Under the Facility, the Company is required to make quarterly amortization payments of the term loan borrowings, which are due on the last day of the calendar quarter.
Our Asia-Pacific operations, from time to time, purchase foreign currency options to economically hedge inventory purchases denominated in foreign currencies other than their functional currency. The Company’s objective with respect to these foreign currency options is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to payment on inventory purchases. These options are classified as non-designated derivative instruments. Gains and losses on the changes in fair value of these foreign currency options are recognized in earnings each period. As of July 5, 2020,4, 2021, the Company had outstanding foreign currency options with an aggregate notional amount of $17.0$4.4 million.
The following table summarizes the impact that changes in the fair value of derivatives designated as cash flow hedges had on accumulated other comprehensive loss, net of tax, during the three and six months ended July 5, 2020 and June 30, 2019:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 |
| (In thousands) |
Foreign currency contracts gain (loss) | $ | — |
| | $ | 204 |
| | $ | — |
| | $ | (159 | ) |
Interest rate swap contracts loss | (351 | ) | | (4,871 | ) | | (6,491 | ) | | (7,814 | ) |
Loss recognized in accumulated other comprehensive loss | $ | (351 | ) | | $ | (4,667 | ) | | $ | (6,491 | ) | | $ | (7,973 | ) |
ContentsGains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive income (loss) into net income (loss) are discussed in Note 14 entitled “Items Reclassified From Accumulated Other Comprehensive Loss.”
The following tables summarize gains and losses on derivatives not designated as hedging instruments within the consolidated condensed statements of operations for the three and six months ended July 4, 2021 and July 5, 2020 and June 30, 2019:2020:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| Statement of Operations Location | | July 4, 2021 | | July 5, 2020 |
| | | (in thousands) |
Foreign currency options gain (loss) | Other expense | | $ | 134 | | | $ | (1,629) | |
|
| | | | | | | | | |
| | | Three Months Ended |
| Statement of Operations Location | | July 5, 2020 | | June 30, 2019 |
| | | (In thousands) |
Foreign currency options loss | Other expense | | $ | (1,629 | ) | | $ | (144 | ) |
| | | | | |
| | | Six Months Ended |
| Statement of Operations Location | | July 5, 2020 | | June 30, 2019 |
| | | (In thousands) |
Foreign currency options gain (loss) | Other expense | | $ | 79 |
| | $ | (549 | ) |
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended |
| Statement of Operations Location | | July 4, 2021 | | July 5, 2020 |
| | | (in thousands) |
Foreign currency options gain | Other expense | | $ | 319 | | | $ | 79 | |
NOTE 7 – SHAREHOLDERS’ EQUITY
The following tables depict the activity in the accounts which make up shareholders’ equity for the three and six months ended July 4, 2021 and July 5, 2020 and June 30, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SHARES | | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | PENSION LIABILITY | | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | | CASH FLOW HEDGE |
| (in thousands) |
Balance, at January 3, 2021 | 58,664 | | | $ | 5,865 | | | $ | 247,920 | | | $ | 208,562 | | | $ | (69,288) | | | $ | (60,331) | | | $ | (6,190) | |
Net income | — | | | — | | | — | | | 6,938 | | | — | | | — | | | — | |
Restricted stock issuances | 376 | | | 38 | | | 5,277 | | | — | | | — | | | — | | | — | |
Unamortized compensation expense related to restricted stock awards | — | | | — | | | (5,315) | | | — | | | — | | | — | | | — | |
Cash dividends declared, $0.01 per common share | — | | | — | | | — | | | (589) | | | — | | | — | | | — | |
Compensation expense related to stock awards, net of forfeitures | (26) | | | (2) | | | 689 | | | — | | | — | | | — | | | — | |
Pension liability adjustment | — | | | — | | | — | | | — | | | 89 | | | — | | | — | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (19,597) | | | — | |
Reclassification out of accumulated other comprehensive loss - discontinued cash flow hedge | — | | | — | | | — | | | — | | | — | | | — | | | 749 | |
Balance, at April 4, 2021 | 59,014 | | | $ | 5,901 | | | $ | 248,571 | | | $ | 214,911 | | | $ | (69,199) | | | $ | (79,928) | | | $ | (5,441) | |
Net income | — | | | — | | | — | | | 15,511 | | | — | | | — | | | — | |
Restricted stock issuances | 52 | | | 6 | | | 789 | | | — | | | — | | | — | | | — | |
Unamortized compensation expense related to restricted stock awards | — | | | — | | | (794) | | | — | | | — | | | — | | | — | |
Cash dividends declared, $0.01 per common share | — | | | — | | | — | | | (589) | | | — | | | — | | | — | |
Compensation expense related to stock awards | 0 | | | 0 | | | 1,548 | | | — | | | — | | | — | | | — | |
Pension liability adjustment | — | | | — | | | — | | | — | | | 100 | | | — | | | — | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 3,455 | | | — | |
Reclassification out of accumulated other comprehensive loss - discontinued cash flow hedge | — | | | — | | | — | | | — | | | — | | | — | | | 745 | |
Balance, at July 4, 2021 | 59,066 | | | $ | 5,907 | | | $ | 250,114 | | | $ | 229,833 | | | $ | (69,099) | | | $ | (76,473) | | | $ | (4,696) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| SHARES | | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | PENSION LIABILITY | | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | | CASH FLOW HEDGE |
| (In thousands) |
Balance, at December 29, 2019 | 58,416 |
| | $ | 5,842 |
| | $ | 250,306 |
| | $ | 286,056 |
| | $ | (56,700 | ) | | $ | (113,139 | ) | | $ | (4,163 | ) |
Net loss | — |
| | — |
| | — |
| | (102,167 | ) | | — |
| | — |
| | — |
|
Stock issuances under employee plans | 220 |
| | 22 |
| | 197 |
| | — |
| | — |
| | — |
| | — |
|
Other issuances of common stock | 107 |
| | 10 |
| | 1,720 |
| | — |
| | — |
| | — |
| | — |
|
Unamortized stock compensation expense related to restricted stock awards | — |
| | — |
| | (1,731 | ) | | — |
| | — |
| | — |
| | — |
|
Cash dividends declared, $0.065 per common share | — |
| | — |
| | — |
| | (3,807 | ) | | — |
| | — |
| | — |
|
Forfeitures and compensation expense related to stock awards | (255 | ) | | (25 | ) | | (4,114 | ) | | — |
| | — |
| | — |
| | — |
|
Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | 1,733 |
| | — |
| | — |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (15,245 | ) | | — |
|
Cash flow hedge unrealized loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,140 | ) |
Balance, at April 5, 2020 | 58,488 |
| | $ | 5,849 |
| | $ | 246,378 |
| | $ | 180,082 |
| | $ | (54,967 | ) | | $ | (128,384 | ) | | $ | (10,303 | ) |
Net income | — |
| | — |
| | — |
| | 4,709 |
| | — |
| | — |
| | — |
|
Stock issuances under employee plans | 12 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Other issuances of common stock | 70 |
| | 7 |
| | 2,294 |
| | — |
| | — |
| | — |
| | — |
|
Unamortized stock compensation expense related to restricted stock awards | — |
| | — |
| | (2,300 | ) | | — |
| | — |
| | — |
| | — |
|
Cash dividends declared, $0.01 per common share | — |
| | — |
| | — |
| | (585 | ) | | — |
| | — |
| | — |
|
Forfeitures and compensation expense related to stock awards | (26 | ) | | (3 | ) | | (48 | ) | | — |
| | — |
| | — |
| | — |
|
Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | (342 | ) | | — |
| | — |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 16,160 |
| | — |
|
Cash flow hedge unrealized loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (351 | ) |
Balance, at July 5, 2020 | 58,544 |
| | $ | 5,854 |
| | $ | 246,323 |
| | $ | 184,206 |
| | $ | (55,309 | ) | | $ | (112,224 | ) | | $ | (10,654 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| SHARES | | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | PENSION LIABILITY | | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | | CASH FLOW HEDGE |
| (In thousands) |
Balance, at December 30, 2018 | 59,508 |
| | $ | 5,951 |
| | $ | 270,269 |
| | $ | 222,214 |
| | $ | (43,610 | ) | | $ | (101,487 | ) | | $ | 1,326 |
|
Net income | — |
| | — |
| | — |
| | 7,059 |
| | — |
| | — |
| | — |
|
Stock issuances under employee plans | 509 |
| | 51 |
| | 379 |
| | — |
| | — |
| | — |
| | — |
|
Other issuances of common stock | 224 |
| | 22 |
| | 3,900 |
| | — |
| | — |
| | — |
| | — |
|
Unamortized stock compensation expense related to restricted stock awards | — |
| | — |
| | (3,922 | ) | | — |
| | — |
| | — |
| | — |
|
Cash dividends declared, $0.065 per common share | — |
| | — |
| | — |
| | (3,900 | ) | | — |
| | — |
| | — |
|
Forfeitures and compensation expense related to stock awards | (225 | ) | | (22 | ) | | 29 |
| | — |
| | — |
| | — |
| | — |
|
Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | (91 | ) | | — |
| | — |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (5,203 | ) | | — |
|
Cash flow hedge unrealized loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,306 | ) |
Balance, at March 31, 2019 | 60,016 |
| | $ | 6,002 |
| | $ | 270,655 |
| | $ | 225,373 |
| | $ | (43,701 | ) | | $ | (106,690 | ) | | $ | (1,980 | ) |
Net income | — |
| | — |
| | — |
| | 29,499 |
| | — |
| | — |
| | — |
|
Stock issuances under employee plans | 2 |
| | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
|
Other issuances of common stock | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Unamortized stock compensation expense related to restricted stock awards | — |
| | — |
| | 52 |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends declared, $0.065 per common share | — |
| | — |
| | — |
| | (3,863 | ) | | — |
| | — |
| | — |
|
Forfeitures and compensation expense related to stock awards | (28 | ) | | (3 | ) | | 1,506 |
| | — |
| | — |
| | — |
| | — |
|
Share repurchases | (1,556 | ) | | (156 | ) | | (24,998 | ) | | — |
| | — |
| | — |
| | — |
|
Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | 829 |
| | — |
| | — |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 4,249 |
| | — |
|
Cash flow hedge unrealized loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,667 | ) |
Balance, at June 30, 2019 | 58,433 |
| | $ | 5,843 |
| | $ | 247,221 |
| | $ | 251,009 |
| | $ | (42,872 | ) | | $ | (102,441 | ) | | $ | (6,647 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SHARES | | COMMON STOCK | | ADDITIONAL PAID-IN CAPITAL | | RETAINED EARNINGS | | PENSION LIABILITY | | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | | CASH FLOW HEDGE |
| (in thousands) |
Balance, at December 29, 2019 | 58,416 | | | $ | 5,842 | | | $ | 250,306 | | | $ | 286,056 | | | $ | (56,700) | | | $ | (113,139) | | | $ | (4,163) | |
Net loss | — | | | — | | | — | | | (102,167) | | | — | | | — | | | — | |
Issuances of stock (other than restricted stock) | 220 | | | 22 | | | 197 | | | — | | | — | | | — | | | — | |
Restricted stock issuances | 107 | | | 10 | | | 1,720 | | | — | | | — | | | — | | | — | |
Unamortized compensation expense related to restricted stock awards | — | | | — | | | (1,731) | | | — | | | — | | | — | | | — | |
Cash dividends declared, $0.065 per common share | — | | | — | | | — | | | (3,807) | | | — | | | — | | | — | |
Compensation expense related to stock awards, net of forfeitures | (255) | | | (25) | | | (4,114) | | | — | | | — | | | — | | | — | |
Pension liability adjustment | — | | | — | | | — | | | — | | | 1,733 | | | — | | | — | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (15,245) | | | — | |
Cash flow hedge unrealized loss | — | | | — | | | — | | | — | | | — | | | — | | | (6,140) | |
Balance, at April 5, 2020 | 58,488 | | | $ | 5,849 | | | $ | 246,378 | | | $ | 180,082 | | | $ | (54,967) | | | $ | (128,384) | | | $ | (10,303) | |
Net income | — | | | — | | | — | | | 4,709 | | | — | | | — | | | — | |
Issuances of stock (other than restricted stock) | 12 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | |
Restricted stock issuances | 70 | | | 7 | | | 2,294 | | | — | | | — | | | — | | | — | |
Unamortized compensation expense related to restricted stock awards | — | | | — | | | (2,300) | | | — | | | — | | | — | | | — | |
Cash dividends declared, $0.01 per common share | — | | | — | | | — | | | (585) | | | — | | | — | | | — | |
Compensation expense related to stock awards, net of forfeitures | (26) | | | (3) | | | (48) | | | — | | | — | | | — | | | — | |
Pension liability adjustment | — | | | — | | | — | | | — | | | (342) | | | — | | | — | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 16,160 | | | — | |
Cash flow hedge unrealized loss | — | | | — | | | — | | | — | | | — | | | — | | | (351) | |
Balance, at July 5, 2020 | 58,544 | | | $ | 5,854 | | | $ | 246,323 | | | $ | 184,206 | | | $ | (55,309) | | | $ | (112,224) | | | $ | (10,654) | |
Stock Option Awards
In accordance with accounting standards, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair 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.
All outstanding stock options vested prior to the end of 2013, and therefore there was 0 stock option compensation expense in the first six months of 20202021 or 2019.2020.
As of July 5, 2020,4, 2021, there were 20,0000 stock options outstanding and exercisable, at an average exercise price of $12.43 per share.exercisable. There were 0 stock options granted in the first six months of 20202021 or 2019.2020. There were 7,5000 stock options exercised and 0 stock options forfeited in the first six months of 2020.2021. There were 10,0007,500 stock options exercised in the first six months of 20192020 and 5,0000 stock option forfeitures during those six months. The outstanding and exercisable stock options had no intrinsic value as of July 5, 2020.
Restricted Stock Awards
During the six months ended July 4, 2021 and July 5, 2020, and June 30, 2019, the Company granted restricted stock awards for 308,100428,400 and 224,000308,100 shares of common stock, respectively. Awards of restricted stock (or a portion thereof) vest with respect to each recipient over a one to three-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, certain awards (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause.
Compensation expense (benefit) related to restricted stock grants was $(0.2)$1.8 million and $1.5$(0.2) million for the six months ended July 4, 2021, and July 5, 2020, and June 30, 2019, respectively. The Company has reduced its expense for restricted stock forfeited during the period.
The following table summarizes restricted stock outstanding as of July 5, 2020,4, 2021, as well as activity during the six months then ended:
|
| | | | | | |
| Restricted Shares | | Weighted Average Grant Date Fair Value |
Outstanding at December 29, 2019 | 468,200 |
| | $ | 28.63 |
|
Granted | 308,100 |
| | 13.08 |
|
Vested | (162,100 | ) | | 19.22 |
|
Forfeited or canceled | (153,700 | ) | | 19.67 |
|
Outstanding at July 5, 2020 | 460,500 |
| | $ | 24.53 |
|
| | | | | | | | | | | |
| Restricted Shares | | Weighted Average Grant Date Fair Value |
Outstanding at January 3, 2021 | 436,900 | | | $ | 24.73 | |
Granted | 428,400 | | | 14.26 | |
Vested | (167,200) | | | 13.68 | |
Forfeited or canceled | (3,100) | | | 16.69 | |
Outstanding at July 4, 2021 | 695,000 | | | $ | 20.97 | |
As of July 5, 2020,4, 2021, the unrecognized total compensation cost related to unvested restricted stock was $4.7$7.2 million. That cost is expected to be recognized by the end of 2023.2024.
Performance Share Awards
During the six months ended July 4, 2021 and July 5, 2020, and June 30, 2019, the Company issued awards of performance shares to certain employees. These awards vest based on the achievement of certain performance-based goals over a performance period of one to three years, subject to the employee’s continued employment, and will be settled in shares of our common stock or in cash at the Company’s election. The number of shares that may be issued in settlement of the performance shares to the award recipients may be greater (up to 200%) or lesser than the nominal award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.
The following table summarizes the performance shares outstanding as of July 5, 2020,4, 2021, as well as the activity during the six months then ended:
|
| | | | | | |
| Performance Shares | | Weighted Average Grant Date Fair Value |
Outstanding at December 29, 2019 | 512,000 |
| | $ | 19.71 |
|
Granted | 263,700 |
| | 15.36 |
|
Vested | (164,300 | ) | | 19.74 |
|
Forfeited or canceled | (192,000 | ) | | 19.67 |
|
Outstanding at July 5, 2020 | 419,400 |
| | $ | 16.99 |
|
| | | | | | | | | | | |
| Performance Shares | | Weighted Average Grant Date Fair Value |
Outstanding at January 3, 2021 | 405,300 | | | $ | 16.94 | |
Granted | 296,900 | | | 14.15 | |
Vested | 0 | | | 0 | |
Forfeited or canceled | (47,500) | | | 23.42 | |
Outstanding at July 4, 2021 | 654,700 | | | $ | 15.20 | |
Compensation expense (benefit) related to the performance shares was $(2.0)$0.7 million and $3.3$(2.0) million for the six months ended July 4, 2021 and July 5, 2020, and June 30, 2019, respectively. The Company has reduced its expense for performance shares forfeited during the period. Unrecognized compensation expense related to these performance shares was approximately $7.0$9.0 million as of July 5, 2020.4, 2021. Depending on the performance of the Company, any compensation expense related to these outstanding performance shares will be recognized by the end of 2023.2024.
Tax expenseThe tax benefit recognized with regard to restricted stock and performance shares was approximately $0.5$0.4 million for the six months ended July 5, 2020.4, 2021.
NOTE 8 – LEASES
General
We haveThe Company has operating and finance leases for manufacturing equipment, corporate offices, showrooms, distribution facilities, design centers, as well as computer and office equipment. OurThe Company’s leases have terms ranging from 1 to 20 years, some of which may include options to extend the lease term for up to 5 years, and certain leases may include an option to terminate the lease. Our lease accounting may include these options to extend or terminate a lease when it is reasonably certain that we will exercise that option.
We recordThe Company records a right-of-use asset and lease liability for leases extending beyond one year for operating and finance leases once a contract that contains a lease is executed and we have the right to control the use of the leased asset. The right-of-use asset is measured as the present value of the lease obligation. The discount rate used to calculate the present value of the lease liability was the Company’s incremental borrowing rate for the applicable geographical region.
As of July 5, 2020,4, 2021, there were no significant right-of-use assets and lease obligations from leases that had not commenced as of the end of the second quarter.
The table below represents a summary of the balances recorded in the consolidated condensed balance sheets related to ourthe Company’s leases as of July 5, 20204, 2021 and December 29, 2019:January 3, 2021:
|
| | | | | | | | | | | | | | | |
| July 5, 2020 | | December 29, 2019 |
Balance Sheet Location | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| (In thousands) |
Operating lease right-of-use assets | $ | 100,091 |
| | | | $ | 107,044 |
| | |
| | | | | | | |
Current portion of operating lease liabilities | $ | 14,124 |
| | | | $ | 15,914 |
| | |
Operating lease liabilities | 86,716 |
| | | | 91,829 |
| | |
Total operating lease liabilities | $ | 100,840 |
| | | | $ | 107,743 |
| | |
| | | | | | | |
Property and equipment | | | $ | 4,954 |
| | | | $ | 5,007 |
|
| | | | | | | |
Accrued expenses | | | $ | 1,455 |
| | | | $ | 1,489 |
|
Other long-term liabilities | | | 1,485 |
| | | | 1,673 |
|
Total finance lease liabilities | | | $ | 2,940 |
| | | | $ | 3,162 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| July 4, 2021 | | January 3, 2021 |
Balance Sheet Location | Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| (in thousands) |
Operating lease right-of-use assets | $ | 94,316 | | | | | $ | 98,013 | | | |
| | | | | | | |
Current portion of operating lease liabilities | $ | 13,116 | | | | | $ | 13,555 | | | |
Operating lease liabilities | 83,034 | | | | | 86,468 | | | |
Total operating lease liabilities | $ | 96,150 | | | | | $ | 100,023 | | | |
| | | | | | | |
Property, plant and equipment, net | | | $ | 7,738 | | | | | $ | 6,138 | |
| | | | | | | |
Accrued expenses | | | $ | 1,862 | | | | | $ | 1,496 | |
Other long-term liabilities | | | 3,916 | | | | | 2,688 | |
Total finance lease liabilities | | | $ | 5,778 | | | | | $ | 4,184 | |
Lease Costs
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
Finance lease cost: | | | | | | | |
Amortization of right-of-use assets | $ | 305 | | | $ | 335 | | | $ | 584 | | | $ | 635 | |
Interest on lease liabilities | 35 | | | 16 | | | 67 | | | 34 | |
Operating lease cost | 5,914 | | | 6,759 | | | 11,800 | | | 12,981 | |
Short-term lease cost | 179 | | | 166 | | | 642 | | | 341 | |
Variable lease cost | 482 | | | 924 | | | 1,288 | | | 1,570 | |
Total lease cost | $ | 6,915 | | | $ | 8,200 | | | $ | 14,381 | | | $ | 15,561 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 |
Lease cost | (In thousands) |
Finance lease cost: | | | | | | | |
Amortization of right-of-use assets | $ | 335 |
| | $ | 278 |
| | $ | 635 |
| | $ | 424 |
|
Interest on lease liabilities | 16 |
| | 11 |
| | 34 |
| | 19 |
|
Operating lease cost | 6,759 |
| | 5,930 |
| | 12,981 |
| | 11,601 |
|
Short-term lease cost | 166 |
| | 408 |
| | 341 |
| | 1,146 |
|
Variable lease cost | 924 |
| | 613 |
| | 1,570 |
| | 758 |
|
Total lease cost | $ | 8,200 |
| | $ | 7,240 |
| | $ | 15,561 |
| | $ | 13,948 |
|
| | | | | | | |
Other supplemental information | | | | | | | |
| | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from finance leases | $ | 16 |
| | $ | 11 |
| | $ | 34 |
| | $ | 19 |
|
Operating cash flows from operating leases | 5,569 |
| | 5,395 |
| | 11,450 |
| | 10,505 |
|
Financing cash flows from finance leases | 411 |
| | 271 |
| | 810 |
| | 517 |
|
Right-of-use assets obtained in exchange for new finance lease liabilities | 340 |
| | 551 |
| | 553 |
| | 551 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities | 3,088 |
| | 4,069 |
| | 4,065 |
| | 6,536 |
|
Other Supplemental Information
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from finance leases | $ | 35 | | | $ | 16 | | | $ | 67 | | | $ | 34 | |
Operating cash flows from operating leases | 5,476 | | | 5,569 | | | 10,676 | | | 11,450 | |
Financing cash flows from finance leases | 589 | | | 411 | | | 1,116 | | | 810 | |
Right-of-use assets obtained in exchange for new finance lease liabilities | 1,471 | | | 340 | | | 2,744 | | | 553 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | 3,267 | | | 3,088 | | | 5,645 | | | 4,065 | |
Lease Term and Discount Rate
The table below presents the weighted average remaining lease terms and discount rates for finance and operating leases as of July 5, 20204, 2021 and December 29, 2019:January 3, 2021:
|
| | | | | |
| July 5, 2020 | | December 29, 2019 |
Weighted-average remaining lease term – finance leases (in years) | 2.70 |
| | 2.76 |
|
Weighted-average remaining lease term – operating leases (in years) | 10.62 |
| | 10.60 |
|
Weighted-average discount rate – finance leases | 2.37 | % | | 2.06 | % |
Weighted-average discount rate – operating leases | 5.93 | % | | 5.86 | % |
| | | | | | | | | | | |
| July 4, 2021 | | January 3, 2021 |
Weighted-average remaining lease term – finance leases (in years) | 3.46 | | 3.35 |
Weighted-average remaining lease term – operating leases (in years) | 10.26 | | 10.61 |
Weighted-average discount rate – finance leases | 2.82 | % | | 2.64 | % |
Weighted-average discount rate – operating leases | 5.96 | % | | 5.98 | % |
Maturity Analysis
A maturity analysis of lease payments under non-cancellable leases is presented as follows:
|
| | | | | | | |
Fiscal Year | Operating Leases | | Finance Leases |
| (In thousands) |
2020 (excluding the six months ended July 5, 2020) | $ | 10,334 |
| | $ | 816 |
|
2021 | 17,476 |
| | 1,063 |
|
2022 | 14,369 |
| | 619 |
|
2023 | 11,850 |
| | 400 |
|
2024 | 10,120 |
| | 141 |
|
Thereafter | 75,880 |
| | — |
|
Total future minimum lease payments (undiscounted) | 140,029 |
| | 3,039 |
|
Less: Present value discount | (39,189 | ) | | (99 | ) |
Total lease liability | $ | 100,840 |
| | $ | 2,940 |
|
| | | | | | | | | | | |
Fiscal Year | Operating Leases | | Finance Leases |
| (in thousands) |
2021 (excluding the six months ended July 4, 2021) | $ | 9,439 | | | $ | 1,046 | |
2022 | 16,838 | | | 1,850 | |
2023 | 13,798 | | | 1,579 | |
2024 | 11,563 | | | 1,053 | |
2025 | 10,341 | | | 419 | |
Thereafter | 69,793 | | | 140 | |
Total future minimum lease payments (undiscounted) | 131,772 | | | 6,087 | |
Less: Present value discount | (35,622) | | | (309) | |
Total lease liability | $ | 96,150 | | | $ | 5,778 | |
Policy Elections
WeThe Company made an accounting policy election not to separate lease and non-lease components for all asset classes, except for data center assets, and will accountaccounts for the lease payments as a single component. WeThe Company also made an accounting policy election to exclude leases with an initial term of 12 months or less from the calculation of the right-of-use asset and lease liability recorded on the consolidated condensed balance sheets. These leases primarily represent month-to-month operating leases for vehicles and office equipment where we were reasonably certain that we would not elect an option to extend the lease.
NOTE 9 – EMPLOYEE BENEFIT PLANS
On December 31, 2019, a plan amendment was executedDuring the three and six months ended July 4, 2021, the Company recorded multi-employer pension expense related to eliminate future service accruals in the Dutch defined benefit plan, resulting in a curtailmentmulti-employer contributions of the plan. This plan remains in existence$0.7 million and will continue to pay vested benefits. Active participants will no longer accrue benefits after December 31, 2019, and instead will participate in an industry-wide multi-employer plan beginning in fiscal year 2020.$1.4 million, respectively. During the three and six months ended July 5, 2020, the Company recorded multi-employer pension expense related to multi-employer contributions of $0.6 million and $1.3 million, respectively.
The following tables provide the components of net periodic benefit cost for the three and six months ended July 4, 2021 and July 5, 2020 and June 30, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
Defined Benefit Retirement Plans (Europe) | July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
Interest cost | $ | 579 | | | $ | 870 | | | $ | 1,151 | | | $ | 1,761 | |
Expected return on assets | (860) | | | (1,038) | | | (1,709) | | | (2,102) | |
Amortization of prior service cost | 29 | | | 26 | | | 58 | | | 52 | |
Amortization of net actuarial losses | 409 | | | 320 | | | 813 | | | 646 | |
Net periodic benefit cost | $ | 157 | | | $ | 178 | | | $ | 313 | | | $ | 357 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
Defined Benefit Retirement Plans (Europe) | July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 |
| (In thousands) |
Service cost | $ | — |
| | $ | 184 |
| | $ | — |
| | $ | 369 |
|
Interest cost | 870 |
| | 1,266 |
| | 1,761 |
| | 2,547 |
|
Expected return on assets | (1,038 | ) | | (1,428 | ) | | (2,102 | ) | | (2,873 | ) |
Amortization of prior service cost | 26 |
| | 16 |
| | 52 |
| | 32 |
|
Amortization of net actuarial losses | 320 |
| | 249 |
| | 646 |
| | 502 |
|
Net periodic benefit cost | $ | 178 |
| | $ | 287 |
| | $ | 357 |
| | $ | 577 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
Salary Continuation Plan | July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
Interest cost | $ | 177 | | | $ | 235 | | | $ | 353 | | | $ | 469 | |
Amortization of net actuarial losses | 186 | | | 139 | | | 372 | | | 279 | |
Net periodic benefit cost | $ | 363 | | | $ | 374 | | | $ | 725 | | | $ | 748 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
Salary Continuation Plan | July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 |
| (In thousands) |
Interest cost | $ | 235 |
| | $ | 289 |
| | $ | 469 |
| | $ | 577 |
|
Amortization of net actuarial losses | 139 |
| | 93 |
| | 279 |
| | 187 |
|
Net periodic benefit cost | $ | 374 |
| | $ | 382 |
| | $ | 748 |
| | $ | 764 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
nora Defined Benefit Plan | July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 |
| (In thousands) |
Service cost | $ | 259 |
| | $ | 216 |
| | $ | 517 |
| | $ | 433 |
|
Interest cost | 110 |
| | 171 |
| | 221 |
| | 345 |
|
Amortization of net actuarial losses | 110 |
| | — |
| | 110 |
| | — |
|
Net periodic benefit cost | $ | 479 |
| | $ | 387 |
| | $ | 848 |
| | $ | 778 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
nora Defined Benefit Plan | July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
Service cost | $ | 277 | | | $ | 259 | | | $ | 554 | | | $ | 517 | |
Interest cost | 104 | | | 110 | | | 207 | | | 221 | |
Amortization of net actuarial losses | 92 | | | 110 | | | 184 | | | 110 | |
Net periodic benefit cost | $ | 473 | | | $ | 479 | | | $ | 945 | | | $ | 848 | |
In accordance with applicable accounting standards, the service cost component of net periodic benefit costs is presented within Operating Incomeoperating income (loss) in the consolidated condensed statements of operations, while all other components of net periodic benefit costs are presented within other expense in the consolidated condensed statements of operations.
NOTE 10 – GOODWILL AND INTANGIBLE ASSETS
In the first quarter of 2021, the Company determined that it has two operating and reportable segments – namely AMS and EAAA. See Note 11 entitled “Segment Information” for additional information. The Company tests goodwill for impairment at least annually at the reporting unit level. The Company’s reporting units remain unchanged following the realignment of its segments and consist of Americas, Europe, and Asia-Pacific. The Americas reporting unit is the same as the AMS reportable segment, and the Europe and Asia-Pacific reporting units are one level below the EAAA reportable segment.
During the first quarter of 2020, we performedas a qualitative assessmentresult of goodwill impairment indicators, consideringchanges in macroeconomic conditions related to the COVID-19 pandemic, and its potential impact to sales and operating income. We expect that the duration of the COVID-19 pandemic and its adverse impacts on the global economy, global travel restrictions, COVID-19 related government shutdowns, disruptions to our supply chain, distribution disruption, and disruption to our customers’ plans to spend capital on projects that use our products and services will result in lower revenue and operating income. As a result, we determined that there were indicators of impairment, and the Company proceeded withrecognized a quantitative assessmentcharge of $121.3 million for the impairment of goodwill for all reporting units at the end of the first quarter.
In performing the first quarter quantitative goodwill impairment testing, the Company prepared valuations of reporting units on both a market comparable methodology and an income methodology, and those valuations were compared with the respective carrying values of the reporting units to determine whether any goodwill impairment existed. Our reporting units are one level below our reporting segment level. In preparing the valuations, past, present and future expectations of performance were considered, including the impact of the COVID-19 pandemic. This methodology was consistent with the approach used to perform the annual quantitative goodwill assessment in prior years. The weighted average cost of capital used in the goodwill impairment testing ranged between 10.0% and 10.5%, which primarily fluctuated based on a country risk premium assigned to the geographical region of the reporting unit. There is inherent uncertainty associated with key assumptions used in our impairment testing including the duration of the economic downturn associated with the COVID-19 pandemic and the recovery period.certain intangible assets. As a result of the first quarter 2020 assessment, we determined that the fair value for two reporting units was less than the carrying value and recognized a goodwill impairment loss of $116.5 million in the first quarter of 2020. The expected decline in revenue due to the impact of COVID-19 contributed to the lower fair value of our Europe and Asia-Pacific reporting units. As such, the goodwill impairment loss was allocated to our Europe and Asia-Pacific reporting units in the amounts of $99.2 million and $17.3 million, respectively. We determined that the goodwill in our Americas reporting unit was not impaired as the fair value exceeded the carrying value by more than 90% at April 5, 2020. There were no indicators of additional goodwill impairment as of July 5, 2020.4, 2021.
The changes in the carrying amounts of goodwill attributable to each reportable segment for the six months ended July 5, 20204, 2021 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
BALANCE, AT DECEMBER 30, 2019 | | ACQUISITIONS | | PURCHASE PRICE ACCOUNTING ADJUSTMENTS | | IMPAIRMENT | | FOREIGN CURRENCY TRANSLATION | | BALANCE, AT JULY 5, 2020 |
(In thousands) |
$ | 257,439 |
| | $ | — |
| | $ | — |
| | $ | (116,495 | ) | | $ | 3,121 |
| | $ | 144,065 |
|
| | | | | | | | | | | | | | | | | |
| AMS | | EAAA | | Total |
| | | (in thousands) | | |
Balance, at January 3, 2021 | $ | 122,344 | | | $ | 43,433 | | | $ | 165,777 | |
Foreign currency translation | (5,795) | | | (2,057) | | | (7,852) | |
Balance, at July 4, 2021 | $ | 116,549 | | | $ | 41,376 | | | $ | 157,925 | |
Additionally, in fiscal year 2020, we determined that the trademarks and trade names intangible assets related to the acquired nora business were also impaired and recognized an impairment loss of $4.8 million in the first quarter of 2020. The carrying value of intangible assets after the impairment was $82.7$82.4 million at July 5, 2020.4, 2021. There were no indicators of additional intangible asset impairment as of the end of the second quarter of 2020.2021.
NOTE 11 – SEGMENT INFORMATION
Based on applicableThe Company determines that an operating segment exists if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has operating results that are regularly reviewed by the chief operating decision maker (“CODM”) and (iii) has discrete financial information. Additionally, accounting standards require the utilization of a “management approach” to report the financial results of operating segments, which is based on information used by the CODM to assess performance and make operating and resource allocation decisions. In the first quarter of 2021, the Company largely completed its integration of the nora acquisition, and integration of its European and Asia-Pacific commercial areas and determined that it has 2 operating segments organized by geographical area – namely (a) Americas (“AMS”) and (b) Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment is unchanged from prior year and continues to include the United States, Canada and Latin America geographic areas.
Pursuant to the management approach discussed above, the Company’s CODM, our chief executive officer, evaluates performance at the AMS and EAAA operating segment levels and makes operating and resource allocation decisions based on segment adjusted operating income or loss (“AOI”), which includes allocations of corporate selling, general and administrative expenses. AOI excludes nora purchase accounting amortization, goodwill and intangible asset impairment charges, changes in equity award forfeiture accounting, restructuring charges, asset impairment, severance and other charges. Intersegment revenues for the three and six months ended July 4, 2021 were $20.6 million and $36.3 million, respectively, and intersegment revenues for the three and six months ended July 5, 2020 were $21.1 million and $40.6 million, respectively. Intersegment revenues are eliminated from net sales presented below since these amounts are not included in the information provided to the CODM.
The Company has determined that it has 3 operating2 reportable segments – namely,AMS and EAAA as each operating segment meets the Americas, Europe and Asia-Pacific geographic regions. Pursuantquantitative thresholds defined in the accounting guidance.
Segment information below for fiscal year 2020 has been restated to accounting standards, the Company has aggregated the three operating segments into onereflect our new reportable segment because they have similar economic characteristics, and the operating segments are similar in allstructure.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
Net Sales | | | | | | | |
AMS | $ | 156,665 | | | $ | 151,222 | | | $ | 283,632 | | | $ | 309,313 | |
EAAA | 138,120 | | | 108,282 | | | 264,413 | | | 238,360 | |
Total net sales | $ | 294,785 | | | $ | 259,504 | | | $ | 548,045 | | | $ | 547,673 | |
| | | | | | | |
Segment AOI | | | | | | | |
AMS | $ | 21,098 | | | $ | 23,942 | | | $ | 33,011 | | | $ | 47,492 | |
EAAA | 9,960 | | | 3,530 | | | 17,971 | | | 9,330 | |
| | | | | | | |
Depreciation and Amortization | | | | | | | |
AMS | $ | 4,504 | | | $ | 3,966 | | | $ | 9,227 | | | $ | 7,873 | |
EAAA | 7,232 | | | 6,842 | | | 14,443 | | | 13,875 | |
Total depreciation and amortization | $ | 11,736 | | | $ | 10,808 | | | $ | 23,670 | | | $ | 21,748 | |
While the Company operates as 1 reportable segment for the reasons discussed, included below is selected information on our operating segments.
Summary information by operating segment follows:
|
| | | | | | | | | | | | | | | | |
| | AMERICAS | | EUROPE | | ASIA- PACIFIC | | TOTAL |
| | (In thousands) |
Three Months Ended July 5, 2020: | | | | | | | | |
Net Sales | | $ | 151,222 |
| | $ | 71,874 |
| | $ | 36,408 |
| | $ | 259,504 |
|
Depreciation and amortization | | 3,009 |
| | 4,417 |
| | 1,919 |
| | 9,345 |
|
Total assets | | 685,080 |
| | 536,782 |
| | 172,737 |
| | 1,394,599 |
|
| | | | | | | | |
Three Months Ended June 30, 2019: | | | | | | | | |
Net Sales | | $ | 207,250 |
| | $ | 95,665 |
| | $ | 54,592 |
| | $ | 357,507 |
|
Depreciation and amortization | | 3,300 |
| | 4,651 |
| | 2,108 |
| | 10,059 |
|
| | | | | | | | |
Six Months Ended July 5, 2020: | | | | | | | | |
Net Sales | | $ | 309,313 |
| | $ | 166,564 |
| | $ | 71,796 |
| | $ | 547,673 |
|
Depreciation and amortization | | 6,069 |
| | 8,858 |
| | 3,937 |
| | 18,864 |
|
| | | | | | | | |
Six Months Ended June 30, 2019: | | | | | | | | |
Net Sales | | $ | 367,876 |
| | $ | 188,715 |
| | $ | 98,604 |
| | $ | 655,195 |
|
Depreciation and amortization | | 6,551 |
| | 9,331 |
| | 4,240 |
| | 20,122 |
|
A reconciliation of the Company’s total operating segment depreciation and amortization and assets to the corresponding consolidated amounts follows:
| | | | | | | | | | | |
| July 4, 2021 | | January 3, 2021 |
| (in thousands) |
Assets | | | |
AMS | $ | 834,446 | | | $ | 800,068 | |
EAAA | 692,208 | | | 682,295 | |
Total segment assets | 1,526,654 | | | 1,482,363 | |
Corporate assets | 128,701 | | | 111,073 | |
Eliminations | (333,141) | | | (287,425) | |
Total reported assets | $ | 1,322,214 | | | $ | 1,306,011 | |
Reconciliations of operating income to income (loss) before income tax expense and segment AOI are presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
| (in thousands) |
AMS operating income | $ | 21,101 | | | $ | 17,189 | | | $ | 32,748 | | | $ | 37,287 | |
EAAA operating income (loss) | 8,123 | | | 204 | | | 13,342 | | | (113,406) | |
Consolidated operating income (loss) | 29,224 | | | 17,393 | | | 46,090 | | | (76,119) | |
Interest expense | 7,289 | | | 4,965 | | | 14,545 | | | 10,595 | |
Other expense | 617 | | | 5,139 | | | 1,332 | | | 6,630 | |
Income (loss) before income tax expense | $ | 21,318 | | | $ | 7,289 | | | $ | 30,213 | | | $ | (93,344) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended July 4, 2021 | | Three Months Ended July 5, 2020 |
| AMS | | EAAA | | AMS | | EAAA |
| (in thousands) |
Operating income | $ | 21,101 | | | $ | 8,123 | | | $ | 17,189 | | | $ | 204 | |
Purchase accounting amortization | 0 | | | 1,441 | | | 0 | | | 1,316 | |
Restructuring, asset impairment, severance and other charges | (3) | | | 396 | | | 6,753 | | | 2,010 | |
AOI | $ | 21,098 | | | $ | 9,960 | | | $ | 23,942 | | | $ | 3,530 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended July 4, 2021 | | Six Months Ended July 5, 2020 |
| AMS | | EAAA | | AMS | | EAAA |
| (in thousands) |
Operating income (loss) | $ | 32,748 | | | $ | 13,342 | | | $ | 37,287 | | | $ | (113,406) | |
Purchase accounting amortization | 0 | | | 2,862 | | | 0 | | | 2,631 | |
Goodwill and intangible asset impairment | 0 | | | 0 | | | 2,695 | | | 118,563 | |
Impact of change in equity award forfeiture accounting | 0 | | | 0 | | | 757 | | | 650 | |
Restructuring, asset impairment, severance and other charges | 263 | | | 1,767 | | | 6,753 | | | 892 | |
AOI | $ | 33,011 | | | $ | 17,971 | | | $ | 47,492 | | | $ | 9,330 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
Depreciation and Amortization | July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 |
| (In thousands) |
Total segment depreciation and amortization | $ | 9,345 |
| | $ | 10,059 |
| | $ | 18,864 |
| | $ | 20,122 |
|
Corporate depreciation and amortization | 1,463 |
| | 1,295 |
| | 2,884 |
| | 2,576 |
|
Reported depreciation and amortization | $ | 10,808 |
| | $ | 11,354 |
| | $ | 21,748 |
| | $ | 22,698 |
|
|
| | | |
Assets | July 5, 2020 |
| (In thousands) |
Total segment assets | $ | 1,394,599 |
|
Corporate assets | 134,082 |
|
Eliminations | (227,713 | ) |
Reported total assets | $ | 1,300,968 |
|
Table of Contents
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest amounted to $11.1$11.9 million and $12.0$11.1 million for the six months ended July 4, 2021 and July 5, 2020, and June 30, 2019, respectively. Income tax payments, net of refunds, amounted to $6.9$7.5 million and $16.4$6.9 million for the six months ended July 4, 2021 and July 5, 2020, and June 30, 2019, respectively.
See Note 8 entitled “Leases”“Leases” for supplemental disclosures related to finance and operating leases.
NOTE 13 – INCOME TAXES
The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate and records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items.
During the six months ended July 5, 2020,4, 2021, the Company recorded a total income tax provision of $7.8 million on pre-tax income of $30.2 million resulting in an effective tax rate of 25.7%, as compared to a total income tax provision of $4.1 million on a pre-tax loss of $93.3 million resulting in an effective tax rate of (4.4)%. during the six months ended July 5, 2020. The effective tax rate for thisthe period ended July 5, 2020 was primarily impacted by a non-deductible goodwill impairment. Excluding the impact of the goodwill impairment, the effective tax rate was 17.8% for the period compared to 17.6% during the six months ended June 30, 2019.July 5, 2020. The increase in the effective tax rate as compared to the period ended July 5, 2020, excluding the non-deductible goodwill impairment, was due to unfavorable changes related to company-owned life insurance and unrecognized tax benefits, which were offset by the one-time favorable impacts of amending prior year tax returns.returns during the six months ended July 5, 2020 which was offset by favorable changes related to company-owned life insurance in the current period.
In the first six months of 2020,2021, the Company decreased its liability for unrecognized tax benefits by $0.4$0.7 million. The decrease was primarily due to settlements with taxing authorities and a lapse of applicable statute of limitations. As of July 5, 2020,4, 2021, the Company had accrued approximately $25.1$10.1 million for unrecognized tax benefits. In accordance with applicable accounting standards, the Company’s deferred tax asset as of July 5, 20204, 2021 reflects a reduction for $2.8$3.0 million of these unrecognized tax benefits.
Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, it is reasonably possible that approximately $14.7$1.7 million of unrecognized tax benefits may be recognized within the next 12 months due to a lapse of statute of limitations.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic and provides certain tax relief to businesses. Tax provisions
Table of the CARES Act include, among other things, the deferral of certain payroll taxes, relief for retaining employees, and certain income tax provisions for corporations. During the six months ended July 5, 2020, the Company deferred approximately $1.4 million in payroll taxes under the CARES Act. Other than the deferral of payroll taxes, the CARES Act did not have an impact on the Company’s tax accounts, including its effective tax rate, during the six months ended July 5, 2020. The Company expects it will defer approximately $4.0 million in payroll taxes under the CARES Act during fiscal year 2020 which will result in a corresponding increase in its payroll tax accrual. The CARES Act and other similar foreign government support programs are not expected to have a material impact on the Company’s tax accounts during the year.Contents
NOTE 14 – ITEMS RECLASSIFIED FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
Amounts reclassified out of accumulated other comprehensive income (loss)loss (“AOCI”), before tax, to the consolidated condensed statements of operations during the three and six months ended July 4, 2021 and July 5, 2020 and June 30, 2019 are reflected in the tablestable below:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| Statement of Operations Location | | July 4, 2021 | | July 5, 2020 |
| | | (in thousands) |
Interest rate swap contracts loss | Interest expense | | $ | (1,046) | | | $ | (1,124) | |
Amortization of benefit plan prior service cost and net actuarial losses | Other expense | | (716) | | | (595) | |
Total loss reclassified from AOCI, net | | | $ | (1,762) | | | $ | (1,719) | |
| | | | | | | | | Six Months Ended |
| | Three Months Ended | | Statement of Operations Location | | July 4, 2021 | | July 5, 2020 |
| Statement of Operations Location | | July 5, 2020 | | June 30, 2019 | | | | (in thousands) |
| | (In thousands) | |
Interest rate swap contracts gain (loss) | Interest expense | | $ | (1,124 | ) | | $ | 156 |
| |
Interest rate swap contracts loss | | Interest rate swap contracts loss | Interest expense | | $ | (2,107) | | | $ | (1,616) | |
Amortization of benefit plan prior service cost and net actuarial losses | Other expense | | (595 | ) | | (358 | ) | Amortization of benefit plan prior service cost and net actuarial losses | Other expense | | (1,427) | | | (1,087) | |
Total loss reclassified from AOCI, net | | $ | (1,719 | ) | | $ | (202 | ) | Total loss reclassified from AOCI, net | | $ | (3,534) | | | $ | (2,703) | |
| | | | | |
| | Six Months Ended | |
| Statement of Operations Location | | July 5, 2020 | | June 30, 2019 | |
| | (In thousands) | |
Interest rate swap contracts gain (loss) | Interest expense | | $ | (1,616 | ) | | $ | 295 |
| |
Amortization of benefit plan prior service cost and net actuarial losses | Other expense | | (1,087 | ) | | (721 | ) | |
Total loss reclassified from AOCI, net | | $ | (2,703 | ) | | $ | (426 | ) | |
NOTE 15 – RESTRUCTURING CHARGES
A summary of restructuring activities for the 2019 restructuring plan is presented below:
| | | | | |
| Workforce Reduction |
| (in thousands) |
Balance, at January 3, 2021 | $ | 1,064 | |
Charged to expenses | (192) | |
Deductions | 579 | |
Balance, at July 4, 2021 | $ | 293 | |
For the six months ended July 5, 2020,4, 2021, the Company recorded a reduction of $1.3$0.2 million of previously recognized restructuring charges due to changes in expected cash payments. At July 5, 2020,4, 2021, the total restructuring reserve was $6.8 million for both the 2019 and 2018 restructuring plans.$0.3 million. Below is a discussion of the restructuring plan activities by year.under the 2019 restructuring plan.
2019 Restructuring Plan
On December 23, 2019, the Company committed to a new restructuring plan that continues to focus on efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved a reduction of approximately 105 employees and early termination of 2 office leases. As a result of this plan, the Company recorded a pre-tax restructuring charge in the fourth quarter of 2019 of approximately $9.0 million. The charge was comprised of severance expenses ($8.8 million) and lease exit costs ($0.2 million).
The restructuring plan iswas expected to result in cash expenditures of approximately $9.0 million for payment of the employee severance and lease exit costs, as described above. The Company expects to complete the restructuring plan in fiscal year 20202021 and expects the plan to yield annualized savings of approximately $6.0 million. A portion of the annualized savings is expected to bewas realized on the income statement in fiscal year 2020, with the remaining portion of the annualized savings expected to be realized in fiscal year 2021.
A reconciliation of the 2019 plan restructuring reserve is presented below:
|
| | | | | | | | | | | | | | | |
| BALANCE, AT DECEMBER 30, 2019 | | DEDUCTIONS 2020 | | CHARGED TO EXPENSES 2020 | | BALANCE, AT JULY 5, 2020 |
| (In thousands) |
Workforce Reduction | $ | 8,634 |
| | $ | (1,996 | ) | | $ | (353 | ) | | $ | 6,285 |
|
Other Exit Costs | 139 |
| | — |
| | — |
| | 139 |
|
Total | $ | 8,773 |
| | $ | (1,996 | ) | | $ | (353 | ) | | $ | 6,424 |
|
On December 29, 2018, the Company committed to a restructuring plan in its continuing efforts to improve efficiencies and decrease costs across its worldwide operations, and more closely align its operating structure with its business strategy. The plan involved (i) a restructuring
The restructuring plan was substantially completed at the end of the second quarter of 2020. The Company redeployed essentially all of the anticipated savings toward the funding of sales and strategic growth initiatives, yielding negligible net savings on the Company’s income statement.
A reconciliation of the 2018 plan restructuring reserve is presented below:
|
| | | | | | | | | | | | | | | |
| BALANCE, AT DECEMBER 30, 2019 | | DEDUCTIONS 2020 | | CHARGED TO EXPENSES 2020 | | BALANCE, AT JULY 5, 2020 |
| (In thousands) |
Workforce Reduction | $ | 1,898 |
| | $ | (1,385 | ) | | $ | (223 | ) | | $ | 290 |
|
Other Exit Costs | 774 |
| | — |
| | (699 | ) | | 75 |
|
Total | $ | 2,672 |
| | $ | (1,385 | ) | | $ | (922 | ) | | $ | 365 |
|
Contents
NOTE 16 – SUBSEQUENT EVENTS
Cost Reducing Initiatives and Related Charges
As we continue to monitor the impact of COVID-19 and mitigate its effects to our operations, the Company expects to continue to pursue a variety of cost reducing initiatives including but not limited to voluntary incentive separation programs, temporary employee furloughs and other time-and-pay reduction programs, applications to participate in various government sponsored “wage support” programs, involuntary separations where necessary to streamline roles and responsibilities, potential facility closures to streamline operations, and various other cost reducing and cost avoidance activities.
Syndicated Credit Facility
On July 15, 2020, the Company entered into a second amendment to its Syndicated Credit Facility (the “Facility”). This amendment, among other changes, provides for the following: (1) amends the consolidated net leverage ratio covenant making it less restrictive for a period of seven consecutive fiscal quarters beginning with the third quarter of fiscal year 2020 through the first quarter of fiscal year 2022 (the “Relief Period”); (2) amends the pricing grid used to determine interest rate margins on outstanding loans as well as the commitment fee on the unused portion of the Facility to include additional consolidated net leverage ratio levels with increased pricing at higher levels of leverage; (3) amends interest rate provisions to provide for interest rate floors, as applicable, on certain tranches of term loans outstanding; and (4) provides temporary restrictions during the Relief Period on the Company’s ability to make acquisitions, pay dividends, repurchase shares, or enter into new credit facilities without lender consent. The Company incurred approximately $1.5 million in debt issuance costs to execute this amendment.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019,January 3, 2021, under Part II, Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter and six months ended, or as of, July 5, 2020,4, 2021, and the comparable periods of 20192020 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information. The six monthsix-month period ended July 4, 2021 includes 26 weeks, and the six-month period ended July 5, 2020 includes 27 weeks, and the six month period ended June 30, 2019 includes 26 weeks. The three monththree-month periods ended July 4, 2021 and July 5, 2020 and June 30, 2019 both include 13 weeks.
Forward-Looking Statements
This report contains statements which may constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with the ongoing COVID-19 pandemic and the economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading “Risk Factors” included in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019, as supplemented by the additional risk factors included in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 5, 2020.January 3, 2021. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
Impact of the COVID-19 Pandemic
TheIn March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread inimpact areas where we operate and sell our products and services. The COVID-19 pandemic has had material adverse effects on our business, results of operations, and financial condition, and it is anticipated that this will continue for an indefinite period of time.condition. The duration of the pandemic will ultimately determine the extent to which our operations are impacted. We continue to monitor our operations and have implemented various programs to mitigate the effects on our business including reductions in employees, labor costs, marketing expenses, consulting expenses, travel costs, various other costs, and capital expenditures, as well as suspending and reducing shifts in our production facilities, temporarily furloughing employees, and implementing other cost reduction or avoidance initiatives.
During the second quarter of 2020,2021, the COVID-19 pandemic had less of an impact on our overall global operations and financial results as COVID-19 vaccination rates increased, COVID-19 related restrictions loosened, and certain countries began to experience a rebound in economic activity. Our global supply chain and manufacturing experienced increased impacts of COVID-19 in the quarter. These impacts included raw material shortages, raw material cost increases, higher freight costs, shipping delays, and labor shortages - particularly in the United States. These impacts to our supply chain and manufacturing increased our costs and adversely affected our gross margins.
During the second quarter of 2021, consolidated net sales increased 13.6% compared to the same period last year. Higher sales are primarily in the corporate office and retail market segments. During the second quarter of 2021, we began a phased re-opening of our corporate headquarters and global administrative offices and our salesforce and administrative staff are actively working in these locations in accordance with the Company’s ongoing safety measures, as well as any local government orders and directives which remain very fluid.
During the first six months of 2021, the COVID-19 pandemic continued to impact our global operations, resulting in lower revenue across all geographic regions. For the three months ended July 5, 2020,as consolidated net sales declined 27.4%increased 0.1% compared to the same period last year. As discussed above,Net sales for the first six months of 2021 were impacted by lower sales in the corporate office market segment during the first quarter of 2021. During the six months ended July 4, 2021, the Company implemented, and continues to implement, various cost cutting initiativesrecorded $0.9 million of net severance costs in connection with its programs to mitigate the effectsimpact of the COVID-19 on our operations. During the three months ended July 5, 2020, the Company recorded $2.9 million of voluntary and involuntary severance costs,pandemic as discussed above, which are included in selling, general and administrative expenses in the Consolidated Condensed Statements of Operations. We anticipate future annualized savings
General
In the first quarter of approximately $7 million as a result of these separation initiatives.
As a result2021, the Company largely completed its integration of the COVID-19 pandemic, government grantsnora acquisition, and payroll protection programs are available globallyintegration of its European and Asia-Pacific commercial areas and determined that it has two operating and reportable segments - namely Americas (“AMS”) and Europe, Africa, Asia and Australia (collectively “EAAA”). The AMS operating segment is unchanged from prior year and continues to provide assistance to companies impacted by the pandemic. The CARES Act enacted ininclude the United States, (see Note 13 entitled “Income Taxes” ofCanada and Latin America geographic areas. See Part I, Item 1, Note 11 of this Quarterly Report on Form 10-Q entitled “Segment Information” for additional information) and a payroll protection program enacted in the Netherlands (the “NOW Program”), provide benefits related to payroll costs either as reimbursements, lower payroll tax rates or deferralinformation. The results of payroll tax payments. The NOW Program provides eligible companies with reimbursement of labor costs as an incentive to retain employees on the payroll. During the second quarter of 2020, the Company qualified for benefits under several payroll protection programs and recognized a reduction in payroll costs of approximately $3.8 million during the quarter, which are recorded as a reduction of selling, general and administrative expenses in the Consolidated Condensed Statements of Operations, as the Company believes it is likely that the benefits received will not be repaid.
The COVID-19 pandemic had less of an impact on our global operations for the first six months of 2020 (as compared with the impact on the second quarter of 2020), as the effects of the pandemic did not begin to impact our business substantially until the end of the first quarter. For the first six months of 2020, consolidated net sales declined 16.4% compared to the same period last year primarily due to COVID-19. Due to reduced demand and to enhance employee safety measures, we temporarily suspended production in our U.S. manufacturing facilities from March 18, 2020 to March 23, 2020, and then again from April 6, 2020 to April 13, 2020. Wediscussion below also substantially reduced production in our Craigavon, UK facility beginning on April 20, 2020 through the end of the second quarter, and our Thailand, China, and Australia plants are operating in reduced shifts in light of reduced demand. During the first quarter of 2020, our Asia-Pacific region was primarily impacted by COVID-19 due to government shutdowns in China and the temporary closure of our China plant in late January 2020 to February 9, 2020. In addition, almost all of our salesforce and administrative employees globally continue to work remotely in accordance with local government orders and “shelter in place” directives.
Generalincludes segment information.
During the quarter ended July 5, 2020,4, 2021, consolidated net sales were $259.5$294.8 million compared with net sales of $357.5$259.5 million in the second quarter last year. During the first six months ended July 5, 2020,of 2021, consolidated net sales were $547.7$548.0 million compared with net sales of $655.2to $547.7 million in the first six months of last year. TheHigher net sales during the second quarter of 2021, primarily in the corporate office market segment was due to higher corporate spending and first half of 2020 were negatively impacted by the effects ofreinvestment. As discussed above, the COVID-19 pandemic as discussed above.continued to impact the first six months of 2021. Fluctuations in currency exchange rates had a negativepositive impact on net sales of approximately $2.8$13.1 million for the second quarter of 20202021 and a negativepositive impact of approximately $7.5$25.0 million for the first six month periodmonths of 20202021 compared to the threesecond quarter and first six month periodsmonths of 2019,last year, respectively, mostly driven by the weakeningstrengthening of the Euro, British Pound sterling, and the Australian dollar and Chinese Renminbi against the U.S. dollar.
Goodwill, Intangible Asset and Fixed Asset Impairment
During the first six months of 2021, there were no indicators of goodwill or intangible asset impairment. During the first quarter of 2020, wethe Company recognized a charge of $121.3 million for the impairment of goodwill and certain intangible assets. See Note 10 entitled “Goodwill and Intangible Assets” of Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. No additional goodwill or intangible asset impairment charges were recorded during the second quarter. During the second quarter of 2020, we recognized fixed asset impairment charges of $3.1 million related to certain FLOR design center closures and other projects that were abandoned or indefinitely delayed. These charges are included in selling, general and administrative expenses in the Consolidated Condensed Statements of Operations.
Results of Operations
Consolidated
The following table presents, as a percentage of net sales, certain items included in our consolidated condensed statements of operations for the three and six monthsix-month periods ended July 4, 2021 and July 5, 2020 and June 30, 2019:2020:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| July 5, 2020 | | June 30, 2019 | | July 5, 2020 | | June 30, 2019 | | July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | 62.5 |
| | 60.6 |
| | 61.4 |
| | 60.7 |
| Cost of sales | 63.0 | | | 62.5 | | | 62.6 | | | 61.4 | |
Gross profit on sales | 37.5 |
| | 39.4 |
| | 38.6 |
| | 39.3 |
| Gross profit on sales | 37.0 | | | 37.5 | | | 37.4 | | | 38.6 | |
Selling, general and administrative expenses | 30.9 |
| | 27.4 |
| | 30.6 |
| | 30.2 |
| Selling, general and administrative expenses | 27.1 | | | 30.9 | | | 29.0 | | | 30.6 | |
Restructuring charges | (0.1 | ) | | — |
| | (0.2 | ) | | — |
| Restructuring charges | 0.0 | | | (0.1) | | | — | | | (0.2) | |
Goodwill and intangible asset impairment charge | — |
| | — |
| | 22.1 |
| | — |
| Goodwill and intangible asset impairment charge | — | | | — | | | — | | | 22.1 | |
Operating income (loss) | 6.7 |
| | 12.0 |
| | (13.9 | ) | | 9.1 |
| Operating income (loss) | 9.9 | | | 6.7 | | | 8.4 | | | (13.9) | |
Interest/Other expenses | 3.9 |
| | 2.0 |
| | 3.1 |
| | 2.3 |
| Interest/Other expenses | 2.7 | | | 3.9 | | | 2.9 | | | 3.1 | |
Income (loss) before tax expense | 2.8 |
| | 10.0 |
| | (17.0 | ) | | 6.8 |
| Income (loss) before tax expense | 7.2 | | | 2.8 | | | 5.5 | | | (17.0) | |
Income tax expense | 1.0 |
| | 1.8 |
| | 0.8 |
| | 1.2 |
| Income tax expense | 2.0 | | | 1.0 | | | 1.4 | | | 0.8 | |
Net income (loss) | 1.8 | % | | 8.2 | % | | (17.8 | )% | | 5.6 | % | Net income (loss) | 5.2 | % | | 1.8 | % | | 4.1 | % | | (17.8) | % |
Net Sales
Below is information regarding our consolidated net sales, and analysis of those results, for the three and six monthsix-month periods ended July 4, 2021, and July 5, 2020, and June 30, 2019:2020:
|
| | | | | | | | | | |
| Three Months Ended | | Percentage Change |
| July 5, 2020 | | June 30, 2019 | |
| (In thousands) | | |
Net Sales: | | | | | |
Americas | $ | 151,222 |
| | $ | 207,250 |
| | (27.0 | )% |
Europe | 71,874 |
| | 95,665 |
| | (24.9 | )% |
Asia-Pacific | 36,408 |
| | 54,592 |
| | (33.3 | )% |
Total Net Sales | $ | 259,504 |
| | $ | 357,507 |
| | (27.4 | )% |
|
| | | | | | | | | | |
| Six Months Ended | | Percentage Change |
| July 5, 2020 | | June 30, 2019 | |
| (In thousands) | | |
Net Sales: | | | | | |
Americas | $ | 309,313 |
| | $ | 367,876 |
| | (15.9 | )% |
Europe | 166,564 |
| | 188,715 |
| | (11.7 | )% |
Asia-Pacific | 71,796 |
| | 98,604 |
| | (27.2 | )% |
Total Net Sales | $ | 547,673 |
| | $ | 655,195 |
| | (16.4 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Percentage Change | | Six Months Ended | | Percentage Change |
| July 4, 2021 | | July 5, 2020 | | | July 4, 2021 | | July 5, 2020 | |
| (in thousands) | | | | (in thousands) | | |
Consolidated net sales | $ | 294,785 | | | $ | 259,504 | | | 13.6 | % | | $ | 548,045 | | | $ | 547,673 | | | 0.1 | % |
For the quarter ended July 5, 2020,4, 2021, consolidated net sales decreased $98.0increased $35.3 million (27.4%(13.6%) versus the comparable period in 2019.2020, including positive currency fluctuations of approximately $13.1 million (5.1%). The sales declineincrease was primarily due to higher net sales in the impact of the COVID-19 pandemic as discussed above.corporate, retail, healthcare, education and transportation market segments. Currency fluctuations had an approximately $2.8 million (0.8%) negativea positive impact on second quarter 20202021 sales compared to the second quarter of 2019. This currency impact was2020 mostly due to the weakeningstrengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi and Australian dollar against the U.S. dollar. On a geographic basis,
For the six months ended July 4, 2021, consolidated net sales increased $0.4 million (0.1%) versus the comparable period in 2020, including positive currency fluctuations of approximately $25.0 million (4.6%). The sales increase was primarily due to higher sales in the Americas decreased 27.0%, Europe decreased 24.9% and Asia-Pacific decreased 33.3%. The sales decreases across all geographic regions were, as discussed above, due to the impacts of COVID-19, resulting in lower sales globally. The sales decrease in the Americas was most significant in the corporate, retail leisure and transportation market segments partially offset by increasesdecreases in the hospitality and residential/livingcorporate market segments. On a market segment basis, the sales decrease in Europe was most significant in the corporate, retail, hospitality and residential/living market segments, partially offset by increases in the healthcare and leisure market segments. The sales decrease in Europe was also negatively impacted by the weakening of the Euro. On a market segment basis, the sales decrease in Asia-Pacific was most significant in the corporate, retail, healthcare, public buildings and hospitality market segments partially offset by increases in the residential/living market segment. The sales decrease in Asia-Pacific was also impacted by the weakening of the Australian dollar.
For the six months ended July 5, 2020, net sales decreased $107.5 million (16.4%) versus the comparable period in 2019. The sales decline was primarily due to the impact of the COVID-19 pandemic, as discussed above, more pronounced in the second quarter as the effects of the pandemic did not begin to impact our business substantially until the end of the first quarter. Currency fluctuations had an approximately $7.5 million (1.1%) negativea positive impact on net sales for the first six months of 20202021 sales compared to the first six months of 2019. This currency impact wassame period last year mostly due to the weakeningstrengthening of the Euro, British Pound sterling, Australian dollar and Chinese Renminbi and Australian dollar against the U.S. dollar. On a geographic basis, net sales for the first six months
Table of 2020 in the Americas decreased 15.9%, Europe decreased 11.7% and Asia-Pacific decreased 27.2%. The sales decreases across all geographic regions were, as discussed above, due to the impacts of COVID-19, resulting in lower sales globally. The sales decrease in the Americas was seen in the corporate, retail, and leisure market segments, partially offset by increases in the hospitality and residential/living market segments. On a market segment basis, the sales decrease in Europe was most significant in the corporate, retail, public buildings, residential/living and hospitality market segments, partially offset by increases in the leisure and transportation market segments. The sales decrease in Europe was also impacted by the weakening of the Euro. The sales decrease in the Asia-Pacific region was impacted by COVID-19 shutdowns and the weakening of the Chinese Renminbi and Australian dollar. On a market segment basis, the sales decrease in Asia-Pacific was most significant in the corporate, retail, healthcare, public buildings and transportation market segments partially offset by increases in the residential/living market segment.Contents Cost and Expenses
The following tables presenttable presents our overallconsolidated cost of sales and selling, general and administrative expenses for the three and six monthsix-month periods ended July 4, 2021, and July 5, 2020, and June 30, 2019:2020:
|
| | | | | | | | | | |
| Three Months Ended | | Percentage Change |
| July 5, 2020 | | June 30, 2019 | |
| (In thousands) | | |
Cost of sales | $ | 162,210 |
| | $ | 216,777 |
| | (25.2 | )% |
Selling, general and administrative expenses | 80,058 |
| | 97,838 |
| | (18.2 | )% |
| | | Six Months Ended | | Percentage Change | | Three Months Ended | | Percentage Change | | Six Months Ended | | Percentage Change |
| July 5, 2020 | | June 30, 2019 | | | July 4, 2021 | | July 5, 2020 | | July 4, 2021 | | July 5, 2020 | |
| (In thousands) | | | | (in thousands) | | | | (in thousands) | | |
Cost of sales | $ | 336,068 |
| | $ | 397,943 |
| | (15.5 | )% | Cost of sales | $ | 185,793 | | | $ | 162,210 | | | 14.5 | % | | $ | 343,015 | | | $ | 336,068 | | | 2.1 | % |
Selling, general and administrative expenses | 167,741 |
| | 197,973 |
| | (15.3 | )% | Selling, general and administrative expenses | 79,830 | | | 80,058 | | | (0.3) | % | | 159,132 | | | 167,741 | | | (5.1) | % |
For the quarter ended July 5, 2020,4, 2021, consolidated cost of sales decreased $54.6increased $23.6 million (25.2%(14.5%) compared to the second quarter of 2019,2020, primarily due to lowerhigher net sales. Costsales and the negative impact of sales also includes the amortizationcurrency fluctuations of acquired intangible assets of $1.3approximately $8.8 million for each of the second quarters of 2020 and 2019, respectively. Currency translation had an approximately $2.0 million (0.9%(5.4%) positive impact on the year-over-year comparison. As a percentage of net sales, our cost of sales increased to 63.0% for the second quarter of 2021 versus 62.5% for the second quarter of 2020, versus 60.6%primarily due to price increases for the second quarter of 2019.
certain raw materials.
For the six months ended July 5, 2020,4, 2021, consolidated cost of sales decreased $61.9increased $6.9 million (15.5%(2.1%) compared toversus the first six months of 2019,comparable period in 2020, primarily due to lowerhigher net sales. Costsales and the negative impact of sales also includes the amortizationcurrency fluctuations of acquired intangible assets of $2.6approximately $16.4 million and $3.2 million for the first six months of 2020 and 2019, respectively. Currency translation had an approximately $5.3 million (1.3%(4.9%) positive impact on the year-over-year comparison. As a percentage of net sales, our cost of sales increased to 62.6% for the first six months of 2021 versus 61.4% for the first six months of 2020, versus 60.7%primarily due to price increases for the first six months of 2019.certain raw materials.
For the quarter ended July 5, 2020,4, 2021, consolidated selling, general and administrative (“SG&A”) expenses decreased $17.8$0.2 million (18.2%(0.3%) versus the comparable period in 2019.2020. Currency translation had a $0.5$2.9 million (0.5%(3.6%) positivenegative impact on the year-over-year comparison. SG&A expenses were lower for the second quarter of 20202021 primarily due to (1) lower selling expensesasset impairment and exit activity costs of $16.1$5.0 million compared to the prior year period as fiscal 2020 included one-time costs to exit certain FLOR design center locations and (2) lower severance costs of $3.5 million due to lower net sales, (2) $3.8 million of payroll protection credits, and (3) lower overall payroll costs due to lower performance-based incentive compensation as well as the impact of voluntary and involuntary employee separations and furloughs, whichin the prior year period to mitigate the impacts of COVID-19. These decreases were partially offset by $2.9 millionhigher labor costs in the second quarter of severance expenses recorded during2021 as performance-based compensation costs were lower in the quarter.prior year period due to the impacts of COVID-19. As a percentage of sales, SG&A expenses increaseddecreased to 27.1% for the second quarter of 2021 versus 30.9% for the second quarter of 2020 versus 27.4% for the second quarter of 2019.2020.
For the six months ended July 5, 2020,4, 2021, consolidated SG&A expenses decreased $30.2$8.6 million (15.3%(5.1%) versus the comparable period in 2019.2020. Currency translation had a $1.4$5.7 million (0.7%(3.4%) positivenegative impact on the year-over-year comparison. SG&A expenses were lower for the first six months of 20202021 primarily due to (1) lower selling expensesasset impairment and exit activity costs of $23.7$4.7 million compared to the prior year period as fiscal 2020 included one-time costs to exit certain FLOR design center locations, (2) lower severance costs of $2.0 million due to lower net sales, (2) lower stock compensation expensethe prior year period impacts of $7.0 million, (3) $3.8 million of payroll protection credits, and (4) lower overall payroll costsCOVID-19 as discussed above.above, and (3) lower professional fees of $4.2 million and lower marketing and other one-time costs of $2.7 million. These decreases were partially offset by higher performance-based compensation as these costs were lower in the prior year period due to the impacts of COVID-19. As a percentage of sales, SG&A expenses increaseddecreased to 29.0% for the first six months of 2021 versus 30.6% for the first six months of 2020 versus 30.2% for2020.
InterestExpense
For the firstquarter ended July 4, 2021, interest expense increased $2.3 million, from $5.0 million in the comparable period last year to $7.3 million. For the six months of 2019. ended July 4, 2021, interest expense increased $3.9 million, from $10.6 million in the comparable period last year to $14.5 million. The increase in both the three and six months ended July 4, 2021 was primarily due to higher fixed-rate interest expense on the senior notes debt, which replaced variable-rate debt under the credit facility, and deferred losses on terminated interest rate swaps that were reclassified from accumulated other comprehensive loss into interest expense during the respective periods.
Other Expense
Other expenses increased $4.8decreased $4.5 million and $5.3 million during the three and six months ended July 5, 2020,4, 2021, respectively, compared to 20192020 primarily due to a $4.2 million write-down of damaged raw material inventory as a result ofin 2020, which resulted from a fire at a leased storage facility.
Interest
Segment Operating Results
As discussed above, the Company has two operating and reportable segments – AMS and EAAA. Segment information presented below for fiscal year 2020 has been restated to conform to the new reportable segment structure.
AMS Segment - Net Sales and Adjusted Operating Income (“AOI”)
The following table presents AMS segment net sales and AOI for the three and six month periods ended July 4, 2021, and July 5, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Percentage Change | | Six Months Ended | | Percentage Change |
| July 4, 2021 | | July 5, 2020 | | | July 4, 2021 | | July 5, 2020 | |
| (in thousands) | | | | (in thousands) | | |
AMS segment net sales | $ | 156,665 | | | $ | 151,222 | | | 3.6 | % | | $ | 283,632 | | | $ | 309,313 | | | (8.3) | % |
AMS segment AOI(1) | 21,098 | | | 23,942 | | | (11.9) | % | | 33,011 | | | 47,492 | | | (30.5) | % |
(1) ExpenseIncludes allocation of corporate SG&A expenses. Excludes non-recurring items related to goodwill and intangible asset impairment charges, purchase accounting amortization, restructuring, asset impairment, severance and other costs. See Note 11 entitled “Segment Information” of Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information.
ForDuring the second quarter ended July 5, 2020, interest expense decreased $1.8 million, from $6.8 millionof 2021, net sales in AMS increased 3.6% versus the comparable period last yearin 2020 primarily due to $5.0 million,higher sales in the retail, healthcare and transportation market segments, partially offset by decreases in the hospitality and public buildings market segments.
During the first six months of 2021, net sales in AMS decreased 8.3% versus the comparable period in 2020 primarily due to the continued impacts of COVID-19. On a market segment basis, the AMS sales decrease was most significant in the corporate, public buildings and hospitality market segments, partially offset by increases in the retail, transportation and consumer residential market segments.
AOI in AMS decreased 11.9% during the second quarter of 2021 primarily due to higher raw material costs, higher freight costs and higher overtime costs compared to prior year. Higher SG&A costs due to higher performance-based compensation also contributed to the decrease in AOI.
AOI in AMS decreased 30.5% during the first six months of 2021 primarily due to lower interest rates. Fornet sales as discussed above. Lower profit margins due to lower fixed cost leverage in the six monthsplant, higher raw material costs, higher freight costs and higher overtime costs as well as higher performance-based compensation also contributed to the decrease in AOI compared to the prior year period.
EAAA Segment - Net Sales and AOI
The following table presents EAAA segment net sales and AOI for the three and six-month periods ended July 4, 2021, and July 5, 2020, interest expense decreased $3.0 million, from $13.6 million2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Percentage Change | | Six Months Ended | | Percentage Change |
| July 4, 2021 | | July 5, 2020 | | | July 4, 2021 | | July 5, 2020 | |
| (in thousands) | | | | (in thousands) | | |
EAAA segment net sales | $ | 138,120 | | | $ | 108,282 | | | 27.6 | % | | $ | 264,413 | | | $ | 238,360 | | | 10.9 | % |
EAAA segment AOI(1) | 9,960 | | | 3,530 | | | 182.2 | % | | 17,971 | | | 9,330 | | | 92.6 | % |
(1)Includes allocation of corporate SG&A expenses. Excludes non-recurring items related to goodwill and intangible asset impairment charges, purchase accounting amortization, restructuring, asset impairment, severance and other costs. See Note 11 entitled “Segment Information” of Part 1, Item 1 of this Quarterly Report on Form 10-Q for additional information.
During the second quarter of 2021, net sales in EAAA increased 27.6% versus the comparable period last yearin 2020. Currency fluctuations had an approximately $12.2 million (11.3%) positive impact on EAAA’s second quarter 2021 sales compared to $10.6 million, primarily2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S. dollar. On a market segment basis, the EAAA sales increase was most significant in the corporate, retail, education and public buildings market segments.
During the first six months of 2021, net sales in EAAA increased 10.9% versus the comparable period in 2020. Currency fluctuations had an approximately $23.6 million (9.9%) positive impact on EAAA’s first six months of 2021 sales compared to 2020 due to the strengthening of the Euro, British Pound sterling, Australian dollar and the Chinese Renminbi against the U.S. dollar. On a market segment basis, the EAAA sales increase was most significant in the public buildings, retail and education market segments.
AOI in EAAA increased 182.2% during the second quarter of 2021 versus the comparable period in 2020. Currency fluctuations had an approximately $1.4 million (12.2%) positive impact on AOI for the quarter. The impact of higher net sales and higher gross profit margins contributed to the increase in AOI.
AOI in EAAA increased 92.6% during the first six months of 2021 versus the comparable period in 2020. Currency fluctuations had an approximately $3.0 million (12.8%) positive impact on AOI for the six-month period of 2021. The impact of higher net sales and higher gross profit margins partially offset by higher SG&A expenses, comprised of higher performance-based compensation and lower interest rates.government wage support programs, contributed to the increase in AOI.
Liquidity and Capital Resources
General
At July 5, 2020,4, 2021, we had $91.8$102.4 million in cash. At that date, we had $566.8$264.6 million in term loan borrowing, $58.8 million ofno revolving loan borrowings, and $1.6 million in letters of credit outstanding under our Syndicated Credit Facility.Facility, and we had $300.0 million of Senior Notes outstanding. As of July 5, 2020,4, 2021, we had additional borrowing capacity of $239.6$298.4 million under the Syndicated Credit Facility and $9.5$6.0 million of borrowing capacity under other credit facilities in place at other non-U.S. subsidiaries. We anticipate that our liquidity is sufficient to meet our obligations for the next 12 months.
AmendmentThe Senior Notes are unsecured and are guaranteed, jointly and severally, by each of Credit Facility Due to COVID-19 Impact
Onthe Company’s material domestic subsidiaries, all of which also guarantee the obligations of the Company under its existing Facility. The Company’s foreign subsidiaries and certain non-material domestic subsidiaries are considered non-guarantors. Net sales for the non-guarantor subsidiaries were approximately $148 million and $284 million for the three and six-month periods ended July 15, 2020, we entered into a second amendment to our Syndicated Credit Facility. See Note 16 entitled “Subsequent Events” within Part I, Item 14, 2021, respectively. Total indebtedness of this Quarterly Report on Form 10-Q for additional information.the non-guarantor subsidiaries was approximately $65 million and $88 million as of July 4, 2021 and January 3, 2021, respectively.
Analysis of Cash Flows
The following table presents a summary of cash flows for the six-month periods ended July 4, 2021 and July 5, 2020, and June 30, 2019, respectively:
| | | Six Months Ended | | Six Months Ended |
| July 5, 2020 | | June 30, 2019 | | July 4, 2021 | | July 5, 2020 |
| (In thousands) | | (in thousands) |
Net cash provided by (used in): | | | | Net cash provided by (used in): | |
Operating activities | $ | 32,427 |
| | $ | 20,432 |
| Operating activities | $ | 35,118 | | | $ | 32,427 | |
Investing activities | (35,694 | ) | | (34,893 | ) | Investing activities | (12,112) | | | (35,694) | |
Financing activities | 15,624 |
| | 17,209 |
| Financing activities | (21,319) | | | 15,624 | |
Effect of exchange rate changes on cash | (1,814 | ) | | 519 |
| Effect of exchange rate changes on cash | (2,368) | | | (1,814) | |
Net change in cash and cash equivalents | 10,543 |
| | 3,267 |
| Net change in cash and cash equivalents | (681) | | | 10,543 | |
Cash and cash equivalents at beginning of period | 81,301 |
| | 80,989 |
| Cash and cash equivalents at beginning of period | 103,053 | | | 81,301 | |
Cash and cash equivalents at end of period | $ | 91,844 |
| | $ | 84,256 |
| Cash and cash equivalents at end of period | $ | 102,372 | | | $ | 91,844 | |
Cash provided by operating activities was $32.4$35.1 million for the six months ended July 5, 2020,4, 2021, which represents an increase of $12.0$2.7 million from the prior year comparable period. The increase was primarily due to working capital changes, specifically an increasevariable compensation payouts in account receivable collections2021 related to 2020 performance that were greatly reduced versus the payouts that occurred in 2020 related to 2019 performance. The lower variable compensation payouts in 2021 were offset by the change toa greater use of cash from working capital. Specifically, increases in accounts payable and accrued expenses.expenses that contributed positively to the change in working capital were offset by higher inventories and higher prepaid expenses attributable primarily to a build-up of inventory due to increased customer demand. Increases in accounts receivable as a result of higher net sales also contributed to the change in working capital during the year.
Cash used in investing activities was $35.7$12.1 million for the six months ended July 5, 2020 which represents an increase of $0.8 million from the prior year comparable period. The increase was primarily due to an increase in capital expenditures from the prior year comparable period.
Cash provided by financing activities was $15.6 million for the six months ended July 5, 20204, 2021, which represents a decrease of $1.6$23.6 million from the prior year comparable period. The decrease from the comparable period was primarily due to a decrease in capital expenditures due to reduced capital investment as a result of the impacts of COVID-19.
Cash used in financing activities was $21.3 million for the six months ended July 4, 2021, which represents a decrease of $36.9 million compared with cash provided by financing activities in the prior year comparable period. Financing activities for 2021 include lower revolving loan borrowings offset by higher repayments of term loan and revolving loan borrowings.debt. Lower dividend payments in 2021 compared with the prior year comparable period also contributed to the change.
Purchase Obligations
We have outstanding purchase obligations
Forward-Looking Statement on Impact of COVID-19
While we are aggressively managing our response to the COVID-19 pandemic, its impacts on our full year fiscal 20202021 results and beyond are uncertain. We believe the most significant elements of uncertainty are (1) the intensity and duration of the impact on construction, renovation, and remodeling; (2) corporate, government, and consumer spending levels and sentiment;sentiment including but not limited to when and how employees will be required to work from their office versus working from home; (3) new and renewed government mandated lockdowns, quarantine and other procedures in response to resurgences of COVID-19 cases and variants of the virus; and (4) the ability of our sales channels, supply chain, manufacturing, suppliers, freight providers and distribution partners to continue operating through disruptions. Any or all of these factors could negatively impact our financial position, results of operations, cash flows, and outlook. As the impact of the COVID-19 pandemic continues to affect companies with global operations, we
We anticipate that our business and resultsrevenue growth in the third quarter of 2020 will continuefiscal year 2021 compared with the third quarter of 2020. We are also anticipating continued impacts to be adversely affected,our global supply chain and the timelinemanufacturing operations. These impacts are anticipated to include significant cost increases in our raw materials globally and pace of recovery is uncertain. While we are unable to predict with certainty, we anticipate continued year-over-year declines in revenue and operating incomelabor shortages – particularly in the third and fourth quarters of fiscal year 2020, and perhaps during quarterly periods thereafter.
United States. The Company has implemented several cost reduction and avoidance initiatives to align with anticipated customer demand, including a voluntary employee separation program, temporary employee furloughsimpacts may also potentially include raw material shortages, higher freight costs, shipping delays, and other time-and-pay reduction programs, involuntary employee separations where necessarydisruption. These impacts to streamline rolesour supply chain and responsibilities,manufacturing will increase our costs and various otheradversely affect our gross margins, they may inhibit our ability to manufacture and ship product timely, and at times they may inhibit our ability to meet customer demands and expectations.
We also plan to continue evaluating our cost reducing initiatives. The Company has also suspended merit-based salary increases, as well as its 401(k)structure and Non-Qualified Savings Plan (NSP) matching contributions,global manufacturing footprint to identify and will benefit from lower than originally anticipated performance-based compensationactivate opportunities to decrease costs and variable compensation for 2020. In addition, the Company has reduced its capital spending plans.optimize our global cost structure.
Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements. However, the Company’s cash flows from operations can be affected by numerous factors including the uncertainty of COVID-19 and its impact on global operations, raw material availability and cost, and demand for our products, and other factors described in “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q.products.
Backlog
As of July 26, 2020,25, 2021, the consolidated backlog of orders was approximately $193.1$231.8 million. As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019,January 3, 2021, backlog was approximately $177.8$177.7 million as of February 9, 2020.7, 2021. Disruptions in supply and distribution chains, global travel restrictions and government shelter in place orders due to the impact of COVID-19 have resulted in delays of construction projects and flooring installations in many regions worldwide.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion below in this Item 3 is based upon the more detailed discussions of our market risk and related matters included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019,January 3, 2021, under Part II, Item 7A of that Form 10-K. The discussion here focuses on the six months ended July 5, 2020,4, 2021, and any material changes from (or other important intervening developments since the time of) the information discussed in that Form 10-K. This discussion should be read in conjunction with that Form 10-K for more detailed and background information.
Sensitivity Analysis
For purposes of specific risk analysis, we use sensitivity analysis to measure the impact that market risk may have on the fair values of our market sensitive instruments. To perform sensitivity analysis, we assess the risk of loss in fair values associated with the impact of hypothetical changes in interest rates and foreign currency exchange rates on market sensitive instruments.
Because the debt outstanding under our Syndicated Credit Facility has variable interest rates based on an underlying prime lending rate or LIBOR rate, we do not believe changes in interest rates would have any significant impact on the fair value of that debt instrument. Changes in the underlying prime lending rate or LIBOR rate would, however, impact the amount of our interest expense. For a discussion of these hypothetical impacts on our interest expense, please see the discussion in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 29, 2019.January 3, 2021.
As of July 5, 2020,4, 2021, based on a hypothetical immediate 100 basis point increase in interest rates, with all other variables held constant, the fair value of our fixed rate long-term debt would be impacted by a net decrease of $12.0 million. Conversely, a 100 basis point decrease in interest rates would result in a net increase in the fair value of our fixed rate long-term debt of $8.1 million.
As of July 4, 2021, a 10% decrease or increase in the levels of foreign currency exchange rates against the U.S. dollar, with all other variables held constant, would result in a decrease in the fair value of our financial instruments of $11.8$11.1 million or an increase in the fair value of our financial instruments of $14.4$13.6 million, respectively. As the impact of offsetting changes in the fair market value of our net foreign investments is not included in the sensitivity model, these results are not indicative of our actual exposure to foreign currency exchange risk.
As
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer and our 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 (the “Act”), pursuant to Rule 13a-14(c) under the Act.
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures however are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
Based on the evaluation, our President and Chief Executive Officer and our 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 Quarterly Report to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to legal proceedings, whether arising in the ordinary course of business or otherwise. The disclosure under the headings “Lawsuit by Former CEO in Connection with Termination” and “Putative Class Action Lawsuit” set forth in Note 1718 to the consolidated financial statements included in Item 8 of the December 29, 2019 Annual Report on Form 10-K for the fiscal year ended January 3, 2021is incorporated by reference herein.
In the lawsuit by the former CEO, Mr. Gould’s defamation claims (two counts) were dismissed with prejudice by stipulation of the parties. The Company has filed a motion for summary judgment on Mr. Gould’s remaining claims, and that motion is pending with the Court. The Company believes the lawsuit is without merit and intends to defend vigorously against it.
In the putative class action lawsuit, the Court has appointed a lead plaintiff, which filed an Amended Complaint that, among other things, added the Company’s former chief financial officer as a defendant. As in the original complaint, the allegations in the Amended Complaint relate to the subject matter of the concluded SEC investigation described in Note 18 to the consolidated financial statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended January 3, 2021. The Company has filed a motion to dismiss the Amended Complaint in its entirety, and that motion is pending with the Court. The Company believes the putative class action is without merit and that the Company has good defenses to it. The Company intends to defend itself vigorously against the action. ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Part I, Item 1A, “Risk Factors,” of our annual reportAnnual Report on Form 10-K for the year ended December 29, 2019, as supplemented by Part II, Item 1AJanuary 3, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table contains information with respect toThere were no purchases made by or on behalf of the Company, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3)��under the Securities Exchange Act of 1934), of our common stock during our second quarter ended July 5, 2020:
|
| | | | | | | | | | | | | | |
Period(1) | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
April 6 - May 3, 2020(2) (3) | | 19,867 |
| | $ | 10.50 |
| | — |
| | $ | — |
|
May 4 - May 31, 2020(2) | | 428 |
| | 9.02 |
| | — |
| | — |
|
June 1 - July 5, 2020(2) | | 292 |
| | 8.50 |
| | — |
| | — |
|
Total | | 20,587 |
| | $ | 10.44 |
| | — |
| | $ | — |
|
4, 2021.(1) The monthly periods identified above correspond to the Company’s fiscal second quarter of 2020, which commenced April 6, 2020 and ended July 5, 2020.
(2)
(3) Includes 6,741 shares withheld that vested during the first quarter of 2020 at the average share price in effect at that time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
Disclosure Pursuant to Section 13(r) to the Securities Exchange Act of 1934
On May 12, 2020, the Company disclosed in its quarterly filing a shipment of carpet samples by a non-U.S. affiliate to Iran and a related voluntary disclosure filed with the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”). The disclosure was made pursuant to Section 13(r), which requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, including, among other matters, transactions or dealings relating to the Government of Iran. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law. On May 19, 2021, the Company received a Cautionary Letter from OFAC, which concludes the voluntarily disclosure process without imposition of any penalty on the Company by OFAC.
ITEM 6. EXHIBITS
The following exhibits are filed or furnished with this report:
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EXHIBIT NUMBER | DESCRIPTION OF EXHIBIT |
10.131.1 | |
10.2 | |
10.3 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | XBRL Instance Document – The Instance Document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | XBRL Taxonomy Presentation Linkbase Document. |
101.DEF | XBRL Taxonomy Definition Linkbase Document. |
104 | The cover page from this Quarterly Report on Form 10-Q for the quarter ended July 5, 2020,4, 2021, formatted in Inline XBRL
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| INTERFACE, INC. |
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| INTERFACE, INC. |
| | |
Date: August 11, 202010, 2021 | By: | /s/ Bruce A. Hausmann |
| | Bruce A. Hausmann Chief Financial Officer
(Principal Financial Officer)
|