<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K/A NO. 3
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended January 3, 1993
Commission File Number 0-12016
------------------------------
INTERFACE, INC.
---------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1451243
------------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
Orchard Hill Road
(P.O. Box 1503)
LaGrange, Georgia 30241 30241
------------------------------ ----------------------------------
(Address of principal executive (zip code)
offices)
Registrant's telephone number, including area code: (706) 882-1891
--------------
Securities Registered Pursuant to Section 12(b) of the Act: None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.10 Par Value Per Share
-----------------------------------------------
(Title of Class)
8% Convertible Subordinated Debentures Due 2013
-----------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. / /
Aggregate market value of the voting stock held by non-affiliates to the
registrant as of March 15, 1993 (assuming conversion of Class B Common Stock
into Class A Common Stock): $198,627,384 (15,133,515 shares valued at the last
sales price of $13.125). See Item 12.
Number of shares outstanding of each of the registrant's classes of Common
Stock, as of March 15, 1993:
Class Number of Shares
----- ----------------
Class A Common Stock,
$0.10 par value per share ......................... 13,974,950
Class B Common Stock,
$0.10 par value per share ...........................3,289,950
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
January 3, 1993 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the 1993 Annual Meeting of Shareholders
are incorporated by reference into Part III.
<PAGE> 2
Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, of the Registrant's Form 10-K for the fiscal year
ended January 3, 1993, as amended, is deleted in its entirety and the
following is inserted in lieu thereof:
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTERFACE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
During 1992, the Company experienced moderate sales growth as a result of
increased market share in its interior fabrics and chemical operations which
was offset somewhat by the recessionary climate in most of its major markets,
particularly Europe and the United States.
In addition, during 1992, the Company was able to recognize reduced selling,
general and administrative expenses due to strict cost control measures
implemented in 1991 in response to the general worldwide recession.
The Company plans to continue its cost containment efforts, and to make
selective investments in emerging geographical markets and new products, as
well as in employee training and quality improvement. The capital expenditure
program will be focused in two general areas: supporting innovation and
reducing costs. These initiatives should position the Company to change as the
market demands and be even more efficient and responsive in meeting 1993's
challenges.
The following table shows, as a percentage of net sales, certain items included
in the Company's consolidated statements of income for each of the three years
through the period ended January 3, 1993.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
1/3/93 12/29/91 12/30/90
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 68.0 67.7 65.9
- ------------------------------------------------------------------------------------
GROSS PROFIT
ON SALES 32.0 32.3 34.1
Selling, General and
Administrative
Expenses 25.2 25.8 24.6
- ------------------------------------------------------------------------------------
OPERATING
INCOME 6.8 6.5 9.5
Other Expense, Net 3.7 4.1 3.5
- ------------------------------------------------------------------------------------
Income Before Taxes 3.1 2.4 6.0
Taxes on Income 1.0 .9 2.2
- ------------------------------------------------------------------------------------
NET INCOME 2.1% 1.5% 3.8%
=====================================================================================
</TABLE>
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTERFACE, INC. AND SUBSIDIARIES
FISCAL 1992 COMPARED WITH FISCAL 1991
In fiscal 1992, the Company's net sales increased $12.3 million (2.1%)
compared with fiscal 1991. The increase was due primarily to a unit volume
increase of approximately 19% in the Company's interior fabrics and chemical
operations, and to the weakening of the U.S. dollar, the Company's reporting
currency, against the major currencies of its foreign markets, which accounted
for a 2% increase in net sales. The increase in net sales was offset by a 3%
decrease in sales volume in the Company's carpet tile operations in the United
Kingdom, Continental Europe and North America. These major markets continue to
be adversely impacted by weak economic conditions, particularly in Europe,
where the economic uncertainty has been aggravated by a climate of currency
instability.
Cost of sales as a percentage of net sales increased slightly to 68% in
1992 compared with 67.7% in 1991 due primarily to (i) a .7% increase in costs
associated with the Company's Netherlands manufacturing facilities, which
experienced unfavorable foreign currency exchange rates in its export markets,
particularly the United Kingdom, Spain, Italy and Sweden, (ii) reduced
efficiencies in the carpet tile manufacturing operations as a result of a 1.2
million square yard decline in unit volumes, and (iii) competitive price
pressures in most major markets. During this period the average selling price
per square yard of carpet decreased by approximately 1.9%. These factors were
offset somewhat by improved manufacturing efficiencies in the interior fabrics
and chemical businesses, where the Company's unit volume increased 19% over the
prior year in the interior fabrics and chemical operations.
Selling, general and administrative expenses as a percentage of net
sales decreased slightly to 25.2% in 1992 from 25.8% in 1991 primarily as a
result of (i) continued cost control measures implemented in 1991 which reduced
discretionary spending, particularly for marketing expenses (which decreased
4%), (ii) rightsizing the workforce, particularly in Europe, where the work
force was decreased by 20% over 1990 levels and (iii) an increase in net sales.
Other expense decreased $1.7 million in 1992, primarily due to a
reduction in bank debt ($143 million at year end 1992 compared to $159 million
at year end 1991) coupled with a decline in U.S. interest rates.
During fiscal 1992, the Company's effective income tax rate decreased
to 33.9% from 37.8% in 1991. The principal reason for the decrease was a
reduction of $832,000 in non-deductible depreciation expense related to assets
acquired in previous acquisitions. Additionally, utilization of a net
operating loss carryforward of $2.6 million to offset current taxable income in
Japan contributed to the reduction.
As a result of the aforementioned factors, the Company's net income
increased 37.3% to $12.3 million in 1992 from $8.9 million in 1991.
FISCAL 1991 COMPARED WITH FISCAL 1990
In fiscal 1991, the Company's net sales decreased $41.7 million (6.7%)
compared with fiscal 1990. The decrease was due primarily to a recessionary
environment in most of the Company's major markets, which resulted in a
8.0% decline in unit volume in the interior fabrics, chemicals and carpet tile
businesses. The decrease in net sales was accentuated by the weakening of
currencies of the Company's major foreign markets against the U.S. dollar, the
Company's reporting currency. These factors were offset somewhat by a 27%
increase in
<PAGE> 4
sales volume in the Company's carpet tile operations in Germany, Southern
Europe, Southeast Asia and the Middle East.
Cost of sales as a percentage of net sales increased to 67.7% in 1991
compared to 65.9% in 1990 due primarily to (i) competitive price pressures in
most major markets, particularly France and Japan, resulting in a 1.0% decrease
in average selling price per square yard of carpet (ii) reduced efficiencies in
the manufacturing operations, which was a result of a decline in carpet tile
unit volumes of 900,000 square yards, and (iii) the impact of business
interruption insurance proceeds of $1.5 million, related to the May 1990 fire
at the Company's carpet tile plant in the Netherlands, which reduced cost of
sales in 1990.
Selling, general and administrative expenses as a percentage of net
sales increased to 25.8% in 1991 from 24.6% in 1990 primarily as a result of
(i) a 51% increase in selling costs associated with penetrating developing
markets, particularly Southeast Asia, Southern Europe, Eastern Europe and Latin
America, (ii) a 6% increase in selling costs in the interior fabrics business
due to emphasis on the U.S. refurbishment market for panel and upholstery
fabrics, (iii) the incurring of redundancy costs associated with a reduction in
the number of employees of the Company, which for 1991 somewhat offset the
benefit of the reduced level of employee costs, and (iv) difficulty in pacing
the 1991 cost reductions to the sales decline, thus delaying the benefit of the
cost reduction efforts until 1992.
Other expense increased by $3.7 million in 1991, primarily due to
certain unusual items which occurred in 1990, namely, a partial reversion of a
foreign pension fund, and a $1.2 million gain on disposal of property and
equipment resulting from a fire at the Netherlands facility. The increase in
other expense was offset somewhat by a $1.9 million reduction in interest
expense primarily due to a reduction in bank debt ($159 million at year end
1991 compared to $171 million at year end 1990) and a decline in U.S. interest
rates.
During fiscal 1991, the Company's effective income tax rate of 37.8%
remained substantially the same as that for fiscal 1990, although its
components changed. State income taxes increased 85% and nondeductible
depreciation and amortization increased 125% due to the relatively higher
component of U.S. operations' taxable income in 1991. These increases were
offset by the effects of lower foreign taxes, due to certain foreign refunds,
credits, and rate reductions.
As a result of the aforementioned factors, the Company's net income
decreased 62.2% to $8.9 million in 1991 from $23.6 million in 1990.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash over the last three fiscal years
have been funds provided by operating activities and proceeds from additional
long-term debt. In 1992, operating activities provided $41.7 million of cash
compared to $31.1 million and $18.8 million in 1991 and 1990, respectively.
The primary use of cash during the three year period has been (i)
additions to property and equipment at all of the Company's manufacturing
facilities, (ii) increases in working capital items, and (iii) acquisitions of
businesses. The addition to property and equipment required cash outlays of
$53.5 million, while increases in working capital required $11.4 million, and
the acquisitions of businesses required $5.3 million. Management believes
these expenditures will result in expanded market presence and improved
efficiency in the Company's production and distribution.
On June 30, 1992, the Company amended its existing revolving credit and
term loan facilities. The amendment, among other things, increased the
revolving credit facility by $80 million, reduced the outstanding term loans by
approximately $12 million, extended the term of the revolving credit and term
loan facilities to June 30, 1999, reduced the interest rate on the prime
borrowing option by 1/2%, and reduced the required annual amortization of the
term loan. As of January 3, 1993, the Company had long-term debt of $59.7
million under its $150.0 million revolving lines of credit, $78 million of term
debt and $103.9 million in convertible
<PAGE> 5
subordinated debt. The Company believes that it has minimized its exposure to
interest rate fluctuations in that over one-half of its debt is at fixed
interest rates.
The Company utilizes foreign hedging contracts in order to match
anticipated cash flows from foreign operations with local currency debt
obligations. Due to the strengthening of the U.S. dollar against the Dutch
guilder and the British pound sterling, the Company, as of January 3, 1993,
recognized a $21.1 million decrease in the foreign currency translation
adjustment account.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTERFACE, INC. AND SUBSIDIARIES
FISCAL 1992 COMPARED WITH FISCAL 1991
In fiscal 1992, the Company's net sales increased $12.3 million (2.1%)
compared with fiscal 1991. The increase was due primarily to a unit volume
increase of approximately 19% in the Company's interior fabrics and chemical
operations, and, to a lesser extent, the weakening of the U.S. dollar, the
Company's reporting currency, against the major currencies of its foreign
markets. The increase in net sales was offset somewhat by decreased sales
volume in the Company's carpet tile operations in the United Kingdom,
Continental Europe and North America. These major markets continue to be
adversely impacted by weak economic conditions, particularly in Europe, where
the economic uncertainty has been aggravated by a climate of currency
instability.
Cost of sales as a percentage of sales increased in 1992 compared with
1991 due primarily to (i) increased costs associated with the Company's
Netherlands manufacturing facilities, which experienced unfavorable foreign
currency exchange rates in its export markets, particularly the United Kingdom,
Spain, Italy and Sweden, (ii) reduced efficiencies in the carpet tile
manufacturing operations as a result of a 1.2 million square yard decline in
unit volumes, and (iii) competitive price pressures in most major markets.
During this period the average selling price per square yard of carpet
decreased by aproximately 1.9%. These factors were offset somewhat by improved
manufacturing efficiencies in the interior fabrics and chemical businesses.
Selling, general and administrative expenses as a percentage of sales
decreased in 1992 from 1991 primarily as a result of (i) continued cost control
measures implemented in 1991 which reduced discretionary spending,
particularly for marketing expenses, (ii) rightsizing the workforce,
particularly in Europe, where the work force was decreased by 20% over
1990 levels and (iii) an increase in net sales.
Other expense decreased $1.7 million in 1992, primarily due to a reduction in
bank debt coupled with a decline in U.S. interest rates.
During fiscal 1992, the Company's effective income tax rate decreased to 33.9%
from 37.8% in 1991. The principal reason for the decrease was a reduction in
non-deductible depreciation expense related to assets acquired in previous
acquisitions. Additionally, utilization of a net operating loss carryforward to
offset current taxable income in Japan contributed to the reduction.
As a result of the aforementioned factors, the Company's net income increased
37.3% to $12.3 million in 1992 from $8.9 million in 1991.
FISCAL 1991 COMPARED WITH FISCAL 1990
In fiscal 1991, the Company's net sales decreased $41.7 million (6.7%) compared
with fiscal 1990. The decrease was due primarily to a recessionary environment
in most of the Company's major markets, which resulted in a 8.0% decline in unit
volume in the interior fabrics, chemicals and carpet tile businesses. The
decrease in net sales was accentuated by the weakening of currencies of the
Company's major foreign markets against the U.S. dollar, the Company's
reporting currency. These factors were offset somewhat by increased sales
volume in the Company's carpet tile operations in Germany, Southern Europe,
Southeast Asia and the Middle East.
Cost of sales as a percentage of sales increased in 1991 compared with
1990 due primarily to (i) competitive price pressures in most major markets,
particularly France and Japan, resulting in a 1.0% decrease in average selling
price per square yard of carpet (ii) reduced efficiencies in the manufacturing
operations, which was a result of a decline in carpet tile unit volumes of
900,000 square yards, and (iii) the impact of business interruption insurance
proceeds of $1.5 million, related to the May 1990 fire at the Company's carpet
tile plant in the Netherlands, which reduced cost of sales in 1990.
Selling, general and administrative expenses as a percentage of sales increased
in 1991 from 1990 primarily as a result of (i) increased selling costs
associated with penetrating developing markets, particularly Southeast Asia,
Southern Europe, Eastern Europe and Latin America, (ii) higher selling costs in
the interior fabrics business due to emphasis on the U.S. refurbishment market
for panel and upholstery fabrics, (iii) the incurring of redundancy costs
associated with a reduction in the number of employees of the Company, which
for 1991 somewhat offset the benefit of the reduced level of employee costs,
and (iv) difficulty in pacing the 1991 cost reductions to the sales decline,
thus delaying the benefit of the cost reduction efforts until 1992.
Other expense increased by $3.7 million in 1991, primarily due to certain
unusual items which occurred in 1990, namely, a partial reversion of a foreign
pension fund, and a gain on disposal of property and equipment resulting from a
fire at the Netherlands facility. The increase in other expense was offset
somewhat by a $1.9 million reduction in interest expense primarily due to a
reduction in bank debt and a decline in U.S. interest rates.
During fiscal 1991, the Company's effective income tax rate of 37.8% remained
substantially the same as that for fiscal 1990, although its components
changed. Both state income taxes and nondeductible depreciation and
amortization increased in percentage due to the relatively higher component of
U.S. operations' taxable income in 1991. These increases were offset by the
effects of lower foreign taxes, due to certain foreign refunds, credits, and
rate reductions.
As a result of the aforementioned factors, the Company's net income decreased
62.2% to $8.9 million in 1991 from $23.6 million in 1990.
3
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash over the last three fiscal years have
been funds provided by operating activities and proceeds from additional
long-term debt. In 1992, operating activities provided $41.7 million of cash
compared to $31.1 million and $18.8 million in 1991 and 1990, respectively.
The primary use of cash during the three year period has been (i) additions to
property and equipment at all of the Company's manufacturing facilities, (ii)
increases in working capital items, and (iii) acquisitions of businesses. The
addition to property and equipment required cash outlays of $53.5 million,
while increases in working capital required $11.4 million, and the acquisitions
of businesses required $5.3 million. Management believes these expenditures
will result in expanded market presence and improved efficiency in the
Company's production and distribution.
On June 30, 1992, the Company amended its existing revolving credit and term
loan facilities. The amendment, among other things, increased the revolving
credit facility by approximately $80 million, reduced the outstanding term
loans by approximately $12 million, extended the term of the revolving credit
and term loan facilities to June 30, 1999, reduced the interest rate on the
prime borrowing option by 1/2%, and reduced the required annual amortization of
the term loan. As of January 3, 1993, the Company had long-term debt of $59.7
million under its $150.0 million revolving lines of credit, $78 million of term
debt and $103.9 million in convertible subordinated debt. The Company believes
that it has minimized its exposure to interest rate fluctuations in that over
one-half of its debt is at fixed interest rates.
The Company utilizes foreign hedging contracts in order to match anticipated
cash flows from foreign operations with local currency debt obligations. Due to
the strengthening of the U.S. dollar against the Dutch guilder and the British
pound sterling, the Company, as of January 3, 1993, recognized a $21.1 million
decrease in the foreign currency translation adjustment account.
At the end of fiscal 1992, the Company estimated capital expenditure
requirements of approximately $17.0 million for 1993, with purchase commitments
for $3.0 million. Management believes that the cash provided by operations and
long-term borrowing arrangements will provide adequate funds for current
commitments and other requirements in the foreseeable future.
IMPACT OF INFLATION
Petroleum-based products comprise approximately 90% of the cost of raw
materials used by the Company in manufacturing. The Company historically has
been able to offset increases in the cost of such petroleum-based products with
finished product price increases. Management cannot predict the extent to
which it will be able to pass through any future cost increases.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has no post-retirement benefit plans nor any material
post-employment benefits as covered by SFAS No. 106 Employers' Accounting for
Post-retirement Benefits Other than Pensions and SFAS No. 112 Employers'
Accounting for Post-employment Benefits.
Part III, Item 8, Financial Statements and Supplementary Data, of the
Registrant's Form 10-K for the fiscal year ended January 3, 1993, as amended,
is deleted in its entirety and the following is inserted in lieu thereof:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent certified public
accountants identified in Item 14(a)(1) are included in this Report beginning
at page F-1.
4
<PAGE> 8
Part IV, Item 14(a)(1) of the Registrant's Form 10-K for the fiscal year
ended January 3, 1993, as amended, is deleted in its entirety and the following
is inserted in lieu thereof:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following Consolidated Financial Statements and Notes thereto of
Interface, Inc. and subsidiaries and related Report of Independent Certified
Public Accountants are incorporated by reference in Item 8 of this Report:
Consolidated Balance Sheets -- January 3, 1993 and December 29, 1991
Consolidated Statements of Income -- years ended January 3, 1993,
December 29, 1991 and December 30, 1990
Consolidated Statements of Shareholders' Equity -- years ended January
3, 1993, December 29, 1991 and December 29, 1991
Consolidated Statements of Cash Flows -- years ended January 3, 1993
December 29, 1991 and December 30, 1990
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
INDEX OF FINANCIAL STATEMENTS
Consolidated Statements of Income
years ended January 3, 1993,
December 29, 1991 and, December 30, 1990 ................................F-1
Consolidated Balance Sheets,
January 3, 1993 and December 29, 1991 ....................................F-2
Consolidated Statements of Shareholders' Equity
years ended January 3, 1993, December 29, 1991
and December 30, 1990 ....................................................F-3
Consolidated Statements of Cash Flows,
years ended January 3, 1993, December 29, 1991
and December 30, 1990 ....................................................F-4
Notes to Consolidated Financial Statements .................................F-5
Report of Independent Certified Public Accountants ........................F-12
5
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
INTERFACE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1/3/93 12/29/91 12/30/90
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $594,078 $581,786 $623,467
Cost of sales 404,130 393,733 410,652
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT ON SALES 189,948 188,053 212,815
Selling, general and administrative expenses 149,509 150,100 153,317
- --------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 40,439 37,953 59,498
- --------------------------------------------------------------------------------------------------------------------
Other expense (income)
Interest expense 21,894 23,253 25,192
Other (16) 370 (3,374)
- --------------------------------------------------------------------------------------------------------------------
21,878 23,623 21,818
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 18,561 14,330 37,680
Taxes on income 6,311 5,409 14,078
- --------------------------------------------------------------------------------------------------------------------
Net Income $12,250 $8,921 $23,602
====================================================================================================================
EARNINGS PER SHARE
Primary $0.71 $0.52 $1.37
Fully diluted $0.71 $0.52 $1.24
====================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 17,253 17,230 17,214
Fully diluted 23,398 23,375 23,359
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
INTERFACE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 1/3/93 12/29/91
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 5,824 $ 6,517
Restricted cash equivalents 4,419 3,859
Accounts receivable - trade 109,343 123,799
Inventories 101,390 116,577
Deferred income taxes 743 --
Prepaid expenses 10,712 11,802
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 232,431 262,554
- -------------------------------------------------------------------------------------------------------------------
Property and equipment
Land 7,522 7,973
Building 69,617 70,335
Equipment 134,984 120,835
Construction in process 5,642 7,651
- -------------------------------------------------------------------------------------------------------------------
217,765 206,794
Less accumulated depreciation (80,160) (67,388)
- -------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 137,605 139,406
- -------------------------------------------------------------------------------------------------------------------
Excess of cost over net assets acquired 133,321 142,684
Convertible note receivable 3,649 3,060
Deferred income taxes 2,749 --
Miscellaneous 24,365 21,734
- -------------------------------------------------------------------------------------------------------------------
$534,120 $569,438
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 43,530 $ 56,712
Accrued expenses 38,642 32,393
Current maturities of long-term debt 11,425 22,908
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 93,597 112,013
Long-term debt, less current maturities 131,563 136,212
Convertible subordinated debentures 103,925 103,925
Deferred income taxes 18,686 18,311
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 347,771 370,461
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock
Class A 1,757 1,737
Class B 329 346
Additional paid-in-capital 82,110 81,769
Retained earnings 117,174 109,066
Foreign currency translation adjustment 2,725 23,805
Treasury stock, 3,600 class A shares, at cost (17,746) (17,746)
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 186,349 198,977
- -------------------------------------------------------------------------------------------------------------------
$534,120 $569,438
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
INTERFACE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOREIGN
CLASS A CLASS B ADDITIONAL CURRENCY
(IN THOUSANDS, EXCEPT PER COMMON STOCK COMMON STOCK PAID-IN RETAINED TRANSLATION TREASURY
SHARE AMOUNTS) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE 12/31/89 17,180 $1,718 3,584 $358 $81,162 $84,812 $6,697 $(17,746) $157,001
Net income 23,602 23,602
Conversion of common stock 62 6 (62) (6)
Issuance of common stock 63 6 573 579
Cash dividends on common
stock of $.24 per share (4,133) (4,133)
Foreign currency translation
adjustment 21,360 21,360
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE 12/30/90 17,305 1,730 3,522 352 81,735 104,281 28,057 (17,746) 198,409
Net income 8,921 8,921
Conversion of common stock 56 6 (56) (6)
Issuance of common stock 5 1 34 35
Cash dividends on common
stock of $.24 per share (4,136) (4,136)
Foreign currency translation
adjustment (4,252) (4,252)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE 12/29/91 17,366 1,737 3,466 346 81,769 109,066 23,805 (17,746) 198,977
Net income 12,250 12,250
Conversion of common stock 172 17 (172) (17)
Issuance of common stock 33 3 341 344
Cash dividends on common
stock of $.24 per share (4,142) (4,142)
Foreign currency translation
adjustment (21,080) (21,080)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE 1/3/93 17,571 $1,757 3,294 $329 $82,110 $117,174 $2,725 $(17,746) $186,349
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERFACE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
(IN THOUSANDS) 1/3/93 12/29/91 12/30/90
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 12,250 $ 8,921 $ 23,602
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 22,257 19,723 21,570
Deferred income taxes (9,059) 2,984 3,064
Other (2,315) -- --
Changes in current assets and liabilities
Accounts receivable 8,324 6,179 (11,812)
Inventories 8,976 891 (436)
Prepaid expenses and other (848) (3,578) (4,486)
Accounts payable and accrued expenses 2,111 (3,998) (12,694)
- ----------------------------------------------------------------------------------------------------------------------------
41,696 31,122 18,808
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (14,476) (15,375) (23,705)
Acquisitions of businesses -- -- (5,373)
Restricted cash equivalents (560) (1,519) (2,340)
Other (2,980) (524) --
- ----------------------------------------------------------------------------------------------------------------------------
(18,016) (17,418) (31,418)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-term borrowings -- 7,639 17,956
Principal payments on long-term debt (12,438) (19,100) (12,675)
Net borrowings (repayments) under
revolving credit agreements (6,171) 818 (1,721)
Proceeds from issuance of common stock 344 34 579
Dividends paid (4,142) (4,136) (4,133)
Other (1,562) -- --
- ----------------------------------------------------------------------------------------------------------------------------
(23,969) (14,745) 6
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating, investing
and financing activities (289) (1,041) (12,604)
Effect of exchange rate changes on cash (404) (152) 1,570
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) (693) (1,193) (11,034)
Balance, beginning of year 6,519 7,710 18,744
- ----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 5,824 $ 6,517 $ 7,710
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Interface, Inc.
("the Company") and its subsidiaries. All intercompany balances, investments
and transactions are eliminated.
TRANSLATION OF FOREIGN CURRENCIES
The financial position and results of operations of the Company's foreign
subsidiaries are measured generally using local currencies as the functional
currency. Assets and liabilities of these subsidiaries are translated into U.S.
dollars at the exchange rate in effect at each year-end. Income statement items
are translated at the average rate of exchange prevailing during the year. The
resulting translation adjustments are recorded in the foreign currency
translation adjustment account in shareholders' equity. Exchange gains and
losses on intercompany balances or loans of a long-term investment nature are
also recorded in the cumulative translation adjustment account. In the event of
a divestiture of a foreign net investment or an investment being no longer
considered long-term in nature, the related foreign currency translation
results are reversed from equity to income. Other foreign currency transaction
gains and losses are also included in income. Exchange gains and losses are not
material in amount in any year.
INVENTORIES
Inventories are valued at the lower of cost (standards, which approximate
actual cost on a first-in, first-out basis) or market. Maintenance, operating
and office supplies are generally not inventoried.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method for financial reporting purposes and principally
accelerated methods for income tax purposes. Estimated useful lives range from
ten to fifty years for buildings and three to twelve years for machinery and
equipment.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of purchase price over fair value of net assets of acquired
businesses is amortized on a straight-line basis generally over forty years.
Accumulated amortization amounted to approximately $16,834,000 and $13,710,000
at January 3, 1993 and December 29, 1991, respectively.
TAXES ON INCOME
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting For
Income Taxes" was issued by the Financial Accounting Standards Board in
February 1992 and was adopted by the Company effective at the beginning of
fiscal 1992. Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. These temporary
differences are determined in accordance with SFAS 109 and are generally more
inclusive in nature than timing differences as determined under previously
applicable generally accepted accounting principles. An additional requirement
of SFAS 109 is that deferred tax liabilities or assets will be determined at
the end of each period using the tax rate expected to be in effect when taxes
are actually paid or recovered. Accordingly, under the new rules, deferred
income taxes will increase or decrease in the same period in which a change in
tax rates is enacted. Previous rules required providing deferred taxes using
rates in effect when the tax asset or liability was first recorded, without
subsequent adjustment solely for tax rate changes. A valuation allowance is
used to reduce deferred tax assets to the amount that is more likely than not
to be realized for available tax credits, loss carryforwards and future
deductible temporary differences.
EARNINGS PER SHARE AND DIVIDENDS
Earnings per share are computed on the basis of the weighted average number of
shares outstanding during each year, retroactively adjusted to give effect to
stock dividends and stock splits. It is assumed that all dilutive stock options
are exercised at the beginning of each year and that the proceeds are used to
purchase shares of the Company's Common Stock. The effect of dilutive stock
options is not reflected in earnings per share as it is less than 3%. Fully
diluted earnings per share are computed as if all debentures convertible into
the Company's Common Stock were converted at the beginning of each period, with
earnings being increased for interest expense, net of income taxes, that would
not have been incurred had the conversion taken place. For fiscal 1992 and
1991, fully diluted earnings per share is the same as primary earnings per
share, since the effect of the conversion of the debentures is antidilutive.
For the purposes of computing earnings per share and dividends paid per share,
the Company is treating as treasury stock (and therefore not outstanding) the
shares that are owned by a wholly-owned subsidiary (3,600,000 Class A shares,
recorded at cost).
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest December 31. The fiscal
year ended January 3, 1993, comprised 53 weeks, and fiscal years ended December
29, 1991 and December 30, 1990 each comprised 52 weeks.
F-5
<PAGE> 14
NOTE 2--CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1/3/93 12/29/91
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 5,549 $ 6,446
Cash equivalents 275 71
- ---------------------------------------------------------------------------------------------------------
TOTAL $ 5,824 $ 6,517
=========================================================================================================
</TABLE>
Cash equivalents, carried at cost which approximates market, consist of
short-term, highly liquid investments which are readily convertible into cash
and have initial maturities of three months or less.
Under the Company's cash management program, checks in transit are not
considered reductions of cash or accounts payable until presented to the bank
for payment. At January 3, 1993 and December 29, 1991, checks not yet presented
to the bank totalled $10,595,904 and $9,734,000, respectively. In accordance
with a Workers' Compensation self-insurance arrangement in the State of Maine,
the Company's interior fabrics subsidiary, Guilford of Maine, Inc. (Guilford)
is required by state law to maintain a trust account to pay Workers'
Compensation claims. At January 3, 1993 and December 29, 1991, the trust
account had balances of approximately $4,419,000 and $3,859,000, respectively,
and was included in restricted cash equivalents. Cash payments for interest
amounted to approximately $21,066,000, $23,345,000, and $26,147,000 for the
years ended January 3, 1993, December 29, 1991 and December 30, 1990,
respectively. Income tax payments amounted to approximately $8,890,000,
$11,323,000, and $10,773,000 for the years ended January 3, 1993, December 29,
1991 and December 30, 1990, respectively.
NOTE 3--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1/3/93 12/29/91
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 55,527 $ 71,302
Work-in-process 21,882 14,325
Raw materials 23,981 30,950
- ---------------------------------------------------------------------------------------------------------
TOTAL $ 101,390 $ 116,577
=========================================================================================================
</TABLE>
NOTE 4--ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1/3/93 12/29/91
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Compensation $ 12,615 $ 10,663
Income taxes 3,741 6,320
Interest 4,044 3,216
Other 18,242 12,194
- ---------------------------------------------------------------------------------------------------------
TOTAL $ 38,642 $ 32,393
=========================================================================================================
</TABLE>
NOTE 5--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1/3/93 12/29/91
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Secured term loans $ 78,000 $ 108,390
Revolving credit agreements 60,276 32,243
Industrial revenue bonds 3,800 4,700
Other 912 13,787
- ---------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 142,988 159,120
LESS CURRENT MATURITIES (11,425) (22,908)
- ---------------------------------------------------------------------------------------------------------
LONG-TERM DEBT $ 131,563 $ 136,212
=========================================================================================================
</TABLE>
During June 1992, the Company entered into an agreement to amend and restate
its revolving credit and term loan facility. The amendment provides for, among
other things, an increase in the revolving credit notes from $65,500,000 to
$145,000,000 and a reduction in the secured term loans from approximately
$92,600,000 to $80,000,000. Additionally, the facility, which originally was to
expire during 1996, has been extended to June 30, 1999. The amended and
restated revolving credit and secured term loans are collateralized by
substantially all of the outstanding stock of the Company's operating
subsidiaries (except certain foreign subsidiaries, for which only 66% of the
outstanding stock was pledged). The secured term loans are payable quarterly,
in increasing amounts, plus interest through June 1999. Interest is charged at
the average of the federal funds rate plus 1/2% and the bank's prime lending
rate (6% at January 3, 1993) or, at the Company's option, a rate based on
either the bank's certificate of deposit rate (3.52% at January 3, 1993) or at
a rate ranging from LIBOR plus 3/4% to LIBOR plus 1 1/2%, depending upon the
Company's ability to meet certain performance criteria. LIBOR was 3.34% at
January 3, 1993. The Company is also required to pay a commitment fee ranging
from 3/8% to 1/2% per annum on the unused portion of the revolving credit loans
depending upon the Company's ability to meet certain performance criteria. The
agreements require
F-6
<PAGE> 15
prepayment from specified excess cash flows or proceeds from certain asset
sales and provide for restrictions which, among other things, require
maintenance of certain financial ratios, restrict encumbrance of assets, limit
the payment of dividends, and prohibit the retirement of its Convertible
Subordinated Debentures. At January 3, 1993, approximately $11,983,000 of the
Company's retained earnings were unrestricted and available for payment of
dividends under the most restrictive terms of the agreement. No prepayments
from excess cash flows were made during 1992.
Future maturities of long-term debt based on fixed payments (amounts could be
higher if excess cash flows or asset sales require prepayment of debt under the
revolving credit agreements) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- ---------------------------------------------------------------------------
<S> <C>
1993 $ 11,425
1994 10,603
1995 10,400
1996 10,400
1997 11,900
Thereafter 88,260
- ---------------------------------------------------------------------------
TOTAL $ 142,988
===========================================================================
</TABLE>
Additionally, the Company maintains $23,500,000 in revolving lines of credit
through several of its subsidiaries. Interest is generally charged at the prime
lending rate. Approximately $4,127,000 and $2,481,000 were outstanding under
these lines and are included within accounts payable in the consolidated
balance sheets at January 3, 1993 and December 29, 1991, respectively.
NOTE 6--CONVERTIBLE SUBORDINATED
DEBENTURES
The Company has $103,925,000 aggregate principal amount of Convertible
Subordinated Debentures ("Debentures") maturing in 2013 which were sold in a
public offering. The Debentures are unsecured obligations of the Company and
bear interest payable semi-annually at 8% per annum. They are convertible into
shares of the Company's Class A Common Stock at a conversion price of
approximately $16.92 per share. The Debentures are redeemable, at the option of
the Company, at a price of 104% during 1993, and are redeemable at decreasing
prices thereafter. Sinking fund payments starting in 1999 are required to
retire 70% of the Debentures prior to maturity. Since issuance, no Debentures
were converted or redeemed.
NOTE 7--TAXES ON INCOME
Effective December 30, 1991, the Company adopted the provisions of SFAS 109.
Accordingly, for the year ended January 3, 1993, all disclosures are in
accordance with the new rules. Under the provisions of SFAS 109, the Company
elected not to restate prior years' consolidated financial statements. The
cumulative effect of initial adoption on prior years' retained earnings was not
significant. Additionally, the effect of the adoption of SFAS 109 upon income
before taxes for fiscal 1992 was not significant.
Provisions for federal, foreign and state income taxes in the consolidated
statements of income consisted of the following components:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
(IN THOUSANDS) 1/3/93 12/29/91 12/30/90
- --------------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 4,880 $ 2,087 $ 4,660
Foreign 3,196 (457) 5,213
State 1,352 795 1,141
- --------------------------------------------------------------------------------------------------------------
9,428 2,425 11,014
- --------------------------------------------------------------------------------------------------------------
Deferred:
Federal (2,606) 1,598 1,023
Foreign (15) 1,132 1,779
State (496) 254 262
- --------------------------------------------------------------------------------------------------------------
(3,117) 2,984 3,064
- --------------------------------------------------------------------------------------------------------------
TOTAL TAXES
ON INCOME $6,311 $5,409 $14,078
===============================================================================================================
</TABLE>
Income before taxes on income consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
(IN THOUSANDS) 1/3/93 12/29/91 12/30/90
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. operations $ 8,793 $ 10,501 $ 12,308
Foreign operations 9,768 3,829 25,372
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 18,561 $ 14,330 $ 37,680
==============================================================================================================
</TABLE>
Deferred income taxes for the year ended January 3, 1993, reflect the impact of
"temporary differences" between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations. Deferred income taxes for the years ended December 29, 1991, and
December 30, 1990, result from "timing differences" in the recognition of
income and expense for tax and financial reporting purposes and have not been
restated.
F-7
<PAGE> 16
Principal items making up the deferred tax provisions for those years are as
follows:
<TABLE>
<CAPTION> FISCAL YEAR ENDED
----------------------------------
(IN THOUSANDS) 12/29/91 12/30/90
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Excess of tax over
book depreciation $ 2,560 $ 1,559
Other 424 1,505
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 2,984 $ 3,064
==============================================================================================================
</TABLE>
The sources of the temporary differences and their effect on deferred taxes at
January 3, 1993, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) ASSETS LIABILITIES
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basis difference of
property and equipment $ - $ 17,901
Net operating losses
and foreign tax credits 5,491 -
Other differences in
bases of assets and liabilities 743 785
Valuation allowance (2,742) -
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 3,492 $ 18,686
==============================================================================================================
</TABLE>
During the year ended January 3, 1993, the valuation allowance decreased
approximately $1,587,000. At January 3, 1993, the Company had approximately
$1,533,000 in foreign tax credits and $11,309,000 in net operating losses
within a foreign subsidiary which are available for carryforward through 2000.
The effective tax rate on income before taxes differs from the federal
statutory rates. The following summary reconciles taxes at the federal
statutory rates with the effective rates:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------
(IN THOUSANDS) 1/3/93 12/29/91 12/30/90
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TAXES ON INCOME AT
STATUTORY RATES 34.0% 34.0% 34.0%
Increase (reduction)
In taxes
resulting from
State income
taxes, net of
federal benefit 3.0 4.8 2.6
Amortization of
excess of cost
over net assets
acquired and
related purchase
accounting
adjustments 2.5 5.4 2.4
Differences in
foreign tax rates (4.6) (7.5) 1.2
Other (1.0) 1.1 (2.8)
- -------------------------------------------------------------------------------------------------------------
TAXES ON INCOME AT
EFFECTIVE RATES 33.9% 37.8% 37.4%
=============================================================================================================
</TABLE>
The Company has not provided for possible U.S. income taxes on the
undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely. Such earnings would become taxable upon the sale or
liquidation of these foreign subsidiaries or upon the remittance of dividends.
Upon remittance, certain foreign countries impose withholding taxes that are
then available, subject to certain limitations, for use as credits against the
Company's U.S. tax liability, if any. Where it is contemplated that earnings
will be remitted, credit for foreign taxes already paid generally will offset
applicable U.S. income taxes. In cases where they will not offset U.S. income
taxes, appropriate provisions are included in the consolidated statements of
income. As of January 3, 1993, such undistributed earnings aggregated
approximately $75,439,000.
F-8
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
NOTE 8--EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have trusteed, defined benefit retirement
plans ("Plans") which cover substantially all of their employees except those
of Guilford, which has its own 401(k) plan. The benefits are generally based
on years of service and the employee's average monthly compensation. Pension
expense was $1,743,000, $1,583,000 and $1,265,000 for the fiscal years ended
January 3, 1993, December 29, 1991 and December 30, 1990, respectively. Assets
exceeded accumulated benefits in certain Plans and accumulated benefits
exceeded assets in others as of January 3, 1993. As of December 29, 1991,
assets exceeded accumulated benefits in all Plans. The ranges of assumptions
used for the actuarial determinations reflect the different economic
environments within the various countries where the Plans exist. In 1992 and
1991, the assumed rates of return on Plan assets ranged from 7% to 10%.
Measurement of the projected benefit obligation was based on assumed discount
rates ranging from 7% to 10% and assumed long-term rates of compensation
increases ranging from 5% to 8%.
The Company has 401(k) retirement investment plans ("401(k) Plans"), which are
open to all its U.S. employees with one or more years of service. The 401(k)
Plans call for Company contributions on a sliding scale based on the level of
the employee's contribution. Approximately 70% of eligible employees are
enrolled in the 401(k) Plans. The Company's contributions are funded monthly by
payment to the 401(k) Plan administrators. Company contributions totalled
$474,000, $419,000 and $409,000 for the years ended January 3, 1993, December
29, 1991 and December 30, 1990, respectively.
The Company has a Salary Continuation Plan under which a specified monthly
benefit will be paid to selected key employees (or employees' beneficiaries)
for a specified period of time after retirement or death or disability prior to
retirement. In return for these benefits, key employees must remain with the
Company until the occurrence of one of these events. In addition, once benefit
payments commence, the key employee must remain available as a consultant and
not become employed by or consult for a competitor.
The table presented below sets forth the funded status of the Company's defined
benefit plans and amounts recognized in the consolidated financial statements.
All of the Company's significant domestic and foreign plans are reflected in
the table for each year presented.
<TABLE>
<CAPTION>
1/3/93 12/29/91
-------------------------------------- ------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED
ACCUMULATED BENEFITS ACCUMULATED
(IN THOUSANDS) BENEFITS EXCEED ASSETS BENEFITS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Plan assets at fair value, primarily
insurance contract $ 33,092 $ 364 $ 36,155
- -------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefits 25,307 969 27,478
Non-vested benefits 1,009 -- 913
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 26,316 969 28,391
Effect of projected future salary increases 3,861 2,294 7,992
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation 30,177 3,263 36,383
- -------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 2,915 (2,899) (229)
Unrecognized net gain from past experience
different from that assumed (3,403) (253) (1,747)
Unrecognized prior service cost 699 -- 819
Unrecognized net asset existing at the date of initial
application of SFAS 87 (471) 2,181 133
- -------------------------------------------------------------------------------------------------------------
ACCRUED PENSION COST $ (260) $ (971) $(1,024)
=============================================================================================================
Net pension cost included the following components:
Service cost - benefits earned during the period $ 1,322 $ 146 $ 1,553
Interest cost on projected benefit obligation 2,764 120 3,192
Actual return on plan assets (4,524) -- (4,191)
Net amortization and deferral 1,927 (12) 1,029
- -------------------------------------------------------------------------------------------------------------
NET PENSION COST $ 1,489 $ 254 $ 1,583
=============================================================================================================
</TABLE>
F-9
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
NOTE 9 --CAPITAL STOCK AND STOCK OPTIONS
The Company is authorized to issue 40,000,000 shares of $.10 par value Common
Stock (Class A and B shares). Class A and B Common Stock have identical voting
rights except for the election or removal of directors. Holders of Class B
Common Stock are entitled as a class to elect a majority of the Board of
Directors. The Company is authorized to issue 5,000,000 shares of $1.00 par
value Preferred Stock, of which none have been issued. The Company has a Key
Employee Stock Option Plan ("Key Employee Plan") and an Off-Shore Stock Option
Plan ("Off-Shore Plan"), under which a committee of the Board of Directors is
authorized to grant key employees, including officers, options to purchase the
Company's Common Stock. Options granted pursuant to the Key Employee Plan are
exercisable for shares of Class A Common Stock at a price not less than 100% of
the fair market value on the date of grant. The options are generally
exercisable 20% per year for five years from the date of the grant and the
options generally expire ten years from the date of the grant. An aggregate of
690,000 shares of Class A Common Stock has been reserved for issuance under
this plan. Options are granted pursuant to the Off-Shore Plan to key non-U.S.
employees and the directors of the Company's foreign subsidiaries. These
options may be exercised for shares of Class A and B Common Stock as determined
by the Compensation Committee of the Board of Directors. An aggregate of
1,000,000 shares of Common Stock (Class A or B) has been reserved for issuance
under this Plan. As of January 3, 1993, the following stock options were
outstanding under these Plans:
<TABLE>
<CAPTION>
NUMBER OF
YEAR OF GRANT SHARES OPTION PRICE
- -------------------------------------------------------
<S> <C> <C> <C>
1984 120,000 $ 7.50
1985 30,000 $ 6.50
1987 100,000 $ 10.50
1988 610,674 $ 7.375-$ 16.25
1990 20,000 $ 18.62
1991 225,000 $ 11.88-$ 13.00
1992 275,000 $ 11.50-$ 13.75
- ------------------------------------------------------
</TABLE>
During 1992, 32,000 and 1,290 options were exercised at an option price of
$10.50 and $6.50, respectively. Additionally, approximately 222,000 options
were forfeited or cancelled. At January 3, 1993, and December 29, 1991,
approximately 702,000 and 520,000 options were exercisable at amounts ranging
from $6.50 to $18.625.
NOTE 10--LEASE COMMITMENTS
The Company leases certain marketing locations, distribution facilities and
equipment. Aggregate minimum rent commitments under operating leases having an
initial term of more than one year are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
- -----------------------------------------------------
<S> <C>
1993 $ 6,467
1994 5,002
1995 2,072
1996 1,122
1997 690
Thereafter 519
- -----------------------------------------------------
TOTAL $15,872
=====================================================
</TABLE>
Rental expense amounted to approximately $10,280,000, $9,314,000 and
$8,325,000, for the fiscal years ended January 3, 1993, December 29, 1991 and
December 30, 1990, respectively.
NOTE 11--BUSINESS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged predominantly in the manufacture
and sale of commercial interior finishings. Financial information by geographic
area for the fiscal years ended January 3, 1993, December 29, 1991 and December
30, 1990, is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
(IN THOUSANDS) 1/3/93 12/29/91 12/30/90
- -----------------------------------------------------
<S> <C> <C> <C>
SALES TO
UNAFFILIATED
CUSTOMERS
United States $255,476 $248,368 $254,407
Canada 7,268 17,026 22,628
Europe 273,665 271,518 288,829
Far East and
Australia 47,669 44,874 57,603
- -----------------------------------------------------
Total $594,078 $581,786 $623,467
=====================================================
OPERATING
INCOME
United States $ 21,347 $ 23,114 $ 27,590
Canada 572 950 1,616
Europe 20,099 14,734 25,592
Far East and
Australia (1,579) (845) 4,700
- -----------------------------------------------------
Total $ 40,439 $ 37,953 $ 59,498
======================================================
IDENTIFIABLE
ASSETS
United States $246,195 $247,591 $242,276
Canada 7,745 14,550 12,748
Europe 242,020 269,811 291,620
Far East and
Australia 38,160 37,486 35,727
- -----------------------------------------------------
Total $534,120 $569,438 $582,371
=====================================================
</TABLE>
F-10
<PAGE> 19
NOTE 12--QUARTERLY DATA AND SHARE
INFORMATION (UNAUDITED)
The Company's Class A Common Stock is traded in the over-the-counter market
under the symbol IFSIA and is quoted on the NASDAQ National Market System. The
Company's Class B Common Stock is not publicly traded, but is convertible into
Class A Common Stock on a one-for-one basis. Both classes of Common Stock share
in dividends (see note 5 for discussion of restrictions on the payment of
dividends). The following table sets forth, for the fiscal periods indicated,
selected consolidated financial data and information regarding the market price
per share of the Company's Class A Common Stock. The prices represent the
reported high and low closing sale prices.
<TABLE>
<CAPTION>
(IN THOUSANDS, FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JANUARY 3, 1993
<S> <C> <C> <C> <C>
Net Sales $ 154,490 $ 149,299 $ 143,716 $ 146,573
Gross Profit 50,202 48,876 46,005 44,865
Net Income 3,779 3,408 1,904 3,159
Earnings per Share:
Primary 0.22 0.20 0.11 0.18
Fully diluted *<F1> 0.22 0.20 0.11 0.18
Share prices:
High 14 1/8 16 1/2 15 13 7/8
Low 11 3/8 12 3/8 12 3/4 9 5/8
Dividends per Common Share 0.06 0.06 0.06 0.06
- ------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 29, 1991
Net Sales $ 151,461 $ 144,974 $ 137,203 $ 148,148
Gross Profit 47,201 47,540 45,679 47,633
Net Income 1,660 2,106 1,664 3,491
Earnings per Share:
Primary 0.10 0.12 0.10 0.20
Fully diluted *<F1> 0.10 0.12 0.10 0.20
Share prices:
High 12 1/4 14 1/2 14 1/4 10 3/4
Low 8 1/4 10 3/4 9 1/4 7 3/8
Dividends per Common Share 0.06 0.06 0.06 0.06
========================================================================================================================
<FN>
<F1> *For the fiscal years ended January 3, 1993 and December 29, 1991, earnings per on a fully diluted basis were antidilutive.
</TABLE>
F-11
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of Interface, Inc.
LaGrange, Georgia
We have audited the accompanying consolidated balance sheets of Interface, Inc.
and subsidiaries as of January 3, 1993 and December 29, 1991, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended January 3, 1993. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Interface, Inc. and its subsidiaries as of January 3, 1993 and December 29,
1991, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended January 3, 1993, in conformity with
generally accepted accounting principles.
As described in Note 7 to the consolidated financial statements, during the
year ended January 3, 1993, the Company changed its method of accounting for
income taxes.
/s/ BDO Seidman
- ------------------------------------------
Atlanta, Georgia
February 16, 1993
F-12
<PAGE> 21
SIGNATURE
Pursuant to the requirements of Section 12(g) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this reported on Form
10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERFACE, INC.
Date: March 17, 1994
By: /s/ Daniel T. Hendrix
---------------------
Vice-President
Officer (Principal Executive Financial Officer)
