Georgia | 58-1451243 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
2859 Paces Ferry Road, Suite 2000 | ||
Atlanta, Georgia | 30339 | |
(Address of principal executive offices) | (zip code) |
Title of Each Class | Name of Each Exchange on Which Registered: | |
Class A Common Stock, $0.10 Par Value Per Share | Nasdaq Global Select Market | |
Series B Participating Cumulative Preferred Stock Purchase Rights | Nasdaq Global Select Market |
Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company o |
Class | Number of Shares | |||||
Class A Common Stock, $0.10 par value per share | ||||||
Class B Common Stock, $0.10 par value per share |
introduced specialized product offerings tailored to the unique demands of these segments, including specific designs, functionalities and prices; |
created special sales teams dedicated to penetrating these segments at a high level, with a focus on specific customer accounts rather than geographic territories; and |
realigned incentives for our corporate office segment sales force generally in order to encourage their efforts, and where appropriate, to assist our penetration of these other segments. |
• | 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. |
Name | Age | Principal Position(s) |
Daniel T. Hendrix | President and Chief Executive Officer | |
Robert A. Coombs | 50 | Senior Vice President |
Patrick C. Lynch | Senior Vice President and Chief Financial Officer | |
Lindsey K. Parnell | 51 | Senior Vice President |
John R. Wells | Senior Vice President | |
Raymond S. Willoch | Senior Vice President-Administration, General Counsel and Secretary | |
making it more difficult for us to satisfy our obligations with respect to such indebtedness; |
increasing our vulnerability to adverse general economic and industry conditions; |
limiting our ability to obtain additional financing to fund capital expenditures, acquisitions or other growth initiatives, and other general corporate requirements; |
requiring us to dedicate a substantial portion of our cash flow from operations to interest and principal payments on our indebtedness, thereby reducing the availability of our cash flow to fund capital expenditures, acquisitions or other growth initiatives, and other general corporate requirements; |
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
placing us at a competitive disadvantage compared to our less leveraged competitors; and |
limiting our ability to refinance our existing indebtedness as it matures. |
Location | Segment | Floor Space (Sq. Ft.) | |||
Bangkok, Thailand(1) | Modular Carpet | 129,000 | |||
Craigavon, N. Ireland | Modular Carpet | 80,986 | |||
LaGrange, Georgia | Modular Carpet | 375,000 | |||
LaGrange, Georgia | Modular Carpet | 160,545 | |||
Picton, Australia | Modular Carpet | 98,774 | |||
Scherpenzeel, the Netherlands | Modular Carpet | 245,424 | |||
Shelf, England | Modular Carpet | 206,882 | |||
West Point, Georgia | Modular Carpet | 250,000 | |||
City of Industry, California(2) | Bentley Prince Street | 539,641 |
(1) | Owned by a joint venture in which we have a 70% interest. |
(2) | Leased. |
ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
2008 | High | Low | Dividends Per Share | |||||||||
First Quarter (through February 15, 2008) | $ | 16.93 | $ | 13.11 | -- | |||||||
2007 | ||||||||||||
First Quarter | $ | 17.10 | $ | 14.26 | $ | 0.02 | ||||||
Second Quarter | 19.46 | 15.88 | 0.02 | |||||||||
Third Quarter | 20.55 | 16.67 | 0.02 | |||||||||
Fourth Quarter | 20.00 | 15.90 | 0.02 | |||||||||
2006 | ||||||||||||
First Quarter | $ | 14.31 | $ | 8.05 | -- | |||||||
Second Quarter | 15.70 | 9.89 | -- | |||||||||
Third Quarter | 13.83 | 10.12 | -- | |||||||||
Fourth Quarter | 15.59 | 12.31 | -- |
High | Low | Dividends Per Share | ||||||||||
2009 | ||||||||||||
First Quarter (through February 15, 2009) | $ | 5.09 | $ | 3.37 | -- | |||||||
2008 | ||||||||||||
Fourth Quarter | $ | 11.80 | $ | 3.63 | $ | 0.03 | ||||||
Third Quarter | 13.85 | 11.04 | 0.03 | |||||||||
Second Quarter | 15.00 | 12.10 | 0.03 | |||||||||
First Quarter | 18.00 | 13.11 | 0.03 | |||||||||
2007 | ||||||||||||
Fourth Quarter | $ | 20.00 | $ | 15.90 | $ | 0.02 | ||||||
Third Quarter | 20.55 | 16.67 | 0.02 | |||||||||
Second Quarter | 19.46 | 15.88 | 0.02 | |||||||||
First Quarter | 17.10 | 14.26 | 0.02 |
12/29/02 | 12/28/03 | 1/02/05 | 1/01/06 | 12/31/06 | 12/30/07 | |
Interface, Inc. | $100 | $180 | $325 | $268 | $463 | $534 |
NASDAQ Composite Index | $100 | $150 | $165 | $169 | $188 | $205 |
Self-Determined Peer Group (13 Stocks) | $100 | $142 | $175 | $194 | $203 | $204 |
12/28/03 | 1/02/05 | 1/01/06 | 12/31/06 | 12/30/07 | 12/28/08 | |
Interface, Inc. | $100 | $165 | $136 | $235 | $272 | $ 85 |
NASDAQ Composite Index | $100 | $110 | $112 | $122 | $136 | $ 78 |
Self-Determined Peer Group (13 Stocks) | $100 | $123 | $138 | $143 | $143 | $ 56 |
(1) | The lines represent annual index levels derived from compound daily returns that include all dividends. |
(2) | The indices are re-weighted daily, using the market capitalization on the previous trading day. |
(3) | If the annual interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. |
(4) | The index level was set to $100 as of 12/ |
(5) | The Company’s fiscal year ends on the Sunday nearest December 31. |
(6) | The following companies are included in the Self-Determined Peer Group depicted above: Actuant Corp.; Acuity Brands, Inc.; Albany International Corp., BE Aerospace, Inc.; The Dixie Group, Inc.; Herman Miller, Inc.; HNI Corporation (formerly known as Hon Industries, Inc.); Kimball International, Inc.; Knoll, Inc. (beginning in March, 2005 upon trading commencement); Mohawk Industries, Inc.; Steelcase, Inc.; Unifi, Inc.; and USG Corp. |
Selected Financial Data(1) | ||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
(in thousands, except per share data and ratios) | ||||||||||||||||||||
Net sales | $ | 1,081,273 | $ | 914,659 | $ | 786,924 | $ | 695,250 | $ | 593,410 | ||||||||||
Cost of sales | 703,751 | 603,551 | 527,647 | 469,165 | 402,576 | |||||||||||||||
Operating income(2) | 129,391 | 99,621 | 77,716 | 59,918 | 40,562 | |||||||||||||||
Income (loss) from continuing operations | 57,848 | 35,807 | 15,282 | 5,936 | (2,120 | ) | ||||||||||||||
Loss from discontinued operations, net of tax(3) | (68,660 | ) | (24,092 | ) | (12,107 | ) | (58,311 | ) | (22,313 | ) | ||||||||||
Loss on disposal of discontinued operations | -- | (1,723 | ) | (1,935 | ) | (3,027 | ) | (8,825 | ) | |||||||||||
Net income (loss) | (10,812 | ) | 9,992 | 1,240 | (55,402 | ) | (33,257 | ) | ||||||||||||
Income (loss) from continuing operations per common share | ||||||||||||||||||||
Basic | $ | 0.96 | $ | 0.66 | $ | 0.30 | $ | 0.12 | $ | (0.04 | ) | |||||||||
Diluted | $ | 0.94 | $ | 0.64 | $ | 0.29 | $ | 0.11 | $ | (0.04 | ) | |||||||||
Average Shares Outstanding | ||||||||||||||||||||
Basic | 60,573 | 54,087 | 51,551 | 50,682 | 50,282 | |||||||||||||||
Diluted | 61,520 | 55,713 | 52,895 | 52,171 | 50,282 | |||||||||||||||
Cash dividends per common share | $ | 0.08 | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
Property additions | 40,592 | 28,540 | 19,354 | 11,600 | 9,065 | |||||||||||||||
Depreciation and amortization | 22,487 | 21,750 | 20,448 | 22,907 | 24,104 | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Working capital | $ | 238,578 | $ | 380,253 | $ | 317,668 | $ | 344,460 | $ | 365,557 | ||||||||||
Total assets | 835,232 | 928,340 | 838,990 | 869,798 | 879,670 | |||||||||||||||
Total long-term debt | 310,000 | 411,365 | 458,000 | 460,000 | 445,000 | |||||||||||||||
Shareholders’ equity | 294,192 | 274,394 | 172,076 | 194,178 | 218,733 | |||||||||||||||
Current ratio(4) | 2.3 | 3.2 | 3.0 | 3.2 | 3.2 |
Selected Financial Data(1) | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in thousands, except per share data and ratios) | ||||||||||||||||||||
Net sales | $ | 1,082,344 | $ | 1,081,273 | $ | 914,659 | $ | 786,924 | $ | 695,250 | ||||||||||
Cost of sales | 710,299 | 703,751 | 603,551 | 527,647 | 469,165 | |||||||||||||||
Operating income(2) | 41,659 | 129,391 | 99,621 | 77,716 | 59,918 | |||||||||||||||
Income (loss) from continuing operations(3) | (35,719 | ) | 57,848 | 35,807 | 15,282 | 5,936 | ||||||||||||||
Loss from discontinued operations, net of tax(4) | (5,154 | ) | (68,660 | ) | (24,092 | ) | (12,107 | ) | (58,311 | ) | ||||||||||
Loss on disposal of discontinued operations | -- | -- | (1,723 | ) | (1,935 | ) | (3,027 | ) | ||||||||||||
Net income (loss) | (40,873 | ) | (10,812 | ) | 9,992 | 1,240 | (55,402 | ) | ||||||||||||
Income (loss) from continuing operations per common share | ||||||||||||||||||||
Basic | $ | (0.58 | ) | $ | 0.96 | $ | 0.66 | $ | 0.30 | $ | 0.12 | |||||||||
Diluted | $ | (0.58 | ) | $ | 0.94 | $ | 0.64 | $ | 0.29 | $ | 0.11 | |||||||||
Average Shares Outstanding | ||||||||||||||||||||
Basic | 61,439 | 60,573 | 54,087 | 51,551 | 50,682 | |||||||||||||||
Diluted | 61,439 | 61,520 | 55,713 | 52,895 | 52,171 | |||||||||||||||
Cash dividends per common share | $ | 0.12 | $ | 0.08 | $ | -- | $ | -- | $ | -- | ||||||||||
Property additions | 29,300 | 40,592 | 28,540 | 19,354 | 11,600 | |||||||||||||||
Depreciation and amortization | 23,664 | 22,487 | 21,750 | 20,448 | 22,907 | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Working capital | $ | 221,323 | $ | 238,578 | $ | 380,253 | $ | 317,668 | $ | 344,460 | ||||||||||
Total assets | 706,035 | 835,232 | 928,340 | 838,990 | 869,798 | |||||||||||||||
Total long-term debt | 287,588 | 310,000 | 411,365 | 458,000 | 460,000 | |||||||||||||||
Shareholders’ equity | 209,496 | 294,192 | 274,394 | 172,076 | 194,178 | |||||||||||||||
Current ratio(5) | 2.4 | 2.3 | 3.2 | 3.0 | 3.2 |
(1) | In the third quarter of 2007, we sold |
(2) | In the fourth quarter of 2008, we recorded a restructuring charge of $11.0 million. Also in the fourth quarter of 2008, we recorded an impairment charge of $61.2 million related to the goodwill of our Bentley Prince Street business segment. In the first quarter of 2007, we disposed of our Pandel business, which comprised our Specialty Products |
(3) | Included in the 2008 loss from continuing operations is tax expense of $13.3 million related to the anticipated repatriation in 2009 of foreign earnings. For further analysis, see “Notes to Consolidated Financial Statements – Taxes on Income” included in Item 8 of this Report. |
(4) | Included in loss from discontinued operations, net of tax, are goodwill and other intangible asset impairment charges of $48.3 million in 2007, $20.7 million in 2006 and $29.0 million in 2004. Also included in loss from discontinued operations, net of tax, are charges for write-offs and impairments of other assets of $5.2 million in 2008, $8.8 million in 2007 and $17.5 million in 2004. |
For purposes of computing our current ratio: (a) current assets include assets of businesses held for sale of $3.2 million, $4.8 million, $158.3 million, $204.6 million |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
· | There has been significant decline in Bentley Prince Street’s performance, primarily in the last three months of 2008. This decline also was reflected in the forward projections of Bentley Prince Street’s budgeting process. The projections showed a decline in both sales and operating income over Bentley Prince Street’s three-year budgeting process. These declines impacted the value of the business from an income valuation approach. The declines in projections are primarily related to the global economic crisis and its impact on the broadloom carpet market. |
· | There has been an increase in the discount rate used to create the present value of future expected cash flows. This increase from approximately 12% to 16% is more reflective of our current market capitalization and risk premiums on a reporting unit level, which impacted the value of the business using an income valuation approach. |
· | There has been a decrease in the market multiple factors used for a market valuation approach. This decrease is reflective of the general market conditions regarding current market activities and market valuation guidelines. |
2007 | 2006 | 2005 | ||||||||||
(in millions) | ||||||||||||
Net sales | $ | 31.1 | $ | 3.7 | $ | (0.3 | ) | |||||
Operating income | 4.9 | 0.4 | (0.1 | ) |
2008 | 2007 | 2006 | ||||||||||
(in millions) | ||||||||||||
Net sales | $ | 24.5 | $ | 31.1 | $ | 3.7 | ||||||
Operating income | 3.0 | 4.9 | 0.4 |
Fiscal Year | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 65.1 | 66.0 | 67.1 | |||||||||
Gross profit on sales | 34.9 | 34.0 | 32.9 | |||||||||
Selling, general and administrative expenses | 22.8 | 23.1 | 23.0 | |||||||||
Loss on disposal – Pandel | 0.2 | -- | -- | |||||||||
Operating income | 11.9 | 10.9 | 9.9 | |||||||||
Interest/Other expense | 3.3 | 4.7 | 5.9 | |||||||||
Income (loss) from continuing operations before tax | 8.6 | 6.2 | 4.0 | |||||||||
Income tax expense (benefit) | 3.3 | 2.2 | 2.0 | |||||||||
Income (loss) from continuing operations | 5.3 | 3.9 | 1.9 | |||||||||
Discontinued operations, net of tax | (6.3 | ) | (2.6 | ) | (1.5 | ) | ||||||
Loss on disposal | -- | (0.2 | ) | (0.2 | ) | |||||||
Net income (loss) | (1.0 | ) | 1.1 | 0.2 |
Fiscal Year | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 65.6 | 65.1 | 66.0 | |||||||||
Gross profit on sales | 34.4 | 34.9 | 34.0 | |||||||||
Selling, general and administrative expenses | 23.9 | 22.8 | 23.1 | |||||||||
Loss on disposal – Pandel | -- | 0.2 | -- | |||||||||
Impairment of goodwill | 5.7 | -- | -- | |||||||||
Restructuring charge | 1.0 | -- | -- | |||||||||
Operating income | 3.8 | 11.9 | 10.9 | |||||||||
Interest/Other expense | 3.2 | 3.3 | 4.7 | |||||||||
Income (loss) from continuing operations before tax | 0.7 | 8.6 | 6.2 | |||||||||
Income tax expense (benefit) | 4.0 | 3.3 | 2.2 | |||||||||
Income (loss) from continuing operations | (3.3 | ) | 5.3 | 3.9 | ||||||||
Discontinued operations, net of tax | (0.5 | ) | (6.3 | ) | (2.6 | ) | ||||||
Loss on disposal | -- | -- | (0.2 | ) | ||||||||
Net income (loss) | (3.8 | ) | (1.0 | ) | 1.1 |
• | Modular Carpet segment, which includes our InterfaceFLOR, Heuga and FLOR modular carpet businesses, and also includes our Intersept antimicrobial chemical sales and licensing program; | |
• | Bentley Prince Street segment, which includes our Bentley Prince Street broadloom, modular carpet and area rug businesses; and | |
• | Specialty Products segment, which includes our former subsidiary Pandel, Inc. that we sold in March 2007. |
Fiscal Year | Percentage Change | |||||||||||||||||||
Net Sales By Segment | 2007 | 2006 | 2005 | 2007 compared with 2006 | 2006 compared with 2005 | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Modular Carpet | $ | 930,717 | $ | 763,659 | $ | 646,213 | 21.9 | % | 18.2 | % | ||||||||||
Bentley Prince Street | 148,364 | 137,920 | 125,167 | 7.6 | % | 10.1 | % | |||||||||||||
Specialty Products | 2,192 | 13,080 | 15,544 | (83.2 | %) | (15.9 | %) | |||||||||||||
Total | $ | 1,081,273 | $ | 914,659 | $ | 786,924 | 18.2 | % | 16.2 | % |
Fiscal Year | Percentage Change | |||||||||||||||||||
Net Sales By Segment | 2008 | 2007 | 2006 | 2008 compared with 2007 | 2007 compared with 2006 | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Modular Carpet | $ | 946,816 | $ | 930,717 | $ | 763,659 | 1.7 | % | 21.9 | % | ||||||||||
Bentley Prince Street | 135,528 | 148,364 | 137,920 | (8.7 | %) | 7.6 | % | |||||||||||||
Specialty Products | -- | 2,192 | 13,080 | (100.0 | %) | (83.2 | %) | |||||||||||||
Total | $ | 1,082,344 | $ | 1,081,273 | $ | 914,659 | 0.0 | % | 18.2 | % |
Cost and Expenses | Fiscal Year | Percentage Change | ||||||||||||||||||
2007 | 2006 | 2005 | 2007 compared with 2006 | 2006 compared with 2005 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of Sales | $ | 703,751 | $ | 603,551 | $ | 527,647 | 16.6 | % | 14.4 | % | ||||||||||
Selling, General and Administrative Expenses | 246,258 | 211,487 | 181,561 | 16.4 | % | 16.5 | % | |||||||||||||
Total | $ | 950,009 | $ | 815,038 | $ | 709,208 | 16.6 | % | 14.9 | % |
Cost and Expenses | Fiscal Year | Percentage Change | ||||||||||||||||||
2008 | 2007 | 2006 | 2008 compared with 2007 | 2007 compared with 2006 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of Sales | $ | 710,299 | $ | 703,751 | $ | 603,551 | 0.9 | % | 16.6 | % | ||||||||||
Selling, General and Administrative Expenses | 258,198 | 246,258 | 211,487 | 4.8 | % | 16.4 | % | |||||||||||||
Total | $ | 968,497 | $ | 950,009 | $ | 815,038 | 1.9 | % | 16.6 | % |
Fiscal Year | Percentage Change | |||||||||||||||||||
Cost of Sales and Selling, General and Administrative Expenses (Combined) | 2007 | 2006 | 2005 | 2007 compared with 2006 | 2006 compared with 2005 | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Modular Carpet | $ | 797,060 | $ | 665,415 | $ | 568,862 | 19.8 | % | 17.0 | % | ||||||||||
Bentley Prince Street | 142,771 | 131,989 | 121,673 | 8.2 | % | 8.5 | % | |||||||||||||
Specialty Products | 2,052 | 12,716 | 14,893 | (83.9 | %) | (14.6 | %) | |||||||||||||
Corporate Expenses | 8,126 | 4,918 | 3,780 | 65.2 | % | 30.1 | % | |||||||||||||
Total | $ | 950,009 | $ | 815,038 | $ | 709,208 | 16.6 | % | 14.9 | % |
Fiscal Year | Percentage Change | |||||||||||||||||||
Cost of Sales and Selling, General and Administrative Expenses (Combined) | 2008 | 2007 | 2006 | 2008 compared with 2007 | 2007 compared with 2006 | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Modular Carpet | $ | 826,807 | $ | 797,060 | $ | 665,415 | 3.7 | % | 19.8 | % | ||||||||||
Bentley Prince Street | 135,574 | 142,771 | 131,989 | (5.0 | )% | 8.2 | % | |||||||||||||
Specialty Products | -- | 2,052 | 12,716 | (100.0 | %) | (83.9 | %) | |||||||||||||
Corporate Expenses | 6,116 | 8,126 | 4,918 | (24.7 | )% | 65.2 | % | |||||||||||||
Total | $ | 968,497 | $ | 950,009 | $ | 815,038 | 1.9 | % | 16.6 | % |
· | Available financing in the capital markets. We are exploring possibilities with respect to both domestic and international credit facilities, and monitoring the public bond and equity markets, and we believe that there may be availability in these capital markets in the latter part of 2009, particularly in light of the aggressive legislative and other governmental economic stimulus actions taken by the United States and other countries around the world. If an opportunity arises to refinance these notes on terms acceptable to us, then we intend to do so. It should be noted, however, that in these circumstances we might have to accept financing on terms which we normally would not consider favorable. |
· | Cash on hand and cash generation. As of the end of 2008, we had approximately $71.8 million of cash on hand. (Approximately $26.5 million of our cash on hand as of the end of 2008 was held by subsidiaries outside the United States, and would be taxed at varying rates – some of which has been provided for; see the Note entitled “Taxes on Income” in Item 8 of this Report – if transferred to the United States to repay our debt.) This cash, coupled with an expected generation of $35-$50 million of cash from operating activities in 2009, should enable us to repay a substantial portion of these notes. As part of our efforts to generate such cash from operations, we have undertaken significant restructuring activities in the fourth quarter of 2008 that we anticipate will generate savings of over $30 million in 2009. |
· | Availability under revolving credit lines. As of December 28, 2008, we had $56.9 million of borrowing availability under our domestic credit facility and approximately $28.3 million of borrowing availability under our international credit facilities. These facilities bear interest at rates ranging from 1% to 9% and represent a possible source of funds to retire a portion of any debt that cannot be refinanced or repaid via cash on hand and cash generation. |
· | Improving our inventory turns by continuing to implement a made-to-order model throughout our organization; | |
· | Reducing our average days sales outstanding through improved credit and collection practices; | |
· | Limiting the amount of our capital expenditures generally to those projects that have a short-term payback period; and | |
· | Selling non-core assets. |
• | The revolving credit facility currently matures on December 31, 2012; | |
• | The revolving credit facility includes a domestic U.S. dollar syndicated loan and letter of credit facility made available to Interface, Inc. up to the lesser of (1) $100 million, or (2) a borrowing base equal to the sum of specified percentages of eligible accounts receivable, inventory, equipment and (at our option) real estate in the United States (the percentages and eligibility requirements for the borrowing base are specified in the credit facility), less certain reserves; | |
• | Advances under the facility are secured by a first-priority lien on substantially all of Interface, Inc.’s assets and the assets of each of its material domestic subsidiaries, which have guaranteed the revolving credit facility; and | |
• | The revolving credit facility contains a financial covenant (a fixed charge coverage ratio test) that becomes effective in the event that our excess borrowing availability falls below $20 million. In such event, we must comply with the financial covenant for a period commencing on the last day of the fiscal quarter immediately preceding such event (unless such event occurs on the last day of a fiscal quarter, in which case the compliance period commences on such date) and ending on the last day of the fiscal quarter immediately following the fiscal quarter in which such event occurred. |
Time Period | Maximum Amount in Euros | |||
(in millions) | ||||
October 1, 2008 - April 30, 2009 | 10 | |||
May 1, 2009 - September 30, 2009 | 16 | |||
From October 1, 2009 | 5 |
Payments Due by Period | ||||||||||||||||||||
Total Payments Due | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Long-Term Debt Obligations | $ | 310,000 | $ | -- | $ | 175,000 | $ | -- | $ | 135,000 | ||||||||||
Operating Lease Obligations(1) | 88,769 | 24,032 | 32,122 | 20,302 | 12,313 | |||||||||||||||
Expected Interest Payments(2) | 115,088 | 30,981 | 44,563 | 25,650 | 13,894 | |||||||||||||||
Unconditional Purchase Obligations(3) | 4,351 | 3,459 | 886 | 6 | -- | |||||||||||||||
Pension Cash Obligations(4) | 134,539 | 12,402 | 25,542 | 26,322 | 70,273 | |||||||||||||||
Total Contractual Cash Obligations(5) | $ | 652,747 | $ | 70,874 | $ | 278,113 | $ | 72,280 | $ | 231,480 |
Payments Due by Period | ||||||||||||||||||||
Total Payments Due | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Long-Term Debt Obligations | $ | 287,588 | $ | -- | $ | 152,588 | $ | -- | $ | 135,000 | ||||||||||
Operating Lease Obligations(1) | 78,889 | 23,822 | 33,548 | 16,460 | 5,059 | |||||||||||||||
Expected Interest Payments(2) | 82,344 | 28,656 | 26,969 | 25,650 | 1,069 | |||||||||||||||
Unconditional Purchase Obligations(3) | 4,142 | 3,129 | 1,005 | 8 | -- | |||||||||||||||
Pension Cash Obligations(4) | 114,604 | 10,377 | 21,508 | 22,351 | 60,368 | |||||||||||||||
Total Contractual Cash Obligations(5) | $ | 567,567 | $ | 65,984 | $ | 235,618 | $ | 64,469 | $ | 201,496 |
(1) | Our capital lease obligations are insignificant. |
(2) | Expected Interest Payments to be made in future periods reflect anticipated interest payments related to our |
(3) | Unconditional Purchase Obligations does not include unconditional purchase obligations that are included as liabilities in our Consolidated Balance Sheet. We have capital expenditure commitments of |
(4) | We have two foreign defined benefit plans and a domestic salary continuation plan. We have presented above the estimated cash obligations that will be paid under these plans over the next ten years. Such amounts are based on several estimates and assumptions and could differ materially should the underlying estimates and assumptions change. Our domestic salary continuation plan is an unfunded plan, and we do not currently have any commitments to make contributions to this plan. However, we do use insurance instruments to hedge our exposure under the salary continuation plan. Contributions to our other employee benefit plans are at our discretion. |
(5) | The above table does not reflect unrecognized tax benefits of |
Foreign Defined Benefit Plans | Increase (Decrease) in Projected Benefit Obligation | |||
(in millions) | ||||
1% increase in actuarial assumption for discount rate | $ | (28.2 | ) | |
1% decrease in actuarial assumption for discount rate | $ | 35.5 | ||
1% increase in actuarial assumption for wage increases | $ | 4.8 | ||
1% decrease in actuarial assumption for wage increases | $ | (4.0 | ) | |
Domestic Salary Continuation Plan | Increase (Decrease) in Projected Benefit Obligation | |||
(in millions) | ||||
1% increase in actuarial assumption for discount rate | $ | (1.9 | ) | |
1% decrease in actuarial assumption for discount rate | $ | 2.3 | ||
1% increase in actuarial assumption for wage increases | $ | 0.7 | ||
1% decrease in actuarial assumption for wage increases | $ | (0.1 | ) |
• | In 1998, we entered into a sale-leaseback transaction in which a gain was recognized at the time of sale as opposed to over the lease period. In addition, we did not use straight-line rental accounting for the expected lease payments related to this transaction. To correct these entries, in the fourth quarter of 2006, we recorded an entry to increase liabilities by approximately $3.3 million and decrease retained earnings by approximately $2.1 million, net of tax; | |
• | Our previous methodology for recording legal expenses ensured that we incurred twelve months of expense in each year. However, the actual timing and amount of the legal bills received led to an understated liability on the balance sheet. | |
• | We previously under-recorded the liability related to restricted stock by approximately $0.7 |
FISCAL YEAR | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(in thousands, except per share data) | ||||||||||||
Net sales | $ | 1,081,273 | $ | 914,659 | $ | 786,924 | ||||||
Cost of sales | 703,751 | 603,551 | 527,647 | |||||||||
Gross profit on sales | 377,522 | 311,108 | 259,277 | |||||||||
Selling, general and administrative expenses | 246,258 | 211,487 | 181,561 | |||||||||
Loss on disposal – Pandel, Inc. | 1,873 | -- | -- | |||||||||
Operating income | 129,391 | 99,621 | 77,716 | |||||||||
Interest expense | 34,110 | 42,204 | 45,541 | |||||||||
Other expense | 1,851 | 998 | 803 | |||||||||
Income from continuing operations before tax expense | 93,430 | 56,419 | 31,372 | |||||||||
Income tax expense | 35,582 | 20,612 | 16,090 | |||||||||
Income from continuing operations | 57,848 | 35,807 | 15,282 | |||||||||
Loss from discontinued operations, net of tax | (68,660 | ) | (24,092 | ) | (12,107 | ) | ||||||
Loss on disposal of discontinued operations, net of tax | -- | (1,723 | ) | (1,935 | ) | |||||||
Net income (loss) | $ | (10,812 | ) | $ | 9,992 | $ | 1,240 | |||||
Income (loss) per share – basic | ||||||||||||
Continuing operations | $ | 0.96 | $ | 0.66 | $ | 0.30 | ||||||
Discontinued operations | (1.14 | ) | (0.45 | ) | (0.24 | ) | ||||||
Loss on disposal of discontinued operations | -- | (0.03 | ) | (0.04 | ) | |||||||
Net income (loss) per share – basic | $ | (0.18 | ) | $ | 0.18 | $ | 0.02 | |||||
Income (loss) per share – diluted | ||||||||||||
Continuing operations | $ | 0.94 | $ | 0.64 | $ | 0.29 | ||||||
Discontinued operations | (1.12 | ) | (0.43 | ) | (0.23 | ) | ||||||
Loss on disposal of discontinued operations | -- | (0.03 | ) | (0.04 | ) | |||||||
Net income (loss) per share – diluted | $ | (0.18 | ) | $ | 0.18 | $ | 0.02 | |||||
Basic weighted average shares outstanding | 60,573 | 54,087 | 51,551 | |||||||||
Diluted weighted average shares outstanding | 61,520 | 55,713 | 52,895 |
FISCAL YEAR | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands, except per share data) | ||||||||||||
Net sales | $ | 1,082,344 | $ | 1,081,273 | $ | 914,659 | ||||||
Cost of sales | 710,299 | 703,751 | 603,551 | |||||||||
Gross profit on sales | 372,045 | 377,522 | 311,108 | |||||||||
Selling, general and administrative expenses | 258,198 | 246,258 | 211,487 | |||||||||
Loss on disposal – Pandel, Inc. | -- | 1,873 | -- | |||||||||
Impairment of goodwill | 61,213 | -- | -- | |||||||||
Restructuring charges | 10,975 | -- | -- | |||||||||
Operating income | 41,659 | 129,391 | 99,621 | |||||||||
Interest expense | 31,480 | 34,110 | 42,204 | |||||||||
Other expense | 2,858 | 1,851 | 998 | |||||||||
Income from continuing operations before tax expense | 7,321 | 93,430 | 56,419 | |||||||||
Income tax expense | 43,040 | 35,582 | 20,612 | |||||||||
Income (loss) from continuing operations | (35,719 | ) | 57,848 | 35,807 | ||||||||
Loss from discontinued operations, net of tax | (5,154 | ) | (68,660 | ) | (24,092 | ) | ||||||
Loss on disposal of discontinued operations, net of tax | -- | -- | (1,723 | ) | ||||||||
Net income (loss) | $ | (40,873 | ) | $ | (10,812 | ) | $ | 9,992 | ||||
Income (loss) per share – basic | ||||||||||||
Continuing operations | $ | (0.58 | ) | $ | 0.96 | $ | 0.66 | |||||
Discontinued operations | (0.08 | ) | (1.14 | ) | (0.45 | ) | ||||||
Loss on disposal of discontinued operations | -- | -- | (0.03 | ) | ||||||||
Net income (loss) per share – basic | $ | (0.67 | ) | $ | (0.18 | ) | $ | 0.18 | ||||
Income (loss) per share – diluted | ||||||||||||
Continuing operations | $ | (0.58 | ) | $ | 0.94 | $ | 0.64 | |||||
Discontinued operations | (0.08 | ) | (1.12 | ) | (0.43 | ) | ||||||
Loss on disposal of discontinued operations | -- | -- | (0.03 | ) | ||||||||
Net income (loss) per share – diluted | $ | (0.67 | ) | $ | (0.18 | ) | $ | 0.18 | ||||
Basic weighted average shares outstanding | 61,439 | 60,573 | 54,087 | |||||||||
Diluted weighted average shares outstanding | 61,439 | 61,520 | 55,713 |
FISCAL YEAR | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(in thousands) | ||||||||||||
Net income (loss) | $ | (10,812 | ) | $ | 9,992 | $ | 1,240 | |||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation adjustment | 14,117 | 25,501 | (34,351 | ) | ||||||||
Pension liability adjustment | 16,371 | (8,039 | ) | 5,986 | ||||||||
Comprehensive income (loss) | $ | 19,676 | $ | 27,454 | $ | (27,125 | ) |
FISCAL YEAR | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Net income (loss) | $ | (40,873 | ) | $ | (10,812 | ) | $ | 9,992 | ||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation adjustment | (43,480 | ) | 14,117 | 25,501 | ||||||||
Pension liability adjustment | 2,033 | 16,371 | (8,039 | ) | ||||||||
Comprehensive income (loss) | $ | (82,320 | ) | $ | 19,676 | $ | 27,454 |
2007 | 2006 | |||||||
(in thousands) | ||||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 82,375 | $ | 109,157 | ||||
Accounts receivable, net | 178,625 | 143,025 | ||||||
Inventories | 125,789 | 112,293 | ||||||
Prepaid expenses and other current assets | 18,985 | 21,805 | ||||||
Deferred income taxes | 5,863 | 6,829 | ||||||
Assets of businesses held for sale | 4,792 | 158,322 | ||||||
Total current assets | 416,429 | 551,431 | ||||||
Property and equipment, net | 161,874 | 134,631 | ||||||
Deferred tax asset | 60,942 | 65,841 | ||||||
Goodwill | 142,471 | 135,610 | ||||||
Other assets | 53,516 | 40,827 | ||||||
$ | 835,232 | $ | 928,340 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 57,243 | $ | 49,542 | ||||
Accrued expenses | 120,388 | 98,702 | ||||||
Liabilities of businesses held for sale | 220 | 22,934 | ||||||
Total current liabilities | 177,851 | 171,178 | ||||||
Senior notes | 175,000 | 276,365 | ||||||
Senior subordinated notes | 135,000 | 135,000 | ||||||
Deferred income taxes | 7,413 | 2,058 | ||||||
Other | 38,852 | 63,839 | ||||||
Total liabilities | 534,116 | 648,440 | ||||||
Minority interest | 6,974 | 5,506 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity | ||||||||
Preferred stock | -- | -- | ||||||
Common stock | 6,184 | 6,066 | ||||||
Additional paid-in capital | 332,650 | 323,132 | ||||||
Retained earnings (deficit) | (15,159 | ) | 5,217 | |||||
Accumulated other comprehensive income – foreign currency translation | 1,270 | (12,847 | ) | |||||
Accumulated other comprehensive income – pension liability | (30,803 | ) | (47,174 | ) | ||||
Total shareholders’ equity | 294,142 | 274,394 | ||||||
$ | 835,232 | $ | 928,340 | |||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 71,757 | $ | 82,375 | ||||
Accounts receivable, net | 144,783 | 178,625 | ||||||
Inventories | 128,923 | 125,789 | ||||||
Prepaid expenses and other current assets | 21,070 | 18,985 | ||||||
Deferred income taxes | 6,272 | 5,863 | ||||||
Assets of businesses held for sale | 3,150 | 4,792 | ||||||
Total current assets | 375,955 | 416,429 | ||||||
Property and equipment, net | 160,717 | 161,874 | ||||||
Deferred tax asset | 42,999 | 60,942 | ||||||
Goodwill | 78,489 | 142,471 | ||||||
Other assets | 47,875 | 53,516 | ||||||
$ | 706,035 | $ | 835,232 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 52,040 | $ | 57,243 | ||||
Accrued expenses | 102,592 | 120,388 | ||||||
Liabilities of businesses held for sale | -- | 220 | ||||||
Total current liabilities | 154,632 | 177,851 | ||||||
Senior notes | 152,588 | 175,000 | ||||||
Senior subordinated notes | 135,000 | 135,000 | ||||||
Deferred income taxes | 7,506 | 7,413 | ||||||
Other | 38,872 | 38,852 | ||||||
Total liabilities | 488,598 | 534,116 | ||||||
Minority interest | 7,941 | 6,974 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity | ||||||||
Preferred stock | -- | -- | ||||||
Common stock | 6,316 | 6,184 | ||||||
Additional paid-in capital | 339,776 | 332,650 | ||||||
Retained earnings (deficit) | (65,616 | ) | (15,159 | ) | ||||
Accumulated other comprehensive income (loss) – foreign currency translation | (42,210 | ) | 1,270 | |||||
Accumulated other comprehensive income (loss) – pension liability | (28,770 | ) | (30,803 | ) | ||||
Total shareholders’ equity | 209,496 | 294,142 | ||||||
$ | 706,035 | $ | 835,232 | |||||
FISCAL YEAR | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
OPERATING ACTIVITIES: | (in thousands) | |||||||||||
Net income (loss) | $ | (10,812 | ) | $ | 9,992 | $ | 1,240 | |||||
Impairment of goodwill and intangible assets related to discontinued operations | 48,322 | 20,712 | -- | |||||||||
Loss on discontinued operations | 20,338 | 3,374 | 12,107 | |||||||||
Loss from disposal of discontinued operations | -- | 1,723 | 1,935 | |||||||||
Income from continuing operations | 57,848 | 35,801 | 15,282 | |||||||||
Adjustments to reconcile income (loss) to cash provided by (used in) operating activities | ||||||||||||
Depreciation and amortization | 22,487 | 21,750 | 20,448 | |||||||||
Bad debt expense | 1,917 | 2,247 | 489 | |||||||||
Deferred income taxes and other | 4,942 | (13,423 | ) | (8,182 | ) | |||||||
Working capital changes: | ||||||||||||
Accounts receivable | (32,114 | ) | (20,567 | ) | (4,346 | ) | ||||||
Inventories | (11,855 | ) | (19,583 | ) | 2,433 | |||||||
Prepaid expenses and other current assets | 5,967 | (5,252 | ) | (3,274 | ) | |||||||
Accounts payable and accrued expenses | 19,312 | 26,235 | 11,120 | |||||||||
Cash provided by continuing operations | 68,504 | 27,208 | 33,970 | |||||||||
Cash provided by (used in) discontinued operations | (2,796 | ) | 5,881 | 27,892 | ||||||||
Cash provided by operating activities | 65,708 | 33,089 | 61,862 | |||||||||
INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures | (40,592 | ) | (28,540 | ) | (19,354 | ) | ||||||
Proceeds from sale of discontinued operations | 60,732 | 28,837 | -- | |||||||||
Other | (7,014 | ) | (7,399 | ) | (5,058 | ) | ||||||
Cash used in discontinued operations | (6,950 | ) | (5,458 | ) | (6,159 | ) | ||||||
Cash provided by (used in) investing activities | 6,176 | (12,560 | ) | (30,571 | ) | |||||||
FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (4,919 | ) | -- | -- | ||||||||
Debt issuance costs | -- | (777 | ) | -- | ||||||||
Repurchase of senior notes | (101,365 | ) | (46,634 | ) | (2,000 | ) | ||||||
Proceeds from issuance of common stock | 4,569 | 86,413 | 2,960 | |||||||||
Cash provided by (used in) financing activities | (101,715 | ) | 39,002 | 960 | ||||||||
Net cash provided by (used in) operating, investing and financing activities | (29,831 | ) | 59,531 | 32,251 | ||||||||
Effect of exchange rate changes on cash | 3,049 | 2,351 | (2,134 | ) | ||||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||
Net increase (decrease) | (26,782 | ) | 61,882 | 30,117 | ||||||||
Balance, beginning of year | 109,157 | 47,275 | 17,158 | |||||||||
Balance, end of year | $ | 82,375 | $ | 109,157 | $ | 47,275 |
FISCAL YEAR | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
OPERATING ACTIVITIES: | (in thousands) | |||||||||||
Net income (loss) | $ | (40,873 | ) | $ | (10,812 | ) | $ | 9,992 | ||||
Impairment of goodwill and intangible assets related to discontinued operations | -- | 48,322 | 20,712 | |||||||||
Loss on discontinued operations | 5,154 | 20,338 | 3,380 | |||||||||
Loss from disposal of discontinued operations | -- | -- | 1,723 | |||||||||
Income from continuing operations | (35,719 | ) | 57,848 | 35,807 | ||||||||
Adjustments to reconcile income (loss) to cash provided by (used in) operating activities | ||||||||||||
Impairment of goodwill | 61,213 | -- | -- | |||||||||
Depreciation and amortization | 23,664 | 22,487 | 21,750 | |||||||||
Bad debt expense | 4,180 | 1,917 | 2,247 | |||||||||
Deferred income taxes and other | 14,686 | 4,942 | (13,423 | ) | ||||||||
Working capital changes: | ||||||||||||
Accounts receivable | 11,891 | (32,114 | ) | (20,567 | ) | |||||||
Inventories | (11,351 | ) | (11,855 | ) | (19,583 | ) | ||||||
Prepaid expenses and other current assets | 5,072 | 5,967 | (5,258 | ) | ||||||||
Accounts payable and accrued expenses | (18,540 | ) | 19,312 | 26,235 | ||||||||
Cash provided by continuing operations | 55,096 | 68,504 | 27,208 | |||||||||
Cash provided by (used in) discontinued operations | -- | (2,796 | ) | 5,881 | ||||||||
Cash provided by operating activities | 55,096 | 65,708 | 33,089 | |||||||||
INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures | (29,300 | ) | (40,592 | ) | (28,540 | ) | ||||||
Proceeds from sale of discontinued operations | -- | 60,732 | 28,837 | |||||||||
Other | (4,158 | ) | (7,014 | ) | (7,399 | ) | ||||||
Cash used in discontinued operations | -- | (6,950 | ) | (5,458 | ) | |||||||
Cash provided by (used in) investing activities | (33,458 | ) | 6,176 | (12,560 | ) | |||||||
FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (7,562 | ) | (4,919 | ) | -- | |||||||
Debt issuance costs | -- | -- | (777 | ) | ||||||||
Repurchase of senior notes | (22,412 | ) | (101,365 | ) | (46,634 | ) | ||||||
Proceeds from issuance of common stock | 1,479 | 4,569 | 86,413 | |||||||||
Cash provided by (used in) financing activities | (28,495 | ) | (101,715 | ) | 39,002 | |||||||
Net cash provided by (used in) operating, investing and financing activities | (6,857 | ) | (29,831 | ) | 59,531 | |||||||
Effect of exchange rate changes on cash | (3,761 | ) | 3,049 | 2,351 | ||||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||
Net increase (decrease) | (10,618 | ) | (26,782 | ) | 61,882 | |||||||
Balance, beginning of year | 82,375 | 109,157 | 47,275 | |||||||||
Balance, end of year | $ | 71,757 | $ | 82,375 | $ | 109,157 |
· | The significant decline in the reporting unit’s performance, primarily in the last three months of 2008. This decline also was reflected in the forward projections of the reporting unit’s budgeting process. The projections showed a decline in both sales and operating income over the reporting unit’s three-year budgeting process. These declines impacted the value of the reporting unit from an income valuation approach. The declines in projections are primarily related to the global economic crisis and its impact on the broadloom carpet market. |
· | An increase in the discount rate used to create the present value of future expected cash flows. This increase from approximately 12% to 16% is more reflective of the Company’s current market capitalization and risk premiums on a reporting unit level, which impacted the value of the reporting unit using an income valuation approach. |
· | A decrease in the market multiple factors used for the market valuation approach. This decrease is reflective of the general market conditions regarding merger and acquisition activities. |
BALANCE DECEMBER 31, 2006 | ACQUISITIONS | IMPAIRMENT | FOREIGN CURRENCY TRANSLATION | BALANCE DECEMBER 30, 2007 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Modular Carpet | $ | 74,397 | $ | -- | $ | -- | $ | 6,861 | $ | 81,258 | ||||||||||
Bentley Prince Street | 61,213 | -- | -- | -- | 61,213 | |||||||||||||||
Specialty Products | -- | -- | -- | -- | -- | |||||||||||||||
Total | $ | 135,610 | $ | -- | $ | -- | $ | 6,861 | $ | 142,471 |
BALANCE DECEMBER 30, 2007 | ACQUISITIONS | IMPAIRMENT | FOREIGN CURRENCY TRANSLATION | BALANCE DECEMBER 28, 2008 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Modular Carpet | $ | 81,258 | $ | -- | $ | -- | $ | (2,769 | ) | $ | 78,489 | |||||||||
Bentley Prince Street | 61,213 | -- | 61,213 | -- | -- | |||||||||||||||
Specialty Products | -- | -- | -- | -- | -- | |||||||||||||||
Total | $ | 142,471 | $ | -- | $ | 61,213 | $ | (2,769 | ) | $ | 78,489 |
FISCAL YEAR | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(in thousands, except per share data) | ||||||||||||
Net income (loss) as reported | $ | (10,812 | ) | $ | 9,992 | $ | 1,240 | |||||
Deduct: Total stock-based employee compensation��expense determined under fair value based method for all awards, net of related tax effects | -- | -- | (526 | ) | ||||||||
Add: Recognized stock-based compensation | -- | -- | -- | |||||||||
Pro forma net income (loss) | $ | (10,812 | ) | $ | 9,992 | $ | 714 | |||||
Income (loss) per share: | ||||||||||||
Basic – as reported | $ | (0.18 | ) | $ | 0.18 | $ | 0.02 | |||||
Basic – pro forma | (0.18 | ) | 0.18 | 0.01 | ||||||||
Diluted – as reported | $ | (0.18 | ) | $ | 0.18 | $ | 0.02 | |||||
Diluted – pro forma | (0.18 | ) | 0.18 | 0.01 |
FISCAL YEAR | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Risk free interest rate | 4.73 | % | 4.71 | % | 4.22 | % | ||||||
Expected option life | 3.25 years | 3.18 years | 2.0 years | |||||||||
Expected volatility | 60 | % | 60 | % | 60 | % | ||||||
Expected dividend yield | 0.51 | % | 0 | % | 0 | % |
FISCAL YEAR | |||||||||
2008 | 2007 | 2006 | |||||||
Risk free interest rate | 3.9% | 4.73% | 4.71% | ||||||
Expected option life | 3.25 years | 3.25 years | 3.18 years | ||||||
Expected volatility | 61% | 60% | 60% | ||||||
Expected dividend yield | 0.57% | 0.51% | 0% |
• | In 1998, the Company entered into a sale-leaseback transaction in which a gain was recognized at the time of sale as opposed to over the lease period. In addition, the Company did not use straight-line rental accounting for the expected lease payments related to this transaction. To correct these entries, in the fourth quarter of 2006, the Company recorded an entry to increase liabilities by approximately $3.3 million and decrease retained earnings by approximately $2.1 million, net of tax;
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. For financial assets subject to In September 2006, the Emerging Issues Task Force (“EITF”) of the FASB reached consensus on EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4”). The scope of EITF 06-4 is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods. EITF 06-4 is effective for fiscal years beginning after December 15, In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” In summary, FIN No. 48 requires that all tax positions subject to SFAS No. 109, “Accounting for Income Taxes,” be analyzed using a two-step approach. The first step requires an entity to determine if a tax position is more-likely-than-not to be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, that is more-likely-than-not to be realized upon ultimate settlement. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, with any adjustment in a company’s tax provision being accounted for as a cumulative effect of accounting change in beginning equity. See the note below entitled “Taxes on Income” for further discussion of this standard. - 50 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In June 2006, the EITF reached a consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-03”). EITF 06-03 concludes that (a) the scope of this issue includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and (b) the presentation of taxes within the scope on either a gross or a net basis is an accounting policy decision that should be disclosed pursuant to Opinion 22. Furthermore, EITF 06-03 states that for taxes reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented. EITF 06-03 is effective for periods beginning after December 15, 2006. This standard did not have a material impact on our results of operations or financial position. RECEIVABLES The Company has adopted credit policies and standards intended to reduce the inherent risk associated with potential increases in its concentration of credit risk due to increasing trade receivables from sales to owners and users of commercial office facilities and with specifiers such as architects, engineers and contracting firms. Management believes that credit risks are further moderated by the diversity of its end customers and geographic sales areas. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As of December FAIR VALUE OF FINANCIAL INSTRUMENTS The Company does not have significant assets and liabilities measured at fair value on a recurring basis during the period under the provisions of SFAS No. 157. The Company does have approximately $10.5 million of Company-owned life insurance which is measured on readily determinable cash surrender value on a recurring basis. During 2008, the cash surrender values of the insurance policies declined by approximately $2.4 million. The change in values in 2007 and 2006 was not significant. Due to the short maturity of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, their carrying values approximate fair value. The fair value of long- term debt represented by our 10.375% Senior Notes and our 9.5% Senior Subordinated Notes, based on quoted market prices, was $150.3 million and $107.3 million, respectively, at December INVENTORIES Inventories are summarized as follows:
Reserves for inventory obsolescence amounted to
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
The estimated cost to complete construction-in-progress for which the Company was committed at December 28, 2008, was approximately $12.4 million. ACCRUED EXPENSES Accrued expenses are summarized as follows:
Other non-current liabilities include pension liability of BORROWINGS Revolving Credit Facility On June 30, 2006, the Company amended and restated its revolving credit facility. Under the amended and restated facility (the “Facility”), as under its predecessor, the Company’s obligations are secured by a first priority lien on substantially all of the assets of Interface, Inc. and each of its material domestic subsidiaries, which subsidiaries also guarantee the Facility. However, the Facility differed from its predecessor in the following material respects:
- 52 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On January 1, 2008, the Company further amended the Facility. The amendment (the “First Amendment”) extended the stated maturity date of the Facility to December 31, 2012. The applicable interest rates for LIBOR-based loans have been reduced. Interest on those loans is now charged at varying rates computed by applying a margin ranging from 1.00% to 2.00% (reduced from the range of 1.25% to 2.25%) over the applicable LIBOR rate, depending on our average excess borrowing availability during the most recently completed fiscal quarter. The Company also is no longer required to deliver monthly financial statements to the lenders. In light of our recent borrowing levels and in an effort to reduce unused line fees, the Company The Facility also includes various reporting, affirmative and negative covenants, and other provisions that restrict the Company’s ability to take certain actions, including provisions that restrict the Company’s ability to: (1) repay the Company’s long-term indebtedness unless the Company meets a specified minimum excess availability test; (2) incur indebtedness or contingent obligations; (3) make acquisitions of or investments in businesses (in excess of certain specified amounts); (4) sell or dispose of assets (in excess of certain specified amounts); (5) create or incur liens on assets; and (6) enter into sale and leaseback transactions. The Company is presently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future. The Facility is secured by substantially all of the assets of Interface, Inc. and its domestic subsidiaries (subject to exceptions for certain immaterial subsidiaries), including all of the stock of our domestic subsidiaries and up to 65% of the stock of our first-tier material foreign subsidiaries. If an event of default occurs under the Facility, the lenders’ collateral agent may, upon the request of a specified percentage of lenders, exercise remedies with respect to the collateral, including, in some instances, foreclosing mortgages on real estate assets, taking possession of or selling personal property assets, collecting accounts receivables, or exercising proxies to take control of the pledged stock of domestic and first-tier material foreign subsidiaries. As of December - 53 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Credit Agreement with ABN AMRO Bank N.V. On March 9, 2007, Interface Europe B.V. (our modular carpet subsidiary based in the Netherlands) and certain of its subsidiaries entered into a Credit Agreement with ABN AMRO Bank N.V. Under the Credit Agreement, ABN AMRO provides a credit facility for borrowings and bank guarantees in varying aggregate amounts over time as follows:
Interest on borrowings under this facility is charged at varying rates computed by applying a margin of 1% over ABN AMRO’s euro base rate (consisting of the leading refinancing rate as determined from time to time by the European Central Bank plus a debit interest surcharge), which base rate is subject to a minimum of 3.5% per annum. Fees on bank guarantees and documentary letters of credit are charged at a rate of 1% per annum or a part thereof on the maximum amount and for the maximum duration of each guarantee or documentary letter of credit issued. An unused line fee of 0.5% per annum is payable with respect to any undrawn portion of the facility. The facility is secured by liens on certain real, personal and intangible property of our principal European subsidiaries. The facility also includes various financial covenants (which require the borrowers to maintain a minimum interest coverage ratio, total debt/EBITDA ratio and tangible net worth/total assets) and affirmative and negative covenants, and other provisions that restrict the borrowers’ ability to take certain actions. As of December The Company is presently in compliance with all covenants under this facility and 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 1 and August 1 beginning August 1, 2002. Proceeds from the issuance of these Notes were used to pay down the revolving credit facility. The notes are guaranteed, fully, unconditionally, and jointly and severally, on an unsecured senior basis by certain of the Company’s domestic subsidiaries. As of December 28, 2008, and December 30, 2007, the Company had outstanding $152.6 million and $175 million in 10.375% Senior Notes, respectively. At December 28, 2008, and December 30, 2007, the estimated fair value of these notes based on then current market prices was approximately $150.3 million and $183.3 million, respectively. During 2008, the Company repurchased approximately $22.4 million of these notes at prices approximating face value. 9.5% Senior Subordinated Notes On February 4, 2004, the Company completed a private offering of $135 million in 9.5% Senior Subordinated Notes due 2014. Interest on these These notes are guaranteed, fully, unconditionally, and jointly and severally, on an unsecured senior subordinated basis by certain of the Company’s domestic subsidiaries. The notes will become redeemable for cash after February 1, 2009, 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 February 1, 2012, plus accrued interest thereon to the date fixed for redemption. As of both December - 54 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7.3% Senior Notes Other Lines of Credit Subsidiaries of the Company have an aggregate of the equivalent of Borrowing Costs Deferred borrowing costs, which include underwriting, legal and other direct costs related to the issuance of debt, were Future Maturities The aggregate maturities of borrowings for each of the five years subsequent to December 30, 2007, are as follows:
PREFERRED STOCK The Company is authorized to designate and issue up to 5,000,000 shares of $1.00 par value preferred stock in one or more series and to determine the rights and preferences of each series, to the extent permitted by the Articles of Incorporation, and to fix the terms of such preferred stock without any vote or action by the shareholders. The issuance of any series of preferred stock may have an adverse effect on the rights of holders of common stock and could decrease the amount of earnings and assets available for distribution to holders of common stock. In addition, any issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company. As of December Preferred Share Purchase Rights The Company has previously issued one purchase right (a “Right”) in respect of each outstanding share of Common Stock pursuant to a Rights Agreement it entered into in - 55 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that acquires (without the consent of the Company’s Board of Directors) 15% or more of the outstanding shares of Common Stock or if other specified events occur without the Rights having been redeemed or in the event of an exchange of the Rights for Common Stock as permitted under the Shareholder Rights Plan. The dividend and liquidation rights of the Series B Preferred Stock are designed so that the value of one Unit of Series B Preferred Stock issuable upon exercise of each Right will approximate the same economic value as one share of Common Stock, including voting rights. The exercise price per Right is $90, subject to adjustment. Shares of Series B Preferred Stock will entitle the holder to a minimum preferential dividend of $1.00 per share, but will entitle the holder to an aggregate dividend payment of Each share of Series B Preferred Stock will be entitled to 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. SHAREHOLDERS’ EQUITY The Company is authorized to issue 80 million shares of $0.10 par value Class A Common Stock and 40 million shares of $0.10 par value Class B Common Stock. 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 The Company’s Class A Common Stock is traded on the Nasdaq Global Select Market under the symbol Both classes of Common Stock share equally in dividends available to common shareholders. The Company paid dividends totaling $0.12 per share during 2008 and $0.08 per share during All treasury stock is accounted for using the cost method. - 56 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Common Stock Offering On November 10, 2006, the Company sold 5,750,000 shares of its Class A common stock (which amount includes the underwriters’ exercise in full of their option to purchase an additional 750,000 shares to cover over-allotments) at a public offering price of $14.65 per share pursuant to a common stock offering, resulting in net proceeds of approximately $78.9 million after deducting the underwriting discounts, commissions and estimated offering expenses. The proceeds of this offering were primarily used to repay our outstanding debt, as well as to fund other general corporate purposes. The following tables show changes in common shareholders’ equity during the past three years.
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Options The Company has an Omnibus Stock Incentive Plan (“Omnibus Plan”) under which a committee of independent directors is authorized to grant directors and key employees, including officers, options to purchase the Company’s Common Stock. Options are exercisable for shares of 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 become exercisable either immediately upon the grant date or ratably over a time period ranging from one to five years from the date of the grant. The Company’s options expire at the end of time periods ranging from three to ten years from the date of the grant. Initially, in 1997, 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 certain 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. In May 2006, the shareholders approved an amendment - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In the first quarter of 2006, the Company adopted SFAS No. 123R, “Share-Based Payments,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation.” This standard requires that the Company measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair market value of the award. That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award. The grant date fair value for options and similar instruments will be estimated using option pricing models. Under SFAS No. 123R, the Company is required to select a valuation technique or option pricing model that meets the criteria as stated in the standard, which includes a binomial model and the Black-Scholes model. The Company is continuing to use the Black-Scholes model. SFAS No. 123R requires that the Company estimate forfeitures for stock options and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. This expense reduction is not significant to the Company. The Company recognized stock option compensation expense of $0.6 million in 2008, and $0.3 million in each of 2007 and 2006. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions used for grants issued in fiscal years 2008, 2007
The weighted average fair value of stock options (as of grant date) granted during the years 2008, 2007 and 2006 was $6.21, $6.99 and The following table summarizes stock options outstanding as of December
(a) At December (b) At December At December The intrinsic value of stock options exercised in 2008, 2007 and 2006 - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Stock Awards During fiscal years 2008, 2007 Compensation expense related to the vesting of restricted stock was $5.8 million, $5.0 million and $2.9 million for 2008, 2007 and The following table summarizes restricted stock activity as of December
As of December As stated above, SFAS No. 123R requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation, as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur. In prior years, the Company did not estimate the forfeitures of its restricted stock as the expense was recorded. In accordance with the standard, the Company is required to record a cumulative effect of the change in accounting principle to reduce previously recognized compensation for awards not expected to vest (i.e., forfeited or cancelled awards). Upon adoption of SFAS No. 123R, the Company adjusted for this cumulative effect and recognized a reduction in stock-based compensation, which was recorded within the selling, general and administrative expense on the Company’s consolidated statement of operations. The adjustment was not recorded as a cumulative effect adjustment, net of tax, because the amount was not material to the consolidated statement of operations. - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) INCOME (LOSS) PER SHARE Basic income (loss) per share is computed by dividing net income (loss) to common shareholders by the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. Shares issued or reacquired during the year have been weighted for the portion of the year that they were outstanding. Diluted income (loss) per share is calculated in a manner consistent with that of basic income (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the year. Basic income (loss) per share has been computed based upon 61,439,000, 60,573,000
- 62 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) RESTRUCTURING 2008 Restructuring Charge In the fourth quarter of 2008, the Company committed to a restructuring plan intended to reduce costs across its worldwide operations, and more closely align the Company’s operations with the current demand levels. The reduction of the demand levels is primarily a result of the worldwide recession and the associated delays and reductions in the number of construction projects where the Company’s carpet products are used. The plan primarily consists of ceasing manufacturing operations at its facility in Belleville, Canada, and reducing its worldwide employee base by a total of approximately 530 employees in the areas of manufacturing, sales and administration. In connection with the restructuring plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2008 of $11.0 million. The Company records its restructuring accruals under the provisions of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” or SFAS No. 112, “Employer’s Accounting for Post-Employment Benefits, an Amendment of FASB Statements No. 5 and 43,” as appropriate. The restructuring charge is comprised of employee severance expense of $7.8 million, impairment of assets of $2.6 million, and other exit costs of $0.7 million (primarily related to lease exit costs and other closure activities). Approximately $8.3 million of the restructuring charge will be cash expenditures, primarily severance expense. The restructuring plan is expected to be completed in the first quarter of 2009, and is expected to yield annualized cost savings of approximately $30 million. A summary of these restructuring activities is presented below:
The table below details the restructuring activities undertaken in 2008 by segment:
2006 Restructuring Charge During the first quarter of 2006, the Company recorded a pre-tax restructuring charge of $3.3 million. The charge reflected: (i) the closure of a fabrics manufacturing facility in East Douglas, Massachusetts, and consolidation of those operations into the Company’s former facility in Elkin, North A summary of these restructuring activities is presented below:
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the total restructuring charge, approximately $0.3 million relates to expenditures for severance benefits and other similar costs, and $3.0 million relates to non-cash charges, primarily for the write-down of carrying value and disposal of certain assets. The total amounts incurred to date for this restructuring plan are $3.3 million, and there are not expected to be any further expenses related to this plan. The plan was substantially completed by the end of 2006. TAXES ON INCOME Provisions for federal, foreign and state income taxes in the consolidated statements of operations consisted of the following components:
Income tax expense (benefit) is included in the accompanying consolidated statements of operations as follows:
Income (loss) from continuing operations before taxes on income consisted of the following:
Deferred income taxes for the years ended December - 64 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) At December The sources of the temporary differences and their effect on the net deferred tax asset are as follows:
Deferred tax assets and liabilities are included in the accompanying balance sheets as follows:
Management believes, based on the Company’s history of operating expenses and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets at December The Company’s effective tax rate from continuing operations
- 65 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the fourth quarter of 2006, the Dutch government enacted a tax rate reduction from 29.6% to 25.5% effective January 1, 2007. SFAS No.109, “Accounting for Income Taxes,” requires that deferred tax balances be revalued to reflect such tax rate changes. The revaluation resulted in a 1.2% decrease in the Company’s effective tax rate During 2006, in connection with the sale of the European component of its fabrics business, the Company repatriated approximately $1.4 million in previously unremitted foreign earnings and recorded a provision for taxes on such previously unremitted foreign earnings of approximately $0.5 million. This repatriation of foreign earnings during 2006 increased the Company’s 2006 effective rate by 0.9% which has been reflected as a component of the “Foreign and U.S. tax effects attributable to foreign operations” line item of the On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). As a result of the adoption, on that date the Company recognized a $4.6 million increase in its liability for unrecognized tax benefits with a corresponding decrease to the opening balance of retained earnings. As of As of December - 66 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. As of December The Company’s federal income tax returns are subject to examination for the years 2003 to the present. The Company files returns in numerous state and local jurisdictions and in general it is subject to examination by the state tax authorities for the years 2003 to the present. The Company files returns in numerous foreign jurisdictions and in general it is subject to examination by the foreign tax authorities for the years In August 2006, the Canadian tax authorities In late February 2008, the Management believes changes to our unrecognized tax benefits that are reasonably possible in the next 12 months, other than the Canadian A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
DISCONTINUED OPERATIONS As discussed below in the note entitled “Sale of Fabrics Business,” in the second quarter of 2007, the Company committed to a plan to exit its Fabrics Group business segment, and in the third quarter of 2007, the Company completed the sale. Therefore, the results for the Fabrics Group business segment have been reported as discontinued operations. In connection with this action, the Company also recorded write-downs for the impairment of assets and goodwill of $17.4 million and $44.5 million, respectively, in 2007. In connection with the sale, the Company recorded the aforementioned impairments to reduce the carrying value of the business segment to its fair value. In 2007, the Company recorded approximately $12.4 million of direct costs to sell the Fabrics Group business segment. - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During 2004, the Company committed to a plan to exit its owned Re:Source dealer businesses and began to dispose of several of the dealer subsidiaries. Therefore, the results for the owned Re:Source dealer businesses, as well as the Company’s small Australian dealer and small residential fabrics businesses that management also decided to exit at that time, are reported as discontinued operations. In connection with this action, the Company also recorded write-downs for the impairment of assets of $3.5 million in 2005. By the end of 2006, the Company had sold nine dealer businesses (eight of which were sold to the respective general managers of those businesses) and had closed all six others. The aggregate cash proceeds from the sales were $7.5 million. The Company also received promissory notes in an aggregate amount of $2.2 million at interest rates ranging from prime to 12% and with maturities ranging from one to three years. Summary operating results for the discontinued businesses are as follows:
Assets and liabilities, including reserves, related to discontinued businesses that were held for sale consist of the following:
HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS The Company has used derivative financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are 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. As of December 28, 2008 and December 30, 2007, the Company was not a party to any such - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) COMMITMENTS AND CONTINGENCIES The Company leases certain production, distribution and marketing facilities and equipment. At December
The totals above exclude minimum lease payments of Rental expense amounted to approximately $28.1 million, $23.1 million The Company is from time to time a party to routine litigation incidental to its business. Management does not believe that the resolution of any or all of such litigation will have a material adverse effect on the Company’s financial condition or results of operations. EMPLOYEE BENEFIT PLANS Defined Contribution and Deferred Compensation Plans The Company has a 401(k) retirement investment plan (“401(k) Plan”), which is open to all otherwise eligible U.S. employees with at least six months of service. The 401(k) Plan calls for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The Company may, at its discretion, make additional contributions to the 401(k) Plan based on the attainment of certain performance targets by its subsidiaries. The Company’s matching contributions are funded bi-monthly and totaled approximately $2.5 million, $2.4 million Under the Company’s nonqualified savings plans (“NSPs”), the Company provides eligible employees the opportunity to enter into agreements for the deferral of a specified percentage of their compensation, as defined in the NSPs. The NSPs call for Company matching contributions on a sliding scale based on the level of the employee’s contribution. The obligations of the Company under such agreements to pay the deferred compensation in the future in accordance with the terms of the NSPs are unsecured general obligations of the Company. Participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company has established a Rabbi Trust to hold, invest and reinvest deferrals and contributions under the NSPs. If a change in control of the Company occurs, as defined in the NSPs, the Company will contribute an amount to the Rabbi Trust sufficient to pay the obligation owed to each participant. Deferred compensation in connection with the NSPs totaled - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Foreign Defined Benefit Plans The Company has trusteed defined benefit retirement plans which cover many of its European employees. The benefits are generally based on years of service and the employee’s average monthly compensation. Pension expense was $3.4 million, $5.1 million The tables presented below set forth the funded status of the Company’s significant foreign defined benefit plans and required disclosures in accordance with SFAS No. 132, as revised.
- 70 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The 2007 actuarial gain identified above includes approximately $8 million related to a modification of employee data related to the Company’s plans. In prior years, a plan modification was not reflected in employee data, and in 2007. The above disclosure represents the aggregation of information related to the Company’s two defined benefit plans which cover many of its European employees. As of December 28, 2008 and December 30, 2007, one of these plans, which primarily covers certain employees in the United Kingdom (the “UK Plan”), had an accumulated benefit obligation in excess of the plan assets. The other plan, which covers certain employees in Europe (the “Europe Plan”), had assets in excess of the accumulated benefit obligation. The following table summarizes this information as of December 28, 2008 and December 30, 2007.
For
- 71 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The expected long-term rate of return on plan assets assumption is based on weighted average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers. The Company’s foreign defined benefit plans’ accumulated benefit obligations were in excess of the fair value of the plans’ assets. The projected benefit obligations, accumulated benefit obligations and fair value of these plan assets are as follows:
The Company’s actual weighted average asset allocations for
The investment objectives of the foreign defined benefit plans are to maximize the return on the investments without exceeding the limits of the prudent pension fund investment, to ensure that the assets would be sufficient to exceed minimum funding requirements, and to achieve a favorable return against the performance expectation based on historic and projected rates of return over the short term. The goal is to optimize the long-term return on plan assets at a moderate level of risk, by balancing higher-returning assets, such as equity securities, with less volatile assets, such as fixed income securities. The assets are managed by professional investment firms and performance is evaluated periodically against specific benchmarks. The plans’ net assets did not include the Company’s own stock at December - 72 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During
Domestic Defined Benefit Plan The Company maintains a domestic nonqualified salary continuation plan (“SCP”), which is designed to induce selected officers of the Company to remain in the employ of the Company by providing them with retirement, disability and death benefits in addition to those which they may receive under the Company’s other retirement plans and benefit programs. The SCP entitles participants to: (i) retirement benefits upon normal retirement at age 65 (or early retirement as early as age 55) after completing at least 15 years of service with the Company (unless otherwise provided in the SCP), payable for the remainder of their lives (or, if elected by a participant, a reduced benefit is payable for the remainder of the participant’s life and any surviving spouse’s life) and in no event less than 10 years under the death benefit feature; (ii) disability benefits payable for the period of any total disability; and (iii) death benefits payable to the designated beneficiary of the participant for a period of up to 10 years. Benefits are determined according to one of three formulas contained in the SCP, and the SCP is administered by the Compensation Committee of the Company’s Board of Directors, which has full discretion in choosing participants and the benefit formula applicable to each. The Company’s obligations under the SCP are currently unfunded (although the Company uses insurance instruments to hedge its exposure thereunder). The Company is required to contribute the present value of its obligations thereunder to an irrevocable grantor trust in the event of a change in control as defined in the SCP. The Company uses a year-end measurement date The tables presented below set forth the required disclosures in accordance with SFAS No. 132, as revised, and amounts recognized in the consolidated financial statements related to the domestic SCP.
The amounts recognized in the consolidated balance sheets are as follows:
- 73 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the amounts in accumulated other comprehensive income, after tax, are as follows:
The accumulated benefit obligation related to the SCP was
The changes in other comprehensive income during For During
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Clarification of Adoption of SFAS No. 158 with Regard to the Company’s Defined Benefit Plans In 2006, upon the adoption of SFAS No. 158, the Company recorded the impact of the standard in its entirety in Other Comprehensive Income, an amount, after tax, of $19.4 million. During 2007, additional guidance was issued as it relates to the adoption of SFAS No. 158, and it was clarified that the impact of the initial adoption would not be included in Other Comprehensive Income, but rather would be a direct adjustment to Accumulated Other Comprehensive Income. As a result of this guidance, the Consolidated Statement of Comprehensive Income (Loss) for 2007 has been adjusted to show the impact only under previous pension accounting guidance (an amount of approximately $8.0 million). SALE OF FABRICS BUSINESS In the second quarter of 2007, the Company entered into an agreement to sell its Fabrics Group business segment to a third party. The sale was completed in the third quarter of 2007. The purchase price for the business segment was $67.2 million, after working capital and certain other adjustments. Of this $67.2 million, $6.5 million represents deferred compensation which would be remitted to the Company upon the achievement of certain performance criteria by the disposed segment over the 18 months following the sale. In April 2006, the Company sold its European fabrics business for $28.8 million to an entity formed by the business’s management team. As discussed below, an impairment charge of $20.7 million was recorded in 2006 in connection with this sale. The major classes of assets and liabilities related to this disposal group included accounts receivable of $11.9 million, inventory of $11.4 million, property, plant and equipment of $9.5 million, and accounts payable of $7.6 million. In 2006, the transaction resulted in a net loss on disposal of $1.7 million. Current and prior periods have been restated to include the results of operations and related disposal costs, gains and losses for these fabrics businesses as discontinued operations. In addition, assets and liabilities of these businesses have been reported in assets and liabilities held for sale for all periods presented. SALE OF PANDEL In the first quarter of 2007, the Company sold its subsidiary Pandel, Inc. for $1.4 million to an entity formed by the general manager of Pandel. The operations of Pandel represented the Company’s Specialty Products segment. Pandel primarily produced vinyl carpet tile backing and specialty mat and foam products. As a result of this sale, the Company recorded a loss on disposition of $1.9 million in the first quarter of 2007. The total assets of this business were $3.3 million, comprised primarily of inventory and accounts receivable. Total liabilities related to this business were $0.4 million. Prior to the sale, certain of Pandel’s production assets were conveyed to another subsidiary of the IMPAIRMENT OF GOODWILL During the fourth quarters of 2008, 2007 and 2006, the Company performed the annual goodwill impairment test required by SFAS No. 142. The Company performs this test at the reporting unit level, which is one level below the segment level for the modular carpet segment and at the level of the Bentley Prince Street segment. In effecting the impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology in accordance with the applicable standards, and those valuations were compared with the respective book values of the reporting units to determine whether any goodwill impairment existed. In preparing the valuations, past, present and future expectations of performance were considered. In the fourth quarter of 2008, a goodwill impairment of $61.2 million related to the Bentley Prince Street reporting unit was identified due largely to the following factors: - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s other reporting units maintained fair values in excess of their respective carrying values as of the fourth quarter of 2008, and therefore no impairment was indicated during their testing. As of December 28, 2008 (after giving effect to the goodwill impairment charge related to the Bentley Prince Street business segment), if the Company’s estimates of the fair values of its reporting units were 10% lower, the Company believes no additional goodwill impairment would have existed. In the first quarter of 2007, the Company recorded charges for impairment of goodwill of $44.5 million and impairment of other intangible assets of $3.8 million related to its Fabrics Group business segment. The Company was exploring possible strategic options with respect to its fabrics business, and its analyses indicated that the carrying value of the assets of the fabrics business exceeded their fair value. When such an indication is present, the Company measures potential goodwill and other asset impairments based on an allocation of the estimated fair value of the reporting unit to its underlying assets and liabilities. An impairment loss is recognized to the extent that the reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. In addition to the impairment of goodwill, the Company determined that other intangible assets of the business unit were impaired as well. As discussed above in the note entitled “Sale of Fabrics Business,” in the second quarter of 2007, the Company entered into an agreement to sell its fabrics business segment for approximately $67.2 million (after working capital and certain other adjustments). As a result of this agreed-upon purchase price, the Company recorded an impairment of assets of approximately $13.6 million in the second quarter of 2007. This impairment was determined based upon the fair value of the business segment as compared to the fair value represented by the purchase price. Given the nature of the Company’s assets and liabilities, the impairment charge was a reduction of carrying value of property, plant and equipment, as it was determined that all other assets were carried at a value approximating fair value. These impairment charges have been included in discontinued operations in the Consolidated Statement of Operations for 2007. During the first quarter of 2006, in connection with the sale of its European fabrics business (described in more detail above in the note entitled “Sale of Fabrics Business”), the Company recorded a charge of $20.7 million for the impairment of goodwill related to its fabrics reporting unit and those European operations. This charge was based on a review of the Company’s carrying value of goodwill at its fabrics facilities as compared to the potential fair value as represented by the proposed sale price. This impairment charge has been included in discontinued operations in the Consolidated Statement of Operations for 2006. SEGMENT INFORMATION Based on the quantitative thresholds specified in SFAS No. 131, the Company has determined that it has three reportable segments: (1) the Modular Carpet segment, which includes its InterfaceFLOR, Heuga and FLOR modular carpet businesses, as well as its Intersept antimicrobial sales and licensing program, (2) the Bentley Prince Street segment, which includes its Bentley Prince Street broadloom, modular carpet and area rug businesses, and (3) the Specialty Products segment, which includes Pandel, Inc., a producer of vinyl carpet tile backing and specialty mat and foam products. The majority of the operations of the Specialty Products segment were sold in March 2007. In July 2007, the Company completed the sale of its former Fabrics Group business segment. Accordingly, the Company has included the operations of the former Fabrics Group business segment in discontinued operations. The former segment known as the Re:Source Network, which primarily encompassed the Company’s owned Re:Source dealers that provided carpet installation and maintenance services in the United States, is also reported as discontinued operations in the accompanying Consolidated Statements of Operations. The Company’s InterfaceServices business continues to provide “turnkey” project management solutions to its customers. The Company aggregates the InterfaceServices business into the modular carpet segment based on the similar class of customer and the similar methods used to provide the products and services. InterfaceServices does not meet the quantitative thresholds to be presented as a separate operating segment. - 76 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The accounting policies of the operating segments are the same as those described in the Note entitled “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. Intersegment sales are accounted for at fair value as if sales were to third parties. Intersegment sales are not material. 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/other 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, SEGMENT DISCLOSURES Summary information by segment follows:
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the Company’s total segment operating income, depreciation and amortization, and assets to the corresponding consolidated amounts are as follows:
ENTERPRISE-WIDE DISCLOSURES The Company has a large and diverse customer base, which includes numerous customers located in foreign countries. No single unaffiliated customer accounted for more than 10% of total sales in any year during the three years ended December
(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. - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) SUBSEQUENT EVENT In February 2009, the Company adopted a new restructuring plan. This new plan primarily consists of a further reduction in the Company's worldwide employee base by a total of approximately 290 employees and continuing actions taken to better align fixed costs with demand for its products. In connection with the new plan, the Company expects to report a pre-tax restructuring charge in the first quarter of 2009 in the range of $5.5 million to $6.5 million, comprised of $4.5 million to $5.5 million of employee severance expense and $1.0 million to $1.5 million of other exit costs, including lease and other termination costs. Approximately $5.5 million to $6.0 million of the restructuring charge will involve future cash expenditures, primarily severance expense. The new restructuring plan is expected to be completed in the first quarter of 2009, and is expected to yield annualized cost savings of approximately $17 million. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED) The following tables set forth, for the fiscal periods indicated, selected consolidated financial data and information regarding the market price per share of the Company’s Class A Common Stock. The prices represent the reported high and low sale prices during the period presented.
- 79 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The “guarantor subsidiaries,” which consist of the Company’s principal domestic subsidiaries, are guarantors of the Company’s 10.375% senior notes due 2010 and its 9.5% senior subordinated notes due 2014. The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Commission. STATEMENT OF OPERATIONS FOR YEAR
- 81 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- 82 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENT OF
- 83 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- 84 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- 85 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENT OF CASH FLOWS FOR YEAR ENDED 2008
- 86 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENT OF CASH FLOWS FOR YEAR ENDED 2007
- 87 - - INTERFACE, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENT OF CASH FLOWS FOR YEAR ENDED 2006
- 88 - - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders of Interface, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of Interface, Inc. as of December We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interface, Inc. at December As discussed in the footnote entitled We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December /s/ BDO SEIDMAN, LLP Atlanta, Georgia February - REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING Board of Directors and Shareholders of Interface, Inc. Atlanta, Georgia We have audited Interface Inc.’s internal control over financial reporting as of December We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Interface, Inc. maintained, in all material respects, effective internal control over financial reporting as of December We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), consolidated balance sheets of Interface, Inc. as of December /s/ BDO SEIDMAN, LLP Atlanta, Georgia February -
Not applicable. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, pursuant to Rule 13a-14(c) under the Act. Based on that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report. Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control over financial reporting as of December Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report appears on page ITEM 9B. OTHER INFORMATION None PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information contained under the captions “Nomination and Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Meetings and Committees of the Board of Directors” in our definitive Proxy Statement for our We have adopted the “Interface Code of Business Conduct and Ethics” (the “Code”) which applies to all of our employees, officers and directors, including the Chief Executive Officer and Chief Financial Officer. The Code may be viewed on our website at - ITEM 11. EXECUTIVE COMPENSATION The information contained under the
The information contained under the captions “Principal Shareholders and Management Stock Ownership” and “Equity Compensation Plan Information” in our definitive Proxy Statement for our For purposes of determining the aggregate market value of our voting and non-voting stock held by non-affiliates, shares held by our directors and executive officers have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” as that term is defined under federal securities laws. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information contained under the ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information contained under the PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Consolidated Financial Statements and Notes thereto of Interface, Inc. and subsidiaries and related Reports of Independent Registered Public Accounting Firm are contained in Item 8 of this Report: Consolidated Statements of Operations and Comprehensive Income (Loss) — years ended December 28, 2008, December 30, 2007 and December 31, Consolidated Balance Sheets — December Consolidated Statements of Cash Flows — years ended December 28, 2008, December 30, 2007 and December 31, 2006 - 92 - - Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The following Consolidated Financial Statement Schedule of Interface, Inc. and subsidiaries and related Report of Independent Registered Public Accounting Firm are included as part of this Report (see pages Report of Independent Registered Public Accounting Firm Schedule II — Valuation and Qualifying Accounts and Reserves
The following exhibits are included as part of this Report:
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- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Interface, Inc. Atlanta, Georgia The audits referred to in our report to Interface, Inc., dated February In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ BDO SEIDMAN, LLP Atlanta, Georgia February - INTERFACE, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(A) Includes changes in foreign currency exchange rates. (B) Write off of bad debt.
(A) Includes changes in foreign currency exchange rates. (B) Reduction of asset carrying value. (C) Cash payments. -
(A) Includes changes in foreign currency exchange rates. (B) Represents credits issued and adjustments to reflect actual exposure.
(A) Includes changes in foreign currency exchange rates. (B) Represents costs applied against reserve and adjustments to reflect actual exposure.
(A) Includes changes in foreign currency exchange rates. (B) Represents costs applied against reserve and adjustments to reflect actual exposure. (All other Schedules for which provision is made in the applicable accounting requirements of the Securities and Exchange Commission are omitted because they are either not applicable or the required information is shown in the Company's Consolidated Financial Statements or the Notes thereto.) - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel T. Hendrix as attorney-in-fact, with power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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