XFRA:IF6N Interface Inc Quarterly Report 10-Q Filing - 4/1/2012

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Table of Contents

 

 

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 1, 2012

Commission File Number 001-33994

 

 

INTERFACE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

GEORGIA   58-1451243

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Shares outstanding of each of the registrant’s classes of common stock at May 6, 2012:

 

Class

 

Number of Shares

Common Stock, $.10 par value per share   65,961,892

 

 

 


Table of Contents

INTERFACE, INC.

INDEX

 

          PAGE  

PART I.

   FINANCIAL INFORMATION   
   Item 1.   

Financial Statements

     3   
     

Consolidated Condensed Balance Sheets – April 1, 2012 and January 1, 2012

     3   
     

Consolidated Condensed Statements of Operations - Three Months Ended April 1, 2012 and April  3, 2011

     4   
     

Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended April 1, 2012 and April 3, 2011

     5   
     

Consolidated Condensed Statements of Cash Flows – Three Months Ended April 1, 2012 and April  3, 2011

     6   
     

Notes to Consolidated Condensed Financial Statements

     7   
   Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18   
   Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     21   
   Item 4.   

Controls and Procedures

     22   

PART II.

   OTHER INFORMATION   
   Item 1.   

Legal Proceedings

     22   
   Item 1A.   

Risk Factors

     22   
   Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     23   
   Item 3.   

Defaults Upon Senior Securities

     23   
   Item 4.   

Removed and Reserved

     23   
   Item 5.   

Other Information

     23   
   Item 6.   

Exhibits

     23   


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(IN THOUSANDS)

 

     APRIL 1, 2012     JANUARY 1, 2012  
     (UNAUDITED)        

ASSETS

    

CURRENT ASSETS:

    

Cash and Cash Equivalents

     63,083        50,635   

Accounts Receivable, net

     126,649        156,170   

Inventories

     171,902        166,073   

Prepaid Expenses and Other Current Assets

     27,663        23,407   

Deferred Income Taxes

     12,336        9,699   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     401,633        405,984   

PROPERTY AND EQUIPMENT, less accumulated depreciation

     196,845        190,119   

DEFERRED TAX ASSET

     49,027        47,290   

GOODWILL

     76,497        74,557   

OTHER ASSETS

     55,768        54,322   
  

 

 

   

 

 

 

TOTAL ASSETS

     779,770        772,272   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Accounts Payable

     50,618        55,289   

Accrued Expenses

     104,277        93,884   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     154,895        149,173   

SENIOR NOTES

     283,050        283,030   

SENIOR SUBORDINATED NOTES

     11,477        11,477   

DEFERRED INCOME TAXES

     8,734        8,391   

OTHER

     38,346        39,162   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     496,502        491,233   

Commitments and Contingencies

    

SHAREHOLDERS’ EQUITY:

    

Preferred Stock

     —          —     

Common Stock

     6,594        6,548   

Additional Paid-In Capital

     363,841        361,400   

Accumulated Deficit

     (24,005     (16,764

Accumulated Other Comprehensive Income – Foreign Currency Translation Adjustment

     (26,009     (33,883

Accumulated Other Comprehensive Income – Pension Liability

     (37,153     (36,262
  

 

 

   

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

     283,268        281,039   
  

 

 

   

 

 

 
     779,770        772,272   
  

 

 

   

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

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Table of Contents

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

 

     THREE MONTHS ENDED  
     APRIL 1, 2012     APRIL 3, 2011  

NET SALES

   $ 232,760      $ 245,402   

Cost of Sales

     156,557        158,474   
  

 

 

   

 

 

 

GROSS PROFIT ON SALES

     76,203        86,928   

Selling, General and Administrative Expenses

     59,368        65,400   

Restructuring and Asset Impairment Charge

     16,316        —     
  

 

 

   

 

 

 

OPERATING INCOME

     519        21,528   

Interest Expense

     6,653        6,656   

Other Expense (Income)

     437        (122
  

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

     (6,571     14,994   

Income Tax Expense (Benefit)

     (637     5,170   
  

 

 

   

 

 

 

NET INCOME (LOSS)

   $ (5,934   $ 9,824   
  

 

 

   

 

 

 

Earnings (Loss) Per Share– Basic

   $ (0.09   $ 0.15   
  

 

 

   

 

 

 

Earnings (Loss) Per Share– Diluted

   $ (0.09   $ 0.15   
  

 

 

   

 

 

 

Common Shares Outstanding – Basic

     63,443        64,822   

Common Shares Outstanding – Diluted

     63,443        65,190   

See accompanying notes to consolidated condensed financial statements.

 

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Table of Contents

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN THOUSANDS)

 

     THREE MONTHS ENDED  
     APRIL 1, 2012     APRIL 3, 2011  

Net Income (Loss)

   $ (5,934   $ 9,824   

Other Comprehensive Income, Foreign Currency Translation

    

Adjustment and Pension Liability Adjustment

     6,983        8,266   
  

 

 

   

 

 

 

Comprehensive Income

   $ 1,049      $ 18,090   
  

 

 

   

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

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Table of Contents

INTERFACE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

     THREE MONTHS ENDED  
     APRIL 1, 2012     APRIL 3, 2011  

OPERATING ACTIVITIES:

    

Net income (loss)

   $ (5,934   $ 9,824   

Adjustments to reconcile income to cash provided by (used in) operating activities:

    

Depreciation and amortization

     6,246        5,321   

Stock compensation amortization expense

     1,298        7,261   

Deferred income taxes and other

     (3,276     766   

Working capital changes:

    

Accounts receivable

     31,890        6,583   

Inventories

     (3,766     (20,295

Prepaid expenses

     (4,263     (5,404

Accounts payable and accrued expenses

     2,131        (22,260
  

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     24,326        (18,204
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Capital expenditures

     (10,354     (10,307

Other

     (1,035     (1,450
  

 

 

   

 

 

 

CASH USED IN INVESTING ACTIVITIES

     (11,389     (11,757
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Proceeds from issuance of common stock

     131        1,468   

Dividends paid

     (1,307     (1,299

Other

     —          (107
  

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:

     (1,176     62   
  

 

 

   

 

 

 

Net cash provided by (used in) operating, investing and financing activities

     11,761        (29,899

Effect of exchange rate changes on cash

     687        348   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS:

    

Net change during the period

     12,448        (29,551

Balance at beginning of period

     50,635        69,236   
  

 

 

   

 

 

 

Balance at end of period

   $ 63,083      $ 39,685   
  

 

 

   

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

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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 (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 Company’s year-end financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended January 1, 2012, as filed with the Commission.

The financial information included in this report has been prepared by the Company, without audit. 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. The January 1, 2012 consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

As described below in Note 9, the Company has sold its Fabrics Group business segment. The results of operations and related disposal costs, gains and losses for this business are classified as discontinued operations, where applicable.

Certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2 – INVENTORIES

Inventories are summarized as follows:

 

     April 1, 2012      January 1, 2012  
     (In thousands)  

Finished Goods

   $ 101,993       $ 98,894   

Work in Process

     19,267         17,606   

Raw Materials

     50,642         49,573   
  

 

 

    

 

 

 
   $ 171,902       $ 166,073   
  

 

 

    

 

 

 

NOTE 3 – EARNINGS PER SHARE

The Company computes basic earnings per share (“EPS”) by dividing net income (loss), by the weighted-average common shares outstanding, including participating securities outstanding, during the period as discussed below. Diluted EPS reflects the potential dilution beyond shares for basic EPS that could occur if securities or other contracts to issue common stock were exercised, converted into common stock or resulted in the issuance of common stock that would have shared in the Company’s earnings.

 

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The Company includes all unvested stock awards which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number of shares outstanding in our basic and diluted EPS calculations when the inclusion of these shares would be dilutive. Unvested share-based awards of restricted stock are paid dividends equally with all other shares of common stock. As a result, the Company includes all outstanding restricted stock awards in the calculation of basic and diluted EPS when the Company is in an income position. Distributed earnings include common stock dividends and dividends earned on unvested share-based payment awards. Undistributed earnings represent earnings that were available for distribution but were not distributed. The following tables show distributed and undistributed earnings:

 

     Three Months Ended  
     April 1, 2012     April 3, 2011  

Earnings Per Share

    

Basic Earnings (Loss) Per Share Attributable to Common Stockholders:

    

Distributed Earnings

   $ (0.02   $ 0.02   

Undistributed Earnings

     (0.07     0.13   
  

 

 

   

 

 

 

Total

   $ (0.09   $ 0.15   
  

 

 

   

 

 

 

Diluted Earnings (Loss) Per Share Attributable to Common Stockholders:

    

Distributed Earnings

   $ (0.02   $ 0.02   

Undistributed Earnings

     (0.07     0.13   
  

 

 

   

 

 

 

Total

   $ (0.09   $ 0.15   
  

 

 

   

 

 

 

The following table presents net income (loss) that was attributable to participating securities.

 

     Three Months Ended  
     April 1, 2012      April 3, 2011  
     (In millions)  

Net Income (Loss)

     —           0.2   

The weighted average shares for basic and diluted EPS were as follows:

 

     Three Months Ended  
     April 1, 2012      April 3, 2011  
     (In thousands)  

Weighted Average Shares Outstanding

     63,443         63,246   

Participating Securities

     —           1,576   
  

 

 

    

 

 

 

Shares for Basic Earnings Per Share

     63,443         64,822   

Dilutive Effect of Stock Options

     —           368   
  

 

 

    

 

 

 

Shares for Diluted Earnings Per Share

     63,443         65,190   
  

 

 

    

 

 

 

For the three months ended April 1, 2012 and April 3, 2011, options to purchase 535,000 shares and 219,000 shares of common stock, respectively, were not included in the computation of diluted EPS as their impact would be anti-dilutive. For the three months ended April 1, 2012, 2,009,000 shares of participating securities were excluded from the computation of EPS as their impact would be anti-dilutive.

 

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NOTE 4 – SEGMENT INFORMATION

Based on the quantitative thresholds specified in applicable accounting standards, the Company has determined that it has two reportable segments: (1) the Modular Carpet segment, which includes its InterfaceFLOR, Heuga and FLOR modular carpet businesses, and (2) the Bentley Prince Street segment, which includes its Bentley Prince Street broadloom, modular carpet and area rug businesses. In 2007, the Company sold its former Fabrics Group business segment (see Note 9 for further information). Accordingly, the Company has included the operations of the former Fabrics Group segment in discontinued operations, where applicable.

The accounting policies of the operating segments are the same as those described in the Summary of Significant Accounting Policies contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012, as filed with the Commission. Segment amounts disclosed are prior to any elimination entries made in consolidation, except in the case of net sales, where intercompany sales have been eliminated. The chief operating decision maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of allocated corporate expenses, interest/other expense and income taxes. Corporate expenses are primarily comprised of corporate overhead expenses. Thus, operating income includes only the costs that are directly attributable to the operations of the individual segment. Assets not identifiable to any individual segment are corporate assets, which are primarily comprised of cash and cash equivalents, short-term investments, intangible assets and intercompany amounts, which are eliminated in consolidation.

Segment Disclosures

Summary information by segment follows:

 

     Modular Carpet      Bentley
Prince Street
    Total  
     (In thousands)  

Three Months Ended April 1, 2012

       

Net sales

   $ 210,016       $ 22,744      $ 232,760   

Depreciation and amortization

     6,361         537        6,898   

Operating income (loss)

     1,052         (564     488   

Three Months Ended April 3, 2011

       

Net sales

   $ 219,280       $ 26,122      $ 245,402   

Depreciation and amortization

     8,103         558        8,661   

Operating income (loss)

     25,334         (157     25,177   

A reconciliation of the Company’s total segment operating income, depreciation and amortization, and assets to the corresponding consolidated amounts follows:

 

     Three Months Ended  
     April 1, 2012      April 3, 2011  
     (In thousands)  

DEPRECIATION AND AMORTIZATION

     

Total segment depreciation and amortization

   $ 6,898       $ 8,661   

Corporate depreciation and amortization

     646         3,921   
  

 

 

    

 

 

 

Reported depreciation and amortization

   $ 7,544       $ 12,582   
  

 

 

    

 

 

 

OPERATING INCOME

     

Total segment operating income

   $ 488       $ 25,177   

Corporate expenses and other reconciling amounts

     31         (3,649
  

 

 

    

 

 

 

Reported operating income

   $ 519       $ 21,528   
  

 

 

    

 

 

 

 

     April 1, 2012      January 1, 2012  
     (In thousands)  

ASSETS

     

Total segment assets

   $ 654,177       $ 658,190   

Corporate assets and eliminations

     125,593         114,082   
  

 

 

    

 

 

 

Reported total assets

   $ 779,770       $ 772,272   
  

 

 

    

 

 

 

 

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NOTE 5 – LONG-TERM DEBT

7 5/8% Senior Notes

As of both April 1, 2012, and April 3, 2011, the Company had outstanding $275 million in 7 5/8% Senior Notes due 2018 (the “7 5/8% Senior Notes”). The estimated fair value of the 7 5/8% Senior Notes as of April 1, 2012, and April 3, 2011, based on then current market prices, was $296.7 million and $291.5 million, respectively.

11 3/8% Senior Secured Notes

As of April 1, 2012, and April 3, 2011, the Company had outstanding $8.0 million in 11 3/8% Senior Secured Notes due 2013 (the “11 3/8% Senior Secured Notes”). The estimated fair value of the 11 3/8% Senior Secured Notes as of both April 1, 2012, and April 3, 2011, based on then current market prices, was $8.1 million.

9.5% Senior Subordinated Notes

As of both April 1, 2012 and April 3, 2011, the Company had outstanding $11.5 million in 9.5% Senior Subordinated Notes due 2014 (the “9.5% Senior Subordinated Notes”). The estimated fair value of the 9.5% Senior Subordinated Notes as of both April 1, 2012 and April 3, 2011, based on then current market prices, was $11.5 million. On April 9, 2012, subsequent to the end of the first quarter of 2012, the Company redeemed all of the outstanding 9.5% Senior Subordinated Notes at a price equal to 100% of the principal amount of the notes, plus accrued interest through the redemption date.

Credit Facilities

The Company maintains a domestic revolving credit agreement (the “Facility”) that provides a maximum aggregate amount of $100 million of loans and letters of credit available to us at any one time (subject to a borrowing base) with an option for us to increase that maximum aggregate amount to $150 million (upon the satisfaction of certain conditions, and subject to a borrowing base). The Company is presently in compliance with all covenants under the Facility and anticipates that it will remain in compliance with the covenants for the foreseeable future. As of April 1, 2012, there were zero borrowings and $4.1 million in letters of credit outstanding under the Facility. As of April 1, 2012, the Company could have incurred $69.7 million of additional borrowings under the Facility.

Interface Europe B.V. (the Company’s modular carpet subsidiary based in the Netherlands) and certain of its subsidiaries maintain a Credit Agreement with The Royal Bank of Scotland N.V. (“RBS”). Under this Credit Agreement, RBS provides a credit facility, until further notice, for borrowings and bank guarantees of €20 million. As of April 1, 2012, there were no borrowings outstanding under this facility, and the Company could have incurred €20 million (approximately $26.6 million) of additional borrowings under the facility.

Other non-U.S. subsidiaries of the Company have an aggregate of the equivalent of $18.9 million of lines of credit available. As of April 1, 2012 there were no borrowings outstanding under these lines of credit.

NOTE 6 – STOCK-BASED COMPENSATION

Stock Option Awards

In accordance with accounting standards, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost will be recognized over the period in which the employee is required to provide the services – the requisite service period (usually the vesting period) – in exchange for the award. The grant date fair value for options and similar instruments will be estimated using option pricing models. Under accounting standards, the Company is required to select a valuation technique or option pricing model that meets the criteria as stated in the standard. The Company uses the Black-Scholes model. Accounting standards require that the Company estimate forfeitures for stock options and reduce compensation expense accordingly. The Company has reduced its stock compensation expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.

During the first three months of 2012 and 2011, the Company recognized stock option compensation costs of $0.2 million and $0.3 million, respectively. The remaining unrecognized compensation cost related to unvested awards at April 1, 2012, approximated $0.4 million, and the weighted average period of time over which this cost will be recognized is approximately one and one-half years.

 

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There were no stock options granted during the first three months of fiscal 2012 or 2011. The following table summarizes stock options outstanding as of April 1, 2012, as well as activity during the three months then ended:

 

     Shares      Weighted Average
Exercise Price
 

Outstanding at January 1, 2012

     592,500       $ 9.12   

Granted

     —           —     

Exercised

     23,500         5.59   

Forfeited or canceled

     34,000         11.72   
  

 

 

    

 

 

 

Outstanding at April 1, 2012

     535,000       $ 8.85   
  

 

 

    

 

 

 

Exercisable at April 1, 2012

     419,200       $ 7.80   
  

 

 

    

 

 

 

At April 1, 2012, the aggregate intrinsic value of in-the-money options outstanding and options exercisable was $2.7 million and $2.6 million, respectively (the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option).

Cash proceeds and intrinsic value related to total stock options exercised during the first three months of 2012 and 2011 are provided in the following table:

 

     Three Months Ended  
     April 1, 2012      April 3, 2011  
     (In thousands)  

Proceeds from stock options exercised

   $ 131       $ 1,468   

Intrinsic value of stock options exercised

   $ 179       $ 2,744   

The Company did not recognize any significant tax benefit with regard to stock options in either period presented.

Restricted Stock Awards

During the three months ended April 1, 2012 and April 3, 2011, the Company granted restricted stock awards for 557,500 and 468,000 shares of common stock. Awards of restricted stock (or a portion thereof) vest with respect to each recipient over a two to five-year period from the date of grant, provided the individual remains in the employment or service of the Company as of the vesting date. Additionally, awards (or a portion thereof) could vest earlier upon the attainment of certain performance criteria, in the event of a change in control of the Company, or upon involuntary termination without cause.

Compensation expense related to restricted stock grants was $1.3 million and $7.3 million for the three months ended April 1, 2012, and April 3, 2011, respectively. Accounting standards require that the Company estimate forfeitures for restricted stock and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate experience against this forfeiture rate going forward.

The following table summarizes restricted stock activity as of April 1, 2012, and during the three months then ended:

 

     Shares      Weighted Average
Grant Date
Fair Value
 

Outstanding at January 1, 2012

     1,749,000       $ 15.08   

Granted

     557,500         13.25   

Vested

     241,500         13.20   

Forfeited or canceled

     56,000         15.11   
  

 

 

    

 

 

 

Outstanding at April 1, 2012

     2,009,000       $ 14.80   
  

 

 

    

 

 

 

As of April 1, 2012, the unrecognized total compensation cost related to unvested restricted stock was $15.7 million. That cost is expected to be recognized by the end of 2015.

During the quarters ended April 1, 2012 and April 3, 2011, the Company recognized tax benefits of $0.2 million and $1.8 million, respectively, with regard to restricted stock.

 

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NOTE 7 – EMPLOYEE BENEFIT PLANS

The following tables provide the components of net periodic benefit cost for the three-month periods ended April 1, 2012, and April 3, 2011, respectively:

 

     Three Months Ended  

Defined Benefit Retirement Plan (Europe)

   April 1, 2012     April 3, 2011  
   (In thousands)  

Service cost

   $ 116      $ 71   

Interest cost

     2,544        2,838   

Expected return on assets

     (2,821     (2,934

Amortization of prior service costs

     13        21   

Recognized net actuarial (gains)/losses

     229        150   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 81      $ 146   
  

 

 

   

 

 

 

 

     Three Months Ended  

Salary Continuation Plan (SCP)

   April 1, 2012      April 3, 2011  
   (In thousands)  

Service cost

   $ 113       $ 98   

Interest cost

     254         284   

Amortization of transition obligation

     —           55   

Amortization of prior service cost

     12         12   

Amortization of (gain)/loss

     67         93   
  

 

 

    

 

 

 

Net periodic benefit cost

   $ 446       $ 542   
  

 

 

    

 

 

 

NOTE 8 – RESTRUCTURING CHARGES

2012 Restructuring Charge

In March of 2012, the Company committed to a new restructuring plan in its continuing efforts to reduce costs across its worldwide operations and more closely align its operations with reduced demand levels in certain markets. The plan primarily consists of ceasing manufacturing and warehousing operations at its facility in Shelf, England. In connection with this restructuring plan, the Company incurred a pre-tax restructuring and asset impairment charge in the first quarter of 2012 in an amount of $16.3 million. The expected charge is comprised of employee severance expenses of $5.4 million, other related exit costs of $1.6 million, and a charge for impairment of assets of approximately $9.3 million. Approximately $7 million of the charge will result in future cash expenditures, primarily severance expense. The restructuring plan is expected to be substantially completed in the second quarter of 2012.

A summary of these restructuring activities is presented below:

 

     Total
Restructuring
Charge
     Costs Incurred
in 2012
     Balance at
April 1,  2012
 
     (In thousands)  

Workforce Reduction

     5,356         377         4,979   

Fixed Asset Impairment

     9,364         9,364         —     

Other Related Exit Costs

     1,596         —           1,596   

 

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The table below details these restructuring activities by segment:

 

     Modular
Carpet
     Bentley
Prince  Street
     Corporate      Total  
     (In thousands)  

Total amounts expected to be incurred

   $ 16,316       $ —         $ —         $ 16,316   

Cumulative amounts incurred to date

     9,741         —           —           9,741   

Total amounts incurred in the three-month period ended April 1, 2012

     9,741         —           —           9,741   

2011 Restructuring Charge

In the fourth quarter of 2011, the Company committed to a restructuring plan intended to reduce costs across its worldwide operations and more closely align its operations with reduced demand in certain markets. As a result of this plan, the Company incurred pre-tax restructuring and asset impairment charges of $6.2 million in the fourth quarter of 2011. The majority of this charge ($5.4 million) relates to the severance of approximately 110 employees in Europe, Asia and the United States. The remainder of the charge ($0.8 million) relates to contract termination and fixed asset impairment costs. Approximately $5.4 million of this charge will result in cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed by the end of 2011.

A summary of these restructuring activities is presented below:

 

     Restructuring
Charge
     Costs Incurred
in 2011
     Costs Incurred
in 2012
     Balance at
April 1,  2012
 
     (In thousands)  

Workforce Reduction

     5,401         1,147         2,202         2,052   

Fixed Asset Impairment

     776         776         —           —     

The table below details these restructuring activities by segment:

 

     Modular
Carpet
     Bentley
Prince  Street
     Corporate      Total  
     (In thousands)  

Total amounts expected to be incurred

   $ 5,755       $ 422       $ —         $ 6,177   

Cumulative amounts incurred to date

     3,786         339         —           4,125   

Total amounts incurred in 2012

     2,143         59         —           2,202   

NOTE 9 – DISCONTINUED OPERATIONS

In 2007, the Company sold its Fabrics Group business segment. All activity related to this business has been included in discontinued operations, where applicable. Assets and liabilities of this business segment have been reported in assets and liabilities held for sale, where applicable.

Discontinued operations had no net sales and no net income or loss in either of the three-month periods ended April 1, 2012 and April 3, 2011.

NOTE 10 – SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest amounted to $0.8 million and $0.9 million for the three month periods ended April 1, 2012, and April 3, 2011, respectively. Income tax payments amounted to $3.0 million and $5.4 million for the three month periods ended April 1, 2012, and April 3, 2011, respectively.

 

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NOTE 11 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard regarding the performance of a company’s annual goodwill impairment evaluation. This standard allows companies to assess qualitative factors to determine if it is more likely than not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test. This standard is effective for fiscal years beginning after December 31, 2011. At this time, we do not expect adoption of this standard to have any significant impact on our consolidated financial statements.

In June 2011, the FASB amended an accounting standard regarding the presentation of comprehensive income. This amendment will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amended guidance, which must be applied retroactively, was to be effective for interim and annual periods ending after December 31, 2012, with earlier adoption permitted. In December of 2011, the FASB issued an amendment to this statement which defers the requirements of this standard. As this amendment only effects presentation, there is not expected to be any impact on the Company’s consolidated financial statements.

NOTE 12 – INCOME TAXES

Accounting standards require that all tax positions be analyzed using a two-step approach. The first step requires an entity to determine if a tax position is more-likely-than-not to be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, that is more-likely-than-not to be realized upon ultimate settlement. In the first three months of 2012, the Company increased its liability for unrecognized tax benefits by $0.2 million. As of April 1, 2012, the Company had accrued approximately $7.9 million for unrecognized tax benefits.

NOTE 13 – SHARE CONVERSION

On March 5, 2012, the number of issued and outstanding shares of Class B Common Stock constituted less than 10% of the aggregate number of issued and outstanding shares of the Company’s Class A Common Stock and Class B Common Stock (that is, on that date, 6,459,556 shares of an aggregate of 65,372,375 shares), as the cumulative result of varied transactions that caused the conversion of shares of Class B Common Stock into shares of Class A Common Stock. Accordingly, in accordance with the respective terms for the Class B Common Stock and the Class A Common Stock in Article V of the Company’s Articles of Incorporation (the “Articles”), the Class A Common Stock and Class B Common Stock are now, irrevocably from March 5, 2012, a single class of Common Stock in all respects, with no distinction whatsoever between the voting rights or any other rights and privileges of the holders of Class A Common Stock and the holders of Class B Common Stock. The Company intends to eliminate future uses of (or references to) the terms “Class A” and “Class B” in connection with the Common Stock, except for historical purposes or to facilitate transition by certain stock listing or administrative services organizations who are accustomed to the old designations for the Common Stock

NOTE 14 – SUPPLEMENTAL CONDENSED CONSOLIDATING GUARANTOR FINANCIAL STATEMENTS

The Guarantor Subsidiaries, which consist of the Company’s principal domestic subsidiaries, are guarantors of the Company’s 11 3/8% Senior Secured Notes due 2013, its 9.5% Senior Subordinated Notes due 2014, and its 7 5/8% Senior Notes due 2018. These guarantees are full and unconditional. The Supplemental Guarantor Financial Statements are presented herein pursuant to requirements of the Commission.

 

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INTERFACE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED APRIL 1, 2012

 

    GUARANTOR
SUBSIDIARIES
    NON-
GUARANTOR
SUBSIDIARIES
    INTERFACE,  INC.
(PARENT
CORPORATION)
    CONSOLIDATION
AND ELIMINATION
ENTRIES
    CONSOLIDATED
TOTALS
 
    (In thousands)  

Net sales

  $ 142,784      $ 120,655      $ —        $ (30,679   $ 232,760   

Cost of sales

    106,343        80,893        —          (30,679     156,557   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit on sales

    36,441        39,762        —          —          76,203   

Selling, general and administrative expenses

    26,819        27,605        4,944        —          59,368   

Restructuring and asset impairment

    1,143        15,173        —          —          16,316   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    8,479        (3,016     (4,944     —          519   

Interest/Other expense

    7,235        3,733        (3,878     —          7,090   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes on income and equity in income of subsidiaries

    1,244        (6,749     (1,066     —          (6,571

Income tax (benefit) expense

    121        (655     (103     —          (637

Equity in income (loss) of subsidiaries

    —          —          (4,971     4,971        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 1,123      $ (6,094   $ (5,934   $ 4,971      $ (5,934
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING BALANCE SHEET

APRIL 1, 2012

 

    GUARANTOR
SUBSIDIARIES
    NON-
GUARANTOR
SUBSIDIARIES
    INTERFACE,  INC.
(PARENT
CORPORATION)
    CONSOLIDATION
AND ELIMINATION
ENTRIES
    CONSOLIDATED
TOTALS
 
    (In thousands)  

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ 2,210      $ 37,652      $ 23,221      $ —        $ 63,083   

Accounts receivable

    50,728        75,356        565        —          126,649   

Inventories

    93,243        78,659        —          —          171,902   

Prepaids and deferred income taxes

    10,735        19,812        9,452        —          39,999   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    156,916        211,479        33,238        —          401,633   

Property and equipment less accumulated depreciation

    82,631        110,385        3,829        —          196,845   

Investment in subsidiaries

    278,561        185,088        118,132        (581,781     —     

Goodwill

    6,954        69,543        —          —          76,497   

Other assets

    5,691        10,952        88,152        —          104,795   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 530,753      $ 587,447      $ 243,351      $ (581,781   $ 779,770   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

         

Current liabilities

  $ 35,563      $ 91,973      $ 27,359      $ —        $ 154,895   

Senior notes and senior subordinated notes

    —          —          294,527        —          294,527   

Deferred income taxes

    188        11,413        (2,867     —          8,734   

Other

    8,514        1,902        27,930        —          38,346   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    44,265        105,288        346,949        —          496,502   

Redeemable preferred stock

    —          —          —          —          —     

Common stock

    94,145        102,199        6,594        (196,344     6,594   

Additional paid-in capital

    249,302        12,525        363,841        (261,827     363,841   

Retained earnings (deficit)

    144,740        419,616        (464,751     (123,610     (24,005

AOCI - Foreign currency translation adjustment

    (1,699     (17,507     (6,803     —          (26,009

AOCI - Pension liability

    —          (34,674     (2,479     —          (37,153
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 530,753      $ 587,447      $ 243,351      $ (581,781   $ 779,770   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS

ENDED APRIL 1, 2012

 

    GUARANTOR
SUBSIDIARIES
    NON-
GUARANTOR
SUBSIDIARIES
    INTERFACE,  INC.
(PARENT
CORPORATION)
    CONSOLIDATION
AND ELIMINATION
ENTRIES
    CONSOLIDATED
TOTALS
 
    (In thousands)  

Net cash provided by (used for) operating activities

  $ 7,438      $ (609   $ 14,460      $ 3,037      $ 24,326   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

         

Purchase of plant and equipment

    (3,447     (6,905     (2     —          (10,354

Other

    338        (2     (1,371     —          (1,035
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

    (3,109     (6,907     (1,373     —          (11,389
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

         

Proceeds from issuance of common stock

    —          —          131        —          131   

Other

    (3,220     8,607        (2,350     (3,037     —     

Dividends paid

    —          —          (1,307     —          (1,307
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

    (3,220     8,607        (3,526     (3,037     (1,176

Effect of exchange rate change on cash

    —          687        —          —          687   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash

    1,109        1,778        9,561        —          12,448   

Cash at beginning of period

    1,101        35,874        13,660        —          50,635   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at end of period

  $ 2,210      $ 37,652      $ 23,221      $ —        $ 63,083   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2012, under Item 7 of that Form 10-K. Our discussions here focus on our results during the quarter ended, or as of, April 1, 2012, and the comparable period of 2011 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that Form 10-K for more detailed and background information.

Forward-Looking Statements

This report contains statements which may constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with economic conditions in the commercial interiors industry as well as the risks and uncertainties discussed under the heading “Risk Factors” included in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012, which discussion is hereby incorporated by reference. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

2012 Restructuring Charge

In March of 2012, we committed to a new restructuring plan in our continuing efforts to reduce costs across our worldwide operations and more closely align our operations with reduced demand levels in certain markets. The plan primarily consists of ceasing manufacturing and warehousing operations at our facility in Shelf, England. In connection with this restructuring plan, we incurred a pre-tax restructuring and asset impairment charge in the first quarter of 2012 in an amount of $16.3 million. The expected charge is comprised of employee severance expenses of $5.4 million, other related exit costs of $1.6 million, and a charge for impairment of assets of approximately $9.3 million. Approximately $7 million of the charge will result in future cash expenditures, primarily severance expense. The restructuring plan is expected to be substantially completed in the second quarter of 2012, and is expected to yield annualized cost savings of approximately $9 million.

2011 Restructuring Charge

In the fourth quarter of 2011, we committed to a restructuring plan intended to reduce costs across our worldwide operations and more closely align our operations with reduced demand in certain markets. As a result of this plan, we incurred pre-tax restructuring and asset impairment charges of $6.2 million in the fourth quarter of 2011. The majority of this charge ($5.4 million) relates to the severance of approximately 110 employees in Europe, Asia and the United States. The remainder of the charge ($0.8 million) relates to contract termination and fixed asset impairment costs. Approximately $5.4 million of this charge will result in cash expenditures, primarily severance expenses. Actions and expenses related to this plan were substantially completed by the end of 2011.

Discontinued Operations

In 2007, we sold our Fabrics Group business segment. In accordance with applicable accounting standards, we have reported the results of operations for the former Fabrics Group business segment as “discontinued operations,” where applicable.

Our discontinued operations had no net sales and no net income or loss in either of the three-month periods ended April 1, 2012 and April 3, 2011.

 

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General

During the quarter ended April 1, 2012, we had net sales of $232.8 million, compared with net sales of $245.4 million in the first quarter last year. Fluctuations in currency exchange rates negatively impacted 2012 first quarter sales by 1% (approximately $3 million), compared with the prior year period.

During the first quarter of 2012, including the $16.3 million restructuring charge described above, we had a net loss of $5.9 million, or $0.09 per share, compared with net income of $9.8 million, or $0.15 per share, in the first quarter last year.

Results of Operations

The following table presents, as a percentage of net sales, certain items included in our Consolidated Condensed Statements of Operations for the three-month periods ended April 1, 2012, and April 3, 2011, respectively:

 

     Three Months Ended  
     April 1, 2012     April 3, 2011  

Net sales

     100.0     100.0

Cost of sales

     67.3        64.6   
  

 

 

   

 

 

 

Gross profit on sales

     32.7        35.4   

Selling, general and administrative expenses

     25.5        26.7   

Restructuring charge

     7.0        —     
  

 

 

   

 

 

 

Operating income

     0.2        8.8   

Interest/Other expense

     3.0        2.7   
  

 

 

   

 

 

 

Income (loss) before tax expense

     (2.8     6.1   

Income tax expense (benefit)

     (0.3     2.1   
  

 

 

   

 

 

 

Net income (loss)

     (2.5     4.0   
  

 

 

   

 

 

 

Below we provide information regarding net sales for each of our operating segments, and analyze those results for the three-month periods ended April 1, 2012, and April 3, 2011, respectively.

Net Sales by Business Segment

Net sales by operating segment and for our Company as a whole were as follows for the three-month periods ended April 1, 2012, and April 3, 2011, respectively:

 

     Three Months Ended      Percentage
Change
 

Net Sales By Segment

   04/01/12      04/03/11     
   (In thousands)         

Modular Carpet

   $ 210,016       $ 219,280         (4.2 %) 

Bentley Prince Street

     22,744         26,122         (12.9 %) 
  

 

 

    

 

 

    

 

 

 

Total

   $ 232,760       $ 245,402         (5.2 %) 
  

 

 

    

 

 

    

 

 

 

Modular Carpet Segment. For the quarter ended April 1, 2012, net sales for the Modular Carpet segment decreased $9.3 million (4.2%) versus the comparable period in 2011. On a geographic basic, in the Americas, sales were essentially level with the prior year period. Europe sales declined slightly in U.S. Dollars (down 3%) but were up 2% in local currencies. Asia-Pacific sales declined 17%. In the Americas, the corporate office market segment remained even versus the first quarter of 2011. The largest gaining segment in the Americas was residential (up 52%), largely due to the continued roll-out of our FLOR retail stores. In addition, the hospitality segment in the Americas experienced an increase of 40%. These increases were offset by declines in the government (down 20%) and healthcare (down 12%) market segments. In Europe, sales were down in all segments except for corporate office (up 3% in U.S. Dollars, 8% in local currency). The government segment in Europe experienced the greatest decline in sales (down 23% in U.S. dollars, 19% in local currencies). In Asia-Pacific, we experienced declines in all commercial market segments. The largest sales decline in Asia-Pacific was seen in the education market segment (down 63%) due to the curtailment of government stimulus programs that had been in place in 2011, particularly in Australia.

 

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Bentley Prince Street. For the quarter ended April 1, 2012, net sales for this segment decreased $3.4 million (12.9%) versus the comparable period in 2011. This decrease was led by a decline in the corporate office market of 13%, primarily due to the premium nature of Bentley Prince Street’s products vis-à-vis the uncertain macroeconomic environment. The government market segment (down 34%) as well as the hospitality market segment (down 47%) also contributed to the sales decline. These declines were somewhat offset by gains in the healthcare (up 21%) and education (up 7%) market segments.

Cost and Expenses

Company Consolidated. The following table presents, on a consolidated basis for our operations, our overall cost of sales and selling, general and administrative expenses for the three-month periods ended April 1, 2012, and April 3, 2011, respectively:

 

     Three Months Ended      Percentage
Change
 

Cost and Expenses

   04/01/12      04/03/11     
   (In thousands)         

Cost of sales

   $ 156,557       $ 158,474         (1.2 %) 

Selling, general and administrative expenses

     59,368         65,400         (9.2 %) 
  

 

 

    

 

 

    

 

 

 

Total

   $ 215,925       $ 223,874         (3.6 %) 
  

 

 

    

 

 

    

 

 

 

For the quarter ended April 1, 2012, our costs of sales decreased by $1.9 million (1.2%) versus the comparable period in the prior year. Currency negatively impacted cost of sales by approximately $2 million (1%) in the 2012 first quarter. Given this currency impact, the cost of sales in the first quarter of 2012 is essentially level with that of the 2011 first quarter. On a percentage of sales basis, however, cost of sales increased to 67.3% in the first three months of 2012 versus 64.6% in the corresponding period of 2011. The increase was due to (1) a 5-6% increase in raw materials prices for the first quarter of 2012 versus that of 2011, as well as (2) lower absorption of fixed manufacturing costs associated with lower production volumes. We expect improvement in costs of sales on a percentage of sales basis as the benefits of our recent restructuring actions (discussed above) are realized.

For the quarter ended April 1, 2012, our selling, general, and administrative expenses decreased $6.0 million (9.2%) versus the comparable period in 2011. Fluctuations in currency exchange rates accounted for approximately $1.0 million (1%) of the decline. The primary components of this decrease were (1) a $4.3 million reduction in administrative costs due to the lower levels of non-cash incentive compensation in the first three months of 2012 versus 2011 as well as the realization of savings from our 2011 restructuring actions (discussed above), and (2) a $0.5 million reduction in marketing costs. Due to these reductions, as a percentage of net sales, selling, general and administrative expenses improved to 25.5% for the first three months of 2012 versus 26.7% in the corresponding period of 2011.

Cost and Expenses by Segment. The following table presents the combined cost of sales and selling, general and administrative expenses for each of our operating segments:

 

Cost of Sales and Selling, General and

Administrative Expenses (Combined)

   Three Months Ended      Percentage
Change
 
   04/01/12      04/03/11     
   (In thousands)         

Modular Carpet

   $ 192,617       $ 193,395         (0.4 %) 

Bentley Prince Street

     23,308         26,279         (11.3 %) 

Corporate Expenses and Eliminations

     —           4,200         (100.0 %) 
  

 

 

    

 

 

    

 

 

 

Total

   $ 215,925       $ 223,874         (3.6 %) 
  

 

 

    

 

 

    

 

 

 

Interest Expense

For the three-month period ended April 1, 2012, interest expense remained level with the three-month period ended April 3, 2011 at $6.7 million. There were no significant changes in borrowings between the first quarter of 2012 and 2011.

 

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Liquidity and Capital Resources

General

At April 1, 2012, we had $63.1 million in cash. At that date, we had no borrowings and $4.1 million in letters of credit outstanding under our domestic revolving credit facility, and no borrowings outstanding under our European credit facility. As of April 1, 2012, we could have incurred $69.7 million of additional borrowings under our domestic revolving credit facility, and €20 million (approximately $26.6 million) of additional borrowings under our European credit facility. In addition, we could have incurred an additional $18.9 million of borrowings under our other credit facilities in place at other non-U.S. subsidiaries.

Analysis of Cash Flows

Our primary sources of cash during the three months ended April 1, 2012 were (1) $31.9 million due to a reduction of accounts receivable, and (2) $2.1 million due to an increase of accounts payable and accruals. Our primary uses of cash during this period were (1) $10.4 million for capital expenditures, (2) $4.3 million for increases in prepaids and other current assets, and (3) $3.8 million due to increased inventory levels.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our discussion below in this Item 3 is based upon the more detailed discussions of our market risk and related matters included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2012, under Item 7A of that Form 10-K. Our discussion here focuses on the quarter ended April 1, 2012, and any material changes from (or other important intervening developments since the time of) the information discussed in that Form 10-K. This discussion should be read in conjunction with that Form 10-K for more detailed and background information.

At April 1, 2012, we recognized a $7.9 million increase in our foreign currency translation adjustment account compared to January 1, 2012, primarily because of the weakening of the U.S dollar against certain foreign currencies.

Sensitivity Analysis. For purposes of specific risk analysis, we use sensitivity analysis to measure the impact that market risk may have on the fair values of our market sensitive instruments.

To perform sensitivity analysis, we assess the risk of loss in fair values associated with the impact of hypothetical changes in interest rates and foreign currency exchange rates on market sensitive instruments. The market value of instruments affected by interest rate and foreign currency exchange rate risk is computed based on the present value of future cash flows as impacted by the changes in the rates attributable to the market risk being measured. The discount rates used for the present value computations were selected based on market interest and foreign currency exchange rates in effect at April 1, 2012. The values that result from these computations are compared with the market values of these financial instruments at April 1, 2012. The differences in this comparison are the hypothetical gains or losses associated with each type of risk.

As of April 1, 2012, based on a hypothetical immediate 150 basis point increase in interest rates, with all other variables held constant, the market value of our fixed rate long-term debt would experience a net decrease of approximately $16.5 million. Conversely, a 150 basis point decrease in interest rates would result in a net increase in the market value of our fixed rate long-term debt of approximately $31.5 million.

As of April 1, 2012, a 10% decrease or increase in the levels of foreign currency exchange rates against the U.S. dollar, with all other variables held constant, would result in a decrease in the fair value of our financial instruments of $9.8 million or an increase in the fair value of our financial instruments of $8.0 million, respectively. As the impact of offsetting changes in the fair market value of our net foreign investments is not included in the sensitivity model, these results are not indicative of our actual exposure to foreign currency exchange risk.

 

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ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”), pursuant to Rule 13a-14(c) under the Act. Based on that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal proceedings in the ordinary course of business, none of which is required to be disclosed under this Item 1.

ITEM 1A. RISK FACTORS

The specific risk factor under the heading “The estate of our former Chairman currently has sufficient voting power to elect a majority of our Board of Directors,” set forth in Part I, Item IA in our Annual Report on Form 10-K for fiscal year 2011, is no longer applicable. For a discussion of risk factors, see that Item in our 2011 Form 10-K.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table contains information with respect to purchases made by or on behalf of the Company, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during our first quarter ended April 1, 2012:

 

Period(1)

   Total
Number
of  Shares
Purchased(2)
     Average
Price
Paid
Per Share(3)
     Total Number
of Shares Purchased
as Part of Publicly
Announced Plans or
Programs(4)
     Maximum Number
(or Approximate
Dollar Value)
of Shares that May
Yet Be Purchased
Under the Plans or
Programs(4)
 

January 2 – January 31, 2012

     15,490       $ 11.54         —           —     

February 1 – February 29, 2012

     44,774       $ 12.61         —           —     

March 1 – March 31, 2012

     —           —           —           —     

April 1, 2012

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     60,264       $ 12.33         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

The monthly periods identified above correspond to the Company’s fiscal first quarter of 2012, which commenced January 2, 2012 and ended April 1, 2012.

(2) 

The referenced shares were acquired by the Company from certain of our employees to satisfy income tax withholding obligations in connection with the vesting, in January and February 2012, of certain previous grants of restricted stock shares.

(3) 

The referenced price paid per share represents the fair market value of all shares acquired from employees on the date the shares vested, which is equal to the closing price of the Company’s Class A Common stock on the NASDAQ stock exchange on the day preceding the vesting date. The total represents the weighted average price paid per share.

(4)

We do not currently have a publicly announced stock repurchase program in place.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

The following exhibits are filed with this report:

 

EXHIBIT

NUMBER

  

DESCRIPTION OF EXHIBIT

  3.1    Restated Articles of Incorporation
31.1    Section 302 Certification of Chief Executive Officer.
31.2    Section 302 Certification of Chief Financial Officer.
32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  INTERFACE, INC.
Date: May 10, 2012   By:  

/s/    Patrick C. Lynch

    Patrick C. Lynch
    Senior Vice President
    (Principal Financial Officer)

 

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EXHIBIT INDEX

 

EXHIBIT

NUMBER

  

DESCRIPTION OF EXHIBIT

  3.1    Restated Articles of Incorporation
31.1    Section 302 Certification of Chief Executive Officer.
31.2    Section 302 Certification of Chief Financial Officer.
32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.

 

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