Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Interface, Inc. 81 461K
2: EX-4.5 Indenture 136 599K
3: EX-4.6 Registrations Rights Agreement 17 89K
6: EX-10.27 Fourth Amendment to Receivables Transfer Agreement 7 24K
7: EX-10.28 Fifth Amendment to Receivables Transfer Agreement 7 23K
8: EX-10.33 First Amendment to Receivables Sale Agreement 6 18K
9: EX-10.34 Second Amendment to Receivables Sale Agreement 5 17K
4: EX-10.4 Interface, Inc. Nonqualified Savings Plan 30 121K
10: EX-10.40 Limited Waiver and Fifth Amendment to Receivables 7 23K
11: EX-10.41 Sixth Amendment to Receivables Purchase Agreement 6 21K
12: EX-10.42 Seventh Amendment to Receivables Purchase Agreemen 6 21K
13: EX-10.43 Eighth Amendment to Receivables Purchase Agreement 12 28K
14: EX-10.44 Omnibus Amendment to Receivables Transfer Agreemen 7 23K
5: EX-10.6 Fourth Amended and Restated Credit Agreement 134 524K
15: EX-21 Subsidiaries of the Company. 2 13K
16: EX-23 Consent of Bdo Seidman, LLP 1 9K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 30, 2001
COMMISSION FILE NO.: 0-12016
INTERFACE, INC.
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(Exact name of registrant as specified in its charter)
[Download Table]
GEORGIA 58-1451243
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(State of incorporation) (I.R.S. Employer Identification No.)
2859 PACES FERRY ROAD
SUITE 2000
ATLANTA, GEORGIA
--------------------------------- 30339
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(770) 437-6800
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $0.10 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
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. [X]
Aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of March 20, 2002 (assuming conversion of
Class B Common Stock into Class A Common Stock): $277,846,692 (45,925,073 shares
valued at the last sales price of $6.05 on March 20, 2002). See Item 12.
Number of shares outstanding of each of the registrant's classes of Common
Stock, as of March 20, 2002:
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CLASS NUMBER OF SHARES
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Class A Common Stock,
$0.10 par value per share................................... 43,793,180
Class B Common Stock,
$0.10 par value per share................................... 7,031,347
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders
are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
We are a global manufacturer, marketer, installer and servicer of products
for the commercial and institutional interiors market with a strong presence in
the following market segments:
- Modular carpet;
- Broadloom carpet;
- Floorcovering services;
- Interior panel fabrics;
- Upholstery fabrics; and
- Raised/Access flooring.
With a market share of approximately 35%, we are the worldwide leader in the
modular carpet segment. Our Bentley(R) and Prince Street(R) brands are leaders
in the high quality, designer-oriented sector of the broadloom carpet segment.
We provide specialized carpet replacement, installation and maintenance services
through our Re:Source Americas service network. Our Fabrics Group includes the
leading U.S. manufacturer of panel fabrics for use in open plan office furniture
systems, with a market share in excess of 50%, and the leading U.S. manufacturer
of contract upholstery sold to office furniture manufacturers and contract
jobbers, with a U.S. contract upholstery market share of approximately 35%. Our
specialty products operations produce raised/access flooring systems (for which
we are the second largest U.S. manufacturer), antimicrobial additives, adhesives
and other specialty chemical compounds and products. These complementary product
offerings, together with an integrated marketing philosophy, enable Interface to
take a "total interior solutions" approach to serving the diverse needs of our
customers around the world.
We market products in over 100 countries around the world under such
established brand names as Interface(R), Heuga(R), Bentley and Prince Street in
modular carpet; Bentley and Prince Street in broadloom carpet; Guilford of
Maine(R), Stevens Linen(TM), Toltec(R), Intek(R), Chatham(R), Camborne(TM) and
Glenside(TM) in interior fabrics and upholstery products; Intersept(R) in
antimicrobials; and C-Tec(R), Atlantic(TM) and Intercell(R) in raised/access
flooring systems. We utilize an internal marketing and sales force of over 1,000
experienced personnel stationed at over 75 locations in over 30 countries, to
market our products and services in person to our customers. This sales force is
one of the largest sales forces in the global commercial floorcovering industry.
Our principal geographic markets are the Americas (69% of 2001 net sales),
Europe (27% of 2001 net sales) and Asia-Pacific (4% of 2001 net sales).
For 2001, we had net sales and net loss (including a nonrecurring pre-tax
restructuring charge of approximately $65.1 million) of $1.104 billion and $36.3
million, respectively. Net sales consisted of sales of floorcovering products
and related services ($833.8 million), interior fabrics sales ($209.9 million)
and raised/access flooring and other specialty product sales ($60.2 million),
accounting for 75.5%, 19.0% and 5.5% of total net sales, respectively.
OUR STRENGTHS
Our dominant market positions reflect our principal strengths, which
include:
Preeminent Brand Names with Reputation for Quality and Reliability. Our
products are known in the industry for their high quality and reliability. Our
preeminent brand names in carpets, interior fabrics and raised/access flooring
systems are leaders in the industry. In a 2000 survey of interior designers
published in the Floor Focus industry publication, an Interface company was
ranked first in each of the five survey categories of carpet design, quality,
value, service, and performance. In addition, an Interface company ranked first
and second in the category of "best overall business experience" for carpet
companies in this survey. On
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the international front, Heuga is one of the preeminent brand names in carpet
tiles for commercial and institutional use worldwide. Guilford of Maine, Chatham
and Camborne are leading brand names in their respective markets for interior
fabrics. Interface Architectural Resources' TecCrete(R) brand is a leading brand
in the raised/access flooring market.
Strong Free Cash Flow Generation. We have structured our principal
businesses to yield high contribution margins. As a result of our historical
investments in global manufacturing capabilities and mass customization
techniques and facilities, and our sustained initiatives to reduce costs and
enhance operating efficiencies throughout our supply and production chain, we
are positioned to derive substantially increased cash flows from operations. We
have the current capacity, without significant capital expenditures, to increase
production levels to handle higher demand for our products, which may result
from either or both of (i) improved economic conditions and (ii) the expansion
of our business in non-corporate segments that is being driven by the increasing
acceptance of modular products. The consolidation and integration of varied
operating, manufacturing and administrative functions, along with the workforce
reductions and other initiatives reflected in our 2000 and 2001 restructuring
charges, contribute to this strength. They are expected to yield future annual
savings of approximately $25 million. We are continuing additional phases of
these initiatives and implementing new ones to further enhance our cash flow
potential.
Innovative Product Design and Development Capabilities. Our product design
and development capabilities give us a significant competitive advantage. We
have an exclusive consulting contract with the leading design firm David Oakey
Designs, Inc. This relationship augments our internal research, development and
design staff. Since engaging Oakey Designs in 1994, we have introduced more than
135 new carpet designs in the U.S. and have enjoyed considerable success in
winning U.S. carpet industry design awards bestowed by the International
Interior Design Association (IIDA), particularly in the carpet tile division.
Oakey Designs' services have been extended to our international carpet
operations, and we expect to continue to introduce more new designs to our
international customers in the near future. We also have a consulting contract
with the design firm Suzanne Tick, Inc., which is affiliated with award-winning
carpet manufacturer Tuva Looms, Inc., to steward and design our Prince Street
brand broadloom carpets.
Low-Cost Global Manufacturing Operations. Our global manufacturing
capabilities are an important competitive advantage in serving the needs of
multinational corporate customers that require products and services at various
locations around the world. Global manufacturing locations enable us to compete
effectively with local producers in our international markets, while also giving
international customers more favorable delivery times and freight costs. Our
capital investment program to consolidate and modernize the yarn manufacturing
operations of our Fabrics Group has resulted in significant efficiencies and
cost savings, as well as the capability to produce new products and enter new
markets. In addition, these investments have allowed us to respond to a shift in
demand towards lighter-weight, less expensive fabrics by original equipment
manufacturer (OEM) panel fabric customers.
Established Customer and Design Community Relationships. We focus our
sales efforts at the design phase of commercial projects. Our dedicated sales
and marketing personnel, who number over 1,000 in over 30 countries worldwide,
cultivate relationships with the owners and users of the facilities involved in
the projects as well as with architects, engineers, interior designers and
contracting firms who are directly involved in specifying products and often
make or significantly influence purchasing decisions. In all of our sales
efforts, we emphasize our product design and styling capabilities. We also
emphasize our ability to provide creative, high-value solutions to our
customers' needs. Our marketing and sales personnel are also available as a
technical resource for our customers, both with respect to product maintenance
and service as well as design matters.
Experienced and Motivated Management and Sales Force. An important
component of our competitive position is the continued strengthening of our
management team and its commitment to developing and maintaining an enthusiastic
and accountable work force. We have a team of skilled and dedicated executives
to guide our continued growth, diversification, and management of our financial
position. Our executives and sales and marketing forces are also highly
motivated by incentive programs designed to promote performance in strategic
areas. In addition, we have made substantial investments in training and
educating our
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approximately 6,500 employees worldwide. In both 1998 and 1999, Fortune magazine
rated Interface as one of the top 100 employers in the U.S. on the strength of
our commitment to our employees. Fortune also has rated Interface one of the "10
Most Admired Companies" in our industry category.
BUSINESS STRATEGY AND PRINCIPAL INITIATIVES
Our corporate strategy is to continue the diversification and integration
of our business, on a sustainable basis, worldwide. We have achieved
diversification by both developing products internally and acquiring
complementary product lines and businesses in the commercial and institutional
interiors field. As usages and demand for modular carpet continue to increase in
all areas of the commercial market, we seek to leverage our dominant position in
the modular carpet segment to increase diversification. We are continuing to
integrate our business by identifying and developing additional synergies and
operating efficiencies among our products and global businesses. In implementing
this strategy, we are pursuing the following principal strategic initiatives:
Expand Markets for Modular Products. Our management believes that modular
carpet continues to take share away from other floorcovering products across
most markets. In response to such increased acceptance of and demand for modular
products, we are leveraging our position as the worldwide leader in the modular
carpet market, with a share of approximately 35%, to drive sales in all market
sectors. The growing use of open plan interiors and modern office arrangements
has encouraged the use of carpet tile generally. Our established global brands
for modular carpet are leaders with respect to design, quality, value and
performance. We have also produced a specially adapted version of our carpet
tile for healthcare facilities, and we will seek to use our mass customization
capabilities to develop and produce efficiently other innovative modular
products to address specialized customer needs in other non-corporate segments.
Increase Sales in Less Cyclical Market Segments. In both our
floorcoverings and fabrics businesses, we are focusing more of our marketing and
sales efforts on non-corporate segments in order to capture attractive market
share opportunities and also to reduce our future exposure to certain economic
cycles that affect the corporate segment more adversely. These other segments
include retail space, government institutions, schools, healthcare facilities,
tenant improvement space, hospitality centers and home office space. In order to
implement this strategy, we have:
- introduced specialized product offerings tailored to the unique demands
of these segments, including specific designs, functionalities and price
points;
- created a sales force dedicated to penetrating these segments at a high
level; and
- realigned incentives for our corporate segment sales force generally in
order to encourage their efforts to penetrate these other segments,
including paying higher commissions for sales in these segments relative
to the corporate segment.
De-leverage Our Balance Sheet. One of our objectives is to use the strong
free cash flow generation capability of our business to repay our existing debt
more rapidly and strengthen our financial position. Certain of our ongoing
initiatives, which have already reduced our operating costs structure, are
expected to yield future annual cost savings of approximately $25 million. Our
existing capacity to increase production levels without significant capital
expenditures will facilitate our generation of additional free cash flow when
demand for our products rises as a result of improved economic conditions
generally or expansions of our business from other strategic initiatives we have
implemented. We will continue our existing initiatives, and we expect to
implement new ones such as our supply chain enhancement program, to reduce costs
further and enhance free cash flow generation.
Maximize Global Marketing and Manufacturing Capabilities. We will continue
to use the complementary nature of our product lines to offer "total interior
solutions" to our customers worldwide to meet their diverse needs for products
and services. We combine our global marketing and manufacturing capabilities to
target multinational companies successfully and compete effectively in local
markets worldwide. We have a 12-person global accounts team with responsibility
for our largest multinational customers and prospects, and we have established a
web-based communications network to serve those multinational customers better.
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Advance Ecological Sustainability Programs. In 1995, we began a worldwide
war-on-waste initiative referred to internally as "QUEST". The war on waste is
part of our broader EcoSense initiative, which is our long-range program to
achieve greater resource efficiency and, ultimately, ecological
"sustainability" -- that is, the point at which Interface is no longer a net
"taker" from the earth -- with the goal of becoming the first "restorative"
company. One example of a product developed under this initiative is the line of
fabrics manufactured from recycled, recyclable or compostable materials under
the Terratex(R) brand. We believe that our pursuit of our goals under this
initiative provides a competitive advantage in marketing our products to an
increasing number of customers.
FLOORCOVERING PRODUCTS/SERVICES
PRODUCTS
Interface is the world's largest manufacturer and marketer of modular
carpet with a global market share of approximately 35%. Modular carpet includes
carpet tile and two-meter roll goods. We also manufacture and sell broadloom
carpet, which generally consists of tufted carpet sold primarily in twelve-foot
rolls, under the Bentley and Prince Street brands. Our broadloom operations
focus on the high quality, designer-oriented sector of the U.S. and U.K.
broadloom carpet markets. We also offer a vinyl hard flooring product in Europe
under the brand Scan-Lock(TM).
Modular Carpet. Marketed under the established leading global brands
Interface and Heuga, and more recently under the Bentley and Prince Street
brands, our modular carpet system utilizes carpet tiles cut in precise,
dimensionally stable squares (usually 50 square centimeters) or rectangles to
produce a floorcovering which combines the appearance and texture of broadloom
carpet with the advantages of a modular carpet system. According to a 2000
survey of 250 interior designers published in the Floor Focus industry
publication, our Interface brand was rated number one among modular and
broadloom brands for carpet design, quality, value and performance and was rated
second only to our own Bentley brand in service in the U.S.
The growing use of open plan interiors and modern office arrangements
utilizing demountable, movable partitions and modular furniture systems has
encouraged the use of carpet tile, as compared to other soft surface flooring
products. Our GlasBac(R) technology employs a unique, fiberglass-reinforced
polymeric composite backing that allows tile to be installed and remain flat on
the floor without the need for general application of adhesives or use of
fasteners. We also make carpet tiles with a GlasBacRe(TM) backing containing
post-industrial and/or post-consumer recycled materials.
Our carpet tile has become popular for a number of reasons. First, carpet
tile incorporating this reinforced backing may be easily removed and replaced,
permitting rearrangement of office partitions and modular furniture systems
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
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. Finally, modular carpet partners well
with our raised/access flooring which enables under-the-floor cable management
and air delivery systems. 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, and retail facilities. 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
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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.
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 sectors. We believe, however, that the
demand for two-meter roll goods is increasing generally within the commercial
and institutional interiors market and expect our U.S. sales of two-meter roll
goods to track any increases in demand in the future.
Broadloom Carpet. We maintain a significant share of the high-end,
designer-oriented broadloom carpet segment by combining innovative product
design and short production and delivery times with a marketing strategy aimed
at interior designers, architects and other specifiers. Our Bentley Mills
designs emphasize the dramatic use of color, while unique, multi-dimensional
textured carpets with a hand-tufted look are the hallmark of Prince Street's
broadloom products. We hired the design firm Suzanne Tick, Inc., affiliated with
award-winning carpet manufacturer Tuva Looms, Inc., to advance our Prince Street
brand broadloom carpets. The Prince Street and Bentley brands were rated among
the top brands for carpet design in the U.S., according to a 2000 survey of
interior designers published in the Floor Focus industry publication.
Resilient Textile Flooring. In 1999, we beta-tested Solenium(R) resilient
textile flooring, a new category of product which combines the functional and
aesthetic benefits of resilient flooring and carpet. Solenium is highly
stain-resistant and has carpet-like softness, but in appropriate applications is
as easy to maintain as vinyl flooring. Solenium is manufactured using one-third
less material and energy than carpet and is designed to be completely
recyclable. We believe Solenium fills an unmet need within healthcare, retail
and education markets and plan to re-launch the product, targeting those
markets, in 2002. We have also recently introduced Hopi(TM) resilient textile
flooring in addition to the Wabi(R) and Sabi(TM) brand floorings that we also
offer.
SERVICES
We provide commercial carpet installation services through the Re:Source(R)
service provider network. The network in the U.S. includes owned and affiliated
commercial floorcovering contractors strategically located in approximately 110
locations covering most of the major metropolitan areas of the United States. We
also offer these services through the largest single carpet distributor in
Australia. We have worked to strengthen our alliances with contractors in Europe
so that we may also offer turnkey services to our European carpet customers. The
network allows us to:
- monitor and enhance customer satisfaction throughout the product
ownership cycle;
- reduce our cost of selling by bolstering efforts of sales representatives
at the mill level with local contractor-level support;
- expand into new market segments;
- improve pricing for our products; and
- achieve efficiencies by augmenting administrative functions of
contractors.
The Re:Source Americas service network also provides carpet maintenance
services using our Re:Source Floor Care(TM) maintenance system. This system
includes a custom-engineered maintenance methodology and a line of cleaning
chemicals manufactured by Interface Americas Re:Source Technologies, Inc. In
Europe, we re-launched the European version of the maintenance program,
IMAGE(TM), in which we license selected independent service contractors to
provide carpet maintenance services.
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The Re:Source Americas service network also provides carpet replacement
services using its Renovisions(R) process. This process utilizes patented
lifting equipment and specialty tools to lift office equipment and modular
workstations in place, permitting the economical replacement of existing carpet
with virtually no disruption of the customer's business. Other proprietary
products facilitate the movement of file cabinets, office furniture, and even
complete workstations, avoiding the inefficiency and disruption associated with
unloading and dismantling these items.
Finally, the Re:Source Americas service network provides a channel for
delivery of a variety of additional services and products that we offer,
including furniture moving and installation, furniture refurbishment, project
management, maintenance, carpet reclamation and recycling through our
Re:Entry(R) reclamation system, adhesives manufactured by Re:Source
Technologies, specialty products manufactured by Pandel, Inc. and raised/access
flooring systems manufactured by Interface Architectural Resources, Inc. We have
worked diligently over the past several years to increase the operating
efficiencies of this network and believe that we are now able to take advantage
of the contractor infrastructure to our benefit.
MARKETING AND SALES
We 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. We emphasize sales to the commercial office segment, both new
construction and renovation, as well as to other segments, including retail
space, government institutions, schools, healthcare facilities, tenant
improvement space, hospitality centers and home office space. We intend to focus
more on these latter segments in the future in order to achieve a higher balance
of sales in those areas relative to the commercial office segment, which could
lessen the effects on us from certain economic cycles. Our marketing efforts are
enhanced by the well-known brand names of our carpet products, including
Interface and Heuga brands in modular carpet and Bentley and Prince Street in
broadloom carpet. Our exclusive consulting agreement with premier design firm
Oakey Designs has enabled us to introduce more than 135 new carpet designs in
the U.S. alone since 1994. Under the stewardship of Oakey Designs, we recently
introduced rectangular modular carpet under the Prince Street brand and
traditionally-sized carpet tile under the Bentley brand to further expand our
modular carpet offerings.
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. The turnaround time for
us to produce made-to-order carpet samples to customer specifications has been
reduced from an average of 30 days to less than four days, and the average
number of carpet samples produced per month has increased 10 fold since the mid
1990s. This sample production ability has significantly enhanced our marketing
and sales efforts and has increased our volume of higher margin custom or
made-to-order sales. In addition, through our website www.thesamplecenter.com,
we have made it easier than ever to view and request samples of our products.
We primarily use our internal marketing and sales force to market our
carpet products. We also rely on contractors in our Re:Source Americas service
network to bolster our sales efforts. In order to implement our global marketing
efforts, we have product showrooms or design studios in the United States,
Canada, Mexico, Brazil, England, France, Germany, Spain, Norway, the
Netherlands, Australia, Japan and Singapore. We expect to open offices in other
locations around the world as necessary to capitalize on emerging marketing
opportunities.
MANUFACTURING
We manufacture carpet in two locations in the United States and at
facilities in the Netherlands, the United Kingdom, Canada, Australia and
Thailand. We also produce Solenium resilient textile flooring in the United
States and the United Kingdom and manufacture vinyl flooring in the United
Kingdom.
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Historically, we operated two U.S. broadloom manufacturing facilities to
produce our Bentley and Prince Street broadloom brands. These facilities, which
were located in City of Industry, California and Cartersville, Georgia, have
operated at less than full capacity. In 2000, we moved the manufacturing
operations for our Prince Street brand from Cartersville, Georgia and integrated
them into our City of Industry, California facility, which had produced our
Bentley brand products, in order to reduce excess capacity and increase capacity
utilization. The operations, as combined, now function under the corporate name
Bentley Prince Street.
Having foreign manufacturing operations enables us to supply our customers
with carpet from the location offering the most advantageous delivery times,
exchange rates, duties and tariffs, 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.
In the mid 1990s, we implemented a manufacturing plan in which we
substantially standardized our worldwide manufacturing procedures. In connection
with the implementation of this plan, we adopted global standards for our
tufting equipment, yarn systems and product styling and changed our standard
carpet tile size from 18 square inches to 50 square centimeters. We believe that
changing our standard carpet tile size has allowed us to reduce operational
waste and fossil fuel energy consumption and to offer consistent product sizing
for our global customers.
The environmental management systems of our floorcovering manufacturing
facilities in LaGrange, Georgia, West Point, Georgia, West Yorkshire, England,
Northern Ireland, Australia, the Netherlands, Canada and Thailand are certified
under ISO 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;
however, the scope and volume of our global operations make it impossible to
eliminate completely all foreign currency translation risks as a factor for our
financial results.
COMPETITION
We compete, on a global basis, in the sale of our floorcovering products
with other carpet manufacturers and manufacturers of vinyl and other types of
floorcoverings. Although the industry has experienced significant consolidation,
a large number of manufacturers remain in the industry. Management believes that
we are the largest manufacturer of modular carpet in the world, possessing a
global market share that is approximately twice that of our nearest competitor.
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.
We believe the principal competitive factors in our primary floorcovering
markets are quality, design, service, broad product lines, product performance,
marketing strategy and pricing. In the commercial office market, 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, which are offset in part by our higher initial
cost for modular carpet when compared to comparable grades of broadloom carpet.
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We believe we have competitive advantages in several areas. First, the
Bentley Mills and Prince Street broadloom carpet lines enable us to offer
one-stop shopping to commercial carpet customers and, thus, to capture some
sales that would have gone to competitors. Additionally, our relationship with
Oakey Designs allows us to introduce numerous innovative and attractive
floorcovering products to our customers. In addition, we believe that our global
manufacturing capabilities are an important competitive advantage in serving the
needs of multinational corporate customers. We believe that our resilient
textile flooring products, and the incorporation of the Intersept antimicrobial
chemical agent into the backing of our modular carpet, enhance our ability to
compete successfully with resilient tile in the healthcare market. Finally, we
believe that the formation of the Re:Source service provider network, and the
resulting improvement in customer service, is a differentiating factor that has
further enhanced our competitive position.
INTERIOR FABRICS
PRODUCTS
Our Fabrics Group designs, manufactures and markets specialty fabrics for
open plan office furniture systems and commercial interiors. Our Fabrics Group
includes the leading U.S. manufacturer of panel fabrics for use in open plan
office furniture systems, with a market share in excess of 50%. Sales of panel
fabrics to OEMs of movable office furniture systems constituted approximately
37% of the Fabrics Group's total North American fabrics sales in fiscal 2001.
With the acquisition of the furniture fabrics assets of the Chatham
Manufacturing division of CMI Industries, Inc. in May 2000, we are also the
leading U.S. manufacturer of contract upholstery sold to office furniture
manufacturers and contract jobbers, with a U.S. market share of nearly 35% in
fiscal 2001. In addition, we manufacture other interior fabrics products,
including wall covering fabrics, fabrics used for window treatments and fabrics
used for cubicle curtains.
Open plan office furniture systems are typically panel-enclosed work
stations customized to particular work environments. The open plan concept
offers a number of advantages over conventional office designs, including more
efficient floor space utilization, reduced energy consumption and greater
flexibility to redesign existing space. Since carpet and fabrics are used in the
same types of commercial interiors, our carpet and interior fabrics operations
are able to coordinate the color, design and marketing of both product lines to
their respective customers as part of our "total interior solutions" approach.
During the 1990s, we diversified and expanded significantly both our
product offerings and markets for interior fabrics. Our 1993 acquisition of the
Stevens Linen lines added decorative, upscale upholstery fabrics and specialty
textile products to the Fabrics Group's traditional product offerings. Our June
1995 acquisition of Toltec Fabrics, Inc., a manufacturer and marketer of fabric
for the contract and home furnishings upholstery markets, enhanced our presence
in the contract jobber market. Our December 1995 acquisition of the Intek
division of Springs Industries, Inc., a manufacturer experienced in the
production of lighter-weight panel fabrics, has strengthened the Fabrics Group's
capabilities in that market. Our Chatham acquisition in May 2000 established our
dominance as the leading manufacturer of upholstery for the contract furniture
manufacturer and contract jobber markets. The July 2000 acquisition of Teknit
Limited, with operations in both the U.K. and Michigan, added three-dimensional
knitted upholstery fabrics to our product portfolio, including the fabric often
used on the arms of Herman Miller, Inc.'s renowned Aeron chair. All of these
developments have reinforced the Fabrics Group's dominant position with OEMs of
movable office furniture systems.
Internationally, the June 1997 acquisition of Camborne Holdings, Ltd., the
United Kingdom's leading textile manufacturer for the office and contract
furnishings markets, has enhanced our access to the European and Asia-Pacific
markets. The Camborne acquisition also added wool upholstery fabrics
specifically designed for the European market to the Fabrics Group's product
offering. In 1998, we acquired Glenside Fabrics Limited, a United Kingdom based
manufacturer of upholstery fabrics for the contract furnishings and leisure
markets. The Glenside acquisition further enhanced the Fabrics Group's European
presence. We have now consolidated our Glenside and Camborne manufacturing
operations to achieve greater operating efficiencies.
We manufacture fabrics made of 100% polyester, as well as wool-polyester
blends and numerous other natural and man-made blends, which are either woven or
knitted. Our products feature a high degree of color
8
consistency, natural dimensional stability and fire retardancy, in addition to
their overall aesthetic appeal. All of our product lines are color and texture
coordinated. We seek continuously to enhance product performance and
attractiveness through experimentation with different fibers, dyes, chemicals
and manufacturing processes. Product innovation in the interior fabrics market
(similar to the floorcoverings market) is important to achieving and maintaining
market share.
We market a line of fabrics manufactured from recycled, recyclable or
compostable materials under the Terratex brand. The Terratex line includes both
new products and traditional product offerings and includes products made from
100% post-consumer recycled polyester, 100% post-industrial recycled polyester
and 100% post-consumer recycled wool. The first fabric to bear the Terratex
label was Guilford of Maine's FR-701(R) line of panel fabrics, and in 2000, we
introduced our first seating fabrics carrying the Terratex label. These products
have been well-received, and we plan to expand our offerings under this label.
Our Interface TekSolutions(SM) operations provide the service of laminating
fabrics onto substrates for pre-formed panels. We believe that significant
market opportunities exist for the provision of this and other ancillary textile
sequencing and processing services to OEMs and intend to participate in these
opportunities.
We anticipate that future growth opportunities will arise from the growing
market for retrofitting services, where fabrics are used to re-cover existing
panels. In addition, the increased importance being placed on the aesthetic
design of office space should lead to a significant increase in upholstery
fabric sales. Our management also believes that additional growth opportunities
exist in international sales, domestic healthcare markets, contract
wallcoverings and window treatments.
MARKETING AND SALES
Our principal interior fabrics customers are OEMs of movable office
furniture systems, and the Fabrics Group sells to essentially all of the major
office furniture manufacturers. The Fabrics Group also sells to contract jobbers
and to manufacturers and distributors of wallcoverings, vertical blinds, cubicle
curtains, acoustical wallboards, ceiling tiles and residential furniture. The
Guilford of Maine, Stevens Linen, Toltec, Intek, Chatham, Camborne and Glenside
brand names are well-known in the industry and enhance our fabric marketing
efforts.
The majority of our interior fabrics sales are made through the Fabrics
Group's own sales force. The sales team works closely with designers,
architects, facility planners and other specifiers who influence the purchasing
decisions of buyers in the interior fabrics segment. In addition to facilitating
sales, the resulting relationships also provide us with marketing and design
ideas that are incorporated into the development of new product offerings. The
Fabrics Group maintains a design studio in Grand Rapids, Michigan which
facilitates coordination between its in-house designers and the design staffs of
major customers. Our interior fabrics sales offices and showrooms are located in
New York City, Los Angeles, Chicago, Grand Rapids, Michigan, High Point, North
Carolina, Hickory, North Carolina, Greensboro, North Carolina and the United
Kingdom. The Fabrics Group also has marketing and distribution facilities in
Canada, Mexico and Hong Kong, and sales representatives in Japan, Hong Kong,
Singapore, Malaysia, Korea, Australia, United Arab Emirates, Dubai and South
Africa. We have sought increasingly, over the past several years, to expand our
export business and international operations in the fabrics segment.
MANUFACTURING
Our fabrics manufacturing facilities are located in Maine, Massachusetts,
Michigan, North Carolina, Nottingham, England and West Yorkshire, England. The
production of synthetic and wool blended fabrics is a relatively complex,
multi-step process. Raw fiber and yarn are placed in pressurized vats in which
dyes are forced into the fiber. Particular attention is devoted to this dyeing
process, which requires a high degree of expertise in order to achieve color
consistency. All raw materials used by us are readily available from a number of
sources. The Fabrics Group also now uses 100% recycled fiber manufactured from
PET soda bottles in some of its manufacturing processes.
9
In response to a shift in the Fabrics Group's traditional panel fabric
market towards lighter-weight, less expensive products, we implemented a major
capital investment program in the mid 1990s that included the construction of a
new facility and the acquisition of equipment to enhance the efficiency and
breadth of the Fabrics Group's yarn manufacturing processes. The program
improved the Fabrics Group's cost effectiveness in producing lighter-weight
fabrics, reduced manufacturing cycle time and enabled the Fabrics Group to
reinforce its product leadership position with its OEM customers. The
acquisition of Intek provided us with immediate and significant capabilities in
the efficient production of lighter-weight, less expensive panel fabrics, and
the acquisition of Camborne provided a European-based manufacturing facility and
much needed expertise in the production of wool fabrics. We believe that we have
been successful in designing fabrics that have simplified the manufacturing
process, thereby reducing complexity while improving efficiency and quality, and
continue to strive to design these products.
The environmental management system of the Fabrics Group's largest
facility, located in Guilford, Maine, has been granted ISO 14001 certification.
Our Aberdeen, North Carolina, East Douglas, Maine and West Yorkshire, England
fabrics manufacturing facilities are also certified under ISO 14001.
We offer textile processing services through the Fabrics Group's Interface
TekSolutions operations in Grand Rapids, Michigan. These services include the
lamination of fabrics onto substrates for pre-formed office furniture system
panels, facilitating easier and more cost effective assembly of the system
components by the Fabrics Group's OEM customers.
COMPETITION
We compete in the interior fabrics market on the basis of product design,
quality, reliability, price and service. By historically concentrating on the
open plan office furniture systems segment, the Fabrics Group has been able to
specialize our manufacturing capabilities, product offerings and service
functions, resulting in a leading market position. Principally through Interface
Fabrics Group, Inc. (formerly Guilford of Maine, Inc. and Interface Interior
Fabrics, Inc.) and Intek, Inc., we are the largest U.S. manufacturer of panel
fabric for use in open plan office furniture systems.
With the May 2000 acquisition of the Chatham furniture fabrics assets, we
became the largest U.S. manufacturer of contract upholstery fabrics for office
furniture manufacturers and contract jobbers. We believe we have a U.S. contract
upholstery market share nearly double that of our closest competitor.
Through our other strategic acquisitions, we have been successfully
diversifying our product offerings for the commercial interiors market to
include a variety of other fabrics, including three-dimensional knitted
upholstery products, cubicle curtains, wallcoverings, ceiling fabrics and window
treatments. The competition in these segments of the market is highly fragmented
and includes both large, diversified textile companies, several of which have
greater financial resources than us, as well as smaller, non-integrated
specialty manufacturers. However, our capabilities and strong brand names in
these segments should enable us to continue to compete successfully.
SPECIALTY PRODUCTS
The Interface Specialty Products Group is composed of: Interface
Architectural Resources, Inc., which produces and markets raised/access flooring
systems; Interface Americas Re:Source Technologies, Inc. (formerly Rockland
React-Rite), which develops, manufactures and markets adhesives and other
specialty chemical products and which includes our Intersept antimicrobial sales
and licensing program; and Pandel, Inc., which produces vinyl carpet tile
backing and specialty mat and foam products.
We manufacture and market raised/access flooring systems, which facilitate
under-the-floor cable management and air delivery, through Interface
Architectural Resources, Inc. Our initial product offering in this sector,
marketed under the Intercell brand, is a low-profile (total height of less than
three inches) cable management flooring system particularly well suited for use
in the renovation of existing buildings. In 1995, we acquired the rights to the
Interstitial Systems(TM) access flooring product, a patented, multiple plenum
system that serves to separate pressurized, climate-controlled air flow from the
electrical and telecommunications
10
cables included within the same access flooring system. In February 1996, we
acquired C-Tec, Inc., the second largest manufacturer of raised/access flooring
systems in the United States. Interface Architectural Resources markets the
successful C-Tec line of products (Tec-Cor(TM) and TecCrete), which combines the
tensile strength of steel and the compressive strength of concrete to create a
durable, uniform and sound-absorbent panel which is available in a variety of
surfaces. In July 1998, we acquired Atlantic Access Flooring, Inc., a
manufacturer of steel panel raised/access flooring systems. With the acquisition
of Atlantic, we believe that we now offer the broadest line of raised/access
flooring systems in the industry.
We believe that the growing use of open plan interiors and modern office
arrangements utilizing demountable, movable partitions and modular furniture
systems has encouraged the use of access flooring, as well as carpet tile,
because access flooring, and carpet tile, can accommodate the flexible,
under-the-floor cable management and air delivery systems compatible with
movable open plan offices. We expect this trend in open office spaces and the
proliferation of networks in the workplace, dictating efficient cable management
and delivery systems, to fuel continued growth in the access flooring market.
We manufacture a line of adhesives for carpet installation, as well as a
line of carpet cleaning and maintenance chemicals, which we market as part of
our Re:Source Floor Care maintenance system. One of our leading chemical
products, in terms of applicability for the commercial and institutional
interiors market, is our proprietary antimicrobial chemical compound, sold under
the registered trademark Intersept. We use Intersept in many of our carpet
products and have licensed Intersept to other companies for use in a number of
products that are noncompetitive with our products, such as paint, vinyl
wallcoverings, ceiling tiles and air filters. In addition, we produce and market
Protekt(2)(R), a proprietary soil and stain retardant treatment, and Fatigue
Fighter(R), an impact-absorbing modular flooring system typically used where
people stand for extended periods.
PRODUCT DESIGN, RESEARCH AND DEVELOPMENT
We maintain an active research, development and design staff of over 100
persons and also draw on the research and development efforts of our suppliers,
particularly in the areas of fibers, yarns and modular carpet backing materials.
Interface Research Corporation provides technical support and advanced
materials research and development for the entire family of Interface companies.
IRC developed NexStep(R) backing, a material based on moisture-impervious
polycarbite precoating technology combined with a chlorine-free urethane foam
secondary backing, and GlasBacRe, a post-consumer recycled, polyvinyl chloride,
or PVC, extruded sheet process that has been incorporated into our modular
carpet line. Our Deja vu(TM) product uses the PVC extruded sheet and exemplifies
our commitment to "closing-the-loop" in recycling. With a goal of supporting
sustainable product designs in both floorcoverings and interior fabrics
applications, IRC is a frontrunner in evaluating for use in our products 100%
renewable polymers based on corn-derived polylactic acid (PLA).
IRC is the home of our EcoSense initiative and supports the dissemination,
consultancies and technical communication of our global sustainability
endeavors. In addition, IRC's President also serves as the Chairman of the
Envirosense Consortium. IRC's laboratories provide all biochemical and technical
support to Intersept antimicrobial product initiatives, which initiatives were
the basis for founding the Consortium and for its focus on indoor air quality.
Innovation and increased customization in product design and styling are
the principal focus of our product development efforts. Our carpet design and
development team is recognized as the industry leader in carpet design and
product engineering for the commercial and institutional markets. In cooperation
with Oakey Designs, we have introduced over 135 new carpet designs since they
began providing services to us and have enjoyed considerable success in winning
U.S. carpet industry awards.
Mr. Oakey also contributed to our implementation of the product development
concept -- "simple inputs, pretty outputs" -- resulting in the 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,
11
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.
Oakey Designs' services have been extended from a primary focus on domestic
carpet tile to our international carpet tile operations and our domestic and
international broadloom companies. We recently renewed our exclusive consulting
agreement for a five-year term through May 2006, which may be extended for five
additional years. In addition, we have retained the design services of Suzanne
Tick, Inc., affiliated with Tuva Looms, Inc., a manufacturer of high-end,
design-forward woven carpets, to assist us with developing broadloom designs for
our Prince Street brand.
ENVIRONMENTAL INITIATIVES
In the latter part of 1994, we commenced a new industrial ecology
initiative called EcoSense, inspired in major part by the interest of important
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 consultants. The current list of consultants includes: Paul
Hawken, author of The Ecology of Commerce: A Declaration of Sustainability and
The Next Economy, and co-author with Amory Lovins and Hunter Lovins of Natural
Capitalism: Creating the Next Industrial Revolution; Mr. Lovins, energy
consultant, co-founder of the Rocky Mountain Institute; Ms. Lovins, President
and Executive Director of the Rocky Mountain Institute; John Picard, President
of E(2), American environmental consultant; Jonathan Porritt, director of Forum
for the Future; Bill Browning, director of the Rocky Mountain Institute's Green
Development Services; Dr. Karl-Henrik Robert, founder of The Natural Step;
Janine M. Benyus, author of Biomimicry; and Walter Stahel, Swiss businessman and
seminal thinker on environmentally responsible commerce.
Another one of our initiatives over the past several years has been the
development of the Envirosense Consortium, an organization of companies
concerned with addressing workplace environmental issues, particularly poor
indoor air quality. The Envirosense Consortium's member organizations include
interior products manufacturers (at least one of which is a licensee of our
Intersept antimicrobial agent) and design professionals.
We believe that our environmental initiatives are valued by our employees
and an increasing number of important customers and provide a competitive
advantage in marketing products to those customers. We also believe that the
resulting long-term resource efficiency (reduction of wasted environmental
resources) will ultimately produce cost savings and advantages to us.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local 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, West Yorkshire, England, Northern Ireland,
Australia, the Netherlands, Canada and Thailand are certified under ISO 14001.
The environmental management system of the Fabrics Group's facilities in
Guilford, Maine, East Douglas, Maine, Aberdeen, North Carolina, and West
Yorkshire, England are also certified under ISO 14001.
12
BACKLOG
Our backlog of unshipped orders was approximately $136.5 million at
February 24, 2002, compared to approximately $226.4 million at February 25,
2001. Historically, backlog is subject to significant fluctuations due to the
timing of orders for individual large projects and currency fluctuations. All of
the backlog of orders at February 24, 2002 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
and raised flooring products, on manufacturing processes and on the use of our
Intersept antimicrobial chemical agent in various products. 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 consider our know-how and
technology 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. However, we maintain an active patent and trade secret program
in order to protect our proprietary technology, know-how and trade secrets.
We also own numerous trademarks in the United States and abroad. In
addition to the United States, the primary countries in which we have registered
our trademarks are the United Kingdom, Germany, Italy, France, Canada,
Australia, Japan, and various countries in Central and South America. Some of
our more prominent registered trademarks include: Interface, Heuga, Intersept,
GlasBac, Re:Source, Guilford, Guilford of Maine, Bentley, Prince Street,
Intercell, Chatham, Camborne, Glenside, Terratex and FR-701. 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
The Notes to our Consolidated Financial Statements set forth information
concerning our sales, income and assets by operating segments. See Item 8.
EMPLOYEES
At December 30, 2001, the Company employed a total of approximately 6,500
employees worldwide. Of such employees, approximately 2,735 are clerical, sales,
supervisory and management personnel and the balance are manufacturing
personnel.
Some of the service businesses within the Re:Source Americas service
network have employee groups that are represented by unions. In addition, 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 certain actions,
including changes in compensation scales or employee benefits. Our management
believes that its relations with the Works Council, the unions and all of its
employees are good.
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
This report on Form 10-K contains statements which may constitute
"forward-looking statements" within the meaning of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended by the Private
Securities Litigation Reform Act of 1995. Those statements include statements
regarding the intent, belief or current expectations of the Company and members
of its 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.
Important factors
13
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 immediately below. 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.
RISK FACTORS:
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.
The commercial floorcovering industry is highly competitive. Globally, we
compete for sales of floorcovering products with other carpet manufacturers and
manufacturers of vinyl and other types of floorcovering. Although the industry
has experienced significant consolidation, a large number of manufacturers
remain in the industry. We believe that 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 greater financial resources than we do.
SALES OF OUR PRINCIPAL PRODUCTS MAY BE AFFECTED BY CYCLES IN THE CONSTRUCTION
AND RENOVATION OF COMMERCIAL AND INSTITUTIONAL BUILDINGS.
Sales of our principal products are related to the construction and
renovation of commercial and institutional buildings. This activity is cyclical
and can be 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 commercial office sector tend to be more pronounced than
the effects upon the institutional sector. Historically, we have generated more
sales in the commercial office sector than in other markets. The effects of
cyclicality upon the new construction sector of the market also tend to be more
pronounced than the effects upon the renovation sector. Although the predominant
portion of our sales are generated from the renovation sector, any adverse
cycle, in either sector of the market, would lessen the overall demand for
commercial interiors products, which could impair our growth.
OUR CONTINUED SUCCESS DEPENDS SIGNIFICANTLY UPON THE EFFORTS, ABILITIES AND
CONTINUED SERVICE OF OUR SENIOR MANAGEMENT EXECUTIVES AND OUR DESIGN
CONSULTANTS.
We believe that our continued success will depend 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,
Inc. provides to our internal design staff. Specifically, Oakey Designs provides
product design/production engineering services to us under an exclusive
consulting contract that contains non-competition covenants. We recently renewed
our agreement with Oakey Designs for a five-year term through May 2006. The loss
of any key personnel or key design consultants could have an adverse impact on
our business.
OUR SUBSTANTIAL INTERNATIONAL OPERATIONS ARE SUBJECT TO VARIOUS POLITICAL,
ECONOMIC AND OTHER UNCERTAINTIES.
We have substantial international operations. In fiscal 2001, approximately
32% of our net sales and a significant portion of our production were outside
the United States, primarily in Europe but also in Asia-Pacific. Our corporate
strategy includes the expansion 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,
which subjects us to the risks inherent in currency translations. Our ability to
manufacture and ship products from facilities in several foreign countries
reduces the risks of foreign currency fluctuations we might otherwise
experience, and we also engage from time to time in hedging programs intended to
reduce those risks further. Despite these precautions, the
14
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.
OUR CHAIRMAN, TOGETHER WITH OTHER INSIDERS, CURRENTLY HAS SUFFICIENT VOTING
POWER TO ELECT A MAJORITY OF OUR BOARD OF DIRECTORS.
Our Chairman, Ray C. Anderson, beneficially owns approximately 50% of the
Company's outstanding Class B Common Stock. The holders of the Class B Common
Stock are entitled, as a class, to elect a majority of our Board of Directors.
Therefore, Mr. Anderson, together with other insiders, has sufficient voting
power to elect a majority of the Board of Directors. On all other matters
submitted to the shareholders for a vote, the holders of the Class B Common
Stock generally vote together as a single class with the holders of the Class A
Common Stock. Mr. Anderson's beneficial ownership of the outstanding Class A and
Class B Common Stock combined is less than 10%.
LARGE INCREASES IN THE COST OF PETROLEUM-BASED RAW MATERIALS, WHICH WE ARE
UNABLE TO PASS THROUGH TO OUR CUSTOMERS, COULD ADVERSELY AFFECT US.
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, large increases in the cost of
petroleum-based raw materials could adversely affect our financial results if we
are unable to pass through price increases in raw material costs to our
customers.
UNANTICIPATED TERMINATION OR INTERRUPTION OF OUR ARRANGEMENT WITH OUR PRIMARY
THIRD-PARTY SUPPLIER OF SYNTHETIC FIBER COULD HAVE A MATERIAL ADVERSE EFFECT ON
US.
E.I. DuPont de Nemours and Company currently supplies a significant
percentage of our requirements for synthetic fiber (nylon), which is the
principal raw material that we use in our carpet products. While we believe that
there are adequate alternative sources of supply from which we could fulfill our
synthetic fiber requirements, the unanticipated termination or interruption of
our supply arrangement with DuPont could have a material adverse effect on us
because of the cost and delay associated with shifting more business to another
supplier.
OUR RIGHTS AGREEMENT, WHICH IS TRIGGERED IF A THIRD PARTY ACQUIRES BENEFICIAL
OWNERSHIP OF 15% OR MORE OF OUR COMMON STOCK WITHOUT OUR CONSENT, COULD
DISCOURAGE TENDER OFFERS OR OTHER TRANSACTIONS 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 certain 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.
15
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages as of March 15, 2002 and
their principal positions with the Company are as follows. Executive officers
serve at the pleasure of the Board of Directors.
[Download Table]
NAME AGE PRINCIPAL POSITION(S)
---- --- ---------------------
Ray C. Anderson....................... 67 Chairman of the Board of Directors
Daniel T. Hendrix..................... 47 President and Chief Executive Officer
Michael D. Bertolucci................. 61 Senior Vice President
Brian L. DeMoura...................... 56 Senior Vice President
John R. Wells......................... 40 Senior Vice President
Raymond S. Willoch.................... 43 Senior Vice President-Administration,
General Counsel and Secretary
Robert A. Coombs...................... 43 Vice President
Patrick C. Lynch...................... 32 Vice President and Chief Financial
Officer
Mr. Anderson founded Interface in 1973 and served as Chairman and Chief
Executive Officer until his retirement as Chief Executive Officer and transition
from day-to-day management on July 1, 2001, at which time he became
non-executive Chairman of the Board. He chairs the Executive Committee of the
Board and remains available for policy level consultation on substantially a
full time basis. Mr. Anderson was appointed by President Clinton to the
President's Council on Sustainable Development in 1996 and served as Co-Chair
until the Council's dissolution in June 1999. He currently serves on the Boards
of six nonprofit organizations.
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 and Executive Vice President in October 2000. Mr. Hendrix became our
President and Chief Executive Officer effective July 1, 2001.
Dr. Bertolucci joined us in April 1996 as President of Interface Research
Corporation and Senior Vice President. Dr. Bertolucci also serves as Chairman of
the Envirosense Consortium, which was founded by Interface and focuses on
addressing workplace environmental issues. From October 1989 until joining us,
he was Vice President of Technology for Highland Industries, an industrial
fabric company located in Greensboro, North Carolina.
Mr. DeMoura joined us in March 1994 as President and Chief Executive
Officer of Guilford of Maine, Inc. (now Interface Fabrics Group, Inc.) and
Senior Vice President. He is responsible for the Fabrics Group, which includes
the following brands: Guilford of Maine, Stevens Linen, Toltec, Intek, Chatham,
Camborne and Glenside.
Mr. Wells joined us in February 1994 as Vice President-Sales of Interface
Flooring Systems, Inc. (our principal U.S. modular carpet subsidiary) and was
promoted to Senior Vice President-Sales & Marketing of IFS in October 1994. He
was promoted to Vice President of the Company, and President and Chief Executive
Officer of IFS, in July 1995. In March 1998, Mr. Wells was also named President
and CEO of both Prince Street Technologies, Ltd. and Bentley Mills, Inc., making
him President and CEO of all three of our U.S. carpet mills. In November 1999,
Mr. Wells was named Senior Vice President of the Company, and President and CEO
of Interface Americas Holdings, Inc. (formerly Interface Americas, Inc.),
thereby assuming responsibility for all of our operations in the Americas,
except for the Fabrics Group.
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.
Mr. Coombs originally worked for us from 1988 to 1993 as a marketing
manager for our Heuga carpet tile operations in the U.K. and later for our
European operations. In 1996, Mr. Coombs returned as Managing
16
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, Sales and Marketing, in
April 2000. In February 2001, he was promoted to President and CEO of Interface
Overseas Holdings, Inc. with responsibility for all of our floorcoverings
operations in both Europe and the Asia-Pacific region, and was promoted to Vice
President of the Company.
Mr. Lynch joined us in 1996 after having previously worked for a national
accounting firm. He was promoted to Assistant Corporate Controller in 1998 and
Assistant Vice President and Corporate Controller in 2000. Mr. Lynch became Vice
President and Chief Financial Officer in July 2001.
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, all of which we
own except as otherwise noted:
[Enlarge/Download Table]
FLOOR SPACE
LOCATION SEGMENT(S) (SQ. FT.)
-------- ------------------------------------------ -----------
Bangkok, Thailand(1)................. Floorcoverings Products/Service (Modular) 66,072
Craigavon, N. Ireland................ Floorcoverings Products/Service (Modular) 125,060
LaGrange, Georgia.................... Floorcoverings Products/Service (Modular) 326,666
Ontario (Belleville), Canada......... Floorcoverings Products/Service (Modular) 77,000
Picton, Australia.................... Floorcoverings Products/Service (Modular) 89,560
Scherpenzeel, the Netherlands........ Floorcoverings Products/Service (Modular); 292,142
Specialty Products (Access Flooring)
Shelf, England....................... Floorcoverings Products/Service (Modular, 223,342
Vinyl Flooring)
West Point, Georgia.................. Floorcoverings Products/Service (Modular) 161,000
City of Industry, California(2)...... Floorcoverings Products/Service 539,641
(Broadloom)
West Yorkshire, England.............. Floorcoverings Products/Service 674,666
(Broadloom)
Aberdeen, North Carolina............. Interior Fabrics 88,000
Dudley, Massachusetts................ Interior Fabrics 321,000
East Douglas, Massachusetts.......... Interior Fabrics 301,772
Elkin, North Carolina................ Interior Fabrics 1,684,487
Grand Rapids, Michigan(2)............ Interior Fabrics 118,828
Guilford, Maine...................... Interior Fabrics 396,690
Guilford, Maine...................... Interior Fabrics 96,400
Lancashire, England(2)............... Interior Fabrics 28,000
Newport, Maine....................... Interior Fabrics 208,932
West Yorkshire, England.............. Interior Fabrics 170,000
Cartersville, Georgia(2)............. Specialty Products (Specialty Mats) 124,500
Grand Rapids, Michigan............... Specialty Products (Access Flooring) 120,000
Rockmart, Georgia.................... Specialty Products (Intersept, Adhesives) 37,500
Kennesaw, Georgia (2)................ Research and Development 19,247
---------------
(1) Owned by a joint venture in which the Company has a 70% interest.
(2) Leased.
17
We maintain marketing offices in over 80 locations in over 35 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 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.
ITEM 3. LEGAL PROCEEDINGS
Collins & Aikman Litigation. On July 23, 1998, Collins & Aikman
Floorcoverings, Inc. ("CAF") -- in the wake of receiving "cease and desist"
letters from Interface demanding that CAF cease manufacturing certain carpet
products that Interface believed infringed upon certain of its copyrighted
product designs -- filed a lawsuit against Interface asserting that certain of
the Company's products, primarily its Caribbean(TM) design product line,
infringed on certain of CAF's alleged copyrighted product designs. The lawsuit,
which was pending in the United States District Court for the Northern District
of Georgia, Atlanta Division, Civil Action No. 1:98-CV-2069, sought injunctive
relief and claimed unspecified monetary damages. The lawsuit also asserted other
claims against the Company and certain other parties, including alleged tortious
interference by the Company with CAF's contractual relationship with the Roman
Oakey, Inc. design firm, now known as David Oakey Designs, Inc.
This case has settled. The terms of the settlement are confidential. At the
conclusion of the case, the parties issued the following statement: "The parties
to the lawsuit between Collins & Aikman Floorcoverings, Inc., Interface, Inc.,
and David Oakey Designs, Inc., settled their disputes and have dismissed with
prejudice all of their respective claims, having agreed that neither Collins &
Aikman Floorcoverings, Interface, nor David Oakey were engaged in any wrongdoing
with respect to these claims. As a part of this settlement, the parties have
agreed to an expedited procedure to resolve any future copyright infringement
issues."
Tate Litigation. On August 24, 2000, Tate Access Floors, Inc. ("Tate")
filed suit in the United States District Court for the District of Maryland,
Civil Action No. JFM-00-2543, against the Company's raised/ access flooring
subsidiary, Interface Architectural Resources, Inc. ("IAR"), alleging that a
feature of IAR's Bevel Edge flooring panel infringes a patent held by Tate. On
February 20, 2002, the District Court denied Interface's motion for summary
judgment, and granted Tate's motion for summary judgment, on patent validity and
infringement. Interface immediately filed for interlocutory appeal as a matter
of right. On March 6, the District Court entered a permanent injunction pursuant
to its summary judgment order, and denied Interface's motion for stay of further
proceedings pending resolution of the appeal. A trial on damages is scheduled
for June 2002. Interface is seeking a stay of the damages proceeding before the
Federal Circuit Court of Appeals. The permanent injunction permits IAR to
continue producing and selling its current trimless flooring panel product, but
limits its ability to resume producing the previously abandoned Bevel Edge
product configuration. The United States Patent and Trademark Office has granted
a request made by IAR for re-examination of the Tate patent. We continue to
believe that IAR's Bevel Edge product does not infringe the Tate patent, that
the Tate patent should be held invalid due to prior existing art, and that IAR's
defenses to this action are meritorious. We intend to defend this action
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's Class A Common Stock is traded on the over-the-counter market
under the symbol IFSIA and is quoted on The Nasdaq Stock Market. The Company's
Class B Common Stock is not publicly traded and is convertible into Class A
Common Stock on a one-for-one basis. The information concerning the market
prices for the Company's Class A Common Stock and dividends on the Company's
Common Stock included in the Notes to the Company's Consolidated Financial
Statements (the "Notes") in Item 8 of this Report on Form 10-K is incorporated
herein by reference. As of March 18, 2002, the Company had 1,024 holders of
record of its Class A Common Stock and 52 holders of record of its Class B
Common Stock. Management believes that there are in excess of 5,500 beneficial
holders of the Class A Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
[Enlarge/Download Table]
SELECTED FINANCIAL INFORMATION
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Annual Operating Data
Net sales................ $1,103,905 $1,283,948 $1,228,239 $1,281,129 $1,135,290
Cost of sales............ 787,874 895,944 846,124 847,660 755,734
Operating income
(loss)................. (16,042) 69,009 76,431 89,691 97,801
Net income (loss)........ (36,287) 17,321 23,545 29,823 37,514
-----------------------------------------------------------------------------------------
Earnings (loss) per
common share
Basic.................. $ (0.72) $ 0.34 $ 0.45 $ 0.58 $ 0.79
Diluted................ $ (0.72) $ 0.34 $ 0.45 $ 0.56 $ 0.76
Average Shares
Outstanding
Basic.................. 50,099 50,558 52,562 51,808 47,416
Diluted................ 50,099 50,824 52,803 53,735 49,302
Cash dividends per common
share.................. $ 0.15 $ 0.18 $ 0.18 $ 0.165 $ 0.135
Property additions(1).... 30,081 46,406 37,278 66,145 51,489
Depreciation and
amortization........... 47,852 50,625 45,789 42,586 38,605
-----------------------------------------------------------------------------------------
Balance Sheet Data
Working capital.......... $ 210,732 $ 240,959 $ 217,026 $ 213,412 $ 183,403
Total assets............. 954,754 1,034,849 1,028,495 1,036,864 929,563
Total long-term debt..... 454,994 422,358 402,118 390,437 392,250
Shareholders' equity..... 302,475 372,435 389,192 398,824 316,365
Book value per share..... 5.95 7.33 7.52 7.60 6.55
Current ratio............ 2.3 2.2 2.1 1.9 2.0
---------------
(1) Includes property and equipment obtained in acquisition of business.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Our revenues are derived from sales of commercial floorcovering products
(primarily modular and broadloom carpet) and related services, interior fabrics,
raised/access flooring and other specialty products. Our business, as well as
the commercial interiors market in general, is somewhat cyclical in nature and
is impacted by economic conditions and trends that affect the markets for
commercial and institutional business space. Our financial performance in recent
years has been strongly tied to the corporate segment, although we have begun to
focus more of our marketing and sales efforts on non-corporate segments to
reduce in part our exposure to certain economic cycles that affect the corporate
market segment more adversely, as well as to capture additional market share.
Since 1999 (except for a modest rebound during the latter portion of 2000),
the commercial interiors market as a whole, and the broadloom carpet market in
particular, have experienced decreased demand levels. The general downturn in
the domestic and international economy that characterized most of 2001 further
adversely affected the commercial interiors market, especially in the U.S.
corporate segment. These conditions significantly impaired our growth and
profitability, especially during the latter portions of 2001.
Because we have substantial international operations, we are impacted, from
time to time, by certain 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,
adversely affected us to varying degrees in both 2000 and 2001, when the euro
was weak relative to the U.S. dollar.
During 2001, we had net sales of $1.104 billion and a net loss of $36.3
million, or $(0.72) per diluted share, after giving effect to a $65.1 million
nonrecurring pre-tax restructuring charge, compared with net sales of $1.284
billion and net income of $17.3 million, or $0.34 per diluted share, during 2000
after giving effect to a $21.0 million nonrecurring pre-tax restructuring
charge. Net sales for 2001 consisted of floorcovering products (primarily
modular and broadloom carpet) and related services ($833.8 million), interior
fabrics sales ($209.9 million) and raised/access flooring and other specialty
products sales ($60.2 million), accounting for 75.5%, 19.0% and 5.5%,
respectively, of total sales. Net sales for 2000 consisted of sales of
floorcovering products and related services ($951.7 million), interior fabrics
sales ($252.7 million) and raised/access flooring and other specialty products
sales ($79.6 million), accounting for 74.1%, 19.7% and 6.2% of total sales,
respectively.
IMPACT OF 2001 AND 2000 STRATEGIC RESTRUCTURING INITIATIVES
As indicated above, we incurred substantial, nonrecurring pre-tax
restructuring charges in 2001 and 2000 -- $65.1 million and $21.0 million,
respectively -- as we implemented various initiatives to reduce our operating
costs and strengthen our ability to generate free cash flow. Excluding those
restructuring charges, we had net income of $6.9 million and $31.8 million for
2001 and 2000, respectively.
The charge in 2001 reflected:
- our withdrawal from the European broadloom market;
- consolidation in our raised/access flooring operations;
- further rationalization of our U.S. broadloom operations and certain
European modular operations;
- a reduction in force of over 800 employees, which represented 10% of
our workforce worldwide; and
- the consolidation of certain non-strategic Re:Source Americas
operations.
20
The charge in 2000 reflected:
- the integration of our U.S. broadloom operations into a single
manufacturing location;
- the consolidation of a division's administrative, manufacturing, and
back-office functions;
- a reduction of 425 employees in the U.S. and Europe;
- the divestiture of certain non-strategic Re:Source Americas
operations; and
- the abandonment of manufacturing equipment utilized in the production
of discontinued product lines.
The 2001 restructuring charge comprised $24.0 million of cash expenditures
for severance benefits and other costs and $41.1 million of non-cash charges,
primarily for the write-down of carrying value and disposal of assets, including
goodwill. The 2001 restructuring initiatives have aspects that continued into
2002, and we anticipate that they will be completed by the end of the second
quarter 2002. The 2000 restructuring charge comprised $12.8 million of cash
expenditures for severance benefits and relocation costs and $8.2 million of
non-cash charges, primarily for the write-down of impaired assets.
These initiatives are producing the strategic results we targeted, in that
we have reduced our cost structure and have strengthened our free cash flow
position. Additionally, in connection with our withdrawal from the European
broadloom business, we are liquidating the net assets of that business. We
believe that we will generate cash proceeds from this liquidation of
approximately $20 million, which will be used to offset redundancy costs
associated with the closing of that business. We believe the 2001 restructuring
initiatives alone will yield future annual cost savings of approximately $25
million.
Further discussion about both the 2001 and 2000 restructuring charges
appears in the notes to the consolidated financial statements on pages 45-49.
RESULTS OF OPERATIONS
The following table presents, as a percentage of net sales, certain items
included in our consolidated statements of operations.
[Download Table]
FISCAL YEAR ENDED
---------------------
2001 2000 1999
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 71.4 69.8 68.9
-----------------------------------------------------------------------------------
Gross profit on sales....................................... 28.6 30.2 31.1
Selling, general and administrative expenses................ 24.2 23.2 24.8
Restructuring charges....................................... 5.9 1.6 .1
-----------------------------------------------------------------------------------
Operating income (loss)..................................... (1.5) 5.4 6.2
Other expense............................................... 3.4 3.1 3.1
-----------------------------------------------------------------------------------
Income (loss) before taxes on income (benefit).............. (4.9) 2.3 3.1
Taxes on income (benefit)................................... (1.6) 1.0 1.2
-----------------------------------------------------------------------------------
Net income (loss)........................................... (3.3) 1.3 1.9
===== ===== =====
FISCAL 2001 COMPARED WITH FISCAL 2000
Our net sales decreased $180.0 million (14.0%) compared with 2000. The
decrease was attributable primarily to (1) the decline of panel fabric sales to
some original equipment manufacturer (OEM) furniture manufacturers (as a result
of reduced demand in the commercial interiors market), (2) poor macroeconomic
conditions, (3) reduced demand for steel panel products made by our
raised/access flooring division, and (4) the liquidation of our European
broadloom operation.
21
Cost of sales, as a percentage of net sales, increased to 71.4% in 2001,
compared with 69.8% in 2000, primarily as a result of (1) the under-absorption
of fixed manufacturing costs due to lower volume levels, and (2) other
manufacturing costs associated with scaling production to meet demand levels.
Selling, general and administrative expenses declined by $30.9 million in
2001, to $267.0 million from $297.9 million in the prior year, as a result of
successful cost-cutting initiatives and other restructuring activities. Because
of the lower level of net sales, however, selling, general and administrative
expenses, as a percentage of net sales, increased to 24.2% in 2001 compared with
23.2% in 2000.
Other expense decreased $1.4 million in 2001 compared with 2000, due
primarily to lower London Interbank Offered Rate (LIBOR) interest rates.
The rate of the effective tax benefit recognized by the Company in 2001 was
32.5%, compared to an effective tax rate of 42.0% in 2000. This change was due
to the write-off of certain non-deductible amounts as part of the restructuring
charge taken during 2001 that reduced the tax benefit to the Company.
As a result of these factors, excluding restructuring charges, our net
income decreased to $6.9 million in 2001 versus $31.8 million in 2000.
FISCAL 2000 COMPARED WITH FISCAL 1999
Our net sales increased $55.7 million (4.5%) compared with 1999. The
increase was attributable primarily to increased sales volume within our
interior fabrics segment as a result of the acquisition of certain assets of the
Chatham Manufacturing division of CMI Industries, Inc.; our modular
floorcovering business in the U.S., Europe and Asia; and our architectural
products division in the U.S. These increases were somewhat offset by decreased
sales volume in our broadloom operations in the U.S. and Europe; the planned
reduction of sales volume in our Re:Source service network as it focuses on
profitability; and the decline in value of the euro against the U.S. dollar.
Cost of sales, as a percentage of net sales, increased to 69.8% in 2000,
compared to 68.9% in 1999. The increase was attributable to increased raw
material prices, manufacturing inefficiencies in our U.S. and European broadloom
operations, and the increase in the relative sales by the Company's
architectural products division and Chatham operations, which historically have
had lower gross profit margins than the Company's other product sales.
Selling, general and administrative expenses, as a percentage of net sales,
declined to 23.2% in 2000 from 24.8% in 1999. The decrease was attributable to
our cost reduction efforts through the introduction of the shared services
approach in the Americas and the inclusion of recently acquired companies which
have historically had lower SG&A costs as a percentage of sales.
Other expense increased $.7 million in 2000 compared to 1999, due primarily
to the non-recurring gain realized in 1999 as a result of the divestiture of
some of our operating assets.
The effective tax rate was 42.0% for 2000, compared to 38.0% in 1999. The
increase in the effective rate was primarily due to the write-off of certain
non-deductible amounts as part of the restructuring charge taken in 2000 and
lower pre-tax income in 2000.
As a result of the aforementioned factors, excluding the $20.1 million
restructuring charge recorded in 2000, our net income increased 35% to $31.8
million in 2000 versus $23.5 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
At December 30, 2001, we had $0.8 million of cash and cash equivalents, and
an additional $209.9 million of working capital.
22
We currently estimate capital expenditures for 2002 of approximately $16.0
million and have purchase commitments of approximately $2.7 million for 2002.
Based on current interest rate levels, we expect our interest expense in 2002 to
be approximately $40.0 million.
On August 8, 2001, the Company amended its revolving credit facility. The
amendment, among other things, (1) eased certain financial covenants, (2)
increased pricing on borrowings to reflect current market conditions, (3)
decreased the revolving credit limit from $300 million to $250 million, and (4)
granted first priority security interests in substantially all of our assets and
substantially all of the assets of our material domestic subsidiaries, including
all of the stock of our domestic subsidiaries and up to 65% of the stock of our
first-tier material foreign subsidiaries.
In January 2002, we further amended and restated our revolving credit
facility in connection with completing a private offering of $175 million
aggregate principal amount of 10.375% senior notes due in 2010. The net proceeds
of the notes offering were used to repay borrowings under the facility.
Among other things, the January 2002 amendment and restatement of the
revolving credit facility (1) decreased the revolving credit limit under the
facility from $250 million to $100 million (subject to an asset borrowing base),
(2) increased the pricing on our borrowings to reflect current market conditions
and our current financial condition, and (3) eased our financial covenants. The
facility will mature on May 15, 2005, subject to a possible extension of that
maturity date to January 17, 2007 if we meet certain conditions relating to the
repayment of long-term debt. Further discussion of the credit facility and
related borrowings is included in the notes to the consolidated financial
statements on pages 37-38.
ANALYSIS OF CASH FLOWS
Operating activities and proceeds from long-term debt provided our primary
sources of cash during the last three fiscal years ended December 30, 2001. In
2001, operating activities generated $18.3 million of cash compared with $71.4
million in 2000 and $71.1 million in 1999.
The primary uses of cash during the last three fiscal years have been (1)
acquisitions of businesses, (2) additions to property and equipment at the
Company's manufacturing facilities, (3) cash dividends, and (4) expenditures
related to our share repurchase program. For the three years ended December 30,
2001, acquisitions of businesses (net of dispositions) required $22.2 million,
the aggregate additions to property and equipment required cash expenditures of
$97.8 million, dividends required $26.3 million, and share repurchases required
$19.7 million.
Pursuant to our share repurchase program, we are authorized to repurchase
up to 4,000,000 shares of Class A Common Stock in the open market. As of
December 30, 2001, we had repurchased an aggregate of 3,075,113 shares of Class
A Common Stock under this program, at prices ranging from $3.41 to $16.78. Under
a covenant in our revolving credit facility, we currently are prohibited from
repurchasing shares under the program. However, if in the future we meet certain
financial criteria, the prohibition will be lifted.
Management believes that cash provided by operations and long-term loan
commitments will provide adequate funds for current commitments and other
requirements in the foreseeable future.
CRITICAL ACCOUNTING POLICIES
High-quality financial statements require rigorous application of
high-quality accounting policies. The policies discussed below are considered by
management to be critical to an understanding of the financial statements
because their application places the most significant demands on management's
judgment, with financial reporting results relying on estimation about the
effect 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 on Long-Term Contracts. A portion of our revenues is
derived from long-term contracts which are accounted for under the provisions of
the American Institute of Certified Public
23
Accountants' Statement of Position No. 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." Long-term fixed-price
contracts are recorded on the percentage of completion basis using the ratio of
costs incurred to estimated total costs at completion as the measurement basis
for progress toward completion and revenue recognition. Contract accounting
requires significant judgment relative to assessing risks, estimating contract
costs and making related assumptions for schedule and technical issues. With
respect to contract change orders, claims or similar items, judgment must be
used in estimating related amounts and assessing the potential for realization.
These amounts are only included in contract value when they can be reliably
estimated and realization is probable.
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 estimated market value. If actual market
conditions are less favorable than those projected by management, additional
write-downs may be required.
Pension Benefits. Net pension expense recorded is based on, among other
things, assumptions of the discount rate, estimated return on plan assets and
salary increases. 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.
Environmental Remediation. We provide for remediation costs and penalties
when the responsibility to remediate is probable and the amount of associated
costs is reasonably determinable. Remediation liabilities are accrued based on
estimates of known environmental exposures and are discounted in certain
instances. We regularly monitor the progress of environmental remediation.
Should studies indicate that the cost of remediation is to be more than
previously estimated, an additional accrual would be recorded in the period in
which such determination is made.
Allowances for Doubtful Accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of customers to make
required payments. 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.
FUNDING OBLIGATIONS
We have various contractual commitments and other obligations that we must
fund in 2002 (including the $2.7 million of capital expenditure commitments
noted above) and future years as part of our normal operations. Summary
information about these matters is set forth in the following tables.
The following table discloses aggregate information, as of March 12, 2002,
about our contractual obligations and the periods in which payments are due:
[Enlarge/Download Table]
PAYMENTS DUE BY PERIOD
TOTAL ------------------------------------------
PAYMENTS AFTER
DUE 2002 2003-2004 2005-2006 2006
-------- ------- --------- --------- --------
(IN THOUSANDS)
Long-Term Debt.................... $ 38,000 $ -- $ -- $ 31,500 $ 6,500
Senior and Senior Subordinated
Notes........................... 450,000 -- -- 125,000 325,000
Operating Leases.................. 89,026 23,275 32,707 16,153 16,891
Unconditional Purchase
Obligations..................... 2,651 2,651 -- -- --
-------- ------- ------- -------- --------
Total Contractual Cash
Obligations..................... $579,677 $25,926 $32,707 $172,653 $348,391
======== ======= ======= ======== ========
24
The following table discloses aggregate information, as of March 12, 2002,
about other commercial commitments for which we could be obligated to pay in the
future but are not included in our consolidated balance sheet.
[Enlarge/Download Table]
AMOUNT OF COMMITMENT
EXPIRATION PER PERIOD
TOTAL ----------------------------------------
AMOUNTS AFTER
COMMITTED 2002 2003-2004 2005-2006 2006
--------- ------ --------- --------- -------
(IN THOUSANDS)
Lines of Credit*.................... $ 21,559 $ -- $21,559 $ -- $ --
Standby Letters of Credit........... 10,846 -- 10,846 -- --
-------- ------ ------- ------- -------
Total Commercial Commitments........ $ 32,405 $ -- $32,405 $ -- $ --
======== ====== ======= ======= =======
---------------
* Represents 365-day facilities available under subsidiaries' names that
currently are not drawn upon.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In December 2000, we commenced an accounts receivable securitization
program that provides funding from the sale of trade accounts receivable
generated by certain of our operating subsidiaries. (Prior to December 2000, the
Company had a similar program that began in 1995.) As of December 30, 2001,
Bentley Mills, Inc. (now known as Bentley Prince Street, Inc.), Chatham
Marketing Co., Guilford of Maine Marketing Co., Intek Marketing Co., Interface
Americas, Inc., Interface Architectural Resources, Inc., Interface Flooring
Systems, Inc., Pandel, Inc. and Toltec Fabrics, Inc. (who are, collectively,
referred to as the Originators) were the only subsidiaries participating in the
Securitization Program.
Under the Securitization Program, Interface purchases, on a daily basis,
accounts receivable from the Originators for a cash purchase price equal to the
outstanding balance of the receivables at the time of sale (net of reserves for
doubtful accounts) pursuant to a receivables transfer agreement. A
single-purpose, wholly owned subsidiary, Interface Securitization Corporation,
referred to as ISC, purchases on a daily basis accounts receivable from
Interface for cash and a subordinate note for a purchase price equal to the
outstanding balance of the receivables at the time of sale (net of reserves for
doubtful accounts). Pursuant to a receivables purchase agreement, Jupiter
Securitization Corporation, referred to as JSC, or if JSC shall decline to
purchase, Bank One, NA (collectively, the "Receivables Purchaser"), acquires an
undivided percentage ownership interest in the pool by paying cash to ISC.
Interface, as servicer for ISC, and the Receivables Purchaser control and
administer daily collections on the receivables in the pool, which are
automatically reinvested and used to purchase new receivables from us. The
Receivables Purchaser's ownership interest in the pool is recalculated to
reflect the effect of each day's collections and reinvestment. In the absence of
unanticipated events (such as a cessation of reinvestments as discussed below),
the Receivables Purchaser's percentage ownership interest in the pool will
generally be equal to 100%, even though the aggregate balance of the receivables
in the pool will be significantly greater than the amount invested by the
Receivables Purchaser. As of December 30, 2001, the program provided for up to a
maximum amount of $65.0 million of funding from the sale of accounts receivable.
In February 2002, however, the maximum amount of funding available under the
program was reduced to $50.0 million.
As of December 30, 2001 the Receivables Purchaser's investment in the pool
was $34.0 million; the aggregate balance of the receivables in the pool on that
date was $56.1 million; and the percentage amount of the Receivables Purchaser's
undivided ownership interest in the pool was 100%. The effective interest rate
on the program for 2001 was 3.6%.
The purchase agreement specifies several events of termination that would
permit the Receivables Purchaser to cease reinvestment of its share of daily
collections and to receive such collections until its investment is fully
recovered. If an event of termination exists under the purchase agreement, the
Receivables Purchaser would not be obligated to purchase interests in the pool.
In that event, we expect that we would seek to borrow a sufficient sum under our
revolving credit facility to permit ISC to repay all amounts owing to the
Receivables Purchaser with respect to its ownership interests in the pool.
However, the occurrence of events of
25
termination under the purchase agreement may also constitute events of default
under our credit facility, which would permit the lenders to withhold future
loans to us. If we were not able to borrow sufficient sums under the credit
facility (or otherwise obtain the funding necessary) to refinance the
Receivables Purchaser's interest in the pool, then control of collections on the
receivables in the pool would remain with the Receivables Purchaser until it
recovers its investments in the pool. If an event of termination exists under
the purchase agreement, the originators are not obligated to continue to sell
their receivables to us and we are not obligated to sell receivables to ISC.
PARTNERSHIP WITH ABN AMRO BANK N.V.
In 1998, our subsidiary Interface Europe B.V. formed a partnership with ABN
AMRO Bank N.V. in the Netherlands for the purpose of developing an office
building and warehouse facility in Scherpenzeel. Recourse against Interface
Europe is limited to the amount of its investment in the partnership, which is
approximately $1.0 million. Upon completion of the office building and warehouse
facility, the partnership leased those facilities to Interface Europe and
Interface International B.V. (which is a subsidiary of Interface Europe). At the
expiration of the lease, Interface Europe and Interface International have the
option to purchase the facilities from the partnership at fair market value.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires the use
of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations. SFAS 141
also requires the recognition of acquired intangible assets apart from goodwill
if the acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001, and to purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, the reclassification of the carrying amounts of intangible assets
and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires companies to identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires a transitional goodwill impairment test
six months from the date of adoption. We also will be required to reassess the
useful lives of other intangible assets within the first interim quarter after
adoption of SFAS 142.
We accounted for our previous business combinations using the purchase
method. As of December 30, 2001, the net carrying amount of goodwill was $251.9
million and other intangible assets was $4.5 million. Amortization expense
during the fiscal year ended December 30, 2001 was $9.8 million. Currently, we
are assessing, but have not yet determined, how the adoption of SFAS 142 will
impact our financial position and results of operations.
In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS
143 establishes accounting standards for the recognition and measurement of
legal obligations associated with the retirement of tangible long-lived assets
and requires recognition of a liability for an asset retirement obligation in
the period in which it is incurred. The provisions of this statement are
effective for financial statements issued for fiscal years beginning after June
15, 2002. We are in the process of evaluating the impact this standard will have
on our financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144
addresses financial accounting and reporting for
26
the impairment or disposal of long-lived assets. The provisions of this
statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. We are in the process of evaluating the
impact this standard will have on our financial statements.
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 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 the use of objective measurable systems, well-defined market
and credit risk limits, and timely reports to senior management according to
prescribed guidelines. We have established strict counter-party credit
guidelines and enter into transactions only with financial institutions with a
rating of investment grade or better. As a result, we consider the risk of
counter-party default to be minimal.
INTEREST RATE MARKET RISK EXPOSURE
Changes in interest rates affect the interest paid on certain of our debt.
To mitigate the impact of fluctuations in interest rates, our management has
developed and implemented a policy to maintain the percentage of fixed and
variable rate debt within certain parameters. We maintain the 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
agree 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. During 2001, we utilized interest rate swap
agreements to effectively convert approximately $125 million of fixed rate debt
into variable debt. We currently maintain 60% and 40% of our total long-term
debt in fixed and variable interest rates, respectively.
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 U.S.,
Canada, England, Northern Ireland, the Netherlands, Australia and Thailand, 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 U.S.,
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 can have a translation impact on our financial
position.
At December 30, 2001, we recognized a $14.0 million decrease in our foreign
currency translation adjustment account compared to December 31, 2000, because
of the weakening of certain currencies against the U.S. dollar. The decrease was
associated primarily with our investments in certain foreign subsidiaries
located within the U.K. and continental Europe.
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.
27
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 30,
2001. 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.
INTEREST RATE RISK
Based on a hypothetical immediate 150 basis point increase in interest
rates, with all other variables held constant, the fair value of our fixed rate
long-term debt and interest rate swap agreement would be impacted by a net
decrease of $8.3 million. Conversely, a 150 basis point decrease in interest
rates would result in a net increase in the fair value of our fixed rate
long-term debt of $9.2 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
As of December 30, 2001, 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
financial instruments of $6.7 million or an increase in the fair value of our
financial instruments of $6.7 million. 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.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales................................................ $1,103,905 $1,283,948 $1,228,239
Cost of sales............................................ 787,874 895,944 846,124
---------- ---------- ----------
Gross profit on sales.................................... 316,031 388,004 382,115
Selling, general and administrative expenses............. 266,988 297,948 304,553
Restructuring charges.................................... 65,085 21,047 1,131
---------- ---------- ----------
Operating income (loss).................................. (16,042) 69,009 76,431
---------- ---------- ----------
Other expense
Interest expense....................................... 37,233 38,500 39,372
Other.................................................. 517 670 (914)
---------- ---------- ----------
Total other expense...................................... 37,750 39,170 38,458
---------- ---------- ----------
Income (loss) before taxes on income (benefit)........... (53,792) 29,839 37,973
Taxes on income (benefit)................................ (17,505) 12,518 14,428
---------- ---------- ----------
Net income (loss)........................................ $ (36,287) $ 17,321 $ 23,545
========== ========== ==========
Earnings (loss) per common share
Basic.................................................. $ (0.72) $ 0.34 $ 0.45
---------- ---------- ----------
Diluted................................................ $ (0.72) $ 0.34 $ 0.45
---------- ---------- ----------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
Net income (loss)........................................ $ (36,287) $ 17,321 $ 23,545
Other comprehensive income (loss)
Foreign currency translation adjustment................ (14,024) (19,281) (22,003)
Minimum pension liability adjustment................... (11,061) -- 6,399
---------- ---------- ----------
Comprehensive income (loss).............................. $ (61,372) $ (1,960) $ 7,941
========== ========== ==========
See accompanying notes to consolidated financial statements.
29
CONSOLIDATED BALANCE SHEETS
[Download Table]
2001 2000
-------- ----------
(IN THOUSANDS)
ASSETS
Current
Cash...................................................... $ 793 $ 7,861
Accounts receivable, net.................................. 161,070 204,886
Inventories............................................... 168,249 198,063
Prepaid expenses.......................................... 31,018 22,765
Deferred income taxes..................................... 17,640 13,533
-------- ----------
Total current assets........................................ 378,770 447,108
Property and equipment, net................................. 260,327 258,245
Other....................................................... 63,783 64,840
Goodwill.................................................... 251,874 264,656
-------- ----------
$954,754 $1,034,849
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 65,805 $ 97,874
Accrued expenses.......................................... 100,566 107,467
Current maturities of long-term debt...................... 1,667 808
-------- ----------
Total current liabilities................................... 168,038 206,149
Long-term debt, less current maturities..................... 178,327 146,550
Senior notes................................................ 150,000 150,000
Senior subordinated notes................................... 125,000 125,000
Deferred income taxes....................................... 26,474 29,551
-------- ----------
Total liabilities........................................... 647,839 657,250
-------- ----------
Minority interest........................................... 4,440 5,164
-------- ----------
Shareholders' equity
Preferred stock........................................... -- --
Common stock.............................................. 5,082 5,831
Additional paid-in capital................................ 219,490 218,261
Retained earnings......................................... 175,940 241,400
Foreign currency translation adjustment................... (86,976) (72,952)
Minimum pension liability................................. (11,061) --
Treasury stock, 0 and 7,493 shares, respectively.......... -- (20,105)
-------- ----------
Total shareholders' equity.................................. 302,475 372,435
-------- ----------
$954,754 $1,034,849
======== ==========
See accompanying notes to consolidated financial statements.
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
FISCAL YEAR ENDED
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)......................................... $ (36,287) $ 17,321 $ 23,545
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization............................. 47,852 50,625 45,789
Bad debt expense.......................................... 5,774 5,909 4,565
Restructuring charges..................................... 41,185 8,210 --
Deferred income taxes..................................... (18,784) (7,209) 3,950
Working capital changes
Accounts receivable..................................... 22,797 (2,749) (20,519)
Inventories............................................. 15,968 (9,172) 16,559
Prepaid expenses........................................ (17,958) 3,272 (2,314)
Accounts payable and accrued expenses................... (42,245) 5,225 (509)
--------- --------- ---------
Cash provided by operating activities..................... 18,302 71,432 71,066
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures...................................... (30,036) (30,495) (37,278)
Net proceeds from dispositions/cash paid for acquisitions
of businesses........................................... (2,198) (29,872) 9,826
Other..................................................... (12,447) (10,876) (24,393)
--------- --------- ---------
Cash used in investing activities......................... (44,681) (71,243) (51,845)
--------- --------- ---------
FINANCING ACTIVITIES
Borrowings on long-term debt.............................. 341,140 211,323 148,900
Principal repayments on long-term debt.................... (309,882) (191,023) (156,574)
Expenditures under share repurchase program............... (2,217) (6,842) (10,615)
Proceeds from issuance of common stock.................... 269 496 1,044
Dividends paid............................................ (7,628) (9,243) (9,453)
Other..................................................... (1,272) -- --
--------- --------- ---------
Cash provided by (used in) financing activities........... 20,410 4,711 (26,698)
--------- --------- ---------
Net cash provided by (used in) operating, investing and
financing activities.................................... (5,969) 4,900 (7,477)
Effect of exchange rate changes on cash................... (1,099) 413 115
--------- --------- ---------
CASH
Net increase (decrease)................................... (7,068) 5,313 (7,362)
Balance, beginning of year................................ 7,861 2,548 9,910
--------- --------- ---------
Balance, end of year...................................... $ 793 $ 7,861 $ 2,548
========= ========= =========
See accompanying notes to consolidated financial statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a recognized leader in the worldwide commercial interiors
market, offering floorcoverings, fabrics, specialty products and services. The
Company manufactures modular and broadloom carpet focusing on the high quality,
designer-oriented sector of the market, and provides specialized carpet
replacement, installation and maintenance services. The Company also produces
interior fabrics and upholstery products. Additionally, the Company produces
raised/access flooring systems; provides chemicals used in various rubber and
plastic products; offers Intersept, a proprietary antimicrobial used in a number
of interior finishes; and sponsors the Envirosense Consortium in its mission to
address workplace environmental issues.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions are
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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, inventory obsolescence and the length of product life cycles,
accruals associated with restructuring activities, income tax exposures,
environmental liabilities, carrying value of the goodwill and property and
equipment. Actual results could vary from these estimates.
INVENTORIES
The Company determines the value of inventories using the lower of cost
(standards approximating the first-in, first-out method) or market. We write
down inventories for the difference between the carrying value of the
inventories and their estimated market value. If actual market conditions are
less favorable than those projected by management, additional write-downs may be
required.
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 fifty years; 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 of
approximately $0.7 million, $0.5 million, and $0.4 million for the years ended
2001, 2000, and 1999, respectively. Depreciation expense amounted to
approximately $34.6 million, $37.9 million, and $32.4 million for the years
ended 2001, 2000, and 1999, 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.
In June 2001, the Financial Accounting Standards Board (FASB) approved the
issuance of Statement of Financial Accounting Standards (SFAS) No. 143,
"Accounting for Asset Retirement Obligations." SFAS 143 establishes accounting
standards for the recognition and measurement of legal obligations associated
with the retirement of tangible long-lived assets and requires recognition of a
liability for an asset retirement obligation in the period in which it is
incurred. The provisions of this statement are effective for financial
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements issued for fiscal years beginning after June 15, 2002. Management is
in the process of evaluating the impact this standard will have on the Company's
financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. Management is in the process
of evaluating the impact this standard will have on the Company's financial
statements.
GOODWILL
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the periods benefited, principally
twenty-five to forty years. Accumulated amortization amounted to approximately
$88.3 million and $78.5 million at December 30, 2001 and December 31, 2000,
respectively.
The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired, which is
other than temporary, is to evaluate the recoverability and remaining life and
determine whether it should be completely or partially written off or the
amortization period accelerated. The Company will recognize an impairment if
undiscounted estimated future operating cash flows of the acquired business are
determined to be less than the carrying amount.
In June 2001, the FASB finalized SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires the use
of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations initiated
after June 30, 2001. SFAS 141 also requires that the Company recognize acquired
intangible assets apart from goodwill if the acquired intangible assets meet
certain criteria. SFAS 141 applies to all business combinations initiated after
June 30, 2001, and to purchase business combinations completed on or after July
1, 2001. It also requires, upon adoption of SFAS 142, that the Company
reclassify the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of December 30, 2001, the net carrying amount of goodwill
was $251.9 million and other intangible assets was $4.5 million. Amortization
expense during the year ended December 30, 2001 was $9.8 million. Currently, the
Company is assessing but has not yet determined how the adoption of SFAS 142
will impact its financial position and results of operations.
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
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
REVENUE RECOGNITION
Revenue is recognized on the sale of products or services when the products
are shipped or the services are performed, all significant contractual
obligations have been satisfied, and the collection of the resulting receivable
is reasonably assured. The Company's delivery term typically is F.O.B. shipping
point. Revenues and estimated profits on performance contracts are recognized
under the percentage of completion method of accounting using the cost-to-cost
methodology. Profit estimates are revised periodically based upon changes in
facts. Any losses identified on contracts are recognized immediately.
In accordance with EITF 00-10, 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.
Pursuant to the Securities and Exchange Commission's Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," the
Company has reviewed its accounting policies for the recognition of revenue. SAB
No. 101 was required to be implemented in fourth quarter 2000. SAB No. 101
provides guidance on applying generally accepted accounting principles to
revenue recognition in financial statements. The Company's policies for revenue
recognition are consistent with the views expressed within SAB No. 101.
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.
At December 30, 2001 and December 31, 2000, checks issued against future
deposits totaled approximately $20.2 million and $11.0 million, respectively.
Cash payments for interest amounted to approximately $42.6 million, $41.4
million, and $36.6 million, for the years ended 2001, 2000, and 1999,
respectively. Income tax payments amounted to approximately $5.8 million, $11.8
million, and $6.1 million, for the years ended 2001, 2000, and 1999,
respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term investments and
short-term debt approximate cost due to the short period of time to maturity.
Fair values of debt and swaps 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 income.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective January 1, 2001. SFAS 133 requires a company
to recognize all derivatives on the balance sheet at
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value. Derivatives that are not hedges 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. The adoption of SFAS 133, as amended, did not have a
material impact on the Company's consolidated financial statements.
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 "2001," "2000," and "1999," mean
the fiscal years ended December 30, 2001, December 31, 2000, and January 2,
2000, respectively. Fiscal years 2001, 2000 and 1999 were each comprised of 52
weeks.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform to the 2001 presentation.
RECEIVABLES
The Company, through a separate single purpose corporate entity, Interface
Securitization Corporation ("ISC"), maintains an agreement with a financial
institution to sell commercial accounts receivable generated by certain of our
operating subsidiaries. As of December 30, 2001, the agreement provided for up
to a maximum amount of $65.0 million of funding from the sale of such
receivables. (In February 2002, the maximum amount of funding available was
reduced to $50.0 million.) (Prior to December 2000, the Company had a similar
program that began in 1995.) As of December 30, 2001, Bentley Mills, Inc. (now
known as Bentley Prince Street, Inc.), Chatham Marketing Co., Guilford of Maine
Marketing Co., Intek Marketing Co., Interface Americas, Inc., Interface
Architectural Resources, Inc., Interface Flooring Systems, Inc., Pandel, Inc.
and Toltec Fabrics, Inc. were the only subsidiaries participating in the
Securitization Program. Cash proceeds from the sale and securitization of these
receivables were $20.0 million and $51.0 million in 2001 and 2000, respectively.
No significant gain or loss resulted from these transactions. The Company
expects recourse amounts associated with the aforementioned sale and
securitization activities to be minimal and has adequate reserves to cover
potential losses. Prior to December 2000, the Company had a similar agreement
with another financial institution. The receivables sold at December 30, 2001
and December 31, 2000 amounted to $34.0 million and $54.0 million, respectively.
The assets of ISC are available first and foremost to satisfy the claims of its
creditors.
Effective January 1, 2001, the Company adopted SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a replacement of SFAS No. 125". This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities and revises the accounting standards
for securitizations and transfers of financial assets and collateral. The
adoption of SFAS 140 did not have a material effect on the Company's results of
operations and financial position.
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 our customers were to deteriorate, resulting in an impairment of their
ability to make
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payments, additional allowances may be required. As of December 30, 2001 and
December 31, 2000, the allowance for bad debts amounted to approximately $10.0
million and $8.7 million, respectively, for all accounts receivable of the
Company.
INVENTORIES
Inventories are summarized as follows:
[Download Table]
2001 2000
--------- ---------
(IN THOUSANDS)
Finished goods.............................................. $ 84,191 $ 101,411
Work-in-process............................................. 35,204 40,939
Raw materials............................................... 48,854 55,713
--------- ---------
$ 168,249 $ 198,063
========= =========
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
[Download Table]
2001 2000
--------- ---------
(IN THOUSANDS)
Land........................................................ $ 12,879 $ 13,677
Buildings................................................... 136,828 136,901
Equipment................................................... 380,856 351,643
--------- ---------
530,563 502,221
Accumulated depreciation.................................... (270,236) (243,976)
--------- ---------
$ 260,327 $ 258,245
========= =========
The estimated cost to complete construction-in-progress for which the
Company was committed at December 30, 2001 was approximately $2.7 million.
ACCRUED EXPENSES
Accrued expenses are summarized as follows:
[Download Table]
2001 2000
--------- ---------
(IN THOUSANDS)
Compensation................................................ $ 25,625 $ 38,701
Restructuring............................................... 18,636 613
Pension..................................................... 11,061 --
Environmental............................................... 9,049 10,555
Interest.................................................... 4,584 5,416
Taxes....................................................... -- 9,305
Other....................................................... 31,611 42,877
--------- ---------
$ 100,566 $ 107,467
========= =========
During May 2000, the Company acquired certain assets and assumed certain
liabilities of the Chatham Manufacturing division of CMI Industries, Inc.
("Chatham"). As part of the acquisition, the Company engaged environmental
consultants to review potential environmental liabilities at all Chatham
properties. Based on their review, the environmental consultants recommended
certain environmental remedial actions, including groundwater monitoring, and
estimated the costs thereof. The Company is currently taking steps to
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
implement the recommended actions at Chatham. Based upon the cost estimates
provided by the environmental consultants, the Company believes that the
estimated range of the net present value of reasonably predictable costs of
groundwater monitoring and other remedial actions is between $7.9 million and
$10.2 million. The Company believes that the net present value of the expense
for the ongoing groundwater monitoring will be approximately $6.1 million in the
aggregate for the first ten years and $1.8 million in the aggregate for the
following twenty years. The net present value of the cost of other remedial
actions will be approximately $1.1 million in the aggregate. At December 30,
2001, the Company had accrued approximately $9.0 million, which represents the
best estimate available of the net present value of these costs discounted at
6%.
Actual costs related to groundwater monitoring and other remedial actions
at Chatham incurred during 2001 were approximately $1.5 million. Costs incurred
during 2000 were insignificant. Actual costs incurred will depend upon numerous
factors, including (i) the actual method and results of the remedial actions;
(ii) the outcome of negotiations with regulatory authorities; (iii) changes in
environmental laws and regulations; (iv) technological developments and
advancements; and (v) the years of remedial activity required. Based on the
information currently available, the Company does not expect that any unrecorded
liability related to the above matters would materially affect the consolidated
financial position or results of operations of the Company. Environmental
accruals are routinely reviewed as events and developments warrant and are
subjected to a comprehensive annual review.
BORROWINGS
LONG-TERM DEBT
Long-term debt consisted of the following:
[Enlarge/Download Table]
INTEREST RATE AT
DECEMBER 30, 2001 2001 2000
----------------- -------- --------
(IN THOUSANDS)
Revolving credit facilities
U.S. dollar................................... 4.96% $129,250 $ 87,750
Japanese yen.................................. 2.19% 7,545 8,000
British pound sterling........................ 6.19% 30,515 34,455
Euro.......................................... 5.43% 4,415 6,660
Other........................................... 1.75-6.00% 8,269 10,493
-------- --------
Total long-term debt............................ 179,994 147,358
Less current maturities......................... (1,667) (808)
-------- --------
$178,327 $146,550
======== ========
On August 8, 2001, the Company amended its revolving credit facility. The
amendment, among other things, (i) eased certain financial covenants, (ii)
increased pricing on borrowings to reflect current market conditions, (iii)
decreased the revolving credit limit from $300 million to $250 million, and (iv)
granted first priority security interests in and liens on all of our assets and
substantially all of the assets of our material domestic subsidiaries, including
all of the stock of our domestic subsidiaries and up to 65% of the stock of our
first-tier foreign subsidiaries.
On January 17, 2002, the revolving credit facility was further amended and
restated to, among other things, substitute certain lenders, change certain
covenants, and reduce the maximum borrowing amount to $100 million. In
connection with the amendment and restatement of the facility, the Company
issued the 10.375% Senior Notes discussed below. The amended facility matures
May 15, 2005, subject to a possible extension of that maturity date to January
17, 2007 if the Company meets certain conditions relating to the repayment of
long-term debt. Interest is charged at varying rates based on the Company's
ability to meet certain performance criteria.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The facility requires prepayment from specified excess cash flows or
proceeds from certain asset sales and maintenance of certain financial ratios,
and governs the ability of the Company to, among other things, encumber assets,
repay debt and pay dividends. Long-term debt recorded in the accompanying
balance sheets approximates fair value based on the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities.
Future maturities of long-term debt are based on fixed payments (amounts
could be higher if excess cash flows or asset sales require prepayment of debt
under the credit agreements). Annual maturities (in thousands of dollars) of
long-term debt outstanding at December 30, 2001 are as follows: 2002 -- $1,667;
2003 -- $171,827; 2004 -- $0; 2005 -- $0; 2006 -- $0; Thereafter -- $6,500.
10.375% SENIOR NOTES
On January 17, 2002, the Company completed a private offering of $175
million in 10.375% Senior Notes due 2010. Interest is payable semi-annually on
February 1st and August 1st beginning August 1st, 2002. Proceeds from the
issuance of these Notes were used to pay down the revolving credit facility.
The Notes are guaranteed, jointly and severally, on an unsecured senior
basis by certain of the Company's domestic subsidiaries. The Senior Notes are
redeemable up to 35% at any time prior to February 1, 2005 with the proceeds of
one or more equity offerings at a price of 110 3/8% of the principal amount.
7.3% SENIOR NOTES
The Company has outstanding $150 million in 7.3% Senior Notes due 2008.
Interest is payable semi-annually on April 1 and October 1.
The Senior Notes are unsecured, senior subordinated notes and are
guaranteed, jointly and severally, by certain of the Company's domestic
subsidiaries. The Senior Notes are redeemable, in whole or in part, at the
option of the Company, at any time or from time to time, at a redemption price
equal to the greater of (i) 100% of the principal amount of the Notes to be
redeemed or (ii) the sum of the present value of the remaining scheduled
payments, discounted on a semi-annual basis at the treasury rate plus 50 basis
points, plus, in the case of each of (i) and (ii) above, accrued interest to the
date of redemption. At December 30, 2001 and December 31, 2000, the estimated
fair value of these notes based on then current market prices was approximately
$127.5 million and $140.3 million, respectively.
9.5% SENIOR SUBORDINATED NOTES
The Company has outstanding $125 million in 9.5% Senior Subordinated Notes
due 2005. Interest is payable semi-annually on May 15 and November 15.
The Notes are guaranteed, jointly and severally, on an unsecured senior
subordinated basis by certain of the Company's domestic subsidiaries. The Notes
became redeemable for cash after November 15, 2000 at the Company's option, in
whole or in part, initially at a redemption price equal to 104.75% of the
principal amount, declining to 100% of the principal amount on November 15,
2003, plus accrued interest thereon to the date fixed for redemption. At
December 30, 2001 and December 31, 2000, the estimated fair value of these notes
based on then current market prices was approximately $111.3 million and $126.9
million, respectively.
LINES OF CREDIT AND STANDBY LETTERS OF CREDIT
Subsidiaries of the Company have an aggregate of $21.6 million of lines of
credit available at interest rates ranging from 4.0% to 7.5%. No amounts were
outstanding under these lines of credit as of December 30, 2001. Subsidiaries of
the Company also have an aggregate of $10.8 million of standby letters of credit
outstanding, related primarily to the debt of a subsidiary and workers
compensation liabilities.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
The Company is authorized to create 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.
PREFERRED SHARE PURCHASE RIGHTS
The Company has previously issued one purchase right (a "Right") in respect
of each outstanding share of Common Stock. Each Right entitles the registered
holder to purchase from the Company one two-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) more than 15% 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 one-hundredth of a share 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 200 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 200 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 200 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 200 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. While the Company's Class B
Common Stock remains outstanding, holders of Series B Preferred Stock will vote
as a single class with the Class A Common Stockholders for election of
directors.
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. The Rights expire on March 15, 2008 unless extended
or unless the Rights are earlier redeemed or exchanged by the Company.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 80 million shares of $.10 par value
Class A Common Stock and 40 million shares of $.10 par value Class B Common
Stock. Class A and Class B Common Stock have identical voting rights except for
the election or removal of directors. Holders of Class B Common Stock are
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 comprises less than ten percent of the Company's
total issued and outstanding shares of Class A and Class B Common Stock. On
December 30, 2001, the outstanding Class B shares constituted approximately 14%
of the total outstanding shares of Class A and Class B Common Stock. The
Company's Class A Common Stock is traded in the over-the-counter market under
the symbol IFSIA and is quoted on Nasdaq. The Company's Class B Common Stock is
not publicly traded. Class B Common Stock is convertible into Class A Common
Stock on a one-for-one basis. Both classes of Common Stock share in dividends
available to common shareholders. Cash dividends on Common Stock were $.15 per
share for 2001 and $.18 per share for each of 2000 and 1999.
STOCK REPURCHASE PROGRAM
The Company has a share repurchase program, pursuant to which it was
authorized to repurchase up to 2,000,000 shares of Class A Common Stock in the
open market through May 19, 2000. During 2000, the authorized share repurchase
amount was increased to 4,000,000 shares and the program was extended through
May 19, 2002. During 2001, the Company repurchased 280,300 shares of Class A
Common Stock under this program, at prices ranging from $6.02 to $9.44 per
share. This is compared to the repurchase of 1,177,313 shares of Class A Common
Stock at prices ranging from $3.41 to $8.94 per share during 1999 and the
repurchase of 1,442,500 shares of Class A Common Stock at prices ranging from
$4.50 to $9.94 during 1999. Under a covenant in our revolving credit facility,
we currently are prohibited from repurchasing shares under the program. However,
if in the future we meet certain financial criteria, the prohibition will be
lifted.
All treasury stock is accounted for using the cost method. During 2001, the
Company retired 7,773,000 shares of treasury stock.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables show changes in common shareholders' equity.
[Enlarge/Download Table]
FOREIGN
ADDITIONAL MINIMUM CURRENCY
CLASS A CLASS A CLASS B CLASS B PAID-IN RETAINED PENSION TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS LIABILITY ADJUSTMENT
------- ------- ------- ------- ---------- -------- --------- -----------
(IN THOUSANDS)
Balance, at January 3, 1999... 54,220 $5,422 5,614 $561 $231,959 $219,230 $ (6,399) $(31,668)
Net income.................... -- -- -- -- -- 23,545 -- --
Conversion of common stock.... (190) (19) 190 19 -- -- -- --
Stock issuances and
forfeitures under employee
plans, inclusive of tax
benefit of $15.............. 274 27 (402) (40) (2,498) -- -- --
Other issuances of common
stock....................... 85 9 912 91 10,414 -- -- --
Cash dividends paid........... -- -- -- -- -- (9,453) -- --
Unamortized stock compensation
expense related to
restricted stock awards..... -- -- -- -- (8,784) -- -- --
Compensation expense related
to restricted stock
awards...................... -- -- -- -- 1,070 -- -- --
Forfeiture and vesting of
restricted stock awards..... -- -- -- -- 3,664 -- -- --
Retirement of treasury
stock....................... (1,678) (168) -- -- (13,452) -- -- --
Minimum pension liability
adjustment.................. -- -- -- -- -- -- 6,399 --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- (22,003)
------ ------ ----- ---- -------- -------- -------- --------
Balance, at January 2, 2000... 52,711 $5,271 6,314 $631 $222,373 $233,322 $ -- $(53,671)
====== ====== ===== ==== ======== ======== ======== ========
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[Enlarge/Download Table]
FOREIGN
ADDITIONAL MINIMUM CURRENCY
CLASS A CLASS A CLASS B CLASS B PAID-IN RETAINED PENSION TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS LIABILITY ADJUSTMENT
------- ------- ------- ------- ---------- -------- --------- -----------
(IN THOUSANDS)
Balance, at January 2, 2000... 52,711 $5,271 6,314 $631 $222,373 $233,322 $ -- $(53,671)
Net income.................... -- -- -- -- -- 17,321 -- --
Conversion of common stock.... (602) (60) 602 60 -- -- -- --
Stock issuances under employee
plans....................... 56 6 25 3 581 -- -- --
Other issuances of common
stock....................... 33 3 162 16 787 -- -- --
Retirement of treasury
stock....................... (984) (99) -- -- (5,363) -- -- --
Cash dividends paid........... -- -- -- -- -- (9,243) -- --
Unamortized stock compensation
expense related to
restricted stock awards..... -- -- -- -- (719) -- -- --
Compensation expense related
to restricted stock
awards...................... -- -- -- -- 602 -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- (19,281)
------ ------ ----- ---- -------- -------- -------- --------
Balance, at December 31,
2000........................ 51,214 $5,121 7,103 $710 $218,261 $241,400 $ -- $(72,952)
====== ====== ===== ==== ======== ======== ======== ========
[Enlarge/Download Table]
FOREIGN
ADDITIONAL MINIMUM CURRENCY
CLASS A CLASS A CLASS B CLASS B PAID-IN RETAINED PENSION TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS LIABILITY ADJUSTMENT
------- ------- ------- ------- ---------- -------- --------- -----------
(IN THOUSANDS)
Balance, at December 31,
2000........................ 51,214 $5,121 7,103 $710 $218,261 $241,400 $ -- $(72,952)
------ ------ ----- ---- -------- -------- -------- --------
Net loss...................... -- -- -- -- -- (36,287) -- --
Conversion of common stock.... 207 21 (207) (21) -- -- -- --
Stock issuances under employee
plans....................... 38 4 7 1 264 -- -- --
Other issuances of common
stock....................... -- -- 279 28 2,610 -- -- --
Retirement of treasury
stock....................... (7,773) (777) -- -- -- (21,545) -- --
Cash dividends paid........... -- -- -- -- -- (7,628) -- --
Unamortized stock compensation
expense related to
restricted stock awards..... -- -- -- -- (2,638) -- -- --
Forfeitures and compensation
expense related to
restricted stock awards..... 48 5 (97) (10) 993 -- -- --
Minimum pension liability
adjustment.................. -- -- -- -- -- -- (11,061) --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- (14,024)
------ ------ ----- ---- -------- -------- -------- --------
Balance, at December 30,
2001........................ 43,734 $4,374 7,085 $708 $219,490 $175,940 $(11,061) $(86,976)
====== ====== ===== ==== ======== ======== ======== ========
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
The Company has an Omnibus Stock Incentive Plan ("Omnibus Plan") under
which a committee of the Board of 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 Class A or Class B Common Stock at
a price not less than 100% of the fair market value on the date of grant. The
options generally become exercisable 20% per year over a five-year period from
the date of the grant and the options generally expire ten years from the date
of the grant. Initially, an aggregate of 3,600,000 shares of Common Stock not
previously authorized for issuance under any plan, plus the number of shares
subject to outstanding stock options granted under predecessor plans minus the
number of shares issued on or after the effective date pursuant to the exercise
of such outstanding stock options granted under predecessor plans, were
available to be issued under the Omnibus Plan. In May 2001, the shareholders
approved an amendment to the Omnibus Plan which increased by 2,000,000 the
number of shares of Common Stock authorized for issuance under the Omnibus Plan.
The following tables summarize stock option activity under the Omnibus Plan
and predecessor plans:
[Enlarge/Download Table]
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
Outstanding at January 3, 1999........................ 3,404,000 $ 8.75
Granted............................................... 576,000 7.84
Exercised............................................. (324,000) 6.20
Forfeited or canceled................................. (50,000) 15.26
---------- ------
Outstanding at January 2, 2000........................ 3,606,000 $ 8.74
Granted............................................... 1,642,000 4.98
Exercised............................................. (93,000) 6.36
Forfeited or canceled................................. (1,256,000) 10.97
---------- ------
Outstanding at December 31, 2000...................... 3,899,000 $ 6.53
Granted............................................... 836,000 5.87
Exercised............................................. (42,000) 6.06
Forfeited or canceled................................. (239,000) 7.27
---------- ------
Outstanding at December 30, 2001...................... 4,454,000 $ 6.38
========== ======
As of December 30, 2001, the number of shares authorized for issuance under
the Omnibus Plan that were not the subject of then-outstanding option grants was
3,167,000.
[Enlarge/Download Table]
OPTIONS EXERCISABLE NUMBER OF SHARES WEIGHTED AVERAGE EXERCISE PRICE
------------------- ---------------- -------------------------------
December 30, 2001.......................... 2,049,000 $7.02
December 31, 2000.......................... 1,732,000 $7.30
January 2, 2000............................ 1,916,000 $7.63
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[Enlarge/Download Table]
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED NUMBER
OUTSTANDING AT CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 30, 2001 LIFE EXERCISE PRICE DECEMBER 30, 2001 EXERCISE PRICE
------------------------ ----------------- ----------- -------------- ----------------- --------------
$ 3.63 - 6.94.......... 2,727,000 7.27 $ 5.00 990,000 $ 5.41
7.00 - 9.56.......... 1,551,000 5.97 $ 8.26 934,000 $ 8.18
10.06 - 14.44.......... 176,000 5.83 $11.18 125,000 $11.16
--------- ---- ------ --------- ------
4,454,000 6.76 $ 6.38 2,049,000 $ 7.02
========= ==== ====== ========= ======
The weighted average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 2001, 2000 and 1999 were
$2.95, $2.55 and $2.12 per share, respectively.
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans. Compensation expense related to stock option plans described above
was immaterial for 2001, 2000, and 1999. If the Company had elected to recognize
compensation cost based on the fair value at the grant dates for options issued
under the plans described above, consistent with the method prescribed by SFAS
123, net income (loss) applicable to common shareholders and earnings (loss) per
share would have been changed to the pro forma amounts indicated below:
[Enlarge/Download Table]
FISCAL YEAR ENDED
----------------------------------
2001 2000 1999
---------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net income (loss) as reported.......................... $(36,287) $17,321 $23,545
pro forma............................................ (38,697) 15,295 22,185
Basic earnings (loss) per share as reported............ $ (0.72) $ 0.34 $ 0.45
pro forma............................................ (0.77) 0.30 0.42
Diluted earnings (loss) per share as reported.......... $ (0.72) $ 0.34 $ 0.45
pro forma............................................ (0.77) 0.30 0.42
The fair value of stock options used to compute pro forma net income (loss)
and earnings (loss) per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions for 2001, 2000, and 1999: Dividend yield of 1.2% in
2001, 2.1% in 2000, and 3.6% in 1999; expected volatility of 50% in 2001, 40% in
2000, and 31% in 1999; a risk-free interest rate of 5.09% in 2001, 6.38% in
2000, and 5.72% in 1999; and an expected option life of 6.5 years in 2001, 6.5
years in 2000, and 6.0 years in 1999.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation," an interpretation of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Interpretation No. 44
clarifies the application of APB No. 25 to the definition of an employee for
purposes of applying APB No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. This interpretation did not have a material impact on the Company's
consolidated financial statements.
RESTRICTED STOCK AWARDS
During fiscal years 2001, 2000, and 1999 restricted stock awards were
granted for 279,498, 161,514, and 310,563 shares, respectively, of Class B
Common Stock. These shares vest with respect to each employee after
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a nine-year period from the date of grant, provided the individual remains in
the employment of the Company as of the vesting date. Additionally, these shares
could vest upon the attainment of certain share performance criteria; in the
event of a change in control of the Company; or, in the case of the 204,984
awards granted in 1997 that have neither vested or been forfeited, upon
involuntary termination. Compensation expense relating to these grants was
approximately $1,051,000, $602,000, and $1,070,000 during 2001, 2000, and 1999,
respectively. During 2001, 2000 and 1999, shares were issued and as a result
unamortized stock compensation for the value of the awards was recorded as a
reduction to additional paid-in capital. Due to severance agreements offered
during 2001, 46,247 shares were forfeited and 50,951 shares became vested. Due
to severance agreements offered during 1999, 247,647 shares were forfeited and
210,538 shares became vested (of which 109,818 were repurchased by the Company).
At December 30, 2001 and December 31, 2000, stock awards for 807,475 and 625,176
shares of Class B Common Stock remained outstanding, respectively.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares of Class A and Class B Common Stock
outstanding during each year. Shares issued during the year and shares
reacquired during the year are weighted for the portion of the year that they
were outstanding. Diluted earnings (loss) per share is computed in a manner
consistent with that of basic earnings (loss) per share while giving effect to
all potentially dilutive common shares that were outstanding during the period.
During 2001, approximately 50,099,000 weighted average shares were outstanding.
For 2001, potentially dilutive securities (consisting of options) were not
considered in the calculation of diluted earnings (loss) per share, as their
impact would be antidilutive.
The following is a reconciliation from basic earnings (loss) per share to
diluted earnings per share for 2000 and 1999:
[Download Table]
WEIGHTED AVERAGE EARNINGS PER
NET INCOME SHARES OUTSTANDING SHARE
---------- ------------------ ------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
2000
Basic $17,321 50,558 $0.34
Effect of dilution:
Stock options and awards 266
------- ------ -----
Diluted $17,321 50,824 $0.34
======= ====== =====
1999
Basic $23,545 52,562 $0.45
Effect of dilution:
Stock options and awards 241
------- ------ -----
Diluted $23,545 52,803 $0.45
======= ====== =====
In 2000 and 1999, 2,461,383 and 1,817,309 stock options, respectively, were
excluded from the computation of diluted earnings (loss) per share due to their
antidilutive effect.
RESTRUCTURING CHARGES
2001 RESTRUCTURING
During 2001, the Company recorded a pre-tax restructuring charge of $65.1
million. The charge reflected: (i) the withdrawal from the European broadloom
market; (ii) the consolidation in the Company's raised/access flooring
operations; (iii) the further rationalization of the U.S. broadloom operations;
(iv) a worldwide workforce reduction of approximately 838 employees; and (v) the
consolidation of certain non-strategic Re:Source Americas operations. The
Company initially recorded a charge of $62.2 million during the
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
third quarter of 2001, and in the fourth quarter of 2001 recorded an additional
$2.9 million charge related to pension benefits for terminated European
employees.
Specific elements of the restructuring activities, the related costs and
current status of the plan are discussed below.
U.S.
Recent economic developments have caused a decline in demand for
raised/access flooring, panel fabric and certain of the Company's other
products. In order to better match the cost structure to the expected revenue
base, the Company closed two raised/access flooring plants and one panel fabric
plant, eliminated certain product lines, consolidated certain under-performing
distribution locations and made other head-count reductions. A charge of
approximately $28.8 million was recorded representing the reduction of carrying
value of the related property and equipment, impairment of intangible assets and
other costs to close these operations. Additionally, the Company recorded
approximately $5.3 million of termination benefits associated with the facility
closures and other head-count reductions.
EUROPE
For the past several years the Company's European broadloom operations have
had negative returns. The softening global economy during 2001, and the events
of September 11, 2001 (which severely impacted consumers of broadloom carpet in
the hospitality, leisure and airline businesses) led management to conclude that
positive returns from this operation were unlikely for the near future. As a
result, the Company elected to divest of this operation. The Company also
elected to consolidate certain production and administrative facilities
throughout Europe. A charge of approximately $19.0 million was recorded
representing the reduction of carrying value of the related property and
equipment, impairment of intangible assets and other costs to close or dispose
of these operations. Additionally, the Company recorded approximately $12.0
million of termination benefits associated with the facility closures.
A summary of the restructuring activities is presented below:
[Download Table]
U.S. EUROPE TOTAL
------- ------- -------
(IN THOUSANDS)
Facilities consolidation................................ $ 5,889 $ 8,685 $14,574
Workforce reduction..................................... 5,266 12,049 17,315
Product rationalization................................. 15,735 1,070 16,805
Other impaired assets................................... 6,997 9,394 16,391
------- ------- -------
$33,887 $31,198 $65,085
======= ======= =======
The restructuring charge was comprised of $24.0 million of cash
expenditures for severance benefits and other costs and $41.1 million of
non-cash charges, primarily for the write-down of carrying value and disposal of
certain assets.
The termination benefits of $17.3 million, primarily related to severance
costs, are a result of aggregate reductions of approximately 838 employees. The
staff reductions as originally planned were expected to be as follows:
[Download Table]
U.S. EUROPE TOTAL
---- ------ -----
Manufacturing............................................... 243 436 679
Selling and administrative.................................. 62 97 159
--- --- ---
305 533 838
=== === ===
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the restructuring, a total of 594 employees were terminated
through December 30, 2001. The charge for termination benefits and other costs
to exit activities incurred during 2001 was reflected as a separately stated
charge against operating income. The Company believes the remaining provisions
are adequate to complete the plan.
The following table displays the activity within the accrued restructuring
liability for the period ended December 30, 2001:
TERMINATION BENEFITS
[Enlarge/Download Table]
U.S. EUROPE TOTAL
-------- -------- --------
(IN THOUSANDS)
Balance, at September 30, 2001....................... $ 5,266 $ 9,115 $ 14,381
Additional expense................................... -- 2,934 2,934
Cash payments........................................ (3,295) (2,697) (5,992)
-------- -------- --------
Balance, at December 30, 2001........................ $ 1,971 $ 9,352 $ 11,323
======== ======== ========
OTHER COSTS TO EXIT ACTIVITIES
[Enlarge/Download Table]
U.S. EUROPE TOTAL
-------- -------- --------
(IN THOUSANDS)
Balance, at September 30, 2001....................... $ 28,661 $ 19,149 $ 47,810
Costs incurred....................................... (27,462) (13,035) (40,497)
-------- -------- --------
Balance, at December 30, 2001........................ $ 1,199 $ 6,114 $ 7,313
======== ======== ========
Cash payments for other costs to exit activities were $2.7 million for
2001.
2000 RESTRUCTURING
During 2000, the Company recorded a pre-tax restructuring charge of $21.0
million. The charge reflected: (i) the integration of the U.S. broadloom
operations; (ii) the consolidation of certain administrative and back-office
functions; (iii) the divestiture of certain non-strategic Re:Source Americas
operations; and (iv) the abandonment of manufacturing equipment utilized in the
production of discontinued product lines.
Specific elements of the restructuring activities, the related costs and
current status of the plan are discussed below.
U.S.
Historically, the Company has operated two manufacturing facilities to
produce its Bentley and Prince Street brands of broadloom carpet. These
facilities, which were located in Cartersville, Georgia, and City of Industry,
California, have recently been operating at less than full capacity. In the
first quarter of 2000, the Company decided to integrate these two facilities to
reduce excess capacity. As a result, the facility in Cartersville, Georgia, was
closed and the manufacturing operations were relocated and integrated into the
facility in City of Industry, California. A charge of $4.1 million was recorded
representing the cost of consolidating these facilities and the reduction of
carrying value of the related property and equipment, inventories and other
related assets. Additionally, the Company recorded approximately $4.6 million of
termination benefits associated with the facility closure.
Between 1996 and 1999 the Company created a distribution channel through
the acquisition of twenty-nine service companies located throughout the U.S.
Since that time two of these businesses have failed to achieve satisfactory
operating income levels. During 2000, the Company elected to divest of these
under-performing operations. As a result, a charge of approximately $7.6 million
was recorded representing the
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reduction of carrying value of the related property and equipment, impairment of
intangible assets and other costs to close or dispose of these operations.
EUROPE
Recent economic developments in Europe necessitated an organizational
re-alignment. During fiscal year 2000, the European operations were reorganized
in order to adapt to these changes. As a result, certain manufacturing, selling
and administrative positions were eliminated. The Company recorded approximately
$3.7 million of termination benefits related to this reorganization.
A summary of the restructuring activities which were planned as of April 2,
2000 is presented below:
[Download Table]
U.S. EUROPE TOTAL
------- ------ -------
(IN THOUSANDS)
Termination benefits..................................... $ 4,637 $3,732 $ 8,369
Impairment of property, plant and equipment.............. 1,750 -- 1,750
Facilities consolidation................................. 2,358 -- 2,358
Divestiture of operations, including impairment of
intangible assets...................................... 7,618 -- 7,618
------- ------ -------
$16,363 $3,732 $20,095
======= ====== =======
The restructuring charge was comprised of $11.9 million of cash
expenditures for severance benefits and other costs and $8.2 million of non-cash
charges, primarily for the write-down of impaired assets.
The termination benefits of $8.4 million, primarily related to severance
costs, resulted from aggregate expected reductions of 175 employees. The staff
reductions as originally planned were expected to be as follows:
[Download Table]
U.S. EUROPE TOTAL
---- ------ -----
Manufacturing............................................... 63 21 84
Selling and administrative.................................. 59 32 91
--- -- ---
122 53 175
=== == ===
As a result of the restructuring, a total of 425 employees were terminated
through December 31, 2000. There will not be any further terminations as a
result of the restructuring. The charge for termination benefits and other costs
to exit activities incurred during 2000 was reflected as a separately stated
charge against operating income. During the fourth quarter of 2000, the Company
recorded an additional charge of $0.95 million related to the terminations. The
Company believes the remaining provisions are adequate to complete the plan.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table displays the activity within the accrued restructuring
liability for the periods ended December 31, 2000 and December 30, 2001:
TERMINATION BENEFITS
[Enlarge/Download Table]
U.S. EUROPE TOTAL
-------- ------- --------
(IN THOUSANDS)
Balance, at April 2, 2000............................. $ 4,637 $ 3,732 $ 8,369
Additional expense.................................... 952 -- 952
Cash payments......................................... (5,463) (3,732) (9,195)
-------- ------- --------
Balance, at December 31, 2000......................... 126 -- 126
Cash payments......................................... (126) -- (126)
-------- ------- --------
Balance, at December 30, 2001......................... $ -- $ -- $ --
======== ======= ========
OTHER COSTS TO EXIT ACTIVITIES
[Enlarge/Download Table]
U.S. EUROPE TOTAL
-------- ------- --------
(IN THOUSANDS)
Balance, at April 2, 2000............................. $ 11,726 $ -- $ 11,726
Costs incurred........................................ (11,239) -- (11,239)
-------- ------- --------
Balance, at December 31, 2000......................... 487 -- 487
Costs incurred........................................ (487) -- (487)
-------- ------- --------
Balance, at December 30, 2001......................... $ -- $ -- $ --
======== ======= ========
Cash payments for other costs to exit activities were $3.0 million and $0.5
million for 2000 and 2001, respectively.
1998 RESTRUCTURING
During the year ended January 2, 2000, the Company recorded additional
expense related to its 1998 restructuring of $1.1 million. This represented
additional termination benefits paid of $0.7 million related to its U.S.
Interior Fabrics operations and termination benefits of $0.1 million relating to
its European Floorcoverings operations. Other costs to exit activities of $0.3
million related to its U.S. Interior Fabrics operations.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TAXES ON INCOME
Provisions for federal, foreign, and state income taxes in the consolidated
statements of operations consisted of the following components:
[Enlarge/Download Table]
FISCAL YEAR ENDED
----------------------------
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
Current expense/(benefit):
Federal.............................................. $ (7,961) $12,719 $ 3,868
Foreign.............................................. 2,489 5,805 4,493
State................................................ 620 2,052 2,210
-------- ------- -------
(4,852) 20,576 10,571
-------- ------- -------
Deferred expense/(benefit):
Federal.............................................. (4,413) (5,458) 3,620
Foreign.............................................. (6,163) (1,484) 2,120
State................................................ (2,077) (1,116) (1,883)
-------- ------- -------
(12,653) (8,058) 3,857
-------- ------- -------
$(17,505) $12,518 $14,428
======== ======= =======
Income (loss) before taxes on income consisted of the following:
[Download Table]
FISCAL YEAR ENDED
----------------------------
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
U.S. operations........................................ $(40,411) $16,762 $ 7,434
Foreign operations..................................... (13,381) 13,077 30,539
-------- ------- -------
$(53,792) $29,839 $37,973
======== ======= =======
Deferred income taxes for the years ended December 30, 2001 and December
31, 2000 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 30, 2001, the Company's foreign subsidiaries had approximately
$10.7 million in net operating losses available for an unlimited carryforward
period. Additionally, the Company had approximately $97 million in state net
operating losses expiring at various times through 2021.
The sources of the temporary differences and their effect on the net
deferred tax liability are as follows:
[Enlarge/Download Table]
2001 2000
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
(IN THOUSANDS)
Basis differences of property and equipment... $ -- $26,569 $ -- $30,760
Net operating loss carryforwards.............. 7,946 -- 5,179 --
Deferred compensation......................... 7,025 -- 5,435 --
Nondeductible reserves and accruals........... 14,868 -- 14,275 --
Other differences in basis of assets and
liabilities................................. 5,828 -- -- 3,815
------- ------- ------- -------
$35,667 $26,569 $24,889 $34,575
======= ======= ======= =======
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rate on income (loss) before taxes differs from the U.S.
statutory rate. The following summary reconciles taxes at the U.S. statutory
rate with the effective rates:
[Download Table]
FISCAL YEAR ENDED
------------------
2001 2000 1999
---- ---- ----
Taxes on income (benefit) at U.S. statutory rate............ 35.0% 35.0% 35.0%
Increase in taxes resulting from:
State income taxes, net of federal benefit................ 1.8 2.0 1.0
Amortization of goodwill and related purchase accounting
adjustments............................................ (6.1) 12.7 7.9
Foreign and U.S. tax effects attributable to foreign
operations............................................. .2 (5.5) (6.4)
Other..................................................... 1.6 (2.2) 0.5
---- ---- ----
Taxes on income (benefit) at effective rates................ 32.5% 42.0% 38.0%
==== ==== ====
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $29 million at December 30, 2001. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation.
Withholding taxes of approximately $0.8 million would be payable upon remittance
of all previously unremitted earnings at December 30, 2001.
HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company has employed the use of derivative financial instruments for
the purpose of reducing its exposure to adverse fluctuations in interest rates.
While these hedging instruments were subject to fluctuations in value, such
fluctuations were offset by the fluctuations in values of the underlying
exposures being hedged. The Company has not held or issued derivative financial
instruments for trading purposes. The Company has historically monitored the use
of derivative financial instruments through the use of objective measurable
systems, well-defined market and credit risk limits, and timely reports to
senior management according to prescribed guidelines. The Company has
established strict counter-party credit guidelines and has entered into
transactions only with financial institutions of investment grade or better. As
a result, the Company has historically considered the risk of counter-party
default to be minimal.
In order to benefit from the recent decline in interest rates, during 2001
the Company entered into an agreement with a financial institution whereby the
commitment to pay a fixed rate of interest on its 9.5% Senior Subordinated Notes
was swapped for a commitment to pay a variable rate of interest based upon LIBOR
(fixed at 6.23% for the period November 16, 2001 through May 15, 2002). The
notional amount of this transaction is $125 million, and the term is through
November 15, 2005. The objective of this transaction is to allow the Company to
benefit from reductions in market interest rates. This instrument has been
designated a fair value hedge for financial reporting purposes. There have been
no net gains or losses as a result of ineffectiveness. The value of the
instrument as of December 30, 2001 was not material.
As of December 31, 2000, the Company had no outstanding interest rate
management swap agreements.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMITMENTS AND CONTINGENCIES
The Company leases certain marketing, production and distribution
facilities and equipment. At December 30, 2001, aggregate minimum rent
commitments under operating leases with initial or remaining terms of one year
or more consisted of the following:
[Download Table]
FISCAL YEAR AMOUNT
----------- --------------
(IN THOUSANDS)
2002........................................................ $23,275
2003........................................................ 18,756
2004........................................................ 13,951
2005........................................................ 9,695
2006........................................................ 6,458
Thereafter.................................................. 16,891
-------
$89,026
=======
Rental expense amounted to approximately $25.6 million, $23.6 million, and
$17.5 million for the fiscal years ended 2001, 2000, and 1999, respectively.
EMPLOYEE BENEFIT 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 Plan based on the attainment of
certain performance targets by its subsidiaries. The Company's matching
contributions are funded monthly and totaled approximately $2.6 million, $2.7
million and $1.7 million for the years ended 2001, 2000, and 1999, respectively.
The Company's discretionary contributions totaled $2.2 million, $4.0 million,
and $2.3 million for the years ended 2001, 2000, and 1999, respectively.
Under the Interface, Inc. Nonqualified Savings Plan ("NSP"), the Company
will provide eligible employees the opportunity to enter into agreements for the
deferral of a specified percentage of their compensation, as defined in the NSP.
The obligations of the Company under such arrangements to pay the deferred
compensation in the future in accordance with the terms of the NSP will be
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 NSP. If a change in control of
the Company occurs, as defined in the NSP, 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 NSP totaled $7.4 million which was
invested in cash and marketable securities at December 30, 2001.
The Company has trusteed defined benefit retirement plans ("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
$2.8 million, $2.3 million and $3.3 million for the years ended 2001, 2000, and
1999, respectively. Plan assets are primarily invested in equity and fixed
income securities.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table presented below sets forth the funded status of the Company's
significant domestic and foreign defined benefit plans and required disclosures
in accordance with SFAS 132.
[Download Table]
FISCAL YEAR ENDED
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Change in benefit obligation
Benefit obligation, beginning of year..................... $121,417 $123,489
Service cost.............................................. 3,714 4,004
Interest cost............................................. 6,866 7,224
Benefits paid............................................. (5,899) (4,489)
Actuarial (gain) loss..................................... (3,373) (901)
Member contributions...................................... 1,003 1,079
Currency translation adjustment........................... (4,445) (8,989)
-------- --------
Benefit obligation, end of year............................. $119,283 $121,417
======== ========
Change in plan assets
Plan assets, beginning of year............................ $119,006 $131,345
Actual return on assets................................... (7,788) 105
Company contributions..................................... 3,207 999
Member contributions...................................... 1,083 1,079
Benefits paid............................................. (5,899) (4,489)
Administration expenses................................... -- (615)
Currency translation adjustment........................... (4,514) (9,418)
-------- --------
Plan assets, end of year.................................... $105,095 $119,006
======== ========
Reconciliation to balance sheet
Funded status............................................. $(14,188) $ (2,411)
Unrecognized actuarial loss............................... 21,848 9,680
Unrecognized prior service cost........................... 128 170
Unrecognized transition adjustment........................ 515 677
-------- --------
Net amount recognized....................................... $ 8,303 $ 8,116
======== ========
Amounts recognized in the consolidated balance sheets
Prepaid benefit cost...................................... $ 8,303 $ 8,116
Accrued benefit liability................................. (11,061) --
Accumulated other comprehensive income.................... 11,061 --
-------- --------
Net amount recognized....................................... $ 8,303 8,116
======== ========
Weighted average assumptions
Discount rate............................................. 6.0% 6.4%
Expected return on plan assets............................ 6.7% 7.5%
Rate of compensation...................................... 4.0% 4.2%
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[Download Table]
FISCAL YEAR ENDED
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Components of net periodic benefit cost
Service cost.............................................. $ 3,819 $ 4,004
Interest cost............................................. 6,942 7,224
Expected return on plan assets............................ 7,633 (9,115)
Amortization of prior service costs....................... -- 39
Amortization of transition obligation..................... (15,621) 125
-------- --------
Net periodic benefit cost................................... $ 2,773 $ 2,277
======== ========
The Company maintains a 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 retirement at age 65 (or early retirement at 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 and in no event
less than 10 years under the death benefit feature; (ii) disability benefits
payable for the period of any pre-retirement 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,
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); however, 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 table presented below sets forth the required disclosures in accordance
with SFAS 132 and amounts recognized in the consolidated financial statements
related to the SCP.
[Enlarge/Download Table]
FISCAL YEAR ENDED
-------------------------
2001 2000
---------- ---------
(IN THOUSANDS, EXCEPT FOR
WEIGHTED AVERAGE
ASSUMPTIONS)
Change in benefit obligation
Benefit obligation, beginning of year..................... $ 9,483 $8,338
Service cost.............................................. 151 196
Interest cost............................................. 554 705
Benefits paid............................................. (343) (463)
Actuarial (gain) loss..................................... (2,394) 707
------- ------
Benefit obligation, end of year............................. $ 7,451 $9,483
======= ======
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[Enlarge/Download Table]
FISCAL YEAR ENDED
-------------------------
2001 2000
---------- ---------
(IN THOUSANDS, EXCEPT FOR
WEIGHTED AVERAGE
ASSUMPTIONS)
Weighted average assumptions
Discount rate............................................. 6.0% 6.0%
Rate of compensation...................................... 4.0% 4.0%
------- ------
Components of net periodic benefit cost
Service cost.............................................. $ 151 $ 196
Interest cost............................................. 554 705
Amortization of transition obligation..................... 259 259
------- ------
Net periodic benefit cost................................... $ 964 $1,160
======= ======
SEGMENT INFORMATION
The Company has two reportable segments, Floorcovering Products/Services
and Interior Fabrics. The Floorcovering Products/Services segment manufactures,
installs and services commercial modular and commercial broadloom carpet while
the Interior Fabrics segment manufactures panel and upholstery fabrics.
The accounting policies of the operating segments are the same as those
described in Summary of Significant Accounting Policies. Segment amounts
disclosed are prior to any elimination entries made in consolidation, except in
the case of Net Sales, where intercompany sales have been eliminated. The chief
operating decision maker evaluates performance of the segments based on
operating income. Costs excluded from this profit measure primarily consist of
allocated corporate expenses, interest expense and income taxes. Corporate
expenses are primarily comprised of corporate overhead expenses. Thus, operating
income includes only the costs that are directly attributable to the operations
of the individual segment. Assets not identifiable to an individual segment are
corporate assets, which are primarily comprised of cash and cash equivalents,
short-term investments, intangible assets and intercompany receivables and loans
(which are eliminated in consolidation).
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT DISCLOSURES
Summary information by segment follows:
[Enlarge/Download Table]
FLOORCOVERING
PRODUCTS/SERVICES INTERIOR FABRICS OTHER TOTAL
----------------- ---------------- ------- ----------
(IN THOUSANDS)
2001
Net sales......................... $833,793 $209,905 $60,207 $1,103,905
Depreciation and amortization..... 28,864 11,257 2,129 42,250
Operating income (loss)........... (14,879) 2,426 (4,104) (16,557)
Total assets...................... 654,649 244,559 67,900 967,108
2000
Net sales......................... $951,664 $252,732 $79,552 $1,283,948
Depreciation and amortization..... 33,702 9,732 2,124 45,558
Operating income.................. 35,426 28,275 4,543 68,244
Total assets...................... 834,101 216,718 65,842 1,116,661
1999
Net sales......................... $974,003 $197,120 $57,116 $1,228,239
Depreciation and amortization..... 28,657 11,081 2,100 41,838
Operating income (loss)........... 55,054 21,306 (186) 76,174
Total assets...................... 821,382 205,169 47,624 1,074,175
A reconciliation of the Company's total segment operating income (loss),
depreciation and amortization, and assets to the corresponding consolidated
amounts follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED
----------------------------------
2001 2000 1999
-------- ---------- ----------
(IN THOUSANDS)
DEPRECIATION AND AMORTIZATION
Total segment depreciation and amortization....... $ 42,250 $ 45,558 $ 41,838
Corporate depreciation and amortization........... 5,602 5,067 3,951
-------- ---------- ----------
Reported depreciation and amortization............ $ 47,852 $ 50,625 $ 45,789
======== ========== ==========
OPERATING INCOME (LOSS)
Total segment operating income (loss)............. $(16,557) $ 68,244 $ 76,174
Corporate expenses and eliminations............... 515 765 257
-------- ---------- ----------
Reported operating income (loss).................. $(16,042) $ 69,009 $ 76,431
======== ========== ==========
ASSETS
Total segment assets.............................. $967,108 $1,116,661 $1,074,175
Corporate assets and eliminations................. (12,354) (81,812) (45,680)
-------- ---------- ----------
Reported total assets............................. $954,754 $1,034,849 $1,028,495
======== ========== ==========
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENTERPRISE-WIDE DISCLOSURES
Revenue and long-lived assets related to operations in the U.S. and other
foreign countries are as follows:
[Enlarge/Download Table]
FISCAL YEAR ENDED
------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
SALES TO UNAFFILIATED CUSTOMERS(1)
United States.................................... $ 751,512 $ 880,477 $ 805,112
United Kingdom................................... 180,205 204,078 194,132
Other foreign countries.......................... 172,188 199,393 228,995
---------- ---------- ----------
Net sales........................................ $1,103,905 $1,283,948 $1,228,239
========== ========== ==========
LONG-LIVED ASSETS(2)
United States.................................... $ 188,479 $ 180,318 $ 172,024
United Kingdom................................... 44,176 46,919 47,953
Netherlands...................................... 10,439 12,391 12,279
Other foreign countries.......................... 17,233 18,617 21,180
---------- ---------- ----------
Total long-lived assets.......................... $ 260,327 $ 258,245 $ 253,436
========== ========== ==========
---------------
(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.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data and information regarding the market price per share
of the Company's Class A Common Stock. The prices represent the reported high
and low closing sale prices.
[Enlarge/Download Table]
FISCAL YEAR ENDED 2001
---------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales.................. $306,511 $287,285 $263,108 $247,001
Gross profit............... 88,918 82,898 74,525 69,690
Net income (loss).......... 4,430 1,272 (41,302) (687)
Earnings (loss) per common
share
Basic.................... $ 0.09 $ 0.03 $ (0.83) $ (0.01)
Diluted.................. 0.09 0.03 (0.83) (0.01)
Dividends per common
share.................... $ 0.045 $ 0.045 $ 0.045 $ 0.015
Share prices
High..................... $ 10 7/16 $ 8 1/16 $ 6 7/26 $ 6 3/16
Low...................... 6 1/4 6 4 3 3/4
[Enlarge/Download Table]
FISCAL YEAR ENDED 2000
---------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales.................. $293,218 $323,725 $336,663 $330,342
Gross profit............... 88,666 97,545 101,700 100,093
Net income (loss).......... (8,804) 7,042 9,759 9,322
Earnings (loss) per common
share
Basic.................... $ (0.17) $ 0.14 $ 0.19 $ 0.19
Diluted.................. (0.17) 0.14 0.19 0.18
Dividends per common
share.................... $ 0.045 $ 0.045 $ 0.045 $ 0.045
Share prices
High..................... $ 5 9/16 $ 4 3/8 $ 7 31/32 $ 10
Low...................... 4 3 3/32 3 15/16 6 21/32
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS FOR YEAR ENDED 2001
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
Net sales.................... $893,461 $347,513 $ -- $(137,069) $1,103,905
Cost of sales................ 681,222 243,721 -- (137,069) 787,874
-------- -------- -------- --------- ----------
Gross profit on sales........ 212,239 103,792 -- -- 316,031
Selling, general and
administrative expenses.... 169,373 74,209 23,406 -- 266,988
Restructuring charge......... 33,544 31,541 -- -- 65,085
-------- -------- -------- --------- ----------
Operating income (loss)...... 9,322 (1,958) (23,406) -- (16,042)
-------- -------- -------- --------- ----------
Other expense (income)
Interest expense, net...... 15,543 7,181 14,509 -- 37,233
Other...................... (486) 2,260 (1,257) -- 517
-------- -------- -------- --------- ----------
Total other expense........ 15,057 9,441 13,252 -- 37,750
-------- -------- -------- --------- ----------
Income (loss) before taxes on
income and equity in income
of subsidiaries............ (5,735) (11,399) (36,658) -- (53,792)
Taxes on income (benefit).... (2,824) (2,272) (12,409) -- (17,505)
Equity in income (loss) of
subsidiaries............... -- -- (12,038) 12,038 --
-------- -------- -------- --------- ----------
Net income (loss)............ $ (2,911) $ (9,127) $(36,287) $ 12,038 $ (36,287)
======== ======== ======== ========= ==========
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF OPERATIONS FOR YEAR ENDED 2000
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
Net sales................... $1,029,452 $380,195 $ -- $(125,699) $1,283,948
Cost of sales............... 756,778 264,865 -- (125,699) 895,944
---------- -------- -------- --------- ----------
Gross profit on sales....... 272,674 115,330 -- -- 388,004
Selling, general and
administrative expenses... 189,311 87,754 20,883 -- 297,948
Restructuring charge........ 16,815 3,732 500 -- 21,047
---------- -------- -------- --------- ----------
Operating income (loss)..... 66,548 23,844 (21,383) -- 69,009
---------- -------- -------- --------- ----------
Other expense (income)
Interest expense, net..... 18,181 6,781 13,538 -- 38,500
Other..................... (73) 743 -- -- 670
---------- -------- -------- --------- ----------
Total other expense....... 18,108 7,524 13,538 -- 39,170
---------- -------- -------- --------- ----------
Income (loss) before taxes
on income and equity in
income of subsidiaries.... 48,440 16,320 (34,921) -- 29,839
Taxes on income (benefit)... 13,110 4,842 (5,434) -- 12,518
Equity in income of
subsidiaries.............. -- -- 46,808 (46,808) --
---------- -------- -------- --------- ----------
Net income.................. $ 35,330 $ 11,478 $ 17,321 $ (46,808) $ 17,321
========== ======== ======== ========= ==========
STATEMENT OF OPERATIONS FOR YEAR ENDED 1999
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
Net sales.................... $970,959 $383,385 $ -- $(126,105) $1,228,239
Cost of sales................ 714,452 257,777 -- (126,105) 846,124
-------- -------- -------- --------- ----------
Gross profit on sales........ 256,507 125,608 -- -- 382,115
Selling, general and
administrative expenses.... 186,203 88,678 29,672 -- 304,553
Restructuring charge......... 1,036 95 -- -- 1,131
-------- -------- -------- --------- ----------
Operating income (loss)...... 69,268 36,835 (29,672) -- 76,431
-------- -------- -------- --------- ----------
Other expense (income)
Interest expense, net...... 13,660 6,853 18,859 -- 39,372
Other...................... (2,559) 1,645 -- -- (914)
-------- -------- -------- --------- ----------
Total other expense........ 11,101 8,498 18,859 -- 38,458
-------- -------- -------- --------- ----------
Income (loss) before taxes on
income and equity in income
of subsidiaries............ 58,167 28,337 (48,531) -- 37,973
Taxes on income (benefit).... 22,103 6,465 (14,140) -- 14,428
Equity in income of
subsidiaries............... -- -- 57,936 (57,936) --
-------- -------- -------- --------- ----------
Net income................... $ 36,064 $ 21,872 $ 23,545 $ (57,936) $ 23,545
======== ======== ======== ========= ==========
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET AS OF DECEMBER 30, 2001
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
ASSETS
Current
Cash....................... $ 5,846 $ 4,596 $ (9,649) $ -- $ 793
Accounts receivable........ 117,366 67,295 (23,591) -- 161,070
Inventories................ 115,588 52,661 -- -- 168,249
Miscellaneous.............. 13,186 25,282 10,190 -- 48,658
-------- -------- -------- --------- --------
Total current
assets........... 251,986 149,834 (23,050) -- 378,770
Property and equipment, less
accumulated depreciation... 172,091 71,847 16,389 -- 260,327
Investments in
subsidiaries............... 130,321 718 805,664 (936,703) --
Other........................ 6,302 7,380 50,101 -- 63,783
Goodwill..................... 166,911 82,994 1,969 -- 251,874
-------- -------- -------- --------- --------
$727,611 $312,773 $851,073 $(936,703) $954,754
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities.......... 80,404 77,309 10,325 -- 168,038
Long-term debt, less current
maturities................. 6,607 34,925 411,795 -- 453,327
Deferred income taxes........ 15,007 (7,150) 18,617 -- 26,474
-------- -------- -------- --------- --------
Total
liabilities...... 102,018 105,084 440,737 -- 647,839
-------- -------- -------- --------- --------
Minority interests........... -- 4,440 -- -- 4,440
-------- -------- -------- --------- --------
Shareholders' equity
Preferred stock............ 57,891 -- -- (57,891) --
Common stock............... 94,145 102,199 5,082 (196,344) 5,082
Additional paid-in
capital................. 191,411 12,525 219,490 (203,936) 219,490
Retained earnings.......... 283,185 153,277 197,098 (457,620) 175,940
Foreign currency
translation
adjustment.............. (1,039) (53,691) (11,334) (20,912) (86,976)
Minimum pension
liability............... -- (11,061) -- -- (11,061)
-------- -------- -------- --------- --------
Total shareholders' equity... 625,593 203,249 410,336 (936,703) 302,475
-------- -------- -------- --------- --------
$727,611 $312,773 $851,073 $(936,703) $954,754
======== ======== ======== ========= ========
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET AS OF DECEMBER 31, 2000
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
ASSETS
Current
Cash........................ $ 4,469 $ 3,953 $ (561) $ -- $ 7,861
Accounts receivable......... 177,641 77,992 (50,747) -- 204,886
Inventories................. 135,722 62,341 -- -- 198,063
Miscellaneous............... 12,912 11,743 11,643 -- 36,298
-------- -------- -------- --------- ----------
Total current
assets............ 330,744 156,029 (39,665) -- 447,108
Property and equipment, less
accumulated depreciation.... 164,255 77,927 16,063 -- 258,245
Investments in subsidiaries... 91,675 7,065 870,867 (969,607) --
Other......................... 2,418 22,085 40,337 -- 64,840
Goodwill...................... 172,908 90,692 1,056 -- 264,656
-------- -------- -------- --------- ----------
$762,000 $353,798 $888,658 $(969,607) $1,034,849
======== ======== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities........... $124,137 $ 66,584 $ 15,428 $ -- $ 206,149
Long-term debt, less current
maturities.................. 6,659 44,141 370,750 -- 421,550
Deferred income taxes......... 17,802 3,371 8,378 -- 29,551
-------- -------- -------- --------- ----------
Total liabilities... 148,598 114,096 394,556 -- 657,250
-------- -------- -------- --------- ----------
Minority interests............ -- 5,164 -- -- 5,164
-------- -------- -------- --------- ----------
Shareholders' equity
Preferred stock............. 57,891 -- -- (57,891) --
Common stock................ 94,144 102,199 5,808 (196,320) 5,831
Additional paid-in
capital.................. 191,431 12,525 217,946 (203,641) 218,261
Retained earnings........... 270,699 160,814 280,393 (470,506) 241,400
Foreign currency translation
adjustment............... (763) (41,000) (10,045) (21,144) (72,952)
Treasury stock.............. -- -- -- (20,105) (20,105)
-------- -------- -------- --------- ----------
Total shareholders' equity.... 613,402 234,538 494,102 (969,607) 372,435
-------- -------- -------- --------- ----------
$762,000 $353,798 $888,658 $(969,607) $1,034,849
======== ======== ======== ========= ==========
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEET AS OF JANUARY 2, 2000
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
ASSETS
Current
Cash........................ $ 4,137 $ 6,412 $ (8,001) $ -- $ 2,548
Accounts receivable......... 170,248 71,569 (38,267) -- 203,550
Inventories................. 110,186 66,732 -- -- 176,918
Miscellaneous............... 10,871 20,425 6,466 -- 37,762
-------- -------- -------- --------- ----------
Total current
assets............ 295,442 165,138 (39,802) -- 420,778
Property and equipment, less
accumulated depreciation.... 151,956 81,312 20,168 -- 253,436
Investments in subsidiaries... 38,100 9,758 861,459 (909,317) --
Other......................... 12,118 24,367 39,024 -- 75,509
Goodwill...................... 183,942 91,241 3,589 -- 278,772
-------- -------- -------- --------- ----------
$681,558 $371,816 $884,438 $(909,317) $1,028,495
======== ======== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities........... 91,559 83,888 28,305 -- 203,752
Long-term debt, less current
maturities.................. 6,529 37,915 355,700 -- 400,144
Deferred income taxes......... 15,006 6,111 12,278 -- 33,395
-------- -------- -------- --------- ----------
Total liabilities... 113,094 127,914 396,283 -- 637,291
-------- -------- -------- --------- ----------
Minority interests............ -- 2,012 -- -- 2,012
-------- -------- -------- --------- ----------
Shareholders' equity
Preferred stock............. 57,891 -- -- (57,891) --
Common stock................ 94,145 102,199 5,902 (196,344) 5,902
Additional paid-in
capital.................. 191,411 12,525 222,373 (203,936) 222,373
Retained earnings........... 229,217 154,597 265,641 (416,133) 233,322
Foreign currency translation
adjustment............... (4,200) (27,431) (5,761) (16,279) (53,671)
Treasury stock.............. -- -- -- (18,734) (18,734)
-------- -------- -------- --------- ----------
Total shareholders' equity.... 568,464 241,890 488,155 (909,317) 389,192
-------- -------- -------- --------- ----------
$681,558 $371,816 $884,438 $(909,317) $1,028,495
======== ======== ======== ========= ==========
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS FOR YEAR ENDED 2001
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
Cash flows from operating
activities.................. $ 9,088 $ 28,688 $(19,474) $ -- $ 18,302
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchase of plant and
equipment................ (17,192) (9,228) (3,616) -- (30,036)
Acquisitions, net of cash
acquired................. (2,198) -- -- -- (2,198)
Other....................... (6,080) (5,101) (1,266) -- (12,447)
-------- -------- -------- -------- --------
Cash used in investing
activities.................. (25,470) (14,329) (4,882) -- (44,681)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Net borrowings
(repayments)............. 17,759 (12,617) 26,116 -- 31,258
Proceeds from issuance of
common stock............. -- -- 269 -- 269
Cash dividends paid......... -- -- (7,628) -- (7,628)
Repurchase of common
shares................... -- -- (2,217) (2,217)
Other....................... -- -- (1,272) -- (1,272)
-------- -------- -------- -------- --------
Cash provided by (used in)
financing activities........ 17,759 (12,617) 15,268 -- 20,410
-------- -------- -------- -------- --------
Effect of exchange rate
changes on cash............. -- (1,099) -- -- (1,099)
-------- -------- -------- -------- --------
Net increase (decrease) in
cash........................ 1,377 643 (9,088) -- (7,068)
Cash, at beginning of year.... 4,469 3,953 (561) -- 7,861
-------- -------- -------- -------- --------
Cash, at end of year.......... $ 5,846 $ 4,596 $ (9,649) $ -- $ 793
======== ======== ======== ======== ========
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS FOR YEAR ENDED 2000
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
Cash flows from operating
activities.................. $ 50,417 $ 33,537 $(12,522) $ -- $ 71,432
-------- -------- -------- ------ --------
Cash flows from investing
activities:
Purchase of plant and
equipment................ (19,661) (10,834) -- -- (30,495)
Acquisitions, net of cash
acquired................. (25,307) (4,565) -- -- (29,872)
Other....................... (1,135) (21,010) 11,269 -- (10,876)
-------- -------- -------- ------ --------
Cash provided by (used in)
investing activities........ (46,103) (36,409) 11,269 -- (71,243)
-------- -------- -------- ------ --------
Cash flows from financing
activities:
Net borrowings
(repayments)............. (3,982) -- 24,282 -- 20,300
Proceeds from issuance of
common stock............. -- -- 496 -- 496
Cash dividends paid......... -- -- (9,243) -- (9,243)
Repurchase of common
shares................... -- -- (6,842) -- (6,842)
-------- -------- -------- ------ --------
Cash provided by (used in)
financing activities........ (3,982) -- 8,693 -- 4,711
-------- -------- -------- ------ --------
Effect of exchange rate
changes on cash............. -- 413 -- -- 413
-------- -------- -------- ------ --------
Net increase (decrease) in
cash........................ 332 (2,459) 7,440 -- 5,313
Cash, at beginning of year.... 4,137 6,412 (8,001) -- 2,548
-------- -------- -------- ------ --------
Cash, at end of year.......... $ 4,469 $ 3,953 $ (561) $ -- $ 7,861
======== ======== ======== ====== ========
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS FOR YEAR ENDED 1999
[Enlarge/Download Table]
INTERFACE, INC. CONSOLIDATION &
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ --------------- --------------- ------------
(IN THOUSANDS)
Cash flows from operating
activities.................. $ 22,336 $ 32,036 $ 16,694 $ -- $ 71,066
-------- -------- -------- ------ --------
Cash flows from investing
activities:
Purchase of plant and
equipment................ (21,413) (7,813) (8,052) -- (37,278)
Acquisitions, net of cash
acquired................. -- -- 9,826 -- 9,826
Other....................... 1,626 3,390 (29,409) -- (24,393)
-------- -------- -------- ------ --------
Cash used in investing
activities.................. (19,787) (4,423) (27,635) -- (51,845)
-------- -------- -------- ------ --------
Cash flows from financing
activities:
Net borrowings
(repayments)............. (4,557) (26,550) 23,433 -- (7,674)
Proceeds from issuance of
common stock............. -- -- 1,044 -- 1,044
Cash dividends paid......... -- -- (9,453) -- (9,453)
Repurchase of common
shares................... -- -- (10,615) -- (10,615)
-------- -------- -------- ------ --------
Cash provided by (used in)
financing activities........ (4,557) (26,550) 4,409 -- (26,698)
-------- -------- -------- ------ --------
Effect of exchange rate
changes on cash............. -- 115 -- -- 115
-------- -------- -------- ------ --------
Net increase (decrease) in
cash........................ (2,008) 1,178 (6,532) -- (7,362)
Cash, at beginning of year.... 6,145 5,234 (1,469) -- 9,910
-------- -------- -------- ------ --------
Cash, at end of year.......... $ 4,137 $ 6,412 $ (8,001) $ -- $ 2,548
======== ======== ======== ====== ========
66
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Interface, Inc. is responsible for the accuracy and
consistency of all the information contained in this report, including the
accompanying consolidated financial statements. The statements have been
prepared to conform with the generally accepted accounting principles
appropriate to the circumstances of the Company. The statements include amounts
based on estimates and judgments as required.
Interface maintains an effective internal control structure. It consists,
in part, of organizational arrangements with clearly defined lines of
responsibility and delegation of authority and comprehensive systems and control
procedures. We believe this structure provides reasonable assurance that
transactions are executed in accordance with management authorization, and that
they are appropriately recorded in order to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
adequately safeguard, verify and maintain accountability of assets. An important
element of the control environment is an ongoing internal audit program.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, reviews the scope of the audits and findings of the
independent certified public accountants. The Audit Committee meets periodically
and privately with the independent accountants, with our internal auditors, as
well as with management, to review accounting, auditing, internal control
structure and financial reporting matters.
BDO Seidman, LLP, the Company's independent certified public accountants,
have audited the financial statements prepared by management. Their opinion on
the financial statements is presented as follows.
/s/ Daniel T. Hendrix
Daniel T. Hendrix
President and Chief Executive Officer
/s/ Patrick C. Lynch
Patrick C. Lynch
Vice President and Chief Financial
Officer
67
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of Interface, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Interface,
Inc. and subsidiaries as of December 30, 2001 and December 31, 2000 and the
related consolidated statements of operations and comprehensive income (loss)
and cash flows for each of the three fiscal years in the period ended December
30, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 consolidated financial position of
Interface, Inc. and its subsidiaries as of December 30, 2001 and December 31,
2000, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 30, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ BDO SEIDMAN, LLP
Atlanta, Georgia
February 19, 2002
68
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "Nomination and Election of
Directors" in our definitive Proxy Statement for our 2002 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 2001 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.
The information contained under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in our definitive Proxy Statement for our 2002
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 2001 fiscal year, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation and
Related Items" in our definitive Proxy Statement for our 2002 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 2001 fiscal year,
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Principal Shareholders and
Management Stock Ownership" in our definitive Proxy Statement for our 2002
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 2001 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 of record 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
The information contained under the caption "Executive Compensation and
Related Items -- Certain Relationships and Related Transactions" in our
definitive Proxy Statement for our 2002 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 2001 fiscal year, is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements and Notes thereto of
Interface, Inc. and subsidiaries and related Report of Independent Certified
Public Accountants are contained in Item 8 of this Report:
Consolidated Statements of Operations and Comprehensive Income
(Loss) -- years ended December 30, 2001, December 31, 2000 and January 2, 2000
69
Consolidated Balance Sheets -- December 30, 2001 and December 31, 2000
Consolidated Statements of Cash Flows -- years ended December 30, 2001,
December 31, 2000 and January 2, 2000
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. FINANCIAL STATEMENT SCHEDULE
The following Consolidated Financial Statement Schedule of Interface, Inc.
and subsidiaries and related Report of Independent Certified Public Accountants
are included as part of this Report (see pages 76-77):
Report of Independent Certified Public Accountants
Schedule II -- Valuation and Qualifying Accounts and Reserves
3. EXHIBITS
The following exhibits are included as part of this Report:
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 -- Restated Articles of Incorporation (included as Exhibit 3.1
to the Company's quarterly report on Form 10-Q for the
quarter ended July 5, 1998 (the "1998 Second Quarter 10-Q"),
previously filed with the Commission and incorporated herein
by reference).
3.2 -- Bylaws, as amended (included as Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended April 1,
1990, previously filed with the Commission and incorporated
herein by reference).
4.1 -- See Exhibits 3.1 and 3.2 for provisions in the Company's
Articles of Incorporation and Bylaws defining the rights of
holders of Common Stock of the Company.
4.2 -- Rights Agreement between the Company and Wachovia Bank,
N.A., dated as of March 4, 1998, with an effective date of
March 16, 1998 (included as Exhibit 10.1A to the Company's
registration statement on Form 8-A/A dated March 12, 1998,
previously filed with the Commission and incorporated herein
by reference).
4.3 -- Indenture governing the Company's 9.5% Senior Subordinated
Notes due 2005, dated as of November 15, 1995, among the
Company, certain U.S. subsidiaries of the Company, as
Guarantors, and First Union National Bank of Georgia, as
Trustee (the "Indenture") (included as Exhibit 4.1 to the
Company's registration statement on Form S-4, File No.
33-65201, previously filed with the Commission and
incorporated herein by reference); and Supplement No. 1 to
Indenture, dated as of December 27, 1996 (included as
Exhibit 4.2(b) to the Company's annual report on Form 10-K
for the year ended December 29, 1996, previously filed with
the Commission and incorporated herein by reference).
4.4 -- Form of Indenture governing the Company's 7.3% Senior Notes
due 2008, among the Company, certain U.S. subsidiaries of
the Company, as Guarantors, and First Union National Bank,
as Trustee (included as Exhibit 4.1 to the Company's
registration statement on Form S-3/A, File No. 333-46611,
previously filed with the Commission and incorporated herein
by reference).
4.5 -- Indenture governing the Company's 10.375% Senior Notes due
2010, among the Company, certain U.S. subsidiaries of the
Company, as Guarantors, and First Union National Bank, as
Trustee.
4.6 -- Registration Rights Agreement, dated as of January 17, 2002,
among the Company, certain U.S. subsidiaries of the Company,
as Guarantors, Salomon Smith Barney, Inc. and First Union
Securities, Inc.
70
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
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 (included as Exhibit
10.27 to the Company's quarterly report on Form 10-Q for the
quarter ended April 5, 1998, previously filed with the
Commission and incorporated herein by reference); and Form
of Amendment to Salary Continuation Agreement (included as
Exhibit 10.2 to the Company's annual report on Form 10-K for
the year ended January 3, 1999 (the "1998 10-K"), previously
filed with the Commission and incorporated herein by
reference).*
10.3 -- Interface, Inc. Omnibus Stock Incentive Plan (included as
Exhibit 10.6 to the Company's annual report on Form 10-K for
the year ended December 29, 1996, previously filed with the
Commission and incorporated herein by reference; and First
Amendment thereto (included as Exhibit 10.34 to the
Company's annual report on Form 10-K for the year ended
December 31, 2000 (the "2000 10-K"), previously filed with
the Commission and incorporated herein by reference).*
10.4 -- Interface, Inc. Nonqualified Savings Plan (as restated
effective January 1, 2002).*
10.5 -- Third Amended and Restated Credit Agreement, dated as of
June 30, 1998, among the Company (and certain direct and
indirect subsidiaries), the lenders listed therein, SunTrust
Bank, Atlanta and Bank One (f/k/a The First National Bank of
Chicago) (included as Exhibit 10.1 to the 1998 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference); Amendment No. 1 thereto
dated as of December 19, 2000 (included as Exhibit 10.1 to
the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 2001 (the "2001 Third Quarter 10-Q"),
previously filed with the Commission and incorporated herein
by reference); and Amendment No. 2 thereto dated as of
August 8, 2001 (included as Exhibit 10.2 to the 2001 Third
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference).
10.6 -- Fourth Amended and Restated Credit Agreement, dated as of
January 17, 2002, among the Company (and certain direct and
indirect subsidiaries), the lenders listed therein, First
Union National Bank, SunTrust Bank and Citicorp North
America, Inc.
10.7 -- Employment Agreement of Ray C. Anderson dated April 1, 1997
(included as Exhibit 10.1 to the Company's quarterly report
on Form 10-Q for the quarter ended June 29, 1997 (the "1997
Second Quarter 10-Q"), previously filed with the Commission
and incorporated herein by reference); Amendment thereto
dated January 6, 1998 (included as Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter
ended April 5, 1998 (the "1998 First Quarter 10-Q"),
previously filed with the Commission and incorporated herein
by reference); Second Amendment thereto dated January 14,
1999 (the form of which is included as Exhibit 10.20 to the
Company's annual report on Form 10-K for the year ended
January 1, 2000 (the "1999 10-K"), previously filed with the
Commission and incorporated herein by reference); Third
Amendment thereto dated May 7, 1999 (included as Exhibit
10.6 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference); and Fourth Amendment
thereto dated July 24, 2001 (included as Exhibit 10.4 to the
2001 Third Quarter 10-Q, previously filed with the
Commission and incorporated herein by reference).*
71
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.8 -- Change in Control Agreement of Ray C. Anderson dated April
1, 1997 (included as Exhibit 10.2 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.2 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Second Amendment thereto dated January
14, 1999 (the form of which is included as Exhibit 10.21 to
the 1999 10-K, previously filed with the Commission and
incorporated herein by reference); Third Amendment thereto
dated May 7, 1999 (included as Exhibit 10.7 to the 1999
10-K, previously filed with the Commission and incorporated
herein by reference); and Fourth Amendment thereto dated
July 24, 2001 (included as Exhibit 10.5 to the 2001 Third
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference).*
10.9 -- Employment Agreement of Brian L. DeMoura dated April 1, 1997
(included as Exhibit 10.5 to the 1997 Second Quarter 10-Q,
previously filed with the Commission and incorporated herein
by reference); Amendment thereto dated January 6, 1998
(included as Exhibit 10.5 to the 1998 First Quarter 10-Q,
previously filed with the Commission and incorporated herein
by reference); and Second Amendment thereto dated January
14, 1999 (the form of which is included as Exhibit 10.20 to
the 1999 10-K, previously filed with the Commission and
incorporated herein by reference).*
10.10 -- Change in Control Agreement of Brian L. DeMoura dated April
1, 1997 (included as Exhibit 10.6 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.6 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); and Second Amendment thereto dated
January 14, 1999 (the form of which is included as Exhibit
10.21 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference).*
10.11 -- Employment Agreement of Daniel T. Hendrix dated April 1,
1997 (included as Exhibit 10.7 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.7 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); and Second Amendment thereto dated
January 14, 1999 (the form of which is included as Exhibit
10.20 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference).*
10.12 -- Change in Control Agreement of Daniel T. Hendrix dated April
1, 1997 (included as Exhibit 10.8 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.8 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); and Second Amendment thereto dated
January 14, 1999 (the form of which is included as Exhibit
10.21 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference).*
10.13 -- Employment Agreement of Raymond S. Willoch dated April 1,
1997 (included as Exhibit 10.11 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.11 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); and Second Amendment thereto dated
January 14, 1999 (the form of which is included as Exhibit
10.20 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference).*
10.14 -- Change in Control Agreement of Raymond S. Willoch dated
April 1, 1997 (included as Exhibit 10.12 to the 1997 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference); Amendment thereto dated
January 6, 1998 (included as Exhibit 10.12 to the 1998 First
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference); and Second Amendment
thereto dated January 14, 1999 (the form of which is
included as Exhibit 10.21 to the 1999 10-K, previously filed
with the Commission and incorporated herein by reference).*
72
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.15 -- Employment Agreement of John R. Wells dated April 1, 1997
(included as Exhibit 10.23 to the 1997 Second Quarter 10-Q,
previously filed with the Commission and incorporated herein
by reference); Amendment thereto dated January 6, 1998
(included as Exhibit 10.23 to the 1998 First Quarter 10-Q,
previously filed with the Commission and incorporated herein
by reference); and Second Amendment thereto dated January
14, 1999 (the form of which is included as Exhibit 10.20 to
the 1999 10-K, previously filed with the Commission and
incorporated herein by reference).*
10.16 -- Change in Control Agreement of John R. Wells dated April 1,
1997 (included as Exhibit 10.24 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.24 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); and Second Amendment thereto dated
January 14, 1999 (the form of which is included as Exhibit
10.21 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference).*
10.17 -- Employment Agreement of Michael D. Bertolucci dated April 1,
1997 (included as Exhibit 10.25 to the 1997 Second Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); Amendment thereto dated January 6,
1998 (included as Exhibit 10.25 to the 1998 First Quarter
10-Q, previously filed with the Commission and incorporated
herein by reference); and Second Amendment thereto dated
January 14, 1999 (the form of which is included as Exhibit
10.20 to the 1999 10-K, previously filed with the Commission
and incorporated herein by reference).*
10.18 -- Change in Control Agreement of Michael D. Bertolucci dated
April 1, 1997 (included as Exhibit 10.26 to the 1997 Second
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference); Amendment thereto dated
January 6, 1998 (included as Exhibit 10.26 to the 1998 First
Quarter 10-Q, previously filed with the Commission and
incorporated herein by reference); and Second Amendment
thereto dated January 14, 1999 (the form of which is
included as Exhibit 10.21 to the 1999 10-K, previously filed
with the Commission and incorporated herein by reference).*
10.19 -- Form of Second Amendment to Employment Agreement, dated
January 14, 1999 (amending Exhibits 10.6, 10.8, 10.10,
10.12, 10.16 and 10.18 to the 1999 10-K and included as
Exhibit 10.20 to such report, previously filed with the
Commission and incorporated herein by reference).*
10.20 -- Form of Second Amendment to Change in Control Agreement,
dated January 14, 1999 (amending Exhibits 10.7, 10.9, 10.11,
10.13, 10.17 and 10.19 to the 1999 10-K and included as
Exhibit 10.21 to such report, previously filed with the
Commission and incorporated herein by reference).*
10.21 -- Split Dollar Agreement, dated May 29, 1998, between the
Company, Ray C. Anderson and Mary Anne Anderson Lanier, as
Trustee of the Ray C. Anderson Family Trust (included as
Exhibit 10.32 to the 1998 10-K, previously filed with the
Commission and incorporated herein by reference).*
10.22 -- Split Dollar Insurance Agreement, dated effective as of
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).*
10.23 -- Receivables Transfer Agreement, dated as of December 19,
2000, among Bentley Mills, Inc., Chatham Marketing Co.,
Guilford of Maine Marketing Co., Intek Marketing Co.,
Interface Architectural Resources, Inc., Interface Flooring
Systems, Inc., Pandel, Inc., Prince Street Technologies,
Ltd., Toltec Fabrics, Inc. and Interface, Inc. (included as
Exhibit 10.22 to the 2000 10-K, previously filed with the
Commission and incorporated herein by reference).
73
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.24 -- First Amendment and Limited Waiver to Receivables Transfer
Agreement, dated as of December 31, 2000, among Bentley
Mills, Inc., Chatham Marketing Co., Guilford of Maine
Marketing Co., Intek Marketing Co., Interface Architectural
Resources, Inc., Interface Flooring Systems, Inc., Pandel,
Inc., Prince Street Technologies, Ltd., Toltec Fabrics,
Inc., Interface Americas, Inc. and Interface, Inc. (included
as Exhibit 10.23 to the 2000 10-K, previously filed with the
Commission and incorporated herein by reference).
10.25 -- Second Amendment and Limited Waiver to Receivables Transfer
Agreement, dated as of December 20, 2000, among Bentley
Mills, Inc., Chatham Marketing Co., Guilford of Maine
Marketing Co., Intek Marketing Co., Interface Architectural
Resources, Inc., Interface Flooring Systems, Inc., Pandel,
Inc., Prince Street Technologies, Ltd., Toltec Fabrics, Inc.
and Interface, Inc. (included as Exhibit 10.24 to the 2000
10-K, previously filed with the Commission and incorporated
herein by reference).
10.26 -- Third Amendment and Limited Waiver to Receivables Transfer
Agreement, dated as of December 31, 2000, among Bentley
Mills, Inc., Chatham Marketing Co., Guilford of Maine
Marketing Co., Intek Marketing Co., Interface Architectural
Resources, Inc., Interface Flooring Systems, Inc., Pandel,
Inc., Prince Street Technologies, Ltd., Toltec Fabrics,
Inc., Interface Americas, Inc. and Interface, Inc. (included
as Exhibit 10.25 to the 2000 10-K, previously filed with the
Commission and incorporated herein by reference).
10.27 -- Fourth Amendment to Receivables Transfer Agreement, dated as
of November 21, 2001, among Bentley Mills, Inc., Chatham
Marketing Co., Guilford of Maine Marketing Co., Intek
Marketing Co., Interface Americas, Inc., Interface
Architectural Resources, Inc., Interface Flooring Systems,
Inc., Pandel, Inc., Toltec Fabrics, Inc. and Interface, Inc.
10.28 -- Fifth Amendment to Receivables Transfer Agreement, dated as
of February 14, 2002, among Bentley Mills, Inc., Chatham
Marketing Co., Guilford of Maine Marketing Co., Intek
Marketing Co., Interface Americas, Inc., Interface
Architectural Resources, Inc., Interface Flooring Systems,
Inc., Pandel, Inc., Toltec Fabrics, Inc. and Interface, Inc.
10.29 -- Receivables Sale Agreement, dated as of December 19, 2000,
between Interface, Inc. and Interface Securitization
Corporation (included as Exhibit 10.26 to the 2000 10-K,
previously filed with the Commission and incorporated herein
by reference).
10.30 -- Limited Waiver to Receivables Sale Agreement, dated as of
December 31, 2000, between Interface, Inc. and Interface
Securitization Corporation (included as Exhibit 10.27 to the
2000 10-K, previously filed with the Commission and
incorporated herein by reference).
10.31 -- Second Limited Waiver to Receivables Sale Agreement, dated
as of December 20, 2000, between Interface, Inc. and
Interface Securitization Corporation (included as Exhibit
10.28 to the 2000 10-K, previously filed with the Commission
and incorporated herein by reference).
10.32 -- Third Limited Waiver to Receivables Sale Agreement, dated as
of December 31, 2000, between Interface, Inc. and Interface
Securitization Corporation (included as Exhibit 10.29 to the
2000 10-K, previously filed with the Commission and
incorporated herein by reference).
10.33 -- First Amendment to Receivables Sale Agreement, dated as of
November 21, 2001, between Interface, Inc. and Interface
Securitization Corporation.
10.34 -- Second Amendment to Receivables Sale Agreement, dated as of
February 14, 2002, between Interface, Inc. and Interface
Securitization Corporation.
10.35 -- Receivables Purchase Agreement, dated as of December 19,
2000, among Interface Securitization Corporation, Interface,
Inc., Jupiter Securitization Corporation and Bank One, NA
(included as Exhibit 10.30 to the 2000 10-K, previously
filed with the Commission and incorporated herein by
reference).
74
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.36 -- First Amendment and Limited Waiver to Receivables Purchase
Agreement, dated as of December 31, 2000, among Interface
Securitization Corporation, Interface, Inc., Jupiter
Securitization Corporation and Bank One, NA (included as
Exhibit 10.31 to the 2000 10-K, previously filed with the
Commission and incorporated herein by reference).
10.37 -- Second Limited Waiver to Receivables Purchase Agreement,
dated as of December 20, 2000, among Interface
Securitization Corporation, Interface, Inc., Jupiter
Securitization Corporation and Bank One, NA (included as
Exhibit 10.32 to the 2000 10-K, previously filed with the
Commission and incorporated herein by reference).
10.38 -- Third Limited Waiver to Receivables Purchase Agreement,
dated as of December 31, 2000, among Interface
Securitization Corporation, Interface, Inc., Jupiter
Securitization Corporation and Bank One, NA (included as
Exhibit 10.33 to the 2000 10-K, previously filed with the
Commission and incorporated herein by reference).
10.39 -- Fourth Amendment to Receivables Purchase Agreement, dated as
of August 6, 2001, among the Company (including Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA (included as Exhibit 10.3 to
the 2001 Third Quarter 10-Q, previously filed with the
Commission and incorporated herein by reference).
10.40 -- Limited Waiver and Fifth Amendment to Receivables Purchase
Agreement, dated as of November 21, 2001, among the Company
(and Interface Securitization Corporation), Jupiter
Securitization Corporation and Bank One, NA.
10.41 -- Sixth Amendment to Receivables Purchase Agreement, dated as
of December 17, 2001, among the Company (and Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA.
10.42 -- Seventh Amendment to Receivables Purchase Agreement, dated
as of January 17, 2002, among the Company (and Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA.
10.43 -- Eighth Amendment to Receivables Purchase Agreement, dated as
of February 14, 2002, among the Company (and Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA.
10.44 -- Omnibus Amendment to Receivables Transfer Agreement,
Receivables Sale Agreement, and Receivables Purchase
Agreement, dated as of January 16, 2002, among Bentley
Mills, Inc., Chatham Marketing Co., Guilford of Maine
Marketing Co., Intek Marketing Co., Interface Americas,
Inc., Interface Architectural Resources, Inc., Interface
Flooring Systems, Inc., Pandel, Inc., Toltec Fabrics, Inc.,
Interface, Inc., Interface Securitization Corporation,
Jupiter Securitization Corporation and Bank One, NA.
21 -- Subsidiaries of the Company.
23 -- Consent of BDO Seidman, LLP.
---------------
* Management contract or compensatory plan or agreement required to be filed
pursuant to Item 14(c) of this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of the fiscal year covered by this Report.
75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Interface, Inc.
Atlanta, Georgia
The audits referred to in our report dated February 19, 2002 relating to
the consolidated financial statements of Interface, Inc. and subsidiaries, which
is contained in Item 8 of this Form 10-K included the audit of Financial
Statement Schedule II (Valuation and Qualifying Accounts and Reserves) set forth
in the Form 10-K. The Financial Statement Schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
Financial Statement Schedule based upon our audits.
In our opinion, such Schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
Atlanta, Georgia
February 19, 2002
76
INTERFACE, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
[Enlarge/Download Table]
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
CHARGED TO
BALANCE, AT COSTS AND CHARGED TO DEDUCTIONS BALANCE, AT
BEGINNING OF YEAR EXPENSES (A) OTHER ACCOUNTS (DESCRIBE) (B) END OF YEAR
----------------- ------------ -------------- -------------- -----------
(IN THOUSANDS)
Allowance for Doubtful
Accounts:
Year Ended:
December 30, 2001......... $8,651 $5,774 $ -- $3,384 $11,041
====== ====== ==== ====== =======
December 31, 2000......... $8,797 $5,909 $ -- $6,045 $ 8,651
====== ====== ==== ====== =======
January 2, 2000........... $7,790 $4,565 $ -- $3,558 $ 8,797
====== ====== ==== ====== =======
---------------
(a) Includes changes in foreign currency exchange rates.
(b) Write off of bad debt.
[Enlarge/Download Table]
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
CHARGED TO
BALANCE, AT COSTS AND CHARGED TO DEDUCTIONS BALANCE, AT
BEGINNING OF YEAR EXPENSES (A) OTHER ACCOUNTS (DESCRIBE) (C) END OF YEAR
----------------- ------------ -------------- -------------- -----------
(IN THOUSANDS)
Restructuring reserve:
Year ended:
December 30, 2001......... $ 613 $24,005 $ -- $ 5,982 $18,636
====== ======= ==== ======= =======
December 31, 2000......... $ 466 $12,690 $ -- $12,543 $ 613
====== ======= ==== ======= =======
January 2, 2000........... $6,036 $ 1,803 $ -- $ 7,373 $ 466
====== ======= ==== ======= =======
---------------
(c) Cash payments of $5,982 in 2001; cash payments of $12,543 in 2000; cash
payments of $6,701 and reversal of over-accrual of $672 in 1999.
(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.)
77
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INTERFACE, INC.
By: /s/ DANIEL T. HENDRIX
------------------------------------
Daniel T. Hendrix
President and Chief Executive
Officer
Date: March 28, 2002
POWER OF ATTORNEY
KNOW ALL MEN 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 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.
[Enlarge/Download Table]
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ RAY C. ANDERSON Chairman of the Board March 28, 2002
------------------------------------------------
Ray C. Anderson
/s/ DANIEL T. HENDRIX President, Chief Executive Officer March 28, 2002
------------------------------------------------ and Director (Principal Executive
Daniel T. Hendrix Officer)
/s/ PATRICK C. LYNCH Vice President and Chief Financial March 28, 2002
------------------------------------------------ Officer (Principal Financial and
Patrick C. Lynch Accounting Officer)
/s/ DIANNE DILLON-RIDGLEY Director March 28, 2002
------------------------------------------------
Dianne Dillon-Ridgley
/s/ CARL I. GABLE Director March 28, 2002
------------------------------------------------
Carl I. Gable
/s/ JUNE M. HENTON Director March 28, 2002
------------------------------------------------
June M. Henton
/s/ CHRISTOPHER G. KENNEDY Director March 28, 2002
------------------------------------------------
Christopher G. Kennedy
/s/ J. SMITH LANIER, II Director March 28, 2002
------------------------------------------------
J. Smith Lanier, II
78
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SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ JAMES B. MILLER, JR. Director March 28, 2002
------------------------------------------------
James B. Miller, Jr.
/s/ THOMAS R. OLIVER Director March 28, 2002
------------------------------------------------
Thomas R. Oliver
/s/ LEONARD G. SAULTER Director March 28, 2002
------------------------------------------------
Leonard G. Saulter
/s/ CLARINUS C.TH. VAN ANDEL Director March 28, 2002
------------------------------------------------
Clarinus C.Th. van Andel
79
EXHIBIT INDEX
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.5 Indenture governing the Company's 10.375% Senior Notes due
2010, among the Company, certain U.S. subsidiaries of the
Company, as Guarantors, and First Union National Bank, as
Trustee.
4.6 Registration Rights Agreement, dated as of January 17, 2002,
among the Company, certain U.S. subsidiaries of the Company,
as Guarantors, Salomon Smith Barney, Inc. and First Union
Securities, Inc.
10.4 Interface, Inc. Nonqualified Savings Plan (as restated
effective January 1, 2002).
10.6 Fourth Amended and Restated Credit Agreement, dated as of
January 17, 2002, among the Company (and certain direct and
indirect subsidiaries), the lenders listed therein, First
Union National Bank, SunTrust Bank and Citicorp North
America, Inc.
10.27 Fourth Amendment to Receivables Transfer Agreement, dated as
of November 21, 2001, among Bentley Mills, Inc., Chatham
Marketing Co., Guilford of Maine Marketing Co., Intek
Marketing Co., Interface Americas, Inc., Interface
Architectural Resources, Inc., Interface Flooring Systems,
Inc., Pandel, Inc., Toltec Fabrics, Inc. and Interface, Inc.
10.28 Fifth Amendment to Receivables Transfer Agreement, dated as
of February 14, 2002, among Bentley Mills, Inc., Chatham
Marketing Co., Guilford of Maine Marketing Co., Intek
Marketing Co., Interface Americas, Inc., Interface
Architectural Resources, Inc., Interface Flooring Systems,
Inc., Pandel, Inc., Toltec Fabrics, Inc. and Interface, Inc.
10.33 First Amendment to Receivables Sale Agreement, dated as of
November 21, 2001, between Interface, Inc. and Interface
Securitization Corporation.
10.34 Second Amendment to Receivables Sale Agreement, dated as of
February 14, 2002, between Interface, Inc. and Interface
Securitization Corporation.
10.40 Limited Waiver and Fifth Amendment to Receivables Purchase
Agreement, dated as of November 21, 2001, among the Company
(and Interface Securitization Corporation), Jupiter
Securitization Corporation and Bank One, NA.
10.41 Sixth Amendment to Receivables Purchase Agreement, dated as
of December 17, 2001, among the Company (and Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA.
10.42 Seventh Amendment to Receivables Purchase Agreement, dated
as of January 17, 2002, among the Company (and Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA.
10.43 Eighth Amendment to Receivables Purchase Agreement, dated as
of February 14, 2001, among the Company (and Interface
Securitization Corporation), Jupiter Securitization
Corporation and Bank One, NA.
10.44 Omnibus Amendment to Receivables Transfer Agreement,
Receivables Sale Agreement, and Receivables Purchase
Agreement, dated as of January 16, 2002, among Bentley
Mills, Inc., Chatham Marketing Co., Guilford of Maine
Marketing Co., Intek Marketing Co., Interface Americas,
Inc., Interface Architectural Resources, Inc., Interface
Flooring Systems, Inc., Pandel, Inc., Toltec Fabrics, Inc.,
Interface, Inc., Interface Securitization Corporation,
Jupiter Securitization Corporation and Bank One, NA.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP.
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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