
TOTAL CURRENT ASSETS 296,554 266,517
PROPERTY AND EQUIPMENT, less
accumulated depreciation 150,654 145,125
EXCESS OF COST OVER NET ASSETS ACQUIRED 202,378 195,143
OTHER ASSETS 35,966 35,534
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$685,552 $642,319
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LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
- - -----------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable 62,413 56,043
Accrued Expenses 45,327 52,744
Current Maturities of Long-Term Debt 16,900 17,155
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TOTAL CURRENT LIABILITIES 124,640 125,942
LONG-TERM DEBT, less current maturities 204,656 187,712
CONVERTIBLE SUBORDINATED DEBENTURES 103,925 103,925
DEFERRED INCOME TAXES 19,390 17,856
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TOTAL LIABILITIES 452,611 435,435
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Redeemable Preferred Stock 25,000 25,000
Common Stock:
Class A 1,871 1,793
Class B 308 311
Additional Paid-In Capital 94,240 83,989
Retained Earnings 129,467 125,960
Foreign Currency Translation Adjustment (199) (12,423)
Treasury Stock, 3,600
Class A Shares, at Cost (17,746) (17,746)
-------- --------
$685,552 $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)
Three Months Ended Six Months Ended
-------------------- --------------------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
-------- -------- -------- --------
Net Sales $181,665 $150,045 $342,384 $283,713
Cost of Sales 126,117 102,602 238,492 195,035
-------- -------- -------- --------
Gross Profit on Sales 55,548 47,443 103,892 88,678
Selling, General and Administrative Expense 43,408 36,726 81,313 69,258
-------- -------- -------- --------
Operating Income 12,140 10,717 22,579 19,420
Other (Expense) Income - Net (6,342) (6,412) (12,386) (11,722)
-------- -------- -------- --------
Income before Taxes on Income 5,798 4,305 10,193 7,698
Taxes on Income 2,087 1,508 3,670 2,697
-------- -------- -------- --------
Net Income 3,711 2,797 6,523 5,001
Less: Preferred Dividends 437 53 875 53
-------- -------- -------- --------
Net Income Applicable to Common Shareholders $ 3,274 $ 2,744 $ 5,648 $ 4,948
======== ======== ======== ========
Primary Earnings Per Common Share $ 0.18 $ 0.16 $ 0.32 $ 0.29
======== ======== ======== ========
Weighted Average Common Shares Outstanding 18,175 17,265 17,834 17,265
======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
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INTERFACE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
-----------------------------------
July 3, July 4,
(In thousands) 1994 1993
- - -------------- --------- ---------
OPERATING ACTIVITIES:
Net Income $ 6,523 $ 5,001
Adjustment to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 14,357 11,993
Deferred income taxes 970 (27)
Cash provided by (used for):
Accounts receivable (4,385) 4,519
Inventories (13,156) (2,504)
Prepaid and other 217 (4,097)
Accounts payable and accrued expenses (10,455) (6,324)
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(5,929) 8,561
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INVESTING ACTIVITIES:
Capital expenditures (9,182) (6,805)
Acquisitions of businesses (643) (14,920)
Other 2,511 (1,236)
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(7,314) (22,961)
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FINANCING ACTIVITIES:
Net borrowing of long-term debt 12,734 15,144
Issuance of common stock 453 0
Dividends paid (3,015) (2,072)
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10,172 13,072
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Net cash provided by operating,
investing and financing activities (3,071) (1,328)
Effect of exchange rate changes on cash 318 (93)
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CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period (2,753) (1,421)
Balance at beginning of period 4,674 5,824
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Balance at end of period $ 1,921 $ 4,403
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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:
July 3, January 2,
1994 1994
-------- ----------
Finished Goods $ 76,363 $ 64,497
Work-in-Process 24,564 20,010
Raw Materials 38,116 31,534
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$139,042 $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 has been accounted for as a purchase, and the operations of PST are
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 in June 1993
were determined to be common stock equivalents. 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. For the periods ended July 3, 1994 and July
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. For the three month and six month periods
ended July 3, 1994, the Company's net sales increased $31.6 million (21.1%) and
$58.7 million (20.7%), respectively, compared with the same periods in 1993.
The increase was primarily attributable to (i) sales generated by Bentley
Mills, Inc., which was acquired during June 1993, (ii) sales generated by
Prince Street Technologies, Ltd., which was acquired during March 1994, (iii)
increased sales volume in the Company's carpet operations in Europe and
Southeast Asia, and (iv) 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 (particularly the Dutch guilder), and 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 three and six
month periods ended July 3, 1994, compared with the same periods in 1993. The
increase was due primarily to (i) increased manufacturing costs in the
Company's interior fabrics division, and (ii) the acquisitions of Bentley Mills
and Prince Street Technologies, which, historically, had higher cost of sales
than the Company.
Selling, general and administrative expenses as a percentage of sales
decreased to 23.9% and 23.7%, respectively, for the three month and six month
periods ended July 3, 1994, compared to 24.5% and 23.7% for the same periods in
1993, primarily as a result of (i) the acquisition of Bentley, which had lower
selling, general and administrative costs than the Company, and (ii) the
continuation of cost controls measures initiated in prior years, which reduced
discretionary marketing cost and fixed overhead expenditures.
For the three month and six month periods ended July 3, 1994, the
Company's other expense decreased $.1 million and increased $.7 million,
respectively, compared to the same periods 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 19.3% to $3.3 million and 14.1% to $5.6 million, respectively, for
the three months and six months ended July 3, 1994, compared to the same
periods in 1993.
LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash during the
period have been (i) $5.9 million for operations, (ii) $9.2 for additions to
property and equipment in the Company's manufacturing facilities, (iii) $.6
associated with the acquisition of Prince Street Technologies, Ltd., and (iv)
$3.0 million for dividends
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paid. These uses were funded, in part, by $12.7 million from long-term
financing and $1.3 million from a reduction in escrowed and restricted funds
requirements.
The Company, as of July 3, 1994, recognized a $12.2 million decrease
in foreign currency translation adjustment compared to that of January 2, 1994.
This improvement in translation adjustment was largely due to a significant
quarter end strengthening of the British pound sterling and the Dutch Guilder
compared to the U.S. dollar. The adjustment to shareholders' equity was
converted by the guidelines of the Financial Accounting Standards Board (FASB)
52.
In June 1994, the Company amended its existing revolving credit and
term loan facilities. The amendment increased the revolving credit facilities
by $20.0 million, reduced the interest calculation from LIBOR plus 1.5% to
LIBOR plus 1.0%, reduced the commitment fees payable by the Company, and
amended certain financial covenants.
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
(a) The Company held its annual meeting of shareholders on May 17,
1994.
(b) N/A
(c) The matters considered at the annual meeting, and the votes
cast for, against or withheld, as well as the number of
abstentions, relating to each matter, are as follows:
(i) Election of the following directors:
CLASS A FOR WITHHELD
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Carl I. Gable 10,637,724 97,237
Arie Glimmerveen 10,628,624 106,337
J. Smith Lanier, II 10,629,326 105,635
Leonard G. Saulter 10,629,724 105,237
David G. Thomas 10,637,224 97,737
Clarinus C. Th. van Andel 10,638,124 96,837
CLASS B FOR WITHHELD
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Ray C. Anderson 2,753,996 0
Brian L. DeMoura 2,753,996 0
Charles R. Eitel 2,753,996 0
David Milton 2,753,996 0
Royce R. Renfroe 2,753,996 0
Don E. Russell 2,753,996 0
C. Edward Terry 2,753,996 0
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(ii) Proposal to amend the Company's 1993 Key Employee
Stock Option Plan to increase the number of shares
authorized to be issued thereunder by 500,000 shares.
For 12,855,827
Against 593,066
Abstain 379,483
(iii) Proposal submitted by a shareholder requesting
implementation of the MacBride Principles concerning
employment practices of the Company's subsidiary that
has a facility in Northern Ireland.
For 1,212,371
Against 10,637,146
Abstain 712,505
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 Second Amendment to Second Amended and Restated Credit Agreement, dated June 13, 1994, among the Company
(and certain of its direct and indirect subsidiaries), Trust Company Bank and The First National Bank of
Chicago.
10.2 Third Amendment to Revolving Credit Loan Agreement, dated as of June 15, 1994, between Interface Flooring
Systems, Inc. and Trust Company Bank.
10.3 Employment Agreement of David Milton.
10.4 Employment Agreement of Brian L. DeMoura.
(b) No reports on Form 8-K were filed during the quarter ended
July 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: August 12, 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 Sequential
Number Description of Exhibit Page No.
10.1 Second Amendment to Second Amended and Restated Credit Agreement, dated June 13,
1994, among the Company (and certain of its direct and indirect subsidiaries),
Trust Company Bank and The First National Bank of Chicago.
10.2 Third Amendment to Revolving Credit Loan Agreement, dated as of June 15, 1994,
between Interface Flooring Systems, Inc. and Trust Company Bank.
10.3 Employment Agreement of David Milton.
10.4 Employment Agreement of Brian L. DeMoura.
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