<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarterly Period Ended April 2, 1995
Commission File Number 0-12016
------------------------------
INTERFACE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1451243
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339
---------------------------------------------------------
(Address of principal executive offices and zip code)
(404) 437-6800
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(Registrant's telephone number, including area code)
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
---- -----
Shares outstanding of each of the registrant's classes of common stock at
May 10, 1995:
Class Number of Shares
- ---------------------------------------------- ----------------
Class A Common Stock, $.10 par value per share 15,175,728
Class B Common Stock, $.10 par value per share 3,074,625
Page 1 of 13 Pages
The Exhibit Index appears at page 12.
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INTERFACE, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance Sheets - April 2, 1995 and January 1, 1995 3
Statements of Income - Three Months
Ended April 2, 1995 and April 3, 1994 4
Statements of Cash Flows -
Three Months Ended April 2, 1995 and April 3, 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in the Rights of the Company's Security
Holders 10
Item 3. Defaults by the Company on Its Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------ April 2, January 1,
ASSETS 1995 1995
- ------------------------------------------------ --------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,782 $ 4,389
Escrowed and Restricted Funds 2,538 2,663
Accounts Receivable 135,854 133,536
Inventories 135,990 132,650
Deferred Tax Asset 3,767 3,767
Prepaid Expenses 18,896 15,110
-------- --------
TOTAL CURRENT ASSETS 298,827 292,115
PROPERTY AND EQUIPMENT, less
accumulated depreciation 155,986 152,874
EXCESS OF COST OVER NET ASSETS ACQUIRED 211,207 202,852
OTHER ASSETS 40,541 40,093
-------- --------
$706,561 $687,934
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
- ------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable $61,606 $59,702
Accrued Expenses 44,459 56,940
Current Maturities of Long-Term Debt 400 853
-------- --------
TOTAL CURRENT LIABILITIES 106,465 117,495
LONG-TERM DEBT, less current maturities 221,377 209,663
CONVERTIBLE SUBORDINATED DEBENTURES 103,925 103,925
DEFERRED INCOME TAXES 20,422 17,761
-------- --------
TOTAL LIABILITIES 452,189 448,844
-------- --------
Redeemable Preferred Stock 25,000 25,000
Common Stock:
Class A 1,876 1,871
Class B 308 308
Additional Paid-In Capital 94,808 93,450
Retained Earnings 138,827 136,343
Foreign Currency Translation Adjustment 11,299 (136)
Treasury Stock, 3,600
Class A Shares, at Cost (17,746) (17,746)
-------- --------
$706,561 $687,934
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
INTERFACE,INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
1995 1994
-------- --------
<S> <C> <C>
Net Sales $191,327 $160,719
Cost of Sales 132,972 112,375
------- -------
Gross Profit on Sales 58,355 48,344
Selling, General and Administrative Expenses 44,962 37,905
------- -------
Operating Income 13,393 10,439
Other (Expense) Income - Net (6,917) (6,044)
------- -------
Income before Taxes on Income 6,476 4,395
Taxes on Income 2,460 1,583
------- -------
Net Income 4,016 2,812
Less: Preferred Dividends 437 438
------- -------
Net Income Applicable to Common Shareholders $ 3,579 $ 2,374
======= =======
Primary Earnings Per Common Share $ 0.20 $ 0.14
======= =======
Weighted Average Common Shares Outstanding 18,191 17,309
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
April 2, April 3,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Operating Activities:
Net income $ 4,016 $ 2,812
Adjustment to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 7,401 6,853
Deferred income taxes 2,532 (154)
Cash provided by (used for):
Accounts receivable 2,161 (1,656)
Inventories 522 (7,647)
Prepaid and other (2,777) (2,382)
Accounts payable and accrued expenses (14,712) (9,685)
-------- --------
(857) (11,859)
-------- --------
Investing Activities:
Capital expenditures (5,238) (4,824)
Acquisitions of businesses 0 (643)
Other (1,336) (100)
-------- --------
(6,574) (5,567)
-------- --------
Financing Activities:
Net borrowing of long-term debt 5,641 16,151
Issuance of common stock 421 328
Dividends paid (1,531) (1,486)
-------- --------
4,531 14,993
-------- --------
Net cash provided by operating,
investing and financing activities (2,900) (2,433)
Effect of exchange rate changes on cash 293 98
-------- --------
Cash and Cash Equivalents:
Net increase (decrease) during the period (2,607) (2,335)
Balance at beginning of period 4,389 4,674
-------- --------
Balance at end of period $ 1,782 $ 2,339
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - CONDENSED FOOTNOTES
As contemplated by the Securities and Exchange Commission instructions
to Form 10-Q, the following footnotes have been condensed and, therefore, do
not contain all disclosures required in connection with annual financial
statements. Reference should be made to the notes to the Company's year-end
financial statements contained in its Annual Report to Shareholders for the
fiscal year ended January 1, 1995, as filed with the Securities and Exchange
Commission.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
April 2, January 1,
1995 1995
--------- ----------
<S> <C> <C>
Finished Goods $ 75,522 $ 74,542
Work-in-Process 23,049 20,250
Raw Materials 37,419 37,858
--------- ----------
$ 135,990 $ 132,650
========= ==========
</TABLE>
NOTE 3 - EARNINGS PER SHARE AND DIVIDENDS
Earnings per share are computed by dividing net income
applicable to common shareholders by the combined weighted average number of
shares of Class A and Class B common stock outstanding during the particular
reporting period. The computation does not include a negligible dilutive
effect of outstanding stock options. Neither the Convertible Subordinated
Debentures issued in September 1988 nor the Series A Cumulative Convertible
Preferred Stock issued during June 1993 were determined to be common stock
equivalents. In computing primary earnings per share, the preferred stock
dividend reduces income applicable to common shareholders. Primary earnings
per share are based upon 18,191,000 shares and 17,463,000 shares, respectively,
for the periods ended April 2, 1995 and April 3, 1994. For the periods ended
April 2, 1995 and April 3, 1994, fully diluted earnings per common share were
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).
6
<PAGE> 7
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
__________________________________________
The financial information included in this report has been prepared by
the Company, without audit, and should not be relied upon to the same extent as
audited financial statements. In the opinion of management, the financial
information included in this report contains all adjustments (all of which are
normal and recurring) necessary for a fair presentation of the results for the
interim periods. Nevertheless, the results shown for interim periods are not
necessarily indicative of results to be expected for the year.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS. The Company's net sales increased $30.6
million (19.0%) for the quarter ended April 2, 1995, compared with the same
period in 1994. The increase was primarily attributable to (i) sales generated
by Prince Street Technologies, Ltd., which was acquired during March 1994, (ii)
increased sales volume in the Company's floorcoverings operations in the United
States, United Kingdom, Southeast Asia and Greater China, (iii) continued
improvement in unit volume in the Company's interior fabrics operations and,
(iv) the strengthening of certain key currencies (particularly the British
pound sterling, Dutch guilder and Japanese yen) against the U.S. dollar, the
Company's reporting currency. These increases were offset somewhat by a
decrease in floorcoverings sales volume in Japan, Australia and certain
markets within Continental Europe.
Cost of sales decreased as a percentage of sales for the quarter ended
April 2, 1995, compared with the same period in 1994. The decrease was due
primarily to (i) a reduction of manufacturing costs in the Company's carpet
tile operations (particularly the U.S manufacturing facility) as the Company
implemented a make-to-order ("mass customization") production strategy, leading
to increased manufacturing efficiencies, and an attendant shift in product mix
to higher margin products, (ii) the weakening of the U.S. dollar against
certain key currencies which lowered the cost of U.S. produced goods sold in
export markets, and (iii) decreased manufacturing costs in the Company's
interior fabrics business as a result of improved manufacturing efficiencies.
These benefits were somewhat offset by raw material price increases in the
interior fabrics and chemical operations and the acquisition of Prince Street,
which, historically, had a higher cost of sales ratio than the Company.
Selling, general and administrative expenses as a percentage of sales
decreased to 23.5% for the three months ended April 2, 1995, compared to 23.6%
for the same period in 1994, primarily as a result of increased sales.
Other expense increased $.9 million for the quarter ended April 2,
1995 compared to the same period in 1994, primarily due to an increase in
funded bank debt along with an increase in U.S. interest rates.
Due, by in large, to the aforementioned factors, the Company's net
income increased 50.8% to $3.6 million for the first quarter of 1995, from $2.4
million for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash during the
period have been (i) $.9 million associated with operating activities, (ii)
$5.2 million for additions to property and equipment in the Company's
manufacturing facilities, and (iii) $1.5 million for dividends paid. These
uses were funded, in part, by $5.6 million from long-term financing and a $2.6
million reduction of cash and cash equivalents.
8
<PAGE> 9
The Company, as of April 2, 1995, recognized an $11.4 million decrease
in foreign currency translation adjustment compared to that of January 1, 1995.
This improvement in translation adjustment was largely due to a significant
quarter-end strengthening of the British pound sterling and the Dutch guilder
compared to the U.S. dollar. The adjustment to shareholders' equity was
converted by the guidelines of the Financial Accounting Standards Board (FASB)
52.
The Company employs a variety of off-balance sheet financial
instruments to reduce its exposure to adverse fluctuations in interest and
foreign currency swap agreements and foreign currency exchange contracts. At
April 2, 1995, the Company had approximately $45 million (notional amount) of
foreign currency hedge contracts outstanding, consisting principally of forward
exchange contracts. These contracts serve to hedge firmly committed Dutch
guilder, German mark, Japanese yen, French franc, British pound sterling and
other foreign currency revenues.
At April 2, 1995, interest rate and currency swap agreements related
to certain foreign currency denominated promissory notes effectively converted
approximately $23 million of variable rate debt to fixed rate debt. At April
2, 1995, the weighted average fixed rate on the Dutch guilder and Japanese yen
borrowings was 7.43%. The interest rate and currency swap agreements have
maturity dates ranging from six to twelve months.
The Company continually monitors its position with, and the credit
quality of, the financial institutions which are counterparties to its
off-balance sheet financial instruments and does not anticipate nonperformance
by the counterparties.
In January 1995, the Company amended its existing revolving credit and
term loan facilities. The amendment provided for, among other things, (i) an
increase in the revolving credit facility from $125 million to $200 million
(including a letter of credit facility of up to $40 million), (ii) a decrease
in the secured term loans from approximately $135 million to $50 million, and
(iii) a new accounts receivable securitization facility of up to $100 million.
Additionally, the term of the agreement has been extended to June 30, 1999 for
the revolving credit facilities, and December 31, 2001 for the term loans.
Management believes that the cash provided by operations and available
under long-term loan commitments will provide adequate funds for current
commitments and other requirements in the foreseeable future.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal
proceedings involving it or any of its property.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
Exhibit
Number Description of Exhibit
------ ----------------------
27 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended
April 2, 1995.
10
<PAGE> 11
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.
INTERFACE, INC.
Date: May 15, 1994 By:/s/ Daniel T. Hendrix
----------------------------
Daniel T. Hendrix
Vice President
(Principal Financial Officer)
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
<S> <C> <C>
27 Financial Data Schedule 13
(for SEC use only)
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERFACE, INC. FOR THE PERIOD ENDING APRIL 2, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> APR-02-1995
<CASH> 4,320
<SECURITIES> 0
<RECEIVABLES> 142,355
<ALLOWANCES> 6,501
<INVENTORY> 135,854
<CURRENT-ASSETS> 298,827
<PP&E> 335,247
<DEPRECIATION> 179,261
<TOTAL-ASSETS> 706,561
<CURRENT-LIABILITIES> 106,465
<BONDS> 325,350
<COMMON> 25,000
0
2,184
<OTHER-SE> 227,188
<TOTAL-LIABILITY-AND-EQUITY> 706,561
<SALES> 191,327
<TOTAL-REVENUES> 191,327
<CGS> 132,972
<TOTAL-COSTS> 177,934
<OTHER-EXPENSES> (7)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,910)
<INCOME-PRETAX> 6,476
<INCOME-TAX> 2,460
<INCOME-CONTINUING> 4,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,016
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
