2
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4
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o
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We’re seeing some relief on raw materials as a result of
lower oil and energy cost inputs. However, we expect to face a
significant currency headwind in 2015 as a result of the forecasted
declines of the Euro, Australian dollar and Canadian dollar,
which we believe could negate our expected raw material cost
savings. These negative currency effects began showing up in
2014, particularly in the fourth quarter, and likely will continue
throughout 2015. As I mentioned earlier, we do have an improved
capital structure, with our debt refinanced at a substantially lower
rate which will greatly reduce our interest expense for the year.
From a market standpoint, we’re very well positioned. Our
new product development has been outstanding, as evidenced
by the success of our Human Nature® (featured on the cover of
this report), Net Effect® and Urban Retreat® collections and plank
products. We have an excellent and seasoned sales force, and
we’re giving them the tools they need to win business and grow
market share. In addition, we are the leader by a wide margin
when it comes to sustainability, as evidenced by our recent
recognitions in the trade publications Floor Focus and Contract
magazine. In the Floor Focus survey of the top designers in the
U.S., we were once again named the #1 “Green Leader”, and we
were ranked #1 in Sustainability/Culture in Contract magazine’s
annual brand report. Sustainability is our passion and mission
at Interface, and it also serves as a key differentiator for us in
the marketplace.
We’re also very excited to have on board Jay Gould, our new
Executive Vice President and Chief Operating Officer. Jay came
to us from American Standard Brands, where he was CEO of
the 138-year-old kitchen and bath fixtures company. Before that,
Jay held several senior executive level positions at well-known
international companies such as Newell Rubbermaid, Campbell
Soup Company, The Coca-Cola Company and General Mills. Jay
has a strong track record of success and accountability, he’s hit
the ground running in his first few months at Interface, and I’m
confident that he’s going to accomplish great things for us.
In closing, I can say that business hasn’t felt this good in a
long while, and I’m excited about our prospects for both sales and
earnings growth in 2015.
Yours very truly,
Daniel T. Hendrix
Dear Fellow Shareholders,
For me, the most gratifying thing about 2014 was that we
finished the year with our best quarter since before the economic
downturn began in late 2008, with a strong head of steam going
into 2015. The most disappointing thing was the third quarter
that we had to endure to get there. Nevertheless, I’m proud of
how all of our Interface associates pulled together to overcome
the challenges we faced and quickly put our Company back on
the right track.
During the first half of the year, our business was shaping
up nicely, despite a January that saw unusually severe winter
weather and political turmoil in Eastern Europe that impacted
demand levels. Our Americas business was making steady
progress and our European business was having the breakout
growth we had long expected, particularly in our primary markets
of the U.K., Holland and Germany. We started up our new
manufacturing facility in Minto, Australia, which led to improved
service levels and the recapturing of market share, as revenues
in Australia approached the run rate we had enjoyed before
the 2012 plant fire.
While I don’t want to dwell on the third quarter, it’s worth
recapping in order to illustrate how we ended up in the much
stronger operating position that we’re in today. Softened order
intake at the beginning of the third quarter, combined with
disruptions in yarn supply and other market factors, resulted in
a manufacturing throughput shortfall that put pressure on our
gross margin, particularly in the Americas business. We reacted
quickly with cost cutting and other restructuring initiatives,
leading to a $12.4 million restructuring and asset impairment
charge. We also implemented a number of other measures to
address these challenges, such as re-engineering our products
and processes, improving manufacturing efficiencies and
reducing our raw material input costs.
These actions, along with an improving demand profile,
made for a speedy and robust recovery from the third quarter to
the fourth. Our gross margin rose as manufacturing throughput
increased and our other cost cutting and manufacturing efficiency
initiatives began to take hold, and we kept a tight rein on SG&A
expenses. The U.S., U.K. and Australia, which are our three
largest geographic markets, were particularly strong, as the
commercial market recovery continued to take shape in those
regions. Europe also saw solid sales growth in local currency,
with remarkable gains in Germany, but was impacted by a
currency translation headwind that I’ll discuss further below.
Along the way, we also refinanced our debt at a substantially
lower interest rate. At the end of the day, the fourth quarter was
our best quarter in the past six years, and we exited the year
with a much improved operating and capital structure.
The momentum we had at the end of 2014 was carried into
the current year and gives us a lot of optimism going forward.
Demand levels have remained strong and should translate into
an expanded top line. We are fairly comfortable with our level of
SG&A expenses as we begin this year, so our primary focus will
be on reducing our cost of sales and expanding gross margin.
In addition, we have a number of initiatives underway to further
improve efficiencies and help us better manage the increasing
complexity of our product offering, which is an important
competitive advantage for us.
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 28, 2014
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 27, 2014: $1,219,646,337
(64,565,714 shares valued at the closing sale price of $18.89 on June 27, 2014). See Item 12.
Number of shares outstanding of each of the registrant’s classes of Common Stock, as of February 13, 2015:
Class
Common Stock, $0.10 par value per share
Number of Shares
66,561,101
Portions of the Proxy Statement for the 2015 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. For the past
several 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%, 28% and 15%,
respectively, for fiscal year 2014.
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 more than twice the size of the
approximately $1 billion U.S. corporate office market segment. Our diversification strategy also targets the approximately
$9 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 44% and 56%, respectively, for 2014. Company-wide, our mix of
corporate office versus non-corporate office sales was 58% and 42%, respectively, in 2014. 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. Following the fire,
we utilized adequate production capacity at our other manufacturing facilities to meet customer demand typically serviced
from Picton, while we completed the build-out of a new manufacturing facility in Minto, Australia. The new facility in Minto
commenced operations in January 2014 and is now fully operational. 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, and was ranked number two in
2013 and 2014. 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, and our established brand names are leaders in the
industry. The 2014 Floor Focus survey ranked our Interface brand first or second in the survey categories of service, quality,
design, performance and value. In the North American residential market segment, our FLOR brand is known for its high
style carpet design squares that consumers assemble to create custom rugs, runners or wall-to-wall designs in the home. On
the international front, Interface is a well-recognized brand name in carpet tiles for commercial and institutional use. More
2
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 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 recent design innovations is the introduction of long
and narrow rectangular carpet tiles in the shape of planks, and even more narrow versions known as skinny planks. The use
of planks and skinny planks increases the design versatility of our carpet tile, as these products can create aesthetics (such as
a herringbone pattern) that are different from, or enhance, that of our traditional square carpet tiles.
The award-winning design firm David Oakey Designs has had a pivotal role in developing our plank and skinny plank
products, as well as many of our other innovative product designs, and our long-standing exclusive relationship with David
Oakey Designs remains vibrant and augments our internal research, development and design staff. As another example, David
Oakey Designs has developed products that are manufactured using state-of-the-art tufting technology which allows us to
pinpoint tufts of different colored yarns in virtually any arrangement within a carpet tile. These unique designs are best
exemplified by our Urban Retreat®, Net Effect® and Human Nature® collections, which are sold throughout our
international operations.
Historically, 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 a number of carpet tile products that are 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. Another more recent innovation is our 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 often make purchase decisions based on “green” factors. The
2014 Floor Focus survey, which named our Interface business the top among “Green Leaders” and gave us the top honors
for “Green Kudos”, found that 76% of the designers surveyed consider sustainability an added benefit and 19% consider it a
“make or break” issue when deciding what products to recommend or purchase.
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 more than 650 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
3
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.
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 U.S. residential carpet and rugs market segment. These
products were specifically created to bring high style modular carpet and rugs to the North American residential market. We
offer FLOR in three primary sales channels – catalogs, the Internet, and in our FLOR retail stores. We currently have 21
FLOR stores (20 in the U.S. and one in Canada), where customers have the opportunity to experience the modular carpet
concept and bring their carpet design ideas to life. The services offered by our FLOR stores also include in-store design
appointments, in-home design consultations and installation services. Through these sales channels, FLOR sales have grown
more than 200% from 2005 to 2014.
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. These emerging markets, such as China, India and Eastern Europe,
represent large and growing economies that are essentially new markets for modular carpet products. Others expanding
geographic markets, 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 geographic 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 plank, skinny plank, and 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
4
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 levels of free cash flow. We
will use our strong free cash flow generation capability to continue to repay debt, potentially repurchase shares, 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 some recent years, as our sales efforts and
results in the education market segment (which has a heavy buying season in the summer months) have increased, our third
quarter sales have occasionally eclipsed our 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 FLOR, utilizes carpet tiles cut in precise, dimensionally stable
squares (usually 50 cm x 50 cm) or rectangles (such as planks and skinny planks) to produce a floorcovering that combines
the appearance and texture of traditional soft floorcovering with the advantages of a modular carpet system. Our GlasBac®
5
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.
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.
6
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 and FLOR. Our exclusive consulting agreement with the award-winning, premier design firm David Oakey Designs
enabled us to introduce more than 15 new carpet designs in the United States in 2014 alone.
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 use 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, China and Australia.
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.
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
7
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, Thailand, China and Australia are certified under International Standards
Organization (ISO) Standard No. 14001.
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. 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. 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 80 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 $13.9 million, $12.6 million and $12.4 million in 2014, 2013, and 2012, 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.
8
More recently, this team developed our 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.
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, and this focus has led to several design breakthroughs such as our plank and skinny plank products, as well as our i2
product line. 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 15 new carpet designs in 2014 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.
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.
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. 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.
9
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.
A high point in our pursuit of Mission Zero is our partnership with the Zoological Society of London on a program called
Net-Works®. Together we are working with communities in the Philippines to collect discarded fishing nets that are damaging
a large coral reef, and diverting them to our yarn supplier where they are recycled into new carpet fiber. Net-Works provides
a source of income for members of these communities in the Philippines, while also cleaning up the beaches and waters
where they live and work. Our Net Effect Collection of carpet tile products, among others, contains yarn that is partly made
from the recycled fishing nets collected through the Net-Works program. 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.
Backlog
Our backlog of unshipped orders was approximately $124.3 million at February 15, 2015, compared with approximately
$117.4 million at February 16, 2014. 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 15, 2015 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, New Zealand,
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 28, 2014, we employed a total of 3,245 employees worldwide. Of such employees, 1,808 were clerical,
staff, sales, supervisory and management personnel and 1,437 were manufacturing personnel. We also utilized the services
of 178 temporary personnel as of December 28, 2014.
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
10
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.
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, Thailand, China and Australia are
certified under ISO Standard No. 14001.
Executive Officers of the Registrant
Our executive officers, their ages as of December 28, 2014, 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 ..............................
Jay D. Gould .....................................
Robert Boogaard ...............................
Robert A. Coombs .............................
Patrick C. Lynch ................................
John R. Wells ....................................
Raymond S. Willoch .........................
Jo Ann Herold ...................................
Sanjay Lall ........................................
Nigel Stansfield .................................
Age
60
55
46
56
45
53
56
49
54
47
Principal Position(s)
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Senior Vice President (Europe)
Senior Vice President (Asia-Pacific)
Senior Vice President and Chief Financial Officer
Senior Vice President (Americas)
Senior Vice President-Administration, General Counsel and Secretary
Vice President and Chief Marketing Officer
Vice President and Chief Information Officer
Vice President and Chief Innovations Officer
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. Gould joined us in January 2015. From 2012 to January 2015, Mr. Gould was the Chief Executive Officer of
American Standard Brands, a kitchen and bath products company. Prior to his employment with American Standard Brands,
Mr. Gould held senior executive roles at Newell Rubbermaid Inc., a global marketer of consumer and commercial products,
serving as President of its Home & Family business group from 2008 to 2012 and President of its Parenting Essentials
business group from 2006 to 2008. He also previously held executive level positions at The Campbell Soup Company (2002-
2006) and The Coca-Cola Company (1995-2002).
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 the former divisional president began a medical leave), and was appointed Senior Vice President of
Interface and President of the Europe division in February 2015.
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
11
back to Australia, retaining responsibility for our floorcovering operations in the Asia-Pacific region while another executive
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. 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 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. Lall joined us in May 2012 and serves as Vice President and Chief Information Officer. In this role, Mr. Lall is
responsible for the overall technology direction of Interface and for harmonizing and enhancing our information technology
resources globally. Prior to Interface, he served as Vice President and Chief Information Officer at SimplexGrinnell, a $2
billion business unit of Tyco Corporation, a leader in fire and safety products and monitoring services highly dependent on
technology. There he was responsible for activities across the enterprise related to technical infrastructure, architecture and
application management. Before that, he served as Vice President and Chief Information Officer at STERIS Corporation, a
global medical device manufacturer and marketer for infection prevention, contamination control and surgical and critical
care products, and previously he was Vice President and Chief Information Officer for Suntory Water Group, the second
largest U.S. manufacturer, marketer and distributor of bottled water.
Mr. Stansfield is our Vice President and Chief Innovations Officer, with global responsibility for developing and
implementing Interface’s strategy to have a more open and collaborative approach to innovation. Mr. Stansfield was the
Operations Manager for Firth Carpets (our former European broadloom operations) at the time it was acquired by us in 1997.
For two years following that acquisition, Mr. Stansfield served as Manufacturing Systems Manager, part of a global project
team that designed and implemented MRP manufacturing software systems at seven of our manufacturing plants. In 1999,
he returned to Firth Carpets as Operations Director. In 2002, he became a member of our European research and development
team focusing on our sustainability initiatives, and in 2004, he became Product and Innovations Director for all of our
European Operations. In 2010, he joined our European management team as Senior Vice President of Product, Design and
Innovation, before taking his current role in March 2012.
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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”.
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.
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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 2014, 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 2014 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 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 2019. 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
14
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.
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, borrowings under our Syndicated Credit Facility have variable interest rates, and
therefore our interest expenses will increase if the underlying market rates (upon which the variable interest rates are based)
increase. The terms of our Syndicated Credit Facility also 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
15
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.
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 Agreement 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
Floor Space
(Sq. Ft.)
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) ...........................................................................................................................................
275,946
80,986
539,545
209,337
338,086
259,356
245,420
121,515
250,000
142,500
(1) Leased.
16
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 that commenced 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.
17
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 13, 2015, we
had 656 holders of record of our Common Stock. We estimate that there are in excess 9,000 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.
High
Low
Dividends
Per Share
2015
First Quarter (through February 13, 2015) ......................... $
17.28 $
15.13 $
2014
Fourth Quarter ................................................................... $
Third Quarter .....................................................................
Second Quarter ..................................................................
First Quarter .......................................................................
2013
Fourth Quarter ................................................................... $
Third Quarter .....................................................................
Second Quarter ..................................................................
First Quarter .......................................................................
16.74 $
19.41
21.13
22.46
21.74 $
20.30
19.86
19.96
12.98 $
15.72
17.11
18.63
18.54 $
16.73
15.13
15.76
0.00
0.04
0.04
0.03
0.03
0.03
0.03
0.025
0.025
On February 18, 2015, our Board also declared a regular quarterly cash dividend of $0.04 per share, payable March 20,
2015 to shareholders of record as of March 6, 2015. 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, which
specifies 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.
18
Stock Performance
The following graph and table compare, for the five-year period ended December 28, 2014, 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 January 3, 2010 (the last day of the fiscal year 2009).
Interface, Inc.
NASDAQ Composite Index
Self-Determined Peer Group (14 Stocks)
Notes to Performance Graph
1/3/10
$100
$100
$100
1/2/11
$189
$118
$138
1/1/12
$140
$117
$133
12/30/12 12/29/13 12/28/14
$265
$192
$282
$206
$224
$313
$193
$134
$188
(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 January 3, 2010 (the last day of fiscal 2009).
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.
19
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 28, 2014:
Total
Number of
Shares
Purchased(2)
Average
Price
Paid
Per Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs(3)
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs(3)
Period(1)
September 29 – September 30, 2014 ....................
October 1 – October 31, 2014(2) ...........................
November 1 – November 30, 2014 ......................
December 1 – December 28, 2014(2) ....................
Total .....................................................................
0 $
216,446
284,078
1,426
501,950 $
0
14.54
15.87
15.08
15.30
0
215,922
284,078
0
500,000
0
284,078
0
0
0
(1) The monthly periods identified above correspond to the Company’s fiscal fourth quarter of 2014, which commenced
September 29, 2014 and ended December 28, 2014.
(2) Includes certain shares acquired by the Company from employees to satisfy income tax withholding obligations in
connection with the vesting of previous grants of restricted stock awards or the exercise of non-qualified stock options.
(3) On October 7, 2014, the Company announced a program to repurchase up to 500,000 shares of common stock per fiscal
year, commencing with the 2014 fiscal year.
20
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.
2014
Selected Financial Data(1)
2012
(in thousands, except per share data and ratios)
2011
2013
2010
Net sales .................................................. $
Cost of sales ............................................
Operating income(2) .................................
Income from continuing operations(3) .....
Income (loss) from discontinued
operations, net of tax ...........................
Net income .............................................
Income from continuing operations per
common share attributable to
Interface, Inc.
Basic .................................................... $
Diluted ................................................. $
Average Shares Outstanding
Basic ....................................................
Diluted .................................................
Cash dividends per common share .......... $
Property additions ...................................
Depreciation and amortization ................
Working capital ....................................... $
Total assets ..............................................
Total long-term debt ................................
Shareholders’ equity ................................
Current ratio(4) .........................................
1,003,903 $
663,876
70,295
24,808
959,989 $
618,880
95,630
48,255
932,020 $
614,841
64,648
22,899
953,045 $
618,303
85,700
38,270
862,314
549,184
93,107
10,297
0
24,808
0
48,255
(16,956)
5,943
451
38,721
(963)
8,283
0.37 $
0.37 $
0.73 $
0.73 $
0.35 $
0.35 $
0.59 $
0.58 $
0.14
0.14
66,389
66,448
0.14 $
38,922
34,675
240,881 $
774,914
263,338
306,639
2.7
66,194
66,297
0.11 $
91,851
32,605
257,918 $
796,335
273,826
340,787
3.0
65,767
65,900
0.09 $
42,428
29,175
273,213 $
789,367
275,000
295,702
2.7
65,291
65,486
0.08 $
38,050
35,317
271,625 $
772,272
294,507
281,039
2.8
63,794
64,262
0.04
31,715
27,927
238,937
755,433
294,428
248,872
2.4
(1)
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.
(2) The following charges and items are included in our operating income. In 2014, we recorded restructuring and asset
impairment charges of $12.4 million. 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.
(3)
Included in the 2014 income from continuing operations and in the 2014 net income is $9.2 million of pre-tax expenses
related to the premium paid to redeem senior note debt as well as $2.8 million related to the unamortized debt cost that
related to these notes at redemption. 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, and $55.6 million for 2010. Current liabilities
include liabilities of businesses held for sale of $8.3 million for 2011, and $7.9 million for 2010.
21
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 44% and 56%, respectively, for 2014 compared with
64% and 36%, respectively, in 2001. Company-wide, our mix of corporate office versus non-corporate office sales was 58%
and 42%, respectively, in 2014. We expect a further shift in the future as we continue to implement our market diversification
strategy.
During 2014, we had net sales of $1.0 billion, compared with $960.0 million in 2013. Operating income for 2014 was
$70.3 million, compared with $95.6 million for 2013. Net income for 2014 was $24.8 million, or $0.37 per diluted share,
compared with $48.3 million, or $0.73 per diluted share, in 2013.
Included in our results for 2014 are $12.4 million of restructuring and asset impairment charges, as discussed below. Also
included in our results for 2014 are $9.2 million of expenses for the premiums paid to redeem our 7.625% Senior Notes as
well as $2.8 million of expenses related to the unamortized debt costs for the retired notes at redemption. Included in our
results for 2013 is a $7.0 million gain related to the settlement of our insurance claim related to the fire at our Australian
manufacturing facility, 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 Australia fire, 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.
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. After the fire, we 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 was 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 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.
22
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 2014 and 2013. Our discontinued
operations had net sales of $57.0 million in 2012 (these results are included in our statements of operations as part of the
“Income (loss) from discontinued operations, net of tax”). 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. 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) $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
2014 Restructuring Plan
In the third quarter of 2014, we committed to a new restructuring plan in our continuing efforts to reduce costs across our
worldwide operations. In connection with this restructuring plan, we incurred a pre-tax restructuring and asset impairment
charge in the third quarter of 2014 in an amount of $12.4 million. The charge was comprised of severance expenses of
$9.7 million for a reduction of 100 employees, other related exit costs of $0.1 million, and a charge for impairment of assets
of $2.6 million. Approximately $10 million of the charge will result in cash expenditures, primarily severance expense.
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.
7.625% Senior Notes
In 2010, we completed a private offering of $275 million aggregate principal amount of 7.625% Senior Notes due 2018.
Interest on the 7.625% Senior Notes was payable semi-annually on June 1 and December 1 (the first payment was on June 1,
2011). 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. In November
2014, we redeemed $27.5 million aggregate principal amount of these notes at a price equal to 103% of the principal amount
of notes redeemed, plus accrued interest to the redemption date. In December 2014, we redeemed the remaining $220 million
of these notes at a price equal to 103.813% of their principal amount, 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.
23
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 51% in 2014, 52% in
2013, and 51% in 2012. 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, when the euro was strengthening relative to the U.S. dollar. During 2014, the euro remained relatively stable
versus the U.S. dollar and, as such (and despite the significant decline of the euro versus the U.S. dollar in the fourth quarter
of 2014), there was not a significant impact on net sales or operating income. During 2012, the dollar strengthened versus the
euro, having a negative 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:
Net sales .............................................................................................
Operating income ...............................................................................
$0.3
0.0
$8.8
0.7
2014
2013
(in millions)
2012
$(23.5)
(2.0)
The following table presents, as a percentage of net sales, certain items included in our Consolidated Statements of
Operations during the past three years:
2014
Fiscal Year
2013
2012
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 ........................................................................................
100.0%
66.1
33.9
25.6
1.2
0.0
7.0
2.3
1.2
3.6
1.1
2.5
0.0
2.5
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
Net Sales
Below we provide information regarding our net sales and analyze those results for each of the last three fiscal years.
Fiscal years 2014, 2013 and 2012 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
2014
2013
(in thousands)
2012
Percentage Change
2014
compared
with 2013
2013
compared
with 2012
Net Sales .......................................... $
1,003,903 $
959,989 $
932,020
4.6%
3.0%
24
Net Sales for 2014 Compared with 2013
For 2014, net sales increased $43.9 million (4.6%) versus 2013. This increase primarily occurred in our Americas and
Europe businesses, due largely to the continued economic recoveries in those regions. On a geographic basis, we experienced
sales increases in each of our major operating regions, with the Americas up 5%, Europe up 5% (6% in local currency) and
Asia-Pacific up 1% (5% in local currency). On a consolidated basis, fluctuations in currency had a small (approximately 1%)
negative impact on net sales, primarily in Australia, which is within our Asia-Pacific region.
In the Americas, the increase was due largely to the continued strength and recovery of the corporate office market
segment, where our sales grew 4%. We also had sales growth in all non-office market segments with the exception of
healthcare, which was down less than 1%. The most significant of the non-office segment increases were in the hospitality
(up 55%) and residential (up 15%) segments. The sales increase in the hospitality segment is due to our continued focus on
penetrating this segment through large hotel chains, with most success occurring in the U.S. The increase in the residential
segment primarily occurred in the multi-family residential channel, as our FLOR consumer business experienced essentially
even sales compared with 2013. The weighted average selling price per square yard in the Americas was up approximately
1% in 2014 versus 2013.
In Europe, the sales increase was due primarily to growth in the corporate office market (up 9% in U.S. Dollars, 11% in
local currency), mostly in Western Europe and particularly in the United Kingdom and Germany. The government segment
(down 10% in U.S. Dollars, 8% in local currency) experienced the most significant decrease in the region, mostly due to the
continued austerity measures that were in place during the year. The weighted average selling price per square yard in Europe
increased approximately 4% during 2014, a result of the continued economic recovery in the region as well as the premium
positioning of our products. Notably, the euro experienced a significant decline versus the U.S. dollar during the fourth
quarter of 2014, and as a result our sales in Europe for that quarterly period experienced an increase of 6% in local currency
but a 2% decrease as reported in U.S. dollars.
In Asia-Pacific, the sales increase occurred mostly in the corporate office (up 3%), healthcare (up over 100%) and
education (up 15%) market segments. However, these increases were almost entirely offset by declines in the government
(down 42%) and retail (down 20%) segments. On a consolidated basis, the translation of Australian dollars into U.S. dollars
had a negative impact on this region’s 2014 sales performance – in local currency, Australia sales were up more than 9%, but
up only 2% as reported in U.S. dollars. This currency impact was particularly acute in the fourth quarter of 2014, when the
increase in Australia dollars was approximately 20% but was approximately 11% as reported in U.S. dollars. Outside of
Australia, sales in the remainder of the Asia-Pacific region were essentially flat in 2014 versus 2013. The weighted average
selling price per square yard in Asia-Pacific in 2014 decreased approximately 1%, largely due to the impact of the decline of
the Australian dollar versus the U.S. dollar.
Net Sales for 2013 Compared with 2012
For 2013, net sales increased $28.0 million (3.0%) versus 2012. This increase was 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. The increase in the hospitality market segment (up 37%) was a direct result of our continued
sales and marketing efforts in this market over the prior 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
25
(essentially flat in local currency) versus the fourth quarter of 2012, demonstrating some stabilization in the market at the
close of the year
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.
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
Cost of Sales ............................................... $
Selling, General and Administrative
Expenses ..................................................
Total ........................................................... $
2014
2013
(in thousands)
2012
663,876 $
618,880 $
614,841
257,346
921,222 $
252,433
871,313 $
231,358
846,199
Percentage Change
2013
2014
compared
compared
with 2012
with 2013
7.3%
1.9%
5.7%
0.7%
9.1%
3.0%
For 2014, our cost of sales increased $45.0 million (7.3%) versus 2013. Fluctuations in currency exchange rates had a
slight negative impact (1%) year over year. On a per-unit basis, we did not experience any significant difference in the cost
of our raw materials in 2014 versus 2013. Most of the $45.0 million year over year increase in cost of sales was directly
attributable to additional raw materials costs (approximately $30 million) and labor costs (approximately $4 million)
associated with higher production volumes in 2014, particularly in the second half of the year. Of the remainder of the year
over year increase, the majority is related to both the increased fixed costs as well as the inefficiencies associated with the
start-up of our new and larger manufacturing facility in Australia which opened in January of 2014. These inefficiencies
occurred primarily in the first six months of 2014. As a result of these items, as a percentage of sales, cost of sales increased
to 66.1% in 2014, compared with 64.5% in 2013.
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 2014, our selling, general and administrative expenses increased $4.9 million (1.9%) versus 2013. Fluctuations in
currency exchange rates did not have a significant impact on the comparison. The largest driver of the increase was $5.6
million of higher selling expenses commensurate with the sales growth in each of our three operating regions. We also had
increased marketing expenses of approximately $1.2 million, split evenly between our European modular carpet business and
our FLOR consumer business. The increased marketing expense in Europe related to campaigns designed to further engage
the architect and design community, while the increase in our FLOR business related to web-based marketing efforts. These
increases were offset by a decline in administrative expenses of approximately $1.9 million, mostly due to lower incentive
compensation in 2014 versus 2013, as well as the impacts of our restructuring actions in the third quarter of 2014. The benefits
of the restructuring actions were particularly evident in the fourth quarter of 2014, when our selling, general and
administrative expenses, as a percentage of sales, declined to 23.8% versus 26.6% for the fourth quarter of 2013. For the full
26
year 2014, our selling, general and administrative expenses, as a percentage of sales, declined to 25.6%, versus 26.3% in
2013.
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 office 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.
Interest Expense
For 2014, interest expense decreased $3.0 million to $20.8 million, versus $23.8 million in 2013. The primary reasons for
the decrease were the redemption of $27.5 million of our 7.625% Senior Notes and the repayment at maturity of the remaining
$8.1 million of our 11.375% Senior Subordinated Notes, each in the fourth quarter of 2013. In addition, as described above,
we redeemed all of the remaining 7.625% Senior Notes in the fourth quarter of 2014, which also contributed to the interest
expense decline. Although we incurred borrowings under our Syndicated Credit Facility to refinance the notes that were
repaid and redeemed during 2013 and 2014, the borrowings under our Syndicated Credit Facility are at a significantly lower
interest rate (currently less than 2.5% annually) than the interest rates on the notes that were refinanced.
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.
Tax
Our effective tax rate in 2014 was 30.6%, compared with an effective tax rate of 30.1% in 2013. This relative consistency
in effective tax rate was primarily attributable to favorable tax effects related to foreign operations realized in both years. In
addition, there was less of an increase due to valuation allowances related to state net operating loss carryforwards in 2014,
which offset the decrease we realized in 2013 related to the favorable settlement of our Canada-U.S. bilateral advanced
pricing agreement. 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 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.
27
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
● 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 28, 2014, we had $54.9 million in cash. Approximately $15.9 million of this cash was located in the United
States, and the remaining $38.9 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 $38.9 million cash in foreign
jurisdictions, approximately $2.4 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 28, 2014, we had $263.3 million of borrowings and $3.3 million in letters of credit outstanding under
our Syndicated Credit Facility. Of those borrowings outstanding, $200 million were Term Loan A borrowings and $63.3
million were revolving loan borrowings. As of December 28, 2014, we could have incurred $183.4 million of additional
revolving loan borrowings under our Syndicated Credit Facility. In addition, we could have incurred the equivalent of $19.0
million of borrowings under our other credit facilities in place at other non-U.S. subsidiaries.
We have approximately $43.1 million in contractual cash obligations due by the end of fiscal year 2015, which includes,
among other things, pension cash contributions, interest payments on our debt and lease commitments. Based on current
interest rate and debt levels, we expect our aggregate interest expense for 2015 to be between $8 million and $10 million. We
estimate aggregate capital expenditures in 2015 to be between $40 million and $50 million, although we are not committed
to these amounts.
In 2010, we completed a private offering of $275 million aggregate principal amount of 7.625% Senior Notes. Interest
on the 7.625% Senior Notes was payable semi-annually on June 1 and December 1 (the first payment was made on June 1,
2011). In the fourth quarter of 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. In the
fourth quarter of 2014, we redeemed $27.5 million aggregate principal amount of the 7.625% Senior Notes at a price equal
to 103% of their principal amount, plus accrued interest, and redeemed the remaining $220 million aggregate principal
amount of these notes at a price equal to 103.813% of their principal amount, plus accrued interest. The redemption
transactions in the fourth quarter of 2014 required an aggregate of $266.1 million (including principal payments, premiums
and accrued interest), which was funded through a combination of term loan and revolving loan borrowings under the
Syndicated Credit Facility and cash on hand.
28
It is important for you to consider that we have a significant amount of indebtedness. Our Syndicated Credit Facility
matures in October 2019. 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.
Syndicated Credit Facility
We have a syndicated credit facility (the “Facility”) pursuant to which the lenders provide to us and certain of our
subsidiaries a multicurrency revolving credit facility and provide to us a term loan. The key features of the Facility are as
follows:
●
●
●
●
●
●
The Facility matures on October 3, 2019.
The Facility includes (i) a multicurrency revolving loan facility made available to the Company and our principal
subsidiaries in Europe and Australia not to exceed $240 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 $200 million of Term Loan A borrowing availability which could be used (and was in fact
used) to refinance our 7.625% Senior Notes due 2018.
The Facility provides for required amortization payments of the Term Loan A borrowing, as well as mandatory
prepayments of the Term Loan A borrowing (and any term loans made available pursuant to any future
multicurrency loan facility increase) from certain asset sales, casualty events and debt issuances, subject to certain
qualifications and exceptions as provided for therein.
Advances under the Facility are secured by a first-priority lien on substantially all of Interface, Inc.’s assets and
the assets of each of our 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.
● We have the option to increase the borrowing availability under the Facility, either for revolving loans or term
loans, by up to $150 million, 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.
Amortization Prepayments. We are required to make amortization payments of the Term Loan A borrowing. The
amortization payments are due on the last day of the calendar quarter, commencing with an initial amortization payment of
$2.5 million on December 31, 2015. The quarterly amortization payment amount increases to $3.75 million on December 31,
2016.
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;
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 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.
29
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.
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.
As of December 28, 2014 we had $200 million of Term Loan A borrowings and $63.3 million of revolving loan
borrowings outstanding under the Facility, and had $3.3 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 described above, all of our remaining 7.625% Senior Notes were redeemed in full in the fourth quarter of 2014.
Analysis of Cash Flows
Our primary sources of cash during 2014 were: (1) $200 million of Term Loan A borrowings and $48.9 million of
revolving loan borrowings under our Syndicated Credit Facility; (2) $15.4 million due to an increase in accounts payable and
accruals; and (3) $2.8 million due to a decrease in prepaid expenses and other current assets. Our primary uses of cash during
2014 were: (1) $256.8 million used to redeem our formerly outstanding 7.625% Senior Notes (comprised of $247.5 million
for principal payments, and $9.3 million for premium payments); (2) $29.3 million due to an increase in accounts receivable;
(3) $9.9 million used to repay a portion of our outstanding revolving loan borrowings under our Syndicated Credit Facility;
(4) $9.3 million used to pay dividends on our common stock; and (5) $7.7 million used to repurchase 500,000 shares of our
common stock.
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.
30
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.
We believe that our liquidity position will provide sufficient funds to meet our current commitments and other cash
requirements for the foreseeable future.
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 28, 2014.
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) .....................
263,338 $
66,840
27,960
11,241
108,866
0 $
18,969
5,701
8,679
9,749
28,750 $
24,379
11,402
2,422
19,921
234,588 $
11,747
10,857
140
21,107
0
11,745
0
0
58,089
Total Contractual Cash Obligations(5) ..... $
478,245 $
43,098 $
86,874 $
278,439 $
69,834
(1) Our capital lease obligations are insignificant.
(2)
Expected interest payments to be made in future periods reflect anticipated interest payments related to the
$200 million of Term Loan A borrowings outstanding and the $63.3 million of revolving loan borrowings
outstanding under our Syndicated Credit Facility as of December 28, 2014. 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 $27.3 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 (approximately 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 28, 2014 and December 29, 2013, we had approximately $100.1 million and $113.7 million of U.S. federal net
operating loss carryforwards, respectively. In addition, as of December 28, 2014 and December 29, 2013, we had state net
operating loss carryforwards of $209.0 million and $193.0 million, respectively. As of December 28, 2014 and December
29, 2013, we had approximately $4.0 million and $2.0 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
32
2014 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.
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 2014, 2013 and 2012, 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 28, 2014, no
impairment of goodwill was indicated. As of December 28, 2014, 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 28, 2014, and December 29, 2013, was $14.8 million and $13.4 million, respectively. To the extent that actual
obsolescence of our inventory differs from our estimate by 10%, our 2014 net income would be higher or lower by
approximately $1.0 million, on an after-tax basis.
33
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
1% increase in actuarial assumption for discount rate ....................................................................
1% decrease in actuarial assumption for discount rate ....................................................................
Domestic Salary Continuation Plan
1% increase in actuarial assumption for discount rate ....................................................................
1% decrease in actuarial assumption for discount rate ....................................................................
Increase (Decrease)
in Projected
Benefit Obligation
(in millions)
$(45.4)
$49.5
Increase (Decrease)
in Projected
Benefit Obligation
(in millions)
$(2.8)
$3.4
Environmental Remediation. We provide for environmental 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 28,
2014, 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 28, 2014, and December 29, 2013, was $7.9 million and $7.6 million,
respectively. To the extent the actual collectability of our accounts receivable differs from our estimates by 10%, our 2014
net income would be higher or lower by approximately $0.6 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 28, 2014, and December 29, 2013, was
$1.8 million and $1.4 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 2014 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.
34
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding recognition
of revenue from contracts with customers. In summary, the core principle of this standard is that an entity recognizes revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods
beginning after December 15, 2016, including interim periods within that reporting period, and early application is not
permitted. While we are currently reviewing this new standard, it is not expected that the adoption of this guidance will have
a material impact on our financial condition or results of operation.
In July 2013, the 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. We implemented this standard in the first quarter of 2014, which resulted in reductions of deferred tax
asset (long-term) and long-term other liabilities of approximately $21.8 million each. Pursuant to this standard, we also
adjusted our December 29, 2013 consolidated balance sheet, resulting in decreases in our deferred tax asset (long-term) and
long-term other liabilities of approximately $21.8 million each.
35
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 monitors interest rates and has developed and implemented a policy to maintain the percentage of
fixed and variable rate debt within certain parameters, subject to approval by our Board of Directors. 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 28,
2014, and December 29, 2013, 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, Thailand and Australia, and sell our
products in more than 100 countries. 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 28, 2014, we recognized a $28.4 million decrease in our foreign currency translation adjustment account
compared with December 29, 2013, because of the strengthening of the U.S. dollar against certain foreign currencies during
2014, particularly the Euro.
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 28,
2014. 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.
36
Interest Rate Risk
Our weighted average interest rate for our outstanding borrowings in 2014 and 2013 was 7.4% and 7.8%, respectively.
As discussed above, in the fourth quarter of 2014, we refinanced our outstanding 7.625% Senior Notes with a combination
of term loan and revolving loan borrowings under our Syndicated Credit Facility, plus cash on hand. The following table
summarizes our market risks associated with our debt obligations as of December 28, 2014. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by year of maturity. Variable interest rates presented
for variable-rate debt represent the weighted average interest rate on our Syndicated Credit Facility borrowings as of
December 28, 2014.
2015 2016
2017
2018
(in thousands)
2019
Thereafter Total
Fair
Value
Rate-Sensitive Liabilities
Long-term Debt:
Variable Rate ................................ $
Variable Interest Rate ...................
0 $ 13,750
--
2.2%
$15,000
$11,250
2.2%
2.2%
$223,338 $
2.2%
0 $263,338 $263,338
--
An increase in our effective interest rate of 1% would increase annual interest expense by approximately $2.6 million.
We will continue to review our exposure to interest rate fluctuations and evaluate whether we should manage such exposures
through interest rate swap transactions.
Foreign Currency Exchange Rate Risk
As of December 28, 2014, 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 $11.3 million or an increase in the fair value of our financial
instruments of $9.2 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.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
2014
FISCAL YEAR
2013
(in thousands, except per share data)
2012
Net sales ............................................................................................. $
Cost of sales .......................................................................................
Gross profit on sales ...........................................................................
1,003,903 $
663,876
340,027
Selling, general and administrative expenses .....................................
Restructuring and asset impairment charges ......................................
Expenses (gain) related to Australia fire ............................................
257,346
12,386
0
959,989 $
618,880
341,109
252,433
0
(6,954 )
932,020
614,841
317,179
231,358
19,425
1,748
Operating income ...............................................................................
70,295
95,630
64,648
Interest expense ..............................................................................
Debt retirement expenses ................................................................
Other expense ................................................................................
Income from continuing operations before tax expense .....................
Income tax expense ............................................................................
Income from continuing operations ...................................................
Loss from discontinued operations, net of tax ....................................
20,785
11,989
1,779
35,742
10,934
24,808
0
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)
Net income ......................................................................................... $
24,808 $
48,255 $
5,943
Income (loss) per share – basic
Continuing operations ..................................................................... $
Discontinued operations .................................................................
0.37 $
0.00
0.73 $
0.00
Net income per share – basic .............................................................. $
0.37 $
0.73 $
Income (loss) per share – diluted
Continuing operations ..................................................................... $
Discontinued operations .................................................................
0.37 $
0.00
0.73 $
0.00
Net income per share – diluted ........................................................... $
0.37 $
0.73 $
0.35
(0.26)
0.09
0.35
(0.26)
0.09
Basic weighted average common shares outstanding .........................
Diluted weighted average common shares outstanding .....................
66,389
66,448
66,194
66,297
65,767
65,900
See accompanying notes to consolidated financial statements.
38
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income ........................................................................................ $
Other comprehensive income (loss)
2014
FISCAL YEAR
2013
(in thousands)
24,808 $
48,255 $
Foreign currency translation adjustment .........................................
Pension liability adjustment ............................................................
(28,351)
(15,280)
(5,241 )
1,409
2012
5,943
8,539
771
Comprehensive income (loss) ............................................................ $
(18,823) $
44,423 $
15,253
See accompanying notes to consolidated financial statements.
39
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
2014
2013
(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 ......................................................................................................................
54,896 $
157,093
142,167
20,780
9,732
384,668
227,347
33,138
70,509
59,252
72,883
131,936
149,643
23,411
10,232
388,105
230,845
34,162
77,941
65,282
$
774,914 $
796,335
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable .......................................................................................................... $
Accrued expenses .........................................................................................................
Total current liabilities .....................................................................................................
Senior notes ......................................................................................................................
Long term debt .................................................................................................................
Deferred income taxes ......................................................................................................
Other.................................................................................................................................
49,464 $
94,323
143,787
0
263,338
11,002
50,148
52,515
77,672
130,187
247,500
26,326
15,049
36,486
Total liabilities .................................................................................................................
468,275
455,548
Commitments and contingencies
Shareholders’ equity
Preferred stock ..............................................................................................................
Common stock ..............................................................................................................
Additional paid-in capital .............................................................................................
Retained earnings ........................................................................................................
Accumulated other comprehensive loss – foreign currency translation .......................
Accumulated other comprehensive loss – pension liability ..........................................
0
6,597
368,603
39,737
(58,936 )
(49,362 )
0
6,631
374,597
24,226
(30,585)
(34,082)
Total shareholders’ equity ................................................................................................
306,639
340,787
See accompanying notes to consolidated financial statements.
$
774,914 $
796,335
40
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2014
FISCAL YEAR
2013
(in thousands)
2012
OPERATING ACTIVITIES:
Net income .................................................................................. $
Loss on discontinued operations, net of taxes .............................
Income from continuing operations ............................................
24,808 $
0
24,808
48,255 $
0
48,255
Adjustments to reconcile income to cash provided by operating
activities
Depreciation and amortization ....................................................
Stock compensation amortization expense..................................
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 used in investing activities .................................................
FINANCING ACTIVITIES:
Credit facility borrowing ............................................................
Credit facility repayments ...........................................................
Term loan borrowings .................................................................
Repurchase of common stock .....................................................
Dividends paid ............................................................................
Debt issuance costs .....................................................................
Redemption/repurchase of senior notes ......................................
Proceeds from issuance of common stock ..................................
Cash used in financing activities .................................................
30,677
3,998
137
(3,534)
0
(29,255)
1,343
2,785
15,421
46,380
(38,922)
2,415
0
0
(36,507)
48,850
(9,905)
200,000
(7,669)
(9,297)
(1,099)
(247,500)
408
(26,212)
24,670
7,935
253
9,349
25,973
3,478
(10,610 )
(25,354 )
(17,316 )
66,633
(91,851 )
3,074
0
23,024
(65,753 )
26,326
0
0
0
(7,283 )
(1,308 )
(35,610 )
1,881
(15,994 )
5,943
(16,956)
22,899
25,882
3,293
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
0
0
0
(5,925)
0
(11,477)
1,496
(15,906)
Net cash provided by (used in) operating, investing and
financing activities ...................................................................
Effect of exchange rate changes on cash .....................................
(16,339)
(1,648)
(15,114 )
(2,536 )
38,817
1,092
CASH AND CASH EQUIVALENTS:
Net increase (decrease) ...............................................................
Balance, beginning of year ..........................................................
(17,987)
72,883
(17,650 )
90,533
39,909
50,624
Balance, end of year .................................................................... $
54,896 $
72,883 $
90,533
See accompanying notes to consolidated financial statements.
41
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 28, 2014 and December 29, 2013, 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 $13.9 million, $12.6
million and $12.4 million for the years 2014, 2013 and 2012, respectively.
42
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 28, 2014 or December 29, 2013.
Cash payments for interest amounted to approximately $21.0 million, $22.9 million and $23.1 million for the years 2014,
2013 and 2012, respectively. Income tax payments amounted to approximately $7.5 million, $8.7 million and $10.0 million
for the years 2014, 2013 and 2012, respectively. During the years 2014, 2013 and 2012, the Company received income tax
refunds of $5.0 million, $1.4 million and $0.1 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.
43
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, $0.8 million and $0.7 million for the fiscal years 2014, 2013 and 2012, respectively. Depreciation expense amounted
to approximately $29.5 million, $23.9 million and $24.2 million for the years 2014, 2013 and 2012, 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 28, 2014 and
December 29, 2013, and cumulative impairment losses recognized were $212.6 million as of both December 28, 2014 and
December 29, 2013.
As of December 28, 2014 and December 29, 2013, the net carrying amount of goodwill was $70.5 million and
$77.9 million, respectively. Other intangible assets were $4.7 million and $3.8 million as of December 28, 2014, and
December 29, 2013, 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 2014, 2013 and 2012 was $0.3 million, $0.3 million and $0.4 million, respectively.
During the fourth quarters of 2014, 2013 and 2012, as of the last day of the third quarter of each year, 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
measurement date, and therefore no impairment was indicated during the impairment testing. As of December 28, 2014, 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 28, 2014 are as follows:
BALANCE
DECEMBER 29,
2013
ACQUISITIONS
IMPAIRMENT
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
BALANCE
DECEMBER 28,
2014
$
77,941 $
0 $
0 $
(7,432) $
70,509
44
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.
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 $1.8 million and $1.4 million as of
December 28, 2014 and December 29, 2013, 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 $(28.4)million,
($5.2 million) and $8.5 million for the years 2014, 2013 and 2012, 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.
45
Stock-Based Compensation
As of fiscal year 2014, the Company has stock-based employee compensation plans, which are described more fully in
the “Shareholders’ Equity” Note below.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model.
However, there were no stock options granted in 2014, 2013 or 2012.
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 28, 2014 and December 29, 2013, 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 28, 2014 and
December 29, 2013, 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 28, 2014, and December 29, 2013, was $7.9 million and
$7.6 million, respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform to current year financial statement presentation. For
further information, see the Note below entitled “Recent Accounting Pronouncements.”
46
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 “2014,” “2013,” and “2012,” mean the fiscal years ended December 28, 2014, December 29, 2013 and December 30, 2012,
respectively. Fiscal years 2014, 2013 and 2012 were each comprised of 52 weeks.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding recognition
of revenue from contracts with customers. In summary, the core principle of this standard is that an entity recognizes revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods
beginning after December 15, 2016, including interim periods within that reporting period, and early application is not
permitted. While the Company is currently reviewing this new standard, it is not expected that the adoption of this guidance
will have a material impact on our financial condition or results of operations.
In July 2013, the 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 Company implemented this standard in the first quarter of 2014, which resulted in reductions of
deferred tax asset (long-term) and long-term other liabilities of approximately $21.8 million each. Pursuant to this standard,
the Company also adjusted its December 29, 2013 consolidated balance sheet, resulting in decreases in its deferred tax asset
(long-term) and long-term other liabilities of approximately $21.8 million each.
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 28, 2014, and December 29, 2013, the allowance for bad debts
amounted to $7.9 million and $7.6 million, respectively, for all accounts receivable of the Company. Reserves for sales
returns and allowances amounted to $2.2 million and $3.6 million as of December 28, 2014, and December 29, 2013,
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 2014. The Company does have approximately $24.1 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. The Company redeemed the outstanding 7.625% Senior Notes in the fourth
quarter of 2014. As of December 28, 2014, the carrying value of the Company's borrowings under its Syndicated Credit
Facility approximates fair value as the Facility bears interest rates that are similar to existing market rates.
47
INVENTORIES
Inventories are summarized as follows:
Finished goods ................................................................................................. $
Work-in-process ...............................................................................................
Raw materials ...................................................................................................
2014
2013
(in thousands)
89,688 $
9,898
42,581
96,199
9,569
43,875
$
142,167 $
149,643
Reserves for inventory obsolescence amounted to $14.8 million and $13.4 million as of December 28, 2014, and
December 29, 2013, respectively, and have been netted against amounts presented above.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Land .................................................................................................................. $
Buildings ...........................................................................................................
Equipment .........................................................................................................
Accumulated depreciation .................................................................................
2014
2013
(in thousands)
15,862 $
124,476
347,965
488,303
(260,956)
17,290
123,032
351,307
491,629
(260,784)
$
227,347 $
230,845
The estimated cost to complete construction-in-progress for which the Company was committed at December 28, 2014,
was approximately $11.2 million.
ACCRUED EXPENSES
Accrued expenses are summarized as follows:
Compensation ................................................................................................... $
Interest ..............................................................................................................
Restructuring ....................................................................................................
Taxes ................................................................................................................
Accrued purchases ...........................................................................................
Other.................................................................................................................
2014
2013
(in thousands)
56,354 $
709
7,179
17,962
2,966
9,153
$
94,323 $
54,125
1,768
519
12,685
1,258
7,317
77,672
Other non-current liabilities include pension liability of $37.9 million and $20.1 million as of December 28, 2014, and
December 29, 2013, respectively (see the discussion below in the Note entitled “Employee Benefit Plans”).
48
BORROWINGS
Syndicated Credit Facility
The Company has a syndicated credit facility (the “Facility”) pursuant to which the lenders provide to the Company and
certain of its subsidiaries a multicurrency revolving credit facility and provide to the Company a term loan. The key features
of the Facility are as follows:
●
●
●
●
●
●
●
The Facility matures on October 3, 2019.
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 $240 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.
The Facility includes $200 million of Term Loan A borrowing availability which could be used (and was in fact
used) to refinance the Company’s 7.625% Senior Notes due 2018 (discussed below).
The Facility provides for required amortization payments of the Term Loan A borrowing, as well as mandatory
prepayments of the Term Loan A borrowing (and any term loans made available pursuant to any future
multicurrency loan facility increase) from certain asset sales, casualty events and debt issuances, subject to certain
qualifications and exceptions as provided for therein.
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 borrowing availability under the Facility, either for revolving loans
or term loans, by up to $150 million, 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.
Amortization Payments. The Company is required to make amortization payments of the Term Loan A borrowing. The
amortization payments are due on the last day of the calendar quarter, commencing with an initial amortization payment of
$2.5 million on December 31, 2015. The quarterly amortization payment amount increases to $3.75 million on December 31,
2016.
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; and
enter into sale and leaseback transactions.
49
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.
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.
As described below, in the fourth quarter of 2014, the Company redeemed $27.5 million in aggregate principal amount
of its 7.625% Senior Notes due 2018 at a price equal to 103% of their principal amount, plus accrued interest to the redemption
date of November 26, 2014, and redeemed the remaining $220 million in aggregate principal amount of the 7.625% Senior
Notes that had not previously been called for redemption at a price equal to 103.813% of their principal amount, plus accrued
interest to the redemption date of December 1, 2014. These redemptions transactions were funded through a combination of
term loan and revolving loan borrowings under the Facility and cash on hand.
As of December 28, 2014, the Company had outstanding $200 million of Term Loan A borrowing and $63.3 of revolving
loan borrowings outstanding under the Facility, and had $3.3 million in letters of credit outstanding under the Facility. As of
December 28, 2014, the weighted average interest rate on borrowings outstanding under the Facility was 2.2%.
The Company is currently in compliance with all covenants under the Facility and anticipates that it will remain in
compliance with the covenants for the foreseeable future.
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 was payable semi-annually on
June 1 and December 1 (the first payment was made on June 1, 2011). The 7.625% Senior Notes were guaranteed, fully,
unconditionally, and jointly and severally, on an unsecured senior basis by certain of the Company’s domestic subsidiaries.
The Company had the option to 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 had the
option to 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 became 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.
50
In November 2013, the Company 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. As discussed
above, on November 26, 2014, the Company redeemed $27.5 million in aggregate principal amount of its 7.625% Senior
Notes at a price equal to 103% of their principal amount, plus accrued interest, and on December 1, 2014, the Company
redeemed the remaining $220 million in aggregate principal amount of the 7.625% Senior Notes at a price equal to 103.813%
of their principal amount, plus accrued interest. The aggregate premiums paid in connection with the redemptions in 2014
was $9.3 million. The estimated fair value of the 7.625% Senior Notes as of December 29, 2013, based on then current market
prices, was $265.8 million.
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 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 $19.0 million of other lines of credit available at
interest rates ranging from 2% to 6%. As of December 28, 2014, and December 29, 2013, 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 $2.4 million and $5.0 million, as of December 28, 2014, and December 29, 2013,
respectively. The Company amortizes these costs over the life of the related debt. Expenses related to such costs for the years
2014, 2013 and 2012 amounted to $3.8 million, $2.0 million and $1.2 million, respectively. The expense for 2014 included
$2.8 million related to the writedown of debt costs associated with the refinancing actions discussed above. The expense for
the year 2013 included $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 2014, are as follows:
FISCAL YEAR
2015 ...................................................................................................................................................... $
2016 ......................................................................................................................................................
2017 ......................................................................................................................................................
2018 ......................................................................................................................................................
2019 ......................................................................................................................................................
Thereafter ..............................................................................................................................................
$
AMOUNT
(in thousands)
0
13,750
15,000
11,250
223,338
0
263,338
51
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 28, 2014, and
December 29, 2013, there were no shares of preferred stock issued.
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.
52
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 $0.14 per share during 2014, $0.11 per share during 2013, and $0.09 per share
during 2012, 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 syndicated credit
facility, which specifies 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.
On October 7, 2014, the Company announced a program to repurchase up to 500,000 shares of common stock per fiscal
year, commencing with the 2014 fiscal year. During 2014, the Company repurchased and retired 500,000 shares of common
stock. The average purchase price of these shares was $15.30 per share.
All treasury stock is accounted for using the cost method.
The following tables depict the activity in the accounts which make up shareholders equity for the years 2014, 2013 and
2012.
SHARES
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
PENSION
LIABILITY
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT
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,
65,484 $
0
6,548 $
0
361,400 $
0
(16,764) $
5,943
(36,262) $
0
(33,883)
0
160
573
0
0
16
58
0
0
2,030
7,564
0
0
(7,610)
0
0
(5,925)
(155)
(16)
3,293
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
771
0
0
0
0
0
0
0
0
8,539
0
2012 ..............................
66,062 $
6,606 $
366,677 $
(16,746) $
(35,491) $
(25,344)
53
SHARES
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
PENSION
LIABILITY
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT
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,
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
0
0
20
67
0
0
(62)
0
0
0
1,814
10,805
0
0
(10,872)
0
0
(7,283)
0
0
0
0
6,173
0
0
0
0
0
0
0
0
1,409
0
0
0
0
0
0
0
0
(5,241)
0
2013 ..................................
66,311 $
6,631 $
374,597 $
24,226 $
(34,082) $
(30,585)
SHARES
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
PENSION
LIABILITY
(in thousands)
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT
Balance, at December 29,
2013 ..................................
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 ...............................
Share repurchases..................
Pension liability adjustment ..
Foreign currency translation
adjustment .........................
Other ....................................
Balance, at December 28,
66,311 $
0
6,631 $
0
374,597 $
0
24,226 $
24,808
(34,082) $
0
(30,585)
0
55
489
0
0
(387)
(500)
0
0
0
5
49
0
0
(38)
(50)
0
0
0
381
10,361
0
0
(10,410)
0
0
(9,297)
1,293
(7,619)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(15,280)
0
0
0
0
0
0
0
0
0
(28,351)
0
2014 ..................................
65,968 $
6,597 $
368,603 $
39,737 $
(49,362) $
(58,936)
54
Stock Options
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 and $0.5 million in 2012. All
outstanding stock options vested prior to 2014 and therefore there were no stock option compensation expenses during 2014.
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.
The following table summarizes stock options outstanding as of December 28, 2014, as well as activity during the
previous fiscal year:
Outstanding at December 29, 2013 .................................................................................
Granted ............................................................................................................................
Exercised .........................................................................................................................
Forfeited or cancelled ......................................................................................................
Outstanding at December 28, 2014 (a) ............................................................................
Weighted
Average
Exercise Price
8.18
0
6.68
1.49
9.23
Shares
184,000 $
0
55,000
3,000
126,000 $
Exercisable at December 28, 2014 (b) ............................................................................
126,000 $
9.23
(a) At December 28, 2014, the weighted-average remaining contractual life of options outstanding was 5.0 years.
(b) At December 28, 2014, the weighted-average remaining contractual life of options exercisable was 5.0 years.
At December 28, 2014, the aggregate intrinsic values of in-the-money options outstanding and options exercisable were
$0.9 million and $0.9 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 2014, 2013 and 2012 was $0.6 million, $1.9 million and $0.9 million,
respectively. The cash proceeds related to stock options exercised in 2014, 2013 and 2012 were $0.4 million, $1.9 million,
and $1.5 million, respectively.
55
The tax benefit recognized with respect to stock options during all presented years was not significant.
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
Number
Outstanding
at December
28, 2014
Options Exercisable
Weighted
Average
Exercise
Price
Number
Exercisable
at December
28, 2014
Weighted
Average
Exercise
Price
Range of Exercise Prices
$4.01 – $5.00 ...................................
$12.00 – $14.00 .................................
50,000
76,000
126,000
4.0
5.7
5.0
$
$
4.30
12.47
9.23
50,000
76,000
126,000
$
$
4.30
12.47
9.23
Restricted Stock Awards
During fiscal years 2014, 2013 and 2012, the Company granted restricted stock awards totaling 489,000, 670,000 and
573,000 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 $4.0 million, $7.9 million and $3.3 million for 2014,
2013 and 2012, 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 28, 2014, and during the previous fiscal year:
Outstanding at December 29, 2013 ..........................................................................
Granted .....................................................................................................................
Vested.......................................................................................................................
Forfeited or cancelled ...............................................................................................
Outstanding at December 28, 2014 ..........................................................................
Weighted
Average
Grant Date
Fair Value
15.62
21.28
16.20
17.14
17.12
Shares
1,707,500 $
489,000
565,500
240,000
1,391,000 $
As of December 28, 2014, the unrecognized total compensation cost related to unvested restricted stock was $9.3 million.
That cost is expected to be recognized by the end of 2020.
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 2014, 2013 and 2012 was $1.0 million,
$3.0 million, and $0.7 million, respectively.
56
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:
2014
Fiscal Year
2013
2012
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:
0.14 $
0.23
0.37 $
0.14 $
0.23
0.37 $
0.11 $
0.62
0.73 $
0.11 $
0.62
0.73 $
Basic earnings (loss) per share
Distributed earnings .......................................................................... $
Undistributed earnings ......................................................................
0.00 $
0.00
0.00 $
0.00
Diluted earnings (loss) per share
Distributed earnings .......................................................................... $
Undistributed earnings ......................................................................
0.00 $
0.00
0.00 $
0.00
Basic earnings per share ....................................................................... $
Diluted earnings per share ................................................................... $
0.37 $
0.37 $
0.73 $
0.73 $
0.09
0.26
0.35
0.09
0.26
0.35
0.00
(0.26)
0.00
(0.26)
0.09
0.09
The following table presents income from continuing operations and net income that was attributable to participating
securities:
Income from continuing operations ......................................................... $
Net income ..............................................................................................
0.5 $
0.5
1.2 $
1.2
0.7
0.2
2014
Fiscal Year
2013
(in millions)
2012
57
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
2013
(in thousands)
64,486
1,708
66,194
103
66,297
2014
64,998
1,391
66,389
59
66,448
2012
63,793
1,974
65,767
133
65,900
In 2012, approximately 191,000 outstanding stock options were not included in the determination of diluted EPS as their
impact would be anti-dilutive.
RESTRUCTURING CHARGES
2014 Restructuring Plan
In the third quarter of 2014, the Company committed to a new restructuring plan in its continuing efforts to reduce costs
across its worldwide operations. In connection with this restructuring plan, the Company incurred a pre-tax restructuring and
asset impairment charge in the third quarter of 2014 in an amount of $12.4 million. The charge was comprised of severance
expenses of $9.7 million for a reduction of 100 employees, other related exit costs of $0.1 million, and a charge for impairment
of assets of $2.6 million. Approximately $10 million of the charge will result in cash expenditures, primarily severance
expense.
A summary of these restructuring activities is presented below:
Total
Restructuring
Charge
Costs Incurred
in 2014
(In thousands)
Balance at
Dec. 28, 2014
Workforce Reduction ..................................................... $
Fixed Asset Impairment .................................................
Other Related Exit Costs ................................................
9,669 $
2,584
133
2,732 $
2,584
133
6,937
0
0
58
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 ..............................................................................
2014
FISCAL YEAR
2013
(in thousands)
2012
224 $
5,555
712
6,491
3,856
493
94
4,443
473 $
2,605
627
3,705
3,246
8,692
5,106
17,044
Income tax expense (benefit) is included in the accompanying consolidated statements of operations as follows:
$
10,934 $
20,749 $
(134)
5,319
602
5,787
1,928
17
(1,692)
253
6,040
2014
FISCAL YEAR
2013
(in thousands)
Continuing operations ...................................................... $
Income (loss) from discontinued operations ....................
10,934 $
0
20,749 $
0
$
10,934 $
20,749 $
Income from continuing operations before taxes on income consisted of the following:
2012
15,204
(9,164)
6,040
2014
FISCAL YEAR
2013
(in thousands)
2012
U.S. operations ............................................................... $
Foreign operations ..........................................................
10,345 $
25,397
21,292 $
47,712
27,332
10,771
$
35,742 $
69,004 $
38,103
Deferred income taxes for the years ended December 28, 2014, and December 29, 2013, 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 28, 2014, the Company had approximately $129 million in federal net operating loss carryforwards with
expiration dates through 2032, of which $28.9 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 $4.0 million in net operating losses, the majority
of which is 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 $209 million in state net operating loss
carryforwards relating to continuing operations with expiration dates through 2034. The Company had provided a valuation
allowance against $163.7 million of such losses, which the Company does not expect to utilize. In addition, the Company
59
has approximately $166.0 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:
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 not deemed to be
indefinitely reinvested ......................................
Basis difference of other assets and liabilities ......
ASSETS
2014
LIABILITIES
ASSETS
2013
LIABILITIES
0 $
0
0
28,463
(10,298)
2,751
21,190
7,816
3,152
(in thousands)
15,958 $
384
3,848
0
0
0
0
0
0
0 $
0
0
31,944
(9,577)
2,490
20,743
7,265
0
17,282
346
2,755
0
0
0
0
0
774
0
0
948
68
0
0
1,704
659
$
53,074 $
21,206 $
52,865 $
23,520
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
2014
2013
(in thousands)
9,732 $
33,138
(11,002)
31,868 $
10,232
34,162
(15,049)
29,345
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 28, 2014.
As of December 28, 2014 and December 29, 2013, non-current deferred tax assets were reduced by approximately $21.8
million of unrecognized tax benefits. For further discussion, see “Recent Accounting Pronouncements” in item 8 of this
Report.
60
The Company’s effective tax rate from continuing operations was 30.6%, 30.1% and 39.9% for fiscal years 2014, 2013
and 2012, 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 ............................................................................. $
2014
FISCAL YEAR
2013
(in thousands)
2012
12,510 $
24,151 $
13,336
57
570
491
(395)
362
(3,021)
468
0
0
0
(108)
10,934 $
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
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 28, 2014, approximately $261 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 $5.6 million would be payable upon remittance.
At December 28, 2014, the Company has provided for approximately $0.8 million in U.S. federal income taxes and
approximately $0.1 million in foreign withholding taxes on approximately $2.4 million of undistributed earnings from foreign
subsidiaries that are not deemed to be indefinitely reinvested outside of the U.S.
As of December 28, 2014 and December 29, 2013, the Company had $27.3 million and $27.4 million, respectively, of
unrecognized tax benefits. If the $27.3 million of unrecognized tax benefits as of December 28, 2014 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, $5.5 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 28, 2014, the Company had accrued interest and penalties of $1.2 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 2009 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 2004 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 include intercompany buy-sale distribution, contract manufacturing,
provision of management services, and licensing intangibles.
61
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 gross unrecognized tax benefits is as follows:
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 .................................................................. $
DISCONTINUED OPERATIONS
2014
FISCAL YEAR
2013
(in thousands)
2012
27,361 $
875
1,157
(697)
0
(919)
(476)
27,301 $
25,186 $
911
3,938
(9)
(1,928)
(397)
(340)
27,361 $
7,736
18,118
150
(519)
0
(300)
1
25,186
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. There were no sales or income (loss) on operations associated
with discontinued operations in 2014 or 2013.
Summary operating results for the discontinued operations are as follows:
2014
FISCAL YEAR
2013
(in thousands)
2012
Net sales ....................................................................................... $
Income (loss) on operations before taxes ....................................
Taxes on income (benefit) ............................................................
Income (loss) on operations, net of tax ........................................
0 $
0
0
0
0 $
0
0
0
57,017
(26,120)
(9,164)
(16,956)
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 28, 2014 or December 29, 2013.
62
COMMITMENTS AND CONTINGENCIES
The Company leases certain production, distribution and marketing facilities and equipment. At December 28, 2014,
aggregate minimum rent commitments under operating leases with initial or remaining terms of one year or more consisted
of the following:
FISCAL YEAR
2015 ...................................................................................................................................................... $
2016 ......................................................................................................................................................
2017 ......................................................................................................................................................
2018 ......................................................................................................................................................
2019 ......................................................................................................................................................
Thereafter ..............................................................................................................................................
AMOUNT
(in thousands)
18,969
13,394
10,985
7,068
4,679
11,745
Rental expense amounted to approximately $24.6 million, $24.5 million and $22.8 million, for the years 2014, 2013 and
2012, respectively. This excludes rental expenses of approximately $2.6 million for 2012 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 $2.7 million, $2.6 million and $2.4 million for the years 2014, 2013 and
2012, respectively, for continuing operations. No discretionary contributions were made in 2014, 2013 or 2012.
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 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 $24.5 million at December 28, 2014. The Company invests the deferrals in insurance
instruments with readily determinable cash surrender values.
63
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 $0.1 million,
$1.0 million and $0.8 million for the years 2014, 2013 and 2012, 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 28, 2014, for
the European plans, the Company had a net liability recorded of $14.7 million, an amount equal to their underfunded status,
and has recorded in Other Comprehensive Income an amount equal to $45.4 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
2014
2013
(in thousands)
251,181 $
705
10,563
(9,542)
41,631
294
(19,070)
243,649
804
9,610
(10,820)
2,312
331
5,295
Benefit obligation, end of year ......................................................................... $
275,762 $
251,181
FISCAL YEAR
2014
2013
(in thousands)
Change in plan assets
Plan assets, beginning of year ....................................................................... $
Actual return on assets ..................................................................................
Company contributions .................................................................................
Benefits paid .................................................................................................
Currency translation adjustment ...................................................................
253,761 $
29,280
5,815
(9,542)
(18,288)
241,027
12,761
5,195
(10,807)
5,585
Plan assets, end of year .................................................................................... $
261,026 $
253,761
Reconciliation to balance sheet
Funded status benefit asset/(liability) ........................................................... $
(14,736) $
Net amount recognized..................................................................................... $
(14,736) $
Amounts recognized in accumulated other comprehensive income (after tax)
Unrecognized actuarial loss ...................................................................... $
Unamortized prior service costs ................................................................
Total amount recognized ........................................................................... $
45,836 $
(423)
45,413 $
2,580
2,580
31,302
152
31,454
64
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 28, 2014, and December 29, 2013, 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 28, 2014, and December
29, 2013.
UK Plan
Projected Benefit Obligation ............................................................................ $
Accumulated Benefit Obligation ......................................................................
Plan Assets .......................................................................................................
Europe Plan
Projected Benefit Obligation ............................................................................ $
Accumulated Benefit Obligation ......................................................................
Plan Assets .......................................................................................................
2014
2013
(in thousands)
190,303 $
190,303
179,205
85,459 $
81,353
81,821
176,909
176,909
174,039
74,272
71,297
79,722
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 ........................................
2014
FISCAL YEAR
2013
(in thousands)
2012
705 $
10,563
(11,904)
19
648
804 $
9,610
(10,150)
89
684
505
10,212
(11,203)
86
1,189
Net periodic benefit cost .............................................................. $
31 $
1,037 $
789
For 2015, it is estimated that approximately $1.0 million of expenses related to the amortization of unrecognized items
will be included in the net periodic benefit cost. During 2014, other comprehensive income was impacted by approximately
$24.4 million comprised of actuarial loss of approximately $25.0 million and amortization of $0.6 million.
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
Discount rate .........................................................................
Rate of compensation ............................................................
2014
FISCAL YEAR
2013
2012
4.0%
4.2%
2.0%
3.2%
2.0%
4.0%
4.7%
2.0%
4.25%
2.0%
4.7%
5.7%
2.0%
4.0%
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.
65
The Company’s foreign defined benefit plans’ accumulated benefit obligations were in excess of the fair value of plan
assets. The projected benefit obligations, accumulated benefit obligations and fair value of these plans are as follows:
Projected benefit obligation ............................................................................. $
Accumulated benefit obligations ......................................................................
Fair value of plan assets ...................................................................................
FISCAL YEAR
2014
2013
(in thousands)
275,762 $
271,656
261,026
251,181
248,206
253,761
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 28, 2014, or December 29, 2013.
The Company’s actual weighted average asset allocations for 2014 and 2013, and the targeted asset allocation for 2015, of
the foreign defined benefit plans by asset category, are as follows:
2015
Target Allocation
FISCAL YEAR
2014
2013
Percentage of Plan Assets at Year End
Asset Category:
Equity Securities ............................................
Debt Securities ...............................................
Other .............................................................
55% - 65%
30% - 40%
0% - 5%
100%
63%
34%
3%
100%
65%
32%
3%
100%
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
Level 2
Level 3
Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
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.
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.
66
The following table sets forth by level within the fair value hierarchy the foreign defined benefit plans’ assets at fair value,
as of December 28, 2014 and December 29, 2013. 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 28, 2014
UK Plan
Europe Plan
(in thousands)
Total
Level 1 ........................................................................ $
Level 2 ........................................................................
Level 3 ........................................................................
Total ........................................................................... $
81,821 $
0
0
81,821 $
173,271 $
0
5,934
179,205 $
255,092
0
5,934
261,026
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
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 2014:
Balance of level 3 assets, beginning of year ....................................................................................... $
Interest cost ...........................................................................................................................................
Benefits paid .........................................................................................................................................
Actuarial loss .........................................................................................................................................
Translation adjustment ..........................................................................................................................
Ending Balance of level 3 assets ......................................................................................................... $
2014
(in thousands)
6,642
287
(918)
212
(289)
5,934
During 2015, the Company expects to contribute $5.1 million to the plan trust. It is anticipated that future benefit payments
for the foreign defined benefit plans will be as follows:
FISCAL YEAR
EXPECTED
PAYMENTS
(in thousands)
2015 .............................................................................................................................................. $
2016 ..............................................................................................................................................
2017 ..............................................................................................................................................
2018 ..............................................................................................................................................
2019 ..............................................................................................................................................
2020-2024 .....................................................................................................................................
8,902
9,021
9,206
9,664
9,749
48,585
67
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
2014
2013
(in thousands)
Change in benefit obligation
Benefit obligation, beginning of year ........................................................... $
Service cost ...................................................................................................
Interest cost ...................................................................................................
Benefits paid .................................................................................................
Actuarial loss (gain) ......................................................................................
20,947 $
500
1,071
(847)
2,345
Benefit obligation, end of year ..................................................................... $
24,016 $
21,923
534
997
(847)
(1,660)
20,947
The amounts recognized in the consolidated balance sheets are as follows:
Current liabilities .............................................................................................. $
Non-current liabilities ......................................................................................
$
2014
2013
(in thousands)
847 $
23,169
24,016 $
848
20,099
20,947
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.........................................................................
$
2014
2013
(in thousands)
3,949 $
0
0
3,949 $
2,614
0
14
2,628
The accumulated benefit obligation related to the SCP was $20.3 million and $17.6 million as of December 28, 2014, and
December 29, 2013, 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.
68
2014
2013
(in thousands, except for assumptions)
2012
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 ...........................................................
4.5%
4.0%
4.0%
4.0%
500 $
1,072
291
4.0 %
4.0 %
4.5 %
4.0 %
534 $
997
489
Net periodic benefit cost ................................................. $
1,863 $
2,020 $
4.75%
4.0%
4.0%
4.0%
452
1,014
316
1,782
The changes in other comprehensive income during 2014 related to this Plan were approximately $1.3 million, after tax,
primarily comprised of a net loss during the period of $1.3 million.
For 2015, the Company estimates that approximately $0.5 million of expenses related to the amortization of unrecognized
items will be included in net periodic benefit cost for the SCP.
During 2014, 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
EXPECTED
PAYMENTS
(in thousands)
2015 ..................................................................................................................................................... $
2016 .....................................................................................................................................................
2017 .....................................................................................................................................................
2018 .....................................................................................................................................................
2019 .....................................................................................................................................................
2020-2024 ............................................................................................................................................
847
847
847
847
847
9,504
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.
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
69
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, or since
that time, 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 (approximately 57% of net sales), Europe (approximately 28% of net sales) and Asia-Pacific (approximately
15% of net sales) 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 2014, 2013 and 2012 were approximately 51%, 52% and 55%, 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, 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:
SALES TO UNAFFILIATED CUSTOMERS(1)
United States .......................................................................... $
United Kingdom .....................................................................
Australia .................................................................................
Other foreign countries...........................................................
2014
FISCAL YEAR
2013
(in thousands)
2012
487,001 $
83,182
79,922
353,798
458,585 $
75,076
78,569
347,759
421,355
83,373
87,115
340,177
Net sales ................................................................................. $
1,003,903 $
959,989 $
932,020
LONG-LIVED ASSETS(2)
United States .......................................................................... $
United Kingdom .....................................................................
Netherlands ............................................................................
Australia .................................................................................
China ......................................................................................
Other foreign countries...........................................................
86,856 $
10,604
38,086
57,410
14,007
20,384
85,518
16,541
35,619
60,199
16,281
16,687
Total long-lived assets ............................................................ $
227,347 $
230,845
(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.
70
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.
FIRST
QUARTER
FISCAL YEAR 2014
THIRD
QUARTER(1)
SECOND
QUARTER
FOURTH
QUARTER(2)
Net sales ............................................................................... $
Gross profit .........................................................................
Net income (loss) .................................................................
(in thousands, except per share data)
252,191 $
83,595
(376)
260,624 $
90,385
13,071
218,992 $
74,686
4,025
272,096
91,361
8,088
Basic income (loss) per share ............................................... $
0.06 $
0.20 $
(0.01) $
0.12
Diluted income (loss) per share ............................................ $
0.06 $
0.20 $
(0.01) $
0.12
Share prices
High .................................................................................. $
Low ................................................................................... $
22.46 $
18.63 $
21.13 $
17.11 $
19.41 $
15.72 $
16.74
12.98
(1) Results for the third quarter of 2014 include restructuring and asset impairment charges of $12.4 million.
(2) Results for the fourth quarter of 2014 include debt retirement expenses of $12.0 million.
FIRST
QUARTER
FISCAL YEAR 2013
THIRD
QUARTER
SECOND
QUARTER
FOURTH
QUARTER(1)
Net sales ............................................................................... $
Gross profit .........................................................................
Net income ..........................................................................
(in thousands, except per share data)
254,448 $
91,753
14,957
243,483 $
86,233
10,965
210,369 $
71,252
6,997
Basic income per share ........................................................ $
0.11 $
0.17 $
0.23 $
Diluted income per share: .................................................... $
0.11 $
0.17 $
0.23 $
251,689
91,871
15,336
0.23
0.23
Share prices
High .................................................................................. $
Low ...................................................................................
19.96 $
15.76
19.86 $
15.13
20.30 $
16.73
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.
ITEMS RECLASSIFIED FROM OTHER COMPREHENSIVE INCOME
During 2014, 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 $1.0 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.
71
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. and Subsidiaries as of December 28, 2014
and December 29, 2013 and the related consolidated statements of operations and comprehensive income and cash flows for
each of the three years in the period ended December 28, 2014. In connection with our audits of the financial statements we
have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
and schedules 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 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 and schedules. 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 28, 2014 and December 29, 2013, and the results of its operations
and its cash flows for each of the three years in the period ended December 28, 2014, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth therein.
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 28, 2014, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated February 25, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Atlanta, Georgia
February 25, 2015
72
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 28, 2014, based
on criteria established in Internal Control – Integrated Framework (2013) 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 28, 2014, 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 28, 2014 and December 29, 2013, and the
related consolidated statements of operations and comprehensive income, and cash flows for each of the three years in the
period ended December 28, 2014 and our report dated February 25, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Atlanta, Georgia
February 25, 2015
73
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 28, 2014 based
on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal
Control – Integrated Framework (2013).” Based on that assessment, management concluded that, as of December 28, 2014,
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 2015 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 2014 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.
74
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 2015 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 2014 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 2015 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 2014
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 2015 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 2014 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
2015 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 2014 fiscal year, is incorporated herein by reference.
75
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 28, 2014, December
29, 2013 and December 30, 2012.
Consolidated Balance Sheets — December 28, 2014 and December 29, 2013.
Consolidated Statements of Cash Flows — fiscal years ended December 28, 2014, December 29, 2013 and December 30,
2012.
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
76
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).
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 19, 2014 (included as Exhibit 99.1 to the
Company’s current report on Form 8-K filed on February 24, 2014, previously filed with the Commission
and incorporated herein by reference).*
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).*
77
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 — Employment and Change in Control Agreement of Jay D. Gould dated January 9, 2015 (included as Exhibit
99.2 to the Company’s current report on Form 8-K filed on January 13, 2015, previously filed with the
Commission and incorporated herein by reference).*
10.11 — 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).*
10.12 — 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).*
10.13 — 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, 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).*
10.14 — 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).*
10.15 — 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 29, 2013 (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).*
10.16 — 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); and First Amendment thereto, dated as of October 3, 2014 (included as
Exhibit 99.1 to the Company’s current report on Form 8-K filed on October 7, 2014, previously filed with
the Commission and incorporated herein by reference).
10.17 — 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).
10.18 — Employment Contract of Robert Boogaard dated August 19, 2011.*
21
23
24
31.1 — Certification of Chief Executive Officer with respect to the Company’s Annual Report on Form 10-K for the
— Subsidiaries of the Company.
— Consent of BDO USA, LLP.
— Power of Attorney (see signature page of this Report).
fiscal year ended December 28, 2014.
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 28, 2014.
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 28,
2014.
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 28,
2014.
78
101.INS — XBRL Instance Document
101.SCH — XBRL Taxonomy Extension Schema Document
101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB — XBRL Taxonomy Extension Label Linkbase Document
101.PRE — XBRL Taxonomy Presentation Linkbase Document
101.DEF — XBRL Taxonomy Definition Linkbase Document
* Management contract or compensatory plan or agreement required to be filed pursuant to Item 15(b) of this Report.
79
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, dated February 25, 2015, 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 25, 2015
80
INTERFACE, INC. AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D
COLUMN E
BALANCE,
AT
BEGINNING
OF YEAR
CHARGED
TO COSTS
AND
EXPENSES
(A)
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
DEDUCTIONS
(DESCRIBE)
(B)
BALANCE,
AT END OF
YEAR
Allowance for Doubtful Accounts:
Year Ended:
December 28, 2014 .................................................. $
December 29, 2013 ..................................................
December 30, 2012 ..................................................
7,646 $
8,818
8,920
(730) $
253
1,338
0 $
0
0
1,020 $
1,425
1,440
7,936
7,646
8,818
(A) Includes changes in foreign currency exchange rates.
(B) Write off of bad debt, and recovering of previously provided for amounts.
COLUMN A COLUMN B
CHARGED
TO COSTS
AND
EXPENSES
(A)
BALANCE,
AT
BEGINNING
OF YEAR
COLUMN C
COLUMN D COLUMN E
CHARGED TO
OTHER
ACCOUNTS(B)
(in thousands)
DEDUCTIONS
(DESCRIBE)
(C)
BALANCE,
AT END OF
YEAR
Restructuring Reserve:
Year Ended:
December 28, 2014 ................................................. $
December 29, 2013 .................................................
December 30, 2012 .................................................
519 $
4,350
4,112
9,315 $
0
18,927
2,717 $
0
9,364
5,372 $
3,831
9,325
7,179
519
4,350
(A) Includes changes in foreign currency exchange rates.
(B) Reduction of asset carrying value.
(C) Cash payments.
81
COLUMN A COLUMN B COLUMN C COLUMN D
COLUMN E
BALANCE,
AT
BEGINNING
OF YEAR
CHARGED
TO COSTS
AND
EXPENSES
(A)
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
DEDUCTIONS
(DESCRIBE) (B)
BALANCE,
AT END OF
YEAR
Reserves for Sales Returns and Allowances:
Year ended:
December 28, 2014 .................................................. $
December 29, 2013 ..................................................
December 30, 2012 ..................................................
3,571 $
3,099
4,276
63 $
1,360
1,441
0 $
0
0
1,438 $
888
2,618
2,196
3,571
3,099
(A) Includes changes in foreign currency exchange rates.
(B) Represents credits issued and adjustments to reflect actual exposure.
COLUMN A COLUMN B COLUMN C COLUMN D
COLUMN E
BALANCE,
AT
BEGINNING
OF YEAR
CHARGED
TO COSTS
AND
EXPENSES
(A)
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
DEDUCTIONS
(DESCRIBE)
(B)
BALANCE,
AT END OF
YEAR
Warranty Reserves :
Year ended:
December 28, 2014 .................................................. $
December 29, 2013 ..................................................
December 30, 2012 ..................................................
1,364 $
1,232
871
394 $
446
361
0 $
0
0
0 $
314
0
1,758
1,364
1,232
(A) Includes changes in foreign currency exchange rates.
(B) Represents costs applied against reserve and adjustments to reflect actual exposure.
COLUMN A COLUMN B COLUMN C COLUMN D
COLUMN E
BALANCE,
AT
BEGINNING
OF YEAR
CHARGED
TO COSTS
AND
EXPENSES
(A)
CHARGED
TO OTHER
ACCOUNTS
(in thousands)
DEDUCTIONS
(DESCRIBE)
(B)
BALANCE,
AT END OF
YEAR
Inventory Reserves :
Year ended:
December 28, 2014 .................................................. $
December 29, 2013 ..................................................
December 30, 2012 ..................................................
13,416 $
12,946
10,366
4,819 $
3,445
4,252
0 $
0
0
3,451 $
2,975
1,672
14,784
13,416
12,946
(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.)
82
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 25, 2015
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
Date
/s/ DANIEL T. HENDRIX
Daniel T. Hendrix
Chairman of the Board, President, Chief
Executive Officer and Director (Principal Executive Officer)
February 25, 2015
/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
Director
/s/ EDWARD C. CALLAWAY
Edward C. Callaway
Director
/s/ ANDREW B. COGAN
Andrew B. Cogan
/s/ CARL I. GABLE
Carl I. Gable
/s/ JUNE M. HENTON
June M. Henton
Director
Director
Director
/s/ CHRISTOPHER G. KENNEDY Director
Christopher G. Kennedy
/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
83
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
February 25, 2015
EXHIBIT INDEX
Description of Exhibit
Employment Contract of Robert Boogaard dated August 19, 2011.
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 28, 2014.
Certification of Chief Financial Officer with respect to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2014.
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 28,
2014.
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 28,
2014.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
Exhibit
Number
10.18
21
23
24
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
84
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
Andrew B. Cogan
Chief Executive Officer
Knoll, Inc.
Carl I. Gable
Private Investor
Dr. June M. Henton
Dean of the College of Human Sciences
Auburn University
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
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
Jay D. Gould
Executive Vice President and
Chief Operating Officer
Robert Boogaard
Senior Vice President
(Europe)
Robert A. Coombs
Senior Vice President
(Asia-Pacific)
Patrick C. Lynch
Senior Vice President and
Chief Financial Officer
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
Sanjay Lall
Vice President and
Chief Information Officer
Nigel Stansfield
Vice President and
Chief Innovations Officer
Annual Meeting
The annual meeting of shareholders will be at
3:00 pm EDT on May19, 2015 at:
Overlook III Conference Center
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 13, 2015: 658
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
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 Lynch
Chief Financial Officer
Interface, Inc.
2859 Paces Ferry Road, Suite 2000
Atlanta, Georgia 30339
Corporate Address
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
tel (770) 437 6800
fax (770) 319 6270
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 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 28, 2014, 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®, Human Nature®, Net Effect®, Urban Retreat®, Mission Zero® and the Mission Zero logo are registered trademarks of Interface, Inc. and
its subsidiaries. All rights are reserved.
2859 Paces Ferry Road
Suite 2000
Atlanta, GA 30339
www.interface.com