<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 March 30, 1997
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)
(770) 437-6800
--------------
(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 9, 1997:
Class Number of Shares
----- ----------------
Class A Common Stock, $.10 par value per share 20,844,050
Class B Common Stock, $.10 par value per share 2,719,838
<PAGE> 2
INTERFACE, INC.
INDEX
<TABLE>
PAGE
PART I. FINANCIAL INFORMATION ----
<S> <C> <C>
Item 1. Financial Statements 3
Balance Sheets - March 30, 1997 and December 29, 1996 3
Statements of Income - Three Months 4
Ended March 30, 1997 and March 31, 1996
Statements of Cash Flows - Three Months 5
Ended March 30, 1997 and March 31, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ - $ 8,762
Accounts Receivable 157,562 167,817
Inventories 152,956 146,678
Deferred Tax Asset 7,002 7,057
Prepaid Expenses 25,833 22,986
-------- --------
TOTAL CURRENT ASSETS 343,353 353,300
PROPERTY AND EQUIPMENT, less
accumulated depreciation 210,964 208,791
EXCESS OF COST OVER NET ASSETS ACQUIRED 244,850 249,070
OTHER ASSETS 55,608 51,385
-------- --------
$854,775 $862,546
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
-------------------------------------------
CURRENT LIABILITIES:
Notes Payable $ 12,186 $ 14,918
Accounts Payable 70,643 74,960
Accrued Expenses 69,989 70,919
Current Maturities of Long-Term Debt 2,206 2,919
-------- --------
TOTAL CURRENT LIABILITIES 155,024 163,716
LONG-TERM DEBT, less current maturities 255,892 254,353
SENIOR SUBORDINATED NOTES 125,000 125,000
DEFERRED INCOME TAXES 23,403 23,484
------- --------
TOTAL LIABILITIES 559,319 566,553
------- --------
Minority Interest 3,125 3,125
Redeemable Preferred Stock - 19,750
Common Stock 2,698 2,536
Additional Paid-In Capital 148,014 124,557
Retained Earnings 173,182 166,828
Foreign Currency Translation Adjustment (13,817) (3,057)
Treasury Stock, 3,600
Class A Shares, at Cost (17,746) (17,746)
-------- --------
$854,775 $862,546
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 30, MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
Net Sales $257,345 $205,017
Cost of Sales 174,432 142,104
-------- --------
Gross Profit on Sales 82,913 62,913
Selling, General and Administrative Expenses 62,956 49,342
-------- --------
Operating Income 19,957 13,571
Other (Expense) Income - Net (9,543) (7,591)
-------- --------
Income before Taxes on Income 10,414 5,980
Taxes on Income 4,061 2,272
-------- --------
Net Income 6,353 3,708
Less: Preferred Dividends -- 437
-------- --------
Net Income Applicable to Common Shareholders $ 6,353 $ 3,271
======== ========
Primary Earnings Per Common Share $ 0.28 $ 0.18
======== ========
Weighted Average Common Shares Outstanding 22,584 18,475
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 30, MARCH 31,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,353 $ 3,708
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 10,023 8,247
Deferred income taxes 40 14
Cash provided by (used for):
Accounts receivable 6,698 (10,576)
Inventories (8,633) (6,569)
Prepaid and other (8,578) (3,669)
Accounts payable and accrued expenses (7,786) 6,264
-------- --------
(1,883) (2,581)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (11,878) (10,111)
Acquisitions of businesses - (18,969)
Other (3,257) (4,978)
-------- --------
(15,135) (34,058)
-------- --------
FINANCING ACTIVITIES:
Net borrowing (reduction) of long-term debt 4,455 34,176
Issuance of common stock 3,869 490
Dividends paid - (1,547)
-------- --------
8,324 33,119
-------- --------
Net cash provided by (used for) operating,
investing and financing activities (8,694) (3,520)
Effect of exchange rate changes on cash (68) (2)
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period (8,762) (3,522)
Balance at beginning of period 8,762 8,750
-------- --------
Balance at end of period $ - $ 5,228
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - CONDENSED FOOTNOTES
As contemplated by the Securities and Exchange Commission (the
"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 December 29, 1996, as filed with the
Commission.
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 full
year.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1997 1996
---- ----
<S> <C> <C>
Finished Goods $ 89,877 $ 81,034
Work-in-Process 30,360 30,464
Raw Materials 32,719 35,180
-------- --------
$152,956 $146,678
======== ========
</TABLE>
NOTE 3 - BUSINESS ACQUISITIONS
During fiscal 1996, the Company acquired 100% of the outstanding
capital stock of fifteen floorcovering contractors -- Landry's Commercial
Flooring Co., Inc., based in Oregon, Reiser Associates, Inc., based in Texas,
Earl W. Bentley Operating Co., Inc., based in Oklahoma, Quaker City
International, Inc., based in Pennsylvania, Superior Holding Inc., based in
Texas, Flooring Consultants, Inc., based in Arizona, ParCom, Inc., based in
Virginia, Congress Flooring Corp., based in Massachusetts, Southern Contract
Systems, Inc., based in Georgia, B. Shehadi & Sons, Inc., based in New Jersey,
A & F Installation, Inc., based in New Jersey, Lasher/White Carpet Co., Inc.,
based in New York; Oldtown Carpet Center, Inc., based in North Carolina;
Architectural Floors, a division of Continental Office Furniture Corp., based
in Ohio; and Floor Concepts, Inc., based in Maryland. As consideration, the
Company issued 2,674,906 shares of Class A common stock valued at approximately
$19.3 million, $.8 million in 7% Notes and $23.0 million in cash. All the
acquisitions were accounted for as purchases, accordingly, the results of
operations for the acquired companies are included in the Company's
consolidated financial statements from the date of the acquisitions. The
excess of the purchase price over the fair value of the net liabilities was
approximately $33.9 million and is being amortized over 25 years.
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<PAGE> 7
In February 1996, the Company acquired the outstanding
common stock of Renovisions, Inc., a nationwide installation services firm
(based in Georgia) that has pioneered a new method of carpet replacement, for
approximately $4 million in cash and $1 million in guaranteed payments due
February 1, 1997. The acquisition was accounted for as a purchase and,
accordingly, the results of operations for Renovisions are included in the
Company's consolidated financial statements from the date of acquisition. The
excess of the purchase price over the fair value of net assets was
approximately $4.3 million, and is being amortized over 25 years.
In February 1996, the Company acquired the outstanding common
stock of C-Tec, Inc., a Michigan based producer of raised/access flooring
systems, for approximately $8.8 million (comprised of $4.5 million in cash and
$4.3 million in 6% subordinated convertible notes). The acquisition was
accounted for as a purchase and, accordingly, the results of operations for
C-Tec are included in the Company's consolidated financial statements from the
date of acquisition. The excess of the purchase price over the fair value of
net liabilities was approximately $3.1 million, and is being amortized over 25
years.
NOTE 4 - 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 earnings computation does not give effect to the negligible
dilutive impact of outstanding stock options. The Series A Cumulative
Convertible Preferred Stock issued in June 1993 is not considered to be a
common stock equivalent because at the date of issuance the stated rate of
interest was greater than 66 2/3% of the AAA bond rate. In computing primary
earnings per share, the preferred stock dividend of 7% per annum reduces income
applicable to common shareholders. 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).
NOTE 5 - REDEEMABLE PREFERRED STOCK
In December 1996, the Company notified its Series A preferred
shareholders that it intended to redeem up to $10 million of the approximately
$19.7 million (face value) Series A Preferred Stock then outstanding. As a
result of this notice, the Series A preferred shareholders, with one exception,
instead elected to convert their shares of Series A Preferred Stock into an
aggregate of approximately 1,360,000 shares of the Company's Class A Common
Stock. The shares of Series A Preferred Stock owned by the non-converting
shareholder were redeemed for approximately $6,000.
- 7 -
<PAGE> 8
NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
The Guarantor Subsidiaries, which consist of the Company's
principal domestic subsidiaries, are guarantors of the Company's 9.5% senior
subordinated notes due 2005. The Supplemental Guarantor Financial Statements
are presented herein pursuant to requirements of the Securities and Exchange
Commission.
INTERFACE, INC. AND SUBSIDIARIES
NOTE 6 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 30, 1997
INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ ------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales $204,115 $ 82,267 $ 0 (29,037) $257,345
Cost of sales 147,116 56,353 0 (29,037) 174,432
--------- --------- --------- --------- ---------
Gross profit on sales 56,999 25,914 0 0 82,913
Selling, general and 42,190 16,702 4,064 0 62,956
administrative expenses --------- --------- --------- --------- ---------
Operating income 14,809 9,212 (4,064) 0 19,957
Other expense (income)
Interest Expense 1,662 1,111 5,618 0 8,391
Other 1,556 664 (1,066) 0 1,154
--------- --------- --------- --------- ---------
Total other expense 3,218 1,775 4,552 0 9,545
--------- --------- --------- --------- ---------
Income before taxes on income and
equity in income of subsidiaries 11,591 7,437 (8,616) 0 10,412
Taxes on income 3,774 2,703 (2,418) 0 4,059
Equity in income of subsidiaries 0 0 12,551 (12,551) 0
--------- --------- --------- --------- ---------
Net income before
extraordinary items 7,817 4,734 6,353 (12,551) 6,353
Extraordinary loss (less applicable taxes) 0 0 0 0 0
--------- --------- --------- --------- ---------
Net income 7,817 4,734 6,353 (12,551) 6,353
Preferred stock dividends 0 0 0 0 0
--------- --------- --------- --------- ---------
Net income applicable to common shareholders $ 7,817 $ 4,734 $ 6,353 ($12,551) $ 6,353
========= ========= ========= ========= =========
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
MARCH 30, 1997
CONSOLIDATION
NON- INTERFACE, INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ ------------ ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents 1,517 4,960 (6,477) 0 0
Accounts receivable 112,048 59,363 (13,849) 0 157,562
Inventories 106,610 46,048 298 0 152,956
Miscellaneous 9,727 13,320 9,788 0 32,835
-------- -------- --------- -------- --------
Total current assets 229,902 123,691 (10,240) 0 343,353
Property and equipment,
less accumulated depreciation 147,099 58,112 5,753 0 210,964
Investment in subsidiaries 108,977 17,760 381,670 (508,407) 0
Miscellaneous 152,610 43,115 378,702 (518,819) 55,608
Excess of cost over net
assets acquired 172,209 68,579 4,062 0 244,850
-------- -------- --------- -------- --------
810,797 311,257 759,947 (1,027,226) 854,775
======== ======== ========= ========== ---------
LIABILITIES AND COMMON
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable 10,849 1,337 0 0 12,186
Accounts payable 45,707 22,776 2,160 0 70,643
Accrued expenses 46,177 27,398 (3,586) 0 69,989
Current maturities of
long-term debt 2,206 0 0 0 2,206
-------- -------- -------- -------- --------
Total current liabilities 104,939 51,511 (1,426) 0 155,024
Long-term debt, less
current maturities 240,939 43,457 304,271 (332,775) 255,892
Senior subordinated notes 0 0 125,000 0 125,000
Deferred income taxes 12,901 963 9,539 0 23,403
Minority interests 3,125 0 0 0 3,125
-------- -------- -------- -------- --------
Total liabilities 361,904 95,931 437,384 (332,775) 562,444
Redeemable preferred stock 57,891 0 0 (57,891) 0
Common stock 81,704 102,199 2,698 (183,903) 2,698
Additional paid-in capital 179,073 11,030 148,014 (190,103) 148,014
Retained earnings 135,294 108,412 173,812 (244,336) 173,182
Foreign currency
translation adjustment (5,071) (6,313) (1,961) (472) (13,817)
Treasury stock 0 0 0 (17,746) (17,746)
-------- -------- -------- -------- --------
810,795 311,259 759,947 (1,027,226) 854,775
======== ======== ======== ========== ========
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 30, 1997
INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ ------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities: 15,612 (9,727) (7,768) 0 (1,883)
------ ------ ------- --- --------
Cash flows from investing
activities:
Purchase of plant and equipment (8,270) (2,019) (1,589) 0 (11,878)
Acquisitions, net of cash acquired 0 0 0 0 0
Other 0 0 (3,257) 0 (3,257)
------ ------ ------- --- --------
Net cash provided by (used
in) investing activities (8,270) (2,019) (4,846) 0 (15,135)
------ ------ ------- -------
Cash flows from financing
activities:
Net borrowings (repayments) (9,306) 11,983 1,778 0 4,455
Proceeds from issuance of
common stock 0 0 3,869 0 3,869
Cash dividends paid 0 0 0 0 0
Other 0 0 0 0 0
------ ------ ------- --- --------
Net cash provided by (used in)
financing activities (9,306) 11,983 5,647 0 8,324
------ ------ ------- --- --------
Effect of exchange rate
change on cash 0 (68) 0 0 (68)
------ ------ ------- --- --------
Net increase (decrease) in cash (1,964) 169 (6,967) 0 (8,762)
Cash at beginning of year 3,481 4,791 490 0 8,762
------ ------ ------- --- --------
Cash at end of year 1,517 4,960 (6,477) 0 0
====== ====== ======= === ========
</TABLE>
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS. For the three month period ended March 30,
1997, the Company's net sales increased $52.3 million (26.0%), compared with
the same period in 1996. The increase was primarily attributable to (i)
increased sales volume in the Company's floorcovering operations in the United
States (associated in part with the acquisitions of the commercial floorcovering
dealers in the Company's Re:Source Americas network) and China, (ii) increased
sales volume in the Company's interior fabrics operations in Continental Europe
and Australia and (iii) increased sales volume in the Company's specialty
products division associated with the acquisition of C-Tec, Inc. in February
1996. These increases were offset somewhat by a weakening of certain key
currencies (particularly the British pound sterling, Dutch guilder and Japanese
yen) against the U.S. dollar, the Company's reporting currency.
Cost of sales, as a percentage of sales, decreased slightly to 67.8%,
for the three month period ended March 30, 1997, when compared to 69.3% for the
same period in 1996. The Company recognized a decrease in manufacturing costs
in its floorcovering operations as a result of further benefits obtained from
the Company's mass customization production strategy and its "war-on-waste"
initiative, which have continued to provide manufacturing efficiencies as well
as a shift to higher margin products. In addition, the Company achieved
improved pricing in its floorcovering operations. These benefits were somewhat
offset by the acquisitions of C-Tec and the commercial floorcovering dealers
comprising the Company's distribution network, which historically had higher
cost of sales ratios than the Company.
Selling, general and administrative expenses as a percentage of net
sales increased slightly to 24.5% for the three month period ended March 30,
1997, compared to 24.1% for the same period in 1996. The increase for the
three month period was attributable to (i) administrative expenses associated
with continued building of an infrastructure to manage the Re:Source Americas
network, (ii) increased marketing and sampling expenses in the Company's
floorcovering operations associated with the introduction of new products as
the Company moved to implement the mass customization strategy in its European
and Asia-Pacific operations, and continued to impelement such strategy in its
U.S. operations. The increase was somewhat offset by the acquisitions of the
commercial floorcovering dealers comprising the Company's distribution network,
which historically had lower SG&A ratios than the Company.
For the three month period ended March 30, 1997, the Company's other
expense increased $1.9 million compared to the same period in 1996, primarily
due to an increase in bank debt incurred as a result of the Company's
acquisitions.
As a result of the aforementioned factors, the Company's net income
increased 94.0% to $6.4 million for the three month period ended March 30,
1997, compared to the same period in 1996. This increase is also partly due to
the Company no longer having to pay preferred dividends as a result of the
elimination of its Series A Preferred Stock in December 1996.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES. The primary uses of cash during the
three month period ended March 30, 1997 have been (i) $ 11.9 million for
additions to property and equipment in the Company's manufacturing facilities,
and (ii) $3.3 million related to various deposits and other long-term assets.
These uses were funded primarily by $4.5 million from long-term financing and
$3.9 million from the issuance of common stock.
Cash provided by operating activities increased to ($1.9) million
during the three month period ended March 30, 1997 from ($2.6) million during
the corresponding period in the prior year. This increase was caused primarily
by a decrease in accounts receivable resulting from the sale of additional
domestic receivables under the Company's securitization program. This decrease
was somewhat offset by an increase in inventories and prepaid expenses which
are traditionally paid during the first quarter.
The Company, as of March 30, 1997, recognized a $ 10.8 million decrease
in foreign currency translation adjustment compared to that of December 29,
1996. The decrease was associated primarily with the Company's investments in
subsidiaries located in the United Kingdom and Continental Europe. The
translation adjustment to shareholders' equity was converted by the guidelines
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 52.
The Company employs a variety of off-balance sheet financial
instruments, including foreign currency swap agreements and foreign currency
exchange contracts, to reduce its exposure to adverse fluctuations in interest
and foreign currency exchange rates. At March 30, 1997, the Company had
approximately $40 million (notional amount) of foreign currency hedge contracts
outstanding, consisting principally of currency swap contracts to hedge firmly
committed Dutch guilder and Japanese yen currency revenues. At March 30, 1997,
the Company utilized interest rate swap agreements to effectively convert
approximately $73 million of variable rate debt to fixed rate debt. The
interest rate swap agreements have maturity dates ranging from nine to
twenty-four 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 currently anticipate
nonperformance by the counterparties.
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.
-12-
<PAGE> 13
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 SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
Many of the matters discussed in this Quarterly Report on Form 10-Q and
in the Company's other reports and filings with the Commission are forward
looking statements. These statements involve a number of risks and
uncertainties that could cause actual results to differ materially from any
such statement. In addition to various other matters discussed elsewhere in
this report and in the Company's other reports and filings with the Commission,
the following is a nonexclusive list of factors that could cause actual results
to differ materially:
Substantial Indebtedness
The Company's indebtedness is substantial in relation to its
shareholders' equity. As of March 30, 1997, the Company's total long-term debt,
(net of current portion), and its 9.5% senior subordinated notes due 2005,
totaled $380.9 million or approximately 45% of its total capitalization. The
Company's indebtedness could have several important consequences, including but
not limited to the following: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service requirements on its
indebtedness and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, or to refinance indebtedness or for general
corporate purposes may be impaired; (iii) the Company's leverage may increase
the effects of economic downturns on it and limit its ability to withstand
competitive pressures; and (iv) the Company's ability to capitalize on
significant business opportunities may be limited.
-13-
<PAGE> 14
Restrictions Imposed by Terms of Indebtedness
The terms of the Company's outstanding indebtedness restrict the
ability of the Company and its subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make certain other restricted
payments or investments, consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, or merge or consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of their assets. They also require the Company to
meet certain financial tests and comply with certain other reporting,
affirmative and negative covenants. In an event of default under such
indebtedness, the lenders thereunder could elect to declare all amounts
borrowed, together with accrued interest, to be immediately due and payable and
the lenders under the Company's credit agreement could terminate all
commitments thereunder. If any such indebtedness were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full such indebtedness and the other indebtedness of the Company.
Holding Company Structure
The Company derives all of its operating income and cash flow from its
subsidiaries. The Company must rely upon cash distributions from its
subsidiaries to generate the funds necessary to meet its obligations. Although
there currently are no material restrictions on the Company's ability to
control its receipt of dividends or other payments from its subsidiaries, there
can be no assurance that the Company will not in the future be subject to legal
and/or contractual restrictions which restrict its ability to do so, including
but not limited to those factors discussed in "Risks of Foreign Operations"
below. In addition, the participation by the Company and certain of its
subsidiaries in an accounts receivable securitization program affects the
Company's receipt of certain collections on accounts receivable that are
covered by that program.
-14-
<PAGE> 15
Cyclical Nature of Industry
Sales of the Company's principal products are related to the
construction and renovation of commercial and institutional buildings. Such
activity is cyclical and can be affected by the strength of a country's general
economy, prevailing interest rates and other factors that lead to cost control
measures by businesses and other users of commercial or institutional space.
The effects of such cyclicality upon the new construction sector of the market
tends to be more pronounced than its effects upon the renovation sector.
Although the predominant portion of the Company's sales are generated from the
renovation sector, any such adverse cycle, in either sector of the market,
would lessen the overall demand for commercial interiors products, which could
impair the Company's growth.
Reliance on Key Personnel
The Company believes that its continued success will depend to a
significant extent upon the efforts and abilities of its senior management
executives, particularly Ray C. Anderson, Chairman of the Board and Chief
Executive Officer; Charles R. Eitel, President and Chief Operating Officer; and
Brian L. DeMoura, Senior Vice President of the Company. Each of Messrs.
Anderson, Eitel and DeMoura recently signed employment agreements with the
Company containing certain covenants of non-competition. In addition, the
Company relies significantly on the leadership of its design staff by David
Oakey of the design firm Roman Oakey, Inc., which provides product
design/production engineering services to the Company under a consulting
contract. The loss of all or some of such personnel could have an adverse
impact on the Company.
-15-
<PAGE> 16
Risks of Foreign Operations
The Company has substantial international operations. In fiscal 1996,
approximately 35% of the Company's revenues and a significant portion of the
Company's production were outside the United States, primarily in Europe, and
the Company's corporate strategy includes the expansion of its international
business on a worldwide basis. As a result, the Company's operations are
subject to various political, economic and other uncertainties, including risks
of restrictive taxation policies, foreign exchange restrictions, changing
political conditions and governmental regulations. The Company also receives a
substantial portion of its revenues in currencies other than U.S. Dollars,
which makes it subject to the risks inherent in currency translations.
Although the Company's ability to manufacture and ship products from facilities
in several foreign countries reduces the risks of foreign currency fluctuations
it might otherwise experience, and the Company also engages from time to time
in hedging programs intended to further reduce those risks, the scope and
volume of the Company's global operations make it impossible to eliminate
completely all foreign currency translation risks as a factor for the Company's
financial results.
Reliance on Petroleum-Based Raw Materials
Petroleum-based products comprise the predominant portion of the cost
of raw materials used by the Company in manufacturing. While the Company
generally attempts to match cost increases with corresponding price increases,
large increases in the cost of such petroleum-based raw materials could
adversely affect the Company if the Company were unable to pass through to its
customers such increases in raw material costs.
Reliance on Third Party for Supply of Fiber
E. I. DuPont de Nemours and Company ("DuPont") currently supplies a
significant percentage of the Company's requirements for synthetic fiber, the
principal raw material used in the Company's carpet products. DuPont also
competes with the Company's Re:Source Americas network through DuPont's own
distribution channel and aligned carpet mills. While the Company believes that
there are adequate alternative sources of supply from which it could fulfill
its synthetic fiber requirements, the unanticipated termination or interruption
of the supply arrangement with DuPont could have a material adverse effect on
the Company because of the cost and delay associated with shifting more
business to another supplier.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
<TABLE>
<S> <C>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Articles of Incorporation (composite as of September 8, 1988) (included as Exhibit 3.1 to the
Company's annual report on Form 10-K for the year ended January 3, 1993 previously filed with the
Commission and incorporated herein by reference) and Articles of Amendment (Series A Preferred
Stock Designation), dated June 17, 1993 (included as Exhibit 4.1 to the Company's current report on
Form 8-K, filed with the Commission on July 7, 1993 and incorporated herein by reference).
3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's quarterly report on Form 10-Q for the
quarter ended April 1, 1990, previously filed with the Commission and incorporated herein by
reference).
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Articles of Incorporation, as amended, and
Bylaws defining the rights of holders of Common Stock of the Company.
4.2 Indenture governing the Company's 9.5% Senior Subordinated Notes due 2005, dated as of November 15,
1995, among the Company, certain U.S. subsidiaries of the Company, as Guarantors, and First Union
National Bank of
</TABLE>
-16-
<PAGE> 17
<TABLE>
<S> <C>
Georgia, as Trustee (included as Exhibit 4.1 to the Company's registration statement on Form S-4,
File No. 33-65201, previously filed with the Commission and incorporated herein by reference).
4.3 Registration Rights Agreement dated as of November 21, 1995, among the Company, certain
subsidiaries of the Company as Guarantors and the Initial Purchasers of the Company's Notes
(included as Exhibit 4.3 to the Company's registration statement on Form S-4, File No. 33-65201,
previously filed with the Commission and incorporated herein by reference).
4.4 Form of Exchange Note (included as part of Exhibit 4.2).
10.1 Form of Salary Continuation Agreement
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended March 30, 1997.
- 17 -
<PAGE> 18
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 13, 1997 By:/s/ Daniel T. Hendrix
---------------------
Daniel T. Hendrix
Senior Vice President
(Principal Financial Officer)
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<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT SEQUENTIAL
NUMBER PAGE NO.
<S> <C>
10.1 Form of Salary Continuation Agreement
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
-19-
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of April, 1997, by and between INTERFACE, INC., a corporation
organized under the laws of the State of Georgia, U.S.A. (the "Company"), and
RAY C. ANDERSON, a resident of Atlanta, Georgia ("Executive").
WITNESSETH:
WHEREAS, the parties hereto entered into an employment agreement,
effective as of August 1, 1995, setting forth the terms of Executive's
employment with the Company (the "Prior Agreement");
WHEREAS, the parties desire to continue the employment arrangement and
to modify the Prior Agreement in certain respects; and
WHEREAS, the terms of this Agreement, which continues, amends and
restates the Prior Agreement in its entirety, reflect the modified terms of
employment which the parties desire to have govern their employment relationship
commencing on the date hereof.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Subject to the terms and conditions of this
Agreement, Executive shall be employed by the Company as its Chairman and Chief
Executive Officer, and shall perform such duties and functions for the Company
and its subsidiaries and affiliates as shall be specified from time to time by
the Board of Directors of the Company; Executive hereby accepts such employment
and agrees to perform such executive duties as may be assigned to Executive.
Executive may be relocated, Executive's titles and duties may be changed, and
Executive may be promoted to a higher position within the Company, but Executive
will not be demoted or given lesser titles.
2. Duties. Executive shall devote his full business related time
and best efforts to accomplishing such executive duties at such locations as may
be requested by the Board of Directors of the Company.
3. Avoidance of Conflict of Interest. While employed by the
Company, Executive shall not engage in any other business enterprise without the
prior written consent of the Company. Without limiting the foregoing, Executive
shall not serve as a principal, partner, employee, officer or director of, or
consultant to, any other business or entity conducting business for profit
(other than as a director of NationsBank Corporation and Royal Ten Cate (USA),
Inc.) without the prior written approval of the Company. In addition, under no
circumstances will Executive have any financial interest in any competitor of
the Company; provided, however, Executive may invest in no more
<PAGE> 2
than one percent of the outstanding stock or securities of any competitor, the
stock or securities of which are traded on a national stock exchange of any
country.
4. Term. The duration of this Agreement (the "term") shall be for
a rolling, two-year term commencing on the date hereof, and shall be deemed
automatically (without further action by either the Company or Executive) to
extend each day for an additional day such that the remaining term of the
Agreement shall continue to be two years; provided, however, that on Executive's
63rd birthday, this Agreement shall cease to extend automatically and, on such
date, the remaining term of this Agreement shall be two years; and, provided
further, the Company may, by notice to Executive, cause this Agreement to cease
to extend automatically and, upon such notice, the term of this Agreement shall
be two years following such notice.
5. Termination. Executive's employment with the Company may be
terminated as follows:
(a) Voluntary Termination. Executive may voluntarily terminate his
employment hereunder at any time, effective 90 days after delivery to the
Company of Executive's signed, written resignation; the Company may accept said
resignation and pay Executive in lieu of waiting for passage of the notice
period.
(b) Termination by Company. Subject to the terms of Sections 5(c)
and (d) below, the Company may terminate Executive's employment hereunder, in
its sole discretion, whether with or without "just cause", at any time upon
written notice to Executive.
(c) Termination Without Just Cause. If, prior to the end of the
term of this Agreement, the Company terminates Executive's employment without
"just cause" (as defined in subsection (d) below), Executive shall be entitled
to receive, as damages payable as a result of, and arising from, the Company's
breach of this Agreement, the compensation and benefits set forth in clauses (i)
through (vi) below. The time periods for which compensation and benefits will be
provided with respect to (i) through (iv) below is referred to herein as the
"Continuation Period", which means the time period remaining from the date of
Executive's termination of employment to the end of the remaining term of this
Agreement as provided in Section 4 above. Except to the extent provided in
clause (x) hereof, Executive shall have no duty to mitigate any of the damages
payable hereunder. The fact that Executive is eligible for retirement, including
early retirement, under applicable retirement plans or his Salary Continuation
Agreement (see clause (vi) below) at the time of Executive's termination shall
not make Executive ineligible to receive benefits under this Section 5(c).
(i) Salary. Executive will continue to receive his
current salary (subject to withholding of all applicable taxes) for the
Continuation Period in the same manner as it was being paid as of the date of
termination. For purposes hereof, Executive's "current salary" shall be the
highest rate in effect during the six-month period prior to Executive's
termination.
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<PAGE> 3
(ii) Bonuses and Incentives. Executive shall receive bonus
payments from the Company for the Continuation Period in an amount for each
calendar month during such period equal to one-twelfth of the average of the
bonuses paid to Executive for the two calendar years immediately preceding the
year in which such termination occurs ("Average Bonus"). Executive shall also
receive a prorated bonus for the year in which such termination occurs equal to
the Average Bonus multiplied by the number of days Executive worked in such year
divided by 365 days. Said prorated bonus shall be paid within 30 days of the
date of termination. Any bonus amounts that Executive had previously earned from
the Company but which may not yet have been paid as of the date of termination
shall not be affected by this provision; provided, however, if the amount of the
bonus for such prior year has not yet been determined, the bonus shall be an
amount not less than the Average Bonus.
(iii) Health and Life Insurance Coverages. The health and
life insurance benefit coverages (including any executive medical and/or life
insurance plans) provided to Executive at Executive's date of termination shall
be continued for the Continuation Period by the Company at its expense at the
same level and in the same manner as if Executive's employment had not
terminated (subject to the customary changes in such coverages upon Executive's
retirement, reaching age 65 or similar events). Any additional coverages
Executive had at termination, including dependent coverage, will also be
continued for the Continuation Period on the same terms, to the extent permitted
by the applicable policies or contracts. Any costs Executive was paying for such
coverages at the time of termination shall be paid by Executive by separate
check payable to the Company each month in advance (or in such other manner as
the Company may agree). If the terms of any benefit plan referred to in this
subsection do not permit continued participation by Executive, then the Company
will arrange for other coverage at its expense providing substantially similar
benefits. The coverages provided for in this subsection shall be applied against
and reduce the period for which COBRA benefits will be provided. If Executive is
covered by a split-dollar or similar life insurance program as of the date of
termination, Executive shall have the option in Executive's sole discretion to
have such policy transferred to Executive upon termination, provided that,
except as may otherwise be provided in a separate agreement, the Company is paid
for its interest (i.e., the cash surrender value) in the policy upon such
transfer.
(iv) Employee Retirement Plans. If applicable law and the
provisions of the applicable plan permit continued participation, Executive will
be entitled to continue to participate, consistent with past practices, in the
tax qualified employee retirement plans maintained by the Company in effect as
of Executive's date of termination, including, to the extent such plans are
still maintained by the Company, the Interface Flooring Systems, Inc. Retirement
Plan and Trust, and the Interface, Inc. Savings and Investment Plan (the
"Savings Plan"). Executive's participation in such retirement plans shall
continue for the Continuation Period (at the end of which Executive will be
considered to have terminated employment within the meaning of the plans), and
the compensation payable to Executive under subsections (c)(i) and (ii) above
shall be treated (unless otherwise excluded under the terms of such retirement
plans) as compensation when computing benefits under the plans. For purposes of
the Savings Plan, Executive will be credited with an amount equal to the
Company's contribution to the plan, assuming Executive had participated in such
plan at the maximum permissible contribution level. To the extent permissible
under applicable law,
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<PAGE> 4
Executive shall also be considered fully vested under such plans. If continued
participation in any plan is not permitted or if Executive's benefits are not
fully vested, the Company shall pay to Executive and, if applicable, Executive's
beneficiary, a supplemental benefit equal to the present value on the date of
termination of employment (calculated as provided in each plan) of the excess of
(A) the benefit Executive would have been paid under such plan if Executive had
continued to be covered for the Continuation Period (less any amounts Executive
would have been required to contribute) and been treated as fully vested, over
(B) the benefit actually payable under such plan. The Company shall pay such
additional benefits (if any) in a lump sum within 30 days of the date of
termination.
(v) Stock Awards. As of Executive's date of termination,
all outstanding stock options granted to Executive under the Interface, Inc.
Omnibus Stock Incentive Plan, the Interface, Inc. Key Employee Stock Option Plan
(1993), the Interface, Inc. Offshore Stock Option Plan and the Interface
Flooring Systems, Inc. Key Employee Stock Option Plan shall become 100% vested
and thus immediately exercisable. To the extent inconsistent with this immediate
vesting requirement, the provisions of this clause (v) shall constitute an
amendment of Executive's stock option agreements under such stock plans. In
addition, but only to the extent expressly provided in any restricted stock
agreement associated with the Interface, Inc. Omnibus Stock Incentive Plan,
restrictions on all shares of restricted stock (and other performance shares,
performance units or deferred shares) awarded to Executive (if any) under said
plan shall lapse, and the affected shares shall become 100% vested.
(vi) Salary Continuation Agreement. From and after
Executive's date of termination, Executive shall continue to be covered by, and
entitled to the benefits provided under, Executive's Salary Continuation
Agreement with the Company, payable in accordance with the terms of said
agreement. If Executive is entitled to benefits under this Section 5(c), he will
be treated as having his employment terminated by the Company without "Cause" as
described in the Salary Continuation Agreement.
(vii) Cessation Upon Death. The continuation benefits
payable or to be provided under clauses (i), (ii), (iii) and (iv) of this
Section 5(c) shall cease in the event of Executive's death. (The foregoing shall
not operate or be construed to negate the benefits payable to Executive and
Executive's estate under the plans and policies referenced in clauses (iii) and
(iv) in the event of Executive's death during the Continuation Period.)
(viii) Additional Consideration. To be entitled to receive
the foregoing compensation, Executive shall sign whatever additional release of
claims, confidentiality agreements and other documents the Company may
reasonably request of Executive at the time of payment, and for so long as
Executive is entitled to the benefits of such compensation Executive shall
cooperate fully with and devote Executive's reasonable best efforts to providing
assistance requested by the Company. Such assistance shall not require Executive
to be active in the Company's day-to-day activities or engage in any substantial
travel, and Executive shall be reimbursed for all reasonable and necessary
out-of-pocket business expenses incurred in providing such assistance.
4
<PAGE> 5
(ix) Effect of Other Termination Events. If Executive
voluntarily resigns from employment or is terminated for just cause prior to the
end of the term of this Agreement, then Executive shall be entitled to no
payment or compensation whatsoever from the Company under this Agreement, other
than as may be due Executive through Executive's last day of employment. If
Executive's employment is terminated due to Executive's disability or death (as
defined in the Company's long-term disability plan or insurance policy),
Executive shall be entitled to no payment or compensation other than as provided
by the Company's short and long-term disability plans or, in the case of death,
its life insurance payment policy in effect for executives of Executive's level
or pursuant to the terms of any separate agreement concerning split-dollar or
similar life insurance; provided, however, Executive or Executive's estate, as
the case may be, shall not by operation of this provision forfeit any rights in
which Executive is vested at the time of Executive's disability or death
(including, without limitation, the rights and benefits provided under
applicable retirement plans and Executive's Salary Continuation Agreement with
the Company).
(x) Change in Control. If Executive becomes entitled to
compensation and benefits under this Section 5(c) and such payments would be
considered to be severance payments contingent upon a change in control under
Internal Revenue Code Section 280G, Executive shall be required to offer to
perform the duties and job Executive was performing under this Agreement at the
time of the change in control and, if such offer is rejected, to mitigate
damages (but only with respect to amounts that would be treated as severance
payments under Code Section 280G) by reducing the amount of such severance
payments Executive is entitled to receive by any compensation and benefits
Executive earns from subsequent employment (but Executive shall not be required
to seek such employment) during the Continuation Period. If the compensation and
benefits payable to Executive under this Section 5(c) are reduced by mitigation,
Executive shall continue to be entitled to receive in the aggregate under this
Agreement and the Change in Control Agreement between Executive and Company of
even date herewith, an amount of compensation and benefits at least equal to
2.99 times Executive's "Base Amount" as defined in Internal Revenue Code Section
280G. In the event Executive's employment is terminated without "just cause"
within 24 months following the date of a "Change in Control" (as defined in the
Change in Control Agreement) or within six months prior to the date of a Change
in Control and is related to such Change in Control, the amounts payable to
Executive under clauses (i) and (ii) above shall be paid in single lump sum
payments determined in the same manner as provided in Sections 4(c)(i) and (ii)
of the Change in Control Agreement.
(d) Just Cause. The Company, for just cause, may immediately
terminate Executive's employment hereunder at any time upon delivery of written
notice to Executive. For purposes of this Agreement, the phrase "just cause"
shall mean: (i) Executive's fraud, dishonesty, gross negligence, or willful
misconduct with respect to business affairs of the Company (including its
subsidiaries and affiliated companies), (ii) Executive's refusal or repeated
failure to follow the established lawful policies of the Company applicable to
persons occupying the same or similar positions, (iii) Executive's material
breach of this Agreement, or (iv) Executive's conviction of a felony or other
crime involving moral turpitude. A termination of Executive for just cause based
on clause (i), (ii) or (iii) of the preceding sentence shall take effect 30 days
after Executive receives from the Company written notice of intent to terminate
and the Company's description of the alleged
5
<PAGE> 6
cause, unless Executive shall, during such 30-day period, remedy the events or
circumstances constituting just cause; provided, however, such termination shall
take effect immediately upon the giving of written notice of termination for
just cause under any of such clauses if the Company shall have determined in
good faith that such events or circumstances are not remediable (which
determination shall be stated in such notice).
(e) Survival of Provisions. Upon termination of Executive's
employment for any reason whatsoever (whether voluntary on the part of
Executive, for just cause, or other reasons), the obligations of Executive
pursuant to Section 7 hereof shall survive and remain in effect.
6. Compensation and Benefits. During the term of Executive's
employment with the Company hereunder:
(a) Continuity. Executive's salary, current perquisites
(including, but not limited to, car allowance) and bonus opportunity (currently
expressed as a percentage of Executive's base salary) may be increased from time
to time as determined by the Board of Directors (or Committee of the Board), but
shall not be reduced or eliminated.
(b) Other Benefits. Executive shall be entitled to vacation with
pay, life insurance, health insurance and such other employee benefits as
Executive may be entitled to receive in accordance with the established plans
and policies of the Company, as in effect from time to time.
(c) Tax Equalization. In the event of Executive's relocation, the
Company and Executive will cooperate in good faith to agree on such adjustments
to Executive's compensation and benefits package as are appropriate to provide
consistent after-tax income to Executive equivalent to that of a person
receiving Executive's pay and benefits taxable under the terms of the U.S.
Internal Revenue Code, while also acting in the best interests of the Company.
7. Restrictive Covenants.
(a) Definitions. As used in this Section 7, the following terms
shall have the meanings ascribed to such terms as set forth below.
(i) "Company" - Interface, Inc. and its direct and
indirect subsidiaries and affiliated entities throughout the world.
(ii) "Confidential Information" - information relating to
Company's customers, operations, finances, and business in any form that derives
value from not being generally known to other persons or entities, including,
but not limited to, technical or nontechnical data, formulas, patterns
(including future carpet and fabric patterns), customer purchasing practices and
preferences, compilations (including compilations of customer information),
programs (including computer programs and models), devices (including carpet and
fabric manufacturing equipment), methods (including aesthetic and functional
design and manufacturing methods), techniques (including style and design
technology and plans), drawings (including product or equipment drawings),
processes,
6
<PAGE> 7
financial data (including sales forecasts, sales histories, business plans,
budgets and other forecasts), or lists of actual or potential customers or
suppliers (including identifying information about those customers), whether or
not reduced to writing. Confidential Information subject to this Agreement may
include information that is not a trade secret under applicable law, but such
information not constituting a trade secret shall be treated as Confidential
Information under this Agreement for only a two year period after the expiration
of this Agreement or termination of Executive's employment.
(iii) "Customers" - customers of Company that Executive,
during the two year period before the expiration of this Agreement or
termination of Executive's employment, (A) solicited or serviced or (B) about
whom Executive had Confidential Information. The parties acknowledge that a
two-year period for defining Customers (as well as "Suppliers", below) is
reasonable based on Company's typical sales cycle, budgetary requirements and
procurement procedures.
(iv) "Products" - (A) broadloom carpet, carpet tile, and
broadloom carpet in six-foot and competitive widths, (B) specialty interior
fabrics (wall, panel, window and upholstery), and (C) specialty chemicals and
interior architectural products (including raised/access floors) for contract,
commercial and institutional markets and customers (i.e., all markets other than
residential).
(v) "Services" - the services Executive shall provide as
a Company executive and that Executive shall be prohibited from providing in
competition with Company in accordance with the terms of this Agreement, which
are to manage and supervise, and to have responsibility for, the conduct of the
business of designing, developing, manufacturing, purchasing for resale,
marketing, selling, distributing, installing, maintaining and reclaiming, for
contract, commercial and institutional markets and customers (i.e., all markets
other than residential), (A) broadloom carpet, carpet tile, and broadloom carpet
in six-foot and competitive widths, (B) specialty interior fabrics (wall, panel,
window and upholstery), and (C) specialty chemicals and interior architectural
products (including raised/access floors); without limiting the foregoing,
Executive shall be responsible for: (1) development of overall business
strategy, (2) planning for expansion of the business, including expansion
through mergers, acquisitions, joint ventures and other combinations and
affiliations, (3) providing supervision and oversight of the principal
executives in charge of various components of the business, (4) developing and
leading efforts to enhance and improve the environmental sustainability of the
foregoing products and of the manufacturing operations and processes utilized
with respect to such products, and (5) serving as the representative and
spokesman for the business with its various constituencies, including employees,
customers, suppliers, shareholders and the investment community. Executive
acknowledges that he has been informed of and had an opportunity to discuss with
Company the specific activities Executive will perform as Services, and that
Executive understands the scope of the activities constituting Services.
(vi) "Supplier" - a supplier of Company that Executive,
during the two year period before the expiration of this Agreement or
termination of Executive's employment, (A) had contact with on behalf of Company
or (B) about whom Executive had Confidential Information.
(vii) "Territory" - North America, which is the geographic
area where Executive performs Services for Company and in which Company
continues to conduct business. Executive
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<PAGE> 8
has been informed of and had an opportunity to discuss with Company the specific
territory in which Executive will perform Services. Executive acknowledges that
the market for Company Products is worldwide, and that the Territory is the area
in which Executive's provision of Services in violation of this Agreement would
cause harm to Company.
(b) Non-disclosure and Restricted Use. Executive shall use best
efforts to protect Confidential Information. Furthermore, Executive will not
use, except in connection with work for Company, and will not disclose during or
after Executive's employment, Company's Confidential Information.
(c) Return of Materials. Upon the expiration of this Agreement or
termination for any reason of Executive's employment, or at any time upon
Company's request, Executive will deliver promptly to Company all materials,
documents, plans, records, notes or other papers and any copies in Executive's
possession or control relating in any way to Company's business, which at all
times shall be the property of Company.
(d) Non-solicitation of Customers. During employment and for two
years after the termination for any reason of Executive's employment, Executive
will not solicit Customers for the purpose of providing or selling any Products.
(e) Non-solicitation of Suppliers. During employment and for two
years after the termination for any reason of Executive's employment, Executive
will not solicit any Supplier for the purpose of obtaining goods or services
that Company obtained from that Supplier and that are used in or relate to any
Products.
(f) Non-solicitation of Company Employees. During employment and
for two years after the termination for any reason of Executive's employment,
Executive will not solicit for employment with another person or entity, anyone
who is, or was at any time during the year prior to such termination of
Executive's employment, a Company employee.
(g) Limitations on Post-Termination Competition. During employment
and for two years after the termination for any reason of Executive's
employment, Executive will not provide any Services within the Territory to any
person or entity developing, manufacturing, marketing, selling, distributing or
installing any Products.
(h) Disparagement. Executive shall not at any time make false or
misleading statements about Company, including its products, management,
employees, customers and suppliers.
(i) Future Employment Opportunities. At any time before, and for
two years after, the termination for any reason of Executive's employment,
Executive shall, before accepting employment with another employer, provide such
prospective employer with a copy of this Agreement and, upon accepting any
employment with another employer, provide Company with such employer's name and
a description of the services Executive will provide to such employer.
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<PAGE> 9
(j) Work For Hire Acknowledgment; Assignment. Executive
acknowledges that Executive's work on and contributions to documents, programs,
and other expressions in any tangible medium (collectively, "Works") are within
the scope of Executive's employment and part of Executive's duties and
responsibilities. Executive's work on and contributions to the Works will be
rendered and made by Executive for, at the instigation of, and under the overall
direction of, Company, and are and at all times shall be regarded, together with
the Works, as "work made for hire" as that term is used in the United States
Copyright Laws. Without limiting this acknowledgment, Executive assigns, grants,
and delivers exclusively to Company all rights, titles, and interests in and to
any such Works, and all copies and versions, including all copyrights and
renewals. Executive will execute and deliver to Company, its successors and
assigns, any assignments and documents Company requests for the purpose of
establishing, evidencing, and enforcing or defending its complete, exclusive,
perpetual and worldwide ownership of all rights, titles and interests of every
kind and nature, including all copyrights, in and to the Works, and Executive
constitutes and appoints Company as Executive's agent to execute and deliver any
assignments or documents Executive fails or refuses promptly to execute and
deliver, this power and agency being coupled with an interest and being
irrevocable.
(k) Inventions, Ideas and Patents. Executive shall disclose
promptly to Company (which shall receive it in confidence), and only to Company,
any invention or idea of Executive (developed alone or with others) conceived or
made during Executive's employment by Company or within six months of the date
of expiration of this Agreement or termination of employment. Executive assigns
to Company any such invention or idea in any way connected with Executive's
employment with Company or related to Company's business, research or
development, or demonstrably anticipated research or development, and will
cooperate with Company and sign all documents deemed necessary by Company to
enable it to obtain, maintain, protect and defend patents covering such
inventions and ideas and to confirm Company's exclusive ownership of all rights
in such inventions, ideas and patents. Executive irrevocably appoints Company as
Executive's agent to execute and deliver any assignments or documents Executive
fails or refuses to execute and deliver promptly, this power and agency being
coupled with an interest and being irrevocable. This constitutes Company's
written notification that this assignment does not apply to an invention for
which no equipment, supplies, facility or trade secret information of Company
was used and which was developed entirely on Executive's own time, unless (i)
the invention relates (A) directly to the business of Company, or (B) to
Company's actual or demonstrably anticipated research or development, or (ii)
the invention results from any work performed by Executive for Company.
8. Injunctive Relief. Executive acknowledges that any breach of
the terms of Section 7 hereof would result in material damage to the Company,
although it might be difficult to establish the monetary value of the damage.
Executive therefore agrees that the Company, in addition to any other rights and
remedies available to it, shall be entitled to obtain an immediate injunction
(whether temporary or permanent) from any court of appropriate jurisdiction in
the event of any such breach thereof by Executive, or threatened breach which
the Company in good faith believes will or is likely to result in irreparable
harm to the Company.
9. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Georgia and
the federal laws of the United States of
9
<PAGE> 10
America, without regard to rules relating to the conflict of laws. Executive
hereby consents to the exclusive jurisdiction of the Superior Court of Cobb
County, Georgia and the U.S. District Court in Atlanta, Georgia and hereby
waives any objection Executive might otherwise have to jurisdiction and venue in
such courts in the event either court is requested to resolve a dispute between
the parties.
10. Notices. All notices, consents and other communications
required or authorized to be given by either party to the other under this
Agreement shall be in writing and shall be deemed to have been given or
submitted (i) upon actual receipt if delivered in person or by facsimile
transmission, (ii) upon the earlier of actual receipt or the expiration of two
business days after sending by express courier (such as UPS or Federal Express),
and (iii) upon the earlier of actual receipt or the expiration of seven days
after mailing if sent by registered or certified express mail, postage prepaid,
to the parties at the following addresses:
To the Company: Interface, Inc.
2859 Paces Ferry Road, Suite 2000
Atlanta, Georgia 30339
Fax No.: 770-437-6822
Attn: Board of Directors
With a copy to: Interface, Inc.
2859 Paces Ferry Road, Suite 2000
Atlanta, Georgia 30339
Fax No.: 770-319-6270
Attn: General Counsel
To Executive: Ray C. Anderson
at the last address and fax number
shown on the records of the Company
Executive shall be responsible for providing the Company with a current address.
Either party may change its address (and facsimile number) for purposes of
notices under this Agreement by providing notice to the other party in the
manner set forth above.
11. Failure to Enforce. The failure of either party hereto at any
time, or for any period of time, to enforce any of the provisions of this
Agreement shall not be construed as a waiver of such provision(s) or of the
right of such party thereafter to enforce each and every such provision.
12. Binding Effect. This Agreement shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns, and Executive
and his heirs and personal representatives. Any business entity or person
succeeding to all or substantially all of the business of the Company by stock
purchase, merger, consolidation, purchase of assets, or otherwise shall be bound
by and shall adopt and assume this Agreement, and the Company shall obtain the
assumption of this Agreement by such successor.
10
<PAGE> 11
13. Entire Agreement. This Agreement supersedes all prior
discussions and agreements between the parties and constitutes the sole and
entire agreement between the Company and Executive with respect to the subject
matter hereof. This Agreement shall not be modified or amended except pursuant
to a written document signed by the parties hereto, which makes specific
reference to this Agreement.
14. Severability. The Company's various rights and remedies
referenced in this Agreement are cumulative and nonexclusive of one another, and
Executive's covenants and agreements contained herein are severable and
independent of one another. The existence of any claim by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to enforcement by the Company of any or all of such covenants or
agreements of Executive hereunder. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable by a court of competent
jurisdiction, it is the intention of the parties that the remaining provisions
shall constitute their agreement with respect to the subject matter hereof, and
all such remaining provisions shall continue in full force and effect.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officers, and Executive has
hereunder set his hand, as of the date first above written.
INTERFACE, INC.
By: /s/ Charles R. Eitel
---------------------------------
Charles R. Eitel, President and
Chief Operating Officer
Attest: /s/ Raymond S. Willoch
------------------------------
Raymond S. Willoch, Secretary
EXECUTIVE:
/s/ Ray C. Anderson
--------------------------------------
Ray C. Anderson
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 30, 1997, 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-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 164,911
<ALLOWANCES> 7,349
<INVENTORY> 152,956
<CURRENT-ASSETS> 343,353
<PP&E> 413,187
<DEPRECIATION> 202,223
<TOTAL-ASSETS> 854,775
<CURRENT-LIABILITIES> 155,024
<BONDS> 380,892
0
0
<COMMON> 2,698
<OTHER-SE> 292,758
<TOTAL-LIABILITY-AND-EQUITY> 854,775
<SALES> 257,345
<TOTAL-REVENUES> 257,345
<CGS> 174,432
<TOTAL-COSTS> 237,388
<OTHER-EXPENSES> 1,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,389
<INCOME-PRETAX> 10,414
<INCOME-TAX> 4,061
<INCOME-CONTINUING> 6,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,353
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
