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2859 Paces Ferry Road
Suite 2000
Atlanta, GA 30339
www.interface.com
I believe Interface is on solid footing for 2014, and I’m encouraged
about our prospects this year. Leading indicators as well as our business
in the U.S. have been moving in a positive direction, and project activity
within the architect and design community has been firming up. While
we expect the pace of economic recovery in the U.S. to remain gradual
throughout the year, we believe we have upside to take market share
and outperform the rest of the industry. The outlook for Europe has
brightened over the past six months, with evidence that its economic
downturn is mostly subsiding and our largest markets in the U.K., Holland
and Germany are recovering. In Australia, the overall market is expected
to be soft, but we’re poised to regain market share, as delivery lead times
and service levels improve with the ramp up of our new plant. The broader
challenges for our Asia-Pacific business will be rebalancing production
among our three plants in the region, penetrating non-office market
segments, and leading in design and sustainability. Lastly, we expect to
realize further margin expansion from improved manufacturing efficiencies
and carefully controlled SG&A spending throughout the year.
This year also marks the 20-year anniversary of our founder Ray
Anderson’s epiphany – his self-described “spear in the chest” moment
– when he realized that our future depends on our ability to achieve
sustainability. While we’ve made tremendous progress and led a sea
change in our industry since that time, we still have a ways to go and
much to accomplish to reach this goal by the year 2020. We will
continue to honor Ray’s legacy and tirelessly pursue his vision, and
we hope you will continue with us on the journey.
Yours very truly,
Daniel T. Hendrix
Dear Fellow Shareholders:
Interface experienced gradual, steady improvement during 2013,
with our Americas business hitting a record annual sales number and
offsetting modest sales declines in our Europe and Asia-Pacific regions.
Our performance in the U.S. greatly outpaced the rest of the commercial
flooring market, although mixed macroeconomic conditions in Europe and
the lingering effects of the 2012 fire at our Australia plant combined to
keep our overall growth in check. Despite these challenges in overseas
markets, our profit margins and earnings expanded to healthy levels.
The biggest driver of growth in our Americas business was the
corporate office market, which was up 9% year-over-year, even though
we’ve yet to see a true rebound in the segment. Contributions also came
from non-office segments and from emerging geographic markets in
Latin and South America. In particular, we’re very pleased with the upward
trajectory of our business in the hospitality segment, where we have
enhanced our sales and marketing efforts with large branded customers
and are beginning to realize success.
At our residential carpet tile business FLOR, sales were up 32% for
the year and we opened three new FLOR stores, bringing our current
total to 21 stores. In the aggregate, our FLOR stores were profitable for
the year, and same store sales improved 24%. Our marketing efforts have
been focused on improving connections between our stores, catalogs
and web presence, all aimed at enhancing the “omni-channel” customer
experience. While FLOR fell short of our goal of achieving profitability
during 2013, the balance between its growth and profitability is a delicate
one, and we remain pleased with its overall performance and future prospects.
After several years of economic turmoil, Europe has begun to show
signs of life. The second half of 2013, in particular, shaped up nicely for
our business. Project pipeline activity and orders began picking up in
the third quarter, and this momentum continued into the fourth quarter,
when we logged our highest level of orders in the past five years. Most
of the improvement is coming in our primary markets of the U.K., Holland
and Germany, while conditions in Southern Europe remain soft. We’re
encouraged by the positive trends in Europe and we believe our business
in the region is poised for further recovery.
In Asia-Pacific, our sales declined 3% for the year, primarily due to
the negative impacts from the previous year’s fire at our Australia plant.
While we were successful adapting our supply chain and servicing the
Australia market from our other plants worldwide, the resulting extended
delivery lead times and inefficiencies disrupted our customer service
capabilities in the region. Outside of Australia, however, our Asia-Pacific
business was strong as sales and operating income in Southeast Asia and
China improved significantly.
Two other recent developments in our Asia-Pacific business are worth
noting. First, we reached a final settlement with our insurance company
regarding the Australia fire, which resulted in a gain during 2013. Second,
and more importantly, we commenced operations at our new state-of-the-
art manufacturing facility located near Sydney, Australia during the first
week of January 2014, which will significantly improve our service levels
in the region going forward.
In 2013, we made great strides in our mission of becoming a sustainable
enterprise – which we refer to as Mission Zero®. We launched the Net
Effect™ Collection of carpet tile products (one of which is featured on the
cover of this report) with yarn that is partly made from recycled fishing
nets collected by communities in the Philippines through our Net-Works™
project. This program is a big step in redesigning our supply chain from
a linear take-make-waste process toward a closed loop system, and it
advances our ultimate goal of becoming a restorative enterprise. Our plant
in Europe reached a significant milestone, as it now uses 100% renewable
energy from a combination of bio-gas and green electricity, with almost
no water used or waste sent to a landfill. In addition, we created new
programs to strengthen employee connections to our sustainability goals,
holding our first ever Mission Zero week celebrations at several locations
worldwide, with activities that included legacy projects, biomimicry training
workshops, enhanced communications and employee recognition programs.
Board of Directors
Daniel T. Hendrix
Chairman of the Board, President and
Chief Executive Officer
John P. Burke
Chief Executive Officer
Trek Bicycle Corporation
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Edward C. Callaway
Chairman and Chief Executive Officer
Ida Cason Callaway Foundation
Andrew B. Cogan
Chief Executive Officer
Knoll, Inc.
Dianne Dillon-Ridgley
U.N. Representative for Center for
International Environmental Law
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Carl I. Gable
Private Investor
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Dr. June M. Henton
Auburn University
Dean of the College of Human Sciences
Christopher G. Kennedy
Chairman
Joseph P. Kennedy Enterprises, Inc.
K. David Kohler
President and Chief Operating Officer
Kohler Co.
James B. Miller, Jr.
Chairman and Chief Executive Officer
Fidelity Southern Corporation
Harold M. Paisner
Senior Partner
Berwin Leighton Paisner, LLP
u Lead Independent Director
Executive Committee Member
Audit Committee Member
Compensation Committee Member
Nominating & Governance Committee Member
Shareholder Information
Form 10-K
Change of Address
Executive Officers
Daniel T. Hendrix
President and
Chief Executive Officer
Robert A. Coombs
Senior Vice President
(Asia-Pacific)
Patrick C. Lynch
Senior Vice President and
Chief Financial Officer
Lindsey K. Parnell
Senior Vice President
(Europe)
A copy of the Company’s Annual Report
on Form 10-K, filed each year with the
Securities and Exchange Commission, may
be obtained by shareholders without charge
by writing to:
Mr. Patrick C. Lynch
Chief Financial Officer
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
Annual Meeting
The annual meeting of shareholders will be
at 3:00 pm EDT on May 12, 2014 at:
The Vinings Club
2859 Paces Ferry Road
Atlanta, Georgia 30339
Transfer Agent and Dividend
Disbursing Agent
Computershare
211 Quality Circle, Suite 210
College Station, Texas 77845
1 800 254 5196 (U.S. & Canada)
1 781 575 2879 (Foreign)
Number of Shareholders of Record
at March 7, 2014: 680
John R. Wells
Senior Vice President
(Americas)
Raymond S. Willoch
Senior Vice President
(Administration),
General Counsel and Secretary
Jo Ann Herold
Vice President and
Chief Marketing Officer
Robert Boogaard
Interim Division President
(Europe)
Please direct all changes of address
or inquiries as to how your account
is listed to:
Computershare
211 Quality Circle, Suite 210
College Station, Texas 77845
1 800 254 5196 (U.S. & Canada)
1 781 575 2879 (Foreign)
Kilpatrick Townsend & Stockton LLP
Atlanta, Georgia
Independent Registered
Public Accounting Firm
BDO USA, LLP
Atlanta, Georgia
Principal Legal Counsel
Corporate Address
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
tel (770) 437 6800
fax (770) 803 6950
www.interface.com
Ticker Symbol
TILE (Nasdaq)
Forward-Looking Statements
This report contains statements which may constitute “forward-looking statements” under applicable securities laws, including statements regarding the
intent, belief, or current expectations of Interface, Inc. (the “Company”) and members of its management team, as well as the assumptions on which such
statements are based. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results
may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements are set forth in Item 1A (“Risk Factors”) of the Company’s Annual Report on Form 10-K
for the fiscal year ended December 29, 2013, and are 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.
Interface®, FLOR®, Mission Zero® and the Mission Zero logo are registered trademarks of Interface, Inc. and its subsidiaries. All rights are reserved.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 29, 2013
Commission File No.: 001-33994
Interface, Inc.
(Exact name of registrant as specified in its charter)
Georgia
(State of incorporation)
2859 Paces Ferry Road, Suite 2000
Atlanta, Georgia
(Address of principal executive offices)
58-1451243
(I.R.S. Employer Identification No.)
30339
(zip code)
Registrant’s telephone number, including area code: (770) 437-6800
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.10 Par Value Per Share
Series B Participating Cumulative Preferred Stock Purchase Rights
Name of Each Exchange on Which Registered:
Nasdaq Global Select Market
Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☑ NO ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☑
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of
1934. (Check one):
Large Accelerated Filer ☑
Accelerated Filer ☐
Non-Accelerated Filer ☐
Smaller Reporting Company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☑
Aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 28, 2013: $1,086,443,039 (64,021,393
shares valued at the closing sale price of $16.97 on June 28, 2013). See Item 12.
Number of shares outstanding of each of the registrant’s classes of Common Stock, as of February 14, 2014:
Class
Common Stock, $0.10 par value per share
Number of Shares
66,557,754
Portions of the Proxy Statement for the 2014 Annual Meeting of Shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
ITEM 1. BUSINESS
Introduction and General
PART I
We are a worldwide leader in design, production and sales of modular carpet, also known as carpet tile. In recent years,
modular carpet sales growth in the floorcovering industry has significantly outpaced the growth of the overall industry, as
architects, designers and end users increasingly recognized the unique and superior attributes of modular carpet, including
its dynamic design capabilities, greater economic value (which includes lower costs as a result of reduced waste in both
installation and replacement), and installation ease and speed.
As a global company with a reputation for high quality, reliability and premium positioning, we market modular carpet
in over 110 countries under the established brand names Interface® and FLOR®. Our principal geographic markets are the
Americas, Europe and Asia-Pacific, where the percentages of our total net sales were approximately 57%, 29% and 14%,
respectively, for fiscal year 2013.
Capitalizing on our leadership in modular carpet for the corporate office segment, we are executing a market
diversification strategy to increase our presence and market share for modular carpet in non-corporate office market
segments, such as government, education, healthcare, hospitality and retail space, which combined are almost twice the size
of the approximately $1 billion U.S. corporate office market segment. Our diversification strategy also targets the
approximately $11 billion U.S. residential market segment for carpet. As a result of our efforts, our mix of corporate office
versus non-corporate office modular carpet sales in the Americas was 48% and 52%, respectively, for 2013. Company-
wide, our mix of corporate office versus non-corporate office sales was 60% and 40%, respectively, in 2013. We believe
the appeal and utilization of modular carpet is growing in each of these non-corporate office market segments, and we are
using our considerable skills and experience with designing, producing and marketing modular products that make us the
market leader in the corporate office segment to support and facilitate our penetration into these segments around the
world.
In July 2012, a fire occurred at our manufacturing facility in Picton, Australia, causing extensive damage and rendering
the facility inoperable. The Picton facility served our customers throughout Australia and New Zealand. Since the fire, we
have utilized adequate production capacity at our manufacturing facilities in Thailand, China and elsewhere to meet
customer demand typically serviced from Picton. We have completed the build-out of a new manufacturing facility in
Minto, Australia, which commenced operations in January 2014. For additional information, please see Items 7 and 8 of
this Annual Report.
In August 2012, we sold our Bentley Prince Street business segment, which designed, manufactured and marketed
high-end, designer-oriented broadloom and modular carpet. For additional information, please see Items 7 and 8 of this
Annual Report.
Our Strengths
Our principal competitive strengths include:
Market Leader in Attractive Modular Carpet Segment. We are the world’s leading manufacturer of carpet tile. Modular
carpet has become more prevalent across all commercial interiors markets as designers, architects and end users have
become more familiar with its unique attributes. We continue to drive this trend with our product innovations and designs
discussed below. According to the annual Floor Focus interiors industry survey of the top 250 designers in the United
States, carpet tile was ranked as the number one “hot product” for each of the years 2002 through 2012. We believe that we
are well positioned to lead and capitalize upon the continued shift to modular carpet, both domestically and around the
world.
Established Brands and Reputation for Quality, Reliability and Leadership. Our products are known in the industry
for their high quality, reliability and premium positioning in the marketplace. Our established brand names in carpets are
leaders in the industry. The 2013 Floor Focus survey ranked our Interface brand first or second in the survey categories of
performance, service and design. On the international front, Interface and Heuga® are well-recognized brand names in
carpet tiles for commercial, institutional and residential use. More generally, as the appeal and utilization of modular carpet
continues to expand into market segments such as government, healthcare, education, hospitality, and retail and residential
space, our reputation as the pioneer of modular carpet — as well as our established brands and leading market position for
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modular carpet in the corporate office segment — will enhance our competitive advantage in marketing to the customers in
these new markets.
Innovative Product Design and Development Capabilities. Our product design and development capabilities have long
given us a significant competitive advantage, and they continue to do so as modular carpet’s appeal and utilization expand
across virtually every market segment and around the globe. One of our best design innovations is our i2™ modular
product line, which includes our popular Entropy® product for which we received a patent in 2005 on the key elements of
its design. The i2 line introduced and features mergeable dye lots, and includes carpet tile products designed to be installed
randomly without reference to the orientation of neighboring tiles. The i2 line offers cost-efficient installation and
maintenance, interactive flexibility, and recycled and recyclable materials. Our i2 line of products, which now comprises
approximately 45% of our total U.S. modular carpet business, represents a differentiated category of smart,
environmentally sensitive and stylish modular carpet, and Entropy has been the fastest growing product in our history. The
award-winning design firm David Oakey Designs had a pivotal role in developing our i2 product line, and our long-
standing exclusive relationship with David Oakey Designs remains vibrant and augments our internal research,
development and design staff. Another recent innovation is our patented TacTiles® carpet tile installation system, which
uses small squares of adhesive plastic film to connect intersecting carpet tiles, thus eliminating the need for traditional
carpet adhesive and resulting in a reduction in installation time and waste materials.
Made-to-Order and Global Manufacturing Capabilities. We have a distinct competitive advantage in meeting two
principal requirements of the specified products markets we primarily target — that is, providing custom samples quickly
and on-time delivery of customized final products. We also can generate realistic digital samples that allow us to create a
virtually unlimited number of new design concepts and distribute them instantly for customer review, while at the same
time reducing sampling waste. Approximately 60% to 70% of our modular carpet products in the United States and Asia-
Pacific markets are now made-to-order, and we are increasing our made-to-order production in Europe as well. Our made-
to-order capabilities not only enhance our marketing and sales, they significantly improve our inventory turns. Our global
manufacturing capabilities in modular carpet production are an important component of this strength, and give us an
advantage in serving the needs of multinational corporate customers that require products and services at various locations
around the world. Our manufacturing locations across four continents enable us to compete effectively with local producers
in our international markets, while giving international customers more favorable delivery times and freight costs.
Recognized Global Leadership in Ecological Sustainability. Our long-standing goal and commitment to be
ecologically “sustainable” — that is, the point at which we are no longer a net “taker” from the earth and do no harm to the
biosphere — have emerged as a competitive strength for our business and remain a strategic initiative. It includes Mission
Zero®, our global branding initiative, which represents our mission to eliminate any negative impact our companies may
have on the environment by the year 2020. Our acknowledged leadership position and expertise in this area resonate deeply
with many of our customers and prospects around the globe, and provide us with a differentiating advantage in competing
for business among architects, designers and end users of our products, who increasingly make purchase decisions based on
“green” factors. The 2013 Floor Focus survey, which named our Interface business the top among “Green Leaders,” found
that 78% of the designers surveyed consider sustainability an added benefit and 61% consider it a “make or break” issue
when deciding what products to recommend or purchase.
Strong Operating Leverage Position. Our operating leverage, which we define as our ability to realize profit on
incremental sales, is strong and generally allows us to increase earnings at a higher rate than our rate of increase in net
sales. Our operating leverage position is primarily a result of (1) the specified, high-end nature and premium positioning of
our principal products in the marketplace, and (2) the mix of fixed and variable costs in our manufacturing processes that
allow us to increase production of most of our products without significant increases in capital expenditures or fixed costs.
Experienced and Motivated Management and Sales Force. An important component of our competitive position is the
quality of our management team and its commitment to developing and maintaining an engaged and accountable
workforce. Our team is highly skilled and dedicated to guiding our overall growth and expansion into our targeted market
segments, while maintaining our leadership in traditional markets and our high contribution margins. We utilize an internal
marketing and predominantly commissioned sales force of nearly 700 experienced personnel, stationed at over 70 locations
in over 30 countries, to market our products and services in person to our customers. Our incentive compensation and our
sales and marketing training programs are tailored to promote performance and facilitate leadership by our executives both
in strategic areas as well as the company as a whole.
3
Our Business Strategy and Principal Initiatives
Our business strategy is to continue to use our leading position in modular carpet and our product design and global
made-to-order capabilities as a platform from which to drive acceptance of modular carpet products across several industry
segments, while maintaining our leadership position in the corporate office market segment. We will seek to increase
revenues and profitability by capitalizing on the above strengths and pursuing the following key strategic initiatives:
Continue to Penetrate Non-Corporate Office Market Segments. We will continue our strategic focus on product design
and marketing and sales efforts for non-corporate office market segments such as government, education, healthcare,
hospitality, retail and residential space. We began this initiative as part of our market diversification strategy in 2001 (when
our initial objective was reducing our exposure to the more severe economic cyclicality of the corporate office segment),
and it has become a principal strategy generally for growing our business and enhancing profitability. To implement this
strategy, we:
• introduced specialized product offerings tailored to the unique demands of these segments, including specific designs,
functionalities and prices;
• created special sales teams dedicated to penetrating these segments at a high level, with a focus on specific customer
accounts rather than geographic territories; and
• realigned incentives for our corporate office segment sales force generally in order to encourage their efforts, and
where appropriate, to assist our penetration of these other segments.
As part of this strategy, our FLOR line of products focuses on the approximately $11 billion U.S. residential carpet
market segment. These products were specifically created to bring high style modular carpet to the North American
residential market. We offer FLOR directly and over the Internet, in a FLOR catalog and in our 21 FLOR retail stores.
FLOR is also offered by many specialty retailers and in a number of major retail catalogs. Through such direct and indirect
retailing, FLOR sales have grown more than 200% from 2005 to 2013.
Penetrate Expanding Geographic Markets for Modular Products. The popularity of modular carpet continues to
increase compared with other floorcovering products across most markets, internationally as well as in the United States.
While maintaining our leadership in the corporate office segment, we will continue to build upon our position as the
worldwide leader for modular carpet in order to promote sales in all market segments globally. A principal part of our
international focus – which utilizes our global marketing capabilities and sales infrastructure – is the significant
opportunities in several emerging geographic markets for modular carpet. Some of these markets, such as China, India and
Eastern Europe, represent large and growing economies that are essentially new markets for modular carpet products.
Others, such as Germany and Italy, are established markets that are transitioning to the use of modular carpet from
historically low levels of penetration. Each of these emerging markets represents a significant growth opportunity for our
modular carpet business.
Continue to Minimize Expenses and Invest Strategically. We have steadily trimmed costs from our operations for
several years through multiple initiatives, which have made us leaner today and for the future. Our supply chain and other
cost containment initiatives have improved our cost structure and yielded the operating efficiencies we sought. While we
still seek to minimize our expenses in order to increase profitability, we will also take advantage of strategic opportunities
to invest in systems, processes and personnel that can help us grow our business and increase profitability and value.
Sustain Leadership in Product Design and Development. As discussed above, our leadership position for product
design and development is a competitive advantage and key strength. Our i2 products and TacTiles installation system have
confirmed our position as an innovation leader in modular carpet. We will continue initiatives to sustain, augment and
capitalize upon that strength to continue to increase our market share in targeted market segments. Our Mission Zero global
branding initiative, which draws upon and promotes our ecological sustainability commitment, is part of those initiatives
and includes placing our Mission Zero logo on many of our marketing and merchandising materials distributed throughout
the world.
Use Strong Free Cash Flow Generation to De-leverage Our Balance Sheet. Our principal business has been
structured – including through our rationalization and repositioning initiatives – to yield high contribution margins and
generate strong free cash flow (by which we mean cash available to apply towards debt service and potential stock
repurchases, strategic acquisitions and the like). Our historical investments in global manufacturing capabilities and mass
customization techniques and facilities, which we have maintained, also contribute to our ability to generate substantial
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levels of free cash flow. We will use our strong free cash flow generation capability to continue to repay debt and
strengthen our financial position. We will also continue to execute programs to reduce costs further and enhance free cash
flow. In addition, our existing capacity to increase production levels without significant capital expenditures will further
enhance our generation of free cash flow as demand for our products rises.
Challenges
In order to capitalize on our strengths and to implement successfully our business strategy and the principal initiatives
discussed above, we will have to handle successfully several challenges that confront us or that affect our industry in
general. As discussed in the Risk Factors in Item 1A of this Report, several factors could make it difficult for us, including:
•
•
•
•
•
•
sales of our principal products have been and may continue to be affected by adverse economic cycles in the
renovation and construction of commercial and institutional buildings;
we compete with a large number of manufacturers in the highly competitive commercial floorcovering products
market, and some of these competitors have greater financial resources than we do;
our success depends significantly upon the efforts, abilities and continued service of our senior management
executives and our principal design consultant, and our loss of any of them could affect us adversely;
our substantial international operations are subject to various political, economic and other uncertainties that could
adversely affect our business results;
large increases in the cost of petroleum-based raw materials could adversely affect us if we are unable to pass these
cost increases through to our customers;
unanticipated termination or interruption of any of our arrangements with our primary third party suppliers of
synthetic fiber could have a material adverse effect on us; and
•
we have a significant amount of indebtedness, which could have important negative consequences to us.
We believe our business model is strong enough, and our strategic initiatives are properly calibrated, for us to handle
these and other challenges we will encounter in our business.
Seasonality
Our first quarter has typically been our slowest quarter while our fourth quarter has typically been our best quarter,
with sales generally increasing throughout the course of the fiscal year. However, in recent years, as our sales efforts and
results in the education market segment (which has a heavy second quarter buying season) have increased, our second
quarter sales have occasionally eclipsed our third or fourth quarter sales.
Our Products and Services
Modular Carpet
Interface is the world’s largest manufacturer and marketer of modular carpet. Our modular carpet system, which is
marketed under the established global brands Interface and Heuga, utilizes carpet tiles cut in precise, dimensionally stable
squares (usually 50 cm x 50 cm) or rectangles to produce a floorcovering that combines the appearance and texture of
traditional soft floorcovering with the advantages of a modular carpet system. Our GlasBac® technology employs a
fiberglass-reinforced polymeric composite backing that provides dimensional stability and reduces the need for adhesives
or fasteners. We also make carpet tiles with a backing containing post-industrial and/or post-consumer recycled materials,
which we market under the GlasBacRE brand. In addition, we make carpet tile with yarn containing varying degrees of
post-consumer nylon, depending on the style and color. We received the 2012 and 2011 Best of NeoCon Silver Awards in
the modular carpet category for our Urban Retreat™ and Luxe at Work™ Collections, respectively.
5
Our carpet tile has become popular for a number of reasons. Carpet tile incorporating our reinforced backing may be
easily removed and replaced, permitting rearrangement of furniture without the inconvenience and expense associated with
removing, replacing or repairing other soft surface flooring products, including broadloom carpeting. Because a relatively
small portion of a carpet installation often receives the bulk of traffic and wear, the ability to rotate carpet tiles between
high traffic and low traffic areas and to selectively replace worn tiles can significantly increase the average life and cost
efficiency of the floorcovering. In addition, carpet tile facilitates access to sub-floor air delivery systems and telephone,
electrical, computer and other wiring by lessening disruption of operations. It also eliminates the cumulative damage and
unsightly appearance commonly associated with frequent cutting of conventional carpet as utility connections and
disconnections are made. We believe that, within the overall floorcovering market, the worldwide demand for modular
carpet is increasing as more customers recognize these advantages.
We use a number of conventional and technologically advanced methods of carpet construction to produce carpet tiles
in a wide variety of colors, patterns, textures, pile heights and densities. These varieties are designed to meet both the
practical and aesthetic needs of a broad spectrum of commercial interiors – particularly offices, healthcare facilities,
airports, educational and other institutions, hospitality spaces, and retail facilities – and residential interiors. Our carpet tile
systems permit distinctive styling and patterning that can be used to complement interior designs, to set off areas for
particular purposes and to convey graphic information. While we continue to manufacture and sell a substantial portion of
our carpet tile in standard styles, an increasing percentage of our modular carpet sales is custom or made-to-order product
designed to meet customer specifications.
In addition to general uses of our carpet tile, we produce and sell a specially adapted version of our carpet tile for the
healthcare facilities market. Our carpet tile possesses characteristics — such as the use of the Intersept antimicrobial, static-
controlling nylon yarns, and thermally pigmented, colorfast yarns — which make it suitable for use in these facilities in
place of hard surface flooring. Moreover, we launched our FLOR line of products to specifically target modular carpet sales
to the residential market segment. Through our relationship with David Oakey Designs, we also have created modular
carpet products (some of which are part of our i2 product line) specifically designed for each of the education, hospitality
and retail market segments.
We also manufacture and sell two-meter roll goods that are structure-backed and offer many of the advantages of both
carpet tile and broadloom carpet. These roll goods are often used in conjunction with carpet tiles to create special design
effects. Our current principal customers for these products are in the education, healthcare and government market
segments.
Broadloom Carpet
In August 2012, we sold our Bentley Prince Street business segment to a third party. This business designed,
manufactured and marketed high-end, designer-oriented broadloom and modular carpet for commercial and residential
markets. As a result of this sale, we no longer have a presence in the broadloom carpet market.
Other Products and Services
We sell a proprietary antimicrobial chemical compound under the registered trademark Intersept that we incorporate in
all of our modular carpet products and have licensed to another company for use in air filters. We also sell our TacTiles
carpet tile installation system, along with a variety of traditional adhesives and products for carpet installation and
maintenance that are manufactured by a third party. In addition, we continue to manufacture and sell our Intercell® brand
raised/access flooring product in Europe. We also continue to provide “turnkey” project management services for national
accounts and other large customers through our InterfaceSERVICES™ business.
Marketing and Sales
We have traditionally focused our carpet marketing strategy on major accounts, seeking to build lasting relationships
with national and multinational end-users, and on architects, engineers, interior designers, contracting firms, and other
specifiers who often make or significantly influence purchasing decisions. While most of our sales are in the corporate
office segment, both new construction and renovation, we also emphasize sales in other segments, including retail space,
government institutions, schools, healthcare facilities, tenant improvement space, hospitality centers, residences and home
office space. Our marketing efforts are enhanced by the established and well-known brand names of our carpet products,
including Interface, FLOR and Heuga. Our exclusive consulting agreement with the award-winning, premier design firm
David Oakey Designs enabled us to introduce more than 35 new carpet designs in the United States in 2013 alone.
6
An important part of our marketing and sales efforts involves the preparation of custom-made samples of requested
carpet designs, in conjunction with the development of innovative product designs and styles to meet the customer’s
particular needs. Our mass customization initiative simplified our carpet manufacturing operations, which significantly
improved our ability to respond quickly and efficiently to requests for samples. In most cases, we can produce samples to
customer specifications in less than five days, which significantly enhances our marketing and sales efforts and has
increased our volume of higher margin custom or made-to-order sales. In addition, through our websites, we have made it
easy to view and request samples of our products. We also have technology which allows us to provide digital, simulated
samples of our products, which helps reduce raw material and energy consumption associated with our samples.
We primarily use our internal marketing and sales force to market our carpet products. In order to implement our global
marketing efforts, we have product showrooms or design studios in the United States, Canada, Mexico, Brazil, Denmark,
England, France, Germany, Spain, the Netherlands, India, Australia, Norway, United Arab Emirates, Russia, Singapore,
Hong Kong, Thailand, China and elsewhere. We expect to open offices in other locations around the world as necessary to
capitalize on emerging marketing opportunities.
We distribute our product through two primary channels: (1) direct sales to end users; and (2) indirect sales through
independent contractors or distributors. In each case, we may also call upon architects, engineers, interior designers,
contracting firms and other specifiers who often make or substantially influence purchasing decisions.
Manufacturing
We manufacture carpet at two locations in the United States and at facilities in the Netherlands, the United Kingdom,
Thailand and China. Our previous manufacturing facility in Picton, Australia was destroyed by fire in July of 2012, and we
have completed the build-out and start-up of a new manufacturing facility in Minto, Australia, which commenced
operations in January 2014.
Having foreign manufacturing operations enables us to supply our customers with carpet from the location offering the
most advantageous delivery times, duties and tariffs, exchange rates, and freight expense, and enhances our ability to
develop a strong local presence in foreign markets. We believe that the ability to offer consistent products and services on a
worldwide basis at attractive prices is an important competitive advantage in servicing multinational customers seeking
global supply relationships. We will consider additional locations for manufacturing operations in other parts of the world
as necessary to meet the demands of customers in international markets.
To the extent practicable, we seek to standardize our worldwide modular carpet manufacturing procedures. In
connection with the implementation of this plan, we strive to establish global standards for our tufting equipment, yarn
systems and product styling. We previously had changed our standard carpet tile size to be 50 cm x 50 cm, which we
believe has allowed us to reduce operational waste and fossil fuel energy consumption and to offer consistent product
sizing for our global customers.
Our raw materials are generally available from multiple sources – both regionally and globally – with the exception of
synthetic fiber (nylon yarn). For yarn, we principally rely upon two major global suppliers, but we also have significant
relationships with at least two other suppliers. Although our number of principal yarn suppliers is limited, we do have the
capability to manufacture carpet using face fiber produced from two separate polymer feedstocks – nylon 6 and nylon 6,6 –
which provides additional flexibility with respect to yarn supply inputs, if needed. Our global sourcing strategy, including
with respect to our principal yarn suppliers and dual polymer manufacturing capability, allows us to guard against any
potential shortages of raw materials or raw material suppliers in a specific polymer supply chain.
We have a flexible-inputs carpet backing line, which we call “Cool Blue™”, at our modular carpet manufacturing
facility in LaGrange, Georgia. Using next generation thermoplastic technology, the custom-designed backing line
dramatically improves our ability to keep reclaimed and waste carpet in the production “technical loop,” and further
permits us to explore other plastics and polymers as inputs. We also have technology that more cleanly separates the face
fiber and backing of reclaimed and waste carpet, thus making it easier to recycle some of its components and providing a
purer supply of inputs for the Cool Blue process. This technology, which is part of our ReEntry®2.0 carpet reclamation
program, allows us to send some of the reclaimed face fiber back to our fiber supplier to be blended with virgin or other
post-industrial materials and extruded into new fiber.
The environmental management systems of our floorcovering manufacturing facilities in LaGrange, Georgia, West
Point, Georgia, Northern Ireland, the Netherlands and Thailand are certified under International Standards Organization
(ISO) Standard No. 14001.
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Our significant international operations are subject to various political, economic and other uncertainties, including
risks of restrictive taxation policies, foreign exchange restrictions, changing political conditions and governmental
regulations. We also receive a substantial portion of our revenues in currencies other than U.S. dollars, which makes us
subject to the risks inherent in currency translations. Although our ability to manufacture and ship products from facilities
in several foreign countries reduces the risks of foreign currency fluctuations we might otherwise experience, we also
engage from time to time in hedging programs intended to further reduce those risks.
Competition
We compete, on a global basis, in the sale of our modular carpet products with other carpet manufacturers and
manufacturers of vinyl and other types of floorcoverings, including broadloom carpet. Although the industry has
experienced significant consolidation, a large number of manufacturers remain in the industry. We believe we are the
largest manufacturer of modular carpet in the world. However, a number of domestic and foreign competitors manufacture
modular carpet as one segment of their business, and some of these competitors have financial resources greater than ours.
In addition, some of the competing carpet manufacturers have the ability to extrude at least some of their requirements for
fiber used in carpet products, which decreases their dependence on third party suppliers of fiber.
We believe the principal competitive factors in our primary floorcovering markets are brand recognition, quality,
design, service, broad product lines, product performance, marketing strategy and pricing. In the corporate office market
segment, modular carpet competes with various floorcoverings, of which broadloom carpet is the most common. The
quality, service, design, better and longer average product performance, flexibility (design options, selective rotation or
replacement, use in combination with roll goods) and convenience of our modular carpet are our principal competitive
advantages.
We believe we have competitive advantages in several other areas as well. First, our exclusive relationship with David
Oakey Designs allows us to introduce numerous innovative and attractive carpet tile products to our customers.
Additionally, we believe that our global manufacturing capabilities are an important competitive advantage in serving the
needs of multinational corporate customers. We believe that the incorporation of the Intersept antimicrobial chemical agent
into the backing of our modular carpet enhances our ability to compete successfully across all of our market segments
generally, and specifically with resilient tile in the healthcare market.
In addition, we believe that our goal and commitment to be ecologically “sustainable” by 2020 is a brand-enhancing,
competitive strength as well as a strategic initiative. Increasingly, our customers are concerned about the environmental and
broader ecological implications of their operations and the products they use in them. Our leadership, knowledge and
expertise in the area, especially in the “green building” movement and the related LEED certification program, resonate
deeply with many of our customers and prospects around the globe, and these businesses are increasingly making purchase
decisions based on “green” factors. Our modular carpet products historically have had inherent installation and
maintenance advantages that translated into greater efficiency and waste reduction. We are using raw materials and
production technologies, such as our Cool Blue backing line and our ReEntry 2.0 reclaimed carpet separation process, that
directly reduce the adverse impact of those operations on the environment and limit our dependence on petrochemicals.
Product Design, Research and Development
We maintain an active research, development and design staff of approximately 90 people and also draw on the research
and development efforts of our suppliers, particularly in the areas of fibers, yarns and modular carpet backing materials.
Our research and development costs were $12.6 million, $12.4 million and $12.1 million in 2013, 2012, and 2011,
respectively.
Our research and development team provides technical support and advanced materials research and development for
us. The team assisted in the development of our NexStep® backing, which employs moisture-impervious polycarbite
precoating technology with a chlorine-free urethane foam secondary backing, and also helped develop a post-consumer
recycled content, polyvinyl chloride, or PVC, extruded sheet process that has been incorporated into our GlasBacRE
modular carpet backing. Our post-consumer recycled content PVC extruded sheet exemplifies our commitment to “closing-
the-loop” in recycling. More recently, this team developed our patented TacTiles carpet tile installation system, which uses
small squares of adhesive plastic film to connect intersecting carpet tiles. The team also helped implement our Cool Blue
flexible inputs backing line and our ReEntry 2.0 reclaimed carpet separation technology and post-consumer recycling
technology for nylon face fibers. With a goal of supporting sustainable product designs in floorcoverings applications, we
continue to evaluate renewable polymers for use in our products.
8
Our research and development team also is the coordinator of our QUEST and EcoSense initiatives (discussed below
under “Environmental Initiatives”) and supports the dissemination, consultancies and technical communication of our
global sustainability endeavors. This team also provides all biochemical and technical support to Intersept antimicrobial
chemical product initiatives.
Innovation and increased customization in product design and styling are the principal focus of our product
development efforts. Our carpet design and development team is recognized as an industry leader in carpet design and
product engineering for the commercial and institutional markets.
David Oakey Designs provides carpet design and consulting services to us pursuant to a consulting agreement. David
Oakey Designs’ services under the agreement include creating commercial carpet designs for use by our modular carpet
businesses throughout the world, and overseeing product development, design and coloration functions for our modular
carpet business in North America. The current agreement runs through August 2017. While the agreement is in effect,
David Oakey Designs cannot provide similar services to any other carpet company. Through our relationship with David
Oakey Designs, we introduced more than 35 new carpet designs in 2013 alone, and have enjoyed considerable success in
winning U.S. carpet industry awards.
David Oakey Designs also contributed to our ability to efficiently produce many products from a single yarn system.
Our mass customization production approach evolved, in major part, from this concept. In addition to increasing the
number and variety of product designs, which enables us to increase high margin custom sales, the mass customization
approach increases inventory turns and reduces inventory levels (for both raw materials and standard products) and their
related costs because of our more rapid and flexible production capabilities.
Our i2 product line — which includes, among others, our patented Entropy modular carpet product — represents an
innovative breakthrough in the design of modular carpet. The i2 line introduced and features mergeable dye lots, cost-
efficient installation and maintenance, interactive flexibility and recycled and recyclable materials. Some of these products
may be installed without regard to the directional orientation of the carpet tile, and their features also make installation,
maintenance and replacement of modular carpet easier, less expensive and less wasteful.
Environmental Initiatives
In the latter part of 1994, we commenced a new industrial ecological sustainability initiative called EcoSense, inspired
in part by the interest of customers concerned about the environmental implications of how they and their suppliers do
business. EcoSense, which includes our QUEST waste reduction initiative, is directed towards the elimination of energy
and raw materials waste in our businesses, and, on a broader and more long-term scale, the practical reclamation — and
ultimate restoration — of shared environmental resources. The initiative involves a commitment by us:
• to learn to meet our raw material and energy needs through recycling of carpet and other petrochemical products
and harnessing benign energy sources; and
• to pursue the creation of new processes to help sustain the earth’s non-renewable natural resources.
We have engaged some of the world’s leading authorities on global ecology as environmental advisors. The list of
advisors includes: Paul Hawken, author of The Ecology of Commerce: A Declaration of Sustainability and The Next
Economy, and co-author of Natural Capitalism: Creating the Next Industrial Revolution; Amory Lovins, energy consultant
and co-founder of the Rocky Mountain Institute; John Picard, President of E2 Environmental Enterprises; Bill Browning,
fellow and former director of the Rocky Mountain Institute’s Green Development Services; Janine M. Benyus, author of
Biomimicry; and Bob Fox, renowned architect.
9
Our leadership, knowledge and expertise in this area, especially in the “green building” movement and the related
LEED certification program, resonate deeply with many of our customers and prospects around the globe, and these
businesses are increasingly making purchase decisions based on “green” factors. As more customers in our target markets
share our view that sustainability is good business and not just good deeds, our acknowledged leadership position should
strengthen our brands and provide a differentiated advantage in competing for business.
To further raise awareness of our goal of becoming sustainable, we launched our Mission Zero global branding
initiative, which represents our mission to eliminate any negative impact our companies may have on the environment by
the year 2020. As part of this initiative, our Mission Zero logo appears on many of our marketing and merchandising
materials distributed throughout the world.
Backlog
Our backlog of unshipped orders was approximately $117.4 million at February 16, 2014, compared with
approximately $108.4 million at February 17, 2013. Historically, backlog is subject to significant fluctuations due to the
timing of orders for individual large projects and currency fluctuations. All of the backlog orders at February 16, 2014 are
expected to be shipped during the succeeding six to nine months.
Patents and Trademarks
We own numerous patents in the United States and abroad on floorcovering products and on manufacturing processes.
The duration of United States patents is between 14 and 20 years from the date of filing of a patent application or issuance
of the patent; the duration of patents issued in other countries varies from country to country. We maintain an active patent
and trade secret program in order to protect our proprietary technology, know-how and trade secrets. Although we consider
our patents to be very valuable assets, we consider our know-how and technology even more important to our current
business than patents, and, accordingly, believe that expiration of existing patents or nonissuance of patents under pending
applications would not have a material adverse effect on our operations.
We also own many trademarks in the United States and abroad. In addition to the United States, the primary countries
in which we have registered our trademarks are the United Kingdom, Germany, Italy, France, Canada, Australia, Japan, and
various countries in Central America, South America and Asia. Some of our more prominent registered trademarks include:
Interface, FLOR, Heuga, Intersept, GlasBac, Intercell, and Mission Zero. Trademark registrations in the United States are
valid for a period of 10 years and are renewable for additional 10-year periods as long as the mark remains in actual use.
The duration of trademarks registered in other countries varies from country to country.
Financial Information by Operating Segments and Geographic Areas
The Notes to Consolidated Financial Statements appearing in Item 8 of this Report set forth information concerning
our sales and long-lived assets by geographic areas. Following the sale of Bentley Prince Street, we have only one
operating segment. Current and prior periods have been reclassified to include the results of operations and related disposal
costs, gains and losses for the Bentley Prince Street business as discontinued operations. In addition, assets and liabilities of
the Bentley Prince Street business have been reported in assets and liabilities held for sale for all reported periods.
Employees
At December 29, 2013, we employed a total of 3,347 employees worldwide. Of such employees, 1,815 were clerical,
staff, sales, supervisory and management personnel and 1,532 were manufacturing personnel. We also utilized the services
of 181 temporary personnel as of December 29, 2013.
Some of our production employees in Australia and the United Kingdom are represented by unions. In the Netherlands,
a Works Council, the members of which are Interface employees, is required to be consulted by management with respect
to certain matters relating to our operations in that country, such as a change in control of Interface Europe B.V. (our
modular carpet subsidiary based in the Netherlands), and the approval of the Council is required for some of our actions,
including changes in compensation scales or employee benefits. Our management believes that its relations with the Works
Council, the unions and all of our employees are good.
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Environmental Matters
Our operations are subject to laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The costs of complying with environmental protection laws
and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are
not expected to have a material adverse impact in the future. The environmental management systems of our floorcovering
manufacturing facilities in LaGrange, Georgia, West Point, Georgia, Northern Ireland, the Netherlands and Thailand are
certified under ISO Standard No. 14001.
Executive Officers of the Registrant
Our executive officers, their ages as of December 29, 2013, and their principal positions with us are set forth below.
Executive officers serve at the pleasure of the Board of Directors.
Name
Daniel T. Hendrix
Robert A. Coombs
Patrick C. Lynch
Lindsey K. Parnell
John R. Wells
Raymond S. Willoch
Jo Ann Herold
Robert Boogaard
Age
59
55
44
56
52
55
48
45
Principal Position(s)
President and Chief Executive Officer
Senior Vice President (Asia-Pacific)
Senior Vice President and Chief Financial Officer
Senior Vice President (Europe)
Senior Vice President (Americas)
Senior Vice President-Administration, General Counsel and Secretary
Vice President and Chief Marketing Officer
Interim President of Europe Division
Mr. Hendrix joined us in 1983 after having worked previously for a national accounting firm. He was promoted to
Treasurer in 1984, Chief Financial Officer in 1985, Vice President-Finance in 1986, Senior Vice President in October 1995,
Executive Vice President in October 2000, and President and Chief Executive Officer in July 2001. He was elected to the
Board in October 1996 and has served on the Executive Committee of the Board since July 2001. In October 2011, Mr.
Hendrix was elected as Chairman of the Board of Directors.
Mr. Coombs originally worked for us from 1988 to 1993 as a marketing manager for our Heuga carpet tile operations
in the United Kingdom and later for all of our European floorcovering operations. In 1996, Mr. Coombs returned to us as
Managing Director of our Australian operations. He was promoted in 1998 to Vice President-Sales and Marketing, Asia-
Pacific, with responsibility for Australian operations and sales and marketing in Asia, which was followed by a promotion
to Senior Vice President, Asia-Pacific. He was promoted to Senior Vice President, European Sales, in May 1999 and Senior
Vice President, European Sales and Marketing, in April 2000. In February 2001, he was promoted to President and Chief
Executive Officer of Interface Overseas Holdings, Inc. with responsibility for all of our floorcoverings operations in both
Europe and the Asia-Pacific region, and he became a Vice President of Interface. In September 2002, Mr. Coombs
relocated back to Australia, retaining responsibility for our floorcovering operations in the Asia-Pacific region while
Mr. Parnell (see below) assumed responsibility for floorcovering operations in Europe. Mr. Coombs was promoted to
Senior Vice President of Interface in July 2008.
Mr. Lynch joined us in 1996 after having previously worked for a national accounting firm. He became Assistant
Corporate Controller in 1998 and Assistant Vice President and Corporate Controller in 2000. Mr. Lynch was promoted to
Vice President and Chief Financial Officer in July 2001. Mr. Lynch was promoted to Senior Vice President in March 2007.
Mr. Parnell was the Production Director for Firth Carpets (our former European broadloom operations) at the time it
was acquired by us in 1997. In 1998, Mr. Parnell was promoted to Vice President, Operations for the United Kingdom, and
in 1999 he was promoted to Senior Vice President, Operations for our entire European floorcovering division. In
September 2002, he was promoted to President and Chief Executive Officer of our floorcovering operations in Europe, and
became a Vice President of Interface in October 2002. Mr. Parnell was promoted to Senior Vice President of Interface in
July 2008. In July 2013, Mr. Parnell began a medical leave, with his responsibilities being assumed by Mr. Boogaard
during the leave.
Mr. Wells joined us in February 1994 as Vice President-Sales of Interface Flooring Systems, Inc. (now
InterfaceFLOR, LLC), our principal U.S. modular carpet subsidiary. Mr. Wells was promoted to Senior Vice President-
Sales & Marketing of Interface Flooring Systems in October 1994. He was promoted to Vice President of Interface and
President of Interface Flooring Systems in July 1995. In March 1998, Mr. Wells was also named President of both Prince
Street Technologies, Ltd. and Bentley Mills, Inc. (our former U.S. broadloom operations), making him President of all
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three of our U.S. carpet mills at that time. In November 1999, Mr. Wells was named Senior Vice President of Interface, and
President and Chief Executive Officer of Interface Americas Holdings, LLC (formerly Interface Americas, Inc.), thereby
assuming operations responsibility for all of our floorcovering businesses in the Americas.
Mr. Willoch, who previously practiced with an Atlanta law firm, joined us in June 1990 as Corporate Counsel. He was
promoted to Assistant Secretary in 1991, Assistant Vice President in 1993, Vice President in January 1996, Secretary and
General Counsel in August 1996, and Senior Vice President in February 1998. In July 2001, he was named Senior Vice
President-Administration and assumed corporate responsibility for various staff functions.
Ms. Herold joined us in July 2013 as Vice President and Chief Marketing Officer, charged with harmonizing the
Interface brand around the world and across multiple platforms. She oversees marketing and communications for the
corporate brand, while also leading the senior marketing team, which is comprised of the Company’s marketing and
communications teams globally. Ms. Herold has more than 25 years of marketing experience. Prior to joining Interface, she
was Vice President of Brand Communications and Public Relations at Arby’s Restaurant Group, and previously spent 16
years at HoneyBaked Ham, where she served as Vice President of Marketing and then Chief Marketing Officer. She also
has owned her own marketing firm.
Mr. Boogaard joined us in 2011 as Senior Vice President of Sales for our European floorcovering division. Prior to
joining Interface, Mr. Boogaard spent 18 years in the office furniture industry in the U.S. and Europe, followed by three
years as Director of Global Strategy, Marketing and Commercial Services for a manufacturer of membrane filtration
technology used in high end applications such as water purification. Mr. Boogaard was named Interim President of our
Europe division in July 2013, when Mr. Parnell began a medical leave.
Available Information
We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Our Internet address is http://www.interface.com. The SEC maintains a website that contains
annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file
electronically with the SEC. The SEC’s website is http://www.sec.gov.
Interface, Inc. was incorporated in 1973 as a Georgia corporation.
Forward-Looking Statements
This report on Form 10-K contains “forward-looking statements” within the meaning of the Securities Act of 1933, and
the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Words such as “believes,”
“anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-
looking statements include statements regarding the intent, belief or current expectations of our management team, as well
as the assumptions on which such statements are based. Any forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that could cause actual results to differ materially from those
contemplated by such forward-looking statements. We undertake 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. 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 below in Item 1A, “Risk Factors”.
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ITEM 1A. RISK FACTORS
You should carefully consider the following factors, in addition to the other information included in this Annual Report
on Form 10-K and the other documents incorporated herein by reference, before deciding whether to purchase or sell our
common stock. Any or all of the following risk factors could have a material adverse effect on our business, financial
condition, results of operations and prospects.
Sales of our principal products have been and may continue to be affected by adverse economic cycles in the renovation
and construction of commercial and institutional buildings.
Sales of our principal products are related to the renovation and construction of commercial and institutional buildings.
This activity is cyclical and has been affected by the strength of a country’s or region’s general economy, prevailing
interest rates and other factors that lead to cost control measures by businesses and other users of commercial or
institutional space. The effects of cyclicality upon the corporate office segment tend to be more pronounced than the effects
upon the institutional segment. Historically, we have generated more sales in the corporate office segment than in any other
market. The effects of cyclicality upon the new construction segment of the market also tend to be more pronounced than
the effects upon the renovation segment. These effects may recur and could be more pronounced if global economic
conditions do not improve or are further weakened.
We compete with a large number of manufacturers in the highly competitive floorcovering products market, and some
of these competitors have greater financial resources than we do.
The floorcovering industry is highly competitive. Globally, we compete for sales of floorcovering products with other
carpet manufacturers and manufacturers of other types of floorcovering. Although the industry has experienced significant
consolidation, a large number of manufacturers remain in the industry. Some of our competitors, including a number of
large diversified domestic and foreign companies who manufacture modular carpet as one segment of their business, have
greater financial resources than we do.
Our success depends significantly upon the efforts, abilities and continued service of our senior management executives
and our principal design consultant, and our loss of any of them could affect us adversely.
We believe that our success depends to a significant extent upon the efforts and abilities of our senior management
executives. In addition, we rely significantly on the leadership that David Oakey of David Oakey Designs provides to our
internal design staff. Specifically, David Oakey Designs provides product design/production engineering services to us
under an exclusive consulting contract that contains non-competition covenants. Our current agreement with David Oakey
Designs extends to August 2017. The loss of any of these key persons could have an adverse impact on our business
because each has a great deal of knowledge, training and experience in the carpet industry – particularly in the areas of
sales, marketing, operations, product design and management – and could not easily or quickly be replaced.
Our substantial international operations are subject to various political, economic and other uncertainties that could
adversely affect our business results, including by restrictive taxation or other government regulation and by foreign
currency fluctuations.
We have substantial international operations. In 2013, approximately half of our net sales and a significant portion of
our production were outside the United States, primarily in Europe and Asia-Pacific. Our corporate strategy includes the
expansion and growth of our international business on a worldwide basis. As a result, our operations are subject to various
political, economic and other uncertainties, including risks of restrictive taxation policies, changing political conditions and
governmental regulations. We also make a substantial portion of our net sales in currencies other than U.S. dollars
(approximately half of 2013 net sales), which subjects us to the risks inherent in currency translations. The scope and
volume of our global operations make it impossible to eliminate completely all foreign currency translation risks as an
influence on our financial results.
The worldwide financial and credit crisis could have a material adverse effect on our business, financial condition and
results of operations.
The worldwide financial and credit crisis, which began in 2008 and continued in varying degrees for several years
thereafter, has reduced the availability of liquidity and credit to fund the continuation and expansion of many business
operations worldwide. This shortage of liquidity and credit, combined with substantial losses in worldwide equity markets,
could lead to a worldwide economic recession and result in a material adverse effect on our business, financial condition
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and results of operations. Specifically, the limited availability of credit and liquidity adversely affects the ability of
customers and suppliers to obtain financing for significant purchases and operations. Consequently, customers may defer,
delay or cancel renovation and construction projects where our carpet is used, resulting in decreased orders and sales for us,
and they also may not be able to pay us for those products and services we already have provided to them. For the same
reasons, suppliers may not be able to produce and deliver raw materials and other goods and services that we have ordered
from them, thus disrupting our own manufacturing operations. In addition, our ability to obtain funding from capital
markets may be severely restricted at a time when we would like, or need, to access those markets. This inability to obtain
that funding could prevent us from pursuing important strategic growth plans, from reacting to changing economic and
business conditions, and from refinancing existing debt (which in turn could lead to a default on our debt). The financial
and credit crisis also could have an impact on the lenders under our credit facilities, causing them to fail to meet their
obligations to provide us with loans and letters of credit, which are important sources of liquidity for us.
Our Syndicated Credit Facility matures in October 2018 and our 7.625% Senior Notes mature in December 2018. We
cannot assure you that we will be able to renegotiate or refinance this debt on commercially reasonable terms, or at all,
especially given the effects of the worldwide financial and credit crisis.
Concerns regarding the European sovereign debt crisis and market perceptions about the instability of the euro, the
potential re-introduction of individual currencies within the Eurozone, or the potential dissolution of the euro entirely,
could adversely affect our business, results of operations or financial condition.
Following the European sovereign debt crisis that began in 2011, concerns still persist regarding the debt burden of
certain countries using the euro as their currency (the “Eurozone”) and their ability to meet future financial obligations, the
overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political
circumstances in individual Eurozone countries. Despite remedial efforts undertaken by the European Commission and
others, these concerns have caused instability in the euro and could lead to the re-introduction of individual currencies in
one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely.
Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations
would be determined by laws in effect at such time. These potential developments, or market perceptions concerning these
and related issues, could adversely affect the value of our euro-denominated assets and obligations or increase the risks of
foreign currency fluctuations or cause the failure of hedging programs intended to reduce those risks. In addition, concerns
over the effect of this financial crisis on financial institutions in Europe and globally could have an adverse impact on the
capital markets generally, and more specifically on our ability and the ability of our customers, suppliers and lenders to
finance our and their respective businesses, to access liquidity at acceptable financing costs, if at all, on the availability of
supplies and materials, and on the demand for our products.
Large increases in the cost of petroleum-based raw materials could adversely affect us if we are unable to pass these cost
increases through to our customers.
Petroleum-based products comprise the predominant portion of the cost of raw materials that we use in manufacturing.
While we attempt to match cost increases with corresponding price increases, continued volatility in the cost of petroleum-
based raw materials could adversely affect our financial results if we are unable to pass through such price increases to our
customers.
Unanticipated termination or interruption of any of our arrangements with our primary third party suppliers of
synthetic fiber could have a material adverse effect on us.
The unanticipated termination or interruption of any of our supply arrangements with our current suppliers of synthetic
fiber (nylon), which typically are not pursuant to long-term agreements, could have a material adverse effect on us because
we do not have the capability to manufacture our own fiber for use in our carpet products. If any of our supply
arrangements with our primary suppliers of synthetic fiber is terminated or interrupted, we likely would incur increased
manufacturing costs and experience delays in our manufacturing process (thus resulting in decreased sales and profitability)
associated with shifting more of our synthetic fiber purchasing to another synthetic fiber supplier.
14
We have a significant amount of indebtedness, which could have important negative consequences to us.
Our significant indebtedness could have important negative consequences to us, including:
• making it more difficult for us to satisfy our obligations with respect to such indebtedness;
•
increasing our vulnerability to adverse general economic and industry conditions;
•
•
limiting our ability to obtain additional financing to fund capital expenditures, acquisitions or other growth initiatives,
and other general corporate requirements;
requiring us to dedicate a substantial portion of our cash flow from operations to interest and principal payments on
our indebtedness, thereby reducing the availability of our cash flow to fund capital expenditures, acquisitions or other
growth initiatives, and other general corporate requirements;
•
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
• placing us at a competitive disadvantage compared to our less leveraged competitors; and
•
limiting our ability to refinance our existing indebtedness as it matures.
As a consequence of our level of indebtedness, a substantial portion of our cash flow from operations must be dedicated
to debt service requirements. In addition, the terms of our Syndicated Credit Facility and the indenture governing our
7.625% Senior Notes due 2018 limit our ability and the ability of our subsidiaries to, among other things, incur additional
indebtedness, pay dividends or make certain other restricted payments or investments in certain situations, consummate
certain asset sales, enter into certain transactions with affiliates, create liens, merge or consolidate with any other person, or
sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. They also require us to
comply with certain other reporting, affirmative and negative covenants and meet certain financial tests. If we fail to satisfy
these tests or comply with these covenants, a default may occur, in which case the lenders could accelerate the debt as well
as any other debt to which cross-acceleration or cross-default provisions apply. We cannot assure you that we would be
able to renegotiate, refinance or otherwise obtain the necessary funds to satisfy these obligations.
The market price of our common stock has been volatile and the value of your investment may decline.
The market price of our common stock has been volatile in the past and may continue to be volatile going forward. Such
volatility may cause precipitous drops in the price of our common stock on the Nasdaq Global Select Market and may
cause your investment in our common stock to lose significant value. As a general matter, market price volatility has had a
significant effect on the market values of securities issued by many companies for reasons unrelated to their operating
performance. We thus cannot predict the market price for our common stock going forward.
Our earnings in a future period could be adversely affected by non-cash adjustments to goodwill, if a future test of
goodwill assets indicates a material impairment of those assets.
As prescribed by accounting standards governing goodwill and other intangible assets, we undertake an annual review
of the goodwill asset balance reflected in our financial statements. Our review is conducted during the fourth quarter of the
year, unless there has been a triggering event prescribed by applicable accounting rules that warrants an earlier interim
testing for possible goodwill impairment. In the past, we have had non-cash adjustments for goodwill impairment as a
result of such testings ($61.2 million in 2008 and $44.5 million in 2007). A future goodwill impairment test may result in a
future non-cash adjustment, which could adversely affect our earnings for any such future period.
15
Our Rights Agreement could discourage tender offers or other transactions for our stock that could result in
shareholders receiving a premium over the market price for our stock.
Our Board of Directors has adopted a Rights Agreement pursuant to which holders of our common stock will be entitled
to purchase from us a fraction of a share of our Series B Participating Cumulative Preferred Stock if a third party acquires
beneficial ownership of 15% or more of our common stock without our consent. In addition, the holders of our common
stock will be entitled to purchase the stock of an Acquiring Person (as defined in the Rights Agreement) at a discount upon
the occurrence of triggering events. These provisions of the Rights Agreements could have the effect of discouraging tender
offers or other transactions that could result in shareholders receiving a premium over the market price for our common
stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We maintain our corporate headquarters in Atlanta, Georgia in approximately 20,000 square feet of leased space. The
following table lists our principal manufacturing facilities and other material physical locations (some locations are
comprised of multiple buildings), all of which we own except as otherwise noted:
Location
Bangkok, Thailand .......................................................................................................................
Craigavon, N. Ireland(1) ..............................................................................................................
LaGrange, Georgia .......................................................................................................................
LaGrange, Georgia(1) ..................................................................................................................
Valley, Alabama(1) ......................................................................................................................
Minto, Australia ...........................................................................................................................
Scherpenzeel, the Netherlands .....................................................................................................
Scherpenzeel, the Netherlands(1) .................................................................................................
West Point, Georgia .....................................................................................................................
Taicang, China(1) ........................................................................................................................
__________
(1) Leased.
Floor Space
(Sq. Ft.)
275,946
80,986
539,545
209,337
338,086
259,356
245,420
121,515
250,000
142,500
We maintain marketing offices in over 70 locations in over 30 countries and distribution facilities in approximately 40
locations in six countries. Most of our marketing locations and many of our distribution facilities are leased.
We believe that our manufacturing and distribution facilities and our marketing offices, particularly with our new
manufacturing facility in Minto, Australia commencing operations in January 2014, are sufficient for our present
operations. We will continue, however, to consider the desirability of establishing additional facilities and offices in other
locations around the world as part of our business strategy to meet expanding global market demands. Substantially all of
our owned properties in the United States are subject to mortgages, which secure borrowings under our Syndicated Credit
Facility.
ITEM 3. 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 3.
ITEM 4. MINING SAFETY DISCLOSURES
Not applicable.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Prior to March 5, 2012, the Company had two classes of common stock – Class A Common Stock and Class B
Common Stock. On March 5, 2012, the number of issued and outstanding shares of Class B Common Stock constituted less
than 10% of the aggregate number of issued and outstanding shares of the Company’s Class A Common Stock and Class B
Common Stock, as the cumulative result of varied transactions that caused the conversion of shares of Class B Common
Stock into shares of Class A Common Stock. Accordingly, the Class A Common Stock and Class B Common Stock are
now, irrevocably from March 5, 2012, a single class of Common Stock in all respects.
Our Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE. As of February 14, 2014, we
had 681 holders of record of our Common Stock. We estimate that there are in excess 5,500 beneficial holders of our
Common Stock. The following table sets forth, for the periods indicated, the high and low sale prices of the Company’s
Common Stock on the Nasdaq Global Select Market as well as dividends paid during such periods.
2014
First Quarter (through February 14, 2014) ........... $
2013
Fourth Quarter ...................................................... $
Third Quarter .......................................................
Second Quarter.....................................................
First Quarter .........................................................
2012
Fourth Quarter ...................................................... $
Third Quarter .......................................................
Second Quarter.....................................................
First Quarter .........................................................
High
Low
Dividends Per
Share
22.46 $
21.74 $
20.30
19.86
19.96
16.37 $
14.79
14.89
14.08
19.03 $
18.54 $
16.73
15.13
15.76
12.94 $
11.62
11.14
10.76
0.00
0.03
0.03
0.025
0.025
0.025
0.025
0.02
0.02
Future declaration and payment of dividends is at the discretion of our Board, and depends upon, among other things,
our investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and
other factors that may be considered relevant by our Board at the time of its determination. Such other factors include
limitations contained in the agreement for our Syndicated Credit Facility and in an indenture for our public indebtedness,
each of which specify conditions as to when any dividend payments may be made. As such, we may discontinue our
dividend payments in the future if our Board determines that a cessation of dividend payments is proper in light of the
factors indicated above.
17
Stock Performance
The following graph and table compare, for the five-year period ended December 29, 2013, the Company’s total returns
to shareholders (stock price plus dividends, divided by beginning stock price) with that of (i) all companies listed on the
Nasdaq Composite Index, and (ii) a self-determined peer group comprised primarily of companies in the commercial
interiors industry, assuming an initial investment of $100 in each on December 28, 2008.
Interface, Inc.
NASDAQ Composite Index
Self-Determined Peer Group (14 Stocks)
12/28/08
$100
$100
$100
1/3/10
$164
$150
$152
1/2/11
$310
$177
$210
1/1/12
$230
$176
$203
12/30/12
$316
$203
$286
12/29/13
$435
$288
$430
Notes to Performance Graph
(1)
(2)
(3)
(4)
(5)
(6)
The lines represent annual index levels derived from compound daily returns that include all dividends.
The indices are re-weighted daily, using the market capitalization on the previous trading day.
If the annual interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
The index level was set to $100 as of December 28, 2008 (the last day of fiscal 2008).
The Company’s fiscal year ends on the Sunday nearest December 31.
The following companies are included in the Self-Determined Peer Group depicted above: Acuity Brands, Inc.;
Albany International Corp.; Apogee Enterprises, Inc.; Armstrong World Industries, Inc.; BE Aerospace, Inc.; The
Dixie Group, Inc.; Herman Miller, Inc.; HNI Corporation; Kimball International, Inc.; Knoll, Inc.; Mohawk
Industries, Inc.; Steelcase, Inc.; Unifi, Inc.; and USG Corp.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III of this Annual Report on Form 10-K.
18
Issuer Purchases of Equity Securities
The 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 our fourth quarter ended December 29, 2013:
Period(1)
Total
Number
of Shares
Purchased(2)
Average
Price
Paid
Per Share(3)
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs(4)
Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the Plans
or Programs(4)
September 30, 2013 ............................................
October 1 – October 31, 2013 ............................
November 1 – November 30, 2013 ....................
December 1 – December 29, 2013 .....................
Total ...................................................................
0 $
2,723
0
0
2,723 $
0
20.51
0
0
20.51
0
0
0
0
0
0
0
0
0
0
(1) The monthly periods identified above correspond to the Company’s fiscal fourth quarter of 2013, which commenced
September 30, 2013 and ended December 29, 2013.
(2) The referenced shares were acquired by the Company from an employee to satisfy income tax withholding obligations in
connection with the vesting, in October 2013, of certain previous grants of restricted stock awards.
(3) The referenced price paid per share represents the fair market value of all shares acquired from the employee on the date
the shares vested, which is equal to the closing price of the Company’s common stock on the NASDAQ Global Select
Market on the day preceding the vesting date. The total represents the weighted average price paid per share.
(4) We do not currently have a publicly announced stock repurchase program in place.
19
ITEM 6. SELECTED FINANCIAL DATA
We derived the summary consolidated financial data presented below from our audited consolidated financial
statements and the notes thereto for the years indicated. You should read the summary financial data presented below
together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited
consolidated financial statements and notes thereto included within this document. Amounts for all periods presented have
been adjusted for discontinued operations.
2013
Selected Financial Data(1)
2011
(in thousands, except per share data and ratios)
2010
2012
2009
Net sales ......................................................................... $ 959,989 $ 932,020 $ 953,045 $ 862,314 $ 765,264
618,880 614,841 618,303 549,184 499,078
Cost of sales ...................................................................
Operating income(2) ........................................................
67,611
Income from continuing operations(3) ............................
15,777
(4,013)
Income (loss) from discontinued operations, net of tax .
Net income .....................................................................
10,918
Income from continuing operations per common share
64,648
22,899
(16,956)
5,943
85,700
38,270
451
38,721
95,630
48,255
0
48,255
93,107
10,297
(963)
8,283
attributable to Interface, Inc.
Basic ........................................................................... $
Diluted ........................................................................ $
Average Shares Outstanding
0.73 $
0.73 $
0.35 $
0.35 $
0.59 $
0.58 $
0.14 $
0.14 $
0.24
0.24
63,213
Basic ...........................................................................
63,308
Diluted ........................................................................
0.01
Cash dividends per common share ................................. $
8,753
Property additions ..........................................................
Depreciation and amortization .......................................
25,189
Working capital .............................................................. $ 257,918 $ 273,213 $ 271,625 $ 238,937 $ 265,280
818,140 789,367 772,272 755,433 727,239
Total assets .....................................................................
273,826 275,000 294,507 294,428 280,184
Total long-term debt .......................................................
340,787 295,702 281,039 248,872 246,181
Shareholders’ equity .......................................................
Current ratio(4) ................................................................
2.9
__________
65,291
65,486
0.08 $
38,050
35,317
66,194
66,297
0.11 $
91,851
32,605
65,767
65,900
0.09 $
42,428
29,175
63,794
64,262
0.04 $
31,715
27,927
2.8
3.0
2.7
2.4
(1)
(2)
(3)
In the third quarter of 2012, we sold our Bentley Prince Street business. The balances have been adjusted to reflect
the discontinued operations of this business. For further analysis, see “Notes to Consolidated Financial Statements –
Discontinued Operations” included in Item 8 of this Report.
The following charges and items are included in our operating income. In 2013, we recorded a gain of approximately
$7.0 million related to the final settlement of our insurance claim relating to the Australia fire. In 2012, we recorded
restructuring and asset impairment charges of $19.4 million as well as expenses related to the Australia fire of $1.7
million. In 2011, we recorded a restructuring and asset impairment charge of $5.8 million. In 2010, we recorded a
restructuring charge of $2.9 million. In 2009, we recorded restructuring charges of $6.9 million. In 2009, we
recorded income from litigation settlements of $5.9 million.
Included in the 2013 income from continuing operations is $1.7 million of expenses related to the retirement of debt.
Included in the 2010 income from continuing operations are pre-tax expenses of $44.4 million related to bond
retirement.
(4) Current ratio is the ratio of current assets to current liabilities. For purposes of computing our current ratio:
(a) current assets include assets of businesses held for sale of $60.7 million for 2011, $55.6 million for 2010, and
$55.3 million for 2009. Current liabilities include liabilities of businesses held for sale of $8.3 million for 2011, $7.9
million for 2010, and $2.4 million for 2009.
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Our revenues are derived from sales of floorcovering products, primarily modular carpet (we sold our broadloom carpet
operations in August 2012). Our business, as well as the commercial interiors industry in general, is cyclical in nature and
is impacted by economic conditions and trends that affect the markets for commercial and institutional business space. The
commercial interiors industry, including the market for floorcovering products, is largely driven by reinvestment by
corporations into their existing businesses in the form of new fixtures and furnishings for their workplaces. In significant
part, the timing and amount of such reinvestments are impacted by the profitability of those corporations. As a result,
macroeconomic factors such as employment rates, office vacancy rates, capital spending, productivity and efficiency gains
that impact corporate profitability in general, also affect our business.
During the past several years, we have successfully focused more of our marketing and sales efforts on non-corporate
office segments to reduce somewhat our exposure to economic cycles that affect the corporate office market segment more
adversely, as well as to capture additional market share. Our mix of corporate office versus non-corporate office modular
carpet sales in the Americas has shifted over the past several years to 48% and 52%, respectively, for 2013 compared with
64% and 36%, respectively, in 2001. Company-wide, our mix of corporate office versus non-corporate office sales was
60% and 40%, respectively, in 2013. We expect a further shift in the future as we continue to implement our market
diversification strategy.
During 2013, we had net sales of $960.0 million, compared with $932.0 million in 2012. Operating income for 2013
was $95.6 million, compared with $64.6 million for 2012. Income from continuing operations for 2013 was $48.3 million,
or $0.73 per diluted share, compared with $22.9 million, or $0.35 per diluted share, in 2012. Net income for 2013 was
$48.3 million, or $0.73 per diluted share, compared with $5.9 million, or $0.09 per diluted share, in 2012.
Included in our results for 2013 is a $7.0 million gain related to the settlement of our insurance claim related to the
Australia fire, as discussed below. Also included in our 2013 results are a one-time tax dispute resolution benefit of $1.9
million related to the execution of bilateral pricing agreements, and $1.7 million of expenses for the retirement of debt.
Included in our results for 2012 are $19.4 million of restructuring and asset impairment charges and $1.7 million of
expenses related to the fire at our Australian manufacturing facility, as discussed below. Also included in our 2012 results
is a loss from discontinued operations, net of tax, of $17.0 million related to the now discontinued Bentley Prince Street
business segment. Included in our results for 2011 are $5.8 million of restructuring charges.
Fire at Australia Facility
In July 2012, a fire occurred at our manufacturing facility in Picton, Australia, which served customers throughout
Australia and New Zealand. The fire caused extensive damage to the facility, as well as disruption to business activity in
the region. Since the fire, we have utilized adequate production capacity at our manufacturing facilities in Thailand, China,
the U.S. and Europe to meet customer demand formerly serviced from Picton. While this has been executed with success,
there were, as expected, business disruptions and delays in shipments that affected sales following the fire. While it is
difficult to quantify the financial impacts of the fire, we believe it negatively affected net sales by approximately $13-18
million during the balance of 2012 and by approximately $18-23 million during 2013. We have now completed the build-
out of a new manufacturing facility in Minto, Australia, which commenced operations in January 2014. For additional
information on the fire, please see the Note entitled “Fire at Australian Manufacturing Facility” in Item 8 of this Report.
Discontinued Operations
In 2012, we sold our Bentley Prince Street business segment. In accordance with applicable accounting standards, we
have reported the results of operations for the former Bentley Prince Street business segment as “discontinued operations,”
where applicable. Consequently, our discussion of sales and other results of operations (except for net income or loss
amounts), including percentages derived from or based on such amounts, excludes these discontinued operations unless we
indicate otherwise. Our discontinued operations had no net sales, income or loss during 2013. Our discontinued operations
had net sales of $57.0 million and $104.0 million in 2012 and 2011, respectively (these results are included in our
statements of operations as part of the “Income (loss) from discontinued operations, net of tax”). Income (loss) from
discontinued operations, inclusive of the loss on disposal as well as costs to sell the business, net of tax, was ($17.0) million
in 2012 and $0.5 million in 2011. The loss from discontinued operations, net of tax, for 2012 was comprised of the
following after-tax amounts: (1) $8.6 million of loss on disposal; (2) $5.9 million of costs to sell the operations; and (3)
21
$2.5 million of non-disposal loss from the discontinued operations. For additional information on discontinued operations,
see the Notes entitled “Discontinued Operations” and “Taxes on Income” in Item 8 of this Report.
Restructuring Charges
2012 Restructuring Plan
In 2012, we committed to a restructuring plan in our continuing efforts to reduce costs across our worldwide operations
and more closely align our operations with reduced demand levels in certain markets. The plan primarily consisted of
ceasing manufacturing and warehousing operations at our facility in Shelf, England. In connection with this restructuring
plan, we incurred a pre-tax restructuring and asset impairment charge in the first quarter of 2012 in an amount of
$16.3 million, as well as additional related charges of $0.8 million in the third quarter of 2012 and $2.3 million in the fourth
quarter of 2012. These charges are comprised of severance expenses of $8.5 million for a reduction of 145 employees,
other related exit costs of $1.6 million, and impairment of assets of approximately $9.4 million. Approximately $10.1
million of the charge will result in cash expenditures, primarily severance expense.
2011 Restructuring Plan
In 2011, we committed to a restructuring plan intended to reduce costs across our worldwide operations and more
closely align our operations with reduced demand in certain markets. As a result of this plan, we incurred pre-tax
restructuring and asset impairment charges of $5.8 million in 2011. The majority of this charge ($5.0 million) related to the
severance of approximately 90 employees in Europe, Asia and the United States. The remainder of the charge ($0.8
million) related to contract termination and fixed asset impairment costs. Approximately $5.0 million of this charge will
result in cash expenditures, primarily severance expenses. Actions and expense related to this plan were substantially
completed by the end of 2011.
7.625% Senior Notes
On December 3, 2010, we completed a private offering of $275 million aggregate principal amount of 7.625% Senior
Notes due 2018 (the “7.625% Senior Notes”). Interest on the 7.625% Senior Notes is payable semi-annually on June 1 and
December 1 (the first payment was on June 1, 2011). We used the net proceeds from the sale of the 7.625% Senior Notes
(plus cash on hand) in connection with the repurchase of approximately $141.9 million aggregate principal amount of our
former 11.375% Senior Secured Notes and approximately $98.5 million aggregate principal amount of our former 9.5%
Senior Subordinated Notes, pursuant to a tender offer we conducted in 2010. In November 2013, we redeemed $27.5
million aggregate principal amount of the 7.625% Senior Notes at a price equal to 103% of the principal amount of the
notes redeemed, plus accrued interest to the redemption date.
11.375% Senior Secured Notes
In 2009, we completed a private offering of $150 million aggregate principal amount of 11.375% Senior Secured Notes
due 2013 (the “11.375% Senior Secured Notes”). Interest on the 11.375% Senior Secured Notes was payable semi-annually
on May 1 and November 1 (the first interest payment was on November 1, 2009). The 11.375% Senior Secured Notes were
guaranteed, jointly and severally, on a senior secured basis by certain of our domestic subsidiaries. The 11.375% Senior
Secured Notes were secured by a second-priority lien on substantially all of our and certain of our domestic subsidiaries’
assets that secure our Syndicated Credit Facility (discussed below) on a first-priority basis.
Following the sale of our 7.625% Senior Notes and the repurchase of $141.9 million aggregate principal amount of our
11.375% Senior Secured Notes with the proceeds, $8.1 million aggregate principal amount of our 11.375% Senior Secured
Notes remained outstanding. These remaining 11.375% Senior Secured Notes were repaid at maturity in November 2013.
22
Analysis of Results of Operations
The following discussion and analyses reflect the factors and trends discussed in the preceding sections.
Our net sales that were denominated in currencies other than the U.S. dollar were approximately 52% in 2013, 51% in
2012, and 54% in 2011. Because we have such substantial international operations, we are impacted, from time to time, by
international developments that affect foreign currency transactions. For example, the performance of the euro against the
U.S. dollar, for purposes of the translation of European revenues into U.S. dollars, favorably affected our reported results
during 2013 and 2011, when the euro was strengthening relative to the U.S. dollar. During 2012, the dollar strengthened
versus the euro, having the opposite effect on our reported results. The following table presents the amount (in U.S. dollars)
by which the exchange rates for converting euros into U.S. dollars have affected our net sales and operating income during
the past three years:
2013
2012
(in millions)
2011
Net sales ...................................................................... $
Operating income ........................................................
8.8 $
0.7
(23.5) $
(2.0)
14.6
1.4
The following table presents, as a percentage of net sales, certain items included in our Consolidated Statements of
Operations during the past three years:
Net sales ......................................................................
Cost of sales ................................................................
Gross profit on sales ....................................................
Selling, general and administrative expenses ..............
Restructuring and asset impairment charges ...............
Expenses (Gain) related to Australia fire ....................
Operating income ........................................................
Interest/Other expense .................................................
Debt retirement expenses ............................................
Income from continuing operations before tax ...........
Income tax expense .....................................................
Income from continuing operations ............................
Discontinued operations, net of tax .............................
Net income ..................................................................
Net Sales
2013
Fiscal Year
2012
2011
100.0%
64.5
35.5
26.3
0.0
(0.7)
10.0
2.6
0.2
7.2
2.2
5.0
0.0
5.0
100.0%
66.0
34.0
24.8
2.1
0.2
6.9
2.9
0.0
4.1
1.6
2.5
(1.8)
0.6
100.0%
64.9
35.1
25.5
0.6
0.0
9.0
2.8
0.0
6.2
2.2
4.0
0.0
4.1
Below we provide information regarding our net sales and analyze those results for each of the last three fiscal years.
Fiscal years 2013, 2012 and 2011 were 52-week periods. (As a result of the sale of our Bentley Prince Street Segment in
2012, we currently have only one segment for segment reporting purposes.)
Fiscal Year
(in thousands)
2012
Percentage Change
2013 compared 2012 compared
2011
with 2012
with 2011
2013
Net Sales ........................ $
959,989 $
932,020 $
953,045
3.0%
(2.2%)
23
Net Sales for 2013 Compared with 2012
For 2013, net sales increased $28.0 million (3.0%) versus 2012. This increase is due primarily to the strength of the
economic recovery in the Americas, coupled with lower rates of decline in our international markets compared with 2012.
On a geographic basis, we experienced a sales increase in the Americas (up 7.3%), which was partially offset by decreases
in Europe (down 2.0% in U.S. dollars, 5.3% in local currency) and Asia-Pacific (down 2.5%). On a consolidated basis
fluctuations in currency exchange rates did not have a significant impact on the change in sales for 2013 compared with
2012.
In the Americas, the increase primarily occurred in three of our market segments – corporate office, residential and
hospitality. The corporate office segment experienced an increase of 9%, due primarily to the continued rebound of the
commercial office market in the United States. The residential market segment saw an increase of 38%, due to the growth
of our FLOR residential business. This business now has 21 retail FLOR stores open across North America. The increase in
the hospitality market segment (up 37%) is a direct result of our continued sales and marketing efforts in this market over
the last two years. Only the retail segment (down 7%) experienced a significant decline. The weighted average selling price
per square yard in the Americas saw an increase of approximately 3% versus 2012.
In Europe, the sales decrease was a result of the continued macroeconomic uncertainty in the region. The decline
occurred across virtually all market segments, with the corporate office (down 1% in U.S. dollars, 4% in local currency) ,
retail (down 19% in U.S. dollars, 21% in local currency) and government (down 7% in U.S. dollars, 10% in local currency)
being the most significant. The weighted average selling price per square yard in Europe was up slightly year over year in
U.S. dollars and down less than 2% in local currency. In the fourth quarter of 2013, we saw a 4% sales increase in Europe
in U.S. dollars (essentially flat in local currency) versus the fourth quarter of 2012, demonstrating some stabilization in the
market at the close of the year and perhaps signaling an improving environment on a going forward basis.
In Asia-Pacific, the sales decline was largely a result of our performance in Australia, where we had lower sales as a
result of the continued effect of the fire at our Australia manufacturing facility in 2012. The fire led to increased lead times
for orders and other business disruptions that had a negative impact in the marketplace. The weakening of the Australian
dollar in 2013 versus 2012 was another factor in the decline. The decrease in Australia was partially offset by sales
increases in the rest of the Asia-Pacific region, particularly in China and Southeast Asia. The majority of the sales decline
in Asia-Pacific occurred in the corporate office (down 10%), healthcare (down 51%) and education (down 14%) market
segments. These decreases were mitigated somewhat by increases in the retail (up 67%), government (up 67%) and
hospitality (up 55%) market segments. The weighted average selling price per square yard in the Asia-Pacific region
declined approximately 4% in 2013 versus 2012. In January 2014, we commenced operations at our new manufacturing
facility in Minto, Australia. With the opening of this facility, we believe we will see improved sales activity in Australia in
2014.
Net Sales for 2012 Compared with 2011
For 2012, net sales decreased $21.0 million (2.2%) versus 2011. On a worldwide basis, the general economic
uncertainty had an impact on buyers of our product, as we experienced declines in almost all market segments with the
exception of the residential market. On a geographic basis, we experienced a sales increase in the Americas (up 5.1%),
which was offset by decreases in Europe (down 8.1%) and Asia-Pacific (down 13.2%).
In the Americas, the increase in sales was due to the continued rebound of the corporate office market (up 7%), as well
as increases in the residential (up 23%) and education (up 6%) market segments. The increase in residential was largely as
a result of the continuing roll-out of our FLOR stores. These increases in the Americas were somewhat offset by decreases
in the government (down 10%) and healthcare (down 7%) market segments. The weighted average selling price per square
yard in the Americas saw an increase of approximately 5% in 2012.
In Europe, currency translation was the driving factor behind the 2012 decrease, as we experienced a decline of 8% as
reported in U.S. dollars, but in local currency the sales were essentially even with the prior year. All market segments in
Europe experienced a decline as reported in U.S. dollars, with corporate office being the most significant (down 6%). On a
local currency basis, however, the corporate office segment saw a 2% increase, which was mitigated by smaller decreases
in the retail (down 13%) and government (down 7%) market segments. The weighted average selling price per square yard
in Europe was down approximately 3% in U.S. dollars, but up approximately 5% in local currency.
24
Due largely to both the fire in our plant in Australia in July 2012, as well as the lack of government stimulus funds in
2012 versus 2011, we experienced a sales decline in the Asia-Pacific region of 13% versus 2011. While it is difficult to
quantify, we believe that the fire at our Australia facility and the related delays in shipments while we worked to stabilize
our supply chain led to a reduction of $13-$18 million in net sales for 2012. The most significant decline was in the
education market (down 52%) due to the curtailment of government stimulus in the region, particularly in Australia. The
decline in Asia-Pacific was also fueled by lower sales in the hospitality (down 44%) and corporate office (down 3%)
market segments. The weighted average selling price in the Asia-Pacific region was essentially even compared with 2011.
Cost and Expenses
The following table presents our overall cost of sales and selling, general and administrative expenses during the past
three years:
Cost and Expenses
Fiscal Year
2013
2012
(in thousands)
2011
Percentage Change
2012
2013
compared
compared
with 2011
with 2012
Cost of Sales ............................................... $
Selling, General and Administrative
Expenses ..................................................
Total ............................................................ $
618,880 $
614,841 $
618,303
0.7%
(0.5)%
252,433
871,313 $
231,358
846,199 $
243,287
861,590
9.1%
3.0%
(4.9)%
(1.8)%
For 2013, our cost of sales increased $4.0 million (1%) versus 2012. Fluctuations in currency exchange rates had a
slight negative impact (less than 1%) year over year. The primary components of this increase in cost of sales were
increases in raw material costs (approximately $3 million) and labor costs (approximately $0.4 million) associated with
higher production volumes, particularly in the second and third quarters of 2013 versus the prior year periods. On a per unit
basis, we did not experience any significant cost differences in raw materials in 2013 versus 2012. We saw gross margin
expansion in our Europe and Asia-Pacific regions during 2013, especially in the fourth quarter, due to continued
implementation of our lean manufacturing initiatives and streamlining of our supply chain in the Asia-Pacific region. As a
result of these items, cost of sales decreased, as a percentage of sales, to 64.5% in 2013 versus 66.0% in 2012.
For 2012, our cost of sales decreased $3.5 million (0.5%) versus 2011. Fluctuations in currency exchange rates resulted
in approximately $10 million of decrease in cost of sales, so absent currency translation effects, there was an increase in the
cost of sales in 2012 versus 2011. The increase absent currency translation effects is primarily attributable to (1) a 3-4%
increase in raw material prices in 2012 versus 2011, (2) lower absorption of fixed manufacturing costs associated with
lower production volumes in 2012 versus 2011, and (3) supply chain disruption in the second half of 2012 as a result of the
fire at our facility in Picton, Australia. Due to these factors, we saw an increase in cost of sales as a percentage of sales to
66.0% in 2012 versus 64.9% in 2011. We did see improvement in gross margin in the fourth quarter of 2012 versus the
comparable period in 2011 due to higher absorption of fixed costs due to higher production volumes, as well as the
beginning of realization of savings from our 2012 restructuring plans. However, this quarterly improvement was not
substantial enough to counteract the above factors in the earlier parts of the year.
For 2013, our selling, general and administrative expenses increased $21.1 million (9.1%) versus 2012. Fluctuations in
currency exchange rates did not have a significant impact on the increase. The largest component of the change in selling,
general and administrative expenses was an increase in selling costs of $9.2 million. The majority of this increase ($8.3
million) was in the Americas region, comprised of approximately $4.3 million of increased selling expenses for our FLOR
store platform as it expanded to a total of 21 stores during 2013 and $3.9 million of increased selling costs at our core
modular business in the Americas due to additions of sales people and other personnel in the sales group. We also
experienced an increase in marketing costs of $3.0 million, primarily in the Americas ($2.0 million) and Europe ($1.0
million) divisions, related to targeted marketing programs designed to drive sales in non-corporate market segments. The
remainder of the increase was research and development and administrative costs, driven primarily by increased stock
compensation expense ($4.6 million) related to new grants in 2013 as well as vesting of grants based on performance
targets being met to a greater extent during 2013 versus 2012. Due to the above factors, as a percentage of net sales, selling,
general and administrative expenses increased to 26.3% in 2013 versus 24.8% in 2012. We believe that these increased
expenses will continue to yield sales growth and efficiency benefits, and we expect selling, general and administrative
expense to decline as a percentage of sales going forward.
25
For 2012, our selling, general and administrative expenses decreased $11.9 million (4.9%) versus 2011. Fluctuations in
currency exchange rates accounted for approximately $4 million (1.5%) of the decrease. The largest component of the
change in selling, general and administrative expense was a decrease in administrative costs of approximately $14 million,
which was due primarily to lower stock compensation expense of $6 million during the first six months of 2012,
particularly in the Americas, as a result of performance goals not being obtained to the same degree as in 2011. There also
was a decrease in administrative expenses due to the significant restructuring actions which took place in 2011 and 2012,
particularly in our European operations. We also experienced a decrease of $4 million in marketing expense, particularly in
the Americas, due to lower catalog circulation in our FLOR business (approximately $1 million), as well as reduced
marketing programs as we evaluated the cost effectiveness of our marketing platform in light of market requirements.
These decreases were offset somewhat by increased selling costs of $7 million, primarily in the Americas, due to both the
FLOR store rollout (approximately $2 million) as well as sales personnel additions in the Americas in response to positive
market conditions in that region, and increased selling costs due to increased sales in the Americas (approximately $3
million increase.) Due to the above factors, as a percentage of net sales, selling, general and administrative costs declined to
24.8% in 2012 versus 25.5% in 2011.
Interest Expense
For 2013, interest expense decreased $1.2 million to $23.8 million versus $25.0 million in 2012. This decrease was
primarily due to the repayment of the $8.1 million balance of our 11.375% Senior Secured Notes at maturity in November
2013 and the early redemption of $27.5 million of our 7.625% Senior Notes in November 2013. Although we subsequently
borrowed under our Syndicated Credit Facility in December of 2013, the borrowing was at a significantly lower interest
rate than the notes which were repaid in November 2013.
For 2012 interest expense decreased $1.3 million versus 2011. This decrease was primarily due to the redemption of
the remaining $11.5 million our former 9.5% Senior Subordinated Notes in April 2012.
Tax
Our effective tax rate in 2013 was 30.1%, compared with an effective rate of 39.9% in 2012. This decrease in effective
rate was primarily attributable to (1) the settlement of our Canada-U.S. bilateral advanced pricing agreement, (2) a decrease
in nondeductible business expenses, (3) a decrease in nondeductible reserves against capital assets, (4) an effective foreign
tax rate that is lower than the federal statutory rate coupled with a significant increase of foreign earnings from 2012 to
2013, and (5) an effective state tax rate that is lower due to a larger proportion of foreign earnings in 2013. In addition,
there was an increase in the effective rate attributable to valuation allowances related to state net operating loss
carryforwards. For additional information on taxes and a reconciliation of effective tax rates to statutory tax rates, see the
Note entitled “Taxes on Income” in Item 8 of this Report.
Our effective tax rate in 2012 was 39.9%, compared with an effective rate of 35.0% in 2011. This increase in effective
rate was primarily attributable to (1) nondeductible business expenses associated with the fire at the Australia plant, and (2)
a nondeductible reserve on capital assets associated with our 2012 restructuring plan. In addition, there were decreases in
the effective rate attributable to the cash surrender value of life insurance policies and tax effects of undistributed earnings
from foreign subsidiaries not deemed to be indefinitely reinvested, which were offset by increases in the effective rate for
foreign and U.S. tax effects attributable to foreign operations. For additional information on taxes and a reconciliation of
effective tax rates to statutory tax rates, see the Note entitled “Taxes on Income” in Item 8 of this Report.
Liquidity and Capital Resources
General
In our business, we require cash and other liquid assets primarily to purchase raw materials and to pay other
manufacturing costs, in addition to funding normal course selling, general and administrative expenses, anticipated capital
expenditures, interest expense and potential special projects. We generate our cash and other liquidity requirements
primarily from our operations and from borrowings or letters of credit under our Syndicated Credit Facility discussed
below. We believe that we will be able to continue to enhance the generation of free cash flow through the following
initiatives:
● Improving our inventory turns by continuing to implement a made-to-order model throughout our organization;
● Reducing our average days sales outstanding through improved credit and collection practices; and
26
● Limiting the amount of our capital expenditures generally to those projects that have a short-term payback
period.
Historically, we use more cash in the first half of the fiscal year, as we fund insurance premiums, tax payments,
incentive compensation and inventory build-up in preparation for the holiday/vacation season of our international
operations.
In addition, we have a high contribution margin business with low capital expenditure requirements. Contribution
margin represents variable gross profit margin less the variable component of selling, general and administrative expenses,
and for us is an indicator of profit on incremental sales after the fixed components of cost of sales and selling, general and
administrative expenses have been recovered. While contribution margin should not be construed as a substitute for gross
margin, which is determined in accordance with GAAP, it is included herein to provide additional information with respect
to our potential for profitability. In addition, we believe that investors find contribution margin to be a useful tool for
measuring our profitability on an operating basis.
At December 29, 2013, we had $72.9 million in cash. Approximately $17.4 million of this cash was located in the
United States, and the remaining $55.5 million was located at our international locations. Our position is that the cash
located outside of the United States is permanently reinvested in the respective jurisdictions (except as identified below).
We believe that our strategic plans and business needs support the status of our cash in foreign locations. Of the $55.5
million cash in foreign jurisdictions, approximately $4.2 million represents earnings which we have determined are not
permanently reinvested, and as such we have provided for U.S. federal and state income taxes on these amounts in
accordance with applicable accounting standards.
As of December 29, 2013, we had $26.3 million of borrowings and $3.6 million in letters of credit outstanding under
our Syndicated Credit Facility. As of December 29, 2013, we could have incurred $173.4 million of additional borrowings
under our Syndicated Credit Facility. In addition, we could have incurred the equivalent of $6.0 million of borrowings
under our other credit facilities in place at other non-U.S. subsidiaries.
We have approximately $57.6 million in contractual cash obligations due by the end of fiscal year 2014, which
includes, among other things, pension cash contributions, interest payments on our debt and capital expenditure
commitments. Based on current interest rate and debt levels, we expect our aggregate interest expense for 2014 to be
between $20 million and $22 million. We estimate aggregate capital expenditures in 2014 to be between $40 million and
$50 million, although we are not committed to these amounts.
On December 3, 2010, we completed a private offering of $275 million aggregate principal amount of 7.625% Senior
Notes. Interest on the 7.625% Senior Notes is payable semi-annually on June 1 and December 1 (the first payment was
made on June 1, 2011). We used the net proceeds from the sale of the 7.625% Senior Notes (plus cash on hand) in
connection with the repurchase of approximately $141.9 million aggregate principal amount of our former 11.375% Senior
Secured Notes and approximately $98.5 million aggregate principal amount of our former 9.5% Senior Subordinated Notes,
pursuant to a tender offer we conducted. In November 2013, we redeemed $27.5 million aggregate principal amount of the
7.625% Senior Notes at a price equal to 103% of the principal amount of the notes redeemed, plus accrued interest to the
redemption date.
It is important for you to consider that we have a significant amount of indebtedness. Our Syndicated Credit Facility
matures in October 2018, and our outstanding $247.5 million of 7.625% Senior Notes mature in 2018. We cannot assure
you that we will be able to renegotiate or refinance any of our debt on commercially reasonable terms, or at all. If we are
unable to refinance our debt or obtain new financing, we would have to consider other options, such as selling assets to
meet our debt service obligations and other liquidity needs, or using cash, if available, that would have been used for other
business purposes.
27
Syndicated Credit Facility
On October 22, 2013, we entered into a new Syndicated Facility Agreement among the Company, certain wholly-
owned foreign subsidiaries of the Company as borrowers, certain subsidiaries of the Company as guarantors, Bank of
America, N.A. as Administrative Agent, The Royal Bank of Scotland, as Syndication Agent, SunTrust Bank and Regions
Bank, as Co-Documentation Agents, and the other lenders party thereto. Pursuant to the Syndicated Facility Agreement, the
lenders provide to the Company and certain of its subsidiaries a multicurrency revolving credit facility (the “Facility”) of
up to $200 million at any one time. The key features of the Facility are as follows:
● The Facility matures on October 22, 2018.
● The Facility includes (i) a multicurrency revolving loan facility made available to Interface, Inc. and our principal
subsidiaries in Europe and Australia not to exceed $190 million in the aggregate at any one time outstanding, and
(ii) a revolving loan facility made available to our principal subsidiary in Thailand not to exceed the equivalent of
$10 million in the aggregate at any one time outstanding. A sublimit of $40 million exists for the issuance of letters
of credit under the Facility.
● The Facility includes (i) a multicurrency revolving loan facility made available to Interface, Inc. and our principal
subsidiaries in Europe and Australia not to exceed $190 million in the aggregate at any one time outstanding, and
(ii) a revolving loan facility made available to our principal subsidiary in Thailand not to exceed the equivalent of
$10 million in the aggregate at any one time outstanding. A sublimit of $40 million exists for the issuance of letters
of credit under the Facility.
● The Facility contains financial covenants (specifically, a consolidated net leverage ratio and a consolidated interest
coverage ratio) that must be met as of the end of each fiscal quarter.
● We have the option to increase the multicurrency loan facility by up to $150 million (or $250 million if the
proceeds of the increase are used to pay off all remaining 7.625% Senior Notes), subject to the receipt of lender
commitments for the increase and the satisfaction of certain other conditions.
Interest Rates and Fees. Interest on base rate loans is charged at varying rates computed by applying a margin ranging
from 0.25% to 1.50% over the applicable base interest rate (which is defined as the greatest of the prime rate, a specified
federal funds rate plus 0.50%, or a specified LIBOR rate), depending on our 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 ranging from 1.25% to 2.50% over the applicable LIBOR rate, depending on our
consolidated net leverage ratio as of the most recently completed fiscal quarter. In addition, we pay a commitment fee
ranging from 0.20% to 0.35% per annum (depending on our consolidated net leverage ratio as of the most recently
completed fiscal quarter) on the unused portion of the Facility.
Covenants. The Facility contains standard and customary covenants for agreements of this type, including various
reporting, affirmative and negative covenants. Among other things, these covenants limit our ability to:
create or incur liens on assets;
incur indebtedness or contingent obligations;
sell or dispose of assets (in excess of certain specified amounts);
●
● make acquisitions of or investments in businesses (in excess of certain specified amounts);
●
●
● pay dividends or repurchase our stock (in excess of certain specified amounts);
●
●
repay other indebtedness prior to maturity unless we meet certain conditions; and
enter into sale and leaseback transactions.
The Facility also requires us to remain in compliance with the following financial covenants as of the end of each fiscal
quarter, based on our consolidated results for the year then ended:
● Consolidated Net Leverage Ratio: Must be no greater than (i) 4.50:1.00 through and including the fiscal quarter
ending December 28, 2014, (ii) 4.00:1.00 from and including the fiscal quarter ending April 5, 2015 through and
including the fiscal quarter ending January 3, 2016, and (iii) 3.75:1.00 for each fiscal quarter thereafter.
● Consolidated Interest Coverage Ratio: Must be no less than 2.25:1.00 as of the end of any fiscal quarter.
28
Events of Default. If we breach or fail to perform any of the affirmative or negative covenants under the Facility, or if
other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or certain
subsidiaries, or if we breach or fail to perform any covenant or agreement contained in any instrument relating to any of our
other indebtedness exceeding $20 million), after giving effect to any applicable notice and right to cure provisions, an event
of default will exist. If an event of default exists and is continuing, the lenders’ Administrative Agent may, and upon the
written request of a specified percentage of the lender group shall:
● declare all commitments of the lenders under the facility terminated;
● declare all amounts outstanding or accrued thereunder immediately due and payable; and
●
exercise other rights and remedies available to them under the agreement and applicable law.
Collateral. Pursuant to a Security and Pledge Agreement executed on the same date, the Facility is secured by
substantially all of the assets of Interface, Inc. and our domestic subsidiaries (subject to exceptions for certain immaterial
subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material
foreign subsidiaries. If an event of default occurs under the Facility, the lenders’ Administrative Agent may, upon the
request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances,
foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts
receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign
subsidiaries.
In connection with the execution of the Syndicated Facility Agreement, we terminated (i) the Seventh Amended and
Restated Credit Agreement, dated as of June 24, 2011, among Interface, Inc. (and certain direct and indirect subsidiaries),
the lenders listed therein, Wells Fargo Bank, National Association and Bank of America, N.A., which provided a $100
million domestic revolving credit facility; and (ii) the Credit Agreement, executed on April 24, 2009, among Interface
Europe B.V. (and certain of its subsidiaries) and The Royal Bank of Scotland N.V. (as successor to ABN AMRO Bank
N.V.), as amended, which provided a credit facility for borrowings and bank guarantees of up to €20.0 million
As of December 29, 2013 we had $26.3 million of borrowings outstanding under the Facility, and had $3.6 million in
letters of credit outstanding under the Facility.
We are presently in compliance with all covenants under the Syndicated Credit Facility and anticipate that we will
remain in compliance with the covenants for the foreseeable future.
Senior Notes
As of December 29, 2013, we had outstanding $247.5 million of our 7.625% Senior Notes. The indenture governing
these notes, on a collective basis, contain covenants that limit or restrict our ability to:
• incur additional indebtedness;
• make dividend payments or other restricted payments;
• create liens on our assets;
• sell our assets;
• sell securities of our subsidiaries;
• enter into transactions with shareholders and affiliates; and
• enter into mergers, consolidations or sales of all or substantially all of our assets.
In addition, the indenture contains a covenant that requires us to make an offer to purchase the outstanding notes under
such indenture in the event of a change of control of Interface, Inc. (as defined in the indenture).
The Notes are guaranteed, fully, unconditionally, and jointly and severally, on an unsecured basis by each of our
material U.S. subsidiaries.
29
If we breach or fail to perform any of the affirmative or negative covenants under the indenture, or if other specified
events occur (such as a bankruptcy or similar event), after giving effect to any applicable notice and right to cure
provisions, an event of default will exist. An event of default also will exist if we breach or fail to perform any covenant or
agreement contained in any other instrument relating to any of our indebtedness exceeding $20 million and such default or
failure results in the indebtedness becoming due and payable. If an event of default exists and is continuing, the trustee of
the notes (or the holders of at least 25% of the principal amount of such notes) may declare the principal amount of the
notes and accrued interest thereon immediately due and payable (except in the case of bankruptcy, in which case such
amounts are immediately due and payable even in the absence of such a declaration).
Analysis of Cash Flows
Our primary sources of cash during 2013 were: (1) $56.0 million of proceeds received from our insurance company on
our claim related to the fire at our Australia manufacturing facility in 2012; (2) $26.3 million of borrowings under our
Syndicated Credit Facility; and (3) $3.5 million due to a reduction in accounts receivable. Our primary uses of cash in 2013
were: (1) $91.9 million of capital expenditures, which included expenditures for the purchase and build-out of our new
manufacturing facility in Minto, Australia; (2) $35.6 million of cash used to retire the remainder ($8.1 million aggregate
principal amount) of our 11.375% Senior Secured Notes and a portion ($27.5 million aggregate principal amount) of our
7.625% Senior Notes; and (3) $17.3 million due to a decrease in accounts payable and accruals.
Our primary sources of cash during 2012 were: (1) $32.2 million of net proceeds from the sale of our Bentley Prince
Street business segment; (2) $20.0 million as a result of a reduction of accounts receivable; and (3) $20.7 million of
proceeds from the insurance company with regard to the fire at our Australian facility. Our primary uses of cash during
2012 were: (1) $42.4 million of capital expenditures; (2) an increase of prepaid expenses and other current assets of $11.9
million, primarily related to the insurance receivable for our fire claim in Australia; and (3) $11.5 million for the
redemption of the remainder of our former 9.5% Senior Subordinated Notes.
Our primary sources of cash during 2011 were: (1) $2.7 million received as a result of exercises of employee stock
options; and (2) $1.4 million received due to a reduction of prepaid expenses. Our primary uses of cash during 2011 were:
(1) $38.1 million for capital expenditures; (2) $31.6 million due to increased inventory levels; and (3) $17.6 million due to
decreases in accounts payable and accruals.
We believe that our liquidity position will provide sufficient funds to meet our current commitments and other cash
requirements for the foreseeable future.
30
Funding Obligations
We have various contractual obligations that we must fund as part of our normal operations. The following table
discloses aggregate information about our contractual obligations (including the remaining contractual obligations related
to our discontinued operations) and the periods in which payments are due. The amounts and time periods are measured
from December 29, 2013.
Total
Payments
Due
Less than
1 year
Payments Due by Period
1-3 years 3-5 years
(in thousands)
More than
5 years
Long-Term Debt Obligations ................................ $
Operating Lease Obligations(1) ............................
Expected Interest Payments(2) ..............................
Unconditional Purchase Obligations(3) ................
Pension Cash Obligations(4) .................................
Total Contractual Cash Obligations(5) .................. $
______________________
273,826 $
74,714
98,476
7,576
124,061
578,653 $
0 $
20,634
20,029
5,924
11,047
57,634 $
0 $
25,387
40,058
1,492
22,726
89,663 $
273,826 $
13,264
38,389
160
23,972
349,611 $
0
15,429
0
0
66,316
81,745
(1) Our capital lease obligations are insignificant.
(2) Expected interest payments to be made in future periods reflect anticipated interest payments related to the
$247.5 million outstanding of our 7.625% Senior Notes and the $26.3 million of borrowings outstanding under our
Syndicated Credit Facility as of December 29, 2013. We have also assumed in the presentation above that these
notes and borrowings will remain outstanding until maturity.
(3) Unconditional purchase obligations do not include unconditional purchase obligations that are included as
liabilities in our Consolidated Balance Sheet. Our capital expenditure commitments are not significant.
(4) We have two foreign defined benefit plans and a domestic salary continuation plan. We have presented above the
estimated cash obligations that will be paid under these plans over the next ten years. Such amounts are based on
several estimates and assumptions and could differ materially should the underlying estimates and assumptions
change. Our domestic salary continuation plan is an unfunded plan, and we do not currently have any
commitments to make contributions to this plan. However, we do use insurance instruments to hedge our exposure
under the salary continuation plan. Contributions to our other employee benefit plans are at our discretion.
(5) The above table does not reflect unrecognized tax benefits of $27.4 million, the timing of which payments are
uncertain. See the Note entitled “Taxes on Income” in Item 8 of this Report for further information.
31
Critical Accounting Policies
The policies discussed below are considered by management to be critical to an understanding of our consolidated
financial statements because their application places the most significant demands on management’s judgment, with
financial reporting results relying on estimations about the effects of matters that are inherently uncertain. Specific risks for
these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions
that future events may not develop as forecasted, and the best estimates routinely require adjustment.
Revenue Recognition. The vast majority of our revenue is recognized at the date of shipment when the following
criteria are met: persuasive evidence of an agreement exists, price to the buyer is fixed and determinable, and collectability
is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and
rewards of ownership, which is generally on the date of shipment. Provisions for discounts, sales returns and allowances
are estimated using historical experience, current economic trends, and the company’s quality performance. The related
provision is recorded as a reduction of sales and cost of sales in the same period that the revenue is recognized.
Accordingly, our estimates and assumptions regarding revenue recognition primarily relate to sales returns and allowances,
which historically have been in the range of 2.5-3.0% of gross sales. Over the last several years, we have not experienced
any significant fluctuation in sales returns and allowances, our estimates and assumptions related thereto have not changed
significantly, and we believe our estimates and assumptions to be reasonably accurate. Management also believes this past
experience can be relied upon for such estimates and assumptions in future periods, as our business model and customer
mix have not changed significantly.
A small percentage (less than 5%) of our revenue relates to flooring installation projects, which generally involve short
time periods (typically less than two weeks) and therefore present little risk of material difference due to changes in
experience.
Shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations.
Shipping and handling costs incurred are classified in cost of sales in the consolidated statements of operations.
Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment at the asset group level whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the expected
future undiscounted cash flow is less than the carrying amount of the asset, an impairment is indicated. A loss is then
recognized for the difference, if any, between the fair value of the asset (as estimated by management using its best
judgment) and the carrying value of the asset. If actual market value is less favorable than that estimated by management,
additional write-downs may be required.
Deferred Income Tax Assets and Liabilities. The carrying values of deferred income tax assets and liabilities reflect the
application of our income tax accounting policies in accordance with applicable accounting standards, and are based on
management’s assumptions and estimates regarding future operating results and levels of taxable income, as well as
management’s judgment regarding the interpretation of the provisions of applicable accounting standards. The carrying
values of liabilities for income taxes currently payable are based on management’s interpretations of applicable tax laws,
and incorporate management’s assumptions and judgments regarding the use of tax planning strategies in various taxing
jurisdictions. The use of different estimates, assumptions and judgments in connection with accounting for income taxes
may result in materially different carrying values of income tax assets and liabilities and results of operations.
We evaluate the recoverability of these deferred tax assets by assessing the adequacy of future expected taxable
income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available
tax planning strategies. These sources of income inherently rely heavily on estimates. We use our historical experience and
our short and long-term business forecasts to provide insight. Further, our global business portfolio gives us the opportunity
to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the
extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is
established. As of December 29, 2013 and December 30, 2012, we had approximately $113.7 million and $128.2 million of
U.S. federal net operating loss carryforwards, respectively. In addition, as of December 29, 2013, we had state net
operating loss carryforwards of $193.0 million and $187.0 million, respectively. As of December 29, 2013 and December
30, 2012, we had approximately $2.0 million and $3.5 million of foreign net operating loss carryforwards, respectively.
Certain of these carryforwards are reserved with a valuation allowance because, based on the available evidence, we
believe it is more likely than not that we would not be able to utilize those deferred tax assets in the future. The remaining
year-end 2013 amounts are expected to be fully recoverable within the applicable statutory expiration periods. If the actual
amounts of taxable income differ from our estimates, the amount of our valuation allowance could be materially impacted.
32
Goodwill. Pursuant to applicable accounting standards, we test goodwill for impairment at least annually using a two
step approach. In the first step of this approach, we prepare valuations of reporting units, using both a market comparable
approach and an income approach, and those valuations are compared with the respective book values of the reporting units
to determine whether any goodwill impairment exists. In preparing the valuations, past, present and expected future
performance is considered. If impairment is indicated in this first step of the test, a step two valuation approach is
performed. The step two valuation approach compares the implied fair value of goodwill to the book value of goodwill.
The implied fair value of goodwill is determined by allocating the estimated fair value of the reporting unit to the assets and
liabilities of the reporting unit, including both recognized and unrecognized intangible assets, in the same manner as
goodwill is determined in a business combination under applicable accounting standards. After completion of this step two
test, a loss is recognized for the difference, if any, between the fair value of the goodwill associated with the reporting unit
and the book value of that goodwill. If the actual fair value of the goodwill is determined to be less than that estimated, an
additional write-down may be required.
During the fourth quarters of 2013, 2012 and 2011, we performed the annual goodwill impairment test. We perform
this test at the reporting unit level. For our reporting units which carried a goodwill balance as of December 29, 2013, no
impairment of goodwill was indicated. As of December 29, 2013, if our estimates of the fair value of our reporting units
were 10% lower, we believe no additional goodwill impairment would have existed.
Inventories. We determine the value of inventories using the lower of cost or market. We write down inventories for
the difference between the carrying value of the inventories and their net realizable value. If actual market conditions are
less favorable than those projected by management, additional write-downs may be required.
We estimate our reserves for inventory obsolescence by continuously examining our inventories to determine if there
are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators that could
require the need for additional inventory write-downs are the age of the inventory, the length of its product life cycles,
anticipated demand for our products and current economic conditions. While we believe that adequate write-downs for
inventory obsolescence have been made in the consolidated financial statements, consumer tastes and preferences will
continue to change and we could experience additional inventory write-downs in the future. Our inventory reserve on
December 29, 2013, and December 30, 2012, was $13.4 million and $12.9 million, respectively. To the extent that actual
obsolescence of our inventory differs from our estimate by 10%, our 2013 net income would be higher or lower by
approximately $0.9 million, on an after-tax basis.
Pension Benefits. Net pension expense recorded is based on, among other things, assumptions about the discount rate,
estimated return on plan assets and salary increases. While management believes these assumptions are reasonable, changes
in these and other factors and differences between actual and assumed changes in the present value of liabilities or assets of
our plans above certain thresholds could cause net annual expense to increase or decrease materially from year to year. The
actuarial assumptions used in our salary continuation plan and our foreign defined benefit plans reporting are reviewed
periodically and compared with external benchmarks to ensure that they appropriately account for our future pension
benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average expected
returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-
looking views of the financial markets, and include input from actuaries, investment service firms and investment
managers. The table below represents the changes to the projected benefit obligation as a result of changes in discount rate
assumptions:
Foreign Defined Benefit Plans
Increase (Decrease)
in
Projected Benefit
Obligation
(in millions)
1% increase in actuarial assumption for discount rate ........................................................................... $
1% decrease in actuarial assumption for discount rate ........................................................................... $
(36.6)
40.5
33
Domestic Salary Continuation Plan
Increase (Decrease)
in
Projected Benefit
Obligation
(in millions)
1% increase in actuarial assumption for discount rate ........................................................................... $
1% decrease in actuarial assumption for discount rate ........................................................................... $
(2.4)
2.9
Environmental Remediation. We provide for remediation costs and penalties when the responsibility to remediate is
probable and the amount of associated costs is reasonably determinable. Remediation liabilities are accrued based on
estimates of known environmental exposures and are discounted in certain instances. We regularly monitor the progress of
environmental remediation. Should studies indicate that the cost of remediation is to be more than previously estimated, an
additional accrual would be recorded in the period in which such determination is made. As of December 29, 2013, no
significant amounts were provided for remediation liabilities.
Allowances for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of customers to make required payments. Estimating this amount requires us to analyze the financial strengths
of our customers. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. By its nature, such an estimate is highly subjective, and it is
possible that the amount of accounts receivable that we are unable to collect may be different than the amount initially
estimated. Our allowance for doubtful accounts on December 29, 2013, and December 30, 2012, was $7.6 million and $8.8
million, respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%,
our 2013 net income would be higher or lower by approximately $0.5 million, on an after-tax basis, depending on whether
the actual collectability was better or worse, respectively, than the estimated allowance.
Product Warranties. We typically provide limited warranties with respect to certain attributes of our carpet products
(for example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to
twenty years, depending on the particular carpet product and the environment in which the product is to be installed. We
typically warrant that any services performed will be free from defects in workmanship for a period of one year following
completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of
the affected product. We record a provision related to warranty costs based on historical experience and periodically adjust
these provisions to reflect changes in actual experience. Our warranty reserve on December 29, 2013, and December 30,
2012, was $1.4 million and $1.2 million, respectively. Actual warranty expense incurred could vary significantly from
amounts that we estimate. To the extent the actual warranty expense differs from our estimates by 10%, our 2013 net
income would be higher or lower by approximately $0.1 million, on an after-tax basis, depending on whether the actual
expense is lower or higher, respectively, than the estimated provision.
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding the
presentation of unrecognized tax benefits when a net operating loss carryforward, or similar tax credit carryforward, exists.
This standard clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in
the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a
tax credit carryforward, if such settlement is required or expected in the event the uncertain tax benefit is disallowed. In
situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, is not available at the
reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the
entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in
the financial statements as a liability and should not be netted with the deferred tax asset. The amendments in this standard
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We currently are
evaluating the impact that adoption of this standard will have on the determination or reporting of our financial results.
34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
As a result of the scope of our global operations, we are exposed to an element of market risk from changes in interest
rates and foreign currency exchange rates. Our results of operations and financial condition could be impacted by this risk.
We manage our exposure to market risk through our regular operating and financial activities and, to the extent we deem
appropriate, through the use of derivative financial instruments.
We employ derivative financial instruments as risk management tools and not for speculative or trading purposes. We
monitor the use of derivative financial instruments through objective measurable systems, well-defined market and credit
risk limits, and timely reports to senior management according to prescribed guidelines. We have established strict counter-
party credit guidelines and enter into transactions only with financial institutions with a rating of investment grade or better.
As a result, we consider the risk of counter-party default to be minimal.
Interest Rate Market Risk Exposure
Changes in interest rates affect the interest paid on certain of our debt. To mitigate the impact of fluctuations in interest
rates, our management has developed and implemented a policy to maintain the percentage of fixed and variable rate debt
within certain parameters. In the past, we have maintained a fixed/variable rate mix within these parameters either by
borrowing on a fixed rate basis or entering into interest rate swap transactions. In the interest rate swaps, we agreed to
exchange, at specified levels, the difference between fixed and variable interest amounts calculated by reference to an
agreed-upon notional principal linked to LIBOR. As of December 29, 2013, and December 30, 2012, no such interest rate
swaps were in place.
Foreign Currency Exchange Market Risk Exposure
A significant portion of our operations consists of manufacturing and sales activities in foreign jurisdictions. We
manufacture our products in the United States, Northern Ireland, the Netherlands, China and Thailand, and sell our
products in more than 100 countries. (In 2012, we ceased manufacturing operations at our facility in England. In addition,
manufacturing in Australia was suspended during 2013 and the second half of 2012 as we built out a new facility following
a fire.) As a result, our financial results could be significantly affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which we distribute our products. Our operating
results are exposed to changes in exchange rates between the U.S. dollar and many other currencies, including the euro,
British pound sterling, Canadian dollar, Australian dollar, Thai baht and Japanese yen. When the U.S. dollar strengthens
against a foreign currency, the value of anticipated sales in those currencies decreases, and vice versa. Additionally, to the
extent our foreign operations with functional currencies other than the U.S. dollar transact business in countries other than
the United States, exchange rate changes between two foreign currencies could ultimately impact us. Finally, because we
report in U.S. dollars on a consolidated basis, foreign currency exchange fluctuations could have a translation impact on
our financial position.
At December 29, 2013, we recognized a $5.2 million decrease in our foreign currency translation adjustment account
compared with December 30, 2012, because of the strengthening of the U.S. dollar against certain foreign currencies during
2013.
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. The market value of
instruments affected by interest rate and foreign currency exchange rate risk is computed based on the present value of
future cash flows as impacted by the changes in the rates attributable to the market risk being measured. The discount rates
used for the present value computations were selected based on market interest and foreign currency exchange rates in
effect at December 29, 2013. The values that result from these computations are then compared with the market values of
the financial instruments. The differences are the hypothetical gains or losses associated with each type of risk.
35
Interest Rate Risk
Based on a hypothetical immediate 150 basis point increase in interest rates, with all other variables held constant, the
fair value of our fixed rate long-term debt would be impacted by a net decrease of $3.5 million. Conversely, a 150 basis
point decrease in interest rates would result in a net increase in the fair value of our fixed rate long-term debt of $3.5
million.
Foreign Currency Exchange Rate Risk
As of December 29, 2013, 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 short-term financial
instruments (primarily cash, accounts receivable and accounts payable) of $11.4 million or an increase in the fair value of
our financial instruments of $9.4 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.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
2013
FISCAL YEAR
2012
(in thousands, except per share data)
2011
Net sales ........................................................................................ $
Cost of sales ..................................................................................
Gross profit on sales ......................................................................
Selling, general and administrative expenses ................................
Restructuring and asset impairment charges .................................
Expenses (gain) related to Australia fire .......................................
959,989 $
618,880
341,109
252,433
0
(6,954)
932,020 $
614,841
317,179
231,358
19,425
1,748
953,045
618,303
334,742
243,287
5,755
0
Operating income ..........................................................................
95,630
64,648
85,700
Interest expense .........................................................................
Debt retirement expenses ...........................................................
Other expense ............................................................................
Income from continuing operations before tax expense ................
Income tax expense .......................................................................
Income from continuing operations ..............................................
Income (loss) from discontinued operations, net of tax ................
23,810
1,667
1,149
69,004
20,749
48,255
0
25,024
0
1,521
38,103
15,204
22,899
(16,956)
26,325
0
465
58,910
20,640
38,270
451
Net income .................................................................................... $
48,255 $
5,943 $
38,721
Income (loss) per share – basic
Continuing operations ................................................................ $
Discontinued operations ............................................................
0.73 $
0.00
0.35 $
(0.26)
Net income per share – basic ......................................................... $
0.73 $
0.09 $
Income (loss) per share – diluted
Continuing operations ................................................................ $
Discontinued operations ............................................................
0.73 $
0.00
0.35 $
(0.26)
Net income per share – diluted ...................................................... $
0.73 $
0.09 $
0.59
0.01
0.59
0.58
0.01
0.59
Basic weighted average common shares outstanding ....................
Diluted weighted average common shares outstanding ................
66,194
66,297
65,767
65,900
65,291
65,486
See accompanying notes to consolidated financial statements.
37
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2013
FISCAL YEAR
2012
(in thousands)
2011
Net income ................................................................... $
Other comprehensive income (loss)
Foreign currency translation adjustment ...................
Pension liability adjustment ......................................
48,255 $
5,943 $
(5,241)
1,409
8,539
771
Comprehensive income ................................................ $
44,423 $
15,253 $
38,721
(7,614)
(5,066)
26,041
See accompanying notes to consolidated financial statements.
38
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
2013
2012
(in thousands)
ASSETS
Current
Cash and cash equivalents ............................................................................. $
Accounts receivable, net ................................................................................
Inventories .....................................................................................................
Prepaid expenses and other current assets .....................................................
Deferred income taxes ...................................................................................
Total current assets ............................................................................................
Property and equipment, net ..............................................................................
Deferred tax asset ..............................................................................................
Goodwill ............................................................................................................
Other assets .......................................................................................................
72,883 $
131,936
149,643
23,411
10,232
388,105
230,845
55,967
77,941
65,282
90,533
137,313
141,176
51,358
10,271
430,651
165,725
62,856
75,672
54,463
$
818,140 $
789,367
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable ........................................................................................... $
Accrued expenses ..........................................................................................
Current portion of long-term debt ..................................................................
Total current liabilities ......................................................................................
Senior notes .......................................................................................................
Long term debt ..................................................................................................
Deferred income taxes .......................................................................................
Other..................................................................................................................
52,515 $
77,672
0
130,187
247,500
26,326
15,049
58,291
56,292
93,036
8,110
157,438
275,000
0
7,339
53,888
Total liabilities ..................................................................................................
477,353
493,665
Commitments and contingencies
Shareholders’ equity
Preferred stock ...............................................................................................
Common stock ...............................................................................................
Additional paid-in capital ..............................................................................
Retained earnings (deficit) .............................................................................
Accumulated other comprehensive loss – foreign currency translation ........
Accumulated other comprehensive loss – pension liability ...........................
0
6,631
374,597
24,226
(30,585)
(34,082)
0
6,606
366,677
(16,746)
(25,344)
(35,491)
Total shareholders’ equity .................................................................................
340,787
295,702
See accompanying notes to consolidated financial statements.
$
818,140 $
789,367
39
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2013
FISCAL YEAR
2012
(in thousands)
2011
OPERATING ACTIVITIES:
Net income .................................................................... $
Income (loss) on discontinued operations, net of taxes .
Income from continuing operations ..............................
Adjustments to reconcile income to cash provided by
operating activities
Depreciation and amortization ......................................
Stock compensation amortization expense....................
Premium paid to repurchase senior notes ......................
Bad debt expense ..........................................................
Deferred income taxes and other ...................................
Cash received from insurance company ........................
Working capital changes:
Accounts receivable ...............................................
Inventories .............................................................
Prepaid expenses and other current assets .............
Accounts payable and accrued expenses ................
Cash provided by operating activities ...........................
INVESTING ACTIVITIES:
Capital expenditures ......................................................
Other .............................................................................
Net proceeds from sale of Bentley Prince Street ...........
Cash received from insurance company ........................
Cash provided by (used in) investing activities .............
FINANCING ACTIVITIES:
Borrowing of long-term debt ........................................
Dividends paid ..............................................................
Debt issuance costs .......................................................
Repurchase of senior notes............................................
Premium paid to repurchase senior notes ......................
Proceeds from issuance of common stock ....................
Cash used in financing activities ...................................
48,255 $
0
48,255
5,943 $
(16,956)
22,899
24,670
7,935
825
253
9,349
25,973
3,478
(10,610)
(25,354)
(17,316)
67,458
(91,851)
3,074
0
23,024
(65,753)
26,326
(7,283)
(1,308)
(35,610)
(825)
1,881
(16,819)
25,882
3,293
0
1,119
(11,164)
0
19,994
1,075
(11,948)
(4,262)
46,888
(42,428)
(2,629)
32,174
20,718
7,835
0
(5,925)
0
(11,477)
0
1,496
(15,906)
38,721
451
38,270
25,179
10,138
0
1,560
4,549
0
(7,453)
(31,629)
1,359
(17,609)
24,364
(38,050)
(1,566)
0
0
(39,616)
0
(5,227)
(1,025)
0
0
2,669
(3,583)
Net cash provided by (used in) operating, investing
and financing activities .............................................
Effect of exchange rate changes on cash .......................
(15,114)
(2,536)
38,817
1,092
(18,835)
234
CASH AND CASH EQUIVALENTS:
Net increase (decrease) .................................................
Balance, beginning of year ............................................
(17,650)
90,533
39,909
50,624
(18,601)
69,225
Balance, end of year ...................................................... $
72,883 $
90,533 $
50,624
See accompanying notes to consolidated financial statements.
40
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a recognized leader in the worldwide commercial interiors market, offering modular carpet. The
Company manufactures modular carpet focusing on the high quality, designer-oriented sector of the market, and provides
specialized carpet replacement, installation and maintenance services. Additionally, the Company offers Intersept, a
proprietary antimicrobial used in a number of interior finishes.
In 2012, the Company sold its Bentley Prince Street business segment to a third party. Bentley Prince Street designed,
manufactured and marketed broadloom and modular carpet. The results of operations and related disposal costs, gains and
losses for the Bentley Prince Street business are classified as discontinued operations for all periods presented. In addition,
assets and liabilities of the Bentley Prince Street business have been reported in assets and liabilities held for sale for all
reported periods.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All of our subsidiaries
are wholly-owned, and we are not a party to any joint venture, partnership or other variable interest entity that would
potentially qualify for consolidation. All material intercompany accounts and transactions are eliminated. Investments in
which the Company does not have the ability to exercise significant influence are carried at fair value. The Company
monitors investments for other than temporary declines in value and makes reductions in carrying values when appropriate.
As of December 29, 2013 and December 30, 2012, the Company did not hold significant investments of this nature.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Examples include provisions for returns, bad debts, product claims reserves,
rebates, inventory obsolescence and the length of product life cycles, accruals associated with restructuring activities,
income tax exposures and valuation allowances, environmental liabilities, and the carrying value of goodwill and property
and equipment. Actual results could vary from these estimates.
Revenue Recognition
Revenue is recognized when the following criteria are met: persuasive evidence of an agreement exists, delivery has
occurred or services have been rendered, price to the buyer is fixed and determinable, and collectability is reasonably
assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of
ownership, which is generally on the date of shipment. Provisions for discounts, sales returns and allowances are estimated
using historical experience, current economic trends, and the Company’s quality performance. The related provision is
recorded as a reduction of sales and cost of sales in the same period that the revenue is recognized. Material differences
may result in the amount and timing of net sales for any period if management makes different judgments or uses different
estimates.
Shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations.
Shipping and handling costs incurred are classified in cost of sales in the consolidated statements of operations.
Research and Development
Research and development costs are expensed as incurred and are included in the selling, general and administrative
expense caption in the consolidated statements of operations. Research and development expense was $12.6 million, $12.4
million and $12.1 million for the years 2013, 2012 and 2011, respectively.
41
Cash, Cash Equivalents and Short-Term Investments
Highly liquid investments with insignificant interest rate risk and with original maturities of three months or less are
classified as cash and cash equivalents. Investments with maturities greater than three months and less than one year are
classified as short-term investments. The Company did not hold any significant amounts of short-term investments at
December 29, 2013 or December 30, 2012.
Cash payments for interest amounted to approximately $22.9 million, $23.1 million and $23.7 million for the years
2013, 2012 and 2011, respectively. Income tax payments amounted to approximately $8.7 million, $10.0 million and $19.9
million for the years 2013, 2012 and 2011, respectively. During the years 2013, 2012 and 2011, the Company received
income tax refunds of $1.4 million, $0.1 million, and $4.4 million, respectively.
Inventories
Inventories are carried at the lower of cost (standards approximating the first-in, first-out method) or market. Costs
included in inventories are based on invoiced costs and/or production costs, as applicable. Included in production costs are
material, direct labor and allocated overhead. The Company writes down inventories for the difference between the
carrying value of the inventories and their estimated net realizable value. If actual market conditions are less favorable than
those projected by management, additional write-downs may be required.
Management estimates its reserves for inventory obsolescence by continuously examining its inventories to determine
if there are indicators that carrying values exceed net realizable values. Experience has shown that significant indicators
that could require the need for additional inventory write-downs are the age of the inventory, the length of its product life
cycles, anticipated demand for the Company’s products, and current economic conditions. While management believes that
adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, consumer tastes
and preferences will continue to change and the Company could experience additional inventory write-downs in the future.
Rebates
The Company has agreements to receive cash consideration from certain of its vendors, including rebates and
cooperative marketing reimbursements. The amounts received from its vendors are generally presumed to be a reduction of
the prices the Company pays for their products and, therefore, such amounts are reflected as either a reduction of cost of
sales in the accompanying consolidated statements of operations, or, if the product inventory is still on hand at the reporting
date, it is reflected as a reduction of “Inventories” on the accompanying consolidated balance sheets. Vendor rebates are
typically dependent upon reaching minimum purchase thresholds. The Company evaluates the likelihood of reaching
purchase thresholds using past experience and current year forecasts. When rebates can be reasonably estimated and receipt
becomes probable, the Company records a portion of the rebate as the Company makes progress towards the purchase
threshold.
When the Company receives direct reimbursements for costs incurred in marketing the vendor’s product or service, the
amount received is recorded as an offset to selling, general and administrative expenses in the accompanying consolidated
statements of operations.
Assets and Liabilities of Businesses Held for Sale
The Company considers businesses to be held for sale when the Board or management, having the relevant authority to
do so, approves and commits to a formal plan to actively market a business for sale and the sale is considered probable.
Upon designation as held for sale, the carrying value of the assets of the business are recorded at the lower of their carrying
value or their estimated fair value, less costs to sell. The Company ceases to record depreciation expense at that time.
42
Property and Equipment and Long-Lived Assets
Property and equipment are carried at cost. Depreciation is computed using the straight-line method over the following
estimated useful lives: buildings and improvements – ten to forty years; and furniture and equipment – three to twelve
years. Interest costs for the construction/development of certain long-term assets are capitalized and amortized over the
related assets’ estimated useful lives. The Company capitalized net interest costs on qualifying expenditures of
approximately $0.8 million, $0.7 million and $0.6 million for the fiscal years 2013, 2012 and 2011, respectively.
Depreciation expense amounted to approximately $23.9 million, $24.2 million and $22.3 million for the years 2013, 2012
and 2011, respectively.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount
of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and
maintenance costs are charged to operating expense as incurred.
Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations
accounted for as acquisitions. Accumulated amortization amounted to approximately $77.3 million at both December 29,
2013 and December 30, 2012, and cumulative impairment losses recognized were $212.6 million as of both December 29,
2013 and December 30, 2012.
As of December 29, 2013 and December 30, 2012, the net carrying amount of goodwill was $77.9 million and $75.7
million, respectively. Other intangible assets were $3.8 million and $2.5 million as of December 29, 2013, and December
30, 2012, respectively. The Company capitalizes patent defense costs when it determines that a successful defense is
probable. Any patent defense costs are amortized over the remaining useful life of the patent. Amortization expense related
to intangible assets during the years 2013, 2012 and 2011 was $0.3 million, $0.4 million, and $0.7 million, respectively.
During the fourth quarters of 2013, 2012 and 2011, the Company performed the annual goodwill impairment test
required by applicable accounting standards. The Company performs this test at the reporting unit level, which is one level
below the segment level for the Modular Carpet segment. In effecting the impairment testing, the Company prepared
valuations of reporting units on both a market comparable methodology and an income methodology in accordance with
the applicable standards, and those valuations were compared with the respective book values of the reporting units to
determine whether any goodwill impairment existed. In preparing the valuations, past, present and future expectations of
performance were considered. The annual testing indicated no potential of goodwill impairment in any of the years
presented.
Each of the Company’s reporting units maintained fair values in excess of their respective carrying values as of the
fourth quarter of 2013, and therefore no impairment was indicated during the impairment testing. As of December 29,
2013, if the Company’s estimates of the fair values of its reporting units which carry a goodwill balance were 10% lower,
the Company still believes no goodwill impairment would have existed.
The changes in the carrying amounts of goodwill for the year ended December 29, 2013 are as follows:
BALANCE
DECEMBER 30,
2012
ACQUISITIONS
IMPAIRMENT
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
BALANCE
DECEMBER 29,
2013
$
75,672 $
0 $
0 $
2,269 $
77,941
Product Warranties
The Company typically provides limited warranties with respect to certain attributes of its carpet products (for
example, warranties regarding excessive surface wear, edge ravel and static electricity) for periods ranging from ten to
twenty years, depending on the particular carpet product and the environment in which it is to be installed. The Company
typically warrants that services performed will be free from defects in workmanship for a period of one year following
completion. In the event of a breach of warranty, the remedy typically is limited to repair of the problem or replacement of
the affected product.
43
The Company records a provision related to warranty costs based on historical experience and periodically adjusts
these provisions to reflect changes in actual experience. Warranty reserves amounted to $1.4 million and $1.2 million as of
December 29, 2013 and December 30, 2012, respectively, and are included in “Accrued Expenses” in the accompanying
consolidated balance sheets.
Taxes on Income
The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected
future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a
change in tax rates will be recognized as income or expense in the period that includes the enactment date.
The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that some
portion or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not
probable. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of
the appropriate character in the future. This requires us to use estimates and make assumptions regarding significant future
events such as the taxability of entities operating in the various taxing jurisdictions.
The Company does not record taxes collected from customers and remitted to governmental authorities on a gross
basis.
For uncertain tax positions, the Company applies the provisions of relevant authoritative guidance, which requires
application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The Company’s
ongoing assessments of the more likely than not outcomes of tax authority examinations and related tax positions require
significant judgment and can increase or decrease the Company’s effective tax rate as well as impact operating results. For
further information, see the Note entitled “Taxes on Income.”
Fair Values of Financial Instruments
Fair values of cash and cash equivalents and short-term debt approximate cost due to the short period of time to
maturity. Fair values of debt are based on quoted market prices or pricing models using current market rates.
Translation of Foreign Currencies
The financial position and results of operations of the Company’s foreign subsidiaries are measured generally using
local currencies as the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the
exchange rate in effect at each year-end. Income and expense items are translated at average exchange rates for the year.
The resulting translation adjustments are recorded in the foreign currency translation adjustment account. In the event of a
divestiture of a foreign subsidiary, the related foreign currency translation results are reversed from equity to income.
Foreign currency exchange gains and losses are included in net income (loss). Foreign exchange translation gains (losses)
were ($5.2 million), $8.5 million and ($7.6 million) for the years 2013, 2012 and 2011, respectively.
Income (Loss) Per Share
Basic income (loss) per share is computed based on the average number of common shares outstanding. Diluted
income (loss) per share reflects the increase in average common shares outstanding that would result from the assumed
exercise of outstanding stock options, calculated using the treasury stock method.
Stock-Based Compensation
As of fiscal year 2013, the Company has stock-based employee compensation plans, which are described more fully in
the “Shareholders’ Equity” Note below.
44
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with
the following weighted average assumptions used for grants issued in fiscal year 2011 (there were no stock options granted
in 2012 or 2013):
FISCAL YEAR
2011
Risk free interest rate .............................................................................................................................
Expected option life (years) ...................................................................................................................
Expected volatility .................................................................................................................................
Expected dividend yield .........................................................................................................................
0.9%
5.75
65%
0.6%
The weighted average fair value of stock options (as of grant date) granted during 2011 was $7.37 per share.
The Company recognizes expense related to its restricted stock grants based on the grant date fair value of the stock
issued, as determined by its market price at date of issue.
Derivative Financial Instruments
Accounting standards require a company to recognize all derivatives on the balance sheet at fair value. Derivatives that
do not meet the criteria of an accounting hedge must be adjusted to fair value through income. If the derivative is a fair
value hedge, changes in the fair value of the hedged assets, liabilities or firm commitments are recognized through
earnings. If the derivative is a cash flow hedge, the effective portion of changes in the fair value of the derivative are
recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a
derivative’s change in fair value is immediately recognized in earnings. As of December 29, 2013 and December 30, 2012,
the Company was not party to any significant derivative instruments.
Pension Benefits
Net pension expense recorded is based on, among other things, assumptions about the discount rate, estimated return
on plan assets and salary increases. While the Company believes these assumptions are reasonable, changes in these and
other factors and differences between actual and assumed changes in the present value of liabilities or assets of the
Company’s plans above certain thresholds could cause net annual expense to increase or decrease materially from year to
year. The actuarial assumptions used in the Company’s salary continuation plan and foreign defined benefit plans reporting
are reviewed periodically and compared with external benchmarks to ensure that they appropriately account for our future
pension benefit obligation. The expected long-term rate of return on plan assets assumption is based on weighted average
expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the
forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment
managers.
Environmental Remediation
The Company provides for remediation costs and penalties when the responsibility to remediate is probable and the
amount of associated costs is reasonably determinable. Remediation liabilities are accrued based on estimates of known
environmental exposures and are discounted in certain instances. The Company regularly monitors the progress of
environmental remediation. Should studies indicate that the cost of remediation is to be more than previously estimated, an
additional accrual would be recorded in the period in which such determination is made. As of December 29, 2013 and
December 30, 2012, no significant amounts were provided for remediation liabilities.
Allowances for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of
customers to make required payments. Estimating this amount requires the Company to analyze the financial strengths of
its customers. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. By its nature, such an estimate is highly subjective, and it
is possible that the amount of accounts receivable that the Company is unable to collect may be different than the amount
initially estimated. The Company’s allowance for doubtful accounts on December 29, 2013, and December 30, 2012, was
$7.6 million and $8.8 million, respectively.
45
Reclassifications
Certain prior period amounts have been reclassified to conform to current year financial statement presentation.
Fiscal Year
The Company’s fiscal year is the 52 or 53 week period ending on the Sunday nearest December 31. All references
herein to “2013,” “2012,” and “2011,” mean the fiscal years ended December 29, 2013, December 30, 2012 and January 1,
2012, respectively. Fiscal years 2013, 2012 and 2011 were each comprised of 52 weeks.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding the
presentation of unrecognized tax benefits when a net operating loss carryforward, or similar tax credit carryforward, exists.
This standard clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in
the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a
tax credit carryforward, if such settlement is required or expected in the event the uncertain tax benefit is disallowed. In
situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, is not available at the
reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the
entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in
the financial statements as a liability and should not be netted with the deferred tax asset. The amendments in this standard
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company
currently is evaluating the impact that adoption of this standard will have on the determination or reporting of its financial
results.
RECEIVABLES
The Company has adopted credit policies and standards intended to reduce the inherent risk associated with potential
increases in its concentration of credit risk due to increasing trade receivables from sales to owners and users of
commercial office facilities and with specifiers such as architects, engineers and contracting firms. Management believes
that credit risks are further moderated by the diversity of its end customers and geographic sales areas. The Company
performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make
required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. As of December 29, 2013, and December 30, 2012, the
allowance for bad debts amounted to $7.6 million and $8.8 million, respectively, for all accounts receivable of the
Company. Reserves for sales returns and allowances amounted to $3.6 million and $3.1 million as of December 29, 2013,
and December 30, 2012, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company does not have significant assets and liabilities measured at fair value on a recurring basis under
applicable accounting standards as of the end of 2013. The Company does have approximately $23.2 million of Company-
owned life insurance which is measured on readily determinable cash surrender value on a recurring basis. Due to the short
maturity of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, their carrying values
approximate fair value. The fair value of long term debt represented by the Company’s 7.625% Senior Notes, based on
quoted market prices, was $265.8 million at December 29, 2013.
46
INVENTORIES
Inventories are summarized as follows:
Finished goods ................................................................................................ $
Work-in-process ..............................................................................................
Raw materials ..................................................................................................
2013
2012
(in thousands)
96,199 $
9,569
43,875
87,094
7,030
47,052
$
149,643 $
141,176
Reserves for inventory obsolescence amounted to $13.4 million and $12.9 million as of December 29, 2013, and
December 30, 2012, respectively, and have been netted against amounts presented above.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Land ..................................................................................................................... $
Buildings ..............................................................................................................
Equipment ............................................................................................................
Accumulated depreciation ....................................................................................
2013
2012
(in thousands)
17,290 $
123,032
351,307
491,629
(260,784)
7,714
104,296
298,413
410,423
(244,698)
$
230,845 $
165,725
The estimated cost to complete construction-in-progress for which the Company was committed at December 29,
2013, was approximately $24.9 million.
ACCRUED EXPENSES
Accrued expenses are summarized as follows:
Compensation ....................................................................................................... $
Interest ..................................................................................................................
Restructuring ........................................................................................................
Taxes ....................................................................................................................
Accrued purchases ...............................................................................................
Other.....................................................................................................................
(in thousands)
54,125 $
1,768
519
12,685
1,258
7,317
$
77,672 $
55,332
2,202
4,350
10,579
1,439
19,134
93,036
2013
2012
Other non-current liabilities include pension liability of $20.1 million and $23.7 million as of December 29, 2013, and
December 30, 2012, respectively (see the discussion below in the Note entitled “Employee Benefit Plans”).
47
BORROWINGS
Syndicated Credit Facility
On October 22, 2013, the Company entered into a new Syndicated Facility Agreement among the Company, certain
wholly-owned foreign subsidiaries of the Company as borrowers, certain subsidiaries of the Company as guarantors, Bank
of America, N.A. as Administrative Agent, The Royal Bank of Scotland, as Syndication Agent, SunTrust Bank and
Regions Bank, as Co-Documentation Agents, and the other lenders party thereto. Pursuant to the Syndicated Facility
Agreement, the lenders provide to the Company and certain of its subsidiaries a multicurrency revolving credit facility (the
“Facility”) of up to $200 million at any one time. The key features of the Facility are as follows:
● The Facility matures on October 22, 2018.
● The Facility includes (i) a multicurrency revolving loan facility made available to the Company and its principal
subsidiaries in Europe and Australia not to exceed $190 million in the aggregate at any one time outstanding, and
(ii) a revolving loan facility made available to the Company’s principal subsidiary in Thailand not to exceed the
equivalent of $10 million in the aggregate at any one time outstanding. A sublimit of $40 million exists for the
issuance of letters of credit under the Facility.
● Advances under the Facility are secured by a first-priority lien on substantially all of the Company’s assets and the
assets of each of its material domestic subsidiaries, which have guaranteed the Facility.
● The Facility contains financial covenants (specifically, a consolidated net leverage ratio and a consolidated interest
coverage ratio) that must be met as of the end of each fiscal quarter.
● The Company has the option to increase the multicurrency loan facility by up to $150 million (or $250 million if
the proceeds of the increase are used to pay off all remaining 7.625% Senior Notes), subject to the receipt of lender
commitments for the increase and the satisfaction of certain other conditions.
Interest Rates and Fees. Interest on base rate loans is charged at varying rates computed by applying a margin ranging
from 0.25% to 1.50% over the applicable base interest rate (which is defined as the greatest of the prime rate, a specified
federal funds rate plus 0.50%, or a specified LIBOR rate), 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 ranging from 1.25% to 2.50% 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 ranging from 0.20% to 0.35% per annum (depending on the Company’s consolidated net leverage
ratio as of the most recently completed fiscal quarter) on the unused portion of the Facility.
Covenants. The Facility contains standard and customary covenants for agreements of this type, including various
reporting, affirmative and negative covenants. Among other things, these covenants limit the Company’s and its
subsidiaries’ ability to:
● create or incur liens on assets;
● make acquisitions of or investments in businesses (in excess of certain specified amounts)
● incur indebtedness or contingent obligations
● sell or dispose of assets (in excess of certain specified amounts)
● pay dividends or repurchase the Company’s stock (in excess of certain specified amounts)
● repay other indebtedness prior to maturity unless the Company meets certain conditions; an
● enter into sale and leaseback transactions.
The Facility also requires the Company to remain in compliance with the following financial covenants as of the end of
each fiscal quarter, based on the Company’s consolidated results for the year then ended:
● Consolidated Net Leverage Ratio: Must be no greater than (i) 4.50:1.00 through and including the fiscal quarter
ending December 28, 2014, (ii) 4.00:1.00 from and including the fiscal quarter ending April 5, 2015 through and
including the fiscal quarter ending January 3, 2016, and (iii) 3.75:1.00 for each fiscal quarter thereafter.
● Consolidated Interest Coverage Ratio: Must be no less than 2.25:1.00 as of the end of any fiscal quarter.
48
Events of Default. If the Company breaches or fails to perform any of the affirmative or negative covenants under the
Facility, or if other specified events occur (such as a bankruptcy or similar event or a change of control of Interface, Inc. or
certain subsidiaries, or if the Company breaches or fails to perform any covenant or agreement contained in any instrument
relating to any of the Company’s other indebtedness exceeding $20 million), after giving effect to any applicable notice and
right to cure provisions, an event of default will exist. If an event of default exists and is continuing, the lenders’
Administrative Agent may, and upon the written request of a specified percentage of the lender group shall:
●
●
●
declare all commitments of the lenders under the facility terminated;
declare all amounts outstanding or accrued thereunder immediately due and payable; and
exercise other rights and remedies available to them under the agreement and applicable law.
Collateral. Pursuant to a Security and Pledge Agreement executed on the same date, the Facility is secured by
substantially all of the assets of the Company and its domestic subsidiaries (subject to exceptions for certain immaterial
subsidiaries), including all of the stock of the Company’s domestic subsidiaries and up to 65% of the stock of its first-tier
material foreign subsidiaries. If an event of default occurs under the Facility, the lenders’ Administrative Agent may, upon
the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some
instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting
accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign
subsidiaries.
In connection with the execution of the Syndicated Facility Agreement, the Company terminated (i) the Seventh
Amended and Restated Credit Agreement, dated as of June 24, 2011, among the Company (and certain direct and indirect
subsidiaries), the lenders listed therein, Wells Fargo Bank, National Association and Bank of America, N.A., which
provided a $100 million domestic revolving credit facility; and (ii) the Credit Agreement, executed on April 24, 2009,
among Interface Europe B.V. (and certain of its subsidiaries) and the Royal Bank of Scotland N.V. (as successor to ABN
AMRO Bank N.V.), as amended, which provided a credit facility for borrowings and bank guarantees of up to €20.0
million.
As of December 29, 2013 the Company had $26.3 million of borrowings outstanding under the Facility, and had $3.6
in letters of credit outstanding under the Facility.
7.625% Senior Notes
On December 3, 2010, the Company completed a private offering of $275 million aggregate principal amount of
7.625% Senior Notes due 2018 (the “7.625% Senior Notes”). Interest on the 7.625% Senior Notes is payable semi-annually
on June 1 and December 1 (the first payment was made on June 1, 2011). The Company used the net proceeds from the
sale of the 7.625% Senior Notes (plus cash on hand) in connection with the repurchase of approximately $141.9 million
aggregate principal amount of the former 11.375% Senior Secured Notes and approximately $98.5 million aggregate
principal amount of the former 9.5% Senior Subordinated Notes, pursuant to a tender offer the Company conducted.
The 7.625% Senior Notes are guaranteed, fully, unconditionally, and jointly and severally, on an unsecured senior
basis by certain of the Company’s domestic subsidiaries. The Company may redeem some or all of these notes at any time
prior to December 1, 2014, at a redemption price equal to 100% of the principal amount plus a make-whole premium. Prior
to December 1, 2014, the Company may redeem up to 10% of the aggregate principal amount of the 7.625% Senior Notes
per 12-month period at a redemption price equal to 103% of the principal amount of the notes redeemed, plus accrued and
unpaid interest. In addition, the notes will become redeemable for cash after December 1, 2014 at the Company’s option, in
whole or in part, initially at a redemption price equal to 103.813% of the principal amount, declining to 100% of the
principal amount on December 1, 2016, plus accrued interest thereon to the date fixed for redemption.
In November 2013, the Company redeemed $27.5 million aggregate principal amount of these notes at a price equal to
103% of the principal amount of the notes redeemed, plus accrued interest to the redemption date. As of December 29,
2013, and December 30, 2012, the balance of the 7.625% Senior Notes outstanding was $247.5 million and $275 million,
respectively. The estimated fair value of the 7.625% Senior Notes as of December 29, 2013, and December 30, 2012, based
on then current market prices, was $265.8 million and $295.6 million, respectively.
49
11.375% Senior Secured Notes
On June 5, 2009, the Company completed a private offering of $150 million aggregate principal amount of 11.375%
Senior Secured Notes due 2013. Interest on the 11.375% Senior Secured Notes was payable semi-annually on May 1 and
November 1 (the first payment was made on November 1, 2009). The 11.375% Senior Secured Notes were guaranteed,
jointly and severally, on a senior secured basis by certain of the Company’s domestic subsidiaries. The 11.375% Senior
Secured Notes were secured by a second-priority lien on substantially all of the Company’s and certain of the Company’s
domestic subsidiaries’ assets that secure the Company’s Syndicated Credit Facility on a first-priority basis.
As of December 30, 2012, the balance of the 11.375% Senior Secured Notes outstanding, net of the remaining
unamortized original issue discount, was approximately $8.1 million. The estimated fair value of the 11.375% Senior
Secured Notes as of December 30, 2012, based on then current market prices, was $8.1 million. The Company repaid the
$8.1 million balance of these notes at maturity in November 2013.
Other Lines of Credit
Subsidiaries of the Company have an aggregate of the equivalent of $6.0 million of other lines of credit available at
interest rates ranging from 4% to 6%. As of December 29, 2013, and December 30, 2012, there were no borrowings
outstanding under these lines of credit.
Borrowing Costs
Deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of debt, net
of accumulated amortization, were $5.0 million and $5.4 million, as of December 29, 2013, and December 30, 2012,
respectively. The Company amortizes these costs over the life of the related debt. Expenses related to such costs for the
years 2013, 2012 and 2011 amounted to $2.0 million, $1.2 million and $1.4 million, respectively. The expense for the year
2013 includes $0.8 million of expense related to the write-down of debt costs associated with note repurchases and the
termination of our former $100 million domestic revolving credit facility.
Future Maturities
The aggregate maturities of borrowings for each of the five fiscal years subsequent to 2013, are as follows:
FISCAL YEAR
2014 ................................................................................................................................................... $
2015 ...................................................................................................................................................
2016 ...................................................................................................................................................
2017 ...................................................................................................................................................
2018 ...................................................................................................................................................
Thereafter ...........................................................................................................................................
$
AMOUNT
(in thousands)
0
0
0
0
273,826
0
273,826
PREFERRED STOCK
The Company is authorized to designate and issue up to 5,000,000 shares of $1.00 par value preferred stock in one or
more series and to determine the rights and preferences of each series, to the extent permitted by the Articles of
Incorporation, and to fix the terms of such preferred stock without any vote or action by the shareholders. The issuance of
any series of preferred stock may have an adverse effect on the rights of holders of common stock and could decrease the
amount of earnings and assets available for distribution to holders of common stock. In addition, any issuance of preferred
stock could have the effect of delaying, deferring or preventing a change in control of the Company. As of December 29,
2013, and December 30, 2012, there were no shares of preferred stock issued.
50
Preferred Share Purchase Rights
The Company has previously issued one purchase right (a “Right”) in respect of each outstanding share of Common
Stock pursuant to a Rights Agreement it entered into in March 2008. Each Right entitles the registered holder of the
Common Stock to purchase from the Company one one-hundredth of a share (a “Unit”) of Series B Participating
Cumulative Preferred Stock (the “Series B Preferred Stock”).
The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that
acquires (without the consent of the Company’s Board of Directors) 15% or more of the outstanding shares of Common
Stock or if other specified events occur without the Rights having been redeemed or in the event of an exchange of the
Rights for Common Stock as permitted under the Shareholder Rights Plan.
The dividend and liquidation rights of the Series B Preferred Stock are designed so that the value of one Unit of Series
B Preferred Stock issuable upon exercise of each Right will approximate the same economic value as one share of
Common Stock, including voting rights. The exercise price per Right is $90, subject to adjustment. Shares of Series B
Preferred Stock will entitle the holder to a minimum preferential dividend of $1.00 per share, but will entitle the holder to
an aggregate dividend payment of 100 times the dividend declared on each share of Common Stock. In the event of
liquidation, each share of Series B Preferred Stock will be entitled to a minimum preferential liquidation payment of $1.00,
plus accrued and unpaid dividends and distributions thereon, but will be entitled to an aggregate payment of 100 times the
payment made per share of Common Stock. In the event of any merger, consolidation or other transaction in which
Common Stock is exchanged for or changed into other stock or securities, cash or other property, each share of Series B
Preferred Stock will be entitled to receive 100 times the amount received per share of Common Stock. Series B Preferred
Stock is not convertible into Common Stock.
Each share of Series B Preferred Stock will be entitled to 100 votes on all matters submitted to a vote of the
shareholders of the Company, and shares of Series B Preferred Stock will generally vote together as one class with the
Common Stock and any other voting capital stock of the Company on all matters submitted to a vote of the Company’s
shareholders.
Further, whenever dividends on the Series B Preferred Stock are in arrears in an amount equal to six quarterly
payments, the Series B Preferred Stock, together with any other shares of preferred stock then entitled to elect directors,
shall have the right, as a single class, to elect one director until the default has been cured.
Prior to entering into the March 2008 Rights Agreement, the Company maintained a substantially similar Rights
Agreement that was entered into in 1998.
SHAREHOLDERS’ EQUITY
Prior to March 5, 2012, the Company had two classes of common stock – Class A Common Stock and Class B
Common Stock. The Company was authorized to issue 80 million shares of $0.10 par value Class A Common Stock and 40
million shares of $0.10 par value Class B Common Stock. The Class A and Class B Common Stock had identical voting
rights except for the election or removal of directors. Holders of Class B Common Stock were entitled as a class to elect a
majority of the Board of Directors. Under the terms of the Class B Common Stock, its special voting rights to elect a
majority of the Board members would terminate irrevocably if the total outstanding shares of Class B Common Stock ever
comprised less than ten percent of the Company’s total issued and outstanding shares of Class A and Class B Common
Stock.
51
On March 5, 2012, the number of issued and outstanding shares of Class B Common Stock of the Company constituted
less than 10% of the aggregate number of issued and outstanding shares of the Company’s Class A Common Stock and
Class B Common Stock (that is, 6,459,556 shares of an aggregate of 65,372,375 shares), as the cumulative result of varied
transactions that caused the conversion of shares of Class B Common Stock into shares of Class A Common
Stock. Accordingly, in accordance with the respective terms for the Class B Common Stock and the Class A Common
Stock in Article V of the Company’s Articles of Incorporation (the “Articles”), the Class A Common Stock and Class B
Common Stock are now, irrevocably from March 5, 2012, a single class of Common Stock in all respects, with no
distinction whatsoever between the voting rights or any other rights and privileges of the holders of Class A Common
Stock and the holders of Class B Common Stock. The Company intends to eliminate uses of (or references to) the terms
“Class A” and “Class B” in connection with the Common Stock, except for historical purposes or to facilitate transition by
certain stock listing or administrative services organizations who are accustomed to the old designations for the Common
Stock. Following the March 5, 2012 event, the Company is authorized to issue 120 million shares of $0.10 par value
Common Stock.
The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol TILE.
The Company paid dividends totaling $0.11 per share during 2013, $0.09 per share during 2012, and $0.08 per share
during 2011, to each share of Common Stock. The future declaration and payment of dividends is at the discretion of the
Company’s Board, and depends upon, among other things, the Company’s investment policy and opportunities, results of
operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant at the
time of the Board’s determination. Such other factors include limitations contained in the agreement for its primary
revolving credit facility and in the indenture for its public indebtedness, each of which specify conditions as to when any
dividend payments may be made. As such, the Company may discontinue its dividend payments in the future if its Board
determines that a cessation of dividend payments is proper in light of the factors indicated above.
All treasury stock is accounted for using the cost method.
52
The following tables depict the activity in the accounts which make up shareholders equity for the years 2013, 2012
and 2011.
CLASS
A
SHARES
CLASS
A
AMOUNT
CLASS
B
SHARES
CLASS
B
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
(in thousands)
RETAINED
EARNINGS
(DEFICIT)
PENSION
LIABILITY
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT
Balance, at January 2,
2011 .............................. 57,311 $
0
Net income ........................
Conversion of common
5,729
0
7,145 $
0
716 $
0
349,662 $
0
(49,770) $
38,721
(31,196) $
0
(26,269)
0
stock .............................
593
59
(593)
(59)
Stock issuances under
employee plans .............
502
50
0
0
0
210
Other issuances of
common stock...............
0
0
527
53
11,336
0
0
0
Unamortized stock
compensation expense
related to restricted
stock awards .................
Cash dividends paid ..........
Forfeitures and
compensation expense
related to stock awards .
Pension liability
adjustment ....................
Foreign currency
translation adjustment ...
Other .................................
Balance, at January 1,
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(11,402)
0
0
(5,231)
11,594
0
0
0
(5,066)
0
0
0
0
(484)
0
0
(7,614)
0
2012 .............................. 58,406 $
5,839
7,078 $
709 $
361,400 $
(16,764) $
(36,262) $
(33,883)
53
SHARES AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT
PENSION
LIABILITY
Balance, at January 1, 2012 ...........
Net income ....................................
Stock issuances under employee
option plans ...............................
Other issuances of common stock .
Unamortized stock compensation
expense related to restricted
stock awards ..............................
Cash dividends paid ......................
Forfeitures and compensation
expense related to stock awards .
Pension liability adjustment .........
Foreign currency translation
adjustment ..................................
Other..............................................
Balance, at December 30, 2012 .....
65,484 $
0
6,548 $
0
361,400 $
0
(16,764) $
5,943
(36,262) $
0
(33,883)
0
160
573
0
0
(155)
0
16
58
0
0
(16)
0
2,030
7,564
0
0
(7,610)
0
0
(5,925)
0
0
0
0
3,293
0
0
0
0
771
0
0
0
0
0
0
0
0
66,062 $
0
0
6,606 $
0
0
366,677 $
0
0
(16,746) $
0
0
(35,491) $
8,539
0
(25,344)
54
SHARES AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT
PENSION
LIABILITY
Balance, at December 30, 2012 .....
Net income ....................................
Stock issuances under employee
option plans ...............................
Other issuances of common stock .
Unamortized stock compensation
expense related to restricted
stock awards ..............................
Cash dividends paid ......................
Forfeitures and compensation
expense related to stock awards .
Pension liability adjustment .......
Foreign currency translation
adjustment ..................................
Other..............................................
Balance, at December 29, 2013 .....
Stock Options
66,062 $
0
6,606 $
0
366,677 $
0
(16,746) $
48,255
(35,491) $
0
(25,344)
0
201
670
0
0
(622)
0
20
67
0
0
(62)
0
1,814
10,805
0
0
(10,872)
0
0
(7,283)
0
0
0
0
6,173
0
0
0
0
1,409
0
0
0
0
0
0
0
0
66,311 $
0
0
6,631 $
0
0
374,597 $
0
0
24,226 $
0
0
(34,082) $
(5,241)
0
(30,585)
The Company has an Omnibus Stock Incentive Plan (“Omnibus Plan”) under which a committee of independent
directors is authorized to grant directors and key employees, including officers, options to purchase the Company’s
Common Stock. Options are exercisable for shares of Common Stock at a price not less than 100% of the fair market value
on the date of grant. The options become exercisable either immediately upon the grant date or ratably over a time period
ranging from one to five years from the date of the grant. The Company’s options expire at the end of time periods ranging
from three to ten years from the date of the grant. In May 2010, the shareholders approved an amendment and restatement
of the Omnibus Plan. This amendment and restatement extended the term of the Omnibus Plan until February 2020, and set
the number of shares authorized for issuance or transfer on or after the effective date of the amendment and restatement at
6,558,263 shares, except that each share issued pursuant to an award other than a stock option reduces the number of such
authorized shares by 1.33 shares.
Accounting standards require that the Company measure the cost of employee services received in exchange for an
award of equity instruments based on the grant date fair market value of the award. That 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. The grant date fair value for options and similar instruments will be estimated using option
pricing models. Under accounting standards, the Company is required to select a valuation technique or option pricing
model. The Company uses the Black-Scholes model. Accounting standards require that the Company estimate forfeitures
for stock options and reduce compensation expense accordingly. The Company has reduced its expense by the assumed
forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. This expense reduction
is not significant to the Company.
The Company recognized stock option compensation expense of $0.1 million in 2013, $0.5 million in 2012 and $0.8
million in 2011. The remaining unrecognized compensation cost related to unvested awards at December 29, 2013,
approximated $0.1 million, and the weighted average period of time over which this cost will be recognized is
approximately one year. The expense for stock options is included in selling, general and administrative expense on the
Company’s consolidated statements of operations, as none of these stock options have been issued to production personnel.
55
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with
the following weighted average assumptions used for grants issued in 2011 (there were no stock options granted in 2013 or
2012):
Risk free interest rate ........................................................................................................................
Expected option life (years) ..............................................................................................................
Expected volatility ............................................................................................................................
Expected dividend yield ....................................................................................................................
0.9%
5.75
65%
0.5%
The weighted average fair value of stock options (as of grant date) granted during 2011 was $7.37 per share.
The following table summarizes stock options outstanding as of December 29, 2013, as well as activity during the
previous fiscal year:
FISCAL YEAR
2011
Outstanding at December 30, 2012 ............................................................
Granted .......................................................................................................
Exercised ....................................................................................................
Forfeited or cancelled .................................................................................
Outstanding at December 29, 2013 (a) .......................................................
Exercisable at December 29, 2013 (b) .......................................................
___________
Shares
Weighted Average
Exercise Price
393,500 $
0
201,000
8,500
184,000 $
184,000 $
8.49
0
9.09
2.71
8.18
8.18
(a) At December 29, 2013, the weighted-average remaining contractual life of options outstanding was 5.8 years.
(b) At December 29, 2013, the weighted-average remaining contractual life of options exercisable was 5.8 years.
At December 29, 2013, the aggregate intrinsic values of in-the-money options outstanding and options exercisable
were $2.5 million and $2.5 million, respectively (the intrinsic value of a stock option is the amount by which the market
value of the underlying stock exceeds the exercise price of the option).
The intrinsic value of stock options exercised in 2013, 2012 and 2011 was $1.9 million, $0.9 million and $6.0 million,
respectively. The cash proceeds related to stock options exercised in 2013, 2012 and 2011 were $1.9 million, $1.5 million,
and $2.7 million, respectively.
56
The tax benefit recognized with respect to stock options during the years 2013, 2012 and 2011 was not significant.
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
Number
Outstanding at
December 29,
2013
Weighted
Average
Exercise
Price
Options Exercisable
Number
Exercisable
at December
29, 2013
Weighted
Average
Exercise Price
7,500
77,500
20,000
79,000
184,000
5.1 $
5.0
5.8
6.6
5.8 $
1.49
4.31
7.78
12.47
8.18
7,500 $
77,500
20,000
79,000
184,000 $
1.49
4.31
7.78
12.47
8.18
Range of Exercise Prices
$1.49 – 4.00
4.01 – 7.00
7.01 – 12.00
12.01 – 14.00
Restricted Stock Awards
During fiscal years 2013, 2012 and 2011, the Company granted restricted stock awards totaling 670,000, 573,000 and
668,000 shares, respectively, of Common Stock. These awards (or a portion thereof) vest with respect to each recipient
over a two to five 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, these shares (or a portion thereof) could 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 the vesting of restricted stock was $7.9 million, $3.3 million and $10.1 million for
2013, 2012 and 2011, respectively. These grants are made primarily to executive-level personnel at the Company and, as a
result, no compensation costs have been capitalized. 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 actual experience against the assumed forfeiture rate going forward. The forfeiture rate has
been developed using historical data regarding actual forfeitures as well as an estimate of future expected forfeitures under
our restricted stock grants.
The following table summarizes restricted stock activity as of December 29, 2013, and during the previous fiscal year:
Shares
Weighted Average
Grant Date
Fair Value
Outstanding at December 30, 2012 ..................................................................
Granted .............................................................................................................
Vested ..............................................................................................................
Forfeited or cancelled .......................................................................................
Outstanding at December 29, 2013 ..................................................................
1,973,500 $
670,000
420,000
516,000
1,707,500 $
14.79
16.23
14.68
14.00
15.62
As of December 29, 2013, the unrecognized total compensation cost related to unvested restricted stock was $10.9
million. That cost is expected to be recognized by the end of 2019.
As stated above, accounting standards require the Company to estimate forfeitures in calculating the expense related to
stock-based compensation, as opposed to only recognizing these forfeitures and the corresponding reduction in expense as
they occur.
The tax benefit recognized with respect to restricted stock during the years 2013, 2012 and 2011 was $3.0 million,
$0.7 million, and $2.8 million, respectively.
57
INCOME (LOSS) PER SHARE
The Company computes basic earnings (loss) per share (“EPS”) by dividing income (loss) from continuing operations,
income (loss) from discontinued operations and net income (loss), by the weighted average common shares outstanding,
including participating securities outstanding, during the period as depicted 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. Income attributable to non-controlling interest is included in the computation of basic and diluted earnings per
share, where applicable.
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 common 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:
2013
Fiscal Year
2012
2011
Earnings per share from continuing operations:
Basic earnings per share
Distributed earnings ............................................................... $
Undistributed earnings ...........................................................
$
Diluted earnings per share
Distributed earnings ............................................................... $
Undistributed earnings ...........................................................
$
Earnings (Loss) per share from discontinued operations:
Basic earnings (loss) per share
Distributed earnings ............................................................... $
Undistributed earnings ...........................................................
Diluted earnings (loss) per share
Distributed earnings ............................................................... $
Undistributed earnings ...........................................................
0.11 $
0.62
0.73 $
0.11 $
0.62
0.73
$
0.00
0.00
0.00
0.00
$
$
0.09 $
0.26
0.35 $
0.09 $
0.26
0.35 $
0.00 $
(0.26)
0.00 $
(0.26)
Basic earnings per share ............................................................. $
Diluted earnings per share ......................................................... $
0.73
$
0.73 $
0.09 $
0.09 $
0.08
0.51
0.59
0.08
0.50
0.58
0.00
0.01
0.00
0.01
0.59
0.59
58
The following table presents income from continuing operations and net income that was attributable to participating
securities:
2013
Fiscal Year
2012
(in millions)
2011
Income from continuing operations .................................... $
Net income ..........................................................................
1.2 $
1.2
0.7 $
0.2
1.0
1.0
The weighted average shares for basic and diluted EPS were as follows:
Weighted Average Shares Outstanding ...............................
Participating Securities ........................................................
Shares for Basic Earnings Per Share ...................................
Dilutive Effect of Stock Options .........................................
Shares for Diluted Earnings Per Share ................................
Fiscal Year
2012
(in thousands)
63,793
1,974
65,767
133
65,900
2013
64,486
1,708
66,194
103
66,297
2011
63,542
1,749
65,291
195
65,486
In 2012 and 2011, certain outstanding stock options were not included in the determination of diluted EPS as their
impact would be anti-dilutive. The following table shows the shares excluded from the diluted EPS calculation for those
years.
Options excluded ........................................................................................................
RESTRUCTURING CHARGES
2012 Restructuring Plan
Fiscal Year
2012
2011
(in thousands)
191
249
In the first quarter of 2012, the Company committed to a restructuring plan in its continuing efforts to reduce costs
across its worldwide operations and more closely align its operations with reduced demand levels in certain markets. The
plan primarily consisted of ceasing manufacturing and warehousing operations at its facility in Shelf, England. In
connection with this restructuring plan, the Company incurred a pre-tax restructuring and asset impairment charge in the
first quarter of 2012 in an amount of $16.3 million. The charge was comprised of employee severance expenses of
$5.4 million, other related exit costs of $1.6 million, and a charge for impairment of assets of approximately $9.3 million.
Approximately $7 million of the charge will result in cash expenditures, primarily severance expense. In the third and
fourth quarters of 2012, the Company recorded additional charges of $0.8 million and $2.3 million, respectively, of cash
severance expenses related to the finalization of this plan for its European operations. As a result of these 2012
restructuring charges, a reduction of approximately 145 employees occurred.
A summary of these restructuring activities is presented below:
Total
Restructuring
Charge
Costs
Incurred
in 2012
Costs
Incurred
in 2013
Balance at
Dec. 29,
2013
Workforce Reduction ....................................................... $
Fixed Asset Impairment ...................................................
Other Related Exit Costs ..................................................
8,465 $
9,364
1,596
(in thousands)
5,205 $
9,364
1,168
3,174 $
0
295
86
0
133
59
2011 Restructuring Plan
In 2011, the Company committed to a restructuring plan intended to reduce costs across its worldwide operations and
more closely align its operations with reduced demand in certain markets. As a result of this plan, the Company incurred
pre-tax restructuring and asset impairment charges of $5.8 million in 2011. The majority of this charge ($5.0 million)
related to the severance of approximately 90 employees in Europe, Asia and the United States. The remainder of the charge
($0.8 million) related to contract termination and fixed asset impairment costs. Approximately $5.0 million of this charge
will result in cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially
completed by the end of 2011.
A summary of these restructuring activities is presented below:
Total
Restructuring
Charge
Costs
Incurred
In 2011
Costs
Incurred
In 2012
(in thousands)
Costs
Incurred
In 2013
Balance at
December
29, 2013
Workforce reduction ................................ $
Fixed asset impairment.............................
4,979 $
776
867 $
776
3,450 $
0
362 $
0
300
0
TAXES ON INCOME
Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the
following components:
Current expense/(benefit):
Federal ............................................................................. $
Foreign .............................................................................
State .................................................................................
Deferred expense/(benefit):
Federal .............................................................................
Foreign .............................................................................
State .................................................................................
2013
FISCAL YEAR
2012
(in thousands)
2011
473 $
2,605
627
3,705
3,246
8,692
5,106
(134) $
5,319
602
5,787
1,928
17
(1,692)
17,044
253
316
11,123
922
12,361
6,204
2,304
14
8,522
Income tax expense (benefit) is included in the accompanying consolidated statements of operations as follows:
$
20,749 $
6,040 $
20,883
Continuing operations ......................................................... $
Income (loss) from discontinued operations .......................
20,749 $
0
15,204 $
(9,164)
20,640
243
$
20,749 $
6,040 $
20,883
2013
FISCAL YEAR
2012
(in thousands)
2011
60
Income from continuing operations before taxes on income consisted of the following:
2013
FISCAL YEAR
2012
(in thousands)
2011
U.S. operations .................................................................... $
Foreign operations ...............................................................
21,292 $
47,712
27,332 $
10,771
15,592
43,318
$
69,004 $
38,103 $
58,910
Deferred income taxes for the years ended December 29, 2013, and December 30, 2012, reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
At December 29, 2013, the Company had approximately $141.3 million in federal net operating loss carryforwards
with expiration dates through 2032, of which $27.6 million is from share-based payment awards. In accordance with
applicable accounting standards, a financial statement benefit has not been recorded for the net operating loss related to the
share-based payment awards. The Company’s foreign subsidiaries had approximately $2.0 million in net operating losses
available for an unlimited carryforward period. The Company expects to utilize all of its federal and foreign carryforwards
prior to their expiration. The Company had approximately $193 million in state net operating loss carryforwards relating to
continuing operations with expiration dates through 2033. The Company had provided a valuation allowance against
$146.9 million of such losses, which the Company does not expect to utilize. In addition, the Company has approximately
$168.0 million in state net operating loss carryforwards relating to discontinued operations against which a full valuation
allowance has been provided.
The sources of the temporary differences and their effect on the net deferred tax asset are as follows:
2013
2012
Basis differences of property and equipment ............................... $
Basis difference of intangible assets ............................................
Foreign currency ..........................................................................
Net operating loss carryforwards .................................................
Valuation allowances on net operating loss carryforwards ..........
Federal tax credits ........................................................................
Deferred compensation ................................................................
Basis difference of prepaids, accruals and reserves .....................
Pensions .......................................................................................
Tax effects of undistributed earnings from foreign subsidiaries
ASSETS LIABILITIES ASSETS LIABILITIES
(in thousands)
17,282 $
440
2,755
0
0
0
0
0
774
0 $
0
0
51,767
(9,577)
4,472
20,743
7,269
0
0 $
0
0
55,322
(4,603)
3,164
18,633
10,725
499
9,985
426
3,252
0
0
0
0
0
0
not deemed to be indefinitely reinvested ..................................
Basis difference of other assets and liabilities ..............................
0
0
1,704
569
0
521
4,810
0
$
74,674 $
23,524 $
84,261 $
18,473
61
Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:
Deferred income taxes (current asset) ............................................................ $
Deferred tax asset (non-current asset) ............................................................
Deferred income taxes (non-current liabilities) ..............................................
$
FISCAL YEAR
2013
2012
(in thousands)
10,232 $
55,967
(15,049)
51,150 $
10,271
62,856
(7,339)
65,788
Management believes, based on the Company’s history of taxable income and expectations for the future, that it is
more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets at December 29,
2013.
The Company’s effective tax rate from continuing operations was 30.1%, 39.9% and 35.0% for fiscal years 2013, 2012
and 2011, respectively. The following summary reconciles income taxes at the U.S. federal statutory rate of 35% to the
Company’s actual income tax expense:
Income taxes at U.S federal statutory rate ..................................... $
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax effect ..............................
Non-deductible business expenses.............................................
Non-deductible employee compensation ...................................
Tax effects of Company owned life insurance ..........................
Tax effects of undistributed earnings from foreign
subsidiaries not deemed to be indefinitely reinvested ............
Foreign and U.S. tax effects attributable to foreign operations .
Valuation allowance effect – State NOL ...................................
Non-deductible reserve against capital asset .............................
Advance pricing agreements with tax authorities ......................
Federal tax credits ......................................................................
Other ..........................................................................................
Income tax expense ....................................................................... $
2013
FISCAL YEAR
2012
(in thousands)
2011
24,151 $
13,336 $
20,619
496
601
409
(1,117)
562
(3,958)
3,232
(218)
(2,492)
(595)
(322)
20,749 $
1,116
1,009
469
(448)
321
(1,174)
(187)
1,188
0
(891)
465
15,204 $
940
373
587
283
774
(2,115)
(333)
0
0
0
(488)
20,640
The Company does not provide for U.S. income taxes on the undistributed earnings of its foreign subsidiaries that are
considered to be indefinitely reinvested outside of the U.S. as determination of the amount of unrecognized deferred U.S.
income tax liability related to the indefinitely reinvested earnings is not practicable because of the complexities associated
with its hypothetical calculation. At December 29, 2013, approximately $276 million of undistributed earnings of the
Company’s foreign subsidiaries are deemed to be indefinitely reinvested outside of the U.S., on which withholding taxes of
approximately $4.8 million would be payable upon remittance.
At December 29, 2013, the Company has provided for approximately $1.4 million in U.S. federal income taxes and
approximately $0.2 million in foreign withholding taxes on approximately $4.2 million of undistributed earnings from
foreign subsidiaries that are not deemed to be indefinitely reinvested outside of the U.S.
62
As of December 29, 2013 and December 30, 2012, the Company had $27.4 million and $25.2 million, respectively, of
unrecognized tax benefits. If the $27.4 million of unrecognized tax benefits as of December 29, 2013 are recognized, there
would be a favorable impact on the Company’s effective tax rate in future periods. If the unrecognized tax benefits are not
favorably settled, $5.6 million of the total amount of unrecognized tax benefits would require the use of cash in future
periods.
The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a
component of income tax expense. As of December 29, 2013, the Company had accrued interest and penalties of $1.0
million, which is included in the total unrecognized tax benefit noted above.
The Company’s federal income tax returns are subject to examination for the years 2003 to the present. The Company
files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities
for the years 2008 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to
examination by the foreign tax authorities for the years 2003 to the present.
During 2013, the Company executed advance pricing agreements (“APA”) with the Canadian tax authorities (“CRA”)
and the Internal Revenue Service (“IRS”), for tax years 2006 through 2011, with respect to certain intercompany
transactions (“Covered Transactions”) between Interface, Inc. (including its U.S. subsidiaries) and its Canadian subsidiary,
InterfaceFLOR Canada, Inc. The Covered Transactions
intercompany buy-sale distribution, contract
manufacturing, provision of management services, and licensing intangibles.
include
The APAs encompass the final resolution resulting from the bilateral negotiations between the CRA and the IRS under
the Canada-U.S. bilateral advance pricing agreement program (“BAPA”), which the Company was accepted into during
2008, with respect to the Covered Transactions for tax years 2006 through 2011.
During 2013, the Company recognized tax benefits of $1.9 million relating to the final resolution of the BAPA and a
reduction of $0.6 million in federal income taxes and foreign withholding taxes previously provided on undistributed
earnings, from its Canadian subsidiary, that were not deemed to be indefinitely reinvested outside the U.S.
Management believes changes to our unrecognized tax benefits that are reasonably possible in the next 12 months will
not have a significant impact on our financial positions or results of operations. The timing of the ultimate resolution of the
Company’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are
outside the Company’s control.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
2013
FISCAL YEAR
2012
(in thousands)
2011
Balance at beginning of year ......................................................... $
Increases related to tax positions taken during the current year
Increases related to tax positions taken during the prior years ..
Decreases related to tax positions taken during the prior years .
Decreases related to settlements with taxing authorities ...........
Decreases related to lapse of applicable statute of limitations ...
Changes due to foreign currency translation .............................
Balance at end of year ................................................................... $
25,186 $
911
3,938
(9)
(1,928)
(397)
(340)
27,361 $
7,736 $
18,118
150
(519)
0
(300)
1
25,186 $
8,159
693
250
(1,237)
0
0
(129)
7,736
DISCONTINUED OPERATIONS
In 2012, the Company sold its Bentley Prince Street business segment to a third party. In accordance with applicable
accounting standards, the Company has reported the results of operations for the former Bentley Prince Street business
segment as “discontinued operations,” where applicable. Consequently, the Company’s discussion of sales and other results
of operations (except for net income or loss amounts), including percentages derived from or based on such amounts,
excludes these discontinued operations unless we indicate otherwise.
63
Summary operating results for the discontinued operations are as follows:
2013
FISCAL YEAR
2012
(in thousands)
2011
Net sales ......................................................................................... $
Income (loss) on operations before taxes .......................................
Taxes on income (benefit) ..............................................................
Income (loss) on operations, net of tax ..........................................
0 $
0
0
0
57,017 $
(26,120)
(9,164)
(16,956)
104,006
694
243
451
Loss from discontinued operations, net of tax, for 2012 was comprised of the following after-tax amounts: (1) $8.6
million of loss on disposal; (2) $5.9 million of costs to sell the operations; and (3) $2.5 million of non-disposal loss from
the discontinued operations.
There were no assets and liabilities, including reserves, related to discontinued operations that were held for sale as of
December 29, 2013 or December 30, 2012.
COMMITMENTS AND CONTINGENCIES
The Company leases certain production, distribution and marketing facilities and equipment. At December 29, 2013,
aggregate minimum rent commitments under operating leases with initial or remaining terms of one year or more consisted
of the following:
FISCAL YEAR
2014 .................................................................................................................................................. $
2015 ..................................................................................................................................................
2016 ..................................................................................................................................................
2017 ..................................................................................................................................................
2018 ..................................................................................................................................................
Thereafter ..........................................................................................................................................
AMOUNT
(in thousands)
20,635
14,742
10,645
7,772
5,493
15,430
Rental expense amounted to approximately $24.5 million, $22.8 million and $21.7 million, for the years 2013, 2012
and 2011, respectively. This excludes rental expenses of approximately $2.6 million and $3.2 million for the years 2012
and 2011, respectively, related to discontinued operations.
The Company is from time to time a party to routine litigation incidental to its business. Management does not believe
that the resolution of any or all of such litigation will have a material adverse effect on the Company’s financial condition
or results of operations.
EMPLOYEE BENEFIT PLANS
Defined Contribution and Deferred Compensation Plans
The Company has a 401(k) retirement investment plan (“401(k) Plan”), which is open to all otherwise eligible U.S.
employees with at least six months of service. The 401(k) Plan calls for Company matching contributions on a sliding scale
based on the level of the employee’s contribution. The Company may, at its discretion, make additional contributions to the
401(k) Plan based on the attainment of certain performance targets by its subsidiaries. The Company’s matching
contributions are funded bi-monthly and totaled approximately $2.6 million, $2.4 million and $2.1 million for the years
2013, 2012 and 2011, respectively, for continuing operations. No discretionary contributions were made in 2013, 2012 or
2011.
Under the Company’s nonqualified savings plans (“NSPs”), the Company provides eligible employees the opportunity
to enter into agreements for the deferral of a specified percentage of their compensation, as defined in the NSPs. The NSPs
call for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The
obligations of the Company under such agreements to pay the deferred compensation in the future in accordance with the
terms of the NSPs are unsecured general obligations of the Company. Participants have no right, interest or claim in the
assets of the Company, except as unsecured general creditors. The Company has established a rabbi trust to hold, invest and
64
reinvest deferrals and contributions under the NSPs. If a change in control of the Company occurs, as defined in the NSPs,
the Company will contribute an amount to the rabbi trust sufficient to pay the obligation owed to each participant. Deferred
compensation in connection with the NSPs totaled $22.5 million at December 29, 2013. The Company invests the deferrals
in insurance instruments with readily determinable cash surrender values.
Foreign Defined Benefit Plans
The Company has trusteed defined benefit retirement plans which cover many of its European employees. The benefits
are generally based on years of service and the employee’s average monthly compensation. Pension expense was $1.0
million, $0.8 million and $0.3 million for the years 2013, 2012 and 2011, respectively. Plan assets are primarily invested in
equity and fixed income securities. The Company uses a year-end measurement date for the plans. As of December 29,
2013, for the European plans, the Company had a net asset recorded of $2.6 million, an amount equal to their overfunded
status, and has recorded in Other Comprehensive Income an amount equal to $31.5 million (net of taxes) related to the
future amounts to be recorded in net post-retirement benefit costs.
The tables presented below set forth the funded status of the Company’s significant foreign defined benefit plans and
required disclosures in accordance with applicable accounting standards
Change in benefit obligation
Benefit obligation, beginning of year ............................................................ $
Service cost ....................................................................................................
Interest cost ....................................................................................................
Benefits and expenses paid ............................................................................
Actuarial loss (gain) .......................................................................................
Member contributions ....................................................................................
Currency translation adjustment ....................................................................
FISCAL YEAR
2013
2012
(in thousands)
243,649 $
804
9,610
(10,820)
2,312
331
5,295
216,721
505
10,212
(9,969)
17,538
296
8,346
Benefit obligation, end of year .......................................................................... $
251,181 $
243,649
65
FISCAL YEAR
2013
2012
(in thousands)
Change in plan assets
Plan assets, beginning of year .......................................................................... $
Actual return on assets .....................................................................................
Company contributions ....................................................................................
Member contributions ......................................................................................
Benefits paid ....................................................................................................
Currency translation adjustment ......................................................................
241,027 $
12,761
5,195
0
(10,807)
5,585
206,402
31,204
5,248
0
(9,704)
7,877
Plan assets, end of year ........................................................................................... $
253,761 $
241,027
Reconciliation to balance sheet
Funded status [benefit asset/(liability)] ............................................................ $
2,580 $
Net amount recognized............................................................................................ $
2,580 $
Amounts recognized in accumulated other comprehensive income (after tax)
Unrecognized actuarial loss ............................................................................. $
Unamortized prior service costs .......................................................................
Total amount recognized .................................................................................. $
31,302 $
152
31,454 $
(2,622)
(2,622)
30,711
774
31,485
The above disclosure represents the aggregation of information related to the Company’s two defined benefit plans
which cover many of its European employees. As of December 29, 2013, and December 30, 2012, one of these plans,
which primarily covers certain employees in the United Kingdom (the “UK Plan”), had an accumulated benefit obligation
in excess of the plan assets. The other plan, which covers certain employees in Europe (the “Europe Plan”), had assets in
excess of the accumulated benefit obligation. The following table summarizes this information as of December 29, 2013,
and December 30, 2012.
UK Plan
Projected Benefit Obligation ................................................................................ $
Accumulated Benefit Obligation ..........................................................................
Plan Assets ...........................................................................................................
2013
2012
(in thousands)
176,909 $
176,909
174,039
171,381
171,381
162,998
Europe Plan
Projected Benefit Obligation ................................................................................ $
Accumulated Benefit Obligation ..........................................................................
Plan Assets ...........................................................................................................
74,272 $
71,297
79,772
72,267
69,472
78,029
Components of net periodic benefit cost
Service cost ................................................................................. $
Interest cost .................................................................................
Expected return on plan assets ....................................................
Amortization of prior service cost ...............................................
Recognized net actuarial (gains)/losses .......................................
2013
FISCAL YEAR
2012
(in thousands)
2011
804 $
9,610
(10,150)
89
684
505 $
10,212
(11,203)
86
1,189
492
11,194
(11,966)
0
602
Net periodic benefit cost ............................................................. $
1,037 $
789 $
322
66
For 2014, it is estimated that approximately $0.7 million of expenses related to the amortization of unrecognized items
will be included in the net periodic benefit cost. During 2013, other comprehensive income was impacted by approximately
$0.2 million comprised of actuarial loss of approximately $0.3 million and amortization of $0.5 million.
2013
FISCAL YEAR
2012
2011
Weighted average assumptions used to determine net periodic
benefit cost
Discount rate ........................................................................
Expected return on plan assets .............................................
Rate of compensation ...........................................................
Weighted average assumptions used to determine benefit
obligations
4.0%
4.7%
2.0%
Discount rate ........................................................................
Rate of compensation ...........................................................
4.25%
2.0%
4.7%
5.7%
2.0%
4.0%
2.0%
5.3%
5.9%
2.0%
4.7%
2.0%
The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for
each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views
of the financial markets, and include input from actuaries, investment service firms and investment managers.
The Company’s foreign defined benefit plans’ fair value of plan assets were in excess of the accumulated benefit
obligation. The projected benefit obligations, accumulated benefit obligations and fair value of these plan assets are as
follows:
FISCAL YEAR
2013
2012
(in thousands)
Projected benefit obligation .................................................................................... $
Accumulated benefit obligations .............................................................................
Fair value of plan assets ..........................................................................................
251,181 $
248,206
253,761
243,649
240,853
241,027
The investment objectives of the foreign defined benefit plans are to maximize the return on the investments without
exceeding the limits of the prudent pension fund investment, to ensure that the assets would be sufficient to exceed
minimum funding requirements, and to achieve a favorable return against the performance expectation based on historic
and projected rates of return over the short term. The goal is to optimize the long-term return on plan assets at a moderate
level of risk, by balancing higher-returning assets, such as equity securities, with less volatile assets, such as fixed income
securities. The assets are managed by professional investment firms and performance is evaluated periodically against
specific benchmarks. The plans’ net assets did not include the Company’s own stock at December 29, 2013, or December
30, 2012.
The Company’s actual weighted average asset allocations for 2013 and 2012, and the targeted asset allocation for
2014, of the foreign defined benefit plans by asset category, are as follows:
2014
Target
Allocation
FISCAL YEAR
2013
2012
Percentage of Plan
Assets at Year End
Asset Category:
Equity Securities ......................................................................... 55% -
65%
Debt Securities ............................................................................ 30% - 40%
Other ........................................................................................... 0% - 5%
65%
32%
3%
68%
28%
4%
100%
100%
100%
67
Fair Value Measurements of Plan Assets
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
estimated fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three
levels of the fair value hierarchy under applicable accounting standards are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Level 2
Inputs to the valuation methodology include:
● quoted prices for similar assets in active markets;
● quoted prices for identical or similar assets in inactive markets;
● inputs other than quoted prices that are observable for the asset; and
● inputs that are derived principally or corroborated by observable data by correlation or
other means.
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement
and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement.
The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair
value, as of December 29, 2013 and December 30, 2012. As required by accounting standards, assets are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement.
Pension Plan Assets by Category as of December 29, 2013
UK Plan
Europe Plan
(in thousands)
Total
Level 1 ......................................................................... $
Level 2 .........................................................................
Level 3 .........................................................................
Total ............................................................................ $
79,722 $
0
0
79,722 $
167,397 $
0
6,642
174,039 $
247,119
0
6,642
253,761
Pension Plan Assets by Category as of December 30, 2012
UK Plan
Europe Plan
(in thousands)
Total
Level 1 ......................................................................... $
Level 2 .........................................................................
Level 3 .........................................................................
Total ............................................................................ $
78,029 $
0
0
78,029 $
153,847 $
0
9,151
162,998 $
231,876
0
9,151
241,027
The assets identified as level 3 above relate to insured annuities held by the UK Plan. The fair value of these assets was
calculated using the present value of the future pension payments due under the insurance policies. The table below
indicates the change in value related to these level 3 assets during 2013:
Balance of level 3 assets, beginning of year ........................................................................................ $
Interest cost ............................................................................................................................................
Benefits paid ..........................................................................................................................................
Actuarial gain .........................................................................................................................................
Translation adjustment ...........................................................................................................................
Ending Balance of level 3 assets .......................................................................................................... $
(in thousands)
9,151
372
(895)
(2,018)
32
6,642
68
During 2014, the Company expects to contribute $5.5 million to the plan trust and $10.2 million in the form of direct
benefit payments for its foreign defined benefit plans. It is anticipated that future benefit payments for the foreign defined
benefit plans will be as follows:
FISCAL YEAR
EXPECTED
PAYMENTS
(in thousands)
2014 .............................................................................................................................................. $
2015 ..............................................................................................................................................
2016 ..............................................................................................................................................
2017 ..............................................................................................................................................
2018 ..............................................................................................................................................
2019-2023 .....................................................................................................................................
10,200
10,407
10,625
10,917
11,361
58,411
Domestic Defined Benefit Plan
The Company maintains a domestic nonqualified salary continuation plan (“SCP”), which is designed to induce
selected officers of the Company to remain in the employ of the Company by providing them with retirement, disability
and death benefits in addition to those which they may receive under the Company’s other retirement plans and benefit
programs. The SCP entitles participants to: (i) retirement benefits upon normal retirement at age 65 (or early retirement as
early as age 55) after completing at least 15 years of service with the Company (unless otherwise provided in the SCP),
payable for the remainder of their lives (or, if elected by a participant, a reduced benefit is payable for the remainder of the
participant’s life and any surviving spouse’s life) and in no event less than 10 years under the death benefit feature; (ii)
disability benefits payable for the period of any total disability; and (iii) death benefits payable to the designated
beneficiary of the participant for a period of up to 10 years. Benefits are determined according to one of three formulas
contained in the SCP, and the SCP is administered by the Compensation Committee of the Company’s Board of Directors,
which has full discretion in choosing participants and the benefit formula applicable to each. The Company’s obligations
under the SCP are currently unfunded (although the Company uses insurance instruments to hedge its exposure
thereunder). The Company is required to contribute the present value of its obligations thereunder to an irrevocable grantor
trust in the event of a change in control as defined in the SCP. The Company uses a year-end measurement date for the
domestic SCP.
The tables presented below set forth the required disclosures in accordance with applicable accounting standards, and
amounts recognized in the consolidated financial statements related to the domestic SCP.
FISCAL YEAR
2013
2012
(in thousands)
Change in benefit obligation
Benefit obligation, beginning of year ........................................................... $
Service cost ...................................................................................................
Interest cost ...................................................................................................
Benefits paid .................................................................................................
Actuarial loss (gain) ......................................................................................
21,923 $
534
997
(847)
(1,660)
Benefit obligation, end of year ..................................................................... $
20,947 $
19,308
452
1,014
(847)
1,996
21,923
The amounts recognized in the consolidated balance sheets are as follows:
Current liabilities .............................................................................................. $
Non-current liabilities ......................................................................................
$
2013
2012
(in thousands)
848 $
20,099
20,947 $
847
21,076
21,923
69
The components of the amounts in accumulated other comprehensive income, after tax, are as follows:
Unrecognized actuarial loss ............................................................................. $
Unrecognized transition asset ...........................................................................
Unamortized prior service cost.........................................................................
$
2013
2012
(in thousands)
2,614 $
0
14
2,628 $
3,963
0
43
4,006
The accumulated benefit obligation related to the SCP was $17.6 million and $18.1 million as of December 29, 2013,
and December 30, 2012, respectively. The SCP is currently unfunded; as such, the benefit obligations disclosed are also the
benefit obligations in excess of the plan assets. The Company uses insurance instruments to help limit its exposure under
the SCP.
2013
2012
(in thousands, except for assumptions)
2011
Assumptions used to determine net periodic benefit cost
Discount rate ...............................................................
Rate of compensation ..................................................
Assumptions used to determine benefit obligations
Discount rate ...............................................................
Rate of compensation ..................................................
Components of net periodic benefit cost
Service cost ................................................................. $
Interest cost .................................................................
Amortizations ..............................................................
4.0%
4.0%
4.5%
4.0%
534 $
997
489
4.75%
4.0%
4.0%
4.0%
452 $
1,014
316
Net periodic benefit cost .................................................... $
2,020 $
1,782 $
5.5%
4.0%
4.75%
4.0%
393
1,138
637
2,168
The changes in other comprehensive income during 2013 related to this Plan were approximately $1.3 million, after
tax, primarily comprised of a net gain during the period of $1.0 million.
For 2014, the Company estimates that approximately $0.2 million of expenses, after tax, related to the amortization of
unrecognized items will be included in net periodic benefit cost for the SCP.
During 2013, the Company contributed $0.8 million in the form of direct benefit payments for its domestic SCP. It is
anticipated that future benefit payments for the SCP will be as follows:
FISCAL YEAR
2014 ................................................................... $
2015 ...................................................................
2016 ...................................................................
2017 ...................................................................
2018 ...................................................................
2019-2023 ..........................................................
EXPECTED PAYMENTS
(in thousands)
847
847
847
847
847
7,905
70
FIRE AT AUSTRALIAN MANUFACTURING FACILITY
In July 2012, a fire occurred at the Company’s manufacturing facility in Picton, Australia, causing extensive damage
and rendering the facility inoperable. As a result of the fire, in 2012, the Company recorded a charge of approximately
$22.3 million for impairment of fixed assets, and incurred approximately $21.3 million of excess production costs as the
Company utilized its other manufacturing facilities to service customers in Australia and New Zealand. Each of these
amounts for impairment of fixed assets and excess production costs previously were recorded as a receivable on the
Company’s balance sheet, because they were subject to a claim for reimbursement under the Company’s insurance policy.
In 2012, the Company received $20.7 million in reimbursement from its insurance company related to the fire. Following
the receipt of those proceeds, as of the end of 2012, the Company had an insurance recovery receivable on the fire claim of
approximately $22.9 million. This amount was included in the “Prepaid expenses and other current assets” line of the
Company’s consolidated balance sheet.
In addition to the excess production costs described above, in 2012 the Company incurred approximately $1.7 million
of costs related to the fire that were non-production related and were not the subject of a claim under the Company’s
insurance policy. As a result, this amount was included in the determination of operating income as shown in the line item
“Expenses related to Australia fire” in the Company’s consolidated condensed statement of operations.
In 2013, the Company recorded further impairment of fixed assets of $2.7 million and excess production costs of $23.4
million related to the fire. (Thus, the aggregate of the amounts for impairment of fixed assets and excess production costs
recorded during 2012 and 2013 totaled $69.7 million). In the first nine months of 2013, the Company received $33.7
million of further reimbursements related to the fire insurance claim, and in the fourth quarter of 2013, the Company
received a final settlement payment of $22.3 million from its insurance company. (Thus, the aggregate cash insurance
proceeds received during 2012 and 2013 totaled $76.7 million.)
At the time of the final insurance settlement payment, the amount of proceeds received exceeded the amount that the
Company had recorded as a receivable. (Certain amounts claimed with the insurance company had not been recorded in the
Company’s financial statements, in accordance with applicable accounting standards.) Accordingly, the amount of
reimbursement received in excess of the insurance receivable, approximately $7.0 million, was recorded as a gain during
2013 in the consolidated statement of operations. There was no insurance recovery receivable as of the end of 2013, and the
Company does not expect to incur any additional fire related expenses or record any additional fire related recoveries from
the insurer.
As described in Items 1 and 7 of this report, the Company’s new manufacturing facility in Minto, Australia
commenced operations in January 2014.
ENTERPRISE-WIDE DISCLOSURES
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. In August 2012, the Company
sold its Bentley Prince Street business segment. Accordingly the Company has included the operations of the former
Bentley Prince Street segment in discontinued operations, where applicable.
The Company has a large and diverse customer base, which includes numerous customers located in foreign countries.
No single unaffiliated customer accounted for more than 10% of total sales in any year during the past three years. Sales to
customers in foreign markets in 2013, 2012 and 2011 were approximately 52%, 55% and 58%, respectively, of total net
sales. These sales were primarily to customers in Europe, Canada, Asia, Australia and Latin America. With the exception
of the United States (and Australia in 2011), no one country represented more than 10% of the Company’s net sales.
Revenue and long-lived assets related to operations in the United States and other countries are as follows:
71
SALES TO UNAFFILIATED CUSTOMERS(1)
United States .................................................................... $
United Kingdom ...............................................................
Australia ...........................................................................
Other foreign countries.....................................................
2013
FISCAL YEAR
2012
(in thousands)
2011
458,585 $
75,076
78,569
347,759
421,355 $
83,373
87,115
340,177
400,569
83,401
105,871
363,204
Net sales ........................................................................... $
959,989 $
932,020 $
953,045
LONG-LIVED ASSETS(2)
United States .................................................................... $
United Kingdom ...............................................................
Netherlands ......................................................................
Australia ...........................................................................
China ................................................................................
Other foreign countries.....................................................
85,518 $
16,541
35,619
60,199
16,281
16,687
78,661
10,093
33,122
11,895
15,589
16,365
Total long-lived assets ...................................................... $
230,845 $
165,725
(1) Revenue attributed to geographic areas is based on the location of the customer.
(2) Long-lived assets include tangible assets physically located in foreign countries.
QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following tables set forth, for the fiscal periods indicated, selected consolidated financial data and information
regarding the market price per share of the Company’s Common Stock. The prices represent the reported high and low sale
prices during the period presented.
FISCAL YEAR 2013
FIRST
QUARTER
SECOND
QUARTER
THIRD
QUARTER
FOURTH
QUARTER(1)
(in thousands, except per share data)
Net sales ............................................................. $
Gross profit ........................................................
Net income .........................................................
210,369 $
71,252
6,997
243,483 $
86,233
10,965
254,448 $
91,753
14,957
251,689
91,871
15,336
Basic income per share ....................................... $
0.11 $
0.17 $
0.23 $
Diluted income per share: .................................. $
0.11 $
0.17 $
0.23 $
Share prices
High ................................................................ $
Low .................................................................
19.96 $
15.76
19.86 $
15.13
20.30 $
16.73
0.23
0.23
21.74
18.54
(1) The fourth quarter of 2013 includes a gain of $7.0 million related to final settlement of the Company’s fire
insurance claim in Australia. The fourth quarter of 2013 also includes $1.7 million of expenses related to debt
retirement.
72
FIRST
QUARTER(1)
FISCAL YEAR 2012
THIRD
QUARTER(2)
SECOND
QUARTER
FOURTH
QUARTER(3)
Net sales ......................................................................... $
Gross profit ....................................................................
Income (loss) from continuing operations ......................
Income (loss) from discontinued operations ..................
Net income (loss) ...........................................................
Basic income (loss) per share:
Income (loss) from continuing operations ...................... $
Income (loss) from discontinued operations ..................
Net income (loss) ........................................................... $
Diluted income (loss) per share:
Income (loss) from continuing operations ...................... $
Income (loss) from discontinued operations ..................
Net income (loss) ........................................................... $
Share prices
(in thousands, except per share data)
242,863 $
82,861
11,067
(16,840)
(5,773)
229,546 $
78,702
10,491
(233)
10,258
210,016 $
70,518
(6,051)
117
(5,934)
(0.10) $
0.00
(0.09)
(0.10) $
0.00
(0.09) $
0.16 $
0.00
0.16 $
0.16 $
0.00
0.16 $
0.17 $
(0.26)
(0.09) $
0.17 $
(0.26)
(0.09) $
249,595
85,098
7,392
0
7,392
0.11
0.00
0.11
0.11
0.00
0.11
High ............................................................................ $
Low .............................................................................
14.08 $
10.76
14.89 $
11.14
14.79 $
11.62
16.37
12.94
(1) Results for the first quarter of 2012 include restructuring and asset impairment charges of $16.3 million.
(2) Results for the third quarter of 2012 include restructuring charges of $0.8 million and losses related to the Australia fire
of $1.0 million.
(3) Results for the fourth quarter of 2012 include restructuring charges of $2.3 million and losses related to the Australia fire
of $0.7 million.
ITEMS RECLASSIFIED FROM OTHER COMPREHENSIVE INCOME
During 2013, the Company did not reclassify any significant amounts out of accumulated other comprehensive
income. The only reclassifications that occurred in that period were comprised of $1.3 million related to the Company’s
defined retirement benefit plans and salary continuation plan. These reclassifications were included in the selling, general
and administrative expenses line item of the Company’s consolidated statement of operations.
73
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The “guarantor subsidiaries,” which consist of the Company’s principal domestic subsidiaries (all of which are 100%
owned by us), are guarantors of the Company’s 7.625% Senior Notes due 2018. The Supplemental Guarantor Financial
Statements are presented herein pursuant to requirements of the Commission.
STATEMENT OF OPERATIONS FOR YEAR 2013
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
(152,950) $
(152,950)
0
0
0
0
0
0
0
959,989
618,880
341,109
252,433
(6,954)
95,630
26,626
69,004
20,749
0
Net sales ........................ $
Cost of sales ..................
638,338 $
465,369
474,601 $
306,461
172,969
168,140
0 $
0
0
105,225
117,543
29,665
Australia fire .............
0
(6,954)
0
Operating income (loss)
67,744
57,551
(29,665)
28,343
10,068
(11,785)
39,401
47,483
(17,880)
10,882
14,055
(4,188)
Gross profit on sales ......
Selling, general and
administrative
expenses ....................
Gain related to
Interest/other expense ....
Income (loss) before
taxes on income and
equity in income of
subsidiaries ................
Income tax expense
(benefit) .....................
Equity in income (loss)
of subsidiaries ...........
Income (loss) from
continuing operations
Income (loss) from
discontinued
operations, net of tax .
0
0
61,947
(61,947)
28,519
33,428
48,255
(61,947)
48,255
0
0
0
0
0
Net income (loss) .......... $
28,519 $
33,428 $
48,255 $
(61,947) $
48,255
74
STATEMENT OF OPERATIONS FOR YEAR 2012
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
Equity in income (loss)
of subsidiaries ............
Income (loss) from
continuing operations .
Income (loss) from
discontinued
operations, net of tax ..
Net sales ......................... $
Cost of sales ...................
589,330 $
433,949
487,947 $
326,149
155,381
161,798
0 $
0
0
Gross profit on sales .......
Selling, general and
administrative
expenses .....................
Expenses related to
Australia fire ..............
Restructuring and asset
impairment charges ....
94,266
117,922
19,170
0
1,677
1,143
18,032
71
250
Operating income (loss) .
59,972
24,167
(19,491)
Interest/other expense .....
Income (loss) before
taxes on income and
equity in income of
subsidiaries .................
Income tax expense
29,368
12,923
(15,746)
30,604
11,244
(3,745)
(benefit) ......................
10,512
5,613
(921)
(145,257) $
(145,257)
0
0
0
0
0
0
0
0
0
0
8,767
(8,767)
932,020
614,841
317,179
231,358
1,748
19,425
64,648
26,545
38,103
15,204
0
20,092
5,631
5,943
(8,767)
22,899
(16,956)
0
0
0
(16,956)
Net income (loss) ........... $
3,136 $
5,631 $
5,943 $
(8,767) $
5,943
75
STATEMENT OF OPERATIONS FOR YEAR 2011
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
(169,865) $
(169,865)
0
0
0
0
0
0
0
953,045
618,303
334,742
243,287
5,755
85,700
26,790
58,910
20,640
0
Net sales ......................... $
Cost of sales ...................
584,294 $
437,063
538,616 $
351,105
147,231
187,511
0 $
0
0
Operating income (loss) .
56,748
55,322
(26,370)
89,874
127,128
26,285
609
5,061
85
28,453
14,754
(16,417)
28,295
40,568
(9,953)
9,992
14,117
(3,469)
Gross profit on sales .......
Selling, general and
administrative
expenses ......................
Restructuring and asset
impairment charges .....
Interest/Other expense ....
Income (loss) before
taxes on income and
equity in income of
subsidiaries .................
Income tax expense
(benefit) ......................
Equity in income (loss)
of subsidiaries ............
Income (loss) from
continuing operations .
Income (loss) on
discontinued
operations, net of tax ..
0
0
45,205
(45,205)
18,303
26,451
38,721
(45,205)
38,270
1,106
(655)
0
0
451
Net income (loss) ........... $
19,409 $
25,796 $
38,721 $
(45,205) $
38,721
76
BALANCE SHEET AS OF DECEMBER 29, 2013
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
(in thousands)
CONSOLIDATED
TOTALS
ASSETS
Current Assets:
Cash and cash
equivalents ............. $
Accounts receivable ...
Inventories .................
Prepaids and deferred
income taxes ..........
2,495 $
57,321
70,988
52,714 $
73,991
78,655
17,674 $
624
0
4,040
26,218
3,385
Total current assets.
134,844
231,578
21,683
0 $
0
0
0
0
72,883
131,936
149,643
33,643
388,105
Property and equipment
less accumulated
depreciation ...............
Investment in
subsidiaries ................
Goodwill........................
Other assets ...................
82,888
145,106
2,851
0
230,845
556,734
6,542
4,393
222,753
71,399
8,574
(102,498)
0
108,282
(676,989)
0
0
0
77,941
121,249
Total assets ............. $
785,401 $
679,410 $
30,318 $
(676,989) $
818,140
LIABILITIES AND
SHAREHOLDERS’
EQUITY
Current Liabilities: ........ $
Long term debt ..............
Senior notes ...................
Deferred income taxes ...
Other .............................
27,034 $
0
0
0
6
99,062 $
26,326
0
17,734
10,306
4,091 $
0
247,500
(2,685)
47,979
Total liabilities .......
27,040
153,428
296,885
0 $
0
0
0
0
0
130,187
26,326
247,500
15,049
58,291
477,353
Shareholders’ equity ......
Common stock ...........
Additional paid-in
94,145
102,199
6,631
(196,344)
6,631
capital ....................
249,302
12,525
374,597
(261,827)
374,597
Retained earnings
(deficit) ..................
Foreign currency
translation
adjustment .............
Pension liability .........
Total shareholders’
417,376
464,769
(639,101)
(218,818)
24,226
(2,462)
0
(22,057)
(31,454)
(6,066)
(2,628)
0
0
(30,585)
(34,082)
equity ........................ $
758,361 $
525,982 $
(266,567) $
(676,989) $
340,787
$
785,401 $
679,410 $
30,318 $
(676,989) $
818,140
77
BALANCE SHEET AS OF DECEMBER 30, 2012
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
ASSETS
Current Assets:
Cash and cash
equivalents ............. $
Accounts receivable ...
Inventories .................
Prepaids and deferred
income taxes ..........
4,072 $
59,108
64,134
36,186 $
77,710
77,042
50,275 $
495
0
4,274
43,979
13,376
Total current assets .
131,588
234,917
64,146
0 $
0
0
0
0
90,533
137,313
141,176
61,629
430,651
Property and equipment
less accumulated
depreciation ...............
Investment in
subsidiaries ................
Goodwill ........................
Other assets ...................
75,692
86,760
3,273
0
165,725
492,576
6,542
1,911
193,625
69,130
9,190
(149,980)
0
106,218
(536,221)
0
0
0
75,672
117,319
Total assets ............. $
708,309 $
593,622 $
23,657 $
(536,221) $
789,367
LIABILITIES AND
SHAREHOLDERS’
EQUITY
Current Liabilities: ........ $
Senior notes ...................
Deferred income taxes ...
Other..............................
56,766 $
0
0
3
77,912 $
0
10,815
7,006
22,760 $
275,000
(3,476)
46,879
Total liabilities .......
56,769
95,733
341,163
0 $
0
0
0
0
157,438
275,000
7,339
53,888
493,665
Shareholders’ equity
Common stock ...........
Additional paid-in
capital ....................
Retained earnings
(deficit) ..................
Foreign currency
translation
adjustment .............
Pension liability .........
Total shareholders’
81,844
102,199
6,606
(184,043)
6,606
182,782
12,525
366,677
(195,307)
366,677
388,857
431,341
(680,073)
(156,871)
(16,746)
(1,943)
0
(16,691)
(31,485)
(6,710)
(4,006)
0
0
(25,344)
(35,491)
equity ........................ $
651,540 $
497,889 $
(317,506) $
(536,221) $
295,702
$
708,309 $
593,622 $
23,657 $
(536,221) $
789,367
78
STATEMENT OF CASH FLOWS FOR YEAR 2013
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
Net cash provided by
operating activities .... $
31,641 $
33,836 $
190 $
1,791 $
67,458
Cash flows from
investing activities:
Purchase of plant and
equipment ..............
Cash received from
insurance company
Other ..........................
Net cash used for
(20,526)
(71,200)
(125)
0
(225)
23,024
4,714
0
(1,415)
investing activities.....
(20,751)
(43,462)
(1,540)
0
0
0
0
0
0
0
(91,851)
23,024
3,074
(65,753)
26,326
(1,308)
(825)
(35,610)
0
1,881
(7,283)
0
0
0
26,326
0
0
(1,308)
0
(825)
0
(12,467)
0
2,364
(35,610)
11,894
0
(1,791)
0
0
0
0
1,881
(7,283)
0
0
(12,467)
28,690
(31,251)
(1,791)
(16,819)
0
(2,536)
0
0
(2,536)
(1,577)
16,528
(32,601)
4,072
36,186
50,275
0
0
0 $
(17,650)
90,533
72,883
Cash flows from
financing activities:
Borrowing of long
term debt ................
Debt issuance costs ....
Premium paid to
repurchase Senior
Notes ......................
Repurchase of Senior
Notes ......................
Other ..........................
Proceeds from
issuance of
common stock ........
Dividends paid ...........
Net cash provided by
(used for) financing
activities ....................
Effect of exchange rate
change on cash ..........
Net increase (decrease)
in cash .......................
Cash, at beginning of
period ........................
Cash, at end of period .... $
2,495 $
52,714 $
17,674 $
79
STATEMENT OF CASH FLOWS FOR YEAR 2012
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
Net cash provided by
(used for) operating
activities .................... $
Cash flows from
investing activities:
Purchase of plant and
equipment ..............
Other ..........................
Net proceeds from sale
of Bentley Prince
Street .........................
Cash received from
insurance company ....
Net cash provided by
(used for) investing
activities ....................
Cash flows from
financing activities:
Repurchase of senior
subordinated notes....
Proceeds from
issuance of
common stock ........
Dividends paid ...........
Other ..........................
Net cash provided by
(used for) financing
activities ....................
Effect of exchange rate
change on cash ..........
Net increase (decrease)
in cash .......................
Cash, at beginning of
year ............................
50,653 $
7,142 $
(15,498) $
4,591 $
46,888
(16,752)
473
(25,617)
(286)
(59)
(2,816)
0
0
0
32,174
20,718
0
(16,279)
(5,185)
29,299
0
0
0
0
0
(42,428)
(2,629)
32,174
20,718
7,835
0
0
(11,477)
0
(11,477)
0
0
(31,545)
0
0
(2,584)
1,496
(5,925)
38,720
0
0
(4,591)
1,496
(5,925)
0
(31,545)
(2,584)
22,814
(4,591)
(15,906)
153
939
0
2,982
312
36,615
1,090
35,874
13,660
0
0
0
0 $
1,092
39,909
50,624
90,533
Cash, at end of year ....... $
4,072 $
36,186 $
50,275 $
80
STATEMENT OF CASH FLOWS FOR YEAR 2011
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTALS
(7,196) $
27,970 $
5,113 $
(1,523) $
24,364
(14,987)
51
(23,013)
(1,080)
(50)
(537)
investing activities.....
(14,936)
(24,093)
(587)
0
0
0
(38,050)
(1,566)
(39,616)
0
0
22,147
0
0
(838)
2,669
(5,227)
(23,857)
0
0
1,523
2,669
(5,227)
(1,025)
22,147
(838)
(26,415)
1,523
(3,583)
0
234
0
15
3,273
(21,889)
1,075
32,601
35,549
0
0
0
0 $
234
(18,601)
69,225
50,624
Net cash provided by
(used for) operating
activities .................... $
Cash flows from
investing activities:
Purchase of plant and
equipment ..................
Other ..........................
Net cash used for
Cash flows from
financing activities:
Proceeds from
issuance of
common stock ........
Dividends paid ...........
Other ..........................
Net cash provided by
(used for) financing
activities ....................
Effect of exchange rate
change on cash ..........
Net increase (decrease)
in cash .......................
Cash, at beginning of
year ............................
Cash, at end of year ....... $
1,090 $
35,874 $
13,660 $
81
STATEMENT OF COMPREHENSIVE INCOME FOR YEAR 2013
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
28,519 $
33,428 $
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
48,255 $
CONSOLIDATION
AND
ELIMINATION
ENTRIES
(519)
(5,366)
644
0
31
1,378
CONSOLIDATED
TOTAL
(61,947) $
48,255
0
0
(5,241)
1,409
Net Income ..................... $
Currency Translation
Adjustment .................
Pension Liability
Adjustment .................
Comprehensive Income
(Loss) ......................... $
28,000 $
28,093 $
50,277 $
(61,947) $
44,423
STATEMENT OF COMPREHENSIVE INCOME FOR YEAR 2012
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTAL
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
5,943 $
5,631 $
8,438
1,779
345
(1,008)
(8,767) $
0
0
5,943
8,539
771
Net Income ..................... $
Currency Translation
Adjustment .................
Pension Liability
Adjustment .................
Comprehensive Income
3,136 $
(244)
0
(Loss) ......................... $
2,892 $
15,848 $
5,280 $
(8,767) $
15,253
STATEMENT OF COMPREHENSIVE INCOME FOR YEAR 2011
GUARANTOR
SUBSIDIARIES
NON-
GUARANTOR
SUBSIDIARIES
INTERFACE,
INC.
(PARENT
CORPORATION)
(in thousands)
CONSOLIDATION
AND
ELIMINATION
ENTRIES
CONSOLIDATED
TOTAL
Net Income .................... $
Currency Translation
Adjustment ................
Pension Liability
Adjustment ................
Comprehensive Income
19,409 $
25,796 $
38,721 $
(45,205) $
38,721
(250)
(6,782)
0
(5,735)
(582)
669
0
0
(7,614)
(5,066)
(Loss) ........................ $
19,159 $
13,279 $
38,808 $
(45,205) $
26,041
82
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of Interface, Inc. and Subsidiaries
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Interface, Inc. as of December 29, 2013 and
December 30, 2012 and the related consolidated statements of operations and comprehensive income, and cash flows for
each of the three years in the period ended December 29, 2013. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Interface, Inc. and Subsidiaries at December 29, 2013 and December 30, 2012, and the results of their
operations and their cash flows for each of the three years in the period ended December 29, 2013, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Interface, Inc. and Subsidiaries’ internal control over financial reporting as of December 29, 2013, based on criteria
established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and our report dated February 26, 2014 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Atlanta, Georgia
February 26, 2014
83
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of Interface, Inc. and Subsidiaries
Atlanta, Georgia
We have audited Interface, Inc. and Subsidiaries’ internal control over financial reporting as of December 29, 2013, based
on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Interface, Inc. and Subsidiaries’ management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Interface, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 29, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Interface, Inc. and Subsidiaries as of December 29, 2013 and December 30,
2012, and the related consolidated statements of operations and comprehensive income, and cash flows for each of the three
years in the period ended December 29, 2013 and our report dated February 26, 2014 expressed an unqualified opinion
thereon.
/s/ BDO USA, LLP
Atlanta, Georgia
February 26, 2014
84
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. As of the end of the period covered by this Annual Report on Form 10-K, an
evaluation was performed under the supervision and with the participation of our management, including our President 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, pursuant to Rule 13a-14(c) under the Act. Based on that evaluation, our President 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 Annual Report.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial
reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting. The management of the Company is
responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)
or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management assessed the effectiveness of our internal control over financial reporting as of December 29, 2013
based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
“Internal Control – Integrated Framework (1992).” Based on that assessment, management concluded that, as of December
29, 2013, our internal control over financial reporting was effective based on those criteria.
Our independent auditors have issued an audit report on the effectiveness of our internal control over financial
reporting. This report immediately precedes Item 9 of this Report.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the captions “Nomination and Election of Directors,” “Section 16(a) Beneficial
Ownership Reporting Compliance” and “Meetings and Committees of the Board of Directors” in our definitive Proxy
Statement for our 2014 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of our 2013 fiscal year, is incorporated herein by
reference. Pursuant to Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K, information relating to our executive
officers is included in Item 1 of this Report.
We have adopted the “Interface Code of Business Conduct and Ethics” (the “Code”) which applies to all of our
employees, officers and directors, including the Chief Executive Officer and Chief Financial Officer. The Code may be
viewed on our website at www.interface.com. Changes to the Code will be posted on our website. Any waiver of the Code
for executive officers or directors may be made only by our Board of Directors and will be disclosed to the extent required
by law or Nasdaq rules on our website or in a filing on Form 8-K.
85
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the captions “Executive Compensation and Related Items,” “Compensation
Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider
Participation,” and “Potential Payments upon Termination or Change in Control” in our definitive Proxy Statement for our
2014 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation
14A not later than 120 days after the end of our 2013 fiscal year, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained under the captions “Principal Shareholders and Management Stock Ownership” and
“Equity Compensation Plan Information” in our definitive Proxy Statement for our 2014 Annual Meeting of Shareholders,
to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end
of our 2013 fiscal year, is incorporated herein by reference.
For purposes of determining the aggregate market value of our voting and non-voting stock held by non-affiliates,
shares held by our directors and executive officers have been excluded. The exclusion of such shares is not intended to, and
shall not, constitute a determination as to which persons or entities may be “affiliates” as that term is defined under federal
securities laws.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information contained under the captions “Certain Relationships and Related Transactions” and “Director
Independence” in our definitive Proxy Statement for our 2014 Annual Meeting of Shareholders, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of our 2013 fiscal
year, is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained under the captions “Audit and Non-Audit Fees” and “Policy on Audit Committee Pre-
Approval of Audit and Permissible Non-Audit Services of Independent Auditors” in our definitive Proxy Statement for our
2014 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to Regulation
14A not later than 120 days after the end of our 2013 fiscal year, is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART IV
The following Consolidated Financial Statements and Notes thereto of Interface, Inc. and subsidiaries and related
Reports of Independent Registered Public Accounting Firm are contained in Item 8 of this Report:
Consolidated Statements of Operations and Comprehensive Income — fiscal years ended December 29, 2013,
December 30, 2012 and January 1, 2012.
Consolidated Balance Sheets — December 29, 2013 and December 30, 2012.
Consolidated Statements of Cash Flows — fiscal years ended December 29, 2013, December 30, 2012 and January 1,
2012.
86
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
2. Financial Statement Schedule
The following Consolidated Financial Statement Schedule of Interface, Inc. and subsidiaries and related Report of
Independent Registered Public Accounting Firm are included as part of this Report (see the pages immediately preceding
the signatures in this Report.
Report of Independent Registered Public Accounting Firm
Schedule II — Valuation and Qualifying Accounts and Reserves
3. Exhibits
The following exhibits are included as part of this Report:
Exhibit
Number
Description of Exhibit
3.1 — Restated Articles of Incorporation and accompanying Clarification Certificate (included as Exhibit 3.1 to
the Company’s quarterly report on Form 10-Q filed on May 10, 2012, previously filed with the
Commission and incorporated herein by reference).
3.2 — Bylaws, as amended and restated (included as Exhibit 3.1 to the Company’s quarterly report on Form 10-Q
for the quarter ended September 30, 2007, 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 and Bylaws defining the
rights of holders of Common Stock of the Company.
4.2 — Rights Agreement dated March 7, 2008 and effective as of March 17, 2008 between the Company and
Computershare Trust Company, N.A. (included as Exhibit 4.1 to the Company’s current report on Form 8-
K filed on March 7, 2008, previously filed with the Commission and incorporated herein by reference).
4.3 — Indenture governing the Company’s 7.625% Senior Notes due 2018, dated as of December 3, 2010, among
the Company, certain subsidiaries of the Company, as guarantors, and U.S. Bank National Association, as
Trustee (included as Exhibit 4.1 to the Company’s current report on Form 8-K filed on December 7, 2010,
previously filed with the Commission and incorporated herein by reference).
10.1 — Salary Continuation Plan, dated May 7, 1982 (included as Exhibit 10.20 to the Company’s registration
statement on Form S-1, File No. 2-82188, previously filed with the Commission and incorporated herein by
reference).*
10.2 — Form of Salary Continuation Agreement, dated as of January 1, 2008 (as used for Daniel T. Hendrix,
Raymond S. Willoch and John R. Wells) (included as Exhibit 99.5 to the Company’s current report on
Form 8-K filed on January 7, 2008, previously filed with the Commission and incorporated herein by
reference).*
10.3 — Interface, Inc. Omnibus Stock Incentive Plan (as amended and restated effective February 23, 2010)
(included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on May 26, 2010, previously
filed with the Commission and incorporated herein by reference); Forms of Restricted Stock Agreement, as
used for directors, executive officers and other key employees/consultants (included as Exhibits 99.1, 99.2
and 99.3, respectively, to the Company’s current report on Form 8-K filed on January 14, 2005, previously
filed with the Commission and incorporated herein by reference); and Form of Restricted Stock Agreement,
as used for executive officers (included as Exhibit 10.5 to the Company’s annual report on Form 10-K for
the year ended December 30, 2007, previously filed with the Commission and incorporated herein by
reference).*
10.4 — Interface, Inc. Executive Bonus Plan, adopted on February 25, 2009 (included as Exhibit 99.1 to the
Company’s current report on Form 8-K filed on May 28, 2009, previously filed with the Commission and
incorporated herein by reference).*
87
10.5 — Interface, Inc. Nonqualified Savings Plan (as amended and restated effective January 1, 2002) (included as
Exhibit 10.4 to the Company’s annual report on Form 10-K for the year ended December 30, 2001,
previously filed with the Commission and incorporated herein by reference); First Amendment thereto,
dated as of December 20, 2002 (included as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q
for the quarter ended June 29, 2003, previously filed with the Commission and incorporated herein by
reference); Second Amendment thereto, dated as of December 30, 2002 (included as Exhibit 10.3 to the
Company’s quarterly report on Form 10-Q for the quarter ended June 29, 2003, previously filed with the
Commission and incorporated herein by reference); Third Amendment thereto, dated as of May 8, 2003
(included as Exhibit 10.6 to the Company’s annual report on Form 10-K for the year ended December 28,
2003 (the “2003 10-K”), previously filed with the Commission and incorporated herein by reference); and
Fourth Amendment thereto, dated as of December 31, 2003 (included as Exhibit 10.7 to the 2003 10-K,
previously filed with the Commission and incorporated herein by reference).*
10.6 — Amended and Restated Employment and Change in Control Agreement of Daniel T. Hendrix dated
January 1, 2008 (included as Exhibit 99.2 to the Company’s current report on Form 8-K filed on January
7, 2008, previously filed with the Commission and incorporated herein by reference).*
10.7 — Amended and Restated Employment and Change in Control Agreement of Patrick C. Lynch dated January
1, 2008 (included as Exhibit 99.1 to the Company’s current report on Form 8-K filed on January 7, 2008,
previously filed with the Commission and incorporated herein by reference).*
10.8 — Amended and Restated Employment and Change in Control Agreement of John R. Wells dated January 1,
2008 (included as Exhibit 99.3 to the Company’s current report on Form 8-K filed on January 7, 2008,
previously filed with the Commission and incorporated herein by reference).*
10.9 — Amended and Restated Employment and Change in Control Agreement of Raymond S. Willoch dated
January 1, 2008 (included as Exhibit 99.4 to the Company’s current report on Form 8-K filed on January
7, 2008, previously filed with the Commission and incorporated herein by reference).*
10.10 — UK Service Agreement between Interface Europe, Ltd. and Lindsey Kenneth Parnell dated March 13,
2007 (included as Exhibit 10.12 to the Company’s annual report on Form 10-K for the year ended
December 31, 2006 (the “2006 10-K”), previously filed with the Commission and incorporated herein by
reference).*
10.11 — Overseas Service Agreement between Interface Europe, Ltd. and Lindsey Kenneth Parnell dated March
13, 2007 (included as Exhibit 10.13 to the 2006 10-K, previously filed with the Commission and
incorporated herein by reference).*
10.12 — Split Dollar Insurance Agreement, dated February 21, 1997, between the Company and Daniel T. Hendrix
(included as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q for the quarter ended October
4, 1998, previously filed with the Commission and incorporated herein by reference); and Amendment
thereto, dated December 29, 2008 (included as Exhibit 99.1 to the Company’s current report on Form 8-K
filed on January 2, 2009, previously filed with the Commission and incorporated herein by reference).*
10.13 — Form of Indemnity Agreement of Director (as used for directors of the Company) (included as Exhibit
99.1 to the Company’s current report on Form 8-K filed on November 30, 2005, previously filed with the
Commission and incorporated herein by reference).*
10.14 — Form of Indemnity Agreement of Officer (as used for certain officers of the Company, including Daniel T.
Hendrix, John R. Wells, Patrick C. Lynch, Raymond S. Willoch, Lindsey K. Parnell and Robert A.
Coombs) (included as Exhibit 99.2 to the Company’s current report on Form 8-K filed on November 30,
2005, previously filed with the Commission and incorporated herein by reference).*
10.15 — Interface, Inc. Long-Term Care Insurance Plan and related Summary Plan Description (included as Exhibit
99.2 to the Company’s current report on Form 8-K filed on December 20, 2005, previously filed with the
Commission and incorporated herein by reference).*
10.16 — Interface, Inc. Nonqualified Savings Plan II, as amended and restated effective January 1, 2009 (included
as Exhibit 10.18 to the Company’s annual report on Form 10-K for the year ended December 30, 2012
(the “2012 10-K”), previously filed with the Commission and incorporated herein by reference; First
Amendment thereto, dated February 26, 2009 (included as Exhibit 10.19 to the 2012 10-K, previously
filed with the Commission and incorporated herein by reference); Second Amendment thereto, dated
December 9, 2009 (included as Exhibit 10.20 to the 2012 10-K, previously filed with the Commission and
incorporated herein by reference); Third Amendment thereto, dated April 15, 2010 (included as Exhibit
10.21 to the 2012 10-K, previously filed with the Commission and incorporated herein by reference); and
Fourth Amendment thereto, dated August 9, 2012 (included as Exhibit 10.22 to the 2012 10-K, previously
filed with the Commission and incorporated herein by reference).*
88
10.17 — Syndicated Facility Agreement, dated as of October 22, 2013, among Interface, Inc., certain subsidiaries
of the Company as borrowers, certain subsidiaries of the Company as guarantors, Bank of America, N.A.
as Administrative Agent, The Royal Bank of Scotland, as Syndication Agent, and SunTrust Bank and
Regions Bank, as Co-Documentation Agents, and the other lenders party thereto (included as Exhibit
99.1 to the Company’s current report on Form 8-K filed on October 23, 2013, previously filed with the
Commission and incorporated herein by reference).
10.18 — Security and Pledge Agreement, dated as of October 22, 2013, among Interface, Inc., certain subsidiaries
of the Company as obligors, and Bank of America, N.A. as Administrative Agent (included as Exhibit
99.2 to the Company’s current report on Form 8-K filed on October 23, 2013, previously filed with the
Commission and incorporated herein by reference).
21
23
24
31.1
— Subsidiaries of the Company.
— Consent of BDO USA, LLP.
— Power of Attorney (see signature page of this Report).
— Certification of Chief Executive Officer with respect to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 29, 2013.
31.2
— Certification of Chief Financial Officer with respect to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 29, 2013.
32.1 — Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief
Executive Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 29, 2013.
32.2 — Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief Financial
Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year ended December
29, 2013.
101.INS — XBRL Instance Document (filed electronically herewith)
101.SCH — XBRL Taxonomy Extension Schema Document (filed electronically herewith)
101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith)
101.LAB — XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith)
101.PRE — XBRL Taxonomy Presentation Linkbase Document (filed electronically herewith)
101.DEF — XBRL Taxonomy Definition Linkbase Document (filed electronically herewith)
__________
* Management contract or compensatory plan or agreement required to be filed pursuant to Item 15(b) of this Report.
89
Report of Independent Registered Public Accounting Firm
Board and Directors and Shareholders of Interface, Inc. and Subsidiaries
Atlanta, Georgia
The audits referred to in our report to Interface, Inc. and Subsidiaries, dated February 26, 2014, relating to the consolidated
financial statements of Interface Inc., and subsidiaries, which is contained in Item 8 of this Form 10-K, also included the
audit of the Financial Statement Schedule II (Valuation and Qualifying Accounts and Reserves) listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ BDO USA, LLP
Atlanta, Georgia,
February 26, 2014
90
INTERFACE, INC. AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A
BALANCE,
AT
BEGINNING
OF YEAR
COLUMN B
CHARGED
TO COSTS
AND
EXPENSES
(A)
COLUMN C
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
COLUMN D
DEDUCTIONS
(DESCRIBE)
(B)
COLUMN E
BALANCE,
AT END OF
YEAR
Allowance for Doubtful Accounts:
Year Ended:
December 29, 2013 ....................... $
December 30, 2012 .......................
January 1, 2012 .............................
______________
8,818 $
8,920
9,631
253 $
1,338
1,454
0 $
0
0
1,425 $
1,440
2,165
7,646
8,818
8,920
(A) Includes changes in foreign currency exchange rates.
(B) Write off of bad debt, and recovering of previously provided for amounts.
COLUMN A
BALANCE,
AT
BEGINNING
OF YEAR
COLUMN B
CHARGED
TO COSTS
AND
EXPENSES
(A)
COLUMN C
CHARGED TO
OTHER
ACCOUNTS(B)
(in thousands)
COLUMN D
DEDUCTIONS
(DESCRIBE)
(C)
COLUMN E
BALANCE,
AT END OF
YEAR
Restructuring Reserve:
Year Ended:
December 29, 2013 ....................... $
December 30, 2012 .......................
January 1, 2012 .............................
4,350 $
4,112
521
0 $
18,927
5,755
0 $
9,364
776
3,831 $
9,325
1,388
519
4,350
4,112
______________
(A) Includes changes in foreign currency exchange rates.
(B) Reduction of asset carrying value.
(C) Cash payments.
91
COLUMN A
BALANCE,
AT
BEGINNING
OF YEAR
COLUMN B
CHARGED
TO COSTS
AND
EXPENSES
(A)
COLUMN C
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
COLUMN D
DEDUCTIONS
(DESCRIBE)
(B)
COLUMN E
BALANCE,
AT END OF
YEAR
Reserves for Sales Returns and
Allowances:
Year ended:
December 29, 2013 ..................... $
December 30, 2012 .....................
January 1, 2012 ...........................
3,099 $
4,276
4,475
1,360 $
1,441
1,887
0 $
0
0
888 $
2,618
2,086
3,571
3,099
4,276
______________
(A) Includes changes in foreign currency exchange rates.
(B) Represents credits issued and adjustments to reflect actual exposure.
COLUMN A
BALANCE,
AT
BEGINNING
OF YEAR
COLUMN B
CHARGED
TO COSTS
AND
EXPENSES
(A)
COLUMN C
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
COLUMN D
DEDUCTIONS
(DESCRIBE)
(B)
COLUMN E
BALANCE,
AT END OF
YEAR
Warranty Reserves :
Year ended:
December 29, 2013 ..................... $
December 30, 2012 .....................
January 1, 2012 ..............................
______________
1,232 $
871
830
446 $
361
41
0 $
0
0
314 $
0
0
1,364
1,232
871
(A) Includes changes in foreign currency exchange rates.
(B) Represents costs applied against reserve and adjustments to reflect actual exposure.
COLUMN A
BALANCE,
AT
BEGINNING
OF YEAR
COLUMN B
CHARGED
TO COSTS
AND
EXPENSES
(A)
COLUMN C
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
COLUMN D
DEDUCTIONS
(DESCRIBE)
(B)
COLUMN E
BALANCE,
AT END OF
YEAR
Inventory Reserves :
Year ended:
December 29, 2013 ..................... $
December 30, 2012 .....................
January 1, 2012 ...........................
12,946 $
10,366
10,733
3,445 $
4,252 $
2,644
0 $
0
0
2,975 $
1,672
3,011
13,416
12,946
10,366
______________
(A) Includes changes in foreign currency exchange rates.
(B) Represents costs applied against reserve and adjustments to reflect actual exposure.
(All other Schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange
Commission are omitted because they are either not applicable or the required information is shown in the Company's
Consolidated Financial Statements or the Notes thereto.)
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 26, 2014
INTERFACE, INC.
By:/s/ DANIEL T. HENDRIX
Daniel T. Hendrix
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Daniel T. Hendrix as attorney-in-fact, with power of substitution, for him or her in any and all capacities, to sign
any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-
in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
/s/ DANIEL T. HENDRIX
Daniel T. Hendrix
Chairman of the Board, President, Chief
Executive Officer and Director (Principal Executive Officer)
/s/ PATRICK C. LYNCH
Patrick C. Lynch
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ JOHN P. BURKE
John P. Burke
/s/ EDWARD C. CALLAWAY
Edward C. Callaway
/s/ ANDREW B. COGAN
Andrew B. Cogan
Director
Director
Director
/s/ DIANNE DILLON-RIDGLEY
Dianne Dillon-Ridgley
Director
/s/ CARL I. GABLE
Carl I. Gable
/s/ JUNE M. HENTON
June M. Henton
Director
Director
/s/ CHRISTOPHER G. KENNEDY
Christopher G. Kennedy
Director
/s/ K. DAVID KOHLER
K. David Kohler
/s/ JAMES B. MILLER, JR.
James B. Miller, Jr.
/s/ HAROLD M. PAISNER
Harold M. Paisner
Director
Director
Director
93
Date
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
EXHIBIT INDEX
Exhibit
Number
21
23
24
31.1
31.2
32.1
32.2
Description of Exhibit
Subsidiaries of the Company.
Consent of BDO USA, LLP.
Power of Attorney.
Certification of Chief Executive Officer with respect to the Company’s Annual Report on Form
10-K for the fiscal year ended December 29, 2013.
Certification of Chief Financial Officer with respect to the Company’s Annual Report on Form 10-
K for the fiscal year ended December 29, 2013.
Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief
Executive Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 29, 2013.
Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of United States Code by Chief
Financial Officer with respect to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 29, 2013.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance Document (filed electronically herewith)
XBRL Taxonomy Extension Schema Document (filed electronically herewith)
XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith)
XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith)
XBRL Taxonomy Presentation Linkbase Document (filed electronically herewith)
XBRL Taxonomy Definition Linkbase Document (filed electronically herewith)
94
Dear Fellow Shareholders:
Interface experienced gradual, steady improvement during 2013,
I believe Interface is on solid footing for 2014, and I’m encouraged
with our Americas business hitting a record annual sales number and
about our prospects this year. Leading indicators as well as our business
offsetting modest sales declines in our Europe and Asia-Pacific regions.
in the U.S. have been moving in a positive direction, and project activity
Our performance in the U.S. greatly outpaced the rest of the commercial
within the architect and design community has been firming up. While
flooring market, although mixed macroeconomic conditions in Europe and
we expect the pace of economic recovery in the U.S. to remain gradual
the lingering effects of the 2012 fire at our Australia plant combined to
throughout the year, we believe we have upside to take market share
keep our overall growth in check. Despite these challenges in overseas
and outperform the rest of the industry. The outlook for Europe has
markets, our profit margins and earnings expanded to healthy levels.
brightened over the past six months, with evidence that its economic
downturn is mostly subsiding and our largest markets in the U.K., Holland
The biggest driver of growth in our Americas business was the
and Germany are recovering. In Australia, the overall market is expected
corporate office market, which was up 9% year-over-year, even though
to be soft, but we’re poised to regain market share, as delivery lead times
we’ve yet to see a true rebound in the segment. Contributions also came
and service levels improve with the ramp up of our new plant. The broader
from non-office segments and from emerging geographic markets in
challenges for our Asia-Pacific business will be rebalancing production
Latin and South America. In particular, we’re very pleased with the upward
among our three plants in the region, penetrating non-office market
trajectory of our business in the hospitality segment, where we have
segments, and leading in design and sustainability. Lastly, we expect to
enhanced our sales and marketing efforts with large branded customers
realize further margin expansion from improved manufacturing efficiencies
and are beginning to realize success.
and carefully controlled SG&A spending throughout the year.
At our residential carpet tile business FLOR, sales were up 32% for
This year also marks the 20-year anniversary of our founder Ray
the year and we opened three new FLOR stores, bringing our current
Anderson’s epiphany – his self-described “spear in the chest” moment
total to 21 stores. In the aggregate, our FLOR stores were profitable for
– when he realized that our future depends on our ability to achieve
the year, and same store sales improved 24%. Our marketing efforts have
sustainability. While we’ve made tremendous progress and led a sea
been focused on improving connections between our stores, catalogs
change in our industry since that time, we still have a ways to go and
and web presence, all aimed at enhancing the “omni-channel” customer
much to accomplish to reach this goal by the year 2020. We will
experience. While FLOR fell short of our goal of achieving profitability
continue to honor Ray’s legacy and tirelessly pursue his vision, and
during 2013, the balance between its growth and profitability is a delicate
we hope you will continue with us on the journey.
one, and we remain pleased with its overall performance and future prospects.
Yours very truly,
Daniel T. Hendrix
After several years of economic turmoil, Europe has begun to show
signs of life. The second half of 2013, in particular, shaped up nicely for
our business. Project pipeline activity and orders began picking up in
the third quarter, and this momentum continued into the fourth quarter,
when we logged our highest level of orders in the past five years. Most
of the improvement is coming in our primary markets of the U.K., Holland
and Germany, while conditions in Southern Europe remain soft. We’re
encouraged by the positive trends in Europe and we believe our business
in the region is poised for further recovery.
In Asia-Pacific, our sales declined 3% for the year, primarily due to
the negative impacts from the previous year’s fire at our Australia plant.
While we were successful adapting our supply chain and servicing the
Australia market from our other plants worldwide, the resulting extended
delivery lead times and inefficiencies disrupted our customer service
capabilities in the region. Outside of Australia, however, our Asia-Pacific
business was strong as sales and operating income in Southeast Asia and
China improved significantly.
Two other recent developments in our Asia-Pacific business are worth
noting. First, we reached a final settlement with our insurance company
regarding the Australia fire, which resulted in a gain during 2013. Second,
and more importantly, we commenced operations at our new state of the
art manufacturing facility located near Sydney, Australia during the first
week of January 2014, which will significantly improve our service levels
in the region going forward.
In 2013, we made great strides in our mission of becoming a sustainable
enterprise – which we refer to as Mission Zero®. We launched the Net
Effect™ Collection of carpet tile products (one of which is featured on the
cover of this report) with yarn that is partly made from recycled fishing
nets collected by communities in the Philippines through our Net-Works™
project. This program is a big step in redesigning our supply chain from
a linear take-make-waste process toward a closed loop system, and it
advances our ultimate goal of becoming a restorative enterprise. Our plant
in Europe reached a significant milestone, as it now uses 100% renewable
energy from a combination of bio-gas and green electricity, with almost
no water used or waste sent to a landfill. In addition, we created new
programs to strengthen employee connections to our sustainability goals,
holding our first ever Mission Zero week celebrations at several locations
worldwide, with activities that included legacy projects, biomimicry training
workshops, enhanced communications and employee recognition programs.
Board of Directors
Daniel T. Hendrix
Chairman of the Board, President and
Chief Executive Officer
John P. Burke
Chief Executive Officer
Trek Bicycle Corporation
Edward C. Callaway
Chairman and Chief Executive Officer
Ida Cason Callaway Foundation
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Andrew B. Cogan
Chief Executive Officer
Knoll, Inc.
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Carl I. Gable
Private Investor
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Dianne Dillon-Ridgley
U.N. Representative for Center for
International Environmental Law
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Christopher G. Kennedy
Chairman
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Joseph P. Kennedy Enterprises, Inc.
Dr. June M. Henton
Dean of the College of Human Sciences
Auburn University
K. David Kohler
President and Chief Operating Officer
Kohler Co.
James B. Miller, Jr.
Chairman and Chief Executive Officer
Fidelity Southern Corporation
Harold M. Paisner
Senior Partner
Berwin Leighton Paisner, LLP
u Lead Independent Director
Executive Committee Member
Audit Committee Member
Compensation Committee Member
Nominating & Governance Committee Member
Executive Officers
Daniel T. Hendrix
President and
Chief Executive Officer
Robert A. Coombs
Senior Vice President
(Asia-Pacific)
Patrick C. Lynch
Senior Vice President and
Chief Financial Officer
Lindsey K. Parnell
Senior Vice President
(Europe)
Shareholder Information
Form 10-K
A copy of the Company’s Annual Report
on Form 10-K, filed each year with the
Securities and Exchange Commission, may
be obtained by shareholders without charge
by writing to:
Mr. Patrick C. Lynch
Chief Financial Officer
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
Annual Meeting
The annual meeting of shareholders will be
at 3:00 pm EDT on May 12, 2014 at:
The Vinings Club
2859 Paces Ferry Road
Atlanta, Georgia 30339
Transfer Agent and Dividend
Disbursing Agent
Computershare
211 Quality Circle, Suite 210
College Station, Texas 77845
1 800 254 5196 (U.S. & Canada)
1 781 575 2879 (Foreign)
Number of Shareholders of Record
at March 7, 2014: 680
John R. Wells
Senior Vice President
(Americas)
Raymond S. Willoch
Senior Vice President
(Administration),
General Counsel and Secretary
Jo Ann Herold
Vice President and
Chief Marketing Officer
Robert Boogaard
Interim Division President
(Europe)
Change of Address
Please direct all changes of address
or inquiries as to how your account
is listed to:
Computershare
211 Quality Circle, Suite 210
College Station, Texas 77845
1 800 254 5196 (U.S. & Canada)
1 781 575 2879 (Foreign)
Independent Registered
Public Accounting Firm
BDO USA, LLP
Atlanta, Georgia
Principal Legal Counsel
Kilpatrick Townsend & Stockton LLP
Atlanta, Georgia
Corporate Address
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
tel (770) 437 6800
fax (770) 803 6950
www.interface.com
Ticker Symbol
TILE (Nasdaq)
Forward-Looking Statements
This report contains statements which may constitute “forward-looking statements” under applicable securities laws, including statements regarding the
intent, belief, or current expectations of Interface, Inc. (the “Company”) and members of its management team, as well as the assumptions on which such
statements are based. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results
may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements are set forth in Item 1A (“Risk Factors”) of the Company’s Annual Report on Form 10-K
for the fiscal year ended December 29, 2013, and are 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.
Interface®, FLOR®, Mission Zero® and the Mission Zero logo are registered trademarks of Interface, Inc. and its subsidiaries. All rights are reserved.
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2859 Paces Ferry Road
Suite 2000
Atlanta, GA 30339
www.interface.com